A Comparative Analysis of

Performance, Investment Styles,

and Risk and Return Associated
with Indian Mutual Funds
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NIDHI WALIA AND RAVI KIRAN

F
NIDHI WALIA inancial innovations have become global attention, because of the potential this
is an assistant professor at the central driving force taking any market witnesses. In April 2006, asset manage-
the Punjabi University,
financial system toward economic ment companies (AMCs) in India managed the
Patiala in Punjab, India.
[email protected] efficiency. Similarly, innovations in financial assets of more than INR 2,000 billions
the Indian mutual fund industry have given it contributed by an estimated 20 million inves-
R AVI K IRAN a fresh look completely. Mutual fund investing tors. The assets grew at a compounded annual
is a professor at the School is a process of pooling and channeling the growth rate (CAGR) of 48% over a period of
of Management & Social savings of small investors. It has become a four decades. Mutual fund AMCs working in
Sciences at Thapar Univer-
sity in Punjab, India.
preferred investment avenue for the common India adopted different investment styles to
[email protected] investor in India, because of its superior invest- optimize the net benefits from market vola-
ment styles, perfect market knowledge, and its tility and, as a result, all fund schemes, despite
ability to move funds in required directions. being under the same umbrella of common
The mutual fund industry in India, although features, differed in the benefits that are ulti-
working at excellent pace, is still far behind mately provided to the investors. With intensi-
from the heights it should have touched as it is fied competition by global players mutual fund
still ranked at 19th among worldwide mutual AMCs are designing new schemes to strike at
fund markets. Reducing complexities, strong the untapped segments. At present around 34
integrated networks, and decreasing market AMCs (in both the private and public sectors)
imperfections are luring Indian investors are working in India with more than 900 inno-
to invest their domestic savings into capital vative fund schemes to cater to the dissimilar
markets, but the risk-averse attitude of Indian needs of varied investors. To satisfy the quest
investors does not allow them to participate of the rational investors, fund managers have to
directly in the race. Thus, investment through be alert every time with minute market updates
mutual funds is the most suitable option that and take the necessary action as required,
provides them with a maximum return at because their diligence in fund management
a minimum risk. The selection of the fund maintains the trust of investors.
depends upon the investment objective and
certainly awakened investors study the his- REVIEW OF LITERATURE
torical facts of the concerned fund but along
with it, the reputation of the sponsors cannot For facilitating the smooth conduct of
be ignored. research, previous studies were categorized in
The outstanding performance of the three categories, which is to say investment
mutual fund industry in India has attracted styles used by fund managers, parameters used

