PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
ABSTRACTFinancial system in a country plays a dominant role in
assets formation and intermediation, and contributes substantially
in macroeconomic development. In this process of development mutual
funds have emerged as strong financial intermediaries and are
playing a very important role in bringing stability to the
financial system and efficiency to resource allocation. Mutual
funds play a crucial role in an economy by mobilizing savings and
investing them in the capital market, thus establishing a link
between savings and the capital market. The activities of mutual
funds have both short-and long-term impact on the savings and
capital markets, and the national economy. The Indian Mutual fund
Industry has witnessed a structural transformation during the past
few years. Therefore it becomes important to examine the
performance of the mutual fund in the changed environment. This
research report has evaluate the performance of Indian Mutual fund
equity scheme by using monthly NAV returns of 10 equity Growth
funds of 5 years past data from 1-1-2003 to 30-04-2007. BSE sensex
has been used as a proxy for the market portfolio, while 364 day
Treasury bills (T-bills) have been used as a surrogate for risk
free rate of return. The performance of funds has been computed by
using Jensens ratio. To evaluate investment performance of mutual
funds in terms of risk and return. To examine the funds sensitivity
to the market fluctuations in terms of beta. To appraise investment
performance of mutual funds with risk adjustment the theoretical
parameters as suggested by Sharpe, Treynor and Jensen. To rank the
funds according to Jensens performance measure. There is no
conclusive evidence which suggests that performance mutual funds
superior to the market. However there is some evidence that some of
the funds are performing better than the market.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
INTRODUCTIONMUTUAL FUNDS. AN OVERVIEW: A Mutual Fund is a trust
that pools the savings of a number of Investors who share a common
financial goal. The money thus collected is invested by the fund
manager indifferent types of securities depending upon the
objective of the scheme. These could range from shares to
debentures to money market Instruments. The income earned through
these investments and the capital appreciations realized by the
scheme are shared by its unit holders in proportion to the number
of units held by them. Thus a mutual fund is the most suitable for
the common man as it offers an opportunity to invest in a
diversified, professionally managed portfolio at a relatively low
cost. Anybody with an invest able surplus of as little as a few
thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme
has a defined investment objective and strategy. A Mutual Fund is
the ideal investment vehicle for todays complex and modern
financial scenario. Markets for Equities, Bonds and other Fixed
Income Instruments, real estate, derivatives and other assets are
driven by global events occurring in faraway places. Atypical
individual is unlikely to have the knowledge, skills, inclination
and the time to keep track of events, understand their implications
and act speedily. An Individual also finds it difficult to keep
track of ownership of his assets, brokerage, dues and bank
transactions etc.
A Mutual Fund is the answer to all these situations. It appoints
professionally qualified and experienced staff that manages each of
these functions on full time basis. The large pool of money
collected in the fund allows it to hire such staff at a very low
cost to each investor. In effect, the mutual fund vehicle exploits
economies of Scale in all R.V. Institute of management 2
PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
three areas- Research, Investments and Transaction Processing.
While the concept of coming together to invest money collectively
is not new, the mutual funds in their present form are a 20th
century Phenomenon. In fact, mutual funds gained popularity only
after the Second World War. Globally there are thousands of mutual
funds with different investment objectives. Today, mutual funds,
collectively manage almost as much as or more money as compared to
banks. A draft offer document is to be prepared at the time of
launching the fund. Typically, it pre-specifies the investment
objectives of the fund, the risk associated, the costs involved in
the process and the broad rules for entry into and exit from the
fund and other areas of operation. In India, as in most of the
countries, these sponsors need approval from a regulator, SEBI.
SEBI looks at he records of the Sponsor and its financial strength
in granting approval to the fund for commencing operations. A
sponsor then hires an. Asset Management Company. to invest the
funds according to the investment objective. It also hires equity
to the custodian of the assets of the fund and perhaps a third one
to handle registry work for the unit holders of the fund. In the
Indian concept, the sponsors promote the AMC also, in which it
holds a majority stake. In many cases a Sponsor can hold a 100%
stake in the AMC eg. IL&FS is the sponsor of IL&FS AMC,
which has floated different Mutual fund schemes and also acts as an
asset manager or the funds collected under the schemes.
History of mutual funds in IndiaThe history of mutual funds in
India can be broadly divided into 5 important phases. First Phase:
1963-87 Initial Development phase (Unit Trust of India) In 1963,
UTI was established by an Act of Parliament and given a monopoly.
UTI commenced its operations from July 1964 .The impetus for
establishing a formal institution came from the desire to increase
the propensity of the middle and lower groups to save and to R.V.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
invest. UTI came into existence during a period marked by great
political and economic uncertainty in India. The first and still
one of the largest schemes, launched by UTI was Unit Scheme 1964.
UTI created a number of products such as monthly income plans,
childrens plans, equity-oriented schemes and offshore funds during
this period. The total asset under management for the year 1987-88
was 6,700crores. Second Phase: 1987-93 (Entry of Public Sector
Funds) Second phase witnessed the entry of mutual funds sponsored
by state owned banks and financial institutions. With the opening
up of the economy, many public sector and financial institutions
were allowed to establish mutual funds. In November 1987 the State
Bank of India established the first non-UTI mutual fund-SBI Mutual
Fund. This was followed by Canbank Mutual Fund (launched in
December, 1987), LIC Mutual Fund (1989), and Indian Bank Mutual
Fund (1990) followed by Bank of India Mutual Fund, GIC Mutual Fund
and PNB Mutual Fund. These mutual funds helped enlarge the investor
community and the invest able funds. During this period, investors
were shifting away from bank deposits to mutual funds. Most funds
were growth-oriented closed-ended funds. From 1987 to 1992-93, the
fund industry expanded nearly seven times in terms of Assets under
Management. The total asset under management considering both UTI
and Public Sector was 47,004.
Third Phase: 1993-96 (Emergence of Private Funds) A new era in
the mutual fund industry began with the permission granted for the
entry of private sector funds in 1993, both Indian and Foreign.
