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Performance Evaluation of Indian Mutual Funds

Dr S Narayan Rao
Associate Professor of Finance
Shailesh J Mehta School of Management
Indian Institute of Technology Bombay
Powai, Mumbai-400 076
Ph. 91-22-2572 2545 Extension: 7744
Fax: 91-22-2572 2872
e-mail: narayan@som.iitb.ac.in

And

M Ravindran, Manager
Tata Power Company Ltd
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Performance Evaluation of Indian Mutual Funds

Abstract

In this paper the performance evaluation of Indian mutual funds in a bear market is carried out through
relative performance index, risk-return analysis, Treynor’s ratio, Sharp’s ratio, Sharp’s measure, Jensen’s
measure, and Fama’s measure .The data used is monthly closing NAVs. The source of data is website of
Association of Mutual Funds in India (AMFI). Study period is September 98-April 02(bear period). We started
with a sample of 269 open ended schemes (out of total schemes of 433) for computing relative performance
index. Then after excluding the funds whose returns are less than risk-free returns, 58 schemes were used for
further analysis. Mean monthly (logarithmic) return and risk of the sample mutual fund schemes during the
period were 0.59% and 7.10%, respectively, compared to similar statistics of 0.14% and 8.57% for market
portfolio. The results of performance measures suggest that most of the mutual fund schemes in the sample of
58 were able to satisfy investor’s expectations by giving excess returns over expected returns based on both
premium for systematic risk and total risk.

JEL: G23
Keywords: mutual funds, performance evaluation, risk-return analysis

I. Introduction

The mutual fund industry in India began with setting up of the Unit Trust of India (UTI) in

1964 by the Government of India. During last 36 years, UTI has grown to be a dominant

player in the industry with assets of over Rs.52000 crores (Rs.520 billion) as of December

2001. In 1987 public sector banks and two Insurance companies (Life Insurance Company

and General insurance company) were allowed to launch mutual funds. Securities and

Exchange Board of India (SEBI), regulatory body for Indian capital market, formulated

comprehensive regulatory framework for Mutual Funds in 1993 and allowed private

corporate bodies to launch mutual fund schemes. Since then several mutual funds have been

set up by the private and joint sectors. As on March 2002, there were 35 mutual fund

companies with 433 schemes and assets under management were Rs.100594 (Rs.1005

billion). It has been about a decade of competition for Indian mutual fund industry.
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Indian mutual funds contribute 0.18% to net assets kitty, 0.55% to the number of schemes at

global level and we have a long way to catch up with the developed world. The Product Life

Cycle of Indian Mutual fund is in growth stage. The performance of mutual funds receives a

great deal of attention from both practitioners and academics. With an aggregate investment

of over $11 trillion worldwide and over $20 billion in India, the investing public’s interest in

identifying successful fund managers is understandable. From an academic perspective, the

goal of identifying superior fund managers is interesting as it encourages development and

application of new models and theories.

The idea behind performance evaluation is to find the returns provided by the

individual schemes and the risk levels at which they are delivered in comparison with the

market and the risk free rates. It is also our aim to identify the out-performers. The objective

of the study is to evaluate the performance of Indian Mutual Fund Schemes in a bear market

using:

• relative performance index

• risk-return analysis

• Treynor’s ratio

• Sharpe’s ratio

• Sharpe’s measure

• Jensen’s measure

• Fama’s measure
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II. Data description

Out of the 433 schemes as on 31st March 2002, 311 are open ended, 87 are close ended and

35 are assured return type. The fund managers are not interested in assured return schemes

due to stringent SEBI (Securities and Exchange Board of India, Regulatory body of Indian

Capital Markets) regulations and hence are excluded from our study. Out of 87 close-ended

schemes only 4 are actively traded and others are inactive. Out of the 311 open-ended

schemes 269 are at least 1 year old and selected for the evaluation. Thus, initial sample size is

269 open-ended schemes. Study period is from September 1998 to April 2002.

The logarithmic returns are computed from monthly closing NAVs obtained from

AMFI’s (Association of Mutual Funds in India) website. The NAVs are considered

appropriate for the open-ended schemes as purchase and sale prices are linked to NAVs.

Based on relative performance index all the schemes which could not provide returns equal to

above risk-free returns are excluded from the sample and the remaining sample of 58 open

ended schemes are subjected to further analysis.

III. Methodology

Relative Performance Index (RPI)

Relative Performance Index is defined as the ratio of the unadjusted percentage NAV

growth and the percentage change in BSE Sensex.

(Current NAV − Face Value) Face Value

RPI = (1)
(Current BSE.Sensex− BSE Sensexat issuetime) BSE Sensexat issuetime

However RPI calculated as above will result in negative values for a mutual fund scheme

with positive return against the bear market. Hence we amend above formula as in (2):

%Change in Scheme NAV + 2 X %Change in Sensex

RPI ( Adjusted ) = (2)
+ X % Change in Sensex
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where –X% is the actual change in the sensex.

The RPI calculations are applied to 269 sample schemes. Expected return from a

scheme can be expressed as RPI x market return.

Hence a scheme with RPI equal to 5, is expected to give an annual return of 8.4%

(1.68 multiplied by 5) which is the risk free rate, with the mean monthly market return during

the study period at 0.14% (1.68% annualized). We restricted further analysis to schemes with

RPI greater than 5 as the investor expects at least risk-free returns.

Return

For each mutual fund scheme under study, the monthly returns are computed as:

ri = ln(ending NAV / begning NAV ) (3)

The market returns are computed on similar lines with BSE Sensex (The Bombay

Stock Exchange Sensitive Index) as benchmark. The return on the market portfolio is

computed as:

rm = ln(ending sensex / begining sensex) (4)

The logarithmic mean is computed to obtain mean monthly market return. The returns thus

obtained are absolute returns and are retained throughout the study.

Risk

Standard deviation: Measure of Total Risk

Financial analysts and statisticians prefer to use a quantitative risk surrogate called the
2
1 n
variance of returns, denoted by Var(r) = ∑[ri − ram ] (5)
n t =1

Where ri = return on individual mutual fund unit. ram = mean rate of return

The square root of the variance is called the standard deviation σ = Var (r ). (6)
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The standard deviation and the variance are equally acceptable and equivalent quantitative

measures of an asset’s total risk. The variance and standard deviation are computed from

logarithmic monthly returns.

