ANVESHA

The Journal of Management

Vol. 9 No. 3 July - September 2016 ISSN 0974-5467

RESEARCH PAPERS Study of Selected Stock Market Seasonality in Indian and

Performance Evaluation of Mutual

Foreign Context
Falguni H. Pandya

Determinants of Capital Structure of Small Firms: Empirical

Evidence from Pharmaceutical Industry in Indore
Navneet Kaur Bhatia, Dr. Manish Sitlani

Performance Evaluation of Mutual Funds: A Study of Selected Large

Cap Mutual Funds in India

Funds: A Study of Selected Large

Dr. Vikas Choudhary, Preeti Sehgal Chawla

An Analysis of Selection Behaviour of Retail Investors towards

Mutual Funds: A Study With Reference to Udupi District Karnataka
Dr. Prakash Pinto, Ajaya, Dr. M. M. Munshi

Core Industries in India Significance and Performance

Dr. P. Hanumantha Rao

Cap Mutual Funds in India

CASE STUDY Human Resource Practices at Kokuyo Camlin
Silpy Gupta, Dhruwi Sadrani

BOOK REVIEW Big Data - Does Size Matter ?

Mrunal Joshi

Included in ProQuest
and EBSCO Databases

Abstract
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 appreciation realized is shared by its
unit holders in proportion to the number of units owned by them. The wide variety of schemes floated by these
mutual fund companies gave a number of investment choices for the investors. Among these funds, equity
diversified fund is considered as a substitute for direct stock market investment. In this research paper an
attempt has been made to analyze the performance of the growth oriented Large Cap Fund Schemes on the basis
of return and risk evaluation.The analysis was achieved through various financial tests like Average Return,
2
Sharpe Ratio, TreynorRatio, Standard Deviation, Beta and Coefficient of Determination (R ).The analysis
depicts that majority of funds selected for study have outperformed under Sharpe Ratio as well as Treynor Ratio.

1 2
Dr Vikas Choudhary Preeti Sehgal Chawla

Key Words: Mutual Funds, Average Return, Standard Deviation, Coefficient of Determination

Introduction
Investment is the sacrifice of certain present value for some uncertain future reward. In other words an investment can
be defined as commitment of funds to one or more assets that will be held over some future time period. Broadly, an
investment decision is a tradeoff between risk and return. A mutual fund is a special type of institution that acts as an
investment instrument. Apart from the many advantages that investing in mutual funds provide like diversification,
professional management, the ease of investment process has proved to be a major enabling factor. However, with the
introduction of innovative products, the world of mutual funds nowadays has a lot to offer to its investors. A mutual
fund is a pure intermediary that performs a basic function of buying and selling securities on behalf of its unit holders.
Mutual fund is a body corporate which pools up the resources from different types of investors and invests those funds
on behalf of the investors in diversified securities.In other words, a mutual fund allows an investor to take a position
indirectly in a basket of assets.
Literature Review
Anand, M.V. (2000) focused on to understand the position of the schemes of Birla Sun Life and the competitor's
schemes available in the market. The author analyzed the performance of equity fund for 3 years i.e. from 1997 to 2000
and did SWOT Analysis of Birla Sun Life by Literature survey, Delphi technique and In-depth financial review to
1
Professor & Head, Department of Humanities & Social Sciences, National Institute of Technology, Kurukshetra, author can be contacted at vc_hss@yahoo.com
2
Research Scholar, Department of Humanities & Social Sciences, National Institute of Technology, Kurukshetra, author can be contacted at sehgalpreeti36@gmail.com

