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 ACKNOWLEDGEMENTS

At the outset, I would like to express my heartfelt thanks and gratitude to my

Research Director, Professor. P. Venkateswarlu, Department of Commerce and

Management Studies, Andhra University, Visakhapatnam and without whose sincere effort; I

would not have completed my Doctoral Programme in the Department of Commerce and

Management Studies, Andhra University Visakhapatnam.

I also thank Prof. M.Madhusudhana Rao, Head, Department of Commerce and

Management Studies and Prof. G. Satyanarayana, Chairman, Board of Studies, Department

of Commerce and Management Studies, who has taken a equal interest in my research work

and who extended his unstinted co-operation and help in the completion of this work.

I also thankful to Doctoral Committee Member Prof. P. Viswanadham, Department

of Commerce and Management Studies, Prof. P. Hrushikesava Rao, Chairman, Dean of

Faculty, Department of Commerce and Management Studies for their great encouragement

and support to complete my research work, and all the Faculty Members of Department of

Commerce and Management Studies Andhra University Visakhapatnam. I am further

thankful to all the Non – Teaching Staff of Department of Commerce and Management

Studies Andhra University who gave a good support to move my thesis work directly and

indirectly.

I am also thankful to Prof. M. Sundara Rao, Principal, College of Arts &

Commerce, Andhra University, for his help. I never forget the inspiration given by

Prof. V. Uma Maheswara Rao, Registrar, Andhra University and Prof. K. Vaiskh, Dean,

Academic Affairs, Andhra University. I fall short of words to thank our Honourable Rector

cum Vice – Chancellor, I/c. Prof. E. A. Narayana, Andhra University, Visakhapatnam for

his encouragement.
 I am very much great full to Dr. M.S.V. Prasad, Associate Professor, Head,

Department of Finance, GITAM Institute of Management, GITAM University

Visakhapatnam who had given his valuable guidelines, suggestions and encouragement to

bring out a shape of my thesis work.

I am very much thank full to all the fund management companies, brokers and

investors for their support and help in the process of my data collection towards my research

work and also I am especially thankful to Mr. G. Sree Rama Murthy, Managing Director,

Mr. G. Satya Ram Prasad, Director, Mr. Ramu Naraharasetti, Chief Financial Officer,

Mr. K. Satyanarayana, Executive Director of Vizag Steel Securities Limited, Visakhapatnam,

Andhra Pradesh and my heartfelt thanks to Mr. Satish Kumar Arya, Director, Corporation of

Vizag Steel Securities Limited ,Visakhapatnam, Andhra Pradesh for their help and support to

acquire the required data for my research work and also I am very much thank full to Angel

Broking Ltd., Karvy Stock Broking Ltd., etc. for their help in the process of providing data

for research work.

I am indebted to thank Mr. C. V. R. Rajendran, Chief Executive, AMFI,

Mr. Balkrishna Kini, Dy. Chief Executive, AMFI, Mr. A. Balasubramanian, Chief Executive

Officer, Birla Sun Life Asset Management Co. Ltd., Mr. Kailash Kulkarni, Chief Executive

Officer, L&T Investment Management Ltd., Mr. Leo Puri, Managing Director, UTI Asset

Mgmt. Co. Ltd., Mr. Sundeep Sikka, Chief Executive Officer, Reliance Capital Asset Mgmt.

Co. Pvt. Ltd., Mr. Milind Barve, Managing Director, HDFC Asset Management Co. Ltd.,

Mr. Nimesh Shah, Managing Director & CEO, ICICI Prudential Asset Mgmt. Co. Ltd.,

Mr. Harshendu Bindal, President, Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
 I also express my deep heartfelt thanks through this thesis to all my teachers who

teach, guide, encourage, support, admire and inspire me to grown up to this level i.e., from 1st

class education to P G education and also who supported to bring out this thesis work in an

effective manner. I also thank full to my fellow research scholars for their encouragement

and support.

Finally I may not count and value My beloved parents Sri K. Chinnayya (Late),

Smt. K. Aadamma (Late), and also my brothers Mr. K. Punnaiah, Mr. K. Rama Rao,

Mr. K. Appa Rao, & Mr. K. Krishna Rao and my sisters Mrs. Parvathi and Mrs. Appala

Narasamma were very helped and supported in my endeavour and offered valuable emotional

encouragement.

         (K. MADHAVA RAO)


 TABLE OF CONTENTS

Chapter Content Page No.

List of Tables i
List of Figures v
List of Abbreviations vi
I INTRODUCTION 1-23
1.1 Introduction 1
1.2 Global Scenario 3
1.3 Indian Scenario 7
1.4 Statement of the Problem 11
1.5 Significance of the Study 14
1.6 Need for the Study 15
1.7 Objectives of the Study 18
1.8 Hypotheses 18
1.9 Scope of the Study 19
1.10 Operational Definitions and Concepts 19
1.11 Limitations of the Study 21
1.12 Concluding Remarks 21
1.13 Chapter Scheme 22

II REVIEW OF LITERATURE 24 - 62

2.1 Introduction 24
2.2 Review of Foreign Studies 24
2.3 Review of Indian Studies 33
2.4 Concluding Remarks 51
2.5 Foreign References 53
2.6 Indian References 56


III RESEARCH METHODOLOGY 63-89

3.1 Sources of Data 63

3.2 Sampling 63
3.3 Tools of Analysis 78
3.4 Statistical Techniques of Analysis 82
3.5 Concluding Remarks 89

IV PERFORMANCE OF THE INDIAN MUTUAL FUNDS 90 – 152

4.1 Introduction 90
4.2 What is Mutual Fund? 93
4.3 Growth of Mutual Fund Industry 93
4.4 Organization Structure of Mutual Funds 96
4.5 History and Origin of Mutual Funds in India 98
4.6 Origin and Growth of Mutual Funds 99
4.7 Indian Mutual Fund Industry at a Glance in 2014-2015 107
4.8 Types of Mutual Funds 108
4.9 Other Funds 117
4.10Attributes of Mutual Funds 125
4.11 Some of the Common Types of Mutual Funds and What
They Typically Invest In? 127
4.12 Advantages of Mutual Funds 128
4.13 Disadvantages of Mutual Funds 130
4.14 Mutual Funds & Capital Market 130
4.15 Role of SEBI (Securities Exchange Board of India) 131
4.16 Role of AMFI (Association of Mutual Funds in India) 132
4.17 SEBI Guidelines of Mutual Funds 134
4.18 Launching of Schemes 136
4.19 Recent Trends of Mutual Funds in India 137
4. 20 Concluding Remarks 151


V PERFORMANCE EVALUATION OF SELECT GROWTH
SCHEMES 153-208
5.1 Introduction 153
5.2 Sharpe Index 155
5.3 Treynor Index 167
5.4 Jensen Measure 180
5.5 Sharpe’s Differential Return 180
5.6 Composite Risk –Return Analysis 192
5.7 Comparison of Performance Evaluation Measures 198
5.8 Eugene Fama’s Decomposition of Performance 200
5.9 Relationship between the Scheme and Market 204
5.10 Relationship between the Present Performance and The Past
Performance 206
5.11 Concluding Remarks 208

VI` INVESTORS, BROKERS AND FUND MANAGERS PERCEPTIONS

ON INDIAN MUTUAL FUNDS 209 – 252

6.1 Introduction 209

6.2 Profile of Respondents (Investors) 210
6.3 Attitude of Investors towards Investments 212
6.4 Financial Needs and Dependence of Investors on Investments 212
6.5 Investment Objectives of Investors 213
6.6 Investment Time Horizon of Investors 214
6.7 Investors’ Willingness to Take Risk 214
6.8 Investors Attitude towards Fluctuations in the Value of
Investments 215
6.9 Investors Profile and Attitude towards Investments 216
6.10 Investment Experience of Investors 217
6.11 Proportion of Holdings in Financial Assets 218
6.12 Investors Opinion on Mutual Fund Industry in India 222
 6.13 Investors Opinion on Objective of Selecting Mutual Fund
Schemes 223
6.14 Investors Profile and Objective of Selecting Mutual Fund
Schemes 224
6.15 Scheme Galore 226
6.16 Specific Attitude of Investors towards Mutual Fund Industry 230
6.17 Specific Attitude Statements 231
6.18 Combined Opinion of Investors, Fund Managers and Brokers 237
6.19 Choice of Mutual Fund Organisation and Scheme 244
6.20 Investors, Brokers and Fund Managers Opinion on Factors
Affecting Choice of Mutual Fund Schemes 246
6.21 Specific Attitude towards Mutual Funds 248
6.22 Concluding Remarks 251

VII SUMMARY, CONCLUSION AND SUGGESTIONS 253 – 282

7.1 Introduction 253

7.2 Findings 259
7.3 Suggestions 273
7.4 Challenges of Mutual Fund Industry 278
7. 5 The Future Vision 278
7.6 Concluding Remarks 279
7.7 Scope for further research 281

BIBLIOGRAPHY 283-300
APPENDIX: Questionnaire
a) Perceptions of Investors
b) Perceptions of Brokers
c) Perceptions of Fund Managers


 LIST OF TABLES

Table No. Table Name Page No.

The Average Assets Under Management of All Mutual Funds In

Table: 4.1 106
India

Table: 4.2 Performances of Top Mutual Funds As on June, 2015 140

Table: 4.3 Resource Mobilisations by Mutual Fund Industry 142

Scheme Wise Assets Under Management of Mutual Fund Industry

Table: 4.4 144
(In Crores)

Sector Wise Total Resources Mobilized by Mutual Fund Industry

Table: 4.5 146
(In Crores)

The List of Funds that are Mobilized from the Years 2005-06 to
Table: 4.6 148
2014-15.

Sale and Purchase Activity of the Mutual Fund Industry over the
Table 4.7 150
Years 2005-06 to 2014-15.

Table 5.1 Sharpe Index - L&T Gilt Fund - Investment Plan 155

Table 5.2 Sharpe Index - Birla Sun Life Gilt Plus - PF Plan 156

Table 5.3 Sharpe Index - SBI Magnum Gilt Fund - Long Term Plan 157

Table 5.4 Sharpe Index - UTI Gilt Advantage Long Term Plan 158

Sharpe Index - IDFC Government Securities Fund - Provident Fund

Table 5.5 159
Plan - Regular Plan

Table 5.6 Sharpe Index - SBI Pharma Fund 160

Table 5.7 Sharpe Index - Reliance Pharma Fund 161

Table 5.8 Sharpe Index - UTI Pharma & Healthcare Fund 162

Table 5.9 Sharpe Index - HDFC Children’s Gift Fund - Investment Plan 163

Table 5.10 Sharpe Index - SBI Magnum Balanced Fund 164

Table 5.11 Sharpe Index - ICICI Prudential Balanced Fund - Regular Plan 165

Table 5.12 Sharpe Index - Franklin India Balanced Fund 166

Table 5.13 Treynor Index - L&T Gilt Fund - Investment Plan 167

Table 5.14 Treynor Index - Birla Sun Life Gilt Plus - PF Plan 169

i
Table 5.15 Treynor Index - SBI Magnum Gilt Fund - Long Term Plan 170

Table 5.16 Treynor Index - UTI Gilt Advantage Long Term Plan 171

Treynor Index - IDFC Government Securities Fund - Provident Fund

Table 5.17 172
Plan - Regular Plan

Table 5.18 Treynor Index - SBI Pharma Fund 173

Table 5.19 Treynor Index - Reliance Pharma Fund 174

Table 5.20 Treynor Index - UTI Pharma & Healthcare Fund 175

Table 5.21 Treynor Index - HDFC Children’s Gift Fund - Investment Plan 176

Table 5.22 Treynor Index - SBI Magnum Balanced Fund 177

Table 5.23 Treynor Index - ICICI Prudential Balanced Fund - Regular Plan 178

Table 5.24 Treynor Index - Franklin India Balanced Fund 179

Table 5.25 Jensen Alpha - L&T Gilt Fund - Investment Plan 181

Table 5.26 Jensen Alpha - Birla Sun Life Gilt Plus - PF Plan 182

Table 5.27 Jensen Alpha - SBI Magnum Gilt Fund - Long term Plan 183

Table 5.28 Jensen Alpha - UTI Gilt Advantage Long Term Plan 184

Jensen Alpha - IDFC Government Securities Fund - Provident Fund

Table 5.29 185
Plan - Regular Plan

Table 5.30 Jensen Alpha - SBI Pharma Fund 186

Table 5.31 Jensen Alpha - Reliance Pharma Fund 187

Table 5.32 Jensen Alpha - UTI Pharma & Healthcare Fund 188

Table 5.33 Jensen Alpha - HDFC Children’s Gift Fund - Investment Plan 189

Table 5.34 Jensen Alpha - SBI Magnum Balanced Fund 190

Jensen Alpha - ICICI Prudential Balanced Fund - Regular

Table 5.35 191
Plan

Table 5.36 Jensen Alpha - Franklin India Balanced Fund 192

Table 5.37 Consolidated Sharpe Index of Sample Schemes 193

Table 5.38 Consolidated Treynor Index of Sample Schemes 195

ii

Table 5.39 Consolidated Jensen Alpha of Sample Schemes 197
Table 5.40 Comparisons of Performance Evaluation Models 199
Table 5.41 Eugene Fama’s Decomposition of Sample Schemes’ Returns 201
Table 5.42 Composite risk of Sample Schemes 203
Table 5.43 Impact of Market on the Performance of Sample Schemes 205
Table 5.44 Auto correlation of Net Assets Value of Sample Schemes 207
Table 6.1 Profile of Sample Investors 211
Table 6.2 Financial Dependence of Investors 212
Table 6.3 Investment Objective of Investors 213
Table 6.4 Investment Time Horizon of Investors 214
Table 6.5 Investors’ Willingness to Take Risk 215
Table 6.6 Investors’ Attitude Towards Volatility in Investment Value 216
Table 6.7 Investors Profile and Attitude Towards Investment 217
Table 6.8 Investment Experience of Investors 218
Table 6.9 Investment in Financial Assets by Investors 219
Table 6.10 Investors Preference for Financial Assets 220
Table 6.11 Investors’ Opinion on Degree of Safety of Financial Assets 221
Table 6.12 Experience of Investors in Mutual Fund Investment 223
Table 6.13 Objective of Investing in Mutual Funds 223
Table 6.14 Investors’ Profile and Objective of Selecting Mutual Fund Scheme 224
Table 6.15 Investors’ Preference for Mutual Fund Sector 225
Table 6.16 Investors’ Preference towards Scheme Objective 226
Table 6.17 Sources of Information on Mutual Funds 226
Investors’ Opinion on Factors Determining Success of Mutual
Table 6.18 227
Funds
Table 6.19 Benefits of Investing in Mutual Funds 228
Investors’ Opinion on Factors Influencing the Choice of Mutual
Table 6.20 229
Funds Organisation

iii
Table 6.21 Investors’ Opinion on Factors Influencing the Choice of Scheme 230
Table 6.22 Investors’ Satisfaction on Indian Mutual Fund Industry 231
Distribution of Investors According to their Degree of Agreement
Table 6.23 232
Towards Investing in Mutual Funds Compared to Shares
Distribution of Investors According to their Degree of Agreement on
Table 6.24 Suitability of Mutual Funds for Small Investors hesitating to enter 233
Capital Market
Distribution of Investors According to their Degree of Agreement on
Table 6.25 234
Mutual Funds’ ability to weather Market Fluctuations
Distribution of Investors According to their Degree of Agreement
Table 6.26 towards Risk and Return Characteristics of Indian Mutual Funds are 235
not in Conformity with their Stated Objectives
Distribution of Investors According to their Degree of Agreement
Table 6.27 towards their view that Mutual Funds provide better Returns 236
compared to Bank Deposits
Distribution of Investors According to their Degree of Agreement
Table 6.28 towards preference for Growth Schemes compared to Income 237
Schemes
Investors and Brokers’ Opinion towards Degree of Safety of
Table 6.29 238
Financial Assets
Investors And Brokers’ Opinion on benefits of Investing in Mutual
Table 6.30 239
Funds
Table 6.31 Investors and Brokers’ Preference for Mutual Fund Sector 240
Table 6.32 Investors and Brokers’ Preference for Mutual Fund Objective 241
Investors, Brokers and Fund Managers’ Opinion on Factors
Table 6.33 243
determining success of Mutual Funds
Investors, Brokers and Fund Managers’ Opinion on Factors
Table 6.34 245
influencing choice of Mutual Fund Organisations
Investors, Brokers and Fund Managers’ Opinion on Factors
Table 6.35 247
influencing Choice of Mutual Fund Scheme
Investors, Brokers and Fund Managers’ Degree of Agreement
Table 6.36 249-250
Towards Specific Attitude Statements

iv

 LIST OF FIGURES

Figure No Figure Name Page No

Figure 4. 1 Growth of Mutual Fund Industry 96
Figure 4.2 Organization Structures of Mutual Funds 97
Figure 4.3 Origin of Mutual Funds in India 98
Mobilization, Redemption & Net flow of Mutual Fund
Figure: 4.4 142
Industry
Scheme - Wise Assets Under Management of Mutual Fund
Figure: 4.5 144
Industry
Sectors - Wise Total Resources Mobilized By Mutual Fund
Figure 4.6 146
Industry
Figure: 4.7 Lists of Funds Mobilized by Mutual Fund Industry in India 148
Figure: 4.8 Sales & Purchase Activity 150
Figure 5.1 Sharpe Index 194
Figure 5.2 Treynor Index 196
Figure 5.3 Jensen Alpha 198
Investors’ Opinion on Degree of Safety of Financial
Figure 6.1 221
Assets
Figure 6.2 Sources of Information on Mutual Fund 227


v

 LIST OF ABBREVIATIONS

AMC Asset Management Company

AMFI Association of Mutual Funds in India
AUM Asset Under Management
BDHAH Bill Discounting Houses and A cceptance Houses
CAGR Compound Annual Growth Rate
CAIPL Credence Analytics (India) Pvt. Ltd
CAPM Capital Asset Pricing Model
CD Certificate of Deposit
CEF Closed – end Funds
CGR Compound Growth Rate
CP Commercial Paper
CRISIL Credit Rating Services Information Limited
DFHI Discount and Finance House of India
DPR Dave P anel R eport
ELSS Equity Linked Saving Schemes
FS Financial services
FSR Financial Sector Reforms
FTB Factoring and Treasury Bills
GIC General Insurance Corporation of India
GS Growth Schemes
ICM Indian Capital Market
IM Issue M anagers
IMFI Indian Mutual Fund Industry
LIC Life Insurance Corporation of India
MB Merchant B ankers
MF Mutual Funds
MFS Mutual Fund Scheme
MMMF Money Market Mutual Funds
MR Market Return

vi

 NAV Net Assets Value
OEF Open – end Funds
PMLMC Portfolio M anagers and Liability Management Companies
PR Portfolio Return
RFR Risk-free return (Rf)
SDR Sharpe’s Differential Return
SEBI Securities Exchange Board of India
SI Sharpe Index (St)
SRSM Stratified Random Sampling Method
TI Treynor Index (Tt)
Undertakings for Collective Investment in Transferable
UCITS
Securities
UH Unit-holder
USAMFI U.S.A Mutual Fund Industry
UTI Unit Trust of India
VRIPL Value Research India Private Limited

vii

 CHAPTER - I

INTRODUCTION

1.1 Introduction

Investment is a commitment of funds in real assets or financial assets.

Investment involves risk and gain. In the present dynamic global environment,

exploring investment avenues are of great relevance. Investment skills developed over a

period of time are considerably influenced by experience and spadework carried out to

arrive at conclusions. The success of an investment activity depends on the knowledge

and ability of investors to invest, the right amount, in the right type of investment, at the

right time.

Real assets, being tangible material things, are less liquid than financial assets.

Compared to financial assets, returns on real assets are more difficult to measure

accurately due to the absence of broad, ready, and active market. Financial assets

available to individual investors are manifold, having different concomitant benefits to

choose from. All financial investments are risky but the degree of risk and return differ

from each other. An investor has to use his discretion, which is an art acquired by

learning and practical experience. The knowledge of financial investment and the art of

its management are the basic requirements for a successful investor. The pre requisite

for a successful investment also lies in its liquidity, apart from risk and return on

investment. Liquidity through easy marketability of investments demands the existence

of a well-organised Government regulated financial system.

1
 Financial system comprises of financial institutions, services, markets and

instruments, which are closely related and work in conjunction with each other. The

litany of new financial institutions and instruments developed in recent years, with the

ostensible objective of modernizing the financial sector, is impressively long; Mutual

Funds (MF), Discount and Finance House of India (DFHI), Money Market Mutual

Funds (MMMF), Certificate of Deposit (CD), Commercial Paper (CP), Factoring and

Treasury Bills (FTB) . Financial services (FS) through the network of elements

(institutions, markets and instruments) serve the needs of individuals, institutions and

companies. It is through these elements, the functioning of the financial system is

facilitated.

Financial services sector is the nucleus of the growth model designed for the

economic development of a country. The financial services sector plays a crucial role in

the process of economic development. Financial services based on its nature and

relevance is regarded as the fourth element of the financial system. An orderly

functioning of the financial system depends on the range and the quality of financial

services.

Financial services comprise of various functions and services that are provided

by financial institutions. Financial services are offered by both asset management

companies, which include leasing companies, mutual funds, merchant bankers, issue

managers, portfolio managers and liability management companies comprising of bill

discounting houses and acceptance houses. Financial services lend a big hand in raising

the required funds and ensure its efficient deployment.

2
 Over the years, the financial services in India have undergone revolutionary

changes and had become more sophisticated, in response to the varied needs of the

economy. The process of financial sector reforms, economic liberalization and

globalization of Indian Capital Market had generated and augmented the interest of the

investors in equity. But, due to inadequate knowledge of the capital market and lack of

professional expertise, the common investors are still hesitant to invest their hard earned

money in the corporate securities. The advent of mutual funds has helped in garnering

the investible funds of this category of investors in a significant way. As professional

experts manage mutual funds, investment in them relieves investors from the emotional

stress involved in buying and selling of securities.

1.2 Global Scenario

At the very dawn of commercial history, Egyptians and Phoenicians were selling

shares in vessels and caravans in order to spread the risk of these perilous ventures. The

idea of pooling money dates back to 1822, when groups of people in Belgium

established a company to finance investments in national industries under the name of

‘Societe Generale de Belgique’ incorporating the concept of risk sharing. The institution

acquired securities from a wide range of companies and practiced the concept of mutual

fund for risk diversification. The word ‘mutual’ denoted something to be done

collectively by a group of people with the common objective of having mutual faith and

understanding among themselves. ‘Fund’ was used in monetary terms, to collect some

money from the members for a common objective like earning profits with joint efforts.

3
 In 1822, King William - I of Netherlands came up with a close-end fund. In

1860, this phenomenon spread to England. In 1868, the Foreign and Colonial

Government Trust of London was formed, which was the real pioneer to spread risk of

investors over a large number of securities and was considered as the Mecca of modern

mutual funds. In 1873, Robert Fleming, established ‘The Scottish American Trust’.

Although, many nineteenth century British investment trusts invested in American

stocks, the first American investment trust was the close-end Boston Personal Property

Trust created in 1893. In U.K., the accepting houses emerged as a major force in the

business of investment management.

Mutual fund in America is basically the concept of Unit Trust of Britain. In

U.S.A. mutual funds have come a long way since March 21, 1924 when the first fund,

‘Massachusetts Investment Trust’ was organised for the professors of Harvard University

and offered shares to the public in 1926. But it was Sherman L Adams, the father of

modern mutual fund, along with Charles Learoyd and Ashton Carr established a

modest portfolio of 45 common stocks worth USD 50,000∗. The crash of stock markets in

1929 led to the demise of many close-end funds. By 1930’s, 1920 mutual funds were

formed in U.S.A. and most of them were close end. In Canada, the Canadian Investment

Fund was the first to be set up in 1932 followed by Commonwealth International

Corporation Limited and Corporate Investors Limited.

The enactment of Securities Act of 1933, Investment Company Act of 1940 and

Investment Advisors Act of 1940, led to the revival of mutual funds in U.S.A. The

∗
Sudhkar A and Sasikumar K, “Globalisation of Mutual Fund Industry: Challenges and Implications”,
Southern Economist, Vol 42, Nov 15, 2004, p22.

4
values of securities owned by U.S.A. funds were USD 2.5 billion in 1950. So, the

accepting houses started rapidly to build up their skills and knowledge to deal with

enlarged capital. Since the World War-II, there had been a phenomenal growth in the

mutual fund industry throughout the world. Mutual funds in Japan are known as

investment trusts, but they differ from investment trusts of U.K. and mutual funds of

U.S.A. While the growth of the mutual fund industry in U.S.A. was a spontaneous

response to market developments, the Japanese investment trusts were established to

meet the changing requirement of government policy and as such the establishment of

investment trusts was a well thought-out action rather than a spontaneous response to

economic market developments. The Mutual fund industry in Japan dates back to 1937.

But an investment trust modeled on the unit trusts of U.K. was established only in l941.

Investment trusts in Japan were set up under the Securities Investment Law of 1951 with

the three important characteristics namely contractual nature, open-end and flexibility.

Prior to 1960s, the U.S.A. provident fund professional investment authorities were

abhorrent of investing in equities as they are of in India today. In 1980s, because of high

mutual fund returns, employees (through IRA accounts) en masse shifted to equity option

for their retirement fund. In stark contrast, Japan saw a 60 percent decline in Nikkei from

40,000 to 16,000 as a consequence of Japanese retail investors’ aversion to equities. With

the increasing inflation and interest rates during 1990’s, the individual and institutional

investors became extremely sensitive to the true value of money. The shift started

towards non-intermediation, resulting in the growth of mutual funds. In U.S.A., the

number of mutual funds grew from 70 in 1940 to more than 3000 by the end of 1989. The

mutual fund industry’s assets in U.S.A. increased from USD 44 billion in 1980 to USD

5
one trillion in 1989. Subsequently hundreds of mutual funds, both open-end and close-

end were launched and the concept of mutual funds spread over to many countries like

Europe, the Far East, Latin America and Canada.

Retail investments in US mutual funds were low because of the flatness of the

market since 1966 till 1982. The value of securities owned by U.S.A. fund houses

increased from USD 60 billion in 1960 to more than USD 100 billion in 1983. Since the

beginning of 1990, investors have poured over half a trillion dollars into stock and bond

mutual funds. In 1990, U.S.A. mutual fund industry constituted 2,362 mutual funds with

39,614 thousands of investors holding USD 570.8 billion of assets. American investors

embraced mutual funds with a fervor that even the most optimistic fund executives could

not have predicted. By the end of 1994 in U.S.A., mutual funds had become the second

largest financial institution after the banking sector holding assets worth USD 2161.4

billion. In 1995, U.K. equity income category had the highest number of account holders

(11, 86,365)∗.

The popularity of mutual funds among retail investors was further driven by

changes in retirement fund investment norms where employees at large were allowed to

choose asset allocation between equities and debt. In December 1995, the European

community issued a directive to coordinate laws, regulations and the administrative

provisions relating to mutual funds and was popularly known as UCITS (Undertakings

for Collective Investment in Transferable Securities). The directive established a

common regulatory scheme for investment policies, public disclosure, structure of


∗
Fredman, Albert J, et.al, “How Mutual funds Work”, Prentice Hall of India Private Limited, New Delhi,
1997, p 293.

6
organisation, and regulations to encourage the growth of mutual funds all over the globe,

which led the momentum in many countries in the Asia-Pacific region with a big bang,

including Hong Kong, Thailand, Singapore and Korea.

By the end of 1996, of the U.S.A mutual fund industry’s (USD 3,539 trillion)

assets, households owned USD 2.626 trillion (74.2 per cent) while the remaining USD

9123 billion (25.8 per cent) was held by banks, other institutional trustees and investors.

In 1996, U.S.A. Households purchased USD 543 billion financial assets compared to

USD 499.6 billion in 1995 with a significant proportion assigned towards long-term

mutual funds.

The mutual fund in its present structure is a Twentieth Century phenomenon.

Globally there were thousands of funds offering varied schemes with different investment

objectives and options. Mutual funds emerged as the most important investment vehicle

for household investments in U.S.A. with the basic objective of allowing small investors

to partake in the capital market by investing in a wide portfolio of stocks so as to reduce

risk. At the end of first quarter of 2003, the assets of worldwide mutual funds stood at

USD 11.2 trillion while the assets of equity funds contributed for 35 per cent.

1.3 Indian Scenario

The Indian capital market having a long history spanning over a century had

passed through the most radical phase. The Indian Capital Market witnessed

unprecedented developments and innovations during the eighties and nineties. One such

development was the increased role the mutual fund industry played in financial

intermediation. Mutual fund, as an institutional device, pools investor’s funds for

7
investment in the capital market under the direction of an investment manager. Mutual

funds bridge the gap between the supply and demand for funds in the financial market.

In India, the need for the establishment of mutual funds was felt in 1931 and the

concept of mutual fund was coined in 1964, by the far- sighted vision of

Sri T.T.Krishnamachari, the then finance minister. Taking into consideration the

recommendations of the Central Banking Enquiry Committee and Shroff Committee, the

Central Government established Unit Trust of India in 1964 through an Act of

Parliament, to operate as a financial institution as well as an investment trust by way of

launching UTI Unit Scheme 64. The overwhelming response and the vast popularity of

UTI Unit Scheme 64 and the Master share Scheme in 1986 attracted the attention of

banks and other financial institutions to this industry and paved the way for the entry of

public sector banks. By the end of 1986-87, UTI had launched 20 schemes mobilizing

funds amounting to Rs.4, 56,500 crores. Since then, the mutual funds have established

them as an alternative investment vehicle and are now integral parts of the Indian

financial system.

In 1987, the public sector banks and insurance companies were permitted to set up

mutual funds. Accordingly, the LIC and GIC and six public sector banks initiated the

setting up of mutual funds, bringing out a new era in the mutual fund industry. The

financial sector reforms were introduced in India as an integral part of the economic

reforms in the early 1990s with the principal objective of removing structural deficiencies

and improving the growth rate of financial markets. Mutual fund reforms attempted for

the creation of a competitive environment by allowing private sector participation. Since

1991, several mutual funds were set up by private and joint sectors. Many private mutual

8
funds opted for foreign collaboration due to the technical expertise of their counterparts

and past track record of success. Based on the recommendations of the Dave panel report

in 1991, the Government of India issued new guidelines for setting up mutual funds in

public sector, private sector as well as in joint sector on February 14, 1992. On February

19, 1993, the first batch of 12 private sector mutual funds was given “in-principle

approval” by the Securities Exchange Board of India (SEBI). The erstwhile Kothari

Pioneer Mutual fund (now merged with Franklin Templeton) was the first fund

established in July 1993 in the private sector.

The SEBI formulated the Mutual Fund Regulations in 1993, establishing a

comprehensive regulatory framework for the first time, while the Indian Mutual Fund

Industry (IMFI) had already passed through two phases of developments. The first phase

was between 1964 and 1987 when the UTI was the only player, managing total assets of

Rs.4, 564 crores by the end of March 1987. In 1986, the first growth scheme, Master

share was launched by UTI and was the first to be listed on stock exchange. The second

phase was between 1987 and 1993 during which period eight funds were established (six

by banks and one each by LIC and GIC). SBI Mutual Fund was the first Non - UTI

mutual fund established in June 1987, followed by Canbank Mutual Fund in December

1987. SBI Mutual Fund launched its first scheme namely, Regular Income Scheme (RIS)

1987 with 5½ years of duration assuring 12 percent return. Canbank Mutual Fund

launched its first scheme, Canshare in December 1987 mopping up Rs.4 crores. The total

assets managed by the industry shot up to Rs.47, 004 crores by the end of March 1993.

The third phase began with the entry of private and foreign sector mutual funds in

1993 increasing the share of private players. The industry evolved self-regulation to

9
promote confidence among investors under the aegis of the Association of Mutual Funds

of India (AMFI) incorporated on August 22, 1995 as a non-profit organisation. With the

objective of ensuring healthy growth of mutual funds, the SEBI (Mutual Funds)

Regulations 1993 were substituted by a more comprehensive and revised regulations in

1996 bringing out standards in Net Assets Value (NAV) calculation, accounting

practices, exemption from listing of schemes, remuneration to Asset Management

Company’s (AMC), fixation of a band of seven percent between purchase and repurchase

prices. Since October 1999, Money Market Mutual Funds was brought under the

supervisory control of SEBI on par with liquid funds. The acquisition of Pioneer ITI by

Templeton in August 2000 was one of the biggest mergers in the IMFI. At the end of

January 2003, there were 33 mutual funds managing total assets of Rs.1, 21,805 crores

after witnessing several mergers and acquisitions. The total Assets Under Management

(AUM) of the mutual fund houses in the country crossed Rs.One trillion in June 2003, a

decade after the entry of private sector in mutual fund business.

The fourth phase had its beginning from February 2003, following the repeal of

the Unit Trust of India Act 1964, bifurcating UTI into two separate entities, namely UTI

Specified Undertaking regulated by Government of India and UTI Mutual Fund Ltd

regulated by SEBI. With mergers taking place among mutual funds, the mutual fund

industry entered its fourth phase of consolidation and growth. By the end of September

2004, there were 29 funds, managing assets of Rs.1, 53,108 crores under 421 schemes.

The industry touched Rs.2 trillion in September 2005. The growth rate of the industry

scaled up, as the next milestone of Rs.3 trillion was reached in August 2006. The industry

touched Rs. five and half trillion in March 2015.

10
 In India, mutual funds as vehicles of mobilization and channels of funds towards

the securities market, as exposed of improvement in total net assets from Rs.25 crores, by

the end of 1964-65 to Rs.47,734 crores as on March 31, 1993, and touched Rs.2,31,862

crores as on March 31, 2006 and Rs. 5,21,013 crores as on 31st March, 2015.

1.4 Statement of the Problem

India has become the world’s fourth largest economy besides U.S.A., China, and

Japan. Although the Indian capital market witnessed some significant changes during

the eighties, both the primary and the secondary segments continued to suffer from

some serious deficiencies. Many unhealthy practices prevailed in the primary market to

attract retail investors. High pricing of new issues, difficulties in analyzing the prospects

of a company, under - pricing of shares in the market after listing have discouraged and

aroused hesitation among many investors to enter into the stock market. The secondary

market had become highly volatile and technical for small investors.

Markets for equity shares, real estate, derivatives and other assets have become

highly dynamic. Unprecedented global and national events have brought in substantial

changes in the securities market. Capital market, being the major supplier of corporate

finance, ought to grow in a healthy manner to pump in more and more money.

Investment in corporate securities demands investors to understand the complexities of

market, to keep track of market movements and to make scientific investment decisions.

Liberalization of economic policies, metamorphic changes in the Indian Financial

System, brought out increase in the share of household savings, changes in investment

attitude and preferences. Household sector’s financial savings for 2007-08 to 2011-12 is

expected to in the range of per cent to 24.4 per cent, with household financial and

11
physical savings projected in the range of 11.3 per cent to 11.4 per cent and 12.9 per

cent to 13 percent respectively.∗ The household savings rate is increasing and is

expected to accelerate with the reinforcement of benign demographic dynamics,

financial sector liberalization and increasing human development index. As the

household sector’s share in financial assets is expected to go much higher in the

country’s savings, it is of utmost importance to show a right path to individual

investors. With an emphasis on increase in domestic savings and

improvement in deployment of investible funds into the market, the need and scope for

mutual fund operations have increased and is expected to increase tremendously in

future.

Mutual funds seek to serve those individuals, who have the inclination to invest

but lack the background, expertise and sufficient resources to diversify their investment

among various sectors. Even though mutual fund industry is growing, still there is a

long way to go. The penetration level in rural areas is not very high. The funds have

grown more because of the changing demographic profile. More number of investors,

particularly youth, whose disposable income has gone up, opt mutual fund to enter

securities market indirectly.

Indian investors have little information to take prudent investment decisions.

Such information drought is the breeding ground for misguidance and the investor is

likely to be inspired by the agents to opt for a particular scheme without an in-depth

analysis. The information drought regarding performance of mutual funds in India is


∗
Srinivasa G (2007),“Household, corporate savings seen rising on income growth”, The Hindu
Business Line: Economy, May 27, 2007. pp 6.

12
perhaps a major cause for the Indian mutual fund industry for not attaining the status of

their counterparts in U.S.A., U.K. and other developed countries. An average investor

obtains investment advice and practical information from investment outlets, such as

business magazines and web sites. However, the information on performance of mutual

funds over a period of time is scantily available for all the investors. The present work is

an attempt to fill up the lacuna and help investors to make meaningful investments.

Therefore, the present study attempts to bring out the performance of mutual fund

industry in India.

The mutual fund industry has gained momentum in 1993 with the entry of

private sector in the wake of liberalization and globalization. Further, the industry has

gained a coveted status after the implementation of the SEBI (Mutual Funds)

Regulations 1996. Of the varied category of mutual fund schemes, growth oriented

mutual funds are expected to offer the advantages of diversification, market timing and

selectivity. A growth scheme has to generate capital appreciation for its unit-holders by

investing a substantial portion of its corpus in high growth equity shares or other equity

related instruments of corporate bodies. The principal objective of growth schemes with

growth options is to ensure maximum capital appreciation. Hence, the researcher

intends to study growth schemes with growth options launched in the year 1993 and still

in operation under the regulated environment.

This research work intends to find answers for the following questions:

9 Is the Indian Mutual Fund Industry making a consistent growth?

9 What factors influence the investor’s choice of a mutual fund organisation and

scheme?

13
 9 What are the views of fund managers, brokers and investors on mutual fund

investments?

9 How is the performance of growth schemes in India?

1.5 Significance of the Study

Mutual funds play a crucial role in the economic development of the respective

countries. The active involvement of mutual funds in the economic development can be

seen by their dominant presence in the money and capital markets world over. Their

presence is, however, comparatively stronger in the economically advanced countries.

The role of the mutual funds in the form of financial intermediation, by way of

resource mobilization, allocation of resources, and development of capital markets and

growth of corporate sector is very conspicuous. Mutual funds also play an important

role in the stock market by way of ensuring stability as supplier of large resources and

through steady absorption of floating stocks. Mutual funds are well known for their

benefits in the following forms to its investors:

¾ Professional expertise in buying and selling of units;

¾ Professional management of securities transactions;

¾ Opportunity to hold wide spectrum of securities;

¾ Long-term planning by fund managers;

¾ Safety of funds;

¾ Spreading of risk;

¾ Freedom from stress and emotional involvement;

¾ Automatic reinvestment of dividends and capital gains;

¾ Dissemination of information on the performance of the mutual funds,

schemes, fund managers and, Investor protection.

14
 Emergence of mutual funds in the Indian scenario is a product of constraints on

the banking sector to tap the fruits of the capital market and the reluctance of the

investors to take a direct plunge in complex and erratic capital market operations.

Mutual fund entered the arena of this service sector in an admirable manner. The IMFI

is one among the top 15 nations in terms of assets under management, which has

crossed USD 100 billion. As a globally significant player the IMFI is attracting a bigger

chunk of household investments and is expected to witness five to six times growth in

the next seven to eight years. It is expected that the industry’s AUM may grow to USD

500-600 billion by 2015 as more global players are planning and ready to set up asset

management businesses in India∗.

1.6 Need for the Study

India’s savings rate is over 29.3 per cent, which is one of the highest in the

world. In order to accelerate economic development of our country, it is not only

necessary to increase the rate of savings but also to improve the holding pattern of such

savings. Savings held in the form of currency or physical assets either remain idle or

kept unproductive or wasted. The Government’s steps to channel the financial savings

are one of the major contributions for the rapid economic growth. The efforts towards

financialisation of savings and the general reluctance of the investing populous demand

the active role of mutual funds. As investment in equity shares are too risky, mutual

funds have to become efficient in mobilization and allocation of resources.

The rate of conversion of household savings into investment in our country is

very low. The percentage of household savings that flew into the capital market in India


∗
Joshi et. al., loc. cit.

15
is as poor as 7.2 per cent, as against 25 per cent in the U.S.A. and 19 per cent in Japan.

As the household sectors share is much higher in the country’s savings, it is of utmost

importance to show a right path for their deployment. The Indian household sector is

characterized by a tendency to avoid risk as they lack the mental readiness to absorb the

shocks of the volatile capital market. Hence, to attract the surplus funds possessed by

this sector into the capital market, institutional intermediaries are required.

The Indian household sectors’ investment in mutual funds made a greater

beginning in the second half of the eighties. Though apparently mutual funds were

intended to cater to the needs of the retail investors, there had been no sufficient

response from them. Mutual funds are supposed to be the best investment vehicle for

small investors and hence there is a need to find out investors’ perceptions and factors

influencing their decisions. So, there is a dire necessity to identify how far mutual funds

satisfy the twin aspirations of the investors (steady appreciation of unit value and

consistent return on investment).

In the year 2001, despite a long history, assets of mutual funds in India

constituted less than 5 percent of Gross Domestic Product, which is very low compared

to 25 percent in Brazil, and 33 percent in Korea. This is perhaps due to the reason that

the industry has not won investors’ confidence to attract a growing share of household’s

financial savings. The IMFI is still not able to establish its worthiness among retail

investors as a clearly preferred vehicle of investment for their savings even after forty

years of its existence.

16
 Today, more and more private sector mutual funds are coming into the foray. An

average investor is unable to take a decision as to which bandwagon should he hop on to.

As household sector’s share is much larger in the country’s savings it is utmost essential

to guide their deployment in the right direction. Thus, there is a need for the present study

to bring to light the performance of the mutual funds, which can help the retail investors

to make valued judgment in terms of deploying their savings to the capital market

through the mutual fund vehicle. With the growing institutionalization, retail investors

are gradually keeping out of the primary and secondary market, and looking forward to

mutual funds for their investments.

Among the mutual funds, it is expected that debt oriented schemes will continue

to dominate the mutual fund industry satisfying the needs of yield, security and liquidity

fairly well besides being attractive from the tax point of view. While equity oriented

schemes will gain more significance in future, their popularity will depend on the

conditions of the stock market and the kind of tax relief accorded to them. Hence, it is

of utmost importance to study the performance of growth schemes of mutual fund

industry, which is a near substitute for direct investment in shares. Analysis of risk-

return of schemes and its relationship with the market will provide information on the

performance of sample schemes, fund managers ability in selecting and timing security

related transactions in the present scenario of multitudinous mutual fund schemes.

17
1.7 Objectives of the Study

This research work is undertaken with the following objectives:

1. To appraise the performance of mutual fund industry in India under the regulated

environment.

2. To study the relationship between the performance of market index with that of

the growth schemes.

3. To evaluate the risk of growth schemes using Sharpe, Treynor and Jensen.

4. To study the factors influencing choice of investment in mutual funds by the fund

managers.

5. To study the attitude of investors and brokers towards investment in mutual funds.

6. To suggest the investors to invest their hard earned income in appropriate mutual

funds.

1.8 Hypotheses

Based on the above objectives, the following hypotheses were set:

H01: There is no significant difference among the performance evaluation measures

as used by Sharpe, Treynor and Jensen.

H0 2: Index returns and scheme returns are not significantly related.

H03: Past performance of the scheme does not have any significant relationship with

that of current performance.

H04: There is no attitudinal difference between the opinions of investors towards

investment in mutual funds.

H05: There is no significant difference between the opinions of investors, brokers and

fund managers with regard to the factors influencing the choice of mutual

fund and scheme.

18
1.9 Scope of the Study

This research work attempts to evaluate the performance of mutual fund industry

in India under the regulated environment after the introduction of the SEBI (Mutual

Funds) Regulations 1996 enforcing uniformity in rules and regulations. Performance

evaluation is restricted to seven growth schemes launched in 1993 when the industry

was opened for private sector and the industry brought under the regulated

environment for the first time by passing the SEBI (Mutual Funds) Regulations 1993.

Performance in terms of NAV of growth schemes with growth option alone is studied

from the angle of risk and return in comparison with the benchmark (BSE 100) index

from April 1998 (a year after the introduction of comprehensive regulations) to March

2006. All the twelve selected schemes were initially launched as close-end and were later

converted into open-end. To identify the perception of investing public and financial

intermediaries, an opinion survey of investors, brokers and fund managers of sample

schemes were carried out.

1.10 Operational Definitions And Concepts

Mutual Fund is a fund established in the form of a trust by a sponsor to raise money by

the trustee through the sale of units to the public under one or more schemes for

investing in securities in accordance with the SEBI regulations.

Mutual fund scheme refers to the IMFI products launched representing a category with

specific objective and varied options. A scheme can belong to open or close-end type of

operation. The objective of the scheme can relate to any category like income, growth,

balanced, money market and equity linked savings scheme.

19
Open-end Funds are schemes of a mutual fund offering units for sale on a continuous

basis directly from the fund and does not specify any duration for redemption or

repurchase of units.

Net Assets Value is the current market worth of a mutual fund scheme. Calculated on a

daily basis considering total assets and any accrued earnings, after deducting liabilities;

the remainder is divided by the number of units outstanding. NAV is considered as the

most reliable indicator of mutual fund performance.

Unit means the share of holding of an investor in a mutual fund scheme. Each unit

represents one undivided share in the assets of a scheme.

Unit-holder is a participant in a mutual fund scheme.

Growth Schemes invest primarily in shares and also might hold fixed-income

securities in a smaller proportion.

Growth Option of a mutual fund scheme is an option for long term growth of resources

mobilized as it invests primarily in shares with significant growth potential. Dividend is

not paid to the investors but ploughed back into the fund increasing the NAV of the

units.

Year refers to the financial year of Government of India starting on April 1 and ending

on March 31 of the following year.

20
1.11 Limitations of the Study

The limitations of this study are as follows:

1. Since the study is mostly based on the secondary data, the shortcomings of the use

of secondary data are inevitable.

2. Performance evaluation of the scheme is based only on the NAV of the growth

category schemes with growth option alone.

