Dissertation Project on: Effect of Fund Size on Mutual Fund Performance

Submitted By: Nidhi Srivastava 04516603910 2010-12

Faculty Guide: Dr. Vijita Aggarwal

Submitted towards partial fulfillment of Master of Business Administration

University School of Management Studies,Guru Gobind Singh Indraprastha University Sector- 16C, Dwarka, Delhi 110075

CERTIFICATE

This is to certify that Ms. Nidhi Srivastava a student of Master of Business Administration at University School of Management Studies, GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY has worked under my guidance and supervision. This Project report has the requisite standard for the partial fulfillment the Post Graduate Degree in Management. To the best of my knowledge no part of this report has been reproduced from any other report and the contents are based on original research.

Signature (Dr. Vijita Aggrawal)

DECLARATION
I, Nidhi Srivastava, Enrollment No. 04516603910, MBA 4th Semester hereby declare that, the project report titled Effect of Fund Size on Mutual Fund Performance is an original work done by me under the guidance of Dr. Vijita Aggarwal and has not been submitted to any other university or institute for the award of any degree or diploma or fellowship.

Date :

Nidhi Srivastava Roll no:- 04516603910

Acknowledgement

No task is a single person effort, same is with this project. Thus I would like to extend my sincere thanks to all those people who helped me in accomplishing my project. I owe my project success to all faculty members and to my mentor Dr. Vijita Aggarwal for their help in this project. This project provided me a platform to increase my knowledge and empowered me with a better understanding of concepts in the real world scenario.

Executive Summary
The main objective of the project is to analyze the effect of fund size on mutual fund performance. Mutual funds have become one of the major investment option in India. This report aims to find out their behavior i.e. how they perform when their fund size increases or decreases. The report contains all the details about the mutual fund their history, terms, rights of investor. It includes researches one earlier n their methodologies. The research design is descriptive and prospective (correlational). The sample size is ten and target population includes all the mutual funds in India. All the data that was collected is analyzed in excel sheets to find out the correlation coefficient and regression coefficient (). In the end it is concluded that increase in fund size leads to decrease in return.

Table of Contents
Chapter 1: Introduction 1.1 Problem Statement 1.2 Objective of the project 1.3 Hypothesis of the research 1.4 Chapter wise details Chapter 2: Mutual Funds 2.1 Definition Mutual Funds: 2.2 History 2.2.1 A Retrospect 2.2.2 AMFI and its role 2.3 Types of Mutual Fund 2.4 Advantages and Disadvantages of mutual funds 2.5 TERMS OF MUTUAL FUNDS 2.6 THE RIGHTS OF INVESTORS 2.7Different plans that Mutual Funds offer 2.8 Current Scenario Chapter 3 Literature Review Chapter 4 Research Methodology 4.1 Research Problem 4.2 Research Design 4.2.1 Justification for using research design 4.3 Data Collection
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4.4 Sample Size 4.4.1 Target population 4.4.2 Techniques of Sampling 4.4.2.1 Justification for using non probability sampling technique

Chapter 5 Data analysis

5.1 HDFC top 200 fund 5.2 Reliance Growth Fund - Institutional Plan (G) 5.3 ICICI Prudential Dynamic Plan (G) 5.4 Birla Sun Life Equity Fund (G) 5.5 AIG India Equity Fund - Regular Plan (G) 5.6 UTI Opportunities Fund (G) 5.7 LIC Nomura Equity Fund(G) 5.8 SBI Magnum Equity Fund (G) 5.9 JPMorgan India Equity Fund (G) 5.10 Morgan Stanley Growth Fund (G) Chapter 6 Conclusion 6.1 Summary table 6.2 Conclusion Reference list

Chapter 1: Introduction
1.3 Problem Statement:
To study the effect of fund size on mutual fund performance.

