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A

COMPREHENSIVE PROJECT REAPORT

ON

SUBMITTED TO

SOM LALIT INSTITUTE BUSINESS MANAGEMENT

IN PARTIAL FULLFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

UNDER

Gujarat Technological University

UNDER THE GUIDENCE OF

Mr. KARAN SHASTRI

SUBMITTED BY

NIRAV THANKI 127780592111

DARSHITA RUPARELIA 127780592074

M.B.A SEMESTER III

SOM LALIT INSTITUTE OF BUSINESS MANAGEMENT

M.B.A PROGRAMME

Affiliated to Gujarat Technological University

Ahmadabad

Jan 2014

PREFACE

This project provides an opportunity to demonstrate application of our

knowledge, skill and competencies required during the financial session. This

project helps us to devote our skill to analyze the problem to suggest alternative

solutions and to evaluate them.

We have worked on the topic is

We have put our level best to prepare our project an error free project every

effort has been made to offer the most authenticate position with accuracy.

ACKNOWLEDGEMENT

We would like to express our profound gratitude to all those who have been

instrumental in the preparation of this report which has been prepared in partial

fulfillment of Comprehensive Project in the Semester IV of an MBA programme.

We wish to thank Mr. Jagdish Joshipura, director of Som Lalit Institute of

Management and all the Faculty members of SLIBM for their support and vision.

This project could only be completed with the assistance of Mr. Karan Shastri

having being a valued guide.

Finally we would like to thank our Parents, Family, Friends and God almighty for

their unending inspiration and encouragement.

Place: Ahmadabad Nirav Thanki

Date: 10-01-2014 Darshita Ruparelia

DECLARATION

We, Nirav Thanki and Darshita Ruparelia, hereby declare that the report for

Performance Evaluation of Mutual Funds

is the result of our own work and our indebtness to other work publications,

references, if any, have been duly acknowledged.

Place: Ahmadabad Nirav Thanki

Date: 10-01-2014 Darshita Ruparelia

Certified that this Comprehensive Project Report Titled

is the bonafide work of Mr. Nirav Thanki, and Ms.

Darshita Ruparelia (Enrollment No. 127780592111, 127780592074), who

carried out the research under my supervision. I also certify further, that to the

best of my knowledge the work reported herein does not form part of any other

project report or dissertation on the basis of which a degree or award was

conferred on an earlier occasion on this or any other candidate.

Prof. Mr. Karan Shastri.

Director. Mr. Jagdish Joshipura.

TABLE OF CONTENTS

CHAPTER PARTICULARS PAGE NO

NO.

EXECUTIVE SUMMARY 1

PART 1 GENERAL INFORMATION

1 MUTUAL FUND INDUSTRY

1.1 About The Industry 5

1.2 World Market 9

1.3 Indian Market 11

1.4 Growth Of The Industry 14

2 MAJOR COMPANIES IN THE MUTUAL FUND

INDUSTRY

2.1 Companies on the basis of return 21

3 Product Profile

3.1 Types of mutual fund 23

3.2 Benefits of mutual fund 25

3.3 Disadvantage of mutual fund 26

3.4 Different plans that mutual fund offer 27

3.5 Factors influencing the performance of mutual 28

Fund

PART 2 PRIMARY STUDY

4 INTRODUCTION OF THE STUDY

4.1 literature Review 32

4.2 Background of the study 36

4.3 Problem statement and importance of the 37

Study

4.4 Objectives of the study 38

5 Research Methodology

5.1 Research Design 40

5.2 Sources of Data 41

5.3 Data collection Method 41

5.4 Population 41

5.5 Sampling method 42

6 Data Analysis and Interpretation

6.1 Analysis of mutual fund performance 44

7 Results and Findings 59

8 Limitations of the study 61

9 Conclusion/Suggestion 63

8

10 ANNEXURE

Appendix 1

1.1 Returns of mutual fund for the year 2013 66

1.2 Return of index for the year 2013 69

Appendix 2

2.1 Calculation of beta 70

2.2 Calculation of standard deviation 74

11 Bibliography 78

9

EXECUTIVE SUMMERY

There are so many investment avenues. So that investors does not know

should be minimized. If the person do not have knowledge of how to get

maximum return with minimum risk or vice-versa then they should invest in

mutual fund. There are so many funds and schemes are available in mutual

fund market. Investors know that how much risk they can take and based on

that they have to choose schemes. The primary object of the present project

is to know about which mutual funds gave highest performance within one-

year.

This study has been undertaken to evaluate the performance of the Indian

Mutual Funds vis--vis the Indian stock market. For the purpose of this study,

10 open ended equity based growth mutual funds were selected as the

the S & P NIFTY Index, were collected for a period of 1 year starting

01/01/2013. to 31/12/2013.

Different statistical tools were used on the data obtained to calculate the

the funds were compared with the same variables of the market to assess

how the different funds have performed against the market.

rterly returns for the year 2013. Data we have

is the covariance of the returns of the fund and market and variance of the

market.

10

We have used return of portfolio (mutual fund) i.e. Rp, return of risk free

Index. We have used return of portfolio i.e. Rp, return of risk free securities

i.e. Rf and

Sharpe and Treynor model are used to compare the performance of mutual

funds and rank them according to their performance. Jensen model is used to

index of 10 mutual funds and rank them according to that. We have also

calculated the same for market to compare the performance of mutual funds

with the market and to check whether the mutual funds can beat the market or

not.

11

PART I

GENERAL

INFORMATION

12

CHAPTER I

MUTUAL FUND

INDUSTRY

1.1 ABOUT THE INDUSTRY Financial Institutions comprises following services

13

Definition

1Mutual funds are investment companies that pool money from investors at

large and offer to sell and buy back its shares on a continuous basis and use

the capital thus raised to invest in securities of different companies. The

stocks these mutual funds have are very fluid and are used for buying or

redeeming and/or selling shares at a net asset value. Mutual funds posses

shares of several companies and receive dividends in lieu of them and the

earnings are distributed among the share holders.

2Mutual funds are conceived as institutions for providing small investors with

avenues of investments in the capital market. .Since small investors generally

do not have adequate time, knowledge, experience and resources for directly

accessing the capital market, they have to rely on an intermediary, which

undertakes informed investment decisions and provides consequential

benefits of professional expertise.

3Mutual funds have diversified investments spread in calculated proportions

amongst securities of various economic sectors. Mutual funds get their

1 http://goldentalk.com/archive/index.html/t-41439.html

2 http://indianresearchjournals.com/pdf/IJMFSMR/2012/February/ijm-6.pdf

3 http://www.studymode.com/essays/Mutual-Funds-883302.html

Financial Institution

Commercial Bank

Insurance Compnies

Mutual Fund

Providend Fund

Non-Banking Financial Institution

14

earnings in two ways. First, is the most organic way, which is the dividend

they get on the securities they hold? Second, is by the redemption of their

shares by investors will be at a discount to the current NAVs (net asset

values).

4Below cycle shows the process of investing in Mutual Fund

Investors pull their money with Fund Manager

Fund Manager invest in different securities

Securities generate Returns

Returns are passed back to investors

5The mutual fund industry has been in India for a long time. This came into

existence in 1963 with the establishment of Unit Trust of India, a joint effort by

the Government of India and the Reserve Bank of India. The next two

decades from 1986 to 1993 can be termed as the period of public sector

funds with entry of new public sector players into the mutual fund industry

namely, Life Insurance Corporation of India and General Insurance

4 http://www.mergersandinquisitions.com/hedge-funds-institutional-asset-management

5 http://www.moneycontrol.com/investor-education/classroom/knowhistory-

structureadvantagesmutual-funds-724370.html

Mutual Fund Process

Investor

Pool their money

with

Fund Manager

Invest inSecurities

Generate Returns

Passed back to

15

Corporation of India.

