Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
ABSTRACT
Financial system in a country plays a dominant role in assets formation and intermediation,
and contributes substantially in macroeconomic development. In this process of development
mutual funds have emerged as strong financial intermediaries and are playing a very
important role in bringing stability to the financial system and efficiency to resource
allocation.
Mutual funds play a crucial role in an economy by mobilizing savings and investing them in
the capital market, thus establishing a link between savings and the capital market. The
activities of mutual funds have both short-and long-term impact on the savings and capital
markets, and the national economy.
The Indian Mutual fund Industry has witnessed a structural transformation during the past few
years. Therefore it becomes important to examine the performance of the mutual fund in the
changed environment. This research report has evaluate the performance of Indian Mutual
fund equity scheme by using monthly NAV returns of 10 equity Growth funds of 5 years past
data from 1-1-2003 to 30-04-2007. BSE sensex has been used as a proxy for the market
portfolio, while 364 day Treasury bills (T-bills) have been used as a surrogate for risk free
rate of return. The performance of funds has been computed by using Jensen’s ratio. To
evaluate investment performance of mutual funds in terms of risk and return. To examine the
funds sensitivity to the market fluctuations in terms of beta. To appraise investment
performance of mutual funds with risk adjustment the theoretical parameters as suggested by
Sharpe, Treynor and Jensen. To rank the funds according to Jensen’s performance measure.
There is no conclusive evidence which suggests that performance mutual funds superior to the
market. However there is some evidence that some of the funds are performing better than the
market.
INTRODUCTION
A Mutual Fund is a trust that pools the savings of a number of Investors who share a common
financial goal. The money thus collected is invested by the fund manager indifferent types of
securities depending upon the objective of the scheme. These could range from shares to
debentures to money market Instruments. The income earned through these investments and
the capital appreciations realized by the scheme are shared by its unit holders in proportion to
the number of units held by them. Thus a mutual fund is the most suitable for the common
man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a
relatively low cost. Anybody with an invest able surplus of as little as a few thousand rupees
can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective
and strategy.
A Mutual Fund is the ideal investment vehicle for today’s complex and modern financial
scenario. Markets for Equities, Bonds and other Fixed Income Instruments, real estate,
derivatives and other assets are driven by global events occurring in faraway places. Atypical
individual is unlikely to have the knowledge, skills, inclination and the time to keep track of
events, understand their implications and act speedily. An Individual also finds it difficult to
keep track of ownership of his assets, brokerage, dues and bank transactions etc.
A Mutual Fund is the answer to all these situations. It appoints professionally qualified and
experienced staff that manages each of these functions on full time
basis. The large pool of money collected in the fund allows it to hire such staff at a very low
cost to each investor. In effect, the mutual fund vehicle exploits economies of Scale in all
In 1963, UTI was established by an Act of Parliament and given a monopoly. UTI
commenced its operations from July 1964 .The impetus for establishing a formal institution
came from the desire to increase the propensity of the middle and lower groups to save and to
the gain or loss of the fund. Units are issued and can be
redeemed as needed. The fund's Net Asset Value (NAV) is determined each day.
In simple words, a mutual fund is a trust, which collects the savings from small
investors, invest them in government securities and earn through interest, dividends and
capital gains.
For instance, if one has Rs. 1000 to invest, it may not fetch much on its own. But,
when it is pooled with Rs. 1000 each from a lot of other people, then one could create a big
fund. Large enough to invest in wide varieties of shares and debentures on a commanding
scale and thus, to enjoy the economies of large scale operations.
DEFINITIONS:
The SEBI, 1993 defines a Mutual Fund as .a fund established in the form of a trust by
a sponsor, to raise monies by the trustees through the sale of units to the public, under one or
more schemes, for investing in securities in accordance with these regulations.
According to Weston J. Fred and Brigham, Eugene, unit trusts are: “Corporations
which accept dollars from savers and then use these dollars to buy stocks, long term
bonds and short term debt instruments issued by business or government units; these
corporations pool funds and thus reduce the risk of diversification.”
