View of CONSEQUENCES OF CORONA PANDEMIC ON THE PERFORMANCE EVALUATION OF SELECTED ELSS MUTUAL FUNDS IN INDIA

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VOLUME: 10, Special Issue 01, (IC-IESP-MULTI-2023) Paper id-IJIERM-X-I, January 2023 228

CONSEQUENCES OF CORONA PANDEMIC ON THE PERFORMANCE EVALUATION OF SELECTED ELSS MUTUAL FUNDS IN INDIA

Dr. Manisha

Assistant Professor, Ganga Institute of Technology and Management, Jhajjar - 124104, Haryana, India

Abstract: In this study, statistical ratios like Standard Deviation, Beta, Sharpe's Ratio, Jensen's Alpha, and Treynor Ratio are used to evaluate the performance of ELSS mutual funds. The daily returns over the previous three years were used to calculate all ratios. On the basis of the daily NAV, which was obtained from the websites, the annual return was computed. NAV data was collected from 2017–18 through 2021–22. The Corona pandemic's impact may be observed in the results on all investments. Throughout 2018–19 and 2019–20, each fund produced a very meagre return or perhaps a loss. However, every fund has provided a fantastic return of over 55% since the recovery from the corona pandemic began in 2020–21. It was discovered that before making an investment, an investor needs examine the risk ratios. All of the funds' Sharpe ratios were positive, indicating that they all provided returns that were higher than the risk-free rate. All other ratios also demonstrated the successful operation of mutual funds.

Keywords: Mutual Fund, ELSS, Standard Deviation, Beta, Sharpe’s Ratio, Jensen’s Alpha, Treynor’s Ratio

1 INTRODUCTION

The greatest alternative for investors who want to engage in the stock market but are unable to do so in a lump sum is a mutual fund. It's also a good idea to invest in a mutual fund if you don't know enough about the stock market. Mutual fund agencies collect money from small investors, invest it in various portfolios, and manage it as an investment vehicle known as a mutual fund. In accordance with the form and type of mutual fund, mutual fund managers pool the little contributions made by investors and invest a sizable quantity in stocks in mutual funds. A mutual fund is a grouping of various stocks. The objectives of the various types of mutual funds vary. For instance, some mutual funds are designed to generate high returns, while others aim to generate a moderate and stable income.

Some mutual funds also solely invest in money market products.

Any mutual fund can choose to invest in debt, equity, or both. From an entry and exit point of view, mutual funds can be divided into two categories.

1. Open-ended Funds:

In open-ended mutual funds, a performance evaluation investor is free to join and leave at any moment. There is no maturity date for these kinds of funds. When the market experiences significant changes, these funds could be useful. A fund management can sell investments when the market is collapsing, and they can benefit from the market's advantages while it is rising.

2. Close-ended Funds:

Only during the initial time is an investor permitted to invest in these sorts of funds. Investments in these kinds of mutual funds cannot be made once the introductory time has passed. These funds have a set maturity date. On the maturity day, these mutual funds automatically redeem the money invested. New Fund Offer (NFO) period refers to the beginning time.

2 TYPES OF MUTUAL FUNDS 2.1 Equity or Growth Scheme

This plan is the best and most universal. The fund manager solely purchases equity shares when managing this type of mutual fund. Investors can take part in the stock market indirectly. Only equity shares are included in the portfolio.

As implied by the name, equity schemes disregard money market securities, bonds,

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and other debt instruments. Since these schemes solely involve equities shares, they ultimately adhere to the adage "high risk - high reward." In this case, great risk does not always translate into high rewards. There could potentially be a substantial loss. To reduce risk, the fund manager makes investments in equities from several industries. Investments are frequently made in stocks whose natures could not be further apart. So if one stock is going down, the loss can be set off by the increasing value of another stock.

