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The Volatility Spill over between Balanced and Equity

Mutual Funds with Indian Stock Market Navyasri.N, *Savitha Kulkarni

Faculty of Management and Commerce, Ramaiah University of

Applied Sciences, Bangalore-560 054

*savitha.klkrn@gmail.com, navyashree932@gmail.com

ABSTRACT

The study focuses on the volatility spillover of balanced and equity mutual funds with

Nifty 50 index in India. The data considered for the study is ranging from the period April

2009 to March 2019 both inclusive. The study employs descriptive statistics, Augmented

Dickey-fuller test, Ordinary Least Square(OLS) method, Johansen co-integration ,Vector

Error Correction Model (VECM) and Wald test and residual diagnostic test are

performed using heteroskadasticity test , serial correlation test, normality test and granger

causality test to find the best fit model. It is found that there is volatility spillover between

the mutual funds and Indian stock market.

Keywords: Volatility, Mutual funds, balanced funds, equity funds, Nifty 50, VECM

1. INTRODUCTION

Financial services are the economic support provided by the financial institutions to

manage the finances of every individual in an economy. Mutual fund is the investment

fund that pools money from many investors to purchase the securities. Balanced fund

equity fund are the part of mutual funds. Balanced funds are also called as hybrid funds

which consist of both stocks and bonds and is divided into two categories, one is equity

oriented and another one is debt oriented (actually called as Monthly Investment Plan).

Equity oriented fund has a higher proportion of stocks in the portfolio which is around

65-80% and rest is in debt securities. The investment in equity is done as per the

investment objective of the fund which can be a mix of multi-cap, large cap or midcap

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stocks .In debt oriented fund, a major portion of the asset is invested in the short term

to long term duration debt securities of different credit rating. It helps in generating

steady interest income and reducing volatility in returns. The investors are required to

think from the perspective of investing in mutual fund and but not to ignore the factors

affecting the performance of mutual funds. Hence, an attempt has been made to study

the volatility spillover between the balanced and equity funds with Nifty 50 of Indian

stock market.

2. Literature Review

Dilshad Begum (2020) studied the investors across financial markets and observed that

investors do not act purely in rational manner. It is found that several behavioral and

contextual factors, tax benefit, risk and return, mutual funds and savings in financial

markets impact individual investors in decision making in short and long term investment.

Rakeshkumar C. Patel1(2020)examined the mutual funds schemes and performed a

comparative analysis on the schemes and helped the retail investors in decision making in

investing their money into the best funds.

M. IndhuBala (2020)examined the savings of investors which were pooled together for

investment in a diversified portfolio of securities to spread risk and to ensure steady return.

The mutual fund industry has gained the ability to offer wide variety of investment options

for the Indian investor population in general.

Catherine Kalayaan S. Almonte (2017) evaluated the risk -adjusted performance of the

balanced and equity funds by comparing the performance of both the funds and finding the

benchmark values by using the statistical tools like Sharpe's ratio, Treynor'smeasure and

Jenson's alpha and found that there exists an inverse relationship between the funds’ beta

values and the proportion of equity held by the funds’ benchmarks.

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Ms. SarikaKeswani (2017) discussed about the effect of the fund size on the performance

of balanced and equity funds in India. The main objective of investors and fund managers

was to check if size affects performance of mutual funds. After the hypothesis testing, it is

clear that the correlation coefficients of fund size and performance variables are not

significant and also the null hypotheses were not rejected.

Kulshrestha H (2016)studied the relationship between the performance and size of the

balanced mutual funds in India , the performance of balanced schemes of mutual funds is

always based on risk-return relationship models. It is found that balanced-growth schemes

gave better results as compared to balanced-dividend schemes.

HimanshuPuri (2014) studied performance evaluation of balanced mutual fund schemes

in Indian scenario, while evaluating and comparing the performance of the schemes, the

returns should be measured taking into account the risks involved in achieving the returns.

The small investors were well-advised to analyze the return and risk parameters of the

mutual funds.

ShakeelaNaz Atta(2015)examined the risk adjusted performance evaluation of balanced

and equity mutual fund schemes, considered secondary data for the analysis evaluated

using performance measures: rate of return and risk, Sharpe measure,Treynor measure,

Jenson differential return measure, Fama’s components of investment performance and

found that total returns from all selected schemes are positive.

3. Problem Statement

There is no awareness for the investors about the risk involved in the funds, which option

is right for investing their securities or assets, based on the balanced and equity funds

schemes of growth and dividend, investors must choose the right option whether to invest

in balanced funds or the equity funds in India.

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4. .OBJECTIVES

To compare the return of balanced and equity funds

To analyze the time series are stationary or non-stationary

To estimate the volatility consistence of balanced and equity funds by comparing

the returns

To evaluate the risk associated with the balanced and equity funds

5. METHODOLOGY

The time series data is collected from the yahoo finance and AMFI , the returns for each

balanced and equity funds is calculated. Various measures are taken into consideration, the

return , risk and volatility of the balanced and equity funds in India have been analyzed.

RETURNS :Returns of the balanced and equity funds is calculated based on the log

returns based on the benchmark index (Nifty50).

RISK RATIOS: The ratios used to evaluate the risk adjusted performance of the balanced

and equity funds are Sharpe ratio, Treynor’s ratio and Jenson's alpha.

Descriptive Statistics is performed which presents mean, median, standard deviation,

skewness, kurtosis. The study proceeds with econometric analysis. The study performs the

Augmented Dickey–Fuller (ADF),Unit Root Test to confirm the series are stationary.

