Performance of Indian Mutual Funds Using VaR
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Transcript of Performance of Indian Mutual Funds Using VaR
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Analysis of performance of Indian mutual funds
using VaR as a measure of Risk
Submitted By :
Akshaya Pandey
Y9125002
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Acknowledgements
I am sincerely thankful to Prof. B.V. Phani who guided me through the study. His Insightful
questions, suggestions on different facets of my study were extremely helpful in coming up
with the report. I would also like to thank my colleague Mr. Rajeev Ranjan for helping me
throughout the study, discussing various issues and giving their suggestions at various stages
of the study. Last but not the least; I would like to extend my sense of gratitude to IME
Department, IIT Kanpur for providing me resources and opportunity to work on this project.
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Table of ContentsExecutive Summary ............................................................................................................................. 1
Methodology ....................................................................................................................................... 2
Introduction ........................................................................................................................................ 4
What are mutual funds? ................................................................................................................. 4
Types of Mutual Funds .................................................................................................................... 5
Performance Measurement of Mutual Funds in India ....................................................................... 6
The Treynor Measure ...................................................................................................................... 7
The Sharpe Measure ....................................................................................................................... 7
What is Value at Risk ........................................................................................................................... 8
Hypothesis........................................................................................................................................... 9
Model to Estimate VaR ..................................................................................................................... 10
Assumptions .................................................................................................................................. 10
Model ............................................................................................................................................ 10
Maximum Likelihood Approach .................................................................................................... 11
Testing of the Model ..................................................................................................................... 11
Limitations ........................................................................................................................................ 13
Results ............................................................................................................................................... 14
Appendix I : Large Cap Funds ............................................................................................................ 16
Appendix II : Mid Cap Funds ............................................................................................................. 17
Appendix III: Closed Ended Funds ..................................................................................................... 18
Appendix IV: Dividend Yield Funds ................................................................................................... 19
References ........................................................................................................................................ 20
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List of Figures
Figure 1: Mutual Funds Operations .................................................................................................................. 4
Figure 2: Clasification of Mutual funds ............................................................................................................. 5
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List of Tables
Table 1: Large Cap Funds VaR ........................................................................................................................ 16
Table 2: Mid Cap Funds VaR ........................................................................................................................... 17
Table 3: Closed Ended Funds VaR................................................................................................................... 18Table 4 : Dividend Yield Funds VaR ................................................................................................................ 19
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Executive Summary
Since the 1990s when the mutual fund space opened up to the private sector, the industry
has traversed a long path, adapting itself continuously, to the changes that have come
along. Growth in Assets Under Management (AUM) experienced has been unprecedented,
growing at a CAGR of 28% over the last four years, slowing down only over the last twoyears, as a fallout of the global economic slowdown and financial crisis. average assets
under management indicated vibrant growth levels posting a y-o-y growth of 47% in 2009-
10, and the total AUM stood at Rs 613,979 crore, as of March 31,2010. Aggregate funds
mobilized during the year also grew 84%, supplemented by around 174 new schemes
launched during April 2009 to March 2010. The investor base has also steadily expanded
and between November 2009 to March 2010, there was an addition of 60,834 investors.[1]
In todays volatile market environment, there is one major question in the investors mind, if
I invest in the mutual funds, what is maximum downside risk. This study aims to conductsan empirical study in order to analyze the weekly downside risks posed by the mutual funds.
It uses Value at Risk (VaR) as a measure in order to analyze the risks. This measure is
currently not being used by the mutual fund industry in India or elsewhere.
This is an empirical study of equity funds. For our purpose, we have considered four
categories, ie. Open ended Large Cap funds, Mid Cap funds, Closed Ended Funds, and
Dividend Yield Funds. The benchmarks that have been chosen are CNX Nifty and CNX Mid
Cap.
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Methodology
The classification of funds has been taken as per the valueresearchonlinemethodology
1
. The funds were categorized into four categories:o Large Cap Fundso Mid Cap Fundso Closed Ended Fundso Dividend Yield Funds
Due to the lack of sufficient historical data on closed ended funds in India (except forMorgan Stanley Growth Funds) for the time frame covered in our analysis, the Tax
saver funds(ELSS) are taken as proxy for the closed ended funds because of their 3-
years lock in Period.
