A Review of Performance Indicators of Mutual Funds

ABSTRACTOver the past few decades, mutual funds are playing a vital role in the economic development and this industry has flourished worldwide. In the light of these developments, the objective of this review is to identify the performance indicators of mutual funds and to analyse the impact of these performance indicators on mutual fund's performance. The study also draws attention to the contradictions in the literature in the area of examining these performance indicators which have been identified as per the available literature as performance persistence, turnover, expense ratio, asset size, load fee, investment style, mutual fund managers and the ownership style of the mutual funds. This paper elaborates the impact of these performance indicators. It has been found that each performance indicator affect the return of the mutual fund independently. This paper also discusses contradictions and the gap present in the literature regarding these performance indicators.Keywords: Mutual Funds, Performance indicators, investment style, turnover, persistence, expense ratio, asset size, load fee, fund managers, ownership style.INTRODUCTION:Mutual fund is a trust that pools the money of the investors and invests it in the marketable securities. The capital appreciation, thus generated is distributed among the unit holders in proportion of the units held by them. Through mutual funds, investors get the benefit of diversification, professional management of their money, convenient administration, low cost and many more. Performance of the mutual fund is measured by the Net Asset Value, (NAV) of the fund. NAV of a fund is the total asset minus all expenses and divided by the number of units held by the fund. It has been found that the NAV is affected by various performance indicators of the fund like turnover, expense ratio, load status etc. Understanding the relationship between mutual fund performance indicators and its performance can help investors to make informed mutual fund investment decisions. Moreover, these will benefit to the mutual fund companies in taking investment decisions. Also, understanding the impact of performance indicators on the performance of mutual funds will be useful for mutual fund regulatory bodies in framing policies. These relationships have been widely studied by scholars and practitioners.The objective of this study is to review the literature to identify the performance indicators of mutual funds and to draw attention to the contradictions in the literature in the area of examining these performance indicators. The study also analyses the impact of mutual fund's performance indicators on their performance. On the basis of past literature, the performance indicators of the mutual funds are performance persistence, turnover, expense ratio, asset size, load fee, investment style, mutual fund managers and the ownership style of the mutual funds.PERFORMANCE INDICATORS:According to Wermers (2000), Coval and Moskowitz (2001), Jan and Hung (2003), Papadamou and Stephanidesz (2004), the returns of the mutual funds can be predicted on the basis of their performance indicators as performance persistence, turnover, expense ratio, asset size, load fee, investment style, mutual fund manager and ownership of the mutual fund. In this section we have discussed all these performance indicators in detail.PERFORMANCE PERSISTENCE:'Performance Persistence means that the future performance of mutual fund can be predicted through their past performance' that is the past performance of the fund schemes is an indicator of their future performance. Persistence can be positive or negative. Positive persistence means if a mutual fund has performed well in the past, it will continue to outperform in the future. Similarly, negative persistence means that if a mutual fund has not performed well in the past then it will continue to underperform in the future as well. …