Interimreport1 January–31 March2024 Elo Mutual Pension Insurance Company
Study on indian mutual fund industry
1. SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF
POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS
MEASURING PERFORMANCE OF MUTUAL FUND ON THE BASIS OF VARIOUS
STATISTICAL PARAMETER
SUBMITTED BY:
HARSHAL GOEL
MBA-IB (2012-2014)
Roll No. : A1802012125
INDUSTRY GUIDE FACULTY GUIDE
Mr I.P. Bharti Ms. Navleen Kaur
(Vice President)
(UTI AMC LTD.)
AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA
AMITY UNIVERSITY – UTTAR PRADESH
3. 1. EXECUTIVE SUMMARY
The report presents the case for use of statistical measure by the investors to evaluate the
returns from the investment in the different funds. The competitive mutual fund industry in India
has mature players like the HDFC, ICICI, UTI and other leading funds managed either by banks
or by fund managers.
Yet the investor’s use of statistical techniques to evaluate the returns, as a trend is catching up
and shaping financial behaviour across the investors. This report is a result of my internship
training with UTI mutual fund and relies on both the primary and the secondary data.
The findings as expected point to maturing investor’s attitude toward the mutual funds’
investments as well as growing use of diverse tools to evaluate the return prospects from
respective investments. The UTI is poised to be top performer despite negative returns this fiscal
yet the prospects for future gains are brighter than ever before.
The UTI faces immense competition from the HDFC fund. Otherwise it can also be interpreted
that the consumer’s choice is a bit distributed across the various competing brands, which are
generally the offshoots of banking brands. The fragmentation of financial behaviour is evident and
the bias seems prevalent in choice of various competing funds across the Indian mutual funds
market.
In terms of secondary data analysis, the beta was calculated as 0.0, which in turn signifies that
the two variables considered for analysis has negligible inter linkage or inters relationship. This
might be the result of limited sample population as well as limited time period .Over all the
financial behaviour across Indian mutual fund investors is undergoing change and risk appetite is
increasing.
4. 2. INTRODUCTION
The mutual fund is widely defined as the trust that seeks to pool the small savings of a larger
number of investors who in turn shares a common financial goal. The money hence collected is
invested across the capital market instruments like the shares, debentures or even the
government securities which in turn mitigate the risk and effective management can in turn lead
to balanced yield over the longer time periods. The income earned by means of group investment
in the diverse instruments and the resultant capital appreciation is in turn shared by its various
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.
Source: AMFI Website
The benefits from the investment of the pooled money accrue to those that contribute to the pool.
There is thus mutuality in the contribution and the benefit. Hence the name “MUTUAL FUND”.
5. When a mutual fund pools money from several investors, each investor doesn’t contribute the
same sum of money. Depending upon on their needs and preferences, investors put in money
into the fund. Therefore each investor’s share in the pool of funds is not equal. The benefits from
the fund accrue to all investors in proportion to their share in the pool.
EXAMPLE
a- Three investors invest Rs. 10,000, Rs. 20,000, and Rs 30,000, respectively in a M.F. So, the
pooled sum is Rs 60,000.
b- The money is invested and gains Rs 12000 over time. This means, the pool is now worth Rs
72,000.
c- The value of the investors’ holding in the M.F also goes up proportionately (in the ratio 1:2:3) to
Rs.12000, 24000 and 36000 respectively.
2.1 PROBLEM DEFINITION
This specific study is restricted with the data of last 3 years of top 5 mutual funds such as ICICI,
HDFC,RELIANCE,BIRLA SUN LIFE , UTI compared with BSE 100 and data of 100 investor
through which certain result came out which may or may not reliable.
The specific questions, which are analysed, are as follows:
‐ How has the mutual funds performed compared to relevant passive benchmark?
‐ Does the mutual funds possess timing abilities?
2.2 OBJECTIVES
Primary Objective: To evaluate the performance of various funds through of statistical techniques
such as Alpha, beta, standard deviation and r-square.
Secondary Objective: To understand the valuation prospects for various funds
The scope for this report is the multiple applications across the areas of –
• To evaluate the performance of top 5 mutual funds this is equity diversified and large cap
• To find the correlated volatility of funds with BSE 100 as benchmark
• To analysis the risk associated with these funds which is effected by the benchmark
• To evaluate the changes in investor’s financial behaviour
6. 2.3 RESEARCH METHODOLOGY
The research method comprises the selection of different funds and uses of statistical techniques
such as Beta, Standard deviation; R-square and Coefficient of Variation which is used to reach on
a certain conclusion. Research in itself is accomplished when it turns out to be a systematic
inquiry to establish highest degree of objectivity across the task.
