Mutual Fund Characteristics and Investment Performance in India

Abstract

In this study, we examine the role of fund characteristics in determining mutual fund performance in India. The data comprises of 237 open-ended Indian equity (growth) schemes during the period April 2007 to March 2013. Using daily dividend adjusted net asset values (NAVs), the risk-adjusted performance is estimated employing conditional version of Carhart (1997) four factor model in a time series regression framework. A range of fund characteristics, namely, the size of fund, growth in size of fund, expense ratio, portfolio turnover, NAV and age of fund, are examined in predictive model in a panel data regression framework that may determine the future performance of the fund. The Hausman specification test is conducted to decide if individual effects are random or fixed. The results of panel regression, based on fixed effects estimator, show that the size of fund, growth in size of fund and NAV negatively affect one period ahead risk-adjusted performance in India, while the age of fund has a positive impact. Expense and portfolio turnover ratios do not play a significant role. Identification of significant fund characteristics offer valuable insights to investors as it will allow them to make prudent selection of mutual funds and make judicious investment decisions.