Performance Analysis of Mutual Funds in India

By

Prof. P. Aranganathan
MBA, PhD

H.O.D. of Management Studies

Mr. M. Arun Kumar

MBA

Dept. of Management Studies

MIET Engineering College
Trichy - Tamil Nadu

ABSTRACT
In a growing country like India, capital market plays an important role to stabilize the Economic growth,
strengthen industrial performance, and provide various investment avenues to the investors to help the
various industries and to ensure the profitable return. Among various financial products, mutual fund
ensures the minimum risks and maximum return to the investors, its having own policies, terms
conditions that are different from other products, so the market volatilization will not make more effect in
return. According to the Global Asset Management 2006 Report from Boston Consulting Group, Indiamanaged assets will exceed more than $1 trillion by 2015. This means an annual growth rate of 21% for
the next nine years. The Indian mutual funds industry has been growing at a healthy pace of 16.68 per
cent for the past eight years and the trend will move further as has been emphasized by the report. With
the entrance of new fund houses and the introduction of new funds into the market, investors are now
being presented with a broad array of Mutual Fund choices. The total asset under management of Mutual
Fund industry rose by 9.45% from Rs.309953.04 crores to 339232.46 crores in November, 2006 as
published by AMFI. In 1987, its size was Rs.1,000 crores, which went up to Rs. 4,100 crores in 1991 and
subsequently touched a figure of Rs.72,000 crores in 1998. Since then this figure has been increasing
tremendously and thus revealing the efficiency of growth in the mutual fund industry. It has generally
been observed that as the GDP. Here the author discussed about performance measures of mutual funds.
INTRODUCTION
There are a lot of investment avenues available today in the financial market for an investor with an
investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low
risk but low return. He may invest in Stock of companies where the risk is high and the returns are also
proportionately high. The recent trends in the Stock Market have shown that an average retail investor
always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock
markets who would invest on their behalf. Thus we had wealth management services provided by many
institutions. However they proved too costly for a small investor. These investors have found a good
shelter with the mutual funds.
The Indian mutual funds industry is witnessing a rapid growth as a result of infrastructural development,
increase in personal financial assets, and rise in foreign participation. With the growing risk appetite, rising

income, and increasing awareness, mutual funds in India are becoming a preferred investment option
compared to other investment vehicles like Fixed Deposits (FDs) and postal savings that are considered
safe but give comparatively low returns, according to "Indian Mutual Fund Industry". 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. In this research paper the authors have
discussed the growth of mutual funds in India, latest trends, global scenarios and also analyzed top ten
prominent mutual funds schemes.
What is mutual fund?
A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to
pool their money together with a predetermined investment objective. The mutual fund will have a fund
manager who is responsible for investing the gathered money into specific securities (stocks or bonds).
When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on
investing becomes a shareholder or unit holder of the fund.
Mutual funds are considered as one of the best available investments as compare to others they are very
cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can
purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the
biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.
GROWTH OF MUTUAL FUNDS IN INDIA
The Indian Mutual Fund has passed through three phases. The first phase was between 1964 and 1987
and the only player was the Unit Trust of India, which had a total asset of Rs. 6,700 crores at the end of
1988. The second phase is between 1987 and 1993 during which period 8 Funds were established (6 by
banks and one each by LIC and GIC). The total assets under management had grown to 61,028 crores at
the end of 1994 and the number of schemes was 167.
The third phase began with the entry of private and foreign sectors in the Mutual Fund industry in 1993.
Kothari Pioneer Mutual Fund was the first Fund to be established by the private sector in association with a
foreign Fund.
As at the end of financial year 2000(31st march) 32 Funds were functioning with Rs. 1, 13,005 crores as
total assets under management. As on august end 2000, there were 33 Funds with 391 schemes and
assets under management with Rs 1, 02,849 crores.
The securities and Exchange Board of India (SEBI) came out with comprehensive regulation in 1993 which
defined the structure of Mutual Fund and Asset Management Companies for the first time. Several private
sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly
since then. Currently there are 34 Mutual Fund organizations in India managing 1,02,000 crores.
Major types of mutual funds
Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments
and investment strategies. At the fundamental level,there are three varieties of mutual funds:
1) Equity funds (stocks)
2) Fixed-income funds (bonds)
3) Money market funds

