equity mutual funds scenario in india

8/4/2019 EQUITY Mutual Funds Scenario in India

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Scenario of selected Equity funds in

India- Risk & Return Analysis &Time Horizon Analysis

Project done at RELIGARE SECURITIES, COIMBATORE

Internal Guide : Mr. K. Thulasivelu.

External Guide : Mr. Venkat Prabu & Mr. Govindharaj.


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ABSTRACT The study Scenario of selected Equity funds in India- Risk & Return

Analysis & Time Horizon Analysis is a three months duration project.The study aims at two important aspects of Mutual Funds: Risk and Return AnalysisTo analyze the performance of the selected Mutual Funds

Time Horizon Analysis To analyze the risk tolerance level of the investors based on theage of the investor.

The data such as various risks and the annualized returns of 13 equity

funds of India are collected from various websites and articles for the year2008.

The tools used for the analysis are comparison tools, Sharpes ratio,Treynors ratio, Jensen Alpha and risk tolerance formula. Visual aids(charts) are also used for the easy understanding of the analysis.

The analysis showed that the SBI Fund MAGNUM MULTIPLIER 93 has

been the best performing fund out of the selected funds. The risks of thefund are very low compared to the other funds and the returns are also highwhen compared to the other funds. Even the forecasting ability of the fundmanager of this fund is very high.

It is concluded that the present result in the performance cannot be

expected due to the instability in the market as well as the economy.


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INTRODUCTION

ABOUT THE STUDY

ABOUT THE INDUSTRYABOUT THE COMPANY


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ABOUT THE STUDY

DEFINITION

A mutual fund is a professionallymanaged type of collective investmentscheme that pools money from manyinvestors and invests it in stocks, bonds,short-term money market instrumentsand other securities.


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Contd.,

TYPES OF MUTUAL FUNDS IN INDIA Open ended & Close ended funds Equity mutual funds

Diversified Large Cap

Aggressive fund Thematic funds Value investing funds Sector funds

Debt mutual funds Liquid funds Floating rate funds Short term bond fund


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RISK PYRAMID Base of the Pyramid The foundation of the

pyramid represents the strongest portion, whichsupports everything above it. This area should becomprised of investments that are low in risk andhave foreseeable returns. It is the largest area andcomposes the bulk of your assets.

Middle Portion This area should be made up of

medium-risk investments that offer a stable returnwhile still allowing for capital appreciation. Althoughmore risky than the assets creating the base, theseinvestments should still be relatively safe.

Summit Reserved specifically for high-riskinvestments, this is the smallest area of thepyramid (portfolio) and should be made up of

money you can lose without any seriousrepercussions. Furthermore, money in the summitshould be fairly disposable so that you don't haveto sell prematurely in instances where there are

capital losses.


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MUTUAL FUND INDUSTRY

The origin of mutual fund industry in India is with theintroduction of the concept of mutual fund by UTI in theyear 1963.

From the year 1987 non-UTI players entered theindustry.

Phases of Mutual Fund Industry

First Phase - 1964-87

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Third Phase - 1993-2003 (Entry of Private Sector Funds)

Fourth Phase - since February 2003


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ABOUT THE COMPANY

Religare is a diversified financial servicesgroup of India offering a multitude ofinvestment options.

Vision - To build Religare as a globally trusted brand in thefinancial services domain and present it as the InvestmentGateway of India'.

Mission - Providing complete financial care driven by thecore values of diligence and transparency.

Brand Essence - Core brand essence is Diligence andReligare is driven by ethical and dynamic processes for wealth

creation.


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Contd.,

GROUP COMPANIES

Religare Securities Limited

Religare Commodities Limited

Religare Capital Markets Limited

Religare Finvest Limited

Religare Insurance Broking Limited

Religare Arts Initiative Limited

Religare Realty Limited

Religare Venture Capital Limited

Religare Asset Management


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Contd.,

OUR GROUP IDENTITY Name

Religare is a Latin word that translates as 'to bind together'.This name has been chosen to reflect the integrated natureof the financial services the company offers.

Symbol

The Religare name is paired with the symbol of a four-leafclover. Traditionally, it is considered good fortune to find afour-leaf clover as there is only one four-leaf clover for every

10,000 three-leaf clovers found. For us, each leaf of the clover has a special meaning. It is a

symbol of Hope. Trust. Care. Good Fortune.

For the world, it is the symbol of Religare.


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MAIN THEME OF THESTUDY

OBJECTIVES

SCOPE

LIMITATIONS

RESEARCH METHODOLOGY


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OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE

To analyze the performance of selected

Equity Funds.


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Contd.,

SECONDARY OBJECTIVES

To analyze the risk and return relationship.

To compare the risk levels of the selected funds. To determine the risk bearable by investors

based onTime horizon- the age of investors and the risk they are able

to tolerate.


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SCOPE OF THE STUDY

The study helps to identify the performance of theselected Equity funds in India.

It focuses on pinpointing the top performing Equity fundsin the industry.

The study also focuses the return and risk relationship ofeach fund using the different tools such as Sharpe,Treynor and Jensen index ratio.

In addition to the facts, the basic thumb rule of howmuch risk an investor can tolerate is also defined in thestudy which is the most important but a very simple tool.


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LIMITATIONS

The time constraint is one of the major problems. Thetime considered is only for a period of three years 20052008 and calculations are based on the three yearannualized return.

