PROJECT REPORT ON

Performance measures of different mutual funds

SUBMITTED TO : SUBMITTED BY :

PROF.ANIRUDDH DURAFE Ankit Gupta

MBA III SEM “A”

Devi Ahilya VishwaVidyalaya Indore (M.P)

ACKNOWLEDGEMENT

No academic task and especially, this project can be completed without able scholarly guidance. We take opportunity to extend our feelings of gratitude towards our project guide Prof. Aniruddh Durafe who helped us in accomplishing the task assigned. He is always ready to solve our problems that we faced during the process. Without that, our project would not have been what it is.We also thank Cerebral Heights Institute of Management &commerce for providing us with all facilities, scholarly advice and an excellent working atmosphere.

INTRODUCTION TO MUTUAL FUNDS:

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 appreciations realized are shared by its unit holders in

proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable

investment for the common man as it offers an opportunity to invest in a diversified,

professionally managed basket of securities at a relatively low cost.

The flow chart below describes broadly the working of a Mutual Fund.

A Mutual Fund is a body corporate registered with the Securities and Exchange Board of

India (SEBI) that pools up the money from individual/corporate investors and invests the

same on behalf of the investors/unit holders, in Equity shares, Government securities,

Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual

Fund allows investors to indirectly take a position in a basket of assets.

Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and

investing funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread among a wide cross-section of industries and sectors

thus the risk is reduced. Diversification reduces the risk because all stocks may not move in

the same direction in the same proportion at same time. Investors of mutual funds are

known as unit holders.

OBJECTIVES OF A MUTUAL FUND:

To Provide an opportunity for lower income groups to acquire without

Much difficulty, property in the form of shares.

To Cater mainly of the need of individual investors, whose means are small?

To Manage investors portfolio that provides regular income, growth,

Safety, liquidity, tax advantage, professional management and diversification.

STRUCTURE OF A MUTUAL FUND:

BENEFITS OF INVESTING IN MF

Diversification

Professional Management

Liquidity

Flexibility

Cost Effective

Well Regulated

EARNINGS FROM MF

PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 30 players and more than six hundred schemes, is

one of the most preferred investment avenues in India. However, with a plethora of

schemes to choose from, the retail investor faces problems in selecting funds. Factors such

as investment strategy and management style are qualitative, but the funds record is an

important indicator too.

Though past performance alone cannot be indicative of future performance, it is, frankly,

the only quantitative way to judge how good a fund is at present. Therefore, there is a need

to correctly assess the past performance of different Mutual Funds. Worldwide, good

Mutual Fund companies over are known by their AMC’s and this fame is directly linked to

their superior stock selection skills.

Return alone should not be considered as the basis of measurement of the performance of a

Mutual Fund scheme, it should also include the risk taken by the fund manager because

different funds will have different levels of risk attached to them. Risk associated with a

fund, in a general, can be defined as Variability or fluctuations in the returns generated by

it. The higher the fluctuations in the returns of a fund during a given period, higher will be

the risk associated with it. These fluctuations in the returns generated by a fund are

resultant of two guiding forces. First, general market fluctuations, which affect all the

securities, present in the market, called Market risk or Systematic risk and second,

fluctuations due to specific securities present in the portfolio of the fund, called

Unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in

terms of standard deviation of returns of the fund.

The most important and widely used measures of performance are:

The Treynor’Measure

The Sharpe Measure

Jenson Model

1.The Treynor Measure:-

Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index.

This Index is a ratio of return generated by the fund over and above risk free rate of return

(generally taken to be the return on securities backed by the government, as there is no

credit risk associated), during a given period and systematic risk associated with it (beta).

Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where,

Ri represents return on fund,

Rf is risk free rate of return, and

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 unfavorable performance.

2. The Sharpe Measure :-

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a

ratio of returns generated by the fund over and above risk free rate of return and the total

risk 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,

Si is standard deviation of the fund,

Ri represents return on fund, and

Rf is risk free rate of return.

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 unfavorable performance.

.

3. Jenson Model:-

Jenson's model proposes another risk adjusted performance measure. This measure was

developed by Michael Jenson and is sometimes referred to as the differential Return

Method. This measure involves evaluation of the returns that the fund has generated vs. the

returns actually expected out of the fund1 given the level of its systematic risk. The surplus

between the two returns is called Alpha, which measures the performance of a fund

compared with the actual returns over the period. Required return of a fund at a given level

of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where,

Ri represents return on fund, and

Rm is average market return during the given period,

Rf is risk free rate of return, and

Bi is Beta deviation of the fund.

After calculating it, Alpha can be obtained by subtracting required return from the

actual return of the fund.

