PERFORMANCE EVALUATION OF MUTUAL FUNDS IN PAKISTAN

Abstract

Purpose: The aim of the research is to assess the efficiency of mutual funds in Pakistan. This study is conducted to inspect the efficiency evaluation of mutual funds in Pakistani Market in terms of risk and return relationship. Karachi Stock Index-100, used as a standard to assess the mutual funds comparative performance in Pakistan. This research is to provide an understanding of performance evaluation of mutual funds in Pakistan. This Research measures and analyze the performance, effect of profitability on KSE-100, Turnover, Trade Volume and Trades. Methodology: This research is cross-sectional, for evaluating the performance of mutual funds researcher used secondary data, data gathered from annual reports of Asset Management Company’s and Stock Exchange of Pakistan. The Data consist of dependent and independent variable, where dependent variable is Profitability and independent variables are KSE-100 index, Turnover, Trade Volume and Trades from year 2007 to 2015. Findings: Result of this research shows that R square 0.943 which is 94.3%, explain the variation of dependent variable by the change in independent variable like KSE-100 index, Turnover, Trade Volume, Trades and All the test conducted for this research at significant level of 0.05, the p value of overall model which is 0.009 which shows the significance of the model. Since the p value of all independent variables are lower than 0.05, therefore all the alternative hypotheses are acceptable. This means that the profitability is affected by all four variables like KSE-100 Index, Trade Volume, Turnover and Trades. Result of this research also shows that average return is 0.025 which is 2.5%, it’s standard deviation that range of upper and lower return is 0.12 which is 12% above or below to the average return. Sharpe ratio measures portfolio return and overall Sharpe ratio of asset management companies is in negative which is -0.0810 and less than 1.0 which indicates that return did not justify the risk taken. Beta of overall asset management company’s also shows in negative which is -0.0721, indicates that the investment progress is less than KSE-100 index progress, while Treynor ratio is in positive due to the excess return and riskiness which is beta is in negative, therefore having both in negative the ratio shows positive value, since Alpha is in negative which is -0.0218, indicates that a security which has underperform to the standard. Practical Implications: Result of this research will help different investors to fulfill the purpose of investing in different assets like Securities. Investors always looking for investment in efficient market. This research will be helpful for small investors who like to use mutual fund as an appliance to invest in Blue- Chip companies or in Asset Management Company’s. Mutual fund is a growing sector in Pakistan as many private sector companies are doing business in the market while very few public-sector companies are doing business in the market.