A Comparative Study of Equity Based Mutual Fund of Reliance and Hdfc

A mutual fund is a pool of money, collected from investors, and is invested according to certain investment options. A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. A mutual fund is created when investors put their money together. It is therefore a pool of the investor’s funds. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them.[1] The most important characteristics of a fund are that the contributors and the beneficiaries of the fund are the same class of people, namely the investors. The term mutual fund means the investors contribute to the pool, and also benefit from the pool. There are no other claimants to the funds. The pool of funds held mutually by investors is the mutual fund. A mutual funds business is to invest the funds thus collected according to the wishes of the investors who created the pool. Usually, the investors appoint professional investment managers, to manage their funds. The same objective is achieved when professional investment managers create a product and offer it for investment to the investor. This product represents a share in the pool, and pre-states investment objectives. [2]Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

1. To make a comparative analysis of equity based mutual fund in India. 2. To analyze the performance of private sector Mutual Funds: Reliance Equity Growth fund along with HDFC Equity Growth fund.

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3.1 Data Collection:  For this study, average NAV of Mutual Fund is collected for the period of 1st January, 2009 to 31 December, 2011 along with the index-value of BSE SENSEX is also considered for the same period.

Mispricing of the Mutual funds can be evaluated by comparing the return on market and return on stock. During the pricing period of the return on stock is negative, then it indicates overpricing and if are positive indicates underpricing. Relative performance measurement is used to measure the performance of the MF with SENSEX. The various statistical tools have been used to compare the performance of the funds.  Standard Deviation (SD): its significance lies in the fact that sample is free from defects of sampling, it measures the absolute dispersion, the greater the SD, and greater will be magnitude of the deviation of the values from their mean. Small SD means high degree of uniformity & homogeneity of a series. The actual mean is considered for the given Tabulated data. The square of standard deviation of returns gives the Variance. Coefficient of variation (COV) is found by dividing standard deviation by mean returns.  Beta: Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility associated with the fund as compared to the benchmark. The success of beta is heavily dependent on the correlation between a fund and its benchmark. If the fund portfolio doesn’t have a relevant benchmark index than a beta would be grossly inadequate. A beta that is greater than one means that fund is more volatile than the benchmark, while a beta of less than one means that the fund is less volatile than the index. A fund with a beta very close to 1, means the fund’s performance closely matches the index or benchmark.[4] The formula for the beta of an asset within a portfolio is :  Where n = No. of Observations  Rxi = Market excess return  Ryi = Security excess return The Sharpe Measure: In this model, performance of fund is evaluated on the basis of sharpe ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it.[3] According to Sharpe, it is the total risk of the fund that the investor are concerned about so, the model evaluates fund on the basis of reward per unit of total risk, symbolically, it can be return as :

Where, Si= Sharpe index ratio s p =Standard deviation of the portfolio return. Rp= Portfolio average return Rf = Risk free rate of interest. While a high and positive Sharpe Ratio shows a superior risk adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

The Reliance Mutual Fund is one of the most popular and leading mutual fund in India. The Fund is owned by Anil Dhirubhai Ambani Group and with respect to net worth it ranks among the top three of all the private financial service providers in India. It is an ISO 9001:2000 certified company, which offers innovative mutual fund products to a wide pool of customers. The Reliance mutual fund products are available in hundred and seventy nine cities across India. It is one of the fastest growing mutual funds in India and the main reason of its popularity is that it has a wide portfolio of products that meets the requirements of each and every type of investors. The Reliance Mutual Fund is headed by Mr. Sundeep Sikka - the CEO of the company.

 The schemes of Reliance Mutual Fund are being managed by Reliance Capital Asset Management Ltd, which is a subsidiary of Reliance.

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The aim of growth funds is to provide capital appreciation over the medium to long- term. [5]Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Types of Scheme Open Ended Nature Equity Option Growth Inception Date Mar 28, 2006 Face Value (Rs/Unit) 10 Expense Ratio (%)

1.99

Portfolio Turnover Ratio 80 Entry Load Entry Load is 0%. Exit Load If redeemed between 0 year to 1 year; 1% Asset Management Company Reliance Capital Asset Management Ltd. 11th & 12th Flr One India Bull Centre, Tower 1 841 Senapati Bapat Marg, Elphinstone Rd Mumbai - 400013 Tel.- 30994600 ,30301111 Registrar Karvy Computershare Pvt. Ltd. 21, Avenue 4, Street No 1, Banjara Hills Hyderbad Latest NAV 13.26 as on Mar 14, 2012 Benchmark Index - S&P Nifty 5,463.90 as on Mar 14, 2012 52 - Week High 14.41 as on Apr 5, 2011 52 - Week Low 10.53 as on Dec 20, 2011 P/E 17.74 as on Feb – 2012 P/B 4.23 as on Feb – 2012 Dividend Yield 1.16 as on Feb – 2012 Market Cap (Rs. in crores) Large Mid Small 66,922.36 as on Feb – 2012 58.12 as on Feb-2012 14.58 as on Feb-2012 NA Top 5 Holding (%) 41.60 as on Feb – 2012 No. of Stocks 21

HDFC Mutual Fund is governed by HDFC Asset Management Company Limited (AMC). The HDFC mutual fund was approved by SEBI in June 2000. Equity Funds, Balanced Funds, and Debt Funds are the mutual fund schemes offered by HDFC Mutual Fund. It is regulated by HDFC Asset Management Company Limited (AMC) which works as an Asset Management Company (AMC) for HDFC Mutual Fund. HDFC Asset Management Company Limited (AMC) is a Joint Venture concern between the large scale housing finance company HDFC and British investment firm Standard Life Investments Limited. The HDFC Asset Management Company Limited conducts the activities carried out by the HDFC Mutual Fund and manages the assets of various mutual fund schemes.

