ANALYSIS OF THE OBSERVATION:

The table given below illustrates the comparison among the analysed funds based on the different measures of comparison.

Performance of Fund portfolio and Benchmark return for 29 months (jan07-may08)

Table:3.21 FUND RETURNS BENCHMARK RETURN EQUITY FUND 12.22546 11.8529 Capital builder 4.872865 11.8529

Growth fund 16.48711 3.792016 Long term adv -7.63043 3.792016 Tax saver -0.89438 11.8529 Top 200 24.0141 5.065339 Figure:3.7

Performance Evaluation against Benchmarks

The above table presents return and risk of the six funds along with market return and risk. From the table it is evident that, Top 200, Equity fund and Growth fund have earned greater return as against the market earning. Capital builder, Long term advantage and Tax saver funds have not earned higher return than the Market portfolio. Long-term advantage and Tax saver funds have even negative returns.

Comparison of ratios: Table:3.22 Fund name S.D. market

S.D. fund B value Sharpe ratio Treynor ratio Jenson’s alpha Fema Retuns jan07- may08(29 months) HDFC Equity 11.13239 2.392215 1.0096114 -1.64557 -3.89907 0.070488 -3.0836 12.22546 HDFC Capital Builder 11.13239 2.545136 0.936265 -1.66872 -4.53625 -0.39357 -3.33967 4.872865 HDFC Growth Fund 10.98971 2.54769 0.921779 -1.53641 -4.24646 0.013767 -2.9264 16.48711 HDFC Long Term Adv 10.98971 2.353486 0.904883 -2.02088 -5.25605 -0.90004 -3.84352 -7.63043 HDFC Tax saver 11.13139 2.292262 0.944765 -1.94188 -4.71154 -0.70163 -3.63399 -0.89438 HDFC Top 200 12.1616 1.962124 0.868932 -1.8693 -4.22105 -0.12301 -2.87834 24.0141

Standard Deviation of the Market:

High standard deviation of a fund implies high volatility and a low standard deviation implies low volatility. HDFC equity fund, HDFC capital Builder and HDFC Tax saver take S&P CNX 500 as their benchmark, HDFC Growth fund and HDFC long term have taken Sensex as bench mark and HDFC Top 200 has taken BSE 200 as its bench mark. We found out that BSE 200’s S.D. is 12.1616, which is greater than Sensex and S&P CNX 500 having 10.98971 and 11.13139 S.D. respectively. Therefore, BSE 200 is more volatile than Sensex and S&P CNX 500.

Standard deviation of the Fund:

It has been found that HDFC Top 200’s S.D. is lesser than all other funds. Although benchmark index (BSE 200) is more volatile as it has higher S.D. than other indexes still HDFC Top 200 is less volatile because of lesser fund S.D. This is might be because of diversification of unsystematic risk as it compensates the systematic risk.

β Value :

As we know in case of funds, beta would indicate the volatility against the benchmark index. It is used as a short term decision making tool. A beta that is greater than 1 means that the fund is more volatile than the benchmark index, while a beta of less than 1 means that the fund is more volatile than the benchmark index. A fund with a beta very close to 1 means the fund’s performance closely matches the index or benchmark.

The analysis illustrates that HDFC Equity fund’s is less volatile and its performance is very close to its benchmark as its beta value is 1.0096114 compared to other funds which have beta value lesser than 1 point. HDFC Top 200’s beta value is more volatile than the benchmark as its value is 0.868932, which is very far from point 1.

Sharpe ratio:

A fund with a higher Sharpe ratio means that these returns have been generated taking lesser risk. In other words, the fund is less volatile and yet generating good return.

The analysis shows that all the funds have negative Sharpe ratio therefore they are more risky. Comparing all the funds HDFC growth fund has lesser negative marks that means its return 16.48711 is generated taking lesser risk.

Treynor ratio:

While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavourable performance (systematic risk associated with it (beta)).

All the funds are having negative Treynor’s ratio which means they are affected by the volatility of the market (systematic risk)or by the great recession.

Jenson’s alpha:

Its measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. Higher alpha represents superior performance of the fund and vice versa.

The analysis points out that all the funds are having negative alpha except HDFC Equity fund and HDFC Growth fund which have positive points. Jenson alpha ratio justifies that these two funds are at least able to achieve the expected return given the level of their systematic risk.

Fema measure:

The Net Selectivity (Fema) represents the stock selection skill of the fund manager, as it is the excess returns over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him.

It has been that all the funds are having negative net selectivity because of the higher risk found both in systematic risk (B) and unsystematic risk. This findings point out, that the stock selection of the fund manager has been failed because of the systematic risk i.e. recession. Comparing to other funds HDFC Growth fund (-2.9264) has lesser negative points in this time of great crisis. This indicates that HDFC Growth fund is getting enhanced return by nullifying systematic risk and unsystematic risk.

From the above analysis there is no fund which has consistency. The funds are being affected very badly either by the systematic risk or by the unsystematic risk. As we observe closely, it is the HDFC Growth fund, which has better option for the investment. Its Sharpe ratio is

lesser negative than other funds which illustrates that its return is less affected by overall risk. Its alpha value is more than 0 which means its less affected by the market risk (systematic risk) and also its Fema value (selectivity) has lesser negative value which has managed to nullify systematic risk and unsystematic risk during the time of recession.

An investor who is entering into the capital market for making long-term investment, the volatility of the market is important to accomplish his or her goal and these expectations are often formed on the basis of historical record of monthly returns, measured for holding period and other important ratios. We will take this fund (HDFC Growth fund) for further analysis of its portfolio.