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CHAPTER – IV

PERFORMANCE OF SELECTED MUTUAL FUNDS

Objective: - The objective of this chapter is to analyze the Performance of mutual funds

comparing their returns, risk, NAV using secondary data from various companies’

websites.

INTRODUCTION:

The first and foremost issue concerning Mutual Funds is its’ performance.

Mutual Funds, being an instrument for investment, needs to meet high standards of

performance. Hence, the need of the hour is to evaluate the performance of different

Mutual Funds in India and keep the Mutual Fund investors fully aware,( A Khorana and

H Servaes, 2005).

Indian mutual funds (MFs) have rewarded their investors better than any other

funds in world. According to a report by Lipper, a leading market research agency,

Indian funds have grabbed eight of the top 10 ranks over a 10-year period. If one takes

the last five years, they account for seven of the top 10 and over a 3-year period, six of

the 10 best performing mutual funds are from India. Hence the need of the hour is to

The performance analysis is in order to judge the performance of

mutual fund schemes with an objective to offer investors an easy way to identify funds

that have performed better. The excessive growth of Mutual Fund industry is liable to

inflate stock prices and makes the market more vulnerable, since it does not have enough

capacity to anticipate high inflows (Grinblatt M. &M.Keloharj, 2000). In this chapter, an

attempt has been made to study the performance of selected schemes of mutual funds.

There are many techniques employed over the years in research to analyze and predict

the performance of mutual funds, (Diane Del Guercio and Paula A. Tkac , 2002 ). The

business of evaluating Mutual Funds performance has evolved into an industry in itself.

These rating systems can provide investors with relative guidance and direction that can

lead to the decent returns. The rating companies can add much value here, as it is not a

good idea to leave style analysis even to the fund manager.

144

evaluate the performance of different Mutual Funds in India and keep the Mutual Fund

investors fully aware of this.

PERFFORMANCE:

The past performance of a fund is important in analyzing a mutual fund.

(Chander Ramesh, 2002), “But, at the same time past performance is not everything”. It

just indicates the fund’s ability to clock returns across market conditions. And, if the

fund has a well-established track record, the likelihood of it performing well in the

future is higher than a fund which has not performed well. The reference period for the

study is 5 years from January 2006-2011. Shankar (1996) points out that the Indian

investors do view Mutual Funds as commodity products and AMCs, to capture

the market should follow the consumer product distribution model. The main resources of

the data are the various rating agencies’ published data, business newspapers especially

financial express and the economic times.

Tool Analysis of computations:

“Statistical tools applied in comparing performance of different schemes are standard

deviation and Sharpe, used as measuring devices. “,Henriksson, R. & Merton (1981). Under

the performance comparison, returns, risk, standard deviation, Sharpe ratio, fund

managers’ strategies, etc., of selected five funds, are considered.

Returns compared with its Benchmarks:

A fund’s performance in isolation does not indicate anything. Hence, it is crucial

to compare the returns of different periods with its benchmark index and its peers, so as

to deduce a meaningful inference, comparing the peers the same category must be

chosen. Comparing apples with oranges doesn’t make any sense.

145

BANKING FUNDS Vs. BSE BANKEX: Here the average of the three/four selected

banking sector funds returns in the past 6 months, one year, two years, three years and

five years are compared with its benchmark BANKEX for the same period. The data is

as per the statistical figures/ tables given by ACE Mutual fund, personal FN Research.

TABLE 4.1: BANKING SECTOR FUNDS

Scheme Name 6-Mth (%)

1-Yr (%)

2-Yr (%)

3-Yr (%)

5-Yr (%)

Reliance Banking (G) -14.8 19.5 28.7 20.1 26.4 UTI Banking Sector (G) -13.8 16.1 24.8 14.6 21.9 ICICI Pru Banking & Fin Serv (G) -12.5 15.6 24.2 - -

Religare Banking (G) -13.7 15.4 27.7 - - Category Average* -13.7 16.7 26.4 17.4 24.2 BSE BANKEX -11.9 16.7 22.0 10.5 19.3

FIGURE: 4.1 BANKING SECTOR FUNDS

Return% of Sector Vs. Benchmark Fund

-20

-15

-10

-5

0

5

10

15

20

25

30

-13.7 15.4 27.7 - -

-12.5 15.6 24.2 - -

-13.8 16.1 24.8 14.6 21.9

-14.8 19.5 28.7 20.1 26.4Period

Retu

rns Category

Average*BSE BANKEX

The above table shows that mutual funds are performing better than the banking equity.

It infers that one instead of investing directly in stock it is always to choose the sector

146

fund, expecting the sector will fetch good future returns, especially when the period of

investment is more than one year.

