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Performance Evaluation of Mutual funds in India – A Comparative Study of

Public and Private Sector Mutual Funds

Conference Paper · May 2011

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Performance Evaluation of Mutual funds in India – A Comparative Study of Public and
Private Sector Mutual Funds.

*Vinay Kandpal, Assistant Professor, Amrapali Institute of Management & Computer

Applications, Haldwani
Email: vinayaimca@gmail.com, Contact No: +91-9758726816

**Prof. P C Kavidayal, Head, Department of Management Studies, Bhimtal (Kumaun

University, Nainital)
Email: pckavidayal@rediffmail.com, Contact No: +91-9412985896
 ABSTRACT

Mutual Funds are essentially investment vehicles where people with similar investment objective
come together to pool their money and then invest accordingly. With emphasis on increase in
domestic savings and improvement in deployment of investment through markets, the need and
scope for mutual fund operation has increased tremendously. But about 75% people are still
investing in Post office, MIS and bank deposit. One major reason behind it is lack of awareness
in rural areas. There is, therefore, a strong need for improving the awareness in a big way. It is
important to study about the returns given by AMC Mutual Funds and perform a comparative
analysis.
Objectives of study: The major objectives of the study are as follows:
 To find out the financial performance of Mutual Funds Scheme.
 To appraise the investment performance of mutual Funds with Risk adjustments the
theoretical parameters as suggested by Sharpe, Treynor and Jensen.
Methodology:
Secondary data: For the purpose of the Research work the Equity diversified schemes of
following Public Sector and Private Sector Mutual Fund houses was selected based on the most
evident investor profiles in the Indian Mutual Fund market:
Public Sector Mutual Fund: SBI, UTI and CANBANK
Private Sector Mutual Fund: Franklin Templeton, HDFC and Reliance
The above mentioned three companies from Public and 3 companies from Private Sector was
selected based on Size of Fund/corpus and Number of schemes
Findings: The Private Sector Mutual Funds have recorded much better performance as
compared to the Public sector Mutual Funds mainly due to better Funds allocation, better
Management and efficient performance of Portfolio Manager. This result was arrived at after
calculating and comparing the Sharpe, Treynor, beta and Jensen ratio.
 INTRODUCTION

Mutual Fund is an American concept and the terms ‘Investment Trust’, ‘Investment
Company’, ‘Mutual Fund’, ‘Money Fund’ etc. are used interchangeably in American literature.
Mutual Funds are cooperation which accepts dollars to buy stocks, long term bonds and short
term debt instruments issued by business or government units. These corporation pool funds and
thus reduces risk by diversification.

Mutual fund is a form of collective investment brought in by a large number of investors for
the mutual benefits of savers as well as investors. It is used as a generic term for various types of
collective investment vehicles, such as regular income plan, open-ended investment with
dividend or growth option, index funds, tax saving schemes etcetera. Indian mutual fund industry
has two distinct types of sponsors, public-sector and private-sector. With the emphasis in
increase in domestic savings and improvement in deployment of investment through markets, the
need and scope for mutual fund operation has increased tremendously. The mutual fund is a
vehicle that enables millions of small and large savers spread across the country as well as
internationally to participate in and derive the benefit of the capital market growth. It is an
alternative vehicle of intermediation between the suppliers and users of investible resources. The
vehicles is becoming increasingly popular in India and abroad due to higher invests or return,
relatively lower risk and cost. Thus the involvement of mutual funds in the transformation of
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.

Awareness of the industry is the major factor for pushing the growth of industry. Post
liberalization, the industry has been growing at a rapid pace and has crossed Rs. 100000 crore
size in terms of its assets under management. However, due to the low key investor awareness,
the inflow under the industry is yet to overtake the inflows in banks. Rising inflation, falling
interest rates and a volatile equity market make a deadly cocktail for the investor for whom
mutual funds offer a route out of the impasse. The investments in mutual funds are not without
risks because the same forces such as regulatory frameworks, government policies, interest rate
structures, performance of companies etc. that rattle the equity and debt markets, act on mutual
funds too. There is, therefore, a strong need for improving the awareness in a big way. It is
important to study about the returns given by AMC Mutual Funds and perform a comparative
analysis. Remember, every problem has several researches involved in it, each backed by study.

The Private Sector Mutual Funds have recorded much better performance as compared to
the Public sector Mutual Funds mainly due to better Funds allocation, better Management and
efficient performance of Portfolio Manager. In recent times the important trends in the mutual
fund industry is the aggressive expansion of foreign owned Mutual Fund companies and the
decline of the companies floated by nationalized banks and smaller private sector player .The
performance study of Mutual Funds tries to find out the reasons behind the slow progress of
Public Sector.

