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Mutual Fund - A Study of investor’s Awareness and Performance of equity diversified mutual fund schemes in INDIA .



MUTUAL FUND

INTRODUCTION

Mutual funds are a vehicle to mobilize moneys from investors, to invest in differentmarkets and securities, in line with the investment objectives agreed upon, between the mutualfunds and the investors.

The primary Role of Mutual funds is to assist investors in earning an income orbuilding their wealth , by participating in the opportunities available in various securitiesavailable in various securities and markets.

The money that is raised from investors, ultimately benefits governments, companies or other entities, directly or indirectly, to raise moneys to invest in various projects or pay for

various expenses.The investment that an investor makes in a scheme is translated into certain number of

‘Units’ in the scheme. Thus, an investor in a scheme is used units of the scheme.Under law, every unit has a face value of Rs10. The face value is relevant from an

accounting perspective. The number of units multiplied by its face value (Rs 10) is the capital of the scheme-its unit capital.

TYPES OF MUTUAL FUNDS:There are three types of funds category which are follows:

•

Open-ended, close-ended and interval funds:1. Open-ended funds - are open for investors to enter or exit at any time, even after the NFO.

2. Close-ended funds - have a fixed maturity and investor can buy units only during its NFO.

3. Interval funds - combine features of both open-ended and close ended schemes. They arelargely close ended, but become open-ended at pre-specified intervals. The interval inconsider is between January 1 to 15, and July 1 to 15, each year.

4. Actively managed funds - are funds where the fund manager has the flexibility to choosethe investment portfolio, within the broad parameters of the investment objective of thescheme.

5. Passive funds - invest on the basis of specific index, whose performance it seeks to track.• Equity funds:

A scheme might have an investment objective to invest largely in equity shares andequity related instruments like convertible debentures. Such scheme are called equity scheme.



Types of Equity funds :1. Diversified equity funds - are category of funds that invest in a diverse mix of securities

that cut across sectors.2. Sector funds - however invest in only a specific sector. For example, a banking sector

fund will invest in only shares of banking companies.3. Thematic funds - invest in a line of investment theme.4. Equity Linked Saving Scheme (ELSS) - offer tax benefits to investors.5. Equity income/ Dividend Yield Scheme – invest in securities whose shares fluctuate

less, and therefore, dividend represents a large proportion of the returns on those shares.6. Arbitrage funds - take contrary position in different markets and securities, such that the

risk is neutralized.7. Monthly income plane – seeks to declare a dividend every month.8. Capital protected scheme – are closed-ended schemes, which are structured to ensure

that investors get their principal back, irrespective of what happens in the market.• Debt fund:

Schemes with an investment objective that limits to investment in debt securities likeTreasury Bills, Government Securities, Bonds and Debentures are called Debt funds.

Types of debt funds :1. Gilt funds – invest in only in treasury bills and government securities, which do not have

a credit risk.2. Diversified debt fund – on other hand, invest in a mix of government and non-

government debt funds.3. Junk bond schemes or high yield bond – schemes invest in companies that are of poor

credit quality.4. Fixed maturity funds - in which the investment portfolio is closely aligned to the

maturity of the scheme.5. Floating rate funds – invest in floating rate debt securities. Ex- debt securities where the

interest rate payable by the issuer changes in line with the market.6. Liquid scheme – or money market scheme – are a variant of debt scheme that invest only

in debt securities where the money will be repaid within 91-days.



LITERATURE REVIEW:-

K.Paul(1998) The author has researched that of mutual funds has grown dramatically inrecent years. The Financial Research Corporation data base, the source of data for this article,lists 7,734 distinct mutual fund portfolios. Mutual funds are now the preferred way for individualinvestors and many institutions to participate in the capital markets, and their popularity hasincreased demand for evaluations of fund performance. Business Week, Barron’s, Forbes,Money, and many other business publications rank mutual funds according to their performance.Information services, such as Morningstar and Lipper Analytical Services, exist specifically for this purpose. There is no general agreement, however, about how best to measure and comparefund performance and on what information funds should disclose to investors.

P.Shekher(2002) The author feels that Information on the performance and flows intoinstitutional mutual funds provides a unique opportunity to examine the factors influencing theinvestment decisions of institutional investors. For example, do institutional funds displaysuperior performance relative to retail funds after controlling for differences in expenses andrisk? Does fund performance vary with the degree of investor oversight? Is the institutionalmutual fund industry best thought of as somewhat monolithic where all funds compete for thesame types of mutual fund?

