Journal of Radix International Educational and Research Consortium 1 P a g e

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1 A Journal of Radix International Educational and Research Consortium RIJBFA RADIX INTERNATIONAL JOURNAL OF BANKING, FINANCE AND ACCOUNTING PERFORMANCE OF MUTUAL FUNDS IN INDIA: AN EMPIRICAL ANALYSIS DR. SANKET VIJ Associate Professor Department of Management & Commerce BPS Women University, Khanpur Kalan Sonipat, Haryana, India SUSHMA KUMARI Research scholar Department of Management & Commerce BPS Women University, Khanpur Kalan Sonipat, Haryana, India ABSTRACT In a plethora of available investment options, the rise of Mutual Funds world over has been the most interesting phenomenon during the last couple of decades. This is particularly true in the Indian arena where in Mutual Funds is a household entity. The present paper attempts to evaluate the performance of 20 Balanced, ELSS and Sectoral schemes of top five Mutual Funds encompassing a period of five years from January 2008 to December The results indicate that majority of the select schemes are in good harmony with the market but suffer for lack of diversification. Though these funds have performed better than the market but no significant evidence has been obtained to assert this statistically. INTRODUCTION When I was young I thought that money was the most important thing in life; now that I am old I know that it is. - Oscar Wilde. This famous saying is the epitome of all the financial activities taking place every second at different corners of the world. From nations to individuals, means of wealth creation have remained the priority, and the responsibility of providing efficient ways for the same relied on a nations financial system. The financial system of a country is the prime accelerator of the development and growth of its economy. It acts as an intermediating system, thereby, facilitating flow of funds between the resources and optimum opportunities. Its ability to capture domestic savings and channelize them to large scale more productive enterprises determines the financial deepening and strength of the system. In this context, the Indian financial system has essentially come up strong and has always exhibited utmost efficiency and flexibility. In the past two decades the Indian financial sector has deepened and more integrated globally, witnessing a considerable development in the financial markets both from regulatory and legal perspective. The process of financial sector reforms, economic liberalization and globalization of Indian Capital 1 P a g e

2 Market had generated and augmented the interest of the investors. There has been a phenomenal improvement in the domestic savings in which over two-third of the total savings is accounted by the household sector, providing there by, enough opportunities for the financial system to intermediate and channelize the savings into fruitful investments. Mutual funds, as an intermediation mechanism, play an important role in India s financial sector development. They pool resources from small investors, and provide informed decision making mechanism to them. As professional experts manage mutual funds, investment in these relieves investors from the emotional stress involved in buying and selling of securities. Mutual funds, in terms of their popularity, have gained enormously over the years. From a single player market in 1963, with the formation of Unit Trust of India (UTI), the Indian mutual fund industry has evolved to a highly competitive market comprising domestic and foreign players, supported by favourable regulatory reforms. Today the industry houses 44 AMCs with AUM at Rs crores (For FY 2012) offering a wide range of products catering to variety of customers with different needs. Amidst a large investor base the performance appraisal of mutual funds has always been in vogue and much desired by the industry itself. The present paper titled Performance of Mutual Funds in India: An Empirical Analysis endeavours to assess the performance of Balanced, ELSS and Sectoral schemes during the five year period from January 2008 to December 2012 of those five funds which commanded the maximum in terms of AUM (Appendix 1) of Indian Mutual Fund industry. The research work has been organized into five sections. Section one presents a general introduction to the study. Section two critically reviews the literature on mutual fund performance and brings out the objectives for carrying out the research work. The third section present the framework of research methodology incorporated. Section 4 deals with the empirical findings and the meaning drawn there off, with an elaborate explanation on performance of Balanced, ELSS and Sectoral Schemes. The study ends with section 5 summarizing the findings of the study & concluding the outcomes. REVIEW OF LITERATURE It has been well debated that if the markets are efficient, containing well informed participants, no information or analysis can result in outperformance since it would be reflected in the security price immediately (Malkiel, 2003). In the absence of efficient markets, the players of the game try to beat the market by trading the securities. Academicians have always found it interesting to analyze such efforts and have contributed immensely towards performance evaluation of securities world over. Coming particularly to the performance evaluation of Mutual Funds, Friend et al. (1962) made the first extensive study of mutual funds by evaluating the performance of 152 mutual funds with annual data from 1953 to The study found that the mutual funds earned an average return on lines with the benchmark. Treynor (1965) suggested a measure of portfolio performance based upon the risk involved in a portfolio, termed as beta which represents the degree of variation in the portfolio value compared to the market portfolio. Friend and Vickers (1965) while examining portfolio selection and investment performance denied superior performance of mutual funds over random portfolios. Treynor and Mauzy (1966) evaluated performance of 57 fund managers in terms of their market timing abilities and found that, fund managers had not successfully outguessed the market. Sharpe (1966) developed a composite measure for performance evaluation and reported superior performance for 11 funds out of 34 during the period He observed that mutual funds with higher reward-to-volatility ratios tend to be those with lower expenses. Sample schemes showed consistency in risk measure. Jensen (1968) studied the performance of 54 open-ended US mutual funds for the period and found that the returns of mutual funds 2 P a g e