In choosing a time span of historical data used for volatility, the first considerationshould be whether major market events from several years ago should be
influencing forecasts today. For example, including extreme events of the magnitude
of early months of 2008 or a 9/11 in a volatility estimating model will have the effect
of raising the long term volatility forecasts by several percentages. Thus, the period
from 1-Jan 2005 till 31-Dec-2007 was chosen for the purpose of the study.
Data for 2 years period, i.e., Periods 1-Jan-2005 to 31-Dec-2006 was taken toformulate the model and estimate the variance.
Data for Period from 1-Jan-2007 till 31-dec-2007 was taken to back test & verify themodel
When a mutual fund declares a dividend, the NAV of the fund decreases by theamount of dividend payout post the record date for dividend payout. In order to
prevent distortion of NAV due to impact of dividend declaration on the NAV only the
NAVs for Growth option was considered for purpose of our analysis.
The funds with AUM of over Rs 200 crores were chosen for our analysis. Thefollowing funds have been selected for our analysis:
o Diversified Large Cap Funds Fidelity Equity Fund Kotak 50 HSBC Equity Franklin India Blue Chip Fund UTI Equity Fund Taurus Starshare HDFC Equity Fund
o Diversified Mid Cap Funds1
Every fund company has its own method of differentiating between the categories. Hence, we havetaken the categorization done by valueresearchonline. For details refer.http://www.valueresearchonline.com/story/h2_storyView.asp?str=8548
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HSBC Mid Cap Fund Sundaram Select Mid Cap Reliance Growth Fund Kotak Mid Cap Fund ICICI Prudential Discovery Fund Tata Equity Opportunity Fund Sahara Mid Cap
o Closed Ended Funds Morgan Stanley Growth Fund Reliance Tax Saver Franklin India Taxshield Kotak Tax Saver Escorts Tax Plan Sundaram Taxsaver 98
o Dividend Yield Funds Tata Dividend Yield Fund Principal Dividend Yield Fund
The benchmark indices considered werea. Large Cap funds: CNX Niftyb. Mid Cap Funds: CNX Mid Cap
Returns(ui) for Week i are Calculated using Ui = Ln((Nav)t/(Nav)t-1 Standard Deviations are calculated using EMWA & Moving Average Model. EMWA:
Variance=(Variance)t-1* + (1-)*Ut-12
From the historical data, using the Maximum likelihood approach (determining theparameter values which maximize the chance for event to occur), the value for was
estimated with the help of Excel solver.
Moving Average variance was calculated for previous 8 weeks using formula = ( + . . +)/
Finally, the Variance was used to estimate the future VaR for 1 week. Back testing was done by comparing the estimated VaR at 95% confidence level and
99% confidence level with the actual fluctuations in the mutual fund NaV.
Since, the returns from mutual funds for any two periods are independent of eachother; Bernoullis trial approach was used to estimate the expected failure count and
results were compared with the actual frequency of failures.
On successful validation of the model, the future estimate for 1 week VaR at 95%confidence level is calculated.
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Introduction
What are mutual funds?
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. It is essentially a diversified portfolio of financial instruments - thesecould be equities, debentures / bonds or money market instruments. The corpus of the fund
is then deployed by the Asset Management Company (AMC)in investment alternatives that
help to meet predefined investment objectives. The income earned through these
investments and the capital appreciation realised are shared by its unit holders in
proportion to the number of units owned by them.[1]
Figure 1: Mutual Funds Operations
The key reason advantage for an investor to invest through the mutual fund routes is that a
typical individual is unlikely to have the knowledge, skills, inclination and time to keep track
of events, understand their implications and act speedily. An individual also finds it difficult
to keep track of ownership of his assets, investments, brokerage dues and bank transactions
etc. A mutual fund is the answer to all these situations. It appoints professionally qualified
and experienced personnel who manage each of these functions on a full time basis. The
large pool of money collected in the fund allows it to hire such staff at a very low cost to
each investor. In effect, the mutual fund vehicle exploits economies of scale in all three
areas - research, investments and transaction processing.[1]
Investors
AMC
Securities
(Stocks, Bonds etc)
Returns
Pool their money
Invests the money.Generates
Passed back to
investors.
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Types of Mutual Funds
Mutual Fund schemes can be predominantly classified as per the following diagram.[1]
Figure 2: Clasification of Mutual funds
By Structure:
Open-ended Funds: The open-end schemes are available for subscription all through the
year. These do not have a fixed maturity. Investors can conveniently buy and sell units at
Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.
