A STUDY ON PERFORMANCE EVALUATION OF MUTUAL FUNDS

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Financial Markets)

Under the Faculty of Commerce

By

Ms. MANISHA .M. NAIK

Under the Guidance of

Mr. NIMESH JOTANIYA

THAKUR COLLEGE OF SCIENCE AND COMMERC

Thakur Village, Kandivali (E), Mumbai 400101

MARCH 2021
 Certificate

This is to certify that Ms. MANISHA .M. NAIK has worked and duly
completed his Project Work for the degree of Bachelor in Commerce
(Financial Markets) under the Faculty of Commerce and his/her project is
entitled, “A STUDY ON PERFORMANCE EVALUATION OF MUTUAL
FUNDS” under my supervision.

I further certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree or
Diploma of any University.

It is her own work and facts reported by her personal findings and
investigations.

Mr. NIMESH JOTANIYA NAME &

SIGNATURE OF EXTERNAL
Date of submission:

Declaration by Learner

I the undersigned Ms MANISHA .M. NAIK hereby, declare that the work
embodied in this project work titled “A STUDY ON PERFORMANCE
EVALUATION OF MUTUAL FUNDS” forms my own contribution to the
research work carried out under the guidance of

Mr. NIMESH JOTANIYA, result of my own research work and has not been
previously submitted to any other University for any other Degree/ Diploma to
this or any other University.

Wherever reference has been made to previous works of others, it has been
clearly indicated as such and included in the bibliography.

I, hereby further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.

MANISHA .M. NAIK

Certified by,

Mr. NIMESH JOTANIYA

 Acknowledgment

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me the
chance to do this project.

I would like to thank my Principal, Dr. (Mrs) C.T. Chakraborty, for providing
the necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator, Dr. Rashmi Shetty, for her
moral support and guidance.

I would also like to express my sincere gratitude towards my project guide. Mr.
Nimesh Jotaniya whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers
who supported me throughout my project.
EXECUTIVE SUMMARY

There are so many investment avenues. So that investors does not know which

avenues provides best return. As per the financial rule of “Do not put all the eggs in

one basket” investor’s portfolio are most diversified. So that risk should be

minimized. If the person do not have knowledge of how to get maximum return with

minimum risk or vice-versa then they should invest in mutual fund. There are so many

funds and schemes are available in mutual fund market. Investors know that how

much risk they can take and based on that they have to choose schemes. The primary

object of the present project is to know about which mutual funds gave highest

performance within one- year. This study has been undertaken to evaluate the

performance of the Indian Mutual Funds vis-à-vis the Indian stock market. For the

purpose of this study, 10 open ended equity based growth mutual funds were selected

as the Sample. The data, which is the quarterly NAV’s of the funds and the closing of

the S & P NIFTY Index, were collected. Different statistical tools were used on the

data obtained to calculate the Average returns, Standard deviation, Fund Beta, Tenor’s

Performance Index, Sharpe’s Performance Index and Jensen’s Alpha. These variables

of the funds were compared with the same variables of the market to assess how the

different funds have performed against the market. Data we have used to calculate

average returns are 10 fund’s quarterly returns and S & P NIFTY’s quarterly returns

for the year 2013. Data we have used to calculate standard deviation of portfolio (σp)
is the average return of mutual fund and market. Data we have used to calculate beta

of portfolio (βp) is the covariance of the returns of the fund and market and variance

of the market.

We have used return of portfolio (mutual fund) i.e. Rp, return of risk free securities

i.e. RF and beta of portfolio to calculate Tenor’s Performance Index. We have used

return of portfolio i.e. Rp return of risk free securities i.e. RF and standard deviation

of portfolio to calculate Sharpe’s Performance Index.

Sharpe and Tenor model are used to compare the performance of mutual funds and

rank them according to their performance. In this project we have calculated Sharpe,

Tenor

Performance index of 10 mutual funds and rank them according to that. We have also

calculated the same for market to compare the performance of mutual funds with the

market and to check whether the mutual funds can beat the market or not.
 INDEX

CHAPTER NO. CONTENT PAGE NO.

1 Mutual fund industry 2-20
1.1-About the industry 2-9
1.2-Terms of mutual fund 10-13
1.3-Tax benefit in mutual 14-20
fund
2 Major companies in mutual 21
fund
3 Product profile 23-34
3.1-Type of mutual funds 23-29
3.2-Different plan that 30-31
mutual fund offer
3.3-Determinants of mutual 31-33
fund performance
4 Review of literature 34-36
5 Data analysis and 38-56
interpretation
5.1-Research design 38
5.2-Analysis of the mutual 39-56
fund performance
6 Results and finding 57
7 Limitation of the study 58
8 Conclusion and suggestion 59-60
9 Bibliography 61
 PART – I

GENERAL INFORMATION

1
 CHAPTER 1
MUTUAL FUND INDUSTRY

1.1 ABOUT THE INDUSTRY

Financial Institutions comprises of following –

What is a 'Mutual Fund?'

A mutual fund is an investment vehicle made up of a pool of moneys collected

from many investors for the purpose of investing in securities such
as stocks, bonds, money market instruments and other assets. It is a money
managing institution. Mutual funds are conceived as institutions for providing

2
small investors with avenues of investments in the capital market. .Since small
investors generally do not have adequate time, knowledge, experience and
resources for directly accessing the capital market, they have to rely on an
intermediary, which undertakes informed investment decisions and provides
consequential benefits of professional expertise.
ACCORDING TO AMFI: Mutual fund is a trust that pools the saving of
number of investors who share common financial goals

BREAKING DOWN 'Mutual Fund'

Mutual funds give small or individual investors access to professionally

managed portfolios of equities, bonds and other securities.
Each shareholder, therefore, participates proportionally in the gains or losses of
the fund. Mutual funds invest in a wide amount of securities, and performance
is usually tracked as the change in the total market cap of the fund, derived by
aggregating performance of the underlying investments.
Mutual fund units, or shares, can typically be purchased or redeemed as needed
at the fund's current net asset value (NAV) per share, which is sometimes
expressed as NAVPS. A fund's NAV is derived by dividing the total value of
the securities in the portfolio by the total amount of shares outstanding.

NAV: NET ASSET VALUE is the market value of all securities held
by mutual fund scheme. Performance of mutual fund scheme is denoted by net
asset value.

What is the procedure to Invest in Mutual Funds?

