Given time, mutual fund schemes don’t get better and better

Megha Vora

It is always said that if you want to get the best out of equities and equity mutual funds invest for the long term. Private sector mutual funds were allowed in the game in 1993. So, we now have a track record of 18 years. (It is biased towards the funds that have survived. Nobody has a complete record of funds that have closed down.) We have done an analysis of funds which have been around since 1995. All these funds have gone through multiple cycles of bear, bull, volatile and stagnant cycles. They have had ample time to choose the correct stocks and show their performance over a long period.

The Sensex was 3,260 around March 1995 and it is at around 18,400 mid-March 2011. Thus, it has risen by 11% compounded in the last 16 years. How have the earliest funds done? Some 20 funds that were launched in 1995 have survived. Of these, 10 have outperformed their benchmarks. Among the top performers are Reliance Growth (28%), HDFC Equity Fund (23%), Franklin India Prima Plus (21%), Reliance Vision (23%), Franklin India Bluechip (19%), Birla Sun Life Advantage Fund (19%), ICICI Prudential Power (16%), HDFC Capital Builder Fund (15% and Franklin India Prima (21%).

Among the underperformers are four funds of UTI that have been consistently underperforming since inception. Of them, UTI Mastershare growth is the oldest. But Mastershare is more famous for the annual dividends that the fund has diligently paid out, during the Diwali festival. It's an illusion though; dividends come out of the own pockets of investors and the fund's net asset value (NAV) reduces by a similar margin. Mastershare has just given 7% return since inception, whereas its benchmark has given a return of 16%. Among the other underperfomers are UTI Equity Fund with a 9% return, UTI Masterplus Unit Scheme 91 (9%) and UTI Top 100 Fund with (6%).

JM Equity was launched in April 1995, that is around 16 years ago, and it has managed to give a return of 8% since inception. Whereas JM Basic Fund was launched in June 1997 and has fetched a return of just 1% as compared to its benchmark BSE 200 which has gained 14% over a period of 13 years.

SBI Magnum Equity Fund launched in January 1991 has fetched a return of just 7% over 20 years, whereas its benchmark earned a return of 16%. SBI Magnum Multiplier Plus 93 launched in February 1993 and SBI Magnum Global Fund 94 launched the following year, has managed returns on level with its benchmark with no extra return over an 18-year period. Taurus Bonanza Fund, launched in August 1995, earned a return of 10%.

Disclaimer: All our mutual fund analysis is based on the data purchased from Mutual Funds India database, controlled by rating agency Moody's of US. While the analysis is our own we cannot guarantee the that Mutual Funds India has reported the data correctly.