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mutual funds analyses

mutual funds analyses

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  • 1. PROJECT REPORT ON Performance measures of different mutual fundsSUBMITTED TO : SUBMITTED BY :PROF.ANIRUDDH DURAFE Ankit Gupta MBA III SEM “A” Devi Ahilya VishwaVidyalaya Indore (M.P) ACKNOWLEDGEMENT
  • 2. No academic task and especially, this project can be completed without ablescholarly guidance. We take opportunity to extend our feelings of gratitudetowards our project guide Prof. Aniruddh Durafe who helped us inaccomplishing the task assigned. He is always ready to solve our problems thatwe faced during the process. Without that, our project would not have beenwhat it is.We also thank Cerebral Heights Institute of Management &commerce forproviding us with all facilities, scholarly advice and an excellent workingatmosphere. INTRODUCTION TO MUTUAL FUNDS:
  • 3. A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities. The income earned throughthese investments and the capital appreciations realized are shared by its unit holders inproportion to the number of units owned by them. Thus a Mutual Fund is the most suitableinvestment 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 ofIndia (SEBI) that pools up the money from individual/corporate investors and invests thesame 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 MutualFund 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 andinvesting 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 sectorsthus the risk is reduced. Diversification reduces the risk because all stocks may not move inthe same direction in the same proportion at same time. Investors of mutual funds areknown 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:
  • 4. BENEFITS OF INVESTING IN MFDiversificationProfessional ManagementLiquidityFlexibilityCost EffectiveWell Regulated EARNINGS FROM MF
  • 5. PERFORMANCE MEASURES OF MUTUAL FUNDS:Mutual Fund industry today, with about 30 players and more than six hundred schemes, isone of the most preferred investment avenues in India. However, with a plethora ofschemes to choose from, the retail investor faces problems in selecting funds. Factors suchas investment strategy and management style are qualitative, but the funds record is animportant 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 needto correctly assess the past performance of different Mutual Funds. Worldwide, goodMutual Fund companies over are known by their AMC’s and this fame is directly linked totheir superior stock selection skills.Return alone should not be considered as the basis of measurement of the performance of aMutual Fund scheme, it should also include the risk taken by the fund manager becausedifferent funds will have different levels of risk attached to them. Risk associated with afund, in a general, can be defined as Variability or fluctuations in the returns generated byit. The higher the fluctuations in the returns of a fund during a given period, higher will be
  • 6. the risk associated with it. These fluctuations in the returns generated by a fund areresultant of two guiding forces. First, general market fluctuations, which affect all thesecurities, present in the market, called Market risk or Systematic risk and second,fluctuations due to specific securities present in the portfolio of the fund, calledUnsystematic risk. The Total Risk of a given fund is sum of these two and is measured interms 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 Model1.The Treynor Measure:-Developed by Jack Treynor, this performance measure evaluates funds on the basis ofTreynors 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 nocredit risk associated), during a given period and systematic risk associated with it (beta).Symbolically, it can be represented as: Treynors 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 positiveTreynors Index shows a superior risk-adjusted performance of a fund, a low and negativeTreynors Index is an indication of unfavorable performance.2. The Sharpe Measure :-
  • 7. In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is aratio of returns generated by the fund over and above risk free rate of return and the totalrisk 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, itcan be written as: Sharpe Index (Si) = (Ri - Rf)/SiWhere, 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 afund, a low and negative Sharpe Ratio is an indication of unfavorable performance..3. Jenson Model:-Jensons model proposes another risk adjusted performance measure. This measure wasdeveloped by Michael Jenson and is sometimes referred to as the differential ReturnMethod. This measure involves evaluation of the returns that the fund has generated vs. thereturns actually expected out of the fund1 given the level of its systematic risk. The surplusbetween the two returns is called Alpha, which measures the performance of a fundcompared with the actual returns over the period. Required return of a fund at a given levelof 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.
