Performance
Evaluation of Private and Public Sector Mutual Funds in India.
Professor,
School of Management,
Presidency University,
Itagalpur, Rajanukunte,
Bangalore
anithayadav@presidencyuniversity.in
Abstract
The Mutual funds industry is
playing a major role in channelizing small savings and maximizing the returns
to investor’s right from its inception in 1963.Mutual fund pools the savings of a group of people and invests this
money in stocks, bonds, and other securities. Mutual
fund investment opportunities enables the investors to reduce risk and maximize returns. According
to Association of Mutual Funds in India (AMFI) “a Mutual Fund is a
trust that pools the savings of a number of investors who share a
common financial goal and invest it in capital market instruments such as
shares, debentures and other securities. The income earned and capital
appreciation thus realised are shared by its unit holders in proportion to the
number of units owned by them. Thus, it offers common man an opportunity to
invest in a diversified and professionally managed basket of securities at a
relatively low cost”. India’s mutual fund industry
has grown at the rate of 12.5% annually on an average, according to a report by
(AMFI) and Global Analytics firm CRISIL.Over the last decade, it is seen that there is a shift in investment pattern
from real estate and gold to financial assets. The industry had 10 lakh Systematic
Investment Plan (SIP) accounts each month on an average in 2018 with SIP collection
on a monthly basis increasing to over ₹ 6,700 crore compared ₹4,950
crore in 2017. There are several schemes of Mutual funds available to the investors.
The retail investors look for information regarding performance of schemes
before investing in a particular scheme.This study is an
attempt to assess whether the public and private sector mutual funds have similar
risk and returns and assist the retail investors in decision making.In this
study a sample of four companies each from public and privatesector are randomly
selected. The study analysed five mutual fund schemes from public sector and
five schemes from public sector which are similar in nature.
Mann-Whitney U test is used to analyse the data. The
study found that private sector mutual funds performed comparatively better
than public sector mutual funds.
Keywords: Mutual funds,
performance evaluation, capital markets. Mann Whitney –U-test.
Introduction
In
1890, Mutual fund industry in the world was started in the US. The Unit Trust of India pioneered the mutual fund
industry in 1963.With the dawn of Private players in 1993; the MF industry grew
by leaps and bounds. Within three years, the number of Asset Management
Companies (AMCs) rose to 26. At present, we have 43 AMCs, number of schemes
have increased from 59 in 1993 to almost 2,000 mutual fund schemes in 2018. The
schemes include all open-ended, close-ended and interval schemes. Mutual Funds have grown as a popular investment vehicle
during the last decade. According to AMFI reports, “The Asset Under
Management (AUM) of the Indian MF Industry has grown from ₹ 4.17 trillion as on
31st March, 2009 to ₹23.80 trillion as on 31st March, 2019, more than 5 ½ fold
increase in a span of 10 years”.The mutual funds in
India has emerged as a strong financial intermediary and assist in bringing
stability and efficiency in the financial system. The mutual funds increase
liquidity in the capital and money market. They have been identified as one of
the important factors pushing up market prices of securities. The direct
lending by mutual funds to the corporate, has increased because SEBI guidelines
allows companies to reserve 20% of public issues for Indian mutual funds. Mutual
funds also enables the corporate sector
to raise funds at much lesser costs and have enabled as alternative source of raising capital. According to Manish Mehta, Kotak Mahindra
Asset Management Co.’s national head (sales and distribution alliances) “the
factors that will drive the growth in 2019 include the untapped potential,
rising investor awareness about mutual funds as an investment alternative”. The
mutual fund industry is expecting robust growth as the sector is yet to tap its
full potential.Indian mutual funds are thus
playing a crucial developmental role in
allocating resources in the emerging and developing market economy. Mutual
Funds act as financial intermediaries between the providers and the users of
money.