1.4 Objective of the project: To analyze the effect of fund size on mutual fund performance To understand the various terms related to mutual funds. 1.3 Hypothesis of the research
HI: Increase in fund Size reduces returns from mutual funds

1.5Chapter wise details

First chapter contains introduction to the report i.e. the problem statement, objective of the research, hypothesis of the research and chapter wise details. Second chapter contains details about the topic i.e. Mutual Funds. Definition of mutual funds, their history, types , advantages and disadvantages, rights of investors and their current scenario. Third chapter contain details about earlier researches that have been conducted on this topic. Fourth chapter contains details about the research methodology. It contains research problem, research design, data collection and sample size. Fifth chapter contains details about all the mutual funds that have been taken as sample in the research. Overview, their investment objective and type of scheme. Sixth chapter contains conclusion. It includes summary table and conclusion.

Chapter 2: Mutual Funds

2.1 Definition Mutual Funds:
A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors. While there is no legal definition of mutual fund, the term is most commonly applied only to those collective investment schemes that are regulated, available to the general public and open-ended in nature. Hedge funds are not considered a type of mutual fund. (wikipedia, 2012)

2.2 History
The first mutual funds were established in Europe. One researcher credits a Dutch merchant with creating the first mutual fund in 1774. The first mutual fund outside the Netherlands was the Foreign & Colonial Government Trust, which was established in London in 1868. It is now the Foreign & Colonial Investment Trust and trades on the London stock exchange. The mutual fund industry is a lot like the film star of the finance business. Though it is perhaps the smallest segment of the industry, it is also the most glamorous in that it is a young industry where there are changes in the rules of the game everyday, and there are constant shifts and upheavals. The mutual fund is structured around a fairly simple concept, the mitigation of risk through the spreading of investments across multiple entities, which is achieved by the pooling of a number of small investments into a large bucket. Yet it has been the subject of perhaps the most elaborate and prolonged regulatory effort in the history of the country. The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The initial years of the industry also saw the emerging years of the Indian equity market, when a number of mistakes were made and hence the mutual fund schemes, which invested in lesser-known stocks and at very high levels, became loss leaders for retail investors. From those days to today the retail investor, for whom the mutual fund is actually intended, has not yet returned to the industry in a big way. But to be fair, the industry too has focused on brining in the large investor, so that it can create a significant base corpus, which can make the retail investor feel more secure. [http://en.wikipedia.org/wiki/Mutual_fund] (wikipedia, 2012)

2.2.1 A Retrospect:
The last year was extremely eventful for mutual funds. The aggressive competition in the business took its toll and two more mutual funds bit the dust. Alliance decided to remain in the ring after a highly public bidding war did not yield an acceptable price, while Zurich has been sold to HDFC Mutual. The growth of the industry continued to be corporate focused barring a
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few initiatives by mutual funds to expand the retail base. Large money brought with it the problems of low retention and consequently low profitability, which is one of the problems plaguing the business. But at the same time, the industry did see spectacular growth in assets, particularly among the private sector players, on the back of the continuing debt bull run. Equity did not find favor with investors since the market was lack-luster and performances of funds, barring a few, were quite disappointing for investors. The other aspect of this issue is that institutional investors do not usually favor equity. It is largely a retail segment product and without retail depth, most mutual funds have been unable to tap this market. The tables given below are a snapshot of the AUM story, for the industry as a whole and for debt and equity separately. The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases

First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. 6,700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs. 47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under management was way ahead of other mutual funds.
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Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. 29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. The following graph indicates the growth of assets over the years. (AMFI, 2012)

(AMFI, 2012)

