Mutual Fund

Performance Evaluation Mutual Funds in India
Part A
Executive Summary
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A. Executive Summary:-
Financial system in a country plays a dominant role in assets

formation and intermediation, and contributes substantially in macroeconomic
development. In this process of development mutual funds have emerged as strong
financial intermediaries and are playing a very important role in bringing stability to
the financial system and efficiency to resource allocation. Mutual funds play a crucial
role in an economy by mobilizing savings and investing them in the capital market,
thus establishing a link between savings and the capital market. The activities of
mutual funds have both short-and long-term impact on the savings and capital
markets, and the national economy.
The Indian Mutual fund Industry has witnessed a structural
transformation during the past few years. Therefore it becomes important to examine
the performance of the mutual fund in the changed environment. This research report
has evaluate the performance of Indian Mutual fund equity scheme by using monthly
NAV returns of equity Growth funds of years past data from 1-1-2008 to 01-01-
2008. BSE sensex has been used as a proxy for the market portfolio, while 364 day
Treasury bills (T-bills) have been used as a surrogate for risk free rate of return. The
performance of funds has been computed by using Sharpe’s ratio, Treynor’s ratio and
Jensen’s ratio. To evaluate investment performance of mutual funds in terms of risk
and return. To examine the funds sensitivity to the market fluctuations in terms of
beta. To appraise investment performance of mutual funds with risk adjustment the
theoretical parameters as suggested by Sharpe;s Treynor;s and Jensen;s. To rank the
funds according to Sharpe’s, Treyno’s and Jenson’s performance measure. There is no
conclusive evidence which suggests that performance of mutual funds superior to the
market. However there is some evidence that some of the funds are performing better
than the market.
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Part B
Introduction
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B. INTRODUCTION
Mutual funds- An overview:
A Mutual Fund is a trust that pools the savings of a number of Investors who
share a common financial goal. The money thus collected is invested by the fund
manager indifferent types of securities depending upon the objective of the scheme.
These could range from shares to debentures to money market Instruments. The
income earned through these investments and the capital appreciations realized by the
scheme are shared by its unit holders in proportion to the number of units held by
them. Thus a mutual fund is the most suitable for the common man as it offers an
opportunity to invest in a diversified, professionally managed portfolio at a relatively
low cost. Anybody with an invest able surplus of as little as a few thousand rupees can
invest in Mutual Funds.
Each Mutual Fund scheme has a defined investment objective and
strategy. A Mutual Fund is the ideal investment vehicle for today’s complex and
modern financial scenario. Markets for Equities, Bonds and other Fixed Income
Instruments, real estate, derivatives and other assets are driven by global events
occurring in faraway places. A typical individual is unlikely to have the knowledge,
skills, inclination and the time to keep track of events, understand their implications
and act speedily. An Individual also finds it difficult to keep track of ownership of his
assets, brokerage, dues and bank transactions etc. A Mutual Fund is the answer to all
these situations. It appoints professionally qualified and experienced staff that
manages each of these functions on full time basis. The large pool of money collected
in the fund allows it to hire such staff at a very low cost to each investor. In effect, the
mutual fund vehicle exploits economies of Scale in all three areas- Research,
Investments and Transaction Processing. While the concept of coming together to
invest money collectively is not new, the mutual funds in their present form are a 20th
century Phenomenon. In fact, mutual funds gained popularity only after the Second
World War. Globally there are thousands of mutual funds with different investment
objectives. Today, mutual funds, collectively manage almost as much as or more
money as compared to banks.
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A draft offer document is to be prepared at the time of launching the

fund. Typically, it pre-specifies the investment objectives of the fund, the risk
associated, the costs involved in the process and the broad rules for entry into and exit
from the fund and other areas of operation.
In India, as in most of the countries, these sponsors need approval from a
regulator, SEBI. SEBI looks at the records of the Sponsor and its financial strength in
granting approval to the fund for commencing operations. A sponsor then hires an.
Asset Management Company. to invest the funds according to the investment
objective. It also hires equity to the custodian of the assets of the fund and perhaps a
third one to handle registry work for the unit holders of the fund. In the Indian
concept, the sponsors promote the AMC also, in which it holds a majority stake. In
many cases a Sponsor can hold a 100% stake in the AMC eg. IL&FS is the sponsor of
IL&FS AMC, which has floated different Mutual fund schemes and also acts as an
asset manager or the funds collected under the schemes.
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Part-C
Industry Profile
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History of mutual funds in India:-

The history of mutual funds in India can be broadly divided into 5 important phases.
First Phase: 1963-87 Initial Development phase (Unit Trust of India)
In 1963, UTI was established by an Act of Parliament and given a monopoly.
UTI commenced its operations from July 1964 .The impetus for establishing a formal
institution came from the desire to increase the propensity of the middle and lower
groups to save and to invest. UTI came into existence during a period marked by great
political and economic uncertainty in India. The first and still one of the largest
schemes, launched by UTI was Unit Scheme 1964. UTI created a number of products
such as monthly income plans, children’s plans, equity-oriented schemes and offshore
funds during this period. The total asset under management for the year 1987-88 was
6,700 crores.
Second Phase: 1987-93 (Entry of Public Sector Funds)

Second phase witnessed the entry of mutual funds sponsored by state
owned banks and financial institutions. With the opening up of the economy, many
public sector and financial institutions were allowed to establish mutual funds. In
November 1987 the State Bank of India established the first non-UTI mutual fund-
SBI Mutual Fund. This was followed by Canbank Mutual Fund (launched in
December, 1987), LIC Mutual Fund (1989), and Indian Bank Mutual Fund (1990)
followed by Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund.
These mutual funds helped to the enlarge the investor community and the invest able
funds. During this period, investors were shifting away from bank deposits to mutual
funds. Most funds were growth-oriented closed-ended funds. From 1987 to 1992-93,
the fund industry expanded nearly seven times in terms of Assets under Management.
The total asset under management considering both UTI and Public Sector was
47,004.
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Third Phase: 1993-96 (Emergence of Private Funds)

A new era in the mutual fund industry began with the permission
granted for the entry of private sector funds in 1993, both Indian and Foreign. Also
Government launched a series of measures aimed at the financial sector as a part of
the economic liberalization and reform process. This included the setting up of the
Securities and Exchange Board of India (SEBI) as a regulatory body for the financial
sector including Mutual Funds, which issued the SEBI Mutual Fund Regulations in
January 1993. During the year 1993- 94, five private sector mutual funds launched
their schemes followed by six others in 1994-95.
Fourth Phase: 1996-1999 (SEBI Regulations for Mutual Funds)

More investor friendly regulatory measures have been taken both by
SEBI to protect the investor and by the Government to enhance investors. Returns. A
comprehensive set of regulations for all mutual funds operating in India was
introduced with SEBI (Mutual Fund), 1996. These regulations set uniform standards
for all funds and will eventually be applied in full to Unit Trust of India as well, even
though UTI is governed by its own UTI Act. In 1999 Union Government Budget took
a big step in exempting all mutual funds dividends from income tax in the hands of
investors. 1999 marks the beginning of a new phase in the history of the mutual fund
industry in India, a phase of significant growth in terms of both amounts mobilized
from investors and assets under management.
Fifth Phase: 1999-2002

