A STUDY OF PERFORMANCE EVALUATION

OF SELECTED MUTUAL FUNDS IN INDIA

A
SUMMARY
SUBMITTED TO THE
MAHARISHI MARKANDESHWAR UNIVERSITY
FOR THE AWARD OF THE
DEGREE OF
DOCTOR OF PHILOSOPHY (Ph.D.)
IN
MANAGEMENT
(2014)





Under the Supervision of: Submitted By:
Dr. S.L. Gupta Meenakshi Garg
Sr. Professor & Dean Regn. No. 11-Ph.D.-130
MMIM (MMU)


M.M. INSTITUTE OF MANAGEMENT
MAHARISHI MARKANDESHWAR UNIVERSITY,
MULLANA - AMBALA - 133207 (HARYANA) INDIA

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SUMMARY
Introduction
Mutual Iunds industry, today, is one oI the most preIerred investment options all
over the world. It plays a crucial role in the economic development oI a country.
Mutual Iunds` active involvement can be seen by their dominant presence in the
money market as well as capital market. They are also Iound very active in the
stock market by way oI ensuring stability as a supplier oI large Iunds through steady
absorption oI Iloating stocks. Recently they entered the arena oI the service sector
in an admirable manner.
A mutual Iund is an entity in the Iorm oI a trust which pools the money oI large
investors and invests the same in the diIIerent investment avenues. Such investment
may be in the Iorm oI equity shares, debt securities, money market instruments,
government securities, Iixed deposits, precious metals, etc. These investment
securities are proIessionally managed on behalI oI the investors, also known as the
unit-holders, who hold a pro-rata share oI the portIolio.
Emergence oI mutual Iunds in the Indian scenario is a product oI constraints on the
banking sector to tap the Iruits oI the capital market and the reluctance oI the
investors to direct plunge in complex and erratic Iinancial market operations. Since,
household sector`s share is much larger in the country`s savings; it is utmost
essential Ior the government and mutual Iund managers to guide their deployment
oI savings in the right direction. Thus, with a plethora oI mutual Iunds schemes
available Ior option and their impressive growth in India, there was a need Ior the
present study to bring to light the perIormance oI mutual Iunds, Further, it could
guide the retail and small investors to make a appropriate decisions while selecting
the investment avenues Ior their hard earned savings through mutual Iund vehicle.
Growth of Mutual funds in India
In India, the mutual Iund industry is started with the setting up oI Unit Trust oI
India (UTI) in 1963 by the Central Government. Unit-64 (US-64) launched by the
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UTI in 1964 became the Iirst mutual Iund scheme in the country. It monopolized the
market till 1987, aIter that due to liberalization, privatization and
globalization,policy oI the Central Government, a considerable growth was seen by
entering oI many private and Ioreign players in this industry. Currently, around 44
AMCs with more than 1200 schemes are working in mobilizing the Iunds oI small
savers Ior investment purposes.
To cater a wide variety oI investors` needs, the mutual Iunds have initiated various
categories schemes such as, income oriented, growths oriented, balanced and so on.
Among the diIIerent schemes, it is observed that debt-oriented schemes will
continue to dominate the mutual Iund industry as satisIying the needs oI yield,
saIety and liquidity. On the other hand, equity oriented schemes may gain their
popularity in Iuture expecting rising trend oI stock market position.
In India, currently 44 mutual Iund companies are eIIectively Iunctioning with
approx. Rs. 8142.68 billion assets under management (AUM). Out oI these Iunds,
top5 mutual Iunds are almost managing 53 oI the total assets and the bottom 10 oI
mutual Iunds is just contributing even less than 1 oI the AUM. The mutual Iunds
are highly concentrated among top 10 mutual Iunds managing almost 79 oI the
total AUM. Further, approx. more than 74 AUM are debt/Iixed return oriented
Iunds and approx. 26 are all others including equity based Iunds. This shows that
the investors in India are mainly interested in Iixed return mutual Iunds which
normally are having lesser risk. Around 1229 diIIerent schemes oI mutual Iunds are
operating presently in India.
Mutual Iund industry in India is just limited to a Iew cities i.e. 74 oI the total
investors belong to 5 metro cities and 42 alone in one city, Mumbai. More than
87 oI investors reside in just 15 cities, next 5 in 75 cities, and rest all over the
country. The mutual Iunds are centered on metro and bigcities oI India. Further,
institutional investors in India are investing in short term and Iixed return gilt-edged
securities, whereas the small and retail investors have preIerence Ior equity based
and balanced mutual Iunds.

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Brief Review of Literature
For deciding the various parameters to conduct the present study, an intensive
review oI the research work and other published literature available on mutual Iunds
was made. It helped the researcher to establish a gap between present and Iuture
position. Further, the review oI literature assisted in designing research
methodology, selecting the sampling technique, analytical tools, Iraming oI
hypotheses, interpretation oI results, etc.
Review oI literature presented in this study is a brieI description oI research work
conducted on mutual Iunds in India and abroad. A brieI view oI around 46 studies
Irom abroad and 93 Indian studies carried out till 2013 are described in brieI in this
study.
The reviews oI the presented studies have brieIly looked at predictability oI
perIormance, persistence in perIormance and market timing ability. However,
reviews on industry perIormance particularly under the regulated environment are
scantly available. Most oI the studies conducted earlier normally examined the
perIormance oI the mutual Iunds based on simple statistical tools and risk-return
relationship. Their perIormance comparison was made with stock market return,
returns oI commercial banks and post oIIices, corporate debentures and government
securities. Some studies were conducted on public and private sectors mutual Iunds
perIormance. Most oI the popular studies in this Iield have used the models like
Sharpe Index, Treynor Model, Jensen`s Alpha, Eugene Fama, Auto correlation, etc.
