EXECUTIVE SUMMERY

There are so many investment avenues. So that investors does not know
which avenues provides best return. As per the financial rule of “Do not putall
the eggs in one basket” investor’s portfolio are most diversified. So that risk
should be minimized. If the person do not have knowledge of how to get
maximum return with minimum risk or vice-versa then they should invest in
mutual fund. There are so many funds and schemes are available in mutual
fund market. Investors know that how much risk they can take and based on
that they have to choose schemes. The primary object of the present project
is to know about which mutual funds gave highest performance within one-
year.

This study has been undertaken to evaluate the performance of the Indian
Mutual Funds vis-à-vis the Indian stock market. For the purpose of this study,
10 open ended equity based growth mutual funds were selected as the
Sample. The data, which is the quarterly NAV’s of the funds and the closing of
the S & P NIFTY Index, were collected for a period of 1 year starting
01/01/2018 to 31/12/2018.

Different statistical tools were used on the data obtained to calculate the
Average returns, Standard deviation, Fund Beta, Treynor’s
PerformanceIndex, Sharpe’s Performance Index and Jensen’s Alpha. These
variables of the funds were compared with the same variables of the market
to assess how the different funds have performed against the market.

Data we have used to calculate average returns are 10 fund’s quarterly

returns and S & P NIFTY’s quarterly returns for the year 2010. Data we have
used to calculate standard deviation of portfolio (σp) is the average return
ofmutual fund and market. Data we have used to calculate beta of portfolio
(βp) is the covariance of the returns of the fund and market and variance of
the market.

1
We have used return of portfolio (mutual fund) i.e. Rp, return of risk free
securities i.e. Rf and beta of portfolio to calculate Treynor’s Performance
Index. We have used return of portfolio i.e. Rp, return of risk free securities
i.e. Rf and standard deviation of portfolio to calculate Sharpe’s Performance
Index. We have used Rp, Rf, βp and Rm i.e. return of market to calculate
Jensen’s alpha.

Sharpe and Treynor model are used to compare the performance of mutual
funds and rank them according to their performance. Jensen model is used to
calculate the fund manager’s stock selection capability.

In this project we have calculated Sharpe, Treynor and Jensen’s performance

index of 10 mutual funds and rank them according to that. We have also
calculated the same for market to compare the performance of mutual funds
with the market and to check whether the mutual funds can beat the market or
not.

From our analysis we have found out that UTI MNC Fund – Growth stands on
1st rank amongst the 10 mutual funds according to above three models. It
shows that UTI MNC FUND has performed well in the year 2010. This fund is
also able to beat the market.

While Reliance Growth Fund stands on 10th rank amongst the 10 mutual
funds according to Sharpe and Jensen’s model and it stands on
9thrankaccording to Treynor’s model. It shows that Reliance Growth Fund has
not performed so well in the year 2018 as compared to other nine funds.

2
 PART – 1
GENERAL
INFORMATION

3
MUTUAL FUND INDUSTRY

4
 1.1 ABOUT THE INDUSTRY

Financial Institutions comprises following services.

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 posses
shares of several companies and receive dividends in lieu of them and the
earnings are distributed among the share holders.

Mutual funds are conceived as institutions for providing small investors with
avenues of investments in the capital market. .Since small investors generally
do not have adequate time, knowledge, experience and resources for directly
accessing the capital market, they have to rely on an intermediary, which
undertakes informed investment decisions and provides consequential
benefits of professional expertise.

5
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).

Below cycle shows the process of investing in Mutual Fund

 Investors pull their money with Fund Manager


 Fund Manager invest in different securities

 Securities generate Returns

 Returns are passed back to investors

(Source: www.amfiindia.com)

The mutual fund industry has been in India for a long time. This came into
existence in 1963 with the establishment of Unit Trust of India, a joint effort by
the Government of India and the Reserve Bank of India. The next two
decades from 1986 to 1993 can be termed as the period of public sector funds
with entry of new public sector players into the mutual fund industry namely,
Life Insurance Corporation of India and General Insurance Corporation of
India.

6
The year of 1993 marked the beginning of a new era in the Indian mutual fund
industry with the entry of private players like Morgan Stanley, J.P Morgan, and
Capital International. This was the first time when the mutual fund regulations
came into existence.

SEBI (Security Exchange Board of India) was established under which all the
mutual funds in India were required to be registered. SEBI was set up as a
governing body to protect the interest of investor. By the end of 2008, the
number of players in the industry grew enormously with 46 fund houses
functioning in the country.

With the rise of the mutual fund industry, establishing a mutual fund
association became a prerequisite. This is when AMFI (Association of Mutual
Funds India) was set up in 1995 as a non-profit organization. Today AMFI
ensures mutual funds function in a professional and healthy manner thereby
protecting the interest of the mutual funds as well as its investors.

The mutual fund industry is considered as one of the most dominant players
in the world economy and is an important constituent of the financial sector
and India is no exception. The industry has witnessed startling growth in
terms of the products and services offered, returns churned, volumes
generated and the international players who have contributed to this growth.
Today the industry offers different schemes ranging from equity and debt to
fixed income and money market.

The market has graduated from offering plain vanilla and equity debt products
to an array of diverse products such as gold funds, exchange traded funds
(ETF’s), and capital protection oriented funds and even thematic funds. In
addition investments in overseas markets have also been a significant step.
Due credit for this evolution can be given to the regulators for building an
appropriate framework and to the fund houses for launching such different
products. All these reasons have encouraged the traditional conservative
investor, from parking fund in fixed deposits and government schemes to
investing in other products giving higher returns.

7
It is interesting to note that the major benefits of investing in a mutual funds is
to capitalize on the opportunity of a professionally managed fund by a set of
fund managers who apply their expertise in investment. This is beneficial to
the investors who may not have the relevant knowledge and skill in investing.
Besides investors have an opportunity to invest in a diversified basket of
stocks at a relatively low price. Each investor owns a portion of the fund and
hence shares the rise and fall in the value of the fund. A mutual fund may
invest in stocks, cash, bonds or a combination of these.

Mutual funds are considered as one of the best available investment options
as compare to others alternatives. They are very cost efficient and also easy
to invest in. The biggest advantage of mutual funds is they provide
diversification, by reducing risk & maximizing returns.

India is ranked one of the fastest growing economies in the world. Despite this
huge progression in the industry, there still lies huge potential and room for
growth. India has a saving rate of more than 35% of GDP, with 80% of the
population who save. These savings could be channelized in the mutual funds
sector as it offers a wide investment option. In addition, focusing on the
rapidly growing tier II and tier III cities within India will provide a huge scope
for this sector. Further tapping rural markets in India will benefit mutual fund
companies from the growth in agriculture and allied sectors. With subsequent
easing of regulations, it is estimated that the mutual fund industry will grow at
a rate of 30% - 35% in the next 3 to 5 years and reach US 300 billion by 2015.

8
 1.2 MUTUAL FUND INDUSTRY IN WORLD MARKET

Mutual Fund – A Globally Proven Investment

Worldwide, the Mutual Fund has a long and successful history. The popularity
of the Mutual Fund has increased manifold. In developed financial markets,
like the United States, Mutual Funds have almost overtaken bank deposits
and total assets of insurance funds.

Internationally, on-line investing continues its meteoric rise. Many have

debated about the success of e-commerce and its breakthroughs, but it is true
that this aspect of technology could and will change the way financial sectors
function. However advanced countries like US, mutual funds buy-sell
transactions have already begun on the net, while in India the net is used as a
source of information. Such changes could facilitate easy access, lower
intermediation costs and better services for all.

Since the creation of the first mutual fund in 1929, the mutual fund industry
has enjoyed the fastest growth rate of the financial investment industry. In
1949, all mutual fund companies combined controlled $2 billion; fund assets
soared to $6.5 trillion at the outset of 2003, and more than $12 trillion in 2007,
making the funds America’s largest financial investment vehicles.

The mutual fund industry consists of investment companies that sell shares in
one or more portfolios of financial assets. Fund managers determine the
composition of the portfolio, which may include stocks, bonds, government
securities, shares in precious metals, and other financial assets. As open-end
funds, they are sold publicly, and their shares must be redeemed by the
investment company on request of the shareholder.

Mutual funds are categorized by their general investment objectives. Equity

funds consist of common stocks and are organized to achieve capital growth.
Bond funds are composed of corporate, U.S. government or municipal bonds
and emphasize regular income.

9
Income funds have the same objective as bond funds but include Government
National Mortgage Association securities, government securities, and
common and preferred stocks as well as bonds. Money market mutual funds
consist of short-term instruments, such as U.S. government securities, bank
certificates of deposit and commercial paper.

