Sectoral Bets Or Strategic Allocations? Evaluating Indian Mutual Funds Through Efficiency Models

Abstract

This study examines the performance of 16 sectoral mutual funds across four major industries—Infrastructure, Banking, Pharma, and FMCG—over a five-year horizon. Using metrics such as average returns, absolute returns, benchmark comparisons, risk profiles, and performance ratios (Sharpe, Treynor, Jensen’s Alpha, and Fama decomposition), the research identifies sector-specific strengths and weaknesses. Infrastructure and Pharma funds show strong absolute returns, with Pharma emerging as the most consistent long-term wealth creator. FMCG funds deliver stable but moderate returns, while Banking funds underperform across most horizons. An efficient portfolio, constructed through the Markowitz optimization model, highlights a dominance of FMCG and BFSI funds, generating a 9.5% return with controlled volatility. The findings underscore the relevance of sectoral diversification and the importance of risk-adjusted performance for long-term investment strategies.