Riti Project Report
Riti Project Report
Riti Project Report
COMPARATIVE STUDY ON
PERFORMANCE EVALUATION
OF MUTUAL FUND SCHEMES
Submitted By:
RITI PANDEY
FACULTY OF COMMERCE
VARANASI
CERTIFICATE FROM THE INSTITUTE
Place:
Date:
2
DECLARATION
The information and data given in the report is authentic to the best of my knowledge.
This report is not being submitted to any other University for award of any other Degree,
Diploma and Fellowship.
3
ACKNOWLEDGEMENT
I take this opportunity to express my profound gratitude and deep regards to my faculty guide
Dr. Vaibhav (Assistant Professor at faculty of commerce BHU varanasi) for their constant
guidance, monitoring and encouragement throughout the course of this project. I express my
thanks all the professors.
I would also like to thank all of the industry experts for sparing their time to make this report
possible.
Lastly, I thank almighty, my parents, and friends for their constant encouragement and
support throughout my Project.
RITI PANDEY
MBA (FM)
2020-2022
FACULTY OF
COMMERCE
BHU
VARANASI
4
CONTENTS
1. INTRODUCTION (6-17)
1.1 INTRODUCTION OF MUTUAL FUND
1.2 WHY COMAPARATIVE ANALYSIS OF MUTUAL FUNDS?
1.3 TYPES OF MUTUAL FUND SCHEMES
1.4 MAJOR MUTUAL FUND COMPANIES IN INDIA
2. INDUSTRY PROFILE (18-26)
2.1 STRUCTURE OF MUTUAL FUNDS IN INDIA
2.2 ASSOSIATION OF MUTUAL FUNDS IN INDIA
2.3 REGULATORY AUTHORITIES
2.4 RISK ASSOCIATED WITH MUTUAL FUNDS
2.5 EMERGING ISSUES IN MUTUAL FUND
3. REVIEW OF LITERATURE (27-28)
4. OBJECTIVES OF THE STUDY
5. RESEARCH METHODOLOGY (29-30)
5.1 SOURCE OF DATA
5.2 LIMITATIONS
6. ANALYSIS AND INTERPRETATION (31-35)
7. CONCLUSION (36)
8. REFRENCES (37)
5
INTRODUCTION
Mutual fund is a buzz in the market these days. The mutual fund industry is burgeoning, it is
completely untapped market. Only few % of total potential of this industry has been
grabbed. Hence this industry has a lot of opportunities in it. That’s why it is so much
interactive.
The Indian stock market and companies have become lucrative for foreign investors. More
and more fund is pouring in our country. This is increasing liquidity in the market and hence
increasing the money in the hands of people and thus investment. As the future prospects for
Indian companies are bright, they have lots of opportunities to expand their business
worldwide, the investment in Indian companies.
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 in different 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 owned by them (pro rata). Thus a Mutual Fund is the most suitable
investment 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 investible surplus
6
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 equity shares, bonds and other fixed income instruments, real estate,
derivatives and other assets have become mature and information driven. Price changes in
these assets are driven by global events occurring in faraway places. A typical individual is
unlikely to have the knowledge, skills, inclination and 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, investments, 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 a 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 three areas - research,
investments and transaction processing. While the concept of individuals coming together to
invest money collectively is not new, the mutual fund in its present form is a 20th century
phenomenon. In fact, mutual funds gained popularity only after the Second World War.
Globally, there are thousands of firms offering tens of thousands of mutual funds with
different investment objectives. Today, mutual funds collectively manage almost as much as
or more money as compared to banks.
A draft offer document is to be prepared at the time of launching the fund. Typically, it pre
specifies the investment objectives of the fund, the risk associated, the costs involved in the
process and the broad rules for entry into and exit from the fund and other areas of operation.
In India, as in most countries, these sponsors need approval from a regulator, SEBI
(Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor
and its financial strength in granting approval to the fund for commencing operations.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the fund
and perhaps a third one to handle registry work for the unit holders (subscribers) of the
fund.
In the Indian context, the sponsors promote the Asset Management Company also, in which it
holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset
Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life
7
Asset Management Company Ltd., which has floated different mutual funds schemes and
also acts as an asset manager for the funds collected under the schemes.
All over the world, mutual fund is one of the most popular instruments for investment. Its
popularity with consumer has dramatically increased over the last couple of years worldwide;
the mutual fund has a long and successful history. The popularity of mutual fund has
increased manifold. In developed financial market like United States, mutual has almost
overtaken bank deposits and total assets of insurance funds.
