Moderating Effect of Performance Evaluation Behavior Linking Perceived Risk Return Analysis of Selected Large Cap and Flexi Cap Mutual Funds in India

Abstract

Aim -The study aims to understand the impact of risk and return on the performance evaluation of Large Cap and Flexi-Cap Mutual Funds in India. This study further evaluates the moderating role of fund rating about performance evaluation behavior of Large Cap and Flexi-Cap Mutual Fund schemes in India.

Methods-The portfolio evaluation of Large Cap and Flexi-Cap Mutual Fund schemes in India using volatility measures such as quantitative factors like Total Risk (Standard Deviation), Beta, systematic risk and unsystematic risk the ratios such as Sharpe and Jensen’s Alpha. Data for research are collected from the secondary data sources and selected from 25 Large Cap Mutual Fund schemes and 30 Flexi-Cap Mutual Fund schemes in India. The collected data were examined using a Partial Least Squares (PLS) Structural Equation Modeling (SEM) modeling approach was employed for fulfilling the objective of study.

Results/Findings – According to the data, the reliability indicator displays values for all indicators with loading factors more than 0.70 and Average Variance Extracted (AVE) values greater than 0.50. The composite dependability has a Cronbach alpha score of 0.70 or above for internal consistency reliability. Exogenous variables such as risk and return can be utilized to predict the endogenous variable of risk adjusted return (85%), with the remaining 20% influenced by factors outside the scope of this study. The predictive modeling power of the endogenous risk adjusted return variable is high (0.855). Exogenous variables such as risk and return can be utilized to predict the endogenous variable of risk adjusted return (85%), with the remaining 20% influenced by factors outside the scope of this study. Risk behaviour has been shown to operate as a moderator of the link between risk and return components and risk adjusted returns. According to the criteria (0.02 = weak/low, 0.15 = moderate, and 0.35 = strong/high), external latent factors have a significant impact on endogenous variables.

Conclusion -The moderating role of Performance Evaluation Behavior (PEB) for decision making regarding Risk adjusted returns provides important insights for the investing sector.  Therefore, it can be said that the Performance Evaluation Behavior (PEB) moderation is higher in the Risk than Return when analyzing the relationship with Risk adjusted returns.