PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS IN INDIA. With Special Reference to Sectoral Funds. Estelar THESIS SUMMARY

Transcription

1 PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS IN INDIA With Special Reference to Sectoral Funds THESIS SUMMARY SUBMITTED TO KUMAUN UNIVERSITY, NAINITAL In partial fulfillment of the requirements for the award of the degree of DOCTOR OF PHILOSOPHY BY TRIBHUVAN PRATAP SINGH Under the Supervision of Prof. N. S. BISHT HEAD DEPARTMENT OF COMMERCE KUMAUN UNIVERSITY NAINITAL FACULTY OF COMMERCE AND MANAGEMENT STUDIES KUMAUN UNIVERSITY NAINITAL 2012

2 INTRODUCTION A mutual fund is an ideal investment vehicle in today s complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. For a layman it is difficult to have the knowledge, skills, inclination and time to keep track of the events and to understand their implications in order to act speedily in such a complex financial scenario. A mutual fund is the answer to all these situations which exploits economies of scale in three areas i.e. research, investments and transaction processing. Although Mutual Funds provide an effective and efficient avenue to non skilled and small investors but a normal investor is not able to opt for an appropriate fund which can give him best returns in different phases of economy and market developments. Thus this study primarily aims to identify the opportunities offered by sectoral funds and evaluate the performance of such funds in different stages of economic developments and also in comparison with other type of funds i.e. equity diversified funds. This has helped to draw a conclusion as to which types of funds are best suited for a developing kind of market based economy like India. METHODOLOGY The current study utilizes two methodological frameworks, First Mean, Variance / Risk- Return models for the purpose of identifying the return potentials and associated risks with various sectoral and equity diversified funds. Second Statistical measure namely Mann- Whiney Rank Sum Test (U-test) and application of Data Envelopment Analysis (a specialized form of linear programming for evaluating the efficiency of a decision making unit i.e. a mutual fund scheme for the purpose of current study), for statistically evaluating the performance of all active sectoral funds and also to test the hypotheses of the study to measure the difference in the performance sectoral funds and equity diversified funds. The study sources statistical data related to NAV, AUM etc. from reliable sources such as AMFI India, SEBI, BSE, NSE and respective mutual fund houses for the span of last 10 years starting from 2002 to This helped the researcher to draw the conclusion on the performance of different types of funds (sectoral and diversified) in different time spans i.e. for last 3, 5, 7 and 10 years.

3 FINDINGS AND CONCLUSION The analysis of sector specific funds revealed that the performance of such funds against their respective indicators and indices had been quite satisfactory. They have carried moderate to higher level of risk because of their sectoral concentrations. Specific Funds such as Banking, FMCG and Pharmaceuticals have fairly outperformed the market indices and also against their close counterparts diversified funds, in short and medium time frames (i.e. 3, 5 and 7 years) but as far as long term scenario (10 years) is concerned, diversified equity funds have beaten sectoral funds with sufficient margins. With the help of various tools and techniques such as Mann-Whitney Rank Sum U Test and Data Envelopment Analysis, it was statistically confirmed that in long term there is significant difference between the performance of sectoral funds and diversified equity funds and diversified funds have performed significantly better than sectoral funds. Also the efficiency levels of funds differ in various time frames, in Short and medium term (3 and 5 years) sectoral funds have showcased higher operating efficiencies by maintaining higher input-output ratios (as confirmed by higher average DEA values) whereas in longer terms (7 and 10 years) Equity Diversified Funds demonstrated higher operating efficiencies with optimum input-output ratios as compared to sectoral funds. Therefore, with the help of current study, it was concluded and confirmed that sectoral funds can be a good investment avenue for a limited period of time or for the time in which the specific industry or sector keeps on performing high but in long run, equity diversified funds are still better investment avenue as compared to sectoral funds. KEY WORKS Indian Mutual Fund Industry, Development of Mutual Funds in India, Performance of Indian Mutual Fund Industry, Performance of Sectoral Funds, Sectoral Funds Vs Equity Diversified Funds and Data Envelopment Analysis for Mutual Funds.

