Diversification Within Large Cap Equity Mutual Funds in India

18 Pages Posted: 27 Jul 2020

See all articles by Rajan Raju

Rajan Raju

Invespar Pte Ltd

Ananya Mittal

Invespar Pte Ltd

Rajiv Baruah

Invespar Pte Ltd

Date Written: July 25, 2020

Abstract

We ask whether a portfolio of large-cap mutual funds in India generates any diversification benefits as compared to holding a single large-cap index tracking exchange-traded fund. Using a mix of traditional measures like correlation and covariance of excess returns, and measures like tracking error, information ratio, and active share, we show that there are limited diversification benefits in a portfolio of two or more large-cap funds. A majority of the funds have similar risk return characteristics and negative information ratios versus a NIFTY100 tracking ETF. A cross-sectional analysis of active shares of the funds at the end of June 2020 shows that underlying holdings of funds are crowded together and funds do not have significant active share.

Keywords: Portfolio Construction, Diversification, Active Share

JEL Classification: G10, G11

Suggested Citation

Raju, Rajan and Mittal, Ananya and Baruah, Rajiv, Diversification Within Large Cap Equity Mutual Funds in India (July 25, 2020). Available at SSRN: https://ssrn.com/abstract=3660345 or http://dx.doi.org/10.2139/ssrn.3660345

Rajan Raju (Contact Author)

Invespar Pte Ltd ( email )

Singapore

Ananya Mittal

Invespar Pte Ltd ( email )

Singapore

Rajiv Baruah

Invespar Pte Ltd ( email )

Singapore
98361410 (Phone)

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