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International Journal of Marketing, Financial Services & Management Research

Vol.1 Issue 7, July 2012, ISSN 2277 3622

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A COMPARATIVE ANALYSIS OF MUTUAL FUND SCHEMES IN INDIA

DR. SARITA BAHL*; MEENAKSHI RANI**

*Associate Professor,P.G Department of Commerce and Management,

Arya College, Ludhiana.

**Research Scholar,

Department of Commerce,

Kurukshetra University, Kurukshetra, Haryana.

ABSTRACT

The present paper investigates the performance of 29 open-ended, growth-oriented equity

schemes for the period from April 2005 to March 2011 (six years) of transition economy.Monthly NAV of different schemes have been used to calculate the returns from the fund

schemes. BSE-sensex has been used for market portfolio. The historical performance of the

selected schemes were evaluated on the basis of Sharpe, Treynor, and Jensens measure whoseresults will be useful for investors for taking better investment decisions. The study revealed that

14 out of 29 (48.28 percent) sample mutual fund schemes had outperformed the benchmark

return. The results also showed that some of the schemes had underperformed, these schemeswere facing the diversification problem. In the study, the Sharpe ratio was positive for all

schemes which showed that funds were providing returns greater than risk free rate. Results ofJensen measure revealed that 19 out of 29 (65.52 percent) schemes were showed positive alpha

which indicated superior performance of the schemes.

KEYWORDS: Jensen measure, Mutual funds, performance evaluation, Sharpe measure,Treynor measure.

______________________________________________________________________________

I. INTRODUCTION

Many of the financial instruments mutual fund is one of the most attractive financial investment

instrument that plays a vital role in the economy of a country. Mutual fund schemes provides

new opportunities for investors. Mutual fund Industry was introduced in India 1963 with the

formation of Unit Trust of India. During the last few years many extraordinary and rapid changeshave been seen in the Mutual fund industry. Therefore, due to the changed environment it

becomes important to investigate the mutual fund performance. The need for evaluating the

performance of mutual fund schemes in India to see whether the mutual fund schemes areoutperforming or underperforming than the benchmark and to see the competency of schemes to

make out a strong case for investment. The present paper investigates the performance of open-

ended, growth-oriented equity schemes. Open-ended mutual fund schemes are those which donthave a fixed maturity, not listed in the stock exchange and these schemes offer new unit for sale

and ready to buy any time. The success of any scheme depends upon the competence of the


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management and its soundness. The numbers of open-ended schemes have been increased from

the last few years except 2009 (see table 1). The reason may be of decreasing open-ended

schemes in March 2009 are the global financial crisis. According to AMFI (March 2011), there

were about 1095 schemes in India, out of which 727 (66.39%) were open-ended. The growth of

open-ended and close-ended mutual fund schemes in percentage term are presented in Table 1.

TABLE 1. GROWTH OF MUTUAL FUND SCHEMES IN INDIA

Schemes March

2006

March

2007

March

2008

March

2009

March

2010

March

2011

Open-ended 463 (78.21) 480 (64) 592 (61.92) 589 (63.13) 641 (76.04) 727 (66.39)

Close-ended

129 (21.79) 270 (36) 364 (38.08) 344 (36.87) 202 (23.96) 368 (33.61)

Total 592 (100) 750 (100) 956 (100) 933 (100) 843 (100) 1095 (100)

Note: Figures in parentheses indicate the percentages

Source: Data Compiled from AMFI (Association of Mutual Funds of India)

The rest of paper is organized as follows: In Section II summarize previous studies related to

mutual funds performance. Section III discusses the research methodology for this study. SectionIV discusses results and analysis and Section V concludes this study.

