mutual fund topic

1. PROBLEM
“Performance Evaluation of Indian Mutual Funds”
INTRODUCTION
The concept of ‘Mutual Funds’ is to make different investment avenues available
to investors. Mutual funds also offer good investment opportunities to the investors. Like
all investments, they carry certain risks. The investors should compare the risks and
expected yields after adjustment of tax on various instruments while taking investment
decisions.
Open-end funds
A type of mutual fund that does not have restrictions on the amount of shares the
fund will issue. If demand is high enough, the fund will continue to issue shares no
matter how many investors there are. Open-end funds also buy back shares when
investors wish to sell.
Most open-end Mutual funds stand ready to buy back (redeem) its shares at
their current net asset value, which depends on the total market value of the fund's
investment portfolio at the time of redemption. Most open-end Mutual funds
continuously offer new shares to investors.
Growth funds
Growth funds are those mutual funds that aim to achieve capital appreciation by
investing in growth stocks. They focus on those companies, which are
experiencing significant earnings or revenue growth, rather than companies that
pay out dividends. Growth funds tend to look for the fastest-growing companies in
the market. Growth managers are willing to take more risk and pay a premium for
their stocks in an effort to build a portfolio of companies with above-average
earnings momentum or price appreciation.
OBJECTIVES
To know the mutual funds performance levels in the present market
Compare fund returns with the returns of benchmark index, BSE (Bombay Stock
Exchange) Sensex
Capturing differences in the performance levels, if any.
Risk-related parameters: as indicated by the Standard Deviation (SD) and risk-
adjusted returns as calculated by the Sharpe Ratio (SR).
Ascertaining whether the returns generated by the funds are purely attributable to
market movement or individual fund performance.

2. THE LIST OF FUNDS SELECTED FOR THE STUDY IS:
Birla Sun Life India Opportunities Fund - Growth
Birla Sun Life Advantage Fund-Growth
Birla Sun Life Equity Fund-Growth
Birla Sun Life Midcap Fund-Growth
Birla Sun Life Buy India Fund-Growth
ICICI Prudential Power Plan-Growth
ICICI Prudential Tax Plan-Growth
ICICI Prudential Index Fund
ICICI Prudential Growth Plan-Growth
HDFC Equity Fund-Growth
HDFC Long Term Advantage Fund-Growth
HDFC Growth Fund-Growth
HDFC Top 200 Fund- Growth
SAMPLING
On the basis of the highest AUM (assets under management) 13 mutual funds schemes
are selected of three funds: Birla, ICICI, and HDFC. All the funds are selected by simple
random sampling.
SAMPLE SIZE
Sample size is of 13 mutual fund scheme of three mutual funds.
All the funds selected for the study are open-ended equity funds under the growth option.
The Net Asset Values (NAV) for all these funds are from 2010 to 2011, which is the
period of this study.
DATA SOURCES
I have to depend on secondary data sources for the collection of data for my study.
Internet is one of the major sources for the collection of data and other source are might
be Annual publications, Books, Fact sheets of mutual funds, Newspaper & Magazines
etc.
DATA COLLECTION
The weekly NAV’s and the Sensex closing is to be collected over a period of 1 year
(2010- 2011).

3. BENCHMARKING
Since, all these are equity funds, the BSE Sensex (Bombay Stock Exchange Sensitive
Index); which is the oldest, most widely and commonly used benchmark index in India;
has been considered as the benchmark index.
To compare the funds with a market index the BSE Sensex was selected for the only
reason that it is India’s most widely and commonly used Benchmark index.
POINTERS TO MEASURE MUTUAL FUND PERFORMANCE
MEASURES DESCRIPTION IDEAL RANGE
STANDARD Standard Deviation allows to evaluate the Should be near to its mean
DEVIATION volatility of the fund. The standard deviation of return.
a fund measures this risk by measuring the
degree to which the fund fluctuates in relation
to its mean return.
BETA Beta is a fairly commonly used measure of risk. Beta > 1 = high risky
It basically indicates the level of volatility Beta = 1 = Avg.
associated with the fund as compared to the Beta <1 = Low Risky
benchmark.
SHARPE RATIO The Sharpe ratio is a risk-adjusted measure of
return that is often used to evaluate the The higher the Sharpe ratio,
performance of a portfolio. The ratio helps to the better a fund’s returns
make the performance of one portfolio relative to the amount of
comparable to that of another portfolio by risk taken.
making an adjustment for risk.
RELATIVE Under-performers (X<=0.7),
This is calculated to show how each fund has
PERFORMANCE Par-performers
performed in relation to the market. Here, the
INDEX: (0.8<=X<=1.1) and
market index is the BSE Sensex Index
Over-performers (X>=1.2)