A STUDY ON PERFORMANCE OFGROWTH MUTUAL FUND SCHEMESProf. Jeevitha. R Mr.
Rajkumar BoddunaAssistant Professor PostGraduate RamaiahInstitute of Management RamaiahInstitute of Management Bangalore 560054 [email protected] [email protected] 9916089980 8296868538 ABSTRACT IntroductionInvestors are broadlydivided in to three categories, they are aggressive investors, moderateinvestors and conservative investors. This moderate investors will always looksinto investment area where there is moderate risk and moderate returns. Exactlymutual funds are collective investment schemes, they specializes in investing apool of money from the investors and investing in securities such as bonds,stocks and money market instruments.
It is managed by the experts called asfund managers. Mutual funds are the most popular method ofindirect investing around the globe. Mutual funds play an important role in theeconomy of the county.
In this study an attempt is made to evaluate theperformance of 10 growth mutual funds on the basis of monthly returns comparedwith benchmark returns. For this purpose, risk adjusted performance measuressuggested by Sharpe, Treynor and Jensen’s are widely known as Sharpe ratio,Treynor ratio, Jensen’s Alpha. I. LiteratureReview Researchers haveattempted to study the performance of mutual fund of all schemes, some areespecially in growth schemes and some are attempted to study the mutual fundperformance of public and private sector comparisons.Alka (2016)to evaluate the performance of Reliance open-ended equity schemes with growthoption. The paper investigates the performance of open-ended, growth-orientedequity schemes.
Reliance Focused Large Cap Fund in Sensex has performed betterthan the other schemes in comparison of risk and return which Indicates that investorswho invested in these schemes to form well diversified portfolio did receiveadequate return per unit of total risk & systematic risk undertaking.Dr. Susheel Kumar Mehta (2010) this study is acomparison of performance of mutual funds schemes. It has taken 10 UTI and 10SBI mutual funds and analyzed their performance.
The study concluded thatpreference of UTI & SBI mutual funds has been better in 2007 – 08.Lakshmi N (2010)this study is about performance of the Indian MF industry with a special referenceto growth schemes and it found out that MF serve those individuals including toinvest but lack the newline technical investment expertise. Funds mobilized bythe industry had grown new here by 57 percent and AUM by 14 percent during1997-2006.
Analysis of performance of newline seven schemes should that, allthe sample schemes outperformed the newline market in terms of absolute returnswithout adequate returns to over total newline risk.D.N. Rao (2006)this study is on 4 step model to evaluate performance of mutual funds inSaudi Arabia. It studied 4 step model for selecting the right equity fund andillustrated the same in the context of equity mutual funds in Saudi Arabia. Thestudy revealed that most of the funds invested in Arab stocks had been inexistence for less than a year and the volatility of the GCC stock marketscontributed to the relatively poor performance of these funds and theturnaround of these funds could take place only with the rallying of GCC andother Arab markets.
Sharad Panwar and R. Madhumathi(2006) this study is on characteristics andperformance evaluation of selected mutual funds in India. This paper resultedthat public sector sponsored funds also not differ significantly from privatesector sponsored funds in term of mean returns percent however they said thereis a significant difference between public sector sponsored MFs. & privatesector sponsored MFs in terms of average standard deviation, average varianceand average co-efficient of variation. II. ObjectivesOf The StudyThe objectives ofthis study are· To evaluate the trends of growth mutualfund schemes.· To evaluate and compare the performance ofgrowth mutual funds using evaluation techniques.
· To compare the selected growth mutualfunds and rank with their performance.III. Scope Of The Study.This study focuseson the relationship between performance of growth mutual fund and nifty returnsusing evaluation tools such as sharpe’s ratio, treynor, jensen’s alpha. Byobserving all these we can conclude that the fund which has highest with lessrisk shows better performance. By looking at theperformance indicators it is easier to investor to find the right growth mutualfunds. Thereby help in increase profit for the investors.
From this study, itmay also enable the researcher to find the better performing mutual fund.HypothesisThe followinghypothesis have been made.Hypothesistesting is carried out with a significance level of 0.