86 A COMPARATIVE A NALYSIS OF P ERFORMANCE, INVESTMENT STYLES, AND R ISK AND R ETURN FALL 2011
 to evaluate fund performance, and studies conducted to derived a risk-adjusted measure of portfolio performance
analyze the performance of mutual funds in India. that estimates how much a manager’s forecast ability con-
tributes to fund’s returns. Neal [2001] suggested that the
Studies Pertaining to Investment Style return alone cannot be used as a measure of evaluating
the performance of mutual funds as most commonly
Mutual fund investment is generally preferred by some highlighted stocks are taken into the portfolio for
investors, because of its ability to diversify funds in var- cosmetic purposes. Carhart [2007] argued that generally
ious sectors and, thus, reduce the possibility of unsys- academicians focus on abnormal return, while measuring
tematic risk. Based on different investment objectives, the performance of mutual funds whereas before ana-
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fund managers use their specialized skills and adopt varied lyzing the abnormal return, a model should be used that
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investment styles. A study by Sharpe [1992] classified the quantifies the risk–return relationship from investing in
investment style of fund managers into two categories: various sectors of stock market.
category-based style is based on the portfolio’s and the
benchmark’s current/historic holdings, whereas return- Studies Pertaining to Indian Mutual Funds
based style suggests that a portfolio’s return is linearly
related to return on the number of factors. Chan et al. Although the accelerated growth pace of the
[2002] validated that size and book to market value growth Indian mutual fund industry has drawn the attention
are descriptors of fund style and concluded that most funds of many global investors, most of the research studies
cluster around a broad benchmark and very rarely do fund have focused on growth patterns of developed markets
managers decide to take extreme positions. only. The research by Sarkar & Majumdar [1995] closely
Gottesman & Morey [2006] conducted research to watched the performance of five close-ended growth
find the relationship between the manager’s education schemes for a period from 1991 to 1993 and found the
and mutual fund performance and concluded that cer- fund performance poor in terms of alpha.
tain managers with greater intelligence acquire advance Gupta & Sehgal [1997] performed a benchmark
knowledge on market movements and can use those skills comparison of 80 mutual fund schemes during the period
to get superior performance. A study by Brown & Harlow from 1992 to 1996 and concluded that the industry per-
[2008] examined whether investors would benefit by formed well during that period. Mishra and Mahmud
selecting mutual funds whose managers tended to main- [2002] measured mutual fund performance using lower
tain consistent investment styles rather than funds whose partial moments. Risk from lower partial moments is
investment styles varied significantly and concluded that measured by taking into account only those states in
deciding to maintain a consistent investment style is an which the return is below a prespecified target rate. Bello
important aspect of a portfolio’s management process. [2005] matched a sample of socially responsible funds
with randomly selected conventional funds to investigate
Studies Relating to Performance Measures differences in characteristics of the assets held, the degree
of portfolio diversification, and the effect of diversifica-
Investment in equity funds is the obvious choice tion on fund performance and concluded that socially
of high-risk profile investors. Generally, it is assumed responsible mutual funds do not differ significantly from
that a highly risky investment may yield a higher return conventional funds in any of those attributes.
than ordinary investment avenues. Treynor [1965] and Panwar and Madhumati [2006] studied a sample
Sharpe [1966] provided a specialized index to measure of public-sector-sponsored funds and private-sector-
superf luous returns by equity funds. In that regard, they sponsored funds to investigate the differences in the
differed in their evaluation criteria as Treynor used only characteristics of assets held, portfolio diversification,
systematic risk to measure portfolio performance, but and the variable effect of diversification on fund per-
Sharpe used total risk to evaluate fund performance. formance from 2002 to 2005 and concluded that private
Fama [1972] provided a different approach to measure the sector funds do not differ significantly in terms of mean
performance of mutual funds and, accordingly, he devel- return, but differ significantly in terms of average stan-
oped a measure in the form of comparing actual real- dard deviation and average covariance, whereas Gupta &
ized return and expected portfolio return. Jensen [1967] Aggarwal [2007] carried out research on quarterly

