Why do so many mutual funds underperform their benchmark?

The fact that the market surge has been driven by rally in a narrow set of stocks could be the reason why many funds have underperformed the benchmark. Large cap funds and multi cap funds had the most number of schemes underperforming the benchmark, followed by mid cap funds.

What percentage of mutual funds beat the S&P 500?

For 2020, 60\% of actively managed stock funds underperformed the S&P 500. The situation was worse with active bond funds, where 90\% failed to clear their benchmark. If it’s an equity fund, the answer to beating the market has been to invest in growth stocks.

Do mutual funds beat the S&P 500?

A good growth stock mutual fund outperforms an index fund. From 2009 to 2019, the S&P 500 return was just under 14\%. Even in a bull market year like 2019, the S&P 500 return was a little better than 31\% while the best growth stock mutual funds were returning more than 40\%.

What can you do with an underperforming mutual fund?

Switch: Dump the fund if it has been a consistent underperformer over the last three years. Redeem the sectoral funds if the sectors they are invested in are cyclical in nature and are going through a rough patch. Often, the sectoral funds take too long to recover from the downturn.

Do index funds outperform actively managed funds?

Index funds, at their best, offer a low-cost way for investors to track popular stock and bond market indexes. In many cases, index funds outperform the majority of actively managed mutual funds.

Is there a better index than S&P 500?

The iShares MSCI China ETF (NASDAQ:MCHI), which more or less mirrors China’s equivalent to the S&P 500, vastly outperformed the S&P 500 in 2020 with a total return of 28.89\%. Its expense ratio is 0.59\%, which, according to ETF.com, is slightly lower than the average of 0.70\% for a China ETF.