An Inquiry into the Performance of Indian Mutual Fund Schemes

Many of the financial instruments mutual fund is one of the most attractive financial investment instrument that plays a vital role in the economy of a country. Mutual fund schemes provides new opportunities for investors. Mutual fund Industry was introduced in India 1963 with the formation of Unit Trust of India. In India the origin of Mutual Funds industry can be traced since the enactment of UTI (Unit Trust of India) Act, 1963.Due to various historic reasons the unit trust of India has enjoyed the monopoly in the mutual funds industry and it still maintains its prominent position. Mutual fund industry in India has grown rapidly since its liberalization in 1993 (Goyal, 2015). During the last few years many extraordinary and rapid changes have been seen in the Mutual fund industry. Therefore, due to the changed environment it becomes important to investigate the mutual fund performance. The present paper investigates the performance of open-ended, growth-oriented equity schemes. Open-ended mutual fund schemes are those which don‘t have a fixed maturity and these schemes offer new units for sale and ready to buy securities at any time. The success of any scheme depends upon the competence of the management and its soundness.

The present study deals with the review of literature on ‗An Inquiry into the Performance of Indian Mutual Fund

Jayadev (1996) in their study examined the performance of two growth-oriented mutual funds namely Mastergain and Magnum express by using monthly returns. Jensen, Sharpe and Treynor measures have been applied in the study and pointed out that according to Jensen and Treynor measure Mastergain have performed better and the performance of Magnum was poor according to all three measures. Afza and Rauf (2009) in their studied the performance of open ended Pakistani mutual funds with the help of using the quarterly data for the period of 1996-2006. The study measure the fund performance with the help of Sharpe ratio by using pooled time-series and cross sectional data and also focused on different attributes such as fund size, expenses, age, turnover and liquidity. The results of the study found significant impact on fund performance. On the other hand Kundu (2009) evaluated the stock picking performance of 31 growth-oriented equity schemes in India. The study used the period for three years i.e., from April 2005 to March 2008. The study concluded that the mutual fund schemes on an measure found that 61.29 percent sample schemes have showed superior but statistically insignificant stock selection performance of their fund managers. Ali, Naseem and Rehman (2010) examined the performance of 10 mutual funds in which 5 were conventional and 5 were Islamic for the period from 2006 to 2008 with the help of Sharpe and Treynor measures. The results found that the funds of Pakistan were able to add more value either conventional or Islamic. The study also found that some of the funds were underperformed, so these funds were facing diversification problems during the study period. Sondhi and Jain (2010) evaluated the market risk and investment performance of equity mutual funds in India. The study used a sample of 36 equity fund for a period of 3 years. The study examined whether high beta of funds have actually produced high returns over the study period. The study also examined that open-ended or close ended categories, size of fund and the ownership pattern significantly affect risk-adjusted investment performance of equity fund. The results of the study confirmed with the empirical evidence produced by fama (1992) that high beta funds (market risks) may not necessarily produced high returns. The study revealed that the category, size and ownership have been significantly determinant of the performance of mutual funds during the study period. Shanmugham and Zabiulla (2011) conducted the stock selection strategies of selected equity mutual fund managers using conditional and unconditional measures over the period of April 2006 to December 2009. The study revealed that the daily returns of all schemes were positive. From Jensen measure, it found that 22 schemes out of 35 were positive alpha, showed superior performance but only two schemes have positive and statistically significant alphas. On the other hand the study conducted by Goyal (2015) examined the performance of top ten mutual funds in India. The findings of the study showed that all the mutual funds scheme are provided higher average returns as compare to the market though the standard deviation is little higher. The study found that amongst all the top 10 mutual fund Franklin India opportunity fund was the best having lower coefficient of variation and higher sharp ratio, Treynor ratio and Jensen alpha. Solanki (2016) in their study examined the performance of mutual fund. The study used the period from 1 April 2007 to 31st March 2016. The study compared the selected mutual fund schemes return with Benchmark BSE National 100 and Sensex returns. The study concluded that all the selected schemes showed an average return higher than the in comparison to the market return i.e., BSE 100 and Sexsex except one i.e., Reliance Focused Large Cap BSE 100 and Reliance Focused Large Cap Fund in Sensex had performed better than the other schemes in comparison of risk and return.

The present study is concerned with the following objective:

To examine the mutual fund schemes performance, 15 schemes were selected at random basis. Monthly NAV of different schemes have been used in this study for the period of five years i.e., April 2011 to March 2016 (five years). BSE-Sensex has been used for market portfolio. In the study the monthly yield on 91-day Treasury bills have been used as risk-free rate. The study was mainly secondary data based. Data regarding NAV were obtained from the web site of www.mutualfundindia.com and www.amfiindia.com for the period of April 2011 to March 2016. Data for monthly closing price for the benchmark index (BSE-Sensex) were collected from web site of Bombay Stock Exchange (www.bseindia.com). Data for 91 day Treasury bills rate were collected from the web site of RBI, India (www.rbi.org.in.com).