This phase was marked by very rapid growth in the industry, and
significant increase in market shares of private sector players. Assets crossed Rs.
1,00,000. The tax break offered to mutual funds in 1999 created arbitrage
opportunities for a number of institutional players. Bond funds and liquid funds
registered the highest growth in this period, accounting for nearly 60% of the assets.
UTI. share of the industry dropped to nearly 50%
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Part -D
Company Profile
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 Company Background
Motilal Oswal Financial Services (MOSL) is a diversified

financial services group having businesses in securities, commodities, investment
banking and venture capital. Motilal Oswal Securities Ltd was founded in 1987 as a
small sub-broking unit, with just two people running the show. Its focus on customer-
first-attitude, ethical and transparent business practices, research-based value
investing and implementation of cutting-edge technology have enabled it to blossom
into an almost 2000 member team. Motilal Oswal Securities has witnessed rapid
organic growth due to favourable market conditions as well as efforts put in by the
company itself. Between FY05 and FY06, the company grew inorganically through
acquisition of three significant regional broking firms from Karnataka, Kerala and
Uttar Pradesh. The institutional business unit has relationships with almost all leading
FIIs in the US, UK, Hong Kong and Singapore. The retail business unit provides
equity investment solutions to more than 385,000 investors through 1339 outlets in
over 426 cities. These solutions are provided by a force of over 2000 employees and
over 808 business associates.
The company provides advice-based broking (equities and
derivatives), PMS (portfolio management services), E-broking, depository services,
commodities trading, IPO and mutual fund investment advisory services. The
company has also established a base in the UAE to address the needs of the overseas
audience. Research is the solid foundation on which Motilal Oswal Securities advice
is based. At present, it has 24 equity analysts tracking over 26 sectors. Its research
reports have received wide coverage in the media and the company has won various
accolades by the Asia money broker’s poll.
MUTUAL FUND:
Mutual Funds are financial intermediaries. They are companies set
up to receive your money, and then having received it, make investments with the
money Via an AMC. It is an ideal tool for people who want to invest but don't want to
be bothered with deciphering the numbers and deciding whether the stock is a good
buy or not. A mutual fund manager proceeds to buy a number of stocks from various
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markets and industries. Depending on the amount you invest, You own part of the
overall fund.
The beauty of mutual funds is that anyone with an invest able
surplus of a few hundred rupees can invest and reap returns as high as those provided
by the equity markets or have a steady and comparatively secure investment as offered
by debt instruments. A Mutual Fund is an investment tool that allows small investors
access to a well diversified portfolio of equities, bonds and other securities. Each
shareholder participates in the gain or loss of the fund. Units are issued and can be
redeemed as needed. The fund's Net Asset Value (NAV) is determined each day. In
simple words, a mutual fund is a trust, which collects the savings from small
investors, invest them in government securities and earn through interest, dividends
and capital gains.
For instance, if one has Rs. 1000 to invest, it may not fetch much
on its own. But, when it is pooled with Rs. 1000 each from a lot of other people, then,
one could create a big fund. Large enough to invest in wide varieties of shares and
debentures on a commanding scale and thus, to enjoy the economies of large scale
operations.
DEFINITIONS:
The SEBI, 1993 defines a Mutual Fund as .a fund established in the
form of a trust by a sponsor, to raise money’s by the trustees through the sale of units
to the public, under one or more schemes, for investing in securities in accordance
with these regulations... According to Weston J. Fred and Brigham, Eugene, unit
trusts are.
Corporations which accept dollars from savers and then use these dollars to buy
stocks, long term bonds and short term debt instruments issued by business or
government units; these corporations pool funds and thus reduce the risk of
diversification..
 Vision Statement
To be a globally respected wealth creator with an emphasis on customer care
and a culture of good corporate governance.
 Mission Statement
To create and nurture a world-class, high performance environment aimed at
delighting our customers
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 Quality Policy
Our Quality Policy is to achieve and sustain a reputation for quality in the
national and international markets by offering products and services that
exceed the requirements of our customers. We strive to remain the bank of
first choice in all our of product and services.
Operation of the Fund:

A mutual fund invites the prospective investors to join the fund by
offering various schemes so as to suit to the requirements of categories of investors.
The resources of individual investors are pooled together and the investors are issued
units/shares for the money invested. The amount so collected is invested in capital
market instruments like treasury bills, commercial papers, etc. For managing the fund,
a mutual fund gets an annual fee of 1.25% of funds managed at the maximum as fixed
by SEBI (MF) regulations, 1993 and if the funds exceed Rs. 100 cores , the fee is only
1%. The fee cannot exceed 1%. Offcourse, regular expenses like custodial fee, cost of
dividend warrants, fee for registration, the asset management fee etc are debited to the
respective schemes. These expenses cannot exceed 3% of the assets in the respective
schemes. each year. The remaining amount is given back to the investors in full. The
flow chart below describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
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Source-www.google.com
ORGANISATION OF A MUTUAL FUND:

The formation and operations of Mutual Funds in India is solely guided by SEBI
(Mutual Funds) Regulations, 1993, which came into force on 20th January, 1996,
through a notification on 9th December, 1996. these Regulations make it mandatory
for Mutual Funds to have a three-tier structure of :
1. A Sponsor Institution to promote the Fund.
2. A team of Trustees to oversee the operations and to provide checks for the efficient,
profitable and transparent operations of the fund and
3. An Asset Management Company (AMC) to actually deal with the funds.
Sponsoring Institution:
The Company, which sets up the mutual fund, is called the Sponsor. SEBI has laid
down certain criteria to be met by the sponsor. The criterion mainly deals with
adequate experience, good past track record, net worth etc.
 Sponsor appoints the Trustees, Custodian and the AMC with the prior
approval of SEBI, and in accordance with SEBI Regulations.
 Sponsor must have at least 5-year track record of business interest in the
Financial Markets.
Trustees:
Trustees are the people with long experience and good integrity in the
respective fields carry the crucial responsibility in safeguarding the interests of the
investor For this purpose, they monitor the operations of the different schemes. They
have wide ranging powers and they can even dismiss AMC with the approval of
SEBI.
The Indian Trust Act governs them.Rules regarding appointment of the Trustees are:
 Appointment of Trustees has to be done with the prior approval of SEBI.
 There must be at least 4 members in the Board of Trustees and at least 2/3rd of
the members of the Board of Trustees must be independent.
 Trustees of one Mutual Fund cannot be a Trustee of another Mutual Fund,
unless he is an independent trustee in both cases, and has the approval of both
the Boards.
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Rights of Trustees:
 Trustees appoint the AMC, in consultation with the sponsor and according to
SEBI Regulations.
 All mutual Fund Schemes floated by the AMC have to be approved by
Trustees
 Trustees can seek information from the AMC on the operations and
compliance of the Mutual Fund, with the provisions of the trust Deed
investment management agreement and the SEBI Regulations.
 Trustees can review and ensure that Net worth of the AMC is according to
stipulated norms and regulations.
Asset Management Company:

