PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS …shodhganga.inflibnet.ac.in/bitstream/10603/30696/8/title.pdf · performance evaluation of mutual fund ... performance evaluation

PERFORMANCE EVALUATION OF MUTUAL FUND

SEGMENTS IN INDIA

With Special Reference to Sectoral Funds

THESIS SUMMARY

SUBMITTED

TO

KUMAUN UNIVERSITY, NAINITAL

In partial fulfillment of the requirements for the award of the degree of

DOCTOR OF PHILOSOPHY

BY

TRIBHUVAN PRATAP SINGH

Under the Supervision

of

Prof. N. S. BISHT

HEAD

DEPARTMENT OF COMMERCE

KUMAUN UNIVERSITY

NAINITAL – 263002

FACULTY OF COMMERCE AND MANAGEMENT STUDIES

KUMAUN UNIVERSITY

NAINITAL

2012

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INTRODUCTION

A mutual fund is an ideal investment vehicle in today’s complex and modern financial

scenario. Markets for equity shares, bonds and other fixed income instruments, real estate,

derivatives and other assets have become mature and information driven. For a layman it is

difficult to have the knowledge, skills, inclination and time to keep track of the events and to

understand their implications in order to act speedily in such a complex financial scenario.

A mutual fund is the answer to all these situations which exploits economies of scale in

three areas i.e. research, investments and transaction processing. Although Mutual Funds

provide an effective and efficient avenue to non skilled and small investors but a normal

investor is not able to opt for an appropriate fund which can give him best returns in

different phases of economy and market developments. Thus this study primarily aims to

identify the opportunities offered by sectoral funds and evaluate the performance of such

funds in different stages of economic developments and also in comparison with other type

of funds i.e. equity diversified funds. This has helped to draw a conclusion as to which types

of funds are best suited for a developing kind of market based economy like India.

METHODOLOGY

The current study utilizes two methodological frameworks, First– Mean, Variance / Risk-

Return models for the purpose of identifying the return potentials and associated risks with

various sectoral and equity diversified funds. Second– Statistical measure namely Mann-

Whiney Rank Sum Test (U-test) and application of Data Envelopment Analysis (a specialized

form of linear programming for evaluating the efficiency of a decision making unit i.e. a

mutual fund scheme for the purpose of current study), for statistically evaluating the

performance of all active sectoral funds and also to test the hypotheses of the study to

measure the difference in the performance sectoral funds and equity diversified funds. The

study sources statistical data related to NAV, AUM etc. from reliable sources such as AMFI

India, SEBI, BSE, NSE and respective mutual fund houses for the span of last 10 years starting

from 2002 to 2011. This helped the researcher to draw the conclusion on the performance

of different types of funds (sectoral and diversified) in different time spans i.e. for last 3, 5, 7

and 10 years.

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FINDINGS AND CONCLUSION

The analysis of sector specific funds revealed that the performance of such funds against

their respective indicators and indices had been quite satisfactory. They have carried

moderate to higher level of risk because of their sectoral concentrations. Specific Funds

such as Banking, FMCG and Pharmaceuticals have fairly outperformed the market indices

and also against their close counterparts – diversified funds, in short and medium time

frames (i.e. 3, 5 and 7 years) but as far as long term scenario (10 years) is concerned,

diversified equity funds have beaten sectoral funds with sufficient margins.

With the help of various tools and techniques such as Mann-Whitney Rank Sum U Test and

Data Envelopment Analysis, it was statistically confirmed that in long term there is

significant difference between the performance of sectoral funds and diversified equity

funds and diversified funds have performed significantly better than sectoral funds. Also the

efficiency levels of funds differ in various time frames, in Short and medium term (3 and 5

years) sectoral funds have showcased higher operating efficiencies by maintaining higher

input-output ratios (as confirmed by higher average DEA values) whereas in longer terms (7

and 10 years) Equity Diversified Funds demonstrated higher operating efficiencies with

optimum input-output ratios as compared to sectoral funds. Therefore, with the help of

current study, it was concluded and confirmed that sectoral funds can be a good investment

avenue for a limited period of time or for the time in which the specific industry or sector

keeps on performing high but in long run, equity diversified funds are still better investment

avenue as compared to sectoral funds.

KEY WORKS

Indian Mutual Fund Industry, Development of Mutual Funds in India, Performance of Indian

Mutual Fund Industry, Performance of Sectoral Funds, Sectoral Funds Vs Equity Diversified

Funds and Data Envelopment Analysis for Mutual Funds.

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PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS IN INDIA With Special Reference to Sectoral Funds

THESIS

SUBMITTED

TO




Author:


Address : C-73, Hanuman Nagar, Line Par, Moradabad – 244001.

