CHAPTER NO.

1
 INTRODUCTION

The Mutual Fund Industry in India was started with a humble beginning by establishing the
Unit Trust of India in the year 1963, by the Government of India. The main aim of the UTI was
to enable the common investors to participate in the prosperity of capital market through
portfolio management aimed at reasonable return, liquidity and safety and to contribute to
India’s industrial development by channelizing household savings into corporate investment.
By the year 1993, UTI occupied nearly 80 per cent of the market share and developed manifold
in terms of number of investors, investable funds, reserves with wide marketing network and
efficient leadership. The Chartered Financial Analyst had commented that Mutual Funds today
form 1/10th of the banking industry’s size. If we compare this an indication in the current
interest rate scenario, Mutual Fund has ample shelf-space to grow into an industry like the
banking industry in India.

The financial system comprises of financial institutions, instruments and markets that provide
an effective payment and credit system that facility the channeling of funds from savers to the
investors of the economy. Indian Mutual Funds have emerged as strong financial stability to
the financial system. Mutual Funds have opened new vistas to investors and imported much
needed liquidity to the system. Mutual Funds are dynamic financial institutions, which play a
crucial role in an economy by mobilizing savings and investing in the capital markets savings
and the investing in the capital markets. Therefore, the activities of Mutual Funds have both
short and long term impact on the savings and capital market and national economy. Mutual
Fund is an American concept and the terms Investment Trust, Investment Company, 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

2
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 are 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.

The mutual fund industry worldwide has evolved into a high growth and competitive market.
One of the most interesting financial phenomena of the 1990s was the explosive growth of
mutual funds. The global growth of mutual funds was fueled by the increasing globalization of
finance and expanding presence of large multinational financial groups in a large number of

3
countries throughout most of the 1990s. The industry is witnessing negative growth since the
financial year 2008 due to adverse global and market conditions which has led to slowdown in
the mutual funds in India at 4.7% in comparison to 77% in US, 41.1% in Europe and 33.6% in
the UK. As per ICI Fact book 2013, the major mutual fund market exists in US with 49% of
the total worldwide mutual fund net assets of $26.8 trillion, Europe has the market share of
31%, Africa and Asia/Pacific has 13% and other Americas share is 8% as on year ended 2012.
Mutual Fund industry in India has grown significantly in terms of number of mutual funds from
551 in 2008 to 692 in 2012. It has also grown in terms of total net assets as a percentage of
worldwide total net assets of mutual funds from $ 62,805 in 2008 to $ 1, 14,489 in 2012. With
the growth of the industry the public awareness regarding the mutual funds has increased and
the interest of the public for investing in mutual funds also has increased.

The level of education and awareness has increased the individual investors’ concerns to have
a secured exposure of various instruments and mutual funds. Hence this paper makes an attempt
to help the investors know the performance of the mutual fund schemes and to compare various
schemes before investing their money. Mutual funds are investment vehicle that pools together
funds from small retail investor to purchase stocks, bonds or other securities. It gives the
investors flexibility of buying small units of funds. Bounty of mutual funds schemes is
available in the market where the investor can put their money. Before investing investors need
to know the risk and returns associated with the individual mutual fund schemes and whether
their performance is commensurate with the market performance or not, to base their decision
upon. In this paper an attempt is made to evaluate the performance of selected public and
private mutual fund schemes on the basis of five years quarterly NAV for the period of 1st
January 2008 to 31st December 2012. The paper also compares the results of public sector
sponsored schemes with that of private sector schemes. Sharpe, Treynor and Jensen measures
were used for the evaluation of mutual fund schemes. Risk-return analysis is also done using
the standard deviation and beta as the measures of risk which are further used to compare the
performance of selected funds with respect to market. It was found that the sample mutual fund
schemes performed either well or their performance was appropriate with the market’s
performance. When public and private mutual funds were compared, the private mutual fund
companies were found much more beneficial rather than public mutual fund companies for the
investors to invest in.

In 1890, Mutual fund industry in the world was started in the US. The Unit Trust of India
pioneered the mutual fund industry in 1963.With the dawn of Private players in 1993; the MF

4
industry grew by leaps and bounds. Within three years, the number of Asset Management
Companies (AMCs) rose to 26. At present, we have 43 AMCs, number of schemes have
increased from 59 in 1993 to almost 2,000 mutual fund schemes in 2018. The schemes include
all open-ended, close-ended and interval schemes. Mutual Funds have grown as a popular
investment vehicle during the last decade. According to AMFI reports, "The Asset Under
Management (AUM) of the Indian MF Industry has grown from 4.17 trillion as on 31st March,
2009 to 23.80 trillion as on 31st March, 2019, more than 57-fold increase in a span of 10 years".
The mutual funds in India has emerged as a strong financial intermediary and assist in bringing
stability and efficiency in the financial system. The mutual funds increase liquidity in the
capital and money market. They have been identified as one of the important factors pushing
up market prices of securities. The direct lending by mutual funds to the corporate, has
increased because SEBI guidelines allows companies to reserve 20% of public issues for Indian
mutual funds.

