CHAPTER - I

INTRODUCTION
1.1 INTRODUCTION OF THE STUDY
The mutual fund industry in India has witnessed significant
growth and evolution over the past few decades. This growth can be attributed to a
combination of regulatory reforms, increased investor awareness, and economic
expansion. Mutual funds have become a popular investment vehicle for both
individual and institutional investors due to their potential to provide diversified
exposure to various asset classes and sectors.

Active Fund Allocation Decision

Active fund allocation involves the strategic decision-making

process by fund managers to allocate assets across different sectors and securities
with the aim of outperforming the market. Unlike passive management, which tracks
a specific index, active management relies on the expertise and research of fund
managers to identify investment opportunities and manage risks.

Multicap fund

Multi Cap Funds invest their corpus in a portfolio of equity and equity-related
stocks of companies with varying market capitalizations. So, in a Multi Cap fund, you
will find investments in large-cap, small-cap, and mid-cap companies. Every scheme
invests in different proportions, making the Multi Cap Fund category a good option to
match your risk tolerance.

When you invest in a large, small, or mid-cap fund, the fund managers are restricted by
the portfolio definition. This means that a fund manager of a large-cap fund cannot
invest in shares of a small-cap company even if the opportunity is lucrative. Hence, a
Multi Cap fund is considered to be a better option for wealth creation as the fund
managers of these funds can leverage investment opportunities across the spectrum of
the market. Also, every investor can find a Multi Cap scheme in sync with his financial
needs.
1.2 INDUSTRY PROFILE

INVESCO INDIA MULTICAP FUND

Invesco Asset Management (India) aims to serve investment

needs of individual investors, corporate and institutions through mutual funds and
sub-advised portfolios. Our product portfolio is managed by individually focused
management teams to create optimum balance and results. We are committed to
providing financial care and top class service. We subscribe to sustainable business
models and processes that factor in the dynamism of the business in fast changing
market scenarios. Investors can expect best-in-class investment products that will
leverage on our expertise and global resources of Invesco.

ICICI PRUDENTIAL MULTICAP FUND

ICICI Prudential Life Insurance Company Limited (ICICI

Prudential Life) is promoted by ICICI Bank Limited and Prudential Corporation
Holdings Limited. ICICI Prudential Life began its operations in the fiscal year 2001.
On a retail weighted received premium basis (RWRP), it has consistently been
amongst the top companies in the Indian life insurance sector. Our Assets Under
Management (AUM) at March 31, 2024 were `2,941.40 billion.

NIPPON INDIA MULTICAP FUND

Nippon India Mutual Fund (NIMF) has been established as a
trust under the Indian Trusts Act, 1882. Nippon Life Insurance Company (NLI) is
the Sponsor and Nippon Life India Trustee Ltd (NLITL) is the Trustee. Nippon
India Mutual Fund (NIMF) is one of India's leading mutual funds, with Average
Assets Under Management (AAUM) of Rs 4,31,308 Crores (Jan 2024 to Mar 2024
QAAUM) and 243.16 Lakhs folios (as on 31st Mar 2024).

BARODA BNP PARIBAS MULTICAP FUND

The Baroda BNP Paribas Multi Cap Fund Regular Growth

has an AUM of 2609.74 crores & has delivered CAGR of 25.36% in the last 5
years. The fund has an exit load of 1.00% and an expense ratio of 2.01%. The
minimum investment in Baroda BNP Paribas Multi Cap Fund Regular Growth is Rs
5000 and the minimum SIP is Rs 500.

QUANT MULTICAP FUND

Quant Mutual Fund is one of the oldest and pioneering

mutual funds in India with an over 22-year legacy in the asset management industry
in the country. At quant mutual, with our dynamic and active style of money
management, we endeavour to generate alpha while safeguarding the interest of our
investors. Our philosophy of active, absolute, unconstrained along with our multi-
dimensional research and proprietary indicators gives us confidence that we will be
able to manage money with the required agility, which is necessary in the evolving
macroeconomic environment.

1.3 COMPANY PROFILE

Stock Holding Corporation of India Ltd. (StockHolding) was

promoted by the public financial institutions and incorporated as a limited company
on July 28, 1986. Stock Holding provides post trading and custodial services to
institutional investors, mutual funds, banks and insurance companies.
With the introduction of the depository system in the country. StockHolding
commenced offering depository related services to the retail segment and over the
past few years, it has come to acquire the stature of being one of the largest
Depository Participant, besides being the country's largest and premier custodian.
StockHolding also provides Professional Clearing Member services to trading
members in the Futures & Options Segment.

