CHAPTER-1

INTRODUCTION OF MUTUAL FUND

There are a lot of investment avenues available today in the financial market for an
investor with an investable surplus. He can invest in Bank Deposits, Corporate
Debentures, and Bonds where there is low risk but low return. He may invest in Stock
of companies where the risk is high and the returns are also proportionately high. The
recent trends in the Stock Market have shown that an average retail investor always
lost with periodic bearish tends. People began opting for portfolio managers with
expertise in stock markets who would invest on their behalf. Thus we had wealth
management services provided by many institutions. However they proved too costly
for a small investor. These investors have found a good shelter with the mutual funds.

CONCEPT OF MUTUAL FUND:

A mutual fund is a common pool of money into which investors place their
contributions that are to be invested in accordance with a stated objective. The
ownership of the fund is thus joint or “mutual”; the fund belongs to all investors. A
single investor’s ownership of the fund is in the same proportion as the amount of the
contribution made by him or her bears to the total amount of the fund.
Mutual Funds are trusts, which accept savings from investors and invest the
same in diversified financial instruments in terms of objectives set out in the trusts
deed with the view to reduce the risk and maximize the income and capital
appreciation for distribution for the members. A Mutual Fund is a corporation and the
fund manager’s interest is to professionally manage the funds provided by the
investors and provide a return on them after deducting reasonable management fees.
The objective sought to be achieved by Mutual Fund is to provide an
opportunity for lower income groups to acquire without much difficulty financial
assets. They cater mainly to the needs of the individual investor whose means are

1
small and to manage investors portfolio in a manner that provides a regular income,
growth, safety, liquidity and diversification opportunities.

DEFINITION:

“Mutual funds are collective savings and investment vehicles where savings
of small (or sometimes big) investors are pooled together to invest for their mutual
benefit and returns distributed proportionately”.

“A mutual fund is an investment that pools your money with the money of an
unlimited number of other investors. In return, you and the other investors each own
shares of the fund. The fund's assets are invested according to an investment objective
into the fund's portfolio of investments. Aggressive growth funds seek long-term
capital growth by investing primarily in stocks of fast-growing smaller companies or
market segments. Aggressive growth funds are also called capital appreciation
funds”.

Why Select Mutual Fund?

The risk return trade-off indicates that if investor is willing to take higher risk
then correspondingly he can expect higher returns and vise versa if he pertains to
lower risk instruments, which would be satisfied by lower returns. For example, if an
investors opt for bank FD, which provide moderate return with minimal risk. But as
he moves ahead to invest in capital protected funds and the profit-bonds that give out
more return which is slightly higher as compared to the bank deposits but the risk
involved also increases in the same proportion.
Thus investors choose mutual funds as their primary means of investing, as
Mutual funds provide professional management, diversification, convenience and
liquidity. That doesn’t mean mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds
which are less riskier but are also invested in the stock markets which involves a

2
higher risk but can expect higher returns. Hedge fund involves a very high risk since it
is mostly traded in the derivatives market which is considered very volatile.

RETURN RISK MATRIX

HIGHIER RISK HIGHER RISK
MODERATE RETURNS HIGHIER RETURNS

Ventur
e
Equi
Capita
l ty

Bank
Mutu
FD
al
Postal Funds
Savings

LOWER RISK LOWER RISK

LOWER RETURNS HIGIER RETURNS

HISTORY OF MUTUAL FUNDS IN INDIA:

The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank. The
history of mutual funds in India can be broadly divided into four distinct phases

FIRST PHASE – 1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It

was set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from
the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory
and administrative control in place of RBI. The first scheme launched by UTI was
Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under
management.

SECOND PHASE – 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS):

3
 1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI
Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87),
Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89),
Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its
mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004 crores.

THIRD PHASE – 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS):

With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into being,
under which all mutual funds, except UTI were to be registered and governed. The
erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private
sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed several
mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds
with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores
of assets under management was way ahead of other mutual funds.

FOURTH PHASE – SINCE FEBRUARY 2003:

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29,835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The Specified Undertaking of Unit Trust of India, functioning

4
under an administrator and under the rules framed by Government of India and does
not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.
With the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual
Fund, 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. As at the end of September,
2004, there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.
The graph indicates the growth of assets under management over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

(Source: www.amfiindia.com)

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ADVANTAGES OF MUTUAL FUNDS:

If mutual funds are emerging as the favorite investment vehicle, it is because

of the many advantages they have over other forms and the avenues of investing,
particularly for the investor who has limited resources available in terms of capital
and the ability to carry out detailed research and market monitoring. The following are
the major advantages offered by mutual funds to all investors:

1. Portfolio Diversification:
Each investor in the fund is a part owner of all the fund’s assets, thus enabling
him to hold a diversified investment portfolio even with a small amount of investment
that would otherwise require big capital.

2. Professional Management:
Even if an investor has a big amount of capital available to him, he benefits
from the professional management skills brought in by the fund in the management of
the investor’s portfolio. The investment management skills, along with the needed
research into available investment options, ensure a much better return than what an
investor can manage on his own. Few investors have the skill and resources of their
own to succeed in today’s fast moving, global and sophisticated markets.

3. Reduction/Diversification Of Risk:
When an investor invests directly, all the risk of potential loss is his own,
whether he places a deposit with a company or a bank, or he buys a share or debenture
on his own or in any other from. While investing in the pool of funds with investors,
the potential losses are also shared with other investors. The risk reduction is one of
the most important benefits of a collective investment vehicle like the mutual fund.
4. Reduction Of Transaction Costs:
What is true of risk as also true of the transaction costs. The investor bears all
the costs of investing such as brokerage or custody of securities. When going through
a fund, he has the benefit of economies of scale; the funds pay lesser costs because of
larger volumes, a benefit passed on to its investors.

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5. Liquidity:
Often, investors hold shares or bonds they cannot directly, easily and quickly
sell. When they invest in the units of a fund, they can generally cash their investments
any time, by selling their units to the fund if open-ended, or selling them in the market
if the fund is close-end.
Liquidity of investment is clearly a big benefit.

6. Convenience And Flexibility:

Mutual fund management companies offer many investor services that a direct
market investor cannot get. Investors can easily transfer their holding from one
scheme to the other; get updated market information and so on.

7. Tax Benefits:
Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to Unit holders
of open-ended equityoriented funds, income distributions for the year ending March
31, 2003, will be taxed at a concessional rate of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction upto Rs.
9,000 from the Total Income will be admissible in respect of income from investments
specified in Section 80L, including income from Units of the Mutual Fund. Units of
the schemes are not subject to Wealth-Tax and Gift-Tax.

8. Choice of Schemes:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
9. Well Regulated:
All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.

10. Transparency:

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 You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion
invested in each class of assets and the fund manager's investment strategy and
outlook.

DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS:

1. No Control Over Costs:

An investor in a mutual fund has no control of the overall costs of investing.

The investor pays investment management fees as long as he remains with the fund,
albeit in return for the professional management and research. Fees are payable even
if the value of his investments is declining. A mutual fund investor also pays fund
distribution costs, which he would not incur in direct investing. However, this
shortcoming only means that there is a cost to obtain the mutual fund services.

2. No Tailor-Made Portfolio:

Investors who invest on their own can build their own portfolios of shares and
bonds and other securities. Investing through fund means he delegates this decision to
the fund managers. The very-high-net-worth individuals or large corporate investors
may find this to be a constraint in achieving their objectives. However, most mutual
fund managers help investors overcome this constraint by offering families of funds- a
large number of different schemes- within their own management company. An
investor can choose from different investment plans and constructs a portfolio to his
choice.
3. Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean too much choice for
the investor. He may again need advice on how to select a fund to achieve his
objectives, quite similar to the situation when he has individual shares or bonds to
select.

4. The Wisdom Of Professional Management:

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 That's right, this is not an advantage. The average mutual fund manager is no
better at picking stocks than the average nonprofessional, but charges fees.

5. No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the
passenger seat of somebody else's car

6. Dilution:

Mutual funds generally have such small holdings of so many different stocks
that insanely great performance by a fund's top holdings still doesn't make much of a
difference in a mutual fund's total performance.

7. Buried Costs:

Many mutual funds specialize in burying their costs and in hiring salesmen
who do not make those costs clear to their clients.
TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as
financial position, risk tolerance and return expectations etc. thus mutual funds has
Variety of flavors, Being a collection of many stocks, an investors can go for picking
a mutual fund might be easy. There are over hundreds of mutual funds scheme to
choose from. It is easier to think of mutual funds in categories, mentioned below.

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A). BY STRUCTURE

1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units at
Net Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.

2. Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging
from 3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and thereafter
they can buy or sell the units of the scheme on the stock exchanges where they are
listed. In order to provide an exit route to the investors, some close-ended funds give
an option of selling back the units to the Mutual Fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes
is provided to the investor.

3. Interval Schemes:

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 Interval Schemes are that scheme, which combines the features of open-ended
and closeended schemes. The units may be traded on the stock exchange or may be
open for sale or redemption during pre-determined intervals at NAV related prices.
B). BY NATURE

1. Equity Fund:
These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund manager’s
outlook on different stocks. The Equity Funds are sub-classified depending upon their
investment objective, as follows:
• Diversified Equity Funds

• Mid-Cap Funds

• Sector Specific Funds

• Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank
high on the risk-return matrix.

2. Debt Funds:
The objective of these Funds is to invest in debt papers. Government
authorities, private companies, banks and financial institutions are some of the major
issuers of debt papers. By investing in debt instruments, these funds ensure low risk
and provide stable income to the investors. Debt funds are further classified as:
• Gilt Funds: Invest their corpus in securities issued by Government, popularly
known as Government of India debt papers. These Funds carry zero Default
risk but are associated with Interest Rate risk. These schemes are safer as they
invest in papers backed by Government.

• Income Funds: Invest a major portion into various debt instruments such as
bonds, corporate debentures and Government securities.

• MIPs: Invests maximum of their total corpus in debt instruments while they
take minimum exposure in equities. It gets benefit of both equity and debt

11
 market. These scheme ranks slightly high on the risk-return matrix when
compared with other debt schemes.
• Short Term Plans (STPs): Meant for investment horizon for three to six
months. These funds primarily invest in short term papers like Certificate of
Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is
also invested in corporate debentures.

• Liquid Funds: Also known as Money Market Schemes, These funds provides
easy liquidity and preservation of capital. These schemes invest in short-term
instruments like Treasury Bills, inter-bank call money market, CPs and CDs.
These funds are meant for short-term cash management of corporate houses
and are meant for an investment horizon of 1day to 3 months. These schemes
rank low on risk-return matrix and are considered to be the safest amongst all
categories of mutual funds.

3. Balanced Funds:
As the name suggest they, are a mix of both equity and debt funds. They invest
in both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors with the
best of both the worlds. Equity part provides growth and the debt part provides
stability in returns.

Further the mutual funds can be broadly classified on the basis of investment
parameter viz, Each category of funds is backed by an investment philosophy, which
is pre-defined in the objectives of the fund. The investor can align his own investment
needs with the funds objective and invest accordingly.
C). BY INVESTMENT OBJECTIVE:

Growth Schemes:

Growth Schemes are also known as equity schemes. The aim of these schemes
is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline
in value for possible future appreciation.

Income Schemes:
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 Income Schemes are also known as debt schemes. The aim of these schemes is
to provide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation
in such schemes may be limited.

Balanced Schemes:

Balanced Schemes aim to provide both growth and income by periodically

distributing a part of the income and capital gains they earn. These schemes invest in
both shares and fixed income securities, in the proportion indicated in their offer
documents (normally 50:50).

Money Market Schemes:

Money Market Schemes aim to provide easy liquidity, preservation of capital

and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-
bank call money.

Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each
time you buy or sell units in the fund, a commission will be payable. Typically entry
and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has
a good performance history.

No-Load Funds:

A No-Load Fund is one that does not charge a commission for entry or exit.
That is, no commission is payable on purchase or sale of units in the fund. The
advantage of a no load fund is that the entire corpus is put to work.
OTHER SCHEMES

Tax Saving Schemes:

Tax-saving schemes offer tax rebates to the investors under tax laws
prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions
made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes:

13
 Index schemes attempt to replicate the performance of a particular index such
as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only
those stocks that constitute the index. The percentage of each stock to the total
holding will be identical to the stocks index weightage. And hence, the returns from
such schemes would be more or less equivalent to those of the Index.

Sector Specific Schemes:

These are the funds/schemes which invest in the securities of only those sectors or
industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast
Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds
are dependent on the performance of the respective sectors/industries. While these
funds may give higher returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those sectors/industries and
must exit at an appropriate time.
NET ASSET VALUE (NAV):

Since each owner is a part owner of a mutual fund, it is necessary to establish

the value of his part. In other words, each share or unit that an investor holds needs to
be assigned a value. Since the units held by investor evidence the ownership of the
fund’s assets, the value of the total assets of the fund when divided by the total
number of units issued by the mutual fund gives us the value of one unit. This is
generally called the Net Asset Value (NAV) of one unit or one share. The value of an
investor’s part ownership is thus determined by the NAV of the number of units held.

Calculation of NAV:

Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it
has 10 investors who have bought 10 units each, the total numbers of units issued are
100, and the value of one unit is Rs. 10.00 (1000/100). If a single investor in fact
owns 3 units, the value of his ownership of the fund will be Rs. 30.00(1000/100*3).
Note that the value of the fund’s investments will keep fluctuating with the market-
price movements, causing the Net Asset Value also to fluctuate. For example, if the
value of our fund’s asset increased from Rs. 1000 to 1200, the value of our investors

14
holding of 3 units will now be (1200/100*3) Rs. 36. The investment value can go up
or down, depending on the markets value of the fund’s assets.
MUTUAL FUND FEES AND EXPENSES

Mutual fund fees and expenses are charges that may be incurred by investors
who hold mutual funds. Running a mutual fund involves costs, including shareholder
transaction costs, investment advisory fees, and marketing and distribution expenses.
Funds pass along these costs to investors in a number of ways.

