COMPREHENSIVE Project Report

On
‘A study on Performance evaluation of Mutual Fund’
At
<Name of Company / Organization> (If applicable)

Submitted to
Institute Code: 755
Institute Name: Sardar Patel college of administration and management
Under the Guidance of
Name of Faculty
Dr. Amit Raninga
In partial Fulfillment of the Requirement of the award of the degree of
Master of Business Administration (MBA)
Offered By
Gujarat Technological University
Ahmedabad
Prepared by:
Anjali Parmar Harijan Nikita
(187550592073) (187550592033)
MBA (Semester - IV)

Month & Year:

April 2019
 Introduction:-
ABOUT THE INDUSTRY

Financial Institutions comprises following services.

Definition

Mutual funds are investment companies that pool money from investors at
large and offer to sell and buy back its shares on a continuous basis and use
the capital thus raised to invest in securities of different companies. The
stocks these mutual funds have are very fluid and are used for buying or
redeeming and/or selling shares at a net asset value. Mutual funds posses
shares of several companies and receive dividends in lieu of them and the
earnings are distributed among the share holders.

Mutual funds are conceived as institutions for providing small investors with
avenues of investments in the capital market. .Since small investors generally
do not have adequate time, knowledge, experience and resources for directly
accessing the capital market, they have to rely on an intermediary, which
 undertakes informed investment decisions and provides consequential
benefits of professional expertise.

Below cycle shows the process of investing in Mutual Fund

 Investors pull their money with Fund Manager


 Fund Manager invest in different securities

 Securities generate Returns

 Returns are passed back to investors.


The mutual fund industry has been in India for a long time. This came into
existence in 1963 with the establishment of Unit Trust of India, a joint effort by
the Government of India and the Reserve Bank of India. The next two
decades from 1986 to 1993 can be termed as the period of public sector funds
with entry of new public sector players into the mutual fund industry namely,
Life Insurance Corporation of India and General Insurance Corporation of
India.
 PROBLEM STATEMENT AND IMPORTANCE OF THE STUDY

There are so many investment avenues. So that investors does not know
which avenues provides best return. As per the financial rule of “Do not put all
the eggs in one basket” investor’s portfolio are most diversified. So that risk
should be minimized. If the person do not have knowledge of how to get
maximum return with minimum risk or vice-versa then they should be invest in
mutual fund. There are so many funds and schemes are available in mutual
fund market. Investors know that how much risk they can take. Based on that
they have to choose schemes. Problem is that chosen scheme provides the
best return as compare to the market and other schemes. For that certain
model available Sharpe’s model, Treynor’s model and Jenson’s model. These
models are suggested that which schemes provide best return.

Importance of the study is that a fund’s performance can be judged with

respects to investors’ expectation. Investors have to define his expectations in
relation to certain indicators on what is possible to achieve or moderate this
with comparable investment alternatives available in the market. These
indicators of performance can acts against investors fund performance. It is
very important to select the right benchmark to evaluate a fund’s performance.

So the problem arises that in which scheme they should invest according to
their preferences.
 Literature Review:

Performance evaluation of mutual funds is one of the preferred areas of

research where a good amount of study has been carried out. The area of
research provides diverse views of the same.

For instance one paper 1evaluated the performance of Indian Mutual Fund
Schemes in a bear market using relative performance index, risk-return
analysis, Treynor’s ratio, Sharpe’s ratio, Jensen’s measure, Fama’s measure.
The study finds that Medium Term Debt Funds were the best performing
funds during the bear period of September 98-April 2002 and 58 of 269 open
ended mutual funds provided better returns than the overall market returns.

Another paper2 used Return Based Style Analysis (RBSA) to evaluate equity
mutual funds in India using quadratic optimization of an asset class factor
model proposed by William Sharpe and analysis of the relative performance
of the funds with respect to their style benchmarks. Their study found that the
mutual funds generated positive monthly returns on the average, during the
study period of January 2000 through June 2005. The ELSS funds lagged the
Growth funds or all funds taken together, with respect to returns generated.
The mean returns of the growth funds or all funds were not only positive but
also significant. The ELSS funds also demonstrated marginally higher
volatility (standard deviation) than the Growth funds.

One study3 identified differences in characteristics of public-sector sponsored

& private-sector sponsored mutual funds find the extent of diversification in
the portfolio of securities of public-sector sponsored and private-sector

sponsored mutual funds and compare the performance of public-sector

1
Dr. Rao, Narayan (2005) “Performance Evaluation of Indian Mutual Funds”

2
Prof. Banerjee, Ashok et. Al (2007),”Performance Evaluation of Indian Mutual
Funds vis-à-vis their style benchmarks”

3
Panwar,Sharad and Dr. Madhumathi (2006), “Characteristics and performance
evaluation of selected mutual funds in India”
They primarily use Jensen’s alpha, Sharpe information ratio, excess standard
deviation adjusted return (ESDAR) and find out that portfolio risk characteristics
measured through private-sector Indian sponsored mutual funds seems to have
outperformed both Public- sector sponsored and Private-sector foreign
sponsored mutual funds and the general linear model of analysis of covariance
establishes differences in performance among the three classes of mutual funds
in terms of portfolio diversification.

Another paper4 examined the performance of equity and bond mutual funds that
invested primarily in the emerging markets using Treynor’s ratio, Sharpe’s ratio,
Jensen’s measure. With this research they found that on an average the U.S.
stock market outperformed emerging equity markets but the emerging market
bonds outperformed U.S. bonds. They also found that overall emerging market
stock funds under-performed the respective MSCI indexes. These were evident
by their lower return, higher risk, and thus lower Sharpe ratios.

