issue 3

“An Empirical study of Return & Risk of Thematic Equity Mutual Fund schemes.”

1Dr. Mahesh Suresh Chopde  2 Ms. Ritu Sewakram Panjwani

Assistant Professor, Department of Business Management,

Jhulelal Institute of  Technology, Nagpur, 8208610454

Student –  Department of Business Management,

Jhulelal Institute of  Technology, Nagpur, 9975183345


The Mutual Fund Industry is a fast growing sector of the Indian Financial Markets. They have become major vehicle for mobilization of savings, especially from the small and household savers for investment in the capital market. Mutual Funds entered the Indian Capital Market in 1964 with a view to provide the benefit of diversification of risk, assured returns, and professional management. A mutual fund is a special type of investment institution that acts as an investment conduit. It pools the savings, particularly of the relatively small investors, and invests them in a well diversified portfolio of sound investment.

Mutual Funds came with the objective of providing attractive returns to investors as these funds invest wealth of investors in capital market instruments. Among various financial products, mutual fund ensures the minimum risks and maximum return to the investors. In this context, close monitoring and evaluation of mutual funds has become essential. Therefore, choosing profitable mutual funds for investment is a very important issue. This study, basically, deals with Infrastructure mutual funds that are offered for investment by the various fund houses in India.

This study mainly focused on the performance of selected equity based Thematic Infrastructure mutual fund schemes in terms of Performance i.e. returns earned by these Schemes. The main objective of this research work is to analyse financial performance of selected Infrastructure mutual fund schemes through the statistical parameters such as (Annualised Return, Benchmark Returns,). At the same time, this research also evaluates the risk associate with these schemes. Risk attached to these schemes has been derived by calculating Standard Deviation, Beta, & R-squared of the schemes. The findings of this research study will be help full to investors for their future investment decisions.

Keywords: (mutual fund industry, equity mutual funds, statistical tools.)


 Mutual Fund is an Investment Vehicle that pools together funds from investors to purchase stocks, bonds or other securities. An investor can participate in the mutual fund by buying the units of the fund. Each unit is backed by a diversified pool of assets, where the funds have been invested.  The price of unit is based on the net asset value of the particular asset class. The industry broadly caters to all types of investors depending on their risk return preferences.

A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Mutual funds offer several advantages over investing in individual stocks, including diversification and professional management. A mutual fund may hold investments in dozens of stocks, thus reducing the risk associated with owning any particular stock.

The performance evaluation of mutual funds has been an enormous interest to researchers and investors all over the world, as it is a widely discussed issue in the field of finance. Mutual fund returns can be gauged using Arithmetic mean & Compounded Annual Growth Rate.

The entire modern world process has to face numerous risks and uncertainties. Thus in business, as in private life, there are dangers and risks of every kind. The concept of risk may explain as the possibility of unfavourable results from any occurrence. Risk arise due to uncertainties in regard to cost, loss or damage. The loss or damage may be related to financial loss or non financial loss.

Risk in mutual funds can be analyzed by finding out Standard Deviation, Beta while funds can also be compared with a benchmark, industry average, and analysis of volatility and return per unit to find out how well they are performing with respect to the market value by computing R-squared or Correlation.

2. Thematic Infrastructure Funds:-

Thematic Funds are the kind of mutual funds that are invested in stocks of a particular theme. This theme could be anything – international stocks, multi-sector stocks, commodity stocks, rural India, infrastructure stocks, etc. Thematic funds may be equity funds or debt funds; the only condition is that they have a theme attached to them.

2.1. Nuances of Thematic funds

As stated earlier, they have a broader spectrum when compared to sector funds, but is limited when compared to Diversified equity mutual funds. Thematic funds by nature are more prone to risk and volatility. The performance of these funds is dependent on the performance of a particular set sector or a theme, unlike a diversified fund which moves in line with the broader markets. Thematic funds could have themes ranging from Multi-Sector, International / Multi – Economy, Commodity, particular style of investing etc. Thematic funds are suited for investors who are well versed with market trends and are hence in a better position to take thematic calls. Thematic Funds are more focused and semi-diversified. Theme-based funds are high-risk and high-return, but can be whimsical. The performance of the funds depends on the limited number of companies/sectors being invested in.

2.2. Infrastructure Thematic fund

Infrastructure thematic funds provide the opportunity to invest in essential public assets, such as toll roads, airports and rail facilities.

They are often attractive to investors looking for predictable returns, as infrastructure projects are typically characterised by low levels of competition and high barriers to entry. Infrastructure funds are managed by specialist fund managers, who make investment decisions on behalf of investors. Infrastructure assets include toll roads, airports, communications assets such as broadcasting towers, materials-handling facilities such as docks, Utilities such as electricity power lines and gas pipelines.

