1

Performance Evaluation of Indian Mutual Funds

Dr S Narayan Rao Associate Professor of Finance Shailesh J Mehta School of Management Indian Institute of Technology Bombay Powai, Mumbai-400 076 Ph. 91-22-2572 2545 Extension: 7744 Fax: 91-22-2572 2872 e-mail: narayan@som.iitb.ac.in

And M Ravindran, Manager Tata Power Company Ltd

Performance Evaluation of Indian Mutual Funds

Abstract
In this paper the performance evaluation of Indian mutual funds in a bear market is carried out through relative performance index, risk-return analysis, Treynors ratio, Sharps ratio, Sharps measure, Jensens measure, and Famas measure .The data used is monthly closing NAVs. The source of data is website of Association of Mutual Funds in India (AMFI). Study period is September 98-April 02(bear period). We started with a sample of 269 open ended schemes (out of total schemes of 433) for computing relative performance index. Then after excluding the funds whose returns are less than risk-free returns, 58 schemes were used for further analysis. Mean monthly (logarithmic) return and risk of the sample mutual fund schemes during the period were 0.59% and 7.10%, respectively, compared to similar statistics of 0.14% and 8.57% for market portfolio. The results of performance measures suggest that most of the mutual fund schemes in the sample of 58 were able to satisfy investors expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk. JEL: G23 Keywords: mutual funds, performance evaluation, risk-return analysis

I. Introduction
The mutual fund industry in India began with setting up of the Unit Trust of India (UTI) in 1964 by the Government of India. During last 36 years, UTI has grown to be a dominant player in the industry with assets of over Rs.52000 crores (Rs.520 billion) as of December 2001. In 1987 public sector banks and two Insurance companies (Life Insurance Company and General insurance company) were allowed to launch mutual funds. Securities and Exchange Board of India (SEBI), regulatory body for Indian capital market, formulated comprehensive regulatory framework for Mutual Funds in 1993 and allowed private corporate bodies to launch mutual fund schemes. Since then several mutual funds have been set up by the private and joint sectors. As on March 2002, there were 35 mutual fund companies with 433 schemes and assets under management were Rs.100594 (Rs.1005 billion). It has been about a decade of competition for Indian mutual fund industry.

3 Indian mutual funds contribute 0.18% to net assets kitty, 0.55% to the number of schemes at global level and we have a long way to catch up with the developed world. The Product Life Cycle of Indian Mutual fund is in growth stage. The performance of mutual funds receives a great deal of attention from both practitioners and academics. With an aggregate investment of over $11 trillion worldwide and over $20 billion in India, the investing publics interest in identifying successful fund managers is understandable. From an academic perspective, the goal of identifying superior fund managers is interesting as it encourages development and application of new models and theories. The idea behind performance evaluation is to find the returns provided by the individual schemes and the risk levels at which they are delivered in comparison with the market and the risk free rates. It is also our aim to identify the out-performers. The objective of the study is to evaluate the performance of Indian Mutual Fund Schemes in a bear market using: relative performance index risk-return analysis Treynors ratio Sharpes ratio Sharpes measure Jensens measure Famas measure

II. Data description

Out of the 433 schemes as on 31st March 2002, 311 are open ended, 87 are close ended and 35 are assured return type. The fund managers are not interested in assured return schemes due to stringent SEBI (Securities and Exchange Board of India, Regulatory body of Indian Capital Markets) regulations and hence are excluded from our study. Out of 87 close-ended schemes only 4 are actively traded and others are inactive. Out of the 311 open-ended schemes 269 are at least 1 year old and selected for the evaluation. Thus, initial sample size is 269 open-ended schemes. Study period is from September 1998 to April 2002. The logarithmic returns are computed from monthly closing NAVs obtained from AMFIs (Association of Mutual Funds in India) website. The NAVs are considered appropriate for the open-ended schemes as purchase and sale prices are linked to NAVs. Based on relative performance index all the schemes which could not provide returns equal to above risk-free returns are excluded from the sample and the remaining sample of 58 open ended schemes are subjected to further analysis.

III. Methodology
Relative Performance Index (RPI) Relative Performance Index is defined as the ratio of the unadjusted percentage NAV growth and the percentage change in BSE Sensex.
RPI = (Current NAV Face Value) Face Value (Current BSE.Sensex BSE Sensexat issuetime) BSE Sensexat issuetime (1)

However RPI calculated as above will result in negative values for a mutual fund scheme with positive return against the bear market. Hence we amend above formula as in (2):
RPI ( Adjusted ) = %Change in Scheme NAV + 2 X %Change in Sensex + X % Change in Sensex (2)

5 where X% is the actual change in the sensex. The RPI calculations are applied to 269 sample schemes. Expected return from a scheme can be expressed as RPI x market return. Hence a scheme with RPI equal to 5, is expected to give an annual return of 8.4% (1.68 multiplied by 5) which is the risk free rate, with the mean monthly market return during the study period at 0.14% (1.68% annualized). We restricted further analysis to schemes with RPI greater than 5 as the investor expects at least risk-free returns.

Return
For each mutual fund scheme under study, the monthly returns are computed as:

ri = ln(ending NAV / begning NAV )

(3)

The market returns are computed on similar lines with BSE Sensex (The Bombay Stock Exchange Sensitive Index) as benchmark. The return on the market portfolio is computed as: rm = ln(ending sensex / begining sensex) (4)

The logarithmic mean is computed to obtain mean monthly market return. The returns thus obtained are absolute returns and are retained throughout the study.
Risk

Standard deviation: Measure of Total Risk Financial analysts and statisticians prefer to use a quantitative risk surrogate called the
1 n variance of returns, denoted by Var(r) = [ri ram ] n t =1
2

(5) ram = mean rate of return (6)

Where ri = return on individual mutual fund unit.

The square root of the variance is called the standard deviation = Var (r ).

