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PERFORMANCE OF MUTUAL FUND DURING RECESSION & POST RECESSION PERIOD (2006-2010)
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PERFORMANCE OF MUTUAL FUND
DURING RECESSION & POST RECESSION
PERIOD (2006-2010)
In partial fulfillment of the requirements for the award of degree of
MASTER OF BUSINESS ADMINISTRATION
SUBMITTED To:
Supervisor: MRS.DEEPIKA DHAL
SUBMITTED By: GROUP-5
REHAN QADIR RT 1901 A 06 10901714
DEPARTMENT OF MANAGEMENT (LIM)
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
(Year 2011-2012)
1
TO WHOMSOEVER IT MAY CONCERN
This is to certify that the project report titled “Performance of Mutual Fund
during Recession & Post Recession Period (2006-2010)” carried out by Rehan
Qadir , has been accomplished under my guidance & supervision as a duly
registered MBA student of the Lovely Professional University, Phagwara. This
project is being submitted by her in the partial fulfillment of the requirements for
the award of the Master of Business Administration from Lovely Professional
University. Her dissertation represents her original work and is worthy of
consideration for the award of the degree of Master of Business Administration.
___________________________________
(Name & Signature of the Faculty Advisor)
Date:
2
DECLARATION
I Rehan Qadir s/o Mr. Abdul Qadir hereby declare that the work presented herein
is genuine work done originally by me and has not been published or submitted
elsewhere for the requirement of a degree programme. Any literature, data or
works done by others and cited within this dissertation has been given due
acknowledgement and listed in the reference section.
_______________________
(Student's name & Signature)
_______________________
(Registration No.)
Date: __________________
3
ACKNOWLEDGEMENT
I would like to express my gratitude for the helpful comment and Suggestions by
my teacher.
Most importantly I would like to thank my lecturer MS. DEEPIKA DHALL
for her days of supervision. Her critical commentary on work has played a major
role in both the content and presentation of our discussion and arguments and I
would thank my friends for their help in making of this term paper
I have extended my appreciation to the several sources which provided various
kinds of knowledge base support for me this period.
Rehan Qadir
(Signature)
INTRODUCTION Of MUTUAL FUNDS
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Mutual Funds over the years have gained immensely in their popularity. Apart from the many
advantages that investing in mutual funds provide like diversification, professional management,
the ease of investment process has proved to be a major enabling factor. However, with the
introduction of innovative products, the world of mutual funds nowadays has a lot to offer
to its investors. With the introduction of diverse options, investors needs to choose a mutual fund
that meets his risk acceptance and his risk capacity levels and has similar investment objectives
as the investor. With the plethora of schemes available in the Indian markets, an investors needs
to evaluate and consider various factors before making an investment decision. Since not
everyone has the time or inclination to invest and do the analysis himself, the job is best left to a
professional.
Since Indian economy is no more a closed market, and has started integrating with the world
markets, external factors which are complex in nature affect us too. Factors such as an increase
in short-term US interest rates, the hike in crude prices, or any major happening in Asian market
have a deep impact on the Indian stock market. Although it is not possible for an individual
investor to understand Indian companies and investing in such an environment, the process can
become fairly time consuming.
Mutual funds (whose fund managers are paid to understand these issues and whose Asset
Management Company invests in research) provide an option of investing without getting lost in
the complexities. Most importantly, mutual funds provide risk diversification of a portfolio is
amongst the primary tenets of portfolio structuring, and a necessary one to reduce the level of
risk assumed by the portfolio holder. Most of the investors are not necessarily well qualified to
apply the theories of portfolio structuring to their holdings and hence would be better off leaving
that to a professional. Mutual funds represent one such option.
Definition- A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities. The income earned through these investments
and the capital Appreciation realized are shared by its unit holders in proportion to the number of
units owned by them. Thus a Mutual Fund is the most suitable investment for the common man
as it offers an opportunity to invest in a diversified, professionally managed basket of securities
at a relatively low cost.
The mutual fund industry has been in India for a long time. This came into existence in 1963
with the establishment of Unit Trust of India, a joint effort by the Government of India and the
Reserve Bank of India. The next two decades from 1986 to 1993 can be termed as the period of
public sector funds with entry of new public sector players into the mutual fund industry namely,
Life Insurance Corporation of India and General Insurance Corporation of India.
5
The year of 1993 marked the beginning of a new era in the Indian mutual fund industry with the
entry of private players like Morgan Stanley, J.P Morgan, and Capital International1. This was
the first time when the mutual fund regulations came into existence. SEBI (Security Exchange
Board of India) was established under which all the mutual funds in India were required to be
registered. SEBI was set up as a governing body to protect the interest of investor. By the end of
2008, the number of players in the industry grew enormously with 462 fund houses functioning
in the country.
With the rise of the mutual fund industry, establishing a mutual fund association became a
prerequisite. This is when AMFI (Association of Mutual Funds India) was set up in 1995 as a
nonprofit organization. Today AMFI ensures mutual funds function in a professional and healthy
manner thereby protecting the interest of the mutual funds as well as its investors.
The mutual fund industry is considered as one of the most dominant players in the world
economy and is an important constituent of the financial sector and India is no exception. The
industry has witnessed startling growth in terms of the products and services offered, returns
churned, volumes generated and the international players who have contributed to this growth.
Today the industry offers different schemes ranging from equity and debt to fixed income and
money market.
The market has graduated from offering plain vanilla and equity debt products to an array of
diverse products such as gold funds, exchange traded funds (ETF’s), and capital protection
oriented funds and even thematic funds. In addition investments in overseas markets have also
been a significant step. Due credit for this evolution can be given to the regulators for building an
appropriate framework and to the fund houses for launching such different products. All these
reasons have encouraged the traditional conservative investor, from parking fund in fixed
deposits and government schemes to investing in other products giving higher returns.
It is interesting to note that the major benefits of investing in a mutual funds is to capitalize on
the opportunity of a professionally managed fund by a set of fund managers who apply their
expertise in investment. This is beneficial to the investors who may not have the relevant
knowledge and skill in investing. Besides investors have an opportunity to invest in a diversified
basket of stocks at a relatively low price. Each investor owns a portion of the fund and hence
shares the rise and fall in the value of the fund. A mutual fund may invest in stocks, cash, bonds
or a combination of these.
Mutual funds are considered as one of the best available investment options as compare to others
alternatives. They are very cost efficient and also easy to invest in. The biggest advantage of
mutual funds is they provide diversification, by reducing risk & maximizing returns.
India is ranked one of the fastest growing economies in the world. Despite this huge progression
in the industry, there still lies huge potential and room for growth. India has a saving rate of more
1
2
6
than 35% of GDP, with 80% of the population who save3. These savings could be channelized in
the mutual funds sector as it offers a wide investment option. In addition, focusing on the
rapidly growing tier II and tier III cities within India will provide a huge scope for this sector.
Further tapping rural markets in India will benefit mutual fund companies from the growth in
agriculture and allied sectors. With subsequent easing of regulations, it is estimated that the
mutual fund industry will grow at a rate of 30% - 35% in the next 3 to 5 years and reach US 300
billion by 2015.As it can be noted, there is huge growth and potential in the mutual fund
industry. The development of this sector so far has been commendable and with the above
positive factors we are looking at a more evolved industry.
Significance of the Study
Over the last couple of years mutual funds have given impressive returns, especially equity
funds. The growth period first started during early 2005 with markets appreciating significantly.
With 2006 approaching more towards 2007, markets rallied like never before. The financial year
2007-08 was a year of reckoning for the mutual fund industry in many ways. Most stocks were
trading in green. All fund houses boasted of giving phenomenal returns. Many funds
outperformed markets. Equity markets were in the limelight. Investors who were not exposed to
equity stocks suddenly infused funds.
Growth funds which aim at giving capital appreciation invest in growth stocks of the fastest
growing companies. Since these funds are more risky providing above average earnings,
investors pay a premium for the same. These funds have grown to become extensively popular in
India. All the leading fund houses offer several schemes under the growth funds today.
The remarkable performance of this industry has attracted many researchers to study and
examine the growth, the performance of funds, the players in the market and the regulators. It is
interesting to learn the growth phase of these funds over this period.
OBJECTIVE OF STUDY:OBJECTIVE OF STUDY:
To compare the performance of mutual funds during recession and the post
recession period.