Least square method is a statistical method used in regression analysis, often in nonlinear

regression modelling in which a curve is fit into a set of data.

In order to determine the long run association between independent variable and

dependent variable, Johansen co-integration test is performed. The test usually examines

the return series co-integrated between them or no. Vector Error-Correction Model

(VECM) is performed to determine the long run relationship exists between independent

variable and dependent variable. If there is co-integration between variables is found then

long run association exists between them. Wald test is performed to check the short run

effect of variables on dependent variables in order to check ifthe selected model is a best

fit model and three different residual test have also been conducted.

If independent variable and dependent variable are co-integrated then Granger Causality

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test is applied to test the short run association between them.

E-views 10 student version software is employed in this study to carry out all the analysis

of time-series oriented econometric data.

6. RESULTS AND DISCUSSION

The benchmark Nifty 50 fluctuates then the stocks and funds also fluctuates to the extent

of their beta. When the stocks and funds fluctuates then NAV of the mutual funds that are

invested in those stocks also goes up/down because NAV is the sum total of all the assets

that the fund may be invested in, net of liabilities. Balanced Funds are the category of

mutual funds which invests in an exceedingly mixture of stocks and bonds. The fund is

additionally called the hybrid fund. It is designed to supply investors with modest capital

appreciation and supply safety from volatility.The funds is split into two categories, one is

equity oriented and another one is debt oriented. Equity oriented fund contains a higher

proportion of stocks within the portfolio which is around 65-80% and rest is in debt

securities. The composition of debt securities also affects the alpha. Debt securities with

high credit rating are considered more stable against low rated debt securities.

EQUITY MUTUAL FUNDS

Equity Funds are mutual funds which invest its total asset in equity stocks. The fund’s

main objective is capital appreciation from the investment. Investing in Equity funds

involves a better degree of risk to volatility. There is big selection of equity mutual funds

available to investors

TABLE 1 Descriptive statistics of equity mutual funds

Axis ICICI CANARA NIPPON

LIC

HYBRID NIFTY50

Mean 0.60474 1.43038 -2.5163 0.0550593 11.16213 4041782

Median 0.00476 0.00404 -0.025 -0.00274 -0.0080282 30420

Standard

deviation 0.06773 0.08107 0.12647 0.0899971 0.6933043 4972.73

Maximum 0.18468 0.245 0.40156 0.2084249 4.4307236 41461.3

Minimum -0.165 -0.1743 -0.3337 -0.196334 -0.8224429 23002

Skewness 0.32737 0.37018 0.12405 0.1607306 5.8392876 0.34581

Kurtosis 0.63605 0.13509 1.41372 -0.006319 35.154934 -1.2235

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Discussion : The table 1 recapitulates the descriptive statistics of balanced funds and

equity funds . The factor of skewness for all the return series are dissimilar from zero

which shows that return distribution is asymmetric and the coefficient of kurtosis shows

that the return series are not symmetric in all the variables of balanced and equity funds

During the study, it was found that the nifty 50 series has reached maximum return

41461.3 and minimum returns of 23002. LIC mutual fund has the highest returns of

4.4307236 and AXIS has the lowest returns of -0.165.

Table 2 – Descriptive statistics of balanced mutual funds

DSP HDFC IDBI IDFC KOTAK NIFTY50

Mean 1.59629 4.28904 -0.3431 0.5460425 2.0922999 4041782

Median 0.01939 0.00635 -0.0113 -0.031289 0.01235 30420

Standard deviation 0.10903 0.20641 0.12068 0.2121174 0.0547129 4972.73

Maximum 0.31715 0.90248 0.31392 1.0830047 0.1542533 41461.3

Minimum -0.3931 -0.498 -0.3375 -0.573295 -0.110359 23002

Skewness -0.8615 2.1978 0.04882 2.6760778 0.276161 0.34581

Kurtosis 3.61527 11.143 0.71544 14.993745 -0.1173172 -1.2235

-50%

0%

50%

100%

descriptive statistics of equity mutual funds

NIFTY50

LIC HYBRID

NIPPON

CANARA

ICICI

Axis

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The table 2 recapitulates the descriptive statistics of balanced funds and equity funds . The

factor of skewness for all the return series are dissimilar from zero which shows that return

distribution is asymmetric and the coefficient of kurtosis shows that the return series are

not symmetric in all the variables of balanced and equity funds During the study, it was

found that the nifty 50 series has reached maximum return 41461.3 and minimum returns

of 23002. HDFC has the highest returns of 0.90248 and IDBI has the lowest returns of -

0.3375

Table 3 - Augumented Dickey - Fuller Test of Balanced Mutual Funds

Variable coefficient Standard

error

t-statistic probability

Nifty 50 -0.842889 0.088170 -9.559809 0.0000

DSP -1.035820 0.089476 -11.57658 0.0000

HDFC -1.061244 0.089269 -11.88814 0.0000

IDBI -1.061002 0.089230 -11.89069 0.0000

IDFC -1.339842 0.084452 -11.30099 0.0000

KOTAK 0.018143 0.089077 -12.26066 0.0000

R-squared 0.545989

Prob(F-

statistic)

