Amity Business School

Amity Business School

Final Dissertation Viva

Student Name: Pooja Sharma
Enrollment No:
A0101918015
Program Name: MBA
Class of 2020
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Topic
Performance Evaluation of Mutual Funds- Equity
Diversified Funds in India
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Rationale for Research

For mutual funds investors, a fund’s past track record

plays a critical role in deciding on investing or
continuing a particular scheme. Therefore, by
evaluating the performance of a mutual fund this
decision can be made easier.
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Research Objectives

 To study the performance of a growth scheme of

selected mutual funds- equity diversified funds

 To rank the selected mutual fund based on different

measures
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Introduction
Mutual funds is a financial vehicle made up of a pool of money collected from
many investors to invest in securities like stocks, bonds, money market
instruments, and other assets

Advantages:
Types: Diversified investment
Equity funds Professional management
Fixed-income funds Easy access
Balanced funds
Specialty funds Disadvantages:
Fluctuating returns
High expense ratios
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A company’s size is an important criterion for mutual funds, when picking stocks
for equity portfolios.  Following are the different types of funds based on their
market capitalization:

Fund market
Meaning Risk Growth and Returns
capitalization

Invests in large-cap companies  Low growth potential

Large-cap
with a market capitalization of Low risk  Lower returns
funds
more that $10 billion  High stability

Invests in the stocks of mid-

 Better growth
cap companies with market
Mid-cap funds Moderate risk potential
capitalizations ranging from
 Higher returns
$2 billion-$10 billion
 Exponential growth
Invests in small-cap companies
Small-cap potential
with a market capitalization under High risk
funds  High returns on
$1 billion
investment
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Literature Review
Author Name with
Topic [Context] Methodology Key Findings
Year

Sridhar and Evaluated two growth- Using the benchmarks,  Sharpe and Treynor
Obaidullah (1991) oriented funds, the they compared the Raw measurements were larger than
Mastershare (launched by Return - Bombay Stock the indices in the case of
UTI) and the Canshare Exchange Sensitive Index Mastershare, while the Sharpe
(launched by a bank and the Bombay Stock measurements in the case of
subsidiary, Canbank) Exchange National Index. Canshare were smaller than the
mutual funds. indices, while the reverse was
correct for the Treynor measure
 Jensen's measure was positive
for both funds in all cases

Dr. Rao, Narayan Evaluated the Used risk return analysis,  Medium Term Debt Funds were
(2005) performance of the Indian relative performance the top performing funds
Mutual Fund Schemes in index, Treynor’s ratio,  58 mutual funds provided better
a bear market. Jensen’s measure, returns than the total market
Sharpe’s ratio and Fama’s returns
measure
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Literature Review (Contd.)

Author Name
Topic [Context] Methodology Key Findings
with Year
Nalini Prava Evaluated total ten Risk was calculated by  UTI Master Growth, GIC Growth
Triphaty and major growth-oriented month-end NAVs which Plus (II), SBI Magnum Multiplier,
Promod K. Sahu funds was published in ‘The Kothari Pioneer Blue Chip and
(2018) Economic Times’. Centurian Qantus Funds had earned
Forming the BSE Sensitive higher returns than that of the
Index (SENSEX) as the market portfolio returns
market index (Benchmark)  UTI Grand Master, LIC Dhanvikas,
Morgan Stanley Growth Plus,
Taurus Star Share and the ICICI
Premier Funds had earned returns
lower than that of the market returns

Shah A. and Assessed a total of 11 Four of them belonged to  Four programs selected in the UTI
Thomas S. growth patterns from UTI, six to Canara Bank underperformed the market based on
(2018) various Indian and one to IndusInd Bank. Sharpe ratio
investment funds Data has been taken from  Three programs from Canara and
the past three years. one from UTI underperformed based
on Treynor
 Amity Business School

Research Methodology
RESEARCH DESIGN
The present study analyzed the performance of the selected 24 equity diversified mutual fund (large cap
and mid cap funds) with the market for five years from Jan 2015- Jan 2020.
 In order to achieve the objectives of study an analysis has been done to compare these schemes with the
market based on risk and return.
Different financial and statistical tools have been used to evaluate the performance of the mutual fund under
the present study. These tools and techniques include Sortino ratio, Alpha, Sharpe ratio, Treynor Ratio and
Expense ratio

DATA COLLECTION
The study is based on secondary data which has been collected from varied sources like published annual
reports of online bulletins, magazines, journal books, sponsoring agencies, magazines, brochures, newspapers
and other published along with online material. The data were also collected from websites like Morningstar
and Moneycontrol.com
After collecting data, it was imported to a excel file.
The next step includes evaluation of different mutual funds on the basis of techniques explained the followed
section.
In the final step, all the mutual funds are ranked on the basis of their performance

