Comparison of mutual fund portfolios empirically

Neha Agarwal(1) Abhishek Arora(3) Mahima Arya(4) Abhishek Sahay(26) Sohin Savla(28) Amit Agarwal

 To study the performance of 15 schemes of mutual funds based on risk-return relationship Standard measure like mean return, beta and coefficient of determination The time-tested models of mutual funds performance evaluation given by Sharpe, Treynor and Jensen have also been applied

Objective

The various measures of return / risk and portfolio performance used are: Return The return from a Mutual fund scheme ( ) at time t is :

The Mean Return of the mutual fund scheme ( ) is :

=
=1

The return on the market (representative by a stock index) at time t : 1 = 1 The mean Return of the market portfolio ( ) over a period of time :

=
=1

The risk is calculated on the basis of the following: Beta (): i.e., funds volatility as regard market index Standard Deviation (): i.e., funds volatility or variation from the average expected return over a certain period Co-efficient of Determination (R2): i.e., the extent to which the movement in the fund can be explained by corresponding benchmark index ( here, NSE Nifty )

Risk

 The Sharpe measure provides the reward to volatility trade-off Sharpe Measure =

Where, = average return on mutual fund portfolio = average risk free return = standard deviation of excess returns (over the sample period)

Sharpe Ratio

 Treynor ratio is computed as the average return of the portfolio in excess of the risk-free return divided by the portfolio's beta =
where = beta risk value for the mutual fund portfolio

Treynor Ratio

 A risk adjusted performance measure This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm - Rf) Where, Rm is average market return during the given period

Jenson Model

MUTUAL FUND SCHEME Can equity tax saver Franklin india bluechip Franklin india prima plus HDFC Top 200 Magnum Global 200 Reliance growth fund ICICI Prudential tax plan ICICI Prudential power ICICI prudential growth Reliance income fund Birla income plus Kotak Bond regular plan ICICI prudential income TATA income fund

RETURN Moderate Good Good Excellent Excellent Good Excellent Poor Good Poor moderate Good good Poor

BETA High Low Low High High High High Low Low High Low Low Low Low

SHARPE RATIO +ve under performer +ve over performer +ve over performer +ve over performer +ve over performer +ve over performer +ve over performer -ve under performer +ve over performer -ve under performer -ve moderate performer -ve over performer -ve over performer -ve under performer

TREYNOR RATIO +ve under performer +ve under performer +ve under performer +ve under performer +ve under performer +ve under performer +ve under performer -ve under performer +ve over performer -ve under performer -ve moderate performer -ve over performer -ve over performer -ve under performer