PERFORMANCE EVALUATION OF MUTUAL FUND
SEGMENTS IN INDIA
With Special Reference to Sectoral Funds
THESIS SUMMARY
SUBMITTED
TO
KUMAUN UNIVERSITY, NAINITAL
In partial fulfillment of the requirements for the award of the degree of
DOCTOR OF PHILOSOPHY
BY
TRIBHUVAN PRATAP SINGH
Under the Supervision
of
Prof. N. S. BISHT
HEAD
DEPARTMENT OF COMMERCE
KUMAUN UNIVERSITY
NAINITAL – 263002
FACULTY OF COMMERCE AND MANAGEMENT STUDIES
KUMAUN UNIVERSITY
NAINITAL
2012
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INTRODUCTION
A mutual fund is an ideal investment vehicle in today’s complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real estate,
derivatives and other assets have become mature and information driven. For a layman it is
difficult to have the knowledge, skills, inclination and time to keep track of the events and to
understand their implications in order to act speedily in such a complex financial scenario.
A mutual fund is the answer to all these situations which exploits economies of scale in
three areas i.e. research, investments and transaction processing. Although Mutual Funds
provide an effective and efficient avenue to non skilled and small investors but a normal
investor is not able to opt for an appropriate fund which can give him best returns in
different phases of economy and market developments. Thus this study primarily aims to
identify the opportunities offered by sectoral funds and evaluate the performance of such
funds in different stages of economic developments and also in comparison with other type
of funds i.e. equity diversified funds. This has helped to draw a conclusion as to which types
of funds are best suited for a developing kind of market based economy like India.
METHODOLOGY
The current study utilizes two methodological frameworks, First– Mean, Variance / Risk-
Return models for the purpose of identifying the return potentials and associated risks with
various sectoral and equity diversified funds. Second– Statistical measure namely Mann-
Whiney Rank Sum Test (U-test) and application of Data Envelopment Analysis (a specialized
form of linear programming for evaluating the efficiency of a decision making unit i.e. a
mutual fund scheme for the purpose of current study), for statistically evaluating the
performance of all active sectoral funds and also to test the hypotheses of the study to
measure the difference in the performance sectoral funds and equity diversified funds. The
study sources statistical data related to NAV, AUM etc. from reliable sources such as AMFI
India, SEBI, BSE, NSE and respective mutual fund houses for the span of last 10 years starting
from 2002 to 2011. This helped the researcher to draw the conclusion on the performance
of different types of funds (sectoral and diversified) in different time spans i.e. for last 3, 5, 7
and 10 years.
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FINDINGS AND CONCLUSION
The analysis of sector specific funds revealed that the performance of such funds against
their respective indicators and indices had been quite satisfactory. They have carried
moderate to higher level of risk because of their sectoral concentrations. Specific Funds
such as Banking, FMCG and Pharmaceuticals have fairly outperformed the market indices
and also against their close counterparts – diversified funds, in short and medium time
frames (i.e. 3, 5 and 7 years) but as far as long term scenario (10 years) is concerned,
diversified equity funds have beaten sectoral funds with sufficient margins.
With the help of various tools and techniques such as Mann-Whitney Rank Sum U Test and
Data Envelopment Analysis, it was statistically confirmed that in long term there is
significant difference between the performance of sectoral funds and diversified equity
funds and diversified funds have performed significantly better than sectoral funds. Also the
efficiency levels of funds differ in various time frames, in Short and medium term (3 and 5
years) sectoral funds have showcased higher operating efficiencies by maintaining higher
input-output ratios (as confirmed by higher average DEA values) whereas in longer terms (7
and 10 years) Equity Diversified Funds demonstrated higher operating efficiencies with
optimum input-output ratios as compared to sectoral funds. Therefore, with the help of
current study, it was concluded and confirmed that sectoral funds can be a good investment
avenue for a limited period of time or for the time in which the specific industry or sector
keeps on performing high but in long run, equity diversified funds are still better investment
avenue as compared to sectoral funds.