Also Government launched a series of measures aimed at the
financial sector as a part of the economic liberalization and
reform process. This included the setting up of the Securities and
Exchange Board of India (SEBI) as a regulatory body for the
financial sector including Mutual Funds, which issued the SEBI
Mutual Fund Regulations in January 1993. During the year 1993-94,
five private sector mutual funds launched their schemes followed by
six others in 1994-95.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Fourth Phase: 1996-1999 (SEBI Regulations for Mutual Funds) More
investor friendly regulatory measures have been taken both by SEBI
to protect the investor and by the Government to enhance investors.
returns. A comprehensive set of regulations for all mutual funds
operating in India was introduced with SEBI (Mutual Fund), 1996.
These regulations set uniform standards for all funds and will
eventually be applied in full to Unit Trust of India as well, even
though UTI is governed by its own UTI Act. In 1999 Union Government
Budget took a big step in exempting all mutual funds dividends from
income tax in the hands of investors. 1999 marks the beginning of a
new phase in the history of the mutual fund industry in India, a
phase of significant growth in terms of both amounts mobilized from
investors and assets under management. Fifth Phase: 1999-2002 This
phase was marked by very rapid growth in the industry, and
significant increase in market shares of private sector players.
Assets crossed Rs. 1,00,000. The tax break offered to mutual funds
in 1999 created arbitrage opportunities for a number of
institutional players. Bond funds and liquid funds registered the
highest growth in this period, accounting for nearly 60% of the
assets. UTI.s share of the industry dropped to nearly 50% . MEANING
& DEFINITIONS OF MUTUAL FUND: Mutual Funds are financial
intermediaries. They are companies set up to receive your money,
and then having received it, make investments with the money Via an
AMC. It is an ideal tool for people who want to invest but don't
want to be bothered with deciphering the numbers and deciding
whether the stock is a good buy or not. A mutual fund manager
proceeds to buy a number of stocks from various markets and
industries. Depending on the amount you invest, you own part of the
overall fund. The beauty of mutual funds is that anyone with an
invest able surplus of a few hundred rupees can invest and reap
returns as high as those provided by the equity markets or have a
steady and comparatively secure investment as offered by debt
instruments. A Mutual Fund is an investment tool that allows small
investors access to a well diversified portfolio of equities, bonds
and other securities. Each shareholder Participates in R.V.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
the gain or loss of the fund. Units are issued and can be
redeemed as needed. The fund's Net Asset Value (NAV) is determined
each day. In simple words, a mutual fund is a trust, which collects
the savings from small investors, invest them in government
securities and earn through interest, dividends and capital gains.
For instance, if one has Rs. 1000 to invest, it may not fetch much
on its own. But, when it is pooled with Rs. 1000 each from a lot of
other people, then one could create a big fund. Large enough to
invest in wide varieties of shares and debentures on a commanding
scale and thus, to enjoy the economies of large scale operations.
DEFINITIONS: The SEBI, 1993 defines a Mutual Fund as .a fund
established in the form of a trust by a sponsor, to raise monies by
the trustees through the sale of units to the public, under one or
more schemes, for investing in securities in accordance with these
regulations. According to Weston J. Fred and Brigham, Eugene, unit
trusts are: Corporations which accept dollars from savers and then
use these dollars to buy stocks, long term bonds and short term
debt instruments issued by business or government units; these
corporations pool funds and thus reduce the risk of
diversification. OPERATION OF THE FUND: A mutual fund invites the
prospective investors to join the fund by offering various schemes
so as to suit to the requirements of categories of investors. The
resources of individual investors are pooled together and the
investors are issued units/shares for the money invested. The
amount so collected is invested in capital market instruments like
treasury bills, commercial papers, etc. For managing the fund, a
mutual fund gets an annual fee of 1.25% of funds managed at the
maximum as fixed by SEBI (MF) regulations, 1993 and if the funds
exceed Rs. 100 cores , the fee is only 1%. The fee cannot exceed
1%. Off course, regular expenses like custodial fee, cost of
dividend warrants, fee for registration, the asset management fee
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
debited to the respective schemes. These expenses cannot exceed
3% of the assets in the respective schemes. These expenses cannot
exceed 3% of the assets in the respective schemes each year. The
remaining amount is given back to the investors in full.
The flow chart below describes broadly the working of a mutual
fund:
ORGANISATION OF A MUTUAL FUND: The formation and operations of
Mutual Funds in India is solely guided by SEBI (Mutual Funds)
Regulations, 1993, which came into force on 20th January, 1996,
through a Notification on 9th December, 1996. These Regulations
make it mandatory for Mutual Funds to have a three-tier structure
of: 1. A Sponsor Institution to promote the Fund. 2. A team of
Trustees to oversee the operations and to provide checks for
efficient, profitable and transparent operations of the fund and 3.
An Asset Management Company (AMC) to actually deal with the funds
Sponsoring Institution: The Company, which sets up the mutual fund,
is called the Sponsor. SEBI has laid down certain criteria to be
met by the sponsor. The criterion mainly deals with adequate
experience, good past track record, net worth etc. Sponsor appoints
the Trustees, Custodian and the AMC with the prior R.V. Institute
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Approval of SEBI, and in accordance with SEBI Regulations.
Sponsor must have at least 5-year track record of business interest
in theFinancial Markets.
Trustees: Trustees are the people with long experience and good
integrity in the respective fields carry the crucial responsibility
in safeguarding the interests of the investors. For this purpose,
they monitor the operations of the different schemes. They have
wide ranging powers and they can even dismiss AMC with the approval
of SEBI.The Indian Trust Act governs those rules regarding
appointment of the Trustees are: Appointment of Trustees has to be
done with the prior approval of SEBI. There must be at least 4
members in the Board of Trustees and at least 2/3rd of the members
of the Board of Trustees must be independent. Trustees of one
Mutual Fund cannot be a Trustee of another Mutual Fund, unless he
is an independent trustee in both cases, and has the approval of
both the Boards. Rights of Trustees: Trustees appoint the AMC, in
consultation with the sponsor and according to SEBI Regulations.