The AMC actually manages the funds of the various schemes. The
AMCEmploys a large number of professionals to make investments, carry out
research &to do agent and investor servicing. Infact, the success of any Mutual Fund
depends upon the efficiency of this AMC. The AMC submits a quarterly report on the
functioning of the mutual fund to the trustees who will guide and control the AMC.
The AMC is usually a private limited company, in which the sponsors and their
associations or joint venture partners are shareholders.
The AMC has to be registered by SEBI and should have a minimum Net
worth of Rs.10 cores all times. The role of the AMC is to act as the Investment
Manager of the Trust along with the following functions:
 It manages the funds by making investments in accordance with the provision
of the Trust Deed and Regulations.
 The AMC shall disclose the basis of calculation of NAV and Repurchase price
of the schemes and disclose the same to the investors.
 Funds shall be invested as per Trust Deed and Regulations.
Restrictions on the AMC’s:
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 AMC’s cannot launch a fund scheme without the prior approval of Trustees.
 AMC’s have to provide full details of Employees and Board Members, all
cases where such investments exceed Rs. 1 lakh.
 AMC’s cannot take up any activity that is in conflict with the activities of the
mutual funds.
Registrars and Transfer Agents:

The Registrars and Transfer Agents are responsible for the investor
servicing functions, as they maintain the records of investors in the mutual funds.
They process investor applications , record details provided by the investors on
application forms, send out periodical information on the performance of the mutual
fund; process dividend pay-out to the investors; incorporate changes in information as
communicated by investors; and keep the investor record up to date, by recording new
investors and removing investors who have withdrawn their funds.
Custodian:
Custodians are responsible for the securities held in the mutual fund.s portfolio. They
discharge an important back-office function, by ensuring that securities that are
bought are delivered and transferred to the books of mutual funds, and that funds are
paid-out when mutual fund buys securities. They keep the investment account of the
mutual fund, and also collect the dividends and interest payments due on the mutual
fund investments. Custodians also track corporate actions like bonus, issues, right
offers, offer for sale, buy back and open offers for acquisition.
ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the
Organisational set up of a mutual fund:
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Source:-www.google.com
Composition of Indian Mutual Fund Industry:
Bank sponsored
Bank of Baroda AMC
Bank of India AMC
Canbank Investment Management Services Ltd.
Punjab National Bank AMC Ltd.
SBI Funds Management Ltd.
Unit Trust of India
Institutions:
General Insurance Corporation AMC
IDBI Principal Asset Management Co.
Jeevan Bima Sahayog Asset Management Co. Ltd.
Private Sector:
1. India
Benchmark AMC Ltd.
Cholamandalam AMC Ltd.
Escorts AMC Ltd.
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J.M. Capital Management Co. Ltd.

Kotak Mahindra AMC Ltd.
Shriram AMC Ltd.
2. Joint Venture .Predominantly Indian

Birla Sun Life AMC Pvt. Co. Ltd.
DSP Merrill Lynch Investment Mangers (India) ltd.
HDFC AMC Ltd.
Sundaram Newton AMC
Tata TD Waterhouse Asset Management Private Ltd.
3. Joint Ventures Predominantly Foreign

Alliance Capital Asset Management (India) Pvt. Ltd.
Standard Chartered Asset Management Co. Pvt. Ltd.
ING Investment Management (India) Pvt. Ltd.
JM Asset Management (India) Pvt. Ltd.
Morgan Stanley Investment Management Pvt. Ltd.
Prudential ICICI Management Co. Ltd.
Templeton Asset Management (I) Pvt. Ltd.
Role of mutual funds in the Financial Market:-

Indian financial institutions have played a dominant role in assets
formation and intermediation, and contributed substantially in macroeconomic
development. In this process of development Indian mutual funds have emerged as
strong financial intermediaries and are playing a very important role in bringing
stability to the financial system and efficiency to resource allocation. Mutual funds
play a crucial role in an economy by mobilizing savings and investing them in the
capital market, thus establishing a link between savings and the capital market. The
activities of mutual funds have both short-and long-term impact on the savings and
capital markets, and the national economy. Mutual funds, thus, assist the process of
financial deepening and intermediation. They mobilize funds in the savings market
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and act as complementary to banking; at the same time they also compete with banks
and other financial institutions. In the process stock market activities are also
significantly influenced by mutual funds.
There is thus hardly any segment of the financial market, which is not
(directly or indirectly) influenced by the existence and operation of mutual funds.
However, the scope and efficiency of mutual funds are influenced by overall
economic fundamentals: the interrelationship between the financial and real sector, the
nature of development of the savings and capital markets, market structure,
institutional arrangements and overall policy regime.
Regulatory Aspects of Mutual Fund

Schemes of mutual fund:
• The asset management company shall launch no scheme unless the trustees
approve such scheme and a copy of the offer document has been filed with
the Board.
• Every mutual fund shall along with the offer document of each scheme pay
filing fees.
• The offer document shall contain disclosures which are adequate in order to
enable the investors to make informed investment decision including the
disclosure on maximum investments proposed to be made by the scheme in
the listed securities of the group companies of the sponsor.
• No one shall issue any form of application for units of a mutual fund unless the
form is accompanied by the memorandum containing such information as may
be specified by the Board.
• Every close ended scheme shall be listed in a recognized stock exchange
within six months from the closure of the subscription.
• The asset management company may at its option repurchase or reissue the
repurchased units of a close-ended scheme.
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• A close-ended scheme shall be fully redeemed at the end of the maturity

period. "Unless a majority of the unit holders otherwise decide for its rollover
by passing a resolution".
• The mutual fund and asset management company shall be liable to refund the
Application money to the applicants,-
(I) if the mutual fund fails to receive the minimum subscription amount referred
to in clause (a) of sub-regulatio
(ii) If the moneys received from the applicants for units are in excess of
Subscription as referred to in clause (b) of sub-regulation (1).
• The asset management company shall issue to the applicant whose application
has been accepted, unit certificates or a statement of accounts specifying the
number of units allotted to the applicant as soon as possible but not later weeks
from the date of closure of the initial subscription list and or from the date of
receipt of the request from the unit holders in any open ended scheme.
Investment Objectives and Valuation Policies:

• The money collected under any scheme of a mutual fund shall be invested only
in transferable securities in the money market or in the capital market or in
privately placed debentures or securitised debts.
• Provided that moneys collected under any money market scheme of a mutual
fund shall be invested only in money market instruments in accordance with
directions issued by the Reserve Bank of India.
• The mutual fund shall not borrow except to meet temporary liquidity needs of
the mutual funds for the purpose of repurchase, redemption of units or
payment of interest or dividend to the unit holders.
• The mutual fund shall not advance any loans for any purpose.
• The Net Asset Value of the scheme shall be calculated and published at least
in two daily newspapers at intervals of not exceeding one week.
• The price at which the units may be subscribed or sold and the price at which
such units may at any time be repurchased by the mutual fund shall be made
available to the investors.
TYPES OF MUTUAL FUNDS:
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Broadly Mutual Funds are classified into:

