Performance measures of different mutual funds

SUBMITTED TO : PROF.ANIRUDDH DURAFE

SUBMITTED BY : rajnish dwivedi Subham Rahul choubey

MBA III SEM B

Devi Ahilya VishwaVidyalaya Indore (M.P)

ACKNOWLEDGEMENT

No academic task and especially, this project can be completed without able scholarly guidance. We take opportunity to extend our feelings of gratitude towards our project guide Prof. Aniruddh Durafe who helped us in accomplishing the task assigned. He is always ready to solve our problems that we faced during the process. Without that, our project would not have been what it is. We also thank Cerebral Heights Institute of Management &commerce for providing us with all facilities, scholarly advice and an excellent working atmosphere.

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CONTENTS

INTRODUCTION OF MUTUAL FUND OBJECTIVES OF A MUTUAL FUND STRUCTURE OF A MUTUAL FUND PERFORMANCE MEASURES OF MUTUAL FUNDS: 1. HDFC MUTUAL FUND 2. UTI MUTUAL FUND 3. TATA MUTUAL FUN OBSERVATIONS CONCLUSION BIBLIOGRAPHY

 INTRODUCTION TO MUTUAL FUNDS:

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 then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a Mutual Fund.

A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in Equity shares, Government securities, Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to indirectly take a position in a basket of assets.

Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in

securities are spread among a wide cross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders.

OBJECTIVES OF A MUTUAL FUND:

To Provide an opportunity for lower income groups to acquire without Much difficulty, property in the form of shares. To Cater mainly of the need of individual investors, whose means are small? To Manage investors portfolio that provides regular income, growth, Safety, liquidity, tax advantage, professional management and diversification.

STRUCTURE OF A MUTUAL FUND:

 PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 30 players and more than six hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too.

Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different Mutual Funds. Worldwide, good Mutual Fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. Return alone should not be considered as the basis of measurement of the performance of a Mutual Fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as Variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities, present in the market, called Market risk or Systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund.

The most important and widely used measures of performance are:

The TreynorMeasure The Sharpe Measure Jenson Model

1.The Treynor Measure:Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index.This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk

associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return, and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance.

2. The Sharpe Measure :In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund, Ri represents return on fund, and Rf is risk free rate of return.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance. . 3. Jenson Model:Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund1 given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf) Where, Ri represents return on fund, and Rm is average market return during the given period, Rf is risk free rate of return, and Bi is Beta deviation of the fund.

After calculating it, Alpha can be obtained by subtracting required return from the actual return of the fund.

Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is primitive.

HDFC MUTUAL FUND

HDFC MUTUAL FUND is one of the largest mutual funds and well-established fund house in the country with consistent fund performance across categories since its incorporation on December 10, 1999. While our past experience does make us a veteran, but when it comes to investments, we have never believed that the experience is enough. The single most important factor that drives HDFC Mutual Fund is its belief to give the investor the chance to profitably invest in the financial market, without constantly worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to conduct all the fundamental research and back it up with effective analysis. Our strong emphasis on managing and controlling portfolio risk avoids chasing the latest "fads" and trends.

HDFC BALANCED FUND GROWTH OBJECTIVE

The primary objective of the Scheme is to generate capital appreciation along with current income form a combined portfolio of equity & equity related and debt & money market instruments

Fund feature
Type of Scheme Nature Open Ended Equity & Debt

Option Inception Date Face Value (Rs/Unit) Fund Size in Rs. Cr.

