chapter: 5 performance evaluation of mutual funds...

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CHAPTER: 5

PERFORMANCE EVALUATION OF MUTUAL FUNDS

SCHEMES UNDER DIFFERENT CATEGORIES

Introduction

Process of Financial Evaluation

Financial and Statistical Tools of Measurement

Techniques of Analysis

Closed-end v/s Open-ended Schemes: Indian Scenario

Trends

Performance Evaluation (Closed-end v/s Open-ended Schemes)

Performance Evaluation of Mutual Fund Equity Schemes

List of Selected 15 Equity Schemes

Performance based on Returns Generated by the Scheme

Performance based on Standard Deviation

Performance based on Beta

Performance based on Coefficient of Determination(R2)

Performance based on Sharpe Ratio

Performance based on Treynor Ratio

Performance based on Jenson‟s Alpha

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Performance Evaluation of Schemes Under Categories Other than

Equity

List of Selected Schemes (Category wise)

Performance based on Returns Generated by the Scheme

Performance based on Standard Deviation

Performance based on Beta

Performance based on R-Square (R2)

Performance based on Sharpe Ratio

Performance based on Treynor Ratio

Performance based on Jenson‟s Ratio

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CHAPTER: 5

PERFORMANCE EVALUATION OF MUTUAL FUNDS SCHEMES

UNDER DIFFERENT CATEGORIES

5.1 INTRODUCTION

Performance evaluation is a technique to evaluate past, current and projected

performance of a concern. Generally financial appraisal is concerned with the analysis of

financial statements. This analysis can be applied to any kind of detailed information of

financial data. The main purpose of this analysis is to evaluate whether the organization

use its resources effectively and efficiently or not. According to R. K. Anthony, ―The

overall objective of a business is to earn satisfactory return on the funds invested in it,

consistent with maintaining a sound financial position. According to S. K. Das, ―The

primary objectives of appraisal of financial statements are to determine the measure of

efficiency of operations or the profitability from its income statement and to appraise

financial strength as compared with similar situated concern.‖ Financial appraisals are

intended to give an accurate picture of the financial condition of a concern in condensed

form.

John C. Bogie (1970) described the unconventional approach to performance

evaluation seems more likely to provide solid ground for the measurement of the record

of an investment account. The formulation of this approach will endeavor to prove among

other these two basic points:

That the long held saying that risk and reward go hand in hand, in the sense that

the relationship between a fund‘s long-term average return and the variability of

that return from year to year fits a rather consistent pattern.

That the performance of fund groups (balanced, income/growth, growth and

aggressive are the categories used) bear a highly consistent relationship to the

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action of the market and has in fact, been rather rigidly predictable. (It should be

emphasized that it is group relative performance that is predictable, not individual

fund performance nor absolute performance).

The majority of US studies conclude that actively managed portfolios, on average,

under perform market indices. For eg. Jensen (1968) and Sharpe (1966) argue

mutual funds underperform the market by the amount of expenses they charge the

investor. A study of Ippolito (1989), however, documented significantly positive

performance of US mutual funds when compared to Standard and poor‘500 Index

(S & P 500). The Ippolito article marked the renewed interest in mutual fund

performance measurement. Subsequently authors argued that Ippolito‘s results

were mainly driven by non-S&P 500 holdings in mutual fund portfolios. This led

to the emergence of extended models that control for several stock market

anomalies. For instance, fama and French, (1992, 1996) add proxies for size and

book-to-market, while Carhart (1997) introduces a stock-momentum variable.

Finally Ferson and Schadt (1996) explore the added value of introducing time-

varying betas and alphas in existing models. By doing this we take into account

the fact that fund managers change their portfolios over time, based on observable

information variables. Two models can be used for evaluating mutual fund

performance, one is conditional model and another is unconditional model.

5.1.1 Process of Financial Evaluation

Financial evaluation is generally directed towards evaluating the liquidity, stability and

profitability of a concern. The financial appraisal of a concern involves the following

steps:

1) Collection of financial data

2) Classification and tabulation of financial data

3) Application of appropriate techniques

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5.1.2 Financial and Statistical Tools of Measurement

The tools like return, risk, and risk-free rate of return were used for risk-return analysis of

schemes in relation to that of the market as per Sharpe, Treynor and Jensen Models. The

major portion of funds mobilized through growth schemes are invested in equity shares.

In analyzing the risk-return relationship the CAPM is used widely. The CAPM uses the

concept of beta to link risk with return. Beta as a measure of systematic risk shows how

the NAV of a growth scheme responds to changes in market performance. Using the beta

concept the CAPM helps to define the required return on a security. The equation for

calculating the expected return based on CAPM is as follows:

Ri =

Ri = Expected return

Rf = Risk-free return

= Measure of systematic risk

Rm = Market return

The following tools of analysis adopted in this study were the same as used in the

previous studies by Carlson Robert S(1970), Fama Eugene(1972), Sarkar A K(1991),

Shashikant Uma(1993), Yadav R A(1996), Jayadev M(1996), Wilfred L Dellava(1998),

Gupta Amitabh(2000), Sondhi H J(2005), and others over the time period.

Portfolio Return refers to the yield from the selected growth schemes with growth

option. Portfolio returns (Rp) are calculated on the basis of changes in the NAV on a

weekly basis. Average of such weekly returns (ARp) is calculated on a yearly basis and

for the entire period of study as follows:

NAVt – NAVt-1

Rp = ----------------------

NAVt-1

Rp is the return of the portfolio on a weekly basis

‗t‘ is the time period

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Market Return is calculated on the basis of the changes in the BSE 100 Index on a

weekly basis (Rm) and the averages of such weekly returns (ARm) are arrived at for every

year and for the total period of study. BSE 100 index was used as a benchmark for the

selected growth schemes as it is widely considered as a market proxy or benchmark for

the purpose of academics, research and practicing fund managers. BSE 100 index is used

as a benchmark as it is a broad based index, consisting of 100 actively traded equity

shares representing more than 70 percent of the total market capitalization in Bombay

Stock Exchange. The market return is calculated as follows:

Market Indext – Market Indext-1

Rm = ------------------------------------------

Market Indext-1

Risk is the uncertainty and variability of returns / capital appreciation or loss of both.

Total risk is measured with the help of standard deviation of both scheme and market

returns. The total risk of an investment consists of two components: Diversifiable and

non-diversifiable risk.

Diversifiable (Unsystematic) risk represents that portion of an investment‘s risk that can

be eliminated by holding enough number of varied types of securities. Unsystematic risk

is that portion of total risk calculated as follows:

Unsystematic Risk =

Standard Deviation of the Scheme

Standard Deviation of the Market

Non-diversifiable (Systematic) risk is that part of total variability in returns caused by

factors due to economic, social and political causes. Systematic risk is not unique to an

investment avenue and is unavoidable. Each security possesses its own level of

systematic risk, which is measured using beta coefficient.

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Systematic Risk =

Beta reflects how volatile the return from an investment in response to market swings. It

measures the impact of the market forces on return expected from funds. Beta is

calculated by relating portfolio return with market return using regression analysis. Beta

greater than one, depicts high sensitivity of scheme‘s returns against market being

aggressive. Beta values less than one indicates defensive nature of the scheme. The

regression slope coefficient from the Characteristic Regression Line (CRL) measures the

systematic risk of an asset. The CAPM is applied to compute the beta value from the

following formula:

Ri =

Covariance reflects the degree to which the market and scheme returns vary. A positive

covariance means that the market and scheme returns move in the same direction whereas

a negative covariance implies that the return moves in the opposite direction. Covariance

is calculated using the formula:

C.V =

is the mean return of the scheme

Coefficient of Correlation (r) measures the nature and the extent of relationship

between stock market index return and the scheme‘s return for a particular period. The

co-movement of schemes performance with that of market index is studied with the help

of a simple linear regression analysis using the following formula:

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Coefficient of Determination (R2) is the square of the correlation co-efficient and

indicates the degree of diversification. It gives the percentage variation in the scheme‘s

return as explained by the variation in the market‘s return. A low R2 indicates that

scheme has further scope for diversification and a high R2

indicates that the scheme is

well diversified.

5.1.3 Techniques of Analysis

The collected information was analysed using simple and sophisticated techniques as

follows:

Compound Annual Growth Rate (CAGR) calculates the growth in variables (number

of funds, funds mobilized, assets under management, number of schemes) on a yearly

basis.

CAGR = [(( P1 / P0 ) (1/n)

– 1) × 100]

P1 , P0, n are the variables in the current period, base period and the number of years

Compound Growth Rate (CGR) calculates the growth in variables for the entire period

of study. CGR is a superior measure of calculating compounded return than simple return

with the following formula:

CGR = [(( Pn / P0 ) (1/n)

– 1) × 100]

Rank Correlation is used when information is sufficient to rank the data. The rank

correlation coefficient is a measure of correlation that exists between two sets of ranks. It

is a measure of association that is based on the ranks of the observations and not on the

numerical values of the data as calculated using the following formula:

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R = 1 -

R denotes coefficient of rank correlation

D refers to the difference of rank between the paired items in two series.

The models developed on the assumptions of ‗The Capital Asset Pricing Model‘ and

tested by Treynor (1965), Sharpe (1966), Jensen (1968) and Fama‘s Decomposition of

Returns was used to evaluate the performance of selected growth schemes.

Sharpe Index (St) measures the risk premium of the portfolio with reference to the total

amount of risk. The index St measures the slope of the line emanating from risk-free rate

outward the portfolio. The larger the St, the better the portfolio has performed. St is the

reward to

variability of the scheme‘s total risk and is a summary measure of scheme‘s performance

adjusted for risk.

