A study on MUTUAL FUNDS

BHAVESH M. POPAT
 INTRODUCTION
A mutual fund is a professionally managed type of collective investment
scheme that pools money from many investors and invests it in stocks,
bonds, short-term money market instruments and other securities. Mutual
funds have a fund manager who invests the money on behalf of the
investors by buying / selling stocks, bonds etc. Currently, the worldwide
value of all mutual funds totals more than $US 26 trillion. There are
various investment avenues available to an investor such as real estate,
bank deposits, post office deposits, shares, debentures, bonds etc. A
mutual fund is one more type of Investment Avenue available to
investors. There are many reasons why investors prefer mutual funds.
Buying shares directly from the market is one way of investing. But this
requires spending time to find out the performance of the company whose
share is being purchased, understanding the future business prospects of
the company, finding out the track record of the promoters and the
dividend, bonus issue history of the company etc.
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The investor need not bother with researching hundreds of stocks. It
leaves it to the mutual fund and it‟s professional fund management team.
Another reason why investors prefer mutual funds is because mutual
funds offer diversification. An investor‟s money is invested by the mutual
fund in a variety of shares, bonds and other securities thus diversifying the
investor‟s portfolio across different companies and sectors. This
diversification helps in reducing the overall risk of the portfolio. It is also
less expensive to invest in a mutual fund since the minimum investment
amount in mutual fund units is fairly low (Rs. 500 or so). With Rs. 500 an
investor may be able to buy only a few stocks and not get the desired
diversification. These are some of the reasons why mutual funds have
gained in popularity over the years. Investors need to understand nuances
of mutual funds, the workings of various schemes before they invest,
since their money is being invested in risky assets like stocks/ bonds.
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 EXECUTIVE SUMMARY
India's private mutual funds were born out of chaos. The 1992
Harshad Mehta scam had shaken small investors. Those scarred by the
stock markets were investing in either Unit Trust of India's US 64
scheme or assured-return schemes of mutual funds promoted by
public sector banks. US 64, a balanced fund, was giving 18% annual
dividend and bank-promoted mutual funds were promising to treble
(return 15% a year) money in eight years. Daily disclosure of unit
value, called net asset value (NAV), was unheard of; in fact, NAVs
were rarely disclosed, neither were portfolios of the schemes. The
Securities and Exchange Board of India (Sebi) had just come into
being and was trying to grapple with the kerfuffle caused by the
securities scam. Amid all this, in 1993, it allowed private mutual funds
to set up shop in the country.
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The Indian mutual fund industry is passing through a transformation. On
one side it has seen a number of regulatory developments while on the
other the overall economy is just recovering from the global crisis of
2008. The regulatory changes have been made keeping in mind the best
interests of the investors. However, like all changes these changes will
take time to be adapted by industry, intermediaries and the investing
public at large. The industry is looking forward to early resolution of
certain inter-regulatory issues requiring Government / Court
intervention. Mutual funds are restructuring their business models to
provide for increased efficiencies and investor satisfaction. The industry
also faces a number of issues which are characterized by lack of investor
awareness, low penetration levels, high dependence on corporate sector
and spiraling cost of operations. The Growth rate of the industry
therefore needs to be seen from this perspective.
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RESEARCH METHODOLOGY
Research as “the manipulation of things, concepts of symbols
for the purpose of generalizing to extend, correct or verify
knowledge, whether that knowledge aids in construction of
theory or in practice of an art.”
Exploratory Study: Since we always lack a clear idea of the
problems one will meet during the study, carrying out an
exploratory study is particularly useful. It helped develop my
concepts more clearly, establish priorities and in improve the final
research design.
Descriptive Study: After carrying out initial Exploratory studies to
bring clarity on the subject under study, Descriptive study will be
carried out to know the current performance of mutual funds in
India. The knowledge of leading mutual funds is needed to
document the process and suggest improvements in the current
system to make it more effective. The tools used to carry out
Descriptive study included both monitoring and Interrogation. 6
 LITERATURE REVIEW
Sapar & Narayan(2003) examines the performance of Indian mutual funds in
a bear market through relative performance index, risk-return analysis,
Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's measure, and Fama's
measure with a sample of 269 open ended schemes (out of total schemes of
433). The results of performance measures suggest that most of the mutual
fund schemes in the sample of 58 were able to satisfy investor's expectations by
giving excess returns over expected returns based on both premium for
systematic risk and total risk.
Rao D. N (2006) studied the financial performance of select open-ended equity
mutual fund schemes for the period 1st April 2005 - 31st March 2006
pertaining to the two dominant investment styles and tested the hypothesis
whether the differences in performance are statistically significant. The
analysis indicated that growth plans have generated higher returns than that of
dividend plans but at a higher risk studied classified the 419 open-ended equity
mutual fund schemes into six distinct investment styles.
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Agrawal Deepak & Patidar Deepak (2009) studied the empirically
testing on the basis of fund manager performance and analyzing data at
the fund-manager and fund-investor levels. The study revealed that the
performance is affected by the saving and investment habits of the
people and at the second side the confidence and loyalty of the fund
Manager and rewards- affects the performance of MF industry in India.
Mehta Sushilkumar (2010) analyze the performance of mutual fund
schemes of SBI and UTI and found out that SBI schemes have
performed better then the UTI in the year 2007-2008. Selvam et.al
(2011) studied the risk and return relationship of Indian mutual fund
schemes. The study found out that out of thirty five sample schemes,
eleven showed significant t–values and all other twenty four sample
schemes did not prove significant relationship between the risk and
return. 8
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Sharpe (1966), was among the earliest to use the CAPM to
assess mutual funds performance. He assumed that expected
return E(R.). of a fund and its risk (0.) are linearly related. This
can be explained with the help of the following equation.

