Efficiency measurement of open-ended mutual fund schemes with respect to Indian mutual fund industry

Abstract

This paper investigates whether Indian mutual funds are performing efficiently and explores the corrective measures to improve their performance. It analyses 143 mutual fund schemes for 11 years through Data Envelopment Analysis (DEA) methodology by carrying out five DEA runs. Sharpe ratio and Jensen's alpha are the output and load fee, expense ratio, minimum initial investment needed and risk (β and α) are the inputs. Empirical analysis shows that fewer mutual fund schemes are performing efficiently and need to reduce their load and expense ratio. Also, maximum number of efficient schemes is of ELSS investment style followed by Income, Growth and Balance. DEA provides a set of peer group for each inefficient scheme and the targeted value of inputs has been computed. The present study is an exhaustive one and is useful for retail investors, mutual fund companies and policy makers.