ATENEO DE DAVAO UNIVERSITY

Jacinto St. Davao City

COMPREHENSIVE REPORT: PERFORMANCE EVALUATION

OF MUTUAL FUNDS
By: Kim Alexis D Teposo

ABSTRACT

I prepared these papers as a part our project. In this report I included

activities at Company, mainly general information about Mutual Fund product
and evaluate the performance of 10 Equity Diversified Mutual Funds of India.
I gave brief description of various terms of Mutual Fund. What is Mutual Fund,
various types of Mutual Funds, advantages, risk associated with funds,
growth history of Mutual fund, how to select best mutual fund, tax benefit
available, etc.
I use risk adjusted performance measures suggested by Treynor,
Sharpe, and Jensen to analyze the selected funds. From the evaluation of
funds, I found that all ratios i.e. Treynor, Sharpe, and Jensen show almost
same result.
ICICI Prudential Discovery Fund obtains first rank in all three
measurements. So further I give detail analysis of these funds to help
investors in how to evaluate particular fund. There I evaluate all types of
Mutual Funds and select best performing mutual funds to recommend the
investors. Here in this report I describe what I have done to study Mutual
Funds.

A BRIEF OF MUTUAL FUNDS

Definition

Mutual funds are investment companies that pool money from investors at
large and offer to sell and buy back its shares on a continuous basis and use
the capital thus raised to invest in securities of different companies.
The stocks these mutual funds have are very fluid and are used for buying or
redeeming and/or selling shares at a net asset value. Mutual funds possess
shares of several companies and receive dividends in lieu of them and the
earnings are distributed among the shareholders.
Mutual funds can be either or both of open ended and closed ended
investment companies depending on their fund management pattern. An
open-end fund offers to sell its shares (units) continuously to investors either
in retail or in bulk without a limit on the number as opposed to a closed-end
fund. Closed end funds have limited number of shares. Mutual funds have
diversified investments spread in calculated proportions amongst securities
of various economic sectors. Mutual funds get their earnings in two ways.
First is the most organic way, which is the dividend they get on the securities
they hold. Second is by the redemption of their shares by investors will be at
a discount to the current NAVs (net asset values).

HISTORY OF MUTUAL FUNDS IN INDIA

The mutual fund industry is a lot like the film star of the finance
business. Though it is perhaps the smallest segment of the industry, it is also
the most glamorous in that it is a young industry where there are changes

in the rules of the game every day, and there are constant shifts and
upheavals.
The mutual fund is structured around a fairly simple concept, the
mitigation of risk through the spreading of investments across multiple
entities, which is achieved by the pooling of a number of small investments
into a large bucket. Yet it has been the subject of perhaps the most elaborate
and prolonged regulatory effort in the history of the country. The mutual fund
industry started in India in a small way with the UTI Act creating what was
effectively a small savings division within the RBI.
Over a period of 25 years this grew fairly successfully and gave
investors a good return, and therefore in 1989, as the next logical step,
public sector banks and financial institutions were allowed to float mutual
funds and their success emboldened the government to allow the private
sector to foray into this area. The initial years of the industry also saw the
emerging years of the Indian equity market, when a number of mistakes
were made and hence the mutual fund schemes, which invested in lesserknown stocks and at very high levels, became loss leaders for retail
investors. From those days to today the retail investor, for whom the mutual
fund is actually intended, has not yet returned to the industry in a big way.
But to be fair, the industry too has focused on brining in the large investor,
so that it can create a significant base corpus, which can make the retail
investor feel more secure.

Impact of local and international developments

During the year we had two major political developments that affected
the mutual fund industry. The standoff between India and Pakistan at the
beginning of the financial year saw the debt market being extremely volatile.

Investors pulled out of funds and this also put pressure on fund managers to
hold returns and at the same time meet redemption commitments.
The equity markets were equally subdued but the industry did not
react greatly to this since equity funds were in any case not a significant part
of the mobilization in the last few years. With the stand down on the Indian
side, the debt markets recovered and with that the inflow of funds into our
industry soared once again. But at the end of the year the industry was hit
by another war the impending US attack on Iraq and consequent oil price
pressures once again made the debt market volatile. It is a mark of the
maturing of the Indian investor that redemptions were only need based and
the industry did not see as much outflows as one feared.

Product innovations
With the bond yields plateauing and with the mutual fund industry
trying to attract people to the equity market, the year also saw some
remarkable products flavors for Indian investors. Birla Sun life Mutual Fund
led the pack with an equity fund focused on dividend yield stock, a bond
index fund and a bond-for-units swap product. Some of the other innovative
products were the series of exchange-traded funds from Benchmark,
including a liquid index traded fund. Prudential- ICICI also launched an
exchange-traded fund, the SPICE, in association with BSE.
The industry focused also on making existing products more attractive
by adding on a number of service features and cost control measures. Same
day redemption in liquid funds, institutional plans which would reduce the
overall cost of investment and bonus units in lieu of dividend were some of
these features.

RECOMMENDATIONS

SIP is an investment option that is presently available only with mutual

funds. The other investment option comparable to SIPs is the recurring
deposit schemes from Post office and banks. Basically, under an SIP option
an investor commits making a regular (monthly/quarterly) investment in a
particular mutual fund/deposit. Investor can now use auto debit (ECS) facility
from Banks to automatically debit SIP amount from your account. There is no
need to give bulk of cheques for SIP. For that you should have account in
nationalized banks. For SIP through ECS, you have to provide bank details
like account no., branch name, MICR no. etc.

Reference: http://seminarprojects.com/Thread-performance-evaluation-ofmutual-funds#ixzz3US7HeT1Y