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2.2.2 AMFI and its role

One of the most effective industry bodies today is probably the Association of Mutual Funds in India (AMFI). It has been a forum where mutual funds have been able to present their views, debate and participate in creating their own regulatory framework. The association was created originally as a body that would lobby with the regulator to ensure that the fund viewpoint was heard. Today, it is usually the body that is consulted on matters long before regulations are framed, and it often initiates many regulatory changes that prevent malpractices that emerge from time to time. This year some of the major initiatives were the framing of the risk management structure, a code of conduct and registration structure for mutual fund intermediaries, which were subsequently mandated by SEBI. In addition, this year AMFI was involved in a number of developments and enhancements to the regulatory framework. AMFI works through a number of committees, some of which are standing committees to address areas where there is a need for constant vigil and improvements and other which are ad hoc committees constituted to address specific issues. These committees consist of industry professionals from among the member mutual funds. There is now some thought that AMFI should become a self-regulatory organization since it has worked so effectively as an industry body. An Overview: Overall FY2003 can be summed up as the year of the maturing of the mutual fund industry. It was a year when fund houses went through turmoil and consolidation and the strong ones emerged stronger. Investors too became savvier, and began investing based on far more scientific criteria than in the past, and with clearly defined investment horizons. Distribution gave way increasingly to intermediation and more and more distributors graduated to providing technical advice to their clients. Thus the industry has come of age in FY2003, and we hope that FY2004 and beyond will see us come out of a stormy adolescence to become a trusted avenue for saving. (AMFI, 2012)

2.3 Types of Mutual Fund

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

By Structure o Open - Ended Schemes o Close - Ended Schemes o Interval Schemes (mutual fund resource, 2012) By Investment Objective o Growth Schemes o Income Schemes o Balanced Schemes o Money Market Schemes

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Other Schemes o Tax Saving Schemes o Special Schemes Index Schemes Sector Specfic Schemes (mutual fund resource, 2012)

On the basis of their structure and objective, mutual funds can be classified into following major types: Closed-end funds A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. Open-end funds Open end funds are operated by a mutual fund house which raises money from shareholders and invests in a group of assets Large cap funds Large cap funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large blue chip companies Mid-cap funds Mid cap funds are those mutual funds, which invest in small / medium sized companies. As there is no standard definition classifying companies Equity funds Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies. Balanced funds Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds Growth funds Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. No load funds

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Mutual funds can be classified into two types - Load mutual funds and No-Load mutual funds. Exchange traded funds Exchange Traded Funds (ETFs) represent a basket of securities that is traded on an exchange, similar to a stock. Hence, unlike conventional mutual funds Value funds Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. Money market funds A money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid. International mutual funds International mutual funds are those funds that invest in non-domestic securities markets throughout the world. Regional mutual funds Regional mutual fund is a mutual fund that confines itself to investments in securities from a specified geographical area, usually, the fund's local region. Sector funds Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy. Index funds An index fund is a a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market. Fund of funds A fund of funds (FoF) is an investment fund that holds a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. (mutual fund resource, 2012)

2.4 Advantages and Disadvantages of mutual funds

Mutual funds have advantages compared to direct investing in individual securities. These include:
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Increased diversification Daily liquidity Professional investment management Ability to participate in investments that may be available only to larger investors Service and convenience Government oversight Ease of comparison (wikipedia, 2012)

Mutual funds have disadvantages as well, which include:

Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize (wikipedia, 2012)

2.5 TERMS OF MUTUAL FUNDS

Asset Management Company An Asset Management Company (AMC) is a highly regulated organization that pools money from investors and invests the same in a portfolio. They charge a small management fee, which is normally 1.5 per cent of the total funds managed. (SEBI, 2012) NAV NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. NAV is calculated as follows: NAV= Market value of the fund's investments + Receivables + Accrued Income- LiabilitiesAccrued Expenses Number of Outstanding units (SEBI, 2012) How often is the NAV declared? The NAV of a scheme has to be declared at least once a week. However many Mutual Fund declare NAV for their schemes on a daily basis. As per SEBI Regulations, the NAV of a scheme shall be calculated and published at least in two daily newspapers at intervals not exceeding one week. However, NAV of a close-ended scheme targeted to a specific segment or any monthly income scheme (which is not mandatorily required to be listed on a stock exchange) may be published at monthly or quarterly intervals. (SEBI, 2012) What is Exit Load? The non refundable fee paid to the Asset Management Company at the time of redemption/ transfer of units between schemes of mutual funds is termed as exit load. It is deducted from the NAV (selling price) at the time of such redemption/ transfer. (SEBI, 2012)

