Performance Evaluation Of

Public And Private Sector

Mutual Funds
DR. A.P.J Abdul Kalam University, Lucknow
In Partial fulfillment of the Requirement of
Masters of Business Administration
(2018-2020)
SUBMITTED BY:
MONIKA
MBA-II YEAR
Roll No. : 1808570059

SUBMITTED TO:
Mr. Devesh Gupta
(Faculty of MBA Deptt.)

S.D. COLLEGE OF MANAGEMENT STUDIES,

MUZAFFARNAGAR
ACKNOWLEDGEMENT

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I express my sincere gratitude to my internal guide Mr. Devesh Gupta, for
his able guidance, continuous support and cooperation throughout my
project, without which the present work would not have been possible.

I would also like to thank the entire team of performance

evaluation public and private sector mutual fund for the constant support
and help in the successful completion of my project.

Monika
MBA- II YEAR

DECLAREATION

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I Vishu hereby declare that the project work titled “PERFORMANCE OF EVALUATION

PUBLIC & PRIVATE SECTOR” being submitted by me is an authenticated work carried by

me , Under the guidance of Mr. Devesh Gupta for the award of degree of Masters in

Business Administration programmed by Dr. A.P.J. Abdul Kalam University Lucknow,

and this work has been submitted to SDCMS, MUZAFFARNAGAR.

Monika
MBA- II YEAR

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 TABLE OF CONTENTS

1. Mutual Funds – An Overview 5

2. Research Methodology 25

3. Review of Literature 29

4. Mutual Fund Industry 32

5. Data Collection 50

6. Findings & Suggestions 126

7. References & Bibliography 135

8. Annexure 138

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 Mutual Funds – An Overview

1.1 Introduction

Mutual Fund - Meaning & Concept

Investors are always in quest for finding new ways to generate optimal return from their
investments, and for such Investors stock markets provide a fair playing ground. Though the
stock market lures with enhanced return on investment, the inherent risk involved keeps retail
investors away from entering stock market. Large Investors having the risk appetite can take
head-on the stock market.

There must be some way for retail investors to enter the market for achieving that optimal
return and keeping the risk under control.

This led to invention of new concept in Financial Management. "Mutual Funds".

Mutual Fund……..What is it?

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme’.

These could range from shares to debentures to money market instruments. The income
earned through these investments and the capital appreciations realized by the scheme
are shared by its unit holders in proportion to the number of units owned by them (pro
rata). Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed portfolio at a
relatively low cost. Anybody with surplus savings of as little as a few thousand rupees
can invest into Mutual Funds. Each Mutual Fund scheme has a defined investment
objective and strategy.

A Mutual Fund is the ideal investment vehicle for today’s complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real

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estate, derivatives and other assets have become mature and information driven. Price
changes in these assets are driven by global events occurring in faraway places. A typical
individual is unlikely to have the knowledge, skills, inclination and time to keep track of
events, understand their implications and act speedily. An individual also finds it difficult
to keep track of ownership of his assets, investments, brokerage dues and bank
transactions etc.

A Mutual Fund is the answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a full time basis. The large
pool of money collected in the fund allows it to hire such staff at a very low cost to each
investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas -
research, investments and transaction processing.

MUTUAL FUND OPERATION FLOW CHART

             

While the concept of individuals coming together to invest money collectively is not
new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual
funds gained popularity only after the Second World War. Globally, there are thousands
of firms offering tens of thousands of mutual funds with different investment objectives.

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Today, globally mutual funds collectively manage almost as much as or more money as
compared to banks.

Advantages of Mutual Funds (Why Mutual Funds)

Investments in stocks, bonds and other financial instruments require considerable expertise
and constant supervision, to enable an investor to take informed decisions. Small investors
usually do not have the necessary expertise and the time to undertake any study that can
facilitate informed decisions. While this is the predominant reason for the popularity of
mutual funds, there are many other benefits that can accrue to small investors. Some of the
advantages are listed below.

 Diversification Benefits
Diversified investment improves the risk-return profile of the portfolio. Small
investors may not have the amount of capital that would allow optimal diversification.
Since the corpus of a mutual fund is subsequently big as compared to individual
investments, optimal diversification becomes possible. As the individual investors’
capital gets pooled into a mutual fund, all of them are able to derive the benefits of
diversification.

 Providing Variety In Investment Options

There are four basic types of mutual funds- Equity (also called stock), Bond, Hybrid,
and Money Market. Basing on the investor needs, risk appetite, return expectations
they can choose from these options. Equity, bond, and hybrid funds are called long-
term funds. Money market funds are referred to as short term funds because they
invest in securities that generally mature in about one year or less.

 Professional Management
Management of a portfolio involves continuous monitoring of various securities and
the innumerable economic and non-economic variables that may affect the portfolio’s
performance. This requires a lot of time and effort and mutual funds are managed by

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 knowledgeable, experienced professionals whose time is solely devoted to tracking
and updating the portfolio.
 Liquidity
A mutual fund generally stands ready to buy and sell its units on a regular basis. Thus,
it is easier to liquidate holdings in a mutual fund as compared to direct investment in
securities.
 Returns
In India, dividend received in the hands of the investor is tax free. This enhances the
yield on mutual funds marginally as compared to income from other investment
options. Also in case of long-term (more than one year) capital gains, the investor gets
the benefit of indexation and lower capital gains tax.

 Flexibility
Mutual funds possess features such as regular investment plan (i.e. one can
invest in installments), regular withdrawal plans and dividend reinvestment plan.
Because of these features, one can systematically invest or withdraw funds
according to one’s needs and convenience.

 Low Transaction Costs

The transactions of a mutual fund are generally very large. These large volumes
attract lower brokerage commissions (as a percentage of the value of the transaction)
and other costs, as compare to the smaller volumes of the transactions entered into by
individual investors.

The above factors provide the basis as to why Mutual Funds can be one the best investment
option for the investors.

Types Of Mutual Fund Schemes

Classification of mutual fund schemes is as follows:

 By Structure
 Open-Ended Schemes
 Close-Ended Schemes

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  Interval Schemes
 By Investment Objective
 Growth Schemes
 Income Schemes
 Balanced Schemes
 Money Market Schemes

 Other Schemes
 Tax Saving Schemes
 Special Schemes
 Index Schemes
 Sector Specific Schemes

 Open-Ended Fund
An open-ended fund remains open for issue and redemption of its shares throughout its
unlimited duration. As an open-ended fund is required to redeem its shares any time the
investors wish to liquidate their holdings, a relatively larger portion of its assets need to
be highly liquid. There would be situations where, in a given period, the redemptions
would be more than the purchases by new shareholders, forcing the management to
liquidate some of the fund’s assets to meet the shortfall. Due to this possibility, an open-
ended fund needs to invest in highly marketable securities.

 Close-Ended Fund
A close-ended fund can issue shares only in the beginning, and cannot redeem them or
reissue them till the end of their fixed investment duration. The shares of a close-ended
fund generally quoted at a discount, for which investments in less marketable securities
are partly responsible

 Interval Scheme
Interval Schemes are those that combine the features of open-ended and close-ended
schemes. The units may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV related prices.

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 Growth Fund
The objective of growth fund scheme is to provide capital appreciation over the medium-
to-long term. These schemes normally invest a major portion of their funds in equities
and are willing to bear short-term decline in value for possible future appreciation in the
net asset value of the scheme. These schemes are not for investors seeking for regular
income or needing their money back in the short-term and are suitable for investors in
their prime earning years or investors seeking growth over the long-term.
 Income Fund
The aim of such funds is to provide regular and steady income to investors. These funds
or schemes generally invest in fixed incomes such as bonds and corporate debentures.
Capital appreciation in such scheme may be limited. These are suitable for retired people
and others with a need for capital stability and regular income.

 Balanced Fund
These funds aim to provide both growth and income by periodically distributing a part of
income and capital appreciation to the investors or reinvesting such income and capital
appreciation to enhance the net asset value of the fund. They invest in both shares and
fixed income securities in the proportion indicated in their offer document. Such funds are
suitable for those investors, who are willing to take some risk and seeks both income and
capital appreciation.

 Money Market Fund

Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer, short-term instruments, such
as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

 Tax-saving schemes
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time
to time.

 Index schemes
Index schemes attempt to replicate the performance of a particular index such as the S &
P 500 in the US and BSE Sensex or the NSE 50 in India.  The portfolio of these schemes
will consist of only those stocks that constitute the index. The percentage of each stock to

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 the total holding will be identical to the stocks index weightage.  And hence, the returns
from such schemes would be more or less equivalent to those of the Index.

Apart from the above schemes, there are some funds that invest in a particular sector like
Utilities or Financial Services or Consumer Durables.

Organization Structure Of A Mutual Fund

There are two types Organizational Structure for Mutual Funds:

 Company form, in which investors hold shares of the mutual fund. In this structure,
management of the fund is in the hands of the elected board, which in turn appoint
investment managers to manage the fund.

 Trust form, in which the funds of the investors are hold by the trust. The trust appoints
the investment managers and monitors their functioning, in the interest of the investor.
The trust is either managed by a board of trustees, or by a trustee company, formed
for this purpose.

1.2Organisation and Management of Mutual Funds

Organization Structure Of A Mutual Fund -Indian Perspective

The structure of mutual fund in India is governed by the SEBI (Mutual Fund) regulations,
1996. These regulations make it mandatory for mutual funds to have a three-tier structure of
Sponsor – Trustee – Asset management Company (AMC).
Organization Chart

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 SPONSOR

TRUSTEE AMC

MUTUAL FUND

REGITRAR & TRANSFER AGENT

CUSTODIAN

BROKERS ETC.

Organisation And Management Pattern Before SEBI Regulations

Before SEBI came into picture with comprehensive regulation in 2005 which defined the
structure of Mutual Funds and Asset Management Companies there was no proper structure
for the Organisation of Mutual Fund Companies.

As the UTI was the first Mutual Fund established in India, It had a unique structure.

Structure of UTI
UTI was created under a special Act of Parliament. It is a trust without ownership of capital
and an independent Board of Directors.Under the provisions of the first UTI scheme, Unit
Scheme 1964, certain institutions were to contribute to the Scheme's initial capital, which is
redeemable at the discretion of the Trust at such values as may be decided by the Government
of India.The contributors to the initial capital of Rs. 5 crore for US-64 Scheme were Reserve
Bank of India (RBI), other financial institutions, Life Insurance Corporation (LIC), State
Bank of India (SBI), its subsidiaries and other scheduled banks including a few foreign
banks. In February 1976, Industrial Development Bank of India (IDBI) took RBI's
contribution in UTI. The institutions were provided with representation on the Board of the
Trustees of UTI. Under the provisions of the Act, The Government of India appoints
Chairman of the Board.The Board of Trustees overlooks the general direction and
management of the affairs and business of UTI.

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Management of UTI
The management of affairs and business of the Trust are vested in the hands of the Board of
Trustees with a full time Chairman appointed by the Government of India. Besides the Board,
there is a statutory Executive Committee comprising the Chairman, the Executive Trustee
and two other Trustees nominated by the Industrial Development Bank of India. The
Committee is competent to deal with any matter within the competence of the Board.

The funds promoted by public sector banks were subject to RBI Guidelines of July 1989.

Organisation And Management Pattern - SEBI Regulations

As per “Securities And Exchange Board Of India (Mutual Funds) Regulations, 1996”,
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset
Management Company (AMC) and custodian.

 The trust is established by a sponsor or more than one sponsor who is like promoter of
a company.
 The trustees of the mutual fund hold its property for the benefit of the unit holders.
The trustees are vested with the general power of superintendence and direction over
AMC. They monitor the performance and compliance of SEBI Regulations by the
mutual fund.
 Asset Management Company (AMC) approved by SEBI manages the funds by
making investments in various types of securities.
 Custodian, who is registered with SEBI, holds the securities of various schemes of the
fund in its custody.

SEBI Regulations require that at least two thirds of the directors of trustee company or board
of trustees must be independent i.e. they should not be associated with the sponsors. Also,
50% of the directors of AMC must be independent. All mutual funds are required to be
registered with SEBI before they launch any scheme.

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Constituents Of Mutual Funds

The constituents of mutual funds are :

 Sponsors
 Trustees
 Funds Managers
 Custodians

Sponsor
The sponsor is the promoter of the mutual fund. The trust is created by sponsor, who is
actually the entity interested in creating the mutual fund business. The sponsor appoints the
trustees and acting through the trustees, appoints all the functionaries required for managing
the investor’s money including AMC. As per SEBI regulations a Sponsor must have at least
5-year track record of business interest in the financial markets and must have been profit
making in at least 3 of the above 5 years. The sponsor must contribute at least 40% of the
capital of the AMC.

Trustees
The mutual fund, which is a trust, is managed either by a trust company or a board of trustees
and the trust is governed by the provisions of the Indian
Trust Act. If the trustee is a company, it is also subject to the provisions of the Indian
Companies Act. It is the responsibilities of the trustees to protect the interest of the investors,
whose fund is managed by the AMC. The AMC and other functionaries are functionally
accountable to the trustees. As per SEBI regulations the mutual fund is required to have an
independent Board of Trustees, i.e. two thirds of the trustees should be independent persons
who are not associated with the sponsors in any manner whatsoever.