1. TRANSACTION FEES

i) Purchase Fee:

It is a type of fee that some funds charge their shareholders when they
buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund
(not to a broker) and is typically imposed to defray some of the fund's costs
associated with the purchase.

ii) Redemption Fee:

It is another type of fee that some funds charge their shareholders when
they sell or redeem shares. Unlike a deferred sales load, a redemption fee is
paid to the fund (not to a broker) and is typically used to defray fund costs
associated with a shareholder's redemption.

iii) Exchange Fee:

Exchange fee that some funds impose on shareholders if they exchange

(transfer) to another fund within the same fund group or "family of funds."

2. PERIODIC FEES

i) Management Fee:

Management fees are fees that are paid out of fund assets to the fund's
investment adviser for investment portfolio management, any other
management fees payable to the fund's investment adviser or its affiliates, and

15
 administrative fees payable to the investment adviser that are not included in
the "Other Expenses" category. They are also called maintenance fees.
ii) Account Fee:

Account fees are fees that some funds separately impose on investors
in connection with the maintenance of their accounts. For example, some
funds impose an account maintenance fee on accounts whose value is less than
a certain dollar amount.

3. OTHER OPERATING EXPENSES

Transaction Costs:

These costs are incurred in the trading of the fund's assets. Funds with
a high turnover ratio, or investing in illiquid or exotic markets usually face
higher transaction costs. Unlike the Total Expense Ratio these costs are
usually not reported.

LOADS

Definition of a load

Load funds exhibit a "Sales Load" with a percentage charge levied on purchase
or sale of shares. A load is a type of Commission (remuneration). Depending on the
type of load a mutual fund exhibits, charges may be incurred at time of purchase, time
of sale, or a mix of both. The different types of loads are outlined below.

Front-end load:

Also known as Sales Charge, this is a fee paid when shares are purchased.
Also known as a "front-end load," this fee typically goes to the brokers that sell the
fund's shares. Front-end loads reduce the amount of your investment. For example,
let's say you have Rs.10,000 and want to invest it in a mutual fund with a 5% front-
end load. The Rs.500 sales load you must pay comes off the top, and the remaining
Rs.9500 will be invested in the fund. According to NASD rules, a front-end load
cannot be higher than 8.5% of your investment.
Back-end load:

16
 Also known as Deferred Sales Charge, this is a fee paid when shares are sold.
Also known as a "back-end load," this fee typically goes to the brokers that sell the
fund's shares. The amount of this type of load will depend on how long the investor
holds his or her shares and typically decreases to zero if the investor holds his or her
shares long enough.

Level load / Low load:

It's similar to a back-end load in that no sales charges are paid when buying the
fund. Instead a back-end load may be charged if the shares purchased are sold within a
given time frame. The distinction between level loads and low loads as opposed to
back-end loads, is that this time frame where charges are levied is shorter.

No-load Fund:

As the name implies, this means that the fund does not charge any type of
sales load. But, as outlined above, not every type of shareholder fee is a "sales load."
A no-load fund may charge fees that are not sales loads, such as purchase fees,
redemption fees, exchange fees, and account fees.
CHAPTER-2

RESEARCH METHODOLOGY

For the collection of data regarding the conceptual framework,

performance of the mutual funds and the preference of mutual fund
investors, the data has been collected through Primary and Secondary
Sources as follows:
2.1Primary Data
For studying the preference of mutual funds, primary data has been
collected with the help of the questionnaire. Information has been gathered
from investors visiting the local registrars and AMC branches of mutual
funds in Visakhapatnam. The sample is a convenience sample and
constitutes 300 respondents. People from different groups are included in the
sample and categorized into male and female, different age groups, different
53

17
occupations viz., public sector, private sector, government, businessmen,
self employed, students, homemakers and other professionals with different
income levels. The sample size of 300 is considered because of the primary
data is collected through direct interaction with the investors in the offices of
registrars such as CAMS,KARVY, WAY TO WEALTH and AMC
BRANCHES viz., RELIANCE, UTI, LIC, FRANKLIN TEMPLETON,
HDFC, etc. The questionnaire is aimed to understand the investors’
preferences of mutual funds and its relationship with the socio-economic
profile of the respondents.
2.2 Secondary data
The study has included scheme wise performance appraisal of various
mutual funds. Data pertaining to the performance of the funds were drawn
from secondary sources through data published by AMFI,
mutualfundsindia.com,moneycontrol.com and BSE.com, valueresearch.com,
ici.org, mutual funds books, journals and websites of other mutual funds.
2.3 Hypothesis testing
The primary and secondary data are analysed for the following:
 Chapter IV part 1 hypothesis - “High risk gives high returns” for
selected schemes.
 Chapter IV part 2 hypothesis – “Mutual funds and BSE SENSEX
offers equal means”, ‘Students t test is used for equality of means’.
 Chapter IV part 3 – comparative analysis of 10 select equity and debt
schemes for a period of 10 years (2002-2012).
 Hypothesis for chapter V (primary data analysis) – “The demographic
variables of the respondents such as age, qualification, gender,
occupation and income have relationship/association with the
preferences of mutual funds”.
54
2.4 Scope of the study
In India mutual fund industry is growing at a rapid speed after
liberalization of policy of the government. There are totally 46 mutual fund
houses in India out of which 38 are private sector AMCs and the remaining
are public sector and UTI AMCs. The private sector mutual funds are
Indian, Foreign, Joint venture predominantly Indian and Joint venture
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predominantly Foreign. Hence, the public sector sponsored mutual funds
along with UTI is facing severe competition. Banking companies and
Insurance companies also entered into mutual funds industry which is
another reason for severity of competition. As the private sector mutual
funds are offering a wide array of schemes with different structures and
objectives, the risk and returns vary. There is a wide scope to evaluate the
performance of mutual funds in various dimensions like risk-return, risk
adjusted return and return from alternative investments.
2.5 Period of the study
The study covers analysis of various schemes for 3years (2009-12)
data in chapter IV part 1; 5 years (2007-12) data in Chapter IV part 2;
10 years (2002-12) data in Chapter IV part 3.
2.6 Data Analysis Techniques
1. The data analysis is mainly done through the three important measures
of mutual funds. 1. Sharpe, 2. Treynor and 3. Jensen Measures.
2. Various Statistical formulae like Standard deviation, beta and
R-squared to find the risk associated with the schemes.
3. Analysis of percent changes in Gross Mobilization of Mutual funds.
4. Analysis of trends through percent changes for AUM.
5. A statistical formula like t test is used to test the significance of means
of mutual funds Vs BSE SENSEX.
55
6. ‘One way Anova’ and ‘chi square test’ are used to find the
relationship/association between the socio-demographic variables and
the preferences of mutual funds.
7. Relative Performance Index (RPI) formula is used to compare fund
Sharpe ratio with BSE SENSEX.
 Risk free rate of return
The average Return offered by 90 days Treasury bill of the
Government of India during 2007-2012 is considered as the proxy risk free
return which is computed to be 5.75 Per Annum.
 Sharpe Measure
The most common measure that combines both risk and reward into a
single indicator is the Sharpe Ratio. A Sharpe Ratio is computed by dividing
19
a fund’s return in excess of a risk-free return (usually a 90-day Treasury bill
or SBI fixed deposit rate) by its standard deviation.

Sharp ratio = ( Ri - Rf ) / si

Where, Si is standard deviation of the fund

Ri is return on investment, Rf is risk free rate of interest.
 Treynor measure
The Treynor ratio is similar to the Sharpe ratio. Instead of comparing
the fund’s risk adjusted performance to the risk free return, it compares the
fund’s risk adjusted performance of the relative index.
Where
Treynor index (Ti) = Ri – Rf / Bi

Ri represents return on fund, Rf is risk free rate of return and Bi is beta of

the fund.
56
 Jensen’s measure
This represents the difference between the Expected performance
from a fund, given its Beta, and the actual returns it generates.

 Compounded Annual Growth Rate

It helps in comparing two different returns from investments and in
calculating how much an investment has returned per year on compounded
basis.
𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪= ((𝑬𝑬𝑬𝑬𝑬𝑬 𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽/𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺𝑺
𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽𝑽)^(𝟏𝟏/(𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 − 𝟏𝟏)) − 𝟏𝟏
 Mutual funds Returns
Returns are calculated through the following formula
Mutual funds Returns = (𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑵𝑵𝑵𝑵𝑵𝑵 –
𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑵𝑵𝑵𝑵𝑵𝑵)
𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝑵𝑵𝑵𝑵𝑵𝑵) ∗ 100

20
 BSE SENSEX returns
Returns analysis for BSE SENSEX is calculated through:
𝑩𝑩𝑩𝑩𝑩𝑩 𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔𝒔 𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓= (𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄 𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗 −
𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗)
𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶𝑶 𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗𝒗 ∗ 100
 Standard deviation
Standard deviation provides investors with a mathematical basis for
their investment decisions. Standard deviation is a measure of variability or
diversity that shows how much variation there is from the mean. The
standard deviation of a data set is the square root of its variance.
𝑺𝑺 = 􀶨Σ (𝒙𝒙𝒊𝒊
𝑵𝑵 𝒊𝒊
=𝟏𝟏 −𝒙𝒙􀴥 )𝟐𝟐
𝑵𝑵

CHAPTER-3

LITERATURE REVIEW

 Dr. Sandeep Bansal, Deepak Garg and Sanjeev K Saini (2012), have studied
Impact of Sharpe Ratio & Treynor’s Ratio on Selected Mutual Fund Schemes.
This paper examines the performance of selected mutual fund schemes, that
the risk profile of the aggregate mutual fund universe can be accurately
compared by a simple market index that offers comparative monthly liquidity,
returns, systematic & unsystematic risk and complete
fund analysis by using the special reference of Sharpe ratio and Treynor’s
ratio.
 Dr. K. Veeraiah and Dr. A. Kishore Kumar (Jan 2014), conducted a research
on Comparative Performance Analysis of Select Indian Mutual Fund Schemes.
This study analyzes the performance of Indian owned mutual funds and
compares their performance. The performance of these funds was analyzed

21
 using a five year NAVs and portfolio allocation. Findings of the study reveals
that, mutual funds out perform naïve investment. Mutual funds as a medium-
to-long term investment option are preferred as a suitable investment option
by investors.

 Dr. Yogesh Kumar Mehta (Feb 2012), has studied Emerging Scenario of
Mutual Funds in India: An Analytical Study of Tax Funds. The present study
is based on selected equity funds of public sector and private sector mutual
fund. Corporate and Institutions who form only 1.16% of the total number of
investors accounts in the MFs industry, contribute a sizeable amount of Rs.
2,87,108.01 crore which is 56.55% of the total net assets in the MF industry.
It is also found that MFs did not prefer debt segment.

 Dr Surender Kumar Gupta and Dr. Sandeep Bansal (Jul 2012), have done a
Comparative Study on Debt Scheme of Mutual Fund of Reliance and Birla
Sunlife. This study provides an overview of the performance of debt scheme
of mutual fund of Reliance, and Birla Sunlife with the help of Sharpe Index
after calculating Net Asset Values and Standard Deviation. This study reveals
that returns on Debt Schemes are close to Benchmark return (Crisil Composite
Debt Fund Index: 4.34%) and Risk Free Return: 6% (average adjusted for last
five year).
 Prof. V. Vanaja and Dr. R. Karrupasamy (2013), have done a Study on the
Performance of select Private Sector Balanced Category Mutual Fund
Schemes in India. This study of performance evaluation would help the
investors to choose the best schemes available and will also help the AUM’s
in better portfolio construction and can rectify the problems of
underperforming schemes. The objective of the study is to evaluate the
performance of select Private sector balanced schemes on the basis of returns
and comparison with their bench marks and also to appraise the performance
of different category of funds using risk adjusted measures as suggested by
Sharpe, Treynor and Jensen. E. Priyadarshini and Dr. A. Chandra Babu
(2011), have done Prediction of The Net Asset Values of Indian Mutual Funds
Using Auto- Regressive Integrated Moving Average (Arima). In this paper,
some of the mutual funds in India had been modeled using Box-Jenkins

22
 autoregressive integrated moving average (ARIMA) methodology. Validity of
the models was tested using standard statistical techniques and the future NAV
values of the mutual funds have been forecasted.

 Dr. Ranjit Singh, Dr. Anurag Singh and Dr. H. Ramananda Singh (August
2011), have done research on Positioning of Mutual Funds among Small Town
and Sub-Urban Investors. In the recent past the significant proportion of the
investment of the urban investor is being attracted by the mutual funds. This
has led to the saturation of the market in the urban areas. In order to increase
their investor base, the mutual fund companies are exploring the opportunities
in the small towns and sub-urban areas. But marketing the mutual funds in
these areas requires the positioning of the products in the minds of the
investors in a different way. The product has to be acceptable to the investors,
it should be affordable to the investors, it should be made available to them
and at the same time the investors should be aware of it. The present paper
deals with all these issues. It measures the degree of influence on
acceptability, affordability, availability and awareness among the small town
and sub-urban investors on their investment decisions.

 Prof. Kalpesh P Prajapati and Prof. Mahesh K Patel (Jul 2012), have done a
Comparative Study On Performance Evaluation of Mutual Fund Schemes Of
Indian Companies. In this paper the performance evaluation of Indian mutual
funds is carried out through relative performance index, risk-return analysis,
Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's measure, and Fama's
measure. The data used is daily closing NAVs. The source of data is website
of Association of Mutual Funds in India (AMFI). The study period is 1st
January 2007 to 31st December, 2011. The results of performance measures
suggest that most of the mutual fund have given positive return during 2007 to
2011.

 C.Srinivas Yadav and Hemanth N C (Feb 2014), have studied Performance of

Selected Equity Growth Mutual Funds in India: An Empirical Study during 1st
June 2010 To 31st May 2013. The study evaluates performance of selected
23
 growth equity funds in India, carried out using portfolio performance
evaluation techniques such as Sharpe and Treynor measure. S&P CNX NIFTY
has been taken as the benchmark. The study conducted with 15 equity growth
Schemes (NAV ) were chosen from top 10 AMCs ( based on AUM) for the
period 1st June 2010 to 31st may 2013(3 years).