St =

St = Sharpe Index

ARpt = Average return on portfolio‗t‘

Rf = Risk-free rate of return

= Risk involved in portfolio‗t‘ returns

Treynor Index (Tt) sums up the risk and return of a portfolio in a single number. The

index measures the slope of the line emanating outward from the risk-free rate to the

portfolio under consideration. Treynor index is a reward to volatility of the portfolio. The

characteristic line relates the market return to a specific portfolio return without any

direct adjustment

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for risk. This line can be fitted through a least square regression involving a single market

portfolio. To use Treynor‘s measure first the CRL of portfolios are fixed by estimating

the following equation:

Rp = ap +bp Rm +ep

Rp Return on portfolio ‗p‘

ap Intercept coefficient for portfolio

bp Portfolio‘s beta coefficient

Rm Return on market index

ep Random error term for portfolio ‗p‘

Tt =

Jensen constructed a measure of absolute performance on a risk-adjusted basis while

Sharpe and Treynor models provided measures for ranking the relative performance of

various portfolios on a risk-adjusted basis. Equilibrium average return on a portfolio is

the benchmark. Equilibrium average return is the return of the market portfolio for a

given systematic risk calculated with the following formula:

EARp = Rf + (Rm - Rf) Bp

EARp is the equilibrium return of the portfolio ‗p‘ indicating superior / inferior

performance of the portfolio‘s alpha ( ). Jensen‘s Alpha is the intercept of the CRL. If

alpha is positive, the portfolio has performed better and if it is negative, scheme

performance is not up to the benchmark. In a well-diversified portfolio, the average value

of alpha of all stocks turns out to be zero.

The present research work is based on both primary and secondary data. The study is

from 2003, March 2013. The 35 top performing schemes were selected for analysis under

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different categories. The primary sampling frame consists of seven fund managers, 20

brokers and 360 investors. The tools like return, risk and risk-free rate of return are used

as per Sharpe, Treynor and Jensen Models. The collected information was analysed using

simple and sophisticated techniques.

5.2 CLOSED-END V/s OPEN-ENDED MUTUAL FUND SCHEMES-INDIAN

SCENARIO

Earlier in the Indian market close ended schemes were more popular than the open ended

schemes till SEBI made some regulatory changes in close ended schemes such as

removal of initial issue expenses and ban on early exits by investors from these schemes

(2008-09).

Open ended schemes had been popular neither with individual investor nor with the

mutual fund organization as they were perceived by investors as less safe than close

ended mutual fund schemes in thought to provide liquidity to them through listing.

Mutual fund organizations also hesitated to offer genuinely open-ended schemes because

of insufficient liquidity of the Indian securities market. Liquidity is limited to a few

securities and even in these so called liquid securities, realization of sale proceeds take

several weeks after the trade. This hampers quick turnaround of funds through sale and

purchase of securities on delivery basis. Hence open-end funds can face cash problems if

there is a sudden surge of demand foe encashment of holdings by investors. Thus close

ended schemes dominated the Indian mutual fund scene. This is in contrast to the most

developed countries (like USA and UK) where open ended funds are more popular

because of their simplicity and reliability. The open-ended arrangement there assures the

investor that he will always be able to realize the NAV whereas listing does not.

In case of close ended funds liquidity to their holders are provided through listing of units

on stock exchanges. There are two problems here. First not all investors have easy access

to recognized brokers to execute a transaction on the stock exchange, second even listing

of units does not ensure active trading in them, as is true for many listed shares. Hence,

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listing of a mutual fund schemes does not guarantee liquidity nor does it guarantee a price

equal to NAV. The day to day prices of units on the stock exchange have been to differ

from NAV, mostly being lower than NAV. There is no certainty about prices realization

in the case of listed units because all prices. On stock exchange keep on fluctuating

considerably. Further close ended schemes force on the investors three insurmountable

problems.

First at the time of redemption, the mutual funds dump the entire maturity proceeds on

the lap of the investors; even he does not need the money at that juncture. He is forced to

pay tax there on and reinvest the remaining funds in similar schemes. Secondly, such

close ended schemes may not be available to the investor when even he has investible

funds with him. Thirdly, close ended schemes continue to be listed even if the mutual

fund has its doors open for repurchase. The investor in distress goes to the market with a

hope to get money much earlier than what is possible through repurchase because it is

known fact that some of the mutual funds take undue time in making payment against

repurchases. The brokers in the market have been taking undue advantage of this

situation by managing to hold the prices at a heavy discount over the NAV. This market

price is not only heavily discounted to NAV, but investors also have to fork out

brokerage while selling units besides having to wait longer to get their money. However

when someone tries to buy the units at the quoted price he is not able to do so. The

jobbing difference is unreasonably high. On the other hand (from the investor point of

view) open ended funds have weighty advantages. Open-ended arrangement completely

assures liquidity whereas listing does not. The investor wanting to liquidate his holdings

sells directly to the mutual fund organization in the case of open-ended fund which is

simpler than going through brokers. The price which can be realized on sale will be

known to investor and is stable because it is tied to NAV. It thus gives investors a fair

exit route at zero discount to the NAV. An open ended scheme gives investors ‗real price‘

when they put in their redemption request. Since most of the open ended schemes

dispatch only statements of accounts in lieu of unit certificates, efforts associated with the

actual handling of stocks are greatly reduced.

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These all have made open-ended schemes more popular with the investors in the later

part of 1993. Increasing popularity of open-ended funds was evident from the success of

UTI‘s US-64 scheme, which has a corpus of ₨17,000 crore and an investor base of 25

million and more recently by the madras based Kothari Prima Fund which grew 109% in

less than a year. The success of these two has encouraged others to go for open-ended

schemes and they are being backed by banks and financial institutions in their effort. At

least 20 new open funds hit the market with a corpus of ₨5,000 crore in the first quarter

of 1995. Other mutual fund likely to move fastest into this track is GIC mutual fund. GIC

mutual fund, which planned to capitalize on its Soros link, was planning to float at least

two open-ended schemes by March 1995, if one goes by its annual plan. The ICICI

mutual fund announced its open-ended schemes by the end of 1994. Also waiting in the

wings was Canbank mutual fund, which was planning to launch an open-ended scheme

on the lines of UTI-64 by December 94. Also SBI mutual fund found their way in the

market in early 95.

5.2.1 Trends:

Table 5.1: Total Number of Open-ended Schemes

Year Income

Schemes

Growth

Schemes

Balanced

Schemes

Liquid/

Money

Market

Schemes

Gilt

Schemes

ELSS

Schemes

Gold

ETF

Other

ETFs

Fund of

Funds

Investing

Overseas

Total

1998-99 35 39 11 17 -- -- -- -- -- 102

1999-00 43 66 17 18 13 11 -- -- -- 168

2000-01 60 91 28 26 17 18 -- -- -- 240

2001-02 94 101 31 31 29 18 -- -- -- 304

2002-03 98 115 33 32 31 20 -- -- -- 329

2003-04 120 124 34 36 30 19 -- -- -- 367

2004-05 131 149 34 39 30 20 -- -- -- 403

2005-06 139 190 34 45 29 26 -- -- -- 463

2006-07 133 206 34 55 28 29 1 -- -- 486

2007-08 209 221 31 58 30 30 5 8 -- 592

2008-09 163 244 30 56 34 35 5 12 10 589

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2009-10 179 266 29 56 35 36 6 13 15 635

2010-11 210 318 31 51 37 36 10 18 16 727

2011-12 229 299 29 55 42 36 14 21 20 745

2012-13 237 292 31 55 42 36 14 23 21 751

The above table (5.1) shows the information about open-ended funds launched by various

mutual fund companies. The table (5.1) also reveals that Income Schemes and Growth

Schemes are launched more compare to other schemes. In the year 1998-99 no Gilt

Schemes and ELSS Schemes was launched. Gold ETFs were launched in 2006-07 and in

2007-08 Other ETFs came into existence. Fund of Funds Investing Overseas was

introduced on 2008-09.

Figure 5.1: Trend in Total Number of Open-ended Schemes (2000-2013)

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The above Graph (fig 5.1) shows the data of open ended income schemes. In 1998-99 the

total numbers of scheme were 102 and in the year 2012-13 it reach to 751. The above

graph (fig 5.1) also shows an increasing trend of open-ended schemes. This trend shows

the popularity of open-ended schemes among investors which force AMCs to launch

more open-ended schemes than close-ended schemes.

The above table 5.1 also shows the trends of various open ended schemes since 1998-

99.The maximum number of Growth schemes (318) was launched in 2010-2011 and

maximum number of Income scheme (237) in 2012-2013. These two types of schemes

are more in trend than other types of schemes.

Table 5.2: Total Number of Various Closed-End Schemes

Year Income

Schemes

Growth

Schemes

Balanced

Schemes

ELSS

Scheme

s

Total

1998-99 36 44 6 60 116

1999-00 29 39 6 54 128

2000-01 31 19 4 62 116

2001-02 26 13 3 45 87

2002-03 13 5 2 27 47

2003-04 11 2 3 24 40

2004-05 28 2 1 17 48

2005-06 112 4 2 11 129

2006-07 234 21 4 11 270

2007-08 297 49 6 12 364

2008-09 280 47 5 12 344

2009-10 138 48 4 12 202

2010-11 346 9 1 12 368

2011-12 512 4 1 13 530

2012-13 481 6 1 13 501

The above table (5.2) provides the information regarding the total number of close ended

schemes launched by various mutual fund companies during the period of study. The

above table (5.2) also shows that the number of close-end schemes declines in the middle

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year of the study then catches the pace of growth but still lags behind from open-ended

schemes. ELSS schemes are launched more compare to other schemes upto 2004-05.

From 2005-06 more Income schemes were launched as compared to other scheme.

Figure 5.2: Trend in Total number of Closed-end Schemes (2000-2013)

The above Graph presents the information of close-ended income schemes. The graph

shows that in the year 1998-99 total numbers of close-ended schemes was 116 and at the

end of year 2004-05 total number of schemes reduced to 48 but after that it started

increasing and at the end of 2012-13 it was 501 but still less popular in investors as

compare to its counterpart open-ended schemes.

