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FUNDS IN INDIA
Sharad Panwar and Dr. R. Madhumathi
Indian Institute of Technology, Madras
ABSTRACT
The study used sample of public-sector sponsored & private-sector sponsored mutual funds of varied net
assets to investigate the differences in characteristics of assets held, portfolio diversification, and
variable effects of diversification on investment performance for the period May, 2002 to May,2005. The
study found that public-sector sponsored funds do not differ significantly from private-sector sponsored
funds in terms of mean returns%. However, there is a significant difference between public-sector
sponsored mutual funds and private-sector sponsored mutual funds in terms of average standard
deviation, average variance and average coefficient of variation(COV).The study also found that there
is a statistical difference between sponsorship classes in terms of e SDAR(excess standard deviation
adjusted returns)as a performance measure. When residual variance (RV) is used as the measure of
mutual fund portfolio diversification characteristic, there is a statistical difference between public-sector
sponsored mutual funds and private-sector sponsored mutual funds for the study period. The model built
on testing the impact of diversification on fund performance and found a statistical difference among
sponsorship classes when residual variance is used as a measure of portfolio diversification and excess
standard deviation adjusted returns as a performance measure. RV ,however, has a direct impact on
Sharpe fund performance measure.
Keywords: Mutual Funds, performance evaluation, risk-return analysis, Net asset value, residual
variance, fund return
1. INTRODUCTION
Mutual Funds is a topic which is of enormous interest not only to researchers all over the world, but
also to investors. Mutual funds as a medium-to-long term investment option is preferred as a suitable
investment option by investors. However, with several market entrants the question is the choice of
mutual fund. The study focuses on this problem of mutual fund selection by investors. Though the
investment objectives define investors preference among fund types (balanced, growth, dividend etc.) the
choice of fund based on a sponsor’s reputation remains to be probed. Indian mutual fund industry has
two distinct types of sponsors, public-sector and private-sector. The number of funds floated by public-
sector sponsors are minimal compared to private-sector players. There is a hypothetical assumption that
private-sector outperforms public-sector due to several factors such as responsibility, commitment and so
on. We focus on testing this hypothesis on the mutual fund industry. Although many studies document
the investment performance of mutual funds irrespective of whether they are public-sector sponsored or
private-sector sponsored, researchers do not investigate the influence of portfolio characteristics and the
variable effect of diversification on mutual fund performance.
3. LITERATURE REVIEW
Literature on mutual fund performance evaluation is enormous. A few research studies that have
influenced the preparation of this paper substantially are discussed in this section.
Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance. Drawing on
results obtained in the field of portfolio analysis, economist Jack L. Treynor has suggested a new
predictor of mutual fund performance, one that differs from virtually all those used previously by
incorporating the volatility of a fund's return in a simple yet meaningful manner.
Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio performance
(Jensen’s alpha) that estimates how much a manager’s forecasting ability contributes to fund’s returns.
As indicated by Statman (2000), the e SDAR of a fund portfolio is the excess return of the portfolio over
the return of the benchmark index, where the portfolio is leveraged to have the benchmark index’s
standard deviation. S.Narayan Rao , et. al., evaluated performance of Indian mutual funds in a bear
market through relative performance index, risk-return analysis, Treynor’s ratio, Sharpe’s ratio, Sharpe’s
measure , Jensen’s measure, and Fama’s measure. The study used 269 open-ended schemes (out of total
schemes of 433) for computing relative performance index. Then after excluding funds whose returns are
less than risk-free returns, 58 schemes are finally used for further analysis. The results of performance
measures suggest that most of mutual fund schemes in the sample of 58 were able to satisfy investor’s
expectations by giving excess returns over expected returns based on both premium for systematic risk
and total risk.
Bijan Roy, et. al., conducted an empirical study on conditional performance of Indian
mutual funds. This paper uses a technique called conditional performance evaluation on a sample of
eighty-nine Indian mutual fund schemes .This paper measures the performance of various mutual funds
with both unconditional and conditional form of CAPM, Treynor- Mazuy model and Henriksson-Merton
model. The effect of incorporating lagged information variables into the evaluation of mutual fund
managers’ performance is examined in the Indian context. The results suggest that the use of
conditioning lagged information variables improves the performance of mutual fund schemes, causing
alphas to shift towards right and reducing the number of negative timing coefficients.
Mishra, et al., (2002) measured mutual fund performance using lower partial moment. In
this paper, measures of evaluating portfolio performance based on lower partial moment are developed.