Beta: Measure of Systematic Risk

To obtain the measure of systematic risk (Beta) of the mutual fund scheme, Market Model is

applied. The mathematical form of the model is:

rP = α + β * rm + e p (7)

Where, rp is the return on the mutual fund scheme, rm is the return on the market,

α is the intercept, β is the slope or the beta coefficient, ep is the error term.

Higher values of β indicate a high sensitivity of fund returns against market returns;

the lower value indicates low sensitivity. Higher β values are desired for the mutual funds

during bull phase of the market and lower β values are desired during the bear phase to out

perform the market. The error term ep is an approximation for unique risk. There are unequal

sample observations and non-identical time periods for the selected mutual fund schemes. It

is assumed that beta is stationary during the period. The constants α and β are computed

through regression analysis by regressing the monthly market return with the monthly mutual

fund return. The regression also provides the value of r2 (coefficient of determination) that

gives the strength of co-relation between the market and the fund returns and indicates the

extent of diversification.

Co-efficient of Determination: Measure of Diversification

The potential advantage of mutual fund investment is the diversification of portfolio.

Diversification reduces the unique or unsystematic or diversifiable risk and thus improves the

performance. The diversification extent can be measured by the value of coefficient of

determination (r2). A low r2 value indicates the fund has large scope for diversification. A
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comparison of diversification degree and unique risk is made for clarity.

Risk-less asset

By definition, a risk less asset has zero variability of returns. If an investor buys an

asset at the beginning of the holding period with the known terminal value, such type of asset

can be called as risk-less or risk free asset. Government securities and nationalized bank

deposits fall under this category. As the government securities are not easily available to the

common man, we take the nationalized bank deposits as the risk free asset and the interest

rate on such deposits are considered as risk free return.

Further, Gupta’s study (1991) on “Indian Share Owners” reveals that 91.4% of house

holds (sample 5822) perceives that nationalized bank deposits are absolutely safe. It is a

common perception of the mutual fund investor to expect a return higher than the bank rate

but lesser than the stock market. A study by Ajay Shah and Susan Thomas(1994), assumed

bank deposit rates as risk-free rate.

Treynor’s Ratio

Jack Treynor (1965) conceived an index of portfolio performance measure called as

reward to volatility ratio, based on systematic risk defined in equation (8). He assumes that

the investor can eliminate unsystematic risk by holding a diversified portfolio. Hence his

performance measure denoted as TP is the excess return over the risk free rate per unit of

systematic risk, in other words it indicates risk premium per unit of systematic risk.

Risk Pr emium r −r
TP = = p f (8)
Systematic Risk Index βP

where TP = Treynor’s Ratio, rP = portfolio return, rf = risk free return and βP = Beta

coefficient for portfolio. As the market beta is 1, Treynor’s index TP for benchmark portfolio

is (rm-rf) where rm = market return. If TP of the mutual fund scheme is greater than (rm-rf), then

the scheme has out performed the market.

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The major limitation of the Treynor Index is that it can be applied to the schemes with

positive betas during the bull phase of the market. The results will mislead if applied during

bear phase of the market to the schemes with negative betas. The second limitation is it

ignores the reward for unsystematic or unique risk.

Sharpe’s Ratio

William F.Sharpe (1966) devised an index of portfolio performance measure, referred

to as reward to variability ratio denoted by SP defined in equation (9). He assumes that a

small investor invests fully in the mutual fund and does not hold any portfolio to eliminate

unsystematic risk and hence demands a premium for the total risk.

Risk Pr emium rp − rf
SP = = (9)
TotalRisk σP

where SP = Sharpe’s Ratio, rP = portfolio return, rf = risk free return, and σP = standard

rm − r f
deviation of portfolio returns. The SP for benchmark portfolio is where σm = standard
σm

deviation of market returns. If SP of the mutual fund scheme is greater than that of the market

portfolio, the fund has out performed the market.

The superiority of the Sharpe ratio over the Treynor ratio is, it considers the point

whether investors are reasonably rewarded for the total risk in comparison to the market. A

mutual fund scheme with a relatively large unique risk may outperform the market in

Treynor’s index and may under perform the market in Sharpe ratio. A mutual fund scheme

with large Treynor ratio and low Sharpe ratio can be concluded to have relatively larger

unique risk. Thus the two indices rank the schemes differently.

The major limitation of the Sharpe ratio is that it is based on the Capital Market Line

(CML). The major character of the capital market line is only the efficient portfolios can be
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plotted on the CML but not inefficient. Hence we assume that a managed portfolio (mutual

fund scheme) is an efficient portfolio.

Sharpe Measure

Sharpe (1963) suggested that, it is possible to consider the return for each security to

be represented by the following equation:

rp = α + β * rm + e

(10)

where rp= expected return, α= intercept, β = beta coefficient, rm = expected market return,

e=error term with a zero mean and constant standard deviation.

Sharpe noted that the variance explained by the index could be referred as the

systematic risk and the unexplained variance is called residual or unsystematic risk. Sharpe

suggests that systematic risk and unsystematic risk for a security can be quantified as:

Systematic risk = β2 x Var(rm)

(11)

Unsystematic risk (Unique risk) = Var(ri) - β2 x Var(rm)

(12)

Where Var(ri)= Variance of mutual fund scheme return, Var(rm)= Variance of market return,

β = beta coefficient of the scheme. A well diversified fund is expected to have lower

unsystematic risk.

Jensen’s Measure

Sharpe and Treynor ratios rely mainly on ranking of portfolios in comparison to the

market portfolio. They are unable to answer question like: Has fund given more than/less

than/ equal to expected returns? Hence there is a need for a better performance measure.

Michael C.Jensen (1968) has given different dimension and confined his attention to

the problem of evaluating a fund manager’s ability of providing higher returns to the
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investors. He measures the performance as the excess return provided by the portfolio over

the expected (CAPM) returns. The performance measure, denoted by JP is defined in equation

(13). He assumes that the investor expects at least CAPM returns.

