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Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
Online available at indianresearchjournals.com
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A COMPARATIVE ANALYSIS OF GROWTH & DIVIDEND TAX
ORIENTED MUTUAL FUND SCHEMES IN INDIA
DR. RUPEET KAUR
Lecturer, Department of Business Studies,
Higher College of Technology,Muscat,
Oman.
ABSTRACT
This study aims to examine the comparative performance of open-ended tax oriented growth and
dividend schemes in India. To evaluate the performance of funds a sample of 18 schemes has
been selected on the basis of monthly returns compared to benchmark returns. For this purpose
statistical tools average, standard deviation, beta, co-efficient of determination, systematic and
unsystematic risk and the risk adjusted performance measures suggested by Treynor, Sharpe,
Jensen and Fama‟s measures are employed. The return analysis reveals that growth schemes
performed better as compared to dividend schemes when evaluate to the benchmark. Whereas
the dividend schemes are more volatile as compared to the growth schemes. The beta value of
almost all the schemes is less than one which indicates that these are defensive schemes in nature
and less sensitive to the market forces. It is found that only 44 percent growth schemes
performed better according to Sharpe, Treynor and Jensen measures. On the basis of R2, the
schemes are well diversified which reduced the unsystematic risk. However, the funds are found
to be poor in earning better returns either adopting marketing or in selecting under priced
securities.
KEYWORDS: Beta, Co-efficient of determination, Standard deviation, Systematic risk,
Unsystematic risk.
INTRODUCTION:
Generally, investors have set objective during the time of making their investment
decision. Each investor wants to have added on to funds with safe and secure investment at very
low risk. In present scenario a number of investment options are available in the market. Some
people want to invest for tax savings, some want to invest for long term by which they can have
source of fixed income and some are interested in short term gains. Like investment in form of
real estate, regular or fixed deposits, shares, bonds, securities etc. one of them in vogue is
popular with the name of mutual fund investment. Here, investors invest in the capital market
with the help of professionals who are managing the fund houses. It‟s slightly different as
compared to the share market. Mutual fund investment is less risky as compared to the stock
market investment due to the diversification feature. For mutual fund investment a layman can
also invest because his/ her funds are going to be invested by trained professional managers who
are solely indulged to choose the right diversification. Funds manager‟s efficiency depends on lot
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
Online available at indianresearchjournals.com
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of factors like timely decision, selectivity of funds, awareness of current market situations,
forecasting etc.
In this article a comparative study has been done about growth and dividend tax oriented
schemes. Basically, mutual funds are structured under open-ended, close-ended and interval
funds. Further, the mutual fund structure is categorized under equity, debt, balanced and tax
oriented schemes. Dividend and growth are the ancillary categories in the former mentioned
schemes. In the growth schemes, profits made by the scheme are invested back into it. This
results in the net asset value (NAV) of the scheme intensifying over time. When the scheme
gains, the NAV rises and in case of loss, it goes down. Growth funds don‟t entirely adopt
speculative strategies but invest in those companies that are expected to post above average
earnings in the future. The only option to realize the profit is to sell or redeem the investment.
The dividend schemes don‟t reinvest the profits made by the funds. Profits or dividends are
distributed to the investor from time to time in the form of dividend. However, the time and
frequency of the dividend is never guaranteed. Dividends are declared only when the scheme
makes profit and it is at the discretion of the fund manager. The dividend is paid from the NAV
of the unit.
