Hidden behind high returns, most funds failed to fully capitalise on the bull run in Indian markets last year.
Despite this outperformance in the benchmark amid a broad-based rally, 87% of small-cap funds and 86% of mid-cap funds failed to meet or beat their benchmark indices, according to an analysis done by NDTV Profit.
What stands out is that the mid-cap category consistently had the most number of funds failing to beat market returns in the underlying benchmark.
The Nifty Midcap 150 rose over 57% over a one-year period, while funds in the category have delivered returns spanning between 65% and 29%.
Even on a longer time scale of 10 years, picking at random, one would've had an 85% chance of picking a fund which failed to beat market returns.
Over a 10-year period, 17 of 20 mid-cap funds underperformed the benchmark, based on data available on the AMFI website.
Kaustubh Belapurkar, director of fund research at Morningstar, verified the validity of the analysis in an email exchange.
Motilal Oswal Midcap Fund was the sole exception in its category, as it beat benchmark returns consistently over each period.
The market has broadened since the pre-Covid decade, when it had been more polarised, according to Niket Shah, senior group vice president and fund manager at Motilal Oswal Asset Management Co.
"Since new themes have evolved, there has clearly been some deployment of capital these newer sectors have got post-Covid," he said.
He attributes mid-cap funds' notable underperformance last year to a low exposure to emerging themes like defence, railways, and public sector units.
Investing in a small-cap fund at random would have a 72% chance of picking a scheme that will outperform its benchmark index over a 10-year period.
While these figures are based on returns made by investments through the regular route (via app or brokerage), the direct route (from the fund house itself) would increase the odds of investing in a fund which beats its benchmark returns.
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