A COMPARATIVE ANALYSIS OF HDFC EQUITY FUND AND SBI MAGNUM EQUITY FUND FOR THE PERIOD OF 2010 TO 2015 G. RAVI KUMAR Dr V. MURALI KRISHNA 1 Research Scholar, Bharathiar University, Coimbatore, Tamil Nadu, India 2 Assistant Professor, SITAMS, Chittoor, Andhra Pradesh, India ABSTRACT In India capital market endows with a variety of investment alternatives to the investors, to assist them to invest in different investment tools and to make certain the profitable return. Along with diverse range financial products, mutual fund ensures the maximum return and minimum risks to the investors. Development of various mutual fund schemes in the Indian capital market has proved to be one of the most catalytic investment avenue in generating significant investment growth.the Asset management companies are taking vigorous part in financial affluence and they promote investment practice among the investors at present there are 44 Asset Management Companies (AMCs) contain the mutual fund industry. In this context, close monitoring and performance evaluation of mutual funds has become more essential. This Mutual fund industry has witnessed magnificent growth in past few years. This study is aimed at evaluating performance of mutual funds. The main objective of this study isto evaluate financial performance of selected mutual fund schemes through the Fema s Measure. The findings of this study will helpful to investors for their investment decisions in future. Keywords: Capital Market, Financial Performance, AMC, Fema s. Introduction to Mutual fund: A Mutual fund is a pool of money that is managed on behalf of the investors, by a Professional fund manager. The manager uses the money to buy stocks, bonds and other securities according to specific investment objective that have been established for the fund. In return of the investment, the investors are given units for that fund. The investments range from shares to debentures to money market instruments. Each mutual fund with different type of schemes is managed by respective Asset Management Company (AMC). An investor can invest his money in one or more schemes depending upon his choice. The income earned by the investor and the capital appreciation realized by the scheme is shared by the unit holders in proportion to the number of units held by him. Thus mutual fund is a best investment option for a common investor as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively lower cost. Mutual Funds in India are governed by the SEBI (Mutual Fund) Regulations 1996 as amended from time to time. DEFINITION OF MUTUAL FUNDS PIERCE AND JAIMES.L: Mutual fund is non depository, non-blocking financial intermediary that acts as an improvement vehicle for bringing wealth holders and deficit units together directly. www.icmrr.org 32 icmrrjournal@gmail.com
WESTON.J.FRED AND BRINGHAM: Mutual fund is a corporation which accepts money from investors and uses the same to buy stocks, long-term and short-term debt instruments used by issuers. Mutual fund is a common pool of money in which investor place their contribution that are be invested in accordance with the stated objective. The fund belongs to all the investors depending on the proportion of his contribution to the fund. MUTUAL FUND OPERATION FLOW CHART EQUITY FUNDS Equity funds have the objective to provide capital appreciation over a long term. A major portion of their investments is in equities which provide potentially superior returns than other avenues of investment. Equity schemes offer potentially the best possible returns among all mutual fund schemes but carry the highest risk as well. The equity funds are high on the risk scale as the share prices are volatile. These funds try to reduce the risk by diversifying the investments in different types of shares. One of the greatest advantages of equity funds is instant diversification. Also, it is usually easier and less expensive to invest in equity funds than to buy each and every stock in a fund s portfolio. Equity funds are also cheaper they're a way to avoid the often higher transaction costs and lower liquidity associated with trading individual stocks. REVIEW OF LITERATURE Fama (1972) developed methods to distinguish observed return due to the ability to pick up the best securities at a given level of risk from that of predictions of price movements in the market. He introduced a multi-period model allowing evaluation on a period-by-period and on a cumulative basis. He branded that, return on a portfolio constitutes of return for security selection and return for bearing risk. His contributions combined the concepts from modern theories of portfolio selection and capital market equilibrium with more traditional concepts of good portfolio management. Barua and Varma (1991) evaluated the performance of master share (1987-1991) using CAPM approach from the view point of large investors, small investors and from fund management. The study had used ET Index as a proxy for market behavior. The risk adjusted performance is measured by using www.icmrr.org 33 icmrrjournal@gmail.com
Sharpe, Jensen and Trey nor measures. They used capital market line to study the risk return relationship of the fund from the prospective of large investors and security market line for small investors. The study concludes that the fund performed better than the market for small investors and fund management but the fund did not do well when compared to CML. Agrawal Deepak &Patidar Deepak (2009) studied the empirically testing on the basis of fund manager performance and analyzing data at the fund-manager and fund-investor levels. The study revealed that the performance is affected by the saving and investment habits of the people and at the second side the confidence and loyalty of the fund Manager and rewards- affects the performance of the MF industry in India. Mehta Sushilkumar (2010) analyze the performance of mutual fund schemes of SBI and UTI and found out that SBI schemes have performed better than the UTI in the year 2007-2008. NEED FOR THE STUDY This study is useful to the investors to taking decisions relating to investments in mutual funds. By comparing the SBI Magnum Equity Fund and HDFC Equity Fund with Fema s portfolio measure. SCOPE OF THE STUDY The study is limited to the analysis made for a Growth scheme offered by selected AMC s (HDFC Equity Fund Growth and SBI Magnum Equity Fund Growth). Calculated risk and return of growth funds usingfems s Measure. OBJECTIVES OF THE STUDY To know the average returns and risk of each selected equity funds. To compare HDFC Equity Fund to SBI Magnum Equity fund. To study the systematic risk (σ). To evaluate and compare the performance of growth funds (Fema s Measure) Research Methodology Research Design Analytical Research: It is type of research that utilize critical thinking to find out the fact about the given topic and from the answer obtained develop new and useful ways of doing things. Data Collection Secondary Data: Secondary data is the information obtained from the already existing ones where the data are collected for the various books of journals and books. The data about the company which is required for the analysis is the collection from internet websites in which the results are published. Tools used for Analysis 1. Standard Deviation 2. Fema s Measure www.icmrr.org 34 icmrrjournal@gmail.com
Risk Free Rate of Return Risk free rate of return is the rate of return we can earn from investing in a risk free asset. If an investor buys an asset at the beginning if the holding period with the known terminal value, such type if asset can be called as Risk free asset. Government Securities and national bank deposits fall under this study, we take interest rate earned in savings bank deposit of State Bank of India as the risk free rate of return. The rate of return offered by SBI on savings bank deposit is 4 per cent per annum. Average monthly risk free rate per annum is 4 per cent /12 = 0.33 per cent. This 0.33 per cent is considered as risk free rate (R F ) for the purpose of this study. Fema s Measure Eugune F Fema (1972) goes a step ahead he suggests a measure to find out performance in terms of excess returns over expected returns based on premium for total risk where as Jenson s Measures excess returns over expected returns based on premium for systematic risk.. In other words, excess returns are computed based on Capital Market Line (CML). Fema s suggests a framework of performance breakdown that distinguishes the part of an observed return that is due to the ability to pick best securities of a given level of risk (Selectively) from the part that is due to predictions of general market price movements (Timing). Here too, CAPM is used as a bench mark. The framework splits the overall performance, which is the difference between the return on the chosen portfolio and the risk-free return, into selectivity and risk. The measure of selectivity is further splits into net selectivity and compromise in diversification. Fema says portfolio performance can be judged by net superior returns due to selectivity. His performance measure denoted by F P is defined as follows. F P = ( R P - R F ) ( σ P /σ M ) [R M - R F ] Where F P = Fema s measure of portfolio R P = Portfolio return R F = Risk free return σ P = Standard deviation of portfolio return σ M = Standard deviation of market return R M = Market return A positive value of F P indicates that the fund earned returns higher than expected returns and lies above CML, and a negative value indicates tht the fund earned returns less than expected returns and lies below CML. www.icmrr.org 35 icmrrjournal@gmail.com
HDFC Growth Fund (G) Investment Objective To generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. Scheme details Fund Type Investment Plan Open-Ended Growth Launch date Sep 11, 2000 Benchmark Asset Size (Rscr) Minimum Investment 5000 S&P BSE SENSEX 1,194.42 (Mar-31-2015) Fema's Measure For HDFC Equity Fund for the period 2010-15 S. No Year R p R F R P - R F σ P σ M σ P /σ M R M R M - R F (R P - R F ) (σ P /σ M )* - R M - R F [(σ P /σ M )* (R M - R F )] 1 2014-15 2.39 0.333 2.0567 0.052 0.039 1.314 1.8339 1.5006 1.9714 0.0853 2013-2 14 1.38 0.333 1.0467 0.06 0.045 1.33 1.345 1.0117 1.3453-0.2986 2012-3 13 0.04 0.333-0.293 0.056 0.045 1.246 0.5242 0.1909 0.2378-0.5311 2011- - 4 12-0.6 0.333-0.923 0.067 0.067 1.003-1.202 1.5351-1.5397 0.6164 2010-5 11 1.88 0.333 1.5467 0.064 0.06 1.068 0.5805 0.2472 0.2641 1.2826 Source: www.amfiindia.com SBI Magnum Equity Fund (G) Investment Objective To provide the investor long-term capital appreciation by investing in high growth companies along with the liquidity of an open-ended scheme through investments primarily in equities and the balance in debt and money market instruments. www.icmrr.org 36 icmrrjournal@gmail.com
S. No Scheme details Fund Type Investment Plan Open-Ended Growth Launch date Jan 01, 1991 Benchmark Asset Size (Rscr) CNX NIFTY Minimum Investment 5000 1,214.96 (Mar-31-2015) Year R p R F R P - R F σ P σ M σ P /σ M R M R M - R F (R P - R F ) (σ P /σ M )* - R M - R F [(σ P /σ M )* (R M - R F )] 1 2014-15 2.4 0.3333 2.0667 0.0386 0.0392 0.9847 1.8339 1.5006 1.4776 0.5891 2 2013-14 0.97 0.3333 0.6367 0.0442 0.0452 0.9779 1.345 1.0117 0.9894-0.3527 3 2012-13 0.64 0.3333 0.3067 0.0425 0.0448 0.9487 0.5242 0.1909 0.1811 0.1256 4 2011-12 -0.47 0.3333-0.8033 0.0554 0.0666 0.8318-1.2018-1.5351-1.277 0.4737 5 2010-11 0.19 0.3333-0.1433 0.0458 0.0602 0.7608 0.5805 0.2472 0.1881-0.3314 Source: www.amfiindia.com Comparative Analysis of HDFC Equity Fund and SBI Magnum Equity Fund by using Fema s Measure Year HDFC Equity Fund SBI Magnum Equity Fund 2014-15 0.0853 0.5891 2013-14 -0.2986-0.3527 2012-13 -0.5311 0.1256 2011-12 0.6164 0.4737 2010-11 1.2826-0.3314 www.icmrr.org 37 icmrrjournal@gmail.com
Interpretation From the graph it is clear that in the year 2010-11 HDFC performance is good when compare to SBI i.e., (-0.3314 to 1.2826) but in the year 2014-15 it is reverse ( 0.5891 to 0.0853) that SBI Magnum Equity Fund return is better than HDFC. Findings 1. The Fema s measure shows the positive values for the current year (2014-15), i.e., HDFC equity fund 0.0853 and SBI magnum equity fund 0.5891. 2. The funds are shown negative results in the year 2013-14. 3. The highest growth of 1.2826 for HDFC equity fund in the year 2010-11. 4. In the study period of 2010-11 to 2014-15 the HDFC Equity Fund were giving satisfactory results when compare to SBI Magnum Equity Fund. Suggestions It is suggested that the funds were volatile in returns in the security market. The investors should watch market regularly for getting the otimumum returns in the above funds. Conclusion According to Fema s the most positive return was acceptable by the investor to invest their amount in the funds. Based on the present analysis I conclude that SBI magnum equity fund performing well. But the overall performance indicating that HDFC equity fund is the better one. References 1. Bhalla, V.K. Security analysis and portfolio management pp 141; 149 2. Chander, Ramesh (Dec.2002). Performance Appraisal of Mutual Funds in India, Vol. XIV, No. 4,Financial Express. 3. Fisher, Donald E., Jorden, Ronald J., (1995). Security Analysis and Portfolio Management, Prentice Hall of India Pvt. Ltd., New Delhi. 4. Nimalathan, B., R. Kumar Gandhi; Mutual fund financial performance analysis, excel international journal of multi-disciplinary management studies, vol. 2 pp 91, 96. www.icmrr.org 38 icmrrjournal@gmail.com
5. Pandey I.M., (2004). Financial Management, Vikas Publishing Houses Pvt. Ltd., New Delhi. 6. Roshni Jayam, Debt Be Not Proud, Equity s back, Business Today, (April 2002) pp. 42-45. 7. Sathya swaroop debasish; Investigating performance of equity based mutual fund schemes in Indian scenario. pp.2,3 8. www.nseindia.com 9. www.valueresearchonline.com 10. www.amfiindia.com 11. www.moneycontrol.com 12. www.sbi.co.in Factsheets: 1. HDFC Fund Factsheet 2. SBI Magnum Fund factsheet www.icmrr.org 39 icmrrjournal@gmail.com