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What is redemption price? Redemption price is the price received on selling units of open-ended scheme. If the fund does not levy an exit load, the redemption price will be same as the NAV. The redemption price will be lower than the NAV in case the fund levies an exit load. (SEBI, 2012) What is repurchasing price? Repurchase price is the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load. (SEBI, 2012) What is a Switch? Some Mutual Funds provide the investor with an option to shift his investment from one scheme to another within that fund. For this option the fund may levy a switching fee. Switching allows the Investor to alter the allocation of their investment among the schemes in order to meet their changed investment needs, risk profiles or changing circumstances during their lifetime. (SEBI, 2012) What is Shut-Out Period? After the closure of the Initial Offer Period, on an ongoing basis, the Trustee reserves a right to declare Shut-Out period not exceeding 5 days at the end of each month/quarter/half-year, as the case may be, for the investors opting for payment of dividend under the respective Dividends Plans. The declaration of the Shut-Out period is envisaged to facilitate the AMC/the Registrar to determine the Units of the unit holders eligible for receipt of dividend under the various Dividend Options. Further, the Shut-Out period will also help in expeditious processing and dispatch of dividend warrants. During the Shut-Out period investors may make purchases into the Scheme but the Purchase Price for subscription of units will be calculated using the NAV as at the end of the first Business Day in the following month/quarter/half-year as the case may be, depending on the Dividend Plan chosen by the investor. Therefore, if investments are made during the Shut -Out period, Units to the credit of the Unit holder's account will be created only on the first Business Day of the following month/ quarter/half year, as the case may be, depending on the dividend plan chosen by the investor. The Shut-Out period applies to new investors in the Scheme as well as to Unit holders making additional purchases of Units into an existing folio. The Trustee reserves the right to change the Shut-Out period and prescribe new Shut- Out period, from time to time. (SEBI, 2012) Minimum lock-in period for investment There is no lock-in period in the case of open-ended funds. However in the case of tax saving funds a minimum lock-in period is applicable. The lock-in period for different tax saving schemes are as follows: section minimum lock-in period U/s 88 3 yrs. U/s 54EA 3 yrs. U/s 54EB 7 yrs. (SEBI, 2012)

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Who are the issuers of Mutual funds in India? Unit Trust of India was the first mutual fund which began operations in 1964. Other issuers of Mutual funds are Public sector banks like SBI, Canara Bank, Bank of India, Institutions like IDBI, ICICI, GIC, LIC, and Foreign Institutions like Alliance, Morgan Stanley, Templeton and Private financial companies like Kothari Pioneer, DSP Merrill Lynch, Sundaram, Kotak Mahindra, and Cholamandalam etc. there are many new upcoming fund houses like Edelweiss, J.P. Morgan, Axis, (SEBI, 2012) SYSTEMATIC INVESTMENT PLAN SIP is an investment option that is presently available only with mutual funds. The other investment option comparable to SIPs is the recurring deposit schemes from Post office and banks. Basically, under an SIP option an investor commits making a regular (monthly/quarterly) investment in a particular mutual fund/deposit. Investor can now use auto debit (ECS) facility from Banks to automatically debit SIP amount from your account. There is no need to give bulk of cheques for SIP. For that you should have account in nationalized banks. For SIP through ECS, you have to provide bank details like account no., branch name, MICR no. etc. (SEBI, 2012)