Closed-ended Funds: The closed-end schemes have a stipulated maturity period which
generally ranges from 3 to 15 years. The schemes are open for subscription only during a
specified period. Investors can invest in the scheme at the time of the initial public issue andthereafter they can buy or sell the units of the scheme on the stock exchanges where they
are listed. In order to provide an exit route to the investors, some close-ended funds give an
option of selling back the units to the Mutual Fund through periodic repurchase at NAV
related prices.
By Investment Objective:
Equity/Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to long- term.Such schemes normally invest a majority of their corpus in equities. It has been proven that
Structure
Open
Ended
Closed
Ended
Investment Objective
Equity
Balanced
Debt
Special Scheme
ELSS
Sector
Funds
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returns from stocks, have outperformed most other kind of investments held over the long
term. Growth schemes are ideal for investors having a long-term outlook seeking growth
over a period of time.
Debt Funds: The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds, corporate
debentures and Government securities. Income Funds are ideal for capital stability and
regular income.
Balanced Funds : The aim of balanced funds is to provide both growth and regular income.
Such schemes periodically distribute a part of their earning and invest both in equities and
fixed income securities in the proportion indicated in their offer documents. In a rising stock
market, the NAV of these schemes may not normally keep pace, or fall equally when the
market falls. These are ideal for investors looking for a combination of income and
moderate growth.
Special Schemes
Tax Saving Schemes(ELSS): These schemes offer tax rebates to the investors under specific
provisions of the Indian Income Tax laws as the Government offers tax incentives for
investment in specified avenues. The investments in these funds are subject to a lock in
period of 3 years,
Sectoral Schemes: Sectoral Funds are those, which invest exclusively in a specified industry
or a group of industries such as Infrastructure Funds, IT funds, FMCG funds etc.
Performance Measurement of Mutual Funds in India
The value of a mutual fund is determined by its NAV( Net Asset Value). Net Asset Value is
the market value of the assets of the scheme minus its liabilities. It is the net asset value of
the scheme divided by the number of units outstanding on the Valuation Date. Thus, if there
is an appreciation in the NAV of a mutual fund scheme, it is generating positive returns for
the investors. In case, there is a decline in the NAV of a mutual fund, there is a negativereturn for the investor.
Currently, Indian Mutual funds industry focuses on parameters such as Treynor measure,
Sharpe ratio, benchmarking the mutual funds performance against some index or other
mutual funds etc as their performance evaluation criteria.[2]
Even some of the entities such as ICRA are involved in ranking and rating of mutual funds.
The parameters used by ICRA for evaluations of mutual funds performance and ranking are
given below[3]:
1. Risk-Adjusted Return
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2. Portfolio Concentration Characteristics3. Liquidity4. Corpus Size5. Average Maturity6. Portfolio Turnover Ratio
In order to determine the risk-adjusted return for mutual funds, the following are the most
common measures used:
The Treynor Measure
Treynor Index is a ratio of return generated by the fund over and above risk free rate of
return during a given period and systematic risk associated with its (beta). Symbolically, it
can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where,
Ri represents return on fund,
Rfis risk free rate of return
Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative
Treynor's Index is an indication of unfavourable performance.[3]
The Sharpe Measure
Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate
of return and the total risk (volatility), associated with it. According to Sharpe, it is the total
risk of the fund that the investors are concerned about. So, the model evaluates funds on
the basis of reward per unit of total risk. Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where,
Ri represents return on fund,
Rfis risk free rate of return
Si is standard deviation of the fund.
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While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavourable performance.[3]
Thus, the key focus is on determining the risk adjusted returns generated by the mutual
funds. In case funds generates extra return for the same amount of risk, or outperforms its
benchmark, category of funds, it is considered a better fund and rated higher. However,
they fail to focus on the max downside risk or rather max loss an investor of mutual funds
may incur over certain period of time. Thus, there is a need to include an additional measure
which is an indicator of the maximum loss/downside risk which an investor in the mutual
fund can be expected to face.
What is Value at Risk
Value at Risk (VaR) is defined as the expected maximum loss (or worst loss) over a target
time horizon within a given confidence interval. VaR is the loss over next N days which will
be exceeded only (100-X) % of the times. [4]
VaR is a function of two parameters:
Time horizon (N days):N-day VaR = 1 day Var * (N)
Confidence level (X %)Thus, VaR may be defined using the formula
Var(X%, t) = +
Where,
= estimate of Mean return
= estimate of standard deviation.
