Do Ethical Funds Underperform Conventional Funds? - Empirical Evidence from India

International Journal of Business Ethics in Developing Economies, Vol. 04 No. 02, pp. 10-19, December 2015

10 Pages Posted: 16 Nov 2015

See all articles by Vanita Tripathi

Vanita Tripathi

Department of Commerce, Delhi School of Economics,University of Delhi, India; University of Delhi India - Delhi School of Economics - Department of Commerce

Varun Bhandari

University of Delhi - Department of Commerce

Multiple version iconThere are 2 versions of this paper

Date Written: November 16, 2015

Abstract

One of the significant developments in the investing community is the rise of socially responsible or ethical investments during last two decades. Because of the increasing size and importance of ethical mutual funds, this paper seeks to evaluate and compare the performance of ethical mutual funds with general funds and benchmark index (S&P BSE Shariah 500 Equity Index) in the Indian market. The sample comprises six ethical fund schemes and three general fund schemes of Tauras mutual fund over the period 2009-2014 using weekly NAVs. The study uses return, risk, risk-adjusted measures (Sharpe ratio, Treynor ratio, Jensen’s alpha and information ratio), Fama’s decomposition measure, paired samples t-test, and growth regression equation to accomplish the objectives. The findings suggest that some of the ethical funds generated significantly higher return than other funds and benchmark index. Despite having higher risk, ethical funds outperformed other funds and benchmark index on the basis of various risk-adjusted measures and net selectivity returns. This indicates that the compromise made with respect to diversification by investing in ethical funds was well rewarded in terms of higher returns in Indian context. Our findings lend support to the case of ethical investing in India. Mutual funds and other investment funds should launch schemes which invest in socially responsible or ethical stocks.

Keywords: Corporate Social Responsibility, Ethical Investing, Fama’s Decomposition Measure, Mutual Funds, Socially Responsible Investing

JEL Classification: G11, G20, G23, M14

Suggested Citation

Tripathi, Vanita and Tripathi, Vanita and Bhandari, Varun, Do Ethical Funds Underperform Conventional Funds? - Empirical Evidence from India (November 16, 2015). International Journal of Business Ethics in Developing Economies, Vol. 04 No. 02, pp. 10-19, December 2015, Available at SSRN: https://ssrn.com/abstract=2691265

Vanita Tripathi

Department of Commerce, Delhi School of Economics,University of Delhi, India ( email )

Department of Commerce, Delhi school of Economics,
Delhi, Delhi 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/

University of Delhi India - Delhi School of Economics - Department of Commerce ( email )

Department of Commerce
Delhi University
Delhi, 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/

Varun Bhandari (Contact Author)

University of Delhi - Department of Commerce ( email )

University Road
Delhi, 110 007
India

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