Risk from the lower partial moment is measured by taking into account only those states in which return
is below a pre-specified “target rate” like risk-free rate. Kshama Fernandes(2003) evaluated index fund
implementation in India. In this paper, tracking error of index funds in India is measured .The
consistency and level of tracking errors obtained by some well-run index fund suggests that it is possible
to attain low levels of tracking error under Indian conditions. At the same time, there do seem to be
periods where certain index funds appear to depart from the discipline of indexation. K. Pendaraki et al.
studied construction of mutual fund portfolios, developed a multi-criteria methodology and applied it to
the Greek market of equity mutual funds. The methodology is based on the combination of discrete and
continuous multi-criteria decision aid methods for mutual fund selection and composition. UTADIS
multi-criteria decision aid method is employed in order to develop mutual fund’s performance models.
Goal programming model is employed to determine proportion of selected mutual funds in the final
portfolios.
Zakri Y.Bello (2005) matched a sample of socially responsible stock mutual funds matched
to randomly selected conventional funds of similar net assets to investigate differences in characteristics
of assets held, degree of portfolio diversification and variable effects of diversification on investment
performance. The study found that socially responsible funds do not differ significantly from
conventional funds in terms of any of these attributes. Moreover, the effect of diversification on
investment performance is not different between the two groups. Both groups underperformed the
Domini 400 Social Index and S & P 500 during the study period.
4. METHODOLOGY USED
These three traditional measures of investment performance are used to compare the public-sector
sponsored & private-sector sponsored mutual funds. These are Jensen’s alpha, α p ; Sharpe information
ratio, Sp; and excess standard deviation adjusted return, e SDAR. Jensen’s alpha relies on beta as a
measure of the risk of a mutual fund portfolio whereas the two other performance measures rely on total
variability of returns. Jensen’s alpha is estimated as:
rpt = α p + β p rmt ………….(1)
Where r p t is the excess return (i.e., the observed return minus the risk-free rate) on mutual fund
portfolio p in month t, rm t is the excess return on the benchmark index in month t(i.e., the observed
return on the benchmark index minus the risk-free rate), βp is mutual fund portfolio’s beta . The risk-
free rate is represented by the monthly return on three-month(91-day) Treasury bills.
If Dt is the difference in return between the fund portfolio and the benchmark ( R pt − Rmt ) in period t,
then Sharpe information ratio is computed as:
−
S p = D/σ D ……………..(2)
−
Where D is the average value of the monthly differences in return between the fund portfolio and the
n
benchmark ,( ∑
t =1
D t )/n , and σ D is the standard deviation of the differential return. As with
Jensen’s alpha, this measure indicates portfolio performance relative to the benchmark portfolio and
lends itself to statistical tests of significance. However, unlike the Jensen’s alpha, the Sharpe
performance measure adjusts for total risk rather than just systematic risk.
The third measure of investment performance is e SDAR (Statman 2000), measured as follows:
5. TESTABLE HYPOTHESES
Mutual funds based on the sponsors have been differentiated into three classes. The funds were initially
categorized as public-sector sponsored and private-sector sponsored funds. Private-sector sponsored
funds were further subdivided into Indian and foreign sponsors. Mutual funds could be defined in terms
of the following characteristics: net assets, stock%, holdings, top ten%, market capitalization where
stock% is common stock investments as percentage of the fund’s assets , holdings is the total number of
companies held by the fund, top ten % is the percentage of net assets invested in the fund’s top ten
holdings which is calculated by summing percentage of net assets in top ten holdings. Cap is the median
market capitalization of the companies/securities held by the fund. Median market capitalization is
calculated from the sorted market capitalization of the companies held by the fund. Net assets and market
capitalization are in crores of Indian Rupees. The fund characteristics that can be used to measure
portfolio diversification are capitalization, holdings and top ten %. Besides, residual variance is also an
important measure of fund diversification. Number of companies held by the mutual fund(holdings) and
the percentage of assets in top ten holdings can prove to be very useful in gaining insight into mutual
fund portfolio diversification because when the number of companies held by the mutual fund is lower or
the percentage of assets invested in the top ten holdings is higher, the mutual fund is more concentrated
in a few companies and the mutual fund is more susceptible to “market fluctuations in these holdings”.
