Prospect Theory Modified Omega Ratio Performance Evaluation of Indian Large Cap Oriented Mutual Funds

Abstract

Mutual funds, as an investment avenue, has seen increased popularity in India over the last five decades. From the first scheme, which was introduced in 1964 by UTI, the industry has seen significant growth in the contribution of investors. The Assets under Management which stood at INR. 25 Cr at the end of March 1965, has swelled up to almost INR. 18,48,000 Cr by the end of February 2017. As an investment vehicle, it was primarily targeted towards individual investors. However, the industry has seen large participation from institutions, mainly in the debt schemes over the years. Equity oriented schemes, though lower in the proportion of assets in comparison to debt, on the other hand, have a larger contribution of over 85% coming from individuals. With a vast variety of schemes offered for investments by the growing number of fund houses, evaluating the performance of mutual funds becomes important for investors to overcome the challenge of plenty while choosing between alternatives. The Investment decision is basically an economic function, of choosing the right alternative, to meet the objectives in the most efficient manner. In this regard, there have been many decision making theories that have emerged from the 17th century onwards. Starting with Expected value theory, which states that the investor is primarily concerned with maximizing value while evaluating alternatives. There have been many theories in the following period that have outlined the process in greater detail. Academic literature through empirical evidence tried to get more insight into decision behavior and devised prominent theories to better explain the decision making process of an individual. One such theory which has been widely accepted is the Expected Utility theory. This theory states that the Utility derived out of the outcome is more important to the decision maker in comparison to the outcome itself. And hence, the individual looks at maximizing utility instead of value...