 Rashmi Sharma and N. K. Pandya (2013), have done an overview of Investing

in Mutual Fund. In this paper, structure of mutual fund, comparison between
investments in mutual fund and other investment options and calculation of
NAV etc. have been considered. In this paper, the impacts of various
demographic factors on investors’ attitude towards mutual fund have been
studied. For measuring various phenomena and analyzing the collected data
effectively and efficiently for drawing sound conclusions, drawing pie charts
has been used and for analyzing the various factors responsible for investment
in mutual funds.

 Rahul Singal, Anuradha Garg and Dr Sanjay Singla (May 2013), have done
Performance Appraisal of Growth Mutual Fund. The paper examines the
performance of 25 Growth Mutual Fund Schemes. Over the time period Jan
2004 to Dec 2008. For this purpose three techniques are used (I) Beta (II)
Sharpe Ratio (III) Treynor Ratio. Rank is given according to result drawn
from this scheme and comparison is also made between results drawn from
different schemes and normally the different are insignificant.

 Dhimen Jani and Dr. Rajeev Jain (Dec 2013), have studied Role of Mutual
Funds in Indian Financial System as a Key Resource Mobiliser. This paper
attempts to identify, the relationship between AUM mobilized by mutual fund
companies and GDP growth of the India. To find out correlation coefficient
Kendall’s tau b and spearman’s rho correlation ship was applied, the data
range was selected from 1998-99 to 2009-10. Dr. R. Narayanasamy and V.
Rathnamani (Apr 2013), have done Performance Evaluation of Equity Mutual
Funds (On Selected Equity Large Cap Funds). This study, basically, deals with

24
 the equity mutual funds that are offered for investment by the various fund
houses in India. This study mainly focused on the performance of selected
equity large cap mutual fund schemes in terms of risk- return relationship. The
main objectives of this research work are to analysis financial performance of
selected mutual fund schemes through the statistical parameters such as
(alpha, beta, standard deviation, r-squared, Sharpe ratio).

 Dr. Ashok Khurana and Kavita Panjwani (Nov, 2010), have analysed Hybrid
Mutual
Funds. Mutual fund returns can be compared using Arithmetic mean &
Compounded Annual Growth Rate. Risk can be analyzed by finding out
Standard Deviation, Beta while performance analysis is based on Risk-Return
adjustment. Key ratios like Sharpe ratio and Treynor ratio are used for Risk-
Return analysis. Funds are compared with a benchmark, industry average, and
analysis of volatility and return per unit to find out how well they are
performing with respect to the market Value at Risk analysis can be done to
find out the maximum possible losses in a month given the investor had made
an investment in that month. Based on the quantitative study conducted
company a fund is chosen as the best fund in the Balance fund growth
schemes.
 Dr. D. Rajasekar (Sep 2013), has done a Study on Investor`s Preference
Towards Mutual Funds With Reference To Reliance Private Limited, Chennai
- An Empirical Analysis. The data was analyzed using the statistical tools like
percentage analysis, chi square, weighted average. The report was concluded
with findings and suggestions and summary. From the findings, it was inferred
overall that the investor are highly concerned about safety and growth and
liquidity of investments. Most of the respondents are highly satisfied with the
benefits and the service rendered by the Reliance mutual funds.

 Dr. Mamta Shah (Dec 2012) has done research on Marketing Practices of
Mutual Funds. Development of an economy necessarily depends upon its
financial system and the rate of new capital formation which can be achieved
by mobilizing savings and adopting an investment pattern, be its self-financing
(i.e. direct or indirect) where financial intermediaries like banks, insurance and

25
 other financial companies come in the picture and mediate between savers and
borrowers of funds. In the same way there are different types of investors and
each category of investors differs in its objectives and hence it is imperative
for investment managers to choose an appropriate investment policy for the
group they are dealing with, further managing the investment is a dynamic and
an ongoing process.

 Rajiv G. Sharma (Aug 2013) has done a Comparative Study on Public and
Private Sector Mutual Funds in India. The study at first tests whether there is
any relation between demographic profile of the investor and selection of
mutual fund alternative from among public sector and private sector. For the
purpose of analysis perceptions of selected investors from public and private
sector mutual funds are taken into consideration. The major factors
influencing the investors of public and private sectors mutual funds are
identified. The factors under consideration to compare between perceptions of
public and private sector mutual fund investors are Liquidity, Security,
Flexibility, Management fee, Service Quality, Transparency, Returns and Tax
benefits.

 Dr. E. Priyadarshini (2013), has done Analysis of the Performance of Artificial

Neural Network Technique for Forecasting Mutual Fund Net Asset Values. In
this paper, the Net Asset Values of four Indian Mutual Funds were predicted
using Artificial Neural Network after eliminating the redundant variables
using PCA and the performance was evaluated using standard statistical
measures such as MAPE, RMSE, etc.
 Vibha Lamba (Feb 2014), has done an analysis of Portfolio Management in
India. The purpose of present study is to analyse the scope and importance of
portfolio management in India. This paper also focuses on the types and steps
of portfolio management which a portfolio manager should take to provide
maximum returns and minimum risk to his clients for their investments.

 Dr. N. K. Sathya Pal Sharma and Ravikumar. R (2013), have done the
Analysis of the Risk and Return Relationship of Equity Based Mutual Fund in
26
 India. In this paper an attempt has been made to analyze the performance of
equity based mutual funds. A total of 15 schemes offered by 2 private sector
companies and 2 public sector companies, have been studied over the period
April 1999 to April 2013 (15years). The analysis has been made using the
risk-return relationship and Capital Asset Pricing model (CAPM).

 Abhishek Kumar (October 2012), have studied Trend in Behavioral Finance

and Asset Mobilization in Mutual Fund Industry of India. This paper tries to
analyze some of the key issues noted below: 1. To understand the growth and
the potential of Mutual Fund industry and analyze its success. 2. An
exhaustive cross performance study of Mutual fund industry by analyzing
around 1025 mutual fund schemes of India. 3. Performance analyses of
various mutual fund schemes and its contributions to assets management
during the study period (2002-2009). 4. Insight about the performance of the
mutual fund under short term and long term period and 5. Investor’s behavior
in allocating their investments among various assets available in the market
compared to Mutual funds in the changing economic Scenario.

 B. Raja Manner and Dr. B. Ramachandra Reddy (Oct 2012), Review and
Performance of Select Mutual Funds Operated By Private Sector Banks: Axis
Equity and Kotak 50 Funds – Growth Option. The two mutual funds (i) Axis
Equity (G) and (ii) Kotak 50 (G) are reviewed in detail with a brief
introduction of the fund houses itself. The funds are then statistically evaluated
by correlation with the benchmark. S&P CNX Nifty, standard deviation,
Sharpe’s Index.
 Treynor’s Ratio, Jenson’s alpha, Fama’s Measure and M2 . Mrs.V. Sasikala
and Dr. A. Lakshmi (Jan 2014) have studied The Mutual Fund Performance
Between 2008 And 2010: Comparative Analysis. The paper entitled
“comparative analysis of mutual fund performance between 2008 & 2010. The
paper was undertaken to know the after meltdown period risks and returns of
2008 top hundred mutual funds and compare with 2010 top hundred mutual
funds published in Business today. The analysis of alpha, beta, standard

27
 deviation, Sharpe ratio and R-squared are declare high, low, average, above
average and below average of risks and return of funds.

 S. Palani and P. Chilar Mohamed (Dec 2013) have done study of Public and
Private Sector Mutual Fund in India. Development of capital market in a
country is an important prerequisite which only would enable industrial
development, Business growth and there by contribution towards economic
development. Without any doubt it could be stated that economic
development, measured in the form of growth in GDP or NNP is one of the
objectives of every country in the world. A well integrated Financial System
alone could hasten economic growth which it does through channelizing
productive resources towards industrial growth and development.

 Jafri Arshad Hasan, (2013), has studied The Performance Evaluation of Indian
Mutual Fund Industry past, Present and Future. This article will discuss the
past performance of the Indian mutual fund industry and the pace of growth it
achieved after being succumbed to regulatory changes by SEBI, international
factors and its non performance that affected the industry and its sentiments. It
will also analyse the future implications of the current changes that are being
implemented by the regulator.

 Dr.S. Vasantha, Uma Maheswari and K.Subashini, (Sep 2013), Evaluating the
Performance of some selected open ended equity diversified Mutual fund in
Indian mutual fund Industry. The main objective of this research paper is to
evaluate the performance of selective open ended equity diversified Mutual
fund in the Indian equity market. For the purpose of conducting this study
HDFC top 200 fund(g).Reliance top 200(g).ICICI Prudential top 200(g).
Canara Robeco equity diversified fund(g).Birla Sun Life frontline equity (g)
mutual funds have been studied over the period of 60 months data which is
from January 2008 to December 2012.The analysis has been made on the basis
of Sharpe ratio, Treynor ratio and Jenson .

28
 Dr. K. Mallikarjuna Rao and H. Ranjeeta Rani, (Jul 2013), have studied Risk
Adjusted Performance Evaluation of Selected Balanced Mutual Fund Schemes
in India. In this paper, an attempt has been made to study the performance of
selected balanced schemes of mutual funds based on risk-return relationship
models and various measures. Balanced schemes of mutual funds are the ones
which are mostly preferred by Indian investors because of their balanced
portfolio in equity and debt. A total of 10 schemes offered by various mutual
funds have been studied over the time period April, 2010 to March, 2013 (3
years). Sowmiya. G, (Jan 2014), has studied Performance Evaluation of
Mutual Funds in India. The objectives of this are to know the basic concepts
and terminologies of the mutual funds in public limited companies and private
limited companies. To analyze performance and growth of selected mutual
funds schemes with their NAV and their returns. To identify the return
variance and to provide suggestions based on the analysis.

 Ms. Shalini Goyal and Ms. Dauly Bansal (2013) have done A Study on
Mutual Funds in India. This paper focuses on the entire journey of mutual
fund industry in India. Its origin, its fall and rise throughout all these years and
tried to predict what the future may hold for the Mutual Fund Investors in the
long run. This study was conducted to analyze and compare the performance
of different types of mutual funds in India and concluded that equity funds
outperform income funds.

 Megha Pandey, (2013) has done Comparative Study of Performance of

Actively Managed Funds and Index Funds in INDIA. Actively Managed funds
always overlapped passively managed funds or Index Funds this research
deals with a comparative analysis between the performance of both of the
funds, actively managed and passively managed. T test is applied to compare
their means and by this research the derived results shows that though actively
managed funds gives more returns.

 Sarita Bahl and Meenakshi Rani, (Jul 2012) have done A Comparative
Analysis of Mutual Fund Schemes in India. The present paper investigates the

29
 performance of 29 open-ended Growth - oriented equity schemes for the
period from April 2005 to March 2011 (six years) of transition economy.
Monthly NAV of different schemes have been used to calculate the returns
from the fund schemes. BSE- Sensex has been used for market portfolio.
Historical performance of select schemes were evaluated on the basis of
Sharpe, Treynor and Jensen’s measure whose results will be useful for
investors for taking better investment decisions.

 Dr. R. Karrupasamy and Professor V. Vanaja, (Jul. 2013), A Study on the

Performance of Selected Large Cap and Small & Mid Cap Mutual Fund
Schemes In India. The objective of the study is to evaluate the performance of
different mutual fund schemes (Large Cap, Small & Mid cap Equity Schemes)
on the basis of returns and comparison with their bench marks and also to
appraise the performance of different category of funds using risk adjusted
measures as suggested by Sharpe, Treynor and Jensen. The study revealed the
investors for investment below 2 years can choose large cap schemes and
investment beyond 3 years can be made in Small & mid cap schemes.

 G. Prathap and Dr. A. Rajamohan (Dec 2013), have done A Study on Status of
Awareness among Mutual Fund Investors in Tamilnadu. Mutual funds have
become an important intermediary between households and financial markets,
particularly the equity market. Mutual funds have enabled an increasing
number of households to enter financial markets and the diversified
investment structure of mutual funds and diversified risk contributed
tremendously in the growth of mutual funds. It is important to study the
awareness of mutual fund among the investors.

30
  Dr. Naila Iqbal (Jul 2013) has studied Market Penetration and Investment
Pattern of Mutual Fund Industry in India. Market penetration is a term that
indicates how deeply a product or service has become entrenched with a given
consumer market. The degree of penetration is often measured by the amount
of sales that are generated within the market itself. A product that generates
twenty percent of the sales made within a given market would be said to have
a higher rate of market penetration that a similar product that realizes ten
percent of the total sales within that same market. Determining what
constitutes the consumer market is key to the process of properly calculating
market penetration.

CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

This chapter presents the findings and results of the analysis for meeting the
objectives of the study. Mutual fund performance has been investigated through Data
Envelopment Analysis (DEA) and logistic regression while investors’ behaviour has
been examined through ANOVA, Factor analysis, mean and ranking methods.
Interpretation of the findings and results of analysis have been discussed in detail in
the present chapter.

31
5.1 PERFORMANCE OF MUTUAL FUNDS - DATA ENVELOPMENT
ANALYSIS (DEA)

Performance of the mutual fund schemes in terms of their efficiency has been
analysed by employing Data Envelopment analysis (DEA) technique in which the
researcher has used different attributes of mutual funds viz. LOAD, EXPENSE, RISK
(β) and MINII as input and SHARPE and ALPHA as output variables. In DEA, an
input oriented model of Variable Returns to Scale (VRS) has been employed. In this
model, the researcher wants the maximum proportional reduction in inputs that allows
maintaining the current level of outputs. This amount of input reduction is necessary
for a DEA inefficient mutual fund scheme to become DEA efficient. The input
efficiency measure indicates whether the investment had been using excessive inputs
from an input minimization orientation for the outputs achieved on the mutual fund
schemes. To analyse the performance of mutual funds through DEA, standard
evaluation system, 2.1 versions has been used and all the necessary results have been
generated as efficiency scores, efficient peers (i.e., reference set) with corresponding
weights and target values (i.e., virtual inputs) for all the mutual fund schemes.