05H0:- There is no difference inperformance between growth mutual funds and Nifty IndexHA: – There is difference in performancebetween growth mutual funds and Nifty Index IV. DataAnd MethodologyThe return of the funds can be estimated bythe average return of the select funds and the risk can be calculated by usingstandard deviation and beta. The risk adjusted return can be measured with thefunctional tools like Sharpe, Treynor’s methods. By observing all these we canconclude that the fund which has highest with less risk shows betterperformance. RETURN: Return (Ri) = P1-P0/P0 Where, = Return of fund during period over 12 months = Value of the Fund at the end of period 1 = Value of the Fund at the start of period RISK: Standard Deviation Definition: Standard deviation (SD) measures the volatility the fund’sreturns in relation to its average. It tells you how much the fund’s return candeviate from the historical mean return of the scheme. Computation: Standard Deviation (SD) = Square root of Variance (V) Variance = (Sum of squared difference between eachmonthly return and its mean / number of monthly return data – 1).Average Return (Rp) = Sum ofthe returns during the periods/No.
of years Calculation of beta for mutual fundBeta is measure of Systematic Risk ornon-diversifiable risk. It measures the sensitivity of the stock with referenceto a broad based market index. Beta = Covariance(XY)/Variance(Y)X = Fund ReturnY = Benchmark Return(Nifty 50) PERFORMANCE EVAULATION OF MUTUAL FUNDS:-Sharpe’s Ratio:Sharpe (1966) devised an index ofportfolio performance measure, referred to as reward to variability ratiodenoted by S He assumes that small investor invests fully in the mutual fundand does not hold any portfolio to eliminate unsystematic risk and hencedemands a premium for the total risk.Sharpe ratio = Portfolioreturns over a period j = Risk-free return over a period? = Total risk, standarddeviation of portfolio return jTreynor’s Ratio:Jack Treynor (1965) conceived an index ofportfolio performance measure called as reward to volatility ratio, based onsystematic risk. He assumes that the investor can eliminate unsystematic riskby holding a diversified portfolio. Hence his performance measure denoted as Tis the excess return over the risk free rate per unit of systematic risk, inother words it indicates risk premium per unit of systematic risk.Treynor’s index Where,Rj = Portfolio returnsover a period jRf= Risk-free return? = Market-risk, beta Jensen AlphaJensen’s Alpha isused to measure the risk-adjusted performance of a security or portfolio in relation to the expectedmarket return (which is based on the capital asset pricing model (CAPM).
Thehigher the alpha, the more a portfolio has earned above the level predicted.The measure was first used by Michael Jensen in 1968 and was originallydesigned to evaluate fund managers, i.e. to gauge if it was possible for themto consistently outperform the markets. Jenson’s results, however, suggestedthat this is rarely the case. Jensen’s Alpha is also known as “Jensen’sPerformance Index” and “Jensen’s Measure”. Jensen Alpha = Rj – Rf + ? *(Rm – Rf)Rj= Portfolio return over a periodRf= risk free rateRm= Returns of market?= Beta V.
Analysis,Results And Discussions Table No.1 Ranking the mutualfund performance with nifty performance. Fund name Fund Return Market Return Ranking Performance IDFC infrastructure fund 19.39 12.5047 7 Above L Infrastructure Fund 26.64 12.5047 2 Above Reliance diversified power sector funds 17.
97 12.5047 10 Above SBI FMCG Fund 20.86 12.
5047 5 Above Sundaram Infrastructure Advantage fund 18.94 12.5047 9 Above BOI AXA Manufacturing & Infrastructure Fund 18.
98 12.5047 8 Above Aditya Birla SunLife Infrastructure Fund 22.5 12.5047 4 Above Invesco India Banking Fund 20.11 12.5047 6 Above Aditya Birla Sunlife Banking and Financial Fund 27.29 12.5047 1 Above ICICI Prudential Banking and Financial Fund 25.
25 12.5047 3 Above Interpretation:From the above table it isclearly showing that funds are performing better than that that ofmarkets,which is due to the fund managers efficiency. Aditya Birla Banking andFinancial funds stands with rank 1 followed by L infrastructure fund,ICICI Prudential Banking and Financial fund etc. Table No.2 Interpretation Sharpe’s & Treynor’s ratioand Jensen’s Alpha Fund name Rj Rf ?p Rm Beta Sharpe ratio Treynor Jensen Alpha IDFC infrastructure fund 19.39 7.08 26.54 12.
504 1.67811 0.463828184 7.3356335 3.20793136 L&T Infrastructure Fund 26.64 7.
08 31.63 12.504 2.10182 0.618400253 9.3062203 8.15972832 Reliance diversified power sector funds 17.97 7.
08 30.46 12.504 1.
95291 0.357518056 5.5762938 0.29741616 SBI FMCG Fund 20.86 7.08 20.9 12.504 1.
93945 0.659330144 7.1051071 3.2604232 Sundaram Infrastructure Advantage fund 18.
94 7.08 30.63 12.504 1.29422 0.387202089 9.
