Tuesday, May 1, 2007

Performance of Indian Mutual Fund Industry

The mutual fund industry started in India with the UTI Act of 1964[1]. Over a period of 25 years, this small saving division grew fairly successfully giving investors a good return. In 1989, as the next logical step, public sector banks and financial institutions such as LIC were allowed to float mutual funds. Their success in turn led the government to open the doors to the private sector in 1993.

Since then the Indian mutual fund market has grown to over 32 asset management companies today handling an ever increasing corpus of funds. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too.

The world over, performance measurement for mutual funds has been practiced since the 1960s on the basis of which rankings have been done. Past performance is what the ordinary investor looks at to decide where to put his money. In most cases, he/she normally ends up investing in a top ranking scheme. Lines such as “past performance is no guarantee of future performance…” appearing in the offer document of the mutual fund scheme is hence forgotten for all practical purposes. The main purpose of this paper is to see whether rankings are persistent in the Indian context as well as to measure the performance of equity diversified mutual fund schemes in India.
[1] “BSE annual market review 2003”, section 3 : market trends ,2003

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