Five DEA runs have been performed for evaluation of performance of mutual funds
in terms of their efficiency. DEA Run 1 has been executed to indicate the efficiency
for all the 119 sampled mutual fund schemes. To measure the performance in terms of
efficiency of 48 equity oriented schemes, DEA run 2 has been carried out. For
measuring the performance efficiency of 30 income mutual fund schemes, DEA run 3
has been carried out. DEA run 4 and 5 have been performed for examining the
efficiency of 23 balanced and 18 ELSS mutual fund schemes respectively. The
findings and their interpretation for each of the DEA run has been discussed in detail
in this section.

5.1.1 DEA RUN 1

DEA run 1 has been performed on all 119 sampled mutual fund schemes with
attributes like LOAD, EXPENSE, RISK (β) and MINII as input variables and
SHARPE and ALPHA as output variables. An efficiency score of one indicates that
the scheme is efficient in relation to other schemes being evaluated and lies on the
efficient frontier. A score of less than one indicates that the scheme is inefficient with
respect to other schemes and lies far from the efficient frontier. The farther from 1 the

32
score is, less efficient is the scheme and lies far off from the efficient frontier. After
performing the DEA Run 1 on 119 mutual fund schemes, 26 schemes are found to be
DEA efficient and lie on the efficient frontier. These schemes do not require a
reduction in input attributes as they are deemed to be best as compared to all others in
the sample. Rest 93 mutual fund schemes are inefficient and lie below the efficient
frontier.

some of the mutual fund schemes have their efficiency score near to 1.00 as Birla Sun
Life Savings Fund-Retail Plan Growth (MF17) possesses efficiency score of 0.9964,
DWS Premier Bond Fund-Regular Plan Growth (MF29) possess an efficiency score
of 0.9056, HDFC Cash Management Fund-Savings Plan Growth (MF43) has an
efficiency score of 0.9580. Kotak Flexi Debt-Regular Plan Growth (MF77) possesses
an efficiency score as 0.9768 and LIC Nomura MF Bond Fund-Growth (MF81) has
an efficiency score of 0.9213. According to McMullen and Strong (1998), DMUs
with efficiency score very near to 1.00 are referred to as “near efficient” because they
need only a minor adjustments in their inputs for becoming efficient [114]. Therefore,
MF17, MF29, MF43, MF77 and MF81 are the near efficient mutual fund schemes.

On the other hand, some other mutual fund schemes as BNP Paribas Dividend Yield
Fund-Growth (MF1), Baroda Pioneer Balance Fund-Dividend (MF5), BNP Paribas
Equity Fund-Growth (MF2), Birla Sun Life Midcap Fund-Dividend (MF14) and LIC
Nomura MF Floater MIP-Growth (MF82) with an efficiency score of 0.4019, 0.5779,
0.4080, 0.3948 and 0.4908 respectively are much farther from being efficient and
require huge changes in their inputs to become efficient. In this way, 31 (26 percent)
schemes are efficient or near efficient and 88 (74 percent) are inefficient mutual fund
schemes. Table 5.1 and table 5.2 lists the efficient, near efficient and inefficient
mutual fund schemes respectively which have been found through DEA run 1.

Frequency distribution of the efficiency scores in intervals of 0.1 has been depicted in
table 5.3. From this table it can be seen that no mutual fund scheme possess the
efficiency score less than 0.30. Efficiency score of 13 mutual fund schemes (i.e.,
10.92 percent) lie from 0.30 to 0.40. A majority of inefficient mutual fund schemes as
59 (i.e., 49.58 percent of the total mutual fund schemes under study) possess the
efficiency score between 0.40 and 0.50. 3 mutual fund schemes have been found
possessing their efficiency score from 0.5 to 0.6. 3 mutual fund schemes have

33
efficiency score between 0.6 and 0.7. Researcher has found 6 mutual fund schemes
with efficiency score from 0.70 to 0.8. 4 mutual funds possess efficiency score
between 0.8 and 0.9. 31 mutual fund schemes possess the efficiency scores between
0.9 and 1.0. Out of these 26 schemes are efficient with efficiency score as 1 and 5
schemes are near efficient with efficiency score between 0.9 and 1.0.

Table 5.1: Efficient and Near Efficient Mutual Fund Schemes (MFs) through
DEA run 1

S. No. MFs Efficiency Score S. No. MFs Efficiency Score

1 MF3 1.00 17 MF78 1.00
2 MF4 1.00 18 MF79 1.00
3 MF22 1.00 19 MF80 1.00
4 MF23 1.00 20 MF84 1.00
5 MF31 1.00 21 MF89 1.00
6 MF34 1.00 22 MF94 1.00
7 MF35 1.00 23 MF101 1.00
8 MF39 1.00 24 MF108 1.00
9 MF46 1.00 25 MF111 1.00
10 MF49 1.00 26 MF112 1.00
11 MF50 1.00 27 MF17 0.9964
12 MF53 1.00 28 MF29 0.9056
13 MF58 1.00 29 MF43 0.9580
14 MF63 1.00 30 MF77 0.9768
15 MF71 1.00 31 MF81 0.9213
16 MF72 1.00

Note: Sample- 119 Mutual Fund Schemes

34
 MFs Efficienc
y score
MF64 0.4261 MF50 (0.1198) MF84(0.004) MF101(0.6449
)
MFs Efficient Peers & Weights
MF65 0.7354 MF46 (0.7030) MF101(0.0053) MF111(0.2917
MF1 MF50(0.1964) MF84(0.0025) MF101 (0.5994) MF111(0.2017)
)
MF2 MF50(0.1770) MF84(0.0012) MF101(0.6138) MF111(0.2079)
MF66 0.4053 MF50(0.1696) MF84(0.0012) MF101(0.6084
MF5 MF50(0.3151) MF101(0.4935) MF111(0.1914)
)
MF6 MF50(0.2313) MF101(0.6247) MF111(0.1441)
MF67 0.3997 MF50(0.2149) MF84(0.0033) MF101(0.5933
MF7 MF46(0.6523) MF49 (0.1931) MF84 (0.0002) MF108(0.0681)
)
MF8 MF50 (0.1947) MF84 (0.0066) MF101(0.6426) MF111(0.1561)
MF68 0.3943 MF50(0.2580) MF84(0.0045) MF101(0.5806
MF9 MF50 (0.2843) MF101(0.7157)
)
MF10 MF50 (0.0300) MF101(0.6920) MF111(0.2780)
MF69 0.4013 MF50(0.2114) MF84(0.0074) MF101(0.5892
MF11 MF50 (0.0300) MF101(0.6920) MF111(0.2780)
)
MF12 MF50 (0.1665) MF84 (0.0067) MF101(0.6154) MF111 (0.2113)
MF70 0.7649 MF46(0.7070) MF101(0.0573) MF111(0.2357
MF13 MF50 (0.1666) MF84 (0.0068) MF101(0.6154) MF111 (0.2113)
)
MF14 MF50 (0.4104) MF101 (0.5896)
MF73 0.3964 MF50(0.2329) MF101(0.5928) MF111(0.1743
MF15 MF50 (0.3174) MF84 (0.0090) MF101(0.6045) MF111 (0.0691)
)
MF16 MF46 (0.0776) MF101(0.6128) MF111(0.3096)
MF74 0.6163 MF46(0.1543) MF101(0.7547) MF111(0.0910
MF17 MF84 (0.0897) MF108(0.8445) MF111(0.0657)
)
MF18 MF50 (0.2171) MF84 (0.0001) MF101(0.6131) MF111 (0.1697)
MF75 0.3939 MF50(0.2733) MF101(0.5878) MF111(0.1390
MF19 MF50 (0.1491) MF84 (0.0047) MF101(0.6257) MF111 (0.2205)
)
MF20 MF46 (0.2073) MF84 (0.0130) MF101(0.5077) MF111 (0.2720)
MF76 0.3943 MF50(0.2711) MF84(0.0003) MF101(0.5880
MF21 MF50 (0.2067) MF84 (0.0038) MF101(0.7203) MF111 (0.0692)
)
MF24 MF50 (0.0047) MF84 (0.0001) MF101(0.7947) MF111 (0.2005)
MF77 0.9768 MF80(0.9269) MF101(0.0689) MF108(0.0043
MF25 MF50 (0.2269) MF84 (0.0000) MF101(0.6546) MF111 (0.1184)
)
MF26 MF50 (0.1473) MF84 (0.0038) MF101(0.6727) MF111 (0.1762)
MF81 0.9213 MF46 (0.2327) MF58(0.6799) MF111(0.0874
MF27 MF50 (0.2536) MF84 (0.0028) MF101(0.6630) MF111 (0.0806)
)
MF28 MF46 (0.7052) MF58 (0.0958) MF111(0.1990)
MF82 0.4908 MF50(0.0034) MF101(0.7816) MF111(0.2151
Table
)
5.2: Inefficient Mutual Fund Schemes (MFs) with score
MF83 0.4010 MF50(0.2105) MF84(0.0006) MF101(0.6008
)
MF85 0.3933 MF50(0.2969) MF101(0.5866) MF111(0.1166
)
MF86 0.3979 MF50(0.2656) MF84(0.0015) MF101(0.5930
)
MF87 0.4045 MF50(0.2624) MF84(0.0005) MF101(0.6081

35
)
MF88 0.4140 MF50(0.2038) MF84(0.0060) MF101(0.6172
)
Note: Sample- 119 Mutual Fund Schemes

36
 Table 5.3: Efficiency Score Frequencies of DEA run 1
Score frequencies No. of Schemes % in Sample
up to 0.10 0 0
0.10+ to 0.20 0 0
0.20+ to 0.30 0 0
0.30+ to 0.40 13 10.92
0.40+ to 0.50 59 49.58
0.50+ to 0.60 3 2.52
0.60+ to 0.70 3 2.52
0.70+ to 0.80 6 5.04
0.80+ to 0.90 4 3.36
0.90+ to 1.00 31 26.05
Note: Sample: 119 Mutual Fund Schemes

Peer Group and Virtual Inputs

After identifying the efficient and inefficient mutual fund schemes, the next step is to
make improvements in the performance of inefficient mutual fund schemes. In other
words, inefficient mutual fund schemes must gain efficiency by moving to the
efficient frontier. To gain efficiency, reductions are required in the inputs that can be
achieved by following some efficient mutual fund units in a particular weight. That is,
for each inefficient mutual fund scheme, there exists a set of efficient scheme called
reference set or efficient peers group by following which inefficient scheme might
gain efficiency level. The peer mutual fund schemes acts as role models for the
inefficient schemes, as they have achieved 100 percent efficiency in similar
conditions as that of inefficient schemes. The percentage influence of each peer
mutual fund scheme indicates its proportion that is required in linear combination to
form the DEA target values called the virtual inputs.

Efficient peer group set with their corresponding weight i.e., lambda values for all the
inefficient mutual fund schemes have been provided in table 5.2. From this table we
can see that for the inefficient mutual fund scheme, BNP Paribas Dividend Yield
Fund-Growth (MF1), efficient peers are HDFC Long Term Advantage Fund-Growth
(MF50), Principal Debt Opportunities Fund Conservative Plan-Regular Plan Growth

37
(MF84), Sahara Income Fund-Growth (MF101) and Tata Tax Saving Fund-Growth
(MF111) with their corresponding weights as 0.1964, 0.0025, 0.5994 and 0.2017
respectively. Therefore, in order to gain efficiency, MF1 should follow 19.64 percent
of MF50, 0.25 percent of MF84, 59.94 percent of MF101 and 20.17 percent of
MF111. Each efficient mutual fund scheme such as MF3 and MF4 has an efficiency
score of 1.00 and do not require following the input pattern of any other mutual fund
scheme. Also, for each inefficient mutual fund scheme, the sum of weights of the
entire efficient peer adds up to one. In this way, the efficient peers with corresponding
weights have been found out for all the inefficient mutual fund schemes.

From the efficient peer group and their corresponding weights, the necessary
reduction required in the inputs of all the inefficient mutual fund schemes for
achieving efficiency has been found out. These inputs values to be achieved after the
necessary reduction in inputs are known as virtual inputs or target values. That is, an
inefficient mutual fund scheme can achieve efficiency by acquiring a particular set of
inputs, called the virtual input set or target values. The virtual inputs or target values
for all the 93 inefficient mutual fund schemes have been depicted in table 5.4.
Explanation for the calculation of virtual inputs from efficient peer group has been
explained below with the help of inefficient mutual fund scheme, MF1.