REVIEW OF LITERATURE:
Review of literature is a brief description about mutual funds research work conducted in
India as well as in abroad. Some of these studies have been reviewed in the following paragraphs
in order to establish the research gap and need for the present study. Treynor (1965) developed a
methodology for evaluating mutual fund performance that is popularly referred to as reward to
volatility ratio. Sharpe (1966) carried out a well acknowledged and widely quoted work on
performance evaluation. He also developed a composite measure of performance evaluation that
considers both return & risk. Jensen’s (1968) classic studies developed an absolute measure of
performance based upon the Capital Asset Pricing Model. The excess fund returns were
regressed upon the excess market returns to estimate the characteristics line of the regression
model. J. Williamson (1972) made an effort on the study of measuring and forecasting of
mutual funds performance and test the hypothesis that a fund‟s performance affected by net new
money. There is a popular belief that the availability of net new money tends to increase
performance. Williamson, however, found no correlation. He also sought to determine if net new
money was related to past performance with the result that no correlation was found. Kun and
Jen (1978) estimated the systematic risk and performance of 49 mutual funds over the period
1960-71 by utilizing monthly price data. The result indicated that a very substantial fraction of
mutual funds had two level of systematic risk during each of three sub periods. Kane and
Marks (1983) developed conditions under which Sharpe (1966) measure would correctly and
completely capture market timing ability of fund managers. Lee and Rahman (1989) examined
market timing and selectivity performance of selected mutual funds. They concluded that at the
individual level, there was some evidence of superior forecasting ability on the part of fund
manager. Grinblatt and Titman (1994) reported that mutual fund performance evaluation
measures generally yielded similar inferences with the same benchmark. Jayadev (1998)
conducted a study on the performance evaluation of portfolio managers. He examined the
performance of 62 mutual fund schemes using monthly NAV data for the period of April 1987 to
March 1995. The study showed that the Indian mutual funds were not properly diversified. Singh
and Chander (2001) appraised the status of Indian mutual fund industry in pre-liberalisation and
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
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post-liberalisation era extended over the period from 1963 until August, 2001. Mohanan (2006)
found that Indian mutual fund industry was one of the fastest growing sectors in the Indian
capital and financial markets. Mutual funds assets under management grew by 96 percent
between the end of 1997 and June 2003 and as a result it rose from 8 percent of GDP to 15
percent. Agrawal (2007) examined that since the development of the Indian capital Market and
deregulations of the economy in 1992 it has came a long way with lots of ups and downs. The
study revealed that the performance is affected by saving and investment habits of the people; at
the second side the confidence and loyalty of the fund manager and rewards affects the
performance of the mutual fund industry in India. Parihar et al. (2009) revealed that mutual
funds are financial intermediaries concerned with mobilizing savings of those who have surplus
and the canalization of these savings in those avenues where there is a demand for funds.
NEED OF THE STUDY:
Mutual Fund industry is becoming a good option of investment in Indian Financial Market. It
is quite popular among small and household investors, who mobilize their savings for investment
in the capital market. India has a majority of middle class families who want to yield the
maximum returns on their investment by taking the less risk and also save tax on their income.
The need of present study of mutual funds cater to reduce the past research gap and also to
update the performance of mutual funds in the current scenario. In this study, an attempt has
been made to do the comparative evaluation of the performance of open-ended growth and
dividend tax saving schemes of public sector, private sector, banks and other financial
institutions.
OBJECTIVES OF THE STUDY:
To evaluate the performance of the mutual funds, the following are the main objectives of the
present study:
i) To examine the risk and return component among these mutual funds.
ii) To study the relationship between NAV and market portfolio return (BSE Sensex).
iii) To evaluate the return of these mutual funds according to the Fama‟s model.
iv)
SCOPE OF THE STUDY:
The present study comprises of 18 mutual fund schemes launched by different public sector,
private sector, financial institutions and banks and Unit Trust of India. The time period for the
research work is from 2005 to 2010. The monthly returns are compiled on the basis of NAV.
Then these schemes are compared with Bombay Stock Exchange Sensitive Index to evaluate the
performance of these schemes. An attempt has been made to draw a conclusion which reflects
the clear picture of the mutual fund industry in the current scenario.
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
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SAMPLE SELECTION:
There are different types of mutual fund schemes available in India which is classified under
different categories. In the present study, 18 open-ended equity tax oriented growth and dividend
schemes have been selected for the study period out of total 36 open-ended equity tax schemes
(source SEBI) which reveals that the sample size is fifty percent. The convenience sampling
method is used for the sample selection.
DATA COLLECTION:
The present study is based on secondary data which is collected from various sources like
published annual reports of the sponsoring agencies, online bulletins, journals, books, magazines,
brochures, newspapers and other published and online material. The monthly data for the
mentioned schemes have been collected from the website www.mutualfundsindia.com. The data
has been collected from 1st January 2005 to 31
st December 2010.