It is a useful measure of the worst case scenario for evaluating any investment opportunity
and has number of application in number of areas. Essentially, it provides the answer to
question, How bad the things can get?.[4]
Thus, VaR analysis is important to determine the maximum downside risk for the mutual
funds. For the funds, this measure should be calculated and compared with the benchmark
such as BSE Sensex, Nifty etc to evaluate the efficacy of the risk management practices of
the mutual funds industry in India.
The study uses two models to estimate the volatility of mutual funds, the moving average
and exponentially weighted moving average model. This volatility estimate is later used to
estimate the VaR for the mutual funds. Both the models rely upon the historical data to
estimate the future volatility and return, but the key difference is in the way they use thepast data. Once, volatility is estimated, it is used to determine the VaR for the mutual fund.
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Similar procedure is followed to estimate the VaR for the benchmarks. Finally, a comparison
of the two is done to arrive at the conclusion regarding the downside risk of the two.
HypothesisIf one goes through various articles and literature on the mutual funds industry, one
frequently comes across the following claims:
In mutual funds, stocks & portfolio selection is done by a dedicated team of expertshaving experience and expertise to manage funds, they are less risky way of
investing in markets. Also, by following an active investment strategy unlike the
benchmarks, these are able to outperform their benchmarks, as well as have a lower
downside risks.[5]
Large caps are well researched and information is more easily available. Mid caps onthe other hand have less transparent management and accounting practices. Also,
large caps are much more liquid than the small caps. Thus, large caps funds are safer
than mid-small caps funds and exhibit a lower downside risk.[6]
In case of open ended funds, due to constant pressure on the fund manager forredemptions, he has to maintain liquidity, thus have some idle cash. The redemption
pressure is generally higher during market decline and lower during bullish phase.
Thus the cash exposure depends on the market conditions. Thus, it provides a
downside cushion during market crashes due to higher cash levels. However, a
manager of closed ended fund does not face constant redemption pressures, thus
remains invested throughout the bull and bear phases of the market cycles.
Consequently, the idle cash available with him are lower than that of the open
ended fund. Due, to these the closed ended funds exhibit a greater volatility and
higher downside risks as compared to the open ended funds. Though, in longer time
frame, they generally outperform their open ended counterparts.[7]
In case of closed ended funds, it is generally seen that fund manager invests with alonger term perspective, thus, the portfolio is generally biased towards small/mid
cap stocks in the hope of generating greater returns in the longer run. However, it
can also results in a higher volatility, thus, higher downside risks to the funds.[7]
Dividend Yield funds invest in companies having higher dividend yields, which isgenerally due to better and more stable cash flows. These companies are less
volatile then the generally market. Thus funds investing in these companies are a
good defensive bet in market downturns and exhibit lower downside risks.[8]
Thus, we have formulated the following hypothesis which will be tested using our model.
H1: Mutual funds are able to manage downside risks better than their benchmarks
indices.
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H2: Large caps funds exhibit lower downside risks as compared to mid-cap funds.
H3: Closed ended funds exhibit higher downside risks as compared to open ended Funds.
H4: Dividend yield funds exhibit lower downside risk as compared to other diversified
equity funds.
Model to Estimate VaR
Assumptions
a. The returns from a mutual fund portfolio follow a normal distribution with a meanreturn of 0.
b. The return (ui) for any two days/period is independent of each other. That is, thereturn on Day 1 is independent of the return on Day 0.
c.
Historical data is a good predictor of the future.
Model
The study uses the following models to estimate the volatility of the returns using the
historical data.
Two models for volatility estimates have been considered:
a. Moving Averages: It gives equal weight to all the past data and is calculated on arolling basis.
n2
= ( 12
+ 22
+.(n-1)2
)/(n-1)
Since, mean returns are zero (from assumption), it translates into,
Where :
M number of days
r(i) = returns for ith day
For the purpose of this study, a rolling return for the past 8 weeks was used.
b. Exponentially Weighted Moving Average: It gives more weight age to recent data ascompared to the older data. Thus, is more responsive to the changes to volatility.