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The above table 5.2 shows the trend of various close-ended schemes since 1998-99.

Initially ELSS schemes were more popular but after 2004-05 Income schemes became

more popular. Maximum number of close end Income schemes was launched in 2011-12.

Currently this type of scheme is the only close-ended scheme is in trend in market. In

2012-13 only 6 Growth schemes, 1Balanced scheme and 13 ELSS schemes were

launched as compare to Income schemes.

During the boom in the markets between 2004 and 2008, we saw many fund houses

coming out with close-ended schemes. During that period, the performance of close-

ended schemes was not very inspiring to say the least.

The relative lack of popularity of closed-end funds can be explained by the fact that they

are a somewhat complex investment vehicle that tends to be less liquid and more volatile

than open-ended funds. Also, few closed-end funds are followed by Wall Street firms or

owned by institutions. After a flurry of investment banking activity surrounding an initial

public offering for a closed-end fund, research coverage normally wanes and the shares

languish.

5.2.2 Performance Evaluation (Closed-end v/s Open-ended):

Recently over the past few years, open-ended funds in each category—large-cap, mid-cap

and ELSS—have outperformed their closed-end peers. Open-ended funds also fared

better in the falling markets.

HSBC Unique Opportunities Fund (HUOF), an erstwhile closed-end fund that was

launched in February 2007, became open-ended. A mid- and small-cap-oriented fund,

HUOF was a three-year closed-end fund that had the option to convert into an open-

ended type, after three years. In these three years, the scheme barely managed to return

your principal; it returned just 0.13%, against open-ended mid-cap funds that returned

10.88%.

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Figure 5.3: Trends in Large-Cap Funds (Closed-end v/s Open-ended)

(Returns in %)

Figure 5.4: Trends in some Closed-end and Open-ended (Large-Cap Funds)

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Figure 5.5: Trends in Mid/Small-Cap Funds (Closed-end v/s Open-ended)

(Returns in %)

Figure 5.6: Trends in some Closed-end and Open-ended (Mid/Small-Cap Funds)

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Figure 5.8: Trends in Equity linked Saving Schemes (ELSS) Funds

(Closed-end v/s Open-ended)

(Returns in %)

Figure 5.9: Trends in some Closed-end and Open-ended (ELSS Funds)

Returns as on March 26, 2010

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When the capital market regulator, the Securities and Exchange Board of India banned

open-ended mutual fund (MF) schemes from amortizing their initial issue expenses in

April 2006, fund houses started launching closed-end funds. They claimed that on

account of the lock-in, closed-end funds would not allow premature withdrawals. This

would result in a stable corpus and closed-end funds would, therefore, outperform open-

ended funds in the long run.

But things did not go as planned. Over the past few years, open-ended large-cap, mid-cap

and equity-linked saving schemes (ELSS) funds has outperformed their closed-end peers.

Open-ended funds, on average, also outperformed their closed-end peers in the falling

markets of 2008 and the rising markets of 2009. For instance, in the large-cap space, the

best performing closed-end fund in 2009 was Birla Sun Life Pure Value Fund that

returned 91%, against Principal Large Cap (an open-ended fund) that topped the large-

cap open-ended space with returns of 110%.

Here‘s why fund houses went on a spree to launch closed-end funds. Earlier, MF schemes

were allowed to spend as much as 6% of amount they raised from the investors as initial

issue expenses. A ₨1, 000 crore new fund offer (NFO) would allow a fund to deduct ₨60

crore their initial issue expenses. Funds were allowed to amortize (write-off) this amount

over a maximum period of five years.

Some high net worth investors and companies began to extract their share of pie too.

They would often invest in these NFOs purely for listing gains that came with a bull run

and make a hasty exit soon after the scheme reopens for subscription. Long term

investors who stayed in the fund paid heavily due to higher costs.

Apart from the amortization of the NFO expenses, one of the reasons why closed-end

funds suffered was their premature withdrawals. Many closed-end funds offered quarterly

redemption window. Some, such as Tata Indo-Global Infrastructure Fund, offered

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monthly redemptions, defeating the purpose of a proper closed-end fund. Although

premature withdrawals were penalized, investors withdrew systematically. For instance,

Franklin India Smaller Companies Fund (FISCF), a five-year closed-end mid-cap fund,

collected around ₨1, 200 crore when it opened. On account of its half-yearly

redemption window, investors withdrew money when markets started to fall. ―Our

experience has been that the liquidity windows did lead to redemptions and impact

performance to some extent along with our stock picks‖, says Sivasubramanian K.N.,

head of Franklin Equity Portfolio Management, Franklin Templeton Investments. As per

its February-end factsheet, FISCF‘s corpus is ₨585 crore. A rush for redemptions forces

fund managers to sell liquid stocks. What remains are, typically, illiquid stocks that take

time to recover. Says Nikhil Johri, managing director, Fortis Investment Management

(India) Pvt. Ltd: ―The problem with closed-end funds is that premature redemptions

happen but no new money is allowed to enter the fund. Hence, many times, it tends to sit

on far more cash than he ought to.‖

Experts are divided on whether or not the structure of a closed-end fund works. In the

initial years of funds in India, when public sector banks launched their mutual fund

houses, they launched closed-end funds, especially tax-saving funds, which matured after

5-10 years. Open-ended funds were not heard of in those days. Even private sector firm

that entered the MF space in 1993 launched closed-end funds to begin with. Franklin

India Bluechip Fund, one of Franklin Templeton India MF‘s most successful funds, was

launched as a three-year closed-end fund in December 1993. It became open-ended in

January 1997 and did very well across market cycles. ―The performance of the closed-

end funds is also dependent on the structure, whether it is a pure closed-end one or with

redemption windows‖, adds Sivasubramanian.

―Closed-end funds like fixed maturity plans work very well since the present regulations

do not allow premature withdrawals. The fund manager is therefore assured that panic

selling—to meet premature redemptions—will not be necessary,‖ says Johri.

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Not all agree though. Some experts feel that fund managers of closed-end funds tend to

get lazy. Said Rakesh Goyal, senior vice-president, Bonanza Portfolio Ltd, a Mumbai-

based financial services company: ―Most fund managers of closed-end funds typically get

money for a three-year period. They, however, take it for granted that this money is going

to stick around for three years and markets would also keep rising. Hence, these funds are

seldom actively managed against open-ended funds that are actively managed funds.‖

Goyal added that in 2006 and 2007, most MFs got ―easy money‖ from investors as they

paid high commission to distributors who convinced investors that equity markets would

continue to rise.

Lack of monitoring can also affect closed-end funds. ―Fund managers did not pay

attention to their closed-end funds once money came in. They are usually told to pay

more attention and hence actively manage open-ended funds as they can be constantly

sold to investors and attract money‖, says a chief executive officer of a fund house.

The monetary benefit for MFs and distributors to launch closed-ended equity funds is

almost gone. Unless a closed-end fund offers something unique that no other successful

open-ended scheme offers, avoid closed-end funds.

Table 5.3: Some of the top performing Closed-end schemes (2012-13)

Scheme Name Category Last NAV 5 Year

Returns ₨/Unit Date

Tata Tax Advantage-1(G) ELSS 17.94640 15-07-2013 75.5%

Reliance ELSF series 1(G) ELSS 15.30330 15-07-2013 75.0%

IDFC Tax Saver Fund (G) ELSS 16.63570 15-07-2013 72.2%

UTI Long Term Advantage S2

(G)

ELSS 15.07940 15-07-2013 71.7%

UTI Master Equity Plan (US) ELSS 53.48440 15-07-2013 67.0%

http://www.moneycontrol.com/mutual-funds/performance-tracker/returns/elss.html





191

UTI Long Term Advantage

(G)

ELSS 12.82230 15-07-2013 47.6%

SBI Tax Advantage Sr-1 G ELSS 11.73600 15-07-2013 46.5%

ING Retireinvest Sr I (G) Large Cap 12.18000 15-07-2013 38.1%

Religare Invesco AGILE Tax

(G)

ELSS 8.38000 15-07-2013 30.3%

Kotak Global Emerging Mkt.

(G)

International /

Global

Commodities

12.70700 12-07-2013 29.4%

Figure 5.9: Trends in some top performing closed-end schemes in different category at the end

of 2012-13 (on the basis of 5 year returns)

Schemes 5 Year Returns (%)

(Returns as on 15 July 2013)

Above graph (fig. 5.11) shows the information about some popular close-ended schemes

in the market. There is not much close-ended scheme in the market, thus above graph

depicts the performance evaluation on the basis of 5year returns only. According to this



http://www.moneycontrol.com/mutual-funds/performance-tracker/returns/large-cap.html


http://www.moneycontrol.com/mutual-funds/performance-tracker/returns/international-global-commodities.html



192

evaluation Tata Tax Advantage-1(G) scheme gave the largest return as compared to other

schemes in the market. Reliance ELSF series 1(G) and IDFC Tax Saver Fund are also

nearby with 75% and 72.20% respectively , followed by UTI Long Term AdvantageS2

(G) and UTI Master Equity Plan (US) with 71.70% and 67 % respectively.

Further in this Chapter we will evaluate the performance of some more schemes widely

(on the basis on different parameters like return, beta, alpha, treynors ratio etc.) which are

most popular among investors irrespective of their nature (open ended or close-ended).

Currently there are 49 registered AMCs all have various type of schemes in different

categories. It is not possible to evaluate all in one chapter so we will take 5 top

performing funds houses. These are:

1. HDFC Mutual fund: HDFC Mutual Fund is a dominant player in Indian Mutual

with AUM of ₨94,843 crore at the end of March 2013. HDFC Asset Management

Company Ltd (AMC) was incorporated under the Companies Act, 1956, on

December 10, 1999, and was approved to act as an Asset Management Company

for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.