KEY WORKS
Indian Mutual Fund Industry, Development of Mutual Funds in India, Performance of Indian
Mutual Fund Industry, Performance of Sectoral Funds, Sectoral Funds Vs Equity Diversified
Funds and Data Envelopment Analysis for Mutual Funds.
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PERFORMANCE EVALUATION OF MUTUAL FUND SEGMENTS IN INDIA With Special Reference to Sectoral Funds
THESIS
SUBMITTED
TO
KUMAUN UNIVERSITY, NAINITAL
In partial fulfillment of the requirements for the award of the degree of
DOCTOR OF PHILOSOPHY
Author:
TRIBHUVAN PRATAP SINGH
Address : C-73, Hanuman Nagar, Line Par, Moradabad – 244001.
Phone : 0591-2480006;
Mobile : 91-8006550066 / 9412354033
E-mail : [email protected]
Supervisor:
Prof. N. S. BISHT
Affiliation : Head, Department of Commerce,
Kumaun University, Nainital – 263002.
Phone : 05942-236788
Mobile : 91-9410581444
E-mail : [email protected]
FACULTY OF COMMERCE AND MANAGEMENT STUDIES
KUMAUN UNIVERSITY
NAINITAL
2012
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PERFORMANCE EVALUATION OF MUTUAL FUND
SEGMENTS IN INDIA
With Special Reference to Sectoral Funds
THESIS SUBMITTED
TO
KUMAUN UNIVERSITY, NAINITAL
In partial fulfillment of the requirements for the award of the degree of
DOCTOR OF PHILOSOPHY
BY
TRIBHUVAN PRATAP SINGH
Under the Supervision
of
Prof. N. S. BISHT
HEAD
DEPARTMENT OF COMMERCE
KUMAUN UNIVERSITY
NAINITAL – 263002
FACULTY OF COMMERCE AND MANAGEMENT STUDIES
KUMAUN UNIVERSITY
NAINITAL
2012
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i
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ii
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Dedicated in the lotus feet
of Lord Krishna
iii
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Acknowledgement This work could not be possible without the help of the God almighty. His
heartfelt inspiration and guidance enlightened my path towards the
completion of this lonely journey of doctoral research.
It is a great pleasure for me, to get this opportunity of expressing my
sincere gratitude to my guide, Prof. N. S. Bisht, Head, Department of
Commerce, Kumaun University, Nainital under whose able guidance and
supervision, this study met its objectives. In fact, no words would suffice to
express my deep sense of gratefulness to him, who has been a constant
source of inspiration and continued encouragement throughout my research
work. With his strict supervision and direction, this research study firmly
reached its destination. His timely guidance and support provided this study a
meaningful substance.
I would also like to deeply thank Dr. Vimal Pant, Branch Manager, UCO
Bank, Bareilly, for his inspiring and valuable guidance during the process of
data analysis and writing of this research report.
I gratefully acknowledge the enormous support extended by Prof. R.M. Dubey,
Honorable Vice-Chancellor, IFTM University, Moradabad and Dr. Manjula Jain,
Director, School of Business Management, IFTM University, for enabling me to
put best of my efforts for this research work with other regular assignments.
My faculty colleague, Mr. Himanshu Gupta also deserves my sincere thanks
for extending his kind support on research design, analysis and interpretation
of data.
