Indian financial system and financial market Performance Evaluation of Indian Equity Mutual Funds
Indian financial system and financial market Performance Evaluation of Indian Equity Mutual Funds
Tadikonda.Iswarya
Bhuvana .Yasala
Supraj.Ravula
1. Introduction
Mutual funds have risen in popularity in India since the liberalization of the economy in the 1990s. They collect the money of many different investors and invest in ways that provide professional management, diversification and liquidity to the average investor who does not have the time or expertise to invest in stocks directly (AMFI 2024).
Equity mutual funds (those that invest mainly in stock) are very popular because many people believe that over a long period of time, they will give significantly high returns. Small-cap equity funds that invest in stocks of companies beyond the top 250 large caps in terms of market capitalization are generally considered to offer higher potential returns but also higher risks. These funds give investors access to innovative, growth-oriented companies and have generally provided higher returns during bull market cycles (SEBI 2023).
Performance evaluation of mutual funds can be an important part of decision-making to different stakeholders. For investors, performance evaluation assists them with deciding on how much to allocate to different asset classes and which specific fund to invest in. For fund managers, it assists them with evaluating their own fund management and stock selection decision-making processes. For regulatory agencies like the Securities and Exchange Board of India (SEBI), performance evaluation is necessary to assess the efficiency of the markets and to protect investors who invest in mutual funds. Ultimately, the question in this area is whether active fund managers can consistently outperform. In contrast, the Capital Asset Pricing Model (Sharpe, 1964) offers a framework for evaluating risk-adjusted performance, with Jensen’s alpha (Jensen, 1968) acting as a significant measure of managerial proficiency.
Many people believe that the small cap market of India is not as efficient as its large cap counterpart, thus giving active managers an even greater opportunity to find mispriced securities within this space. This study examines the above 5 funds through a review of their respective market performances over the 2024 calendar year and the effects of differing market events on the funds’ performances (relative to the Nifty Small cap 250 Total Return Index) over that time.