Project prasanna

Performance evaluation of selected mutual funds in India

INTRODUCTION

MUTUAL 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 in different 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 today.s 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. A typical 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 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

Kristu Jayanti college Bangalore


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 India

The 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

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, children’s

plans, equity-oriented schemes and offshore funds during this period. The total asset under

management for the year 1987-88 was 6,700 crores.

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.

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 (MutualFund),

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 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%. Offcourse, regular expenses like custodial fee,

cost of dividend warrants, fee for registration, the asset management fee etc are 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.

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 the 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 approval of

SEBI, and in accordance with SEBI Regulations.

Sponsor must have at least 5-year track record of business interest in the Financial

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 them. 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.

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. In fact, 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

provision of the Trust Deed and Regulations

The AMC shall disclose the basis of calculation of NAV and Repurchase price of the

schemes and disclose the same to the investors.

Funds shall be invested as per Trust Deed and Regulations.



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:

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 fund’s 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.



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.

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.

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 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. 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 interrelationship between the financial and real sector, the nature of development of the

savings and capital markets, market structure, institutional arrangements and overall policy

regime.



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 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

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 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 securitised 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.

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.

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.

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 analyse 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.

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.

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 judgement 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

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.

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 expertises 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 company’s 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.

MAJOR MUTUAL FUND COMPANIES IN INDIA

Birla 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

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 paidup 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.

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. Morgan Stanley 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.



BACKGROUND OF THE STUDY

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 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 investor’s 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. Jensen and 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.



LITERATURE REIEW

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 are

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 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 sated 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.

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 on 91 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 ffund earned 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 overvalued 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. The study under performance outcomes

obtained in this regard shall be analysed 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 were 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. 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.

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

RESEARCH METHODOLOGY

PROBLEM 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 Sharpe, Treynor and Jensen.

To rank the funds according to Sharpe.s, Treynor.s and Jenson.s performance measure.

LIMITATIONS

The study is confined to only to ten asset management companies.

The study considers only for equity funds

The ranks are assigned on the basis of only three 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-08 to December-10

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 nine equity mutual funds of different asset

management companies for a term of 3 years and applying statistical tools to get the results.

The time frame of the research is the past 3 years and hence the information between the time

periods January 2003 to Dec 2005 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

Hence to overcome these problems, a sample of equity funds was selected from equity

mutual funds.

DATA GATHERING PROCEDURES

The 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.

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.

VARIABLE DEFINITION:

TREYNORS MODEL:

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 portfolio.s market risk

premium relative to its beta:

Where:

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

Bi = 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

= 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 Treynor’s and Sharpe indices would give identical rankings.

Jensen’s Alpha Model:

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

return, assuming that CAPM is empirically valid:

Jensen= P- Rp-[Rf+ P(Rm-Rf)]

Jensen uses áj as his performance measure. A superior portfolio manager would have a

significant positive áj value because of the consistent positive residuals. Inferior managers, on

the other hand, would have a significant negative áj. Average portfolio managers having no

forecasting ability but, still, cannot be considered inferior

would earn as much as one could expect on the basis of the CAPM. Jensen performance

criterion, like the Treynors measure, does not evaluate the ability of portfolio managers to

diversify, since the risk premiums are calculated in terms of â.

Systematic &Unsystematic Risk Calculation Methods:

Systematic Risk = 2 2

Unsystematic Risk =

The returns of various schemes were classified into systematic return and unsystematic return

by using Sharpe model. Then return per unit of systematic risk and unsystematic risk were

calculated and ranked.