6The year of 1993 marked the beginning of a new era in the Indian mutual

fund industry with the entry of private players like Morgan Stanley, J.P

Morgan, and Capital International. This was the first time when the mutual

fund regulations came into existence.

SEBI (Security Exchange Board of India) was established under which all the

mutual funds in India were required to be registered. SEBI was set up as a

governing body to protect the interest of investor. By the end of 2008, the

number of players in the industry grew enormously with 46 fund houses

functioning in the country.

With the rise of the mutual fund industry, establishing a mutual fund

association became a prerequisite. This is when AMFI (Association of Mutual

Funds India) was set up in 1995 as a non-profit organization. Today AMFI

ensures mutual funds function in a professional and healthy manner thereby

protecting the interest of the mutual funds as well as its investors.

The mutual fund industry is considered as one of the most dominant players

in the world economy and is an important constituent of the financial sector

and India is no exception. The industry has witnessed startling growth in

terms of the products and services offered, returns churned, volumes

generated and the international players who have contributed to this growth.

Today the industry offers different schemes ranging from equity and debt to

fixed income and money market.

7The market has graduated from offering plain vanilla and equity debt

products to an array of diverse products such as gold funds, exchange traded

funds (E

addition investments in overseas markets have also been a significant step.

Due credit for this evolution can be given to the regulators for building an

appropriate framework and to the fund houses for launching such different

6 http://www.moneycontrol.com/investor-education/classroom/knowhistory-

structureadvantagesmutual-funds-724370.html 7 http://www.getcited.org/pub/103509466

16

products. All these reasons have encouraged the traditional conservative

investor, from parking fund in fixed deposits and government schemes to

investing in other products giving higher returns.

8It is interesting to note that the major benefits of investing in a mutual funds is

to capitalize on the opportunity of a professionally managed fund by a set of

fund managers who apply their expertise in investment. This is beneficial to

the investors who may not have the relevant knowledge and skill in investing.

Besides investors have an opportunity to invest in a diversified basket of

stocks at a relatively low price. Each investor owns a portion of the fund and

hence shares the rise and fall in the value of the fund. A mutual fund may

invest in stocks, cash, bonds or a combination of these.

9Mutual funds are considered as one of the best available investment options

as compare to others alternatives. They are very cost efficient and also easy

to invest in. The biggest advantage of mutual funds is they provide

diversification, by reducing risk & maximizing returns.

10India is ranked one of the fastest growing economies in the world. Despite

this huge progression in the industry, there still lies huge potential and room

for growth. India has a saving rate of more than 35% of GDP, with 80% of the

population who save. These savings could be channelized in the mutual funds

sector as it offers a wide investment option. In addition, focusing on the

rapidly growing tier II and tier III cities within India will provide a huge scope

for this sector. Further tapping rural markets in India will benefit mutual fund

companies from the growth in agriculture and allied sectors. With subsequent

easing of regulations, it is estimated that the mutual fund industry will grow at

a rate of 30% - 35% in the next 3 to 5 years and reach US 300 billion by 2015.

1.2 MUTUAL FUND INDUSTRY IN WORLD MARKET

8 http://pt.slideshare.net/subhodeepbandopadhyay/market-risk-and-investment-performance-of-

equity-mutual-funds-in-india 9 http://www.scribd.com/doc/27550490/Dissertation-on-Past-Performance-of-Mutual-Funds

10 http://www.slideshare.net/hemanthcrpatna/finance-project-on-performance-evaluation-of-indian-

mutual-funds

17

Mutual Fund A Globally Proven Investment

11Worldwide, the Mutual Fund has a long and successful history. The

popularity of the Mutual Fund has increased manifold. In developed financial

markets, like the United States, Mutual Funds have almost overtaken bank

deposits and total assets of insurance funds.

12Internationally, on-line investing continues its meteoric rise. Many have

debated about the success of e-commerce and its breakthroughs, but it is true

that this aspect of technology could and will change the way financial sectors

function. However advanced countries like US, mutual funds buy-sell

transactions have already begun on the net, while in India the net is used as a

source of information. Such changes could facilitate easy access, lower

intermediation costs and better services for all.

Since the creation of the first mutual fund in 1929, the mutual fund industry

has enjoyed the fastest growth rate of the financial investment industry. In

1949, all mutual fund companies combined controlled $2 billion; fund assets

soared to $6.5 trillion at the outset of 2003, and more than $12 trillion in 2007,

13The mutual fund industry consists of investment companies that sell shares

in one or more portfolios of financial assets. Fund managers determine the

composition of the portfolio, which may include stocks, bonds, government

securities, shares in precious metals, and other financial assets. As open-end

funds, they are sold publicly, and their shares must be redeemed by the

investment company on request of the shareholder.

Mutual funds are categorized by their general investment objectives. Equity

funds consist of common stocks and are organized to achieve capital growth.

Bond funds are composed of corporate, U.S. government or municipal bonds

and emphasize regular income.

11

http://www.capitalmarket.com/mutual/mf-faqa.htm 12

http://www.ashishbusiness.in/mutual-funds 13

https://www.sec.gov/about/offices/oia/oia_investman/rplaze-042012.pdf

18

14Income funds have the same objective as bond funds but include

Government National Mortgage Association securities, government securities,

and common and preferred stocks as well as bonds. Money market mutual

funds consist of short-term instruments, such as U.S. government securities,

bank certificates of deposit and commercial paper.

15The mutual fund industry is regulated by the Securities and Exchange

Commission (SEC) and by state regulations and securities laws. The first

mutual fund was developed on March 21, 1924, when three Boston securities

executives pooled their money to establish the Massachusetts Investors

Trust. In just one year, the mutual fund grew from $50,000 to $392,000 in

assets. Investors welcomed the innovation and invested in this new vehicle

heavily; however, the stock market crash of 1929 slowed its growth. To instill

investors with confidence, the U.S. Congress passed the Securities Act of

1933, the Securities Exchange Act of 1934, and the Investment Company Act

of 1940, which set standards with which mutual funds must comply.

16

billion in assets. One of the largest contributors to the mutual fu

was the provision added to the Internal Revenue Code in 1975 that allowed

individuals already in a corporate pension fund to contribute up to $2,000 per

year to an individual retirement account (IRA). Mutual funds became popular

in employer sponsored 401(k) retirement plans, IRAs, and Roth IRAs. In

1976, John Bogle founded the first retail index fund (a passively managed

fund that tries to mirror the performance of a specific index, such as the S&P

500), named First Index Investment Trust. Later renamed Vanguard 500

mutual funds, with more than $115 billion in assets. Mutual fund assets first

reached the trillion dollar mark in January, 1990. By the end of 1990, the

industry had also posted new records, both in the number of funds (3,108)

and in the number of individual accounts (62.6 million). By 1996, total mutual

fund assets reached $3 trillion. The industry blossomed in the dawn of the

14

http://www.capitalmarket.com/mutual/mf-faqa.htm 15

http://my -people.net/mutual-fund-industry/ 16

http://my -people.net/mutual-fund-industry/
http://american-business.org/2401-us-congress.html

19

new millennium, and in 2007, there were 8,015 mutual funds, with a combined

worth of $12.4 trillion.

1.3 MUTUAL FUND INDUSTRY IN INDIAN MARKET

17The Indian mutual funds industry is witnessing a rapid growth as a result of

infrastructural development, increase in personal financial assets, and rise in

foreign participation. With the growing risk appetite, rising income, and

increasing awareness, mutual funds in India are becoming a preferred

investment option compared to other investment vehicles like Fixed Deposits

(FDs) and postal savings that are considered safe but give comparatively low

18Market capitalization Individual investors make up for 96.86% of the total number of investor

accounts and contribute 36.9% of the net assets under management.