3. Brokerage commission, entry load, exit load and taxes were not considered.

4. Based on the availability of data, industry analysis has been carried only from

2005 to 2015 while performance analysis of sample schemes relates to the period

2004-05 to 2014-15.

5. The present study does not cover the impact of mergers and takeovers of the

sample schemes.

6. Opinion survey of investors was restricted to Steel City Securities Ltd,

Visakhapatnam District.

1.12 Concluding Remarks 

Today, there is a greater emphasis on the role of the regulator (SEBI and AMFI)

on creating awareness among investors and improving investors' services. The mutual

fund industry in the country has so far been focusing on urban markets and corporate

investors. The time has come for the industry to penetrate into rural markets which have

been hitherto lying untapped. The industry also needs to emphasize more on corporate

governance and disclosure practices. The issues related to choice among public and

private sector schemes on one hand and amongst growth, income, balanced, liquid/money

market and gilt schemes on the other, have become highly important because even a

21
single wrong decision may put the investors in financial crisis sometimes leading to their

bankruptcy. There is a greater need for an analysis whether the mutual funds are carrying

out the objectives for which they have been started and are performing according to the

expectations of the ordinary investors. So performance appraisal of these funds is

expected to help the investors in taking respective investment decisions. Moreover, there

is a need to examine the perceptions of investors so that mutual funds are able to provide

proper schemes suitable to investors. It is with this fact in mind that the present study “A

study on the Performance Evaluation of Selected Growth Schemes of Indian Mutual

Funds Industry. A well designed methodology was developed to address the study

considering all the recent trends in Indian mutual fund industry.

1.13 Chapter Scheme

This research work is organised into seven chapters as detailed below:

Chapter I presents the need for the study, statement of the problem, objectives,

hypotheses, scope and limitations of the study.

Chapter II deals with the comprehensive review of literature comprising of studies in

foreign countries as well as in India.

Chapter III focuses on the methodology adopted for the present study covering the

data source, sampling technique, tools and techniques of analysis.

Chapter IV highlights the performance of IMFI after the implementation of the SEBI

(Mutual Funds) Regulations 1996, in terms of number of funds, number of schemes

launched, category of schemes, types of schemes, resources mobilized, redemption of

funds and assets under management.

22
Chapter V analyses the performance of select growth schemes with growth option in

terms of risk, return, consistency in performance and dependence on market

performance.

Chapter VI studies the perception of investors, brokers, and fund managers relating to

mutual fund investment, choice of sector, factors influencing the choice of mutual fund

and scheme.

Chapter VII comprehensively summarizes the entire study and presents findings,

suggestions and conclusions.

23
 CHAPTER - II

REVIEW OF LITERATURE

2.1 Introduction

A large number of studies on the growth and financial performance of mutual

funds have been carried out during the past, in the developed and developing

countries. Brief reviews of the following research works reveal the wealth of

contributions towards the performance evaluation of mutual fund, market timing and

stock selection abilities of fund managers. The pioneering work on the mutual funds

in U.S.A. was done by Friend, et al., (1962) in Wharton School of Finance and

Commerce for the period 1953 to 1958.

2.2 Review of Foreign Studies

Friend, et al., (1962)1 made an extensive and systematic study of 152 mutual funds

found that mutual fund schemes earned an average annual return of 12.4 percent,

while their composite benchmark earned a return of 12.6 percent. Their alpha was

negative with 20 basis points. Overall results did not suggest widespread inefficiency

in the industry. Comparison of fund returns with turnover and expense categories did

not reveal a strong relationship.

Irwin, Brown, FE (1965)2 analyzed issues relating to investment policy, portfolio

turnover rate, performance of mutual funds and its impact on the stock markets. The

schoolwork identified that mutual funds had a significant impact on the price

movement in the stock market. The cram concludes that, on an average, funds did not

perform better than the composite markets and there was no persistent relationship

between portfolio turnover and fund performance.

24
Treynor (1965)3 used ‘characteristic line’ for relating expected rate of return of a

fund to the rate of return of a suitable market average. He coined a fund performance

measure taking investment risk into account. Further, to deal with a portfolio,

‘portfolio-possibility line’ was used to relate expected return to the portfolio owner’s

risk preference.

The most prominent study by Sharpe, William F (1966)4 developed a composite

measure of return and risk. He evaluated 34 open-end mutual funds for the period

1944-63. Reward to variability ratio for each scheme was significantly less than DJIA

and ranged from 0.43 to 0.78. Expense ratio was inversely related with the fund

performance, as correlation coefficient was 0.0505. The results depicted that good

performance was associated with low expense ratio and not with the size. Sample

schemes showed consistency in risk measure.

Treynor and Mazuy (1966)5 evaluated the performance of 57 fund managers in

terms of their market timing abilities and found that, fund managers had not

successfully outguessed the market. The results suggested that, investors were

completely dependent on fluctuations in the market. Improvement in the rates of

return was due to the fund managers’ ability to identify under-priced industries and

companies. The study adopted Treynor’s (1965) methodology for reviewing the

performance of mutual funds.

Jensen (1968)6 developed a composite portfolio evaluation technique concerning

risk-adjusted returns. He evaluated the ability of 115 fund managers in selecting

securities during the period 1945-66. Analysis of net returns indicated that, 39 funds

had above average returns, while 76 funds yielded abnormally poor returns. Using

gross returns, 48 funds showed above average results and 67 funds below average

25
results. Jensen concluded that, there was very little evidence that funds were able to

perform significantly better than expected as fund managers were not able to forecast

securities price movements.

Smith and Tito (1969)7 examined the inter-relationships between the three widely

used composite measures of investment performance and suggested a fourth

alternative, identifying some aspects of differentiation in the process. While ranking

the funds on the basis of ex-post performance, alternative measures produced little

differences. However, conclusions differed widely when performance were compared

with the market. In view of this, they suggested modified Jensen’s measure based on

estimating equation and slope coefficient.

Friend, Blume and Crockett (1970)8 compared the performance of 86 funds with

random portfolios. The study concluded that, mutual funds performed badly in terms

of total risk. Funds with higher turnover outperformed the market. The size of the

fund did not have any impact on their performance.

Carlson (1970)9 examined mutual funds emphasizing the effect of market series

(S&P 500, NYSE composite, DJIA) during the period 1948-67. All fund groups

outperformed DJIA but for a few which had gross returns better than that of S&P 500

or NYSE composite. Though there was consistency in risk and return, there was no

consistency between risk-adjusted performance measures over the time period.

Carlson’s analysis of performance exposed relationship between cash inflows into

funds and not with the size or expense ratio.

Arditti (1971)10 found that Sharpe’s conclusion got altered when annual rate of return

was introduced as a third dimension. He found that, contrary to Sharpe’s findings the

average fund performance could no longer be judged inferior to the performance of

DJIA. Fund managers opted higher risk for better annual returns.

26
Williamson (1972)11 compared ranks of 180 funds between 1961-65 and 1966-70.

There was no correlation between the rankings of the two periods. The investment

abilities of most of the fund managers were identical. He highlighted the growing

prominence of volatility in the measurement of investment risk.

Fama (1972)12 developed methods to distinguish observed return due to the ability to

pick up the best securities at a given level of risk from that of predictions of price

movements in the market. He introduced a multi-period model allowing evaluation on

a period-by-period and on a cumulative basis. He branded that, return on a portfolio

constitutes of return for security selection and return for bearing risk. His

contributions combined the concepts from modern theories of portfolio selection and

capital market equilibrium with more traditional concepts of good portfolio

management.

Klemosky (1973)13 analysed investment performance of 40 funds based on quarterly

returns during the period 1966-71. He acknowledged that, biases in Sharpe, Treynor,

and Jensen’s measures, could be removed by using mean absolute deviation and semi-

standard deviation as risk surrogates compared to the composite measures derived

from the CAPM.

McDonald and John (1974)14 examined 123 mutual funds and identified the

existence of positive relationship between objectives and risk. The study identified

the existence of positive relationship between return and risk. The relationship

between objective and risk-adjusted performance indicated that, more aggressive

funds experienced better results.

27
Gupta (1974)15 evaluated the performance of mutual fund industry for the period

1962-71 using Sharpe, Treynor, and Jensen models. All the funds covered under the

study outperformed the market irrespective of the choice of market index. The results

indicated that all the three models provided identical results. All the mutual fund

subgroups outperformed the market using DJIA while income and balanced groups

underperformed S&P 500. Return per unit of risk varied with the level of volatility

assumed and he concluded that, funds with higher volatility exhibited superior

performance.

Meyer’s (1977)16 findings based on stochastic dominance model revalidated Sharpe’s

findings with the caution that it was relevant for mutual funds in the designated past

rather than for the future period.

Klemosky (1977)17 examined performance consistency of 158 fund managers for the

period 1968-75.The ranking of performance showed better consistency between four-

year periods and relatively lower consistency between adjacent two-year periods.

Ippolito’s (1989)18 results and conclusions were relevant and consistent with the

theory of efficiency of informed investors. He estimated that risk-adjusted return for

the mutual fund industry was greater than zero and attributed positive alpha before

load charges and identified that fund performance was not related to expenses and

turnover as predicted by efficiency arguments.

Rich Fortin and Stuart Michelson (1995)19 studied 1,326 load funds and 1,161 no

load funds and identified that, no-load funds had lower expense ratio and so was

suitable for six years and load funds had higher expense ratio and so had fifteen years

of average holding period. No-load funds offered superior results in nineteen out of

twenty-four schemes. He concluded that, a mutual fund investor had to remain

28
invested in a particular fund for very long periods to recover the initial front-end

charge and achieve investment results similar to that of no-load funds.

Baur, Sundaram and Smith (1995)20 outlined the pricing fundamentals of open-end

and close-end funds, and described the transaction cost of buying and selling funds.

The U.S.A.’s experience of mutual funds described how these institutions could

change a country’s capital market and individual investment patterns. The study

disclosed that the continuous redemption privilege of open-end funds had vulnerable

consequences in the pricing of each type of fund, the assets held by each type of fund

and the manner in which the transaction and management fees were collected.

Conrad S Ciccotello and C Terry Grant’s (1996)21 study identified a negative

correlation between asset size of the fund and the expense ratio. The results of the

study brought out that, larger funds had lower expense ratios due to economies of

scale. Equity funds had spent heavily to acquire information for trading decision and

were consistent with the theory of information pricing. The high beta, high expenses

and high turnover in the aggressive growth group than in long-term growth funds and

income funds suggested higher costs being associated with obtaining and using

corporate information in emerging and volatile market.

Grubber (1996)22 attempted to study the puzzle relating to the fast growth of mutual

funds inspite of inferior performance of actively managed portfolios. The study

revealed that, mutual funds had negative performance compared to the market and

provided evidence of persistence of underperformance. Sophisticated clientele

withdrew money from mutual funds during the period of poor performance, where as

mutual funds found money from disadvantaged clientele leading to the faster growth

of funds.

29
Dellva, Wilfred L and Olson, Gerard T (1998)23 studied 568 mutual funds without

survivorship bias. The results indicate that, informational competency of funds

increased the efficiency, reduced expenses and provided for higher risk-adjusted

returns. Redemption fees had positive and significant impact on expenses.

International funds had higher expense ratios.

Khorana, Ajay and Nelling, Edward (1998)24 using multinomial prohibit model

identified that, funds with higher ratings had higher risk adjusted performance, lower

systematic risk, greater degree of diversification, larger asset base, lower portfolio

turnover, managers with longer tenures, lower front load and expense ratios.

Persistence in fund performance was statistically significant during short time

horizons. Morningstar’s mutual fund ratings were based on historic risk and reward.

The ratings provided useful information while selecting mutual funds. Funds in the

top 10 percent of risk-adjusted scores had five star rating; next 22.55 percent received

four star rating; middle 35 percent were assigned three stars, and the last two

categories represented the next 22.5 percent and 10 percent. High rated funds

performed substantially better than low rated funds after the issue of ratings.

Fernando, Chitru S et., al. (1999)25 observed that splitting did not exhibit any

superior performance nor any change in the risk characteristics of funds but enhance

the marketability of fund’s shares due to positive response from small investors.

Statman, Meir (2000)26 emphasizes that, socially responsible investing has to be

taken as a tool by the corporations. He further identified that, socially responsible

stocks outperformed while socially responsible mutual funds underperformed the S &

P 500 Index during 1990-98.

30
Maria Do Ceu Cortez and Florinda Silva (2002)27 analysed the implications of

conditioning information variables on a sample of Portuguese stock funds. He

identified that unconditional Jensen’s alpha ensured superior performance till

incorporation of public information variables. Alpha was not statistically different

from zero while beta was related to public information variables.

Iván Barreda-Tarrazona, Juan Carlos Matallín-Sáez (2011)28 this study analyzed

investor behavior towards socially responsible mutual funds. The analysis is based on

an experimental study where a sample of individuals takes investment decisions under

different parameters of information about the investment alternatives and expected

returns. In the experiment, each participant decides how to distribute an investment

budget between two funds, returns on which are uncertain and change over time. Two

treatments are conducted, each providing a different degree of information on the

socially responsible (SR) character of one of the two investment alternatives. The

results obtained suggest that although individuals’ criteria for investment are

essentially guided by returns and diversification, participants invest significantly more

in a fund when they are explicitly informed about its SR nature. In particular,

participants who declare being concerned about SR actually invest significantly more

in the SR alternative. Furthermore, among a small group of investors is such that they

invest the main share of their budget in the SR fund, even when the return differential

is highly unfavorable.

Nelson Areal, Maria Céu Cortez (2013)29 investigated the performance of US

mutual funds that employ different ethical criteria: religious, socially responsible, and

irresponsible. Performance is evaluated over different market regimes using a

Markov-switching conditional CAPM approach that endogenously defines different

states of the market. This model is also extended to a multifactor context. The results

31
show that estimates of performance vary across different market regimes. The Vice

Fund, which invests in unethical firms, outperforms in low-volatility regimes, but

underperforms in high-volatility regimes. These results contradict the Vice Fund’s

claim that it constitutes a “solid investment during recessionary periods”. Our results

show that socially responsible and morally responsible funds exhibit different

performance across different market conditions, thereby supporting the use of

performance evaluation models that take into account different market regimes.

Overall, different types of ethical screens seem to lead to different performance

patterns across different market regimes.

Thomas J. Walker, Kerstin Lopatta (2014)30 this study explores whether corporate

sustainability is a relevant factor in multifactor asset pricing models. It contributes to

the literature on asset pricing, as well as to the literature that examines how

sustainability impacts capital markets, by constructing a new factor that captures

differences in the returns of sustainable and non-sustainable firms. Specifically, it

examines whether an additional sustainability factor has explanatory power in asset

pricing models that include size, book-to-market equity, and momentum factors. This

research has practical implications for the performance measurement of portfolios and

mutual funds that are managed in accordance with sustainability criteria in that it

disentangles general stock-picking skills from the differences in returns between

sustainable and non-sustainable stocks.

Gbenga IbikunleTom Steffen (2015)31 conducted the first comparative analysis of

the financial performance of European green, black (fossil energy and natural

resource) and conventional mutual funds. Based on a unique dataset of 175 green, 259

black and 976 conventional mutual funds, the investigation contrasts the financial

performance of the three dissimilar investment orientations over the 1991–2014

32
period. Over the full sample period, green mutual funds significantly underperform

relative to conventional funds, while no significant risk-adjusted performance

differences between green and black mutual funds could be established during the

same period.

The literature survey of foreign studies revealed that mutual fund managers

were not able to offer higher returns due to their inability in stock selection and

market timing. For short periods fund managers were able to offer superior returns.

2.3 Review of Indian Studies

The following is a brief account of research articles published in books,

financial dailies, magazines and research journals by academicians, professionals

and journalists explaining the concepts of mutual funds, its importance, features,

schemes, investment pattern, method of reading a mutual fund prospectus, how to

choose a scheme and significance of IMFI in the economic development of India.

Gupta L C, Peeush Ranjan Agarwal, Srivastava S K were a few academicians and

professionals who have studied the need for radical changes in the Indian financial

system, emergence of mutual fund operations in India, regulatory framework and the

impact of taxation on mutual fund performance. Verma’s book on mutual funds

covers the conceptual and regulatory framework of the mutual funds in India with

guidelines for mutual fund selection. A brief account of the research works of Indian

academicians are as follows:

Gupta Ramesh (1989)1 evaluated fund performance in India comparing the returns

earned by schemes of similar risk and similar constraints. An explicit risk-return

relationship was developed to make comparison across funds with different risk

levels. His study decomposed total return into return from investors risk, return from

33
managers’ risk and target risk. Mutual fund return due to selectivity was decomposed

into return due to selection of securities and timing of investment in a particular class

of securities.

Vidhyashankar S (1990)2 identified a shift from bank or company deposits to mutual

funds due to its superiority by way of ensuring a healthy and orderly development of

capital market with adequate investor protection through SEBI interference. The study

identified that mutual funds in the Indian capital market have a bright future as one of

the predominant instruments of savings by the end of the century.

Bansal L K (1991)3 identified that mutual fund like other financial institutions is a

potential intermediary between the prospective investor and the capital market.

Mutual fund, as an investment agency was preferred since 1985-86 due to the benefits

of liquidity, safety and reasonable appreciation assured by the industry. The schemes

with assured returns showed tremendous progress. Majority of the funds floated by

commercial banks gave an impression that the responsibility of funds laid with the

respective banks and their investment was secured.

Sarkar A K (1991)4 critically examined mutual fund evaluation methodology and

pointed out that Sharpe and Treynor performance measures ranked mutual funds alike

inspite of their differences in terms of risk. The Sharpe and Treynor index could be

used to rank performance of portfolios with different risk levels.

Batra and Bhatia (1992)5 appreciated the performance of various funds in terms of

return and funds mobilized. UTI, LIC and SBI Mutual Fund are in the capital market

for many years declaring dividends ranging from 11 percent to 16 percent. The

performance of many schemes was equally good compared to industrial securities.

34
Gupta L C (1992)6 attempted a household survey of investors with the objective of

identifying investors’ preferences for mutual funds so as to help policy makers and

mutual funds in designing mutual fund products and in shaping the mutual fund

industry.

Gangadhar V (1992)7 identified mutual funds as the prime vehicle for mobilization

of household sectors’ savings as it ensures the triple benefits of steady return, capital

appreciation and low risk. He identified that open-end funds were very popular in

India due to its size, economies of operations and for its liquidity. Investors opted for

mutual funds with the expectation of higher return for a given risk, greater

convenience and liquidity.

Lal C and Sharma Seema (1992)8 identified that, the household sector’s share in the

Indian domestic savings increased from 73.6 percent in 1950-51 to 83.6 percent in

1988-89. The share of financial assets increased from 56 percent in 1970-71 to over

60 percent in 1989-90 bringing out a tremendous impact on all the constituents of the

financial market.

Sahu R K (1992)9 identified mutual funds as a suitable investment vehicle to

strengthen capital market, as the total assets were around Rs.30,000 crores while the

total resources in equity was less than 15 percent of market capitalization.

Venugopalan S (1992)10 opined that India (15 million) ranks third in the World next

to U.S.A. (50 million) and Japan (25 million) in terms of number of shareholders

ensuring the spread of equity cult. However, many investors face hardships in the

share market due to lack of professional advice, inability to minimize risk, limited

resources and information.

35
Anagol (1992)11 identified the urgent need for a comprehensive self- regulatory

regime for mutual funds in India, in the context of divergence in its size, constitution,

regulation among funds and sweeping deregulation and liberalization in the financial

sector.

Shashikant Uma (1993)12 critically examined the rationale and relevance of mutual

fund operations in Indian Money Markets. She pointed out that money market mutual

funds with low-risk and low return offered conservative investors a reliable

investment avenue for short-term investment.

Ansari (1993)13 stressed the need for mutual funds to bring in innovative schemes

suitable to the varied needs of the small savers in order to become predominant

financial service institution in the country.

Sahu R K and Panda J (1993)14 identified that, the savings of the Indian public in

mutual funds was 5 to 6 percent of total financial savings, 11 to 12 percent of bank

deposits and less than 15 percent of equity market capitalization. The study suggested

that, mutual funds should develop suitable strategies keeping in view the savings

potentials, growth prospects of investment outlets, national policies and priorities.

Saha Asish and Rama Murthy Y Sree (1993-94)15 identified that return, liquidity,

safety and capital appreciation played a predominant role in the preference of the

schemes by investors. The preference of the households towards shares and

debentures was 7 percent by 1989-90. Mutual funds being an alternative way for

direct purchase of stocks should be managed effectively adopting investment analysis,

valuation models, and portfolio management techniques. The study suggested that,

fund managers could adopt portfolio selection techniques to make more informed

judgments rather than making investments on an intuition basis.

36
Vaid, Seema’s (1994)16 study revealed that the industry showed a continuous growth

in savings mobilization and the number of unit holders during the period 1987 to

1992. 58.40 percent of resources mobilized by the industry were through income

schemes. UTI accounted for 83.90 percent of industry mobilization. Pure growth

schemes displayed a sound investment pattern with 81.80 percent of portfolios in

equity scrip’s and had identified that semi-urban and rural areas were not adequately

tapped by the mutual funds inspite of satisfactory returns. Offshore funds showed

best performance during 1985-86.

Shukla and Singh (1994)17 attempted to identify whether portfolio manager’s

professional education brought out superior performance. They found that equity

mutual funds managed by professionally qualified managers were riskier but better

diversified than the others. Though the performance differences were not statistically

significant, the three professionally qualified fund managers reviewed outperformed

others.

Shome (1994)18 studies based on growth schemes examined the performance of the

mutual fund industry between April 1993 to March 1994 with BSE SENSEX as

market surrogate. The study revealed that, in the case of 10 schemes, the average rate

of return on mutual funds were marginally lower than the market return while the

standard deviation was higher than the market. The analysis also provided that,

performance of a fund was not closely associated with its size.

Shah Ajay and Thomas Susan (1994)19 studied the performance of 11 mutual fund

schemes on the basis of market prices. Weekly returns computed for these schemes

since their launch of the scheme to April 1994 were evaluated using Jensen and

Sharpe measures. They concluded that, except UTI UGS 2000, none of the sample

schemes earned superior returns than the market due to very high risk and inadequate

diversification.

37
Kale and Uma (1995)20 conducted a study on the performance of 77 schemes

managed by 8 mutual funds. The study revealed that, growth schemes yielded 47

percent CAGR, tax-planning schemes 30 percent CAGR followed by balanced

schemes with 28 percent CAGR and income schemes with 18 percent CAGR.

Value Research India Pvt. Ltd (1996)21 conducted a survey covering the bearish

phase of Indian stock markets from 30th June 1994 to 31st December 1995. The

survey examined 83 mutual fund schemes. The study revealed that, 15 schemes

provided negative returns, of which, 13 were growth schemes. Returns from income

schemes and income-cum-growth schemes were more than 20 percent. From the point

of risk-adjusted monthly returns, of the 53 growth schemes, 28 (52.8 percent) could

beat the index even in a bear phase.

Tripathy, Nalini Prava (1996)22 identified that the Indian capital market expanded

tremendously as a result of economic reforms, globalization and privatization.

Household sector accounted for about 80 percent of country’s savings and only about

one-third of such savings were available for the corporate sector. The study suggested

that, mutual funds should build investors confidence through schemes meeting the

diversified needs of investors, speedy disposal of information, improved transparency

in operation, better customer service and assured benefits of professionalism.

Yadav R A and Mishra, Biswadeep (1996)23 evaluated 14 close end schemes over

the period of April 1992 to March 1995 with BSE National Index as benchmark.

Their analysis indicated that, 57 percent of sample schemes had a mean return higher

than that of the market, higher Sharpe Index and lower Treynor index. Schemes

performed well in terms of diversification and total variability of returns but failed to

provide adequate risk-premium per unit of systematic risk 57 percent had positive

38
alpha signifying superior performance in terms of timing ability of fund managers.

Fund managers of growth schemes adopted a conservative investment policy and

maintained a low portfolio beta to restrict losses in a rapidly falling stock market.

Jayadev M (1996)24 studied the performance of UTI Master gain 1991 and SBI

Magnum Express from 1992-94 with 13 percent return offered by Post Office

Monthly Income Deposits as risk-free return. Master gain earned an average return of

2.89 percent as against market earnings of 2.84 percent. Volatility of Magnum

Express was high compared to Master gain. Master gain had a superior performance

over its benchmark (Economic Times Ordinary Share Price Index) by taking greater

risk than the market. Master gain indicated lesser degree of diversification of the

portfolio with lower R2 value and very high unique risk. Magnum Express portfolio

was well diversified with higher R2 value along with lower unique risk and total risk.

Both the funds did not earn superior returns because of lack of selectivity on the part

of the fund managers indicating that, the funds did not offer the advantages of

professionalism to the investors.

Sahadevan S and Thiripalraju M (1997)25 stated that, mutual funds provided

opportunity for the middle and lower income groups to acquire shares. The savings of

household sector constituted more than 75 percent of the GDS along with a shift in

the preference from physical assets to financial assets and also identified that, savings

pattern of households shifted from bank deposits to shares, debentures, and mutual

funds.

Krishnamurthi S (1997)26 identified mutual funds as an ideal investment vehicle for

small and medium investors with limited resources, to reap the benefits of investing in

blue chip shares through firm allotment in primary market, avoid dud shares, access to

price sensitive information and spread risk along with the benefits of professional

fund management.

39
Gupta and Sehgal (1998)27 evaluated performance of 80 mutual fund schemes over

four years (1992-96). The study tested the proposition relating to fund diversification,

consistency of performance, parameter of performance and risk-return relationship.

The study noticed the existence of inadequate portfolio diversification and

consistency in performance among the sample schemes.

Rao, Mohana P (1998)28 opined that, UTI followed by LIC Mutual Fund dominated

the market with 54 and 15 schemes respectively. His interview with 120 respondents

showed that, 96 percent invested in UTI due to better service and return. 50 percent of

shareholding and 25 percent of unit-holding respondents were from metro cities.

Investor’s services, income–cum-growth option and capital appreciation were very

important aspects while choosing a fund. He identified that the close-end schemes

were very popular among investors and respondents in general expected private sector

funds to improve the quality of services, investors’ confidence besides reducing fraud

and mismanagement.

Kumar V K (1999)29 analysed the roles, products and the problems faced by the

IMFI. He suggested the turnaround strategies of awareness programs, transparency of

information, distinct marketing and distribution systems to rebuild confidence.

Irissappane Aravazhi (2000)30 evaluated the investment pattern and performance of

34 close-ends schemes from 1988-98 and elicited the views of investors and managers

belonging to Chennai, Mumbai, Pune and Delhi. The survey identified that the

investors desired a return equivalent to market. 16 schemes reported greater risk than

the market volatility. Majority of the schemes had a lower beta. Negative values in the

case of Treynor and Sharpe index among many schemes indicated the mockery of the

market. He further identified that the fund managers of 26 schemes had missed the

chance of gaining from scheduling with response to changes in the market.

40
Gupta Amitabh (2000)31 identified that the IMFI had come a long way since its

inception in 1964. The transformation in the previous decade was the outcome of

policy initiatives taken by the Government of India to break the monolithic structure

of the industry in 1987 by permitting public sector banks and insurance sectors to

enter the market.

Agrawal, Ashok Motilal (2000)32 opined that mutual funds had made a remarkable

progress during 1987-95. The cumulative funds of the mutual funds industry recorded

a skyrocketing growth since 1987 and reached Rs.8, 059 crores by December 31,

1995 from Rs.4, 564 crores during 1986-87.

Ramesh Chander (2000)33 examined 34 mutual fund schemes with reference to the

three fund characteristics with 91-days treasury bills rated as risk-free investment

from January 1994 to December 1997. Open-end schemes outperformed close-end

schemes in term of return. Banks and UTI sponsored schemes performed fairly well

in relation to sponsorship. Average annual return of sample schemes was 7.34 percent

due to diversification and 4.1 percent due to stock selectivity. The study revealed the

poor market timing ability of mutual fund investment. The researcher also identified

that, 12 factors explained majority of total variance in portfolio management

practices.

Gupta Amitabh (2001)34 evaluated the performance of 73 selected schemes with

different investment objectives, both from the public and private sector using Market

Index and Fundex. NAV of both close-end and open-end schemes from April 1994 to

March 1999 were tested. The sample schemes were not adequately diversified, risk

and return of schemes were not in conformity with their objectives, and there was no

evidence of market timing abilities of mutual fund industry in India.

41
Narasimhan M S and Vijayalakshmi S (2001)35 analysed the top holding of 76

mutual fund schemes from January 1998 to March 1999. The study showed that, 62

stocks were held in portfolio of several schemes, of which only 26 companies

provided positive gains. The top holdings represented more than 90 percent of the

total corpus in the case of 11 funds. The top holdings showed higher risk levels

compared to the return. The correlation between portfolio stocks and diversification

benefits was significant at one percent level for 30 pairs and at five percent level for

53 pairs.

Roshni Jayam’s (2002)36 study brought out those equities had a good chance of

appreciation in future. The researcher was of the view that, investors should correctly

judge their investment objective and risk appetite before picking schemes, diversified

equity funds were typically safer than others and index funds were the best when

market movements were not certain. The researcher suggested Systematic Withdrawal

Plan (SWP) with growth option was more suitable for investors in need of regular

cash inflows.

Bansal Manish (2003)37 survey of 2,819 respondents revealed that, the percentage of

investors holding only UTI schemes reduced. The unit holders’ loyalty seemed to

have become a myth as investors were looking for performance. Unit-holders spread

their holdings over two or more funds with an urge to diversify increasing competitive

mutual fund environment.

Singh, Jaspal and Subhash Chander (2003)38 identified that past record and growth

prospects influenced the choice of scheme. prompt service and adequate

information. Return, portfolio selection and NAV were important criteria’s for

mutual fund appraisal. The ANOVA results indicated that, occupational status; age

had insignificant influence on the choice of scheme. Salaried and retired categories

had priority for past record and safety in their mutual fund investment decisions.

42
Saha, Tapas Rajan (2003)39 identified that Prudential ICICI Balanced Fund, Zurich

(I) Equity Fund were the best among the equity funds while Pioneer ITI Treasury

scheme was the best among debt schemes. He concluded that, the efficiency of the

fund managers was the key in the success of mutual funds and so the AMCs had to

ensure more professional outlook for better results.

Satish D (2004)40 opined that investors from seven major cities in India had a

preference for mutual funds compared to banking and insurance products. Investors

expected moderate return and accepted moderate risk. 60 percent of investors

preferred growth schemes. The image of AMC acted as a major factor in the choice of

schemes. Investors had the same level of confidence towards shares and mutual funds.

Sharath Jutur (2004)41 studied 58 schemes during the bear period (September 1998

to April 2002). He identified that the risk was low for 37 schemes, below average risk

for 11 and of average risk for 10 schemes. Risk-return analysis revealed that, average

mutual funds were found to be with low unsystematic and high total risk. The return

was positive in the case of 46 schemes, with 30 schemes yielding above 5 percent. 32

schemes had positive Treynor ratio, 30 schemes had positive Sharpe ratio, 35 schemes

had positive Jensen measure due to the bearish market with low CAPM returns.

Elango’s (2004)42 analytical results indicate that, private funds had a high positive

association between the past and current year NAV compared to public sector. The

private sector schemes outperformed public sector in terms of NAV range value,

innovative products and in deployment of funds. Public sector funds showed low

volatility as against greater variability for private sector indicating low consistency.

Student’s’ test indicated the existence of a high significant difference between the

mean NAV of private sector funds and public sector with a high statistical

significance of (-) 5.95.

43
Venkateshwarlu M (2004)43 had analysed investors from the twin cities of

Hyderabad and Secunderabad. Investors preferred to invest in open-end schemes with

growth objectives. Chi-squared value revealed that, the size of income class is

independent of preference pattern, and dependent on the choice of fund floating

institution. Reasonable returns and long-term strategy adopted by the scheme were the

criteria of scheme selection. Investors perceived that too many restrictions led to the

average performance of mutual funds in India.

Sondhi H J and Jain P K (2005)44 examined 17 public and 19 private sector mutual

fund equity schemes. The mean and median returns for the aggregate period (1993-

2002) were lower than the returns on 364 days treasury bills, and higher than the BSE

100 index. Alliance Equity fund was the top performer and Canbonus and LIC

Dhanvikas (I) were the worst performers. More than three-fourth of public sector

schemes were unable to achieve better returns in spite of higher investor confidence

associated with high safety. The funds did not show consistency in performance.

Muthappan P K and Damodharan E (2006)45 evaluated 40 schemes for the period

April 1995 to March 2000. The study identified that majority of the schemes earned

returns higher than the market but lower than 91 days Treasury bill rate. The average

risk of the schemes was higher than the market. 15 schemes had an above average

monthly return. Growth schemes earned average monthly return. The risk and return

of the schemes were not always in conformity with their stated investment objectives.

The sample schemes were not adequately diversified, as the average unique risk was

7.45 percent with an average diversification of 35.01 percent. 23 schemes

outperformed both in terms of total risk and systematic risk. 19 schemes with positive

alpha values indicated superior performance. The study concludes that, the Indian

Mutual Funds were not properly diversified.

44
Sanjay Kant Khare (2007)46 opined that investors could purchase stocks or bonds

with much lower trading costs through mutual funds and enjoy the advantages of

diversification and lower risk. The researcher identified that, with a higher savings

rate of 23 percent, channeling savings into mutual funds sector has been growing

rapidly as retail investors were gradually keeping out of the primary and secondary

market. Mutual funds have to penetrate into rural areas with diversified products,

better corporate governance and through introduction of financial planners.

P. Hanumantha Rao and Vijay Kumar Mishra (2007)47 studied the mutual fund as

a resource moralizer in financial market and conclude that AUM as a percentage of

household financials assets starts to increase. At present, India has a GDP of around

$3,000 on a per capita basis and the AUM as a percentage of household financial asset

is under 4%. This is undoubtedly very low as compared to other countries. As India’s

GDP is expected to maintain its growth rate, households will surely be holding more

assets through mutual fund than ever

Anand and Murugaiah (2008)48 in their study examined the components and sources

of investment performance in order to attribute it to specific activities of Indian fund

managers by using Fama's methodology and revealed the fact that the mutual funds

failed in expectations to compensate the investors for the additional risk taken by

them. The study also observed that from the selectivity, expected market risk and

market return factors have shown closer correlation with the fund return.

Guha (2008)49 in his study found the “Style Benchmarks” of each of its sample of

equity funds as optimum exposure to 11 passive asset class indexes. Further the study

also revealed the relative performance of the funds with respect to their style

benchmarks and found that the funds never been able to beat their style benchmarks

on the average.

45
Afza and Rauf (2009)50 in their study of open-ended Pakistani mutual funds

performance using the quarterly data for the period of 1996-2006. The study measure

the fund performance by using Sharpe ratio with the help of pooled time-series and

cross sectional data and also focused on different attributes such as fund size,

expenses, age, turnover and liquidity.

Agrawal Deepak & Patidar Deepak (2009)51 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 an d at the second side the confidence and loyalty of

the fund Manager and rewards affects the performance of the MF industry in India.

Debasish (2009)52 studied the performance of selected schemes of mutual funds

based on risk and return models and measures. The study covered the period from

April 1996 to March 2005 (nine years). The study revealed that Franklin Templeton

and UTI were the best performers and Birla Sun life, HDFC and LIC mutual funds

showed poor performance.

Kundu Abhijit (2009)53 In his study examines the fund manager’s ability to

outperform the market and to appraise the schemes in the context of ex-post risk,

return and diversification and found that over ‘the period’ mutual fund schemes on an

average have failed to outperform the market even after taking a risk higher than that

of the market and concluded that fund manager though have succeeded to some extent

on the diversification front, but failed to earn significant positive returns by selecting

miss valued securities in their portfolios.

Ali, Naseem and Rehman (2010)54 in their study examined the performance of 10

mutual funds in which 5 were conventional and 5 were Islamic for the period from

2006 to 2008 by using Sharpe and Treynor measures. The results found that the funds

46
of Pakistan were able to add more value either conventional or Islamic. The study also

found that some of the funds were underperformed, so these funds were facing

diversification problems during the study period.

Sondhi and Jain (2010)55 examined the market risk and investment performance of

equity mutual funds in India. The study used a sample of 36 equity fund for a period

of 3 years. The study examined whether high beta of funds have actually produced

high returns over the study period. The study also examined that open-ended or close

ended categories, size of fund and the ownership pattern significantly affect risk-

adjusted investment performance of equity fund.

Rao, D.N.& Rao, S.B, (2010)56 carried out a study, on the investment patterns of the

five investor groups in eight different fund categories; studied the portfolios of the

investor groups and identified the dominant investor groups as per investment size

and folios. Important findings are (a) Corporate are the dominant investor group with

a share of almost 48% of the total investment (AUM) in the industry and prefer non-

equity funds which offer high security & liquidity while the next dominant investor

group was the Retail investors’ group with 24% of the total investment

Mehta Sushilkumar (2010)57 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.

Garg (2011)58 examined the performance of top ten mutual funds that was selected on

the basis of previous years return. The study analyzed the performance on the basis of

return, standard deviation, beta as well as Treynor, Jensen and Sharpe indexes. The

study also used Carhart’s four-factor model for analyze the performance of mutual

funds. The results revealed that Reliance Regular Saving Scheme Fund had achieved

the highest final score and Canara Robeco Infra had achieved the lowest final score in

the one year category

47
Selvam et.al (2011)59 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. According to t-alpha values,

majority (thirty two) of the sample schemes' returns were not significantly different

from their market returns and very few number of sample schemes' returns were

significantly different from their market returns during the study period.

Nishant Patel (2011)60 In his study examined fund sensitivity to the market

fluctuations in term of Beta and found that the risk and return of mutual funds

schemes were not in conformity with their stated investment objectives further sample

schemes were not found to be adequately diversified.

Loomba Jatinder (2011)61 evaluates the performance and growth of Indian mutual

funds vis-à-vis the Indian equity market. The overall analysis finds that Nifty returns

outperformed Franklin Templeton Large Cap Equity Scheme returns. Kruskal Wallis

H-test was applied to know whether the returns significantly differ or not and the

results indicated that the returns of schemes don’t differ significantly.

K. V. Siva Prasad (2011)62 assumes that its relevance in the present context as the
mutual funds industry in growing rapidly. The growth rate has been around 64% and
is moving towards a target of Rs. 20 lakh crores in 2010. The present study is
undertaken to measure and analyse the past performance of sample mutual funds
schemes in comparison with the corresponding benchmark by applying the return, risk
analysis, risk adjusted measures of Sharpe and Jensen ratios.

Dr. S. Poornima and Theivanayaki M (2012)63 found that Mutual fund towers over

the other investment alternatives. Investors usually get confusion while investing as

he has plenty of opportunities like stock market, mutual fund, provident fund, real

estates, etc. the mutual fund is proved to be a safer mode of investment and has been

giving good returns compared to other investments and it is highly cost efficient and

very easy to invest in, however it has got same kind of risk like direct capital market.

48
Rasheed Haroon, Qadeer Abdul (2012)64 in their study investigates the performance

of survivorship biased twenty five open ended mutual fund schemes in Pakistan and

managers ability of stock selection and also measured the diversification. The study

revealed that overall performance of the funds remains best as compare to market but

mismanagement observed in mutual fund industry during the study period.

Tarak Paul, (2012)65 assesses the Gap between Expectations and Experiences of

Mutual Fund of around 260 Investors in Guwahati city and has found out that there is

a significant gap between the mutual fund investors’ expectations and experiences.

Sarish, (2012)66 studied mutual funds and the benefits of investing in mutual fund, its
drawbacks and have done detailed study on various aspects of mutual fund. This
paper aims at exploring the potential of mutual funds in India with all problems,
complexities and variables, and suggesting the means and ways of meeting the
challenges for developing the mutual funds in tandem with its potential of economic
growth. This study relied on secondary data in order to identify and analyze the
challenges and opportunities for mutual funds.

Bansal and Kumar, ( 2012)67 attempted to study the performance of selected mutual
funds schemes based on risk-return relationship models, and return on mutual funds
also compared with return on equity shares of different sectors of Indian economy.
The analysis has been made on the basis of mean return, intercept, beta, Sharpe ratio,
Treynor ratio, and Jensen Alpha. The overall Analysis finds UTI schemes being best
performers and others showing below average performance.

Alekhya, (2012)68 studied performance evaluation of Public & Private Sector Mutual
Funds in India and comparative performance of public and private sector mutual fund
schemes the Indian Mutual fund Industry has witnessed a structural transformation
during the past few years. This paper has evaluated the performance of Indian Mutual
fund equity scheme of 3 years past data from 2009 to 2011. To appraise investment
performance of mutual funds with risk adjustment the theoretical parameters as
suggested by Sharpe, Treynor and Jensen.

49
Dhanda, Batra and Anjum, (2012)69 Attempted to study the performance evaluation

of selected open ended schemes in terms of risk and return relationship. For this rate

of return method, Beta, Standard Deviation, Sharpe and Treynor ratio has been

used.BSE-30 has been used as a benchmark to study the performance of mutual funds

in India. The findings of the study reveal that only three schemes have performed

better.

Bansal, Garg and Saini, (2012)70 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 & Treynor’s ratio.

Goel, Sharma and Mani, (2012)71 investigated the performance related

characteristics of open ended mutual funds. For the purpose of performance
evaluation, risk adjusted performance, asset size and expense ratio of the mutual funds
have been studied for past five years. Through this study, the relation between
performance related characteristics and the performance of Indian mutual funds has
been studied. Results have confirmed the presence of performance persistence in
mutual funds. This study has contributed towards existing knowledge for the
relationship between mutual fund’s performance and their characteristics.

Palanisamy, Sengottaiyan, and Palaniappan, (2012)72 studied Investment Pattern in

Debt Scheme of Mutual Funds. Data collected through interview schedule and

statistical tools used such as percentage analysis, weighted ranking analysis and Chi-

square analysis. The study concludes that debt scheme are suitable for genuine

investors as there exists a variety of investors needs depending on purpose,

expectations and risk taking abilities.

50
Jain and Gangopadhyay, (2012)73 analysis of Equity Based Mutual Funds in India

attempted to analyze the performance of equity based mutual funds. The analysis has

been made using the risk-return relationship and Capital Asset Pricing Model

(CAPM). The overall analysis finds that HDFC and ICICI have been the best

performers, UTI an average performer and LIC the worst performer which gave

below- expected returns on the risk-return relationship.

Bhaskar Biswas, (2013)74 investigated out performance and under performance of

diversified funds. It involved studying the performance of some ten best and ten worst

performing diversified equity mutual funds for the period of last three years (2009 -

2012). In this paper of selected diversified equity funds have been analyzed by

analyzing their arithmetic mean return, risk can be analyzed by standard deviation,

beta measures market sensitivity, alpha measures the risk return relationship and

Sharpe ratio measures the risk premium of portfolio.

Poornima & Sudhamathi, (2013)75 in this research paper an attempt is made to

analyze about the performance of the growth oriented equity diversified schemes by

using Sortino ratio. 102 growth oriented equity diversified schemes which were

performing during the period April 2006 to March 2011 were selected for the study.

This research paper clearly reveals the fact that careful evaluation using appropriate

performance measure will lead the investor in selecting the best funds.

2.4 Concluding Remarks

The present work is based on the review of 31 foreign and 75 Indian studies

relating to mutual funds. The review of foreign studies ensures that, mutual funds

have a significant impact on the price movement in the stock market, the average

return from the schemes were below that of their benchmark, all the three models

provided identical results, good performance were associated with low expense ratio

and not with the size.

51
 The aforementioned studies indicate that the evaluation of mutual funds has

been a matter of concern in India for the researchers, academicians, fund managers

and financial analysts to a greater extent after 1985. The reviews bring to light the

importance of mutual funds in the Indian financial scenario; highlight the need for

adequate investor protection, single regulatory authority, higher return for a given risk

as per investors’ expectation, greater convenience and liquidity, and the expectations

that mutual funds should act as a catalytic agent of economic growth and foster

investors’ interest.

The studies on mutual fund investment performances have long sought to

draw the distinction between the ability to time the market and the ability to forecast

the returns of individual assets. Thus superior performances are due to either timing or

selection ability or some combination of the two. Indeed portfolio managers often

characterize themselves as market timers or stock pickers.

The subject of mutual fund performance has received a great deal of attention

in the literature of financial economics. The reviews of earlier studies have briefly

looked at predictability of performance, persistence in performance and market timing

ability. However, reviews on industry performance particularly under the regulated

environment are scantly available. As the mutual fund industry has a significant role

to play in the corporate governance and to strengthen capital mobilization of the

country there is a great need to study the performance of mutual fund industry along

with the performance of growth schemes, particularly after the industry has ensured

uniformity in accounting policies to bridge the gap in the existing literature. Since all

the earlier studies have made use of Sharpe, Treynor and Jensen measures the present

study makes use of the same well established traditional techniques along with

Fama’s Decomposition of Total Return which was not applied by many of the

previous studies.

52
 REFERENCES

2.5 Foreign References

1. Friend et. al, “A Study of Mutual Funds” U.S. Securities and Exchange
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53
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54
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55
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2. Vidhyashankar S, “Mutual Funds: Emerging Trends In India”, Chartered

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3. Bansal L K, “Challenges For Mutual Funds in India”, Chartered Secretary,

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4. Sarkar A K, “Mutual Funds in India - Emerging Trends”, The Management

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7. Gangadhar V, “The Changing Pattern of Mutual Funds in India”, The

Management Accountant, Vol. 27 (12), (December 1992), pp. 924-28.

8. Lal C and Sharma Seema, “Mutual Fund-A Buoyant Financial Instrument”,

Finance India, Vol. VI (4) (December 1992), pp.811-18.

9. Sahu R K, “A Critical Review of the Mutual Fund Regulations”, Chartered

Secretary, Vol. 22(12), (December 1992), pp. 1076-1078.

