Dr. Chetna Parmar Associate Professor R.K. University Rajkot, Gujarat (India)

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1 Volume-3, Issue-01, January 2016 ISSN: (Online) RESEARCH HUB International Multidisciplinary Research Journal (RHIMRJ) Research Paper Available online at: A Comparative Performance Evaluation of P/E Ratio: Selected Equity Schemes of Mutual Fund Dr. Chetna Parmar Associate Professor R.K. University Rajkot, Gujarat (India) Abstract: Mutual fund is one the financial instrument in capital market. Mutual fund means collection of money from a large group of investors, pools it together, and invests it in various securities. Portfolio selection means right combination and proportion of the stocks of different types. A study highlights total investment in mutual fund with capital market, as mutual fund more famous for systematic investment plan via lump sum investment on funds. Performance of mutual funds depends on the capital market return or bench mark return as how much investment in different sectors. Here researcher selected five start rated mutual fund schemes from selected Assets Management Company. The scheme objectives were indicated how market price affect risk and return on funds. Performance evaluation included sample of 34 equity diversified schemes, period of the study was five years from 2005 to 2009 data collection was secondary type and collected on the magazine Mutual Fund Insight, other websites respective fund house. This study is done by applying performance evaluation through analysis of variance. This study also guideline the investor by protecting against risk, selection, construct of portfolio and diversified portfolio. Keywords: Efficient market, portfolio management, systematic risk, mutual funds, bench mark return, portfolio selection, Price Earnings Ratio. I. INTRODUCTION Financial planning is very important for investment decision. Investors design the goal of income after the retired age and need money for the particular occasions like marriage and education. A mutual fund is a trust that pools the savings of a number of investors who shares a common financial goal. The investor expectation is maximum return with minimum risk. Investors received the income from two ways, first in the side of capital appreciation and second in the side of dividend. Assets Management Company having good research teams those having knowledge of financial market and fundamentals analysis of industry & company. Mutual fund provided the benefits like professional management, diversification, convenient administration, return potential, low costs, liquidity, transparency, flexibility, and choice of schemes, tax benefits, well regulated. II. ROLE OF EQUITY DIVERSIFIED SCHEMES Mutual fund having the number of investment option which is based on the objectives of the particular scheme and fund manager investment style and strategy. Fund manager decided about the sector of investment and no of time he change the proportion of investment one company to another company as per the research and performance of the company as well as industry. Equity diversified included sector like growth, balance, income, index, infrastructure, fast moving consumer goods.etc. design the portfolio. Current scenario of mutual fund scheme launched only one sector like information technology, pharmaceutical, automobile, infrastructure III. REVIEW OF LITERATURE Investment Monitors, The complete Magazine for Indian Investors, volume VIII issue 12 under the analysis of technical and mutual funds scheme cost and data of last three years performance of risk and return. The magazine shows the technical analysis and how much investor paid for transaction cost and tax. Money Today, make you richer your financial diet, The Indian Today Group, RNI no. deleng/ 2006 / 18800, Indian GDP growing, how it s affected the number of the investment opportunities in the capital market. Journal of Financial Management and Analysis Volume 20 No; 1, US congress library card No; , the financial analyses based on how to used different types of ratio. (Financial Decision Making): The fund having own features of investment on equity, debt and money market Mutual Fund. 2016, RHIMRJ, All Rights Reserved Page 1 of 6 ISSN: (Online)

2 E.J. Elton and M.J. Gurber (1996) have tried to prove that past performance is predictive of future risk adjusted performance and form a combination of actively managed portfolios with the same risk as a portfolio of index fund but higher mean return. The research paper weight on portfolio index return means market return and could fund provided same return. IV. RESEARCH METHODOLOGY Research methodology follow the steps were as below. V. SCOPE OF THE STUDY The scope of the study is identified after and during the study is conducted. The study of performance evaluation of mutual fund is based on price to earnings ratio, which indicated that how much variation in market price of units to actual earnings. VI. OBJECTIVES OF THE STUDY The present study conducted with a view to achieve the following specific objectives: 1. A study the impact on performance on equity diversified schemes having same marker price. 2. To suggest, how to minimize risk with selection of schemes with analysis of fund return form price earnings ratio suggestion to sale units. 3. To achieve high return while taking high risk. VII. HYPOTHESES H 01 : There is no significance difference on price to earnings per share rank of selected equity diversified H 02 : There is significance difference on price to earnings per share of selected equity diversified schemes of mutual fund. VIII. DATA COLLECTION The present study is of analytical nature and accordingly, the use is made secondary data collected from magazine Mutual Fund Insight and other information collected from business news paper, websites and magazines. IX. PERIOD OF THE STUDY The duration of time which we have selected for the comparison between nineteen equity diversified schemes is from 2005 to 2009 X. STATISTICAL TOOL FOR ANALYSIS The price-to-earnings (P/E) ratio is a estimation method used to value common stocks. The ratio is calculated as the price per share divided by the earnings per share. Either the estimated earnings for the next four quarters (forward P/E ratio), or the actual earnings for the previous four quarters (trailing P/E ratio), can be used in the denominator. The forward P/E ratio is generally considered a better predictor of future performance because it is based on what the market believes the earnings will be. A mutual fund P/E Ratio is a combination of the P/E ratios of all the stocks held in a particular mutual fund, for example Reliance Assets Management Company. This can be calculated as a simple average with the P/E Ratio of each stock weighted equally, or each position weighted by the size relative to the total fund's assets. 1. Sources of P/E Ratios: Most mutual funds have a fact sheet or similar document on their website that lists the basic facts for that fund, including amount of assets, list of positions, and trading symbol. This data sometimes include the P/E ratio for the fund. Investors can also go to recognized statistical services like Morningstar or Yahoo to find P/E information. 2016, RHIMRJ, All Rights Reserved Page 2 of 6 ISSN: (Online)

3 2. High P/E Ratio Funds Investors should understand the implications of the level of the price-to-earnings ratio for a particular mutual fund. Funds that have a high P/E ratio are typically composed of stocks that have higher growth in earnings and sales, which is rewarded by the market with high multiples of price relative to earnings. 3. Low P/E Ratio Funds Funds with a low P/E ratio are composed of stocks that have low growth expectations by investors. This may be due to the stock belonging to an industry that is in the trough of a business cycle, or may be related to company specific growth problems. Stocks with low P/E ratios are known as value stocks. XI. SAMPLES SIZE Researcher study on nineteen schemes of mutual fund having different objectives but investment pattern were equal. Fund manager of all the schemes have some objective and scope of investment in capital market. So that chance to generate return might be same like schemes having same type of option for investment which called as equity diversified schemes. NAV: NAV means the market value of the assets minus the liabilities on the day of valuation. In the other words, it is the amount which the shareholder will collectively get if the fund is dissolved or liquidated. PRICE EARNINGS RATIO BIRLA SUNLIFE MIDCAP DSPML TIGER FRANKLIN INDIA PRIMA HDFC EQUITY HDFC TOP PRUDENTIAL GROWTH KOTAK OPPORTUNITIES MAGNUM CONTRA MAGNUM GLOBAL RELIANCE GROWTH RELIANCE VISION SUNDARAM SELECT MIDCAP TATA PURE EQUITY UTI MASTER VALUE HDFC TAX SAVER MAGNUM TAXGAIN PRINCIPAL PERSONAL TAX SAVER SAHARA TAXGAIN SUNDARAM BNP PARIBAS TAXSAVER The above table symbolize for average value of price earnings ratio, analysis of equity diversified schemes of mutual fund, here the researcher took other tool for analysis of the scheme performance and evolution of the schemes with help of market price of unit. Price earnings ratio means unit value of the schemes divided by the market value of unit. Fund manger calculate price earnings ratio with the entire scheme under particular assets management company and earning of assets management need to consider while evaluation of price earnings ratio. Schemes evaluation based on Price Earnings Ratio that need to consider the Net Asset value of the fund, with entire scheme of Asset Management Company. So Equity Diversified Fund play significance role due to high fluctuation of Net Asset Value and that affects entire funds under Asset Management Company. XII. ANALYSIS OF VARIANCE F-tests arise by considering a decomposition of the variability in a collection of data in terms of sums of squares. The table shows value of ANOVA with single factor classification. The first column represents the number of years to study the equity diversified schemes of mutual fund. The next column represents the number of observation and number of schemes under the study. The third column represents the sum of square of the schemes under that significance difference on average value with average of the average. Fourth column represents the average value of the particular years, highest value mentioned on 2007, Sensex Cross Fifth column represents data regarding the variance of nineteen schemes with each of year indicates highest variation of the nineteen schemes. 2016, RHIMRJ, All Rights Reserved Page 3 of 6 ISSN: (Online)

4 Variance shows the high risk on scheme as well as particular year shows low value of variance that was 6.60, and 2007 average value of equity diversified scheme were very high, while variance value were Source of Sum of Degree of Variation Square Freedom Mean of Square F - Test F critical Between Groups Within Groups Total The above shows that the mean of square. Within groups were , between groups were F Test value received while 0.5 % significance table value is 2.472, the hypothesis is rejected. ANOVA ANALYSIS OF EQUITY DIVERSIFIED SCHEMES GROUPS OBSERVATION SUM AVERAGE VARIANCE XIII. ANALYSIS OF PRICE EARNINGS RATIO ON SELECTED BALANCE FUND, INCOME FUND, INDEX FUND.ANALYSIS OF VARIANCE SCHEMES NAMES BIRLA SUN LIFE HDFC BALANCE HDFC PRUDENCE MAGNUM BALANCED PRINCIPAL CHILD BENEFIT UTI CRT"S UTI MAHILA UNIT SCHEMES BIRLA SUN LIFE INDEX MAGNUM INDEX TATA INDEX SENSEX A UTI SUNDER FRANKLIN INFOTECH MAGNUM PHARMA MAGNUM FMCG PRUDENTIAL ICICI FMCG A mutual fund P/E Ratio is a combination of the P/E ratios of all the stocks held in a particular mutual fund, for example Reliance Assets Management Company. This can be calculated as a simple average with the P/E Ratio of each stock weighted equally, or each position weighted by the size relative to the total fund's assets. The Price Earnings Ratio indicates per unit earnings on the fund. Price Earnings Ratio is point out growth on earnings. Franklin Info Tech Fund was outstanding performance \Magnum Pharma Fund and Prudential ICICI FMCG were well performing Price Earnings Ratio , Prudential ICICI FMCG was well performed reached to Franklin Info Tech Fund and Magnum FMCG Fund well performed Prudential ICICI FMCG and Magnum FMCG were well performed Fund indicates highest Price Earnings Ratio compared to any other years, 2007 Sense cross 21000, so market value of the units was very high Prudential ICICI FMCG was outstanding performance Magnum FMCG was well performed. ANOVA GROUPS SCHEMES SUM AVERAGE VARIANCE , RHIMRJ, All Rights Reserved Page 4 of 6 ISSN: (Online)

5 F-tests arise by considering a decomposition of the variability in a collection of data in terms of sums of squares. Table reflects single factor analysis of variance, first column represents number of year of the study, and observation means samples, here the samples having 15th schemes of Mutual Fund. Group shows the number of years of the study, 2005 to Observation shows the number of the schemes. Average of the sample on 2005 was 22.47, 2006 average value was , 2007 average value was , 2008 average value was , 2009 average value was SOURCE OF VARIATION SUM OF SQUARE ANOVA DEGREE OF FREEDOM MEAN OF SQAURE F- TEST F CRIT Between Groups Within Groups Total The ANOVA calculated were made on the base of variance within the samples and variance between samples. Between the samples variance counted as the number of years performance of Price to Book Ratio. Sum of Square of Samples , Within Sample square was Within Samples Mean of Square were , Between Sample Mean of Square F Test value received 6.300; Critical value at 5% significance level is Hypothesis is rejected. There is significance difference on Pricing Earnings Ratio of selected balance, Income and Index Fund. XIV. FINDING, SUGGESTION 1. It s important to understand that each mutual fund has different risks and rewards. In general, the high potential returns, the higher the risk of loss. If you are risk adverse investor you make investment in Gilt and Money Market/ Liquid funds, which shows low risk, compare to other schemes operating in the market. It you are risk taker goes for Equity Diversified Fund for higher return. 2. Most of the schemes have shown have negative alpha values, it indicates that the fund managers of the mutual funds are fail to forecast future security prices in time, which result in poor performance of these schemes. So the mutual fund industry should develop their research wing to forecast the market movement. Which help them to maintain efficient portfolio management? 3. Reward to variability ratio is an excess return earned over the risk free return per unit of risk involved i.e. per unit of standard deviation. Standard deviation present due to fluctuation of unit price, 2007 and 2008 was comparative more fluctuation due to world recession and financial crises. XV. SUGGESTIONS 1. Ideal logic that high risk, high return, but here 2008 high risk and negative return. 2. Capital market behavior and political risk highly affect the fund return. 3. Fund manager should not follow the objective which mention on schemes. 4. Investor financial objective should be equal to the scheme objective. 5. Sample size was very small, large sample may change the result. XVI. CONCLUSION The study conducted shows the NAV and expected return were less in 2008 into the all the selected schemes because of global crisis. While into the year 2009 the market was boom so all the selected schemes were also perform well in That year was beneficial for the investors because in that year all most all the investors cover their loose of the year 2008 in the year 2009.Recent the mutual fund started trading on line same like equity trading on stock exchange. Investment decision not just affects return but also average return. REFERENCES NAV 2009 Mutual Fund, Insignt, volume V, number 2, value research in this journal sanjeev pandiya has evaluate the market and needs of mutual funds. 2016, RHIMRJ, All Rights Reserved Page 5 of 6 ISSN: (Online)

6 9. Nucleus Investment, 15 September to 15 October 2008, Volume 1, publication by Asit Mehta investment Intermediates Ltd, the agency providing the facility for investor for mutual fund investment. 10. Invest Know how Sept 2007, Publications from Punjab National Bank in association with Vijay Bank, Issuing by principal Assets Management Company. 11. Portfolio Statement Sept 2009, Fund Manager speaks, Tata Mutual Fund under Tata Assets Management Company. 12. Fundamentals, October 2009 Reliance Mutual Fund, Reliance Capital Assets Management Ltd. Annual Report for the AMC of Reliance Mutual Funds. 13. Applied Finance, Sept 2008 Volume 13 No: 9. The Institute of Chartered Financial Analysts of India, University Press ICFAI, how to maximum take the benefit for fluctuation of the capital market. 14. Journal Capital Market October 22, No: , Volume XX11/17 issuing by capital market publishers India Pvt. Ltd, What is the future situation for the capital market and how much fund will come to the mutual fund industry. 15. David M Levine, Timothy C. Krehbiel, Mark L Berenson, Business Statistic New Delhi: Pearson Publication 16. V.K. Bhalla, Investment Management ninth Edition. APPENDICES (How to analysis of schemes) Here below One Scheme Analysis of Price Earnings Ratio: Last five years same things calculated for all the schemes Analysis of the Price Earnings Ratio SUNDARAM BNP PARIBAS TAXSAVER P/E RATIO Month/Year January February March April May June July August September October November December The table shows Price Earnings Ratio with considering market value of the unit with fluctuation on market price average value was , 2006 average value was , 2007 average value was , 2008 average value was , 2009 average value was , RHIMRJ, All Rights Reserved Page 6 of 6 ISSN: (Online)