Mutual Fund Industry Research Articles

INVESTORS AWARENESS AND PERCEPTION TOWARDS MUTUAL FUND INVESTMENT:AN EXPLORATORY STUDY

Mutual Fund as an investment option gives a platform to risk averse investors who do not prefer to take high risk on their hard earned money. In India, Mutual Fund Industry is growing at a rapid pace and has emerged as a vital segment of the financial markets, specifically in channelizing and mobilizing the financial savings of hundreds of individuals in equity and debt instruments. Since investment in mutual funds is influenced by investors perception, the purpose of the present study is to examine investors awareness and perception towards mutual fund as a means of investment. The study is based on primary data collected though a questionnaire from 105 respondents residing in Delhi-NCR.Major reasons for investors preference for mutual fund investment were found to be tax benefit, security, liquidity, return and reliability. Research findings suggest that there is a significant relationship between gender and investors perception with respect to returns in mutual funds. Also, a significant relationship exists between age and investors perception with regard to higher tax shield provided by mutual funds.

Comparartive Performance Apraisal of Selected Mutual Funds

Since their inception, Mutual Funds are very much popular among investors. The most important reason for this can be a highly productive return and less risk level. It provides an opportunity for low-income individuals to directly participate in the financial market through which they can increase their return at lower risk. This paper focuses on various aspects which need to be investigated for investment in Mutual Fund. As the investments in Mutual Funds are growing in this current business scenario, proper analysis of risk and return should be made for investment in Mutual funds. This review paper is focused on various aspects of the Mutual Fund Industry and its related schemes.

Investigating key funds characteristics influencing their investment performance in Saudi Arabia: A dynamic panel data approach

The study examines if specific characteristics of funds influence the performance of Saudi equity mutual funds. Previous research has explored various aspects of mutual funds. However, the Saudi Arabia literature focuses on evaluating the funds’ performance. Hence, this study seeks to close this gap by providing a framework to explain the equity fund performance. Several risks adjusted performance measures are applied such as Jensen’s alpha, lower partial moment alpha, Sharpe ratio, LPM-Sharpe ratio using the dynamic panel specification over the period 2010–2019. Based on the LPM alpha, the risk-adjusted return analysis reveals that the Saudi equity funds outperformed their benchmark over the full sample period. The empirical results show that major fund-specific characteristics such as fund size, past performance, and flow explain future performance. Besides, the evidence confirms that Saudi funds benefit from the economies of scale and expertise, while funds requiring higher levels of initial investment tend to exhibit lower performance levels. These findings provide investors and fund managers with useful information to make the optimal investment decisions in the mutual fund industry.

Financial Literacy and Mutual Fund Industry in India: Growth and Prospects

Financial Literacy and Mutual Fund Industry in India: Growth and Prospects

Bayesian nonparametric learning of how skill is distributed across the mutual fund industry

In this paper, we use Bayesian nonparametric learning to estimate the skill of actively managed mutual funds and also to estimate the population distribution of skill. A nonparametric hierarchical prior, where the hyperprior distribution is unknown and modeled with a Dirichlet Process prior, is used to model the skill parameter, with its posterior predictive distribution being an estimate of the population distribution. Our nonparametric approach is equivalent to an infinitely ordered mixture of normals where we resolve the uncertainty in the number of mixture components by learning how to partition the funds into groups according to the average ability and the variability in the skill of a group. By resolving the mixture’s uncertainty, our nonparametric prior avoids having to sequentially estimate and test an array of pre-specified, finite ordered, mixture priors. Applying our Bayesian nonparametric learning approach to a panel of actively managed, domestic equity funds, we find the population distribution of skill to be fat-tailed, skewed towards higher levels of performance, with two distinct modes – a primary mode where the average ability covers the average fees charged by funds, and a secondary mode at a performance level where a fund loses money for its investors.