3
Prospective investors who wish to invest in mutual funds have to contact a
distributor/agent of mutual funds. Any good agent/distributor would be able to
suggest you the appropriate funds from the plethora of funds available.
The normal procedure is to fill-up the required application form and submit it
along with a cheque for the amount of investment. Cheques and Demand Drafts
are accepted. Payment by cash is not allowed. The agent/distributor would
submit the application form with the cheque to the mutual fund company. The
mutual fund company would issue you an Account Statement with 4 working
days from the date of investment.

What is the procedure to invest in mutual fund online?

Understand risk capacity and risk tolerance, divide money in various risk
classes, select mutual fund scheme and fill application form online. Follow ups
are important to ensure best of investment

MUTUAL FUND INDUSTRY IN WORLD MARKET

Mutual Fund – A Globally Proven Investment

Worldwide, the Mutual Fund has a long and successful history. The popularity
of the Mutual Fund has increased manifold. In developed financial markets, like
the United States, Mutual Funds have almost overtaken bank deposits and total
assets of insurance funds.
Internationally, on-line investing continues its meteoric rise. Many have debated
about the success of e-commerce and its breakthroughs, but it is true that this

4
aspect of technology could and will change the way financial sectors function.
However advanced countries like US, mutual funds buy-sell transactions have
already begun on the net, while in India the net is used as a source of
information. Such changes could facilitate easy access, lower intermediation
costs and better services for all.
Since the creation of the first mutual fund in 1929, the mutual fund industry has
enjoyed the fastest growth rate of the financial investment industry. In 1949, all
mutual fund companies combined controlled $2 billion; fund assets soared to
$6.5 trillion at the outset of 2003, and more than $12 trillion in 2007, making
the funds America’s largest financial investment vehicles. 13 The mutual fund
industry consists of investment companies that sell shares in one or more
portfolios of financial assets. Fund managers determine the composition of the
portfolio, which may include stocks, bonds, government securities, shares in
precious metals, and other financial assets. As open-end funds, they are sold
publicly, and their shares must be redeemed by the investment company on
request of the shareholder.
Mutual funds are categorized by their general investment objectives. Equity
funds consist of common stocks and are organized to achieve capital growth.
Bond funds are composed of corporate, U.S. government or municipal bonds
and emphasize regular income.
Income funds have the same objective as bond funds but include Government
National Mortgage Association securities, government securities, and common
and preferred stocks as well as bonds. Money market mutual funds consist of
short-term instruments, such as U.S. government securities, bank certificates of
deposit and commercial paper.

The mutual fund industry is regulated by the Securities and Exchange

Commission (SEC) and by state regulations and securities laws. The first

5
mutual fund was developed on March 21, 1924, when three Boston securities
executives pooled their money to establish the Massachusetts Investors Trust. In
just one year, the mutual fund grew from $50,000 to $392,000 in assets.
Investors welcomed the innovation and invested in this new vehicle heavily;
however, the stock market crash of 1929 slowed its growth. To instill investors
with confidence, the U.S. Congress passed the Securities Act of 1933, the
Securities Exchange Act of 1934, and the Investment Company Act of 1940,
which set standards with which mutual funds must comply.

By the end of the 1960’s, there were approximately 270 funds with $48 billion
in assets. One of the largest contributors to the mutual funds’ growth was the
provision added to the Internal Revenue Code in 1975 that allowed individuals
already in a corporate pension fund to contribute up to $2,000 per year to an
individual retirement account (IRA). Mutual funds became popular in employer
sponsored 401(k) retirement plans, IRAs, and Roth IRAs. In 1976, John Bogle
founded the first retail index fund (a passively managed fund that tries to mirror
the performance of a specific index, such as the S&P 500), named First Index
Investment Trust. Later renamed Vanguard 500

Index Fund, it revolutionized investing, becoming one of the world’s largest

mutual funds, with more than $115 billion in assets. Mutual fund assets first
reached the trillion dollar mark in January, 1990. By the end of 1990, the
industry had also posted new records, both in the number of funds (3,108) and
in the number of individual accounts (62.6 million). By 1996, total mutual fund
assets reached $3 trillion. The industry blossomed in the dawn of the new
millennium, and in 2007, there were 8,015 mutual funds, with a combined
worth of $12.4 trillion.

6
MUTUAL FUND INDUSTRY IN INDIAN MARKET

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

infrastructural development, increase in personal financial assets, and rise in
foreign participation. With the growing risk appetite, rising income, and
increasing awareness, mutual funds in India are becoming a preferred
investment option compared to other investment vehicles like Fixed Deposits
(FDs) and postal savings that are considered safe but give comparatively low
returns, according to “Indian Mutual Fund Industry”.
Market capitalization Individual investors make up for 96.86% of the total
number of investor accounts and contribute 36.9% of the net assets under
management.

Size of Industry

The size of Indian Mutual Fund Industry has grown and now has the boast of
having dominance in this industry. In April 2008 the total Asset Under
Management popularly known as AUM has increased from Rs.1, 01, 565 crores
in January 2000 to Rs.5, 67, 601.98 crores According to the Association of
Mutual Funds in India, the growth of mutual fund industry has been
exceptional. This industry has indeed come a very long way with only 34
players in the market and more than 480 schemes.

7
Domestic and Export Share

Despite the growth of Mutual Fund Industry, penetration levels in India are low
as compared to other global economies. Assets under management as a
percentage of GDP is less than 5% in India as compared to 70% in the US, 67%
in France and 37% in Brazil. The industry has grown in size and manages total
assets of more than $30351 million. Of the various sectors, the private sector
accounts for nearly 91% of the resources mobilized showing their
overwhelming dominance in the market. Individuals constitute 98.04% of the
total number of investors and contribute US $12062 million, which is 55.16% of
the net assets under management.

Employment Opportunities

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

8
Latest Developments

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

9
HISTORY OF MUTUAL FUNDS IN INDIA

The first company that dealts in mutual fund was the Unit trust of India. It was
set up in 1963 as a joint venture of reserve bank of India and the Government of
India. The objective of UTI was to guide small uniformed investors who
wanted to buy shares and other financial products in large firms.

