By evaluating the performance of 772 funds, this study seeks to examine whether fund managers add any value by their fund allocation decision. After selecting the securities for investment, fund managers need to decide as to how much to be invested in the selected securities. They can actively decide on how much to be invested or passively invest equal amount in the selected stocks. Using monthly portfolio details of equity-oriented mutual fund schemes, this study compares the return generated by the funds under active fund allocation and passive fund allocation, and finds that the active fund allocation strategy on an average records lower return to an extent of 0.18% per month compared to passive fund allocation strategy. The study concludes that there is no significant value addition by pursuing active fund allocation strategy and the results hold good for most of the fund houses, fund managers and funds categories.

Mutual funds play a major role in managing the savings of the investors. The Indian mutual fund industry started with the formation of Unit Trust of India (UTI) in 1963, which introduced Unit-1964 scheme in the following year. With the establishment of Securities and Exchange Board of India (SEBI) to regulate securities market, the industry was opened up for private sector in 1992. The government also announced a few tax concessions for investments in mutual funds. The concept of mutual fund then became an important component of household savings and a large number of funds were floated. The period 2000-2010 was the best for mutual funds as they saw huge inflow of funds from investors. The industry saw an inflow of 425,432 cr during this period against a total investment of 428,741 cr collected by mutual funds during the period 1970-2012. Over the years, the number of mutual funds and the funds under their management have also increased several times. As on June 2013, there are 1,007 equity-oriented mutual fund schemes managing funds worth 211,695 cr. Mutual funds perform two important tasks, viz., diversification benefits even when the investment is small and expertise in stock selection. Mutual funds also indirectly claim expert investment skills by advertising their performance.

Applied Finance Journal, Analysis, Active Fund Allocation Decision, Mutual Funds, Unit Trust of India (UTI), Securities and Exchange Board of India (SEBI), India.