Do visiting monks give better sermons? An analysis of the foreign experience of Chinese fund managers

This paper investigates the value of foreign experience in the investment community of developing countries. By using fund flows as a proxy for investor preference, we demonstrate that fund managers with foreign experience gain more recognition from investors in China. However, this preference is more likely to be a sort of bias since we find no evidence of superior investment skills of these managers, especially when they tilt portfolio allocations in domestic equities. The findings in our paper imply that investors in emerging markets are under the foreign experience illusion and that foreign experience can add to human capital in the mutual fund industry via increasing the popularity rather than improving the return performance of a fund.

Star rating, fund flows and performance predictability: evidence from Norway

This paper studies the effect of Morningstar ratings on fund flows and fund performance predictability using a proprietary data set of equity funds from Norway. Controlling for a number of variables proxying for fund and firm visibility, we find that fund flows respond asymmetrically to changes in Morningstar ratings. Specifically, 4- and 5-star rated funds get more flows, and funds upgraded to 5-star get significantly more flows not only in the next month, but also over the following 12 months after the rating change. Downgraded funds suffer outflows, but the results only become statistically significant when fund performance falls to a 2-star rating. We also find evidence of long-term performance predictability for top-rated funds. As the mutual fund industry develops worldwide, our results suggest that Morningstar has been successful in bringing its brand name to markets outside the USA, and that Morningstar ratings are a valuable tool for helping investors make strong investment decisions.

Correction to: Is fund performance driven by flows into connected funds? spillover effects in the mutual fund industry

In the published article “Is fund performance driven by flows into connected funds? spillover effects in the mutual fund industry” second author has incorrect affiliation. Affiliation was listed as “Ecole hoteliere de Lausanne, 1000, Lausanne 25, Lausanne, Switzerland” where it should be “Ecole hoteliere de Lausanne, HES-SO University of Applied Sciences and Arts Western Switzerland, Lausanne, Switzerland”.

Review of Mutual Funds Investment in India

The Indian mutual fund's industry, which started its excursion with the foundation of the Unit Trust of India in 1964, has seen unobtrusive development lately. There has been developing both regarding AUM just as the assortment of items advertised. As on December 2015, the investors in India have a choice to look over in excess of 1,000 of mutual funds plans spread across 44 fund houses with a complete AUM estimation of '13.46 lakh crores. The passage of unfamiliar players has prompted the presentation of an assortment of inventive items to suit the developing necessities of Indian investors. The Indian mutual fund's industry was discovered to be overwhelmed by institutional investors.

Does Manager Race Impact Performance? An Examination of the US Mutual Fund Industry

Using hand-collected fund manager race data, we study the current status of minority managers in the mutual fund industry. We investigate manager characteristics and performance differences between the minority (Asian, Black, Hispanic Latino) and White managers. Our results show that minorities are underrepresented in the fund management industry, especially Black and Hispanic managers. On average, 86.8% of single-manager funds are managed by White managers, while 8.3%, 2.7%, and 2.3% are Asian, Black, and Hispanic managers, respectively. Minority managers manage more international equity funds, while White managers manage more growth-focused funds. We show evidence that minority managers are younger and more educated, with shorter tenure and a lower percentage holding a CFA designation. The funds managed by White managers are larger in size, have a higher turnover ratio, and have greater exposure to market risk. Minority managed funds have higher monthly fund flows and take on greater idiosyncratic risk. We find no significant difference in fund returns or risk-adjusted abnormal returns (alpha) using different asset pricing models. These results are robust to various analytical methods, including Welch's t test, panel regression, and propensity score matching approach. The findings of this study can improve our understanding of mutual fund performance in general. More importantly, this study provides timely and imperative information to understand and address the lack of diversity in the mutual fund industry.

