Review of Literature

Block, Stanley B. and French, Dan W. (2000) conducted a study on Portfolios of equity mutual

funds tend to be equally weighted to a greater degree than they are value weighted according to

metrics of fund weightedness developed in this paper. Measures of fund investment performance

based solely on a single value-weighted or equally weighted benchmark may therefore not

adequately identify significant excess performance. We propose a two-index model using both a

value-weighted and an equally weighted index. Estimated models using a sample of 506 mutual

funds show that the two-index model provides a better fit than the single-index model and

identifies a larger set of funds with abnormal performance.

Borensztein, E. and Gelos, G. (2001) this paper explores the behavior of emerging market

mutual funds using a novel database covering the holdings of individual funds over the period

January 1996 to March 1999. An examination of individual crises shows that, on average, funds

withdrew money one month prior to the events. The degree of herding among funds is

statistically significant, but moderate. Herding is more widespread among open-ended funds than

among closed-end funds, but not more prevalent during crises than during tranquil times. Funds

tend to follow momentum strategies, selling past losers and buying past winners, but their overall

behavior is more complex than often suggested.

Sapar, Narayan R. & Madava, R. (2003) In this paper conducted a research on the

performance evaluation of Indian mutual funds in a bear market is carried out through relative

performance index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's

measure, and Fama's measure. The data used is monthly closing NAVs. The source of data is

website of Association of Mutual Funds in India (AMFI). Study period is September 98-April 02

(bear period). We started with a sample of 269 open ended schemes (out of total schemes of 433)

for computing relative performance index. Then after excluding the funds whose returns are less

than risk-free returns, 58 schemes were used for further analysis. Mean monthly (logarithmic)

return and risk of the sample mutual fund schemes during the period were 0.59% and 7.10%,

respectively, compared to similar statistics of 0.14% and 8.57% for market portfolio. 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.

Zakri Y.Bello (2005) matched a sample of socially responsible stock mutual funds matched

to randomly selected conventional funds of similar net assets to investigate differences in

characteristics of assets held, degree of portfolio diversification and variable effects of

diversification on investment performance. The study found that socially responsible funds do

not differ significantly from conventional funds in terms of any of these attributes. Moreover, the

effect of diversification on investment performance is not different between the two groups. Both

groups underperformed the

Domini 400 Social Index and S & P 500 during the study period.

Miller, Ross M. (2005) conducted a research In Recent years have seen a dramatic shift from

mutual funds into hedge funds even though hedge funds charge management fees that have been

decried as outrageous. While expectations of superior returns may be responsible for this shift,

this article shows that mutual funds are more expensive than commonly believed. Mutual funds

appear to provide investment services for relatively low fees because they bundle passive and

active funds management together in a way that understates the true cost of active management.

In particular, funds engaging in closet or shadow indexing charge their investors for active

management while providing them with little more than an indexed investment. Even the average

mutual fund, which ostensibly provides only active management, will have over 90% of the

variance in its returns explained by its benchmark index. This article derives a method for

allocating fund expenses between active and passive management and constructs a simple

formula for finding the cost of active management. Computing this active expense ratio requires

only a fund's published expense ratio, it’s R-squared relative to a benchmark index, and the

expense ratio for a competitive fund that tracks that index. At the end of 2004, the mean active

expense ratio for the large-cap equity mutual funds tracked by Morningstar was 7%, over six

times their published expense ratio of 1.15%. More broadly, funds in the Morningstar universe

had a mean active expense ratio of 5.2%, while the largest funds averaged a percent or two less.

Christopher, G., Stambaugh, Robert F. & Levin, D. (2005) Author has construct optimal

portfolios of mutual funds whose objectives include socially responsible investment (SRI).

Comparing portfolios of these funds to those constructed from the broader fund universe reveals

the cost of imposing the SRI constraint on investors seeking the highest Sharpe ratio. This SRI

cost depends crucially on the investor's views about asset pricing models and stock-picking skill

by fund managers. To an investor who believes strongly in the CAPM and rules out managerial

skill, i.e. a market-index investor, the cost of the SRI constraint is typically just a few basis

points per month, measured in certainly-equivalent loss. To an investor who still disallows skill

but instead believes to some degree in pricing models that associate higher returns with

exposures to size, value, and momentum factors, the SRI constraint is much costlier, typically by

at least 30 basis points per month. The SRI constraint imposes large costs on investors whose

beliefs allow a substantial amount of fund-manager skill, i.e., investors who rely heavily on

individual funds' track records to predict future performance.