A mutual fund invites the prospective investors to join the fund by offering various
schemes so as to suit to the requirements of categories of investors. The resources of
individual investors are pooled together and the investors are issued units/shares for the
money invested. The amount so collected is invested in capital market instruments like
treasury bills, commercial papers, etc.
For managing the fund, a mutual fund gets an annual fee of 1.25% of funds managed
at the maximum as fixed by SEBI (MF) regulations, 1993 and if the funds exceed Rs. 100
cores , the fee is only 1%. The fee cannot exceed 1%. Off course, regular expenses like
custodial fee, cost of dividend warrants, fee for registration, the asset management fee etc are
The flow chart below describes broadly the working of a mutual fund:
Sponsoring Institution:
The Company, which sets up the mutual fund, is called the Sponsor. SEBI has laid
down certain criteria to be met by the sponsor. The criterion mainly deals with adequate
experience, good past track record, net worth etc.
Sponsor appoints the Trustees, Custodian and the AMC with the prior
Trustees:
Trustees are the people with long experience and good integrity in the respective
fields carry the crucial responsibility in safeguarding the interests of the investors. For this
purpose, they monitor the operations of the different schemes. They have wide ranging
powers and they can even dismiss AMC with the approval of SEBI.The Indian Trust Act
governs those rules regarding appointment of the Trustees are:
• Appointment of Trustees has to be done with the prior approval of SEBI.
• There must be at least 4 members in the Board of Trustees and at least
2/3rd of the members of the Board of Trustees must be independent.
• Trustees of one Mutual Fund cannot be a Trustee of another Mutual Fund, unless he is
an independent trustee in both cases, and has the approval of both the Boards.
Rights of Trustees:
Trustees appoint the AMC, in consultation with the sponsor and according
to SEBI Regulations.
All mutual Fund Schemes floated by the AMC have to be approved by the
Trustees.
Trustees can seek information from the AMC on the operations and compliance of the
Mutual Fund, with the provisions of the trust Deed, investment management
agreement and the SEBI Regulations.
Trustees can review and ensure that Net worth of the AMC is according to stipulated
norms and regulations.
The AMC actually manages the funds of the various schemes. The AMC employs
a large number of professionals to make investments, carry out research & to do agent and
investor servicing. Infact, the success of any Mutual Fund depends upon the efficiency of this
AMC. The AMC submits a quarterly report on the functioning of the mutual fund to the
trustees who will guide and control the AMC.
The AMC is usually a private limited company, in which the sponsors and their
associations or joint venture partners are shareholders. The AMC has to be registered by SEBI
and should have a minimum Net worth of Rs.10 cores all times. The role of the AMC is to act
as the Investment Manager of the Trust along with the following functions:
• It manages the funds by making investments in accordance with the
provision of the Trust Deed and Regulations
• The AMC shall disclose the basis of calculation of NAV and Repurchase
price of the schemes and disclose the same to the investors.
• Funds shall be invested as per Trust Deed and Regulations.
AMC.s cannot launch a fund scheme without the prior approval of Trustees.
AMC.s have to provide full details of Employees and Board Members, in
all cases where such investments exceed Rs. 1 lakh.
AMC.s cannot take up any activity that is in conflict with the activities of the
mutual funds.
Custodian:
Custodians are responsible for the securities held in the mutual funds portfolio.
They discharge an important back-office function, by ensuring that securities that are bought
are delivered and transferred to the books of mutual funds, and that funds are paid-out when
mutual fund buys securities. They keep the investment account of the mutual fund, and also
collect the dividends and interest payments due on the mutual fund investments. Custodians
also track corporate actions like bonus, issues, right offers, offer for sale, buy back and open
offers for acquisition.
There are many entities involved and the diagram below illustrates the
organisational set up of a mutual fund:
Institutions:
General Insurance Corporation AMC
IDBI Principal Asset Management Co.
Jeevan Bima Sahayog Asset Management Co. Ltd.
Private Sector:
1. India
Benchmark AMC Ltd.
Cholamandalam AMC Ltd.
Escorts AMC Ltd.
J.M. Capital Management Co. Ltd.
Kotak Mahindra AMC Ltd.
