Performance evaluation of mutual fund

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A
COMPREHENSIVE PROJECT REPORT
ON
“PERFORMANCE EVALUATION OF MUTUAL FUND”
SUBMITTED TO
INDUS INSTITUTE OF MANAGEMENT STUDIES
IN PARTIAL FULLFILLMENT OF THE
REQUIREMENT OF THE AWARD FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
UNDER THE GUIDENCE OF
PROF. VISHAL GOEL
SUBMITTED BY
MAYANK MAKANI – IU1555550014
INDUS INSTITUTE OF MANAGEMENT STUDIES
M.B.A PROGRAMME
AHMEDABAD
MAY – 2017

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PREFACE
This project provides an opportunity to demonstrate application of my knowledge,
skill and competencies required during the financial session. This project helps me to
devote my skill to analyze the problem to suggest alternative solutions and to evaluate
them.
I have worked on the topic is “PERFORMANCE EVALUATION OFMUTUAL
FUND”.
I have put my level best to prepare my project an error free project every effort has
been made to offer the most authenticate position with accuracy.

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CERTIFICATE
To whom it may concern
This is to certify that Mr. Mayank Makani Enrolment No. IU1555550014 of MBA
is Bonafide regular student of Indus Institute of Management Studies, Indus
University Ahmedabad for the session 2015-17.
They have completed the functional project report entitled “Performance
Evaluation of Mutual Fund” as a part fulfillment for the award of MBA degree
under Indus University, Ahmedabad.
I find the research report is up to standard and original one.
(Prof. Vishal Goel)
Faculty Guide

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ACKNOWLEDGEMENT
I would like to express my profound gratitude to all those who have been instrumental
in the preparation of this report which has been prepared in partial fulfillment of
Comprehensive Project in the Semester IV of an MBA programme.
This project could only be completed with the assistance of Prof. Vishal Goel having
being a valued guide.
Finally i would like to thank my Parents, Family, Friends and God almighty for their
unending inspiration and encouragement.
Place: Ahmedabad Mayank H. Makani
(IU1555550014)
Date:

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DECLARATION
I, Mayank H. Makani, hereby declare that the report for “Comprehensive Project”
entitled “Performance Evaluation of Mutual Funds” is the result of my own work
and my indebtness to other work publications, references, if any, have been duly
acknowledged.
Place: Ahmedabad Mayank H. Makani
(IU1555550014)
Date:

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EXECUTIVE SUMMARY
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 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 theSample. 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 01/01/2013. to 31/12/2013.
Different statistical tools were used on the data obtained to calculate the Average
returns, Standard deviation, Fund Beta, Treynor’s Performance Index, 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 i have used to calculate average returns are 10 fund’s quarterly returns and S & P
NIFTY’s quarterly returns for the year 2013. Data i have used to calculate standard
deviation of portfolio (σp) is the average return of mutual fund and market. Data i
have used to calculate beta of portfolio (βp) is the covariance of the returns of the
fund and market and variance of the market.

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I 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. I 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 i have calculated Sharpe, Treynor and Jensen’s performance index of
10 mutual funds and rank them according to that. I 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.

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Table Content
PREFACE..................................................................................................................................ii
CERTIFICATE.........................................................................................................................iii
ACKNOWLEDGEMENT........................................................................................................iv
DECLARATION.......................................................................................................................v
EXECUTIVE SUMMARY ......................................................................................................vi
1. INTRODUCTION .............................................................................................................1
1.1 BACKGROUND OF THE STUDY ..........................................................................2
1.2 ABOUT THE INDUSTRY:- .....................................................................................3
1.3 PROBLEM STATEMENT AND IMPORTANCE OF THE STUDY ......................7
1.4 OBJECTIVES OF THE STUDY...............................................................................8
1.5 RESEARCH METHODOLOGY...............................................................................9
1.5.1 RESEARCH DESIGN.......................................................................................9
1.5.2 SOURCES OF DATA .....................................................................................10
1.5.3 POPULATION ................................................................................................11
1.5.4 SAMPLING METHOD...................................................................................11
1.5.5 LIMITATIONS OF THE STUDY...................................................................12
2. REVIEW OF LITERATURE ..........................................................................................13
3. INTRODUCTION OF MUTUAL FUND .......................................................................30
3.1 MUTUAL FUND INDUSTRY IN WORLD MARKET.........................................31
3.2 MUTUAL FUND INDUSTRY IN INDIAN MARKET .........................................33
3.3 GROWTH OF MUTUAL FUND INDUSTRY.......................................................36
3.4 COMPANIES ON THE BASIS OF RETURN........................................................42
3.5 TYPES OF MUTUAL FUND .................................................................................43
3.6 BENEFITS OF MUTUAL FUNDS.........................................................................45
3.7 DISADVANTAGES OF MUTUAL FUND............................................................47
3.8 DIFFERENT PLANS THAT MUTUAL FUND OFFER .......................................48
3.9 FACTORS THAT INFLUENCE THE PERFORMANCE OF MUTUAL FUND..49

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4. DATA ANALYSIS & INTERPRETATION...................................................................51
4.1 ANALYSIS OF MUTUAL FUND PERFORMANCE ...........................................52
5. RESULTS AND FINDINGS...........................................................................................69
6. CONCLUSION AND SUGGESTION ............................................................................71
7. ANNEXURE....................................................................................................................73
Appendix-1 .............................................................................................................................i
1.1 RETURNS OF MUTUAL FUNDS FOR THE YEAR 2013......................................i
1.2 RETURN OF INDEX FOR THE YEAR 2013.........................................................iii
Appendix 2............................................................................................................................iv
2.1 CALCULATION OF BETA...........................................................................................iv
2.2 CALCULATION OF STANDARD DEVIATION .......................................................vii
8. BIBLIOGRAPHY.............................................................................................................xi

