Professional Documents
Culture Documents
ON
“PERFORMANCE OF GROWTH
MUTUAL FUNDS”
Programme of
DEPARTMENT OF BUSINESS
ECONOMICS
DELHI UNIVERSITY
Batch2009-11
Roll No - 638
ACKNOWLEDGEMENT
I would like to express my profound gratitude to all those who have been instrumental in
the preparation of this report which has been prepared in partial fulfillment of Masters of
Business Economics (MBE). I wish to thank our Head of Department, Prof. Rashmi
Agarwal, and Faculty members of Department of Business Economics for their support and
vision.
I would like to thank and sincerely appreciate my mentor, Prof. S.C. Aggarwal and Dr.
Yogieta.S. Mehra for their valuable direction, suggestions and inputs. Finally I would like
to thank my Parents, Family, Friends and God almighty for their unending inspiration and
encouragement.
Date : 17 February,2009
This is to certify that this Project Report is based on research work done by me and it has
not been submitted anywhere else for any other purpose.
Sign:
Parul Yadav
10 References 47-48
11 Appendix 49-58
This study has been undertaken to evaluate the performance of the Indian Growth Mutual Funds vis-
à-vis the Indian stock market. For the purpose of this study, 12 open ended equity based growth
mutual funds are selected as the sample. The data, which is the daily NAV’s of the funds and the
closing of the BSE Sensex, were collected for a period of 1 years starting 01/02/2010 to 01/02/2011.
Different statistical tools were used on the data obtained to get the average returns, absolute returns,
standard deviation, Fund Beta, Treynor’s Ratio, Sharpe’s Ratio, Jensen’s Alpha, Fama’s Ratio, M2
were calculated. These variables of the funds were compared with the market performance to assess
their performance vis-à-vis the market.
All the funds were classified into a hierarchical cluster on the basis of their average returns, absolute
returns, standard deviation, fund beta, and relative performance index. This classification was done
to see whether the funds are homogeneous
All the mutual funds gave similar returns with respect to the market. The study showed that one
particular mutual fund outperformed the others and also the market. The fund betas also show that
there is significant correlation between the fund returns and the market returns.
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,
at the initiative of the Government of India and Reserve Bank of India. A mutual fund is a
professionally managed type of collective investment scheme that pools money from many
investors and invests it in stocks, bonds, short-term money market instruments and other
securities. Mutual funds have a fund manager who invests the money on behalf of the
investors by buying / selling stocks, bonds etc. In India, the mutual fund industry started
with the setting up of the erstwhile Unit Trust of India in 1963. Public sector banks and
financial institutions were allowed to establish mutual funds in 1987. Since 1993, private
sector and foreign institutions were permitted to set up mutual funds In February 2003,
following the repeal of the Unit Trust of India Act 1963 the erstwhile UTI was bifurcated
into two separate entities viz. The Specified Undertaking of the Unit Trust of India,
representing broadly, the assets of US 64 scheme, schemes with assured returns and certain
other schemes and UTI Mutual Fund conforming to SEBI Mutual Fund Regulations. India
has over 1000 mutual fund schemes, but this number has grown exponentially in the last
few years only. As on March 2002, there were 35 mutual fund companies with 433
schemes and assets under management were Rs.100594 crores. And as on November 2010
these figures have had a leap managing Rs.823004 crores of assets.
Mutual fund industry has seen a lot of changes in past few years with multinational
companies coming into the country, bringing in their professional expertise in managing
funds worldwide. In the past few months there has been a consolidation phase going on in
the mutual fund industry in India. Now investors have a wide range of schemes to choose
from depending on their individual profiles. The performance of mutual funds receives a
great deal of attention from both practitioners and academics. With an aggregate
investment of trillion dollars in India, the investing public’s interest in identifying
successful fund managers is understandable. The idea behind performance evaluation is
to find the returns provided by the individual schemes especially growth funds and the
risk levels at which they are delivered in comparison with the market and the risk free
Growth schemes invest in those stocks of those companies whose profits are expected to
grow at a higher than average rate. For example, telecom sector is a growth sector because
of the high population factor of our country– so as they buy more and more cell phones, the
profits of telecom companies will increase. Similarly, infrastructure; we do not have well
connected roads all over the country; neither do we have best of ports or airports. For our
country to move forward, this infrastructure has to be of world class. Hence companies in
these sectors may potentially grow at a relatively faster pace. The rapid growth of Indian
industry attracted investor’s money to sectors of high growth and as a result growth funds
came into being. Growth managers are willing to take more risk and pay a premium for
their stocks in an effort to build a portfolio of companies with above-average earnings
momentum or price appreciation.
