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A Report of
A Study onCOMPARITIVE ANALYSIS OF ACTIVE AND PASSIVE STRATEGY
IN MUTUAL FUNDS
for
JM FINANCIAL SERVICES PVT LTD
Submitted to the
Department of Management Studiesin partial fulfillment of the
Post Graduate Diploma In Management
Under the Guidance of
DR.M APPALA RAJU
by
SONY SAJU GEORGE
BATCH XVII FK 1683
SCMS COCHIN
SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN-06.
September 2009
S C M SS C M SS C M S
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DECLARATION
I, the undersigned, hereby declare that this project report entitledComparative Analysis of Active and Passive Strategy in MutualFunds has been written and submitted under the guidance ofDr. MAppala Raju and is my original work.
I understand that detection of any copying is liable to be punishedin any way the school deems fit.
DATE: 5/10/2009 SONY SAJU GEORGE
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SCMS COCHIN
SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN-06.
This is to certify that the project work entitled ' Comparative
Analysis of Active and Passive Strategy in Mutual Funds' has been
carried out by Sony Saju George in partial fulfillment of his/her Post
Graduate Diploma in Management.
DATE : Dr. V. RAMAN NAIR
S C M SS C M SS C M S
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ACKNOWLEDGEMENT
First and foremost I would like to thank God Almighty for his blessings for
completing the project successfully.
Next I would like to thank JM FINNANCIAL SERVICES PVT LTD for
providing me the opportunity to do the project.
I express my deep gratitude to Mr. Prashanth Upadhyaya K, Senior
Associate, JM FINANCIAL SERVICES PVT LTD, who guided me throughout
the course of the project with valuable source of inspiration, guidance and advices
throughout the course of project.
I am extremely thankful to Mr. Thilak V, Associate, Equity Broking Group,
JM FINANCIAL SERVICES, for providing me with great exposure to stock
markets he gave throughout the period of project.
I am also thankful to Dr. M Appala Raju , Faculty Guide, SCMS-COCHIN,
for his regular and timely guidance, advices and suggestions for completing this
project successfully.
I would also like to express my sincere thanks to SCMS-COCHIN for
providing me the opportunity to do this project.
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EXECUTIVE SUMMARY
Active and Passive strategies are two styles of fund management in mutual fund.
Active fund management strategy focuses on outperforming the benchmark index
by delivering returns more than the index, Whereas Passive strategy aims at
delivering returns in line with the index.
The objectives of the study are to make a comparative analysis between active and
passive management style with regard to mutual funds, the pros and corns of each
style were studied to draw a conclusion as to which one is the best in a long term
perspective. The main aim is to increase the returns of any investors by reducing
the expenses involved.
For the purpose of study, returns generated by eight active and four passive funds
where compared with the nifty index over a period of 5 years, 3 years and 1 year
period and it was found that returns generated by passive funds was more than the
active funds on a long term perspective. Passive funds generated returns in line
with the index returns since they are based on an underlying index.
The study of shows that passive funds have advantages over active funds like more
returns, lesser risk, lesser taxes and expenses and consistency in delivering return while
considering a long term investment as compared to active fund which is purely based on
luck factor for which they charge huge expenses and taxes for management of those
funds.
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CHAPTER I
INTRODUCTION AND THEORETICAL BACKGROUND
OF THE STUDY
Mutual Fund is a vehicle to pool money from investors and invests in a diversified
portfolio. The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities. The income earned through these
investments and the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.The mutual fund investments have many advantages like risk diversification,
portfolio diversification, professional management, reduction in transaction cost,
liquidity and safety.
Operation of Mutual Fund:
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TYPES OF MUTUAL FUND SCHEMES:
By Structure:
Open Ended Schemes Close ended schemes
Interval Schemes
By Investment Objective:
Growth Schemes
Income Schemes
Balanced Schemes Money Market Schemes
Other Schemes:
Tax Saving Schemes
Special Schemes:
Index Schemes
Sector Specific Schemes
The Mutual Funds are managed by professional fund managers. The fund
managers adopt a particular style or strategy of fund management. The two types
of fund management strategies are Active and Passive styles of fund management.
The problem faced by mutual fund managers is to choose which style of
management to adopt for maximizing returns for their investors, and the problem
facing investors is to choose which type of funds they should invest whether active
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funds or passive funds depending upon several parameters like the income,
savings, returns, risk etc.
ACTIVE FUND MANAGEMENT
Active fund management is best described as an attempt to apply human
intelligence to find good deals in financial markets. Active managers try to pick
attractive stocks, bonds, mutual funds, time when to move into or out of the
markets with options futures and other derivatives. Their objective is to make
profit and try to achieve more return than the market return or rather the index
return. Active managers attempt to beat a particular market or asset class by
selecting the better securities and avoiding the losers. They believe that their
knowledge and experience will lead them to better than average investmentreturns, justifying higher compensations.
Based on classification of shares with different characteristics, active investment
managers construct different portfolios. Two basic investment styles prevalent
among the mutual funds are Growth Investing and Value Investing.
Growth Investment StyleThe primary objective of equity investment is to obtain capital appreciation.
However the different types of shares would tend to give different returns. Thus,
cyclical stocks will appreciate during economic up-cycles. Growth shares will
appreciate over the longer term if the investment managers assessment of the
sector proves right. There are funds that avoid the cyclical stocks in their
portfolios, and funds that prefer to invest only in growth stocks for long-term
appreciation. A growth manager looks for companies that are expected to give
above-average earnings growth, where the manager feels that earnings prospect
and, therefore, the stock prices in future will be even higher. Identifying such
growth sectors is the challenge before growth the growth investment manager.
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Growth shares are more risky and, therefore, commensurate with the risk profile
they may be expected to offer greater returns over long investment horizons.
Value Investment StyleValue manager looks to buy companies that they believe are currently undervalued
in the market, but whose worth they estimate will be recognized in the market
valuations eventually. The value manager seeks to cash in on the capital
appreciation in future by selling shares of companies as and when the unlocking
of value takes place. Thus an undervalued company may eventually be taken over
or merged with another company, or where a PSU may be privatized, or a
company may effect a buy-back of its shares. In all these instances, the value ofcompanys shares will go up at that point, or simply when the market catches a
fancy to the undervalued company.
Active portfolio requires detailed research of stocks traded in the market. The
techniques used for research are Fundamental Analysis, Technical Analysis and
Quantitative Analysis.
Active management allows managers the managers to exploit inefficiencies in the
global market to potentially achieve superior returns. Active management gives
more return than passive management but the returns are inconsistent and
investing in active funds is highly risky. The cost and expenses involved in active
management is very high as compared to passive management and the net returns
after tax and other expenses are very low for active funds. Capital gains tax is
charged on an investors return from active funds which erodes the returns
available to the investor. It is also challenging task to identify quality managers.
These are the main problems faced by adopting an Active management style.