Asset Management Company (AMC)

The AMC is the business face of the mutual fund, as it manages all the affairs of the mutual
fund. As per SEBI regulations an AMC have to be registered with SEBI. It must have a
minimum net worth of Rs. 10 crore, at all times. An AMC cannot indulge in any other
business other than that of asset management and it cannot be an AMC or trustee of another

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mutual fund. There is an investment management agreement between the Trustees and the
AMC which spells out the rights and obligations of both parties. The AMC earns a fee for
managing the funds of the investors from the fund.

Custodians
An agent, bank, trust company, or other organization which holds and safeguards an
individual's, mutual fund's, or investment company's assets for them. As per SEBI regulations
no custodian in which the sponsor or its associates hold 50% or more of the voting rights of
the share capital of the custodian or where 50% or more of the directors of the custodian
represent the interest of the sponsor or its associates shall act as custodian for a mutual fund
constituted by the same sponsor or any of its associate or subsidiary company.

Various other functionaries are required for managing the investor’s money. These
functionaries are as following
a. Registrar and Transfer agent
b. Brokers
c. Selling agents and Distributors
d. Depository participants
e. Bankers
f. Legal advisors
g. Auditors

An important thing to be remembered here is that the Organizational structure for Private
and Public mutual funds is same. They have to comply with SEBI regulations while floating
the Mutual Fund and every Mutual Fund should be registered with SEBI.
.
Regulatory Framework Of Mutual Funds In India

Legal structure of Mutual Fund Industry

The first mutual fund in India, The Unit Trust of India (UTI) was set up under the UTI Act,
1963 as a statutory body, and it is regulated by the said Act. UTI evolved as a government
promoted Organisation, which combined in itself the functions of a mutual fund and a

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financial institution. As a result, UTI was allowed to participate in term financing, which
today's mutual funds do not do. Its activities as a financial institution were in keeping with
the ethos of the times, which required promoting industries and also promoting the capital
markets. Since UTI was started by parliament enactment, it didn’t fall under the latter’s
jurisdiction until its bifurcation in Feb 2003.

The offshore funds were regulated by the Ministry of Finance, Government of India and RBI.
With effect from March 7, 2000, RBI has withdrawn its guidelines on Money Market Mutual
Funds. Accordingly, such money market mutual fund schemes, like any other mutual fund
schemes, are exclusively governed by the SEBI (Mutual funds) Regulation, 1996.

SEBI (Mutual Funds) Regulation Act, 1996

The industry mutual fund industry functions under the SEBI (Mutual Funds) Regulation Act
1996. The main postulates of this regulation are:

 The Board of Trustee enters into relevant agreements with the AMC and the
Custodian.
 A fund can launch one or more schemes.
 The launch of each scheme involves inviting the public to invest in it, through an offer
document.
 The offer remains open for a specific time period, after which the AMC starts
managing the corpus in accordance with the investment objectives mentioned in the
offer document. Depending on the particulars of the scheme, it may subsequently
open for further sale and repurchase of units.
 Depending upon the particulars of the scheme, the scheme may be wound up after the
passage of a specified period of time.

The formalities laid down by SEBI regulations have to be fulfilled for setting up a mutual
fund in India. The organization structure of a mutual fund is as under.

 The sponsor sets up the mutual fund as a trust under the Indian Trust Act, 1882.
 Then it appoints the Board of Trustees, or alternatively, the trustee company, represented
by a Board of Directors.
 It also appoints the Asset Management Company (AMC) and the custodian.

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In India the scheme/fund, the trustee company and the management company are organised
and supervised principally under the following laws/regulations:

 The SEBI MF Regulations, or the SEBI CIS Regulations, as the case may be,
issued under the Securities and Exchange Board of India Act, 1992

 The Companies Act, 1956

 The Indian Trusts Act, 1882

 The Indian Registration Act, 1908

 Guidelines issues by the Reserve Bank of India (‘RBI’) in

respect of Non-banking Financial Companies

 The Foreign Exchange Management Act, 1999.

Role Of SEBI To Regulate And Control Mutual Funds In India

The importance of regulation lies in controlling monopoly power, nurturing competition and
protecting consumer interest.

SEBI is regulator for the entire family of mutual funds, which are becoming an important part
of Indian Financial System. It regulates the entry of new mutual funds in the industry and the
instruments in which mutual funds can invest and the investments of debt FIIs.

After SEBI’s regulations in 2005, Mutual funds sponsored by private entities were allowed to
enter capital market. The regulations were fully revised in 1996 and are amended thereafter
from time to time. Guidelines are issued now and then to mutual funds so as to protect
investors interests.

All mutual funds whether promoted by public sector or private sector entities including those
promoted by foreign entities are governed by SEBI’s Regulations. There is no distinction in
regulatory requirements for these mutual funds and all are subject to monitoring and
inspections by SEBI.

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Broad Guidelines Issued by SEBI for Mutual Funds in India

SEBI has the following broad guidelines pertaining to mutual funds:

 Mutual funds should be formed as a Trust under Indian Trust Act and should be
operated by Asset Management Companies (AMCs).
 Mutual funds need to set up a Board of Trustees and Trustee Companies. They should
also have their Board of Directors.
 The net worth of the AMCs should be at least Rs.5 crore.
 AMCs and Trustees of a MF should be two separate and distinct legal entities.
 The AMC or any of its companies cannot act as managers for any other fund.
 AMCs have to get the approval of SEBI for its Articles and Memorandum of
Association.
 All Mutual fund schemes should be registered with SEBI.
 Mutual funds should distribute minimum of 90% of their profits among the investors.
There are other guidelines also that govern investment strategy, disclosure norms and
advertising code for mutual funds.
In the mid of 2000, SEBI streamlined mutual fund industry with the following regulations:
 Total time taken for completion of formalities for new MF schemes to be reduced
from 90 days to 42 days.
 Unclaimed money lying with funds to be used for investor education
 Balance sheets of AMCs to be disclosed

AMFI – A New Beginning

Association of Mutual Funds in India (AMFI) is a trade body of all the mutual funds in India.
It was incorporated in August 1995 as a non-profit organisation to promote and protect the
interests of mutual funds and their unit holders, define and maintain high ethical and
professional standards and enhance public awareness of mutual funds. All mutual funds in
India are members of the association.

Over the years, AMFI has worked closely with SEBI in establishing standards that match the
best in the world. It has played a significant role in introducing best practices to reinforce the
growth of the industry on healthy lines and protect the interests of the investors.

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Various Steps Taken By AMFI

 AMFI has helped SEBI in making guidelines for valuation of unlisted equity shares.

Methodology for Valuation

Unlisted equity shares of a company shall be valued "in good faith" on
the basis of the valuation principles laid down below:
(1) Based on the latest available audited balance sheet, net worth shall be
calculated as lower of (a) and (b) below:
a) Net worth per share = [share capital plus free reserves (excluding
revaluation reserves) minus Miscellaneous expenditure not written of or deferred
revenue expenditure, intangible assets and accumulated losses] divided by
Number of paid up shares.
b) After taking into account the outstanding warrants and options, net worth per
shares shall again be calculated and shall be = [share capital plus consideration on
exercise of Option/Warrants received/receivable by the Company plus free
reserves(excluding revaluation reserves) minus miscellaneous expenditure not
written off or deferred revenue expenditure, intangible assets and accumulated
losses] divided by [number of paid up shares plus number of shares that would be
obtained on conversion/exercise of outstanding warrants and options

The lower of (a) and (b) above shall be used for calculation of net worth per share and
for further calculation in (3) below.

(2) Average capitalization rate (P/E ratio) for the industry based upon either BSE or
NSE data (which should be followed consistently and changes, if any, noted with proper
justification thereof) shall be taken and discounted by 75% i.e., only 25 % of the
Industry average P/E shall be taken as capitalization rate (P/E ratio). Earnings per share
of the latest audited annual accounts will be considered for this purpose.

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 (3) The value as per the net worth value per share and the capital earning value
calculated as above shall be averaged and further discounted by 15% for liquidity so as
to arrive at the fair value per share.

 AMFI developed an Industry Classification system

As per SEBI directives while disclosure of entire Fund portfolio periodically, Funds are
required to classify the scrips in their portfolio in accordance with the industry
classification.

 Benchmarks for Debt Oriented and Balanced Schemes

Already benchmarks exist for equity oriented schemes. These benchmarks enable investors
to compare the performance of their scheme with a typical market portfolio. However, the
same facility was not available for debt oriented and balanced schemes. AMFI has together
with ICICI.com and Crisil developed a set of indices to benchmark the performance of such
schemes. Mutual funds are now required to use these indices while disclosing the
performance of debt and balanced schemes in their performance reports to enable investors
to judge the performance of the fund.
 AMFI has prescribed a code of conduct for mutual fund agents and distributors Mutual
Funds are supposed to monitor the activities of these agents and distributors and make
sure that they are not engaging in any malpractices or unethical practices.As per the code
of conduct, mutual fund agents and distributors are supposed to (among other things)
protect the investor’s interests; adhere to SEBI Mutual Fund Regulations and guidelines
related to selling, distribution and advertising practices; provide full and latest
information of schemes to investors; highlight risk factors of each scheme, and avoid
misrepresentation and exaggeration; abstain from indicating or assuring returns in any
type of scheme; avoid recommending inappropriate products because he is getting higher
commissions therefrom, etc.

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 AMFI has also helped in making product comparisons easy for investors by mandating
funds to follow uniform sector classifications, as established by it.

 Steps were taken by AMFI to prevent misleading advertisements in the mutual fund
industry to draw investors.

 AMFI made mandatory, the certification of all agents, brokers and distributors of mutual
funds so as to bring uniformity in the distribution system.

There are plans to convert AMFI from industry body to a Self-Regulatory Organisation
(SRO). SRO status would give more powers in terms of managing periodic compliance
reports of funds, as well as some administrative functions of SEBI governing mutual funds.
The powers would include punitive action against asset management companies; the tracking
of investment restrictions; clearing offer documents and the formulation of compliance
norms.

Securities and Exchange Board of India has proposed to nominate a majority of five
nominees to the AMFI board and at the same time, re-constitute the AMFI board to a nine-
member board from the existing 12, so that it can have more control over the operations of
AMFI.

Despite of the various measure taken by SEBI to control and regulate the working of mutual
fund industry , there is still lot of intervention required to protect the interest of the investors .

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 Objectives of the study

The major objective of the study was to analyze in detail the performance evaluation of
mutual funds in the public and private sector. Following are the specific objectives:

1. To study the organizational structure and Management pattern of public sector and
private sector Mutual Funds working in India.

2. To Review the statutory regulation and control of mutual funds in India.

3. To examine the different schemes, launched by the public sector and private Mutual
Funds in India and to identify their response and performances.

4 To evaluate the performances of Mutual Funds on the basis of Quantitative and

Qualitative measure .

5 To have a quantitative and qualitative comparison of Public sector and Private sector
Mutual Funds and to suggest new lines of action to make them more effective in the
current scenario.

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 Scope of the study

The present study was been undertaken to impart awareness of the functioning of mutual
funds and also to provide information , knowledge and insight for taking investments
decision pragmatically and also simultaneously ward off the impending risk in taking
investments decision. Also it was conducted to know the changes in the management pattern
of private and public sector mutual funds. The role of SEBI on one hand and the performance
of the schemes launched by both sector mutual funds on the other. The study also examined,
whether the claims of mutual finds for providing diversified portfolio of securities so as to
earn better return is justified or not by measuring the performance of most preferred mutual
funds in the category of both private sector and public sector mutual funds.

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 Research Methodology
In the last decade we have seen enormous growth in the size of mutual fund industry in India.
Especially the private sector has shown tremendous growth. With unmatched advances on the
information technology, increased role of the institutional investors in the stock market and
the SEBI still in its infancy, the mutual fund industry players gained unparalleled and
unchecked power. To ensure the safety of investment of small investors against whims and
fancies of professional fund managers have become the need of the hour.

The research was undertaken to impart awareness of the functioning of mutual funds and also
to provide information , knowledge and insight for taking investments decision pragmatically
and also simultaneously ward off the impending risk in taking investments decision. Also it
was conducted to know the changes in the management pattern of private and public sector
mutual funds. The role of SEBI on one hand and the performance of the schemes launched by
both sector mutual funds on the other. The study also examined, whether the claims of mutual
finds for providing diversified portfolio of securities so as to earn better return is justified or
not by measuring the performance of most preferred mutual funds in the category of both
private sector and public sector mutual funds.

Research Design

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For studying perceptions of investors, a primary survey was undertaken so as to know as to
how much investor’s prefer mutual funds as an investment option in comparison to other
investment avenues , how much knowledge do they have about mutual funds and investor’s
knowledge regarding various other aspects of mutual funds, a primary research was
conducted to know the perception investors towards the mutual funds. For this purpose ,a
questionnaire (which contained overall 10 questions was filled by the people from Faridabad,
Kalkaji, Cannaught Place and Noida )was designed and analyzed on the basis of the
responses given by the investors . Further ,To analyze the results of the filled questionnaires
Statistical techniques like weighted average and mean were applied .

