performance analysis of mutual funds in india

8/15/2019 Performance Analysis of Mutual Funds in India

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Performance Analysis of Mutual Funds in India

By

Prof. P. AranganathanMBA, PhD

H.O.D. of Management Studies

Mr. M. Arun KumarMBA

Dept. of Management Studies

MIET Engineering CollegeTrichy - Tamil Nadu

ABSTRACT

In a growing country lie India! capital maret plays an important role to sta"ili#e the $conomic gro

strengthen industrial performance! and pro%ide %arious in%estment a%enues to the in%estors to help%arious industries and to ensure the profita"le return. &mong %arious financial products! mutual fu

ensures the minimum riss and ma'imum return to the in%estors! its ha%ing own policies! termsconditions that are different from other products! so the maret %olatili#ation will not mae more ef

return. &ccording to the (lo"al &sset Management )**+ ,eport from Boston onsulting (roup! Indmanaged assets will e'ceed more than / trillion "y )*/0. This means an annual growth rate of )/1

the ne't nine years. The Indian mutual funds industry has "een growing at a healthy pace of /+.+2 cent for the past eight years and the trend will mo%e further as has "een emphasi#ed "y the report

the entrance of new fund houses and the introduction of new funds into the maret! in%estors are n"eing presented with a "road array of Mutual 4und choices. The total asset under management of M4und industry rose "y 5.601 from ,s.7*5507.*6 crores to 775)7).6+ crores in No%em"er! )**+ as

pu"lished "y &M4I. In /528! its si#e was ,s./!*** crores! which went up to ,s. 6!/** crores in /55

su"se9uently touched a figure of ,s.8)!*** crores in /552. Since then this figure has "een increasitremendously and thus re%ealing the efficiency of growth in the mutual fund industry. It has genera

"een o"ser%ed that as the (D:. Here the author discussed a"out performance measures of mutual

ITR!"#CTI!

There are a lot of in%estment a%enues a%aila"le today in the financial maret for an in%estor with anin%esta"le surplus. He can in%est in Ban Deposits! orporate De"entures! and Bonds where there i

ris "ut low return. He may in%est in Stoc of companies where the ris is high and the returns are proportionately high. The recent trends in the Stoc Maret ha%e shown that an a%erage retail in%es

always lost with periodic "earish tends. :eople "egan opting for portfolio managers with e'pertise inmarets who would in%est on their "ehalf. Thus we had wealth management ser%ices pro%ided "y m

institutions. Howe%er they pro%ed too costly for a small in%estor. These in%estors ha%e found a goodshelter with the mutual funds.

The Indian mutual funds industry is witnessing a rapid growth as a result of infrastructural de%elopm

increase in personal financial assets! and rise in foreign participation. 3ith the growing ris appetite



income! and increasing awareness! mutual funds in India are "ecoming a preferred in%estment optiocompared to other in%estment %ehicles lie 4i'ed Deposits ;4Ds< and postal sa%ings that are conside

safe "ut gi%e comparati%ely low returns! according to =Indian Mutual 4und Industry=. Mutual fund inhas seen a lot of changes in past few years with multinational companies coming into the country! "

in their professional e'pertise in managing funds worldwide. In the past few months there has "een

consolidation phase going on in the mutual fund industry in India. Now in%estors ha%e a wide rangeSchemes to choose from depending on their indi%idual profiles. In this research paper the authors hdiscussed the growth of mutual funds in India! latest trends! glo"al scenarios and also analy#ed top

prominent mutual funds schemes.

$hat is mutual fund%

& mutual fund is >ust the connecting "ridge or a financial intermediary that allows a group of in%esto

pool their money together with a predetermined in%estment o">ecti%e. The mutual fund will ha%e a manager who is responsi"le for in%esting the gathered money into specific securities ;stocs or "ond

3hen you in%est in a mutual fund! you are "uying units or portions of the mutual fund and thus on

in%esting "ecomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the "est a%aila"le in%estments as compare to others they arecost efficient and also easy to in%est in! thus "y pooling money together in a mutual fund! in%estors

purchase stocs or "onds with much lower trading costs than if they tried to do it on their own. But"iggest ad%antage to mutual funds is di%ersification! "y minimi#ing ris ? ma'imi#ing returns.

&R!$T' !F M#T#A( F#"S I I"IA

The Indian Mutual 4und has passed through three phases. The first phase was "etween /5+6 and /

and the only player was the @nit Trust of India! which had a total asset of ,s. +!8** crores at the en/522. The second phase is "etween /528 and /557 during which period 2 4unds were esta"lished ;

"ans and one each "y AI and (I<. The total assets under management had grown to +/!*)2 crothe end of /556 and the num"er of schemes was /+8.