Shriram AMC Ltd.
Indian financial institutions have played a dominant role in assets formation and
intermediation, and contributed substantially in macroeconomic development. In this process
of development Indian mutual funds have emerged as strong financial intermediaries and are
playing a very important role in bringing stability to the financial system and efficiency to
resource allocation.
Mutual funds play a crucial role in an economy by mobilizing saving
and investing them in the capital market, thus establishing a link between
savings and the capital market.
The activities of mutual funds have both short-and long-term impact on the savings
and capital markets, and the national economy. Mutual funds, thus, assist the process of
financial deepening and intermediation. They mobilize funds in the savings market and act as
complementary to banking; at the same time they also compete with banks and other financial
institutions. In the process stock market activities are also significantly influenced by mutual
funds.
There is thus hardly any segment of the financial market, which is not (directly or
indirectly) influenced by the existence and operation of mutual funds. However, the scope and
efficiency of mutual funds are influenced by overall economic fundamentals: the inter
relationship between the financial and real sector, the nature of development of the savings
and capital markets, market structure, institutional arrangements and overall policy regime.
Every mutual fund shall along with the offer document of each scheme pay filing fees.
The offer document shall contain disclosures which are adequate in order to enable the
investors to make informed investment decision
No one shall issue any form of application for units of a mutual fund unless the form is
accompanied by the memorandum containing such information as may be specified by
the Board.
Every close ended scheme shall be listed in a recognized stock exchange within six
months from the closure of the subscription.
The asset management company may at its option repurchase or reissue the
repurchased units of a close-ended scheme.
A close-ended scheme shall be fully redeemed at the end of the maturity period.
"Unless a majority of the unit holders otherwise decide for its rollover by passing a
resolution".
The mutual fund and asset management company shall be liable to refund the
application money to the applicants,-
(I) If the mutual fund fails to receive the minimum subscription amount referred to in clause
(a) of sub-regulation.
(ii) If the moneys received from the applicants for units are in excess of subscription as
referred to in clause (b) of sub-regulation (1).
The asset management company shall issue to the applicant whose application has
been accepted, unit certificates or a statement of accounts specifying the number of
units allotted to the applicant as soon
as possible but not later than six weeks from the date of
closure of the initial subscription list and or from the date of receipt of the request
from the unit holders in any open ended scheme.
• The money collected under any scheme of a mutual fund shall be invested only in
transferable securities in the money market or in the capital market or in privately
placed debentures or securitized debts.
• Provided that moneys collected under any money market scheme of a mutual fund
shall be invested only in money market instruments in accordance with directions
issued by the Reserve Bank of India
.
• The mutual fund shall not borrow except to meet temporary liquidity needs of the
Mutual funds for the purpose of repurchase, redemption of units or payment of Interest
or dividend to the unit holders.
• The mutual fund shall not advance any loans for any purpose.
• The Net Asset Value of the scheme shall be calculated and published at least in two
daily newspapers at intervals of not exceeding one week.
• The price at which the units may be subscribed or sold and the price at which such
units may at any time be repurchased by the mutual fund shall be made available to
the investors.
Open-ended schemes:
The open-ended schemes do not have a fixed maturity and are open for subscription the whole
year. One can buy and sell units at the NAV related prices to the Mutual funds. These
schemes are normally not listed on the stock exchanges and can be redeemed directly to the
Mutual Fund
.
Close-ended Schemes:
The closed ended schemes can be bought and sold on the stock exchange subsequent to the
initial subscription through the public offer. One can stay invested in the scheme for a
stipulated period ranging from 2 to 15 years.
Generally, the close-ended schemes are traded at a discount to their NAV in the
stock exchange.
Growth/Equity Scheme :
Majority of the corpus of such a scheme is invested in equities and equity related instruments.
This kind of scheme is for those investors who are not risk averse and are willing to hold on to
their investment for a long period of time,caring little for volatility. In such schemes, dividend
may or may not be declared.
Balanced Schemes:
Fund Manager of such funds invests in both equity as well as debt markets in the proportion
as that highlighted in the prospectus. The objective of such a scheme is to provide both
growth and income by distributing a part of the income and capital gains they earn. Such a
scheme is suitable for investors who want long-term returns without taking the entire risk of
the equity market.
