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Evaluating alternative performance benchmarks for Indian mutual fund industry

Sanjay Sehgal (Department of Financial Studies, University of Delhi, Delhi, India)
Sonal Babbar (Department of Commerce, Maitreyi College, University of Delhi, Delhi, India)

Journal of Advances in Management Research

ISSN: 0972-7981

Article publication date: 8 May 2017




The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds and suggest the best approach in Indian context.


Sample of 237 open-ended Indian equity (growth) schemes from April 2003 to March 2013 is used. Both unconditional and conditional versions of eight performance models are employed, namely, Jensen (1968) measure, three-moment asset pricing model, four-moment asset pricing model, Fama and French (1993) three-factor model, Carhart (1997) four-factor model, Elton et al. (1999) five-index model, Fama and French (2015) five-factor model and firm quality five-factor model.


Conditional version of Carhart (1997) model is found to be the most appropriate performance benchmark in the Indian context. Success of conditional models over unconditional models highlights that fund managers dynamically manage their portfolios.

Practical implications

A significant α generated over and above the return estimated using Carhart’s (1997) model reflects true stock-picking skills of fund managers and it is, therefore, worth paying an active management fee. Stock exchanges and credit rating agencies in India should construct indices incorporating size, value and momentum factors to be used for purpose of benchmarking.


The study adds new evidence as to applicability of established asset pricing models as performance benchmarks in emerging market India. It examines role of higher order moments in explaining mutual fund returns which is an under researched area.



Sehgal, S. and Babbar, S. (2017), "Evaluating alternative performance benchmarks for Indian mutual fund industry", Journal of Advances in Management Research, Vol. 14 No. 2, pp. 222-250.



Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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