Composite Portfolio Performance: An Investigation into Indian Mutual Funds

Jump To References Section

Authors

  • Alliance University School of Business, Bangalore ,IN
  • Alliance University School of Business, Bangalore ,IN

DOI:

https://doi.org/10.18311/sdmimd/2014/2670

Keywords:

Portfolio Performance, Net Selectivity, Portfolio Beta, Portfolio Standard Deviation, Portfolio Alpha
Budgeting

Abstract

Earlier in the 1960s, though they were aware of the concept of risk, the portfolio managers did not know as to how to measure and hence their performance was measured only in terms of rate of return. Though quite a few measures were developed in 1960s, it was Friend, Blume and Crockett who developed a mechanism to group portfolios into similar risk class. This in fact helped the portfolio managers to compare the performance of various funds more meaningfully in terms of risk-return relationship. Keeping the importance of two sides of investment coin: the Risk and the Return, we, in this paper attempted to analyze the performance of equity linked and diversified funds. We also tested if the portfolio managers' stock selection ability enhanced the performance. We have used measures like Treynor's, Sharpe's, Jensen's Alpha, the Information Ratio and Net Selectivity. Using these measures, we attempted to find out if the portfolio managers could generate above-average rate of return for a given risk class. The sample comprised equity linked savings and diversified funds in Indian context. The analysis was done on quarterly, half yearly, yearly and five yearly basis for each fund. This facilitated us to identify if the time factor played a role in the performance of a given fund. The results revealed that the performance of the fund managers primarily depended on the type of measure. While the fund(s) performed better according to a given method, than that of others in a given risk class, it was vice versa according to other measures. This reveals that the selection of performance measure matters a lot while assessing the performance of a fund. Analysis of Variance (ANOVA) revealed that the performance of a fund depended on time factor also. The results of our study carry very significant implications with respect to portfolio performance analysis.

Downloads

Download data is not yet available.

Metrics

Metrics Loading ...

Downloads

Published

2014-04-03

How to Cite

Janaki Ramudu, P., & Kumar, K. (2014). Composite Portfolio Performance: An Investigation into Indian Mutual Funds. SDMIMD Journal of Management, 5(1), 45–73. https://doi.org/10.18311/sdmimd/2014/2670

Issue

Section

Articles

 

References

Ang, J. S., Chen, C. R., & Lin, J. W. (1998). Mutual fund managers' efforts and performance. Journal of Investing, 7, 68–75.

Barron, J. M., & Ni, J. (2013). Morningstar ratings and mutual fund manager turnover. Journal of Applied Finance, 23, 95–110.

Chang, E. C., & Lewellen, W. G. (1984). Market timing and mutual fund investment performance. The Journal of Business, 57,57–72.

Chopra, M. P. (2011). Do Indian mutual fund managers select the stock and time the market correctly? IUP Journal of Applied Finance, 17, 77–86.

Cuthbertson, K., Nitzsche, D., & O'Sullivan, N. (2012). False discovery in uk mutual fund performance. European Financial Management, 18, 444–463.

Davis, J. L. (2001). Mutual Fund performance and manager style. Financial Analysts Journal, 57, 19–27.

Goodwin, T. H. (1998). The information ratio. Financial Analysts Journal, 54, 34–43.

Graham, J. R., & Harvey, C. R. (1994). Market timing ability and volatility implied in investment advisors' asset allocation recommendations. National Bureau of Economic Research Working Paper 4890.

Grossman, S., & Stiglitz, J. (1980), On the impossibility of informationally efficient markets. American Economic Review, 70. 393–408.

Huang, J., Sialm, C., & Zhang, H. (2011). Risk shifting and mutual fund performance, Review of Financial Studies, 24, 2575–2616.

Indro D. C., Jiang, C. X., Hu, M. Y., & Lee, W. Y. (1998). Mutual fund performance: a question of style, Journal of Investing, 7, 46–53.

Ippoliti, A. R. (1993). On studies of mutual fund performance. Financial Analysts Journal 49, 42.

Kent, D., Grinblatt, M., Titman, S. & Wermers, R. (1997). Measuring mutual fund performance with characteristic-based benchmarks. The Journal of Finance, 52, 1035–1058.

Kumar, R. (2012). Market timing, selectivity and mutual fund performance: an empirical investigation of selective equity diversified schemes in India. IUP Journal of Financial Economics, 10, 62–84.

Patil, S. R., & Rao, P. (2011). An empirical study on performance of mutual fund in India. Journal of Contemporary Research in Management 6, 91–103.

Rao U. (2000). Market timing and mutual fund performance. American Business Review, 18, 75–79.

Sharpe, W. F. (1966). Mutual fund performance. Journal of Business 39, 119–138.

Treynor, J. L. (1966). How to rate management investment funds. Harvard Business Review, 43, 63–75.

Treynor, J. L., & Black, F. (1973). How to use security analysis to improve security selection. Journal of Business, 46, 66–86.

Vos W. (1997). Measuring mutual fund performance. Canadian Investment Review, 10, 33.