• Open-ended schemes:
The open-ended schemes do not have a fixed maturity and are open for
subscription the whole year. One can buy and sell units at the NAV related prices to
the Mutual funds. These schemes are normally not listed on the stock exchanges and
can be redeemed directly to the Mutual Fund.
• Close-ended Schemes:
The closed ended schemes can be bought and sold on the stock exchange
subsequent to the initial subscription through the public offer. One can stay invested
in the scheme for a stipulated period ranging from 2 to 15 years. Generally, the close-
ended schemes are traded at a discount to their NAV in the stock exchange.
On the basis of investments objective, there are five different types of

schemes:
 Growth/Equity Scheme :
Majority of the corpus of such a scheme is invested in equities and equity
related instruments. This kind of scheme is for those investors who are not risk averse
and are willing to hold on to their investment for a long period of time, caring little for
volatility. In such schemes, dividend may or may not be declared.
 Income /Debt Scheme:
The Fund Manager of such schemes invests a substantial portion of their fund
in fixed income securities like debentures, bonds and money market instruments. This
kind of scheme is ideal for risk averse investors who are interested in steady income.
 Balanced Schemes:
Fund Manager of such funds invests in both equity as well as debt markets in
the proportion as that highlighted in the prospectus. The objective of such a scheme is
to provide both growth and income by distributing a part of the income and capital
gains they earn. Such a scheme is suitable for investors who want long-term returns
without taking the entire risk of the equity market.
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 Money Market/Liquid Schemes:

These are schemes with very low risks. They invest in Zero risk or safer, short
term instruments like treasury bills, certificates of deposit, Commercial Paper and
inter-bank call money. The objective of these schemes is to provide liquidity and
moderate income and also preserve the capital.
 Tax Saving Schemes:
The objective of such a scheme is to provide tax benefits to the investors.
Two types of schemes fall under this head.
1. ELSS (Equity Linked Savings Schemes:
A Fund Manager of such a scheme invests primarily in stocks. An important feature
of this scheme is that there is a lock-in period of three years from the date of
investment. During this period unit holders are prohibited from trading, pledging and
transferring the units. Repurchase is permitted only after three years.
2. Pension Schemes:
A unit holder in a Pension Scheme can avail of a tax rebate of 20 per cent for
investments up to Rs 60,000 (tax saving of Rs 12,000).
Benefits of investing in Mutual Funds:
 Small investments:
Mutual funds help you to reap the benefit of returns by a portfolio spread
across a wide spectrum of companies with small investments. Such a spread would
not have been possible without their assistance.
 Professional Fund Management:
Professionals having considerable expertise, experience and resources manage
the pool of money collected by a mutual fund. They thoroughly analyse the markets
and economy to pick good investment opportunities.
 Spreading Risk:
An investor with a limited amount of fund might be able to invest in only one or
two stocks / bonds, thus increasing his or her risk. However, a mutual fund will spread
its risk by investing a number of sound stocks or bonds. A fund normally invests in
companies across a wide range of industries, so the risk is diversified at the same time
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taking advantage of the position it holds. Also in cases of liquidity crisis where stocks
are sold at a distress, mutual funds have the advantage of the redemption option at the
NAVs.
 Transparency and interactivity:
Mutual Funds regularly provide investors with information on the value of
their investments. Mutual Funds also provide complete portfolio disclosure of the
investments made by various schemes and also the proportion invested in each asset
type. Mutual Funds clearly layout their investment strategy to the investor.
 Liquidity:
Closed ended funds have their units listed at the stock exchange, thus they can
be bought and sold at their market value. Over and above this the units can be
directly redeemed to the Mutual Fund as and when they announce the
repurchase.
 Choice:
The large amounts of Mutual Funds offer the investor a wide variety to choose
from. An investor can pick up a scheme depending upon his risk / return profile.
 Regulations:
All the mutual funds are registered with SEBI and they function within the
provisions of strict regulation designed to protect the interests of the investor.
 Flexibility:
Investors can exchange their units from one scheme to another, which
cannot be done in other kinds of investments. Income units can be exchanged
for growth units depending upon the performance of the funds
 Potential yields:
The pooling of funds from a large number of customers enables the fund to
have large funds at its disposal. Due to these large funds, mutual funds are able to buy
cheaper and sell dearer than the small & medium investors. Thus, they are able to get
better market rates and lower rates of brokerage. So, they provide better yields to their
customers. They also enjoy the economies of scale and reduce the cost of capital
market participation. The transaction costs of large investments are quite lower than
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that of small investments. All the profits are passed on to the investor in the form of
dividends and capital appreciation. Mutual funds have a return ranging from 12-17%
p.a.
o Renders expertise service at lower costs:
The management of the fund is generally assigned to professionals who
are well trained and have adequate experience in the field of investment. The
investment decisions of these professionals are backed by informed judgement and
experience. Thus, investors are assured of quality services in their best interest. The
fee charged by the mutual funds is 1%.
Risks of investment in Mutual Funds:

Mutual funds are not free from risks as the funds so collected are invested
in stock markets, which are volatile in nature and are not risk free. The following risks
are generally involved in mutual funds
 Market risks:
In general, there are many kinds of risks associated with every kind of
investment on shares. They are called market risks. These market risks can be
reduced, but not completely eliminated even by a good investment management. The
prices of
shares are subject to wide price fluctuations depending upon market conditions over
which nobody has control. The various phases of business cycle such as Boom,
Recession, Slump and Recovery affects the market conditions to a larger extent.
 Scheme risks:
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There are certain risks inherent in the scheme itself. For instance, in a pure
growth scheme, risks are greater. It is obvious because if one expects more returns as
in the case of a growth scheme, one has to take more risks.
 Investment risk:
Whether the mutual fund makes money in shares or loses depends upon the
investment expertise of the Asset Management Company (AMC). If the investment
advice goes wrong, the fund has to suffer a lot. The investment expertises of various
funds are different and it is reflected on the returns, which they offer to the investors.
 Business Risk:
The corpus of a mutual fund might have been invested in a company’s shares. If
the business of that company suffers any set back, it cannot declare any dividend. It
may even go to the extent of winding up its business. Though the mutual funds can
withstand such a risk, its income paying capacity is affected.
 Political risks:
Every government brings new economic ideologies and policies. It is often said
that many economic decisions are politically motivated.
MAJOR MUTUAL FUND COMPANIES IN INDIA

Birla Sun Life Mutual Fund
Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life
Financial. Sun Life Financial is a global organization evolved in 1871 and is being
represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart
from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to
investment. Recently it crossed AUM of Rs. 10,000 cr.
HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing
Development Finance Corporation Limited and Standard Life Investments Limited.
Page 24
HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital
Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual
Fund acts as the Trustee Company of HSBC Mutual Fund.
Prudential ICICI Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. Of
America, one of the largest life insurance companies in the USA. Prudential ICICI
Mutual Fund was setup on 13th of October 1993 with two sponsors, Prudential Plc.
and ICICI Ltd. TheTrustee Company formed is Prudential ICICI Asset Management
Company Limited incorporated on 22nd of June 1993.
Sahara Mutual Fund