J P = Portfolio. Re turn − CAPM . Re turn = rP − {r f + β P (rm − r f )}

(13)

where JP = Jenson’s measure for portfolio, rP = portfolio return, rf = risk free return , and βP =

beta coefficient of the portfolio. A positive value of JP would indicate that the scheme has

provided a higher return over the CAPM return and lies above Security Market Line (SML)

and a negative value would indicate it has provided a lower than expected returns and lies

below SML. The Jensen model assumes that the portfolio is fully invested and is subjected to

the limitations of CAPM.

Fama’s Measure

Jensen’s measure computes excess returns over expected returns based on premium

for systematic risk. Eugene F Fama (1972) goes a step ahead, he suggests to measure fund

performance in terms of excess returns over expected returns based on premium for total risk.

In other words, the excess returns are computed based on Capital Market Line (CML).

Fama breaks down the observed return into four components:

i) Risk-free return r f.

ii) Compensation for systematic risk β(rm-rf)

iii) Compensation for inadequate diversification (rm-rf){(σp/σm)-(β)}

iv) Net superior returns due to selectivity (rp-rf)-(σp/σm) (rm-rf)

The second and third measures indicate the impact of diversification and market risk. By

altering systematic and unique risk a portfolio can be reshuffled to get the desired return.
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Fama says the portfolio performance can be judged by the net superior returns due to

selectivity. His performance measure denoted by FP is defined in equation (14).

FP = Portfolio Re turn − Riskfree return − Re turns due to all risks

.... = (rP − r f ) −  P

σ [
σ m  rm − r f ] (14)

where FP =Fama’s measure for portfolio, rP =portfolio return, rf =risk free return, σP =

standard deviation of the portfolio returns & σm =standard deviation of the market returns.

A positive value for FP indicates that the fund earned returns higher than expected

returns and lies above CML, and a negative value indicates that the fund earned returns less

than expected returns and lies below CML.

The purpose of performance evaluation is that it should be in a position to identify the

mistakes and suggest a direction for the correction. A comparison of Sharpe’s and Treynor’s

ratios will help the fund managers to correct their actions from risk angle and comparison of

Jensen’s and Fama’s measures will help from return angle.

Methodological Limitations of the Study:

The present study has the following limitations:

1. The NAVs used in the study are obtained from AMFI’s website, which in turn is

supplied by the members. Members in turn have not followed any uniform rule in

its computation due to the flexibilities offered under SEBI regulations.

2. Initially all mutual fund schemes were directly linked to stock market. In the

recent 2 years numerous schemes which are independent of stock market (debt &

money market funds) are introduced and such schemes’ returns need not have co-

relation with BSE sensex, and the sensex is not adjusted for dividends.

3. Banks are free to accept deposits at any interest within the ceilings fixed by

Reserve Bank of India and interest rates can vary from client to client. Hence

there can be an inaccuracy in the risk-free rates.

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4. The analysis is not free from the limitations of non-identical time periods and

unequal sample observations.

5. The study excludes the effect of entry and exit loads of the mutual funds.

IV Results &Analysis

Relative Performance Index

Relative performance indices for 269 mutual fund schemes are computed. On the basis of

RPI analysis we classified the 269 schemes into: i) under performers (returns less than 2%) ii)

schemes with returns of 2%-5%, iii) schemes with returns 6%-8.4%, iv) schemes with returns

8.5% and above. The returns are derived from RPI and summarized in Table -I

“take in Table-I”
Observations:

• The Medium Term Debt Funds can be rated as the best performers. All the 36 funds

out performed the market, with 18 of them giving returns of 8.5%& above.

• InfoTech Equity Funds are the worst performers with 8 out of 12 under performing,

and none giving returns of 8.5% and above.

• Out of 103 equity based schemes, 40 are under performers, 31 are par performers with

23 giving returns of 8.5% and above. This shows that some fund managers were able

to diversify the risks and maximize returns under bear market.

We will now consider only those schemes with RPI greater than 5 that gave returns at risk

free rates and above for detailed analysis.

Risk-Return Analysis:

Table-II shows that 12 schemes gave negative returns, and the remaining 46 gave

positive returns. From the systematic risk point of view (β) 37 schemes are of low risk, 11 are

of below average risk, 10 are of average risk and none of them are in above average risk and
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high risk class.

“take in Table II”

Table-III shows that the total risk of a mutual fund is of above average type. It

conveys that the total risk is above average with low market risk and the mutual fund’s risk

diversification is very poor. Out of the 58 schemes, 31 are at one extreme of high risk and 19

are at other extreme of low risk and only 8 are in between. Out of 31 high risky schemes 10

gave net losses and all the19 low risky schemes out performed the market.

“take in Table-III”

Table-4 gives the values of rp, σ, β and t values (for beta) of the sample schemes. The

average mutual fund with its mean monthly return of 0.59% at total risk level (σ) of 7.10%

has out performed the market with 0.14% return at a risk level of 8.57%. For 31 schemes beta

values are significant as suggested by the t-values.

“take in Table-IV”

A look at Table-V reveals that the debt funds have performed better. Among the

equity funds, diversified and balanced funds have performed better. This is expected in a bear

market.

“take in Table-V”

A look at Table-VI reveals that out of 58 schemes 8 have under performed the market,

25 are found to have higher total risk than the market and only 32 schemes have given returns

higher than the risk free rates. The 58 mutual fund schemes under study can be located in the

2X2 risk-return matrix in relation with the benchmark portfolio.

“take in Table-VI”

The 2X2 matrix is given in Table-VII. The matrix gives a clear idea of the risk-return

relationship of all the sample schemes in relation to the benchmark portfolio. The investor
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can link his investment strategies to the quadrants on the lines of BCG matrix.

“take in Table-VII”

A look at Table-8 shows that the 34 schemes are with positive Treynor’s ratio and 32 are with

positive Sharpe’s ratio. The limitation of Treynor’s ratio with negative β is tested for 4

schemes and that of Sharpe’s index with low σ values tested for 2 schemes. The indices

suggest that fund manager has to improve diversification.

A look at the Sharpe Measures’ results in Table-VIII reveals that the average unique

risk is very high (Var=0.0067, σ=8.19%) with low degree of diversification at 11.64%. The

fund managers have large scope to improve diversification and thus the performance.