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7
SCOPE OF THE STUDYSCOPE OF THE STUDY
The scope of the study is to provide an insight into the current situation of
recession in our Indian economy and how it is affecting the mutual funds in India.
In future it will help the general people who read this report as to how are mutual
funds has improved and to let them know whether it is safe to keep the money with
funds in future. It will help investors to know the performance of various mutual
funds during and after recession period. As a result it will give an overall scenario
and performance of mutual funds during and after recession. It can be very
beneficial for the students doing their project based on this topic, for other
research. It may also help different financial institution and insurance sector on to
make them prepare for such type of uncertainties.
REVIEW OF LITERATURE
A number of researchers have examined mutual fund performance persistence, but the results
are. Grinblatt and Titman (1992) find that there is positive persistence in mutual fund
performance. They find that part of the persistence is due to differences in fees and transaction
costs across funds. They conclude that past performance does provide useful information for
investors. Fama & French (1993) proposed a three-factor model for mutual funds which takes
into account the fund size and book-to-market in addition to the market factor. They indicate that
this model can be used for various purposes including portfolio selection, evaluating
performance, measuring abnormal returns and estimating the cost of capital. Argue that this
model by Fama & French is better than CAPM based portfolio analysis procedures and
"advocates a simple and straightforward way" of carrying out any analysis. Sharpe, William F.
(1966) suggested a measure for the evaluation of portfolio performance. Drawing on results
obtained in the field of portfolio analysis, economist Jack L. Trey nor has suggested a new
predictor of mutual fund performance, one that differs from virtually all those used previously by
incorporating the volatility of a fund's return in a simple yet meaningful manner .by. He argued
mutual funds underperform the market by the amount of expenses they charge the investors.
There are various factors that affect the performance of mutual funds. have attempted to research
on the factors, especially on the cost sides, that affect the performance of mutual funds. These
two researches came up with several cost side factors with load fees, sales charges, redemption
fees, transaction costs, expense ratio. Mishra, et al., (2002) measured mutual fund performance
using lower partial moment. In this paper, measures of evaluating portfolio performance based
on lower partial moment are developed. Risk from the lower partial moment is measured by
taking into account only those states in which return is below a pre-specified “target rate” like
8
risk-free rate. Asebedo & Grable (2004) identified as an important factor influencing mutual
funds' performance. He argues that fund managers control all sorts of decision making related to
investment by the fund, therefore their style influences the fund to a great deal. Fund managers
also control the diversification and turnover of fund's assets which again influence fund
performance (Malhotra & Mcleod, 1997 and Fredman, 1999). Athanasios G Noulas, John A
Papanastasiou, John Lazaridis (2005) current paper evaluates the performance of Greek equity
funds during the period 1997-2000. The evaluation is based on the analysis of risk and return.
The risk is measured through the coefficient of variation and the systematic risk. The results
indicate that there is a positive relation between risk and return for the whole period, while the
betas for all funds are smaller than one. Bruce A Costa, Keith Jakob, Gary E Porter(2006)
Mutual fund performance studies that examine returns over several years typically show that
fund managers significantly underperform on a risk-adjusted basis. Using a four-factor risk-
adjustment model, the authors of this article observe similar results during the bull market of the
1990s. However, they report that when they run their model using a moving 36-month window,
they show that managers, on average, do not underperform on a risk-adjusted basis during the
two bear markets that occurred within the full sample period 1990-2001. In fact, for some
manager experience levels, they report significant positive risk-adjusted performance, on
average, during the latest bear market. Contrary to some prior studies and popular belief, the
level of risk-adjusted performance they find is not positively related to manager experience. The
article's conclusions indicate that market trends rather than manager experience more clearly
influence the level of risk-adjusted returns generated by fund managers, and thus investors
should not pick mutual funds based solely on the tenure of the funds' managers. Timo
Kuosmanen. (Oct 2007) propose a method for mutual fund performance measurement and best-
practice benchmarking, which endogenously identifies a dominating benchmark portfolio for
each evaluated mutual fund. Dominating benchmarks provide information about efficiency
improvement potential as well as portfolio strategies for achieving them. Portfolio diversification
possibilities are accounts for by using Data Envelopment Analysis (DEA). Portfolio risk is
accounted for in terms of the full return distribution by utilizing Stochastic Dominance (SD)
criteria. John A Haslem, H Kent Baker, David M Smith (2007) apply a simple statistical
method to identify domestic equity mutual funds with high management fees and expense ratios.
The identified funds with management fees and expense ratios in the two highest standard
deviation classes each represent 1.5% of Morningstar's total sample of 6,179 funds. We also
examine the association of management fees and expense ratios to descriptive performance
measures by Morningstar categories and overall across each of four standard deviation classes.
We find a negative association between each performance measure and fund expense ratios in
the Morningstar category overall but mixed results for management fees. Marcin Kacperczyk,
Clemens Sialm, Lu Zheng (2007) study the relation between the industry concentration and the
performance of actively managed U.S. mutual funds from 1984 to 2003. Our results indicate that
the most concentrated funds perform better after controlling for risk and style differences using
factor-based performance measures. This finding suggests that investment ability is more evident
among managers who hold portfolios concentrated in a few industries. Rongli Yuan, Jason
Zezhong Xiao, Hong Zou (Aug 2008. ) study tests empirically the impact of mutual funds'
9
ownership on firm performance in China, using a large sample for the period of 2001-2005. We
find that equity ownership by mutual funds has a positive effect on firm performance. The result
is robust to several measures of firm performance and various estimations. Our finding supports
recent regulatory efforts in China to promote mutual funds as a corporate governance mechanism
and suggests that pooling diffuse minority interests of individual shareholders who are prone to
free-rider problems via mutual funds is beneficial. Aymen Karoui, Iwan Meier (2009) study the
performance and portfolio characteristics of 828 newly launched US equity mutual funds over
the period 1991-2005. These fund starts initially earn, on average, higher excess returns and
higher abnormal returns. Their risk-adjusted performance is also superior to existing funds.
Furthermore, we provide evidence for short-term persistence among top-performing fund starts,
however, a substantial fraction of funds drop from the top to the bottom decile over two
subsequent periods. Analyzing portfolio characteristics, we find that returns of fund starts exhibit
higher ratios of unsystematic to total risk. Portfolios of new funds are typically also less
diversified in terms of number of stocks and industry concentration and are invested in smaller
and less liquid stocks. William J Bertin, Laurie Prather.( Dec 2009) study reports on FOFs'
characteristics and performance relative to traditional equity mutual funds and finds that FOFs
compare favorably. FOFs with identified managers outperform their unidentified counterparts,
and FOFs that invest in-family outperform both traditional equity funds and those FOFs
investing out-of-family. Finally, replicating FOFs' holdings can be prohibitively expensive since
they commonly hold funds with high minimum initial investments, closed funds and/ or funds
that are restricted to a particular investor type. Ranjini Jha, Bob Korkie, Harry J Turtle: (Oct
2009) develop conditional alpha performance measures that are consistent with conditional
mean-variance analysis and the magnitude and sign of the implied true conditional time-varying
alphas. The sequence of conditional alphas and betas is estimable from surprisingly simple
unconditional regressions. Other common performance measures are derivable from the
conditional investment opportunity set based on its conditional asset return moments. Our
bootstrap analysis of Morningstar mutual fund returns data demonstrates that the differences
between existing conditional alpha measures and our proposed alpha are substantive for typical
parameterizations.Yong Chen, Wayne Ferson, Helen Peters. ( 2010 ) paper evaluates the
ability of bond funds to "market time" nine common factors related to bond markets. Timing
ability generates nonlinearity in fund returns as a function of common factors, but there are
several non-timing-related sources of nonlinearity. Controlling for the non-timing-related
nonlinearity is important. Funds' returns are more concave than benchmark returns, and this
would appear as poor timing ability in naive models. With controls, the timing coefficients
appear neutral to weakly positive. Adjusting for nonlinearity, the performance of many bond
funds is significantly negative on an after-cost basis, but significantly positive on a before-cost
basis. Diana P Budiono, Martin Martens (2010 ) the popular investment strategy in the
literature is to use only past performance to select mutual funds. We investigate whether an
investor can select superior funds by additionally using fund characteristics. After considering
the fund fees, we find that combining information on past performance, turnover ratio, and
ability produces a yearly excess net return of 8.0%, whereas an investment strategy that uses
only past performance generates 7.1%. Adjusting for systematic risks and then using fund
10
characteristics, increases yearly alpha significantly from 0.8% to 1.7%. The strategy that also
uses fund characteristics requires fewer turnovers. Akmal, Bashir Ahmed Khilji, Irfan Ahmed,
Nisar Ali Asghar, Javed Ali.( Aug 2010) Mutual funds are considered as vehicle for investment
in stock market. These not only reduce the risk but also reduce the transaction cost. Mutual
performance is a common topic in all country to be studied. This paper evaluates the mutual
funds in Pakistan; provide information to different stake holder regarding current and future
developments. Simple descriptive tools employed to intemperate data. Result shows that on
overall basis, funds industry outperform the market. The future of industry depends on the
performance of funds industry and the role of regulatory bodies. Martin Eling, Roger Faust.:(
Aug 2010). findings of this study is Use of short selling and derivatives is limited in most
emerging markets because such instruments are not as readily available as they are in developed
capital markets. These limitations raise questions about the value added provided by hedge
funds, especially compared to traditional mutual funds active in these markets. We use five
existing performance measurement models plus a new asset-style factor model to identify the
return sources and the alpha generated by both types of funds. We analyze subperiods, different
market environments, and structural breaks. Our results indicate that some hedge funds generate
significant positive alpha, whereas most mutual funds do not outperform traditional benchmarks.
