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International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 7, July 2012, ISSN 2277 3622
A COMPARATIVE ANALYSIS OF MUTUAL FUND SCHEMES IN INDIA

DR. SARITA BAHL*; MEENAKSHI RANI**
*Associate Professor, P.G Department of Commerce and Management, Arya College, Ludhiana. **Research Scholar, Department of Commerce, Kurukshetra University, Kurukshetra, Haryana.
ABSTRACT The present paper investigates the 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. The historical performance of the selected schemes were evaluated on the basis of Sharpe, Treynor, and Jensens measure whose results will be useful for investors for taking better investment decisions. The study revealed that 14 out of 29 (48.28 percent) sample mutual fund schemes had outperformed the benchmark return. The results also showed that some of the schemes had underperformed, these schemes were facing the diversification problem. In the study, the Sharpe ratio was positive for all schemes which showed that funds were providing returns greater than risk free rate. Results of Jensen measure revealed that 19 out of 29 (65.52 percent) schemes were showed positive alpha which indicated superior performance of the schemes. KEYWORDS: Jensen measure, Mutual funds, performance evaluation, Sharpe measure, Treynor measure. ______________________________________________________________________________ I. INTRODUCTION Many of the financial instruments mutual fund is one of the most attractive financial investment instrument that plays a vital role in the economy of a country. Mutual fund schemes provides new opportunities for investors. Mutual fund Industry was introduced in India 1963 with the formation of Unit Trust of India. During the last few years many extraordinary and rapid changes have been seen in the Mutual fund industry. Therefore, due to the changed environment it becomes important to investigate the mutual fund performance. The need for evaluating the performance of mutual fund schemes in India to see whether the mutual fund schemes are outperforming or underperforming than the benchmark and to see the competency of schemes to make out a strong case for investment. The present paper investigates the performance of openended, growth-oriented equity schemes. Open-ended mutual fund schemes are those which dont have a fixed maturity, not listed in the stock exchange and these schemes offer new unit for sale and ready to buy any time. The success of any scheme depends upon the competence of the
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management and its soundness. The numbers of open-ended schemes have been increased from the last few years except 2009 (see table 1). The reason may be of decreasing open-ended schemes in March 2009 are the global financial crisis. According to AMFI (March 2011), there were about 1095 schemes in India, out of which 727 (66.39%) were open-ended. The growth of open-ended and close-ended mutual fund schemes in percentage term are presented in Table 1. TABLE 1. GROWTH OF MUTUAL FUND SCHEMES IN INDIA Schemes Open-ended Closeended Total March 2006 463 (78.21) 129 (21.79) 592 (100) March 2007 480 (64) 270 (36) 750 (100) March 2008 592 (61.92) 364 (38.08) 956 (100) March 2009 589 (63.13) 344 (36.87) 933 (100) March 2010 641 (76.04) 202 (23.96) 843 (100) March 2011 727 (66.39) 368 (33.61) 1095 (100)
Note: Figures in parentheses indicate the percentages Source: Data Compiled from AMFI (Association of Mutual Funds of India) The rest of paper is organized as follows: In Section II summarize previous studies related to mutual funds performance. Section III discusses the research methodology for this study. Section IV discusses results and analysis and Section V concludes this study. II. LITERATURE REVIEW The present study deals with the review of literature on Evaluating the Performance of Indian Mutual Fund Schemes. A number of studies on evaluating the performance of Indian Mutual Fund Schemes have been conducted in India and foreign countries. Review of some of the studies is presented in the following discussion: Jayadev (1996) evaluated the performance of two growth-oriented mutual funds namely Mastergain and Magnum express by using monthly returns. Jensen, Sharpe and Treynor measures have been applied in the study and the pointed out that according to Jensen and Treynor measure Mastergain have performed better and the performance of Magnum was poor according to all three measures. Afza and Rauf (2009) in their study of open-ended Pakistani mutual funds performance using the quarterly data for the period of 1996-2006. The study measure the fund performance by using Sharpe ratio with the help of pooled time-series and cross sectional data and also focused on different attributes such as fund size, expenses, age, turnover and liquidity. The results found significant impact on fund performance. Debasish (2009) studied the performance of selected schemes of mutual funds based on risk and return models and measures. The study covered the period from April 1996 to March 2005 (nine years). The study revealed that Franklin Templeton and UTI were the best performers and Birla Sun life, HDFC and LIC mutual funds showed poor performance. Ali, Naseem and Rehman (2010) in