17

http://businesstoday.intoday.in/story/mutual-fund-schemes-and-offers-in-coming-months/1/19520.html 18

http://indianresearchjournals.com/pdf/APJMMR/2012/October/19.pdf

0

5

10

15

20

25

30

35

40

45

Equity Bond Money Market Mixed Others

Asset Allocation in %

INDIA

WORLD

20

Size of industry

The size of Indian Mutual Fund Industry has grown and now has the boast of

having dominance in this industry. In April 2008 the total Asset Under

Management popularly known as AUM has increased from Rs.1, 01, 565

crores in January 2000 to Rs.5, 67, 601.98 crores

According to the Association of Mutual Funds in India, the growth of mutual

fund industry has been exceptional. This industry has indeed come a very

long way with only 34 players in the market and more than 480 schemes.

Domestic and Export Share

Despite the growth of Mutual Fund Industry, penetration levels in India are low

as compared to other global economies. Assets under management as a

percentage of GDP is less than 5% in India as compared to 70% in the US,

67% in France and 37% in Brazil.

The industry has grown in size and manages total assets of more than

$30351 million. Of the various sectors, the private sector accounts for nearly

91% of the resources mobilized showing their overwhelming dominance in the

market. Individuals constitute 98.04% of the total number of investors and

contribute US $12062 million, which is 55.16% of the net assets under

management.

19Employment opportunities

Indian Mutual Fund Industry is playing an active role in the capital market

today and is one of the fastest growing industries in the country. The industry

offers multiple career options to the youths irrespective of their academic

subjects. Graduates from arts, science and commerce can easily find a job in

this promising and growing sector. Due to the participation of private players

and many financial institutions into the mutual funds markets, they have

further widened the scope of employment in this sector. Career in Mutual

19

http://indianresearchjournals.com/pdf/APJMMR/2012/October/19.pdf

21

funds require the minimum qualification of a certification (Advisor Module) and

a registration number from the Associations of Mutual Funds in India (AMFI).

SEBI has made mandatory for any entity or person engaged in marketing and

selling of mutual fund products to pass AMFI certification test (Advisors

Module) and obtain registration number from. This certification remains valid

for 5 years from the date of the test.

Latest developments

20The Indian mutual funds retail market, growing at a CAGR of about

30%, is forecasted to reach US$ 300 Billion by 2015.

Income and growth schemes made up for majority of Assets under

Management (AUM) in the country. At about 84% (as on March 31,

2008), private sector Asset Management Companies account for

majority of mutual fund sales in India.

Individual investors make up for 96.86% of the total number of investor

accounts and contribute 36.9% of the net assets under management.

The Rs.7.2 trillion Indian Mutual Fund Industry is revisiting its business

model to be in sync with the new norms put in place by the capital

market regulator, the Securities and Exchange Board of India, or SEBI.

India has 36 asset management companies (AMCs) and at least some

of them are planning to start their own distribution business instead of

selling funds through third-party distributors. Among other things, they

-30 basis points (bps) and

shift their focus from frequent churning of funds to managing money for

the longer term. One basis point is one-hundredth of a percentage

point.

Out of the 32 Crore employed Indians, only 2.5% are investors. Many

investors, particularly youth mostly having the dispensable income opt

for mutual funds to enter into the securities market indirectly. Hence,

potential investors in mutual funds need evaluation not only by financial

institutions but also by academicians so that they can make a right

20

http://www.rncos.com/Report/IM142.htm

22

choice in their investment decisions.

.

1.4 GROWTH OF MUTUAL FUND INDUSTRY

21The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank of

India. The history of mutual funds in India can be broadly divided into four

distinct phases.

22Phase I - Establishment and Growth of Unit Trust of

India 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It

was set up by the Reserve Bank of India and functioned under the Regulatory

and administrative control of the Reserve Bank of India. In 1978 UTI was de-

linked from the RBI and the Industrial Development Bank of India (IDBI) took

over the regulatory and administrative control in place of RBI. The first

scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had

Rs. 6,700 crores of assets under management.

Phase II Entry of Public Sector Funds

1987-93

1987 marked the entry of non- UTI, public sector mutual funds set up by

public sector banks and Life Insurance Corporation of India (LIC) and General

Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI

Mutual Fund in June 1987 followed by Can bank Mutual Fund (Dec 87),

Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov

89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC

established its mutual fund in June 1989 while GIC had set up its mutual fund

21

http://www.amfiindia.com/research-information/mf-history 22

http://finance.indiamart.com/india_business_information/mutual_funds_industry.html

23

in December 1990. At the end of 1993, the mutual fund industry had assets

under management of Rs. 47,004 crores.

Phase III Entry of Private Sector Funds

1993-96

With the entry of private sector funds in 1993, a new era started in the Indian

mutual fund industry, giving the Indian investors a wider choice of fund

families. Also, 1993 was the year in which the first Mutual Fund Regulations

came into being, under which all mutual funds, except UTI were to be

registered and governed. The erstwhile Kothari Pioneer (now merged with

Franklin Templeton) was the first private sector mutual fund registered in July

1993.

Phase IV - Growth and SEBI Regulation

1996-04

The number of mutual fund houses went on increasing, with many foreign

mutual funds setting up funds in India and also the industry has witnessed

several mergers and acquisitions. As at the end of January 2003, there were

33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of

India with Rs. 44,541 crores of assets under management was way ahead of

other mutual funds.

In February 2003, the UTI Act was repealed and UTI was stripped of its

Special legal status as a trust formed by an Act of Parliament. The primary

objective behind this was to bring all mutal fund players on the same level.

UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI

Mutual Fund. UTI Mutual Fund is still the largest player in the industry. In

1999, there was a significant growth in mobilization of funds from investors

and assets under management which is supported by the following data:

TABLE 1.1 GROSS FUND MOBILISATION

24

GROSS FUND MOBILISATION (RS. CRORES)

FROM

TO UTI PUBLIC PRIVATE

TOTAL

SECTOR

SECTOR

1-4-98 31-3-99 11,679 1,732 7,966 21,377

1-4-99 31-3-00 13,536 4,039 42,173 59,748

1-4-00

74,352

31-3-01 12,413 6,192 92,957

1-4-01 31-3-02 4,643 13,613 1,46,267 1,64,523

1-4-02 31-3-03 5,505 22,923 2,20,551 2,48,979

1-4-03 31-3-03 * 7,259* 58,435 65,694

1-4-03 31-3-04 - 68,558 5,21,632 5,90,190

1-4-04 31-3-05 - 1,03,246 7,36,416 8,39,662

1-4-05 31-3-06 - 1,83,446 9,14,712 10,98,158

TABLE 1.2 ASSETS UNDER MANAGEMENT

ASSETS UNDER MANAGEMENT (RS. CRORES)

AS ON UTI

PUBLIC SECTOR

PRIVATE

TOTAL

SECTOR

31-March-99 53,320 8,292 6,860 68,472

25

23Phase V Growth

&Consolidation 2004 onwards

The industry has also witnessed several mergers and acquisitions recently,

examples of which are acquisition of schemes of Alliance Mutual Fund by

Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal

Mutual Fund. Simultaneously, more international mutual fund players have

entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were

29 funds as at the end of March 2006. This is a continuing phase of growth of

the industry through consolidation and entry of new international and private

sector players.

