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010 A Study on Performance Analysis of Selected Mutual Fund Schemes in India
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2. Solid State Technology
Volume: 63 Issue: 2s
Publication Year: 2020
Archives Available @ www.solidstatetechnology.us
1010
A Study on Performance Analysis of Selected
Mutual Fund Schemes in India
Dr. P. Venkatesh* Dr.V.Selvakumar** Dr.D.ShanthiRevathi*** Dr. K. Maran****
*Assistant Professor, Sri Sairam Engineering College, Chennai
**Associate Professor, Sri Sairam Institute of Technology, Chennai
***Assistant Professor, Alpha Arts and Science College, Porur
***Professor & Director, Sri Sairam Institute of Management Studies, Chennai
ABSTRACT
In India, there are various investment avenues available for investors to invest and earn
profitable return. Among the others financial products, investment in mutual fund ensures the
minimum risks and maximum return to the investors. The need and scope of the mutual fund
operation has increased as the emphasis is being made on increase in domestic savings and
improvement in diversification of investments. Thus it became important to study the mutual
fund industry and the performance of the mutual funds. This study aims to evaluate the
performance of a few selected mutual fund schemes of India on the basis of their daily net asset
value (NAV) for the period of five years from 2015-2019. A sample of 10 open-ended, growth-
oriented equity funds has been selected for the study. The performance of the funds is evaluated
using Sharpe index, Treynor index and Jensen alpha whose results will be useful for investors
for taking better investment decisions.
Keywords: Mutual Funds, Performance, Sharpe Index, Treynor Index, Jensen Alpha….
INTRODUCTION
In 1963, the mutual fund industry was started in India with the formation of the Unit Trust of
India (UTI), at the initiatives taken by the Reserve Bank of India and the Government of India.
Mutual funds constitute an important segment of the financial system. It is a non-depository
financial intermediary. A mutual fund is a type of investment that pools the savings of the
investors for investments in shares, debentures, government securities and other financial
instruments. It is a special type of institution that acts as an investment conduit. The unit holders
share the income earned through these investments in proportion to their units owned them. The
mutual funds in India follow a three-tier structure. The three entities involved in the process are:
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The sponsor
Trustees
The asset management company
STATEMENT OF THE PROBLEM
The mutual fund industry is a rapidly growing sector in the Indian financial market. Though there are
different options for investment, the investment in mutual fund through sound fund management provides
the benefits for the investors to invest in capital market with low risk and high of rate of returns as there is
diversification of funds. There are many investment avenues available for investors. It is required that the
investors need to have good knowledge regarding risk and return of the funds they are investing. Thus this
study helps to analyse the performance of the selected mutual fund schemes for the purpose of
investment.
OBJECTIVES OF THE STUDY
To evaluate the performance of the selected mutual fund schemes in India.
To make a comparative analysis on the performance of the mutual fund schemes using
performance measures like Sharpe index, Treynor index and Jensen alpha.
To examine the risk and return relationship of the selected mutual funds.
REVIEWS OF LITERATURE
Phanisara Raju and Mallikarjuna Rao (2011) in their study evaluated the performance of the
mutual fund schemes in the framework of risk and return. The study period comprised of 3 years
from 2008 to 2010. The schemes were evaluated using performance measures such as Treynor,
Sharpe, Jensen and Fama. The results indicated the failure of many schemes in infrastructure and
other schemes failing to generate the mandated returns.
KalpeshPrajapati and Mahesh Patel (2012) in their paper evaluated the performance of Indian
mutual funds through relative performance index, risk-return analysis, Treynor ratio, Sharpe
ratio, Jensen measure and Fama measure. Their study period was from 2007 to 2011. The results
suggested that most of the mutual funds gave positive return during the above mentioned period.
ShivaniInder and Shikha Vohra (2012) evaluated the long run performance of the index fund
schemes to make comparative analysis of the performance of the funds during the period of 2005
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to 2011. The performance measures such as standard deviation, beta, alpha, r-squared,
Sharpe,Treynor and Jensen measures were used. The results indicated that funds like ICICI, Tata
and Franklin were better performers with regard to growth option.