Mutual funds also enable the corporate sector to raise funds at much lesser costs and have
enabled as alternative source of raising capital. According to Manish Mehta, Kotak Mahindra
Asset Management Co.'s national head (sales and distribution alliances). the factors that will
drive the growth in 2019 include the untapped potential, rising investor awareness about mutual
funds as an investment alternative. The mutual fund industry is expecting robust growth as the
sector is yet to tap its full potential. Indian mutual funds are thus playing a crucial
developmental role in allocating resources in the emerging and developing market economy.
Mutual Funds act as financial intermediaries between the providers and the users of money.
With the rise of the mutual fund industry, establishing a mutual fund association became a
prerequisite. This is when AMFI (Association of Mutual Funds India) was set up in 1995 as a
nonprofit organization. Today AMFI ensures mutual funds function in a professional and
healthy manner thereby protecting the interest of the mutual funds as well as its investors. The
mutual fund industry is considered as one of the most dominant players in the world economy
and is an important constituent of the financial sector and India is no exception. The industry
has witnessed startling growth in terms of the products and services offered, returns churned,
volumes generated and the international players who have contributed to this growth. Today
the industry offers different schemes ranging from equity and debt to fixed income and money
market. The market has graduated from offering plain vanilla and equity debt products to an
array of.

5
diverse products such as gold funds, exchange traded funds (ETF's), and capital protection
oriented funds and even thematic funds. In addition, investments in overseas markets have also
been a significant step. Due credit for this evolution can be given to the regulators for building
an appropriate framework and to the fund houses for launching such different products. All
these reasons have encouraged the traditional conservative investor, from parking fund in fixed
deposits and government schemes to investing in other products giving higher returns. India
infoline website under the link mutual fund school, history AMFI website as on April 21, 2009.
Retail Investors are no longer satisfied with the yield they derive out of traditional investment
avenues like post office savings and bank deposits.

Though the interest rates have increased compared to the last decade, the increase is
disproportionate with the inflation. Fluctuations in the equity market which is dominated by
institutions, FIIs and very few large scale operators also make the ordinary investor to remain
out of the market or forced to go for very minimum investment. Expensive wealth management
services are also not affordable for the retail investors. Mutual funds are the only option
available for individual investors particularly for middle class section of the economy. A
mutual fund is just the connecting bridge or a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment objective. The mutual
fund will have a fund manager who is responsible for investing the gathered money into
specific securities (stocks or bonds). An investor while investing in mutual funds, buys units
or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of
the fund. Mutual funds are considered as one of the best available investments compared to
others as they are very cost efficient and also easy to invest in, thus by pooling money together
in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if
they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by
minimizing risk & maximizing returns.

Mutual funds are recognized as a mechanism of pooling together the investment of

unsophisticated investors and turn in the hands of professionally managed fund managers for
consistent return along-with capital appreciation. Money collected in this process is then
invested in capital market instrument such as shares, debentures and other securities. Finally,
unit holders in proportion of units owned by them share the income earned through these
investments and capital appreciation. Mutual funds put forward a way out to investors to
approach most schemes and get well-diversified portfolio because investors with small savings
neither have sufficient expertise nor have access to required diversification Mutual funds have

6
become invaluable tool for a wide range of investors, from individuals seeking to save for
retirement to sophisticated socialites focused on preserving their assets and businessmen to
create wealth1. Mutual Fund is a trust that pools the savings of a number of investors who share
a common financial goal. Anybody with an investible surplus of as little as a few thousand
rupees can invest in mutual fund units according to their stated investment objective and
strategy 2. In other words, Mutual fund is a company that pools money from a group of people
with common investment goals to buy securities such as stocks, bonds, money market
instruments, a combination of these instruments, or even other funds in order to reap the benefit
of diversification and professionally managed basket of securities at a relatively low cost. The
origin of the Indian mutual fund industry can be traced back to 1964 when the Indian
government, with a view to augment small savings within the country and to channelize these
savings to the capital markets, set up the Unit Trust of India (UTI). Mutual fund Companies
conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among
different private sector Funds, the Mutual Fund industry has entered its current phase of
consolidation and growth. During 2000-2016 India grew rapidly and Mutual Fund industry has
emerged as a tool for ensuring one’s financial interests. Mutual funds are one of the most
chosen investments among investors and financial professionals alike. But why is and regulates
the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual
funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to
enter the capital market. The regulations were fully revised in 1996 and have been amended
thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to
time to protect the interests of investors. There is no distinction in regulatory requirements for
these mutual funds and all are subject to monitoring and inspections by SEBI. The risks
associated with the schemes launched by the mutual funds sponsored by these entities are of
similar type. An investor has various investment options like debentures, shares, bank deposits,
real estate’s etc. but choice of option is very essential. Mutual funds give higher returns because
of professional management of fund.

Multiple Options: Most of the mutual fund schemes are offering different options to the
investors under one scheme. For example, a growth oriented scheme may offer option of either
regular income or re-investment of income. Under the regular income plan, dividend shall be
distributed to investors and under the second dividend will be reinvested and total amount shall
be paid at time of redemption.