We find that hedge funds are more active in shifting their asset allocation. The higher degree of
freedom that hedge funds enjoy in their investment style might thus be one explanation for the
differences in performance. Javier ( 2010.) purpose of this paper is to examine the performance
of a sample of socially responsible mutual funds (SRMFs) and a matched sample of conventional
funds during the 1997-2005 time periods. On the basis of the raw returns, socially responsible
funds performed better than some market indexes but this evidence of outperformance disappears
once risk is incorporated into the analysis. Consistent with previous studies, no evidence was
found of out performance by socially responsible funds. Also, the difference between the
performance of SRMFs and conventional mutual funds is not statistically significant. This result
is robust to the use of two additional measures of risk-adjusted performance. Yee Cheng Loon
(Feb 2011) Model uncertainty makes it difficult to draw clear inference about mutual fund
performance persistence. I propose a new performance measure, Bayesian model averaged
(BMA) alpha, which explicitly accounts for model uncertainty. Using BMA alphas, I find
evidence of performance persistence in a large sample of US funds. There is a positive and
asymmetric relation between flows and past BMA alphas, suggesting that fund investors respond
to the information in BMA alphas. My findings are robust to various sensitivity analyses,
including alternative measures of post-ranking performance, flows and total net assets, and
alternative econometric model specifications. Diana P Budiono, Martin Martens Feb.(2011)
popular investment strategy in the literature is to use only past performance to select mutual
funds. We investigate whether an investor can select superior funds by additionally using fund
characteristics. After considering the fund fees, we find that combining information on past
performance, turnover ratio, and ability produces a yearly excess net return of 8.0%, whereas an
investment strategy that uses only past performance generates 7.1%. Adjusting for systematic
11
risks, and then using fund characteristics, increases yearly alpha significantly from 0.8% to 1.7%.
The strategy that also uses fund characteristics requires fewer turnovers.
RESEARCH METHODOLOGYResearch Methodology is a way to systematically solve the research problem. The Research
Methodology includes the various methods and techniques for conducting a Research.
“Marketing Research is the systematic design, collection, analysis and reporting of data and
finding relevant solution to a specific marketing situation or problem”. D. Slesinger and
M.Stephenson in the encyclopedia of Social Sciences define Research as “the manipulation of
things, concepts or symbols for the purpose of generalizing to extend, correct or verify
knowledge, whether that knowledge aids in construction of theory or in the practice of an
art”.
Research is, thus, an original contribution to the existing stock of knowledge making for its
advancement. The purpose of Research is to discover answers to the Questions through the
application of scientific procedures. Our project has a specified framework for collecting data in
an effective manner.
A successful completion of any project and getting genuine results from that depends upon the
method used by the researcher. The plan or the methodology for this study is laid upon
the following basis:
Research design
Sources of data collection
Research instruments
Sampling plan
Research Design
A number of facts could be explored by means of this research in regards to the
performance of mutual funds during and post recession in India. The research is
causal in nature because all the data is known.
.Sources of Data Collection
Data Collection
Information will be collected from only secondary data.
Secondary sources- Secondary data are those which have already been collected
by someone else which already had been passed through the statistical process.
Secondary data will be collected through books, Journals and websites.
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Population: - All the mutual funds in 2006-2010 of India are our population.
Sample size: - Different 15 mutual funds are our sample size. Which have NAV
more than 8%.
Sample element- Individual mutual fund is the sample element.
Sampling Technique- - In this research judge mental sampling is done purely on
the basis of researcher’s judgments. On the basic of NAV we select the mutual
fund.
Statistical Tools:-
Tools of presentation: In the current study, data will be presented through figures,
charts graphs and tables.
Limitations
• time constraint was one of the major problem.
•The study is limited to selected mutual fund.
• The lack of information sources for the analysis part.
HYPOTHESIS
Null hypothesis (Ho)
There is no impact of recession on the performance of mutual fund.
Alternate hypothesis (H1):
There is impact of recession on the performance of mutual fund.
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DATA ANALYSIS AND INTERPRETATION:
For the purpose of this study, there are many mutual funds available in India. We
are selecting 15 mutual funds for our study. All the funds were selected by
judgmental sampling. All the funds selected for the study are open-ended equity
funds under the growth option. The Net Asset Values (NAV) returns, for all
the15funds are from 2006 to 2010, which is the period of this study. We take all
these mutual funds:-
ICICI Pru Discovery Fund (G)
DSP-BR Micro Cap Fund - RP (G)
Birla Sun Life Dividend Yield Plus (G)
Templeton India Equity Income Fund (G)
Reliance Equity Opportunities Fund - Retail Plan (G)
HDFC Equity Fund (G)
Tata Dividend Yield Fund (G)
SBI Magnum Emerging Businesses Fund (G)
HDFC Equity Fund (G)
UTI Dividend Yield Fund (G)
Principal Emerging Blue-chip Fund (G)
Franklin Asian Equity Fund (G)
HDFC Core & Satellite Fund (G)
UTI Master Value Fund (G)
Returns:
Returns are the yield that an asset generates over a period of time. It is the percentage increase or
decrease in the value of the investment over a period of time.
In this study the fund returns have been calculated for each of the period.
There are 15funds with a 5 year data, which effectively gives average returns for the period. The
main purpose of this exercises the fund returns and analysis the fund’s performance.
The fund returns for each of the period were calculated as follows:
Current NAV – Previous NAV x 100
Previous NAV
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The BSE Sensex returns were calculated as follows:
Current Closing – Previous Closing x 100
Previous Closing
NAV OF MUTUAL FUND
NAV is calculated by most funds after the close of the exchanges each day by taking the closing
market value of all securities owned plus all other assets such as cash, subtracting all liabilities,
then dividing the result (total net assets) by the total number of shares outstanding. The number
of shares outstanding can vary each day depending on the number of purchases and redemptions.
15
mutual fund 2006 to 2010 21.83
BIRLA SUNLIFE 39.23
TEMPLETON INDIA 9.52
RELIANCE 15.335
HDFC EQUITY 112.438
TATA DIVIDEND 15.299
SBI MAGNUM 24.49
UTI DIVINDEND 13.58
PRINCIPAL EMARGING 9.88
FRAKLIN ASIAN 9.568
HDFC CORE 20.746
UTI MASTER VALUE 28.09
BIRLA SUNLIFE 9.968
HSBC EMARGING 11.515
RELIANCE REGULAR 10.153
LIC MF BOND 19.016
CANARA ROBECO 10.68
TATA FLOATER 10.213
6%
BIRLA SUNLIFE10%
TEMPLETON INDIA
2%RELIANCE
4%
HDFC EQUITY29%
TATA DIVIDEND4%SBI MAGNUM
6%
UTI DIVINDEND3%
PRINCIPAL EMARGING
3%
FRAKLIN ASIAN2%
HDFC CORE5%
UTI MASTER VALUE
7%
BIRLA SUNLIFE3%
HSBC EMARG-ING3%
RELIANCE REGULAR
3%
LIC MF BOND5%
CANARA ROBECO3%
TATA FLOATER3%
2006 to 2010
ANALYSIS:-
When we analysis the NAV of all these mutual fund we find the value of particular mutual fund
and we find in that HDFC EQUITY FUND has higher NET ASSETS value is very high. HDFC
has 112.43 NAV in 2006 to 2010.
