|
B. Ravi Kumar Sree Vidyanikethan Engineering College A.Rangampet – 517 012 Contact No.- 09949418650 Email: ravi9949418650@yahoo.com |
Indian Stock market plays an imperative role in mounting the Indian economy. Now-a-days it captures the attention of small investors and rural people to invest their hard earnings in the share market. Among a variety of investment alternatives, MFs, seems to be viable for all types of investors and is considered as the safest mode of investment. The present case study is an attempt to understand about the concept of MFs and their performance. As a part of the study, the sample data has been collected from Reliance MFs. The collected information was processed by using the tools like Sharpe Ratio and Treynor Ratio.
Keywords : Investors, Mutual Funds, Performance, Stock Market
A Mutual Fund is a reliance that pools the savings of a number of small investors who can share a universal financial goal. Based on the objective of the scheme the fund manager will invest the collected funds in various securities. The unit holders will share the earned income generated by the schemes on pro-rata basis. Mutual funds are diversified and professionally managed by the professionals at a low cost and they are satisfying the requirements of the common man for investment. Anyone can invest their surplus of as little as a few thousand rupees can invest in MFs. There will be a specific objective and strategy for each and every mutual fund.
Advantages of Mutual Funds:
Ø Professional Management
Ø Diversification
Ø Convenient Administration
Ø Low Costs
Ø Liquidity
Ø Transparency
Ø Flexibility etc.
The data has been collected by using both the methods like primary data and secondary data. But the study is mostly depended upon secondary data. The present study has been carried in the months of April to June, 2011. The collected data was analyzed by using the techniques like Sharpe ratio and Treynor ratio.
For assessing the performance of mutual funds, techniques like Sharpe ratio and treynor ratio has been used.
Sharpe Ratio
This ratio measures the return earned in excess of the risk free rate on a portfolio to the portfolio’s total risk as measured by the standard deviation in its return over the measurement period. Nobel Laureate William Sharpe developed the model and the results of it indicate the amount of return earned per unit of risk. The Sharpe ratio is often used to rank the risk-adjusted performance of various portfolios over the same time.
The higher a Sharpe ratio, the better a portfolio’s returns have been relative to the amount of investment risk the investor has taken. The major advantage of using the Sharpe ratio over other models (CAPM) is that the Sharpe ratio used the volatility of the portfolio return instead of measuring the volatility against a benchmark (i.e., index). The primary disadvantage of the Sharpe ratio is that it is jest a number and it is meaningless unless you compare it to several other types of portfolios with similar objectives.
Return portfolio – Return of Risk free investment
S = ----------------------------------------------------------------
Standard Deviation of Portfolio
Treynor Ratio
This ratio is similar to the Sharpe Ratio except is used beta instead of standard deviation. It’s also known as the Reward to Volatility Ratio, it is the ratio of a fund’s average excess return to the fund’s beta. It measures the returns earned in excess of those that could have been earned on a risk less investment per unit of market risk assumed. The formula is typically used in ranking Mutual Funds with similar objectives.
Return portfolio – Return of Risk free investment
T = -----------------------------------------------------------------------------
Beta of Portfolio
Objectives of the Study
1. To cram with reference to the conception and functioning of mutual funds.
2. To know how investors are benefited by investing in mutual funds.
3. To measure the performance of reliance mutual funds by using Sharpe and Treynor ratio.
Reliance Regular Saving Fund
The chart below shows NAV Value 12th April 2011 to 04 th June 2011 of the fund and Bench Mark Return from 12th April 2011 to 04 th June 2011.