The present study made use oI the well-established analytical tools and models
which have been applied in the other prominent studies.
Need for the present Study
The mutual Iund is an important Iinancial institution which can play a signiIicance
role in the development oI any country. II they perIorm in an eIIicient way and to
the expectation oI the investing public, then a large number oI investors can be
attracted toward these. India's saving rate is above 23 percent, and is considered to
be the highest in the world. In India, household sector`s savings is largest among all
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the sectors. The rate oI conversion oI this saving in investment is very low, i.e.
around 7, in comparison to other developed countries.
Mutual Iunds are supposed to be the best investment vehicle Ior small investors, but
it has observed Irom the market and other reliable sources that mutual Iunds have
not reached to their expectations. There is need to study the investors perceptions
and Iactors inIluencing their investment decisions. So, in order to identiIy how Iar
mutual Iunds satisIy the aspirations oI the investors, this study was initiated.
Today it is noticed that a large number oI mutual Iunds schemes have been Iloated
in the market. It is very diIIicult Ior an average investor to examine their
perIormance. Thus, it is very important to evaluate the perIormance oI the mutual
Iunds so that the retail investors can make valued judgment Ior selecting the mutual
Iunds Ior their investment purposes. Further, it is also signiIicant to know which
mutual Iunds is Iunctioning as the prescribed regulatory norms whether the
investment decisions have been taken by the Iund managers as per guidelines, or
not. It is essential to ensure due diligence, transparency and saIety in portIolio
selection by the mutual Iunds. In the light oI above-mentioned observations, the
present study is initiated.
Statement of the Problem
The present study aims at to answer a Iew questions in this respect. What is the
perIormance oI the mutual Iunds in context to their risk and return incurred during
the study period? Whether the mutual Iunds have outperIormed the market or not.
What is the position oI mutual Iunds perIormance among the diIIerent schemes?
Which type oI mutual Iunds are perIorming well and which are below the
expectation level ?What are the basic motives Ior investing in the mutual Iunds in
India? What is the attitude oI the investors towards the mutual Iunds investment?
Whether the investors are satisIied with the perIormance oI mutual Iunds.Whether
the mutual Iunds in India are Iollowing the regulatory norms, or not. What is the
impact oI regulatory norms on the mutual Iund perIormance? Is the present Iorm oI
Iund perIormance inIormation dissemination adequate? These are some questions
which the present study attempts to answer.
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Objectives of the Study
The basic objective oI the present study is to evaluate the perIormance oI selected
mutual Iunds in India. The perIormance is examined in the light oI three aspects:
Iinancing point oI view, investors` point oI view and as per regulatory norms. The
speciIic sub-objectives set are as Iollows:-
To examine the trends in terms oI growth, size, volumes, etc oI mutual Iunds in
India.
To evaluate the Iinancial perIormance oI selected mutual Iunds in India.
To evaluate the perIormance oI selected mutual Iunds in context to standard
perIormance models like Sharpe, Treynor, Jensen, Eugene Fama, etc.
To evaluate the perIormance oI mutual Iunds as per investors view.
To study the proIile, attitude, preIerences, investment objectives, etc oI the
mutual Iunds investors.
To examine the impact oI regulations on the perIormance oI selected mutual
Iunds in India.
To suggest certain measures relating to Iunctioning oI mutual Iunds in India.

Hypotheses and Statements Designed
On the basic oI objectives, the study proposes to test statistically important
hypotheses designed which are as under:
There is no signiIicant diIIerence among the mutual Iund schemes perIormance
evaluation as per Sharpe, Treynor and Jensen Models.
Index returns and schemes returns are not signiIicantly related.
Past perIormance oI the scheme does not have any signiIicant relationship with
that oI current perIormance.
Investment preIerence is independent oI age groups (Male) towards mutual
Iunds.
Investment preIerence is independent oI age groups (Female) towards mutual
Iunds.
Financial need does not depend upon any particular Iactor
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Investment decisions are not signiIicantly inIluenced by the proIile oI investors.
Objective oI selecting Mutual Funds schemes are not signiIicantly inIluenced by
the investors proIile.
There is no signiIicant impact oI the demographic Iactors on the investment
objectives.

The present study also proposes to examine a Iew important statements relating to
mutual Iunds as per investors view, which are as under:
The proportion oI investors agreeing that investing in mutual Iunds is less risky
as compared to shares.
The proportion oI investors agreeing that mutual Iunds are more suitable to
small investors who are otherwise hesitant oI entering into stock market.
The proportion oI investors agreeing that mutual Iunds have the ability to
weather the market Iluctuations.
The proportion oI investors agreeing that the risk and return characteristics oI
Indian mutual Iunds are not in conIormity with their stated objectives.
The proportion oI investors agreeing that investing in Iunds is much better in
terms oI returns than depositing in bank.
The proportion oI investors agreeing that growth schemes are highly preIerred
to income schemes.
Testing of Hypotheses and Statements of the Study
Hypotheses and statements Iramed in the study have been duly tested through
appropriate statistical tools, and have mentioned here under:
Hypothesis Ho-1: There is no significant difference among the performance
evaluation measure of mutual funds as per Sharpe`s, Treynor`s and 1ensen`s
Models.
In this study, this hypothesis is rejected as there is signiIicant diIIerence in the
perIormance oI ELSS, ETF, Equity DiversiIied Growth and other type i.e.
