CHAPTER: 1

INTRODUCTION
1.1 Introduction to the study

As according to SEBI policies, mutual funds A Mutual Fund is an agree with that mobilise the
savings of some of buyers who share a common economic aim. The money consequently
accumulated is invested by way of the fund supervisor in extraordinary types of securities
depending upon the objective of the scheme. Those should range from stocks to debentures to
money marketplace contraptions. The earnings earned in those investments and the capital
appreciation found out with the aid of the scheme is shared by way of its unit holders in
percentage to the number of gadgets owned by them. Consequently a Mutual Fund is the
maximum suitable investment for the common man as it gives a possibility to spend money on a
diverse, professionally controlled portfolio at a highly low price. Anybody with an invest able
surplus of a few thousand rupees can invest in Mutual budget. Every Mutual Fund scheme has a
defined investment objective and strategy. A mutual fund is answer to all these situations. It
appoints professionally qualified and experienced staff that manages each of these functions on a
fulltime 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 fact, the mutual fund vehicle exploits economies of scale in all three
areas –research, investment and transaction processing. Can provide assured returns for a most
length of one year. In case returns are guaranteed, the name of the guarantor and how the
guarantee might be commemorated is required to be disclosed inside the offer file.

Investments in securities are unfold throughout a huge move-phase of industries and sectors and
for that reason the danger is decreased. Diversification reduces the risk due to the fact all shares
may not move in the equal route inside the identical share on the identical time. Mutual fund
issues units to the buyers in accordance with quantum of cash invested by using them. Traders of
mutual funds are referred to as unit holders.

Concept of mutual fund

A mutual fund is a company (or a trust) that sells shares of its own stock and utilizes the
proceeds to make other investments. These investments may include the stocks of publicly traded
companies, corporate or municipal bonds, real estate, or short –term money market instruments.
By purchasing shares in a mutual fund, the investor obtains a number of benefits that would
otherwise be unavailable.

A mutual fund is a trust that pools the savings of some of investors who share a not unusual
economic goal. The money for that reason amassed is then invested in capital market devices
consisting of shares, debentures, and different securities. The earnings earned thru those
investments and the capital appreciation realized by means of its unit holders in proportion to the
wide variety of units owned by means of them. thus a mutual fund is the maximum appropriate
funding for the commonplace man because it offers opportunities to put money into a different
professionally controlled basket of securities at a particularly low cost.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets
of the fund in the same proportion as his contribution amount put up with the corpus (the total
amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit
holder.

The mutual funds normally come out with a number of schemes with different investment
objectives, which are launched from time to time. A mutual fund is required to be registered with
securities market before it can collect funds from the public.

A mutual fund is installation in the form of an accept as true with, which has sponsor, trustee;
asset management company and custodian. The trustee of the mutual fund holds its belongings
for the gain of the unit holders. Asset management organization authorized by means of SEBI
manages the finances via making investments in diverse styles of securities.

1.2. Background of the study

The study was done at Geogith Financial Services ltd, Pala over a period of 15 days from 11th
march to 31st march 2019. The study deals with the data of mutual funds from 5 large cap funds,
reliance large cap fund, ICICI Pru Blue-chip fund, Axis Blue chip fund, Adithya Birla SL
Frontline Equity fund, SBI Blue-chip fund- Reg.

1.3. Need and Significance of the Study

The schemes were categorized and selected for evaluating their performance and relative
risk. The scope of the project is mainly concentrated only on equity schemes funds. This study
covers only five equity based schemes that preferred by Geojit financial services ltd. towards
their customers. These schemes were subjected to more fluctuations in risk and returns. Sharpe’s
performance index, Treynor’s performance index and Jensen’s performances index are applied

1.4. Statement of the problem

In this current economic scenario interest rate are falling and fluctuation in the market has put
investors in confusion. One finds it difficult to take decision on investment. This is primarily,
because investment are risky in nature and investors have to consider various factors before
investing in different investment avenues. Therefore the study aims to compare equity based
mutual fund schemes in form their risk return and also creating awareness about equity based
same category mutual fund schemes among the investors.