iv
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v
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List of Figures
Figure Page
2.1. Future Developments for Indian Mutual Funds Industry 57
3.1. Types of Mutual Funds 62
3.2. Growth in Assets Under Management 71
3.3. Category Returns in Financial Year 2010-11 79
3.4. Category Returns in Financial Year 2001-11 82
4.1. Performance of BANKEX vis-à-vis BSE SENSEX 88
4.2. Performance of BSE FMCG vis-à-vis BSE SENSEX 93
4.3. Performance of CNX Infrastructure vis-à-vis BSE-200 & S&P CNX Nifty 97
4.4. Performance of BSE Power vis-à-vis BSE SENSEX 102
4.5. Performance of BSE Health Care vis-à-vis BSE 100 and BSE Reality 106
4.6. Sector wise constituents of CNX Service Sector index 109
4.7. S&P CNX Nifty vs. CNX Service Sector 111
4.8. BSE IT vs. BSE SENSEX 114
vi
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List of Tables
Table Page
3.1. Mobilization of Resources by Mutual Funds 70
3.2. Assets under Management by various types of Mutual Funds: 2010-11 72
3.3. Sector wise Mobilization of Resources 73
3.4. Scheme-wise Resource Mobilization and AUM by Mutual Funds 74
3.5. Number of Schemes by Investment Objective 75
3.6. Transactions on Stock Exchanges by Mutual Funds 77
3.7. Unit Holding Pattern of All Mutual Funds as on March 31, 2011 78
3.8. Folios Trends: Equity Oriented Schemes 80
3.9. Folios Trends: Debt Oriented Schemes 80
3.10. Folios Trends: All Schemes 81
4.1. Sector wise Composition of BSE Sensex 87
4.2. Banking Funds: Return Analysis 89
4.3. Banking Funds: Risk Analysis 90
4.4. Banking Funds: Data Envelopment Analysis Values 91
4.5. Banking Funds: Portfolio Compositions 92
4.6. FMCG Funds: Return Analysis 94
4.7. FMCG Funds: Risk Analysis 94
4.8. FMCG Funds: Data Envelopment Analysis Values 95
4.9. FMCG Funds: Portfolio Compositions 95
4.10. Infrastructure Funds: Return Analysis 98
4.11. Infrastructure Funds: Risk Analysis 99
4.12. Infrastructure Funds: Data Envelopment Analysis Values 100
4.13. Infrastructure Funds: Portfolio Compositions 101
4.14. Energy Funds: Return Analysis 103
4.15. (A) Energy Funds: Risk Analysis 104
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4.15. (B) Energy Funds: Data Envelopment Analysis Values 105
4.16. Pharmaceutical Funds: Return Analysis 106
4.17. Pharmaceutical Funds: Risk Analysis 107
4.18. Pharmaceutical Funds: Analysis of Portfolio Compositions 108
4.19. Pharmaceutical Funds: Data Envelopment Analysis Values 108
4.20. Service Funds: Return Analysis 111
4.21. Service Funds: Risk Analysis 112
4.22. Service Funds: Data Envelopment Analysis Values 112
4.23. Technology Funds: Return Analysis 114
4.24. Technology Funds: Risk Analysis 115
4.25. Technology Funds: Data Envelopment Analysis Values 115
4.26. Other Sector Funds: Return Analysis 116
4.27. Other Sector Funds: Risk Analysis 117
5.1. Average Returns: All Sectoral Funds Vs Diversified Funds 122
5.2. Average Returns: Individual Sector Funds Vs Diversified Funds 124
5.3. Average Risk and Risk Adjusted Returns: Sector Vs Diversified Funds 124
5.4. Top 10 Performers: 3 Years Annualized Returns (Sectoral Funds) 126
5.5. Top 10 Performers: 3 Years Annualized Returns (Diversified Funds) 126
5.6. Top 10 Performers: 5 Years Annualized Returns (Sectoral Funds) 127
5.7. Top 10 Performers: 5 Years Annualized Returns (Diversified Funds) 127
5.8. Top 10 Performers: 7 Years Annualized Returns (Sectoral Funds) 128
5.9. Top 10 Performers: 7 Years Annualized Returns (Diversified Funds) 128
5.10. Top 10 Performers: 10 Years Annualized Returns (Sectoral Funds) 129
5.11. Top 10 Performers: 10 Years Annualized Returns (Diversified Funds) 130
5.12. Mann-Whitney Test – 3 Years Annualized Returns (Ranks) 131