10. Venugopalan S, “Mutual Funds”, Chartered Secretary, Vol. XXII (8), (August
1992), pp.691- 694.

11. Angol, “Role of Self Regulatory Organisation in Mutual Fund Industry in

India”, Chartered Financial Analyst, Vol.7 (1), 1992,p11.

12. Shashikant, Uma “Accounting Policy and Practices of Mutual Funds: The
Need for Standardization”, Prajan, Vol. XXIV (2), (1993), pp. 91-102.

13. Ansari, “Mutual Funds in India: Emerging Trends”, The Chartered

Accountant, Vol. 42(2), (August 1993), pp.88-93.

56
14. Sahu R K and Panda J, “The Role And Future Of Mutual Funds In India”,
Management Accountant, (February 1993) pp. 91-3.

15. Saha Asish and Rama Murthy Y Sree, “Managing Mutual Funds: Some
Critical Issues”, Journal of Social and Management Science, Vol. XXII (1),
(1993-94), pp.25-35.

16. Vaid, Seema, “Mutual Fund Operations in India”, Rishi Publications, Varnasi,
(1994).

17. Shukla and Singh, “Are CFA Charter Holders Better Equity Fund Managers”,
Chartered Financial Analysts, Vol. 2, (1994), pp.68-74.

18. Shome, “A Study of Performance of Indian Mutual Funds”, unpublished

thesis, Jhansi University, (1994).

19. Shah Ajay and Thomas Susan, “Performance Evaluation of Professional

Portfolio Management in India”, paper presented, CMIE, (10 April 1994).

20. Kale and Uma, “A Study on The Evaluation of The Performance Of Mutual
Funds In India”, National Insurance Academy, Pune, India (1995).

21. Value Research India Pvt. Ltd, “Mutual Fund” Delhi, India. (1996).

22. Tripathy, Nalini Prava, “Mutual Fund in India: A Financial Service in Capital
Market”, Finance India, Vol. X (1), (March 1996), pp. 85-91.

23. Yadav R A and Mishra, Biswadeep “Performance Evaluation of Mutual

Funds: An empirical analysis”, MDI Management Journal, Vol. 9(2), (July
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24. Jayadev M, “Mutual Fund Performance: An Analysis of Monthly Returns”,

Finance India, Vol. X (1) (March 1996), pp. 73-84.

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Analysis, Prentice Hall of India Private Limited, New Delhi, (1997).

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Delhi, (1997).

57
27. Gupta O P and Sehgal, Sanjay, “Investment Performance of Mutual Funds:
The Indian Experience”, paper presented in Second UTI-ICM Capital
Markets Conference, December 23-24, (1998), Vasi, Bombay.

28. Rao, Mohana P, “Working Of Mutual Fund Organisations In India”, Kanishka

Publishers, New Delhi, (1998).

29. Kumar V K, “In Search Of Turnaround Strategies for Mutual Fund Industry”,
The Management Accountant, (May 1999) Vol. 34(5), pp. 337-343.

30. Irissappane, Aravazhi “Paradigm Shifts In The Performance Of Indian Mutual

Funds: An Analysis With Reference To Close-Ended Funds Of Selected
Institutions”, UTI Institute of Capital Markets, Mumbai (2000).

31. Gupta Amitabh, “Investment Performance of Indian Mutual Funds: An

Empirical Study”, Finance India, Vol. XIV (3), (September 2000), pp. 833-
866.

32. Agrawal, Ashok Motilal, “Mutual Funds- Emerging Trends and Prospects”,
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34. Gupta Amitabh, “Mutual Funds in India: A Study of Investment

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36. Roshni Jayam, “Debt Be Not Proud, Equity’s Back”, Business Today, (April
2002) pp. 42-45.

37. Bansal, Manish “Mutual Funds: Eight Steps to nirvana”, Chartered Financial
Analyst, Vol. 9(12), (December 2003), pp. 34-40.

38. Singh, Jaspal and Subhash Chander, “What Drives the Investors towards
Mutual Funds: An Empirical Analysis”, The ICFAI Journal Of Applied
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39. Saha, Tapas Rajan “Indian Mutual Fund Management”, Management
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40. Sathis D, “Investors Perceptions: A Survey by MARCH Marketing

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41. Sharath Jutur, “Evaluating Indian Mutual Funds”, Chartered Financial

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43. Venkateshwarlu M (2004), “Investors’ Perceptions of Mutual Funds”,

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44. Sondhi H J and Jain P K, “Financial Management of Private and Public Equity
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62
 CHAPTER – III

RESEARCH METHODOLOGY

The methodology of the present research work entitled “The Performance

Evaluation of Mutual Funds – A Study on Select Growth Schemes”, is as follows:

3.1 Sources of Data

The study is a blend of both primary and secondary data. Secondary data were

collected from the records of AMFI, UTI Institute of Capital Markets, and web sites of

respective mutual funds.

The primary data required for the study was collected using a detailed interview

questionnaire from fund managers, brokers and investors respectively. Before the

preparation of questionnaire discussions were held with the AMFI Chairman, Director

of Society for Capital Market Research and Development, Dean of UTI Institute of

Capital Markets, Officials of SEBI, CRISIL Fund Services Ltd, Credence Analytics

(India) Pvt. Ltd. and Value Research India Private Limited for first hand information. A

structured questionnaire was prepared and tested through a pilot study among investors.

The questionnaire was revised and administered to elicit the perception of investors and

brokers on their preference for mutual funds. Investors, brokers and fund managers were

contacted for the sake of collection of primary data required for the study.

3.2 Sampling

With introduction of SEBI, the Indian Mutual Fund Industry came under

liberalized environment from the year 1993. The industry was brought under the

uniform regulatory control with the implementation of SEBI (Mutual Funds)

63
Regulations 1996. Hence, this study attempts to review the performance of the industry

from 2004-05 after the introduction of uniform rules and regulations up to March

2014-15.

Calculating all funds performance is laborious and voluminous work. We have

taken best and top fund performer as 2014 under each category. Each fund under select

category was performing well as on 2014.

To study the risk and return relationship, the study includes the sample of target

population 12 selected Mutual Fund Growth Schemes out of 38 (i.e. 32%). On the basis

of types of schemes, all the schemes are open-ended, out of the 12 schemes, from the

objective point of view, 5 were Debt schemes, 5 were Equity schemes, and 2 were

Hybrid schemes used.

All mutual fund firms in Vizag are collecting agents. Maximum fund managers

are located in Mumbai, a questionnaire was mailed to 38, but we got response from 19

fund managers with many requests. The response rate is 50 %.

We have received response from 20 brokers and sub - brokers across Vizag and

Mumbai out of 40 brokers the overall response rate is 50 %. In Vizag response was

collected from brokers such as Angel Broking Limited, Karvy Stock Broking Limited

and Vizag Steel Securities limited, rest of the responses was collected from Mumbai

brokers only.

The opinions from selected 20 brokers are taken by execution of mailed

questionnaire. The list of brokers considered for this study is as follows:

64
 1. Angel broking ltd. 11. Bajaj Capital

2. Karvy Stock Broking Limited 12. Aditya Birla Money

3. India Bulls 13. SMC Global Securities Limited

4. Reliance Money 14. Geojit BNP Paribas

5. India Infoline Ltd. 15. SBI CAP Securities

6. ICICI Direct 16. Anand Rathi Securities Limited

7. Sharekhan ltd. 17. Bonanza Online

8. Kotak Securities Ltd. 18. IL & FS Securities Limited

9. Motilal Oswal Securities 19. RKSV Securities

10. HDFC Securities 20. Zerodha

In case of the investors, 800 investors were contacted through detailed

questionnaire in Vizag for response, but received response from 427 investors, out of

which 27 were semi filled, hence the final sample considered for the study was 400

and the response rate is 50%

To elicit information from the investors, all the investors registered in the Vizag

Steel City Securities Ltd. for the purpose of this study. All the investors holding mutual

funds were surveyed adopting Stratified Random Sampling Method (SRSM). A

detailed questionnaire covering various aspects of the investment decision of investors

were prepared and finalized. After pre-testing, the research instrument was distributed in

various meetings of Vizag Steel City Securities Ltd. and collected personally from the

investors. Therefore, the primary sampling frame for the present study consists of 19 fund

managers, 20 brokers and 400 investors. It has been an important objective of the study to

examine the investors’ perceptions regarding mutual funds.

77
Table of Sample:

Category Total Population Sample Percentage (%)

Investors 800 400 50

Brokers 40 20 50
Fund Managers 38 19 50

The present research is an attempt to study the performance evaluation of mutual

funds in India. With a view to develop a sound theoretical framework for investigation,

a review of literature relating to performance evaluation of mutual funds has been done

in the review of literature chapter.

To study the performance of 12 mutual funds out of 38 mutual funds operating

on 31st July, 2014, in each category, the selection was made on the basis of highest

number of equity and balanced schemes existing on 31/3/2014.

The selected mutual funds are:

1. Birla Sun Life Gilt Plus - PF Plan

2. L&T Gilt Fund - Investment Plan

3. SBI Magnum Gilt Fund - Long Term Plan

4. UTI Gilt Advantage Long Term Plan

5. IDFC Government Securities Fund - Provident Fund Plan - Regular Plan

6. SBI Pharma Fund

7. Reliance Pharma Fund

8. UTI Pharma & Healthcare Fund

9. HDFC Childrens Gift Fund - Investment Plan

10. SBI Magnum Balanced Fund

11. ICICI Prudential Balanced Fund - Regular Plan

12. Franklin India Balanced Fund

78
3.3 Tools of Analysis

1. CAPM the tools like return, risk, and risk-free rate of return were used for risk-return

analysis of schemes in relation to that of the market as per Sharpe, Treynor and Jensen

Models. The major portion of funds mobilized through growth schemes are invested in

equity shares. In analyzing the risk-return relationship the CAPM is used widely. The

CAPM uses the concept of beta to link risk with return. Beta as a measure of systematic

risk shows how the NAV of a growth scheme responds to changes in market

performance. Using the beta concept the CAPM helps to define the required return on a

security. The equation for calculating the expected return based on CAPM is as follows:

Ri = Rf + ȕ (Rm- Rf)

Ri = Expected return

Rf = Risk-free return

ȕ= Measure of systematic risk

Rm = Market return
The following tools of analysis adopted in this study were the same as used in the

previous studies by Carlson Robert S (1970), Fama Eugene (1972), Sarkar A K (1991),

Shashikant Uma (1993), Yadav R A (1996), Jayadev M(1996), Wilfred L Dellava (1998),

Gupta Amitabh (2000), Sondhi H J(2005), and others over the time period. NAV values

on every Monday of the sample schemes for the period of (April 1998 to March 2006)

eight years were used based on the data available.

2. Portfolio Return refers to the yield from the selected growth schemes with growth

option. Portfolio returns (Rp) are calculated on the basis of changes in the NAV on a

weekly basis. Average of such weekly returns (ARp) is calculated on a yearly basis and

for the entire period of study as follows:

78
 NAVt – NAVt-1
Rp = ----------------------
NAVt-1
Rp is the return of the portfolio on a weekly basis‘t’ is the time period

‘t’ is the time period

3. Market Return is calculated on the basis of the changes in the BSE 100 Index on a

weekly basis (Rm) and the averages of such weekly returns (ARm) are arrived at for

every year and for the total period of study. BSE 100 index was used as a benchmark for

the selected growth schemes as it is widely considered as a market proxy or benchmark

for the purpose of academics, research and practicing fund managers. BSE 100 index is

used as a benchmark as it is a broad based index, consisting of 100 actively traded

equity shares representing more than 70 per cent of the total market capitalization in

Bombay Stock Exchange. The market return is calculated as follows:

Market Indext – Market Indext-1

Rm = ---------------------------------------------
Market Indext-1

4. Risk-free return (Rf) is the return available from zero risk investment avenues like

treasury bills and bank deposits. The current RBI bank rate of 6.00 per cent is assumed as

the risk-free rate of return as it has been constant for many years and is related with the

most commonly preferred investment avenue namely bank deposits.

5. Risk is the uncertainty and variability of returns / capital appreciation or loss of both.

Total risk is measured with the help of standard deviation of both scheme and market

returns. The total risk of an investment consists of two components: Diversifiable and

non-diversifiable risk.

79
a. Diversifiable (Unsystematic) risk represents that portion of an investment’s risk that

can be eliminated by holding enough number of varied types of securities. Unsystematic

risk is that portion of total risk calculated as follows:

Unsystematic Risk = (ıp2) - (ȕ2 × ım2)

ıp Standard Deviation of the Scheme

ım Standard Deviation of the Market

b. Non-diversifiable (Systematic) risk is that part of total variability in returns caused

by factors due to economic, social and political causes. Systematic risk is not unique to an

investment avenue and is unavoidable. Each security possesses its own level of

systematic risk, which is measured using beta coefficient.

Systematic Risk = ȕ2× ı p2

6. Beta reflects how volatile the return from an investment in response to market swings.

It measures the impact of the market forces on return expected from funds. Beta is

calculated by relating portfolio return with market return using regression analysis. Beta

greater than one, depicts high sensitivity of scheme’s returns against market being

aggressive. Beta values less than one indicates defensive nature of the scheme. The

regression slope coefficient from the Characteristic Regression Line (CRL)

measures the systematic risk of an asset. The CAPM is applied to compute the beta value

from the following formula:

Ri = Į+ ȕ Rm + e

80
7. Covariance reflects the degree to which the market and scheme returns vary. A

positive covariance means that the market and scheme returns move in the same direction

whereas a negative covariance implies that the return moves in the opposite direction.

Covariance is calculated using the formula:

C.V = ((ıp / X p) × 100)

X p is the mean return of the scheme

8. Coefficient of Correlation (r) measures the nature and the extent of relationship

between stock market index return and the scheme’s return for a particular period. The

co-movement of schemes performance with that of market index is studied with the help

of a simple linear regression analysis using the following formula:

™xy

r = -----------------
¥ ™x2 × ™y2

x = (X– X)
y = (Y- Y)

Autocorrelation Coefficient measures the association within the chronological sequence

of observations of net assets value to verify whether the present NAV value is based on

the past NAV and is calculated using the formula:

n-k
™
i=1 (yi-Y) (yi+k –Y)
rk= ----------------------------
n
™
i=1 (yi- Y)2

81
9. Coefficient of Determination (R2) is the square of the correlation co-efficient and

indicates the degree of diversification. It gives the percentage variation in the scheme’s

return as explained by the variation in the market’s return.

*A low R2 indicates that scheme has further scope for diversification and

*A high R2 indicates that the scheme is well diversified.

3.4 Statistical Techniques of Analysis

The collected information was analysed using simple and sophisticated techniques as

follows:

1. Compound Annual Growth Rate (CAGR) calculates the growth in variables

(number of funds, funds mobilized, assets under management, number of schemes) on a

yearly basis.

CAGR = [((P1 / P0) (1/n) – 1) × 100]

P1 , P0, n are the variables in the current period, base period and the number of years.

2. Compound Growth Rate (CGR) calculates the growth in variables for the entire

period of study. CGR is a superior measure of calculating compounded return than simple

return with the following formula:

CGR = [((Pn / P0 ) (1/n) – 1) × 100]

3. Rank Correlation is used when information is sufficient to rank the data. The rank

correlation coefficient is a measure of correlation that exists between two sets of ranks. It

is a measure of association that is based on the ranks of the observations and not on the

numerical values of the data as calculated using the following formula:

82
 6 ™D2
R=1- -----------------
N (N2-1)

R denotes coefficient of rank correlation

D refers to the difference of rank between the paired items in two series.

4. Kendall’s Coefficient of Concordance is a non parametric measure of relationship

determining the degree of association among several (k) sets of ranking of N objects.

™ (Rj - Rj)2
W = --------------------------
(1/12) k2 (N3 - N)

K is the number of sets of rankings

N is the number of objects ranked

Rj is the sum of ranks assigned by all the k judges

(1/12) k2 (N3 - N) is the maximum possible sum of the squared deviations

5. Chi-square test is a non-parametric test explaining whether two attributes are

associated or not, using the following formula:

(Oij – Eij)2
 ࣨϮсєͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲ 
Eij

Oij is the observed frequency of the cell in ith row and jth column

Eij is the expected frequency of the cell in ith row and jth column

6. Z Test is used to verify the extent of relationship between the market and the scheme

using the correlation coefficient with the help of the formula:

83
     r
Z test = ---------- × ín
í1-r2

7. ANOVA (F test) is the analysis of variance used in the case of multiple samples. It is a

measure of significance of the difference between the means of factors influencing choice

of mutual fund organisation and scheme using the following formula:

X1 - X2
Z = ----------------------
íS1 2 + S22
n1 n2

8. Binomial Test of Significance is used to test the probability model to make inference

about population proportion from observations satisfying the Bernoulli trials using Z test.

The proportion of investors agreeing with the specific attitude statements has been tested

using the following formula to identify the attitude towards mutual fund industry in

India and the extent of distribution of investors accepting with the specific attitude

statements:

    x /n - P
Z= -----------------
í(p × q) / n
x is the number of respondents agreeing

p, q and n is the proportion of acceptance, non acceptance and number of

Bernoulli trials.

The models developed on the assumptions of ‘The Capital Asset Pricing Model’

and tested by Treynor (1965), Sharpe (1966), Jensen (1968) and Fama’s Decomposition

of Returns was used to evaluate the performance of selected growth schemes.

84
9. Sharpe Index (St) measures the risk premium of the portfolio with reference to the

total amount of risk. The index St measures the slope of the line emanating from risk-free

rate outward the portfolio. The larger the St, the better the portfolio has performed. St is

the reward to variability of the scheme’s total risk and is a summary measure of scheme’s

performance adjusted for risk.

ARpt – Rf
^ƚсͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲͲ
ı
pt

St = Sharpe Index

ARpt = Average return on portfolio‘t’

Rf = Risk-free rate of return

ıpt = Risk involved in portfolio‘t’ returns

10. Treynor Index (Tt) sums up the risk and return of a portfolio in a single number. The

index measures the slope of the line emanating outward from the risk-free rate to the

portfolio under consideration. Treynor index is a reward to volatility of the portfolio. The

characteristic line relates the market return to a specific portfolio return without any direct

adjustment for risk. This line can be fitted through a least square regression involving a

single market portfolio. To use Treynor’s measure first the CRL of portfolios are fixed by

estimating the following equation:

Rp = ap +bp Rm +ep
Rp= Return on portfolio ‘p’
Ap= Intercept coefficient for portfolio
Bp=Portfolio’s beta coefficient
Rm= Return on market index
Ep= Random error term for portfolio ‘p’

85
 ARp – Rf
Tt = ------------
ȕp

11. Jensen constructed a measure of absolute performance on a risk-adjusted basis while

Sharpe and Treynor models provided measures for ranking the relative performance of

various portfolios on a risk-adjusted basis. Equilibrium average return on a portfolio is

the benchmark. Equilibrium average return is the return of the market portfolio for a

given systematic risk calculated with the following formula:

EARp = Rf + (Rm – Rf) ȕp

EARp is the equilibrium return of the portfolio ‘p’ indicating superior / inferior

performance of the portfolio’s alpha (Į). Jensen’s Alpha is the intercept of the CRL. If

alpha is positive, the portfolio has performed better and if it is negative, scheme

performance is not up to the benchmark. In a well-diversified portfolio, the average value

of alpha of all stocks turns out to be zero.

12. Eugene Fama’s Decomposition of Total Returns

Eugene Fama provides for an analytical framework, which enables for a detailed

analysis of scheme performance popularly known as Fama’s Decomposition of Total

Return. The total return on a portfolio constitutes of risk-free return (Rf) and excess

return. The excess return arises from different factors such as risk accepted and stock

selection. The excess return can be decomposed into two components, namely risk

premium (reward for bearing risk) and for stock selectivity (return from stock selection).

86
 Each portfolio will have both systematic risk and unsystematic risk. Hence risk

premium can be decomposed into two components namely, return for bearing systematic

risk (market risk) and return for bearing unsystematic risk.

Return for Systematic Risk (R1) = ȕp (Rm-Rf)

Return for Unsystematic Risk (R2) = [(ıp / ım) – ȕp] × (Rm–Rf)

The return from pure stock selectivity (R3) is the difference between the actual return and

the sum of the other three components. The return for pure (net) selectivity is the

additional return obtained by a portfolio manager for his superior stock selection

ability over and above the return mandated by the total risk of the portfolio.

Fama’s net selectivity = Rp – [Rf + (ıp / ım) × (Rm – Rf)]

Hence, the total return on a fund can be decomposed into four components:

Total return on Portfolio = Risk-Free return (Rf) + Return for bearing Systematic risk

(R1) + Return for bearing Unsystematic risk (R2) + Return from pure Stock Selectivity

(R3)

13. Sharpe’s Differential Return

Sharpe’s Differential Return measures the ability of fund managers in both

security selection and diversifying portfolio. The difference between the expected return

and actual return of the portfolio are called differential returns. If a portfolio is well

diversified, the two measures (Jensen and Sharpe) indicates same quantum of differential

return. In case the portfolio is not fully diversified, the Sharpe Differential Return would

be small in magnitude than Jensen’s alpha. The difference can be interpreted as a decline

in performance resulting from lack of diversification. Sharpe’s Differential returns are

87
computed by applying the following equation to measure the incremental returns earned

by the mutual fund manager for a given level of total risk using the formula:

SDR = Ri - Rf + (Rm - Rf) ıp / ım

14. Rank Order Scoring

In the case of analysis using ranks, the total scores are obtained by way of

multiplying the frequency with the weights assigned for each rank. The highest weight is

assigned for the first rank and the weights are reduced by one for each successive rank.

15. Degree of Safety

The highest weight has been assigned for the highest degree of safety. The

weights are reduced by one for each successive degree of safety thereby assigning the

lowest weight (one) for the lowest degree of safety.

16. Degree of Satisfaction

The highest weight has been assigned for the fully satisfied and the weight one is

assigned for the not satisfied state of opinion by way of reducing weight by one degree

for each successive degree of satisfaction.

17. Degree of Importance

The highest weight has been assigned for very important and the weight one is

assigned for not at all important as reduced by one point of weight for each successive

degree of importance.

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18. Degree of Agreement

The highest weight of five points was assigned for strongly agreeing and the

lowest weight of one point was assigned for strongly disagreeing statement. For each

successive degree of agreement one point of differentiation was assigned.

Total scores are arrived by way of multiplying the frequencies with their

respective weights. Average scores are calculated by way of dividing the total score by

the total number of observations in each case.

3.5 Concluding Remarks

The present research work is based on both primary and secondary data. The

sampling frame constitutes of the schemes launched in 1993, the year of introduction of

SEBI regulations and private sector entry. The study is from 2004-05, and up to March

2015. The analysis of the schemes relates to twelve short listed schemes for the period

March 2004 to March 2015. The primary sampling frame consists of 10 Fund Managers,

20 Brokers and 400 Investors. The tools like return, risk and risk-free rate of return are

used as per Sharpe, Treynor and Jensen Models. The collected information was analysed

using simple and sophisticated techniques.

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 CHAPTER – IV

PERFORMANCE OF THE INDIAN MUTUAL FUNDS

4.1 Introduction

A financial system plays a vital role in the economic growth of a country. It

intermediates between the flow of funds belonging to those who save a part of their

income and those who invest in productive assets. The mutual fund functions as a link

between the investor and the securities market by mobilizing savings from the investors

and investing them in securities market to generate returns. The Indian mutual fund

industry is one of the fastest growing and most competitive segments of the financial

sector.

The Unit Trust of India was the first mutual fund set up in India in the year 1963.

In the early 1990s, the government allowed public sector banks and institutions to set up

mutual funds. To protect the interests of the investors, SEBI first notified regulations for

mutual funds in 1996. At a later stage mutual funds sponsored by private sector entities

were allowed to enter the market. Over time, the number of asset management companies

has increased to approximately 51 to 55.

An important part of the economy of any nation is formed by savings. It

represents that part of disposable income that is not spent on final consumption of goods

and services. It is defined as the difference between income and consumption. During

pre-independence period in India, people spent most of their income on consumption and

only a small amount of income was left in the form of savings. As a result, the saving rate

was very low. Since the attainment of Independence in 1947, the major objective of the

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government has been the promotion of savings and capital formation. Increase in the

savings, use of increased saving for financing the increasing required investment, use of

the increased investment for increasing savings and use of the increased savings for a

further financing the required investment constitute the strategy of economic growth. The

process may continue till the saving, investment ratio to income would get stabilized and

there would be steady and self-sustained increases in national income and economic

welfare.

Investment is the sacrifice of certain present value for the uncertain future reward.

Investment is an activity that is engaged in by people who have savings. Savings directed

into investment. With the savings invested in various options available to the people, the

money acts as the driver for the growth of the country. Indian financial scene too presents

a plethora of avenues to the investors. The main objective of the investor is to minimize

the risk and maximize the return. Mutual funds represent the most appropriate investment

opportunity for most investors. As financial markets become more sophisticated and

complex, investors need a financial intermediary who provides the required knowledge

and professional expertise on successful investing.

The Indian financial system based on four basic components like Financial

Market, Financial Institutions, Financial Service, Financial Instruments. All these play

important role for smooth activities for the transfer of the funds and allocation of the

funds. The main aim of the Indian financial system is that providing the efficient services

to the capital market.

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 The Indian capital market has been increasing tremendously during the second

generation reforms. The first generation reforms started in 1991 the concept of LPG.

(Liberalization, privatization, Globalization) Then after 1997 second generation reforms

was started, still the it’s going on, its include reforms of industrial investment, reforms of

fiscal policy, reforms of ex- imp policy, reforms of public sector, reforms of financial

sector, reforms of foreign investment through the institutional investors, reforms banking

sectors. The economic development model adopted by India in the post independence era

has been characterized by mixed economy with the public sector playing a dominating

role and the activities in private industrial sector control measures emaciated from time to

time. The last two decades have been a phenomenal expansion in the geographical

coverage and the financial spread of our financial system.

The spared of the banking system has been a major factor in promoting financial

intermediation in the economy and in the growth of financial savings. With progressive

liberalization of economic policies, there has been a rapid growth of capital market,

money market and financial services industry including merchant banking, leasing and

venture capital, leasing, hire purchasing. Consistent with the growth of financial sector

and second generation reforms its need to fruition of the financial sector. It’s also need to

providing the efficient service to the investor mostly if the investors are supply small

amount, in that point of view the mutual fund play vital for better service to the small

investors. The main vision for the analysis for this study is to scrutinize the performance

of five star rated mutual funds, given the weight of risk, return, and assets under

management, net assets value, book value and price earnings ratio.

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4.2 What is Mutual Fund?

Mutual fund is the pool of the money, based on the trust who invests the savings

of a number of investors who shares a common financial goal, like the capital

appreciation and dividend earning. The money thus collected is then invested in capital

market instruments such as shares, debenture, and foreign market. Investors invest money

and get the units as per the unit value which we called as NAV (net assets value). Mutual

fund is the most suitable investment for the common man as it offers an opportunity to

invest in diversified portfolio management, good research team, professionally managed

Indian stock as well as the foreign market, the main aim of the fund manager is to taking

the scrip that have under value and future will rising, then fund manager sell out the

stock. Fund manager concentration on risk – return trade off, where minimize the risk and

maximize the return through diversification of the portfolio. The most common features

of the mutual fund unit are low cost.

4.3 Growth of Mutual Fund Industry

The history of mutual funds dates back to 19th century when it was introduced in

Europe, in particular, Great Britain. Robert Fleming set up in 1868 the first investment

trust called Foreign and colonial investment trust which promised to manage the finances

of the moneyed classes of Scotland by scattering the investment over a number of

different stocks. This investment trust and other investment trusts which were afterward

set up in Britain and the U.S., resembled today’s close – ended mutual funds. The first

mutual fund in the U.S., Massachusetts investor’s trust, was set up in March 1924. This

was the open – ended mutual fund.

93
 The stock market crash in 1929, the Great Depression, and the outbreak of the

Second World War slackened the pace of growth of the mutual fund industry.

Innovations in products and services increased the popularity of mutual funds in the

1950s and 1960s. The first international stock mutual fund was introduced in the US in

1940. In 1976, the first tax – exempt municipal bond funds emerged and in 1979, the first

money market mutual funds were created. The latest additions are the international bond

fund in 1986 arm funds in 1990. This industry witnessed substantial growth in the

eighties and nineties when there was a significant increase in the number of mutual funds,

schemes, assets, and shareholders. In the US the mutual fund industry registered a ten –

fold growth the eighties. Since 1996, mutual fund assets have exceeds bank deposits. The

mutual fund industry and the banking industry virtually rival each other in size.

A Mutual fund is type of Investment Company that gathers assets from investors

and collectively invests in stocks, bonds, or money market instruments. The investment

company concepts date to Europe in the late 1700s, according to K. Geert Rouwe host in

the Origins Mutual Funds, when “a Dutch Merchant and Broker Invited subscriptions

from investor with limited means.” The materialization of “investment pooling” in

England in the 1800s brought the concept closer to U.S. shores. The enactment of two

British Laws, the Joint Stock Companies Acts of 1862 and 1867, permitted investors to

share in the profits of an investment enterprise, and limited investor liability to the

amount of investment capital devoted to the enterprise.

May be more outstandingly, the British fund model established a direct link with

U.S. Securities markets, serving finance for the development of the post – Civil War U.S.

economy. The Scottish American Investment Trust, Formed on February1, 1873 by fund

94
pioneer Robert Fleming, invested in the economic potential of the United States, Chiefly

through American railroad bonds. Many other trusts followed that not only targeted

investment in America, but led to the introduction of the fund investing concept on U.S.

shores in the late 1800 and early 1900s. Nov. 1925. All these funds were open – ended

having redemption feature. Similarly, they had almost all the features of a good modern

Mutual Funds – like sound investment policies and restrictions, open - ended, self –

liquidating features, a publicized portfolio, simple capital structure, excellent and

professional fund management and diversification etc…….and hence they are the

honored grand – parents of today’s funds. Prior to these funds all the initial investment

companies were closed – ended companies. Therefore, it can be said that although the

basic concept of diversification and professional fund management, were picked by

U.S.A. from England Investment Companies “The Mutual Fund is an American

Creation.”

Because of their exclusive feature, open – ended Mutual Funds rapidly became

very popular. By 1929, there were 19 open – ended Mutual Funds in USA with total

assets of $ 140 million. But the 1929 Stock Market crash followed by great depression of

1930 ravaged the U.S. Financial Market as well as the Mutual Fund Industry. This

necessitated stricter regulation for mutual funds and for Financial Sectors. Hence, to

protect the interest of the common investors, U.S. Government passed various Acts, such

as Securities Act 1933, Securities Exchange Act 1934 and the Investment Companies Act

1940. A committee called the National Committee of Investment Company (Now,

Investment Company Institute), was also formed to co – operate with the Federal

Regulatory Agency and to keep informed of trends in Mutual Fund Legislation.

95
 As a result of these measure, the Mutual Fund Industry began to develop speedily

and the total net assets of the Mutual Funds Industry increased form $ 448 million in

1940 to $ 2.5 billion in 1950. The number of shareholder’s accounts increased from

296000, to more than one Million during 1940 – 1951. “As a result of renewed interest in

Mutual Fund Industry they grew at 18% annual compound rate reaching peak of their

rapid growth curve in the late 1960s.”

Figure 4. 1 Growth of Mutual Fund Industry

Source: AMFI

4.4 Organization Structure of Mutual Funds

Mutual funds have organization structure as per the Security Exchange Board of

India guideline; Security Exchange Board of India specified authority and responsibility

of Trustee and Asset Management Companies. The objective is to controlling, to

promote, to regulate, to protect the investors’ right and efficient trading of units.

Operation of Mutual fund start with investors saves their money on mutual fund, than

mutual Fund manager handling the funds and strategic investment on scrip. As per the

96
objectives of particular scheme manager selected scripts. Unit value will become high

when fund manager investment policy generates the return on capital market. Unit return

depends on fund return and efficient capital market. Also affects international capital

market, liquidity and at last economic policy. Mutual fund manager having high

responsibility inside of return and how to minimize the risk. When fund provided high

return with high risk, investors attract to invest more funds for same scheme.

The Mutual fund organization as per the SEBI formation and necessary formation

is needed for sooth activities of the companies and achieved the desired objectives.

Transfer agent and custodian play key role for dematerialization of the fund and unit

holders hold the account statement, but custody of the unit is on particular Asset

Management Company. Custodian holds all the fund units on dematerialization form.

Sponsor had decided the responsibility of custodian when investor to purchase the fund

and to sell the unit. Application forms, transaction slip and other requests received by

transfer agent, middle men between investors and Assts Management Companies.

Figure 4.2 Organization Structures Of Mutual Funds

97
4.5 History and Origin of Mutual Funds in India

Figure 4.3 Origins of Mutual Funds in India

The history of mutual funds dates back to 19th century when it was introduced in

Europe, in particular, Great Britain. Robert Fleming set up in 1968 the first investment

trust called Foreign and Colonial Investment Trust which promised to manage the

finances of the moneyed classes of Scotland by spreading the investment over a number

of different stocks. This investment trust and other investments trusts which were

subsequently set up in Britain and the US, resembled today’s close – ended mutual funds.

The first mutual in the U.S., Massachustsettes investor’s Trust, was set up in March 1924.

This was the open – ended mutual fund.

The stock market crash in 1929, the Great Depression, and the outbreak of the

Second World War slackened the pace of mutual fund industry, innovations in products

and services increased the popularity of mutual funds in the 1990s and 1960s. The first

international stock mutual fund was introduced in the U.S. in 1940. In 1976, the first tax

98
– exempt municipal bond funds emerged and in 1979, the first money market mutual

funds were created. The latest additions are the international bond fund in 1986 and arm

funds in 1990. This industry witnessed substantial growth in the eighties and nineties

when there was a significant increase in the number of mutual funds, schemes, assets, and

shareholders. In the US, the mutual fund industry registered a ten – fold growth in the

eighties. Since 1996, mutual fund assets have exceeded bank deposits. The mutual fund

industry and the banking industry virtually rival each other in size.

4.6 Origin and Growth of Mutual Funds

By end of the year 1970, the industry had 361 Funds with combined total assets of

47.6 billion dollars in 10.7 million shareholder’s account. However, from 1970 and on

wards rising interest rates, stock market stagnation, inflation and investors some other

reservations about the profitability of Mutual Funds, adversely affected the growth of

mutual funds. Hence Mutual Funds realized the need to introduce new types of Mutual

Funds, which were in tune with changing requirements and interests of the investors. The

1970’s saw a new kind of fund innovation; Funds with no sales commissions called “no

load “funds. The largest and most successful no load family of funds is the Vanguard

Funds, created by John Bogle in 1977. In the series of new product, the First Money

Market Mutual Fund (MMMF) i.e. The Reserve Fund” was started in November 1971.

This new concept signaled a dramatic change in Mutual Fund Industry. Most importantly,

it attracted new small and individual investors to mutual fund concept and sparked a

surge of creativity in the industry.

99
 Mutual fund originated in the western countries. First mutual fund named,

‘Foreign and Colonial Government Trust’ was set up in United Kingdom (U.K.) in 1868.

This trust was established to spread risk for investors over large number of securities. In

U.S. the idea took root in the beginning of the 20th century and in 1924, first open-ended

investment company was formed. A major setback for U.S.A. mutual funds was stock

market crash of 1929.

Enactment of the Securities and Exchange Commission (SEC) in 1933 and the

investment Company Act in 1940 led to the recovery and regulation of mutual funds in

the U.S.A. The post World War-II period witnessed a boost in mutual funds as people not

having the knowledge of how to invest on their own and with the expectation to reap the

benefit of economic growth flocked to mutual funds. In Canada, during the decade of

1920 many close ended investment companies were organized which were generally

known as investment trusts. The first mutual fund in Canada to issue its share to general

public was the Canadian Investment Fund in 1932. In recent years, mutual funds in Japan

and Far East countries have been showing excellent performance. Countries in pacific

area like Hong Kong, Thailand, Singapore and Korea have also entered this field long

way. Netherlands and Mauritius are emerging as tax havens for off-shore mutual funds.

Thus, mutual funds culture is now global in scope. In India, concept of mutual funds took

root in 1963 with the formation of UTI mutual fund at the initiative of Government of

India and Reserve Bank of India (RBI). In the year 1992, SEBI act was passed. The SEBI

commend mainly three statutory objectives as: (a) to protect the interest of investors in

securities; (b) to regulate the securities market; (c) to promote the development of

securities market. For mutual funds, SEBI formulates policies and regulates them to

100
protect the interest of investors. First mutual fund regulations were notified by SEBI in

1993, which were then fully revised in 1996 and have been amended thereafter from time

to time. As per AMFI, the history and growth of mutual funds in India can be broadly

divided in to four phases as discussed below:

i. First Phase: 1964–87 (Monopoly of UTI)

ii. Second Phase: 1987–93 (Entry of Public sector Mutual Funds)

iii. Third Phase: 1993–2003 (Entry of Private sector Mutual Funds)

iv. Fourth Phase: since February 2003

First Phase: 1964–87 (Monopoly of UTI)

UTI was established in 1963 through an act of Parliament. It was set up by RBI

and functioned under its regulatory and administrative control. In 1978, UTI was

delinked from RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched under

UTI was Unit Scheme 64 in June 1964. After Unit Scheme 64, between 1971 and 1987,

UTI introduced seven more schemes targeted for different segments of the investors. The

asset under management of UTI had increased from Rs. 246.7 million in 1964-65 to Rs.

45,636.8 million in 1986-87.

Second Phase: 1987–93 (Entry of Public Sector Mutual Funds)

The monopoly of UTI came to an end in 1987 when Government of India

permitted commercial banks in public sector to set up subsidiaries operating as trusts to

perform the functions of mutual funds. The first non-UTI mutual fund was State Bank of

India Mutual Fund established in June, 1987 followed by Canbank Mutual Fund (Dec.,

101
1987), Punjab National Bank Mutual Fund (Aug., 1989), Indian Bank Mutual Fund

(Nov., 1989), Bank of India Mutual Fund (June, 1990), Bank of Baroda Mutual Fund

(Oct., 1992). Life Insurance Corporation of India (LIC), established its mutual fund in

June 1989 while General Insurance Corporation of India (GIC), had set up its mutual

fund in December 1990. These mutual funds enlarged the investor community and

investible funds. From 1987 to 1992-93, Indian mutual fund industry expanded seven

times in terms of asset under management. At the end of 1993, the mutual fund industry

had assets under management of Rs. 4, 70,040 millions. Surprisingly, there were no rules

or guidelines at that time when these institutions appeared in the market with various

products. Also, these institutions started offering assured returns on the mutual fund

schemes and soon this created a race among mutual funds to surpass each other in

offering assured returns. With this trend, investors started perceiving mutual funds as an

alternative to bank deposits. This led to intervention by RBI and it issued first set of

guidelines in July, 1989, for the orderly functioning of the mutual funds. Some of the

important aspects of RBI guidelines were constitution and management of the mutual

fund, their investment objectives and policies, pricing policy, income distribution,

statement of accounts and disclosures. However, these guidelines were applicable only to

mutual funds established by public sector banks and not to others.

The Abid Hussain Committee on capital markets emphasized need for

strengthening the regulatory framework for mutual funds and also recommended for

setting up of joint sector mutual funds. Thus, the Ministry of Finance, Government of

India, issued another set of guidelines in June, 1990, similar to those issued earlier by

RBI, to give a healthy outfit of mutual fund functioning. In March, 1991, Government of

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India handed over the function of regulating mutual funds to SEBI. Then all the existing

mutual funds were directed by SEBI to make their disclosures in two sets. One set for the

investors and another for the SEBI. In October, 1991, SEBI issued guidelines for the

formation of AMC. In this way, a two tier structure was developed for mutual funds-one

being trust and other AMC. In February, 1992, on the recommendation of Dave

Committee, Government of India announced a comprehensive set of guidelines for the

operation of mutual funds in order to safeguard the interest of investors and to encourage

the growth of capital markets. Further, the Government also decided to extend the

industry of mutual funds to the private and joint sectors. In February, 1992, the Union

Finance Ministry allowed the private sector to float mutual funds as declared by the

Finance Minister in his 1991-92 budget speech. Consequently, SEBI issued guidelines for

establishing private sector mutual funds which were further improved in SEBI (Mutual

Funds) Regulations 1993.

Third Phase: 1993-2003 (Entry of Private Sector Mutual Funds)

A new era started in Indian Mutual Fund industry with the entry of private sector

funds in 1993, which provided Indian investors a wider choice of fund families. Also, this

was the year in which first mutual fund regulations came into being under which all

mutual funds, except UTI were to be registered and governed. The erstwhile Kothari

Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund

registered in July 1993. Introduction of private sector mutual funds also opened a way for

foreign asset management companies to set up joint venture with domestic mutual funds.

The period of rapid expansion of mutual funds was also marked by a decline in stock

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prices. The market conditions resulted in an attrition of NAVs. The discounts on the

prices of quoted schemes to NAVs widened.

Investors’ confidence suffered and their perception became poor. Besides legality

and ethics, profitability as well as performance of mutual funds started eroding. On sight

inspections and close monitoring of mutual funds by SEBI brought to light several

abuses, common violations of regulations and unhealthy business relations and thus, the

regulations promulgated in 1993 proved to be ineffective. Responding to these concerns,

SEBI undertook the mutual fund 2000 study to develop mutual funds into vibrant and

effective investment vehicle. The study made far reaching recommendations and SEBI

came out with new regulations i.e., the SEBI Regulations 1996 to replace the regulations

of 1993.

SEBI (Mutual Fund) Regulations, 1996 were issued under S.O. No. 865 (E) dated

December 6, 1996 published in the Gazette of India, Part II, and Section 3 (II), dated

December 9 1996. These regulations were further amended from time to time and set

uniform standards for all funds. Similarly, Union Government budget of 1999 took a big

step in exempting all mutual fund dividends from income tax in the hands of investors.

Both the SEBI Regulations 1996 and the Union Budget of 1999 had a far reaching impact

on mutual funds industry and its investors. Also, year 1999 marked the beginning of a

new phase in the history of mutual funds in India, a phase of significant growth in terms

of both amounts mobilized by the investors and asset under management. Amount

mobilized increased from Rs. 2, 13,770 million in 1998-99 to Rs. 5, 97,480 million in

1999-2000 and asset under management also had increased from Rs. 6, 84,720 million in

1998-99 to Rs. 11, 30,050 million in 1999-2000 (AMFI Mutual Fund Test Workbook,

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2001). The number of mutual fund houses went on increasing, with many foreign mutual

funds setting up funds in India. Industry has also witnessed several mergers and

acquisitions in this time period. At the end of January 2003, there were 33 mutual funds

with total assets of Rs. 1,21,8050 millions. The Unit Trust of India with Rs. 4, 45,410

millions of assets under management was still a way ahead of other mutual funds.

Fourth Phase: Since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI

was bifurcated into two separate entities. One was the Specified Undertaking of the Unit

Trust of India with assets under management of Rs. 2, 98, 350 millions as at the end of

January 2003. The second was UTI Mutual Fund, sponsored by SBI, PNB, BOB and

LIC. It has been registered with SEBI and functions under the Mutual Fund Regulations.

With this, the current phase of consolidation and growth of Indian mutual fund industry

had started. Indian mutual fund industry has witnessed impressive growth with their

number of schemes increasing from 1 in 1964 to 1309 in 2012 (figure 2.3), with 44

players i.e., mutual fund companies in the market. The total assets under management

had also increased from Rs. 250 million in March, 1965 to Rs. 66, 47, 920 million in

March, 2012 and Rs. 10 lakh crores in the month of March 2014 by end of the March

2015 it is 12 trillion crores.

Assets under management (AUM) is a financial term denoting the market value of

all the funds being managed by a financial institution (a mutual fund, hedge fund, private

equity firm, venture capital firm, or brokerage house) on behalf of its clients, investors,

partners, depositors, etc. The average Assets under management of all Mutual funds in

India for the quarter Jul-15 to Sep-15 (in INR billion) is presented in Table 4.1.