  • 8. After calculating it, Alpha can be obtained by subtracting required return from theactual return of the fund.Higher alpha represents superior performance of the fund and vice versa. Limitation of thismodel is that it considers only systematic risk not the entire risk associated with the fundand an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market isprimitive.HDFCHDFC 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 servicesoffered include broking, insurance, asset management, lending solutions, investmentbanking and wealth management. Serving over a million clients, HDFC has around 15 billiondollars of assets under management....HDFC Mutual Fund India - Housing Development Finance Corporation MutualFund...HDFC Index Fund SENSEX Plus Plan HDFC Infrastructure Fund HDFCLiquid Fund.HDFC is headquartered in India, and has a presence in London, New York, Japan, HongKong,Singapore, Dubai, Brazil and Indonesia. RELIGARE INFRASTRUCTURE FUNDObjective: Religare Infrastructure Fund intends to provide long term capital appreciation byinvesting in a portfolio that is predominantly constituted of equity and equity-relatedinstruments of infrastructure companies.Structure: Open-Ended Equity SchemeInception Date: November 21, 2007Plans and Options undDividend /Growth
  • 9. Minimum Investment :Rs. 5000 and in multiples of Re. 1 thereafter. RELIGARE INFRASTRUCTURE FUND :- (Rm- (Rp- (X - YEAR Rp Rm Rf Rf) Rf) X2 XY Xbar) D2 X Y DLAST 1MONTH 5.90 2.80 4.20 -1.4 1.7 1.96 -2.38 -18.8 353.44LAST 3MONTHS 22.60 11.11 4.20 6.91 18.4 47.74 127.14 -10.49 110.04LAST 6MONTHS 33.48 28.18 4.20 23.98 29.28 575.04 702.13 6.58 43.296SinceInception 77.17 44.99 4.5 40.49 72.67 1639.44 2942.40 23.09 533.14TOTAL 69.98 122.05 2264.18 3769.29 0.38 1039.916Where, Rp - Portfolio Return Rm - Market Return-Fund’s bench mark- S& P CNX 500 Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:- = X/N = 69.98/ 4 = 17.49 CALCULATION OF STANDARD DEVIATION (σ ):- = √ (X-Xbar) 2 / N = √1039.916/4 =√259.97 =16.12 CALCULATION OF BETA CO-EFFICIENT:-
  • 10. = N ( XY) – X Y N ( X2) – ( X) 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 =1.57CALCULATION OF SHARPE’S RATIO:- = Rp-Rf / =122.05 /16.12 = 7.57CALCULATION OF TREYNOR’S RATIO:- = Rp-Rf / = 122.05/1.57 = 77.73
  • 11. SAHARASahara India Pariwar is an Indian conglomerate company headquartered in Lucknow, UttarPradesh, India. Its diversified business has interest in finance, infrastructure & housing,media & entertainment, consumer merchandise retail venture, manufacturing and informationtechnology. The company has a market capitalization of US$25.94 billion as of March2011.The group is a major promoter of sports in India. It owned the New IPL team PuneWarriors India as well as a supreme sponsor of Indian cricket Team. They own 42.5% stakein Formula Ones Force India Formula 1 Team and also sponsors India national field hockeyteam.The Brand Trust Report listed Sahara in the top 100 most trusted brands of India SAHARA INFRASTRUCTURE FUNDObjective : Sahara Infrastructure Fund aims to provide distribution and /or medium to longterm capital gains by investing in equity / equity related instruments of companies mainly inthe infrastructure sector.Structure : Open-ended Equity Linked Savings SchemeInception Date : March 14, 2006Plans and Options under the Plan :Fixed Pricing, Variable Pricing.Face Value (Rs/Unit): Rs. 10Minimum Investment :Rs. 1000