In terms of the Investment Management Agreement, the Trustee has appointed the

HDFC Asset Management Company Limited to manage the Mutual Fund. The

paid up capital of the AMC is ₨ 25.241 crore as on March 31, 2013.

The equity shareholding pattern of the AMC as on March 31, 2013 is as follows:

Particulars % of the paid up equity

capital

Housing Development Finance Corporation Limited 59.81

Standard Life Investments Limited 39.87

Other Shareholders (shares issued on exercise of Stock

Options)

0.32

193

2. Reliance Mutual Fund: Reliance Mutual Fund ('RMF'/ 'Mutual Fund') is one of

India‘s leading Mutual Funds with AUM of ₨83,691 crore at the end of March

2013. Reliance Mutual Fund, a part of the Reliance Group, is one of the fastest

growing mutual funds in India. RMF offers investors a well-rounded portfolio of

products to meet varying investor requirements and has presence in 179 cities

across the country. Reliance Mutual Fund constantly endeavors to launch

innovative products and customer service initiatives to increase value to investors.

Reliance Capital Asset Management Limited (‗RCAM‘) is the asset manager of

Reliance Mutual Fund. RCAM is a subsidiary of Reliance Capital Limited (RCL).

Presently, RCL holds 65.23% of its total issued and paid-up equity share capital

and the balance of its issued and paid up equity share capital is held by other

shareholders which includes Nippon Life Insurance Company (―NLI‖), holding

26% of RCAM‘s total issued and paid up equity share capital. NLI acquired the

said 26% shareholding in RCAM on August 17, 2012.

Reliance Capital Ltd. is one of India‘s leading and fastest growing private sector

financial services companies, and ranks among the top 3 private sector financial

services and banking companies, in terms of net worth. Reliance Capital Ltd. has

interests in asset management, life and general insurance, private equity and

proprietary investments, stock broking and other financial services.

3. ICICI Prudential Mutual Fund: ICICI Prudential Mutual Fund's Asset

Management Company (AMC) is ICICI Prudential Asset Management Co. Ltd.

The objective of ICICI Prudential Asset Management Co. Ltd. is to provide

distribution of income and also capital appreciation to the shareholders by

investing mainly in equity that is related to the shares of the companies that belong

to the development of infrastructure and the rest in debt shares and instruments of

money market that includes call money.

194

ICICI Prudential Mutual Fund was set up in May, 1998 and it has the parentage of

ICICI Bank as well as of Prudential plc. ICICI Prudential Mutual Fund has

attained an important position in the Mutual Fund industry in India. This mutual

fund company has started a large number of schemes so that it can meet the

different investment needs of its investors. The total assets under the management

of ICICI Prudential Asset Management Co. Ltd. came to around ₨77,629 crore at

the end of March 2013.

4.Birla Sun Life Mutual Fund: Birla Sun Life Asset Management Company Ltd.

(BSLAMC), the investment managers of Birla Sun Life Mutual Fund, is a joint

venture between the Aditya Birla Group and the Sun Life Financial Services Inc.

of Canada with AUM of ₨66,700 crore at the end of March 2013. The joint

venture brings together the Aditya Birla Group's experience in the Indian market

and Sun Life's global experience.

Established in 1994, Birla Sun Life Mutual fund has emerged as one of India's

leading flagships of Mutual Funds business managing assets of a large investor

base. It offers a range of investment options, including diversified and sector

specific equity schemes, fund of fund schemes, hybrid and monthly income funds,

a wide range of debt and treasury products and offshore funds.

4. UTI Mutual Fund: The UTI Mutual Fund, the erstwhile Unit Trust of India, has

been one of the important institutions in the mutual fund sector of India. The UTI

Mutual Fund operates under the guidance of UTI Asset Management Company

Limited. The UTI Asset Management Company Limited manages the schemes of

the UTI mutual funds. As per estimates of 31st March 2013, the cumulative

amount of assets managed by the UTI Asset Management Company Limited

amounted to ₨58,046 crores.

The UTI Asset Management Company Limited operates as per the guidelines of

the UTI Trustee Company Limited for managing the schemes of UTI Mutual

195

Fund. UTI Mutual Fund has one of the widest ranges of investment schemes in

India and each scheme is tailor made to meet the financial goals of the investors.

Table 5.4: Number of Schemes Owned by all Fund Houses

Corpus (Cr.)

Mutual Fund Name No. of Schemes (Incl. Options) 31-Mar-13

AXIS Mutual Fund 194 12,256

Baroda Pioneer Mutual Fund 112 7,303

Birla Sun Life Mutual Fund 1,135 77,144

BNP Paribas Mutual Fund 759 3,726

BOI AXA Mutual Fund 91 1,104

Canara Robeco Mutual Fund 208 8,944

Daiwa Mutual Fund 33 266

Deutsche Mutual Fund 606 18,114

DSP Black Rock Mutual Fund 715 32,342

Edelweiss Mutual Fund 101 259

Escorts Mutual Fund 66 255

Franklin Templeton Mutual Fund 386 42,897

Goldman Sachs Mutual Fund 27 4,800

HDFC Mutual Fund 1,214 102,096

HSBC Mutual Fund 334 5,230

ICICI Prudential Mutual Fund 1,341 87,968

IDBI Mutual Fund 121 6,350

IDFC Mutual Fund 884 33,068

IIFL Mutual Fund 26 210

Indiabulls Mutual Fund 55 2,639

ING Mutual Fund 373 1,325

JM Financial Mutual Fund 298 7,411

JP Morgan Mutual Fund 154 15,856

http://www.indiainfoline.com/MutualFunds/FundHouses/AXIS-Mutual-Fund/276029061

http://www.indiainfoline.com/MutualFunds/FundHouses/Baroda-Pioneer-Mutual-Fund/50916019

http://www.indiainfoline.com/MutualFunds/FundHouses/Birla-Sun-Life-Mutual-Fund/46592007

http://www.indiainfoline.com/MutualFunds/FundHouses/BNP-Paribas-Mutual-Fund/194946059

http://www.indiainfoline.com/MutualFunds/FundHouses/BOI-AXA-Mutual-Fund/232610070

http://www.indiainfoline.com/MutualFunds/FundHouses/Canara-Robeco-Mutual-Fund/54369007

http://www.indiainfoline.com/MutualFunds/FundHouses/Daiwa-Mutual-Fund/262847046

http://www.indiainfoline.com/MutualFunds/FundHouses/Deutsche-Mutual-Fund/182184002

http://www.indiainfoline.com/MutualFunds/FundHouses/DSP-BlackRock-Mutual-Fund/144885510

http://www.indiainfoline.com/MutualFunds/FundHouses/Edelweiss-Mutual-Fund/233605526

http://www.indiainfoline.com/MutualFunds/FundHouses/Escorts-Mutual-Fund/116724993

http://www.indiainfoline.com/MutualFunds/FundHouses/Franklin-Templeton-Mutual-Fund/139986000

http://www.indiainfoline.com/MutualFunds/FundHouses/Goldman-Sachs-Mutual-Fund/171249540

http://www.indiainfoline.com/MutualFunds/FundHouses/HDFC-Mutual-Fund/165790086

http://www.indiainfoline.com/MutualFunds/FundHouses/HSBC-Mutual-Fund/178925439

http://www.indiainfoline.com/MutualFunds/FundHouses/ICICI-Prudential-Mutual-Fund/28214956

http://www.indiainfoline.com/MutualFunds/FundHouses/IDBI-Mutual-Fund/310815582

http://www.indiainfoline.com/MutualFunds/FundHouses/IDFC-Mutual-Fund/165774532

http://www.indiainfoline.com/MutualFunds/FundHouses/IIFL-Mutual-Fund/321781152

http://www.indiainfoline.com/MutualFunds/FundHouses/Indiabulls-Mutual-Fund/321788929

http://www.indiainfoline.com/MutualFunds/FundHouses/ING-Mutual-Fund/163511425

http://www.indiainfoline.com/MutualFunds/FundHouses/JM-Financial-Mutual-Fund/95073825

http://www.indiainfoline.com/MutualFunds/FundHouses/JP-Morgan-Mutual-Fund/217452697

196

Above table (5.4) reveals that ICICI Prudential Mutual Fund owns the largest number of

schemes (1,341) with a corpus of ₨87,968 crore and HDFC Mutual Fund manages the

largest corpus of ₨102,096 crore with 1,214 number of schemes. Reliance mutual fund

manage the corpus of ₨96,851 crore with 1,064 number of schemes followed by Birla

Sun Life Mutual Fund has 1,135 number of schemes with corpus of ₨77,144 crore . UTI

has 811 number of schemes with a corpus of ₨69,450 crore. This data justifies our

selection of top 5 Fund House for the study.