| Date | NAV Value | RETURNS % * | Bench Mark BSE 100 | RETURNS % * |
| 12/04/2011 | 20.63 | 22.66 | ||
| 13/04/2011 | 20.73 | 0.4847309 | 22.92 | 1.1473962 |
| 14/04/2011 | 21.33 | 2.894356 | 23.51 | 2.574171 |
| 15/04/2011 | 21.83 | 2.3441162 | 22.54 | -4.1259038 |
| 16/04/2011 | 21.76 | -0.3206596 | 22.41 | -0.5767524 |
| 19/04/2011 | 22.01 | 1.148897 | 22.45 | 0.1784917 |
| 20/04/2011 | 22.27 | 1.1812812 | 22.77 | 1.14253897 |
| 21/04/2011 | 22.26 | 0.0449034 | 22.89 | 0.5270092 |
| 22/04/2011 | 21.26 | -4.4923629 | 22.07 | -3.5823503 |
| 23/04/2011 | 21.85 | 2.7751646 | 22.19 | 0.5437245 |
| 26/04/2011 | 22.33 | 2.1967963 | 22.59 | 1.8026137 |
| 27/04/2011 | 22.26 | -0.3134796 | 22.44 | -0.6640106 |
| 28/04/2011 | 21.92 | -1.5274034 | 22.18 | -1.1586452 |
| 29/04/2011 | 21.56 | -1.6423357 | 21.78 | -1.8034265 |
| 30/04/2011 | 22.04 | 2.226345 | 22.03 | 1.147842 |
| 03/05/2011 | 21.28 | -3.4482758 | 21.21 | -3.722197 |
| 04/05/2011 | 20.83 | -2.1146616 | 20.69 | 2.4516737 |
| 05/05/2011 | 21.25 | 2.0163226 | 20.92 | 1.1116481 |
| 06/05/2011 | 20.93 | -1.5058823 | 20.53 | -1.8642447 |
| 07/05/2011 | 21.13 | 0.9555661 | 20.67 | 0.6819288 |
| 10/05/2011 | 21.51 | 1.7983909 | 20.86 | 0.9192065 |
| 11/05/2011 | 21.34 | -0.79033 | 20.69 | -0.8149568 |
| 12/05/2011 | 21.81 | 2.2024367 | 21.19 | 2.4166263 |
| 13/05/2011 | 21.87 | 0.2751031 | 21.44 | 1.1798017 |
| 14/05/2011 | 21.37 | -2.2862368 | 21.02 | -1.9589552 |
| 17/05/2011 | 21.59 | 1.0294805 | 21.37 | 1.6650808 |
| 18/05/2011 | 21.81 | 1.0189902 | 21.48 | 0.5147402 |
| 19/05/2011 | 22.09 | 1.2838147 | 21.74 | 1.2104283 |
| 20/05/2011 | 21.05 | -4.7080126 | 20.55 | -5.473781 |
| 21/05/2011 | 21.29 | 1.1401425 | 20.53 | -0.0973236 |
| 24/05/2011 | 20.68 | -2.8651949 | 20.03 | -2.4354603 |
| 25/05/2011 | 20.74 | 0.2901353 | 20.09 | 0.2995506 |
| 26/05/2011 | 20.29 | -2.1697203 | 19.68 | -2.0408163 |
| 27/05/2011 | 19.91 | -1.8728437 | 19.42 | -1.3211382 |
| 28/05/2011 | 20.65 | 3.7167252 | 20.06 | 3.2955715 |
| 31/05/2011 | 21.28 | 3.0508474 | 20.82 | 3.788634 |
| 01/06/2011 | 21.28 | 0 | 20.74 | -0.3842459 |
| 02/06/2011 | 21.83 | 2.5845864 | 21.39 | 3.1340405 |
| 03/06/2011 | 22.37 | 2.4736601 | 21.91 | 2.4310425 |
| 04/06/2011 | 22.21 | -0.7152436 | 21.71 | -0.9128251 |
Risk Measurement Tools:
| NAV Per Unit | Bench Mark Return | |
| Average | 0.212060076 | -0.087019698 |
| Standard Deviation | 2.150526845 | 2.152293208 |
Sharpe Ratio:
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
| NAV | Bench Mark | |
| Average Rate of Return | 0.212060076 | -0.087019698 |
| Rate of Risk Free Return | 0.00890256 | 0.00890256 |
| Sharpe Ratio | 0.094468719 | -0.044567467 |
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
Beta (β):
Beta (β) = (Co-Var (benchmark, fund)/ variance (bench mark)
| Co-Var (benchmark, fund) | 3.802530125 |
| Var ( Bench mark) | 4.632366052 |
| Beta (β) | 0.820861323 |
Treynor Ratio:
Treynor Ratio = (Average Return − Risk free Rate) / Beta (β)
| Average Rate of Return | 0.212060076 | -0.087019698 |
| Rate of Risk Free Return | 0.00890256 | 0.00890256 |
| Beta (β) | 0.820861323 | 0.820861323 |
| Treynor Ratio | 0.247493104 | 0.116855618 |
Alpha (α):
Alpha (α) = [(Fund Return − Risk free Return) − Expected Return *]
Expected Return* = [Beta (β) * (Bench mark Return − Risk free Return)]
= [0.820861323*(-0.087019698 - 0.00890256) = -0.078738871
Alpha (α) = [(0.212060076 - 0.00890256) – (-0.078738871)]
= 0.281896388
Return*= (Previous NAV- Present NAV) / Previous NAV.
The Sharpe Measure is uses the Standard Deviation of Return as the Measures of Risk where as Treynor measure employs Beta (β) (systematic Risk) the Sharpe measure implicitly evaluates portfolio manager on the basis of return performance but also taking to account how well portfolio is diversified during the particular period. Portfolio is perfectly diversified (does not contain the unsystematic Risk), the two measures would give identical rakings. If it is purely diversified it is possible to have high ranking on basis of Treynor Measure and low ranking of Sharpe Measure.
From the above analysis we can infer that Port folio is not diversified properly this is because of the deviation in Trenyor and Sharpe Measures rankings. Since Sharpe Measures uses Standard Deviation for the measure must of Risk. While Trenyor measure use Beta (β) i.e., systematic risk for the measurement these deviations are due to uncontrollable Risk Factors in the Market during period.