2.6 THE RIGHTS OF INVESTORS

As per SEBI Regulations on Mutual Funds, an investor is entitled to: 1. Receive Unit certificates or statements of accounts confirming your title within 6 weeks from the date your request for a unit certificate is received by the Mutual Fund. 2. Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme; 3. Receive dividend within 42 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase 4. The trustees shall be bound to make such disclosures to the unit holders as are essential in order to keep them informed about any information which may have an adverse bearing on their investments 5. 75% of the unit holders with the prior approval of SEBI can terminate the AMC of the fund. 6. 75% of the unit holders can pass a resolution to wind-up the scheme. 7. An investor can send complaints to SEBI, who will take up the matter with the concerned Mutual Funds and follow up with them till they are resolved. (AMFI, 2012)

2.7Different plans that Mutual Funds offer

Growth Plan and Dividend Plan A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income. (SEBI, 2012)

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Dividend Reinvestment Plan Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors. (SEBI, 2012) Automatic Investment Plan Under the Automatic Investment Plan (AIP) also called Systematic Investment Plan (SIP), the investor is given the option for investing in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment. AIP allows the investors to plan their savings through a structured regular monthly savings program. (SEBI, 2012) Automatic Withdrawal Plan Under the Automatic Withdrawal Plan (AWP) also called Systematic Withdrawal Plan (SWP), a facility is provided to the investor to withdraw a pre-determined amount from his fund at a predetermined interval. (mutual fund resource, 2012) (SEBI, 2012)

2.8 Current Scenario

The major fund houses which have operated in India include: Fortis Birla Sunlife Bank of Baroda HDFC ING Vysya ICICI Prudential SBI Mutual Fund Tata Kotak Mahindra Unit Trust of India Reliance IDFC Franklin Templeton Sundaram Mutual Fund Religare Mutual Fund Principal Mutual Fund (wikipedia, 2012)

Mutual funds are an under tapped market in India

Despite being available in the market for over two decades now with assets under management equaling Rs 7,81,71,152 Lakhs (as of 28 February 2010) (Source: Association of Mutual Funds, India), less than 10% of Indian households have invested in mutual funds. A recent report on Mutual Fund Investments in India published by research and analytics firm, Boston Analytics, suggests investors are holding back from putting their money into mutual funds due to their
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perceived high risk and a lack of information on how mutual funds work. This report is based on a survey of approximately 10,000 respondents in 15 Indian cities and towns as of March 2010. There are 43 Mutual Funds recently. The primary reason for not investing appears to be correlated with city size. Among respondents with a high savings rate, close to 40% of those who live in metros and Tier I cities considered such investments to be very risky, whereas 33% of those in Tier II cities said they did not how or where to invest in such assets (wikipedia, 2012).

(wikipedia, 2012)

Reasons for not investing in mutual funds in India On the other hand, among those who invested, close to nine out of ten respondents did so because they felt these assets were more professionally managed than other asset classes. Exhibit 2 lists some of the influencing factors for investing in mutual funds. Interestingly, while noninvestors cite risk as one of the primary reasons they do not invest in mutual funds, those who do invest consider that they are professionally managed and more diverse most often as their a reasons to invest in mutual funds versus other investments.

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(wikipedia, 2012)

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Chapter 3 Literature Review

Various studies has been conducted to study the performance of mutual funds when asset under management changes. One of these were done by Jonathan Reuter and Eric Zitzewitz (nber) at NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138. They used a regression discontinuity approach. They concluded that diseconomies of Scale start affecting the performance of the mutual fund. The larger the size of the mutual fund brings in diseconomies of scale and returns start diminishing. Another study conducted by Mark N. Harris and Petko S. Kalev (melbournecentre)at Faculty of Business and Economics, Monash University investigated the relationship between fund performance and f fund size and funds flows of actively managed Australian funds. They used a new robust panel data approach to trace the performance of individual funds with as little as six months of history. This enables one to consider all existing funds within a given category and thus the research design avoids any potential survivorship bias.
A study conducted by Joseph Chen (University of Southern California), Harrison Hong (Princeton University), Ming Huang (Stanford University), Jeffrey D. Kubik (Syracuse University) (hbs)

investigated the effect of scale on performance in the active money management industry. They were the first to find strong evidence that fund size erodes performance. We then move on to consider various explanations for why this might be the case. We find that this relationship is not driven by heterogeneity in fund styles, fund size being correlated with other observable fund characteristics, or any type of survivorship bias. Instead, we find that the effect of fund size on fund returns is most pronounced for funds that play small cap stocks. This suggests that liquidity is an important reason behind why size erodes performance