Performance evaluation of mutual funds is one of the preferred areas of research where a
good amount of study has been carried out. The area of research provides diverse views of
the same.
The aim of the study is to describe and analyze whether the Growth Mutual Funds perform
better during the Bull Run period and Bear Run period. In line with this aim, the literature
review is done to clarify the underlying concepts in Mutual Funds. Many studies have been
done in case of mutual funds and stock market operations in India. But this study has drawn
insights from the following studies;
Allen and Carolinian (2003) in their article “Positioning in India’s asset management
industry “, have concluded that for the last five years, there has been proliferation of
International and Domestic providers of Mutual Funds. He says that this increased growth is
due to the increasing cash flow among innovative young companies throughout India.. He
also says that mutual funds products are growing in complexity, which is an indicator of
investor sophistication in India. Diekmeyer and Peter (2003) in the article “Thee Other Red
Hot Emerging market” analyzed the changing scenario of Indian Stock Markets. He says
that India is becoming important in the international stage and more and more foreign asset
companies are starting their businesses in India. The Indian markets, which were perceived
as corrupt and backward with few prospects, are now being targeted by the whole world for
safe and profitable investments. He says that this growth in Indian economy is due to the
growing strength of the IT industry and growing military and trade ties with the United
States. Diekmeyer and Peter (2003) in their study “Private Progress” say that private mutual
The literature review has revealed the performance measures of Mutual Fund include rate of
return, benchmark comparison, risk-adjusted returns ( Treynor’s and Sharpe’s indices )
stock selectivity abilities and market timing skills of the fund managers.
1. The main purpose of doing this study is to ascertain the performance of growth mutual
funds over the two different Bull Run and Bear Run periods. Ultimately this will help in
understanding the benefits of mutual funds to investors.
2. To evaluate the risk adjusted returns of 12 growth funds with the help of the
performance ratios and the Sensex as the benchmark index -
• Treynor’s ratio
• Sharpe’s ratio
• Jensen’s Ratio
• M2 for Beta
• M2
3. To compare the performance of the Growth funds with the Stock Markets
RESEARCH METHODOLOGY
Data Sources
All the data is secondary and was obtained from AMFI (Association of Mutual Funds of
India) website, respective homepages of Asset management Companies, Bombay stock
exchange and National Stock Exchange. The data for research is obtained from AMFI
website. The daily NAV’s of the selected 12 growth funds are obtained from the website
and also some from the fact sheets available with the AMCs. The data thus obtained is
used for the calculation of various risk adjusted ratios as described below.
The risk free rate of return is taken as the average of last one year i.e Feb 01 2010 to
Feb 01 2011, 91 day Treasury bill rates collected from Reserve Bank of India’s website.
The risk free rate is taken as 0.062871
Duration of Study
The time frame chosen for the study is divided into Bear Run period from Feb1 2008 to
Sampling
• Sampling procedure:
The sample was selected by observing the top 12 growth funds in the
industry over the years. It was also collected through formal and informal
talks with different industry experts. The data has been analyzed by using
mathematical/Statistical tool.
• Sample size:
• Sample design:
Data has been presented with the help of bar graph, pie charts, line graphs
etc.
Limitations
• Since the funds selected for this study were open ended equity based growth mutual
funds the fund composition kept on changing over the time period, so it became
difficult to understand the fund properties as historical data pertaining to the fund
composition was not available.
Standard Deviation
The most basic of all measures- Standard Deviation allows you to evaluate the volatility of
the fund. Put differently it allows you to measure the consistency of the returns. Volatility
is often a direct indicator of the risks taken by the fund. The standard deviation of a fund
measures this risk by measuring the degree to which the fund fluctuates in relation to its
mean return, the average return of a fund over a period of time. A security that is volatile is
also considered higher risk because its performance may change quickly in either direction
at any moment. A fund that has a consistent four-year return of 3%, for example, would
have a mean, or average, of 3%. The standard deviation for this fund would then be zero
because the fund's return in any given year does not differ from its four-year mean of 3%.