7
Lock in Period: Mutual Fund Schemes offer documents that contain a clause of lock-in period
ranging from one year to three years. Till the completion of the minimum period the investors
are to trade neither the units on the stock exchange nor to avail themselves of repurchase
facility.

Liquidity: Generally open-ended funds offer the facility of repurchase and the close ended are
traded at stock exchange offering repurchase after a minimum lock in period of two to three
years. Mutual funds also have a facility to pledge or mortgage at banks to obtain loan and can
be transferred in favor of any individual.

Financial Markets & Mutual Funds: A The financial sector in India consists of two broad
segments, the organized and unorganized sectors. The former includes commercial banks, non-
banking financial companies (NBFCs), development financial institutions (DFIs), mutual
funds, insurance companies, pension and provident funds. The entry of private sector banks,
mutual funds and insurance companies has made a dent in the dominance of the public sector.
Several new generation public sector banks have emerged and are successfully challenging the
public sector banks. Mutual funds from the domestic arid foreign private sectors have taken
away a significant proportion of the market share of the UTI and public sector mutual funds.
The financial institutions that are operating in the organized sector can be grouped into the
following categories as represented here under.

Growth of Mutual Fund Industry: The Indian Mutual Fund Industry, is witnessing a rapid
growth as a result of infrastructure development, increase in personal financial assets, rise in
foreign participation, growing risk appetite, rising income, and increasing awareness mutual
funds are becoming a preferred investment option compared to other investment vehicles such
as bank fixed deposits and post office savings.

• After deregulation of India’s mutual fund industry in the early 1990s, significant changes
have been witnessed both in the structure and the content for example, the number of players
in the industry has gone up significantly and also there was a sharp shift from the closed ended
schemes to the open ended schemes as the phase of deregulation is getting advanced. Similarly,
there were so many other developments in the industry in recent years.

• After deregulation in 1994, the Indian mutual fund industry had only 11 players with an Assets
Under Management of Rs.62,430 crores. Out of this, 82.8 per cent was contributed by the UTI
and public sector with close-ended funds as favourates9. N6w the priorities of the investors
have changed. As on 31 March, 2009 the number of players in the industry rose up to 35 with

8
an Assets Under Management of Rs.4,17,300 crores. Out of this 80 per cent has been
contributed by the 30 private sector players (including foreign players). At present the open-
ended schemes are the favorite schemes of investors.

• Of the total Assets Under Management as on 31 March 2009, an amount of Rs.3,25,161 (78%)
was contributed by the open-ended schemes and the rest was by close-ended schemes. Scheme
wise, major share has been occupied by the growth schemes and income schemes. Out of the
total Assets Under Management as on 31 March 2009, Rs.1,97,343 (47%) and Rs. 95,817
(23%) are belonging to growth and income schemes respectively11.

• The mutual fund industry in India has come a long way since the formation of Unit Trust of
India in 1963. During the past 45 years, the industry has seen many significant structural
changes. The entry of private sector, foreign players and bifurcation of the UTI, which helped
expand the market. After deregulation, many Indian and foreign companies formed as Joint
Ventures to get the benefit of large scale economies and contributed major share of42 per cent
of Assets Under Management on 31st March 2009 from 20.1 per cent on 31 March 2000. The
share of Assets Under Management of Joint venture predominantly Indian has also increased
from 8.6 per cent to 37 per cent for 19 the above period

Factors contributing for the Growth of Mutual: Funds A slew of factors have contributed for
the growth of mutual fund industry in India during the past two decades.

 The first and foremost reason is delivering of substantial returns by equity and debt-oriented
funds. Different periods of outstanding performance aided by strong bull runs in the late
1990s, which saw the stock prices shooting through the roof, as well as the current bullish
fervor which has helped equity- oriented funds deliver substantial returns.
 Debt funds too have been benefited by the soft bias in the interest rates. The volatility in
the bond prices has also helped debt-oriented funds deliver handsome returns.
 Significant changes in the investment environment such as increased competition, ongoing
reforms which allow mutual funds to invest abroad as well as in derivative instruments
helped for growth of the industry.
 Unlike monopoly of UTI in the past, mutual fund industry now-a-days has been backed by
Fills and domestic market “As per the ASSOCHAM estimates, the cumulative FII
investments in the country had already touched a high of $ 40 billion by the end of October
2005. And domestic mutual funds emerged as a strong counter balance to Fills during 2005.
During the year they pumped in an unbelievable Rs. 13,190 crores into the stock market.

9
 The transparency in operations and disclosure practices related to the NAV, stock selection
strategies, portfolio churning costs, rationale for expense charges and investment related
risks also fielded the growth of the industry. Stringent regulatory environment of the SEBI,
investor awareness programmers offered by the AMFI, entry of foreign players with strong
financial and research capabilities, potential entry of employee pension and provident funds
and a slew of innovative schemes to cater to the different needs have attracted the investors.