The third phase "egan with the entry of pri%ate and foreign sectors in the Mutual 4und industry in /

othari :ioneer Mutual 4und was the first 4und to "e esta"lished "y the pri%ate sector in associationforeign 4und.

&s at the end of financial year )***;7/st march< 7) 4unds were functioning with ,s. /! /7!**0 cror

total assets under management. &s on august end )***! there were 77 4unds with 75/ schemes anassets under management with ,s /! *)!265 crores.

The securities and $'change Board of India ;S$BI< came out with comprehensi%e regulation in /557defined the structure of Mutual 4und and &sset Management ompanies for the first time. Se%eral p

sectors Mutual 4unds were launched in /557 and /556. The share of the pri%ate players has risen ra

since then. urrently there are 76 Mutual 4und organi#ations in India managing /!*)!*** crores.

Ma)or ty*es of mutual funds

$ach fund has a predetermined in%estment o">ecti%e that tailors the fundCs assets! regions of in%estand in%estment strategies. At the fundamental level,there are three varieties of mutual funds:

/< $9uity funds ;stocs<

)< 4i'ed-income funds ;"onds<7< Money maret funds



&ll mutual funds are %ariations of these three asset classes. 4or e'ample! while e9uity funds that in

fast-growing companies are nown as growth funds! e9uity funds that in%est only in companies of tsame sector or region are nown as specialty funds.

AetCs go o%er the many different fla%ors of funds. 3eCll start with the safest and then wor through tmore risy.

Money Mar+et Funds

The money maret consists of short-term de"t instruments! mostly Treasury "ills. This is a safe plac

par your money. ou wonCt get great returns! "ut you wonCt ha%e to worry a"out losing your princitypical return is twice the amount you would earn in a regular checingEsa%ings account and a little

than the a%erage certificate of deposit ;D<.

Bond,Income Funds

Income funds are named appropriatelyF their purpose is to pro%ide current income on a steady "asi

3hen referring to mutual funds! the terms =fi'ed-income!= ="ond!= and =income= are synonymous. terms denote funds that in%est primarily in go%ernment and corporate de"t. 3hile fund holdings ma

appreciate in %alue! the primary o">ecti%e of these funds is to pro%ide a steady cash flow to in%estorsuch! the audience for these funds consists of conser%ati%e in%estors and retirees.

Bond funds are liely to pay higher returns than certificates of deposit and money maret in%estme

"ut "ond funds arenCt without ris. Because there are many different types of "onds! "ond funds cadramatically depending on where they in%est. 4or e'ample! a fund speciali#ing in high-yield >un "o

much more risy than a fund that in%ests in go%ernment securities. 4urthermore! nearly all "ond fusu">ect to interest rate ris! which means that if rates go up the %alue of the fund goes down.

Balanced Funds

The o">ecti%e of these funds is to pro%ide a "alanced mi'ture of safety! income and capital apprecia

The strategy of "alanced funds is to in%est in a com"ination of fi'ed income and e9uities. & typical"alanced fund might ha%e a weighting of +*1 e9uity and 6*1 fi'ed income. The weighting might a

restricted to a specified ma'imum or minimum for each asset class.

& similar type of fund is nown as an asset allocation fund. O">ecti%es are similar to those of a "alafund! "ut these inds of funds typically do not ha%e to hold a specified percentage of any asset class

portfolio manager is therefore gi%en freedom to switch the ratio of asset classes as the economy mo

through the "usiness cycle.

E-uity Funds

4unds that in%est in stocs represent the largest category of mutual funds. (enerally! the in%estmeo">ecti%e of this class of funds is long-term capital growth with some income. There are! howe%er! mdifferent types of e9uity funds "ecause there are many different types of e9uities. & great way to

understand the uni%erse of e9uity funds is to use a style "o'! an e'ample of which is "elow.



Factors to e considered efore in/est in mutual fundsF

/. Maret ris

). Inflation rate7. redit ris

6. Interest rate ris0. Sta"ility of the political en%ironment

+. The di%ersification in the portfolio8. ,eturns in the N&G after ris ad>ustment

2. Si#e of the asset5. Ai9uidity offered.

RESEARC' "ESI& !F T'E ST#"0

PERI!" !F ST#"0

The growth oriented schemes! which ha%e "een floated "y the selected funds during the period Mar

)*// to 4e"ruary)*/)! ha%e "een considered for the purpose of the study. Monthly Net &sset Galue

as declared "y the rele%ant mutual funds from March )*// of a particular scheme to 4e"ruary)*/) "een used for the purpose. &ny missing %alue for the scheme and for the inde' series has "een e'c

to e9ualise the two.