6 The standard deviation and the variance are equally acceptable and equivalent quantitative measures of an assets total risk. The variance and standard deviation are computed from logarithmic monthly returns. Beta: Measure of Systematic Risk To obtain the measure of systematic risk (Beta) of the mutual fund scheme, Market Model is applied. The mathematical form of the model is:
rP = + * rm + e p Where, rp is the return on the mutual fund scheme, rm is the return on the market, is the intercept, is the slope or the beta coefficient, ep is the error term. (7)

Higher values of indicate a high sensitivity of fund returns against market returns; the lower value indicates low sensitivity. Higher values are desired for the mutual funds during bull phase of the market and lower values are desired during the bear phase to out perform the market. The error term ep is an approximation for unique risk. There are unequal sample observations and non-identical time periods for the selected mutual fund schemes. It is assumed that beta is stationary during the period. The constants and are computed through regression analysis by regressing the monthly market return with the monthly mutual fund return. The regression also provides the value of r2 (coefficient of determination) that gives the strength of co-relation between the market and the fund returns and indicates the extent of diversification. Co-efficient of Determination: Measure of Diversification The potential advantage of mutual fund investment is the diversification of portfolio. Diversification reduces the unique or unsystematic or diversifiable risk and thus improves the performance. The diversification extent can be measured by the value of coefficient of determination (r2). A low r2 value indicates the fund has large scope for diversification. A

7 comparison of diversification degree and unique risk is made for clarity.

Risk-less asset

By definition, a risk less asset has zero variability of returns. If an investor buys an asset at the beginning of the holding period with the known terminal value, such type of asset can be called as risk-less or risk free asset. Government securities and nationalized bank deposits fall under this category. As the government securities are not easily available to the common man, we take the nationalized bank deposits as the risk free asset and the interest rate on such deposits are considered as risk free return. Further, Guptas study (1991) on Indian Share Owners reveals that 91.4% of house holds (sample 5822) perceives that nationalized bank deposits are absolutely safe. It is a common perception of the mutual fund investor to expect a return higher than the bank rate but lesser than the stock market. A study by Ajay Shah and Susan Thomas(1994), assumed bank deposit rates as risk-free rate.
Treynors Ratio

Jack Treynor (1965) conceived an index of portfolio performance measure called as reward to volatility ratio, based on systematic risk defined in equation (8). He assumes that the investor can eliminate unsystematic risk by holding a diversified portfolio. Hence his performance measure denoted as TP is the excess return over the risk free rate per unit of systematic risk, in other words it indicates risk premium per unit of systematic risk.
TP = r r Risk Pr emium = p f P Systematic Risk Index (8) risk free return and P = Beta

where TP = Treynors Ratio, rP = portfolio return, rf =

coefficient for portfolio. As the market beta is 1, Treynors index TP for benchmark portfolio is (rm-rf) where rm = market return. If TP of the mutual fund scheme is greater than (rm-rf), then the scheme has out performed the market.

8 The major limitation of the Treynor Index is that it can be applied to the schemes with positive betas during the bull phase of the market. The results will mislead if applied during bear phase of the market to the schemes with negative betas. The second limitation is it ignores the reward for unsystematic or unique risk.

Sharpes Ratio
William F.Sharpe (1966) devised an index of portfolio performance measure, referred to as reward to variability ratio denoted by SP defined in equation (9). He assumes that a small investor invests fully in the mutual fund and does not hold any portfolio to eliminate unsystematic risk and hence demands a premium for the total risk.
SP = Risk Pr emium rp rf = TotalRisk P

(9)

where SP = Sharpes Ratio, rP = portfolio return, rf = risk free return, and P = standard deviation of portfolio returns. The SP for benchmark portfolio is

rm r f

where m = standard

deviation of market returns. If SP of the mutual fund scheme is greater than that of the market portfolio, the fund has out performed the market. The superiority of the Sharpe ratio over the Treynor ratio is, it considers the point whether investors are reasonably rewarded for the total risk in comparison to the market. A mutual fund scheme with a relatively large unique risk may outperform the market in Treynors index and may under perform the market in Sharpe ratio. A mutual fund scheme with large Treynor ratio and low Sharpe ratio can be concluded to have relatively larger unique risk. Thus the two indices rank the schemes differently. The major limitation of the Sharpe ratio is that it is based on the Capital Market Line (CML). The major character of the capital market line is only the efficient portfolios can be

9 plotted on the CML but not inefficient. Hence we assume that a managed portfolio (mutual fund scheme) is an efficient portfolio.

Sharpe Measure
Sharpe (1963) suggested that, it is possible to consider the return for each security to be represented by the following equation:
rp = + * rm + e

(10) where rp= expected return, = intercept, = beta coefficient, rm = expected market return, e=error term with a zero mean and constant standard deviation. Sharpe noted that the variance explained by the index could be referred as the systematic risk and the unexplained variance is called residual or unsystematic risk. Sharpe suggests that systematic risk and unsystematic risk for a security can be quantified as: Systematic risk (11) Unsystematic risk (Unique risk) (12) Where Var(ri)= Variance of mutual fund scheme return, Var(rm)= Variance of market return, = Var(ri) - 2 x Var(rm) = 2 x Var(rm)

= beta coefficient of the scheme. A well diversified fund is expected to have lower
unsystematic risk.

Jensens Measure
Sharpe and Treynor ratios rely mainly on ranking of portfolios in comparison to the market portfolio. They are unable to answer question like: Has fund given more than/less than/ equal to expected returns? Hence there is a need for a better performance measure. Michael C.Jensen (1968) has given different dimension and confined his attention to the problem of evaluating a fund managers ability of providing higher returns to the

10 investors. He measures the performance as the excess return provided by the portfolio over the expected (CAPM) returns. The performance measure, denoted by JP is defined in equation (13). He assumes that the investor expects at least CAPM returns.

