Analyzing Mutual Funds Performance: The Case of Emerging Mauritian Economy 47 Analyzing Mutual Funds Performance: The Case of Emerging Mauritian Economy © 2009 The Icfai University Press. All Rights Reserved. Beehary Nitish 1 , Rojid Sawkut 2 , Seetanah Boopen 3 , Sannassee Vinesh 4 and Fowdur Suraj 5 1 Researcher, FLM, University of Mauritius, Reduit, Mauritius. E-mail: djnits4u@yahoo.com 2 Professor, FLM, University of Mauritius, Reduit, Mauritius; and the corresponding author. E-mail: s.rojid@uom.ac.mu 3 Professor, University of Technology, Mauritius, La tour Koenig, Mauritius. E-mail: b.seetanah@utm.intnet.mu 4 Professor, FLM, University of Mauritius, Reduit, Mauritius. E-mail: rvsan@uom.ac.mu 5 Professor, FLM, University of Mauritius, Reduit, Mauritius. E-mail: s.fowdar@uom.ac.mu Introduction Mauritius’s mutual fund market has been growing rapidly and is now at par with other developing nations. Among the most important factors that explain its growth are, development of the financial market and the need for advanced investment tools. These give the financial institutions the opportunities to develop and offer a number of different financial products. In many developing countries, including Mauritius, the financial system is often dominated by banks, which are typically oligopolistic in structure, and concentrate on short-term lending rather than lending for long-term projects that are critical for rapid economic growth and development. Therefore, the development of Non-Bank Financial Institutions (NBFIs) that deal mainly in the capital market, becomes imperative. The more widened the base of financial institutions, the more the possibilities of risk. Moreover, the government of Mauritius is continuously encouraging the development of the mutual fund market and desires to provide a good capital market environment. Existing and new investors are also showing greater interest in such type of investments. This paper analyzes the performance of Mauritian mutual funds by initially investigating the performance of the mutual funds on a risk-adjusted basis and then on an individual basis with respect to their respective benchmark performances. The results show that the rankings obtained by applying both the Sharpe and Treynor rules are almost the same, implying that the funds appear to be well-diversified. Moreover, the majority of funds selected are reported to have a relatively high Sharpe ratio, thus indicating a pretty good performance. However, the positive Jensen’s alpha indicates that fund managers through their stock picking skills, privileged information or intuition have ‘beaten the market’. Individual analysis revealed that funds are heavily dependent on the performance of the local stock market, that is, they move in line with the market index. Interestingly, those mutual funds investing heavily in the local stock market are reported to ‘beat the market’.