10
CHAPTER NO.2

11
 LITERATURE REVIEW

A vast gamut of research has been done on evaluation of Mutual funds. Researchers have
analyzed and appraised Standalone performance of mutual funds, selected mutual funds and
few studies have also been made on comparing the public and private sector mutual fund
schemes in India. Prajapati &Patel (2012) suggest that most of the mutual fund have given
positive return during 2007 to 2011.Sharma (2013) analyzed the perception of investors with
regard to factors like liquidity, security, fees, quality, returns and tax benefits. Kanethia (2010)
compared of various mutual fund schemes in India. The application of the Sharpe index made
it feasible to measure performance and then the ranking of the funds. Ranking of the funds
assist an investor to choose the funds and scheme and then decide their portfolio accordingly.
The result of the study shows that private mutual funds are more preferred than the public
mutual funds. Agarwal & Patwa (2014) private sector funds are able to generate better returns
than the public sector funds using Mann-Whitney U-Test. Pandow (2017) the industry is
confronted with numerous challenges like low penetration ratio, similarity of products, low
awareness level lack of interest of retail investors and evolving nature of the industry. Sapar &
Madava (2003) 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. Fama & French (2008) found that mutual funds produce a portfolio close to the market
portfolio but with high costs of active management that show up intact as lower returns. They
have used Persistence tests and Bootstrap simulations for the study. Nitzsche Cuthbertson et al
(2006) found mutual funds are similar to those for equity mutual funds and hedge funds. Study
suggests that investors should hold low cost index funds and avoid holding loss making funds.
Bayesian approach is used for the study. Jayadev, (1996) determined that Master gain has
performed better according to Jenson and Treynor measures but on the basis of Sharpe ratio it's
performance is not upto the benchmark. Agrawal (2007) revealed that the performance is
affected by the saving and investment habits, confidence and loyalty of the people. Tomer and
Khan (2014) analyzed the problems and prospects of mutual funds in India. The study says
reduction on operational costs, skills and technology up gradation is required. Sathish and
Srinivasan (2016) analyzed value of beta of the schemes and found lower than one indicating
that all the mutual funds are less risky and less volatile. Siva Kumar et al. (2010) in their study
established that the private sector players hold the greater strength in resource mobilization.

12
Arora (2015) assessed risk – adjusted performance of Indian mutual fund schemes during the
bear period and the boom period and found that equity oriented mutual fund schemes
performed well during the bull phase.Santhi & Gurunathan (2012) found that all the tax-saving
mutual funds are volatile, It is also observed that most of the schemes give higher return than
the benchmark S&P CNX NIFTY. Vyas, et.al (2016), suggested that for investors the most
important intrinsic fund quality is fund expense ratio and exit load. Panwar & Madhumathi
(2006) there is a significant difference between public sector sponsored mutual funds and
private-sector sponsored mutual funds in terms of coefficient of variation (COV), excess
standard deviation adjusted returns (SDAR), residual variance (RV). Rao (2006) Ratnaraju &
Madhav (2016) Goyal (2015) opine that Equity Growth funds provide higher returns than that
of Equity Dividend funds. Most of the literature available focuses only on mutual fund market
growth, future trends and such other issues but very limited literature is available on the
‘Comparative analysis of Market Returns with its Fund Flows’. Few countries like USA,
Europe have concentrated on the research on mutual fund flows with its relevant market
returns, whereas analysts, academic researchers in countries like India have paid least attention
in these areas. Friend, Brown, Herman, and Vickers (1962) offered the first empirical analysis
of mutual funds’ performance. Treynor (1965), Sharpe (1966), and Jensen (1968) developed
the standard indices to measure risk adjusted mutual fund returns. Grinblatt and Titman (1989)
constructed a positive period weighting measure of fund performance. Numerous studies have
tested the mutual fund manager’s market-timing ability [Treynor and Mazuy (1966), Kon and
Jen (1979), Henriksson and Merton (1981), Merton (1981), Henriksson (1984), and Chang and
Lewellen (1984)] and the diversification benefits and risk-adjusted performance of funds.

13
CHAPTER NO.3

14
 RESEARCH METHODOLOGY

For the comparative analysis of mutual funds 4 companies have been randomly selected from
each sector and from each of these sectors 5 schemes of similar in nature has been considered.
The study is done for a period of 5 years starting from 2014 to 2018. To calculate Average
Returns Daily Net Asset Value of the mutual fund companies and Annual Average of these
mutual fund companies was calculated. Then, using Average Returns, Standard Deviation was
further calculated for the Average Returns. Standard Deviation and Average Returns are the
two variables used for analysis. Generally, calculation of returns of funds is done after adjusting
the Net Asset Values to dividends, capital gains, right and bonus issue. In the current study the
schemes that are selected for both private and public sector are growth based, hence they do
not have any of the above factors. Risk refers to the amount of variations in the returns of
mutual funds during the given period. To investigate the performance of mutual funds in India
total 16 schemes have been selected as sample as under:

15
 Sampling

 Objectives of Research
1) To assess the performance of the selected schemes on basis of risk
and return.

2) To compare the performance of sample schemes with the

market performance.

3) To evaluate the performance of selected category of public sector schemes on the basis
of returns.