To investigate the diversification properties and investment performance of selected mutual
funds, as well as the effect of diversification on investment performance, both parametric and
nonparametric statistical methods like Wilcoxon-two sample rank sum test, k-sample Jonckheere-
Terpstra (J-T)test, correlation and analysis of variance were used. The statistical testing of difference in
fund classes are through the non-parametric J-T Test. The Jonckheere-Terpstra test is a nonparametric
test for ordered differences among classes. It tests the null hypothesis that the distribution of the response
variable does not differ among classes. It is designed to detect alternatives of ordered class differences,
………….(5)
where Xi,j is response j in row i. Then the Jonckheere-Terpstra test statistic is computed as
………….(6)
This test rejects the null hypothesis of no difference among classes for large values of J. Asymptotic p-
values for the Jonckheere-Terpstra test are obtained by using the normal approximation for the
distribution of the standardized test statistic.
The standardized test statistic is computed as
……………..(7)
where E0(J) and var0(J) are the expected value and variance of the test statistic under the null hypothesis.
………............(8)
var0(J) = A / 72 + B / [ 36n(n-1)(n-2) ] + C / [ 8n(n-1) ] ...........(9)
where
……..(10)
………..(11)
………..(12)
When the standardized test statistic is greater than its null hypothesis expected value of zero, the right-
sided p-value is computed, which is the probability of a larger value of the statistic occurring under the
null hypothesis. A small right-sided p-value supports the alternative hypothesis of increasing order from
row 1 to row R. When the standardized test statistic is less than or equal to zero, the left-sided p-value is
computed. A small left-sided p-value supports the alternative of decreasing order from row 1 to row R.
6. DATA COLLECTION
Net Asset Value(NAV) for the medium-term period May,2002 to May,2005 of selected mutual funds
along with the index value of the two benchmark market indices, namely S &P CNX NIFTY and CRISIL
Balanced Fund Index are taken from the following website:
(1) S &P CNX NIFTY: http://www.nse-india.com
(2) CRISIL Balanced Fund Index : http://www.amfiindia.com
(3) Net Asset Value(NAV): http://www.mutualfundsindia.com
This website gave information on mutual fund’s characteristics like net assets, stock %, holdings, top ten
%, Market capitalization. The sample had six public-sector sponsored mutual funds operating in India.
These have been matched with twelve randomly selected private-sector sponsored mutual funds, of
which seven were private-sector Indian sponsored and five private–sector foreign sponsored mutual
funds operating in India.
Indices: Following two are taken:
• S & P CNX NIFTY Index: It is a market index and is used by funds to benchmark their fund
performance. It is a well diversified 50 stock index accounting for 23 sectors of the economy. It is used
for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.
It is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture
between NSE and CRISIL. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.5 million is
0.07%.It is professionally maintained and is ideal for derivatives trading
• CRISIL Balanced Fund Index: consists of tracking the returns on the constituents like the CRISIL
Composite Bond Fund Index and the Nifty Index. The Weighted Average Methodology is used to arrive
at the returns for the Balanced Fund. The Index History is calculated from the base date of 31st March,
2002. An index of this kind, generally serves as an indicator for all the market participants in the
category, to benchmark their performance against the index, find out the attributes for the variation in
their performance vis-a-vis the index and reshuffle their portfolio keeping in mind the risk/reward
tradeoff. Since the resulting Index is a derived Index rather than a Primary Index, it also serves as a
benchmark for non-diversified market participants to evaluate their performance against a diversified
portfolio containing a mix of all the instruments in the universe of non- equity instruments. Finally, it is a
useful tool to track volatility, charting correlation and developing hedging instruments.
Daily Net Asset Values (NAV s) are obtained for each of these eighteen funds and also for each of the
two indices taken. The returns are computed using formula :
return = ( NAVt − NAVt −1 ) / NAVt −1 ………………(21)
Where NAVt is Net asset value of a mutual fund or Index for a day t , NAVt −1 is Net asset value of a
mutual fund or Index for day (t-1). Returns on each of these eighteen mutual funds and also for each of
the two indices is given in the following table.