29 Anvesha, Vol. 9 No. 3

identify among the selected equity funds that earns
higher returns than benchmark and competitors. The
author concluded that Birla Sun Life schemes perform
well compared to the benchmarks and competitors
schemes.
Lakshmi, N., Deo, Malabika and Murugesan, B.
(2008) studied the mutual fund schemes with growth
options launched in the year 1993 and continues to be in
operation under the regulated environment.
Performance in terms of net asset value (NAV) of
growth schemes were studied from April 1998 to March
2006. The authors used Pearson's Correlation, Auto
Correlation, Rank Correlation, Coefficient of
Determination, Kendall's Coefficient of Concordance,
Z test and the Capital Asset Pricing Model. The authors
concluded that the schemes selected for study
outperformed the market in terms of absolute returns
and the present net asset value of all the sample
schemes were positively and significantly correlated
with its past net asset value for all the time lags
signifying consistency in successive period returns.
Debasish, S.S. (2009) used risk return relationship
models and measures to study the performance of
growth oriented equity mutual funds. A total of 23
schemes offered by six private sector mutual funds and
three public sector mutual funds were studied from
April 1996 to March 2009. The analysis had been made
on the basis of Mean Return, Beta Risk, Coefficient of
Determination, Sharpe Ratio, Treynor Ratio and Jensen
Measure. The author found that on the basis of risk-
return relationship models, the top performers funds
were Franklin Templeton and UTI mutual fund whereas
Birla Sun Life, HDFC and LIC mutual funds showed
lower returns.
Aggarwal, R. and Mukhtar, W. (2010) covered 24
equity growth funds for the application of composite
portfolio performance measures like Treynor Ratio,
Sharpe Ratio, Jenson Measure, M square Measure and
Specific Ratio etc. The authors evaluated the asset
allocation policy for Kotak 30 growth mutual fund
using Sharpe optimization technique and confirmed
whether the asset allocation policy of professional fund
houses was in conformity with the results obtained by
application of Sharpe Optimization Technique. The
30
results obtained suggested the improper design of few
well known portfolios. So the authors concluded that
investors need to evaluate their own performance and
the performance of hired managers.
Bawa, S. and Brar, S. (2011) evaluated the
performance of a few selected growth mutual funds
schemes of India and compared the results of public
sector sponsored schemes with private sector schemes.
Two schemes from public sector, two from private
sector and one purely private have been studied. The
author concluded that the popularity of growth schemes
had only increased in the last decade both in terms of
AUM as well as in terms of number of schemes. The
research showed that private sector growth schemes
were ahead in giving the investors higher returns which
is why their AUM is much higher than the others. All
the private sector funds under study were giving returns
more or less in close proximity to their average returns.
Therefore, it seems that public sector growth schemes
were more unstable and unsystematic as compared to
private sector growth schemes in terms of their returns.
Nimalathasan, B. and Gandhi, R. (2012) focused on
the financial performance analysis of mutual fund
schemes (equity diversified schemes and equity mid-
cap schemes) of selected banks (State Bank of India,
Canara Bank- Public Bank, ICICI Bank, HDFC Bank-
Private Bank) from the period June 2008 May 2009.
The author concluded that among the Open ended Mid-
cap schemes HDFC Capital Builder had outperformed
the market on the basis of past performance analyzed by
using Treynor, Sharpe, Information ratio and Alpha
index whereas among the Open ended Equity
Diversified schemes CanaraRobeco Equity Diversified
is the most preferred and recommended.
Study Objectives
To study the performance of Selected Large
Cap Mutual Funds in India.
To compare the performance of Selected Large
Cap Mutual Funds in India.
Research Methodology
The period of the study is 8 Years i.e. from 2005-2013.
The study uses a sample of 8 mutual fund schemes
comprising of all Large Cap mutual funds. To gain an
Anvesha, Vol. 9 No. 3
overview of the current performance trends of the
Indian mutual fund industry, secondary data have been
