In this paper we evaluate the performance of eight open-end mutual funds in the Republic of Serbia for the period 2009-2012, with the aim of testing the justification of active portfolio management of mutual funds, and determining the selection capability of Serbian portfolio managers. Risk-weighted returns of mutual funds are compared with the risk-weighted return of the leading Belgrade Stock Exchange index, Belex15, whereas the following are used as performance measures: Sharpe ratio (Si), Treynor ratio (Ti), and Jensen's or Alpha index (αi). The results suggest that the portfolio of Serbian mutual funds has inferior performance compared to the market portfolio, which indicates the lack of selection capabilities of domestic portfolio managers.