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The financial system comprises of financial institutions, instruments and markets that
provide an effective payment and credit system that facility the channelling of funds from
savers to the investors of the economy. Indian Mutual Funds have emerged as strong financial
stability to the financial system. Mutual Funds have opened new vistas to investors and
imported much needed liquidity to the system.

Mutual Funds are dynamic financial institutions, which play a crucial role in an
economy by mobilizing savings and investing in the capital markets savings and the investing
in the capital markets. Therefore, the activities of Mutual Funds have both short and long term
impact on the savings and capital market and national economy.

Mutual Funds provide households an option for portfolio diversification and relative
risk aversion through collection of funds from the house holds and makes investments in the
stock and the debt market.


Mutual Funds are financial intermediaries concern with the mobilizing savings of
those have surplus income and channels lavation of those avenues where there is demand
of Funds.

The purpose of this study of performance evaluation of mutual funds is to see that these
mutual funds employ the resources in such a manner as to afford for the investors combine
benefits of low risk, steady returns, high liquidity and capital appreciation through
diversification and expert management.

Therefore, activities of mutual funds have short and long term impact on the savings
and capital markets and national economy; mutual finds thus assist the process of financial
deepening and intermediation.

Statement of Problem

There are so many investment avenues. So that investors does not know which avenues
provides best return. If the person do not have knowledge of how to get maximum return with
minimum risk or vice-versa then they should be invest in mutual fund. There are so many funds
and schemes are available in mutual fund market. Investors know that how much risk they can
take. Based on that they have to choose schemes. Problem is that chosen scheme provides the
best return as compare to the market and other schemes. For that certain model available
Sharpes model, Treynors model and Jensens model. These models are suggested that which
schemes provide best return.

Objectives of Study

1. To identify key mutual fund types.

2. To evaluate the selected funds assessment on the basis of various performance ratios
(Sharpe, Treynor and Jensen)

Scope of the study

The main scope of this study is to examine the factors that play important role in
selecting mutual fund scheme plus what are the factors that influence the return on mutual fund.
In general, Mutual Funds are not considered to be too risky because they invest in dozens or
even hundreds of stocks. But Mutual Funds being market-linked are prime candidates for stock
market related risks. The four aspects that you should take into account while analysing risk in
Mutual Fund investment are volatility of the fund as indicated by the Standard Deviation, risk-
adjusted returns as calculated by the Sharpe Ratio, Beta and Alpha.

H10: The performance measures can be used to rank mutual fund.
H11: The performance measures cannot be used to rank mutual fund.

Research Methodology
Secondary data is taken as a basis of analysis in this research. Top five equity fund based under
scheme ELSs fund. Monthly data about the closing Net Asset Value of the selected schemes
has collected from the websites and

The most popular and widely tracked nifty is used as a proxy for the market. The monthly
closing value of NSE SENSEX is collected from the website

Exploratory Research aims at elucidating the data about the concept under study.

Type of Research Exploratory research

Sampling Plan:

Target population Top five ELSS mutual fund company in equity

Sample Size 5 years data

Sampling Technique Non Probability Sampling

- Convenience sampling

Source of data Secondary data

Research Design

SAMPLE: - ELSS Tax Saving Funds

1. Birla Sun Life Advantage Fund

2. Axis Long Term Equity Fund
3. Reliance Tax Saver (ELSS) Fund
4. DSP BlackRock Tax Saver Fund
5. Principal Tax Saver (ELSS) Fund

Time Horizon:
The time horizon of an individual will also influence the performance measures he/she
will look at more closely. If you are investing for less than four years, you need a fund with

consistent performance, so all your money will be there when you need it. You also do not
have time to earn back a large commission charge on the front end.

Conversely, if you plan to invest your money for more than four years, neither
consistency nor load is very important: you have plenty of time for the market to recover. With
a long-term horizon, we are conducting research for time period of last 5 years i.e. Jan. 2012
to Dec 2016.

Limitation of the study

The study was limited to only equity growth ELSS Tax saving fund.
The study was open ended based mutual fund.
Only five years data has been taken.



Literature on mutual fund performance evaluation is enormous. A few research studies
that have influenced the preparation of this paper substantially are discussed in this

Barua, Raghunathan and Varma (1991)[3] evaluated the performance of Master Share
during the period 1987 to 1991 using Sharpe, Jensen and Treynor measures and concluded that
the fund performed better that the market, but not so well as compared to the Capital Market

Kothari,S.P. and Warner,Jerold (1997)[6], examined the empirical properties of

performance measures for mutual funds using Simulation procedures combined with random
and random-stratified samples of NYSE and AMEX securities and other performance
measurement tools employed are Sharpe measure, Jensen alpha, Treynor measure, appraisal
ratio, and Fama-French three-factor model alpha. The study revealed that standard mutual fund
performance was unreliable and could result in false inferences. In particular, it was easy to
detect abnormal performance and market-timing ability when none exists. The results also
showed that the range of measured performance was quite large even when true performance
was ordinary. This provided a benchmark to gauge mutual fund performance. Comparisons of
their numerical results with those reported in actual mutual fund studies raised the possibility
that reported results were due to misspecification, rather than abnormal performance. Finally,
the results indicated that procedures based on the Fama-French 3-factor model were somewhat
better than CAPM based measures.

Sethu (1999)[8] conducted a study examining 18 open-ended growth schemes during 1985-
1999 and found that majority of the funds showed negative returns and no fund exhibited any
ability to time the market.

Arnold L. Redman, N.S. Gullett and Herman Manakyan (2000)[2] examines the risk-
adjusted returns using Sharpes Index, Treynors Index, and Jensens Alpha for five portfolios
of international mutual funds and for three time periods: 1985 through 1994, 1985-1989, and
1990-1994. The benchmarks for comparison were the U. S. market proxied by the Vanguard
Index 500 mutual fund and a portfolio of funds that invest solely in U. S. stocks. The results
show that for 1985 through 1994 the portfolios of international mutual funds outperformed the
U. S. market and the portfolio of U. S. mutual funds under Sharpes and Treynors indices.
During 1985-1989, the international fund portfolio outperformed both the U. S. market and the
domestic fund portfolio, while the portfolio of Pacific Rim funds outperformed both

benchmark portfolios. Returns declined below the stock market and domestic mutual funds
during 1990-1994.