1.4 THEORETICAL BACKGROUND OF THE STUDY

Active vs. Passive Fund Management

Active fund management involves the selection of securities by fund managers

with the aim of outperforming a specific benchmark index. Fund managers actively
make buy, hold, and sell decisions based on research, market conditions, and
investment strategies. In contrast, passive fund management involves replicating a
market index and aims to match its performance.

Active Fund Allocation

Active fund allocation refers to the strategy where fund managers decide how
to distribute the fund's assets across different sectors, industries, or asset classes to
maximize returns.

The Indian Mutual Fund Industry

The Indian mutual fund industry has grown significantly over the past few decades,
driven by increasing investor awareness, regulatory support, and favorable economic
conditions.

Sectoral Allocation in Indian Mutual Funds

Sectoral allocation involves distributing fund assets across different sectors

such as technology, finance, healthcare, and consumer goods.
1.5 REVIEW
Patel and Patel (2015)

Compared the performance of multi-cap funds with large-cap and mid-cap

funds using risk-adjusted metrics like the Sharpe ratio and Jensen's alpha. The study
found that multi-cap funds often provided superior risk-adjusted returns due to their
diversified portfolios.

Sharma and Singla (2016)

Conducted an empirical analysis of multi-cap funds' performance during

volatile market conditions. The study concluded that the flexibility in asset allocation
allowed multi-cap funds to outperform during market downturns.

Reddy and Reddy (2016)

Studied the impact of fund manager expertise on the performance of multi-

cap funds. The study found that experienced managers with a deep understanding of
market cycles and stock selection strategies delivered better returns.

Patel and Shah (2016)

Examined the long-term performance of multi-cap funds, finding that they

generally outperformed pure large-cap and mid-cap funds over extended periods. The
study highlighted the benefits of a diversified investment strategy.

Mehta and Shah (2017)

Explored the sectoral allocation strategies of multi-cap funds, emphasizing

the importance of sector rotation based on economic cycles. The study found that
funds that actively adjusted their sectoral exposure based on economic indicators
outperformed those with static allocations.

Verma and Jain (2017)

Highlighted the risk management practices of multi-cap funds, noting their

ability to mitigate risks through diversification across sectors and market
capitalizations. The study emphasized the importance of having a well-diversified
portfolio to manage market volatility.

Bhatt and Desai (2017)

Compared the performance of Indian multi-cap funds with their global

counterparts, finding that Indian funds often outperformed due to higher growth
potential in emerging markets. The study emphasized the advantages of investing in a
high-growth economy like India.

Chauhan and Singh (2017)

Investigated the impact of fund size on the performance of multi-cap funds,

finding that larger funds benefited from economies of scale but faced challenges in
maintaining agility. The study suggested an optimal fund size for balancing
diversification and manageability.

Tripathi (2018)

Discussed the impact of SEBI's re-categorization norms on multi-cap funds.

The study noted that the regulatory changes prompted fund managers to adhere to
stricter asset allocation guidelines, leading to improved transparency and investor
confidence.

Gupta and Bansal (2018)

Investigated the sectoral preferences of multi-cap funds, finding that funds

with a higher allocation to technology and financial sectors tended to outperform
during periods of economic growth.

Rao and Kumar (2018)

Examined the influence of macroeconomic variables such as GDP growth,

interest rates, and inflation on the performance of multi-cap funds. The study
concluded that fund managers often adjusted their asset allocation in response to
changes in these economic indicators.

Kamboj and Jagotra (2018)

Reported that other than HDFC Premier Multi- Cap fund the other four chosen
multi-cap equity fund schemes generated higher risk- adjusted returns than the
benchmark index and Birla Sun Life Equity fund remained the best performer.

Patel and Reddy (2018)

Investigated the impact of investor education on the popularity and

performance of multi-cap funds, highlighting the role of financial literacy in
investment decisions. The study found that educated investors were more likely to
choose multi-cap funds for their diversification benefits.
Singh and Kaur (2019)
 Investigated the diversification benefits of multi-cap funds, showing that they
tended to have lower volatility compared to pure large-cap or small-cap funds due to
their diversified investments.

Kaushik (2019)

Midcap funds could not outperform the market and their poor performance
persisted over time.