1.2 TERMS OF MUTUAL FUNDS

Asset Management Company

An Asset Management Company (AMC) is a highly regulated organization that

pools money from investors and invests the same in a portfolio. The company
manages the investment by investing in stocks, real estate, bonds and so on.
They charge a small management fee, which is normally 1.5 per cent of the total
funds managed. Asset management company have professional’s called fund
manager who decides where the pooled money is invested

NAV :NET ASSET VALUE

NAV or Net Asset Value of the fund is the cumulative market value of the
assets of the fund net of its liabilities. NAV per unit is simply the net value of
assets divided by the number of units outstanding. Buying and selling into funds
is done on the basis of NAV-related prices. NAV is calculated as follows:

𝐌𝐚𝐫𝐤𝐞𝐭 𝐯𝐚𝐥𝐮𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐟𝐮𝐧𝐝′ 𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬 + 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬 + 𝐀𝐜𝐜𝐫𝐮𝐞𝐝 𝐈𝐧𝐜𝐨𝐦𝐞 − 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬 − 𝐀𝐜𝐜𝐫𝐮𝐞𝐝 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬
𝑵𝑨𝑽 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐎𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠

10
How Often Is The NAV Declared?

The NAV of a scheme has to be declared at least once a week. However many
Mutual Fund declare NAV for their schemes on a daily basis. As per SEBI
Regulations, the NAV of a scheme shall be calculated and published at least in
two daily newspapers at intervals not exceeding one week. However, NAV of a
close-ended scheme targeted to a specific segment or any monthly income
scheme (which is not mandatorily required to be listed on a stock exchange)
may be published at monthly or quarterly intervals.

What is Exit Load?

The non-refundable fee paid to the Asset Management Company at the time of
redemption/ transfer of units between schemes of mutual funds is termed as exit
load. It is deducted from the NAV (selling price) at the time of such
redemption/ transfer. Mutual fund charges exit load to discourage investors
from redeeming before a certain period of time

What Is Redemption Price?

Redemption price is the price received on selling units of open-ended scheme. If

the fund does not levy an exit load, the redemption price will be same as the
NAV. The redemption price will be lower than the NAV in case the fund levies
an exit load. What is repurchasing price? Repurchase price is the price at which
a close-ended scheme repurchases its units. Repurchase can either be at NAV or
can have an exit load

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What is a Switch?

Some Mutual Funds provide the investor with an option to shift his investment
from one scheme to another within that fund. For this option the fund may levy
a switching fee. Switching allows the Investor to alter the allocation of their
investment among the schemes in order to meet their changed investment needs,
risk profiles or changing circumstances during their lifetime. Switching can be
done only among various schemes of a mutual fund company only intra
switching can be done in mutual fund

What is Shut-Out Period?

After the closure of the Initial Offer Period, on an ongoing basis, the Trustee
reserves a right to declare Shut-Out period not exceeding 5 days at the end of
each month/quarter/half-year, as the case may be, for the investors opting for
payment of dividend under the respective Dividends Plans. The declaration of
the Shut-Out period is envisaged to facilitate the AMC/the Registrar to
determine the Units of the unit holders eligible for receipt of dividend under the
various Dividend Options. Further, the Shut-Out period will also help in
expeditious processing and dispatch of dividend warrants. During the Shut-Out
period investors may make purchases into the Scheme but the Purchase Price
for subscription of units will be calculated using the NAV as at the end of the
first Business Day in the following month/quarter/half-year as the case may be,
depending on the Dividend Plan chosen by the investor. Therefore, if
investments are made during the Shut -Out period, Units to the credit of the
Unit holder's account will be created only on the first Business Day of the
following month/ quarter/half year, as the case may be, depending on the
dividend plan chosen by the investor. The Shut-Out period applies to new

12
investors in the Scheme as well as to Unit holders making additional purchases
of Units into an existing folio. The Trustee reserves the right to change the
Shut-Out period and prescribe new Shut- Out period, from time to time.

Minimum Lock-In Period for Investment

There is no lock-in period in the case of open-ended funds. Equity linked saving
scheme has lock in period. in the case of tax saving funds a minimum lock-in
period is applicable. The lock-in period for different tax saving schemes are as
follows:

SECTION MINIMUM LOCK-IN PERIOD

U/S 88 3 Years

U/S 54EA 3 Years

U/S 54EB 7 Years

Who Are The Issuers Of Mutual Funds In India?

Unit Trust of India was the first mutual fund which began operations in 1964.
Other issuers of Mutual funds are Public sector banks like SBI, Canara Bank,
Bank of India, Institutions like IDBI, ICICI, GIC, LIC, and Foreign Institutions
like Alliance, Morgan Stanley, Templeton and Private financial companies like
Kothari Pioneer, DSP Merrill Lynch, Sundaram, Kotak Mahindra, and
Cholamandalam etc. there are many new upcoming fund houses like Edelweiss,
J.P. Morgan, Axis.

SYSTEMATIC INVESTMENT PLAN

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

1.3 TAX BENEFITS IN MUTUAL FUNDS

When we talk about a mutual fund for taxation purposes, we mean the legally
constituted trust that holds the investors‟ money. It is trust that earns and
receives income from investments it makes on behalf of the investors. Most
countries do not impose any tax on this entity – the trust – because the income it
earns is meant for the investors. The trust is considered to be only a pass-
through vehicle. It would amount to double taxation if the trust first pays a tax
and then investor also is made to pay. Generally, the trust that is exempted and
the investor pay the taxes on his share of the income. After the 1999-2000
Budget, the investors are totally exempt from paying any tax on the dividend
income they receive from the mutual funds, while certain types of schemes pay
some taxes. This section explains what the fund or the trust pays by way of tax.

Tax Provision

14
• Generally, income earned by mutual fund registered with SEBI is exempt
from tax.

• However, income distributed to unit-holders by a closed-end debt fund is

liable to a dividend distribution tax at a rate stipulated by the Government. This
tax is not applicable to distributions made by open-end equity-oriented funds.

Impact on the Fund and the Investor

• It should be noted that although this tax is payable by the fund on its
distributions and out of its income, the investor are indirectly since the fund’s
NAV, and therefore the value of his investment will come down by the amount
of tax paid by the fund. For example, if a closed-end or debt fund declares a
dividend distribution of Rs. 100, Rs. 10.20, if tax rate is 10.20%) will be the tax
in the hands of the fund. While the investor will get Rs. 100, the fund will have
Rs. 10.20 less to invest. The fund's current cash flow will diminish by Rs. 10.20
paid as tax, and its impact will be reflected in the lower value of the fund’s
NAV and hence investor's investment on a compounded basis in future periods.

• Also, the tax bears no relationship to the investor’s tax bracket and is payable
by the fund even if the investor’s income does not exceed the taxable limit
prescribed by the Income Tax Act.

15
• In fact, since the tax is on distributions, it makes income schemes less
attractive in comparison to growth schemes, because the objective of income
schemes is to pay regular dividends.

• The fund cannot avoid the tax eve if the investor chooses to reinvest the
distribution back into the fund. For example, the fund will still pay Rs. 10.20 tax
on the announced distribution, even if the investor chooses to reinvest his
dividends in the concerned scheme.

