Volume 4, Issue 7 (July, 2015) Online ISSN-2277-1166 Published by: Abhinav Publication Abhinav National Monthly Refereed Journal of Research in PERFORMANCE EVALUATION OF EQUITY DIVERSIFIED MUTUAL FUNDS Vipinkumar M. Research Scholar, GRD Institute of Management, India Email: vipinrmc@gmail.com ABSTRACT The investment climate in India is getting more attractive year after year. Apart from that, investing is probably something you don't have the time or knowledge to get involved in you is the only one. This is why investing mutual fund has become such a popular way of investing. A mutual fund is a portfolio of investment vehicles such as stocks, bonds, Certificates of deposits, and various other securities where a professional manager decided what to buy, how much and when to buy, and sell. The values of fund expressed in terms of its Net Asset Value (NAV). Keywords: Investment; Mutual Fund; Portfolio; Net Asset Value INTRODUCTION The concept of mutual fund was conceived to pool resources of the small investors and deploy the same in the capital market through participation in equity and other debt instrument.mutual funds offer investors the advantage of diversified portfolio and professional management at low cost. Informed investment, safety of the fund, dispersal of the risk and reasonably and satisfactory yield are the hallmark of the mutual fund. It is collective investment vehicle, formed with specific objective of raising money from large number of individuals and investing it according to a pre specified objective. As vehicle of mutual funds exploits economies of scale in tree areas research, investment and transaction processing. In a complex modern world, mutual funds and other securities have become mature and information driven Different investment avenues are available to investors. Mutual Funds also offer good investment opportunities to the investors. Like all Investments, they also carry certain risks. The investor should compare the risks and expects yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from expertise and consultants including agents and distributors of Mutual Funds schemes while making investment decisions The study was conducted to evaluate different mutual fund scheme with special reference to Cochin Stock Exchange. Mutual fund is essentially a mechanism of pooling together saving of a large number of small investors by issuing units to the investor for collective investment, with an avowed objective of attractive yield and capital appreciation, holding the safety and liquidity as prime parameters. The study is based on the secondary data collected from the credit rating agencies of mutual fund scheme. The data collected 5 Star and 4 star Mutual Fund schemes in the category of equity diversified fund. All the schemes have been studied in detail to asses the actual performance of schemes in the past 5 years. In addition, to present the information an understandable manner by using Sharpe's and Treynor's performance measure. Available online on www.abhinavjournal.com 27
Performance Evaluation Performance evaluation is an important part of process of the investment management. The performance of a fund has to be measured in relation to the board investment objective of the fund and its anticipated risk-return relationships. Performance measurement must also take into account the future liabilities related to the assets in the portfolio and liquidity management.finally benchmark should be used for assessment, i e the return of the portfolio judged in relation to in some benchmark portfolio. An ideal benchmark should cover the manager s style, appropriate weightages and clearly identifiable objective, and its return must be measurable. Need and Importance This project identifies the best Mutual Fund scheme floated in the category of equity diversified Mutual fund. The purpose is to compare the annual return schemes with the Sensex, (Bench mark), return and to evaluate the performance of the Scheme, using risk adjusted return measure of Sharpe, Treynor s, and Jenson on their respective funds. The analysis of the scheme helps in finding out the right scheme. While choosing the scheme its better to choose the scheme which has good return according to Sharpe model as the scheme are better on return basis as well as the risk factor involved in it. The Sharpe's model tells us about the competence of the fund manager who manage these schemes. These fund managers are competent enough in making diversification in the portfolio. OBJECTIVES OF THE STUDY Primary Objective The primary objective of the study is to identify the best Mutual fund scheme floated in the category of Equity diversified funds both Open ended and Closed ended funds. Secondary Objective 1. Identify the top Schemes in the category of equity diversified scheme 2. Evaluating the performance of the schemes using risk adjusted return. 