Accounting-Based Performance Evaluation and Risk Measurement in Financial Reporting: A Conceptual Evaluation of Indian Flexi-Cap and Large-Cap MutualFunds
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The present study examines the Capital Asset Pricing Model as a framework for accounting-based performance and risk measurement in the financial reporting of Indian Flexi-Cap and Large-Cap mutual funds during the post-reclassification period. Monthly fund returns were computed from reported Net Asset Values, while benchmark excess returns were proxied using NIFTY 500 TRI for Flexi-Cap funds and NIFTY 50 TRI for Large-Cap funds. The 91-day Treasury Bill rate was employed as the proxy for the risk-free rate and the study evaluated the performance of mutual funds from April 2021 to March 2025. The Capital Asset Pricing Model is interpreted not merely as an asset-pricing model, but as a conceptual framework for understanding Net Asset Value-based reporting and standardised performance evaluation.
The findings indicate that mutual fund returns are explained largely by systematic market exposure, while statistically significant abnormal performance is limited to only a few schemes. This suggests that the post-reclassification environment has improved comparability and strengthened the interpretation of mutual fund performance through market-linked risk measures. In this context, beta represents systematic risk in reporting, whereas alpha serves as a limited indicator of abnormal accounting performance. The study contributes to accounting research by repositioning the Capital Asset Pricing Model as a framework that contributes to the standardisation of performance measurement, provides a theoretical basis for measuring risk-adjusted returns and enhances comparability of financial reporting. The study extends the discussion beyond model validation to an accounting-oriented theoretical interpretation.
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