Mutual funds are innovative and provide value-addition in personal finance. Problems occur when a choice has to be made from the large number of mutual funds. Much of the research effort has been concentrated on studying the mutual fund selection on the basis of performance and persistence. There is very little research on the construction of mutual fund portfolio. The present study seeks to fill this gap. The study uses the cluster method, taking industry concentration as a variable to construct the portfolio. The performance of two types of portfolios has been compared with selected benchmarks, selected according to the prevalent modes of mutual fund purchase. Results are found to be encouraging, as far as risk mitigation is concerned. This study is also expected to help in the construction of funds.

Mutual fund is one of the financial innovations, which has really helped the small investor to participate in the booming capital markets and to earn wealth. Any small investor is able to now place his bets on the market of any asset, through mutual funds. These days, mutual funds have become the flavor of the season. These funds not only provide reasonable returns, as compared to their benchmarks, but also provide value-additions, making the investor’s experience more satisfying. The banking sector may boast of assets, which are many times more than the assets under mutual funds, but it is equally true that there is increasing preference towards mutual funds. Since 2000, the mutual fund industry in India, in terms of collections, has been growing at the rate of 17 percent per annum (Rao and Mishra, 2007). According to Nayak (2007), the total assets under management, as on March 31, 2007, were Rs. 328,745 cr. At present, there are 32 asset management companies managing assets of 4,206 schemes (Anonymous, 2007). As a percentage of GDP, assets under management of funds are about 9.5 percent, as against up to 60 percent in developed countries. As many as 16 international fund houses like Sumitomo, Nikko, Shinsei, Nippon Life, Goldman Sachs, Mirae, etc., are waiting to open shops in India, seeing the potential of Indian capital markets in general, and mutual funds in particular (Adjania, 2007).

Due to the phenomenal growth in the mutual fund industry, an increasing number of investment companies are offering a range of funds. Although the number of funds in India is small, as compared to developed markets like the US, the rate of growth is high. Still, Indian Assets Management Companies (AMCs) offer a huge variety and the biggest question is—given the variety, how does an investor choose a product? What are the factors that the investor looks for, while selecting the scheme or fund? In deciding about mutual fund portfolio— which funds to choose? These are some questions which are of interest to both the practitioners and the academicians.

Mutual Fund Portfolio Creation, Industry Concentration, Assets Management Companies, AMCs, Net Asset Value, NAV, Equity Linked Saving Schemes, ELSS, RETPORT, RISKPORT, ELSS category, index-based, top-performing, performance persistence .