a project report on performance evaluation of sectoral mutual fund l.
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A PROJECT REPORT ON PERFORMANCE EVALUATION OF SECTORAL MUTUAL FUND. Content. Executive Summary Company Profile Introduction The Study Data Analysis Observations and Inferences Limitation of Study Conclusion Recommendations Bibliography . Executive Summary .

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Presentation Transcript
  • Executive Summary
  • Company Profile
  • Introduction
  • The Study
  • Data Analysis
  • Observations and Inferences
  • Limitation of Study
  • Conclusion
  • Recommendations
  • Bibliography
executive summary
Executive Summary
  • The project titled “Comparative Analysis Of Sectoral Mutual Funds” being carried out for KOTAK MAHINDRA GROUP. Today an investor is interested in tracking the value of his investments, whether he invests directly in the market or indirectly through Mutual Funds. This dynamic change has taken place because of a number of reasons. With globalization and the growing competition in the investments opportunity available he would have to make guided and rational decisions on whether he gets an acceptable return on his investments in the funds selected by him, or if he needs to switch to another fund.
  • In order to achieve such an end the investor has to understand the basis of appropriate preference measurement for the fund, and acquire the basic knowledge of the different measures of evaluating the performance of the fund. Only then would he be in a position to judge correctly whether his fund is performing well or not, and make the right decision.
This project t is undertaken to help the investors in tracking the performance of their investments in Sectoral Mutual Funds and has been carried out with the objective of giving performance analysis of Sectoral Mutual Fund.
  • The methodology for carrying out the project was very simple that is through secondary data obtained through various mediums like fact sheet of the funds, the Internet, Business magazines, Newspaper, etc. the analysis of Sectoral Funds has been done with respect to its various parameters. Technology Sectors have performed well over the years. FMCG and PHARMA sectors are catching up.
  • Though not much representation was there for banking sector, Reliance Banking Fund Did not perform well. I hope KOTAK, hyderabad will recognize this as well as take more references from this project report.
  • PURPOSE: -
  • To study and analyse the performance of open ended, sectoral mutual funds (growth).
  • To know various funds’ involved in various Sectoral Mutual Funds.
  • To know the future of Sectoral Mutual Funds in India.
  • To evaluate the performance of mutual funds by calculating their returns and risks
company profile
  • Kotak Mahindra Bank
  • At Kotak Mahindra Bank, we address the entire spectrum of financial needs for individuals and corporates. We have the products, the experience, the infrastructure and most importantly the commitment to deliver pragmatic, end-to-end solutions that really work.
  • Kotak Mahindra Old Mutual Life Insurance Ltd.
  • Kotak Mahindra Old Mutual Life Insurance is a 76:24 joint venture between Kotak Mahindra Bank Ltd. and Old Mutual plc. Kotak Mahindra Old Mutual Life Insurance is one of the fastest growing insurance companies in India and has shown remarkable growth since its inception in 2004.
  • Old Mutual, a company with 160 years experience in life insurance, is an international financial services group listed on the London Stock Exchange and included in the FTSE 100 list of companies, with assets under management worth $ 400 Billion as on 30th June, 2006. For customers, this joint venture translates into a company that combines international expertise with the understanding of the local market.
  • Focus on retail segment.
  • Build a strong pan-India network managed by experienced professionals; build presence across both metros and class A/B town.
  • Build a trusted brand; ensure high visibility
  • Largest independent distributor for financial products
  • Amongst the top 5 stock brokers
  • Amongst top 10 investment Bankers
  • Ranking 4rd in retail procurement in equity IPOs.
  • To be a leading, preferred service provider to our customer, and to achieve this leadership position by building an innovative, enterprising, and technology driven organization which will set the highest standards of service and business ethics
  • Kotak offers trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. More importantly, Kotak makes trading safe to the maximum possible extent, by accounting for several risk factors and planning accordingly. Kotak is assisted in this task by their in-depth research, constant feedback and sound advisory facilities.
  • Mutual Funds: An overview 
  • 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 invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.
history of mutual fund in india
History of Mutual Fund in India:
  • The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases
  • First Phase – 1964-87
  • Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management
Second Phase – 1987-1993 (Entry of Public Sector Funds)
  • 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.
  • At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
  • With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
  • The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
  • Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.
Fourth Phase – since February 2003
  • In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.
  • The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of March, 2006, there were 29 funds.
Future Scenario
  • The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over
  • SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.
types of mutual funds
Types of Mutual Funds
  • Mutual fund schemes may be classified on the basis of its structure and its investment objective.
  • ByStructure:
  • Open-ended Funds
  • An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.
  • Closed-ended Funds
  • A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period.
Interval Funds
  • Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.
  • By Investment Objective:-
  • Growth Funds
  • The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities
  • Income Funds
  • The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.
Balanced Funds
  • The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market,
  • Money Market Funds
  • The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money
  • Load Funds
  • A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history
special schemes
Special Schemes

Industry Specific Schemes

  • Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc

Index Schemes

  • Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50

Sectoral Schemes

  • Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.