0.000000

Table 3 describes the results of ADF test for balanced and equity funds generally, to check

the stationary of the return series, unit root test is done. In all the funds the t-statistic value

of ADF test statistics is less than the expected critical values, hence, the return series is

non-stationary, and the probability value for the test is 0.000 which is lesser than the

significant value 0.05 where the null hypothesis can be rejected and series is stationary

-100%

0%

100%

descriptive statistics of balanced mutual funds

DSP HDFC IDBI IDFC KOTAK NIFTY50

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Table 4 - Augumented Dickey - Fuller Test of Equity Mutual Funds

ADF TEST of equity growth and dividend schemes

Variable coefficient Standard

error

t-statistic probability

Nifty50 -0.842889 0.088170 -9.559809 0.0000

Axis -0.949333 0.089358 -10.62389 0.0000

Canara -1.080674 0.086929 -12.43163 0.0000

ICICI -1.126383 0.088527 -12.72361 0.0000

Nippon -1.126482 0.087527 -12.72361 0.0000

LIC-hybrid -1.046896 0.089343 -11.71770 0.0000

R-squared 0.564293

Prob(F-

statistic)

0.000000

The Table 4 describes the results of ADF test of equity funds generally, to check the

stationary of the return series, unit root test is done. In all the funds the t-statistic value of

ADF test statistics is less than the expected critical values, hence, the return series is non-

stationary, and the probability value for the test is 0.000 which is lesser than the significant

value 0.05 where the null hypothesis can be rejected and series is stationary

Table 5- Ordinary least square method of equity mutual funds

Dependent variable : NIFTY 50

Variables coefficient Standard error t-statistic Probability

AXIS 0.493129 0.079703 6.187106 0.0000

CANARA 0.221799 0.037267 5.951689 0.0000

ICICI 0.405336 0.065461 6.192056 0.0000

NIPPON -5.75E-06 9.05E-07 -6.357592 0.0000

LIC_HYBRID -0.012087 0.006474 -1.866983 0.0000

R-squared 0.707137

Prob(F-statistic) 0.000000

Discussion :- This probability is the p - value of the regression the test is done on the 5%

significance whether the hypothesis is accepted or rejected, if the significance is lower than

0.05 then the null hypothesis is rejected in the balanced and equity funds the probability

values for the independent values is 0.000 where the values are lower than 5% significance,

so the null hypothesis is rejected and alternative hypothesis accepted.

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TABLE 6– Ordinary Least Square of Balanced Mutual Funds

Dependent variable : NIFTY 50

Variables Coefficient Standard error t-statistic Probability

DSP 0.317501 0.05904 5.344776 0.0000

HDFC 0.047323 0.029044 1.629316 0.1058

IDBI 0.219090 0.051268 4.273424 0.0000

IDFC 0.014342 0.029608 0.484377 0.6290

KOTAK 0.464699 0.114870 4.045421 0.0001

R-squared 0.466139

Prob(F-statistic) 0.000000

Discussion:-This probability is also the p - value of the regression the test is done on the

5% significance whether the hypothesis is accepted or rejected, if the significance is lower

than 0.05 then the null hypothesis is rejected in the balanced and equity funds the

probability values for the independent values are 0.0000, 0.0000, 0.0001, where the values

are lower than 5% significance, so the null hypothesis is rejected and alternative hypothesis

accepted. Whereas the probability values of HDFC and IDFC is 0.1058 and 0.6290 hence

the null hypothesis is accepted and alternate hypothesis is rejected.

Johansen test of co-integration

Johansen’s co integration test is conducted in two tests, that is, trace statistic test and

maximum Eigen value test. In the below table the tests the null of no co integrating

equation. The trace statistic is 239.7765 which is greater than critical value 95.75366 and p

is 0.0000 which is lesser than 0.05, therefore, H0 can be rejected. Then the trace statistic for

at most 1, at most 2, at most 3 and at most 4 is rejected as probability is less than 0.05 and

at most 5 is accepted as probability is more than 0.05. It is accepted that there are five co-

integrated variables

Table 7- Trace Statistic Test Of Equity Mutual Funds

hypothesized no of ce(s) trace statistic

critical

value probability

none 239.7765 95.75366 0.0000

at most 1 143.5985 69.81889 0.0000

atmost2 86.33901 47.85613 0.0000

atmost 3 41.52319 29.79707 0.0015

atmost 4 20.23343 15.49471 0.0089

atmost 5 1.961737 3.841466 0.1613

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Table 8 - Max-Eigen Statistic Test Of Equity Mutual Funds

hypothesized no of ce(s) Max-Eigen statistic

critical

value probability

none 96.17804 40.07757 0.0000

at most 1 57.25945 33.87687 0.0000

atmost2 44.81582 27.58434 0.0001

atmost 3 21.28976 21.13162 0.0475

atmost 4 18.27169 14.26460 0.0110

atmost 5 1.961737 3.841466 0.1613

In the above table 8 it tests the null of no co integrating equation, followed by at most 1, at

most 2, at most 3 and at most 4 co integrating equations. In case of no co integrating

equation, max Eigen statistic is 79.98605which is greater than critical value 40.07757 and

p is 0.0100 which is lesser than 0.05. Therefore, the null of no co integrating equation is

rejected. Hence, according to max Eigen statistic test, there are five c- integrated equation.