IN 2008 all mutual funds give not higher return because the NAV all these mutual funds is
decline and investors not invest in the mutual funds.
SHARPE’S PERFORMANCE INDEX
The Sharpe Index is a measure with which you may measure the performance of your portfolio
over a given period of time. The important aspect of the Sharpe Index is that this performance
indicator takes into consideration the risk of the portfolio.
In order to use the Sharpe Index, you must know three things; the portfolio return, the risk-free
rate of return, and the Standard Deviation of the portfolio. For the risk-free rate of return, you
may use the average return (over the period of time) of some government bond or note. The
Standard Deviation of the portfolio is a measure of the systematic risk of the portfolio. Using the
Standard Deviation, rather than the beta (as in the Treynor Index), you are assuming that the
portfolio is NOT a diversified portfolio. If you are looking at the return of a mutual fund, this
figure is typically available from the fund company itself (this and other measures are also
available from the American Association of Individual Investors' Guide to Mutual Funds). The
Sharpe ratio has as its principal advantage that it is directly computable from any observed series
of returns without need for additional information surrounding the source of profitability. Other
ratios such as the bias ratio have recently been introduced into the literature to handle cases
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where the observed volatility may be an especially poor proxy for the risk inherent in a time-
series of observed returns.
The returns measured can be of any frequency (i.e. daily, weekly, monthly or annually), as long
as they are normally distributed, as the returns can always be annualized. Herein lies the
underlying weakness of the ratio - not all asset returns are normally distributed. Abnormalities
like kurtosis, fatter tails and higher peaks, or skewness on the distribution can be a problematic
for the ratio, as standard deviation doesn't have the same effectiveness when these problems
exist. Sometimes it can be downright dangerous to use this formula when returns are not
normally distributed.
For those of you who want to know the formula for the index:-
Sharpe = (Portfolio Return - Risk-Free Return) / Standard
Deviation
DATA OF MUTUAL FUND
2010 2009 2008 2007 2006
ICICI PRU 0.42234 1.479506 -0.94315 0.56515
BIRLA SUNLIFE 0.44865 1.62838 -1.23501
0.99946
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TEMPLETON
INDIA 0.297707 1.679286 -1.04643 0.87707 0.21748
RELIANCE 0.418 0.41807 1.68955 -1.07109 0.7791
HDFC EQUITY 0.40928 1.74858 -1.02322 0.8331 0.54083
TATA DIVIDEND 0.44438 1.43431 -1.07483
1.23199
3 0.1409
SBI MAGNUM 0.398238 1.553156 -1.11758
0.88305
1 0.344
UTI DIVINDEND 0.34664 1.528 -1.01205 0.83318 0.54083
PRINCIPAL
EMARGING 0.166158 1.837196 0.04998
FRAKLIN ASIAN 0.03625 0.949098 -0.8062
HDFC CORE 0.38912 1.68073 -1.10892
0.64854
2 0.5645
UTI MASTER
VALUE 0.3105 1.68769 -1.02846 0.83513 0.07289
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BIRLA SUNLIFE -0.004351 0.8529 -1.56226 -0.19147
HSBC
EMARGING 0.10172 1.10998 -1.01277
RELIANCE
REGULAR 0.382039 1.6138 -1.03346 1.05795 0.183672
LIC MF BOND -0.06633 -0.53068 1.99005 0.46434 -0.24322
CANARA
ROBECO -0.10123 0.0828 2.199493 0.0368 -0.12884
TATA FLOATER -0.1837 -0.1837 2.081936
1.34713
5 0.3674
ICICI PRU9% BIRLA SUNLIFE
9%TEMPLETON
INDIA6%
RELIANCE8%
HDFC EQUITY8%
TATA DIVIDEND9%
SBI MAGNUM8%
UTI DIVINDEND7%
PRINCIPAL EMARGING
3%
FRAKLIN ASIAN1%
HDFC CORE8%
UTI MASTER VALUE
6%
BIRLA SUNLIFE0%
HSBC EMARGING2%
RELIANCE REG-ULAR8%
LIC MF BOND1%
CANARA ROBECO2%
TATA FLOATER4%
2010
ANALYSIS:- when we analysis the data of above mutual fund we find these results,
which is as follow:-
According to Sharpe performance index we find the result that if any mutual fund has
higher st (index) that means it has a better ranked and it performance is very better than the
Others mutual funds.
And if a mutual fund has not very well higher st that means it is a great risk to earn the
18
higher return and its adjusted return was not the most desirable.
In this analysis we can say that TATA DIVIDEND has highly returned because it has higher
index in the recession.
Other mutual fund like SBI, HDFC CORE, RELIANCE, HDFCEQUITY, and
RELIANCE REGULAR all has 8% of index in term of percentage.
LIC FM, TATA FLOATER, CANARAMUTUAL has index in negative it means that the
mutual fund not provide any type of return which outcome in negative.
2010 2009 2008 2007 2006
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5ICICI PRUBIRLA SUNLIFETEMPLETON INDIARELIANCEHDFC EQUITYTATA DIVIDENDSBI MAGNUMUTI DIVINDENDPRINCIPAL EMARGINGFRAKLIN ASIANHDFC COREUTI MASTER VALUEBIRLA SUNLIFEHSBC EMARGING RELIANCE REGULARLIC MF BONDCANARA ROBECOTATA FLOATER
ANALYSIS:-
When we analysis these data we find that in 2006 HDFC EQUITY AND RELIANCE not best
risk-adjusted average rate of return. These fund give performance in negative that means it not
have better index and return of mutual fund is not efficient to satisfy the diversification.
In 2007 RELIANCE FUND again give negative returns and UTI MASTER, HDFC EQUITY,
FRAKLIN ASIAN the higher index value and give highly return that fund most desirable.
In 2008 only RELIANCE FUND give highly index performance all others fund not performed
very well, all these fund give the negative return and they are not provide risk-adjusted rate of
19
return.
In 2009 all mutual fund give highly index performance and the return of all these fund is high
that means all these fund in 2009 all these funds give better performance.
In 2010 all the mutual fund return is very less and the performance of all these funds is not
strong index and they are not very desirable.
So our null hypothesis is rejected that the recession has no impact on the mutual fund
performance. And our alternative hypothesis is accepted.
Findings:
Finding of this study is When we analysis the data of 2006 to 2010 of 15 mutual funds in
India during and after recession and find that there is effect on mutual fund industry. In
2006 to 2010 there is fluctuation in the market so that market prices, returns, performance
index very rapidly change during and after recession.
So our null hypothesis is rejected that the recession has no impact on the mutual fund
performance. And our alternative hypothesis is accepted. In during recession mutual fund
NAV and performance is decline. There are decline in NAV the (prices in the market is
decline) and returns of mutual fund is negative in during recession. In the 2009- 2010
there is better performance of mutual fund and market condition improve rather than in
2006 to 2008.
We find that the following points which are as follows:-
1. We found Net asset value of all the 15 mutual funds and we found that HDFC EQUITY
fund has higher Net asset value which is 29% and TEMPLETON INDIA and FRANKLIN
ASIAN have lower net asset value which is only 2%.
2. According to Sharpe performance index we found that if any mutual fund has higher
Sharpe Performance (index) that means it has a better ranked.
3. We found that TATA DIVIDEND has highly returned because it has higher index in the
recession and other mutual fund like SBI, HDFC CORE, RELIANCE, HDFCEQUITY,
and RELIANCE REGULAR all has 8% of index in term of percentage.
4. We also found that LIC FM, TATA FLOATER, CANARAMUTUAL has index in
negative. We found that in 2006 HDFC EQUITY AND RELIANCE not best risk-adjusted
average rate of return. These funds give performance in negative. We found that in 2007
RELIANCE FUND again give negative returns and UTI MASTER, HDFC EQUITY,
20
FRAKLIN ASIAN the higher index value and give highly return that fund most desirable.
We found that in 2008 only RELIANCE FUND give highly index performance all others
fund not performed very well, all these fund give the negative return and they are not
provide risk-adjusted rate of return.