PASSIVE FUND MANAGEMENT
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Mutual funds which track an index and delivers returns equal to the return from
that index are called Passive Funds. Even though the style of investing is called
passive fund manager has to make some decisions. For example, he can purchase
all of the securities forming part of the index in the same proportion as their sharein the index. Alternatively if the index stocks are too many, he can purchase a
statistically representative sample of stocks whose combined total return will
closely approximate that of the index. The choice of this sample is important and
can require some amount of research into the behavior of index stocks. Similarly,
the fund manager has to rebalance the portfolio to remain in line with the changes
in the index composition. Finally the fund manager has to keep the fund expenses
as low as possible, so that investors get returns close to the index return. Theinvestment style is passive only in the sense that the fund manager does not have
to go through the process of stock selection.
The merits of investing in Passive funds are:
Capital gain tax is low compared to active funds.
Less expensive to operate.
Provides higher certainty of getting market rate of return.
Most investor can easily understand passive management.
The demerits of passive management are:
It forces to hold bad securities with the good ones.
Most index funds are capital weighted, meaning their results are heavily
dependent upon the return of their top holdings. Performance will be dictated solely by the market with no managerial
control exercised during turbulent or largely negative return periods.
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Considering both the pros and cons of Active and Passive fund management the
investor has to select the investment style he needs to adopt based on his financial
objectives and other parameters.
CHAPTER II
RESEARCH METHODOLOGY
Rationale of the project:
The project is aimed at giving an insight about the mutual fund management styles
including active and passive fund management styles and studies the pros and cons
of each style of management. The various factors being considered whilefollowing each style and the benefits and risks involved by following each styles
of fund management. The project also provides adequate information on the
factors which guides an investor in choosing each style depending on his financial
objective. The study will give a clear picture of the management styles through a
wider spectrum.
Objectives of the study:Main Objective:
To study the ways to maximize the net returns available for an investor by
reducing the fees and expenses including taxes involved in the investment.
To provide the investor best fund management strategy based on his/her
financial objectives.
Specific Objective:
Factors which guide investors in adopting each styles.
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The Sample consist of retail investors being identified and based on factors like
type of funds they invest, management styles they follow, the investment
objectives, risk and return from the investments.
Sample size:
The sample size selected for the study is 100. The sample selected comprises of
investors in mutual funds
Data Collection:
Data collection method for this study includes both qualitative and quantitativedata. The data is collected from both primary and secondary sources. Tools like
questionnaires; interview-schedules etc are used for data collection.
Data Analysis:
The data analysis technique used for the study is theoretical case analysis model
and with the use of mathematical and statistical tools.
Limitations of the Study:
The study is limited to the city of Bangalore and the number of respondents
being considered is 100 which is limited to draw clear cut conclusions.
Time for conducting the survey was limited.
Some of the respondents were not interested to participate in the survey and
some did not respond to certain questions.
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CHAPTER III
PROFILES
MUTUAL FUND INDUSTRY PROFILE
Mutual funds had their origin in U.S.A. The first mutual fund company in the
U.S.A is the Massachusetts Investors Trust established in 1924. Mutual Fund
industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of Reserve Bank of India. The objective was to attract the small investors
and introduce them to market investments. Since then history of mutual funds inIndia can be divided into six distinct phases.
Phase 1: 1964-87: Growth of Unit Trust of India
In 1963, UTI was established by an Act of Parliament. As it was only entity
offering mutual funds in India, it was monopoly during the period. The first
scheme launched by UTI was Unit Scheme 1964 (US-64). They launched several
schemes like ULIP (Unit Linked Insurance Plan) in 1971, Childrens Gift GrowthFund (1986), Mastershare (1987).
Phase 2: 1987-1993: Entry of Public Sector Funds
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1987 marked the entry of public sector mutual funds. With the opening up of
economy, many public sector banks and financial institutions were allowed to
establish mutual funds. State Bank of India established the non-UTI mutual fund
in 1987. This was followed by Canbank Mutual Fund, LIC Mutual Fund etc.
Phase 3: 1993-1996: Emergence of Private Fund
Private players were allowed to set up mutual funds in India. Kothari Pioneer was
the first private sector mutual fund. During 1993-1994, five private sector funds
launched their schemes followed by six others in 1994-1995.
Phase 4: 1996-1999: Growth and SEBI Regulation
In 1996 SEBI Mutual Fund Regulations was developed. SEBI and AMFI launched
Investor Awareness Programmes aimed at educating the investor about investingthrough mutual funds.
Phase 5: 1995-2004: Emergence of large and Uniform Industry
In 2003 UTI Act was repealed and it adopted same structure as any other funds in
India. The year marked the creation of a level playing field for all mutual funds
operating in India. The total Asset under Management (AUM) rose to 150,000
crores.
Phase 6: From 2004 onwards: Consolidation andGrowth
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The industry witnessed a spate of mergers and acquisitions and the entry of
international players into India. These led to consolidation and growth in the
mutual fund industry.
The major players in Indian mutual fund industry are UTI, Benchmark Mutual
Fund, Birla Mutual Fund, BOB Mutual Fund, Canbank Mutual Fund, DSP Merrill
Lynch Mutual Fund, Fidelity Mutual Fund, Franklin Templeton Investments,
HDFC Mutual Fund, HSBC Mutual Fund, ING Vysya Mutual Fund, JM Financial
Mutual Fund, Kotak Mahindra Mutual Fund, LIC Mutual Fund, PRINCIPAL
Mutual Fund, Prudential ICICI Mutual Fund, Reliance Mutual Fund, Sahara
Mutual Fund, SBI Mutual Fund, Tata Mutual Fund.
COMPANY PROFILE
JM FINANCIAL GROUP
JM financial is an integrated financial services group providing a wide range of
services to different clients which includes corporations, financial institutions,
high net-worth individuals and retail investors.
JM Financial Limited, the flagship listed company of the Group, is led by the
Chairman & Managing Director , Mr. Nimesh Kampani and having its registered
head office in Mumbai. The company was incorporated in the year 1972 and in the
year 1973 the company commenced its business. The group is listed in both the
exchanges the BSE and NSE. The businesses of the group includes investment
banking, institutional equity sales, trading, research and broking, private and
corporate wealth management, equity broking, portfolio management, asset
management, commodity broking, NBFC (Non Banking Finance Company)
activities, private equity and asset reconstruction. The products offered by the
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company includes Public Issues, Equity and Derivatives, Portfolio Management
Services (PMS), Depository Services, Mutual Funds, Fixed Deposits, Bonds and
Debentures .Each businesses of the group is divided into each separate companies
or entities and its functioning is independent from the holding company. Thecompany had a joint venture with Morgan Stanley in the ratio 51:49 in Domestic
business and 49:51 in the International business from 1999-2007. The clients of
the group includes HDFC Bank, Standard Chartered , ICICI group, Aditya Birla,
WIPRO, Reliance, Fortis, Idea, TATA, Suzlon, Temasek Holdings, Wockhardt
etc.
