InvestorQ : Is it true that the equity funds have not been doing as well as the Nifty index? Why is this happening?
ishika Banerjee made post

Is it true that the equity funds have not been doing as well as the Nifty index? Why is this happening?

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2 weeks ago
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There is an interesting piece of statistics that is emerging about passive investing. Most large cap mutual funds delivered 6-11% in the last 3 years as compared to much-better returns of 11-13% in the last 5 years. What exactly has changed in the last 2 years?

This is the outcome of something that popularly referred to as the Kurtosis effect. In this Kurtosis effect, funds are not able to participate in specific outperformance stories due to ownership limitations on account of SEBI imposed exposure limits on mutual funds.

The result is there to see. As many as 4 million SIP accounts have been terminated by customers in the last six months. Why is this happening? If you leave out the top 2-3 funds in the large cap funds category, most have done worse than the Nifty.

As a result, investors feel they would have been better off in index funds rather than taking the risk of active funds. Despite the sharp rally in the Nifty since March, YTD returns on large cap funds are less than 5%. That is the reason many investors are disillusioned.

In fact, Sampath Reddy the CIO of Bajaj Allianz managing close to Rs.60,000 crore, has pointed out that many small and medium sized investors are facing this challenge of what to do with their long term investments at a time when funds are consistently underperforming. The answer, as any advisor would tell you, lies only in asset allocation.

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