Literature
Review
A vast gamut of research has been done on evaluation
of Mutual funds. Researchers have analysed and appraised Standalone performance
of mutual funds, selected mutual funds and few studies have also been made on
comparing the public and private sector mutual fund schemes in India. Prajapati
&Patel (2012) suggest that most of the mutual
fund have given positive return during 2007 to 2011.Sharma (2013)analysed the perception of investors with regard to factors like liquidity, security, fees, quality,
returns and tax benefits. Kanethia (2010) compared of various
mutual fund schemes in India. The application of the Sharpe index made it
feasible to measure performance and then the ranking of the funds. Ranking of
the funds assist an investor to choose the funds and scheme and then decide
their portfolio accordingly. The result of the study shows that private mutual
funds are more preferred than the public mutual funds. Agarwal & Patwa (2014)private sector funds are able to generate better returns
than the public sector funds using Mann-Whitney U-Test. Pandow (2017) the industry is confronted with numerous challenges
like low penetration ratio, similarity of products, low awareness level ,lack
of interest of retail investors and evolving nature of the industry. Sapar & Madava (2003) performance measures suggest that most of the mutual
fund schemes in the sample of 58 were able to satisfy investor's expectations
by giving excess returns over expected returns. Fama & French (2008) found that mutual funds produce a
portfolio close to the market portfolio but with high costs of active
management that show up intact as lower returns. They have used Persistence
tests and Bootstrap simulations for the study. Nitzsche Cuthbertson et.al (2006) found mutual funds are similar
to those for equity mutual funds and hedge funds. Study suggests that investors should hold low
cost index funds and avoid holding loss making funds. Bayesian approach is used
for the study. Jayadev, (1996)
determined that Master gain has performed better according to Jenson and
Treynor measures but on the basis of Sharpe ratio it’s performance is not upto
the benchmark. Agrawal (2007)
revealed that the performance is affected by the saving and investment habits,
confidence and loyalty of the people. Tomer
and Khan (2014) analysed the problems and prospects of mutual funds in
India. The study says reduction on operational costs, skills and technology up
gradation is required. Sathish and Srinivasan (2016)analysed value of beta of the
schemes and found lower than one indicating that all the mutual funds are less
risky and less volatile. Siva Kumar et al,(2010) in their study
established that the private sector players hold the greater strength in
resource mobilization. Arora (2015)
assessed risk – adjusted performance of Indian mutual fund schemes during
the bear period and the boom period and found that equity-oriented mutual fund
schemes performed well during the bull phase.Santhi & Gurunathan (2012) found that all the tax-saving
mutual funds are volatile, It is also observed that most of the schemes give
higher return than the benchmark S&P CNX NIFTY. Vyas, et.al (2016), suggested that for investors the most
important intrinsic fund quality is fund expense ratio and exit load. Panwar & Madhumathi (2006) there is a significant
difference between public-sector sponsored mutual funds and private-sector
sponsored mutual funds in terms of coefficient of variation (COV), excess standard
deviation adjusted returns (SDAR), residual variance (RV). Rao (2006)Ratnaraju & Madhav (2016)Goyal
(2015)opine that Equity Growth
funds provide higher returns than that of Equity Dividend funds.
Data collection
The
study is purely based on Secondary data. For the purpose of the study data is
collected from website of Association of Mutual Funds in India (AMFI),
www.mutual fundsindia.com, and Journals. The yearly returns of various schemes
under study have been taken and then yearly average returns are used for
further analysis. Mann-Whiteny U test is used to analyse and interpret the data
collected.
Limitations of the
study
The
study is restricted to only selected public and private-sector mutual funds
company
The
study analyses five schemes each of public and private sector mutual funds,
hence the findings cannot be generalized
Objectives:
To
analyse the performance of public and private sector mutual funds
To
analyse whether there is any significant difference in the risk and average
returns of public and private sector mutual funds.
Hypothesis
H01:
There is no difference in returns of public and private sector mutual funds.
Ha1:
There is difference in returns of public and private sector mutual funds.
H02:
Risk is not the same in public and
private sector mutual funds.
Ha2:
Risk is the same in public and private sector mutual funds.
Research methodology
For
the comparative analysis of mutual funds 4 companies have been randomly
selected from each sector and from each of these sectors 5 schemes of similar
in nature has been considered. The study is done for a period of 5 years starting from 2014 to 2018. To
calculate Average Returns Daily Net Asset Value of the mutual fund companies
and Annual Average of these mutual fund companies was calculated. Then, using
Average Returns, Standard Deviation was further calculated for the Average
Returns. Standard Deviation and Average Returns are the two variables used for analysis.
Generally, calculation of returns of funds is done after adjusting the Net
Asset Values to dividends, capital gains, right and bonus issue. In the current
study the schemes that are selected for both private and public sector are
growth based, hence they do not have any of the above factors. Risk refers to
the amount of variations in the returns of mutual funds during the given
period. These fluctuations might be because of various general market movements
which affect the market securities present in the portfolio of a fund.