4) To find out the financial performance of Mutual Funds Scheme

16
 Research Hypothesis
1. H0: There is no difference in returns of public and private sector mutual funds.

H1: There is difference in returns of public and private sector mutual funds.

2. H0: Risk is not the same in public and private sector mutual funds.
H1: Risk is the same in public and private sector mutual funds.

 Objectives of the Study:

The present study has the following objectives.

1. To review the progress of mutual fund industry and the trends in funds mobilization pattern
and Assets Under Management of various mutual funds during the post deregulation period.

2. To examine the shift in the portfolio investment behavior of the UTI and the other mutual
funds during the post deregulation period.

3. To evaluate the financial performance of selected major schemes of various mutual funds
in the public and private sectors.

4. To analyses the investors’ opinions on mutual fund investments and to compare the level
of satisfaction among the investors of public and private sector mutual funds.

5. To suggest measures for consideration of the policy makers for strengthening of mutual
fund industry.

 Data Sources

This study is based on secondary data and the relevant sources of data are books, journals,
magazines, newspapers, brochures and websites of selected mutual funds. Monthly NAV data
on each sample scheme is collected from www.mutualfundsindia.com and
www.moneycontrol.com. BSE Sensex has been taken as a benchmark for analysis of the results

17
and monthly BSE Sensex data are collected from www.bseindia.com. The risk free rate is taken
as 8.40% which is the interest rate on Post Office Time Deposit Account for 5 years.

 Limitations of The Study

The limitations of the study have been enumerated below.

1. The study is confined only to the Mutual Fund Industry in India. Therefore, it has not
focused on the mutual funds footer countries.
2. The sample size in the case of mutual fund investors has been restricted to 234 as it is highly
difficult to arrange a list of investors spread over different regions and to select them
deciding certain percentage of the Universe.
3. Because of the time and money constraints convenient sampling method has been adopted
to select the respondents. Therefore, all the limitations those are applicable to convenient
sampling are applicable to this study.
4. Only the open-ended mutual fund schemes have been included for measuring the financial
performance as these are actively traded in the stock exchange.
5. Though the techniques used for analyzing the data are traditional, these were more
appropriate as many researchers in India are following at present.

 Data Analysis

The data collected from various sources have been analyzed by using different techniques as
under.

1. Basic statistical techniques like simple percentages, averages, pie diagrams, bar diagrams,
graphs were widely used.

2. Statistical formulae like standard deviation, alpha, beta was employed to find the intensity
of risk.

18
3. Different ratios like a) Rate of return b) Sharpe Ratio c) Treynor Ratio d) Jenson
Differential Return e) Fama Components of investment performance were used to measure
the financial performance of various sample mutual fund schemes.

4. Chi-square test has been employed to test the significance of differences of the opinions,
perceptions of the investors2.

5. Correlation analysis, t-test and ANOVA has been used to know the degree of relation and
significance between inter dependent variables like different investment avenues and others

 Tools

To analyze the data simple statistical tools like arithmetic mean, percentages, standard
deviation has been used. The financial tools like portfolio beta, Sharpe ratio, Treynor ratio and
Jensen ratio has been selected.

Tools Formulae

Percentage Return (NAV1 – NAV0) ×100/ NAV0

Standard deviation √σ² /N

ß (Beta value) (∑xy − nxy) n

----------------

∑x 2 – nx

Sharpe’s Ratio (Rm –Rf)/σ

Treynor's Ratio (Rm-Rf)/ß

Jensen’s Ratio αp = Rp - [Rf + ß p * (Rm – Rf)]

Jp = αp / ß p

19
CHAPTER NO.4

20
 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 fueled 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

21
Performance Analysis of Equity Diversified Mutual Fund Schemes Standard Deviation and
Systematic Risk (Beta) 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 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 Magnum Mid cap
(1.32), Magnum Emerging Businesses (1.2 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 be riskier (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.

22
Sharpe Ratio:

In this model, performance of a fund is evaluated on the basis of Sharpe ratio, which is a ratio
of returns generated by the portfolio over and above risk free rate of return and the total risk
associated with it. According to Sharpe, it is the total risk of the fund that the investors are
concerned about. So, the model evaluates portfolios on the basis of reward per unit of total risk.
Symbolically it can be written as:

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 Sharpe Ratio: Column 3 of Table

23
2 depicts the value of Sharpe ratio for the Opportunities (0.50), Franklin India Life Stage 205
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 Opportunities (0.42), UTI Infrastructure
Fund (0.37) among Public Sector Mutual Funds. Among the 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.

Treynor Ratio:

Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor’s Index. This index is a ratio of return generated by the fund over and above the risk
free rate of return during a given period and systematic risk associated with it (beta).
Symbolically, it can be represented as:

24
All risk averse investors would like to maximize this value. While a high and positive Treynor
ratio shows a superior risk adjusted performance of a portfolio, a low and negative Treynor
ratio is an indication of unfavorable performance

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 Treynor 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 Stage 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.

25
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 Opportunities (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 Opportunities
(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.