3. To compare the performance shown by different mutual funds that provides an edge to one fund over another. RESEARCH METHODOLOGY Descriptive Research The study follows descriptive research method. A descriptive study involves formulating the objectives of the study, defining the population and selecting the sample, designing the methods of data collection and analysis of the data and results. Descriptive studies aim at portraying accurately the characteristics of a particular group or situation. Descriptive Research is concerned with describing the characteristics of a particular individual or of a group. Here the researcher attempts to present the existing facts by collecting data. DATA COLLECTION In this study, mainly secondary data were used to analyze the 5 Star and 4 Star rated equity diversified schemes. Tool Used For Analysis The Sharpe s Measure: A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. It is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns The formula for calculating Sharpe ratio may be stated as. VOL. 4, ISSUE 7 (July 2015) 28
Sharpe ratio (SR) = Rm-Rf Where SD Rm = average return of the portfolio Rf = the risk free rate of return. Sd = the standard deviation of portfolio return. The Treynor's Measure: The performance measure developed by Jack Treynor is referred to as Treynor ratio or "reward to volatility ratio).it is the ratio of the reward or risk premium to the volatility of return as measured by portfolio of beta. The formula of calculating Treynor ratio may be stated as: Treynor index (Ti) = Ri - Rf / Bp Where Ri = the realized return on the portfolio Rf = the risk free rate of return Bp = the portfolio Beta Beta Value = n Xy- ( X) ( Y) / n X² - ( X²) ANALYSIS AND INTERPRETATION Performance methodology of five star rated scheme. Table 1. Ranks of mutual fund schemes in five stars category using five year average return performance (2009-2013) To identify the top schemes in the 5 star rated classes for the past year, the average sensex 5year return calculated. The average sensex return of the five year at 35.70 point. The average return of five years of each funds calculated on the basis of yearly data retrieved. Finally the average sensex return compared with average schemes returns, and the scheme ranked on the basis. The above tables gives us information about the returns of each funds at the time 2009-13 in relation to the benchmark sensex. When we compared the 5 year average sensex with average return and the difference ranked for each scheme. Reliance growth ranked fist with the return 72.74, reliance vision fund and Magnum Contra ranked second and third with return 69.76 and 66.61 respects VOL. 4, ISSUE 7 (July 2015) 29
80 70 60 50 40 30 20 10 0 Magnum Contra Reliance Growth Reliance Vision Average Sensex AverageReturn increase/decrease Chart-1 Top three schemes on the average return schemes (2009-2013) Table 2. Ranking of five star mutual fund schemes by using Sharp model performance index Fund name Sensex Sharp increase/ ratio ratio decrease Ranks UTI Infrastructure 1.11 17.2 16.09 1 Birla Sun Life Frontline Equity 1.11 1.57 0.46 4 Sundaram BNP Paribas Select Midcap 1.11 1.38 0.27 6 Magnum Contra 1.11 2.03 0.92 2 HDFC Equity 1.11 1.19 0.08 8 Reliance Growth 1.11 1.43 0.32 5 Reliance Vision 1.11 1.26 0.15 7 Magnum Global 1.11 1.65 0.54 3 In the past five years (2009-2013) according to sharp ratio UTI Infrastructure ranked first with 17.2 sharp ratios. Magnum Contra comes to the place of second with the 2.03 sharp index, and Magnum Global come to the third place in the category of five star rated equity diversified fund. It is found that, when using sharp measure for performance evaluation of five stars rated schemes in mutual funds all fund are showing good performance with positive value. Table 3. Ranking the five star rating funds using Treynor s model of performance evaluation (2009-2013) Fund name Treynor s index Ranks UTI Infrastructure 216.5 1 Birla Sun Life Frontline Equity 56.05 8 Sundaram BNP Paribas Select Midcap 96.46 4 Magnum Contra 82.34 7 HDFC Equity 87.87 6 Reliance Growth 155.83 3 Reliance Vision 181.65 2 Magnum Global 88.88 5 The above table shows that ranking five star mutual fund using Treynor s performance measure. According to Treynor measure, UTI Infrastructure is on the top position according to the Treynor s index. Reliance Vision and Reliance Growth held on second and third rank respectively. Reliance Vision ranked second in the Treynor s measure, it was seventh position in the Sharp ranking measure. So UTI Infrastructure keep top positions in two performance measures. VOL. 4, ISSUE 7 (July 2015) 30