Index/Sectorial/Contra mutual Iunds according to Sharpe, Treynor and Jensen
Models.
7
Hypothesis Ho-2:Index based returns and schemes returns are not significantly
related.
This hypothesis is rejected as signiIicant inIluence oI market index is Iound on
entire sample schemes oI ELSS,ETF, Equity DiversiIied Growth and other type i.e.
Index/Sectorial/Contra Iunds.
Hypothesis Ho-3: Past performance of the scheme does not have any significant
relationship with that of current performance.
This hypothesis is accepted as it has Iound that past perIormance oI private and UTI
Iunds does not have any relationship with the current perIormance.
Hypothesis Ho-4: Objectives of selecting mutual funds schemes are not
significantly influenced by the investor`s profile.
This hypothesis is rejected as objectives oI selecting mutual Iund schemes are
signiIicantly inIluenced by Investor`s proIile.
Hypothesis Ho-5: There is no significant impact of the demographical factors
on the investment objectives of the investors.
This hypothesis is rejected as there is signiIicant impact oI demographic Iactors on
the diIIerent investment objectives oI the investors.
Hypothesis Ho-6: Investment preference is independent of age groups (male)
towards mutual fund.
This hypothesis is rejected as it is Iound that the preIerence Ior mutual Iunds is
signiIicantly dependent on the age groups. Lower age males are signiIicantly
investing in the mutual Iunds.
Hypothesis Ho-7: Investment preference is independent of age groups (female),
towards mutual funds.
This hypothesis is rejected as it is Iound that the preIerence Ior mutual Iunds is
signiIicantly dependent on the age groups. Above 50 years age Iemales are
signiIicantly investing in the mutual Iunds.
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Hypothesis Ho-8: Financial needs of the mutual fund investors don`t depend on
any particular factor.
This hypothesis is rejected as investors Iinancial need signiIicantly depends on
generating Iuture income and Ior emergent needs.
Hypothesis Ho-9: Investment decisions are not significantly influenced by the
profile of investors.
This hypothesis is rejected as there is signiIicantly impact oI Age, Gender,
Occupation, Monthly savings and Income is Iound on the investor`s investment
decision.
Statement-1: Investing in mutual funds is less risky as compare to equity
shares.
Null hypothesis related with this statement is rejected which means that proportion
oI the investors accept that investing in mutual Iunds is less risky as compared to
equity shares is more than 50 percent.
Statement-2:Mutual funds are more suitable to small investors who are
otherwise hesitant of entering into capital market.
This hypothesis is rejected, it is Iound that proportion oI investors agreeing that
mutual Iunds are more suitable to small investors who are otherwise hesitating oI
entering in to capital market and is more than 50 percent.
Statement-3: Mutual funds have the ability to weather the market fluctuations.
Null hypothesis that proportion oI investors agreeing that the mutual Iunds have the
ability to weather the market Iluctuation is more than 50 percent is rejected.
Statement-4:Risk and Return characteristics of Indian mutual funds are not in
conformity with their stated objectives.
Null hypothesis related with statement is rejected and it was Iound that proportion
oI investors agreeing that the risk and return characteristics oI Indian mutual Iunds
are not in conIormity with their stated objectives is more than 50 percent.
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Statement-5: Investing in funds is much better in term of return than
depositing in banks.
Null hypothesis related with statement is rejected as the proportion oI investors
agreeing that mutual Iunds provide better returns than bank deposit is Iound more
than 50 percent.
Statement-6: Growth schemes are highly preferred to income schemes.
Null hypothesis related with this statement is rejected as the proportion oI investors
agreeing that growth schemes are highly preIerred to income schemes is Iound more
than 50 percent.
,Scope of the Study
This research work attempts to evaluate the perIormance oI mutual Iund industry in
India under the regulated environment aIter the introduction oI the SEBI (Mutual
Funds) Regulations- 1996, enIorcing uniIormity in rules and regulations.
PerIormance evaluation oI mutual Iund in this study is conIined to three aspects
namely, Iinancial, investing public and regulatory body. In Iinancial aspect, the
perIormance oI the mutual Iunds is evaluated Irom return incurred by them and their
comparison with the stock market index. Investment perIormance oI the mutual
Iunds is evaluated through a survey conducted on the mutual Iund investors
considering their attitude, satisIaction and other aspects. Finally, the impact oI
regulatory measures taken Irom time to time by regulatory authority on the
perIormance oI the mutual Iunds.For evaluating the Iinancial perIormance oI
selected mutual Iunds, the period oI the study is taken Irom 2002-03 to 2012-13 i.e.
April 2002 to March 2013.
Research Methodology
The present study is conducted by using both types oI primary as well as secondary
data. The Iinancial perIormance oI the selected mutual Iunds have been examined
through secondary data which were collected Irom the records oI Association oI
Mutual Funds oI India (AMFI), Value Research website, Data based websites,
companies websites, journals, magazines, and other authenticated published data.
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To examine the perIormance oI the mutual Iunds Irom investors` point oI view,
primary data was collected through a structured questionnaire prepared Ior this
purpose. This questionnaire was prepared aIter considering the views oI the
investors, Iund managers, oIIicials oI SEBI and Value Research India Private Ltd.
and other concerned oIIicers. The questionnaire was tested through a pilot survey
among the investors and the brokers. The questionnaire was also revised to elicit the
perception oI investors and brokers.