II. LITERATURE REVIEW

The present study deals with the review of literature on Evaluating the Performance of IndianMutual Fund Schemes. A number of studies on evaluating the performance of Indian Mutual

Fund Schemes have been conducted in India and foreign countries. Review of some of the

studies is presented in the following discussion: -

Jayadev (1996) evaluated the performance of two growth-oriented mutual funds namely

Mastergain and Magnum express by using monthly returns. Jensen, Sharpe and Treynormeasures have been applied in the study and the pointed out that according to Jensen and

Treynor measure Mastergain have performed better and the performance of Magnum was poor

according to all three measures. Afza and Rauf (2009) in their study of open-ended Pakistanimutual funds performance using the quarterly data for the period of 1996-2006. The study

measure the fund performance by using Sharpe ratio with the help of pooled time-series and

cross sectional data and also focused on different attributes such as fund size, expenses, age,turnover and liquidity. The results found significant impact on fund performance. Debasish

(2009) studied the performance of selected schemes of mutual funds based on risk and return

models and measures. The study covered the period from April 1996 to March 2005 (nine years).

The study revealed that Franklin Templeton and UTI were the best performers and Birla Sun life,HDFC and LIC mutual funds showed poor performance. Ali, Naseem and Rehman (2010) in


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their study examined the performance of 10 mutual funds in which 5 were conventional and 5

were Islamic for the period from 2006 to 2008 by using Sharpe and Treynor measures. The

results found that the funds of Pakistan were able to add more value either conventional or

Islamic. The study also found that some of the funds were underperformed, so these funds were

facing diversification problems during the study period. Garg (2011) examined the performanceof top ten mutual funds that was selected on the basis of previous years return. The study

analyzed the performance on the basis of return, standard deviation, beta as well as Treynor,Jensen and Sharpe indexes. The study also used Carharts four-factor model for analyze the

performance of mutual funds. The results revealed that Reliance Regular Saving Scheme Fund

had achieved the highest final score and Canara Robeco Infra had achieved the lowest final scorein the one year category. Sondhi and Jain (2010) examined the market risk and investment

performance of equity mutual funds in India. The study used a sample of 36 equity fund for a

period of 3 years. The study examined whether high beta of funds have actually produced high

returns over the study period. The study also examined that open-ended or close endedcategories, size of fund and the ownership pattern significantly affect risk-adjusted investment

performance of equity fund. The results of the study confirmed with the empirical evidenceproduced by fama (1992) that high beta funds (market risks) may not necessarily produced highreturns. The study revealed that the category, size and ownership have been significantly

determinant of the performance of mutual funds during the study period. Prabakaran and Jayabal

(2010) evaluated the performance of mutual fund schemes. The study conducted a sample of 23schemes were chosen as per the priority given by the respondents in Dharmapuri district covered

a period from April 2002 to March 2007. The study used the methodology of Sharpe, Jensen andFama for the performance evaluation of mutual funds. The results of the study found that 13

schemes out of 23 schemes selected had superior performance than the benchmark portfolio in

terms of Sharpe ratio, 13 schemes had superior performance of Treynor ratio and 14 schemes had

superior performance according to Jensen measure. The Famas measure indicated in the study

that the returns out of diversification were less. Thus the India Mutual funds were not properlydiversified.

OBJECTIVES OF THE STUDY

The present study is concerned with the following objectives:

1. To examine the performance of selected schemes on the basis of risk and return andcompare the performance of selected schemes with benchmark index to see whether the

scheme is outperforming or underperforming the benchmark.

2. To examine the performance of selected schemes by using the portfolio performanceevaluation models namely Sharpe, Treynor and Jensen.

III. RESEARCH METHODOLOGY

To examine the mutual fund schemes performance, 29 schemes were selected at random basis.

Monthly NAV of different schemes have been used in this study for the period of six years i.e.,April 2005 to March 2011(six years). BSE-Sensex has been used for market portfolio. In the

study the monthly yield on 91-day Treasury bills have been used as risk-free rate. The study was


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mainly secondary data based. Data regarding NAV were obtained from the web site of

www.mutualfundindia.com and www.amfiindia.com for the period of April 2005 to March

2011. Data for monthly closing price for the benchmark index (BSE-Sensex) were collected from

web site of Bombay Stock Exchange (www.bseindia.com).

RETURN: The monthly returns of the schemes were computed by using the following equation.