Tax benefits to the Investor

Dividends Received From Mutual Funds

• Income distributed by a fund is exempted in the hands of investors

• No TDS on any income distribution by mutual fund

Capital Gains on Sale of Units

However, if the investor sells his units and earns “Capital Gains”, the investor is
subject to the Capital Gains Tax as under:

• If units are held for not more than 12 months, they will be treated as short
term capital asset, otherwise as long term capital asset.

• Tax law definition of Capital Gains = Sale consideration – (Cost of

Acquisition + Cost of Improvements + Cost of transfer)

• If the units were held for over one year, the investor gets the benefit of
“Indexation”, which means his purchase price is marked up by an inflation

16
index, so his capital gains amount is less than otherwise. Purchase Price of a
long term capital asset after Indexation is computed as,

Cost of acquisition or improvement = actual cost of acquisition or improvement

* cost inflation index for year of transfer / cost inflation index for year of
acquisition or improvement or for 1981, whichever is less.

Since, April 1, 2003, all dividends, declared by debt-oriented mutual funds (i.e.
mutual funds with less than 50% of assets in equities), are tax-free in the hands
of the investor. A dividend distribution tax of 12.5% (including surcharge) is to
be paid by the mutual fund on the dividends declared by the fund. Long-term
debt funds, government securities funds (G-sec/gilt funds), monthly income
plans (MIPs) are examples of debt-oriented funds. Dividends declared by
equity-oriented funds (i.e. mutual funds with more than 50% of assets in
equities) are tax-free in the hands of investor. There is also no dividend
distribution tax applicable on these funds under section 115R. Diversified
equity funds, sector funds, balanced funds are examples of equity-oriented
funds. Amount invested in tax-saving funds (ELSS) would be eligible for
deduction under Section 80C, however the aggregate amount deductible under
the said section cannot exceed Rs 100,000.

Section 2(42A): Under Section 2(42A) of the Act, a unit of a mutual fund is
treated as short- term capital asset if the same is held for less than 12 months.
The units held for more than twelve months are treated as long-term capital
asset. Section 10(38): Under Section 10(38) of the Act, long term capital gains
arising from transfer of a unit of mutual fund is exempt from tax if the said
transaction is undertaken after October 1, 2004 and the securities transaction tax
is paid to the appropriate authority. This makes long-term capital gains on

17
equity-oriented funds exempt from tax from assessment year 2005-06. Short-
term capital gains on equity-oriented funds are chargeable to tax @10% (plus
education cess, applicable surcharge). However, such securities transaction tax
will be allowed as rebate under Section 88E of the Act, if the transaction
constitutes business income. Long-term capital gains on debt-oriented funds are
subject to tax @20% of capital gain after allowing indexation benefit or at 10%
flat without indexation benefit, whichever is less. Short-term capital gains on
debt-oriented funds are subject to tax at the tax bracket applicable (marginal tax
rate) to the investor.

Section 112: Under Section 112 of the Act, capital gains, not covered by the
exemption under Section 10(38), chargeable on transfer of long-term capital
assets are subject to following rates of tax: • Resident Individual & HUF -- 20%
plus surcharge, education cess. • Partnership firms & Indian companies -- 20%
plus surcharge. • Foreign companies -- 20% (no surcharge). 15

Capital gains will be computed after taking into account the cost of acquisition
as adjusted by Cost Inflation Index, notified by the central government. 'Units'
are included in the proviso to the sub-section (1) to Section 112 of the Act and
hence, unit holders can opt for being taxed at 10% (plus applicable surcharge,
education cess) without the cost inflation index benefit or 20% (plus applicable
surcharge) with the cost inflation index benefit, whichever is beneficial. Under
Section 115AB of the Income Tax Act, 1961, long term capital gains in respect
of units, purchased in foreign currency by an overseas financial, held for a
period of more than 12 months, will be chargeable at the rate of 10%. Such
gains will be calculated without indexation of cost of acquisition. No surcharge
is applicable for taxes under section 115AB, in respect of corporate bodies.

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Offset the Capital Loss on a Mutual Fund Investment after a Dividend
Declaration

This is a practice that is popularly referred to as 'dividend stripping.' The capital

loss from a dividend declaration can be offset if you have remained invested in
the mutual fund 3 months before and 9 months after the dividend declaration. If
you haven't adhered to this guideline then you cannot offset the capital loss
arising from a dividend declaration.

Avoid Payment of Capital Gains on Mutual Fund Investments

The capital gain, which is not exempt from tax as explained above, can be
invested in the specified asset, and mentioned below, within 6 months of the
sale. Specified asset means any bond redeemable after 3 years:

• Issued on or after April 1, 2000 by NABARD (National Bank for Agriculture

and Rural Development or NHA (National Highways Authority of India

• Issued on or after April 1, 2001 by the Rural Electrification Corporation Ltd.

• Issued on or after April 1, 2002 by the National Housing Bank or by the Small
Industries Development Bank of India. Such capital gains can also be invested
in any residential house property in accordance with Section 54F of the Act and
one can claim exemption from capital gains.

19
RIGHTS OF INVESTORS

As per SEBI Regulations on Mutual Funds, an investor is entitled to

1. Receive Unit certificates or statements of accounts confirming your title

within 6 weeks from the date your request for a unit certificate is received by
the Mutual Fund.

2. Receive information about the investment policies, investment objectives,

financial position and general affairs of the scheme;

3. Receive dividend within 42 days of their declaration and receive the

redemption or repurchase proceeds within 10 days from the date of redemption
or repurchase

4. The trustees shall be bound to make such disclosures to the unit holders as are
essential in order to keep them informed about any information which may have
an adverse bearing on their investments

5. 75% of the unit holders with the prior approval of SEBI can terminate the
AMC of the fund.

6. 75% of the unit holders can pass a resolution to wind-up the scheme.

7. An investor can send complaints to SEBI, who will take up the matter with
the concerned Mutual Funds and follow up with them till they are resolved.

20
 CHAPTER 2

MAJOR COMPANIES IN MUTUAL FUND

COMPANY AUM (in Cr.)

ICICI Prudential Mutual Fund 3,06,173.5

HDFC Mutual Fund 3,00,793.73

Aditya Birla Sun Life Mutual Fund 2,47,794.54

Reliance Mutual Fund 2,45,581.35

SBI Mutual Fund 2,18,033.97

UTI Mutual Fund 1,54,939.35

Kotak Mahindra Mutual Fund 1,24,888.06

Franklin Templeton Mutual Fund 1,04,140.48

DSP Blackrock Mutual Fund 86,325.70

Axis Mutual Fund 77,377.48

21
22
 CHAPTER 3
PRODUCT PROFILE

3.1 TYPES OF MUTUAL FUNDS

A mutual fund may float several schemes which can also be classified into
different categories on varying factors. Here’s a look at some of the types of
mutual funds:

MUTUAL FUNDS BASED ON FUND SCHEME

There are two key kinds of mutual funds on the basis of the constitution of the
fund. This basically affects when investors can buy fund units and sell them.