To elicit inIormation Irom the investors, all the investors registered at the Karvy
Stock Broking Ltd. were contacted between June-2013 and July-2013. 2243 mutual
Iund investors were registered members at the various oIIices oI the Karvy Stock
Broking Ltd. in its northern region oI India, i.e. Delhi (691), Gurgoan (298),
Faridabad (189), Chandigarh (321), Ludhiana (383), Shimla (361). Out oI which
1500 investors (registered members) were approached. 1056 members responded
and out oI that 56 responses were rejected due to incomplete in nature. The response
rate was 66 percent approximately. Thus, primary sampling Irame Ior this study
consists oI 1000 investors, which is adequate Ior evaluating the viewoI the
population.
The Indian mutual Iund industry came under liberalized environment in the year
1993 with the introduction oI SEBI (Mutual Funds) Regulations. The industry was
brought under the uniIorm regulatory Iramework and control with the
implementation oI SEBI (Mutual Funds) Regulations 1996. Hence, the study
attempts to evaluate the perIormance oI this industry Irom 2002 onwards, aIter the
introduction oI uniIorm rules and regulations Ior mutual Iunds in India.
To study the Iinancial perIormance oI mutual Iunds, the sampling Irame was
selected aIter considering the number oI mutual Iunds, assets under management
(AUM) and the schemes oI mutual Iunds currently operating in India. Out oI 44
mutual Iunds companies, 18 mutual Iund companies were selected and 4 categories
oI mutual Iund schemes, namely Equity diversiIied (growth), ETF, Tax Savings,
and Index/sectorial/contra were selected. On the basis oI types oI scheme, 20
(Equity diversiIied), 10 (Index/sectorial/contra Scheme), 10 (Exchange Traded
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Fund (ETF)) and 10 Tax Savings (ELSS), intotal 50 schemes were selected. All the
mutual Iunds which are having more than 250 crores assets under management
(AUM) have been included in the sample. The sample Irame is adequate Ior the
present study in order to justiIy the population view.
The analytical tools like return, risk and risk-Iree return were used Ior Iinancial
perIormance evaluation oI schemes in relation to that oI market as per standard
perIormance models as mentioned earlier. In analyzing the risk-return relationship,
the CAPM is widely used. Further, various statistical tools like standard deviation,
beta, coeIIicient oI correlation, covariance, auto correlation co-eIIicient, co-eIIicient
oI determination, etc. have been used to analyze the data. In the present study,
various techniques oI analysis such as, Compound Annual Growth Rate(CAGR),
Compound Growth Rate (CGR), Rank correlation, Kendall`s Co-eIIicient oI
Concordance, Chi-square Test, Z-Test, ANOVA, F-Test, Binomial Test oI
SigniIicance, Rank order scoring, etc. have been applied.
Findings of the Study
In the present study perIormance evaluation oI the mutual Iunds is examined Irom
three aspects: Iinancing point oI view, as per investors view and impact oI
regulatory norms.
Financial Performance Evaluation
To examine the Iinancial perIormance the mutual Iunds are classiIied in to Iour
categories: ELSS Iunds, ETF, Equity DiversiIied (Growth) Iunds and
Index/Sectorial/Contra Iunds. The details oI the Iindings oI Iinancial perIormance oI
mutual Iunds category-wise are as Iollows:
It is Iound that Tax saving schemes outperIormed the market in terms oI absolute
return in diIIerent years oI the study. However, these schemes and the market
returns did not provide adequate return to cover risk-Iree return and total risk oI the
scheme. Most oI the Iunds perIormed better than the market returns, except ICICI
Prudential, HDFC Tax Saver and Birla Tax RelieI 1996 schemes. The perIormance
oI the sample schemes were in the same direction as that oI the market as evident
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Irom the positive beta values. Only Taurus Tax Saver scheme and UTI Tax Saver
scheme were observed aggressive with high beta values around 1.8. All the sample
schemes were not well diversiIied as depicted by the diIIerences in the Jensen
Alpha and Sharpe`s DiIIerential return. All the three risk-adjusted perIormance
measures by Sharpe, Treynor and Jensen Models presented average perIormance oI
the sample schemes and ensured signiIicant agreement in their ranking. Amongst all
the Iunds, ICICI Prudential Tax Saving plan topped the list considering all the three
portIolio perIormance evaluation models.
It is observed that selected schemes did not earn adequate return in terms oI
systematic risk and unsystematic risk, however, they ensured positive returns due to
stock selection skills oI the Iund managers. The variance explained by the market
was Iound higher Ior UTI Tax Saving Scheme and Taurus Tax Saver Scheme
whereas it was less in case oI other selected schemes.
The market perIormance was Iound having a signiIicant positive inIluence on the
entire sample schemes` perIormance. The present NAV is positively and
signiIicantly correlated with the past NAV Ior all the time lags oI all the selected
schemes. It means a high degree oI positive correlation in weekly time lag exists
and gets reduced as the time lag increases Ior all the selected schemes oI mutual
Iunds.Similar results were obtained by Mishra & Mahmud (2002)by using partial
movement method. They presented that perIormance oI mutual Iunds under study
were not upto the mark when lower partial movement method was applied to risk
and return oI ELSS Iunds. Muthappan&Damodhran (2006) presented that
perIormance oI mutual Iund is lower than 91 days Treasury bill rate when they were
tested on the Sharpe & Jensen`s Alpha model.
During the study period, the selected Exchange Traded Funds (ETF) schemes
outperIormed the market in terms oI absolute returns in diIIerent years. But these
schemes and the market return did not provide adequate return to cover risk-Iree
return and total risk oI the scheme. It is examined that the schemes perIormed better
than the market return. Except GS NiIty BeES ETF, GS Junior BeES, GS Bank
BeES schemes, rest all other selected schemes did not ensure expected returns
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rather under perIormed. The perIormance oI the selected schemes was observed in
the same direction as that oI the market as evident Irom the positive beta values.
