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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.
______________________________________________________________________________
67
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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I. INTRODUCTION
IRJC
International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
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
March
2006
March
2007
March
2008
March
2009
March
2010
March
2011
Open-ended
463 (78.21)
480 (64)
592 (61.92)
589 (63.13)
641 (76.04)
727 (66.39)
Closeended
129 (21.79)
270 (36)
364 (38.08)
344 (36.87)
202 (23.96)
368 (33.61)
Total
592 (100)
750 (100)
956 (100)
933 (100)
843 (100)
1095 (100)
68
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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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: -
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International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
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
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.
2.
69
1.
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IRJC
International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
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
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, 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:
n
Rmt
RISK: Standard deviation is a measure of risk. The standard deviation of mutual fund schemes
has been calculated as under:
p
1
n 1
( Rpt
R p) 2
1
n 1
( Rmt
Rm) 2
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t 1
70
Rm =
1
n
IRJC
International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
Cov( Rp , Rm)
is systematic risk the portfolio, cov (Rp, Rm) is covariance between the return of
2
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
Rf
p
is standard
Xi
( Ri
Rf )
1
i
2
ei
2
m
i
2
i
2
ei
is the systematic
JENSEN MEASURE: This measure developed by Michael Jensen. The formula for Jensen
measure is:
(Rp Rf) =
+
( Rm Rf) + ep
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.
is the
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2
m
71
Treynor =
IRJC
International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
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)
Scheme
Return
Scheme
risk
0.0202
0.0824
0.934
0.940
0.0162
0.0894
1.021
0.897
0.0178
0.0683
0.729
0.885
0.0166
0.0826
0.933
0.879
DSPBlackrockTop100EquityFund-Growth
0.0212
0.0738
0.851
0.914
0.0202
0.0766
0.893
0.933
0.0234
0.0843
0.965
0.902
0.0227
0.0789
0.920
0.935
0.0176
0.0736
0.828
0.527
10
0.0217
0.0918
0.963
0.870
11
0.0185
0.0824
0.934
0.884
12
0.0138
0.0953
1.080
0.885
Beta R square
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Schemes
72
Sr.
No.
IRJC
Kotak 50 Growth
0.0194
0.0787
0.900
0.901
14
0.0215
0.0903
0.999
0.843
15
0.0159
0.0852
0.980
0.910
16
0.0123
0.0836
0.942
0.874
17
0.0213
0.0898
1.010
0.861
18
0.0223
0.0890
0.979
0.834
19
0.0187
0.0879
0.988
0.870
20
0.0184
0.0928
0.979
0.875
21
0.0184
0.0953
1.060
0.845
22
0.0183
0.0924
1.031
0.854
23
0.0210
0.0885
0.995
0.869
24
0.0151
0.0899
0.964
0.790
25
0.0191
0.0799
0.908
0.889
26
0.0201
0.0840
0.956
0.891
27
0.0169
0.0836
0.605
0.360
28
0.0168
0.0757
0.869
0.908
29
0.0181
0.0919
0.975
0.774
0.018741
0.0847
0.937
0.848
0.0186
0.0841
1.00
Average
BSE-Sensex index (Benchmark)
73
13
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International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
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
Risk
Beta
R square
Risk
No. of %
Schem
e
Beta
No. of %
Schem
e
R
squar
e
No. of
Schem
e
Schem
e
< 0.01
-----
< 0.04
-----
Beta
=1
-----
< 0.4
-----
-----
0.010.02
18
62.0
7
0.040.08
27.5
9
Beta >
1
17.2
4
0.4-0.8
10.3
4
0.020.03
11
37.9
3
0.080.12
21
72.4
1
Beta <
1
24
82.7
6
0. 81.2
26
89.6
6
Total
29
100
Total
29
100
Total
29
100
Total
29
100
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.
74
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.
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IRJC
International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
TABLE 4
RANKING OF SAMPLE SCHEMES ON THE BASIS OF SHARPE AND TREYNOR
MEASURE (APRIL 2005 TO MARCH 2011)
Rank
s
Treyno
r
measur
e
Rank
s
Sr.N
o
Schemes
Sharpe
measure
0.00184
0.01624
10
0.00125
26
0.01094
26
0.00187
0.01751
0.00140
23
0.01240
24
0.00219
0.01900
0.00198
0.01699
0.00218
0.01903
0.00224
0.01921
0.00171
15
0.01518
16
10
0.00183
0.01731
11
0.00163
16
0.01442
17
12
0.00092
28
0.00812
28
13
Kotak 50 Growth
0.00184
0.01597
13
14
0.00182
10
0.01650
15
0.00128
25
0.01109
25
16
0.00087
29
0.00772
29
17
0.00181
0.01611
11
18
0.00194
0.01764
75
11
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Vol.1 Issue 7, July 2012, ISSN 2277 3622
19
0.00155
17
0.01384
18
20
0.00144
19
0.01366
19
21
0.00139
24
0.01261
23
22
0.00143
20
0.01287
22
23
0.00180
12
0.01605
12
24
0.00112
27
0.01045
27
25
0.00176
14
0.0155
15
26
0.00179
13
0.01576
14
27
0.00142
21
0.01962
28
0.00155
18
0.01354
20
29
0.00141
22
0.01341
21
Average
BSE-Sensex index (Benchmark)
0.00163
0.01478
2
0.00161
0.01357
0
76
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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IRJC
International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
TABLE 5
RANKING OF SAMPLE SCHEMES ON THE BASIS OF JENSEN MEASURE
(APRIL 2005 TO MARCH 2011)
00.0025
11
-0.00268
25
0.00288
-0.00109
23
DSPBlackrockTop100EquityFund-Growth
0.00463
0.00305
0.00527
0.00519
0.00133
16
10
0.00361
11
0.00080
17
12
-0.00588
28
13
Kotak 50 Growth
0.00216
13
14
0.01511
15
-0.00243
24
16
-0.00551
27
17
0.00256
10
18
0.00398
19
0.00026
18
20
0.00009
19
77
Schemes
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Jensen
Alpha Ranks
Sr. No
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International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
21
-0.0101
29
22
-0.00072
22
23
0.00247
12
24
-0.00301
26
25
0.00175
15
26
0.00210
14
27
0.00366
28
-0.00002
20
29
-0.00016
21
Average
0.001097
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.
78
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V. CONCLUSIONS
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International Journal of Marketing, Financial Services & Management Research
Vol.1 Issue 7, July 2012, ISSN 2277 3622
79
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