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their study examined the performance of 10 mutual funds in which 5 were conventional and 5 were Islamic for the period from 2006 to 2008 by using Sharpe and Treynor measures. The results found that the funds of Pakistan were able to add more value either conventional or Islamic. The study also found that some of the funds were underperformed, so these funds were facing diversification problems during the study period. Garg (2011) examined the performance of top ten mutual funds that was selected on the basis of previous years return. The study analyzed the performance on the basis of return, standard deviation, beta as well as Treynor, Jensen and Sharpe indexes. The study also used Carharts four-factor model for analyze the performance of mutual funds. The results revealed that Reliance Regular Saving Scheme Fund had achieved the highest final score and Canara Robeco Infra had achieved the lowest final score in the one year category. Sondhi and Jain (2010) examined the market risk and investment performance of equity mutual funds in India. The study used a sample of 36 equity fund for a period of 3 years. The study examined whether high beta of funds have actually produced high returns over the study period. The study also examined that open-ended or close ended categories, size of fund and the ownership pattern significantly affect risk-adjusted investment performance of equity fund. The results of the study confirmed with the empirical evidence produced by fama (1992) that high beta funds (market risks) may not necessarily produced high returns. The study revealed that the category, size and ownership have been significantly determinant of the performance of mutual funds during the study period. Prabakaran and Jayabal (2010) evaluated the performance of mutual fund schemes. The study conducted a sample of 23 schemes were chosen as per the priority given by the respondents in Dharmapuri district covered a period from April 2002 to March 2007. The study used the methodology of Sharpe, Jensen and Fama for the performance evaluation of mutual funds. The results of the study found that 13 schemes out of 23 schemes selected had superior performance than the benchmark portfolio in terms of Sharpe ratio, 13 schemes had superior performance of Treynor ratio and 14 schemes had superior performance according to Jensen measure. The Famas measure indicated in the study that the returns out of diversification were less. Thus the India Mutual funds were not properly diversified. OBJECTIVES OF THE STUDY The present study is concerned with the following objectives: 1. To examine the performance of selected schemes on the basis of risk and return and compare the performance of selected schemes with benchmark index to see whether the scheme is outperforming or underperforming the benchmark. To examine the performance of selected schemes by using the portfolio performance evaluation models namely Sharpe, Treynor and Jensen.
2.
III. RESEARCH METHODOLOGY To examine the mutual fund schemes performance, 29 schemes were selected at random basis. Monthly NAV of different schemes have been used in this study for the period of six years i.e., April 2005 to March 2011(six years). BSE-Sensex has been used for market portfolio. In the study the monthly yield on 91-day Treasury bills have been used as risk-free rate. The study was
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mainly secondary data based. Data regarding NAV were obtained from the web site of www.mutualfundindia.com and www.amfiindia.com for the period of April 2005 to March 2011. Data for monthly closing price for the benchmark index (BSE-Sensex) were collected from web site of Bombay Stock Exchange (www.bseindia.com). RETURN: The monthly returns of the schemes were computed by using the following equation. Rpt = NAVt NAVt-1/ NAVt-1
Where, Rpt is return on fund scheme, NAVt is the Net Asset value of the scheme at the end of t, NAVt-1 is Net Asset value of the scheme at the end of the month t-1. The average return of the market portfolio is computed as follows:
Rp
1 n
R pt
t 1
Where, Rp is the average return of the mutual fund schemes. Similarly, the monthly returns for the market index were calculated by using the following formula: Rmt = Market Indext Market Indext-1/ Market Indext-1
Where, Rmt return of the market index, Market Indext is the Market value of the index at the end of t, Market index of t-1 is the market value of the scheme at the end of the month t-1. The average return of the market index is computed as follows:
Rm =
1 n
Rmt
t 1
1 n 1
( Rpt
R p) 2
p is risk of fund portfolio. The risk of the market has been calculated as under: m =
1 n 1
( Rmt
Rm) 2
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RISK: Standard deviation is a measure of risk. The standard deviation of mutual fund schemes has been calculated as under:
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m is risk of fund portfolio. Beta ( ) : Beta is the systematic risk. Beta is undiversificable in nature. It has been calculated by using this formula: Beta Where, =
Cov( Rp , Rm)
2 m
is systematic risk the portfolio, cov (Rp, Rm) is covariance between the return of
2 m
portfolio and market,
is variance of market return.