Srisuchart (2001) measures Thai mutual fund performance regarding to selectivity and market
timing ability. He applied several models which were Jensen model (1968), Treynor and
Muzay (1966), Henriksson and Merton model (1981), Kon and Jen model (1979), and Kon
model14 (1983) to 144 funds from Jan 1990 to May 2000. He discovered that for market timing
ability, equity funds showed better performance than fixed income funds but for selectivity
ability, fixed income funds showed better performance than equity funds. For overall abilities,
fixed income funds still showed better performance from fixed return. The reason is that the
period of study includes recession period where the fixed return is a good investment strategy
while market returns are highly volatile and continuously declining.

Ahmed,Parvez; Gangopadhyay, Partha & Nanda, Sudhir (2001), examined the

performance of equity and bond mutual funds that invested primarily in the emerging markets
using Treynors ratio, Sharpes r atio, Jensens measure. With this research they found that on
an average the U.S. stock market outperformed emerging equity markets but the emerging
market bonds outperformed U.S. bonds. They also found that overall emerging market stock
funds under-performed the respective MSCI indexes. These were evident by their lower return,
higher risk, and thus lower Sharpe ratios.

Muthappan, P. K., Damondharan, E. (2006) The objective of this paper is to evaluate the
performance of Indian Mutual Fund schemes in the framework of risk and return during the
period April 1, 1995 to March 31, 2000. Performance measures used are Sharpe ratio, Treynor
ratio, Jensen measure, Sharpe differential return measure and ModiglianiMiller theorems
components of performance. The results indicate that the risk and return of mutual fund
schemes are not in conformity with their stated investment objectives. Further sample schemes
are not found to be adequately diversified. The funds are able to earn higher returns due to
selectivity, however the proper balance between selectivity and diversification is not
maintained. The analysis made by the application of Modigliani Miller theorems measure
indicates that the returns out of diversification are very less. Based on the empirical
investigation, it is observed that the Indian Mutual Funds are not properly diversified.

Guha (2008) focused on return-based style analysis of equity mutual funds in India using
quadratic optimization of an asset class factor model proposed by William Sharpe. The study
found the Style Benchmarks of e ach of its sample of equity funds as optimum exposure to

11 passive asset class indexes. The study also analyzed the relative performance of the funds
with respect to their style benchmarks. The results of the study showed that the funds have not
been able to beat their style benchmarks on the average.

Bessler, Wolfgang, Zimmermann, Heinz (2009) investigate the conditional performance of

a sample of German equity mutual funds over the period from 1994 to 2003 using both the
beta-pricing approach and the stochastic discount factor (SDF) framework. On average, mutual
funds cannot generate excess returns relative to their benchmark that are large enough to cover
their total expenses. Compared to unconditional alphas, fund performance sharply deteriorates
when we measure conditional alphas. Given that stock returns are to some extent predictable
based on publicly available information, conditional performance evaluation raises the
benchmark for active fund managers because it gives them no credit for exploiting readily
available information. Underperformance is more pronounced in the SDF framework than in
beta-pricing models. The fund performance measures derived from alternative model
specifications differ depending on the number of primitive assets taken to calibrate the SDF as
well as the number of instrument variables used to scale assets and/or factors.

S.Narayan Rao evaluated performance of Indian mutual funds in a bear market through
relative performance index, risk-return analysis, Treynors ratio, Sharpes ratio, Sharpes
measure, and Jensens meas ure. The study used 269 open-ended schemes (out of total schemes
of 433) for computing relative performance index. Then after excluding funds whose returns
are less than risk-free returns, 58 schemes are finally used for further analysis. The results of
performance measures suggest that most of mutual fund schemes in the sample of 58 were able
to satisfy investors expectations by giving excess returns over expected returns based on both
premium for systematic risk and total risk.

Wolasmal, Hewad looked at some measures of composite performance that combine risk and
return levels into a single value using Treynors ratio, Sharpes ratio, Jensons measure. The
study analyzed the performance of 80 mutual funds and based on the analysis of these 80 funds,
it was found that none of the mutual funds were fully diversified. This implied there is still
some degree of unsystematic risk that one cannot get rid of through diversification. This also
led to another conclusion that none of those funds would land on Markowitzs efficient
portfolio curve.

Dr. Sandeep Bansal, Deepak Garg and Sanjeev K Saini (2012), have studied Impact of
Sharpe Ratio & Treynors 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 Treynors 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 using a five year NAVs and portfolio allocation.
Findings of the study reveals that, mutual funds out perform nave investment. Mutual funds
as a medium-to-long term investment option are preferred as a suitable investment option by

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 AUMs 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
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 (August2011), 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

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 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 Kendalls tau b and spearmans 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 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 analyzed 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 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

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 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. Investors 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, Sharpes
Index. Treynors Ratio, Jensons alpha, Famas 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
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

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 nonperformance that affected the industry and
its sentiments. It will also analyses 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 .

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 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 Jensens
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

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.

Dr. Binod Kumar Singh, (Mar 2012) has done A Study on Investors Attitude towards
Mutual Funds as an Investment Option. In this paper, structure of mutual fund, operations of
mutual fund, comparison between investment in mutual fund and bank 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.

Dr. B. Saritha, (Feb 2012) has studied Mutual Fund Investment Decisions by Using Fama
Decomposition Models. Mutual Funds are dynamic Financial Institutions (FI) which play a
crucial role in an economy by mobilizing savings and investing them in the capital market.

Thus, establishing a link between savings and capital market. Therefore, the activities of mutual
funds have both short and long term impact on the savings & capital markets and the national

Dr. S.M.Tariq Zafar, Dr. D.S.Chaubey and Syed Imran Nawab Ali, (Feb2012), have done
An Empirical Study on Indian Mutual Funds Equity Diversified Growth Schemes and Their
Performance Evaluation. This paper aims to know how the performance of mutual funds is
assessed and ranked after analyzing the NAV and their respective returns so as to measure
investment avenues. For the purpose thirteen most preferred public and private sector equity
diversified growth schemes over a period of one year viz.2007-08 have been taken through
judgment sampling and Yield on 10 yr. govt. bond has been taken as the surrogate for the risk
free rate of return viz.7.56% p.a.

Dr. Sandeep Bansal, Sanjeev Kumar, Dr. Surender Kumar Gupta and Sachin Singla (Jun
2012) have done a Study of Selected Dividend Mutual Fund Schemes with Jensons Alpha
Model. In this present paper we apply a risk-adjusted measure known as Jensen's Alpha Model
on ten randomly selected dividend mutual fund schemes that estimates how much a manager's
forecasting ability contributes to the fund's returns. We use a sample of 10 mutual fund schemes
(dividend) for the period of 4 years from May 2005 to April 2009 on monthly basis and
calculated their NAV.