On the other hand, a fund that in each of the last four years returned -5%, 17%, 2% and
30% will have a mean return of 11%. The fund will also exhibit a high standard deviation
because each year the return of the fund differs from the mean return. This fund is therefore
more risky because it fluctuates widely between negative and positive returns within a short
period.
Beta indicates the level of volatility associated with the fund as compared to the
benchmark. So quite naturally the success of Beta is heavily dependent on the correlation
If, for example, a fund has a beta of 1.03 in relation to the BSE Sensex, the fund has been
moving 3% more than the index. Therefore, if the BSE Sensex increased 10%, the fund
would be expected to increase 10.30%.
Investors expecting the market to be bullish may choose funds exhibiting high betas, which
increase investors' chances of beating the market. If an investor expects the market to be
bearish in the near future, the funds that have betas less than 1 are a good choice because
they would be expected to decline less in value than the index.
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index. This Index is a ratio of return generated by the fund over and above risk
free rate of return (generally taken to be the return on securities backed by the government,
as there is no credit risk associated), during a given period and systematic risk associated
with it (beta). Symbolically, it can be represented as:
Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative
Treynor's Index is an indication of unfavorable performance.
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a
ratio of returns generated by the fund over and above risk free rate of return and the total
risk associated with it. According to Sharpe, it is the total risk of the fund that the investors
are concerned about. So, the model evaluates funds on the basis of reward per unit of total
risk. Symbolically, it can be written as:
Where, Si is standard deviation of the fund, Ri is the return on the fund, and Rf is the rrisk
free rate.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
Sharpe and Treynor measures are similar in a way, since they both divide the risk premium
by a numerical risk measure. The total risk is appropriate when we are evaluating the risk
return relationship for well-diversified portfolios. On the other hand, the systematic risk is
the relevant measure of risk when we are evaluating less than fully diversified portfolios or
individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk.
Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure)
should be identical for a well-diversified portfolio, as the total risk is reduced to systematic
risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared
with another fund that is highly diversified, will rank lower on Sharpe Measure.
A logical alternative form of the Treynor ratio might use systematic risk σm
in the denominator, which is more consistent with the Sharpe ratio, also
called the modified Treynor ratio:
MTR = (Ri – Rf)/ σm
Jenson Model
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the Differential Return
Method. This measure involves evaluation of the returns that the fund has generated vs. the
returns actually expected out of the fund given the level of its systematic risk. The surplus
between the two returns is called Alpha, which measures the performance of a fund
compared with the actual returns over the period. Required return of a fund at a given level
of risk (Bi) can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period, Rf is the risk free rate, Ri is
the return on the fund and Bi is the beta of the fund. After calculating it, alpha can be
obtained by subtracting required return from the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of this
model is that it considers only systematic risk not the entire risk associated with the fund
and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is
primitive.
Modified Jensen
Modified Jensen = α ∕ β
Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return commensurate
with the total risk associated with it. The difference between these two is taken as a measure
of the performance of the fund and is called net selectivity.
The net selectivity represents the stock selection skill of the fund manager, as it is the
excess return over and above the return required to compensate for the total risk taken by
the fund manager. Higher value of which indicates that fund manager has earned returns
well above the return commensurate with the level of risk taken by him.
Ri = Rf + Si/Sm*(Rm - Rf)
Where, Sm is standard deviation of market returns, Si is the standard deviation of the fund,
Rm is the return on market, Rf is the risk free rate. The net selectivity is then calculated by
subtracting this required return from the actual return of the fund.
Among the above performance measures, two models namely, Treynor measure and Jenson
model use systematic risk based on the premise that the unsystematic risk is diversifiable.
M2 for Beta
M2 can be calculated for systematic risk in the same way as it is calculated for total risk. If
a straight line is drawn vertically through the risk of the benchmark β=1. The intercept with
the Treynor ratio line of portfolio A would give the return of the portfolio with the same
Treynor ratio of portfolio A but at the systematic risk of the benchmark
M2 = Rp + TR (1 – βp)
Where, Rp is the return on the fund, TR is the Treynor Ratio of the fund and Bp is the beta
of the fund.