For the purpose of studying the performance evaluation of the mutual fund in India, data was
collected from websites of AMFI and various other finance related sites along with sites of
some mutual fund companies. Parameters like coefficient of determination (R2), systematic
risk i.e. Beta (), intercept () standard deviation (), average return for the scheme were
calculated and widely accepted time tested model given by Sharpe, Treynor, and Jenson were
applied for the purpose of analysisng the performance of the various mutual fund schemes .

Sample Design

For the primary research undertaken , sample size of 262 respondents was been taken from
age groups between 21 years – 65 years .

Sampling Technique

For the purpose of the study , convenient sampling was used due to limited resource and
unavailability of time on the part of respondents and the researcher .

Statistical Tools Used

MEAN and WAS has been used to analyse the responses so received through the
questionnaire. the statistical tools like tables and pie diagrams were prepared for the purpose
of interpretation and based on the analysis, findings and recommendations were made.

- 25 -
 Review Of Literature

Studies undertaken by various scholars and researchers reveals that mutual funds is a trust
that pools the savings which are further invested into capital market instruments such as
shares, debentures and other securities and sice most of the capital market instruments, not all
, have an element of risk so it very difficult to evaluate the performance of various
schemes .Various research papers have been written while considering the performance
evaluation criteria into mind which have been discussed in the coming paragraphs

According to Bijan Roy & Saikat Sovan Deb 1 when the beta of the fund is conditioned to
lagged economic information variables(interest rates, dividend yields, term structure yield
spread and a dummy for April-effect), the fund performance does not change appreciably.
However, when fund alpha is also controlled for these information variables the fund
performance on an average becomes significantly negative. Thus,showing that on an average
the Indian mutual fund managers only captures the opportunities from the available economic
information, they do not contribute anything beyond it. They have also examined the
evidence of persistence in the performance of the Indian mutual funds.

Their approach to measure performance persistence is based on cross-sectional regressions of

future excess returns on a measure of past fund performance. Both unconditional and
1
“Conditional Alpha and Performance Persistence for Indian Mutual Funds: Empirical Evidence” - ICFAI
Journal of Applied Finance, pp. 30-48, January 2017

- 26 -
conditional measures of performance were used as measure of past fund performance.
According to the findings of their study it was being evidenced that conditional measures of
past fund performance predict the future fund returns significantly. Also ,they found that
between the two different conditional measures of past performance, time-varying
conditional alpha is found to be a better measure in indicating persistence in performance of
Indian mutual funds.

One of the most important developments in the field of finance during last forty years is the
mutual fund performance evaluation technique. The traditional techniques use the
unconditional moments of the returns. Such techniques cannot capture the time-varying
element of expected return

Bijan Roy & Saikat Sovan Deb2 have examined the effect of incorporating lagged
information variables(T-bill yield, dividend yields, term structure yield spread and a dummy
for April-effect) into the evaluation of mutual fund managers' performance using conditional
performance evaluation technique designed by Ferson and Schadt (96) .

The findings of the research suggests that the use of conditioning lagged information
variables improves the performance of the mutual fund schemes, causing the alphas to shift
towards the right and reducing the number of negative timing coefficients. They have also
studied the impact of the tech rally( Major event in the history of Indian capital market from
1999 to 2001) in the conditional models by introducing a dummy variable indicating the
period of rally in tech stocks. Finally , they found managers' performance as well as timing
skill worsens with the inclusion of this dummy.

Passive investment management has become an important component of the investment

management industry. The responsibility of the index fund managers is to deliver risk and
return same as the underlying index. Many factors impact investment performance. Some of
these factors lie outside the sphere of influence of the fund manager. For a comprehensive
assessment of fund performance and follow up, it has become necessary to identify the causes
and attribute components of fund performance to these causes. Attribution analysis plays a
crucial role in identifying factors controllable by the fund manager and in computing the part
2
The Conditional Performance of Indian Mutual Funds: An Empirical Study-Working Paper, Dec 2003

- 27 -
of fund performance arising out of managing these factors. While significant attention has
been paid to performance attribution in equity and income funds, research relating to the
same in the index fund domain is scarce.

According to G. Sethu & Rachana Baid findings3 significant contribution to index fund
tracking error may arise from factors that are not under index fund manager's control and also
tracking error is not neutral to some of the factors.

Banikanta Mishra & Mahmud Rahman4 have developed measures of evaluating portfolio-
performance based on LPM (Lower-Partial-Moment). According to them, the three
traditional measures by Treynor, Sharpe, and Jensen are based on the Mean-Variance (M-V)
rule are valid only when the distribution of asset returns is characterized by spherical
symmetry to which class normal and similar distributions belong. From the LPM perspective,
risk has been measured by taking into account only those states in which return is below a
pre-specified "target rate", like risk-free rate, and capturing the extent to which it is below.
They have also provided a new way to evaluate the performance of a portfolio, which is
similar to the M2 [Modigliani-Modigliani] approach, but differs from it in an important way.

Despite of lot of research being done on the mutual funds, there has not been any fixed
criteria for evaluating the performance of the mutual funds , there is still lot of research that
needs to be done keeping in view changing investment pattern of the investors ,increasing
market risk and various other factors linked with the mutual fund industry.

3
“Index Funds Performance -Some insights”- Capital Market Conference ‘02 Proceedings
4

- 28 -
 Mutual Fund Industry

Global Mutual Fund Industry

The Emergence
It all started when three Boston securities executives pooled their money together in 1924 to
create the first mutual fund, they had no idea how popular mutual funds would become.

The idea of pooling money together for investing purposes started in Europe in the mid-
1800s. The first pooled fund in the U.S. was created in 1893 for the faculty and staff of
Harvard University. On March 21st, 1924 the first official mutual fund was born. It was
called the Massachusetts Investors Trust.

After one year, the Massachusetts Investors Trust grew from $50,000 in assets in 1924 to
$392,000 in assets (with around 200 shareholders). In contrast, there are over 10,000 mutual
funds in the U.S. today totaling around $7 trillion (with approximately 83 million individual
investors).

The Setback
The stock market crash of 1929 slowed the growth of mutual funds. In response to the stock
market crash, American Congress passed the Securities Act of 1933 and the Securities
Exchange Act of 1934. These laws require that a fund be registered with the SEC and provide

- 29 -
prospective investors with a prospectus. The SEC (U.S. Securities and Exchange
Commission) helped create the Investment Company Act of 1940 which provides the
guidelines that all funds must comply with today in United States of America.

The Development
With renewed confidence in the stock market, mutual funds began to blossom. By the end of
the 1960s there were around 270 funds with $48 billion in assets.
In 1976, John C. Bogle opened the first retail index fund called the First Index Investment
Trust. It is now called the Vanguard 500 Index fund and in November of 2000 it became the
largest mutual fund ever with $100 billion in assets.

Present Scenario
Over the years, structural changes in the global economic environment have led to the
emergence of a strong market economy and facilitated the growth of the mutual funds
industry. A market economy depends more on growth led by financial market than by bank-
finance. Since the mutual funds industry is a strong pillar of the financial market, it got a
boost with the emergence of a strong market economy. Mutual funds found increasing
acceptance also because they have the capacity to absorb the instability and uncertainties that
characterize the financial market system.

Source: Investment Company Institute, Cygnus

Worldwide Mutual Fund Assets Trillions of US $

13.9 14.4

11.8 11.3
10.8

2013 2014 2015 2016 2017

(Q1)

Source: Investment Company Institute, Cygnus Research

The rise in inflation, reduction in real interest rates and growing complexities in the market
provided tremendous opportunities to mutual funds. For these reasons, the mutual funds

- 30 -
industry began to thrive well in not only the developed countries but also the newly
industrialized and developing country, particularly during the 1990s.

Mutual fund assets worldwide rose 3.6 percent in the first quarter of 2017 to $14.46 trillion
by quarter-end, with assets increasing in all regions. Mutual fund asset growth was boosted
by positive stock market returns in almost all reporting countries and the ongoing net flow of
new investments.

Percent of Worldwide Mutual Fund Assets by Region, 2017(Q1)

By region, 57 per cent of worldwide assets were
in the Americas in the first quarter of 2017, 33
per cent were in Europe and 10 per cent in
Africa and Asia/Pacific. At the end of the first
quarter of 2017, the number of mutual funds
worldwide stood at 54,640. By type of fund, 41
per cent were equity funds, 18 per cent were bond
funds, 21 per cent were balanced/mixed
Source: Investment Company
funds, and 9 per cent were money market funds.

Snap Shot of Us Mutual Fund Industry

As US alone constitutes over 50% of the market, let us take a closer look at this market.

Number of Mutual Funds in US Assets of US Mutual Funds

(Billions of US dollars)
8073
Q1 2017 7436
Q1 2017
8124
2016
2016 7413
8155
2015 2015 6965
5725 2811
2014 2014
3079 1065
20013 2013
Source: Investment Company Institute,
Cygnus Research

US mutual fund industry is the largest in the world with the total asset size more than $7.4
trillion at the end of first quarter 2017. Traditionally, US households keep their largest

- 31 -
portion of financial assets in direct holding of securities. These securities typically managed
by brokerage firms, private money managers and bank trust. In the harsh financial
environment, households have been continuously suffering losses from highly volatile
market. Due to this US households prefer different intermediary rather than direct investment
in financial assets.

Mutual fund, which offers professional management of securities, attracted a large pool of
households. US mutual fund has registered a phenomenal growth during the last 10 years.
The mutual fund portion of household financial assets has increased from 6.7% in the year
2013 to 18% in 2017. During the period, the mutual fund assets size has grown annually by
28% to US$7,413billion from US$1,065billion.At the end of first quarter of 2017, the total
number of mutual funds is 8,073 which have increased from 3,079 in the year 2013.

Worldwide assets of equity funds increased 5.8 percent during the first quarter, posting $6.2
trillion at quarter-end. Bond fund assets worldwide fell 1.8 percent in the first quarter of
2017, pulled down in part by a reclassification of some bond funds in Luxembourg into
money market funds. Money market fund assets worldwide rose 4.2 percent in the first
quarter of 2017.

Percent of Worldwide Mutual Fund Assets by Type of Fund, 2017(Q1)

At the end of the first quarter of 2017, assets of
equity funds represented 43 per cent of all
worldwide mutual fund assets. The asset share of
money market funds was 23 percent, while that of
bond funds was 20 percent. Balanced/mixed
funds represented 9 per cent of the total.

- 32 -
Mutual Fund Industry In India

The Origin and development of Mutual funds in India happened in a phased manner.

The Emergence
The origin of the Indian mutual fund industry can be traced back to 1964 when the Indian
Government, with a view to augment small savings within the country and to channelise
these savings to the capital markets, set up the Unit Trust of India (“UTI”). The UTI was
setup under a specific statute, the Unit Trust of India Act, 1963. The Unit Trust of India
launched its first open-ended equity scheme called Unit 64 in the year 1964, which turned out
to be one of the most popular mutual fund schemes in the country. This is the First phase in
the history of mutual funds in India.

The Development
The Second phase started in 1987, when the government permitted other public sector banks
and insurance companies to promote mutual fund schemes. Pursuant to this relaxation, six
public sector banks and two insurance companies’ viz. Life Insurance Corporation of India
and General Insurance Corporation of India launched mutual fund schemes in the country.

Year Phases of Mutual Fund Industry in India

1975-‘1985 First Phase- Unit Trust of India was the sole player
1985-‘1995 Second phase- Entry of Public Sector Funds
2005 -‘17 Third phase- Entry of Private Sector Funds
Since Feb’17 Fourth phase- UTI was bifurcated into two separate entities

A New Era…The Entrance of Private Players

Subsequently, in 2005, the Securities and Exchange Board of India ("SEBI") introduced The
Securities and Exchange Board of India (Mutual Funds) Regulations, 2005, which paved way
for the entry of private sector players in the mutual fund industry. This third phase of the
mutual fund industry, which commenced in late 2005, witnessed exponential growth of the

- 33 -
industry, with the advent of private players therein. Private sector funds having distinct
operational advantages, posed serious competition to the existing public sector funds.

Kothari Pioneer Mutual fund (now merged with Franklin Templeton) was the first fund to be
established by the private sector in association with a foreign fund. It launched the open-
ended Prima Fund in November 2005. During the year 2005-20017 another four private
players launched their schemes: ICICI Mutual Fund, 20th Century Mutual Fund, Morgan
Stanley Mutual Fund and Taurus Mutual Fund. In the first year of operation these five funds
launched seven schemes, and mobilized an amount of Rs1, 559.6 crores during 2005-17.

The Industry though has remained flat for the last couple of years (1995- 2005) due to
recession, but has bounced back strongly in 2003- 04 to post a record of assets under
management.

- 34 -
 Milestones in Indian Mutual Fund Industry

1975-85 2005-2017 1995 – Present

SEBI is the regulator.
The UTI Era Private players become dominant.
Entry of Private players
RBI and IDBI were the regulators in phases.

UTI (Unit Trust of India) In 2005, a set of In 2000, SEBI gives the
set up by act of guidelines for mutual mutual funds nod to
Parliament. funds are constituted by trade in derivatives.
SEBI.
Under RBI supervision In 2003, UTI act is
up to 1978. In 1996, a more repealed. UTI is
comprehensive set of bifurcated into two
Under IDBI (Industrial revised guidelines for entities, UTI I & II.
Development Bank of mutual funds are
India) from 1978 to constituted.
1989.
The year 1997, 1998 saw
Bank Sponsored SEBI amending the
Funds in the Fray from regulations continuously.
1987.