Dr. Sandeep Bansal and Sanjeev Kumar, (Feb 2012), have done an Evaluation of Risk-
Adjusted Performance of Mutual Funds in India. In this paper an attempt has been made to
study the performance of selected mutual funds schemes based on risk-return relationship
models and return on mutual funds are also compared with return on equity shares of different
sectors of Indian economy. Return on ten mutual funds schemes and return on equity shares of
three sectors namely Fast Moving Capital Goods, Information Technology and Power sectors
have been studied over the time period Jan.2006 to Jan 2009 (3 years).

Mr. Jay R. Joshi, (Mar 2013), Mutual Funds: An Investment Option from Investors Point of
View. This study is of descriptive type research. The target population will be individual
investor in Anand Vidyanagar area of relatively affluent western State of Gujarat (India). The
survey will be based on convenience sampling having 100 investors as sample size. The study
will try to identify the consumers preference for various mutual funds and the main reasons
for investment in mutual fund schemes. The study will also try to investigate various factors

that investor is thinking before selecting a mutual fund company. Overall, the study is focusing
on the behavior of individual investors and hence form a part of behavioral finance area.

N. Geetha and M. Ramesh, (2011), have studied Investors Perception on Mutual Funds With
Reference To Chidambaram Town. The main objective of the study is to elucidate the
perceptions and behaviour of the small investors located in the town of Chidambaram, Tamil
Nadu, South India towards the mutual funds and also suggest some measures to increase the
quantum of investors and investments as well.

C.Vijendra and D. Sakriya, (June 2013) have done a Study of Investor Behavior regarding
Investment Decisions in Mutual Funds. A survey was conducted among 384 mutual funds
investors from the twin cities of Hyderabad & Secundrabad to study the factors influencing the
fund/scheme selection behavior of these investors. It is hoped that this survey will underpin the
AMCs with regards to planning and implementation of designing, marketing and selling of
innovative products.

Ms. Archana Patro and Prof. A. Kanagaraj (Jun 2012), have done Exploring the Herding
Behaviour in Indian Mutual Fund Industry. The study analyzes the trading activity of Indian
mutual funds and investigates whether Indian mutual fund managers are engaged in herding
behaviour. Results are compared with previous studies in mature as well as developing markets
to determine the level of maturity of the Indian capital market. Measure of herding developed
by Lakonishok et al. (1992) has been used.

Ms. K. HemaDivya (Apr 2012), has done A Comparative study on Evaluation of Selected
Mutual Funds in India. Mutual Funds industry has grown up by leaps & bounds, particularly
during the last 2 decades of the 20th century. Proper assessment of fund performance would
facilitate the peer comparison among investment managers, help average investors successfully
identify skilled managers. Further the growing competition in the market forces the fund
managers to work hard to satisfy investors & management. Therefore regular performance
evaluation of mutual funds is essential for investors and fund managers also. The present study
is confined to evaluate the performance of mutual funds on the basis of yearly returns compared
with BSE Indices.

Deepika Sharma, Poonam Loothra and Ashish Sharma (May 2011), Comparative Study of
Selected Equity diversified Mutual Fund Schemes. The present investigation is aimed to
examine the performance of safest investment instrument in the security market in the eyes of

investors i.e., mutual funds by specially focusing on equity-diversified schemes. Eight mutual
fund schemes have been selected for this purpose. The examination is achieved by assessing
various financial tests like Sharpe Ratio, Standard Deviation and Alpha.

Dr. Nishi Sharma (Aug 2012), has done research on Indian Investors Perception towards
Mutual Funds. This paper attempts to investigate the reasons responsible for lesser recognition
of mutual fund as a prime investment option. It examines the investors perception with
reference to distinct features provided by mutual fund companies to attract them for investing
in specific funds/schemes. The study uses principal component analysis as a tool for factor
reduction. The paper explored three factors named as fund/scheme related attributes, monetary
benefits and sponsors related attributes (having respectively six, four and four variables) which
may be offered to investors for securing their patronage. The results are expected to provide
fruitful insight to mutual fund companies for tailoring their offers suitable to cater the needs
and expectations of Indian investors.



Mutual funds are investment companies that pool money from investors at large and offer to
sell and buy back its shares on a continuous basis and use the capital thus raised to invest in
securities of different companies. The stocks these mutual fund have are very fluid and are used
for buying or selling shares at a net assets value. Mutual funds possess shares of several
companies and receive dividends in lieu of them and the earnings are distributed among the

Mutual funds can be either or both of open ended and closed ended investment companies
depending on their fund management pattern. An open-end fund offers to sell its shares (units)
continuously to investors either in retail or in bulk without a limit on the number as opposed to
a closed-end fund. Closed end funds have limited number of shares.

Mutual funds have diversified investments spread in calculated proportions amongst securities
of various economic sectors. Mutual funds get their earnings in two ways. First is the most
organic way, which is the dividend they get on the securities they hold. Second is by the
redemption of their shares by investors will be at a discount to the current NAVs (net asset
Mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is invested by the fund manager in different types of
securities depending upon the objective of the scheme. A mutual fund is the ideal investment
vehicle for today's complex and modern financial scenario.
Mutual funds are conceived as institutions for providing small investors with avenues of
investments in the capital market. .Since small investors generally do not have adequate time,
knowledge, experience and resources for directly accessing the capital market, they have to
rely on an intermediary, which undertakes informed investment decisions and provides
consequential benefits of professional expertise.
Performance evaluation of mutual funds is one of the preferred areas of research where a good
amount of study has been carried out. The area of research provides diverse views of the same.
For instance one paper evaluated the performance of Indian Mutual Fund Schemes in a bear
market using relative performance index, risk-return analysis, Treynors ratio, Sharpes ratio,
and Jensens measures.
Mutual funds have diversified investments spread in calculated proportions amongst securities
of various economic sectors. Mutual funds get their earnings in two ways. First is the most

organic way, which is the dividend they get on the securities they hold. Second is by the
redemption of their shares by investors will be at a discount to the current NAVs (net asset

1. Collect money from investors
2. Invest through well diversified portfolio according to investors requirement
3. Earning as dividend, or assets appreciation
4. Redeem whenever investor want in open ended and at certain time in close ended

Fig. 2.1


Mutual Funds in India originated in the second half of the 19th century. Financial Association
of India and China was the first investment trust formed in India in 1869.However, the growth
of investment trust business started only after 1930.The need for the establishment of Unit
Trust type of institution was felt in 1931 by the Indian Central Banking Enquiry Committee.
The Committee observed in its report that an immeasurable benefit to India is bound to grow
from the establishment and proper working of unit trusts, and the assistance which they will
give to the investor in the creation of intermediate securities which do not exist now, in
providing a channel for investment in industrial and other fields, where the primary investor
would be too scared of too ignorant.

