Autoregressive Distributed Lag Approach for Estimating the Nexus between Net Asset Value of Mutual Fund and Economic Determinants in India

Sathish PACHIYAPPAN; Ankita SHRIVASTAVA; V John Paul RAJ; Saravanan VELLAIYAN

doi:10.14505/tpref.v14.1(27).15

Sathish PACHIYAPPAN School of Business and Management, CHRIST (Deemed to be University), Bangalore, India
Ankita SHRIVASTAVA School of Business and Management, CHRIST (Deemed to be University), Bangalore, India
V John Paul RAJ School of Business and Management, CHRIST (Deemed to be University), Bangalore, India
Saravanan VELLAIYAN School of Business and Management, CHRIST (Deemed to be University), Bangalore, India

DOI: https://doi.org/10.14505/tpref.v14.1(27).15

Abstract

India has seen a phenomenal growth in cumulative mutual fund investment from Rs 7.93 trillion in 2012 to Rs 40.38 trillion in 2022, which is more than a five-fold increase since last 10 years. Retail investors are now realizing the power of savings and Systematic Investment Plans (SIP) to build long term wealth. A financial literacy wave which is sweeping across India has projected mutual funds as a significant contributor and beneficiary of this phenomenon. The evolving economic landscape of India provides investors with excellent opportunities to capitalize on these fluctuations through systematic investment in safe investment vehicles like mutual funds. The market associated with mutual funds is always subjected to economic risks. The erratic fluctuations in macroeconomic variables can largely explain the Volatility in Net Asset Value (NAV) of equity oriented mutual fund schemes. With this background, this paper examines the impact of select macroeconomic variables on mutual funds’ performance in India. To analyse this, monthly observations of select macroeconomic variables, average NAV of large cap, mid cap, and small cap funds collected for a period of 10 years starting from January 2013 to November 2022. Descriptive statistics is used to probe the characteristics of the variable. In addition, correlation and ordinary least square method is applied to check the existing relationship and impact level of macroeconomic factors on NAV of select schemes. Lastly, short and long run relationship is analysed using Autoregressive Distributed Lag Model (ARDL).

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