Performance Evaluation of Actively Managed and Passive (Index) Mutual Funds in India

Abstract

The present paper attempts to empirically evaluate the performances of ‘actively managed’ and ‘passive (index)’ mutual funds in India over period April 2006 – March 2019 with following two important objectives: (1) have the actively managed mutual funds been able to outperform the market; and (2) have the actively managed mutual funds in India been able to generate statistically superior returns as compared to passive (index) funds. For achieving the stated objectives, performance of 25 actively managed large cap funds and 22 large cap passive (index) funds has been analyzed. Daily Net Asset Values (NAVs) of regular plan - growth options of all the funds has been considered. Further, various risk-return measures such as fund returns, Sharpe ratio, Treynor ratio, and Jensen alpha of funds have been analysed. ‘Two-sample tTest’ has been employed to test for difference in performances of the two groups. The findings indicate that during the period of analysis, actively managed funds were not able to outperform the market. Also, there was no significant difference in the performances of actively managed funds and passive (index) funds on account of fund returns, Sharpe ratio, and Treynor ratio during the chosen time period, barring Jensen alpha measure for which the actively managed funds were able to perform better as compared to passive (index) fund.