All mutual Fund Schemes floated by the AMC have to be approved by
the Trustees. Trustees can seek information from the AMC on the
operations and compliance of the Mutual Fund, with the provisions
of the trust Deed, investment management agreement and the SEBI
Regulations. Trustees can review and ensure that Net worth of the
AMC is according to stipulated norms and regulations.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Asset Management Company:The AMC actually manages the funds of
the various schemes. The AMC employs a large number of
professionals to make investments, carry out research & to do
agent and investor servicing. Infact, the success of any Mutual
Fund depends upon the efficiency of this AMC. The AMC submits a
quarterly report on the functioning of the mutual fund to the
trustees who will guide and control the AMC. The AMC is usually a
private limited company, in which the sponsors and their
associations or joint venture partners are shareholders. The AMC
has to be registered by SEBI and should have a minimum Net worth of
Rs.10 cores all times. The role of the AMC is to act as the
Investment Manager of the Trust along with the following functions:
It manages the funds by making investments in accordance with the
The AMC shall disclose the basis of calculation of NAV and
Repurchase Funds shall be invested as per Trust Deed and
Regulations. provision of the Trust Deed and Regulations price of
the schemes and disclose the same to the investors.
Restrictions on the AMC.s: AMC.s cannot launch a fund scheme
without the prior approval of Trustees. AMC.s have to provide full
details of Employees and Board Members, in all cases where such
investments exceed Rs. 1 lakh. AMC.s cannot take up any activity
that is in conflict with the activities of the mutual funds.
Registrars and Transfer Agents:
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
The Registrars and Transfer Agents are responsible for the
investor servicing functions, as they maintain the records of
investors in the mutual funds. They process investor applications,
record details provided by the investors on application forms, send
out periodical information on the performance of the Mutual fund;
process dividend pay-out to the investors; incorporate changes in
information as communicated by investors; and keep the investor
record up to date, by recording new investors and removing
investors who have withdrawn their funds. Custodian: Custodians are
responsible for the securities held in the mutual funds portfolio.
They discharge an important back-office function, by ensuring that
securities that are bought are delivered and transferred to the
books of mutual funds, and that funds are paid-out when mutual fund
buys securities. They keep the investment account of the mutual
fund, and also collect the dividends and interest payments due on
the mutual fund investments. Custodians also track corporate
actions like bonus, issues, right offers, offer for sale, buy back
and open offers for acquisition.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
ORGANISATION OF A MUTUAL FUND: There are many entities involved
and the diagram below illustrates the organisational set up of a
mutual fund:
Composition of Indian Mutual Fund Industry: Unit Trust of India
Bank sponsored Bank of Baroda AMC Bank of India AMC Canbank
Investment Management Services Ltd. Punjab National Bank AMC Ltd.
SBI Funds Management Ltd. Indfund Management Ltd. Institutions:
General Insurance Corporation AMC IDBI Principal Asset Management
Co. Jeevan Bima Sahayog Asset Management Co. Ltd. R.V. Institute of
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Private Sector: 1. India Benchmark AMC Ltd. Cholamandalam AMC
Ltd. Escorts AMC Ltd. J.M. Capital Management Co. Ltd. Kotak
Mahindra AMC Ltd. Shriram AMC Ltd. 2. Joint Venture .Predominantly
Indian Birla Sun Life AMC Pvt. Co. Ltd. DSP Merrill Lynch
Investment Mangers (India) ltd. HDFC AMC Ltd. Sundaram Newton AMC
Tata TD Waterhouse Asset Management Private Ltd. 3. Joint Ventures
.Predominantly Foreign Alliance Capital Asset Management (India)
Pvt. Ltd. Standard Chartered Asset Management Co. Pvt. Ltd. ING
Investment Management (India) Pvt. Ltd. JM Asset Management (India)
Pvt. Ltd. Morgan Stanley Investment Management Pvt. Ltd. Prudential
ICICI Management Co. Ltd. Templeton Asset Management (I) Pvt.
Ltd.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
ROLE OF MUTUAL FUNDS IN THE FINANCIAL MARKET
Indian financial institutions have played a dominant role in
assets formation and intermediation, and contributed substantially
in macroeconomic development. In this process of development Indian
mutual funds have emerged as strong financial intermediaries and
are playing a very important role in bringing stability to the
financial system and efficiency to resource allocation. Mutual
funds play a crucial role in an economy by mobilizing saving and
investing them in the capital market, thus establishing a link
between savings and the capital market. The activities of mutual
funds have both short-and long-term impact on the savings and
capital markets, and the national economy. Mutual funds, thus,
assist the process of financial deepening and intermediation. They
mobilize funds in the savings market and act as complementary to
banking; at the same time they also compete with banks and other
financial institutions. In the process stock market activities are
also significantly influenced by mutual funds. There is thus hardly
any segment of the financial market, which is not (directly or
indirectly) influenced by the existence and operation of mutual
funds. However, the scope and efficiency of mutual funds are
influenced by overall economic fundamentals: the inter relationship
between the financial and real sector, the nature of development of
the savings and capital markets, market structure, institutional
arrangements and overall policy regime.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Regulatory Aspects of Mutual Fund Schemes of mutual fund: The
asset management company shall launch no scheme unless the trustees
approve such scheme and a copy of the offer document has been filed
with the board. Every mutual fund shall along with the offer
document of each scheme pay filing fees. The offer document shall
contain disclosures which are adequate in order to enable the
investors to make informed investment decision
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
including the disclosure on maximum investments proposed to be
made by the scheme in the listed securities of the group companies
of the sponsor. No one shall issue any form of application for
units of a mutual fund unless the form is accompanied by the
memorandum containing such information as may be specified by the
Board. Every close ended scheme shall be listed in a recognized
stock exchange within six months from the closure of the
subscription. The asset management company may at its option
repurchase or reissue the repurchased units of a close-ended
scheme. A close-ended scheme shall be fully redeemed at the end of
the maturity period. "Unless a majority of the unit holders
otherwise decide for its rollover by passing a resolution". The
mutual fund and asset management company shall be liable to refund
the application money to the applicants,(I) If the mutual fund
fails to receive the minimum subscription amount referred to in
clause (a) of sub-regulation. (ii) If the moneys received from the
applicants for units are in excess of subscription as referred to
in clause (b) of sub-regulation (1). The asset management company
shall issue to the applicant whose application has been accepted,
unit certificates or a statement of accounts specifying the number
of units allotted to the applicant as soon
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
as possible but not later than six weeks from the date of
closure of the initial subscription list and or from the date of
receipt of the request from the unit holders in any open ended
scheme. INVESTMENT OBJECTIVES AND VALUATION POLICIES: The money
collected under any scheme of a mutual fund shall be invested only
in transferable securities in the money market or in the capital
market or in privately placed debentures or securitized debts.