The parameter lambda (also called decay factor) isan indicator of the
responsiveness of the model to the recent changes. A low value of indicates that a
great deal of weight is given to the recent observations, i.e. Un-1. whereas a high
value of indicates that the volatility estimate responds more slowly to the recent
data. As per Risk Metrics document of JP Morgan, was estimated to be around
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.94.[10] However, for the purpose of our study, has been calculated using
Maximum likelihood Approach using the help of Excel solver.
n2=()*n-1
2+ (1-)*Un-1
2
Once, the volatility estimates have been estimate, the confidence level needs to be
determined. From the empirical studies, 95% confidence level is considered
appropriate for most cases [9].
Finally, the 1 week - VaR for 95% confidence level is calculated using:
VaR (X%, t) = +
Where,
= mean return = 0 (due to assumption 1)
= standard deviation.
Maximum Likelihood ApproachIt is a frequently used method used to estimate the parameters for the model defined above, in our
case lambda( ). It aims to maximize the likelihood/chance of the data occurring again.
We have a set of m observations for X ( our Mutual Fund NAV).Let us assume that the
observations are u1, u2, u3...un. We denote the variance by v.
The likelihood of ui being observed is defined as the probability density function for X when
X=ui. This is given by:
1/(sqrt(2**v)) * exp(-ui2/2v)
Thus, the likelihood of m observations being observed in the order of their
occurrence is given by:
[1/(sqrt(2**v)) * exp(-ui2/2v)]
Taking logarithm of the expression, we get,
[-ln(v)-ui2/v]
Thus, we try to estimate the value of parameter lambda such that the value of above
expression is maximized.
Testing of the Model
Model validation is necessary to determine the accuracy of the proposed. Various
ways of testing the model are available such as stress testing back testing.
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Backtesting is a formal statistical approach which involves verifying that the actual
losses are in line with the losses projected by the model. It involves systematically
comparing the history of VaR forecast with the associated actual returns.
Any observations which fall outside the VaR limit are known as exceptions. In case of
a well calibrated model, the number of exceptions should be in line with theconfidence interval. It basically implies that at a 95% confidence interval, for every
100 observations back tested, the number of exceptions should be 5. In case number
of exceptions is too high, it indicated that the mode underestimates the risk and
needs to be recalibrated.
One drawback of this model is that number of exceptions may not be exactly the
same as projected by the model, i.e. for a 95% confidence, we would expect the
number of exceptions to be 5%. However, the actual number of number exceptions
may be between 4%-8% due to various factors such as bad luck. It does not imply
that the model is incorrect. However, in some cases the number of exceptions maybe too high, such as 15%, in such cases the models needs to be revaluated and
calibrated.[9]
For the purpose of our study, the accuracy of the volatility and the model accuracy
were tested using the Bernouillis trial approach, ie, by recording the failure rate.
Failure rate gives the proportion of times the VaR is exceeded for a given sample.
= /
where,
X= Number of Failures
T= Total number of days for which tested.
A failure is said to have occurred if the actual loss for a given period is higher than
the estimated VaR for that period. Ideally, with the increase in the sample size,
failure rate should converge to p.[9]
=
Where
P = probability of failure
T = Number of Trials
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Limitations
The moving average models suffer form a downward bias and underestimatethe volatility. Also, they react slowly to the new data because the old data is
also given the same weight ( 1/N) for an N period moving average model.
The EWMA estimate for volatility is free from that bias but it tends to providetoo conservative estimates of VaR.
Tax Saver funds, though used as a proxy, are not closed ended funds in thetrue sense.
The universe of Mutual funds in India is too large over 600 funds, hence thesample set may be not be totally representative.
Sample set for dividend yield funds ( 2 funds) is too small. The mean returns from the mutual funds have been assumed to be 0 in our
modeling. Though, a small number it is not 0 in real data.
Some of the major Fund houses such as SBI MF, DSP BlackRock have not beencovered in our study.
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Results
In our analysis, the CNX Nifty exhibited a 1 week VaR of 4.59% at 95% confidence
level and 6.5% at 99% confidence level using the volatility estimates for Simple
Moving Average. When the EMWA estimate was used, the volatility estimates were
higher at 5.82% for 95% confidence level and 8.24% at 99% confidence level.(ReferAppendix I)
The large cap funds exhibited a 1 week VaR of 5.44% at 95% confidence level and
7.70% at 99% confidence level using the volatility estimates for Simple Moving
Average. When the EMWA estimate was used, the volatility estimates were higher at
6.80% for 95% confidence level and 9.63% at 99% confidence level.(Refer Appendix I)
Thus, from appendix I, one can clearly observe that as of a whole the diversified
large cap funds exhibited a higher 1 week VaR than the benchmark, CNX Nifty. Also,
all the funds considered under the large cap category exhibited a higher downside
risk than their benchmarks.