used and collected from the fact sheets, newspapers,
journals, books and periodicals. The data were also
collected from various websites of AMCs, AMFI,
moneycontrol.com etc. The NAVs of the sample mutual
fund schemes have been collected on monthly basis
over a period of eight years. BSE Sensex has been used
as a benchmark for performance evaluation of different
schemes and provides the time series data over a fairly
long period of time.Further, the monthly yields on 91-
day treasury bills of Government of India have been
used as a surrogate for risk free rate. To analyze whether
mutual funds under-perform or over perform the
market index, the following statistical methods and
techniques have been used:
I For Risk Analysis
Standard deviation (Total Risk), Beta (Systematic
Risk) andCoefficient of Determinationwere calculated.
II For Return Analysis
Average Return was calculated for analysing return on
mutual funds.
III Performance Evaluation by Risk Adjusted
Measures
For this purpose, Sharpe Ratio and Treynor Ratio were
calculated.
IV Analysis of Data
(i) Average Returns
The performance evaluation is done by comparing the
returns of a mutual fund scheme with returns of a
benchmark portfolio. In this study, the returns have
been called as average returns. Average return is
obtained by taking the simple mean of monthly returns,
whereby monthly returns are calculated by using the
NAVs of the mutual fund scheme.
(ii) Standard Deviation (SD)
Its significance lays in the fact that sample is free from
defects of sampling, it measures the absolute
dispersion, the greater the SD; greater will be
magnitude of the deviation of the values from their
mean. Small SD means high degree of uniformity &
homogeneity of a series. The total risk is measured in
31
terms of standard deviation.
(iii) Beta
Beta is a fairly commonly used measure of risk. It
basically indicates the level of volatility associated
with the fund as compared to the benchmark. The
success of beta is heavily dependent on the correlation
between a fund and its benchmark. If the fund portfolio
doesn't have relevant benchmark index then the beta
would be inadequate. A beta that is greater than one
means that fund is more volatile than the benchmark,
while a beta of less than one means that the fund is less
volatile than the index. A fund with a beta very close to
1 means the fund's performance closely matches the
index or benchmark.
(iv) Coeffcient of Determination (R2 )
2
The R is measures of a securitys diversification in
2
relation to the market. The closer the R is to 1.00, the
more completely diversified the portfolio (Reilly and
2
Brown, 2003). R raning from 1 to 100 gives an idea
about how well a funds performance correlates with
that of the benchmark. An R 2 of 0 means thats returns
have no correlation with the market and an
R2 of 1.00 indicates that a funds returns are completely
in sync-up and down-with the benchmark (Contas and
Shin, 2006.)
(v) The Sharpe Measure
The Sharpe Ratio measures the fund's excess return per
unit of its risk (i.e. total risk). This ratio indicates the
relationship between the portfolio's additional return
over risk-free return and total risk of the portfolio,
which is measured in terms of standard deviation. A
high and positive Sharpe Ratio shows a superior risk-
adjusted performance of a fund while low and negative
Shape Ratio is an indication of unfavorable
performance. Generally, if Sharpe Ratio is greater than
the benchmark comparison, the fund's performance is
superior over the market and vice-versa. Symbolically,
it can be writtenas:
RP -Rf
Sp = p
Where
Sp Stands for Sharpe ratio of the mutual fund schemes
Anvesha, Vol. 9 No. 3
Rp Stands for average return on portfolio portfolio. RP -Rf
Tp = m
Rf Stands for average risk-free rate of return
P Stands for total risk or standard deviation of the
return of portfolio. Where ,
The benchmark comparison with this measure of Tm Stands for Treynor ratio of the benchmark
performance is portfolio
Rm-Rf
m Rm is the average return on the market
m is the market beta which is equal to 1.0
Where If the Treynor ratio is greater than the benchmark
Rm stands for average return on the market or comparison (Rm - Rf), than it can be said that the
benchmark portfolio portfolio has outperformed the market and indicates
m stands for the total risk on market superior risk-adjusted performance.