3 before the load fees and after management and other expenses were on average 1% per annum below the benchmark return. Ippolito (1989) evaluated 143 mutual funds during the period of and brought out that mutual funds with higher turnovers, fees, and expenses earn rates of return sufficiently high to offset the higher charges. Moving over to the Indian arena, the study of Shah and Thomas (1994) computed the weekly returns for eleven mutual fund schemes since their commencement to April 1994 and concluded that except UGS 2000 of UTI, none of the schemes earned superior return than that of the market, in general. The study of Sarkar, Jaideep and Sudipa Mazoomdar (1994) evaluated the performance of five growth-oriented schemes for the period February 1991 to August 1993 by employing the CAPM and Jenson measures and concluded that the selected schemes did not provide superior return than the market during the study period, except in the boom period. Similar studies were conducted by Gupta & Sehgal (1998), Turan and Bodla (2000) and Sondhi and Jain (2005) examining the growth and performance of the Indian fund industry. Chander (2002) analyzed the investment performance of 34 schemes against a benchmark of BSE Sensex and observed that majority of the funds recorded higher average return as compared to benchmark. The study suggested frequent buying and selling as the best investment strategy in view of greater element of volatility in Indian security market. Soumya Guha Deb, Banerjee and Chakrabarti (2008) attempted to test the persistence in performance of equity fund managers in India, with respect to three performance indicators, namely raw returns, the tracking error they generate over their benchmarks and the information ratios they attain. Their analysis indicated some evidence of persistence of performance for the growth funds, but virtually no evidence of persistence for equity linked saving schemes. Jaiswal and Nigam (2010) have analyzed the performance of Indian Mutual Fund Industry since the liberalization of economy till now. (i.e. form the year1993 to the year2009) and reported that sample mutual funds were able to provide better return than any return on risk free securities but unable to outperform the benchmark portfolio in terms of average return. Bodla and Chuahan (2012) analyzed the performance of twenty seven equity schemes of nine Indian Mutual Funds in terms of their risk and returns performance for a period of 8 years, from 2002 to 2010 and brought out that funds had outperformed the market but no significant evidence was found to approve of it. Thus, as of now, there is a respectable literature in terms of amount of attention focused on the performance evaluation of mutual funds world over as well as on the Indian front. Majority of studies have indicated superior performance of the portfolios with respect to the market. OBJECTIVE OF THE STUDY Keeping in mind the extensive literature survey carried out to understand and interpret the the performance of mutual funds, the following objectives have been framed for this study: 1. To carry out a comparative analysis of the performance of mutual fund schemes and market portfolio so as to bring out whether mutual fund schemes are outperforming or underperforming the benchmark (market portfolio); 2. To compare risk-adjusted return performance of the select mutual fund schemes; To fulfill these objectives, the following hypotheses have been framed which the study would strive to test: 1. There is no significant difference between the returns of mutual fund schemes & market; 2. There is no significant difference between the risk of mutual fund schemes & market; 3. There is no significant difference in performance of various mutual fund; 3 P a g e