Thus, one may conclude that when VaR is used as a measure for evaluating the fund
performance, the large funds perform poorly as compared to their benchmark.
In our analysis, the CNX Mid Cap exhibited a 1 week VaR of 8.42% at 95% confidence
level and 11.92% at 99% confidence level using the volatility estimates for Simple
Moving Average. When the EMWA estimate was used, the volatility estimates were
higher at 6.91% for 95% confidence level and 9.79% at 99% confidence level.(Refer
Appendix II)
The mid cap funds exhibited a 1 week VaR of 6.46% at 95% confidence level and
9.15% at 99% confidence level using the volatility estimates for Simple Moving
Average. When the EMWA estimate was used, the volatility estimates were higher at
6.63% for 95% confidence level and 9.39% at 99% confidence level.(Refer Appendix
II)
Thus, from appendix II, one can clearly observe that as of a whole the diversified mid
cap funds exhibited a lower 1 week VaR than the benchmark, CNX Nifty. Also, all the
funds considered under the mid cap category exhibited a lower downside risk than
their benchmarks. The only outliers in the group were Sundaram Mid Cap fund and
JM Mid cap fund which exhibited a higher downside risk than their benchmark when
EMWA estimated for volatility were considered.
Thus, one may conclude that when VaR is used as a measure for evaluating the fund
performance, the mid cap funds perform better as compared to their benchmark.
Though, when compared with the large cap funds, they exhibit a higher downside
risk, which should be expected due to a higher concentration of mid cap stocks whichtend to have a higher volatility than the large caps.
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In case of Closed Ended Funds, the 1 week VaR was found to be of 6.08% at 95%
confidence level and 8.61% at 99% confidence level (Refer Appendix III) using the
volatility estimates for Simple Moving Average. When the EMWA estimate was used,
the volatility estimates were higher at 6.22% for 95% confidence level and 8.81% at99% confidence level.(Refer Appendix III). As group, the downside VaR exhibited by
the Closed Ended funds was higher than the benchmark, CNX Nifty. It was also higher
than the downside VaR exhibited by the open ended large cap funds.
Thus, one can conclude that the closed ended funds exhibit a higher downside risk
than the open ended funds. They perform poorly than the diversified large cap funds
when VaR is used as a measure.
The analysis of dividend yield funds yielded surprising results. They exhibited 1 week
VaR estimates of 7.43% and 10.52% at 95% and 99% confidence levels(Refer
Appendix IV) when volatility estimates were calculated using the Simple movingaverages. When estimates were calculated using the EMWA, the 1 week VaR at 95%
and 99% confidence interval were found to be 7.31% and 10.32%.Thus, as a group,
the dividend yield funds exhibited higher VaR than the diversified large cap funds
and closed ended funds. Also, the dividend yield funds fared worse than even the
mid cap funds and exhibited higher downside risks. Thus, the dividend yield funds
fare poorly when VaR is used as a performance measure.
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Appendix I : Large Cap Funds
Table 1: Large Cap Funds VaR
Result:
a. All the funds in the sample set exhibited higher downside risk as compared to theirbenchmarks.
b. Average downside risk exhibited by the funds was also higher than the benchmark.
Moving Avg Lower Risk than Benchmark EMWA Lower Risk than Benc
Large Cap Funds 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaRFidelity Equity Fund -4.95% -7.01% FALSE FALSE -5.85% -8.28% FALSE FALSE
Kotak 50 -5.37% -7.61% FALSE FALSE -7.08% -10.03% FALSE FALSE
HSBC Equity -4.62% -6.55% FALSE FALSE -6.27% -8.88% FALSE FALSE
Franklin Bluechip Fund -5.74% -8.13% FALSE FALSE -5.95% -8.43% FALSE FALSE
UTI Equity Fund -4.85% -6.87% FALSE FALSE -6.52% -9.24% FALSE FALSE
Taurus Starshare -7.10% -10.05% FALSE FALSE -9.11% -12.91% FALSE FALSE
HDFC Equity Fund Grow -5.35% -7.57% FALSE FALSE -6.77% -9.59% FALSE FALSE
Avg -5.43% -7.69% FALSE FALSE -6.79% -9.62% FALSE FALSE
Benchmarks
CNX Nifty -4.59% -6.50% -5.82% -8.24%
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Appendix II : Mid Cap Funds
Table 2: Mid Cap Funds VaR
Result
a. In case of moving averages, the downside risk exhibited by each of the fund wasbetter than its benchmark.