In 1989, RBI framed

new guidelines for public - 35 -
sector mutual funds
For the past 5 years industry has grown exponentially and this growth has brought intense
competition and structural changes in the industry.

Mutual Fund Schemes   - An Indian Perspective

Open-Ended Fund
Some examples of open-ended mutual fund schemes in India are Alliance Income Fund, Pru
ICICI Flexible Income Plan, Birla Equity Plan, etc.
The asset of open-ended funds have increased dramatically in the year 2003 by 39.17 per cent
to Rs 1, 35,964 crore from Rs 97,695 crore in the year end 2002. Number of open-ended
funds also increased to 350 from 312 by the 2003 year end.

Close-Ended Fund
While open-ended funds have increased, close ended funds have decreased by 65 per cent to
Rs 4,021 crore in the year end 2003 from Rs 11,457 crore in the year 2002. Number of
closed-ended funds decreased to 40 from 61 by the 2003 year end.
Growth Fund
At the year end 2003 total asset size of growth fund stood Rs 22,938 crore, which was Rs
14,371 crore in the year 2002. Asset growth was accompanied not only by good performance
of stock market, but also by increasing number of funds. Number of funds increased to 121 in
the year end 2003 from 115 in the year 2002.
Income Fund
These funds or schemes generally invest in fixed incomes such as bonds and corporate
debentures. These are suitable for retired people and other need for capital stability and
regular income. The asset size of these funds has decreased in India mainly because of

- 36 -
 reduction in number of assured return schemes. At the end of 2003, the asset size of income
fund was Rs71, 258 crore and number of funds was 128.

Balanced Fund
They invest in both shares and fixed income securities in the proportion indicated in their
offer document. Such funds are suitable for those investors, who are willing to take some risk
and seeks both income and capital appreciation. At the end of 2003, total size of asset of
balance fund was Rs4, 663 and number of funds were 37.

Money Market Fund

Money market funds which are also known as Liquid funds, invest mainly in short-term
securities issued by the Indian Government or its agencies, corporations, state and local
government. These funds return is relatively low but these are highly liquid. Most of the
mutual funds invest a portion of their fund in money market to fulfill their short –term needs.

As the graph shows the exponential growth of liquid fund was only to fulfill the short-term
requirement of the funds. At the end of 2003, total asset size of liquid fund was Rs 32,424
crore and the number of funds were 33.
The equity markets were passing through a turbulent phase. This has resulted in Corporates,
the major investors in debt funds (Income/Gilt) to shift their investments into Liquid/Money
market funds. As can be seen from the below table, 40% of the total assets under
management are Liquid funds.
Observing the saving and investment pattern of Indians, there is no surprise in realizing the
fact that for a long time Debt/Liquid Schemes dominated the Indian mutual fund industry. In
the recent past industry saw a huge inflow of funds into the equity schemes and this trend is
likely to continue as Indian mutual fund industry continues to be on the high growth path.

Source: AMFI
- 37 -
Competitiveness in the Indian Mutual Fund Industry

Industry Competitiveness- A Snapshot

Bargaining Power of Buyers Investors need to make the right choice before investing
Low
Defined Procedure for Investments & Redemptions

Bargaining Power of Suppliers MF's subject to SEBI Regulations

Low
Reputation in market place is the key to attract investors

Inter Firm Rivalry Race for Assets

High
Corporate Tie-Ups Key to growth

Barriers to Entry Regulatory Nod (SEBI) necessary

Moderate
Back up of a Bank/Financial Institution key to Investor Awareness

Threat of Substitutes Direct Investing-Awareness not enough

Moderate
Portfolio Management Services-Preliminary Investment is High

Role of Mutual Funds in the Financial System in India

- 38 -
Capital markets in India are in the process of maturing. The markets witnessed many
structural changes in the year Break-up of Financial
Savings
Shares &
gone by primarily due to the Debentures,
Currency, 8%
Net Deposite,
market regulators' proactive 10%
29%

approach to the changes in the Net Claims

on Govt, 13%

global scenario as well as to meet

the needs of domestic investors. Life
Provision &
Insurance
Pension
The RBI has carried out major Fund, 13%
Fund, 27%

reforms in the Indian financial Source: Handbook of Statistics on Indian Economy 2003-04 RBI
Compiled by Cygnus Research
markets in the last few years
primarily by reducing Cash Reserve Ratio by 4 per cent over three years and the Bank Rate
by 5 per cent over five years. The interest rates in the country are at record lows and have led
to an increase in credit flow to the commercial sector. The market capitalization of the both
bond and equity has increased over the years. Strong economic fundamental will cherish the
growth of financial market, especially mutual funds, in the coming years.

Indian national savings have risen over the last two decades from 19 per cent to 23.5 per cent
of national income with household savings rose sharply from 14 per cent to 22 per cent and
corporate savings from 1.5 per cent to 4 per cent. Though savings rate is on a high,
investments are not made prudently. Major chunk of Indian savings are put in physical assets
rather than in financial assets. Real estate and gold form a considerable amount of physical
assets. A look at the financial savings shows that considerable amount is retained in the form
of currency or deposited in the bank which is the low income generating option. Looking at
the high savings rate of the Indians it can be clearly judged that there is going to be
considerable demand for advice to help individuals channelise the savings into investments
which generate high growth.

Households are steadily graduating to higher income brackets. By 2007, approximately 22

per cent (4.4 crore) households will have an average income of more than Rs 1,45,000 per
annum ($ 3,150), compared with under 7 per cent in 1995. Equally important, the number of
households falling in the low-income category has shrunk by a whopping 33 per cent to 5.9
crore (59 million) and is likely to fall to 4 crore (20 per cent of the total) by 2007. According

- 39 -
to the Goldman Sachs report India has the potential to raise its US dollar income per capita in
2050 to 35 times the current levels.

The increasing standard of living of people would increase the amount of savings in the
hands thereby urging them to create more wealth and hence the role of fund managers and
mutual fund industry as such is very vital in the development of Indian economy.

With the regulatory bodies’ pro-active approach to give boost to the Indian Mutual Fund
industry.The investor awareness programmes also going to help Indian mutual fund industry
to play an active role in the financial system in India.
The mania of mutual funds is fast catching-up in India. The reasons are varied... be it the
rising income levels in the middle class salaried employees or increased awareness of the use
of Mutual Funds as an investment instrument apart from safe Bank deposits and other
Government savings avenues.

Over the past ten years, the Indian mutual fund industry has been one of the fastest growing
sectors in the Indian capital and financial markets. From 1991 to 2003, the compounded
annual growth rate for the industry’s assets under management averaged around 20%. The
rapid growth has led to considerable changes in regulation, the structure of funds available
and the composition of net assets across various industry segments, as well as in the portfolio
of investment funds.

India is at the first stage of a revolution that has already peaked in the United States. In
Unites States, the asset base of mutual fund is much higher than its bank deposits. In India
only about 8% of the house hold have invested in mutual funds, which is much less compare
to 52% in US and 35% in UK. In India, mutual funds assets are not even 10% of the bank
deposits, but this trend is beginning to change.

Introduction To SBI Mutual Fund

SBI Mutual Fund is a fully owned subsidiary of the State Bank of India, India's premier and
highly respected bank with largest banking operation in the country. SBI Mutual Fund was
the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund

- 40 -
(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.

SBI Funds Management Ltd. is the investment manager of SBI Mutual Fund. SBI Mutual
Fund has been constituted as a trust, sponsored by State Bank India. Today the Fund has an
investor base of over 2.8 million spread over 23 schemes. With a large network of collecting
branches and investor service centres, SBI Mutual Fund constantly endeavors to get closer to
its growing family of investors. SBI is the largest public sector Bank in India with 8,836
branches all over India. SBI is the leader in providing loans to trade & industry. It also
provides related services, which generate significant fee-based income. It has also identified
project finance and consumer banking as key areas. Table A shows the division of types of
schemes of SBI mutual fund .

Table A

- 41 -
 Particulars Total
No. of schemes 37
No. of schemes including options 72
Equity Schemes 24
Debt Schemes 29
Short term debt Schemes 5
Equity & Debt 2
Gilt Fund 12

Investment Philosophy of SBI Mutual Fund

SBI Mutual Fund follows certian philosophy in their strategy while parking investors money
in the money family to have a full control upon the risks concentrating for aheading growth at
a reasonable price. It locates sustainable competitive advantage before investing. The
combination of Top down and Bottom up approaches are followed.

Top down for sector allocation and the latter for stock selection.
While determining the investment universe, SBI Mutual Fund employes a multi-stage
filtering process. The first level look at liquidity, the second at management quality. The third
level is for the competitive position and the last for the share price valuation.

In the debt sector it always aims at the "risk adjusted returns" based on the investors risk
tolerance.There are three main types of debt funds and the investment philosophy for each
differs due to the different investment objectives and type of investors.

Liquid Fund (Magnum InstaCash Fund)

The investment philosophy of this scheme is to invest in short term money market debt
instruments like T-bills, commercial paper, debentures, certificate of deposits, etc to provide
a higher than average rate of return.

In doing so three main types of risks are actively managed. Liquidity Risk, Credit Risk and
Interest rate Risk.

- 42 -
Liquidity Risk: A mix is maintained between low yield highly liquid instruments and high
yield but illiquid instruments. This is to ensure that the saleable instruments can be sold in
times of redemptions but at the same time the fund maintains higher than average returns.

Credit Risk: The credit risk in short term instruments (i.e. upto one year) is minimal however
due diligence and credit reviews are undertaken pre and post investment in any issuer. Only
issuers with highest rating (i.e. P1+ or equivalent) are considered.

Interest Rate Risk: The endeavour is to protect the scheme from interest rate movements
unlike in an income fund or gilt fund. Therefore the scheme invests mainly in money market
instruments and debentures with residual maturity less than six months. Instruments that are
prone to high price volatility like G Secs are not considered. The duration of the portfolio is
maintained between three to six months. However view based purchases and sales to take
advantage of interest rate movements are taken at times.

Income Fund (Magnum Income Fund)

The income fund invests in all types of debt instruments. The investment philosophy can be
broadly defined as consisting of active duration and interest rate management to give optimal
returns. The fund is divided mainly between Government Securities and Corporate Bonds
with some residual investments in money market instruments.

Management of this fund involves taking interest rate views based on various macro and
micro factors like state of the economy, monetary policies of RBI, liquidity in the banking
system, credit growth, global interest rates, etc.

Micro management consists of sectoral allocation, maturity profile, credit reviews, yield
curve analysis and trading based on spread movements etc. Investments in corporate bonds
are done after extensive credit appraisal since the investments are in long-term debentures.
Investments are done only upto AA rated category. Unrated instruments/companies are not
considered.

Gilt Fund

Gilt Fund invests in the gilt-edged government securities, which is predominantly a

wholesale market. It allows retail investors to participate in this market. The Gilt Fund aims

- 43 -
to maximise returns by active interest rate management, with zero credit risk. Active interest
rate management involves studying the domestic and international politico-economic
scenario as well as in-depth analysis of the liquidity in the system, the shape of the yield
curve and the spreads between various sectors on the curve.

To maximize the "risk adjusted returns" for the investors, based on their risk tolerance.

 Manage the schemes on a "Portfolio basis".

 Active management of interest rate risk.

 Credit risk management by following the conservative approach.

 Continuous monitoring

- 44 -
 Data collection

For the purpose of the research , data has been collected from following 2 sources :

1. Primary Data : To know the perception of the investors towards mutual funds. a
primary research was conducted as to how much investor’s prefer mutual funds as an
investment option in comparison to other investment avenues , how much knowledge
do they have about mutual funds and investor’s knowledge regarding various other
aspects of mutual funds . For this purpose ,a questionnaire (which contained overall
10 questions) was designed and analyzed on the basis of the responses given by the
investors. A sample size of 262 respondents filled by 21 years – 65 years age
groups of people (filled by the people from Faridabad, Kalkaji, Cannaught Place and.
Noida). Further, Mean and WAS(Weighted Average Score)was used to analyse the
responses so received through the respondents. A detailed discussion about the
primary research done and data collected has been done under the heading
“Perception Of Investors Towards Mutual Funds”.

2. Secondary Data : The secondary data was collected from the various books ,
magazines , journals and various financial websites like valueresearchonline.com ,
amfiindia.com sites alongwith the sites of different mutual fund companies . The
secondary data was collected to know the theoretical aspect of the mutual funds and
also for the performance evaluation of various mutual fund schemes of public and
private sector mutual funds which has been discussed later in this chapter under
heading “ performance evaluation of public vs private sector mutual fund schemes”.

- 45 -
Perception Of Investors Towards Mutual Funds

Over the last decade the mutual funds industry in India has been facing an increase and
decrease due to depression and boom in the Indian stock markets. After the failure of UTI
investors lost their faith in the mutual funds but in the current scenario , due to boom in the
Indian capital markets there has been an upward trend in the popularity of the mutual funds.
Also , study of mutual funds without knowing the perception of the investors has no meaning
attached to it. So to know as to how much investor’s prefer mutual funds as an investment
option in comparison to other investment avenues , how much knowledge do they have about
mutual funds and investor’s knowledge regarding various other aspects of mutual funds, a
primary research was conducted to know the perception investors towards the mutual funds.
For this purpose ,a questionnaire (which contained overall 10 questions )was designed and
analyzed on the basis of the responses given by the investors A sample size of 262
respondents was been taken from age groups of people from 21 years – 65 years of age.
Further, Mean and WAS(Weighted Average Score)was used to analyse the responses so
received through the respondents.

