FINAL RESEARCH PROJECT

ON

“PERFORMANCE EVALUATION OF MUTUAL FUND”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIRMENTS FOR THE

MASTER’S DEGREE IN BUSINESS ADMINISTRATION

OF

CHANDIGARH UNIVERSITY, GHARUAN, MOHALI

SUBMITTED TO GUIDE: SUBMITTED BY:

Prof. Ginni Syal Rajat Sharma

Professor, USB 18MBA1597

Chandigarh University Section 4F

Gharuan, Mohali

CHANDIGARH UNIVERSITY, GHARAN, MOHALI

BATCH 2018-2020
INTRODUCTION
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 funds have are very fluid and are
used for buying or redeeming and/or selling shares at a net asset value. Mutual funds possess
shares of several companies and receive dividends in lieu of them and the earnings are
distributed among the shareholders.

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.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 values).

Below cycle shows the process of investing in Mutual Fund

 Investors pull their money with Fund Manager

 Fund Manager invest in different securities
 Securities generate Returns
 Returns are passed back to investors
The mutual fund industry has been in India for a long time. This came into existence
in 1963 with the establishment of Unit Trust of India, a joint effort by the
Government of India and the Reserve Bank of India. The next two decades from
1986 to 1993 can be termed as the period of public sector funds with entry of new
public sector players into the mutual fund industry namely, Life Insurance
Corporation of India and General Insurance Corporation of India.The year of 1993
marked the beginning of a new era in the Indian mutual fund industry with the
entry of private players like Morgan Stanley, J.P Morgan, and Capital
International. This was the first time when the mutual fund regulations came into
existence.
SEBI (Security Exchange Board of India) was established under which all the
mutual funds in India were required to be registered. SEBI was set up as a
governing body to protect the interest of investor. By the end of 2008, the number of
players in the industry grew enormously with 46 fund houses functioning in the
country.
With the rise of the mutual fund industry, establishing a mutual fund association
became a prerequisite. This is when AMFI (Association of Mutual Funds India) was
set up in 1995 as a non-profit organization. Today AMFI ensures mutual funds
function in a professional and healthy manner thereby protecting the interest of the
mutual funds as well as its investors.

