A Indicates that investors who invested in these schemes

                 A STUDY ON PERFORMANCE OF
GROWTH MUTUAL FUND SCHEMES

Prof. Jeevitha. R                                             Mr.
Rajkumar Bodduna

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Assistant Professor                                         Post
Graduate

            Ramaiah
Institute of Management                 Ramaiah
Institute of Management

Bangalore 560054                                           Bangalore
560054

[email protected]                                       [email protected]

9916089980                                                    8296868538

 

ABSTRACT

 

Introduction

Investors are broadly
divided in to three categories, they are aggressive investors, moderate
investors and conservative investors. This moderate investors will always looks
into investment area where there is moderate risk and moderate returns. Exactly
mutual funds are collective investment schemes, they specializes in investing a
pool of money from the investors and investing in securities such as bonds,
stocks and money market instruments. It is managed by the experts called as
fund managers. Mutual funds are the most popular method of
indirect investing around the globe. Mutual funds play an important role in the
economy of the county. In this study an attempt is made to evaluate the
performance of 10 growth mutual funds on the basis of monthly returns compared
with benchmark returns. For this purpose, risk adjusted performance measures
suggested by Sharpe, Treynor and Jensen’s are widely known as Sharpe ratio,
Treynor ratio, Jensen’s Alpha.

 

I.                  
Literature
Review

 

Researchers have
attempted to study the performance of mutual fund of all schemes, some are
especially in growth schemes and some are attempted to study the mutual fund
performance of public and private sector comparisons.

Alka (2016) this
study attempted to evaluate the performance of Reliance open-ended growth
schemes focused on large cap funds in Sensex. Reliance Focused
Large Cap Fund in Sensex has performed better than the other schemes in
comparison of risk and return which Indicates that investors who invested in
these schemes to form well diversified portfolio did receive adequate return
per unit of total risk & systematic risk undertaking.

Dr. Susheel Kumar Mehta (2010) this research attempted
to study  a comparison of performance of
mutual funds schemes of UTI & SBI and analyzed their performance. The study
concluded that preference of UTI & SBI mutual funds has been better in 2007
– 08.

Lakshmi N (2010)
this study is about performance of the Indian MF industry with a special reference
to growth schemes and it found out that MF serve those individuals including to
invest but lack the newline technical investment expertise. Funds mobilized by
the industry had grown new here by 57 percent and AUM by 14 percent during
1997-2006. Analysis of performance of newline seven schemes should that, all
the sample schemes outperformed the newline market in terms of absolute returns
without adequate returns to over total newline risk.

D.N. Rao (2006)
this study is on 4 step model to evaluate performance of mutual funds in
Saudi Arabia. It studied 4 step model for selecting the right equity fund and
illustrated the same in the context of equity mutual funds in Saudi Arabia. The
study revealed that most of the funds invested in Arab stocks had been in
existence for less than a year and the volatility of the GCC stock markets
contributed to the relatively poor performance of these funds and the
turnaround of these funds could take place only with the rallying of GCC and
other Arab markets.

Sharad Panwar and R. Madhumathi(2006) this study is on characteristics and
performance evaluation of selected mutual funds in India. This paper resulted
that public sector sponsored funds also not differ significantly from private
sector sponsored funds in term of mean returns percent however they said there
is a significant difference between public sector sponsored MFs. & private
sector sponsored MFs in terms of average standard deviation, average variance
and average co-efficient of variation.

II.               
Objectives
Of The Study

The objectives of
this  study are

·        
To evaluate the trends of growth mutual
fund schemes.

·        
To evaluate and compare the performance of
growth mutual funds using evaluation techniques.

·        
To compare the selected growth mutual
funds and rank with their performance.

III.            
Scope Of The Study.

This study focuses
on the relationship between performance of growth mutual fund and nifty returns
using evaluation tools such as sharpe’s ratio, treynor, jensen’s alpha. By
observing all these we can conclude that the fund which has highest with less
risk shows better performance. By looking at the
performance indicators it is easier to investor to find the right growth mutual
funds. Thereby help in increase profit for the investors. From this study, it
may also enable the researcher to find the better performing mutual fund.

Hypothesis

The following
hypothesis have been made.

Hypothesis
testing is carried out with a significance level of 0.05

H0:- There is no difference in
performance between growth mutual funds and Nifty Index

HA: – There is difference in performance
between growth mutual funds and Nifty Index

 

 

IV.            
Data
And Methodology

The return of the funds can be estimated by
the average return of the select funds and the risk can be calculated by using
standard deviation and beta. The risk adjusted return can be measured with the
functional tools like Sharpe, Treynor’s methods. By observing all these we can
conclude that the fund which has highest with less risk shows better
performance.