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Chapter 4 Research Methodology

4.1 Research Problem

The main problem area which the research is testing is related to the subject of Mutual Funds.In this research I want to investigate the impact of fund size on mutual fund performance. The problem stems from the fact that asset under management increases without giving any benefits of economies of scale and the return decreases. I by the way of this research is trying to find out whether increase in fund size affects performance negatively or not.

4.2 Research Design

Research Design is one of the most important steps in the research. I am using descriptive and prospective (Correlational) research designs. Descriptive: To describe the conditions of mutual funds and their environment. Prospective: To analyze the relationship between fund size and its performance.

4.2.1 Justification for using research design

Firstly I will be using descriptive design to provide the details of the mutual funds that are taken as samples. It will provide the details of the environment of the mutual fund. Then after that I will be using correlational design to find the relation between fund size and its performance.

4.3 Data Collection

Data for any research is taken from primary sources and secondary sources. Primary data: It is collected for the purpose of the research. It is taken only for the research purpose like questionnaire, survey, interviews etc. Secondary data: It is available in the market. Any one can access them. It is available in magazines, newpapers etc. The data in this research is secondary data. I have taken data from moneycontrol.com and from specific sites of mutual funds.

4.4 Sample Size

I have taken 10 mutual funds as sample in this research.

4.4.1 Target population

The target population for this research is all the mutual funds in India

4.4.2 Techniques of Sampling

The technique for sampling adopted in this research is non probability sampling technique.

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4.4.2.1 Justification for using non probability sampling technique

All the samples chosen are on the basis of availability of data rather than on some probabilistic technique.

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Chapter 5 Data analysis

This section of report would cover the analysis for the sample mutual funds.Once the data is collected it needs to be analyzed. This is very important and crucial step in the research. Whole project can be a failure if the analysis is not correct and doesnt meet the objective of the study. I have collected all the secondary information regarding asset under management, net asset value and market value at the end of month. Which is then put in excel sheet to be analyzed. This section will generate the analysis and impact of fund size on mutual fund performance.

5.1 HDFC top 200 fund

Overview Investment Objective To generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. Scheme details : Fund Type :Open-Ended Investment Plan :Growth Launch date:Aug 19, 1996 Benchmark:BSE-200 Asset Size (Rs cr): 11,381.10 (Mar-31-2012) Minimum Investment:Rs.5000 Last Dividend: Rs.2.50 (Mar-24-2000) Bonus: N.A. Fund Manager: Prashant Jain

Load Details: Entry Load:N.A. Exit Load:1.00% Load Comments:Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment. (Moneycontrol)

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5.2 Reliance Growth Fund - Institutional Plan (G)

Overview Investment Objective The primary investment objective of the scheme is to achieve long term growth of capital by investing in equity and quity related securities through a research based investment approach. Scheme details : Fund Type:Open-Ended Investment Plan:Growth Launch date:Aug 08, 2007 Benchmark:BSE-100 Asset Size (Rs cr):73.50 (Mar-31-2012) Minimum Investment:Rs.50000000 Last Dividend:N.A. Fund Manager:Sunil Singhania Load Details: Entry Load:N.A. Exit Load:1.00% Load Comments: Exit load - 1% if redeemed/switched out on or before completion of 1 yrs from the date of allotment. (Moneycontrol)

5.3 ICICI Prudential Dynamic Plan (G)

Overview Investment Objective Pru ICICI Dynamic Plan is an open-ended equity scheme. The primary investment objective of the scheme is to seek to generate capital appreciation by actively investing in equity / equity related securities. For defensive considerations, the scheme may invest in debt, money market instruments, to the extent permitted under the regulations.