Returns from infrastructure funds usually combine capital growth and dividend income in varying proportions. In growth-orientated infrastructure funds, there may not be stable income in the near term but the fund seeks to achieve capital growth in the medium term. Infrastructure funds that generate steady income streams tend to invest in more mature assets.

3. Literature Review:-

Mutual funds industry is growing at a very fast rate in India. Various studies and research has been on this industry by experts. Performance in terms of growth of Net Assets value (NAV) per unit is commonly applied measure of performance of mutual funds.

Jain (1982) evaluated performance of unit trust of India (UTI) during 1964-65 to 1979-80, including the profitability aspects of unit scheme 1964, unit scheme 1971 and unit scheme 1976. He concluded that its real rate of return have been low indicating overall poor, performance of UTI Schemes. There has been so significant increase in the profitability over the years.

Stopp (1988) had evaluated mutual fund schemes (UK) in terms of rate of return generated for the investors for the period ended December 31, 1986. He also examined inter-group performance by re-grouping the sample into four broad categories.

Grinblatt and Sheridan (1989) evaluated performance in terms of gross returns of mutual funds. They constructed eight portfolio benchmark based on firm size, dividend yield and past returns. One month T-Bills were used as risk-free return. The period of study was December 31, 1974 to December 31, 1984.

 Radcliff (1994) had concluded in his work that to receive greater average yearly returns, the investors must accept greater variability in returns, they should have higher risk tolerance level.

Hudson (1997) ‘Wherever performance evaluation is implemented, there will always be two key ingredients (a) a measure of return and (b) a measure of risk, over a given time horizon. Proper evaluation and comparison is possible only if the reporting standard is of high quality and there are well based standards for calculating NAVs.

Amitabh Gupta (2003) evaluated a sample of 73 mutual fund schemes with different objectives for the period 1994-99. Funds from both the public and private sector have been selected for the purposes of evaluation in terms of testing the market timing abilities of the Indian fund managers. He concluded that out of the 73 schemes, 38 schemes earned higher returns in comparison to the market returns, while the remaining 35 schemes generated lower returns than that of the market.

Sathy.S.D. and Bishnupriya .M. (2006) examined the performance of 23 selected growth – oriented and open-ended mutual funds from 1996-1997 to 2004-2005. On the basis of returns they found that UTI mutual fund schemes and Franklin Templeton schemes have performed exceedingly well in public and private domain respectively.

Soumya Guha(2008) “performance of Indian equity Mutual funds Vis-a-Vis their style benchmarks” has suggested that in her evaluation of fund managers performance found that Indian equity fund managers have not been able to beat their style benchmarks on the average and pointed out the weaknesses of fund managers.

4. Objectives:-

The present study is mainly aimed at evaluating the performance of Thematic Infrastructure Mutual Fund Schemes in terms of the return earned by these schemes. The study also focuses on to assess the performance of selected Infrastructure Mutual Fund Schemes in comparison to their benchmark, the volatility, the fund sensitivity to the market function in terms of beta.

5. Significance of the Study:-

Investigating Past performance of any investment is essential, as such it is applicable to mutual funds also, evaluating past performance of mutual funds is important both for investors as well as for fund managers. It allow an investor to calculate as to how much return has been generated by the fund manager .Further, an investor can also weigh up the comparative performance of different fund managers. Similarly fund managers would also be able to know their performance over time and also vis-a-vis that of other competitors in the industry. The evaluation also provides a mechanism for identifying strengths and weaknesses of fund managers in the investment process, which helps them to take corrective actions.

6. Research Methodology:-

Data: – This study examines 22 open-ended infrastructure schemes being launched by selected mutual funds namely LIC, HDFC, ICICI, Reliance, Birla Sun Life etc. These schemes have been selected on the basis of regular data availability during the period of January 2013 to December 2017. Net Asset Value (NAV) data has been used and the period of the data considered is from the date 1st January 2013 of the scheme till December 31st, 2017.

Period of Study: – The growth oriented thematic infrastructure schemes, which have been floated by the selected fund houses during the period January 2013 to December 2017, have been considered for the purpose of the study. Net Asset Value (NAV) as declared by the relevant mutual funds from the January 1st 2013 of a particular scheme to 31st December 2017 has been used for the purpose.

 Risk Free Rate: – Risk free rate of return refers to that minimum return on investment that has no risk of losing the investment over which it is earned. For the present study, it has been marked as 7% (0.07) per annum.

Tools and techniques For the purpose of Return analysis, appropriate statistical and financial tools, i.e., Average Annualised Return, Absolute return or Point to PointReturns, Correlation i.e. R- Squared have been applied.