2.2 Equity funds can be categorised into the following:

 Sector-specific funds:

These mutual fund kinds exclusively allow investments in equities belonging to a certain industry. Due to the investment being made on equities from a single sector, these funds are high risk. Returns are not a concern if that one sector is performing well, but when it is not, because all investments are made in that one sector, the risk cannot be covered. These industries can include the banking sector, chemicals, IT, infrastructure, vehicles, pharmaceuticals, etc., or they can be divided into categories such as large-cap, small-cap, and mid-cap.

 Index funds:

Investments are made in stocks that are part of an index of any stock market in these kinds of mutual funds. An investor can invest independently because the investment is done in equities of indexes. He is independent of the fund manager. Either the BSE or NSE index may be used. The following list includes a few well-known indexes: The NSE has several indexes, including Nifty, NiftyFMCG, NiftyBank, NiftyInfra, NiftyIT, NiftyMid100Free, etc. BSE indexes include the SENSEX, BSE100, MIDCAP, SMLCAP, AUTO, POWER, etc.

 Tax saving funds:

By investing in these kinds of mutual funds, investors receive tax benefits. This programme is often referred to as Equity Linked Savings Programs (ELSS). The Income Tax Act of 1961's Section 80C is used to deduct tax. An investor can get a tax credit of up to Rs. 1,50,000 year and save up to Rs. 46,800 in taxes by investing in ELSS. ELSS is the only type of mutual fund eligible for a tax advantage under Section 80C. There is a three-year lock-in period that is required for ELSS.

The time period during which the invested funds cannot be withdrawn, disinvested, or redeemed is known as the lock-in period. The shortest amount of time is the lock-in period. The ELSS scheme's maturity time may exceed.

 Money market funds or liquid funds:

These funds only invest in money market securities, as the name already makes clear. Money invested in these funds yields a return for a brief period of time because the money market is the market for short-term investments. Short-term instruments are where money is invested. These funds offer a lower return than equities funds do. Therefore, this scheme's risk is likewise minimal. Investors that don't want to take on further risk put their money into these short-term, low-return schemes. This is a useful substitution for a savings account.

 Fixed income or debt mutual funds:

These funds primarily invest in debt securities in order to obtain a stable income with little risk. These instruments may be fixed-interest bonds, debentures, government securities, etc. These types of mutual funds have no risk or very little risk because the return is fixed. They adhere to the "Low Risk, Low Return"

principle. These mutual funds are where risk-averse investors put their money if they want to assume no or very little risk. The investor receives a modest but reliable income from these schemes. In these funds, the investment carries the credit risk.

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 Balanced funds:

Balanced funds are mutual fund programmers that invest in both equity and debt, as the name implies. A portion of the funds are split between equities and debt securities. This ratio is not constant. Depending on the state of the market, it can be modified. These funds offer a moderate income and carry a higher level of risk than money market or debt mutual funds, but less risk than equity funds.

 Hybrid/Monthly Income Plans (MIP):

These investments are equivalent to balanced funds. The major distinction is that hybrid funds have a lower percentage of equity than balanced funds. Investors seeking regular earnings and a low tolerance for risk invest in

these plans.

 Gilt funds:

The term "gilt funds" refers to mutual funds that only invest in government securities. For people who prefer to invest without taking on any credit risk, this plan is appropriate. However, because there is no danger, the interest rate on these funds is also quite low.

3 REVIEW OF LITERATURE

Bhagyasree and Kishori (2016) studied how open-ended, growth-oriented equity plans performed in a transitioning economy from April 2011 to March 2015.

Returns from the scheme were computed using the closing NAV for each day. Out of the 30 plans, 14 had outperformed expectations. Jensen's Alpha demonstrated improved performance for 19 out of 30 schemes. The schemes are yielding greater returns than the risk-free rate, according to the Sharpe Ratio.

Bhuvaneswari and Selvam (2011) examined the link between risk and return for Indian mutual fund schemes (Dividend Option). A total of 35 mutual fund strategies were examined. On the basis of the t-value, it was discovered that only 11 of the 24 schemes had a meaningful link between risk and return. Only 3 schemes' returns during the study period considerably deviated from market returns, according to t-alpha values.