METHODOLOGY:
In the present study an attempt has been made to analyze and interpret the behaviour of
different mutual fund schemes with the market during the period under study. In order to achieve
the pre-determined objectives an analysis has been made to compare these schemes with the
market on the basis of risk and return.
Different statistical and financial tools are used to evaluate the performance of these mutual fund
schemes under the present study. These tools and techniques include percentage method,
arithmetic mean, standard deviation, beta, co-efficient of determination, Sharpe, Treynor, Jensen
Alpha and Fama‟s Measure.
AVERAGE RETURN:
The most common method of calculating the return is average simple return. This method
is easy to compute and understand. Hence, schemes are compared on the basis of average
monthly return generated by the schemes under the study as:
Average Scheme Return has been computed as:
ARp = ∑Rp/n
Where
ARp = Average Portfolio Return
Rp = portfolio return
n = number of observations
Average Market Return has been computed as:
ARm = ∑Rm/n
Where
ARm = Average Market Return
Rm = Market Return
n= number of observations
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
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STANDARD DEVIATION:
It is measure of total risk of a fund. It measures the fluctuation of the NAV as compared
to the average returns of the schemes during a particular period. A higher standard deviation
characterize that the returns of the fund have been more unstable and risky than fund having
lower standard deviation. Hence, low standard deviation means low risk in funds return. It has
been calculated with the usage of MS excel 2007 „STDEV” function where the cell range caters
to the monthly fund returns over the period under study.
BETA:
Beta is a measure of systematic risk of a portfolio. It determines the volatility of a fund in
comparison to that of its index or benchmark. Where the beta value of fund is very close to 1, it
indicates that the fund‟s performance closely matches the market index. Beta value of fund less
than 1 indicates less volatility of the fund than the market index. Negative beta reflects an
inverse relationship between the security and the market.
Beta is computed by following formula:
Beta= Covariance (Stock, Index)/ Variance (Index).
Where, Covariance (Stock, Index) means covariance between scheme and market returns, while
Variance (Index) means variance of Index.
CO-EFFICIENT OF DETERMINATION (R-SQUARE):
R-Square of a fund advises investors if the beta (or systematic risk) of a mutual fund is
measured against an appropriate benchmark, thus helps in testing the validity of the comparison.
Funds with the high R-square value indicate that the portfolio is well diversified with low
company specific risk and vice versa. Hence, schemes with high R-square value are preferred. A
low R-square value indicates that the fund has further scope for diversification.
RISK FREE RATE:
Risk free rate is measured by the bank rate prevailing during the period under study. It is
also measured on monthly basis so as to have a compatibility with the monthly returns of the
mutual fund schemes.
SHARPE RATIO:
It is developed by Nobel laureate William F. Sharpe to measure risk adjusted
performance. It is a measure of a fund‟s return per unit of risk assumed. Sharpe ratio is
calculated by deducting the risk free rate of return from the average monthly return for a
portfolio and dividing the result by the standard deviation of the portfolio returns. Higher ratio
indicates the better the fund‟s historical risk-adjusted performance. The Sharpe ratio tells us
whether the portfolio‟s returns are due to smart investment decisions or a result of excess risk.