SHARPE MEASURE: William F. Sharpe (1966) had planned or invent an index of portfolio performance measure, namely Sharpe ratio. The formula for Sharpe measure is: Sharpe =
Rp
p
Rf
Where, Rp is return of mutual fund portfolio, Rf is risk free rate of return, deviation of the mutual fund portfolio.
is standard
TREYNOR MEASURE: This measure was developed by Jack Treynor in 1965 is based on systematic risk and known as reward to volatility ratio. The formula for this measure is Treynor =
Xi
m 2 m i 1 i 2 m i 1
( Ri
Rf )
2 ei 2 i 2 ei
Where, Rp is return of mutual fund portfolio, Rf is risk free rate of return, risk of the portfolio.
is the systematic
Where, Rp is return of mutual fund portfolio, Rf is risk free rate of return, systematic risk of the portfolio, Rm is the return of benchmark portfolio. IV. RESULTS AND ANALYSIS
is the
RETURN, RISK, BETA AND COEFFICIENT OF DETERMINATION OF SAMPLE SCHEMES Table 2 represents the results of return, risk, beta and coefficient of determination of selected schemes with benchmark return and risk. It is clear from the table that 14 out of 29 (48.27
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JENSEN MEASURE: This measure developed by Michael Jensen. The formula for Jensen measure is: (Rp Rf) = + ( Rm Rf) + ep
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percent) sample mutual fund schemes had outperformed the benchmark return. It shows competency of these schemes to make out a strong case for investment. The maximum return was from HDFC equity growth fund and minimum return was from Principal Growth fund growth. In the context of risk, it found from the table 2 that 14 schemes had less risky than market risk and remaining 15 schemes have risk greater than the market risk. In the context of beta, it is observed from the table 2 that out of 29 schemes, only 5 schemes have registered a beta value greater than one indicated that they belonged to more risk category. The remaining 24 schemes have registered beta less than one which indicated that they belonged to low risk category. R square measure the level of diversification. It also found from the table 2 that the highest R square value was found in Baroda Pioneer Growth Fund-Growth (0.940) followed by HDFC Top 200 Growth (0.935) and Franklin India Blue Chip-Growth (0.933) which indicated that these schemes have performed well diversification. TABLE 2 SUMMARY OF RISK, RETURN, BETA AND R SQUARE (APRIL 2005 TO MARCH 2011) Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Schemes Baroda Pioneer Growth Fund - Growth Birla Sun Life Advantage Fund Growth Birla Sun Life MNC Fund - Growth BNP Paribas Equity Fund Growth DSPBlackrockTop100EquityFund-Growth Franklin India Blue Chip - Growth HDFC Equity Fund - Growth HDFC Top 200 Growth HSBC Equity Fund - Growth ICICI Prudential Discovery Fund - Growth ING Core Equity Fund - Growth JM Equity Fund Growth Scheme Return 0.0202 0.0162 0.0178 0.0166 0.0212 0.0202 0.0234 0.0227 0.0176 0.0217 0.0185 0.0138 Scheme risk 0.0824 0.0894 0.0683 0.0826 0.0738 0.0766 0.0843 0.0789 0.0736 0.0918 0.0824 0.0953 Beta R square 0.934 1.021 0.729 0.933 0.851 0.893 0.965 0.920 0.828 0.963 0.934 1.080 0.940 0.897 0.885 0.879 0.914 0.933 0.902 0.935 0.527 0.870 0.884 0.885