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List of Table
3.1 GROSS FUND MOBILISATION.....................................................................................38
3.2 ASSETS UNDER MANAGEMENT.................................................................................38
3.3 EVOLUTION OF THE INDIAN MF INDUSTRY ..........................................................40
3.4 Major companies in mutual fund industry on the basis of return ......................................42
4 .1 Demonstration of Comparative Treynor Measures...........................................................53
4.2 Treynor index.....................................................................................................................53
4.3 SAMPLE OF 10 MUTUAL FUND...................................................................................54
4.4 TREYNER’S PERFORMANCE INDEX..........................................................................55
4.5 RANKING ACCORDING TO TREYNER.......................................................................56
4.6 Demonstration of Comparative Sharpe Measures .............................................................58
4.7 Sharpe index ......................................................................................................................59
4.8 SHARPE’S PERFORMANCE INDEX.............................................................................60
4.9 RANKING ACCORDING TO SHARPE..........................................................................61
4.10 JENSEN’S PERFORMANCE INDEX............................................................................64
4.11 RANKING ACCORDING TO JENSEN.........................................................................65
4.12 COMPARISION OF TREYNOR, SHARPE & JENSEN’S INDEX ..............................67

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List of Figures
Financial Institutions comprises following services. .................................................................3
Process of investing in mutual fund...........................................................................................4
Market capitalization ...............................................................................................................33
Growth in Assets Under Management.....................................................................................39
Growth in no. of AMCs ...........................................................................................................40
Growth in no. of schemes ........................................................................................................41
Growth in AUM US $ (mn.)....................................................................................................41
Major companies in mutual fund industry on the basis of return ............................................43
Classification of mutual fund...................................................................................................43

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1.1 BACKGROUND 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.

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1.2 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.
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).
Financial
Institution
Commercial
Banks
Insurance
Companies
Mutual
Funds
Provident
Fund
Non-Banking
financial
Institution

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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
Process of investing in mutual fund
(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.
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.

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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.
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.

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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.

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1.3 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.

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1.4 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 measure the growth oriented Mutual Fund are earning higher returns than
market Portfolio.
 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 appropriate index. 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.

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1.5 RESEARCH METHODOLOGY
1.5.1 RESEARCH DESIGN
Research Design is the roadmap for carrying out the research activity in the project. In
my project of “Performance Evaluation of Mutual Fund” i have carried out the
research of which mutual fund is providing higher return by comparing the returns of
different mutual funds and i have also compared whether the mutual fund can beat the
market return or not.
For this research activity
 I 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.
 Treasury bill rate of return is selected as risk free return, which is 8.5% p.a.
 Collected NAV of funds of each quarter for the year 2013 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 i have given rank to mutual funds according to each ratio.

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1.5.2 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.
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:
 Various publications of the central, state and local government
 Various publications of foreign government or of international bodies
 Technical and Trade journals
 Books magazines and newspapers
 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.

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1.5.3 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 i 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 mutual funds”
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.
1.5.4 SAMPLING METHOD
The random sample
Convenient sample is one of the main types of non probability sampling method. A
convenience sample is made up of people who are easy to reach.
Consider the following example. A pollster interviews shoppers at a local mall. If the
mall was chosen because it was a convenient site from which to solicit survey
participants and/or because it was close to the pollster's home or business, this would
be a convenience sample.
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 2013.

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1.5.5 LIMITATIONS OF THE STUDY
 We have selected 6 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 6
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 structure 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.

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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), 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. Al (2007),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 and Dr. Madhumathi (2006), 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
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

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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,Parvez; Gangopadhyay, Partha & Nanda, Sudhir (2001),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. Roy,Bijan (2006),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.
Rao,D.N (2006),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.

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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, Jerold (1997),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.
Agrawal, Deepak (2007),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.

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Sahadevan and Thiripalraju, in their research paper titled “Mutual Funds – Data
Interpretations And Analysis” (1997), analyzed the performance of private sector
funds they compiled and analyzed the monthly average return and standard deviation
of 10- selected private sector funds. The investigation reveals that in terms of the rate
of return, 5 funds viz., Alliance 95, ICICI Power, Kothari Prima, Kothari Pioneer
Blue Chip and Morgan Stanley Growth Fund outperformed the market, during the
period of comparison. The analysis also shows that, by and large, performance of a
fund is not closely associated with its size.
Gupta &Sehgal, in their research paper “Investment Performance of Mutual Funds:
The Indian Experience” (1998), tried to find out the investment performance of 80
schemes managed by 25 mutual funds, 15 in private sector and 10 in public sector for
the time period of June 1992-1996. The study has examined the performance in terms
of fund diversification and consistency of performance. The paper concludes that
mutual fund industry’s portfolio diversification has performed well. But it supported
the consistency of performance.
Dr. Ashok Khurana and KavitaPanjwani (Nov, 2010), have analysed Hybrid
Mutual Funds. Mutual fund returns can be compared using Arithmetic mean &
Compounded Annual Growth Rate. Risk can be analyzed by finding out Standard
Deviation, Beta while performance analysis is based on Risk-Return adjustment. Key
ratios like Sharpe ratio and Treynor ratio are used forRisk-Return analysis. Funds are
compared with a benchmark, industryaverage, and analysis of volatility and return per
unit to find out how well theyare performing with respect to the market Value at Risk
analysis can be doneto find out the maximum possible losses in a month given the
investor hadmade an investment in that month. Based on the quantitative study
conductedcompany a fund is chosen as the best fund in the Balance fund growth
schemes.