Rupeet Kaur (2014) examined the performance of open-ended debt mutual funds in India. A
sample of 23 schemes were selected to evaluate the performance on the basis of weekly returns
compared to benchmark returns. The statistical tools like average, standard deviation, beta, co-
efficient of determination, risk adjusted performance measures by Treynor, Sharpe, Jensen and
Fama‟s measures were employed. The analysis revealed that most of the schemes could not
perform better as compared to the benchmark.
RESEARCH METHODOLOGY
Research Methodology:
To examine the performance of the mutual fund schemes, 10 open-ended, growth-oriented equity
mutual fund schemes are selected from the top mutual fund companies based on the assets under
management (AUM). The most popular index BSE-Sensex is used as the benchmark for the
study. The daily net asset values (NAV) dataof the mutual fund schemes and the daily closing
values of the benchmark market index is used in the study. The yield of 91-day Treasury bills is
used as the risk free rate of return for the study.
Period of study:
The study covers a period of five years from January 2015 to December 2019.
Sources of Data:
The study is analytical in nature and the secondary data are collected from books, journals and
various websites.
Tools for analysis:
The various statistical tools used for the study are average, standard deviation and percentage.
The performance measures used are:
SHARPE PERFORMANCE MEASURE
This ratio was developed by William F. Sharpe and it is used to understand the return of an
investment when compared to its risk. It is considered as a reward to variability ratio. The Sharpe
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ratio measures the risk premium of the portfolio in terms of its risk. The risk premium is the
difference between the return of the portfolio and the risk-free rate of return. The standard
deviation represents the risk in the portfolio
The high and positive ratio shows the better risk-adjusted performance of a fund, while a low and
negative ratio indicates the unfavorable performance.
TREYNOR PERFORMANCE MEASURE
This ratio was developed by Jack Treynor. It is considered as the reward-to-volatility ratio.The
excess return is the difference between the average return and risk-free rate of return. The
Treynor ratio is different from Sharpe ratio, as it considers the beta as a measure of systematic
risk. The risk premium depends on the systematic risk assumed in a portfolio.
The fund with higher ratio is desirable as it earns a higher risk premium per unit of systematic
risk.
JENSEN’S PERFORMANCE MEASURE
This risk-adjusted return measure was developed by Michael Jensen and is also known as
Jensen‟s index or Jensen‟s alpha. It is a measure of absolute performance because the
performance is measured against a definite standard. The mentioned standard is based on the
manager‟s predictive ability.
A positive alpha represents the over performance of the fund while the negative alpha represents
the under performance of the fund.
BETA
It is a measure of volatility of the fund in comparison to the market. It is calculated using a
statistical tool called „regression analysis‟. Beta is the slope of the characteristic regression line.
It describes the relationship between the fund‟s return and the index returns. One per cent change
in market index return causes one per cent change in the fund return. It indicates that the fund
moves in tandem with the market. The mutual fund schemes with higher beta value is mostly
opted by the aggressive investors as it represents higher returns with higher risk.
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Where, Ri = Return of the fund
Rm = Return of the market
STANDARD DEVIATION
The risk of a mutual fund is measured by „Standard Deviation‟. It measures how much the
returns of a fund is deviated from its excess returns based on its historical performance. In other
words, the volatility of the fund is evaluated by standard deviation. The fund with higher
standard deviation indicates that the net asset value is more volatile, thus considered being risky
than a fund with low standard deviation.