RESULTS & FINDINGS:

TABLE 1: THE ANNUALISED RETURNS OF VARIOUS MUTUAL FUND

SCHEMES & BSE

SENSEX RETURN FROM JAN-08TO DEC-10

MONTH KOTAK LIC SUNDARA

M

TATA CANBAN

K

FRANKLI

N

HDFC ICICI JM Birla

2008 Jan -

0.0939

-0.0362 -0.0127 -

0.056

4

-0.056 -0.039 -0.021 -0.0569 -0.0121 -0.0284

February -0.0108 0.072 0.0119 0.009

3

-0.015 0.0127 0.001

3

0.0285 -0.005 0.0

March -0.0873 -0.0732 -0.0541 -

0.065

6

-0.07 -0.073 -0.048 -0.0776 -0.0452 -0.0459

April -0.1493 -0.0069 0.0223 0.001

3

0.042 0.059 0.036 0.0014 0.0296 0.0

May -0.0407 0.1222 0.1566 0.112

5

0.1419 0.0753 0.109

5

0.0981 0.0864 0.1373

June 0.1116 0.1015 0.0749 0.205 0.0999 0.0668 0.141

8

0.0877 0.0866 0.1034

July 0.0477 0.0514 0.0659 0.062

3

0.0716 0.0143 0.066

5

0.0263 0.0747 0.0492

August 0.0727 0.1505 0.1527 0.141

1

0.1476 0.1252 0.166

3

0.0895 0.1459 0.1484

Septembe

r

0.1759 0.028 0.0243 0.048

2

0.0614 -0.027 0.035

6

-0.0298 0.0286 0.058

October 0.0152 0.1163 0.1324 0.129

6

0.0661 -0.008 0.123

2

0.0158 0.1146 0.1233

Novembe

r

0.0593 0.0135 0.0343 0.060

3

0.0244 0.0059 0.027

8

0.0415 0.0418 0.0193

December 0.0655 0.1172 0.1255 0.106

4

0.1624 0.1512 0.102

6

0.1587 0.1338 0.188

2009 Jan -0.09 0.0287 -0.0445 - -0.081 -0.057 -0.02 -0.0802 -0.0401 -0.0524



0.052

4

February 0.005 0.0329 0.0433 0.075

6

0.0806 -0.001 0.028

6

0.0042 0.0613 0.0578

March -0.075 -0.0242 -0.0173 -

0.045

6

-0.052 -0.049 -0.025 -0.0748 -0.0359 -0.0321

April 0.0225 0.0088 0.0223 0.020

4

-0.01 -0.003 -7E-

04

0.0579 0.0159 -0.0035

May -0.0058 -0.1677 -0.1296 -

0.143

6

-0.139 -0.078 -0.149 -0.09 -

0.0148

7

-0.167

June 0.0211 0.0043 -0.0073 0.001

9

0.0015 0.0066 -0.009 0.0091 0.0015 0.0219

July 0.0664 0.0396 0.0605 0.057

1

0.0485 0.0415 0.066

5

0.0539 0.0539 0.064

August 0.0474 0.0109 0.0287 0.05 0.0148 0.0223 0.044

5

0.0844 0.0302 0.0294

Septembe

r

0.0477 0.0534 0.0615 0.073

2

0.082 0.049 0.053

9

0.0194 0.05 0.045

October 0.0509 -0.0085 0.0013 0.001

7

0.0311 -0.023 -0.011 -0.0123 0.0046 0.0168

Novembe

r

0.0895 0.0568 0.0869 0.102

5

0.1172 0.1165 0.089

8

0.1677 0.0542 0.1072

December -0.0021 0.0749 0.0849 0.072

8

0.1374 0.0735 0.099

9

0.1029 0.0881 0.1008

2010 Jan -0.021 -0.0436 -0.0342 -