ENERGY & POWER FUNDS AVERAGE Vs. POWER INDEX: When Power sector

funds are compared with its relative index the returns are as shown in the following table

and figure:

TABLE: 4.2 ENERGY & POWER FUNDS

Scheme Name 6-Mth

(%)

1-Yr

(%)

2-Yr

(%)

3-Yr

(%)

5-Yr

(%)

Reliance Diver Power

Sector (G) -19.1 -11.8 8.4 0.4 19.9

UTI Energy (G) -10.5 -4.3 9.2 -3.1 -

undaram Energy

Opportunities (G) -12.1 -3.6 6.0 -4.0 -

Category Average* -13.9 -6.6 7.9 -2.2 19.9

BSE POWER -14.1 -13.6 -2.7 -8.4 7.9

FIGURE: 4.2 ENERGY & POWER FUNDS

In spite the company funds are giving negative returns, sector funds are giving positive

and high returns. It is evident that Power sector funds average returns are better than

Power Sector Vs. BSE Power

-13.9-6.6

7.9-2.2

19.9

-14.1 -13.6-2.7 -8.4

7.9

-20-10

0102030

-12.1 -3.6 6 -4 -

-10.5 -4.3 9.2 -3.1 -

-19.1 -11.8 8.4 0.4 19.9Period

Ret

urns

%

CategoryAverage*

BSE POWER

147

stock investment in Power sector, especially when the period of investment is more than

one year.

FMCG FUNDS AVERAGE vs. BSE FMCG: FMCG funds are the funds invested in

only FMCG stocks. The average of selected four FMCG funds is compared with its

benchmark.

TABLE: 4.3 FMCG FUNDS AVERAGE vs. BSE FMCG

Scheme Name 6-Mth

(%)

1-Yr

(%)

2-Yr

(%)

3-Yr

(%)

5-Yr

(%)

Franklin FMCG (G) 0.2 24.5 39.9 19.6 14.4

ICICI Pru FMCG (G) 4.8 31.7 42.2 12.1 12.4

SBI Magnum FMCG 3.8 30.0 47.3 22.5 16.4

Category Average* 3.0 28.7 43.1 18.1 14.4

BSE FMCG 5.5 33.7 34.0 14.7 13.5

FIGURE: 4.3 FMCG FUNDS AVERAGE vs. BSE FMCG

When the same fund is invested for just 6 months or one year, the returns of equity is

better than mutual funds.

PHARMA FUNDS vs. BSE HEALTH CARE: The most famous four Pharma funds

average is compared to its relative index.

FMCG FUNDS AVERAGE vs. BSE FMCG

0

20

40

60

1 2 3 4 5

PERIOD

RET

UR

NS

CategoryAverage*

BSE FMCG

148

TABLE 4.4: PHARMA FUNDS vs. BSE HEALTH CARE

Scheme Name 6-Mth

(%)

1-Yr

(%)

2-Yr

(%)

3-Yr

(%)

5-Yr

(%)

Franklin Pharma (G) -2.8 15.4 53.3 28.3 18.1

UTI Pharma &

Healthcare (G) -4.7 16.5 40.0 18.5 12.8

SBI Magnum Pharma

(G) -3.8 14.5 43.5 10.2 4.1

Reliance Pharma (G) -3.6 14.6 44.2 18.4 4.5

Category Average* -3.4 14.8 48.6 22.0 14.8

BSE HEALTH CARE -7.2 15.7 36.8 12.2 11.7

FIGURE 4.4 PHARMA FUNDS vs. BSE HEALTH CARE

Mutual funds, Pharma sector funds are giving higher returns than direct investment in the

company’s shares except when the investment is just one year.

PHARMA FUNDS vs. BSE HEALTH CARE

-20

0

20

40

60

1 2 3 4 5 6

PERIOD

RET

UR

NS

149

TABLE: 4.5 IT SECTOR FUNDS vs. BSE IT:

Scheme Name 6-Mth (%)

1-Yr (%)

2-Yr (%)

3-Yr (%)

5-Yr (%)

Franklin Infotech(G) 1.0 19.7 45.4 13.0 10.5 ICICI Pru Technology(G) 0.1 27.4 53.0 8.5 10.1

DSPBR Technology.com(G) -4.0 1.0 32.5 3.1 13.6

SBI Magnum IT 1.2 16.9 42.7 3.0 6.3 Category Average* -0.4 16.3 43.4 6.9 10.1 BSE IT 2.2 18.4 45.3 10.4 10.0 (Source: ACE MF, Personal FN Research)

FIGURE 4. 5 IT SECTOR FUNDS vs. BSE IT

The returns of both direct investment in IT stock and the same sector funds are giving

almost the same returns unlike other sector funds. The reason may be that the investment

in both IT stock as well as IT sector fund mutual fund was very less during the last three

to five years.

SECTOR FUNDS VS. BENCH MARKS: In fact the above tables make it evident that,

investors especially those in the energy & power sector funds haven't been able to

generate wealth over a 3-Yr time frame, and even in long term. Most of the power &

energy sector funds have eroded wealth for investors. However, the Banking & Financial

Service Sector Funds managed to deliver luring returns over a 3-Yr time frame and in

long term, due to prudent policy measures taken by the RBI, to scuffle the impact of

global meltdown - especially the Lehman Brother's bankruptcy on the Indian economy.

IT Sector Average VS. BSE IT

-20

0

20

40

60

1 2 3 4 5

Period

Ret

urns

CategoryAverage*

BSE IT

150

But FMCG funds despite luring returns generated by them, faltered when India

consumption was hurt during the recessionary times of 2008 and early 2009.

