While the global mutual fund industry continues to grow by leaps and bounds, the research on mutual funds has been confined to only a few developed markets, with USA always getting a special attention. Although emerging markets such as India have attracted the attention of investors all over the world, they have remained devoid of much systematic research, especially in the area of mutual funds. In an effort to plug this gap, the present study sought to check the performance of mutual funds operation in India. In this regard, quarterly returns performance of all the equity-diversified mutual funds during the period from January 2002 to December 2006 was tested. Analysis was carried out with the help of Capital Asset Pricing Model (CAPM) and Fama-French Model. Amidst contrasting findings from the application of the two models, the study calls for further research and insights into the interplay between the performance determinant factor portfolios and their effect on mutual fund returns.

The mutual fund industry is among the most successful recent financial innovations. Over the past few decades, the mutual fund industry, both in the US and elsewhere, has exploded. While the US continues to be the largest market in terms of number of funds and assets under management, investors and researchers are generally unaware that US domiciled funds accounted for only 15% of the number of funds available globally and 60% of the world's fund assets (Khorana et al. 2005). Nor are they aware that the nation which is home to the second-largest fund industry (measured by fund assets) is Luxembourg, with 6.5% of world mutual fund assets, or that France and Korea offer the second-largest number of mutual funds available worldwide (13% of the world total for each country).

In aggregate, as of 2005 the global mutual industry held assets worth $17.8 tn (Investment Company Institute, 2006), almost doubling those managed in 1998 ($9.6 tn). Although the growth of the mutual fund industry started in the US, where the mutual fund industry plays an extremely important role in the economy, the trend has spread to a significant number of countries around the world. Mutual funds industry controls a sizeable stake of corporate equity and plays a fundamental role in the determination of stock prices (Grimblatt et al. 1995; Gompers and Metrick, 2001). As a result, investors are increasingly concerned about fund selection, demanding detailed mutual fund information and investment advice.

Applied Finance Journal, Indian Mutual Funds, Global Mutual Fund Industry, Capital Asset Pricing Model, CAPM, Indian Financial Markets, Indian Capital Markets, Gross Domestic Products, GDP, Arbitrage Pricing Theory, APT, National Stock Exchange, Managed Portfolios, Management Changes, Portfolio Management, Global Business, Financial Economics.