2. Pension Schemes:
A unit holder in a Pension Scheme can avail of a tax rebate of 20 per cent for
investments up to Rs 60,000 (tax saving of Rs 12,000).
Small investments:
Mutual funds help you to reap the benefit of returns by a portfolio spread across a wide
spectrum of companies with small investments. Such a spread would not have been possible
without their assistance.
Spreading Risk:
An investor with a limited amount of fund might be able to invest in only one or
two stocks / bonds, thus increasing his or her risk. However, a mutual fund will spread its risk
by investing a number of sound stocks or bonds. A fund normally
invests in companies across a wide range of industries, so the risk is diversified at the same
time taking advantage of the position it holds. Also in cases of liquidity crisis where stocks
are sold at a distress, mutual funds have the advantage of the redemption option at the NAVs.
Liquidity:
Closed ended funds have their units listed at the stock exchange, thus they can be bought and
sold at their market value. Over and above this the units can be directly redeemed to the
Mutual Fund as and when they announce the repurchase.
Choice:
The large amounts of Mutual Funds offer the investor a wide variety to choose from. An
investor can pick up a scheme depending upon his risk / return profile.
Regulations:
All the mutual funds are registered with SEBI and they function within the provisions of strict
regulation designed to protect the interests of the investor.
Flexibility:
Investors can exchange their units from one scheme to another, which cannot be done in other
kinds of investments. Income units can be exchanged for growth units depending upon the
performance of the funds.
Potential yields:
The pooling of funds from a large number of customers enables the fund to have large funds
at its disposal. Due to these large funds, mutual funds are able to buy cheaper and sell dearer
than the small & medium investors. Thus, they are able to get better market rates and lower
rates of brokerage. So, they provide better yields to their customers. They also enjoy the
economies of scale and reduce the cost of capital market participation. The transaction costs
of large investments are quite lower than that of small investments. All the profits are passed
on to the investor in the form of dividends and capital appreciation. Mutual funds have a
return ranging from 12-17% p.a.
Mutual funds are not free from risks as the funds so collected are invested in
stock markets, which are volatile in nature and are not risk free. The following risks are
generally involved in mutual funds are
Market risks:
In general, there are many kinds of risks associated with every kind of investment on shares.
They are called market risks. These market risks can be reduced, but not completely
eliminated even by a good investment management. The prices of shares are subject to wide
price fluctuations depending upon market conditions over which nobody has control. The
various phases of business cycle such as boom, Recession, Slump and Recovery affects the
market conditions to a larger extent
.
Scheme risks:
There are certain risks inherent in the scheme itself. For instance, in a pure growth scheme,
risks are greater. It is obvious because if one expects more returns as in the case of a growth
scheme, one has to take more risks.
Investment risk:
Whether the mutual fund makes money in shares or loses depends upon the investment
expertise of the Asset Management Company (AMC). If the investment advice goes wrong,
the fund has to suffer a lot. The investment expertise of various funds are different and it is
reflected on the returns, which
they offer to the investors.
Business Risk:
The corpus of a mutual fund might have been invested in a company’s shares. If the business
of that company suffers any set back, it cannot declare any dividend. It may even go to the
extent of winding up its business. Though the mutual funds can withstand such a risk, its
income paying capacity is affected.
Political risks:
Every government brings new economic ideologies and policies. It is often said that many
economic decisions are politically motivated. Change of government brings in the risk of
uncertainty, which every player in the finance service industry has to face.
Sahara Mutual Fund was setup on July 18, 1996 with Sahara
India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private
Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The
paid up capital of the AMC stands at Rs.25.8 cr.
Open-End Income and Liquid Schemes, Closed-End Income Schemes and Open-End Fund Of
Funds Schemes to offer.
