Public sector mutual funds vs private sector mutual funds

  • Tarini, MBA (Finance), College of Agribusiness Management, Govind Ballabh Pant University of Agriculture &Technology, Pantnagar.

  • Jayant Gautam, PhD Scholar, College of Agribusiness Management, Govind Ballabh Pant University of Agriculture & Technology, Pantnagar.

    Every investor seeks maximum return out of his investment with minimum risk. Mutual funds are good options for investors who have little know how about the financial market to earn a reasonable return and at the same time minimize the risk associated with their investment. A research conducted An Analysis of Performance of Mutual Funds: Public Sector vs Private Sector with the objective to evaluate the performance of private and public Indian Mutual Fund Schemes in the form of return and at the same time evaluating that performance using risk-adjusted performance measures such as Treynor’s Index, Sharpe’s Index, Jensen’s Index.

    Sample details

    Coverage period: 1 April 2011 to 31 March 2012

    Benchmarking index: BSE 200

    Frequency of sample: Closing monthly NAV

    Sample: 2 private schemes and 2 public

    1. ICICI Balanced Fund Schemes (Private scheme) [PVT1] 2. HDFC Balanced Fund Schemes (Private scheme) [PVT2] 3. LIC Balanced Fund Schemes (Public scheme) [PUB1] 4. SBI Balanced Fund Schemes (Public scheme) [PUB2]

    Performance measures: Average return, beta, standard deviation and risk adjusted performance measures.

    Index to measure risk adjusted performance: Following 3 indexes have been used: 1. Treynor’s index 2. Sharpe’s index 3. Jensen’s index

    Private companies with higher returns and lower beta

    All the 4 funds selected as a sample for this analysis have average market returns better than average return of the BSE 200 Index in one year. However, upon further analysis of the schemes we realize that in terms of average return in the one year selected as sample PVT1 has provided the highest return, then comes PVT2, PUB2 and then PUB1 is fourth on the list. Private schemes have outclassed public schemes in terms of average return.

    Moving further, if we keep volatility as our criteria to establish preference over the selected funds, we find that PVT1 and PVT2 have the lowest beta and standard deviation in the selected sample. So, we could say that private companies are the best option for any investor who is planning to invest in mutual fund schemes with higher average return and relatively low volatility. Following tables show SD and beta of the 4 funds:


    Public sector on the lead with risk adjusted performance

    Evaluation of portfolio performance without considering the risk exposure would be a biased evaluation. Therefore, this performance is further evaluated considering beta and standard deviation of these schemes, meaning thereby what is the performance (reward) of the schemes keeping in mind the risk (beta) that investor has to assume for that reward. Now, that we have established that which funds have provided more return and which funds are more riskier and less riskier, lets measure their performance on risk adjusted basis. The three indexed selected for this purpose analyze the beta and SD of these schemes and on that basis measure the return that these schemes have provided to their investors.

    The results below show that if we consider the performance of these funds on the basis of the risk that they bear (beta) as our benchmark, on an overall level we could conclude that public schemes are doing well in this department as compared to private schemes with PUB1 on top of the list when results are evaluated on the basis of all the 3 measures. The tables below list down the ranking of these funds when they are evaluated on the basis of their risk adjusted performance:


    Both type of funds having distinctive features to attract investors

    To summarize, private funds are doing better when we analyze their average return and beta and are relatively less risky. However, on the other side it is interesting to note that public schemes are on the lead when we analyze them on the basis of risk adjusted performance.