Investigating Performance of Equity-Based Mutual Fund Schemes in Indian Scenario

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Investigating Performance of Equity-based Mutual Fund Schemes in Indian Scenario Sathya Swaroop Debasish1 Abstract In the backdrop of liberalization and private participation in the Indian mutual fund industry, the challenge to survive and retain investor confidence has been a prime are of concern for fund managers. For small investors who do not have the time or the expertise to take direct investment decision in equities successfully, the alternative is to invest in mutual funds. The performance of the mutual fund products become more complex in context of accommodating both return and risk measurements while giving due importance to investment objectives. In this paper, an attempt has been made to study the performance of selected schemes of mutual funds based on risk-return relationship models and measures. A total of 23 schemes offered by six private sector mutual funds and three public sector mutual funds have been studied over the time period April 1996 to March 2009 (13 years). The analysis has been made on the basis of mean return, beta risk, coefficient of determination, Sharpe ratio, Treynor ratio and Jensen Alpha. The overall analysis finds Franklin Templeton and UTI being the best performers and Birla SunLife, HDFC and LIC mutual funds showing poor below-average performance when measured against the risk-return relationship models. Key Words: Mutual Fund, Sharpe Ratio, Beta, Treynor Ratio, India, Risk, Investor INTRODUCTION Mutual Fund is one of the most preferred investment alternatives for the small investors as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Over the past decade, mutual funds have increasingly become the investor’s vehicle of choice for long-term investing. The Indian mutual fund industry has a total corpus of over Rs 700 billion collected from more than 20 million investors. The largest category of mutual funds are those of Unit Trust of India (UTI), followed by ones floated by nationalized banks (like State Bank of India) and the third largest category of mutual funds are the ones floated by the private sector and by foreign asset management companies (like Prudential ICICI and Birla SunLife). In recent times, the emerging trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Growth and developments of various mutual funds products in the Indian capital market has proved to be one of the most catalytic instruments in generating momentous investment growth in the capital market. In this context, close monitoring and evaluation of mutual funds has become essential. With emphasis on increase in domestic savings and improvement in deployment of investment through markets, the need and scope for mutual fund operation has increased tremendously. Thus the involvement of mutual funds in the transformation of Indian economy has made it urgent to


Dr. Sathya Debasish is a Senior Lecturer in the Department of Business Management, Fakir Mohan University, Balasore, Orissa, India.



view their services not only as a financial intermediary but also as a pacesetter as they are playing a significant role in spreading equity culture. In this context, it becomes pertinent to study the performance of the Indian mutual fund industry. The relation between risk-return determines the performance of a mutual fund scheme. As risk is commensurate with return, therefore, providing maximum return on the investment made within the acceptable associated risk level helps in demarcating the better performers from the laggards. OBJECTIVES OF THE...
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