Table 5.4: Virtual Inputs/ Target Values through DEA Run 1

MFs LOAD (%) EXPENSE (%) RISK, β (%) MINII (%)

MF1 0.00 (100) 1 (59.81) 0.36 (59.81) 2009.51 (59.81)
MF2 0.00 (100) 0.99 (59.2) 0.31 (59.2) 2040.19 (59.2)
MF5 0.00 (100) 1.13 (42.21) 0.42 (42.21) 1733.74 (42.21)
MF6 0.00 (100) 0.93 (58.77) 0.33 (58.77) 2061.71 (58.77)
MF7 0.85 (15.46) 0.68 (15.46) 0.03 (15.46) 4952.01 (99.01)
MF8 0.00 (100) 0.91 (57.28) 0.49 (57.28) 2136.19 (57.28)
MF9 0.00 (100) 0.69 (54.21) 0.39 (57.74) 2289.31 (54.21)
MF10 0.00 (100) 0.96 (55.4) 0.11 (55.4) 2229.93 (55.4)
MF11 0.00 (100) 0.96 (55.4) 0.11 (55.4) 2229.93 (55.4)
MF12 0.00 (100) 0.99 (58.62) 0.46 (58.62) 2068.91 (58.62)
MF13 0.00 (100) 0.99 (58.62) 0.46 (58.62) 2068.88 (58.62)
MF14 0.00 (100) 0.84 (60.52) 0.53 (61.3) 1973.92 (60.52)

38
MF15 0.00 (100) 0.87 (58.97) 0.69 (58.97) 2051.74 (58.97)
MF16 0.08 (92.24) 0.98 (52.38) 0.07 (52.38) 2381.11 (52.38)
MF17 0.00 (0) 0.5 (0.36) 2.72 (0.36) 8927 (10.73)
MF18 0.00 (100) 0.96 (59.34) 0.32 (59.34) 2033.2 (59.34)
MF19 0.00 (100) 0.99 (58.29) 0.38 (58.29) 2085.47 (58.29)
MF20 0.21 (79.27) 0.88 (44.79) 0.45 (44.79) 2760.44 (44.79)
MF21 0.00 (100) 0.74 (53.64) 0.42 (53.64) 2317.76 (53.64)
MF24 0.00 (100) 0.77 (50.25) 0.08 (50.25) 2487.3 (50.25)
MF25 0.00 (100) 0.87 (57.27) 0.32 (57.27) 2136.64 (57.27)

MFs LOAD (%) EXPENSE (%) RISK, β (%) MINII (%)

MF26 0.00 (100) 0.89 (56.02) 0.35 (56.02) 2198.91 (56.02)
MF27 0.00 (100) 0.82 (56.6) 0.44 (56.6) 2170.24 (56.6)
MF28 0.8 (19.9) 0.7 (17.91) 0.03 (17.91) 4104.67 (17.91)
MF29 0.9 (10.49) 1.07 (45.23) 0.03 (9.44) 4527.76 (9.44)
MF30 0.65 (35.17) 0.9 (29.9) 0.04 (29.9) 3505.18 (29.9)
MF32 0.00 (100) 0.94 (56.64) 0.29 (56.64) 2167.89 (56.64)
MF33 0.00 (100) 0.94 (56.64) 0.29 (56.64) 2167.88 (56.64)
MF36 0.00 (100) 0.83 (55.28) 0.46 (55.28) 2236.17 (55.28)
MF37 0.00 (100) 0.82 (56.41) 0.49 (56.41) 2179.37 (56.41)
MF38 0.00 (100) 0.84 (59.19) 0.61 (59.19) 2040.67 (59.19)
MF40 0.00 (100) 0.93 (56.64) 0.39 (56.64) 2168.03 (56.64)
MF41 0.00 (100) 0.88 (60.35) 0.47 (60.35) 1982.71 (60.35)
MF42 0.00 (100) 0.92 (58.48) 0.53 (58.48) 2075.8 (58.48)
MF43 0.00 (0) 0.42 (4.2) 0.04 (4.2) 8364.36 (16.36)
MF44 0.02 (98.27) 1.01 (55.17) 0.1 (55.17) 2241.43 (55.17)
MF45 0.00 (100) 0.94 (56.13) 0.18 (56.13) 2193.38 (56.13)
MF47 0.00 (100) 0.85 (58.92) 0.43 (58.92) 2053.82 (58.92)
MF48 0.00 (100) 0.9 (56.62) 0.49 (56.62) 2168.93 (56.62)
MF51 0.00 (100) 0.86 (52.21) 0.09 (52.21) 2389.28 (52.21)
MF52 0.00 (100) 0.83 (55.04) 0.49 (55.04) 2248.15 (55.04)
MF54 0.75 (25.07) 0.8 (25.12) 0.03 (25.07) 5402.05 (94.6)
MF55 0.00 (100) 0.93 (54.22) 0.09 (54.22) 2289.09 (54.22)

39
MF56 0.00 (100) 0.96 (57.71) 0.29 (57.71) 2114.54 (57.71)
MF57 0.81 (19.3) 1.02 (17.37) 0.03 (17.37) 4131.64 (17.37)
MF59 0.00 (100) 0.84 (60.11) 0.51 (60.11) 1994.48 (60.11)
MF60 0.00 (100) 0.85 (55.22) 0.45 (55.22) 2239.22 (55.22)
MF61 0.00 (100) 0.66 (51.86) 0.43 (51.86) 2406.99 (51.86)
MF62 0.00 (100) 0.92 (54.38) 0.11 (54.38) 2280.96 (54.38)
MF64 0.00 (100) 0.97 (57.39) 0.33 (57.39) 2130.48 (57.39)
MF65 0.7 (29.7) 0.84 (26.46) 0.04 (26.46) 3676.76 (26.46)
MF66 0.00 (100) 1.01 (59.47) 0.3 (59.47) 2026.27 (59.47)
MF67 0.00 (100) 1 (60.03) 0.41 (60.03) 1998.32 (60.03)
MF68 0.00 (100) 0.99 (60.57) 0.49 (60.57) 1971.59 (60.57)
MF69 0.00 (100) 1 (59.87) 0.53 (59.87) 2006.31 (59.87)
MF70 0.71 (29.3) 0.72 (23.51) 0.04 (23.51) 3824.65 (23.51)
MF73 0.00 (100) 0.99 (60.36) 0.33 (60.36) 1982.05 (60.36)
MF74 0.15 (84.57) 0.51 (38.37) 0.07 (38.37) 3081.3 (38.37)
MF75 0.00 (100) 0.97 (60.61) 0.37 (60.61) 1969.4 (60.61)
MF76 0.00 (100) 0.97 (60.57) 0.38 (60.57) 1971.27 (60.57)
MF77 0.00 (0) 0.52 (2.32) 0.04 (2.32) 4883.79 (2.32)
MFs LOAD (%) EXPENSE (%) RISK, β (%) MINII (%)
MF81 0.91 (87.43) 0.87 (37.2) 0.03 (7.87) 4606.55 (7.87)
MF82 0.00 (100) 0.8 (50.92) 0.08 (50.92) 2453.91 (50.92)
MF83 0.00 (100) 0.99 (59.9) 0.32 (59.9) 2004.77 (59.9)
MF85 0.00 (100) 0.95 (60.67) 0.4 (60.67) 1966.39 (60.67)
MF86 0.00 (100) 0.96 (60.21) 0.41 (60.21) 1989.48 (60.21)
MF87 0.00 (100) 0.93 (59.55) 0.38 (59.55) 2022.48 (59.55)
MF88 0.00 (100) 0.95 (58.6) 0.48 (58.6) 2069.96 (58.6)
MF90 0.00 (100) 0.83 (55.02) 0.52 (55.02) 2248.92 (55.02)
MF91 0.00 (100) 0.79 (57.48) 0.53 (57.48) 2125.94 (57.48)
MF92 0.00 (100) 0.79 (58.06) 0.5 (58.06) 2097.13 (58.06)
MF93 0.00 (100) 0.82 (56.63) 0.62 (56.63) 2168.33 (56.63)
MF95 0.00 (0) 0.89 (59.46) 0.41 (59.46) 2026.96 (59.46)
MF96 0.00 (0) 0.9 (59.09) 0.42 (59.09) 2045.5 (59.09)
MF97 0.00 (100) 1.76 (23.36) 0.64 (23.36) 766.36 (23.36)

40
 MF98 0.00 (100) 1.27 (40.38) 0.8 (40.38) 1192.35 (40.38)
MF99 0.00 (100) 0.69 (53.25) 0.43 (53.25) 2337.53 (53.25)
MF100 0.00 (100) 1.72 (21.5) 0.66 (21.5) 785.01 (21.5)
MF102 0.00 (100) 0.9 (58.2) 0.41 (58.2) 2090.07 (58.2)
MF103 0.00 (100) 0.97 (59.15) 0.29 (59.15) 2042.61 (59.15)
MF104 0.00 (100) 0.99 (58.33) 0.35 (58.33) 2083.65 (58.33)
MF105 0.00 (100) 0.95 (60.3) 0.38 (60.3) 1984.8 (60.3)
MF106 0.00 (100) 1 (58.54) 0.47 (58.54) 2073.01 (58.54)
MF107 0.00 (100) 0.93 (59.93) 0.39 (59.93) 2003.34 (59.93)
MF109 0.00 (100) 0.86 (57.96) 0.46 (57.96) 2102.17 (57.96)
MF110 0.00 (100) 0.98 (60.14) 0.53 (60.14) 1993.03 (60.14)
MF113 0.00 (0) 1.45 (33.76) 0.45 (33.76) 1324.72 (33.76)
MF114 0.00 (0) 1.46 (34.4) 0.45 (34.4) 1311.96 (34.4)
MF115 0.00 (100) 1.67 (14.73) 0.66 (14.73) 852.68 (14.73)
MF116 0.00 (100) 0.95 (60.79) 0.42 (60.79) 1960.32 (60.79)
MF117 0.00 (100) 1 (58.9) 0.52 (58.9) 2054.84 (58.9)
MF118 0.00 (0) 0.66 (52.73) 0.35 (52.73) 2363.34 (52.73)
MF119 0.00 (0) 0.66 (52.48) 0.33 (52.48) 2375.88 (52.48)
Note: Figures in parenthesis represent the percentage decrease require in the original
value of inputs

For MF1, the original values of inputs LOAD, EXPENSE, RISK and MINII are 1,
2.5, 0.9044 and 5000 respectively (Annexure B). Target values of these inputs or the
virtual inputs are 0.00, 1.00, 0.36 and 2,009.51 respectively which can be achieved by
a decrease of 100.00 percent in the original value of LOAD and 59.81 percent each in
the original values of EXPENSE, RISK and MINII (Table 5.4). Efficient peer group
of MF1 is, MF50 (0.1964), MF84 (0.0025), MF101 (0.5994) and MF111 (0.2017), (as
per table 5.3). The virtual inputs from the efficient peer group have been calculated as,

• LOAD: 0.1964 × (LOAD of MF50) + 0.0025 × (LOAD of MF84) + 0.5994 ×

(LOAD of MF101) + 0.2017 × (LOAD of MF111)
= 0.1964 × (0) + 0.0025 × (0) + 0.5994 × (0) + 0.2017 × (0)

= 0 (decrease of 100 percent in the original value)

41
 • EXPENSE: 0.1964 × (EXPENSE of MF50) + 0.0025 × (EXPENSE of MF84)
+

0.5994 × (EXPENSE of MF101) + 0.2017 × (EXPENSE of MF111)

= 0.1964 × (1.55) + 0.0025 × (0.3783) + 0.5994 × (0.3450) + 0.2017 ×

(2.4417)

= 1.00 (decrease of 59.81 percent in the original value)

• RISK, β: 0.1964 × (RISK of MF50) + 0.0025 × (RISK of MF84) + 0.5994 ×

(RISK of

MF101) + 0.2017 × (RISK of MF111)

= 0.1964 × (1.173) + 0.0025 × (29.8824) + 0.5994 × (0.0768) + 0.2017 ×

(0.0649)

= 0.36 (decrease of 59.81 percent in the original value)

• MINII: 0.1964 × (MINII of MF50) + 0.0025 × (MINII of MF84) + 0.5994 ×

(MINII of MF101) + 0.2017 × (MINII of MF111)
= 0.1964 × (500) + 0.0025 × (5000) + 0.5994 × (3000) + 0.2017 × (500)

= 2009.5 (decrease of 59.81 percent in the original value)

Taking one more example, of inefficient scheme Birla Sun Life Midcap Fund

Dividend, MF14, the original values of the inputs LOAD, EXPENSE, RISK β and
MINII are 1, 2.1267, 1.3613 and 5000 respectively (Annexure B). MF14 has a
reference set of efficient peers as HDFC Long Term Advantage Fund-Growth (MF50)
and Sahara Income FundGrowth (MF101) with their corresponding weights as 0.4104
and 0.5896 respectively (Table
5.3). The virtual inputs or the target values for this mutual fund scheme MF14, are:

• LOAD: 0.4104 × (LOAD of MF50) + 0.5896 × (LOAD of MF101)

= 0.4104 × (0) + 0.5896 × (0) = 0 (No Change)

• EXPENSE: 0.4104 × (EXPENSE of MF50) + 0.5896 × (EXPENSE of

MF101)

= 0.4104 × (1.55) + 0.5896 × (0.35) = 0.636 + 0.206

42
 = 0.842 (reduction of 60.52 percent in the original value)

• RISK, β: 0.4104 × (RISK of MF50) + 0.5896 × (RISK of MF101)

= 0.4104 × (1.173) + 0.5896 × (0.077) = 0.481 + 0.045

= 0.53 (reduction of 61.3 percent in the original value)

• MINII: 0.4104 × (MINII of MF50) + 0.5896 × (MINII of MF101)

= 0.4104 × (500) + 0.5896 × (3000) = 205.2 + 1768.8

= 1974 (reduction of 60.52 percent in the original value)

Thus, the target values or virtual inputs for all the mutual fund schemes have been
studied. In this way, the reduction required in the inputs and the target values or
virtual inputs have been found out so that the inefficient mutual fund schemes may
attain efficiency. Efficient mutual fund schemes as MF49, MF50 or MF108 with
efficiency score as 1.00 do not need to follow any other scheme and hence these
efficient schemes do not have any peer group and target/virtual inputs. The input
values of these mutual fund schemes are perfect and need not any change.

5.1.2 DEA RUN 2

DEA run 2 has been performed on 48 Equity oriented mutual fund schemes in the
sample to analyse their performance in terms of efficiency. 13 mutual fund schemes
came out to be DEA efficient with efficiency score as 1 and the rest 35 have been
found to be DEA inefficient out of which 13 are near efficient. Therefore 26 (54
percent) are efficient or near efficient and 22 (46 percent) are inefficient schemes.
Table 5.5 and 5.6 depicts the efficient, near efficient and inefficient equity mutual
fund schemes. Out of 26 efficient Equity mutual fund schemes, only one scheme i.e.,
Canara Robeco Equity Diversified fund-Dividend (MF22) was efficient in DEA Run
1 too. In other words we can say that except MF22, all other efficient mutual fund
schemes from DEA Run 2 were found to be inefficient in DEA Run 1. Also, the
efficiency score of 22 inefficient Equity mutual fund schemes is much higher in DEA
Run 2 as compared to their efficiency score from DEA Run 1. As, DSP Blackrock
India TIGER Fund Regular Plan-Growth (MF27) and Principal Large Cap Fund-
Growth (MF88) possess an efficiency score of 0.8819 and 0.9195 in DEA Run 2.
Whereas, their efficiency scores from DEA Run 1 was 0.4340 and 0.4140

43
respectively. This implies that, when only Equity oriented schemes have been
analysed among themselves with the available set of inputs and outputs, their
efficiency is much better as compared to when these schemes were analysed with the
whole set of sample mutual fund schemes.