SE(ECTI! !F F#"S F!R PERF!RMACE E1A(#ATI!

4ollowing funds ha%e "een selected to study the performance of mutual fundsF

S.! Selected mutual funds

/ ,eliance (old $'change Traded 4und - Di%idend

) SBI (old $'change Traded Scheme

7 @TI (old $'change Traded 4und

6 uantum (old $'change Traded 4und - (rowth



0 ota (old $T4

+ ,eligare (old $'change Traded 4und

8 HD4 (old $'change Traded 4und

2 &'is (old $T4

5 III :rudential (old $'change Traded 4und

/* (S (old Be$S

SC'EME SE(ECTI!

4or the purpose of this study! only growth schemes of the funds selected for which N&G %alues are

a%aila"le ha%e "een considered for studying the performance.

&N&ASIS O4 M@T@&A 4@NDS SH$M$S

Basis for &nalysis

Net &sset Galue ;N&G< is the "est parameter on which the performance of a mutual fund can "e stu3e ha%e studied the performance of the N&G "ased on the compounded annual return of the Schem

terms of appreciation of N&G! di%idend and "onus issues. 3$ ha%e compared the &nnual returns of schemes to get an idea a"out their relati%e standings.

G&A@&TION O4 M@T@&A 4@ND

The net asset %alue of the 4und is the cumulati%e maret %alue of the assets 4und net of its lia"ilitie

other words! if the 4und is dissol%ed or li9uidated! "y selling off all the assets in the 4und! this is th

amount that the shareholders would collecti%ely own. This gi%es rise to the concept of net asset %aluunit! which is the %alue! represented "y the ownership of one unit in the 4und. It is calculated simp

di%iding the net asset %alue of the 4und "y the num"er of units. Howe%er! most people refer looselyN&G per unit as N&G! ignoring the =per unit=. 3e also a"ide "y the same con%ention.

alculation of N&G

The most important part of the calculation is the %aluation of the assets owned "y the 4und. Once itcalculated! the N&G is simply the net %alue of assets di%ided "y the num"er of units outstanding. Th



detailed methodology for the calculation of the net asset %alue is gi%en "elow.The net asset %alue is the actual %alue of a unit on any "usiness day. N&G is the "arometer of the

performance of the scheme.

The net asset %alue is the maret %alue of the assets of the scheme minus its lia"ilities and e'penseper unit N&G is the net asset %alue of the scheme di%ided "y the num"er of the units outstanding on

%aluation date.

TAB(E23 Sho4ing list of mutual fund schemes studied for the study

,an Scheme ame "ate A1 5Rs.6 (ast 37

Months

/ ,eliance (old $'change Traded 4und -Di%idend

4e" /7 ! )*/) )+)*.78 7+./2

) SBI (old $'change Traded Scheme 4e" /7 ! )*/) )867.5 7+./8

7 @TI (old $'change Traded 4und 4e" /7 ! )*/) )+5).7/ 7+.//

6 uantum (old $'change Traded 4und -

(rowth

4e" /7 ! )*/) /775.*7 7+.*5

0 ota (old $T4 4e" /7 ! )*/) )+5*.5 7+.*2

+ ,eligare (old $'change Traded 4und 4e" /7 ! )*/) )8++./8 7+.*0

8 HD4 (old $'change Traded 4und 4e" /7 ! )*/) )860.28 70.82

2 &'is (old $T4 4e" /7 ! )*/) )867.2/ 70.65

5 III :rudential (old $'change Traded

4und

4e" /7 ! )*/) )8+).56 70.62

/* (S (old Be$S 4e" /7 ! )*/) )+2*.72 70.6+



To* 38 Funds 2 Period 5(ast 37 Months6 A1 1A(#E

Since the inception rate the N&G has "een increased upto82.20rs in III :rudential 4M( -

(rowth "ecause! III is ha%ing +01 of online trading through icicidirecttrading.com! followed "y ,

(old $'change Traded 4und - Di%idend stands in )nd ran comparing in last /) months. But III:rudential (old $'change Traded 4und stands in last ran! "ecause it only ha%e increased small le%

inception point.

Calculation of ris+ and return

,is and return has to "e calculated and measured "y company and concerned "oard to pro%ide proinstructions! guidelines a"out mutual funds schemes to in%estors to help them to a%oid unnecessary

Here the ris and return ha%e "een analy#ed on leading mutual schemes with the help of statistical

such as mean! standard de%iation! sharpie ratio! "eta! and correlation.