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E. Priyadarshini and Dr. A. Chandra Babu (2011),have done Prediction ofThe Net
Asset Values of Indian Mutual Funds Using Auto- RegressiveIntegrated Moving
Average (Arima). In this paper, some of the mutual funds inIndia had been modeled
using Box-Jenkins autoregressive integrated movingaverage (ARIMA) methodology.
Validity of the models was tested usingstandard statistical techniques and the future
NAV values of the mutual fundshave been forecasted.
Dr. Ranjit Singh, Dr. Anurag Singh and Dr. H. Ramananda Singh (August2011),
have done research on Positioning of Mutual Funds among Small Town and Sub-
Urban Investors. In the recent past the significant proportion of the investment of the
urban investor is being attracted by the mutual funds. This has led to the saturation of
the market in the urban areas. In order to increase their investor base, the mutual fund
companies are exploring the opportunities in the small towns and sub-urban areas. But
marketing the mutual funds in these areas requires the positioning of the products in
the minds of the investors in a different way. The product has to be acceptable to the
investors, it should be affordable to the investors, it should be made available to them
and at the same time the investors should be aware of it. The present paper deals with
all these issues. It measures the degree of influence on acceptability, affordability,
availability and awareness among the small town and sub-urban investors on their
investment decisions.
N. Geetha and M. Ramesh, (2011), have studied Investors’ Perception On Mutual
Funds With Reference To Chidambaram Town. The main objective of the study is to
elucidate the perceptions and behaviours of the small investors located in the town of
Chidambaram, Tamil Nadu, South India towards the mutual funds and also suggest
some measures to increase the quantum of investors and investments as well.
Deepika Sharma, PoonamLoothra and Ashish Sharma (May 2011),Comparitive
Study of Selected Equity diversified Mutual Fund Schemes. Thepresent investigation
is aimed to examine the performance of safestinvestment instrument in the security
market in the eyes of investors i.e.,mutual funds by specially focusing on equity-
diversified schemes. Eight mutualfund schemes have been selected for this purpose.
The examination isachieved by assessing various financial tests like Sharpe Ratio,
StandardDeviation and Alpha.

19
Prof. Kalpesh P Prajapati and Prof. Mahesh K Patel (Jul 2012), have done a
Comparative Study On Performance Evaluation of Mutual Fund Schemes Of Indian
Companies. In this paper the performance evaluation of Indian mutual funds is carried
out through relative performance index, risk-return analysis, Treynor's ratio, Sharp's
ratio, Sharp's measure, Jensen's measure, and Fama's measure. The data used is daily
closing NAVs. The source of data is website of Association of Mutual Funds in India
(AMFI). The study period is 1st January 2007 to 31st December, 2011. The results of
performance measures suggest that most of the mutual fund have given positive return
during 2007 to 2011.
Dr. SandeepBansal, Deepak Garg and Sanjeev K Saini (2012), havestudied Impact
of Sharpe Ratio &Treynor’s Ratio on Selected Mutual FundSchemes. This paper
examines the performance of selected mutual fundschemes, that the risk profile of the
aggregate mutual fund universe can beaccurately compared by a simple market index
that offers comparative monthly liquidity, returns, systematic & unsystematic risk and
complete fund analysis by using the special reference of Sharpe ratio and Treynor’s
ratio.
Dr. Yogesh Kumar Mehta (Feb 2012), has studied Emerging Scenario ofMutual
Funds in India: An Analytical Study of Tax Funds. The present study isbased on
selected equity funds of public sector and private sector mutualfund. Corporate and
Institutions who form only 1.16% of the total number ofinvestors accounts in the MFs
industry, contribute a sizeable amount of Rs.2,87,108.01 crore which is 56.55% of the
total net assets in the MF industry. Itis also found that MFs did not prefer debt
segment.
DrSurender Kumar Gupta and Dr. SandeepBansal (Jul 2012), have done a
Comparative Study on Debt Scheme of Mutual Fund of Reliance and BirlaSunlife.
This study provides an overview of the performance of debt scheme of mutual fund of
Reliance, and Birla Sunlife with the help of Sharpe Index after calculating Net Asset
Values and Standard Deviation. This study reveals that returns on Debt Schemes are
close to Benchmark return (Crisil Composite Debt Fund Index: 4.34%) and Risk Free
Return: 6% (average adjusted for last five year).

20
Dr. Mamta Shah (Dec 2012) has done research on Marketing Practices ofMutual
Funds. Development of an economy necessarily depends upon itsfinancial system and
the rate of new capital formation which can be achievedby mobilizing savings and
adopting an investment pattern, be its self-financing(i.e. direct or indirect) where
financial intermediaries like banks, insurance andother financial companies come in
the picture and mediate between saversand borrowers of funds. In the same way there
are different types of investorsand each category of investors differs in its objectives
and hence it isimperative for investment managers to choose an appropriate
investmentpolicy for the group they are dealing with, further managing the investment
is adynamic and an ongoing process.
Abhishek Kumar (October 2012), have studied Trend in Behavioral Financeand
Asset Mobilization in Mutual Fund Industry of India. This paper tries toanalyze some
of the key issues noted below:
1. To understand the growth and the potential of Mutual Fund industry andanalyze its
success.
2. An exhaustive cross performance study of Mutual fund industry by
analyzingaround 1025 mutual fund schemes of India.
3. Performance analyses of various mutual fund schemes and its contributionsto assets
management during the study period (2002-2009).
4. Insight about the performance of the mutual fund under short term and longterm
period and
5. Investor’s behavior in allocating their investments among various assetsavailable in
the market compared to Mutual funds in the changing economicScenario.
B. Raja Manner and Dr. B. Ramachandra Reddy (Oct 2012), Review
andPerformance of Select Mutual Funds Operated By Private Sector Banks:
AxisEquity and Kotak 50 Funds – Growth Option. The two mutual funds (i)
AxisEquity (G) and (ii) Kotak 50 (G) are reviewed in detail with a brief introduction
ofthe fund houses itself. The funds are then statistically evaluated by correlationwith
the benchmark. S&P CNX Nifty, standard deviation, Sharpe’s Index.Treynor’s Ratio,
Jenson’s alpha, Fama’s Measure and M2.

