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Abstract: 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 then invested in capital market instruments such as shares,
debentures and other securities. The income earned through these investments and the capital
appreciation realized is shared by its unit holders in proportion to the number of units owned by them.
Indian mutual fund has gained a lot of popularity from the past few years. UTI was the first concern to
deal with mutual fund in India. Earlier only UTI enjoyed the monopoly in this industry but with the
passage of time many new players entered the market, due to which the UTI monopoly broke down.
Investments goals vary from person to person, some looks for returns only while the others give
importance for security. Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a relatively low
cost.
Hence, the study was conducted to compare the performance on the investment of mutual funds with
HDFC and SBI. To conduct the study, the methodology adopted are Beta, Alpha measure, Sharpe Ratio,
Treynor Ratio, and Jensens measure. Overall the study conducted revealed that investment in HDFC
(Equity, Balanced, Gilt,) is better compared to SBI funds over the last three years.
Keywords:
Capital Appreciation, Beta, Alpha measure, Sharpe Ratio, Treynor Ratio, and Jensens
Measure.
INTRODUCTION:
Different
investment
avenues are available to investors but mutual
funds in India is rapidly growing mainly due to
the infrastructural development and also the
savings nature of Indians which helps them to go
for investment in mutual fund which is preferred
to be an optimum investment vehicle. The major
advantages for the investors are reduction in risk,
expert professional management, diversified
portfolio and tax benefit. By pooling of their
assets through Mutual Funds, Investors achieve
economies of scale.
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Research Methodology
Design of the Study: Three calendar years
monthly NAVs of SBI Mutual Fund and HDFC
Mutual Fund for comparison of the three
schemes- Equity fund; Gilt fund and Balanced
fund. Three calendar years monthly index of BSE
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p =portfolio beta.
The Treynor measure only measures systematic
risk; it automatically assumes an adequately
diversified portfolio. It measures portfolio risk in
terms of beta that is the weighted average of
individual security beta. Higher the ratio better is
the performance.
JENSENS
RATIO:
A
risk-adjusted
performance measure that represents the average
return on a portfolio over and above that
predicted by the capital asset pricing model
(CAPM), given the portfolio's beta and the
average market return. This is the portfolio's
alpha. In fact, the concept is sometimes referred
to as "Jensen's alpha."
Jensens measure p = Rp - Rf p ( Rm - Rf)
where Rp = Average return on portfolio; Rf =
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Vol.1 Issue-2
Average Returns
Beta
Alpha
Standard Deviation
SBI
HDFC
SBI
HDFC
SBI
HDFC
SBI
HDFC
2010 0.8408 6.8700 0.0063 -0.0047 0.8248
6.8581
1.4144
8.0433
2011 -0.7542 -6.5805 8.3399 72.7685 -35.8802 299.9059 2.6286 20.2131
2012 0.9183 6.1617 -0.0006 0.0013
0.9203
6.1574
1.8482 14.6226
Average returns from Equity funds of SBI Mutual Fund and HDFC Mutual Fund for the three years are
very fluctuating similar to that of the market movements (BSE 100). HDFC Equity Growth Fund has
given a higher return of 6.8700 % in 2010 than SBI Equity Growth Fund which gave only 0.8408 %. But
in the year 2011 both the funds gave negative returns due to fall in the sensex (Recession). HDFC
Equity Fund- Growth option has given higher returns of 6.1617% in 2012 when compared to SBI Equity
Growth Fund. The impact of market condition on the funds is higher in case of HDFC Magnum Equity
Fund respectively when compared to SBI Equity fund with beta measure with 72.7685, 8.3399 in the
year 2011 & 2010. In the year 2010 HDFC has a negative beta of -0.0047 while SBI has 0.0063. But in
the year 2012 HDFC Equity Fund(0.0013) beta measure is higher than that of SBI which is -0.0006.
This indicates lower risk profile of the SBI Equity fund- Growth option than HDFC Equity fundGrowth. The HDFC Equity fund had higher alpha of 6.8581 than SBI equity fund 0.8248 in 2010. But in
2011 and 2012 HDFC has a higher alpha measure of 299.9059 and 6.1574 than SBI which is -35.8802
and 6.1574 compared to SBI Magnum Equity fund- Growth, HDFC Equity Fund- Growth option is
better as it has higher alpha measure both in 2011 and 2012. In the year 2010, HDFC Equity fund had a
higher standard deviation of 8.0433 than SBI Equity Fund 1.4144. In the year 2011 and 2012, the SBI
Magnum Equity fund has a higher standard deviation of 20.2131 and 14.6226 than SBI equity fund
2.6286. Hence, SBI Equity Fund- Growth option is better than the HDFC Equity Fund- Growth as the
HDFC Equity fund is having higher deviation than that of SBI equity Fund in all the three years.
