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mutual funds analyses
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PROJECT REPORT ON
Performance measures of different mutual funds
SUBMITTED TO : SUBMITTED BY :
PROF.ANIRUDDH DURAFE Ankit Gupta
MBA III SEM “A”
Devi Ahilya VishwaVidyalaya Indore (M.P)
ACKNOWLEDGEMENT
No academic task and especially, this project can be completed without able scholarly guidance. We take opportunity to extend our feelings of gratitude towards our project guide Prof. Aniruddh Durafe who helped us in accomplishing the task assigned. He is always ready to solve our problems that we faced during the process. Without that, our project would not have been what it is.We also thank Cerebral Heights Institute of Management &commerce for providing us with all facilities, scholarly advice and an excellent working atmosphere.
INTRODUCTION TO MUTUAL FUNDS:
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 appreciations 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 flow chart below describes broadly the working of a Mutual Fund.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of
India (SEBI) that pools up the money from individual/corporate investors and invests the
same on behalf of the investors/unit holders, in Equity shares, Government securities,
Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual
Fund allows investors to indirectly take a position in a basket of assets.
Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and
investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread among a wide cross-section of industries and sectors
thus the risk is reduced. Diversification reduces the risk because all stocks may not move in
the same direction in the same proportion at same time. Investors of mutual funds are
known as unit holders.
OBJECTIVES OF A MUTUAL FUND:
To Provide an opportunity for lower income groups to acquire without
Much difficulty, property in the form of shares.
To Cater mainly of the need of individual investors, whose means are small?
To Manage investors portfolio that provides regular income, growth,
Safety, liquidity, tax advantage, professional management and diversification.
STRUCTURE OF A MUTUAL FUND:
BENEFITS OF INVESTING IN MF
Diversification
Professional Management
Liquidity
Flexibility
Cost Effective
Well Regulated
EARNINGS FROM MF
PERFORMANCE MEASURES OF MUTUAL FUNDS:
Mutual Fund industry today, with about 30 players and more than six hundred schemes, is
one of the most preferred investment avenues in India. However, with a plethora of
schemes to choose from, the retail investor faces problems in selecting funds. Factors such
as investment strategy and management style are qualitative, but the funds record is an
important indicator too.
Though past performance alone cannot be indicative of future performance, it is, frankly,
the only quantitative way to judge how good a fund is at present. Therefore, there is a need
to correctly assess the past performance of different Mutual Funds. Worldwide, good
Mutual Fund companies over are known by their AMC’s and this fame is directly linked to
their superior stock selection skills.
Return alone should not be considered as the basis of measurement of the performance of a
Mutual Fund scheme, it should also include the risk taken by the fund manager because
different funds will have different levels of risk attached to them. Risk associated with a
fund, in a general, can be defined as Variability or fluctuations in the returns generated by
it. The higher the fluctuations in the returns of a fund during a given period, higher will be
the risk associated with it. These fluctuations in the returns generated by a fund are
resultant of two guiding forces. First, general market fluctuations, which affect all the
securities, present in the market, called Market risk or Systematic risk and second,
fluctuations due to specific securities present in the portfolio of the fund, called
Unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in
terms of standard deviation of returns of the fund.
The most important and widely used measures of performance are:
The Treynor’Measure
The Sharpe Measure
Jenson Model
1.The Treynor Measure:-
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index.
This Index is a ratio of return generated by the fund over and above risk free rate of return
(generally taken to be the return on securities backed by the government, as there is no
credit risk associated), during a given period and systematic risk associated with it (beta).
Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where,
Ri represents return on fund,
Rf is risk free rate of return, and
Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative
Treynor's Index is an indication of unfavorable performance.
2. The Sharpe Measure :-
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a
ratio of returns generated by the fund over and above risk free rate of return and the total
risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned about.
So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it
can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where,
Si is standard deviation of the fund,
Ri represents return on fund, and
Rf is risk free rate of return.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
.
3. Jenson Model:-
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the differential Return
Method. This measure involves evaluation of the returns that the fund has generated vs. the
returns actually expected out of the fund1 given the level of its systematic risk. The surplus
between the two returns is called Alpha, which measures the performance of a fund
compared with the actual returns over the period. Required return of a fund at a given level
of risk (Bi) can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where,
Ri represents return on fund, and
Rm is average market return during the given period,
Rf is risk free rate of return, and
Bi is Beta deviation of the fund.
After calculating it, Alpha can be obtained by subtracting required return from the
actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of this
model is that it considers only systematic risk not the entire risk associated with the fund
and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is
primitive.
HDFC
HDFC Ltd. is an India based financial services company with operations around the globe.