The researcher has presented the frequency distribution of the efficiency scores in
intervals of 0.1 in table 5.7. From this table, the researcher has observed that no
Equity mutual fund scheme possess the efficiency score below 0.7. Whereas, in DEA
Run 1, 78 (65.54 percent) mutual fund schemes came out to be with efficiency scores
as below 0.7. 19 mutual fund schemes (39.58 percent) have efficiency score from 0.8
to 0.9. Most of the schemes i.e., 26 (54.17 percent) possess efficiency score from 0.9
to 1 out of these 13 schemes are efficient with efficiency score as 1.0 and 13 (=26-13)
mutual fund schemes are near efficient with efficiency score between 0.9 and 1.0.
Whereas in DEA Run 1, only 5 mutual fund schemes were near efficient.

Table 5.5: Efficient and Near Efficient Equity Mutual Fund Schemes (MFs)
through DEA Run 2

S. No. Mutual Fund Schemes (MFs) Efficiency Score

1 MF2 1.00
2 MF15 1.00
3 MF22 1.00
4 MF48 1.00
5 MF60 1.00
6 MF61 1.00
7 MF64 1.00
8 MF90 1.00
9 MF93 1.00
10 MF95 1.00
11 MF96 1.00
12 MF100 1.00
13 MF117 1.00
14 MF6 0.9820
15 MF8 0.9551
16 MF9 0.9648

44
17 MF12 0.9628
18 MF13 0.9632
19 MF36 0.9818
20 MF37 0.9145
21 MF42 0.9167
22 MF69 0.9360
23 MF88 0.9195
24 MF91 0.9337
25 MF99 0.9625
26 MF106 0.9898

45
Table 5.6: Inefficient Mutual Fund Schemes (MFs) with score and peer group
through DEA Run 2

Efficiency
MFs Efficient Peers and Weight
Score
MF1 0.8925 MF61(0.0361) MF64(0.7220) MF96(0.1075) MF100(0.1343)
MF6 0.9820 MF61(0.0853) MF64(0.8743) MF95(0.0180) MF100(0.0225)
MF8 0.9551 MF22(0.0499) MF48(0.6181) MF60(0.2228) MF90(0.0477)
MF9 0.9648 MF61(0.9045) MF64(0.0162) MF95(0.0352) MF100(0.0441)
MF1 0.9628 MF22(0.0414) MF60(0.5924) MF90(0.1806) MF95(0.0372)
2
MF1 0.9632 MF22(0.0409) MF60(0.5843) MF90(0.1804) MF96(0.0368)
3
MF1 0.7830 MF22(0.2412) MF61(0.5418) MF95(0.2170)
4
MF2 0.8819 MF22(0.1312) MF61(0.5984) MF64(0.1410) MF95(0.1181)
7
MF3 0.9818 MF22(0.0202) MF60(0.7337) MF61(0.1458) MF90(0.0360)
6
MF3 0.9145 MF22(0.0950) MF60(0.1799) MF61(0.3734) MF90(0.1151)
7
MF3 0.8724 MF22(0.1418) MF61(0.2627) MF93(0.4679) MF96(0.1276)
8
MF4 0.7709 MF22(0.2015) MF61(0.5098) MF95(0.2291) MF100(0.0597)
1
MF4 0.9167 MF22(0.0926) MF48(0.4382) MF90(0.1275) MF93(0.1865)
2
MF4 0.8485 MF61(0.5373) MF64(0.1217) MF95(0.1515) MF100(0.1894)
7
MF5 0.7882 MF22(0.2353) MF61(0.5529) MF95(0.2118)
9
MF6 0.8600 MF22(0.1556) MF60(0.2440) MF64(0.4604) MF96(0.1400)
7
MF6 0.8890 MF22(0.1233) MF60(0.7657) MF95(0.1110)

46
 8
MF6 0.9360 MF15(0.1525) MF22(0.0712) MF90(0.6008) MF96(0.0640)
9
MF7 0.8696 MF61(0.1392) MF64(0.5674) MF95(0.1304) MF100(0.1630)
5
MF7 0.8612 MF61(0.1597) MF64(0.5280) MF96(0.1388) MF100(0.1735)
6
MF8 0.8367 MF61(0.2590) MF64(0.3737) MF95(0.1633) MF100(0.2041)
5
MF8 0.8282 MF61(0.2794) MF64(0.3341) MF96(0.1718) MF100(0.2147)
6
MF8 0.8912 MF61(0.2304) MF64(0.5248) MF95(0.1088) MF100(0.1360)
7
137

Efficiency
MFs Efficient Peers and Weight
Score
MF88 0.9195 MF22(0.0895) MF60(0.5220) MF90(0.1381) MF96(0.0805)
MF91 0.9337 MF22(0.0736) MF60(0.4959) MF61(0.3643) MF95(0.0663)
MF92 0.8399 MF22(0.1779) MF61(0.6619) MF95(0.1602)
MF98 0.8800 MF22(0.7200) MF61(0.0516) MF93(0.1084) MF95(0.1200)
MF99 0.9625 MF22 0.0417) MF61 (0.9208) MF96 (0.0375)
MF102 0.8786 MF61 0.3961) MF64 (0.3308) MF96 (0.0562) MF96(0.0652)
MF105 0.8668 MF61 (0.1917) MF64 (0.5085) MF95 (0.1333) MF100(0.1666)
MF106 0.9898 MF22 (0.0113) MF60 (0.5096) MF90 (0.0999) MF96(0.0102)
MF107 0.8668 MF6 (0.2671) MF64 (0.4333) MF96 (0.1332) MF100(0.1665)
MF109 0.8404 MF22 (0.1774) MF60 (0.1136) MF61 (0.4799) MF64(0.0694)
MF110 0.8864 MF15 0.0268) MF22 (0.1263) MF90 (0.2643) MF96(0.1137)
MF116 0.8159 MF61 0.2913) MF64 (0.2944) MF95 (0.1841) MF100(0.2302)

Note: Figures in parenthesis represent the weight for each efficient mutual fund
scheme

47
 138

48
 Table 5.7: Distribution of efficiency Score through DEA Run 2

Score frequencies No. of Schemes

up to 0.10 0
0.10+ to 0.20 0
0.20+ to 0.30 0
0.30+ to 0.40 0
0.40+ to 0.50 0
0.50+ to 0.60 0
0.60+ to 0.70 0
0.70+ to 0.80 3
0.80+ to 0.90 19
0.90+ to 1.00 26

Peer Group and Virtual Inputs

Every inefficient scheme has a scope of improvement in their performance to conquer
efficiency. Inefficient Equity mutual fund schemes may also achieve the efficiency
level by following their efficient peer mutual fund schemes in a particular weight. To
become efficient, the inefficient mutual fund schemes would either have to achieve
the same levels of inputs as one of the efficient peer scheme or it would have to
achieve input in some linear combination of the efficient peer schemes. This efficient
peer group for each inefficient Equity mutual fund scheme has been depicted in table
5.6. For example, inefficient mutual fund scheme Kotak Contra-Dividend (MF75),
has efficient peer group as ICICI Prudential Index Fund-Growth (MF61), ICICI
Prudential Top 100 Fund-Growth (MF64), SBI Blue Chip Fund-Dividend (MF95) and
SBI Magnum Multiplier plus Fund-Growth (MF100) with corresponding weights as
0.1392, 0.5674, 0.1304 and 0.1630 respectively. By following its efficient peers in
their corresponding weights, these inefficient mutual fund schemes may attain target
values or virtual inputs and might attain efficiency.

As from table 5.8, inefficient mutual fund scheme MF75, by following its efficient
peer group (given in table 5.7) may attain its target values or virtual inputs as 0.87 for
LOAD, 2.13 for EXPENSE, 0.83 for RISK, β and 4,347.93 for MINII. For achieving
these desired virtual inputs, a reduction of 13.04 percent is required in the original

49
value of all the inputs (Annexure B). The virtual inputs for all the 48 Equity mutual
fund schemes have been depicted in table 5.8.

Table 5.8: Virtual Inputs/ Target Values through DEA Run 2

MFs LOAD (%) EXPENSE(%) RISK, β (%) MINII (%)
MF1 0.89 (10.75) 2.23 (10.75) 0.81 (10.75) 4462.66 (10.75)
MF6 0.98 (1.8) 2.2 (1.8) 0.78 (1.8) 4910.18 (1.8)
MF8 0.96 (4.49) 2.03 (4.49) 1.08 (4.49) 4775.56 (4.49)
MF9 0.96 (3.52) 1.45 (3.52) 0.89 (3.52) 4823.81 (3.52)
MF12 0.96 (3.72) 1.98 (17.07) 1.07 (3.72) 4813.79 (3.72)
MF13 0.96 (3.68) 1.99 (16.87) 1.07 (3.68) 4816.12 (3.68)
MF14 0.78 (21.7) 1.67 (21.7) 0.92 (32.31) 3914.83 (21.7)
MF27 0.88 (11.81) 1.67 (11.81) 0.89 (11.81) 4409.6 (11.81)
MF36 0.98 (1.82) 1.83 (1.82) 1.01 (1.82) 4909.19 (1.82)
MF37 0.91 (8.55) 1.72 (8.55) 1.03 (8.55) 4572.45 (8.55)
MF38 0.87 (12.76) 1.79 (12.76) 1.16 (21.68) 4361.93 (12.76)
MF41 0.77 (22.91) 1.71 (22.91) 0.92 (22.91) 3854.71 (22.91)
MF42 0.92 (8.33) 2.03 (8.33) 1.17 (8.33) 4583.38 (8.33)
MF47 0.85 (15.15) 1.76 (15.15) 0.88 (15.15) 4242.32 (15.15)
MF59 0.79 (21.18) 1.66 (21.18) 0.92 (27.45) 3941.15 (21.18)
MF67 0.86 (14) 2.11 (15.44) 0.88 (14) 4299.83 (14)
MF68 0.89 (11.1) 1.93 (22.66) 0.99 (20.54) 4445 (11.1)
MF69 0.94 (6.4) 1.98 (20.82) 1.23 (6.4) 4679.79 (6.4)
MF75 0.87 (13.04) 2.13 (13.04) 0.83 (13.04) 4347.93 (13.04)
MF76 0.86 (13.88) 2.11 (13.88) 0.83 (13.88) 4306.03 (13.88)
MF85 0.84 (16.33) 2.02 (16.33) 0.85 (16.33) 4183.68 (16.33)
MF86 0.83 (17.18) 1.99 (17.18) 0.86 (17.18) 4141.16 (17.18)
MF87 0.89 (10.88) 2.05 (10.88) 0.83 (10.88) 4455.89 (10.88)
MF88 0.92 (8.05) 2.01 (12.92) 1.06 (8.05) 4597.28 (8.05)
MF91 0.93 (6.63) 1.73 (6.63) 0.95 (23.1) 4668.71 (6.63)
MF92 0.84 (16.01) 1.59 (16.01) 0.91 (23.29) 4199.26 (16.01)
MF98 0.88 (12) 1.87 (12) 0.98 (27.54) 1760.07 (12)
MF99 0.96 (3.75) 1.42 (3.75) 0.89 (3.93) 4812.37 (3.75)
MF102 0.88 (12.14) 1.9 (12.14) 0.86 (12.14) 4393.2 (12.14)

50
 MF105 0.87 (13.32) 2.08 (13.32) 0.83 (13.32) 4333.77 (13.32)
MF106 0.99 (1.02) 2.1 (12.8) 1.11 (1.02) 4949 (1.02)
MF107 0.87 (13.32) 2.01 (13.32) 0.84 (13.32) 4334.1 (13.32)
MF109 0.84 (15.96) 1.71 (15.96) 0.92 (15.96) 4201.84 (15.96)
MF110 0.89 (11.36) 2.17 (12.23) 1.18 (11.36) 4431.76 (11.36)
MF116 0.82 (18.41) 1.98 (18.41) 0.86 (18.41) 4079.29 (18.41)
Note: Figures in parenthesis represent the percentage decrease required in the
original values of inputs
5.1.3 DEA RUN 3

DEA run 3 has been performed on 30 Income mutual fund schemes from the sample
to analyse their performance in terms of efficiency. 9 Income schemes came out to be
DEA efficient with efficiency score as 1.00. Rest 21 schemes are DEA inefficient
with efficiency score as less than 1 out of which 7 are near efficient with efficiency
score between 0.9 and 1. Therefore, 16 (53 percent) Income schemes are efficient or
near efficient and 14 (47 percent) are inefficient. Table 5.9 and 5.10 provides the
detail of efficient, near efficient and inefficient Income schemes along with their
efficiency scores.

Out of 16 efficient Income schemes, 14 were efficient in DEA Run 1 also. However,
the efficiency score of 14 inefficient Income schemes is slightly high in DEA run 3 as
compared to DEA run 1. Hence, there is modest increase in the efficiency of Income
mutual fund schemes when they have been analysed separately from the whole
sample of mutual fund schemes. As Canara Robeco Income-Growth (MF24), possess
efficiency score of 0.5956 in DEA run 3 and 0.4975 in DEA run 1. Therefore,
efficiency score of MF24 has increased by 0.0981 (0.5956 – 0.4975) in DEA run 3 as
compared to DEA run 1. Also, DSP Blackrock Short Term Fund-Growth (MF28) and
JM Short Term Fund Regular Plan-Growth (MF74) posses an efficiency score of
0.9040 and 0.6467 in DEA run 3 and 0.8209 and 0.6163 in DEA run 1. Thus mutual
fund schemes MF28 and MF74 experienced an increase of 0.0831 (0.9040 – 0.6467)
and 0.0304 (0.8209 – 0.6163) respectively in their efficiency score.