Mann-Whitney U Test is used to test the data collected.
Mann-Whitney U Test
is a Rank Sum Test. The test is conducted on the ranks which are given to the
sample observations. It is a nonparametric test and hence is distribution free.
In order to determine whether two independent samples are from the same
population this test is used. Thus, this test helps the study to find out
whether private sector and public sector mutual funds have similar risk and return profile. For this purpose ranks are
given for Average Returns and Standard Deviation of public sector and private
sector mutual funds selected.
The
formula for U test
Mean
of Sampling Distribution of U
Standard
Error of U statistics
Formula
for Hypothesis Testing
Where
N1
and n2 = sample sizes
R
= sum of ranks
Table
No: 1 Showing the analysis of Private Sector
|
Fund Houses |
Schemes |
Average Returns |
Ranks |
SD |
Ranks |
|
HDFC Mutual Fund (Private) |
Top 200 Fund (G) |
16.54 |
27 |
21.87 |
19 |
|
Index Fund (G) |
14.54 |
31 |
17.88 |
31 |
|
|
Equity saving Fund (G) |
11.72 |
38 |
6.77 |
40 |
|
|
Growth Fund (G) |
16.12 |
29 |
21.11 |
22 |
|
|
HDFC Capital Builder (G) |
23.14 |
6 |
23.09 |
17 |
|
|
ICICI Prudential Mutual fund (Private) |
Top 100 Fund (G) |
17.32 |
22 |
15.82 |
37 |
|
Index Fund (G) |
13.6 |
34 |
16.09 |
33 |
|
|
Dynamic plan (G) |
19.04 |
15 |
14.88 |
38 |
|
|
Income Fund (G) |
8.26 |
39 |
7.54 |
39 |
|
|
Mid cap (G) |
28.96 |
2 |
35.93 |
3 |
|
|
Reliance Mutual Fund (Private) |
Equity Linked Savings Fund (G) |
17.48 |
21 |
27.74 |
9 |
|
Vision (G) |
20.86 |
11 |
29.06 |
7 |
|
|
Growth Retail Plan (G) |
20.58 |
12 |
26 |
13 |
|
|
Banking Fund (G) |
20.4 |
13 |
33.07 |
5 |
|
|
Tax Saver (G) |
26.26 |
5 |
37.01 |
1 |
|
|
Kotak Mahindra Mutual Fund (Private) |
Kotak - 50 Diret Plan (G) |
17.3 |
23 |
18.53 |
28 |
|
Opportunities Diret (G) |
20.88 |
10 |
21.35 |
20 |
|
|
mid cap (G) |
26.72 |
4 |
32.79 |
6 |
|
|
Equity (G) |
18.12 |
19 |
19.32 |
27 |
|
|
Tax Saver (G) |
19.54 |
14 |
26.18 |
12 |
TableNo.
2 Showing the analysis of Public Sector
|
Fund Houses |
Schemes |
Average Returns |
Ranks |
SD |
Ranks |
|
UTI Mutual Fund (Public) |
equity(G) |
17.14 |
24 |
20.59 |
23 |
|
Banking Sector (G) |
18.74 |
16 |
34.55 |
4 |
|
|
Opportunities (G) |
14.28 |
33 |
19.92 |
26 |
|
|
Mid Cap (G) |
29.62 |
1 |
36.79 |
2 |
|
|
Equity long term(G) |
17.08 |
25 |
18.26 |
29 |
|
|
SBI Mutual Fund (Public) |
M equity(G) |
15.58 |
30 |
17.6 |
32 |
|
M Multi cap(G) |
22.12 |
9 |
23.03 |
18 |
|
|
M Tax Gain(G) |
18.48 |
17 |
21.33 |
21 |
|
|
M Mid cap (G) |
26.92 |
3 |
26.67 |
11 |
|
|
M Inome Fund(G) |
8.1 |
40 |
26.68 |
10 |
|
|
LIC Mutual Fund (Public) |
equity(G) |
13.14 |
36 |
20.28 |
24 |
|
Index(G) |
12.78 |
37 |
16.05 |
34 |
|
|
Growth(G) |
14.32 |
32 |
18.01 |
30 |
|
|
Infrastructure Fund (G) |
16.22 |
28 |
28.01 |
8 |
|
|
Tax Plan(G) |
18.34 |
18 |
23.11 |
16 |
|
|
Principal Mutual Fund (Public) |
Large cap(G) |
16.76 |
26 |
20.16 |
25 |
|
Index(G) |
13.28 |
35 |
15.86 |
36 |
|
|
Growth(G) |
22.44 |
8 |
23.76 |
15 |
|
|
Balanced Fund (G) |
17.8 |
20 |
15.88 |
35 |
|
|
Tax saving(G) |
22.46 |
7 |
23.8 |
14 |
Returns
R1=
∑Ranks of Private Sector Funds= 375
R2=
∑Ranks of Public Sector Funds= 445
Or
Hypothesis
Testing
Risk
R1=
∑Ranks of Private Sector Funds= 407
R2=
∑Ranks of Public Sector Funds= 413
Or
Hypothesis
Testing
Mean
of Standard Deviation of U:
Standard
Error of U-Statistics:
Analysis
and Interpretation
The
table value of Z at 5% level of significance is 1.96. The calculated value of Z
is 0.95. The above Normal Distribution Curve showing the acceptance and
