Study on Equity Diversified
Mutual Fund Schemes in India
By:
Shekhar Tejwani - 171152
Srishti Bhuwania - 171251
Zeel Shah - 171265
Gunit Sahni – 171416
What are Mutual Funds ?
It is an investment vehicle that gathers funds from various investors to
collectively invest this pool of money in the markets and securities.
They offer the following advantages to investors – portfolio diversification,
liquidity, risk management, tax benefits, systematic investments, economies
of scale, etc.
Primarily mutual funds are segregated into equity, debt and hybrid mutual
funds.
Equity oriented funds can be further segregated into – Sectoral funds,
Thematic Funds, Diversified equity funds, Value funds, Market segment based
funds, value funds, growth funds, ELSS, etc.
Literature Review
Title of the Paper Key Takeaways
“Bala Ramasamy, Matthew C.H. Yeung, (2003) "Evaluating The paper talks about the research gap that exists in emerging and
mutual funds in an emerging market: factors that matter to developed markets with respect to the selection of mutual funds. It
financial advisors", International Journal of Bank Marketing. also talks about factors that are instrumental in selection of a
mutual fund scheme by financial advisors and investors.
“The Impact of Microeconomic Factors on the Performance: A The paper specifically talks about the relationship between the
Study of Equity Oriented Mutual Funds in India., Journal of performance of mutual fund schemes and macroeconomic variable
Economic Policy & Research, Volume 11, No. 2, April – like CPI, Exchange rates, foreign exchange reserves, oil prices, etc.
September 2016, pp 49-55”
“Effect of Fund Attributes on Efficiency: Cross – Sectional The paper talks about the effects of size and age of the equity
Evidence from Indian Equity Mutual Funds’, Inderjit Kaur” mutual fund scheme and its related effect on the fund performance.
Bigger the fund size, higher the returns and the more the age, more
efficient the fund is.
“Comparative Study of Selected Sector Equity Mutual Funds; Dr The paper talks about and compares the performance of numerous
Sunil M. Adhav: Journal of Indian Management Research and thematic equity mutual funds from 2009-14. The performance of
Practices ISSN: 0976-8262 Vol 1. Issue 1.” each fund is analyzed with the help of risk, return and Sharpe ratio.
“Performance Evaluation of Mutual Funds: A Study of Selected The purpose of this study was to compare the performance of
Diversified Equity Mutual Funds in India, Dr Vikas Choudhary, diversified equity mutual funds in India from a period of 8
and Preeti Sehgal Chawla. International Conference on Business, financial years. Sharpe Ratio, Treynor ratio were used to compare
Law and Corporate Social Responsibility (ICBLCSR'14) Oct 1-2, these funds. The author identified the significance of these ratios as
2014 Phuket (Thailand)” a tool to compare and select mutual funds.
Research Methodology
8 Growth oriented Equity Mutual Fund schemes were studied.
Performance of these funds was taken in consideration from January 1, 2011 to August
3, 2018 for 8 consecutive periods.
Next, we considered schemes whose data was available for 8-years. We performed
further steps to convert in all NAV values to % returns for all the schemes including the
Nifty 50 data.
Returns were analyzed using –
Average Return, Beta value, Standard Deviation, Treynor measure, Sharpe measure,
Jenson Measure and M-Square Measure.
The limitation to this study is that we have not taken the schemes which have been
performing well for all the years since their start, but have not completed the
required number of years to get past our research filter. Also, the sample size taken
by us is very small.