The first Industrial Investment Trust was established in 1933 by M/s Premchand Roychand in
Bombay. After the establishment of this trust the number of other trusts were formed, such as
Investment and Finance Company, Kolkata, General Investment and Trust Company, Kolkata,
Tata Investment Trust, Bombay. Most of the Investment Trusts were established by the
industrial groups. The Trusts are organized as private companies. The investment trusts were
used as a tool to control more and more unit by owning and controlling the shares. In 1954, the
Shroff Committee made the following recommendation:

The Committee was of the opinion that industrial investment can be assisted through the
formation of Investment Trusts and Unit Trusts. The committee therefore felt that unit trusts in
particular would be eminently suitable to conditions in India and that steps should be taken by
both the public and private sectors to encourage the formation of such institutions. The idea
of setting up a unit trust in India existed since 1931 but did not materialize for a variety of
reasons unit T.T. Krishnamachari revived it in March 1963, when he was Minister for
Economic and Defence Coordination. T.T. Krishnamachari read a news item about a
government sponsored Unit Trust being contemplated in Pakistan. He wrote to Pandit Nehru
emphasing the merits of such an institution and urged him to do something similar in India.
Pandit Nehru passed on the matter to Moraji Desai who was the Finance Minister, who in turn
referred the matter to P.C.Bhattacharya, the RBI Governor. Bhattacharya asked B.K. Madan,
then Executive Director at the RBI to look into the matter. Madan then asked V.G. Pendharkar,
Economic Adviser to the bank and the head of the Economics Department, if he had seen the
news item. Pendharkar, who narrated this incident in his account of the setting up of the Unit

Trust of India, told Madan, his immediate superior, that he had not only seen the news item but
also had a note on the subject ready. Pendharkar, anticipated that the government would want
action on the matter, had asked Anand Chandavarkar then Director, Division of Monetary
Economics in his department to work on a similar scheme for India.

Finally, in September 1993, when T.T. Krishnamachari took over as the Finance Minister, the
government machinery began to move speedily on the Draft Bill on setting up UTI. The UTI
Bill was passed on 5th December, 1993 in the Lok Sabha and on 12th December, 1993 in the Rajya
Sabha. The Bill got the consent of the President Sarbapalli Radhakrishnan on 30th December,
1993 and became the UTI Act, 1993.Tthe UTI was formed on February 1, 1964 as per the
provisions of the UTI Act, 1993. The purpose of UTI was to create an opportunity for the middle
and lower income groups to acquire without much difficulty the property in the form of shares
through channelizing their savings to the Indian Capital Market. The UTI launched its first
open-ended equity scheme in June 1964 popularly known as US-64(Unit Scheme- 64) in the
country. During last 36 years, UTI has grown to be a dominant player in the industry. In 1987
public sector banks and two Insurance companies (Life Insurance Company and General
Insurance Company) were allowed to launch mutual funds. Securities and Exchange Board of
India (SEBI), regulatory body for Indian capital market, formulated comprehensive regulatory
framework for Mutual Funds in 1993 and allowed private corporate bodies to launch mutual
fund schemes. Since then several mutual funds have been set up by the private and joint sectors.
It has been a decade of competition for Indian mutual fund industry.

The AUM which were Rs.24.67 crores as on 31st March 1965 had grown to Rs.1, 187,477 Crores
as on 31st March 2015. The Asset Under Management have grown at a rapid pace at a CAGR
(Compounded Annual Growth Rate) of 24.47 percent from 31 March, 2005 to 31 March, 2010.
But there is a fall in growth at CAGR of -3.5 on 31st March, 2011 against CAGR of 24.47 percent
on 31 March, 2010, because of series of global financial crisis. Again the industry got
momentum showing a growth rate of 12.24% in March 2012 and finally posted a growth of
23%for the year ended 31st March 2013.The Total Assets under Management (AuM) in India of
all Mutual Funds put together touched a peak of Rs.1,187,477 Crores as on 31 st March 2015
compared to Rs.9,03,325 Crores as on 31 March 2014 showing a growth rate of 31.28%.The
recent study conducted by the Associated Chamber of Commerce and Industry of India and
AMFI revealed that India is going to follow the pattern seen in the developed markets such as
the US where the size of the industry is 83% of the GDP, when the worldwide size of the

industry is about 38% of GDP. The report suggests that mutual fund industry in India is
expected to jump sharply from its present share of 7% in GDP to 40% in the coming years,
provided the countrys growth rate consistently exceeds 6% per annum.

2.2.1 Different Phases of Growth of Indian Mutual Fund Industry

The growth of Mutual Funds in India is divided into six different phases depending on the
structural changes which have taken place in the mutual fund industry. The first phase of Indian
mutual fund industry started with the establishment and growth of UTI during 1964-1987.In
1987 public sector banks and financial institutions were permitted to enter into mutual fund
industry and this phase existed for six years that is from 1987-1993.With the emergence of
privatization and liberalization of Indian economy, in 1993 Government of India allowed both
Indian & Foreign Private sectors to enter into mutual fund industry. This was the third phase
of growth of mutual fund industry started in 1993 and went till 1996. The fourth phase of growth
started in 1996 with implementation of new SEBI regulations and continued till 1999 before
new amendments took place in SEBI Regulations. The fifth phases witnessed with the rapid
growth in the mutual fund industry with increasing market share of private sector players. This
phase started in 1999 and existed till 2004.The last phase which started in 2004 and continuing
till date is witnessing major changes in the industry through mergers and acquisitions.

