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MUTUAL FUNDS NEWS
Markets flat yet fund performances fly
Thu, Apr 28, 2016
Source : Jeni Shukla, Citrus Interactive

Mutual funds are investment vehicles which allow investors to invest money which is then pooled and managed by an experienced and professional team of experts or ‘fund managers’. The fund managers of equity mutual funds invest in stocks as per the scheme objective.

We conducted a study which shows that on 5th June 2014 the Sensex reached close to 25,000 points and on 11th April 2016 it reached the same level again after reaching an all-time high level of 30,000 level on 29th January 2015. So within the 2 dates spanning almost 2 years, the market has given zero returns. We compared this to the returns generated by equity mutual funds. The results are nothing but startling.


MFs post double digit returns in a flattish market!

Mutual funds show an impressive performance in this period where the Sensex has remained flattish. The best performing equity fund has generated a mind boggling return of 78%! The average return of all equity funds is 14%. The following table summarises the return of each category compared to the comparable benchmark.

Category

Comparable Benchmark

Benchmark Return

MF Category Average

Large Cap

Sensex

0

12.1

Mid & Small Cap

S&P BSE Mid-Cap

19.6

33.9

Multi Cap

S&P BSE 500

6.1

16.3

Infrastructure

Nifty Infra

-24.1

4.5

Pharma

S&P BSE Health Care

49.5

57.2

IT

S&P BSE IT

33.4

35

Banking

S&P BSE BANKEX

             2.8

4

FMCG

S&P BSE FMCG

11.9

26.6

Returns are in % between 5th June’14 and 11th Apr’16 in absolute terms

Not only do the equity diversified funds (categorized into large, mid and multi cap) do better than the benchmarks, but the sector based funds also demonstrate a very high level of outperformance compared to their respective indices.

A look at the data also highlights the fact that the equity category is very wide and there is substantial difference among the performance of various sub-categories.

It is also worth noting that there is considerable divergence among the performance of various funds in a single category. For instance, the worst performing large cap fund gave a return of -11% while the best performing large cap fund gave 30% return. The range of mid cap fund performances varies between -3% and 78%!

Hence, investors should take the right guidance regarding portfolio construction so that the money is allocated in the sub-categories and equity schemes as per the time horizon and risk profile.

This study makes a strong case for investments into the equity markets via the Mutual Fund route. The skills and expertise of fund managers tends to create wealth for investors in the long run. Equally important is the role of the Financial Advisor in guiding the investor in selecting the right fund. If the fund is not properly selected and its performance is not regularly reviewed, no wealth will be created.

 
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