The trace statistic is 253.667which is greater than critical value 95.75366 and p is 0.0000

which is lesser than 0.05, therefore, H0 can be rejected. Then the trace statistic for at most

1, at most 2, at most 3 and at most 4 and at most 5 is rejected as probability is less than

0.05. It is accepted that there is six co integration between the variable.

TABLE 9- TRACE STATISTIC TEST OF BALANCED MUTUAL FUNDS

hypothesized no of

ce(s) trace statistic critical value Probability

none 289.3239 95.75366 0.0000

at most 1 207.0787 69.91889 0.0000

atmost2 139.7149 47.85613 0.0000

atmost 3 82.73004 29.79707 0.0000

atmost 4 44.86793 15.49471 0.0000

atmost 5 16.97374 3.841466 0.0000

In the above table 9 trace statistic is 253.667which is greater than critical value 95.75366

and p is 0.0000 which is lesser than 0.05, therefore, H0 can be rejected. Then the trace

statistic for at most 1, at most 2, at most 3 and at most 4 and at most 5 is rejected as

probability is less than 0.05. It is accepted that there are six co integrated variables.

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Table 10 - Max-Eigen Statistic Test Of Balanced Mutual Funds

hypothesized no of

ce(s) Max-Eigen statistic critical value Probability

none 82.24524 40.07757 0.0000

at most 1 67.36381 33.87687 0.0000

atmost2 56.98485 27.58434 0.0000

atmost 3 37.86211 21.13162 0.0001

atmost 4 27.89419 14.26460 0.0002

atmost 5 16.97374 3.841466 0.0000

In the above table 10 it tests the number of co integrating variables, followed by at most 1,

at most 2, at most 3 and at most 4 co integrating equations. In case of no co integrating

equation, max Eigen statistic is 79.98605which is greater than critical value 40.07757 and

p is 0.0100 which is lesser than 0.05. Therefore, the null of no co integrating equation is

rejected. Hence, according to max Eigen statistic test, there are five co- integrated

variables. .

Table 11- Vector Error Correction Model

Vector Error Correction Model is done to check whether there is any long term effect between

independent variables and dependent variables

Coefficient Standard error t-statistic probability

C(1) 0.258525 0.103144 2.506440 0.0137

C(2) 0.228151 0.102175 2.232937 0.0276

C(3) 0.266300 0.117235 2.271514 0.0251

C(4) -0.003102 0.115144 -0.026937 0.9786

C(5) -0.167170 0.055357 -3.019874 0.0032

C(6) -0.096963 0.057372 -1.690089 0.0939

C(7) -0.196778 0.092440 -2.128716 0.0355

C(8) -0.170207 0.099348 -1.7139614 0.0895

C(9) -3.14E-06 4.24E-06 -0.739614 0.4611

C(10) 2.68E-06 4.27E-06 0.627269 0.5318

Dependent Variable: NIFTY_50

Method: Least Squares (Gauss-Newton / Marquardt steps)

Date: 03/12/20 Time: 21:36

Sample (adjusted): 1/05/2009 1/01/2020

Included observations: 126 after adjustments

NIFTY_50 = C(1)*NIFTY_50(-1) + C(2)*NIFTY_50(-2) + C(3)*AXIS(-1) + C(4)

*AXIS(-2) + C(5)*CANARA(-1) + C(6)*CANARA(-2) + C(7)*ICICI(-1) +

C(8)*ICICI(-2) + C(9)*NIPPON(-1) + C(10)*NIPPON(-2) + C(11)

*LIC_HYBRID(-1) + C(12)*LIC_HYBRID(-2) + C(13)*DSP + C(14)

*HDFC + C(15)*IDBI + C(16)*IDFC + C(17)*KOTAK

Coefficient Std. Error t-Statistic Prob.

C(1) 0.258525 0.103144 2.506440 0.0137

C(2) 0.228151 0.102175 2.232937 0.0276

C(3) 0.266300 0.117235 2.271514 0.0251

C(4) -0.003102 0.115144 -0.026937 0.9786

C(5) -0.167170 0.055357 -3.019874 0.0032

C(6) -0.096963 0.057372 -1.690089 0.0939

C(7) -0.196778 0.092440 -2.128716 0.0355

C(8) -0.170207 0.099348 -1.713250 0.0895

C(9) -3.14E-06 4.24E-06 -0.739614 0.4611

C(10) 2.68E-06 4.27E-06 0.627269 0.5318

C(11) 0.018042 0.008627 2.091382 0.0388

C(12) 0.031314 0.012359 2.533670 0.0127

C(13) 0.248731 0.056562 4.397486 0.0000

C(14) -0.033194 0.041419 -0.801415 0.4246

C(15) 0.331782 0.053311 6.223489 0.0000

C(16) 0.032562 0.028975 1.123807 0.2636

C(17) 0.468464 0.109783 4.267179 0.0000

R-squared 0.639697 Mean dependent var 0.000824

Adjusted R-squared 0.586808 S.D. dependent var 0.090547

S.E. of regression 0.058204 Akaike info criterion -2.724828

Sum squared resid 0.369256 Schwarz criterion -2.342155

Log likelihood 188.6641 Hannan-Quinn criter. -2.569360

Durbin-Watson stat 2.327553

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C(11) 0.018042 0.008627 2.091382 0.0388

C(12) 0.031314 0.012359 2.533670 0.0127

C(13) 0.248731 0.056562 4.397486 0.0000

C(14) -0.033194 0.041419 -0.801415 0.4246

C(15) 0.331782 0.053311 6.223489 0.0000

C(16) 0.032562 0.028975 1.123807 0.2636

C(17) 0.468464 0.109783 4.267179 0.0000

R-squared 0.639697

Prob(F-

statistic) 0.000000

* At 5% significant level

In table 6, is the result obtained through vector error correction model in order to see

whether these independent variables have a long term effect on dependent variable. Here

C(1) , C(2), C(3) and C(4) is the coefficient of co integrated model. C(5) to C(16) is the

coefficient of respective variables. And C(17) is constant of this model. Here the

coefficient of C(1) is negative and the probability is 0.0006 so it is significant. The R-

squared value is relatively high that is63% (0.639697) and Probability (F-statistic) is less

than 5 percent (0.000008), so it is said that this model is statistically viable. Hence the

independent variable can jointly influence the dependent variable in long run. C(5) to

C(13) is short term coefficient and that needs to be checked by performing Wald test.