The mutual fund industry in India is regulated by Association of Mutual Funds in India
(AMFI). The mutual fund industry in India is of 493,287 crores approx. A total of over 4.6
million investors have reposed their faith in the wealth generation expertise of the Mutual
Fund.
Schemes of the Mutual fund have consistently outperformed benchmark indices and have
emerged as the preferred investment for millions of investors and HNI’s.
8
When an investor subscribes for the units of a mutual fund, he becomes part owner of the
assets of the fund in the same proportion as his contribution amount put up with the corpus
(the total amount of the fund). Mutual Fund investor is also known as a mutual fund
shareholder or a unit holder.
Any change in the value of the investments made into capital market instruments (such as
shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is
defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a
scheme is calculated by dividing the market value of scheme's assets by the total number of
units issued to the investors.
9
1.3 TYPES OF MUTUAL FUND SCHEMES
Mutual fund schemes may be classified on the basis of its structure and its investment objective.
By Structure:
Open-ended Funds:
An open-end fund is one that is available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value
("NAV") related prices. The key feature of open-end schemes is liquidity.
Interval Funds:
Interval funds combine the features of open-ended and close-ended schemes. They are open
for sale or redemption during pre-determined intervals at NAV related prices
By Investment Objective:
Growth Funds:
The aim of growth funds is to provide capital appreciation over the medium to long term.
Such schemes normally invest a majority of their corpus in equities. It has been proved that
returns from stocks, have outperformed most other kind of investments held over the long
term. Growth schemes are ideal for investors having a long term outlook seeking growth over
a period of time.
10
Income Funds:
The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures and
Government securities. Income Funds are ideal for capital stability and regular income.
Balanced Fund:
The aim of balanced funds is to provide both growth and regular income. Such schemes
periodically distribute a part of their earning and invest both in equities and fixed income
securities in the proportion indicated in their offer documents. In a rising stock market, the
NAV of these schemes may not normally keep pace, or fall equally when the market falls.
These are ideal for investors looking for a combination of income and moderate growth.
Other Schemes:
11
Special Schemes:
Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50.
Sectoral Schemes
Sectoral Funds are those which invest exclusively in a specified sector. This could be an
industry or a group of industries or various segments such as 'A' Group shares or initial public
offerings.
ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India)
Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd.
was incorporated on November 4, 2003. Deutsche Bank AG is the custodian of ABN AMRO
Mutual Fund.
Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life
Financial. Sun Life Financial is a global organization evolved in 1871 and is being
represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from
India. Birla Sun life Mutual Fund follows a conservative long-term approach to investment.
Recently it crossed an AUM of Rs.10000 crores.
12
BANK OF BARODA MUTUAL FUND
Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the
sponsorship of Bank of Baroda. BOB Assets Management Company Limited is the AUM of
BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the
custodian.
HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing
Development Finance Corporation Limited and Standard Life Investments Limited.
ING VYSYA Mutual Fund was setup on February 11, 1999 with the same named Trustee
Company. It is a joint venture of VYSYA and ING. The AMC, ING Investment Management
(India) Pvt. Ltd. was formed on April 6, 1998.
The mutual fund of ICICI is a joint venture with Prudential Plc. Of America, one of the
largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on
13 October, 1993 with two sponsors, Prudential Plc. and the AMC is Prudential ICICI Asset
Management Company Limited incorporated on 22 June, 1993.
Sahara Mutual Fund was setup on July 18, 1996 with Sahara India financial Corporation Ltd.
as the sponsor. Sahara Assets 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 crore.
13
STATE BANK OF INDIA MUTUAL FUND
State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore
fund, the India Magnum Fund with a corpus of Rs.225 crore approximately. Today it is the
largest Bank sponsored Mutual Fund in India. They already launched 35 schemes out of
which 15 have already yield handsome returns to investors. State Bank of India Mutual Fund
has more than Rs.5, 500 crores as AUM. Now it has an investor base of over 8 lakhs spread
over 18 schemes.
TATA Mutual Fund is a Trust under the Indian Trust Act, 1882. The sponsors for Tata
Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. the investment
manager is Tata management Limited is one of the fastest in the country with more than
Rs.7703 Crores (as on 2005) of AUM.
