An empirical study to explore the risk adjusted performance of mutual funds: A case of Pakistan

Asif Shamim, Atif Mumtaz and Bilawal Ali
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Asif Shamim: Cluster Head Economics, Management Sciences Department, Bahria University Karachi Campus, Karachi, Pakistan
Atif Mumtaz: Management Sciences Department, Bahria University Karachi Campus, Karachi, Pakistan
Bilawal Ali: Management Sciences Department, Bahria University Karachi Campus, Karachi, Pakistan

International Journal of Financial Engineering (IJFE), 2020, vol. 07, issue 01, 1-26

Abstract: The research aims to explore the risk adjusted performance of mutual funds in Pakistan. The research is based on inductive approach and secondary sources of data. The data has been collected for a total of 29 mutual funds from authentic sources such as the website of Mutual Fund Association of Pakistan and other online websites for Beta and Risk-Free Return. The tests are run on the data processed using Treynor Measure and Sharpe Ratio to reach at the conclusion if risk adjusted performance of measure mutual funds is up to the mark. It can be concluded that the risk adjusted performance of the mutual funds is lower than the absolute performance and the returns and risk also vary with respect to the time frame considered for the returns. First, the research utilizes the secondary sources of data only; the usage of primary sources of data can provide insights about internal operations of the mutual funds in Pakistan as they can provide reasons about fluctuations in the performance of mutual funds of same category. Second limitation is that the research has studied 29 income based funds only and the study of more fund categories could have expanded the scope of the research. Third limitation relates to the collected of quantitative data only as the backing by the qualitative data could have enriched the findings from the data collection. As the risk adjusted returns for majority of the income mutual funds are positive, the investors are recommended to invest in the mutual funds if they aim to get a desired risk adjusted return. The investors are recommended to consider wide range of mutual funds and should not limit their analysis to the income mutual funds based on their risk appetite and other factors to ensure that they get desired return within their risk appetite. The mutual fund companies are recommended to alter their portfolios in the cases when they are not able to generate positive risk adjusted returns. The mutual fund managers are recommended to perform periodical and in-depth analysis to reach at the desired portfolio based on the investment needs of the investors or the target population.

Keywords: Risk-adjusted performance; mutual funds (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S2424786320500012

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