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 Table: 4.1 The Average Assets Under Management of Mutual Funds in India

S. No Mutual Fund Name Average AUM %

1 HDFC Mutual Fund 1,034.42 12.70%
2 Reliance Mutual Fund 952.28 11.69%
3 ICICI Prudential Mutual Fund 853.03 10.48%
4 Birla Sun Life Mutual Fund 773.44 9.50%
5 UTI Mutual Fund 700.57 8.60%
6 SBI Mutual Fund 595.58 7.31%
7 Franklin Templeton Mutual Fund 448.12 5.50%
8 IDFC Mutual Fund 396.65 4.87%
9 Kotak Mahindra Mutual Fund 352.99 4.34%
10 DSP Blackrock Mutual Fund 304.86 3.74%
11 Tata Mutual Fund 179.66 2.21%
12 Deutsche Mutual Fund 170.59 2.10%
13 L&T Mutual Fund 150.79 1.85%
14 Sundaram Mutual Fund 139.47 1.71%
15 JPMorgan Mutual Fund 132.57 1.63%
16 Religare Invesco Mutual Fund 125.12 1.54%
17 Axis Mutual Fund 123.18 1.51%
18 LIC NOMURA Mutual Fund 79.76 0.98%
19 Canara Robeco Mutual Fund 76.16 0.94%
20 HSBC Mutual Fund 67.18 0.83%
21 JM Financial Mutual Fund 62.44 0.77%
22 Baroda Pioneer Mutual Fund 52.63 0.65%
23 IDBI Mutual Fund 47.71 0.59%
24 PRINCIPAL Mutual Fund 43 0.53%
25 Goldman Sachs Mutual Fund 41.49 0.51%
26 BNP Paribas Mutual Fund 35.38 0.43%
27 Morgan Stanley Mutual Fund 32.9 0.40%
28 Peerless Mutual Fund 28.35 0.35%
29 Taurus Mutual Fund 27.32 0.34%
30 Pramerica Mutual Fund 21.66 0.27%
31 Union KBC Mutual Fund 19.8 0.24%
32 Indiabulls Mutual Fund 16.06 0.20%
33 ING Mutual Fund 11.05 0.14%
34 PineBridge Mutual Fund 11.03 0.14%
35 BOI AXA Mutual Fund 10.82 0.13%
36 Mirae Asset Mutual Fund 5.08 0.06%
37 Motilal Oswal Mutual Fund 4.37 0.05%

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 38 Quantum Mutual Fund 3.15 0.04%
39 PPFAS Mutual Fund 2.67 0.03%
40 Escorts Mutual Fund 2.52 0.03%
41 Sahara Mutual Fund 2.33 0.03%
42 IIFL Mutual Fund 2.07 0.03%
43 Edelweiss Mutual Fund 1.94 0.02%
44 Daiwa Mutual Fund 0.51 0.01%
45 IL&FS Mutual Fund (IDF) - 0.00%
46 Shriram Mutual Fund - 0.00%
47 SREI Mutual Fund (IDF) - 0.00%
Grand Total 8,142.68 100.00%
Source: Compiled from AMFI and company reports

4.7 Indian Mutual Fund Industry at a Glance in 2014-2015

Year 2014 was a major game changer for the Indian Mutual Fund Industry. With

a new government on the rolls, the positive sentiments instilled in the people resulted in

markets touching new highs and, consequently, equity mutual funds registered their

highest inflows in a decade. In 2014, equity schemes saw inflows of R45, 770 crore —

the highest in last 10 years. Market participants attributed the record inflows to an

improving macro situation and political stability. The launch of closed-ended schemes by

many fund houses helped boost equity inflows in 2014 as well. During the year 2014,

around 60 new equity schemes were launched by different fund houses, out of which over

35 were closed-ended, collecting approximately R7,400 crore. In 2014, the highest inflow

came in July at Rs. 11,056 crore — half of that amount came through JM Arbitrage

Advantage Fund.

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4.8 Types of Mutual Funds

A wide variety of mutual fund schemes exist according to their investment style

that helps in meeting the financial goal of the investors. These are grouped into three

broad categories i.e., their operations, investment objective and others.

Classification by Operations

On the basis of operations of mutual funds schemes, they have been classified into

open-ended, close-ended and interval funds. These have been discussed below in detail.

a) Open-Ended Funds

An open-ended fund offers its units to the investors for sale and repurchase at all

the times at a price based on the net asset value (NAV) per unit. AMFI booklet has

described NAV as the market value of the asset of the scheme minus its liabilities. It is

per unit value is obtained by dividing the amount of the market value of the fund’s assets

(plus accrued income minus fund’s liabilities) by the number of units outstanding. Thus,

the holders of the units in such funds can buy or redeem units from the fund itself at any

time.

The corpus of these funds changes constantly as investors buy from or sell their

units to the fund. Both the value and number of units fluctuate on a daily basis as the

value of the securities and the number of investors change. The securities in the portfolio

are valued at the end of each day. The value is then divided by number of units in the

fund to arrive at a price per unit i.e. their net asset value. The advantages of this open

ended structure are numerous as these funds are liquid, convenient, and easy to buy and

sell for the investors. Axis Triple Advantage Fund, Birla Sun Life Basic Industries Fund,

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IDBI India Top 100 Equity Fund, L&T Contra Fund, Taurus Tax Shield, Templeton

Floating Rate Income Fund, UTI - G-Sec Fund are some of the open ended mutual funds.

b) Close-Ended Funds

Close-ended funds offer a fixed number of units for a fixed period of subscription

to the investors as declared in their initial public offer (IPO). After subscription period is

over, these funds do not allow investors to buy or redeem units directly from the fund

house. However, many close-ended funds get themselves listed on stock exchange(s) and

enable investors to buy or sell units of these schemes in the same fashion as for the shares

of a company. The fund’s units may be traded above the NAV, called ‘selling at a

premium’, or below, called ‘selling at a discount’.

The trading price depends upon a variety of things, as supply and demand and the

market’s perception of the fund’s prospects, much like the price of a stock. Some close-

ended funds provide an exit route to the investors by giving an option of selling back the

units to the mutual fund through periodic repurchase at NAV related prices. SEBI

Regulations stipulate that at least one of the two exit routes is provided to the investor i.e.

either through listing on stock exchanges or repurchase facility. These mutual funds

schemes disclose NAV generally on weekly basis. Canara Robeco Equity Tax Saver-93,

DSP Merrill Lynch Tax Saver Fund, Tata Life Sciences and Technology Fund, JM

Arbitrage Advantage Fund, Kotak Gold ETF are some of the close ended funds in India.

c) Interval Funds

These embrace the features of both open-ended and close-ended funds. These

funds may be traded on stock exchange or may be open for sale or redemption during

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predetermined intervals at NAV related prices. Legally, interval funds are classified as

closed-end funds, but they are very different from traditional closed-end funds in two

ways. First, their shares typically do not trade on the secondary market. Instead, their

shares are subject to periodic repurchase offers by the fund at a price based on net asset

value. Second, they are permitted to continuously offer their shares at a price based on

the fund’s net asset value. An interval fund will make periodic repurchase offers to its

shareholders, generally every three, six, or twelve months, as disclosed in the fund’s

prospectus and annual report.

The price that shareholders will receive on a repurchase will be based on NAV

per share determined as of a specified (and disclosed) date. Interval funds are permitted

to deduct a redemption fee from the repurchase proceeds, not to exceed 2 percent of the

proceeds. Fee is paid to the fund to compensate for its expenses directly related to

repurchase. Interval funds may charge other fees as well. Interval funds are regulated

under the Investment Company Act of 1940 and the rules adopted under that Act, in

particular Rule 23C-3. These funds are also subject to the Securities Act of 1933 and the

Securities Exchange Act of 1934. Reliance interval fund, Taurus quarterly interval fund-

series 1, ICICI-Pru’s Interval Fund II are some of the intervals funds in India.

Classification by Investment Objectives

In this category, funds differ significantly with one another with respect to their

objectives and the type of securities, comprising their portfolio. Therefore, these funds

cater to the risk and return profile of different type of investors. The following are the

portfolio classification of these funds:

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a) Growth Funds

The objective of a growth fund is to achieve capital appreciation over medium to

long term. These schemes normally invest a majority of their funds in equities and are

willing to bear short term decline in value for possible future appreciation. Around 80-90

percent of corpus of these funds is invested in equity and equity linked instruments and

the balance in debt and money market securities. These schemes are not for investors

seeking regular income or needing their money back in the short term but are suitable for

long term investors seeking capital appreciation and ready to bear a medium to high level

of risk. These are also known as “nest eggs” or “long haul” investments. BNP PARIBAS

Equity Fund, Canara Robeco emerging equities, DWS Investment Opportunity Fund,

Fidelity Equity Fund, HSBC Dynamic Fund, Quantum Long-Term Equity Fund are some

examples of growth mutual funds in India.

b) Balanced Funds

The aim of the balanced funds is to provide both capital appreciation and periodic

returns over a long period of time. These funds have reasonable mix of equity and bond

in their portfolio by investing both in shares and fixed income securities in the proportion

as indicated in their offer documents. Normally a balanced fund invests 60 percent out of

its net assets in equity and 40 percent in fixed income securities, money market

instruments and cash. Their risk profile is medium to high. These are also called

“income–cum–growth” funds and are ideal for investors seeking for a combination of

regular income and moderate growth. HDFC Balanced Fund, UTI Balanced Fund, Tata

Balanced Funds are some of the examples of these funds in India.

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c) Income Funds

Income funds provide regular and steady income to its investors. These funds

generally invests in fixed income securities such as government securities, bonds,

corporate debentures, money market instruments, cash and cash equivalent while at the

same time maintains a small exposure to the equity markets. Such funds are less risky as

compared to equity schemes as they are not affected by the fluctuations in equity

markets. Risk profile of income funds is generally from low to medium however,

opportunities of capital appreciation are also limited.

These funds are ideal for investors who need some income to supplement their

earnings as retired people and others with a need for capital stability and regular income.

NAV of such funds are affected because of the change in interest rates in the country. If

the interest rates fall, NAV of such funds are likely to increase in the short run and vice

versa.

Some of the examples of Indian income mutual funds are IDFC Capital Protection

Oriented Fund, Kotak Hybrid Fixed Term Plan, Reliance Fixed Horizon Fund, SBI

Capital Protection Oriented Fund etc.

d) Money Market/Liquid Funds

Money market mutual funds provide easy liquidity, preservation of capital and

moderate income by investing in safer short term instruments such as treasury bills (T-

bills), certificates of deposits, commercial papers and interbank call money. These funds

provide high liquidity on low risk. Returns on these schemes fluctuate according to the

interest rates prevailing in the market. Money market funds are ideal for corporate as well

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as individual investors as a means to park their surplus funds for short periods or awaiting

a more favourable investment alternative. AIG India Liquid Fund, DSP Black Rock

Liquidity Fund, ICICI Prudential Liquid Plan, Tata Money Market Fund and UTI Money

Market fund are some of the examples of these funds.

e) Gilt Funds

Gilt funds, as conveniently called are mutual fund schemes dedicated exclusively

to investments in government securities. Government securities mean and include central

government dated securities, state government securities and treasury bills. These funds

endow with the investors, safety of their investments made in government securities and

reaps better returns than direct investments in these securities through investing in a

variety of government securities yielding varying rates of returns. The first gilt fund in

India was set up in December 1998. Gilt funds can be both short term and long term, and

depending on their investment horizon, investors can choose between them.

These are ideal for those investors who are risk-averse, and at the same time, are

looking for reasonable returns on their money. Gilt funds are a good option when interest

rates are not expected to go up. However, these funds are not completely risk free

because there is an inverse relationship between bond prices and interest rates. With the

rise in interest rate, prices of government securities fall which adversely impacts the

performance of gilt funds. Typically it is noticed that, higher the fund’s average maturity,

higher the volatility. Advantages of gilt funds are many. As these funds are backed by

government, therefore, these possess less credit risk. These funds provide retail investors

a low-cost way to invest in G-sec, which otherwise was open only to large players. Also

investment in Gilt funds provides for effective diversification. Baroda Pioneer Gilt Fund,

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IDFC GSF-Provident Fund, LIC NOMURA MF Govt Securities Fund-PF Plan, Taurus

Gilt Fund and UTI - Gilt Advantage- Long Term are some of the gilt funds in India.

f) Floating Rate Funds

These are the Debt mutual funds investing about 75 to 100 percent in securities

such as bank loans, bonds and other debt securities that pay a floating rate interest, while

the rest in fixed income securities. Floating rate funds are of two types as long term and

short term. The portfolio of the short-term fund plan is normally skewed towards short-

term maturities with higher liquidity whereas the portfolio of long-term plan is skewed

towards longer-term maturities. However they are positioned more on the lines of short-

term funds and are not very aggressive in nature.

Floating Rate securities are different from traditional bonds as most bonds have

fixed interest rates which are set when they are first issued, either by a government or a

corporation. That rate of interest doesn’t change for the life of the bond. Whereas, a

floating rate security, has a variable interest rate that will go up and down, or “float” to

reflect changes in current market rates. Depending on the particular floating rate security,

the interest rate may change daily, monthly, quarterly, annually, or at another specified

interval. These funds provide low but stable returns. Birla Sun Life Floating Rate-Long

Term Plan, Reliance Floating Rate-Short Term Plan, LIC Nomura Floating Rate Fund is

some of its examples.

g) Cash or Treasury Management Funds

These funds are very similar to a liquid fund and invest predominantly in money

market securities. They chose instruments with tenure of up to 364 days and may also

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have some exposure to longer term debt securities. Both the yield provided and the risk

associated with these funds is slightly higher than the liquid funds. NAV of these funds

also tend to be stable due to their focus on very short term debt, where the market to

market changes tend to be low. DSP Chola Treasury Management Fund, Templeton

Treasury Management fund, Tata Treasury Management Fund are some of their

examples.

h) High Yield Debt Funds

High yield debt funds seek higher interest income by investing in debt instruments

having lower credit ratings and therefore, higher risk of default. Lower the credit rating,

higher the interest a borrower pays. These funds are also called “Junk bond funds” and

are popular abroad, but not prevalent in India. Some of the high yield bond funds are ING

Pioneer High Yield Adv, Fidelity Capital & Income Fund, Credit Suisse High Yield,

Wells Fargo Advantage Strategic etc.

i) Fixed Maturity Plans (FMP)

Fixed Maturity Plans (FMPs) are the passively managed close ended mutual fund

schemes in which the portfolio is held till the maturity of the assets it has invested in.

FMPs invest in debt instruments mainly as certificate of deposits and commercial papers,

whose maturity matches the maturity of the schemes. For example, if FMP is of one year

duration, the maturity of bonds and debt it holds will also be exactly of one year. Debt

securities are redeemed on maturity and paid to the investors. The minimum investment

amount is usually Rs 5,000. FMPs vary between 30 days and five years. They are issued

in a series, one fund opening after another fund has matured, or as interval fund. FMPs

offer many benefits to investors as low sensitivity to interest rates, tax efficiency and

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fixed tenure. They have less risk of capital loss than equity funds due to their investment

in debt and money market instruments. Low interest rate sensitivity is there. As the

securities are held till maturity, FMPs are not affected by interest rate volatility. The

actual returns are more or less close to the indicative returns declared at the scheme's

launch. FMPs carry lower cost because of minimum expenditure on fund management, as

there is no requirement for a time – to – time review by fund managers to buy or sell

instruments constituting the fund. Since these instruments are held till maturity, there is a

cost saving in respect of buying and selling of instruments. FMPs score over fixed

deposits because of their tax efficiencies both in the short-term as well in the long-term.

They are similar to Fixed Deposits, but carry lower liquidity and give superior tax

advantage over them. Some of the FMPs in India are ICICI Prudential Fixed Maturity

Plan, Reliance Fixed Maturity Plan, Tata Fixed Maturity Plan and SBI Fixed Maturity

Plan.

j) Monthly Income Plans (MIP)

The primary objective of monthly income plan is to generate regular income for

the investors. For fulfilling this purpose, these funds invest in fixed income securities so

as to make monthly payment or distribution to its unit holders. Their secondary objective

is growth of capital that is fulfilled through investments in equity. MIP is a marginal

equity product, which works for conservative investors who are comfortable in investing

a small component of their money in equity. These funds invest a very small portion of

their investment in stocks as well and the rest is being invested in high-quality fixed

income instruments. MIP is a good solution for those who cannot invest in two different

schemes, a bond fund and an equity fund separately on their own and rebalance their

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portfolio regularly as these funds not only gets the asset mix right but also rebalances the

portfolio from time to time. The risk profile of these funds is low to medium. DSP Black

Rock Monthly Income Plan, HDFC Monthly Income Plan, IDFC Monthly Income Plan,

Reliance Monthly Income Plan are some of the examples of MIP funds in India.

k) Sector Funds

Sector funds invest in a specified sector of the economy or in a specified industry

only as information technology, oil and gas companies or in specified products. They

carry the risk and return associated with these industries. Major disadvantage from

investment in these funds is that being sector specific, they lack in diversification and

their risk profile is also high. Sector funds are suitable for investors who have already

decided to invest in a particular sector or segment. Baroda Pioneer Banking and Financial

Services Fund, Reliance Media and Entertainment fund, SBI Magnum Sector Funds

Umbrella–Pharma, JM Telecom Sector Fund, UTI Auto Sector Fund are some of the

sector funds in India.

4.9 Other Funds

There are some other types of mutual funds also apart from the above stated

classification. These have been discussed below in detail.

a) Index Funds

The objective of index funds is to generate capital commensurate with the index it

tracks. This is done by investing in all the stocks comprising the index in approximately

the same weightage that they represent in the specific index. For example, a fund that

tracks the BSE Sensitive Index will invest in the same 30 securities of the index and in

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the same proportion. Portfolio of these funds appreciates or depreciates in more or less

the same way as index they have been following. Index funds are suitable for investors,

looking for a return approximately equal to that of an index. Goldman Sachs Nifty BeES

1, HDFC Index Fund -Sensex Plus Plan, IDFC Nifty Fund–Growth, Reliance Index

Fund-Nifty Plan, LIC Nomura MF Index Fund-Nifty Plan, ICICI Prudential Index Fund,

Tata Index Fund-Nifty Plan are some of the index funds in India.

b) Tax Saving Funds

Tax Saving Funds in India offer rebates in taxes to its investors under the Income

Tax Act, Section 88. They are also known as Equity- Linked Savings Schemes (ELSS).

Tax Saving Funds in India usually carry a lock-in-period of three years. Therefore, these

funds are not concerned about factors such as the pressures of redemption, performance

during a short time etc. and thus keeps in view the long term goal. Fund manager of the

Tax Saving Funds in India invests money in instruments that are related to equity. Tax

Saving Funds are suitable for those investors who want to increase their investments and

also want to get benefit from rebates in taxes. Major advantage of these funds is that they

grant its investors an opportunity to make investments in an avenue that is market linked

and at the same time claim benefits in taxes. The dividends earned in Tax Saving Funds

are tax free. Some of the major Tax Saving Funds in India are, Franklin India Tax Shield,

HDFC Tax Saver, Sundaram Tax Saver, HDFC Long Term Advantage, Prudential ICICI

Tax Plan, Birla Equity Plan, UTI Equity Tax Savings, Tata Tax Saving Fund, and

Magnum Tax Gain.

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c) Exchange Traded Fund (ETF)

An exchange traded fund is an open ended fund that tracks an index like an index

fund, but trades like a stock on an exchange just like the shares of an individual company.

Unlike the share of a company, each unit of an ETF represents a portfolio of stocks.

Therefore, these funds are similar to a unit of an open-ended mutual fund but with a big

difference. The difference between an ETF and an open-ended mutual fund is that the

units of an ETF trade on an exchange and therefore, the investor can trade in it during

market hours and the units can be sold short or margined just like shares. Another

difference is the type of management. Mutual funds employ an active management

strategy wherein the fund manager chooses portfolio of stocks and manages them in an

endeavor to outperform the fund's benchmark.

However, ETFs employ a passive management strategy because they are designed

to closely track the performance of a specific index. ETFs experience price changes

throughout the day as they are bought and sold on exchange. These funds first came into

existence in the USA in 1993. The first ETF in India, Nifty BeES, was launched by

Benchmark Mutual Fund, on January 8, 2002, which tracks the S&P CNX Nifty. Nifty

Junior Benchmark Exchange Traded Scheme-Juniorbees, ICICI Prudential Mutual Fund-

Sensex Fund-Spice, Kotak Sensex ETF, Quantum Index Fund–Q nifty, Reliance Banking

Exchange Traded Fund – Relbank are some of the Exchange Traded Funds in India.

d) Gold Exchange Traded Funds

Gold ETFs are exchange traded funds that are meant to track closely the price of

physical gold. Each unit of the ETF lets the investor own 1 gm of gold without physically

owning it. Thus investing in a gold ETF provides the benefit of liquidity and

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marketability which are a limitation of owning physical gold. Gold ETF is highly liquid

because these can be traded at any time during market hours. Gold ETF is marketable as

investors can trade any amount in it just like a normal stock including short selling and

buying on margin. Owning gold ETF is cheaper also than owning physical gold because

it has no carrying cost as the cost of storing physical gold. Country’s first GETF was

launched by Benchmark mutual fund as Gold BeES on February 1, 2007. This mutual

fund was an open - ended fund that would track domestic prices of gold through

investments in physical gold. Some of the Gold Exchange Traded Funds in India are Axis

Mutual Fund-Axis Gold ETF, Gold Benchmark Exchange Traded Scheme, Birla Sun Life

Gold ETF, HDFC Gold Exchange Traded Fund, ICICI Prudential Gold Exchange Traded

Fund, KOTAK Gold ETF, Quantum Gold Fund, Reliance Gold Exchange Traded Fund,

Religare Gold Exchange Traded Fund, SBI Gold Exchange Traded Fund, UTI Gold

Exchange Traded Fund.

e) Fund of Fund (FOF)

A Fund of Fund invests in other funds. Its portfolio is not made up of securities

but of other mutual funds, selected to serve a given investment objective. A fund of funds

allows investors to achieve a broad diversification and an appropriate asset allocation

with investments in a variety of fund categories all wrapped up into one fund. However,

if the fund of funds carries an operating expense, investors may have to bear double for

an expense that is already included in the expense figures of the underlying funds. Some

fund of funds may invest in other mutual funds, not necessarily from the same fund

house. These are called ‘Multi-Manager Fund’. Prudential ICICI was the first to

introduce FOFs in India in November 2003 (SEBI Annual Report 2003–04 and Bhole,

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2005). Birla Sun Life Asset Allocation Fund, Fidelity Multi Manager Cash Fund, ICICI

Prudential Advisor Series, Quantum Equity Fund of Funds are some of their examples in

India.

f) Quantitative Funds

A quantitative fund is an investment fund that selects securities based on

quantitative analysis. The managers of such funds employ a very scientific approach to

investments using a computer program that is backed by investing formulas based on

historical data of price-to earnings, price-to-book, company financials and other market

parameters observed in the past 10-15 years. In this way it is determined, whether or not

an investment is attractive and the final decision to buy or sell is made by the model.

However, there is a middle ground where the fund manager uses human judgment in

addition to a quantitative model. Quant based investing strategy is considered as emotion-

free. The first Quant based Mutual Fund Scheme in India, Lotus Agile Fund opened for

subscription on October 25, 2007. At present, eight quant based mutual funds are

available in India. Out of these, four funds i.e., Reliance Quant plus, Religare AGILE,

Canara Robeco Large Cap Plus and Edelweiss Absolute Return belong to equity oriented

category, Religare AGILE tax belongs to ELSS category, Motilal Oswal MOSt Shares

M50 ETF, Motilal Oswal MOSt Shares Midcap 100 ETF and Motilal Oswal MOSt

Shares NASDAQ-100 ETF are Exchange Traded Funds. These fund houses have own

proprietary models based on the parameters they choose.

g) Assured Return Scheme Funds

Assured return schemes are those schemes that assure a specific return to its unit

holders irrespective of performance of the scheme. A scheme cannot promise returns

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unless such returns are fully guaranteed by the sponsor or AMC and the schemes disclose

the same in their offer document. Investors should carefully read the offer document

whether return is assured for the entire period of the scheme or only for a certain period.

Some schemes assure returns for one year and then after review change it at the

beginning of the next year.

h) Capital Protection Oriented Funds

Capital protection oriented funds bestow its investors with the best of both

worlds. These closed-ended debt funds invest a big chunk of their money in fixed income

instruments and the balance is being invested in equities. These funds are suitable for

investors who want to protect the downside risk and capture the upside in equities with a

three-year perspective.

One of the best features of capital-protection-oriented mutual funds is that they

enable risk averse investors to gain exposure of equities. In developed countries, such

funds offer capital guarantee with some upside participation whereas, in India, these are

closed-end funds that offer capital protection, without a guarantee. Axis Capital

Protection Oriented Fund, Birla Sun Life Capital Protection Oriented Fund, JP Morgan

India Capital Protection Oriented Fund, Tata Capital Protection Oriented Fund, Sundaram

Capital Protection Oriented Fund are some of the examples of these funds in India.

i) Arbitrage Funds

Arbitrage funds are a niche category which tries to take advantage of the price

difference between cash and futures derivatives markets for generating returns. For

example a fund may purchase equity shares in the cash market and simultaneously sell

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the same in the futures market. Return is based on the difference in prices for same

security in the two markets. The ability of these funds to generate higher returns depends

on the volatility in equity markets- higher the better. Or, in other words, Arbitrage

opportunities to be exploited depend upon the extent of volatility in the equity market as

the higher volatility leads to the higher returns. As arbitrage funds predominantly invest

in equities, they are treated at par with other equity funds for tax treatment. These funds

are suitable for risk-averse investors as a relatively safer option within equities. Arbitrage

funds have a low risk-return trade-off and generate moderate returns. The first arbitrage

fund of the Indian mutual fund industry, launched in December 2004, was the Benchmark

Derivative Fund. HDFC Arbitrage Fund, Kotak Equity Arbitrage Fund, Religare

Arbitrage Fund, SBI Arbitrage opportunities Fund are some of the examples.

j) International Funds

International funds invest in securities internationally around the globe i.e., in

foreign market instead of domestic market. These funds are more volatile as compared to

the investments made in domestic funds. Also, they diversify the portfolio to a greater

extent and ensure higher return as compared to the domestic market. These funds are

suitable for aggressive investors who want international exposure and are ready to take

higher amount of risk. Some international mutual funds in India are Franklin Asian

Equity, Hang Seng BeES China, JP Morgan JF Greater China Equity Off-shore, Mirae

Asset China Advantage, DSPBR World Mining Fund, ING OptiMix Global

Commodities, Mirae Asset Global Commodity Stocks, HSBC Emerging Markets, Tata

Growing Economies Infrastructure Plan A.

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k) Regional Mutual Funds

Regional mutual funds confine their investment to a specific geographical area.

Usually, those mutual funds which invest inside their own country or local funds are

called as regional funds. The main objective of these funds is to contribute towards the

financial growth of specific area or otherwise to improve the capital market in a specific

geographical area. These funds provide an advantage to its investors by carrying lesser

cost and lower risk. Regional mutual funds are different from international funds as in

international funds, money is being invested in schemes or securities all over the world

and they are global investments. On the other hand, in case of regional funds, investment

pertains to a specific region only. Regional funds are lesser diversified than international

funds and hence carry higher volatility. However, the risk factor is also less in regional

funds because of the absence of exchange rate differences.

l) Load/ No–Load Funds

A Load Fund is one that charges a percentage of NAV for entry in to or exit from

these funds. That is, investors pay a charge each time they buy or sell units in the fund.

This charge is used by the mutual fund for marketing and distribution expenses. For

example, suppose the NAV per unit is Rs. 10. If the entry as well as exit load is 1%, then

the investors who buy would be required to pay Rs. 10.10 and those who offer their units

for repurchase to the mutual fund will get only Rs. 9.90 per unit. Load charges must be

taken into consideration while making investment as these affect the yields/returns. A no-

load fund is one that does not charge for entry or exit. It means the investors can enter the

fund/scheme at NAV and no additional charges are payable on purchase or sale of its

units.

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m) Life Style Funds

The asset mix of these funds is determined by the level of risk and return that is

appropriate for an individual investor. Several factors as investor’s age, risk appetite,

investment purpose and the time duration of investment, determine the asset mix. The

objective of lifestyle funds is to provide long term capital appreciation and/or income

distribution from a diversified portfolio of equity and equity related instruments. Birla

India Gennext Fund was the first lifestyle fund in India launched in June 2005. Kotak

Lifestyle Fund and UTI India Lifestyle Fund are some of the lifestyle fund in India.

4.10 Attributes of Mutual Funds

In the past literature it has been found that there are various mutual fund

characteristics that influence their performance. These characteristics have been called as

the attributes of mutual funds. Finance professionals and journalists frequently claim that

various fund attributes are useful devices to either select the top-performing funds or

eliminate the worst performers [124]. These attributes are of paramount importance and

have been discussed in this section.

Past Performance

Past performance tells about the performance of the mutual fund in the past time

periods. It is measured by the return through Net Asset Value (NAV) of the mutual fund.

The NAV and its calculation have been described in detail in later sections.

Asset Size

Asset size of a mutual fund is the total market value of all the securities held in its

portfolio. AMFI has described it by the Asset under Management of the mutual funds.

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Expense Ratio

Total expenses of the mutual funds are divided into three components as

management fees, marketing and distribution fees and other expenses including securities

custodian fees, transfer agent fees, shareholder accounting expenses, auditor fees, legal

fees and independent direct fees. These total expenses divided by the fund average net

assets is its expense ratio. As described by the Centre for Research and Security Prices

(CRSP), it is the ratio of fund’s operating expenses paid by shareholders to the total

investment.

Load Status

Investment in mutual funds costs load fee to the investors. AMFI has described

two types of load fee. One is entry load and second is the exit load. Entry load is the

charge collected by a scheme when it sells the units. It is also called as ‘sales load’ or

‘Front-end load’. Exit load is the charge collected by a scheme when it buys back its units

from the unit holders. It is also called as the ‘repurchase’ or ‘back–end’ load. SEBI has

abolished entry load from all mutual fund schemes in India with effect from 1 August

2009.

Investment Style

Mutual fund schemes possess specific investment styles on the basis of their

investment objectives like equity funds for growth of capital, income funds for regular

income, balanced funds for a balanced combination of regular income and growth and

liquid funds for liquidity. It has also been classified on the basis of their functions as open

ended, close ended etc.

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Risk
Investment is always associated with some risk. Risk involved in the investment

of some mutual fund scheme is being measured as the deviation in actual return from the

expected one. Mutual fund’s risk is calculated in two ways. One is the total risk measured

by the standard deviation (ı) and the other is the systematic risk measured by the beta

(ȕ).

Age of the Mutual Fund Scheme

Past literature has considered age of the mutual fund as an attribute that affect

their return performance because of the economies of experience. Age of the mutual fund

schemes at any particular time is determined by the time period since their inception date.

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial

position, risk tolerance and return expectations etc. are listed below gives an overview

into the existing types of schemes in the Industry.

4.11 Some of the Common Types of Mutual Funds and What They Typically Invest
in?

Type of Fund Typical Investment

Equity or Growth Fund
Fixed Income Fund
Money Market Fund
Balanced Fund
Sector-specific Fund
Index Fund
Fund of funds
Equities like stocks
Fixed income securities like government and corporate
bonds
Short-term fixed income securities like treasury bills
A mix of equities and fixed income securities
Sectors like IT, Pharma, Auto etc.
Equities or Fixed income securities chosen to replicate a
specific Index for example S&P CNX Nifty
Other mutual funds

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4.12 Advantages of Mutual Funds

Mutual funds have designed to provide maximum benefits to investors, and fund

manager have research team to achieve schemes objective. Assets Management Company

has different types of sector funds, which need proper planning for strategic investment

and to achieve the market return.

Portfolio Diversification

Mutual Funds invest in a well-diversified portfolio of securities which enables

investor to hold a diversified investment portfolio (whether the amount of investment is

big or small).

Professional Management

Fund manager undergoes through various research works and has better

investment management skills which ensure higher returns to the investor than what he

can manage on his own.

Less Risk

Investors acquire a diversified portfolio of securities even with a small investment

in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or

3 securities.

Low Transaction Costs

Due to the economies of scale (benefits of larger volumes), mutual funds pay

lesser transaction costs. These benefits are passed on to the investors.

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Liquidity

An investor may not be able to sell some of the shares held by him very easily and

quickly, whereas units of a mutual fund are far more liquid.

Choice of Schemes

Mutual funds provide investors with various schemes with different investment

objectives. Investors have the option of investing in a scheme having a correlation

between its investment objectives and their own financial goals. These schemes further

have different plans/options

Transparency

Funds provide investors with updated information pertaining to the markets and

the schemes. All material facts are disclosed to investors as required by the regulator.

Flexibility

Investors also benefit from the convenience and flexibility offered by Mutual

Funds. Investors can switch their holdings from a debt scheme to an equity scheme and

vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also

offered to the investors in most open-end schemes.

Safety

Mutual Fund industry is part of a well-regulated investment environment where

the interests of the investors are protected by the regulator. All funds are registered with

SEBI and complete transparency is forced.

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4.13 Disadvantages of Mutual Funds

The mutual fund not only just advantage to the investor but also has disadvantages

for the funds. The fund manager not always made profits but might creates loss is not

properly managed. The fund have own strategy for investment to hold, to sell, to

purchase units at particular time period.

Costs Control Not in the Hands of an Investor

Investor has to pay investment management fees and fund distribution costs as a

percentage of the value of his investments (as long as he holds the units), irrespective of

the performance of the fund.

No Customized Portfolios

The portfolio of securities in which a fund invests is a decision taken by the fund

manager. Investors have no right to interfere in the decision making process of a fund

manager, which some investors find as a constraint in achieving their financial objectives.

Difficulty in Selecting a Suitable Fund Scheme

Many investors find it difficult to select one option from the plethora of

funds/schemes/plans available. For this, they may have to take advice from financial

planners in order to invest in the right fund to achieve their objectives.

4.14 Mutual Funds & Capital Market

Indian Institute of Capital Market (IICM) aims to educate and develop

professionals for the securities industry in India and other developing countries, other

objectives like to function on a centre for creating investors awareness through research

& turning and to provide specialized consultancy related to the securities industry.

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 Capital market play vital role for the growth of Mutual fund in India, capital

market divided into the two parts one is the primary market and another is secondary

market, primary market concern with issue management, as per the mutual fund concern

the primary called as the NFO New Fund Offer, all the AMC (Assets Management

Company) are issuing all the funds all the way through the NFO, Every NFO came with

particularly investment objectives, style of investment and allocation of the funds all that

thing depend on the fund manager style of investment. The other portion of the capital

market is secondary market, as we have a discussion with reference with mutual fund

secondary market means when the market bull stage the investors sell the units. Opposite

when the bear stage the investor buy or some of the investor time wait for sale.

4.15 Role of SEBI (Securities Exchange Board of India)

A index fund scheme’ means a mutual fund scheme that invests in securities in

the same proportion as an index of securities;” A mutual fund may lend and borrow

securities in accordance with the framework relating to short selling and securities

lending and borrowing specified by the Board.”A mutual fund may enter into short

selling transactions on a recognized stock exchange, subject to the framework relating to

short selling and securities lending and borrowing specified by the Board.” “Provided

that in case of an index fund scheme, the investment and advisory fees shall not exceed

three fourths of one percent (0.75%) of the weekly average net assets.“ “Provided further

that in case of an index fund scheme, the total expenses of the scheme including the

investment and advisory fees shall not exceed one and one half per cent (1.5%) of the

weekly average net assets.” Every mutual fund shall buy and sell securities on the basis

of deliveries and shall in all cases of purchases, take delivery of relevant securities and in

131
all cases of sale, deliver the securities: Provided that a mutual fund may engage in short

selling of securities in accordance with the framework relating to short selling and

securities lending and borrowing specified by the Board: Provided further that a mutual

fund may enter into derivatives transactions in a recognized stock exchange, subject to

the framework specified by the Board.”

4.16 Role of AMFI (Association of Mutual Funds in India)

The Association of Mutual Funds in India (AMFI) is dedicated to developing

the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance

and maintain standards in all areas with a view to protecting and promoting the interests

of mutual funds and their unit holders. AMFI working group on Best Practices for sales

and marketing of Mutual Funds under the Chairmanship of Shri B. G. Daga, Former

Executive Director of Unit Trust of India with Shri Vivek Reddy of Pioneer ITI, Shri

Alok Vajpeyi of DSP Merrill Lynch, Shri Nikhil Khattau of Sun F & C and Shri

Chandrasekhar Sathe, Formerly of Kotak Mahindra Mutual Fund has suggested

formulation of guidelines and code of conduct for intermediaries and this work has been

ably done by a sub-group consisting of Shri B. G. Daga and Shri Vivek Reddy.

Tax Planning and Mutual Fund

Investors in India opt for the tax-saving mutual fund schemes for the simple

reason that it helps them to save money. The tax-saving mutual funds or the equity-linked

savings schemes (ELSS) receive certain tax exemptions under Section 88 of the Income

Tax Act. That is one of the reasons why the investors in India add the tax-saving mutual

fund schemes to their portfolio. The tax-saving mutual fund schemes are one of the

132
important types of mutual funds in India that investors can opt for. There are several

companies in India that offer – tax – saving mutual fund schemes in the country.

NISM (National Institute of Securities Market)

NISM has the sub – part of national stock exchange. National stock exchange

established one who handling the activities which have been related with the capital

market and security market. Here the national institute market has six constituents of

securities markets.

1) Investors

2) Regulation

3) Intermediaries

4) Opinion Market

5) Knowledge Generate

6) Issuer

NISM organized six types of school which are as under

1. School of certificate of Intermediaries (SCI)

2. School of Regulatory Studies and Supervision (SRSS)

3. School of Corporate Governance (SCG)

4. School of Investors Education & Financial Literacy (SIEFL)

5. School of Securities Education (SSE)

6. School of Securities Information and Research (SSIR)

133
NICM (National Institute of Capital Market)

National Institution of Capital Market is also sub - divisions of National Stock

Exchange, NSE have seven Subsidiaries, which are necessary for growth of capital

market. The Institute provides education which is related with capital market

transactions.

4.17 SEBI Guidelines of Mutual Funds

SEBI Regulation Act 1996

Establishment of a Mutual Fund:

In India mutual fund play the role as investment with trust. Some of the

formalities are laid down by the SEBI for setting up a mutual fund. As the part of trustee

sponsor the mutual fund, under the Indian Trust Act, 1882, under the trustee company are

represented by a board of directors. Board of Directors is appoints the AMC and

custodians. The board of trustees made relevant agreements with AMC and custodian.

The launch of each scheme involves inviting the public to invest in it, through an offer

document.

Depending on the particular objective of scheme, it may open for further sale and

repurchase of units, again in accordance with the scheme may be wound up after the

particular time period.

1. The sponsor has to register the mutual fund with SEBI

2. To be eligible to be a sponsor, the body corporate should have a sound track record and

a general reputation of fairness and integrity in all his business transactions.

134
Means of Sound Track Records

The body corporate being in the financial services business for at least five years,

having a positive net worth in the five years immediately preceding the application of

registration.

1. Net worth in the immediately preceding year more than its contribution to the capital

of the AMC.

2. Earning a profit in the three out of the five preceding years, including the fifth year.

3. The sponsor should hold at least 40% of the net worth of the AMC.

4. A party which is not eligible to be a sponsor shall not hold 40% or more of the net

worth of the AMC.

5. The sponsor has to appoint the trustees, the AMC and the custodian.

6. The trust deed and the appointment of the trustees have to be approved by SEBI.

7. An AMC or its officers or employees cannot be appointed as trustees of the mutual

fund.

8. At least two - thirds of the business should be independent of the sponsor.

9. Only an independent trustee can be appointed as a trustee of more than one mutual

fund, such appointment can be made only with the prior approval of the fund of which

the person is already acting as a trustee.

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4.18 Launching of Schemes

Before its launch, a scheme has to be approved by the trustees and a copy of its

offer documents filed with the SEBI.

1. Every application form for units of a scheme is to be accompanied by a

memorandum containing key information about the scheme.

2. The offer document needs to contain adequate information to enable the investors to

make informed investments decisions.

3. All advertisements for a scheme have to be submitted to SEBI within seven days

from the issue date.

4. The advertisements for a scheme have to disclose its investment objective.

5. The offer documents and advertisements should not contain any misleading

information or any incorrect statement or opinion.

6. The initial offering period for any mutual fund schemes should not exceed 45 days,

the only exception being the equity linked saving schemes.

7. No advertisements can contain information whose accuracy is dependent on

assumption.

8. An advertisement cannot carry a comparison between two schemes unless the

schemes are comparable and all the relevant information about the schemes is given.

9. All advertisements need to carry the name of the sponsor, the trustees, the AMC of

the fund.

136
10. All advertisements need to disclose the risk factors.

11. All advertisements shall clarify that investment in mutual funds is subject to market

risk and the achievement of the fund’s objectives cannot be assured.

12. When a scheme is open for subscription, no advertisement can be issued stating that

the scheme has been subscribed or oversubscribed.

4.19 Recent Trends of Mutual Funds in India

India is at the first stage of a revolution that has already peaked in the U.S. The

U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual

fund assets are not even 10% of the bank deposits, but this trend is beginning to change.

Recent figures indicate that in the first quarter of the current fiscal year mutual fund

assets went up by 115% whereas bank deposits rose by only 17%∗. This is forcing a large

number of banks to adopt the concept of narrow banking wherein the deposits are kept in

Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies

that banks cannot be ignored and they will not close down completely. Their role as

intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way

banks do business in the future.


∗
Think tank, the Financial Express September, 99

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Comparison of Investment in Banks V/S Mutual Funds

Particular Banks Mutual Funds

Returns Low Better

Administrative Expenses High Low

Risk High Moderate

Investment options Less More

Network High penetration Low but improving

Liquidity None At a cost Better

Quality of assets Not transparent Transparent

Minimum balance between 10th

Interest calculation Every day
and 30th of every month

Guarantee Maximum Rs.1 lakh on deposits None

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 Following are Assets Management Companies in India
(Name of the Asset Management Company & its Website)

AIG Global Asset Management Company (India) Pvt. Ltd www.aiginvestments.co.in

. Axis Asset Management Company Ltd www.axismf.com
Baroda Pioneer Asset Management Company Limited www.barodapioneer.in
Benchmark Asset Management Company Pvt. Ltd. www.benchmarkfunds.com
Bharti AXA Investment Managers Private Limited www.bhartiaxa-im.com
Birla Sun Life Asset Management Company Limited. www.birlasunlife.com
Canara Robeco Asset Management Company Limited. www.canararobeco.com
DBS Cholamandalam Asset Management Ltd. www.dbscholamutualfund.com.
Deutsche Asset Management (India) Pvt. Ltd . www.dws-india.com
DSP Black Rock Investment Managers Private Limited www.dspblackrock.com
Edelweiss Asset Management Limited www.edelweissmf.com
Escorts Asset Management Limited www.escortsmutual.com
Fortis Investment Management (India) Pvt. Ltd. www.fortisinvestments.in
Franklin Templeton Asset Management (India) Private www.franklintempletonindia.com
Ltd.
Goldman Sachs Asset Management (India) Private Ltd. www.gsam.in
HDFC Asset Management Company Limited www.hdfcfund.com
HSBC Asset Management (India) Private Ltd. www.assetmanagement.hsbc.com/in
CICI Prudential Asset Mgmt.Company Limited www.idfcmf.com
IDFC Asset Management Company Private Limited ING www.ingim.co.in
Investment Management (India) Pvt. Ltd.
JM Financial Asset Management Private Limited www.JMFinancialmf.com
JPMorgan Asset Management India Pvt. Ltd. www.jpmorganmf.com
Kotak Mahindra Asset Management Company www.kotakmutual.com
Limited(KMAMCL)
LIC Mutual Fund Asset Management Company Limited. www.licmutual.com
Morgan Stanley Investment Management Pvt. Ltd. www.morganstanley.com/indiamf
Reliance Capital Asset Management Ltd. www.reliancemutual.com
Religare Asset Management Company Limited. www.religaremf.com
SBI Funds Management Private Limited www.sbimf.com

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 Table 4 . 2 Performances of Top Mutual Funds as on June, 2015
Large Cap Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Birla Sun Life Top 100 (G) Rank 1 41.85 9.5 1,415.34
Franklin India Oppor. (G) Rank 2 54.87 14.8 380.49
SBI Blue Chip Fund (G) Rank 3 27.55 13.1 1,737.07
Small & Mid Cap Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit) 15-Jun
Can Robeco Emerg-Equities (G) Rank 1 59.78 25.5 427.66
JPMorgan (I) Mid and Small Cap (G) Rank 2 19.21 27.9 442
Principal Emerging Bluechip(G) Rank 3 66.38 20.4 468.6
Diversified Equity Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Birla SL India GenNext (G) Rank 1 52.85 22.1 245.08
Franklin High Growth Cos (G) Rank 1 28.68 17.4 2,462.40
ICICI Pru Value Discovery Fund (G) Rank 1 111.36 13.8 8,686.06
L&T India Value Fund (G) Rank 1 24.52 22.9 214.06
UTI MNC Fund (G) Rank 1 151.09 28.9 1,030.10
Thematic - Infrastructure Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Can Robeco Infrastructure (G) Rank 1 35.57 10.9 106.38
Franklin Build India Fund (G) Rank 1 28.03 20.2 387.35
ELSS Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Axis Long Term Equity Fund (G) Rank 1 30.6 20 4,996.45
Religare Invesco Tax Plan (G) Rank 1 34.98 14.3 239.56
Index Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
GS Nifty BeES Rank 1 795.76 -0.6 793.01
Kotak Nifty ETF Rank 1 796.03 -0.6 98.23
Debt Long Term Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
BNP Paribas Flexi Debt - RP G) Rank 1 24.7 12.1 356.79
HDFC High Interest - Dynamic (G) Rank 1 49.07 12.1 1,556.67
Tata Dynamic Bond - Regular Plan (G) Rank 1 22.22 11.7 557.27

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Debt Short Term Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
DWS Banking & PSU Debt -RP (G) Rank 1 12.5 10.1 163.33
HDFC Short Term Opportunities (G) Rank 1 15.83 9.4 2,068.41
L&T Short Term Opport. (G) Rank 1 13.89 9 236.09
Credit Opportunities Funds Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Franklin (I) ST Income -Retail (G) Rank 1 2,981.96 10.4 9,288.06
UTI Income Opportunities Fund(g) Rank 1 12.91 9.9 667.47
Ultra Short Term Debt Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Axis Banking Debt Fund (G) Rank 1 1,328.71 8.8 403.16
IDFC Banking Debt Fund-Reg (G) Rank 2 12.46 8.8 729.75
Kotak Banking & PSU Debt-RP(g) Rank 3 32.35 8.7 188.83
Religare Invesco Credit Opp(G) Rank 4 1,659.44 9 820.79
Gilt Long Term Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
L&T Gilt Fund (G) Rank 1 35.85 14.7 55
SBI Magnum Gilt - LTP (G) Rank 2 31.16 16.2 669.48
Crisil NAV
Balanced 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Tata Balanced Fund - Regular (G) Rank 1 167.4 17.3 3,121.04
MIP Aggressive Crisil NAV 1 yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Birla SL MIP II-Wealth 25 (G) Rank 1 29.54 14 868.3
Tata MIP Plus Fund (G) Rank 2 24.8 13.8 86.18
Liquid Crisil NAV 1yr Return (%) AUM (Rs. cr.)
Rank (Rs./Unit)
Axis Liquid Fund - Reg. (G) Rank 1 1,610.70 8.6 3,267.51
Indiabulls Liquid Fund (G) Rank 2 1,413.65 8.7 502.29
JPMorgan Liquid-SIP (G) Rank 3 18.82 8.5 1,454.62
L&T Liquid-Super Inst (G) Rank 4 1,992.59 8.6 1,469.77
Source: Compiled and calculated from data analysed from mutual fund industry
associates.

