With the world in the grip of a deadly financial crisis, Indian stock markets crashed in the fateful year of 2008. However did you know that there were about 74 equity funds that beat their benchmark that year? But in the following year i.e. 2009 when share prices rebounded, just 33 of those 74 (roughly 45%) managed to repeat the same feat. In mutual fund investing, generating consistent alpha (or excess return over benchmark) is the hallmark of a great fund. Whilst India has equity funds that beat their benchmarks and generate alpha over one phase of the market, few do it consistently over a decade.
For this analysis, we have taken point to point calendar year returns for every year starting from 2006 to 2015 (a decade). During this period, some years saw a modest rise in the markets, some witnessed huge gains, some were flattish, and finally some years saw market crashes. We studied year-by-year returns of 82 equity funds (spanning the large-cap, mid-cap, small-cap and multi-cap categories) that have a track record that goes back to 2006 to assess the ones that beat their benchmark consistently. We have considered regular plans since direct plans were only introduced in 2013. Also, the study excludes (by definition) funds which have shorter histories of out performance simply because they were launched later.
While a handful of funds have beaten their benchmarks for 8 out of the ten years we considered, it was difficult to find a fund that beat its benchmark in all of them. Large-cap Birla Sun Life Frontline Equity Fund is the sole fund in this league. It out-performed its target index S&P BSE 200 Index every single year between 2006 and 2015. In 2016 as well, this scheme surpassed its benchmark by 3.9% up to August-end.
ICICI Prudential Dynamic Fund, which falls in the multi-cap category, missed the super-elite status of 10/10. Nevertheless, to its credit, it has 9 years of out-performance (over Nifty 50 Index) in the last decade. It beat the index in every year except 2007. In that year, the scheme gained a respectable 40.77%, but the Nifty pipped it with a larger 54.76% gain.
Another '9 out of 10' scheme, is little-known Reliance NRI Equity Fund, which just like ICICI Prudential Dynamic Fund, out-performed S&P BSE 200 Index in all years except fateful 2007. Another fund in its company is SBI Magnum Multiplier Fund, which beat its benchmark S&P BSE 200 Index every year except 2009. That year it returned 87.44% but the benchmark gained 88.50%. Barring 2006, IDFC Premier Equity Fund is the last fund with a '9 on 10' record. The scheme has beaten its benchmark S&P BSE 500 Index from 2007 to 2015, but in 2006 it could not beat the target index's 38.85% return
There are roughly 17 equity funds that have beaten their respective benchmarks for at least 8 years out of the ten years studied.
In the large-cap space, Principal Large Cap Fund, DSP BlackRock Top 100 Equity Fund and Franklin India Bluechip Fund are the ones with an '8 on 10' record. Calendar year 2013 happens to be one year that all these large-cap funds failed to generate alpha. This was a year when markets did not move up much (6-9% gain across large-cap indices).
Five mid-cap funds have trounced their benchmarks for 8 out of ten years. The others in the '8 on 10' club are all multi-cap funds. These include DSP BlackRock Equity Fund, Franklin India Flexi Cap Fund, Kotak Opportunities, HDFC Equity Fund, Canara Robeco Equity Diversified Fund, ICICI Prudential Value Discovery Fund, HDFC Capital Builder Fund and UTI Equity Fund.
Equity funds with 7 years of out-performance over their respective benchmarks are the largest group in the study given the lower threshold. There are in total 23 schemes in this group. 3 of these are large cap schemes, 14 are multi-cap, 4 are mid-cap and 2 are small-cap schemes. The large caps include Birla Sun Life Top 100, Tata Large Cap Fund and UTI Mastershare Fund.
|Years of Outperformance in the last 10 years||Famous 5|
|10||Birla Sun Life Frontline Equity Fund|
|9||ICICI Prudential Dynamic Fund|
|9||Reliance NRI Equity Fund|
|9||SBI Magnum Multiplier Fund|
|9||IDFC Premier Equity Fund|