PERFORMANCE EVALUATION OF SELECTED GROWTH ORIENTED MUTUAL FUNDS

In the backdrop of liberalization and private participation in the Indian mutual fund industry, the challenge to survive and retain investors' confidence has been a prime concern for fund managers. For small investors who do not have the t ime or the expertise to take direct investment decision in equities successfully, the alternative is to invest in mutual funds. Performance of the mutual fund products become more complex in the context of accommodating both return and risk measurements while giving due importance to investment objectives. In this paper, an attempt has been made to study the performance of selected schemes of mutual funds based on risk-return relationship models and measures. A total of 23 schemes offered by six private sector mutual funds and three public sector mutual funds have been studied over the time period from April 1996 to March 2009 (thirteen years). The analysis has been made on the basis of mean return, beta risk, coefficient of determination, Sharpe ratio, Treynor ratio and Jensen Alpha. The overall analysis finds Franklin Templeton and UTI being the best performers, and Biria SunLife, HDFC and LIC mutual funds showing poor below-average performance when measured against the risk-return relationship models.


Introduction
Growth and developments of various mutual funds products in Indian capital market has proved to be one of the most catalytic instruments in generating momentous investment growrth in the capital market. In this context, it becomes pertinent to study the performance of Indian mutual fund industry. The relation between risk-return determines the performance of a mutual fund scheme. As risk is commensurate with return, therefore, providing maximum return on the investment made within the acceptable associated risk level helps in demarcating the better performers from the laggards.

Objectives
Indian mutual fund industry is featured by a plethora ii) To find out those mutual fund schemes offering the advantages of diversification along with adequate systematic risk compared to market beta risk.
iii) To analyze the excess return per unit of risk evidenced by mutual fund schemes belonging to public sector and private sector, and to draw comparisons.

Literature Review
In this paper, an attempt has been made to study the performance of selected schemes of mutual funds based on risk-return relationship. For this purpose, apart from standard measure like mean return, beta and coefficient of determination, the time-tested models of mutual funds performance evaluation given by Sharpe, Treynorand Jensen have also been applied.
Early study on mutual funds included the several works of Jensen (1968), Sharpe (1966), and Treynor  Ippolito (1989) concludes that nnutual funds on an aggregate offer superior returns, but they are offset by expenses and load charges. Barua et al. (1991) evaluated the performance of Master Share during the period 1987-1991 using Sharpe, Jensen and Treynor measure and concluded that the fund performed better than the market, but not so well as compared to the Capital market Line. The mutual fund study by Gupta and Sehgal (1997) showed that out of sample of 80 schemes, income-growth schemes were the best performers and consistently out-performed the market index. Regarding consistency between measures and fund objectives, the relationship between fund objectives and betas is inconsistent with expectations. Sethu (1999) conducted a study examining 18 open-ended growth schemes during 1985-1999 and found that majority of the funds showed negative returns and no fund exhibited any ability to time the market. Gupta (2000) has examined the investment performance of Indian mutual funds using weekly Net Asset Value (NAV) data and found that the schemes have shown a mixed performance during 1994-1999.
In the Indian context, very few studies have compared the performance of the mutual fund schemes of private sector and public sector that paves the rationale of current study.

Data and Sources of Study
The period of study is form 1996-97 to 2008-09 (13 years). Six Private Sector Mutual Funds and Three Public sector Mutual funds, aggregately accounted for 23 Open-ended Growth-Oriented (equity-based) Mutual Fund Schemes have been selected for this study (Table-1). An open-ended fund is one that is available for subscription throughout the year.

Research Methodology
The

Measures of Risk
The risk is calculated on the basis of week-end NAVs. The following measures of risks associated with mutual funds have been used for the study:

Risk-Return Relationship Models
For evaluating the performance of mutual funds, the risk-return relation models given by Sharpe (1966), Treynor (1965) and Jensen (1968) have been applied in the study in addition to the measures listed above. Rp,-R, =|3p(R",-R,) + e (eq. 7) Where Rpt is the mutual fund portfolio return in period t, Rf, Is the risk free return in period t, R^^^ is the return on the market portfolio in period t and 8 Is the error term or residual value. All the 3 schemes of Franklin Templeton i.e., Balanced, Bluechip and Prima Plus among private sector, and the 3 schemes of UTI i.e.. Dynamic Equity, India Advantage Equity and Money Market among Public sector were the highest return-earning schemes as against corresponding market returns witnessing returns in the range of 0.33 % to 0.47 % and 0 .17 % to 0.29% respectively. Negative return was observed in 3 schemes namely, Biria-Gilt-plus Liquid, LIC-Equity and LIC-lndex Sensex which also failed to beat the market, and thus were the worst performers. Out of the 23 schemes, 15 schemes (about 65 %) had mean returns above their corresponding market returns which are a fairly good indicator of mutual fund performance. Only the schemes of Lie showed poor performance, while rest had average returns.

Systematic Risk (Beta)
The fourth column of  Templeton were those having adequately risky portfolios well below the market risk, while in public sector the same phenomenon was observed in the 3 schemes of SBI.

Co-efficient of Determination
The last column of Table-2    The fourth and fifth column of