UTI Asset Management Company Private Limited, established in Jan 24, 2003 manages the
UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset
Management Company presently manages a corpus of over Rs.20, 000 crore. The sponsors of
UTI Mutual Fund are Bank of Baroda, Punjab National Bank, State Bank of India, and Life
Insurance Corporation of India. The schemes of UTI Mutual Fund are Liquid Funds, assets
Management Funds, Index Funds and Balanced Funds.
14
RELIANCE MUTUAL FUND
Reliance Mutual Fund was established as trust under Indian Trusts Act, 1882.The sponsor of
RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It
was registered on June 30, 1995 as Reliance Mutual Fund which was changed on March 11,
2004. Reliance Mutual Fund was formed for launching of various schemes under which, units
are issued to the public with a view to contribute to the capital market and to provide
investors the opportunities to make investments in diversified securities.
Standard Chartered Mutual Fund was setup on March 13, 2000 sponsored by Standard
Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard
Chartered Asset Management Company Pvt. Ltd is the AMC which was incorporated with
SEBI on December 20, 1999.
The group, Franklin Templeton investment is a California based company with a global
AUM of US $409.2(as on 2005). It is one of the largest financial service group in the world.
Investors can buy or sell the Mutual Fund through their financial advisor or through mail or
through their website. They have open end Diversified Equity schemes, Open end Sector
Equity schemes, Open end Hybrid schemes, Open end tax saving schemes, Open end
income and liquid schemes, closed end Income schemes and Open end Fund of Funds
schemes to offer.
Morgan Stanley is a worldwide financial services company and is leading the market in
securities, investment management and credit services. Morgan Stanley investment
management was established in the year 1975. It provides customized asset management
services and products to governments, corporations, pension funds and non-profit
organizations. Its services are also extending to high net worth individuals and retail
investors. In India it is known as Morgan Stanley investment management Private Ltd. and
its
15
AMC is Morgan Stanley Mutual Fund. This is the first closed end diversified equity scheme
serving the needs of Indian retail investors focusing on the long term capital appreciation.
Escort Mutual Funds was set up on April 15th, 1996 with Escorts Finance Ltd. as its sponsor.
The Trustee Company is Escorts Investments Trust Ltd. Its AMC was incorporated on Dec
1st, 95 with the name Escorts Asset Management Ltd.
Alliance Capital Mutual Fund was set up on December 30, 1994 with Alliance Capital
Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company
Pvt. Ltd. and AMC, the Alliance Capital Asset Management India Pvt. Ltd. with the
corporate office in Mumbai.
Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt.
Ltd. as the sponsor and Benchmark Trustee Company Pvt. Ltd. as the trustee Company. It
was incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Assets
Management Company Pvt. Ltd. is the AMC.
Can Bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the
sponsor. Canara bank investment Management Service Ltd. incorporated on March 2, 1993 is
the AMC. The Corporate Office of the AMC is in Mumbai.
Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance
Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee
Company and AMC is Cholamandalam AMC Limited.
16
LIC MUTUAL FUND
Life Insurance Corporation on India setup LIC Mutual Fund on 19th June 1989. It
contributed Rs.2 crore towards the corpus of the Fund. LIC Mutual Fund was constituted as a
trust in accordance with the provisions of the Indian trust Act, 1882. The Company started its
business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima
Sahayog Asset Management Company Ltd. as the Investment Managers for mutual fund.
17
INDUSTRY PROFILE
18
Like other countries, India has a legal framework within which mutual funds must be
constituted. In India, open and close – end funds operate under the same regulatory structure,
i.e. in India, all mutual funds are constituted along one unique structure – as unit trust. A
mutual fund in India is allowed to issue open – end and close – end schemes under a common
legal structure. The structure, which is required to be followed by mutual funds in India, laid
down under SEBI (Mutual Fund) Regulations, 1996.
‘Sponsor’ is defined under SEBI Regulations as any person who, acting alone or in
combination with another body corporate establishes a mutual fund. The sponsor of a fund is
akin to the promoter of companies he gets the fund registered with SEBI. The sponsor will
form a Trust and appoint a Board of Trustees. All these appointments are made in accordance
with the SEBI Regulations. As per the existing SEBI Regulations, for a person to qualify as a
sponsor, must contribute at least 40% of the net worth of the AMC and issues a sound
financial track over five years prior to registration.
Mutual Fund in India is constituted in the form of a Public Trust under the Indian Trust Act
1882. The fund invites investors to contribute their money in the common pool by
subscribing to units issued by various schemes established by the Trust as evidence of their
beneficial interest in the fund. The Trust or Fund has no legal capacity itself rather it is the
Trustee(s) who have legal capacity and therefore the trustees take all acts in relation to the
Trust itself.
