SUMMARY
- S&P Dow Jones Indices has been the de facto scorekeeper of the ongoing active versus passive debate since the first publication of the S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard in 2002. Over the years, we have built on our experience publishing the report by expanding scorecard coverage into Australia, Canada, Europe, India, Japan, Latin America, and South Africa.
- The SPIVA India Scorecard compares the performance of actively managed Indian mutual funds with their respective benchmark indices over 1-, 3-, 5-, and 10-year investment horizons. In this scorecard, we studied the performance of three categories of actively managed equity funds and two categories of actively managed bond funds over the 1-, 3-, 5-, and 10-year periods ending in June 2018.
- Since the turn of the year, the Indian market has weathered headwinds, tackling a depreciating Indian rupee and a deteriorating current account deficit partially on account of sticky oil prices. It also witnessed notable developments such as the introduction of the long-term capital gains tax in the last annual budget and the style recategorization mandates for funds domiciled in India.
- The first half of 2018 witnessed a stark spread in the performance of size indices, with a higher proportion of capital chasing large-cap stocks. The S&P BSE 100, the benchmark for Indian Equity Large-Cap funds, ended flat at 0.34% during this period, whereas the S&P BSE 400 MidSmallCap Index, the benchmark for Indian Equity Mid-/SmallCap funds, was down 12.74% during the same period.
- Indian Equity Large-Cap Funds: The S&P BSE 100 ended in the oneyear period in black, returning 12.94%, with 88% of funds underperforming the benchmark. Over the 3-, and 10-year periods ending in June 2018, 78% and 63% of large-cap equity funds underperformed the S&P BSE 100, respectively. Large-cap funds witnessed low style consistency over the 1-year period, at 42%, and a low survivorship rate of 68% over the 10-year period. The assetweighted fund return was 51 bps higher than the equal-weighted fund return over the 10-year period, and the return spread between the first and the third quartile break points of the fund performance was 3.62% for the same period.
- Indian Equity-Linked Saving Schemes (ELSS): Over the one-year period ending June 2018, the S&P BSE 200 returned 12.43%. Over the 5- and 10-year periods ending in June 2018, the majority of funds outperformed the benchmark, but over the 1- and 3-year periods, 84% and 62% of the funds underperformed the benchmark. The asset-weighted fund return was 40 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 3.8%.
- Indian Mid-/Small-Cap Equity Funds: To align more closely with the style reclassification, the benchmark in this category was changed to the S&P BSE 400 MidSmallCap Index. The benchmark gained 6.08% in the one-year period ending June 2018. Across all the periods studied, the majority of the actively managed mid-/small-cap equity funds in India underperformed the benchmark. Over the 10-year period studied, the survivorship rate and style consistency were low, at 67% and 27%, respectively. For the same period, the asset-weighted fund return was 30 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 5.10%.
- Indian Government Bond Funds: The S&P BSE Indian Government Bond Index returned 1.18% over the one-year period ending June 2018. Over the 1-, 3-, 5-, and 10-year periods, 83%, 75%, 82%, and 95% of the actively managed funds in this peer group underperformed the benchmark, respectively. Over the 10-year period ending in June 2018, survivorship rate and style consistency were at 32% and 29%, respectively. For the same period, the asset-weighted fund return was 50 bps higher than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 1.29%.
- Indian Composite Bond Funds: In the 12 months leading up to June 2018, the S&P BSE India Bond Index closed in the black, with a gain of 1.71%. Over the 1-, 3-, 5-, and 10-year periods ending in June 2018, 30%, 60%, 69%, and 95% of the actively managed funds in this category lagged the benchmark, respectively. Over the 10-year period, survivorship rate and style consistency were at 67% and 54%, respectively. For the same period, the asset-weighted fund return was 2 bps lower than the equal-weighted fund return, and the return spread between the first and the third quartile break points of the fund performance was 1.47%.
- Average Fund Returns: In the one-year period ending in June 2018, both equal- and assetweighted returns of all the equity categories and Indian Government Bond category were sharply lower than their respective benchmarks. In contrast, only the Indian Composite Bond category delivered higher returns, in terms of equal- and asset-weighted average returns, than its respective benchmark over the same period. Over the 10-year period, the largest outperformance relative to its benchmark was witnessed in the Indian ELSS fund category, where asset-weighted returns were 1.35% higher than the benchmark.