Kotak Mahindra Mutual Fund 501 35,945

L&T Mutual Fund 381 11,169

LIC NOMURA Mutual Fund 231 7,185

Mirae Asset Mutual Fund 113 540

Morgan Stanley Mutual Fund 47 2,660

Motilal Oswal Mutual Fund 16 539

Peerless Mutual Fund 68 4,875

PineBridge Mutual Fund 104 1,099

PPFAS Mutual Fund 2

Pramerica Mutual Fund 101 2,592

PRINCIPAL Mutual Fund 229 5,573

Quantum Mutual Fund 13 293

Reliance Mutual Fund 1,064 96,851

Religare Mutual Fund 621 14,229

Sahara Mutual Fund 100 254

SBI Mutual Fund 614 55,760

Sundaram Mutual Fund 623 14,871

Tata Mutual Fund 672 19,897

Taurus Mutual Fund 175 4,731

Union KBC Mutual Fund 70 3,118

UTI Mutual Fund 811 69,450

http://www.indiainfoline.com/MutualFunds/FundHouses/Kotak-Mahindra-Mutual-Fund/158433044

http://www.indiainfoline.com/MutualFunds/FundHouses/LandT-Mutual-Fund/159467385

http://www.indiainfoline.com/MutualFunds/FundHouses/LIC-NOMURA-Mutual-Fund/135856413

http://www.indiainfoline.com/MutualFunds/FundHouses/Mirae-Asset-Mutual-Fund/222989921

http://www.indiainfoline.com/MutualFunds/FundHouses/Morgan-Stanley-Mutual-Fund/44523325

http://www.indiainfoline.com/MutualFunds/FundHouses/Motilal-Oswal-Mutual-Fund/299313399

http://www.indiainfoline.com/MutualFunds/FundHouses/Peerless-Mutual-Fund/295308244

http://www.indiainfoline.com/MutualFunds/FundHouses/PineBridge-Mutual-Fund/217460474

http://www.indiainfoline.com/MutualFunds/FundHouses/PPFAS-Mutual-Fund/338952768

http://www.indiainfoline.com/MutualFunds/FundHouses/Pramerica-Mutual-Fund/312697616

http://www.indiainfoline.com/MutualFunds/FundHouses/PRINCIPAL-Mutual-Fund/40510393

http://www.indiainfoline.com/MutualFunds/FundHouses/Quantum-Mutual-Fund/212646511

http://www.indiainfoline.com/MutualFunds/FundHouses/Reliance-Mutual-Fund/153650189

http://www.indiainfoline.com/MutualFunds/FundHouses/Religare-Mutual-Fund/214124141

http://www.indiainfoline.com/MutualFunds/FundHouses/Sahara-Mutual-Fund/61539401

http://www.indiainfoline.com/MutualFunds/FundHouses/SBI-Mutual-Fund/47408592

http://www.indiainfoline.com/MutualFunds/FundHouses/Sundaram-Mutual-Fund/140927017

http://www.indiainfoline.com/MutualFunds/FundHouses/Tata-Mutual-Fund/42586852

http://www.indiainfoline.com/MutualFunds/FundHouses/Taurus-Mutual-Fund/143796730

http://www.indiainfoline.com/MutualFunds/FundHouses/Union-KBC-Mutual-Fund/321042337

http://www.indiainfoline.com/MutualFunds/FundHouses/UTI-Mutual-Fund/182417312

197

5.3 PERFORMANCE EVALUATION OF MUTUAL FUND EQUITY SCHEMES

A lot of contemplation has gone into deciding how long duration should be chosen to

analyze the schemes, finally decided to compare the scheme on 10 year duration because

of following reasons:

1. Long duration of last 10 years will cover both sides of market in best manner: one

of dream bull runs of market (2004-5 to 2007-08) as well as one of most difficult

phase of market which we are still undergoing since 2008(post Lehman crisis).

2. Although 3 & 5 year could have been considered long enough time but since

Indian markets (rather all world markets) have not been able to come out of

troubles which started flooding all world economies post Lehman crisis, taking

even 5 year duration also would have revealed only one side of story which can be

called as one of most difficult times for equity investors & fund managers. The fall

out of this down time can be gauged from observing sensex level of last 10 years

given below for better understanding. In other words, markets are still struggling

to touch their all-time high levels which they had posted around 5 year back in

Januray 2008.

Figure 5.10: Trends in Indian Stock Market (SENSEX 2004-12)

198

3. Since the ability of the scheme & fund manager to give good risk adjusted returns

can be best tested considering both up & down times, best performance appraisal

can be expected by taking into account such a long stretch.

4. This will include both bull & bear phases of market and hence brings at fore fund

managers ability to check the risk in difficult times as well as to test their

conviction in long term growth story of country.

5. Taking 10 years will include long journey of market, all the way from around

3500 sensex level to 19500 which we are at currently (as shown in chart above).

5.3.1 List of selected 15 equity schemes:

Table 5.5: List of selected 15 equity schemes with their AUM on April 2013 and Inception

Date

Scheme Name AUM Apr

2013

Inception

Date

HDFC Top 200 Fund 11697.96 11 Oct 1996

HDFC Equity Fund 11070.68 1 Jan 1995

HDFC Growth Fund 1152.58 11 Sep 2000

Birla Sun Life Frontline Equity Fund 3226.94 30 Aug 2002

Birla Sun Life Dividend Yield Plus 1244.65 26 Feb 2003

Birla Sun Life Equity Fund 678.38 27 Aug 1998

UTI-Mastershare 2306.50 3 Feb 1987

UTI-Equity Fund 2293.42 30 Jun 1992

UTI-MasterPlus 876.56 30 Jun 1992

199

Reliance Growth Fund 4705.96 8 Oct 1995

Reliance Vision Fund 1645.64 8 Oct 1995

Reliance Banking Fund 1807.52 28 May 2003

ICICI Pru Dynamic Plan 3720.68 31 Oct 2002

ICICI Pru Top 200 Fund 466.68 1 Oct 1994

ICICI Pru Top 100 Fund 385.35 19 Jun 1998

This study examines 15 Equity schemes being launched by selected five mutual funds

namely HDFC, Birla Sun life, UTI, Reliance & ICICI Prudential. Other two parameters

for scheme selection are:

1. Scheme should have been in existence for last 10 years (as on June 30,2013) and

2. Three schemes of each fund house have been chosen on AUM basis in their

respective fund houses.

5.3.2 Performance based on returns generated by the Schemes:

Start Date: June 30, 2003

End Date: June 30, 2013

Returns are in CAGR (Compounded Annualised Growth Rate) terms.

Table 5.6: List of all selected equity schemes with their calculated 10 years return (CAGR) and

Ranking

Scheme Name Start Date NAV End Date NAV Return Ranking

HDFC Top 200 22.36 210.74 25.13 3

HDFC Equity 29.96 268.41 24.49 4

HDFC Growth 10.83 85.64 22.95 8

200

Birla Sun Life Frontline Equity 12.24 97.19 23 7

Birla Sun Life Dividend Yield 12.35 83.56 21.05 12

Birla Sun Life Equity 31.26 253.25 23.25 6

UTI Mastershare 12.55 56.32 18.63 14

UTI Equity 11.25 61.02 21.56 9

UTI Master Plus 19.2 89.42 18.53 15

Reliance Growth 38.62 430.69 27.25 1

Reliance Vision 35.04 247.04 21.55 10

Reliance Banking 10.3 107.28 26.38 2

ICICI Prudential Dynamic 12.83 109.45 23.89 5

ICICI Prudential Top 200 16.79 115.61 21.26 11

ICICI Prudential Top 100 22.31 146.12 20.66 13

201

Figure 5.11: Chart based on table (5.6)

INFERENCE:

To draw meaningful inference from the table (5.6) above first we calculate the sensex

return in the same period (10 year CAGR as on June 30, 2013).

Sensex as on June 30, 2003: 3607

Sensex as on June 30, 2013: 19396

Now using formula:

CAGR = [(Ending Value ÷ Beginning Value)1/n

] – 1

CAGR= (19396/3607)1/10

-1

=1.1832-1

202

=.1832 or 18.32 %

1. As calculated above, we see that SENSEX has grown by 18.32 % CAGR in

corresponding period of 10 years. Comparing with same, we observe that all of

selected schemes have given better return than this market barometer. Also if we

see difference between Sensex growth rate (18.32%) and Average return of all

selected 15 schemes (22.64%), resultant difference of 4.32 % is quite

considerable, proving asset manager‘s efficiency in general to provide the

investors good returns on average basis.

2. Reliance Growth with 27.25 % annualized growth rate emerges as best return

giving scheme in the given period whereas UTI Master Plus comes last with 18.53

% returns.

3. Other schemes in top five are Reliance Banking Fund (26.38 %), HDFC Top

200(25.13), HDFC Equity Fund (24.49) and ICICI Prudential Dynamic Fund

(23.89 %). Whereas least returns giving schemes (Lowest 5 out of 15 selected

schemes) are ICICI Prudential Top 200(21.26 %), Birla Sun Life Dividend Yield

(21.05 %), ICICI Prudential Top 100 (20.66 %), UTI Mastershare (18.63 %), and

UTI Master Plus (18.53 %). Middle five are Birla Sun Life Equity (23.25%), Birla

Sun Life Frontline Equity (23%), HDFC Growth (22.95%), UTI Equity (21.56%),

and Reliance Vision (21.55%).

4. It can be observed that Reliance & HDFC Mutual Fund have maximum number of

high return schemes. Both have 2 schemes each in Top 5 schemes (Reliance

Growth & Reliance Banking, HDFC Top 200 & HDFC Equity Fund). Also none

of these two fund house has any scheme which is there in least performing 5

schemes. Proving Fund Houses‘ ability to manage their equity schemes in general.

203

5. UTI‘s two schemes are placed in last five schemes at bottom with 14th

(UTI

Master Share) & 15th

rank (UTI Master Plus) with 18.63 % & 18.53 % returns

respectively. Other fund house of which two schemes are there in least return

giving 5 schemes group is ICICI Prudential having schemes ICICI Prudential Top

200 & ICICI Prudential Top 100 with respective returns 21.26 % & 20.66%. Birla

Sun Life‘s two schemes are moderately placed in middle with CAGR return of

schemes Birla Sun Life Equity & Birla Sun Life Frontline Equity as 23.25% &

23% respectively.

One of its scheme Birla Sun Life Dividend Yield (21.05%) is in last five at 12th

position but still faring better than ICICI Prudential Top 100, UTI Mastershare &

UTI Master Plus.

While simple returns of a scheme is one important parameter by which overall

scheme performance is measured , it always should be seen in conjunction with

Risk & Volatility indicators (measured by Beta for systemic risk , Standard

deviation for total risk ), Variability measure (R2 to gauge diversification in a

scheme ) ,Sharpe & Trenyor Ratio (to measure excess return of a scheme over

risk free return with respect to per unit risk involved) & should be checked on

whether the fund manager has been able to create positive alpha .