4 PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS IN INDIA With Special Reference to Sectoral Funds THESIS Author: Supervisor: SUBMITTED TO KUMAUN UNIVERSITY, NAINITAL In partial fulfillment of the requirements for the award of the degree of DOCTOR OF PHILOSOPHY TRIBHUVAN PRATAP SINGH Address : C-73, Hanuman Nagar, Line Par, Moradabad Phone : ; Mobile : / [email protected] Prof. N. S. BISHT Affiliation : Head, Department of Commerce, Kumaun University, Nainital Phone : Mobile : [email protected] FACULTY OF COMMERCE AND MANAGEMENT STUDIES KUMAUN UNIVERSITY NAINITAL 2012

5 PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS IN INDIA With Special Reference to Sectoral Funds THESIS SUBMITTED TO KUMAUN UNIVERSITY, NAINITAL In partial fulfillment of the requirements for the award of the degree of DOCTOR OF PHILOSOPHY BY TRIBHUVAN PRATAP SINGH Under the Supervision of Prof. N. S. BISHT HEAD DEPARTMENT OF COMMERCE KUMAUN UNIVERSITY NAINITAL FACULTY OF COMMERCE AND MANAGEMENT STUDIES KUMAUN UNIVERSITY NAINITAL 2012

6 i

7 ii

8 Dedicated in the lotus feet of Lord Krishna iii

9 Acknowledgement This work could not be possible without the help of the God almighty. His heartfelt inspiration and guidance enlightened my path towards the completion of this lonely journey of doctoral research. It is a great pleasure for me, to get this opportunity of expressing my sincere gratitude to my guide, Prof. N. S. Bisht, Head, Department of Commerce, Kumaun University, Nainital under whose able guidance and supervision, this study met its objectives. In fact, no words would suffice to express my deep sense of gratefulness to him, who has been a constant source of inspiration and continued encouragement throughout my research work. With his strict supervision and direction, this research study firmly reached its destination. His timely guidance and support provided this study a meaningful substance. I would also like to deeply thank Dr. Vimal Pant, Branch Manager, UCO Bank, Bareilly, for his inspiring and valuable guidance during the process of data analysis and writing of this research report. I gratefully acknowledge the enormous support extended by Prof. R.M. Dubey, Honorable Vice-Chancellor, IFTM University, Moradabad and Dr. Manjula Jain, Director, School of Business Management, IFTM University, for enabling me to put best of my efforts for this research work with other regular assignments. My faculty colleague, Mr. Himanshu Gupta also deserves my sincere thanks for extending his kind support on research design, analysis and interpretation of data. iv

10 v

11 List of Figures Figure Page 2.1. Future Developments for Indian Mutual Funds Industry Types of Mutual Funds Growth in Assets Under Management Category Returns in Financial Year Category Returns in Financial Year Performance of BANKEX vis-à-vis BSE SENSEX Performance of BSE FMCG vis-à-vis BSE SENSEX Performance of CNX Infrastructure vis-à-vis BSE-200 & S&P CNX Nifty Performance of BSE Power vis-à-vis BSE SENSEX Performance of BSE Health Care vis-à-vis BSE 100 and BSE Reality Sector wise constituents of CNX Service Sector index S&P CNX Nifty vs. CNX Service Sector BSE IT vs. BSE SENSEX 114 vi

12 List of Tables Table 3.1. Mobilization of Resources by Mutual Funds Assets under Management by various types of Mutual Funds: Sector wise Mobilization of Resources Scheme-wise Resource Mobilization and AUM by Mutual Funds Number of Schemes by Investment Objective Transactions on Stock Exchanges by Mutual Funds Unit Holding Pattern of All Mutual Funds as on March 31, Folios Trends: Equity Oriented Schemes Folios Trends: Debt Oriented Schemes Folios Trends: All Schemes Sector wise Composition of BSE Sensex Banking Funds: Return Analysis Banking Funds: Risk Analysis Banking Funds: Data Envelopment Analysis Values Banking Funds: Portfolio Compositions FMCG Funds: Return Analysis FMCG Funds: Risk Analysis FMCG Funds: Data Envelopment Analysis Values FMCG Funds: Portfolio Compositions Infrastructure Funds: Return Analysis Infrastructure Funds: Risk Analysis 99 Page Infrastructure Funds: Data Envelopment Analysis Values Infrastructure Funds: Portfolio Compositions Energy Funds: Return Analysis (A) Energy Funds: Risk Analysis 104 vii