RISK A" RET#R

Ince*tion"ate

Scheme ame Ty*e Mean S" Shar*ieRatio

BETA Correlatio

No% )/! )*// ,eliance (old$'change Traded

4und - Di%idend

Open ended *.66 ).8/ *./) /.*+ /./*

May /2!)**5 SBI (old $'change

Traded Scheme

Open ended *.65 )./) *./5 /.*) *.28

&pril /*!)**8 @TI (old $'change Open ended *.60 ).8) *./7 /.*+ /.//



Traded 4und

4e" ))!)**2 uantum (old

$'change Traded4und - (rowth

Open ended *.60 ).8* *./7 /.*+ /./*

uly )8!)**8 ota (old $T4 Open ended *.68 ).8* *./6 /.*+ /.*5

March /)!)*/*

,eligare (old$'change Traded

4und

Open ended *.05 ).)/ *.)) /.*/ *.5/

&ug /7! )*/* HD4 (old$'change Traded

4und

Open ended *.05 ).)5 *.)/ /.** *.57

No% /*!)*/* &'is (old $T4 Open ended *.02 ).62 *./5 /./* /.*7

&ug )6! )*/* III :rudential

(old $'changeTraded 4und

Open ended *.0+ ).77 *.)* /.** *.50

March 2! )**8 (S (old Be$S Open ended *.60 ).8/ *./7 *.** N&

CA(C#(ATI! !F BETA



$9ui%alent

@TI (old $'change Traded 4und N& N& N& N& ash ? ash

$9ui%alent

uantum (old $'change Traded

4und - (rowth

N& N& N& N& ash ? ash

$9ui%alent

ota (old $T4 N& N& N& N& ash ? ash

$9ui%alent

,eligare (old $'change Traded4und

N& N& N& N& ash ? ash$9ui%alent

HD4 (old $'change Traded 4und N& N& N& N& ash ? ash

$9ui%alent

&'is (old $T4 N& N& N& N& ash ? ash

$9ui%alent

III :rudential (old $'change

Traded 4und

N& N& N& N& ash ? ash

$9ui%alent

(S (old Be$S N& N& N& N& ash ? ash

$9ui%alent

CA(C#(ATI! !F P!RT F!(I! ATTRIB#TES



Jhere a o%erall maret cap! di%idend yield on leading schemes ha%e "een gi%en. &gain SBI

Magnum Sector 4unds scheme shows highest /.0+ di%idend yield! followed "y HD4"alanced fund! other schemes ha%e not yet shown di%idend yield. Those schemes are not

suggesti"le.

Conclusion9

Mutual funds offer a wide product range! con%enience! ta'-efficiency and other facilities to

successfully implement a financial plan! these influence lot of in%estors to in%est in mutualfunds! also there is hectic competition has "een arisen in the capital maret. Different

scheme pro%iders pro%ide different facilities and follow inno%ati%e promotional techni9ues to

attract the new customers to sellout their products. omparati%ely performance of mutualfund scripts has to "e analy#ed properly. ompanies! regulating "odies such BS$! NS$! @TI

ha%e to arrange %arious tools! methods to analy#e the performance of the mutual fundswhich are in trade! and the right results! information to "e transparent to all the in%estors

who hold the mutual funds units. Implementation of technological techni9ues in measuringperformance! ris and return! portfolio selections! units allotted process will pro%ide

accurate results a"out the position of scheme in the maret that will induce the in%estors toin%est on mutual fund schemes.

REFERENCES

&garwal! (.D.! /55)! =Mutual 4unds and In%estors Interest=! Chartered Secretary, Gol.))!

No./! )7-)6.

&>ay Srini%asan! /555! =Mutual 4undsF The New $ra=! Chartered Secretary ! Sept.!& )+).

(upta! A..! /556! Mutual Funds and Asset Preference! Society for apital Maret ,esearchand De%elopment! Delhi.

Ippolito! ,.! /55)! =onsumer reaction to measures of poor 9ualityF $%idence from Mutual

4unds=! Journal of Law and conomics! 70! 60-8*.



Madhusudan G. am"odear! /55+! Mar!etin" Strate"ies of Mutual Funds # Current Practicesand Future Directions, 3oring :aper! @TI K IIMB entre for apital Marets $ducation and

,esearch! Bangalore.

Shanar! G.! /55+! =,etailing Mutual 4undsF & consumer product model=! $he%indu! uly )6!)+.

Shanmugham! ,.! )***! =4actors Influencing In%estment Decisions=! &ndian Ca'ital Mar!ets# $rends and Dimensions (ed)*, Tata Mc(raw-Hill :u"lishingompany Aimited! New Delhi!)***.

Gidya Shanar! S.! /55*! =Mutual 4unds K $merging Trends in India=! Chartered Secretary !

Gol.)*! No.2! +75-+6*

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