S.Rathi (2004) a small investor generally goes for bank deposits, which do not providehedge against inflation and often have negative real returns. He has limited access to pricesensitive information and if available, may not be able to comprehend publicly availableinformation couched in technical and legal jargons. He finds himself to be an odd man out in theinvestment game. Mutual funds have come, as a much needed help to these investors. MFs arelooked upon by individual investors as financial intermediaries/ portfolio managers who processinformation, identify investment opportunities, formulate investment strategies, invest funds andmonitor progress at a very low cost. Thus the success of MFs is essentially the result of thecombined efforts of competent fund managers and alert investors. A competent fund manager should analyze investor behavior and understand their needs and expectations, to gear up the

performance to meet investor requirements.

Russ wermers (2005) the author use a new database to perform a comprehensiveanalysis of the mutual fund industry. The author finds that funds hold stocks that outperform themarket by 1.3 percent per year, but their net returns underperform by one percent. Of the 2.3

percent difference between these results, 0.7 percent is due to the underperformance of non stock holdings, whereas 1.6 percent is due to expenses and transactions costs. Thus, funds pick stocks



well enough to cover their costs. Also, high-turnover funds beat the Vanguard Index 500 fund ona net return basis.

Keith Cuthbertson(2006) the academic research on mutual fund performance in the USand UK concentrating particularly on the literature published over the last 20 years whereinnovation and data advances have been most marked. The evidence suggests that ex-post, thereare around 2-5% of top performing UK and US equity mutual funds which genuinely outperformtheir benchmarks whereas around 20-40% of funds have genuinely poor. Key drivers of relativePerformance are, load fees, expenses and turnover. There is little evidence of successful markettiming. Evidence on picking winners suggests past winner funds persist, particularly whenrebalancing is frequent (i.e. less than one year) – but transactions costs and fund fees imply thateconomic gains to investors from actively switching into winner funds may be marginal.However, recent research using more sophisticated sorting rules (e.g. Bayesian approaches)indicates possible. Large gains from picking winners, when rebalancing monthly. The evidencealso clearly supports the view that past loser funds remain losers. Broadly speaking results for

bond mutual funds are similar to those for equity mutual funds but hedge funds show better ex- post and ex-ante risk adjusted performance than do mutual funds. Sensible advice for mostInvestors would be to hold low cost index funds and avoid holding past ‘active’ loser funds.Only very sophisticated investors should pursue an active investment strategy of trying to pick winners - and then with much caution.

John A. Haslem (2006) this article discusses mutual fund advertising and investor skillin making fund choices. Research indicates unsophisticated investor choices are dominated byfund advertising. Fund advertising appeals investor emotions by resonating with their current

beliefs, not by providing direct and objective information that enables more informed fund

choices. Sophisticated investors with self-assessed above average investment skills viewthemselves as true “Wizards of Oz.” They believe their investment skills allow them to selectsuperior performing actively managed funds.

Marcin Kacperczyk(2007) Despite extensive disclosure requirements, mutual fundinvestors do not observe all actions of fund managers. We estimate the impact of unobservedactions on fund returns using the return gap – the difference between the reported fund return andthe return on a portfolio that invests in the previously disclosed fund holdings. We document thatunobserved actions of some funds persistently create value, while such actions of other fundsdestroy value. Our main result shows that the return gap predicts fund performance.

Yonggan Zhao (2007) the author analyzes an optimal dynamic portfolio and assetallocation policy for investors who are concerned with the performances of their portfoliosrelative to a benchmark. Assuming that asset returns follow a multi-linear factor model similar tothe structure of Ross (1976) and that portfolio managers adopt a mean tracking error analysissimilar to Roll (1992), we develop a dynamic model of active portfolio management maximizingrisk adjusted excess return over a well diversified benchmark. Unlike the case of constant



proportional portfolios for the standard utility maximization, our optimal portfolio policy is statedependent, namely a function of time to investment horizon, the return on the benchmark

portfolio, and the return on the investment portfolio itself. Based on the analysis in this paper, wedefine a dynamic performance measure which relates portfolio’s return to its risk sensitivity.