Risk (Standard Deviation)

The standard deviation essentially reports a fund's

volatility, which indicates the

tendency of the returns to rise or fall drastically in a short period of time. A stock that is

volatile is also considered higher risky because its performance may change quickly in

either direction at any moment, (Ravi Shukla and Charles Trzcinka, 2005), The standard

deviation of a fund measures the risk by measuring the degree to which the fund

fluctuates in relation to its average return of a fund over a period of time. Standard

deviation is also known as historical volatility and is used by investors as a gauge for

measuring the risk.

COMPARISON OF STANDARD DEVIATION OF SECTOR FUNDS WITH

STOCK MARKET:

Average Standard deviation of selected four sector funds is compared with the

concerned index standard deviation.

151

TABLE 4.6 COMPARISON OF STANDARD DEVIATION OF SECTOR FUNDS

WITH STOCK MARKET:

STANDARD DEVIATION

Funds

Average

SD

Stock

index

SD

BANKING & FINANCIAL

SERVICES FUNDS 10.27 12.85

ENERGY & POWER FUNDS 9.48 10.94

FMCG FUNDS 6.35 6.25

INFRASTRUCTURE FUNDS 9.7 10.2

PHARMA FUNDS 7.62 7.41

IT FUNDS 9.44 9.07 Standard Deviation is calculated over a 3Yr period.

FIGURE : 4.6 STANDARD DEVIATION OF SECTOR FUNDS

AND STOCK MARKET

The standard deviation of mutual funds when compared to the index of stock

market, the risk is almost the same when the period of investment is less, and differs

when the period of investment is high. When three years standard deviations are

considered, it indicates that mutual funds are lesser riskier, especially during the

recession and post-recession period.

STANDARD DEVIATION OF STOCK INDEX AND SECTOR FUNDS

05

1015

BAN

KIN

G&

FIN

ANC

IAL

SER

VIC

ES

FUN

DS

FMC

GFU

ND

S

PHAR

MA

FUN

DS

MED

IA &

ENTE

RT

AIN

MEN

TFU

ND

S

SECTOR FUNDS, STOCK INDEX

STA

ND

AR

D

DEV

IATI

ON

FundsAverageSD

StcokindexSD

152

3. RISK ADJUSTED RETURN (Sharpe Ratio):

The risk adjusted return is normally measured by Sharpe Ratio. It signifies how

much return a fund has delivered vis-à-vis the risk taken. Higher the Sharpe Ratio better

is the fund’s performance. From an investor’s perspective, it is important because they

should choose a fund which has delivered higher risk-adjusted returns. In fact, this ratio

tells us whether the high returns of a fund are attributed to good investment decisions, or

to higher risk.

Sharpe ratio is developed by Nobel laureate William F. Sharpe to measure risk-adjusted

performance. The ratio is calculated by subtracting the risk-free rate – such as that of

bank interest rate - from the rate of return for a portfolio and dividing the result by the

standard deviation of the portfolio returns. The Sharpe ratio formula is:

TABLE : 4.7 SHAR PE RATIOS OF SECTOR FUNDS AND BENCH MARK

INDEX

SECTOR FUND Category Sharp e

Bench mark Index Sharpe

BANKING & FINANCIAL SERVICES FUNDS 0.17 0.1 ENERGY & POWER FUNDS -0.01 -0.06 FMCG FUNDS 0.18 0.13 PHARMA FUNDS 0.21 0.11 IT FUNDS 0.07 0.11

153

All the sector funds’ performance is better than direct stock investment, except in case of

IT funds. The IT sector for the past three years had some disturbance, this may be the

reason. This proves that when both returns and risk wise also mutual funds are

performing better.

FIGURE : 4.7 SHAR PE RATIOS OF SECTOR FUNDS AND

BENCH MARK INDEX:

Comparison of Sharpe ratio of actively manged and passively managed funds: Here ten

selected actively and passively managed funds are compared with the help of Sharpe

ratio.

154

TABLE : 4.8 Diversified Equity (Actively Managed):

Scheme Name Sharpe Ratio

HDFC Top 200 (G) 0.14

HDFC Equity (G) 0.15

Reliance Growth – Ret (G) 0.08

Franklin India Bluechip (G) 0.11

Reliance Reg Savings – Equity 0.09

ICICI Pru Dynamic (G) 0.12

Fidelity Equity (G) 0.11

DSPBR Top 100 Eq;uity – Ret (G) 0.10

Reliance Vision – Ret (G) 0.06

Reliance Equity Oppor _ Ret (G) 0.13

The sharpe ratio of Actively Managed funds ranges between 0.06 and 0.14.

155

TABLE : 4.9 EQUITY EXCHANGE TRADED FUNDS (PASSIVELY MANAGED)

Scheme Name Sharpe Ratio

Nifty BeEs 0.05

Bank BeEs 0.14

MOSt Shares MSO-MOSE TF 0.04

Junior BeEs 0.09

Kotak PSU Bank ETF 0.17

Hang Seng BeEs 0.14

Infra BeEs -0.52

Kotak Sensex ETF 0.09

Kotak NIFTY ETF 0.20

Reliance Bkg. ETF 0.23

In case of Passively Manged funds the Sharpe ratio ranges between -0.52 and 0.23.

