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Gayathri, S., Karthika, S. & Kumar, Gajendran L.

(2010) reviewed on Mutual Funds in India

are financial instruments. A mutual fund is not an alternative investment option to stocks and
bonds; rather it pools the money of several investors and invests this in stocks, bonds, money
market instruments and other types of securities. The owner of a mutual fund unit gets a
proportional share of the fund’s gains, losses, income and expenses. Mutual Fund is vehicle for
investment in stocks and Bonds. Each mutual fund has a specific stated objective. The fund’s
objective is laid out in the fund's prospectus, which is the legal document that contains
information about the fund, its history, its officers and its performance. Some popular objectives
of a mutual fund are: Fund Objective - What the fund will invest in; Equity (Growth) - Only in
stocks; Debt (Income); Only in fixed-income securities; Money Market (including Gilt) - In
short-term money market instruments (including government securities); Balanced - Partly in
stocks and partly in fixed-income securities, in order to maintain a 'balance' in returns and risk.
The share value of the Mutual Funds in India is known as net asset value per share (NAV). The
NAV is calculated on the total amount of the Mutual Funds in India, by dividing it with the
number of shares issued and outstanding shares on daily basis. The company that puts together a
mutual fund is called an AMC. An AMC may have several mutual fund schemes with similar or
varied investment objectives. The AMC hires a professional money manager, who buys and sells
securities in line with the fund's stated objective. The Securities and Exchange Board of India
(SEBI) mutual fund regulations require that the fund’s objectives are clearly spelt out in the
prospectus. In addition, every mutual fund has a board of directors that is supposed to represent
the shareholders' interests, rather than the AMC’s.

Agarwal, R K. et al. (2010) has reviewed since long the performance of mutual funds has been
receiving a great deal of attention from both practitioners and academics. With an aggregate
investment of trillion dollars in India, the investing public’s interest in identifying successful
fund managers is understandable. From an academic perspective, the goal of identifying superior
fund managers is interesting as it encourages development and application of new models and
theories. The idea behind performance evaluation is to find the returns provided by the individual
schemes especially growth funds and the risk levels at which they are delivered in comparison
with the market and the risk free rates. It is also our aim to identify the out-performers for
healthy investments. We have also ranked the investment opportunities for better evaluation of
these funds based on various adjusted ratios like Sharpe ratio, Jensen Measure, Fama ratio,
Sortino ratio, Treynor’s ratio and few others. Financial literature has very little studies which
concentrate on multiple measures of mutual fund performance evaluation. Therefore, an attempt
has been made to capture the critical measures of performance evaluation of mutual funds.

Agarwal, R K. and Mukhtar, W. (2010) conducted a study; today mutual funds represent the
most appropriate opportunity for most small investors. As financial markets become more
sophisticated and complex, investors need a financial intermediary who provides the required
knowledge and professional expertise on successful investing. It is no wonder then that in the
birth place of mutual funds- the USA - the fund industry has already overtaken the banking
industry, with more money under mutual fund management than deposited with banks. This
project covers a broad range of equity growth funds. The objectives of the paper are as (a)
Twenty four Equity growth funds have been studied for the application of composite portfolio
performance measures like Treynor ratio, Sharpe ratio, Jenson ratio, Information ratio, M square,
Specific ratio etc, and (b) Evaluate the asset allocation policy for Kotak 30 Growth Mutual fund
using Sharpe optimisation technique.

Rao, D. N. and Rao, S. B. (2009) has conducted research on the general perceptions/commonly
held belief among Indian Investors and Fund Managers are that (A) Market outperforms
Balanced and Income Funds during Bull run (B) Balanced and Income Funds outperform the
stock market during Bear run (C) Market outperforms Balanced and Income Funds over a long
holding period (a minimum period of three years). The objective of the study was to empirically
investigate whether the above stated perceptions are valid in the Indian context. For this purpose,
six hypotheses were tested.

The performance of the 47 Balanced and 72 Income Funds were analyzed in terms of Return,
Risk, Return per Risk and Sharpe ratio over the past three years (2006, 2007 and 2008) during
which period the Indian Stock Market had witnessed much volatility. Further, the performance of
these funds was compared with that of the Market and Benchmark Indices.

The Null Hypotheses were rejected leading to the acceptance of Alternate Hypothesis in all the
six cases leading us to conclude that Market outperformed both the Balanced and Income Funds
over Bull run and 3-year periods while both the funds outperformed the Market over Bear run
period which confirms the popular belief of the Investors and Fund Managers in India.