We will be comparing all of these 15 selected equity schemes on the basis of

aforesaid parameters (for selected 10 year period) one by one.

5.3.3 Performance based on SD (Standard Deviation):

Table 5.7: List of all selected equity schemes with their calculated Standard Deviation and

Ranking

Scheme Name Standard Deviation Ranking

HDFC Top 200 25.67 9

204

HDFC Equity 26.67 11

HDFC Growth 24.95 6

Birla Sun Life Frontline Equity 24.79 3

Birla Sun Life Dividend Yield 25.26 8

Birla Sun Life Equity 27.87 13

UTI Mastershare 23.55 1

UTI Equity 24.84 5

UTI Master Plus unit 91 25.08 7

Reliance Growth 28.55 14

Reliance Vision 27.45 12

Reliance Banking 31.16 15

ICICI Prudential Dynamic 24.81 4

ICICI Prudential Top 200 26.14 10


INFERENCE:

1. As standard deviation represents total risk (market risk, security specific risk and

portfolio risk) involved in the mutual fund, fund with low standard deviation is

preferred when the investor is more concerned about volatility of returns. A higher

SD number indicates that the net asset value (NAV) of the mutual fund is more

volatile and, it is riskier than a fund with a lower SD.

2. Other than above mentioned UTI Mastershare, Schemes having lower standard

deviation and hence are less volatile in returns around their mean are : ICICI

Prudential Top 100, Birla Sun Life Frontline Equity, ICICI Prudential Dynamic,

205

UTI Equity Fund (forming top 5 schemes) whereas Schemes exhibiting

comparatively higher standard deviation or high volatility in their returns can be

clubbed as: HDFC Equity, Reliance Vision, Birla Sunlife equity, Reliance Growth

along with most riskiest fund Reliance banking Fund (in term of return volatility

around mean, as described in point 2).

3. HDFC Growth, UTI Master Plus unit 91, Birla Sun Life Dividend Yield, HDFC

Top 200 & ICICI Prudential Top 200 forms the middle part of ranking in the table

(5.7) above and can be described as schemes having medium risk (neither

extremely volatile nor very stable as well) and can be part of preferred portfolio

for investor having moderate risk appetite. Perhaps justified also, scheme in this

category HDFC Top 200 is largest equity scheme in the industry. Featuring in top

5 returns giving scheme earlier and now coming at medium or average level in

term of total risk measure standard deviation must have made the scheme most

favourite among investors.

5.3.4 Performance based on Beta:

Table 5.8: List of all selected equity schemes with their calculated Beta and Ranking

Scheme Name Beta Ranking

HDFC Top 200 0.92 11

HDFC Equity 0.94 13

HDFC Growth 0.87 6




206


UTI Equity 0.89 8








INFERENCE:

1. Beta is a measure of the volatility of a particular fund in comparison to the

scheme‘s benchmark or market as a whole, that is, the extent to which the fund's

return is impacted by market factors. By definition, the market benchmark index

has a beta of 1.All the funds above are having beta less than one, which shows

they are less risky compared to their benchmark index during this period.

2. As shown in table above, Birla Sunlife Dividend Yield plus has the lowest beta

0.78 whereas scheme- Birla Sun life equity has highest beta 0.98, hence out of

selected schemes, Birla Sunlife equity is most aggressive schemes & Birla

dividend yield plus is most conservative scheme.

Conservative investors should focus on mutual funds schemes with low beta. Aggressive

investors can opt to invest in mutual fund schemes which have higher beta which comes

at the cost higher risk associated with it.

207

5.3.5 Performance based on Coefficient of determination (R2):

Table 5.9: List of all selected equity schemes with their calculated Coefficient of

Determination (R2) and Ranking

Scheme Name R2 Ranking

HDFC Top 200 96.69 1

HDFC Equity 93.6 5

HDFC Growth 92.33 11





UTI Equity 92.75 10








INFERENCE:

1. R-squared measures the relationship between a portfolio and its benchmark. It

determines the extent to which scheme benchmark can be able to explain the

208

variation in the scheme. In other terms it shows how well a scheme‘s portfolio is

diversified.

2. Table (5.9) shows that HDFC Top 200 is having highest R2

value (96.69) whereas

ICICI Prudential Dynamic is having minimum value (86.99) & hence both are

placed at rank 1 & rank 15 respectively.

3. The low value of R2

indicates less diversification of the portfolio. Hence, One can

observe that schemes having comparatively lower R2

value namely as HDFC

Growth, Reliance Vision, Birla Sun Life Dividend Yield, Reliance Banking &

ICICI Prudential Dynamic score poor on this parameter(last 5 schemes in ranking)

compare to rest of the schemes.

5.3.6 Performance based on Sharpe Ratio:

Table 5.10: List of all selected equity schemes with their calculated Sharpe Ratio and Ranking

Scheme Name Sharpe Ratio Ranking

HDFC Top 200 0.78 2

HDFC Equity 0.75 4

HDFC Growth 0.74 5





UTI Equity 0.68 9

209








INFERENCES:

1. It is an excess return earned over risk free return per unit of risk involved, i.e. per

unit of standard deviation. Method utilizes a risk-adjusted return measurement &

Positive value of the index shows good performance

2. As high Sharpe ratio indicates more attractive fund. Reliance Growth Fund‘s

sharpe ratio is highest and hence schemes emerges as the best fund on this

parameter. Other 4 schemes which capture places in top quartile are HDFC Top

200, ICICI Prudential Dynamic, and HDFC Equity & HDFC Growth Fund.

3. Schemes scoring poor and placed at bottom five, are ICICI Prudential Top 100,

ICICI Prudential Top 200, Reliance Vision, UTI Mastershare & UTI Master Plus

unit 91.

4. UTI Master Plus Unit 91 is having minimum value of sharpe ratio among selected

15 schemes, so captures undesirable place of worst performing scheme based on

this widely used risk adjusted return measurement.

210

5. Scheme which find place in middle group of 5 average performers on this ration

values are Birla Sun Life Frontline Equity, Reliance Banking, Birla Sun Life

Equity, UTI Equity & Birla Sun Life Dividend Yield Fund.

5.3.7 Performance based on Treynor Ratio:

Table 5.11: List of all selected equity schemes with their calculated Treynor ratio and Ranking

Scheme Name Treynor Ranking

HDFC Top 200 20.59 4

HDFC Equity 20.04 5

HDFC Growth 19.8 6



Birla Sun Life Equity 18 10


UTI Equity 18.9 9








211

INFERENCE:

1. It is the excess return over risk free return per unit of systematic risk i.e. beta.

Here, too, all the schemes recorded positive value indicating there by that the

schemes provided adequate returns as against the level of risk involved in the

investment

2. In terms of Treynor ratio, top five performers are Reliance Banking, Reliance

Growth, ICICI Prudential Dynamic, HDFC Top 200 & HDFC Equity Fund.

Whereas at the other end, schemes which are in last five are ICICI Prudential Top

100, ICICI Prudential Top 200, Reliance Vision, UTI Mastershare & UTI Master

Plus unit 91.

3. Schemes which are average in terms of value of this risk adjusted return parameter

are HDFC Growth, Birla Sun Life Dividend Yield, Birla Sun Life Frontline

Equity, UTI Equity & Birla Sun Life Equity Fund.

5.3.8 Performance based on Jenson‟s Alpha:

Table 5.12: List of all selected equity schemes with their calculated Jenson’s Alpha and

Ranking

Scheme Name Jenson

alpha

Ranking

HDFC Top 200 5.75 3

HDFC Equity 5.62 4

HDFC Growth 4.96 6


212




UTI Equity 4.62 8








INFERENCE:

The analysis of the table reveals that all the schemes have positive Jenson‘s Measures

which is a token of better performance of a scheme with respect to its benchmark. It is

most widely used parameter to evaluate a fund manager‘s ability to reward the investors

with higher return than the benchmark to justify the risk taken in the underlying portfolio.

1. Reliance Growth has highest alpha value of 7.84 indicating fund manager has been

handsomely rewarding the investors in the scheme with excessive returns over the

benchmark with respect to underlying risk associated with portfolio selection.

2. The other good performers on this parameter are ICICI Prudential Dynamic,

HDFC Top 200, HDFC Equity & Reliance Banking Fund and forms bracket of top

five schemes along with top performer Reliance Growth Fund. Average five

213

schemes in middle bracket are HDFC Growth, Birla Sun Life Frontline Equity,

UTI Equity, Birla Sun Life Equity & Birla Sun Life Dividend Yield Fund.

3. Scheme UTI Master Plus unit 91 is having least value of alpha among the selected

schemes meaning scheme‘s positive return difference with respect to its

benchmark is not as high or excessive as other 14 schemes in the list with

associated risk in underlying portfolio. Although scheme‘s positive value is an

indicator scheme has beaten its benchmark but scores lower on comparative basis

with other schemes in the list. The other four schemes along with UTI Master Plus

91, which forms part of last five are ICICI Prudential Top 200, Reliance Vision,

ICICI Prudential Top 100 & UTI Mastershare.

5.4 PERFORMANCE EVALUATION OF SCHEMES UNDER CATEGORIES

OTHER THAN EQUITY

(1) Hybrid: Equity

(2) Equity Linked Saving Scheme

(3) Hybrid: Debt &

(4) Income

Since fund houses have number of equity oriented schemes, we could easily find 3

schemes which are in existence for last 10 years but same would not be possible in the

other categories like Hybrid equity, Hybrid debt, ELSS etc. which will be evaluated in

coming section, we have decided to evaluate the schemes in these categories on 7 years

period. Also as fund houses are not having multiple schemes under each category (like

reliance has only one hybrid equity scheme, HDFC has only one hybrid debt long term

schemes) we will take 1 scheme from each fund house for comparison. We will go for

scheme with higher AUM in case a fund house has multiple number of schemes in any

category.