Sharad Panwar(2007) The study used sample of public-sector sponsored & private-sector sponsored mutual funds of varied net assets to investigate the differences in characteristicsof assets held, portfolio diversification, and variable effects of diversification on investment

performance for the period May, 2002 to May,2005. The study found that public-sector sponsored funds do not differ significantly from private-sector sponsored funds in terms of meanreturns%. However, there is a significant difference between public-sector sponsored mutualfunds and private-sector sponsored mutual funds in terms of average standard deviation, averagevariance and average coefficient of variation(COV).The study also found that there is a statisticaldifference between sponsorship classes in terms of e SDAR(excess standard deviation adjusted

returns)as a performance measure. When residual variance (RV) is used as the measure of mutual fund portfolio diversification characteristic, there is a statistical difference between public-sector sponsored mutual funds and private-sector sponsored mutual funds for the study period. The model built on testing the impact of diversification on fund performance and found astatistical difference among sponsorship classes when residual variance is used as a measure of

portfolio diversification and excess standard deviation adjusted returns as a performancemeasure. RV, however, has a direct impact on Sharpe fund performance measure.

Ms. Kavitha Ranganathn (2007) Consumer behavior from the marketing world andfinancial economics has brought together to the surface an exciting area for study and research:

behavioral finance. The realization that this is a serious subject is, however, barely dawning.Analysts seem to treat financial markets as an aggregate of statistical observations, technical andfundamental analysis. A rich view of research waits this sophisticated understanding of howfinancial markets are also affected by the ‘financial behavior’ of investors. With the reforms of industrial policy, public sector, financial sector and the many developments in the Indian moneymarket and capital market, Mutual Funds which has become an important portal for the smallinvestors, is also influenced by their financial behavior. Hence, this study has made an attempt toexamine the related aspects of the fund selection behavior of individual investors towards Mutualfunds, in the city of Mumbai. From the researchers and academicians point of view, such a studywill help in developing and expanding knowledge in this field..

Sofia B. Ramos (2007) the author use a new data set to study the determinants of the performance of open-end actively managed equity mutual fund in 27 countries. We find thatmutual funds underperform the market overall. The results show important differences in thedeterminants of fund performance in the U.S. and elsewhere in the world. The U.S. evidence



of diminishing returns to scale is not an universal truth as the performance of funds locatedoutside the U.S. and funds that invest overseas is not negatively affected by scale. Our findingssuggest that the adverse scale effects in the U.S. are related to liquidity constraints faced byfunds that, by virtue of their style, have to invest in small and domestic stocks. Countrycharacteristics also explain fund performance. Funds located in countries with liquid stock markets and strong legal institutions display better performance.

Luigi guiso (2008) the paper documents lack of awareness of financial assets in the 1995and 1998 Bank of Italy Surveys of Household Income and Wealth. It then explores thedeterminants of awareness, and finds that the probability that survey respondents are aware of stocks, mutual funds and investment accounts is positively correlated with education, householdresources, long-term bank relations and proxies for social interaction. Lack of financialawareness has important implications for understanding the stockholding puzzle and for estimating stock market participation costs.

Hong Zhang (2008) Consider an economy in which the underlying security returnsfollow a linear factor model with constant coefficients. While portfolios that invest in thesesecurities will, in general, have a linear factor structure, it will be one with time-varyingcoefficients.

However, under certain assumptions regarding the portfolio’s investment strategy, it is possible to estimate these time-varying alphas and betas. Importantly, this can be done withoutdirect knowledge of either the portfolio manager’s exact investment strategy or of the alphas and

betas of the individual securities in which the portfolio invests. This paper develops andestimates a Kalman filter statistical model to track time-varying fund alphas and betas. Several

tests indicate that relative to a rolling OLS model the Kalman filter model produces moreaccurate fund factor loadings both in and out of sample.

Dr. S. Narayan Rao(2008) In this paper the performance evaluation of Indian mutualfunds in a bear market is carried out through relative performance index, risk-return analysis,Treynor’s ratio, Sharp’s ratio, Sharp’s measure, Jensen’s measure, and Fama’s measure .The dataused is monthly closing NAVs. The source of data is website of Association of Mutual Funds inIndia (AMFI). Study period is September 98-April 02(bear period). We started with a sample of 269 open ended schemes (out of total schemes of 433) for computing relative performance index.

Then after excluding the funds whose returns are less than risk-free returns, 58 schemes wereused for further analysis. Mean monthly (logarithmic) return and risk of the sample mutual fundschemes during the period were 0.59% and 7.10%, respectively, compared to similar statistics of 0.14% and 8.57% for market portfolio. The results of performance measures suggest that most of the mutual fund schemes in the sample of 58 were able to satisfy investor’s expectations bygiving excess returns over expected returns based on both premium for systematic risk and totalrisk.