SHARPE RATIO
Table 2 showing Sharpe ratio of SBI and HDFC Equity Fund
YEAR
2010
2011
2012
SBI
7.0984
-3.4619
5.9355
HDFC
10.2433
-3.9091
5.0531
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HDFC Equity Fund is better in the year 2010 with Sharpe ratio of 10.2433 respectively when compared
to SBI Equity Fund-Growth option whose Sharpe ratio is 7.0984. In the year 2012 SBI Equity Fund
(+5.9355) is marginally higher than HDFC Equity Fund which is 5.0531.Hence SBI Equity Fund is safer
than HDFC. Higher the Sharpe ratio indicates higher safety
TREYNOR RATIO
Table 3 showing Treynor ratio of SBI and HDFC Equity Fund
YEAR
2010
2011
2012
SBI
1.5936
-1.0911
1.8283
HDFC
-7.5297
-1.0845
5.6838
In the year 2010 SBI Equity Fund has a higher Treynor ratio of 1.5936 than HDFC which is -7.5297. In
the year 2011 both the SBI and HDFC equity fund has a lower treynor ratio of -1.0911 and -1.0845
respectively. But in 2012 HDFC has a higher Treynor ratio of 5.6838 than SBI which is 1.8283. Hence
HDFC Equity Growth option is better because a higher Treynor Index/ ratio indicate that, we're getting a
good deal in terms of the return-to-risk ratio.
JENSENS MEASURE
Table 4 showing Treynor ratio of SBI and HDFC Equity Fund
YEAR
2010
2011
2012
SBI
0.7751
34.7388
-0.8703
HDFC
6.8317
303.4922
6.1075
In the year 2010 HDFC has a higher Jensens ratio of 6.8317 than SBI which is 0.7751. But in the year
2011 HDFC has a higher Jensens ratio of 303.4922 than SBI which is 34.7388. In the year 2012 also
HDFCs Jensen ratio which is 6.1075 is higher than that of SBI which is -0.8703. Hence HDFC is a
better option.
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BALANCED FUND
Table 5 showing Average returns, Beta, Alpha and S.D of equity fund of HDFC and SBI
Year
2010
2011
2012
Average Returns
SBI
HDFC
0.4975
0.9558
-0.995
-0.4975
-1.2017
1.1033
Beta
SBI
HDFC
0.0012
0.0087
1.2064
5.5015
-0.0017 -0.0001
Alpha
SBI
HDFC
0.4945
-0.9337
4.0861
22.6737
-1.1967
-1.1036
Standard Deviation
SBI
HDFC
1.4889
1.1046
2.9137
2.3796
1.4379
2.1423
In the year 2010 and 2011, returns from SBI Balanced Fund are 0.4975 & -0.995 respectively were
lower than HDFC Balanced Fund with average returns of 0.9558 and -0.4975. In the year 2011, both the
balanced funds have shown negative returns due to the adverse market conditions (Recession). But in
the year 2012, HDFC Balanced fund has given higher returns of 1.1033% compared to SBI Magnum
Balanced Fund with only -1.2017 returns. HDFC is a better option when compared to SBI Balanced
Fund. In the year 2010 and 2012 both SBI and HDFC has shown lower beta (SBI having 0.0012 and 0.0017 and HDFC showing 0.0087 and -0.0001). But in the year 2011 HDFC has a higher beta ratio of
5.5015 than SBI which is 1.2064. The SBI Balanced fund has lower beta in all the three years compared
to SBI Balanced fund. This clearly indicates that, SBI Balanced fund is better than HDFC Balanced
fund. Hence, SBI Balanced fund has lower risk profile. In the year 2010 and 2012, both the funds have
underperformed with the benchmark index (BSE 100). SBI Magnum balanced fund gave alpha measure
of 0.4975 & -1.1967 and HDFC Balanced fund gave alpha measure of -0.9337 & -1.1036 in the years
2010 and 2011 respectively. HDFC Balanced Fund has performed better with alpha of 22.6737 when
compared to alpha of 4.0861 of SBI Magnum Balanced Fund and out performed with the benchmark
index (BSE 100), in the year 2011. The HDFC Balanced fund has lower risk profile with 1.10460 and
2.3796 compared to SBI Magnum Balanced fund with 1.4889 & 2.9137 in the years 2010 and 2011
respectively. But in the year 2012, HDFC Balanced fund has a higher standard deviation of 2.1423
compared to SBI Balanced fund with standard deviation of 1.4379. Higher the standard deviation, higher
the risk profile of the fund. Hence, SBI Balanced fund is better than HDFC Balanced fund.
