ACTIVE VS PASSIVE MANAGEMENT OF MUTUAL FUNDS EQUITY SCHEMES

Presented By Harminder Singh MBA IV A Roll No 2017

MUTUAL FUND

TYPES OF MUTUAL FUNDS

OPEN ENDED MUTUAL FUNDS

CLOSE ENDED MUTUAL FUNDS

ACTIVE MANAGEMENT
Active management means holding the

securities on the basis of the forecast about the

future. The portfolio managers varies their cash

position or beta value of the portfolio based on

the market forecast.

PASSIVE MANAGEMENT
It is a process of holding a well diversified
portfolio for long term with the buy and hold

approach. Passive management refers to the

investors attempt to construct a portfolio that resembles the overall market return.

REVIEWS

Shankar

2007

Active Versus Passive Index Management: A Performance Comparison of the S&P and the Russell Indexes

Rampotis

2009

Active vs. Passive Management: New Evidence from Exchange Traded Funds

Fallon

2009

Active Management vs. Passive Management in the Colombian Private Pension Open Mutual Fund Industry

NEED, SCOPE AND OBJECTIVE

OBJECTIVES
To know the return provided by growth and index schemes. To know the risks of growth and index schemes. To know the excess return provided by growth and index schemes.

RESEACH METHODOLOGY

 Research type Descriptive and Conclusion Oriented Data Collection sources secondary Tools of Data Analysis SHARPE MODEL TREYNOR MODEL JENSON MODEL

SHARPE MODEL
In this model, performance of a fund is evaluated
on the basis of ratio of return generated by the fund over and above risk free rate of return. It takes into consideration the total risk associated with the fund.

FORMULA OF SHARPE MODEL

Sharpe Index = (Ri Rf)/Si

TREYNORS MODEL
In this model, performance of a fund is evaluated
on the basis of ratio of returns generated by the fund over and above risk free rate of return during a given period. It takes into consideration the systematic risk associated with the fund.

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FORMULA OF TREYNORS MODEL

Treynors Index = (Ri Rf)/Bi

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JENSONS MODEL
This measure involves evaluation of the fund on
the basis of return generated vs. the returns actually expected out of the fund at the given level of its systematic risk. The surplus between the two returns is used to measure the performance of a fund which is compared with the actual returns over the period.

FORMULA OF JENSON MODEL

Jensons Index = Rf +Bi(Rm Rf)

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FINDINGS OF THE STUDY

GROWTH FUNDS
Parameters Templeton India Annualised Return Sharpes Ratio 2.49 1.85 3.77 0.25 1.69 20.6 Reliance India 16.1 26.5 9.1 16.4 HDFC Sahara LIC

Treynor's Ratio
Jensons Ratio

11.55

8.1

16.97

0.97

8.23
16.56

21.74

16.1

28.17

9.24

INDEX FUNDS
Parameters Tata Birla Sun life Annualised Return Sharpes Ratio Treynor's Ratio Jensons Ratio 1.40 9.55 15.56 2.36 9.67 16.18 1.82 10.10 16.55 1.59 10.33 16.18 1.10 7.89 13.70 16.5 16.9 SBI Magnum 17.3 17.2 Franklin UTI Master 14.71

RECOMMENDATION

Keeping in mind the Indian investors who are basically risk averse it is safer for them to invest in growth funds as the return generated by growth funds is much

healthier than the index funds. So, it is clearly evident

that active funds outperforms passive funds, hence investment in active funds seems to be more suitable than investment in passive funds.

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QUERIES

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