One more paper5 evaluated whether or not the selected mutual funds were able
to outperform the market on the average over the studied time period. In addition
to that by examining the strength of interrelationships of values of PCMs for
successive time periods , the study also tried to infer about the extent to which
the future values of fund performance were related to its past by using single
index model. The study revealed that there were positive signals of information
asymmetry in the market with mutual fund managers having superior information
about the returns of stocks as a whole. PCM also indicated that on an average
mutual funds provided excess (above-average) return, but only when unit of time
period was longer (1 qtr or 4 qtr). Therefore, they concluded that for assessing
the true performance of a particular mutual fund, a longer time horizon is better.

4
Ahmed,Parvez; Gangopadhyay, Partha & Nanda, Sudhir (2001), “Performance of
Emerging Market Mutual Funds”

5
Bhattacharjee,Kaushik and Prof. Roy,Bijan (2006), “Fund Performance
Measurement Without Benchmark - A Case Of Select Indian Mutual Funds”
 OBJECTIVES OF THE STUDY:-

The primary object of the present project is to know about which mutual funds
gave highest performance in a short-term period.

 To know about types of mutual funds in detail.


 To know, which schemes gives highest return within one-year.

 To find the extent of diversification in the portfolio of securities of
sponsored mutual funds.

 To compare the performance of sponsored mutual funds using traditional
investment measures.
 Research Methodology:-

RESEARCH DESIGN

Research Design is the roadmap for carrying out the research activity in the
project. In our project of “Performance Evaluation of Mutual Fund” we have
carried out the research of which mutual fund is providing higher return by
comparing the returns of different mutual funds and we have also compared
whether the mutual fund can beat the market return or not.

 We have selected 10 mutual funds from Indian market. All funds are in
equity growth category.
 Data has been collected from money control, value research online, and
mutual fund India web sites.
 Funds selected are mostly preferable by investors.
 Bank of Baroda’s Fix deposit return is selected as risk free return, which is
8.5% p.a.
 Collected NAV of funds of each quarter for the year 2010 and define
return.
 Defined standard deviation on the basis of Quarterly return.
 Found out average return.
 Defined beta of funds and market, S&P CNX Nifty index return is taken as
market return.
 Found out Treynor, Sharpe and Jensen ratio and performance.
 Finally we have given rank to mutual funds according to each ratio.
 SOURCES OF DATA
Basically there are two sources of data:

1) Primary source of data

2) Secondary Source of data

The primary data are those which are collected afresh and for first time and thus
happen to be original in character.

The secondary data are those which have been collected by someone else and
which have already been passed through statistical process.

Here in this research project we have used Secondary source of data as the
return for different mutual funds and market cannot be established by ourselves.

DATA COLLECTION METHOD

While deciding about the method of data collection to be used for the study the
researcher should keep in mind two sources of data i.e. primary and secondary
data.

The method for collecting primary and secondary data differ since primary data
are to be originally collected while in case of secondary data the nature of data
collection work is merely that of compilation.

There are several ways of collecting primary data.

1. Observation method
2. Interview method
3. Through questionnaires
4. Through schedules
 POPULATION

Population is a collection of items of interest in research. The population

represents a group that you wish to generalize your research to.

Here in this research project we have taken the population of 46 mutual fund
house in India. Out of 46 we have selected 5 fund houses on the asset under
management basis. 10 Funds across 5 fund houses have been selected. This
population is based on the type of mutual fund i.e. “Equity Growth mutual

funds”
There are various schemes available in the mutual fund like debt, equity,
balanced, guilt etc. But out of these schemes we have selected Equity growth
scheme as a population.

SAMPLING METHOD

A population is a group of individual persons, objects, or items from which

samples are taken for measurement.

Sampling is the act, process, or technique of selecting a suitable sample, or a

representative part of a population for the purpose of determining parameters or
characteristics of the whole population.

Methods of Sampling:
The convenient sample

A convenience sample results when the more convenient elementary units are
chosen from a population for observation.

The judgment sample

A judgment sample is obtained according to the discretion of someone who is

familiar with the relevant characteristics of the population.

The random sample

This may be the most important type of sample. A random sample allows a
known probability that each elementary unit will be chosen. For this reason, it is
sometimes referred to as a probability sample. This is the type of sampling that is
used in lotteries and raffles.

Here in this research project we have used convenient sample method for
sampling. We have taken the Sample of “10 Equity Growth mutual funds” on
the basis of their highest annual average return in the year 2010.
 CONCLUSION AND SUGGESTION:-

Mutual fund is subject to market risk, despite of that it have low risk than stock
market. This is proved in performance evaluation section of this report.
Performance evaluation measurement ratios i.e. Treynor’s, Sharpe’s and
Jensen’s are used by fund managers to take decision of investment and to
diversify portfolio.

 Mutual Fund is subject to market risk, analyzing particular fund before

investing.


 Study historical return of funds, risk measurement ratios to evaluate fund.



 There should be similarity in your and fund’s objective.



 For high return invest in diversified funds, for tax saving invest in ELSS
equity funds, for moderate risk and return invest in balance funds, for
assure return invest in debt and liquid funds.


 As per our opinion, investor should invest around 30% in mutual fund.
ANNEXURE:-