The mutual fund industry is regulated by the Securities and Exchange

Commission (SEC) and by state regulations and securities laws. The first
mutual fund was developed on March 21, 1924, when three Boston securities
executives pooled their money to establish the Massachusetts Investors
Trust. In just one year, the mutual fund grew from $50,000 to $392,000 in
assets. Investors welcomed the innovation and invested in this new vehicle
heavily; however, the stock market crash of 1929 slowed its growth. To instill
investors with confidence, the U.S. Congresspassed the Securities Act of
1933, the Securities Exchange Act of 1934, and the Investment Company Act
of 1940, which set standards with which mutual funds must comply.

By the end of the 1960’s, there were approximately 270 funds with $48 billion
in assets. One of the largest contributors to the mutual funds’ growth was the
provision added to the Internal Revenue Code in 1975 that allowed individuals
already in a corporate pension fund to contribute up to $2,000 per year to an
individual retirement account (IRA). Mutual funds became popular in employer
sponsored 401(k) retirement plans, IRAs, and Roth IRAs. In 1976, John Bogle
founded the first retail index fund (a passively managed fund that tries to
mirror the performance of a specific index, such as the S&P 500), named First
Index Investment Trust. Later renamed Vanguard 500
Index Fund, it revolutionized investing, becoming one of the world’s largest
mutual funds, with more than $115 billion in assets. Mutual fund assets first
reached the trillion dollar mark in January, 1990. By the end of 1990, the
industry had also posted new records, both in the number of funds (3,108)
and in the number of individual accounts (62.6 million). By 1996, total mutual
fund assets reached $3 trillion. The industry blossomed in the dawn of the
new millennium, and in 2007, there were 8,015 mutual funds, with a combined
worth of $12.4 trillion.

10
 1.3 MUTUAL FUND INDUSTRY IN INDIAN MARKET

The Indian mutual funds industry is witnessing a rapid growth as a result of

infrastructural development, increase in personal financial assets, and rise in
foreign participation. With the growing risk appetite, rising income, and
increasing awareness, mutual funds in India are becoming a preferred
investment option compared to other investment vehicles like Fixed Deposits
(FDs) and postal savings that are considered safe but give comparatively low
returns, according to “Indian Mutual Fund Industry”.

Market capitalization
Individual investors make up for 96.86% of the total number of investor
accounts and contribute 36.9% of the net assets under management.

(Source: www.articlebase.com)

Size of industry

The size of Indian Mutual Fund Industry has grown and now has the boast of
having dominance in this industry. In April 2008 the total Asset Under
Management popularly known as AUM has increased from Rs.1, 01, 565
crores in January 2000 to Rs.5, 67, 601.98 crores.

11
According to the Association of Mutual Funds in India, the growth of mutual
fund industry has been exceptional. This industry has indeed come a very
long way with only 34 players in the market and more than 480 schemes.

Domestic and Export Share

Despite the growth of Mutual Fund Industry, penetration levels in India are low
as compared to other global economies. Assets under management as a
percentage of GDP is less than 5% in India as compared to 70% in the US,
67% in France and 37% in Brazil.

The industry has grown in size and manages total assets of more than
$30351 million. Of the various sectors, the private sector accounts for nearly
91% of the resources mobilized showing their overwhelming dominance in the
market. Individuals constitute 98.04% of the total number of investors and
contribute US $12062 million, which is 55.16% of the net assets under
management.

Employment opportunities

Indian Mutual Fund Industry is playing an active role in the capital market
today and is one of the fastest growing industries in the country. The industry
offers multiple career options to the youths irrespective of their academic
subjects. Graduates from arts, science and commerce can easily find a job in
this promising and growing sector. Due to the participation of private players
and many financial institutions into the mutual funds markets, they have
further widened the scope of employment in this sector. Career in Mutual
funds require the minimum qualification of a certification (Advisor Module) and
a registration number from the Associations of Mutual Funds in India (AMFI).
SEBI has made mandatory for any entity or person engaged in marketing and
selling of mutual fund products to pass AMFI certification test (Advisors
Module) and obtain registration number from. This certification remains valid
for 5 years from the date of the test.

12
Latest developments

 The Indian mutual funds retail market, growing at a CAGR of about

30%, is forecasted to reach US$ 300 Billion by 2015.

 Income and growth schemes made up for majority of Assets under
Management (AUM) in the country. At about 84% (as on March 31,
2008), private sector Asset Management Companies account for
majority of mutual fund sales in India.

 Individual investors make up for 96.86% of the total number of investor
accounts and contribute 36.9% of the net assets under management. 

 The Rs.7.2 trillion Indian Mutual Fund Industry is revisiting its business
model to be in sync with the new norms put in place by the capital
market regulator, the Securities and Exchange Board of India, or SEBI.

 India has 36 asset management companies (AMCs) and at least some
of them are planning to start their own distribution business instead of
selling funds through third-party distributors. Among other things, they
plan to cut distributors’ commission by 25-30 basis points (bps) and
shift their focus from frequent churning of funds to managing money for
the longer term. One basis point is one-hundredth of a percentage
point.

 Out of the 32 crore employed Indians, only 2.5% are investors. Many
investors, particularly youth mostly having the dispensable income opt
for mutual funds to enter into the securities market indirectly. Hence,
potential investors in mutual funds need evaluation not only by financial
institutions but also by academicians so that they can make a right
choice in their investment decisions.

13
1.3 GROWTH OF THE INDUSTRY
While the Indian mutual fund industry has grown in size by about 320%from
March,1993(Rs.470 billion)to December,2004(Rs.1505 billion)in terms of AUM, he
AUM of the sector excluding UTI has grown over 8times from Rs. 152 billion in March
1999 to $ 148 billion as at March2008.
Though India is a minor player in the global mutual fund industry, its AUM as a
proportion of the global AUM has steadily increased and has doubled over its levels in
1999.The growth rate of Indian mutual fund industry has been increasing for the last few
years. It was approximately0.12%in the year of 1999 and it is noticed 0.25% in 2004 in
terms of AUM as percentage of global AUM.&0.75%in2010 of global AUM.
SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN INDIA
 75%Growth In The Last 6 Years. Number of foreign AMCs is in the queue to
enter the Indian markets.
 Our saving rate is over 23%, highest in the world. Only channelizing these savings
in mutual funds sector is required.
 We have approximately 42 mutual funds which is much less thanUS having more
than 800.There is a big scope for expansion.
 Mutual fund can penetrate rural area like the Indian insurance industry with simple
and limited products.
 SEBI Allowing The MF'S To Launch Commodity Mutual Funds.
 Emphasis On Better Corporate Governance.
 Trying To Curb The Late Trading Practices.

14
STRUCTURE OF MUTUALFUND:
There Are Many Entities Involved And The Diagram Below Illustrates The
Organizational Set Up Of A Mutual Fund:

UNIT HOLDERS:

Unit Holders Are Investors. Any Individual Or Non- Individuals Who Have Invest
Their Money In Mutual Fund; They Will Get Some Units Against Their Investment
According To The NAV Of That Fund.

Sponsor:

Sponsor Is The Promoter Of The Mutual Fund. He Himself Of With Other Body

Corporate Establishes The Mutual Fund. However To Became A Sponsor

one has to have following qualifications?
Sponsor should have sound track record and general reputation off air ness and integrity
in all business transactions. He must have carrying business in financial services for a
period of not less than five years. And continuously derives the profit after providing for
depreciation, interest and tax. Sponsor has to contribute at least 40 per cent to the net
worth of the AMC.

15
Trustee:
There are some straight disqualifications provided by the SEBI for
a trustee. However the appointment for a trustee must be take prior approval of SEBI.
Trustee is a person having ability, integrity and has not been found guilty of moral
turpitude and also has not been convicted for any economic offence.
Trustee has to play very critical role in the mutual fund organization. He has work in a
way to continuously protect the interest of the investors are properly taken care of. Any
mutual fund has a minimum of four trustees. Two thirds of the trustees must be an
independent person and shall not be associated with sponsor. No officer of employee of an
AMC can became a trustee.

Investors:
MF Is A Solution For Investors Who Lack The Time, And The Skills To Actively
Manage Their Investment Risk In Individual Securities. They Can Delegate This Role To
The MF, While Retaining The Right And The Obligation To Monitor Their Investments
In The Scheme Having Some Specific Objects.

ASSET MANAGEMENT COMPANY (AMC):

AMC can be appointed by the sponsor or by the trustees if authorized by the trust deed.
But it is obligatory for all the mutual fund to have an AMC to manage and operate its
schemes. Appointment Of AMC can be terminated by majority of trustee of 75 per cent of
unit holders (investors).
AMC manages the investment portfolio of schemes. An AMC management fees it charges
to the schemes. The management fee is calculated as a percentage Of net assets managed.
Some countries Provide for performance based management fees as well.
In order to earn the management fee, any AMC has to employ people and bear all the
establishment costs that are related to its activity, such as for premises, furniture,
computers and other assets, software development, communication costs etc. These are to
be met out of the management fee earned.
Expenses such as on trustee fees, marketing etc. can be directly borne by the mutual fund
scheme. However, in some cases, competition in the marketplace could force an AMC to
bear some of these costs, which would otherwise have been borne by investors in the
schemes.

