Performance Evaluation of Mutual Funds Using Risk Return Relationship Models - An Empirical Study

Abstract

Purpose: The main purpose of this study is to analyse the performance of mutual funds using Risk- Return Relationship Models. Theoretical framework: One of India's most important financial intermediaries, mutual funds can provide a wide range of financial services to small and large investors. They are also involved in the country's transformation, and their market participation has become more important. Evaluating a mutual fund's performance concerns investors, researchers, and fund managers. It should be conducted in a way that helps investors make informed decisions and maximize returns. A regular evaluation of a fund's performance is also essential for investors. Design/methodology/approach: The performance of 12 growth-oriented mutual funds has been evaluated using three Risk Adjusted performance measures, namely the Treynor index, Sharpe index, and Jensen measure. Treynor Index, developed by Treynor and Mazuy (1966), defined the measure as the ratio of returns to systematic Risk (Beta). The higher the ratio better the performance. Sharpe Index, developed by Sharpe (1964) defined as the ratio of returns to the variability of returns. Jensen's measure (Jensen 1968) regresses excess fund return with the excess market return. Monthly data was used during the period from Jan 2015 to Dec 2019. Further monthly returns of 12 diversified Equity mutual funds were compared with the returns of the B.S.E.( Bombay Stock Exchange) national index during the same period. Findings: It is identified from the results that the mutual funds have not performed better than their benchmark indicators except the ICICI Multi-asset fund and HDFC mid-cap opportunity fund in terms of a non-risk adjusted measure of the average returns as well as in terms of Risk-adjusted performance measures. Research, Practical & Social implications: Fund houses, Fund managers, researchers, and mutual fund investors can benefit more from a strong risk management foundation. It can help them make informed decisions and maximize their returns. Originality/value: This study differs from past studies because it examined the risk-adjusted performance of a few mutual funds, which ultimately may use by investors and policymakers to enhance the returns in these funds.