0.017

6

-0.04 0.0224 -0.038 0.0254 -0.0222 -0.042

February 0.045 0.0217 0.048 0.041

1

0.0786 0.0304 0.074

2

0.0075 0.0521 0.0487

March 0.0181 -0.0291 -0.024 -

0.015

-0.033 0.0031 -0.014 0.0279 -0.0043 -0.0039



6

April -0.1289 -0.0641 -0.0602 -

0.028

4

-0.059 -0.006 -0.042 0.0323 -0.0228 -0.0533

May 0.0145

4

0.0448 0.0689 0.074

7

0.061 0.0989 0.092

3

0.1038 0.0774 0.077

June 0.0517 0.0236 0.0359 0.012

5

-0.021 0.0341 0.027

7

0.0287 0.0517 0.0139

July -0.0151 0.0834 0.0635 0.057

2

0.042 0.0651 0.09 0.1126 0.0342 0.0698

August 0.064 0.0605 0.0504 0.065

4

0.1099 0.0939 0.049

3

0.1531 0.0979 0.0521

Septembe

r

0.0278 0.0306 0.0614 0.057

2

0.0327 0.0409 0.082

1

0.0637 0.0339 0.0759

October -0.0594 -0.1137 -0.0865 -

0.091

1

-0.0127 -0.082 -0.064 -0.096 -

0.0110

8

-0.0697

Novembe

r

0.0771 0.0594 0.1112 0.097

5

0.0918 0.07070 0.109

3

0.0883 0.1007 0.0972

December 0.0923 0.0413 0.0462 0.030

4

0.0451 0.0595 0.060

1

0.0776 0.0393 0.0459

Return 0.2135 0.2529

3

0.403267 0.417 0.3486 0.288 0.457

4

0.41923

3

0.3823

7

0.4255

7



MONTHLY BSE SENSEX RETURNS

B S E Sense

2008 Jan 0.0412

February 0.0141

March 0.0715

April 0.0292

May 0.0747

June 0.1341

July 0.0522

August 0.1228

September 0.0491

October 0.1014

November 0.0634

December 0.1314

2009 Jan 0.0245

February 0.0355

March 0.0399

April 0.0115

May 0.1583

June 0.0075

July 0.0782

August 0.0042

September 0.0754

October 0.0262

November 0.0991

December 0.0602

2010 Jan 0.0071

February 0.0459

March 0.0238

April 0.0356

May 0.0911

June 0.0713

July 0.0724



August 0.0177

September 0.1062

October 0.086

November 0.1136

December 0.0693

Return 0.380133333

Interpretation:

The table 1 shows the annualized return of all equity funds. It implies 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 HDFC fund shows the highest return of 0.4574,followed by Birla sun life

Tata, JM Equity, ICICI , LIC,SUNDRAM, KOTAK, CANBANK and BSE SENSEX has

given a return of 0.3801

TABLE 2 DESCRIPTIVE STATISTICS OF EQUITY FUNDS

BSE Sensex

KOTA

K

LIC SUNDARA

M

TATA CANBAN

K

FRANKLI

N

HDFC ICICI JM Birla

ANNUAL

RETURN

0.2135 0.

252933

0. 403267 0.

416967

0. 348633 0.288 0.

4574

0.

4192

0.

38237

0.