DISTRIBUTORS

Distributors earn a commission for bringing investors into the schemes of a MF. This
commission is an expense for the scheme, although there are occasions when an AMc
chooses to bear the cost, wholly or partly. Distributors are the key persons of the mutual
funds. They are the only link between the mutual fund house and the investors. The main
role of the distributors is to analysis the risk appetite of investors. They have to play their
role such a way to keep interest of the investors in the mutual fund. However they are not
directly responsible of any loss sustained by the investors. To become a distributor one
has to pass exam conducted by AMFI-association of mutual funds in India.

16
REGISTRARS
Holdings of units by unit holders in schemes are tracked by the schemes] Registrar and
Transfer agent (R&T). Some AMC prefer to handle this role in house. The registrar/AMC
maintains an account of the investor investments in and disinvestments (redemptions)
from the scheme. Requests to invest more money into a scheme or to switch in another
scheme run by the same mutual fund or to recover moneys against existing investments in
the scheme are processed by the R & T.

Custodian / Depository

The custodian maintains custody of the securities in which the scheme invests. This
ensures an ongoing independent record of the investments of the scheme. The custodian
also follows up on various corporate actions, such as rights, bonus and dividends declared
by investors companies.

17
 2.1 COMPANIES ON THE BASIS OF RETURN

Company NAV Return %

IDFC Premier Equity – A 1,376.30 83.2

ING Dividend Yield 36.53 76.8

Reliance RSF – Equity 2,722.37 74.2

Birla SL Dividend Yield (G) 384.83 69.8

Sundaram S.M.I.L.E Fund 663.86 66.1

ICICI Pru Discovery Fund 1,083.58 63.7

HDFC Top 200 Fund 7,490.21 63.4

Can Robeco Equity Diversified 323.88 57.8

Quantum Long-Term Equity 53.45 57.1

Baroda Pioneer Growth 52.17 55.7

18
PRODUCT PROFILE

19
 3.1 TYPES OF MUTUAL FUND

A Mutual Fund may float several schemes which may be classified on the
basis of its structure, its investment objectives and other objectives.

A) MUTUAL FUND SCHEMES BY STRUCTURE

Open-Ended Funds: Open-Ended fund scheme is open for subscription

allthrough year. An investor can buy or sell the units at "NAV" (Net Asset
Value) related price at any time.

Close-Ended Funds: A Close-Ended fund is open for subscription onlyduring

a specified period, generally at the time of initial public issue. The Close-
Ended fund scheme is listed on the some stock exchanges where an investor
can buy or sell the units of this type of scheme.

Interval Funds: Interval Funds combines both the features of Open-

Endedfunds and Close-Ended funds.

20
B) MUTUAL FUND SCHEMES BY INVESTMENT OBJECTIVES

Growth Funds: The objective of Growth Fund scheme is to provide

capitalappreciation over the medium to long term. This type of scheme is an
ideal scheme for the investors seeking capital appreciation for a long period.

Income Funds: The Income Fund schemes objective is to provide regularand

steady income to investors.

Balanced Funds: The objective of Balanced Fund schemes is to provide

bothgrowth and regular income to investors.

Money Market Funds: The objectives of Money market funds are to

provideeasy liquidity, regular income and preservation of income.

C) OTHER FUNDS

Tax Saving Schemes: The objective of Tax Saving schemes is to offer

taxrebates to the investors under specific provisions of the Indian Income Tax
Laws. Investments made under some schemes are allowed as deduction u/s
88 of the Income Tax Act.

Industry specific Schemes: Industry specific schemes invest only in

theindustries specified in the offer document of the schemes.

Sectorial Schemes: The scheme invest particularly in a specified industriesor

initial public offering.

Index schemes: Such schemes links with the performance of BSE sensex
orNSE.

Loan Funds: Loan Funds charges a commission each time when you buy
orsale units in the fund.

21
 3.2 BENEFITS OF MUTUAL FUNDS

Mutual Funds offer several benefits to an investor such as potential return,

liquidity, transparency, income growth, good post tax return and reasonable
safety. There are number of options available for an investor offered by a
mutual fund.

Before investing in a Mutual Fund an investor must identify his needs and
preferences. While selecting a Mutual Fund's schemes he should consider the
effect of inflation rate, diversification of investment, the time period of
investment and the risk factors. There are various types of risk factors as:

 Market Risk

 Credit Risk

 Interest Rate Risk

 Inflation Risk

 Political Environment

The major benefits are good post-tax returns and reasonable safety,
the other benefits in investing in Mutual Funds are

Professional Management:Mutual Funds employ the services of

experienced and skilled professionals and dedicated investment research
team. The whole team analyses the performance and balance sheet of
companies and selects them to achieve the objectives of the scheme.

Potential Return: Mutual Funds have the potential to provide a higher

returnto an investor than any other option over a reasonable period of time.

Diversification: Mutual Funds invest in a number of companies across awide

cross section of industries and sectors.

Low Cost: Investment in Mutual Funds is a less expensive way incomparison

to a direct investment in capital market.

22
Liquidity: The investor can get the money promptly at the net asset
valuerelated prices from the Mutual Funds open-ended schemes. In close-
ended schemes, the units can be sold on a stock exchange at the prevailing
market price.

Transparency: Mutual Funds have to disclose their holdings,

investmentpattern and the necessary information before all investors under a
regulation framework.

Flexibility: Investment in Mutual Funds offers a lot of flexibility with featuresof

schemes such as regular investment plan, regular withdrawal plans and
dividend reinvestment plans enabling systematic investment or withdrawal of
funds.

Affordability: Small investors with low investment fund are unable to high-
grade or blue chip stocks. An investor through Mutual Funds can be benefited
from a portfolio including of high priced stock.

Well regulated: All Mutual Funds are registered with SEBI, and SEBI acts
awatchdog, so the Mutual Funds are well regulated.

23
 3.3 DISADVANTAGES OF MUTUAL FUND

Cost: Mutual funds provide investors with professional management, but

itcomes at a cost. Funds will typically have a range of different fees that
reduce the overall payout. In mutual funds, the fees are classified into two
categories: shareholder fees and annual operating fees.

Misleading Advertisements: The misleading advertisements of

differentfunds can guide investors down the wrong path. Some funds may be
incorrectly labelled as growth funds, while others are classified as small cap
or income funds. The Securities and Exchange Commission (SEC) requires
that funds have at least 80% of assets in the particular type of investment
implied in their names.

24
 3.4 DIFFERENT PLANS THAT MUTUAL FUND OFFER

Growth Plan and Dividend Plan

A growth plan is a plan under a scheme wherein the returns from investments
are reinvested and very few income distributions, if any, are made. The
investor thus only realizes capital appreciation on the investment. This plan
appeals to investors in the high income bracket. Under the dividend plan,
income is distributed from time to time. This plan is ideal to those investors
requiring regular income.

Dividend Reinvestment Plan

Dividend plans of schemes carry an additional option for reinvestment of

income distribution. This is referred to as the dividend reinvestment plan.
Under this plan, dividends declared by a fund are reinvested on behalf of the
investor, thus increasing the number of units held by the investors.

Automatic Investment Plan

Under the Automatic Investment Plan (AIP) also called Systematic Investment
Plan (SIP), the investor is given the option for investing in a specified
frequency of months in a specified scheme of the Mutual Fund for a constant
sum of investment. AIP allows the investors to plan their savings through a
structured regular monthly savings program.

Automatic Withdrawal Plan

Under the Automatic Withdrawal Plan (AWP) also called Systematic

Withdrawal Plan(SWP), a facility is provided to the investor to withdraw a pre-
determined amount from his fund at a pre-determined interval.

25
 3.5 FACTORS THAT INFLUENCE THE PERFORMANCE
OF MUTUAL FUND

The performances of Mutual funds are influenced by the performance of the stock
market as well as the economy as a whole. Equity Funds are influenced to a large
extent by the stock market. The stock market in turn is influenced by the performance
of the companies as well as the economy as a whole. The performance of the sector
funds depends to a large extent on the companies within that sector. Bond-funds are
influenced by interest rates and credit quality. As interest rates rise, bond prices fall,
and vice versa. Similarly, bond funds with higher credit ratings are less influenced by
changes in the economy.

Expense Ratio

Mutual funds charge fees, sometimes high fees. A mutual fund's EXPENSE RATIO is
the most important fee to understand. And is made up of the following: The
investment advisory fee or management fee is the money used to pay the manager(s)
of the mutual fund. This is usually taken annually as a percentage of the fund's assets.