Fig. 2.2

Phase 1: Establishment and Growth of UTI (1964-1987)

Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and it continued to operate under the regulatory control of the RBI until
the two were delinked in 1978 and the entire control was transferred in the hands of Industrial
Development Bank of India (IDBI). UTI launched its first scheme in 1964 named as Unit
Scheme 1964 (US-64) which attracted the largest number of investors in any single investment
scheme over the years. The US-64 scheme is unique because it predates all other mutual fund
activity in the country. Basically modelled as an income scheme offering regular and stable
dividends, it had a strong emphasis on debt rather than equity until about 1979 when the
Foreign Exchange Regulation Act (FERA) was diluted, allowing foreign companies to hold a
maximum of 40 per cent equity in Indian companies. The UTI's exposure to equity increased
substantially after 1979.From an initial unit capital of Rs.5 crores; it managed together of Rs.25
crores worth asset under management and a net income of Rs.1.30 crore at the end of its first
year of operation itself as the successful launching of first ever mutual fund in India.
US-64 is the oldest scheme of UTI and has been attracting a lot of attention among the financial
circles in the past. Investors invest in any savings scheme from the point of view of safety,
liquidity and yield.US-64 has provided to be 100% safe, quite liquid and has offered a
satisfactory yield. It has offered dividend every year which was ever lowered till 1995.
Investors interest in US-64 has grown and sustained since it was launched. By 1964-65
outstanding unit capital was 18.73 crore, in 1970-71 outstanding unit capital had reached Rs.92,
25 crores and by 1980-81 it had reached 389.78 crores. Outstanding unitholding accounts were
1.32 lakh at the end of June 1965, 3.84 lakh at the end of June 1971 and 9.1 lakh at the end of
June 1981.

Phase 2: Entry of Public Sector Funds (1987-1993)

In 1987, Government of India permitted the Commercial Banks in the public sector to form
subsidiaries that would perform the functions of mutual funds through the amendment of
Banking Regulation Act, 1949 which earmarked as an end of an era of UTI as the sole
participant in the mutual fund sector. A number of Commercial Banks in the public sector, such
as State Bank of India, Canara Bank, Punjab National Bank, Indian Bank, Bank of India and
Bank of Baroda started mutual funds. Government also permitted insurance companies like,
Life Insurance Corporation of India and General Insurance Company of India to launch mutual
funds to mobilize the savings of the small investors. In October 1989, the first regulatory

guidelines were issued by RBI, but they were applicable only to the mutual funds sponsored
by banks. Subsequently, the Government of India issued comprehensive guidelines in June
1990 covering all mutual funds. These guidelines emphasized compulsory registration of with
the SEBI and an arms length relationship be maintained between the sponsor and asset
management company (AMC).With the entry of public sector funds, there was a tremendous
growth in the size of mutual fund industry with net resources mobilized by mutual funds has
increased to Rs.13021crore.

Phase 3: Emergence of Private Sector Funds (1993-1996)

Ever since, non-UTI funds came into existence in 1987, the exclusion of private sector was
being widely criticised. As such, the mutual fund industry appeared poised for a phenomenal
growth. However, at this juncture, the shocking revelation of the 1992 securities scam shook
the investor confidence and forced SEBI to put all the forthcoming schemes of mutual funds
on hold. Unexpectedly, the scam did not dissuade the government from throwing open this
industry to the private sector. By December, 1993, thirteen companies in the private sector
were permitted to launch mutual 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. In 1993 the first Mutual Fund regulation came into being under which all Mutual
Funds, except UTI was to be registered. The Kothari Pioneer (now merged with Franklin
Templeton) was the first private sector Mutual Fund registered in July 1993. During the year
1993-94, four others also entered the fray ICICI Mutual Fund, 20th Century Mutual Fund,
Morgan-Stanley Mutual Fund, and Taurus Mutual Fund, launching their schemes. During the
year 1994-95, seven more players entered the market- Apple Mutual Fund, JM Mutual Fund,
Shriram Mutual Fund, CRB Mutual Fund, Alliance Mutual Fund, Birla Mutual Fund and H.H.
Mutual Fund. In 1995-96, three big players entered the Indian market-Tata Mutual fund,
Reliance Capital Mutual Fund Jardine Fleming Mutual Fund.

Phase 4: Growth and SEBI Regulation (1996-1999)

The Mutual Fund industry witnessed robust growth and strict regulations from SEBI after 1996.
The mobilization of funds and the number of players operating in the industry reached new
heights as investors started showing more interest in Mutual Funds. Investors' interests were
safe guarded by SEBI and the government offered tax benefit to the investors. In order to
encourage them, SEBI (Mutual Funds) Regulations 1996 was introduced by SEBI that set

uniform standards. The union budget in 1999 exempted all dividend incomes in the hands of
investors from income tax. As part of these measures, SEBI issued standard offer documents
and memoranda containing key information. The guidelines issued by RBI for Money Market
Funds were incorporated in the SEBI Regulations. Various investor awareness programmers
were launched during this phase both by SEBI and Association of Mutual Fund in India
(AMFI). During 1996-97, eight new mutual funds- Templeton Mutual Fund, ITC Classic
Threadneedle mutual Fund, Cholamandalam Cazenove Mutual Fund, Sundaram Newton
Mutual Fund, First India Mutual Fund, Escorts Mutual Fund, Anagram Wellington Mutual
Fund launched their schemes. In the year1997-88, two new foreign players-DSP Merril Lynch
Mutual Fund and Sun F& C Mutual Fund set up their mutual funds in India. The year 1998-99
also witnessed the entry of two other players- Kotak Mahindra Mutual Fund and Dundee
Mutual Fund in Indian mutual fund industry. By the year ended 1999, 37 mutual funds were
operating in India.

Phase 5: Emergence of a Large & Uniform Industry (1999- 2004)

This Phase was marked by very rapid growth of the Indian mutual fund industry & the market
share of private sector mutual funds increased significantly crossing Rs.1,00,000crore. The tax
break offered to mutual funds in 1999 created arbitrage opportunities for a number of
institutional players.

Phase 6: Consolidation and Growth (2004 onwards)

Today, there are 1475 schemes offered by 31 mutual fund players as of April 30, 2004.However
of late, as the consolidation process gained momentum, the industry has seen a slew of mergers
& acquisitions. It was Franklin Templeton, which fixed the first salvo in this competition by
acquiring Kothari Pioneer Mutual Fund in the year 2004. This has been followed by acquisition
of Zurich Mutual Fund by HDFC Mutual Fund, IF&LS Mutual Fund by UTI Mutual Fund &
recently First India Mutual Fund by the Sahara group. In between the mega deals, the market
did see a number of smaller takeovers. Principal Mutual Fund bought out Sun F&C Mutual
Fund's schemes, while Canbank Mutual Fund took care of GIC Mutual Fund and Indbank
Mutual Fund sold out to the Tata Mutual Fund.