For the S & P Index, the returns are :
return = ( Indext − Indext −1 ) / Indext −1 ………… ..(22)
TABLE 1-Mutual Funds return, Standard Deviation, Variance, Coefficient of Variation, CRISIL Balanced Fund Index, S & P CNX NIFTY Index
return (May, 2002 to May, 2005)
CRISIL
Fund Standard Balanced Fund S & P CNX Nifty
Fund Name Type Return Deviation Variance COV Return Return
canbank index- growth plan Pu -0.000484 0.003922 0.000015 -8.098889 0.000717 0.0014
GIC Balanced Fund Pu 0.001069 0.002376 0.000006 2.222040 0.000628 0.0010
LIC G Sec Fund - Dividend Pu 0.000056 0.001152 0.000001 20.639998 0.000561 0.0009
UTI Balanced Fund - Growth Pu 0.000328 0.002871 0.000008 8.753963 0.000561 0.0009
SBI Magnum Balanced Fund - Dividend Pu 0.001095 0.003343 0.000011 3.051424 0.000703 0.0012
Escorts Balanced Fund - Dividend Pu 0.001927 0.075353 0.005678 39.112321 0.000561 0.0009
Prudential ICICI Balanced - Growth PvI 0.001004 0.002900 0.000008 2.888085 0.000418 0.0007
Birla Bond Index Fund - Growth PvI 0.000125 0.000376 0.000000 3.006045 0.000938 0.0017
Chola Growth Fund -Growth PvI 0.000908 0.005401 0.000029 5.951515 0.000418 0.0010
ING Vysya Liquid Fund - Growth PvI 0.000263 0.000338 0.000000 1.284391 0.000561 0.0009
Reliance Growth - Growth PvI 0.010950 0.042239 0.001784 3.857559 0.000761 0.0013
Sahara Taxgain - Growth PvI 0.005880 0.015326 0.000235 2.606292 0.000783 0.0014
Sundaram Money Fund - Growth PvI 0.000642 0.002047 0.000004 3.190220 0.000561 0.0009
JM MIP FUND-Monthly Dividend PvF 0.000035 0.000009 0.000000 0.257009 0.000653 0.0000
Franklin FMCG Fund - Dividend PvF 0.001107 0.002448 0.000006 2.212039 0.000354 0.0007
DSP Merrill Lynch Balanced Fund - Dividend PvF 0.000966 0.002682 0.000007 2.775531 0.000418 0.0007
ABN AMRO Cash Fund - Growth PvF 0.000152 0.000013 0.000000 0.082891 0.000828 0.0016
Grindlays Cash Fund - Growth PvF 0.000203 0.000115 0.000000 0.568048 0.001810 0.0009
Note: Table 1 shows the six public-sector sponsored, seven private-sector Indian sponsored and five private-sector foreign sponsored mutual funds labeled as
Pu, PvI, PvF respectively. Fund returns, Standard deviation of returns, CRISIL Balanced Fund Index returns, S & P CNX Nifty Index returns are also
calculated using the formula depicted above. The square of standard deviation of returns gives the Variance. Coefficient of variation (COV) is found by
dividing standard deviation by mean returns.
TABLE 2- Characteristics of Mutual Funds during May,2005
Fund Name Net Assets(in Rs crores)Stock % Holdings(in numerals)Top ten%Market cap(in Rs crores)
Canbank Index- Growth Plan 2.81 98.43 50 58.47 0.03
GIC Balanced Fund 47.49 72.85 23 75.60 1.54
LIC G Sec Fund - Dividend 180.3072 0.00 2 85.23 56.65
UTI Balanced Fund - Growth 506.7966 58.81 49 39.21 8.35
SBI Magnum Balanced Fund - Dividend 95.13 68.71 32 45.51 2.87
Escorts Balanced Fund - Dividend 4.37 60.83 28 62.04 0.12
Prudential ICICI Balanced - Growth 167.60 67.28 40 32.38 3.85
Birla Bond Index Fund - Growth 4.20 0.00 4 80.04 0.92
Chola Growth Fund -Growth 37.11 98.05 22 64.00 1.48
ING Vysya Liquid Fund - Growth 729.66 0.00 15 59.77 9.90
Reliance Growth - Growth 1135.44 88.89 37 31.61 19.23
Sahara Taxgain - Growth 2.08 88.94 29 47.15 0.06
Sundaram Money Fund - Growth 472.83 0.00 28 33.54 9.81
JM Auto Sector Fund - Dividend 27.57 94.12 20 66.36 0.62
Franklin FMCG Fund - Dividend 20.74 98.59 19 76.22 1.05
DSP Merrill Lynch Balanced Fund - Dividend235.59 66.32 61 42.59 2.60
ABN AMRO Cash Fund - Growth 532.99 0.00 33 40.92 9.75
Grindlays Cash Fund - Growth 3938.97 0.00 60 14.70 24.82
Note: Net Assets is the mutual fund size ,Stock% is common stock investments as percentage of the fund’s assets, holdings is the total number of companies
held by the fund, top ten % is the percentage of net assets invested in the fund’s top ten holdings, and market cap is the median market capitalization of the
companies held by the fund.