VISION
To be the most trusted partner for every stakeholder in the financial world.
JM FINANCIAL SERVICES PRIVATE LIMITED
JM Financial Services Private LTD is organized in three main divisions, wealth
Management Group, Equity Brokerage Group and Independent Financial Advisor
Group. The group provides financial products to meet individual client needs, both
short-term and long-term.
The company is among the largest distributors of third party products including
mutual funds, and has more than 60 offices in 31 cities across India.
BUSINESS SEGMENTS
WEALTH MANAGEMENT GROUP
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Experts come together to offer the clients a world of exclusive opportunities to
grow their wealth by tapping in our superior market knowledge and expertise. The
Wealth Management Group consists of two segments:
Private Wealth Group & Corporate Wealth Group
PRIVATE WEALTH GROUP
Private Wealth Group (PWG) is a personalized investment advisory service for
high net-worth individuals with an investible surplus of USD 1mn (Rs.5 crore)
CORPORATE WEALTH GROUP
This group provides research-based investment advice to Corporate Treasuriesacross a wide range of financial products to protect and enhance investors wealth
with a client centric approach.
Core competency of the group is to offer value-added services with the help of
research capabilities & capital market expertise. The Corporate Wealth Group
caters to large corporate, small & medium size enterprises and banks &
institutions.
EQUITY BROKERAGE GROUP
The Equity Brokerage Group (EBG) offers equity trading and research based
equity advisory services to high net-worth individuals, retail clients and corporate.
The advisory team specializes in generating investment worthy ideas or portfolio
picks and trading opportunities depending on the clients risk appetite and
investment horizon.
INDEPENDENT FINANCIAL ADVISOR GROUP
JM Financial Services has one of the largest network for distribution of financial
products to retail investors through Independent Financial Advisors (IFAs).
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JM Financial Groups expertise in capital markets and strong investment banking
franchise help us in launching public issues of companies with strong
fundamentals & credible promoter background for generating wealth for itsclients.
JM FINANCIAL BUSINESS AVENUES
Investment Banking
JM Financial Consultants Private Limited, the JM Financial groups Investment
Banking arm, is one of Indias most respected domestic investment banks. It
provides a wide range of services like raising capital, mergers, acquisitions,
restructuring, financial advisory and private equity to a diversified client base of
Indian corporate in the domestic and international capital markets. The Group haspioneered several innovations in the Indian capital markets in the areas of capital
structuring, financial instruments and marketing strategies. It has made a
substantial contribution to the overall development of the Indian capital markets
and has played a vital role in mergers and acquisitions in India.
Commodity Broking
JM Financial CommtradeLimited, the commodities trading business of the Group,
provides advice to clients on bullion, base metals, crude and other soft
commodities. JM Financial Commtrade Limited is a member of MCX and
NCDEX.
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Non Banking Financial Products
JM Financial Products Private Limited is a non-deposit accepting non-banking
finance company (NBFC) registered with the Reserve Bank of India. They are
engaged in borrowing and lending activities, including Loan against Securities andIPO funding. It has the highest short-term credit rating of P1+ from CRISIL.
Asset Management
JM Financial Asset Management Private Limited, JM Financial groups asset
management company for its mutual fund business, is one of Indias oldest private
sector mutual fund houses. It offers a range of 30 products across the entire risk-
return spectrum. The group has won several awards and honours from CRISIL,
ICRA, CNBC TV-18 etc.
Private Equity
JM Financial Investment Managers Limitedis the asset management company for
the private equity fund business of JM Financial group.
JM Financial India Fund is a broad based, multi-sector US$ 225 million fund,
which seeks to invest in dynamic, fast growing, unlisted domestic companies
looking for growth capital. The Fund, whose focus sectors include Retail/FMCG,Pharmaceuticals/ Healthcare, Manufacturing, Financial Services, IT/BPO services,
Logistics and Education etc.
Asset Reconstruction
JM Financial Asset Reconstruction Company Private Limited is the asset
reconstruction and securitization business of the JM Financial Group. The
company focuses on acquisition of non-performing and distressed assets from
banks and financial institutions.
Leverage and Financing
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Leverage and financing services of JM includes IPO Funding, Loan against
Shares, Margin Funding, ESOP Funding, Promoter Funding.
Real Estate FundJM Financial groups Infinite India Investment Management, a 50:50 joint venture
with SRS Fund, is among the largest dedicated real estate
investment management firms in India with plans to invest $400 million, primarily
in the residential, commercial and retail sectors.
CHAPTER IV
ANALYSIS AND INTERPRETATION OF DATA
HYPOTHESIS TESTING
1. Majority of the investors are not aware of the expenses
Null Hypothesis:
Majority of the investors are not aware of the expenses
Null Hypothesis: H0: 0.60
Alternate Hypothesis: H1: > 0.60 (One Tailed test)
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Significance Level: 5% (0.05)
= (1-)/n
= .6872
z = 1.55-0.60/0.6872 = 1.3824
Calculated value = 1.3824
Table value = 1.645 (Value corresponding to 0.450 in Normal distribution
curve)
Calculated Value < Table Value, Hence H0is accepted.
Therefore we can conclude that majority of the investors are not aware of the
expenses involved in mutual fund investments. Awareness about expenses
plays a crucial role in selecting a mutual fund since the expenses have a direct
effect on the net returns.
1 0 0 0 1 .5 5 0 0 1 .0 0 0 0 1 .0 0 . 6 8 7 2 . 4 7 2 2 2 . 0 0E x p e n s e s
V a l id M i s s i n g
N
M e a n M e d i a n M o d e
S td .
D e via tio nV a r ia n c e R a n g e
S t a t i s t i c s
Table: 4-A
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above 3%
2%-3%
0%-2%
Fig: 4.1
56 56 .0 5 6.0 56.0
33 33 .0 3 3.0 89.0
11 11 .0 1 1.0 100 .0
100 1 00.0 1 00 .0
100 1 00.0
0%-2%
2%-3%
above 3%
Tota l
Valid
To ta l
F requency Percent
Valid
Percent
Cumulat ive
Percent
Ex p e n s e s
Table: 4-B
From the frequency distribution table and the graphical representation shows that
the percentage expenses charged by mutual funds are 56% for 0%-2% category,
33% for 2%-3% category and 11% for above 3% category.
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same sector or different sectors so that the risk is minimized by diversifying
the investments.
Returns
Diversified Portfoli
Professional Managem
Risk Diversif ication
Fig: 4.2
100 0 2 .8600 3 .0000 3 .00 1 .0733 1 .1519 3 .00m f
investments
Va lid M iss in g
N
M ean M edian M ode
Std.
