PARAMETRIC ANALYSIS OF MUTUAL FUND PERFORMANCE: ASSESSING RISK-ADJUSTED RETURNS – HDFC STANDERD LIFE

Abstract

Mutual funds have emerged as one of the most preferred investment avenues for individual and institutional investors due to their diversification benefits, professional management, and accessibility. Evaluating the performance of mutual funds is essential for investors to make informed investment decisions. Traditional performance measures based solely on returns may not provide a complete picture, as they ignore the level of risk undertaken to achieve those returns. Therefore, risk-adjusted performance evaluation has become a crucial aspect of mutual fund analysis. This study focuses on the parametric analysis of mutual fund performance by assessing risk-adjusted returns. The research employs widely accepted parametric measures such as the Sharpe Ratio, Treynor Ratio, Jensen’s Alpha, and Capital Asset Pricing Model (CAPM) to evaluate the effectiveness of fund management and the ability of mutual funds to generate superior returns relative to risk. These measures help in understanding whether fund managers are capable of outperforming market benchmarks while maintaining acceptable risk levels. The study analyzes historical data relating to mutual fund returns, market returns, and risk-free rates over a specified period. Statistical techniques are used to measure systematic and unsystematic risk and to determine the relationship between risk and return. The findings provide insights into the comparative performance of selected mutual funds and highlight the significance of risk-adjusted evaluation methods in investment decision-making. The study concludes that parametric performance measures offer a comprehensive framework for assessing mutual fund efficiency and enable investors to identify funds that deliver superior returns for the level of risk assumed. The results are expected to assist investors, portfolio managers, and financial analysts in making more effective investment decisions and developing sound portfolio management strategies.