FALL 2011 THE JOURNAL OF INDEX INVESTING 87

 returns performance of equity-diversified funds for a integrated network of financial services spreading glob-
period from 2002 to 2006 using the capital asset pricing ally. In addition, relying on the regulatory framework
model (CAPM) and the Fama–French model. has also given it a positive boost. However, since last year
the negative trend in financial markets is an important
RESEARCH METHODOLOGY issue to resolve, especially with the changing attitude of
investors and the loss of trust in private players. Hence, it
Present research is an attempt to focus on working was an appropriate time and relevant objective to study
and performance of private- and public-sector mutual the work and performance of the private- and public-
funds. For that purpose, secondary data were collected and sector players in the mutual fund industry. This article
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analyzed using various statistical measures. Although the not only shows a fresh look at the Indian mutual fund
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mutual fund industry has been a presence for more than industry with investors giving more weight to private-
half a century, the accelerated growth has been recorded sector funds, but also provides an analysis of the public
after the participation of private players in this industry. and private sectors to restore the investor’s confidence in
Thus, the period of our study was taken to be the last private-sector mutual funds.
10 years from 1999 to 2009. The limitation of time and
resources forced us to select only a few mutual funds. For INDIAN MUTUAL FUND INDUSTRY
the purpose of this study, four mutual funds (UTI Mutual FROM 1999 TO 2009
Fund, SBI Mutual Fund, Reliance Mutual Fund, ICICI
Prudential Mutual Fund) were taken, because those are With financial innovations taking lead in the Indian
the most common options among mutual funds that are capital markets, AMCs were encouraged to come up with
preferred by individual investors based on their reliability. additional schemes to suit the investor’s requirements
Further, as large numbers of schemes are available under and the industry widened its dimensions from providing
those AMCs, we took only equity-growth funds for the only debt and equity funds to gilt-edged funds, index
purpose of our study considering the maximum risk funds, sector funds, and more. As a result, the number
involved in those schemes. of schemes operating in March 1998 increased from 235
to 451 in March 2005 and visible growth can be traced
Objectives of the Study from 956 schemes currently operating in India. The key
to this speedy growth can be attributed to the higher
a. To study the growth trend of mutual funds from saving pattern in India as Indian investors are admitted to
1999 to 2009. be highly future conscious compared to other developing
b. To study the performance of specific equity- nations. In addition, improved lucidity in the regulatory
growth schemes operating in the Indian mutual framework has garnered the trust of Indian investors.
fund industry. The financial liberalization era in the last decade
c. To analyze and compare the level of risk assumed has put its everlasting impact on the Indian financial
and the returns provided by selected private- and markets, especially mutual funds that can be traced back
public-sector funds in India. to the rolling over of assets under management (AUM) or
d. To understand the different managerial skills the number of mutual fund schemes currently operating.
adopted by fund managers that result in differences See Exhibit 1 for assets under management.
in returns provided by mutual funds in India. During the last ten years, the industry’s com-
pound annual growth rate (CAGR) has been nearly
Significance of the Study 22%. Although there was hardly any increase in the
number of AMCs operating during the last ten years
The impressive growth of the Indian mutual fund when it rose from 31 in 1998 to 33 in 2008, but those
industry has forced global researchers to discuss the issues AMCs adopted innovative ideas to lure more investors
of future potential of the mutual fund market in India. and net AUM increased from $17,451 million in March
There is no denying the fact that in the past few years 1998, to $126,225 million in March 2008. The spon-
this industry has grown exceptionally well on the back of taneous growth of AUM in the Indian mutual fund
intensified competition by private players and the strong industry can be clearly seen from year-ending 2003

88 A COMPARATIVE A NALYSIS OF P ERFORMANCE, INVESTMENT STYLES, AND R ISK AND R ETURN FALL 2011
 with AUM of $16,719 million that rose E X H I B I T 1
to $126,225 million in 2008. AUM’s Assets Under Management
exponential growth rate from 1999 to
2009 was observed as 3.1711. During
April 2008, AUM witnessed an impres-
sive growth of 7.32% within one month.
Out of the 33 funds operating in India, 26
reported a rise in AUM during April 2008
over March 2008, where ICICI Pruden-
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tial showed a growth rate of 2.55% over

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March 2008 and Reliance Mutual Fund

reported a growth of 5.99% with AUM
INR 96,386.4 crore (cr) in April 2008.
The AUM of UTI increased by 7.28%
during this period with highest inf low of
INR 3,566.59 crore. See Exhibit 2.
Despite the high-growth rate of the
mutual fund industry, it has been ranked
19th among nations globally, because
Indian markets have yet to tap their com-
pete potential. The most neglected area
for the Indian mutual fund industry is its
concentration in the rural market where
lack of awareness, limited banking services, and poor
networking puts hurdles in the involvement of rural
EXHIBIT 2
investors.
Mobilization of Funds
With increased risk appetite, bigger income, and
improved awareness, Indian investors have preferred
mutual funds as an investment rather than traditional
investments in government securities. This fact is quite
apparent from the data in Exhibit 3, which shows that
total net assets of the mutual fund industry in India
grew more than 100% within a span of five years and
an appreciable increase in net assets can be seen in year
2008, where more than a 54% growth rate was seen in
net assets.
However, the data of 2009 are a bit disappointing
in terms of net assets, as 2009 shows a negative trend,
which proves that even the mutual fund industry in
India has not remained untouched by the global finan-
cial crisis. As UTI has tried to maintain its monopoly
in the mutual fund industry since its inception, data in
Exhibit 3 reveal that despite the deregulation in finan-
cial policies by regulatory authorities, it took private
players a long time to embed their position in the mutual
fund industry. Private players entered into the mutual
fund industry with a wide range of fund choices in 1993
that not only intensified competition but also helped

