The changing face of Mutual Funds in India - An empirical study on Mutual Funds Mutual funds The driving force of mutual fund is the safety of the principal guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. A mutual fund collects the savings from small investors, invest them in government and other corporate securities and earn income through interest and dividends besides capital gains. Definition of a mutual fund The securities and Exchange Board of India (Mutual Funds) Regulations, 1993 defines a mutual fund a fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations. Origin of the fund The origin of the mutual fund dates back to the very dawn of commercial history. It is said that Egyptians and Phoenicians sold their shares in vessels and caravans with a view to spreading the risk attached with these risky ventures. The real credit of introducing the mutual fund goes to the foreign and Colonial Government Trust of London established in 1868.A large numbers of close-ended mutual funds were formed in the U.S.A in 1930 followed by many countries in Europe, the Far East and Latin America. Mutual Fund in India The mutual fund in India gained momentum only in 1980 even though it began in the year 1964 with the Unit Trust of India launching its first fund, the Unit Scheme 1964. Classification of Mutual Funds 1) On the basis of execution and operation mutual fund can be classified as- Close ended and Open ended 2) On the basis of yield and investment pattern mutual fund can be classified as;Income Fund ,Growth Fund, Balance Fund, Specialized mutual Fund, Money Market and Taxation Fund. The present study was conducted to analyze the performance of the different mid- cap mutual fund scheme with the special reference to Karvy mutual fund services. Performance evaluation Performance evaluation is an important process of the invest management. The performance of a fund has to be measured in relation to the board investment objective of "the fund and its anticipated risk return relationships. Performance measurement must also take into account the future liabilities related to the asset in the portfolio and liquidity management, finally benchmark should be used for assessment i.e. the return of the portfolio judged in relation to in some benchmark portfolio. An ideal benchmark should cover the manager's style appropriate weightage and clearly identifiable objective and its return must be measurable. Objective of the study To study about the performance of various mid- cap mutual funds using the various tools available and rank them in a systematic order over a period of 5 years of time and to find out the risk and return of each scheme and thereby, creating awareness about mid- cap schemes of mutual funds among the investors and also this study has been aimed at giving the investors an idea of choosing the mutual funds on the basis of performance from an array of options. The various mid- cap funds which are selected for the study is as follows: HDFC Mid- Cap Opportunities Fund ICICI Prudential Mid- Cap Fund Kotak Mid- Cap Fund Sahara Mid- Cap Fund SBI Magnum Mid- Cap Fund The specific objectives are; * To compare the performance of different mid- cap mutual fund schemes. * To study the best performing funds using Sharpe's, Treynor's and Jensen's measures. * To calculate the systematic and unsystematic risk for mid- cap mutual fund schemes. * To rank the funds on the basis of Sharpe's, Treynor's and Jensen's index. * To suggest the most suitable funds that are best suited to each investors. SIGNIFICANCE OF THE STUDY The study is intended to analyze the performance of various mid- cap mutual funds for the past 5 years and as such the real performance of these funds can be known as which of the funds is performing well and better for investment and also to get an idea about which of the selected mid- cap mutual funds will be of more importance to the investors in terms of risk and return proportion. The study focuses on the following aspects: * The importance of the study arises for learning the various tools that are available for measuring the performance of selected schemes of mid- cap funds. * To know the risk & return associated with the selected funds. * To chose best fund for investment for investors taking into account the elements of risk and return. * To project selected mid- cap mutual fund as the productive system for investing activities. Research methodology Fundamental to the success of any formal finance project a sound research design. The function of a research design is to ensure that the required data are collected. A research design is pure and simple frame work or plan for a study that guides the collection of data and analysis. Data collection Method Information for this study has been collected from previous records namely from the annual reports of the selected mid- cap mutual fund schemes of the past five years. The primary data as well as secondary data is used for the study. 1) Primary data Primary data are collected from informal interview with investor relationship officer and discussions with other staff members of the branch. 2) Secondary data Secondary data are collected from annual reports of the funds, official websites, periodicals. Period of study The data collected for a period of 5 years, from 1st January 2007 to 31 December2011. The selected funds along with their respective returns from the year 2007- 2011 are as follows: TOOLS AND TECHNIQUES FOR DATA ANALYSIS A). SHARPE'S PERFORMANCE INDEX A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. This risk premium is the difference between the portfolio's average rate of return and the riskless rate of return. The standard deviation of the portfolio indicates the risk. The index assigns highest values to the assets that have best risk- adjusted average rate of return. B). TREYNOR'S PERFORMANCE INDEX The performance measure developed by Jack Treynor is referred to as Treynor ratio or 'reward to volatility ratio. It is the ratio of the reward or risk premium to the volatility of return as measured by portfolio of beta. Treynor's ratio (TR) = (Rp-Rf)/Bi Where Rp is the realized return on the portfolio Rf is the risk free rate of return Bi is the portfolio Beta C). JENSEN'S PERFORMANCE INDE The absolute risk adjusted return measure was developed by Michael Jensen and commonly known as Jensen's measure. A risk-adjusted performance measure that represents the average return on a portfolio over and above that 'predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as "Jensen's alpha". Jensen's measure = ER (p) = Rf+ (Rm - Rf) Where, Rf is the risk free rate. Rm is the average market' return during the period. is the systematic risk of the portfolio. The differential return is calculated as follows:- = Rp – E(R (p)) = is the differential return earned. Rp = is the actual return earned on the portfolio. E (Rp) = is the expected return. D). Standard Deviation In mutual fund the standard deviation tells as how much the return on fund is deviating from the expected normal returns. S.D- Standard deviation can also be calculated as the square root of the variance. E). Beta Beta is calculated using regression analysis, and you can think of beta as the tendency of funds returns to respond to swings in the market. Beta measures the degree to which the particular fund is affected by the market as a whole. F). Variance Variance denotes the difference or deviation in a mutual fund. Fund Name HDFC Mid- Cap Opportunities Fund ICICI Prudential Mid- Cap Fund Kotak Mid- Cap Fund Sahara Mid- Cap Fund SBI Magnum Mid- Cap Fund 2007 31.2 59.4 54.1 72.9 65.3 2008 -51.7 -68.4 -63.4 -59.6 -72 2009 91.0 96.5 85.8 100.7 98.4 2010 31.4 17.9 26.3 21.3 13.5 2011 -18.7 -32.8 -27.4 -27.4 -26.3 (The above stated funds selected from mid- cap mutual fund schemes) Limitation of the study The study is conducted only on five schemes. The study was limited to time constraint. Research was conducted only for the past five years. The analysis is based on historical data and thus indicates the past performance which may not always be indicative of the future performance. About the funds HDFC mid- Cap Opportunities Fund Investment Objective The aim of the fund is to generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of mid- and small-cap companies.