  • 12. SAHARA INFRASTRUCTURE FUND PEFORMANCE:- (Rm- (Rp- (X -YEAR Rp Rm Rf Rf) Rf) X2 XY Xbar) D2 X Y DLAST 1MONTH 3.45 3.70 4.22 -0.52 -0.77 0.270 0.4004 -20.82 433.47LAST 3 MONTHS 16.47 13.80 4.25 9.55 12.22 91.20 116.701 -10.75 115.56LAST 6 MONTHS 36.56 31.1 4.25 26.85 32.31 720.92 867.52 6.55 42.90SINCE INCEPTIONMarch 2, 2005 61.6 50.20 4.5 45.7 57.1 2088.4 2609.47 36.8 1354.2TOTAL 81.58 100.86 2900.79 3594.09 11.78 1946.13Where, Rp - Portfolio Return Rm - Market Return-Fund’s Benchmarks S&P CNX-500 Rf - Risk free rate of return.CALCULATION OF ARTHMETIC MEAN:- = X/N = 81.58/ 4 = 20.39CALCULATION OF STANDARD DEVIATION (σ):- = √ (X-Xbar)2 / N = √1946.13/4 = √486.53 = 22.05CALCULATION OF BETA CO-EFFICIENT;- = N ( XY) – X Y
  • 13. N ( X2) – ( X) 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 =1.24CALCULATION OF SHARPE’S RATIO:- = Rp-Rf/ σ =100.86 22.05 =4.57CALCULATION OF TREYNOR’S RATIO:- = Rp-Rf/ =100.86/1.24 = 81.3 OR 0.813
  • 14. TATA MUTUAL FUNDTata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers forTata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investmentmanager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. TataAsset Management Limiteds is one of the fastest in the country with more than Rs. 7,703crores (as on April 30, 2005) of AUM. TATA INFRASTRUCTURE FUNDObjective : Tata Infrastructure Fund seeks to provide income distribution and / or medium tolong term capital gains by investing predominantly in equity / equity related instrument ofcompanies in infrastructure sector.Structure : Open-ended Equity FundInception Date : November 25, 2005Plans and Options under the Plan :Growth, DividendFace Value (Rs/Unit): Rs. 10Minimum Investment :Rs.5000
  • 15. TATA INFRASTRUCTURE FUND PERFORMANCE:- (Rm- (Rp- (X -YEAR Rp Rm Rf Rf) Rf) X2 XY Xbar) D2 X Y DLAST1MONTH 1.13 3.70 4.25 -0.55 -3.12 0.3025 1.716 -20.23 409.25LAST 3MONTHS 16.44 13.81 4.25 9.56 12.19 91.3936 116.53 -10.12 102.41LAST6MONTHS 35.2 29.8 4.25 25.55 30.95 720.9225 790.77 5.87 34.456SinceInception 68.64 48.66 4.5 44.16 64.14 2039.4256 2832.42 24.48 599.27TOTAL 78.72 104.16 2852.04 3741.436 0 1145.386Where, Rp - Portfolio Return Rm - Market Return-Fund’s benchmark-BSE-200 Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:- = X/N = 78.72/4 = 19.68 CALCULATION OF STANDARD DEVIATION (σ):- = √ (X-Xbar)2 / N = √1145.386/4 = √286.34 =16.92
  • 16. CALCULATION OF BETA CO-EFFICIENT:- = N ( XY) – X Y N ( X2) – ( X) 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 =1.29CALCULATION OF SHARPE’S RATIO:- =Rp-Rf/ σ =104.16/16.92 =6.15CALCULATION OF TREYNOR’S RATIO:- = Rp-Rf/ = 104.16/1.29 = 80.74/100 =0.8074
  • 17. OBSERVATIONS;The following observations are drawn from the analysis of schemes: RELIGARE SAHARA TATA INFRASTRUCTURE INFRASTRUCTURE INFRASTRUCTURE FUND FUND FUNDSharpe’s Ratio 7.57 4.57 6.15Treynor’s Ratio 0.77 0.81 0.80Co-efficient ( ) 1.57 1.24 1.29Std.Deviation ( ) 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 ratio is high it implies the risk is highSAHARA INFRASTRUCTURE FUND It is a diversified equity fund. It is a open-ended equity scheme Since the ratio is high it implies the risk is high
  • 18. 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. 