WALD TEST

In order to cross verify the analysis whether there is any short run effect of independent

variable on dependent variable “Wald Test” method is done.

• H0: variable lag one and lag two jointly cannot influence the dependent variable

NIFTY 50 series

• H1: variable lag one and lag two jointly can influence the dependent variable

NIFTY50 series

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Table 12 –Wald Test

In the above table 12 we can see that the probability value is less than 5% for nifty 100 so

the null hypothesis gets rejected, so it is said there is short term relationship between nifty

100. Other variables have probability more than 5% so the null hypothesis cannot be

rejected and is said the variables jointly cannot influence dependent variable Nippon.

Residual diagnostic test

Residual analysis is been prepared in order to see whether the above VECM model

conducted are significant or not and to check whether, that can be acceptable.

Table 13- Heteroskedasticity test

Heteroskedasticity test : Breusch-pagan-Godfrey

F-statistic 0.780799 Probability-F(10,117) 0.054

Observed R-squared 8.007685 Probability chi-square(10) 0.6281

Scaled explained ss 7.859022 Probability chi-square(10) 0.6426

Null Hypothesis Probability Value Results

Nifty 50 C(5)=C(6)=0 0.0384* Rejected

DSP C(7)=C(8)=0 0.9166 Accepted

AXIS C(09)=C(10)=0 0.3908 Accepted

CANARA C(11)=C(12)=0 0.1200 Accepted

HDFC C(13)=C(14)=0 0.5295 Accepted

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The below test is been done to check whether the model is heteroskedasticity or not,

hereby the probability in this test is more than five percent (0.6281) where the null

hypothesis can be accepted, so it is said that the model is homoskedasticity . And

it is desirable for the model to best fit.

Granger Casuality Test:-

Table 14- Granger Casualty Test Of Equity Mutual Funds

Null Hypothesis F-Statistic Probability decision

AXIS does not granger cause NIFTY50

NIFTY50 does not granger cause AXIS

3.17952

1.3578

0.0451

0.3673

Reject

CANARA does not granger cause nifty50

Nifty50 does not granger cause CANARA

8.73100

2.3647

0.0003

1.0023

Reject

ICICI does not granger cause nifty50

Nifty50 does not granger cause ICICI

0.87253

1.4675

0.0057

0.5281

Reject

NIPPON does not granger cause nifty50

Nifty50 does not granger cause nippon

14.8798

0.4682

0.0013

2E-046

Reject

Lic_hybrid does not granger cause nifty50

Nifty50 does not granger cause lic_hybrid

0.17126

0.1534

0.0640

5E-374

Accept

CANARA does not granger cause axis

Axis does not granger cause canara

2.82802

1.3746

0.0630

0.0003

Accept

From the above table 14 Granger causality test is performed to measure the causality

between two variables ,Axis fund does not granger cause Nifty50 and probability is less

than the significant value of 5% hence null hypothesis is rejected and LIC mutual fund

does granger cause Nifty50 as the probability is more than significant value hence null

hypothesis is accepted and hence there is unidirectional relation between LIC fund

,CANARA fund and Nifty50.

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Table 15-Granger Casualty Test Of Balanced Funds

Null Hypothesis F-Statistic Probability Decision

DSP does not granger cause NIFTY50

NIFTY50 does not granger cause DSP

1.63951 0.5966

Accept

HDFC does not granger cause nifty50

Nifty50 does not granger cause HDFC

2.99240 0.0539 accept

IDBI does not granger cause nifty50

Nifty50 does not granger cause IDBI

0.49478

0.0016 reject

IDFC does not granger cause nifty50

Nifty50 does not granger cause IDFC

2.24460 0.1104 accept

KOTAK does not granger cause nifty50

Nifty50 does not granger cause KOTAK

3.51849 0.0044

reject

IDFC does not granger cause DSP

DSP does not granger cause IDFC

0.69574

0.0001 reject

From the above table 15 Granger causality test is performed to measure the causality

between two variables , DSP fund , HDFC fund , IDFC fund does not granger cause

Nifty50 and probability is more than the significant value of 5% hence null hypothesis is

accepted and IDBI fund, KOTAK fund and IDFC fund does granger cause Nifty50 as the

probability is less than significant value hence null hypothesis is rejected and hence there is

unidirectional relation between mutual funds and Nifty50.