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Table: 4.3 Resource Mobilisations by Mutual Fund Industry
(Rs. in Crores)
Mobilization of Assets at the end
Year Redemption Net Inflow
Funds of the period
2004-05 8397088 837508 2200 149600
2005-06 1098149 1045370 52779 231862
2006-07 1938493 1844508 93985 362292
2007-08 4464377 4310575 153802 505152
2008-09 5426353 5454650 -28296 417300
2009-10 10019022 9935942 83080 613979
2010-11 8859515 8908921 -49406 592250
2011-12 6819678 6841702 -22024 587217
2012-13 7267885 7191346 76539 701443
2013-14 9768100 9714318 53782 825240
2014-15 10752190 10701120 51070 906547
Total 74810850 66785960 467511 5892882
Source: Compiled and calculated from the data published in various annual reports of
SEBI

Figure 4.4 Mobilizations, Redemption & Net flow of Mutual Fund Industry

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142
 Table 4.3 shows sector-wise total resources mobilized by mutual fund industry.

During the entire period of the study total resource mobilized by mutual fund industry

during the period 2004 – 05 to 2014 – 15. During the entire period of the study total

resources mobilized by mutual is increased from 8, 39,708 crores in the year 2004-05 to

Rs. 1, 07, 52, 190 crores during 2014-15, accounting for an increase of 28.05 per cent.

Private sector mutual fund industry plays a dominant role in the market their

mobilization of resources increased from Rs.7,36,463 crores in the year 2004-05 to

Rs.80,49,397 crores during 2014-15 i.e. total Rs.4,56,07,034 crores (80.72 per cent).

Public sector mutual fund companies resources mobilized increased from Rs.56,589

crores in the year 2004-05 to Rs.9,16,351 crores in the year 2014-15.i.e. total

Rs.62,47,689 crores (11.06 per cent). Lastly UTI mutual fund increased from Rs.46,656

crores in the year 2004-05 to Rs.8,81,851 Crores during the year 2009-10 and decreased

by 5,22,453 Crores in 2011-12 and again increased from 8,02,352 crores in the year

2014-15.i.e. total of Rs.46, 46,556 Crores (8.22 per cent).

143
Table: 4.4 Scheme -Wise Assets Under Management of Mutual Fund Industry
(Rs. Crores)

Growth
Exchange Funds Total Assets
Income/Debt And Balanced
Year Traded of Under
Fund Equity Fund
Fund Fund Management
Fund
2004-05 106250 38484 4866 00 00 149600
2005-06 124913 99456 7493 00 00 231862
2006-07 193584 123598 9110 00 00 326292
2007-08 312997 172747 16283 3130 00 505152
2008-09 294350 108244 10626 1396 2631 417300
2009-10 393204 198121 17246 2546 2862 613976
2010-11 369060 195322 18445 6917 2516 592250
2011-12 374857 182076 16261 11493 2560 587217
2012-13 497451 172508 16793 13125 3191 825240
2013-14 600945 191107 16796 13204 3191 825240
2014-15 698542 213547 16985 13498 3265 906547
Total 3966153 1695210 150904 65309 20216 5980676
Source: Compiled and calculated from the data published in various annual reports of
SEBI
Figure 4.5 Schemes - Wise Assets Under Management of Mutual Fund Industry


144
 Table 4.4 shows scheme wise assets under management of mutual fund industry

during the period 2004 – 05 to 2014 – 15. It is clear from the table that the Income / Debt

fund which was Rs. 1, 06, 250 crores in 2004 05 has increased phenomenally to Rs. 6, 98

,542 crores in 2014 -15 with a intermittent decline in the year 2008 – 09, accounting for

an increase of above six and half times. The amount under growth and equity fund which

was Rs. 38, 484 crores in 2004 – 05 has increased to Rs. 2, 13, 547 crores in 2014 – 15

representing an increase of above 5.5 times. The balanced fund too increased during the

above period from Rs. 4, 866 crores to Rs. 16, 985 crores representing an increase of

nearly 3.5 times. Similarly, the exchange traded fund increased from Rs. 3, 130 crores to

Rs. 13, 498 crores during the period 2007 – 08 to 2014 – 15 accounting for an increase of

above 4 times. Finally, the funds of fund has increased from Rs. 2, 631 to Rs. 3, 265

crores during the period 2008 – 09 to 2014 – 15 accounting for an increase of 24 per cent

on the whole, the value of total assets under management has perceptibly increased an

increase of above six times. Hence the overall performance under asset management is

laudable.

145
 Table: 4.5 Sectors - Wise Total Resources Mobilized By Mutual Fund Industry

(Rs.Crores)

Public Sector Private Sector

Year UTI Mutual Fund Total
Mutual Fund Mutual Fund
2004-05 46656 56589 736463 839708
2005-06 73127 110319 914703 1098149
2006-07 142208 196340 1599873 1938493
2007-08 337498 346126 3780752 4464376
2008-09 423131 710472 4292750 5426353
2009-10 881851 1438688 7698483 10019022
2010-11 783853 1152733 6922924 8859515
2011-12 522453 613482 5683743 6819678
2012-13 633350 706589 5927946 7267885
2013-14 802352 916351 8049397 9768100
2014-15 849097 920706 8084832 9813623
5495576 7168395 53691866 66314902
Total
8.22% 11.06% 80.72% 100
Source: Compiled and calculated from the data published in various annual reports of
SEBI
Figure 4.6 Sectors - Wise Total Resources Mobilized By Mutual Fund Industry

146
 Table 4.5 presents sector – wise resources mobilised by mutual fund industry

during the period 2004 – 05 to 2014 – 15. It is seen from the table that the sector – wise

total resources mobilized by mutual fund industry has gone up from Rs. 8, 39, 708 crores

to Rs. 98, 13, 623 crores accounting for an increase of almost 12 times during the above

period. The amount under UTI mutual fund increased from Rs. 46, 656 crores t while the

total public sector mutual fund, has and the private sector mutual funds have increased

from Rs. 56, 589 crores and Rs. 7, 36, 463 crores to Rs. 9, 20, 706 crores and Rs. 80, 84,

832 crores representing an increase of above 16 times and 11 times respectively during

the above period. Among the three sectors, private sector mutual funds attracted a lion’s

share (80.72 %) during the above period.

147
 Table: 4.6 The List of Funds Mobilized during the period 2004-05 To 2014-15.

New Sales of New Sales Existing Total

Year Sales Total
Schemes Schemes Schemes Redemption
Ending
(Nos.) (Rs. Cr) (Rs. Cr) (Rs. Cr) (Rs. Cr)
2005 - 2006 314 120183 1535454 1655637 1552674
2006 - 2007 631 167159 3428439 3595598 3457233
2007 - 2008 703 153371 5149406 5302777 5303401
2008 - 2009 109 21315 8874075 8895390 8870560
2009 - 2010 352 85929 9403946 9489875 9580597
2010 - 2011 744 123341 6938515 7061856 7042180
2011 - 2012 549 83137 6962553 7045690 6986328
2012 - 2013 763 105170 9012399 9117569 9110771
2013 - 2014 841 115221 10661992 10777213 19426538
2014 - 2015 342 42822 12803687 12846509 12669467
Total 5804 1096146 77504864 78601010 86819373
Source: Compiled and calculated from the data published in various annual reports of
SEBI

Figure 4.7 Lists of Funds Mobilized by Mutual Fund Industry in India

148
 The list of funds mobilized during the period 2005 – 06 to 2014 – 15 is shown in

Table 4.6. The table is indicative of the fact that the total number of schemes floated

during the above period varied between 109 (2008 – 09) and 841 (2013 – 14). The total

amount realised under sales of new schemes and sales of existing schemes has gone up

from Rs. 16, 55, 637 crores to Rs. 1, 28, 46, 509 crores accounting for an increase of

almost eight times during the above period. The sales of new schemes have gone down to

Rs. 42, 822 crores accounting for a decline of 64 per cent while that of existing schemes

have increased from Rs. 15, 35, 454 crores to Rs. 1, 28, 03, 687 crores accounting for an

increase of above eight times during the above period. The total amount redeemed year –

wise during the above period increased from Rs. 15, 52, 674 crores to Rs. 1, 26, 69, 467

crores accounting for an increase of 8 times. The table further shows that a lion’s share of

the total sales came from sale of existing schemes which account for nearly 99 per cent.

149
 Table 4.7 Sale and Purchase Activity of The Mutual Fund Industry during the
period 2005-06 to 2014-15.
Equity Debt Hybrid
Gross Gross Net Gross Gross Net
Year
Purchase Sales Investment Purchase Sales Investment
(Rs. Cr) (Rs. Cr) (Rs. Cr) (Rs. Cr) (Rs. Cr) (Rs. Cr)
2005 - 2006 183818 177623 619506 240400 177788 626116
2006 - 2007 180793 166800 139924 316703 268189 485137
2007 - 2008 182393 187706 -5313 530419 331303 199116
2008 - 2009 160041 187916 -27876 744472 549753 194718
2009 - 2010 131285 124632 6653 942342 649854 292488
2010 - 2011 119298 139922 -20624 1402911 946358 456553
2011 - 2012 107045 128233 -21188 1489243 1037169 452074
2012 - 2013 197906 174580 23326.4 1746966 1129737 617229
2013 - 2014 271850 200286 71564 1483123 1052668 430455
2014 - 2015 24641.9 17939.3 67026 856879 79074 66139
Total 1780848 1667091 1062936 9753458 6221893 3820025
Source: Compiled and calculated from the data published in various annual reports of
SEBI

Figure 4.8 Sale & Purchase Activity

150
 Table 4.7 shows sale and purchase activity of the mutual fund industry during the

period 2005 – 06 purchases and gross sales of the equity has gone up from Rs. 1, 83, 818

crores and Rs. 1, 77, 623 crores to Rs. 2, 46, 419 crores and Rs. 1, 79,393 crores

accounting for an increase of 34.06 per cent and 0.99 per cent respectively during the

above period. The net investment and gross investment of the debt has increased. The

hybrid nature funds are also performed well when comparing with the initial years to

present years i.e., the net sales are Rs. 1, 77, 788 during the period 2004 – 05 and Rs. 79,

074 it indicates the net sales are gradually decreased comparatively from the beginning to

ending years. But overall sales and purchase activities of mutual funds over the years

2004 – 05 is good. The total amount of net investment is Rs. 7, 79, 593 and Rs. 28, 96,

980 respectively.

4. 20 Concluding Remarks

It can be concluded that the asset under management shown a growth of Rs. 9,

05,120. The asset under management of all the sectors, mutual fund sales, mutual fund

redemption, and scheme - wise resource mobilization, total number of schemes has been

increased from the year 2005 to 2015. The total number of folios shows a decrease from

the year 2005 to 2015 due to reduction in the number of folios in growth and funds of

fund schemes. The Indian Mutual Fund Industry on Dec 2015 with a total AUM of Rs.

11.11 lakh crores as against last year’s figure of Rs.8.25 lakh crore - a growth of 35%.

This shows that the investor preference towards financial assets is increasing. One of the

drivers for the AUM is equity AUM, which increased from Rs.1.58 lakh crore to Rs.2.79

lakh crore as on November 2014. The surge in the value of share prices and an increase in

interest from investors helped equity AUM rise.

151
 The Indian economy is second largest economy in the world, but on 2008 and first

quart of 2009 was international financial liquidity and global fund crisis. USA economy

affected by sub - prime crisis that creates problem of international financial market,

commodity market and foreign exchange market. But Indian economy is less affected due

to fast moving for consumer durable, growth of capital expenditure projects and service

sector, Indian government easily attracted foreign investors. Foreign Institutional

Investors invest on Indian capital market, it is continuously growing.

The road ahead for the mutual fund industry will be paved by the performance of

the capital markets. But, more importantly, it remains to be seen, how fund houses adapt

themselves to changes in regulations, Thereby shaping growth for the future. A

continuously evolving regulatory framework makes it mandatory for the industry to elicit

a clear growth path, making it easier to assess obstacles and tide over them with time.

152


CHAPTER - V

PERFORMANCE EVALUATION OF SELECT

GROWTH SCHEMES

5.1 Introduction

Investors always look for safer investment avenues. Investors wish to maximize

their returns in accordance with their risk tolerance. Return is the motivating force and

the principal reward in the investment process. Measuring historical returns enables

investors to assess the returns that can be expected from their investments. Since return

and risk are positively interrelated, it is always imperative to consider both risk and

return while evaluating any investment alternative. Mutual funds have gained a

significant status among various investment avenues available in India. The paradigm

shift towards mutual funds assumed greater importance ever since the financial sector

gained momentum under the globalized and liberalized environment. The financial sector

reforms and SEBI (Mutual Funds) Regulations brought out healthy competition in the

mutual fund industry ensuring enhanced opportunities for the investing populace.

Performance evaluation of mutual funds is built on the twin expectations of the

investors namely, risk premium and scheme’s return over the market return. Performance

analysis of mutual funds, fund manager’s ability to identify and select growth stocks

besides investing at the right point of time are the key issues in mutual fund investment

strategy. The most appropriate and commonly applied tool for assessing the performance

of mutual fund scheme is to track the NAV. Future performance is predictable from past

performance as funds are bought and sold based on NAV of schemes. Equity schemes

are the close substitute for direct investment in capital market. As equity based schemes

153


are comparatively riskier; investors expect return in relation to the risk involved. Hence,

a better way to assess the portfolio is to consider return per unit of risk. To measure the

risk, two appropriate quantitative risk surrogates that can be used are: standard deviation

of rate of return and beta coefficient of the portfolio.

Markowitz’s portfolio theory paved the way for a new direction to the risk-return

analysis of portfolios. The CAPM developed by Sharpe (1964) and John Lintner (1969)

laid the foundation stone for the growth of capital market. Treynor (1965) and Jensen

(1968) made remarkable contribution by developing models to evaluate portfolios. Fama

made a valuable contribution to decompose return into various components. An empirical

review of NAV of the selected growth schemes bequeaths a better understanding of the

mutual fund schemes performance. This part of the research work is an attempt to study

the second and the third objectives to ascertain whether the selected mutual funds

performed well through their selective buying and selling of securities rather than by

random picking up, whether the selected portfolios performed better than the market,

how capable are the portfolio managers in predicting market movements.

Many research works followed the methodology of Treynor, Sharpe and Jensen.

On the same lines, based on the background of the previous studies reviewed, the

researcher has attempted to make a close assessment of the mutual funds in the interest of

the investing public, brokers and fund managers. This part of the research work relates to

the appraisal of the seven schemes launched in 1993, using Sharpe Reward to Variability,

Treynor Reward to Volatility, Jensen Alpha, and Eugene Fama Decomposed Total

Return for the period of eight financial years from April 1998 to March 2006 under the

regulated environment.

154


5.2 Sharpe Index

Sharpe Index (St) is based on the scheme’s total risk and is a summary measure

of scheme’s performance adjusted for risk.

St = [ (Return from the Portfolio – Risk-free Rate of Return) ÷ Total Risk of

Portfolio ]

Here we consider the risk free return as 9%.

Table 5.1 Sharpe Index - L&T Gilt Fund - Investment Plan

Market
Years Annual return Market return Risk Sharpe Index
Sharpe Index
2005 - 2006 0.03 0.035 1.1405 -0.0526 -0.0482
2006 – 2007 0.0084 0.0415 0.6473 -0.1261 -0.0749
2007 – 2008 0.0574 0.0644 1.3774 -0.0237 -0.0186
2008 – 2009 0.2197 0.2448 1.1918 0.1088 0.1299
2009 – 2010 -0.0971 -0.0627 1.0670 -0.1754 -0.1431
2010 – 2011 0.026 0.0441 1.3474 -0.0475 -0.0341
2011 – 2012 0.0448 0.0368 1.2698 -0.0356 -0.0419
2012 – 2013 0.1392 0.1274 1.2056 0.0408 0.0310
2013 – 2014 0.0919 0.0217 1.3281 0.0014 -0.0514
2014 – 2015 0.1634 0.1749 1.3774 0.0533 0.0616

OVERALL 0.6837 0.7279 11.9522 -0.2564 -0.1897

Table 5.1 presents the calculations of Sharpe’s Index for L&T Gilt Fund -

Investment Plan during the period under study. The return from the scheme ranges from

(-) 0.0971 to 0.6837 and was better than the market return in three years (2011 – 2012,

2012 – 2013, 2013 – 2014). The scheme’s risk ranged from 0.6473 to 1.3774.

Sharpe index of the scheme showed negative values in almost all the years

implying poor performance of the scheme in relation to the risk-free return and risk

assumed.

155


Table 5.2 Sharpe Index - Birla Sun Life Gilt Plus - PF Plan

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.0557 0.035 1.5412 -0.0223 -0.0357
2006 - 2007 0.0527 0.0415 1.5570 -0.0240 -0.0312
2007 - 2008 0.0672 0.0644 1.5825 -0.0144 -0.0162
2008 - 2009 0.2027 0.2448 1.3492 0.0835 0.1147
2009 - 2010 -0.1047 -0.0627 1.3117 -0.1484 -0.1164
2010 - 2011 0.0251 0.0441 1.4164 -0.0458 -0.0324
2011 - 2012 0.0981 0.0368 1.5336 0.0053 -0.0347
2012 - 2013 0.1135 0.1274 1.6288 0.0144 0.0230
2013 - 2014 0.035 0.0217 1.8342 -0.0300 -0.0372
2014 - 2015 0.1994 0.1749 1.2266 0.0892 0.0692
OVERALL 0.7447 0.7279 14.9812 -0.0924 -0.0969

Table 5.2 presents the calculations of Sharpe’s Index for Birla Sun Life Gilt Plus -

PF Plan during the period of study. The return from the scheme ranges from (-) 0.1047 to

0.7447 and was better than the market return in six years. The scheme’s risk ranged from

1.2266 to 1.8342.

Scheme’s Sharpe index was negative in all the years indicating insufficient

returns compared to the risk-free return and risk taken. The scheme’s Sharpe index

outperformed the market Sharpe index in almost all the years except 2008 – 2009, 2012 –

2013, 2014 – 2015.

156


Table 5.3 Sharpe Index - SBI Magnum Gilt Fund - Long Term Plan

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.0461 0.035 1.5185 -0.0289 -0.0362
2006 - 2007 0.0443 0.0415 1.4409 -0.0317 -0.0337
2007 - 2008 0.0696 0.0644 1.4607 -0.0140 -0.0175
2008 - 2009 0.1856 0.2448 1.3414 0.0713 0.1154
2009 - 2010 -0.1361 -0.0627 1.1177 -0.2023 -0.1366
2010 - 2011 0.0468 0.0441 1.2072 -0.0358 -0.0380
2011 - 2012 0.0577 0.0368 1.2884 -0.0251 -0.0413
2012 - 2013 0.1097 0.1274 1.3535 0.0146 0.0276
2013 - 2014 0.0643 0.0217 1.5381 -0.0167 -0.0444
2014 - 2015 0.199 0.1749 0.8021 0.1359 0.1058
OVERALL 0.687 0.7279 13.0687 -0.1327 -0.0989

Table 5.3 presents the calculations of Sharpe’s Index for SBI Magnum Gilt Fund -

Long Term Plan during the period of study. The return from the scheme ranges from (-)

0.1361 to 0.199 and was better than the market return in seven years. The scheme’s risk

ranged from 0.8021 to 1.5381.

Scheme’s Sharpe index was negative in all the years indicating insufficient

returns compared to the risk-free return and risk taken. The scheme’s Sharpe index

outperformed the market Sharpe index in almost all the years except 2008 – 2009, 2014 –

2015.

157


Table 5.4 Sharpe Index - UTI Gilt Advantage Long Term Plan

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 – 2006 0.0589 0.035 1.5404 -0.0202 -0.0357
2006 - 2007 0.0546 0.0415 1.3583 -0.0261 -0.0357
2007 - 2008 0.0588 0.0644 1.3743 -0.0227 -0.0186
2008 - 2009 0.3319 0.2448 1.2934 0.1870 0.1197
2009 - 2010 -0.1136 -0.0627 1.0533 -0.1933 -0.1450
2010 - 2011 0.0465 0.0441 1.1370 -0.0383 -0.0404

2011 - 2012 0.0779 0.0368 1.2451 -0.0097 -0.0427

2012 - 2013 0.1029 0.1274 1.3177 0.0098 0.0284
2013 - 2014 0.0398 0.0217 1.4804 -0.0339 -0.0461
2014 - 2015 0.198 0.1749 0.8046 0.1342 0.1055

OVERALL 0.8557 0.7279 12.6047 -0.0131 -0.1107

Table 5.4 presents the calculations of Sharpe’s Index for UTI Gilt Advantage

Long Term Plan during the period of study. The return from the scheme ranges from (-)

0.1136 to 0.3319 and was better than the market return in seven years. The scheme’s risk

ranged from 0.8046 to 1.5404.

Scheme’s Sharpe index was negative in all the years indicating insufficient

returns compared to the risk-free return and risk taken. The scheme’s Sharpe index

outperformed the market Sharpe index in almost all the years except 2014 – 2015.

158


Table 5.5 Sharpe Index - IDFC Government Securities Fund - Provident Fund Plan
- Regular Plan

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.0584 0.035 1.4795 -0.0214 -0.0372
2006 - 2007 0.0689 0.0415 1.3602 -0.0155 -0.0357
2007 - 2008 0.0774 0.0644 1.3873 -0.0091 -0.0185
2008 - 2009 0.3367 0.2448 1.3281 0.1858 0.1166
2009 - 2010 -0.0813 -0.0627 1.1665 -0.1469 -0.1309
2010 - 2011 0.0395 0.0441 1.2598 -0.0401 -0.0364

2011 - 2012 0.0959 0.0368 1.3488 0.0044 -0.0394

2012 - 2013 0.1268 0.1274 1.4335 0.0257 0.0261
2013 - 2014 0.0627 0.0217 1.5931 -0.0171 -0.0429
2014 - 2015 0.1705 0.1749 0.7808 0.1031 0.1087

OVERALL 0.9555 0.7279 13.1376 0.0689 -0.0895

Table 5.5 presents the calculations of Sharpe’s Index for IDFC Government

Securities Fund - Provident Fund Plan - Regular Plan during the period of study. The

return from the scheme ranges from (-) 0.0813 to 0.3367 and was better than the market

return in seven years. The scheme’s risk ranged from 0.7808 to 1.5931.

Scheme’s Sharpe index was negative in all the years indicating insufficient

returns compared to the risk-free return and risk taken. The scheme’s Sharpe index

outperformed the market Sharpe index in almost all the years except 2011 – 2012, 2012 –

2013, 2014 – 2015.

159


Table 5.6 Sharpe Index - SBI Pharma Fund

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.4441 0.0184 5.4185 0.0654 -0.0132
2006 - 2007 0.1263 0.2174 5.6124 0.0065 0.0227
2007 - 2008 0.0674 0.1652 5.8247 -0.0039 0.0129
2008 - 2009 -0.492 -0.3287 6.1202 -0.0951 -0.0684
2009 - 2010 0.8429 0.6918 6.4542 0.1167 0.0932

2010 - 2011 0.2914 0.3419 6.4412 0.0313 0.0391

2011 - 2012 -0.0554 -0.1283 3.9690 -0.0366 -0.0550
2012 - 2013 0.3706 0.3853 3.2784 0.0856 0.0901
2013 - 2014 0.2605 0.2255 2.9743 0.0573 0.0456
2014 - 2015 0.5685 0.4743 2.8716 0.1666 0.1338

OVERALL 2.4243 2.0628 48.9644 0.3937 0.3008

Table 5.6 presents the calculations of Sharpe’s Index for SBI Pharma Fund during

the period of study. The return from the scheme ranges from (-) 0.492 to 0.8429 and was

better than the market return in seven years. The scheme’s risk ranged from 2.8716 to

6.4542.

During the period covered under study, the SBI Pharma Fund outperformed the

market in terms of absolute return (2.4243) and Sharpe index of 0.3937 indicating better

performance.

160


Table 5.7 Sharpe Index - Reliance Pharma Fund

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.294 0.0184 3.8432 0.0531 -0.0186
2006 - 2007 0.1673 0.2174 3.9794 0.0194 0.0320
2007 - 2008 0.498 0.1652 4.1885 0.0974 0.0180
2008 - 2009 -0.34 -0.3287 4.3931 -0.0979 -0.0953
2009 - 2010 1.186 0.6918 4.6647 0.2350 0.1290
2010 - 2011 0.3186 0.3419 4.6454 0.0492 0.0542

2011 - 2012 -0.1102 -0.1283 4.4059 -0.0454 -0.0495

2012 - 2013 0.3484 0.3853 3.3224 0.0778 0.0889
2013 - 2014 0.2087 0.2255 3.7949 0.0313 0.0357
2014 - 2015 0.4946 0.4743 2.2950 0.1763 0.1675

OVERALL 3.0654 2.0628 39.5326 0.5961 0.3618

Table 5.7 presents the calculations of Sharpe’s Index for Reliance Pharma Fund

during the period of study. The return from the scheme ranges from (-) 0.34 to 1.186 and

was better than the market return in seven years. The scheme’s risk ranged from 2.2950

to 4.6647.

During the period covered under study, the Reliance Pharma Fund outperformed

the market in terms of absolute return (3.0654) and Sharpe index of 0.5961 indicating

better performance.

161


Table 5.8 Sharpe Index - UTI Pharma & Healthcare Fund

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.1602 0.0184 4.8420 0.0145 -0.0148
2006 - 2007 0.0829 0.2174 5.0269 -0.0014 0.0253
2007 - 2008 0.118 0.1652 5.2681 0.0053 0.0143
2008 - 2009 -0.2595 -0.3287 5.4909 -0.0637 -0.0763
2009 - 2010 0.6662 0.6918 5.6823 0.1014 0.1059
2010 - 2011 0.3719 0.3419 6.0676 0.0465 0.0415
2011 - 2012 -0.0955 -0.1283 4.5297 -0.0410 -0.0482
2012 - 2013 0.2477 0.3853 3.3329 0.0473 0.0886
2013 - 2014 0.2327 0.2255 3.5676 0.0400 0.0380
2014 - 2015 0.4374 0.4743 3.3573 0.1035 0.1145
OVERALL 1.962 2.0628 47.1654 0.2525 0.2889

Table 5.8 presents the calculations of Sharpe’s Index for UTI Pharma &

Healthcare Fund during the period of study. The return from the scheme ranges from (-)

0.2595 to 0.6662 and was better than the market return in seven years. The scheme’s risk

ranged from 3.3329 to 6.0676.

During the period covered under study, the UTI Pharma & Healthcare Fund

outperformed the market in terms of absolute return (1.962) and Sharpe index of 0.2525

indicating better performance.

162


Table 5.9 Sharpe Index - HDFC Childrens Gift Fund - Investment Plan

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.3413 0.2473 2.2651 0.1109 0.0694
2006 - 2007 0.124 0.2885 2.2570 0.0151 0.0879
2007 - 2008 0.3145 0.4286 2.1321 0.1053 0.1588
2008 - 2009 -0.4017 -0.3976 2.2525 -0.2183 -0.2165
2009 - 2010 0.6762 0.493 2.0375 0.2877 0.1978
2010 - 2011 0.3196 0.1454 2.1976 0.1045 0.0252

2011 - 2012 -0.0749 -0.1812 2.3893 -0.0690 -0.1135

2012 - 2013 0.2732 0.2254 2.5361 0.0722 0.0534
2013 - 2014 0.1296 0.0638 2.6646 0.0149 -0.0098
2014 - 2015 0.431 0.2595 3.2607 0.1046 0.0520

OVERALL 2.1328 1.5727 23.9926 0.5278 0.3048

Table 5.9 presents the calculations of Sharpe’s Index for HDFC Children’s Gift

Fund - Investment Plan during the period of study. The return from the scheme ranges

from (-) 0.4071 to 0.6762 and was better than the market return in seven years. The

scheme’s risk ranged from 2.0375 to 3.2607.

During the period covered under study, the HDFC Children’s Gift Fund -

Investment Plan outperformed the market in terms of absolute return (2.1328) and Sharpe

index of 0.5278 indicating better performance.

163


Table 5.10 Sharpe Index - SBI Magnum Balanced Fund

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.4762 0.2473 2.5411 0.1520 0.0619
2006 - 2007 0.3393 0.2885 2.6069 0.0956 0.0761
2007 - 2008 0.4837 0.4286 2.5820 0.1525 0.1311
2008 - 2009 -0.4466 -0.3976 2.7152 -0.1976 -0.1796
2009 - 2010 0.6436 0.493 1.7237 0.3212 0.2338
2010 - 2011 0.1251 0.1454 1.8265 0.0192 0.0303

2011 - 2012 -0.2223 -0.1812 2.0001 -0.1561 -0.1356

2012 - 2013 0.3503 0.2254 2.1891 0.1189 0.0619
2013 - 2014 0.1186 0.0638 2.4163 0.0118 -0.0108
2014 - 2015 0.4324 0.2595 2.9362 0.1166 0.0577

OVERALL 2.3003 1.5727 23.5370 0.6341 0.3269

Table 5.10 presents the calculations of Sharpe’s Index for SBI Magnum Balanced

Fund during the period of study. The return from the scheme ranges from (-) 0.4466 to

0.6436 and was better than the market return in seven years. The scheme’s risk ranged

from 1.7237 to 2.9362.

During the period covered under study, the SBI Magnum Balanced Fund

outperformed the market in terms of absolute return (2.3003) and Sharpe index of 0.6341

indicating better performance.

164


Table 5.11 Sharpe Index - ICICI Prudential Balanced Fund - Regular Plan

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.387 0.2473 2.7425 0.1083 0.0574
2006 - 2007 0.2936 0.2885 2.6597 0.0765 0.0746
2007 - 2008 0.3659 0.4286 2.6537 0.1040 0.1276
2008 - 2009 -0.4383 -0.3976 2.7994 -0.1887 -0.1742
2009 - 2010 0.5073 0.493 2.7433 0.1521 0.1469
2010 - 2011 0.1858 0.1454 2.9310 0.0327 0.0189

2011 - 2012 -0.0933 -0.1812 3.1209 -0.0587 -0.0869

2012 - 2013 0.2938 0.2254 3.3198 0.0614 0.0408
2013 - 2014 0.1118 0.0638 3.3819 0.0064 -0.0077
2014 - 2015 0.4556 0.2595 4.0679 0.0899 0.0417

OVERALL 2.0692 1.5727 30.4201 0.3839 0.2390

Table 5.11 presents the calculations of Sharpe’s Index for ICICI Prudential

Balanced Fund - Regular Plan during the period of study. The return from the scheme

ranges from (-) 0.4383 to 0.5286 and was better than the market return in seven years.

The scheme’s risk ranged from 2.6537 to 4.0679.

During the period covered under study, the ICICI Prudential Balanced Fund -

Regular Plan outperformed the market in terms of absolute return (2.0692) and Sharpe

index of 0.3839 indicating better performance.

165


Table 5.12 Sharpe Index - Franklin India Balanced Fund

Market
Years Annual return Market return Risk Sharpe Index Sharpe
Index
2005 - 2006 0.3034 0.2473 2.8563 0.0747 0.0551
2006 - 2007 0.3283 0.2885 2.8067 0.0849 0.0707
2007 - 2008 0.4266 0.4286 2.7034 0.1245 0.1252
2008 - 2009 -0.3832 -0.3976 2.8574 -0.1656 -0.1706
2009 - 2010 0.5286 0.493 2.3874 0.1837 0.1688
2010 - 2011 0.1482 0.1454 2.5701 0.0226 0.0216

2011 - 2012 -0.124 -0.1812 2.8150 -0.0760 -0.0963

2012 - 2013 0.2421 0.2254 2.8558 0.0533 0.0474
2013 - 2014 0.0664 0.0638 2.7699 -0.0085 -0.0095
2014 - 2015 0.4705 0.2595 3.3345 0.1141 0.0508

OVERALL 2.0069 1.5727 27.9566 0.4077 0.2632

Table 5.12 presents the calculations of Sharpe’s Index for Franklin India Balanced

Fund during the period of study. The return from the scheme ranges from (-) 0.3832 to

0.5073 and was better than the market return in seven years. The scheme’s risk ranged

from 2.3874 to 3.3345.

During the period covered under study, the Franklin India Balanced Fund

outperformed the market in terms of absolute return (2.0069) and Sharpe index of 0.4077

indicating better performance.

166


5.3 Treynor Index

Treynor Index uses beta as a risk surrogate. It evaluates excess returns with

regard to systematic risk. Schemes with higher Treynor index imply better

performance. Treynor index is used to rank the desirability of portfolios and individual

assets together, since diversifiable risk is ignored. Treynor single-parameter

investment performance index is used for ranking mutual funds based on systematic

risk.

Treynor Index = [(Return from the Portfolio – Risk free rate of return) ÷ Beta of
the Portfolio]
Table 5.13 Treynor Index - L&T Gilt Fund - Investment Plan

Market
Treynor
Year Annual return Market return Beta Treynor
Index
Index
2005 - 2006 0.03 0.035 1.0563 -0.05680 -0.0521
2006 - 2007 0.0084 0.0415 0.8826 -0.09245 -0.0550
2007 - 2008 0.0574 0.0644 0.8338 -0.03910 -0.0307
2009 - 2010 0.2197 0.2448 0.5593 0.23190 0.2768
2013 - 2014 -0.0971 -0.0627 0.8502 -0.22007 -0.1796
2010 - 2011 0.026 0.0441 0.8826 -0.07251 -0.0520
2011 - 2012 0.0448 0.0368 0.778 -0.05810 -0.0684
2012 - 2013 0.1392 0.1274 0.6954 0.07075 0.0538
2008 - 2009 0.0919 0.0217 0.7622 0.00249 -0.0896
2014 - 2015 0.1634 0.1749 0.8195 0.08957 0.1036

OVERALL 0.6837 0.7279 0.8120 -0.1443 -0.0932

167


Table 5.13 reveals that, L&T Gilt Fund - Investment Plan had positive beta

values ranging from 0.5593 to 0.8826 indicating that scheme moves in the same

direction as that of the market and is defensive in nature being less than one.

The negative Treynor index implies that the scheme did not provide adequate

return to cover risk-free return nor the market risk during the entire period of study. As

scheme’s Treynor index was negative, the performance was not good compared to the

market in all the ten years studied.

On an overall, the L&T Gilt Fund - Investment Plan provided a return (0.6837)

less than that of the market (0.7279) and so, the overall negative Treynor index also was

poor than the market depicting most awful performance of the scheme based on market

risk.

168


Table 5.14 Treynor Index - Birla Sun Life Gilt Plus - PF Plan

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.0557 0.035 0.9566 -0.0359 -0.0575
2006 - 2007 0.0527 0.0415 0.6544 -0.0570 -0.0741
2007 - 2008 0.0672 0.0644 0.7292 -0.0313 -0.0351
2009 - 2010 0.2027 0.2448 0.9304 0.1211 0.1664
2013 - 2014 -0.1047 -0.0627 0.9331 -0.2087 -0.1636
2010 - 2011 0.0251 0.0441 0.9034 -0.0718 -0.0508

2011 - 2012 0.0981 0.0368 0.91 0.0089 -0.0585

2012 - 2013 0.1135 0.1274 0.9344 0.0251 0.0400
2008 - 2009 0.035 0.0217 0.8338 -0.0660 -0.0819
2014 - 2015 0.1994 0.1749 0.5593 0.1956 0.1518

OVERALL 0.7447 0.7279 0.83446 -0.1198 -0.1633

Table 5.14 reveals that, Birla Sun Life Gilt Plus - PF Plan had positive beta

values ranging from 0.5593 to 0.9566 indicating that scheme moves in the same

direction as that of the market and is defensive in nature being less than one.

The negative Treynor index implies that the scheme did not provide adequate

return to cover risk-free return nor the market risk during the entire period of study. As

scheme’s Treynor index was negative, the performance was not good compared to the

market in all the ten years studied.

On an overall, the Sun Life Gilt Plus - PF Plan provided a return (0.7447) more

than that of the market (0.7279) and so, the overall negative Treynor index also was

poor than the market depicting most awful performance of the scheme based on market

risk.

169


Table 5.15 Treynor Index - SBI Magnum Gilt Fund - Long Term Plan

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 – 2006 0.0461 0.035 0.7221 -0.0608 -0.0762
2006 – 2007 0.0443 0.0415 0.7817 -0.0585 -0.0620
2007 - 2008 0.0696 0.0644 0.7822 -0.0261 -0.0327
2009 - 2010 0.1856 0.2448 0.8532 0.1120 0.1814
2013 - 2014 -0.1361 -0.0627 0.8514 -0.2656 -0.1794
2010 - 2011 0.0468 0.0441 0.7956 -0.0543 -0.0577

2011 - 2012 0.0577 0.0368 0.8556 -0.0378 -0.0622

2012 - 2013 0.1097 0.1274 0.6528 0.0302 0.0573
2008 - 2009 0.0643 0.0217 0.8338 -0.0308 -0.0819
2014 - 2015 0.199 0.1749 0.5593 0.1949 0.1518

OVERALL 0.687 0.7279 0.76877 -0.1967 -0.1616

Table 5.15 reveals that, SBI Magnum Gilt Fund - Long Term Plan had positive

beta values ranging from 0.5593 to 0.8556 indicating that scheme moves in the same

direction as that of the market and is defensive in nature being less than one.

The negative Treynor index implies that the scheme did not provide adequate

return to cover risk-free return nor the market risk during the entire period of study. As

scheme’s Treynor index was negative, the performance was not good compared to the

market in all the ten years studied.

On an overall, the SBI Magnum Gilt Fund - Long Term Plan provided a return

(0.687) less than that of the market (0.7279) and so, the overall negative Treynor index

also was poor than the market depicting most awful performance of the scheme based

on market risk.

170


Table 5.16 Treynor Index - UTI Gilt Advantage Long Term Plan

Market
Annual Market Treynor
Year Beta Treynor
Return Return Index
Index
2005 - 2006 0.0589 0.035 0.7454 -0.0417 -0.0738
2006 - 2007 0.0546 0.0415 0.3946 -0.0897 -0.1229
2007 - 2008 0.0588 0.0644 0.4501 -0.0693 -0.0569
2009 - 2010 0.3319 0.2448 0.4273 0.5661 0.3623
2013 - 2014 -0.1136 -0.0627 0.5032 -0.4046 -0.3035
2010 - 2011 0.0465 0.0441 0.623 -0.0698 -0.0737

2011 - 2012 0.0779 0.0368 0.8305 -0.0146 -0.0641

2012 - 2013 0.1029 0.1274 0.8451 0.0153 0.0443
2008 - 2009 0.0398 0.0217 0.8338 -0.0602 -0.0819
2014 - 2015 0.198 0.1749 0.5593 0.1931 0.1518

OVERALL 0.8557 0.7279 0.62123 0.0245 -0.2184

Table 5.16 reveals that, UTI Gilt Advantage Long Term Plan had positive beta

values ranging from 0.3946 to 0.8451 indicating that scheme moves in the same

direction as that of the market and is defensive in nature being less than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, the UTI Gilt Advantage Long Term Plan provided a return

(0.8557) more than that of the market (0.7279).

171


Table 5.17 Treynor Index - IDFC Government Securities Fund - Provident Fund
Plan - Regular Plan

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.0584 0.035 0.5915 -0.0534 -0.0930
2006 - 2007 0.0689 0.0415 0.6534 -0.0323 -0.0742
2007 - 2008 0.0774 0.0644 0.686 -0.0184 -0.0373
2009 - 2010 0.3367 0.2448 0.812 0.3038 0.1906
2013 - 2014 -0.0813 -0.0627 0.9724 -0.1762 -0.1570
2010 - 2011 0.0395 0.0441 0.8492 -0.0595 -0.0541

2011 - 2012 0.0959 0.0368 0.897 0.0066 -0.0593

2012 - 2013 0.1268 0.1274 0.7817 0.0471 0.0478
2008 - 2009 0.0627 0.0217 0.7822 -0.0349 -0.0873
2014 - 2015 0.1705 0.1749 0.8532 0.0944 0.0995

OVERALL 0.9555 0.7279 0.78786 0.0772 -0.2242

Table 5.17 reveals that, IDFC Government Securities Fund - Provident Fund Plan

- Regular Plan had positive beta values ranging from 0.5915 to 0.9724 indicating that

scheme moves in the same direction as that of the market and is defensive in nature

being less than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, IDFC Government Securities Fund - Provident Fund Plan -

Regular Plan provided a return (0.9555) more than that of the market (0.7279).

172


Table 5.18 Treynor Index - SBI Pharma Fund

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.4441 0.0184 0.8093 0.4375 -0.0885
2006 - 2007 0.1263 0.2174 0.8115 0.0447 0.1570
2007 - 2008 0.0674 0.1652 1.3082 -0.0173 0.0575
2009 - 2010 -0.492 -0.3287 1.6147 -0.3604 -0.2593
2013 - 2014 0.8429 0.6918 1.108 0.6795 0.5431
2010 - 2011 0.2914 0.3419 1.1648 0.1729 0.2163

2011 - 2012 -0.0554 -0.1283 0.9984 -0.1456 -0.2186

2012 - 2013 0.3706 0.3853 0.8514 0.3296 0.3468
2008 - 2009 0.2605 0.2255 0.7956 0.2143 0.1703
2014 - 2015 0.5685 0.4743 0.8556 0.5593 0.4492

OVERALL 2.4243 2.0628 1.03175 1.9145 1.3738

Table 5.18 reveals that, SBI Pharma Fund had positive beta values ranging from

0.5915 to 0.9724 indicating that scheme moves in the same direction as that of the market

and is aggressive in nature being more than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, the SBI Pharma Fund provided a return (2.4243) more than that of

the market (2.0628).

173


Table 5.19 Treynor Index - Reliance Pharma Fund

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.294 0.0184 1.0423 0.1957 -0.0687
2006 - 2007 0.1673 0.2174 0.8191 0.0944 0.1555
2007 - 2008 0.498 0.1652 1.0721 0.3806 0.0701
2009 - 2010 -0.34 -0.3287 0.8182 -0.5255 -0.5117
2013 - 2014 1.186 0.6918 0.8619 1.2716 0.6982
2010 - 2011 0.3186 0.3419 0.7854 0.2911 0.3207

2011 - 2012 -0.1102 -0.1283 0.8917 -0.2245 -0.2448

2012 - 2013 0.3484 0.3853 0.9984 0.2588 0.2958
2008 - 2009 0.2087 0.2255 0.8514 0.1394 0.1591
2014 - 2015 0.4946 0.4743 0.7956 0.5085 0.4830

OVERALL 3.0654 2.0628 0.89361 2.3900 1.3573

Table 5.19 reveals that, Reliance Pharma Fund had positive beta values ranging

from 0.7854 to 1.0721 indicating that scheme moves in the same direction as that of the

market and is aggressive in nature being more than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, the Reliance Pharma Fund provided a return (3.0654) more than

that of the market (2.0628).

174


Table 5.20 Treynor Index - UTI Pharma & Healthcare Fund

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.1602 0.0184 0.9304 0.0755 -0.0770
2006 - 2007 0.0829 0.2174 0.9331 -0.0076 0.1365
2007 - 2008 0.118 0.1652 0.9034 0.0310 0.0832
2009 - 2010 -0.2595 -0.3287 0.91 -0.3841 -0.4601
2013 - 2014 0.6662 0.6918 0.9344 0.6167 0.6440
2010 - 2011 0.3719 0.3419 0.6528 0.4318 0.3859

2011 - 2012 -0.0955 -0.1283 0.8338 -0.2225 -0.2618

2012 - 2013 0.2477 0.3853 0.5593 0.2820 0.5280
2008 - 2009 0.2327 0.2255 0.8514 0.1676 0.1591
2014 - 2015 0.4374 0.4743 0.7956 0.4367 0.4830

OVERALL 1.962 2.0628 0.83042 1.4270 1.6210

Table 5.20 reveals that, UTI Pharma & Healthcare Fund had positive beta values

ranging from 0.5593 to 0.9344 indicating that scheme moves in the same direction as that

of the market and is aggressive in nature being more than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, UTI Pharma & Healthcare Fund provided a return (1.962) less

than that of the market (2.0628).

175


Table 5.21 Treynor Index - HDFC Childrens Gift Fund - Investment Plan

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.3413 0.2473 0.7454 0.3371 0.2110
2006 - 2007 0.124 0.2885 0.3946 0.0862 0.5030
2007 - 2008 0.3145 0.4286 0.4501 0.4988 0.7523
2009 - 2010 -0.4017 -0.3976 0.4273 -1.1507 -1.1411
2013 - 2014 0.6762 0.493 0.9344 0.6274 0.4313
2010 - 2011 0.3196 0.1454 0.8502 0.2701 0.0652

2011 - 2012 -0.0749 -0.1812 0.8826 -0.1868 -0.3073

2012 - 2013 0.2732 0.2254 0.778 0.2355 0.1740
2008 - 2009 0.1296 0.0638 0.6954 0.0569 -0.0377
2014 - 2015 0.431 0.2595 0.7956 0.4286 0.2130

OVERALL 2.1328 1.5727 0.69536 1.2030 0.8638

Table 5.21 reveals that, HDFC Children’s Gift Fund - Investment Plan had

positive beta values ranging from 0..3946 to 0.9344 indicating that scheme moves in the

same direction as that of the market and is aggressive in nature being more than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, UTI HDFC Children’s Gift Fund - Investment Plan provided a

return (2.1328) more than that of the market (1.5727).