Trustees
19
Right of Trustees
The role of an Asset Management Company (AMC) is to act as the investment manager of
the trust under the Board supervision.
Transfer Agents
Transfer Agents are responsible for issuing and redeeming units of the mutual fund and
provide other related services such as preparation of transfer documents updating investor’s
records. A fund may choose to opt this activity in-house or by an outside transfer agent.
Distributors
AMCs usually appoint distributors or brokers, who sell units on behalf of the fund. Some
funds require that all transactions to be routed through such brokers.
Bankers
A fund’s activities involved dealing with the money on a continuous basis primarily with
respect to buying and selling units, paying for investment made, receiving the proceeds from
20
sale of investment and discharging its obligations towards operative expenses. A fund’s
banker therefore plays a crucial role with respect to its financial dealings.
The custodian is appointed by the Board of Trustees for safekeeping of securities in terms of
physical delivery and eventual safe keeping or participating in the clearing system through
approved depository companies.
With the increase in mutual fund players in India, a need for mutual fund association in India
was generated to function as a non-profit organisation. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has been
registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are
its members. It functions under the supervision and guidelines of its Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a
professional and healthy market with ethical lines enhancing and maintaining standards. It
follows the principle of both protecting and promoting the interests of mutual funds as well as
their unit holder.
The Association of Mutual Funds of India works with 30 registered AMCs of the country. It
has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The
objectives are as follows:
This mutual fund association of India maintains high professional and ethical standards
in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual fund
and asset management. The agencies who are by any means connected or involved in the
21
field of capital markets and financial services also involved in this code of conduct of the
association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund
industry.
Association of Mutual Fund in India does represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
It develops a team of well qualified and trained Agent distributors. It implements a
program of training and certification for all intermediaries and other engaged in the
mutual fund industry.
AMFI undertakes all India awareness programmed for investor’s in order to promote
proper understanding of the concept and working of mutual funds.
At last but not the least association of mutual fund of India also disseminate information’s
on Mutual Fund Industry and undertakes studies and research either directly or in
association with other bodies
To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time
to time. MF either promoted by public or by private sector entities including one promoted by
foreign entities is governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the
securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual
funds that the mutual funds function within the strict regulatory framework. Its objective is to
increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry
practices in diverse areas such as valuation, disclosure, transparency etc.
22
2.4 RISK ASSOCIATED WITH MUTUAL FUNDS
The most important relationship to understand is the risk-return trade off. One of the most
basic economic principles is that risk and reward are directly correlated. In other words, the
greater the potential risk the greater the potential return. The different types of risks
involved with Mutual Funds are:
Market Risk
Market risk exposes one to a potential loss of principal. In all likelihood the market value of a
stock will fluctuate based on factors such as developments affecting the company's financial
status, earnings of the company or impact of economic slowdown on the company. Likewise,
debt funds too are subject to market risk. Prices of bonds and government securities fluctuate
with change in interest rates. One can minimize market risk by diversifying among a variety
of instruments rather than investing your money in one or two stocks. Diversification helps
minimize risks. Thus, when one asset class is adversely affected by market or other
conditions, another class may be less affected. Because mutual funds invest in a lot of
companies, they are the best way to diversify.
Credit Risk
The debt servicing ability of a company through its cash flows determines the Credit Risk
faced by you. This credit risk is measured by independent rating agencies like CRISIL who
rate companies and their paper. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating
is considered poor credit quality. A well – diversified portfolio might help mitigate this risk.
Inflation Risk
Inflation is the loss of purchasing power over a time. A lot of times people make conservative
investment decisions to protect their capital but end up with a sum of money that can buy less
than what the principal could, at the time of investment. A well–diversified portfolio with
some investment in equities might help mitigate this risk.
23
Interest Rate Risk
In a free market economy interest rates are difficult and not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rise, the prices of
bonds will fall and vice versa. Equity might be negatively affected as well in a rising interest
rate environment. A well-diversified portfolio might help mitigate this risk.
Political Risk
Changes in government policy and political decision can change the investment environment.
They can create a favourable environment for investment or vice versa.