Choudhary and Chawla (2014) analysed the growth-oriented equity diversified schemes' performance using a risk-return analysis. Data was collected from 2005 to 2013. Average Return, Sharpe Ratio, Treynor Ratio, S.D., Beta, and Coefficient of Determination (R2) are statistical indicators. Sharpe and Treynor ratios indicate that the majority of funds outperformed expectations.

Gupta et al. (2015) Relative performance index, risk-return analysis, Treynor's ratio, Jensen's Alpha, Sharpe's ratio, and Fama's measure are all used to evaluate performance. Performance was evaluated using daily NAVs. They discovered that, between 2008 and 2012, the majority of the funds produced gains.

Qamruzzaman (2014) sought to compare the monthly returns of 32 growth-oriented mutual funds to benchmark returns in order to assess their performance. For this, many risk ratios including the Treynor, Sharpe, and Jensen's Alpha were used. He discovered that the majority of the funds had not outperformed expectations. Few funds actually produced good returns. The returns on all other funds were negative over the study period.

Murhadi (2010) measured the performance of mutual fund managers using the methodology proposed by Treynor and Mazuy (1966) and Henriksson and Merton in terms of "market timing" and "selectivity" (1981). Over the course of 17 months, from February 2008 to June 2009, a panel of 55 mutual funds was used for the analysis. Only 4 of them, in terms of mutual funds, perform well in terms of stock selection and market timing, respectively.

Prajapati and Patel (2012) examined the performance of five different asset management companies' equity diversified mutual fund schemes. This decision was made using AUM. From January 1, 2007, to December 31, 2011, daily closing NAV data were collected. The relative performance index, risk-return analysis, beta,

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Treynor's ratio, Sharpe ratio, and Jensen's measure were used to evaluate Indian mutual funds.

Rajib(2013) Several tax-saving mutual funds were studied. The Treynor ratio, Sharpe ratio, Standard Deviation, and Beta ratios were used to evaluate the performance of a few Indian tax-saving mutual funds. On the basis of ratios, the performance of five tax-saving mutual funds was compared.

Rao (2006) 419 open-ended equity mutual fund schemes were categorised into six main investment philosophies. 21 open-ended equity dividend plans and 21 open-ended equity growth plans were compared. The idea that growth funds offer better returns than dividend funds was investigated using Student's T-test and F- test. He discovered that growth plans had a high risk/high reward ratio.

Sheth et al. (2017) On the basis of five years' worth of quarterly NAV, performance of a few public and private mutual fund schemes were assessed. With the aid of ratios like beta, sharpe, treynor, and Jensen's alpha, among others, the performance of public and private sector plans was compared. All of the programmes either outperformed the market or had similar results, it was discovered. Additionally, it was shown that private mutual fund businesses had advantages over public mutual fund companies.

Tripathi and Japee (2020) primarily on the results of a few open-end equities fund schemes (large, mid, and small cap). The financial performance of each category's five funds was examined using statistical measures such beta, Jensen's Alpha, S.D., and Sharpe Ratio. The information was collected between January 1, 2015, and December 31, 2019. Ten out of the fifteen funds performed very well. They discovered that before choosing an investment, investors must take risk ratios into account.

4 RESEARCH METHODOLOGY 4.1 Objectives of the study:

1. To assess and contrast the effectiveness of a few chosen Equity Linked Savings Schemes (ELSS).

2. To assess the risk-return characteristics of particular ELSS mutual funds.

3. To determine the profitability of the ELSS fund investment.

4.2 Source of Data:

Its analysis is based on secondary data that was collected from official websites and factsheets of several asset management firms. Data from moneycontrol.com was used.

4.3 Scope of the study:

The study's focus is on 11 ELSS mutual fund programmes that have been introduced by various asset management firms. The rating was used to choose these funds. Moneycontrol's top 11 funds were chosen, and the performance of those funds was assessed. The NAV of 11 ELSS funds was taken for a five-year period beginning on April 1, 2017, and ending on March 31, 2022.

