S&P Indices Versus Active (SPIVA) India report - 2019
TLDR: How do actively managed funds compare with index funds - review from SPIVA
I had previously posted about the S&P indices versus Active (SPIVA) funds previously here. That report was a review as of 2018. They have come up the version of their report for the Indian market as of 2019. You can download the report here or the key points below.
The market performance of the index funds as above. Pretty decent comparing how volatile the market has been.
This tables is probably the most interesting from the report. Let us stick with equity funds, which is the large cap and mid/small cap funds.
Large cap
Over a period of 10 years, less than 40% of funds outperform the BSE 100 index. So that might not sound too bad right? Most funds do not beat the index. But let us break this down further
SEBI enforced strict re-categorisation of funds only in 2018. I had previously written about how large cap funds were cheating the system earlier.
Survivor ship bias
Style consistency
Taken with all these factors, the possibility of you being able to choose a fund which
Among the top 40% which beats the index
Survives the 10 year period
Style consistency during that period
Is fairly small.
Mid Cap / Small Cap
There might be a more of a case to be made for mid and small cap funds where there is still information asymmetry between the retail investor and fund managers. There is a greater possibility that some fund managers are able to beat the index. The charts reflect that as well.
Even here I see that only 52% of the funds beat the index over a 10 year period. I suspect this is tilted more in favour of small caps than mid caps.
Conclusion
As the Indian market matures there is more of a case to be made that index funds with smaller expense ratios beat the active traded funds. I expect this case to be already true in the large cap space. Lesser so in the mid cap space and even lesser in the small cap space.
So my recommendation remains the same
UTI NIFTY - Giant cap
UTI NIFTY next 50 - Large Cap
Motilal Oswal mid cap 150 - Mid Cap
These 3 index funds should cover the top 250 companies in the market. You might choose actively traded small cap fund for now, until there is better price discovery and information symmetry in that space before passive investing beats small cap index.
Happy Investing.