TABLE 1.3 EVOLUTION OF THE INDIAN MF INDUSTRY

Year No of AMCs

No of schemes

AUM US $(mn)

Mar 98 31 235 17451

Mar 98 32 277 16111 23

http://finance.indiamart.com/india_business_information/mutual_funds_industry.html

26

Mar 00 32 337 25889

Mar 01 35 393 19336

Mar 02 35 417 20601

Mar 03 33 382 16719 Mar 04 31 403 32170

Mar 05 29 451 34289

Mar 07 30 756 75728

Mar 08 33 956 126225

0

5

10

15

20

25

30

35

40

No. of AMC

No. of AMC

0

500

1000

1500

No. of Scheme

No. of Scheme

27

24Factor contributing to the growth of the industry

Large market potential high saving rate

Comprehensive Regulatory framework

Favorable tax policies

Introduction of new products

Role of distributors

Performance record

24

http://smallbusiness.chron.com/factors-affecting-economic-development-growth-1517.html

1745116111

25889193362060116719

3217034289

52127

75728

126225

0

20000

40000

60000

80000

100000

120000

140000

Growth in AUM US $ (mn.)

Growth in AUM US $ (mn.)

28

CHAPTER 2

MAJOR COMPANIES

IN MUTUAL FUND

INDUSTRY

2.1 COMPANIES ON THE BASIS OF RETURN

Company NAV Return %

IDFC Premier Equity-A 1376.30 83.2

ING Dividend Yield 36.53 76.8

Reliance RSF Equity 2722.37 74.2

Birla SL Dividend Yield ( G ) 384.83 69.8

Sundaram S.M.I.L.E Fund 663.86 66.1

29

ICICI Prudential Discovery Fund 1083.58 63.7

HDFC Top 200 Fund 7490.21 63.4

Can Robeco Equity Diversified 323.88 57.8

Quantum Long-Term Equity 53.45 57.1

Baroda Pioneer Growth 52.17 55.7

83.276.8 74.2

69.866.1 63.7 63.4

57.8 57.1 55.7

Series 1

30

CHAPTER 3

PRODUCT PROFILE

3.1 TYPES OF MUTUAL FUND

31

25A Mutual Fund may float several schemes which may be classified on the

basis of its structure, its investment objectives and other objectives.

A) MUTUAL FUND SCHEMES BY STRUCTURE

Open-Ended Funds: Open-Ended fund scheme is open for subscription all

through year. An investor can buy or sell the units at "NAV" (Net Asset Value)

related price at any time.

Close-Ended Funds: A Close-Ended fund is open for subscription only

during a specified period, generally at the time of initial public issue. The

Close-Ended fund scheme is listed on the some stock exchanges where an

investor can buy or sell the units of this type of scheme.

Interval Funds: Interval Funds combines both the features of Open-Ended

funds and Close-Ended funds.

B) MUTUAL FUND SCHEMES BY INVESTMENT OBJECTIVES

25

http://timesofindia.indiatimes.com/articles/Different-Types-and-Kinds-of-Mutual-Funds/articleshowhsbc/22624820.cms

Type of Mutual Fund

According to StructureAccording to

Investment ObjectiveAccording to Other

Objective

32

26Growth Funds: The objective of Growth Fund scheme is to provide capital

appreciation over the medium to long term. This type of scheme is an ideal

scheme for the investors seeking capital appreciation for a long period.

Income Funds: The Income Fund schemes objective is to provide regular

and steady income to investors.

Balanced Funds: The objective of Balanced Fund schemes is to provide both

growth and regular income to investors.

Money Market Funds: The objectives of Money market funds are to provide

easy liquidity, regular income and preservation of income.

C) OTHER FUNDS

27Tax Saving Schemes: The objective of Tax Saving schemes is to offer tax

rebates to the investors under specific provisions of the Indian Income Tax

Laws. Investments made under some schemes are allowed as deduction u/s

88 of the Income Tax Act.

Industry specific Schemes: Industry specific schemes invest only in the

industries specified in the offer document of the schemes.

Sectorial Schemes: The scheme invest particularly in a specified industries

or initial public offering.

Index schemes: Such schemes links with the performance of BSE sensex or

NSE.

Loan Funds: Loan Funds charges a commission each time when you buy or

sale units in the fund.

26

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33

3.2 BENEFITS OF MUTUAL FUNDS 28Mutual Funds offer several benefits to an investor such as potential return,

liquidity, transparency, income growth, good post tax return and reasonable

safety. There are number of options available for an investor offered by a

mutual fund.

Before investing in a Mutual Fund an investor must identify his needs and

preferences. While selecting a Mutual Fund's schemes he should consider

the effect of inflation rate, diversification of investment, the time period of

investment and the risk factors. There are various types of risk factors as:

Market Risk

Credit Risk

Interest Rate Risk

Inflation Risk

Political Environment

The major benefits are good post-tax returns and reasonable safety,

the other benefits in investing in Mutual Funds are

Professional Management: Mutual Funds employ the services of

experienced and skilled professionals and dedicated investment research

team. The whole team analyses the performance and balance sheet of

companies and selects them to achieve the objectives of the scheme.

Potential Return: Mutual Funds have the potential to provide a higher return

to an investor than any other option over a reasonable period of time.

Diversification: Mutual Funds invest in a number of companies across a

wide cross section of industries and sectors.

Low Cost: Investment in Mutual Funds is a less expensive way in

comparison to a direct investment in capital market.

28

http://southerncapital.in/benefits_mutualfunds.php

34

Liquidity: The investor can get the money promptly at the net asset value

related prices from the Mutual Funds open-ended schemes. In close-ended

schemes, the units can be sold on a stock exchange at the prevailing market

price.

Transparency: Mutual Funds have to disclose their holdings, investment

pattern and the necessary information before all investors under a regulation

framework.

Flexibility: Investment in Mutual Funds offers a lot of flexibility with features

of schemes such as regular investment plan, regular withdrawal plans and

dividend reinvestment plans enabling systematic investment or withdrawal of

funds.

Affordability: Small investors with low investment fund are unable to high-

grade or blue chip stocks. An investor through Mutual Funds can be benefited

from a portfolio including of high priced stock.

Well regulated: All Mutual Funds are registered with SEBI, and SEBI acts a

watchdog, so the Mutual Funds are well regulated.

3.3 DISADVANTAGES OF MUTUAL FUND

29Cost: Mutual funds provide investors with professional management, but it

comes at a cost. Funds will typically have a range of different fees that reduce

the overall payout. In mutual funds, the fees are classified into two categories:

shareholder fees and annual operating fees.

30Misleading Advertisements: The misleading advertisements of different

funds can guide investors down the wrong path. Some funds may be

incorrectly labelled as growth funds, while others are classified as small cap

29

http://mutualfunds.about.com/od/mutualfundbasics/a/disadvmf.htm 30

http://www.investorguide.com/article/11139/disadvantages-of-investing-in-mutual-funds-igu/

35

or income funds. The Securities and Exchange Commission (SEC) requires

that funds have at least 80% of assets in the particular type of investment

implied in their names.

3.4 DIFFERENT PLANS THAT MUTUAL FUND OFFER

31Growth Plan and Dividend Plan

A growth plan is a plan under a scheme wherein the returns from investments

are reinvested and very few income distributions, if any, are made. The

investor thus only realizes capital appreciation on the investment. This plan

appeals to investors in the high income bracket. Under the dividend plan,

income is distributed from time to time. This plan is ideal to those investors

requiring regular income.

Dividend Reinvestment Plan

Dividend plans of schemes carry an additional option for reinvestment of

income distribution. This is referred to as the dividend reinvestment plan.

Under this plan, dividends declared by a fund are reinvested on behalf of the

investor, thus increasing the number of units held by the investors.

Automatic Investment Plan

Under the Automatic Investment Plan (AIP) also called Systematic Investment

Plan (SIP), the investor is given the option for investing in a specified

frequency of months in a specified scheme of the Mutual Fund for a constant

sum of investment. AIP allows the investors to plan their savings through a

structured regular monthly savings program.

Automatic Withdrawal Plan

Under the Automatic Withdrawal Plan (AWP) also called Systematic

Withdrawal Plan(SWP), a facility is provided to the investor to withdraw a pre-

31

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36

determined amount from his fund at a pre-determined interval.