Chaudhary and Mishra (2019)

Analyzed how fiscal policies and government spending impacted the sectoral
allocation of multi-cap funds. The study found that funds increased their exposure to
infrastructure and capital goods sectors following announcements of increased
government spending in these areas.

Ghosh and Banerjee (2019)

Analyzed the impact of investor sentiment on multi-cap fund flows, showing

that positive market sentiment led to increased inflows into these funds. The study
highlighted the cyclical nature of investor behavior and its impact on fund
performance.

Chopra and Malik (2019):

Explored the incorporation of ESG factors in the investment strategies of

multi-cap funds. The study found that funds with a strong ESG focus tended to attract
more socially conscious investors and delivered competitive returns.

Saha and Basu (2019)

Explored the influence of institutional investors on the asset allocation

decisions of multi-cap funds, noting their preference for stable, high-growth sectors.
The study found that institutional investor participation enhanced fund performance.

Rathi and Jain (2019)

Explored the tax efficiency of multi-cap funds, highlighting their benefits for
investors in higher tax brackets. The study found that tax-efficient strategies
contributed to better net returns.

Sinha and Patel (2020)

Studied behavioural biases affecting investor decisions in multi-cap funds,

such as overconfidence and herd behaviour. The study found that these biases often
led to suboptimal investment decisions.

Mukherjee and Sen (2020)

 Analysed the stock-picking skills of fund managers and their impact on multi-
cap fund performance. The study concluded that fund managers' ability to identify
undervalued stocks significantly contributed to fund outperformance.

Verma and Roy (2021)

Analyzed the short-term performance volatility of multi-cap funds,

concluding that they were more resilient during market downturns. The study
emphasized the importance of a long-term investment horizon.

Verma and Roy (2021)

Analyzed the short-term performance volatility of multi-cap funds, concluding

that they were more resilient during market downturns. The study emphasized the
importance of a long-term investment horizon.

Desai and Joshi (2021)

Examined the post-re-categorization performance of multi-cap funds, finding

that the new guidelines led to more consistent and stable returns.

Sen and Roy (2021)

Conducted a comparative analysis of multi-cap funds across different

emerging markets, highlighting the unique challenges and opportunities in the Indian
context. The study found that Indian multi-cap funds were more resilient during
economic downturns.

Rao and Shukla (2021)

Highlighted the growing trend of ESG integration in multi-cap funds and its
positive impact on long-term performance. The study emphasized the importance of
sustainable investing practices.

Mehta and Kapoor (2022)

Discussed the challenges of managing large multi-cap funds, including

liquidity issues and reduced flexibility in asset allocation. The study emphasized the
importance of maintaining an optimal fund size.

Sharma and Gupta (2022)

Discussed the tactical asset allocation strategies employed by multi-cap

funds, emphasizing their role in navigating market volatility. The study found that
tactical allocation helped in optimizing returns during uncertain market conditions.

Mukherjee and Das (2023)

 Discussed the future of multi-cap funds in the Indian market, focusing on
potential regulatory changes and technological advancements. The study emphasized
the importance of staying adaptable and embracing new technologies for continued
success.

1.5 STATEMENT OF THE PROBLEM

In recent times, investing in Multicap funds has gained popularity, especially

among salaried individuals seeking tax benefits. The mutual fund industry is
witnessing increased interest from middle-income earners who perceive it as a
favoured investment avenue. Despite the presence of traditional options like gold,
government bonds, real estate, post office schemes, insurance, and fixed deposits,
awareness about Multicap funds is growing across all age groups, genders, and
income levels. This trend indirectly contributes to capital formation. However, despite
the rising interest, many investors encounter challenges due to a lack of
understanding. Even those who invest in mutual funds often harbour uncertainties
about their operations and management. Therefore, it is crucial for mutual fund
organizations to provide comprehensive information to potential investors. This study
aims to fulfil this need by analysing the risks and returns associated with Multicap
funds in the Indian stock market.

1.6 OBJECTIVES OF THE STUDY

o To analyse the Risk and Return on Multicap Funds in Indian Stock Market
o To analyse the Risk and Return on Multicap Funds using SHARPE Ratio.
o To analyse the Risk and Return on Multicap Funds using JENSEN Ratio
o To analyse the Risk and Return on Multicap Funds using STANDARD
DEVIATION
o
1.7 SCOPE OF THE STUDY

The study is related to analysing the risk and return characteristics of Multicap
funds in the Indian stock market. The analysis has been done in Multicap funds. The
 Analysis involves using set of selected technical tools to forecast their future
performance.