Objectives Of The Primary Reseacrh

 To know about the perception of people towards mutual funds

 To know about the most preferred schemes in the private sector and in the public sector
category (offered by various AMC’s Asset Management Companies) by the investors for
the purpose of selecting the schemes for performance evaluation of the schemes, which
has been discussed in the next chapter.

Methodology
Research Methodology is a way to systematically solve the problem. For this study, Primary
data has been collected through questionnaires that has been filled by the people from
Faridabad, Kalkaji, Cannaught Place and. Noida

Sample Size
Total sample size of 262 respondents was taken for the purpose of analyzing the responses .

Sampling Technique

- 46 -
For the purpose of the study , convenient sampling was used due to limited resource and
unavailability of time .

Statistical Tools Used

MEAN and WAS has been used to analyse the responses so received through the
questionnaire. the statistical tools like tables and pie diagrams were prepared for the
purpose of interpretation and based on the analysis, findings and recommendations
were made.

DISCUSSION

Investment In Mutual Funds

Fig: A

INVESTMENT INTO MUTUAL FUNDS

YES
NO

NO
40%

YES
60%

Out of the total sample size of 262, 60 % of the people said that they have invested into
mutual funds before and the remaining 40% of the people constitute that category of people
who either are not aware of mutual funds or afraid to invest into mutual funds due to their
direct association with the stock market booms and downfalls. The reason for such huge
percentage of people investing into mutual funds can be due boom in the Indian industry and
growing awareness among the people with regard to mutual funds as an investment option.

- 47 -
Intention To Invest Into Mutual Funds

Fig. B

INTENDS TO INVEST INTO MUTUAL FUNDS

YES

NO

NO
30%

YES
70%

Out of the total sample size of 262, 70% of respondents replied that they intends or would
like to invest into mutual funds in the future. This 70% includes the people who have already
invested into the mutual funds and the prospective investors who would like to invest into
mutual funds because of the higher returns that mutual funds are paying off in comparison to
other investment avenues. The remaining 30 % people, who don’t intend to invest into mutual
funds, are the people who had incurred losses in the past or the people who doesn’t want to
take risk of investing into mutual funds.

Thus,from the analysis of the responses of the people from above 2 questions indicates that in
the current scenario ,on an whole , there is a large chunk of people who invests into mutual
funds and would continue to do so due to boom in the Indian markets. But, still there are

- 48 -
people, who does not want to invest into mutual funds due to huge losses incurred by them
during 1999–2002 wherein the mutual fund companies were not performing well and the
faith of the investors was shattered due to failure of UTI scheme previously. Also there are
still a proportion of small investors who needs to be made aware of the mutual funds and an
effort is required to make them invest into mutual funds.

Preference for Different Investment Avenues

To know the preference of people for different avenues that are available, the respondents
were given a list of 10 avenues and were asked to rank them according to their preferences in
the ascending order i.e rank 1 to the most preferred, 2 to the second most preferred
investment option and 10 to the least preferred investment avenue. From the responses
recorded, mean values for all the options were calculated. On the basis, of the mean values
calculated , the various options were ranked giving rank 1 to the option having least mean
ranked value as shown in the table below :-
Table: 1
Investment Avenues Mean values Rank

1 Real Estates 4.18 2

2 Shares / Debentures 4.36 3
3 Mutual Funds 3.09 1
4 Fixed Deposits 5.00 4
5 Post Office Saving Schemes 6.00 7
6 PPF 5.77 6
7 UTI Schemes 6.99 9
8 Gold 6.91 8
9 LIC Policy 5.41 5
10 NSC , NSS Schemes 7.318 10
The analysis of the table reveals that Mutual Funds with mean ranked value (3.09) , Real
Estates (4.18 ) and Shares / Debentures( 4.36) have been ranked at the first , second an third
place among different forms of investments available. This confirms the preference of
investors for high returns (see reasons for preference for different investment avenues
discussed on the next page). This also points out the higher risk taking capacity of the
investors in lure for higher returns. Least preferred options has been NSC, NSS Schemes

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(7.318), UTI Schemes (6.99) and Gold (6.91) due to blocking of money for a longer period of
time and also due to poor performance of government owned undertakings in the last few
years.

Basis for Selection of an Investment Avenue

There are different attributes of various investment avenues that influence the choice of a
particular investment avenue. The most important of various attributes of an investment are:

 Safety
 Liquidity
 Tax Benefit
 Reliability
 High Returns

The respondents were asked to tick the most preferred attribute which affects their decision to
invest into a particular investment option or the most preferred basis for selection of an
investment avenue. For this, the following question was asked and the responses given as
shown in the pie chart has been discussed thereafter.

Fig: C

- 50 -
 SAFETY HIGH RETURNS LIQUIDITY TAX BENEFIT
RELIABILITY

The most preferred basis for the selection of an investment avenue was high return with 36%
of the respondents going for it, followed by Safety (23%) and Liquidity (14%). This implies
that there is not much difference between the percentages of people who would take for
higher risk for higher returns. Safety being at the second position showing the cautiousness of
the people as regarding the safety of their money. The least preferred basis being Tax Benefit
with only 18% of the people going it. This indicates that the number of people going for
investment into various tax saving schemes or tax saving
investment avenues is far lesser than the others. Thus, it can be concluded that investors are
willing to invest provided they get higher returns.

Preference for Mutual Fund Schemes

Depending upon the risk taking ability of an investor and their investment objectives, the
various mutual fund schemes can be divided into:

 Equity (Growth & Dividend)

 Debt (Income)
 Balanced
 Sector Specific
 Tax Benefit

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On the basis of the above, the respondents were asked to choose the type of scheme they
prefer to invest which is shown in the chart below:
In the given chart, it can be seen that the maximum number of people prefers to invest in
Equity (Growth & Dividend) with 39 % respondents going for this option, thereby, indicating
higher risk taking and risk bearing psyche of the investors. The least preferred being the
sector specific schemes showing very less or negligible inclination of investors towards
sector specific schemes. The reason for very less inclination towards sector specific schemes
is that if a particular sector does not perform well during a particular time, then that particular
sector specific scheme becomes a failure for the investor and also the investors end up
incurring huge losses. Since the risk into various equity schemes is diversifiable, so if one
sector does not perform well then the fund is not affected very much. As far as investment
into debt schemes is concerned only 10 % of the respondents are keen on investing into them
because of the lower interest rates prevailing in the market.

Fig: D

TYPE OF SCHEMES

EQUITY(GROWTH & DIVIDEND) DEBT( INCOME)

BALANCED SECTOR SPECIFIC
TAX BENEFIT

Balanced schemes as the second most preferred type of mutual fund schemes indicates that
28 % of people prefer to invest into blend of equity as well as debt so that they get some
assured returns through debt investments in case the shares does not perform well on the

- 52 -
stock exchanges. Thus showing the reasonable risk taking ability. Hence it can be concluded
that higher returns (with higher risk factor) provided by investment into equity schemes are
leading more and more investors to take higher risk for higher returns.

FACTORS INFLUENCING CHOICE OF A MUTUAL FUND

There are number of factors that affect the decision to choose a particular mutual fund for
making investments. On the basis of the secondary data, following 5 factors have been
considered:
 Past Record of the Organization
 Growth Prospects
 Credit Rating
 Market Fluctuations
 Disclosure of the Adequate Information
To know the opinion as to how significant or insignificant these factors are for them ,
respondents were asked to choose the level of significance( very significant ,significant,
neutral, insignificant & very insignificant) of each factor in their decision making while
choosing a mutual fund for investment. The responses of all the respondents regarding above
5 factors has been discussed below:

- 53 -
Past Record of the Organisation
An examination of the chart below reveals that for 79 % (51 % very significant & 28%
significant) of the respondents, it is very relevant to know the “Past Record of the
Organization”. This implies that while choosing a fund, people consider very much important
to know about how the organization has performed in the past. Out of the remaining 21%, 10
% of the people do not have any opinion regarding this.
Fig: E

PAST RECORD OF THE ORGANISATION

VERY SINGNIFICANT SIGNIFICANT NUETRAL

INSIGNIFICANT VERY INSIGNIFICANT

- 54 -
And the remaining 11 % feels that the past performance is not an important factor for them
while choosing a mutual fund because despite of other factors the performance of mutual
fund is dependent on the market conditions. But the percentage of people having this opinion
is only 11%.Hence, it can be concluded that past performance is an important factor
influencing a fund choice.

Growth Prospects
Fig: F

GROWTH PROSPECTS

VERY SINGNIFICANT SIGNIFICANT

NUETRAL INSIGNIFICANT
VERY INSIGNIFICANT

The above chart reveals that 74 % (33% Very Significant & 41 % Significant) of the
respondents consider “Growth Prospects” as very significant factor for influencing their
choice for investing into a fund. Here, it is very important to know that 17 % of the total
respondents do not form any opinion regarding whether growth prospects of the particular
fund are significant or insignificant. It can also be seen clearly that only 9% consider it as an
insignificant factor while choosing for investing into fund.Hence, it can be said that growth
prospects of the fund also plays a very important role for influencing investor’s choice for
investment into a fund.

- 55 -
Credit Rating

Fig: G

CREDIT RATING

VERY SINGNIFICANT SIGNIFICANT NUETRAL INSIGNIFICANT

VERY INSIGNIFICANT

The above chart reveals that credit rating given to various schemes by the different credit
rating agencies like CRISIL e.t.c. have significant impact on the investors while they choose
a particular schemes for investment. According to the above diagram, around 77% of the
investors consider credit rating as an important factor in influencing their choice for
investment into a particular scheme. The percentage of people not considering the rating for
their investment decision making is again very minimal at 12% with 5% of respondents
considering it to be very insignificant point. The reason for their non-consideration can be
because of the different parameters used by different agencies for evaluating the performance
of the various schemes. Thus it can be concluded that credit rating to large extent have impact
on influencing the choice for investing into a particular scheme.

- 56 -
Market Fluctuations
Fig: H

MARKET FLUCTUATIONS

VERY SINGNIFICANT SIGNIFICANT

NUETRAL INSIGNIFICANT
VERY INSIGNIFICANT

The role market going upside and downside plays a very important and key role in the
functioning of the mutual fund industry. Since mutual funds are subject to market fluctuations
so any event that occurs in the market may have adverse or positive impact on the various
funds that are operational. But it is very important to know whether market fluctuations have
any impact on the investors when they opt for any scheme. Whether investors purchase a
fund due to fluctuations in the market that may have impact on the value of that particular
fund they intend to invest into. As per the above diagram, 48% i.e around half of the
respondents considers market fluctuations as a very significant factor that influences the
choice for a particular scheme. Further, 26% of the respondents consider it to be a significant
factor but not very significant one for them. Hence, overall 72% of the respondents consider
market fluctuations as very significant or significant factor for influencing their decision to
invest into a particular fund. It is very important to note that out of the total sample size of
262 respondents , 60 considers it neither significant or insignificant factor for affecting their
investment decision despite of the fact that it is clearly mentioned “Mutual Funds are
subject to market risk , please read the offer document carefully before investing ”.
However, only 3% of the respondents do not considers it to be very important factor while
going for investing into the mutual funds.

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Disclosure of Adequate Information

Disclosure of adequate information indicates transparency in relation to the communicability

as to how the fund is performing. It means that any decision of the management of any
information that may lead to increase or decrease in the value of the units holdings of the
investors or any other information that needs to be communicated to the investors must be
disclosed to them. Hence it is very important to that whether investors consider it very
important factor for their investment decision making. This has been explained with help of
diagram in the diagram below:

Fig: I

DISCLOSURE OF ADEQUATE INFORMATION

VERY SINGNIFICANT SIGNIFICANT NUETRAL

INSIGNIFICANT VERY INSIGNIFICANT

In the above diagram, it can be clearly seen that disclosure of information by the companies
in relation to it schemes is again one of the very significant factor. Out of the total
respondents 76 % considers it very important or important factor while opting for an
investment scheme where only 3% people disagree that disclosure of proper and adequate
information is as not very important factor affecting their choice for investment further there
were 55 respondents out of the total sample size of 262 who does not have any opinion as to
the level of significance or insignificance for the disclosure of adequate information as a
factor influencing their decision to go for investing with a particular Mutual funds.