Provided that moneys collected under any money market scheme of a
mutual fund shall be invested only in money market instruments in
accordance with directions issued by the Reserve Bank of India .
The mutual fund shall not borrow except to meet temporary liquidity
needs of the Mutual funds for the purpose of repurchase, redemption
of units or payment of Interest or dividend to the unit holders.
The mutual fund shall not advance any loans for any purpose. The
Net Asset Value of the scheme shall be calculated and published at
least in two daily newspapers at intervals of not exceeding one
week.
The price at which the units may be subscribed or sold and the
price at which such units may at any time be repurchased by the
mutual fund shall be made available to the investors.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
TYPES OF MUTUAL FUNDS:Broadly Mutual Funds are classified into:
Open-ended schemes: The open-ended schemes do not have a fixed
maturity and are open for subscription the whole year. One can buy
and sell units at the NAV related prices to the Mutual funds. These
schemes are normally not listed on the stock exchanges and can be
redeemed directly to the Mutual Fund . Close-ended Schemes: The
closed ended schemes can be bought and sold on the stock exchange
subsequent to the initial subscription through the public offer.
One can stay invested in the scheme for a stipulated period ranging
from 2 to 15 years. Generally, the close-ended schemes are traded
at a discount to their NAV in the stock exchange. On the basis of
investments objective, there are five different types of Schemes:
Growth/Equity Scheme : Majority of the corpus of such a scheme is
invested in equities and equity related instruments. This kind of
scheme is for those investors who are not risk averse and are
willing to hold on to their investment for a long period of
time,caring little for volatility. In such schemes, dividend may or
may not be declared. Income /Debt Scheme: The Fund Manager of such
schemes invests a substantial portion of their fund in fixed income
securities like debentures, bonds and money market instruments.
This kind of scheme is ideal for risk averse investors who are
interested in steady income.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Balanced Schemes: Fund Manager of such funds invests in both
equity as well as debt markets in the proportion as that
highlighted in the prospectus. The objective of such a scheme is to
provide both growth and income by distributing a part of the income
and capital gains they earn. Such a scheme is suitable for
investors who want long-term returns without taking the entire risk
of the equity market. Money Market/Liquid Schemes: These are
schemes with very low risks. They invest in Zero risk or safer,
short term instruments like treasury bills, certificates of
deposit, Commercial Paper and inter-bank call money. The objective
of these schemes is to provide liquidity and moderate income and
also preserve the capital. Tax Saving Schemes: The objective of
such a scheme is to provide tax benefits to the investors. Two
types of schemes fall under this head. 1. ELSS (Equity Linked
Savings Schemes: A Fund Manager of such a scheme invests primarily
in stocks. An important feature of this scheme is that there is a
lock-in period of three years from the date of investment. During
this period unit holders are prohibited from trading, pledging and
transferring the units. Repurchase is permitted only after three
years.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
2. Pension Schemes: A unit holder in a Pension Scheme can avail
of a tax rebate of 20 per cent for investments up to Rs 60,000 (tax
saving of Rs 12,000).
Benefits of investing in Mutual Funds: Small investments: Mutual
funds help you to reap the benefit of returns by a portfolio spread
across a wide spectrum of companies with small investments. Such a
spread would not have been possible without their assistance.
Professional Fund Management: Professionals having considerable
expertise, experience and resources manage the pool of money
collected by a mutual fund. They thoroughly analyze the markets and
economy to pick good investment opportunities. Spreading Risk: An
investor with a limited amount of fund might be able to invest in
only one or two stocks / bonds, thus increasing his or her risk.
However, a mutual fund will spread its risk by investing a number
of sound stocks or bonds. A fund normally invests in companies
across a wide range of industries, so the risk is diversified at
the same time taking advantage of the position it holds. Also in
cases of liquidity crisis where stocks are sold at a distress,
mutual funds have the advantage of the redemption option at the
NAVs. Transparency and interactivity: Mutual Funds regularly
provide investors with information on the value of their
investments. Mutual Funds also provide complete portfolio
disclosure of the investments made by various schemes and also the
proportion invested in each asset type. Mutual Funds clearly layout
their investment strategy to the investor. R.V. Institute of
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Liquidity: Closed ended funds have their units listed at the
stock exchange, thus they can be bought and sold at their market
value. Over and above this the units can be directly redeemed to
the Mutual Fund as and when they announce the repurchase. Choice:
The large amounts of Mutual Funds offer the investor a wide variety
to choose from. An investor can pick up a scheme depending upon his
risk / return profile. Regulations: All the mutual funds are
registered with SEBI and they function within the provisions of
strict regulation designed to protect the interests of the
investor. Flexibility: Investors can exchange their units from one
scheme to another, which cannot be done in other kinds of
investments. Income units can be exchanged for growth units
depending upon the performance of the funds. Potential yields: The
pooling of funds from a large number of customers enables the fund
to have large funds at its disposal. Due to these large funds,
mutual funds are able to buy cheaper and sell dearer than the small
& medium investors. Thus, they are able to get better market
rates and lower rates of brokerage. So, they provide better yields
to their customers. They also enjoy the economies of scale and
reduce the cost of capital market participation. The transaction
costs of large investments are quite lower than that of small
investments. All the profits are passed on to the investor in the
form of dividends and capital appreciation. Mutual funds have a
return ranging from 12-17% p.a.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Renders expertise service at lower costs: The management of the
fund is generally assigned to professionals who are well trained
and have adequate experience in the field of investment. The
investment decisions of these professionals are backed by informed
judgment and experience. Thus, investors are assured of quality
services in their best interest. The fee charged by the mutual
funds is 1%.
Risks of investment in Mutual Funds:Mutual funds are not free
from risks as the funds so collected are invested in stock markets,
which are volatile in nature and are not risk free. The following
risks are generally involved in mutual funds are Market risks:
In general, there are many kinds of risks associated with every
kind of investment on shares. They are called market risks. These
market risks can be reduced, but not completely eliminated even by
a good investment management. The prices of shares are subject to
wide price fluctuations depending upon market conditions over which
nobody has control. The various phases of business cycle such as
boom, Recession, Slump and Recovery affects the market conditions
to a larger extent . Scheme risks: There are certain risks inherent
in the scheme itself. For instance, in a pure growth scheme, risks
are greater. It is obvious because if one expects more returns as
in the case of a growth scheme, one has to take more risks.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Investment risk:
Whether the mutual fund makes money in shares or loses depends
upon the investment expertise of the Asset Management Company
(AMC). If the investment advice goes wrong, the fund has to suffer
a lot. The investment expertise of various funds are different and
it is reflected on the returns, which they offer to the investors.