Research Methodology (Contd.)
TOOLS / TECHNIQUES
​
 Alpha:  Represents the average return on a  Sortino Ratio: Considers portfolio's return and
portfolio or investment, above or below the
overall market, given the beta
Alpha= R – { Rf + beta (Rm-Rf) }
Where:
R = portfolio return
Rf = risk-free rate of return
Rm= market return
Beta = systematic risk of a portfolio
 Sharpe Ratio: It is the average return earned in
excess of the risk-free rate per unit of volatility or
total risk
Sharpe Ratio = { ​Rp​− Rf } / σp
​Where:
Rp = return of portfolio
Rf ​= risk-free return
σp​=standard deviation of the portfolio’s  ER = Total Fund Assets/Total Fund Costs
excess return
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subtracts the risk-free rate and then divides that
amount by the asset's downside deviation
Sortino Ratio= {​Rp​− Rf } / σd
Where:
Rp ​= actual or expected portfolio return
Rf = risk-free rate
σd​=standard deviation of the downside
 Treynor Ratio: ​Determines excess return for
each unit of risk taken on by a portfolio.
Treynor Ratio=​{ Rp​−Rf​​} / βp
 Expense Ratio: Measures how much of a fund's
assets are used for administrative and other
operating expenses
 Amity Business School

Data Interpretation
Findings based on Objective 1: To study the performance of a growth scheme of selected
mutual funds
 Comparing the fund performance (Sp) with the market performance (Sm), it can be seen, if a particular
portfolio is better than or worse than the market portfolio for the given period of study. As the value of the
Sharpe Ratio gets higher, it indicates that the fund has delivered a higher performance for the level of total
risk measured by the standard deviation. Out of the 24 funds studied, it has been found that, based on Sharpe
Ratio all the funds have outperformed the market portfolio (Sm = 0.44) except one fund i.e. L&T India Value
fund. This implies that 95.8% of the funds have performed better than the market.

 Comparison of fund performance by the technique of Jensen’s Ratio implies that if alpha is positive and
more than zero, the portfolio has outperformed. However, if alpha is negative and less than zero, it then
implies that the portfolio has underperformed. Out of the 24 funds studied it has been found that, 91.6% of
funds have outperformed with Aditya Birla Sun Life Equity Fund and Principal Emerging Blue-chip Fund
underperforming.

 Expense ratio which is an annual charge by a fund which is used for paying for an investment advisory
services, marketing and distribution, and other various operational expenses. Out of the 24 funds studied, the
highest expense ratio of 2.43 belongs to the Tata Retirement Savings Fund which has a return of 12.91%. The
expense ratio is relatively less for direct plans because they are bought directly from the mutual fund
company unlike regular plans which are bought from intermediaries like advisors or distributors. The lowest
expense ratio is for Tata Equity PE Fund 0.41 and has a yearly return of 9.96%. Lower the expense ratio better
it is to invest in a fund. The average expense ratio is 1.03 which implies that 54.16% of the funds are less
expensive to invest in and hence it is better to invest in these funds.
 Amity Business School

Data Interpretation (contd.)

Findings based on Objective 1: To study the performance of a growth scheme of selected

mutual funds (contd.)

 A large Sortino Ratio implies that the fund has performed well and isn’t facing losses. Sortino ratio gives a
picture of how successfully a fund manager has been able to cover or cap downside volatility of a scheme that
is its return falling below the average returns and put up encouraging returns. The best performing funds on
the basis of sortino ratio out of the 24 funds studied has been Tata Equity PE Fund with a sortino ratio of 1.36
while the least performing fund has been L&T India Value Fund with a sortino ratio of 0.56. The average
sortino ratio is 1.03 and 45.83% of the funds have performed well than the other funds.

 The Treynor Ratio is a risk/return measure that allows investors to adjust a portfolio's returns for systematic
risk. A higher Treynor ratio result means a portfolio is a more suitable investment. In this study, 87.5% of the
funds have outperformed the market Treynor ratio with a value of 0.057. L&T India Value Fund and Mirae
Asset Emerging Bluechip are the two funds that have under performed the market ratio.
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Findings based on Objective 2: To rank funds based on different measures