TABLE 3-Fund return and characteristics differentiation among mutual fund classes (May,2002 to
May,2005)
Standard J-T
sample mean statistic
Public (Pu)Private (PvI) Private (PvF) Pu – PvI - PvF sig.
PANEL A : MONTHLY RETURN
Mean return % 0.0007 0.0028 0.0005 -0.3650 0.7150
Avg. standard deviation 0.0148 0.0098 0.0011 -1.9880 0.0470**
Avg. variance 0.0010 0.0003 0.0000026 -1.8480 0.0650*
Avg. COV 10.9468 3.2549 1.1791 -2.3120 0.0210**
PANEL B :PORTFOLIO CHARACTERISTICS
Net Assets(Rs. Crores) 139.4840 364.1314 951.1720 0.9330 0.3510
Common Stock % 59.9383 49.0229 51.8060 0.0000 1.0000
Market Capitalization(Rs.Crores)11.5933 6.4643 7.7680 0.3650 0.7150
Holdings(Numerals) 30.6667 25 38.6 0.3250 0.7450
Top Ten% 61.0100 49.7843 48.1580 -0.8520 0.3940
J-T is Jonckheere-Terpstra test
Note: COV is coefficient of variation.
The Z-scores are from the three-sample Jonckheere -Terpstra test .
* * Jonckheere-Terpstra test Z-score is statistically significant at the 5 % level.
* Jonckheere-Terpstra test Z-score is statistically significant at the 10 % level.
7. RESULTS
Mutual Fund Portfolio Performance
There is a wide variation among the sample funds ranging from a minimum net asset of
Rs.2.08 crores to a maximum of Rs.3,938.97 crores. The funds selected have a mix of debt, equity and a
combination of debt and equity. The holdings also varied from 2 to 61. Top Ten % indicating non-
diversification to the extent of 85.23 % was represented in the sample along with a diversified fund
represented by only 14.7 % held by top ten securities. The market cap also varied from Rs. 0.03 crores to
Rs. 56.65 crores.
Table 2 shows various portfolio characteristics of public-sector sponsored funds , private-
sector Indian sponsored and private-sector foreign sponsored funds.
Table 3 summarizes the results of a statistical test of the differences between the classes of
funds. Panel A of Table 3 shows that the average return for the public-sector sponsored funds is 0.07 % ,
compared with 0.28% for the private-sector Indian sponsored funds, 0.05% for the private-sector foreign
sponsored mutual funds for the study period. The three-sample Jonckheere-Terpstra test indicates that the
mean returns are not significantly different at the 5% level.
However, the standard deviations of the 3-year returns are significant, as indicated by a -
1.988 Z-score(significance=0.047) from the three-sample Jonckheere-Terpstra test. The variance (Z-
score =-1.848, sig.=0.065) and coefficient of variation(COV) are also significant (Z-score=
-2.312,sig.=0.021),indicating that though in terms of mean returns, there is no statistical difference
between sponsored classes though there is a statistical difference in terms of fund risk over the study
period .
Also, considering portfolio characteristics like net assets, common stock %, capitalization,
holdings, top ten% ; using the three-sample Jonckheere-Terpstra test, it is found that since the Z-score of
all of these characteristics is negative and non-significant at 5% level of significance, hence , there is no
statistical difference between public-sector sponsored and private-sector sponsored mutual funds in terms
of portfolio characteristics.
Table 4 shows the estimated traditional measures of investment performance of the mutual
funds like Jensen’s alpha, portfolio beta which are estimated using the two alternative benchmark indices
, S & P CNX NIFTY Index and CRISIL Balanced Fund Index. It can be seen that S & P CNX NIFTY
Index is a better measure compared to CRISIL Balanced Fund Index. S & P CNX NIFTY Index is able
to give more statistical significance in terms of portfolio alpha and beta as compared to CRISIL Balanced
Fund Index. Generally, S & P CNX NIFTY Index is used as the benchmark index by the Indian mutual
fund managers to evaluate the performance of a mutual fund operating in India.