214

5.4.1 List of selected schemes (category wise) is:

Table 5.13: List of all selected schemes other than Equity with their AUM on April 2013 and

Inception Date

Scheme

Category

Scheme Name AUM April

2013

Inception

Date

Equity Linked

Saving

Scheme(ELSS)

HDFC Tax Saver Fund 3353.59 31 Mar 1996

Birla Sun Life Tax Relief '96 1417.94 10 Mar 2008

ICICI Pru Tax Plan 1435.91 19 Aug 1999

Reliance Tax Saver (ELSS) Fund 1996.83 21 Sep 2005

UTI-Equity Tax Savings Plan 450.43 3 Jan 2000

Hybrid : Equity HDFC Prudence Fund 5854.30 1 Feb 1994

Birla Sun Life '95 Fund 588.71 10 Feb 1995

ICICI Pru Balanced Fund 494.04 3 Nov 1999

Reliance Regular Savings Fund 548.40 8 Jun 2005

UTI-Balanced Fund 931.69 2 May 1995

Hybrid : Debt HDFC Monthly Income Plan - LTP 5245.48 26 Dec 2003

Birla Sun Life MIP II - Wealth 25 201.28 22 May 2004

ICICI Pru MIP 25 648.42 30 Mar 2004

Reliance Monthly Income Plan 3410.42 29 Dec 2003

UTI-MIS Advantage Plan 533.23 1 Jan 2004

Income HDFC Income Fund 4929.82 11 Sep 2000

Birla Sun Life Income Fund 5063.60 3 Mar 1997

Reliance Income Fund 5106.93 1 Jan 1998

215

UTI-Bond Fund 2738.43 18 Jul 1998

ICICI Pru Income Plan 4441.82 26 Mar 2003

5.4.2 Performance based on returns generated by the Schemes:

Start Date: June 30, 2006

End Date: June 30, 2013

Returns are in CAGR (Compounded Annualized Growth Rate) terms.

Table 5.14: List of all selected schemes other than Equity with their calculated 7 years return

(CAGR) and Ranking

Scheme Category Scheme Name Start

Date

Nav

End

Date

Nav

Return Rank

Equity Linked

Saving

Scheme(ELSS)

HDFC Taxsaver 115.19 220.99 9.75 3

Birla Sun Life Tax Relief 96 143.08 74.89 9.56 4

ICICI Prudential Tax Plan 73.12 144.54 10.22 2

Reliance Tax Saver 10.85 21.89 10.54 1

UTI Equity Tax Savings 25.01 40.82 7.24 5

Hybrid : Equity HDFC Prudence 89.08 222.83 13.98 1

Birla Sun Life 95 142.31 338.42 13.16 2

ICICI Prudential Balanced 28.69 55.13 9.77 4

Reliance Regular Savings Balanced 10.93 24.15 11.99 3

UTI Balanced 46.9 84.06 8.69 5

Hybrid : Debt HDFC MIP Long-term 13.43 26.7 10.31 2

Birla Sun Life MIP II Wealth 25 12.45 21.05 7.79 5

ICICI Prudential MIP 25 12.98 23.24 8.67 4

Reliance MIP 12.61 25.98 10.87 1

216

UTI MIS-Advantage Plan 12.89 23.66 9.05 3

Income HDFC Income 16.19 27.95 8.1 5

Birla Sun Life Income 29.3 55.6 9.58 1

ICICI Prudential Income 20.52 38.61 9.44 2

Reliance Income 22.21 40.24 8.86 3

UTI Bond 20.87 36.39 8.26 4

Figure 5.12: Chart based on 7 year returns of ELSS

9.75

9.56

10.22

10.54

7.24

HDFC Taxsaver

Birla Sun Life Tax Relief 96

ICICI Prudential Tax Plan

Reliance Tax Saver

UTI Equity Tax Savings

7 year returns (%)

217

Figure 5.13: Chart based on 7 year returns of Hybrid: Equity

Schemes

Figure 5.14: Chart based on 7 year returns of Hybrid: Debt Schemes

218

Figure 5.15: Chart based on 7 year returns of Income Schemes

INFERENCE:

1. In ELSS category schemes, Reliance Tax Saver captures the top slot on returns

(CAGR) based comparison of five schemes from each fund house in the category.

This scheme has generated 10.54% return during the considered time period of 7

years. This is followed by ICICI Prudential Tax Plan (2nd

), HDFC Tax Saver (3rd

)

and Birla Sun Life Tax Relief 96 at 4th

position.

Worst performer out of the five selected schemes is UTI Equity Tax Savings with

7.24 % annualized returns in the same period.

2. In Equity oriented Hybrid category of schemes where normally 65-75% portfolio

is equity & 25-35 % is kept in debt, HDFC Prudence Fund is at the top with

13.98% CAGR return is last 7 year period. This scheme is followed by Birla Sun

Life 95 (2nd

with 13.16%), Reliance Regular Savings Balanced (3rd

with 11.99),

ICICI Prudential Balanced Fund(4th

with 9.77 % return).

219

3. UTI Balanced is at last position (5th

) with least annualized return in the category

(8.89%).

4. Schemes in the debt oriented hybrid category normally have 75 to 85% debt or

fixed income instruments and 15-25% equity portion in their portfolio. Because of

high proportion from debt or fixed income side, return in these schemes are far

less volatile in comparison to equity schemes and suitable for investors who seeks

regular dividends with less volatility in overall scheme returns.

4. Reliance Monthly Income Plan (MIP) is highest performer in this category suited

for conservative investors with annualized return rate of 10.87 %. Next three

schemes are HDFC MIP Long-term, UTI MIS-Advantage Plan, ICICI Prudential

MIP 25 with 10.31 %, 9.05% & 8.67% returns respectively. Birla Sun Life MIP II

Wealth 25 with 7.79% annualized return is least return generating scheme in this

category.

5. Income category of schemes invests in debt or fixed income instruments like

government and corporate bonds, T-bills etc. of various maturities and best suited

for investors who want to go for stable portfolio of schemes with least volatility.

Corporate treasuries also keep good part of their allocation in this category of

scheme offered by MFs.

Out of selected group of 5 schemes, Birla Sun Life Income Fund comes at the top with

9.58% annualized return in last 7 year period. Worst performing scheme in the category

is HDFC Income Fund with 8.1 % returns in the same period. Schemes placed between

these two extremes are ICICI Prudential Income, Reliance Income Fund & UTI Bond

Fund with 9.44%, 8.86% and 8.26% returns respectively.

220

5.4.3 Performance based on Standard Deviation:

Table 5.15: List of all selected schemes other than Equity with their calculated Standard

Deviation and Ranking

Scheme Category Scheme Name Standard

Deviation

Ranking

Equity Linked Saving

Scheme(ELSS)

HDFC Taxsaver 7.32 2

Birla Sun Life Tax Relief 96 8.82 5

ICICI Prudential Tax Plan 8.01 4

Reliance Tax Saver 7.55 3

UTI Equity Tax Savings 6.98 1

Hybrid : Equity HDFC Prudence 6.30 5

Birla Sun Life 95 5.94 3

ICICI Prudential Balanced 5.28 1

Reliance Regular Savings Balanced 6.07 4

UTI Balanced 5.61 2

Hybrid : Debt HDFC MIP Long-term 2.23 3

Birla Sun Life MIP II Wealth 25 2.49 5

ICICI Prudential MIP 25 2.34 4

Reliance MIP 2.22 2

UTI MIS-Advantage Plan 1.88 1

Income HDFC Income 1.76 2

Birla Sun Life Income 2.12 5

ICICI Prudential Income 2.08 4

Reliance Income 1.87 3

UTI Bond 1.67 1

221

INFERENCE:

1. On this parameter of volatility which is an indicator of total risk in a portfolio, in

ELSS category, UTI Equity Tax Savings scores maximum( Minimum SD value)

and comes on the top followed by HDFC Tax Saver, Reliance Tax Saver & ICICI

Prudential Tax Plan in the same order. Birla Sun Life Tax Relief 96 is having

maximum value of standard deviation and so most volatile around its mean, hence

comes in last as most riskiest fund.

2. In Hybrid equity oriented category of schemes, ICICI Prudential Balanced Fund is

having minimum SD value whereas HDFC Prudence Fund comes last (5th

) with

maximum SD . UTI Balanced Fund, Birla Sun life 95 & Reliance Regular Savings

Balanced comes at 2nd

, 3rd

& 4th

position respectively with SD value coming down

in same order.

3. In Hybrid debt oriented schemes UTI MIS-Advantage Plan has least Standard

deviation whereas Birla Sun Life MIP II Wealth 25‘s SD value is maximum in the

category and so comes last in five schemes. Reliance MIP, HDFC MIP LTP &

ICICI Prudential MIP 25 are placed in middle of them with 2, 3 & 4th

position

respectively.

4. UTI Bond Fund is having minimum standard deviation in Income Fund category,

whereas Birla Sunlife Income has maximum. UTI Bond fund is followed by

HDFC Income, Reliance Income & ICICI Prudential Income Fund due to

increasing value of standard deviation in same order.

5. It can be observed that schemes with higher allocation in equity have higher

standard deviation compare to schemes with debt oriented portfolio. Table shows

that Income & debt hybrid schemes‘ standard deviation is far less in comparison to

ELSS or equity hybrid schemes. This brings most fundamental thumb rule of

222

investment strategy which is that only aggressive investors should look into

investing in equity oriented schemes whereas investors with low risk appetite are

better off staying in debt oriented schemes. It is because of same reason that equity

schemes are considered good asset class only if investors have long term

investment horizon (to average out volatility) otherwise they are advised debt

schemes for short term investments.