Sharpe Rank Sortino Rank Alpha Rank Treynor Rank Expense Rank
Aditya Birla Sun Life Equity 0.56 21 0.8 21 -0.41 23 0.10 16 0.99 13
Axis Focused 25 Fund 0.98 1 1.22 5 6 6 0.13 9 0.65 3
Canara Robeco Emerging Equity 0.67 19 0.96 16 0.6 20 0.10 15 0.78 4
Canara Robeco Equity Diversified 0.88 5 1.32 2 3.41 8 0.12 10 1.03 14
DSP Equity Fund 0.68 15 0.94 17 1.45 15 0.10 18 1.15 17
Edelweiss Multi Cap Fund 0.78 7 1.23 4 2.46 13 0.11 14 0.63 2
IIFL Focused Equity Fund 0.73 11 0.94 18 3.15 11 0.15 8 0.90 7
Invesco India Contra Fund 0.72 12 1.15 7 11.9 2 0.16 7 0.97 12
Invesco India Growth Opportunities 0.72 13 1.15 8 11.9 3 0.11 13 1.06 16
JM Multicap Fund 0.77 8 1.08 11 3.1 12 0.11 17 1.32 23
Kotak Equity Opportunities 0.68 16 1.11 9 0.17 21 0.19 4 1.16 18
Kotak India EQ Contra Fund 0.91 3 1.36 1 12.18 1 0.08 19 1.15 19
Kotak Standard Multicap Fund 0.76 9 1.18 6 1.98 14 0.11 12 0.87 6
LIC MF Large & Mid Cap Fund 0.69 14 0.92 19 1.04 17 0.11 11 1.29 22
L&T India Value Fund 0.36 24 0.56 24 7.23 5 0.04 24 0.90 8
Mirae Asset Emerging Bluechip 0.88 4 1.31 3 3.32 9 0.04 23 0.83 5
Motilal Oswal Multicap 35 Fund 0.56 20 0.84 20 0.13 22 0.07 21 0.95 9
Parag Parikh Long Term Equity 0.94 2 0.96 13 3.79 7 0.07 19 1.18 20
Principal Emerging Bluechip 0.54 22 0.78 22 -1.54 24 0.05 22 0.96 10
SBI Focused Equity Fund 0.67 17 0.96 14 0.87 18 0.20 3 0.97 11
SBI Magnum Multicap Fund 0.67 18 0.96 15 0.87 19 0.30 1 1.03 15
Sundaram Large and Mid Cap 0.74 10 1.03 12 1.15 16 0.22 2 1.24 21
Tata Equity PE Fund 0.5 23 0.73 23 8.53 4 0.17 6 0.41 1
Tata Retirement Savings Fund 0.79 6 1.09 10 3.26 10 0.18 5 2.43 24
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Rankings Interpretation
 It is found that out of the 24 funds studied, Axis Focused 25 Fund has the highest Sharpe Ratio of 0.98 which
implies that it gives the highest return value per unit of risk-taken. This is followed by Parag Parikh Long
Term Equity Fund (0.94), Kotak India EQ Contra Fund (0.91), Mirae Asset Emerging Bluechip Fund (0.88),
Canara Robeco Equity Diversified Fund (0.88), Tata Retirement Savings Fund (0.79), Edelweiss Multi Cap
Fund(0.78), JM Multicap Fund (0.77), Kotak Standard Multicap Fund (0.76), Sundaram Large and Mid Cap
Fund (0.74), IIFL Focused Equity Fund (0.73), Invesco India Growth Opportunities Fund (0.72), Invesco
India Contra Fund (0.72), LIC MF Large & Mid Cap Fund (0.69), Kotak Equity Opportunities Fund (0.68),
SBI Focused Equity Fund (0.67), SBI Magnum Multicap Fund (0.67), Motilal Oswal Multicap 35 Fund
( 0.56), Aditya Birla Sun Life Equity Fund (0.56), Principal Emerging Bluechip Fund (0.54) and Tata Equity
PE Fund with a Sharpe Ratio of 0.5. The only fund that offers a Sharpe Ratio of less than 0.5 is L&T India
Value Fund which gives a return value of 0.36 per unit of risk-taken.

 The study reveals that out of the 24 funds evaluated, Kotak India EQ Contra Fund has the highest Sortino
Ratio of 1.36 which implies that the return per unit of downside risk. This fund is then followed by Canara
Robeco Equity Diversified Fund (1.32), Mirae Asset Emerging Bluechip Fund (1.31), Edelweiss Multi Cap
Fund (1.23), Axis Focused 25 Fund (1.22), Kotak Standard Multicap Fund (1.18), Invesco India Contra Fund
(1.15), Invesco India Growth Opportunities Fund (1.15), Kotak Equity Opportunities Fund (1.11), Tata
Retirement Savings Fund (1.09), JM Multicap Fund (1.08), Sundaram Large and Mid-Cap Fund (1.03), Parag
Parikh Long Term Equity Fund (0.96), SBI Focused Equity Fund (0.96), SBI Magnum Multicap Fund (0.96),
Canara Robeco Emerging Equities Fund (0.96), DSP Equity Fund (0.94), IIFL Focused Equity Fund (0.94),
LIC MF Large & Mid Cap Fund (0.92), Motilal Oswal Multicap 35 Fund (0.84), Principal Emerging Bluechip
Fund (0.78), Tata Equity PE Fund (0.73) and finally L&T India Value Fund (0.56) which has the lowest
Sortino ratio.
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Rankings Interpretation (contd.)