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13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Kotak 50 Growth Kotak Opportunity Fund - Growth Morgan Stanley Growth Fund - Growth Principal Growth Fund - Growth Reliance Equity Opportunity Fund-Growth Reliance Growth Fund - Growth SBI Mangum Equity Fund - Growth Sundaram Growth Fund - Growth Sundaram India Leadership Fund - Growth Tata Equity Opportunity Growth Fund Tata Equity P/E Fund - Growth Tata Growth Fund - Growth Tata Pure Equity Fund - Growth Templeton India Growth Fund - Growth UTI Equity Fund Growth UTI Master Share Growth UTI Master Value Fund - Growth Average BSE-Sensex index (Benchmark)
0.0194 0.0215 0.0159 0.0123 0.0213 0.0223 0.0187 0.0184 0.0184 0.0183 0.0210 0.0151 0.0191 0.0201 0.0169 0.0168 0.0181 0.018741 0.0186
0.0787 0.0903 0.0852 0.0836 0.0898 0.0890 0.0879 0.0928 0.0953 0.0924 0.0885 0.0899 0.0799 0.0840 0.0836 0.0757 0.0919 0.0847 0.0841
0.900 0.999 0.980 0.942 1.010 0.979 0.988 0.979 1.060 1.031 0.995 0.964 0.908 0.956 0.605 0.869 0.975 0.937 1.00
0.901 0.843 0.910 0.874 0.861 0.834 0.870 0.875 0.845 0.854 0.869 0.790 0.889 0.891 0.360 0.908 0.774
0.848
FREQUENCY DISTRIBUTION OF RISK, RETURN, BETA AND COEFFICIENT OF DETERMINATION (R SQUARE) A frequency distribution of risk, return, beta and coefficient of determination (R square) of selected schemes has been prepared (see table 3) because frequency distribution explains comparative status of different mutual fund schemes selected for the study during the study period. To sum up, it may be concluded through a mutual fund sample schemes in the study that only return of 11 schemes fell in the range of 0.02-0.03 (37.93 percent), which indicated that these schemes are able to earn higher returns and 18 schemes fell in the range of 0.01-0.02 (62.07 percent) and none schemes fell in the range of < 0.01 during the study period.
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TABLE 3 FREQUENCY DISTRIBUTION OF RETURN, RISK, BETA AND R-SQUARE OF SELECTED MUTUAL FUND SCHEMES (APRIL 2005 TO MARCH 2011) Returns Avg. Return No. of Schem e < 0.01 0.010.02 0.020.03 Total 0 18 11 29 ----62.0 7 37.9 3 100 < 0.04 0.040.08 0.080.12 Total % Risk Risk No. of % Schem e 0 8 21 29 ----27.5 9 72.4 1 100 Beta Beta No. of % Schem e 0 5 24 29 ----17.2 4 82.7 6 100 R squar e < 0.4 0.4-0.8 0. 81.2 Total R square No. of Schem e ----3 26 29 %
Beta =1 Beta > 1 Beta < 1 Total
----10.3 4 89.6 6 100
SHARPE AND TREYNOR MEASURES Table 4 represents the result of Sharpe measure and Treynor measure. It is observed from the table 4 that higher positive value of Sharpe measure was found in HDFC Top 200 Growth (0.00224) which followed by DSP Black rock Top 100 Equity Fund Growth (0.00219) and Franklin India Blue Chip Growth (0.00198). In the study, the Sharpe ratio was positive for all schemes which showed that funds were providing returns greater than risk free rate. It also found from the table that 16 out of 29 (55.17 percent) schemes have better Sharpe ratios in comparison to the benchmark portfolios. In the context of Treynor measure, it is revealed for the table 4 that 19 schemes, out of 29 had outperformed the benchmark. UTI equity fund growth is the top performer of the equity schemes. In case of comparative ranking of Sharpe and Treynor measure, it found that 11 schemes out of 29 schemes had exactly same ranking for both Sharpe and Treynor measure and other schemes had not same ranking the reason may be of that Sharpe measure use total risk and Treynor measure use systematic risk.
