DECODING PRE-COVID DYNAMICS IN THE INDIAN MUTUAL FUND SPHERE: A COMPARATIVE STUDY

Abstract

This research delves into the performance evaluation of mutual funds within the context of Uttar Pradesh, a state in India. Mutual funds offer a professionally managed and diversified approach to investing, potentially yielding favorable returns for unit holders. However, the current study reveals that Uttar Pradesh, despite its substantial demographic weight, contributes a mere 3.9% to the Assets Under Management (AUM) composition among the top 20 states. This highlights a lower penetration level and awareness of investment opportunities, particularly in the eastern part of the state. With the mutual fund industry's AUM ballooning from Rs. 7.61 trillion in July 2013 to Rs. 23.06 trillion in July 2018, there emerges a stark disparity in Uttar Pradesh's participation. This investigation sheds light on a pivotal aspect of financial evaluation – the interplay of risk and return. Previous analyses primarily focused on returns without sufficiently incorporating risk considerations. Grounded in seminal works by Markowitz and Tobin in the 1950s, this research accentuates the importance of incorporating risk, especially variance, in comparing investments. While the comparison between two investments with differing returns and variances may be straightforward, the pivotal role of additional returns for investments with higher variances is underscored. Subsequent to this foundational concept, the study turns to performance metrics introduced by Treynor, Sharpe, and Jensen in the 1960s – the Treynor ratio, Sharpe ratio, and Jensen's alpha, respectively. These ratios compare the returns of managed portfolios with a benchmark portfolio. However, a critical issue emerges regarding the selection of a suitable benchmark portfolio for such comparisons. The study thus extends beyond these ratios, factoring in an array of crucial parameters, including loads, asset size, expense ratio, and historical performance. By doing so, this research aims to provide a comprehensive understanding of mutual fund performance beyond traditional measures. It recognizes that while risk and return are vital aspects, other factors significantly contribute to an investment's overall performance. The broader context of the capital market theory serves as the backdrop for these performance evaluations, with an emphasis on anticipated risk and portfolio returns. This study is poised to bridge the existing gap in understanding by uncovering multifaceted performance metrics, potentially informing investment decisions and industry growth.