Decomposition of Time Series Data to Check Consistency between Fund Style and Actual Fund Composition of Mutual Funds

TL;DR

This paper introduces a new method using time series decomposition to analyze mutual fund compositions and verify if their actual holdings align with their declared styles, tested on Indian funds.

Contribution

A novel approach for analyzing mutual fund composition through time series decomposition to verify consistency with declared fund styles.

Findings

Most funds' actual allocations match their declared styles

Some funds show notable deviations from their proclaimed styles

The method provides detailed insights into fund composition consistency

Abstract

We propose a novel approach for analysis of the composition of an equity mutual fund based on the time series decomposition of the price movements of the individual stocks of the fund. The proposed scheme can be applied to check whether the style proclaimed for a mutual fund actually matches with the fund composition. We have applied our proposed framework on eight well known mutual funds of varying styles in the Indian financial market to check the consistency between their fund style and actual fund composition, and have obtained extensive results from our experiments. A detailed analysis of the results has shown that while in majority of the cases the actual allocations of funds are consistent with the corresponding fund styles, there have been some notable deviations too.