DATA ANALYSIS AND INTERPRETATION
ANALYSIS OF AVERAGE RETURN
TABLE NO: 1 RETURNS ANALYSIS OF SELECTED MUTUAL FUND SCHEMES
MUTUAL FUND SCHEMES 2015 2016 2017 2018 2019
AVERAG
E
HDFC EQUITY FUND
-
0.019 0.024
0.13
0
-
0.009 0.027 0.033
HDFC MID-CAP OPPORTUNITIES
FUND 0.026 0.042
0.14
4
-
0.044 0.003 0.036
SBI SMALL CAP FUND
0.081 0.003
0.24
0
-
0.085 0.029 0.056
SBI LARGE AND MIDCAP FUND
0.044
-
0.003
0.14
0
-
0.017 0.028 0.040
ABSL SMALL CAP FUND
0.052 0.035
0.18
6
-
0.101
-
0.046 0.027
ABSL MIDCAP FUND
0.043 0.020
0.15
5
-
0.067
-
0.012 0.029
NIPPON INDIA SMALL CAP FUND
0.059 0.028
0.19
9
-
0.067
-
0.005 0.042
NIPPON INDIA MULTI CAP FUND
0.006
-
0.020
0.14
2
-
0.001 0.016 0.026
KOTAK SMALLCAP FUND
0.030 0.030
0.15
0
-
0.080 0.020 0.031
KOTAK EQUITY OPPORTUNITIES
FUND 0.010 0.030
0.12
0
-
0.020 0.050 0.040
S&P BSE SENSEX -
0.021 0.003
0.09
9 0.027 0.053 0.033
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INTERPRETATION:
It can be pointed out from the table that during 2015 and 2017, SBI Small Cap Fund has earned
more returns compared to the other funds. In 2014, HDFC Mid-Cap Opportunities Fund has
generated higher returns against other funds. During 2018, every funds have produced negative
returns. In 2019, Kotak Equity Opportunities Fund earned maximum return compared to others.
Based on the average returns for the five years, 6 out of 10 schemes have provided returns
greater than the benchmark. The SBI Small Cap Fund has the highest return, followed by Nippon
India Multi Cap Fund, Kotak Equity Opportunities Fund and SBI Large and Midcap Fund
considering the average return for the study period.
SHARPE’S PERFORMANCE MEASURE
TABLE NO: 2 SHARPE’S PERFORMANCE MEASURE OF SELECTED MUTUAL
FUND SCHEMES
NAME OF THE SCHEME 2015 2016 2017 2018 2019
AVERAG
E
HDFC EQUITY FUND
-
0.28
-
0.26
-
0.37
-
0.33
-
0.32 -0.14
HDFC MID-CAP OPPORTUNITIES FUND
-
0.34
-
0.33
-
0.46
-
0.35 -0.4 -0.16
SBI SMALL CAP FUND
-
0.31 -0.3
-
0.39
-
0.33
-
0.44 -0.15
SBI LARGE AND MIDCAP FUND
-0.3
-
0.31
-
0.45 -0.4
-
0.37 -0.16
ABSL SMALL CAP FUND
-
0.30
-
0.08
-
0.39
-
0.32
-
0.33 -0.08
ABSL MIDCAP FUND
-
0.32 -0.1
-
0.43
-
0.34
-
0.35 -0.09
NIPPON INDIA SMALL CAP FUND
-
0.28
-
0.26
-
0.38
-
0.31
-
0.37 -0.14
NIPPON INDIA MULTI CAP FUND
-
0.33
-
0.32
-
0.44
-
0.34 -0.3 -0.15
KOTAK SMALLCAP FUND
-
0.32
-
0.32
-
0.47
-
0.39
-
0.41 -0.16
KOTAK EQUITY OPPORTUNITIES
FUND
-
0.31
-
0.33
-
0.52
-
0.40
-
0.39 -0.17
INTERPRETATION:
The above table reflect the Sharpe‟s performance index for the selected mutual fund schemes
during 2015 to 2019. The performance of all the schemes is considered poor on the basis of the
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negative values obtained. The negative Sharpe index indicates that the returns of the funds are
lower than the benchmark return. Based on the average of the values calculated, the Aditya Birla
Sun Life Midcap Fund has the highest value of Sharpe measure, followed by ABSL Midcap
Fund, HDFC Equity Fund and Nippon India Small Cap Fund.