 

RETURN:

Return (Ri) = P1-P0/P0

Where,

= Return of fund during period over 12 months

= Value of the Fund at the end of period 1

= Value of the Fund at the start of period

 

RISK:

Standard Deviation Definition:

Standard deviation (SD) measures the volatility the fund’s
returns in relation to its average. It tells you how much the fund’s return can
deviate from the historical mean return of the scheme.

Computation:

Standard Deviation (SD) = Square root of Variance

(V) Variance = (Sum of squared difference between each
monthly return and its mean / number of monthly return data – 1).

Average Return (Rp) = Sum of
the returns during the periods/No. of years

Calculation of beta for mutual fund

Beta is measure of Systematic Risk or
non-diversifiable risk. It measures the sensitivity of the stock with reference
to a broad based market index.

 

Beta = Covariance
(XY)/Variance(Y)

X = Fund Return

Y = Benchmark Return
(Nifty 50)

 

PERFORMANCE EVAULATION OF MUTUAL FUNDS:-

Sharpe’s Ratio:

Share
ratio is an index of portfolio performance measure, helps to find the hidden
the performance of mutual funds. If the fund is having ratio of greater than
one the fund is considered to be good to invest.

Sharpe ratio

 = Portfolio
returns over a period j

= Risk-free return over a period

? = Total risk, standard
deviation of portfolio return j

Treynor’s Ratio:

Jack Treynor is an index portfolio measure
calculated based on systematic risk. It indicates the risk premium per unit of
systematic ratio. It considers beta i.e market risk for calculations.

 

Treynor’s index

Where,

Rj = Portfolio returns
over a period j

Rf= Risk-free return

? = Market-risk, beta

 

Jensen Alpha

Jensen’s Alpha is
used to measure the risk-adjusted performance of a security or portfolio in relation to the expected
market return (which is based on the capital asset pricing model (CAPM). The
higher the alpha, the more a portfolio has earned above the level predicted.

 

Jensen Alpha = Rj – Rf + ? *(Rm – Rf)

Rj
= Portfolio return over a period

Rf
= risk free rate

Rm
= Returns of market

?
= Beta

 

V.               
Analysis,
Results And Discussions

                                                               
Table No.1

                         Ranking the mutual
fund performance with nifty performance.                             

Fund name

Fund Return

Market Return

Ranking

Performance

IDFC infrastructure
fund

19.39

12.5047

7

Above

L Infrastructure
Fund

26.64

12.5047

2

Above

Reliance diversified
power sector funds

17.97

12.5047

10

Above

SBI FMCG Fund

20.86

12.5047

5

Above

Sundaram
Infrastructure Advantage fund

18.94

12.5047

9

Above

BOI AXA Manufacturing
& Infrastructure Fund

18.98

12.5047

8

Above

Aditya Birla SunLife
Infrastructure Fund

22.5

12.5047

4

Above

Invesco India Banking
Fund

20.11

12.5047

6

Above

Aditya Birla Sunlife
Banking and Financial Fund

27.29

12.5047

1

Above

ICICI Prudential
Banking and Financial Fund

25.25

12.5047

3

Above

 

Interpretation:

From the above table it is
clearly showing that funds are performing better than that that of
markets,which is due to the fund managers efficiency. Aditya Birla Banking and
Financial funds stands with rank 1 followed by L infrastructure fund,
ICICI Prudential Banking and Financial fund etc.

                                                                    
       Table No.2

                              Interpretation Sharpe’s & Treynor’s ratio
and Jensen’s Alpha                          

 

Fund name

Rj

Rf

?p

Rm

Beta

Sharpe ratio

Treynor

Jensen Alpha

IDFC infrastructure
fund

19.39

7.08

26.54

12.504

1.67811

0.463828184

7.3356335

3.20793136

L&T Infrastructure
Fund

26.64

7.08

31.63

12.504

2.10182

0.618400253

9.3062203

8.15972832

Reliance diversified
power sector funds

17.97

7.08

30.46

12.504

1.95291

0.357518056

5.5762938

0.29741616

SBI FMCG Fund

20.86

7.08

20.9

12.504

1.93945

0.659330144

7.1051071

3.2604232

Sundaram
Infrastructure Advantage fund

18.94

7.08

30.63

12.504

1.29422

0.387202089

9.1638207

4.84015072

BOI AXA Manufacturing
& Infrastructure Fund

18.98

7.08

27.29

12.504

1.79455

0.436057164

6.6311889

2.1663608

Aditya Birla SunLife
Infrastructure Fund

22.5

7.08

29.52

12.504

2.00686

0.522357724

7.6836451

4.53479136

Invesco India Banking
Fund

20.11

7.08

27.89

12.504

1.82363

0.467192542

7.1450897

3.13863088

Aditya Birla Sunlife
Banking and Financial Fund

27.29

7.08

23.88

12.504

1.67103

0.846314908

12.094337

11.14633328

ICICI Prudential
Banking and Financial Fund

25.25

7.08

31.87

12.504

2.05034

0.570128648

8.8619448

7.04895584

 