OBJECTIVES OF THE STUDY

The major objectives of the study are as follows:

 To find out the financial performance of Mutual Funds Scheme.
 To appraise the investment performance of mutual Funds with Risk adjustments the
theoretical parameters as suggested by Sharpe, Treynor and Jensen.

METHODOLOGY

Secondary data: For the purpose of the Research work the Equity diversified schemes of
following Public Sector and Private Sector Mutual Fund houses was selected based on the most
evident investor profiles in the Indian Mutual Fund market:
Public Sector Mutual Fund: SBI, UTI and CANBANK
Private Sector Mutual Fund: Franklin Templeton, HDFC and Reliance
The above mentioned three companies from Public and 3 companies from Private Sector was
selected based on Size of Fund/corpus and Number of schemes

LITERATURE REVIEW
Mutual fund performance evaluation is not new subject as for the research concern. Previously
few scholars had presented their papers on the performance analysis of the mutual fund in India
and as well as in abroad. A number of academics, professionals have written articles explaining
the concept, function and importance of mutual funds in the development of the capital market in
India. Early study on Mutual Fund included the several works of Jensen (1968), Sharpe (1966)
and Treynor (1965) that used the capital asset pricing model to compare risk adjusted returns of
funds with that of a benchmark portfolio. The findings of Sharpe and Jensen demonstrated that
the Mutual Fund underperform market indexes and suggest that the returns were not sufficient to
compensate investors for the diverse Mutual Fund charges. The pioneering works for
determining the market timing and stock selection abilities of managed portfolios, were done by
Treynor Mazuy (1966) and Henriksson Merton (1981), and later modified by proponents of the
conditional approach (Ferson and Scadt, 1996). Globally the literature on this issue is rich and
spans several decades, but not many studies exist on this, using emerging market data. There is a
vast body of literature by eminent scholars and financial experts on different aspects of the
Capital market but the literature available on Mutual Fund is scarce. Literature on mutual fund
performance evaluation is enormous.
Tools & Techniques: For the performance of the mutual fund schemes various measurement of
the portfolio are used as beta, Sharpe Index, Treynor Index and Jensen Index.

Analysis of Financial Data:

In spite of the apparent opportunities in a country of our size and scope, Mutual Funds in India
have not delivered anywhere close to potential. The corporate-centric focus still rules the roost in
spite the retail-rich demographics of the country. Retail money in the industry still languishes far
behind when compared to the US, where almost 85 percent of the total assets managed by fund
managers come from individual investors (as per 2007 data). The figures bear testimony to the
huge untapped potential in India. And yet, the state of MFs is enigmatic at best.

Competition is firming up too. Banks may soon offer 3.5 percent daily interest on savings
account instead of monthly. This could adversely affect investments in MF liquid schemes .The
IRDA has been aggressively promoting ULIPs as one of the best investment options in recent
times. One may argue that the job of a regulator is to regulate, not to promote schemes. But it
does make for a comparison of approaches adopted by the two regulators. The writing on the
wall is obvious. India needs to encourage MF investments in a big way. And the initiative should
be fuelled by design, not default. Fund houses seem rather casual in launching umpteen schemes
by the hour, instead of creating tailored solutions in line with the real investment needs. And the
retail market needs to be addressed through personalized marketing. Therein lies the big
opportunity but sadly, we have not seen due acknowledgement of this fact from the supply-side
forces as yet. MFs can take their cues from the insurance industry in reaching out to the common
man by all means. Despite the monopoly of LIC and its humungous network, the private players
took their campaigns to the remotest corners of India.
Distributors seem to be daunted by a common concern of lack of adequate investor education,
impacting all these models, as their success will depend extensively on the levels of financial
literacy among investors.

Table 1 is the summary description of Equity Diversified Mutual fund schemes of 3 each from
UTI , Canara and SBI from Public sector and 3 each from HDFC, Reliance and Franklin from
Private Sector. It is seen here that 18 Mutual Fund schemes have been selected out of which
there are 9 private sector and 9 public sector schemes Magnum Equity of SBI is the oldest and
UTI opportunities is the latest scheme in the sample that have been taken in this study. Reliance
Regular Saving Equity has maximum corpus under its Asset under management of Rs 2808.2
crores (as on July 31,2010). Minimum investment and exit load are same in all the schemes.
Table 2 shows Performance Analysis of Equity Diversified Mutual Fund Schemes.
Schemes

