An Analysis of Active Fund Allocation Decision of Mutual Funds in India
The IUP Journal of Applied Finance, Vol. 21, No. 2, April 2015, pp. 93-102
Posted: 16 Oct 2015
Date Written: October 16, 2015
By evaluating the performance of 772 funds, this study seeks to examine whether fund managers add any value by their fund allocation decision. After selecting the securities for investment, fund managers need to decide as to how much to be invested in the selected securities. They can actively decide on how much to be invested or passively invest equal amount in the selected stocks. Using monthly portfolio details of equity-oriented mutual fund schemes, this study compares the return generated by the funds under active fund allocation and passive fund allocation, and finds that the active fund allocation strategy on an average records lower return to an extent of 0.18% per month compared to passive fund allocation strategy. The study concludes that there is no significant value addition by pursuing active fund allocation strategy and the results hold good for most of the fund houses, fund managers and funds categories.
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