FALL 2011 THE JOURNAL OF INDEX INVESTING 89

 EXHIBIT 3 kept decreasing as investors developed their trust in pri-
Cumulative Net Assets vate mutual funds and, as a result, total net assets held by
UTI in 2008 were 9.58%, whereas the rest of the public
sector held 8.14% net assets.
With the recent crash of financial markets, falls
in investors’ optimism can be seen but that can be the
case with momentum investors as rational investors are
not trend conscious. They invest in a more organized
way with long-run vision. Realizing this fact mutual
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fund AMCs are regularly coming up with a plethora of

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schemes to suit investors’ requirements and even adopting

multistage marketing strategies to lure every class of
investors. Every category of Indian investor whether
salaried, corporate class, or professionals has shown its
preference for mutual funds as direct participation in
the stock market to achieve abnormal returns requires
a higher degree of professionalism and updated knowl-
edge. A sudden change in global financial policies forced
financial markets to face an acute downtrend, and as a
result, once again investors reverted back to the public
sector from the private sector. The data results for year-
ending 2009 show a negative trend in net assets held by
the private-sector mutual funds, which decreased from
82.28% in 2008 to 80.4%, but cumulative net assets held
the mutual fund industry reach new heights. Data show by public-sector mutual funds (except UTI) increased
that in 1999, private funds had a contribution of merely to 10.54% in 2009 from 8.14% in 2008.
9.97% in total net assets, which increased to 51.77% in Private-sector mutual funds tapped investors from
2003, and in year-ending March 2009, the contribution various sectors with their swift and smart plans and so
of private players in net assets was 80.4%. within a short time, they were able to mobilize 34.55%
The Indian mutual fund industry has shown a dra- of the total funds mobilized by the mutual fund industry,
matic change during last two decades, where partici- but even then UTI alone maintained its monopoly posi-
pation of private-sector funds has added new vistas to tion holding 58.09% of total funds mobilized. Innovative
the traditional perception of investors. The mutual fund plans by private-sector funds proved their well-structured
industry has witnessed robust growth since its regula- planning. In the year ending March 2000, the posi-
tory framework was strengthened in 1993, but the fact tion of private-sector funds in terms of funds mobilized
cannot be ignored that until the public-sector mutual increased to 71.39% in comparison to 22.36% in credit
funds were allowed to enter into this industry in 1987, of UTI. During the year ending March 2008 out of total
UTI remained a dominating player. Among Indian funds mobilized by the mutual fund industry, 84.68%
mutual fund players, UTI is still known to be a strong were mobilized by private-sector funds compared to
player among the public sector with corpus of over INR 7.55% by all public-sector mutual funds (except UTI),
54,490 crore as of March 31, 2009, and has successfully but again because of negative waves during the finan-
managed a wide variety of schemes with its USP of cial year 2008 to 2009, the share of the private sector
transparency and accountability towards unit-holders. started shifting toward public-sector mutual funds as
As is clear from the data even more than a decade after share of funds mobilized by private-sector mutual funds
its inception, the total cumulative contribution of all came down to 79.10%, while the share of public-sector
public-sector mutual funds was hardly 12.09% in 1999. funds (except UTI) increased to 13.09%. Although the
UTI alone held 77.94% total net assets, but that margin global financial crisis downfall was seen in every finan-
cial sector, the mutual fund industry in India has shown