Growth Sep 11, 2000 10 0 as on Mar 30, 2012

RISK AND RETURN

SCHEME PERFORMANCE (%) AS ON APR 13, 2012 1 Month -1.27 3 Months 10.70 6 Months 5.05 1 Year 2.98 3 Years 27.26 5 Years 14.10 Since Inception 16.41

RISK
Mean 0.39 Treynor Sortino Correlation Fama 0.32 0.16 0.87 0.21

Standard Deviation 2.52 Sharpe Beta 0.11 0.88

HDFC EQUITY FUND GROWTH

Aims at providing capital appreciation through investments predominantly in equity oriented securities Fund features

Fund feature
Type of Scheme Nature Option Open Ended Equity Growth

Inception Date

Jan 1, 1995

RISK AND RETURN

SCHEME PERFORMANCE (%) AS ON APR 13, 2012 1 3 6 1 3 5 Since Month Months Months Year Years Years Inception -3.63 10.67 3.40 28.57 11.98 10.57 20.67

RISK
Mean Standard Deviation Sharpe Beta 0.43 3.77 0.09 0.90 Treynor Sortino 0.36 0.13

Correlation 0.89 Fama 0.20

HDFC EQUITY FUND DIVIDEND Objective

Aims at providing capital appreciation through investments predominantly in equity oriented securities
Type of Scheme Nature Option Inception Date Open Ended Equity Income/Dividend Jan 1, 1995

Face Value (Rs/Unit) Fund Size in Rs. Cr.

10 0 as on Mar 30, 2012

SCHEME PERFORMANCE ( %) AS ON APR 13, 201 2

1 Month -3.63 3 Months 10.67 6 Months 3.40 1 Year -10.57 3 Years 28.63 5 Years 11.99 Since Inception 13.44

Mean Standard Deviation Sharpe Beta

0.43 3.77 0.09 0.90

Treynor Sortino Correlation Fama

0.36 0.13 0.89 0.20

UTI Mutual Fund aims to deliver consistent and stable returns in the medium to long term. With a fairly lower volatility of fund returns, compared to the broad market, we offer a balanced and well diversified portfolio based on rigorous in-house research. UTI Mutual Funds investment philosophy is to deliver consistent and stable returns in the medium to long term with a fairly lower volatility of fund returns compared to the broad market. It believes in having a balanced and well-diversified portfolio for all the funds and a rigorous in-house research based approach to all its investments. It is committed to adopt and maintain good fund management practices and a process based investment management. UTI Mutual Fund follows an investment approach of giving as equal an importance to asset allocation and sectoral allocation, as is given to security selection while managing any fund. It combines topdown and bottom-up approaches to enable the portfolios/funds to adapt to different market conditions so as to prevent missing an investment opportunity.

UTI BALANCED FUND GROWTH

Aims to invest in portfolio of equity/equity related securities and fixed income securities (debt & money market instruments) with a view to generating regular income together with capital appreciation
Type of Scheme Nature Option

Open Ended Equity & Debt Growth

Inception Date Face Value (Rs/Unit) Fund Size in Rs. Cr.

Jan 20, 1995 10 943.12 as on Mar 31, 2012

SCHEME PERFORMANCE ( %) AS ON APR 13, 201 2

1 Month -2.00 3 Months 7.61 6 Months 2.62 1 Year -6.79 3 Years 16.83 5 Years 7.48 Since Inception 13.09

Mean Standard Deviation Sharpe Beta

0.27 2.72 0.06 0.98

Treynor Sortino Correlation Fama

0.17 0.10 0.96 0.09

UTI EQUITY FUND GROWTH

The principal investment objective is to provide long term capital appreciation through investment in the securities market in India.
Type of Scheme Nature Option Inception Date Face Value (Rs/Unit) Fund Size in Rs. Cr.

Open Ended Equity Growth Apr 20, 1992 10 2020.11 as on Mar 31, 2012

SCHEME PERFORMANCE ( %) AS ON APR 13, 2012

1 Month -1.99 3 Months 10.00 6 Months 5.64 1 Year -4.05 3 Years 24.00 5 Years 11.56 Since Inception 9.43

UTI EQUITY FUND DIVIDEND

The principal investment objective is to provide long term capital appreciation through investment in the securities market in India.
Type of Scheme Nature Option Inception Date Face Value (Rs/Unit) Fund Size in Rs. Cr.

