An analysis of Indian mutual funds’ capacity for market timing during 2010–2023

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The Indian economy, often described as cost-sensitive, has seen significant growth in investments in mutual funds and witnessed an increase in the number of investors and total assets under management from 2010 to 2023. This study aims to evaluate the effectiveness of mutual funds in India by identifying those that outperform benchmark indices, assessing the stock selection skills of fund managers, and examining their market timing abilities.
The study further investigates the function of market efficiency by looking into two major areas of fund management – market timing and stock selection. Stock selection measures a portfolio manager’s skill in selecting stocks, and market timing measures a portfolio’s ability to increase exposure to the portfolio in expectation of better movements during a defined period. The study uses the Sharpe ratio, Information Ratio, and Treynor-Mazuy model to analyze mutual fund data. The results indicate that over 80 percent of mutual funds are market independent, with high stock picking ability. Nonetheless, 8% of the funds that showed a market timing ability had little else in terms of active trading, indicating a long-term outlook of investments as opposed to short-term trade strategies. The study concludes that Indian mutual funds have exhibited market timing capabilities and generated positive alpha, signifying risk-adjusted outperformance relative to the market.

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    • Table 1. Information ratio
    • Table 2. Annual MF returns during 2010–2023
    • Table 3. Sharpe ratio descriptives for MFs
    • Table 4. Top 5 MFs based on Sharpe Ratio
    • Table 5. Information ratio descriptives for MFs
    • Table 6. Mutual funds ranked based on the Information ratio
    • Table 7. Top 5 MFs based on Information ratio
    • Table 8. Regression results for the TM model (only significant results considered)
    • Table 9. Top 10 MFs based on the TM Model
    • Table A1. List of 135 Indian open-ended mutual fund schemes for 14 years, June 2010 to June 2023
    • Conceptualization
      Mafruza Sultana, Pooja Gupta, Asit K. Barma, Swarnalakshmi Umamaheswaran, Preetham Karthik M. Donti
    • Formal Analysis
      Mafruza Sultana, Pooja Gupta, Swarnalakshmi Umamaheswaran
    • Methodology
      Mafruza Sultana, Pooja Gupta, Asit K. Barma
    • Supervision
      Mafruza Sultana, Pooja Gupta, Swarnalakshmi Umamaheswaran
    • Validation
      Mafruza Sultana, Pooja Gupta, Asit K. Barma, Swarnalakshmi Umamaheswaran, Preetham Karthik M. Donti
    • Writing – original draft
      Mafruza Sultana, Pooja Gupta, Asit K. Barma, Swarnalakshmi Umamaheswaran, Preetham Karthik M. Donti
    • Writing – review & editing
      Mafruza Sultana, Pooja Gupta, Asit K. Barma, Swarnalakshmi Umamaheswaran, Preetham Karthik M. Donti
    • Data curation
      Asit K. Barma, Preetham Karthik M. Donti