4 RESEARCH METHODOLOGY This section discusses the framework of research methodology used in the study. It explains in detail the database, sample, reference period of the study and the statistical techniques used to analyse the data. SAMPLING AND DATABASE The study attempts to measure the performance of 20 schemes from 5 biggest mutual fund institutions (as of December 2012) over a 5 year period from January 2008 to December 2012 by sampling 20 schemes belonging to three different categories: (a) Balanced Schemes- 1 from each fund; (b) Equity Linked Saving Schemes 1 from each fund, and (c) Sectoral Schemes 2 from each fund for which data for the said period was found available. The sampling frame for the purpose of the study constituting the various schemes is presented in the appendix. This study has used S&P CNX Nifty Index as benchmark and the weekly yields on 91-day Treasury bills (T-bills) as a surrogate for the risk-free rate of return. RETURN AND RISK MEASURES For achieving the first objective, daily returns were calculated based on daily NAV data for five years without adjusting for dividend and bonus. The daily NAVs were converted into the yearly NAVs for the analysis of yearly NAVt - NAVt 1 returns. Fund s daily return (R p ) is calculated by using the following formula: R P = NAV Where, R P = Daily return of a scheme, NAV t = Net asset value of current day, NAVt -1 = Net asset value of previous day. Market s daily return was also evaluated similarly. The returns so obtained were multiplied by 100 so as to obtain percentage daily return. There are two popular measures of risk that are used in performance evaluation. (a) Total risk, and (b) Systematic or Un-diversifiable risk. The former is measured by standard deviation of the return distribution given by p = R p R n 1 p 2, R p = Average weekly return of fund, and The market risk is also calculated similarly. The systematic risk is measured by Beta Beta ( ) = Cov (R P, R m ) / Beta ( ) = Cov (R P, R m ) / 2 m 2 m t 1 2 m = Variance of weekly return of the market, and Cov (R P, R m ) stand for covariance between return of a fund and return of market. ( Rp Rp )( Rm Rm ) Cov (R p, R m ) = N Coefficient of Correlation: In order to determine risk-return relationship, Karl Pearson product moment formula is used. It is based on covariance of fund return and market return. Symbolically R = Cov (R P,R m ) / σ p σ m Coefficient of Determination (R 2 ): It is the square of coefficient of correlation. It is a comprehensive measure for indicating the percentage variation in the fund return which is accounted for by the market return. A low R 2 value indicates that the fund has further scope for the diversification. 4 P a g e

5 Risk Adjusted Performance Measures There are three risk adjusted measures for performance evaluation of a mutual fund. These are (i) return per unit of risk, (ii) differential return measure, and (iii) Components of performance measure. (i) Return per unit of Risk The performance of a managed portfolio is measured in terms of return per unit of risk. A mutual fund that provides the highest return per-unit of risk is considered as the best performer. Two measures commonly used for performance evaluation on these lines are (a) Sharpe s reward to variability ratio and (b) Treynor s reward to volatility ratio. These are as follows: Sharpe Ratio is expressed as the excess return per unit of risk, where risk is measured by the standard deviation of the rate of return. Mathematically: SR p = (R p R f ))/σ p Where, SRp = Sharpe s ratio for fund p, Rf = Average return on risk free asset. Similarly, the Sharpe Ratio of market portfolio has been worked out by the following formula: SR m = (R m -R f ) / m Where SR m = Sharpe s ratio for market, Treynor s Ratio is reward to volatility ratio given by Jack Treynor in 1965 and is expressed as a ratio of returns to systematic risk (beta). In mathematical terms: TR p = (R p R f )/β p Where, TRp = Treynor s ratio for fund p, β p = Sensitivity of fund return to market return, and, Treynor Ratio of market portfolio (TR m) TR m = (R m R f )/β m Where βm= Systematic risk of market EMPIRICAL RESULTS AND INTERPRETATION The present section displays the output of empirical analysis carried out to evaluate the performance of the select mutual fund schemes i.e. balanced schemes, Equity Linked Saving schemes and Sectoral schemes. In order to have a critical evaluation, the performance has been adjudged with respect to different measures to bring out a comprehensive view and has been presented in eight exhibits, where in, part A,B and C cater to Balanced, ELSS and Sectoral Funds. RETURN ANALYSIS At the outset, the daily percentage returns of the sample schemes have been analyzed viz-a-viz the benchmark portfolio and the findings are presented in Exhibit 1. A look at the Exhibit shows that out of the select sample of twenty schemes, twelve schemes have earned a positive return as compared to the benchmark, although the difference has not been found significant. Moving category wise, Part A of the Exhibit 1 presents daily percentage 5 P a g e