Steve Kaplan (2008) this paper investigates the performance of private equity partnerships using a data set of individual fund returns collected by Venture Economics. Over the sample period, average fund returns net of fees approximately equal the S&P 500 althoughthere is a large degree of heterogeneity among fund returns. Returns persist strongly across fundsraised by individual private equity partnerships. The returns also improve with partnershipexperience. Better performing funds are more likely to raise follow-on funds and raise larger funds than funds that perform poorly. This relationship is concave so that top performing fundsdo not grow proportionally as much as the average fund in the market. At the industry level, weshow that market entry in the private equity industry is cyclical. Funds (and partnerships) startedin boom times are less likely to raise follow-on funds, suggesting that these funds subsequentlyPerformance worse. Aggregate industry returns are lower following a boom, but most of thiseffect is driven by the poor performance of new entrants, while the returns of established fundsare much less affected by these industry cycles. Several of these results differ markedly from

those for mutual funds.

Joseph chen (2009) The author investigate the effect of scale on performance in theactive money management industry. They first document that fund returns, both before and after fees and expenses, decline with lagged fund size, even after accounting for various performanceBench marks. Then explore a number of potential explanations for this relationship. Thisassociation is most pronounced among funds that have to invest in small and illiquid stocks,suggesting that these adverse scale effects are related to liquidity. Controlling for its size, afund’s return does not deteriorate with the size of the family that it belongs to, indicating thatscale need not be bad for performance depending on how the fund is organized. Finally, using

data on whether funds are solo-managed or team-managed and the composition of fundinvestments, that explore the idea that scale erodes fund performance because of the interactionof liquidity and organizational diseconomies.

Hsiu-lang Chen (2009) the author tells about the mutual fund relation between prior fund performance, the fund manager’s compensation, and the fund manager’s choice of portfoliorisk. This paper models the behavior of a fund manager who competes in such a tournament. The

paper performs non-parametric and parametric tests of the relation between mutual fund performance and risk-taking for more than 4,000 equity mutual funds over the 1962 to 2001 period. The parametric tests allow a fund’s risk to respond continuously to its relative performance and produces estimates of risk-taking behavior for each individual mutual fund. As predicted by the model, there is a tendency for mutual funds to increase the standard deviation of tracking errors, but not the standard deviation of returns, as their performance declines. Theeffect is stronger for younger and smaller mutual funds.

Dr Nalini Prava (2009) the author talks about the new instruments which are expected toimpart greater competitiveness flexibility and efficiency to the financial sector. Growth and



development of various mutual fund products in Indian capital market has proved to be one of the most catalytic instruments in generating momentous investment growth in the capital market.There is a substantial growth in the mutual fund market due to a high level of precision in thedesign and marketing of variety of mutual fund products by banks and other financial institution

providing growth, liquidity and return. In this context, prioritization, preference building andclose monitoring of mutual funds are essentials for fund managers to make this the strongest andmost preferred instrument in Indian capital market for the coming years.

K. Santhosh Kumar (2009) The author says that term investment is used to describe the process of investing money in shares, debentures, fixed deposits, gold, real assets, life policies,mutual funds and money market instruments. These outlets where the money is invested areknown as investment assets. By investing, an investor commits the present funds to one or moreassets to be held for some time in expectation of some future return in terms of interest (revenue)or capital gain. Individual investors consider a number of factors before deciding to invest their

funds in various securities involving varying degrees of risk and return.

Antonella Basso (2009) the author says that ethical constraints forced on an investmentfund satisfy the fulfillment of humanitarian aims but may lower the investment profitability.Hence, when the performance of ethical mutual funds we cannot disregard the ethicalcomponent. In this contribution we propose a performance indicator which considers theexpected return, the investment risk, the ethical component and the subscription and redemptioncosts together. The performance measure proposed is obtained using a data envelopment analysis(DEA) approach, which allows measuring the relative efficiency of decision making units in

presence of a multiple input-multiple output structure.

Russ Wermers (2009) the author says that the persistent use of momentum investmentstrategies by mutual funds has important implications for the performance persistence andsurvivorship bias controversies. Using mutual fund portfolio holdings from a database free of survivorship bias, we and that the best performing funds during one year are the best performersduring the following year, with the exception of 1981, 1983, 1988, and 1989. This patterncorresponds exactly to the pattern exhibited by the momentum effect in stock returns, firstdocumented by Jegadeesh and Titman (1993) and recently studied by Chan, Jegadees.