Association between fund attributes and fund's performance: a panel data approach

PurposeThe present study tries to explore the various fund attributes that influence the mutual fund performance. Further, study examined the effect of mutual fund attributes namely, Net Asset Value (NAV), Portfolio turnover ratio (PTR), fund size (AUM), expense ratio (ExpR) and fund age (Age) on mutual fund's performance using gross return and risk-adjusted performance measures.Design/methodology/approachThe study evaluated balanced panel data (short panel) comprising 81 Indian equity mutual fund schemes for the period of 2013–2019. The study estimated relationship between fund attributes (Net asset value, Portfolio turnover ratio, Fund age, fund size and Expense ratio) and fund performance (using gross return and risk-adjusted performance measures), through panel data regression using fixed-effects model as suggested by Hausman specification test on transformed data (due to high multicollinearity), with cluster-robust estimators due to the presence of heteroskedasticity in the model.FindingsThe findings of the study suggested that using gross return as fund performance measure, PTR, NAV, AUM, Age exhibit significant relationship with the fund performance whereas using risk-adjusted performance measures (Treynor ratio and Jensen alpha) NAV and ExpR significantly influences the fund performance. Identification of the significant relationship between fund characteristics and fund performance offers valuable insights to the investors and fund managers for rationally managing their portfolio with the ultimate objective of the wealth maximization.Research limitations/implicationsThe study considered only 81 equity mutual fund schemes. Some of the data were not available at the time of the study due to the policy of the company. The present study contributes significantly in examining the expected association between fund attributes and fund performance in the context of Indian mutual fund industry where this relationship were explored less.Practical implicationsThe findings of the present study will help the investors to take the rational investment decision with the ultimate objective of maximum return with minimal risk. The findings also offer significant germane to the stakeholders in making rational decision-making process.Originality/valueThere is dearth of study concerning the relationship between mutual fund characteristics and fund performance with respect to Indian mutual fund industry. Therefore, study provides valuable insights to the area of the portfolio selection and management with respect to Indian mutual funds.

Risks and Vulnerabilities in the U.S. Bond Mutual Fund Industry

Risks and Vulnerabilities in the U.S. Bond Mutual Fund Industry

On management risk and price in the mutual fund industry: style and performance distribution analysis

This study shows how investing in mutual funds involves an additional risk, which we call management risk as a consequence of the uncertainty in the results of active management. To address this issue, we analyze a sample of 2539 US equity mutual funds. For comparative purposes, we differentiate among index funds and actively managed mutual funds with different investment styles. We observe that performance distribution shows negative mean, negative skewness, and excess kurtosis. Results also show that management risk is not rewarded with higher abnormal performance. Moreover, higher active management prices are linked to funds with higher management risk and negative asymmetry. Therefore, investors seem to be risk-seeking since they are paying more to participate in high asymmetric bets. Finally, we attempt to solve this puzzle from the behavioral finance perspective.

Explaining mutual fund behavior through the structure‐conduct‐performance lens

AbstractThis paper examines mutual funds. These are economically important as the largest institutional investors, and form an important principal‐agent relationship as custodians of retirement savings. Despite a huge literature, there is no agreed explanation of mutual fund behavior. This analysis links mutual fund research across disciplines under the structure‐conduct‐performance paradigm (SCP), which is widely used in strategy research to explain firm actions and results. SCP explains mutual fund actions after placing the fund manager at the center of fund operations, where their conduct is driven by structure of markets and the funds management industry. Structural influences on fund managers include unpredictability of markets, the oligopolistic nature of the mutual fund industry, and disengagement of clients. As a result, funds derive income as commission on assets under management, which is sub‐optimal for clients. In addition, fund managers' conduct is driven by their homogeneity and socialization with competitors and investee firms. While the most obvious role of fund managers is construction of investment portfolios, outperformance is not their sole, or perhaps even principal, objective. The SCP lens offers insights into mutual funds of value to fund managers, investors, regulators and executives of investee firms. This paper impounds evidence from real‐world data in theory to offer an actor‐centric perspective of investment which is an archetypal practitioner driven discipline.

Fixed income mutual fund performance during and after a crisis: a Canadian case

This study investigates the performance of the fixed income mutual funds industry, focusing on Canadian fixed income funds before, during, and after the 2008 global financial crisis. After recessionary shocks, investors look for ways to diversify their systematic risks. We investigate Canadian fixed income funds’ excess returns and dollar fund flow and show that the funds significantly underperform bond markets throughout the study period after controlling for fund characteristics and macroeconomic factors. Consistent with previous studies, we find that this underperformance is more apparent during market downturns. Indicating a spiral relationship, these results suggest that institutional investors perform poorly during financial crises, which is also observable in the volatility patterns in dollar fund flow. We also find that the flow is positively related to the crisis period, indicating that the dollar fund flow in fixed income funds reported a positive value during the recession, signifying an inflow.