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Scheme details Fund Type: Open-Ended Investment Plan: Growth Launch date: Oct 18, 2002 Benchmark: S&P CNX NIFTY Asset Size (Rs cr): 4,092.30 (Mar-31-2012) Minimum Investment: Rs.5000 Last Dividend: N.A. Bonus: N.A. Fund Manager: Sankaran Naren / Mittul Kalawadia

Load Details Entry Load: N.A. Exit Load: 1.00% Load Comments: Exit Load 1% if units are redeemed / switched-out for a period of up to 1 year from the date of allotment.

5.4 Birla Sun Life Equity Fund (G)

Overview Investment Objective An open-ended growth scheme with the objective of long term growth of capital, through a portfolio with a target allocation of 90% equity and 10% debt and money market securities. Scheme details Fund Type: Open-Ended Investment Plan: Growth Launch date: Aug 27, 1998 Benchmark: BSE-200 Asset Size (Rs cr): 750.00 (Mar-31-2012) Minimum Investment: Rs.5000
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Last Dividend: N.A. Bonus: N.A. Fund Manager: Mahesh Patil

Load Details Entry Load: N.A. Exit Load: 1.00% Load Comments: Exit Load of 1% if redeemed within 365 Days from the date of allotment. (Moneycontrol)

5.5 AIG India Equity Fund - Regular Plan (G)

Overview Investment Objective The investment objective of the Scheme is to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities including equity derivatives. Scheme details Fund Type: Open-Ended Investment Plan: Growth Launch date: May 03, 2007 Benchmark: BSE-100 Asset Size (Rs cr): 140.40 (Mar-31-2012) Minimum Investment: Rs.5000 Last Dividend: N.A. Bonus: N.A. Fund Manager: Huzaifa Husain

Load Details
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Entry Load: N.A. Exit Load: 1.00% Load Comments:Exit load of 1% if redeemed within 1 year from the date of allotment. (Moneycontrol)

5.6 UTI Opportunities Fund (G)

Overview Investment Objective This scheme seeks to generate capital appreciation and/or income distribution by investing the funds of the scheme in equity shares and equity-related instruments. The main focus of this scheme is to capitalize on opportunities arising in the market by responding to the dynamically changing Indian economy by moving its investments amongst different sectors as prevailing trends change. Scheme details Fund Type: Close-Ended Investment Plan: Growth Launch date: Sep 07, 2006 Benchmark: BSE SENSEX Asset Size (Rs cr): 1,324.80 (Mar-31-2012) Minimum Investment: Rs.5000 Last Dividend: N.A Bonus: N.A. Fund Manager: Swati Kulkarni

Load Details Entry Load: N.A. Exit Load: N.A.

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Load Comments: Exit Load - An early exit charge equivalent to the unamortized new fund offer expenses will be recovered from the investors incase of redemption before expiry of 5 years from the date of allotment (Moneycontrol)

5.7 LIC Nomura Equity Fund(G)

Overview Investment Objective An open ended pure Growth scheme seeking to provide capital growth by investing mainly in mix of equity instruments. The investment portfolio of the scheme will be constantly monitored and reviewed to optimize capital growth. Scheme details Fund Type: Open-Ended Investment Plan: Growth Launch date: Jan 11, 1993 Benchmark: BSE SENSEX Asset Size (Rs cr): 77.90 (Mar-31-2012) Minimum Investment: Rs.2000 Last Dividend: N.A. Bonus: N.A. Fund Manager: S Ramasamy

Load Details Entry Load: N.A. Exit Load: 1.00% Load Comments: Exit Load 1% if units are redeemed on or before the expiry of 1 year from the date of allotment. (Moneycontrol)