M. Jayadev (2009) In this paper an attempt is made to evaluate the performance of twogrowth oriented mutual funds (Mastergain and Magnum Express) on the basis of monthly returnscompared to benchmark returns. For this purpose, risk adjusted performance measures suggested

by Jenson, Treynor and Sharpe are employed. It is found that, Mastergain has performed better according to Jenson and Treynor measures and on the basis of Sharpe ratio, its performance isnot up to the benchmark. The performance of Magnum Express is poor on the basis of all thesethree measures. However, Magnum Express is well diversified and has reduced its unique risk where as Mastergain did not. These two funds are found to be poor in earning better returns



either adopting marketing or in selecting under priced securities. It can be concluded that, thetwo growth oriented funds have not performed better in terms of total risk and the funds are notoffering advantages of diversification and professionalism to the investors.

Timotej jagric (2009) the development of a stock market depends to a great extent onthe development of institutional investors. The paper studies the mutual fund industry andapplies various tests to evaluate the performance capacity of mutual funds. First, we brieflyexplain the data, and then we introduce the performance measures used to evaluate funds.Finally, we calculate the performance measures of mutual funds and rank them according to theresults. We find the rankings obtained by performing both the Sharpe and Treynor rules to bealmost the same, implying that funds are well diversified. The rankings reveal that all analyzedfunds outperformed the market on a risk-adjusted basis.

Christopher James (2009) a number of mutual funds cater exclusively to institutionalinvestors. Although institutional funds might be a natural place to look for ‘‘smart money’’,agency costs associated with delegated monitoring may lead to less monitoring and worse overall

performance. funds based on proxies for the degree of investor oversight, and find thatinstitutional funds with low initial investment requirements and funds with retail mates performsignificantly worse than other institutional funds both before and after adjusting for risk andexpenses. Tracking error is especially important in the flow-performance relationship of institutional funds with high minimum investment requirements.

Katerina Simons (2009) the number of mutual funds has grown dramatically in recent

years. The Financial Research Corporation data base, the source of data for this article, lists7,734 distinct mutual fund portfolios. Mutual funds are now the preferred way for individualinvestors and many institutions to participate in the capital markets, and their popularityhas increased demand for evaluations of fund performance. Business Week, Barron’s, Forbes,Money, and many other business publications rank mutual funds according to their performance.Information services, such as Morningstar and Lipper Analytical Services, exist specifically for this purpose. There is no general agreement, however, about how best to measure and comparefund performance and on what information funds should disclose to investors.

NEED OF THE STUDY



Mutual Fund Company is a fast booming industry in the present scenario having a net asset of 153000 crores. Mutual fund is a simple way to invest our savings as compared to investing inshares and debentures. We can invest our savings based on our investment objectives. This studyfocuses on analyzing the equity diversified schemes of mutual funds, which is very crucial for investors and capital appreciation. Majority of the investors are looking in for balanced schemes

because of regular incomes and capital appreciation. In the emerging scenario of fluctuations ininterest rates and unpredictable performance of stock markets balanced schemes have gainedmore popularity. Thus it provides potential customer database to the organization. This will serveas the future cash in for the company

SCOPE

•

The scope of this research is limited to top 6 mutual fund (AUM wise) in India.• This research covers open ended scheme of equity diversified mutual fund Scheme.1. This paper considers 2 year data of 6 mutual funds.

RESEARCH METHODOLOGY

The project consisted of visiting different distributors in rich localities of Phagwara regionfor the survey. The reason for choosing these particular areas has to be that the region has a lot of

potential for investors. It consisted of

Two stages:Stage 1: Collecting data by survey method, on the basis of Questionnaires.Stage 2: Analyzing and interpreting the primary data collected.

RESEARCH DESIGN:

It is a framework or blueprint for conducting the marketing research project. The researchdesign used here is Descriptive Research Design which is used for description of something.

For this purpose Primary Data has to be collected through Questionnaires filled by theinvestors. Questionnaires filled through e –mails, Inputs from the employees of the company. It

also consists of Secondary Data analysis through: Internet and Web Search. Fact Sheets andannexure collected from different Mutual Fund companies.

OBJECTIVES OF THE STUDY



To study the performance of equity diversified mutual fund schemes of six prominentmutual fund players in India.

Sub objective:-To study the awareness among the sample respondents.

Research instrument

The various research instruments we are using in our study are the Sharpe ratio, Alpha, Beta, R-square, Standard deviation and also questionnaire for the second objective.

Data collection – survey methodThe survey method of collecting data is based on the questioning of respondents. They are

asked variety of questions regarding their behavior, intentions, attitude, awareness andmotivations. In structured data collection, a formal questionnaire is prepared thus the process isdirect.