6 returns of the balanced schemes. All the select balanced schemes have earned a positive return as compared to the benchmark with HDFC Balanced fund on the top providing 0.042% return, followed closely by Reliance Regular Saving Fund 0.040% in terms of daily returns. ICICI Prudential Balanced and UTI Balanced fund stand at the last two positions with 0.020% and 0.018% daily returns, respectively. The year wise performance brings out year 2009 as the best with 0.22% daily returns at the overall level and year 2008 as the worst with all the schemes offering negative returns. The average return of the balanced schemes for the five years stand at 0.029%. Part B of the same Exhibit presents the daily percentage returns earned by ELSS category. 60% of the schemes have provided positive returns with ICICI Prudential Tax Plan ranked at the top with 0.026% returns followed by HDFC Tax Saver and Reliance Tax Saver ELSS Fund with 0.024% and 0.023% return. The year wise evaluation again brings 2009 as the best with 0.276% return and 2008 with all negative returns. The overall average return for five years for this category stands at 0.015%. Moving towards the Sectoral schemes, it is evident from the Exhibit that only 40% of the schemes have managed better performance than the benchmark portfolio. All the infrastructure schemes have kept investors upset. Reliance Banking Fund has performed the best providing 0.065% daily returns, with ICICI Banking and Financial Services Retail being the second best performer at 0.054% in terms of return. The worst performer comes out to be UTI Infrastructure Fund providing a negative return of 0.028% at a difference of % from the benchmark return, which is also found significant at 0.05 level. The year wise analysis is projects the same situation as in the other two categories. Year 2008 being the worst with % average return paves way to a 0.262% average return in the year Thus the return wise analysis brings balanced schemes as the best with 0.029% overall average return. Sectoral schemes, in spite of offering negative returns for majority of schemes have been able to manage overall average return same as that of ELSS at 0.015%. RISK ANALYSIS It is generally accepted that higher returns are bagged at higher risks. Therefore to analyze the returns by the sample schemes, their risk stature has also been evaluated. It is measured in terms of the standard deviations of the daily 6 P a g e

7 returns, and calculated at yearly and overall basis. Exhibit 2 presents the risk statistics of the sample schemes. Part A of the Exhibit shows that all the balanced schemes have experienced comparatively less variability in returns than the benchmark and this difference is found significant too at 5% level. Amongst these HDFC Balanced fund is found to be the least risky and Reliance Regular Saving Fund, the most with their risks as 0.964% and 1.124% respectively. The overall risk stands at 1.034% with year 2008 as most volatile and year 2012 as comparatively smooth in terms of variability in returns. Coming over to the Equity Linked saving schemes, Part B of the same Exhibit projects all the Equity Linked Saving schemes to be riskier than the benchmark, though the difference is not found significant. HDFC Tax Saver and Birla Sun Life Tax Relief stand at the extremes with 1.292% and 1.393% risk respectively. The overall risk exhibited by ELSS comes out to be 0.078%. Year 2008 with 2.255% risk is the most vulnerable in terms of variability in returns and year 2012 seems to possess least risk, being at 0.818%. Part C of Exhibit 2 displays the risk position of Sectoral funds. 100% of the funds are found to be at higher risk than the market and the difference is found to be significant in case of 6 schemes EXHIBIT 2: RISK BASED RANKING OF SELECT SCHEMES (GROWTH OPTION) OF MUTUAL FUNDS ( ) * Correlation Coefficient between average weekly return (Table 4.1) and standard deviation (Table 4.2) for the corresponding duration. ** Significance at 0.05 level Out of 10. UTI Banking Sector Fund is found to be most risky throughout the study period where as Reliance Infrastructure Fund is the least at risk with 1.979% and 1.186% of risk respectively. The overall risk for this category of funds stands at 0.386%, varying between 2.548% (2008) and 1.034% (2010). The Exhibit reveals that 75%of the total schemes are riskier than the benchmark. A critical evaluation of the outcome contradicts the analogy of higher risk- higher return as all the Balanced schemes which are found to be less risky than the benchmark have earned a higher return comparatively (Exhibit 1, Part A). At 1.567% and 1.325% of risk respectively, the ELSS and Balanced 7 P a g e