Phone : 0591-2480006;

Mobile : 91-8006550066 / 9412354033

E-mail : [email protected]

Supervisor:

Prof. N. S. BISHT

Affiliation : Head, Department of Commerce,

Kumaun University, Nainital – 263002.

Phone : 05942-236788

Mobile : 91-9410581444

E-mail : [email protected]


KUMAUN UNIVERSITY

NAINITAL

2012

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PERFORMANCE EVALUATION OF MUTUAL FUND

SEGMENTS IN INDIA

With Special Reference to Sectoral Funds

THESIS SUBMITTED

TO




BY


Under the Supervision

of

Prof. N. S. BISHT

HEAD

DEPARTMENT OF COMMERCE

KUMAUN UNIVERSITY

NAINITAL – 263002


KUMAUN UNIVERSITY

NAINITAL

2012

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i

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ii

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Dedicated in the lotus feet

of Lord Krishna

iii

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Acknowledgement This work could not be possible without the help of the God almighty. His

heartfelt inspiration and guidance enlightened my path towards the

completion of this lonely journey of doctoral research.

It is a great pleasure for me, to get this opportunity of expressing my

sincere gratitude to my guide, Prof. N. S. Bisht, Head, Department of

Commerce, Kumaun University, Nainital under whose able guidance and

supervision, this study met its objectives. In fact, no words would suffice to

express my deep sense of gratefulness to him, who has been a constant

source of inspiration and continued encouragement throughout my research

work. With his strict supervision and direction, this research study firmly

reached its destination. His timely guidance and support provided this study a

meaningful substance.

I would also like to deeply thank Dr. Vimal Pant, Branch Manager, UCO

Bank, Bareilly, for his inspiring and valuable guidance during the process of

data analysis and writing of this research report.

I gratefully acknowledge the enormous support extended by Prof. R.M. Dubey,

Honorable Vice-Chancellor, IFTM University, Moradabad and Dr. Manjula Jain,

Director, School of Business Management, IFTM University, for enabling me to

put best of my efforts for this research work with other regular assignments.

My faculty colleague, Mr. Himanshu Gupta also deserves my sincere thanks

for extending his kind support on research design, analysis and interpretation

of data.

iv

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v

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List of Figures

Figure Page

2.1. Future Developments for Indian Mutual Funds Industry 57

3.1. Types of Mutual Funds 62

3.2. Growth in Assets Under Management 71

3.3. Category Returns in Financial Year 2010-11 79

3.4. Category Returns in Financial Year 2001-11 82

4.1. Performance of BANKEX vis-à-vis BSE SENSEX 88

4.2. Performance of BSE FMCG vis-à-vis BSE SENSEX 93

4.3. Performance of CNX Infrastructure vis-à-vis BSE-200 & S&P CNX Nifty 97

4.4. Performance of BSE Power vis-à-vis BSE SENSEX 102

4.5. Performance of BSE Health Care vis-à-vis BSE 100 and BSE Reality 106

4.6. Sector wise constituents of CNX Service Sector index 109

4.7. S&P CNX Nifty vs. CNX Service Sector 111

4.8. BSE IT vs. BSE SENSEX 114

vi

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List of Tables

Table Page

3.1. Mobilization of Resources by Mutual Funds 70

3.2. Assets under Management by various types of Mutual Funds: 2010-11 72

3.3. Sector wise Mobilization of Resources 73

3.4. Scheme-wise Resource Mobilization and AUM by Mutual Funds 74

3.5. Number of Schemes by Investment Objective 75

3.6. Transactions on Stock Exchanges by Mutual Funds 77

3.7. Unit Holding Pattern of All Mutual Funds as on March 31, 2011 78

3.8. Folios Trends: Equity Oriented Schemes 80

3.9. Folios Trends: Debt Oriented Schemes 80

3.10. Folios Trends: All Schemes 81

4.1. Sector wise Composition of BSE Sensex 87

4.2. Banking Funds: Return Analysis 89

4.3. Banking Funds: Risk Analysis 90

4.4. Banking Funds: Data Envelopment Analysis Values 91

4.5. Banking Funds: Portfolio Compositions 92

4.6. FMCG Funds: Return Analysis 94

4.7. FMCG Funds: Risk Analysis 94

4.8. FMCG Funds: Data Envelopment Analysis Values 95

4.9. FMCG Funds: Portfolio Compositions 95

4.10. Infrastructure Funds: Return Analysis 98

4.11. Infrastructure Funds: Risk Analysis 99

4.12. Infrastructure Funds: Data Envelopment Analysis Values 100

4.13. Infrastructure Funds: Portfolio Compositions 101

4.14. Energy Funds: Return Analysis 103

4.15. (A) Energy Funds: Risk Analysis 104

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4.15. (B) Energy Funds: Data Envelopment Analysis Values 105