5.4.4 Performance based on Beta:

Table 5.16: List of all selected schemes other than Equity with their calculated Beta and

Ranking

Scheme Category Scheme Name Beta Ranking


Scheme(ELSS)










UTI Balanced 1.0566 2




Reliance MIP 1.1666 2


223





UTI Bond 1.5431 1

INFERENCE:

1. In ELSS category, UTI Equity Tax Saving has lowest beta of 0.83. This is

followed by HDFC Tax Saver, Reliance Tax Saver, ICICI Prudentail Tax Gain &

Birla Sunlife Tax Relief 96. Only Birla Sun life Tax Relief 96 has beta value

above 1 (1.05, Maximum in all 5 schemes) which indicates that scheme‘s return

are more volatile compared to its benchmark index.

2. In Hybrid equity (Balanced category), ICICI Prudential Balanced fund is having

lowest systematic risk measured in beta terms, whereas HDFC Prudence Fund is

having highest beta. UTI Balanced Fund, Birla Sun life 95 & Reliance Regular

Savings Balanced fund find their place in the middle with 2,3 and 4th

position

respectively.

3. UTI MIS-Advantage Plan has lowest beta in Hybrid debt schemes whereas Birla

Sun Life MIP II Wealth 25 is having highest. Reliance MIP, HDFC MIP-LTP &

ICICI Pru MIP 25 are at 2,3,4th

rank respectively with increasing beta values in

same order.

4. In Income category, UTI Bond Fund has lowest beta whereas ICICI Prudential

Income is at last or 5th

position with highest beta. HDFC Income, Reliance Income

& Birla Sun life incomes find their places in between along with increasing order

of ranks as 2, 3 & 4th

.

224

5.4.5 Performance based on R-Square (R2

):

Table 5.17: List of all selected schemes other than Equity with their calculated R2 and

Ranking

Scheme Category Scheme Name R-Squared Ranking


Scheme(ELSS)









Reliance Regular Savings

Balanced

87.24 4











UTI Bond 73.60 5

225

INFERENCE:

1. In terms of R-Squared, which measures degree of variance in a scheme with

respect to its benchmark, UTI equity Tax savings scores the most whereas

Reliance Tax Saver comes last among category of ELSS schemes. Other schemes

Birla Sun life Tax Relief 96, HDFC Tax Saver & ICICI Prudential Tax Gain are

placed at 2nd

3rd

and 4th

position respectively with increasing value of R2

in the

same order.

2. In Hybrid Equity or balanced schemes, UTI Balanced has highest R2

value (95.12)

while Birla Sun life 95 has minimum R2 as 85.03.

3. ICICI Prudential MIP 25 is at top in Hybrid debt category with highest R2

value in

the category as 88.67 while Reliance MIP is at last (5th

) with R2

value of 66.69.

4. In Income category, HDFC Income Fund has highest R2

value of 85.69 whereas

UTI Bond is at bottom with R2

of 73.60. Other schemes ICICI Prudential Income,

Reliance Income & Birla Sun life Income are placed at 2nd

, 3rd

& 4th

position

respectively.

5. It is observed that debt schemes have less R2

figure in comparison to equity or

balanced (hybrid equity oriented) schemes in general.

5.4.6 Performance based on Sharpe Ratio:

Table 5.18: List of all selected schemes other than Equity with their calculate Sharpe Ratio

and Ranking

Scheme Category Scheme Name Sharpe

Ratio

Ranking


Scheme(ELSS)


Birla Sun Life Tax Relief 96 -0.0013 5

226








Balanced

0.0832 3











UTI Bond 0.0333 4

INFERENCE:

1. Table above depicts value of Sharpe‘s reward to variability ratio (excess return

earned over risk free return per unit of risk involved, i.e. per unit of standard

deviation). Positive value of the index shows good performance.

2. In ELSS category of schemes, Reliance Tax Saver has highest positive Sharpe

ratio (0.0664). One of the five selected schemes in category, Birla Sun Life Tax

227

Relief 96‘s Sharpe ratio is negative which means schemes has performed very

poorly on this parameter and on average during last 7 years period under study,

could not reward the investors with any excess return over risk free rate of return.

3. HDFC Prudence Fund emerges as top fund in Equity oriented hybrid funds

category with positive Sharpe Ratio value 0.1063. Balanced fund from UTI comes

at last position with least value among five category peers. Birla Sun Life 95,

Reliance Regular Savings Balanced & ICICI Pru Balanced fund are placed in

between these two extremes in same order respectively.

4. In Debt oriented hybrid fund category, Monthly Income Plan from Reliance

secures first position with highest Sharpe Ratio of 0.1197. HDFC MIP, UTI MIS

Advantage Plan & ICICI Prudential MIP 25 comes at 2, 3 & 4th

place respectively.

Birla Sun Life MIP II Wealth 25 with Sharpe Ratio 0.0144 is least performing

fund in this category.

5. In Income Fund Section, Birla Income Fund is best fund on this parameter with

Sharpe Ratio of 0.0776 whereas HDFC Income Fund performs worst in category

with 0.0255 value of this ratio. Income Schemes from ICICI Prudential, Reliance

& UTI comes at 2nd

, 3rd

& 4th

position respectively with decreasing order of

Sharpe Ratio as shown in the table.

5.4.7 Performance based on Treynor Ratio:

Table 5.19: List of all selected schemes other than Equity with their calculated Treynor Ratio

and Ranking

Scheme Category Scheme Name Treynor Ratio Ranking


Scheme(ELSS)




228







UTI Balanced 2.18 5




Reliance MIP 2.28 1






UTI Bond 0.36 4

INFERENCE:

1. Above table 5.19 shows Treynor of the schemes which is the excess return over

risk free return per unit of systematic risk i.e. beta. Here, too, Tax Saving Scheme

from Reliance fund house (Reliance Tax Saver) is at top in ELSS category with

highest Treynor Ratio 5.82 followed by ICICI Prudential Tax Gain, HDFC Tax

Saver & UTI equity Tax Savings in same order with decreasing values of this

parameter. Birla Sun Life Tax Relief 96 shows negative value as -0.11, placing the

fund in last position among peers & indicating that scheme could not surpass even

229

risk free rate of return and thus failing to reward the investors for his/her risk

undertaken.

2. In equity oriented hybrid schemes HDFC Prudence (5.85) comes at top followed

by Birla Sun life 95, Reliance regular savings balanced, ICICI Prudential Balanced

Fund. UTI Balanced fund is with least Treynor value & hence captures last or 5th

position among its peers in same category.

3. Reliance Monthly Income Plan (MIP) has highest value of Treynor ratio(2.28) and

hence performs best on this parameter in its category of debt oriented hybrid

section of schemes whereas Birla Sun Life MIP II Wealth 25 finds undesired

position at last with least Treynor 0.24. Monthly Income Plans from HDFC, UTI

& ICICI Prudential are at 2nd

, 3rd

and 4th

rank respectively as shown in table.

4. Income Fund category has Birla Sun Life Income as top performing scheme on the

basis of this risk-return reward parameter followed by ICICI Prudential Income,

Reliance Income & UTI Bond Fund at 2nd

,3rd

and 4th

place respectively.

HDFC Income fund with Treynor Ratio of 0.26 comes last in the category.

5.4.8 Performance based on Jenson‟s Alpha:

Table 5.20: List of all selected schemes other than Equity with their Jenson’s Alpha and

Ranking

Scheme Category Scheme Name Jenson's

Alpha

Ranking


Scheme(ELSS)





230

UTI Equity Tax Savings -0.1671 4





Balanced

0.2296 3

UTI Balanced -0.0352 5










UTI Bond 0.1316 4

INFERENCE:

1. This is one of the most appropriate performance parameter to ascertain any fund‘s

overall performance and to measure fund manager‘s ability to reward investors on

risk adjusted return basis. Higher Positive value of Jenson‘s alpha indicates good

market timing ability of fund managers as regards investment in securities.

2. We can observe from the table that in ELSS category, two out of five schemes -

Birla Sun Life Tax Relief 96 & UTI equity tax savings have negative alpha values,

meaning that schemes have performed very poorly on risk adjusted basis & could

231

not beat even their benchmark index. ICICI Prudential Tax Plan comes at the top

with highest Jenson‘s alpha 0.1462, followed by Reliance Tax Saver & HDFC Tax

Saver schemes at 2nd

and 3rd

place respectively.

3. In Equity oriented hybrid category of schemes, HDFC Prudence Fund emerges as

clear winner with Jenson alpha 0.3818. Only UTI Balanced Fund is having

negative alpha in this category placing it at last rank. Other three schemes with

positive alpha are Birla Sun Life 95(0.3210), Reliance Regular Savings Balanced

Fund (0.2296) & ICICI Prudential Balanced (0.0524) placing them at 2nd

,3rd

and

4th

position respectively.

4. In Debt oriented hybrid category of schemes, Reliance MIP is having highest

value of this parameter as 0.2384 and hence at the top whereas Birla Sun Life MIP

II Wealth 25 is placed at the other extreme in last with very low value as 0.0010.

HDFC MIP Long-term, UTI MIS - Advantage Plan & ICICI Prudential MIP 25

are placed in the middle at 2nd

, 3rd

& 4th

rank respectively. All five schemes are

showing positive values (although scheme at bottom just crossing the hurdle by

negligible margin).

5. Birla Sun Life Income fund is having highest value of Jenson‘s alpha (0.2651) and

thus emerges as the best scheme on this parameter among the peers in income

category. Other four schemes are ICICI Prudential Income (0.2545), Reliance

Income (0.1952), UTI Bond (0.1316) & HDFC Income Fund (0.1313) in

decreasing order of Jenson‘s alpha values and hence at 2nd

, 3rd, 4th & 5th

position

respectively. Here, point to note is that all income schemes are having positive

values and thus not disappointing the investors as providing them better return

than benchmark on risk-adjusted basis.

chapter: 5 performance evaluation of mutual funds...

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