250 200 150 100 50 UTI Infrastructure Birla Sun Life Frontline Equity Sundaram BNP Paribas Select Midcap Magnum Contra HDFC Equity Reliance Growth 0 Treyron's index Reliance Vision Magnum Global Chart-2 Fund performance according to Treynor s index Table 4. Ranking of the funds using Sharp and Treynors performance measures of five stars rated in Equity diversified mutual funds (2009-2013) Sharp Index Rank Fund Names Treynor's Index Rank 1 UTI Infrastructure 1 4 Birla Sun Life Frontline Equity 8 6 Sundaram BNP Paribas Select Midcap 4 2 Magnum Contra 7 8 HDFC Equity 6 5 Reliance Growth 3 7 Reliance Vision 2 3 Magnum Global 5 From the above tables we can find out, the UTI Infrastructure held on top position in Sharp and Treynor s performance evaluations. While Magnum Contra held on second places in Sharp measures, but the Treynors measures reliance vision held the second places. The identical performances measures only in the case only UTI Infrastructure. The other schemes are changing their positions while considering the risk factor, while using Treynor and Sharp performance evaluation. Performance Methodology of Four Star Rated Schemes Table 5. Ranking of mutual fund schemes in 4 star rating using five year return performance schemes (2009-2013) Fund Name Average Average Return Vs Sensex Return Sensex Ranks Magnum Multiplier Plus 35.7 44.62 8.92 11 HDFC Top 200 35.7 47.14 11.44 4 ICICI Prudential Power 35.7 45.56 9.86 8 Franklin India Prima Plus 35.7 42.46 6.76 13 Tata Pure Equity 35.7 44.72 9.02 10 DSPML Equity 35.7 45.85 10.15 6 Kotak 30 35.7 41.14 5.44 14 Birla Sun Life Equity 35.7 46.14 10.44 7 HDFC Growth Fund 35.7 43.34 7.64 12 Principal Resurgent India Equity 35.7 46.83 11.13 5 DSPML Opportunities 35.7 49.82 14.12 3 ICICI Prudential Dynamic 35.7 57.75 22.05 2 Birla Mid Cap 35.7 59.17 23.47 1 VOL. 4, ISSUE 7 (July 2015) 31
Magnum Multiplier Plus HDFC Top 200 ICICI Prudential Power Franklin India Prima Plus Tata Pure Equity DSPML Equity Kotak 30 Birla Sun Life Equity HDFC Growth Fund Principal Resurgent India Equity DSPML Opportunities ICICI Prudential Dynamic Birla Mid Cap HDFC Index Sensex Plus Birla Asset Allocation ICICI Prudential Advisor DSPML Top 100 Equity Abhinav National Monthly Refereed Journal of Research In Table 5. Ranking of mutual fund schemes in 4 star rating using five year return performance schemes (2009-2013) (Contd.) Fund Name Average Average Return Vs Sensex Return Sensex Ranks HDFC Index Sensex Plus 35.7 45.53 9.83 9 Birla Asset Allocation 35.7 31.10-4.61 17 ICICI Prudential Advisor 35.7 33.73-1.97 16 DSPML Top 100 Equity 35.7 38.17 2.47 15 To identify the top scheme in 4star rated funds for the past five years (2009-2013), the average sensex calculated for the five years.the average sensex fixed at 35.70 points.then the average returns of five year of each scheme were calculation the basis yearly data retrieved. Finally the average sensex and return were compared and the schemes were ranked on the basis of the increase in points the above table gives the details of how the returns of the 4star equity funds performed in all the five years in relation with the bench mark sensex. When the five year average return compare with five year average sensex return and the return ranked for scheme. Birla Mid Cap got first rank in this 4star category with increase of 23.47 points it had good returns the past years. ICICI Prudential Dynamic won the second rank with the increase 0f 22.05 points. Return 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Chart-3 Fund and average return for the five years (2009-2013) Table 6. Ranking four stars rated funds scheme by using Sharpe s model of performance index Fund Name Sharp Ratio Ranks Magnum Multiplier Plus 1.27 12 HDFC Top 200 1.26 13 ICICI Prudential Power 1.34 11 Franklin India Prima Plus 1.65 7 Tata Pure Equity 1.10 16 DSPML Equity 1.24 14 Kotak 30 2.01 5 Birla Sun Life Equity 1.42 9 HDFC Growth Fund 1.42 10 Principal Resurgent India Equity 1.13 15 DSPML Opportunities 1.24 14 ICICI Prudential Dynamic 1.68 6 Birla Mid Cap 1.51 8 HDFC Index Sensex Plus 2.3 4 Birla Asset Allocation 8.00 1 ICICI Prudential Advisor 3.25 3 DSPMLl Top 100 Equity 4.93 2 Return VOL. 4, ISSUE 7 (July 2015) 32
