N Bajpai, chairman of the four-member Jury to select the Business Standard Fund Managers of the year, summed up the over two-hour long discussions, by saying that "a flash of a performance certainly does not entitle an individual to an award. It must be consistency". The other criteria that the Jury members looked at during their over two-hour long discussions was the quality of the portfolio which does not carry unnecessary risks.
That was the reason why the Jury took a close look at the Sharpe ratio, which measures the return for every unit of risk taken and is a better way to measure a fund's performance rather than looking at absolute returns. The adjusted Sharpe ratio is a step forward as it takes into account the total assets managed by a fund manager (across all schemes in the respective category) in relation to the total assets of the category.
In short, a ranking based on the weighted average Sharpe reflects the difficulty of yielding superior returns taking into account the asset size and the performance of all the schemes managed by a fund manager. The 91 days Treasury bills' average return during the 12 months period was considered as the risk-free return for both, equity and debt funds. This was to ensure that fund managers taking risk were appropriately rewarded.
It's not a surprise that the adjusted Sharpe ratio achieved by the winners was way ahead of the second best in their respective categories, which reflects the superior risk-adjusted returns they have delivered during this period.
The Jury comprised of G N Bajpai, former chairman of SEBI and LIC and current Chairman & Trustee of the NPS Trust; Pratip Chaudhuri, recently-retired chairman, State Bank of India; Ashvin Parekh, Senior Expert & Advisor, Financial Services, Ernst & Young; and Pradip P Shah, Chairman, IndAsia Fund Advisors.
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