The greater a portfolio‟s Sharpe ratio, the better is its risk adjusted performance. A negative
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
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Sharpe ratio indicates that a risk - less asset would perform better than the security being
analyzed. If fund‟s Sharpe ratio is greater than the benchmark, the fund‟s performance is superior
over the market. If it is less than the benchmark, the fund‟s performance is not good in the
market. Sharpe ratio is calculated with the usage of following equation:
Sp = (ARp – ARf) / σp
Where,
ARp = Average Fund Return
ARf = Average risk-free return
σp = Standard deviation of fund returns
The benchmark comparison is Sm = (ARm -ARf) σm
TREYNOR RATIO:
Treynor ratio is developed by Jack Treynor that measures return per unit of systematic
risk. It is similar to the Sharpe ratio, with the difference that the Treynor ratio uses beta as the
measurement of volatility. The scheme with the higher Treynor ratio offers a better risk-reward
equation for the investor. It is also known as the “reward-to-volatility ratio”. It is more
appropriate for diversified funds, where the systematic risks have been eliminated. For a
completely diversified portfolio, one without any unsystematic risk, the two measures give
identical ranking. Alternatively, a poorly diversified portfolio could have a high ranking based
on Treynor ratio and a low ranking based on Sharpe ratio. The difference in rank is because of
the difference in diversification. Hence, both ratios provide complementary yet different
information. Treynor ratio is calculated for various funds as:
Tp = AR p – ARf /ßp Where,
AR p = Average fund return
ARf = Average risk- free return
ßp = beta of the fund
The benchmark comparison is (AR m – ARf )
JENSEN’S ALPHA:
Jensen‟s Alpha is a measure of differential return earned by the fund. It helps in
evaluating the ability of the fund manager in identifying the undervalued securities and there by
generating excess returns than the benchmark. Hence, the ability of stock selection can be known
with the help of Jensen‟s Alpha. It is appropriate for portfolios which are fully diversified and
where the non-systematic risk would be zero. Jensen‟s alpha is usually very close to zero. A
positive value of alpha indicates that the portfolio has average return greater than the benchmark
which indicates the superior performance. Alternatively, a negative value of alpha would indicate
that the fund has a return less than the benchmark. In other words, a positive alpha of 1.0 means
the fund has performed well as compared to its benchmark index by 1 percent while a negative
alpha would indicate a poor performance of 1 percent. Expected return from the scheme based on
its beta is calculated as:
ERp = ARf + [ßp * (AR m – ARf )]
Formula for calculating Alpha is as following
αp = (ARp - ARf )- ßp (AR m – ARf )
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
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Where,
αp = the Jensen measure (alpha), intercept measuring the forecasting ability of the manager
ARp = average portfolio return
ARf = average risk free return
ßp = portfolio beta
AR m = average market return.
FAMA’S SEGREGATION OF RETURNS (FAMA’S COMPONENTS OF INVESTMENT
PERFORMANCE):
The risk adjusted performance measures used above reflects the overall performance of the
sample schemes. According to Fama (1972), portfolio return constitutes four components namely
risk free return, compensation for systematic risk, compensation for inadequate diversification
and returns due to net selectivity. The different components have been worked out as follows:
(i) Risk free return: ARf Risk Free asset is the one where investor purchases the asset in the beginning of the holding
period and knows exactly the terminal value of the asset at the end of the period. It includes
bank deposits, post office savings schemes, government securities, debentures etc. An
investor invests in assets other than risk free assets in the hope of obtaining excess returns for
taking additional risk.
(ii) Compensation for systematic risk: ßp (AR m – ARf )
This measure helps to access returns generated by the fund managers due to their decision to
take risk. They assume risk in the expectations of generating excess returns on their
portfolios.
(iii) Compensation for inadequate diversification: [AR m – ARf ] [ σp / σ m – ßp]
The potential advantage of mutual fund investment to the investor is diversification of the
portfolio. Diversification reduces the unique risk of the portfolio, and thus improves the
performance of the mutual fund schemes. The compensation for diversification measures is
additional return that compensates the portfolio manager for bearing the diversifiable risk.
(iv) Net Selectivity: [AR p – ARf ] - [ σp / σ m ] [AR m – ARf ]
The ability to identify the undervalued securities to earn the excess returns is known as
the ability of net selectivity of the fund managers. A positive net selectivity indicates superior
performance. The investors are benefited out of the selectivity exercised by the fund
managers, which reflects the true stock selection ability of the mutual fund managers.
However, in case of negative net selectivity, it means that fund managers have taken
diversifiable risk which has not been compensated by extra returns.
RETURN ANALYSIS:
The performance of equity tax oriented growth and dividend schemes have been analysed
through averages and these tools are applied to NAV of selected specific schemes. The results of
these applications are shown as per Table 1. The average monthly return is calculated on the
basis of NAV. In case of growth schemes, the performance of 44 percent schemes out of total
selected 9 growth schemes is above the market index whereas in the case of dividend schemes
none of the scheme has been able to compete with the benchmark. It clearly shows that growth
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
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schemes performed better as compared to the dividend schemes. Among all the selected schemes
HDFC Tax Saver (G) has shown the highest return.
RISK ANALYSIS:
The risk is analysed with the help of standard deviation, beta, co-efficient of
determination, systematic risk and unsystematic risk (Table 1).