42557

MINIMUM

RETURN

0.149 0.168 0.130 0.144 0.139 0.082 0.149 0.096 0.149 0.167

MAXIMUM

RETURN

0.176 0.151 0.157 0.205 0.162 0.151 0.166 0.168 0.146 0.188

MEAN RETURN 0.0177

9

0.02107

8

0.033606 0.03474

7

0.029053 0.024 0.038

1

0.034

9

0.0318

6

0.0354

6

RISK FREE

RETURN 0.0509

0.0509 0.0509 0.0509 0.0509 0.0509 0.050

9

0.050

9

0.0509 0.0509

SD 0.0734

2

0.06618 0.064999 0.07040

7

0.076747 0.05753 0.066

1

0.069

9

0.0623

9

0.0705

3

VARIANCE 0.0053

9

0.00438 0.004225 0.00495

7

0.00589 0.00331 0.004

4

0.004

9

0.0038

9

0.0049

7

CORRELATIO 0.6419 0.89342 0.886762 0.89095 0.823803 0.79066 0.905 0.732 0.8741 0.8885



N 1 7 5 1 7 7

COVARIANCE 0.0032 0.00401

1

0.00391 0.00425

5

0.004289 0.00309 0.004

1

0.003

5

0.0037 0.0042

5

BETA 0.6948

2

0.87166

7

0.849721 0.92477

6

0.932077 0.67056 0.881

4

0.754

7

0.8039

7

0.9238

2

SYSTEMATIC

RISK

0.0026 0.00332

8

0.00305 0.00423

9

0.005117 0.00149 0.003

4

0.002

8

0.0025

2

0.0042

5

UNSYSTEMATI

C RISK

0.0027

9

0.00105

2

0.001174 0.00071

8

0.000773 0.00182 0.001 0.002

1

0.0013

8

0.0007

3

EXPECTED

RETURN

0.2796

6

0.33788

2

0.330656 0.35536

7

0.357771 0.27167 0.341

1

0.299

4

0.3155

9

0.3550

5

UNSYSTEMATI

C RETURN

0.0561

8

0.02458

7

0.669229 0.00038 0.002225 0.02827 0.002

5

0.001

4

0.0018

5

0.0007

8

SYSTEMATIC

RETURN

0.1573

2

0.22834

6

0.26596 0.41658

7

0.346409 0.25973 0.454

9

0.417

9

0.3805

2

0.4247

9

INTERPRETATION:

The above table descriptive statistics of all equity funds. It give the details about the mean,

maximum, minimum return of all equity funds & beta, standard deviation, variance,

systematic risk & unsystematic risk of all funds. Out of 10 equity funds HDFC shows the

highest monthly return of 45.74% compared to others. In case of mean

return also, HDFC shows the highest mean return 3.81%. Beta is defined as the

measure of risk. Canara Bank tops with a beta of .093 compared to other funds and Franklin

with the least beta of 0.67. Standard deviation is the measure of the total risk. KOTAK shows

the highest standard deviation of 0.073 followed by others and Franklin with the lowest

standard deviation of 0.057. Then it also shows the value of systematic risk and unsystematic

risk for all funds.