26
27
CHAPTER NO.5

28
 CONCLUSION

Indian Mutual Fund Industry, which started its journey in the year 1964 witnessed four
interrelated stages of development and developed manifold in terms of assets, number of
players, schemes, policies, regulations before and after deregulation and became one of the
strong markets in the world. UTI the public sector mutual fund was the dominant player in
terms of number of schemes and funds mobilization till 1997-98 in the mutual fund industry.
This share had been gradually occupied by the private sector mutual funds after deregulation.
The share of resource mobilization by the public sector as a percentage of GDP had been
decreased phenomenally and reached to negative. On the other hand, the percentage of private
sector has an increasing tendency. The combined effect of percentage of both the public and
private sector mutual funds showed decline in tendency in the total resource mobilization by
mutual funds as a percentage of GDP. After deregulation, public sector has weakened in terms
of number of funds and Assets Under Management and has been occupied by the private sector.
Share of Indian mutual fund companies, Joint venture predominantly Indian companies have
increased their asset base manifold. On the other hand, assets of bank sponsored and
institutional mutual funds have decreased. Joint venture mutual funds predominantly

foreign though increased are lagging behind when compared to Indian and predominantly
Indian mutual funds. Sales and redemptions of private sector Indian mutual funds, Joint venture
predominantly Indian mutual funds, and public sector mutual fund schemes have increased.
Sales and redemptions of private sector joint venture predominantly foreign category have
decreased. As a whole, net sales of private sector Indian mutual funds, Joint venture
predominantly Indian have increased. It is also interesting to note that private individual
investors in the case of number of players, corporate investors in the case of net assets
dominated the industry. Retail players and high net worth investors invested most of their funds
in equity schemes and balanced schemes. Investment in liquid and money market instruments
are dominated by the corporates and banks. The share of investment in bonds and debentures
in the total assets of UTI has decreased. The investment in equity and government securities in
the case of other mutual funds (other than UTI), particularly private sector funds has also
decreased. This has been totally diverted to money market instruments in the case of UTI and
other mutual funds have diverted to bonds, debentures and money market instruments. The
share of investment of UTI in government securities and in equity shares decreased till 2003
but recovered gradually after the bifurcation of UTI. Investments diverted to money market

29
instruments in the case of other mutual funds are higher than the UTI. Investment in equity
shares by UTI equity schemes has increased and in the case of other mutual funds (other than
UTI) it is constant. Investment in money market instruments in both the cases has also
increased, contrarily share of investment in government securities and bonds and debentures
has decreased. Decrease in the investments of bonds and debentures of UTI is higher than other
mutual funds. UTI bond funds has increased their investment in money market instruments and
equity shares. Where as in the case of other mutual funds (other than UTI) the investment in
money market instruments only decreased. Investment in government securities and bonds and
debentures in the case of UTI bond funds and investment in bonds and debentures in the case
of other mutual funds has also decreased. Investment in government securities, bonds and
debentures by UTI balanced funds has been increased by decreasing investment in money
market instruments. On the other hand, investment in equity and money market instruments of
other mutual funds (other than UTI) has also increased by reducing the investment in bonds
and debentures. UTI which is the oldest and biggest mutual fund in terms of investors and
mobilization of funds had maintained a dominant share by investing in equity shares, bonds
and debentures and in money market instruments till 2000. This scenario has changed to 2009
and now other mutual funds particularly private sector have dominated and occupied nearly 90
per cent in all the above instruments. And it is quite exiting that the share of investment in state
and central government securities is totally dominated by UTI except during the period of
bifurcation. The objective of understanding and evaluating the performance of public and
private sector in the frame work of risk and returns using performance measures such as
Treynor Ratio, Sharpe ratio, Jensen measure, Sharpe differential return measure and Fama’s
components of performance have been well established. The result indicate that public sector
sample schemes have superior performance in respect of risk and returns in comparison with
benchmarks, Treynor, and Sharpe ratios. The result also indicates that private sector sample
schemes, particularly joint venture predominantly foreign, institutions sample schemes related
to public sector have generated excess returns in excess of equilibrium in respect of Jensen
measure. Private sector sample schemes related to joint venture predominantly foreign have
good diversification and higher returns due to selectivity when compared to public sector
sample schemes. And another unique thing noticed is that sample mutual fund schemes related
to joint venture predominantly Indian both in the case of public and private sectors have earned
higher returns with the higher level of total risk. As a whole public sector sample schemes in
respect of risk and returns, private sector joint venture predominantly foreign and public sector
institutions sample schemes in respect of diversification and security selection performed well.
30
There are three types of players in the mutual fund market viz., Government (UTI), Financial
Institutions (Banks, LIC, GIC etc.) and Private Sector. The preference of the investors to invest
in the mutual funds of different sectors is found to be significant. Investors belonging to urban
area, higher educational qualification, salaried and self-employed persons, higher income
group investors have preferred to invest in financial institutions mutual funds. Investors
belonging to lower educational qualification, lower income group have their choice of
preference towards government sector mutual funds. Private sector mutual funds have been
liked by the rural and self-employed investors. Factors like age and sex do not have any
significant influence on the investors preference towards different sectors of mutual funds.
Basically mutual funds offer two types of schemes viz., open-ended schemes and close-ended
schemes. The preference of the investors towards open-ended schemes is found to be
significant. This preference is more significant in the case of investors belonging to young age
group and living in urban areas. Factors like sex, qualification, occupation and income group
do not have any significant influence on the investors preferences towards open-ended
schemes. Mutual funds offer four types of schemes viz., growth schemes, income schemes,
balanced schemes and sectoral schemes. The preference of the investors about different mutual
fund schemes is found to be significant. The preference of the investors towards income
schemes is more significant in the case of investors