Mc Donald (1974) studied the performance of 123 funds using

monthly data for the period 1960-69. His study was based on a
CAPM model four measures monthly mean excess return;
reward-ta-volatility Ratio, Jensen's alpha and reward to
variability ratio were calculated. He concluded that the average
fund performance was not significantly different from the market
and given fees and expenses they were slightly better.
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Mains (1977) carried out Jensen's study for 70 of the funds over
the same period. He carried out the study with annual and
monthly returns. While annual data gave an average alpha of
minus 62 basis points the monthly data gave a positive nine basis
points. Mains argued that monthly data was more efficient. These
studies show that fund managers do out perform a passive
benchmark index portfolio while several studies also devote to
the market timing ability of funds but these are excluded as they
are not the objective in their study. Importantly these studies also
show that performance assessment is dependent upon the time
period, the type of funds studied and more importantly the index
for comparison. Increasingly the single factor CAPM came under
criticism. 10
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A study was conducted by Grinblatt and Titman (1989) to
examine the superior stock selection abilities of mutual fund
managers through which researcher generated abnormal returns.
For this purpose a sample of 274 funds was taken from 1974
to1984. Study applied Jensen Measure and compared the abnormal
returns of active and passive investment strategies both with and
without transaction costs, fees, and expenses. The results showed
that the actual returns of these funds do not exhibit abnormal
performance indicating that investors cannot take advantage of the
superior abilities of these portfolio managers by purchasing shares
in the mutual funds.

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According to Teri (2007) mutual fund is a professional investment company
which managed collection of stocks, bonds, or other securities owned by a group
of investor. Each mutual fund had a fund manager who purchased and sold the
fund‟s investment according to the fund goals. Fund managers were responsible to
analyze the economic conditions, industry trends, government regulations and the
impact on stocks before selecting the securities for investment. Mutual funds
provided investment facility to the small investors who cannot afford to invest the
large sums of money Teri (2007).
Miller and Nicholas conducted a research to examine the risk- return relationships
in the presence of nonstationarity in order to obtain more precise estimates of alpha
and beta. For this purpose of study applied partition regression and a partition
selection rule for estimating the traditional CAPM. Studies applied these
procedures to price appreciation data for the market and 28 mutual funds.
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 ADVANTAGES OF MUTUAL
FUNDS
 Professional expertise
 Diversification
 Low cost of asset management
 Liquidity
 Ease of process
 Well regulated

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 DISADVANTAGES OF
MUTUAL FUNDS
 Subject to market risk
 No guarantee of returns
 Diversification of portfolio doesn't maximize returns
 Selecting right financial securities is not easy
 Cost management not proportional to performance
 Unethical practices may creep in
 12b-1 fees