4.4 Statistical Tools:

 Standard Deviation

The standard deviation shows a fund’s volatility. It means how much the returns of a fund fluctuate (increase or decrease) in a short period of time. The standard deviation measures risk by measuring the degree of fluctuation in relation to the average return. In short, if the average return is fixed for some period, the Standard Deviation will be zero. As against this, if the average return is highly volatile, then there will be a high standard deviation.

𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 = √^{Σ(𝑋−𝑋}̅)2 𝑁−1

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 Beta

As the standard deviation shows the volatility in average return. Beta shows the comparison between volatility in returns of a fund with an index or benchmark. A fund whose beta value is close to 1, shows the performance of a fund is similar to the index or benchmark. This measure is very useful for deciding the performance of a fund with the overall market. So, a decision for investment can be made by considering this measure.

𝐶𝑜𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 𝑏𝑒𝑡𝑤𝑒𝑒𝑛 𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑓 𝑠𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝑎𝑛𝑑 𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑓 𝑚𝑎𝑟𝑘𝑒𝑡 Beta =

Variance of market return

 Sharpe Ratio

The Sharpe Ratio is defined as portfolio risk premium divided by portfolio risk. Portfolio risk premium means excess return over a risk-free rate of return. So, a high Sharpe Ratio of a fund shows better performance than a fund having a low Sharpe Ratio. If more than one portfolio is to be ranked, Sharpe Ratio for all portfolios must be calculated.

Sharpe Ratio = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑃𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 (𝑅𝑝) − 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑡ℎ𝑒 𝑅𝑖𝑠𝑘–𝐹𝑟𝑒𝑒 𝑅𝑎𝑡(𝑅𝑓) Standard Deviation of the portfolio (σ)

 Jensen’s Alpha

Jensen’s Alpha is based on Systematic risk. Daily returns of the portfolio and daily returns of the market are regressed for computing systematic risk similar to CAPM. The difference between actual return and calculated return is a measure of performance related to the market. Positive Alpha indicates that the portfolio has outperformed whereas Negative Alpha indicates that the portfolio has underperformed.

𝛼𝑝 = 𝑅̅𝑝 − (𝑅̅𝑓 + 𝛽𝑝(𝑅̅𝑚 − 𝑅̅𝑓))

 Treynor Ratio

The Treynor Ratio is an addition to Sharpe Ratio. In this, risk premium is divided by Beta or Systematic risk instead of using total risk (σ). This is a better measure for those investors who are holding diversified portfolios.

Treynor Ratio = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑃𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 (𝑅𝑝) − 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑡ℎ𝑒 𝑅𝑖𝑠𝑘– 𝐹𝑟𝑒𝑒 𝑅𝑎𝑡(𝑅𝑓) Beta of the portfolio (𝐵𝑝)

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VOLUME: 10, Special Issue 01, (IC-IESP-MULTI-2023) Paper id-IJIERM-X-I, January 2023 233 5 DATA ANALYSIS

Table – 1 NAV & Returns Sr.

No. Scheme Name 2017-18 2018-19 2019-20 2020-21 2021-22

NAV

(Rs.) Return (%) NAV

(Rs.) Return

(%) NAV

(Rs.) Return (%)

