A Comparative Study On Performance of Mutual Funds and Its Schemes in India 1

AIJRRLSJM VOLUME 2, ISSUE 10 (2017, OCT) (ISSN-2455-6602) ONLINE
ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES, LAW,

SOCIAL SCIENCES, JOURNALISM AND MANAGEMENT PRACTICES
A COMPARATIVE STUDY ON PERFORMANCE OF MUTUAL FUNDS

AND ITS SCHEMES IN INDIA
Dr. N. RENUKA
Professor
Avanthi degree and PG College
ABSTRACT:
India’s mutual fund market has witnessed phenomenal growth over the last decade. The consistency in the
performance of mutual funds has been a major factor that has attracted many investors. Mutual Fund is one of
the most effective instruments for the small & medium investors for investment and offers opportunity to them to
participate in capital market with low level of risk. The performance of mutual fund schemes is dependent on the
right strategy adopted by the fund managers in designing the portfolio. Among various investment modes,
Mutual Fund is the most suitable investment mode for the common man, as it offers an opportunity to invest in a
diversified and professionally managed portfolio at a relatively low cost.
Keywords: Mutual funds, schemes, investors, banks
1.0 INTRODUCTION:
Mutual Funds have become a widely popular and effective way for investors to participate in
financial markets in an easy, low-cost fashion, while muting risk characteristics by spreading
the investment across different types of securities, also known as diversification. It can play a
central role in an individual's investment strategy. They offer the potential for capital growth
and income through investment performance, dividends and distributions under the guidance
of a portfolio manager who makes investment decisions on behalf of mutual fund unit
holders. Over the past decade, mutual funds have increasingly become the investor’s vehicle
of choice for long-term investment. It becomes pertinent to study the performance of the
mutual fund. The relation between risk-return determines the performance of a mutual fund
scheme. As risk is commensurate with return, therefore, providing maximum return on the
investment made within the acceptable associated risk level helps in segregating the better
performers from the laggards. Many asset management companies are working in India, so it
is necessary to study the performance of it which may be useful for the investors to select the
right mutual fund.
2.0 LITERATURE REVIEW:
Sapar & Narayan (2003) examines the performance of Indian mutual funds in a bear market
through relative performance index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's
measure, Jensen's measure, and Fama's measure with a sample of 269 open ended schemes
(out of total schemes of 433). The results of performance measures suggest that most of the
mutual fund schemes in the sample of 58 were able to satisfy investor's expectations by
giving excess returns over expected returns based on both premium for systematic risk and
total risk.
Selvam et.al (2011) studied the risk and return relationship of Indian mutual fund schemes.
The study found out that out of thirty five sample schemes, eleven showed significant t–
values and all other twenty four sample schemes did not prove significant relationship
between the risk and return. According to t-alpha values, majority (thirty two) of the sample
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SOCIAL SCIENCE, JOURNALISM AND MANAGEMENT PRACTICES
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21
schemes' returns were not significantly different from their market returns and very few
number of sample schemes' returns were significantly different from their market returns
during the study period.
Nithya R. (2004) state that the values of mutual funds to the target people by identifying
Asset Management Company that is performing well and identifying the top schemes in the
category such as equity, balanced, Monthly Income Plan(MIP) & Income in the Assets
Management Company (AMC), and it performed well and met the expectations.
Wadhwa, B.; Kaur, D (2015) studied the factors responsible for the selection of mutual fund
as an investment option and also analyzed the impact of various demographic variables on
investors attitude towards mutual fund by taking three hundred respondents from Delhi
region. One third respondents had given positive response and half of them had neutral
response towards mutual fund. The authors found significant association between attitude and
demographic features of respondents such as: age, gender, income & occupation. It was also
found that no significant association between education & attitude towards mutual fund.
OBJECTIVES:
1. To study about the mutual funds in India

2. To study about mutual fund schemes
3. To give brief idea about mutual funds available in India
4. To give idea about the regulation of mutual funds in India
Concept of mutual funds

A mutual fund is a trust that pools the savings of a no. of investors, who share a common
financial goal. 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. Thus a mutual fund is the most suitable investment for the common
man as it offers an opportunity to invest in diversified, professionally managed basket of
securities at a relatively low cost.
History of the Indian Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,
at the initiative of the Government of India and Reserve Bank of India. The history of mutual
funds in India can be broadly divided into four distinct phases
First Phase – 1964–87 Unit Trust of India (UTI) was established on 1963 by an Act of
Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory
and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the
RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme
1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management.
Second Phase – 1987–93 (Entry of Public Sector Funds) 1987 marked the entry of non-UTI,
public sector mutual funds set up by public sector banks and Life Insurance Corporation of