Rpt = NAVtNAVt-1/ NAVt-1

Where, Rpt is return on fund scheme, NAVt is the Net Asset value of the scheme at the end of

t, NAVt-1 is Net Asset value of the scheme at the end of the month t-1.

The average return of the market portfolio is computed as follows:

pR =n

t

ptRn 1

1

Where, Rp is the average return of the mutual fund schemes.

Similarly, the monthly returns for the market index were calculated by using the followingformula:

Rmt = Market IndextMarket Indext-1/ Market Indext-1

Where, Rmt return of the market index, Market Indext is the Market value of the index at the end

of t, Market index of t-1 is the market value of the scheme at the end of the month t-1.

The average return of the market index is computed as follows:

mR =n

t

mtRn 1

1

RISK: Standard deviation is a measure of risk. The standard deviation of mutual fund schemeshas been calculated as under:

p =2)(

1

1pRRpt

n

p is r isk of fund portfolio.

The risk of the market has been calculated as under:

m =2)(

1

1mRRmt

n
http://www.mutualfundindia.com/http://www.amfiindia.com/http://www.bseindia.com/http://www.bseindia.com/http://www.amfiindia.com/http://www.mutualfundindia.com/


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m is r isk of fund portfolio.

Beta )( : Beta is the systematic risk. Beta is undiversificable in nature. It has been calculated by

using this formula:

Beta =m

RmRpCov2

),(

Where, P is systematic risk the portfolio, cov (Rp, Rm) is covariance between the return of

portfolio and market, m2

is variance of market return.

SHARPE MEASURE: William F. Sharpe (1966) had planned or invent an index of portfolio

performance measure, namely Sharpe ratio. The formula for Sharpe measure is:

Sharpe =p

fp RR

Where, Rp is return of mutual fund portfolio, Rf is risk free rate of return,p

is standard

deviation of the mutual fund portfolio.

TREYNOR MEASURE: This measure was developed by Jack Treynor in 1965 is based on

systematic risk and known as reward to volatility ratio.The formula for this measure is

Treynor = 22

1

2

22

1

( )

1

mi f i

m

i eii i

im

i ei

R R

X

Where, Rp is return of mutual fund portfolio, Rf is risk free rate of return,P

is the systematic

risk of the portfolio.

JENSEN MEASURE: This measure developed by Michael Jensen. The formula for Jensen

measure is: (RpRf) = + ( RmRf) + ep

Where, Rp is return of mutual fund portfolio, Rf is risk free rate of return,P

is the

systematic risk of the portfolio, Rm is the return of benchmark portfolio.

IV. RESULTS AND ANALYSIS

RETURN, RISK, BETA AND COEFFICIENT OF DETERMINATION OF SAMPLE

SCHEMES

Table 2 represents the results of return, risk, beta and coefficient of determination of selected

schemes with benchmark return and risk. It is clear from the table that 14 out of 29 (48.27


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percent) sample mutual fund schemes had outperformed the benchmark return. It shows

competency of these schemes to make out a strong case for investment. The maximum return

was from HDFC equity growth fund and minimum return was from Principal Growth fund

growth. In the context of risk, it found from the table 2 that 14 schemes had less risky than

market risk and remaining 15 schemes have risk greater than the market risk.

In the context of beta, it is observed from the table 2 that out of 29 schemes, only 5 schemes have

registered a beta value greater than one indicated that they belonged to more risk category. The

remaining 24 schemes have registered beta less than one which indicated that they belonged to

low risk category. R square measure the level of diversification. It also found from the table 2that the highest R square value was found in Baroda Pioneer Growth Fund-Growth (0.940)

followed by HDFC Top 200 Growth (0.935) and Franklin India Blue Chip-Growth (0.933)

which indicated that these schemes have performed well diversification.

TABLE 2

SUMMARY OF RISK, RETURN, BETA AND R SQUARE

(APRIL 2005 TO MARCH 2011)

Sr.

No.

