Page 271 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes
Example: Actual Return and Risk

Funds R ft R jt R mt Beta
Fund A 5 12 15 0.5
Fund B 5 20 15 1.0

Fund C 5 14 15 1.10

Solution:
From equation 1 return on the portfolio is:
R + R +  +  + (R – R )
jt ft 1 j mt ft
 = r – r
p jt
Fund A
R = 5 + 0.5 (15 – 5) = 10
jt
 = 12 – 10 = 2% (Excess Positive Return)

Fund B
R = 5 + 1.0(15 – 5) = 15
jt
 = 20 – 15 = 5% (Excess Positive Return)
Fund C

R = 5 + 1.10(15 – 5) = 16
jt
 = 14 - 16 = –20% (Negative Return)
The Jensen measure not only calculates the differential between actual and expected earnings,
but also enables an analyst to determine whether the differential return could have occurred by
chance or whether it is significantly different from zero in a statistical sense. The (alpha value)
value in Equation 1 can be tested to see if it is significantly different from zero by using a ‘t
statistic’.

13.4.1 Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987
marked the existence of only one mutual fund company in India with ` 67bn assets under
management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of
the 80s decade, few other mutual fund companies in India took their position in mutual fund
market. The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank
Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India
Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of
1993, the total AUM of the industry was ` 470.04 bn. The private sector funds started penetrating
the fund families. In the same year the first Mutual Fund Regulations came into existence with
re-registering all mutual funds except UTI. The regulations were further given a revised shape
in 1996.
Kothari Pioneer was the first private sector mutual fund company in India which has now
merged with Franklin Templeton. Just after ten years with private sector player's penetration,
the total assets rose up to ` 1218.05 bn. Today there are 33 mutual fund companies in India.

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