Performance Evaluation of Sectoral Mutual Fund Schemes: Evidence from India

Abstract

The study measures the performance of mutual fund (MF) schemes in India with special reference to sector-specific schemes. For the purpose, 21 open-ended equity schemes are considered and analysed by employing Sharpe ratio, Treynor ratio, Jensen alpha, M-squared measure, R-squared measure, and Information ratio. Among the measures selected, the Treynor ratio, Sharpe ratio, Jensen alpha, and M-squared measure are applied as absolute measures and these measures do not compare the returns of the schemes with the returns of their benchmarks. Correlation analysis has also been applied to the ranks assigned by the measures. The study found that majority of the schemes are efficiently and consistently providing more returns than their respective benchmarks. Also, the study found the ranks assigned by absolute measures to be highly associated with each other and the paired correlation between absolute measures and the information ratio is found to be insignificant. The article will help the investors in selecting the consistent sectoral MF schemes operating in India. The originality of the article lies in the fact that only a handful of studies have measured the performance of sectoral MF schemes in India. In addition, majority of the studies use traditional ratios to measure the performance of MF schemes. Thus, the present article is a significant addition to the existing literature.

Keywords: Mutual Funds, Sectoral Funds, Sharpe Ratio, Treynor Ratio, Jensen Alpha, M-Squared Measure, Information Ratio

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