Dev ia tion V a r ianc e Range
Statistics
Table: 4-C
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18 18.0 18.0 18.0
11 11.0 11.0 29.0
38 38.0 38.0 67.0
33 33.0 33.0 100.0
100 100.0 100.0
100 100.0
Risk
Diversification
Professional
Management
Diversified
Portfolio
Returns
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
mf investments
Table: 4-D
From the table we can interpret that 18% of investors invest in mutual funds with
the objective of risk diversification, 11% of the investors choose mutual fund
investments because of professional management, the majority of the respondents
choose mutual fund investments because of diversified portfolio and 33% of
respondents prefer investment in mutual funds with the objective of high returns.
3.Active funds are consistent in the long term
Null Hypothesis:
Most of the active funds are consistent in the long term
Null Hypothesis: H0: 0.30
Alternate Hypothesis: H1: > 0.30 (One Tailed test)
Significance Level: 5% (0.05)
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= (1-)/n
= .6890
z = 1.5000 -0.30/.6890
Calculated value = 1.7391
Table value= 1.645 (Value corresponding to 0.450 in Normal distribution
curve)
Calculated Value > Table Value, Hence H0 is rejected.
Therefore we can conclude that active funds are inconsistent in the long term.
i.e., the active funds return may or may not be more in the short term but when
we are looking for a long term investment perspective we can find that the
returns generated by passive funds are more than the active funds.
1 0 0 0 1 .5 0 1 .0 0 1 .6 9 .47cons is tency
V a lid M is sin g
N
M e an M e dia n M o de
Std .
Devia t ion Var iance
Sta t is t ics
Table: 4-E
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very c onsistent
consistent
less consistent
Fig: 4.3
61 61.0 61.0 61.0
28 28.0 28.0 89.0
11 11.0 11.0 100.0
100 100.0 100.0
100 100.0
lessconsistent
consistent
very
consistent
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
consistency
Table: 4-F
From the table we can find that out of the total of 100 respondents, 61% of the
respondents are of the opinion that active funds are less consistent, 28% considers
active funds being consistent and 11% of respondents believe the active funds are
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very consistent. Therefore from the data collected we can conclude that most of
the respondents consider active funds as being less consistent in nature.
4.In the long run the returns generated by passive fund is less than active
fund returns
Null Hypothesis
Majority of the investors is of the opinion that returns generated by passive
fund are less than active fund returns.
Null Hypothesis: H0: 0.40
Alternate Hypothesis: H1: > 0.40 (One Tailed test)
Significance Level: 5% (0.05)
= (1-)/n
= 1.1322
z = 2.53-0.50/1.1322 = 1.7924
Calculated value = 1.7924
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Table value= 1.7924 (Value corresponding to 0.450 in Normal distribution
curve)
Calculated Value > Table Value, Hence H0 is rejected.
Therefore we can conclude that returns generated by passive funds are more
than active fund returns on a long term basis. While considering the net returns
after taxes and other expenses returns generated by passive funds are more than
active funds. Passive funds are safer avenue since they make investment based
on an underlying index.
1 0 0 0 2 . 5 3 0 0 3 .0 0 0 0 3 . 0 0 1 .1 3 2 2 1 .2 8 1 9 3 .0 0p a s s iv e
s a fe r
V a l id M is s i n gN
M e a n M e d i a n M o d eS td .
D e via tio n V a r ia n c e R a n g e
S ta t is t i c s
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Less risky
Net returns is more
Lesser expense and t
Returns in line w ith
Fig: 4.4
30 30.0 30.0 30.0
8 8.0 8.0 38.0
41 41.0 41.0 79.0
21 21.0 21.0 100.0
100 100.0 100.0
100 100.0
Returns inline with
index
Lesser
expense
and taxes
Net
returns is
more
Less risky
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
passive safer
Table: 4-G
By analyzing why passive fund is considered safer to invest, we find that 30% of
the respondents choose passive funds since they deliver returns in line with the
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index, 8% of the respondents choose because of the lesser expenses and taxes,
41% of investors select passive funds due to the net returns after tax and expenses
is more as compared to other funds and 21% of respondents feel that passive funds
are safer because they are less risky in nature.
ANNUAL HOUSEHOLD INCOME:
Anuual Household Incom
0
5
10
15
20
25
30
35
40
45
Upto 2 lacs 3 lacs - 5 lacs 6 lacs - 10 lacs Above 10 lacs
Annual household incom
PercentageofInvestors>
Percentage of investor
Fig: 4.5
From the graph we can find that 5% of the investors surveyed has annual
household income up to 2 lacs, 37% has annual household income of 3 lacs 5
lacs, 40% of investors has annual household income of 6 lacs 10 lacs and 18% of
investors belong to above 10 lacs annual household income category.
SELECTION OF A FUND MANAGEMENT STYLE:
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29 29.0 29.0 29.0
37 37.0 37.0 66.0
19 19.0 19.0 85.0
15 15.0 15.0 100.0
100 100.0 100.0
100 100.0
cost
consistency
Risk level
Past
Perfomance
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Selection of style
Table: 4-H
While evaluating the parameters based on which a fund management style depends
we can find that majority of the investors choose a fund management style based
on the consistency of delivering return. 37% of the investors feel consistency as
the main criteria for the selection of a fund management style, 29% of the
investors give importance to the cost aspect, 19% of the investors consider risk
level as an important factor and 15% of the investors considers past performance
as an evaluation criteria.
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PRIMARY INVESTMENT OBJECTIVE:
19%17%
22%
41%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Retirement
Planning
Education of
Children
Regular Income Wealth
Creation
Series1
Fig: 4.6
19 19.0 19.0 19.0
17 17.0 17.0 36.0
22 22.0 22.0 58.0
41 41.0 41.0 99.0
1 1.0 1.0 100.0
100 100.0 100.0
100 100.0
Retirement
Planning
Supporting
Future
Education
of Children
Getting
Regular
Income
Creation
of Wealth
5.00
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Primary investment objective
Table: 4-I
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While considering the primary investment objective of an investor it was found
out that majority of the investors i.e., 41% of the investors invested in mutual fund
with the primary objective as wealth creation. Wealth Creation is a long term
financial goal of an investor therefore they should increase the holding period oftheir investments to create wealth. 22% of the investors have chosen mutual fund
investments with objective of getting regular income. 17% of the investors have
education of their children as their primary investment objective. Retirement
planning is also a long term investment objective, they should plan their
investments so that they have adequate amount with them after retirement, among
the respondents surveyed 19% investors have retirement planning as their primary
investment objective.
SAVINGS LEVEL OF INVESTORS:
0%
6%
30%
38%
26%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Below 5% 5%-10% 10%-15% 15%-20% Above 20%
Savings Percenta
Percentag
Fig: 4.7
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On analyzing the savings pattern of the investors we can find that investors having
savings below 5% is nil, 6% of the investors have 5%-10% of their income as
savings, 30% of the investors have savings in the range of 10%-15%., 38% of the
investors have savings between 15%-20% and 26% of the investors have savingsof above 20%. The increase in savings of the people has been mainly due to their
increasing awareness about investment options and thereby making the surplus
funds invested in the right avenue to satisfy their investment objectives.