5.8 SBI Magnum Equity Fund (G)

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Overview Investment Objective To provide the investor long-term capital appreciation by investing in high growth companies along with the liquidity of an open-ended scheme through investments primarily in equities and the balance in debt and money market instruments. Scheme details Fund Type: Open-Ended Investment Plan: Growth Launch date: Jan 01, 1991 Benchmark: S&P CNX NIFTY Asset Size (Rs cr): 491.40 (Mar-31-2012) Minimum Investment: Rs.1000 Last Dividend: N.A. Bonus: N.A. Fund Manager: R. Srinivasan

Load Details Entry Load: N.A. Exit Load: 1.00% Load Comments: Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment. (Moneycontrol)

5.9 JPMorgan India Equity Fund (G)

Overview Investment Objective The investment objective of the Scheme is to generate income and long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities including equity derivatives.

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Scheme details Fund Type: Open-Ended Investment Plan: Growth Launch date :Apr 19, 2007 Benchmark: BSE-200 Asset Size (Rs cr): 311.20 (Mar-31-2012) Minimum Investment: Rs.5000 Last Dividend: N.A Bonus: N.A. Fund Manager: Harshad Patwardhan / Amit Gadgil . Load Details Entry Load: N.A. Exit Load: 2.00% Load Comments: Exit load 2% if redeemed within 6 months from the date of allotment, exit load 1.5% if redeemed after 6 months upto 12 months from the date of allotment and exit load of 1% if redeemed after 12 months upto 18 months from the date of allotment. (Moneycontrol)

5.10 Morgan Stanley Growth Fund (G) Overview Investment Objective The investment objective of the scheme is to achieve long-term capital appreciation by investing primarily in equity and equity related securities of companies having large market capitalization. Scheme details Fund Type: open-Ended Investment Plan: Growth Launch date: Jan 19, 1994
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Benchmark: BSE-100 Asset Size (Rs cr): 1,248.50 (Mar-31-2012) Minimum Investment: Rs.5000 Last Dividend: Rs.2.00 (Oct-27-2006) Bonus: N.A. Fund Manager: Sridhar Sivaram / Amay Hattangadi

Load Details Entry Load: N.A. Exit Load: 1.00% Load Comments: Exit Load 1% if units are redeemed on or before the expiry of 1 year from the date of allotment. (Moneycontrol)

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Chapter 6 Conclusion 6.1 Summary table

SNo. 1 2 3 4 5 6 7 8 9 10 Name of the mutual fund Correlation Coefficient Regression Coefficient()
0.982436482 0.476361079 0.603557 0.67497395 0.642422 0.527992 0.816007279 0.643621339 0.63937459 0.76706467

-0.325397573 HDFC top 200 fund -0.33476209 Reliance Growth fundInstitutional plan(G) ICICI Prudential Dynamic plan(G) -0.02738

Birla sunlife equity fund(G) AIG India Equity Fund-Regular plan(G) UTI Opportunities Fund Growth LIC nomura Equity Fund (G) SBI Magnum Equity fund (G) JP Morgun India Equity Fund(G) Morgun Stanley Growth Fund(G)

0.0378436 -0.16881 0.049505 0.257990549 0.06147369 -0.1147582 -0.1088008

6.2 Conclusion
From the above table it can be seen that 6 out of 10 mutual funds have negative correlation with the return from the mutual fund. Moreover it can be said that when fund size increases, it affects performance in the negative way. Rather than economies of scale, diseconomies of scale come into function. It is often believed that huge fund size will help in diversifying the portfolio but it can be concluded from the above data that it is not always true. All the funds listed above has positive beta ( ) which means that the return from the mutual fund is related to returns from market and if market has given better returns then mutual fund has also given positive returns. To conclude I can say that increase in fund size leads reduced returns from the mutual fund. Despite the fact that more fund is available for diversification and lower cost of transactions.

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Reference list
www.wikipedia.com http://www.amfiindia.com/ www.moneycontrol.com www.mutualfundresource.com

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