Business Risk:
The corpus of a mutual fund might have been invested in a
companys shares. If the business of that company suffers any set
back, it cannot declare any dividend. It may even go to the extent
of winding up its business. Though the mutual funds can withstand
such a risk, its income paying capacity is affected. Political
risks:
Every government brings new economic ideologies and policies. It
is often said that many economic decisions are politically
motivated. Change of government brings in the risk of uncertainty,
which every player in the finance service industry has to face.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
MAJOR MUTUAL FUND COMPANIES IN INDIABirla Sun Life Mutual Fund
Birla Sun Life Mutual Fund is the joint venture of Aditya Birla
Group and Sun Life Financial. Sun Life Financial is a global
organization evolved in 1871 and is being represented in Canada,
the US, the Philippines, Japan, Indonesia and Bermuda apart from
India. Birla Sun Life Mutual Fund follows a conservative long-term
approach to investment. Recently it crossed AUM of Rs. 10,000 cr.
HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with
two sponsors namely Housing Development Finance Corporation Limited
and Standard Life Investments Limited. HSBC Mutual Fund HSBC Mutual
Fund was setup on May 27, 2002 with HSBC Securities and Capital
Markets (India) Private Limited as the sponsor. Board of Trustees,
HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.
Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint
venture with Prudential Plc. Of America, one of the largest life
insurance companies in the USA. Prudential ICICI Mutual fund was
setup on 13th of October 1993 with two sponsors, Prudential Plc.
and ICICI Ltd. The Trustee Company formed is Prudential ICICI Asset
Management Company Limited incorporated on 22nd of June 1993.
Sahara Mutual Fund
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Sahara Mutual Fund was setup on July 18, 1996 with Sahara India
Financial Corporation Ltd. as the sponsor. Sahara Asset Management
Company Private Limited incorporated on August 31, 1995 works as
the AMC of Sahara Mutual Fund. The paid up capital of the AMC
stands at Rs.25.8 cr. Tata Mutual Fund Tata Mutual Fund (TMF) is a
Trust under the Indian Trust Act, 1882. The sponsors for Tata
Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation
Ltd. The investment manager is Tata Asset Management limited and
its Tata Trustee Company Pvt. Limited. Tata Asset Management
Limited is one of the fastest in the country with more than Rs.
7,703 cr. (as on April, 30 2005) of AUM. Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of
KMBL. It is presently having more than 1,99,818 investors in its
various schemes. KMAMC started its operations in December 1998.
Kotak Mahindra Mutual Fund offers schemes catering to investors
with varying risk - return profiles. It was the first company to
launch dedicated gilt scheme investing only in government
securities. Franklin Templeton India Mutual Fund The group,
Franklin Templeton Investments is a California (USA) based company
with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is
one of the largest financial services in the world. Investors can
buy or sell the mutual fund through their financial advisor or
through mail or through their website. They have Open-End
Diversified Equity Scheme, Open-End Sector Equity Schemes, Open-End
Hybrid schemes, Open-End Tax Savings Schemes,
Open-End Income and Liquid Schemes, Closed-End Income Schemes
and Open-End Fund Of Funds Schemes to offer.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Morgan Stanley India Mutual Fund Morgan Stanley is a worldwide
financial services company and it is leading in the market of
securities, investment management and credit services. Investment
Management (MSIM) was established in the year 1975. It provides
customized asset management services and products to governments,
corporations, pension funds and non-profit organization. Its
services are also extended to high net worth individuals and retail
investors. In India it is known as Morgan Stanley Investment
Management Private Limited (MSIM) and its AMC is Morgan Stanley
Mutual Fund (MSMF). This is the first close-end diversified equity
scheme serving the needs of Indian retail investors focusing on a
long-term capital appreciation. Canbank Mutual Fund Canbank Mutual
Fund was setup on Dec 19, 1987 with Canara Bank acting as the
sponsor. Canbank Investment Management Services Ltd. incorporated
on March 02, 1993 is the AMC. The corporate office of the AMC is in
Mumbai. LIC Mutual Fund Life Insurance Corporation of India setup
LIC Mutual Funds on 19th June 1989. It contributed Rs. 2 cr.
towards the corpus of the fund. LIC Mutual Fund was constituted as
a trust in accordance with the provisions of the Indian Trust Act
1882. The company started its business on 29th April 1994. The
trustees of LIC Mutual Fund have appointed Jeevan Bima Sahyog Asset
Management Company Ltd. as the investment managers for LIC Mutual
fund. Morgan Stanley
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
BACKGROUND OF THE STUDYIndustry and commerce so as to bring
about the integration of the Indian economy with the global
economy. With the growth of the economy and the capital market in
India, the size investor has also increased rapidly. Thus The
Government of India introduced economic reforms in the field of
trade involvement of mutual funds in the transformation Indian
economy has made it urgent to view their services not only as
financial intermediary but also as pace setter as they are playing
a significant role in spreading equity culture. In this context
close monitoring and evaluation of mutual funds has become
essential for fund managers to make this instrument as the
strongest and most preferred instrument in Indian capital market in
the coming years. It has been established that the single most
important factor that has a strong bearing on investors interest
and growth of mutual fund industry is its superior financial
performance. The financial performance may be defined in terms of
.rates of return., .risk-adjusted returns. or .benchmark
comparison.. .Jensens alpha. is another widely used measure of
portfolio performance: It indicates the abilities of fund managers
to identify and select superior stocks for the portfolio. This
constitutes the subject matter of the present study. In India, very
little work has been done to investigate fund managers forecasting
abilities. Active fund managers are expected to reward higher
return. If the fund manager feels that market on the whole
overvalued, then he would get out of the market. Hence the present
study has the objective of finding out the necessary facts which
can benefit the investors and fund managers. This paper evaluates
the performance evaluation of mutual fund in the framework of risk
and return.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
LITERATURE REVIEW An Empirical Analysis on Performance
Evaluation of Mutual Funds in India (Nalini Prava Tripathy) The
Government of India introduced economic reforms in the field of
trade industry and commerce so as to bring about the integration of
the Indian economy with the global economy. With the growth of the
economy and the capital market in India, the size investor has also
increased rapidly. Thus the involvement of mutual funds in the
transformation Indian economy has made it urgent to view their
services not only as financial intermediary but also as pace setter
as they are playing a significant role in spreading equity culture.