- 58 -
Hence it can be concluded that the entire factor discussed above plays a very important role
in influencing the choice of a particular schemes. It is very important to know which factor is
the most important among all of the factors discussed above. So to know the most ant least
preferred among them Weighted Average Score (WAS) has been calculated for each of the 5
factor discussed previously. Weights have been provided as follows to the various options:

Table: 2

Options Weights
Very Significant (VS) 2
Significant (S) 1
Neutral ( N) 0
Insignificant (IS ) (1)*
Very Insignificant (VIS) (2)*
* Negative

Table 3 shows the factors influencing fund choice, their frequencies along with their WAS
and rank given in ascending order to the various factors on the basis of maximum WAS.
Table: 3
Particulars VS S N IS VIS WAS Rank
Past record of the Organisation 134 73 26 18 11 1.15 3
Growth Prospects 86 107 45 13 11 0.93 5
Credit Rating 118 84 29 18 13 1.05 4
Market Fluctuations 126 68 60 5 3 1.18 2
Disclosure of adequate 128 71 55 5 3 1.21 1
information

Hence on the basis of WAS of all the five factors, it can be said that disclosure of adequate
information is ranked at the first place with WAS (1.21) followed by market fluctuations as
the next most important factor influencing the choice of a fund.

APPRAISAL CRITERIA OF MUTUAL FUNDS

- 59 -
For taking decision regarding investment in a particular mutual fund , investor’s try to assess
the performance of a chosen fund on the basis of certain criteria. For appraising fund’s
performance the investors were asked
to rate following four chosen criteria of performance appraisal of a mutual fund on a five
point scale according to the significance attached to them. The chosen criteria for
performance appraisal are:
 Size of the Fund
 Portfolio Selection
 Net Asset Value
 Returns / Dividend

The responses given to different criteria along with their Weighted Average Scores (WAS)
has used to analyze the relative measure used by the investors for performance appraisal of
the various schemes.

Size of the fund

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Size of the fund refers to the total asset base, or total amount of money that a mutual fund
manager must oversee and invest. The performance of a mutual
Fig: J

SIZE OF THE FUND

VERY SINGNIFICANT SIGNIFICANT NUETRAL INSIGNIFICANT

VERY INSIGNIFICANT

fund may or may not be affected by its size. Some people use size of the fund as criteria for
performance appraisal of a scheme. The responses as to how important are this criteria from
investors point of view has been explained with the help of figure J.

The figure reveals that according to 71% of the respondents, size of the fund is very
important criteria for them to judge the performance of a fund hence indicating that if a fund
is increasing in its size over a period of time then growing size of the fund will be a
considering factor with respect to judging the performance of the fund. Further, around 21%
of the respondents does not consider it to be an important factor for evaluating the
performance of a fund. 10 % of the total respondents do not have any opinion as to
considering it as criteria for performance appraisal of a fund. thus it can be concluded that
largely people consider size of the fund as an important factor for evaluating the performance
of a mutual fund.

Portfolio Selection

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Portfolio of schemes refers to the blend or mix of various securities that are held into a fund.
The choice of the type of securities to be held depends on the fund manager of that particular
fund or scheme. The portfolio of various schemes varies according to the market conditions,
asset size, and objective of the scheme e.t.c. For example, sector specific schemes invests
only into those sectors for which these schemes were started .it is the performance of the
various securities in a fund that differentiate the returns earned by various schemes. The
diagram shows how significant of insignificant factor is it for judging the performance
appraisal of a fund from the investors point of view.
Fig: K

PORTFOLIO SELECTION

VERY SINGNIFICANT SIGNIFICANT NUETRAL

INSIGNIFICANT VERY INSIGNIFICANT

Criteria for influencing their investment decisions while judging the performance of the
funds. And only 5% of the people does not consider is significant or insignificant for
performance evaluation of various schemes.

In the above diagram, it can seen that 65% (55 % very significant & 10% significant) of the
respondents considers portfolio selection or the types of securities for evaluating the
performance of the mutual funds which is comparatively a bit lesser preferred criteria for
judging the performance of the fund .the reason for it can be the direct relation of the
securities with the fluctuations in the securities due to market upsides and downsides. Out of

- 62 -
the total sample of 262 respondents, 30% respondents with 12% of them considering it to be
insignificant and 18% of them considering being very insignificant

Net Asset Value (NAV)

NAV is the total asset value per unit of the fund and is calculated by the Asset Management
Company (AMC) at the end of every business day. Net asset value on a particular date
reflects the realizable value that the investor will get for each unit that he is holding if the
scheme is liquidated on that date.Net asset Value (NAV) calculated every day by dividing the
daily market value of total assets under management of the fund (minus its liabilities) by the
number of the shares outstanding. Changes in the value of the NAV are the result of changes
in the market value of securities held by the mutual fund, issuance and redemptions of mutual
fund shares and by the fund manager’s daily management of the scheme’s investment
portfolio.

NAV is another tool by which one can measure the performance and investment efficiency of
the fund over time. A mutual fund's investment performance is best measured by its total
return or the change in NAV during the period. One of the best methods of determining how
well a fund has done is to compare its NAV at the beginning of the period, with its current
NAV. The responses as to how important NAV as performance judging parameter according
to the investors has been given below:

- 63 -
Fig: L

NET ASSET VALUE

VERY SINGNIFICANT SIGNIFICANT NUETRAL

INSIGNIFICANT VERY INSIGNIFICANT

In the above diagram it can be clearly seen and undoubtedly can be said that the NAV is
considered as the most important parameter for judging the performance of the mutual funds.
In the diagram 94% of the respondents consider NAV as the most important value judging
parameter for evaluating the performance of mutual fund schemes.

Returns / Dividends
Fig: M

RETURNS / DIVIDEND

VERY SINGNIFICANT SIGNIFICANT NUETRAL

INSIGNIFICANT VERY INSIGNIFICANT

- 64 -
Returns or Dividends are the ultimate goal of the investors and every investor expects certain
amount of returns on the investments made by him/her. Generally people invest into an
option over the because of the better returns from the chosen option .The above figure reveals
as to what are the responses of the people regarding returns as a parameter for evaluating
performance of the funds.

In Figure M, 82% considers returns as very significant and 14 % considers it to be significant

parameter for performance evaluation of fund, hence it can be said that according to 96% of
the people, returns are considered major factor for making decision to invest into a fund or as
the major criteria for evaluation of performance of the mutual fund. Only 2 out of the total
people surveyed do not consider it as factor for performance appraisal. Hence it can be
concluded that Returns are major helping parameter for the investors that helps them to make
decision as to where and in which fund to invest.

To analyse which parameter is the most effective WAS of the various performance appraisal
parameters has been considered and the parameters were ranked on the basis of their WAS.
The following table shows the WAS of different parameters along with their frequencies,
their rankings according to their WAS

Table: 4

Performance Criteria VS S N IS VIS WAS Rank

Size Of The Fund 105 81 26 37 13 0.87 3
Portfolio Selection 144 26 13 31 48 0.72 4
Net Asset Value 105 141 8 3 5 1.29 2
Returns/ Dividends 214 37 5 3 3 1.75 1

From the above table, returns are undoubtedly the key parameter for judging the performance
of the mutual funds followed by net asset value and size of the fund at second and third
position respectively. Hence, it can be concluded that returns from a particular schemes
attracts the investors most and is the key factor in investor’s decision making process.

- 65 -
Performance Evaluation Of Mutual Funds

Different investment avenues are available to investors. Mutual funds also offer good
investment opportunities to the investors. Like all investment, they also carry certain risks.
Risk factor is an important aspect while investing with the mutual fund schemes. So it is very
important from the investor’s point of view to choose the right kind of scheme based on on
different parameters of performance evaluation. To help investor’s in evaluating the
performance of a scheme , a comparative analysis of 28 equity growth schemes has been
made on certain set parameters which has been discussed below :
The performance evaluation has been divided into two parts. Part 1
explains different concepts used in evaluating the performance of Mutual Funds. The
research methodology and performance evaluation of selected mutual fund schemes using
these parameters has been discussed in Part 2.

Part 1

For the purpose of analyzing the various schemes following parameters has been used :

 Portfolio
 Expenses
 Risk and Volatility
 Risk Adjusted Return
 Returns

Portfolio

A valuable judging parameter for any scheme is its portfolio. It tells us the exposure the fund
has to various stocks and also various sectors. Careful analysis of the fund’s portfolio would
help an investor in making valuable insights into the investment strategy of the fund manager.
For analysis of the performance of the various mutual funds on the basis of portfolio,
Portfolio turnover rate has been considered which has been explained as under:

- 66 -
By definition Portfolio Turnover is “the lesser of annual purchases or annual sales ,divided
by the average portfolio value”. It measures the amount of buying and selling done by the
fund manager and hence tells us the weighted average holding period of a given security. For
example, if a fund produced a turnover of 50% , it is presumed that the average holding
period for any given security is 2 years and that 50% of the portfolio’s total assets were
replaced every year. This number varies by the type of fund and the investment philosophy of
the manager. A high turnover ratio means high
transaction costs.

Expenses

From an investor point of view , it is very important to know about the expenses related with
the buying, selling, transferring fees and any other costs you may incur if you invest in a
specific fund .So for analyzing the expenses of the various mutual funds , the expense ratio of
the funds has been considered.

By definition Expense ratio is the ratio of total expenses to average net assets. An investor
can check information on scheme’s expenses ratio in its offer document. Depending upon the
type of scheme, expense ratio may vary from scheme to scheme. The lowest expense ratio
are observed among index funds and ETFs. Stock funds have higher expense ratio than fixed
income funds . Funds that invest internationally tend to have significantly higher expense
ratio than to domestic portfolios, due to greater research and other costs associated with
foreign investing .Expense ratios of the schemes in same category are to be compared .Low
expense ratio is desirable .

Risk and Volatility

RISK
Risk is the key dimension of performance measurement, and a decisive factor in determining
a fund manager’s skill .One cannot make a judgment about how skilful a manger is in a
particular period by looking at return only.
Risk in a generic sense is the possibility of loss, damage , or harm. For investment a more
specific definition of risk can be given .It refers to variability in the expect return .

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For a mutual fund the following factors cause variability of the investment performance ;

 The kind of securities in the portfolio. For e.g., small cap stocks may be more volatile
than large cap stock .
 The degree of diversification. For e.g., a portfolio of only 5 stocks may be more
volatile than a portfolio comprising of 15 stocks.
 The extent to which the portfolio manager times the market. For e.g., an index fund
tends to be less volatile than an aggressive growth fund.

Risk is neither good nor bad rather as it is viewed in some context. The difference between
the required rate of return on a mutual fund investment and the risk free rate is the risk
premium. There are many sources that determine appropriate risk premium including market
risk, business risk, liquidity risk, financial risk (leverage), duration, and credit risks for bonds
and political and currency risk for international assets. Broadly, the market risk can be
divided into 2 following categories :

 Systematic Risk - Systematic risk is market related or non-diversifiable. It is the risk

that influences a large number of assets. An example is political events. It is virtually
impossible to protect yourself against this type of risk.

 Unsystematic Risk – Unsystematic risk is one that is unique to given particular

mutual fund portfolio and is diversifiable. It is the risk that affects a very small
number of assets. An example is news that affects a specific stock such as a sudden
strike by employees.

Volatility
Volatility is a measure of the variability of returns over a chosen time-period. It reveals the
extent by which the daily/weekly/monthly price changes from the average. A low percentage
volatility shows that the price has stayed quite close to the average whereas a high percentage
volatility shows that the price has moved up and down a lot over the time-period. The higher
the volatility of a fund, the greater the difference between the highest and lowest returns and
the higher the risk of the investment. So volatility is a market measure of uncertainty –
investors keep changing their minds as to the value of the share, which reflects uncertainty
surrounding the company’s future profit potential. As such, it's an excellent indicator of

- 68 -
investment risk. So for measuring the risk in context of volatility of the fund ,following
measures has been used :
 Fund’s Volatility (σ) i.e. variation from the average.
 Fund’s Resemblance (R2) i.e. the extent to which the movement in the fund can be
explained by corresponding benchmark index.
 Fund’s Volatility as regards the market index (β) i.e. the extent of co-movement of
fund with that of benchmark index.

Standard Deviation (σ)

Standard deviation is a measure of dispersion in return .It is a statistic to measure the

variation in individual returns from the average expected return over a certain period of
time .A higher value of standard deviation means higher risk. In other words, the standard
deviation tells us how much the return on the fund is deviating from the expected normal
returns. Though, standard deviation measure volatility on both the upside and the downside,
it’s a good proxy for measuring the risk of loss with any security. One of the strengths of
standard deviation i.e. it can be used across the board for any type of portfolio with any type
of security. Standard deviation allows portfolios with similar objectives to be compared over
a particular time frame. It can also be used to gauge how much more risk a fund in one
category has versus the other. Hence, Standard deviation is used probably more than any
other measure to describe the risk of a security or a portfolio of securities.

Co-Efficient Of Determination (R2)

It shows the extent to which benchmark market index taken explains the portfolio of the
given fund. It measures percentage of mutual funds movement that corresponds to use bench
market index. Therefore, a fund having R2 of 100%, indicates perfect correlation with the
chosen index. A R2 of 0 %( zero percentage) would indicate no correlation whatsoever with
the chosen benchmark index .So an investor should screen for fund with R 2 approaching
100% so as to have better return assurance against benchmark index .The lower the R 2 _

squared the less reliable beta(systematic risk) is as a measure of a security’s volatility . IT

funds, for example, may have a low with the BSE 30 or Nifty indicating that their betas
relative to the BSE 30 or Nifty are pretty useless as risk measure. So to evaluate fund
properly comparison with appropriate benchmark is important. Hence knowing the goodness

- 69 -
of fit between a fund and its appropriate benchmark is crucial to avoid meaningless and
perhaps misleading analysis.