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5.13. Mann-Whitney Test – 3 Years Annualized Returns (Test Statistics) 132
5.14. Mann-Whitney Test – 5 Years Annualized Returns (Ranks) 133
5.15. Mann-Whitney Test – 5 Years Annualized Returns (Test Statistics) 133
5.16. Mann-Whitney Test – 7 Years Annualized Returns (Ranks) 134
5.17. Mann-Whitney Test – 7 Years Annualized Returns (Test Statistics) 135
5.18. Mann-Whitney Test – 10 Years Annualized Returns (Ranks) 135
5.19. Mann-Whitney Test – 10 Years Annualized Returns (Test Statistics) 136
5.20. Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 138 (3 years Annualized Returns)
5.21. Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 138 (5 years Annualized Returns)
5.22. Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 139 (7 years Annualized Returns)
5.23. Data Envelopment Analysis: Sectoral Funds Vs Equity Diversified Funds 140 (10 years Annualized Returns)
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List of Abbreviations
AMC Assets Management Company
AMFI Association of Mutual Fund in India
AUM Assets under Management
CPI Consumer Price Index
DEA Data Envelopment Analysis
ELSS Equity Linked Savings Schemes
ETF Exchange Traded Funds
FMCG Fast Moving Consumer Goods
IICM Indian Institute of Capital Market
IT Information Technology
MIP Monthly Income Plan
MMMMF Money Market Mutual Fund
MNC Multi National Corporation
NAV Net Assets Value
NFO New Fund Offer
NISM National Institute of Security Market
RBI Reserve Bank of India
SCI School of Certificate of Intermediaries
SD Standard Deviation
SEBI Securities and Exchange Board of India
SIP Systematic Investment Plan
STP Systematic Transfer Plan
SWP Systematic Withdrawn Plan
UTI Unit Trust of India
WPI Wholesale Price Index
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Table of Contents
Declaration i
Certificate from the Supervisor ii
Acknowledgement iii – v
List of Figures vi
List of Tables vii - ix
List of Abbreviations x
Chapter – 1: Introduction 01 – 36
1.1. Introduction
1.2. Statement of Problem
1.3. Objectives of the Research
1.4. Hypotheses for the Study
1.5. Need and Importance of the Study
1.6. Review of Literature
1.7. Research Methodology
1.8. Organization of Research Report
1.9. Limitations of the Study
Chapter – 2: Mutual Funds: Evolution, Significance and Indian Market 37 – 60
2.1. Origin of Mutual Funds
2.2. Evolution of Mutual Funds in India
2.3. Role and Significance of Mutual Funds in Indian Economy
2.4. Indian Mutual Fund Industry towards 2020
2.5. Conclusion
Chapter – 3: Product Portfolio and Performance Review of 61 – 84 Indian Mutual Fund Segments
3.1. Introduction
3.2. Product Portfolio of Indian Mutual Fund Industry
3.3. Performance Review of different Sectors of Industry
3.4. Conclusion
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Chapter – 4: Performance of Sectoral Funds in India 85 - 118
4.1. Introduction
4.2. Performance Review of Various Sector Funds
4.2.1. Banking Funds
4.2.2. FMCG Funds
4.2.3. Infrastructure Funds
4.2.4. Energy Funds
4.2.5. Pharmaceutical Funds
4.2.6. Service Funds
4.2.7. Technology / IT Funds
4.2.8. Other Sector Specific Funds
4.3. Conclusion
Chapter – 5: Comparative Analysis of Indian Sectoral Funds and 119 – 140 Diversified Equity Funds
5.1. Sectoral Funds Vs Equity Diversified Funds: An Introduction
5.2. Comparison of Returns, Risks and Risk Adjusted Returns
5.3. Results of Mann-Whitney Rank Sum U Test
5.4. Comparison through Data Envelopment Analysis
5.5. Conclusion
Chapter – 6: Conclusion and Recommendations 141 - 154
Bibliography 155 - 174
Appendices 175 - 192
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