In this context close monitoring and evaluation of mutual funds has
become essential for fund managers to make this instrument as the
strongest and most preferred instrument in Indian capital market in
the coming years. In India, very little work has been done to
investigate fund managers forecasting abilities. Active fund
managers are expected to reward higher return. If the fund manager
feels that market on the whole overvalued, then he would get out of
the market. Hence the present study has the objective of finding
out the necessary facts which can benefit the investors and fund
managers. This paper evaluates the performance of mutual fund
schemes in the framework of risk and return. The study tests the
following hypothesis in respect of performance evaluation of the
Indian mutual funds.The sample mutual funds is earning higher
returns than the market portfolio returns in terms of risk. The
sample mutual funds are offering the advantages of diversification
and superior returns due to selectivity to their investors. The
investment objectives of the mutual fund schemes are related to
their systematic risk and total variability.
Generally investors invest in mutual fund by considering capital
appreciation, better liquidity less risk and tax liability. So, the
study makes a comprehensive evaluation of equity linked schemes.
For the purpose of the study, schemes have been taken from 1994-95
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
to 2001-02. A total of 31 schemes offer are selected bank mutual
funds have taken for study. The risk is calculated on the basis of
month end Net Asset Values. Further, BSE national index was
assessed as market index or benchmark. The returns are computed on
the basis of the Net Asset Values of the different schemes and
returns in the market index are computed on the basis of the BSE
National Index on the respective date. The performance sample
mutual fund scheme has been evaluated by using the six performance
measures. A brief description of these measures as rate of Return
measure, Treynor measure, Sharpe measure, Jensen measure, Sharpe
differential return, Fama.s Decomposition measure. According to the
modern portfolio policy, the risk and return are to be in the
linear form. So the risk and return are expected to be in tandem
with the investment policy. As the tax planning schemes are
expected to earn higher returns with higher risk. So, it is highly
essential to examine if the risk characteristics of these schemes
are consistent with their stated objectives. The risk return
analysis indicates that some of the schemes are not in con format
with their stated objectives. The stated objections of the funds
with their average betas and average total risk. This paper has
examined the investment performance of Indian mutual funds in terms
of six performance measures. The empirical results reported here do
not lend support to the hypothesis taken in the study. . All other
schemes do not demonstrate this relationship. On the whole, 13
schemes have an alone average beta which indicates that mutual fund
returns are highly volatile. About 10 schemes have outperformed
both in terms of Treynor measure and Sharpe measure. However, four
schemes exhibited superior performance in terms of systematic risk
but did not do so in respect of total risk. The analysis made by
the application of fama.s measure indicates that the return out of
diversification is very less. All other schemes show lack of net
selectivity and diversification. So, it was found that proper
balance between selectivity and diversification is not maintained.
This is due to fund managers acumen of selectivity and poor
investment planning of the fund.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Performance Evaluation of Select Indian Mutual Fund Schemes (O P
Gupta and Amitabh Gupta) During the past one and a half decade, the
Indian mutual fund industry has witnessed a major structural
transformation and growth as result of policy initiatives taken by
the Government of India to break the monolithic structure of the
Industry. Therefore, it becomes important to examine the
performance of the industry in the changed environment. This paper
aims at evaluating the investment performance of select Indian
mutual fund schemes during the recent four years period. He has
used a sample of 57 equity funds including 10 tax planning funds to
study their investment performance. The choice of the sample is
largely based on the availability of the necessary data. Weekly
returns, based on Net Asset Values, have been used for performance
evaluation. The study period is a recent four year period from
April 1, 1999 to March 31, 2003. It is during this period that a
major structural change has taken place in the Indian mutual fund
industry. The study has used the weekly yields on91 day Treasury
bills as a surrogate for the risk free rate of return. The value
data collected from Value Research India Pvt. Ltd., while Treasury
bill data has been collected from PNB Gilts ltd. The study tests
the following hypotheses in respect of performance evaluation of
mutual fund schemes: The investment performance of schemes is
superior to the relevant benchmark portfolio. The mutual fund
schemes are well diversified. There is a relationship between
investment objectives of the schemes and their risk
characteristics. We have utilized the following six measures to
evaluate performance; Rate of Return, Sharpe Ratio, Treynor Ratio,
Jensen Differential Return Measure, Sharpe Differential Return
Measure. We have computed the weekly returns for each of the
sample. Weekly returns for the market index viz. This paper has
aimed at testing the investment performance of select Indian mutual
funds during a recent four year period from April 1, 1999 to March
31, 2003. Using weekly returns, based on NAVs for 57 funds, the
results reported here indicate that, in general, fund managers have
not outperformed the relevant benchmark during the study period.
After measuring in Sharpe, Treynor, Jenson measures only three
funds reflect superior performance. In terms of Fama.s components
of Investment performance, all the funds suffered negative
performance on account of risk bearing activity of their fund
managers. Only one fund earned R.V. Institute of management 29
PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
a positive return on diversification. Though 30 funds showed
some net selectivity skills. It appears that Indian fund managers
do not appear to possess sock selection skills. Thus, on the whole,
it can be concluded that there is no conclusive evidence, which
suggests that performance of mutual funds is superior to the market
during the study period. However, there is some evidence that the
sample funds are not adequately diversified. However, the
diversification level seems to have changed over time. In addition,
the average beta for the funds has increased over time. Overall the
results reported here are similar to the ones reported earlier for
the Indian Market Empirical Investigation on the Indian Managers
Stock Selection Abilities (Ramesh Chander) Investment decision
making encompasses a variety of activities such as stock selection,
market timing, diversification and risk bearing. Stock selection
and market timing are prime activities that contribute widely in
the return generation process while diversification and risk
bearing supplement as subsidiary activities. Professional managers
are heftily paid for a judious amalgam of these performances.
