A COMPARATIVE ANALYSIS OF MUTUAL FUND SCHEMES IN …

1 IRJC International Journal of Marketing, Financial Services & Management Research Issue 7, July 2012, ISSN 2277 3622 67 A COMPARATIVE ANALYSIS OF MUTUAL FUND SCHEMES IN INDIA DR. SARITA BAHL*; MEENAKSHI RANI** *Associate Professor, Department of Commerce and Management, Arya College, Ludhiana. **Research Scholar, Department of Commerce, Kurukshetra University, Kurukshetra, Haryana. ABSTRACT The present paper investigates the performance of 29 open-ended, growth-oriented equity SCHEMES for the period from April 2005 to March 2011 (six years) of transition economy. Monthly NAV of different SCHEMES have been used to calculate the returns from the fund SCHEMES .

2 BSE-sensex has been used for market portfolio. The historical performance of the selected SCHEMES were evaluated on the basis of Sharpe, Treynor, and Jensen s measure whose results will be useful for investors for taking better investment decisions. The study revealed that 14 out of 29 ( percent) sample MUTUAL fund SCHEMES had outperformed the benchmark return. The results also showed that some of the SCHEMES had underperformed, these SCHEMES were facing the diversification problem. In the study, the Sharpe ratio was positive for all SCHEMES which showed that funds were providing returns greater than risk free rate.

3 Results of Jensen measure revealed that 19 out of 29 ( percent) SCHEMES were showed positive alpha which indicated superior performance of the SCHEMES . KEYWORDS: Jensen measure, MUTUAL funds, performance evaluation, Sharpe measure, Treynor measure. _____ I. INTRODUCTION Many of the financial instruments MUTUAL fund is one of the most attractive financial investment instrument that plays a vital role in the economy of a country. MUTUAL fund SCHEMES provides new opportunities for investors. MUTUAL fund Industry was introduced in India 1963 with the formation of Unit Trust of India.

4 During the last few years many extraordinary and rapid changes have been seen in the MUTUAL fund industry. Therefore, due to the changed environment it becomes important to investigate the MUTUAL fund performance. The need for evaluating the performance of MUTUAL fund SCHEMES in India to see whether the MUTUAL fund SCHEMES are outperforming or underperforming than the benchmark and to see the competency of SCHEMES to make out a strong case for investment. The present paper investigates the performance of open-ended, growth-oriented equity SCHEMES . Open-ended MUTUAL fund SCHEMES are those which don t have a fixed maturity, not listed in the stock exchange and these SCHEMES offer new unit for sale and ready to buy any time.

5 The success of any scheme depends upon the competence of the IRJC International Journal of Marketing, Financial Services & Management Research Issue 7, July 2012, ISSN 2277 3622 68 management and its soundness. The numbers of open-ended SCHEMES have been increased from the last few years except 2009 (see table 1). The reason may be of decreasing open-ended SCHEMES in March 2009 are the global financial crisis. According to AMFI (March 2011), there were about 1095 SCHEMES in India, out of which 727 ( ) were open-ended. The growth of open-ended and close-ended MUTUAL fund SCHEMES in percentage term are presented in Table 1.

6 TABLE 1. GROWTH OF MUTUAL FUND SCHEMES IN INDIA SCHEMES March 2006 March 2007 March 2008 March 2009 March 2010 March 2011 Open-ended 463 ( ) 480 (64) 592 ( ) 589 ( ) 641 ( ) 727 ( ) Close-ended 129 ( ) 270 (36) 364 ( ) 344 ( ) 202 ( ) 368 ( ) Total 592 (100) 750 (100) 956 (100) 933 (100) 843 (100) 1095 (100) Note: Figures in parentheses indicate the percentages Source: Data Compiled from AMFI (Association of MUTUAL Funds of India) The rest of paper is organized as follows: In Section II summarize previous studies related to MUTUAL funds performance. Section III discusses the research methodology for this study. Section IV discusses results and ANALYSIS and Section V concludes this study.

7 II. LITERATURE REVIEW The present study deals with the review of literature on Evaluating the Performance of Indian MUTUAL Fund SCHEMES . A number of studies on evaluating the performance of Indian MUTUAL Fund SCHEMES have been conducted in India and foreign countries. Review of some of the studies is presented in the following discussion: - Jayadev (1996) evaluated the performance of two growth-oriented MUTUAL funds namely Mastergain and Magnum express by using monthly returns. Jensen, Sharpe and Treynor measures have been applied in the study and the pointed out that according to Jensen and Treynor measure Mastergain have performed better and the performance of Magnum was poor according to all three measures.

8 Afza and Rauf (2009) in their study of open-ended Pakistani MUTUAL funds performance using the quarterly data for the period of 1996-2006. The study measure the fund performance by using Sharpe ratio with the help of pooled time-series and cross sectional data and also focused on different attributes such as fund size, expenses, age, turnover and liquidity. The results found significant impact on fund performance. Debasish (2009) studied the performance of selected SCHEMES of MUTUAL funds based on risk and return models and measures. The study covered the period from April 1996 to March 2005 (nine years).

9 The study revealed that Franklin Templeton and UTI were the best performers and Birla Sun life, HDFC and LIC MUTUAL funds showed poor performance. Ali, Naseem and Rehman (2010) in IRJC International Journal of Marketing, Financial Services & Management Research Issue 7, July 2012, ISSN 2277 3622 69 their study examined the performance of 10 MUTUAL funds in which 5 were conventional and 5 were islamic for the period from 2006 to 2008 by using Sharpe and Treynor measures. The results found that the funds of Pakistan were able to add more value either conventional or islamic .

10 The study also found that some of the funds were underperformed, so these funds were facing diversification problems during the study period. Garg (2011) examined the performance of top ten MUTUAL funds that was selected on the basis of previous years return. The study analyzed the performance on the basis of return, standard deviation, beta as well as Treynor, Jensen and Sharpe indexes. The study also used Carhart s four-factor model for analyze the performance of MUTUAL funds. The results revealed that Reliance Regular Saving Scheme Fund had achieved the highest final score and Canara Robeco Infra had achieved the lowest final score in the one year category.