7. Data Analysis & Interpretation:-

7.1 Return Measures

Investors have to look into the return part before investing in the Mutual funds. Returns are the key indicators of investment performance and are calculated from the historical NAV’s.

In Mutual funds, NAV is the basic element used in calculating the returns because it keeps varying from one point of time to other. Thus, the purchase and sale value of investment is derived by multiplying the units purchased with NAV for respective period i.e. purchase date and sale date. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day-to-day basis.

A) Annualized Return

Return is the gain or loss in the value of an asset in a particular period. It is usually quoted as a percentage. The general rule is that the more risk you take, the greater the potential for higher return. 

Absolute return or Point to Point Returns: Absolute return is the increase or decrease that an investment achieves over a given period of time expressed in percentage terms. It’s calculated as follows:

Absolute returns = 100* (Selling Price – Cost Price)/ (Cost Price)

This measurement of return is the simplest and it does not consider time period. Most times it produces a large number so people are impressed!

Simple Annualized Return: The increase in value of an investment, expressed as a percentage per year.

Simple Annualized Return= Absolute Returns/Time period. 

Average Annual Return (AAR)

Average annual return (AAR) is the arithmetic mean of a series of rates of return. The formula for AAR is:

AAR = (Return in Period 1 + Return in Period 2 + Return in Period 3 + …Return in Period N) / Number of Periods or N

Table 1 Shows Average Annualised Return of Selected Infrastructure Mutual Fund Schemes:-

Source: – Own Calculation

  Interpretation: – Table 1 depicts Performance in terms of Average Annualized returns of last 5 years i.e. from 2013 to 2017 of 22 Infrastructure Mutual Fund schemes & their ranking.

On analyzing schemes, it has been found  that all the schemes generate  positive average returns, none of them show negative return which is a good sign for the Industry as it increases investors confidence in Mutual fund investment especially it boost the investment in Infrastructure Mutual fund schemes. Schemes that occupy top positions are Franklin Build India Fund, L&T Infrastructure Fund, Kotak Infrastructure and Economic Reform Fund – Standard Plan, Religare Invesco Infrastructure Fund, etc.

B) Benchmark:-

Mutual fund schemes invest in the market for the benefit of unit holders. How well did a scheme perform this job? An approach to assess the performance is to pre-define a comparable – Benchmark against which the scheme can be compared.

To put it very simply, a benchmark gives a layman an opportunity to compare the performance of his/her investments with that of the broader market. At the same time, a fund house can also set target returns and strive to perform better than the benchmark index.

 For this study, broad-100 shared base NSE CNX Infrastructure Index has been used as a proxy for market index this is because NSE CNX Infrastructure Index is comparatively appropriate than BSE Sensex and NSE Nifty. Hence it would cover the majority percentage of stocks of infrastructure based companies and therefore is expected to provide better performance benchmark.

Table 2 Shows Comparative Analysis of Average Annualised Return of Selected Infrastructure Mutual Fund Schemes with the Benchmark Index Return:-

Source: – Own Calculation

Interpretation:-It has been observed that all schemes generate higher returns than the benchmark returns. Out of all, some schemes have enhanced values for example Franklin Build India Fund, L&T Infrastructure Fund, Kotak Infrastructure and Economic Reform Fund – Standard Plan occupies top three positions respectively on comparison with NSE CNX Infrastructure Index.

These schemes were those which had out-performed the market index. Thus, the investors of these schemes have been rewarded well on their invested money.

2) Risk Measures

Return alone should not be considered as the basis of measurement of the performance of a Mutual fund scheme, it should also include the risk taken by the Fund Manager because different funds will have different levels of risk attached to them.

Risk then, refers to the volatility – the up and down activity in the markets that occur constantly over a period of time. This volatility can be caused by a number of factors – interest rate changes, inflation or general economic conditions.

Measure of Risk Analysis:-

The risk is calculated on the basis of NAV. The following measures of risks associated with mutual funds have been for the study:

A) Beta (β): i.e., fund’s volatility as regard market index measuring the extent of co-movement of fund with that of the benchmark index. It is a measure of volatility, or systematic risk of portfolio or security in comparison to the market as a whole. A beta of 1 indicates that the securities price will move with the market. A beta of less than one means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security price will be more volatile than the market.

B) Standard Deviation (Ϭ) i.e., Variation in individual or portfolio return from its average return over a certain period of time has been measured by the Prominent Statistical  tool called Standard Deviation.

   In Mutual Funds, Standard deviation tells us how much the return on a fund is deviating from its average return based on its historical performance. In other words, it can be said that it evaluates the volatility of the fund. It is a measure of the consistency of a mutual fund’s returns. A higher Standard Deviation number indicates that the Net Asset Value (NAV) of the mutual fund is more volatile and, it is riskier than a fund with a lower Standard Deviation.