22
India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first
non-UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87),
Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of
India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in
June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the
mutual fund industry had assets under management of Rs. 47,004.
Third Phase – 1993–2003 (Entry of Private Sector Funds) With the entry of private sector
funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian
investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual
Fund Regulations came into being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin
Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI
(Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual
Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund)
Regulations 1996.
Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust
of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of Rs. 29,835 crores as
at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return
and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning
under an administrator and under the rules framed by Government of India and does not
come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual
Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under
the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March
2000 more than Rs.76, 000 crores of assets under management and with the setting up of a
UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent
mergers taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth.
Structure of Mutual Funds in India Like other countries, India has a legal framework
within which mutual funds must be constituted. Unlike in the UK, where two distinct 'trust'
and 'Corporate' structures are followed with separate regulations, in India, open ended and
close ended funds operate under the same regulatory Structure, and are constituted along one
unique structure, and are constituted along one unique structure-as unit trusts. A Mutual Fund
in India is allowed to issue open-ended and close end schemes under a common legal
structure. Therefore a mutual fund may have general differential schemes (open and close
end) under it i.e. under the Unit Trust at any point of time. The structure which is required to
be followed by Mutual Funds in India is laid down under SEBI (Mutual Fund) regulations,
1996.
HDFC Mutual Fund
HDFC mutual fund was set up on June 30, 2000 with two sponsors namely Housing
Development Finance Corporation ltd. and Standard Life Insurance ltd. HDFC mutual fund

23
came into existence on 1 0 Dec. 1999 and got approval from the SEBI on 3 rd July 2000
.Housing Development Finance Corporation Limited, more popularly known as HDFC Bank
Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking
Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in
principle' approval from RBI, for setting up a bank in the private sector. The bank was
incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The
following year, it started its operations as a Scheduled Commercial Bank. Today, the bank
boasts of as many as 1412 branches and over 32 75 ATMs across India.
Products and Schemes of HDFC mutual fund
Equity funds, balanced funds, Debt funds and Liquid funds
Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential
PLC. Of America, one of the largest life insurance companies in the USA. Prudential ICICI
mutual fund was set up on 1 3 th of Oct. 199 3 with two sponsors. ICICI Bank started as a
wholly owned subsidiary of ICICI Limited, an Indian financial institution, in 199 4 . Four
years later, when the company offered ICICI Bank's shares to the public, ICICI's
shareholding was reduced to 4 6%. In the year 2000, ICICI Bank offered made an equity
offering in the form of ADRs on the New York Stock Exchange (NYSE), thereby becoming
the first Indian company and the first bank or financial institution from non-Japan Asia to be
listed on the NYSE. In the next year, it acquired the Bank of Madura Limited in an all-stock
amalgamation. Later in the year and the next fiscal year, the bank made secondary market
sales to institutional investors
Products and Schemes of HDFC mutual fund
Equity funds, balanced funds, Debt funds, Liquid funds, Children’s gift fund
Other Players in Mutual Fund
Bank of Baroda mutual fund (BOB MF) 30 OCT. 1992
Benchmark mutual funds (June 1 2, 2001).
Birla Sun life MF (1871)
Chola mutual fund (3 Jan. 1997)
Can bank mutual fund (Dec. 19, 1987)
LIC mutual fund (19th June, 1989)
Reliance mutual fund (30 June, 1995)
Sahara mutual fund (18 July, 1996)
GIC (General Insurance Corporation of India). Etc.