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 MAJOR MUTUAL FUNDS
COMPANIES IN INDIA
O ABN AMRO Mutual Fund
O Birla Sun Life Mutual Fund
O Bank of Baroda Mutual Fund (BOB Mutual Fund)
O HDFC Mutual Fund
O HSBC Mutual Fund
O ING Vysya Mutual Fund
O Prudential ICICI Mutual Fund
O State Bank of India Mutual Fund
O Tata Mutual Fund
O Kotak Mahindra Mutual Fund
O Unit Trust of India Mutual Fund
O Reliance Mutual Fund
O LIC Mutual Fund
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 FUTURE & GROWTH OF MUTUAL
FUNDS IN INDIA
According to report of Businessmaps of India, Important aspects related to the
future of mutual funds in India are -
O The growth rate was 100 % in 6 previous years.
O The saving rate in India is 23 %.
O There is a huge scope in future for expansion of the mutual funds industry.
O A number of foreign based assets management companies are venturing into
Indian markets.
O The Securities Exchange Board of India has allowed the introduction of
commodity mutual funds.
O The emphasis is being given on effective corporate governance of Mutual
Funds.
O The Mutual funds in India has the scope of penetrating into the rural and semi
urban areas.
O Financial planners are introduced into the market, which would provide the
people with better financial planning.
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According to RNCOS research report titled “Current and Future
outlook of Mutual Fund Industry”, key finding are –
O The Indian mutual funds retail market, growing at a Compounded
Annual Growth Rate (CAGR) of about 30%, is forecasted to reach
US$ 300 Billion by 2015.
O Income and growth schemes made up for majority of Assets
Under Management (AUM) in the country.
O At about 84% (as on March 31, 2008), private sector Asset
Management Companies account for majority of mutual fund
sales in India.
O Individual investors make up for 96.86% of the total number of
investor accounts and contribute 36.9% of the net assets under
management. 17
 NET ASSET VALUE
Net asset value (NAV) represents a fund's per share market value.
This is the price at which investors buy ("bid price") fund shares from
a fund company and sell them ("redemption price") to a fund
company. It is derived by dividing the total value of all the cash and
securities in a fund's portfolio, less any liabilities, by the number of
shares outstanding. An NAV computation is undertaken once at the
end of each trading day based on the closing market prices of the
portfolio's securities. This number is important to investors, because it
is from NAV that the price per unit of a fund is calculated. By
dividing the NAV of a fund by the number of outstanding units, you
are left with the price per unit. Because mutual funds distribute
virtually all their income and realized capital gains to fund
shareholders, a mutual fund's NAV is relatively unimportant in
gauging a fund's performance, which is best judged by its total return.18
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Objectives
O To define and maintain high professional and ethical standards in all areas
of operation of mutual fund industry.
O To recommend and promote best business practices & code of conduct to
be followed by members and others engaged in the activities of mutual
fund and asset management including agencies connected or involved in
the field of capital markets and financial services.
O To interact with the Securities and Exchange Board of India (SEBI) & to
represent to SEBI on all matters concerning mutual fund industry.
O To represent to the Government, Reserve Bank of India and other bodies
on all matters relating to the Mutual Fund Industry.
O To develop a cadre of well trained Agent distributors and to implement a
programme of training and certification for all intermediaries and others
engaged in the industry.
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 TOP RANKED MUTUAL FUNDS
IN 2016
Large Cap
O Birla Sun Life Top 100 (G)
O Canara Robeco Large Cap+ (G)
O ICICI Pru Top 100 Fund (G)
O UTI India Lifestyle Fund(G)
Small & Mid Cap
O Birla Sun life MNC fund (G)
O Franklin (I) Smaller Cos (G)
O Mirae Emerging blue-chip fund (G)
Diversified Equity
O Birla SL India Genext (G)
O Icici Pru Dynamic Plan (G)
O Tata Ethical Fund (G)
O UTI MNC Fund (G)

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 PERFORMANCE COMPARISON OF
LEADING MUTUAL FUNDS
BIRLA SUN LIFE MUTUAL FUND
Birla Sun Life Asset Management Company Ltd. (BSLAMC), the
investment managers of Birla Sun Life Mutual Fund, is a joint
venture between the Aditya Birla Group and the Sun Life Financial
Services Inc. of Canada.

AUM of this fund was highest in 2016 as compared to last few

years so it shows that fund is doing very well. Currently this fund
has 1010 schemes in the market.

Top funds of this company in last 3 years are: Birla sun life gold
etf, Birla sun life new millennium fund (Direct), Birla sun life new
millennium fund and Birla Sun life pure value fund
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 Continued…
SBI MUTUAL FUND
SBI Mutual Fund is India‟s largest bank sponsored mutual
fund and has an enviable track record in judicious investments
and consistent wealth creation. The fund traces its lineage to
SBI - India‟s largest banking enterprise. The institution has
grown immensely since its inception and today it is India's
largest bank, patronised by over 80% of the top corporate
houses of the country.