Panwar, S. and Madhumathi, R. (2006) has conducted study used sample of public-sector

sponsored & private-sector sponsored mutual funds of varied net assets to investigate the

differences in characteristics of assets held, portfolio diversification, and variable effects of

diversification on investment performance for the period May, 2002 to May, 2005. The study

found that public-sector sponsored funds do not differ significantly from private-sector

sponsored funds in terms of mean returns%. However, there is a significant difference between

public-sector sponsored mutual funds and private-sector sponsored mutual funds in terms of

average standard deviation, average variance and average coefficient of variation (COV). The

study also found that there is a statistical difference between sponsorship classes in terms of e

SDAR (excess standard deviation adjusted returns) as a performance measure. When residual

variance (RV) is used as the measure of mutual fund portfolio diversification characteristic, there

is a statistical difference between public-sector sponsored mutual funds and private-sector

sponsored mutual funds for the study period. The model built on testing the impact of

diversification on fund performance and found a statistical difference among sponsorship classes

when residual variance is used as a measure of portfolio diversification and excess standard

deviation adjusted returns as a performance measure. RV, however, has a direct impact on

Sharpe fund performance measure.

Deb, Soumya G., Banerjee, A. & Chakrabarti, B. B. (2007) in this paper author’s conducted a

study on return based style analysis of equity mutual funds in India using quadratic optimization

of an asset class factor model proposed by William Sharpe. We found the 'style benchmarks' of

each of our sample of equity funds as optimum exposure to eleven passive asset class indexes.

We also analyzed the relative performance of the funds with respect to their style benchmarks.

Our results show that the funds have not been able to beat their style benchmarks on the average.

Kamiyama, T. (2007) has conducted a research on the assets managed by India's mutual funds

have shown impressive growth, and had totaled 3.3 trillion rupees (Rs 3.3 trillion) as of the end

of March 2007. India's middle class, who are prospective investors in mutual funds, has been

growing, and we expect to see further growth in the mutual fund market moving forward. In this

paper, we first provide an overview of the assets managed within India's mutual fund market,

both now and in the past, and of the legal framework for mutual funds, and then discuss the

current situation and recent trends in financial products, distribution channels and asset

management companies.

Chakrabarti, R. (2009)conducted study on Asset Management Industry in India consists of a

vibrant and rapidly growing mutual funds sector, an insurance sector that is dominated by unit-

linked insurance plans, and Venture Capital Funds, both domestic and foreign. Also Foreign

Institutional Investors form a category that pool foreign retail or institutional funds and invest in

Indian debt and equity. Private Equity funds – both domestic and foreign – constitute a booming

segment as well. In the last decade or so, this industry has witnessed a wide range of regulatory

changes that have brought about increased competition and a very impressive growth rate.

Mutual Funds and Insurance sectors have been opened up to private players only 16 and 8 years

ago respectively. Venture Funds have been allowed even more recently. The Indian equity

market with its remarkable bull run throughout most of this decade right up to the crisis has

boosted major growth in the asset management industry. Even now, India stands poised at the

threshold of major regulatory changes that can open up new segments like Real Estates and

Pension Funds to retail investors and private and foreign fund managers. The rapid growth of the

sector is likely to continue once the dampening effects of the ongoing crisis are behind us.

Agrawal, D and Patidar, D (2009) has conducted study on Mutual funds are key contributors to

the globalization of financial markets and one of the main sources of capital flows to emerging

economies. Despite their importance in emerging markets, little is known about their investment

allocation and strategies. This article provides an overview of mutual fund activity in emerging

markets. It describes about their size and their asset allocation. All fund managers are not

successful in the formation of the portfolio and so the study also focuses on the empirically

testing on the basis of fund manager performance and analyzing data at the fund-manager and

fund-investor levels. The study reveled that the performance is affected by the saving and

investment habits of the people and at the second side the confidence and loyalty of the fund

Manager and rewards- affects the performance of the MF industry in India.

Agarwal, R K. and Mukhtar, W. (2010) conducted a study; today mutual funds represent the

most appropriate opportunity for most small investors. As financial markets become more

sophisticated and complex, investors need a financial intermediary who provides the required

knowledge and professional expertise on successful investing. It is no wonder then that in the

birth place of mutual funds- the USA - the fund industry has already overtaken the banking

industry, with more money under mutual fund management than deposited with banks. This

project covers a broad range of equity growth funds. The objectives of the paper are as (a)

Twenty four Equity growth funds have been studied for the application of composite portfolio

performance measures like Treynor ratio, Sharpe ratio, Jenson ratio, Information ratio, M square,

Specific ratio etc, and (b) Evaluate the asset allocation policy for Kotak 30 Growth Mutual fund

using Sharpe optimisation technique.