High value of standard deviation shows high degree of risk. In dividend schemes, all
selected schemes have higher standard deviation as compared to the benchmark i.e. market
index, whereas in growth schemes 33 percent schemes‟ standard deviation is less than the market
index and are less risky. It reveals that dividend schemes are more volatile as compared to the
market. Overall, variability in return of portfolio of schemes is more than variability in return of
the market. Standard deviation allows portfolios with similar objective to be compared over a
particular time frame.
The beta value on the basis of NAV is more than one in ING Tax Saving Fund (G) which
indicates that only this scheme is more sensitive and volatile than market. Whereas beta value of
the remaining selected schemes are less than one and manifest that these are defensive schemes
in nature and less sensitive to the market forces.
The value of R2
is high in almost all growth schemes except one scheme i.e. Sahara Tax
Gain(G) which indicate that most of the schemes are well diversified and the unsystematic risk is
low in these schemes whereas the systematic risk is high. Thus most of the schemes offer the
advantages of diversification which resulted into reduction of total risk. Whereas in dividend
schemes the unsystematic risk is high it means that the securities are not properly diversified and
have less scope to earn better returns among the schemes under study.
Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
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TABLE NO. 1: RETURN & RISK ANALYSIS
Growth Schemes:
Sr.
No. Name of the Scheme Average
Portfolio
Return
Standard
Deviation
(σ)
Beta (β) R Square
(R2)
Systematic
Risk
Unsystematic
Risk
1 Escorts Tax Plan (G) 0.014427 0.083695 0.885061
0.787772
0.005518
0.001487
2
Franklin India Tax
Shield (G)
0.020111 0.076364
0.873034
0.920748
0.005369
0.000462
3 HDFC TaxSaver (G) 0.022760 0.081421 0.910199
0.880354
0.005836
0.000793
4
ICICI Prudential
Tax Plan (G)
0.021518 0.089803
0.955277
0.797140
0.006429
0.001636
5
ING Tax Saving
Fund (G)
0.018123 0.094700
1.020259
0.817670
0.007333
0.001635
6
LIC Nomura Tax
Plan (G)
0.012724 0.085796
0.984955
0.928445
0.006834
0.000527
7 Sahara Tax Gain (G) 0.008281 0.133330
0.923559
0.338010
0.006009
0.011768
8
Sundaram Tax Saver
(G)
0.021544
0.084620
0.929420
0.849832
0.006085
0.001075
9
UTI Equity Tax
Saving Plan (G)
0.015244
0.075892
0.868034
0.921578
0.005308
0.000452
Dividend Schemes:
Sr.
No. Name of the Scheme Average
Portfolio
Return
Standard
Deviation
(σ)
Beta (β) R Square
(R2)
Systematic
Risk
Unsystematic
Risk
1 Escorts Tax Plan (D) 0.002112 0.098826 0.928237
0.621477
0.006070
0.003697
2
Franklin India Tax
Shield (D)
0.008681
0.086916 0.896775
0.749936
0.005665
0.001889
3 HDFC TaxSaver (D) 0.012089 0.086794 0.884995
0.732412
0.005517
0.002016
4
ICICI Prudential
Tax Plan (D)
0.007730 0.099068
0.970330
0.675808
0.006633
0.003182
5
ING Tax Saving
Fund (D)
0.009412 0.105953
0.971406
0.592148
0.006647
0.004579
6
LIC Nomura Tax
Plan (D)
0.000970 0.089814
0.939088
0.770153
0.006212
0.001854
7 Sahara Tax Gain (D) -0.003490 0.137916
0.991184
0.363858
0.006921
0.012100
8
Sundaram Tax Saver
(D)
0.001322
0.099415
0.984470
0.670732
0.006629
0.003254
9
UTI Equity Tax
Saving Plan (D)
0.004214 0.086916
0.826979
0.637737
0.004818
0.002737
Market Index 0.019601 0.082750 1.000000
Source: www.mutualfundsindia.com
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The systematic risk on the basis of NAV is lowest in case of UTI Equity Tax Saving Plan
(D) followed by UTI Equity Tax Saving Plan (G), Franklin India Tax Shield (G), HDFC Tax
Saver (D) and Escorts Tax Plan (G) which means that these schemes are better in comparison to
ING Tax Saving Fund (G), Baroda Pioneer ELSS 96, Sahara Tax Gain (D), LIC Nomura Tax
Plan (G) and ING Tax Saving Fund (D) schemes in which systematic risk is highest. The
systematic risk is undiversifiable and unavoidable.