J P = Portfolio. Re turn CAPM . Re turn = rP {r f + P (rm r f (13)

)}

where JP = Jensons measure for portfolio, rP = portfolio return, rf = risk free return , and P = beta coefficient of the portfolio. A positive value of JP would indicate that the scheme has provided a higher return over the CAPM return and lies above Security Market Line (SML) and a negative value would indicate it has provided a lower than expected returns and lies below SML. The Jensen model assumes that the portfolio is fully invested and is subjected to the limitations of CAPM.
Famas Measure

Jensens measure computes excess returns over expected returns based on premium for systematic risk. Eugene F Fama (1972) goes a step ahead, he suggests to measure fund performance in terms of excess returns over expected returns based on premium for total risk. In other words, the excess returns are computed based on Capital Market Line (CML).

Fama breaks down the observed return into four components: i) ii) iii) iv) Risk-free return Compensation for systematic risk Compensation for inadequate diversification Net superior returns due to selectivity r f. (rm-rf) (rm-rf){(p/m)-()} (rp-rf)-(p/m) (rm-rf)

The second and third measures indicate the impact of diversification and market risk. By altering systematic and unique risk a portfolio can be reshuffled to get the desired return.

11 Fama says the portfolio performance can be judged by the net superior returns due to selectivity. His performance measure denoted by FP is defined in equation (14).

FP = Portfolio Re turn Riskfree return Re turns due to all risks

.... = (rP r f ) P m rm r f

(14)

where FP =Famas measure for portfolio, rP =portfolio return, rf =risk free return, P = standard deviation of the portfolio returns & m =standard deviation of the market returns. A positive value for FP indicates that the fund earned returns higher than expected returns and lies above CML, and a negative value indicates that the fund earned returns less than expected returns and lies below CML. The purpose of performance evaluation is that it should be in a position to identify the mistakes and suggest a direction for the correction. A comparison of Sharpes and Treynors ratios will help the fund managers to correct their actions from risk angle and comparison of Jensens and Famas measures will help from return angle.
Methodological Limitations of the Study:

The present study has the following limitations: 1. The NAVs used in the study are obtained from AMFIs website, which in turn is supplied by the members. Members in turn have not followed any uniform rule in its computation due to the flexibilities offered under SEBI regulations. 2. Initially all mutual fund schemes were directly linked to stock market. In the recent 2 years numerous schemes which are independent of stock market (debt & money market funds) are introduced and such schemes returns need not have corelation with BSE sensex, and the sensex is not adjusted for dividends. 3. Banks are free to accept deposits at any interest within the ceilings fixed by Reserve Bank of India and interest rates can vary from client to client. Hence there can be an inaccuracy in the risk-free rates.

12 4. The analysis is not free from the limitations of non-identical time periods and unequal sample observations. 5. The study excludes the effect of entry and exit loads of the mutual funds.

IV Results &Analysis
Relative Performance Index

Relative performance indices for 269 mutual fund schemes are computed. On the basis of RPI analysis we classified the 269 schemes into: i) under performers (returns less than 2%) ii) schemes with returns of 2%-5%, iii) schemes with returns 6%-8.4%, iv) schemes with returns 8.5% and above. The returns are derived from RPI and summarized in Table -I take in Table-I
Observations:

The Medium Term Debt Funds can be rated as the best performers. All the 36 funds out performed the market, with 18 of them giving returns of 8.5%& above.

InfoTech Equity Funds are the worst performers with 8 out of 12 under performing, and none giving returns of 8.5% and above.

Out of 103 equity based schemes, 40 are under performers, 31 are par performers with 23 giving returns of 8.5% and above. This shows that some fund managers were able to diversify the risks and maximize returns under bear market.

We will now consider only those schemes with RPI greater than 5 that gave returns at risk free rates and above for detailed analysis.
Risk-Return Analysis:

Table-II shows that 12 schemes gave negative returns, and the remaining 46 gave positive returns. From the systematic risk point of view () 37 schemes are of low risk, 11 are of below average risk, 10 are of average risk and none of them are in above average risk and

13 high risk class. take in Table II

Table-III shows that the total risk of a mutual fund is of above average type. It conveys that the total risk is above average with low market risk and the mutual funds risk diversification is very poor. Out of the 58 schemes, 31 are at one extreme of high risk and 19 are at other extreme of low risk and only 8 are in between. Out of 31 high risky schemes 10 gave net losses and all the19 low risky schemes out performed the market. take in Table-III Table-4 gives the values of rp, , and t values (for beta) of the sample schemes. The average mutual fund with its mean monthly return of 0.59% at total risk level () of 7.10% has out performed the market with 0.14% return at a risk level of 8.57%. For 31 schemes beta values are significant as suggested by the t-values. take in Table-IV A look at Table-V reveals that the debt funds have performed better. Among the equity funds, diversified and balanced funds have performed better. This is expected in a bear market. take in Table-V A look at Table-VI reveals that out of 58 schemes 8 have under performed the market, 25 are found to have higher total risk than the market and only 32 schemes have given returns higher than the risk free rates. The 58 mutual fund schemes under study can be located in the 2X2 risk-return matrix in relation with the benchmark portfolio. take in Table-VI The 2X2 matrix is given in Table-VII. The matrix gives a clear idea of the risk-return relationship of all the sample schemes in relation to the benchmark portfolio. The investor

14 can link his investment strategies to the quadrants on the lines of BCG matrix. take in Table-VII A look at Table-8 shows that the 34 schemes are with positive Treynors ratio and 32 are with positive Sharpes ratio. The limitation of Treynors ratio with negative is tested for 4 schemes and that of Sharpes index with low values tested for 2 schemes. The indices suggest that fund manager has to improve diversification.