M2
The statistic is called M2 not because any element of the calculation is squared but because
it was first proposed by the partnership of Leah Modigliani (1997) and her grandfather
Professor Franco Modigliani. We can rank portfolios in order of preference with the Sharpe
ratio but it is difficult to judge the size of relative performance. We need a risk-adjusted
return measure to gain a better feel of risk-adjusted outperformance
Where, σm is the standard deviation of the market returns and σp is the standard deviation
of the portfolio.
PRODUCTS
The different mutual fund schemes that we have taken in our sample for the analysis are
• The scheme is targeted for long term capital appreciation along with stability
through a well balanced portfolio comprising of equity, equity related
instruments, highly rated debt portfolio and money market instruments.
• DWS Alpha Equity Fund Regular plan- growth is a fund to generate long -term
capital growth from investment in a diversified portfolio of equity and equity related
securities.
• Focuses on mostly large cap blue chip companies and growth oriented stocks with
longer term investment horizon with focus on intrinsic value v/s market value to
identify growth and value unlocking opportunities.
• Combination of top-down and bottom –up approach with adequate risk controls
• Exit Load : 2.25% if redeemed / shifted within 6 months from the date of investment
for Rs. 10 Crore and above
• The asset allocation is 80% - 100% in equity and 0% - 20% inshort term debt and
money market instruments
Equity and Equity related instruments other than mentioned in above 0 – 35%
• The exit load is nil for < Rs.2 crores; for >= Rs.2 crores it is 0.50% if exited
within 6 months from the date of allotment
• The exit load is for applications < or = Rs.10 lakhs: 0.50% if redeemed
within 6 months and for applications > 10 Lakhs: Nil.
• The primary objective of the Scheme is to provide capital appreciation to its Unit
holders through judicious deployment of the corpus of the Scheme in sectors
categorized under “basic industry” in the normal parlance and in context of the
• It aims to have a mix of stocks which provide higher profit growth with cheaper
valuations, thereby increasing outperformance prospects.
• The minimum investment amount is for new investors :Rs.5000 and any
amount thereafter, and for existing investors : Rs. 1000 and any amount
thereafter.
Analysis is done by calculating the returns of Growth funds with the help of respective
NAV’s. The stock market return is calculated from the closing values of the Sensex.
Using the above described framework we get the values of all the ratios for the funds in
two different time periods.
The Growth Mutual Funds are ranked with respect to each ratio. The Mutual Funds with
higher values are ranked higher for all the ratios. A higher rank indicates better
risk adjusted returns.
1. For the Bull Run period, we have shown the performance of the growth funds with
the help of the ratios. The following chart shows the value of the ratios for the
different funds:
Table 1: Ratio Values for the different Growth funds for Bull Run Period ( Feb 01 2010 to Feb 01 2011)
Fund Name Beta Standa Treynor’s Sharpe’s Jensesn’s Modified Fama M2 for M2
rd Ratio ratio Alpha Jensen’s Beta
Deviati
on
Baroda 0.9755 0.00714 -0.063810 -8.713407 -0.001560 -0.001599 -0.018837 -0.000938 0.06287
Pioneer
Balanced
Fund -
Growth
plan
DSP 0.9771 0.00629 -0.063785 -9.905439 -0.001539 -0.00157 -0.024093 -0.000914 -0.03853
BlackRock
Balanced
Fund -
Growth
Edelweiss 0.9756 0.00886 -0.063699 -7.012061 -0.001452 -0.0014893 -0.008290 -0.000828 -0.00891
Mutual
Fund ELSS
Fund -
Growth
Plan
Reliance 0.9790 0.00924 -0.063691 -6.742577 -0.001450 -0.001481 -0.0061594 -0.00082 -0.00615
Growth
Fund
Growth
Plan
Magnum 0.9761 0.00849 -0.063882 -7.340310 -0.0016 -0.001672 -0.010735 -0.001011 -0.01227
Equity
Mutual
fund
Morgan 0.9765 0.00974 -0.063681 -6.378920 -0.001436 -0.001471 -0.0029475 -0.002947 -0.00243
Stanley
Growth
Fund
UTI Contra 0.9819 0.01006 -0.063699 -6.216066 -0.001461 -0.0014886 -0.00140 -0.000827 -0.00076
Fund
Growth
Sundaram 0.98183 0.00087 -0.0638 -71.50271 -0.00165 -0.001681 -0.0573998 -0.001020 -0.669155
Bond Saver 7
Growth
Fund
HDFC 0.97445 0.00525 -0.0638 -11.8237889 -0.001548 -0.001589 -0.0302191 -0.000928 -0.058177
Basic Plan- 8
Growth
Table 2:
PERFORMANCE RATIO TOP PERFORMER WORST PERFORMER
Key Findings:
• We can observe that the ratios are taking on negative values for the funds. There are
two ways the ratios may take negative values :
If the portfolio return is less than the risk-free rate, and the beta is positive.