Agrawal, D and Patidar, D (2009) has conducted study on Mutual funds are key contributors to
the globalization of financial markets and one of the main sources of capital flows to emerging
economies. Despite their importance in emerging markets, little is known about their investment
allocation and strategies. This article provides an overview of mutual fund activity in emerging
markets. It describes about their size and their asset allocation. All fund managers are not
successful in the formation of the portfolio and so the study also focuses on the empirically
testing on the basis of fund manager performance and analyzing data at the fund-manager and
fund-investor levels. The study reveled that the performance is affected by the saving and
investment habits of the people and at the second side the confidence and loyalty of the fund
Manager and rewards- affects the performance of the MF industry in India.

Chakrabarti, R. (2009)conducted study on Asset Management Industry in India consists of a

vibrant and rapidly growing mutual funds sector, an insurance sector that is dominated by unit-
linked insurance plans, and Venture Capital Funds, both domestic and foreign. Also Foreign
Institutional Investors form a category that pool foreign retail or institutional funds and invest in
Indian debt and equity. Private Equity funds – both domestic and foreign – constitute a booming
segment as well. In the last decade or so, this industry has witnessed a wide range of regulatory
changes that have brought about increased competition and a very impressive growth rate.
Mutual Funds and Insurance sectors have been opened up to private players only 16 and 8 years
ago respectively. Venture Funds have been allowed even more recently. The Indian equity
market with its remarkable bull run throughout most of this decade right up to the crisis has
boosted major growth in the asset management industry. Even now, India stands poised at the
threshold of major regulatory changes that can open up new segments like Real Estates and
Pension Funds to retail investors and private and foreign fund managers. The rapid growth of the
sector is likely to continue once the dampening effects of the ongoing crisis are behind us.

Sehgal, S. and Jhanwar, M. (2007) in this paper, authors examine if there is any short-term
persistence in mutual funds performance in the Indian context. We find no evidence that
confirms persistence using monthly data. Using daily data, we observe that for fund schemes
sorted on prior period four-factor abnormal returns, the winner’s portfolio does provide gross
abnormal returns of 10% per annum on post-formation basis. The economic feasibility of zero-
investment trading strategies that involve buying past winners and selling past losers is however
in doubt. This is owing to the fact that these strategies generate low gross returns and that the
winner’s portfolios involve higher investment costs than losers portfolios, thus destroying a
major portion of extra-normal returns. Our empirical findings are consistent with the efficient
market hypothesis and have implications for hedge funds and other managed portfolios that rely
on innovative investment styles, including the fund of funds trading strategies that implicitly
assume short-term persistence.
Kamiyama, T. (2007) has conducted a research on the assets managed by India's mutual funds
have shown impressive growth, and had totaled 3.3 trillion rupees (Rs 3.3 trillion) as of the end
of March 2007. India's middle class, who are prospective investors in mutual funds, has been
growing, and we expect to see further growth in the mutual fund market moving forward. In this
paper, we first provide an overview of the assets managed within India's mutual fund market,
both now and in the past, and of the legal framework for mutual funds, and then discuss the
current situation and recent trends in financial products, distribution channels and asset
management companies.

Agrawal, D. (2007) has conducted a research, Since the development of the Indian capital
Market and deregulations of the economy in 1992 it has came a long way with lots of ups and
downs. There have been structural changes in both primary and secondary markets since 1992
scandal where the no seduce to the bottom and was bravely survived in ICU. Mutual funds are
key contributors to the globalization of financial markets and one of the main sources of capital
flows to emerging economies. Despite their importance in emerging markets, little is known
about their investment allocation and strategies. This article provides an overview of mutual fund
activity in emerging markets. It describes their size, asset allocation. This paper is a process to
analyze the Indian Mutual Fund Industry pricing mechanism with empirical studies on its
valuation. It also analyzes data at both the fund-manager and fund-investor levels. The study
reveled that the performance is affected saving and investment habits of the people at the second
side the confidence and loyalty of the fund Manager and rewards affects the performance of the
MF industry in India.

Deb, Soumya G., Banerjee, A. & Chakrabarti, B. B. (2007) in this paper author’s conducted a
study on return based style analysis of equity mutual funds in India using quadratic optimization
of an asset class factor model proposed by William Sharpe. We found the 'style benchmarks' of
each of our sample of equity funds as optimum exposure to eleven passive asset class indexes.
We also analyzed the relative performance of the funds with respect to their style benchmarks.
Our results show that the funds have not been able to beat their style benchmarks on the average.