APPLICATION OF SHARPE MODEL:
The analysis (Table 2) depicts the excess return of total risk over the risk free rate per unit.
TABLE NO. 2
APPLICATION OF SHARPE MODEL
Growth Schemes
Sr.
No. Name of the Scheme
Sharpe
Ratio Benchmark Performance
1 Escorts Tax Plan (G) 0.052891 0.116029 0
2 Franklin India Tax Shield (G) 0.132403 0.116029 1
3 HDFC TaxSaver (G) 0.156717 0.116029 1
4 ICICI Prudential Tax Plan (G) 0.128254 0.116029 1
5 ING Tax Saving Fund (G) 0.085776 0.116029 0
6 LIC Nomura Tax Plan (G) 0.031744 0.116029 0
7 Sahara Tax Gain (G) -0.012889 0.116029 0
8 Sundaram Tax Saver (G) 0.136425 0.116029 1
9 UTI Equity Tax Saving Plan (G) 0.069102 0.116029 0
Dividend Schemes
Sr.
No. Name of the Scheme
Sharpe
Ratio Benchmark Performance
1 Escorts Tax Plan (D) -0.079815 0.116029 0
2 Franklin India Tax Shield (D) -0.015180 0.116029 0
3 HDFC TaxSaver (D) 0.002089 0.116029 0
4 ICICI Prudential Tax Plan (D) -0.022909 0.116029 0
5 ING Tax Saving Fund (D) -0.005547 0.116029 0
6 LIC Nomura Tax Plan (D) -0.100546 0.116029 0
7 Sahara Tax Gain (D) -0.097810 0.116029 0
8 Sundaram Tax Saver (D) -0.087294 0.116029 0
9 UTI Equity Tax Saving Plan (D) -0.066570 0.116029 0
Source: www.mutualfundsindia.com Note: 1 stands for good performance and 0 stands for poor
performance.
The performance of these schemes is compared with the benchmark BSE Sensex. The
schemes having more than one value indicate that it has performed well in the market and less
than one value indicates that it has poor performance. On the basis of NAV, 44 percent of growth
schemes have more than one value; therefore, have good performance in the market whereas all
of the dividend schemes have shown poor performance. The top performers are HDFC Tax
Saver (G), Sundaram Tax Saver (G), Franklin India Tax Shield (G) and ICICI Prudential Tax
Plan (G). On the other side LIC Nomura Tax Plan (D), Sahara Tax Gain (D), Sundaram Tax
Gain (D) and Escorts Tax Plan (D) are the poorest performers.
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APPLICATION OF TREYNOR MODEL:
The performance of the schemes on the basis of Treynor‟s index is described in Table 3
which provides the excess return over risk free rate for one unit of systematic risk. The
performance of these schemes is compared with the benchmark portfolio and it is observed that
on the basis of performance indicator i.e. NAV all dividend schemes could not perform well in
the market because their relative index value is less than one. Whereas 44 percent of the growth
schemes were able to outperform the market index.
TABLE NO. 3
APPLICATION OF TREYNOR MODEL
Growth Schemes
Sr.
No. Name of the Scheme Treynor Ratio Benchmark Performance
1 Escorts Tax Plan (G) 0.005002 0.009739 0
2 Franklin India Tax Shield (G) 0.011581 0.009739 1
3 HDFC TaxSaver (G) 0.014019 0.009739 1
4 ICICI Prudential Tax Plan (G) 0.012057 0.009739 1
5 ING Tax Saving Fund (G) 0.007962 0.009739 0
6 LIC Nomura Tax Plan (G) 0.002765 0.009739 0
7 Sahara Tax Gain (G) -0.001861 0.009739 0
8 Sundaram Tax Saver (G) 0.012421 0.009739 1
9 UTI Equity Tax Saving Plan (G) 0.006042 0.009739 0
Dividend Schemes
Sr.