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TABLE 4 RANKING OF SAMPLE SCHEMES ON THE BASIS OF SHARPE AND TREYNOR MEASURE (APRIL 2005 TO MARCH 2011) Rank s Sr.N o 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Schemes Baroda Pioneer Growth Fund - Growth Birla Sun Life Advantage Fund Growth Birla Sun Life MNC Fund - Growth BNP Paribas Equity Fund Growth DSP Blackrock Top 100 Equity Fund Growth Franklin India Blue Chip - Growth HDFC Equity Fund - Growth HDFC Top 200 Growth HSBC Equity Fund - Growth ICICI Prudential Discovery Fund Growth ING Core Equity Fund - Growth JM Equity Fund Growth Kotak 50 Growth Kotak Opportunity Fund - Growth Morgan Stanley Growth Fund - Growth Principal Growth Fund - Growth Reliance Equity Opportunity FundGrowth Reliance Growth Fund - Growth Sharpe measure 0.00184 0.00125 0.00187 0.00140 0.00219 0.00198 0.00218 0.00224 0.00171 0.00183 0.00163 0.00092 0.00184 0.00182 0.00128 0.00087 0.00181 0.00194 5 4 3 1 15 9 16 28 8 10 25 29 11 0.01611 0.01764 11 5 7 26 6 23 2 0.01900 0.01699 0.01903 0.01921 0.01518 0.01731 0.01442 0.00812 0.01597 0.01650 0.01109 0.00772 4 8 3 2 16 7 17 28 13 9 25 29
Treyno r measur e 0.01624 0.01094 0.01751 0.01240
Rank s
10 26 6 24
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19 20 21 22 23 24 25 26 27 28 29
SBI Mangum Equity Fund - Growth Sundaram Growth Fund - Growth Sundaram India Leadership Fund Growth Tata Equity Opportunity Growth Fund Tata Equity P/E Fund - Growth Tata Growth Fund - Growth Tata Pure Equity Fund - Growth Templeton India Growth Fund - Growth UTI Equity Fund Growth UTI Master Share Growth UTI Master Value Fund - Growth Average BSE-Sensex index (Benchmark)
0.00155 0.00144 0.00139 0.00143 0.00180 0.00112 0.00176 0.00179 0.00142 0.00155 0.00141 0.00163 0.00161
17 19 24 20 12 27 14 13 21 18 22
0.01384 0.01366 0.01261 0.01287 0.01605 0.01045 0.0155 0.01576 0.01962 0.01354 0.01341 0.01478 2 0.01357 0
18 19 23 22 12 27 15 14 1 20 21
JENSEN MEASURE (ALPHA) Table 5 represents the Jensen measures of the mutual fund schemes. Results of Jensen measure revealed that 19 out of 29 (65.52 percent) schemes were showed positive alpha which indicated superior performance of the schemes and remaining 10 schemes had negative alphas. Among all the schemes higher alpha was found with Kotak Opportunity Fund Growth (0.01511) followed by HDFC Equity Fund Growth (0.00527) and HDFC Top 200 Growth (0.00519).