90 A COMPARATIVE A NALYSIS OF P ERFORMANCE, INVESTMENT STYLES, AND R ISK AND R ETURN FALL 2011
 a positive wave in funds mobilized by various sector that SBI Magnum Equity Fund-Growth has the highest
mutual funds that increased from INR 4,464,376.32 cr return of 27.31%, whereas ICICI Prudential Aggressive
in 2008, to INR 5,426,353.26 cr in the year ending Plan-Growth has the lowest return of 15.03%. The per-
March 2009. formance of the previous three-month average return
is appreciable in the case of SBI and UTI Equity Fund-
PERFORMANCE OF EQUITY FUNDS: Growth with 77.31% and 50.86% respectively.
RISK–RETURN TRADE-OFF The results of the returns during the last one year
are negative for all the mutual fund plans under the study
The most critical issue that investors face while and the condition was quite obvious, escapeless, and
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opting for mutual funds is how to evaluate mutual fund threatening. This particular negative trend in the last
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AMCs, which parameters should be taken for their evalu- year’s results show that the financial crisis has also put
ation, which particular portfolio can provide them supe- its shadow on the Indian mutual fund industry and, as a
rior returns and the list of questions that make a kiosk result, all top-class mutual funds had to suffer despite their
in an investor’s mind is endless. With the expansion of best strategies. Data for the last three-years’ performance
the mutual fund industry where more than 34 players again declare SBI Magnum Equity Fund as a champion
are currently operating with around 500 schemes, some- among the other three funds under the study with the
times it becomes difficult for retail investors to access the highest return of 19.59%, followed by Reliance Equity
performance and to understand the level of risk in a par- Fund-Growth with 15.06%. The data in Exhibit 5 com-
ticular fund scheme. Past performance of funds certainly pare the basic parameters of four mutual funds under our
help investors to access and to forecast fund performance study. When compared, the expense ratio (Ep) of all four
to some extent, but along with the fundamentals of the funds shows that SBI Magnum Equity Fund-Growth has
AMCs, their strategies of portfolio selection and fund the top position with Ep = 2.50% and the UTI Equity
management skills cannot be ignored. Fund takes the next lead with Ep = 1.94%. With regard
to the volatility in NAV, UTI seems to be performing
Comparative Analysis of Return well with the 52-week high of 37.88, whereas Reliance
from Equity-Growth Funds has a slow move with 13.46. UTI seems to be playing
well with healthy strategies of investment as the 52-week
Exhibit 4 unveils the comparative returns of four low NAV in this fund was 23.63 in comparison to Reli-
mutual funds that are known for their excellent
performance and most commonly preferred
by general investors because of several reasons. E X H I B I T 5
As discussed previously, SBI Magnum Equity Fund Facts
Fund-Growth has proved to be highly volatile
because of the higher level of risk assumed
by it, thus, as expected it has been providing
a high rate of return in comparison to the
other three funds under our study. Average
results of its one-month performance shows

EXHIBIT 4
Fund Performance Returns (%)

FALL 2011 THE JOURNAL OF INDEX INVESTING 91

 ance at 8.21. As a general practice, a fund with higher who want to avail the superlative advantage of market
portfolio-turnover rate is not expected to be excellent, movements as beta signifies the f luctuation in NAV of
but Reliance’s highest level of portfolio-turnover rate a fund vis-à-vis market. The higher level of beta in the
(i.e., 114%) should not be given a negative look as it is case of SBI and Reliance signifies that their NAVs are
providing a higher rate of return than all other funds more responsive to the market.
in our study. Of all four equity fund schemes, the Treynor index
The only negative aspect of the higher portfolio- is showing unfavorable performance as it signifies the
turnover rate is that it adds to the transaction cost, but if ratio of return generated by fund over and above risk free
this increased return is offsetting the increased transac- return. With regard to this parameter, all four funds are
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tion cost, it cannot be considered negative. SBI Magnum showing negative performance with a negligible differ-
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Equity Fund has the lowest portfolio-turnover rate and ence. Reliance and ICICI Prudential are showing their
along with it is providing the highest rate of return, equating underperformance with negative Ti = –0.69.
which reveals that with a minimum shifting of funds, Similarly, the Sharpe ratio shown in Exhibit 5 is showing
the SBI Equity Plan is performing well. the underperformance of all mutual funds taken under
the sample. The Sharpe ratio depicts reward for each unit
Comparative Analysis of Risk of total risk, and in our results all four funds are showing
in Equity-Growth Funds underperformance with a very thin ignorable difference,
because the Reliance Equity Fund has an Si = –0.12 and
As shown in Exhibit 6, various risk estimations are the SBI Equity Fund has an Si = –0.10. As a quantitative
depicting the variability or f luctuations in the return measure of risk, Fama depicts the compared performance
generated by an assortment of funds. Data estimates of return with the required return corresponding to the
suggest that among the four mutual funds that were total risk associated with it. The SBI Fund with highest
randomly selected for this study, the highest variation is level of Fama indicates that the fund manager has earned
shown by the SBI Magnum Equity Fund-Growth with returns well above the return corresponding to the level
σ 5.48, whereas the least f luctuations are shown by the of risk taken, but UTI (with the lowest level of Fama at
ICICI Prudential Aggressive Plan-Growth. As standard 0.02) shows the poor stock-selection skills of the fund
deviation is a measure of total risk assumed by securities, manager in comparison to other funds taken under our
which is to say both systematic and unsystematic risk, sample. This particular comparison reveals the fact that
it means there must be some specific security present in out of those four equity funds in our sample, SBI is
the SBI Magnum Equity Fund and the Reliance Equity performing reasonably well by providing excess return
Fund that is causing more variability in returns. over and above the required rate of return to compen-
Beta is used as a measure of systematic risk only and sate for total risk assumed. However, the lower level
as shown in Exhibit 6 again, SBI Magnum Equity Plan- of Fama in the case of the UTI Equity Fund-Growth
Growth is showing higher level of β = 0.92, whereas signifies the lower level of risk assumed by the fund
ICICI Prudential Aggressive Plan has been at least level manager, and thus, it would be suitable more for risk-
with β = 0.59. The data given in Exhibit 6 cannot infer averse investors.
that SBI is the most risky, however, it can be interpreted
that this plan is suitable particularly for those investors