The questionnaire designed for this project consists of questions based on various parameterswhich a relationship manager would consider before selling a mutual fund. Each questionis based on different variables like investment decisions, selling decisions, company

policies, servicing issues etc.

Sample size: - we are taking the sample size of 50respondent.We are taking six prominent equity growth option schemes.

HDFC TOP (200) EQUITY (G)RELIANCE EQUITY FUND (G)SBI MAGNUM EQUITY FUND (G)TATA PURE EQUITY (G)TEMPLETON INDIA GROWTH FUND (G)BIRLA SUN LIFE EQUITY FUND (G)

Sampling technique: - Convenience sampling.

TERMINOLOGY



SHARPE RATIO:-The Sharpe ratio is the returns generated over the risk free rate, per unit of risk. Risk in this caseis taken to be the fund's standard deviation. As standard deviation represents the total risk experienced by a fund, the Sharpe ratio reflects the returns generated by undertaking all possiblerisks.

A higher Sharpe ratio is therefore better as it represents a higher return Generated per unitof risk. However, while looking at Sharpe ratio a few points have to be kept in mind to obtain anaccurate reading of the fund's Performance.

BETA:-It measure of the volatility, or systematic risk, of a security or a portfolio in comparison

to the market as a whole. A beta of 1 indicates that the security's price will move with themarket. A beta of less than 1 indicates that the security will be less volatile than the market. A

beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

BETA (ß) = Covariance (portfolio’s NAV, market Index)/

Variance (market Index)

ALPHA:-

The basic idea is that to analyze the performance of an investment manager you must

look not only at the overall return of a portfolio, but also at the risk of that portfolio. For example, if there are two mutual funds that both have a 12% return, a rational investor will wantthe fund that is less risky. Jensen's measure is one of the ways to help determine if a portfolio isearning the proper return for its level of risk. If the value is positive, then the portfolio is earningexcess returns. In other words, a positive value for Jensen's alpha means a fund manager has"beat the market" with his or her stock picking skills



R -SQUARED

R-squared values range from 0 to 1. A R-squared of 1 means that all movements of asecurity are completely explained by movements in the index. A high R-squared (between 0.85and 1) indicates the fund's performance patterns have been in line with the index. A fund with a

low R squared (0.70 or less) doesn't act much like the index.

STANDARD DEVIATION:-

A high Standard Deviation may be a measure of volatility, but it does not necessarilymean that such a fund is worse than one with a low Standard Deviation. If the first fund is amuch higher performer than the second one, the deviation will not matter much.

DATA ANALYSIS AND INTERPRETATION:-BETA Values:

HDFC Top 200 Equity (G) 0.12Reliance Equity Fund (G) 0.04SBI Magnum Equity Fund (G) 0.11Tata Pure Equity (G) -0.06Templeton India Growth Fund(G) 0.04Birla Sun Life Equity Fund (G) 0.01

Beta is a measure of non-diversifiable risk. We can say that the beta of a stock measuresthe sensitivity of the stock with reference to a broad based market index. Here all the funds have

been least volatile when compared to their benchmark indices. Birla sun life Equity fund was theleast risky mutual fund during 2009-10. Tata pure Equity fund on the other hand showednegative movements with respect to its benchmark index.

Jensen’s Alpha:

Fund

Al

phaHDFC Top 200 Equity (G) 0.46Reliance Equity Fund (G) 0.14SBI Magnum Equity Fund (G) 0.35Tata Pure Equity (G) 0.38Templeton India Growth Fund(G) 0.49Birla Sun Life Equity Fund (G) 0.38



Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

Templeton India Growth Fund (G) fund stands a clear winner when it comes to generatingexcess return over the benchmark index. Followed closely by HDFC top 200 Equity fund.Sharpe Ratio:

Fund Sharpe RatioHDFC Top 200 Equity (G) 1.97Reliance Equity Fund (G) 0.70SBI Magnum Equity Fund (G) 1.69Tata Pure Equity (G) 1.58

Templeton India Growth Fund(G) 2.11Birla Sun Life Equity Fund (G) 1.49

The Sharpe ratio is a risk-adjusted measure of return that is often used to evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparableto that of another portfolio by making an adjustment for risk.The risk-adjusted performance with a sharpe ratio of 2.11 of Templeton India growth Fund is

better than the other funds. This means that this fund has been able to give higher returns onrisk-adjusted basis. Reliance Equity fund had been the worst performer since it could not

generate enough return per unit risk taken.