The choice of data is of great importance for the analysis. If wrong choices are made, it is very
likely that the analysis will be biased, and therefore the results and conclusions will be
misleading.
The current research relies on primary data and it would be correlated with secondary data
analysis.
2.4 LIMITATIONS BEFORE RESEARCH
a- The sample size was limited to just 100 amidst the diverse mutual fund investors across the
nation. This in turn might generate biased results in the study as such
b- The time considered for the study was limited to just 45 days, even lesser than two months.
This much time is quite insufficient for the research to be conducted over the viable concerns and
dimensions
c- The data compilation errors might creep in.
d- The data considered for research was limited to just last three fiscals which is insufficient for
overall trend analysis.
USE OF STATISTICS FOR PERFORMANCE MEASUREMENT
Statistical analysis of mutual funds is just what it sounds like--a means of studying the
quantitative aspects of a fund to help the investor gain an understanding of past performance for
a clue about future results. Statistical analysis of mutual funds requires a fundamental knowledge
of quantitative measures, such as Beta, R-squared, Coefficient of variation, and Standard
Deviation.
Beta: Beta, with regard to mutual fund investing, is a measure of a particular fund's movement
(ups and downs) compared to the overall market. For reference, the market is given a beta of
7. 1.00. If a fund's beta is 1.10, this fund would be expected to have a return of 11% (1.10 is 10%
higher than 1.00) in an up market but the same fund would be expected to decline 11% when the
market declines 10%.
R-squared: According to Morningstar, "R-squared reflects the percentage of a fund’s movements
that can be explained by movements in its benchmark index. An R-squared of 100 indicates that
all movements of a fund can be explained by movements in the index." In translation, R-squared
helps an investor check how similar a particular fund may be to a given index.
For example, if you already have an S&P 500 fund in your portfolio, you won't want to add
another mutual fund with an R-squared of 0.99 because this indicates a correlation of 99% to the
S&P 500. The new prospective fund would perform almost identical to the S&P 500 fund already
in your portfolio. That's not diversification.
Coefficient of Variation- It is the measure of price and return dispersion sometimes known as
unitized risk or the variation coefficient. The CV is derived from the ratio of the standard deviation
to the non- zero mean and absolute value is taken for the mean to ensure it always positive. CV
for a single equity instrument describes the dispersion of price movement or daily return. The
higher the coefficient of variation, the greater the dispersion of price and the more risky is the
asset.
Standard Deviation – According to Morning Star, It is probably used more often than any other
measure to gauge a fund’s risk. It simply quantifies how much a series of number, such as fund
returns, varies around its mean, or average. Investor like using standard deviation because it
provides a precise measure of how varied a fund’s returns have been over a particular time frame
both on the upside and the downside.
8. 3. RESEARCH METHODOLOGY
Method can be seen as a systematic approach, as a technique for data collection or as a
research strategy in analysing a phenomenon (Dubois.A and Gadde 2002). In this thesis the
methodology serves as a systematic approach and as a research strategy. The systematic
approach refers to the inductive reasoning that is exhibited on the literature re- view and case
study. Research strategy refers to the goals set for the development of the conceptual framework.
STAGE - I: The comprehensive survey of information needs of retail investors through a
questionnaire in Delhi and National Capital Region of Delhi. [Primary Data]
Population/Universe: Retail investors of Mutual Fund Schemes in Delhi & NCR Delhi
Sample Unit: Retail investor
Sample size: 100 based on the following:
Precision = 5.00%
Prevalence = 50.00%
Population size = infinite (unknown)
95% Confidence Interval specified limits [45% to 55%] (These limits equal prevalence
plus or minus precision)
Estimated sample size: N = 100
Sampling Method: Random sampling
Research Instrument
A structured questionnaire was developed to identify the information needs. The constructs were
based on the theories of finance and investment principles available in the literature and the
survey of Investment Company Institute of USA. The questionnaire comprised of a mix of open-
ended and close-ended questions.
The questionnaire was pilot tested and the feedback received was incorporated to refine the
questionnaire.
9. Data collection
The questionnaire was administered with the help of Mutual Fund agents, Investment Advisors,
Sub-brokers of National Stock Exchange and Service Centres of Asset Management Companies
based in Delhi and NCR.
Use of Analytical Techniques
Since the study is of exploratory in nature much of the analysis was qualitative and excel work
sheets and graphs were used for the purpose.
STAGE – II: (Secondary Data)
The sample comprised of the web portals of Top 5 Asset Management companies. The Top 5 is
based on the criteria of Net Asset Value (NAV) for the period of three years as per the data
available at the Homepage of AMFI.