EXHIBIT 6
Risk Levels in Private- and Public-Sector Mutual Funds

92 A COMPARATIVE A NALYSIS OF P ERFORMANCE, INVESTMENT STYLES, AND R ISK AND R ETURN FALL 2011
 Comparative Analysis of NAVs positive trend with Y = 1.2476× + 11.214, but this fund
of Equity-Growth Funds scheme’s determination coefficient is comparatively less
than UTI with R2 = 0.213. The results of the trend line
Exhibit 7 provides the historical trend of NAVs of fitted on Reliance does not show an uptrend in predicting
the selected funds from 1999 to 2009. This comparative future NAV with Y = –0.0376× + 11.036 and a coefficient
analysis provides us with the movements of NAVs as of of determination R2 = 0.0008. The results for Reliance
March 31. Our analysis of the NAVs of the four mutual may be showing this trend equation, because the fund has
fund equity schemes reveals that during 2000, SBI per- only been in the market since 2006. The trend line fitted
formed exceptionally well compared to UTI with an on ICICI’s NAVs also reveals an uptrend in the coming
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exponential growth rate of 4.6515. future with Y = 2.0021× + 7.9757 and a coefficient of
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The performance of UTI seems to be giving better determination R2 = 0.6842. Thus, the data analysis of the
results that any other fund and the overall trend of NAVs historical NAVs of the selected funds reveals the expected
concludes that UTI outperformed SBI with an exponen- uptrend and the scope of capital appreciation that may be
tial growth rate of 3.217281. Among the private-sector provided by respective funds to the unit-holders.
equity fund-growth schemes, ICICI seems to outper-
form Reliance. Moreover, NAV trends seem to match
ANALYSIS OF EQUITY FUND’S
with market movements as an uptrend can be seen in
INVESTMENT STYLES
all the NAVs between 2005 and 2008. In addition, as
the global financial crisis hit the financial markets, every The fund manager’s decision-making is an impor-
fund’s downfall in NAV can be seen. It makes it clear tant determinant that tries to map out the investor’s objec-
that equity-growth funds with a high-risk profile have tives and AMCs’ vision, as investors delegate the very
to bear adverse market trends, despite the well-designed crucial decision on fund managers with their expressed
strategies and extensive knowledge of fund managers. and implied expectations. Thus, the manager has to be
NAVs depicted in Exhibit 7 are taken at the end of every very conscious in selecting a particular investment style
financial year, and thus, f luctuations in the NAV during that can satisfy the investors’ quest. Fund managers use
the year have been ignored. Moreover, data for NAVs of a wide variety of approaches for stock selection ranging
Reliance and ICICI have been taken at the time of their from cheap security, growth potential, past price trend,
inception. An analysis of the trend line fitted on the NAVs and more. Any of the three important investment styles,
of those fund schemes reveals that the coefficient of the whether growth, growth at reasonable price (GARP),
determination of UTI is R2 = 0.7167. SBI also shows a or contra style, may be chosen by the fund manager
depending on investors’ risk appetites and investment
timing, but generally Indian financial investors do not
EXHIBIT 7 prefer investing in concept stocking. However, while
NAVs of Mutual Funds any investment style may be chosen by fund managers—
consistency is demanded—once the style is adopted.
Being more volatile to market changes, equity-growth
funds are designed for more risk-taking investors. SBI
fund’s investment style focuses on aggressive growth
and Reliance equity fund focuses on providing capital
appreciation to investors over time. Exhibit 7 shows the
breakdown of investment holdings in equity, debt, or
others, by funds taken in our sample study. The data
provided by secondary sources (AMFI) reveal that SBI
adopted a growth style in large cap with 88.34% invest-
ment in 31 stocks, 1.49% in debt, and 10.17% in cash and
the equivalent. Compared to that, UTI seems to be a
little conservative by adopting a blending style in large
caps. This particular fund invests comparatively fewer