8 funds have managed same return of 0.015%. The Exhibit also presents the year wise overall movement of returns (Exhibit 1) viz-a-viz risk of all the schemes. Year 2011 indicates no correlation at all between the two, whereas the year 2010 carries highest correlation (0.447) between risk and return of the funds. As all the values are small as and less than 0.5, it can be concluded that increase in risk does not provide the investor with enhanced returns. CORRELATION BETWEEN MUTUAL FUND S RETURN AND MARKET RETURN In the preceding two sub-sections the analysis of mutual funds has been made in terms of return and total risk. This section attempts to understand the relationship between return of mutual funds and the corresponding benchmark s return. Part A of Exhibit 3 provides us that, at the overall level, the return of balanced funds and market are positively correlated. The above phenomenon is also true when year-wise correlation is studied. The correlation coefficient is found the highest in the year 2011 (0.793) followed by 2009 (0.744). The size of correlation coefficient is above 0.7 in case of majority of the schemes. There is no such scheme whose return is negatively correlated with that of market return. UTI Balanced Fund has the highest degree of correlation (0.766) and Reliance Regular Saving Fund has lowest degree of correlation (0.721). Part B of the Exhibit again displays the same phenomenon for ELSS funds as above. All the schemes are seen to have a good going along with the market return with ICICI Prudential Tax Plan having the maximum correlation (0.756). The overall correlation value stands at Part C of the Exhibit presents correlation coefficients of returns of Sectoral scheme with that of the market. The values come out to be on the lower side as compared to the other two categories of schemes. The highest correlation is seen in the year 2008(0.739). ICICI Prudential Infrastructure Fund (0.748) and HDFC Core and Satellite Fund (0.746), in order, are the first and second ranked schemes for correlation with market return. Coming to the value of R2 it is observed that the all the schemes have opportunities to diversify to a large extent as the values of R2 are either lower or moderate in majority of the schemes. From the above it is concluded that EXHIBIT 3: CORRELATION BETWEEN RETURN OF SELECT SCHEMES AND MARKET RETURN ( ) 8 P a g e

9 as the return offered by market increases the return of sample schemes also rises. Balanced schemes and ELSS stand equal in terms of correlation between schemes return and market return. Sectoral schemes have a comparatively lower relationship in terms of providing return vis-a-vis market. SYSTEMATIC RISK ANALYSIS Systematic risk is measured in terms of beta which indicates the sensitivity of a scheme return in relation to market return. If a schemes beta is less than 1, it is considered to be defensive and if the schemes beta is more than 1 it is considered to be aggressive. Exhibit 4 presents the systematic risk (β) of balanced, ELSS and Sectoral schemes under study. To make the analysis easier, ranks are given to the various schemes based on the size of their beta values. Beginning with the Balanced Funds, it is found that the average value of beta stands at 0.60 for the complete study period. Reliance Regular Saving Fund exhibits maximum vulnerability to market return with beta value at 0.648, followed closely by UTI Balanced fund at HDFC balanced fund seems to be least affected with a beta value of The year wise variations move from 0.632(2008), moving down to 0.550(2011) then again rising to 0.608(2012). Checking for the ELSS funds in terms of sensitivity of returns in relation to market return, the beta values are seen to vary in the range of to for the overall study period. Birla Sun Life Tax Relief Fund has highest value of beta followed, in downside, by UTI Equity Tax Saving Plan and ICICI Prudential Tax Plan. The beta, at the overall level, has been noticed at None of the schemes has ensured consistency for beta values, as that has been fluctuating year on year basis. Coming down to the Sectoral funds, the beta value for majority of schemes is found to be around 0.90, for the overall study period. On the basis of size of beta, UTI Banking Sector Fund and Reliance Banking Fund stand at the top two positions. UTI Banking Sector Fund has been observed with highest variability in most of the years. Except for three schemes- Reliance Banking Fund, ICICI Banking and Financial Services Fund Retail and UTI Banking Sector Fund, all other schemes are found to have beta less than 1. The average beta value of ELSS varies between (2011) to (2012) over the study period. Thus, all the above schemes are found to be on the defensive side being sensitive to the market. Balanced schemes are found least sensitive to market return as compared to ELSS and Sectoral funds. 9 P a g e

10 EXHIBIT 4: RANKING OF SELECT SCHEMES BASED ON BETA VALUE ( ) RISK ADJUSTED PERFORMANCE MEASURE Sharpe Measure Sharpe index measures risk premium of a portfolio, relative to the total amount of risk in the portfolio. Sharpe index summarizes the risk and return of a portfolio in a single measure that categorizes the performance of Funds on the risk-adjusted basis. The larger the Sharpe Index, the better performs a portfolio over the market and vice versa. Exhibit 5 presents the Sharpe ratio for the sample schemes of mutual funds and the benchmark portfolio. Part A of the Exhibit clearly indicates that not even a single balanced scheme is found to provide risk premium to the investor. Rank wise analysis brings Reliance Regular Saving Fund on the top and Birla Sun Life 95 at the bottom of the list. Negative Sharpe ratio clearly indicates inability of the fund to provide for the extra risk assumed on behalf of the investor. Only one scheme -Reliance Regular EXHIBIT 5 : RANKING OF SELECT SCHEMES ON THE BASIS OF SHARPE RATIO( ) S.No. Name of Scheme SR p RANK SR M SR p-sr M T-Value Significance 1 HDFC Balanced Fund Balanced Reliance Regular Saving Fund (Part A) ICICI Prudential Balanced Birla Sun Life P a g e