If the portfolio return exceeds the risk-free rate, but the beta is negative.
• We can observe that Deutsche DWS Alpha Equity Fund regular Plan – Growth
shows better performance when it comes to evaluation with Treynor’s and Jensen’s
alpha.
• Deutsche DWS Alpha Equity Fund regular Plan – Growth mutual fund is placed
number one in all except Sharpe’s ratio, Modified Treynor’s ratio and Fama’s ratio.
• JM Financial is the second best performer next to Deutsche Fund. It has performed
poorly only in Modified Treynor’s ratio.
• Sundaram Bond Saver Growth Fund has performed the worst in all ratios securing
the last position in 7 out of 8 performance ratios.
Exhibit 1:
Hence, from Exhibit 1, we can find that the stock market was bullish during February 2010
to February 2011.
2. For the Bear Run period also, we have shown the performance of the growth funds
with the help of the ratios;
Table 3: Ratio Values for the different Growth funds for Bear Run Period ( Feb 01 2008 to Feb 01 2010)
Fund Name Beta Standa Treynor’s Sharpe’s Jensesn’s Modified Fama M2 for M2
rd Ratio ratio Alpha Jensen’s Beta
Deviati
on
Baroda 0.1186 0.01848 -0.54889 -3.52204 -0.06 -0.48359 -0.02 -0.49 -0.03766
Pioneer
DWS Alpha 0.5566 0.02316 -0.11657 -2.80075 -2.80075 -5.03188 -0.01 -0.01 -0.01708
014 6927
Equity Fund
regular Plan
DSP 0.3162 0.01357 -0.20332 -4.73636 -0.04 -0.13802 -0.03 -0.14 -0.07233
BlackRock 56 6
Balanced
Fund -
Growth
Magnum 0.5630 0.02398 -0.11618 -2.7274 -0.03 -0.05088 -0.01 -0.05 -0.01498
Equity 9 6
Mutual fund
Morgan 0.5850 0.02465 -0.11208 -2.65983 -0.03 -0.04679 -0.01 -0.05 -0.01305
88 5
Stanley
Growth Fund
Sundaram 0.0086 0.00262 -7.20346 -23.8324 -0.06 -7.13816 -0.06 -7.14 -0.61741
84 5
Bond Saver
Growth Fund
JM Financial 0.2796 0.02951 -0.24378 -2.31011 -0.05 -0.17848 0.00 -0.18 -0.00307
51 1
basic Fund-
Growth
Table 4:
PERFORMANCE RATIO TOP PERFORMER WORST PERFORMER
Key Findings:
• We can observe that Morgan Stanley Growth Fund – shows better performance
when it comes to evaluation with Treynor’s and Jensen’s alpha and M2 for Beta.
• JM Financial is the second best performer next to Morgan Stanley. It has performed
poorly only in Modified Treynor’s ratio.
• Sundaram Bond Saver Growth Fund has performed the worst in all ratios securing
the last position in 7 out of 8 performance ratios.
The market movements in the Bear Run period from Feb01 2008 to Feb01 2009 are shown
in the graph below:
From the above exhibit, it can be seen that the value of the Sensex has dropped from
18242.58 to 9257.47. Thus, it shows that the market was bearish for the period during
February 2008 to February 2009.
Name of Fund Average Return for Bear Period Average Return for Bull Period
From the above Table 5, we can find that all the Mutual Fund Schemes were
offering a reasonable rate of return during the Bull Run Period. JM Financial Mutual
Fund has the highest rate of return among the Growth Funds. On an average, we can
find that all the Growth Funds were providing a return of 3.23% in the Bull Period.
From the above table-5, it is also clear that all the Growth Funds were providing a
negative rate of return during the Bear Run Period. This shows how the market
affects the rate of return of investments.
A1) The average returns of the Growth Funds is higher than that of the Market. The Market
has underperformed the Growth Funds in terms of return during the Bull Run Period.