1.5. Objectives of the study

Primary objective

 A study on Risk-Return Analysis of Equity based Mutual Funds

Secondary objectives

 To analysis the risk-return relationship in Mutual Funds

 To study the risk involved in Equity based Mutual Funds

1.6. Scope of the study

 The schemes were categorized and selected for evaluating their performance and relative
risk. The scope of the project is mainly concentrated only on equity schemes funds. This study
covers only five equity based schemes of ICICI Prudential Asset Management Company. These
schemes were subjected to more fluctuations in risk and returns. Sharpe’s performance index,
Treynor’s performance index and Jensen’s performances index are applied.

1.7. Limitations of the study

 The study is conducted on the basis of secondary data. That are available from the
monthly fact sheets, websites and other records and primary data were not accessible.
 Risk management is a wide topic and it is difficult to analysis thoroughly within a short
span of period.
 CHAPTER: 2
LITERATURE REVIEW
 A large number of studies on the growth and financial performance of mutual funds
have been carried out during the past, in the developed and developing countries. Brief
reviews of the following research works reveal the wealth of contributions towards the
performance evaluation of mutual fund, market timing and stock selection abilities of fund
managers.

Sharpe William F (1966) suggested a measure for the evaluation of portfolio

performance. Drawing on result obtained in the field of portfolio analysis, economist Jack L
Treynor has suggested a new predictor of mutual fund performance, one that differs from
virtually all those used previously by incorporting the volatility of a fund’s return in a simple yet
meaningful manner. Michael C Jenson (1967) derived a risk-adjusted measures forcasting ability
contributes to funds returns. As indicate by Statman (2000), the e SDAR of a fund portifolio is
the excess return of the leveaged to have the benchmark index’s standard deviation.

Treynor (1965) and Sharpe (1966) presented the conceptual framework of relative
measures of performance of equity mutual fund performance. Trenor (1965) established a ways
to measure the performance of the portfolio, known as reward to volatility ratio which is describe
as the average portfolio excess return. It was followed by Sharpe (1966) who developed a reward
to variability measures which refers to the average deviation. Treynor evaluated systematic risk
whereas Sharpe employed overall risk evaluate the portfolio performance of mutual fund. Both
Treynor’s and Sharpe’s measures of portfolio performance is relative measure that ranks the
funds in terms of risk and return.

Fredman (1996) in his study reveals that the risk is measured in terms of the
variation or volatility of the net asset value of funds. The more extreme the variations in
aggregate value of the assets of the fund over a period, the greater is the volatility or risk.
He described standard deviation as the most perceptive and reliable indicator of
determining volatility or risk.

Rajagopala Nair and Elsamma Joseph (2000) in their study reveals that the various
risks experienced by investors in corporate securities and the measures adopted for reducing
risks. They opined that calculated risk might reduce the intensity of loss of investing in corporate
securities. As per their study, many investors are holding shares of those companies that are non-
existent at present. They opined that investors may accept risks inherent in equity, but they may
not be willing to reconcile to the risk of fraud. Promoters should not be allowed to loot the
genuine investors by their fraudulent acts.

Dr. Baddela Uday Kumar and S Subbalakshmi (2016), in their study reveals that the
technical analysts believe that the historical performance of stocks and markets are indications of
future performance. Technical analysis is a study of the stock market with respect to factors
distressing the supply and demand of stock helps to understand the intrinsic value of shares and
to know whether the shares are undervalued or overvalued. The stock market indicators would
help the investor to identify major market turning points. This is a significant technical analysis
of selected companies which helps to understand the price behaviour of the shares, the signals
given by them and the major turning points of the market price. The objective of this article is to
analysis the performance of selected stocks in BSE and interprets whether to buy or sell them by
using technical analysis techniques. This in turn would help the investors to identify the current
trend and risk involved with the scrip on par with market. This study is purely based on data
provided on stocks listed in Bombay Stock Exchange (BSE). Based on analysis and
Interpretation, technique like Relative Strength Index, Rate-Of-Change and Pivot Study is used
to know whether the stock is technically strong.