Sharpe Ratio = 0.094468719
Treynor Ratio = 0.247493104
According to above Sharpe Ratio on Return and Treynor Ratio on Return in Reliance Regular Saving Fund Equity and Growth option is poorly generated because of Sharpe Measure and Treynor Measure is not identical and lot of variance during the period.
Reliance Equity Fund - Growth Plan:
The chart below shows NAV Value 12th April 2011 to 04 th June 2011 of the fund and Bench Mark Return from 12th April 2011 to 04 th June 2011.
| Date | NAV Value | RETURNS % * | Bench Mark BSE 100 | RETURNS % * |
| 12/04/2011 | 12.7639 | 22.66 | ||
| 13/04/2011 | 12.8445 | 0.631468438 | 22.92 | 1.1473962 |
| 14/04/2011 | 13.0391 | 1.51504535 | 23.51 | 2.574171 |
| 15/04/2011 | 13.1686 | 0.993166706 | 22.54 | -4.1259038 |
| 16/04/2011 | 13.1598 | -0.066825631 | 22.41 | -0.5767524 |
| 19/04/2011 | 13.2594 | 0.756850408 | 22.45 | 0.1784917 |
| 20/04/2011 | 13.4546 | 1.472163145 | 22.77 | 1.14253897 |
| 21/04/2011 | 13.4049 | -0.369390394 | 22.89 | 0.5270092 |
| 22/04/2011 | 12.9819 | -3.155562518 | 22.07 | -3.5823503 |
| 23/04/2011 | 13.2857 | 2.340181329 | 22.19 | 0.5437245 |
| 26/04/2011 | 13.5412 | 1.923120347 | 22.59 | 1.8026137 |
| 27/04/2011 | 13.4457 | -0.705255073 | 22.44 | -0.6640106 |
| 28/04/2011 | 13.3083 | -1.021888039 | 22.18 | -1.1586452 |
| 29/04/2011 | 13.1408 | -1.258613046 | 21.78 | -1.8034265 |
| 30/04/2011 | 13.3403 | 1.51817241 | 22.03 | 1.147842 |
| 03/05/2011 | 12.9452 | -2.96170251 | 21.21 | -3.722197 |
| 04/05/2011 | 12.6846 | -2.013101381 | 20.69 | 2.4516737 |
| 05/05/2011 | 12.9169 | 1.831354556 | 20.92 | 1.1116481 |
| 06/05/2011 | 12.7179 | -1.540617331 | 20.53 | -1.8642447 |
| 07/05/2011 | 12.7533 | 0.27834784 | 20.67 | 0.6819288 |
| 10/05/2011 | 12.9141 | 1.260850133 | 20.86 | 0.9192065 |
| 11/05/2011 | 12.8492 | -0.502551475 | 20.69 | -0.8149568 |
| 12/05/2011 | 13.1657 | 2.46318837 | 21.19 | 2.4166263 |
| 13/05/2011 | 13.2634 | 0.742079798 | 21.44 | 1.1798017 |
| 14/05/2011 | 12.9842 | -2.10504094 | 21.02 | -1.9589552 |
| 17/05/2011 | 13.0794 | 0.733198811 | 21.37 | 1.6650808 |
| 18/05/2011 | 13.1788 | 0.759973699 | 21.48 | 0.5147402 |
| 19/05/2011 | 13.3152 | 1.034995599 | 21.74 | 1.2104283 |
| 20/05/2011 | 12.6695 | -4.849345109 | 20.55 | -5.473781 |
| 21/05/2011 | 12.6934 | 0.188642014 | 20.53 | -0.0973236 |
| 24/05/2011 | 12.3407 | -2.778609356 | 20.03 | -2.4354603 |
| 25/05/2011 | 12.4161 | 0.610986411 | 20.09 | 0.2995506 |
| 26/05/2011 | 12.1869 | -1.845990287 | 19.68 | -2.0408163 |
| 27/05/2011 | 12.082 | -0.860760325 | 19.42 | -1.3211382 |
| 28/05/2011 | 12.4186 | 2.785962589 | 20.06 | 3.2955715 |
| 31/05/2011 | 12.7618 | 2.763596541 | 20.82 | 3.788634 |
| 01/06/2011 | 12.8109 | 0.384741964 | 20.74 | -0.3842459 |
| 02/06/2011 | 13.1564 | 2.696922152 | 21.39 | 3.1340405 |
| 03/06/2011 | 13.4244 | 2.037031407 | 21.91 | 2.4310425 |
| 04/06/2011 | 13.4153 | -0.067787015 | 21.71 | -0.9128251 |
Risk Measurement Tools:
| NAV Per Unit | Bench Mark Return | |
| Average | 0.122342708 | -0.087019698 |
| Standard Deviation | 1.808297354 | 2.152293208 |
Sharpe Ratio:
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
| NAV | Bench Mark | |
| Average Rate of Return | 0.122342708 | -0.087019698 |
| Rate of Risk Free Return | 0.00890256 | 0.00890256 |
| Sharpe Ratio | 0.062733127 | -0.044567467 |
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
Beta (β):
Beta (β) = (Co-Var (benchmark, fund)/ variance (bench mark)
| Co-Var (benchmark, fund) | 3.399853491 |
| Var ( Bench mark) | 4.632366052 |
| Beta (β) | 0.73393455 |
Treynor Ratio:
Treynor Ratio = (Average Return − Risk free Rate) / Beta (β)
| Average Rate of Return | 0.122342708 | -0.087019698 |
| Rate of Risk Free Return | 0.00890256 | 0.00890256 |
| Beta (β) | 0.73393455 | 0.820861323 |
| Treynor Ratio | 0.154564393 | 0.116855618 |
Alpha (α):
Alpha (α) = [(Fund Return − Risk free Return) − Expected Return *]
Expected Return* = [Beta (β) * (Bench mark Return − Risk free Return)]
= [0.73393455*(-0.087019698 - 0.00890256)
= -0.070400659
Alpha (α) = [(0.122342708 - 0.00890256) – -0.070400659)]
= 0.183840807
Return*= (Previous NAV- Present NAV) / Previous NAV.