Exchange Traded Funds, eventhough they are passively managed are giving higher

returns.

156

5. PERIOD OF INVESTMENT (Holding Period):

It’s very important that investors should go for long term (at least 3-5 years)

horizon if they wish to invest in equity oriented funds. So, it becomes important for them

to evaluate the long term performance of the funds. However this does not imply that the

short term performance should be ignored. Besides, it is equally important to evaluate

how a fund has performed over different market cycles (especially during the downturn).

During a rally it is easy for a fund to deliver above-average returns; but the true measure

of its performance is when it posts higher returns than its benchmark during the

downturn.

Performance of Closed –end Schemes: The CRISIL and Value Research India

generally evaluate short term performance – 3 months, 1 year or 3 years of mutual funds

schemes. Therefore, evaluating long-term performance lies with the academicians and

researchers.

Selected Closed Ended Funds – Period (Last 5 years): Five selected close end

schemes are compared, which are invested for a period of 5 years and also for a period of

3 years.

157

TABLE: 4.10 Selected 5 CLOSED ENDED FUNDS – PERIOD (LAST 5 YEARS)

Rank Scheme Name NAV

(`) Last 5 Years

Since Inception

1 Reliance Pharma Fund - Growth 51.2 21.42 24.21

2 IDFC Premier Equity Fund - Plan A -

Growth

29.27 17.94 18.85

3 Reliance Banking Fund - Growth 78.53 15.79 27.21

4 ING Dividend Yield Fund - Growth 20.4 13.44 12.3

5 UTI Dividend Yield Fund - Growth 28.37 12.98 17.2

TABLE: 4.11 SELECTED 5 CLOSE ENDED FUNDS - PERIOD (LAST 3

YEARS):

Rank Scheme Name NAV

(`)

Last 3

Years

Since

Inception

1 Sundaram Select Small Cap Fund -

Growth

11.22 27.44 2.42

2 Canara Robeco Multicap Fund -

Growth

13.81 22.62 6.85

3 Tata Tax Advantage Fund -1 14.43 20.7 6.58

4 Birla Sun Life Long Term Advantage

Fund - Growth

11.77 19.2 3.19

5 IDFC Tax Saver (ELSS) Fund -

Growth

12.44 18.38 4.69

158

The returns are more in case of three years average than five years average. Therefore,

three years investment is the optimum period in case of close-end funds.

6. COMPARISON OF RETURNS AND NAV:

NAV is obviously one of the important parameters that one must look at while

evaluating a fund. Although it is one of the most important, it is not the only parameter.

Many investors simply invest in a fund because it has very high NAV. Such an approach

for making investments is incomplete. In addition to NAV, investors must also look at

returns also. Here the selected six funds’ NAV is compared with returns of funds.

TABLE: 4.12 COMPARISONS OF RETURNS AND NAV

HDFC KOTAK RELIGARE SBI UTI BENCHMARK

NAV as on 11/03/2011

2066 2020 1966 2059 2021 2022

Returns since launch (CAGR)

10.56% 25.84% 21.78% 19.94% 21.3% 21.08%

According to the latest NAV, HDFC stands first, followed by SBI and the third position

goes to Benchmark. When the returns since inception is considered ranks changes.

HDFC stands last instead of first and also the rank last but the first rank goes to SBI.

Therefore, the rank differs according to the current value (NAV) and total returns

(NAV+Dividend), which may be understood with the help of the following table:

159

TABLE: 4.13 CHANGE IN RANKS AS PER NAV AND TOTAL RETURNS

NAME OF THE

COMPANY

RANK ACCORDING TO NAV(11/03/2011)

RANK ACCORDING TOTAL RETURNS

HDFC 1 6

SBI 2 5

UTI 4 3

BENCHMARK 3 4

RELIGARE 6 2

KOTAK 5 1

NAV Vs. Total returns ranks

02468

HDFC UT

I

RELI

GAR

E

Name of the company

Rank

s

RANKACCORDING TONAV(11/03/2011)RANKACCORDING TOTALRETURNS

It is observed that the ranks are completely in contrast in case of HDFC which has gone

from 1st rank to 6th

rank. Similarly Religare which stands last according to the latest

NAV stands in the second position when total returns are taken into consideration. It

infers that an investor cannot simply invest according to the latest NAV but also total

returns since its inception must be also taken into consideration. In the above table UTI

and Benchmark may be considered as standard one which stands in the same position,

both NAV wise and also total returns wise

160

7. RISK AND RETURN COMBINATION:

SD signifies the degree of risk the fund has exposed its investors to. From an

investor’s perspective, evaluating a fund on risk parameters is important because it will

help to check whether the fund’s risk profile is in line with their risk profile or not.

For example, if two funds have delivered similar returns, then a prudent investor will

invest in the fund which has taken less risk i.e. the fund that has a lower SD.

The curve forms from a graph plotting return and risk indicated by volatility, which is

represented by standard deviation. According to the modern portfolio theory, funds lying

on the curve are yielding the maximum return possible given the amount of volatility.