TREYNOR’S PERFORMANCE MEASURE
TABLE NO: 3 TREYNOR’S PERFORMANCE MEASURE OF SELECTED MUTUAL
FUND SCHEMES
NAME OF THE SCHEME 2015 2016 2017 2018 2019
AVERAG
E
HDFC EQUITY FUND
-
0.05
-
0.04
-
0.04
-
0.05
-
0.05 -0.04
HDFC MID-CAP OPPORTUNITIES FUND
-
0.06
-
0.06
-
0.06
-
0.06
-
0.07 -0.06
SBI SMALL CAP FUND
-
0.07
-
0.06
-
0.06
-
0.07
-
0.08 -0.07
SBI LARGE AND MIDCAP FUND
-
0.05
-
0.05
-
0.05
-
0.06
-
0.06 -0.05
ABSL SMALL CAP FUND
-
0.06
-
0.07
-
0.05
-
0.06
-
0.06 -0.06
ABSL MIDCAP FUND
-
0.06
-
0.06
-
0.05
-
0.06
-
0.06 -0.06
NIPPON INDIA SMALL CAP FUND
-
0.27
-
0.31
-
0.67
-
0.26
-
0.25 -0.28
NIPPON INDIA MULTI CAP FUND
-
0.64
-
0.29
-
0.71 -0.5 -0.4 -0.43
KOTAK SMALLCAP FUND
-
0.06
-
0.06
-
0.06
-
0.07
-
0.07 -0.06
KOTAK EQUITY OPPORTUNITIES
FUND
-
0.05
-
0.05
-
0.05
-
0.06
-
0.06 -0.05
INTERPRETATION:
The high value of Treynor indicate that the fund performance is high in accordance to the
systematic risk. It is observed from the above table that no mutual fund scheme has outperformed
its benchmark returns. On the basis of average calculated, the highest Treynor ratio is obtained
by HDFC Equity Fund (0.04) followed by SBI Large and Midcap Fund (0.05) and Kotak Equity
Opportunities Fund (0.05). The performance of the Nippon India Multi Cap Fund is poor
compared to other schemes based on the average values.
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JENSEN’S PERFORMANCE MEASURE
TABLE NO: 4 JENSEN’S PERFORMANCE MEASURE OF SELECTED MUTUAL
FUND SCHEMES
NAME OF THE SCHEME 2015 2016 2017 2018 2019
AVERA
GE
HDFC EQUITY FUND
0.002
7
0.010
4
0.012
7
0.003
5
0.002
7 0.0056
HDFC MID-CAP OPPORTUNITIES
FUND
-
0.010
5
-
0.006
8
-
0.005
2
-
0.008
1
-
0.013
3 -0.0093
SBI SMALL CAP FUND
-
0.012
7
-
0.008
9
-
0.010
6
-
0.012
3
-
0.019
8 -0.0128
SBI LARGE AND MIDCAP FUND
-
0.002
7
-
0.000
6
0.001
2
-
0.007
8
-
0.004
9 -0.0031
ABSL SMALL CAP FUND
-
0.005
9
-
0.011
9
-
0.003
4
-
0.006
8
-
0.007
7 -0.0076
ABSL MIDCAP FUND
-
0.007
8
-
0.010
9
-
0.004
8
-
0.005
7 -0.006 -0.0075
NIPPON INDIA SMALL CAP FUND
-
0.040
4
-
0.041
8
-
0.044
7
-
0.041
2
-
0.040
4 -0.0410
NIPPON INDIA MULTI CAP FUND
-
0.046
3
-
0.041
8
-
0.045
5
-
0.045
2
-
0.044
0 -0.0443
KOTAK SMALLCAP FUND
-
0.007
9
-
0.005
2
-
0.008
5
-
0.012
8
-
0.015
7 -0.0097
KOTAK EQUITY OPPORTUNITIES
FUND
-
0.003
3
-
0.002
2
-
0.003
5
-
0.005
0
-
0.006
3 -0.0039
INTERPRETATION:
The positive values of the Jensen‟s alphas indicate superior performance and selectivity skills of
fund managers. Based on the above table HDFC Equity Fund is the only scheme to show
positive alphas in every year, thus proving it is the superior performer compared to other
schemes. Apart from HDFC Equity Fund, SBI Large and Midcap Fund has got positive alpha in
2017. The negative values of alpha indicate the underperformance of the funds compared to the
benchmark.