Standard Deviation and Systematic Risk (Beta) : The first column of table 2 shows the
standard deviation of 18 mutual fund schemes. Magnum Mid cap has highest standard deviation
means higher risk followed by Magnum Emerging Businesses, Canara Robeco Emerging
Equities and Canara Robeco Infrastructe Fund. Franklin India Life Stage
Stage- 20S Plan has the
lowest standard deviation and the lowest beta. Beta value of higher than unity implies higher
portfolio risk for the schemes than the market portfolio and vice
vice-versa.
versa. Schemes namely
Magnum Mid cap (1.32) , Magnum Emerging Businesses (1.2 (1.25),
5), Canara Robeco Emerging
Equities (1.21), Canara Robecco Infrastructute fund (1.17), Reliance Regular Saving equity
(1.08) ,Canara Robeco Equity Diversified (1.02), HDFC Premier Multi Cap (1.02), HDFC Core
& Satellite(1.02) Magnum Equity (1.01) and Relia
Reliance
nce Equity opportunities (1.01) were found to
be more risky (beta > 1.0) than the market. Remaining 8 mutual fund schemes had beta in the
range of 0.88 to 0.99 except Franklin India Life Stage 20S Plan (0.70) holding portfolio with
least risk among the lot.

Beta
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Beta

Fig 1 Beta
 SD
60
40
20
0
SD

Fig 2 Standard Deviation

Sharpe Ratio: Column 3 of Table 2 depicts the value of Sharpe ratio for the schemes. It is an
excess returns earned over risk free return (Rf) per unit of risk i.e. per unit of Standard Deviation.
Positive value of schemes indicates better performance. Higher positive values of Sharpe was
found in HDFC Growth (0.59), Reliance Equity Oppprtunites (0.50), Franklin India Life Stage
20S Plan (0.49) , Franklin India Flexi Cap (0.49), Templeton India Growth (0.48), Reliance
Regular Saving Equity (0.47), Reliance NRI Equity (0.47) and HDFC Core & Satellite (0.44)
among the Private Sector Mutual Fund Schemes and UTI Dividend Yield (0.58), Magnum
Equity (0.47), Canara Robeco Equity Diversified (0.45), UTI Opportunites (0.42), UTI
Infrastructure Fund (0.37) among Public Sector Mutual Funds. Among th thee worst performers
Canara Robeco Infrastructure Fund (0.08) , Magnum Emerging Businesses (0.18), Magnum
Midcap (0.18), Canara Robeco Emerging Equities (0.23) – Public Sector Mutual funds and
HDFC Premier Multicap (0.36) – Private Sector Mutual Funds.

On the whole Private Sector Mutual Funds led by Reliance outperform the Public Sector
Mutual Funds as per the result shown by Sharpe Ratio.

Sharpe Ratio
0.8
0.6
0.4
0.2
0 Sharpe Ratio

Fig 3 Sharpe Ratio

 Treynor Ratio: This measures the excess return earned over risk free return per unit of
systematic risk i.e. beta. The fourth colum of Table 2 presents the Trynor ratio values for the
schemes. Here the observations were similar to that of Sharpe ratio with Private Sector Mutual
Fund schemes outperforming Public Sector Mutual Fund Schemes except UTI Dividend Yield
(21.61) showing outstanding performance. Among Private Sector Mutual fund schemes top
performers HDFC Growth (21.42), Reliance Equity Opportunities(18.35), Reliance Regular
Saving Equity (18.23), Franklin India Life Satge 20S Plan (18.11), Franklin India Flexi Cap
Fund (18.06), Reliance NRI Equity (17.26), HDFC Core & Satellite (16.09). Among Public
Sector Mutual Fund Schemes UTI Dividend Yield (21.61), Magnum Equity (17.16), UTI
Opportunities (15.59), UTI Infrastructure Fund (13.75), Canara Robeco Equity Diversified
(16.30) . Canara Robeco Infrastructure Fund (2.62) was the worst performer mutual fund
scheme.