“take in Table-VIII”

A look at Table-IX suggests that 37 schemes have provided excess returns over

CAPM returns against the fact that only 32 schemes providing excess returns over the risk

free rates. Jensen model suffers from limitation of CAPM as rm<rf. The Fama model results

show that β impact compensation is positive for 13 schemes and the inadequate

diversification compensation is positive for 4 schemes. However the net superior returns due

to selectivity is positive for 48 schemes. This is due to the fact rm<rf during the period under

study.

“take in Table-IX”

V Conclusions

The objective of this study was to evaluate the performance of Indian Mutual Fund

Schemes during bear market through relative performance index (RPI), risk- return analysis,

Treynor’s ratio, Sharpe’s ratio, Sharp’s measure, Jensen’s measure, and Fama’s measure. The

conclusions are as follows:

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RPI Analysis:

Out of 269 schemes, 49 were under performers, 102 were par performers and 118 were

out performers of the market. Medium Term Debt Funds were the best. Some equity

funds were able to diversify the risks and maximize the returns in the bear market.

Statistical risk-return analysis

The average mutual fund was found with low unsystematic and high total risk. Out 58

sample schemes 12 schemes gave negative returns and 46 gave positive returns, with only

30 giving excess returns over the risk free rates. Medium term debt funds were the out

performers.

Treynor's Ratio

32 out of 58 schemes were found with positive Treynor’s ratio and the limitation of this

model with negative β was observed for 4 schemes.

Sharpe’s Ratio

30 out of 58 schemes were found with positive Sharpe’s ratio and the limitation of this

model with low σ was observed for 2 schemes.

Sharpe’s Measure

The unsystematic or unique risk of mutual fund is very high and this is due to low β

values, poor co-relation with the market and the fact is confirmed by low values of r2.

Jensen’s Measure

35 schemes of 58 schemes have provided positive Jensen measure against only 30

providing excess returns over the risk free rates and this is due to the low CAPM returns

with rm<rf.
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Fama’s Measure:

Positive beta compensation was found on 13 schemes for systematic risk, 4 schemes for

unsystematic risk. However 46 schemes found with positive Fama’s net superior returns due

to selectivity. The deviation is again due to the fact that rm<rf.

It can be concluded that 58 of 269 open ended mutual funds have provided better returns than

the market during the bear period of September 98-April 2002, some of the funds provided

excess returns over expected returns based on both premium for systematic risk and total risk.
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References

Gupta L.C, “Indian share owners: A survey”, Society for Capital Market Research and
development, 1991, p.92.

Shah Ajay and Thomas Susan, “Performance Evaluation of Professional Portfolio

Management in India”, Center for Monitoring Indian Economy, (working paper) April, 1994.

Jack L. Treynor, “How to rate Management of Investment Funds”, Harvard Business Review,
43, No.1, (January-February, 1965), pp. 63-75.

William F. Sharpe, “Mutual Fund Performance”, Journal of Business, 39, No.1, (January
1966), pp. 119-138.

Sharpe W.F, “A simplified Model for Portfolio Analysis”, Management science 9. (January
1963), pp.277-293.

Michael C. Jensen, “ The Performance of Mutual Funds in the period 1945-1964”, Journal of
Finance, 23, No.2, (May 1968), pp. 389-416.

Eugene Fama, “Components of Investment Performance”, Journal of Finance, 27, (June

1972), pp. 551-567.

“Mutual Fund Year Book-2000”, Joint Publication of Association of Mutual funds in India
and UTI Institute of Capital Markets, 2001, pp. 29-139.
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Table I : Results of RPI Analysis

Scheme Type Under- Annual Returns (%) Total
performers
2-5 6-8.4 8.5 & >8.5
Equity (Diversified) 22 15 4 13 54
Equity (Tax Planning) 5 5 2 6 18
Equity (InfoTech) 8 2 2 0 12
Equity (Pharma) 0 3 0 0 3
Equity (FMCG) 2 1 0 0 3
Equity (Speciality) 3 5 1 4 13
Balanced Funds 8 18 2 8 36
Debt: Medium Term 0 9 9 18 36
Debt: Marginal Equity 0 7 7 1 15
Debt: Short Term 1 23 9 5 38
Debt: Gilt Medium & ST 0 8 18 2 28
Debt: Gilt Short Term 0 5 6 0 11
Money Market 0 1 0 1 2
Total 49 102 60 58 269

Table II :Risk (β) and return of Mutual Funds (No. of Schemes)

Risk→ Low Risk Below Average Above Avg. High Risk Total
Monthly ↓ β<0.3 Avg. Risk Risk Risk 0.9>β<1.1
Return (%) 0.3>β<0.5 0.5>β<0.7 0.7>β<0.9
<0 5 2 5 0 0 12
0-0.2 0 0 0 0 0 0
0.21-0.4 2 0 2 0 0 4
0.41-0.60 3 0 0 0 0 3
0.61-0.80 7 0 0 0 0 7
0.81-1.0 6 2 1 0 0 9
1.01-2.00 12 3 2 0 0 17
2.01-2.80 2 4 0 0 0 6
Total 37 11 10 0 0 58

Table III :Risk (Variance) and Return of Mutual Funds (No.of Schemes)
Risk→ Low Risk Below Average Above Avg. High Risk Total
Monthly ↓ σ2<0.0009 Avg. Risk Risk Risk σ2>0.0036
Return (%) 0.0009> 0.0015> 0.0022>
σ2<0.0015 σ2<0.0022 σ2<0.0036
<0 0 1 0 1 10 12
0-0.2 0 0 0 0 0
0.21-0.4 1 0 1 0 2 4
0.41-0.60 2 0 0 0 1 3
0.61-0.80 3 0 0 0 4 7
0.81-1.0 3 0 2 0 4 9
1.01-2.00 10 0 1 1 5 17
2.01-2.80 0 0 0 1 5 6
Total 19 1 4 3 31 58
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Table IV :Scheme Details rp, σ, β and t-value

