When active funds fail | Value Research Here's a list of active funds that have failed to beat or match the Nifty

When active funds fail

Here's a list of active funds that have failed to beat or match the Nifty

When active funds fail

Passive investing is a growing global trend. In several markets, passive funds tracking the benchmark index have beaten active funds consistently. India has not so far been one of them. But there some funds have fallen by the wayside, including ironically several index funds themselves as a result of tracking error.

In this article, we've looked at all these funds and not just large and multi-cap funds that are typically benchmarked against the Nifty. However, for a more nuanced view on how funds in that category have done, see the table below.

Proportion of underperformers in the large and multi-cap category

  3 yrs 5 yrs 10 yrs
All Large and Multicap Active Funds 112 88 71
Underperformers 7 4 11
Percentage 6% 5% 15%
*Data as on 19th May 2017

Decadal Face-off
Ten years is a good period for any fund manager to beat an index. We looked at the point to point returns of 145 funds over the 10-year period ended May 19, 2017. As many as 37 funds, including active and passive ones, failed to beat Nifty, which gained 8.37% annually in this 10 year period.

Notable active funds that failed to make the cut were Franklin Infotech Fund, Tata Infrastructure Fund, UTI Bluechip Flexicap Fund, LIC MF Growth Fund, SBI Magnum COMMA Fund, Taurus Bonanza Fund, and HDFC Large Cap Fund.

Infrastructure as a theme hasn't worked wonders for investors, and this is why quite a few infra funds are in this not-so-elite list. These include Taurus Infrastructure Fund, Sundaram Infrastructure Advantage Fund, HSBC Infrastructure Equity Fund, and UTI Infrastructure Fund.

The tech sector has fallen on bad times and hence SBI IT Fund, DSP BlackRock Technology.com Fund, and Birla Sun Life New Millennium Fund failed to beat Nifty in the last 10 years.

Thematic schemes like Principal Global Opportunities Fund, Birla Sun Life Global Real Estate Fund and Reliance Quant Plus Fund also find themselves on this list.

The list also includes some tax-saving plans like Birla Sun Life Tax Savings Fund, LIC MF Tax Plan, and Escorts Tax Plan.

Under-performance in various phases, wrong investment selection and out-of-favour sector focus has often led to their undoing.

In the last 5 years, Nifty has given quite a handsome 14.01% annual return. Out of 257 funds with a half a decade track-record, 46 could not beat the 50-stock NSE barometer. Let us see which are the ones that failed to meet the index. It is interesting to know that small and mid-cap funds topped the chart in these 5 years, with 20-30% annual return quite common among top performers.

The laggards include quite a few large-cap funds like Motilal Oswal MOSt Shares, HSBC Dynamic Fund and Reliance Quant Plus Fund

A raft international equity funds populated the under-performing active funds in last 5 years. Though Nifty is perhaps not the right benchmark for them given that these international equity funds invest in US, Europe and Asia, investors can assess the opportunity lost for sticking to overseas funds. In India, the Nifty gave 14%, but Birla Sun Life Global Commodities Fund, DSP BlackRock World Gold Fund, HSBC Brazil Fund, Kotak World Gold and DSP BlackRock World Mining Fund gave negative returns.

Global stocks funds that failed to match 5-year Nifty return also include the likes of DHFL Pramerica Global Agribusiness Offshore Fund, HSBC Emerging Markets Fund, Birla Sun Life Commodity Equities Fund - Global Agri Plan, Kotak Global Emerging Market Regular Plan, Edelweiss ASEAN Equity Off-shore Fund, Mirae Asset China Advantage Fund, Franklin Asian Equity Fund.

The recent past
We also looked at last 3 year period to assess which funds failed to do as well as the Nifty. Out of 288 funds, as many as 59 funds across active and funds faced this ignominy. Nifty gained 9.35% annually in the three-year period.

IDFC Equity Fund - Regular Plan, ICICI Prudential US Bluechip Equity Fund and DSP BlackRock Technology.com Fund - Regular Plan are some active funds that narrowly missed beating Nifty's performance in this period.

Infra, global/international, PSU bank, and IT themes did not work in the last 3 years. Many of these under-performers are also present in the 5-year dud list and are hence not repeated here.

Other Categories