Anand, S. and Murugaiah, V. (2006) in this paper, an attempt has been made to examine the
components and sources of investment performance in order to attribute it to specific activities of
Indian fund managers. It also attempts to identify a part of observed return which is due to the
ability to pick up the best securities at given level of risk. For this purpose, Fama's methodology
is adopted here. The study covers the period between April 1999 and March 2003 and evaluates
the performance of mutual funds based on 113 selected schemes having exposure more than 90%
of corpus to equity stocks of 25 fund houses. The empirical results reported here reveal the fact
that the mutual funds were not able to compensate the investors for the additional risk that they
have taken by investing in the mutual funds. The study concludes that the influence of market
factor was more severe during negative performance of the funds while the impact selectivity
skills of fund managers was more than the other factors on the fund performance in times of
generating positive return by the funds. It can also be observed from the study that selectivity,
expected market risk and market return factors have shown closer correlation with the fund

Rao, D. N. (2006)The study classified the 419 open-ended equity mutual fund schemes into six
distinct investment styles, analyzed the financial performance of select open-ended equity mutual
fund schemes for the period 1st April 2005 - 31st March 2006 pertaining to the two dominant
investment styles and tested the hypothesis whether the differences in performance are
statistically significant.

The variables chosen for analyzing financial performance are: monthly compounded mean
return, risk per unit return and Sharpe ratio. A comparison of the financial performance of the 21
Open-ended Equity growth plans and 21 Open-ended Equity dividend plans was made in terms
of the chosen variables.

The analysis indicated that Growth plans have generated higher returns than that of Dividend
plans but at a higher risk. Further, 17 Growth plans have generated higher returns than that of
corresponding Dividend plans offered by the same Asset Management Companies (AMC) and
only one Dividend plan could generate higher return than its corresponding Growth plan.
However, three Growth plans and the corresponding Dividend plans had the same returns.

Out of the 21 Growth plans, 4 Growth plans had higher Coefficient of Variation (Risk per unit
Return) than the corresponding Dividend plans and 13 Dividend plans had higher Coefficient of
Variation (Risk per unit Return) than the corresponding Growth plans offered by the AMC.
Three Growth plans and three Dividend plans had almost equal Risk per unit return.

A comparison of the Sharpe ratios of Growth plans and the corresponding Dividend plans
indicated that 18 Growth plans out of 21 (approximately 90%) had better risk adjusted excess
returns highlighting the fact that Growth plans are likely to reward the investors more for the
extra risk they are assuming.
Pearson's correlation coefficient between the returns of the two plans was found to be moderate
(0.5290) and F-test (1-tailed test) indicated a low probability (0.3753) of the variances of the
returns of the two plans. Further, Student's t-test (1-tailed test) led to the rejection of Null
Hypothesis and acceptance of Alternate Hypothesis at confidence levels ranging from 0.40 to
0.0005 implying that Equity Growth funds provide higher returns than that of Equity Dividend
funds and the differences were statistically significant.

Ranganathan, K. (2006) conducted a research on Consumer behaviour from the marketing

world and financial economics has brought together to the surface an exciting area for study and
research: behavioural finance. The realization that this is a serious subject is, however, barely
dawning. Analysts seem to treat financial markets as an aggregate of statistical observations,
technical and fundamental analysis. A rich view of research waits this sophisticated
understanding of how financial markets are also affected by the 'financial behaviour' of investors.
With the reforms of industrial policy, public sector, financial sector and the many developments
in the Indian money market and capital market, Mutual Funds which has become an important
portal for the small investors, is also influenced by their financial behaviour. Hence, this study
has made an attempt to examine the related aspects of the fund selection behaviour of individual
investors towards Mutual funds, in the city of Mumbai. From the researchers and academicians
point of view, such a study will help in developing and expanding knowledge in this field.

Panwar, S. and Madhumathi, R. (2006) has conducted 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.

Cici, G., Gibson, S. & Moussawi, R. (2006) conducted a research on that Firms which engage
in the simultaneous, or "side-by-side", management of mutual funds and hedge funds have a
fiduciary duty to each fund's investors to make portfolio decisions and to execute trades in the
most favorable way. This fiduciary duty is put to the test, however, when side-by-side
management firms can increase fee income by strategically transferring performance from the
mutual funds to the hedge funds they oversee. Our empirical evidence proves consistent with
such favoritism. The reported returns of side-by-side mutual funds are significantly less than
those of similar mutual funds run by firms that do not also manage hedge funds. A
decomposition of reported returns into holdings-return and return-gap components and return-
persistence tests also suggest favoritism. Finally, examining a potential wealth transference
mechanism, we find evidence consistent with side-by-side mutual funds getting less of a
contribution to performance from IPO under pricing than matched unaffiliated mutual funds.