Indian financial institutions have played a dominant role in assets formation and
intermediation, and contributed substantially in macroeconomic development. In this process
of development Indian mutual funds have emerged as strong financial intermediaries and are
playing a very important role in bringing stability to the financial system and efficiency to
resource allocation. Mutual funds play a crucial role in an economy by mobilizing savings and
investing them in the capital market, thus establishing a link between savings and the capital
market. The activities of mutual funds have both short-and long-term impact on the savings
and capital markets, and the national economy. Mutual funds, thus, assist the process of
financial deepening and intermediation. They mobilize funds in the savings market and act as
complementary to banking; at the same time they also compete with banks and other financial
institutions. In the process stock market activities are also significantly influenced by mutual

There is thus hardly any segment of the financial market, which is not (directly or
indirectly) influenced by the existence and operation of mutual funds. However, the scope and
efficiency of mutual funds are influenced by overall economic fundamentals: the
interrelationship between the financial and real sector, the nature of development of the savings
and capital markets, market structure, institutional arrangements and overall policy regime.

2.4 Different types of Mutual funds

Fig. 2.3

On the basis of Objective
Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the principal objective of
capital appreciation of the investment over the medium to long-term. The returns in such funds
are volatile since they are directly linked to the stock markets. They are best suited for investors
who are seeking capital appreciation. There are different types of equity funds such as
Diversified funds, Sector specific funds and Index based funds.

Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant for
risk-taking investors who are not bullish about any particular sector.
Sector funds
These funds invest primarily in equity shares of companies in a particular business sector or
industry. These funds are targeted at investors who are extremely bullish about a particular

Index funds
These funds invest in the same pattern as popular market indices like S&P 500 and NSE Index.
The value of the index fund varies in proportion to the benchmark index.

Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided
under this scheme are in the form of tax rebates U/s 88 as well saving in Capital Gains U/s
54EA and 54EB. They are best suited for investors seeking tax concessions.

Debt / Income Funds

These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds,
debentures, government securities, commercial paper and other money market instruments.
They are best suited for the medium to long-term investors who are averse to risk and seek
capital preservation. They provide regular income and safety to the investor.

Liquid Funds / Money Market Funds
These funds invest in highly liquid money market instruments. The period of investment could
be as short as a day. They provide easy liquidity. They have emerged as an alternative for
savings and short-term fixed deposit accounts with comparatively higher returns. These funds
are ideal for Corporates, institutional investors and business houses who invest their funds for
very short periods.

Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some
proportion. They provide a steady return and reduce the volatility of the fund while providing
some upside for capital appreciation. They are ideal for medium- to long-term investors willing
to take moderate risks.
Hedge Funds
These funds adopt highly speculative trading strategies. They hedge risks in order to increase
the value of the portfolio.

On the basis of Flexibility

Open-ended Funds
These funds do not have a fixed date of redemption. Generally they are open for subscription
and redemption throughout the year. Their prices are linked to the daily net asset value (NAV).
From the investors' perspective, they are much more liquid than closed-ended funds. Investors
are permitted to join or withdraw from the fund after an initial lock-in period.

Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO) and thereafter
closed for entry as well as exit. These funds have a fixed date of redemption. One of the
characteristics of the close-ended schemes is that they are generally traded at a discount to
NAV; but the discount narrows as maturity nears. These funds are open for subscription only
once and can be redeemed only on the fixed date of redemption. The units of these funds are
listed (with certain exceptions), are tradable and the subscribers to the fund would be able to
exit from the fund at any time through the secondary market.
Interval funds

These funds combine the features of both open-ended and close-ended funds wherein the fund
is close-ended for the first couple of years and open-ended thereafter. Some funds allow fresh
subscriptions and redemption at fixed times every year (say every six months) in order to
reduce the administrative aspects of daily entry or exit, yet providing reasonable liquidity.


Mutual Funds offer several benefits to an investor such as potential return, liquidity,
transparency, income growth, good post tax return and reasonable safety. There are number of
options available for an investor offered by a mutual fund.

Before investing in a Mutual Fund an investor must identify his needs and preferences. While
selecting a Mutual Fund's schemes he should consider the effect of inflation rate,
diversification of investment, the time period of investment and the risk factors.
The major benefits are good post-tax returns and reasonable safety.

Cost: Mutual funds provide investors with professional management, but it comes at a cost.
Funds will typically have a range of different fees that reduce the overall payout. In mutual
funds, the fees are classified into two categories: shareholder fees and annual operating fees.

Misleading Advertisements: The misleading advertisements of different funds can guide

investors down the wrong path. Some funds may be incorrectly labelled as growth funds, while
others are classified as small cap or income funds. The Securities and Exchange Commission
(SEC) requires that funds have at least 80% of assets in the particular type of investment
implied in their names.

2.7 .Risks of investment in Mutual Funds:

Mutual funds are not free from risks as the funds so collected are invested in stock
markets, which are volatile in nature and are not risk free. The following risks are generally
involved in mutual funds.

1. Market risks: In general, there are many kinds of risks associated with every kind of
investment on shares. They are called market risks. These market risks can be reduced, but
not completely eliminated even by a good investment management. The prices of shares
are subject to wide price fluctuations depending upon market conditions over which nobody
has control. The various phases of business cycle such as Boom, Recession, Slump and
Recovery affects the market conditions to a larger extent.
2. Scheme risks: There are certain risks inherent in the scheme itself. For instance, in a pure
growth scheme, risks are greater. It is obvious because if one expects more returns as in
the case of a growth scheme, one has to take more risks.

3. Investment risk: Whether the mutual fund makes money in shares or loses depends upon
the investment expertise of the Asset Management Company (AMC). If the investment
advice goes wrong, the fund has to suffer a lot. The investment expertise of various funds
are different and it is reflected on the returns, which they offer to the investors.

4. Business Risk: The corpus of a mutual fund might have been invested in a companys
shares. If the business of that company suffers any set back, it cannot declare any dividend.
It may even go to the extent of winding up its business. Though the mutual funds can
withstand such a risk, its income paying capacity is affected.

5. Political risks: Every government brings new economic ideologies and policies. It is often
said that many economic decisions are politically motivated. Change of government brings in
the risk of uncertainty, which every player in the finance service industry has to face.