Liquidity Risk
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. It
can be partly mitigated by diversification, staggering of maturities as well as internal risk
controls that lean towards purchase of liquid securities. It simply means that you must spread
your investment across different securities (stocks, bonds, money market instruments, real
estate, fixed deposits etc.). This kind of a diversification may add to the stability of your
returns, for example, during one period of time equities might underperform but bonds and
money market instruments might do well enough to offset the effect of a slump in the equity
Markets.
Manager Risk
This risk arises from the possibility that an actively managed mutual fund's investment
adviser will fail to execute the fund's investment strategy effectively, resulting in the failure
of the stated objectives.
Industry Risk
This risk arises from the possibility that a group of stocks in a single industry will decline in
price due to developments in that industry.
24
Exchange risk
A number of companies generate revenues in foreign currencies and may have investments or
expenses also denominated in foreign currencies. Change rates may, therefore, have a
positive or negative impact on companies which in turn would have an effect on the
investment of the fund.
Investment risks
The sectoral fund schemes, investments will be predominantly in equities of select companies
in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity
performance of such companies and may be more volatile than a more diversified portfolio of
equities.
INFLUENCE OF TECHNOLOGY:
A majority of the mutual fund have their own websites providing basic information relating
to the schemes. Mutual Fund have begun to use electronic fund transfer method top remit
their dividends and redemption proceeds. However, the most significant influence of
technology is seen in servicing investors. So technology can bridge the gap between investor
education and products positioning.
PRODUCT INNOVATION:
Product innovation is an emerging feature in the mutual fund industry in India. Most of the
products offered by mutual fund can be divided among three classes of cash funds, income
funds and equity funds. Templeton India launched a debt fund that would invest
predominantly in floating rate bonds.
FUNDS OF FUNDS:
The SEBI may soon permit mutual funds to float a new category of funds called “funds of
funds”, which will invest in other mutual fund schemes. These scheme will enable people to
invest in different mutual funds schemes through a single find.
26
REVIEW OF LITERATURE
Review of previous studies provides the need and justification for the research work to be
undertaken, and research methodology explains the research process. Researcher and
practitioners have produced literature covering different aspects of mutual funds. A variety of
technical and quantitative measures have been developed to assess and compare the financial
performance of mutual fund schemes as well as the performance of funds managers. These
measures provide the methods of comparing risk-adjusted returns of a portfolio with other
portfolios or with benchmarks.
Treynor and Mazuy (1966) found no statistical evidence that investment managers of any of
the 57 funds had successfully outguessed market. The results suggested that an investor in
mutual funds was completely dependent on fluctuations in the general market. This is not to
say that a skilful fund management cannot provide investors with a rate of return that is
higher in both bad and good times than the one provided by market averages. But it did
suggest that improvement in the rate of return was due to the fund manager’s ability to
identify under-priced industries and companies, and not because of their ability to outguess
turns in the level of market as a whole. These findings were based on the earlier developed
methodology for reviewing the performance of fund management (Treynor’s, 1965).
Wermers (2000) in his study used two databases in the analysis of mutual fund returns. The
first database contains quarterly portfolio holding for all US equity mutual funds existing at
any time between January 1975 and December 1994. The second mutual fund database is
available from CRSP and used by Carhart (1997). The study found that funds which hold
stocks outperform the market by 1.3 % per year, but their returns under-perform by 1 %. Of
the 2.3 % difference between these results, 0.7% is due to the underperformance of non-
stock holdings, whereas 1.6% is due to expenses and transaction costs. Thus, the funds pick
stocks well enough to cover their costs.
Rajeeva Sinha and Vijay Jog(2003), the authors examine the performance of Canadian
mutual fund managers, and find that their performance is lacklustre when compared with
some well-recognized benchmarks such as the TSE 300 and the 90-day T-Bill rates, and is
even lower when one accounts for the timing of entry and exit by mutual fund investors.
They attribute this to the lack of performance persistence. However, unlike some US studies,
they do not find evidence suggesting that Canadian mutual fund investors chase winners, and
are reluctant to exit from losing funds; while investors do allocate funds based on past
27
performance, the allocations do not favour star funds disproportionately. Poor performers
experience significant fund withdrawals. They attribute this to the differences in the tax
treatment of retirement-related savings– the principal source of mutual funds asset growth.
Kshama Fernandes (2003) evaluated index fund implementation in India. In this, tracking
error of index funds in India is measured. The consistency and level of tracking errors
obtained by some well-run index fund suggest that it is possible to attain low levels of
tracking error under Indian conditions. At the same time, there do seem to be periods when
certain index funds appear to depart from the discipline of indexation.