Industry and commerce so as to bring about the integration of the Indian economy
with the global economy. With the growth of the economy and the capital market in India, the
size investor has also increased rapidly. Thus The Government of India introduced economic
reforms in the field of trade involvement of mutual funds in the transformation Indian
economy has made it urgent to view their services not only as financial intermediary but also
as pace setter as they are playing a significant role in spreading equity culture. In this context
close monitoring and evaluation of mutual funds has become essential for fund managers to
make this instrument as the strongest and most preferred instrument in Indian capital market
in the coming years.
It has been established that the single most important factor that has a strong bearing on
investor’s interest and growth of mutual fund industry is its superior financial performance.
The financial performance may be defined in terms of .rates of return., .risk-adjusted returns.
or .benchmark comparison.. .Jensen’s alpha. is another widely used measure of portfolio
performance: It indicates the abilities of fund managers to identify and select superior stocks
for the portfolio. This constitutes the subject matter of the present study.
In India, very little work has been done to investigate fund managers forecasting
abilities. Active fund managers are expected to reward higher return. If the fund manager
feels that market on the whole overvalued, then he would get out of the market. Hence the
present study has the objective of finding out the necessary facts which can benefit the
investors and fund managers. This paper evaluates the performance evaluation of mutual fund
in the framework of risk and return.
LITERATURE REVIEW
The Government of India introduced economic reforms in the field of trade industry
and commerce so as to bring about the integration of the Indian economy with the global
economy. With the growth of the economy and the capital market in India, the size investor
has also increased rapidly. Thus the involvement of mutual funds in the transformation Indian
economy has made it urgent to view their services not only as financial intermediary but also
as pace setter as they are playing a significant role in spreading equity culture. In this context
close monitoring and evaluation of mutual funds has become essential for fund managers to
make this instrument as the strongest and most preferred instrument in Indian capital market
in the coming years.
In India, very little work has been done to investigate fund managers forecasting
abilities. Active fund managers are expected to reward higher return. If the fund manager
feels that market on the whole overvalued, then he would get out of the market. Hence the
present study has the objective of finding out the necessary facts which can benefit the
investors and fund managers. This paper evaluates the performance of mutual fund schemes
in the framework of risk and return.
The study tests the following hypothesis in respect of performance evaluation of the
Indian mutual funds.The sample mutual funds is earning higher returns than the market
portfolio returns in terms of risk. The sample mutual funds are offering the advantages of
diversification and superior returns due to selectivity to their investors. The investment
objectives of the mutual fund schemes are related to their systematic risk and total variability.
The analysis made by the application of fama.s measure indicates that the return out of
diversification is very less. All other schemes show lack of net selectivity and diversification.
So, it was found that proper balance between selectivity and diversification is not maintained.
This is due to fund managers acumen of selectivity and poor investment planning of the fund.
During the past one and a half decade, the Indian mutual fund industry has witnessed
a major structural transformation and growth as result of policy initiatives taken by the
Government of India to break the monolithic structure of the Industry. Therefore, it becomes
important to examine the performance of the industry in the changed environment. This paper
aims at evaluating the investment performance of select Indian mutual fund schemes during
the recent four years period.
He has used a sample of 57 equity funds including 10 tax planning funds to study
their investment performance. The choice of the sample is largely based on the availability of
the necessary data. Weekly returns, based on Net Asset Values, have been used for
performance evaluation. The study period is a recent four year period from April 1, 1999 to
March 31, 2003. It is during this period that a major structural change has taken place in the
Indian mutual fund industry. The study has used the weekly yields on91 day Treasury bills as
a surrogate for the risk free rate of return. The value data collected from Value Research India
Pvt. Ltd., while Treasury bill data has been collected from PNB Gilts ltd.
The study tests the following hypotheses in respect of performance evaluation of
mutual fund schemes: The investment performance of schemes is superior to the relevant
benchmark portfolio. The mutual fund schemes are well diversified. There is a relationship
between investment objectives of the schemes and their risk characteristics. We have utilized
the following six measures to evaluate performance; Rate of Return, Sharpe Ratio, Treynor
Ratio, Jensen Differential Return Measure, Sharpe Differential Return Measure. We have
computed the weekly returns for each of the sample. Weekly returns for the market index viz.