Table 16- Equity Mutual Funds Growth And Dividend Scheme

Equity funds growth scheme Nifty 50 1 YR

RETURN 3RD RETURN 5YR RETURN

AXIS Blue chip Fund-Growth 1. 37% 18.12% 19.43% 10.35%

CANARA ROBECO Blue chip

Equity Fund-Growth

-0.55%

15.73% 15.35% 9.62%

ICICI Regular Saving Fund-

Growth

0.17%

10.10% 9.50% 9.74%

NIPPON -Growth 0.86% 2.19% 7.53% 7.17%

LIC Mf Equity Hybrid Fund-

Growth

0.66%

12.85% 8.68% 5.03%

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• from the above table 16 of equity growth scheme returns vary from one fund to

another where the highest returns is 10.35% gained by AXIS mutual fund and

lowest returns was for the LIC mutual fund of 5.3% where some funds bare losses

and some funds gain by investments and returns are compared with the benchmark

nifty50 ,where nifty50 is a standard against which the equity funds will be

measured ,.This shows that there less consistency and volatility in the performance

of the equity funds

Table 17- Equity Mutual Funds-Dividend Scheme

Equity funds -dividend scheme Nifty 50

1 YR

RETURN 3RD RETURN 5YR RETURN

AXIS Blue chip Fund- Dividend 1.35% 16.88% 19.02% 10.13%

CANARA ROBECO Blue chip

Equity Fund-Dividend

0.54%

14.03% 14.27% 8.85%

ICICI Regular Saving Fund-

Dividend

0.18%

7.15% 7.01% 7.35%

NIPPON INDIA Equity Fund-

Dividend

0.86%

2.11% 6.87% 6.77%

LIC MF Equity Hybrid Fund-

Dividend

0.07%

12.43% 1.44% 6.80%

• From the above table 17 the performance of equity mutual funds AXIS fund has

the highest returns of 10.13% and the lowest returns is 6.8% of LIC mutual fund

where the returns keep on fluctuating from one fund to another.

TABLE 18- BALANCED FUNDS GROWTH AND DIVIDEND SCHEME

Balanced funds -growth scheme Nifty 50 1 YR

RETURN 3RD RETURN 5YR RETURN

DSP Hybrid Fund-Growth 0.89% 11.07% 11.33% 10.52%

HDFC Hybrid Funds-Growth 0.70% 6.86% 7.73% 4.75%

IDBI Hybrid Fund-Growth 0.15% 1.36% 3.96% 2.16%

IDFC Emerging Hybrid Fund-

Growth

0.68%

4.69% 5.04% 5.00%

KOTAK MAHINDRA Hybrid

Equity Fund-Growth

1.02%

7.65% 9.71% 6.32%

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• from the above table 18 0f Balanced mutual funds growth scheme returns vary from

one fund to another where the highest returns is 10.52% gained by DSP mutual

fund and lowest returns was for the IDBI mutual fund of 2.16% where some funds

bare losses and some funds gain by investments and returns are compared with the

benchmark nifty50 ,where nifty50 is a standard against which the balanced funds

will be measured ,.This shows that there less consistency and volatility in the

performance of the balanced funds

Table 19-Balanced Fund Dividend Scheme

Balanced funds -dividend scheme Nifty 50 1 YR

RETURN 3RD RETURN 5YR RETURN

DSP Hybrid Fund-Dividend 0.89% 9.64% 10.86% 10.24%

HDFC Hybrid Funds-Dividend 0.70% 5.37% 6.86% 4.25%

IDBI Fund-Dividend 0.15% 1.36% 2.15% 2.00%

IDFC Emerging Hybrid Fund-

Dividend

0.66%

4.68% 4.96% 4.00%

KOTAK MAHINDRA Hybrid Equity

Fund-Dividend

1.02%

7.65% 9.71% 4.07%

• From the above table 19 the performance of balanced mutual funds DSP fund has

the highest returns of 10.24% and the lowest returns is 2.00% of IDBI mutual fund

where the returns keep on fluctuating from one fund to another.

• The balanced funds rebalance the portfolio returns accordingly whether the fund is

underperforming or over performing.

• Investors would opt for the growth scheme than the dividend scheme as they get

their returns and they do not pay out the dividends hence they reinvest for the better

returns to the customers.

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Table 20- Volatility Of Balanced Mutual Funds

BALANCED/HYBRID FUNDS AUM BETA STANDARD DEVIATION

DSP Hybrid Fund-Growth 5622.58 0.97% 12.81%

DSP Hybrid Fund-Dividend 5622.58 0.97% 12.81%

HDFC Hybrid Funds-Growth 20925.71 0.86% 11.84%

HDFC Hybrid Funds-Dividend 20925.71 0.86% 11.84%

IDBI Hybrid Fund-Growth 273.75 1.01% 8.90%

IDBI Hybrid Fund-Dividend 273.75 1.01% 8.90%

IDFC Emerging Hybrid Fund-Growth 718.86 0.09% 10.00%

IDFC Emerging Hybrid Fund-Dividend 718.86 0.09% 10.00%

KOTAK Hybrid Equity Fund-Growth 61.33 0.07% 8.17%

KOTAK Hybrid Equity Fund-Dividend 61.33 0.07% 8.17%

In the balanced funds the funds are consistent and volatile in the market where the beta

values are lesser than 1 except the IDBI hybrid fund which is 1.01 which has more

volatility , the higher the standard deviation results in higher volatility which shows the

fluctuations of the balanced and equity funds are moving the average value , DSP hybrid

fund consists of higher standard deviation of (12.84%) and highest AUM of 5622.58

[TABLE 21]