5. We find that in 2009 all mutual fund give highly index performance and the return of
these entire fund is high. We found that in 2010 all the mutual fund return is very less and
the performance of all these funds is not strong index and they are not very desirable.
Suggestion & recommendation
Money is tight in every recession and you may wonder how to survive. It is more a matter of
planning before the recession hits because there are always good and bad times. It is a good idea
to take the necessary precautions to survive a recession. With some creativity and insight where
to cut down expenses, and picking the best investment instruments, you can boost your savings.
On the basis of our findings we conclude that whole Indian economy has effected by recession.
In mutual fund stocks there is impact on stock market. Prices of mutual funds, returns,
performance index all things fluctuated by recession. In this time market goes down and
investors don’t want to invest their money in mutual fund because the performance and returns
are rapidly changed. The performance of mutual fund is change during and after recession.
NAV of different mutual fund is going down, after 2008 there is better in mutual fund in
comparison on 2006, 07, 08. So last we can say that recession impact on whole market of
mutual fund. The key for making profit with stocks is to buy low and sell high. A recession is
the perfect moment to buy stocks because most stocks are undervalued and you can best
compare the indices which might help you to evaluate stocks of different companies or sectors
with best chances to increase faster after recession is over.
So we suggest to the investor for following points.
Investors should use the diversification in the mutual fund which minimizes their risk.
They identify which mutual fund gives the better performance according to that select the
mutual fund Portfolio.
Analysis the NAV of all mutual funds after that we can find the performance of
mutual funds.
Use which mutual fund which is not so flexible, in which less fluctuation.
A far better strategy is to build a diversified mutual fund portfolio. A properly
21
constructed portfolio, including a mix of both stock and bonds funds, provides
an opportunity to participate in stock market growth and cushions your portfolio
when the stock market is in decline. Such a portfolio can be constructed by
purchasing individual funds in proportions.
Costs are the biggest problem with mutual funds. These costs eat into your
return, and they are the main reason why the majority of funds end up with sub-
par performance.
Being well-diversified financial instruments, they are less risky than if you were to invest
in individual stocks. You can reap investment opportunities from all over the world, as
they are invested globally and into different financial instruments. They are managed by
professional fund managers who aim to obtain higher returns for your money. You do not
need to monitor equity markets closely for fluctuations. There is a wide selection of
mutual funds available to meet the different investment objectives of investors. Staying
invested over time, these returns can compound to very attractive amounts, unlike savings
deposits.
References:
Grinblatt and Titman (1992) Forbes. Vol. 155, Iss. 5; pg. 150, 1 pgs
French &Fama (1993) Measuring mutual fund performance,” Portfolio
Organizer ICFAI University Press, pp 30-34.
Sharpe, William (1966). “Mutual Fund Performance”, Journal of Business, Vol.
39 pp. 119-138.
Mishra, et al., (2002) “The Growth of Index Funds and the Pricing of Equity
Securities”. Journal of Portfolio Management 26:2, 9-21.
Grable & Asebedo (2004) “Determinants of Persistence in Performance of
Mutual Funds”, the Journal of Financial Research, pp. 30-52.
Noulas G s Athanasios, Papanastasiou A John, Lazaridis John (2005). Vol. 31,
Iss. 2; pg. 101, 12 pgs
22
Bruce A Costa, Keith Jakob, Gary E Porter(. Summer 2006) “Journal of
Investing. New York”, Vol. 15, Iss. 2; pg. 79, 10 pgs.
Kuosmanen Timo. (Oct 2007). “The Journal of Financial Research” Vol. 33, Iss.
3; pg. 249
John A Haslem, H Kent Baker, David M Smith (2007 ) “Journal of Investing”.
Vol. 16, Iss. 2; pg. 32, 21 pgs
Marcin Kacperczyk, Clemens Sialm, Lu Zheng (2007). “ Journal of Investment
Management” pg. 3
Yuan Rongli, Xiao Zezhong Jason, Zou Hong ( Aug 2008) “Journal of Banking
& Finance”. Vol. 32, Iss. 8; pg. 1552
Aymen Karoui, Iwan Meier ( Jul 2009) “The European Journal of Finance”. Vol.
15, Iss. 5/6; pg. 487
Bertin J William, Prathe Laurier. (Dec 2009)“Journal of Business Research”.
Vol. 62, Iss. 12; pg. 1364
Jha Ranjini, Korkie Bob, Turtle J Harry (Oct 2009). “Journal of Banking &
Finance”. Vol. 33, Iss. 10; pg. 1851
Chen Yong, Ferson Wayne, Peters Helen. ( 2010 ) “Journal of Financial
Economics”, Vol. 98, Iss. 1; pg. 72
Budiono P Diana, Martens Martin ( 2010 )” The Journal of Financial Research”.
Vol. 33, Iss. 3; pg. 249
Shahzad Akmal, Khilji Ahmed Bashir , Ahmed Irfan , Asghar Ali Nisar , Ali
Javed .( Aug 2010) Interdisciplinary Journal of Contemporary Research In
23
Business’s. Vol. 2, Iss. 4; pg. 347, 13 pg.
Eling Martin, Faust Roger ( Aug 2010) “Review of Quantitative Finance and
Accounting”. Vol. 36, Iss. 2; pg. 153
Diana P Budiono, Martin Martens (2010). “The Journal of Financial Research”.
Vol. 33, Iss. 3; pg. 249
Javier Rodriguez (2010). “Review of Accounting & Finance”. Vol. 9, Iss. 2; pg.
180
Yee Cheng Loon (Feb 2011). “Review of Quantitative Finance and Accounting”.
Vol. 36, Iss. 2; pg. 153
CAPSTONE PROJECT REVIEW
“PERFORMANCE OF MUTUAL FUNDS DURING & AFTER RECESSION IN
INDIA”
Abstract
The purpose of this paper is to provide an insight into the current situation of recession in our
Indian economy and how it is affecting the mutual funds in India. In this study we take 15 mutual
funds in India which have NAV above the 9%. And after that we measured the performance of
mutual fund during and after recession. So we take the time period 2006 to 2010. In we analysis
on the basic of NAV, returns, market value, and performance index. And find the impact of
recession. For analysis we use Sharpe index model and we take the portfolio return , NAV.
Finding of this study is When we analysis the data of 2006 to 2010 of 15 mutual funds in India
during and after recession and find that there is effect on mutual fund industry. In 2006 to 2010
there is fluctuation in the market so that market prices, returns, performance index very rapidly
change during and after recession. So our null hypothesis is rejected that the recession has no
24
impact on the mutual fund performance. And our alternative hypothesis is accepted.
The remarkable performance of this industry has attracted many researchers to study and
examine the growth, the performance of funds, the players in the market and the regulators. It is
interesting to learn the growth phase of these funds over this period.
The mutual fund industry has been in India for a long time. This came into existence in 1963
with the establishment of Unit Trust of India, a joint effort by the Government of India and the
Reserve Bank of India. The next two decades from 1986 to 1993 can be termed as the period of
public sector funds with entry of new public sector players into the mutual fund industry namely,
Life Insurance Corporation of India and General Insurance Corporation of India.
Significance of the Study
Over the last couple of years mutual funds have given impressive returns, especially equity
funds. The growth period first started during early 2005 with markets appreciating significantly.
With 2006 approaching more towards 2007, markets rallied like never before. The financial year
2007-08 was a year of reckoning for the mutual fund industry in many ways. Most stocks were
trading in green. All fund houses boasted of giving phenomenal returns. Many funds
outperformed markets. Equity markets were in the limelight. Investors who were not exposed to
equity stocks suddenly infused funds.
Growth funds which aim at giving capital appreciation invest in growth stocks of the fastest
growing companies. Since these funds are more risky providing above average earnings,
investors pay a premium for the same. These funds have grown to become extensively popular in
India. All the leading fund houses offer several schemes under the growth funds today.The
remarkable performance of this industry has attracted many researchers to study and examine the
growth, the performance of funds, the players in the market and the regulators. It is interesting to
learn the growth phase of these funds over this period.
OBJECTIVE OF STUDY:
To compare the performance of mutual funds during recession and the post recession
25
period.