No. Scheme rp σ β t-value
Open Ended: Equity: Diversified
1 Alliance Equity Fund 0.0218 0.0932 0.4297 2.7531**
2 Birla Advantage 0.0140 0.1462 0.4203 1.6282
3 Kothari Pioneer Blue Chip 0.0048 0.0705 0.2928 2.4379**
4 Kothari Pioneer Prime -0.0012 0.1105 0.7134 3.4285**
5 Kothari Pioneer Prima Plus 0.0222 0.0596 0.3154 3.2571**
6 Prudential ICICI Growth Plan 0.0109 0.0272 0.0549 1.1255
7 Reliance growth 0.0159 0.0904 0.3792 2.4667**
8 Reliance Vision 0.0175 0.1178 0.6242 3.2642**
9 Sundaram Growth 0.0039 0.0871 0.5687 4.3230**
10 Templeton India Growth 0.0118 0.0921 0.6318 4.6530**
11 UTI PEF Unit Scheme 0.0110 0.0748 0.4525 3.7875**
12 Zurich India Equity 0.0081 0.1070 0.4625 2.0843**
13 Zurich India Top 200 Fund 0.0022 0.0815 0.6522 3.6994**
Equity: Savings
14 Alliance Capital Tax relief 96 0.0087 0.1442 0.6896 2.3449**
15 Birla equity Plan -0.0419 0.1049 0.4937 2.1657**
16 BoB ELSS 96 -0.0255 0.0935 0.6711 3.8689**
17 Kothari Pioneer Tax shield 0.0268 0.1026 0.4855 2.6165**
18 Tata Tax Saving Fund -0.0110 0.1779 0.7242 2.1938**
19 Zurich India Tax saver -0.0096 0.0683 0.2925 1.9229*
Equity: Speciality
20 Birla MNC -0.0106 0.1452 0.4198 1.2831
21 JM Basic -0.0079 0.1540 0.5902 1.8072*
22 UTI Petro -0.0087 0.2313 0.1256 0.2357
23 UTI Services Sector -0.0005 0.1606 0.6592 1.8982§
Balanced Funds
24 Alliance'95 Fund 0.0210 0.1068 0.4940 2.7157*
25 Canpremium 0.0038 0.0438 0.1855 2.4941*
26 JM Balanced (G) 0.0086 0.0833 0.4107 2.9849*
27 Kothari Pioneer Pension Plan 0.0092 0.0187 0.0948 3.0832*
28 Tata Balanced -0.0203 0.1651 0.6290 1.7155*
29 Unit Scheme 95 -0.0163 0.0603 0.0129 0.0887
30 UTI Retirement Benefit Plan 0.0032 0.0245 0.1323 3.2961**
31 Zurich India Prudence 0.0077 0.1202 0.1056 0.3971
Debt Funds: Medium Term
32 Alliance Liquid income 0.0055 0.0190 0.0032 0.0937
33 JM Liquid Fund-G 0.0042 0.0159 0.1152 0.5076
34 Birla income plus 0.0219 0.1217 0.1152 0.5076
35 Chola Triple Ace 0.0102 0.0052 0.0133 1.4130
36 Templeton India Income 0.0110 0.0552 -0.1029 -1.0358
37 DSPML Bond 0.0108 0.0073 0.0308 2.4943**
38 Tata Income-G 0.0095 0.0350 -0.0854 -1.3711
39 Zurich India High Interest 0.0111 0.0992 0.1244 0.5463
40 IDBI Principal Deposit-EA/EB-G 0.0089 0.0037 0.0140 1.5410
41 Chola Freedom Income 0.0098 0.0050 0.0069 0.7370
42 JF India Bond 0.0110 0.0108 0.0132 0.6769
43 Sundaram Bond Saver 0.0110 0.0407 -0.0491 -0.6464
44 Reliance Income 0.0110 0.0240 0.0467 0.5637
45 Escorts Income Plan 0.0098 0.0612 0.0789 0.5568
46 Prudential ICICI income plan 0.0120 0.0061 0.0349 1.8014*
47 UTI Bond 0.0095 0.0358 0.0311 0.4772
48 LIC Bond 0.0218 0.0565 0.0841 0.6690
49 PNB Debt 0.0151 0.0130 0.0779 2.9750**
Debt Funds: Marginal Equity
50 Kothari Pioneer CAP 0.0106 0.0275 -0.0516 -1.0011
Debt Funds: Short Term
51 Alliance Cash Manger 0.0066 0.0787 -0.1452 -0.5595
52 Dundee Liquidity 0.0072 0.0309 -0.0149 -0.2074
53 JM High Liquidity-G 0.0078 0.0019 -0.0015 -0.3459
54 Prudential ICICI Liquid Plan 0.0070 0.0047 -0.0174 -1.6356
55 Templeton India Liquid 0.0070 0.0632 -0.0523 -0.3448
Debt Funds: Gilt MT & LT
56 K Gilt '98 Investment Plan 0.0143 0.0201 -0.0181 -0.4057
57 Templeton India GSF -0.0062 0.0120 -0.0224 -0.7254
Money Market Funds
58 UTI MM Mutual Fund 0.0073 0.0081 -0.0004 -0.0284
Average values 0.0059 0.0710 0.2525
**t-values significant at 5%, * t-values significant at 10% confidence levels
 20

Table V : Risk and Return-Investment Scheme Objective Wise

Average Average Systemati
Category Funds
Return % Risk % (σ) c risk β
Equity Diversified 13 1.10 8.91 0.4614
Equity Tax savings 6 -0.87 11.52 0.5594
Equity Speciality 4 -0.69 17.28 0.4487
Balanced Funds 8 0.21 7.78 0.2581
Debt Funds: MT 18 1.13 3.42 0.0307
Debt Funds: Marginal Equity 1 1.06 2.75 -0.0516
Debt Funds ST 5 0.71 3.59 -0.0463
Debt Funds: Gilt MT&LT 2 0.40 1.61 -0.0203
Money Market Funds 1 0.73 0.81 -0.0004
 21