When CRISIL Balanced Fund Index is used as the benchmark index, for public-sector
sponsored mutual funds, the Jensen’s alpha is significant and negative for two out of six funds, i.e.,
33.33 % of the sample funds in this class(underperformers). However, for Indian private-sector
sponsored funds, Jensen’s alpha is significant and positive for two out of seven funds, i.e., 28.57 % of
sample(overperformers), and also significant and negative for three out of seven funds, i.e. ,42.86 % of
the sample(underperformers). Private-sector foreign sponsored mutual funds have statistical under
performance for three out of five funds,i.e.,60 % of the sample and over performance for one fund, i.e.,
20 % of the sample.
When S & P CNX NIFTY Index is used as the benchmark index, then for public-sector
sponsored mutual funds, Jensen’s alpha is significant and negative(underperformance) for five out of six
funds, i.e.,83.33% of the sample at 5 % level of significance. However, Jensen’s alpha is significant and
positive(overperformance) for one out of six funds, i.e.,16.67 % of the sample .For private -sector Indian
sponsored mutual funds, Jensen’s alpha is significant and negative (underperformance) for four out of
seven funds,i.e.,57.14 % of the sample. For private-sector foreign sponsored mutual funds, the entire
sample has shown statistical underperformance in terms of Jensen’s alpha.
From Table 5, it is found that in terms of e SDAR (excess standard deviation adjusted return) ,
the three classes of funds are statistically different. Also, private-sector Indian sponsored and private-
sector foreign sponsored mutual funds are statistically different in terms of e SDAR (excess standard
deviation adjusted return) ( Two sample Wilcoxon rank-sum test Z-score= 0.028,significance=0.03)at
5% level.
In terms of portfolio diversification (residual variance, RV), public-sector sponsored and
private-sector Indian sponsored mutual funds are statistically different (Two sample Wilcoxon rank-sum
test Z-score= -1.857, significance=0.063) at 10% level.
It is concluded that during May,2002 to May,2005 period, neither the investment performance
represented by Jensen’s alpha, Sharpe information ratio, nor the level of mutual fund portfolio
diversification(portfolio beta) of public-sector sponsored mutual funds differs from those of private-
sector Indian and private-sector foreign sponsored mutual funds of varied fund characteristics. However,
in terms of e SDAR, there is a statistical difference between public-sector sponsored, private-sector
Indian and private-sector foreign-sponsored mutual funds of varied fund characteristics. In terms of
portfolio diversification(residual variance, RV), it is found that there is a statistical difference between
public-sector sponsored and private-sector Indian sponsored mutual funds when S & P CNX NIFTY
Index is used as a benchmark index.
Results of Pearson correlation between investment performance and measures of mutual fund
portfolio diversification show that when CRISIL Balanced Fund Index is used as the benchmark index,
then for the public-sector sponsored funds, the performance measure e SDAR alone has a significant
correlation with capitalization. In the private- sector sponsored funds( both Indian and foreign), Jensen’s
alpha has a significant correlation with holdings while Sharpe’s measure has a significant correlation
with RV. For private-sector foreign sponsored funds, Sharpe information ratio has a significant
correlation with residual variance. The private-sector Indian sponsored funds show significant correlation
between holdings with both Sharpe information ratio and e SDAR as well as top ten % with both Sharpe
information ratio and e SDAR. However, top ten % has a negative correlation with holdings implying
that the diversification performance is poor.
When S & P NIFTY Index is used as the benchmark index, for public-sector sponsored mutual
funds, e SDAR is significantly correlated with capitalization, holdings, top ten %. Holdings is correlated
with residual variance (RV), capitalization and top ten . For private-sector sponsored funds, Jensen’s
alpha is correlated with residual variance. Top ten % is correlated with holdings. For private-sector
Indian sponsored funds, Jensen’s alpha is correlated with residual variance. Sharpe information ratio is
correlated with top ten %. Sharpe information ratio, e SDAR and top ten % are correlated with holdings.
For private-sector foreign sponsored funds, Jensen’s alpha and Sharpe information ratio are correlated
with residual variance. Capitalization and holdings are correlated with top ten %. For combined sample,
top ten% is correlated with holdings.
So, wherever Pearson correlation is negative, it implies that diversification performance is poor.
Conversely, wherever Pearson correlation is positive, it implies that diversification performance is good.