SELECTION OF A PARTICULAR MUTUAL FUND:
Selection of a Particular Mutual Fund
10%
21%
6%
33%30%
0%5%
10%
15%20%
25%30%
35%
Efficient
Management
LessRisk
Lesser
Expenses
andTaxes
MoreReturn
Investment
Objective
Factors>
Percentage>
Percentage
Fig: 4.8
Selection of a particular mutual fund is based on several parameters like efficient
management, less risk, lesser expenses and taxes, more returns and investment
objective.
From the graph we can interpret that 10% of the investors chose a particular
mutual fund because of efficient management, 21% selected a particular mutual
fund because of less risk involved in investment, 6% of investors has chosen
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because of lesser expenses and taxes, Majority of the investors i.e., 33% select on
the basis of more returns compared to other funds and 30% of the investors select
a particular fund based on their investment objective.
REINVESTMENT OF EARNINGS:
Reinvestment of Earning
6%
12%
26%
30%
24%
2%
Nil
0% - 20%
20% - 40%
40% - 60%
60% - 80%
80% - 100%
Fig: 4.9
Reinvestment of earnings is an important factor being considered while making
investments. From the study conducted it was found that most of the investors do
reinvest their earnings in order to multiply their returns. Among the category of
investors being surveyed 30% of the investors reinvest 40%-60% of their returns,
26% of the investors reinvest 20%-30% of their investments, 12% of the investors
reinvest 0%-20% of their returns from investments, 24% of the investors reinvest
60%-80% of their investment, 2% of the investor reinvest 80%-100% of theirinvestments and 6% of the investors does not reinvest their earnings at all. The
power of compounding the returns from an investment can be enjoyed by
reinvesting the earnings.
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HIGHER COST OF ACTIVE FUNDS:
43 43.0 43.0 43.0
22 22.0 22.0 65.0
35 35.0 35.0 100.0
100 100.0 100.0
100 100.0
Continuous
Tracking of
Portfolio
More time
and
expenses
towards
tracking
portfolio
More
expenses
incurred for
outperforming
the benchmark
index
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Higher Cost of Active Funds
Table: 4-J
From the table we can interpret that majority of the investors attribute higher cost
of active funds due to the factor of continuous tracking of portfolio, i.e., 43% of
investors considers continuous tracking of portfolio as the reason for higher cost of
active funds, 22% of investors considers more time and expenses towards tracking
portfolio as the factor responsible for higher cost and 35% of investors attribute
higher cost of active funds because of more expenses incurred for outperformingthe benchmark index.
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PERCENTAGE DEVIATIONS IN RETURN:
54 54.0 54.0 54.0
28 28.0 28.0 82.0
17 17.0 17.0 99.0
1 1.0 1.0 100.0
100 100.0 100.0
100 100.0
0%-2%
2%-3%
3%-6%
above 6%
Total
Valid
Total
Frequency PercentValid
PercentCumulative
Percent
Deviation
Table: 4-K
From the table we can interpret that 54% of the investors experience 0%-2%
deviations from the indicated returns, 28% of the investors experience 2%-3%
deviations, 17% of investors experience 3%-6% deviations and 1% of investors
experience above 6% deviation in returns.
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ANNUAL INCOME AND CONSISTENCY OF ANNUAL INCOME:
Count
4 4
28 9 37
17 23 40
5 13 1 19
54 45 1 100
upto 2 lakhs
3
lakhs-5lakh
6 lakhs-10
lakhs
above 10
lakhs
Annual
income
Total
Next 3
years
Next 6
years
Next 10
years
Consistency of incom e
Total
Annual income * Consistency of income Crosstabulation
Table: 4-L
From the table we can interpret that out of 4 investors having income upto 2 lakhs
4 of their income level is consistent for next 3 years, among 37 investors having
income level in the range 3 lakhs-5 lakhs, 28 of their income is consistent for a
period of next 3 years and 9 of their income is consistent for next 6 years.Investors having annual income between 6 lakhs-10 lakhs are 40, out of which 17
investors income is consistent for next 3 years and 23 investors income is
consistent for next 6 years. The investors whose income is above 10 lakhs are 19
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out of which the number of people whose income is consistent for next 3 years is 5
and next 6 years is 13.
ACTIVE FUNDS PERFORM BETTER THAN PASSIVE FUNDS:
36 36.0 36.0 36.0
5 5.0 5.0 41.0
41 41.0 41.0 82.0
18 18.0 18.0 100.0
100 100.0 100.0
100 100.0
Skill in
Picking Up
Stocks
Professional
Management
Luck Factor
Timely
Rebalancing
of PortfolioTotal
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Reasons fo r Better performance o f Active Fund s
Table: 4-M
From the table we can find that 36 % of investors consider skill in picking up
stocks as the reason for better performance of active funds, 5% consider
professional management as the reason for better performance, 41% whichcomprises of the majority attribute the reason for better performance is the luck
factor and 18% consider rebalancing of portfolio the reason for better performance
of active funds.
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Reasons For Better Performance of Active Funds
36%
5%41%
18%
Skill in Picking Stocks
Professional Management
Luck Factor
Timely Rebalancing of Portfolio
Fig: 4.10
PRICE FACTOR:
Price Factor PercentageLeast Important 0Less Important 3Moderately
Important 26Important 54Extremely
Important 17
Table: 4-N
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0
10
20
30
40
50
60
Least
Important
Less
Important
Moderately
Important
Important Ex tremely
Important
Importance o f Price F
Percenta
Fig: 4.11
Price factor is a very important criterion while considering investment in mutual
funds. The price factor of a fund is important while considering the net returns. If
the fund charges more price towards expenses and taxes it reduces the net returns
available to the investors. From the graphical representation we can interpret that
54% of the investors consider price factor as important, for 26% of the investors
price factor is moderately important. For 17% of the investors price factor is
extremely important, 3% of investors considers price factor as less important and
0% of investors considers price factor as least important.
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PRIMARY SOURCES OF KNOWLEDGE ON MUTUAL FUNDS
MUTUAL FUND ADVISORS:
54 54 .0 54 .0 54 .0
33 33 .0 33 .0 87 .0
13 13 .0 13 .0 100 .0
100 100 .0 100 .0
100 100 .0
Mos t
Inf luential
Inf luential
ModeratelyInf luential
Tota l
Valid
Tota l
F requency Percent
Valid
Percent
Cumulat ive
Percent
M utual Fu nd Ad visors
Table: 4-O
From the data we can interpret that 54% of the investors considers advice frommutual fund advisors as most influential source of primary information, 33% of
investors considers advice from mutual fund advisors as influential source of
primary information, 13% of investors considers advice from mutual fund advisors
as moderately influential, 0% of the investors considers advice from mutual fund
advisors as less influential and least influential.
