After outperforming the Sensex for three years, fund managers are now feeling the heat as it is getting tougher to make money in the stock market.
In the past one year, the average return generated by the equity diversified funds stood at 75.75 per cent, lagging behind the Sensex which produced a return of 80.89 per cent during the same period.
Less than a third of the diversified equity funds in the country managed to beat the market barometer. Of a total 117 diversified equity funds, only 47 generated returns in excess of 81 per cent, according to data sourced from fund tracking firm, Value Research.
The fund managers' report card last year was significantly better with 92 per cent of funds beating the benchmark index.
Of the 87 diversified equity funds in operation then, 80 outpaced the Sensex and the Nifty, which gave 40 per cent over the previous year.
The main reason for the under-performance in the past one year is that active funds have been overweight on mid-cap stocks at a time when large-cap stocks have led the rally.
"Over the past six to eight months, mid-cap and small-cap stocks have lagged behind large-cap stocks and funds have had a greater weightage to mid-caps," said N Prasad, chief investments officer, Sundaram Mutual Fund.
Particularly, the two heavyweights in the Sensex, Reliance Industries and ONGC, had a spectacular run in the past year.
But most funds had relatively less weight than the Sensex in these stocks.
To add to their woes, several mutual funds launched their mid-cap offers last year, enthused by their performance in the previous year.
Many of these new launches have failed to keep pace. Reflecting this trend, the broadbased BSE 100 index gave a return of 75 per cent, pretty much what the funds delivered last year.
But, only 58 funds made it to this group. In other words, over half of actively managed diversified funds lagged behind the key indices.
"Bouts of under-performance is possible in an extended rally. Fund managers may always be able to switch gears in step with the changing market situations," said Abhay Aima, head, private banking, HDFC Bank.
Over the past one month too, actively managed equity funds have trailed the indices. While equity diversified funds gave a return of 3.45 per cent, the Sensex delivered 5.66 per cent and the Nifty 5.31 per cent. Index funds were better off with average returns of 5.16 per cent.
The top performing funds based on past year's returns were Sundaram Select mid-cap (112 per cent), Magnum Global (108 per cent), Magnum Multiplier Plus (107 per cent), Magnum Contra (104 per cent) and Prudential ICICI Dynamic (104 per cent).
Among the worst performing funds during the period were the four dividend yield funds from the Birlas, the Tatas and Principal, and two funds from UTI Mutual -- UTI India Advantage Equity and UTI PSU Fund. All these funds produced returns in a range of 40-45 per cent.