A look at the Sharpe Measures results in Table-VIII reveals that the average unique risk is very high (Var=0.0067, =8.19%) with low degree of diversification at 11.64%. The fund managers have large scope to improve diversification and thus the performance. take in Table-VIII A look at Table-IX suggests that 37 schemes have provided excess returns over CAPM returns against the fact that only 32 schemes providing excess returns over the risk free rates. Jensen model suffers from limitation of CAPM as rm<rf. The Fama model results show that impact compensation is positive for 13 schemes and the inadequate diversification compensation is positive for 4 schemes. However the net superior returns due to selectivity is positive for 48 schemes. This is due to the fact rm<rf during the period under study. take in Table-IX

V Conclusions
The objective of this study was to evaluate the performance of Indian Mutual Fund Schemes during bear market through relative performance index (RPI), risk- return analysis, Treynors ratio, Sharpes ratio, Sharps measure, Jensens measure, and Famas measure. The conclusions are as follows:

15
RPI Analysis:

Out of 269 schemes, 49 were under performers, 102 were par performers and 118 were out performers of the market. Medium Term Debt Funds were the best. Some equity funds were able to diversify the risks and maximize the returns in the bear market.
Statistical risk-return analysis

The average mutual fund was found with low unsystematic and high total risk. Out 58 sample schemes 12 schemes gave negative returns and 46 gave positive returns, with only 30 giving excess returns over the risk free rates. Medium term debt funds were the out performers.
Treynor's Ratio

32 out of 58 schemes were found with positive Treynors ratio and the limitation of this model with negative was observed for 4 schemes.
Sharpes Ratio

30 out of 58 schemes were found with positive Sharpes ratio and the limitation of this model with low was observed for 2 schemes.
Sharpes Measure

The unsystematic or unique risk of mutual fund is very high and this is due to low values, poor co-relation with the market and the fact is confirmed by low values of r2.
Jensens Measure

35 schemes of 58 schemes have provided positive Jensen measure against only 30 providing excess returns over the risk free rates and this is due to the low CAPM returns with rm<rf.

16
Famas Measure:

Positive beta compensation was found on 13 schemes for systematic risk, 4 schemes for unsystematic risk. However 46 schemes found with positive Famas net superior returns due to selectivity. The deviation is again due to the fact that rm<rf. It can be concluded that 58 of 269 open ended mutual funds have provided better returns than the market during the bear period of September 98-April 2002, some of the funds provided excess returns over expected returns based on both premium for systematic risk and total risk.

17

References
Gupta L.C, Indian share owners: A survey, Society for Capital Market Research and development, 1991, p.92. Shah Ajay and Thomas Susan, Performance Evaluation of Professional Portfolio Management in India, Center for Monitoring Indian Economy, (working paper) April, 1994. Jack L. Treynor, How to rate Management of Investment Funds, Harvard Business Review, 43, No.1, (January-February, 1965), pp. 63-75. William F. Sharpe, Mutual Fund Performance, Journal of Business, 39, No.1, (January 1966), pp. 119-138. Sharpe W.F, A simplified Model for Portfolio Analysis, Management science 9. (January 1963), pp.277-293. Michael C. Jensen, The Performance of Mutual Funds in the period 1945-1964, Journal of Finance, 23, No.2, (May 1968), pp. 389-416. Eugene Fama, Components of Investment Performance, Journal of Finance, 27, (June 1972), pp. 551-567. Mutual Fund Year Book-2000, Joint Publication of Association of Mutual funds in India and UTI Institute of Capital Markets, 2001, pp. 29-139.

18
Table I : Results of RPI Analysis Scheme Type Equity (Diversified) Equity (Tax Planning) Equity (InfoTech) Equity (Pharma) Equity (FMCG) Equity (Speciality) Balanced Funds Debt: Medium Term Debt: Marginal Equity Debt: Short Term Debt: Gilt Medium & ST Debt: Gilt Short Term Money Market Total Underperformers 22 5 8 0 2 3 8 0 0 1 0 0 0 49 Annual Returns (%) 2-5 15 5 2 3 1 5 18 9 7 23 8 5 1 102 6-8.4 4 2 2 0 0 1 2 9 7 9 18 6 0 60 8.5 & >8.5 13 6 0 0 0 4 8 18 1 5 2 0 1 58 Total 54 18 12 3 3 13 36 36 15 38 28 11 2 269

Table II :Risk () and return of Mutual Funds (No. of Schemes) Above Avg. High Risk Total Average Low Risk Below Risk 0.9><1.1 Risk <0.3 Avg. Risk Risk Monthly 0.3><0.5 0.5><0.7 0.7><0.9 Return (%) 5 2 5 0 0 12 <0 0 0 0 0 0 0 0-0.2 2 0 2 0 0 4 0.21-0.4 3 0 0 0 0 3 0.41-0.60 7 0 0 0 0 7 0.61-0.80 6 2 1 0 0 9 0.81-1.0 12 3 2 0 0 17 1.01-2.00 2 4 0 0 0 6 2.01-2.80 37 11 10 0 0 58 Total Table III :Risk (Variance) and Return of Mutual Funds (No.of Schemes)

Risk Monthly Return (%) <0 0-0.2 0.21-0.4 0.41-0.60 0.61-0.80 0.81-1.0 1.01-2.00 2.01-2.80 Total

Low Risk Below 2<0.0009 Avg. Risk 0.0009> 2<0.0015

0 0 1 2 3 3 10 0 19 1 0 0 0 0 0 0 0 1

Average Risk 0.0015> 2<0.0022

0 0 1 0 0 2 1 0 4

Above Avg. High Risk Total Risk 2>0.0036 0.0022> 2<0.0036

1 0 0 0 0 0 1 1 3 10 0 2 1 4 4 5 5 31 12 4 3 7 9 17 6 58

19
Table IV :Scheme Details rp, , and t-value No.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58

Scheme
Alliance Equity Fund Birla Advantage Kothari Pioneer Blue Chip Kothari Pioneer Prime Kothari Pioneer Prima Plus Prudential ICICI Growth Plan Reliance growth Reliance Vision Sundaram Growth Templeton India Growth UTI PEF Unit Scheme Zurich India Equity Zurich India Top 200 Fund Alliance Capital Tax relief 96 Birla equity Plan BoB ELSS 96 Kothari Pioneer Tax shield Tata Tax Saving Fund Zurich India Tax saver Birla MNC JM Basic UTI Petro UTI Services Sector Alliance'95 Fund Canpremium JM Balanced (G) Kothari Pioneer Pension Plan Tata Balanced Unit Scheme 95 UTI Retirement Benefit Plan Zurich India Prudence Alliance Liquid income JM Liquid Fund-G Birla income plus Chola Triple Ace Templeton India Income DSPML Bond Tata Income-G Zurich India High Interest IDBI Principal Deposit-EA/EB-G Chola Freedom Income JF India Bond Sundaram Bond Saver Reliance Income Escorts Income Plan Prudential ICICI income plan UTI Bond LIC Bond PNB Debt Kothari Pioneer CAP Alliance Cash Manger Dundee Liquidity JM High Liquidity-G Prudential ICICI Liquid Plan Templeton India Liquid K Gilt '98 Investment Plan Templeton India GSF