Sahara Mutual Fund was setup on July 18, 1996 with Sahara India Financial
Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited
incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The
paid-up capital of the AMC stands at Rs.25.8 cr.
Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The
sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation
Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee
Company Pvt. Limited. Tata Asset Management Limited isone of the fastest in the
country with more than Rs. 7,703 cr. (as on April, 30 2005) of AUM.
Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary
of KMBL. It is presently having more than 1,99,818 investors in its various schemes.
KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund
Page 25
offers schemes catering to investors with varying risk - return profiles. It was the first
company to launch dedicated gilt scheme investing only in government securities.
Franklin Templeton India Mutual Fund

The group, Franklin Templeton Investments is a California (USA) based
company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the
largest financial services in the world. Investors can buy or sell the mutual fund
through their financial advisor or through mail or through their website. They have
Open-End Diversified Equity Scheme, Open-End Sector Equity Schemes, Open-End
Hybrid Schemes, Open-End Tax Savings Schemes, Open-End Income and Liquid
Schemes, Closed-End Income Schemes and Open-End Fund Of Funds Schemes to
offer.
Morgan Stanley India Mutual Fund
Morgan Stanley is a worldwide financial services company and it is
leading in the market of securities, investment management and credit services.
Morgan Stanley Investment Management (MSIM) was established in the year 1975. It
provides customized asset management services and products to governments,
corporations, pension funds and non-profit organization. Its services are also extended
to high net worth individuals and retail investors. In India it is known as Morgan
Stanley Investment Management Private Limited (MSIM) and its AMC is Morgan
Stanley Mutual Fund (MSMF). This is the first close-end diversified equity scheme
serving the needs of Indian retail investors focusing on a long-term capital
appreciation.
Canbank Mutual Fund
Canbank Mutual Fund was setup on Dec 19, 1987 with Canara Bank acting as the
sponsor. Canbank Investment Management Services Ltd. incorporated on March 02,
1993 is the AMC. The corporate office of the AMC is in Mumbai.
LIC Mutual Fund

Life Insurance Corporation of India setup LIC Mutual Funds on 19th June 1989. It
contributed Rs. 2 cr. towards the corpus of the fund. LIC Mutual Fund was constituted
as a trust in accordance with the provisions of the Indian Trust Act 1882. The
company started its business on 29th April 1994. The trustees of LIC Mutual Fund
Page 26
have appointed Jeevan Bima Sahyog Asset Management Company Ltd. as the
investment managers for LIC Mutual fund.
Motilal Oswal Mutual Fund

Mutual Fund was setup on Dec 29.2009. The sponsors for motilal oswal
Mutual Fund are Motilal Oswal Securities Limited . The investment manager is
Motilal Oswal Securities Limited and its Motilal Oswal Trustee Company Limited.
Date of Incorporation of AMC November 14, 2008
Page 27
Part -E
Research Methodology
Background of the Study:-

Industry and commerce so as to bring about the integration of the Indian
economy with the global economy. With the growth of the economy and the capital
market in India, the size investor has also increased rapidly. Thus the Government of
India introduced economic reforms in the field of trade involvement of mutual funds
in the transformation Indian economy has made it urgent to view their services not
only as financial intermediary but also as pace setter as they are playing a significant
role in spreading equity culture. In this context close monitoring and evaluation of
mutual funds has become essential for fund managers to make this instrument as the
Page 28
strongest and most preferred instrument in Indian capital market in the coming years.
It has been established that the single most important factor that has a strong bearing
on investor’s interest and growth of mutual fund industry is its superior financial
performance. The financial performance may be defined in terms of .rates of return,
risk-adjusted returns or benchmark comparison. Jensen’s alpha. Is another widely
used measure of portfolio performance: It indicates the abilities of fund managers to
identify and select superior stocks for the portfolio This constitutes the subject matter
of the present study. In India, very little work has been done to investigate fund
managers forecasting abilities. Active fund managers are expected to reward higher
return. If the fund manager feels that market on the whole overvalued, then he would
get out of the market. Hence the present study has the objective of finding out the
necessary facts which can benefit the investors and fund managers. This evaluates the
performance evaluation of mutual fund in the framework of risk and return.
Research Methodology
 Statement of the Problem

In India, very little work has been done to investigate fund managers
forecasting abilities. Active fund managers are expected to reward higher return. If the
fund manager feels that market on the whole overvalued, then he would get out of the
market. Hence the present study has the objective of finding out. The performance of
mutual fund schemes in the framework of risk and return.
Objectives of the Study:-
The present study has been undertaken to meet the following specific objectives,
Page 29
 To evaluate investment performance of mutual funds in terms of risk and

return.
 To appraise investment performance of mutual funds with risk adjustment by
using theoretical parameters as suggested by Sharpe, Treynor and Jensen.
 To rank the funds according to Sharpe’s, Treynor.s and Jensen’s performance
measure.
Limitations:-
 The study considers only for equity funds
 The ranks are assigned on the basis of only three measures & data is considered
for three years
 The historical data was not easily available.
 Findings of this study may change due to time constraint.
Study Design:-
The type of research being followed here is the Empirical Research. The
objective of this research work is to test the stock selective ability of equity fund
manager & evaluate the performance based on their return. It is a Secondary Research
as the data or information required is collected through secondary sources. It is a
Quantitative Research as the study involves a collection of secondary data of nine
equity mutual funds of different asset management companies for a term of years and
applying statistical tools to get the results.
Data gathering Procedures:-

The major data relevant for this research is secondary data which has been collected
from different means.
Data Collection
Net Asset Value: The monthly NAV data of various mutual funds are collected from
www.amfiindia.com
Market Index: The monthly BSE sensex data are collected from www.bseindia.com.
Rate of return of 364 Days T-BILL:
The weighted average return of 364 days T-Bill is taken for risk free return. The data
Page 30
are collected from www.rbi.org.in (which has been extracted from various directories
of statistics of Reserve Bank of India).
Data:-
The various mathematical, statistical and logical operations performed on the data
obtained from the www.amfiindia.com are as follows:
 Mean
 Standard Deviation
 Calculation of yearly Highs and Lows by using MAX and MIN functions in the
spreadsheet.
These were some of the tools and techniques applied on the data,
collected for the Ten equity funds in order to use the data as different variables in the
Research. All of these operations have been done using the Microsoft Excel and the
SPSS for windows software.
Variable Definitions:-
TREYNOR’S MODEL:
Developed by Jack Treynor, this performance measure evaluates funds basis
of Treynor's Index. This Index is a ratio of return generated by the fund over and
above risk free rate of return during a given period and systematic risk associated with
it (beta). Treynor (1965) was the first researcher developing a composite measure of
portfolio performance. He measures portfolio risk with beta, and calculates portfolio.s
market risk premium relative to its beta:
Page 31
Treynor = (Rp-Rf)/ βp
Where:
Ti = Treynor.s performance index
Rp = Portfolio.s actual return during a specified time period
Rf = Risk-free rate of return during the same period
βp = beta of the portfolio
SHARPE’S MODEL
Sharpe (1966) developed a composite index which is very similar to the
Treynor measure, the only difference being the use of standard deviation, instead of
beta, to measure the portfolio risk, in other words except it uses the total risk of the
portfolio rather than just the systematic risk:
Sharpe = (Rp-Rf)/σp
Where:
Si = Sharpe performance index
σp = Portfolio standard deviation
This formula suggests that Sharpe prefers to compare portfolios to the capital
market line(CML) rather than the security market line(SML). Sharpe index, therefore,
evaluates funds performance based on both rate of return and diversification (Sharpe
1967). For a completely diversified portfolio Treynors and Sharpe indices would give
identical rankings.
Jensen’s Alpha Model:

Jensen (1968), on the other hand, writes the following formula in terms of
realized rates of return, assuming that CAPM is empirically valid:
Jensen αp= Rp – ((Rf – βp (Rm –Rf))

Jensen uses áj as his performance measure. A superior portfolio manager would
have a significant positive áj value because of the consistent positive residuals.
Inferior managers, on the other hand, would have a significant negative áj. Average
Page 32
portfolio managers having no forecasting ability but, still, cannot be considered

inferior would earn as much as one could expect on the basis of the CAPM. Jensen
performance criterion, like the Treynors measure, does not evaluate the ability of
portfolio managers to diversify, since the risk premiums are calculated in terms of β
Systematic &Unsystematic Risk Calculation Methods:

Systematic Risk = β²α²
Unsystematic Risk =σ²μ
The returns of various schemes were classified into systematic return and
unsystematic return by using Sharpe model. Then return per unit of systematic risk
and unsystematic risk were calculated and ranked.
Results and Findings:-:

Table 01- The Annualised result of various Mutual Fund Schemes and BSE
SENSEX Return from Jan -05 to Dec-08
Jan 2005 KOTAK LIC Sundaram TATA HDFC ICIC CANBANK Birla
I
Jan - -0.036 -0.0127 -0.056 -0.021 -0.05 -0.056 -0.02
0.0939
Feb -0.010 0.007 0.0119 0.009 0.012 -0.07 0.015 -0.00
2 3 7
March -0.873 -0.073 -0.054 -0.065 -0.048 0.001 -0.07 -0.04
April -0.149 -0.006 0.0223 0.001 0.059 -0.07 0 0.02
3
May -0.040 0.122 0.1566 0.112 0.109 0.036 0.141 0.1373
Page 33
2 5 5
June 0.1116 0.101 0.07490 0.205 0.148 0.098 0.0999 0.103
5 8
July 0.0477 0.051 0.0659 0.062 0.066 0.087 0.0716 0.04
4 3 5
August 0.0727 0.150 0.1572 0.141 0.166 0.026 0.147 0.148
5 1 3
September 0.1759 0.028 0.0243 0.048 0.035 0.089 0.0614 0.058
2 6
October 0.0152 0.116 0.1324 0.129 0.123 -0.02 0.0661 0.123
3 6 2
November 0.593 0.013 0.0343 0.060 0.027 0.018 0.0244 0.0193
5 3 8
Dec 0.0655 0.117 0.1235 0.106 0.102 0.041 0.162 0.188
2 4 6
Jan2006 -0.09 -0.028 -0.044 -0.052 -0.02 0.015 -0.08 -0.052
Feb 0.005 0.032 0.0433 0.075 0.028 -0.08 -0.05 0.057
9 6 6
March -0.075 -0.029 -0.0173 -0.045 -0.025 0.004 0.01 -0.032
April 0.0225 0.008 0.0223 0.020 -0.04 -0.07 0.13 0.003
8 4
May -0.005 -0.167 -0.129 -0.143 -0.149 0.057 0.001 -0.167
June 0.0211 0.004 -0.007 0.001 -0.009 -0.00 0.048 0.021
3 9
July 0.0664 0.039 0.0605 0.057 0.066 0.053 0.0148 0.062
6 1 5
August 0.0474 0.010 0.0287 0.05 0.045 0.084 0.082 0.002
9 5
September 0.0477 0.053 0.815 0.073 0.053 0.019 0.031 0.045
4 2
October 0.0509 -0.008 0.0013 0.001 -0.011 -0.01 0.117 0.016
7
November 0.0895 0.056 0.0869 0.102 0.089 0.167 0.137 0.107
8 5 8
Dec -0.002 0.074 0.08 49 0.072 0.999 0.102 -0.04 0.100
4 8
Jan2007 -0.021 -0.043 -0.0342 0.017 -0.038 0.102 0.137 -0.001

6
Feb 0.045 0.021 0.048 0.041 0.074 0.025 -0.04 0.004
7 1 2
March 0.018 -0.029 -0.024 0.015 -0.014 0.007 0.078 -0.003
1 6
April -0.128 -0.064 -0.060 -0.028 -0.042 0.027 -0.033 -0.05
May 0.145 0.044 0.0689 0.074 0.092 0.032 -0.05 0.077
9 8 7 3
June 0.051 0.023 0.0359 0.012 0.027 0.103 0.061 0.013
7 6 5 7
Page 34
July -0.015 0.083 0.0635 0.062 0.09 0.028 -0.021 0.069

4 5
August 0.064 0.060 0.0504 0.057 0.049 0.102 0.042 0.0521
5 2 3
September 0.027 0.030 0.0614 0.055 0.082 0.063 0.109 0.0759
8 6 7 1
October -0.059 -0.113 -0.086 -0.091 -0.064 -0.09 0.032 -0.06
November 0.077 0.059 0.112 0.097 0.109 0.088 -0.127 0.097
1 4 5 3
Dec 0.092 0.041 0.0462 0.030 0.060 0.077 0.045 0.0459
3 3 4 1 1
Return 0.213 0.252 0.4032 0.417 0.457 0.419 0.348 0.425
5 9 6 4 6
Source -www.valuepro.net
Table 02-Monthly BSE SENSEX Returns

B S E Sensex
2005
Jan 0.0412
Feb 0.014
March -0.074
April -0.029
May 0.074
June 0.134
July 0.0522
August 0.1228
September 0.0491
October 0.101
November 0.634
Dec 0.1319
Jan2006 -0.029
Feb -0.03
March 0.045
April -0.158
May 0.007
June 0.0028
July 0.004
August 0.075
September 0.026
October 0.09
November 0.06
Dec -0.007
Jan2007 0.04
Feb -0.023
Page 35
March -0.035
April 0.09
May 0.071
June 0.072
July 0.106
August -0.086
September 0.1136
October 0.069
November 0.056
Dec 0.043
Return 0.3801
Source- www.capitaline.com
Interpretation:-
The table 1 shows the annualized return of all equity funds. It implies that
most of the returns of equity fund is above the market index BSE Sensex. Over the
period of three years, out of 08 equity funds HDFC fund shows the highest return of
0.4574,followed by Birla sun life ,Tata, ICICI , LIC,SUNDRAM, KOTAK
CANBANK and BSE SENSEX has given a return of 0.380
Table 03-Descriptive statistics of Equity Funds
Funds Kotak LIC Sundram TATA CAN HDFC ICICI Birla BSE
Bank Sensex
Annual 0.213 0.252 0.403 0.416 0.348 0.457 0.419 0.425 0.380
Return
Minimum -0.14 -0.16 -0.130 -0.14 -0.139 -0.14. -0.09 -0.16 -0.158
Return
Maximum 0.176 0.151 0.157 0.205 0.162 0.166 -.168 0.188 0.134
return
Mean 0.017 0.0210 0.033 0.034 0.029 0.035 0.034 0.03 0.031
return
Risk free 0.050 0.050 0.055 0.050 0.0509 0.050 0.050 0.050 0.050
return
SD 0.073 0.066 0.06 0.070 0.076 0.066 0.069 0.07 0.067
Variance 0.005 0.004 0.004 0.004 0.005 0.004 0.004 0.004 0.004
Correlation 0.641 0.893 0.886 0.890 0.8232 0.905 0.732 0.88
Beta 0.003 0.004 0.003 0.004 0.004 0.004 0.003 0.004
Systematic 0.694 0.871 0.849 0.924 0.932 0.88 0.754 0.923
risk
Page 36
Unsystema 0.002 0.003 0.003 0.004 0.005 0.003 0.002 0.004