While a high and positive Sharpe Ratio shows a Results and Findings
superior risk adjusted performance of a fund, a low and (i) Performance in terms of average, Standard
2
negative Sharpe Ratio is an indication of unfavorable Deviation, Beta and R
performance.
The performance of selected funds is evaluted by
(iv) The Treynors Performance Index
using average return, standard deviation, Beta and
THE Treynor ratio measures the relationship between
R 2 Return alone should not be considered as the basis
fund's additional return over risk-free return and market
of measurement of the performance of a mutual fund
risk is measured by beta. The larger the value of Treynor
scheme, it should also include the risk taken by the fund
ratio, the better the portfolio has performed. Generally,
manager because different funds will have different
if the Treynor ratio is greater than the benchmark
levels of risk attached to them. Risk associated with a
comparison, the portfolio is supposed to have
fund, in general, can be defined as variability or
outperformed the market and indicates superior risk-
fluctuations in the returns generated by it. The higher
adjusted performance. Using the beta, rather than the
the fluctuations in the returns of a fund during a given
standard deviation (as in the Sharpe Index), we are
period, higher will be the risk associated with it.
assuming that the portfolio is a well diversified

Table 1.1
Return and Risk of Mutual Fund Schemes
1 2 3 4 5 6
Average Total Risk Beta R2
Sr.
Schemes Return (Std.
No.
(Monthly) Deviation)
1 SBI Magnum Large Cap Fund 0.0170 0.0888 0.0031 0.9000
2 Kotak 50 Fund 0.0151 0.0710 0.0020 0.9246
3 ING Core Fund 0.0143 0.0764 0.0007 0.9037
4 Escorts Growth Fund 0.0233 0.0884 0.0785 0.0073
5 Sahara Growth Fund 0.0144 0.0700 0.0015 0.8991
6 Baroda Pioneer Growth Fund 0.0150 0.0766 0.0009 0.9089
7 ING Large Cap Equity Fund 0.0135 0.0737 -0.0003 0.9599
8 BNP Paribas Equity Fund 0.0146 0.0836 0.0025 0.8894
Benchmark 0.0141 0.0768 1 1

32 Anvesha, Vol. 9 No. 3

Note: R 2 is a coefficient of detemination for a
portfolio
* indicates statistical significance at the five percent
level.
An analysis of column 3 in Table 1.1 reveals that in case
of sevenout of eight Large Cap Mutual Funds schemes
selected for studyhave earned higher returns (average
returns and average annual returns) in comparison to
their benchmark portfolio returns. The top performers
in terms of returns areSBI Magnum Large Cap Fund,
Kotak 50 Fund, ING Core Fund, Escorts Growth Plan
Fund, Sahara Growth Fund, Baroda Pioneer Growth
Fund and BNP Paribas Equity Fund. The remaining
fund i.e. ING Large Cap Equity Fund had shown
inferior returns than the market returns and has been
unsuccessful in beating the market.Thus, it is important
to note that a significant majority of selected mutual
funds schemes have shown superior returns than the
market returns.
Column 4 of Table 1.1 presents the total risk of the
selected mutual fund schemes. The total risk of three
schemes of Large Cap mutual funds was higher than the
corresponding market risk. There was no risk in
remaining fiveschemes of Large Cap mutual funds in
terms of total risk because the standard deviations of all
the funds were less as compared to corresponding
market risk. SBI Magnum Large Cap Fund, Escorts
Growth Plan Fundand BNP Paribas Equity Fund have
experienced higher variability and hence were more
risky than the market. The remaining five schemes i.e.
Kotak 50 Fund, ING Core Fund, Sahara Growth Fund,
Baroda Pioneer Growth Fund and ING Large Cap
Equity Fundhave shown low total risk than the market,
thereby indicating superior performance in terms of
total risk.
The systematic risks (i.e. beta) of all eight Large Cap
mutual fund schemes have been shown in Column 5 of
Table 1.1. In all the schemes it may be noted that the
betas were in range of 0.0007 to 0.0785. Seven out of
eight funds have beta less than one (i.e. market beta)
implying that these schemes tended to hold portfolios
that were less risky than the market portfolio. The
remaining one fund was highly risky due to negative
beta value.
33
The coefficients of determination have been shown in
column 6 of Table 1.1.The analysis reveals that the
maximum and minimum values of R2 were found in
case of ING Large Cap Equity Fund (0.9599) and
Escorts Growth Plan Fund (0.0073) respectively.
2
The low value of R indicates less diversification of the
2
portfolio. High value of R in case fund of ING Large
Cap Equity Fund, SBI Magnum Large Cap Fund, Kotak
50 Fund, ING Core Fund and Baroda Pioneer Growth
Fundshowed higher diversification of the portfolio that
shows market variability and said to have reasonably
exploited the diversification strategy. The minimum
value of R 2 was fund in one fund i.e. Escorts Growth
Plan fund which is not well diversified. In nutshell, In
nutshell, seven out of eight schemes have R2 clower to
1 which indicates well diversification.
(i) Performance in terms of Sharpe Ratio
The Sharpe Ratio measures the fund's excess return per
unit of its risk (i.e. total risk). This ratio indicates the
relationship between the portfolio's additional return
over risk-free return and total risk of the portfolio,
which is measured in terms of standard deviation.The
results of the Sharpe Ratios of the selected mutual fund
schemes compared with the benchmark portfolio have
been presented below in Table 1.2:
A high and positive Sharpe Ratio shows a superior risk-
adjusted performance of a fund while low and negative
Shape Ratio is an indication of unfavorable
performance. Generally, if Sharpe Ratio is greater than
the benchmark comparison, the fund's performance is
superior over the market and vice-versa. The table 1.2
shows that fiveout of eight funds selected for the study
have greater value than the Sharpe Ratio benchmark
which shows their superior performance. Top
performing funds as per Sharpe Ratio analysis are SBI
Magnum Large Cap Fund, Kotak 50 Fund, ING Core
Fund, Sahara Growth Fund and Baroda Pioneer Growth
Fund.The Sharpe Ratios of three funds i.e.Escorts
Growth Plan Fund, ING Large Cap Equity Fund and
BNP Paribas Equity Fund were less than the benchmark
comparison and the fund's performance was also
inferior and unfavorable. Thus, it can be concluded that
the performance of majority of the selected mutual
fundsunder study in terms of Sharpe Ratio have been
Anvesha, Vol. 9 No. 3
 Table 1.2
Sharpe Ratios of Mutual Fund Schemes-Growth Option