Only GS NiIty BeES ETF scheme was aggressive with high beta values around
1.12. All the sample schemes were not well diversiIied as depicted by the
diIIerences in the Jensen`s Alpha and Sharpe`s DiIIerential Return. All the three
risk-adjusted perIormance measures by Sharpe, Treynor and Jensen Models
depicted average perIormance oI the selected schemes and identiIied signiIicant
agreement in their ranking. Out oI the selected schemes studied, GS NiIty BeES
saving plan topped the list in the case oI two portIolio perIormance evaluation
models.
On evaluating the risk-return relationship, all the sample schemes did not provide
adequate return in terms oI systematic risk and unsystematic risk. However, the
selected schemes showed positive returns due to stock selection skills oI Iund
managers. The variance explained by the market was more in the case oI Kotak
Sensex ETF, ICICI Sensex Prudential ETF etc. while it was less in other sample
schemes.Fernandes K. (2003) also explained the same that return is lower in case
oI Index Iunds when tested with Sharpe`s & Treynor`s model. Jensen Alpha though
shows better stock selectivity in some selected index Iunds.
While examining the results and analysis, it is Iound that during the study period,
the selected Equity Diversified (Growth) Funds outperIormed the market in terms
oI absolute returns in many years. But these schemes, and return shown by the
market index, did not provide adequate return to cover risk-Iree return and total risk
oI this category oI the scheme. Schemes, selected in the study perIormed better than
the market. Except HDFC Top 200 Growth, Reliance Vision, Reliance Growth, all
the other selected schemes did not ensure expected returns. The perIormance oI the
sample schemes were in the same direction as that oI the market as evident Irom the
positive beta values. HDFC Long Term Advantage, HDFC Prudence, SBI magnum
Global, UTI Balanced Growth Fund and UTI CCP Balanced Scheme were Iound
aggressive with high beta values. All the sample schemes were not well diversiIied
as depicted by the diIIerences in the Jensen Alpha and Sharpe`s DiIIerential return.
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Similarly Singh &Vanita(2002)Iound that most oI the investors still holding public
sector mutual Iunds due to high volatility in the schemes, it is risky but they think
there is a high chance oI better capital appreciation by keeping UTI schemes. But
they also mentioned that large proportion oI investor invested in private mutual
Iunds in comparison to UTI schemes. Similar results were mentioned in the research
by Bansal M. (2003) and Anand and Murugaiah (2008).All the three risk-
adjusted perIormance measures by Sharpe, Treynor and Jensen Models depicted
average perIormance oI the selected schemes and ensured signiIicant agreement in
their ranking. Further, out oI these, HDFC Top 200, Reliance Vision and Reliance
Growth Fund plan topped the list in the case oI two portIolio perIormance
evaluation models.
Comparing the return with the actual risk incurred, it is observed that all the sample
schemes did not provide adequate return in terms oI systematic risk and
unsystematic risk. However, the selected schemes ensured positive returns due to
stock selection skills oI Iund managers. Further, the variance explained by the
market was higher in case oI Reliance Vision and Reliance Growth, while it was
lower in case oI all other sample schemes oI the study.
In the present study, other than the ELSS, ETF and Equity diversiIied (Growth)
schemes, other Iunds belonging to diIIerent categories like Index/ Sectorial/
Contra, etc. are selected to evaluate the perIormance oI mutual Iund, in general,
while examining their results oI the analysis, it is Iound that these Iunds have
outperIormed the market in terms oI absolute returns in many years. However, these
schemes and the market return did not provide suIIicient return to cover risk-Iree
return and total risk oI the scheme. Schemes, in general, perIormed better than the
return oI the market. Except SBI Magnum Contra, Franklin India Prima and ICICI
Dynamic Regular, the other selected schemes did not ensure expected returns. The
perIormance oI the sample schemes were in the same direction as that oI the market
as evident Irom the positive beta values. However, UTI NiIty Index Fund, L & T
India Special Situation and SBI Pharma were Iound aggressive with high beta
values more than one. All the sample schemes were not well diversiIied as depicted
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by the diIIerences in the Jensen Alpha and Sharpe`s DiIIerential return. All the three
risk-adjusted perIormance measures by Sharpe, Treynor and Jensen Models
depicted average perIormance oI the selected schemes and ensured signiIicant
agreement in their ranking. OI the selected schemes studied, Franklin India Prima
Fund, SBI Magnum Contra and ICICI Dynamic Regular Fund Plan topped the list
in the case oI two portIolio perIormance evaluation models.
All the schemes oI the study did not provide adequate return in terms oI systematic
risk and unsystematic risk. However, the selected schemes ensured positive returns
due to stock selection skills oI Iund managers. The variance explained by the
market was Iound more in the case oI Franklin India Blue Chip Fund and SBI
Contra, while it was less in the case oI other selected schemes.
Performance Evaluation as per Investors` View
To evaluate the perIormance oI mutual Iunds Irom the investors point oI view, an
opinion survey was conducted to study the proIile, attitude, preIerences, objectives,
satisIaction, etc. oI the investors who have invested in mutual Iunds. The major
Iindings oI this survey were as Iollows:
While examining the proIile oI the investors, it is Iound that major group oI
investors belongs to 40-60 years age which is 51.4 oI the total. Further, the senior
citizens above the age oI 60 years are Iound only 12 oI the total investors. It
indicates that mutual Iunds are not much popular among senior citizens and retired
class.
