Does Portfolio Mix Influence the Mutual Fund Performance?

Abstract

Mutual funds put forward a way out to investors to approach maximum securities and get well-diversified portfolio, as investors with small savings neither have sufficient expertise nor have the means for diversification. Fund managers have responsibility to satisfy investors by offering them maximum return at calculated risk. In the anticipation of earning maximum return on investment, fund managers start working on the philosophy of ‘higher the risk, higher the return’ and accordingly focus mainly on equity stock in the portfolio. Whereas in reality the portfolio returns are influenced by many other funds that include market conditions, timings of investment and investment skills of managers. The results highlighted in this article are based on study of absolute returns and risk measures of four mutual funds studied for a period of 36 months. The findings of our analysis provide that fund managers cannot maximise their RoI by investing heavily in the risky securities. Instead the fund managers’ abilities to select quality stock and the appropriate timing determine the risk return trade-off attached with the funds. The article presents the investment styles of various fund managers that they apply to design varied portfolio mix by picking up different securities and the results highlighted provide that fund managers’ superior strategies to select stock alongwith the fund composition enhances the returns and reduces the impact of market volatility.