21
SaritaBahl and Meenakshi Rani, (Jul 2012) have done A ComparativeAnalysis of
Mutual Fund Schemes in India. The present paper investigates theperformance of 29
open-ended Growth - oriented equity schemes for theperiod from April 2005 to March
2011 (six years) of transition economy.Monthly NAV of different schemes have been
used to calculate the returnsfrom the fund schemes. BSE- Sensex has been used for
market portfolio.Historical performance of select schemes were evaluated on the basis
ofSharpe, Treynor and Jensen’s measure whose results will be useful forinvestors for
taking better investment decisions.
Dr. Binod Kumar Singh, (Mar 2012) has done A Study on Investors’
Attitudetowards Mutual Funds as an Investment Option. In this paper, structure
ofmutual fund, operations of mutual fund, comparison between investment inmutual
fund and bank and calculation of NAV etc. have been considered. Inthis paper the
impacts of various demographic factors on investors’ attitudetowards mutual fund
have been studied. For measuring various phenomenaand analyzing the collected data
effectively and efficiently for drawing soundconclusions.
Dr. B. Saritha, (Feb 2012) has studied Mutual Fund Investment Decisions byUsing
Fama Decomposition Models. Mutual Funds are dynamic FinancialInstitutions (FI)
which play a crucial role in an economy by mobilizing savingsand investing them in
the capital market. Thus, establishing a link betweensavings and capital market.
Therefore, the activities of mutual funds have bothshort and long term impact on the
savings & capital markets and the nationaleconomy.
Dr. S.M.TariqZafar, Dr. D.S.Chaubey and Syed Imran Nawab Ali, (Feb2012),
have done An Empirical Study on Indian Mutual Funds EquityDiversified Growth
Schemes and Their Performance Evaluation. This paperaims to know how the
performance of mutual funds is assessed and rankedafter analyzing the NAV and their
respective returns so as to measureinvestment avenues. For the purpose thirteen most
preferred public andprivate sector equity diversified growth schemes over a period of
one yearviz.2007-08 have been taken through judgment sampling and Yield on 10
yr.govt. bond has been taken as the surrogate for the risk free rate of return
viz.7.56% p.a.

22
Dr. SandeepBansal, Sanjeev Kumar, Dr. Surender Kumar Gupta
andSachinSingla (Jun 2012) have done a Study of Selected Dividend MutualFund
Schemes with Jenson’s Alpha Model. In this present paper we apply arisk-adjusted
measure known as Jensen's Alpha Model on ten randomlyselected dividend mutual
fund schemes that estimates how much a manager'sforecasting ability contributes to
the fund's returns. We use a sample of 10mutual fund schemes (dividend) for the
period of 4 years from May 2005 toApril 2009 on monthly basis and calculated their
NAV.
Dr. SandeepBansal and Sanjeev Kumar, (Feb 2012), have done anEvaluation of
Risk-Adjusted Performance of Mutual Funds in India. In thispaper an attempt has
been made to study the performance of selected mutualfunds schemes based on risk-
return relationship models and return on mutualfunds are also compared with return
on equity shares of different sectors ofIndian economy. Return on ten mutual funds
schemes and return on equityshares of three sectors namely Fast Moving Capital
Goods, InformationTechnology and Power sectors have been studied over the time
periodJan.2006 to Jan 2009 (3 years).
Ms. K. HemaDivya (Apr 2012), has done A Comparative study on Evaluationof
Selected Mutual Funds in India. Mutual Funds industry has grown up byleaps &
bounds, particularly during the last 2 decades of the 20th century.Proper assessment
of fund performance would facilitate the peer comparisonamong investment
managers, help average investors successfully identifyskilled managers. Further the
growing competition in the market forces thefund managers to work hard to satisfy
investors & management. Thereforeregular performance evaluation of mutual funds is
essential for investors andfund managers also. The present study is confined to
evaluate theperformance of mutual funds on the basis of yearly returns compared with
BSEIndices.
Dr. Nishi Sharma (Aug 2012), has done research on Indian Investor’sPerception
towards Mutual Funds. This paper attempts to investigate thereasons responsible for
lesser recognition of mutual fund as a prime investmentoption. It examines the
investor’s perception with reference to distinct featuresprovided by mutual fund
companies to attract them for investing in specificfunds/schemes. The study uses

23
principal component analysis as a tool for factorreduction. The paper explored three
factors named as fund/scheme relatedattributes, monetary benefits and sponsor’s
related attributes (havingrespectively six, four and four variables) which may be
offered to investors forsecuring their patronage. The results are expected to provide
fruitful insight tomutual fund companies for tailoring their offers suitable to cater the
needs andexpectations of Indian investors.
Prof. V. Vanaja and Dr. R. Karrupasamy (2013),have done a Study on
thePerformance of select Private Sector Balanced Category Mutual FundSchemes in
India. This study of performance evaluation would help theinvestors to choose the
best schemes available and will also help the AUM’s in better portfolio construction
and can rectify the problems of underperforming schemes. The objective of the study
is to evaluate the performance of select Private sector balanced schemes on the basis
of returns and comparison with their bench marks and also to appraise the
performance of different category of funds using risk adjusted measures as suggested
by Sharpe, Treynor and Jensen.
Rashmi Sharma and N. K. Pandya (2013),have done an overview ofInvesting in
Mutual Fund. In this paper, structure of mutual fund, comparisonbetween investments
in mutual fund and other investment options andcalculation of NAV etc. have been
considered. In this paper, the impacts ofvarious demographic factors on investors’
attitude towards mutual fund havebeen studied. For measuring various phenomena
and analyzing the collecteddata effectively and efficiently for drawing sound
conclusions, drawing piecharts has been used and for analyzing the various factors
responsible forinvestment in mutual funds.
Rahul Singal, AnuradhaGarg and Dr Sanjay Singla (May 2013), have
donePerformance Appraisal of Growth Mutual Fund. The paper examines
theperformance of 25 Growth Mutual Fund Schemes. Over the time period Jan2004 to
Dec 2008. For this purpose three techniques are used (I) Beta (II)Sharpe Ratio (III)
Treynor Ratio. Rank is given according to result drawn fromthis scheme and
comparison is also made between results drawn from differentschemes and normally
the different are insignificant.

