This study is based on the monthly data of 28 equity diversified Indian fund schemes for the period from January 2007 to June 2011. The selected equity diversified fund schemes show mixed performance. About 60% of the fund schemes were able to beat the benchmark markets. Better performing fund schemes were exposed to higher risk but were less afflicted to market risks. All the schemes under study were relatively exposed to less risk than the market, however with high degree of volatility. A majority of the funds were reasonably diversified and reduced the unique risk. Consequently, unique risks and the returns were negatively associated. The study also exposes that about 58% of fund schemes were capable of beating the market by stock selection skills. So far as market timing is concerned, the fund managers almost failed both to book the profits in the up market and accumulate the stock in the down market.

In recent years, performance evaluation of mutual funds in India has received attention from both practitioners and academicians. For, such evaluation is vital for investors as well as the portfolio managers to take further investment decisions. It is generally believed that professional fund managers are better equipped in terms of access to information, processing skills and timing of the market, and hence, are expected to generate better returns on managed portfolios. Apart from the superior capability, higher returns may arise due to large exposure to risk, market boom and luck factors. In India, where capital market is relatively less matured, equity markets are volatile and common people are less aware, a question mark is put on the reliability of mutual funds, hence it is an important topic of research. Indian mutual fund industry has registered a remarkable growth in the recent decade and emerged as significant financial intermediary. Due to policy shift in 1993 in favor of private and foreign players, there are about 50 fund houses with 500 schemes and over 700,000 cr of assets under its management. Mutual fund is one of the most preferred investment avenues in India (www.amfiindia.com).

In this backdrop, the present study is devoted to measure the risk-adjusted performance of the equity diversified fund schemes in India. Besides, an attempt has been made to study the level of diversification and the returns on the fund schemes. Since the fund manager is considered as a better informed person and the one who possesses professional acumen, his stock selection ability has been tested by applying the popular measures. The fund manager is expected to calculate the market timing to improve the performance of the fund. Hence, his market timing ability has been calculated for the equity diversified fund schemes in India.

The rest of the paper is organized as follows: a brief introduction is followed by a review of the theoretical and empirical literature, and a discussion of methodology, concepts and database used in the study. Subsequently, results derived are discussed at length, and finally, conclusion is offered.

Financial Economics Journal, Fama-MacBeth Methodology, Capital Asset Pricing Model, Time Series Regressions, Cochrane Methodology, Market Risk Loadings, Fama-MacBeth Procedure, Industry Portfolios, Fama and Asset Pricing Model, French Asset Pricing Model.