23
CLOSE ENDED SCHEMES

These schemes have fixed maturity periods. Investors can buy into these funds
during the period when these funds are open in the initial issue. Once that
window closes, such schemes cannot issue new units except in case of bonus or
rights issues.

After that period, you can only buy or sell already-issued units of the scheme on
the stock exchanges where they are listed. The market price of the units could
vary from the NAV of the scheme due to demand and supply factors, investors'
expectations and other market factors

24
OPEN-ENDED SCHEMES

These funds, unlike close-ended schemes, do not have a fixed maturity period.
Investors can buy or sell units at NAV-related prices from and to the mutual
fund, on any business day. This means, the fund can issue units whenever it
wants. These schemes have unlimited capitalization, do not have a fixed
maturity date, there is no cap on the amount you can buy from the fund and the
total capital can keep growing. These funds are not generally listed on any
exchange.
Open-ended schemes are preferred for their liquidity. Such funds can issue and
redeem units any time during the life of a scheme. Hence, unit capital of open-
ended funds can fluctuate on a daily basis.

MUTUAL FUNDS BASED ON ASSETS INVESTED IN:

There three kinds of mutual funds based on the assets invested in. These are as
follows:

EQUITY FUNDS:

These are funds that invest only in stocks. As a result, they are usually
considered high risk, high return funds. Most growth funds – the ones that
promise high returns over a long-term – are equity funds.

These funds have less tax liability in the long-run as compared to debt funds.
Equity funds can be further classified into types based on the investment

25
objective into index funds, sector funds, and tax-saving schemes and so on. We
shall go through these in detail later.

HYBRID FUNDS:

These are funds which invest in both equities as well as debt instruments. For
this reason, they are less risky than equity funds, but more than debt funds.
Similarly, they are likely to give you higher returns than debt funds, but lower
than equity funds. As a result, they are often called ‘balanced funds’.

DEBT FUNDS:

These funds invest in debt-market instruments like bonds, government

securities, debentures and so on. These are called debt instruments because they
are a kind of borrowing mechanism for companies, banks as well as the
government.

Simply put, you give them money, which the company returns with interest over
a period of time. After which, it matures. Since the interest payments are fixed
as well as the return of the principle amount, debt instruments are considered
low-risk, low-return financial assets. For the same reason, debt funds are
relatively safer.

They are usually preferred for the regular interest payments. Debt funds are
further classified on the basis of the maturity period of the underlying assets –

26
long-term and short-term. Some debt funds also invest in just a single type of
debt instrument. Gilt funds are an example of such a fund.

MUTUAL FUNDS BASED ON INVESTMENT OBJECTIVE:

Every investor has a different reason for investing in financial instruments.

Some do so for making profits and increasing wealth, while some others do so
for a regular secondary source of income. Some others invest in mutual funds
for a bit of both. Keeping these requirements in mind, there are three key kinds
of mutual funds based on the investment objective.

GROWTH FUNDS:

These are schemes that promise capital returns in the long-term. They usually
invest in equities. As a result, growth funds are usually high risk schemes. This
is because the values of assets are subject to lot of fluctuations.

Also, unlike fixed-income schemes, growth funds usually pay lower dividends.
They may also prefer to reinvest the dividend money into increasing the assets
under management.

BALANCED FUNDS:

As the name suggests, these schemes try to strike a balance between risk and
return. They do so by investing in both equities and debt instruments. As a

27
result, they are a kind of hybrid fund. Their risk is lower than equity or growth
funds, but higher than debt or fixed-income funds.

FIXED-INCOME FUNDS:

These are schemes that promise regular income for a period of time. For this
reason, fixed-income funds are usually a kind of debt fund. This makes fixed-
income funds low-risk schemes, which are unlikely to give you a large amount
of profit in the long-run.

They pay higher dividends than growth funds. As with debt funds, they may be
further classified on the basis of the specific assets invested in or on the basis of
maturity.

SOME SPECIAL FUNDS:

These are funds which invest in a specific kind of assets. They may be a kind of
equity or debt fund.

INDEX SCHEMES:

Indices serve as a benchmark to measure the performance of the market as a

whole. Indices are also formed to monitor performance of companies in a
specific sector. Every index is formed of stock participants. The value of the
index has a direct relation to the value of the stocks. However, you cannot

28
invest in an index directly. It is merely an arbitrary number. So, to earn as much
returns as the index, investors prefer to invest in an Index fund. The fund invests
in the index stock participants in the same proportion as the index.

For example, if a stock had a weightage of 10% in an index, the scheme will
also invest 10% of its funds in the stock. Thus, it recreates the index to help the
investors earn money. Such schemes are generally passive funds as the
managers need not research much for asset allocation. As a result, the fees are
lower. They are also a kind of equity fund.

SECTOR FUNDS:

These are a kind of equity scheme restrict their investing to one or more pre-
defined sectors, e.g. technology sector.

Since they depend upon the performance of select sectors only, these schemes
are inherently more risky than general schemes. They are best suited for
informed investors, who wish to bet on a single sector.

TAX-SAVING SCHEMES:

Investors are now encouraged to invest in the equity markets through the Equity
Linked Savings Scheme (ELSS) by offering them a tax rebate. When you invest
in such schemes, your total taxable income falls. However, there is a limit of Rs
1 lakh for tax purposes. The crutch is that the units purchased cannot be
redeemed, sold or transferred for a period of three years.

29
However, in comparison with other tax-saving financial instruments like Public
Provident Funds (PPF) and Employee Provident Funds (EPF), ELSS funds have
the lowest lock-in period. An example of ELSS scheme is the Kotak ELSS
scheme.

3.2 DIFFERENT PLANS THAT MUTUAL FUND OFFER

Growth Plan and Dividend Plan

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

Dividend Reinvestment Plan

Dividend plans of schemes carry an additional option for reinvestment of

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

30
AUTOMATIC INVESTMENT PLAN

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

AUTOMATIC WITHDRAWAL PLAN

Under the Automatic Withdrawal Plan (AWP) also called Systematic

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

3.3 The Determinants of Mutual Fund Performance

Market gains and management skills are the key factors in fund performance.
A mutual fund is a professionally managed investment portfolio. For individual
investors, a mutual fund spreads risk among multiple investments; a fund can
also offer concentration in a single sector (such as government bonds, gold or
technology stocks). Funds rise and fall along with the stock market, and each
fund has a performance record, making it easy to compare one fund — and one
sector — with another.