TABLE3: THE RESIDUAL OF THE FUNDS

Residuals=Actual return-expected return

MONTH KOTAK LIC SUNDAR

AM

TATA CANBA

NK

FRANK

LIN

HDFC ICICI JM Birla

2008

Jan

-

0.0808

1

-

0.00

68

0.04005

9

-

0.0221

3

-

0.0213

6

-

0.0277

42

0.009

77

-

0.045

0.011

05

0.00

58

Februar

y

-

0.0361

3

-

0.01

16

-

0.03153

-

0.0075

7

-

0.0317

-

0.0262

23

-

0.005

8

-

0.027

0.007

19

-

0.02

2

March -

0.0531

5

-

0.01

74

0.10720

6

-

0.0033

1

-

0.0069

1

-

0.0416

24

0.009

48

-

0.032

0.002

31

0.01

63

April -

0.1445

4

0.01

2

-

0.00513

7

0.0244

75

0.0237

59

0.0448

12

0.078

7

0.034

6

0.014

9

0.05

27

May -

0.1081

4

0.05

06

-

0.22772

3

0.0395

9

0.0688

17

0.0084

41

0.037

62

0.011

7

0.016

37

0.06

44

June 0.0028

91

-

0.02

19

-

0.19649

7

0.0771

59

-

0.0285

5

-

0.0398

9

0.017

57

0.001

1

-

0.031

2

-

0.02

4

July -

0.0041

-

0.00

06

-

0.11790

5

0.0101

98

0.0194

88

-

0.0374

72

0.014

45

-

0.014

45

0.022

75

-

0.00

3

August -

0.0281

6

0.03

69

-

0.26919

5

0.0237

09

0.0296

84

0.0260

87

0.052

03

-

0.056

0.037

19

0.0

Septem

ber

0.1262

51

-

0.02

-

0.07367

-

0.0010

0.0121

78

-

0.0765

-

0.013

-

0.058

-

0.020

0.00

88



13 1 4 93 7 9

October 0.0707

9

0.02

14

-

0.22621

1

0.0319

99

-

0.0318

7

-

0.0922

63

0.027

79

-

0.099

0.023

1

0.02

57

Novem

ber

0.0002

9

-

0.04

83

-

0.09582

2

-

0.0021

6

-

0.0381

5

-

0.0533

82

-

0.034

1

-3E-

04

-

0.019

1

-

0.04

3

Decemb

er

-

0.0413

3

-

0.00

39

-

0.24480

3

-

0.0189

4

0.0364

68

0.0463

2

-

0.019

3

0.024

9

0.018

18

0.06

27

2009

Jan

-

0.0885

1

-

0.01

39

0.05766

9

-

0.0335

7

-

0.0615

2

-

0.0575

4

-

0.004

-0.04 -

0.030

4

-

0.03

4

Februar

y

0.0141

33

0.05

73

-

0.02078

4

0.1046

01

0.1102

31

0.0057

36

0.053

85

-

0.057

0.079

86

0.08

67

March -

0.0628

1

0.00

4

0.04355

5

-

0.0125

3

-

0.0182

7

-

0.0390

13

0.003

93

-

0.039

-

0.013

8

0.00

09

April -

0.0010

2

-

0.00

78

-

0.03972

1

0.0059

36

-

0.0242

8

-

0.0242

8

-

0.016

9

0.042 -

0.003

3

-

0.01

8

May 0.0886

57

-

0.03

62

0.25646

2

-

0.0010

4

0.0050

9

0.0109

81

-

0.015

6

0.058

7

-

0.031

4

-

0.02

5

June 0.0003

55

-

0.00

88

-

0.00672

2

-

0.0088

6

-

0.0089

5

-

0.0151

98

-

0.021

7

0.007

6

-

0.014

5

0.01

11

July -

0.0034

7

-

0.03

51

-

0.13459

7

-

0.0190

5

-

0.0278

5

-

0.0277

06

-

0.008

5 0

-

0.018

9

-

0.012

0.0

August 0.0289 0.00 - 0.0422 0.0074 0.0027 0.034 0.054 0.016 0.02



48 07 0.03991

8

87 28 15 76 2 85 16

Septem

ber

-

0.0202

2

-

0.01

89

-

0.13321

8

-

0.0003

6

0.0082

64

-

0.0183

29

-

0.018

6

-

0.031

-

0.020

6

-

0.02

9

October 0.0171

62

-

0.03

79

-

0.03121

2

-

0.0263

6

0.0032

22

-

0.0571

37

-

0.040

5

-

0.017

-

0.026

4

-

0.01

1

Novem

ber

0.0051

1

-

0.03

61

-

0.17875

7

0.0070

26

0.0213

74

0.0332

79

-

0.003

6

0.113

5

-

0.035

5

0.01

18

Decemb

er

-

0.0594

6

0.01

59

-

0.14370

2

0.0133 0.0778

32

0.0163

64

0.040

8

0.014

8

0.029

72

0.04

13

2010

Jan

-

0.0316

-

0.04

39

0.03258

4

-

0.0148

6

-

0.0366

4

0.0103

92

-

0.037

9

0.047

6

-

0.026

5

-

0.03

9

Februar

y

-

0.0024

3

-

0.02

48

-

0.09465

1

-

0.0946

51

0.0323

6

-

0.0171

47

0.027

71

-

0.045

0.005

22

0.00

24

