SYNOPSIS ON

Comparative Analysis of Mutual Funds in India

In Partial fulfillment of the Masters of Business Administration 2009-2010

Project Guide: Dr. A.K. Vashisht

Submitted By: Mohit Bagaria MBA-Finance

UNIVERSITY BUSINESS SCHOOL PANJAB UNIVERSITY

Table of Contents
1. Introduction 2. Need of Study 3. Scope of Study 4. Research Objectives 5. Review of Literature 6. Research Methodology 6.1 Research Design 6.2 Sample Size 6.3 Period of Study 6.4 Data Collection 6.5 Tools for Data Analysis 7 Tentative chapter Scheme 8 References 3 3 4 4 5 6 6 6 6 7 7 7 8

Introduction:
The Indian capital market has witnessed unprecedented developments and innovations during the decades of 80s and 90s. These innovations relate to new financial instruments, new financial institutions such as mutual funds, and a variety of financial services like merchant banking, credit rating, factoring etc. In a changed environment mutual funds are playing a vital role in financial intermediation, development of capital markets and growth of corporate sector. Despite the fact that Indian mutual fund industry is relatively new, it has grown at a rapid pace, influencing various sectors of the financial market and the national economy. They have become an important medium of investment for the average Indian investor. By enabling the investor to indirectly participate in the capital market and to rear the gains of adequate diversification and professional management; mutual funds have become an important constituent of the Indian financial system. Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings.

Need For Study

Mutual funds have become one of the most attractive ways for the average person to invest their money. A mutual fund pools resources from thousand of investors and then diversifies its investment into many different holdings such as stock, bonds, and securities in order to provide highly relative safety and returns. Each Mutual Fund with different type of schemes is managed by respective Asset Management Company (AMC). An investor can invest his money in one or more schemes of Mutual Fund according to his choice and becomes the unit holder of the scheme. The invested money in a particular scheme of a Mutual Fund is then invested by fund manager in different types of suitable stock and securities, bonds and money market instruments. Each Mutual Fund is managed by qualified professional man, who use this money to create a portfolio which includes stock and shares, bonds, gilt, money-market instruments or combination of all.

The study would help the mutual fund companies, investors, researchers and so on to get the idea of performance of different mutual funds in India. From an academic perspective, the goal of identifying superior fund managers is interesting as it encourages the development and application of new models and theories and thus making a significant contribution to the body of knowledge of investment management.

Scope of the Study

This study calculates different measures to compare equity diversified schemes of different fund houses . For this study past three years data of the schemes and their benchmarks have been taken into consideration. It helps us see how the funds stand in comparison with each other, how the performance of public sector and private sector differ from each other.

Research Objective
1. To compare the performance of various 5 star rated equity diversified mutual fund schemes over a period of three years. 2. To make a comparative analysis of public sector and private sector. 3. To compare the schemes with the returns of benchmark for the past three years. 4. To identify the level of risk involved in investing in various equity diversified mutual fund schemes. 5. To measure the performance following top management turnover.

LITERATURE REVIEW
Literature on mutual fund performance evaluation is enormous. A few research studies that have influenced the preparation of this paper substantially are discussed in this section. Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance. Drawing on results obtained in the field of portfolio analysis, economist Jack L. Treynor has suggested a new predictor of mutual fund performance, one that differs from virtually all those used previously by incorporating the volatility of a fund's return in a simple yet meaningful manner. Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio performance (Jensens alpha) that estimates how much a managers forecasting ability contributes to funds returns. As indicated by Statman (2000), the e SDAR of a fund portfolio is the excess return of the portfolio over the return of the benchmark index, where the portfolio is leveraged to have the benchmark indexs standard deviation. S.Narayan Rao , et. al., evaluated performance of Indian mutual funds in a bear market through relative performance index, risk-return analysis, Treynors ratio, Sharpes ratio, Sharpes measure , Jensens measure, and Famas measure. The study used 269 open-ended schemes (out of total schemes of 433) for computing relative performance index. Then after excluding funds whose returns are less than risk-free returns, 58 schemes are finally used for further analysis. The results of performance measures suggest that most of mutual fund schemes in the sample of 58 were able to satisfy investors expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk. Bijan Roy, et. al., conducted an empirical study on conditional performance of Indian mutual funds. This paper uses a technique called conditional performance evaluation on a sample of eightynine Indian mutual fund schemes .This paper measures the performance of various mutual funds with both unconditional and conditional form of CAPM, Treynor- Mazuy model and Henriksson-Merton model. The effect of incorporating lagged information variables into the evaluation of mutual fund managers performance is examined in the Indian context. The results suggest that the use of conditioning lagged information variables improves the performance of mutual fund schemes, causing alphas to shift towards right and reducing the number of negative timing coefficients. Mishra, et al., (2002) measured mutual fund 5

performance using lower partial moment. In this paper, measures of evaluating portfolio performance based on lower partial moment are developed. Risk from the lower partial moment is measured by taking into account only those states in which return is below a prespecified target rate like risk-free rate. K. Pendaraki et al. studied construction of mutual fund portfolios, developed a multi-criteria methodology and applied it to the Greek market of equity mutual funds. The methodology is based on the combination of discrete and continuous multi-criteria decision aid methods for mutual fund selection and composition. UTADIS multi-criteria decision aid method is employed in order to develop mutual funds performance models. Goal programming model is employed to determine proportion of selected mutual funds in the final portfolios. Zakri Y.Bello (2005) matched a sample of socially responsible stock mutual funds matched to randomly selected conventional funds of similar net assets to investigate differences in characteristics of assets held, degree of portfolio diversification and variable effects of diversification on investment performance. The study found that socially responsible funds do not differ significantly from conventional funds in terms of any of these attributes. Moreover, the effect of diversification on investment performance is not different between the two groups. Both groups underperformed the Domini 400 Social Index and S & P 500 during the study period.

Research Design Sample Size

A sample size of around 6 top performing mutual fund will be used for comparing the equity diversified mutual fund schemes over a period of three years. All public sector and private sector mutual fund will be compared over the period of 3 years.

Period Of Study
The study would be conducted over a period of six months during a period starting from April 2008 to March 2011.

Data Collection
Secondary data is collected from various published journals, company fact sheets, books and from Internet.

Tools for Analysis

The data that has been collected for this study has been analysed by widely used performance parameters as: Standard deviation Beta Treynor Ratio
Sharpe Ratio Jensens Alpha M Squared Leverage Factor

Other analysis are done by using graphs, calculations, tables etc.

Tentative Chapter Scheme:

Part I Introduction a) About Mutual Funds b) Mutual Fund Constituents c) History of Mutual Funds d) Regulatory Aspects e) Types of Mutual Funds f) Benefits of Mutual Funds g) Risk of Mutual Fund Investments Part II Research, Findings and Analysis Problem statement Research Objective Data source Data Anlysis Scope of Study Limitations Finding and analysis

References
1. Naresh Malhotra, Research Methodology 2. Reilly/Brown, Investment Analysis and Portfolio Management. 3. www.valueresearchonline.com 4. www.moneycontrol.com 5. A Khorana - Journal of Financial and Quantitative Analysis, 2001 - Cambridge Univ Press