24
3.0 METHODOLOGY:
Performance in terms of Average Returns, Standard Deviation, Beta and R2
The performance of selected funds is evaluated using average return, standard deviation, Beta
and R2. Return alone should not be considered as the basis of measurement of the
performance of a mutual fund scheme, it should also include the risk taken by the fund
manager because different funds will have different levels of risk attached to them. Risk
associated with a fund, in a general, can be defined as variability or fluctuations in the returns
generated by it. The higher the fluctuations in the returns of a fund during a given period,
higher will be the risk associated with it.
Evaluation Parameters Following parameters have been used to evaluate the performance
to said Asset Management Companies (AMCs). Net Asset Value (NAV) It is the amount
which a unit holder would receive if the mutual fund were wound up. An investor in mutual
fund is a part owner of all its assets and liabilities. Returns to the investor are determined by
the interplay of two elements Net Asset Value and Costs of Mutual fund.Net Asset Value is
the mutual fund’s calling card. It is the basis for assessing the return that an investor has
earned. Mutual funds sell their shares to the public and redeem them at current NAV, which
is calculated as under;
Where net asset of the scheme is defined as;
Net Assets of the scheme= Market value of investment + Receivables + Other accrued
income + other assets – Accrued expenses – Other payables – other liabilities
Risk Free Rate A risk less asset has zero variability of returns. If an investor buys an asset at
the beginning of the holding period with the known terminal value, such type of asset can be
called as risk-less or risk free asset. Government securities and nationalized bank deposits fall
under this category. In this study, 91-days Treasury bill have been extracted from respective
monthly SEBI Bulletins and used as a proxy for risk free rate of return.
Standard Deviation (SD) Its significance lays in the fact that sample is free from defects of
sampling, it measures the absolute dispersion, the greater the SD; 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 total risk is measured in terms of standard deviation.
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 relevant benchmark index then the beta would be inadequate. A beta that is

25
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.
Coefficient of Determination (R2) The R2 is a measure of a security’s diversification in

relation to the market. The closer the R2 is to 1.00, the more completely diversified the
portfolio. R2 is ranging from 1 to 100, gives an idea about how well a fund’s performance
correlates with that of the benchmark. An R2 of 0 means that a fund’s returns have no
correlation with the market and an R2 of 1.00 indicates that a fund’s returns are completely in
sync-up and down-with the benchmark.
The performance of selected funds is evaluated using average return, standard deviation, Beta
and R2. Return alone should not be considered as the basis of measurement of the
performance of a mutual fund scheme, it should also include the risk taken by the fund
manager because different funds will have different levels of risk attached to them. Risk
associated with a fund, in a general, can be defined as variability or fluctuations in the returns
generated by it. The higher the fluctuations in the returns of a fund during a given period,
higher will be the risk associated with it.
Table 1 Return and Risk of Mutual Fund Schemes
1 2 3 4 5 6
S.No Schemes Average Total Beta R
Return Risk (Std.
(Monthly) Deviation
)
1 SBI Contra Fund 0.0163601 0.0786799 0.9627420* 0.88430215
2 Kotak Opportunities 0.01679639 0.0815609 0.9863392* 0.86435148
Fund
3 Birla Sunlife 0.01427274 0.0713848 0.8148696* 0.76892085
Dividend Yield Plus
Fund
4 HDFC Growth Fund 0.01610818 0.072105 0.8962191* 0.91155583
5 ICICI Prudential 0.01735794 0.0705591 0.8444962* 0.84475441
Dynamic Fund
6 Tata Ethical Fund 0.01554503 0.0813038 0.9683483* 0.83740327
7 UTI MNC Fund 0.01395328 0.0595073 0.6634898* 0.73192174
8 HSBC India 0.01300302 0.0724259 0.8812375* 0.87462856
Opportunities Fund
BSE SENSEX 0.01412505 0.076853 1 1
Performance in terms of Sharpe Ratio The Sharpe Ratio measures the fund’s excess return
per unit of its risk (i.e. total risk). This ratio indicates the relationship between the portfolio’s
additional return over risk-free return and total risk of the portfolio, which measured in terms

26
of standard deviation. The results of the Sharpe Ratios of the selected mutual fund schemes of
all the growth option with the benchmark portfolio have been presented below:
Table 2 Sharpe Ratios of Mutual Fund Schemes-Growth Option
S.No Schemes Sharpe Ratio

