Financial Risk Management
The Relationship Between Direct Stock Market Return and Mutual Fund Return: A Study of Selected Mutual Fund Schemes

Article Details
Pub. Date : March, 2020
Product Name : The IUP Journal of Financial Risk Management
Product Type : Article
Product Code : IJFRM40320
Author Name : Bhaskar Biswas
Availability : YES
Subject/Domain : Finance Management
Download Format : PDF Format
No. of Pages : 6

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Abstract

Mutual funds play a significant role in financial intermediation, development of capital markets and growth of the financial sector as a whole. Plenty of funds, e.g., equity mutual fund, debt fund, balanced fund, liquid fund, etc., are available where the investors can put their money. Different equity fund schemes have different return potentiality due to selection of stock, ability of the fund manager, and beta coefficient of the return of the particular equity mutual fund schemes. The present study finds out the correlation between return of five selected large cap, midcap and multicap equity mutual fund schemes, namely, HDFC Equity Fund-G, Aditya Birla Sunlife Frontline Equity Fund-G, Kotak Standard Multicap Fund-G, HDFC Midcap Opportunities Fund-G, and SBI Bluechip Fund-G and the return of the selected stock market index, Nifty, for a period of 10 years from April 1, 2009 to March 31, 2019. The results reveal that HDFC Equity Fund-G, Aditya Birla Sunlife Frontline Equity Fund-G, SBI Bluechip Fund-G, and HDFC Midcap Opportunities Fund-G have high positive correlation with the return of Nifty index.


Description

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with the objectives as disclosed in the offer document. Mutual fund is the ideal investment vehicle in today's complex and modern financial scenario. Mutual funds play a significant role in financial intermediation, development of capital markets and growth of the financial sector as a whole. Plenty of funds-e.g., equity mutual fund, debt fund, balanced fund, liquid fund, etc.-are available where the investors can put their money. A balanced fund is one that has a portfolio comprising debt instruments, convertible securities and preference and equity shares. The assets of such fund are generally held in more or less equal proportions between debt/money market securities and equities. By investing in a mix of this nature, balanced funds seek to attain the objectives of income, moderate capital appreciation and preservation of capital and are ideal for investors with a conservative and long-term orientation. As the equity mutual fund invests the total fund accumulated in equity, derivatives and other equity-related securities, the return of the equity mutual has direct relation with the movement in the stock market. There will be a rise in the return of equity mutual fund scheme with the rise in the stock market and vice versa. The correlation between increase in the return of equity mutual fund scheme with the rise in the stock market may be different for different equity fund schemes due to selection of stock, ability of the fund manager, and beta coefficient of the return of the particular equity mutual fund schemes. Against this backdrop, the present study attempts to find out the correlation between return of selected large cap, midcap and multicap equity mutual fund schemes and return of selected stock market index for a period of 10 years from April 1, 2009 to March 31, 2019.


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