1 2 3
Sr. No Schemes Sharpe Ratio
1 SBI Magnum Large Cap Fund 0.1462
2 Kotak 50 Fund 0.1450
3 ING Core Fund 0.1150
4 Escorts Growth Plan Fund 0.1002
5 Sahara Growth Fund 0.1273
6 Baroda Pioneer Growth Fund 0.1225
7 ING Large Cap Equity Fund 0.1007
8 BNP Paribas Equity Fund 0.1084
Sharpe Ratio of BSE Sensex 0.1116

satisfactory and have outperformed the market index
during the study period.
Treynor Ratio measures the relationship between fund's
additional return over risk-free return and market risk is
measured by beta. The higher the value of Treynor ratio,
the better is the performance of portfolio. Generally, if
the Treynor Ratio is greater than the benchmark
comparison, the portfolio is supposed to have
outperformed the market and indicates superior risk-
adjusted performance. The table 1.3above presents the
results of Treynor Ratio from the selected mutual fund
schemes with their respective benchmark portfolios.
The analysis reveals that all the selected Large Cap
mutualfundshave greater value in terms of Treynor
Ratio than the benchmark performance which
showsthat the portfolio has outperformed the market
and indicates the superior risk-adjusted performance.
Thus, it can be concluded that the performance of allthe
selected mutual funds under study in terms of Treynor
Ratiohave been satisfactory and have outperformed the
market.
Conclusion
In India, innumerable mutual fund schemes are
available to general investors which generally
confound them to pick the best out of them. The present
study has compared the various Large Cap mutual
fundsthat provide some insights on mutual fund
performance so as to assist the common investors in
taking the rational investment decisions for allocating
their resources in correct mutual fund scheme. The data

(iii) Performance in terms of Treynor Ratio

The performance in terms of Treynor Ratio is depicted in Table 1.3 below:
Table 1.3
Treynor Ratios of Mutual Fund Schemes-Growth Option
1 2 3
Sr. No Schemes Treynor Ratio
1 SBI Magnum Large Cap Fund 0.0118
2 Kotak 50 Fund 0.0108
3 ING Core Fund 0.0092
4 Escorts Growth Plan Fund 0.0895
5 Sahara Growth Fund 0.0103
6 Baroda Pioneer Growth Fund 0.0098
7 ING Large Cap Equity Fund 0.0086
8 BNP Paribas Equity Fund 0.0120
Treynor Ratio of BSE Sensex 0.0086

34 Anvesha, Vol. 9 No. 3

employed in the study consisted of monthly NAVs for
the open-ended schemes. The study utilized benchmark
portfolios according to the scheme objective such as
BSE Sensex for all growth/equity schemes. The
performance of selected mutual fund schemes have
been evaluated in terms of return and risk analysis, and
risk adjusted performance measures such as Sharpe
ratio and Treynor ratio. In nut shell, the performance of
mutual fund in terms of Average returns, majority of
Large Capschemes under study have shown higher and
superior returns. In terms of standard deviation, five
funds are said to be less risky than the market. Out of
eight funds, seven funds have beta less than one and
positive which imply that they were less risky than the
market portfolio and one fund showed negativebeta.
Further, in terms of coefficient of determination (R2),
almost sevenfunds were near to one which indicates
higher diversification of portfolio. Five out of eight
funds have shown superior performance under the
Sharpe Ratio and all eightfunds have shown superior
performance under Treynor Ratio.
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