Gayathri, S., Karthika, S. & Kumar, Gajendran L. (2010) reviewed on Mutual Funds in India

are financial instruments. A mutual fund is not an alternative investment option to stocks and

bonds; rather it pools the money of several investors and invests this in stocks, bonds, money

market instruments and other types of securities. The owner of a mutual fund unit gets a

proportional share of the fund’s gains, losses, income and expenses. Mutual Fund is vehicle for

investment in stocks and Bonds. Each mutual fund has a specific stated objective. The fund’s

objective is laid out in the fund's prospectus, which is the legal document that contains

information about the fund, its history, its officers and its performance. Some popular objectives

of a mutual fund are: Fund Objective - What the fund will invest in; Equity (Growth) - Only in

stocks; Debt (Income); Only in fixed-income securities; Money Market (including Gilt) - In

short-term money market instruments (including government securities); Balanced - Partly in

stocks and partly in fixed-income securities, in order to maintain a 'balance' in returns and risk.

The share value of the Mutual Funds in India is known as net asset value per share (NAV). The

NAV is calculated on the total amount of the Mutual Funds in India, by dividing it with the

number of shares issued and outstanding shares on daily basis. The company that puts together a

mutual fund is called an AMC. An AMC may have several mutual fund schemes with similar or

varied investment objectives. The AMC hires a professional money manager, who buys and sells

securities in line with the fund's stated objective. The Securities and Exchange Board of India

(SEBI) mutual fund regulations require that the fund’s objectives are clearly spelt out in the

prospectus. In addition, every mutual fund has a board of directors that is supposed to represent

the shareholders' interests, rather than the AMC’s.

Selvam Et.Al (2011) he 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 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.

Loomba (2011) evaluates the performance and growth of Indian mutual funds vis-à-vis the

Indian equity market. The overall analysis finds that Nifty returns outperformed Franklin

Templeton Large Cap Equity Scheme returns. Kruskal Wallis H-test was applied to know

whether the returns significantly differ or not and the results indicated that the returns of schemes

don’t differ significantly.

Alekhya, (2012), studied performance evaluation of Public & Private Sector Mutual Funds in

India and comparative performance of public and private sector mutual fund schemes the Indian

Mutual fund Industry has witnessed a structural transformation during the past few years. This

paper has evaluated the performance of Indian Mutual fund equity scheme of 3 years past data

from 2009 to 2011. To appraise investment performance of mutual funds with risk adjustment

the theoretical parameters as suggested by Sharpe, Treynor and Jensen.

Dhanda, Batra and Anjum, (2012). Attempted to study the performance evaluation of selected

open ended schemes in terms of risk and return relationship. For this rate of return method, Beta,

Standard Deviation, Sharpe and Treynor ratio has been used.BSE-30 has been used as a

benchmark to study the performance of mutual funds in India. The findings of the study reveal

that only three schemes have performed better.

Sarish, (2012) studied mutual funds and the benefits of investing in mutual fund, its drawbacks

and have done detailed study on various aspects of mutual fund. This paper aims at exploring the

potential of mutual funds in India with all problems, complexities and variables, and suggesting

the means and ways of meeting the challenges for developing the mutual funds in tandem with

its potential of economic growth. This study relied on secondary data in order to identify and

analyze the challenges and opportunities for mutual funds.

Bhaskar Biswas, (2013), investigated out performance and under performance of diversified

funds. It involved studying the performance of some ten best and ten worst performing

diversified equity mutual funds for the period of last three years (2009 -2012). In this paper of

selected diversified equity funds have been analyzed by analyzing their arithmetic mean return,

risk can be analyzed by standard deviation , beta measures market sensitivity, alpha measures the

risk return relationship and Sharpe ratio measures the risk premium of portfolio.

Poornima & Sudhamathi, (2013), In this research paper an attempt is made to analyze about

the performance of the growth oriented equity diversified schemes by using Sortino ratio. 102

growth oriented equity diversified schemes which were performing during the period April 2006

to March 2011 were selected for the study. This research paper clearly reveals the fact that

careful evaluation using appropriate performance measure will lead the investor in selecting the

best funds.