31
Investment performance and risk

The primary factor affecting mutual fund performance is the change in the value
of its holdings. In general, share prices rise when the market is up, and mutual
funds follow. Since the fund is diversified through many investments (in some
cases, more than 100), fund shares aren't as volatile as the prices of individual
stocks. If the fund manager has selected his investments carefully, the fund
should beat the market averages — although most stock funds, in fact, do not.
Cautious fund managers who park a higher percentage of their assets in cash
offer a less risky environment for investors; for that reason, it's good to know
the cash ratio of any mutual fund you are researching.

Sector Performance

If the fund is concentrated in a single sector, the performance of stocks in this

particular family, and specific economic factors, are the main drivers on fund
price. Funds that hold foreign stocks, for example, will improve when the dollar
weakens, simply because overseas shares become more valuable. Consumer
stocks respond to the general state of the economy, while energy funds invested
in oil and gas do well when crude oil prices are on the rise. Bond funds will
perform well when interest rates fall and bond prices rise. Stock funds that
invest in small companies, as a general rule, do better when the market is rising
and investors are taking more risks with their money. Index funds simply mirror
the performance of market indexes such as the Standard & Poor's 500 —
making management of the funds easy and relatively inexpensive for investors.

32
Management Fees and Expense Ratio

Your return on a mutual fund consists of investment results, minus management

fees and expenses. Every mutual fund charges fees for management, as well as
the marketing and back-office clerical work needed to keep the fund operating.
A recent New York Times article found the average stock fund charging 1.44
percent per year in expenses. This ratio (usually around 1 or 2 percent) will put
a brake on investment returns; when comparing funds and reading prospectuses,
always be aware of this number.

Cash Flow

A fund's popularity with the investing public has some effect on performance.
When investors are piling in, and buying new shares, the manager has more
opportunities to place his money where he thinks it will achieve the best return.
When a fund is performing poorly and investors are bailing out, the cash drain
forces the manager to sell holdings, perhaps at a bad time when the market is
down. In an extreme situation, a fund will close to new investors, because the
manager feels he has no option for the growing assets except cash, which in turn
will drag down returns. Always check net cash flow when researching funds.

33
 CHAPTER:4

REVIEW OF LITERATURE

Singh and Jha (2009) ,”awareness and acceptability of mutual fund”. The
researchers found the investors prefer mutual funds more than the securities of
the stock market due to the non risk nature, liquidity and higher return on
investment and diversified portfolios. They also found that there is lack in
awareness among many investors regarding SIP’s the researchers studied the
various other factor considered by investor before investing funds in mutual
fund. The analysis about the growing trends of mutual fund industry and various
schemes that are available in market also the role of banking sector in the field
of mutual fund helps to understand the investors preference today

Dr. Vechalekar N.M (2014) “perception of Indian investor towards investment

in mutual fund”. The researchers conducted a surveyon the investor residing in
pune city to know the perception towards the investors in mutual fund. They
studied the awareness level of investors regarding monthly income plans
preffered by them . during the study researchers found that the investors are
giving more importance to reputation of company and its growth perspective in
mere future moreover those instruments that are backed by low risk and high
return policy are mostly preffered by investor. It was also found that the
diversified portfolio with higher tax benefit are the most favoured mutual fund
for investment Rani Meenakshi and Dr Bahl sarita “comparative analysis of
mutual fund schemes in India”. The researchers studied the performance of 29
schemes of mutual fund that were in existence during the time of study . their
analysis was based on the calculation of return on the mutual fund ,NPV risk
and different ratios like Sharpe, Treynors etc. the result showedthat some of the
schemes had underperformed as they were not diversified properly . That means

34
diversification of portfolio is a major criteria for choosing of mutual fund
scheme.

Dr Binod kumar singh in this paper structure of mutual fund, operation of

mutual fund, comparision between investment in mutual fund and bank and
calculation and NAV etc have been considered. In this paper, the impact of
various demographic factors on investors attitude towards mutual fund had been
studied. For measuring various phenomena and analyzing the collected data
effectively and efficiently for drawing sound conclusions, Chi square ( ) test has
been used and for analyzing the various other factors are responsible for
investment in mutual funds, ranking was done on the basis of weighted scores
and scoring was also done on the basis of scale. On the other hand the other two
demographic factors like age and occupation have not been found influencing
the attitude of investor’s towards mutual funds. As far as the benefits provided
by mutual funds are concerned, return potential and liquidity have been
perceived to be most by flexibility, transparency and affordability.

R Padmaja A mutual fund is a type of professionally managed collective

investment vehicle that pools money from many investors to purchase
securities. As there is no legal definition of mutual fund, the term is frequently
applied only to those collective investment that are regulated, available to the
general public and open ended in nature. Mutual funds have both advantages
and disadvantages compared to direct investing in individual securities. Today
they play an important role in household finance. So the present study aims at
consumer behaviour towards mutual fund with special refrence to ICICI
prudential mutual fund limited, Vijayawada. Data was collected through
primary and secondary sources. Primary data was collected through structured
questionnaire. Convenience sampling method was used to collect the data and

35
entire study was conducted in Vijayawada city. The study explains about
investors awareness towards mutual funds. Some suggestions were also made to
increase the awareness towards mutual funds and measures to select appropriate
mutual funds to maximize the returns .

Ippolito (1992) stats that ‘Investor is ready to invest in those fund or schemes
which have resulted good rewards and most investors is attracted by those funds
or schemes that are performing better over the worst. Goetzman (1997) opined
the investors psychology affects mutual fund selection for investment and to
withdraw from fund. De Bondt and Thaler (1985)submitted

Gupta (1994) surveyed ‘Household investor for the objective to find investor’s
preference to invest in mutual funds and other available financial assets. The
findings of the study were much relevant, at that time, to the policy makers and
mutual funds to design the financial product for the future of India

Kulshreshta (1994) in his study ‘suggested some guidelines to the investor’s

that can help them to select needed mutual fund schemes

36
PART-2

37
 CHAPTER-5
DATA ANALYSIS AND INTERPRETATION

5.1 RESEARCH DESIGN

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

For this research activity

• We have selected 10 mutual funds from Indian market.

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

• Funds selected are mostly preferable by investors.

• Treasury bill rate of return is selected as risk free return, which is 5.18 % p.a.

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

• Define standard deviation on the basis of Quarterly return.

• Found out average return.

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

• Found out Treynor, Sharpe and Jensen ratio and performance.