In order to determine the risk adjusted returns of investing portfolio, several eminent
authors have worked since 1960s to develop composite performance indices to evaluate a
portfolio by comparing alternative portfolio within a particular risk class. The most important
and widely used measures of performance of Mutual Funds are:

The Treynors Measure

The Sharpes Measure
The Jensons Model


Treynor model was introduced in (1965). The model consists of two types risks
systematic and unsystematic risk. Systematic risk is the risk which cannot be diversified. This
risk is the beta of the portfolio. A portfolio return depends on the beta. The systematic risk is
uncertainty attached with specific company and can be diversified. The mutual fund with
higher return per unit of risk will be preferred for investment purpose than ones with the lower
values. The model measures the mangers ability to produce returns taking into account the
systematic risk of the portfolio. For trey nor measure we will use the historical returns of the
funds, the one year treasury bill returns and Beta of the portfolio.


Ti = Treynors Performance Index

Rp = Portfolios actual return during a specified time period

Rf = Risk-free rate of return during the same period

p = beta of the portfolio

Whenever Rp> Rf and p > 0 a larger T value means a better portfolio for all investors
Regardless of their individual risk preferences. In two cases we may have a negative T value:
when Rp < Rf or when p < 0. If T is negative because Rp < Rf we judge the portfolio
performance as very poor. However, if the negativity of T comes from a negative beta, funds
performance is superb. Finally when Rp- Rf, and p are both negative, T will be positive.

Demonstration of Comparative Treynor Measures

Assume we have the following data for three mutual funds; ZBY, with their respective
annual rate of return and systematic risk, Beta. The risk free rate is 8 %. The systematic
risk for M (market) is 1.0 and the rate of return for M is 14%.

Investment Manager Rate of Return Beta

Z 0.12 0.90

B 0.16 1.05

Y 0.18 1.2

M 0.14 1.0

Table. 3..1.1(a)

We can calculate the T values for each investment manager:

TM (0.14-0.08) / 1.00 = 0.06

TZ (0.12-0.08) / 0.90 = 0.044

TB (0.16-0.08) / 1.05 = 0.076

TY (0.18-0.08) / 1.20 =0.083

Table. 3.1.1(b)

These results show that Z did not even "beat-the-market." Y had the best
performance, and both B and Y beat the market.


The Sharpe ratio was introduced in 1960 by William F. Sharpe. The model is a ratio of the
difference between funds average return and the risk-free return divided by the standard
deviation of the fund. The model helps identify which portfolio offers the most favorable
risk/returns. Based on the ratios the funds with the highest ratio will then be selected for
investment. To compute this ratio we will be using data of historical return of the fund. A one
year treasury bill return and standard deviation of the fund return.


Rp = the observed average fund return;

Rf = the average risk free return;

p = the standard deviation of fund returns

Sharpe index, evaluates funds performance based on both rate of return and diversification.
For a completely diversified portfolio Treynor and Sharpe indices would give identical

Demonstration of Comparative Sharpe Measures

Assume we have the following data for three portfolios; BOP, with their respective annual
rate of return and standard deviation of their return.

The risk free rate is 8 %. The standard deviation for M (market) is 0.20 and the rate
of return for M is 14%.

Portfolio Annual rate of Return S.D of Return

B 0.13 0.18

O 0.17 0.22

P 0.16 0.23

M 0.14 0.20

Table. 3.1.2(a)

We can calculate the S values for each portfolio.

B (0.13-0.08) / 0.18 = 0.278

O (0.17-0.08) / 0.22 = 0.409

P (0.16-0.08) / 0.23 = 0.348

M (0.14-0.08) / 0.20 = 0.30

Table. 3.1.2(b)

Thus, portfolio O did the best, and B failed to beat the market.

The trouble with both Sharpe and Treynor techniques for evaluating "risk-adjusted"
returns is that they equate risk with short-term volatility. Therefore these measures
may not be applicable in evaluating the relative merits of long-term investments.


The Jenson differential model was introduced in 1969. The differential is alpha () that is the
difference between actual average return earned by the portfolio and the return that should have
been earned by the portfolio given the market conditions and the risk of the portfolio. The
funds returns should be higher than the risk free rate of return. A positive alpha is the indicator
that the fund has outperformed the market proxy. To calculate the Jensen differential we will
be using the one year Treasury bill, the historical returns of the portfolio, the returns on the
market index and Beta of the portfolio.

Rp = the observed returns of the portfolio

Rf = the risk free returns.

Rm = the return on the market index.

= Beta of the Protfolio.

= parameter of the model.

Jensen uses as his performance measure. A superior portfolio manager would have a
significant positive value because of the consistent positive residuals. Inferior managers, on
the other hand, would have significant negative . Average portfolio managers having no
forecasting ability but, still, cannot be considered inferior would earn as much as one could
expect on the basis of the CAPM.

Jensen performance criterion, like the Treynor measure, does not evaluate the ability of
portfolio managers to diversify, since the risk premiums are calculated in terms of .

If the value is positive, and then the portfolio is earning excess returns. In other words, a
positive value for Jensen's alpha means a fund manager has beat the market with his or her
stock picking skills.


Beta is the measure of volatility of a stock, fund, portfolio, etc with respect to the market.
If the beta is positive then the fund returns are directly proportional to the market returns
and if the beta is negative then the fund returns are inversely proportional to the market.



a = fund beta

Cov (ra,rp) = covariance of the returns of the fund and the market,
Var rp = variance of the market returns.


Standard Deviation is a tool which measures the variability of data the set. It is calculated
to measure the riskiness of a fund, stock or portfolio. Higher the standard deviation means
higher the risk and higher the returns of the asset and a low standard deviation mans that
the asset is less risky and will generate less returns.

The standard deviation of the fund returns are calculated with the following formula


S = Standard Deviation
N = number of months in the period

X = mean of the periods return

Xi = return of the corresponding month.



Funds Ri Rf Beta Treynor Index Rank

Birla Sun Life 22.08 6.18 1.02 15.58 4
Advantage Fund

Axis Long Term 24.47 6.18 0.60 27.71 1

Equity Fund

Reliance Tax Saver 26.76 6.18 1.18 17.44 2

(ELSS) Fund

DSP Black Rock 22.87 6.18 1.06 15.74 3

Tax Saver Fund

Principal Tax Saver 22.68 6.18 1.13 14.6 5

(ELSS) Fund

Table. 3.2.1

Treynor Index
30 27.71


20 17.44

15.58 15.74 14.6

Birla Sun Life Axis Long Term Reliance Tax DSP Black Rock Principal Tax
Advantage Fund Equity Fund Saver (ELSS) Fund Tax Saver Fund Saver (ELSS) Fund
Series1 15.58 27.71 17.44 15.74 14.6

Fig. 3.2.1

In our analysis we have given ranks on the basis of higher Treynors index. Higher
Treynors index gets 1st rank. Treynors performance index measures (Beta) systematic
risk of portfolio.
Above table reveals that Axis Equity fund ranked first in terms of making returns
whereas Principal Tax saver fund is at the last rank with the lowest return among all.