Madhu and Tamimi (2010) in their study revealed that CAPM held good in Indian stock
market in explaining the systematic risk and establishing the tradeoff between risk and return. In
order to establish the positive risk-return relationship between equity returns and different
distributional and financial risk variables.
 S. Narayan Rao, et.al., they evaluated performance of indian mutual funds in a bear
market throgh relative performance index, risk-return analysis, Treynor’s ratio, Sharpe’s ratio,
Sharpe’s measure, Jensen’s measure. The study used 269 open – ended schemes (out of total
schemes of 433) for computing relative performance index. Then after excluding funds whose
returns are less than risk-free returns, 58schemes are finally used for further analysis. The results
of performance measures suggest that most of mutual fund schemes in the sample of 58 were
able to satisfy investor’s expectations by givind excess return over expected retruns based on
both premium for systematic risk and total risk.

According to Haslem (1988) the past performance is the most important aspect for the
mutual fund because it is basis to estimate how well the fund would perform in future. Ivestors
are generally more careful while marking investor demand higher return at minimum risk but
when markets are efficient it is not possible to gain abnormal returns. Risk is generally,
associated with various application differently but in common it means neagtive connotation
such as harm or loss or some undesirable action. Risk expressed by Kaplan and Garrick (1981)
demonstrates that risk involves a factor of uncertainity and potential loss that might be incurred.

John McDonald (1974) examined the relationship between the stated fund objectives
and their risks and return attributes. The study concludes that, on an average the fund managers
appeared to keep their portfolios within the stated risk. Some funds in the lower risk group
possessed higher risk than funds in the most risky group.

Dr. Sandeep Bansal, Deepak Garg and Sanjeev K Saini (2012), have studied Impact
of Sharpe Ratio & Treynor’s Ratio on Selected Mutual Fund Schemes. This paper examines the
performance of selected mutual fund schemes, that the risk profile of the aggregate mutual fund
universe can be accurately compared by a simple market index that offers comparative monthly
liquidity, returns, systematic & unsystematic risk and complete fund analysis by using the special
reference of Sharpe ratio and Treynor’s ratio.

Dr. K. Veeraiah and Dr. A. Kishore Kumar (Jan 2014), conducted a research on
Comparative Performance Analysis of Select Indian Mutual Fund Schemes. This study analyzes
the performance of Indian owned mutual funds and compares their performance. The
performance of these funds was analyzed using a five year NAVs and portfolio allocation.
Findings of the study reveals that, mutual funds out perform naïve investment. Mutual funds as a
medium-to-long term investment option are preferred as a suitable investment option by
investors.

Prof. Kalpesh P Prajapati and Prof. Mahesh K Patel (Jul 2012), have done a
Comparative Study On Performance Evaluation of Mutual Fund Schemes Of Indian Companies.
In this paper the performance evaluation of Indian mutual funds is carried out through relative
performance index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's
measure, and Fama's measure. The data used is daily closing NAVs. The source of data is
website of Association of Mutual Funds in India (AMFI). The study period is 1st January 2007
to 31st December, 2011. The results of performance measures suggest that most of the mutual
fund have given positive return during 2007 to 2011.

Sathya Swaroop Debashish (2009) study revels the performance of the equity based
mutual funds in India. 23 schemes were studied over a period of April 1996 to March 2009 (13
years). The analysis was done on the basis of mean return, beta risk, coefficient of determination,
sharp ratio, Treynor ratio and Jensen alpha. The first analysis has been done on the basis of
returns, followed by a comparison between market returns and the return on schemes. It was
concluded that UTI mutual fund schemes and Franklin Templeton schemes have performed
excellently in public and private sectors respectively.Further, on the basis of the parameters like
Sharpe ratio, Deutsche, Franklin Templeton, Prudential ICICI (in private sector) and SBI and
UTI (in public sector) mutual funds schemes have out-performed the market portfolio with
positive values. However, the overall analysis finds Franklin Templeton and UTI being the best
performers, and Birla SunLife, HDFC and LIC mutual funds showing poor below-average
performance when measured against the risk-return relationship models and measures.

Narasimhan.M.S and Vijayalakshmi.S (2001) in their study evaluated the performance

of the Mutual Funds in terms of achieving diversification benefit and fund manager’s timing
ability. The study found that there was a general shift in the investment strategy of holding a
diversified portfolio and in optimizing the risk-returns of investments to invest in predictive
winners of the period.