This paper has aimed at testing the investment performance of select Indian mutual
funds during a recent four year period from April 1, 1999 to March 31, 2003. Using weekly
returns, based on NAVs for 57 funds, the results reported here indicate that, in general, fund
managers have not outperformed the relevant benchmark during the study period. After
measuring in Sharpe, Treynor, Jenson measures only three funds reflect superior performance.
In terms of Fama.s components of Investment performance, all the funds suffered negative
performance on account of risk bearing activity of their fund managers. Only one fund earned
subsidiary activities. Professional managers are heftily paid for a judious amalgam of these
performances. Investment performance on the stock selection pertains to successful micro
forecasting for company specific events. It refers to the managers ability to identify under or
over valued securities. Such performance attribution may be constructed as an indicator of the
investment decision making quality. It may even delineate the superior ex post investment
performance.
Study of investment manager.s stock selection skills is very important as it enables
the fund managers to understand how they have fared in achieving desired return targets and
how much risk has been controlled in the process. Second it enables the investors to assess
how well the fund manager has achieved these targets in comparison with other managers or
with some benchmark indices. In this sense it may even be viewed as a feedback mechanism
for improving investment mangers forecasting skills.
Mutual funds play a vital role in mobilization of resources and their effective
allocation. These funds play a significant role in financial intermediation, development capital
markets and growth of the financial sector as a whole. The active involvement of mutual
funds in economic development can be seen by their dominant presence in the money and
capital market. The present study distinguishes itself from standard mutual fund literature by
making several unique contributions. First, it finds the trends of the mutual fund industry in
India second it uses risk return method to evaluate the various funds and schemes outperform
the market with the same level of risk or not.
The main purpose of this analysis is to evaluate whether an organization uses its
resources effectively and efficiently or not. The overall objective of a business is to earn
satisfactory return on the funds invested in it consistent with maintaining sound financial
position. Performance of mutual fund schemes has been evaluated by using the following
measures; Risk, Standard Deviation, Beta, Jensen Alpha, Sharpe Ratio and Treynor Index.
The results indicate that all the schemes have earned better return in comparison to the
market returns. Most of the schemes have beta less than one, there by implying that these
schemes tended to hold portfolios that were less risky than the market portfolio.
Higher positive value of alpha indicates its better performance. The analysis of the
alpha of all schemes as being positive, there by indicating superior performance of these
funds.
The performances of Balanced Fund schemes have been evaluated in terms of average
return. A majority of the sample mutual fund schemes have a recorded superior performance
as compared to the benchmark index. In the case of Equity Diversified schemes, the
performance of schemes have shown better returns and most of the schemes have
outperformed the benchmark.
The results of Gilt Fund Schemes indicated that all the schemes earned a slightly
higher return in comparison to the market return. The performances of Tax Planning Fund
Schemes have generated superior return as compared to the market. The performance of
schemes was better in case of returns and has earned returns on lower risk as compared to the
market
RESEARCH METHODOLOGY
PROBLEM STATEMENT
In India, very little work has been done to investigate fund managers forecasting
abilities. Active fund managers are expected to reward higher return. If the fund manager
feels that market on the whole overvalued, then he would get out of the market. Hence the
present study has the objective of finding out. The performance of mutual fund schemes in the
framework of risk and return.
The present study has been undertaken to meet the following specific objectives,
To evaluate investment performance of mutual funds in terms of risk and return.
To appraise investment performance of mutual funds with risk adjustment the
theoretical parameters as suggested by Jensen.
LIMITATIONS
The ranks are assigned on the basis of only five measures & data is considered for
three years.
The study is mainly limited to 10 equity diversified funds for a period of three years
starting from January-03 to April-07
STUDY DESIGN
The type of research being followed here is the Empirical Research. The objective
of this research work is to test the stock selective ability of equity fund manager & evaluate
the performance based on their return. It is a Secondary Research as the data or information
required is collected through secondary sources. It is a Quantitative Research as the study
involves a collection of secondary data of ten equity mutual funds of different asset
management companies for a term of 5 years and applying statistical tools to get the results.