On the evaluation oI gender oI the investors, it was noted that 72.9 oI the total are
male population which indicates that mutual Iunds are very much liked by the male
investors. It is observed that 70.8 oI the investors are married and 29.2 belongs
to unmarried category. It observed that younger investors are still keeping distance
Irom investing into mutual Iunds.
Regarding earning level oI the investors, it is noted that 39.6 oI the investors are
in the range oI Rs. 25000-50000 earning per month, whereas it is 20.1 in the
above Rs. 50000/- per month category. It means the earning capacity oI the
16
investors is not very high, that is considered to be moderate. So, our respondents in
this study normally belong to middle class.
it is observed while examining the saving pattern oI the investors, 42.8 oI the
investors belong to Rs. 5000-10000 savings per month. 15.3 Iound earning more
than Rs. 10000/- per month. On the evaluation oI earnings, it is noted that savings
oI the investors are not very high, and so they may be reIerred as small investors.
While observing the investment pattern oI the investors, it is noted that 68.5 oI the
investors like to invest their savings in the real estate such as, land and other
physical assets. They are attracted more towards real estate investment Iollowed by
investment in gold and silver. It means the investors preIerences are changing and
shiIting towards real estates and gold.
Investment objectives oI investors while investing in the mutual Iunds, 51.2 percent
oI the respondents preIer to have balanced income and growth` Iollowed by Iirst
priority Ior income and aIter that growth" by 26.4 percent. It indicates that most oI
the investors preIer to 'have regular income Irom the investment in mutual Iunds.
Risk tolerance is basically investors' Ieeling oI comport in investment. While
examining the investors` attitude towards risk, it is observed that 52.3 percent oI
investors preIer to accept average volatility Ior average return, and 24.6 oI them
accept little volatility Ior higher return. It is noted that most oI the investors are risk
averse and invest in the mutual Iunds with moderate risk.
On the choice oI investment assets, the investors still do not preIer to invest in
mutual Iunds rather they like to invest in real estate. Mutual Iunds investment was
ranked 5
th
amongst all other modes oI investment. It means that mutual Iunds still
could not reach to the expectation oI the investors.
Investors opinion on degree oI saIety oI Iinancial assets, it was Iound that Land and
other physical assets category had the highest degree oI saIety, Iollowed by Iixed
deposits and recurring deposits
On the comparison oI various objectives like return, stability marketability, tax
beneIits and diversiIication Ior investing in the mutual Iunds, it is Iound that 78.8
17
oI the investors go Ior tax beneIits, 59 preIer saIety and 48.9 Ior objective
diversiIication. It is concluded that tax beneIit is most preIerred objective Ior
investing in mutual Iunds.
Mutual Iunds in India are sponsored by various sectors, like commercial banks,
Iinancial institutions, private Indian companies, private joint ventures, private
Ioreign ventures, etc. On the evaluation oI preIerences oI the investors Ior the
sponsors in Indian private joint venture is observed the best choice, as ranked Iirst
amongst the sponsors.
While investing in mutual Iunds, the investors require a lot oI inIormation and data
Ior analysing the schemes. Such inIormation are available through various sources.
On examining such sources, it is Iound that 58.7 oI the respondents depend on
inIormation provided by the Iriends/relatives, Iollowed by brokers/agents scoring
45.6. It shows lack oI conIidence and competency at the level oI investors.
On the evaluation oI seventeen beneIits oI investing in mutual Iunds, there were
Iour beneIits which were stressed by almost all the respondents. These Iour beneIits
are: transparency in the operation, assured allotments, innovations in products and
transIerability. First Iactor alone covered 41.831 percent oI the total variance.
On the analysis oI various Iactors which determine the success oI mutual Iunds
Irom the investors point oI view, it is Iound that suitability oI product, scored as the
most important Iactor, Iollowed by the risk orientation. It means the investors Iirst
examine the Ieatures oI the product, and rest aIter that.
The satisIaction level oI the investors towards mutual Iunds was examined by
taking three parameters i.e. perIormance oI mutual Iunds, investment opportunities
and Investors services rendered. Out oI these, investors service is ranked at No. 1 by
the investors. It means that the services rendered by the mutual Iunds are Iound
highly satisIying to their investors.
The perIormance evaluation oI mutual Iunds Irom the investors point oI view; it is
observed that 67.9 oI the investors have invested in mutual Iunds Ior 1-3 years,
and Ior, less than are 1 year, Iound 29.4 oI the investors. It means the investors
18
mostly select the mutual Iunds only Ior short period rather than Ior long period, i.e.
above 3 years.
During the survey, it is observed that all the sample investors invested in the 69
mutual Iund schemes out oI the total schemes around 1230 Iloated in the country so
Iar. Further, out oI these schemes, the most preIerred scheme was Iound 'Equity-
Based Fund with a 57.8 oI the investors.
On the amount oI investment made in mutual Iunds, it is Iound that 44.8 percent
oI investors invested between Rs. 1 lakh to 3 lakh Iollowed by 28.4 invested below
one lakh. It is Iound that invested amount is not signiIicant in mutual Iunds which
indicate toward lower conIidence oI investors towards mutual Iunds.
The whole investors oI the study have invested in total 69 mutual Iund schemes, and
out oI which a major Iunds has been invested in top 10 mutual Iunds schemes. It is
observed that amongst the large number oI schemes available in the market, only a
very Iew schemes especially in Growth oriented Index schemes and Tax Saving
Funds Iound to be preIerred choice oI the investors.