Sathya Swaroop Debasish (2009) studied the performance of 23 schemes offered by six
private sector mutual funds and three public sector of mutual funds based on risk-return
relationship models and measures it over the time period of 13 years (April 1996 to
March 2009). The analysis has been made on the basis of mean return, beta risk, co-
efficient of determination, Sharpe ratio, Treynor ratio and Jensen Alpha. The overall
analysis concludes Franklin Templeton and UTI being the best performers and Birla Sun
Life, HDFC and LIC mutual funds showing below-average performance when measured
against the risk-return relationship models.
Dhume and Ramesh (2011) conducted a study to analyse the performance of the sector funds.
The sectors considered were Banking, FMCG, Infrastructure, Pharma and Technology. The
study used different approaches of performance measures. Findings of study revealed that all
the sector funds have outperformed the market except infrastructure funds.
Shivani Inder and Shikha Vohra (2012), the paper evaluates the long run performance of the
selected index fund schemes and make comparative analysis of the performance of these
funds on the basis of the risk-return for the period of 6 years (January ,2005 to
December,2011). The results indicate that index funds are just the follower of market. They
try to capture market sentiments, good as well as bad, and thus perform as the market
performs.
28
OBJECTIVES OF THE STUDY
The present study focuses on the performance evaluation of selected mutual fund schemes of
various mutual funds operating in the country. The specific objectives of the study are as
follows:
1. To evaluate the performance of mutual funds with special reference to Sharpe model.
2. To compare the performance of mutual funds on the basis of benchmark index and bring
out which scheme is outperforming or underperforming.
RESEARCH METHODOLOGY
As many researchers conducted to evaluate the performance of the mutual funds have proved
that this is a matter of concern for the researcher, academicians, fund managers and financial
analysts. These researches are the matter of criticism on the various grounds such as number
of samples, time period of the research or the selection of a particular scheme.
This study is an effort of its own kind to contribute to this field and may open up avenues for
further intensive research on its different related aspects of portfolio management practices.
In order to achieve the investment objective mutual funds are adopting various types of
strategies. The study is entirely based on the secondary data. The scope of the study is kept
limited to the time period of 4 years (April 2010 to March 2014). The sample consists of 11
mutual fund schemes, which are chosen at random basis. It is important to point out that
NAVs have been taken on monthly basis. The data regarding the NAV’s and return of these
11 mutual fund schemes have been noted from www.amfindia.com. The BSE Sensex was
used as the proxy for market index and each scheme has been evaluated with respect to this
benchmark.
Return alone should not be considered the basis of measurement of performance of a mutual
fund schemes, it should also include level of risk undertaken and diversification of funds. The
excess of portfolio return, over the risk less return is an indication of the overall portfolio
performance. The study considered interest rate on treasury bills as risk-less return in view of
the average yield being 5 percent during the study period. Microsoft Excel has been used for
calculations.
29
SOURCE OF DATA
The data for this study is mainly collected from Secondary Sources like Books, Journals,
Magazines, and various websites like www.bseindia.com , www.amfiindia.com ,
www.mutualfundsindia.com , www.sebi.gov.in and www.moneycontrol.com .
NAV has been obtained from the different sources such as:
2. www.mutualfundsindia.com
3. www.amfindia.com
Mutual fund schemes are considered for the period of April 2010- March 2014. Hence, the
findings of this study may not be generalized upon the other mutual fund schemes and for the
same schemes for different periods.
The performance of a scheme can be evaluated on various parameters, in this the average
return of the schemes and Sharpe’s ratio has been calculated to compare the different
schemes.
30
ANALYSIS & INTERPRETATION
The portfolio return calculated on the basis of NAV does not consider any change in the
market price but considers the change in the net asset value of mutual funds units during the
period.
Where,
Rp = Portfolio return
Year-wise returns have been calculated for all mutual funds’ schemes since their
commencement of the study period i.e. from April 2010. The portfolio return Rp was
computed in the manner prescribed above on a monthly basis. The holding period return
has been computed with the process of geometric mean of monthly NAV based returns. The
formula for the geometric mean has been used as follows:
This is to study the performance of selected mutual fund schemes on the basis of analysis
tools meant for Return Analysis, Risk Analysis and specific model meant for performance
analysis.