3.5 FACTORS THAT INFLUENCE THE PERFORMANCE OF

MUTUAL FUND 32The performances of Mutual funds are influenced by the performance of the

stock market as well as the economy as a whole. Equity Funds are influenced

to a large extent by the stock market. The stock market in turn is influenced by

the performance of the companies as well as the economy as a whole. The

performance of the sector funds depends to a large extent on the companies

within that sector. Bond-funds are influenced by interest rates and credit

quality. As interest rates rise, bond prices fall, and vice versa. Similarly, bond

funds with higher credit ratings are less influenced by changes in the

economy.

33Expense Ratio

Mutual funds charge fees, sometimes high fees. A mutual fund's EXPENSE

RATIO is the most important fee to understand. And is made up of the

following: The investment advisory fee or management fee is the money used

to pay the manager(s) of the mutual fund. This is usually taken annually as a

percentage of the fund's assets.

Administrative costs are the costs of record keeping, mailings, maintaining a

customer service line, etc. These are all necessary costs, though they vary in

size from fund to fund. Distribution fee: This fee is spent on marketing,

advertising and distribution services.

Only one third of all equity, mutual funds provided returns greater than the

S&P 500, and that was before fees and expenses which range from 0.5% to

2.0% and 2.0%, respectively. After adjustments were made for the riskiness of

a fund, mutual funds were reported as being able to perform up to the market

32

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37

on gross returns, but were underperforming, as compared to the market, after

the various expenses were factored in. Many analysts suggested that the

average 1.3% expense ratio of mutual funds and the need for the retainment

of cash as the culprits of such underperformance.

34Risk

Risk can be a great ally when trying to estimate the reward potential of a stock

investment. The greater the stock volatility, or risk, the greater also is the

reward. There are several new risk measurements that give guidance for

selecting mutual stocks that provide higher returns for lower risk.

35Time Horizon

The time horizon of an individual will also influence the performance

measures he/she will look at more closely. If you are investing for less than

four years, you need a fund with consistent performance, so all your money

will be there when you need it. You also do not have time to earn back a large

commission charge on the front end.

Conversely, if you plan to invest your money for 30 years, neither consistency

nor load is very important: you have plenty of time for the market to recover.

With a long-term horizon, your biggest enemies are poor performance and

high annual expenses, both of which can erode that all-important

compounding.

34

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PART 2

PRIMARY STUDY

39

CHAPTER 4

INTRODUCTION OF

THE STUDY

4.1 LITERATURE REVIEW

40

36Performance evaluation of mutual funds is one of the preferred areas of

research where a good amount of study has been carried out. The area of

research provides diverse views of the same.

For instance one paper evaluated the performance of Indian Mutual Fund

Schemes in a bear market using relative performance index, risk-return

The study finds that Medium Term Debt Funds were the best performing

funds during the bear period of September 98-April 2002 and 58 of 269 open

ended mutual funds provided better returns than the overall market returns.

37Another paper used Return Based Style Analysis (RBSA) to evaluate equity

mutual funds in India using quadratic optimization of an asset class factor

model proposed by William Sharpe and analysis of the relative performance

of the funds with respect to their style benchmarks. Their study found that the

mutual funds generated positive monthly returns on the average, during the

study period of January 2000 through June 2005. The ELSS funds lagged the

Growth funds or all funds taken together, with respect to returns generated.

The mean returns of the growth funds or all funds were not only positive but

also significant. The ELSS funds also demonstrated marginally higher

volatility (standard deviation) than the Growth funds.

One study identified differences in characteristics of public-sector sponsored

& private-sector sponsored mutual funds find the extent of diversification in

the portfolio of securities of public-sector sponsored and private-sector

sponsored mutual funds and compare the performance of public-sector

sponsored and private-sector sponsored mutual funds using traditional

36

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41

investment measures.

38 alpha, Sharpe information ratio, excess

standard deviation adjusted return (ESDAR) and find out that portfolio risk

characteristics measured through private-sector Indian sponsored mutual

funds seems to have outperformed both Public- sector sponsored and

Private-sector foreign sponsored mutual funds and the general linear model of

analysis of covariance establishes differences in performance among the

three classes of mutual funds in terms of portfolio diversification.

Another paper examined the performance of equity and bond mutual funds

average the U.S. stock market outperformed emerging equity markets but the

emerging market bonds outperformed U.S. bonds. They also found that

overall emerging market stock funds under-performed the respective MSCI

indexes. These were evident by their lower return, higher risk, and thus lower

Sharpe ratios.

39One more paper evaluated whether or not the selected mutual funds were

able to outperform the market on the average over the studied time period. In

addition to that by examining the strength of interrelationships of values of

PCMs for successive time periods , the study also tried to infer about the

extent to which the future values of fund performance were related to its past

by using single index model. The study revealed that there were positive

signals of information asymmetry in the market with mutual fund managers

having superior information about the returns of stocks as a whole. PCM also

indicated that on an average mutual funds provided excess (above-average)

return, but only when unit of time period was longer (1 qtr or 4 qtr). Therefore,

they concluded that for assessing the true performance of a particular mutual

fund, a longer time horizon is better.

38

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http://www.scribd.com/doc/63093846/Literature-Review-mutual-Funds

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40Another study aimed at analyzing performance of select open-ended equity

mutual fund using Sharpe Ratio, Hypothesis testing and return based on

yield. The most important finding of the study had been that only four Growth

plans and one Dividend plan (5 out of the 42 plans studied) could generate

higher returns than that of the market which is contrary to the general opinion

prevailing in the Indian mutual fund market.

41Even the Sharpe ratios of Growth plans and the corresponding Dividend

plans stand testimony to the relatively better performance of Growth plans.

The statistical tests in terms of F-test and t-Test further corroborate the

significant performance differences between the Growth plans and Dividend

plans.

A similar study examined the empirical properties of performance measures

for mutual funds using Simulation procedures combined with random and

random-stratified samples of NYSE and AMEX securities and other

performance measurement tools employed are Sharpe measure, Jensen

alpha, Treynor measure, appraisal ratio, and Fama-French three-factor model

alpha. The study revealed that standard mutual fund performance was

unreliable and could result in false inferences. In particular, it was easy to

detect abnormal performance and market-timing ability when none exists. The

results also showed that the range of measured performance was quite large

even when true performance was ordinary. This provided a benchmark to

gauge mutual fund performance. Comparisons of their numerical results with

those reported in actual mutual fund studies raised the possibility that

reported results were due to misspecification, rather than abnormal

performance. Finally, the results indicated that procedures based on the

Fama-French 3-factor model were somewhat better than CAPM based

measures.

42Another paper, analyzed the Indian Mutual Fund Industry pricing mechanism

with empirical studies on its valuation. It also analyzed data at both the fund-

40

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http://www.scribd.com/doc/57359662/MBA-Project-Work-Performance-Evaluation-of-Mutual-Fund 42

http://www.edhec-risk.com/site_edhecrisk

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manager and fund-investor levels. It stated that mispricing of the Mutual funds

could be evaluated by comparing the return on market and return on stock.

During the pricing period, if the return on stock is negative, then it indicates

overpricing and if are positive indicates under pricing. Relative performance

measurement was used to measure the performance of the MF with SENSEX

and it used Standard Deviation, Correlation analysis, Co-efficient of

Determination and Null Hypothesis. This study revealed that standard

deviations of the 3-month returns were significant with the increase in the

period.

4.2 BACKGROUND OF THE STUDY

43Day by day as business is getting more competitive and so the

43

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management is achieving its importance in every field to increase the

efficiency and to cut down the cost of production. The present day giant

organization is a specialized or expert in all spheres of management. The

importance of specialist from each has emerged, these specialist are often

called as professionals.

