Sixty out of 154 mutual funds have underperformed their benchmarks by over 30 per cent or so in a year that saw the Bombay Stock Exchange's Sensex gain more than 40 per cent, according to mutual fund-tracking firm Value Research.

These 60 were big-margin underperformers; overall, 84 schemes underperformed benchmarks in this year's bull rally, reflecting bad investment strategies or poor stock selection by the fund managers.

The Sensex and BSE 200 have returned 43 and 47 per cent this year, respectively.

The saving grace for the Indian mutual fund industry is that the figure is better than 2006, when 85 per cent of funds lagged the Sensex.

Mutual fund regulations require each scheme to have a benchmark index to help investors figure out whether a particular scheme gives good returns because of the fund manager's investment abilities or good market conditions.

A mutual fund scheme is deemed to have done well if it beats the returns of its benchmark index.

Said Sanjeev Gopalakrishnan, senior vice-president (research and financial planning) of Bajaj Capital: "There could be many reasons for the underperformance of these funds. One is that they might have taken a larger number of stocks that are not part of their benchmark and those stocks have underperformed benchmark stocks."

"Many funds allocated a major part of their portfolios to mid-cap stocks. The rally this year has been mostly led by large caps especially Reliance [Get Quote]. There has been a lot of stock-specific action this year. This could be one reason some of these funds have missed the bus," said Dhirendra Kumar, CEO, ValueResearch Online.

But there are 20 funds that have generated 70 per cent and above this year, he added.

"If a blue chip fund has underperformed it is absolutely alarming. Investors should obviously take these factors into account before investing in a scheme," Kumar said.

Independent findings put the number of mutual fund investors in India at 3.4 million. Money parked with mutual funds forms just 3 to 4 per cent of total household savings in India.