Christopher, G., Stambaugh, Robert F. & Levin, D. (2005) Author has construct optimal
portfolios of mutual funds whose objectives include socially responsible investment (SRI).
Comparing portfolios of these funds to those constructed from the broader fund universe reveals
the cost of imposing the SRI constraint on investors seeking the highest Sharpe ratio. This SRI
cost depends crucially on the investor's views about asset pricing models and stock-picking skill
by fund managers. To an investor who believes strongly in the CAPM and rules out managerial
skill, i.e. a market-index investor, the cost of the SRI constraint is typically just a few basis
points per month, measured in certainly-equivalent loss. To an investor who still disallows skill
but instead believes to some degree in pricing models that associate higher returns with
exposures to size, value, and momentum factors, the SRI constraint is much costlier, typically by
at least 30 basis points per month. The SRI constraint imposes large costs on investors whose
beliefs allow a substantial amount of fund-manager skill, i.e., investors who rely heavily on
individual funds' track records to predict future performance.

Miller, Ross M. (2005) conducted a research In Recent years have seen a dramatic shift from
mutual funds into hedge funds even though hedge funds charge management fees that have been
decried as outrageous. While expectations of superior returns may be responsible for this shift,
this article shows that mutual funds are more expensive than commonly believed. Mutual funds
appear to provide investment services for relatively low fees because they bundle passive and
active funds management together in a way that understates the true cost of active management.
In particular, funds engaging in closet or shadow indexing charge their investors for active
management while providing them with little more than an indexed investment. Even the average
mutual fund, which ostensibly provides only active management, will have over 90% of the
variance in its returns explained by its benchmark index. This article derives a method for
allocating fund expenses between active and passive management and constructs a simple
formula for finding the cost of active management. Computing this active expense ratio requires
only a fund's published expense ratio, it’s R-squared relative to a benchmark index, and the
expense ratio for a competitive fund that tracks that index. At the end of 2004, the mean active
expense ratio for the large-cap equity mutual funds tracked by Morningstar was 7%, over six
times their published expense ratio of 1.15%. More broadly, funds in the Morningstar universe
had a mean active expense ratio of 5.2%, while the largest funds averaged a percent or two less.

Sapar, Narayan R. & Madava, R. (2003) In this paper conducted a research on the
performance evaluation of Indian mutual funds in a bear market is carried out through relative
performance index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's
measure, and Fama's measure. The data used is monthly closing NAVs. The source of data is
website of Association of Mutual Funds in India (AMFI). Study period is September 98-April 02
(bear period). We started with a sample of 269 open ended schemes (out of total schemes of 433)
for computing relative performance index. Then after excluding the funds whose returns are less
than risk-free returns, 58 schemes were used for further analysis. Mean monthly (logarithmic)
return and risk of the sample mutual fund schemes during the period were 0.59% and 7.10%,
respectively, compared to similar statistics of 0.14% and 8.57% for market portfolio. The results
of performance measures suggest that most of the 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.

Borensztein, E. and Gelos, G. (2001) this paper explores the behavior of emerging market
mutual funds using a novel database covering the holdings of individual funds over the period
January 1996 to March 1999. An examination of individual crises shows that, on average, funds
withdrew money one month prior to the events. The degree of herding among funds is
statistically significant, but moderate. Herding is more widespread among open-ended funds than
among closed-end funds, but not more prevalent during crises than during tranquil times. Funds
tend to follow momentum strategies, selling past losers and buying past winners, but their overall
behavior is more complex than often suggested.

Block, Stanley B. and French, Dan W. (2000) conducted a study on Portfolios of equity mutual
funds tend to be equally weighted to a greater degree than they are value weighted according to
metrics of fund weightedness developed in this paper. Measures of fund investment performance
based solely on a single value-weighted or equally weighted benchmark may therefore not
adequately identify significant excess performance. We propose a two-index model using both a
value-weighted and an equally weighted index. Estimated models using a sample of 506 mutual
funds show that the two-index model provides a better fit than the single-index model and
identifies a larger set of funds with abnormal performance.