Table VI : Risk & Return: Mutual Funds Vs Bench Mark Portfolio

S.No Funds rp σp rm σm rf
Open Ended: Equity: Diversified
1 Alliance Equity Fund 0.0218 0.0932 0.0014 0.0857 0.00908
2 Birla Advantage 0.0140 0.1462 0.0014 0.0857 0.00908
3 Kothari Pioneer Blue Chip 0.0048 0.0705 0.0014 0.0857 0.00908
4 Kothari Pioneer Prime -0.0012 0.1105 -0.0116 0.0853 0.00867
5 Kothari Pioneer Prima Plus 0.0222 0.0596 0.0014 0.0857 0.00908
6 Prudential ICICI Growth Plan 0.0109 0.0272 0.0014 0.0857 0.00908
7 Reliance growth 0.0159 0.0904 0.0014 0.0857 0.00908
8 Reliance Vision 0.0175 0.1178 0.0014 0.0857 0.00908
9 Sundaram Growth 0.0039 0.0871 0.0014 0.0857 0.00908
10 Templeton India Growth 0.0118 0.0921 0.0014 0.0857 0.00908
11 UTI PEF Unit Scheme 0.0110 0.0748 0.0019 0.0865 0.00908
12 Zurich India Equity 0.0081 0.1070 -0.0123 0.0823 0.00867
13 Zurich India Top 200 Fund 0.0022 0.0815 -0.0205 0.0821 0.00785
Equity: Savings
14 Alliance Capital Tax relief 96 0.0087 0.1442 -0.0123 0.0823 0.00867
15 Birla equity Plan -0.0419 0.1049 0.0874 0.00785
16 BoB ELSS 96 -0.0255 0.0935 -0.0166 0.0874 0.00785
17 Kothari Pioneer Tax shield 0.0268 0.1026 -0.0002 0.0865 0.00867
18 Tata Tax Saving Fund -0.0110 0.1779 -0.0002 0.0865 0.00867
19 Zurich India Tax saver -0.0096 0.0683 -0.0143 0.0886 0.00785
Equity: Speciality
20 Birla MNC -0.0106 0.1452 -0.0169 0.0860 0.00867
21 JM Basic -0.0079 0.1540 -0.0099 0.0843 0.00867
22 UTI Petro -0.0087 0.2313 -0.0149 0.0850 0.00867
23 UTI Services Sector -0.0005 0.1606 -0.0149 0.0850 0.00867
Balanced Funds
24 Alliance'95 Fund 0.0210 0.1068 0.0038 0.0853 0.00908
25 Canpremium 0.0038 0.0438 0.0014 0.0857 0.00908
26 JM Balanced (G) 0.0086 0.0833 0.0014 0.0857 0.00908
27 Kothari Pioneer Pension Plan 0.0092 0.0187 0.0014 0.0857 0.00908
28 Tata Balanced -0.0203 0.1651 -0.0193 0.0867 0.00867
29 Unit Scheme 95 -0.0163 0.0603 -0.0143 0.0886 0.00785
30 UTI Retirement Benefit Plan 0.0032 0.0245 0.0039 0.0864 0.00908
31 Zurich India Prudence 0.0077 0.1202 -0.0123 0.0823 0.00867
Debt Funds: Medium Term
32 Alliance Liquid income 0.0055 0.0190 0.0014 0.0857 0.00908
33 JM Liquid Fund-G 0.0042 0.0159 0.0014 0.0857 0.00908
34 Birla income plus 0.0219 0.1217 -0.0001 0.0866 0.00908
35 Chola Triple Ace 0.0102 0.0052 0.0038 0.0853 0.00908
36 Templeton India Income 0.0110 0.0552 0.0014 0.0857 0.00908
37 DSPML Bond 0.0108 0.0073 0.0014 0.0857 0.00908
38 Tata Income-G 0.0095 0.0350 0.0014 0.0857 0.00908
39 Zurich India High Interest 0.0111 0.0992 -0.0149 0.0850 0.00867
40 IDBI Principal Deposit-EA/EB 0.0089 0.0037 -0.0124 0.0883 0.00785
41 Chola Freedom Income 0.0098 0.0050 0.0019 0.0865 0.00908
42 JF India Bond 0.0110 0.0108 0.0014 0.0857 0.00908
43 Sundaram Bond Saver 0.0110 0.0407 0.0019 0.0865 0.00908
44 Reliance Income 0.0110 0.0240 -0.0065 0.0718 0.00785
45 Escorts Income Plan 0.0098 0.0612 -0.0169 0.0860 0.00867
46 Prudential ICICI income plan 0.0120 0.0061 -0.0065 0.0718 0.00785
47 UTI Bond 0.0095 0.0358 0.0014 0.0857 0.00908
48 LIC Bond 0.0218 0.0565 -0.0099 0.0843 0.00785
49 PNB Debt 0.0151 0.0130 -0.0193 0.0867 0.00867
Debt Funds: Marginal Equity
50 Kothari Pioneer CAP 0.0106 0.0275 -0.0001 0.0866 0.00908
Debt Funds: Short Term
51 Alliance Cash Manger 0.0066 0.0787 -0.0113 0.0729 0.00785
52 Dundee Liquidity 0.0072 0.0309 -0.0169 0.0860 0.00867
53 JM High Liquidity-G 0.0078 0.0019 -0.0099 0.0843 0.00867
54 Prudential ICICI Liquid Plan 0.0070 0.0047 -0.0143 0.0886 0.00785
55 Templeton India Liquid 0.0070 0.0632 -0.0143 0.0886 0.00785
Debt Funds: Gilt MT & LT
56 K Gilt '98 Investment Plan 0.0143 0.0201 -0.0118 0.0864 0.00867
57 Templeton India GSF -0.0062 0.0120 -0.0124 0.0883 0.00785
Money Market Funds
58 UTI MM Mutual Fund 0.0073 0.0081 0.0039 0.0864 0.00908
Legend: rp is the mean monthly MF return. σp is the standard deviation of MF returns.
rm is the mean monthly market return. σm is the standard deviation of market returns.
 22

Table VII : Risk-Return Grid Diagram

rp>rm, σp< σm rp>rm, σp> σm
1.Kothari Pioneer Blue Chip 1.Alliance Equity Fund
2.Kothari Pioneer Prima Plus 2.Birla advantage
3.Prudential ICICI Growth plan 3.Kothari Pioneer Pension
High

4.Templeton India Growth 4.Reliance Growth

6.Zurich India Top 200 fund 5.Reliance Vision
7.Zurich India tax saver 6.Sundaram Growth
8.Can Premium 7.Zurich India Equity
9.JM balanced 8.Alliance Capital tax Relief 96
10.Kothari Pioneer Pension Plan 9.Kothari Pioneer Tax shield
11.Alliance liquid income 10.birla MNC
12.JM Liquid Fund-G 11.JM Basic
13.Chola Triple ace 12.UTI Petro
RETURN