rejection area for similarity in the returns shows that the returns for both
private and public sector mutual funds are not at par. As the Z value 0.95 of
the area under Normal Curve is less than table value of Z (1.96) the null
hypothesis is accepted.
Upper
Limit=
Lower
Limit=
Here
both upper limit and lower limit are accepted.
The
table value of Z at 5% level of significance is 1.96. The calculated value of Z
is 0.08. The above Normal Distribution Curve showing the acceptance and
rejection area for similarity in the returns shows that the risk for both
private and public sector mutual funds are not at par. As the Z value 0.08 of
the area under Normal Curve is less than table value of Z (1.96) the null
hypothesis is accepted.
The
observed value of U for the first hypothesis of returns is 235, which is in the
acceptance region, the first null hypothesis is accepted. Thus, it can be
concluded that public sector funds and private sector funds do not give similar
returns and there is a significant difference in the returns of both the
sectors. The observed value of U for the second hypothesis of risk is 203,
which is in the acceptance region, so the second null hypothesis is accepted.
Hence it can be said that public sector funds and private sector funds do not
face the same level of risk and there is a significant difference in the level
of risk in both the sectors.
Conclusion
The
above study examined whether the returns of public and private sector mutual
funds are at par and whether risk of these both mutual funds are at par. There
is a significant difference between public sector funds and private sector
funds is observed from the study. Public sector funds are not at par with
private sector funds in generating returns. They have lower returns compared to
private sector. Similarly, both the sectors are not at par in case of risk.
They face different level of risk. Public sector funds are more risky compared
to private sector funds. It can be concluded from the above analysis that
performance of private and public sector funds are not at par. The private
sector funds performance is better when compare to public sector funds as they
have better returns than the public sector funds during the period of the
study.
References:
2. Agrawal, D. (2007).
Measuring performance of Indian mutual funds.
4. Fama, E. F., & French, K. (2008). Mutual fund
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6.
Jayadev,
M. (1996). Mutual fund performance: An analysis of monthly returns. Finance
India, 10(1), 73-84.
8.
Nitzsche,
D., Cuthbertson, K., & O'Sullivan, N. (2006). Mutual fund performance.
9.
Pandow, B. A. (2017). Performance of Mutual Funds in India.
10. Panwar, S., & Madhumathi,
R. (2006). Characteristics and performance evaluation of selected mutual funds
in India.
11. Prajapati, K. P., &
Patel, M. K. (2012). Comparative study on performance evaluation of mutual fund
schemes of Indian companies. Researchers World, 3(3),
47.
13. Rao, D. N. (2006). Investment
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16. Sapar, N. R., & Madava,
R. (2003). Performance evaluation of Indian mutual funds.
18. Sharma, R. G. (2013).
A comparative study on public and private sector Mutual Funds in India. International
Journal of Research in Humanities and Social Sciences, 1(6), 23-25.
Weblinks:
https://www.amfiindia.com/indian-mutual
https://economictimes.indiatimes.com/mf/analysis/25-years-of-private-sector-mutual-funds-key-milestones/articleshow/65038546.cms?from=mdrhttps://www.dnb.co.in/Publications/IndiasLeadingBFSICompanies_2016/MutualFunds.asp