Administrative costs are the costs of record keeping, mailings, maintaining a customer
service line, etc. These are all necessary costs, though they vary in size from fund to
fund. Distribution fee: This fee is spent on marketing, advertising and distribution
services.

Only one third of all equity, mutual funds provided returns greater than the S&P 500,
and that was before fees and expenses which range from 0.5% to 2.0% and 2.0%,
respectively. After adjustments were made for the riskiness of a fund, mutual funds
were reported as being able to perform up to the market on gross returns, but were
underperforming, as compared to the market, after the various expenses were factored
in. Many analysts suggested that the average 1.3% expense ratio of mutual funds and
the need for the retainment of cash as the culprits of such underperformance.

26
Risk

Risk can be a great ally when trying to estimate the reward potential of a stock
investment. The greater the stock volatility, or risk, the greater also is the reward.
There are several new risk measurements that give guidance for selecting mutual
stocks that provide higher returns for lower risk.

Time Horizon

The time horizon of an individual will also influence the performance measures
he/she will look at more closely. If you are investing for less than four years, you
need a fund with consistent performance, so all your money will be there when you
need it. You also do not have time to earn back a large commission charge on the
front end.

Conversely, if you plan to invest your money for 30 years, neither consistency nor
load is very important: you have plenty of time for the market to recover. With a long-
term horizon, your biggest enemies are poor performance and high annual expenses,
both of which can erode that all-important compounding.

27
 PART – 2
PRIMARY STUDY

28
INTRODUCTION OF THE STUDY

29
 4.1 LITERATURE REVIEW

Performance evaluation of mutual funds is one of the preferred areas of

research where a good amount of study has been carried out. The area of
research provides diverse views of the same.

DR.RAO, NARAYAN (2005) published research paper on evaluated the

performance of Indian Mutual Fund Schemes in a bear market using relative
performance index, risk-return analysis, Treynor’s ratio, Sharpe’s ratio,
Jensen’s measure, Fama’s measure.
The study finds that Medium Term Debt Funds were the best performing
funds during the bear period of September 98-April 2002 and 58 of 269 open
ended mutual funds provided better returns than the overall market returns.

PROF.BANERJEE,ASHOK ET.(2007) published research paper on Return

Based Style Analysis (RBSA) to evaluate equity mutual funds in India using
quadratic optimization of an asset class factor model proposed by William
Sharpe and analysis of the relative performance of the funds with respect to
their style benchmarks. Their study found that the mutual funds generated
positive monthly returns on the average, during the study period of January
2000 through June 2005. The ELSS funds lagged the Growth funds or all
funds taken together, with respect to returns generated. The mean returns of
the Growth Funds Or All Funds Were Not Only Positive But Also Significant. The
ELSS funds also demonstrated marginally higher volatility (standard deviation)
than the Growth funds.

Panwar sharad & Dr. madhumathi (2006) published research paper on the
topic identified differences in characteristics of public-sector sponsored &
private-sector sponsored mutual funds find the extent of diversification in the
portfolio of securities of public-sector sponsored and private-sector sponsored
mutual funds and compare the performance of public-sector

30
sponsored and private-sector sponsored mutual funds using traditional
investment measures.

They primarily use Jensen’s alpha, Sharpe information ratio, excess standard
deviation adjusted return (ESDAR) and find out that portfolio risk
characteristics measured through private-sector Indian sponsored mutual
funds seems to have outperformed both Public- sector sponsored and Private-
sector foreign sponsored mutual funds and the general linear model of
analysis of covariance establishes differences in performance among the
three classes of mutual funds in terms of portfolio diversification.

AHMED ,PARVES,PARTHA & NANDA(2001): ) published research paper on

examined the performance of equity and bond mutual funds that invested
primarily in the emerging markets using Treynor’s ratio, Sharpe’s ratio,
Jensen’s measure. With this research they found that on an average the U.S.
stock market outperformed emerging equity markets but the emerging market
bonds outperformed U.S. bonds. They also found that overall emerging
market stock funds under-performed the respective MSCI indexes. These
were evident by their lower return, higher risk, and thus lower Sharpe ratios.

BHATTACHARJEE, KAUSHIK AND PROF. ROV.BIJAN(2006): ) published

research paper on evaluated whether or not the selected mutual funds were
able to outperform the market on the average over the studied time period. In
addition to that by examining the strength of interrelationships of values of
PCMs for successive time periods , the study also tried to infer about the
extent to which the future values of fund performance were related to its past
by using single index model. The study revealed that there were positive
signals of information asymmetry in the market with mutual fund managers
having superior information about the returns of stocks as a whole. PCM also
indicated that on an average mutual funds provided excess (above-average)
return, but only when unit of time period was longer (1 qtr or 4 qtr). Therefore,
they concluded that for assessing the true performance of a particular mutual
fund, a longer time horizon is better.

31
RAO D.N (2006) : published research paper on aimed at analyzing
performance of select open-ended equity mutual fund using Sharpe Ratio,
Hypothesis testing and return based on yield. The most important finding of
the study had been that only four Growth plans and one Dividend plan (5 out
of the 42 plans studied) could generate higher returns than that of the market
which is contrary to the general opinion prevailing in the Indian mutual fund
market.

Even the Sharpe ratios of Growth plans and the corresponding Dividend plans
stand testimony to the relatively better performance of Growth plans. The
statistical tests in terms of F-test and t-Test further corroborate the significant
performance differences between the Growth plans and Dividend plans.

Kothari, s.p.and warner(1997):published research paper on examined the

empirical properties of performance measures for mutual funds using
Simulation procedures combined with random and random-stratified samples
of NYSE and AMEX securities and other performance measurement tools
employed are Sharpe measure, Jensen alpha, Treynor measure, appraisal
ratio, and Fama-French three-factor model alpha. The study revealed that
standard mutual fund performance was unreliable and could result in false
inferences. In particular, it was easy to detect abnormal performance and
market-timing ability when none exists. The results also showed that the
range of measured performance was quite large even when true performance
was ordinary. This provided a benchmark to gauge mutual fund performance.
Comparisons of their numerical results with those reported in actual mutual
fund studies raised the possibility that reported results were due to
misspecification, rather than abnormal performance. Finally, the results
indicated that procedures based on the Fama-French 3-factor model were
somewhat better than CAPM based measures.

32
Agrawal, deepak (2007):published research paper on analyzed the Indian Mutual
Fund Industry pricing mechanism with empirical studies on its valuation. It also
analyzed data at both the fund-manager and fund-investor levels. It stated that
mispricing of the Mutual funds could be evaluated by comparing the return on market
and return on stock. During the pricing period, if the return on stock is negative, then
it indicates overpricing and if are positive indicates under pricing. Relative
performance measurement was used to measure the performance of the MF with
SENSEX and it used Standard Deviation, Correlation analysis, Co-efficient of
Determination and Null Hypothesis. This study revealed that standard deviations of
the 3-month returns were significant with the increase in the period.
Treynor (1965) used 'characteristic line' for relating expected rate of return of a fund
to the rate of return of a suitable market average. He coined a fund performance measure
taking investment risk into account. Further, to deal with a portfolio, 'portfolio-possibility line'
was used to relate expected return to the portfolio owner's risk preference.
Gupta (1994) made a household investor survey with the objective to provide Data on
the investor preferences on 11/iFs and other financial assets. The findings of the study were
more appropriate, at that time, to the policy makers and mutual funds to design the financial
products for the future.
Shanmugham (2000) conducted a survey of 201 individual investors to study the
information sourcing by investors, their perceptions of various investment strategy dimensions
and the factors motivating share investment decisions, and reports that among the
various factors, psychological and sociological factors dominated the economic factors in share
investment decisions.

D. Anitha Kumari, G. Ramasamy & K. Sandhya (2013):- conducted the

study to ascertain the investor’s perception of online trading of shares in share market
also identify the investor’s perception and to improve the quality of service according
to the investor’s expectation. They found that share brokers can arrange for awareness
program like free seminars regarding share market and other corresponding
investment products, making presentations in online itself to help in acquiring
effective new customers.

D. Kandavel (2011) concluded that the buying intent of a mutual fund product by
a small investor can be due to multiple reasons depending upon customers risk return
trade off. He found that more and more funds are entering the industry and their
survival depends on strategic marketing choices of mutual fund companies, to survive
and thrive in this highly promising industry, in the face of such cutthroat competition.
Therefore, the mutual fund industry today needs to develop products to fulfillcustomer
needs and help customers underst and how its products cater to their needs.

33
 4.2 ACKGROUND OF THE STUDY

Day by day as business is getting more competitive and so the management is

achieving its importance in every field to increase the efficiency and to cut down the
cost of production. The present day giant organization is a specialized or expert in all
spheres of management. The importance of specialist from each has emerged, these
specialist are often called as professionals.