Open Ended Equity Income/Dividend Apr 20, 1992 10 2020.11 as on Mar 31, 2012

SCHEME PERFORMANCE ( %) AS ON APR 13, 2012

1 Month -1.99 3 Months 10.02 6 Months 5.67 1 Year -4.00 3 Years 23.96 5 Years 11.40 Since Inception 9.24

Mean Standard Deviation Sharpe Beta

0.34 3.08 0.08 0.73

Treynor Sortino Correlation Fama

0.33 0.12 0.71 0.13

TATA MUTUAL FUND

Tata Mutual Fund manages around 19,818.00 crores (average AUM for the quarter of January March 2012) worth of assets across its varied offerings. Tata Mutual Fund offers an investment option for everyone, whether you are a businessman or salaried professional, a retired person or housewife, an aggressive investor or a conservative capital builder. The Tata Asset Management philosophy is centred on seeking consistent, long-term results. Tata Asset Management aims at overall excellence, within the framework of transparent and rigorous risk controls. Tata mutual fund constantly benchmark our efforts against these tenets of performance: Tata mutual fund strive to deliver consistent results through our value-based investing methodology, keeping alive the credo of the late doyen of the Tata Group, Mr. J.R.D. Tata, that money received from the people should go back to them several times over. Tata mutual fund offer a wide range of services to assist investors have a fulfilling and rewarding financial planning experience with us. We have designed our services keeping in mind the needs of our investors, giving them a smooth and hassle-free financial planning process.

TATA BALANCED FUND GROWTH

Aims to invest in equity and debt oriented securities so as to give investor balanced returns.
Type of Scheme Nature Option Inception Date Face Value (Rs/Unit) Fund Size in Rs. Cr.

Open Ended Equity & Debt Growth Oct 8, 1995 10 0 as on Mar 31, 2012

CHEME PERFORMANCE (%) AS ON APR 13, 2012

1 Month -0.10 3 Months 9.49 6 Months 6.76 1 Year 1.52 3 Years 23.04 5 Years 11.21 Since Inception 14.24

Mean Standard Deviation Sharpe Beta

0.35 2.83 0.09 1.00

Treynor Sortino Correlation Fama

0.24 0.13 0.98 0.16

TATA EQUITY P/E FUND GROWTH

To provide reasonable & regular income along with possible capital appreciation to its unitholders.
Type of Scheme Nature Option Inception Date Face Value (Rs/Unit)

Open Ended Equity Growth Jun 29, 2004 10

Fund Size in Rs. Cr.

0 as on Mar 31, 2012

Mean Standard Deviation Sharpe Beta

0.35 3.56 0.07 0.79

Treynor Sortino Correlation Fama

0.31 0.10 0.76 0.13

TATA EQUITY P/E FUND DIVIDEND

To provide reasonable & regular income along with possible capital appreciation to its unitholders
Type of Scheme Nature Option Inception Date Face Value (Rs/Unit) Fund Size in Rs. Cr.

Open Ended Equity Income/Dividend Jun 29, 2004 10 0 as on Mar 31, 2012

SCHEME PERFORMANCE ( %) AS ON APR 13, 201 2

1 Month -4.41 3 Months 10.54 6 Months 7.52 1 Year -7.27 3 Years 24.87 5 Years 12.86 Since Inception 21.26

Mean Standard Deviation Sharpe Beta

0.35 3.58 0.07 0.79

Treynor Sortino Correlation Fama

0.31 0.11 0.77 0.14

OBSERVATIONS;
The following observations are drawn from the analysis of schemes:

HDFC INFRASTRUCTURE FUND

BIRLA SUN LIFE INFRASTRUCTURE

ICICI PRUDENTIAL INFRASTRUCTURE

FUND

FUND

Sharpes Ratio

0.14

0.11

0.07

Treynors Ratio

0.03

0.33

0.21

Co-efficient ()

0.55

0.87

0.90

Std.Deviation ()

0.12

2.58

2.56

BIBLIOGRAPHY

www.amfiindia.com www.hdfcmf.com. www.birlasunlifemf.com www.iciciprudentialmf.com