Tuesday, August 12, 2008

Mutual Funds

Mutual Funds are one of the most preferred investment tools. They have always found preference over individual stocks because of the many advantages they provide.

Over the years, MFs have graduated into a flexible and innovative avenue for investors. For individual investors, with neither a lot of money to invest, nor the time devote track the market movements, mutual funds offer great advantage that simply aren’t available elsewhere. Instead of picking stocks and bonds one at a time, Mutual Funds offer the investors an opportunity to invest in a ‘collection of stocks’, designed to meet their investment objectives.

In a country like India, where the majority of investors are conservative and risk averse, mutual funds come across as an attractive investment avenue, which promises the investors good returns and at low risks.

Mutual Funds make investing easier but they do not necessarily make it easy. It is important for the investor to keep track of their investments. And all the more considering the current market volatility, it’s essential for an investor to make guided and rational decisions on whether he gets an acceptable return on his investments in the funds selected by him, or if he needs to switch to another fund.

In order to achieve such an end the investor has to understand the basis of appropriate preference measurement for the fund, and acquire the basic knowledge of the different measures of evaluating the performance of the fund. Only then he would be in a position to judge correctly whether his fund is performing well or not, and make the correct decision.

The project therefore attempts to analyse mutual funds more effectively by measuring their risk- return ratios with the help of technical tools namely – Sharpe Ratio, Treynor Ratio, Jensen’s Alpha, M2, Sortino Ratio, Information Ratio, Standard Deviation, Coefficient of Determination (R2) and Beta.


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