March 0.0191

03

-

0.01

49

0.03657

4

0.0025

81

-

0.0145

7

0.0022

91

0.001

34

0.032

2

0.004

86

0.01

42

April -

0.1197

-

0.03

96

0.08280

1

0.0006

93

-

0.0296

8

0.0015

03

-

0.017

0.055

1

-

0.004

2

-

0.02

4

May 0.0665

68

-

0.04

11

-

0.15395

9

-

0.0133

8

-

0.0273

7

0.0210

44

0.005

97

0.026

4

-

0.005

8

-

0.01

1

June -

0.0133

7

-

0.04

51

-

0.10413

4

-

0.0572

7

-

0.0905

1

-

0.0304

79

-

0.041

2

-

0.023

-

0.015

6

-

0.05

6



July -

0.0809

4

0.01

38

-

0.13266

9

-

0.0135

8

-

0.0289

4

-

0.0002

17

0.020

15

0.078

4

-

0.034

-1E-

03

August 0.0361

68

0.03

85

-

0.07308

9

0.0452

03

0.0899

45

0.0652

63

0.027

66

0.055

2

0.073

69

0.03

19

Septem

ber

-

0.0615

2

-

0.06

85

-

0.15929

-

0.0448

4

-

0.0697

4

-

0.0470

82

-

0.017

5

0.029

8

-

0.061

5

-

0.02

6

October -

0.0151

8

-

0.04

53

0.15192

7

-

0.0154

-

0.0503

-

0.0407

01

0.005

86

0.014

8

-

0.051

6

0.00

59

Novem

ber

-

0.0173

7

-

0.04

62

-

0.21537

8

-

0.0113

8

-

0.0175

4

-

0.0222

44

0.003

14

-

0.012

-

0.000

6

-

0.01

2

Decemb

er

0.0286

15

-

0.02

56

-

0.11273

5

-

0.0375

2

-

0.0229

5

-

0.0037

38

-

0.007

0.038

3

-

0.026

4

-

0.02

2

INTERPRETATION:

This table shows the monthly residuals of each fund. This is calculated as

Residuals=Actual return-expected return

TABLE 4: Unsystematic risk and return

FUNDS UNSYSTEMATIC RISK UNSYSTEMATIC RETURN

Funds UNSYSTEMETIC RISK RETURN

KOTAK 0.002788328 0.056182167

LIC 0.00105201 0.024586898

SUNDARAM 0.001174394 0.669229297

TATA 0.000717746 0.000379531

CANBANK 0.000772983 0.002224788



FRANKLIN 0.001821397 0.028265841

HDFC 0.000973717 0.002490313

ICICI 0.002101004 0.001359151

JM 0.001376292 0.001847574

BIRLA 0.000728982 0.000776284

TABLE 5: SYSTEMETIC RISK AND RETURN

FUNDS SYSTEMATIC RISK SYSTEMATIC RETURN

Funds SYSTEMETIC RISK RETURN

KOTAK 0.002602634 0.157317833

LIC 0.003327783 0.228346435

SUNDARAM 0.003050437 -0.26596263

TATA 0.004239395 0.416587136

CANBANK 0.005117169 0.346408545

FRANKLIN 0.001488121 0.259734159

HDFC 0.003389123 0.454909687

ICICI 0.002780716 0.417874182

JM 0.002515646 0.380519093

BIRLA 0.00424528 0.424790382

INTERPRETATION:



The above table shows the systematic risk/return and unsystematic risk/return of equity

funds. The returns of unsystematic are calculated from the residual likewise the returns from

systematic are calculated from expected return.

TABLE 6: RETURN PER UNIT OF SYSTEMETIC RISK FUNDS

RETURN PER UNIT OF SYSTEMETIC RISK RANK

Funds RETURN RANK

KOTAK 60.445628 9

LIC 68.61818402 7

SUNDARAM -87.18838054 10

TATA 98.26570078 6

CANBANK 67.69535042 8

FRANKLIN 174.5383837 1

HDFC 134.2263687 4

ICICI 150.2757558 3

JM 151.2609706 2

BIRLA 100.0618059 5

INTERPRETATION:

The above table shows the return per unit of systematic risk of the funds systematic risk in

Franklin mutual fund is more compare to other funds.



TABLE 7: RETURN PER UNIT OF UNSYSTEMETIC RISK

FUNDS RETURN PER UNIT OF UNSYSTEMETIC RANK

Funds RETURN RANK

KOTAK 20.14905543 3

LIC 23.37135235 2

SUNDARAM 569.8506554 1

TATA 0.528781755 10

CANBANK 2.878183697 5

FRANKLIN 15.51877362 4

HDFC 2.557531687 6

ICICI 0.646905648 9

JM 1.342428615 7

BIRLA 1.064888334 8

INTERPRETATION:

The above table shows return per unit of unsystematic risk sundram as the highest systematic

risk compared to other funds and Tata mutual fund as the lowest unsystematic.