During last few years or so, financial management which was not considered so much
has now been recognize as an important area. This change has created importance for
the study of financial management which has lead to various objectives-covered in
this research methodology. The methodology of the project reveals the step-by-step
procedure done to carry out the project study.

Mutual Fund is a topic which is of enormous interest not only to researchers all over
the world, but also to investors. Mutual funds as a medium-to-long term investment
option are preferred as a suitable investment option by investors. However, with
several market entrants the question is the choice of mutual fund. The study focuses
on this problem of mutual fund selection by investors. Though the investment
objectives define investor’s preference among fund types (balanced, growth, dividend
etc.) the choice of fund based on a sponsor’s reputation remains to be probed. We
focus on analyzing the performance of mutual funds by using three models i.e.
Sharpe, Treyner and Jensen.

34
 4.3 PROBLEM STATEMENT AND IMPORTANCE OF THE
STUDY

There are so many investment avenues. So that investors does not know which
avenues provides best return. As per the financial rule of “Do not put all the eggs in
one basket” investor’s portfolio are most diversified. So that risk should be
minimized. If the person do not have knowledge of how to get maximum return with
minimum risk or vice-versa then they should be invest in mutual fund. There are so
many funds and schemes are available in mutual fund market. Investors know that
how much risk they can take. Based on that they have to choose schemes. Problem is
that chosen scheme provides the best return as compare to the market and other
schemes. For that certain model available Sharpe’s model, Treynor’s model and
Jenson’s model. These models are suggested that which schemes provide best return.

Importance of the study is that a fund’s performance can be judged with respects to
investors’ expectation. Investors have to define his expectations in relation to certain
indicators on what is possible to achieve or moderate this with comparable investment
alternatives available in the market. These indicators of performance can acts against
investors fund performance. It is very important to select the right benchmark to
evaluate a fund’s performance.

So the problem arises that in which scheme they should invest according to their
preferences.

35
 4.4 OBJECTIVES OF THE STUDY

The primary object of the present project is to know about which mutual funds gave
highest performance in a short-term period.

To know about types of mutual funds in detail.

To know, which schemes gives highest return within one-year.

To find the extent of diversification in the portfolio of securities of sponsored

mutual funds.
To compare the performance of sponsored mutual funds using traditional
investment measures.

In general, Mutual Funds are not considered to be too risky because they invest in
dozens or even hundreds of stocks. But Mutual Funds being market-linked are prime
candidates for stock market related risks. The four aspects that you should take into
account while analyzing risk in Mutual Fund investment are volatility of the fund as
indicated by the Standard Deviation, risk-adjusted returns as calculated by the Sharpe
Ratio, Beta and Alpha.

Standard Deviation shows the degree of risk taken on by the fund, Sharpe Ratio
shows the return generated by the fund per unit of risk taken. Beta shows how much a
fund moves when compared to an appropriateindex. Alpha represents the difference
between a Mutual Fund's actual performance and the performance that would be
expected based on the level of risk taken by the manager.

A Fund with low risk is the one with the lowest Standard Deviation, the highest
Sharpe Ratio within its peer group, Beta closer to one and Alpha above one. It is
advisable for you to evaluate these measures on a historical basis so as to identify the
most consistent performers.

36
RESEARCH METHODOLOGY

37
 5.1 RESEARCH DESIGN

Research Design is the roadmap for carrying out the research activity in the project. In
our project of “Performance Evaluation of Mutual Fund” we have carried out the
research of which mutual fund is providing higher return by comparing the returns of
different mutual funds and we have also compared whether the mutual fund can beat
the market return or not.

For this research activity

We have selected 10 mutual funds from Indian market. All funds are in equity
growth category.

Data has been collected from money control, value research online, and
mutual fund India web sites.

Funds selected are mostly preferable by investors.

Bank of Baroda’s Fix deposit return is selected as risk free return, which is
8.5% p.a.

Collected NAV of funds of each quarter for the year 2010 and define return.

Defined standard deviation on the basis of Quarterly return.

Found out average return.

Defined beta of funds and market, S&P CNX Nifty index return is taken as
market return.

Found out Treynor, Sharpe and Jensen ratio and performance.

Finally we have given rank to mutual funds according to each ratio.

38
 5.2 SOURCES OF DATA

Basically there are two sources of data:

1) Primary source of data

2) Secondary Source of data

The primary data are those which are collected afresh and for first time and thus
happen to be original in character.

The secondary data are those which have been collected by someone else and which
have already been passed through statistical process.

Here in this research project we have used Secondary source of data as the return for
different mutual funds and market cannot be established by ourselves.

39
 5.3 DATA COLLECTION METHOD

While deciding about the method of data collection to be used for the study the
researcher should keep in mind two sources of data i.e. primary and secondary data.
The method for collecting primary and secondary data differ since primary data are to
be originally collected while in case of secondary data the nature of data collection
work is merely that of compilation.

There are several ways of collecting primary data.

1. Observation method
2. Interview method
3. Through questionnaires
4. Through schedules

There are several ways of collecting secondary data.

Secondary data means that are already available that is they refer to the data.
Secondary data may be either published or unpublished data usually published data
are available in:
1. Various publications of the central, state and local government

2. Various publications of foreign government or of international bodies

3. Technical and Trade journals

4. Books magazines and newspapers

5. Reports publication of various associations connected with business and

industry, banks, stocks exchanges etc.

Here in this research project we have used data which were published on the websites
of Bombay stock exchange, Money control, value research online, National stock
exchange and mutual fund India.

40
 5.4 POPULATION

Population is a collection of items of interest in research. The population represents a

group that you wish to generalize your research to.

Here in this research project we have taken the population of 46 mutual fund house in
India. Out of 46 we have selected 5 fund houses on the asset under management basis.
10 Funds across 5 fund houses have been selected. This population is based on the
type of mutual fund i.e. “Equity Growth mutualfunds”

There are various schemes available in the mutual fund like debt, equity, balanced,
guilt etc. But out of these schemes we have selected Equity growth scheme as a
population.

41
 5.5 SAMPLING METHOD

A population is a group of individual persons, objects, or items from which samples

are taken for measurement.

Sampling is the act, process, or technique of selecting a suitable sample, or a

representative part of a population for the purpose of determining parameters or
characteristics of the whole population.

Methods of Sampling:

The convenient sample

A convenience sample results when the more convenient elementary units are chosen
from a population for observation.

The judgment sample

A judgment sample is obtained according to the discretion of someone who is familiar

with the relevant characteristics of the population.

The random sample

This may be the most important type of sample. A random sample allows a known
probability that each elementary unit will be chosen. For this reason, it is sometimes
referred to as a probability sample. This is the type of sampling that is used in lotteries
and raffles.

Here in this research project we have used convenient sample method for sampling.
We have taken the Sample of “10 Equity Growth mutual funds” on the basis of
their highest annual average return in the year 2018.

42
DATA ANALYSIS &
INTERPRETATION

43
 6.1 ANALYSIS OF MUTUAL FUND PERFORMANCE

Mutual fund performance can be analyzed through performance measurement ratios which
are use in portfolio analysis. We here are using Treynor, Sharpe, and Jensen ratio to evaluate
mutual funds and rank accordingly. Composite portfolio performance measures have the
flexibility of combining risk and return performance into a single value. The most commonly
used composite measures are: Treynor, Sharpe and Jensen measures. While Treynor
measures only the systematic risk summarized by beta, Sharpe concentrates on total risk of
the mutual fund.

TREYNER’S PERFORMANCE INDEX

Treynor (1965) was the first researcher developing a composite measure of

portfolioperformance. 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
βp = beta of the portfolio

Whenever Rp> Rf and βp > 0 a larger T value means a better portfolio for all investors
Regardless of their individual risk preferences. In two cases we may have a negative T value:
when Rp < Rf or when βp < 0. If T is negative because Rp < Rf we judge the portfolio
performance as very poor. However, if

the negativity of T comes from a negative beta, fund’s performance is superb. Finally
when Rp- Rf, and βp are both negative, T will be positive.

44
Demonstration of Comparative Treynor Measures

Assume we have the following data for three mutual funds; ZBY, with their respective
annual rate of return and systematic risk, Beta. The risk free rate is 8 %. The systematic
risk for M (market) is 1.0 and the rate of return for M is 14%.

Investment Manager Rate of Return Beta

Z 0.12 0.90

B 0.16 1.05

Y 0.18 1.2

M 0.14 1.0

Table 6.1

We can calculate the T values for each investment manager:

TM (0.14-0.08) / 1.00 = 0.06

TZ (0.12-0.08) / 0.90 = 0.044

TB (0.16-0.08) / 1.05 = 0.076

TY (0.18-0.08) / 1.20 =0.083

Table 6.2

These results show that Z did not even "beat-the-market." Y had the best
performance, and both B and Y beat the market.