belonging to younger age group, rural investors and investors with lower educational
qualification. Growth schemes have been liked by the old age, semi-urban, self-employed and
high income group investors. Sectoral schemes and balanced schemes have been liked by the
young and middle income group investors. Sex has no influence on the investors preference
towards different types of mutual fund schemes. Mutual fund investors have been inspired by
three sources viz., self-inspiration, friends or colleagues, and mutual fund agents. The major
source of inspiration is found to be friends or colleagues. It is more significant in the case of
investors belonging to young age group. Factors like sex, area, qualification, occupation and
income group do not have any significant influence on the investors source of inspiration to
invest in mutual fund schemes. Investors invest in mutual funds for different reasons. It has
been divided under four heads viz., earning income, for further obligations, growth in wealth
and for the tax benefit. The reasons behind investment in mutual funds is found to be
significant. People belonging to young age group, male investors, low income group have
significantly preferred to invest in mutual funds for earning income. Investors belonging to old
age group and high income group preferred to invest for growth in wealth. Reason behind

31
female investors investment in mutual funds is for further obligations. And most of the tax
benefit mutual fund schemes were liked by the 318 urban and high income group people.
Educational qualification has no significant influence on the reason behind investment in
mutual funds. The approximate amount of investment in mutual funds has been divided under
four categories viz., below Rs.10,000/- Rs.10,000/- to Rs.25,000/- Rs.25,000/- to Rs50,000/-
and Rs.50,000/- above. The preference of the investors about the amount of investment in
mutual funds is found to be significant. Investors belonging to younger age group have medium
investment of Rs.10,000/- to Rs.25,000/-. Investors belonging to old age group have preferred
to invest very lower amount. Middle aged people (31 to 50 years) have preferred to invest very
large amount i.e. Rs.50,000/- and above in mutual funds. Factors like sex, area, qualification,
profession do not have any significant influence on the investors preference towards the amount
of investment in mutual funds. Operation of any mutual fund is very typical job on the part of
fund manager, and every mutual fund investor should know how it has been operated and how
the portfolio is managed. Knowledge of the investors about the mutual fund operation is found
to be significant. Investors belonging to younger age group, urban area and high income group
have knowledge about mutual fund operation. Factors like sex, educational qualification,
profession do not have any significant influence on the knowledge of mutual fund operation.
Broadly mutual funds are divided under two different sectors viz., Private Sector and Public
Sector. Comparison of investors satisfaction with the services of 319 private and public sector
mutual funds revealed that there is no significant difference. This is more open in the investors
of private sector. Investors satisfaction with the services of private sector mutual funds is
slightly higher than that of the public sector mutual fluids. Investors' level of satisfaction in
respect of return is not found to be different among public and private sector mutual funds.

32
CHAPTER NO.6

33
 SUMMARY

The objective of understanding and evaluating the performance of public and private sector in
the frame work of risk and returns using performance measures such as Treynor Ratio, Sharpe
ratio, Jensen measure, Sharpe differential return measure and Fama’s components of
performance has been well established. The results indicate that public sector sample mutual
fund schemes have superior performance in respect of risk and returns in comparison with
bench marks, Treynor and Sharpe ratios. And another unique thing noticed is that sample
mutual fund schemes related to joint venture predominantly Indian both in the case of public
and private sectors have earned higher returns with the higher levels of total risk. The result
also indicates that private sector sample schemes particularly joint venture predominantly
foreign, institutions sample schemes related to public sector have generated excess return in
excess of equilibrium in respect of Jensen measure. And private sector sample schemes related
to joint venture predominantly foreign have good diversification and higher returns due to
selectivity when compared to public sector sample schemes. As a whole Public sector sample
schemes in respect of risk and returns, Private sector joint venture predominantly foreign and
public sector institutions sample schemes in respect of diversification and security selection
have performed well

34
CHAPTER NO.7

35
 REFERENCES

Agrawal, D. (2007). Measuring performance of Indian mutual funds.

Fama, E. F., & French, K. (2008). Mutual fund performance. Journal of Finance, 63(1), 389-
416.

Goyal, M. M. (2015). Performance Evaluation of Top 10 Mutual Funds in India. Indian Journal
of Commerce and Management Studies, 6(1), 51.

Kanethia, D. K. (2010). Comparative Study of Various Mutual Funds Schemes in India. Amity
Global Business Review, 5(1), 60-76.

Nitzsche, D., Cuthbertson, K., & O'Sullivan, N. (2006). Mutual fund performance.