176


Table 5.22 Treynor Index - SBI Magnum Balanced Fund

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.4762 0.2473 0.7221 0.5348 0.2178
2006 - 2007 0.3393 0.2885 0.7817 0.3189 0.2539
2007 - 2008 0.4837 0.4286 0.7822 0.5033 0.4329
2009 - 2010 -0.4466 -0.3976 0.8532 -0.6289 -0.5715
2013 - 2014 0.6436 0.493 0.623 0.8886 0.6469
2010 - 2011 0.1251 0.1454 0.8305 0.0423 0.0667

2011 - 2012 -0.2223 -0.1812 0.8451 -0.3695 -0.3209

2012 - 2013 0.3503 0.2254 0.6534 0.3984 0.2072
2008 - 2009 0.1186 0.0638 0.686 0.0417 -0.0382
2014 - 2015 0.4324 0.2595 0.812 0.4217 0.2087

OVERALL 2.3003 1.5727 0.75892 2.1512 1.1036

Table 5.22 reveals that, SBI Magnum Balanced Fund had positive beta values

ranging from 0.623 to 0.8532 indicating that scheme moves in the same direction as that

of the market and is aggressive in nature being more than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, SBI Magnum Balanced Fund provided a return (2.3003) more

than that of the market (1.5727).

177


Table 5.23 Treynor Index - ICICI Prudential Balanced Fund - Regular Plan

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.387 0.2473 0.7454 0.3984 0.2110
2006 - 2007 0.2936 0.2885 0.3946 0.5160 0.5030
2007 - 2008 0.3659 0.4286 0.4501 0.6130 0.7523
2009 - 2010 -0.4383 -0.3976 0.4273 -1.2364 -1.1411
2013 - 2014 0.5073 0.493 0.5032 0.8293 0.8009
2010 - 2011 0.1858 0.1454 0.623 0.1538 0.0889

2011 - 2012 -0.0933 -0.1812 0.8305 -0.2207 -0.3266

2012 - 2013 0.2938 0.2254 0.8451 0.2412 0.1602
2008 - 2009 0.1118 0.0638 0.8338 0.0261 -0.0314
2014 - 2015 0.4556 0.2595 0.5593 0.6537 0.3031

OVERALL 2.0692 1.5727 0.62123 1.9743 1.3203

Table 5.23 reveals that, ICICI Prudential Balanced Fund - Regular Plan had

positive beta values ranging from 0.3946 to 0.8451 indicating that scheme moves in the

same direction as that of the market and is aggressive in nature being more than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all the

ten years studied.

On an overall, SBI Magnum Balanced Fund provided a return (2.0692) more

than that of the market (1.5727).

178


Table 5.24 Treynor Index - Franklin India Balanced Fund

Annual Market Treynor Market

Year Beta Treynor
Return Return Index Index
2005 - 2006 0.3034 0.2473 0.8093 0.2637 0.1944
2006 - 2007 0.3283 0.2885 0.8115 0.2937 0.2446
2007 - 2008 0.4266 0.4286 1.3082 0.2573 0.2588
2009 - 2010 -0.3832 -0.3976 1.6147 -0.2931 -0.3020
2013 - 2014 0.5286 0.493 1.108 0.3958 0.3637
2010 - 2011 0.1482 0.1454 1.1648 0.0500 0.0476

2011 - 2012 -0.124 -0.1812 0.9984 -0.2143 -0.2716

2012 - 2013 0.2421 0.2254 0.8514 0.1786 0.1590
2008 - 2009 0.0664 0.0638 0.7956 -0.0297 -0.0329
2014 - 2015 0.4705 0.2595 0.8556 0.4447 0.1981

OVERALL 2.0069 1.5727 1.03175 1.3468 0.8597

Table 5.24 reveals that, Franklin India Balanced Fund had positive beta values

ranging from 0.7956 to 1.6147 indicating that scheme moves in the same direction as that

of the market and is aggressive in nature being more than one.

The positive Treynor index implies that the scheme did provided adequate return

to cover risk-free return, the market risk during the entire period of study. As scheme’s

Treynor index was positive, the performance was good compared to the market in all

the ten years studied.

On an overall, SBI Magnum Balanced Fund provided a return (2.0069) more

than that of the market (1.5727).

179


5.4 Jensen Measure

The Sharpe and Treynor models provide measures for ranking the relative

performance of various portfolios on a risk-adjusted basis. Jensen developed a measure

of absolute performance on a risk-adjusted basis, with equilibrium average return on a

portfolio as the benchmark.

Scheme’s Expected Return= Risk free return + (Beta × Risk Premium)

Jensen Alpha is the gap between the scheme’s expected return and its actual

returns. To assess the extent of diversification, Jensen performance measure (1968) has

to be compared with Sharpe Differential Return (1966). If a portfolio is well diversified,

the quantum of differential return of the two measures will be the same.

5.5 Sharpe’s Differential Return

Sharpe’s Differential Return measures the ability of the fund manager in terms of

both security selection and diversification of portfolio. The difference between the

expected return and actual return of the portfolio is the differential return. Differential

returns are computed by applying the following equation.

Sharpe’s Expected Return = [Risk-free return + (Excess of market return over

risk-free return × standard deviation of scheme) / standard deviation of market]

180


Table 5.25 Jensen Alpha - L&T Gilt Fund - Investment Plan

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.03 0.1217 0.0917 0.1262
2006 - 2007 0.0084 0.0974 0.0890 0.0948
2007 - 2008 0.0574 0.1379 0.0805 0.1560
2009 - 2010 0.2197 0.2129 -0.0068 0.2365
2013 - 2014 -0.0971 0.0074 0.1045 0.0019
2010 - 2011 0.026 0.1129 0.0869 0.1209

2011 - 2012 0.0448 0.1249 0.0801 0.1343

2012 - 2013 0.1392 0.1868 0.0476 0.2067
2008 - 2009 0.0919 0.1600 0.0681 0.1830
2014 - 2015 0.1634 0.2239 0.0605 0.2744

OVERALL 0.6837 1.3858 0.7021 1.6388

The L&T Gilt Fund - Investment Plan’s Jensen alpha is depicted in Table

5.25. The expected return of the scheme ranged from 0.0074 to 0.2239. The positive

Jensen’s alpha in many years indicates that the scheme provided better returns than

expected.

181
 Table 5.26 Jensen Alpha - Birla Sun Life Gilt Plus - PF Plan

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.0557 0.1433 0.0876 0.1721
2006 - 2007 0.0527 0.1245 0.0718 0.1437
2007 - 2008 0.0672 0.1390 0.0718 0.1675
2009 - 2010 0.2027 0.2786 0.0759 0.3445
2013 - 2014 -0.1047 -0.0077 0.0970 -0.0382
2010 - 2011 0.0251 0.1127 0.0876 0.1222

2011 - 2012 0.0981 0.1793 0.0812 0.2270

2012 - 2013 0.1135 0.1961 0.0826 0.2628
2008 - 2009 0.035 0.1192 0.0842 0.1436
2014 - 2015 0.1994 0.2015 0.0021 0.2268

OVERALL 0.7447 1.4864 0.7417 2.1820

The Birla Sun Life Gilt Plus - PF Plan’s Jensen alpha is depicted in Table 5.26.

The expected return of the scheme ranged from (-) 0.0077 to 0.2786. The positive

Jensen’s alpha in many years indicates that the scheme provided better returns than

expected.

182


Table 5.27 Jensen Alpha - SBI Magnum Gilt Fund - Long Term Plan

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.0461 0.1233 0.0772 0.1406
2006 - 2007 0.0443 0.1246 0.0803 0.1399
2007 - 2008 0.0696 0.1444 0.0748 0.1695
2009 - 2010 0.1856 0.2484 0.0628 0.3025
2013 - 2014 -0.1361 -0.0259 0.1102 -0.0395
2010 - 2011 0.0468 0.1272 0.0804 0.1349

2011 - 2012 0.0577 0.1394 0.0817 0.1536

2012 - 2013 0.1097 0.1616 0.0519 0.1869
2008 - 2009 0.0643 0.1436 0.0793 0.1724
2014 - 2015 0.199 0.2013 0.0023 0.1793

OVERALL 0.687 1.3880 0.7010 1.7863

The SBI Magnum Gilt Fund - Long Term Plan’s Jensen alpha is depicted in

Table 5.27. The expected return of the scheme ranged from (-) 0.0259 to 0.2484. The

positive Jensen’s alpha in many years indicates that the scheme provided better returns

than expected.

183
 Table 5.28 Jensen Alpha - UTI Gilt Advantage Long Term Plan

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.0589 0.1339 0.0750 0.1576
2006 - 2007 0.0546 0.1115 0.0569 0.1192
2007 - 2008 0.0588 0.1165 0.0577 0.1264
2009 - 2010 0.3319 0.2318 -0.1001 0.2734
2013 - 2014 -0.1136 0.0328 0.1464 0.0298
2010 - 2011 0.0465 0.1190 0.0725 0.1230

2011 - 2012 0.0779 0.1547 0.0768 0.1706

2012 - 2013 0.1029 0.1770 0.0741 0.2046
2008 - 2009 0.0398 0.1232 0.0834 0.1392
2014 - 2015 0.198 0.2007 0.0027 0.1791

OVERALL 0.8557 1.4011 0.5454 1.7426

The UTI Gilt Advantage Long Term Plan’s Jensen alpha is depicted in Table

5.28. The expected return of the scheme ranged from 0.0328 to 0.2381. The positive

Jensen’s alpha in many years indicates that the scheme provided better returns than

expected.

184


Table 5.29 Jensen Alpha - IDFC Government Securities Fund - Provident Fund
Plan - Regular Plan

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.0584 0.1245 0.0661 0.1410
2006 - 2007 0.0689 0.1350 0.0661 0.1512
2007 - 2008 0.0774 0.1431 0.0657 0.1637
2009 - 2010 0.3367 0.3634 0.0267 0.4531
2013 - 2014 -0.0813 0.0109 0.0922 -0.0023
2010 - 2011 0.0395 0.1235 0.0840 0.1322

2011 - 2012 0.0959 0.1760 0.0801 0.2060

2012 - 2013 0.1268 0.1891 0.0623 0.2321
2008 - 2009 0.0627 0.1390 0.0763 0.1681
2014 - 2015 0.1705 0.2355 0.0650 0.2036

OVERALL 0.9555 1.6402 0.6847 2.1266

The IDFC Government Securities Fund - Provident Fund Plan - Regular Plan’s

Jensen alpha is depicted in Table 5.29. The expected return of the scheme ranged from

0.5951 to 0.9724. The positive Jensen’s alpha in many years indicates that the scheme

provided better returns than expected.

185
 Table 5.30 Jensen Alpha - SBI Pharma Fund

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.4441 0.4494 0.0053 2.0374
2006 - 2007 0.1263 0.1925 0.0662 0.6653
2007 - 2008 0.0674 0.1782 0.1108 0.6037
2009 - 2010 -0.492 -0.7044 -0.2124 -4.7719
2013 - 2014 0.8429 1.0239 0.1810 6.1176
2010 - 2011 0.2914 0.4294 0.1380 2.2761

2011 - 2012 -0.0554 0.0347 0.0901 -0.1295

2012 - 2013 0.3706 0.4055 0.0349 1.1243
2008 - 2009 0.2605 0.2973 0.0368 0.7066
2014 - 2015 0.5685 0.5764 0.0079 1.4867

OVERALL 2.4243 2.8829 0.4586 2.7653

The SBI Pharma Fund’s Jensen alpha is depicted in Table 5.30. The expected

return of the scheme ranged from (-) 0.7044 to 1.0239. The positive Jensen’s alpha in

many years indicates that the scheme provided better returns than expected.

186


Table 5.31 Jensen Alpha - Reliance Pharma Fund

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.294 0.3964 0.1024 1.2675
2006 - 2007 0.1673 0.2270 0.0597 0.6352
2007 - 2008 0.498 0.6239 0.1259 2.3262
2009 - 2010 -0.34 -0.1882 0.1518 -1.1322
2013 - 2014 1.186 1.1122 -0.0738 4.8583
2010 - 2011 0.3186 0.3402 0.0216 1.2523

2011 - 2012 -0.1102 -0.0083 0.1019 -0.3431

2012 - 2013 0.3484 0.4378 0.0894 1.2455
2008 - 2009 0.2087 0.2677 0.0590 0.7644
2014 - 2015 0.4946 0.4835 -0.0111 0.9931

OVERALL 3.0654 3.6924 0.6270 1.3312

The Reliance Pharma Fund’s Jensen alpha is depicted in Table 5.31. The

expected return of the scheme ranged from (-) 0.1882 to 1.1122. The positive Jensen’s

alpha in many years indicates that the scheme provided better returns than expected.

187
 Table 5.32 Jensen Alpha - UTI Pharma & Healthcare Fund

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.1602 0.2391 0.0789 0.8119
2006 - 2007 0.0829 0.1674 0.0845 0.4791
2007 - 2008 0.118 0.1966 0.0786 0.6516
2009 - 2010 -0.2595 -0.1461 0.1134 -1.2064
2013 - 2014 0.6662 0.7125 0.0463 3.6272
2010 - 2011 0.3719 0.3328 -0.0391 1.5632

2011 - 2012 -0.0955 0.0104 0.1059 -0.2706

2012 - 2013 0.2477 0.2285 -0.0192 0.5516
2008 - 2009 0.2327 0.2881 0.0554 0.7967
2014 - 2015 0.4374 0.4380 0.0006 1.2583

OVERALL 1.962 2.4672 0.5052 1.3021

The UTI Pharma & Healthcare Fund’s Jensen alpha is depicted in Table 5.32.

The expected return of the scheme ranged from (-) 0.1461 to 0.7125. The positive

Jensen’s alpha in many years indicates that the scheme provided better returns than

expected.

188


Table 5.33 Jensen Alpha - HDFC Childrens Gift Fund - Investment Plan

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.3413 0.3444 0.0031 0.6662
2006 - 2007 0.124 0.1389 0.0149 0.2004
2007 - 2008 0.3145 0.2316 -0.0829 0.3919
2009 - 2010 -0.4017 -0.0816 0.3201 -0.2965
2013 - 2014 0.6762 0.7218 0.0456 1.3773
2010 - 2011 0.3196 0.3617 0.0421 0.6871

2011 - 2012 -0.0749 0.0239 0.0988 -0.0679

2012 - 2013 0.2732 0.3025 0.0293 0.6289
2008 - 2009 0.1296 0.1801 0.0505 0.3301
2014 - 2015 0.431 0.4329 0.0019 1.2081

OVERALL 2.1328 2.6563 0.5235 2.2472

The HDFC Children’s Gift Fund - Investment Plan’s Jensen alpha is depicted in

Table 5.33. The expected return of the scheme ranged from (-) 0.0816 to 0.7128. The

positive Jensen’s alpha in many years indicates that the scheme provided better returns

than expected.

189
 Table 5.34 Jensen Alpha - SBI Magnum Balanced Fund

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.4762 0.4339 -0.0423 0.9639
2006 - 2007 0.3393 0.3552 0.0159 0.7813
2007 - 2008 0.4837 0.4684 -0.0153 1.0670
2009 - 2010 -0.4466 -0.2910 0.1556 -0.9445
2013 - 2014 0.6436 0.4910 -0.1526 0.7812
2010 - 2011 0.1251 0.1939 0.0688 0.2798

2011 - 2012 -0.2223 -0.0979 0.1244 -0.2858

2012 - 2013 0.3503 0.3189 -0.0314 0.5911
2008 - 2009 0.1186 0.1714 0.0528 0.2867
2014 - 2015 0.4324 0.4411 0.0087 1.1209

OVERALL 2.3003 2.4848 0.1845 2.7266

The SBI Magnum Balanced Fund’s Jensen alpha is depicted in Table 5.34. The

expected return of the scheme ranged from (-) 0.2910 to 0.4910. The positive Jensen’s

alpha in many years indicates that the scheme provided better returns than expected.

190


Table 5.35 Jensen Alpha - ICICI Prudential Balanced Fund - Regular Plan

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.387 0.3785 -0.0085 0.8812
2006 - 2007 0.2936 0.2059 -0.0877 0.3983
2007 - 2008 0.3659 0.2547 -0.1112 0.5271
2009 - 2010 -0.4383 -0.0973 0.3410 -0.4343
2013 - 2014 0.5073 0.3453 -0.1620 0.7904
2010 - 2011 0.1858 0.2058 0.0200 0.4294

2011 - 2012 -0.0933 0.0125 0.1058 -0.1519

2012 - 2013 0.2938 0.3383 0.0445 0.9143
2008 - 2009 0.1118 0.1832 0.0714 0.4052
2014 - 2015 0.4556 0.3448 -0.1108 1.1265

OVERALL 2.0692 2.1716 0.1024 2.4223

The ICICI Prudential Balanced Fund - Regular Plan’s Jensen alpha is depicted

in Table 5.35. The expected return of the scheme ranged from (-) 0.0973 to 0.3785. The

positive Jensen’s alpha in many years indicates that the scheme provided better returns

than expected.

191
 Table 5.36 Jensen Alpha - Franklin India Balanced Fund

Sharpe
Year Return Expected Return Jensen Alpha Differential
Return
2005 - 2006 0.3034 0.3355 0.0321 0.7912
2006 - 2007 0.3283 0.3564 0.0281 0.8377
2007 - 2008 0.4266 0.6481 0.2215 1.5988
2009 - 2010 -0.3832 -0.5288 -0.1456 -1.6781
2013 - 2014 0.5286 0.6757 0.1471 1.4883
2010 - 2011 0.1482 0.2626 0.1144 0.5336

2011 - 2012 -0.124 -0.0338 0.0902 -0.2585

2012 - 2013 0.2421 0.2961 0.0540 0.6786
2008 - 2009 0.0664 0.1428 0.0764 0.2363
2014 - 2015 0.4705 0.4926 0.0221 1.4325

OVERALL 2.0069 2.6473 0.6404 2.2393

The Franklin India Balanced Fund’s Jensen alpha is depicted in Table 5.35. The

expected return of the scheme ranged from (-) 0.5288 to 0.6757. The positive Jensen’s

alpha in many years indicates that the scheme provided better returns than expected.

5.6 Composite Risk –Return Analysis

A composite risk-return analysis of sample schemes during the ten year period

of study and their ranking based on Sharpe, Treynor and Jensen measures is of utmost

importance to identify the scheme that perform well in terms of actual return, total risk,

systematic risk and return in excess of expectations based on market conditions.

192
 

Table 5.37 Consolidated Sharpe Index of Sample Scheme

Sharpe Risk
S.No. Mutual Fund Scheme Return Risk Rank
Index Premium

L&T Gilt Fund - Investment

1 0.6837 0.1195 -0.2564 0.8805 12
Plan

Birla Sun Life Gilt Plus - PF

2 0.7447 0.1498 -0.0924 -0.8502 10
Plan

SBI Magnum Gilt Fund -

3 0.687 0.1307 -0.1327 0.8693 11
Long Term Plan

UTI Gilt Advantage Long

4 0.8557 0.1260 -0.0131 0.874 9
Term Plan

IDFC Government Securities

5 Fund - Provident Fund Plan - 0.9555 0.1314 0.0689 0.8686 8
Regular Plan

6 SBI Pharma Fund 2.4243 0.4896 0.3937 0.5104 5

7 Reliance Pharma Fund 3.0654 0.3953 0.5961 -0.6047 2

UTI Pharma & Healthcare

8 1.962 0.4717 0.2525 0.5283 7
Fund

HDFC Childrens Gift Fund -

9 2.1328 0.2399 0.5278 0.7601 3
Investment Plan

10 SBI Magnum Balanced Fund 2.3003 0.2354 0.6341 -0.7646 1

ICICI Prudential Balanced

11 2.0692 0.3042 0.3839 0.6958 6
Fund - Regular Plan

Franklin India Balanced

12 2.0069 0.2796 0.4077 -0.7204 4
Fund

193


Table 5.37 presents the return, risk, risk premium and Sharpe index of the seven

sample schemes for the eight years. The return from SBI Magnum Balanced Fund

(2.3003) was the highest and the L&T Gilt Fund - Investment Plan Scheme (0.6837) was

the lowest. The risk of L&T Gilt Fund - Investment Plan Scheme was the lowest

(0.1195). The negative risk premium for all the schemes, imply that the return of the

sample schemes was less than the risk-free rate of return and risk covered. The negative

Sharpe’s index ranging from (-) 0.0131to (-) 0.2564 indicate the poor performance of all

the sample schemes in terms of total risk taken by the investors. SBI Magnum Balanced

Fund (0.6341) and Reliance Pharma Fund (0.5961) topped the list.

194


Table 5.38 Consolidated Treynor Index of Sample Schemes

Risk Treynor
S.No. Mutual Fund scheme Return Beta Rank
Premium Index

L&T Gilt Fund -

1 0.6837 0.8120 0.8805 -0.1443 11
Investment Plan

Birla Sun Life Gilt Plus -

2 0.7447 0.83446 0.8502 -0.1198 10
PF Plan

SBI Magnum Gilt Fund -

3 0.687 0.7688 0.8693 -0.1967 12
Long Term Plan

UTI Gilt Advantage Long

4 0.8557 0.6212 0.874 0.0245 9
Term Plan

IDFC Government
5 Securities Fund - Provident 0.9555 0.7879 0.8686 0.0772 8
Fund Plan - Regular Plan

6 SBI Pharma Fund 2.4243 1.0318 0.5104 1.9145 4

7 Reliance Pharma Fund 3.0654 0.8936 0.6047 2.3900 1

UTI Pharma & Healthcare

8 1.962 0.8304 0.5283 1.4270 5
Fund

HDFC Children’s Gift

9 2.1328 0.6954 0.7601 1.2030 7
Fund - Investment Plan

SBI Magnum Balanced

10 2.3003 0.7589 0.7646 2.1512 2
Fund

ICICI Prudential Balanced

11 2.0692 0.6212 0.6958 1.9743 3
Fund - Regular Plan

Franklin India Balanced

12 2.0069 1.0318 0.7204 1.3468 6
Fund

195


Table 5.38 reveals the return, beta, risk premium and Treynor index for the ten

years of all the sample schemes. The beta value was the lowest for ICICI Prudential

Balanced Fund - Regular Plan and UTI Gilt Advantage Long Term Plan (0.6212) and the

highest in the case of SBI Pharma Fund scheme and Franklin India Balanced Fund

(1.0318). SBI Pharma Fund scheme and Franklin India Balanced Fund scheme with the

beta value more than one indicates its aggressive nature while all other sample schemes

were defensive in nature with beta values less than one. The negative Treynor index for

all the schemes ranging from (-) 0.1198 to (–) 0.1967 indicates that the sample schemes

provided insufficient returns compared to the risk free return and the market risk

involved. Reliance Pharma Fund scheme (2.3900) topped the list among the sample

schemes based on Treynor Index.

196
 

Table 5.39 Consolidated Jensen Alpha of Sample Schemes

Sharpe’s
Expected Jensen
S.No. Mutual Fund Scheme Return Differential Rank
Return Alpha
Return

L&T Gilt Fund -

1 0.6837 0.0139 0.7021 0.2744 2
Investment Plan

Birla Sun Life Gilt Plus -

2 0.7447 1.4864 0.7417 0.2268 1
PF Plan

SBI Magnum Gilt Fund -

3 0.687 1.3880 0.7010 0.1793 3
Long Term Plan

UTI Gilt Advantage Long

4 0.8557 1.4011 0.5454 0.1791 7
Term Plan

IDFC Government
Securities Fund -
5 0.9555 1.6402 0.6847 0.2036 4
Provident Fund Plan -
Regular Plan

6 SBI Pharma Fund 2.4243 2.8829 0.4586 1.4867 10

7 Reliance Pharma Fund 3.0654 3.6924 0.6270 0.9931 6

UTI Pharma & Healthcare

8 1.962 2.4672 0.5052 1.3021 9
Fund

HDFC Children’s Gift

9 2.1328 2.6563 0.5235 1.2081 8
Fund - Investment Plan

SBI Magnum Balanced

10 2.3003 2.4848 0.1845 1.1209 11
Fund

ICICI Prudential Balanced

11 2.0692 2.1716 0.1024 1.1265 12
Fund - Regular Plan

Franklin India Balanced

12 2.0069 2.6473 0.6404 1.4325 5
Fund

197
 Table 5.39 shows the return, expected return, Jensen Alpha and Sharpe’s

Differential Return of sample schemes for the entire period of study. The expected return

was the highest in the case of Reliance Pharma Fund Scheme (3.6924) and the lowest in

the case of L&T Gilt Fund - Investment Plan scheme (0.0139) due to high beta value. All

Scheme provided positive Jensen’s alpha indicating its superior performance compared to

that of expectations. All the schemes were not fully diversified as the Jensen’s alpha and

Sharpe’s Differential returns differed significantly. Birla Sun Life Gilt Plus - PF Plan

(0.7417) followed by the L&T Gilt Fund - Investment Plan (0.7021) topped the list.

5.7 Comparison of Performance Evaluation Measures

All the three models employ different measures to evaluate the performance of

mutual fund schemes. Hence, there is a need to study the similarity or otherwise as

depicted by Sharpe, Treynor and Jensen’s model. To identify the uniformity in the

ranking of the three models

Kendalls Coefficient of Concordance was used to test the following hypothesis at

five percent level of significance.

H01: There is no significant difference among the performance evaluation measures as

used by Sharpe, Treynor and Jensen.

198
 Table 5.40 Comparisons of Performance Evaluation Models

Sharpe Treynor Jensen

S.No. Mutual Fund scheme Rank Rank Rank Rj S
Index Index Alpha
1 L&T Gilt Fund - Investment Plan -0.2564 12 -0.1443 11 0.7021 2 9 6
2 Birla Sun Life Gilt Plus - PF Plan -0.0924 10 -0.1198 10 0.7417 1 6 16
3 SBI Magnum Gilt Fund - Long Term Plan -0.1327 11 -0.1967 12 0.701 3 5 2
4 UTI Gilt Advantage Long Term Plan -0.0131 9 0.0245 9 0.5454 7 18 7
IDFC Government Securities Fund - Provident
5 0.0689 8 0.0772 8 0.6847 4 16 5
Fund Plan - Regular Plan
6 SBI Pharma Fund 0.3937 5 1.9145 4 0.4586 10 12 85
7 Reliance Pharma Fund 0.5961 2 2.39 1 0.627 6 10 23
8 UTI Pharma & Healthcare Fund 0.2525 7 1.427 5 0.5052 9 3 18
9 HDFC Childrens Gift Fund - Investment Plan 0.5278 3 1.203 7 0.5235 8 7 26
10 SBI Magnum Balanced Fund 0.6341 1 2.1512 2 0.1845 11 10 12
11 ICICI Prudential Balanced Fund - Regular Plan 0.3839 6 1.9743 3 0.1024 12 19 8
12 Franklin India Balanced Fund 0.4077 4 1.3468 6 0.6404 5 20 9

Sphearman’s coefficient of Correlation

Ranking between Sharpe and Treynor’s Measure = 0.7895 SUM SUM
Ranking between Treynor and Jensen’s Measure = 0.6523 = =
Ranking between Sharpe and Jensen’s Measure = 0.8952 135 217

199


Table 5.40 shows that, the rank correlation between the pairs of evaluation was

found to be positive indicating a high degree of positive relationship between the ranks

assigned by the three measures formulated by Sharpe, Treynor and Jenson. The

relationship between Treynor and Jensen was the highest (0.7417) and lowest (0.1024)

between Sharpe and Treynor’s measures of performance evaluation.

Testing the significance in the relationship using the Kendalls Coefficient of

Concordance provides a calculated value of ‘s’ (220) greater than the Table value (157.3)

which shows that ‘w’ (0.8730) is significant. Hence, the null hypothesis is rejected and it

is inferred that the rankings provided by the three measures essentially apply the same

standard in evaluating the performance of mutual fund schemes. There is a significant

agreement in the ranking by the three measures. The lowest value observed amongst the

ranks (Rj) is 3 and hence the best estimate of true rankings is the SBI Magnum Multiplier

Plus scheme (i.e) all the three models on the whole rank SBI Magnum Balanced Fund

scheme as the topper among the sample schemes covered under study in terms of

performance compared to the market and risk elements involved.

5.8 Eugene Fama’s Decomposition of Performance

Eugene Fama provides for an analytical framework enabling for a detailed break

up of a fund’s performance into the components of total returns to identify the impact of

different skills involved in active portfolio management. The total return on a portfolio

constitutes of risk free return and excess return.

Total return = Risk-free return (Rf ) + Excess Return

Excess Return =Risk premium + Return from Stock Selectivity (R3)

200


Risk Premium = Return for bearing Systematic risk (R1) + Return for bearing

Unsystematic risk (R2)

Return for Systematic Risk (R1) = ȕp (Rm-Rf)

Return for Unsystematic Risk (R2) = [(ıp / ım) -ȕp] × (Rm – Rf)

Return from pure Stock Selectivity (R3) = Rp- (Rf+ R1+ R2)

Table 5.41 Eugene Fama’s Decomposition of Sample Schemes’ Returns

Return for Return for Return from

Mutual Fund
S.No. Return Systematic Unsystematic pure Stock
scheme
Risk Risk Selectivity
L&T Gilt Fund -
1 0.6837 0.5180 -0.4561 0.7456
Investment Plan
Birla Sun Life Gilt
2 0.7447 0.5323 -0.4526 0.8244
Plus - PF Plan
SBI Magnum Gilt
3 Fund - Long Term 0.687 0.4904 -0.4263 0.7511
Plan
UTI Gilt Advantage
4 0.8557 0.3963 -0.3463 0.9057
Long Term Plan
IDFC Government
Securities Fund -
5 0.9555 0.5026 -0.4365 1.0215
Provident Fund Plan
- Regular Plan
6 SBI Pharma Fund 2.4243 2.0354 -1.0388 3.4209
Reliance Pharma
7 3.0654 1.7629 -1.0660 3.7623
Fund
UTI Pharma &
8 1.962 1.6383 -0.8656 2.7347
Healthcare Fund
HDFC Childrens
9 Gift Fund - 2.1328 1.0310 -0.7836 2.3802
Investment Plan
SBI Magnum
10 2.3003 1.1253 -0.8604 2.5651
Balanced Fund
ICICI Prudential
11 Balanced Fund - 2.0692 0.9211 -0.6409 2.3494
Regular Plan
Franklin India
12 2.0069 1.5298 -1.1021 2.4346
Balanced Fund

201


From Table 5.41 it is clear that Eugene Fama’s Decomposition of total returns.

The negative values of return on systematic and unsystematic risk imply that the market

return was less than the risk-free return during the period of study and so did not cover

any of the risk involved. There is no negative return for the schemes that have been

selected so there was no unsystematic risk.

The return from stock selectivity was positive for all the schemes implying that

the sample schemes had earned superior return due to stock selectivity. Reliance Pharma

Fund scheme provided the highest net superior returns (3.7623) due to selectivity skills

assuming higher risk.

Risk Analysis

An analysis of the scheme’s risk in comparison with that of the benchmark index

risk is of paramount importance to identify the schemes which are riskier than the market

and the impact of the market on the mutual fund scheme. Sharpe considers the total

variance explained by the market index in terms of systematic risk and the unexplained

otherwise residual variance in terms of unsystematic risk. The risk components are

calculated as follows:

Total Variance Explained by Index = r2 x ıp2

Total Variance not explained by Index = (1- r2) x ıp2

202


Table 5.42 Composite risk of Sample Schemes

Components of Risk
Total
Mutual Fund scheme Explained Unexplained Variance
variance variance
L&T Gilt Fund - Investment Plan 0.0004 0.0663 0.0667
Birla Sun Life Gilt Plus - PF Plan 0.0009 0.0715 0.0724

SBI Magnum Gilt Fund - Long Term Plan 0.0006 0.0662 0.0668

UTI Gilt Advantage Long Term Plan 0.0003 0.0837 0.0841

IDFC Government Securities Fund -
0.0003 0.0937 0.0941
Provident Fund Plan - Regular Plan
SBI Pharma Fund 0.0098 0.2325 0.2423
Reliance Pharma Fund 0.0026 0.3014 0.3040
UTI Pharma & Healthcare Fund 0.0129 0.1849 0.1977
HDFC Childrens Gift Fund - Investment
0.0007 0.2106 0.2113
Plan
SBI Magnum Balanced Fund 0.0006 0.2276 0.2282
ICICI Prudential Balanced Fund - Regular
0.0020 0.2024 0.2044
Plan
Franklin India Balanced Fund 0.0015 0.1968 0.1983

Table 5.42 explains the components of risk. The explained variance by market

index was the lowest in the case of UTI Gilt Advantage Long Term Plan and IDFC

Government Securities Fund - Provident Fund Plan - Regular Plan (0.0003) and the

highest in the case of UTI Pharma & Healthcare Fund scheme (0.0129). The unexplained

variance by market index was the highest for Reliance Pharma Fund Scheme (0.3014)

and the lowest in the case of SBI Magnum Gilt Fund - Long Term Plan Scheme (0.0662).

Reliance Pharma Fund Scheme showed high explained and high unexplained variance

during the period of study.

203


5.9 Relationship Between The Scheme And Market

The risk involved in individual securities is measured by standard deviation. The

interactive risk or covariance between the scheme and the market rate of return helps to

identify whether the two rates of returns move in the same direction or inversely related

based on the positive or negative covariance. If the covariance is zero it implies that the

scheme is independent of the market.

The coefficient of correlation helps to identify the similarity or otherwise in the

behavior of schemes and market rate of return. The scheme could reduce risk by way of

investing in negative or low covariance providing security so as to reduce risk by

diversification.

Lower the correlation, better the diversification of portfolio. The coefficient of

determination (R2) provides the percentage of variance of the scheme that is explained by

the variation of return on the market. To test the relationship between the market index

return and scheme return, the following null hypothesis was formulated and tested at five

percent level of significance using Chi-square test of significance.

H02: Index returns and scheme returns are not significantly related.

204


Table 5.43 Impact of Market on the Performance of Sample Schemes

Coefficient of Calculated
Mutual Fund scheme Covariance Correlation
determination Z value
L&T Gilt Fund - Investment
0.0366 0.0175 0.0306 8.38
Plan
Birla Sun Life Gilt Plus - PF
0.0399 0.0201 0.0405 9.05
Plan
SBI Magnum Gilt Fund - Long
0.0368 0.0190 0.0362 8.42
Term Plan
UTI Gilt Advantage Long
0.0459 0.0147 0.0217 10.27
Term Plan
IDFC Government Securities
Fund - Provident Fund Plan - 0.0512 0.0137 0.0189 11.37
Regular Plan
SBI Pharma Fund 0.3682 0.0202 0.0408 29.11
Reliance Pharma Fund 0.4656 0.0129 0.0166 36.16
UTI Pharma & Healthcare
0.2980 0.0240 0.0578 24.02
Fund
HDFC Children’s Gift Fund -
0.2470 0.0112 0.0127 25.32
Investment Plan
SBI Magnum Balanced Fund 0.2664 0.0102 0.0105 27.16
ICICI Prudential Balanced
0.2396 0.0147 0.0216 24.62
Fund - Regular Plan
Franklin India Balanced Fund 0.2324 0.0139 0.0194 23.93

Table 5.43 reveals that the interactive risk as measured by covariance between the

market and the scheme’s returns were positive for all the schemes covered under the

study indicates that the sample schemes moves in the same direction as that of the

market. The highest covariance was in the case of Reliance Pharma Fund Scheme

(0.4656) and the lowest in the case of L&T Gilt Fund - Investment Plan Scheme (0.0366).

The calculated Z Value was greater for all the schemes covered under the study. Hence, it

could be concluded that the hypothesis is rejected (i.e.) market return have a significant

impact on all the sample mutual fund scheme’s returns.

205


5.10 Relationship between the present performance and the past performance

The present performance of a scheme is based on the performance track record of the

scheme in the past period. To identify the extent of impact of the past performance on the

current net assets value, the following hypothesis was formulated and tested at five

percent level of significance using autocorrelation.

H03: Past performance of the scheme does not have any significant relationship with

that of current performance.

206
 

Table 5.44 Auto correlation of Net Assets Value of Sample Schemes

Time Lag
S.No. Mutual Fund Scheme Half
Weekly Monthly Quarterly Yearly
Yearly
1 L&T Gilt Fund - Investment Plan 0.9966 0.9355 0.781 0.59 0.225
(119.31)* (61.13)* (31.67)* (18.75)* (5.64)*
2 Birla Sun Life Gilt Plus - PF Plan 1.0024 0.9446 0.7956 0.6289 0.395
(136.83)* (65.11)* (33.17)* (20.75)* (10.92)*
SBI Magnum Gilt Fund - Long
3 1.0086 0.9702 0.8591 0.7137 0.4743
Term Plan
(166.77)* (81.4)* (41.6)* (26.03)* (13.77)*
UTI Gilt Advantage Long Term
4 1.0067 0.9636 0.8492 0.6966 0.4424
Plan
(156.09)* (76.19)* (40.01)* (24.83)* (12.59)*
IDFC Government Securities
5 Fund - Provident Fund Plan - 1.0033 0.9514 0.8173 0.6678 0.3902
Regular Plan
(140.37)* (68.61)* (35.65)* (22.99)* (10.76)*
6 SBI Pharma Fund 0.9958 0.9276 0.7238 0.5075 0.1352
(117.27)* (58.09)* (26.76)* (15.08)* (3.11)*
7 Reliance Pharma Fund 0.9986 1.1418 0.7279 0.4798 0.219
(124.51)* (56.76)* (25.43)* (13.75)* (1.77)*
8 UTI Pharma & Healthcare Fund 1.1801 1.1418 0.9409 0.6928 0.432
(117.27)* (55.43)* (24.09)* (12.41)* (0.44)*
HDFC Childrens Gift Fund -
9 0.9687 0.9303 0.7294 0.4813 0.2205
Investment Plan
(124.51)* (54.09)* (22.76)* (11.08)* (0.89)*
10 SBI Magnum Balanced Fund 1.0504 0.9614 0.7605 0.5124 0.2516
(117.27)* (52.76)* (21.43)* (9.75)* (2.23)*
ICICI Prudential Balanced Fund -
11 1.0012 0.952 0.7511 0.503 0.2422
Regular Plan
(124.51)* (51.43)* (20.09)* (8.41)* (3.56)*
12 Franklin India Balanced Fund 0.9465 0.9324 0.7315 0.4834 0.2226
(117.27)* (50.09)* (18.76)* (7.08)* (4.89)*

* Significant at five percent level.

207


The results of the autocorrelation as depicted in Table 5.44 shows that, the

present NAV is positively and significantly correlated with the past NAV for all the

time lags of all the sample schemes studied. There exists a high degree of positive

correlation in weekly time lag and gets reduced as the time lag increases.

As the correlation coefficient is significant for all the time lags, the hypothesis of

no correlation gets automatically rejected for all time lags of all the sample schemes.

However, the coefficient of correlation with higher time lags consistently increases with

reduction in time lags, which is evident from the uniform rise in correlation coefficient

from yearly to weekly time lags for all the sample schemes.

5.11 Concluding Remarks

During the ten years of study period, the sample schemes outperformed the

market in terms of absolute returns in many years. But all the sample schemes and the

market did not provide adequate return to cover risk – free return and total risk of the

schemer. Schemes in general performed better than the market. Expect SBI Magnum

Scheme, the other sample scheme did not ensure expects returns.

The performance of the sample schemes were in the same direction as that of the

market as evident from the positive beta values. Only SBI Magnum Scheme and UTI

Opportunities scheme were aggressive with high beta values. All the sample schemes

were not well diversified as depicted by the difference in the Jensen alpha and Sharpe

Differential return. All the three risk – adjusted performance measures by Sharpe,

Treynor and Jensen Models depicted poor performance of the sample schemes and

ensured significant agreement in their ranking.. From the twelve sample schemes

studied, SBI Magnum scheme topped the list in the case of all the three portfolio

performance evaluation models.

208
 CHAPTER – VI
INVESTORS, BROKERS AND FUND MANAGERS PERCEPTIONS
ON INDIAN MUTUAL FUNDS

6.1 Introduction

Indian financial system broadly consists of financial institutions, services,

market and instruments. Financial institutions mobilize sources, purchase and sell

instruments and render various services in accordance with the practices and procedures

of law. Investing in financial securities is a complex one involving knowledge of

various investment tools, terms, concepts, strategies and processes. The success of a

financial investment activity depends on the knowledge and ability of investors to invest

the right amount at the right time. Investor has to use his intellect, which is an art to

acquire by learning and experience. Knowledge of financial investment principles and

the art of investment management are the basic requirements for a successful

investment.

The financial securities include ownership securities (like shares, mutual fund

units) and creditorship securities (like debentures, bonds). Ownership securities are

more risky than creditorship securities. Investment decisions relating to ownership

securities involve planning of investment strategies according to the extent of

diversification desired by individuals. Investors can reduce risk and maximize returns

by way of mutual fund investments, enjoying the expertise of professional fund

management. In India, Mutual fund industry is an organized financial system, accessible

to individual investors having varied needs and options. In order to identify the

preferences of brokers and investors for mutual funds, a careful collection of primary

209
data through questionnaire was made. Schedules were used to collect data from fund

managers on mutual funds. The information collected from investors, brokers and fund

managers with regard to the fourth and fifth objectives of the study are analysed in this

chapter as detailed below:

6.2 Profile of Respondents (Investors)

Different characteristics of individual investors basically influence the choice

and preference for investments. Hence, to understand the nature and characteristics of

respondents covered under study, an analysis of the information regarding their socio-

economic background is carried out in this part of the research work.

210
 Table 6.1 Profile of Sample Investors

Number of
Profile of Investors Percentage
Investors

Below 30 Years 70 17.5

31-45 Years 160 40
Age 46-60 Years 118 29.5
Above 60 Years 52 13
Male 336 84
Female 64 16
Sex
Business 126 31.5
Agriculture 35 8.75
Professional 33 8.25
Occupation Employed 145 35.25
Others (Retired) 61 15.25
Up to Higher Secondary Level 94 23.5
Educational
Undergraduate 210 52.5
Qualification
Postgraduate 96 24
Married 354 88.5
Marital Status
Unmarried 46 11.5
Monthly Below 10,000 211 52.75
Income 10001-20,000 138 34.5
(in Rupees) Above 20,000 51 12.75
Monthly Below 2,000 198 49.5
Savings 2001-4,000 87 21.75
(in Rupees) Above 4,000 115 28.75

Table 6.1 reveals that, 40 percent of respondents were in the age group of 31-45

years, 84 percent of respondents were male investors, 35.25 percent of investors

represented employed category, 52.5percentof investors were undergraduates, 88.5

percent of investors were married, 52.75 percent of investors were earning less than

Rs.10, 000 per month and 49.5 percent of investors were saving less than Rs.2, 000 per

month.

211
6.3 Attitude of Investors towards Investments

The investors’ attitude towards investment is analyzed with respect to their

financial needs, investment objective, and time horizon of investment, willingness to

take risk, fluctuations in the value of investment, investment experience, preference and

degree of safety for financial assets.

6.4 Financial needs and Dependence of Investors on Investments

The nature and intensity of financial needs differ from investor to investor based

on his requirements, objectives and economic status. The intensity of financial needs

has a say on the dependence of investors on their investments, which is factorized as

follows:

Table 6.2 Financial Dependence of Investors

Factors of Financial Dependence Number of Investors Percentage

Depend totally on investments. 58 14.5

Depend on investments for income

101 25.25
and emergency needs.
Depend somewhat on investments for
income and emergency needs
88 22
for income and emergency
needs.
Depend on investments to serve only
56 14
on an emergency
Devote investments to long-term
82 20.5
savings

Don’t Depend on investments. 15 3.75

Total 400 100

Table 6.2 reveals that, 25.25 percent of investors covered (Factor 2) depend on

their investments for income and emergency needs and 20.5 percent (Factor 5) devote

their investments to long-term savings.

212
6.5 Investment Objectives of Investors

People have many motives for investing. The choice of investment and the

constituents of portfolio are based on their motives. The investment objectives of

investors can be categorized into five options.

Table 6.3 Investment Objective of Investors

Options for Investment

Number of Investors Percentage
Objective

Capital preservation and satisfactory

58 14.5
current income

First priority for Income and second

89 22.25
priority for Growth.

Balanced preference for income and

99 24.75
growth.

Basically growth oriented but

71 17.75
intends to play it somewhat safe

Maximize growth, as income is not

83 20.75
critical
Total 400 100

Table 6.3 reveals that, 24.75 percent desired to (Option3) balance their income

and growth objectives, 22.25 percent had (Option2) top priority for income objective

and second priority for growth objective while 20.75 percent had (Option 5)

maximize growth, as income is not critical.

213
6.6 Investment Time Horizon of Investors

Investment time horizon is the longevity of funds to be committed in various

investment avenues and is a major determinant in the choice of investment. The period

of time between the date of purchase and sale of an investment is the investor’s

investment horizon or holding period.

Table 6.4 Investment Time Horizon of Investors

Investment Time
Number of Investors Percentage
Horizon
Up to 5 Years 258 64.5
6-10 Years 102 25.5
11-15 Years 33 8.25
Above 15 Years 7 1.75
Total 400 100

Table 6.4 reveals that, 64.5 percent of investors had an investment time horizon

up to five years 25.5 percent of investors had an investment time horizon between 6-10

years and a minimum of1.75percent had more than 15 years of investment time

horizon.

6.7 Investors’ Willingness to Take Risk

Investors differ in their choice of investments due to differences in their

willingness to invest for the expected return against risk; willingness to accept higher

risk to attain higher expected returns, investor’s risk tolerance; and attitude towards

risk aversion in accepting risk.

The risk of an investment refers to the variability of its rate of return. Forces

that give rise for variations in returns constitute the elements of risk. The degree of risk

taken and the extent of benefits derived from investment are related to each other.

214
Investors’ willingness to take risk can be categorized as follows based on the extent of

risk accepted.