11 5 UTI Balanced Fund HDFC Tax Saver Reliance Tax Saver ELSS Fund ELSS ICICI Prudential Tax Plan (Part B) Birla Sun Life Tax Relief Fund UT IEquity Tax Saving Plan HDFC Infrastructure Fund Reliance infrastructure Fund ICICI Prudential Infrastructure Fund Birla Sun Life InfrastructurePlan A UTI Infrastructure Fund Sectoral HDFC Core and Satellite (Part C) Fund Reliance Banking Fund ICICI Banking and Financial Services Fund Retail Birla Sun Life India Opportunity Fund UTI Banking Sector Fund Saving Fund has performed better as compared to the benchmark, though not significantly. Part B of Exhibit 5 indicates that none of the ELSS schemes have succeeded in compensating for the risk undertaken by them. ICICI Prudential Tax Plan has managed to be the least at loss, with Sharpe ratio as followed by Reliance Tax Saver ELSS Fund (-0.071). All the 5 ELSS funds have a better reward to variability ratio as compared to the market, but the difference is not found significant in any case, at 5% significant level. Part C of this Exhibit reveals that only one Sectoral scheme-uti Infrastructure Fund has succeeded in earning the risk premium. All other 9 Sectoral funds have not been able to manage extra returns for the extra risk assumed. Though 60% of the schemes performed better as compared to the benchmark, the difference is not found significant in any case. Thus, in terms of Sharpe measure, almost all schemes have underperformed and have not been able to provide the risk premium. At the overall level, all the ELSS funds have managed to be on the better side as that of the benchmark, followed by Sectoral (60%) and then Balanced Funds (20%). Treynor Measure Treynor ratio is another measure to evaluate risk adjusted returns. Exhibit 6 presents the results of Treynor ratio for all the sample schemes. Looking at Part A again for Balanced Funds, we find that all the schemes exhibit negative values indicating that these have not compensated for the risk assumed. Reliance Regular Saving Fund has a better Treynor ratio as compared to the rest 4 funds with UTI Balanced Fund standing at the bottom. All the Balanced schemes have outperformed the benchmark but the difference is not found significant for any of the schemes. 11 P a g e

12 Moving over to ELSS in Part B of Exhibit 6, we again observe the same scenario. Treynor ratio for all the schemes is negative, though 60% of these stand better than the market. However no significant evidence exists to support these statistics. ICICI Prudential Tax Plan ranks first whereas Birla Sun Life Tax Relief Fund ranks last in terms of Treynor ratio.part C here presents the Sectoral schemes Treynor measure. As in the above two categories, here again the values are negative and exhibit the same phenomenon. 40% of the schemes seem to perform better than the market but none of the difference is found to be statistically significant. Ranking wise analysis puts UTI Banking Sector Fund on the first place followed by Reliance Banking Fund and ICICI Banking and Financial Services Fund Retail. UTI Infrastructure Fund stands at the last position. Thus, in terms of Treynor measure, balanced funds have performed better, followed by ELSS and then sectoral funds. EXHIBIT 6 : RANKING OF SELECT SCHEMES ON THE BASIS OF TREYNOR RATIO ( ) S.No. Name of Scheme TR p RANK TR m TR p-tr m T-Value Significance 1 HDFC Balanced Fund Reliance Regular Saving 2 1 Fund Balanced 3 (Part A) ICICI Prudential Balanced Birla Sun Life UTI Balanced Fund HDFC Tax Saver Reliance Tax Saver ELSS 7 3 Fund ELSS 8 ICICI Prudential Tax Plan (Part B) Birla Sun Life Tax Relief 9 5 Fund UT IEquity Tax Saving Plan HDFC Infrastructure Fund Reliance infrastructure Fund ICICI Prudential Infrastructure Fund Birla Sun Life InfrastructurePlan A Sectoral UTI Infrastructure Fund (Part C) HDFC Core and Satellite 16 7 Fund Reliance Banking Fund ICICI Banking and Financial Services Fund Retail Birla Sun Life India Opportunity Fund UTI Banking Sector Fund * Significance at 0.05 level 12 P a g e