rp
0.0218 0.0140 0.0048 -0.0012 0.0222 0.0109 0.0159 0.0175 0.0039 0.0118 0.0110 0.0081 0.0022 0.0087 -0.0419 -0.0255 0.0268 -0.0110 -0.0096 -0.0106 -0.0079 -0.0087 -0.0005 0.0210 0.0038 0.0086 0.0092 -0.0203 -0.0163 0.0032 0.0077 0.0055 0.0042 0.0219 0.0102 0.0110 0.0108 0.0095 0.0111 0.0089 0.0098 0.0110 0.0110 0.0110 0.0098 0.0120 0.0095 0.0218 0.0151 0.0106 0.0066 0.0072 0.0078 0.0070 0.0070 0.0143 -0.0062

0.0932 0.1462 0.0705 0.1105 0.0596 0.0272 0.0904 0.1178 0.0871 0.0921 0.0748 0.1070 0.0815 0.1442 0.1049 0.0935 0.1026 0.1779 0.0683 0.1452 0.1540 0.2313 0.1606 0.1068 0.0438 0.0833 0.0187 0.1651 0.0603 0.0245 0.1202 0.0190 0.0159 0.1217 0.0052 0.0552 0.0073 0.0350 0.0992 0.0037 0.0050 0.0108 0.0407 0.0240 0.0612 0.0061 0.0358 0.0565 0.0130 0.0275 0.0787 0.0309 0.0019 0.0047 0.0632 0.0201 0.0120

0.4297 0.4203 0.2928 0.7134 0.3154 0.0549 0.3792 0.6242 0.5687 0.6318 0.4525 0.4625 0.6522 0.6896 0.4937 0.6711 0.4855 0.7242 0.2925 0.4198 0.5902 0.1256 0.6592 0.4940 0.1855 0.4107 0.0948 0.6290 0.0129 0.1323 0.1056 0.0032 0.1152 0.1152 0.0133 -0.1029 0.0308 -0.0854 0.1244 0.0140 0.0069 0.0132 -0.0491 0.0467 0.0789 0.0349 0.0311 0.0841 0.0779 -0.0516 -0.1452 -0.0149 -0.0015 -0.0174 -0.0523 -0.0181 -0.0224 -0.0004 0.2525

t-value
2.7531** 1.6282 2.4379** 3.4285** 3.2571** 1.1255 2.4667** 3.2642** 4.3230** 4.6530** 3.7875** 2.0843** 3.6994** 2.3449** 2.1657** 3.8689** 2.6165** 2.1938** 1.9229* 1.2831 1.8072* 0.2357 1.8982 2.7157* 2.4941* 2.9849* 3.0832* 1.7155* 0.0887 3.2961** 0.3971 0.0937 0.5076 0.5076 1.4130 -1.0358 2.4943** -1.3711 0.5463 1.5410 0.7370 0.6769 -0.6464 0.5637 0.5568 1.8014* 0.4772 0.6690 2.9750** -1.0011 -0.5595 -0.2074 -0.3459 -1.6356 -0.3448 -0.4057 -0.7254 -0.0284

Open Ended: Equity: Diversified

Equity: Savings

Equity: Speciality

Balanced Funds

Debt Funds: Medium Term

Debt Funds: Marginal Equity Debt Funds: Short Term

Debt Funds: Gilt MT & LT Money Market Funds

UTI MM Mutual Fund 0.0073 0.0081 Average values 0.0059 0.0710 **t-values significant at 5%, * t-values significant at 10% confidence levels

20

Table V : Risk and Return-Investment Scheme Objective Wise

Category Equity Diversified Equity Tax savings Equity Speciality Balanced Funds Debt Funds: MT Debt Funds: Marginal Equity Debt Funds ST Debt Funds: Gilt MT&LT Money Market Funds Funds
13 6 4 8 18 1 5 2 1

Average Return %
1.10 -0.87 -0.69 0.21 1.13 1.06 0.71 0.40 0.73

Average Risk % ()
8.91 11.52 17.28 7.78 3.42 2.75 3.59 1.61 0.81

Systemati c risk
0.4614 0.5594 0.4487 0.2581 0.0307 -0.0516 -0.0463 -0.0203 -0.0004

21
Table VI : Risk & Return: Mutual Funds Vs Bench Mark Portfolio
S.No Funds Open Ended: Equity: Diversified 1 Alliance Equity Fund 2 Birla Advantage 3 Kothari Pioneer Blue Chip 4 Kothari Pioneer Prime 5 Kothari Pioneer Prima Plus 6 Prudential ICICI Growth Plan 7 Reliance growth 8 Reliance Vision 9 Sundaram Growth 10 Templeton India Growth 11 UTI PEF Unit Scheme 12 Zurich India Equity 13 Zurich India Top 200 Fund Equity: Savings 14 Alliance Capital Tax relief 96 15 Birla equity Plan 16 BoB ELSS 96 17 Kothari Pioneer Tax shield 18 Tata Tax Saving Fund 19 Zurich India Tax saver
Equity: Speciality 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57