The time frame of the research is the past 5 years and hence the
STUDY TYPE
This research is an Empirical Research which is carried out on the Ten equity fund
schemes of different asset management companies.
The study population is the whole of the Indian Equity funds. But it is infeasible to
incorporate all of the Equity funds for the research mainly due to two reasons:
Large Volumes of Data: There are a very large number of equity funds with
huge volume of data.
Time Constraint: The time duration of the research is from April 2007 to April 2007.
Hence to overcome these problems, a sample of equity funds was selected from equity
mutual funds.
The major data relevant for this research is secondary data which has
been collected from different means.
DATA COLLECTION
NAV: The monthly NAV data of various mutual funds are collected from
www.amfiindia.com and WWW.INDIAINFOLINE.COM.
MARKET INDEX: The monthly BSE sensex data are collected from www.bseindia.com.
The weighted average return of 364 days T-Bill is taken for risk free return. The data are
collected from www.rbi.org.in (which has been extracted from various directories of statistics
of Reserve Bank of India).
DATA
The various mathematical, statistical and logical operations performed on the data
obtained from the www.amfiindia.com are as follows:
Mean
Standard Deviation
Calculation of yearly Highs and Lows by using MAX and MIN
functions in the spreadsheet.
These were some of the tools and techniques applied on the data, collected for the ten
equity funds in order to use the data as different variables in the research. All of these
operations have been done using the Microsoft Excel and the SPSS for windows software.
TREYNORS MODEL
:
Developed by Jack Treynor, this performance measure evaluates funds basis of
Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free
rate of return during a given period and systematic risk associated with it (beta). Treynor
(1965) was the first researcher developing a composite measure of portfolio performance. He
measures portfolio risk with beta, and calculates portfolio’s market risk premium relative to
its beta:
SHARPE.S MODEL
Where:
Si = Sharpe performance index
óp = Portfolio standard deviation
This formula suggests that Sharpe prefers to compare portfolios to the capital market line
(CML) rather than the security market line (SML). Sharpe index,
therefore, evaluates funds performance based on both rate of return and diversification
(Sharpe 1967). For a completely diversified portfolio Treynors and Sharpe indices would give
identical ranking.
R.V. Institute of management 38
PERFORMANCE
EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Thus the result suggests that these funds are not completely diversified, because a
completely diversified fund or portfolio would have given the similar ranking for composite
performance measurement of Jensen. A poorly diversified portfolio will have a higher ranking
under the Treynor measure than for the Sharpe measure. The funds which constitute this
category are- Franklin India, HDFC and TATA.
Based on the analysis of these 10 funds, majority of the mutual funds are poorly
diversified. This means there is still some degree of unsystematic risk that one can get rid of
by diversification. This also leads us to another conclusion that majority of these funds will
land on Markowitz efficient portfolio curve. The efficient frontier consists of those portfolios
which maximizes expected return given the portfolio risk (variance of portfolio returns).The
full potential of these funds is not exploited and there is still room for improvement.
SUMMARY OF FINDINGS
From the research it is found that most of the returns of equity fund is above the
market index BSE Sensex. Over the period of three years, out of 10 equity funds
Reliance fund shows the highest return of 0.6643,followed by H.D.F.C,
Templeton, Sundaram, TATA , J.M., CANBANK, LIC, SBI, BIRLA and BSE200
has given a return of 0.3937.
Out of 10 equity funds RELIANCE shows the highest monthly return of 66.43%
compared to others.
Beta is defined as the measure of risk. H.D.F.C. tops with a beta of .093
compared to other funds and Franklin with the least beta of 0.67.
KOTAK shows the highest standard deviation of 0.073 followed by others and
Franklin with the lowest standard deviation of 0.057.
The alpha values varied widely, the highest being HDFC and the lowest Kotak.
Return per unit of unsystematic risk sundram as the highest systematic risk compared
to other funds and Tata mutual fund as the lowest unsystematic risk.
CONCLUSION SUMMARY:
BIBLIOGRAPHY:
WEBSITES
www.amfiindia.com
www.bseindia.com
www.rbi.org.in
www.investopedia.com
www.google.com
www.valuepro.net
BOOKS
JOURNAL