Study of top 5 Equity Diversified Mutual Funds and Comparative Analysis of their Risk and Returns during Downturn

Name:             Manisha Singh (2008 – 2010)

Title:                   Study of top 5 Equity Diversified Mutual Funds and Comparative Analysis of their Risk and Returns during Downturn

Summary

The project contains the brief description of the mutual fund industry in general. The top 5 equity mutual funds have been decided based on their total Asset under Management (AUM) presently. The funds that are selected for study are:

• Reliance Growth Fund- Growth ( AUM : Rs. 3142.92 Cr. as on 27th Feb, 2009 )
• HDFC Equity Fund- Growth ( AUM : Rs. 2331.76 Cr. as on 27th Feb, 2009 )
•  Fidelity Equity Fund- Growth ( AUM : Rs. 1776.75 Cr. as on 27th Feb, 2009 )
• HSBC Equity Fund – Growth ( AUM : Rs. 1017.2 Cr. as on 27th Feb, 2009 )
• ICICI Prudential Dynamic Plan- Growth ( AUM : Rs. 1013.63 Cr. as on 27th Feb, 2009 )

The Net Asset Value (NAV) of each of these top mutual funds over the last one year is taken in account to find out the standard deviation of each of the funds. These are taken into account to measure the returns of those funds. The returns are compared with that of their benchmark index return. Using the NAV value of these mutual funds, beta (β) co-efficient of each of them has been calculated to know whether they are less risky, average risky or high risky funds. Similarly, Alpha (a), and standard deviation (a) also calculated to understand the risk and return profile of the selected funds. The returns of these funds over the last one year are also be analyzed.

The project also contains the portfolio analysis of the funds and their share of investments in different sectors. This will help us to analyze which sectors hold the major investments of these funds. Primary data has been collected using questionnaire to understand the awareness of people as a risk diversified investment instrument.

Analysis:

1. All the funds are having beta less than one during the last one year, which shows they are less risky compared to their benchmark index during this period.
2. Out of this five funds HDFC Equity fund (G) comes out to be the most aggressive with having beta of 0.85 and Reliance Growth Fund (G) is the least aggressive (beta of 0.61).
3. All the funds except HSBC Equity Fund (G) are having negative Alpha.
4. The riskiest fund during the period is HDFC Equity Fund having standard deviation of 2.2383 and the least risky fund is Reliance Growth Fund (G) which is having standard deviation of 1.9824.
5. If we look at the last one year (from 27th Feb, 2009) return, though all the funds have given negative return, they have actually performed better than their benchmark index. ICICI Prudential Dynamic Plan (G) has given the best return among the five selected funds with a return of -38.80% where its benchmark index (S&P CNX Nifty) has given -44.20% returns.  Reliance Growth Fund (G) has given a return of -47.10% and performed the worst during the period. Its benchmark index (BSE 100) has given a return of -49.3% during this period.
6. It has been also observed that the returns of all the funds have been more volatile during the months of October and November of 2008 and volatility has decreased in the months of February, 2009.
7. The 52 week high NAV for Reliance Growth Fund (G) is 373.69 (on 05.05.08) and 52 week low NAV is 193.034 (on 24.02.09). For HDFC equity fund (G), the 52 week NAV is 180.716 (on 03.03.08) and 52 week low NAV is 97.093 (on 20.11.08). The 52 week high and low NAV for Fidelity equity fund is 26.291 (on 02.05.08) and 14.475 (on 20.11.08) respectively. Its value for HSBC equity fund is 97.161 (on 02.05.08) and 52.957 (on 27.10.08). Again, for ICICI Prudential Dynamic Fund (G), the 52 week high NAV is 80.342 (on 05.05.08) and 52 week low NAV is 43.459 (on 27.10.08).
8. Sharpe’s ratio for all the funds are negative i.e. all the funds have given returns less than the risk free rate of return. The ratio is least for Reliance Growth fund (G) which means it has underperformed the risk free rate maximum. The ratio is highest for ICICI Prudential Dynamic Plan (G).
9. Treynor’s ratio for all the funds is also negative.  Out of the five funds selected, ICICI Prudential Dynamic Plan (G) has performed better than the other funds because it has higher treynor’s ratio.

Limitation of the Study:

The limitations of the study are:

• Only the Asset under Management (AUM) is taken into consideration in order to find out the 5 top equity mutual funds. The other parameters like returns for a particular period are ignored.
• The market volatility during the last one year is more predominant and it has lost almost 60% during the period. So, for this period the funds may appear to be more risky than they actually are for a long time period.
• AUM volatility during the last one year is also very high due to the downturn.
• Only open-ended mutual funds have been taken into consideration.
• Minor changes in the portfolio of the funds have not been taken into account.
• Data taken is relevant to the slowdown period and hence is not very current

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The above article is a summary extract from the dissertation projects of the MBA and BBA students of Skyline College. Skyline, situated in Delhi and Gurgaon (NCR) is a premier institute providing management education specialising in MBA and BBA degrees and specialist courses for travel and tourism as well as mass communication.