The company offers a range of financial services through its group companies. The services
offered include broking, insurance, asset management, lending solutions, investment
banking and wealth management. Serving over a million clients, HDFC has around 15 billion
dollars of assets under management.
...HDFC Mutual Fund India - Housing Development Finance Corporation Mutual
Fund...HDFC Index Fund SENSEX Plus Plan HDFC Infrastructure Fund HDFC
Liquid Fund.
HDFC is headquartered in India, and has a presence in London, New York, Japan, Hong
Kong,Singapore, Dubai, Brazil and Indonesia.
RELIGARE INFRASTRUCTURE FUND
Objective: Religare Infrastructure Fund intends to provide long term capital appreciation by
investing in a portfolio that is predominantly constituted of equity and equity-related
instruments of infrastructure companies.
Structure: Open-Ended Equity Scheme
Inception Date: November 21, 2007
Plans and Options und
Dividend /Growth
Minimum Investment :
Rs. 5000 and in multiples of Re. 1 thereafter.
RELIGARE INFRASTRUCTURE FUND :-
YEAR Rp Rm Rf(Rm-Rf)
(Rp-Rf) X2 XY
(X -Xbar) D2
X Y D
LAST 1 MONTH 5.90 2.80 4.20 -1.4 1.7 1.96 -2.38 -18.8 353.44
LAST 3 MONTHS 22.60 11.11 4.20 6.91 18.4 47.74 127.14 -10.49 110.04
LAST 6 MONTHS 33.48 28.18 4.20 23.98 29.28 575.04 702.13 6.58 43.296
Since Inception 77.17 44.99 4.5 40.49 72.67 1639.44 2942.40 23.09 533.14
TOTAL 69.98122.0
5 2264.18 3769.29 0.38 1039.916
Where,
Rp - Portfolio Return
Rm - Market Return-Fund’s bench mark- S& P CNX 500
Rf - Risk free rate of return.
CALCULATION OF ARTHMETIC MEAN :-
= SX / N
= 69.98/ 4
= 17.49
CALCULATION OF STANDARD DEVIATION (σ ) :-
= √ S(X-Xbar) 2 / N
= √1039.916/4
=√259.97
=16.12
CALCULATION OF BETA CO-EFFICIENT:-
= N ( S XY) – S X S Y
N (SX2) – (SX) 2
= 4(3769.29) – (69.98)(122.05)
4(2264.18) – (69.98) 2
= 15077.16 – 8541.059
9059.72 - 4897.20
= 6536.101
4159.52
=1.57
CALCULATION OF SHARPE’S RATIO:-
= Rp-Rf / s
=122.05 /16.12
= 7.57
CALCULATION OF TREYNOR’S RATIO :-
= Rp-Rf / b
= 122.05/1.57
= 77.73
SAHARA
Sahara India Pariwar is an Indian conglomerate company headquartered in Lucknow, Uttar
Pradesh, India. Its diversified business has interest in finance, infrastructure & housing,
media & entertainment, consumer merchandise retail venture, manufacturing and information
technology. The company has a market capitalization of US$25.94 billion as of March
2011.The group is a major promoter of sports in India. It owned the New IPL team Pune
Warriors India as well as a supreme sponsor of Indian cricket Team. They own 42.5% stake
in Formula One's Force India Formula 1 Team and also sponsors India national field hockey
team.The Brand Trust Report listed Sahara in the top 100 most trusted brands of India
SAHARA INFRASTRUCTURE FUND
Objective : Sahara Infrastructure Fund aims to provide distribution and /or medium to long
term capital gains by investing in equity / equity related instruments of companies mainly in
the infrastructure sector.
Structure : Open-ended Equity Linked Savings Scheme
Inception Date : March 14, 2006
Plans and Options under the Plan :
Fixed Pricing, Variable Pricing.
Face Value (Rs/Unit): Rs. 10
Minimum Investment :
Rs. 1000
SAHARA INFRASTRUCTURE FUND PEFORMANCE:-
YEAR Rp Rm Rf(Rm-Rf)
(Rp-Rf) X2 XY
(X -Xbar) D2
X Y D
LAST 1MONTH 3.45 3.70 4.22 -0.52 -0.77 0.270 0.4004 -20.82 433.47
LAST 3 MONTHS 16.47 13.80 4.25 9.55 12.22 91.20 116.701 -10.75 115.56
LAST 6 MONTHS 36.56 31.1 4.2526.8
5 32.31 720.92 867.52 6.55 42.90SINCE INCEPTION March 2, 2005 61.6 50.20 4.5 45.7 57.1 2088.4 2609.47 36.8 1354.2
TOTAL81.5
8100.8
62900.7
9 3594.09 11.78 1946.13
Where,
Rp - Portfolio Return
Rm - Market Return-Fund’s Benchmarks S&P CNX-500
Rf - Risk free rate of return.