1.8 LIMITATIONS OF THE STUDY

 The Analysis is confined to the parameters within the scope of Hybrid Mutual Fund
 The Duration of the study is Limited
 The Study has been conducted purely to understand technical analysis of Investors.

CHAPTER II

RESEARCH METHOLOGY

Research methodology it's way to systematically solve the research problem. The
research methodology includes the various methods and techniques for conducting
sresearch. Marketing research is the systemic design, collection, analysis and
reporting of data and finding relevant solution to a specific marketing situation or
problems.

2.1 RESEARCH DESIGN

A Research design is a method and procedure for acquiring information needed to

solve the problem. A research design is the basic plan that helps in the data collection
or analysis. It is specifying the type of information to be collected the source and data
collection procedure. When the researcher is interested in knowing the what is
broadcasting companies and what are the schemes are in it and its merits, demerits,
objectives. My data is descriptive data it was taken by proper manner. The type of
research design used in this study is Descriptive research.

DESCRIPTIVE RESEARCH
 Descriptive research is a type of research that is used to describe the
characteristics of a population. It collects data that are used to answer a wide range of
what, when, and how questions pertaining to a particular population or group.
Descriptive statistics are brief informational coefficients that summarize a given data
set, which can be either a representation of the entire population or a sample of a
population.

2.2 POPULATION
The population for this research is comprised of Mutual Fund companies that are
engaged in Multicap Fund.
The population of the research also comprises the group of individuals who are
involved
in investment activities.

SAMPLING DESIGN:
Sampling design is the overall plan for selecting a sample from a population.

2.3 SAMPLING TECHNIQUE

CONVENIENCE SAMPLING

Convenience sampling involves using respondents who are “convenient” to the

researcher.

2.4 SAMPLE SIZE

Sample size of the research is 10 years of data collected on Mutual Fund companies
engaged in Multicap Funds and also it includes 111 respondents of investors.

2.5 SOURCE OF DATA COLLECTION

PRIMARY DATA: Primary data collected from Investors by using questionnaire.

SECONDARY DATA: Data collected from websites, magazines, textbooks and

newspapers.
2.6 TOOLS USED FOR DATA COLLECTION

"Data collecting tools" refers to the tools/devices used to gather data, such as a paper
questionnaire or a system for computer-assisted interviews. Tools used to gather data
include case studies, checklists, interviews, occasionally observation, surveys, and
questionnaires.

2.7 TOOLS USED DATA ANALYSIS

 SMA
 Sharpe Ratio
 JENSEN Ratio
 TREYNOR Ratio
 Standard Deviations

SIMPLE MOVING AVERAGE

Simple Moving Average (SMA) is a widely used technical indicator in
financial markets to smooth out price data and identify trends over a specified period.
The most common time periods used for SMAs are 5, 20, and 50 days.
The formula for calculating a simple moving average is:
SMA = (P1+P2+P3+…+ Pn) / N
SHARPE RATIO
The Sharpe ratio is an important metric used to evaluate the performance of
mutual funds and other investments. The Sharpe ratio measures the risk-adjusted
return of an investment. It compares the average return earned in excess of the risk-
free rate per unit of volatility or total risk.
Sharpe Ratio = (Rp - Rf) / σp
JENSON’S ALPHA
Jensen's alpha (sometimes called "Jensen's measure" or simply "alpha") is an
important metric used in evaluating mutual fund performance. Jensen's alpha
measures the excess return that a mutual fund (or other investment) generates relative
to its expected return based on its level of systematic risk (beta).
α = Rp - [Rf + β (Rm - Rf)]
TREYNOR RATIO
The Treynor Ratio is a measure of a portfolio's risk-adjusted performance,
specifically assessing how much excess return is generated for each unit of risk taken.
Unlike the Sharpe Ratio, which uses total risk (standard deviation), the Treynor Ratio
focuses on systematic risk, measured by beta.
TREYNOR RATIO = Rp-Rf / βp

STANDARD DEVIATION
Standard deviation is a statistical measure that quantifies the amount of
variation or dispersion in a set of values. In finance, it is commonly used to assess the
volatility of an investment's returns.
σ = √ ((∑ (xi- x ̅ )2)/(n-1))