Frequency distribution of the efficiency scores in intervals of 0.1 has been depicted in
table 5.11. From this table it can be observed that no scheme possess efficiency score

51
as less than 0.50 and 7 mutual fund schemes as MF10, MF11, MF24, MF51, MF55,
MF62 and MF82 have efficiency score between 0.5 to 0.6. Two schemes as MF16 and
MF74 are with efficiency scores between 0.6 and 0.7 and one mutual fund scheme as
MF54 is with efficiency score between 0.7 and 0.8.

Four schemes as Birla Sun Life Dynamic Bond Fund Retail Plan-Growth (MF7),
DWS Short Maturity Fund-Growth (MF30), IDFC Super Saver Income Fund STP-
Growth (MF65) and ING Short Term Income Fund-Growth (MF70) possess
efficiency score between 0.8 and 0.9. 16 mutual fund schemes are with efficiency
scores between 0.9 and 1.0 out of which 9 are efficient with efficiency score as 1.0
and Seven Income schemes (=16-9) as Birla Sun Life Savings Fund Retail Plan-
Growth (MF17), DSP Blackrock Short Term Fund MFGrowth (MF28), DWS Premier
Bond Fund Regular Plan-Growth (MF29), HDFC Cash

Management Fund Savings Plan-Growth (MF43), ICICI Prudential Blended Plan Plan
AGrowth (MF57), Kotak Flexi Debt Regular Plan-Growth (MF77) and LIC Nomura
MF Bond Fund-Growth (MF81) possess efficiency score between 0.9 and 1.0.

Table 5.9: Efficient and Near Efficient Income Mutual Fund Schemes (MFs) from
DEA Run 3

S. No. Mutual Fund Schemes Efficiency Score

1 MF3 1.0000
2 MF31 1.0000
3 MF46 1.0000
4 MF49 1.0000
5 MF58 1.0000
6 MF80 1.0000
7 MF84 1.0000
8 MF101 1.0000
9 MF108 1.0000
10 MF17 0.9975
11 MF28 0.9040
12 MF29 0.9557
13 MF43 0.9580
14 MF57 0.9121

52
 15 MF77 0.9768
16 MF81 0.9632
Peer Group and Virtual Inputs

Inefficient mutual fund schemes may improve their performance and achieve
efficiency by following its efficient peer groups in corresponding weights. Efficient
Peer group of all inefficient Equity schemes has been presented in table 5.10. As
efficient peer group with corresponding weights for Birla Sun Life MIP Wealth 25
Plan-Growth (MF10) is DWS Tax Saving Fund-Growth (MF31) and Sahara Income
Fund-Growth (MF101) with their corresponding weights as 0.0652 and 0.9348
respectively. That means MF10 may achieve efficiency by adopting 6.52 percent
inputs of MF31 and 93.48 percent inputs of MF101. As a result, the virtual inputs,
LOAD, EXPENSE, RISK, β and MINII of MF10 are 0.00, 0.50, 0.14 and 2,837.04
respectively. For attaining these virtual inputs, a reduction of 100.00, 76.97,
43.26 and 43.26 percent is required in original values of LOAD, EXPENSE, RISK (β)
and MINII respectively (Annexure B). The desired target values or virtual inputs for
all inefficient Equity mutual fund schemes have been presented in table 5.12.

53
 Table 5.10: Inefficient Mutual Fund Schemes (MFs) wit
score and peer group through DEA Run 3

54
 MFs Efficiency Efficient Peers and Weights
Score
MF7 0.8848 MF46 MF49 MF84
(0.5513) (0.3334) (0.0003)
Note:
MF10 0.5674 MF31 MF101
(0.0652) (0.9348)
MF11 0.5674 MF31 MF101
(0.0652) (0.9348)
MF16 0.6061 MF49 MF84 MF101
(0.0149) (0.0004) (0.9847)
MF17 0.9975 MF84 MF108
(0.0899) (0.9101)
MF24 0.5956 MF31 MF84 MF101
(0.0092) (0.0005) (0.9903)
MF28 0.9040 MF46 MF58 MF101
(0.0102) (0.7498) (0.24)
MF29 0.9557 MF58 MF101
(0.8892) (0.1108)
MF30 0.8279 MF46 MF49 MF58
(0.135) (0.0704) (0.3642)
MF43 0.9580 MF80 MF108
(0.3271) (0.6729)
MF51 0.5970 MF31 MF84 MF101
(0.0067) (0.0008) (0.9925)
MF54 0.7493 MF58 MF80 MF108
(0.7493) (0.1703) (0.0804)
MF55 0.5848 MF31 MF84 MF101
(0.0307) (0.0005) (0.9688)
MF57 0.9121 MF46 MF58 (0.745) MF101
(0.0352) (0.2198)
MF62 0.5706 MF31 MF84 MF101
(0.059) (0.0003) (0.9407)
MF65 0.8543 MF46 MF58 (0.526) MF101
(0.1097) (0.3644)
MF70 0.8639 MF46 MF49 MF58
(0.4303) (0.0227) (0.2066)
MF74 0.6467 MF49 MF84 MF101
(0.1168)
55 (0.0001) (0.8832)
MF77 0.9768 MF80 MF101 MF108
(0.9269) (0.0688) (0.0043)
Figures in parenthesis represent the weight for each efficient mutual fund scheme.

143

56
 Table 5.11: Distribution of efficiency Scores through DEA Run 3

Score frequencies No. of Schemes

up to 0.10 0
0.10+ to 0.20 0
0.20+ to 0.30 0
0.30+ to 0.40 0
0.40+ to 0.50 0
0.50+ to 0.60 7
0.60+ to 0.70 2
0.70+ to 0.80 1
0.80+ to 0.90 4
0.90+ to 1.00 16

Table 5.12: Virtual Inputs/ Target Values through DEA Run 3

MFs LOAD (%) EXPENSE (%) RISK, β (%) MINII (%)

MF7 0.88 (11.52) 0.72 (11.52) 0.04 (11.52) 5574.52 (98.89)
MF10 0 (100) 0.5 (76.97) 0.14 (43.26) 2837.04 (43.26)
MF11 0 (100) 0.5 (76.97) 0.14 (43.26) 2837.04 (43.26)
MF16 0.01 (98.51) 0.37 (82.24) 0.09 (39.39) 3030.65 (39.39)
MF17 0 (0) 0.36 (27.61) 2.72 (0.25) 9550.51 (4.49)
MF24 0 (100) 0.37 (76.34) 0.1 (40.44) 2977.94 (40.44)
MF28 0.76 (24) 0.77 (9.6) 0.04 (9.6) 4520.03 (9.6)
MF29 0.89 (11.08) 0.85 (56.66) 0.03 (4.43) 4778.38 (4.43)
MF30 0.57 (43.04) 0.63 (51.18) 0.05 (17.21) 4139.28 (17.21)
MF43 0 (0) 0.42 (4.2) 0.04 (4.2) 8364.36 (16.36)
MF51 0 (100) 0.36 (79.9) 0.11 (40.3) 2984.82 (40.3)
MF54 0.75 (25.07) 0.8 (25.12) 0.03 (25.07) 5402.05 (94.6)
MF55 0 (100) 0.42 (79.37) 0.12 (41.52) 2924.12 (41.52)
MF57 0.78 (21.98) 0.76 (38.22) 0.04 (8.79) 4560.31 (8.79)
MF62 0 (100) 0.48 (75.97) 0.14 (42.94) 2853.05 (42.94)
MF65 0.64 (36.44) 0.62 (45.23) 0.04 (14.57) 4271.27 (14.57)
MF70 0.66 (34.03) 0.42 (55.3) 0.04 (13.61) 4319.37 (13.61)

57
 MF74 0.12 (88.32) 0.51 (38.62) 0.07 (35.33) 3233.7 (35.33)
MF77 0 (0) 0.52 (2.32) 0.04 (2.32) 4883.79 (2.32)
MF81 0.91 (9.21) 1.01 (27.32) 0.03 (3.68) 4815.87 (3.68)
MF82 0 (100) 0.39 (76.12) 0.09 (40.95) 2952.71 (40.95)
Note: Figures in parenthesis represent the percentage decrease required in the
original value of inputs

5.1.4 DEA RUN 4

DEA Run 4 analyses 23 Balance mutual fund schemes in the sample for their
performance efficiency. Out of 23 mutual fund schemes, 9 schemes as MF20, MF21,
MF40, MF44, MF52, MF97, MF113, MF114 and MF115 came out to be efficient
with efficiency score 1. 14 schemes are inefficient with efficiency score as less than 1
out of which 6 schemes are near efficient. Therefore, 15 (65 percent) are efficient or
near efficient and 8 (35 percent) are inefficient Balance schemes. Table 5.13 and 5.14
provides the efficient, near efficient and inefficient Balance mutual fund schemes.

All of the efficient schemes in DEA run 4 were inefficient during DEA run 1.
Moreover, the efficiency score of 8 inefficient balanced schemes in DEA run 4 is
much higher than their efficiency score in DEA run 1. As DSP Blackrock Balanced
Fund-Growth (MF26) posses the efficiency scores of 0.8816 and 0.4398 in DEA run 4
and DEA run 1 respectively. That means efficiency score of MF32 is higher by a
value of 0.4418 (0.8816 – 0.4398) in
DEA run 4 as compared to DEA run 1. Similarly efficiency score is higher by a value
of

0.5167 (0.9503 - 0.4336) for FT India Balanced Fund-Dividend (MF32), by a value of

0.3724 (0.7688 - 0.3964) for JM Balanced Fund-Growth (MF73) and by a value of
0.3644 (0.7790 - 0.4146) for Principal Debt Opportunities Fund Conservative Plan
Regular Plan-Growth (MF83) in DEA run 4 as compared to DEA run 1. Similarly, the
difference in efficiency level of all the inefficient balanced schemes in DEA run 4
may be observed from table 5.14 and table 5.10. That means balanced schemes came
out to be more efficient when analysed among themselves only as compared to when
analysed with the whole sample of mutual fund schemes.

Further, frequency distribution of the efficiency scores in interval of 0.1 has been
depicted in table 5.15. No mutual fund scheme is with efficiency score below 0.70.

58
Three schemes as ING Balanced Fund-Dividend (MF66), JM Balanced Fund-Growth
(MF73) and Principal Balanced Fund-Growth (MF83) possess efficiency scores
between 0.7 and 0.8. Five mutual fund schemes as Birla Sun Life'95 Fund-Dividend
(MF18), DSP Blackrock Balanced Fund-Growth (MF26), ICICI Prudential Balanced
Fund-Growth (MF56), Tata Balanced Fund-Dividend (MF103) and Tata Balanced
Fund-Growth (MF104) have efficiency score between 0.8 and 0.9.

1
4
5

Table 5.13: Efficient and Near Efficient Balanced Mutual Fund Schemes (MFs)
from DEA Run 4

S. No. MFs Efficiency Score

1 MF20 1.0000
2 MF21 1.0000
3 MF40 1.0000
4 MF44 1.0000
5 MF52 1.0000
6 MF97 1.0000
7 MF113 1.0000
8 MF114 1.0000
9 MF115 1.0000
10 MF5 0.9686
11 MF19 0.9080
12 MF25 0.9807
13 MF32 0.9503
14 MF33 0.9503
15 MF45 0.9694

59
15 Balance mutual fund schemes have their efficiency scores between 0.9 and 1.0 out
of which 9 schemes are efficient with efficiency scores as 1.0 and 6 (=15-9) schemes
as Baroda Pioneer Balance Fund-Dividend (MF5), Birla Sun Life'95 Fund-Growth
(MF19), DSP Blackrock Balanced Fund-Dividend (MF25), FT India Balanced Fund-
Dividend (MF32), FT India Balanced Fund-Growth (MF33) and HDFC Children Gift
Fund Savings Plan-Growth (MF45) are near efficient with efficiency score between
0.9 and 1.0. That means when only balanced schemes have been analysed, most of
these schemes (65.22 percent) are efficient or near efficient and rest 34.78 percent
schemes are with efficiency scores between 0.7 and 0.9.

60
 Table 5.14: Inefficient Mutual Fund Schemes (MFs) with score and peer group
through DEA Run 4

MFs Efficiency Efficient Peers and Weights

Score
MF5 0.9686 MF20 MF44(0.1393 MF113 (0.0314) MF115 (0.5)
(0.3293) )
MF18 0.8080 MF20 MF44(0.2588 MF113 (0.192) MF115 (0.096)
(0.4531) )
MF19 0.9080 MF21 MF40(0.7392 MF44 (0.0697) MF52 (0.0185)
(0.0346) )
MF25 0.9807 MF20 MF44(0.3666 MF52 (0.5412) MF97 (0.0096)
(0.0632) )
MF26 0.8816 MF21 MF44(0.1558 MF114 (0.1184) MF115
(0.6666) ) (0.0592)
MF32 0.9503 MF20 MF44(0.4814 MF52 (0.4069) MF97 (0.0249)
(0.0371) )
MF33 0.9503 MF21 MF44(0.4813 MF52 (0.4071) MF97 (0.0249)
(0.0369) )
MF45 0.9694 MF21(0.2677) MF44(0.6865 MF114(0.0306) MF115(0.0153)
)
MF56 0.8502 MF21 MF44(0.3353 MF114 (0.1498) MF115
(0.4399) ) (0.0749)
MF66 0.7913 MF20(0.349) MF44(0.3379 MF113 (0.2087) MF115
) (0.1044)
MF73 0.7688 MF21 MF44(0.2278 MF114 (0.2312) MF115
(0.4254) ) (0.1156)
MF83 0.7790 MF21 MF44(0.2509 MF114 (0.221) MF115
(0.4176) ) (0.1105)
MF103 0.8203 MF20 MF44(0.3303 MF113 (0.1797) MF115
(0.4001) ) (0.0899)
MF104 0.8673 MF21 MF40(0.1021 MF44 (0.2873) MF52 (0.3667)
(0.0448) )

61
Peer Group and Virtual Inputs

Efficient peer group or reference set for all the inefficient balanced schemes has been
found out and provided in table 5.14 along with their weights. An inefficient scheme
may become efficient by acquiring the inputs of its efficient peer group in the
percentage of their corresponding weight and acquiring the desired target values or
virtual inputs. For example, HDFC Children Gift Fund Savings Plan-Growth (MF45)
may become efficient by adopting 26.77 percent inputs of Canara Robeco Balance-
Growth (MF21), 68.65 percent inputs of HDFC Children Gift Fund Investment-
Growth (MF44), 3.06 percent inputs of Templeton
India Children’s Asset Plan Gift Plan-Growth (MF114) and 1.53 percent as of UTI
Balanced Fund-Growth (MF115). By following this efficient peer group, target values
or virtual inputs of MF45 are LOAD as 0.97, EXPENSE as 2.07, RISK (β) as 0.4 and
MINII as 4847.23. For acquiring these target values a reduction of 3.06 percent is
required in the original values of these inputs (Annexure B).