SCOPE OF THE STUDYSCOPE OF THE STUDY
The scope of the study is to provide the current situation of recession in our Indian economy and how it is
affecting the mutual funds in India. In future it will help the general people who read this report as to how are
mutual funds has improved and to let them know whether it is safe to keep the money with funds in future. It will
help investors to know the performance of various mutual funds during and after recession period. As a result it
will give an overall scenario and performance of mutual funds during and after recession. It can be very
beneficial for the students doing their project based on this topic, for other research. It may also help different
financial institution and insurance sector on to make them prepare for such type of uncertainties.
Review of literature
A number of researchers have examined mutual fund performance persistence, but the results are.
Grinblatt and Titman (1992) find that there is positive persistence in mutual fund performance.
They find that part of the persistence is due to differences in fees and transaction costs across
funds. They conclude that past performance does provide useful information for investors. Fama
& French (1993) proposed a three-factor model for mutual funds which takes into account the
fund size and book-to-market in addition to the market factor They indicate that this model can
be used for various purposes including portfolio selection, evaluating performance, measuring
abnormal returns and estimating the cost of capital. argue that this model by Fama & French is
better than CAPM based portfolio analysis procedures and "advocates a simple and
straightforward way" of carrying out any analysis. Sharpe, William F. (1966) suggested a
measure for the evaluation of portfolio performance. Drawing on results obtained in the field of
portfolio analysis, economist Jack L. Trey nor has suggested a new predictor of mutual fund
performance, one that differs from virtually all those used previously by incorporating the
volatility of a fund's return in a simple yet meaningful manner .by. He argued mutual funds
underperform the market by the amount of expenses they charge the investors. There are various
factors that affect the performance of mutual funds. Have attempted to research on the factors,
especially on the cost sides, that affect the performance of mutual funds. These two researches
came up with several cost side factors with load fees, sales charges, redemption fees, transaction
costs, expense ratio. Mishra, et al., (2002) measured mutual fund performance using lower
partial moment. In this paper, measures of evaluating portfolio performance based on lower
partial moment are developed. Risk from the lower partial moment is measured by taking into
26
account only those states in which return is below a pre-specified “target rate” like risk-free rate.
Asebedo & Grable (2004) identified as an important factor influencing mutual funds'
performance. He argues that fund managers control all sorts of decision making related to
investment by the fund, therefore their style influences the fund to a great deal. Fund managers
also control the diversification and turnover of fund's assets which again influence fund
performance (Malhotra & Mcleod, 1997 and Fredman, 1999).Timo Kuosmanen. (Oct 2007)
propose a method for mutual fund performance measurement and best-practice benchmarking,
which endogenously identifies a dominating benchmark portfolio for each evaluated mutual
fund. Dominating benchmarks provide information about efficiency improvement potential as
well as portfolio strategies for achieving them. Portfolio diversification possibilities are accounts
for by using Data Envelopment Analysis (DEA). Portfolio risk is accounted for in terms of the
full return distribution by utilizing Stochastic Dominance (SD) criteria. Rongli Yuan, Jason
Zezhong Xiao, Hong Zou(.: Aug 2008. ) study tests empirically the impact of mutual funds'
ownership on firm performance in China, using a large sample for the period of 2001-2005. We
find that equity ownership by mutual funds has a positive effect on firm performance. The result
is robust to several measures of firm performance and various estimations. Our finding supports
recent regulatory efforts in China to promote mutual funds as a corporate governance mechanism
and suggests that pooling diffuse minority interests of individual shareholders who are prone to
free-rider problems via mutual funds is beneficial. William J Bertin, Laurie Prather.(: Dec
2009) study reports on FOFs' characteristics and performance relative to traditional equity mutual
funds and finds that FOFs compare favorably. FOFs with identified managers outperform their
unidentified counterparts, and FOFs that invest in-family outperform both traditional equity
funds and those FOFs investing out-of-family. Finally, replicating FOFs' holdings can be
prohibitively expensive since they commonly hold funds with high minimum initial investments,
closed funds and/ or funds that are restricted to a particular investor type.Ranjini Jha, Bob
Korkie, Harry J Turtle: (Oct 2009) develop conditional alpha performance measures that are
consistent with conditional mean-variance analysis and the magnitude and sign of the implied
true conditional time-varying alphas. The sequence of conditional alphas and betas is estimable
from surprisingly simple unconditional regressions. Other common performance measures are
derivable from the conditional investment opportunity set based on its conditional asset return
moments. Our bootstrap analysis of Morningstar mutual fund returns data demonstrates that the
differences between existing conditional alpha measures and our proposed alpha are substantive
for typical parameterizations.Yong Chen, Wayne Ferson, Helen Peters. ( 2010 ) evaluates the
ability of bond funds to "market time" nine common factors related to bond markets. Timing
ability generates nonlinearity in fund returns as a function of common factors, but there are
27
several non-timing-related sources of nonlinearity. Controlling for the non-timing-related
nonlinearity is important. Funds' returns are more concave than benchmark returns, and this
would appear as poor timing ability in naive models. With controls, the timing coefficients
appear neutral to weakly positive. Adjusting for nonlinearity, the performance of many bond
funds is significantly negative on an after-cost basis, but significantly positive on a before-cost
basis. Diana P Budiono, Martin Martens.( 2010 )The popular investment strategy in the
literature is to use only past performance to select mutual funds. We investigate whether an
investor can select superior funds by additionally using fund characteristics. After considering
the fund fees, we find that combining information on past performance, turnover ratio, and ability
produces a yearly excess net return of 8.0%, whereas an investment strategy that uses only past
performance generates 7.1%. Adjusting for systematic risks, and then using fund characteristics,
increases yearly alpha significantly from 0.8% to 1.7%. The strategy that also uses fund
characteristics requires less turnover. Akmal, Bashir Ahmed Khilji, Irfan Ahmed, Nisar Ali
Asghar, Javed Ali.( Aug 2010) Mutual funds are considered as vehicle for investment in stock
market. These not only reduce the risk but also reduce the transaction cost. Mutual performance
is a common topic in all country to be studied. This paper evaluates the mutual funds in Pakistan;
provide information to different stake holder regarding current and future developments. Simple
descriptive tools employed to intemperate data. Result shows that on overall basis, funds industry
outperform the market. The future of industry depends on the performance of funds industry and
the role of regulatory bodies. Martin Eling, Roger Faust.:( Aug 2010). findings of this study is
Use of short selling and derivatives is limited in most emerging markets because such
instruments are not as readily available as they are in developed capital markets. These
limitations raise questions about the value added provided by hedge funds, especially compared
to traditional mutual funds active in these markets. We use five existing performance
measurement models plus a new asset-style factor model to identify the return sources and the
alpha generated by both types of funds. We analyze subperiods, different market environments,
and structural breaks. Our results indicate that some hedge funds generate significant positive
alpha, whereas most mutual funds do not outperform traditional benchmarks. We find that hedge
funds are more active in shifting their asset allocation. The higher degree of freedom that hedge
funds enjoy in their investment style might thus be one explanation for the differences in
performance. Javier.:( 2010.) purpose of this paper is to examine the performance of a sample of
socially responsible mutual funds (SRMFs) and a matched sample of conventional funds during
the 1997-2005 time period. On the basis of the raw returns, socially responsible funds performed
better than some market indexes but this evidence of outperformance disappears once risk is
incorporated into the analysis. Consistent with previous studies, no evidence was found of out
28
performance by socially responsible funds. Also, the difference between the performance of
SRMFs and conventional mutual funds is not statistically significant. This result is robust to the
use of two additional measures of risk-adjusted performance.
III. Methodology and Data
Research design
Sources of data collection
Research instruments
Sampling plan
Research Design
A number of facts could be explored by means of this research in regards to the
performance of mutual funds during and post recession in India. The research is causal in
nature because all the data is known. Our research is descriptive in nature.
.Sources of Data Collection
Data Collection
Information will be collected from only secondary data.
Secondary sources- Secondary data are those which have already been collected by
someone else which already had been passed through the statistical process. Secondary
data will be collected through books, Journals and websites.
Population:-All the mutual funds in 2006-2010 of India are our population.
Sample size:-Different 15 mutual funds are our sample size. Which have NAV more than 8%.
Sample element- Individual mutual fund is the sample element.
Sampling Technique- In this research judge mental sampling is done purely on the basis of
researcher’s judgments. On the basic of NAV we select the mutual fund.
Statistical Tools:-
Tools of presentation: In the current study, data will be presented through figures, charts
graphs and tables.