Impact of Regulatory norms on performance of Mutual funds
The impact oI regulatory norms on the perIormance oI selected mutual Iunds is
evaluated in this study. The evaluation oI the regulatory norms considers the cost
incurred by the mutual Iunds while Iollowing them. The cost oI these norms
depends upon their stringent or degree oI strictness. Such costs are classiIied into
direct and indirect costs. Direct costs are the expenses incurred by the mutual Iunds
on compliance oI these norms. For instance, the compliance costs include the
administrative cost oI the trustee board, inIormation sent to shareholders and
disclosure costs incurred on personnel, printing and mailing. Indirect costs involve
the possible negative eIIect oI regulatory constraints like, limits on investing in
companies portIolio selection, portIolio disclosure, etc. which may inIluence the
proIitability oI the scheme and behaviour oI the investors.
It is observed that SEBI regulations are stronger in comparison to the UTI
regulations, but resulting into less costly Ior the investors. Too costly here is
19
implied to mean that the net beneIits arising out oI preventing Iraud and
malpractices on the investors through selI interested opportunistic portIolio
selection are Iound less than the total cost. This analysis is made with the help oI
certain tools and models like Average Composite Returns, Sharpe ratio, InIormation
Ratio (IR), ModiIied InIormation Ratio (MIR), Jensen's Alpha, F-Statistics,
Hausman Test and Poolability Test. The IR and MIR show the return to the risk
taken by the Iund manager Ior deviating Irom the market risk, or it is the return Ior
only the Iund manager's selectivity skill and not the general market movements.
These have been applied aIter suitably modiIying the data.
In this study, 50 mutual Iunds schemes were selected, in which 8 mutual Iunds
belong to UTI and rest 42 mutual Iunds belong to private sector governing under the
SEBI Regulations. The comparison oI the perIormance oI the mutual Iunds is made
beIore 2003, and aIter 2003 till 2013. The Iindings oI this study is biIurcated into
Iour categories oI mutual Iunds, i.e. ELSS Iunds, ETF Iunds, Equity diversiIied
(Growth) Iunds and Index/Contra/Sectorial Iunds. The total ELSS Iunds are ten, out
oI which one Iund (UTI Tax saving) belong to UTI group. It is observed that
inIormation ranking and modiIied inIormation ranking showed the most negative
return indicating toward poor selectivity skills oI the Iunds managers in comparison
to the other private mutual Iunds. Among the second category oI mutual Iunds
relating to ETF, all the ten schemes belong to private mutual Iund and no Iund
belong to UTI group. However, on their inter-comparison oI stock selectivity, it is
observed that all the Iunds have negative Sharpe ratios showing poor selectivity
skills oI Iund managers. Analysing the IR and MIR oI these Iunds, it is Iound that
ranking oI ICICI Prudential ETF changed Irom 5
th
to 6
th
ranking, and oI G.S. NiIty
BeES changed Irom 6
th
to 5
th
ranking, and G.S. Liquid schemes gave the most
negative returns Ior the manager's selectivity skill.
On the comparison oI the 20 equity-diversiIied (growth) schemes oI the sample, it is
Iound that 4 mutual Iunds belong to UTI group, i.e. UTI Master-share, UTI Master
Value, UTI Balanced Growth and UTI CCP Balanced Fund, rest belong to private
category. All the Iour UTI Schemes and six other mutual Iunds showed the negative
20
Sharpe Index. Rest other selected 10 Iund have positive Sharpe ratios and showing
also higher ranking than the index. Ranking oI Iunds in terms oI IR and MIR are
changed. Ranking oI UTI Master-share, UTI Master Value and UTI CCP Balanced
Fund changed Irom 14
th
, 16
th
and 20
th
to 12
th
, 11
th
and 18
th
respectively. In case oI
UTI CCP Iund, it showed the most negative return Ior the manager's selectivity
skills. Other private Iunds governing under SEBI norms, showed good result in the
Iorm oI positive MIR values.
In the last category oI mutual Iunds, 3 units, i.e. UTI Banking Sector, UTI NiIty
Index Fund and UTI Opportunity Fund belong to UTI group and rest other 7 units
belong to private mutual Iunds category. It is observed that UTI NiIty Index Iund
had highest negative Sharpe ratio (-1.9073), UTI Banking sector had (-0.8781) and
only UTI Opportunities Fund had positive Sharpe ratio (0.0793). Other Iour private
sector mutual Iunds also had negative Sharpe ratios, showing poor perIormance
than the index. The ranking oI Iunds in terms oI IR are same as that oI Sharpe ratio.
But rankings are changed as per MIR, but the UTI mutual Iunds showed the very
poor results. In this respect, UTI NiIty Index gave the most negative returns Ior the
Iunds manager's selectivity skills. Other private Iunds indicated good results in the
Iorm oI positive MIR value which represented better Iund manager's selectivity
skills.
To carry out the empirical analysis, poolability test oI data is needed. For this, F-
Statistics and Hausman speciIication test are applied. The calculated value oI F is
greater than tabulated value in case oI private Iunds which showed that F test is
signiIicant or the data is not poolable. Whereas, it is observed that value oI F-Test,
the calculated value is less than tabulated value and thus, F is insigniIicant in case
oI UTI Iunds, thus, showing that the data is poolable. Further, Jensen Alpha is
Iound negative Ior UTI Funds indicated that these Iunds have inIerior stock
selectivity.
In brieI, perIormance oI the UTI regulated Iunds beIore 2003 was observed better
than SEBI regulated Iunds, but the perIormance oI the UTI Iunds decline drastically
when the UTI Iunds came under the regulation oI SEBI aIter 2003. This means that
21
due to more transparency, more disclosure, stronger regulatory norms, management
cost etc. the UTI Mutual Funds under perIormed, whereas private mutual Iunds
regulated under SEBI norms perIormed better showing more dynamism in the
portIolio selection and returns to the investors.