FIGURE 4.8 MPT: RISK- RETURNS COMBINATION

It can be noticed that as standard deviation increases, so does the return. In the

above chart, once expected returns of a portfolio reach a certain level, an investor must

take on a large amount of volatility for a small increase in return. Obviously portfolios

that have a risk/return relationship plotted far below the curve are not optimal as the

161

investor is taking on a large amount of instability for a small return. To determine if the

proposed fund has an optimal return for the amount of volatility acquired, an investor

needs to do an analysis of the fund's standard deviation. The modern portfolio theory and

volatility are not the only means investors use to determine and analyze risk, which may

be caused by many different factors in the market.

8. FUND MANAGERS’ STRATEGIES:

The success of Mutual Funds is essentially the result of the combined efforts of

competent Fund Managers. The performance of a mutual fund scheme is largely linked

to the fund manager and his team. Hence, it’s important that the team managing the fund

should have considerable experience in dealing with market ups and downs. “Investors

should avoid funds that owe their performance to a ‘star’ fund manager. Simply because

if the fund manager is present today, he might quit tomorrow, and hence the fund will be

unable to deliver its ‘star’ performance without its ‘star’ fund manager”, Wermers, R.,

(1997). Therefore, the focus should be on the fund houses that are strong in their systems

and processes. It is typical that when one has made a decision, one wonders what its

consequences will be therefore, once an investor has given money to a Fund Manager to

invest on his/her behalf, he/she should have the right to know what sort of performance

they have obtained.

A large corpus may force fund managers to spread their investments to less liquid mid-

and small cap stocks. This could be fatal in the case of a sudden fall in the market. Apart

from getting stuck in illiquid stocks, a larger fund corpus can drag down fund

performance. Even if the fund manager invests in a small but promising stock, the

investment would be too small to leave an impact on the overall fund. On the contrary,

investments in small-caps yield better results in small-sized funds.

162

Strategies of a few Top Fund Managers are analysed according to their strong and

weak points: (Wermers, R., 1997), Top Fund managers strategies is the most important

factor which reflects the overall performance of the mutual funds.

SUNIL B SINGHANI, Head-equities, Reliance Mutual Fund is adept at picking mid-

cap stocks and is known to be a value player. Sunil is not good when it comes to picking

short-term winners and his biggest weakness is that he fails to exit stocks at the right

time.

JAYASH SHROFF, Senior fund manager, SBI Mutual Fund, believes in holding a

smaller number of stocks in his portfolio. He is known to place large bets on top

companies and index front liners. He is in love of infrastructure stocks. Exposure to a

smaller number of stocks is his main weakness.

R SRINIVASAN, Head-equities, SBI Mutual Fund is known in fund manager circles

for his relatively higher portfolio churn rate. He is adept at picking mid-cap stocks. A

relatively higher exposure to small-cap stocks — which according to him is to generate

higher returns — makes him a very aggressive fund manager.

OM KUCKIAN, Fund manager-equities, Reliance Mutual Fund is known to manage

portfolios very aggressively. He hunts for a new stock on a daily basis. He is one of the

few fund managers who can create a portfolio alpha on a regular basis.

KENNETH ANDRADE, Head-investments, IDFC Mutual Fund is the 'master of

mid-caps'. However, Kenneth has a reputation of having built a huge exposure to illiquid

stocks. "He is one fund manager who does not really care about macro-economics. He

picks stocks on their merit.

163

APOORVA SHAH, Executive vice-president, DSP Blackrock Mutual Fund

APOORVA, is an avid stock picker. He holds 85-95 stocks in each fund portfolio,

making it difficult for quick market alignment. He is a firm believer in macro-economic

factors. He adopts a 'top-down strategy' while picking stocks. He does not take many

cash calls, and at any point of time is 95-98% invested in the market.

9. COSTS COMPARISON: To compare the performance of Funds one should also

compare the expense it incurs which can be done by comparing the Expense ratio. If two

funds are similar in most contexts, it might not be worth buying the high cost fund if it is

only marginally better than the other. Simply put, there is no reason for an AMC to incur

higher costs, other than its desire to have higher margins. Annual expenses involved in

running the mutual fund include administrative costs, management salary, overheads etc.

Expense Ratio is the percentage of assets that go towards these expenses. Every time the

fund manager churns his portfolio, he pays a brokerage fee, which is ultimately borne by

investors in the form of an Expense Ratio.

Expense Ratio of Mutual Fund varies greatly from one investment category to another.

The expense ratio excludes sales charges.

Examples:

The average expense ratio for an actively-managed fund is 1.25%, and this is less for an

index fund. The expense ratio may be higher or lower based on the size of the fund and

the style of the fund. For instance, the expense ratio is generally less for large company

funds than for emerging market funds.