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AVERAGE BETA ANALYSIS
TABLE NO: 5 BETA ANALYSES OF SELECTED MUTUAL FUND SCHEMES
NAME OF THE SCHEME 2015 2016 2017 2018 2019 AVERAGE
HDFC EQUITY FUND 1.05 1.2 1.25 1.08 1.06 1.11
HDFC MID-CAP OPPORTUNITIES FUND 0.78 0.86 0.89 0.85 0.74 0.81
SBI SMALL CAP FUND 0.73 0.82 0.76 0.78 0.61 0.74
SBI LARGE AND MIDCAP FUND 0.93 0.99 1.02 0.85 0.91 0.94
ABSL SMALL CAP FUND 0.87 0.76 0.91 0.89 0.87 0.85
ABSL MIDCAP FUND 0.83 0.78 0.89 0.91 0.89 0.85
NIPPON INDIA SMALL CAP FUND 0.18 0.16 0.07 0.2 0.2 0.18
NIPPON INDIA MULTI CAP FUND 0.08 0.17 0.07 0.1 0.12 0.12
KOTAK SMALLCAP FUND 0.83 0.89 0.82 0.77 0.69 0.81
KOTAK EQUITY OPPORTUNITIES FUND 0.93 0.95 0.92 0.91 0.87 0.92
INTERPRETATION:
The table clearly depicts that the beta values of all the schemes are lower than 1 except HDFC
Equity Fund and SBI Large and Midcap Fund (2017). The average beta value of the HDFC
Equity Fund is 1.11 which clearly indicates that it falls under the high risk category. In the year
wise category, the beta value higher than the other values is in the year 2017. The lower beta
values are obtained from the Nippon India mutual fund compared to the average values obtained
by the other schemes. The SBI Large and Midcap Fund and Kotak Equity Opportunities Fund
have beta values close to one meaning they are likely to be more volatile than other schemes.
ANALYSIS OF AVERAGE STANDARD DEVIATION
TABLE NO: 6 AVERAGE STANDARD DEVIATION OF SELECTED MUTUAL FUND
SCHEMES
NAME OF THE SCHEME 2015 2016 2017 2018 2019
AVERAG
E
HDFC EQUITY FUND
18.0
5 19.2
13.3
9 15.4
15.7
3 36.87
HDFC MID-CAP OPPORTUNITIES
FUND
14.9
2
15.1
8
10.6
8
14.4
5
12.4
8 30.58
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SBI SMALL CAP FUND
15.9
2
16.8
2
12.4
1
15.5
4
11.3
8 32.79
SBI LARGE AND MIDCAP FUND
16.5 16.4 10.8
12.6
1
13.5
2 31.67
ABSL SMALL CAP FUND
16.4
9
59.1
1
12.3
3
16.2
7
15.1
7 66.44
ABSL MIDCAP FUND
15.6
4
49.7
9
11.3
9
14.9
4
14.5
5 57.32
NIPPON INDIA SMALL CAP FUND
18.0
1
18.8
8
12.6
7
16.4
9
13.7
4 36.24
NIPPON INDIA MULTI CAP FUND
15.3
5
15.7
8
11.0
4 14.7 16.6 33.24
KOTAK SMALLCAP FUND
15.6
3
15.6
2
10.3
6
13.2
4
12.2
3 30.43
KOTAK EQUITY OPPORTUNITIES
FUND
16.2
6
15.1
3 9.49
12.6
9
12.8
2 30.21
S&P BSE SENSEX
16.0
8
14.7
1 8.89
12.4
8
13.6
2 29.93
INTERPRETATION:
In the above table, the term standard deviation indicates the risk of the selected mutual fund
schemes. It is found that all the schemes risks are greater than the market benchmark risk. The
variation is higher in the year 2016 compared to other years. The average standard deviation of
ABSL Small Cap Fund and ABSL Midcap Fund is greater in comparison with the other schemes
standard deviationdepicting that the return from the scheme is more deviated from its expected
return based on the historical returns. The Kotak Equity Opportunities Fund has the lowest
average standard deviation of 30.21% followed by Kotak Smallcap Fund (30.43%) and HDFC
Mid-Cap Opportunities Fund (30.58%).