Standard Deviation:

FundStand

ard DeviationHDFC Top 200 Equity (G) 23.36%Reliance Equity Fund (G) 21.67%SBI Magnum Equity Fund (G) 23.28%Tata Pure Equity (G) 22.84%

Templeton India Growth Fund(G) 22.85%Birla Sun Life Equity Fund (G) 24.59%

Standard deviation is also a measure of volatility. Generally speaking, dispersion is thedifference between the actual value and the average value. The larger this dispersion or



variability is, the higher the standard deviation. The smaller this dispersion or variability is, thelower the standard deviation.

In this case however all the funds have S.D.’s in the same range. Birla sun life equityfund turns out to be slightly more volatile than others. Templeton India Growth Fund has a lowvolatility when compared to the returns it has generated. Reliance Equity fund has the lowestvolatility of 21% however this volatility is can be attributed to the lower return s generated bythe fund.

Annualized Returns:

FundBenchmark Index

Annualized Return(Fund)

AnnualizedReturn (Index)

HDFC Top 200 Equity (G) BSE 200 54.04% 43.67%

Reliance Equity Fund (G)S&P CNX

Nifty 23.15% 40.42%SBI Magnum Equity Fund (G) BSE 100 47.26% 43.09%Tata Pure Equity (G) BSE 30 44.15% 43.63%Templeton India Growth Fund(G) BSE 30 56.11% 43.63%Birla Sun Life Equity Fund (G) BSE 200 44.60% 43.33%

The annualized return, also known as the compound annual growth rate, is used to measure theaverage rate of return per year when taking into consideration the effects of interestcompounding. It is evident from the data that all the benchmark indices gave abnormal returnsduring the last two years. When compared their respective benchmark indices Templeton IndiaGrowth fund gave the highest returns during 2009-10 at 56.11%; this was followed closely byHDFC top 200 Equity fund t %4.04%. All the other funds were near the same level of return of their respective benchmark index. Reliance Equity Fund with a return of 23.15% remained theworst performer of all during 2009-10.

Questionnaire



We are the students of Lovely Professional University, conducting the research on performance of Mutual Funds in India. The Purpose of this survey is to gather the investor’s feedback regardingtheir investment in the Mutual Funds. Your Feedback will highly be appreciated.

Q1. What kind of investments have you made so far? Rank Accordingly (1to6)

a. Saving option ( ) d. Fixed deposits ( )

b. Insurance ( ) e. Mutual funds ( )

c. Share & debenture ( ) f. Real estate ( )

Q2. What is your primary objective for investments?

a. Income ( ) b. Growth ( )

c. Tax Saving ( ) d. Others…………….

Q3. Which Mutual Fund sector do you prefer investing upon?

a. Public Sector ( ) b. Private Sector ( )

Q5. What is your amount of investment?

a. Less than 10000 p. a. ( ) b. 10000-20000 p.a. ( )

c. Between 20000-30000 p.a. ( ) d. 30000-40000 p.a. ( )

e. 50000 and above ( )

Q6. What is your amount of investment in mutual funds?

a. 5 -10%. ( ) b. 10-20% ( )

c. 20 -50% ( ) d. More than 50% ( )

Q7. In which type of scheme would you like to invest your money?

a. Equity ( ) b. Debt ( )

c. Balanced ( ) d. Index ( )

Q8. Which channel would you prefer while investing in mutual funds?

a. Financial advisor ( ) b. Financial institution ( )

c. AMC ( ) d. Insurance Agents ( )

Q9. Which mode of investment do you prefer in mutual funds?

a. One time investment ( ) b. S.I.P ( )

Q10. In which type of Mutual Fund you invest?

a. Open- Ended ( ) b. Close Ended ( )



c. Specify the Period…………………. .

Q11. What is your action towards your investment when the market is not favorable ?

a. Stay invested ( ) b. Withdraw money ( )

c. Wait for recovery ( ) d. Shift to other funds ( )

Q12. What is your attitude towards investment in mutual funds ?

Strongly-1 Agree-2 Neutral-3 Dis Agree-4 Strongly Disagree-5

Statement StronglyAgree

Agree Neutral Disagree StronglyDisagree

It is easy to understand the policy of mutual funds

Liquidity is the main preference factor for whileinvesting in mutual fundstax benefits is the main preference factor for you

while investing in mutual funds.Capital appreciation is the main preference factor for you while investing in mutual funds

Q13. What is the level of risk you can afford ?

a. Very High ( ) b. High ( )

c. Moderate ( ) c. Low ( )

d. No Risk ( )

Q14. Do you want to increase your investment in Mutual Fund?

a. Yes ( ) b. No ( )

Please specify the investment amount_________________%.