C) Co-efficient of Determination or R-squared (R2): R-squared measures the relationship between a portfolio and its benchmark. R-squared is not a measure of the performance of a portfolio. A great portfolio can have a very low R-squared. It is simply a measure of the correlation of the portfolio’s returns to the benchmark’s returns i.e., the extent to which the movement in the fund can be explained by corresponding benchmark index (here, NSE CNX Infrastructure)

Table 3 bestow Standard Deviation, Beta & R-Squared values of Selected Infrastructure Mutual Fund Schemes:-

Source: – Own Calculation

Interpretation: – Table 3 shows the Standard Deviation, Systematic Risk (Beta) and R-squared of selected 22 Infrastructure Mutual Fund schemes. Higher the value of standard deviation of the fund returns, greater will be the total risk carried by the fund. It is observed that the maximum deviation of funds return is shown by HSBC Infrastructure Equity Fund (40.1481) followed by Religare Invesco Infrastructure Fund (35.1095) and Franklin Build India Fund (34.8163) whereas Reliance ETF Infra Bees was least risky scheme with lowest standard deviation of 16.8865.

Beta value of higher than unity implies higher portfolio risk than the market portfolio and vice versa. Schemes namely HSBC Infrastructure Equity Fund (2.0706) followed by HDFC Infrastructure Fund (1.7164) and Franklin Build India Fund (1.6714) were found to be more risky (beta > 1.0) than the market. There is only one scheme with beta lower than the market i.e. Reliance ETF Infra Bees with beta of 0.9934.

8. Limitations of the Study:-

For the purpose of performance evaluation, those schemes have been selected which are in operation since last 5 years. Only open ended schemes have been considered for this purpose. The study has been conducted and analysed based on set of available information, which is governed by time factor

9. Conclusion:-

Infrastructure development is critical for economic development. It has a domino effect on the other sectors of the economy .A developing country like India has to invest in the infrastructure sector for future growth. The push of the present government in improving infrastructure is thus a step in the right direction. In India Infrastructure typically includes projects done in a host of sectors. It includes sectors like roads, railways, airports, ports, dams, electricity, irrigation, telecom, water supply, sanitation systems, cross country systems and inland waterways etc.

Infrastructure base Mutual Funds provide a superior investment option for the investors who want to invest in infrastructure companies, at the same time these funds invest in diversified Infrastructure companies also with a motto to provide healthier return to the investors along with spreading the risk of investors.

After analyzing the data and evaluating the performance of the selected Infrastructure Mutual Fund,  conclusions can be drawn that schemes that generate comparatively higher returns are Franklin Build India Fund, L&T Infrastructure Fund, Plan, Kotak Infrastructure and Economic Reform Fund – Standard Plan with an average annualised return of More than 25%  It has been also found that the Average rate of return of all Thematic Infrastructure Mutual Fund Schemes are higher when compared to its Benchmark i.e. NSE CNX Infrastructure. But amongst the top are again Franklin Build India Fund, L&T Infrastructure Fund, Plan, Kotak Infrastructure and Economic Reform Fund – Standard Plan. These schemes were those which had beaten the Benchmark index. Thus, these schemes are a better investment avenue to invest with.

10. Suggestions:-

  1. Scheme such as Franklin Build India Fund has high average return of 30.73% and high risk of 34.81 and this type of funds is suitable for aggressive investors i.e., youths and also high income group of people. Hence, these investors can make their investment in such scheme whereas Reliance ETF Infra Bees fund is suitable for conservative investors because it gives lower return with lower risk.
  2. HSBC Infrastructure Equity Fund, Religare Invesco Infrastructure Fund and Franklin Build India Fund have high Standard Deviation and Beta values indicate that these schemes are more volatile and risky at the same time. So, it has been suggested to Investors that before investing in any scheme, apart from analysing performance of scheme they have to give their attention on Risk measure i.e. analyse risk through measuring Standard Deviation & Beta of the scheme.



  1. Kulshreshta, C.M., 1994, Mastering Mutual Funds, Vision Books, New Delhi.


  1. Agarwal, Deepak and Patidar, A Comparative Study of Equity Based Mutual Fund of Reliance and HDFC (October 10, 2009), Prabandhan and Taqniki, Vol. 3, pp. 145-154, October 2009.
  2. Gupta, M. and Agarwal N. (2007) “Performance of Mutual Funds in India: An Empirical Study”, The ICFAI Journal of Applied Finance.
  3. Roy and Deb (2003), “The Conditional Performance of Indian Mutual Funds in India
  4. S. P. Kothari, Warner (2001), “Evaluating Mutual Fund Performance”. The Journal of Finance, Vol. No. 5, October 2001.

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