45
 SAMPLE OF 10 MUTUAL FUND

Company Avg. return of 2018

HDFC Equity Fund-Growth 28.4

HDFC Long Term Advantage Fund-Growth 27.6

HDFC Growth Fund-Growth 26.5

UTI MNC Fund-growth 25

HDFC Top 200 Fund-growth 24.4

ICICI Prudential Tax Plan-Growth 23.3

ICICI Prudential Power Plan-Growth 21.2

Birla Sun Life Buy India Fund-Growth 22.4

Birla Sun Life long Advantage Fund-Growth 20.5

Reliance Growth Fund-Growth Plan 16.1

Table 6.3

46
 TREYNER’S PERFORMANCE INDEX

Particulars Rp Rf Beta Treynor

index

HDFC Equity Fund-Growth 28.4 8.5 1.06 18.77

HDFC Long Term Advantage Fund-Growth 27.6 8.5 0.91 20.98

HDFC Growth Fund-Growth 26.5 8.5 0.97 18.55

UTI MNC Fund-growth 25 8.5 0.44 37.5

HDFC Top 200 Fund-growth 24.4 8.5 0.97 16.39

ICICI Prudential Tax Plan-Growth 23.3 8.5 0.46 32.17

ICICI Prudential Power Plan-Growth 21.2 8.5 0.82 15.49

Birla Sun Life Buy India Fund-Growth 22.4 8.5 1.18 11.78

Birla Sun Life long Advantage Fund-Growth 20.5 8.5 0.66 18.18

Reliance Growth Fund-Growth Plan 16.1 8.5 0.54 14.07

Market Return 14.32 8.5 1 5.82

Table 6.4

47
 RANKING ACCORDING TO TREYNER

Rank Particulars

1 UTI MNC Fund-growth

2 ICICI Prudential Tax Plan-Growth

3 HDFC Long Term Advantage Fund-Growth

4 HDFC Equity Fund-Growth

5 HDFC Growth Fund-Growth

6 Birla Sun Life long Advantage Fund

7 HDFC Top 200 Fund-growth

8 ICICI Prudential Power Plan-Growth

9 Reliance Growth Fund-Growth Plan

10 Birla Sun Life Buy India Fund-Growth

11 Market return

Table 6.5

48
 INTERPRETATION

In our analysis we have given ranks on the basis of higher Treyner’s index.
Higher Treyner’s index gets 1st rank. Treyner’s performance index measures
(Beta) systematic risk of portfolio. This model does not consider total
risk (systematic risk + unsystematic risk).

In our analysis we have found out that UTI MNC fund – growth has lower
beta i.e. 0.44 as compared to other nine funds. Same way Birla Sun Life Buy
India fund - growth has higher beta i.e. 1.18.

This analysis represents that UTI MNC fund – growth gets higher Treyner’s
performance index and it stands on first rank. Same way Birla Sun Life Buy India
fund – growth gets lower Treyner’s performance index and it stands on last rank.

This analysis also represents that though HDFC equity fund growth has higher return
i.e. 28.4 as compared to other nine funds, it stands on fourth rank as it is having
higher beta i.e. 1.06.

Thus at last we want to conclude that according to Treyner’s Performance

Index, it is not necessary that fund with higher return is always well performing fund
and stands on first rank because we also have to consider risk associated with that
fund.

49
SHARPE’S PERFORMANCE INDEX

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

Sharpe index, evaluates funds performance based on both rate of return and diversification.
For a completely diversified portfolio Treynor and Sharpe indices would give identical
rankings

Demonstration of Comparative Sharpe Measures

Assume we have the following data for three portfolios; BOP, with their respective
annual rate of return and standard deviation of their return. The risk free rate is 8 %.
The standard deviation for M (market) is 0.20 and the rate of return for M is 14%.

Portfolio Annual rate of Return S.D of Return

B 0.13 0.18

O 0.17 0.22

P 0.16 0.23

M 0.14 0.20

Table 6.6

50
We can calculate the S values for each portfolio.

B (0.13-0.08) / 0.18 = 0.278

O (0.17-0.08) / 0.22 = 0.409

P (0.16-0.08) / 0.23 = 0.348

M (0.14-0.08) / 0.20 = 0.30

Table 6.7

Thus, portfolio O did the best, and B failed to beat the market.

The trouble with both Sharpe and Treynor techniques for evaluating "risk-adjusted"
returns is that they equate risk with short-term volatility. Therefore these measures
may not be applicable in evaluating the relative merits of long-term investments

51
 SHARPE’S PERFORMANCE INDEX

Particulars Rp Rf Standard Sharpe

deviation index

HDFC Equity Fund-Growth 28.4 8.5 7.21 2.76

HDFC Long Term Advantage Fund-Growth 27.6 8.5 6.07 3.14

HDFC Growth Fund-Growth 26.5 8.5 6.42 2.80

UTI MNC Fund-growth 25 8.5 4.57 3.61

HDFC Top 200 Fund-growth 24.4 8.5 6.73 2.36

ICICI Prudential Tax Plan-Growth 23.3 8.5 4.85 3.05

ICICI Prudential Power Plan-Growth 21.2 8.5 6.31 2.01

Birla Sun Life Buy India Fund-Growth 22.4 8.5 8.1 1.71

Birla Sun Life long Advantage Fund-Growth 20.5 8.5 5.77 2.08

Reliance Growth Fund-Growth Plan 16.1 8.5 5.39 1.41

Market return 14.32 8.5 4.18 1.39

Table 6.8

52
 RANKING ACCORDING TO SHARPE

Rank Particulars

1 UTI MNC Fund-growth

2 HDFC Long Term Advantage Fund-Growth

3 ICICI Prudential Tax Plan-Growth

4 HDFC Growth Fund-Growth

5 HDFC Equity Fund-Growth

6 HDFC Top 200 Fund-growth

7 Birla Sun Life long Advantage Fund

8 ICICI Prudential Power Plan-Growth

9 Birla Sun Life Buy India Fund-Growth

10 Reliance Growth Fund-Growth Plan

11 Market return

Table 6.9

53
 INTERPRETATION

In our analysis we have given ranks on the basis of higher Sharpe’s index. Higher
Sharpe’s index gets 1st rank. Sharpe’s performance index measures standard
deviation of portfolio. This model considers total risk i.e. both systematic risk and
unsystematic risk.

In our analysis we have found out that UTI MNC fund – growth has a return of 25
and on the basis of return it stands on fourth rank but its standard deviation is 4.57
which is lower as compared to other nine funds.

This thing indicates that UTI MNC Fund stands on first rank because it is providing
good return with lower risk.

We have analyzed that Reliance Growth Fund – growth plan also has lower standard
deviation and then also it stands on last rank according to Sharpe’s performance
index. The reason behind this is that this fund is providing lower return as compared
to other nine funds. This thing indicates that Reliance Growth Fund stands on last
rank because it is providing lower return with lower risk.

This analysis also represents that though HDFC equity fund growth has higher return
i.e. 28.4 as compared to other nine funds, it stands on fifth rank as it is having higher
standard deviation i.e. 7.21.

Thus at last we want to conclude that according to Sharpe’s Performance

Index, it is not necessary that fund with higher return is always well performing fund
and stands on first rank because we also have to consider risk associated with that
fund. Further return of fund should also be good enough; it should not be so lower.

54
JENSEN’S ALPHA

Jensen (1968), on the other hand, writes the following formula in terms of
realized rates of return, assuming that CAPM is empirically valid.

Jensen uses α as his performance measure. A superior portfolio manager

would have a significant positive α value because of the consistent positive
residuals. Inferior managers, on the other hand, would have a significant
negative α. 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 Treynor measure, does not evaluate
the ability of portfolio managers to diversify, since the risk premiums are
calculated in terms of β.

If the value is positive, and then the portfolio is earning excess returns. In
other words, a positive value for Jensen's alpha means a fund manager has
beat the market with his or her stock picking skills.

