DISCUSSIÓ GENERAL

Concept of benchmarking for performance evaluation: performance evaluation:

Every fund sets its benchmark according to its investment objective. The fund‘s Every fund sets its benchmark according to its investment objective. The fund‘s  performance

 performance is is measured measured in in comparison comparison with with the the benchmark. benchmark. If If the the fundfund generates a greater return than the benchmark then it is said that the fund has generates a greater return than the benchmark then it is said that the fund has outperformed benchmark , if it is equal to benchmark then the correlation outperformed benchmark , if it is equal to benchmark then the correlation  between them i

 between them is exactly 1. Ans exactly 1. And if in case thd if in case the return is loe return is lower than the wer than the benchmarkbenchmark then the fund is said to be underperformed.

then the fund is said to be underperformed.

Some of the benchmarks are : Some of the benchmarks are :

1.

1. Equity Equity funds: funds: market market indices indices such such as as BSE100, BSE100, BSE200, BSE200, BSE-PSU,BSE-PSU, BSE

BSE 500 index, BSE bankex, and other sectoral indices.500 index, BSE bankex, and other sectoral indices.

2.

2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return

Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on BankIndex, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds.

Deposits versus Debt Funds.

3.

3. Liquid funds: Short Term Government Instruments‘ Interest RatesLiquid funds: Short Term Government Instruments‘ Interest Rates asas Benchmarks, JPM T-Bill India.

Benchmarks, JPM T-Bill India.

To measure the fund’s performance, the comparisons are usually done To measure the fund’s performance, the comparisons are usually done with:

with:

i)

i) With a market index.With a market index.

ii)

ii) Funds from the same peer group.Funds from the same peer group.

iii

iii) Other similar products in which investors invest their funds.) Other similar products in which investors invest their funds.

Financial planning for investors (ref. to mutual funds):

Financial planning for investors (ref. to mutual funds):

Investors are required to go for financial planning before making investments in Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning.

 Selection of fund.Selection of fund.



 Studying the features of a schemeStudying the features of a scheme..

In case of mutual funds, financial planning is concerned only with broad asset In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to allocation, leaving the actual allocation of securities and their management to fund managers. A fund manager has to closely follow the objectives stated in

3.6 Why has it become one of the largest financial instrument the largest financial instruments? s?

If we take a look at the recent scenario in the Indian financial market then we If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such investment options could be judged on the basis of various parameters such as-return, safety convenience, volatility and liquidity. Measuring these investment return, safety convenience, volatility and liquidity. Measuring these investment options on the basis of the mentioned parameters, we get this in a tabular form.

options on the basis of the mentioned parameters, we get this in a tabular form.

We can very well see that mutual funds outperform every other investment We can very well see that mutual funds outperform every other investment option. On three parameters it scores high whereas it‘s moderate at one.

option. On three parameters it scores high whereas it‘s moderate at one.

comparing it with the other options, we find that equities gives us high returns comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesn‘t with high liquidity but its volatility too is high with low safety which doesn‘t makes it favourite among persons who have low risk- appetite. Even the makes it favourite among persons who have low risk- appetite. Even the convenience involved with investing in equities is just

convenience involved with investing in equities is just moderate.moderate.

Return

Return SafetySafety VolatilityVolatility LiquidityLiquidity ^{ConveniencConvenienc} e

e Equity

Equity HighHigh LowLow HighHigh HighHigh ModerateModerate

Bonds

Bonds ModerateModerate HighHigh ModerateModerate ModerateModerate HighHigh

Co.

Co. ModerateModerate ModerateModerate ModerateModerate LowLow LowLow Debentures

Debentures Co. FDs

Co. FDs ModerateModerate LowLow LowLow LowLow ModerateModerate

Bank

Bank LowLow HighHigh LowLow HighHigh HighHigh Deposits

Deposits PPF

PPF ModerateModerate HighHigh LowLow ModerateModerate HighHigh

Life

Life LowLow HighHigh LowLow LowLow ModerateModerate Insurance

Insurance Gold

Gold ModerateModerate HighHigh ModerateModerate ModerateModerate GoldGold

Real Estate

Real Estate HighHigh ModerateModerate HighHigh LowLow LowLow

Mutual

Mutual HighHigh HighHigh ModerateModerate HighHigh HighHigh Funds

Funds

CHAPTER 4

CHAPTER 4