4.16. Pharmaceutical Funds: Return Analysis 106

4.17. Pharmaceutical Funds: Risk Analysis 107

4.18. Pharmaceutical Funds: Analysis of Portfolio Compositions 108

4.19. Pharmaceutical Funds: Data Envelopment Analysis Values 108

4.20. Service Funds: Return Analysis 111

4.21. Service Funds: Risk Analysis 112

4.22. Service Funds: Data Envelopment Analysis Values 112

4.23. Technology Funds: Return Analysis 114

4.24. Technology Funds: Risk Analysis 115

4.25. Technology Funds: Data Envelopment Analysis Values 115

4.26. Other Sector Funds: Return Analysis 116

4.27. Other Sector Funds: Risk Analysis 117

5.1. Average Returns: All Sectoral Funds Vs Diversified Funds 122

5.2. Average Returns: Individual Sector Funds Vs Diversified Funds 124

5.3. Average Risk and Risk Adjusted Returns: Sector Vs Diversified Funds 124

5.4. Top 10 Performers: 3 Years Annualized Returns (Sectoral Funds) 126

5.5. Top 10 Performers: 3 Years Annualized Returns (Diversified Funds) 126







5.12. Mann-Whitney Test – 3 Years Annualized Returns (Ranks) 131

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5.13. Mann-Whitney Test – 3 Years Annualized Returns (Test Statistics) 132







5.20. Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 138 (3 years Annualized Returns)




ix

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List of Abbreviations

AMC Assets Management Company

AMFI Association of Mutual Fund in India

AUM Assets under Management

CPI Consumer Price Index

DEA Data Envelopment Analysis

ELSS Equity Linked Savings Schemes

ETF Exchange Traded Funds

FMCG Fast Moving Consumer Goods

IICM Indian Institute of Capital Market

IT Information Technology

MIP Monthly Income Plan

MMMMF Money Market Mutual Fund

MNC Multi National Corporation

NAV Net Assets Value

NFO New Fund Offer

NISM National Institute of Security Market

RBI Reserve Bank of India

SCI School of Certificate of Intermediaries

SD Standard Deviation

SEBI Securities and Exchange Board of India

SIP Systematic Investment Plan

STP Systematic Transfer Plan

SWP Systematic Withdrawn Plan

UTI Unit Trust of India

WPI Wholesale Price Index

x

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Table of Contents

Declaration i

Certificate from the Supervisor ii

Acknowledgement iii – v

List of Figures vi

List of Tables vii - ix

List of Abbreviations x

Chapter – 1: Introduction 01 – 36

1.1. Introduction

1.2. Statement of Problem

1.3. Objectives of the Research

1.4. Hypotheses for the Study

1.5. Need and Importance of the Study

1.6. Review of Literature

1.7. Research Methodology

1.8. Organization of Research Report

1.9. Limitations of the Study

Chapter – 2: Mutual Funds: Evolution, Significance and Indian Market 37 – 60

2.1. Origin of Mutual Funds

2.2. Evolution of Mutual Funds in India

2.3. Role and Significance of Mutual Funds in Indian Economy

2.4. Indian Mutual Fund Industry towards 2020

2.5. Conclusion

Chapter – 3: Product Portfolio and Performance Review of 61 – 84 Indian Mutual Fund Segments

3.1. Introduction

3.2. Product Portfolio of Indian Mutual Fund Industry

3.3. Performance Review of different Sectors of Industry

3.4. Conclusion

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Chapter – 4: Performance of Sectoral Funds in India 85 - 118

4.1. Introduction

4.2. Performance Review of Various Sector Funds

4.2.1. Banking Funds

4.2.2. FMCG Funds

4.2.3. Infrastructure Funds

4.2.4. Energy Funds

4.2.5. Pharmaceutical Funds

4.2.6. Service Funds

4.2.7. Technology / IT Funds

4.2.8. Other Sector Specific Funds

4.3. Conclusion

Chapter – 5: Comparative Analysis of Indian Sectoral Funds and 119 – 140 Diversified Equity Funds

5.1. Sectoral Funds Vs Equity Diversified Funds: An Introduction

5.2. Comparison of Returns, Risks and Risk Adjusted Returns

5.3. Results of Mann-Whitney Rank Sum U Test

5.4. Comparison through Data Envelopment Analysis

5.5. Conclusion

Chapter – 6: Conclusion and Recommendations 141 - 154

Bibliography 155 - 174

Appendices 175 - 192

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PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS …shodhganga.inflibnet.ac.in/bitstream/10603/30696/8/title.pdf · performance evaluation of mutual fund ... performance evaluation