24
DhimenJani and Dr. Rajeev Jain (Dec 2013), have studied Role of MutualFunds in
Indian Financial System as a Key Resource Mobiliser. This paperattempts to identify,
the relationship between AUM mobilized by mutual fundcompanies and GDP growth
of the India. To find out correlation coefficientKendall’s tau b and spearman’s rho
correlation ship was applied, the datarange was selected from 1998-99 to 2009-10.
Dr. R. Narayanasamy and V. Rathnamani (Apr 2013), have donePerformance
Evaluation of Equity Mutual Funds (On Selected Equity LargeCap Funds). This
study, basically, deals with the equity mutual funds that areoffered for investment by
the various fund houses in India. This study mainlyfocused on the performance of
selected equity large cap mutual fund schemesin terms of risk- return relationship.
The main objectives of this research workare to analysis financial performance of
selected mutual fund schemes throughthe statistical parameters such as (alpha, beta,
standard deviation, r-squared,Sharpe ratio).
Dr. D. Rajasekar (Sep 2013), has done a Study on Investor`s PreferenceTowards
Mutual Funds With Reference To Reliance Private Limited, Chennai -An Empirical
Analysis. The data was analyzed using the statistical tools likepercentage analysis, chi
square, weighted average. The report was concludedwith findings and suggestions and
summary. From the findings, it was inferredoverall that the investor are highly
concerned about safety and growth andliquidity of investments. Most of the
respondents are highly satisfied with thebenefits and the service rendered by the
Reliance mutual funds.
Rajiv G. Sharma (Aug 2013) has done a Comparative Study on Public andPrivate
Sector Mutual Funds in India. The study at first tests whether there isany relation
between demographic profile of the investor and selection ofmutual fund alternative
from among public sector and private sector. For thepurpose of analysis perceptions
of selected investors from public and privatesector mutual funds are taken into
consideration. The major factors influencingthe investors of public and private sectors
mutual funds are identified. Thefactors under consideration to compare between
perceptions of public andprivate sector mutual fund investors are Liquidity, Security,
Flexibility,Management fee, Service Quality, Transparency, Returns and Tax benefits.

25
Dr. E. Priyadarshini (2013),has done Analysis of the Performance of
ArtificialNeural Network Technique for Forecasting Mutual Fund Net Asset Values.
Inthis paper, the Net Asset Values of four Indian Mutual Funds were predictedusing
Artificial Neural Network after eliminating the redundant variables usingPCA and the
performance was evaluated using standard statistical measuressuch as MAPE, RMSE,
etc.
S. Palani and P. Chilar Mohamed (Dec 2013) have done study of Public andPrivate
Sector Mutual Fund in India. Development of capital market in acountry is an
important prerequisite which only would enable industrialdevelopment, Business
growth and there by contribution towards economicdevelopment. Without any doubt
it could be stated that economic development,measured in the form of growth in GDP
or NNP is one of the objectives ofevery country in the world. A well integrated
Financial System alone couldhasten economic growth which it does through
channelizing productiveresources towards industrial growth and development.
JafriArshadHasan, (2013), has studied The Performance Evaluation ofIndian Mutual
Fund Industry past, Present and Future. This article will discussthe past performance
of the Indian mutual fund industry and the pace of growthit achieved after being
succumbed to regulatory changes by SEBI,international factors and its non
performance that affected the industry and itssentiments. It will also analyse the future
implications of the current changesthat are being implemented by the regulator.
Dr.S. Vasantha, Uma Maheswari and K.Subashini, (Sep 2013), Evaluatingthe
Performance of some selected open ended equity diversified Mutual fundin Indian
mutual fund Industry. The main objective of this research paper is toevaluate the
performance of selective open ended equity diversified Mutualfund in the Indian
equity market. For the purpose of conducting this studyHDFC top 200
fund(g).Reliance top 200(g).ICICI Prudential top 200(g). CanaraRobeco equity
diversified fund(g).Birla Sun Life frontline equity (g) mutualfunds have been studied
over the period of 60 months data which is fromJanuary 2008 to December 2012.The
analysis has been made on the basis ofSharpe ratio, Treynor ratio and Jenson.

26
Dr. K. MallikarjunaRao and H. Ranjeeta Rani, (Jul 2013), have studied
RiskAdjusted Performance Evaluation of Selected Balanced Mutual FundSchemes in
India. In this paper, an attempt has been made to study theperformance of selected
balanced schemes of mutual funds based onrisk-return relationship models and
various measures. Balanced schemes ofmutual funds are the ones which are mostly
preferred by Indian investorsbecause of their balanced portfolio in equity and debt. A
total of 10 schemesoffered by various mutual funds have been studied over the time
period April,2010 to March, 2013 (3 years).
Ms. ShaliniGoyal and Ms. DaulyBansal (2013) have done A Study onMutual Funds
in India. This paper focuses on the entire journey of mutual fundindustry in India. Its
origin, its fall and rise throughout all these years and triedto predict what the future
may hold for the Mutual Fund Investors in the longrun. This study was conducted to
analyze and compare the performance ofdifferent types of mutual funds in India and
concluded that equity fundsoutperform income funds.
MeghaPandey, (2013) has done Comparative Study of Performance ofActively
Managed Funds and Index Funds in INDIA. Actively Managed fundsalways
overlapped passively managed funds or Index Funds this researchdeals with a
comparative analysis between the performance of both of thefunds, actively managed
and passively managed. T test is applied to comparetheir means and by this research
the derived results shows that thoughactively managed funds gives more returns.
Dr. R. Karrupasamy and Professor V. Vanaja, (Jul. 2013), A Study on
thePerformance of Selected Large Cap and Small & Mid Cap Mutual FundSchemes
In India. The objective of the study is to evaluate the performance ofdifferent mutual
fund schemes (Large Cap, Small & Mid cap Equity Schemes)on the basis of returns
and comparison with their bench marks and also toappraise the performance of
different category of funds using risk adjustedmeasures as suggested by Sharpe,
Treynor and Jensen. The study revealedthe investors for investment below 2 years can
choose large cap schemes andinvestment beyond 3 years can be made in Small & mid
cap schemes.

