Performance and Risk-Return Dynamics of Top Indian Mutual Fund Schemes across Market Capitalizations: An Empirical Evaluation

Abstract

In a complex financial environment, investors face continuous trade-offs between risk, return, and portfolio volatility across asset management companies (AMCs). While traditional bank fixed deposits offer capital safety, equity-oriented mutual funds have emerged as the primary engine for long-term wealth creation in India due to active professional management and portfolio diversification. This empirical study evaluates the risk-return performance of top equity-oriented mutual fund schemes across Large-Cap, Mid-Cap, and Small-Cap categories offered by the top five Indian AMCs by Assets Under Management (AUM): SBI Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual Fund, Kotak Mahindra Mutual Fund, and Aditya Birla Sun Life Mutual Fund. Utilizing key quantitative risk metrics—Standard Deviation (sigma), Beta (beta), Sharpe Ratio, Treynor Ratio, and Jensen\'s Alpha—this paper measures risk-adjusted performance alongside expense ratios across market capitalizations. The findings provide actionable insights for retail and institutional investors constructing goal-aligned portfolios under the evolving regulatory framework governed by the Securities and Exchange Board of India (SEBI).

Introduction

The text presents a comparative study of equity mutual funds in India, focusing on the relationship between returns, risk, and costs across the leading five Asset Management Companies (AMCs): SBI Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual Fund, Kotak Mahindra Mutual Fund, and Aditya Birla Sun Life Mutual Fund.

The study explains that the Indian mutual fund industry has grown rapidly due to Systematic Investment Plans (SIPs), digital investment platforms, and increasing financial awareness. Although equity mutual funds can provide higher long-term growth than traditional savings products, the large number of available schemes makes investment selection difficult. Therefore, investors should consider not only returns but also risk-adjusted performance and expense ratios.

The research uses secondary financial data from sources such as AMC reports, AMFI, Morningstar, and Value Research. It evaluates funds across large-cap, mid-cap, and small-cap categories using key financial measures:

• Standard Deviation – measures total volatility.
• Beta – measures sensitivity to market movements.
• Sharpe Ratio – measures return earned per unit of total risk.
• Treynor Ratio – measures return earned per unit of systematic risk.
• Total Expense Ratio (TER) – measures the annual cost charged by the fund.

Major Findings

• Mid-cap funds: HDFC Mid-Cap Opportunities Fund showed strong performance, with high returns and the best combination of Sharpe and Treynor ratios, indicating effective risk-adjusted performance.
• Small-cap funds: HDFC Small Cap Fund produced strong long-term returns and a high Sharpe ratio, while SBI Small Cap Fund had lower market sensitivity (Beta 0.78) and a competitive expense ratio.
• Large-cap funds: Lower-volatility funds such as Kotak Equity Opportunities and SBI Large & Mid Cap were considered suitable for investors seeking stability, while ICICI Prudential Large & Mid Cap showed stronger risk-adjusted efficiency.

Conclusion

Selecting equity mutual funds requires evaluating risk-adjusted efficiency metrics (Sharpe and Treynor ratios) and total expense structures rather than relying solely on trailing returns. While aggressive market-cap categories (Mid-Cap and Small-Cap) offer substantial wealth-creation opportunities, they entail higher portfolio volatility. Mainstream investors benefit from diversifying across market capitalizations while aligning scheme selection with personal risk tolerance, target investment horizons, and financial goals.

References

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Copyright

Copyright © 2026 Kushal Manohar Dharmik, Dr. Sunil M. Ikharkar. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.