FALL 2011 THE JOURNAL OF INDEX INVESTING 93

 funds in equity shares, which is 86.36% in 72 stocks, fund industry during last ten years, with nearly
and 3.20% in debt securities. Among funds allocated in 22% CAGR.
various sectors, UTI equity has a major sector alloca- 2. Although UTI continued to maintain its monopoly
tion in banking (20.49%) and in oil, gas, and petroleum in this market for more than two decades, participa-
(12.06%). ICICI follows the growth investment style tion of private players in this segment turned inves-
assuming minimum risk as indicated by its portfolio dis- tors more toward lucrative schemes. As a result,
tribution that shows 70.86% investment in equity stock, UTI’s role in fund mobilization decreased from
and 29.74% in debt securities. With market capitalization 58.09% in 1999, to 7.79% in 2009.
of INR 51,655.22 on April 2009, Reliance is also fol- 3. The investors’ education campaign initiated by
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lowing growth style in large cap with 76.44% investment fund houses has lured more investors toward private
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in 21 stocks, and 23.56% in cash and the equivalent with funds, and as a result, the presence of the private
no investment in debt securities. See Exhibit 8 for the sector increased from 34.55% in 1999 to 79.10% in
portfolio allocation. 2009 out of total funds mobilized by the mutual
fund industry.
STUDY FINDINGS 4. A comparative analysis of net assets held by UTI and
the private mutual fund also reveals the increasing
The Indian mutual fund industry has become one preference of investors toward private funds with
of the fastest-growing segments of the Indian economy UTI’s net assets reducing from 77.94% in 1999 to
during the last ten years. An analysis of the secondary 9.06% in 2009, but net assets of private-sector funds
data collected to study the current status and future pros- increased from 9.97% in 1999 to 80.4% in 2009.
pects of the Indian Mutual fund industry reveals the 5. Our analysis of comparative risk and return pro-
following facts: vided by fund schemes reveals that private-sector
funds do not provide more abnormally high risk
1. The higher saving rate in India has given a boost than public-sector funds, but in terms of investors’
to the Indian capital market and the result was that returns, SBI can be seen as providing the highest
apprehensive growth was seen in Indian mutual return to investors.

EXHIBIT 8
Portfolio Allocation

94 A COMPARATIVE A NALYSIS OF P ERFORMANCE, INVESTMENT STYLES, AND R ISK AND R ETURN FALL 2011
 6. An analysis of portfolio funds’ investment styles Fama, E.F. “Components of Investments Performance.”
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Gupta, M., and N. Aggarwal. “Performance of Mutual
The overall growth trend in the Indian mutual fund Funds in India—An Empirical Investigation.” ICFAI Journal
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framework of financial markets and increased awareness

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