No. Name of the Scheme Treynor Ratio Benchmark Performance
1 Escorts Tax Plan (D) -0.008498 0.009739 0
2 Franklin India Tax Shield (D) -0.001471 0.009739 0
3 HDFC TaxSaver (D) 0.002361 0.009739 0
4 ICICI Prudential Tax Plan (D) -0.002339 0.009739 0
5 ING Tax Saving Fund (D) -0.000605 0.009739 0
6 LIC Nomura Tax Plan (D) -0.009616 0.009739 0
7 Sahara Tax Gain (D) -0.013610 0.009739 0
8 Sundaram Tax Saver (D) -0.008815 0.009739 0
9 UTI Equity Tax Saving Plan (D) -0.006997 0.009739 0
Source: www.mutualfundsindia.com Note: 1 stands for good performance and 0 stands for poor
performance.
APPLICATION OF JENSEN’S ALPHA:
Jensen‟s alpha measures differential return earned by the scheme while beta measures the
systematic risk of the scheme. The parameters of the model have been estimated by standard
regression techniques. Positive and significant alpha reflects superior performance.
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TABLE NO. 4
APPLICATION OF JENSEN’S ALPHA MODEL
Growth Schemes
Sr.
No. Name of the Scheme
Actual
Return
Expected
Return
Jensen
Alpha
1 Escorts Tax Plan (G) 0.014427 0.018498 -0.004071
2 Franklin India Tax Shield (G) 0.020111 0.018382 0.001728
3 HDFC TaxSaver (G) 0.022760 0.018739 0.004021
4 ICICI Prudential Tax Plan (G) 0.021518 0.019172 0.002346
5 ING Tax Saving Fund (G) 0.018123 0.019796 -0.001673
6 LIC Nomura Tax Plan (G) 0.012724 0.019457 -0.006733
7 Sahara Tax Gain (G) 0.008281 0.018867 -0.010586
8 Sundaram Tax Saver (G) 0.021544 0.018924 0.002621
9 UTI Equity Tax Saving Plan (G) 0.015244 0.018334 -0.003090
Dividend Schemes
Sr.
No. Name of the Scheme
Actual
Return
Expected
Return
Jensen
Alpha
1 Escorts Tax Plan (D) 0.002112 0.018912 -0.016800
2 Franklin India Tax Shield (D) 0.008681 0.018610 -0.009930
3 HDFC TaxSaver (D) 0.012089 0.018497 -0.006408
4 ICICI Prudential Tax Plan (D) 0.007730 0.019317 -0.011586
5 ING Tax Saving Fund (D) 0.009412 0.019327 -0.009915
6 LIC Nomura Tax Plan (D) 0.000970 0.019017 -0.018047
7 Sahara Tax Gain (D) -0.003490 0.019517 -0.023006
8 Sundaram Tax Saver (D) 0.001322 0.019452 -0.018131
9 UTI Equity Tax Saving Plan (D) 0.004214 0.017940 -0.013726
Source: www.mutualfundsindia.com
Table 4 gives the results pertaining to Jensen measure. Out of total 9 schemes, alpha
value for four schemes (44 percent) is positive thereby indicating superior performance.
Whereas, the alpha value is negative for all dividend schemes. In other words these schemes
have generated returns less than the equilibrium returns. Equilibrium return is a return that is
expected to be earned by a fund with a given level of systematic or market risk. These are the
results of alpha when market returns are calculated on the basis of BSE Sensex.
APPLICATION OF FAMA’S SEGREGATION OF RETURNS MODEL:
Table 5 presents break up of portfolio returns with the help of Fama‟s decomposition
measures. All selected growth and dividend schemes have positive growth rate except one
dividend scheme i.e. Sahara Tax Gain (D) has negative growth rate in its NAV during study
period. Further eighty nine percent of growth schemes have more return than risk free rate
whereas it is only twenty two percent in case of dividend schemes. Due to net selectivity 4
growth schemes and only one dividend scheme performed better while the remaining schemes
have shown poor performance. The positive values of return on systematic and unsystematic risk
imply that both dividend and growth schemes were able to cover both the risk involved during
the period of study. The return from stock selectivity was negative (except four growth schemes)
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implying that the sample schemes had earned poor return due to stock selectivity. The fund
managers were found to be incompetent in selecting the undervalued securities.