SHARPE RATIO
Table 6 showing Sharpe Ratio of SBI and HDFC Balance Fund
YEAR
2010
2011
2012
SBI
3.9761
-3.9537
9.7851
HDFC
10.3386
-2.5298
6.1569
HDFC Balanced fund was better in the year 2010 with 10.3386 Sharpe ratio compared to 3.9761 Sharpe
ratio of SBI Balanced fund. But in the year 2011 both the balanced funds have shown negative Sharpe
Vidyaniketan Journal of Management and Research
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ratio which may be due to the adverse market condition (Recession). In 2012 SBI balance Fund is
showing a higher Sharpe ratio of 9.7851 than HDFC Balanced fund. SBI Balanced fund is having higher
Sharpe ratio indicating that it is safer than HDFC Balanced fund.
TREYNOR RATIO
Table 7 showing Treynor Ratio of SBI and HDFC Balanced Fund
YEAR
2010
2011
2012
SBI
4.9333
-9.9387
-8.4529
HDFC
1.3126
-1.0942
-1.3190
In the year 2010, SBI Balanced fund had higher Treynor ratio of 4.9333 when compared to Treynor ratio
of 1.3126 of HDFC Balanced fund respectively. But in the year 2011 and 2012 both SBI and HDFC has
a negative Treynor ratio (SBI: -9.9387 and -8.4529, HDFC: -1.0942 AND -1.3190). A lower Treynor
Index indicates that there is a low return to risk ratio.
JENSEN RATIO
Table 8 showing Jensens Ratio of SBI and HDFC Balanced Fund
YEAR
2010
2011
2012
SBI
0.4445
4.0964
1.2462
HDFC
0.8442
23.8938
1.0529
In the year 2011 HDFC has a higher Jensens ratio of 23.8938 than SBI which is 4.0964. In the year
2010 HDFC has a marginally higher Jensens ratio of 0.8442 than SBI which is 0.4445. In the year 2012
SBIs Jensen ratio which is 1.2462 is higher than that of HDFC which is 1.0529. Comparing all the three
years HDFC is a better option.
GILT FUND
Table 9 showing Average Returns of SBI and HDFC Gilt Fund
Year
2010
2011
2012
Average Returns
Beta
Alpha
Standard Deviation
SBI
HDFC
SBI
HDFC
SBI
HDFC
SBI
HDFC
0.0475 0.0908 0.0004 0.0001 0.0485 -0.0905 0.0833
0.1111
0.0593 0.0825 0.0037 0.0028 0.0749 0.0943 0.0896
0.1808
0.1217 0.1883 0.0007 -0.0001 0.1194 0.1886 0.1237
0.1671
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In the year 2010-11, HDFC Gilt Fund gave average returns of only 0.0908 when compared to SBI Gilt
fund which gave average returns of 0.0475. In the year 2011, though there is fall in sensex (BSE 100)
due to recession, both mutual funds gave average returns of 0.0593 by SBI Gilt fund and 0.0825 by
HDFC Gilt fund, which is because of the risk free returns of the Gilt funds. But in 2012, HDFC Gilt
Fund gave 0.1883 higher than that of SBI which is 0.1217. It Performance of HDFC Gilt Fund- Long
Term- Dividend is marginally higher than SBI Gilt fund. In the year 2010, SBI Magnum gilt fund and
HDFC Gilt fund had beta measure of 0.0004 and 0.0001 respectively. Then in the year 2011, there is an
increase in the beta measure of the Gilt funds (SBI Magnum gilt fund increased to 0.0037 and HDFC
gilt fund increased to 0.0028 beta measure), which may be due to the adverse market conditions
(Recession). And in the year 2012, HDFC Gilt fund showed lower beta of only -0.0001 than SBI Gilt
fund (0.0007). Hence, HDFC Gilt fund is better, as it has lower risk profile when compared to SBI Gilt
Fund. In the year 2010 SBI has an alpha ratio of 0.0485 which is higher than HDFC -0.0905, whereas in
2011 and 2012 HDFC has an alpha measure of 0.0943 and 0.1886 which is higher than SBI which is
0.0749 and 0.1194. In 2011both the funds have the benchmark index (BSE 100). But in 2010 and 2012
they have underperformed the benchmark index (BSE 100). In the year 2010, both the gilt funds have
shown more deviation, which may be because of fall in sensex (Recession). That is, in the year 2011,
SBI Gilt fund had deviation of 0.0896 and HDFC Gilt fund increased 0.1808. Later, in the year 2012,
the standard deviation of SBI gilt fund increased to 0.1237, which may be because of the revival of the
market conditions from recession. It is also clear that the HDFC gilt fund is also having marginally
higher deviation than SBI Magnum Gilt fund. Hence SBI Magnum Gilt fund is marginally better than
HDFC Gilt Fund.