Pandow, B. A. (2017). Performance of Mutual Funds in India.

Prajapati, K. P., & Patel, M. K. (2012). Comparative study on performance evaluation of

mutual fund schemes of Indian companies. Researchers World, 3(3), 47.

Puri, H. (2010). Performance Evaluation of Balanced Mutual Fund Schemes in Indian

Scenario.Paradigm (09718907), 14(2), 1-22.

Rao, D. N. (2006). Investment styles and performance of equity mutual funds in India.

ArifF, Mohammed, Johnson, Lester W., (1990) Security Markets and sock pricing: Evidence
from a Developing Capital Markets in Asia, Longman Singapore Publishing Private Limited,
Singapore.

Avadhani V.A., (2005) Investment and Securities Markets in India, Himalaya Publishing
House, Mumbai.

Barua, Samirk, Raghunadhan, V. Varma, Jayant R., (1994) Portfolio Management. Tata Me.
Graw Hill Publishing Company Ltd., New Delhi.

Bhole, L.M., (1982), Financial Markets and Institutions Growth, Structure Innovations, Tata
Me. Graw Hill Publishing Company Ltd., New Delhi.

Chandra Sekhar, Y. (2004) Financial Markets and Services Emerging Trends, TheICFAI
University Press, Hyderabad.

36
Draper, P., (1989) The Investment Trust Industry in the U.K., Gower Publishing Company
Limited, Vermont.

Farrell, Paul B., (1999), The winning Portfolio — How to choose the best mutual funds, Vision
Books, New Delhi.

Gerald, W, Perrit (1993) Mutual Funds Encyclopedia, Dearborn Financial Publishing, Chicago.

Gupta Amitabh (2002) Mutual Funds in India, A study of Investment Management.

Anmol Publications Private Limited, New Delhi. Investment Company Institute (2006) Mutual
Funds Fact Book; Industry Trend and Statistics, Washington.

Rajeswar, Ch., (2001) UTI-A- Saga of Crises and Bailouts, The ICFAI University Press,
Hyderabad.

Singh, Jaspal., (2006) Mutual Funds - Growth Performance and Prospects, Deep and Deep
Publications Private Limited, New Delhi.

WEBSITES:

 http://www.mutualfundindia.com

 http://www.nseindia.com

 http://www.bseindia.com

 http://navindia.com

 http://www.sebi.gov.in

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

37
CHAPTER NO.8

38
 ANNEXURE

 Questionnaire
Notes: 1) Information supplied will be used for research purposes only and treated as strictly
confidential. 2) If any question is not applicable to the respondent mark a cross (X) against the
question number in the left and tick (V) for ‘Yes’ in the relevant box.

I. Age: _______ c) Sex: Male [ ] Female [ ]

II. Area which you belong to

i) Urban [ ] ii) Semi-urban [ ] iii) Rural [ ]

III. Education
i) Graduation & above [ ] ii) Pre-University [ ]
iii) S.S.C. [ ] iv) Below S.S.C [ ]

IV. Are you a:

i) Salaried person [ ] ii) Self-employed [ ]
iii) Retired person [ ]

V. Approximate monthly household income (i.e., combined family income)

i) Below 10,000 [ ] ii) 10,000 to 20,000 [ ]
ii) iii) 20,000 to 50,000 [ ] iv) 50,000 and above [ ]

VI. Do you or any member of your family hold.... Yes / No

i) Any equity shares [ ] [ ]
ii) Deposits with Bank, Post office, Public sector companies[ ][ ]
iii) Mutual Fund [ ] [ ]
iv) Chit Fund [ ] [ ]

39
VII. Who inspired you to invest in Mutual Fund?
a) Self [ ] b) Friends/ Colleagues [ ]
c) MF agents [ ]

VIII. What is the nature of Mutual Fund you have invested?

a) Open-ended [ ] b) Close-ended [ ]

IX. Which type of Mutual Fund investment do you like?

a) Govt. (UTI) [ ] b) Private [ ]

c) Financial Institutions (Bank/ LIC/ GIC etc.) [ ]

X. What is the reason behind investment in Mutual Fund?

a) Income earning [ ] b) For further obligations [ ]
c) Growth in wealth [ ] d) For tax benefit [ ]

XI. Which of the following schemes do you like?

a) Growth [ ] b) Income [ ]
c) Balanced [ ] d) Sectoral Fund [ ]

XII. What is the approximate amount of investment in Mutual Fund?

a) Below Rs 10,000 [ ] b) 10,000 to 25,000 [ ]
c) 25,000 to 50,000 [ ] d) 50,000 and above [ ]

XIII. Are you satisfied with die services of Mutual Fund?

1) Public Sector a) Satisfied [ ] b) Not satisfied [ ]
2) Private Sector a) Satisfied [ ] b) Not satisfied [ ]

XIV. Are you satisfied with the returns on your investment?

i) Public Sector a) Satisfied [ ] b) Not satisfied [ ]
ii) Private Sector a) Satisfied [ ] b) Not satisfied [ ]

40
41