b. In case of EMWA estimate, except for Sundaram Mid Cap and JM Mid Cap, thedownside risk exhibited by the funds was better than their benchmark.
c. Average downside risks exhibited by the funds was also better than their benchmark.
Moving Avg Lower Risk than Benchmark EMWA Lower Risk than Benc
Mid Cap Funds 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaR
HSBC Mid Cap -5.38% -7.61% TRUE TRUE -6.30% -8.93% TRUE TRUE
Relaince Growth -5.30% -7.51% TRUE TRUE -6.62% -9.37% TRUE TRUE
Sundaram Mid Cap -7.00% -9.92% TRUE TRUE -7.67% -10.87% FALSE FALSE
Kotak Mid Cap -6.34% -8.98% TRUE TRUE -6.73% -9.53% TRUE TRUE
Tata Equity Opportuniti -5.60% -7.93% TRUE TRUE -6.54% -9.26% TRUE TRUE
ICICI Prudential Discove -7.04% -9.97% TRUE TRUE -6.14% -8.70% TRUE TRUE
Sahara Mid Cap Fund -7.18% -10.18% TRUE TRUE -5.63% -7.97% TRUE TRUEJM Mid Cap -7.85% -11.12% TRUE TRUE -7.41% -10.50% FALSE FALSE
Avg -6.46% -9.15% TRUE TRUE -6.63% -9.39% TRUE TRUE
CNX Mid Cap -8.42% -11.92% -6.91% -9.79%
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Appendix III: Closed Ended Funds
Table 3: Closed Ended Funds VaR
Result
a. As a group, they exhibit higher downside risk than Diversified Equity Funds whenMoving Average volatility estimates are taken.
b. As a group, they exhibit lower downside risk than Diversified Equity Funds whenEMWA volatility estimates are taken.
c. Exhibit higher downside risk than the Benchmark (CNX Nifty), in both cases, Movingaverage and EMWA estimates for volatility.
Moving Avg Lower Risk than Benchmark EMWA Lower Risk than Benc
Closed Ended Funds 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaRMorgan Stanley Growth -4.94% -7.00% FALSE FALSE -5.50% -7.79% TRUE TRUE
Reliance Tax Saver -7.21% -10.21% FALSE FALSE -5.89% -8.34% FALSE FALSE
Kotak Tax Advantage -6.69% -9.48% FALSE FALSE -5.77% -8.17% TRUE TRUE
Franklin India Taxshield -5.98% -8.47% FALSE FALSE -7.08% -10.03% FALSE FALSE
Escorts Tax Plan -5.55% -7.86% FALSE FALSE -6.88% -9.74% FALSE FALSE
Sundaram Taxsaver 98 -5.62% -7.96% FALSE FALSE -7.23% -10.25% FALSE FALSE
Avg -6.08% -8.61% FALSE FALSE -6.22% -8.81% FALSE FALSE
Benchmarks
CNX Nifty -4.59% -6.50% -5.82% -8.24%
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Appendix IV: Dividend Yield Funds
Table 4 : Dividend Yield Funds VaR
Result
a. Exhibit higher downside risk than the benchmark (CNX Nifty).b. Exhibit higher downside than the Diversified Equity Funds and Closed Ended Equity
Funds.
c. Exhibit the highest downside risk among all categories of funds covered underanalysis.
Moving Avg Lower Risk than Benchmark EMWA Lower Risk than Benc
Closed Ended Funds 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaR 95% VaR 99% VaR
Principal Dividend Yield -7.41% -10.49% FALSE FALSE -6.84% -9.68% FALSE FALSE
Tata Dividend Yield Fun -7.45% -10.55% FALSE FALSE -7.79% -11.04% FALSE FALSE
Avg -7.43% -10.52% FALSE FALSE -7.31% -10.36% FALSE FALSE
Benchmarks
CNX Nifty -4.59% -6.50% -5.82% -8.24%
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