Performance of Liquid Schemes of Mutual Funds in India: An Analysis across Fund Characteristics

The Indian mutual fund industry has made remarkable progress in terms of some parameters, like opening up of the sector to all sorts of players, entry of new fund houses, growth of assets under management (AUM), expansion in the number of unitholders, introduction of new products, relaxation of investment restrictions, reduction of fees and other expenses, abolition of entry load (initially for direct applications and now for all) and investor awareness and distribution initiatives. In this context, close monitoring and evaluation of mutual funds have become essential. The present study is an endeavour in this direction. It relates to Liquid/Money Market Funds which invests in short-term instruments of government. The study evaluates the performance of 18 liquid schemes in terms of risk and return(weekly) for the period of January 2002 to June 2010. The risk adjusted measures — Sharpe Index, Treynor Index, Jensen's measure and FAMA's decomposition measures are applied for appraising the performance under this study. Since the last six years, the percentage share of liquid schemes in AUM is witnessing a declining trend. It is observed that the performance of liquid funds is not satisfactory as they provide inadequate returns against the level of risk involved in them. But the fund managers have succeeded in earning higher excess return per unit of risk as compared to the return associated with 91 days Treasury bills.