Treynor ratio
25
20
15
10
5
0 Treynor ratio
Canara…
Canara…
Franklin…
UTI…
UTI…
Reliance…
HDFC…
HDFC…
Magnum…

Fig 4 Treynor ratio

Jensen Ratio (Alpha): The fifth column of Table 2 shows the Jensen Alpha values for 18
selected open ended Mutual fund growth schemes. It is the regression of excess return of the
scheme (dependent variable) with excess return of the market (independent variable). Higher
Alpha value indicates better performance. Among the public sector mutual fund, higher alpha
was found with UTI Dividend Yield ( 10.45) followed by Canara Robeco Equity Diversified
(7.77), UTI Oppportunities (7.41) and Canara Robeco Infrastructure Fund (4.95). While in
Private sector mutual funds higher performance was evidenced in Reliance Regular Saving
Equity (12.67) followed by Templeton India Growth (7.98), Reliance Equity Oppportunities
(7.21), HDFC Growth (5.43), HDFC Premier Multicap (4.86) and HDFC Core & Satellite (4.36).
The worst performer was Magnum Mid cap (-8.29) ,UTI Infrastructure Fund (-4.66) – Public
Sector mutual fund and Franklin India Flexi cap Fund (1.87),Franklin India Life Stage 20S Plan
(3.49) . Private sector mutual fund schemes showed better performance in comparison to Public
sector mutual fund schemes as per the results shown by Jensen measure.
Fig 5 Jensen Ratio
 CONCLUSIONS

Mutual Fund companies are substitute for the retail investor who cannot afford to invest his
savings in stock market either of the reasons whether it need huge amount or the risk
involvement in stocks are high. Most of the retail investors are not aware of the complexities of
the stock market. Indian mutual fund companies are performing well and investor may get high
return in his investment. Mutual funds have better opportunities for the investment purpose than
the banks and other non-banking financial institutes. Mutual fund companies are under
regulation of SEBI, so there is less risk of fraud.

After analyzing the data and evaluating the performance of the selected mutual funds, following
conclusions can be drawn:

 Private sector mutual fund schemes are performing better than Public sector mutual fund
schemes.
 It shows that investment for longer period would get absolute higher return than the risk
free rate of return.
 Magnum Midcap has highest beta means higher risk followed by Magnum Emerging
Businesses and Canara Robeco Emerging Equities Fund. Franklin India Life Stage 20S
Fund has lowest beta which can be a good investment option for risk adverse investors.
 HDFC Growth Fund has highest Sharpe Ratio among Public and Private Sector Mutual
Fund schemes.
 Regulatory measures are essential to improve the confidence of investors in the market
by introducing minimum standard of quality. The regulatory framework for mutual funds
suffers from several shortcomings. Some of the guidelines issued by SEBI and RBI are
contradictory. For instance while RBI prohibits bank sponsored Mutual Funds from
investing in Finance companies while SEBI has made reservations for Mutual Funds in
Public issues for Finance companies. The existing rules and regulations are
comprehensive to ensure greater transparency about the operations of Mutual Funds.
However there is some scope for effectively curbing the malpractices, particularly in the
field of distribution of Mutual Funds by regulating the activities of intermediaries. SEBI
rules regarding late trading and rapid trading are either ineffective or nonexistent.
Although SEBI has introduced a specific regulation against late trading since March
2004, it has failed to check late trading. As a result there is a rampant late trading by
Mutual Fund to the determinant of common investors.
 UTI Dividend Yield has highest Treynor Ratio followed by HDFC Growth Fund,
Reliance Equity Opportunities and Reliance Regular Saving Equities.
 Reliance Regular Saving Equities has highest Jensen ratio value followed by UTI
Dividend Yield, Templeton India Growth and Canara Robeco Equity Diversified.
 BIBLIOGRAPHY AND REFERENCES

 Bhalla, V. K. (2001), “Investment Management: Security Analysis & Portfolio

Management”, S. Chand, Delhi.

 Chandra, (2002) “Investment Analysis and Portfolio Management”, Tata McGraw Hill.
New Delhi.

 Jayadev, N., “Mutual Fund Performance: An analysis of Monthly Returns” Finance India,
Vol. X No.1, March 1996.

 Jensen, M.C, (1968), “The Performance of Mutual Funds”, Journal of Finance, 23, No.2.

 “The Performance of Mutual Funds In The Period 1945 – 1964”, Journal Of Finance
(May 1968)

 Debasish, Sathya Swaroop, Performance Evaluation Choice Funds, SCMS Journal of

Indian Management, January- March 2007.

 Gupta, Amitabh, “Market Timing Abilities of Indian Mutual Fund Managers: An

Empirical Study.” The ICFAI Journal of Applied Finance. Vol. 6, No.2, April 47-60,
2000.

 Tripathy, Nalini Prava, “Mutual Fund In India: A Financial Service In Capital Market”
Finance India, Vol. X No. 1, Pages— 85–91, March 1996

 Sarkar, A.K., (1991) “Performance Evaluation of Mutual Funds”, Management

Accountant, 9: 691-693.