Schemes Scheme

Return

Scheme

risk Beta R square

1 Baroda Pioneer Growth Fund - Growth 0.0202 0.0824 0.934 0.940

2 Birla Sun Life Advantage Fund Growth 0.0162 0.0894 1.021 0.897

3 Birla Sun Life MNC Fund - Growth 0.0178 0.0683 0.729 0.885

4 BNP Paribas Equity Fund Growth 0.0166 0.0826 0.933 0.879

5 DSPBlackrockTop100EquityFund-Growth 0.0212 0.0738 0.851 0.914

6 Franklin India Blue Chip - Growth 0.0202 0.0766 0.893 0.933

7 HDFC Equity Fund - Growth 0.0234 0.0843 0.965 0.902

8 HDFC Top 200 Growth 0.0227 0.0789 0.920 0.935

9 HSBC Equity Fund - Growth 0.0176 0.0736 0.828 0.527

10 ICICI Prudential Discovery Fund - Growth 0.0217 0.0918 0.963 0.870

11 ING Core Equity Fund - Growth 0.0185 0.0824 0.934 0.884

12 JM Equity Fund Growth 0.0138 0.0953 1.080 0.885


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13 Kotak 50 Growth 0.0194 0.0787 0.900 0.901

14 Kotak Opportunity Fund - Growth 0.0215 0.0903 0.999 0.843

15 Morgan Stanley Growth Fund - Growth 0.0159 0.0852 0.980 0.910

16 Principal Growth Fund - Growth 0.0123 0.0836 0.942 0.874

17 Reliance Equity Opportunity Fund-Growth 0.0213 0.0898 1.010 0.861

18 Reliance Growth Fund - Growth 0.0223 0.0890 0.979 0.834

19 SBI Mangum Equity Fund - Growth 0.0187 0.0879 0.988 0.870

20 Sundaram Growth Fund - Growth 0.0184 0.0928 0.979 0.875

21 Sundaram India Leadership Fund - Growth 0.0184 0.0953 1.060 0.845

22 Tata Equity Opportunity Growth Fund 0.0183 0.0924 1.031 0.854

23 Tata Equity P/E Fund - Growth 0.0210 0.0885 0.995 0.869

24 Tata Growth Fund - Growth 0.0151 0.0899 0.964 0.790

25 Tata Pure Equity Fund - Growth 0.0191 0.0799 0.908 0.889

26 Templeton India Growth Fund - Growth 0.0201 0.0840 0.956 0.891

27 UTI Equity Fund Growth 0.0169 0.0836 0.605 0.360

28 UTI Master Share Growth 0.0168 0.0757 0.869 0.908

29 UTI Master Value Fund - Growth 0.0181 0.0919 0.975 0.774

Average 0.018741 0.0847 0.937 0.848

BSE-Sensex index (Benchmark) 0.0186 0.0841 1.00

FREQUENCY DISTRIBUTION OF RISK, RETURN, BETA AND COEFFICIENT OF

DETERMINATION (R SQUARE)

A frequency distribution of risk, return, beta and coefficient of determination (R square) of

selected schemes has been prepared (see table 3) because frequency distribution explains

comparative status of different mutual fund schemes selected for the study during the study

period. To sum up, it may be concluded through a mutual fund sample schemes in the study thatonly return of 11 schemes fell in the range of 0.02-0.03 (37.93 percent), which indicated that

these schemes are able to earn higher returns and 18 schemes fell in the range of 0.01-0.02

(62.07 percent) and none schemes fell in the range of < 0.01 during the study period.


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TABLE 3

FREQUENCY DISTRIBUTION OF RETURN, RISK, BETA AND R-SQUARE OFSELECTED MUTUAL FUND SCHEMES (APRIL 2005 TO MARCH 2011)

Returns Risk Beta R square

Avg.

Return

No. of

Schem

e

% Risk No. of

Schem

e

% Beta No. of

Schem

e

% R

squar

e

No. of

Schem

e

%

< 0.01 0 ----- < 0.04 0 ----- Beta=1

0 ----- < 0.4 ----- -----

0.01-

0.02

18 62.0

7

0.04-

0.08

8 27.5

9

Beta >

1

5 17.2

4

0.4-0.8 3 10.3

4

0.02-

0.03

11 37.9

3

0.08-

0.12

21 72.4

1

Beta

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