1 SBI Contra Fund 0.137560337
2 Kotak Opportunities Fund 0.138050489
Birla Sunlife Dividend Yield Plus
3 Fund 0.12237715
4 HDFC Growth Fund 0.146609976
5 ICICI Prudential Dynamic Plan Fund 0.167534359
6 Tata Ethical Fund 0.123095806
7 UTI MNC Fund 0.14143495
8 HSBC India Opportunities Fund 0.103086736
Sharpe Ratio of the BSE Sensex 0.111748137
4.0 CONCLUSION:
In India, innumerable mutual fund schemes are available to general investors which generally
confound them to pick the best out of them. This study provides some insights on mutual
fund performance so as to assist the common investors in taking the rational investment
decisions for allocating their resources in correct mutual fund scheme. The data employed in
the study consisted of monthly NAVs for the open-ended schemes. the performance of
mutual fund in terms of Average returns, seventy five percent of the diversified fund schemes
have shown higher and superior returns and remaining have shown inferior returns. In terms
of standard deviation, sixty two percent of the selected schemes are less risky than the
market. All the funds have beta less than one and positive which imply that they were less
risky than the market portfolio and in terms of coefficient of determination (R2), all eight
funds were near to one which indicates higher diversification of portfolio. Mutual fund is
also better and preferable for those who want their capital appreciation.
REFERENCES:
1. Deepak Agrawal (2007)”Measuring Performance of Indian Mutual Funds” Truba College of

Management & Technology, Indore
2. Dr.S. Anand & Dr.V Murugaiah (2003)“Analysis of Components of Investment Performance – An
Empirical Study of Mutual Funds in India” Goa Institute of Management, Goa
3. Soumya Guha Deb, Prof. Ashok Banerjee, Prof. B.B.Chakrabarti (2005)“Performance of Indian Equity
Mutual Funds, Their Style Benchmarks – An Empirical Exploration” IIM, Calcutta.
4. Mohit Gupta and Navdeep Agarwal (2009)“Mutual Fund Portfolio Creation Using Industry
Concentration” ICFAI University
5. Vijay Anand M. (2000) “Analysis of Performance of Equity funds (Diversified) Openend Mutual Fund
during 1997 – 2000” IFMR, Chennai

27
6. Adhav, Mr. S.M. & Chauhan, Dr. P.M.(2015), “Comparative Study of Mutual Funds of Selected Indian
Companies”, International Journal of Science, Technology & Management, Vol. 04, Issue 02, pp. 44-
51
7. Ayaluru, M.P.(2016), “Performance Analysis of Mutual Funds: Selected Reliance Mutual Fund
Schemes”, Parikalpana KIIT Journal of Management, Vol. 12(1), pp. 52-62.
8. Kesavraj, Dr.Geeta (2013), “A Study on Customer Perception towards Various Types of Mutual Funds
in Chennai”, Asia Pacific Journal of Research, Vol. 1, Issue 10, pp. 17-26.
9. Ratnarajun. P., & Madhav, V.V. (2016),“A study on Performance Evalution of Mutual Funds Schemes
in India”, IJABER, Vol. 14, No. 6, pp. 4283-4291
10. Banikanta Mishra, Mahmud Rahman. (2001), "Measuring mutual fund performance using lower
partial moment", Global Business Trends, Contemporary Readings

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AIJRRLSJM VOLUME 2, ISSUE 10 (2017, OCT) (ISSN-2455-6602) ONLINE

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES, LAW,

A COMPARATIVE STUDY ON PERFORMANCE OF MUTUAL FUNDS

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

1. To study about the mutual funds in India

Concept of mutual funds

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

Products and Schemes of HDFC mutual fund

Equity funds, balanced funds, Debt funds and Liquid funds

Products and Schemes of HDFC mutual fund

Other Players in Mutual Fund

Bank of Baroda mutual fund (BOB MF) 30 OCT. 1992

Benchmark mutual funds (June 1 2, 2001).

Birla Sun life MF (1871)

Chola mutual fund (3 Jan. 1997)

Can bank mutual fund (Dec. 19, 1987)

LIC mutual fund (19th June, 1989)

Reliance mutual fund (30 June, 1995)

Sahara mutual fund (18 July, 1996)

GIC (General Insurance Corporation of India). Etc.

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

Performance in terms of Average Returns, Standard Deviation, Beta and R2

Where net asset of the scheme is defined as;

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

Coefficient of Determination (R2) The R2 is a measure of a security’s diversification in

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

Table 2 Sharpe Ratios of Mutual Fund Schemes-Growth Option

S.No Schemes Sharpe Ratio

1. Deepak Agrawal (2007)”Measuring Performance of Indian Mutual Funds” Truba College of

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

ANVESHANA’S INTERNATIONAL JOURNAL OF RESEARCH IN REGIONAL STUDIES LAW,

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