Impact of COVID-19 pandemic on equity-oriented mutual funds: A preliminary analysis of Indian mutual funds industry

COVID-19 and the worldwide lockdown left life in worse condition in which people struggle to meet their livelihood. People are concerned about their lives, jobs, savings, and investments. This paper had analyzed the changes in the mutual fund industry in India due to the virus outbreak from December 2019 to May 2020. A sample of 25 equity-oriented direct growth funds has been considered for this study to analyze their performance along with the sector-wise differences. The results show that the value of majority of the funds had plunged, while some funds had rebounded during the period.

Economic Policy Uncertainty, Learning and Incentives: Theory and Evidence on Mutual Funds

Using the mutual fund industry as a laboratory, we demonstrate theoretically and empirically that economic policy uncertainty affects investment decisions through an information rather than real options channel. Specifically, we find that fund flow-performance sensitivity decreases in uncertainty and does so more strongly for funds with shorter track records. The evidence supports the implication of our model that investor learning about manager ability weakens when uncertainty increases. Further, the effect of uncertainty on learning impacts managerial incentives. Consequently, managers are less likely to engage in active management during periods of greater uncertainty, an effect increasing in career concerns.

Association of Mutual Fund Risk Measures and Return Parameters: A Juxtapose of Ranking for Performance in Pakistan

This purpose of this study is to investigate the association among mutual funds (MFs) risk measures and return parameters, evaluate mutual fund performance and also explore the best appropriate mutual fund performance measure for investment in Pakistan. Therefore, thirtyfive mutual funds have been selected for the period 2007-2015. The Sharpe, Treynor, Jensen Alpha, Information ratio and Fama’s Net Selectivity measures has been used to analyze MF performance. Our study findings show significant positive relation exist between Sharpe and Jenson alpha & information ratio (IR); Treynor ratio is negatively correlated to Jenson alpha and Jenson alpha is positively allied with IR. Moreover, association among performance measures, Fama’s net selectivity is a major driver in leading to other measures but Sharpe and IR lead to Treynor ratio as well. Furthermore, performance measures are ranked in accordance standard deviation with the arrangement of Fama’s net selectivity at top, Jenson Alpha at second, Sharpe ratio at third, IR at fourth and Treynor ratio at fifth position according to risk parameters in Pakistan. Overall, Jensen Alpha measure appears to be the best suitable mutual fund performance measure in Pakistan due to its practical nature. Finally, the Pakistani stock market index KSE100 (as benchmark) performs better than MF industry of Pakistan.

Is fund performance driven by flows into connected funds? spillover effects in the mutual fund industry

Mutual funds are connected with each other through overlapping portfolio holdings. We document that the performance of individual mutual funds is affected by spillover effects from fund flows to connected mutual funds. Spillover-effects are particularly pronounced during crisis periods, when a one standard deviation increase in flows to the tercile of funds with the highest overlapping portfolio holdings is associated with a monthly excess returns of 1.50%. Small cap stock funds are more heavily impacted, suggesting that the spillover effect is related to underlying asset liquidity. Moreover, we shed light on the dark side of diversification, as highly diversified funds are more exposed to the spillover risk factor.

The implications of passive investments for active fund management: International evidence

This paper investigates how the tremendous growth in indexed investments has affected active management in the equity mutual fund industry across 32 countries. Our findings indicate that the growing competition from passive funds does not reduce the fees of actively managed funds. Moreover, active funds do not increase their product differentiation by diverging more from their benchmarks when they face more competitive pressure from indexed products, though they do sometimes charge higher fees and reduce their activity. Thus, our tests indicate that indexed and active funds can coexist and attract different clienteles.