In March, the performance of open-ended equity funds took a noticeable downturn, with fewer funds managing to outperform their respective benchmarks. Data from PL Capital revealed that only 38.64% of 298 open-ended equity diversified funds succeeded in beating their benchmarks last month, a significant decrease from 54.08% in February, marking a 16% drop in performance.
Insights from Investment Experts
Pankaj Shreshtha, the head of investment services at PL Capital, pointed out that the March market rally was primarily driven by a select few stocks that excelled, while many others struggled. This disparity has raised questions about the effectiveness of active fund management.
Pranav Haldea, Managing Director of PRIME Database Group, echoed these concerns, noting that fund managers worldwide, including in India, have been facing challenges in consistently outperforming benchmarks. This trend is contributing to a significant rise in the assets under management (AUM) of passive funds, suggesting that investors may increasingly favor index funds over actively managed options.
Performance Data and Trends
Recent figures highlight that 57.56% of 271 open-ended equity diversified funds managed to outperform their benchmarks in the previous fiscal year. This is down from 67.02% who achieved benchmark-beating returns in the year leading up to February.
- Nifty 50: Up 6.31% in March
- Nifty 500: Gained 7.35%
- Nifty Midcap 150: Increased by 7.73%
- Nifty Smallcap 250: Advanced 9.1%
Over the past year, these indices registered gains ranging from 6% to 8.2%.
Moreover, the overall AUM of passive funds, which includes index and exchange-traded funds, surged to Rs 11.22 lakh crore in March, up from Rs 10.51 lakh crore in February and Rs 9.38 lakh crore in April 2024. Additionally, the number of new fund offers climbed to 21 in March, a marked increase from just 5 in January.
Investment Recommendations
Shreshtha advises new investors to consider index funds, while those with more knowledge might successfully navigate actively managed funds. He specifically mentioned that the flexicap category and large-cap funds could be promising areas for investment.
Juzer Gabajiwala, Director at Ventura Securities, emphasized that for investors seeking alpha, or higher returns, actively managed funds are the way to go. Conversely, for those aiming for returns aligned with the broader market, passive funds are a suitable choice.
As market dynamics shift, investors must stay informed to make the best decisions for their portfolios.