The Sharpe Measure is uses the Standard Deviation of Return as the Measures of Risk where as Treynor measure employs Beta (β) (systematic Risk) the Sharpe measure implicitly evaluates portfolio manager on the basis of return performance but also taking to account how well portfolio is diversified during the particular period. Portfolio is perfectly diversified (does not contain the unsystematic Risk), the two measures would give identical rakings. If it is purely diversified it is possible to have high ranking on basis of Treynor Measure and low ranking of Sharpe Measure.
From the above analysis we can in infer that Port folio is not diversified properly this is because of the deviation in Trenyor and Sharpe Measures rankings. Since Sharpe Measures uses Standard Deviation for the measure must of Risk. While Trenyor measure use Beta (β) i.e., systematic risk for the measurement these deviations are due to uncontrollable Risk Factors in the Market during period.
Sharpe Ratio = 0.062733127
Treynor Ratio = 0.154564393
According to above Sharpe Ratio on Return and Treynor Ratio on Return in Reliance Equity Fund Growth Plan are poorly generated because of Sharpe Measure and Treynor Measure is not identical and lot of variance during the period.
Reliance Equity Opportunities Fund - Growth Plan:
The chart below shows NAV Value 12th April 2011 to 04 th June 2011 of the fund and Bench Mark Return from 12th April 2011 to 04 th June 2011.
| Date | NAV Value | RETURNS % * | Bench Mark BSE 100 | RETURNS % * |
| 12/04/2011 | 19.6749 | 22.66 | ||
| 13/04/2011 | 19.7002 | 0.128590234 | 22.92 | 1.1473962 |
| 14/04/2011 | 20.0628 | 1.840590451 | 23.51 | 2.574171 |
| 15/04/2011 | 20.2602 | 0.983910521 | 22.54 | -4.1259038 |
| 16/04/2011 | 20.4095 | 0.736912765 | 22.41 | -0.5767524 |
| 19/04/2011 | 20.4677 | 0.285161322 | 22.45 | 0.1784917 |
| 20/04/2011 | 21.0187 | 2.692046493 | 22.77 | 1.14253897 |
| 21/04/2011 | 20.9774 | -0.196491695 | 22.89 | 0.5270092 |
| 22/04/2011 | 20.3021 | -3.219178735 | 22.07 | -3.5823503 |
| 23/04/2011 | 20.8218 | 2.559833712 | 22.19 | 0.5437245 |
| 26/04/2011 | 21.0697 | 1.190579105 | 22.59 | 1.8026137 |
| 27/04/2011 | 21.0026 | -0.318466803 | 22.44 | -0.6640106 |
| 28/04/2011 | 20.7508 | -1.198899184 | 22.18 | -1.1586452 |
| 29/04/2011 | 20.5044 | -1.187424099 | 21.78 | -1.8034265 |
| 30/04/2011 | 20.673 | 0.822262539 | 22.03 | 1.147842 |
| 03/05/2011 | 20.1315 | -2.619358584 | 21.21 | -3.722197 |
| 04/05/2011 | 19.7166 | -2.060949259 | 20.69 | 2.4516737 |
| 05/05/2011 | 19.9408 | 1.13711289 | 20.92 | 1.1116481 |
| 06/05/2011 | 19.7577 | -0.918217925 | 20.53 | -1.8642447 |
| 07/05/2011 | 19.7003 | -0.290519646 | 20.67 | 0.6819288 |
| 10/05/2011 | 19.9606 | 1.321299676 | 20.86 | 0.9192065 |
| 11/05/2011 | 20.0458 | 0.426840877 | 20.69 | -0.8149568 |
| 12/05/2011 | 20.5268 | 2.399505133 | 21.19 | 2.4166263 |
| 13/05/2011 | 20.567 | 0.195841534 | 21.44 | 1.1798017 |
| 14/05/2011 | 20.1576 | -1.990567414 | 21.02 | -1.9589552 |
| 17/05/2011 | 20.3688 | 1.047743779 | 21.37 | 1.6650808 |
| 18/05/2011 | 20.4036 | 0.170849535 | 21.48 | 0.5147402 |
| 19/05/2011 | 20.631 | 1.114509204 | 21.74 | 1.2104283 |
| 20/05/2011 | 19.6751 | -4.633318792 | 20.55 | -5.473781 |