Reliance Long Term Equity Fund has the highest beta as compared to other four funds.
Same way Axis Long Term Equity Fund has the lowest beta value.


FUNDS Rp Rf Standard Sharpe Ratio Rank


Birla Sun Life 22.08 6.18 21.04 0.75 4

Advantage Fund
Axis Long Term 24.47 6.18 23.81 0.76 3
Equity Fund
Reliance Tax 26.76 6.18 33.06 0.62 5
Saver (ELSS)
DSP Black Rock 22.87 6.18 19.41 0.85 1
Tax Saver Fund
Principal Tax 22.68 6.18 20.76 0.79 2
Saver (ELSS)
Table. 3.2.2

Sharpe Ratio
0.9 0.85
0.75 0.76
0.7 0.62
Reliance Tax Principal Tax
Birla Sun Life Axis Long Term DSP Black Rock
Saver (ELSS) Saver (ELSS)
Advantage Fund Equity Fund Tax Saver Fund
Fund Fund
Sharpe Ratio 0.75 0.76 0.62 0.85 0.79

Fig. 3.2.2


In our analysis we have given ranks on the basis of higher Sharpes index. Higher
Sharpes index gets 1st rank. Sharpes performance index measures standard deviation of

In our analysis we have found out the DSP BlackRock Tax Saving Fund growth has
a higher return but its standard deviation is lower as compared to other four funds.

This thing indicates that DSP BlackRock Tax Saving fund stands on first rank because
it is providing good return with moderate risk.

Axis Long Term Equity fund has a higher return than Birla Sun Life Advantage fund,
whereas its standard deviation is lower than the Birla Sun Life Adv. Fund.

Reliance Tax Saver(ELSS) fund has a higher standard deviation which indicates the
higher risk of this fund, whereas its return is also very low compare to other four funds. This
thing make this fund to stand on last rank in the chart.

Thus at last we want to conclude that according to Sharpes Performance Index, it is

not necessary that fund with higher return in always well performing fund and stands on first
rank because we also have to consider risk associated with that fund.


Funds Rp Rf Rm Beta Jensens Rank


Birla Sun Life 22.08 6.18 10.52 1.02 6.21 4

Advantage Fund

Axis Long Term 24.47 6.18 10.52 0.60 12.33 1

Equity Fund

Reliance Tax Saver 26.76 6.18 10.52 1.18 9.55 2

(ELSS) Fund

DSP Black Rock Tax 22.87 6.18 10.52 1.06 6.66 3

Saver Fund

Principal Tax Saver 22.68 6.18 10.52 1.13 5.88 5

(ELSS) Fund

Table. 3.2.3

Jensions Index


6.21 5.88

Reliance Tax Principal Tax
Birla Sun Life Axis Long Term DSP Black Rock
Saver (ELSS) Saver (ELSS)
Advantage Fund Equity Fund Tax Saver Fund
Fund Fund
Jensions Index 6.21 12.33 9.55 6.66 5.88

Fig. 3.2.3


In our analysis we have given ranks on the basis of higher Jensens Index.

Higher Jensens index gets first rank. Jensens performance index measures alpha of
portfolio. This model indicates that higher the value of alpha, higher is the ability of a fund
manager to select good fund.

We have analysed that alpha of Axis Long Term Equity fund is very high as compared
to other four funds and it stands on first rank. This positive value of alpha indicates that fund
manager is able to select Axis Long Term Equity fund as a good fund.

We have also analysed that alpha value of Principal Tax Saver (ELSS) Fund is lowest
among all funds. This may be due to its lower return or higher risk value.

Finally we want to conclude that according to Jensens alpha, the value of alpha not
only depends on the return of the fund but also on the risk associated with that fund. Value of
alpha should always be positive.



The study done on the performance evaluation of Indian mutual funds was fruitful as
all the objectives of the study were successfully achieved. Following are the findings from
the study.















Here in this project we have analysed five mutual funds and determine their adjusted
return. Here five years of historical data have been taken to evaluate the performance of mutual
funds. All the funds which have been taken belongs to tax saving equity funds.
Here we have taken beta, standard deviation, Treynor ratio, Sharpe ratio & Jensen alpha
ratio to measure the returns and risk to these selected mutual funds scheme. The study will
guide the new investor who wants to invest in mutual fund scheme for tax saving purpose and
good returns. They will also get the knowledge about how to measure the performance for
mutual fund schemes on various measuring ratios.
In todays world, investors are showing more trust in mutual fund than any other
financial product. There is no need of a financial consultant, if you have good knowledge of
mutual funds and their type to invest.
Performance evaluation measurement ratios i.e. Treynors, Sharpes and Jensens are
used by fund managers to take decision of investment and to diversify portfolio.


Mutual Fund is subject to market risk, analysing particular fund before investing.
Study historical return of funds, risk measurement ratio to evaluate fund.
There should be similarity in your and funds objective.
For high return invest in diversified funds, for tax saving invest in ELSS equity funds.
An investor can invest in Axis Long Term Tax Saving Fund, as this fund is giving
higher return with lower risk.


364 days T-Bill risk free rate of return i.e. 6.1853% from Reserve bank of India.

1. Nataragan and Gordan Financial Services and Markets

2. Ponithavatih Pandian Security Analysis and Portfolio Management

3.PreetiSinghInvestment Management Security Analysis -Portfolio Management


Data of selected Mutual funds scheme





FUNDS (Returns %)

Birla Axis Reliance DSP Principal

BlackRock Tax saving
2012 29.81 33.68 46.05 39.81 46.51
2013 7.23 16.51 3.47 6.69 8.55
2014 60.14 66.18 83.00 52.21 49.45
2015 4.77 6.70 -2.92 4.40 2.70
2016 8.48 -0.69 4.24 11.27 6.19
Avg. 22.08 24.47 26.76 22.87 22.68

Birla Axis Reliance DSP Principal

BlackRock Tax Saving
Beta 1.02 0.60 1.18 1.06 1.13
Standard 21.04 23.81 33.06 19.41 20.76

Nifty Index value:


Risk free rate 6.1853%