Investment performance on the stock selection pertains to
successful micro forecasting for company specific events. It refers
to the managers ability to identify under or over valued
securities. Such performance attribution may be constructed as an
indicator of the investment decision making quality. It may even
delineate the superior ex post investment performance. Study of
investment manager.s stock selection skills is very important as it
enables the fund managers to understand how they have fared in
achieving desired return targets and how much risk has been
controlled in the process. Second it enables the investors to
assess how well the fund manager has achieved these targets in
comparison with other managers or with some benchmark indices. In
this sense it may even be viewed as a feedback mechanism for
improving investment mangers forecasting skills.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
The study under performance outcomes obtained in this regard
shall be analyzed across fund characteristics such as, nature,
investment objectives and sponsorship categories to identify any
performance bias in regard thereto. Taking these objectives into
consideration, the present study test the following null
hypotheses. Investment managers lack superior stock selection
abilities. Managers. Stock selection performance is maintained
across the measurement criteria. Stock selection performance is not
influenced by the fund characteristics. Stock selection performance
is not influence by the choice of benchmark indices. The study
under consideration is based on the performance outcomes obtained
for 80 samples for the five year period. Monthly investment returns
derived above are further annualized through geometric averaging.
The yield on the 91 day treasury bills issued by Government of
India has been used as surrogate for risk less return. Jensen and
Fama is used for measuring the performance of stock
selectivity.
Managers stock selection performance obtained in relation to the
fund characteristics viz., nature, size investment objectives and
sponsorship as well as benchmark indices such as BSE Sensex,
BSE-100, CNX Nifty 50. Performance persistence is another vital
dimension widely acknowledged and investigated world over better
comprehend portfolio performance evaluation. The information inputs
reported that to the absence of persistence of the stock selection
performance for the sample investment schemes, as the sample funds
having registered average positive performance in the period first
came to realize negative performance in the subsequent period
second. Similar tendencies wer obtained for the sample funds across
all the quartiles. The results are equally robust for the positive
persistence as well as for the negative persistence. Investment
performance depends on the stock selection and pertains to the
successful micro forecasting for company specific events. It refers
to the managers ability to identify under or over valued
securities. Such a performance attribution may be construed as an
indicator of the investment decision making quality as it
delineates the superior investment performance from that attributed
to pure chance or luck. R.V. Institute of management 31
PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
This study examined the stock selection abilities across fund
characteristics as well as the performance persistence. The results
reported in the study have wider implications for the investment
decision making in the sense that signify the vital relevance of
stock selection ability in the return generation process. The
absence of performance persistence signifies that past performance
is in no way implicated for the future. The outcomes thus obtained
also have ramifications for the efficient market theory and
rational expectations in the performance.
An Empirical Analysis of Performance Evaluation of Mutual Fund
schemes in India(Sanjay j Bhayani and Vishal G Patidar) Mutual
funds play a vital role in mobilization of resources and their
effective allocation. These funds play a significant role in
financial intermediation, development capital markets and growth of
the financial sector as a whole. The active involvement of mutual
funds in economic development can be seen by their dominant
presence in the money and capital market. The present study
distinguishes itself from standard mutual fund literature by making
several unique contributions. First, it finds the trends of the
mutual fund industry in India second it uses risk return method to
evaluate the various funds and schemes outperform the market with
the same level of risk or not. The major objectives of the study
are; To evaluate investment performance of mutual funds in terms of
risk and return. To examine the funds sensitivity to the market
fluctuations in terms of beta. To find out the financial
performance of mutual fund schemes. To appraise investment
performance of mutual funds with risk adjustment the theoretical
parameters as suggested by Sharpe, Treynor and Jensen. The period
of study was 5 years. The sample consists of top performer schemes
and funds of mutual fund companies in India based on average return
during the last five years. R.V. Institute of management 32
PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
The main purpose of this analysis is to evaluate whether an
organization uses its resources effectively and efficiently or not.
The overall objective of a business is to earn satisfactory return
on the funds invested in it consistent with maintaining sound
financial position. Performance of mutual fund schemes has been
evaluated by using the following measures; Risk, Standard
Deviation, Beta, Jensen Alpha, Sharpe Ratio and Treynor Index.
The results indicate that all the schemes have earned better
return in comparison to the market returns. Most of the schemes
have beta less than one, there by implying that these schemes
tended to hold portfolios that were less risky than the market
portfolio. Higher positive value of alpha indicates its better
performance. The analysis of the alpha of all schemes as being
positive, there by indicating superior performance of these funds.
The performances of Balanced Fund schemes have been evaluated in
terms of average return. A majority of the sample mutual fund
schemes have a recorded superior performance as compared to the
benchmark index. In the case of Equity Diversified schemes, the
performance of schemes have shown better returns and most of the
schemes have outperformed the benchmark. The results of Gilt Fund
Schemes indicated that all the schemes earned a slightly higher
return in comparison to the market return. The performances of Tax
Planning Fund Schemes have generated superior return as compared to
the market. The performance of schemes was better in case of
returns and has earned returns on lower risk as compared to the
market
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
RESEARCH METHODOLOGYPROBLEM STATEMENT In India, very little work
has been done to investigate fund managers forecasting abilities.
Active fund managers are expected to reward higher return. If the
fund manager feels that market on the whole overvalued, then he
would get out of the market. Hence the present study has the
objective of finding out. The performance of mutual fund schemes in
the framework of risk and return. OBJECTIVES OF THE STUDY The
present study has been undertaken to meet the following specific
objectives, To evaluate investment performance of mutual funds in
terms of risk and return. To examine the funds sensitivity to the
market fluctuations in terms of beta.
To appraise investment performance of mutual funds with risk
adjustment the theoretical parameters as suggested by Jensen. To
rank the funds according to Jensens performance measure.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
LIMITATIONS The study is confined to only to ten asset
management companies. The study considers only for growth
funds.
The ranks are assigned on the basis of only five measures &
data is considered for three years. The historical data was not
easily available.