1 IDFC Tax

Advantage (ELSS) Fund - Regular Plan

– Growth

55.91 8.31% 55.21 -1.25% 47.99 -

13.08% 87.52 82.37% 90.26 3.13%

2 Bank of India Tax Advantage Fund - Regular Plan –

Growth

54.68 14.78% 49.89 -8.76% 53.70 7.64% 93.23 73.61% 88.30 -5.29%

3 Quant Tax Plan –

Growth 90.30 3.48% 94.47 4.62% 95.55 1.14% 201.22 110.59% 210.27 4.50%

4 ICICI Prudential Long Term Equity Fund (Tax Saving) –

Growth

358.2

2 9.13% 377.32 5.33% 339.60 -

10.00% 535.24 57.61% 546.45 2.09%

5 Kotak Tax Saver Fund – Growth

41.27 1.93% 44.43 7.66% 42.31 -4.77% 66.03 56.06% 66.71 1.03%

6 Mahindra Manulife ELSS Kar Bachat

Yojana - Regular Plan – Growth

11.42 -1.97% 11.29 -1.14% 10.56 -6.47% 17.10 61.93% 17.21 0.64%

7 JM Tax Gain Fund –

Growth 16.62 9.92% 16.87 1.50% 15.98 -5.28% 25.67 60.64% 25.70 0.12%

8 Aditya Birla Sun Life Tax Plan - Regular

Plan – Growth

39.30 11.49% 37.25 -5.22% 36.30 -2.55% 49.65 36.78% 45.84 7.67%

9 Union Long Term Equity Fund –

Growth

23.96 5.83% 24.12 0.67% 23.66 -1.91% 37.76 59.59% 38.37 1.62%

10 PGIM India ELSS Tax Saver Fund –

Growth

14.15 6.87% 14.36 1.48% 13.19 -8.15% 21.20 60.73% 21.93 3.44%

11 Canara Robeco Equity Tax Saver Fund - Regular Plan

– Growth

61.58 11.08% 65.01 5.57% 64.81 -0.31% 106.20 63.86% 105.31 -0.84%

6 FINDINGS

Table-1 NAV & Returns:

1. Table 1 shows that, until 2019–20, each mutual fund's performance was consistent and reasonable. Nearly all funds have negative returns in 2019–20.

The reason is the corona pandemic. However, in 2020–21,Market downturn has begun, and all funds have produced impressive returns of more than 50–

55 percent. After that, in 2021–2022, the returns were once more normal as they were prior to the pandemic.

2. The returns of the Mahindra Manulife ELSS Kar Bachat Yojana and the Kotak Tax Saver Fund were extremely poor in 2017–18. These funds performed poorly. An average return for Quant Tax Plan was roughly 3%. The performance and return of the other 8 funds were strong, averaging 8–10%.

3. Every fund's performance started to deteriorate in 2018–19. Only Kotak Tax Saver Fund demonstrated a return of 7.66% or higher. A return of almost 5%

was provided by the ICICI Prudential Long Term Equity Fund and the Canara Robeco Equity Tax Saver Fund. The performance of all other funds was under 5%. Some of them also produced negative returns.

4. The Corona Pandemic's effects were seen in the performance of each chosen mutual fund in 2019–20. Out of 11 funds, just 2 produced gains. These were the Quant Tax Plan and the Bank of India Tax Advantage Fund. The returns on the other 9 funds were negative.

5. The market began to correct in 2020–2021. Every fund claimed to offer fantastic

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returns. For 10 out of 11 funds, the rate of return in 2020–21 over the prior year was greater than 50%. Aditya Birla Sun Life Tax Plan, with a return of 36.78%, was the only fund with a return below 50%. In comparison to the returns of other funds, this return is low. This fund appears to have experienced less of a correction effect than other funds. The return on the Quant Tax Plan was 110.59%. It appears that this fund was significantly affected by the correction. In 2021-22, all funds started performing normally. 2 out of 11 funds had negative returns and only 1 fund gave a return of more than 7%. It was Aditya Birla Sun Life Tax Plan whose returns were 7.67% in the year 2021-22. All other funds have an average return of 0 to 5% for this year.

Table – 2 Risk Ratios

Risk Ratios - ELSS fund Performance Tracker Sr.