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

38
5.2 ANALYSIS OF THE MUTUAL FUND PERFORMANCE

Mutual fund performance can be analyzed through performance measurement

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

• Treynor’s Performance Index:

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

portfolio performance. He measures portfolio risk with beta, and calculates
portfolio’s market risk premium relative to its beta:

Where:

Ti = Treynor’s performance index

Rp = Portfolio’s actual return during a specified time period

Rf = Risk-free rate of return during the same period

βp = Beta of the portfolio

39
Whenever Rp> Rf and βp > 0 a larger T value means a better portfolio for all
investors regardless of their individual risk preferences. In two cases we may
have a negative T value: when Rp < Rf or when βp < 0. If T is negative because
Rp < Rf, we judge the portfolio performance as very poor. However, if the
negativity of T comes from a negative beta, fund’s performance is super/b.
Finally when Rp- Rf, and βp are both negative, T will be positive, but in order
to qualify the fund’s performance as good or bad we should see whether Rp is
above or below the security market line pertaining to the analysis period (Reilly,
1992).

Demonstration of Comparative Treynor Measures:

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

Investment

MANAGER RATE OF RETURN BETA

Z 0.12 0.90
B 0.16 1.05
Y 0.18 1.2
M 0.14 1.0

40
We can calculate the T values for each investment manager:

TM: (0.14-0.08)/1.00 = 0.06

TZ: (0.12-0.08)/0.90 = 0.044

TB: (0.16-0.08)/1.05 = 0.076

TY: (0.18-0.08)/1.20 = 0.083

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

• Sharpe’s Performance Index

Sharpe (1966) developed a composite index which is very similar to the Treynor
measure, the only difference being the use of standard deviation, instead of beta,
to measure the portfolio risk, in other words except it uses the total risk of the
portfolio rather than just the systematic risk:

Where:

Si = Sharpe performance index

σp = Portfolio standard deviation

This formula suggests that Sharpe prefers to compare portfolios to the capital
market line (CML) rather than the security market line (SML). Sharpe index,
therefore, evaluates funds’ performance based on both rate of return and
diversification (Sharpe 1967). For a completely diversified portfolio Treynor
and Sharpe indices would give identical rankings. Demonstration of

41
Comparative Sharpe Measures: Sample returns and SDs for four portfolios (and
the calculated Sharpe Index) are given below:

PORTFOLIO AVG. ANNUAL SD OF RETURN SHARPE

RETURN MEASURE
B 0.13 0.18 0.278
O 0.17 0.22 0.409
P 0.16 0.23 0.348
MARKET 0.14 0.20 0.30

Thus, portfolio O did the best, and B failed to beat the market. We could draw
the CML given this information. The trouble with both Sharpe and Treynor
techniques for evaluating "risk-adjusted" returns is that they equate risk with
short-term volatility. Therefore these measures may not be applicable in
evaluating the relative merits of long-term investments.

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

Rjt = Rf + βj (Rm - Rf ) + ujt

Subtracting Rf from both sides he obtains:

Rjt - Rf = βj (Rm - Rf) + ujt

This formula says that risk premium earned on jth portfolio is equal to the
market risk premium times βj plus a random error term. In this form, one would
not expect an intercept for the regression equation, if all securities are in
equilibrium. But if certain superior portfolio managers can persistently earn
positive risk premiums on their portfolios, the error term ujt will always have a

42
positive value. In such a case, an intercept value which measures positive
differences from the model must be included in the equation as follows:

Rjt - Rf = αj + βj (Rm - Rf) + ujt

Jensen uses αj as his performance measure. A superior portfolio manager would

have a significant positive αj value because of the consistent positive residuals.
Inferior managers, on the other hand, would have a significant negative αj.
Average portfolio managers having no forecasting ability but, still, cannot be
considered inferior would earn as much as one could expect on the basis of the
CAPM.

Jensen performance criterion, like the Treynor measure, does not evaluate the
ability of portfolio managers to diversify, since the risk premiums are calculated
in terms of β.

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

ANALYSIS

While studying the

performance measurement of mutual funds, one particular area caught my
attention. The fact that Sharpe uses STDV as a measurement of risk which is the
total risk and Treynor uses Beta or systematic risk, but yet it is claimed that, if
we are examining a well-diversified portfolio, the rankings should be similar for
all three methods. This interesting theory aroused my curiosity and made me
think why not test this hypothesis: Are there funds which are fully diversified?
If such funds exist then they ought to be ranked identically according to all three
Sharpe-, Treynor and Jensen’s- performance measurement

43
DATA

For my analysis I have selected 10 mutual funds from Indian market. All funds
are in diversified category. I collect data from money control, value research
online, and mutual fund India web sites. I have selected such funds which are
mostly preferable by investors. Fix deposit return was selected as risk free
return, that is 7.5% p.a. I have collected NAV of funds of each month for 12
months and define return.

44
SAMPLE OF 10 MUTUAL FUNDS

COMPANY AUM (in Cr.)

ICICI Prudential Mutual Fund 3,06,173.5

HDFC Mutual Fund 3,00,793.73

Aditya Birla Sun Life Mutual Fund 2,47,794.54

Reliance Mutual Fund 2,45,581.35

SBI Mutual Fund 2,18,033.97

UTI Mutual Fund 1,54,939.35

Kotak Mahindra Mutual Fund 1,24,888.06

Franklin Templeton Mutual Fund 1,04,140.48

DSP Blackrock Mutual Fund 86,325.70

Axis Mutual Fund 77,377.48

45
TREYNOR’S PERFORMANCE INDEX

COMPANY Rp BETA TREYNOR’

INDEX

SBI MUTUAL 15.81%

FUND
0.96 0.09
HDFC MUTUAL 11.48%

FUND
0.82 0.08
ICICI MUTUAL 12.09%

FUND
0.93 0.09
ADITYA BIRLA 13.55%

MUTUAL FUND
0.85 0.02
NIPPON INDIA 13.40%

MUTUAL FUND
0.97 0.07
KOTAK 17.70%

MAHINDRA
MUTUAL FUND
0.8 0.12
AXIS MUTUAL 19.58%

FUND
0.74 0.18
UTI MUTUAL 12.95%
0.94 0.1
FUND

46
 L&T MUTUAL 18.63%

FUND
0.95 0.08
EDELWEISS 16.82%

MUTUAL FUND
0.87 0.09

RANKING ACCORDING TO TREYNOR

RANK COMPANY

1 ICICI Prudential Technology Fund

3 SBI Technology Opportunities Fund

2 Tata Digital India Fund

4 Aditya Birla Sun Life Digital India

Fund

6 Reliance US Equity Opportunities

Fund

5 Franklin India Technology Fund

47
8 Aditya Birla Sun Life International
Equity Fund

9 Reliance Pharma Fund

7 ICICI Prudential US Blue-chip

Equity Fund

10 SBI Consumption Opportunities Fund

48
INTERPRETATION

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

In our analysis we have found out that four companies have no beta i.e. 0 as
compared to other six funds. Same way SBI Consumption Opportunities Fund
has highest beta i.e. 0.89.