Findings of this study may change due to time constraint. The
study is mainly limited to 10 equity diversified funds for a period
of three years starting from January-03 to April-07
STUDY DESIGN The type of research being followed here is the
Empirical Research. The objective of this research work is to test
the stock selective ability of equity fund manager & evaluate
the performance based on their return. It is a Secondary Research
as the data or information required is collected through secondary
sources. It is a Quantitative Research as the study involves a
collection of secondary data of ten equity mutual funds of
different asset management companies for a term of 5 years and
applying statistical tools to get the results. The time frame of
the research is the past 5 years and hence the
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
information between the time periods January 2003 to April 2007
is relevant for the purpose of the study. STUDY TYPE This research
is an Empirical Research which is carried out on the Ten equity
fund schemes of different asset management companies. STUDY
POPULATION, SAMPLE, SAMPLING FRAME The study population is the
whole of the Indian Equity funds. But it is infeasible to
incorporate all of the Equity funds for the research mainly due to
two reasons: Large Volumes of Data: There are a very large number
of equity funds with huge volume of data. Time Constraint: The time
duration of the research is from April 2007 to April 2007. Hence to
overcome these problems, a sample of equity funds was selected from
equity mutual funds.
DATA GATHERING PROCEDURESThe major data relevant for this
research is secondary data which has been collected from different
means. DATA COLLECTION NAV: The monthly NAV data of various mutual
funds are collected from www.amfiindia.com and
WWW.INDIAINFOLINE.COM.
MARKET INDEX: The monthly BSE sensex data are collected from
www.bseindia.com. R.V. Institute of management 36
PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
RATE OF RETURN OF 364 DAYS T-BILL: The weighted average return
of 364 days T-Bill is taken for risk free return. The data are
collected from www.rbi.org.in (which has been extracted from
various directories of statistics of Reserve Bank of India). DATA
The various mathematical, statistical and logical operations
performed on the data obtained from the www.amfiindia.com are as
follows: Mean Standard Deviation Calculation of yearly Highs and
Lows by using MAX and MIN functions in the spreadsheet. These were
some of the tools and techniques applied on the data, collected for
the ten equity funds in order to use the data as different
variables in the research. All of these operations have been done
using the Microsoft Excel and the SPSS for windows software.
TREYNORS MODEL : Developed by Jack Treynor, this performance
measure evaluates funds basis of Treynor's Index. This Index is a
ratio of return generated by the fund over and above risk free rate
of return during a given period and systematic risk associated with
it (beta). Treynor (1965) was the first researcher developing a
composite measure of portfolio performance. He measures portfolio
risk with beta, and calculates portfolios market risk premium
relative to its beta:
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Ti = Treynor.s performance index Rp = Portfolio.s actual return
during a specified time period Rf = Risk-free rate of return during
the same period p = beta of the portfolio SHARPE.S MODEL 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 p = Portfolio standard
deviation This formula suggests that Sharpe prefers to compare
portfolios to the capital market line (CML) rather than the
security market line (SML). Sharpe index,
therefore, evaluates funds performance based on both rate of
return and diversification (Sharpe 1967). For a completely
diversified portfolio Treynors and Sharpe indices would give
identical ranking. R.V. Institute of management 38
PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
Interpretation of Jensens measures:Thus the result suggests that
these funds are not completely diversified, because a completely
diversified fund or portfolio would have given the similar ranking
for composite performance measurement of Jensen. A poorly
diversified portfolio will have a higher ranking under the Treynor
measure than for the Sharpe measure. The funds which constitute
this category are- Franklin India, HDFC and TATA. Based on the
analysis of these 10 funds, majority of the mutual funds are poorly
diversified. This means there is still some degree of unsystematic
risk that one can get rid of by diversification. This also leads us
to another conclusion that majority of these funds will land on
Markowitz efficient portfolio curve. The efficient frontier
consists of those portfolios which maximizes expected return given
the portfolio risk (variance of portfolio returns).The full
potential of these funds is not exploited and there is still room
for improvement.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
SUMMARY OF FINDINGS From the research it is found that most of
the returns of equity fund is above the market index BSE Sensex.
Over the period of three years, out of 10 equity funds
Reliance fund shows the highest return of 0.6643,followed by
H.D.F.C, Templeton, Sundaram, TATA , J.M., CANBANK, LIC, SBI, BIRLA
and BSE200has given a return of 0.3937. Out of 10 equity funds
RELIANCE shows the highest monthly return of 66.43% compared to
others. Beta is defined as the measure of risk. H.D.F.C. tops with
a beta of .093 compared to other funds and Franklin with the least
beta of 0.67. KOTAK shows the highest standard deviation of 0.073
followed by others and Franklin with the lowest standard deviation
of 0.057. Systematic risk in Franklin mutual fund is more compare
to other funds. The alpha values varied widely, the highest being
HDFC and the lowest Kotak. Return per unit of unsystematic risk
sundram as the highest systematic risk compared to other funds and
Tata mutual fund as the lowest unsystematic risk. R.V. Institute of
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
CONCLUSION SUMMARY:It is examined that investment performance of
Indian Mutual funds in terms of performance measure, some funds
shows conformity with the linear relationship of return and risk.
Some funds do not demonstrate this relationship. However some funds
exhibited superior performance in terms of systematic risk but did
not do so in respect of total risk. According to Jensen measure
funds have positive alpha values indicating superior performance of
the scheme. The alpha values varied widely, the highest being JM
and the lowest HDFC. Such large variation of alpha values show that
stock selection abilities of fund manager vary for different mutual
funds. Positive alpha values of mutual fund may be a result of
adopting better forecast techniques by the fund managers; they seem
to have been able to pick up undervalued stocks enabling them to
post better performance during the period under consideration. For
the same reason, it becomes increasingly necessary to periodically
monitor and evaluate performance as objectively as can. More
importantly, such evaluation should provide meaningful feedback for
improving the quality of the investment management process on a
continuing basis. In particular, it should help in articulating the
investment objectives with greater clarity, sharpening the
investment strategy and refining the methods of security selection.
Value of experience that matters.
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
BIBLIOGRAPHY:WEBSITES www.amfiindia.com www.bseindia.com
www.rbi.org.in www.investopedia.com www.google.com www.valuepro.net
BOOKS INVESTMENT MANAGEMENT ,SECURITY ANALYSIS AND PORTFOLIO
MANAGEMENT BY V.K.BHALLA
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PERFORMANCE EVALUATION OF MUTUAL FUNDS(G) IN INDIA.
STATISTICS FOR MANAGEMENT BY LEVIN & RUBIN JOURNAL THE ICFAI
JOURNAL OF FINANCE. VALUE RESEARCH ONLINE
R.V. Institute of management
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