Comparing performance of equity, balanced and debt mutual funds – Empirical evidences from India

Abstract

In India, one of the broad categorizations of mutual funds is as-equity, balanced, and debt funds, each catering to specific expected return and risk-appetite of investors. Further, it is generally believed that among the aforesaid three categories of funds, Equity funds provide highest returns, followed by balanced funds and debt funds in the given order. However, the risk involved in equity funds is also the higher as compared balanced and debt funds. This paper attempts to empirically compare the returns and risk involved in the aforesaid three broad categories of mutual funds operating in the India over three, five, and ten years time periods. For this, we select three independent samples (of size 60) in each category, namely, equity, balanced, and debt fund. Selection of funds in each category is as per researcher defined criteria. The data on selected schemes is collected from the databases of ‘Value Research India Private Limited’, and AMFI. Measures like annualized returns, standard deviation of returns, Sharpe ratio, and expense ratio are employed to compare the three categories. Hypotheses tests are performed employing single factor ANOVA and Tukey’s HSD test. Based on the evidence gathered, it is observed that over all the three chosen time durations, equity funds have on an average provided superior returns than balanced and debt funds, however, equity funds were also observed to be much more risky than the balanced and debt funds. Therefore for investors ready to take risks in lieu of higher returns, equity funds should be chosen. On the other hand investors who want to play safe with their investments, either balanced or debt funds should be their investment avenues.