Diversified Debt Funds

Gilt Funds

Flexible Asset allocation Funds

Money Market Funds

Money Market Funds

Equity Funds

Debt Funds

Hybrid Funds

Type of Fund

Gilt Funds

High Yield Debt Funds

Aggressive Growth Funds

Growth Funds



Diversified Equity Funds

Index Funds

Value Funds

Focused Debt Funds

Growth and Income funds

Equity Income Funds

Balanced Funds


Benefits of Mutual Fund investment

Professional Management:

  • Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Convenient Administration:

  • Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient

Return Potential:

  • Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
Low Costs:
  • Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.


  • In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund


  • Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, one can systematically invest or withdraw funds according to your needs and convenience.

Limitations of mutual fund investment

  • No Control Over Cost:
  • An Investor in mutual fund has no control over the overall costs of investing. He pays an investment management fee (which is a percentage of his investments) as long as he remains invested in fund, whether the fund value is rising or declining. He also has to pay fund distribution costs, which he would not incur in direct investing.

No Tailor-Made Portfolios:

  • Investing through mutual funds means delegation of the decision of portfolio composition to the fund managers. The very high net worth individuals or large corporate investors may find this to be a constraint in achieving their objectives.
Managing A Portfolio Of Funds:
  • Availability of large no. of funds can actually mean too much choice for the investors. He may again need advice on how to select a fund to achieve his objectives.
  • Taxes:
  • During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.
  • Cost of Churn
  • The portfolio of fund does not remain constant. The extent to which the portfolio changes is a function of the style of the individual fund manager i.e. whether he is a buy and hold type of manager or one who aggressively churns the fund
the study
The study
  • Conceptual background of the study:-
  • 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
  • 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. For evaluating the performance of selected Sectoral Mutual Fund schemes risk-return relation models have been used like:
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,
  • Treynor's Index (Ti) = (Ri - Rf)/Bi.
  • The Sharpe Measure
  • In this model, performance of a fund is evaluated on the basis of Sharpe Ratio
  • Sharpe Index (Si) = (Ri - Rf)/Si
Comparison of Sharpe and Treynor
  • Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios.
  • 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.
  • Ri = Rf + Bi (Rm - Rf)
Fama Model
  • The Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it.
  • Ri = Rf + Si/Sm*(Rm - Rf)
data analysis
  • Data Collection
  • Following is a description of the sources & methodology followed to collect the data required
  • NAV
  • For the study NAVs of the funds have been taken at every weekend i.e. the NAVs on Friday during the period of the study have been considered.
  • NAV data have been taken from the website www.myris.com and in some cases the websites of the respective funds.
Benchmark Index
  • The data is sourced from the website of National Stock Exchange.
  • www.nse-india.com
  • Selection of the Schemes
  • Details pertaining to the type of the scheme, Assets under management and Launch date were sourced from the websites www.valueresearchonline.com
observations and inferences
  • Total Risk (Standard Deviation)
  • All 14 funds are having high standard deviation as compared to market. It is between 6 to 8 for all sectoral funds qualified. Franklin FMCG and UTI Software are the best among all with standard deviation of 6.19 and 6.41
  • Reliance banking and Magnum Pharma are bad performers among all with standard deviation of 7.90 and 7.87.
Systematic Risk(Beta) and Coefficient of Determination()
  • None of the schemes have beta greater than 1(i.e. market beta) suggesting that all these funds were holding a portfolio which was less risky as compared with the market portfolio
  • Avg. beta for the group works out to .82214 and 9 schemes have beta value greater than this.
  • FMCG sector has performed worst in this parameter. Magnum FMCG, Franklin FMCG, Prudential ICICI FMCG have performed badly. Their () is .52,.77,.57 respectively.
  • This shows that apart from these schemes having higher risk as inferred previously by the high values of standard deviation of their returns,
limitation of study
Limitation of study
  • The analysis is based on historical data and thus indicates the past performance which may not always be indicative of the future performance.
  • Weekly NAVs have been considered for the study. Daily NAVs would have given more precise result for the study
  • The time period considered by the study is only three years; a larger period could have ensured coverage of a full market cycle, thus giving a more real picture of the performance of the schemes.
  • Sharpe ratio (in its simplest forms) that the relationship between risk and return is linear and remain linear throughout its entire range.
  • Good Performers
  • Following 6 schemes have scored well on all parameters
  • Franklin Info tech
  • UTI Software
  • Birla Sun life
  • Franklin FMCG
  • DSPML Technology
  • Karvy Tech
  • Technology sector is the best performer among all the compared sectors.
  • Our schemes which can be identified as non performing on the basis of the parameters considered in the study are
  • Prudential ICICI Tech
  • Reliance Banking
  • Magnum FMCG
  • Prudential ICICI-FMCG
  • Franklin Pharma\
  • UTI Pharma.
  • Technology sectoral funds have performed well on all parameters, hence it is good bet for investments
  • FMCG and Pharma are avg. performers. Still they can be good for long run
  • In Banking Sector Reliance was only fund which qualified but it was worst performer in all parameters
  • Kotak should keep Mutual Fund Awareness Programmer’s on regular basis for investors and clients as future belongs to mutual fund in India specially Sectoral Mutual Funds