TABLE 4-Performance of Mutual Funds: May 2002 to May 2005
Fund Name CRISIL Balanced Fund Index S & P CNX NIFTY Index
αp βp αp βp
sig sig Sharpe,Sp e SDAR sig sig Sharpe,Sp e SDAR
Canbank Index-Growth Plan -0.1720 0*** -2.1500 0*** -0.2116 0.0289 -0.118 0*** -1.161 0*** 0.1122290.888633
GIC Balanced Fund -0.0050 0.5850 0.8990 0*** 0.2494 0.0137 -0.0278 0*** 0.483 0*** 1.21E-05 -2.3406
LIC G Sec Fund - Dividend -0.0420 0*** 0.2370 0.0230** -0.2887 -0.0305 -0.0487 0*** 0.114 0.036** -0.2654 -10.222
UTI Balanced Fund - Growth 0.0101 0.3040 1.1900 0*** -0.1208 0.0199 -0.0204 0*** 0.634 0*** -0.269733.437173
SBI Magnum Balanced Fund - Dividend 0.0142 0.3020 1.2540 0*** 0.1553 0.0256 -0.0157 0.022** 0.709 0*** -0.04077 -0.10898
Escorts Balanced Fund - Dividend 0.91600.0120** 17.82400.0080*** 0.0183 0.0531 0.442 0.018** 9.1630.009*** 0.0135164.841854
Prudential ICICI Balanced - Growth 0.02190.0160** 1.3910 0*** 0.3400 0.0220 -0.01470.002*** 0.722 0*** 0.193368 -0.84818
Birla Bond Index Fund - Growth -0.0500 0*** 0.0887 0.0300** -0.4796 -0.2124 -0.0525 0*** 0.0423 0.052* -0.47656 -39.1223
Chola Growth Fund -Growth 0.04940.0240** 1.9050 0*** 0.1057 0.0358 -7E-05 0.995 1 0*** -0.020991.707046
ING Vysya Liquid Fund - Growth -0.0531 0*** 0.0283 0.2830 -0.1657 -0.2380 -0.0538 0*** 0.0156 0.3520 -0.1917 -47.4198
Reliance Growth - Growth 0.0728 0.7680 2.1580 0.6360 0.2420 0.0522 -0.0514 0.6890 -0.14 0.9530 0.226417 -5.04288
Sahara Taxgain - Growth -0.0730 0.3960 -0.4420 0.7790 0.3282 0.0483 -0.0626 0.1670 -0.254 0.2600 0.28363.808473
Sundaram Money Fund - Growth -0.0701 0*** -0.2920 0.1250 0.0265 0.0064 -0.0636 0*** -0.173 0.0750* -0.06285 -3.59539
JM MIP Fund-Monthly Dividend -0.0549 0*** -0.0002 0.8720 -0.3392-11.1737 -0.0549 0*** -2E-05 0.9720 -0.33091 -1829.91
Franklin FMCG Fund - Dividend 0.0026 0.8260 1.0340 0*** 0.5152 0.0127 -0.02440.002*** 0.5420.001*** 0.174021 -2.18772
DSP Merrill Lynch Balanced Fund - Dividend 0.0102 0.2880 1.1770 0*** 0.3115 0.0193 -0.0207 0*** 0.613 0*** 0.1445853.830639
ABN AMRO Cash Fund - Growth -0.0547 0*** 0.0007 0.9430 -0.3954 -0.9586 -0.0547 0*** 0.0007 0.8930 -0.46312 -1287.98
Grindlays Cash Fund - Growth 0.0546 0*** 0.0025 0.8310 -0.1985 -0.8063 -0.0546 0*** 0.0018 0.0720* -0.20778 -149.284
Table 4: Note: Jensen’s alpha, α p , is the measure of mutual fund portfolio p ’s investment performance, using the CRISIL Balanced Fund Index and S & P CNX NIFTY
Index as the two benchmark indices. β p is mutual fund portfolio p ’s beta. Sp is Sharpe information measure. e SDAR is excess standard deviation adjusted return. Statistical
significance relative to α p and β p is indicated in this table. Jensen’s alpha and portfolio beta are significant for Bold entries.
