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Alternative Investment Funds (AIFs) with a lock-in period performed better than the ones that allow investors to withdraw capital at any time.
Close-ended schemes had a median return of 5.62 per cent in December, according to data from industry tracker PMSBazaar.
The median returns for open-ended schemes were 3.91 per cent.
Both the Sensex and the Nifty 50 index hit new highs in December.
The analysis above looked at December annualised monthly returns for Category III AIFs.
It considered schemes across strategies including long-only funds which invest in the markets going up, and long-short funds which can bet on market direction either way.
An AIF is a sophisticated investment vehicle for the wealthy with a minimum investment of Rs 1 crore.
It comes in three categories.
The first invests in start-ups, social ventures, small businesses and infrastructure as per Securities and Exchange Board of India (Sebi) regulations.
Category II makes investments, including distressed debt, while Category III includes hedge funds which use complex strategies to beat the stock market.
Long-short (conservative) funds had lower returns than any other fund category at 1.44 per cent.
Though the long-only funds performed better with 5.62 per cent returns, it was still lower than the returns of the Sensex or the Nifty.
Several hedge funds' attempts to provide returns that are not subject to the same volatility as the broader market may result in underperformance during times of a bull market, according to analysts.
The market outlook remains optimistic amid healthy gross domestic product (GDP) growth and other positives, according to a Market Strategy 2024 note dated December 29 from ICICIdirect, the retail arm of ICICI Securities.
“There are green shoots in the form of continued corporate earnings momentum domestically, healthy GDP growth, benign commodity prices outlook as well as likely rate cut globally.
"Thus, there seem to be more positives than negatives ahead.
"Amidst this setup, India is in a sweet spot vis-a-vis global peers with macroeconomic stability and corporate earnings in sight…Our December 2024 target for Nifty is set at 25,000…(and)…corresponding Sensex target set as 83,250,” it said.
Earnings per share (EPS) growth is expected to be a tailwind for markets and has driven upside more than an expansion in valuation multiples such as the price-earnings (PE) ratio, according to a report from global financial services major Goldman Sachs.
The January 5 report titled ‘Asia-Pacific Portfolio Strategy’ is compiled by authors, including Sunil Koul, Timothy Moe, Amorita Goel, Alvin So, John Kwon and Mark Hung.
“India’s strong performance in 2023 was driven primarily by earnings accruals.
"MSCI India’s 20 per cent USD gain in 2023 was driven by an 18 per cent EPS change, a 2% forward PE change and about 1% INR depreciation vs USD.
"Earnings are the main driver for market returns over the long run…
"With economic growth still resilient in India, we continue to expect strong mid-teen earnings growth to drive index returns over coming years,” it said.
Some debt funds outperformed.
The comparable median return for Category II debt funds, which do not invest in equities, was 10.82 per cent.