Higher alpha represents superior performance of the fund and vice versa. Limitation of this

model is that it considers only systematic risk not the entire risk associated with the fund

and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is

primitive.

HDFC

HDFC Ltd. is an India based financial services company with operations around the globe.

The company offers a range of financial services through its group companies. The services

offered include broking, insurance, asset management, lending solutions, investment

banking and wealth management. Serving over a million clients, HDFC has around 15 billion

dollars of assets under management.

...HDFC Mutual Fund India - Housing Development Finance Corporation Mutual

Fund...HDFC Index Fund SENSEX Plus Plan HDFC Infrastructure Fund HDFC

Liquid Fund.

HDFC is headquartered in India, and has a presence in London, New York, Japan, Hong

Kong,Singapore, Dubai, Brazil and Indonesia.

RELIGARE INFRASTRUCTURE FUND

Objective: Religare Infrastructure Fund intends to provide long term capital appreciation by

investing in a portfolio that is predominantly constituted of equity and equity-related

instruments of infrastructure companies.

Structure: Open-Ended Equity Scheme

Inception Date: November 21, 2007

Plans and Options und

Dividend /Growth

Minimum Investment : 

Rs. 5000 and in multiples of Re. 1 thereafter.

RELIGARE INFRASTRUCTURE FUND :-

YEAR Rp Rm Rf(Rm-Rf)

(Rp-Rf) X2 XY

(X -Xbar) D2

X Y D  

LAST 1 MONTH 5.90 2.80 4.20 -1.4 1.7 1.96 -2.38 -18.8 353.44

LAST 3 MONTHS 22.60 11.11 4.20 6.91 18.4 47.74 127.14 -10.49 110.04

LAST 6 MONTHS 33.48 28.18 4.20 23.98 29.28 575.04 702.13 6.58 43.296

Since Inception 77.17 44.99 4.5 40.49 72.67 1639.44 2942.40 23.09 533.14

TOTAL       69.98122.0

5 2264.18 3769.29 0.38 1039.916

Where,

Rp - Portfolio Return

Rm - Market Return-Fund’s bench mark- S& P CNX 500

Rf - Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN :-

= SX / N

= 69.98/ 4

= 17.49

CALCULATION OF STANDARD DEVIATION (σ ) :-

= √ S(X-Xbar) 2 / N

= √1039.916/4

=√259.97

=16.12

CALCULATION OF BETA CO-EFFICIENT:-

= N ( S XY) – S X S Y

N (SX2) – (SX) 2

= 4(3769.29) – (69.98)(122.05)

4(2264.18) – (69.98) 2

= 15077.16 – 8541.059

9059.72 - 4897.20

= 6536.101

4159.52

=1.57

CALCULATION OF SHARPE’S RATIO:-

= Rp-Rf / s

=122.05 /16.12

= 7.57

CALCULATION OF TREYNOR’S RATIO :-

= Rp-Rf / b

= 122.05/1.57

= 77.73

SAHARA

Sahara India Pariwar is an Indian conglomerate company headquartered in Lucknow, Uttar

Pradesh, India. Its diversified business has interest in finance, infrastructure & housing,

media & entertainment, consumer merchandise retail venture, manufacturing and information

technology. The company has a market capitalization of US$25.94 billion as of March

2011.The group is a major promoter of sports in India. It owned the New IPL team Pune

Warriors India as well as a supreme sponsor of Indian cricket Team. They own 42.5% stake

in Formula One's Force India Formula 1 Team and also sponsors India national field hockey

team.The Brand Trust Report listed Sahara in the top 100 most trusted brands of India

SAHARA INFRASTRUCTURE FUND

Objective : Sahara Infrastructure Fund aims to provide distribution and /or medium to long

term capital gains by investing in equity / equity related instruments of companies mainly in

the infrastructure sector.

Structure : Open-ended Equity Linked Savings Scheme

Inception Date : March 14, 2006

Plans and Options under the Plan : 

Fixed Pricing, Variable Pricing.