44During last few years or so, financial management which was not

considered so much has now been recognize as an important area. This

change has created importance for the study of financial management which

has lead to various objectives-covered in this research methodology. The

methodology of the project reveals the step-by-step procedure done to carry

out the project study.

45Mutual Fund is a topic which is of enormous interest not only to researchers

all over the world, but also to investors. Mutual funds as a medium-to-long

term investment option are preferred as a suitable investment option by

investors. However, with several market entrants the question is the choice of

mutual fund. The study focuses on this problem of mutual fund selection by

among fund types (balanced, growth, dividend etc.) the choice of fund based

performance of mutual funds by using three models i.e. Sharpe, Treyner and

Jensen.

4.3 PROBLEM STATEMENT AND IMPORTANCE OF THE STUDY

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46There are so many investment avenues. So that investors does not know

which avenues provides best return. As per the financial rule of

should be minimized. If the person do not have knowledge of how to get

maximum return with minimum risk or vice-versa then they should be invest in

mutual fund. There are so many funds and schemes are available in mutual

fund market. Investors know that how much risk they can take. Based on that

they have to choose schemes. Problem is that chosen scheme provides the

best return as compare to the market and other schemes. For that certain

models are suggested that which schemes provide best return.

47

respects to

relation to certain indicators on what is possible to achieve or moderate this

with comparable investment alternatives available in the market. These

indicators of performance can acts against investors fund performance. It is

So the problem arises that in which scheme they should invest according to

their preferences.

4.4 OBJECTIVES OF THE STUDY

46

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The primary object of the present project is to know about which mutual funds

gave highest performance in a short-term period.

To know about types of mutual funds in detail.

To know, which schemes gives highest return within one-year.

To find the extent of diversification in the portfolio of securities of

sponsored mutual funds.

To compare the performance of sponsored mutual funds using

traditional investment measures.

In general, Mutual Funds are not considered to be too risky because they

invest in dozens or even hundreds of stocks. But Mutual Funds being market-

linked are prime candidates for stock market related risks. The four aspects

that you should take into account while analyzing risk in Mutual Fund

investment are volatility of the fund as indicated by the Standard Deviation,

risk-adjusted returns as calculated by the Sharpe Ratio, Beta and Alpha.

Standard Deviation shows the degree of risk taken on by the fund, Sharpe

Ratio shows the return generated by the fund per unit of risk taken. Beta

shows how much a fund moves when compared to an appropriate index.

Alpha represents the difference between a Mutual Fund's actual performance

and the performance that would be expected based on the level of risk taken

by the manager.

A Fund with low risk is the one with the lowest Standard Deviation, the

highest Sharpe Ratio within its peer group, Beta closer to one and Alpha

above one. It is advisable for you to evaluate these measures on a historical

basis so as to identify the most consistent performers.

47

CHAPTER 5

RESEARCH

METHODOLOGY

5.1 RESEARCH DESIGN

48

Research Design is the roadmap for carrying out the research activity in the

carried out the research of which mutual fund is providing higher return by

comparing the returns of different mutual funds and we have also compared

whether the mutual fund can beat the market return or not.

For this research activity

We have selected 10 mutual funds from Indian market. All funds are in

equity growth category.

Data has been collected from money control, value research online,

and mutual fund India web sites.

Funds selected are mostly preferable by investors.

Treasury bill rate of return is selected as risk free return, which is 8.5%

p.a.

Collected NAV of funds of each quarter for the year 2013 and define

return.

Defined standard deviation on the basis of Quarterly return.

Found out average return.

Defined beta of funds and market, S&P CNX Nifty index return is taken as market return.

Found out Treynor, Sharpe and Jensen ratio and performance.

Finally we have given rank to mutual funds according to each ratio.

5.2 SOURCES OF DATA

49

Here in this research project we have used Secondary source of data as the

return for different mutual funds and market cannot be established by

ourselves.

5.3 DATA COLLECTION METHOD

Here in this research project we have used data which were published on the

websites of Bombay stock exchange, Money control, value research online,

National stock exchange and mutual fund India.

5.4 POPULATION Population is a collection of items of interest in research. The population

represents a group that you wish to generalize your research to.

Here in this research project we have taken the population of 46 mutual fund

house in India. Out of 46 we have selected 6 fund houses on the asset under

management basis. 10 Funds across 6 fund houses have been selected. This

population is based on the type of mutual fund i.e.

There are various schemes available in the mutual fund like debt, equity,

balanced, guilt etc. But out of these schemes we have selected Equity growth

scheme as a population.

5.5 SAMPLING METHOD

The random sample

50

Convenient sample is one of the main types of non probability sampling

method. A convenience sample is made up of people who are easy to reach.

Consider the following example. A pollster interviews shoppers at a local mall.

If the mall was chosen because it was a convenient site from which to solicit

survey participants and/or because it was close to the pollster's home or

business, this would be a convenience sample.

Here in this research project we have used convenient sample method for

sampling. We have taken the Sample of

on the basis of their highest annual average return in the year 2013.

51

CHAPTER 6

DATA ANALYSIS AND

INTERPRETATION

6.1 ANALYSIS OF MUTUAL FUND PERFORMANCE

52

Mutual fund performance can be analyzed through performance

measurement ratios which are use in portfolio analysis. We here are using

Treynor, Sharpe, and Jensen ratio to evaluate mutual funds and rank

accordingly. Composite portfolio performance measures have the flexibility of

combining risk and return performance into a single value. The most

commonly used composite measures are: Treynor, Sharpe and Jensen

measures. While Treynor measures only the systematic risk summarized by

beta, Sharpe concentrates on total risk of the mutual fund.

Treynor (1965) was the first researcher developing a composite measure of

portfolio performance. He measures portfolio risk with beta, and calculates

Where:

Rf = Risk-free rate of return during the same period

portfolio

investors Regardless of their individual risk preferences. In two cases we may

because Rp < Rf we judge the portfolio performance as very poor. However, if

superb. Finally when Rp-

53

Demonstration of Comparative Treynor Measures

Assume we have the following data for three mutual funds; ZBY, with their

respective annual rate of return and systematic risk, Beta. The risk free rate

is 8 %. The systematic risk for M (market) is 1.0 and the rate of return for M

is 14%.

Investment Manager Rate of Return Beta

Z 0.12 0.90

B 0.16 1.05

Y 0.18 1.2

M 0.14 1.0

Table 6.1

We can calculate the T values for each investment manager:

TM (0.14-0.08) / 1.00 = 0.06

TZ (0.12-0.08) / 0.90 = 0.044

TB (0.16-0.08) / 1.05 = 0.076

TY (0.18-0.08) / 1.20 =0.083

Table 6.2

These results show that Z did not even "beat-the-market." Y had the

best performance, and both B and Y beat the market

SAMPLE OF 10 MUTUAL FUNDS

54

Company

Avg. return of 2013

ICICI prudential technology Reg

62.55 %

SBI IT

54.50 %

Franklin InfoTech

53.34 %

Birla sun life new millennium

50.25 %

ICICI prudential export & other services Reg

43.59 %

SBI Pharma

26.05 %

UTI transportation & logistics

24.69 %

Reliance Pharma

20.87 %

Franklin India smaller companies

13.22 %

SBI FMCG

9.29 %

55

Comapny Rp Rf Beta Treynor

Index


62.55 % 8.5 % 0.35 154.428

SBI IT

54.50 % 8.5 % 0.81 56.790

Franklin InfoTech

53.34 % 8.5 % 0.93 48.215


50.25 % 8.5 % 0.53 78.773


43.59 % 8.5 % 0.62 56.596

SBI Pharma

26.05 % 8.5 % 0.92 19.076


24.69 % 8.5 % 3.17 5.107

Reliance Pharma

20.87 % 8.5 % 1.64 7.542


13.22 % 8.5 % 2.34 2.017

SBI FMCG

9.29 % 8.5 % 0.11 7.181

RANKING ACCORDING TO TREYNER

56

Rank Particular

1 ICICI prudential technology Reg

2 Birla sun life new millennium

3 SBI IT

4 ICICI prudential export & other services Reg

5 Franklin InfoTech

6 SBI Pharma

7 Reliance Pharma

8 SBI FMCG

9 UTI transportation & logistics

10 Franklin India smaller companies

INTERPRETATION

In

st

(Beta) systematic risk of portfolio. This model does not consider total risk

(systematic risk + unsystematic risk).