164

TABLE: 4.14 COMPARISON OF TRANSACTION COSTS IN EQUITY AND DEBT BASED MUTUAL FUNDS

Equity Fund @ 10% Long term debt fund @ 7%

1 year 5 Years 1 year 5 Years

Initial investment 1,00,000 1,00,000 1,00,000 1.00,000

Maturity Value @ 7/10% 1,10,000 1,61,051 1,07,000 1,40,255

On redemption :

Exit Load @ 1% 1,078 0.0 0.00 0.00

STT 1.35 1.82 0.00 0.00

DDT 0.00 0.00 0.00 0.00

Table showing Comparison of transaction costs in equity and debt based Mutual funds

It is very clear that with the same initial investment of `

1, 00,000 in Equity fund and

Long term debt fund with different rates of interest at 10% and 7% respectively Maturity

value of Equity Fund is very huge comparatively. On redemption, the amount excluding

Capital gains also the amount of Equity Fund is higher than Long term debt. In case of

one year holding the redemption value of Long term Fund is more than Equity Fund.

Exit load On redemption on Equity fund is payable whereas there is no Exit Load on

debt fund.

COMPARATIVE PERFORMANCE OF EQUITY FUNDS:

This is a unique class of mutual funds that receives capital only from individuals

and reinvests this contributed capital in private companies as opposed to traditional

mutual funds that invests in publicly traded companies. The results also show that the

selectivity performance for sector funds is significantly higher than for equity funds.

165

FIGURE: 4.9 COMPARISION OF ANNUAL RETURNS OF DIFFERENT EQUITY FUNDS

Performance of different types of funds are compared on the basis of their annual

returns. Some specific funds like Equity, Money Market, Debt, Balanced, Gold ETFs,

MIPS & SIPs are compared under different periods.

Mutual Funds come under both Money Market and Capital Market. Money Market

Funds are the instruments which come under purely Money Market. Other funds may be

classified either in any of the market according to the Portfolio of that particular Fund.

COMPARISON OF MONEY MARKET MUTUAL FUNDS DURING THE LAST

THREE YEARS (during and after recession):

Money market funds are considered as less risky with an objective of minimum assured

return. Money market funds are very liquid, and hold very short term debt like

commercial papers and Treasury bills. Money markets are essentially a “cash” position.

In times of high uncertainty, investors tend to park their money in a money market.

166

When other markets are perceived as a better bet, investors shift from money market

funds to those markets, like stocks.

FIGURE: 4.10

Investment Company Institute (2011) mentioned a mutual fund company pointed out

that three of the five largest mutual funds are money markets and the largest is a bond

fund. That’s not an unusual comment from a mutual fund company. They don't seem to

appreciate the value of controlling exposure to loss in falling markets, which is called

active risk management. (Eugene F. Fama and Kenneth R. French, 1999) Even though

these are less risky, money market mutual funds total net assets is decreased during and

after recession.

167

TABLE: 4.15 SELECTED FIVE EQUITY FUNDS PERFORMANCE UNDER

DIFFERENT HOLDING PERIODS

Name of the Company 6 months

returns

1 year

returns

3 years

returns

ICICI Pru FMCG (G) 2.3 23.2 35.2

SBI Mag SFU 0.7 15.5 40.0

Sundaram India Leadership 8.3 8.3 9.1

SBI Magnum SFU – Emerging

Business

5.7 6.1 41.6

UTI – MNC Fund (G) 7.1 3.1 31.9

Source: Derived from MPT Statistics

Top equity funds when compared for different periods of 6 months, one year and

three years returns, the returns are maximum in longer period and ranges between 9%

and 40%.

COMPARATIVE PERFORMANCE OF ALL TYPES TOP FUNDS:

Anjan Chakarabarti and Harsh Rungta (2000) stressed the importance of brand

effect in determining the competitive position of the AMCs. Their study reveals that

168

brand image factor, though cannot be easily captured by computable

performance measures, influences the investor’s perception and

hence his fund/scheme selection.

TABLE: 4.16 TOP FUNDS RETURNS’ OF ALL TYPES

IN DIFFERENT HOLDING PERIODS

Top Companies in all sectors 6 months returns

1 year returns

3 years returns

ICICI Prudential FMCG(G) 2.3 23.2 35.2

Canara Robeco indigo(D) 9.4 16.2 19.4

Templetion India low duration (Bl)

4.7 10.0 13.4

SBI Gold Exchange Traded(other)

21.0 36.5 42.4

Source: Derived from MPT Statistics

When all sectors are considered for comparing in different periods, their returns are

higher in 3 year period than 6 months or one year. The returns are with a minimum and

maximum range of13.4% and 35.2%

All types Top funds returns

0204060

6mo

nths

retur

ns

3 yea

rsre

turns

Period

Retu

rns

ICICI pruFMCG(G)

Canararobecoindigo(D)

TempletionIndia leruduration(Bl)

169

TABLE: 4.17 TOP DEBT FUNDS RETURNS IN

DIFFERENT HOLDING PERIODS:

Name of the company 6 months

returns

One year

returns

3 years

returns

Canara Robeco Indigo Fund

(G)

9.4 16.2 18.0

SaharaShorttermBond

Fund(G)

4.6 14.1 15.0

Escorts Income Plan (G) 9.5 14.0 8.3

Peerless Short term fund (G) 5.0 13.1 14.0

Tata Fixed Income Portfolio 4.3 13.1 7.8

Source: Derived from MPT Statistics

Debt funds returns range between 7.8% and 18% for a period of 3 years investment.