TABLE 8: DIVERSIFIED AND NON DIVERSIFIED FUNDS IN PERCENTAGE

FUNDS DIVERSIFIED IN % NON DIVERSIFIED IN %

Funds RETURN

KOTAK GROWTH

EQUITY FUND

51.722 48.278

LIC MF EQUITY GROWTH

FUND

24.020 75.980

SUNDARAM EQUITY

GROWTH

27.797 72.203

TATA EQUITY GROWTH

FUND

14.479 85.521

CANBANK GROWTH

FUND

13.123 86.877

FRANKLIN EQUITY

GROWTH FUND

55.035 44.965

HDFC EQUITY GROWTH

FUND

22.318 77.682

PRU ICICI GROWTH

EQUITY FUND

43.038 56.962

JM EQUITY GROWTH

FUND

35.363 64.637

BIRLA ADVANTAGE

GROWTH FUND

14.655 85.345

INTERPRETATION:

The above table shows the diversified and non diversified funds in percentages. Franklin fund

shows the more diversified fund where as canbank fund shows less diversified fund. But

canbank fund is more efficient then Franklin fund because its unsystematic risk per unit is

2.87, whereas Franklin fund unsystematic risk per unit is 15.5187. So for this reason canbank

is more efficient then other funds.



TABLE 9: RANKING OF MUTUAL FUND SCHME BASED ON SHRPE’S RATIO:

NAME RATIO RANK

Funds RETURN RANK

KOTAK 2.21456 10

LIC 3.05279 9

SUNDARAM 5.42113 2

TATA 5.1993 6

CANBANK 3.8794 8

FRANKLIN 4.12144 7

HDFC 6.15426 1

ICICI 5.27175 5

JM 5.31321 3

BIRLA 5.31228 4

INTERPRETATION:

Sharpe prefers to compare portfolios to the capital line rather than the security market line.

HDFC is the best compare to the other funds and the Kotak is the lowest performance in case

of Sharpe measure.

TABLE 10: RANKING OF MUTUAL FUND SCHME BASED ON TREYNOR’S

RATIO: NAME RATIO RANK

Funds RETURN RANK

KOTAK 0.23402 9

LIC 0.23178 10

SUNDARAM 0.41469 3

TATA 0.39584 6

CANBANK 0.31943 8

FRANKLIN 0.35359 7



HDFC 0.46121 2

ICICI 0.48803 1

JM 0.41229 4

BIRLA 0.40556 5

INTERPRETATION:

The above table shows the ranking of mutual fund scheme based on treynors ratio. ICICI is

the best compared to other funds and LIC is the least rank and less performance in case of

Treynors measure.

TABLE 11: RANKING OF MUTUAL FUND SCHME BASED ON JENSEN’S RATIO:

NAME RETURN RANKS

Funds RETURN RANK

KOTAK -0.06616 10

LIC 0.2464 9

SUNDARAM 0.39562 5

TATA 0.41314 3

CANBANK 0.34518 7

FRANKLIN 0.27123 8

HDFC 0.45136 1

ICICI 0.40675 4

JM 0.37239 6

BIRLA 0.42169 2

INTERPRETATION:

The alpha values varied widely, the highest being HDFC and the lowest Kotak. 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.



Interpretation of Sharpe, Treynor, and Jensen’s 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 Sharpe and Treynor and 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 maximises 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.

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

HDFC fund shows the highest return of 0.4574,followed by Birla sun life ,Tata, JM

Equity, ICICI , LIC,SUNDRAM, KOTAK CANBANK and BSE SENSEX has given

a return of 0.3801

Out of 10 equity funds HDFC shows the highest monthly return of 45.74% compared

to others. In case of mean return also, HDFC shows the highest mean return 3.81%.

Beta is defined as the measure of risk. Canbank 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.

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. Some funds have outperformed both in terms of

Treynor measure and Sharpe measure. 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 HDFC and the lowest Kotak. 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.



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

STATISTICS FOR MANAGEMENT BY LEVIN & RUBIN

JOURNALS

THE ICFAI JOURNAL OF FINANCE.

VALUE RESEARCH ONLINE


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