The Indian mutual fund industry has witnessed a structural transformation during the past few years.
Therefore, it becomes important to examine the performance of the industry in the changed environment.
This paper aims at evaluating the investment performance of select Indian mutual fund schemes during
the recent four-year period from April 1, 1999 to March 31, 2003. For this purpose, we have used weekly
returns based on NAV for 57 growth schemes. S&P CNX Nifty Index has been used as a proxy for
the market portfolio, while weekly yields on 91-day Treasury bills (T-bills) have been used as a surrogate
for risk-free rate of return. The investment performance has been studied in terms of five measures viz.,
(a) Rate of Returns Measure (b) Sharpe’s Ratio, (c) Treynor’s Ratio, (d) Jensen’s Differential Return
Measure, and (e) Fama’s Components of Investment Performance. The empirical results reported here
indicate mixed performance of sample funds during the study period. There is no conclusive evidence,
which suggests that performance of Indian mutual funds is superior to the market. However, there is some
evidence that some of the funds are performing better than the market. Further, we found that the sample
funds are not adequately diversified. However, the diversification level seems to have changed over time.
Thus, the results are similar to the ones reported earlier for the Indian market.
During the past one-and-a-half decade, the Indian mutual fund industry has witnessed a
major structural transformation and growth as a result of policy initiatives taken by the
Government of India to break the monolithic structure of the industry. In 1987, the
Government of India permitted public sector banks, Life Insurance Incorporation of India
(LIC) and General Insurance Corporation (GIC) to enter into the mutual fund industry.
Later, in 1993, the Government also permitted the private sector to enter into the mutual
fund business. Further, as a result of organizational restructuring of the Unit Trust of India
(UTI), in February 2003, the industry also witnessed another major development in the
form of new UTI Mutual Fund conforming to the Sebi Regulations. In addition, some
schemes of the UTI were transferred to the new entity called the Specified Undertaking
of the UTI. Thus, at present, the industry has four types of players viz., (a) UTI, (b) Public
Sector Banks, (c) Insurance Corporations and (d) the Private Sector. During this period,
the industry has also grown manifold in terms of size, operations, investor base, and the
availability of schemes to the investors as can be seen from Tables 1 and 2, which respectively
show the resources available, and the structure of the industry as on June 30, 2003.
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