81% of largecap mutual funds failed to beat benchmarks in 2020

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NEW DELHI: Even as the domestic equity market rallied to fresh highs, a vast majority of active mutual fund schemes continued to underperform their respective benchmarks in calendar 2020, a report by S&P Dow Jones Indices said.

The S&P Indices Versus Active (SPIVA) India Scorecard for the period ending December 2020 reveals that 81 per cent of Indian equity largecap funds, 67 per cent of mid and smallcap and 65 per cent of ELSS funds underperformed their respective benchmark indices.

“During this recovery period we saw that the second half of 2020 has been a particularly challenging period for Indian equity active funds where 100 per cent of the largecap funds, 80 per cent of the ELSS funds and 53 per cent of the mid and smallcap funds underperformed their respective benchmarks,” said Akash Jain, Associate Director, Global Research & Design, S&P Dow Jones Indices.

In 2020, India joined markets across the world facing extraordinary volatility due to COVID-19. We saw a strong rebound that began at the start of the second quarter of 2020 and continued into the second half of the year, with the S&P BSE 100 finishing the six-month period up 36.48 per cent.

In the second half of 2020, the asset-weighted returns lagged their respective benchmark returns in each of the equity categories: largecap funds (by 273 bps), ELSS funds (by 318 bps) and mid and smallcap funds (by 230 bps), the report said.

Amid the dismal performance, equity funds also saw massive outflows, as per Amfi data. From July 2020 to February 2021, equity funds saw outflows as investors preferred to book profits.

Among all the categories evaluated in the SPIVA India Scorecard, the mid and smallcap category fared the best for active fund managers over a 10-year investment horizon. However, in the same timeframe, 68.42 per cent of actively managed largecap equity funds in India underperformed the benchmark.

The survivorship rate was low for both categories at 70.68 per cent and 71.43 per cent for largecap and mid and smallcap funds, respectively.