rp 0.0218 0.0140 0.0048 -0.0012 0.0222 0.0109 0.0159 0.0175 0.0039 0.0118 0.0110 0.0081 0.0022 0.0087 -0.0419 -0.0255 0.0268 -0.0110 -0.0096 -0.0106 -0.0079 -0.0087 -0.0005 0.0210 0.0038 0.0086 0.0092 -0.0203 -0.0163 0.0032 0.0077 0.0055 0.0042 0.0219 0.0102 0.0110 0.0108 0.0095 0.0111 0.0089 0.0098 0.0110 0.0110 0.0110 0.0098 0.0120 0.0095 0.0218 0.0151 0.0106 0.0066 0.0072 0.0078 0.0070 0.0070 0.0143 -0.0062 0.0073

p 0.0932 0.1462 0.0705 0.1105 0.0596 0.0272 0.0904 0.1178 0.0871 0.0921 0.0748 0.1070 0.0815 0.1442 0.1049 0.0935 0.1026 0.1779 0.0683 0.1452 0.1540 0.2313 0.1606 0.1068 0.0438 0.0833 0.0187 0.1651 0.0603 0.0245 0.1202 0.0190 0.0159 0.1217 0.0052 0.0552 0.0073 0.0350 0.0992 0.0037 0.0050 0.0108 0.0407 0.0240 0.0612 0.0061 0.0358 0.0565 0.0130 0.0275 0.0787 0.0309 0.0019 0.0047 0.0632 0.0201 0.0120 0.0081

rm 0.0014 0.0014 0.0014 -0.0116 0.0014 0.0014 0.0014 0.0014 0.0014 0.0014 0.0019 -0.0123 -0.0205 -0.0123 -0.0166 -0.0002 -0.0002 -0.0143 -0.0169 -0.0099 -0.0149 -0.0149 0.0038 0.0014 0.0014 0.0014 -0.0193 -0.0143 0.0039 -0.0123 0.0014 0.0014 -0.0001 0.0038 0.0014 0.0014 0.0014 -0.0149 -0.0124 0.0019 0.0014 0.0019 -0.0065 -0.0169 -0.0065 0.0014 -0.0099 -0.0193 -0.0001 -0.0113 -0.0169 -0.0099 -0.0143 -0.0143 -0.0118 -0.0124 0.0039

m 0.0857 0.0857 0.0857 0.0853 0.0857 0.0857 0.0857 0.0857 0.0857 0.0857 0.0865 0.0823 0.0821 0.0823 0.0874 0.0874 0.0865 0.0865 0.0886 0.0860 0.0843 0.0850 0.0850 0.0853 0.0857 0.0857 0.0857 0.0867 0.0886 0.0864 0.0823 0.0857 0.0857 0.0866 0.0853 0.0857 0.0857 0.0857 0.0850 0.0883 0.0865 0.0857 0.0865 0.0718 0.0860 0.0718 0.0857 0.0843 0.0867 0.0866 0.0729 0.0860 0.0843 0.0886 0.0886 0.0864 0.0883 0.0864

rf 0.00908 0.00908 0.00908 0.00867 0.00908 0.00908 0.00908 0.00908 0.00908 0.00908 0.00908 0.00867 0.00785 0.00867 0.00785 0.00785 0.00867 0.00867 0.00785 0.00867 0.00867 0.00867 0.00867 0.00908 0.00908 0.00908 0.00908 0.00867 0.00785 0.00908 0.00867 0.00908 0.00908 0.00908 0.00908 0.00908 0.00908 0.00908 0.00867 0.00785 0.00908 0.00908 0.00908 0.00785 0.00867 0.00785 0.00908 0.00785 0.00867 0.00908 0.00785 0.00867 0.00867 0.00785 0.00785 0.00867 0.00785 0.00908

Birla MNC JM Basic UTI Petro UTI Services Sector

Balanced Funds

Alliance'95 Fund Canpremium JM Balanced (G) Kothari Pioneer Pension Plan Tata Balanced Unit Scheme 95 UTI Retirement Benefit Plan Zurich India Prudence
Debt Funds: Medium Term

Alliance Liquid income JM Liquid Fund-G Birla income plus Chola Triple Ace Templeton India Income DSPML Bond Tata Income-G Zurich India High Interest IDBI Principal Deposit-EA/EB Chola Freedom Income JF India Bond Sundaram Bond Saver Reliance Income Escorts Income Plan Prudential ICICI income plan UTI Bond LIC Bond PNB Debt
Debt Funds: Marginal Equity

Kothari Pioneer CAP

Debt Funds: Short Term

Alliance Cash Manger Dundee Liquidity JM High Liquidity-G Prudential ICICI Liquid Plan Templeton India Liquid
Debt Funds: Gilt MT & LT

K Gilt '98 Investment Plan Templeton India GSF

Money Market Funds 58 UTI MM Mutual Fund Legend: rp is the mean monthly MF return. rm is the mean monthly market return.

p is the standard deviation of MF returns. m is the standard deviation of market returns.

22
Table VII : Risk-Return Grid Diagram
rp>rm, p< m
1.Kothari Pioneer Blue Chip 2.Kothari Pioneer Prima Plus 3.Prudential ICICI Growth plan 4.Templeton India Growth 6.Zurich India Top 200 fund 7.Zurich India tax saver 8.Can Premium 9.JM balanced 10.Kothari Pioneer Pension Plan 11.Alliance liquid income 12.JM Liquid Fund-G 13.Chola Triple ace 14.Templeton Income 15.DSPML Bond 16.Tata Income-G 17.IDBI Principal deposit EA/EB-G 18.Chola freedom Income 19.JF India Bond 20.sundaram Bond saver 21.Reliance income 22.Escorts Income Plan 23.Prudential ICICI Income 24.UTI Bond 25.LIC Bond 26.PNB debt 27.Kothari Pioneer CAP 28.Dundee Liquidity 29.JM High Liquidity 30.Prudential ICICI Liquid Plan 31.Templeton India Liquid 32.K Gilt98 Investment Plan 33.Templeton India GSF 34.UTI Money Market Fund

rp>rm,

p> m

1.Alliance Equity Fund 2.Birla advantage 3.Kothari Pioneer Pension 4.Reliance Growth 5.Reliance Vision 6.Sundaram Growth 7.Zurich India Equity 8.Alliance Capital tax Relief 96 9.Kothari Pioneer Tax shield 10.birla MNC 11.JM Basic 12.UTI Petro 13.UTI services Sector 14.Alliance 95 Fund 15.Zurich India Prudence 16.Birla Income Plus 17.Zurich India High Interest 18.Alliance Cash Manager