Suggestions
On the basis oI the Iindings oI the present study, the important suggestions are as
Iollowing:
Most oI the sample schemes oI mutual Iunds have shown negative alpha values
which shows that the Iund managers Iail to Iorecast appropriate security prices in
times, which result in poor perIormance. It is suggested that the mutual Iunds
should strengthen their Research and Development Department in order to have
better Iuture projections.
Mutual Iunds as institutional investors should provide the superior return in
comparison to the market return by ensuring proIessional market analysis, optimum
diversiIication oI portIolios, minimizing oI risk and investing at proper time.
The mutual Iunds must ensure not only good perIormance over the market, but also
consistency in their return. This is possible only when latest techniques and models
oI Iorecasting be Iollowed by the Asset Management Companies while making their
Iuture projections.
The mutual Iunds still could not build required conIidence among the existing unit
holders due to their poor perIormance and lack oI transparency. The mutual Iunds
should appoint only competent, Iully qualiIied and well experienced in Iinance
market Iunctioning as their Iund managers.
Households` savings in India have not been channelized properly and remain
unproductive, in general, especially in rural and semi-urban areas. The mutual Iund
industry can play a signiIicant role in this respect. ThereIore, they should open their
branches in such areas which can help the potential investors to make direct
investment in the mutual Iunds without any intermediary.
22
The mutual Iund investors in India belong to middle class, and donnot have good
exposure in the Iield up investment management. They are also not aware oI recent
developments in the capital markets. So, there is an urgent need Ior making an
extensive campaign and publicity in this respect. The Central Government, SEBI,
AMFI, mutual Iund companies etc. should take necessary steps to educate the
people in the Iield.
Mutual Iund companies should make eIIorts to link their activities with the banking
institutions in order to accelerate their operation through electronic clearing and
plastic money. They should provide greater liquidity to the investors. Most oI
transactions be perIormed with the help oI CAMS service providers.
Mutual Iunds are not Iound very much popular among senior citizens and women in
our country. It is suggested that the Government and SEBI should make
arrangements Ior massive educational and awareness programmes so that they can
be motivated to invest in these Iunds.
It was observed in this study that major source oI inIormation Ior the investors
decisions were 'Friends/Relatives' and 'Brokers/Agents' which could not be
considered as reliable sources. ThereIore, the regulatory authorities should take
necessary steps to provide all types oI inIormation relating to the mutual Iunds and
other investment avenues through various print and electronic media, so that the
investors may take well inIormed and judicious investment decisions themselves.
Mutual Iund industry in India is highly concentrated in Iive metro-cities oI India. It
means that still the mutual Iund industry could not become popular in the other
cities, rural and semi-urban areas. It is suggested that SEBI and Central Govt.
should take concrete steps to educate the so that the household savings in India be
channelized towards mutual Iunds.
Though recently, the SEBI has taken various important decisions to popularize the
mutual Iunds in the country, Ior example, it has mandated Ior the AMCs to set
asidesuchas, at least 2bps oI their daily net assets, annually Ior the education
campaign & awareness, relaxing the mandatory requirement oI a permanent account
23
number (PAN) or bank account Irom the investors, mandated a single expense
structure, eliminating the service tax on AMC, etc. However, these are not-
adequate; some more eIIorts are desired at the SEBI level in order to attract large
number oI investors in semi-urban and rural areas.
Regulatory norms Ior distributors, agents and brokers be relaxed so that they should
take more interest in promoting the investment in mutual Iunds. Some extra special
concessions interms oI service tax, Iee, additional total expense ratio (TER) be
provided to expand the geographical network oI mutual Iunds in India.
Scope for further Research Studies
Though an attempt has been made in this study to examine the perIormance oI
selected mutual Iunds in India Irom diIIerent aspects, yet there is an ample scope Ior
Iurther research work and investigation in this Iield. A Iew such areas are explored
here as under:
In this research study, Iour diIIerent types oI mutual Iund schemes were studied,
hence, Iurther research studies could be initiated on other schemes Iloated in the
market.
The money market mutual Iunds are Iound recently high active and managing
signiIicant assets in the market.Yet no extensive research work is conducted
exclusively in these Iunds. So there is ample scope to pursue research in these Iunds
in order to initiate Iurther development in money market oI India.
In the present study, Northern region oI India was included Ior studying the
investors` attitude and preIerences related to mutual Iunds. ThereIore, such type oI
research work can be explored by incorporating the investors oI other regions oI the
country.
No adequate research studies are conducted on Ioreign and oII-shore mutual Iunds.
So, there is a lot oI scope to initiate research work in this Iield. Further, a
comparative study oI Indian mutual Iunds with the oIIshore Iunds could also be
initiated.
24
The role oI Ioreign institutional investors (FIIs) is rising in Indian stock markets,
which are inIluencing stock prices a lot,Hence, Iurther the research work can be
initiated to explore the role oI mutual Iunds in terms oI their inIluences on stock
market sentiments.
There is need to undertake an in-depth study on status and Iunctioning oI mutual
Iunds at micro-level in India, so that real problems oI investors, Iunds managers,
brokers can be judged.
The research study can be initiated to have inter-industry comparison like between
mutual Iund industry with banking industry, insurance companies, Iinancial
institutions and venture capital Iunds.
In the past, a lot oI merger and acquisition in the mutual Iund industry has been
witnessed. So, in order to know their impact on mutual Iunds perIormance, there is
ample scope to initiate research in this area.
Above are the important possible areas oI mutual Iunds where Iurther research work
can be encouraged.