Top 5 Debt Funds

05

101520

Can

araR

obec

oIn

digo

Fund

(G)

Esco

rtsIn

com

ePl

an (G

)

Tata

Fixe

dIn

com

ePo

rtfol

io

Name of the Company

Ret

urns

6 months returns

One year returns

3 years returns

170

TABLE: 4.18 TOP BALANCED FUNDS RETURNS

ACCORDING TO HOLDING PERIODS:

Name of the company 6 months

returns

One year

returns

3 years

returns

Templeton India Low Duration

Fund

4.7 10.0 11.2

HDFC Multiple Yield Fund(G) 3.1 9.1 13.3

Sahara Classical Fund 4.5 9.1 7.6

Taurus MIP Advantage (G) 4.5 8.3 9.7

Birla Sunlife MIP 2 Saving 3.9 8.1 7.0

Source: Derived from MPT Statistics

In case of balanced funds, three years returns are higher than when invested for 6 months

or one year. The minimum and maximum range of the returns are 7%and 11.2%.

Top 5 Balanced Funds

05

1015

Tem

plet

on

Indi

aLo

wD

urat

ion

Fund

Saha

raC

lass

ical

Fund Birla

Sunl

ifeM

IP 2

Savi

ng

Name of the Company

Ret

urns

6 months returns

One year returns

3 years returns

171

TABLE: 4.19 TOP 5 GOLD EXCHANGE TRADED FUNDS

IN DIFFERENT HOLDING PERIODS

Name of the company 6 months returns One year returns 3 years returns

SBI Gold ETF 21.0 36.5 35.4

Quantum Gold Fund(G) 21.0 36.5 27.5

UTI Gold ETF 21.0 36.4 27.5

Kotak Gold ETF 21.0 36.4 27.5

HDFC Gold ETF 20.8 36.1 26.8

Source: Derived from MPT Statistics

It’s observed that Gold Exchange Traded Funds are performing even in downtrend of

stock market, which is giving higher returns in the past three years even after recession.

Its performance is not only higher than other types, but also steadily increasing at a

tremendous rate. The next best fund is Growth fund with higher returns and steady

improvement in rate of return. Compared to Balanced Fund, Debt Funds are performing

better during last six months, one year and also three years.

Top Gold ETFs

010203040

SBI

Gol

dET

F

UTI

Gol

dET

F

HD

FCG

old

ETF

Name of the Company

Ret

urns 6 months returns

One year returns

3 years returns

172

PERFORMANCE OF SIPS:

SIP is an effective strategy for long term wealth creation. SIP is ideal for those

who are too busy to manage investment, not expertise to follow the trends of stock

market and do not have enough cash to invest. SIP is simple, effective and convenient.

As low as `500/- may be contributed at regular intervals towards mutual funds.

Systematic investing can help in achieving one’s financial goals. It encourages the habit

of saving regularly and gives returns in two ways –Rupee cost Averaging and Power of

Compounding. The longer the period of investment the more can be accumulated,

because of the power of compounding. It makes sense to start investing early. Post-dated

cheques may be issued for the same amount i.e. `500/- for at least 12 months

`1, 000/- for at least 6 months. The cheque dates should be or be 1st or 7th or 10th or 20th

or 25th

Returns (%)

of each month.

Power of Compounding: Compounding ensures that even a small difference in returns

results in investment growing at a faster pace.

TABLE: 4.21 POWER OF COMPOUNDING OF SIPs

1 year 5 years 10 years

10% 1.10 1.61 2.59

15% 1.15 2.01 4.05

20% 1.20 2.49 6.19

25% 1.25 3.05 9.31

173

TABLE: 4.22 COMPARISONS OF SIP AND NON-SIP RETURNS:

Scheme Name

SIP RETURNS (ANNUALISED)

SIP RETURNS (ANNUALISED

NON-SIP RETURNS (ANNUALISED)

NON-SIP RETURNS (ANNUALISED)

3 YEARS 1 YEAR 3 YEARS 1 YEAR Reliance Equity - Growth

21.88 98.48 8.78 85.50

SBI Magnum Global - Growth

15.96 103.47 2.18 94.76

Franklin India Prema (Growth)

17.60 96.40 3.42 86.61

When SIPs and Non SIPs are compared, the returns, especially in three years

investment period, are very high, even 5 to 8 times. It infers that investors should

make them understand the advantage of CAGR in SIP.

TABLE: 4.23 TOP ELSS SCHEMES FOR SIP

Name of the Scheme 5 years 3 years 1 year

ICICI Prudential Tax Plan 144 41.8 53.7

HDFC Tax Saver 179.4 38.8 48.7

Canara Robeco Equity Tax Saver 255.4 59.5 43.9

Sahara Tax gain 203.7 56.6 40.8

Franklin India Tax Shield 158.9 35.8 32.8

174

TABLE 4.24 TOP EQUITY DIVERSIFIED FUND FOR SIP

Name of the Scheme 5 years 3 years 1 year

Reliance Equity Opportunities 208.1 40.7 61.71

ICICI Prudential Discovery 199.9 57.7 65.74

Birla Sun Life MNC 167.1 53.5 65.77

UTI Master Value 147.9 55.5 70.11

HDFC Top 200 239.4 60.4 35.4

Equity Diversified Funds for SIP is giving very high returns when it is invested

for 5 years. The returns of the top equity fund was 208.1% which is a good sign

for investing in SIP Equity Fund rather than direct investment in equity.

