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Editorial Board A Refereed Monthly International Journal of Management
Prof. B. P. Sharma
(Editor in Chief)
Prof. Mahima Birla
(Editor)
Prof. Harshita Shrimali
(Consultative Editor)
Dr. Khushbu Agarwal
(Additional Editor)
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(Circulation Manager)

 Editorial Team

Dr. Devendra Shrimali
Dr. Dharmesh Motwani
Mr. Jinendra Vyas
 
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August 2015

PERFORMANCE OF MUTUAL FUNDS – AN EMPIRICAL STUDY WITH REFERENCE TO RELIANCE MUTUAL FUNDS

B. Ravi Kumar

Sree Vidyanikethan Engineering College

A.Rangampet – 517 012

E-Mail ID: ravi9949418650@yahoo.com

Mobile No; 09949418650

Abstract

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

 

Introduction

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.

Research Methodology

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.

Results and Discussion

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.

References

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.Reliancemf.Com

Ø  www.Amfiindia.Com

Ø  www.Bseindia.Com

Ø  www.Mutualfundsindia.Com

 

 

 

 
 

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