The study measures the performance, on the parameters of `Stock Selection' and `Market-Timing' ability, of mutual fund managers, using Jensen's alpha and, Merton-Henriksson model, on a sample of 36 Indian mutual fund schemes, for the period January 2001 to September 2009, with S&P CNX Nifty as a benchmark. Findings suggest that, on an average, fund managers are not able to predict security prices well enough to outperform a buy-the-market-and-hold policy. There was very little evidence of any individual fund being able to do significantly better than expected from random chance. No evidence of curvature of the characteristic lines, indicating superior timing skill, is found for any of the funds.

During the last two decades or so, Indian mutual fund industry witnessed a major structural transformation and growth as a result of policy initiatives taken by the Government of India. In 1987, the government permitted public sector banks, Life Insurance Corporation (LIC) of India and General Insurance Corporation (GIC) to enter the mutual fund industry. Later, in 1993, the government also permitted private sector banks and asset management companies. Further, as a result of organizational restructuring of Unit Trust of India (UTI) in February 2003, the industry also witnessed another major development in the form of new UTI Mutual Fund confronting Securities and Exchange Board of India (SEBI) regulations. In addition, some schemes of the UTI were transferred to the new entity called Specified Undertaking of UTI. However, large private players like Reliance Asset Management Company, Franklin Templeton Asset Management Company, Birla Asset Management Company, Tata Asset Management Company, etc., are also playing a very significant role in driving the mutual fund industry in India.

Performance evaluation of mutual funds is an important area for financial economists. The assessment of fund managers' performance influences the investors to allocate their money into different mutual funds. It may directly or indirectly influence the compensation of fund managers. Evaluating funds' performance also helps in giving a concluding remark on the validation of strong form of efficient market hypothesis. Hence the topic catches the interest of many finance professionals.

Mutual funds are primarily vehicles for channelizing savings of small investors into financial markets. Given the vast size of the industry and its implications for financial markets, it is important to comprehensively evaluate the schemes offered by these mutual funds. The performance evaluation will bring to light whether mutual fund managers possess better security selection skills and positive market timing skills. From an academic perspective, the existence (and persistence) of mutual fund managerial ability will imply a rejection of the efficient market hypothesis. This study contributes to the literature by providing evidence on stock selection ability and market timing ability with regard to mutual funds performance in India.

Applied Finance Journal, Indian Mutual Fund Managers, Indian Mutual Fund Schemes, Life Insurance Corporation, LIC, Public Sector Banks, Asset Management Companies, Private Sector Banks, Reliance Asset Management Company, Mutual Fund Industry, Financial Markets, Performance Evaluation, Parametric Statistical Procedures, Merton-Henriksson Model.