All mutual funds are variations of these three asset classes. For example, while equity funds that invest in
fast-growing companies are known as growth funds, equity funds that invest only in companies of the
same sector or region are known as specialty funds.
Let's go over the many different flavors of funds. We'll start with the safest and then work through to the
more risky.
Money Market Funds
The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to
park your money. You won't get great returns, but you won't have to worry about losing your principal. A
typical return is twice the amount you would earn in a regular checking/savings account and a little less
than the average certificate of deposit (CD).
Bond/Income Funds
Income funds are named appropriately: their purpose is to provide current income on a steady basis.
When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These
terms denote funds that invest primarily in government and corporate debt. While fund holdings may
appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors. As
such, the audience for these funds consists of conservative investors and retirees.
Bond funds are likely to pay higher returns than certificates of deposit and money market investments,
but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary
dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is
much more risky than a fund that invests in government securities. Furthermore, nearly all bond funds are
subject to interest rate risk, which means that if rates go up the value of the fund goes down.
Balanced Funds
The objective of these funds is to provide a balanced mixture of safety, income and capital appreciation.
The strategy of balanced funds is to invest in a combination of fixed income and equities. A typical
balanced fund might have a weighting of 60% equity and 40% fixed income. The weighting might also be
restricted to a specified maximum or minimum for each asset class.
A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a balanced
fund, but these kinds of funds typically do not have to hold a specified percentage of any asset class. The
portfolio manager is therefore given freedom to switch the ratio of asset classes as the economy moves
through the business cycle.
Equity Funds
Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment
objective of this class of funds is long-term capital growth with some income. There are, however, many
different types of equity funds because there are many different types of equities. A great way to
understand the universe of equity funds is to use a style box, an example of which is below.

Factors to be considered before invest in mutual funds:

1.
2.
3.
4.
5.
6.
7.
8.
9.

Market risk
Inflation rate
Credit risk
Interest rate risk
Stability of the political environment
The diversification in the portfolio
Returns in the NAV after risk adjustment
Size of the asset
Liquidity offered.

RESEARCH DESIGN OF THE STUDY

PERIOD OF STUDY
The growth oriented schemes, which have been floated by the selected funds during the period March
2011 to February2012, have been considered for the purpose of the study. Monthly Net Asset Value (NAV)
as declared by the relevant mutual funds from March 2011 of a particular scheme to February2012 has
been used for the purpose. Any missing value for the scheme and for the index series has been excluded
to equalise the two.
SELECTION OF FUNDS FOR PERFORMACE EVALUATION
Following funds have been selected to study the performance of mutual funds:

S.NO

Selected mutual funds

Reliance Gold Exchange Traded Fund - Dividend

SBI Gold Exchange Traded Scheme

UTI Gold Exchange Traded Fund

Quantum Gold Exchange Traded Fund - Growth

Kotak Gold ETF

Religare Gold Exchange Traded Fund

HDFC Gold Exchange Traded Fund

Axis Gold ETF

ICICI Prudential Gold Exchange Traded Fund

10

GS Gold BeES

SCHEME SELECTION
For the purpose of this study, only growth schemes of the funds selected for which NAV values are
available have been considered for studying the performance.
ANALYSIS OF MUTUAL FUNDS SCHEMES
Basis for Analysis
Net Asset Value (NAV) is the best parameter on which the performance of a mutual fund can be studied.
We have studied the performance of the NAV based on the compounded annual return of the Scheme in
terms of appreciation of NAV, dividend and bonus issues. WE have compared the Annual returns of various
schemes to get an idea about their relative standings.
VALUATION OF MUTUAL FUND
The net asset value of the Fund is the cumulative market value of the assets Fund net of its liabilities. In
other words, if the Fund is dissolved or liquidated, by selling off all the assets in the Fund, this is the
amount that the shareholders would collectively own. This gives rise to the concept of net asset value per
unit, which is the value, represented by the ownership of one unit in the Fund. It is calculated simply by
dividing the net asset value of the Fund by the number of units. However, most people refer loosely to the
NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the Fund. Once it is
calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The

detailed methodology for the calculation of the net asset value is given below.
The net asset value is the actual value of a unit on any business day. NAV is the barometer of the
performance of the scheme.
The net asset value is the market value of the assets of the scheme minus its liabilities and expenses. The
per unit NAV is the net asset value of the scheme divided by the number of the units outstanding on the
valuation date.
TABLE-1 Showing list of mutual fund schemes studied for the study

Rank

Scheme Name

Date

NAV (Rs.) Last 12

Months

Reliance Gold Exchange Traded Fund Dividend

Feb 13 , 2012

2620.37

36.18

SBI Gold Exchange Traded Scheme

Feb 13 , 2012

2743.9

36.17

UTI Gold Exchange Traded Fund

Feb 13 , 2012

2692.31

36.11

Quantum Gold Exchange Traded Fund Growth

Feb 13 , 2012

1339.03

36.09

Kotak Gold ETF

Feb 13 , 2012

2690.9

36.08

Religare Gold Exchange Traded Fund

Feb 13 , 2012

2766.17

36.05

HDFC Gold Exchange Traded Fund

Feb 13 , 2012

2745.87

35.78

Axis Gold ETF

Feb 13 , 2012

2743.81

35.49

ICICI Prudential Gold Exchange Traded

Fund

Feb 13 , 2012

2762.94

35.48

10

GS Gold BeES

Feb 13 , 2012

2680.38

35.46

Top 10

Funds - Period (Last 12 Months) NAV VALUE

Since the inception rate the NAV has been increased upto78.85rs in ICICI Prudential FMCG Growth because, ICICI is having 65% of online trading through icicidirecttrading.com, followed by Reliance
Gold Exchange Traded Fund - Dividend stands in 2nd rank comparing in last 12 months. But ICICI
Prudential Gold Exchange Traded Fund stands in last rank, because it only have increased small level from
inception point.
Calculation of risk and return
Risk and return has to be calculated and measured by company and concerned board to provide proper
instructions, guidelines about mutual funds schemes to investors to help them to avoid unnecessary risks.
Here the risk and return have been analyzed on leading mutual schemes with the help of statistical tools
such as mean, standard deviation, sharpie ratio, beta, and correlation.
RISK AND RETURN

