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Performance Benchmark

Most actively-managed equity funds do better than benchmarks over various time periods…

In finance, returns in isolation is a useless piece of information. However, when the same return is viewed in comparison to the benchmark, it provides a somewhat meaningful picture of how the returns compare. In context, however, returns compared to benchmark at various time intersections offer financial analysts an excellent performance picture and the trends that are developing.

We looked at the performance of diversified equity funds across different categories based on the Value Research fund classification over 1 year, 3 year and 5 year time frames as on September 10, 2012. The results are spectacular, with funds across categories outperforming their respective benchmarks on most occasions.


The assumption that funds fared well is based on the fact that over 50 per cent funds in a category have done better than their benchmarks barring instances when over a 5-year period less than 50 per cent large-cap category did well, as was the case in the past year for multi-cap funds. However, this inference is not completely accurate or foolproof.

As the Value Research equity fund classification is based on the allocation of assets in large-cap companies over the past three years, the performance is bound to vary depending on the way the stock markets fare. Moreover, performance also depends on the benchmark constituent. For instance, HDFC Top 200 posted an annualised 9.02 per cent return over the past 5 years. This may appear unimpressive, considering the double-digit returns offered by banks. However, the category average return for the same period is 3.98 per cent or that of the Sensex is 2.64 per cent. The performance of HDFC Top 200 does stand out.

Although fund performance is an important parameter, investors should evaluate the performance relative to its peers, benchmark and the overall state of the markets.