27
G. Prathap and Dr. A. Rajamohan (Dec 2013), have done A Study on Statusof
Awareness among Mutual Fund Investors in Tamilnadu. Mutual funds havebecome
an important intermediary between households and financial markets,particularly the
equity market. Mutual funds have enabled an increasingnumber of households to enter
financial markets and the diversified investmentstructure of mutual funds and
diversified risk contributed tremendously in thegrowth of mutual funds. It is important
to study the awareness of mutual fundamong the investors.
Dr. NailaIqbal (Jul 2013) has studied Market Penetration and InvestmentPattern of
Mutual Fund Industry in India. Market penetration is a term thatindicates how deeply
a product or service has become entrenched with a givenconsumer market. The degree
of penetration is often measured by the amountof sales that are generated within the
market itself. A product that generatestwenty percent of the sales made within a given
market would be said to havea higher rate of market penetration that a similar product
that realizes tenpercent of the total sales within that same market. Determining
whatconstitutes the consumer market is key to the process of properly
calculatingmarket penetration.
Mr. Jay R. Joshi, (Mar 2013), Mutual Funds: An Investment Option fromInvestors’
Point of View. This study is of descriptive type research. The targetpopulation will be
individual investor in Anand – Vidyanagar area of relativelyaffluent western State of
Gujarat (India). The survey will be based onconvenience sampling having 100
investors as sample size. The study will tryto identify the consumers’ preference for
various mutual funds and the mainreasons for investment in mutual fund schemes.
The study will also try toinvestigate various factors that investor is thinking before
selecting a mutualfund company. Overall, the study is focusing on the behavior of
individualinvestors and hence form a part of behavioral finance area.

28
C.Vijendra and D. Sakriya, (June 2013) have done a Study of InvestorBehavior
regarding Investment Decisions in Mutual Funds. A survey wasconducted among 384
mutual funds investors from the twin cities ofHyderabad &Secundrabad to study the
factors influencing the fund/schemeselection behavior of these investors. It is hoped
that this survey will underpinthe AMCs with regards to planning and implementation
of designing, marketingand selling of innovative products.
Dr. K. Veeraiah and Dr. A. Kishore Kumar (Jan 2014), conducted a researchon
Comparative Performance Analysis of Select Indian Mutual Fund Schemes.This study
analyzes the performance of Indian owned mutual funds andcompares their
performance. The performance of these funds was analyzedusing a five year NAVs
and portfolio allocation. Findings of the study revealsthat, mutual funds out perform
naïve investment. Mutual funds as amedium-to-long term investment option are
preferred as a suitable investmentoption by investors.
C.SrinivasYadav and Hemanth N C (Feb 2014), have studied Performanceof
Selected Equity Growth Mutual Funds in India: An Empirical Study during 1st
June
2010 To 31st May 2013. The study evaluates performance of selectedgrowth equity
funds in India, carried out using portfolio performance evaluationtechniques such as
Sharpe and Treynor measure. S&P CNX NIFTY has beentaken as the benchmark.
The study conducted with 15 equity growth Schemes(NAV ) were chosen from top 10
AMCs ( based on AUM) for the period 1st June2010 to 31st may 2013(3 years).
VibhaLamba (Feb 2014), has done an analysis of Portfolio Management inIndia.
The purpose of present study is to analyse the scope and importance ofportfolio
management in India. This paper also focuses on the types and stepsof portfolio
management which a portfolio manager should take to providemaximum returns and
minimum risk to his clients for their investments.

29
Mrs.V. Sasikala and Dr. A. Lakshmi (Jan 2014) have studied The MutualFund
Performance Between 2008 And 2010: Comparative Analysis. The paperentitled
“comparative analysis of mutual fund performance between 2008 &2010. The paper
was undertaken to know the after meltdown period risks andreturns of 2008 top
hundred mutual funds and compare with 2010 top hundredmutual funds published in
Business today. The analysis of alpha, beta,standard deviation, Sharpe ratio and R-
squared are declare high, low, average,above average and below average of risks and
return of funds.
Sowmiya. G, (Jan 2014), has studied Performance Evaluation of MutualFunds in
India. The objectives of this are to know the basic concepts andterminologies of the
mutual funds in public limited companies and privatelimited companies. To analyze
performance and growth of selected mutualfunds schemes with their NAV and their
returns. To identify the return varianceand to provide suggestions based on the
analysis.

30
3. INTRODUCTION
OF MUTUAL FUND

31
3.1 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.

32
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. Congress passed 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.

33
3.2 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)

34
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.
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

35
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.
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.

36
3.3 GROWTH OF MUTUAL FUND INDUSTRY
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The
history of mutual funds in India can be broadly divided into four distinct phases.
Phase I - Establishment and Growth of Unit Trust of India 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set
up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from
the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. 6,700 crores of assets
under management.
Phase II – Entry of Public Sector Funds
1987-93
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund in
June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank
Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90),
Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989
while GIC had set up its mutual fund in December 1990. At the end of 1993, the
mutual fund industry had assets under management of Rs. 47,004 crores.

37
Phase III – Entry of Private Sector Funds
1993-96
With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.
Phase IV - Growth and SEBI Regulation
1996-04
The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers
and acquisitions. As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805crores. The Unit Trust of India with Rs. 44,541 crores of assets
under management was way ahead of other mutual funds.
In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal
status as a trust formed by an Act of Parliament. The primary objective behind this
was to bring all mutal fund players on the same level. UTI was re-organized into two
parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund. UTI Mutual Fund is
still the largest player in the industry. In 1999, there was a significant growth in
mobilization of funds from investors and assets under management which is
supported by the following data:

38
TABLE 3.1 GROSS FUND MOBILISATION
(Source: www.appuonline.com/mf/knowledge/industry.html)
TABLE 3.2 ASSETS UNDER MANAGEMENT
ASSETS UNDER MANAGEMENT (RS. CRORES)
AS ON UTI PUBLIC
SECTOR
PRIVATE
SECTOR
TOTAL
31-March-99 53,320 8,292 6,860 68,472
(Source: www.appuonline.com/mf/knowledge/industry.html)
GROSS FUND MOBILISATION (RS. CRORES)
FROM TO UTI PUBLIC
SECTOR
PRIVATE
SECTOR
TOTAL
1-4-98 31-3-99 11,679 1,732 7,966 21,377
1-4-99 31-3-00 13,536 4,039 42,173 59,748
1-4-00 31-3-01 12,413 6,192 74,352 92,957
1-4-01 31-3-02 4,643 13,613 1,46,267 1,64,523
1-4-02 31-3-03 5,505 22,923 2,20,551 2,48,979
1-4-03 31-3-03 * 7,259* 58,435 65,694
1-4-03 31-3-04 - 68,558 5,21,632 5,90,190
1-4-04 31-3-05 - 1,03,246 7,36,416 8,39,662
1-4-05 31-3-06 - 1,83,446 9,14,712 10,98,158