Table 6.5 Investors’ Willingness to take Risk

Number of
Willingness to take Risk Percentage
Investors
Willing to take as much risk as possible. 110 27.5
Willing to take modest risk. 220 55
Avoid taking risk. 70 17.5
Total 400 100

Table 6.5 reveals that, 55 percent of investors were (Category2) willing to take

modest risk, 27.5 percent were (Category 1) ready to take as much risk as possible and

the reset 17.5 percent were avoiding risk.

6.8 Investors Attitude towards Fluctuations in the Value of Investments

Risk tolerance is basically investors’ feeling of comfort in the choice of

investment. The risk spectrum ranges from “safe or maximum stability” to “very risky

or substantial volatility”. The comfort zone chosen by the investor determines the

choice of investment and the extent of benefits derived. Investors’ attitude towards

fluctuations in the value of investments can be grouped into the following five choices:

215
 Table 6.6 Investors’ Attitude towards Volatility in Investment Value
Attitude Towards
Volatility In Investment Number of Investors Percentage
Value
Accept lower long run
returns with maximum 78 19.5
stability
Accept little volatility for
88 22
higher returns.

Take average amount of

111 27.75
volatility for average returns

Accept higher volatility as

68 17
growth is the goal.
Accept substantial volatility,
as maximum appreciation is 55 13.75
the goal.
Total 400 100

Table 6.6 shows that, 27.75 percent of investors were ready to take average

amount of volatility for average returns (Choice 3) while 22percent accepted (Choice

2) little volatility for higher returns and only 13.75 percent accepted substantial

volatility, as maximum appreciation was their goal.

6.9 Investors Profile and Attitude towards Investments

Personal profile of each investor differs from each other. Personal profile brings

out the differences in their financial needs, investment objective, and willingness to

take risk and attitude towards fluctuations in the value of investments. Hence, there is a

need to study the impact of investors profile on their attitude towards investments. Chi-

square test is used to study the impact at five percent level of significance.

216
 Table 6.7 Investors Profile and Attitude towards Investment

Volatility In
Financial Investment Willingness
Investors Profile Investment
Need Objective To Take Risk
Value
Age 58.85* 87.13* 31.00* 32.59*
Sex 29.97* 43.75* 38.56* 18.33*
Occupation 95.41* 98.24* 22.61* 70.17*
Educational    
Qualification 33.45* 46.71* 8.51 9.37
Marital Status 8.80 16.64* 10.91* 14.57*
Monthly
163.41* 118.80* 11.24* 40.09*
Income
Monthly
102.08* 73.43* 3.07 26.33*
Savings
* Significant at 5 percent level.

Table 6.7 reveals that, age, sex, occupation have a significant impact on the

investors’ financial dependence, investment objective, willingness to take risk and the

extent of volatility in investment value accepted. Educational qualification of investors

had a significant impact on the financial needs and investment objective. Marital status

had a significant impact on investment objective, willingness to take risk and volatility in

investment value. Monthly income and monthly savings significantly influence financial

needs, investment objective and volatility in investment value.

6.10 Investment Experience of Investors

The experience of investors in the field of investment brings out changes in

investment attitude, preference towards investment avenues and the extent of

diversification in investment.

217
 Table 6.8 Investment Experience of Investors

Investment
Number of Investors Percentage
Experience
Less than 5 Years 198 49.5
6-10 Years 79 19.75
11-15 Years 75 18.75
16-20 Years 21 5.25
Above 20 Years 27 5.75
Total 400 100

Table 6.8 reveals that, 49.5 percent of investors had less than five years of

investment experience while 19.75 percent had 6 to 10 years of experience in the field

of investment and only 5.25 per cent had16-20 years of investment experience.

6.11 Proportion of Holdings in Financial Assets

Investors do not put all their holdings in one type of financial asset. To fulfill

the objectives and varied needs, investors diversify their savings among various

financial assets. The proportion of investments in varied financial assets determines the

amount of risk taken and the return that could be earned by the investors.

218
 Table 6.9 Investment in Financial Assets by Investors
Proportion of Investment in Financial Assets
Financial Assets
Below 25 26-50 51-75 Above75 Total
Bank Deposits 185 156 44 15 400
(45.25) (39) (11) (3.75) (100)

Post Office Savings Scheme 156 137 57 35 385

(40.52) (35.58) (14.81) (9.09) (95.25)

Bonds & Debentures 114 45 36 68 263
(43.35) (17.11) (13.69) (25.86) (65.75)
Equity Shares 210 85 58 20 373
(55.30) (22.79) (15.55) (5.36) (93.25)
Mutual Funds 254 86 46 5 391
(64.96) (21.99) (11.76) (1.28) (97.75)
Insurance 146 57 36 55 294
(49.66) (19.39) (12.24) (18.71) (73.5)

*Figures in brackets represent percentages.

Table 6.9 shows that, 100 percent of sample investors had invested in bank

deposits followed by mutual funds (97.75 per cent) followed by post office savings

(95.25per cent) and equity shares (93.25 per cent). 64.96 per cent had invested up to 25

per cent of their savings in mutual funds. Majority of the investors had invested up to 25

per cent of their savings in each type of financial asset.

219
 Table 6.10 Investors Preference for Financial Assets

Order of Preference
Financial Total Average
Rank
Assets Rank Rank Rank Rank Rank Rank Score Score
I II III IV V VI

Bank Deposits 178 97 42 46 30 7 1926 4.82 I

Post Office
Savings 105 148 68 26 38 15 1811 4.53 II
Schemes

Bonds and
35 46 77 85 46 111 1206 3.02 VI
Debentures

Equity Shares 89 55 136 58 40 22 1629 4.07 III

Mutual Funds 54 60 75 123 60 28 1441 3.60 IV

Insurance
33 77 60 65 80 85 1263 3.16 V
Policies

Table 6.10 shows the frequencies obtained and the weights assigned to each

financial asset along with the total score and rank. Investors preferred bank deposit in

the first instance, with the highest average score of 4.82. These bond preferences were

towards post office savings scheme as the average score was 4.53. The third place was

for equity shares with an average score of 4.07. Mutual funds were the fourth preferred

financial asset with an average score of 3.60.

220
 Table 6.11 Investors’ Opinion on Degree of Safety of Financial Assets

Degree of Safety
Total Average
Financial Assets Absolutely Reasonably Somewhat Not Don’t Score Score
Safe Safe Safe Safe know

Bank Deposits 310 66 8 12 4 1866 4.67

Post Office
327 33 20 12 8 1859 4.65
Savings Schemes

Bonds and
12 170 201 7 10 1367 3.42
Debentures

Equity Shares 10 90 175 120 5 1180 2.95

Mutual Funds 25 142 175 46 12 1322 3.31

Insurance
210 115 48 20 7 1701 4.25
Policies

Figure 6.1 Investors’ Opinion on Degree of Safety of Financial Assets

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221
 Table 6.11 & Figure 6.1 reveal the opinion of investors relating to the degree of

safety of investment in financial assets and the scores assigned. Investors were of the

opinion that bank deposits had the highest degree of safety, with an average score of

4.67each.Post office savings schemes were second preferred from the point of view of

safety with an average score of 4.65. Insurance policies occupied the third position,

with an average score of 4.25.Fourth position was assigned for Bonds and debentures;

the average score being 3.42. Fifth position was assigned to Mutual funds: the average

score being 3.31and the last preference was for equity shares scoring 2.95.

Post office savings schemes, bank deposits and insurance policies were

regarded as absolutely safe for 327 (81.75 per cent), 310 (77.5 per cent) and 210 (52.5

per cent) investors respectively as shown in the figure 6.1 Bonds and debentures,

equity shares and mutual funds were somewhat safe for 201, 175 and 175 investors

respectively.

6.12 Investors Opinion on Mutual Fund Industry in India

The success or failure of any industry in the financial sector depends on the

extent of awareness and acceptability among the investing community. Hence, this part

of the research attempts to identify the opinion of investors towards mutual fund

investment in terms of experience in the field of mutual fund investment, objective of

selecting mutual fund schemes, impact of profile on scheme selection, preference for

mutual fund sector and on the sources of information.

222
 Table 6.12 Experience of Investors in Mutual Fund Investment

Investment Experience Number of Investors Percentage

Up to 5 Years 289 72.25

6-10 Years 70 17.5

Above 10 Years 41 10.25

Total 400 100



Table 6.12 reveals that, the investment experience in the field of mutual funds

was less than five years for 72.25 per cent of investors covered and only 10.25 per cent

had mutual fund investment experience for more than 10 years.

6.13 Investor’s Opinion on objective of selecting Mutual Fund Schemes

Investments in mutual funds are based on a combination of criteria like return,

safety, liquidity and tax benefit provided by the schemes.

Table 6.13 Objective of Investing in Mutual Funds

Classification of Number of
Objectives Percentage
Objective Investors

Regular Income 175 43.75

Return Growth 180 45
Both 45 11.25
Safety 215 53.75
Stability Speculation 80 20
Both 105 25.25
High Liquidity 128 32
Marketability High Profitability 130 32.5
Both 142 35.5
Tax Savings 147 35.75
Tax Benefit Non-Tax Savings 63 15.75
Both 190 47.5

223
 Table 6.13 reveals that, from return on investment point of view, 43.75 per cent

preferred funds providing regular income. From stability point of view, 53.75 per cent

chose schemes assuring safety of investment. From the angle of marketability of

schemes, 35.5 per cent preferred mutual funds ensuring both high liquidity and high

profitability. From the tax benefit point of view, 47.5 per cent invested in schemes with

or without tax savings.

6.14 Investors Profile and Objective of Selecting Mutual Fund Schemes

The choice of a scheme differs from investor to investor based on their profile.

There is a need to identify the impact of investors profile on the criteria of selecting

mutual fund scheme and was tested using chi-square test at five percent level of

significance.

Table 6.14 Investors’ Profile and objective of Selecting Mutual Fund Scheme

Objective of Selecting Scheme

Profile of
Investors Tax
Return Safety Liquidity
Benefit
Age 79.83* 30.59* 38.43* 20.64*
Sex 3.67 9.71* 6.76 11.47*
Occupation 41.16* 39.93* 39.27* 29.37*
Educational
12.24* 8.73 60.28* 76.59*
Qualification
Marital Status 6.68 19.04* 0.24 5.64
Monthly Income 61.85* 75.09* 27.72* 23.07*
Monthly Savings 31.33* 31.32* 62.77* 28.68*
* Significant at 5 percent level.

Table 6.14 reveals that the hypothesis is rejected (significant) in 21cases and

accepted (in significant) in 7 cases. It could be concluded that, age, occupation,

monthly income and monthly savings had a significant influence on the selection of

224
schemes based on the criteria of return, safety, liquidity and tax benefit. Sex had a

significant influence on the selection of schemes based on safety and tax benefits.

Educational qualification had significant influence on the selection of mutual

fund schemes based on the criteria of liquidity and tax benefit. Marital Status had a

significant influence on the choice of mutual fund scheme based on the criterion of

safety of investment alone.

Table 6.15 Investors’ Preference For Mutual Fund Sector

Order of Preference
Total Average
Mutual Fund Sector Rank Rank Rank Rank Rank Score Score Rank
I II III IV V
Bank Sponsored 55 85 160 45 55 1240 3.10 II
Institution Sponsored 68 76 70 89 87 1119 2.80 III
Private Indian 40 68 97 108 92 1071 2.68 V
Private Joint Venture
(Predominantly) 85 163 63 55 34 1410 3.53 I
Indian
Private Joint Venture
(Predominantly) 79 57 69 90 105 1115 2.79 IV
Foreign

Table 6.15 reveals that the investors covered under the study had first

preference for private sector (joint venture) predominantly Indian mutual funds, with an

average score of 3.53 (I). Second preference was for bank sponsored mutual funds, as

the average score was 3.10 (II). Third rating was for institution sponsored mutual funds,

as the average score was 2.8.

225
6.15 Schemes Galore

The Indian Mutual Fund Industry offers a wide variety of schemes. Based on

the investment policy, the schemes can be broadly classified as presented in Table

6.16.

Table 6.16 Investors’ Preference Towards Scheme Objective

Scheme Preference for Scheme Objective

Total Average
Objective Rank
Rank Rank Rank Rank Rank Rank Score Score
Galore I II III IV V VI
Growth 182 94 79 10 20 15 1963 4.91 I
Income 158 97 50 38 30 27 1834 4.59 II
Balanced 35 60 68 62 30 145 1173 2.93 IV
ELSS 55 15 50 70 20 190 1045 2.61 V
Money
15 60 58 80 169 18 1218 3.05 III
Market
Gilt 12 18 30 20 120 200 782 1.96 VI

Table 6.16 reveals that the investors had first preference for growth schemes

with an average score of 4.91. Second preference was for income schemes with an

average score of 4.59. Third rating was for money market schemes with an average

score of 3.05.

Table 6.17 Sources of Information on Mutual Fund

Number of
Information Source Percentage
Responses
Brokers / Agents 349 87.25
Prospectus 231 57.75
Advertisement 298 74.5
Annual Reports 174 43.5
Newspapers 259 64.75
Magazines 170 42.5
Friends and Relatives 165 41.25

226
 Table 6.17 depicts that the main source of information for mutual funds was

brokers/agents for 87.25 percent of investors followed by advertisements for 74.5

percent and newspapers for 64.75 percent of investors as shown in figure 6.2.

Figure 6.2 Sources of Information on Mutual Funds

Table 6.18 Investors’ Opinion on Factors Determining Success of Mutual Funds

Factors Degree of Importance

Determining Total Average
Success of Mutual Very Not Not At All Score Score
Funds Important
Important Important Important

Quality of Service 219 106 55 20 1324 3.31

Suitability of Product 154 159 62 25 1242 3.11

Research 128 160 73 39 1177 2.94

Risk Orientation 39 188 160 13 1053 2.63

Number of Investor
189 136 50 25 1289 3.22
Service Centers

Table 6.18 shows that investors view quality of service and number of investor

service centers as important determinants for the success of mutual funds as the

average score was 3.31 and 3.22 respectively.

227
 Table 6.19 Benefits of Investing in Mutual Funds

Benefits of Mutual Funds Number of Responses Percentage

Portfolio Diversification 128 32

Tax Shelter 140 35

Liquidity of Investment 160 40

Assured Allotment 99 24.75

Transparency in Operation 126 31.5

Lower Cost 85 21.25

Wide Investment Opportunities 104 26

High Yielding 140 35

Innovation in Schemes 76 19

Capital Appreciation 143 35.75

Quality of Service 69 17.25

Profitability 169 42.25

Convenience 125 31.25

Repurchase Facility 110 27.5

Loan Facility 69 17.25

Transferability 72 18

Professional Management 106 25.5

Table 6.19 shows that the most important benefit of investing in mutual funds

was profitability (42.25 per cent) followed by liquidity of investment (40 per cent) and

capital appreciation (35.75per cent).

228
 Table 6.20 Investors’ Opinion on Factors Influencing the Choice of
Mutual Fund Organisation

Factors Influencing Degree of Importance

Total Average
Choice of Mutual Very Not Not at All
Important Score Score
Fund Organisation Important important Important
Goodwill 281 101 10 8 1455 3.64
Volume of Business 180 120 75 25 1255 3.14
Sector Represented 89 199 88 24 1153 2.88
Investor Services 159 170 59 12 1276 3.19
Past Performance 155 130 109 6 1234 3.09
Infrastructure 101 200 90 9 1193 2.98
Suggestions from
50 130 189 31 999 2.50
friends, relatives etc
Background
100 185 90 25 1160 2.90
Experience

Investment
Philosophy and 94 196 80 30 1154 2.89
Methodology

Table 6.20 shows the factors affecting the choice of mutual fund organization.

Goodwill was the most influential factor in the selection of the mutual fund with an

average score of 3.64. Second important factor was investor services with an average

score of 3.19 followed by volume of business with an average score of 3.14.

229
 Table 6.21 Investors’ Opinion on Factors Influencing the Choice of Scheme

Factors Influencing Degree of Importance

Total Average
Choice Of Mutual Very Not Not At All
Important Score Score
Fund Scheme Important Important Important
Capital Appreciation 258 97 20 25 1388 3.47
Objective of the Fund 159 188 38 15 1291 3.23
Return on Investment 153 196 44 7 1295 3.24

Tax benefit 84 211 84 21 1158 2.90

Liquidity 129 163 73 35 1186 2.97
Safety 169 184 30 17 1305 3.26
Loan facility 47 96 210 47 943 2.36
Convenience of
50 150 150 50 1000 2.50
Reinvestment
Fund managers
84 166 100 50 1084 2.71
Background
Early Bird Incentive 42 95 229 34 945 2.36

Table 6.21 reveals that, the most important factor affecting the choice of mutual

fund scheme was capital appreciation with an average score of 3.47 followed by safety

with an average score of 3.25.

6.16 Specific Attitude of Investors towards Mutual Funds Industry

The specific attitudes of investors towards various aspects of Indian Mutual

Fund Industry have a say on their preference for mutual funds. In this section an

analysis of specific attitude of investors with reference to industry performance,

investment opportunities, investor services, suitability to small investors, ability to

weather market fluctuations, comparison with bank deposits and shares have been

analyzed.

230
 Table 6.22 Investors’ Satisfaction on Indian Mutual Fund Industry

Mutual Fund Degree of Satisfaction Total Average

Industry Fully Moderately Not Score Score
Satisfied satisfied Satisfied
Performance 21 359 20 801 2.00

Investment opportunity 34 284 82 752 1.88

Investors Services 17 310 73 744 1.86

Table 6.22 shows that, 359 (89.75 per cent) investors were moderately satisfied,

21(5.25 percent) investors were fully satisfied while 20 (5.00 per cent) investors were

not satisfied with the performance of the Indian mutual fund industry.

284 (71 per cent) investors were moderately satisfied, 34(8.5per cent) investors

were fully satisfied while the remaining 82(20.5per cent) investors were not satisfied

with the investment opportunities provided by the mutual fund industry in India. 310

(77.5 per cent) investors were moderately satisfied, 17(4.25 per cent) investors were

fully satisfied while the remaining 73(18.25 per cent) investors were not satisfied with

the services rendered by the Indian mutual fund industry. Investors were moderately

satisfied with the performance, opportunities and investor services provided by the

Indian Mutual Fund Industry which is evident from the average scores of 2.00,1.88

and1.86 respectively.

6.17 Specific Attitude Statements

To verify the opinion of investors relating to various aspects of mutual funds the

following specific attitude statements were framed. The investors degree of agreement

on five point scaling was collected and reduced to two point scaling to identify the

impact on attitude towards acceptance of mutual funds.

231
Statement 1: Investing in funds is less risky compared to shares.

The attitude of the investors towards the statement “Investing in funds are less

risky compared to shares” was tested applying binomial test to the distribution of

investors according to their degree of agreement. The null hypothesis is formulated that

the proportion of investors agreeing that “investing in mutual funds is less risky

compared to shares” is 50 per cent, is tested at five per cent level of significance as

shown in Table 6.23.

Table 6.23 Distribution of Investors According to their Degree of Agreement

Towards Investing in Mutual Funds Compared to Shares

Degree of Respondents
Degree of Agreement on Number of Agreement
Five point Scale Respondents on Two Number Percentage
point Scale
Strongly Agree 135 Agree 312 78
Agree 177
Neutral 44
Disagree 28
Disagree 44 11
Strongly Disagree 16

Table 6.23 shows that, 312 investors accounting for 78 per cent agreed towards

investing in mutual funds (consisting 135 investors strongly agreeing). Applying the

binomial test of significance, the calculated Z value12.97 was greater than the Table

value 1.95. Hence, it could be inferred that, the null hypothesis is rejected, it can be

suggested that the proportion of investors agreeing that investing in mutual funds is less

risky compared to shares is more than 50 per cent.

232
Statement 2: Mutual Funds are more suitable to small investors who are otherwise

hesitant of entering into capital market.

The opinion of investors relating to the statement “Mutual Funds are more

suitable to small investors who are otherwise hesitant of entering in to capital market”

was measured in terms of five-point scale and tested at five per cent level of

significance. The following null hypothesis, the proportion of investors agreeing that,

mutual funds are more suitable to small investors hesitating to enter capital market is 50

per cent was tested at five percent level of significance to study the degree of agreement

with the above statement based on the distribution of their strength of feelings.

Table 6.24 Distribution of Investors According to their Degree of Agreement on

Suitability of Mutual Funds for Small Investors Hesitating to enter Capital
Market

Degree of
Degree of Agreement on Number of Agreement Respondents
Five Point Scale Respondents on Two
point Scale Number Percentage
Strongly Agree 110
Agree 290 72.5
Agree 180
Neutral 60
Disagree 20
Disagree 50 12.5
Strongly Disagree 30

An analysis of Table 6.24 shows that, 72.5 per cent agreed with the statement,

12.5 per cent disagreed with the statement with varying degrees of freedom.

Statistical analysis of the data gives Z value of 12.92 with a Table value of 1.95.

Hence, the null hypothesis is rejected implying that, ,mutual funds are more suitable

to small investors who are otherwise hesitant of entering into capital market is more

than 50 per cent.

233
Statement 3: Mutual Funds have the ability to weather the market fluctuation.

The opinions expressed by the investors indicating their intensity of feeling

towards the statement “Mutual Funds have the ability to weather the market

fluctuations” presented in Table 6.25 was tested for its significance at five percent

level of significance based on the null hypothesis that, the proportion of investors

agreeing that the mutual funds have the ability to weather the market fluctuation is 50

percent.

Table 6.25 Distribution of Investors According to their Degree of Agreement on

Mutual Funds’ Ability to Weather Market Fluctuations

Respondents
Degree of
Degree of Agreement on Number of Agreement on
Five point Scale Respondents Two point Number Percentage
Scale
Strongly Agree 30 Agree 157 39.25
Agree 127
Neutral 186
Disagree 47 Disagree 57 14.25
Strongly Disagree 10

An analysis of Table 6.25 indicates that, 39.25 per cent agreed and 14.25 per

cent disagreed with the statement. An analysis of the information statistically using

binomial test of significance shows that the calculated Z value being 5.26 is greater than

the Table value of 1.96 rejecting the null hypothesis. So it could be concluded that, the

proportion of investors agreeing that mutual funds have the ability to weather market

fluctuations is more than 50 per cent.

234
Statement 4: Risk and return characteristics of Indian Mutual Funds are not in
conformity with their stated objectives.
The attitude of the investors towards risk and return characteristics of Indian

Mutual Funds was tested at five percent level of significance by applying binomial test

using the null hypothesis formulated that the proportion of investors agreeing that the

risk and return characteristics of mutual funds are not in conformity with their stated

objectives is 50 per cent.

Table 6.26 Distribution of Investors According to their Degree of Agreement

Towards Risk and Return Characteristics of Indian Mutual Funds are not in
Conformity with their Stated Objectives
Degree of Respondents
Degree of Agreement on Five Number of Agreement
point Scale Respondents on Two Number Percentage
point Scale
Strongly Agree 36 Agree 181 45.25
Agree 145
Neutral 130
Disagree 69 Disagree 89 22.25
Strongly Disagree 20

Table 6.26 shows that 45.25 per cent of investors agreed and 22.25 per cent

disagreed with the above statement. The binomial test of significance shows the

calculated Z value to be 5.85. The null hypothesis is rejected as the calculated value is

greater than the Table value (1.96) indicating that, the proportion of investors agreeing

that the risk and return characteristics of Indian Mutual Funds are not in conformity with

their stated objectives is more than 50 per cent.

235
Statement 5: Investing in funds is much better in terms of returns than
depositing in banks.

The attitude of investors towards investing in mutual funds is much better in

terms of returns than depositing in banks is tested at five percent level of significance.

The null hypothesis that, the proportion of investors agreeing that investing in funds is

much better in terms of returns than depositing in banks is 50per cent.

Table 6.27 Distribution of Investors According to their Degree of Agreement towards

their view that Mutual Funds provide better returns compared to Bank Deposits

Degree of Respondents
Degree of Agreement on Five Number of Agreement
point Scale Respondents on Two
point Scale Number Percentage

Strongly Agree 86
Agree 243 60.75
Agree 157
Neutral 100
Disagree 47
Disagree 57 14.25
Strongly Disagree 10

Table 6.27 shows that 60.75 per cent agreed and 14.25 per cent disagreed with the

statement. Statistical analysis of the above data gives the calculated Z value to be 8.52.

The null hypothesis is rejected as the calculated value is greater than the Table value

(1.96) indicating that, the proportion of investors agreeing that mutual funds provide

better returns than bank deposits is more than 50 per cent.

Statement 6: Growth schemes are highly preferred to income schemes.

The attitude of the investors towards growth schemes are highly preferred to

income schemes was tested by applying binomial test to the data obtained in the

following Table 6.28 at five percent level of significance .The null hypothesis

formulated for the purpose of testing the significance of the above hypothesis is that, the

236
proportion of investors agreeing that growth schemes are highly preferred to income

schemes is 50 per cent.

Table 6.28 Distribution of Investors According to their Degree of Agreement

towards preference for growth schemes compared to Income Schemes

Degree of Respondents
Degree of Agreement on Number of Agreement on
Five point Scale Respondents Two point
Number Percentage
Scale
Strongly Agree 100
Agree 290 72.5
Agree 190
Neutral 26
Disagree 65
Disagree 84 21
Strongly Disagree 19

Table 6.28 shows that 72.5 per cent of investors agreed and 21 per cent disagreed

with the above statement. The binomial test of significance shows that Z value is 10.38.

The hypothesis is rejected as calculated value is greater than Table value (1.96). It could

be concluded that, the proportion of investors agreeing that growth schemes are highly

preferred to income schemes is more than 50 per cent.

6.18 Combined Opinion of Investors, Fund Managers and Brokers

The combined opinion of investors, fund managers and brokers will help to

identify the extent of acceptability of the mutual fund industry in India. Hence, this part

of the chapter deals with the primary data collected from brokers and fund managers of

selected schemes besides the opinion of investors as already discussed in detail

previously.

237
Table 6.29 Investors and Brokers’ Opinion Towards Degree of Safety of Financial Assets

Investors Brokers

Reasonably Safe

Reasonably Safe
Absolutely Safe

Absolutely Safe
Somewhat Safe

Somewhat Safe
Average Score

Average Score
Financial

Don’t Know

Don’t Know
Total Score

Total Score
Not Safe

Not Safe
Assets

Bank Deposits 310 66 8 12 4 1866 4.67 2 10 2 3 3 65 3.25

Post Office
327 33 20 12 8 1859 4.65 1 3 6 8 2 53 2.65
Savings
Bonds &
12 170 201 7 10 1367 3.42 5 10 3 2 1 79 3.95
Debentures
Equity Shares 10 90 175 120 5 1180 2.95 14 3 0 2 1 87 4.35

Mutual Funds 25 142 175 46 12 1322 3.31 15 4 1 0 0 94 4.7

Insurance 210 115 48 20 7 1701 4.25 1 6 11 1 1 65 3.25

Table 6.29 shows that, investors had first preference for bank deposits with an

average score of 4.67 each while brokers had first preference for mutual funds with an

average score of 4.7.

238
 Table 6.30 Investors And Brokers’ Opinion On Benefits Of Investing In Mutual Funds

Investors Brokers
Benefits of Mutual Funds Number of Number of
Percentage Percentage
Responses Responses

Portfolio Diversification 210 52.5 18 90

Tax Shelter 280 70 12 60

Liquidity of Investment 185 45.3 14 70

Assured Allotment 99 24.8 10 50

Transparency in Operation 144 36 16 80

Lower Cost 105 25.3 7 35

Wide Investment
139 34.8 8 40
Opportunities

High Yielding 163 40.8 5 25

Innovation in Schemes 82 20.5 8 40

Capital Appreciation 162 40.5 12 60

Quality of Service 98 24.5 5 25

Profitability 183 45.8 9 45

Convenience 137 34.3 10 50

Repurchase Facility 130 32.5 14 70

Loan Facility 59 14.8 5 25

Transferability 74 18.5 3 15

Professional Management 106 25.5 17 85

The most important benefit of mutual funds for investors was tax shelter (70.00

percent) as against portfolio diversification (90.00per cent).

239
 Table 6.31 Investors and Brokers’ Preference for Mutual Fund Sector

Investors Brokers

Fund Sector
Total Average Total Average
I II III IV V Rank I II III IV V Rank
Score Score Score Score

Bank Sponsored 55 85 160 45 55 1240 3.10 II 5 7 2 5 1 70 3.5 III

Institution Sponsored 68 76 70 89 87 1119 2.80 III 2 1 2 3 12 38 1.9 V

Private Indian 40 68 97 108 92 1071 2.68 V 4 4 12 0 0 76 3.8 II

Private Joint Venture

85 163 63 55 34 1410 3.53 I 10 7 1 1 1 84 4.2 I
(Predominantly) Indian

Private Joint Venture

79 57 69 90 105 1115 2.79 IV 1 3 5 8 3 51 2.6 IV
(Predominantly) Foreign

240
 Table 6.32 Investors and Brokers’ Preference for Mutual Fund Objective

Investors Brokers
Fund
Objective
Total Average Total Average
I II III IV V VI I II III IV V VI
Score Score Score Score

Rank
Rank

Growth 182 94 79 10 20 15 1963 4.91 I 3 7 3 2 4 1 90 4.5 I

Income 158 97 50 38 30 27 1834 4.59 II 6 2 5 3 3 1 82 4.1 II

Balanced 35 60 68 62 30 145 1173 2.93 IV 6 2 5 2 2 3 79 3.95 III

ELSS 55 15 50 70 20 190 1045 2.61 V 2 5 2 6 2 3 65 3.3 IV

Money 15 60 58 80 169 18 1218 3.05 III 1 2 3 5 6 3 58 2.9 V

Market

Gilt 12 18 30 20 120 200 782 1.96 VI 2 2 2 2 3 9 51 2.6 VI

241
 Table 6.31 reveals that, the investors and brokers had a first choice for

private sector joint venture (predominantly) Indian funds with an average score of

3.53and 4.2 respectively. Second rating was for bank sponsored mutual funds for

investors and private sector Indian funds for brokers with an average score of 3.10

and 3.8 respectively.

Table 6.32 reveals that, the investors and brokers had first rating for growth

objective with an average score of 4.91 and 4.5 respectively. Second preference was

for income objective with an average score of 4.59 and 4.1 respectively for

investors and brokers.

242
 Table 6.33 Investors, Brokers and Fund Managers’ Opinion on Factors Determining Success of Mutual Funds
Investors Brokers Fund Managers

Factors
Determining
Success of
Mutual Funds

Important
Important
Important

Total Score
Total Score
Total Score

Average Score
Average Score

Not Important
Not Important
Not Important
Average Score

Very Important
Very Important
Very Important

Not At All Important

Not At All Important
Not At All Important

Quality of 219 106 55 20 1324 3.31 12 4 2 2 66 3 13 2 2 2 64 3.4

Service
Suitability of 154 159 62 25 1242 3.11 16 4 0 0 76 4 11 4 2 2 63 3.3
Product
Research 128 160 73 39 1177 2.94 10 8 1 1 67 3 11 2 4 2 61 3.2
39 188 160 13 1053 2.63 3 12 4 1 57 3 8 8 0 4 57 3
Risk Orientation

Number of
189 136 50 25 1289 3.22 11 7 1 1 68 3 8 4 2 6 51 2.7
Investor Service
Centers

243
 Table 6.33 reveals the opinion of investors, brokers and fund managers

relating to the factors determining the success of mutual fund organisations. The

investors had a first choice for the quality of service as the major factor determining

the success of mutual fund organization with an average score of 3.31. The brokers

had a first choice for the sustainability of product as the major factor determining the

success of mutual fund organization with an average score of 4.00. The fund

managers had a first choice for the quality of service as the major factor determining

the success of mutual fund organization with an average score of 3.4.

6.19 Choice of Mutual Fund Organisation and Scheme

The very success or failure of the investment decision basically lies on the

selection of the mutual fund organisation followed by the selection of the scheme

suitable to the investor. A right choice assures good returns and a wrong choice

leads to loss of funds invested. Hence, there is a need to identify the factors affecting

the choice of mutual fund organisation and that of the schemes. Choice differs from

individual to individual and from that of brokers and fund managers. Hence, it is of

utmost relevance to identify whether there is any difference in the choice of mutual

funds and schemes among the opinion of investors, brokers and fund managers by

way of testing the following null hypothesis using ANOVA.

H04: There is no significant difference in the opinion of investors, brokers and fund

managers with regard to the factors affecting choice of mutual funds.

244
 Table 6.34 Investors, Brokers and Fund Managers’ Opinion on Factors influencing Choice of Mutual Fund Organisations

Investors Brokers Fund Managers

Factors Affecting
Choice of Mutual
F Value
P Value

Fund Organisation

Not at all
Not at all
Not at all

Important
Important
Important
Important
Important
Important

Total Score
Total Score
Total Score

Average Score
Average Score
Average Score

Not Important
Not Important
Not Important

Very Important
Very Important
Very Important
Goodwill 281 101 10 8 1455 3.64 7 13 0 0 67 3.4 11 2 2 2 63 3.3 0.3 0.75
Volume Of Business 180 120 75 25 1255 3.14 2 13 5 0 57 2.9 8 6 0 2 59 3.1 0.7 0.5
Sector Represented 89 199 88 24 1153 2.88 10 5 5 0 65 3.3 11 2 4 2 61 3.2 5.6 0.01*
Investor Service 159 170 59 12 1276 3.19 6 14 0 0 66 3.3 8 2 8 2 53 2.8 0.8 0.46
Past Performance 155 130 109 6 1234 3.09 10 9 1 0 69 3.5 10 4 4 2 59 3.1 1.5 0.23
Infrastructure 101 200 90 9 1193 2.98 7 8 4 1 61 3.1 8 6 2 4 55 2.9 4.2 0.02*
Suggestions(Friends,
50 130 189 31 999 2.50 4 4 11 1 51 2.6 2 11 4 2 51 2.7 0.3 0.75
Relatives)
Background
100 185 90 25 1160 2.90 6 12 1 1 63 3.2 11 2 2 2 63 3.3 4.2 0.02*
Experience

Investment
Philosophy and 94 196 80 30 1154 2.89 6 12 2 0 64 3.2 10 6 4 2 65 3.4 8.0 0.01*
Methodology

245
 Table 6.34 reveals that, there exists significant difference in the opinion of

investors, brokers and fund managers as the calculated P Value was less than 0.05

with regard to sector represented, infrastructure, background, investment philosophy

and methodology as factors affecting choice of organizations.

6.20 Investors, Brokers and Fund Managers Opinion on Factors Affecting

Choice of Mutual Fund Scheme

The choice of mutual fund scheme differs according to the role played by the

individual. Hence the following null hypothesis was formulated and tested at five

percent level of significance using ANOVA.

H05: There is no significant difference between the opinions of investors, brokers

and fund managers with regard to the factors affecting choice of mutual schemes.

246
 Table 6.35 Investors, Brokers and Fund Managers’ Opinion on Factors influencing Choice of Mutual Fund Scheme

Investors Brokers Fund Managers

Factors
Affecting
Choice of
Mutual F Value
P Value

Fund
Scheme

Very
Very

Not at all
Not at all
Not at all

Important
Important
Important
Important
Important
Important
Important
Important

Total Score
Total Score
Total Score

Average Score
Average Score
Average Score

Not Important
Not Important
Not Important

Very Important
Capital
258 97 20 25 1388 3.47 9 11 0 0 69 3.5 13 2 2 2 65 3.4 1.3 0.3
Appreciation

Objective of
159 188 38 15 1291 3.23 9 9 2 0 67 3.4 13 4 2 0 68 3.6 2.9 0.1
the Fund
Return on
153 196 44 7 1295 3.24 13 7 0 0 73 3.7 10 6 4 2 65 3.4 5.7 0.03*
investment
Tax benefit 84 211 84 21 1158 2.90 7 12 1 0 66 3.3 10 4 2 6 59 3.1 4.7 0.01*

Liquidity 129 163 73 35 1186 2.97 10 9 1 0 69 3.5 15 0 4 0 68 3.6 7.4 0.01*

Safety 169 184 30 17 1305 3.26 15 3 2 0 73 3.7 11 4 2 2 63 3.3 3.6 0.03*
Loan facility 47 96 210 47 943 2.36 1 7 11 1 48 2.4 2 4 8 6 40 2.1 2.9 0.1

Convenience
of 50 150 150 50 1000 2.50 1 11 8 0 53 2.7 4 8 4 4 49 2.6 0.8 0.5
Reinvestment
Fund
84 166 100 50 1084 2.71 10 9 1 0 69 3.5 11 4 2 2 63 3.3 9 0.01*
managers
Early bird
42 95 229 34 945 2.36 0 6 13 1 45 2.3 2 2 10 6 38 2 2.2 0.1
incentive

247
 Table 6.35 reveals that, there exists significant difference in the opinion of

investors, brokers and fund managers with regard to return on investment, tax benefit,

liquidity, safety, fund managers background as factors affecting the choice of mutual

fund schemes, as the calculated ‘p’ value was less than 0.05 rejecting the null

hypothesis.

6.21 Specific Attitude towards Mutual Funds

Analysis is of specific attitudes of the investors, brokers and fund managers

towards risk comparison, suitability to small investors, ability to weather market

fluctuations, risk-return comparison with scheme objective, superiority over bank

deposits, and preference for scheme is presented in the Table 6.36.

Table 6.36 shows that, investors agreed that, investing in mutual funds are

less risky compared to shares with a highest average score of 3.93each. Brokers

agreed that Investing in Mutual Funds are less risky compared to Shares, mutual

funds are more suitable to small investors who are otherwise hesitant of entering into

capital market, Mutual Funds have the ability to weather the market fluctuation and

Investing in funds is much better in terms of returns than bank deposit with an

average score of 4.00each. Fund managers with the highest average score of 4.2

viewed that Investing in funds is much better in terms of returns than bank deposit.

248
 Table 6.36 Investors, Brokers and Fund Managers’ Degree of Agreement Towards Specific Attitude Statements

Investors Brokers Fund Managers

Specific
Attitude
Statements

Score
Agree
Total
Score
Score
Score

Agree
Agree
Agree
Agree
Agree

Neutral
Neutral
Neutral

Average
Average
Average

Strongly

Strongly
Strongly
Strongly
Strongly
Strongly

Disagree
Disagree
Disagree
Disagree
Disagree
Disagree

Total Score
Total Score

Investing in
Mutual Funds
are less risky 131 166 39 32 32 1532 3.83 3 12 3 2 0 76 4 2 8 4 4 2 61 3.2
compared to
Shares.

Mutual Funds
are more sui
table to small
investors
hesitant of
98 184 62 20 36 1488 3.72 8 9 3 0 0 85 4 2 11 2 2 2 67 3.5
entering into
capital
market.

Mutual Funds
have the
ability to
weather the
29 120 175 47 29 1273 3.18 4 9 2 5 0 72 4 6 4 4 4 2 65 3.4
market
fluctuation.

249
Risk and
return
characteristics
of funds are
not in 38 138 137 61 26 1301 3.25 1 11 3 4 1 67 3 4 6 6 2 2 65 3.4
conformity
with their
stated
objectives.

Investing in
funds is much
better in
terms of
78 146 93 47 36 1383 3.46 5 8 5 1 1 75 4 8 6 4 4 0 80 4.2
returns than
bank deposit.

Growth
Schemes are
highly
preferred to
157 146 38 30 29 1572 3.93 2 8 4 5 1 65 3 4 8 4 0 4 65 3.4
income
scheme.

250
6.22 Concluding Remarks

The survey of investors’ in mutual funds revealed that, profile of investors

has a significant impact on the investors’ decisions relating to investments and

particularly mutual fund investments. Investors had a high preference for bank

deposits while brokers preferred equity shares. Investors select mutual funds on the

basis of regular income, safety, profitability and tax benefits. Private sector joint

venture (predominantly) Indian mutual funds were highly preferred by both

investors and brokers. Both investors and brokers prefer growth schemes followed

by income schemes. Brokers/agents were the main source of information about

mutual funds. According to investors, mutual funds provided the benefits of

profitability while brokers preferred mutual funds for its portfolio diversification,

liquidity of investment and professional management.

Quality of service was the most important determinant of success for mutual

fund according to investors, brokers and fund managers. Goodwill was the main

criterion of choosing mutual fund organisation for all the three categories of

respondents. For investors, capital appreciation influenced the choice of mutual fund

scheme. For brokers, return on investment and safety affected the choice of mutual

fund schemes. For fund managers, capital appreciation, liquidity and fund managers

background were important criteria of choosing mutual fund schemes. Investors

were partly satisfied with the performance, opportunities provided, and services

offered by the Indian mutual fund industry.

1. Investors and fund managers agreed that, investing in mutual funds were less

risky compared to shares.

2. Brokers and fund managers highly agreed that mutual funds are more

suitable to small investors who are otherwise hesitant of entering into capital

market.

251
 3. Fund managers viewed that mutual funds have the ability to weather the

market fluctuations and accepted that investing in funds is much better in

terms of returns than depositing money in banks.

4. Brokers opined that risk and return characteristics of Indian mutual funds are

not in conformity with their stated objectives.

5. Investors preferred growth schemes compared to income schemes. Investors

strongly agreed that mutual funds were less risky compared to shares, were

suitable to small investors heisting to enter capital market, had the ability to

weather market fluctuations, risk and return characteristics were not in

conformity with their stated objectives.

 

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 CHAPTER – VII

SUMMARY, CONCLUSION AND SUGGESTIONS

7.1 Introduction

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.

Industry is looking forward to early resolution of certain inter-regulatory issues

requiring Government / Court intervention. Market participants are waiting to see how

the industry adapts to these changes, while trying to maintain its pace of growth. 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. It is observed during the study period that sector-wise total

resources mobilized by mutual fund industry has increased from Rs. 8,39,708 crores in

the year 2004-05 to Rs. 97,68,100 crores during 2014-15.i.e. total of Rs.5,65,01,279

crores accounting for an increase of nearly 12 times.

Mutual funds as an investment vehicle have gained immense popularity in the

current scenario, which is clearly reflected in the robust growth levels of assets under

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management. However, despite this growth, penetration levels in India are low as

compared to other global economies. Assets under management as a percentage of GDP

is less than 5 per cent in India as compared to 70 per cent in the US, 61 per cent in France

and 37 per cent in Brazil. Against this background the researcher has tried to assess the

key growth drivers for the industry, identifying in the process the factors which may

impede growth in the future. The evolving business and regulatory trends in India have

also been discussed, drawing a comparison with similar developments across other global

economies.

Development of financial market is contributed by mobilization, allocation and

channeling of savings along with risk management system. Matured financial market

stimulates savings by ensuring b e t t e r rate of return. Globalization and liberalization

phenomena have been instrumental in the accelerated development of the financial

market in India. To give a fillip to the sagging and depressed economy, by way of

making the financial sector more vibrant and efficient, reforms were introduced in the

beginning of 1990’s. The transparency in operations, along with the formation of

SEBI, liberalization of foreign capital norms, resulted in the emergence of mutual funds

in the public and private sectors. The financial sector reforms and the opening up of the

liberalized economy resulted in throwing up the traditionally protected mutual fund

industry to a greater level of competitive environment. The emergence of an intensely

competitive structure in the place of the earlier monolithic scenario is the biggest

structural change in the Indian Mutual Fund Industry (IMFI) during the last decade.

The total AUM of the mutual fund houses in India crossed Rs. 2 trillion in

September 2005, a decade after the private sector’s entry. In a matter of two years the

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industry touched Rs. Three trillion in August 2006 and reached Rs. Six trillion by

October 2010. The funds have grown so swiftly, more due to the changing demographic

profile, increasing number of youths with investable surplus and growth in the economy.

The dominating role of the private and foreign players in the domestic market has

contributed towards the growth of AUM of the IMFI to a peak of Rs. Six trillion in

October 2010, and stands at Rs. 12 Trillion as on March 2015.

The inflows to fixed income schemes contributed nearly 70-75 percent of this

growth, reflecting the rising retail investors’ interest in the secondary market

participation through mutual funds. However, the industry continues to be dominated by

the top players as 46 percent of the total AUM is held by the top five fund houses. The

whopping corpus funds under management surfaces two hard facts: Firstly, the

investors still carry a belief that mutual funds provide an opportunity for better return

coupled with reasonably good safety of the money invested. Secondly, the environment

is getting more and more conducive for mutual funds because of the active role played

by SEBI and AMFI through various rules and regulations.

In spite of steady growth of the mutual funds industry in India, only twelve

percent of the households are investing in mutual funds, hence there is a long way to go.

The penetration level is also not much deep; as the industry has not reached out to rural

India, where income is on the rise. It is expected that the mutual funds could witness five

to six times of growth in the next four to six years, as the industry has become a globally

significant player attracting a bigger chunk of household savings. At present, the Indian

Mutual Fund Industry is one among the top 15 nations in terms of AUM and is expected

255
to grow to $1500 - $2000 billion by 2017 as more global players are planning to set up

asset management business houses in India.

Mutual fund industry has a tremendous potential for growth in the Indian

environment. In order to really carve out a niche for mutual funds, there is a need to take

a dispassionate view of the mutual fund industry in retrospect as lowering interest rates,

encouragement provided by budgets, options for high risk and better returns have

already paved the way for the long innings to be played by mutual funds in India. Hence,

the researcher has attempted this study entitled “Performance Evaluation of the Indian

Mutual Fund Industry: A Study with Special Reference to Select Growth fund Schemes”

with the intention of finding answers to the following questions:

• What is the performance of Indian Mutual Fund Industry?

• Analysis of various factors influences the investor’s choice of mutual fund

organization and scheme.

• Analysis of the views of fund managers, brokers and investors on mutual fund

investment in India.

• Evaluation of the performance of select growth schemes in India.