PERFORMANCE ANALYSIS OF SELECTED MUTUAL FUND SCHEMES
TABLE NO: 7 COMPARATIVE PERFORMANCE ANALYSIS OF SELECTED
MUTUAL FUND SCHEMES
NAME OF THE
SCHEME
AVERAG
E
RETURN
STANDAR
D
DEVIATIO
N
B
E
T
A
SHARPE'
S
MEASUR
E
TREYNOR
'S
MEASURE
JENSEN
'S
ALPHA
HDFC EQUITY
FUND 0.033 36.87
1.1
1 -0.14 -0.04 0.0056
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HDFC MID-CAP
OPPORTUNITIES
FUND 0.036 30.58
0.8
1 -0.16 -0.06 -0.0093
SBI SMALL CAP
FUND 0.056 32.79
0.7
4 -0.15 -0.07 -0.0128
SBI LARGE AND
MIDCAP FUND 0.040 31.67
0.9
4 -0.16 -0.05 -0.0031
ABSL SMALL CAP
FUND 0.027 66.44
0.8
5 -0.08 -0.06 -0.0076
ABSL MIDCAP
FUND 0.029 57.32
0.8
5 -0.09 -0.06 -0.0075
NIPPON INDIA
SMALL CAP FUND 0.042 36.24
0.1
8 -0.14 -0.28 -0.0410
NIPPON INDIA
MULTI CAP FUND 0.026 33.24
0.1
2 -0.15 -0.43 -0.0443
KOTAK
SMALLCAP FUND 0.031 30.43
0.8
1 -0.16 -0.06 -0.0097
KOTAK EQUITY
OPPORTUNITIES
FUND 0.040 30.21
0.9
2 -0.17 -0.05 -0.0039
INTERPRETATION:
The table above shows positive returns for all the schemes during the study period. The beta
value of all schemes except one is less than one indicating that the fund is less volatile compared
to the market. The values of Sharpe and Treynor‟s index are negative for all the schemes
indicating that the returns of the funds are not greater than the benchmark return i.e., risk free
rate. The negative Jensen alpha indicates that the performance of the funds is not superior
compared to the benchmark. The standard deviation is referred as risk as it indicates the variation
of returns from expected returns based on the historical returns of the funds. The SBI Small Cap
Fund has the highest average return with standard deviation slightly higher than the benchmark
value and beta value less than one suggesting its low volatility to the market. The ABSL Mutual
Fund has the highest risk with low return and low Sharpe and Treynor index.
CONCLUSION
The present study analysed the performance of the 10 open-ended growth oriented equity
schemes during the period 2015 to 2019. The average returns of all the funds are positive during
the study period. The performance of the funds is evaluated using Sharpe, Treynor and Jensen
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measure. The results from this measure will be useful to the investors for taking investment
decisions. The values of beta of all the schemes except one used in the analysis is less than one
indicating that the funds are less volatile than the market. The negative value of Sharpe index of
all the schemes indicate that the returns generated are lower than the benchmark. The negative
Treynor index and Jensen alpha shows the underperformance of the funds. HDFC Equity Fund
and SBI Mutual Fund schemes are suitable for investors who are aiming for high returns but the
risk associated with the fund is greater. HDFC Mid-Cap Opportunities Fund and Kotak Mutual
Fund schemes is recommended when the investors are expecting moderate returns with moderate
risk. The ASBL Mutual Fund is mostly not recommended as it produces low return with higher
level of risk. The Nippon Mutual Fund can be suitable for investors expecting consistent return
as the beta value shows the low volatility of the fund compared to the market.
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