Mutual fund equity schemes have performed much better relative to their benchmark indices when compared on a rolling return basis as against a particular day over a three- or five-year period.
For instance, only 29 per cent of the equity mutual funds have beaten the benchmark index over five years, while 62 per cent have done so on a daily rolling return basis, finds a Union Mutual Fund study.
Similarly, 41 per cent of the equity funds have beaten the benchmark if the net asset value of the funds is considered on September 30, 2018 and September 30, 2021 for ascertaining three-year performance. However, if the average return on each day for three years is considered, the funds beating the benchmark is high at 57 per cent.
Of over 250 trading days in a year, most public studies look at the performance on a single-date, say March 31 of this year, and the same date three years back to arrive at a fund’s performance.
Incorrect calculations
Based on this calculation, investors come to a conclusion that majority of the equity schemes have been unable to beat the benchmark. As investors can invest on any day of the year, taking a “single-date” and analysing the fund performance do not explain how the funds have performed throughout the years, said the study.
The performance of the fund could be impacted by abnormal events such as the Covid-led crash last March or the subsequent rally lasting till September, the study added.
Rolling return analysis eliminates these biases and provides a more reliable insight while appraising fund performance. The study also found that on an average, active funds have outperformed their respective benchmarks.
However, even on a rolling return basis, 38 per cent of equity funds over five years and 43 per cent over three years have failed to beat their benchmark leading to investors casting aspersions on mutual funds.