The main aim of HDFC Equity Fund is to providing capital appreciation through investments predominantly in equity oriented securities

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Types of Scheme Open Ended Nature Equity Option Growth Inception Date January 01, 1995 Face Value (Rs/Unit) 10 Expense ratio (%)

1.78

Portfolio Turnover Ratio 27.76 Entry Load Entry Load is 0%. Exit Load If redeemed between 0 year to 1 year; 1% Asset Management Company HDFC Asset Management Company Limited Ramon House Churchgate, Mumbai Registrar Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai Latest NAV 269.18 as on Mar 14, 2012 Benchmark Index – CNX 500 4,343.05 as on Mar 14, 2012 52 - Week High 290.30 as on Apr 27, 2011 52 - Week Low 215.06 as on Dec 20, 2011 P/E 20.38 as on Feb – 2012 P/B 3.99 as on Feb – 2012 Dividend Yield 1.13 as on Feb – 2012 Market Cap (Rs. in crores) 69,832.63 as on Feb – 2012 66.29 as on Feb-2012 9.42 as on Feb-2012 4.44 as on Feb-2012 Top 5 Holding (%) 41.03 as on Feb – 2012 No. of Stocks 35

2009 9720.55 17464.81 79.67 2010 17473.45 20509.09 17.37 2011 20621.61 15454.92 -25.05

Year Beginning

NAV

End

NAV NAV

Return

BSE

Return

2009 9.83 15.2 54.22 79.67 2010 15.27 15.2 -0.39

17.37 2011 15.27 10.6 -30.38 -25.1

Total 23.44 71.98 Mean 7.814 23.99 Stand. Deviation

35.03 43.01

Beta 0.81 Sharpe Index -0.005

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Year Beginning

NAV

End

NAV NAV

Return

BSE

Return

2009 114.5 231.1 101.72 79.6 2010 232.5 298.5 28.36 17.4 2011 299.8 218.7 -27.04 -25

Total 103.04 71.9 Mean 34.35 23.9 Stand.Deviation

52.74 43.1

Beta 1.23 Sharpe Index 0.49

7.1 Standard Deviation Reliance equity growth fund HDFC equity growth fund SD of Sensex returns 43.01 43.01 SD of Funds returns 35.02 52.74 SD of Reliance equity growth fund is lower to the HDFC equity growth fund supports lower level of risk hence Reliance equity fund is found more stable. 7.2 Beta In case of Reliance equity growth fund the value of Beta (.81) is less than 1, it means the funds are less volatile than the Index. Whereas, HDFC equity growth fund is highly volatile because its Beta value (1.23) is more than 1. Thus, HDFC equity growth fund is more volatile in comparison to Reliance equity growth fund as well as benchmark index.

This index assigns the highest value to assets that have best risk – adjusted average rate of return. The larger the Sharpe index, better the fund has performed. HDFC growth fund ranked as better fund because its index (0.49957) is higher than Reliance growth fund (-.0053). Although the SD is higher in comparison to the Reliance growth fund but HDFC growth fund better performed by using sharp’s measure.

Mutual Fund Company must possess the following points:  Professional Management:- AMC must be managed by the Professional who should research, selects and monitors the performance of the securities the fund purchases.  Diversification:- Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.  Affordability:- Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.  Liquidity:- Mutual fund investors can readily redeem their shares at the current NAV after deducting any fees and charges assessed on redemption at any time. Past performance influences the future performance of the funds. Performance of the funds can be drastically improved by the better incentives to the fund manager. Thus, it can be concluded that financial analysts rely primarily on financial statement analysis i.e Balance sheet, Profit and loss statements, cash flow statements in evaluating companies reported financial results, and where as less use of technical analysis was found. The negative returns reported in the research were due to the depressed monetary market only.

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Punithavathy Pandian, Security Analysis and Portfolio Management, New Delhi, Vikas Publishing House Pvt. Ltd., 2007 Agrawal Deepak (2006), “Measuring Performance of Indian Mutual Funds”, LNCT-MER Prabandhan & Taqniki, Vol. I (1) Sept 2007, pp. 179-185. Bala Ramasamy, Matthew C.H.Yeung (2003), “Evaluating mutual funds in an emerging market: factors that matter to financial advisors”, International Journal of Bank Marketing, Vol.21, Issue 3, pp.122-136. Bodhanwala J Ruzbeh (2006), “An Empirical study on analyzing How Fund managers in India Analyze Financial Reports with special focus on quality of reported earnings”, ICFAI University Journals of Applied Finance, Vol.12, No.9, September 2006, pp.5-38. Divya Nigam (2006), “MF: A Prospering Reality”, ICFAI University Journals, Vol VII, issue- II, pp.49-59. ++

Sonam Jain is a MBA followed by M.Com (Gold Medalist) and currently a Research Scholar at Mewar University, Chittorgarh Dr. K.C. Goel is Ex Dean of CCS University and Ex HOD, Dept. of Commerce, SD (PG) College, Muzaffarnagar.