In our analysis we have found out that SBI FMCG fund growth has

lower beta i.e. 0.21 as compared to other nine funds. Same way UTI

transportation & logistic has higher beta i.e. 3.17.

This analysis represents that SBI FMCG fund

performance index and it stands on eighth rank. Same way UTI transportation

& logistic

9th rank.

57

This analysis also represents that though ICICI prudential technology Reg

fund growth has higher return i.e. 62.55 % as compared to other nine funds, it

stands on third rank as it is having higher beta i.e. 0.35.

Index, it is not necessary that fund with higher return is always well performing

fund and stands on first rank because we also have to consider risk

associated with that fund.

Sharpe (1966) developed a composite index which is very similar to the

Treynor measure, the only difference being the use of standard deviation,

instead of beta, to measure the portfolio risk, in other words except it uses the

total risk of the portfolio rather than just the systematic risk.

Where:

Si = Sharpe performance index

= Portfolio standard deviation

Sharpe index, evaluates funds performance based on both rate of return and

diversification. For a completely diversified portfolio Treynor and Sharpe

indices would give identical rankings.

Demonstration of Comparative Sharpe Measures

Assume we have the following data for three portfolios; BOP, with their

respective annual rate of return and standard deviation of their return.

58

The risk free rate is 8 %. The standard deviation for M (market) is 0.20

and the rate of return for M is 14%.

Portfolio Annual rate of Return S.D of Return

B 0.13 0.18

O 0.17 0.22

P 0.16 0.23

M 0.14 0.20

Table 6.6

We can calculate the S values for each portfolio.

B (0.13-0.08) / 0.18 = 0.278

O (0.17-0.08) / 0.22 = 0.409

P (0.16-0.08) / 0.23 = 0.348

M (0.14-0.08) / 0.20 = 0.30

Table 6.7

Thus, portfolio O did the best, and B failed to beat the market.

The trouble with both Sharpe and Treynor techniques for evaluating "risk-

adjusted" returns is that they equate risk with short-term volatility.

Therefore these measures may not be applicable in evaluating the

relative merits of long-term investments

59

Company Rp Rf Standard

Deviation

Index


62.55 % 8.5 % 12.50 4.324

SBI IT

54.50 % 8.5 % 11.31 4.067

Franklin InfoTech

53.34 % 8.5 % 11.38 3.940


50.25 % 8.5 % 9.40 4.441


43.59 % 8.5 % 7.04 4.984

SBI Pharma

26.05 % 8.5 % 5.16 3.401


24.69 % 8.5 % 15.07 1.074

Reliance Pharma

20.87 % 8.5 % 7.53 1.642


13.22 % 8.5 % 10.84 0.435

SBI FMCG

9.29 % 8.5 % 2.84 0.278

RANKING ACCORDING TO SHARPE

60

Rank Particular




4 SBI IT

5 Franklin InfoTech

6 SBI Pharma

7 Reliance Pharma



10 SBI FMCG

INTERPRETATION

st

standard deviation of portfolio. This model considers total risk i.e. both

systematic risk and unsystematic risk.

In our analysis we have found out that Reliance Pharma fund growth has a

return of 9.29 % and on the basis of return it stands on seventh rank but its

standard deviation is 2.84 which is lower as compared to other nine funds.

This thing indicates that ICICI prudential export and other service Reg Fund

stands on first rank because it is providing good return with moderate risk.

61

We have analyzed that SBI FMCG Fund growth plan also has lower

performance index. The reason behind this is that this fund is providing lower

return as compared to other nine funds. This thing indicates that SBI FMCG

Fund stands on last rank because it is providing lower return with lower risk.

Index, it is not necessary that fund with higher return is always well performing

fund and stands on first rank because we also have to consider risk

associated with that fund. Further return of fund should also be good enough;

it should not be so lower.

Jensen (1968), on the other hand, writes the following formula in terms of

realized rates of return, assuming that CAPM is empirically valid.

Jensen uses as his performance measure. A superior portfolio manager

would have a significant positive value because of the consistent positive

residuals. Inferior managers, on the other hand, would have significant

having no forecasting ability but, still,

cannot be considered inferior would earn as much as one could expect on the

basis of the CAPM.

Jensen performance criterion, like the Treynor measure, does not evaluate

the ability of portfolio managers to diversify, since the risk premiums are

If the value is positive, and then the portfolio is earning excess returns. In

other words, a positive value for Jensen's alpha means a fund manager has

62

beat the market with his or her stock picking skills.

63

Particular Rp Rf Rm Beta Index


62.55 % 8.5 % 5.72 % 0.35 55.023

SBI IT

54.50 % 8.5 % 5.72 % 0.81 48.2518

Franklin InfoTech

53.34 % 8.5 % 5.72 % 0.93 47.4254


50.25 % 8.5 % 5.72 % 0.53 43.2234


43.59 % 8.5 % 5.72 % 0.62 36.8136

SBI Pharma

26.05 % 8.5 % 5.72 % 0.92 20.0616


24.69 % 8.5 % 5.72 % 3.17 25.0026

Reliance Pharma

20.87 % 8.5 % 5.72 % 1.64 16.9292


13.22 % 8.5 % 5.72 % 2.34 11.2252

SBI FMCG

9.29 % 8.5 % 5.72 % 0.11 1.0958

64

RANKING ACCORDING TO JENSEN

Rank

Particular


2 SBI IT

3 Franklin InfoTech




7 SBI Pharma

8 Reliance Pharma


10 SBI FMCG

INTERPRETATION

In our analysis we have given ranks on the basis of st

alpha of portfolio. This model indicates that higher the value of alpha, higher is

the ability of a fund manager to select good fund.

We have analyzed that alpha of ICICI prudential technology Reg growth is

very high i.e. 62.55 % as compared to other nine funds and it stands on first

rank. This positive value of alpha indicates that fund manager is able to select

ICICI prudential technology Reg fund as a good fund.

We have also analyzed that alpha of SBI FMCG Fund is lower. This may be

due to its lower return. Thus though the risk associated with SBI FMCG Fund

is lower, its alpha value is lower because of its lower return.

Finally we w

65

alpha not only depends on the return of the fund but also on the risk

associated with that fund. Value of alpha should be always positive.

Rank Treynor Rank Sharpe Rank Jensen





2 Birla sun

lifenew

millennium

2 SBI IT

3 SBI IT


3 Franklin InfoTech


4 SBI IT


5 Franklin InfoTech

5 Franklin InfoTech


6 SBI Pharma

6 SBI Pharma


7 Reliance Pharma

7 Reliance Pharma

7 SBI Pharma

8 SBI FMCG


8 Reliance Pharma





10 SBI FMCG

10 SBI FMCG

ANALYSIS

66

The fact that Sharpe uses Standard deviation as a measurement of risk

which is the total risk and Treynor uses Beta or systematic risk, but yet it is

claimed that, if we are examining a well-diversified portfolio, the rankings

should be similar for all three methods. Due to this interesting theory we

have decided to analyze the performance of the portfolios and they will be

performance measurement. ICICI prudential technology Reg fund growth

get 1st

rank from all three method.

model because more schemes are on similar positions in these two

models. Another reason behind this is that Sharpe measures total risk and

Jensen measures the predictive ability of manager, where manager always

consider total risk while selecting the security. Due to this reason both

models indicate similar positions for more schemes.