 Tripathy, Nalini Prava and Panda, Tapan K. , Customer Orientation in Designing Mutual
Fund Products -An Analytical Approach to Indian Market Preferences

 Rao, P Hanumantha and Mishra, Vijay Kumar, “Mutual Fund: A Resource Mobilizer in
Financial Market”. Vidyasagar University Journal of Commerce. Vol. 12, March 2007

 Panwar, Sharad and Madhumath, R, “Characteristics and Performance Evaluation of

selected Mutual Fund Schemes”
 WEBSITES:

 http://www.mutualfundindia.com

 http://www.amfiindia.com

 http://www.nseindia.com

 http://www.bseindia.com

 http://navindia.com

 http://www.valueresearchonline.com

 http://.www.icraonline.com

 http://www.sebi.gov.in

 http://business.mapsofindia.com/investment-industry/mutual-fund-investment.html

MAGAZINE:

RBI cautions on banks involvement in Mutual Funds: Business Standard

 Summary Description of Equity Diversified Mutual Fund Schemes

Entry
Year Min Invst Load Exit Fund Size
Of Req in % Load ( in
Scheme Name Inception (in Rs) in% NAV Crores)
Canara Robeco Emerging Equities March ,2005 5000 Nil 1% 22.45 38.7
Canara Robeco Equity Diversified Sept 16,2003 5000 Nil 1% 53.8 331.2
December
Canara Robeco Infrastructure Fund 02,2005 5000 Nil 1% 22.71 173.5
116.7
Templeton India Growth August,1996 5000 Nil 1% 6 677.8
Franklin India Flexi Cap Fund March 02,2005 5000 Nil 1% 31.07 2174.1
December
Franklin India Life Stage- 20S Plan 01,2003 5000 Nil 1% 35.27 14.3
UTI Infrastructure Fund March 9,2004 5000 Nil 1% 35.67 1639
UTI Dividend Yield May,2005 5000 Nil 1% 30.23 2233
UTI Opportunities July,2005 5000 Nil 1% 25.01 1465.8
Reliance Regular Savings Equity May,2005 500 Nil 1% 30.53 2808.2
Reliance Equity Opportunities March,2005 5000 Nil 1% 35.25 2251.5
Reliance NRI Equity Nov, 2004 5000 Nil 1% 38.24 135.7
HDFC Premier Multi Cap March, 2005 5000 Nil 1% 28.49 498.4
HDFC Growth August, 2000 5000 Nil 1% 84.19 1360.7
HDFC Core & Satellite Sept, 2004 5000 Nil 1% 39.26 427.1
Magnum Emerging Businesses Sept,2004 2000 Nil 1% 40.4 262.1
Magnum Equity Nov, 1990 1000 Nil 1% 42.74 413.5
Magnum MidCap March , 2005 5000 Nil 1% 23.67 324

No Exit Load if redeemed within 365

days
Table No: 1
 Performance Analysis of Equity
Diversified Mutual Fund
Scheme

Scheme Name SD Beta Sharpe Ratio Treynor ratio Jensen ratio

Canara Robeco Emerging
Equities 45.78 1.21 0.23 8.64 0.1
Canara Robeco Equity
Diversified 36.8 1.02 0.45 16.3 7.77
Canara Robeco Infrastructure
Fund 42.58 1.17 0.08 2.92 4.95
Templeton India Growth 35.51 0.97 0.48 17.78 7.98
Franklin India Flexi Cap Fund 34.29 0.94 0.49 18.06 1.87
Franklin India Life Stage- 20S
Plan 25.72 0.7 0.49 18.11 3.49
UTI Infrastructure Fund 35.06 0.96 0.37 13.75 -4.66
UTI Dividend Yield 30.84 0.83 0.58 21.61 10.45
UTI Opportunities 32.73 0.9 0.42 15.59 7.41
Reliance Regular Savings Equity 41.37 1.08 0.47 18.23 12.67
Reliance Equity Opportunities 37.35 1.01 0.5 18.35 7.21
Reliance NRI Equity 36.7 0.99 0.47 17.26 4.07
HDFC Premier Multi Cap 37.63 1.02 0.36 13.42 4.86
HDFC Growth 32.16 0.88 0.59 21.42 5.43
HDFC Core & Satellite 37.7 1.02 0.44 16.09 4.36
Magnum Emerging Businesses 48.44 1.25 0.18 7.23 1.95
Magnum Equity 36.84 1.01 0.47 17.16 3.06
Magnum Mid Cap 50.02 1.32 0.19 7.21 -8.29

Table No: 2

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