Face Value (Rs/Unit): Rs. 10

Minimum Investment : 

Rs. 1000

SAHARA INFRASTRUCTURE FUND PEFORMANCE:-

YEAR Rp Rm Rf(Rm-Rf)

(Rp-Rf) X2 XY

(X -Xbar) D2

X Y D

LAST 1MONTH 3.45 3.70 4.22 -0.52 -0.77 0.270 0.4004 -20.82 433.47

LAST 3 MONTHS 16.47 13.80 4.25 9.55 12.22 91.20 116.701 -10.75 115.56

LAST 6 MONTHS 36.56 31.1 4.2526.8

5 32.31 720.92 867.52 6.55 42.90SINCE INCEPTION March 2, 2005 61.6 50.20 4.5 45.7 57.1 2088.4 2609.47 36.8 1354.2

TOTAL81.5

8100.8

62900.7

9 3594.09 11.78 1946.13

Where,

Rp - Portfolio Return

Rm - Market Return-Fund’s Benchmarks S&P CNX-500

Rf - Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN:-

= SX / N

= 81.58/ 4

= 20.39

CALCULATION OF STANDARD DEVIATION (σ) :-

= √ S(X-Xbar)2 / N

= √1946.13/4

= √486.53

= 22.05

CALCULATION OF BETA CO-EFFICIENT;-

= N ( S XY) – S X S Y

N (SX2) – (SX) 2

= 4(3594.09) – (81.58)(100.86)

4(2900.79) – (81.58) 2

= 14376.36-8228.15

11603.16-6655.29

=6148.21

4947.87

=1.24

CALCULATION OF SHARPE’S RATIO:-

= Rp-Rf/ σ

=100.86

22.05

=4.57

CALCULATION OF TREYNOR’S RATIO :-

= Rp-Rf/b

=100.86/1.24

= 81.3 OR 0.813

TATA MUTUAL FUND

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for

Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment

manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata

Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703

crores (as on April 30, 2005) of AUM. 

TATA INFRASTRUCTURE FUND

Objective : Tata Infrastructure Fund seeks to provide income distribution and / or medium to

long term capital gains by investing predominantly in equity / equity related instrument of

companies in infrastructure sector.

Structure : Open-ended Equity Fund

Inception Date : November 25, 2005

Plans and Options under the Plan : 

Growth, Dividend

Face Value (Rs/Unit): Rs. 10

Minimum Investment : 

Rs.5000

TATA INFRASTRUCTURE FUND PERFORMANCE:-

YEAR Rp Rm Rf(Rm-Rf)

(Rp-Rf) X2 XY

(X -Xbar) D2

        X Y     D  LAST 1MONTH 1.13 3.70 4.25 -0.55 -3.12 0.3025 1.716 -20.23 409.25LAST 3 MONTHS 16.44

13.81 4.25 9.56 12.19 91.3936 116.53 -10.12 102.41

LAST 6MONTHS 35.2 29.8 4.25 25.55 30.95 720.9225 790.77 5.87 34.456Since Inception 68.64

48.66 4.5 44.16 64.14

2039.4256 2832.42 24.48 599.27

TOTAL       78.72104.16 2852.04 3741.436 0 1145.386

Where,

Rp - Portfolio Return

Rm - Market Return-Fund’s benchmark-BSE-200

Rf - Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN:-

= SX / N

= 78.72/4

= 19.68

CALCULATION OF STANDARD DEVIATION (σ) :-

= √ S(X-Xbar)2 / N

= √1145.386/4

= √286.34

=16.92

CALCULATION OF BETA CO-EFFICIENT:-

= N ( S XY) – S X S Y

N (SX2) – (SX) 2

= 4(3741.436) –(78.72)(104.16)

4(2852.04) – (78.72) 2

= 14965.74-8199.47

11408.16-6196.83

=6766.27

5211.33

=1.29

CALCULATION OF SHARPE’S RATIO:-

=Rp-Rf/ σ

=104.16/16.92

=6.15

CALCULATION OF TREYNOR’S RATIO :-

= Rp-Rf/b

= 104.16/1.29

= 80.74/100

=0.8074

OBSERVATIONS;

The following observations are drawn from the analysis of schemes:

RELIGARE

INFRASTRUCTURE

FUND

SAHARA

INFRASTRUCTURE

FUND

TATA

INFRASTRUCTURE

FUND

Sharpe’s Ratio 7.57 4.57 6.15

Treynor’s Ratio 0.77 0.81 0.80

Co-efficient (b) 1.57 1.24 1.29

Std.Deviation (s) 16.12 22.05 16.92

CONCLUSION:

After interpreting the above data the following conclusions have been made:

RELIGARE INFRASTRUCTURE FUND :

It is a diversified aggressive equity fund.

It is a open-ended equity scheme

Since the b ratio is high it implies the risk is high

SAHARA INFRASTRUCTURE FUND

It is a diversified equity fund.

It is a open-ended equity scheme

Since the b ratio is high it implies the risk is high

TATA INFRASTRUCTURE FUND

It is a diversified equity fund.

It is a open-ended equity scheme.

It is a value based fund.

It is a low risky fund.

BIBLIOGRAPHY

www.amfiindia.com

www.religaremf.com .

www.tatamf.com .

www.saharamf.com

www.thinkrupee.com