67

CHAPTER 7

RESULT AND

FINDING

The study done on the performance evaluation of Indian mutual funds was

fruitful as all the objectives of the study were successfully achieved. The

68

following are the findings from this study.

The schemes selected for the study gave returns in coordination with

the markets. When there was boom in the stock market the funds gave

positive returns a little more than what the market had given. During

the recessionary phase the markets declined steadily and so did the

fund returns. Overall the fund returns and the market returns, for the

period of 1 year taken into consideration for this study.

Mostly all the mutual fund schemes are able to beat the market. That

means the schemes are well diversified.

From the entire 10 schemes best scheme is ICICI prudential

technology Reg fund growth because in all the two models it stands on

1st

rank and also it provides good return.

because more schemes are on similar positions in these two models. Another

reason behind this is that Sharpe measures total risk and Jensen measures

the predictive ability of manager, where manager always consider total risk

while selecting the security. Due to this reason both models indicate similar

positions for more schemes.

69

CHAPTER 8

LIMITATION OF THE

STUDY

70

We have selected 6 fund houses out of 46 fund houses due to time

constrains. We have not studied all types of mutual fund of 46 fund

houses. We have studied only equity growth fund. We also have not

studied all schemes of 6 mutual fund houses. These schemes we have

selected randomly.

Since the funds selected for this study were open ended equity based

growth mutual funds the fund composition kept on changing over the time

period, so it became difficult to understand the fund properties as historical

data pertaining to the fund structure was not available.

Because of unavailability of historical data and fund composition it was

difficult to ascertain the performance of the fund properties and a simple

evaluation was done against the market performance.

71

CHAPTER 9

CONCLUSION AND

SUGGESTON

Mutual funds are one of the most highly growing products in financial services

market. Mutual funds are suitable for all types of investors from risk adverse

to risk bearer. Mutual funds have many options of return, risk free return,

72

constant return, market associated returned. Mutual funds are suitable to all

age of investors, businessmen, salary person, etc. Investors need not to be

expert in equity market; mutual funds can satisfy their need. Fund managers

are expert in this area and invest fund in well diversified portfolio, high return

with low risk is possible inn mutual fund.

other financial product. There is no need of a financial consultant, if you have

good knowledge of mutual funds and their type to invest.

Mutual fund is subject to market risk, despite of that it have low risk than stock

market. This is proved in performance evaluation section of this report.

diversify portfolio.

Mutual Fund is subject to market risk, analyzing particular fund before

investing.

Study historical return of funds, risk measurement ratios to evaluate

fund.

For high return invest in diversified funds, for tax saving invest in ELSS

equity funds, for moderate risk and return invest in balance funds, for

assure return invest in debt and liquid funds.

As per our opinion, investor should invest around 30% in mutual fund.

73

ANNEXURE

Appendix-1

74

1.1 RETURNS OF MUTUAL FUNDS FOR THE YEAR 2013


Quarter

Mutual Fund Return

Q1

10.18

Q2

-5.34

Q3

24.12

Q4

25.58

SBI IT

Quarter

Mutual Fund Return

Q1

17.41

Q2

-7.24

Q3

21.45

Q4

16.81

Franklin InfoTech

Quarter

Mutual Fund Return

Q1

16.70

Q2

-7.18

Q3

22.89

Q4

15.19


75

Quarter

Mutual Fund Return

Q1

11.73

Q2

-4.31

Q3

20.03

Q4

17.08

ICICI prudential export and other service Reg

Quarter

Mutual Fund Return

Q1

2.59

Q2

2.73

Q3

17.03

Q4

16.43

SBI Pharma

Quarter

Mutual Fund Return

Q1

-2.69

Q2

10.43

Q3

7.57

Q4

9.04

UTI Transportation and logistic

76

Quarter

Mutual Fund Return

Q1

-10.76

Q2

4.09

Q3

2.63

Q4

30.79

Reliance Pharma

Quarter

Mutual Fund Return

Q1

-6.04

Q2

7.12

Q3

4.40

Q4

15.02


Quarter

Mutual Fund Return

Q1

-7.79

Q2

3.07

Q3

-1.75

Q4

21.25

SBI FMCG

77

Quarter

Mutual Fund Return

Q1

-0.88

Q2

5.71

Q3

4.45

Q4

-0.13

1.2 RETURN OF INDEX FOR THE YEAR 2013

Quarter

Index

Q1

-5.1967

Q2

2.4156

Q3

-2.0870

Q4

6.4537

Appendix 2

78

2.1 CALCULATION OF BETA

Beta is the measure of volatility of a stock, fund, portfolio, etc with respect

to the market. If the beta is positive then the fund returns are directly

proportional to the market returns and if the beta is negative then the fund

returns are inversely proportional to the market.

Formula: Where,

a = fund beta

Cov (ra,rp) = covariance of the returns of the fund and the

market, Var rp = variance of the market returns. ICICI prudential technology Reg

Quarter

Mutual Fund Return Index Beta

Q1

10.18 -5.1967

Q2

-5.34 2.4156 0.35

Q3

24.12 -2.0870

Q4

25.58 6.4537

SBI IT

79

Quarter


Q1

17.41 -5.1967

Q2

-7.24 2.4156 0.81

Q3

21.45 -2.0870

Q4

16.81 6.4537

Franklin InfoTech

Quarter


Q1

16.70 -5.1967

Q2

-7.18 2.4156 0.93

Q3

22.89 -2.0870

Q4

15.19 6.4537


Quarter


Q1

11.73 -5.1967

Q2

-4.31 2.4156 0.53

Q3

20.03 -2.0870

Q4

17.08 6.4537

ICICI prudential export and other service Reg

80

Quarter


Q1

2.59 -5.1967

Q2

2.73 2.4156 0.62

Q3

17.03 -2.0870

Q4

16.43 6.4537

SBI Pharma

Quarter


Q1

-2.69 -5.1967

Q2

10.43 2.4156 0.92

Q3

7.57 -2.0870

Q4

9.04 6.4537

UTI Transportation and logistic

Quarter


Q1

-10.76 -5.1967

Q2

4.09 2.4156 3.17

Q3

2.63 -2.0870

Q4

30.79 6.4537

Reliance Pharma

81

Quarter


Q1

-6.04 -5.1967

Q2

7.12 2.4156 1.64

Q3

4.40 -2.0870

Q4

15.02 6.4537


Quarter


Q1

-7.79 -5.1967

Q2

3.07 2.4156 2.34

Q3

-1.75 -2.0870

Q4

21.25 6.4537

SBI FMCG

Quarter


Q1

-0.88 -5.1967

Q2

5.71 2.4156 0.11

Q3

4.45 -2.0870

Q4

-0.13 6.4537

2.1 CALCULATION OF STANDARD DEVIATION

82

Standard Deviation is a tool which measures the variability of data the set. It is

calculated to measure the riskiness of a fund, stock or portfolio. Higher the

standard deviation means higher the risk and higher the returns of the asset and a

low standard deviation mans that the asset is less risky and will generate less

returns.

The standard deviation of the fund returns are calculated with the following formula:

Where,

S = Standard Deviation

N = number of quarters in the period

X = mean of the return

Xi = return of the corresponding week.


Quarter

x x ( x - x ) ( x - x ) Standard deviation

Q1

10.18 13.635 -3.455 11.9370

Q2

-5.34 13.635 -18.975 360.0506

Q3

24.12 13.635 10.485 109.9352

Q4

25.58 13.635 11.945 142.6830

Total

x =54.54 x - x ) = 624.6058

12.50

SBI IT

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