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0
10
20
30
40
50
60
Most
Influential
Influential Moderately
Influential
Less
Influential
Least
Influential
Mutual Fund Adv is
Percentag
Table: 4.12
TELIVISION:
16 16.0 16.0 16.0
26 26.0 26.0 42.0
40 40.0 40.0 82.0
14 14.0 14.0 96.0
4 4.0 4.0 100.0
100 100.0 100.0
100 100.0
Most
Influential
Influential
Moderately
Influential
Less
Influential
Least
InfluentialTotal
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Telivision
Table: 4-P
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From the table we can interpret that television is the most influential source for
16% of the investors, its influential for 26% of the investors, 40% of investors
considers television as moderately influential, television is less influential for 14%
of the investors and its least influential for 4% of the investors.
Telivision
16%
26%
40%
14%
4%
Most Influential
Influential
Moderately Influential
Less Influential
Least Influential
Fig: 4.13
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NEWSPAPER:
30 30.0 30.0 30.0
40 40.0 40.0 70.0
28 28.0 28.0 98.0
2 2.0 2.0 100.0
100 100.0 100.0
100 100.0
Most
Influential
Influential
Moderately
Influential
Less
Influential
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Newspaper
Table: 4-Q
From the table we can find that 30% of the investors consider newspaper as most
influential source of information, 40% of investors consider newspaper as an
influential source of information, 28% considers it as moderately influential
source of information, 2% considers newspaper as less influential source of
information and 0% considers it as least influential source of information.
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0
5
1 0
1 5
2 0
2 5
3 0
3 5
4 0
M o s t In flu e n t ia lIn f lu e n t ia l M o d e ra te ly
In flu e n tia l
L e s s In flu e n t ia lL e a s t In flu e n t ia l
N e w s p a
P e rc e n t
Fig: 4.14
INTERNET:
43 43.0 43.0 43.0
38 38.0 38.0 81.0
15 15.0 15.0 96.0
3 3.0 3.0 99.0
1 1.0 1.0 100.0
100 100.0 100.0
100 100.0
Most
Influential
Influential
Moderately
Influential
LessInfluential
Least
Influential
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Internet
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JOURNALS/ARTICLES:
Table: 4-S
From the table we can interpret that journals/articles is most influential for 9% of
investors, 23% of the investor consider it to be influential, 43% of investors
consider it to be moderately influential source of knowledge, 19% of the investors
have it as less influential source of knowledge and 6% of investors has journals/
articles as least influential source of knowledge.
9 9.0 9.0 9.0
23 23.0 23.0 32.0
43 43.0 43.0 75.0
19 19.0 19.0 94.0
6 6.0 6.0 100.0
100 100.0 100.0
100 100.0
MostInfluential
Influential
Moderately
Influential
Less
Influential
Least
Influential
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Journals/Articles
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25 25.0 25.0 25.0
25 25.0 25.0 50.0
25 25.0 25.0 75.0
17 17.0 17.0 92.0
8 8.0 8.0 100.0
100 100.0 100.0
100 100.0
Most
Influential
Influential
Moderately
Influential
Less
Influential
Least
Influential
Total
Valid
Total
Frequency Percent
Valid
Percent
Cumulative
Percent
Friends/Relatives
Table: 4-T
From the above table we can interpret that friends/relatives comprises 25% of
most influential source of primary knowledge of mutual funds, 25% of investors
have it as influential source, 25% of investors has it as less influential source, 17%
of investors have it as less influential source and 8% of investors have it as least
influential source.
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Friends/Relative
25%
25%25%
17%
8%
Most Influential
Influential
Moderately Influenti
Less Influential
Least Influential
Fig: 4.17
FINANCIAL GOAL DURATION:
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Financial Goal D
0
5
10
1520
25
30
35
Within 3
years
In 3 - 5
years
In 6 - 10
years
In 10 - 15
years
In more
than 15
years
Per iod
Percentage>
Percentage of Invest
Fig: 4.18
The data shows that 12% of the investors have their financial goal to be met within
3 years, 26% of the investors have their financial goal to be met in a period of 3
years 5 years, 30% of investors have their financial goal to be met within a
period of 10 years 15 years and 3% of investors have financial goal period of
more than 15 years.
TAX FACTOR:
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Tax Factor
29%
39%
32%
0%
0%
Very Important
Somewhat Important
Neutral
Somewhat Unimportant
Not at all Important
Fig: 4.19
Majority of the investors choose investments which helps them in reducing their
tax liability. So among the investors surveyed majority of them want to invest in
funds which reduce their tax liability. From the data we can find that 29% of the
investors considers tax factor as very important criteria, 32% of the investors are
neutral towards tax factor, for 39% of the investors considers tax factor is not at all
important, o% of investors considers tax factor as somewhat important and
somewhat unimportant. Therefore from the data we can see that investors
considers tax factor as either very important, neutral or not at all important.
MONTHLY INCOME :
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Monthly Income Facto
25%
39%
33%
2%
1%
Very Important
Somewhat Important
Neutral
Somewhat Unimportan
Not at all Important
Fig: 4.20
Some category of investors need returns in the form of monthly income, for that
they choose mutual fund investments giving a monthly income regularly to meet
their needs. Regular income from mutual funds is mainly required for the investors
who have retired but the monthly income factor is considered equally important
for other category of investors also. Among the investors surveyed 39% of theinvestors considers monthly income factor to be somewhat important, 33% of the
investors are neutral towards monthly income from mutual funds, 25% of the
investors considers monthly income factor to be very important criteria while
making investments, 2% of the investors considers monthly income factor to be
somewhat unimportant and only 1% of the investors surveyed considers monthly
income factor to be not at all important.
PERIOD OF HOLDING:
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We can analyze the relation between period of holding and returns using chi-
square which is show n below, for this purpose we need to have a null hypothesis.
Null Hypothesis:There is no association between the returns and period of holding.
C oun t
1 1 2
5 7 1 13
1 5 12 9 27
3 10 21 24 58
4 21 41 34 100
5%-10%
10% - 15%
15% - 20%
Above
20%
Returns
To ta l
1 year
1year -3
years
3 years -
5 years
mo re than
5 years
Per iod of Holding
To ta l
Returns * Period o f Hold ing Cross tabula t ion
Table: 4-U
9.188a
9 .420
11.000 9 .276
3.213 1 .073
100
Pearson
Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
Value df
Asymp.
Sig.
(2-sided)
Chi-Square Tests
9 cells (56.3%) have expected count less than
5. The minimumexpected count is .08.
a.
Table: 4-V
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From the table we can find that the significance level is .420 which is greater than
.05 therefore we reject the null hypothesis. Therefore we can conclude that there is
association between the period of holding and the rate of return.