No. Scheme Name Standard

Deviation Beta Sharpe

Ratio Jensen's

Alpha Treynor Ratio 1 IDFC Tax Advantage (ELSS) Fund -

Regular Plan – Growth 18.31 0.94 0.64 3.98 0.13

2 Bank of India Tax Advantage Fund -

3 Quant Tax Plan – Growth 19.77 0.84 1.18 17.09 0.28

4 ICICI Prudential Long Term Equity Fund

(Tax Saving) – Growth 17.48 0.93 0.45 0.19 0.09

5 Kotak Tax Saver Fund – Growth 16.94 0.91 0.53 0.37 0.10 6 Mahindra Manulife ELSS Kar Bachat

Yojana - Regular Plan – Growth 17.34 0.94 0.55 0.66 0.10

7 JM Tax Gain Fund – Growth 18.56 0.98 0.50 0.87 0.09

8 Aditya Birla Sun Life Tax Plan - Regular

Plan – Growth 16.45 0.86 0.12 -6.10 0.02

9 Union Long Term Equity Fund –

Growth 17.24 0.90 0.65 4.46 0.12

10 PGIM India ELSS Tax Saver Fund –

Growth 17.11 0.92 0.59 1.44 0.11

11 Canara Robeco Equity Tax Saver Fund -

(Date: 09-07-2022) 7 FINDINGS

Table-2 Risk Ratios:

1. The Standard Deviation for each of the chosen funds was extremely high, exceeding 15. This indicates that the returns on all of the ELSS funds that were chosen are volatile. This demonstrates that returns may deviate from the average return by as much as 15%.

2. The beta for all funds is closer to 1, indicating that their performance is comparable to that of the benchmark or index. Therefore, it can be claimed that the chosen funds have had good performance.

3. The Sharpe Ratio displays returns above the risk-free rate. Every fund displays a favourable Sharpe ratio. It indicates that each fund has performed well.

4. Positive According to Jensen's Alpha, the fund has outperformed the benchmark. Apparently, the returns

5. All of the funds' Treynor Ratios are positive, indicating that the return exceeds systemic risk. The return above systematic risk is indicated by a positive Treynor's ratio. Therefore, all funds are performing favourably.

8 CONCLUSION

This study shows that every mutual fund's performance in the 2019–20 year has decreased. This is as a result of the Corona Pandemic's effects. Every mutual fund's performance was significantly impacted. NIFTY also had a significant decline this year. The market began to rebound after the effects of Corona started to fade. Every fund provided a return of more than 50% in the years 2020–2021. This leads us to the conclusion that investors should not be concerned if the market declines for

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whatever cause. Once it begins to rebound, the market will always provide a healthy return. Patience is the only thing that is required.

REFERENCE

1. Bhagyasree, N., & Kishori, B. (2016). A study on performance evaluation of mutual funds schemes in India. International Journal for Innovative Research in Science & Technology, 2(11), 812-816.

2. Choudhary, V., & Chawla, P. S. (2014). Performance Evaluation of Mutual Funds: A Study of Selected Diversified Equity Mutual Funds in India. In International Conference on Business, Law and Corporate Social Responsibility (Vol. 2, No. 10).

3. Deb, Rajib, A Comparative Study on Performance Evaluation of Selected Mutual Fund Tax Saving Schemes (June 26, 2013).

4. Gupta, S., Shrivastava, S. K., & Bhatnagar, V. K. (2015). Comparative Study on Performance Evaluation of Sectoral Mutual Fund Schemes of Indian Companies. Edited Book, Bloomsbury Publishing India Pvt. Ltd. New Delhi, 68-82.

5. Murhadi, W. R. (2010). Performance evaluation of mutual funds in Indonesia. Available at SSRN 1683777.

6. Prajapati, K. P., & Patel, M. K. (2012). Comparative study on performance evaluation of mutual fund schemes of Indian companies. Researchers World, 3(3), 47.

7. Prajapati, K. S. H. M. F. (2008). Performance Evaluation of Public & Private Mutual Fund Schemes in India.

8. Qamruzzaman, Md. (2014). Comparative Study on Performance Evaluation of Mutual Fund Schemes in Bangladesh: An Analysis of Monthly Returns. 5.

9. Rao, D. (2006). Investment Styles and Performance of Equity Mutual Funds in India.

10. Selvam, Murugesan and Palanisamy, Bhuvaneswari, Analysis of Risk and Return Relationship of Indian Equity (Dividend) Mutual Fund Schemes (2011).

11. Tripathi, S., & Japee, D. G. P. (2020). Performance Evaluation of Selected Equity Mutual Funds in India. GAP GYAN-A Global Journal of Social Sciences.

BIBLIOGRAPHY 1. moneycontrol.com 2. analystprep.com 3. hdfcfund.com

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