Assessing the Return and Risk Equity Mutual Funds: A Case Study from the Financial Markets of Pakistan

Abstract

Purpose: A mutual fund is a type of trust that combines the assets of a group of persons with similar financial objectives. The funds are subsequently put into assets like stocks, bonds, and other capital market instruments. This study aims to identify the association level among the performance measures, calculate the risk and return of selected mutual schemes, evaluate funds based on execution, and recommend mutual fund investment system that help eliminate the risks. Design/Methodology/Approach: The average return of mutual fund schemes was studied for a data period from 2015 to 2022. The study employed Jensen Ratio, Sharp Ratio, and Treynor Ratio to determine the risk and return of mutual funds. Findings: The beta shows that the market has particularly defensive investors. The Sharpe ratio for the mutual fund indicates that the industry’s performance is satisfactory but not up to the mark due to multiple political and economic reasons. Similarly, The Jensen differential measure yields remained negative in some periods with different funds. Overall findings thus imply that mutual funds in Pakistan have the potential to generate value. While findings also reveal that some funds perform poorly, the diversification issue is problematic for these funds. This industry has the potential for remarkable expansion on a global scale. Implications/Originality/Value: The performance of the funds business and the function of regulatory authorities are critical factors in this sector's success. Excellent results and strict restrictions will boost the popularity of mutual funds in Pakistan.