tic risk
Expected 0.002 0.001 0.001 0.006 0.0007 0.001 0.002 0.0007
return
Unsystema 0.279 0.337 0.337 0.355 0.35 0.34 0.299 0.355
tic return
Systematic 0.056 0.024 0.669 0.003 0.002 0.002 0.001 0.00
return
0.157 0.22 0.265 0.416 0.346 0.454 0.417- 0.424
Interpretation:-
The above table descriptive statistics of all equity funds. It give the details
about the mean, maximum, minimum return of all equity funds & beta, standard
deviation, variance, systematic risk & unsystematic risk of all funds. Out of 10 equity
funds HDFC shows the highest monthly return of 45.74% compared to others. In case
of mean return also, HDFC shows the highest mean return 3.81%. Beta is defined as
the measure of risk.
Canara Bank tops with a beta of .093 compared to other funds . Standard deviation
is the measure of the total risk. KOTAK shows the highest standard deviation of 0.073
followed by others and LIC with the lowest standard deviation of 0.06. Then it also
shows the value of systematic risk and unsystematic risk for all funds.
Table 4-Unsystematic risk and return
FUNDS Risk Return

KOTAK 0.0087 0.0561
Sundram 0.001 0.0245
TATA 0.0011 0.0669
HDFC 0.0007 0.0003
ICICI 0.0007 0.0022
CANBANK 0.0009 0.002
Birla 0.002 0.001
LIC 0.0007 0.00077
systematic risk and return
Page 37
FUNDS Risk Return

KOTAK 0.002 0.1573
Sundram 0.0033 0.2283
TATA 0.0030 -0.263
HDFC 0.004 0.4165
ICICI 0.005 0.3464
CANBANK 0.0033 0.4569
Birla 0.002 0.4178
LIC 0.004 0.4247
Return per unit of Systematic Risk
FUNDS RETURN PER UNIT OF RANK

SYSTEMETIC RISK
KOTAK 60.445 7
Sundram 68.614 5
TATA -87.18 8
HDFC 98.26 4
ICICI 67.69 6
CANBANK 134.22 2
Birla 150.27 1
LIC 100.061 3
INTERPRETATION:
The above table shows the return per unit of systematic risk of the funds systematic
Risk in Birla mutual fund is more compare to other funds.
Table 6- Return Per Unit Of Unsystemetic Risk

FUNDS RETURN PER UNIT OF RANK
SYSTEMETIC RISK
KOTAK 20.149 3
Sundram 23.371 2
TATA 569.85 1
HDFC 0.528 8
ICICI 2.878 4
CANBANK 2.557 5
Birla 0.64 7
LIC 1.064 6
Page 38
INTERPRETATION:
The above table shows return per unit of unsystematic risk sundram as the highest
Systematic risk compared to other funds and Tata mutual fund as
thelowUnsystematic.
Table 7-Diversified and Non Diversified Funds In Percentage
FUNDS DIVERSIFIED IN % Non DIVERSIFIED IN %

KOTAKGROWTH 51.7722 48.27
EQUITY FUND
Sundram GROWTH 24.02 75.98
EQUITY FUND
TATAGROWTH 27.79 72.20
EQUITY FUND
HDFCGROWTH 14.47 85.521
EQUITY FUND
ICICI GROWTH 55.03 44.96
EQUITY FUND
CANBANK 22.31 77.68
GROWTH EQUITY
FUND
BirlaGROWTH 43.03 56.962
EQUITY FUND
LIC GROWTH 14.655 85.345
EQUITY FUND
Source – www.investopedia.com
INTERPRETATION:
The above table shows the diversified and non diversified funds in percentages.
ICICI fund shows the more diversified fund where as canbank fund shows less
diversified fund. But canbank fund is more efficient then ICICIfund because its
unsystematic risk per unit is 2.87, where as ICICI fund unsystematic risk per unit is
Page 39
2.878. So for this reason canbank is more efficient then other funds.
Table 8-Ranking of Mutual Fund Scheme Based On Sharpe’s Ratio:
FUNDS Ratio Rank

KOTAK 2.214 8
Sundram 5.42 2
TATA 5.19 5
HDFC 6.15 1
ICICI 5.27 4
CANBANK 3.87 6
Birla 5.31 3
LIC 3.05 7
INTERPRETATION:
Sharpe prefers to compare portfolios to the capital line rather than the security market
line. HDFC is the best compare to the other funds and the Kotak is the lowest
performance in case of Sharpe measure
Table 9- Ranking of Mutual Fund Scheme Based On Treynor’s Ratio:
FUNDS Ratio Rank

KOTAK 0.234 7
Sundram 0.414 3
TATA 0.395 5
HDFC 0.461 2
ICICI 0.488 1
CANBANK 0.319 6
Birla 0.4055 4
LIC 0.231 8
INTERPRETATION:
The above table shows the ranking of mutual fund scheme based on Treynor’s ratio.
ICICI is the best compared to other funds and LIC is the least rank and less
performance in case of Treynor’s measure.
Ranking of Mutual Fund Scheme Based on Jensen’S Ratio:
FUNDS Ratio Rank

KOTAK -0.066 8
Sundram 0.3956 5
TATA 0.413 3
Page 40
HDFC 0.451 1
ICICI 0.406 4
CANBANK 0.345 6
Birla 0.421 2
LIC 0.296 7
INTERPRETATION:
The alpha values varied widely, the highest being HDFC and the lowest Kotak. Such
large variation of alpha values show that stock selection abilities of fund manager vary
for different mutual funds. Positive alpha values of mutual fund may be a result of
adopting better forecast techniques by the fund managers; they seem to have been able
to pick up undervalued stocks enabling them to post better performance during the
period under consideration
Interpretation of Sharpe, Treynor’s and Jensen’s measures:

Thus the result suggests that these funds are not completely diversified,
because a completely diversified fund or portfolio would have given the similar
ranking for composite performance measurement of Sharpe and Treynor and Jensen.
A poorly diversified portfolio will have a higher ranking under the Treynor measure
than for the Sharpe measure. The funds which constitute this category are- Franklin
India, HDFC, and TATA. Based on the analysis of these 10 funds, majority of the
mutual funds are poorly diversified. This means there is still some degree of
unsystematic risk that one can get rid of by diversification. This also leads us to
another conclusion that majority of these funds will land on Markowitz efficient
portfolio curve. The efficient frontier consists of those portfolios which maximises
expected return given the portfolio risk (variance of portfolio returns).The full
potential of these funds is not exploited and there is still room for improvement.
SUMMARY OF FINDINGS
 From the research it is found that most of the returns of equity fund is above
the market index BSE Sensex. Over the period of three years, out of 08 equity
funds HDFC fund shows the highest return of 0.4574,followed by Birla sun
life ,Tata, JM Equity, ICICI , LIC,SUNDRAM, KOTAK CANBANK and
BSESENSEX has given a return of 0.3801
 Out of 08 equity funds HDFC shows the highest monthly return of 45.74
compared to others. In case of mean return also, HDFC shows the highest
mean return 3.81%.
Page 41
 Beta is defined as the measure of risk. Canbank tops with a beta of .093
compared to other funds and Franklin with the least beta of 0.67.
 KOTAK shows the highest standard deviation of 0.073 followed by others
 Systematic risk in Franklin mutual fund is more compare to other funds.
 The alpha values varied widely, the highest being HDFC and the lowest
Kotak.
 Return per unit of unsystematic risk sundram as the highest systematic risk
compared to other funds and Tata mutual fund as the lowest unsystematic risk.
 Suggestions-
 It has to establish the most important factors that has a strong
bearing on investor’s interest and growth of mutual fund industry is

its superior financial Performance.
 In India very little work has been done to investigate fund
managers forecasting abilities So Fund managers has to concentrate
on mutual funs growth.
 In India Mutual fund industry has to offer more Schemes on the
basis of individual’s abilities.

 Investment managers, Stock selections skills is very important as it
enables the
1. Fund managers to understand how they have fared in
achieving desired return targets and how much risk has
been controlled in the process.
2. It enables the investors to assess well the fund manager
has achieved these targets effectively in comparison with
other managers forecasting skills
Page 42
 CONCLUSION SUMMARY:
Financial system in a country plays a dominant role in assets

formation and intermediation, and contributes substantially in macroeconomic
development. In this process of development mutual funds have emerged as strong
financial intermediaries and are playing a very important role in bringing stability to
the financial system and efficiency to resource allocation. Mutual funds play a crucial
role in an economy by mobilizing savings and investing them in the capital market,
thus establishing a link between savings and the capital market. The activities of
mutual funds have both short-and long-term impact on the savings and capital
markets, and the national economy.
It is examined that investment performance of Indian Mutual funds in
terms of performance measure, some funds shows conformity with the linear
relationship of Return and risk. Some funds do not demonstrate this relationship.
Some funds have out performed both in terms of Treynor’s measure and Sharpe’s
measure. However some funds exhibited superior performance in terms of systematic
risk but did not do so in respect of total risk.
According to Jensen measure funds have positive alpha values
indicating superior performance of the scheme. The alpha values varied widely, the
highest being HDFC and the lowest Kotak. Such large variation of alpha values show
Page 43
that stock selection abilities of fund manager vary for different mutual funds. Positive
alpha values of mutual fund may be a result of adopting better forecast techniques by
the fund managers; they seem to have been able to pick up undervalued stocks
enabling them to post better performance during the period under consideration For
the same reason, it becomes increasingly necessary to periodically monitor and
evaluate performance as objectively as can. More importantly, such evaluation should
provide meaningful feedback for improving the quality of the investment management
process on a continuing basis. In particular, it should help in articulating the
investment objectives with greater clarity, sharpening the investment strategy and
refining the methods of security selection.
BIBLIOGRAPHY
WEBSITE
 http://www.amfiindia.com/ Last accessed date on 17th March-2010
 http://www.bseindia.com/ Last accessed date on25 th March-2009
 http://www.investopedia.com Last accessed date on 01th April-2009
 http://www.gogle/com Last accessed date on 05th April-2009
 http://www.valuepro.net/ Last accessed date on 07th April-2009
BOOKS
 Books
 Punithavathy Pandian,”SecurityAnalysis and Portfolio Management”Vikas

Publishing House PVT LTD, Page.No-29, New Delhi-110 014.
 Prasanna Chandra, “ Financial Management”, Tata McGraw-Hill ,

Publishing Company Ltd,Page No-471, New Delhi.
JOURNAL
 Value research Online
Page 44

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Mutual Fund

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Performance Evaluation Mutual Funds in India

Financial system in a country plays a dominant role in assets

Mutual funds- An overview:

A draft offer document is to be prepared at the time of launching the

History of mutual funds in India:-

Second Phase: 1987-93 (Entry of Public Sector Funds)

Third Phase: 1993-96 (Emergence of Private Funds)

Fourth Phase: 1996-1999 (SEBI Regulations for Mutual Funds)

Fifth Phase: 1999-2002

Motilal Oswal Financial Services (MOSL) is a diversified

Operation of the Fund:

ORGANISATION OF A MUTUAL FUND:

Asset Management Company:

Registrars and Transfer Agents:

ORGANISATION OF A MUTUAL FUND:

Composition of Indian Mutual Fund Industry:

J.M. Capital Management Co. Ltd.

2. Joint Venture .Predominantly Indian

3. Joint Ventures Predominantly Foreign

Role of mutual funds in the Financial Market:-

Regulatory Aspects of Mutual Fund

• A close-ended scheme shall be fully redeemed at the end of the maturity

Investment Objectives and Valuation Policies:

TYPES OF MUTUAL FUNDS:

Broadly Mutual Funds are classified into:

On the basis of investments objective, there are five different types of

 Money Market/Liquid Schemes:

Risks of investment in Mutual Funds:

MAJOR MUTUAL FUND COMPANIES IN INDIA

HDFC Mutual Fund

HSBC Mutual Fund

Prudential ICICI Mutual Fund

Sahara Mutual Fund

Tata Mutual Fund

Kotak Mahindra Mutual Fund

Franklin Templeton India Mutual Fund

LIC Mutual Fund

Motilal Oswal Mutual Fund

Background of the Study:-

 Statement of the Problem

 To evaluate investment performance of mutual funds in terms of risk and

Data gathering Procedures:-

Jensen’s Alpha Model:

Jensen αp= Rp – ((Rf – βp (Rm –Rf))

portfolio managers having no forecasting ability but, still, cannot be considered

Systematic &Unsystematic Risk Calculation Methods:

Results and Findings:-:

Jan2007 -0.021 -0.043 -0.0342 0.017 -0.038 0.102 0.137 -0.001

July -0.015 0.083 0.0635 0.062 0.09 0.028 -0.021 0.069

Table 02-Monthly BSE SENSEX Returns

Table 03-Descriptive statistics of Equity Funds

Unsystema 0.002 0.003 0.003 0.004 0.005 0.003 0.002 0.004

Table 4-Unsystematic risk and return

FUNDS Risk Return

systematic risk and return

FUNDS Risk Return

Return per unit of Systematic Risk

FUNDS RETURN PER UNIT OF RANK

Table 6- Return Per Unit Of Unsystemetic Risk

Table 7-Diversified and Non Diversified Funds In Percentage

FUNDS DIVERSIFIED IN % Non DIVERSIFIED IN %

Table 8-Ranking of Mutual Fund Scheme Based On Sharpe’s Ratio:

FUNDS Ratio Rank