RETURN

High

rp<rm,
Low

p< m

rp<rm,
1.BOB ELSS 96 2.Tata Tax saving fund 3.Tata balanced 4. Birla Equity Plan

p> m

1.Unit scheme 95 2.UTI Retirement Benefit Plan Low

RISK

High

23

Table VIII :Treynor & Sharpe Ratios and Unique Risk &Diversification Extent
S.No Scheme Treynor Ratio Sharpe Ratio Sharpe Measure Unique Risk 0.007 0.020 0.004 0.009 0.003 0.001 0.007 0.011 0.005 0.006 0.004 0.010 0.004 0.017 0.009 0.005 0.009 0.028 0.004 0.020 0.021 0.053 0.023 0.010 0.002 0.006 0.000 0.024 0.004 0.001 0.014 0.000 0.000 0.015 0.000 0.003 0.000 0.001 0.010 0.000 0.000 0.000 0.002 0.001 0.004 0.000 0.001 0.003 0.000 0.001 0.006 0.001 0.000 0.000 0.004 0.000 0.000 0.000 0.0067 r2 0.156 0.061 0.127 0.303 0.206 0.030 0.129 0.206 0.313 0.346 0.274 0.127 0.432 0.155 0.169 0.394 0.168 0.124 0.144 0.062 0.105 0.002 0.122 0.156 0.132 0.179 0.188 0.109 0.000 0.218 0.005 0.000 0.007 0.007 0.048 0.026 0.132 0.044 0.011 0.111 0.014 0.011 0.011 0.020 0.012 0.170 0.006 0.016 0.269 0.026 0.018 0.002 0.004 0.108 0.005 0.006 0.027 0.000 0.1164

Open Ended: Equity: Diversified 1 Alliance Equity Fund 2 Birla Advantage 3 Kothari Pioneer Blue Chip 4 Kothari Pioneer Prime 5 Kothari Pioneer Prima Plus 6 Prudential ICICI Growth Plan 7 Reliance growth 8 Reliance Vision 9 Sundaram Growth 10 Templeton India Growth 11 UTI PEF Unit Scheme 12 Zurich India Equity 13 Zurich India Top 200 Fund Equity: Savings 14 Alliance Capital Tax relief96 15 Birla equity Plan 16 BoB ELSS 96 17 Kothari Pioneer Tax shield 18 Tata Tax Saving Fund 19 Zurich India Tax saver Equity: Speciality 20 Birla MNC 21 JM Basic 22 UTI Petro 23 UTI Services Sector Balanced Funds 24 Alliance'95 Fund 25 Canpremium 26 JM Balanced (G) 27 Kothari Pioneer Pension Plan 28 Tata Balanced 29 Unit Scheme 95 30 UTI Retirement Benefit Plan 31 Zurich India Prudence Debt Funds: Medium Term 32 Alliance Liquid income 33 JM Liquid Fund-G 34 Birla income plus 35 Chola Triple Ace 36 Templeton India Income 37 DSPML Bond 38 Tata Income-G 39 Zurich India High Interest 40 IDBI Principal Deposit-EA/EB 41 Chola Freedom Income 42 JF India Bond 43 Sundaram Bond Saver 44 Reliance Income 45 Escorts Income Plan 46 Prudential ICICI income plan 47 UTI Bond 48 LIC Bond 49 PNB Debt Debt Funds: Marginal Equity 50 Kothari Pioneer CAP Debt Funds: Short Term 51 Alliance Cash Manger 52 Dundee Liquidity 53 JM High Liquidity-G 54 Prudential ICICI Liquid Plan 55 Templeton India Liquid Debt Funds: Gilt MT & LT 56 K Gilt '98 Investment Plan 57 Templeton India GSF Money Market Funds 58 UTI MM Mutual Fund Average values Legend: BM-Bench mark portfolio (BSE Sensex)

Fund 0.030 0.012 -0.015 -0.014 0.042 0.034 0.018 0.014 -0.009 0.004 0.004 -0.001 -0.009 0.000 -0.101 -0.050 0.037 -0.027 -0.060 -0.046 -0.028 -0.138 -0.014 0.024 -0.029 -0.001 0.002 -0.046 -1.872 -0.045 -0.009 -1.107 -0.042 0.112 0.082 -0.018 0.056 -0.005 0.019 0.074 0.102 0.143 -0.040 0.068 0.015 0.118 0.013 0.166 0.082 -0.029 0.009 0.097 0.577 0.049 0.016 -0.311 0.629 4.585

BM -0.008 -0.008 -0.008 -0.020 -0.008 -0.008 -0.008 -0.008 -0.008 -0.008 -0.007 -0.021 -0.028 -0.021 -0.025 -0.025 -0.009 -0.009 -0.022 -0.026 -0.019 -0.024 -0.024 -0.005 -0.008 -0.008 -0.008 -0.028 -0.022 -0.005 -0.021 -0.008 -0.008 -0.009 -0.005 -0.008 -0.008 -0.008 -0.024 -0.020 -0.007 -0.008 -0.007 -0.014 -0.026 -0.014 -0.008 -0.018 -0.028 -0.009 -0.019 -0.026 -0.019 -0.022 -0.022 -0.021 -0.020 -0.005