EQUITY FUNDS AUM BETA STANDARD DEVIATION

AXIS Blue chip Fund-Growth 9481.19 0.86% 11.20%

AXIS Blue chip Fund - Dividend 9481.19

0.86% 11.20%

ICICI Regular Saving Fund – Growth 1696.45 0.83% 3.32%

ICICI Regular Saving Fund-Dividend 1696.45

0.83% 3.32%

CANARA ROBECO Blue chip Equity

Fund-Growth 269.32 0.93 11.61

CANARA ROBECO Blue chip Equity

Fund-Dividend 269.32 0.93 11.61

NIPPON India Hybrid Equity Fund-

Growth 8762.86 1.23 10.55

NIPPON India Hybrid Equity Fund-

Dividend 8762.86 1.23 10.55

LIC Mf Equity Hybrid Fund-Growth 393.59 1.06% 9.41%

LIC Mf Equity Hybrid Fund-Dividend 393.59 1.06% 9.41%

In the above table 21.Beta is the classification the risk of the assets invested the

highest risk is undertaken by Nippon India hybrid fund of (1.23) which is greater

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than1 and it represents greater than the market value and has more volatility and

the highest risk is found in the Axis blue-chip fund (9481.9) which is higher AUM

in the equity mutual funds.

• Hence , there are large amount of fluctuations in the volatility and consistency of

the returns of balanced and equity funds by comparing the returns we can find that

the funds growth scheme is performing better than fund's dividend scheme .

Table 22 -Risk Associated With Balanced Mutual Funds

BALANCED MUTUAL FUNDS

SHARPE

RATIO

TREYNOR

RATIO

JENSON'S

RATIO

DSP Hybrid Fund-Growth -0.31 0.01 0.25

DSP Hybrid Fund-Dividend -0.31 0.01 0.25

HDFC Hybrid Funds-Growth 0.32 0.04 -2.25

HDFC Hybrid Funds-Dividend 0.32 0.04 -2.25

IDBI Hybrid Fund-Growth -0.04 -6.83 -4.32

IDBI Hybrid Fund-Dividend -0.04 -6.83 -4.32

IDFC Emerging Hybrid Fund-Growth 0.04 1.4 1.23

IDFC Emerging Hybrid Fund-Dividend 0.04 1.4 1.23

LIC Mf Equity Hybrid Fund-Growth 0.43 0.04 -2.78

LIC Mf Equity Hybrid Fund-Dividend 0.43 0.04 -2.78

-100%

-50%

0%

50%

100%

risk ratios of balanced mutual funds

JENSON'S RATIO

TREYNOR RATIO

SHARPE RATIO

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In the above table 22 the risk associated with the LIC hybrid fund is higher 0.43 and the

lowest risk is DSP fund with-0.31 .the investors must ensure the risk associated with the

funds before investing Positive value of Sharpe ratio indicates better performance of

schemes. Jensen Alpha Higher value indicates better performance of fund, IDFC emerging

hybrid fund has higher ratio of 1.23 hence fund is performing well.

TABLE 23-Risk associated with Equity mutual funds

In the above table 23 the risk associated with the AXIS blue chip fund is higher with1.24

and the lowest risk is Nippon fund with0.31, Positive value of Sharpe ratio indicates

better performance of schemes. Jensen Alpha Higher value indicates better performance of

fund, AXIS blue chip fund has higher ratio of 6.41 hence fund is performing well

-100%

-50%

0%

50%

100%

risk ratios of equity mutual funds

JENSON'S RATIO

TREYNOR RATIO

SHARPE RATIO

EQUITY MUTUAL FUNDS

SHARPE

RATIO

TREYNOR

RATIO

JENSON'S

RATIO

AXIS Bluechip Fund-Growth 1.24 0.16 6.41

AXIS Bluechip Fund-Dividend 1.24 0.16 6.41

ICICI Regular Saving Fund-Growth 0.75 0.11 0.12

ICICI Regular Saving Fund-Dividend 0.75 0.11 0.12

CANARA ROBECO Blue chip Equity Fund-

Growth 0.9 0.11 3.01

CANARA ROBECO Blue chip Equity Fund-

Dividend 0.9 0.11 3.01

NIPPON India Hybrid Equity Fund-Growth 0.31 0.03 -4.71

NIPPON India Hybrid Equity Fund-Dividend 0.31 0.03 -4.71

KOTAKMAHINDRA Equity Fund-Growth 0.63 0.08 0.21

KOTAKMAHINDRA Equity Fund-Dividend 0.63 0.08 0.21

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In the above tables we have calculated the risk ratios of the balanced and equity

funds is the ratio of probability of the investments of the securities which help in

calculating the risk performance of the funds the risk ratios used to calculate are :-

Sharpe's ratio :- this ratio measure's the risk adjusted performance of the balanced

and equity funds , this ratio is mainly used to calculate the returns in the portfolio

which is excess of the risk free rate and the standard deviation of the funds

,historical returns are used to calculate the ratio and the portfolio return is used to

measure the returns of the funds ,as the returns of the balanced funds and equity

funds vary accordingly there is excess amount of variations by calculating this ratio

,the amount of the risk involved will be known .

To measure the Sharpe' ratio, the formula is:-

Sharpe ratio = (Rm - Rf)/sd

Rm - market return of the funds

Rf - Risk free rate return of the funds

sd - standard deviation of the funds

Treynor ' ratio :-this ratio measure's the returns earned which is more than the

risk free rate return in the given market value and the risk the reward to volatility

ratio, based on systematic risk The Treynor measure is similar to the Sharpe ratio,

except that it defines reward (average excess return) as a ratio calculated returns of

the equity and balanced funds is earned more than the risk free rate return and it

determines how efficiently the fund manager s balanced between the risk and

returns of the balanced and equity funds to calculate the treynor ratio the difference

of market return and risk free rate and the beta value are taken into consideration .

