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Evaluate the statement:“Mutual funds could beat market
volatility .” Identify two mutual funds that have been able to beat market
4.How mutual funds can beat market volatility to a large extent?
5.Criteria considered while selecting the two mutual funds
6.Two mutual funds that have been able to beat market volatility
7.ICICI Prudential Focussed Blue chip &
8.Its Graphical Representation
9.Franklin India Blue chip &
10.Its Graphical Representation
11.Conclusion
Introduction The Indian Mutual fund industry has witnessed considerable growth since its inception in 1963.
The assets under management (AUM) have surged to Rs. 4,173bn in Mar-09 from just Rs. 250mn in Mar-65. In a span of 10 years (from 1999 to 2009), the industry has registered a CAGR of 22.3%, albeit encompassing some shortfalls in AUM due to business cycles.
The impressive growth in the Indian Mutual fund industry in recent years can largely be attributed to various factors such as rising household savings, comprehensive regulatory framework, favourable tax policies, introduction of several new products, investor education campaign and role of distributors.
Besides, SEBI has introduced various regulatory measures in order to protect the interest of small investors that augurs well for the long term growth of the industry.
Mutual funds are trusts that pools funds from public and invest in capital market in terms of shares, bonds, debentures etc.
A mutual fund collects savings from small investors that are invested in capital market instruments such as government and corporate securities. The income earned through these investments in the form of interest & dividends along with capital gains realised are shared by unit holders in proportion to the units owned by them. Any appreciation or depreciation in value of investments is reflected in net asset value (NAV) of the concerned scheme.
MFs invest in a mostly three type of companies, they are the companies with,
Large market capitalisation (Large cap)
Medium market capitalisation (Mid cap)
Small market capitalization (Small cap)
Market Volatility
Market volatility means statistical measure of the market to rise or fall sharply in short period of time.
If the prices of a stock in a market fluctuate rapidly in a short time span, it is termed to have high market volatility. If the prices of a stock fluctuate slowly in a longer time span, it is termed to have low market volatility.
Volatility is typically measured by the standard deviation of the return of an investment. Standard deviation is a statistical concept that denotes the amount of variation or deviation that might be expected.
For example, it would be possible to see the Standard & Poor's BSE Sensex Index have a standard deviation of about 15%, while a more stable investment, such as a certificate of deposit (CD), will typically have a standard deviation of zero because the return never varies.
Criteria considered while selecting the two Mutual
Funds
Performance: Ability to deliver higher than benchmark returns consistently.
Resilience: Ability to withstand market downturns better than its benchmarks.
Investment-worthy: Their recent performances have not caused any concern, keeping them investment worthy.
Two mutual funds that have been able to beat
market volatility
Two funds that have stood the test of times; bull markets, bear markets and global market crisis and yet, continue to perform and produce results are :
ICICI Prudential Focussed Bluechip
Franklin India Bluechip
ICICI Prudential Focussed Blue chip
The fund was launched on 23 May 2008.
The fund has constantly outperformed its benchmark S&P CNX Nifty from 1 October 2008 till 30 June 2011 that is 11 times out of 12 on a quarter-on-quarter (q-o-q) basis.
The fund has a greater average outperformance of 5.39% in bear market conditions than the average outperformance of 1.04% in the bull market conditions.
The fund outperformed all 40 large cap funds belonging to the same period over 1 year and 3 years.
The fund has an expense ratio of 1.83% as on 31 October 2011.