Respondent’s Profile:-

1. Name……………………………………………………….

2. Age………………………………………………………...

3. Qualification……………………………………………….

Questionnaire Interpretation



1. Most of the investor would like to invest in mutual funds as they think that mutual fund is a better option after saving option as the mutual funds diversify the risk, liquidity, tax benefit and professionalmanagement.

2. The investor want to invest for the future growth as they want to increase their profit whereas thesecond most preferable objective is tax saving. There is a minute 1% difference in growth and tax savingobjective.

3. The investor want to invest in private mutual funds as they think it gives more profit and provide withdifferent types of schemes.

4. and 5. The amount of investment of the most investor is 10000 p.a. and there are 10-20% people whoinvest their 55% of income in mutual fund. And majority of investor 20-50% invest approx 18% of their income in mutual fund.

6. The investor want to invest in balanced kind of mutual fund scheme as it comprise of mixture of debtand equity and fewer scheme selection need to be taken.

7. Most of the investor rely upon the financial institution for investment and afterwards would like to takehelp of the financial advisor.

8. The investor would like to invest more in systematic investment plan so compare to one timeinvestment as it he has to invest a constant amount at regular interval.

9. The investors would like to invest more in open ended scheme as they can enter or exit at any timeeven after the NFO. On the other hand they can buy unit only during the NFO in a close ended scheme.

10. There is a tendency of the most of the investor to wait for the recovery when the market is notfavorable as they think one day the market will regain its previous position and they don’t want to bear the switching charges. On the other hand 31% investor tends to shift to other scheme or investment optionas they are patience less.

12. The attitude of the most of the investors is positive for mutual funds while 24% don’t want to invest inmutual fund.

13. The investor can bear the moderate risk according to their risk appetite. While the 25% investor wantto bear more risk in a wish to earn more profit.

14.overall investors wants to increase their investment in mutual funds as they are earning profits andother facilities like professional management, diversification, liquidity, growth and tax benefits.

Findings:-



1. Franklin Templeton has beaten all the other mutual funds of the prominent fundhouses.

2. Franklin Templeton outperformed all other Growth schemes in each parameter i.e.Sharpe Ratio, Alpha value, Beta coefficient, Standard Deviations, Annualized returnsetc.

3. Franklin Templeton India growth scheme was closely followed by HDFC Top 200Equity fund and Birla Sun life Growth scheme.

4. Reliance Equity Fund turned out to be the worst performer as it gave lowest returns per unit risk taken.

5. Most of the investor would like to invest in mutual funds as they think that mutual fund is a better option after saving option as the mutual funds diversify the risk, liquidity, tax benefit

and professional management.

6. The investor want to invest in balanced kind of mutual fund scheme as it comprise of mixtureof debt and equity and fewer scheme selection need to be taken.

7. The investor want to invest in open ended scheme and they prefer systematic investment plan.

8. The attitude of the most investor is positive for the mutual fund and side by side they want toincrease their investment and they have a patience to wait for the recovery when the market isnot favorable.

C0NCLUSION:-

After analyzing we have found that Franklin Templeton INDIA growth scheme was the best performer among all the 6 mutual funds in terms of Sharpe Ratio, Alpha value, Betacoefficient, Standard Deviations and Annualized returns, while the Reliance equity fundwas the worst performer. The investor want to increase their investment in mutual fund asthey are getting profit and they wait for the market recovery time when the market is notfavourable. In all the investors response regarding the mutual fund was very much

positive.



SUGGESTION:-

1. An investor needs to make a sound decision in selecting the Fund houses in which he wantshis /her money to be pooled in. In our study we analyzed 2 year Mutual fund performance of the most prominent fund houses in India. We found that currently The Franklin TempletonMutual Fund’s Growth oriented Equity scheme is most suitable for an investor at themoment. This was the only scheme that showed positive results in each of the Performanceanalysis parameters

2. The scheme selection on some basic factor as age, life stage and level of risk appetite. if investor is having a young employed person to earn a higher profit with more risk he caninvest in growth scheme.

3. Somehow there is a negative and neutral attitude of the investor as they are not properlyaware and not taking the help of financial advisor, they can easily reach on them and getknowledge.

4. The investor himself can pick up the scheme that suit their need by keeping in mind some key performance ratios like beta, alpha and expense ratio.



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