| 21/05/2011 | 19.7129 | 0.192121006 | 20.53 | -0.0973236 |
| 24/05/2011 | 19.2176 | -2.512567912 | 20.03 | -2.4354603 |
| 25/05/2011 | 19.2424 | 0.129048372 | 20.09 | 0.2995506 |
| 26/05/2011 | 18.9116 | -1.719120276 | 19.68 | -2.0408163 |
| 27/05/2011 | 18.7524 | -0.841811375 | 19.42 | -1.3211382 |
| 28/05/2011 | 19.3499 | 3.186258826 | 20.06 | 3.2955715 |
| 31/05/2011 | 19.8748 | 2.712675518 | 20.82 | 3.788634 |
| 01/06/2011 | 19.7984 | -0.384406384 | 20.74 | -0.3842459 |
| 02/06/2011 | 20.2983 | 2.524951511 | 21.39 | 3.1340405 |
| 03/06/2011 | 21.0431 | 3.669272796 | 21.91 | 2.4310425 |
| 04/06/2011 | 20.8811 | -0.769848549 | 21.71 | -0.9128251 |
Risk Measurement Tools:
| NAV Per Unit | Bench Mark Return | |
| Average | 0.135273823 | -0.087019698 |
| Standard Deviation | 1.839117068 | 2.152293208 |
Sharpe Ratio:
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
| NAV | Bench Mark | |
| Average Rate of Return | 0.135273823 | -0.087019698 |
| Rate of Risk Free Return | 0.00890256 | 0.00890256 |
| Sharpe Ratio | 0.068713007 | -0.044567467 |
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
Beta (β):
Beta (β) = (Co-Var (benchmark, fund)/ variance (bench mark)
| Co-Var (benchmark, fund) | 3.350194436 |
| Var ( Bench mark) | 4.632366052 |
| Beta (β) | 0.72321453 |
Treynor Ratio:
Treynor Ratio = (Average Return − Risk free Rate) / Beta (β)
| Average Rate of Return | 0.135273823 | -0.087019698 |
| Rate of Risk Free Return | 0.00890256 | 0.00890256 |
| Beta (β) | 0.72321453 | 0.820861323 |
| Treynor Ratio | 0.174735515 | 0.116855618 |
Alpha (α):
Alpha (α) = [(Fund Return − Risk free Return) − Expected Return *]
Expected Return* = [Beta (β) * (Bench mark Return − Risk free Return)]
= [0.72321453*(-0.087019698 - 0.00890256)
= -0.06937237
Alpha (α) = [(0.135273823- 0.00890256) – ( -0.06937237)]
= 0.195743634
Return*= (Previous NAV- Present NAV) / Previous NAV.
The Sharpe Measure is uses the Standard Deviation of Return as the Measures of Risk where as Treynor measure employs Beta (β) (systematic Risk) the Sharpe measure implicitly evaluates portfolio manager on the basis of return performance but also taking to account how well portfolio is diversified during the particular period. Portfolio is perfectly diversified (does not contain the unsystematic Risk), the two measures would give identical rakings. If it is purely diversified it is possible to have high ranking on basis of Treynor Measure and low ranking of Sharpe Measure.
From the above analysis we can in infer that Port polio is not diversified properly this is because of the deviation in Trenyor and Sharpe Measures rankings. Since Sharpe Measures uses Standard Deviation for the measure must of Risk. While Trenyor measure use Beta (β) i.e., systematic risk for the measurement these deviations are due to uncontrollable Risk Factors in the Market during period.
Sharpe Ratio = 0.068713007
Treynor Ratio = 0.174735515
According to above Sharpe Ratio on Return and Treynor Ratio on Return in Reliance Equity Opportunities Fund Growth Plan are poorly generated because of Sharpe Measure and Treynor Measure is not identical and there is a lot of variance during the period.