Interpretation Sharpe’s & Treynor’s ratio and
Jensen’s Alpha:

Generally sharpe ratio
having greater than one value is preffered. From the above table and analysis
we can see that Aditya Birla banking and finance fund is greater the greater
value (0.84) followed by SBI FMCG fund (0.65), L Infrastructure fund.
Reliance diversified power sector funds is having the least value (0.35).

Treynor’s ratio looking at
the ratios Aditya Birla Banking and Finance fund (12.09) followed by L&T
Infrastructure fund (9.36) and sundaram Infrastructure Advantage fund (9.16).
Reliance diversified power sector funds is having the least value (5.57).

Looking at the figure of
Jensen’s Alpha ratios Aditya Birla Banking and Finance fund (11.04) followed by
L Infrastructure fund (8.15) and ICICI Prudential Banking and Financial Fund
(7.04). Reliance diversified power sector funds is having
the least value (0.29).

                                                                        
Table No.3

    Anova: Two-Factor Without Replication

SUMMARY

Count

Sum

Average

Variance

Row 1

3

33.57281

11.19094

79.72224

Row 2

3

41.24652

13.74884

151.6915

Row 3

3

32.42761

10.8092

66.29282

Row 4

3

35.30415

11.76805

89.90379

Row 5

3

32.73892

10.91297

79.74358

Row 6

3

33.27925

11.09308

75.32942

Row 7

3

37.01156

12.33719

105.0132

Row 8

3

34.43833

11.47944

84.3862

Row 9

3

41.46573

13.82191

165.3842

Row 10

3

39.80504

13.26835

134.9934

Column 1

10

217.93

21.793

11.81182

Column 2

10

18.31292

1.831292

0.057498

Column 3

10

125.047

12.5047

0

ANOVA

Source of Variation

SS

df

MS

F

P-value

F crit

Rows

37.44958

9

4.161064

1.079638

0.422488

2.456281

Columns

1995.546

2

997.7732

258.8843

5.45E-14

3.554557

Error

69.37432

18

3.854129

Total

2102.37

29

 

 

 

 

Interpretation: 
By using ANOVA test it is found that f value (2.456)
is more than the significant value (0.05). So, we are rejecting null
hypothesis. Therefore the performance of selected mutual fund based on Return
and risk is independent with that of the market, which shows that the mutual
funds are performing better than market, and this could be due to the fund
manager’s efficiency in managing the fund.

 

VI.            
Conclusion

Mutual funds have emerged as the best in
terms of variety, flexibility, diversification, liquidity as well as tax
benefits especially growth mutual funds. Mutual funds have the capability to
provide solutions to most investors’ needs, however, the key is to do proper
selection and have a process for monitoring and controlling. From the above
analysis, it is found that most of the mutual funds have performed better than
the market returns but still their market risk (beta) is high. In the sample, funds
are highly diversified except for a few mutual funds and because of their high
diversification they have reduced market risk of the fund. Still equity(growth)
funds are more risk in the market.

                                          Further
the fund managers of the mutual funds are found to be proactive in terms of
their ability of market timing and selectivity. Through the research conducted
with the growth mutual funds, it is concluded that the performance of the
mutual funds are only not based on the market returns, it would depends on the
fund manager’s efficiency in managing the fund.

 

References

Prasanna Chandra(2017)
“Investment analysis and Portfolio management” (fourth edition).

https://www.bankbazaar.com/mutual-fund/Top-10-Mutual-Funds-India.html

https://www.mutualfundindia.com/MF/return/TopFunds?id=3

https://www.amfiindia.com

https://www.amfiindia.com/indian-mutual

Indian Mutual Fund Industry Trends Report Card for May 2016

Debt Funds Purchases Lower By 36% in February; Equity Funds Net Inflow Increases By A Third

http://shodhganga.inflibnet.ac.in/bitstream/10603/28749/10/10_chapter%202.pdf