Optimal Portfolio Selection of Equity Mutual Funds using Genetic Algorithm: An Indian Perspective

Abstract

The key issue with financial investing selections is choosing the best portfolios. To maximise profit and reduce risk, investors must be able to choose the ideal mix and percentage of shares. This study aims to obtain an optimal portfolio selection of Indian Equity Mutual Funds by minimizing risk and maximizing return using the Genetic Algorithm. All the equity mutual funds with inception before January 2015 are considered and their monthly returns are calculated. The funds with positive average return and negative skewness of return are taken into consideration. Since a mutual fund's performance is evaluated in relation to the market, the portfolio is built by selecting those with a low standard deviation and a high beta value using an investor perception map. The market benchmark, the BSE 100, is used, and their monthly returns for the same time period are determined. Using the Genetic Algorithm, the funds in the portfolio have been given the proper weightage ensuring minimum risk and maximum return. This study will guide the investors to choose mutual funds wisely as well as instruct them on how to distribute proper investment weighting, which will aid them in making future investment decisions.