050

100150200250300

ICICIPrudentialTax Plan

HDFC TaxSaver

CanaraRobeco

Equity TaxSaver

Sahara Taxgain

FranklinIndia TaxShield

5 years3 years1 year

050

100150200250300

Relia

nce

Equit

yOp

portu

nities

Birla

Sun L

ifeMN

C

HDFC

Top

200

5 years

3 years

1 year

175

TABLE: 4.25 BEST BALANCED FUNDS FOR SIPs

Name of the Scheme 5 years 3 years 1 year

HDFC Prudence 203.1 56.1 44.8

Tata Balanced 158.2 40.7 33.9

Canara Robeco Balanced 171.8 42.8 31.3

Birla Sunlife 95 164.2 45.1 30.7

When best balanced funds under SIP are compared, the returns under 5 years are

more than 200 times in some companies. The minimum returns are 158% and the

maximum is 203.1%. It infers that balanced funds under SIP plan are also doing

Returns of Balanced Funds under short term as well as long term are very well.

It is also interesting to find that even one year returns are very good compared to

normal debt funds.

PERFORMANCE OF MIP PLANS:

These plans are good for risk averse investors who are looking for a higher

return and this is the best next alternative to Fixed Deposits. These funds are generally

invested in debit-oriented schemes up to 75% and the remaining in equity instruments.

They aim to pay out regular payouts (dividends). When there is increase in the interest

050

100150200250

HDFC Prudence

Tata Balanced CanaraRobeco

Balanced

Birla Sunlife95

5 years3 years1 year

176

rates NAV of MIPs fall, when the equity portion of the portfolio is concerned. MIPs are

ideal for investment horizon of 2-3 years.

TABLE 4.26 PERFORMANCE OF MONTHLY INCOME PLANS

Scheme Name 1 year return 5 years return

HDFC MIP Long - Term 24.80 13.43

HSBC MIP Savings 20.35 11.88

Reliance MIP 18.17 13.52

UTI MIS Advantage Plan 17.63 11.95

Canara Robecco-MIP 17.06 14.32

Source : Data as on April 2010, Value Research

MIP is giving good returns for a period of one year, but not in the long run. The top

schemes under MIP are HDFC, HSBC are giving more than 20% returns per anum.

Therefore, it is advisable to choose MIPs also as one two year’s investment and then

again may shift to other plan or may extend the period year by year.

PERFORMANCE OF MID CAP FUNDS:

Mid cap funds are those mutual funds, which invest in small / medium sized

companies. As there is no standard definition classifying companies as small or medium,

each mutual fund has its own classification for small and medium sized companies.

Generally, companies with a market capitalization of up to Rs 500 crore are classified as

small. Those companies that have a market capitalization between Rs 500 crore and Rs

1,000 crore are classified as medium sized.

177

Big investors like mutual funds and Foreign Institutional Investors are increasingly

investing in mid caps nowadays because the price of large caps has increased

substantially.. Mid cap companies are looked upon as wealth creators and have the

potential to join the league of large cap companies. Such companies are nimble, flexible

and can adapt to the changes faster. One of the challenges that fund managers of mid cap

funds face is to identifying such companies.

But mid cap funds are very volatile and tend to fall like a pack of cards in bad times.

So, caution should be exercised while investing in mid cap mutual funds. Mid cap funds

are a good option in case the investor wants to add some diversity to his portfolio.

Top Mid Cap Funds in India

• Sundaram BNP Paribas Select Midcap

• Franklin India Prima Fund

• HDFC Capital Builder

• Kotak Indian Mid Cap Fund

• HSBC Midcap Equity Fund

Conclusion:

The growing number of Mutual Funds and various schemes in it pose a great difficulty to

the investors in choosing one. At the outset all schemes relatively promise higher and

similar returns, it is only the actual performance that distinguishes the better scheme

from the rest. The evaluation of Mutual Funds has become an important factor now.

With rating agencies rating the AMC as well as the scheme, as a directive from the

governing body, the investors are having one assured tool of assurance.

178

The basic evaluation is done from the past performance of a fund, though it is not the

only criteria, and even the returns for the future are guaranteed, though it gives one a

better overview of the fund’s performance. An investor whose knowledge is minimal in

Mutual Funds should look more into the past performance, NAV, the risk and return

comparision. There are other statistical tools such as Shape and Standard Deviation

which give a better evaluation opportunity, but these are comparatively complex.

The investment in the sector funds outperformed direct investing in the company shares.

Small / midsized companies tend to be under researched thus they present an opportunity

to invest in a company that is yet to be identified by the market. Such companies offer

higher growth potential going forward and therefore an opportunity to benefit from

higher than average valuations. Excellent performance and stringent regulation will

increase the popularity of Mutual Funds in India.

179

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