ALPHA DECAY IN INDIAN MUTUAL FUNDS

Abstract

The research project titled "Alpha Decay in Indian Mutual Funds" aims to investigate the phenomenon of alpha decay and its implications within the context of the Indian mutual fund industry. Alpha decay refers to the gradual reduction in the excess returns generated by a fund manager over a benchmark index over time. Understanding alpha decay is crucial for investors, fund managers, and policymakers as it sheds light on the efficiency and sustainability of active management strategies. Methodology: The study employs a comprehensive dataset spanning a period of 2 years, encompassing various mutual funds across different asset classes and investment styles. Performance metrics such as alpha, beta, Sharpe ratio etc are analyzed to assess the persistence and magnitude of alpha decay. Additionally, factors such as fund size, expense ratio, turnover, and market conditions are considered to understand their impact on alpha decay. Key Findings: Persistence of Alpha Decay: The research reveals a notable presence of alpha decay among Indian mutual funds, indicating challenges in sustaining superior performance over the long term. iv Active Management Strategies: The study highlights the importance of adopting dynamic and adaptive active management strategies to mitigate alpha decay and enhance long-term performance. Implications for Investors: Investors should carefully evaluate the performance consistency and risk-adjusted returns of mutual funds, recognizing the potential impact of alpha decay on investment outcomes. Implications: The findings of this research have several implications for stakeholders in the Indian mutual fund industry. Fund managers need to adapt their investment strategies to navigate the challenges posed by alpha decay and deliver sustainable value to investors. Regulators and policymakers can use these insights to enhance transparency, disclosure standards, and investor education initiatives within the mutual fund ecosystem. Conclusion: In conclusion, alpha decay is a prevalent phenomenon in Indian mutual funds, underscoring the importance of rigorous analysis and continuous monitoring of investment performance. By understanding the drivers and dynamics of alpha decay, investors and fund managers can make informed decisions to achieve their financial objectives in an increasingly competitive market environment.