The study uses only selective Equity Mutual Funds.

The analysis is based on historical data and thusindicates the past performance which may not always beindicative of the future performance.

Much information were lacking for analysis access.

The calculations were done based on the past recordsalone that were accessed from the secondary dataalone.


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RESEARCH METHODOLOGY

Calculate the different ratios to evaluatethe different equity mutual funds namely Sharpes ratio

Treynors ratio

Jensens alpha

Comparison of Beta value of different equity funds.

Comparison of Standard deviation of different equityfunds.

Compare the investors level of risk taking based onthe expectations and investment life cycle.


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SHARPES RATIO

SE = (Rp Rf) / SD

WhereSE is the Sharpe Index

Rp is the Average return

Rf is the risk free rateSD is the standard deviation


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TREYNORS RATIO

TN = (Rp Rf) / Beta

WhereTN is the Treynor Index


Rf is the risk free rateBeta is the market risk


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JENSENS ALPHA

Alpha = (Rp Rf) Beta( RmRf)

Where

Alpha is the Forecasting ability ofthe manager


Rf is the risk free rateBeta is the market risk

Rm is the return on market index

(Sensex)


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RISK TOLERANCE LEVEL BASEDON THE AGE OF INVESTORS

Risk Tolerance Level = 100 Age


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ANALYSIS ANDINTERPRETATION

BETA COMPARISON

SD COMPARISON

SHARPES RATIO

TREYNORS RATIO

JENSENS ALPHA

RISK TOLERANCE LEVEL


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BETA COMPARISON

INTERPRETATION

As per the table and chart thecomparison of the different market risk

values of various equity mutual fundschemes it has been found thatPRUICICI Dynamic has the highestlevel of market risk whereas MAGNUMCONTRA & KOTAK GLOBAL are themost low level of market risk in the year2007 2008.


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SD COMPARISON

INTERPRETATION

As per the table and chart the

comparison of the different total riskvalues of various equity mutualfund schemes it has been foundthat PRUICICI Dynamic has thehighest level of total risk andwhereas MAGNUM CONTRA arethe most low level of total risk in the

year 2007 2008.


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SHARPES RATIO

INTERPRETATION

According to the calculations of theSharpe index of various Equity fundsit has been observed that the SBImutual funds MAGNUM CONTRA &MAGNUM MULTIPLIER 93 are thebest performing funds with good rateof return.


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TREYNORS RATIO

INTERPRETATION

According to the calculations of the

Treynor index of various Equityfunds it has also been observedthat the SBI mutual fund MAGNUMMULTIPLIER 93 is the bestperforming fund with good rate ofreturn.


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JENSENS ALPHA

INTERPRETATION

According to the calculations of theJensen Alpha of various Equity

funds it has also been observedthat the SBI mutual fund MAGNUMMULTIPLIER 93 are the bestperforming funds with good rate ofreturn and the forecasting ability ofthe portfolio managers are muchhigh when compared to the otherfund houses.


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RISK TOLERANCE LEVEL BASEDON INVESTORS AGE


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SUMMARY OF INVESTMENTLIFE CYCLE

INTERPRETATION

The age of the investors isinversely proportional to the

risk that he can tolerate. Insimple a young person isaffordable to take the highestlevel of risk whereas the oldare advised to avert the levelof risk to the maximum

possible


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MAJOR FINDINGS,

RECOMMENDATIONS &CONCLUSION


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FINDINGS

MAGNUM MULTIPLIER 93 is the bestperforming fund out of the selected thirteenfunds. It shows low risk and high return which isthe best indicator of a mutual fund.

PRUICICI Dynamic shows the highest level ofrisk associated to the fund.

The forecasting ability of the fund manager ofSBI fund house is very good when compared tothe other fund houses.


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RECOMMENDATIONS

Visual aids are always powerful communications tools. They are no lessvaluable in conveying the risk and return performance of various investmentalternatives.

The Sharpe measure combines a fund's mean return, standard deviation,and the average risk-free return and calculates a ranking number that

represents excess return per unit of total risk exposure. While standard deviation represents the volatility of a mutual fund's returns

caused by any factor, beta measures a mutual fund's systematic movementwith the overall stock market.

Alpha represents a fund's excess return as compared to the return predictedby its beta. Investors can use diversification to eliminate many of thespecific risks to which individual securities are exposed

Hence the usage of these tools would assist the return and risk analysis.

The performance of the funds can never be predicted by the historical dataavailable. It is essential that the Fundamental Analysis is done periodicallyto keep in track about the performance of the companies.


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CONCLUSION The study reveals the equity mutual fund market performance of the most

common equity funds sold in the market. Any return expected in the futurerequires a little range of risk to be taken. But the risk faced should alwaysbe traded-off with the returns that are got by the investor.

In the study it has been seen out of the 13 Equity Funds that we have used

for our analysis, MAGNUM MULTIPLIER 93 has been the best performingfund in all aspects. It has the least level of risk and shows the highest levelof the return.

In addition it is essential that the forecasting ability of the Portfolio managerof the different fund houses is high and matches to the economy.

However the Mutual Fund Analysis can only done with the historical dataand this analysis can have very less implication over the next yearsanalysis. This is because of the instability in the market and the change inthe schemes as well as the economy.


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QUESTIONSESSION


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THANK YOU

equity mutual funds scenario in india

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