HYPOTHESIS
29
Null hypothesis (Ho)
There is no impact of recession on the performance of mutual fund.
Alternate hypothesis (H1):
There is an impact of recession on the performance of mutual fund.
Limitations
• time constraint was one of the major problems.
The study is limited to selected mutual fund schemes
• The lack of information sources for the analysis part.
DATA ANALYSIS
For the purpose of this study, there are many mutual funds available in India. We are selecting 15 mutual funds
for our study. All the funds were selected by judgmental sampling. All the funds selected for the study are open-
ended equity funds under the growth option. The Net Asset Values (NAV) returns, for all the15funds are from
2006 to 2010, which is the period of this study. We take all these mutual funds:-
ICICI Pru Discovery Fund (G),DSP-BR Micro Cap Fund - RP (G),Birla Sun Life Dividend Yield Plus
(G),Templeton India Equity Income Fund (G),Reliance Equity Opportunities Fund - Retail Plan (G),HDFC
Equity Fund (G),Tata Dividend Yield Fund (G),SBI Magnum Emerging Businesses Fund (G),HDFC Equity
Fund (G),UTI Dividend Yield Fund (G),Principal Emerging Blue-chip Fund (G),Franklin Asian Equity Fund
(G),HDFC Core & Satellite Fund (G),UTI Master Value Fund (G)
In this study the fund returns have been calculated for each of the period.
NAV ANALYSIS:
There are 15funds with a 5 year data, which effectively gives average returns for the period. The main purpose of
this exercises the fund returns and analysis the fund’s performance. The fund returns for each of the period were
calculated as follows:
Current NAV – Previous NAV x 100
Previous NAV
30
When we analysis the NAV of all these mutual fund we find the value of particular mutual fund and we find in
that HDFC EQUITY FUND has higher NET ASSETS value is very high. HDFC has 112.43 NAV in 2006 to
2010.
IN 2008 all mutual funds give not higher return because the NAV all these mutual funds is decline and investors
not invest in the mutual funds.
SHARPE’S PERFORMANCE INDEX
The Sharpe Index is a measure with which you may measure the performance of your portfolio over a given
period of time. The important aspect of the Sharpe Index is that this performance indicator takes into
consideration the risk of the portfolio.
Sharpe = (Portfolio Return - Risk-Free Return) / Standard Deviation
When we analysis the data of above mutual fund we find these results, which is as follow:-
According to Sharpe performance index we find the result that if any mutual fund has higher st (index)
that means it has a better ranked and it performance is very better than the others mutual funds.
And if a mutual fund has not very well higher st that means it is a great risk to earn the higher return and
its adjusted return was not the most desirable.
In this analysis we can say that TATA DIVIDEND has highly returned because it has higher index in the
recession.
Other mutual fund like SBI, HDFC CORE, RELIANCE, HDFCEQUITY, and RELIANCE REGULAR
all has 8% of index in term of percentage.
LIC FM, TATA FLOATER, CANARAMUTUAL has index in negative it means that the mutual fund not
provide any type of return which outcome in negative.
Findings
Finding of this study is When we analysis the data of 2006 to 2010 of 15 mutual funds in India during
and after recession and find that there is effect on mutual fund industry. In 2006 to 2010 there is
fluctuation in the market so that market prices, returns, performance index very rapidly change during and
after recession.
So our null hypothesis is rejected that the recession has no impact on the mutual fund performance. And
31
our alternative hypothesis is accepted. In during recession mutual fund NAV and performance is decline.
There are decline in NAV the (prices in the market is decline) and returns of mutual fund is negative in
during recession. in the 2009,2010 there is better performance of mutual fund and market condition
improve rather than in 2006 to 2008.
Conclusion
On the basis of our findings we conclude that whole Indian economy has effected by recession. In mutual
fund stocks there is impact on stock market. Prices of mutual funds, returns, performance index all things
fluctuated by recession. In this time market goes down and investors don’t want to invest their money in
mutual fund because the performance and returns are rapidly changed. The performance of mutual fund is
change during and after recession. NAV of different mutual fund is going down, after 2008 there is better
in mutual fund in comparison on 2006, 07, 08. So last we can say that recession impact on whole market
of mutual fund.
References:
Grinblatt and Titman (1992) Forbes. Vol. 155, Iss. 5; pg. 150, 1 pgs
French &Fama (1993) Measuring mutual fund performance,” Portfolio Organizer ICFAI University
Press, pp 30-34
Sharpe, William (1966). “Mutual Fund Performance”, Journal of Business, Vol. 39,
pp. 119-138.
Mishra, et al., (2002) “The Growth of Index Funds and the Pricing of Equity Securities”. Journal of
Portfolio Management 26:2, 9-21.
Grable & Asebedo (2004) “Determinants of Persistence in Performance of Mutual Funds”, the Journal of
Financial Research, pp. 30-52.
Kuosmanen Timo. (Oct 2007). “The Journal of Financial Research”... Vol. 33, Iss. 3; pg. 249
Yuan Rongli, Xiao Zezhong Jason, Zou Hong ( Aug 2008) “Journal of Banking & Finance”. Vol. 32, Iss.
8; pg. 1552
32
Bertin J William, Prathe Laurier. (Dec 2009)“Journal of Business Research”. Vol. 62, Iss. 12; pg. 1364
Jha Ranjini, Korkie Bob, Turtle J Harry (Oct 2009). “Journal of Banking & Finance”. Vol. 33, Iss. 10;
pg. 1851
Chen Yong, Ferson Wayne, Peters Helen. ( 2010 ) “Journal of Financial Economics” ,Vol. 98, Iss. 1; pg.
72
Budiono P Diana, Martens Martin ( 2010 )” The Journal of Financial Research”. Vol. 33, Iss. 3; pg. 249
Shahzad Akmal, Khilji Ahmed Bashir , Ahmed Irfan , Asghar Ali Nisar , Ali Javed .( Aug 2010)
Interdisciplinary Journal of Contemporary Research In Business’s. Vol. 2, Iss. 4; pg. 347, 13 pgs
Eling Martin, Faust Roger ( Aug 2010) “Review of Quantitative Finance and Accounting”. Vol. 36, Iss. 2;
pg. 153
33
Annexure-1
Sharpe index calculation:
Column1 Column2 Column3 Column4 Column5 Column6 Column7
2010 2009 2008 2007 2006
ICICI PRU 0.42234 1.47950593 -0.9431526 0.56515 0.44865
BIRLA SUNLIFE 0.44865 1.62838 -1.23501 0.9994666 0.297707
TEMPLETON INDIA 0.297707 1.679286 -1.0464344 0.87707 0.21748
RELIANC
E 0.418 0.41807 1.68955 -1.071088 0.7791
HDFC EQUITY 0.40928 1.74858 -1.02322 0.8331 0.54083
TATA DIVIDEND 0.44438 1.43431 -1.07483 1.2319926 0.1409
SBI MAGNUM 0.398238 1.553156 -1.1175826 0.8830505 0.344