1638207 4.84015072 BOI AXA Manufacturing & Infrastructure Fund 18.98 7.08 27.29 12.
504 1.79455 0.436057164 6.6311889 2.1663608 Aditya Birla SunLife Infrastructure Fund 22.5 7.08 29.52 12.
504 2.00686 0.522357724 7.6836451 4.53479136 Invesco India Banking Fund 20.11 7.08 27.89 12.
504 1.82363 0.467192542 7.1450897 3.13863088 Aditya Birla Sunlife Banking and Financial Fund 27.29 7.
08 23.88 12.504 1.67103 0.846314908 12.094337 11.
14633328 ICICI Prudential Banking and Financial Fund 25.25 7.08 31.87 12.504 2.05034 0.570128648 8.8619448 7.
04895584 Interpretation Sharpe’s & Treynor’s ratio andJensen’s Alpha:Generally sharpe ratiohaving greater than one value is preffered. From the above table and analysiswe can see that Aditya Birla banking and finance fund is greater the greatervalue (0.84) followed by SBI FMCG fund (0.
65), L Infrastructure fund.Reliance diversified power sector funds is having the least value (0.35).Treynor’s ratio looking atthe ratios Aditya Birla Banking and Finance fund (12.09) followed by L&TInfrastructure fund (9.
36) and sundaram Infrastructure Advantage fund (9.16).Reliance diversified power sector funds is having the least value (5.57).Looking at the figure ofJensen’s Alpha ratios Aditya Birla Banking and Finance fund (11.04) followed byL Infrastructure fund (8.
15) and ICICI Prudential Banking and Financial Fund(7.04). Reliance diversified power sector funds is havingthe least value (0.
29). Table No.3 Anova: Two-Factor Without Replication SUMMARY Count Sum Average Variance Row 1 3 33.57281 11.19094 79.
72224 Row 2 3 41.24652 13.74884 151.6915 Row 3 3 32.42761 10.
8092 66.29282 Row 4 3 35.30415 11.76805 89.
90379 Row 5 3 32.73892 10.91297 79.74358 Row 6 3 33.27925 11.09308 75.32942 Row 7 3 37.
01156 12.33719 105.0132 Row 8 3 34.43833 11.47944 84.3862 Row 9 3 41.46573 13.
82191 165.3842 Row 10 3 39.80504 13.26835 134.9934 Column 1 10 217.
93 21.793 11.81182 Column 2 10 18.31292 1.
831292 0.057498 Column 3 10 125.047 12.5047 0 ANOVA Source of Variation SS df MS F P-value F crit Rows 37.44958 9 4.161064 1.
079638 0.422488 2.456281 Columns 1995.546 2 997.7732 258.8843 5.45E-14 3.
554557 Error 69.37432 18 3.854129 Total 2102.37 29 Interpretation: By using ANOVA test it is found that f value (2.456)is more than the significant value (0.05).
So, we are rejecting nullhypothesis. Therefore the performance of selected mutual fund based on Returnand risk is independent with that of the market, which shows that the mutualfunds are performing better than market, and this could be due to the fundmanager’s efficiency in managing the fund. VI. ConclusionMutual funds have emerged as the best interms of variety, flexibility, diversification, liquidity as well as taxbenefits especially growth mutual funds. Mutual funds have the capability toprovide solutions to most investors’ needs, however, the key is to do properselection and have a process for monitoring and controlling.
From the aboveanalysis, it is found that most of the mutual funds have performed better thanthe market returns but still their market risk (beta) is high. In the sample, fundsare highly diversified except for a few mutual funds and because of their highdiversification they have reduced market risk of the fund. Still equity(growth)funds are more risk in the market. Furtherthe fund managers of the mutual funds are found to be proactive in terms oftheir ability of market timing and selectivity. Through the research conductedwith the growth mutual funds, it is concluded that the performance of themutual funds are only not based on the market returns, it would depends on thefund manager’s efficiency in managing the fund.
References Prasanna Chandra(2017)”Investment analysis and Portfolio management” (fourth edition).https://www.bankbazaar.com/mutual-fund/Top-10-Mutual-Funds-India.html https://www.mutualfundindia.com/MF/return/TopFunds?id=3 https://www.amfiindia.com https://www.amfiindia.com/indian-mutual https://capitalmind.in/2016/06/indian-mutual-fund-industry-trends-report-card-may-2016/https://capitalmind.in/2017/03/debt-funds-purchases-lower-by-36-in-february-equity-funds-net-inflow-increases-by-a-third/http://shodhganga.inflibnet.ac.in/bitstream/10603/28749/10/10_chapter%202.pdf