55
 JENSEN’S PERFORMANCE INDEX

Particulars Rp Rf Rm Beta Jensen

index

HDFC Equity Fund-Growth 28.4 8.5 14.32 1.06 13.73

HDFC Long Term Advantage Fund Growth 27.6 8.5 14.32 0.91 13.80

HDFC Growth Fund-Growth 26.5 8.5 14.32 0.97 12.3

UTI MNC Fund-growth 25 8.5 14.32 0.44 13.93

HDFC Top 200 Fund-growth 24.4 8.5 14.32 0.97 10.25

ICICI Prudential Tax Plan-Growth 23.3 8.5 14.32 0.46 12.12

ICICI Prudential Power Plan-Growth 21.2 8.5 14.32 0.82 7.92

Birla Sun Life Buy India Fund-Growth 22.4 8.5 14.32 1.18 7.03

Birla Sun Life long Advantage Fund Growth 20.5 8.5 14.32 0.66 8.16

Reliance Growth Fund-Growth Plan 16.1 8.5 14.32 0.54 4.46

Table 6.10

56
 RANKING ACCORDING TO JENSEN

Rank Particulars

1 UTI MNC Fund-growth

2 HDFC Long Term Advantage Fund-Growth

3 HDFC Equity Fund-Growth

4 HDFC Growth Fund-Growth

5 ICICI Prudential Tax Plan-Growth

6 HDFC Top 200 Fund-growth

7 Birla Sun Life long Advantage

8 ICICI Prudential Power Plan-Growth

9 Birla Sun Life Buy India Fund-Growth

10 Reliance Growth Fund-Growth Plans

Table 6.11

57
 INTERPRETATION

In our analysis we have given ranks on the basis of higher Jensen’s index. Higher
Jensen’s index gets 1st rank. Jensen’s performance index measures alpha of portfolio.
This model indicates that higher the value of alpha, higher is the ability of a fund
manager to select good fund.

We have analyzed that alpha of UTI MNC Fund – growth is very high i.e. 13.93 as
compared to other nine funds and it stands on first rank. This positive value of alpha
indicates that fund manager is able to select UTI MNC fund as a good fund.

We have also analyzed that alpha of Reliance Growth Fund is lower. This may be due
to its lower return. Thus though the risk associated with Reliance Growth Fund is
lower, its alpha value is lower because of its lower return.

Finally we want to conclude that according to Jensens’s alpha, the value of alpha not
only depends on the return of the fund but also on the risk associated with that fund.
Value of alpha should be always positive.

58
 COMPARISION OF TREYNOR, SHARPE & JENSEN’S INDEX

RANK TREYNOR RANK SHARPE RANK JENSEN

1 UTI MNC Fund- 1 UTI MNC Fund- 1 UTI MNC

growth growth Fund-growth

2 ICICI Prudential 2 HDFC Long 2 HDFC Long

Tax Plan- Term Term
Growth Advantage Advantage
Fund-Growth Fund-Growth

3 HDFC Long 3 ICICI Prudential 3 HDFC Equity

Term Tax Plan- Fund-Growth
Advantage Growth
Fund-Growth

4 HDFC Equity 4 HDFC Growth 4 HDFC Growth

Fund-Growth Fund-Growth Fund-Growth

5 HDFC Growth 5 HDFC Equity 5 ICICI Prudential

Fund-Growth Fund-Growth Tax Plan-
Growth

6 Birla Sun Life 6 HDFC Top 200 6 HDFC Top 200

long Advantage Fund-growth Fund-growth
Fund

7 HDFC Top 200 7 Birla Sun Life 7 Birla Sun Life

Fund-growth long Advantage long Advantage
Fund Fund

59
 8 ICICI Prudential 8 ICICI Prudential 8 ICICI Prudential
Power Plan- Power Plan- Power Plan-
Growth Growth Growth

9 Reliance 9 Birla Sun Life 9 Birla Sun Life

Growth Fund- Buy India Fund- Buy India Fund-
Growth Plan Growth Growth

10 Birla Sun Life 10 Reliance 10 Reliance

Buy India Fund- Growth Fund- Growth Fund-
Growth Growth Plan
Growth Plans

Table 6.12

ANALYSIS

The fact that Sharpe uses Standard deviation as a measurement of risk which is the
total risk and Treynor uses Beta or systematic risk, but yet it is claimed that, if we are
examining a well-diversified portfolio, the rankings should be similar for all three
methods. Due to this interesting theory we have decided to analyse the performance
of the portfolios and they will be ranked identically according to all three; Sharpe’s,
Treynor’s and Jensen’s performance measurement. UTI MNC Fund – growth get 1st
rank from all three method.

From this analysis we have found out similarity in Sharpe and Jensen’s model
because more schemes are on similar positions in these two models. Another reason
behind this is that Sharpe measures total risk and Jensen measures the predictive
ability of manager, where manager always consider total risk while selecting the
security. Due to this reason both models indicate similar positions for more schemes.

60
 RESULTS AND FINDINGS

The study done on the performance evaluation of Indian mutual funds was fruitful as
all the objectives of the study were successfully achieved. The following are the
findings from this study.

The schemes selected for the study gave returns in synchronization with the
markets. When there was boom in the stock market the funds gave positive
returns a little more than what the market had given. During the recessionary
phase the markets declined steadily and so did the fund returns. Overall the
fund returns and the market returns, for the period of 1 year taken into
consideration for this study.

Mostly all the mutual fund schemes are able to beat the market. That means
the schemes are well diversified.

From the entire 10 schemes best scheme is UTI MNC fund growth because in
all the three models it stands on 1st rank and also it provides good return.

From this analysis we have found out similarity in Sharpe and Jensen’s model
because more schemes are on similar positions in these two models. Another reason
behind this is that Sharpe measures total risk and Jensen measures the predictive
ability of manager, where manager always consider total risk while selecting the
security. Due to this reason both models indicate similar positions for more schemes.

61
 LIMITATIONS OF THE STUDY

We have selected 5 fund houses out of 46 fund houses due to

time constrains. We have not studied all types of mutual fund of
46 fund houses. We have studied only equity growth fund. We
also have not studied all schemes of 5 mutual fund houses. These
schemes we have selected randomly.

Since the funds selected for this study were open ended equity
based growth mutual funds the fund composition kept on
changing over the time period, so it became difficult to
understand the fund properties as historical data pertaining to the
fund composition was not available.

Because of unavailability of historical data and fund composition

it was difficult to ascertain the performance of the fund
properties and a simple evaluation was done against the market
performance.

62
 CONCLUSION AND SUGGESTION

Mutual funds are one of the most highly growing products in financial services
market. Mutual funds are suitable for all types of investors from risk adverse
to risk bearer. Mutual funds have many options of return, risk free return,
constant return, market associated returned. mutual funds are suitable to all age
of investors, businessmen, salary person, etc. Investors need not to be expert
in equity market; mutual funds can satisfy their need. Fund managers are
expert in this area and invest fund in well diversified portfolio, high return
with low risk is possible inn mutual fund.

In today’s world, investors are showing more trust in mutual fund than any
other financial product. There is no need of a financial consultant, if you have
good knowledge of mutual funds and their type to invest.

Mutual fund is subject to market risk, despite of that it have low risk than
stock market. This is proved in performance evaluation section of this report.
Performance evaluation measurement ratios i.e. Treynor’s, Sharpe’s and
Jensen’s are used by fund managers to take decision of investment and to
diversify portfolio.

Mutual Fund is subject to market risk, analyzing particular fund before

investing.

Study historical return of funds, risk measurement ratios to evaluate

fund.

There should be similarity in your and fund’s objective.

For high return invest in diversified funds, for tax saving invest in
ELSS equity funds, for moderate risk and return invest in balance
funds, for assure return invest in debt and liquid funds.

As per our opinion, investor should invest around 30% in mutual fund.

63
ANNEXURE

64
Appendix-1

1.1 RETURNS OF MUTUAL FUNDS FOR THE YEAR 2018

HDFC Equity Fund-Growth

Quarter MUTUALFUND RETURN

1 1.6
2 6.3
3 18

4 -0.7

HDFC Long Term Advantage Fund-Growth

Quarter MUTUALFUND RETURN

1 2

2 5.2

3 16.2

4 0.8

HDFC Growth Fund-Growth

Quarter MUTUALFUND RETURN

1 1.1

2 7.9

3 15.4

4 -1

65
UTI MNC Fund-growth

Quarter MUTUALFUND RETURN

1 3.6

2 8.5

3 10.6

4 -1.2

HDFC Top 200 Fund-growth

Quarter MUTUALFUND RETURN

1 1.3

2 5.2

3 16.5

4 -1

ICICI Prudential Tax PlanGrowth

Quarter MUTUALFUND RETURN

1 4

2 3.2

3 13

4 -0.1

66
ICICI Prudential Power Plan-Growth

Quarter MUTUALFUND RETURN

1 1.6

2 2.7

3 15.4

4 -0.9

Birla Sun Life Buy India Fund-

Growth

Quarter MUTUALFUND RETURN

1 -0.9

2 9.2

3 16.1

4 -4.3

Birla Sun Life long Advantage Fund-Growth

Quarter MUTUALFUND RETURN

1 2.2

2 2.9

3 13.9

4 -1.6

67
Reliance Growth Fund-Growth Plan

Quarter MUTUALFUND RETURN

1 1.8

2 3.4

3 11.6

4 -3.4

1.2 RETURN OF INDEX FOR THE YEAR 2010

Quarter INDEX

1 -0.83212576

2 7.45889986

3 10.38704985

4 7.3703972

68
Appendix 2

2.1 CALCULATION OF BETA

Beta is the measure of volatility of a stock, fund, portfolio, etc with respect to the
market. If the beta is positive then the fund returns are directly proportional to the
market returns and if the beta is negative then the fund returns are inversely
proportional to the market.