UTI DIVINDEND 0.34664 1.528 -1.01205 0.83318 0.54083
PRINCIPAL
EMARGING 0.166158 1.837196 0.04998
FRAKLIN ASIAN 0.03625 0.949098 -0.8062
HDFC
CORE 0.38912 1.6807304 -1.108916 0.648542 0.5645
UTI MASTER VALUE 0.3105 1.68769 -1.02846 0.8351303 0.07289
BIRLA SUNLIFE -0.004351 0.8529 -1.562258 -0.1914745
HSBC EMARGING 0.10172 1.10998 -1.01277
RELIANCE
REGULAR 0.382039 1.6138 -1.03346 1.05795 0.183672
LIC MF BOND -0.06633 -0.53068 1.99005 0.46434 -0.24322
CANARA ROBECO -0.10123 0.0828 2.199493 0.0368 -0.12884
34
TATA FLOATER -0.1837 -0.1837 2.081936 1.347135 0.3674
Annexure-2
Calculation of individual mutual fund performance:
ICICI Pru Discovery Fund (G)
ICICI Pru Discovery Fund (G) Column1 Column2 Column3 Column4 Column5 Column6
Year Annual RF RP-RF DAVIATION ST
2010 38.6 6 32.6 77.18793 0.422345825
2009 120.2 6 114.2 77.18793 1.479505928
2008 -66.8 6 -72.8 77.18793 -0.943152641
2007 50.5 6 44.5 77.18793 0.576515007
STANDARD DAV 77.18792544
Birla Sun Life Dividend Yield Plus (G)
Birla Sun Life Dividend Yield Plus (G) Column1 Column2 Column3 Column4 Column5
Year Annual RF RP-RF DAVIATION ST
2010 28.4 6 22.4 49.92663 0.448658361
2009 87.3 6 81.3 49.92663 1.628389499
2008 -45.1 6 -51.1 49.92663 -1.023501887
2007 55.9 6 49.9 49.92663 0.999466617
2006 9.7 6 3.7 49.92663 0.074108747
49.92662616
35
Templeton India Equity Income Fund (G)
Column1 Column2
Column
3
Column
4 Column5 Column6
Year Annual RF RP-RF DAVIATION ST
2010 22.7 6 16.7 56.09525
0.29770791
6
2009 100.2 6 94.2 56.09525
1.67928657
1
2008 -52.7 6 -58.7 56.09525
-
1.04643441
3
2007 55.2 6 49.2 56.09525 0.87707961
2006 18.2 6 12.2 56.09525 0.21748722
ST
56.0952493
5
Reliance Equity Opportunities Fund - Retail Plan (G)
Reliance Equity Opportunities
Fund - Retail Plan (G) Column1 Column2
Column
3
Column
4 Column5 Column6
Year Annual RF RP-RF
DAVIATIO
N ST
2010 30.2 6 24.2 57.88503
0.41807009
5
2009 103.8 6 97.8 57.88503
1.68955600
4
2008 -56 6 -62 57.88503
-
1.07108867
4
2007 45.3 6 39.3 57.88503
0.67893201
4
2006 51.1 6 45.1 57.88503
0.77913063
2
57.8850326
1
HDFC Equity Fund (G)
HDFC Equity Fund (G) Column1 Column2 Column3 Column4 Column5 Column6
Year Annual RF RP-RF
DAVIATIO
N ST
2010 28.4 6 22.4 54.73005
0.40928155
6
2009 101.7 6 95.7 54.73005 1.74858236
2008 -50 6 -56 54.73005
-
1.02320388
9
36
2007 51.6 6 45.6 54.73005 0.83318031
2006 35.6 6 29.6 54.73005
0.54083634
1
STANDARD DAV
54.7300465
9
Tata Dividend Yield Fund (G)
Tata Dividend Yield Fund (G) Column1 Column2 Column3 Column4 Column5 Column6
Year Annual RF RP-RF
DAVIATIO
N ST
2010 30.6 6 24.6 55.3574747
0.44438443
3
2009 85.4 6 79.4 55.3574747
1.43431398
3
2008 -53.5 6 -59.5 55.3574747
-
1.07483226
7
2007 74.2 6 68.2 55.3574747
1.23199261
5
2006 13.8 6 7.8 55.3574747
0.14090238
1
STANDARD DAV 55.3574747
SBI Magnum Emerging Businesses Fund (G)
Year Annual RF RP-RF DAVIATION ST Column1
2010 31.3 6 25.3 63.5297725 0.398238479
2009 103.3 6 97.3 63.5297725 1.531565377
2008 -68.7 6 -74.7 63.5297725
-
1.175826657
2007 62.1 6 56.1 63.5297725 0.883050541
2006 27.9 6 21.9 63.5297725 0.344720265
63.529772
5
HDFC Equity Fund (G)
37
Year Annual RF RP-RF DAVIATION ST
2010 28.4 6 22.4 54.7300466 0.409281581
2009 101.7 6 95.7 54.7300466 1.748582469
2008 -50 6 -56 54.7300466 -1.023203952
2007 51.6 6 45.6 54.7300466 0.833180361
2006 35.6 6 29.6 54.7300466 0.540836375
54.730046
6
UTI Dividend Yield Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 23.4 6 17.4 50.1947507 0.346649794
2009 82.7 6 76.7 50.1947507 1.528048231
2008 -44.8 6 -50.8 50.1947507 -1.01205802
2007 69.5 6 63.5 50.1947507 1.265072525
2006 19.9 6 13.9 50.1947507 0.276921387
50.194750
7
Principal Emerging Blue chip Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 18.3 6 12.3 74.0258288 0.166158221
2009 142 6 136 74.0258288 1.837196587
2008 9.7 6 3.7 74.0258288 0.049982554
2007
2006
74.025828
8
Franklin Asian Equity Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 7.7 6 1.7 46.8866066 0.036257689
2009 50.5 6 44.5 46.8866066 0.94909833
2008 -31.8 6 -37.8 46.8866066 -0.806200379
38
2007
2006
45.751424
HDFC Core & Satellite Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 27.3 6 21.3 54.7381037 0.389125647
2009 98 6 92 54.7381037 1.680730493
2008 -54.7 6 -60.7 54.7381037 -1.108916749
2007 41.5 6 35.5 54.7381037 0.648542744
2006 36.9 6 30.9 54.7381037 0.56450622
54.738103
7
UTI Master Value Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 25.6 6 19.6 63.1039222 0.31059876
2009 112.5 6 106.5 63.1039222 1.687692243
2008 -58.9 6 -64.9 63.1039222 -1.028462221
2007 58.7 6 52.7 63.1039222 0.83513034
2006 10.6 6 4.6 63.1039222 0.072895627
63.103922
2
Birla sun life
Year Annual RF RP-RF DAVIATION ST
2010 5.9 6 -0.1 22.9795561 -0.004351694
2009 25.6 6 19.6 22.9795561 0.852932055
2008 -29.9 6 -35.9 22.9795561 -1.562258202
2007 1.6 6 -4.4 22.9795561 -0.191474543
2006
39
22.979556
1
HSBC Emerging Markets Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 10.5 6 4.5 44.2350053 0.101729388
2009 55.1 6 49.1 44.2350053 1.109980651
2008 -38.8 6 -44.8 44.2350053 -1.01277257
2007
2006
43.517536
7
Reliance Regular Savings Fund - Balanced Option (G
Year Annual RF RP-RF DAVIATION ST
2010 21.6 6 15.6 40.8335034 0.382039225
2009 71.9 6 65.9 40.8335034 1.613870829
2008 -36.2 6 -42.2 40.8335034 -1.033465083
2007 49.2 6 43.2 40.8335034 1.057954777
2006 13.5 6 7.5 40.8335034 0.183672704
40.833503
4
LIC MF Bond Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 5.7 6 -0.3 4.52249931 -0.066335002
2009 3.6 6 -2.4 4.52249931 -0.530680015
2008 15 6 9 4.52249931 1.990050055
2007 8.1 6 2.1 4.52249931 0.464345013
2006 4.9 6 -1.1 4.52249931 -0.24322834
4.5224993
1
Canara Robeco Income (G)
Year Annual RF RP-RF DAVIATION ST
40
2010 4.9 6 -1.1 10.8661401 -0.101231899
2009 6.9 6 0.9 10.8661401 0.082826099
2008 29.9 6 23.9 10.8661401 2.199493084
2007 6.4 6 0.4 10.8661401 0.0368116
2006 4.6 6 -1.4 10.8661401 -0.128840599
10.866140
1
Tata Floater Fund (G)
Year Annual RF RP-RF DAVIATION ST
2010 5.7 6 -0.3 1.63309522 -0.18370025
2009 5.7 6 -0.3 1.63309522 -0.18370025
2008 9.4 6 3.4 1.63309522 2.081936165
2007 8.2 6 2.2 1.63309522 1.347135166
2006 6.6 6 0.6 1.63309522 0.3674005
1.6330952
2
Annexure-3
NAV of mutual fund:
mutual fund 2006 to 2010
21.83
41
BIRLA SUNLIFE 39.23
TEMPLETON INDIA 9.52
RELIANCE 15.335
HDFC EQUITY 112.438
TATA DIVIDEND 15.299
SBI MAGNUM 24.49
UTI DIVINDEND 13.58
PRINCIPAL EMARGING 9.88
FRAKLIN ASIAN 9.568
HDFC CORE 20.746
UTI MASTER VALUE 28.09
BIRLA SUNLIFE 9.968
HSBC EMARGING 11.515
RELIANCE REGULAR 10.153
LIC MF BOND 19.016
CANARA ROBECO 10.68
TATA FLOATER 10.213
42
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