Target values or virtual inputs for all the inefficient balanced mutual fund schemes
from DEA run 4 have been provided in table 5.16. For example, target values or
virtual inputs LOAD, EXPENSE, RISK and MINII for Birla Sun Life'95 Fund-
Dividend (MF18) are 0.81, 1.91, 0.63 and 4,039.92 respectively. Original value for
these inputs was 1, 2.37, 0.78 and 5000 respectively. Therefore, in all these inputs a
reduction of 19.20 percent is required for achieving these target values.

Table 5.15: Distribution of efficiency Scores through DEA Run 4

Score frequencies No. o

up to 0.10 0
0.10+ to 0.20 0
0.20+ to 0.30 0
0.30+ to 0.40 0
0.40+ to 0.50 0

62
 CHAPTER-5
FINDINGS, SUGGESTIONS AND CONCLUSION

Mutual Funds were introduced in the Indian financial system with a view to provide
comparatively safer investment at the doorstep of the common investors. In this study
an attempt has been made to study the growth of various types of mutual funds,
performance of mutual fund with special reference to mobilization of savings,
investment pattern.

Net resource mobilized by Bank sponsored Mutual Funds in the FY 2007-08,

2008-09 & 2009-10 was Rs 7597, Rs 4489 & Rs 9855 crores respectively thus showing
adverse impact of recession on Bank sponsored Mutual Funds during recession. It’s
cumulative resources was Rs. 148 crore in 1993-94 and reached Rs. 9855 crore in the
year 2009-10. The reason behind the slow growth of bank sponsored mutual fund was it
lacks various innovative schemes and the return generated by them was less in
comparison to private sector mutual fund.

Net resource mobilized by Private Sector Mutual Funds in the FY 2007-08,

2008-09 & 2009-10 was Rs 128032, Rs-31425 & Rs 48166 crores respectively thus
showing negative impact of recession on Private sector Mutual Funds during recession.
Net resource mobilized by private sector mutual fund was negative for the first time in
the year 2008-09 since its inception in the FY 1993-94. The cumulative resources of
private sector mutual fund increased from Rs. 1560 crore in 1993-94 to Rs. 48166 crore
in 2009-10 showing a remarkable growth. The reason behind the growth of private
sector mutual fund was that they launched various innovative, tailor made products to
suit the varied needs of investors viz. tax-saving schemes, balanced schemes, debt
schemes, index based fund, sector specific fund, serial plans, fund of fund etc. They
started offering different investment horizons to suit investors both short term as well as
long term financial needs. Another notable change brought with the entry of private
sector player is the emergence of new channels of distribution of increased emphasis in
investor service.
Overall net resource mobilized by Mutual Funds in the FY 2007-08, 2008-09 &
2009-10 was Rs 148485, (Rs-24641) & Rs 78545 crores respectively. It shows how
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badly was the Indian Mutual Fund market in India was hit by recession.

1. In the study of data from CRISIL it was observed that majority of the funds
were negatively affected during recession. Maximum number of funds saw
major drop in performance in the category of Large Cap Equity Funds,
Diversified Equity Funds, Small and Mid Cap Equity Funds, Equity Linked
Savings Scheme, Index Funds and Hybrid – Balanced Funds. While, Hybrid –
Monthly Income Plan – Aggressive and Hybrid – Monthly Income Plan –
Conservative funds were not effected much by recession as many of funds in
these category showed mixed trend during recession. However, Debt – Long
Term Income Funds, Debt – Short Term Income Funds, Debt – Liquid Funds
and Debt – Ultra Short Term Debt Funds showed slight positive growth during
recession. It is observed from this that investors did not loose much faith in
Systematic Investment Plan (SIP) / monthly investment schemes and henceforth,
during recession investors believed monthly investment scheme to be a safe
avenue for investment.

2. The investors’ saving trends investigation conducted has revealed that on an

average overall percentage savings in mutual funds as a percentage of total
investment has declined during recession. During normal circumstances mostly
48 percent of the people used to invest more than 5percent but less than 10
percent of their savings in Mutual Fund as a percentage of total investment but
during recession majority 62 percent of the people used to invest only more than
1 percent but less than 5 percent of their savings in Mutual Fund as a percentage
of total investment. This shows the downward trend in investment of
respondents in mutual fund during recession.

3. The investors’ saving conducted by the researcher has revealed that on an

average, that overall 32 percent of the people invest in mutual funds. The area-
wise investment pattern reveals that on an average 31 percent of the people
invest in mutual funds belonging to ‘urban areas’ while 38 percent of the
respondents who invest in Mutual Fund belong to ‘semi-urban areas’. The
corresponding figure for respondents belonging to ‘rural areas’ is low as 13

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 percent. Thus mutual funds have yet not been able to penetrate the rural areas
and have concentrated on urban & semi urban areas.

4. Further, an examination of the proportion of investments made by investors

belonging to different income-group reveals that the respondents of higher
income-group had invested a greater proportion of their savings in mutual funds
followed by those of middle income group and the lowest was of those
belonging to lower income group. Mostly (43 percent) of the respondents in the
category of income of more than Rs 10 lac annually invest more than 5
percentage but less than 10 percentage of their savings in Mutual Fund while
majority 75 percent of the respondents in the category of income of less than Rs
1 lac annually only invest more than 1 percentage but less than 5 percentage of
their savings in Mutual Fund.

5. In regard to the reasons for investing in mutual funds, 39 percent of the mutual
fund investor respondents did so because they perceived mutual funds as a good
option for return. On the other hand 32 percent of them felt that mutual funds
are good investment option for tax saving. Substantial 20 percent of the people
feel that mutual funds are low risk /safe investment avenue. Thus safety is also
of primary importance in the minds of Indian investors and mutual funds needs
to reinforce their image as a safe investment avenue along with good returns.

6. It has been revealed that the maximum number of people (96 percent) invest
their saving in any form of investment avenue. Their average savings is 36
percent of their total income. People invest most of their saving in mutual funds
than other avenues. This shows that today Mutual fund is the most preferred
avenue than others.

7. It has been revealed that majority of people (58 percent) invest in Mutual Fund
on the bases of past performance of that particular fund. While 21 percent each
of the people invest in particular Mutual Fund because of the brand image
created and because of the advice given by their investment advisor or friends.
This shows that past performance of the fund is much important for the

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 investors.

8. The researcher interviewed respondents who had not invested in mutual funds to
find out why they did not invest in Mutual Funds. The lack of awareness about
mutual funds appears to be the most important reason as it was supported by 50
percent of the respondents. This focuses attention on the need to educate the
potential investors about the concept of a mutual fund. About 25 percent of the
respondents felt that comparatively other investment avenues were more
attractive while 18 percent respondents doubted the safety of mutual fund. 7
percent of respondents stated that they had not invested in mutual funds because
the existing schemes were not tailored to need and preferences.
To popularize mutual funds, it is essential to educate the people and get a
feedback from them to determine their needs and preferences and also creating
confidence about the safety of investment in mutual funds.

9. Market Information should be provided to each and every client. The study
clearly points out the importance of market information to the investors’. Fund
fact sheets should be sent to all clients through email. The investment advisors
of various Mutual Funds should highly emphasize the importance of the market
information. The name of the fund manager, investment objective, returns, cost,
sector allocation and top ten holdings may be highlighted by the investment
advisors.
10. Transparency is a major issue in today’s world. In many cases it happens that
the third party or a broking firm which sells mutual funds of different Asset
Management Company (AMC) might miss-sell a fund to an investor. This can
happen because the revenues paid by the AMC to the broking firms are
unknown to an investor. Any broking firm can push more equity products to
their clients instead of debt funds because equity funds give more revenues to
them. Similarly among equity products also New Fund Offers (NFO) might
offer higher revenues than existing good funds. So the revenue distribution
should be very transparent.

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SUGGESTIONS

In order to avoid various malpractices and poor performance of the mutual fund
following steps may be taken:
i. The Asset Management Company (AMC) should exercise due diligence and
care in all its investment decisions as would be exercised by other persons
engaged in the same business. With a purpose to implement the regulation in an
effective manner and to bring about transparency in investment decisions, the
AMCs are advised to maintain records in support of each investment decision
which will indicate the data facts and opinion leading to that decision.

ii. Introduce more Arbitrage funds which can blossom during boom period and can
withstand recession period. SBI Arbitrage Opportunity fund is one of the funds
which have not given a negative return during the period of April 07 to March
09. Arbitrage funds will provide the hedging opportunities to Mutual Funds.

iii. Consolidation of the fund houses should be done. Consolidation is of two types,
one that takes place between two different fund houses and the other that belong
to mergers of schemes from the same fund house. HDFC mutual fund acquired
with Zurich India, Sundaram mutual fund acquired Newton Investment
Management, UTI mutual fund acquired IL And FS mutual fund etc. Thus if the
mutual fund continuous consolidation it will gain economies of scale and will
serve the investors in the better way.

iv. Mutual fund should give emphasis to technology wave. It will bring flexibility
and convenience to investors. It will widen the reach of mutual fund.
Advantages of technology wave include lower distribution cost through on line
transaction more customized and personal advice to customer.

v. Mutual fund industry should focus to mobilize the saving of the semi- urban and
rural investors. The growth of the industry thus depends on the strong and well-
spread intermediary chain. The intermediaries advisory committee constituted

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 by Canbank Mutual Fund attempts to provide a plot for the intermediaries. It
can further be expanded by including Public Sector Banks and post offices that
can double up as collection centers. If they are allowed to sell mutual fund
schemes can be widely expanded.
So as to ensure adequate participation of semi-urban and rural investors,
mutual fund may also take the following steps:
a. Designing schemes tailored to the needs and preferences of rural and semiurban
areas.
b. Recruitment of agents from rural areas who are conversant with the local
languages.
c. Advertising the schemes in media that has access to the rural and semi-urban
investors.
d. Setting up of special investment cells in rural and semi-urban areas.

vi More tax incentives be given to investor of mutual fund. For the spurt growth of
mutual fund industry more Equity-Linked Saving Schemes (ELSS) schemes should be
launched which yield high return and better liquidity. vii Through product innovation a
variety of funds are available to the investors. Saini, Anjum and Saini also finded out
that New and more innovative schemes should be launched from time to time so that
investor’s confidence should be maintained. All this will lead to the overall growth and
development of the mutual fund industry. For instance, today many mutual fund offer
innovative feature like same day redemption in liquid funds, institutional plans that will
reduce the overall cost of investment and bonus units instead of dividend. Mutual funds
should focus on schemes basically on power oil and gas, telecom banking and finance,
pharmaceuticals, media, fertilizers, travel and, tourism, cement, engineering, metals and
auto sector. Thus if mutual funds continue to launch these innovative scheme this help
to attract more investors and will lead to spurt growth of the industry.

viii At a time when cost pressure is on the rise and opening several branches and
adding point of sales might not be possible for a majority of the fund houses,
direct involvement with internet users will help create a buzz about mutual
funds. “Socialising” with the masses should increasingly becoming a new
mantra for Indian mutual fund houses, which have been struggling hard to

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 increase penetration of their products. No wonder, several of these houses
should aggressively be active on social networking websites — Facebook and
Twitter. Going on social networking sites would just be a beginning in the right
direction.

ix Distributors fees should be reduced as after the abolition of entry load, their
income had reduced. “This reduction in fee will lead to higher number of
distributors entering in Tier-2 and Tier-3 cities which will benefit the industry
over a period of time.

x Association of Mutual Funds in India (AMFI) should reduce the registration fees
for mutual fund distributors to increase the penetration of mutual funds and
incentivize distributors beyond the metros. This would be required to make
mutual fund more popular in semi urban and rural areas.

xi The fund names must also be made simpler to understand and give an idea of the
risk return trade-off to be borne by investor and minimum investment horizon so
that investor is able to make informed investment decisions.

xii There is a need to make mutual funds a good business proposition to expand
their reach to smaller cities, towns and rural areas and solution to this lies in
greater adoption of technology and innovative products.

xiii Miss-selling and complexity makes people jittery to enter financial sector and
there is a need to inform fund managers, distributors and people in the selling
business to sell the right kind of product to right kind of information.

Indian mutual fund has gained a lot of popularity from the past few years.
Earlier only UTI enjoyed the monopoly in this industry but with the passage of
time many new players entered the market, and many new schemes of mutual
funds were launched due to which the UTI monopoly breaks down and the
industry faces a severe competition. The researcher examined that the behavior

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of the Investor can be affected by many of internal as well as external
environment. The demographical factors play critical role in determining
investors’ behavior while investing in Mutual Fund.

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 BIBLIOGRAPHY

REFERENCE BOOK:

FINANCIAL MARKET AND

SERVICES

-Gordon and Natarajan

WEBSITE:

www.utimf.com
www.reliancemutual.co
m www.amfiindia.com

SEARCH ENGINE:

www.google.com
www.altavista.com
www.yahoo.com

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