ANALYSIS OF FUND PERFOMANCE
For the purpose of proving whether active or passive funds which is better for an
investor, a comparison was done by selecting eight active funds and four passive
funds. The active and passive funds selected were compared with the index.
The comparison of the active and passive fund shows that the active funds areinconsistent in delivering the returns whereas their passive counterparts were able
to deliver consistent return in line with the index. The interpretation that passive is
better than active was arrived after taking 5 years, 3 years and 1 year average
returns delivered by the funds.
Active Funds returns are purely based on luck factor in selecting the portfolio and
no fund manager is able to maintain the consistency on a long term basis. ActiveFunds may outperform passive funds in a short term period but on a long term
perspective from the analysis we can find passive is the best in terms of both risk
and reward. The fact of inconsistency in performance of active funds is clearly
depicted in the comparison of funds and it shows that no single fund maintains
their ranking consistently.
The active funds net returns after other expenses and taxes is very less as
compared to passive funds which charges a lesser rate of expenses and taxes.
Therefore on the basis of consistency of performance, risk, return we can conclude
from the table that passive funds are the best for an investor to park his money for
a mutual fund investment.
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ACTIVE FUNDS AVERAGE PERFORMANCE FOR VARIOUS TIME
PERIODS
ACTIVE FUNDS RETU RN
46.248%
-19.428%
-31.100%-40.000%
-30.000%
-20.000%
-10.000%
0.000%
10.000%
20.000%
30.000%
40.000%
50.000%
60.000%
5 YEARS 3 YEARS 1 YEAR
PERIOD
PERCENTAGE
RETURNS
ACTIVE FUNDS
Fig: 4.21
The graph shows that for the past 5 years the average return generated by active
funds is 46.25% when the index generated a return of 66.02%, for 3 years the
funds have generated an average return of -19.43% whereas the index generated a
return of -13..02% and for the past 1 year the return generated by active funds was
very low and it was -31.10% whereas the index gave a return of -36.02%.
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PASSIVE FUNDS PERFORMANCE FOR VARIOUS TIME PERIODS
Fig: 4.22
The graph shows that the average return generated by passive funds for past 5
years was 69.11% whereas the return generated by the index was 66.02%. For the
past 3 years the average return generated by passive funds was -14.42% whereas
the index generated a return of -13.02%. During the past 1 year the return
generated by active funds was -36.73% while the index generated a return of
-36.26%. From the graphs we can find that since the passive funds invest in the
underlying index the return generated by the funds are also in line with the
underlying index.
PASSIVE FUNDS RETURNS
-14.421%
-36.727%
69.112%
-60.000%
-40.000%
-20.000%
0.000%
20.000%
40.000%
60.000%
80.000%
5 YEARS 3 YEARS 1 YEAR
PERIOD
PERCENTAGERETURNS
PASSIVE FUNDS
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COMPARISON OF NIFTY RETURNS FOR VARIOUS TIME PERIODS
N IF T
-6 0-4 0
-2 0
0
2 0
4 0
6 0
8 0
N I F T Y IN
RETURNS
N IF T
N IF T Y 6 6 . 0 1 8 1 9 0 3 1 -1 3 .0 2 3 6 3 7 4 6 -3 6 .2 6 0 8 2 6 4
1 2 3
Fig: 4.23
The graph shows the return generated by nifty index for various time periods. The
index generated return of 66.018% for 5 years, -13.023% for 3 years and
-36.260% for past 1 year.
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COMPARISON OF ACTIVE AND PASSIVE FUNDS RETURN WITH
THAT OF INDEX RETURNS
Fig: 4.24
The graph shows that while taking average returns of the funds for 5, 3 and 1 year
return the returns generated by the funds are as follows:
Active Funds : -1.426%
Passive Funds : 5.987%
Nifty Index : 5.577%
Therefore we can conclude that for a long term investment period, consistency of
performance, risk and return involved passive funds are the best to invest for a
mutual fund investor.
COMPARISON OF FUNDS AVERAGE RETURNS WITH
INDEX RETURNS
5.987%5.577%
-1.426%
-2.000%
-1.000%
0.000%
1.000%
2.000%
3.000%
4.000%
5.000%
6.000%
7.000%
ACTIVE
FUNDS
PASSIVE
FUNDS
NIFTY
FUNDS
PERCENTAGERETURNS
ACTIVE FUNDS
PASSIVE FUNDS
NIFTY
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Fig: 4.25
From the line graph we can see that the returns generated by active funds whenconsidering a longer period of investment is lesser than the index and the returns
generated by active funds for a short term period may or may not be greater than
the index returns, but this returns delivered by active funds is not consistent.
Comparison of Active Funds with the Index
-60
-40
-20
0
20
40
60
80
5 years 3 years 1 year
Active
Nifty
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h
Fig: 4.26
The returns generated by passive funds are in line with the underlying index whenconsidering the returns for various periods under the study. The line graph clearly
shows the overlapping of returns of passive funds and the index
Comparison of Passive Funds with the Index
-60
-40
-20
0
20
40
60
80
5 years 3 years 1 year
Passive
Nifty
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Com par ison o f Act ive And Passive Funds W i
-60
-40
-20
0
20
40
60
80
5 y ears 3 years 1 y ear
Year
AverageReturns Active
Pass iv
Nifty
Fig: 4.27
While comparing the active and passive funds average returns with the nifty index
average returns for a period of 5years, 3 years and 1 year we can interpret that the
returns delivered by active funds is more than the index only during a short termperiod whereas while considering a longer period the returns delivered by active
funds is less than the index returns. Passive funds returns are in line with the index
for both short term and long term since they are constructed on the basis of an
underlying index. The line graph clearly shows the returns generated by active and
passive funds and the nifty index.
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CHAPTER V
FINDINGS AND CONCLUSIONS
The study conducted on comparative analysis of active and passive strategies in
mutual funds resulted in various findings and conclusion which are listed below:
On a long term returns generated by Passive Funds are more than Active
Funds after taking into consideration the expenses and taxes being charged
on the fund.
Passive Funds deliver returns in line with the underlying index as the
investment is made in the fund in the same proportion as it is done in the
index. The amount of deviation is very minimal as compared to the active
funds, which may result in huge deviation as a result of higher expenses
and taxes being charged mainly for the fund managers ability in designing
the active fund with his ability or skill in picking up stocks.
Active funds are inconsistent in delivering return.
Net returns of passive funds that is after all expenses exceed the returnsdelivered by the active funds.
Management fees charged by passive funds are very low since skill of a
fund manager is not applied while investing in passive funds
The level of risk is low for a passive fund as compared to active funds as
they invest in a particular index and the returns generated by the index will
be reflected in the passive fund.
Active funds are purely based on luck factor since no particular active fundhas been able to maintain the position as the one providing highest return.
The ranking of active funds varies which clearly shows the luck factor
involved in active management.
