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Synopsis Mutual fund industry has emerged as a dominant financial intermediary in Indian capital market. The industry manages financial assets of over Rs.2792 billions (AMFI, July 2006), contributed by an estimated 30 million investors, which shows the popularity of mutual funds. The assets have grown at an astronomical, compounded annualized growth rate of 48 per cent over a period of four decades (1965-2004). During the period of this study (1993-2002), the financial assets of mutual fund industry have witnessed compounded growth rate of 23 per cent. In 1987, nationalized banks were allowed to set up mutual funds. As a result, the monopoly of erstwhile Unit Trust of India as the sole player in mutual fund industry ended. During 1992-1993, the industry was opened to private sector, when the real competition in mutual fund industry is said to have begun. The private Asset Management Companies started swiftly with a share of 6.7 per cent (1999) and galloped to garner 75.2 per cent share of the industry total of Rs 1396 billions Assets under Management (AUM) at the end of March, 2004. Presently, (July 2006, AMFI), Private sector holds over 80 per cent share of AUM (Rs 2792 billions). This study analyses the financial performance of 36 diversified equity mutual funds in India, in terms of rates of return, comparison with risk free return, benchmark comparison and risk adjusted returns of diversified equity funds. The financial performance is a result of sound investment practices by the Asset Management Companies. Stock selectivity abilities of the fund managers and timing skills play an important role in bringing about superior performance. The study analyses these aspects and attempts to isolate factors responsible for significant differences in performance of sample funds. Fund size, ownership pattern of AMC and type of fund (Open or close ended) are the main factors considered in this study.