PREDICTIVE ABILITY OF RISK-ADJUSTED PERFORMANCE MEASURES: EVIDENCE FROM INDIAN EQUITY MUTUAL FUNDS

This short paper examines whether widely used risk-adjusted performance measures possess forward-looking value in the context of Indian equity mutual funds. Using secondary daily NAV data for 30 large-cap and flexi-cap schemes over March 2021 to March 2026, the study evaluates Sharpe Ratio, Sortino Ratio, and Information Ratio in a two-stage design that separates estimation-period rankings from subsequent future returns. Funds are sorted into top and bottom portfolios on the basis of past risk-adjusted performance, and their later average returns are compared using portfolio spread analysis supplemented by simple statistical tests. The evidence indicates that higher-ranked funds generally deliver stronger future returns than lower-ranked funds, with average daily return spreads of about 0.031–0.032 percentage points across the three measures. Flexi-cap schemes also exhibit stronger category-level averages than large-cap schemes. The results suggest that risk-adjusted measures carry economically meaningful information for fund screening, although they should be interpreted together with fund style, market conditions, and other qualitative considerations.