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Formula to calculate the treynor 'ratio is

Treynor ratio = (Rm- Rf)/Beta

Rm - market return of the funds

Rf - risk free rate of the funds

Beta - systematic risk of the funds

Jenson‘s alpha:- evaluating a fund manager's ability of providing higher returns to

the investors. He defines his measure of portfolio performance as the difference

between the actual returns on a portfolio in any particular holding period and the

expected returns on that portfolio conditional on the risk-free rate,

To calculate the jenson's alpha the formula is:-

Jensen’s alpha = Rf + (Rm- Rf)*beta

Rm - market return of the funds

RF - risk free rate of the funds

Beta - systematic risk of the funds

RISK ASSOCOIATED WITH BALANCE AND EQUITY FUNDS IN INDIA

The risk associated with the balanced and equity funds differ from each mutual

fund in India.. The main objective behind such asset allocation is to enjoy the

benefit of diversification. Instead of risking all the securities in equity, the balanced

fund helps you invest prudently with lower risk.

An equity-oriented balanced fund invests at least 65% of its assets in equities. The

rest of the fund’s securities are invested primarily in debt, or at times some portion

of it is held in cash. Equity funds change their asset allocation of their securities

according to the changing economic conditions. However, balanced funds strictly

behave in their financial positions.

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These funds don’t go beyond the 65% limit as prescribed in the investment

procedures. Balanced funds are meant for investors who require safety, and

moderate capital appreciation. During the bull phase, the fund is able to generate

higher returns due to the equity component.

Even though they have a certain percentage of funds’ assets allocated to debt

instruments, balanced funds are not completely risk-free. Market risk causes the

fund value to fluctuate as per the movements of the underlying benchmark values.

Balanced funds charge an annual fee for managing your portfolio which is known

as expense rate. It is shown as a amount of fund’s average assets. It reflects the

operating efficiency of the fund and becomes an important criteria at the time of

selecting the fund.

Before investing in a balanced fund, expense rate should be compared with the

competitive funds. Ensure that it has a low expense rate as compared to peer funds.

Compared to an FD, balanced funds may deliver higher returns over a medium-

term investment horizon of say 5 yrs. The capital gains on balanced funds are taxed

based on the financial position of the fund.

Equity-oriented balanced funds are taxed just like pure equity. If you hold your

investment for more than a year, the capital gains are treated as long-term capital

gains.

Hence investing in the balanced funds is the better option rather than investing

in equity mutual funds, where investors must take the risk association of the

funds into their consideration before investing in the balanced and equity

mutual funds.

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7. CONCLUSION

The study aimed at comparing the balanced and equity funds with Nifty50 index traded on

National Stock Exchange. this research of balanced and equity funds focused on the

performance of the funds in which the investors would choose to invest their securities

,where balanced funds invest in both the stocks and bonds whereas equity funds invest

only in the stocks which would be riskier than the balanced funds . Compared to an FD,

balanced funds may deliver higher returns over a medium-term investment horizon of say 5

yrs. The capital gains on balanced funds are taxed based on the financial position of the

fund. it is seen that there is impact of the mutual funds by the nifty 50 index where if the

index value falls, the value of the stocks ad funds decreases as well ,to check the stationary

of the time series descriptive statistics , ADF test ,ordinary least square method and

johansen co-integration test is done there was 5 co-integration between the independent

and dependent variables so the vector error correction model (VECM) model was

performed where the long term effect exist between the independent and dependent

variables and the residual diagnostic tests was done to check whether the model is best fit

and it is seen that there is serial correlation between the variables and there is no normal

distribution of the data and ordinary least square method was done where there is best fit in

regression line and there is less volatility in the performance of the mutual funds by the

nifty50 by growth and dividend schemes of balanced and equity funds where the returns

were decreasing as compared to nifty 50 and it is seen that growth scheme is opted by the

investors than the dividend scheme and the risk adjusted ratios were calculated of sharpe

ratio , treynor ratio and jenson's alpha . so investors must ensure about the risk involved in

both the funds before investing so they would earn profit ,instead of losing by investing

wrong mutual fund.

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REFERENCES

[1] Patel, r.c., 2020. A comparative study on performance of selected mutual funds

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[2] Begum, d., 2020. Investment decision of an individual investing behavior. Purakala with

issn 0971-2143 is an ugc care journal, 31(14), pp.389-396.

[3] Bala, m.i., 2020. Mutual funds–an overview. Purakala with issn 0971-2143 is an ugc care

journal, 31(10), pp.354-359.

[4] Catherine kalayaan s. Almonte , (2017), "the risk-adjusted performance of equity and

balanced funds in the philippines", the icfai journal of applied finance, vol.13, no. 9, pp. 5-16.

[5] Ms. Sarikakeswani, (2015), "effect of fund size on the performance of balanced

mutual funds an empirical study in Indian context'', journal of finance, 42, pp. 233-265.

[6] Kulshrestha h, (2016), "relationship between the performance and size of the balanced mutual

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[7] Himanshupuri. (2014), "performance evaluation of balanced mutual fund schemes in Indian

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[8] Shakeelanazatta., (2015), "risk adjusted performance evaluation of balanced and equity

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