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TABLE 5 RANKING OF SAMPLE SCHEMES ON THE BASIS OF JENSEN MEASURE (APRIL 2005 TO MARCH 2011) Sr. No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Schemes Baroda Pioneer Growth Fund - Growth Birla Sun Life Advantage Fund Growth Birla Sun Life MNC Fund - Growth BNP Paribas Equity Fund Growth DSPBlackrockTop100EquityFund-Growth Franklin India Blue Chip - Growth HDFC Equity Fund - Growth HDFC Top 200 Growth HSBC Equity Fund - Growth ICICI Prudential Discovery Fund - Growth ING Core Equity Fund - Growth JM Equity Fund Growth Kotak 50 Growth Kotak Opportunity Fund - Growth Morgan Stanley Growth Fund - Growth Principal Growth Fund - Growth Reliance Equity Opportunity Fund-Growth Reliance Growth Fund - Growth SBI Mangum Equity Fund - Growth Sundaram Growth Fund - Growth Jensen Alpha Ranks 00.0025 -0.00268 0.00288 -0.00109 0.00463 0.00305 0.00527 0.00519 0.00133 0.00361 0.00080 -0.00588 0.00216 0.01511 -0.00243 -0.00551 0.00256 0.00398 0.00026 0.00009 11 25 9 23 4 8 2 3 16 7 17 28 13 1 24 27 10 5 18 19
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21 22 23 24 25 26 27 28 29
Sundaram India Leadership Fund - Growth Tata Equity Opportunity Growth Fund Tata Equity P/E Fund - Growth Tata Growth Fund - Growth Tata Pure Equity Fund - Growth Templeton India Growth Fund - Growth UTI Equity Fund Growth UTI Master Share Growth UTI Master Value Fund - Growth Average
-0.0101 -0.00072 0.00247 -0.00301 0.00175 0.00210 0.00366 -0.00002 -0.00016 0.001097
29 22 12 26 15 14 6 20 21
V. CONCLUSIONS The present paper investigates the 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. The historical performance of the selected schemes were evaluated on the basis of Sharpe, Treynor, and Jensens measure whose results will be useful for investors for taking better investment decisions. Results of the study showed that that 14 out of 29 (48.27 percent) sample mutual fund schemes had outperformed the benchmark return. All the schemes have represented positive returns. From Sharpe ratio, it found that Sharpe ratio is 0.00163 as compared to market 0.00161 that shows better performance as compared to the market. From Treynor results, it found that 19 out of 29 schemes had outperformed the benchmark. The results also showed that some of the schemes had underperformed, these schemes were facing the diversification problem. In the study, the Sharpe ratio was positive for all schemes which showed that funds were providing returns greater than risk free rate. Results of Jensen measure revealed that 19 out of 29 (65.52 percent) schemes were showed positive alpha which indicated superior performance of the schemes. REFERENCES Ali, Rizwan., Naseem, Muhammad Akram and Rehman, Ramiz Ur (2010). Performance Evaluation of Mutual Funds. Social Science Research Network online Publication 10 May, Available at SSRN: http://ssrn.com/abstract=1837103. Afza, Talat and Rauf, Ali (2009). Performance Evaluation of Pakistani Mutual Fund. Pakistani Economic and Social Review, 47(2), 199-214.
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Debasish, Sathya Swaroop (2009). Investigating Performance of Equity-based Mutual Fund Schemes in Indian Scenario. KCA Journal of Business Management, 2(2), 1-15. Garg, Sanjay (2011). A Study on Performance Evaluation of Selected Indian Mutual Funds. International Journal of Innovation Creativity and Management (IJICM), 1(1), 1-10. Jayadev, M (1996). Mutual Fund Performance: An Analysis of Monthly Returns. Finance India, 10 (1), 73-84. Kundu, Abhijit (2009). Stock Selection Performance of Mutual Funds Managers in India: An Empirical Study. Journal of Business and Economic Issues, 1(1) 59-73. Prabakaran, G and Jayabal, G (2010). Performance Evaluation of Mutual Fund Schemes in India: An Empirical Study. Finance India, 24 (4), 1347-1363. Sondhi, H.J and Jain, P.K (2010). Market Risk and Investment Performance of Equity Mutual Funds in India: Some Empirical Evidence. Finance India, XXIV (2), 443-464. Shanmugham, R and Zabiulla (2011). Stock Selection Strategies of Equity Mutual Fund Schemes in India. Middle Eastern Finance and Economics, ISSN 1450-2889, Issue 11, 19-28. WEBSITES www.mutualfundindia.com www.amfiindia.com www.bseindia.com www.sebi.org www.businessstandard.com www.rbi.org.com
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A COMPARATIVE ANALYSIS OF MUTUAL FUND SCHEMES IN INDIA

portfolio and market,

is variance of market return.

Beta =1 Beta > 1 Beta < 1 Total

----10.3 4 89.6 6 100

Treyno r measur e 0.01624 0.01094 0.01751 0.01240

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