The researcher is carried out with the objective of:

• Appraising the performance of mutual fund industry in India under the regulated

environment;

• Studying the relationship between the performance of market index with that of

the growth schemes;

• Evaluating the performance of growth schemes using Sharpe, Treynor, Jensen

indices of portfolio evaluation;

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 • Identifying factors considered by fund managers in their investment decisions;

• Observing the attitude of investors and brokers towards investment in mutual

funds.

The above objectives were statistically tested with the following hypotheses:

• There is no significant difference among the performance evaluation tools as

suggested by Sharpe, Treynor and Jensen;

• In case of Index returns and scheme returns are not significantly related;

• previous performance of the scheme does not have any significant

relationship with that of current performance;

• The proportion of investors favoring specific attitude statements relating to

mutual funds is about 50 percent; and

• There is no significant difference between the opinions of investors, brokers

and fund managers with regard to the factors affecting the choice of mutual

fund and the scheme.

Further the research work attempts to evaluate the performance of mutual fund

industry in India under the regulated environment after the implementation of SEBI

(Mutual Funds) Regulations 1996, as the industry gained a coveted status on bringing

out uniformity in rules and regulations. Performance evaluation is restricted to Twelve

Mutual Fund schemes launched in the last 10 years, the year of private sector entry in

the Indian Mutual Fund arena, after the introduction of the SEBI (Mutual Funds)

Regulations. Of the varied category of mutual funds schemes, growth oriented mutual

funds are capable of offering the advantages of diversification, market timing and

selectivity. All the twelve selected schemes are open-end and have been selected from

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categories of Debt, Equity and Hybrid. To identify the perception of investing public

and financial intermediaries, an opinion survey of investors, brokers and fund

managers of sample schemes was carried out.

The present work is based on the review of 31 Foreign and 75 Indian studies

relating to mutual funds. The review of foreign studies ensures that, mutual funds have

a significant impact on the price movement in the stock market, the average return

from the schemes were below that of their benchmark, all the three models provided

identical results, good performance was associated with low expense ratio and not with

the size. In India, studies relating to mutual funds have been carried out mostly after

1985. The reviews bring to light the importance of mutual funds under the Indian

financial scenario; highlight the need for adequate investor protection, single regulatory

authority, higher return for a given risk as per investors’ expectation, greater

convenience and liquidity, and the expectations that mutual funds should act as a

catalytic agent for economic growth and foster investors’ interest.

The present study is a blend of both primary and secondary data. The primary

data required for the study was collected from 19 fund managers, 20 brokers and 400

investors using schedule and questionnaires. Secondary data was collected from the

records of AMFI, UTI Institute of Capital Markets, and web sites of respective mutual

funds. The collected information were analyzed using simple and sophisticated

techniques such as CGR, CAGR, Pearson’s Correlation, Autocorrelation, Rank

Correlation, Coefficient of Determination.

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The following schemes were short listed for the purpose of the study:

1) L&T Gilt Fund - Investment Plan

2) Birla Sun Life Gilt Plus - PF Plan

3) SBI Magnum Gilt Fund - Long Term Plan

4) UTI Gilt Advantage Long Term Plan

5) IDFC Government Securities Fund - Provident Fund Plan - Regular Plan

6) SBI Pharma Fund

7) Reliance Pharma Fund

8) UTI Pharma & Healthcare Fund

9) HDFC Children’s Gift Fund - Investment Plan

10) SBI Magnum Balanced Fund

11) ICICI Prudential Balanced Fund - Regular Plan

12) Franklin India Balanced Fund

The performance in terms of NAV of the mutual fund schemes with growth

option alone were studied from the angle of risk and return in comparison with the

benchmark (BSE 100) index from April 2005 (a year after the introduction of

comprehensive regulations) to March 2015 using tools like return, risk, and risk-free

rate of return.

7.2 Findings

a) General Findings of the Study

The performance of the Indian Mutual Fund Industry general and major

findings during the ten years period (2004 - 2005 to 2014 - 2015) covered under the

study was as follows:

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1. Mobilisation of Funds

Under mobilisation of funds includes total funds mobilised by public sector,

private sector and UTI mutual fund companies. Redemption includes repurchase as well

as redemption. Net inflow is the difference between mobilisation of funds and

redemption. It is evident that mobilisation of fund increased from Rs.8,39,708 crores in

the year 2004-05 to Rs.1,00,19,022 crores during 2009-10 and decreased by Rs.68,19,678

crores in the year 2011-12 and again increase to Rs.97, 68,100 crores in the year 2013-14.

Redemption is continuously increased from Rs.8,37,508 crores in the year 2004-05 to

97,14,318 crores in the year 2013-14.Net inflow is increased from Rs.2,200 crores in the

year 2004-05 to Rs.1,53,802 crores in the year 2007-08 and decreased by Rs.53,782

crores during the year 2013-04. Finally Assets at the end of the period increased Rs.1,

49,600 crores in the year 2004-05 to Rs.8, 25,240 crores in the year 2013-14 and

Rs.849097 crores in the year 2014 – 2015.

2. Total Assets

During the entire period the study it can be observed that total assets under

management are Rs.49, 50,355 crores i.e.100 per cent. Out of which highest scheme wise

assets under management is income/debt fund Rs.32, 67,601 crores i.e.66 per cent.

Followed by in growth/equity fund of Rs.14, 81,658 crores i.e. 29.93 percent, balanced

und Rs.1, 33,433 i.e. 2.70 per cent, exchange traded fund Rs.51, 811 i.e. 1.05 percent and

finally fund of fund overseas Rs.15, 832 i.e. 0.32 per cent.

3. Total Resources Mobilized

a) In case of sector -wise total resources mobilized by mutual fund industry, total

resource mobilized by mutual fund industry is increased from 8,39,708 crores in the year

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2004-05 to Rs. 97,68,100 crores during 2013-14.i.e. total of Rs.5,65,01,279 crores (100

per cent). Private sector mutual fund industry plays a dominant player in the market their

mobilisation of resources increased from Rs.7,36,463 crores in the year 2004-05 to

Rs.80,49,397 crores during 2013-14 i.e. total Rs.4,56,07,034 crores (80.72 per cent).

b) Public sector mutual fund companies resources mobilised increased from

Rs.56,589 crores in the year 2004-05 to Rs.9,16,351 crores in the year 2013-14.i.e. total

Rs.62,47,689 crores (11.06 per cent). Lastly UTI mutual fund increased from Rs.46,656

crores in the year 2004-05 to Rs.8,81,851 crores during the year 2009-10 it is evident

from the above table that scheme-wise resource mobilisation by mutual fund industry.

During the last ten year period total resource mobilisation by mutual fund companies are

Rs.5, 65, 01,279 crores. Out of which highest scheme wise resource mobilized of mutual

fund companies are income/debt scheme i.e. Rs. 5,57,46,280 crores (98.66 per cent),

followed by growth /equity scheme i.e.Rs.6,48,120 crores(1.46 per cent), balanced

scheme i.e. Rs.52,267 crores (0.09 per cent), exchange traded fund i.e. Rs.46,785 crores

(0.08 per cent) and lastly Rs.7,827 crores (0.01per cent)

4. Number of Schemes

The total number of schemes under Mutual Funds has increased during the period

2005-2015 and it increased very steeply during the period 2012-13 to 2013-14. The

growth rate of number of schemes in debt is greater than income, balanced, ETFs and

overseas. The total number of funds as on 31-03-15 is 1639 and debt schemes constitutes

major share followed by income based schemes. The total number of schemes operated

had grown by 26.54 per cent while the growth in new schemes launched was 14.13 per

cent.

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5. Fund Mobilized

The total Fund mobilized by the mutual fund have declined in the year 2011-12

from Rs 88,59,515 crores to 68,19,679 crores but again the industry gained momentum

and it increased to Rs.97,6810,054 crores in 2013-14. The major chunk of mutual fund

industry is invested in debt securities where as the share of investment in balanced and

ETFs is more or less same. Thus we can conclude from above that the mutual fund

industry is one of the major investors in the debt securities of the capital market. The Net

Assets under mutual funds have remained almost stagnant during 2010-11 to 2011-12 and

it increased very steeply between 2012-13 to 2013-14.

6. Redemption of Fund

a) Mutual fund redemptions from all schemes in March 2001 were Rs. 5,

43,381crore. This has increased to Rs. 97, 14,318 crore to the year March 2014. Share of

redemption of mutual fund schemes in March 2001 was dominated by Indian Private

sector (24.50) joint venture predominantly foreign (36.94%) predominantly Indian

(23.42%) and the bank sponsored (7.95%). Redemptions from bank sponsored mutual

fund joint venture predominantly increased from 3.57% to 7.79%, joint venture

predominantly foreign schemes have gone up from 0.05 to 1.67 %, and other bank

sponsored mutual funds increased from 7.46% to 9.85%.

b) Redemptions of Indian private sector mutual funds which were nearly 24.50

per cent in March 2004 have increased to 29.15 per cent by the March 2014. And

redemptions of Joint venture mutual funds dominated by Indian share, which were 23.42

per cent in March 2004, have gone up to 45.98 per cent by the March 2014. And joint

venture predominantly foreign though increased from 33.94 per cent to 40 per cent in the

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year 2005 and it has decreased to 2.61 per cent by the March 2014 due to fluctuations in

sales.

7. Scheme - wise sales

a) Scheme - wise sales, redemption and net utilisation of resources by the mutual

funds from the year 2004 to 2013. The sales of all the schemes is increased from Rs. 839,

662 crores in the year 2004 to Rs. 3,043,077 crores in the year 2013 and the redemption

of all the schemes is also increased from Rs.837,508 crores to Rs. 2, 889, 295 crores. The

net utilisation of the resources by mutual fund in all the schemes goes up by Rs. 2, 154

crores to 153, 781crores. The sale of income schemes are increased from 2004 to 2010

and it goes down in the last two years and sale of growth scheme is reduced from Rs. 37,

233 crores to Rs.15, 999 crores. The sale of balanced scheme is goes down to Rs.1639

crore in the year 2012-13. The exchange traded fund is started in the year 2006-07 and

the total sales is around 99 crores and it is increased to 1359 crores in the year 2012-13.

The fund of funds investing overseas is started in the year 2008-09 with the total sales of

Rs.1, 769 crores and it goes down by 396 crore in the year 2012-13.

b) The total number of open-ended, close-ended and interval schemes in income

oriented, debt oriented, balanced, exchange traded and fund of fund investing overseas

from 2005 to 2014. Related that, total number of open - ended scheme increased from

403 to 777, closed - ended schemes goes up from 48 to 796 and interval schemes is

started in the year 2009 and it decreased from 68 to 65 schemes. In open-ended scheme,

income oriented open-ended scheme (49.63%), growth oriented open-ended scheme

(41.94%) and balanced oriented open-ended (8.44%) contributed for the year 2005. The

income oriented open-ended scheme decreased from 49.63% to 45.82%, closed - ended

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scheme increased from 58.33% to 95.10% and interval scheme increased from 97.06%

in the year 2009 to 100% in the year 2014. The growth oriented open-ended scheme

decreased from 41.94% to 41.83%, closed - ended scheme decreased from 39.58% to

4.77% and interval scheme started in the year 2009 and it shows a percentage of 2.94%

and decreased to 2.78% in the year 2011. The balanced oriented open ended scheme

shows an increase of 8.44% in the year 2005 to 3.73% in the year 2014 and close ended

scheme goes down from 2.08% to 0.13%. The exchange traded fund is started in the

year 2007 as open ended scheme and it shows an increase of 0.21% to 5.15% and fund

of fund investing overseas is started in the year 2009 as open ended scheme and it

increases from 1.69% to 3.47%.

b) Major Findings of the Study

1. It is found that during the entire period of the study total resource mobilisation of

fund by mutual fund industry was Rs.4, 64, 82,257 crores.

2. It is evident for the entire period of study the total assets managed by mutual fund

industries were Rs.49, 50,335 crores.

3. It is clear that a highest scheme - wise asset under management in income/debt

fund Rs.32, 67,601 crores i.e.66 per cent.

4. It is found that lowest scheme - wise assets under management is fund of funds

Rs.15, 832 crores i.e.0.32 per cent.

5. It is found that majority of the sector - wise total resource mobilized by mutual

fund industries are private sector mutual fund companies were Rs.4,56,07,034

crores i.e. 80.72 per cent.

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6. It is evident that UTI mutual fund had total lowest resource mobilized by mutual

fund industry during last ten years. Rs.46, 46,556 crores i.e.8.22 per cent.

7. It is found for study during the last ten year period total resource mobilisation by

mutual fund companies are Rs.5, 65, 01,279 crores.

8. During past ten years it is found that income/debt scheme having a major scheme-

wise resource mobilized by mutual fund were Rs.5,57,46,280 crores i.e.98.66 per

cent.

9. It is evident that fund of fund have lowest resource mobilized mutual fund scheme

were Rs.7, 827 crores i.e.0.01 per cent.

10. The Assets mobilized through mutual funds was increased to Rs. 9, 05,120 crores

in the year 2015. Assets Under Management from all sectors of mutual funds on

March 2005 accounted for Rs. 1,39,616 crore. It has decreased to Rs. 4, 17,300

crore by March 2009 and again rose year by year and reached to as high as Rs. 9,

05,120 crore by the March 2014. Total mutual fund sales from all schemes during

the year March 2005 were Rs. 5, 90,190 crore. It has gone up to Rs.97, 68,401

crore by the March 2015 and the total mutual fund redemptions from all schemes

in March 2001 were Rs. 5, 43,381crore. This has increased to Rs. 97, 14,318 crore

to the year March 2015. The scheme - wise resource mobilization shown that the

sales of all the schemes is increased from Rs. 8, 39, 662 in the year 2005 to Rs.

3,043,077 crores in the year 2015 and the redemption of all the schemes is also

increased from Rs. 837,508 crores to Rs. 2,889,295 crores. The net utilisation of

the resources by mutual fund in all the schemes goes up by Rs. 2,154 crores to

Rs.153, 781 crores. The total number of open ended scheme increased from 403

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 to 777, closed ended schemes goes up from 48 to 796 and interval schemes is

started in the year 2009 and it decreased from 68 to 65 schemes. The total number

of folios in all the schemes during the year 2009 was Rs.47, 598,163 crore and it

goes down to Rs.39, 548, 410 crore due to number of folio reduced in growth and

fund of fund schemes.

11. On the basis of table analysis, it can be concluded that the asset under

management shown a growth of Rs. 9, 05,120 crores. The asset under

management of all the sectors, mutual fund sales, mutual fund redemption, and

scheme wise resource mobilization, total number of schemes has been increased

from the year 2005 to 2015. The total number of folios shows a decrease from the

year 2005 to 2015 due to number of folios reduced in growth and funds of fund

schemes. The Indian Mutual Fund Industry on Dec 2015 with a total AUM of Rs.

11.11 lakh crores as against last year’s figure of Rs.8.25 lakh crore - a growth of

35%. This shows that the investor preference towards financial assets is

increasing. One of the drivers for the AUM is equity AUM, which increased from

Rs.1.58 lakh crore to Rs.2.79 lakh crore as on November 2015. The surge in the

value of share prices and an increase in interest from investors helped equity

AUM rise.

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The outcomes of risk-return analysis of twelve sample schemes for the study
period 2005 - 2006 to 2014 - 2015 were as follows:

1. All the twelve schemes covered under the study showed risk premium, Sharpe

index and Treynor index indicating that the sample scheme’s returns were

insufficient to cover the risk-free return and for the risk undertaken by the

investors.

2. SBI Magnum Balanced Fund Plus scheme outperformed the market in all the

eight years based on the Sharpe index while L&T Gilt Fund - Investment

Plan scheme underperformed the market in most of the years of the study (nine

out of ten years).

3. The positive beta values for all the sample schemes throughout the period of study

revealed that, the performance of the sample schemes and that of the market were

in the same direction. However, the beta values less than one in all the years in

the case of L&T Gilt Fund - Investment Plan, Birla Sun Life Gilt Plus - PF Plan,

SBI Magnum Gilt Fund - Long Term Plan, UTI Gilt Advantage Long Term Plan,

IDFC Government Securities Fund - Provident Fund Plan - Regular Plan,

Reliance Pharma Fund, UTI Pharma & Healthcare Fund, HDFC Childrens Gift

Fund - Investment Plan, SBI Magnum Balanced Fund, and ICICI Prudential

Balanced Fund - Regular Plan, indicate their defensive nature compared to the

market. While SBI Pharma Fund, and Franklin India Balanced Fund Scheme

with beta values more than one in many years indicate its aggressive nature.

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4. Out of twelve schemes studied, only Reliance Pharma Fund Scheme

outperformed the market based on Treynor index. All the schemes showed a

positive Jensen Alpha.

5. An overall analysis of the sample schemes for the entire study period reveals

that; return from SBI Magnum Balanced Fund Scheme (2.3003) was the highest

among the twelve schemes studied. The beta value was the lowest for UTI Gilt

Advantage Long Term Plan Scheme and ICICI Prudential Balanced Fund -

Regular Plan (0.6212) and the highest in the case of Reliance Pharma Fund

scheme (0.8936). The total risk of L&T Gilt Fund - Investment Plan Scheme was

the lowest (0.1195) while SBI Pharma Fund Scheme had the highest (0.4896)

total risk.

6. Along with open-ended schemes close-ended schemes are also very much preferred

by the investors because of the simple reason that when fund is invested in equity

it is considered long term investment and lock in period resist investor to

withdraw their fund before maturity.

7. Based on Sharpe Index, SBI Magnum Balanced Fund scheme (0.6341) followed

by Reliance Pharma Fund scheme (0.5961) topped the list.

8. On the basis of Treynor Index, Reliance Pharma Fund scheme (2.3900) and SBI

Magnum Balanced Fund scheme (2.1512) topped the list due to its aggressive

nature.

9. All schemes provide positive Jensen alpha indicating its superior performance

compared to expectations.

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 10. The relationship between Treynor and Jensen was the highest (0.8929) and the

lowest (0.6429) between Sharpe and Treynor models of performance evaluation.

11. The Kendalls Coefficient of Concordance revealed the existence of a significant

agreement in the ranking assigned by the three models. All the three measures on

the whole assigned first rank to SBI Magnum Balanced Fund Scheme in terms of

performance based on total risk and systematic risk.

12. SBI Magnum Multiplier Plus Scheme showed high explained and high

unexplained risk during the period of study while explained variance was low in

the case of HDFC Capital Builder Scheme and unexplained variance was low in

the case of LIC MF Equity Scheme.

The conclusions drawn from the opinion survey of investors, brokers and fund

managers revealed the following findings:

1. The profile of investors covered showed that, 40 per cent were in the age group

of 31-45 years, 84 per cent were male investors, 35.25 per cent represented

employed category, 52.5 per cent were undergraduates, 88.5 percent were

married, 52.75 percent were earning less than Rs.10,000 per month and 49.5 per

cent were saving less than Rs.2,000 per month.

2. Investors depend on their investments for income and emergency needs (25.25

per cent) followed by devotion of savings for long term savings (20.5 per cent).

3. Investors want to balance their income and growth objectives with top priority

for income objective and second priority for growth objective.

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4. More than half of the investors covered under the study had an investment time

horizon up to five years.

5. More than half of the investors were willing to take modest risk while one-

fourth was ready to take as much risk as possible.

6. One-third of investors were ready to take average amount of volatility for

average returns while one-fourth accepted little volatility for higher returns.

7. Age, sex, occupation had significant impact on the investors financial

dependence, investment objectives, willingness to take risk and on the extent of

acceptability for investment volatility.

8. Educational qualification affected financial needs and investment objectives of

investors.

9. Marital status had a significant impact on investment objective, willingness to

take risk and volatility in investment value. Monthly income and monthly

savings had a significant impact on financial needs and investment objectives.

More than half of the investors covered had less than five years of investment

experience while less than one-fourth had 6 to 10 years of investment

experience.

10. All the investors covered under the study had invested in bank deposits and

mutual funds followed by equity shares and post office savings schemes.

11. Majority of investors had invested less than 25 percent of their savings in

mutual funds.

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12. Majority of the investors had invested less than 25 percent in each type of

financial assets.

13. Investors preferred bank deposit in the first instance, with the highest average

score of 4.82 followed by post office savings scheme, equity shares. Investors

assigned fourth preference for mutual funds.

14. The opinion of the investors on the bank deposits and post office savings

schemes had the highest degree of safety followed by insurance policies, bonds,

debentures and mutual funds.

15. In case majority of respondents, investment experience in mutual funds was

less than five years.

16. The return on investment point of view, less than half preferred funds providing

regular income. From stability point of view, more than half chose schemes

assuring safety of investment. From the angle of marketability of schemes,

more than one-third preferred mutual funds assuring high profitability. From

the tax benefit point of view, nearly half accepted schemes to availing tax

concessions.

17. In case other variables such as, age, occupation, monthly income and monthly

savings had a significant influence on the selection of schemes based on the

criteria of return, safety, liquidity and tax benefit.

18. The Investors covered under the study had first preference for private sector

joint venture (predominantly) Indian mutual funds, followed by bank sponsored

mutual funds, private sector Indian mutual funds and institution sponsored

mutual funds.

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 Most important benefit of investing in mutual funds was profitability followed

by tax shelter and capital appreciation. For investors, the main source of information

providers on mutual funds was brokers / agents. The investors had first preference for

growth schemes followed by income schemes and money market schemes.

The intangible asset - Goodwill was the most influential factor in the selection

of the mutual fund, followed by investor services and the past performance. The most

important factor influencing the choice of mutual fund scheme was capital appreciation

followed by fund objective, return on investment and safety. Very few investors were

fully satisfied with the performance, investor services and the opportunities provided

by the IMFI and same were the case with the not satisfied category, so it could be

inferred that investors in general were moderately satisfied as evident from the average

score of 2 each.

• Most of the investors subscribed to the following statements:

• Less risky nature of mutual funds compared to shares.

• Suitability of mutual funds to small investors hesitating to enter capital market.

• Ability of mutual funds to weather the market fluctuation.

• Risk and return characteristics of Indian mutual funds being not in conformity

with their stated objectives.

• Investing in mutual funds is much better than bank deposit.

• Growth schemes are preferable to income schemes.

All the twelve schemes studied did not provide adequate returns to cover the

risk-free return, systematic risk and total risk. However, SBI Magnum Balanced Fund

Scheme outperformed the market in terms of Sharpe Index and Treynor Index. L&T

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Gilt Fund - Investment Plan Scheme showed poor performance in terms of Sharpe

Index. SBI Magnum Gilt Fund - Long Term Plan Scheme showed poor performance in

terms of Treynor Index and ICICI Prudential Balanced Fund - Regular Plan showed

poor performance in terms of Jensen Alpha. The performance of sample schemes were

in the same direction as that of market as indicated by the positive beta values.

Reliance Pharma Fund and Birla Sun Life Gilt plus - PF Plan were significantly

aggressive in nature compared to other sample schemes. Market had a significant

impact on the performance of all the sample schemes. The present NAV is significantly

related to the past NAV but the extent of impact reduces as the time lag increases.

7. 3 Suggestions

a) General suggestions offered to the India Mutual Fund Industry.

1. During the study period it was found that highest scheme wise asset under

management is income/debt fund. It may be liquidity and assured return. This

indicate that more efforts have been made by the mutual fund companies to create

awareness among the investors regarding the exchange traded fund and fund of

fund overseas.

2. It is suggested that mutual fund companies should increase the assets under

management scheme wise in balanced fund, exchange traded fund and fund of

fund overseas with innovative scheme and attractive return by the investors.

3. It is suggested that UTI mutual fund company and public sector mutual fund

company should introduced the more and more scheme in market with assured

return with highest safety and liquidity. It will helpful by the company for

mobilizing the resources.

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 4. It is suggested that mutual funds companies should issue various innovative

schemes other than income/debt scheme. Like balanced fund, exchange traded

fund and fund of fund overseas with minimum risk and maximum return. It will

help to the investors by investing in the mutual fund industries.

5. During the period of study, it was found that the majority of the resources

mobilized by the mutual funds are through the income-debt schemes. This

indicates that more efforts have to be made by the mutual funds to create

awareness among the investors regarding the earnings potential of the

equity/growth schemes.

6. The asset management companies should concentrate more on the research studies

to be carried out in the scenario of macro environmental changes.

7. There should be centralized agency to monitor the fund utilization by fund houses.

b) Major Suggestions based on findings

1. It’s important to understand that each mutual fund has different risks and rewards.

In general, the high potential returns, the higher the risk of loss. If you are risk

adverse investor you make investment in Gilt and Money Market/ Liquid funds,

which shows low risk, compared to other schemes operating in the market. If you

are risk taker goes for Equity Diversified Fund for higher return.

2. Most of the schemes have negative alpha values, it indicates that the fund

managers of the mutual funds are failed to forecast future security prices in time,

which result in poor performance of these schemes. So the mutual fund industry

should develop their research wing to forecast the market movement, which helps

them to maintain efficient portfolio management.

274
3. The Mutual Fund industry should develop their own modern risk market research.

It will helpful for better and efficient portfolio management. Most of the mutual

fund companies having own department and team doing work on market research

and predict future value of equity, but its need to follow new model to predict

liked artificial neural network (NN) models in forecasting quarterly EPS.

4. The Mutual Fund industry should maintain consistency in their return and provide

superior return compared to the market return. The main goal of any fund

manager is to maintain the unit price; means not over price or under price,

secondly growth also need to be considered return on unit. Fund Manager should

plan for allocation of sector provided good return with minimize chance of

negative return.

6. In order to increase the stake in market the Mutual Fund companies should come

with transparency.

7. There is an urgent need for aggressive campaign to train the investor about

different Mutual Fund schemes. Investors are less aware about schemes of mutual

fund. Investors do not know what should mention on KIM and Offer Document.

8. Mutual Funds should publish NAVs of their different schemes as frequently as

possible. As per the SEBI norms, it must be published every working day – to -

day Mutual Fund online trading.

9. The Mutual Fund companies should explore adequate risk to generate good return.

Mutual Fund Research team should select tools to analyse risk liked Value at Risk

and Beta. And risk compared with same class of schemes with different AMC.

275
10. To provide greater liquidity to the investor, Mutual Funds should develop a wide

infrastructure of self – sufficient branches. Most of transaction with help of

CAMS service provider for mutual fund. But own branches help investors for

direct investment and any time check performance of portfolio. Own branches

promoted product when time of New Fund Offer, making strategies how to attract

investors.

11. Mutual Funds should develop their own modern market research. It will be

helpful for better and efficient portfolio management. As per the SEBI guideline

appointed Fund Manager so person should be fully qualified and well experience

on capital market fluctuation and economic planning and global market trend.

12. The Mutual Fund companies should adopt transparency in operation to inter

scheme transaction, inter scheme change sector of allocation, one fund manager

handling two to three schemes at the same time. Need to organize weekly meet

Fund Managers.

13. Mutual funds companies should build confidence in the existing unit holders as

well as the public not covered so far. Mutual funds have to prove as an ideal

investment vehicle for retail investors by way of assuring better returns in

relation to the risk involved and by way of better customer services.

14. Mutual funds as institutional investors have to ensure professional market

analysis, optimum diversification of portfolio, minimizing of risk and optimizing

of return.

15. The fund managers have to provide the benefits of professional management by

way of market timing and stock selection skills.

276
 16. The Asset Management companies by way of superior management, efficient

market forecasting have to ensure not only out performance but also consistency

in the performance.

While millions of potential investors are not fully aware of the modes of

investments, most of the investors who have invested are not fully aware of their rights

and obligations. Hence, the Government should arrange for more number of massive

educational programs on investment avenues besides publishing ‘Investors guide’

enabling the investing public to take more informed investment decisions. It would be

more enlightening and effective if awareness programs were organised at the collegiate

level so that students could become aware of investment avenues even before they start

earning.

SEBI and AMFI could carry out research works to introduce many mutual fund

products proved successful in foreign countries but not yet introduced in India. Mutual

fund activities could be linked with the banking institutions, through electronic clearing

and plastic money for easy transactions and e-units of mutual funds.

The role of investors’ redress cell has to become more dynamic, efficient and

wide spread so as to reach to investors rebuilding confidence among existing unit-holders

and generate interest among the potential investors. Mutual fund Ombudsman could be

established for early settlement of disputes.

Investors have to make self-analysis of one’s needs, risk-bearing capacity, and

expected returns so as to develop a prudent investment ideology. Investors have to be

aware of the mutual fund regulations, the channeling of money, objectives of schemes,

besides ensuring better diversification of investment.

277
7. 4 Challenges of Mutual Fund Industry

1) Lack of Financial Education and Awareness: Financial literacy is the one of the

most fundamental factors impeding the growth of penetration of any financial product

in the smaller cities and towns. Investors need to be made aware of their financial goals

and the means to achieve the same. SEBI is making efforts for the investor awareness

campaign.

2) Limited Distribution Network: The second critical issue for fund houses to

distribute their products in smaller cities is the availability of quality distribution

infrastructure. Fund houses need infrastructure like branched, adequate number of

relationship managers and sales service staff in these locations to be able to increase

their sales volume coming from these geographies.

3) Distribution cost: Cost of establishing a Distribution network in B-15 cities is quite

high. It is the cost per transaction or the low sales volume that makes the pursuit

economically unviable or at least challenging.

4) Cultural Bias: Cultural Bias towards physical assets, as of FY13, 46 percent of total

individual wealth in India is invested in physical assets. Although, in the past few

decades, the investors have increasingly relied on financial assets to invest their savings,

the contribution of MFs in the asset portfolio is very low.

7. 5 The Future Vision

The Mutual fund industry needs to have an outside-in perspective as compared

to inside-out perspective. Understanding investor’s needs should be followed by a

product channel alignment. Increasing financial literacy will be the key to unlock the

278
doors to B-15 and also to remove the perception that equates mutual fund to only

equity. Investor awareness campaigns should be conducted to increase the AUM in

smaller cities which would help industry to progress in a holistic manner. Knowledge

about mutual fund industry should be included in educational curriculum. Fund houses

may need to find and partner with the right distributor to make the products available to

investors in smaller cities. Therefore, Banks and IFAs could play a pivotal role in

reaching the investor base. Also, distributors should be incentivized enough to ensure

that they project mutual funds as a long-term investment for fulfilling financial goals.

For future growth, tax could act as an enabler as tax benefits can be a pull factor for

investors. For example, fund of funds does not get the required tax benefit from the

government. May be, government could look at such funds and few offshore funds from

India for tax benefits. Technology can act as a key enabler and help the fund houses

reach investors at a low cost and more efficient manner. AMCs need to make the

relevant investments in technology to help reach investors to help ensure transactions on

the channels of their choice.

7. 6 Concluding Remarks

It can be concluded that mutual funds are one of the fast growing industries in the

financial sector. It has recorded an exponential growth in the post liberalization period

particularly in the last decade income/ debt fund, growth/equity fund and balanced fund

are managed more schemes in terms of assets under management as well as resources

mobilisation by mutual fund industry in India. Among various sectors operating in

mutual fund industry, private sector mutual fund industry has become a most prominent

279
player in the market when compared with UTI mutual fund and public sector mutual fund

industry in terms of resources mobilized.

The mutual fund industry had undergone a lot of mergers, acquisitions and

closures besides the entry of many new mutual funds. The industry accounted for an

impressive growth in funds mobilized and has scaled up to Rs.12, 21,365 crores by the

end of March 2015 in spite of the fall in the number of mutual funds from 31 to 29 with

a negative CGR of 6.45 percent. The funds mobilized by the industry increased by 69.54

percent through open-end schemes in operation and from schemes launched in close-end

category. The growth in funds mobilized was accounted by bank-sponsored mutual

funds category (135.23 percent) followed by private sector joint venture (predominantly)

foreign funds (169.79 percent). A major portion of the funds mobilized was through

ELSS category (76.23 percent) followed by growth schemes (60.11 percent) and income

schemes (33.21 percent).

During the ten years of study period, the IMFI had shown a good progress in

terms of number of private sector Indian mutual funds, number of schemes launched,

funds mobilized and assets under management. There had been a good number of

schemes launched particularly in open-end type with income objective.

The hallmark of any mutual fund is to outperform the market both in rising and

falling markets besides ensuring benefits of diversification. Of the sample schemes, SBI

Magnum Balanced Fund scheme, Reliance Pharma Fund scheme, HDFC Children’s Gift

Fund - Investment Plan scheme, Franklin India Balanced Fund scheme and SBI Pharma

Fund scheme outperformed the market in terms of absolute returns and Sharpe index.

280
 While only Reliance Pharma Fund scheme outperformed market in terms of

Treynor index and also had positive Jensen alpha. All the three risk-adjusted

performance measures showed significant agreement in ranking the sample schemes.

Of the sample schemes studied, SBI Magnum Balanced Fund Scheme topped the

list in all the three portfolio performance models. All the sample schemes ensured

positive returns due to stock selection skills of fund managers. The variance explained

by the market was high in the case of SBI Magnum Gilt Fund - Long Term Plan scheme.

The market performance had a significant positive influence on scheme performance in

case of all the schemes covered under the study. The present NAV is positively

significantly correlated with that of its past NAV but the impact got reduced as the time

lag increased.

7. 7 Scope for Further Research

The present research is confined to the regulated environment of mutual fund

industry and to that of select growth schemes. During the course of study it was

observed that technological and environmental changes have many social implications.

Government policies, changes in the financial environment, income status have

significant influence on the size of savings, preference for investment avenues and

pattern of holding investments. Thus, there are several other important issues relating to

mutual funds increasing the scope of this study. Hence, studies could be carried out in

the following areas to substantiate the existing literature and contribute for the growth of

the mutual fund industry.

Though an attempt has been made in this study to examine the performance of

the select mutual funds, in fact, there is an ample scope for further research in this

281
direction. During the present study the researcher felt the need of further research.

Following directions are suggested:

The money market mutual funds are recently highly active and managing

significant assets in the market. So there is an ample scope to pursue research in these

funds in order to initiate further development in money market of India.

No adequate researches studies are conducted on foreign and off shore mutual

funds. So there is a lot of scope to initiate research work in this field. Further a

comparative study of Indian mutual funds with off shore funds could be initiated.

The role of Foreign Institutional Investors is rising in Indian stock markets in

recent times. Their investments in Indian stocks are highly influenced and that could be

a potential area for further research to study how stock prices are being influenced.

It was observed that a good number of mergers and acquisitions in mutual fund

industry were witnessed in the previous periods. The rate and nature of mutual fund

attrition has its impact on the investing society and other existing mutual funds in the

industry. The correction of attrition is highly important to avoid its negative impact on

the earnings of the existing mutual fund schemes. Therefore further research in this

direction could be carried out on mutual fund attrition and the effect of survivorship bias

on the other existing mutual fund schemes.

These potential areas are the possible corners of research work which can richly

contribute towards the existing literature on mutual funds and also portrays the

performance of different schemes in India.

282


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WEB SITES

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 PERCEPTIONS OF INDIVIDUAL INVESTORS
QUESTIONNAIRE

A .Profile of Investors:

1.Name (optional) :

2.Age :Below 30years … 31-45 years …

46-60 years … Above 60 years …

3.Sex :Male … Female …

4.Occupation :Business … Agriculture …

Professional … Employed …
Others (please specify)

5.Education :Up to Higher Secondary … Undergraduate …

Postgraduate … Others
(please specify)
6.Marital Status :Married … Unmarried …

7.Monthly Income :Below Rs.10,000 … Rs.10,001-20,000 …

Above Rs.20,000 …

8.Monthly Savings :Below Rs.2,000 … Rs.2,001-4,000 …

Above Rs.4,000 …

B Attitude towards Investment:

9. How would you describe your financial needs? (Please 3

one statement)
Factor 1 - Depend totally on investments.

Factor 2 - Depend on investments for income and emergency needs.

Factor 3 - Depend somewhat on investments for income and emergency needs.

Factor 4 - Depend on investments to serve only on an emergency.

Factor 5 - Devote investments to long - term savings.

Factor 6 - Don’t Depend on investments.

10.What is your investment objective? (Please 3
one statement)
Option 1- Capital preservation and satisfactory current income.
Option 2 - First priority for Income and second priority for Growth.
Option 3 - Balanced preference for income and growth.
Option 4 - Basically growth oriented but intends to play it somewhat safe.
Option 5 - Maximize growth, as income is not critical.

11. What is your investment time horizon? When do you think you will need or want to tab into
your portfolio?
In 5 years … 6-10 years … 11-15 years … Above 15 years …

12.Give your willingness to take risk? (Please 3

one statement)
Category 1 - Willing to take as much risk as possible.

Category 2 - Willing to take modest risk.

Category 3 - Avoid taking risk.

13. What is your attitude towards fluctuation in the value of your portfolio? (Please 3
one
statement)
Choice 1 - Accept lower long run returns with maximum stability.
Choice 2 - Accept little volatility for higher returns.

Choice 3 - Take average amount of volatility for average returns.

Choice 4 - Accept higher volatility as growth is the goal.

Choice 5 - Accept substantial volatility, as maximum appreciation is the goal.

14. What is your experience in the field of investments?

… Less than 5 years …

6-10 years …
11-15 years …
16-20 years

… Above 20 years
 15. What is your percentage of investment held by you in the following investment avenues?
Give your order of preference (Rank 1, 2, 3,…)
Financial Assets Percentage Preference (Rank)
Bank Deposits

P.O. Saving Schemes

Bonds and Debentures

Equity Shares

Mutual Funds

Insurance Policies
Others

(please specify)

16.Please 3for each financial asset to indicate your degree of safety.

Financial Assets Absolutely safe Reasonably safe Somewhat safe Not safe Don’t know

Bank Deposits … … … … …

Savings Scheme … … … … …
Bonds and Debentures … … … … …
Equity Shares … … … … …

Mutual Funds … … … … …

Insurance Policies … … … … …

Others … … … … …

(please specify)
C Attitude towards Mutual Funds:

17. How long have you been investing in Mutual Funds? Past years.

18.With what objective do you invest in mutual funds? (Please 3

only one from each of the 4
sections.)

Return Stability Marketability Tax Benefit

… Regular Income … Safety … High Liquidity … Tax Saving
… Growth … Speculation … High Profitability … Non-Tax Saving
… Both … Both … Both … Both

19.Rank your order of preference separately for each column (1,2,3 ….)

Sector Fund Objective

------ Bank sponsored MF ------ Growth
------ Institution sponsored MF ------ Income
------ Private –Indian MF ------ Balanced
------ Private Joint Venture (Predominantly) Indian ------ ELSS
------ Private Joint Venture (Predominantly) Foreign ------ Money Market
------ Gilt

20. What factors determine the success of a mutual fund? (Please 3

your degree of importance).

Factors Very Important Important Not Important Not at all Important

Quality of service … … … …
Suitability of product … … … …
Research … … … …
Risk orientation … … … …
No: of investor service center … … … …
21. What are the sources of information about Mutual Funds? ( Please 3
the sources)

… Brokers/ agents …Prospectus …

Advertisement …Annual Reports
… Newspapers …Magazines …
Friends and Relatives …
Others
(Please specify)

22. What are the benefits of investing in mutual funds? (Please 3

benefits you enjoy)

…Portfolio diversification …Tax Shelter …

Lower cost …Liquidity of investment

… Assured allotment …
High Yielding …Convenience …Quality of service
… Innovation in Schemes …
Profitability …
Transferability …Repurchase Facility
… Capital appreciation …Loan Facility …
Professional Management
… Wide investment opportunities …Transparency in operation
…Others (please specify).

23. To what extent the following factors are important in your choice of mutual fund
organization. (Please 3for each factor indicating your importance).

Factors Very Important Important Not Important Not at all Important

Goodwill … … … …
Volume of business … … … …

Sector represented … … … …

Investor services … … … …

Past performance … … … …

Infrastructure … … … …

Suggestions(friends, relatives etc) … … … …

Background Experience … … … …

Investment Philosophy & … … … …

Methodology

Others

(Please specify)
24. To what extent the following factors are important in the choice of a mutual fund scheme?

(Please 3for each factor)

Factors Very Important Important Not Important Not at all Important

Capital Appreciation … … … …
Objective of the fund … … … …

Return on Investment … … … …

Tax benefit … … … …

Liquidity … … … …

Safety … … … …

Loan facility … … … …

Convenience of reinvestment … … … …

Fund Managers Background … … … …

Early Bird Incentive … … … …

Others … … … …
(Please specify)

25. Give your degree of satisfaction. Fully Satisfied Moderately Satisfied Not Satisfied

a. Mutual Fund Industry performance … … …

b. Investment opportunities in M F industry … … …

c. Services to Investors by Mutual Funds … … …

26. Please 3
your degree of agreement relating to mutual fund.

Strongly Agree Agree Neutral Disagree Strongly Disagree

a. Investing in funds are less risky … … … … …
compared to shares.

b. Mutual Funds are more suitable to … … … … …

small investors who are otherwise
hesitant of entering into capital market.

c. Mutual funds have the ability … … … … …

to weather the market fluctuations.

d. Risk and return characteristics of … … … … …

Indian MFs are not in conformity
with their stated objectives.

e. Investing in funds is much better … … … … …

in terms of returns than depositing
money in banks.

f. Growth schemes are highly … … … … …

preferred to income schemes.
 PERCEPTIONS OF BROKERS

QUESTIONNAIRE

BROKER / AGENT : Mr.

1. Please 3for each financial asset to indicate your degree of safety.
Financial Assets Absolutely safe Reasonably safe Somewhat safe Not safe Don’t know

Bank Deposits … … … … …

Savings Scheme … … … … …
Bonds and Debentures … … … … …
Equity Shares … … … … …

Mutual Funds … … … … …

Insurance Policies … … … … …

Others … … … … …

(please specify)

2. What are the benefits of investing in mutual funds? (Please 3

benefits you enjoy)
…Portfolio diversification …Tax Shelter …
Lower cost …Liquidity of investment
… Assured allotment …
High Yielding …Convenience …Quality of service
… Innovation in Schemes …
Profitability …
Transferability of Repurchase Facility
… Capital appreciation …Loan Facility …
Professional Management
… Wide investment opportunities …Transparency in operation
…Others (please specify).

3. Rank your order of preference separately for each column (1,2,3 ….)

Sector Fund Objective

------ Bank sponsored MF ------ Growth
------ Institution sponsored MF ------ Income
------ Private –Indian MF ------ Balanced
------ Private Joint Venture (Predominantly) Indian ------ ELSS
------ Private Joint Venture (Predominantly) Foreign ------ Money Market
------ Gilt
 4. What factors determine the success of a mutual fund? (Please 3your degree of importance.)

Factors Important Very Important Important Not Important Not at all

Quality of service … … … …
Suitability of product … … … …
Research … … … …
Risk orientation … … … …
No: of investor service center … … … …

5.To what extent the following factors are important in the choice of a mutual fund organisation?

(Please 3
for each factor)

Factors Very Important Important Not Important Not at all Important

Goodwill … … … …
Volume of business … … … …

Sector represented … … … …

Investor services … … … …

Past performance … … … …

Infrastructure … … … …

Suggestions(friends, relatives etc) … … … …

Background Experience … … … …

Investment Philosophy & … … … …

Methodology
Others

(Please specify)
6. To what extent the following factors are important in the choice of a mutual fund scheme?
( Please 3for each factor)

Factors Very Important Important Not Important Not at all Important

Capital Appreciation … … … …
Objective of the fund … … … …

Return on Investment … … … …

Tax benefit … … … …

Liquidity … … … …

Safety … … … …

Loan facility … … … …

Convenience of reinvestment … … … …

Fund Managers Background … … … …

Early Bird Incentive … … … …

Others … … … …
(Please specify)

7. Please 3
your degree of agreement relating to mutual fund.
Strongly Agree Agree Neutral Disagree Strongly Disagree
a. Investing in funds are less risky … … … … …
compared to shares.

b. Mutual Funds are more suitable to … … … … …

small investors who are otherwise
hesitant of entering into capital market.
c. Mutual funds have the ability … … … … …
to weather the market fluctuations.
d. Risk and return characteristics of … … … … …
Indian MFs are not in conformity
with their stated objectives.
e. Investing in funds is much better … … … … …
in terms of returns than depositing
money in banks.
f. Growth schemes are highly … … … … …
preferred to income schemes.
 PERCEPTIONS OF FUND MANAGERS
QUESTIONNAIRE

Scheme Manager : Mr.

1. What factors determine the success of a mutual fund? (Please 3

your degree of
importance).
Factors Very Important Important Not Important Not at all Important

Quality of service … … … …

Suitability of product … … … …

Research … … … …

Risk orientation … … … …

No: of investor service center … … … …

2. To what extent the following factors are important in your choice of mutual fund
organization. (Please 3for each factor indicating your importance).

Factors Very Important Important Not Important Not at all Important

Goodwill … … … …

Volume of business … … … …

Sector represented … … … …

Investor services … … … …

Past performance … … … …

Infrastructure … … … …

Suggestions(friends, relatives etc) … … … …

Background Experience … … … …

Investment Philosophy & … … … …

Methodology
Others

(Please specify)


3. To what extent the following factors are important in the choice of a mutual fund

scheme? ( Please 3
for each factor)

Factors Very Important Important Not Important Not at all Important

Capital Appreciation … … … …

Objective of the fund … … … …

Return on Investment … … … …

Tax benefit … … … …

Liquidity … … … …

Safety … … … …

Loan facility … … … …

Convenience of reinvestment … … … …

Fund Managers Background … … … …

Early Bird Incentive … … … …

Others … … … …
(Please specify)




4. Please 3
your degree of agreement relating to mutual fund.

Strongly Agree Agree Neutral Disagree Strongly Disagree

a. Investing in funds are less risky … … … … …

compared to shares.

b. Mutual Funds are more suitable to … … … … …

small investors who are otherwise hesitant of
entering into capital market.

c. Mutual funds have the ability … … … … …

to weather the market fluctuations.

d. Risk and return characteristics of … … … … …

Indian MFs are not in conformity with
their stated objectives.

e. Investing in funds is much better … … … … …

in terms of returns than depositing
money in banks.

f. Growth schemes are highly … … … … …

preferred to income schemes.


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