This analysis represents that Aditya Birla Sun Life International Equity Fund –
growth gets higher Treyner’s performance index and it stands on eighth rank.
Same way Reliance Pharma Fund – growth gets lower Treyner’s performance
index and it stands on 9th rank.

This analysis also represents that the SBI Technology Opportunities Fund-
growth has higher return i.e. 46.15% as compared to other nine funds, it stands
on third rank as it is having higher beta i.e. 0.78. Thus at last we want to
conclude that according to Treyner’s Performance Index, it is not necessary that
fund with higher return is always well performing fund and stands on first rank
because we also have to consider risk associated with that fund.

49
 SHARPE PERFORMANCE INDEX

COMPANY Rp Rf STANDARD SHARPE’S

DEVIATION INDEX

ICICI Prudential 49.5% 6.5% 14.37 2.99

Technology Fund

SBI Technology 42.5% 6.5% 14.61 2.46

Opportunities Fund

Tata Digital India Fund 60.9% 6.5% NIL 54.4

Aditya Birla Sun Life 45.9% 6.5% 16.55 2.38

Digital India Fund

Reliance US Equity 30.6% 6.5% 9.89 2.43

Opportunities Fund

Franklin India 35.3% 6.5% 12.16 2.36

Technology Fund

Aditya Birla Sun Life 29.5% 6.5% 10.82 2.12

International Equity
Fund

Reliance Pharma Fund 20.4% 6.5% 15.78 0.88

ICICI Prudential US 30.4% 6.5% 10.83 2.21

Blue-chip Equity Fund

SBI Fund 14.9% 6.5% 14.4 0.56

50
RANKING ACCORDING TO SHARPE

RANK COMPANY

2 ICICI Prudential Technology Fund

3 SBI Technology Opportunities Fund

1 Tata Digital India Fund

5 Aditya Birla Sun Life Digital India

Fund

4 Reliance US Equity Opportunities

Fund

6 Franklin India Technology Fund

8 Aditya Birla Sun Life International

Equity Fund

9 Reliance Pharma Fund

51
7 ICICI Prudential US Blue-chip
Equity Fund

10 SBI Consumption Opportunities

Fund

52
INTERPRETATION

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

In our analysis we have found out that ICICI Prudential US Blue-Chip Equity
Fund – growth has a return of 2.21% and on the basis of return it stands on
seventh rank but its standard deviation is 10.83 which is lower as compared to
other nine funds.

This thing indicates that Tata Digital India Fund stands on first rank because it
is providing good return with no risk.

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

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

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

53
JENSEN’S PERFORMANCE INDEX

COMPANY Rp Rf Rm BETA JENSEN’S

INDEX

ICICI Prudential Technology 49.5% 6.5% 5% 0.76 36.38

Fund

SBI Technology Opportunities 42.5% 6.5% 5% 0.78 36.39

Fund

Tata Digital India Fund 60.9% 6.5% 5% NIL 54.4

Aditya Birla Sun Life Digital 45.9% 6.5% 5% 0.86 39.83

India Fund

Reliance US Equity 30.6% 6.5% 5% NIL 24.1

Opportunities Fund

Franklin India Technology 35.3% 6.5% 5% 0.66 28.96

Fund

Aditya Birla Sun Life 29.5% 6.5% 5% NIL 23

International Equity Fund

Reliance Pharma Fund 20.4% 6.5% 5% 0.70 14.25

ICICI Prudential US Blue-chip 30.4% 6.5% 5% NIL 23.9

Equity Fund

SBI Consumption Opportunities 14.9% 6.5% 5% 0.89 8.845

Fund

54
RANKING ACCORDING TO JENSEN

RANK COMPANY

4 ICICI Prudential Technology Fund

3 SBI Technology Opportunities Fund

1 Tata Digital India Fund

2 Aditya Birla Sun Life Digital India

Fund

6 Reliance US Equity Opportunities

Fund

5 Franklin India Technology Fund

8 Aditya Birla Sun Life International

Equity Fund

9 Reliance Pharma Fund

7 ICICI Prudential US Blue-chip

Equity Fund

10 SBI Consumption Opportunities

Fund

55
INTERPRETATION

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

We have analyzed that alpha of Tata Digital India Fund – growth is very high
i.e. 54.4% as compared to other nine funds and it stands on first rank. This
positive value of alpha indicates that fund manager is able to select Tata Digital
India Fund as a good fund.

We have also analyzed that alpha of SBI Consumption Opportunities Fund is

lower. This may be due to its lower return. Thus though the risk associated with
SBI FMCG Fund is lower, its alpha value is lower because of its lower return.

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

56
 CHAPTER-6

RESULTS AND FINDINGS

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

The following are the findings from this study:

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

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

57
 CHAPTER-7
LIMITATION OF THE STUDY

• We have selected 6 fund houses out of 46 fund houses due to time constrains.
We have not studied all types of mutual fund of 46 fund houses. We have
studied only equity growth fund. We also have not studied all schemes of 6
mutual fund houses. These schemes we have selected randomly.

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

• Because of unavailability of historical data and fund composition it was

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

58
 CHAPTER-8

CONCLUSION AND SUGGESTIONS

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

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

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

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

investing.

• Study historical return of funds, risk measurement ratios to evaluate fund.

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

59
• For high return invest in diversified funds, for tax saving invest in ELSS
equity funds, for moderate risk and return invest in balance funds, for assure
return invest in debt and liquid funds.

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

60
 CHAPTER-9

BIBLIOGRAPHY

1. https://www.slideshare.net/abdulsameerpm/the-indian.doc.financial-system
2. https://www.investopedia.com/terms/m/mutualfund.asp
3. http://indianresearchjournals.com/pdf/IJMFSMR/2012/February/ijm-6.pdf
4. http://www.brownconsultancy.com/mffaq-procedure-to-invest.aspx
5. http://www.provoqd.com/2017/07/read-7-facts-mutual-funds-investing/
6. https://www.moneycontrol.com/
7. https://www.valueresearchonline.com/ads/splash.asp?ref=%2F%3F
8. https://www.investopedia.com/
9. https://finance.yahoo.com
10. https://www.fincash.com/l/best-equity-mutual-funds

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