TABLE NO. 5
APPLICATION OF FAMA'S SEGREGATION OF RETURN MODEL
Growth Schemes Sr. No.
Name of the Scheme Funds Return
Risk Free Return
Net Selectivity
Systematic Risk
Inadequate Diversification
1 Escorts Tax Plan (G) 0.014427 0.010000 -0.005284 0.008498 0.001213
2 Franklin India Tax Shield
(G)
0.020111
0.010000 0.001250 0.008382 0.000478
3 HDFC TaxSaver (G) 0.022760 0.010000 0.003313 0.008739 0.000708
4 ICICI Prudential Tax Plan
(G)
0.021518
0.010000 0.001098 0.009172 0.001248
5 ING Tax Saving Fund (G) 0.018123 0.010000 -0.002865 0.009796 0.001192
6 LIC Nomura Tax Plan (G) 0.012724 0.010000 -0.007231 0.009457 0.000498
7 Sahara Tax Gain (G) 0.008281 0.010000 -0.017189 0.008867 0.006603
8 Sundaram Tax Saver (G)
0.021544
0.010000 0.001726 0.008924 0.000895
9 UTI Equity Tax Saving
Plan (G)
0.015244
0.010000 -0.003561 0.008334 0.000471
Dividend Schemes Sr. No.
Name of the Scheme Funds Return
Risk Free Return
Net Selectivity
Systematic Risk
Inadequate Diversification
1 Escorts Tax Plan (D) 0.002112 0.010000 -0.019355 0.008912 0.002554
2 Franklin India Tax Shield
(D)
0.008681
0.010000 -0.011404 0.008610 0.001474
3 HDFC TaxSaver (D) 0.012089 0.010000 -0.007981 0.008497 0.001573
4 ICICI Prudential Tax Plan
(D)
0.007730
0.010000 -0.013764 0.009317 0.002178
5 ING Tax Saving Fund (D) 0.009412 0.010000 -0.012881 0.009327 0.002967
6 LIC Nomura Tax Plan (D) 0.000970 0.010000 -0.019451 0.009017 0.001405
7 Sahara Tax Gain (D) -0.003490 0.010000 -0.029492 0.009517 0.006486
8 Sundaram Tax Saver (D)
0.001322
0.010000 -0.020213 0.009452 0.002083
9 UTI Equity Tax Saving
Plan (D)
0.004214
0.010000 -0.015871 0.007940 0.002145
Source: www.mutualfundsindia.com
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CONCLUSIONS:
From the above analysis, it is concluded that the performance of growth schemes is better
than the dividend schemes. The empirical results show that on the basis of total risk, the dividend
schemes are more volatile than the growth schemes. However, in overall both types of schemes
are more volatile than the market. The value of R2 ranges within 0.34 to 0.93 in case of growth
schemes and 0.36 to 0.77 in case of dividend schemes. It shows that except two schemes i.e.
Sahara Tax Gain (G) and Sahara Tax Gain (D); all other schemes are well diversified and
reduces the unsystematic risk. The beta value of both categories of schemes is less than one
indicates that the schemes are less affected by the market ups and downs. On the basis of
Treynor only four growth schemes have shown good performance. Interestingly the same four
schemes have performed better according to Sharpe and Jensen as well. It reveals that these
schemes performed better as compared to the market risk and total risk. Whereas, the dividend
have shown poor performance as compared to the market. However, in the Fama‟s model the
fund managers are found to be poor in terms of their ability of selectivity even though schemes
have covered both the systematic and unsystematic risk. The fund manager of the schemes can
earn better returns by adopting the market timing strategy and selecting the under priced
securities. Study reveals that the majority of the selected schemes were not able to provide the
good return to the investors as compared to the market. However, four schemes i.e. HDFC
TaxSaver (G), Sundaram Tax Saver (G), ICICI Prudential Tax Plan (G) and Franklin India Tax
Shield (G) have been able to compete with the market and provided good returns as compared to
the benchmark.
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Asia Pacific Journal of Marketing & Management Review__________________________________________ISSN 2319-2836
Vol.1 (4), December (2012)
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