A2) The Growth Funds have Risk (Standard Deviation of Returns) higher than that of the
Market. The Market has outperformed the Growth Funds in terms of Risk during the Bull
Run Period.
A3) Growth Funds have Return per unit Risk higher than that of the Market.
B1) Growth Funds have return higher than that of the Market in the Bull Run Period. The
Market has outperformed the Growth Funds in this phase.
B2) Growth Funds have Risk (Standard Deviation of Returns) lower than that of the
Market. The Market has underperformed the Growth Funds in terms of Risk during the
Bear Run Period.
B3) Growth Funds have Return per unit Risk lower than that of the Market.
• Investments during the Bull Run period can give maximum returns but at the same
time, they also have high rate of risk
• Market has outperformed Growth Funds in terms of Return during the Bear Run
Period
• Growth Funds have lower risk than Stock Markets during the Bear Run Period.
• From the ranking of Mutual Funds based on the ratios it can be concluded that
Deutsche DWS Alpha Equity Fund is the best performer of all. It is giving best returns on
various risk parameters.
• JM Financial is also a good performer, ranking 2nd on most of the ratios.
• On the other hand Sundaram Bond saver Growth Fund is the lowest performer
on most of the ratios indicating poor combined performance of risk and returns.
The DWS Alpha Equity Fund scheme is an open diversifiable equity scheme. The DWS
Alpha Equity Fund Regular plan- growth is a fund to generate long -term capital growth
from investment in a diversified portfolio of equity and equity related securities. It focuses
on mostly large cap blue chip companies and growth oriented stocks with longer term
investment horizon with focus on intrinsic value v/s market value to identify growth and
value unlocking opportunities. The scheme has a combination of top-down and bottom –up
approach with adequate risk controls. The top-down approach is used to choose the optimal
weightings for the sectors, and the bottom-up approach is used for identifying the
investment opportunities. The asset allocation is around 80-100% in Equities and Equity
related securities and near about 0-20% in Debt Securities and Money Market Instruments
including cash and money at call. The minimum investment required in the scheme is Rs.
5000. Also, the exit load is 2.25% if the scheme is redeemed / shifted within 6 months from
the date of investment for Rs. 10 Crore and above. Currently, the scheme has a corpus of
around rs 150.65 crores
Additional Investment Amount Regular and Wealth Plan: Rs. 1000/- and in
Amount multiples of Re. 1/- thereafter.
Minimum Repurchase Amount Regular and Wealth Plan: Rs. 1000/- and in
multiples of Re. 1/- thereafter.
Minimum Investment for SIP, STP and Minimum amount of Rs. 12000/- divided into
SWP 12 installments of Rs. 1000/- each for 12
months or
ITC 6.81%
30
25
20
Scheme
15
Benchmark
10
0
last 1 month last 6 lats 1 year last 3 years last 5 years since
months inception
• The fund showed a big leap in performance from 2005 to 2006 due to the
fund manager making the right call on the non-ferrous sector. The fund
• The fund manager, Aniket Inamdar, knows well the art of entering and
exiting a sector at the right time in the market cycle. The fund exited the
auto and auto ancillaries sector well in time, sensing the impending slump in
the auto market. Thereafter, it increased its exposure to the steel sector due
to robust domestic demand and global consolidation (the sector currently
accounts for 7.45 per cent of the portfolio). Lately, the fund has reduced its
exposure to interest-rate sensitive sectors like banking, and increased
exposure to telecom and FMCG. The top three sectors constitute 34.84 per
cent of the portfolio while the top 10 holdings constitute nearly half the total
portfolio.
• The DWS Alpha Equity Fund has the ability to contain downside risks
better than most peer funds. With the markets poised at a crucial point, the
fund's ability to veer through volatile markets also stands investors in good
stead.
• In the last year, the fund has outperformed its benchmark CNX Nifty and
kept pace with similar large-cap-focused peers such as DSPBR Top 100 and
Kotak-30, while outperforming Sundaram BNP Paribas Select Focus by a
five percentage points.
• The returns, however, pale when compared with the diversified equity funds'
category average returns of over 34 per cent. Besides a predominantly large-
cap focus, late participation in the rally from March 2009 lows may explain
the lower returns.