13 4.15. (B) Energy Funds: Data Envelopment Analysis Values Pharmaceutical Funds: Return Analysis Pharmaceutical Funds: Risk Analysis Pharmaceutical Funds: Analysis of Portfolio Compositions Pharmaceutical Funds: Data Envelopment Analysis Values Service Funds: Return Analysis Service Funds: Risk Analysis Service Funds: Data Envelopment Analysis Values Technology Funds: Return Analysis Technology Funds: Risk Analysis Technology Funds: Data Envelopment Analysis Values Other Sector Funds: Return Analysis Other Sector Funds: Risk Analysis Average Returns: All Sectoral Funds Vs Diversified Funds Average Returns: Individual Sector Funds Vs Diversified Funds Average Risk and Risk Adjusted Returns: Sector Vs Diversified Funds Top 10 Performers: 3 Years Annualized Returns (Sectoral Funds) Top 10 Performers: 3 Years Annualized Returns (Diversified Funds) Top 10 Performers: 5 Years Annualized Returns (Sectoral Funds) Top 10 Performers: 5 Years Annualized Returns (Diversified Funds) Top 10 Performers: 7 Years Annualized Returns (Sectoral Funds) Top 10 Performers: 7 Years Annualized Returns (Diversified Funds) Top 10 Performers: 10 Years Annualized Returns (Sectoral Funds) Top 10 Performers: 10 Years Annualized Returns (Diversified Funds) Mann-Whitney Test 3 Years Annualized Returns (Ranks) 131 viii

14 5.13. Mann-Whitney Test 3 Years Annualized Returns (Test Statistics) Mann-Whitney Test 5 Years Annualized Returns (Ranks) Mann-Whitney Test 5 Years Annualized Returns (Test Statistics) Mann-Whitney Test 7 Years Annualized Returns (Ranks) Mann-Whitney Test 7 Years Annualized Returns (Test Statistics) Mann-Whitney Test 10 Years Annualized Returns (Ranks) Mann-Whitney Test 10 Years Annualized Returns (Test Statistics) Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 138 (3 years Annualized Returns) Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 138 (5 years Annualized Returns) Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 139 (7 years Annualized Returns) Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 140 (10 years Annualized Returns) ix

15 List of Abbreviations AMC AMFI AUM CPI DEA ELSS ETF FMCG IICM IT MIP MMMMF MNC NAV NFO NISM RBI SCI SD SEBI SIP STP SWP UTI WPI Assets Management Company Association of Mutual Fund in India Assets under Management Consumer Price Index Data Envelopment Analysis Equity Linked Savings Schemes Exchange Traded Funds Fast Moving Consumer Goods Indian Institute of Capital Market Information Technology Monthly Income Plan Money Market Mutual Fund Multi National Corporation Net Assets Value New Fund Offer National Institute of Security Market Reserve Bank of India School of Certificate of Intermediaries Standard Deviation Securities and Exchange Board of India Systematic Investment Plan Systematic Transfer Plan Systematic Withdrawn Plan Unit Trust of India Wholesale Price Index x

16 Table of Contents Declaration Certificate from the Supervisor Acknowledgement List of Figures List of Tables List of Abbreviations i ii iii v vi vii - ix x Chapter 1: Introduction Introduction 1.2. Statement of Problem 1.3. Objectives of the Research 1.4. Hypotheses for the Study 1.5. Need and Importance of the Study 1.6. Review of Literature 1.7. Research Methodology 1.8. Organization of Research Report 1.9. Limitations of the Study Chapter 2: Mutual Funds: Evolution, Significance and Indian Market Origin of Mutual Funds 2.2. Evolution of Mutual Funds in India 2.3. Role and Significance of Mutual Funds in Indian Economy 2.4. Indian Mutual Fund Industry towards Conclusion Chapter 3: Product Portfolio and Performance Review of Indian Mutual Fund Segments 3.1. Introduction 3.2. Product Portfolio of Indian Mutual Fund Industry 3.3. Performance Review of different Sectors of Industry 3.4. Conclusion

17 Chapter 4: Performance of Sectoral Funds in India Introduction 4.2. Performance Review of Various Sector Funds Banking Funds FMCG Funds Infrastructure Funds Energy Funds Pharmaceutical Funds Service Funds Technology / IT Funds Other Sector Specific Funds 4.3. Conclusion Chapter 5: Comparative Analysis of Indian Sectoral Funds and Diversified Equity Funds 5.1. Sectoral Funds Vs Equity Diversified Funds: An Introduction 5.2. Comparison of Returns, Risks and Risk Adjusted Returns 5.3. Results of Mann-Whitney Rank Sum U Test 5.4. Comparison through Data Envelopment Analysis 5.5. Conclusion Chapter 6: Conclusion and Recommendations Bibliography Appendices