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Mutual Fund Performance An Analysis of

Mutual Fund Performance An Analysis of - FINANCE INDIA Vol...

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FINANCE INDIA Vol. X No. 1, March 1996 Pages— 73–84 Mutual Fund Performance: An Analysis of Monthly Returns M. JAYADEV* ABSTRACT In this paper an attempt is made to evaluate the performance of two growth oriented mutual funds (Mastergain and Magnum Express) on the basis of monthly returns compared to benchmark returns. For this purpose, risk adjusted performance measures suggested by Jenson, Treynor and Sharpe are employed. It is found that, Mastergain has performed better according to Jenson and Treynor measures and on the basis of Sharpe ratio it’s perfor- mance is not upto the benchmark. The performance of Magnum Express is poor on the basis of all these three measures. However, Magnum Express is well diversified and has reduced it’s unique risk where as Mastergain did not. These two funds are found to be poor in earning better returns either adopting marketing or in selecting under priced securities. It can be con- cluded that, the two growth oriented funds have not performed better in terms of total risk and the funds are not offering advantages of diversifica- tion and professsionalism to the investors. THE CONSIDERATIONS UNDERLYING the performance evaluation of mutual funds is a matter of concern to the fund managers, investors and researchers alike. The present paper attempts to answer two questions relat- ing to mutual fund performance; 1. Whether the growth oriented Mutual Fund are earning higher returns than the benchmark returns (or market Portfolio/Index returns) in terms of risk. 2. Whether the growth oriented mutual funds are offering the advan- tages of Diversification, Market timing and Selectivity of Securities to their investors. This paper attempts to answer the questions raised, by initially describ- ing some basic concepts and later by employing a methodology which was used by Jenson (1968), Treynor (1965), and Sharpe (1966) and finally drawing appropriate conclusions. Two growth oriented mutual funds selected for the purpose of this study are ‘Capital Growth Unit Scheme’ or popularly ‘Mastergain 1991’ of UTI and ‘Magnum Express’ of SBI Mutual Fund. The study period is 21 months (June 1992 to March 1994). The data source is monthly Net Asset Values * Submitted September ’94, Accepted March 95
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74 Finance India (NAVs) published in ‘The Economic Times’. ‘The Economic Times Ordi- nary Share Price Index’ (ETOSHPI) is assumed as Market Index or the Benchmark. The Basic Concepts a. Return Portfolio Returns. Fundamentally, return on a portfolio or a fund* is : NAV (t) - NAV (t-1) where, r p is return on portfolio NAV is the Net Assest Value of the Fund ‘t’ is the time period. Monthly returns based on the NAVs of the two funds for the period
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