Reliance Income Fund- Growth Plan
The chart below shows NAV Value 12th April 2011 to 04 th June 2011 of the fund and Bench Mark Return from 12th April 2011 to 04 th June 2011.
| Date | NAV Value | RETURNS % * | Bench Mark BSE 100 | RETURNS % * |
| 12/04/2011 | 21.63 | 22.66 | ||
| 13/04/2011 | 22.01 | 1.148897 | 22.92 | 1.1473962 |
| 14/04/2011 | 22.27 | 1.1812812 | 23.51 | 2.574171 |
| 15/04/2011 | 22.26 | 0.0449034 | 22.54 | -4.1259038 |
| 16/04/2011 | 21.26 | -4.4923629 | 22.41 | -0.5767524 |
| 19/04/2011 | 21.85 | 2.7751646 | 22.45 | 0.1784917 |
| 20/04/2011 | 20.73 | 0.4847309 | 22.77 | 1.14253897 |
| 21/04/2011 | 21.33 | 2.894356 | 22.89 | 0.5270092 |
| 22/04/2011 | 21.83 | 2.3441162 | 22.07 | -3.5823503 |
| 23/04/2011 | 21.76 | -0.3206596 | 22.19 | 0.5437245 |
| 26/04/2011 | 22.27 | 1.1812812 | 22.59 | 1.8026137 |
| 27/04/2011 | 22.26 | 0.0449034 | 22.44 | -0.6640106 |
| 28/04/2011 | 21.26 | -4.4923629 | 22.18 | -1.1586452 |
| 29/04/2011 | 21.85 | 2.7751646 | 21.78 | -1.8034265 |
| 30/04/2011 | 22.33 | 2.1967963 | 22.03 | 1.147842 |
| 03/05/2011 | 22.26 | -0.3134796 | 21.21 | -3.722197 |
| 04/05/2011 | 21.92 | -1.5274034 | 20.69 | 2.4516737 |
| 05/05/2011 | 21.56 | -1.6423357 | 20.92 | 1.1116481 |
| 06/05/2011 | 22.04 | 2.226345 | 20.53 | -1.8642447 |
| 07/05/2011 | 21.28 | -3.4482758 | 20.67 | 0.6819288 |
| 10/05/2011 | 20.83 | -2.1146616 | 20.86 | 0.9192065 |
| 11/05/2011 | 21.25 | 2.0163226 | 20.69 | -0.8149568 |
| 12/05/2011 | 20.93 | -1.5058823 | 21.19 | 2.4166263 |
| 13/05/2011 | 21.13 | 0.9555661 | 21.44 | 1.1798017 |
| 14/05/2011 | 21.51 | 1.7983909 | 21.02 | -1.9589552 |
| 17/05/2011 | 21.34 | -0.79033 | 21.37 | 1.6650808 |
| 18/05/2011 | 21.81 | 2.2024367 | 21.48 | 0.5147402 |
| 19/05/2011 | 21.87 | 0.2751031 | 21.74 | 1.2104283 |
| 20/05/2011 | 21.37 | -2.2862368 | 20.55 | -5.473781 |
| 21/05/2011 | 21.59 | 1.0294805 | 20.53 | -0.0973236 |
| 24/05/2011 | 21.81 | 1.0189902 | 20.03 | -2.4354603 |
| 25/05/2011 | 22.09 | 1.2838147 | 20.09 | 0.2995506 |
| 26/05/2011 | 21.05 | -4.7080126 | 19.68 | -2.0408163 |
| 27/05/2011 | 21.29 | 1.1401425 | 19.42 | -1.3211382 |
| 28/05/2011 | 20.65 | 3.7167252 | 20.06 | 3.2955715 |
| 31/05/2011 | 21.28 | 3.0508474 | 20.82 | 3.788634 |
| 01/06/2011 | 21.28 | 0 | 20.74 | -0.3842459 |
| 02/06/2011 | 21.83 | 2.5845864 | 21.39 | 3.1340405 |
| 03/06/2011 | 22.37 | 2.4736601 | 21.91 | 2.4310425 |
| 04/06/2011 | 22.21 | -0.7152436 | 21.71 | -0.9128251 |
Risk Measurement Tools:
| NAV Per Unit | Bench Mark Return | |
| Average | 0.197653265 | -0.076817689 |
| Standard Deviation | 2.063216490 | 2.097854621 |
Sharpe Ratio:
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
| NAV | Bench Mark | |
| Average Rate of Return | 0.197653265 | -0.076817689 |
| Rate of Risk Free Return | 0.006810247 | 0.006810247 |
| Sharpe Ratio | 0.074359862 | -0.031457857 |
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
Beta (β):
Beta (β) = (Co-Var (benchmark, fund)/ variance (bench mark)
| Co-Var (benchmark, fund) | 3.802530125 |
| Var ( Bench mark) | 4.632366052 |
| Beta (β) | 0.820861323 |
Treynor Ratio:
Treynor Ratio = (Average Return − Risk free Rate) / Beta (β)
| Average Rate of Return | 0.197653265 | -0.076817689 |
| Rate of Risk Free Return | 0.006810247 | 0.006810247 |
| Beta (β) | 0.074359862 | 0.031457857 |
| Treynor Ratio | 0.278823374 | 0.038268104 |
Alpha (α):
Alpha (α) = [(Fund Return − Risk free Return) − Expected Return *]
Expected Return* = [Beta (β) * (Bench mark Return − Risk free Return)]
= [0.074359862*(-0.076817689- 0.006810247) = -0.083627936
Alpha (α) = [(0.197653265- 0.006810247) – (-0.083627936)]
= 0.274470954
Return*= (Previous NAV- Present NAV) / Previous NAV.