BETA (β)

Beta relates to the return of a stock on mutual funds to a market index. When a portfolio is
evaluated in combination with other portfolios, its excess return should be adjusted by its
systematic risk rather than by its total risk. So is beta is used to measure market risk. It
compares the variability of fund’s return to the market as a whole .It reflects the sensitivity of
the fund’s return to fluctuations in the market index. By convention, market will have Beta
1.0 and Mutual Funds can be volatile, more volatile or less volatile .A beta that is greater than
1 means that the fund or stock is more volatile than the benchmark index , while a beta of less
than 1 means that the security is less volatile than the index. Therefore, if the market goes up
by 10% , a fund with a beta of 1.0 should go up 10%, too, while if the market drops 10% , the
fund should drop by an equal amount. Similarly, a fund with its beta of 1.1 , would be
accepted to be a bit more volatile than the market i.e. if the market gains 10%, then the fund
will gain 11%, while a 10% drop in the market should result in an 11% drop by the fund. And
a fund with a beta of 0.9 would return 9% when the market went up 10% but would loose
only 9% when the market dropped by 10%. Hence, Beta provides a measurement of a
security’s past volatility relative a specific benchmark or index, but one needs to be extra
cautious while choosing the relevant benchmark.

Risk- Adjusted Return

The performance measurement is mainly associated in context of measure of risk with

realized returns. This is because the differential returns earned by the fund manager may be
due to difference in the exposure to risk. Hence it is imperative to adjust the return for the
risk. For this purpose the following 2 major methods assessing risk adjusted return has been
used for the evaluation of the performance of various mutual funds.

 Return Per Unit of Risk

 Differential Return ()

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RETURN PER UNIT OF RISK

The first of the risk adjusted performance measure is the type that assesses the performance
of a fund in terms of return per unit of risk. We have used following 2 measures for
evaluating fund’s performance:

 Sharpe Ratio
 Treynor Ratio
Sharpe Ratio

It is Reward to variability ratio given by W. F. Sharpe in 1966.It is a measure of relative

performance and is expressed as the excess return per unit of risk, where risk is measured by
the standard deviation of the rate of return. The ratio is defined as:

Sp = (Rp –Rf)/ σp

Where, Sp = Sharpe’s ratio for fund p,

Rp = Average return on fund p,
σp = Standard deviation of return on fund p, and
Rf = Return on risk free asset

As it is a measure of relative performance, therefore, it enables the investors to compare two

or more investment opportunities. A fund with a higher Sharpe ratio in relation to another is
preferable as it indicates that the fund has higher risk premium for every unit of standard
deviation risk. Since Sharpe ratio adjusts return to the total portfolio risk, the implicit
assumption of the Sharpe measure is that the portfolio will not be combined with any other
risky portfolios. Hence, it is a relevant measure for the performance evaluation several
mutually exclusive portfolios.

- 71 -
Treynor Ratio

It is reward to volatility ratio given by Jack Treynor in 1965 and is expressed as a ratio of
returns to systematic risk (Beta). The Treynor measure adjusts excess return for systematic
risk. It is computed by dividing a portfolio’s excess return by its beta as shown in equation

Tp = (Rp – Rf)/ βp

Where: Tp = Treynor’s ratio for fund p

βp = Sensitivity of fund return to market return
Rp = Average return on fund p
Rf = Return on risk-free asset.

Like Sharpe ratio it is measure of relative performance it measures the portfolio risk in the
terms of beta that is the weighted average of individual security betas. The higher the ratio
the better is the performance. As treynor ratio indicates return per unit of systematic risk, it is
valid performance criterion when we wish to evaluate a portfolio in combination with the
benchmark portfolio and other actively managed portfolios.

DIFFERENTIAL RETURN

The second category of risk adjusted performance measure is referred ass differential return
measure. The underlying objective of this category is to calculate the return that should be
expected for the fund scheme given its realized risk and to compare that with the return
actually realized over the period .

Jensen Ratio

It is a regression of excess fund return with excess market return given by M.C. Jensen in
1968. It is expressed as:

Rpt – Rf = α + β (Rm – Rf) + ei

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Where Alpha (α) = the intercept
β = Systematic risk
Rm= Market return
Rpt = Fund return for time period t
Rf = Return on risk- free asset

The intercept of the equation provides Jensen’s measure of the performance. The measure is
derived from Capital Asset Pricing Model (CAPM). This involves running a regression with
excess return on the security and that on the market acting as dependent and independent
variables respectively, where excess return is computed with reference to return on a risk-free
return. Significantly positive alpha indicates superior performance.

Returns

Returns referred to total returns that an investor gets by investing into a particular schemes.
Higher the return better it is from an investor point of view. .For the purpose of our analysis
last 3 years return i.e. from April 1, 2002 to March 31, 2005 s has been taken into
consideration so as to have true picture of the average return that a particular schemes
fetched. For comparing the returns earned by the schemes , BSE 30 has been taken as the
benchmark index ..Return for both benchmark market index i.e BSE 30 and the schemes has
been calculated from the daily index value and net asset value (NAV) respectively. Then the
average of the series so developed has been taken. By comparing last 3 years average returns
with the benchmark one can know how much returns were given by a particular schemes in
comparison to the return given by the market on the schemes under that same category.

Research Methodology used for performance appraisal of various schemes

Objective
To analyze the performance of public and private sector mutual fund companies on the
parameters which have been discussed in this chapter.

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Benchmark Index
For this study, BSE index (which is constituted of 30 shares ) as the benchmark indices for
evaluating the performance of equity growth funds has been taken for the purpose of our
study.

Risk-free return
Risk-free rate of return refers to the minimum return on investment that has no risk of loosing
the investment over which it is earned. For the present study, it has been marked around
5.75% per annum as the banks provides at the same rate on fixed deposits on an average
during the period under the study.

Selection of Mutual Fund schemes for Performance Evaluation

From the primary survey conducted to study the perceptions of the investors as regards
mutual funds in India, mutual funds, which emerged as most preferred schemes for
investment. Among the most preferred schemes by the respondents only A,AA and AAA
rated schemes have been considered .To
study performance of mutual funds of private(8) and public sectors(8) AMC’’s ( Asset
Management Companies ), following AMC’s have been selected as preferred by investors:

Public Sector

2. State Bank of India Funds Management Limited

3. Unit Trust of India

Private Sector

1. Alliance Capital Asset Management (I) Private Limited

2. Birla Sun Life Asset Management Company Limited
3. Templeton Asset Management (India) Private Limited
4. HDFC Mutual Fund
5. J M Capital Management Limited
6. Kotak Mahindra Mutual Fund
7. Prudential ICICI Mutual Fund
8. Reliance Mutual Fund

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Period of Study
The growth-oriented schemes, which have been floated by the selected funds during the
period Jan 2005 to May 2017, have been considered for the purpose of the study. Daily Net
Asset Value (NAV) as declared by the relevant mutual funds from the inception date of a
particular scheme to May 2005 has been used for the purpose.

Schemes Selection
For the purpose of the study , all AAA, AA and A rated schemes have considered due to
paucity of data for schemes which are not rated. Also in the equity only rated growth schemes
have been considered due to:
 Due to paucity of time
 Limited information
 Inappropriate data

Data
This study examines open-ended 28 equity/growth schemes being launched by selected
mutual funds mentioned here above. These selected schemes has been selected launched
during the period of Jan 2005 till May 2017. Daily Net Asset Value (NAV) data has been
used and the period of the data considered is from the date of inception of the scheme or from
the date of availability till May 31, 2017 (see table A).

Name Of The Scheme Type Date Of Launch

(Public Sector )
SBI Magnum Contra Equity Diversified July 1999
SBI Magnum Global Equity Diversified Sep 1994
SBI Magnum Multiplier Plus Equity Diversified Feb 2005
SBI Magnum Taxgain Equity Tax Planning Mar 2005
UTI Brand Value Equity Diversified Jun 1999

UTI Equity Tax Savings Plan Equity Tax Planning Dec 1999
UTI Grandmaster Equity Diversified Jun 2005
UTI Growth And Value Fund Equity Diversified Oct 1999
UTI Master Growth Equity Diversified Feb 2005
(Private Sector )
Alliance Basic Industries Fund Equity Diversified Jan 2000
Birla Equity Plan Equity Tax Planning Feb 1999
Fanklin India Bluechip Equity Diversified Nov 2005
Franklin India Prima Equity Diversified Nov 2005
Table A: List of Mutual Fund schemes studied

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 Name Of The Scheme Type Date Of Launch

(Private Sector )
Franklin India Prima Plus Equity Diversified Sep 1994
Franklin India Taxshield Equity Tax Planning April 1999
Templeton Growth Funds Equity Diversified Aug 1996
HDFC Capital Builder Equity Diversified Jan 1994
HDFC Equity Equity Diversified Dec 1994
HDFC Tax Saver Equity Tax Planning Mar 1996
HDFC Long Term Advantage Equity Tax Planning Dec 2000

HDFC Top 200 Equity Diversified Sep 1996

JM Equity Equity Diversified Dec 1994
Kotak 30 Equity Diversified Dec 1998
Kotak MNC Equity Diversified Mar 2000
Prudential ICICI Power Equity Diversified Sep 2014
Prudential ICICI Tax Plan Equity Tax Planning Aug 2015
Reliance Growth Equity Diversified Oct 2016
Reliance Vision Equity Diversified Oct 2017

As the period considered for different schemes is different (i.e. from inception date of every
scheme till May 31, 2017 ), therefore, separate values for benchmark index for the parameters
like average return, Sharpe ratio, Treynor ratio etc has been calculated separately for all the
schemes also and has been depicted in appropriate tables .

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 Findings And Suggestions

Major Findings Of The Study

The following are the major findings of the study:

1. There has been a high and positives growth been registered by the mutual funds.

2. There is no change in the organizational structure and Management pattern of public

sector and private sector Mutual Funds working in India.

3. The regulatory bodies like SEBI and others have not been able to control the working
of mutual fund properly and legal framework is not appropriately designed.
Moreover, the funds have under – performed as against expectation and management
has been inefficient, thereby discouraging investors to keep their funds parked in
public sector mutual funds.

4. In all the public sector mutual funds, as per the Corpus or the total amount invested by
the people UTI still hold the maximum share. However, the trend has moved in favor
of private sector, more sharply since 2016-17.

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5. Within the private sector the funds leading are Franklin Templeton India, HDFC
Mutual Fund, Reliance Mutual Fund etc.

6. As per scheme wise break up, out of the total currently operative schemes maximum
investments are in the growth schemes.

7. The proportion of open ended schemes as against close ended ones in all the
categories is very high.

Perceptions of investors towards mutual funds

1. A large number of investors are moving towards mutual funds. Nearly than three
fourth of the existing investors have decided to invest into mutual funds because the
investment in mutual funds is being considered to fetch higher returns as compared to
the other investment options.

2. The most preferred form of investment by the respondents have been considered as
mutual funds showing the growing awareness among people towards mutual fund as
investment option with Real Estates and Share/ Debenture being at second and third
place. The least preferred being investment into NSS, NSC Schemes and UTI
schemes.

3. The most preferred basis while going for an investment option being high returns at
first place , followed by safety and reliability at second and third place respectively.

4. As per the analysis, people prefer to invest in equity schemes the most because of
higher return with second best most preferred type being balanced schemes. The
sector specific ( due to limited diversification into a particular sector )and debt
schemes (due to Low return) have been considered as the least preferred schemes .

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 5. Disclosure of adequate information is ranked at the first place followed by market
fluctuations as the most important factors influencing the choice investment into a
fund.

6. The respondents considers only the return provided on investment provided by the
fund to be the best criteria of performance appraisal of a fund followed by NAV being
the next most preferred criteria for performance appraisal .Another, startling fact that
has emerged in the analysis is that the investors does not rate the funds performance
based on its size i.e. Bigger size of fund is not assumed to be a guarantee for better
performance, like, in the case of UTI schemes .

7. Majority of investor’s base their investment decisions either through the newspapers
or published journals and very minimum number of people base their investments on
the basis of broker’s advice or suggestions.

8. Analysis of experience as to returns received highlighted the finding that nearly four –
fifth of the investors have got either high or very high returns from investment into
mutual funds due to boom in the Indian stock markets resulting in higher returns for
mutual fund investors. And because of such high returns they intend to invest further
into mutual funds only.

Performance Of Mutual Funds

1. Portfolio Turnover Ratio: On the basis of portfolio turnover ratio ,the best
performance has been shown by Franklin India Prima , Franklin India Prima Plus
and Kotak MNC. And, average performance has been shown by UTI mutual (except
UTI Growth and Value fund), Reliance mutual fund and prudential ICICI mutual fund
to private sector is very high .

2. Expense Ratio: From expense ratio point of view the best performance has been
shown by schemes of reliance mutual fund. SBI Magnum Multiplier Plus, UTI Master
Growth and Franklin India Bluechip has performed average in terms of expenses
incurred Overall all other schemes whether public or private sector have performed
very badly on the basis of the expense ratio .