1 1

 



Where, Rpt is return on fund scheme, NAVt is the net asset value of the scheme at the end of the month ‗t‘, NAVt-1 is net asset value of the scheme at the end of the month ‗t-1. Similarly, the monthly returns for the market index were calculated by using this formula:

1 1

 



Where, Rmt is the return of the market index, Market Indext is the market value of the index at the end of the month ‗t‘, Market indext-1 is the market value of the index at the end of the month ‗t-1‘.

Return: Table 1 represents the results of return, All the schemes have represented positive returns. The maximum return was from DSP-BR Micro Cap Funds

1 DSP-BR Micro Cap Funds (G) 0.0315 2 Reliance Small Cap Fund (G) 0.0313 3 Franklin Smaller Cos (G) 0.0304 4 Mirae Emerging Blue Chip Fund (G) 0.0296 5 UTI Transport & Logistic (G) 0.0291 6 SBI Magnum Midcap Fund (G) 0.0286 7 Can Robeco Emerg- Equities (G) 0.0276 8 Principal Emerging Blue Chip (G) 0.0274 9 L & T India Large Cap Fund (G) 0.0270 10 Franklin India Prima Fund (G) 0.0265 11 Birla SL Pure Value Fund (G) 0.0259 12 UTI Mid Cap (G) 0.0257 13 L&T Midcap Fund (G) 0.0254 14 Sundaram SMILE Fund – IP (G) 0.0252 15 Sundaram Select Midcap – IP (G) 0.0251

Risk: In the context of Risk, it is observed from the table 2 that out of 15 schemes, only 1 scheme have registered a beta value greater than one indicated that they belonged to more risk category. The remaining 14 schemes have registered beta less than one which indicated that they belonged to low risk category.

Risk of Selected Schemes

1 DSP-BR Micro Cap Funds (G) 1.053 2 Reliance Small Cap Fund (G) 0.942 3 Franklin Smaller Cos (G) 0.934 4 Mirae Emerging Blue Chip Fund (G) 0.858 5 UTI Transport & Logistic (G) 0.851 8 Principal Emerging Blue Chip (G) 0.737 9 L & T India Large Cap Fund (G) 0.732 10 Franklin India Prima Fund (G) 0.725 11 Birla SL Pure Value Fund (G) 0.722 12 UTI Mid Cap (G) 0.715 13 L&T Midcap Fund (G) 0.713 14 Sundaram SMILE Fund – IP (G) 0.712 15 Sundaram Select Midcap – IP (G) 0.625

There are more areas and lot of scope for the study that can further examined. The present study has its limitation in term of number of schemes and period of the study under studied. In the study only the open-ended schemes have been analyzed. Further research, may attempt to analyze and compare more and more mutual fund schemes and large study period by using different benchmark and investigate the open-ended schemes with close-ended schemes.

Afza, Talat and Rauf, Ali (2009). Performance Evaluation of Pakistani Mutual Fund. Pakistani Economic and Social Review, 47(2), pp. 199-214. Ali, Rizwan., Naseem, Muhammad Akram and Rehman, Ramiz Ur (2010). Performance Evaluation of Mutual Funds. Social Science Research Network online Publication 10 May, Goyal , M.M (2015). Performance Evaluation of top 10 mutual funds in India. International Journal of Commerce and Management Studies, 6(1), pp. 51-55 Jayadev, M (1996). Mutual Fund Performance: An Analysis of Monthly Returns. Finance India, 10 (1), pp. 73-84. Kundu, Abhijit (2009). Stock Selection Performance of Mutual Funds Managers in India: An Empirical Study. Journal of Business and Economic Issues, 1(1) pp. 59-73. Shanmugham, R and Zabiulla (2011). Stock Selection Strategies of Equity Mutual Fund Schemes in India. Middle Eastern Finance and Economics, ISSN 1450-2889, Issue 11, pp. 19-28. Solanki, Alka (2016). A study of Performance Evaluation of Mutual Fund and Reliance Mutual Fund. Abinav National Monthly Referred Journal of Research in Commerce and Management, 5(5), pp. 1-6. Sondhi, H.J and Jain, P.K (2010). Market Risk and Investment Performance of Equity Mutual Funds in India: Some Empirical Evidence. Finance India, XXIV (2), pp. 443-464.

www.bseindia.com www.amfiindia.com www.businessstandard.com www.rbi.org.in.com www.mutualfundindia.com www.sebi.gov.in www.investopedia.com www.moneycontrol.com www.reliancem.com

Assistant Professor, Department of Business Administration, Maharaja Surajmal Institute, New Delhi E-Mail –