 The analysis of the study shows that the Alpha figure of the funds is positive for 22 funds while negative for
only two funds implying that apart from Principal Emerging Bluechip Fund (-1.54) and Aditya Birla Sun Life
Equity Fund (-0.41) all the other funds have outperformed their beta prediction. The Alpha figure is the
highest for Kotak India EQ Contra Fund (12.18) followed by Invesco India Contra Fund (11.9), Invesco India
Growth Opportunities Fund (11.9), Tata Equity PE Fund (8.53), L&T India Value Fund (7.23), Axis Focused
25 Fund (6), Parag Parikh Long Term Equity Fund (3.79), Canara Robeco Equity Diversified Fund (3.41),
Mirae Asset Emerging Bluechip Fund (3.32), Tata Retirement Savings Fund (3.26), IIFL Focused Equity
Fund (3.15), JM Multicap Fund (3.1), Edelweiss Multi Cap Fund (2.46), Kotak Standard Multicap Fund
(1.98), DSP Equity Fund (1.45), Sundaram Large and Mid Cap Fund (1.15), LIC MF Large & Mid Cap Fund
(1.04), SBI Focused Equity Fund (0.87), SBI Magnum Multicap Fund (0.87), Canara Robeco Emerging
Equities Fund (0.6), Kotak Equity Opportunities Fund (0.17) and finally Motilal Oswal Multicap 35 Fund
(0.13).

 On the basis of Expense Ratio, out of the studied 24 funds, it is most profitable to invest in Tata Equity PE
Fund as it has the lowest expense ratio of 0.41. This is then followed by Edelweiss Multi Cap Fund (0.63),
Axis Focused 25 Fund (0.65), Canara Robeco Emerging Equities Fund (0.78), Mirae Asset Emerging
Bluechip Fund (0.83), Kotak Standard Multicap Fund (0.87), IIFL Focused Equity Fund (0.9%), L&T India
Value Fund (0.90), Motilal Oswal Multicap 35 Fund (0.95), Principal Emerging Bluechip Fund (0.96), SBI
Focused Equity Fund (0.97), Invesco India Contra Fund (0.97), Aditya Birla Sun Life Equity Fund( 0.99),
Canara Robeco Equity Diversified Fund (1.03), SBI Magnum Multicap Fund (1.03), Invesco India Growth
Opportunities Fund (1.06), DSP Equity Fund (1.15), Kotak India EQ Contra Fund (1.15), Kotak Equity
Opportunities Fund (1.16), Parag Parikh Long Term Equity Fund (1.18), Sundaram Large and Mid Cap Fund
(1.24), LIC MF Large & Mid Cap Fund (1.29) and JM Multicap Fund (1.32). Moreover, it will be least
profitable to invest in Tata Retirement Savings Fund as it has the highest expense ratio of 2.43.
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Result & Conclusion

 Out of the 24 funds studied, it has been found that based on Sharpe Ratio, all the funds have
outperformed the market portfolio (Sm = 0.44) except one fund i.e. L&T India Value fund. This implies
that 95.8% of funds have performed better than the market.
 Out of the 24 funds studied, it has been found that based on Alpha, 91.6% of funds have outperformed
with Aditya Birla Sun Life Equity Fund and Principal Emerging Blue-chip Fund underperforming.
 Out of the 24 funds studied, the highest Expense Ratio belongs to the Tata Retirement Savings Fund
while the lowest expense ratio is for Tata Equity PE Fund. It has been observed that 54.16% of the funds
are less expensive to invest in and hence it is better to invest in these funds.

 The best performing funds on the basis of Sortino Ratio, out of the 24 funds studied, the highest
performing fund has been the Tata Equity PE Fund while the least performing fund has been L&T India
Value Fund. The average Sortino ratio is 1.03 and 45.83% of the funds have performed well than the
other funds.

 In the study, out of 24, 87.5 % of the funds have outperformed the market on the basis of Treynor Ratio
wherein SBI Magnum Multicap Fund has been the highest performing fund.
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Scope of Future Research

The study can be further extended in the following ways:

 The current study uses financial instruments like Sharpe Ratio, Treynor Ratio,
Alpha, Sortino Ratio, etc. Further studies can be conducted wherein other tools
like Credit Rating, Portfolio Concentration Ratio, Portfolio Turnover Ratio for
evaluating the performance of mutual funds in addition to above measures can
be used.

 Also, while judging the performance of equity funds different benchmarks like,
Sensex or Nifty market indices, can be taken into consideration.
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Thank You