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3. Return earned by the schemes: On the basis of average 3 year returns , SBI
Magnum Taxgain Franklin India Prima HDFC Tax Saver , HDFC Long Term
Advantage and the schemes of Prudential ICICI mutual funds and Reliance mutual
fund has been on the top on the performance chart. The worst performance in the
terms of last average 3 years returns has been shown by SBI Magnum Contra , SBI
Magnum Multiplier , Franklin India Taxshield , JM Equity, Kotak 30 and all the
schemes of UTI mutual fund ( except UTI Growth & Value fund).

4. Sharpe Ratio: SBI Magnum Contra , HDFC Tax Saver ,HDFC Top 200 and
Reliance Vision have performed very well on the basis of Sharpe ratio which implies
that these schemes have been able to generate better excess returns per unit of
standard deviation than the other schemes of the same type in the industry.The
schemes which have performed very badly includes SBI Magnum Multiplier Plus,
UTI Brand Value, UTI Grandmaster, UTI Master Growth, Fanklin India Bluechip,
Franklin India Taxshield, Templeton Growth Fund ,Kotak MNC and both the
schemes of Prudential ICICI mutual fund.

5. Treynor Ratio: According to Treynor ratio has been given to Fanklin India Prima
HDFC Tax Saver and Reliance Growth has performed well. The schemes which have
shown poor performance as per Treynor ratio are SBI Magnum Multiplier Plus, UTI
Brand Value, UTI Master Growth, UTI Master Growth, Franklin India Taxshield,
Templeton Growth Fund and Kotak MNC.

6. Jensen Ratio: On comparing the various schemes on the basis of Jensen ratio , most
of the schemes have performed either good or average with exception of some of the
schemes like SBI Magnum Multiplier Plus, Fanklin India Bluechip, Franklin India
Taxshield, HDFC Top 200 , Reliance Vision and all the schemes of UTI mutual fund
(excluding UTI Grandmaster).

7. Standard Deviation : On the basis of standard deviation , it is being observed that

SBI Magnum Multiplier Plus, SBI Magnum Taxgain and Prudential ICICI Tax Plan
has shown higher level of risk and therefore higher deviations from the expected level
of returns .Lower standard deviation indicating low deviations from returns expected

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 is shown by UTI Brand Value, UTI Equity Tax Savings Plan , UTI Grandmaster,
Franklin India Prima Plus, Franklin India Taxshield, HDFC Capital Builder ,HDFC
Equity, HDFC Tax Saver, JM Equity, Kotak 30 and Kotak MNC.

8. Systematic risk Beta refers to the level of systematic risk. Market beta is considered
to be 1. In the above table SBI Magnum Multiplier Plus, SBI Magnum Taxgain and
Prudential ICICI Tax Plan have been categorized to have higher beta indicating beta
more than 1 implying very high risk undertaken. UTI Brand , UTI Equity Tax Savings
Plan, Franklin India Prima Plus, HDFC Capital Builder, HDFC Tax Saver , JM
Equity and Kotak MNC with lower beta shows the lower systematic risk that is not
know which shows higher efficiency on the part of the mutual fund company. On
comparing private sector with public sector , it is observed that private sector mutual
fund companies
has been much more cautious in taking than public sector schemes as it can be inferred
from the beta of various schemes.

9. Coefficient of determination: Schemes like SBI Magnum Multiplier Plus, JM Equity,

Kotak 30, HDFC Equity and all the schemes of UTI mutual fund and Franklin
Templeton India( except Franklin India Prima) with higher R2 shows higher
diversification indicating that these schemes have been able to explain the variation in
the fund as against market index. Hence almost all the schemes have been able to
justify the variation in their return with either high or average R 2 but those schemes
whose returns have not being justifiable includes Franklin India Prima, HDFC Capital
Builder, HDFC Tax Saver and Kotak MNC.

Prospects of mutual funds

As seen with the discussion in the report on basis of perception of investors towards mutual
funds, the growth potential of Indian mutual fund industry cannot be denied. People have
started considering mutual funds as an investment option in comparison with other
investment avenues. Hence , it can be said that Indian mutual funds industry is expected to
increase ,but there are lot of challenges ahead for the various AMC’s to get an edge over the
other. The managers of these mutual funds needs to sharpen their skills further so as to

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manage the pooled money in total professional way. Market \ timing, during both the bull and
the bear run, is the sole factor that would ensure their long-term survival in the trade.

SEBI and other controlling bodies of capital markets have started monitoring the market
movements more closely. A consistent effort is being made by them to refine the working of
capital markets and mutual funds. This is expected to go a long way to further strengthen the
confidence of investors in the mutual funds.

Precisely, mutual funds invest their funds in the stock markets, which in turn depend upon the
economic performance and political stability of that economy on one hand and fund’s
professional management on the other. Hence, with flourishing business of mutual funds in
India, conclusive environment for capital markets expected to be provided by the government
and positive initiatives being taken by SEBI to streamline mutual funds business, all now rest
upon the professional fund managers that how they sharpen their market timing skills and
diversify product range so to make funds tailor made to the needs of every investor to provide
handsome returns to them who entrust their hard earned money to the fund managers

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 Suggestions

The findings of this study, as discussed above, may prove to be of great use to the
government for streamlining the working capital markets through its regulatory bodies like
SEBI etc. So as to check the exploitation of small investors who are one of the major players
of capital needed for economic growth of the country. It may help SEBI to control effectively
the working of mutual funds so as to regain lost confidence with investors and take effective
steps for confirming investor’s right adherence by them.

As reported in the study, mutual funds, too, can earmark and try to improve upon their weak
areas regarding the factors that influence investors decision making as regards choice of
mutual fund, the facilities or options they expect from a mutual fund, the criteria they
generally believe to be the best for performance appraisal of a fund, their general perception
towards mutual funds at present and the problems which they encountered that resulted in
development of aversion towards mutual funds in the minds of investors . Mutual funds
should extend full support to the investors in terms of:

 Investment advisory service

 Ensuring full disclosure of relevant information to investors by the fund,
 Consultancy regarding understandability of terms of issue of different schemes, etc.

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 Further, as the study was concentrated, on the issue of perceptions and problems of small
investors regarding investment mutual funds, some important suggestions to them for
successful investing will be relevant here, generally, an average small investor commits
following mistakes while investing in stock markets:

 Over enthusiastic for making quick money, ignoring thereby the risk element and profit
potential of a given stock.

 Putting all their money in one or few investments i.e. Ignoring the strategy of
diversification of mutual funds.

 Not spending time in analyzing industries growth potential and overall market risk.

 Improper attention to the aspect of timing the market either bearish or bullish.

 Always insisting for short term investment

 No attempt for well thought out investment plan .

So, the question is: what should an investor do for getting healthy profits over such
investments? The answer is: enough patience that is needed of keeping money invested for a
long period of time and if one wishes that his capital should grow consistently the mutual funds
are better option, but remember, they too cannot make one wealthy in short period of time.
However, here are some suggestions for better investing:.

 Try to save as much as your budget allows, as more saving leads to more investment
that will grow into bigger capital base.

 Plan your investment over a linger period of time, keeping in mind your age, your
financial targets, your level of risk aversion your saving pattern and your investment
objectives.

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 Invest more in stock funds but do keep a reasonable part of your investment in liquid
securities as money market funds, short term bonds etc so as to meet any contingent
situation.

 Do not invest in highly volatile funds.

 Think before you invest. Do collect and analyze enough information about the funds
you plan to invest in.

 Do not confuse yourself by spreading your investment too wide but reasonable
diversification of investment is a must also.

 Periodically keep reviewing objectives of your investment and try to keep your assets
in balance.

 Lastly, maintain proper record of your transactions.

Scope For Further Research

Mutual funds are such a wide area of research that no single study can cover different
related dimensions. Even primary surveys for studying the perception of investors
towards mutual funds from time to time are not regular feature in India, hence there is
much potential of research on a bigger scale covering wider area.

Further, research can also be conducted for studying perceptions of institutional investors
towards mutual funds, the area which has been left out of the scope of the present study.

Research is also needed to review use of parameter beta ( i.e. systematic risk) for
performance evaluation of mutual fund in relation to a chosen market index as a
benchmark. This is because, beta is calculated on the basis of total return earned by a
given equity - diversified fund in relation to the market return whereas no equity -
diversified fund even invest solely in equities rather they, too, keep 5% to 10% of total
invested funds in liquid securities for meeting any contingent occurrence. Hence, for true

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performance evaluation, beta should be adjusted accordingly on the basis of percentage of
total investment in equities.

Limitations Of The Study

 Lack of time on the part of investors for filling up the questionnaire

 Unavailability of sufficient data due to which only A, AA and AAA rated schemes
have been considered for the performance evaluation of the various mutual fund
schemes .

 The study focuses only on growth oriented open ended equity schemes due to non
availability of sufficient data for the other types of schemes or debt funds e.t.c.

 For the purpose of evaluating the performance of various schemes , categorization of

the various schemes on the basis of different parameters has been done, and the
biggest disadvantage of such method is that the ranking of the scheme gets affected
due to extreme variations in the maximum and minimum values.

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 References and Bibliography

Magazines

 Outlook Money
 Business Today
 Capital Market
 Mutual Fund Insight

Newspapers

 Economic Times
 Business Line

Websites

 www.tatamutualfund.com
 www.valueresearchonline.com

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  www.amfiindia.com
 www.hdfcfund.com
 www.mutualfundsindia.com
 www.investopedia.com
 www.navindia.com
 www.capitalmarkets.com
 www.myiris.com
 www.indiainfoline.com
 www.sify.com

Fact Sheets and Web Site of the various Fund Houses.

BIBLIOGRAPHY

 Agharkar, Ajit and Nandkarani, Shirish (1987), “Mutual Funds on the Move”,

Sunday Observer, July19, p.16

 Ananil Kumar, Sinha, (1991), “Growth of Mutual Funds: An Appraisal”, The

Management Accountant, Vol. 26, no.3, March, pp.186-188

 Ansari, M.N.A.,(2005), “Mutual Funds in India”-Emerging Trends”, The Chartered

Accountant, August, pp. 88-89, 93

 Bansal, L.K., "Challenges for Mutual Funds in India-, Chartered Secretary,

October 1991.

 "Signals from Annual Reports of Mutual Funds"-, Chartered Secretary,

September, 1995.

 Bhat, Narayana, M.. "Mutual Funds: Some Regulatory Issues". The Economic

Times. January 7. 1990.

- 88 -
  Bhat. Prasanna, "Mutual Funds and Risk Dispersal", Fortune India. May 16. 1991.

 Damodar, Sunil, -Money Market Mutual Funds-Their Emerging Role in our

Financial System-, SBI Monthly Review, August, 1991.

 Dharmapal, K., -Mutual Funds-Times for Private Sector", Business India, August

5, 1991.

 Handa Rajiv, -Are MF Good Investments? Chartered Financial Analyst, February,

1995

 Karup, N.P., "Mutual Funds", PNB Monthly Review, June 1990.

 Sadak, H., "Money Market Mutual Funds", Sunday Mail, March 22-28, 1992.

Annexure

QUESTIONNAIRE

1. Have you ever invested in mutual funds? Which Fund?

a. Yes ( If yes, Name of the Fund ____________________ )

b. No

2. Do you intend to invest in mutual funds?

a. Yes

b. No

3. What form of investment(s) do you prefer. Rank top five in order of their preference

to you.

a. Real estate

b. Shares/ debentures

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 c. Mutual funds

d. Fixed deposits

e. Post office schemes

f. PPF

g. UTI schemes

h. Gold

i. LIC policy

j. NSC, NSS schemes

4. Tick the most preferred basis that you consider are important while investing into any

investment scheme.

a. Safety

b. Liquidity

c. Tax Benefit

d. Reliability

e. High Return

5. Which type of scheme do you prefer? Please tick and also name it.

a. Equity ( Growth & Dividend) _______

b. Debt (Income ) _______

c. Balanced _______

d. Sector Specific _______

e. Tax Benefit _______

6. Which of the following sources of information influence/influenced your choice of

Mutual funds.(Please tick as many as applicable)

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 a. Brokers

b. Financial Advisor

c. Friend’s Advice

d. Newspapers / Finance Journal

e. TV/ Internet

7. What has been your experience with returns expected from investment in mutual

funds.

a. Very High

b. High

c. Not High Not Low

d. Low

e. Very Low

f. Not applicable

8. Please rate the following factors that influence/influenced you choice of

mutual Fund according to their significance to you

Factors Very Significant Neutral Insignificant Very

Significant Insignificant
Past record of org
Growth prospects
Credit rating
Market fluctuations
Disclosure of
adequate information

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 9. What according to you should be the criteria for the performance appraisal of Mutual

Funds? Please rate.

Criteria Very Significant Neutral Insignificant Very

Significant Insignificant
Size of the Fund
Portfolio Selection
Net Asset Value
Return /Dividend

10 Please specify the level of your agreement on the following statements.

Statements Strongly Agree Neutral Disagree Strongly

Agree Disagree
MFs are useful for small
Investors
MFs give higher return than
other investors
Private Sector MFs perform
better
Higher tax shield be provided
for MFs

MFs with large corpus performs

better
MFs having balanced portfolio
only gives better returns
Close-ended MFs are less risky

Public sector MFs are more

secured than private sector MFs

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Open-ended MFs should also be
listed on stock exchanges
MFs investment is like owing
any other asset
MFs investment provides a
shield against risk of loss of
direct investment in shares.

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