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Considering all the pros and cons of both the styles of management we can make a
conclusion that passive funds are safer while considering all the parameters like:
Net Returns
Taxes and Expenses
Less Deviations
Less Risky
Consistency
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CHAPTER VI
SUGGESTIONS AND RECOMMENDATIONS
The research was mainly carried out in order to analyze the active and passive fund
management strategies in mutual funds. The data collected and analyzed and interpreted
gave rise to following recommendations and suggestions:
An investor seeking more return than the market return or rather the index return
can opt for active management
Investors who are willing to take more risk in order to get more return can opt for
active management and can invest in active stocks.
Investors who are risk averse can choose passive management and make their
investments in passive funds since these funds invest in a particular index like the
NIFTY or SENSEX and the risk from these investments will be in line with the
market risk
Investors who seeks a return in line to market return can invest in passive funds,
since their return is in line with the index returns
Active funds returns are liable to capital gains tax, so for investors who want to
save tax or reduce the tax liability can go for passive funds as an investment
avenue.
Net returns is more after tax and other expenses is more for passive funds since
active fund charge higher rates of taxes and expenses for continuous tracking of
portfolio and the skill involved in picking stocks.
For an investor who wants to reduce the amount paid towards the cost and otherexpenses can choose passive management since the costs and expenses are
considerably low as compared to active management.
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Passive management is best suited for an investor who wants consistency in
returns. The passive management has a low tracking error and the deviation in
return as compared to the underlying index is very low or minimal.
Aggressive investor who can take the substantial risk can try his luck on active
funds, since those fund are mainly based on the luck factor.
Investors can easily track and understand the performance of passive funds since
they are comprised of stocks in the underlying index. Therefore they can track the
funds movement easily without seeking a help of experts in the field.
As per the research conducted it is evident that for a long-term investment period
objective always passive funds outperform the active funds.
The fund managers can advice their clients to invest in passive funds to be on the
safer side with good returns.
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BIBLIOGRAPHY
Book References
Anjaria, D.C .AMFI workbook. New Delhi: AMFI, Third edition, May
2006.
Sankaran, Sundaran, Indian Mutual Funds Handbook. Vision Books P,2007.
Nargundkar, Rajendra, Marketing Research, New Delhi: Tata McGraw-
Hill. Third Edition, 2008
Kothari,C.R.Research Methodology Methods and Techniques. New Delhi:
New Age International (P) Ltd.,2008
Website References
www.jmfinancial.in
www.nseindia.com
www.bluechipindia.com
www.amfiindia.com
www.valueresearchonline.com
www.ebscohost.com
www.wikepedia.com
www.investopedia.com
www.bseindia.com
http://www.jmfinancial.in/http://www.nseindia.com/http://www.bluechipindia.com/http://www.amfiindia.com/http://www.valueresearchonline.com/http://www.ebscohost.com/http://www.wikepedia.com/http://www.investopedia.com/http://www.bseindia.com/http://www.bseindia.com/http://www.jmfinancial.in/http://www.nseindia.com/http://www.bluechipindia.com/http://www.amfiindia.com/http://www.valueresearchonline.com/http://www.ebscohost.com/http://www.wikepedia.com/http://www.investopedia.com/http://www.bseindia.com/8/8/2019 Final Report- JM Financial by Sony Saju George
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APPENDICES
QUESTIONNAIRE
Name:
City:
Age:
Gender: Male Female
1. What is your annual household income?
Up to 2 lacs 3 lacs- 5 lacs 6 lacs- 10 lacs Above 10 lacs
2. What is your primary investment purpose?
Retirement Planning supporting future education of children
Regular income Creation of wealth
3. For how many years do you expect your income to be consistent?
next 3 years next 6 years next 10 years next 15 years
4.What is your primary objective for investment?
Preservation of Principal Current Income Growth and Income
Conservative growth Aggressive Growth
5. What is the percentage of your savings of your total income?
Below 5% 5% - 10% 10% - 15% 15% - 20% 20% or more
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6. What aspect made you choose mutual fund investments?
Risk Diversification Professional Management Diversified Portfolio
Returns
7. What was the basis on which you choose a particular mutual fund?
Efficient Management less risk lesser expenses and taxes
More returns Investment objective
8. Which are the primary sources of your knowledge about Mutual Funds as an
investment option? Corresponding to your choices how would you rate their
influence on your final Mutual Fund purchase decision? Please rank them on a
scale of 1-5 with 1 representing minimal influence and 5 representing Strong
influence?
Most
Influential
Influential Moderately
Influential
Less
Influential
Least
Influential
Television
Internet
Newspaper
Journals/ArticlesFriends/Relatives
Mutual Fund
Advisors
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9. What is the holding period of your investments in Mutual Funds?
1 year 1 year - 3 years 3 years - 5 years More than 5 years
10. How important is fund price as a factor when considering investment in
Mutual Funds? Please tick the option you choose.
Least
Important
Less
Important
Moderately
Important
Important Extremely
Important1 2 3 4 5
11. What is the specific date when you hope to meet your financial goal?
Within 3 years.
In 3 to 5 years.
In 6 to 10 years.
In 10 to 15 years.
In more than 15 years.
12. Would you be interested to know more about Mutual Funds than what is your
current knowledge? Yes/No. If yes which aspect of mutual fund you want to
know in detail?
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13. How important is tax incentive factor in mutual fund investments?
Very important somewhat important Neutral somewhat unimportant
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Not at all important
14. How important is monthly income by mutual funds?
Very important somewhat important Neutral Somewhat unimportant
Not at all important
15. What is the percentage of returns expected through investment in each scheme
of mutual funds?
5%-10% 10%-15% 15%-20% Above 20%
16. What is the approximate percentage of expenses charged by the fund?
0%-2% 2%-3% Above-3%
17. Do you Re-invest your earnings from mutual funds? Yes/ No. If yes what
percentage of your returns you re-invest?
Below 20% 20%-40% 40%-60% 60%-80% 80%-100%
18. What are the percentage deviations you experienced while investing in a
mutual fund from the indicated returns by the fund?
0%-2% 2%- 3% 3%-6% Above 6%
19. How consistently your active funds have been able to give returns more than
the underlying index or benchmark? Less Consistent Consistent Very Consistent
20. What may be the reasons if active fund performs better than passive fund?
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Skill in picking up the stocks Professional management Luck Factor
Timely decision regarding rebalancing the portfolio
21. What could be the reason that passive fund management is considered safer? Returns in line with index Lesser Expense and taxes Net returns is more
Less Risky
22. What could be the reason for higher cost being charged for active
management?
Continuous tracking of the portfolio more time and expenses towards tracking
portfolio more expenses being incurred for outperforming the benchmark index
23. What could be the parameters based on which you choose a particular fund
management style? Please tick the options which are appropriate for you.
Cost Consistency of returns Risk level Past Performance
24. What are the specific reason/ reasons for which you choose mutual fund
investments over other avenues of investment?