“Risk Management Effectiveness and Perceived Portfolio Risk Performance: Empirical Evidence from Indian Asset Management Companies.”

Risk Management Effectiveness, Perceived Portfolio Risk Performance, Risk Governance, Hybrid Mutual Funds, Portfolio Resilience, Downside Risk.

The expansion of the Indian mutual fund industry, along with its product diversification and portfolio complexity, has further solidified the requirement for robust and efficient risk management frameworks in the asset management companies (AMCs). While several studies have assessed the performance of mutual funds based on ex-post risk-adjusted performance, there is limited empirical work examining the link between the effectiveness of the institutional risk management process and portfolio performance. Drawing on Modern Portfolio Theory and Risk Management principles, this study aims to explore the association between Risk Management Effectiveness (RME) and Perceived Portfolio Risk Performance (PRP) in Indian Asset Management Companies (AMCs), with particular reference to hybrid mutual funds.

The study adopts a cross-sectional, primary data-driven design based on structured responses from 100 professionals engaged in investment, portfolio management and risk functions within Indian AMCs. The questionnaire was developed through a review of the literature, expert assessment, and pilot testing. Risk Management Effectiveness was conceptualised as a multidimensional construct comprising risk management practices, governance mechanisms, and operational risk control effectiveness.  The construct covered policy communication, documented risk framework, diversification, quantitative risk measurement, liquidity and credit risk assessment, periodic analysis, risk limits and regulatory compliance. Composite scores were calculated using mean values of the relevant five-point Likert scale items. Reliability, exploratory validity, correlation and regression analysis were undertaken.

The findings show a statistically significant positive relationship between Risk Management effectiveness (RME) and Perceived Portfolio Risk Performance (PRP) (β = 0.694, p < 0.001), with Risk Management Effectiveness explaining 48.2% of the variation in Perceived Portfolio Risk Performance (R² = 0.482; Adj. R² = 0.477). The findings suggest that structured risk processes are associated with stronger portfolio stability, downside risk control, and perceived risk-adjusted performance.

By moving its focus from conventional performance measures to institutional-level risk practices, the study provides an understanding of how risk governance is associated with mutual fund outcomes in emerging markets. The findings highlight the need for a well-designed risk framework in supporting portfolio resilience and sustainable risk-return management. However, since the study is based on cross-sectional perceptual data, the results should be interpreted as an association rather than causation.