14.Templeton Income 13.UTI services Sector

15.DSPML Bond 14.Alliance 95 Fund
16.Tata Income-G 15.Zurich India Prudence
17.IDBI Principal deposit EA/EB-G 16.Birla Income Plus
18.Chola freedom Income 17.Zurich India High Interest
19.JF India Bond 18.Alliance Cash Manager
20.sundaram Bond saver
21.Reliance income
22.Escorts Income Plan
23.Prudential ICICI Income
24.UTI Bond
25.LIC Bond
26.PNB debt
27.Kothari Pioneer CAP
28.Dundee Liquidity
29.JM High Liquidity
30.Prudential ICICI Liquid Plan
31.Templeton India Liquid
32.K Gilt’98 Investment Plan
33.Templeton India GSF
34.UTI Money Market Fund
rp<rm, σp< σm rp<rm, σp> σm
1.BOB ELSS 96
1.Unit scheme 95
2.Tata Tax saving fund
2.UTI Retirement Benefit Plan
Low

3.Tata balanced
4. Birla Equity Plan
Low RISK High
 23

Table VIII :Treynor & Sharpe Ratios and Unique Risk &Diversification Extent
S.No Scheme Treynor Ratio Sharpe Ratio Sharpe Measure

Unique r2
Open Ended: Equity: Diversified Fund BM Fund BM Risk
1 Alliance Equity Fund 0.030 -0.008 0.137 -0.089 0.007 0.156
2 Birla Advantage 0.012 -0.008 0.034 -0.089 0.020 0.061
3 Kothari Pioneer Blue Chip -0.015 -0.008 -0.060 -0.089 0.004 0.127
4 Kothari Pioneer Prime -0.014 -0.020 -0.090 -0.238 0.009 0.303
5 Kothari Pioneer Prima Plus 0.042 -0.008 0.220 -0.089 0.003 0.206
6 Prudential ICICI Growth Plan 0.034 -0.008 0.068 -0.089 0.001 0.030
7 Reliance growth 0.018 -0.008 0.075 -0.089 0.007 0.129
8 Reliance Vision 0.014 -0.008 0.072 -0.089 0.011 0.206
9 Sundaram Growth -0.009 -0.008 -0.060 -0.089 0.005 0.313
10 Templeton India Growth 0.004 -0.008 0.029 -0.089 0.006 0.346
11 UTI PEF Unit Scheme 0.004 -0.007 0.026 -0.083 0.004 0.274
12 Zurich India Equity -0.001 -0.021 -0.005 -0.255 0.010 0.127
13 Zurich India Top 200 Fund -0.009 -0.028 -0.070 -0.346 0.004 0.432
Equity: Savings
14 Alliance Capital Tax relief96 0.000 -0.021 0.000 -0.255 0.017 0.155
15 Birla equity Plan -0.101 -0.025 -0.475 -0.280 0.009 0.169
16 BoB ELSS 96 -0.050 -0.025 -0.357 -0.280 0.005 0.394
17 Kothari Pioneer Tax shield 0.037 -0.009 0.177 -0.103 0.009 0.168
18 Tata Tax Saving Fund -0.027 -0.009 -0.110 -0.103 0.028 0.124
19 Zurich India Tax saver -0.060 -0.022 -0.256 -0.251 0.004 0.144
Equity: Speciality
20 Birla MNC -0.046 -0.026 -0.133 -0.297 0.020 0.062
21 JM Basic -0.028 -0.019 -0.108 -0.220 0.021 0.105
22 UTI Petro -0.138 -0.024 -0.075 -0.277 0.053 0.002
23 UTI Services Sector -0.014 -0.024 -0.057 -0.277 0.023 0.122
Balanced Funds
24 Alliance'95 Fund 0.024 -0.005 0.112 -0.062 0.010 0.156
25 Canpremium -0.029 -0.008 -0.121 -0.089 0.002 0.132
26 JM Balanced (G) -0.001 -0.008 -0.006 -0.089 0.006 0.179
27 Kothari Pioneer Pension Plan 0.002 -0.008 0.009 -0.089 0.000 0.188
28 Tata Balanced -0.046 -0.028 -0.175 -0.322 0.024 0.109
29 Unit Scheme 95 -1.872 -0.022 -0.400 -0.251 0.004 0.000
30 UTI Retirement Benefit Plan -0.045 -0.005 -0.242 -0.060 0.001 0.218
31 Zurich India Prudence -0.009 -0.021 -0.008 -0.255 0.014 0.005
Debt Funds: Medium Term
32 Alliance Liquid income -1.107 -0.008 -0.186 -0.089 0.000 0.000
33 JM Liquid Fund-G -0.042 -0.008 -0.306 -0.089 0.000 0.007
34 Birla income plus 0.112 -0.009 0.105 -0.106 0.015 0.007
35 Chola Triple Ace 0.082 -0.005 0.210 -0.062 0.000 0.048
36 Templeton India Income -0.018 -0.008 0.034 -0.089 0.003 0.026
37 DSPML Bond 0.056 -0.008 0.239 -0.089 0.000 0.132
38 Tata Income-G -0.005 -0.008 0.013 -0.089 0.001 0.044
39 Zurich India High Interest 0.019 -0.024 0.024 -0.277 0.010 0.011
40 IDBI Principal Deposit-EA/EB 0.074 -0.020 0.277 -0.229 0.000 0.111
41 Chola Freedom Income 0.102 -0.007 0.140 -0.083 0.000 0.014
42 JF India Bond 0.143 -0.008 0.174 -0.089 0.000 0.011
43 Sundaram Bond Saver -0.040 -0.007 0.048 -0.083 0.002 0.011
44 Reliance Income 0.068 -0.014 0.133 -0.200 0.001 0.020
45 Escorts Income Plan 0.015 -0.026 0.019 -0.297 0.004 0.012
46 Prudential ICICI income plan 0.118 -0.014 0.677 -0.200 0.000 0.170
47 UTI Bond 0.013 -0.008 0.011 -0.089 0.001 0.006
48 LIC Bond 0.166 -0.018 0.246 -0.211 0.003 0.016
49 PNB Debt 0.082 -0.028 0.491 -0.322 0.000 0.269
Debt Funds: Marginal Equity
50 Kothari Pioneer CAP -0.029 -0.009 0.055 -0.106 0.001 0.026
Debt Funds: Short Term
51 Alliance Cash Manger 0.009 -0.019 -0.016 -0.263 0.006 0.018
52 Dundee Liquidity 0.097 -0.026 -0.047 -0.297 0.001 0.002
53 JM High Liquidity-G 0.577 -0.019 -0.456 -0.220 0.000 0.004
54 Prudential ICICI Liquid Plan 0.049 -0.022 -0.182 -0.251 0.000 0.108
55 Templeton India Liquid 0.016 -0.022 -0.013 -0.251 0.004 0.005
Debt Funds: Gilt MT & LT
56 K Gilt '98 Investment Plan -0.311 -0.021 0.281 -0.238 0.000 0.006
57 Templeton India GSF 0.629 -0.020 -1.172 -0.229 0.000 0.027
Money Market Funds
58 UTI MM Mutual Fund 4.585 -0.005 -0.226 -0.060 0.000 0.000
Average values 0.0067 0.1164
Legend: BM-Bench mark portfolio (BSE Sensex)
 24