Inception
Date

Scheme Name

Type

Nov 21, 2011

Reliance Gold
Exchange Traded
Fund - Dividend

Mean

SD

Sharpie
Ratio

BETA

Correlation

Open ended 0.44

2.71

0.12

1.06

1.10

May 18,2009

SBI Gold Exchange Open ended 0.49

Traded Scheme

2.12

0.19

1.02

0.87

April 10,2007

UTI Gold Exchange Open ended 0.45

2.72

0.13

1.06

1.11

Traded Fund

Feb 22,2008

Quantum Gold
Exchange Traded
Fund - Growth

Open ended 0.45

2.70

0.13

1.06

1.10

July 27,2007

Kotak Gold ETF

Open ended 0.47

2.70

0.14

1.06

1.09

March 12,
2010

Religare Gold
Exchange Traded
Fund

Open ended 0.59

2.21

0.22

1.01

0.91

Aug 13, 2010

HDFC Gold
Exchange Traded
Fund

Open ended 0.59

2.29

0.21

1.00

0.93

Nov 10,2010

Axis Gold ETF

Open ended 0.58

2.48

0.19

1.10

1.03

Aug 24, 2010

ICICI Prudential
Gold Exchange
Traded Fund

Open ended 0.56

2.33

0.20

1.00

0.95

Open ended 0.45

2.71

0.13

0.00

NA

March 8, 2007 GS Gold BeES

CALCULATION OF BETA

*here the SBI Magnum Sector Fundsscheme has been ranked as leading scheme because all the
measures shown a positive results, followed by HDFC balanced fund scheme, which plays 2nd leading with
a mean of 0.39. IDFC nifty fund scheme is in dangerous because all the measures show a negative result.

Calculation of portfolio:
Portfolio denotes collection of securities in where the mutual funds have been invested.
These also have to be analyzed to realize the actual value, market value of the scheme in
where the investors have invested. Here the portfolio attributes such P/B, P/E, market cap,
dividend yield on leading mutual schemes to provide right information, datum to the
investors. The Indian mutual funds industry is witnessing a rapid growth as a result of
infrastructural development, increase in personal financial assets, and rise in foreign
participation. With the growing risk appetite, rising income, and increasing awareness,
mutual funds in India are becoming a preferred investment option compared to other
investment vehicles like Fixed Deposits (FDs) and postal savings that are considered safe
but give comparatively low returns, according to "Indian Mutual Fund Industry".
PORT FOLIO ATTRIBUTES

TYPE OF SCHEME

P/E

P/B

DIVIDEND MARKET CAP Asset Allocation

YIELD
(Rs. in crores)

Reliance Gold Exchange Traded

Fund - Dividend

NA

NA

NA

NA

Cash & Cash

Equivalent

SBI Gold Exchange Traded Scheme NA

NA

NA

NA

Cash & Cash

Equivalent

UTI Gold Exchange Traded Fund

NA

NA

NA

NA

Cash & Cash

Equivalent

Quantum Gold Exchange Traded

Fund - Growth

NA

NA

NA

NA

Cash & Cash

Equivalent

Kotak Gold ETF

NA

NA

NA

NA

Cash & Cash

Equivalent

Religare Gold Exchange Traded

Fund

NA

NA

NA

NA

Cash & Cash

Equivalent

HDFC Gold Exchange Traded Fund

NA

NA

NA

NA

Cash & Cash

Equivalent

Axis Gold ETF

NA

NA

NA

NA

Cash & Cash

Equivalent

ICICI Prudential Gold Exchange

Traded Fund

NA

NA

NA

NA

Cash & Cash

Equivalent

GS Gold BeES

NA

NA

NA

NA

Cash & Cash

Equivalent

CALCULATION OF PORT FOLIO ATTRIBUTES

*here a overall market cap, dividend yield on leading schemes have been given. Again SBI
Magnum Sector Funds scheme shows highest 1.56 dividend yield, followed by HDFC
balanced fund, other schemes have not yet shown dividend yield. Those schemes are not
suggestible.
Conclusion:
Mutual funds offer a wide product range, convenience, tax-efficiency and other facilities to
successfully implement a financial plan, these influence lot of investors to invest in mutual
funds, also there is hectic competition has been arisen in the capital market. Different
scheme providers provide different facilities and follow innovative promotional techniques to
attract the new customers to sellout their products. Comparatively performance of mutual
fund scripts has to be analyzed properly. Companies, regulating bodies such BSE, NSE, UTI
have to arrange various tools, methods to analyze the performance of the mutual funds
which are in trade, and the right results, information to be transparent to all the investors
who hold the mutual funds units. Implementation of technological techniques in measuring
performance, risk and return, portfolio selections, units allotted process will provide
accurate results about the position of scheme in the market that will induce the investors to
invest on mutual fund schemes.
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www.mutualfundsindia.coms