Fund Managers Adding Values? Measuring Performance without Benchmark – A Study of Indian Mutual Fund Schemes

Abstract

This paper calculates the Portfolio Change Measure (PCM) developed by Grinblatt and Titman for a sample of 744 equity schemes of Indian mutual funds over a minimum period of more than 2 years and less than 11 years. PCM, based on holding of assets, is a measure which is free from ‘benchmark’ biases arising out of usage of a ‘benchmark’ portfolio. So by using PCM as a measure, this paper, without using any benchmark, attempts to assess whether the selected mutual fund managers were able to add value and exhibit superior skills on the average and thus making a case for active fund management over a passive buy and hold strategy. Using the monthly holding statement of each individual scheme’s portfolio, rolling PCM has been calculated on a monthly basis with a rolling window of one year. The results of our analysis, supported by robustness checks, which includes time periods of pre-and post-Global Financial Crisis, shows strong evidence of active fund management adding value in the stock selection and hence in return generating process, thus justifying the possession of superior skill or superior information of fund managers at an aggregate level. Finally, using Quantile Regression we identify some characteristics of the scheme like scheme size and ownership category, which influence PCM significantly.