31
SHARPE’S MODEL
In this model, performance of a fund is evaluated on the basis of Sharpe ratio, which is the
ratio of returns generated by the fund over the risk free rate of return and the total risk
associated with it. According to Sharpe, it is the total risk of the fund that investors are more
concerned about. So, the model evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:
Here, the benchmark is the ratio of market portfolio returns over the risk free rate of return
with market portfolio’s standard deviation and can be calculated as follows:
While high and positive ratios show a superior risk- adjusted performance of a fund, a low
and negative ratio is an indication of unfavourable performance.
Here, 11 Mutual Fund have been taken for the study. The table 1.1 shows the year wise return
on sample schemes and Market return on BSE SENSEX for a time period of 4 years (April
2010 – March 2014). The table 1.2 shows the average return, standard deviation and Sharpe’s
Index for the selected sample schemes. The market standard deviation (risk) is 0.210. The
result shows that all the selected mutual fund schemes have less standard deviation than
market index. It means that these schemes are less risky than market portfolio. While the
32
lowest deviation in return indicated by HDFC Liquid Fund. All the selected mutual fund
schemes shows positive value of Sharpe Index that indicates a superior risk- adjusted
performance of the fund. Sharpe’s Index of HDFC Mutual fund is higher than the other, so it
shows good performance compared to other funds. Thus, it appears from the predominance
of positive as that the funds were able to forecast future security prices well enough to
recover their research expenses, management fees and commission expenses i.e. there is
abundance of funds where the managers have been able to add value to the portfolio over the
returns of any random selection of securities.
33
RETURN, STANDARD DEVIATION AND SHARPE'S INDEX OF THE SAMPLE
SCHEMES
34
Return, Standard Deviation and Sharpe's Index of the sample
schemes
2.5
2.290
1.5
1.075
1 0.970 0.957
0.913
0.721
0.654
0.5
0.455
0.319 0.321
0.210
0.148 0.123 0.144 0.121 30.1
0.073 0.102 0.087 0.085 00..0 0.067 00..0 0.078
0 0.024 0994 0.034 0.064 0.039
06 0.015 0567 -0.054
8 7
-0.5
Chart 1
35
CONCLUSION
The future of primary market is growing at a very high pace. Taking this thing into
consideration, there are lots of opportunities for the Mutual Funds companies to tap the
golden opportunities from the Indian market.
Investors invest in mutual funds due to the following advantages: they have professional
management, diversification, convenient administration, return potential, low cost and
liquidity.
By comparing the above mentioned schemes I came to know the risk return relation between
the specified schemes. Therefore investors before investing in any mutual funds schemes they
should study the risk and return relation. And if the risk and return is being matched with
their planning, then only the investor should go for Mutual Fund schemes.
On the basis of the study it can be safely concluded that most of the selected mutual fund
schemes during the study period are performing well and are going to play a very crucial and
decisive role in the capital market in the times to come.
36
REFERENCES
1. Fuller, Russel J. and Fazzel Jr., James L., (1987), “Modern Investment and Security
Analysis”, McGraw Hill Book Company, International Edition, New York.
2. Fisher, Donald E., Jorden, Ronald J., (2009), “Security Analysis and Portfolio
Management”, Prentice Hall of India Pvt. Ltd., New Delhi.
3. Pandey I.M., (2010), “Financial Management”, Vikas Publishing Houses Pvt.
Ltd., New Delhi.
4. Chandra Prasanna, (2013), “The Investment Game How to Win”, Tata McGraw
Hill Publishing Company Ltd., New Delhi.
5. Bhole L.M. (2004), “Financial Institutions and Market Structure, Growth and
Innovations”, Tata McGraw Hill Publication, New Delhi.
6. Chander Ramesh, (2002), “Performance Appraisal of Mutual Funds in India”, Vol.
XIV, No.4, Financial Express.
7. Narsimhan, M.S. and Vijayalakshmi S., (March 2001), “Performance Analysis of
Mutual funds in India”, Finance India, Vol. XV, No.1, PP. 155-174.
8. Bansal Lalit K., (1996), Mutual Fund Management and Working, Deep & Deep
Publication, New Delhi.
9. Agrawal, D. (2006). Measuring Performance of Indian Mutual Funds, Prabandhan,
179-185.
10. Madhumathi, S. P. (2005). Characteristics & performance evaluation of
selected Mutual Funds in India.
11. http://www.amfiindia.com
12. http://www.bseindia.com
13. http://www.rbi.org.in
14. http://www.mutualfundsindia.com
37