Formula:

Where,
βa= fund beta
Cov (ra,rp) = covariance of the returns of the fund and the market, Var
rp = variance of the market returns.

HDFC Equity Fund-Growth

Quarter Mutual Fund Return Index Reurn Beta

1 1.6 -0.832125759

2 6.3 7.45889986 1.056558

3 18 10.38704985

4 -0.7 7.3703972

69
HDFC Long Term Advantage Fund-Growth

Quarter Mutual Fund Return Index Return Beta

1 2 -0.832125759

2 5.2 7.45889986 0.912301

3 16.2 10.38704985

4 0.8 7.3703972

HDFC Growth Fund-Growth

Quarter Mutual Fund Return Index Return Beta

1 1.1 -0.832125759

2 7.9 7.45889986 0.972227

3 15.4 10.38704985

4 -1 7.3703972

UTI MNC Fund-growth

Quarter Mutual Fund Return Index Return Beta

1 3.6 -0.832125759

2 8.5 7.45889986 0.43778

3 10.6 10.38704985

4 -1.2 7.3703972

70
HDFC Top 200 Fund-growth

Quarter Mutual Fund Return Index Return Beta

1 1.3 -0.832125759

2 5.2 7.45889986 0.967288

3 16.5 10.38704985

4 -1 7.3703972

ICICI Prudential Tax Plan-Growth

Quarter Mutual Fund Return Index Return Beta

1 4 -0.832125759

2 3.2 7.45889986 0.462186

3 13 10.38704985

4 -0.1 7.3703972

ICICI Prudential Power Plan-Growth

Quarter Mutual Fund Return Index Return Beta

1 1.6 -0.832125759

2 2.7 7.45889986 0.823094

3 15.4 10.38704985

4 -0.9 7.3703972

71
Birla Sun Life Buy India Fund-Growth

Quarter Mutual Fund Return Index Return Beta

1 -0.9 -0.832125759

2 9.2 7.45889986 1.178632

3 16.1 10.38704985

4 -4.3 7.3703972

Birla Sun Life long Advantage Fund-Growth

Quarter Mutual Fund Index Return Beta

Return

1 2.2 -0.832125759

2 2.9 7.45889986 0.662666

3 13.9 10.38704985

4 -1.6 7.3703972

Reliance Growth Fund-Growth Plan

Quarter Mutual Fund Return Index Return Beta

1 1.8 -0.832125759

2 3.4 7.45889986 0.538042

3 11.6 10.38704985

4 -3.4 7.3703972

72
 2.1 CALCULATION OF STANDARD DEVIATION

Standard Deviation is a tool which measures the variability of data the set. It is calculated to
measure the riskiness of a fund, stock or portfolio. Higher the standard deviation means
higher the risk and higher the returns of the asset and a low standard deviation mans that the
asset is less risky and will generate less returns.

The standard deviation of the fund returns are calculated with the following formula:

Where,

S = Standard Deviation

N = number of quarters in the period

X = mean of theperiod’sreturn

Xi = return of the corresponding week.

HDFC Equity Fund-Growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 1.6 6.3 -4.7 22.09

2 6.3 6.3 0 0

3 18 6.3 11.7 136.89

4 -0.7 6.3 -7 49

Total Σ x=25.2 Σ( x-x)² =207.9 7.21

73
HDFC Long Term Advantage Fund-Growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 2 6.05 -4.05 16.4

2 5.2 6.05 -0.85 0.72

3 16.2 6.05 10.15 103.02

4 0.8 6.05 -5.25 27.56

Total Σ x=24.2 Σ( x-x)²= 147.7 6.07

HDFC Growth Fund-Growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 1.1 5.85 -4.75 22.5625

2 7.9 5.85 2.05 4.2025

3 15.4 5.85 9.55 91.2025

4 -1 5.85 -6.85 46.9225

Total Σ x=23.4 Σ( x-x)²= 164.8 6.42

74
UTI MNC Fund-growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 3.6 5.375 -1.775 3.150625

2 8.5 5.375 3.125 9.765625

3 10.6 5.375 5.225 27.30063

4 -1.2 5.375 -6.575 43.23063

Total Σ x=21.5 Σ( x-x)² =83.44 4.57

HDFC Top 200 Fund-growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 1.3 5.5 -4.2 17.64

2 5.2 5.5 -0.3 0.09

3 16.5 5.5 11 121

4 -1 5.5 -6.5 42.25

Total Σ x= 22 Σ( x-x)² =180.9 6.73

75
ICICI Prudential Tax Plan-Growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 4 5.025 -1.025 1.050625

2 3.2 5.025 -1.825 3.330625

3 13 5.025 7.975 63.60063

4 -0.1 5.025 -5.125 26.26563

Total Σ x=20.1 Σ( x-x)² =94.24 4.85

ICICI Prudential Power Plan-Growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 1.6 4.7 -3.1 9.61

2 2.7 4.7 -2 4

3 15.4 4.7 10.7 114.49

4 -0.9 4.7 -5.6 31.36

Total Σ x=18.8 Σ( x-x)² =159.4 6.31

76
Birla Sun Life Buy India Fund-Growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 -0.9 5.025 -5.925 35.10563

2 9.2 5.025 4.175 17.43063

3 16.1 5.025 11.075 122.6556

4 -4.3 5.025 -9.325 86.95563

Total Σ x=20.1 Σ( x-x)² =262.1 8.1

Birla Sun Life long Advantage Fund-Growth

Quarter x x (x-x) ( x - x )² Standard

deviation

1 2.2 4.35 -2.15 4.6225

2 2.9 4.35 -1.45 2.1025

3 13.9 4.35 9.55 91.2025

4 -1.6 4.35 -5.95 35.4025

Total Σ x=17.4 Σ( x-x)² =133.3 5.77

77
Reliance Growth Fund-Growth Plan

Quarter x x (x-x) ( x - x )² Standard

deviation

1 1.8 3.35 -1.55 2.4025

2 3.4 3.35 0.05 0.0025

3 11.6 3.35 8.25 68.0625

4 -3.4 3.35 -6.75 45.5625

Total Σ x=13.4 Σ( x-x)² =116 5.39

Market Return

Quarter x x (x-x) ( x - x )² Standard

deviation

1 -0.83 6.1 -6.93 48.05

2 7.46 6.1 1.35 1.84

3 10.39 6.1 4.28 18.37

4 7.37 6.1 1.27 1.61

Total 24.38 69.89 4.18

78
BIBLIOGRAPHY

79
BOOKS AND PAPERS
Reilly / Brown “Investments Analysis and Portfolio Management”, Ch 25
“Evaluation of Portfolio Performance” Page No: - 1040– 1051

Fisher and Jordan “Security analysis and portfolio management”, Ch 20

“Managed portfolio and performance measurements” Page No: - 663 - 677

S. Kevin “PortfolioManagement”, Ch 14 “Portfolio Evaluation” Page No: - 197 -

212

Dr. Rao, Narayan “Performance Evaluation of Indian Mutual Funds”,

www.ssrn.com, paperno.433100 and PP.1-24

Prof. Banerjee, Ashok et. Al (2007),”Performance Evaluation of IndianMutual

Funds vis-à-vis their style benchmarks”,www.ssrn.com,paperno.962827 and PP.1-
18

Panwar,Sharad and Dr. Madhumathi (2006), “Characteristics andperformance

evaluation of selected mutual funds in India”,www.ssrn.com, paperno.876402 and
PP. 1-19

Bhattacharjee,Kaushik and Prof. Roy,Bijan (2006), “Fund Performance

Measurement Without Benchmark - A Case Of Select Indian Mutual
Funds”,www.ssrn.com, paperno.962035 and PP. 1-10

Ahmed,Parvez; Gangopadhyay, Partha & Nanda, Sudhir (2001),

“Performance of Emerging Market Mutual Funds”, www.ssrn.com,paper
no.289278 and PP. 1-41

Rao,D.N. (2006), “4 Step model to evaluate performance of Mutual Fundsin

Saudi Arabia”www.ssrn.com, paperno.946937 and PP. 1-16

Kothari,S.P. and Warner,Jerold (1997), “Evaluating Mutual

FundPerformance”,www.ssrn.com, paperno.75871 and PP. 1-46

80
Websites

www.articlebase.com

www.amfiindia.com

www.financeresearch.net

www.bseindia.com

www.nseindia.com

www.karvy.com

www.moneycontrol.com

www.mutualfundsindia.com

www.amfiindia.com

81