Table IX :Jensen & Fama Measures

S.No Fund Jensen Measure Fama Measure
Open Ended: Equity: Diversified rβ rid FP
1 Alliance Equity Fund 0.016 -0.003 -0.005 0.021
2 Birla Advantage 0.008 -0.003 -0.010 0.018
3 Kothari Pioneer Blue Chip -0.002 -0.002 -0.004 0.002
4 Kothari Pioneer Prime 0.005 -0.015 -0.012 0.016
5 Kothari Pioneer Prima Plus 0.016 -0.002 0.003 0.019
6 Prudential ICICI Growth Plan 0.002 -0.000 -0.002 0.004
7 Reliance growth 0.010 -0.003 -0.005 0.015
8 Reliance Vision 0.013 -0.005 -0.006 0.019
9 Sundaram Growth -0.001 -0.005 -0.003 0.003
10 Templeton India Growth 0.008 -0.005 0.004 0.011
11 UTI PEF Unit Scheme 0.005 -0.003 -0.003 0.008
12 Zurich India Equity 0.009 -0.010 -0.018 0.027
13 Zurich India Top 200 Fund 0.013 -0.019 -0.010 0.025

14 Alliance Capital Tax relief 96 0.015 -0.015 -0.022 0.037

15 Birla equity Plan -0.038 -0.012 -0.017 -0.020
16 BoB ELSS 96 -0.017 -0.016 -0.010 -0.007
17 Kothari Pioneer Tax shield 0.023 -0.004 -0.006 0.029
18 Tata Tax Saving Fund -0.013 -0.006 -0.012 -0.001
19 Zurich India Tax saver -0.011 -0.007 -0.011 -0.000
Equity: Speciality
20 Birla MNC -0.009 -0.011 -0.032 0.024
21 JM Basic -0.006 -0.011 -0.023 0.017
22 UTI Petro -0.014 -0.003 -0.061 0.047
23 UTI Services Sector 0.006 -0.016 -0.029 0.035
Balanced Funds
24 Alliance'95 Fund 0.015 -0.003 -0.004 0.019
25 Canpremium -0.004 -0.001 -0.003 -0.001
26 JM Balanced (G) 0.003 -0.003 -0.004 0.007
27 Kothari Pioneer Pension Plan 0.001 -0.001 -0.001 0.002
28 Tata Balanced -0.011 -0.018 -0.036 0.024
29 Unit Scheme 95 -0.024 -0.000 -0.015 -0.009
30 UTI Retirement Benefit Plan -0.005 -0.001 0.001 -0.005
31 Zurich India Prudence 0.001 -0.002 -0.029 0.030
Debt Funds: Medium Term
32 Alliance Liquid income -0.004 0.000 -0.002 -0.002
33 JM Liquid Fund-G -0.004 -0.001 -0.001 -0.004
34 Birla income plus 0.014 -0.001 -0.012 0.026
35 Chola Triple Ace 0.001 -0.000 -0.000 0.001
36 Templeton India Income 0.001 0.001 -0.006 0.007
37 DSPML Bond 0.002 -0.000 -0.000 0.002
38 Tata Income-G -0.000 0.001 -0.004 0.004

39 Zurich India High Interest 0.005 -0.003 -0.025 0.030

40 IDBI Principal Deposit-EA/EB-G 0.001 -0.000 0.000 0.001
41 Chola Freedom Income 0.001 0.000 -0.000 0.001
42 JF India Bond 0.002 -0.000 -0.001 0.003
43 Sundaram Bond Saver 0.002 0.000 -0.004 0.005
44 Reliance Income 0.004 -0.001 -0.004 0.008
45 Escorts Income Plan 0.003 -0.002 -0.016 0.019
46 Prudential ICICI income plan 0.005 -0.001 -0.000 0.005
47 UTI Bond 0.001 -0.000 -0.003 0.004
48 LIC Bond 0.015 -0.002 -0.010 0.026
49 PNB Debt 0.009 -0.002 -0.002 0.011
Debt Funds: Marginal Equity
50 Kothari Pioneer CAP 0.001 0.001 -0.003 0.004
Debt Funds: short Term
51 Alliance Cash Manger -0.004 0.003 -0.023 0.019
52 Dundee Liquidity -0.002 0.000 -0.010 0.008
53 JM High Liquidity-G -0.001 0.000 -0.000 -0.000
54 Prudential ICICI Liquid Plan -0.001 0.000 -0.002 0.000
55 Templeton India Liquid -0.002 0.001 -0.017 0.015
Debt Funds: Gilt MT & LT
56 K Gilt '98 Investment Plan 0.005 0.000 -0.005 0.010
57 Templeton India GSF -0.015 0.001 -0.003 -0.011
Money Market Funds
58 UTI MM Mutual Fund -0.002 0.000 -0.001 -0.001
Legend: rp is the mean return on the MF. rf is the risk free return
rβ is the compensation for beta impact.rid is the compensation for inadequate diversification.