*** significance at 1 % level
** significance at 5 % level
*significance at 10 % level
TABLE 5-Differences in Performance of Mutual Funds: May,2002 to May,2005
sample mean
Wilcoxon Wilcoxon Wilcoxon
Pu Pv PvI PvF J-T Test(Pu-PvI-PvF) sig(2-tailed) Z-score(Pu-PvI) sig(2-tailed) Z-score(Pu-PvF) sig(2-tailed) Z-score(PuI-PvF) sig(2-tailed)
Performance relative to CRISIL Balanced Fund Index
αp
0.1202 -0.0120 -0.0146 -0.0084 -0.2030 0.8390 -0.2860 0.7750 -0.1830 0.8550 -0.0810 0.9350
Sp -0.0330 0.0242 0.0567 -0.0213 0.2030 0.8390 -0.8570 0.3910 -0.1830 0.8550 -0.4060 0.6850
eSDAR 0.0185 -1.0994 -0.0408 -2.5813 -2.0690 0.039** 0.7750 0.8360 0.0280 0.03** -1.8680 0.062*
βp
3.2090 0.5876 0.6910 0.4428 -0.9330 0.3510 0.7750 0.8360 0.2730 0.3290 -0.5680 0.5700
RV 0.5397 0.7796 0.8042 0.7451 1.4200 0.1560 0.0860 0.1010 0.3610 0.4290 -0.0810 0.9350
Wilcoxon Wilcoxon Wilcoxon
Pu Pv PvI PvF J-T Test(Pu-PvI-PvF) sig(2-tailed) Z-score(Pu-PvI) sig(2-tailed) Z-score(Pu-PvF) sig(2-tailed) Z-score(PvI-PvF) sig(2-tailed)
Performance relative to S & P CNX NIFTY Index
αp
0.0352 -0.0423 7.9748 -0.042 -1.095 0.273 -0.857 0.391 -1.095 0.273 -0.244 0.808
Sp -0.075 -0.061 -0.007 -0.137 -0.284 0.776 -0.571 0.568 -0.183 0.855 -1.056 0.291
eSDAR -0.584 -279.67 -12.93 -653.1 -1.825 0.068* -1.143 0.253 -1.461 0.144 -1.056 0.291
βp
1.657 0.1975 0.1733 0.2315 -0.852 0.394 -0.857 0.391 -1.095 0.273 -0.244 0.808
RV 0.5247 0.7779 0.7974 0.7505 1.582 0.114 -1.857 0.063* -0.913 0.361 -0.244 0.808
Note:
J-T stands for Jonckheere-Terpstra test
** significant at 5 % level
* significant at 10% level
TABLE 6 –Relationship between Investment Performance and Portfolio Diversification
Combined Sample
αp Sharpe, Sp eSDAR
α p Sharpe, Sp eSDAR
RV 0.122 -0.362 -0.273 0.056 -0.396 -0.373
significance 0.629 0.14 0.273 0.825 0.104 0.127
Capitalization -0.111 -0.299 0.117 -0.169 -0.262 0.084
significance 0.661 0.228 0.643 0.502 0.294 0.74
Holdings 0.011 0.228 0.14 -0.05 0.332 0.099
significance 0.965 0.362 0.58 0.844 0.178 0.696
Top ten% -0.132 -0.155 -0.132 0.114 -0.201 -0.027
significance 0.603 0.538 0.603 0.653 0.424 0.915
Note: *** Significant at 1 % level, ** Significant at 5 % level , * Significant at 10 % level
TABLE 7-Covariance Analysis
CRISIL Balanced Fund Index S & P CNX NIFTY Index
Degrees
Degrees of SS a of SS a
Source freedom F-value Prob.>F Source freedom F-value Prob>F
Panel A: Dependent Variable: Panel A: Dependent Variable:
αp αp
RV 1 0.0564 1.096 0.312 RV 1 0.00974 0.679 0.424
Group 2 0.07006 0.646 0.539 Group 2 0.02407 0.839 0.453
RV * Group 3 0.126 0.778 0.526 RV * Group 3 0.0338 0.785 0.522
βp
Panel B: Dependent Variable: Panel B: Dependent Variable:
βp
RV 1 15.084 0.819 0.381 RV 1 3.18 0.649 0.434
Group 2 40.281 1.093 0.362 Group 2 11.516 1.175 0.338
RV * Group 3 42.751 0.773 0.528 RV * Group 3 11.71 0.796 0.516
Panel C: Dependent Variable: Panel C: Dependent Variable: Sp
Sp
RV 1 0.287 3.536 0.081* RV 1 0.2 4.091 0.063*
Group 2 0.03086 0.19 0.829 Group 2 0.05 0.509 0.612
RV * Group 3 0.318 1.305 0.312 RV * Group 3 0.25 1.703 0.212
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