Performance Evaluation of Mutual Funds

Abstract

Investments in Mutual Funds are expected to grow at the rate of 15%-25% in India in the coming years. Thus, it is important to know if the investments in mutual funds have performed as per expectations. Thus, investment performance tools and techniques are extremely important. Investment Performance Measurement methods quantify how much return the investment has earned, how was it earned and what were the risks taken. newlineTypically, performance evaluation of mutual funds is conducted using Sharpe s Measure, Treynor s Measure and Jensen s Measure. Each of these measures has limitations in terms of classification, composition and survivorship bias. This results in inconsistent results. The methods are not utilizing information related to composition of the portfolio. Studies have indicated that 97% of fund returns can be explained by asset allocation alone. In this context, Returns Based Style Analysis (RBSA) introduced by William Sharpe, shows that managers are best benchmarked as blends of styles. newline