13 Best Mutual Fund Performer The overall performance of various mutual funds organizations / AMC under consideration of this study in terms of various measures is presented in Exhibit 8. Reliance Mutual Fund stands on the top position in terms of overall return as well as Sharpe ratio. But, the Treynor Index and alpha rank it at the second position. HDFC Mutual fund and ICICI Mutual Fund share second position in terms of overall return, and have highest correlation with the market return. In terms of Sharpe and Treynor index, ICICI exceeds HDFC slightly but negative value of Sharpe Index is indicative of the inability of the fund manager in diversifying the unsystematic risk. EXHIBIT 7 : FUND - WISE PERFORMANCE ANALYSIS Name of Fund Sample Size R p Std dev % % Beta R R 2 SRp TR p HDFC Mutual Fund Reliance Mutual Fund ICICI Mutual Fund Birla Sun Life Mutual Fund UTI Mutual Fund F-value Significance *significance at 0.05 level To compare the performance amongst the five Fund houses in terms of risk as well as return, one-way ANOVA was applied. As indicated in the Exhibit, the F-statistic show that though the funds differ in terms of providing return at different risks, there is no significant difference in the risk and return strata of the five fund houses under consideration. Thus the hypothesis that there is no significant difference in the performance of various Mutual funds is accepted due to lack of significant evidence supporting better performance of any one Fund house over others. CONCLUSION Through the study, an endeavour has been to analyse the performance of select 20 Mutual Fund schemes from five premiere fund houses. The performance of sample schemes has been evaluated by using (a) average weekly return and risk, (b) Sharpe s reward to variability ratio, and (c) Treynor s reward to volatility ratio. To test whether the difference between the performance of a fund and the market is significant, t-test at 5% level of significance has been used. The results portray that out of the total sample schemes, 12 have been able to provide better return than the market, and 5, all Balanced schemes, amongst these 12 are found to possess less risk, significant at 0.05%, than the benchmark. Only one scheme, out of the remaining 8, is found to have significantly lower returns as compared to the market. All the schemes are found to be in good harmony with the market in terms of trends in providing return as the correlation of market returns and fund returns have assumed a high positive value. But there is found enough room for diversification to earn better returns on the part of the fund managers as indicated by the lower values of R 2. Balanced schemes come out to be the best players for the study period as they have provided the investor with higher returns at low risk in comparison to ELSS and Sectoral schemes, though percentage returns have a small 13 P a g e

14 value. The results contradict the general belief that higher risk enhances the amount of return thus derived from an investment. EXHIBIT 8: SUMMARY OF SCHEMES OUTPERFORMING THE RELEVANT BENCHMARK No.of Performance Measures Category schemes Return Risk Sharpe Ratio Treynor Balanced 5 5(0) 5(5) 1(0) 5(0) ELSS 5 3(0) 0(0) 5(0) 3(0) Sectoral 10 4(0) 0(0) 6(0) 4(0) Total 20 12(0) 5(0) 12(0) 12(0) In terms of beta all the schemes remained on the defensive side. Balanced schemes are observed to be least sensitive to market returns, followed, on upside, by ELSS and Sectoral schemes. The risk adjusted performance as per Sharpe ratio depicts that the sample schemes have not succeeded in earning the risk premium. Though all ELSS and 50% of Sectoral schemes stand better than the benchmark, the difference between fund and benchmark Sharpe ratio is not found significant at 5 percent level but in one case. In terms of Treynor measure the results bring forth that none of the scheme has succeeded in providing reward against volatility to the investor. The Exhibit 8 presents the summarized statistics with respect to Scheme wise performance which indicates that the majority of sample schemes have outperformed their benchmark portfolios. However, no conclusive evidence is available which affirm us to accept this because only few schemes (figure shown in bracket) are found with significant difference at 0.05 levels. Thus, the study ends up lending support to various earlier studies based on performance evaluation of Indian Mutual Funds (Shah and Thomas (1994),Sarkar, Jaideep and Sudipa Mazoomdar (1994) Gupta & Sehgal (1998), Sondhi and Jain (2005) Soumya Guha Deb, Banerjee and Chakrabarti (2008), Jaiswal and Nigam (2010)) that the funds are not able to outperform the market significantly. Since this study is based on analysis of those five giants which capture a lion s share of the AUM, the results bring out a dire need on the part of the Fund houses for keeping the interest of the investor safe and consistent. APPENDIX I: LIST OF ASSET MANAGEMENT COMPANIES WITH RANKING OF AVERAGE AUM AS ON DECEMBER 2012 Average Assets under Management (AAUM) for the quarter of October - December 2012 (Rs in Lakhs) Average AUM Sr No Mutual Fund Name Excluding Fund of Funds - Domestic but including Fund of Funds - Overseas Ranking 1 Axis Mutual Fund Baroda Pioneer Mutual Fund Birla Sun Life Mutual Fund BNP Paribas Mutual Fund BOI AXA Mutual Fund CanaraRobeco Mutual Fund Daiwa Mutual Fund Deutsche Mutual Fund DSP Blackrock Mutual Fund P a g e

15 10 Edelweiss Mutual Fund Escorts Mutual Fund Franklin Templeton Mutual Fund Goldman Sachs Mutual Fund HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund IDBI Mutual Fund IDFC Mutual Fund IIFL Mutual Fund India bulls Mutual Fund ING Mutual Fund JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund L&T Mutual Fund LIC NOMURA Mutual Fund Mirae Asset Mutual Fund Morgan Stanley Mutual Fund MotilalOswal Mutual Fund Peerless Mutual Fund PineBridge Mutual Fund PPFAS Mutual Fund N/A 33 Pramerica Mutual Fund PRINCIPAL Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Religare Invesco Mutual Fund Sahara Mutual Fund SBI Mutual Fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund Union KBC Mutual Fund UTI Mutual Fund Grand Total SOURCE: AMFI, AVERAGEAUM-FUND WISE: OCTOBER-DECEMBER 2012 BIBLIOGRAPHY Chander, Ramesh (2002), Performance Appraisal Mutual Funds in India, Finance India, Vol. XIV, No. 4 (December). Chauhan, S. & Bodla, B.S.(2012), Performance of Equity Schemes of Mutual Funds in India: An Analysis Across Fund Characteristics, HSB Research Review, Jan-June Friend et. al, A Study of Mutual Funds U.S. Securities and Exchange Commission, USA, (1962). Friend, Irwin and Vickers, Douglas (1965), Portfolio Selection and Investment Performance, The Journal of Finance, Vol.XX, No.3, Sept, pp Guha, D., Banerjee, A., & Chakrabarti, B.(2008), Persistence in Performance of Indian Equity Mutual Funds: An Empirical Investigation, IIMB management review - Bangalore : IIMB, ZDB-ID Vol , 2, p P a g e

16 Gupta, O.P., and Sehgal S. (1998), Investment Performance of Mutual Funds: The Indian Experience, a paper presented at UTI-ICM Second Capital Market Conference. Henriksson, R. and R. Merton (1981), On market timing and investment performance II: statistical procedures for evaluating forecasting skills, Journal of Business, Vol. 54, No. 4, pp Ippolito, Richard A.(1989), Efficiency with Costly Information: A Study of Mutual Fund Performance, , The Quraterly Journal of Economics, Vol. CIV, February 1989, pp Jaiswal, B and Nigam,N (December 2010), Performance Measurement of Mutual Funds in India in the Post Liberalisation Era An Economic Review, International Journal of Research in Commerce and Management, Volume 1, No. 8, pp Jayadeve M (March,1996), Mutual Fund Performance: An Analysis of Monthly Returns, Finance India, Vol. X, No.1, pp Jensen Michael C, The Performance Of Mutual Funds In The Period , Journal of Finance, Vol. 23, (1968), pp Sarkar, Jaydeep and Sudipa, M. (1994) Performance Evaluation of Mutual Funds in India, NMIMS Management Review 6(11), p Shah Ajay, Thomas Susan, (1994), Performance Evaluation of Professional Portfolio Management in India, A Paper Prepared by CMIE, (10 April). Sharpe, William L., 1966, Mutual Fund Performance, Journal of Business, Vol.39 (2), pp Sondhi H J and Jain P K, Financial Management Of Private And Public Equity Mutual Funds In India: An Analysis Of Profitability, (July 2005), The ICFAI Journal of Applied Finance, (2005), pp Treynor, Jack L., How to Rate Management of Investment Funds, Harvard Business Review, 43, 1, January/February, 965, pp Treynor Jack L. and J. Mazuy (1966), Can Mutual Funds Outguess the Market? Harvard Business Review, Vol. 44, No. 4, pp Turan and Bodla (2000), Performance Appraisal of Mutual funds First Edition, Excel Books Publications. OTHER SOURCES SEBI: Handbook of Statistics on Indian Securuties Market 2012 RBI Annual Reports AMFI Quarterly Reports ( ) P a g e