SHARPE RATIO
Table 10 showing Sharpe Ratio of SBI and HDFC Gilt Fund
YEAR
2010
2011
2012
SBI
6.2425
7.3884
11.3985
HDFC
9.3609
0.4310
13.6673
In the year 2010 HDFC has a higher Sharpe ratio of 9.3609 than SBI (6.2425). But in the year 2011
HDFC has a lower Sharpe ratio of 0.4310 than SBI which is 7.3884.But in the year 2012 both HDC and
SBI has a higher Sharpe Ratio which indicates higher safety.
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TREYNOR RATIO
Table 11 showing Sharpe Ratio of SBI and HDFC Gilt Fund
YEAR
2010
SBI
1.300
HDFC
10.400
2011
2012
0.1789
2.0143
0.3357
22.100
A high Treynor Index/ ratio indicate that, we're getting a good deal in terms of the return-to-risk ratio. In
the years 2010 and 2011, HDFC Gilt fund has performed better with 10.400 and 0.3357 respectively
when compared to SBI Magnum Gilt Fund with only 1.300 & 2.0143 Treynor ratio. In the year 2012
also HDFC Gilt fund has shown better performance with of 22.100 compared to SBI Gilt Fund of
2.0143.
JENSEN MEASURE
Table 11 showing Sharpe Ratio of SBI and HDFC Gilt Fund
YEAR
2010
2011
2012
SBI
-0.0035
0.0251
0.0694
HDFC
0.0478
0.0444
0.1386
In the year 2010 HDFC has a higher Jensens ratio of 0.0478 than SBI which is -0.0035. In the year
2011 HDFC ihas a marginally higher Jensens ratio of 0.0444 than SBI which is 0.0251. In the year
2012 HDFCs Jensen ratio which is 0.1386 is higher than that of SBI which is 0.0694. Comparing all the
three years HDFC is a better option. However, overall we can infer from the analysis that
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CONCLUSION: The schemes of mutual funds chosen for study are Equity fund, Gilt fund and the
Balanced fund. Gilt funds are known for their low risk. Balanced funds are known for their consistent
return. The funds fluctuated in their performance according to the market conditions.
The volatility in the market might have affected the returns of the schemes in the year 2010 and 2011,
but the performance of the schemes revived better in the year 2012. It is examined that Indian Mutual
Funds in terms of performance measure, some funds show conformity with the linear relationship of
return and risk. But some funds dont demonstrate this relationship. Some funds have not performed in
terms of systematic risk. Articulating the investment objectives with greater clarity, sharpening the
investment strategy and refining the methods of security selection is essential for an investor. Overall the
study conducted revealed that investment in HDFC (Growth Equity, Balanced,Gilt, ) is better compared
to SBI funds over the last three years.
References:
Prasanna Chandra, Investment Analysis and Portfolio Management 2nd Edition, 2009, Tata
Mc Graw Hill Publishing Company Limited, New Delhi.
Donald E Fischer, Ronald J Jordan, Security Analysis and Portfolio Management 6th Edition,
1995, Prentice Hall of India Pvt. Ltd.
Mohammed Arif Pasha Financial Markets and Intermediaries 2009 Edition, Kalyani
Publishers.
Zabiulla and Dr R Shanmugam, Investment Analysis and Management 2009 Edition, Kalyani
Publishers.
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http://www.afternoondc.in/business/mutual-funds-average-aums-on-the-rise/article_73074
http://www.freepatentsonline.com/article/Paradigm/297309480.html
http://www.scribd.com/doc/24402747/Literature-Review-on-Mutual-Funds
http://www.amfiindia.com/showhtml.aspx?page=mfindustry
http://www.sbimf.com/Index.aspx
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