Fund 0.137 0.034 -0.060 -0.090 0.220 0.068 0.075 0.072 -0.060 0.029 0.026 -0.005 -0.070 0.000 -0.475 -0.357 0.177 -0.110 -0.256 -0.133 -0.108 -0.075 -0.057 0.112 -0.121 -0.006 0.009 -0.175 -0.400 -0.242 -0.008 -0.186 -0.306 0.105 0.210 0.034 0.239 0.013 0.024 0.277 0.140 0.174 0.048 0.133 0.019 0.677 0.011 0.246 0.491 0.055 -0.016 -0.047 -0.456 -0.182 -0.013 0.281 -1.172 -0.226

BM -0.089 -0.089 -0.089 -0.238 -0.089 -0.089 -0.089 -0.089 -0.089 -0.089 -0.083 -0.255 -0.346 -0.255 -0.280 -0.280 -0.103 -0.103 -0.251 -0.297 -0.220 -0.277 -0.277 -0.062 -0.089 -0.089 -0.089 -0.322 -0.251 -0.060 -0.255 -0.089 -0.089 -0.106 -0.062 -0.089 -0.089 -0.089 -0.277 -0.229 -0.083 -0.089 -0.083 -0.200 -0.297 -0.200 -0.089 -0.211 -0.322 -0.106 -0.263 -0.297 -0.220 -0.251 -0.251 -0.238 -0.229 -0.060

24

Table IX :Jensen & Fama Measures

S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Fund Open Ended: Equity: Diversified Alliance Equity Fund Birla Advantage Kothari Pioneer Blue Chip Kothari Pioneer Prime Kothari Pioneer Prima Plus Prudential ICICI Growth Plan Reliance growth Reliance Vision Sundaram Growth Templeton India Growth UTI PEF Unit Scheme Zurich India Equity Zurich India Top 200 Fund Alliance Capital Tax relief 96 Birla equity Plan BoB ELSS 96 Kothari Pioneer Tax shield Tata Tax Saving Fund Zurich India Tax saver Equity: Speciality Birla MNC JM Basic UTI Petro UTI Services Sector Balanced Funds Alliance'95 Fund Canpremium JM Balanced (G) Kothari Pioneer Pension Plan Tata Balanced Unit Scheme 95 UTI Retirement Benefit Plan Zurich India Prudence Debt Funds: Medium Term Alliance Liquid income JM Liquid Fund-G Birla income plus Chola Triple Ace Templeton India Income DSPML Bond Tata Income-G Jensen Measure r 0.016 0.008 -0.002 0.005 0.016 0.002 0.010 0.013 -0.001 0.008 0.005 0.009 0.013 0.015 -0.038 -0.017 0.023 -0.013 -0.011 -0.009 -0.006 -0.014 0.006 0.015 -0.004 0.003 0.001 -0.011 -0.024 -0.005 0.001 -0.004 -0.004 0.014 0.001 0.001 0.002 -0.000 0.005 0.001 0.001 0.002 0.002 0.004 0.003 0.005 0.001 0.015 0.009 0.001 -0.004 -0.002 -0.001 -0.001 -0.002 0.005 -0.015 -0.002 -0.003 -0.003 -0.002 -0.015 -0.002 -0.000 -0.003 -0.005 -0.005 -0.005 -0.003 -0.010 -0.019 -0.015 -0.012 -0.016 -0.004 -0.006 -0.007 -0.011 -0.011 -0.003 -0.016 -0.003 -0.001 -0.003 -0.001 -0.018 -0.000 -0.001 -0.002 0.000 -0.001 -0.001 -0.000 0.001 -0.000 0.001 -0.003 -0.000 0.000 -0.000 0.000 -0.001 -0.002 -0.001 -0.000 -0.002 -0.002 0.001 0.003 0.000 0.000 0.000 0.001 0.000 0.001 0.000 Fama Measure rid -0.005 -0.010 -0.004 -0.012 0.003 -0.002 -0.005 -0.006 -0.003 0.004 -0.003 -0.018 -0.010 -0.022 -0.017 -0.010 -0.006 -0.012 -0.011 -0.032 -0.023 -0.061 -0.029 -0.004 -0.003 -0.004 -0.001 -0.036 -0.015 0.001 -0.029 -0.002 -0.001 -0.012 -0.000 -0.006 -0.000 -0.004 -0.025 0.000 -0.000 -0.001 -0.004 -0.004 -0.016 -0.000 -0.003 -0.010 -0.002 -0.003 -0.023 -0.010 -0.000 -0.002 -0.017 -0.005 -0.003 -0.001 FP 0.021 0.018 0.002 0.016 0.019 0.004 0.015 0.019 0.003 0.011 0.008 0.027 0.025 0.037 -0.020 -0.007 0.029 -0.001 -0.000 0.024 0.017 0.047 0.035 0.019 -0.001 0.007 0.002 0.024 -0.009 -0.005 0.030 -0.002 -0.004 0.026 0.001 0.007 0.002 0.004 0.030 0.001 0.001 0.003 0.005 0.008 0.019 0.005 0.004 0.026 0.011 0.004 0.019 0.008 -0.000 0.000 0.015 0.010 -0.011 -0.001

39 Zurich India High Interest 40 IDBI Principal Deposit-EA/EB-G 41 Chola Freedom Income 42 JF India Bond 43 Sundaram Bond Saver 44 Reliance Income 45 Escorts Income Plan 46 Prudential ICICI income plan 47 UTI Bond 48 LIC Bond 49 PNB Debt Debt Funds: Marginal Equity 50 Kothari Pioneer CAP Debt Funds: short Term 51 Alliance Cash Manger 52 Dundee Liquidity 53 JM High Liquidity-G 54 Prudential ICICI Liquid Plan 55 Templeton India Liquid Debt Funds: Gilt MT & LT 56 K Gilt '98 Investment Plan 57 Templeton India GSF Money Market Funds 58 UTI MM Mutual Fund Legend: rp is the mean return on the MF. rf is the risk free return r is the compensation for beta impact.rid is the compensation for inadequate diversification.