The Top 5 companies in terms of AAUM are:
Reliance Capital Asset Management Limited
HDFC Asset Management Company Limited
ICICI Prudential Asset Management Company
UTI Mutual Fund
Birla Mutual
Secondary Data sources
Website of Association of Mutual Funds in India
Websites of Reliance Capital, HDFC Asset Management and ICICI Prudential
Analytical Techniques
Qualitative Analysis with aid of excels worksheet and graphs only. No statistical techniques were
used. Analysis of the information on the web portals of the sampled AMCs and comparing with
the information needs of the retail investors identified in Stage – I.
10. LIMITATIONS BEFORE RESEARCH
The sample size was limited to just 100 amidst the diverse mutual fund investors across
the nation. This in turn might generate biased results in the study as such
The time considered for the study was limited to just 45 days, even lesser than two
months. This much time is quite insufficient for the research to be conducted over the
viable concerns and dimensions
The data compilation errors might creep in.
The data considered for research was limited to just last three fiscals which is insufficient
for overall trend analysis.
11. 4. CONCLUSION
The major findings are summarized here under
(Primary data)
- When asked about the choice of funds, the RELIANCE scored over the ICICI and BIRLA
SUN LIFE mutual funds, with a marginal lead of 26 percent as against the 24 and 21
respectively for the others.
It can thus be interpreted that there is a neck to neck competition across the diverse mutual funds
in the Indian scenario.
Otherwise it can also be interpreted that the consumer’s choice is a bit distributed across the
various competing brands, which are generally the offshoots of banking brands. The
fragmentation of financial behavior is evident and the bias seems prevalent in choice of various
competing funds across the Indian mutual funds market.
- The consistent mutual fund investors are well versed with the mutual fund terminology. In the
survey regarding the tools relied upon for quantitative analysis, the familiar responses were in
favour of use of alpha and beta measures to gauge the profitability vis a vis the returns from the
investment in the portfolio or fund allocations.
- The inclination towards debt component in portfolio allocation is self-evident with more than 57
per cent of the aspirants or the investors investing in debt schemes. The equity component in
investments is conservative.
- The intelligent investor seeks long term association in contrast with other category of investor as
evident in short term association. The investment psychology is indeed undergoing change with
transforming inclinations towards the long term interest.
- The duration in mutual fund industry is often a matter of contention since the origin of mutual
fund industry.
This symbolizes the evolving maturity of Indian mutual fund industry trends with regard to time
associate with investment stability.
- When asked about the type of mutual fund investment categorization, there seems to be a stiff
competition across the open and closed ended mutual fund schemes.
- The consideration for long term fund justifies the investor’s attribute and philosophy regarding
mutual funds’ investments and industry in general.
12. - When asked to rate the fund performance, the average to satisfactory response was prevalent
across the respondents.
- The inflation is taking its toll on returns outcome. Nearly 35 per cent of the respondents choose
to regard inflation as a major dampener on fund performance.
(Secondary data)
- As per the statistical tool applied for 5 funds in year 2010-2011, UTI MASTER SHARE
found to be a riskier among other funds.
- As per the statistical tool applied for the year 2011-2012, BIRLA SUN LIFE FORNT LINE
EF found to beneficial among other funds.
- As per statistical tool applied for the year 2012-2013, ICICI PRUDENTIAL FOCUSED
BLUE CHIP EF AND BILRA SUN LIFE FRONT LINE EF found to be beneficial among
other funds.
- As per statistical tool applied for the year 2010-2013, BIRLA SUN LIFE FRONTLINE EF
and RELIANCE EQUITY FUND found to be beneficial among other funds.
13. 5. Recommendations
The study was conducted as part of the internship across UTI mutual fund .The overall objective
was to assess the performance of top performers and emerge at recommendations for UTI as
well for industry and investors.
The primary data yielded RELIANCE as top performer amidst competition from UTI and other
funds. The RELIANCE AND ICICI is hence the most recommended mutual fund on basis of
primary and secondary data linkages and analysis.
The RELIANCE mutual fund is supported by strong BANK management which in turn also
mitigates the performance risk. The strong balance sheet acts as major booster to investor
confidence across the line.
In comparison with UTI, RELIANCE stands as strong contender for effective fund performance
across the multiple fiscals. The UTI fund management needs to strengthen the fund allocation
portfolio and the fund management techniques needs elaboration. In this context the UTI market
trust enhancement is the need of hour.
The competitive pressures are on the rise. This leads to performance pressures on the UTI
management to prove the expertise and calibre in most optimum performance management
across the mutual fund market.