Company is having 453 schemes in the market. In this case

too AUM was highest in the last year as compared to last few
years. Top funds of this company are SBI IT Fund, SBI gold
etf and SBI pharma fund etc. 22
 CONTINUED...
HDFC MUTUAL FUND
HDFC Asset Management Company Ltd (AMC) was
incorporated under the Companies Act, 1956, on December 10,
1999, and was approved to act as an Asset Management
Company for the HDFC Mutual Fund by SEBI vide its letter
dated July 3, 2000.
Company is having 890 schemes in the market which are divided
in various types of schemes.
As we have seen in previous two companies AUM was also
comparatively high. Top funds of this company in last year are
HDFC Gold FTF, HDFC gilt fund, HDFC high interest fund,
HDFC Income fund

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 CONTINUED…
ICICI PRUNDENTIAL MUTUAL FUND
ICICI Prudential Asset Management Company enjoys the strong
parentage of Prudential plc, one of UK's largest players in the insurance
& fund management sectors and ICICI Bank, a well-known and trusted
name in financial services in India.

There are 1167 schemes in the market of this mutual fund.

AUM was highest in the year 2015 at around Rs.95000 crore
Top funds are Icici Pru exports and other services fund, Icici Pru gold
ETF, Icici pru technology fund

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 CONTINUED…
UTI Mutual fund
January 14, 2003 is when UTI Mutual Fund started to pave its
path following the vision of UTI Asset Management Co. Ltd.
(UTIAMC), which was appointed by UTI Trustee Co, Pvt.
Ltd. for managing the schemes of UTI Mutual Fund and the
schemes transferred/migrated from the erstwhile Unit Trust of
India.
There are 676 schemes in the market of this company. AUM
was slightly higher than last year but still very good. Top
funds are UTI services industries fund, UTI gold etf, UTI
pharma & healthcare fund.

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 OBJECTIVES
 To study about the Mutual Funds in India
 To study the various Mutual Funds schemes in India
 To study about the risk factors involved in the Mutual Funds and
How to analyze it?
 To study the performance indices that can be used for mutual fund
comparison.
 To compare mutual funds of selected companies

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 NEED FOR THE STUDY
Against this backdrop, the present study has been taken up with
a broad aim of appraising the overall growth performance of the
Mutual Fund Industry in India especially after the „open up‟ of
the industry. Many studies were taken up to evaluate the
performance of Mutual Fund Industry in India. However, there
were very few studies which attempted and examined the
relative performance of the public and private mutual funds in
terms of resource mobilization, investment behaviour and
general efficiency. The present study attempts to pursue the
research on these lines and also attempts to elicit the opinions of
the investors in various funds before submitting the suggestions.27
 CONCLUSION
The future looks bright for the industry in India going by a recent
study conducted by the Associated Chamber of Commerce and
Industry of India (Assocham) and the AMFI. The report predicts
that the mutual fund industry is expected to jump sharply from its
present share of 6 per cent in GDP to 40 percent in the next 10
years, provided the country‟s growth rate consistently exceeds at
the rate of 6 per cent per annum. The report says that by 2014, the
size of the mutual fund industry is estimated to go up to over Rs.
1,65,000 crore. It suggests that India is going to follow the pattern
seen in the developed markets such as the US where the size of
the industry is 70 per cent of the GDP. The worldwide size of the
industry is about 37 per cent of the GDP.
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 CONTINUED…
While addressing a one-day national seminar on “Investment
opportunities in mutual funds” organized by the Federation of Andhra
Pradesh Chamber of Commerce and Industry (FAPCCI), Hyderabad, the
Executive Director, SEBI, said that the industry has been growing at a
rate of 10 per cent to 15 per cent per annum on an average, and the
growth rate could be accelerated in view of the positive economic
conditions. Mutual funds segment as an investment avenue is playing a
significant role in the changing economic scenario of Indian capital and
financial markets. Though the penetration of mutual funds is limited to
urban areas and not reached to rural and retail investors, it had grown
significantly in terms of asset base and helping to fuel the growth of the
economy. For any country, savings play a vital role in investment. India‟s
gross domestic savings are very high, unlike other developed nations.
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 BIBLIOGRAPHY
 www.reserchersworld.com
 www.nseindia.com
 www.wiki.com
 www.amfiindia.com
 http://businesstoday.intoday.in/
 www.wikipedia.org
 http://www.valueresearchonline.com/
 www.pwc.co.in
 http://www.indiainfoline.com/
 www.moneycontrol.com
 www.sbimf.com
 www.birlasunlife.com
 www.licmf.com
 www.hdfcfund.com
 www.icicipruamc.com
 www.utimf.com
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