Mutual fund equity schemes have failed to make hay while the sun shines, again. After missing the stock market rally in the beginning of the year, fund managers couldn't make good on the double-digit rise in share indices last month, too.
After the government announced a rise in diesel prices, as well as other reform-related measures, two-thirds of equity schemes (excluding sector funds) underperformed the Bombay Stock Exchange 500 index. According to the statistics available from fund-tracking firm Value Research Online, between September 5 and October 3, of the 333 equity schemes, 227 funds gave returns of less than 10 per cent.
The dismal performance follows the Securities and Exchange Board of India expressing concern on the consistent poor performance of mutual fund schemes through many years, against their respective benchmarks.
Fund managers seem to have been hit hard by various decisions taken before the rally. For instance, in August, equity fund managers cut their exposure in bank stocks by a massive 110 basis points. And, the proportion of equity assets invested in pharmaceuticals and fast-moving consumer goods (defensive sectors) rose only 50 basis points and 100 basis points, respectively. However, through the last month, bank stocks were among the top gainers, while at a time when money flowed across the sector, defensive stocks did not rise much.
Waqar Naqvi, chief executive officer of Taurus Mutual Fund, says the mutual fund industry missed the stock rally. "It is true the industry could not fully participate in the current rally. It remained a net seller at a time when indices were inching higher."
So far this year, September registered the highest net sales by mutual fund houses. In September, equity fund managers sold equities worth Rs 3,200 crore, much higher than that recorded in the beginning of the year.
Naqvi, however, adds it is only a sentiment-driven rally and fundamentally, the situation remains the same. Puneet Chaddha, chief executive of HSBC Asset Management, agrees. "A mutual fund is a long-term product and should not be treated as a stock. No mutual fund scheme can beat the benchmarks at every point of time. Fund managers do not take a call with such a short-term horizon, as investments are positioned on the basis of fundamentals and outlook," he said.
According to a chief marketing officer at a large fund house, in September, investors took money off the table on every single rally and this did not let fund managers participate much. "Moreover, quick churning of investments involves costs that have to be borne by investors. Amid such a situation, fund managers prefer to be cautious," he said.
During the rally, equity schemes which saw the best performances, included HSBC Progressive Themes, Reliance Regular Savings Equity, HSBC Mid Cap Equity, HDFC Equity, Reliance Equity and HDFC Top 200. Templeton India Equity Fund, Fidelity India Growth, SBI Magnum Multicap, L&T Growth, L&T Mid Cap and Tata Pure Equity were among the worst performers.