The Sharpe Measure is uses the Standard Deviation of Return as the Measures of Risk where as Treynor measure employs Beta (β) (systematic Risk) the Sharpe measure implicitly evaluates portfolio manager on the basis of return performance but also taking to account how well portfolio is diversified during the particular period. Portfolio is perfectly diversified (does not contain the unsystematic Risk), the two measures would give identical rakings. If it is purely diversified it is possible to have high ranking on basis of Treynor Measure and low ranking of Sharpe Measure.
From the above analysis we can infer that Portfolio is not diversified properly this is because of the deviation in Trenyor and Sharpe Measures rankings. Since Sharpe Measures uses Standard Deviation for the measure must of Risk. While Trenyor measure use Beta (β) i.e., systematic risk for the measurement these deviations are due to uncontrollable Risk Factors in the Market during period.
Sharpe Ratio = 0.074359862
Treynor Ratio = 0.278823374
According to above Sharpe Ratio on Return and Treynor Ratio on Return in Reliance Regular Saving Fund Equity and Growth option is poorly generated because of Sharpe Measure and Treynor Measure is not identical and lot of variance during the period.
Reliance Liquidity Fund - Growth Plan:
The chart below shows NAV Value 12th April 2011 to 04 th June 2011 of the fund and Bench Mark Return from 12th April 2011 to 04 th June 2011.
| Date | NAV Value | RETURNS % * | Bench Mark BSE 100 | RETURNS % * |
| 12/04/2011 | 12.7639 | 22.66 | ||
| 13/04/2011 | 12.1869 | -1.845990287 | 22.92 | 1.1473962 |
| 14/04/2011 | 12.082 | -0.860760325 | 23.51 | 2.574171 |
| 15/04/2011 | 12.4186 | 2.785962589 | 22.54 | -4.1259038 |
| 16/04/2011 | 12.7618 | 2.763596541 | 22.41 | -0.5767524 |
| 19/04/2011 | 12.8109 | 0.384741964 | 22.45 | 0.1784917 |
| 20/04/2011 | 12.9842 | -2.10504094 | 22.77 | 1.14253897 |
| 21/04/2011 | 13.0794 | 0.733198811 | 22.89 | 0.5270092 |
| 22/04/2011 | 13.1788 | 0.759973699 | 22.07 | -3.5823503 |
| 23/04/2011 | 13.3152 | 1.034995599 | 22.19 | 0.5437245 |
| 26/04/2011 | 12.6695 | -4.849345109 | 22.59 | 1.8026137 |
| 27/04/2011 | 12.6934 | 0.188642014 | 22.44 | -0.6640106 |
| 28/04/2011 | 12.3407 | -2.778609356 | 22.18 | -1.1586452 |
| 29/04/2011 | 13.1408 | -1.258613046 | 21.78 | -1.8034265 |
| 30/04/2011 | 13.3403 | 1.51817241 | 22.03 | 1.147842 |
| 03/05/2011 | 12.9452 | -2.96170251 | 21.21 | -3.722197 |
| 04/05/2011 | 12.6846 | -2.013101381 | 20.69 | 2.4516737 |
| 05/05/2011 | 12.9169 | 1.831354556 | 20.92 | 1.1116481 |
| 06/05/2011 | 12.7179 | -1.540617331 | 20.53 | -1.8642447 |
| 07/05/2011 | 12.7533 | 0.27834784 | 20.67 | 0.6819288 |
| 10/05/2011 | 12.9141 | 1.260850133 | 20.86 | 0.9192065 |
| 11/05/2011 | 12.8492 | -0.502551475 | 20.69 | -0.8149568 |
| 12/05/2011 | 13.1657 | 2.46318837 | 21.19 | 2.4166263 |
| 13/05/2011 | 13.2634 | 0.742079798 | 21.44 | 1.1798017 |
| 14/05/2011 | 12.9842 | -2.10504094 | 21.02 | -1.9589552 |
| 17/05/2011 | 13.4049 | -0.369390394 | 21.37 | 1.6650808 |
| 18/05/2011 | 12.9819 | -3.155562518 | 21.48 | 0.5147402 |
| 19/05/2011 | 13.2857 | 2.340181329 | 21.74 | 1.2104283 |
| 20/05/2011 | 13.5412 | 1.923120347 | 20.55 | -5.473781 |
| 21/05/2011 | 13.4457 | -0.705255073 | 20.53 | -0.0973236 |
| 24/05/2011 | 13.3083 | -1.021888039 | 20.03 | -2.4354603 |
| 25/05/2011 | 12.4161 | 0.610986411 | 20.09 | 0.2995506 |
| 26/05/2011 | 12.1869 | -1.845990287 | 19.68 | -2.0408163 |
| 27/05/2011 | 12.082 | -0.860760325 | 19.42 | -1.3211382 |
| 28/05/2011 | 12.8445 | 0.631468438 | 20.06 | 3.2955715 |
| 31/05/2011 | 13.0391 | 1.51504535 | 20.82 | 3.788634 |
| 01/06/2011 | 13.1686 | 0.993166706 | 20.74 | -0.3842459 |
| 02/06/2011 | 13.1598 | -0.066825631 | 21.39 | 3.1340405 |
| 03/06/2011 | 13.2594 | 0.756850408 | 21.91 | 2.4310425 |
| 04/06/2011 | 13.4546 | 1.472163145 | 21.71 | -0.9128251 |
Risk Measurement Tools:
| NAV Per Unit | Bench Mark Return | |
| Average | 0.116586524 | -0.096389652 |
| Standard Deviation | 1.706594765 | 2.1079370986 |