39
Phase V – Growth & Consolidation 2004 onwards
The industry has also witnessed several mergers and acquisitions recently, examples
of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun
F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously,
more international mutual fund players have entered India like Fidelity, Franklin
Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is
a continuing phase of growth of the industry through consolidation and entry of new
international and private sector players.
Growth in Assets Under Management
(Source: www.articlebase.com)

40
TABLE 3.3 EVOLUTION OF THE INDIAN MF INDUSTRY
Year No of AMCs No of schemes AUM US
$(mn)
Mar 98 31 235 17451
Mar 99 32 277 16111
Mar 00 32 337 25889
Mar 01 35 393 19336
Mar 02 35 417 20601
Mar 03 33 382 16719
Mar 04 31 403 32170
Mar 05 29 451 34289
Mar 06 29 592 52127
Mar 07 30 756 75728
Mar 08 33 956 126225
(Source: Association of mutual fund in India)
Growth in no. of AMCs

41
Growth in no. of schemes
Growth in AUM US $ (mn.)

42
Factors contributing to the growth of the industry:
 Large Market Potential – High Savings Rate
 Comprehensive Regulatory Framework
 Favorable Tax Policies
 Introduction of New Products
 Role of Distributor
 Investor Education Campaign
 Performance Record
3.4 COMPANIES ON THE BASIS OF RETURN
Table 3.4 Major companies in mutual fund industry on the basis of return
Company NAV Return %
IDFC Premier Equity-A 1376.30 83.2
ING Dividend Yield 36.53 76.8
Reliance RSF – Equity 2722.37 74.2
Birla SL Dividend Yield ( G ) 384.83 69.8
Sundaram S.M.I.L.E Fund 663.86 66.1
ICICI Prudential Discovery Fund 1083.58 63.7
HDFC Top 200 Fund 7490.21 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

43
Major companies in mutual fund industry on the basis of return
3.5 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.
Classification of mutual fund

44
A) MUTUAL FUND SCHEMES BY STRUCTURE
 Open-Ended Funds: Open-Ended fund scheme is open for subscription all
through 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 only
during 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-Ended
funds and Close-Ended funds.
B) MUTUAL FUND SCHEMES BY INVESTMENT OBJECTIVES
 Growth Funds: The objective of Growth Fund scheme is to provide capital
appreciation 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 regular and
steady income to investors.
 Balanced Funds: The objective of Balanced Fund schemes is to provide both
growth and regular income to investors.
 Money Market Funds: The objectives of Money market funds are to provide
easy liquidity, regular income and preservation of income.

45
C) OTHER FUNDS
 Tax Saving Schemes: The objective of Tax Saving schemes is to offer tax
rebates 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 the
industries specified in the offer document of the schemes.
 Sectorial Schemes: The scheme invest particularly in a specified industries or
initial public offering.
 Index schemes: Such schemes links with the performance of BSE sensex or
NSE.
 Loan Funds: Loan Funds charges a commission each time when you buy or
sale units in the fund.
3.6 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:

46
 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 return
to an investor than any other option over a reasonable period of time.
 Diversification: Mutual Funds invest in a number of companies across a wide
cross section of industries and sectors.
 Low Cost: Investment in Mutual Funds is a less expensive way in comparison
to a direct investment in capital market.
 Liquidity: The investor can get the money promptly at the net asset value
related 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, investment
pattern and the necessary information before all investors under a regulation
framework.

47
 Flexibility: Investment in Mutual Funds offers a lot of flexibility with features
of 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 a
watchdog, so the Mutual Funds are well regulated.
3.7 DISADVANTAGES OF MUTUAL FUND
 Cost: Mutual funds provide investors with professional management, but it
comes 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 different
funds 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.

48
3.8 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.

49
3.9 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.

50
 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.

51
4. DATA ANALYSIS &
INTERPRETATION

52
4.1 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 portfolio
performance. He measures portfolio risk with beta, and calculates portfolio’s market
risk premium relative to its beta:
Where:
Ti = Treynor’s Performance Index
Rp = Portfolio’s actual return during a specified time period
Rf = Risk-free rate of return during the same period
βp = beta of the portfolio

53
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.
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%.
Table 4 .1 Demonstration of Comparative Treynor Measures
We can calculate the T values for each investment manager:
Table 4.2 Treynor index
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
These results show that Z did not even "beat-the-market." Y had the best performance,
and both B and Y beat the market.
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

54
Table 4.3 SAMPLE OF 10 MUTUAL FUND
Company Avg. return of 2013
ICICI prudential technology Reg 62.55 %
SBI IT 54.50 %
Franklin InfoTech 53.34 %
Birla sun life new millennium 50.25 %
ICICI prudential export & other services Reg 43.59 %
SBI Pharma 26.05 %
UTI transportation & logistics 24.69 %
Reliance Pharma 20.87 %
Franklin India smaller companies 13.22 %
SBI FMCG 9.29 %

55
Table 4.4 TREYNER’S PERFORMANCE INDEX
Particulars Rp Rf Beta Treynor
index
ICICI prudential technology Reg 62.55 % 8.5 % 0.35 154.428
SBI IT 54.50 % 8.5 % 0.81 56.790
Franklin InfoTech 53.34 % 8.5 % 0.93 48.215
Birla sun life new millennium 50.25 % 8.5 % 0.53 78.773
ICICI prudential export & other services
Reg
43.59 % 8.5 % 0.62 56.596
SBI Pharma 26.05 % 8.5 % 0.92 19.076
UTI transportation & logistics 24.69 % 8.5 % 3.17 5.107
Reliance Pharma 20.87 % 8.5 % 1.64 7.542
Franklin India smaller companies 13.22 % 8.5 % 2.34 2.017
SBI FMCG 9.29 % 8.5 % 0.11 7.181