CALCULATION OF ARTHMETIC MEAN:-
= SX / N
= 81.58/ 4
= 20.39
CALCULATION OF STANDARD DEVIATION (σ) :-
= √ S(X-Xbar)2 / N
= √1946.13/4
= √486.53
= 22.05
CALCULATION OF BETA CO-EFFICIENT;-
= N ( S XY) – S X S Y
N (SX2) – (SX) 2
= 4(3594.09) – (81.58)(100.86)
4(2900.79) – (81.58) 2
= 14376.36-8228.15
11603.16-6655.29
=6148.21
4947.87
=1.24
CALCULATION OF SHARPE’S RATIO:-
= Rp-Rf/ σ
=100.86
22.05
=4.57
CALCULATION OF TREYNOR’S RATIO :-
= Rp-Rf/b
=100.86/1.24
= 81.3 OR 0.813
TATA MUTUAL FUND
Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for
Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment
manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata
Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703
crores (as on April 30, 2005) of AUM.
TATA INFRASTRUCTURE FUND
Objective : Tata Infrastructure Fund seeks to provide income distribution and / or medium to
long term capital gains by investing predominantly in equity / equity related instrument of
companies in infrastructure sector.
Structure : Open-ended Equity Fund
Inception Date : November 25, 2005
Plans and Options under the Plan :
Growth, Dividend
Face Value (Rs/Unit): Rs. 10
Minimum Investment :
Rs.5000
TATA INFRASTRUCTURE FUND PERFORMANCE:-
YEAR Rp Rm Rf(Rm-Rf)
(Rp-Rf) X2 XY
(X -Xbar) D2
X Y D LAST 1MONTH 1.13 3.70 4.25 -0.55 -3.12 0.3025 1.716 -20.23 409.25LAST 3 MONTHS 16.44
13.81 4.25 9.56 12.19 91.3936 116.53 -10.12 102.41
LAST 6MONTHS 35.2 29.8 4.25 25.55 30.95 720.9225 790.77 5.87 34.456Since Inception 68.64
48.66 4.5 44.16 64.14
2039.4256 2832.42 24.48 599.27
TOTAL 78.72104.16 2852.04 3741.436 0 1145.386
Where,
Rp - Portfolio Return
Rm - Market Return-Fund’s benchmark-BSE-200
Rf - Risk free rate of return.
CALCULATION OF ARTHMETIC MEAN:-
= SX / N
= 78.72/4
= 19.68
CALCULATION OF STANDARD DEVIATION (σ) :-
= √ S(X-Xbar)2 / N
= √1145.386/4
= √286.34
=16.92
CALCULATION OF BETA CO-EFFICIENT:-
= N ( S XY) – S X S Y
N (SX2) – (SX) 2
= 4(3741.436) –(78.72)(104.16)
4(2852.04) – (78.72) 2
= 14965.74-8199.47
11408.16-6196.83
=6766.27
5211.33
=1.29
CALCULATION OF SHARPE’S RATIO:-
=Rp-Rf/ σ
=104.16/16.92
=6.15
CALCULATION OF TREYNOR’S RATIO :-
= Rp-Rf/b
= 104.16/1.29
= 80.74/100
=0.8074
OBSERVATIONS;
The following observations are drawn from the analysis of schemes:
RELIGARE
INFRASTRUCTURE
FUND
SAHARA
INFRASTRUCTURE
FUND
TATA
INFRASTRUCTURE
FUND
Sharpe’s Ratio 7.57 4.57 6.15
Treynor’s Ratio 0.77 0.81 0.80
Co-efficient (b) 1.57 1.24 1.29
Std.Deviation (s) 16.12 22.05 16.92
CONCLUSION:
After interpreting the above data the following conclusions have been made:
RELIGARE INFRASTRUCTURE FUND :
It is a diversified aggressive equity fund.
It is a open-ended equity scheme
Since the b ratio is high it implies the risk is high
SAHARA INFRASTRUCTURE FUND
It is a diversified equity fund.
It is a open-ended equity scheme
Since the b ratio is high it implies the risk is high
TATA INFRASTRUCTURE FUND
It is a diversified equity fund.
It is a open-ended equity scheme.
It is a value based fund.
It is a low risky fund.
BIBLIOGRAPHY
www.amfiindia.com
www.religaremf.com .
www.tatamf.com .
www.saharamf.com
www.thinkrupee.com