Sharpe Ratio:
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
| NAV | Bench Mark | |
| Average Rate of Return | 0.116586524 | -0.096389652 |
| Rate of Risk Free Return | 0.009675324 | 0.009675324 |
| Sharpe Ratio | 0.073622238 | -0.035768597 |
Sharpe Ratio = (Fund return in - risk free return)/ Standard Deviation
Beta (β):
Beta (β) = (Co-Var (benchmark, fund)/ variance (bench mark)
| Co-Var (benchmark, fund) | 3.417986552 |
| Var ( Bench mark) | 4.533897437 |
| Beta (β) | 0.743870527 |
Treynor Ratio:
Treynor Ratio = (Average Return − Risk free Rate) / Beta (β)
| Average Rate of Return | 0.116586524 | -0.096389652 |
| Rate of Risk Free Return | 0.009675324 | 0.009675324 |
| Beta (β) | 0.743870527 | 0.820861323 |
Alpha (α):
Alpha (α) = [(Fund Return − Risk free Return) − Expected Return *]
Expected Return* = [Beta (β) * (Bench mark Return − Risk free Return)]
= [0.74387052*(-0.096389652- 0.009675324)]
= -0.078898608
Alpha (α) = [(0.116586524- 0.009675324) – (-0.078898608)]
= 0.185809808
Return*= (Previous NAV- Present NAV) / Previous NAV.
The Sharpe Measure uses the Standard Deviation of Return as the Measures of Risk where as Treynor measure employs Beta (β) (systematic Risk) the Sharpe measure implicitly evaluates portfolio manager on the basis of return performance but also taking to account how well portfolio is diversified during the particular period. Portfolio is perfectly diversified (does not contain the unsystematic Risk), the two measures would give identical rakings. If it is purely diversified it is possible to have high ranking on basis of Treynor Measure and low ranking of Sharpe Measure.
From the above analysis we can infer that portfolio is not diversified properly this is because of the deviation in Trenyor and Sharpe Measures rankings. Since Sharpe Measures uses Standard Deviation for the measure must of Risk. While Trenyor measure use Beta (β) i.e., systematic risk for the measurement these deviations are due to uncontrollable Risk Factors in the Market during period.
Sharpe Ratio = 0.073622238
Treynor Ratio = 0.176894389
According to above Sharpe Ratio on Return and Treynor Ratio on Return in Reliance Equity Fund Growth Plan are poorly generated because of Sharpe Measure and Treynor Measure is not identical and there is lot of variance during the period.
Findings
Ø Reliance Regular Saving Fund is an open-ended scheme with the objective of capital appreciation and generating consistent returns.
Ø The NAV Value of Reliance Equity Opportunities Fund Growth Plan is highly fluctuated during the period.
Ø Unsystematic risk during the period is high due to which the return of Reliance Equity Fund Growth Option is fluctuated.
Ø Reliance Equity fund the Risk is very high and return from the fund is very low during the period.
Ø Company focused mainly on Reliance Regular Saving Fund Equity Growth plan.
Ø Reliance has launched a new fund by name Reliance Infrastructure Fund.
Ø Majority of investors in other funds are transferred to Reliance Regular Saving Fund Equity Growth option during that period.
Suggestions
Ø The company has to concentrate on promotion of all Schemes.
Ø The company has to adopt more flexible methods to improve overall performance of the scheme.
Ø Reliance Equity Opportunities Fund Growth Plan can be productive if they revise the sector allocation.
Ø The company must concentrate on Auto Sector and Commodities Sector on its sector allocation.
Ø They should concentrate on Reliance Regular Saving Fund increase the funds of sector allocation in infrastructure fund.
M.Ranganadham: Investment Analysis And Portfolio Management, Pearson Education, New Delhi, 2009
Preeti Singh: Investment Management, Himalaya Publishing House, New Delhi,2009
Prasanna Chandra, Projects: Planning, Analysis, Financing Implementations And Review, 5/e TMH, New Delhi, 2003
Richard Pike & Bill Neale: Corporate Finance And Investment- Decisions And Strategies, 2/e, PHI, New Delhi, 2002
Zvi Bodie & Mohanthy: Investments, TMH, New Delhi, 2010
Websites
Ø www.Mutualfundsindia.Com