In The above table we are using sharp ratio performance evaluation in the category 4star rated schemes for the last 5year year (2009-2013). The highest sharp index got first rank. Ranking according to the value of sharp ratio we get. Birla Asset Allocation got fist rank with 4.93 returns; DSPML Top 100 Equity and ICICI Prudential Advisor got second and third place respectively in the sharp ratio performance evaluation. High value sharp ratio is a indication of favorable performance, and vice versa. Table 7. Ranking four stars rated funds scheme by using Treynor's index performance ranking Fund Name Treynor's Index Ranks Magnum Multiplier Plus 80.89 10 HDFC Top 200 96.72 6 ICICI Prudential Power 81.9 9 Franklin India Prima Plus 58.97 14 Tata Pure Equity 97.94 5 DSPML Equity 86.15 8 Kotak 30 46.92 16 Birla Sun Life Equity 78.87 11 HDFC Growth Fund 74.16 12 Principal Resurgent India Equity 112.7 3 DSPML Opportunities 99.89 4 ICICI Prudential Dynamic 73.72 13 Birla Mid Cap 89.82 7 HDFC Index Sensex Plus 42.97 17 Birla Asset Allocation 54.61 15 ICICI Prudential Advisor 122.59 2 DSPML Top 100 Equity 286.84 1 From the above table, we can find out that DSPML Top 100 Equity, ranked first with the point of 286.84 points. ICICI Prudential Advisor and Principal Resurgent India Equity are the other top players in the 4 star rated scheme using Treynors performance measures. Table 8.Rankings of four star rated schemes of different equity diversified mutual funds by using Sharp and Treynors model of performance evaluation. SHARP INDEX FUND NAME TREYNORS INDEX 12 Magnum Multiplier Plus 10 13 HDFC Top 200 6 11 ICICI Prudential Power 9 7 Franklin India Prima Plus 14 16 Tata Pure Equity 5 14 DSPML Equity 8 5 Kotak 30 16 9 Birla Sun Life Equity 11 10 HDFC Growth Fund 12 15 Principal Resurgent India Equity 3 14 DSPML Opportunities 4 6 ICICI Prudential Dynamic 13 8 Birla Mid Cap 7 4 HDFC Index Sensex Plus 17 1 Birla Asset Allocation Aggressive 15 3 ICICI Prudential Advisor-Very Aggressive 2 VOL. 4, ISSUE 7 (July 2015) 33
Table 8.Rankings of four star rated schemes of different equity diversified mutual funds by using Sharp and Treynors model of performance evaluation (Contd.) SHARP INDEX FUND NAME TREYNORS INDEX 2 DSPML Top 100 Equity 1 From the above table each schemes in the four star rated category of equity diversified mutual fund ranking by using Sharp and Treynors performance index, and comparing this two performance measures. CONCLUSION Indian- capital market has witnessed a significant institutional development in the form of a diversified structure of Mutual Funds. Mutual Fund will be the wave of the future, which will be an excellent instrument for mobilizing savings. Mutual Fund is a concept of mutual help, which wishes to make investments in the financial instruments or in the assets of business sector. This study on "Performance evaluation of equity diversified mutual funds" provides information regarding equity diversified mutual funds and their performance. It helps in mobilization of inventible funds, by pooling the resources of a large number of small savings for corporate investments. The performance of mutual fund measured by different performance evaluation techniques like Sharpe Index will boost the investor confidence. The ranking of credit rating agencies is an added advantage to decision making by investors. By analyzing rating of agencies the investors can identify the risk and return grade of each fund and they can invest in the funds, which give maximum return and low risks. REFERENCES Text Books 1. Avadhani VA, Investment Management, Himalaya Publishing house, Third Revised and Enlarged Edition: 1999. 2. Donald Fisher, Donald Jordan, Security Analysis and Portfolio Management, Prentice-Hall of India Pvt Ltd 2004 3. Khan MY, Jain PK, Management Accounting and Financial Analysis, Tata Mc Graw Hill Publishing Co, 2 a Reprint 2004 4. Sadhak H, Mutual Funds in India, Marketing Strategies and Investment Practice, Response Books, 2 Editions 2003. Websites 1. www.enwikipedia.org 2. www.investopedia.com 3. www.myirs.com 4. www.mutualfundindindia.com 5. www.sebi.org 6. www.valueresearchonline.com VOL. 4, ISSUE 7 (July 2015) 34