LITERATURE REVIEW
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 1evaluated the performance of Indian Mutual Fund Schemes
in a bear market using relative performance index, risk-return analysis, Treynor’s
ratio, Sharpe’s ratio, Jensen’s measure, Fama’s measure. The study finds that
Medium Term Debt Funds were the best performing funds during the bear period of
September 98-April 2002 and 58 of 269 open ended mutual funds provided better
returns than the overall market returns.
Another paper2 used Return Based Style Analysis (RBSA) to evaluate equity mutual
funds in India using quadratic optimization of an asset class factor model proposed
by William Sharpe and analysis of the relative performance of the funds with respect
to their style benchmarks. Their study found that the mutual funds generated positive
monthly returns on the average, during the study period of January 2000 through
June 2005. The ELSS funds lagged the Growth funds or all funds taken together,
with respect to returns generated. The mean returns of the growth funds or all funds
were not only positive but also significant. The ELSS funds also demonstrated
marginally higher volatility (standard deviation) than the Growth funds.
One study3 identified differences in characteristics of public-sector sponsored &
private-sector sponsored mutual funds find the extent of diversification in the
portfolio of securities of public-sector sponsored and private-sector sponsored mutual
funds and compare the performance of public-sector sponsored and private-sector
sponsored mutual funds using traditional investment measures.
1 Dr. Rao, Narayan (2005) “Performance Evaluation of Indian Mutual Funds”
2 Prof. Banerjee, Ashok et. Al (2007) ”Performance Evaluation of Indian Mutual
Funds vis-à-vis their style benchmarks”
3 Panwar,Sharad and Dr. Madhumathi (2006), “Characteristics and performance
evaluation of selected mutual funds in India”
4.Ahmed,Parvez; Gangopadhyay, Partha & Nanda, Sudhir (2001), “Performance
of Emerging Market Mutual Funds”
5.Bhattacharjee,Kaushik and Prof. Roy,Bijan (2006), “Fund Performance
Measurement Without Benchmark - A Case Of Select Indian Mutual Funds.
Another paper4 examined the performance of equity and bond mutual funds that
invested primarily in the emerging markets using Treynor’s ratio, Sharpe’s ratio,
Jensen’s 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.
One more paper5 evaluated whether or not the selected mutual funds were able to
outperform the market on the average over the studied time period. In addition to that
by examining the strength of interrelationships of values of PCMs for successive time
periods , the study also tried to infer about the extent to which the future values of
fund performance were related to its past by using single index model. The study
revealed that there were positive signals of information asymmetry in the market with
mutual fund managers having superior information about the returns of stocks as a
whole. PCM also indicated that on an average mutual funds provided excess (above-
average) return, but only when unit of time period was longer (1 qtr or 4 qtr).
Therefore, they concluded that for assessing the true performance of a particular
mutual fund, a longer time horizon is better.
6 Rao,D.N (2006), “Investment styles and Performance of Equity Mutual Funds in
India”
7.Kothari,S.P. and Warner,Jerold (1997), “Evaluating Mutual Fund Performance”
Another study6 aimed at analyzing performance of select open-ended equity mutual
fund using Sharpe Ratio, Hypothesis testing and return based on yield. The most
important finding of the study had been that only four Growth plans and one
Dividend plan (5 out of the 42 plans studied) could generate higher returns than that
of the market which is contrary to the general opinion prevailing in the Indian mutual
fund market.
Even the Sharpe ratios of Growth plans and the corresponding Dividend plans stand
testimony to the relatively better performance of Growth plans. The statistical tests in
terms of F-test and t-Test further corroborate the significant performance differences
between the Growth plans and Dividend plans.
A similar study7 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.
Another study6 aimed at analyzing performance of select open-ended equity mutual
fund using Sharpe Ratio, Hypothesis testing and return based on yield. The most
important finding of the study had been that only four Growth plans and one
Dividend plan (5 out of the 42 plans studied) could generate higher returns than that
of the market which is contrary to the general opinion prevailing in the Indian mutual
fund market.
Even the Sharpe ratios of Growth plans and the corresponding Dividend plans stand
testimony to the relatively better performance of Growth plans. The statistical tests in
terms of F-test and t-Test further corroborate the significant performance differences
between the Growth plans and Dividend plans.
A similar study7 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.
8Agrawal,Deepak (2007), “Measuring Performance of Indian Mutual funds.
Another paper8, analyzed the Indian Mutual Fund Industry pricing mechanism with
empirical studies on its valuation. It also analyzed data at both the fund manager and
fund-investor levels. It stated that mispricing of the Mutual funds could be evaluated
by comparing the return on market and return on stock. During the pricing period, if
the return on stock is negative, then it indicates overpricing and if are positive
indicates under-pricing. Relative performance measurement was used to measure the
performance of the MF with SENSEX and it used Standard Deviation, Correlation
analysis, Co-efficient of Determination and Null Hypothesis. This study revealed that
standard deviations of the 3-month returns were significant with the increase in the
period.

OBJECTIVES OF THE STUDY

The primary object of the present project is to know about which mutual funds gave
highest performance in a short-term period.
 To know about types of mutual funds in detail.
 To know, which schemes gives highest return within one-year.
 To find the extent of diversification in the portfolio of securities of sponsored mutual
funds.
  To compare the performance of sponsored mutual funds using traditional investment
measures.

PROBLEM STATEMENT AND IMPORTANCE OF THE STUDY

There are so many investment avenues. So that investors does not know which
avenues provides best return. As per the financial rule of “Do not put all the eggs in
one basket” investor’s portfolio are most diversified. So that risk should be
minimized. 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 Sharpe’s model, Treynor’s model and
Jenson’s model. These models are suggested that which schemes provide best return.
Importance of the study
is that a fund’s performance can be judged with respects to investors’ expectation.
Investors have to define his expectations in relation to certain indicators on what is
possible to achieve or moderate this with comparable investment alternatives
available in the market. These indicators of performance can acts against investors
fund performance. It is very important to select the right benchmark to evaluate a
fund’s performance.
So the problem arises that in which scheme they should invest according to their
preferences.

Hypothesis

1)Does PMS give better return than Mutual Funds?

H0: returns given by PMS portfolios are not higher than mutual funds’ portfolios.
 H1: return given by PMS portfolio are higher than the mutual funds’ portfolios.
2)Are PMS performing better than the market?
H0: portfolio managements services does not gives higher return than market.
H1:portfolio management services give higher returns than market.
3)Among market, PMS and mutual funds who performed better?

a)H0: there is no significant relationship between the performance of PMS ,

markets and mutual funds

H1:there is significant relationship between the performance of PMS , market and mutual
funds.

b)H0:PMS has not performed better than market and mutual funds

H1:PMS has performed better than market and mutual funds.

c) H0:Market has not performed better than PMS and mutual funds.
H1:market has performed better than PMS and mutual funds.
d) H0:Mutual funds has not performed better than market and PMS.
H1:Mutual funds has performed better than market and PMS