56
Table 4.5 RANKING ACCORDING TO TREYNER
Rank Particulars
1 ICICI prudential technology Reg
2 Birla sun life new millennium
3 SBI IT
4 ICICI prudential export & other services Reg
5 Franklin InfoTech
6 SBI Pharma
7 Reliance Pharma
8 SBI FMCG
9 UTI transportation & logistics
10 Franklin India smaller companies
INTERPRETATION
In my analysis i 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 SBI FMCG fund – growth has lower beta i.e.
0.21 as compared to other nine funds. Same way UTI transportation & logistic has
higher beta i.e. 3.17.
This analysis represents that SBI FMCG fund – growth gets higher Treyner’s
performance index and it stands on eighth rank. Same way UTI transportation &
logistic – growth gets lower Treyner’s performance index and it stands on 9th rank.

57
This analysis also represents that though ICICI prudential technology Reg fund
growth has higher return i.e. 62.55 % as compared to other nine funds, it stands on
third rank as it is having higher beta i.e. 0.35.
Thus at last we want to conclude that according to Treyner’s PerformanceIndex, 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.

58
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%.
Table 4.6 Demonstration of Comparative Sharpe Measures
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
We can calculate the S values for each portfolio.

59
Table 4.7 Sharpe index
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
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.

60
Table 4.8 SHARPE’S PERFORMANCE INDEX
Particulars Rp Rf Standard
deviation
Sharpe
index
ICICI prudential technology Reg 62.55 % 8.5 % 12.50 4.324
SBI IT 54.50 % 8.5 % 11.31 4.067
Franklin InfoTech 53.34 % 8.5 % 11.38 3.940
Birla sun life new millennium 50.25 % 8.5 % 9.40 4.441
ICICI prudential export & other services
Reg
43.59 % 8.5 % 7.04 4.984
SBI Pharma 26.05 % 8.5 % 5.16 3.401
UTI transportation & logistics 24.69 % 8.5 % 15.07 1.074
Reliance Pharma 20.87 % 8.5 % 7.53 1.642
Franklin India smaller companies 13.22 % 8.5 % 10.84 0.435
SBI FMCG 9.29 % 8.5 % 2.84 0.278

61
Table 4.9 RANKING ACCORDING TO SHARPE
Rank Particulars
4 SBI IT
5 Franklin InfoTech
6 SBI Pharma
7 Reliance Pharma
10 SBI FMCG
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 Reliance Pharma fund – growth has a return of
9.29 % and on the basis of return it stands on seventh rank but its standard deviation is
2.84 which is lower as compared to other nine funds.
This thing indicates that ICICI prudential export and other service Reg Fund stands on
first rank because it is providing good return with moderate risk.

62
We have analysed that SBI FMCG 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 SBI FMCG Fund stands on last rank
because it is providing lower return with lower risk.
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
standson 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.

63
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.

64
Table 4.10 JENSEN’S PERFORMANCE INDEX
Particulars Rp Rf Rm Beta Jensen
index
ICICI prudential technology Reg 62.55 % 8.5 % 5.72
%
0.35 55.023
SBI IT 54.50 % 8.5 % 5.72
%
0.81 48.2518
Franklin InfoTech 53.34 % 8.5 % 5.72
%
0.93 47.4254
Birla sun life new millennium 50.25 % 8.5 % 5.72
%
0.53 43.2234
ICICI prudential export & other
services Reg
43.59 % 8.5 % 5.72
%
0.62 36.8136
SBI Pharma 26.05 % 8.5 % 5.72
%
0.92 20.0616
UTI transportation & logistics 24.69 % 8.5 % 5.72
%
3.17 25.0026
Reliance Pharma 20.87 % 8.5 % 5.72
%
1.64 16.9292
Franklin India smaller companies 13.22 % 8.5 % 5.72
%
2.34 11.2252
SBI FMCG 9.29 % 8.5 % 5.72
%
0.11 1.0958

65
Table 4.11 RANKING ACCORDING TO JENSEN
Rank Particulars
2 SBI IT
3 Franklin InfoTech
7 SBI Pharma
8 Reliance Pharma
10 SBI FMCG
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 analysed that alpha of ICICI prudential technology Reg– growth is very high
i.e. 62.55 % 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 ICICI prudential
technology Reg fund as a good fund.

66
We have also analyzed that alpha of SBI FMCG Fund is lower. This may be due to its
lower return. Thus though the risk associated with SBI FMCG 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.

67
Table 4.12 COMPARISION OF TREYNOR, SHARPE & JENSEN’S INDEX
RANK TREYNOR RANK SHARPE RANK JENSEN
1 ICICI prudential
technology Reg
1 ICICI
prudential
export & other
services Reg
1 ICICI
prudential
technology
Reg
2 Birla sun life new
millennium
2 Birla sun
lifenew
millennium
2 SBI IT
3 SBI IT 3 ICICI
prudential
technology
Reg
3 Franklin
InfoTech
4 ICICI prudential
export & other
services Reg
4 SBI IT 4 Birla sun life
new
millennium
5 Franklin InfoTech 5 Franklin
InfoTech
5 ICICI
prudential
export & other
services Reg
6 SBI Pharma 6 SBI
Pharma
6 UTI
transportation
& logistics
7 Reliance Pharma 7 Reliance
Pharma
7 SBI Pharma
8 SBI FMCG 8 UTI
transportation
& logistics
8 Reliance
Pharma
9 UTI transportation
& logistics
9 Franklin India
smaller
companies
9 Franklin India
smaller
companies
10 Franklin India
smaller companies
10 SBI FMCG 10 SBI FMCG

68
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 analyze the performance
of the portfolios and they will be ranked identically according to all three; Sharpe’s,
Treynor’s and Jensen’s performance measurement. ICICI prudential technology Reg
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.

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Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Performance evaluation of mutual fund