• Alpha Equity has been deft in wading through corrective phases of the
market. Its large-cap focus makes it suitable for conservative-to-moderate
investors. While its focused exposure to stocks pegs up its risk profile
slightly, a small asset base reverses it a bit in terms of affording it greater
flexibility in portfolio makeovers
The Indian mutual fund industry needs to widen its range of products with affordable and
competitive schemes to tap the semi-urban and rural markets in order to attract more
investors. Some of the major challenges that the industry faces today are mentioned below:
The Indian Mutual Fund industry has held its ground in the midst of adversities in the
capital markets thanks to the strong regulatory framework in place. As the number of
players in the market increases, competition may force fund houses to comply not only with
the laid down regulations and concentrate more on growth but endeavor in creating
excellence in governance as well. In this challenging environment, the debate of growth
versus governance is surely set to assume greater significance.
As the industry moves on from its nascence to adolescence, it is joint responsibility of the
industry players, the regulators and also the investors to ensure that it further transits to
maturity as smoothly as possible. A strong regulatory platform is a key challenge in any
business environment, more so in the Indian context at this point on the growth curve of the
industry. While we do have a strong regulatory platform in place, more can be done based
on the experience of mature markets like the US and UK, where investor protection has
assumed top priority. The industry is well governed with a spate of reactive regulations and
its now time to introduce more proactive, growth enhancing regulation
No discussion on mutual funds can be complete without touching upon the aspect of
distribution. A lot has been spoken about the need to increase penetration of mutual funds in
Tier II and Tier III cities. Rural participation in mutual funds continues to be poor. Such
poor penetration has much to do with lack of investor awareness, inefficiencies in fund
transfer mechanisms, presence of safer substitutes and cost of establishing presence in
smaller areas. Fund houses cannot fight this battle single handedly. They need adequate
support in terms of banking infrastructure, distribution services and technological solutions
to ensure a sustainable cost-benefit model of growth. Even in terms of the transfer agency
function, the choice of players was very limited which too sometimes places a constraint in
terms of ensuring administered growth. However, with more players entering the business,
watch out this space for more action.
The efforts taken by the industry and AMFI towards investor education are definitely
showing results. The media is also making a fair share of its contribution. Today, we have
Print media these days has dedicated space to capture resource movements between
companies, especially in the financial services sector. The acute shortage of talented
resources is slowly but surely showing its impact. The pool of talented people is
diminishing and staff costs are soaring. The key challenge is to find a permanent solution to
tide over this acute shortage. One possible solution could be for the industry through AMFI
to tie up with universities and colleges to offer programmes dedicated to the financial
services industry in general and the mutual fund industry in particular, which would cover
various critical aspects of the financial services industry ranging from fund management,
research, analysis, treasury, operations and accounting. Aspirants acquiring accreditation in
these courses could then be directly channelized into the various subsets of the financial
services industry. This could ensure a continuous steady supply of talented resources to the
industry.
Bibliography
Lynch, Anthony W et Al (2002). “Does Mutual Fund Performance Vary over the
Business Cycle?” ”, www.ssrn.com, paper no.470783 and PP.1-21
Websites
ANNEXURE
Appendix 1
The following graphs show the performance of all the mutual fund in
the Bull Run period Feb1 2010 to Feb1 2011 with respect to each
ratio:
-0.062
-0.0625
-0.0635
-0.064
-0.0645
Sharpe'sRatio
0
-10
-20
-30
-50
-60
-70
-80
-6
-6.05
-6.15
-6.2
-6.25
Jensen'sAlpha
0
-0.0002
-0.0004
-0.0006
-0.0008
Jensen's Alpha
-0.001
-0.0012
-0.0014
-0.0016
-0.0018
-0.0002
-0.0004
-0.0006
-0.0008
Modified Jensen's
-0.001
-0.0012
-0.0014
-0.0016
-0.0018
Fama
0.01
-0.01
-0.02
-0.03 Fama
-0.04
-0.05
-0.06
-0.07
0.0004
0.0002
-0.0002
M2 for Beta
-0.0004
-0.0006
-0.0008
-0.001
-0.0012
M2
0.1
-0.1
-0.2
-0.3
M2
-0.4
-0.5
-0.6
-0.7
-0.8
The following graphs show the performance of all the mutual fund in
the Bear Run period Feb1 2008 to Feb1 2009 with respect to each
ratio: