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This document discusses evaluating the performance of Indian mutual funds. It outlines objectives to compare fund returns to a benchmark index, the BSE Sensex, and analyze risk-adjusted returns. Thirteen mutual fund schemes from Birla, ICICI, and HDFC were selected for analysis using weekly net asset values from 2010-2011. Standard deviation, beta, Sharpe ratio, and relative performance index are identified as measures to evaluate the funds and determine if returns were from market movement or individual performance.
Problem111111111
- 1. PROBLEM “Performance Evaluation of Indian Mutual Funds” INTRODUCTION The concept of ‘Mutual Funds’ is to make different investment avenues available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. Open-end funds A type of mutual fund that does not have restrictions on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-end funds also buy back shares when investors wish to sell. Most open-end Mutual funds stand ready to buy back (redeem) its shares at their current net asset value, which depends on the total market value of the fund's investment portfolio at the time of redemption. Most open-end Mutual funds continuously offer new shares to investors. Growth funds Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. They focus on those companies, which are experiencing significant earnings or revenue growth, rather than companies that pay out dividends. Growth funds tend to look for the fastest-growing companies in the market. 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. OBJECTIVES To know the mutual funds performance levels in the present market Compare fund returns with the returns of benchmark index, BSE (Bombay Stock Exchange) Sensex Capturing differences in the performance levels, if any. Risk-related parameters: as indicated by the Standard Deviation (SD) and risk- adjusted returns as calculated by the Sharpe Ratio (SR). Ascertaining whether the returns generated by the funds are purely attributable to market movement or individual fund performance.
- 2. THE LIST OF FUNDS SELECTED FOR THE STUDY IS: Birla Sun Life India Opportunities Fund - Growth Birla Sun Life Advantage Fund-Growth Birla Sun Life Equity Fund-Growth Birla Sun Life Midcap Fund-Growth Birla Sun Life Buy India Fund-Growth ICICI Prudential Power Plan-Growth ICICI Prudential Tax Plan-Growth ICICI Prudential Index Fund ICICI Prudential Growth Plan-Growth HDFC Equity Fund-Growth HDFC Long Term Advantage Fund-Growth HDFC Growth Fund-Growth HDFC Top 200 Fund- Growth SAMPLING On the basis of the highest AUM (assets under management) 13 mutual funds schemes are selected of three funds: Birla, ICICI, and HDFC. All the funds are selected by simple random sampling. SAMPLE SIZE Sample size is of 13 mutual fund scheme of three mutual funds. All the funds selected for the study are open-ended equity funds under the growth option. The Net Asset Values (NAV) for all these funds are from 2010 to 2011, which is the period of this study. DATA SOURCES I have to depend on secondary data sources for the collection of data for my study. Internet is one of the major sources for the collection of data and other source are might be Annual publications, Books, Fact sheets of mutual funds, Newspaper & Magazines etc. DATA COLLECTION The weekly NAV’s and the Sensex closing is to be collected over a period of 1 year (2010- 2011).
- 3. BENCHMARKING Since, all these are equity funds, the BSE Sensex (Bombay Stock Exchange Sensitive Index); which is the oldest, most widely and commonly used benchmark index in India; has been considered as the benchmark index. To compare the funds with a market index the BSE Sensex was selected for the only reason that it is India’s most widely and commonly used Benchmark index. POINTERS TO MEASURE MUTUAL FUND PERFORMANCE MEASURES DESCRIPTION IDEAL RANGE STANDARD Standard Deviation allows to evaluate the Should be near to its mean DEVIATION volatility of the fund. The standard deviation of return. a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return. BETA Beta is a fairly commonly used measure of risk. Beta > 1 = high risky It basically indicates the level of volatility Beta = 1 = Avg. associated with the fund as compared to the Beta <1 = Low Risky benchmark. SHARPE RATIO The Sharpe ratio is a risk-adjusted measure of return that is often used to evaluate the The higher the Sharpe ratio, performance of a portfolio. The ratio helps to the better a fund’s returns make the performance of one portfolio relative to the amount of comparable to that of another portfolio by risk taken. making an adjustment for risk. RELATIVE Under-performers (X<=0.7), This is calculated to show how each fund has PERFORMANCE Par-performers performed in relation to the market. Here, the INDEX: (0.8<=X<=1.1) and market index is the BSE Sensex Index Over-performers (X>=1.2)