Analysis of Data – The Measures used
The data(returns value) was analyzed using the following measures:
Average Return
Beta Value
Standard Deviation
Treynor Measure
Sharpe Measure
Jensen Measure
M-Square Measure
Analysis of Data – The Formulae Used
Summary of Selected Mutual Funds
Average Standard Treynor Sharpe Jensen M-Square
Return Alpha Beta Deviation CAPM measure measure Measure measure
BNP Paribas 0.25639
Liquid Fund(G) 8 0.2474 0.2437 10.2094566 0.02142 0.98482 0.002302 0.234976 0.0187082
Canara Rob
Liquid Fund-
Reg(G) 0.25625 0.2417 0.3942 10.209487 0.0245 0.608283 0.002301 0.231747 0.0187068
IDBI Liquid 0.25623
Fund(G) 5 0.2691 -0.3488 10.2083685 0.0093 -0.68755 0.002301 0.246931 0.0187071
IDFC Cash Fund- 0.25636
Reg(G) 5 0.2567 -0.0099 10.2094925 0.01623 -24.1182 0.002302 0.24013 0.0187078
L&T Liquid 0.25645
Fund(G) 5 0.2554 0.0274 10.2089803 0.017 8.774145 0.002303 0.239457 0.0187089
LIC MF 0.25589
Liquid(G) 4 0.2566 -0.0189 10.2083961 0.01605 -12.6721 0.002298 0.239842 0.0187039
Principal Cash
Management 0.23342
Fund(G) 9 0.2348 -0.0374 10.2624911 0.01567 -5.79966 0.00206 0.217756 0.0184697
Principal Ultra
Short Term 0.25620
Fund(G) 9 0.2575 -0.0359 10.208987 0.0157 -6.66976 0.002301 0.240506 0.0187066
0.03689
Nifty 50 4 0 1 0.985953 0.03689 0.020455 0.021042 0 0.0371852
Average Return
The average return of the various mutual funds for the past 8 years has been shown
in the graph. L&T Liquid fund has the highest return on investment over the years
with the average return of 0.25645.
On the other hand Principal Cash Management is least performing Mutual fund
scheme with average return of 0.2334. Even though it’s average return is higher
than risk free rate of return.
Beta Value
Beta value is a measure of non-distributable risk, which indicates how a mutual fund’s NAV
responds to market forces. The beta value of Canara Rob Liquid fund is positive i.e. 0.394, which
makes it most sensitive to market forces. Whereas beta of IDBI is highly negative which means
that market forces do not affect its price.
Standard Deviation
Standard Deviation of an investment shows the volatility of that investment in the
market. Principal Cash management Fund has the highest SD of the lot which means
that it has high volatility to others in the market while on the other hand LIC Liquid
MF has the lowest.
Jensen Measure
Jensen's measure is an indicator that is risk-adjusted and measures performance representing the
average return on a portfolio or investment by using the avg. market return and the beta for the
given portfolio. The highest value is of IDBI Liquid Fund with the score 0.2469 and the least
being Principal Cash Management Fund having value 0.2177. A high and positive value of a
measure shows that the investment will provide higher returns than CAPM.
Treynor Measure
The Treynor ratio demonstrates the performance of the fund after adjusting risk. Beta of portfolio is the
denominator. The sensitivity of the portfolio to market movements is measured by beta, while the upside
and downside of overall volatility is measured by std. deviation. The most performing of all is L&T
Liquid Fund with a value of 8.7741. However, the measure is of IDFC Liquid Fund with a measure
-24.1182. A negative Treynor ratio means that the investment has performed worse than a risk-free return.
M square Measure
The Modigliani risk ratio (commonly referred to as M-square) measures the return that an
investment provides in the context of the associated risk. Higher the value of M-Square higher
would be the return on the portfolio.
The highest value for the same is of BNP Paribas Liquid Fund with the measure 0.0187082 and
the least of Principal Cash Management Fund (G) with value of 0.0184697.
Sharpe Measure
The risk-free excess portfolio return relative to its standard deviation is measured by Sharpe
ratio. Since all the Mutual Fund schemes under evaluation have a positive value, with BNP
Paribas Liquid Fund the highest i.e. 0.002302 has the most favourable performance and that of
Principal Cash Management Fund (G) being the least favourable of the lot.
Conclusion
After performing the analysis, we concluded that amongst the selected 8 Mutual funds (G) schemes
the best performing fund is L&T Liquid Fund (G). Also, the least performing scheme is Principal
Cash Management Fund (G)
We can even say that equity diversified schemes are highly risky when compared to other schemes.
But as the risk involved is higher so are the returns. It was also observed that the performance of
these schemes has been great over the period of time. Overall, these schemes have generated
positive returns for the investors.
Thus, this study helps the investors to select the right scheme as per their risk appetite. Those
investors who can take high risk can invest in Equity based schemes while those who want fixed
returns can consider the debt-oriented schemes.
Thank You!
