Performance measurement tools for mutual funds
At some point of time in history, performance of the fund was based on the returns earned by the funds. The funds knew about risk but were unable to figure out how to use it. Then, came the peer group comparison, where investors collected the data on returns produced by a similar funds for similar period and evaluated the performance. These returns were compared irrespective of risks taken by these funds to generate returns.
Hence, a new method of measuring the performance was introduced that combined both risk and returns associated with the funds. Primarily, there are two performance measures.
Treynor Portfolio Performance Measure
Treynor was the first to develop the composite measure of portfolio performance that included risk. He postulated two components of risk: (1) risk produced by general market fluctuations, and (2) risk resulting from unique fluctuations in the portfolio securities.
Treynor’s Composite Performance Measure = (The average rate of return for Portfolio during a specified time period - The average rate of return on a risk-free investment during the same time period)/ Beta
| Funds | Fund Manager | 1 Yr Return (%) | Beta | Standard Deviation | Risk Free Return (%) | Treynor ratio |
| Aditya Birla SL Digital India Fund(G) | Kunal Sangoi | -1.14 | 0.61 | 15.18 | 6.5 | -12.52 |
| Franklin India Technology Fund(G) | Anand Radhakrishnan | -3.08 | 0.44 | 13.02 | 6.5 | -21.77 |
| ICICI Pru Technology Fund(G) | Sankaran Naren | -3.45 | 0.44 | 15.09 | 6.5 | -22.61 |
| SBI Technology Opp Fund-Reg(G) | Anup Upadhyay | 2.1 | 0.52 | 13.69 | 6.5 | -8.46 |
| Tata Digital India Fund-Reg(G) | Sailesh Jain | -3.19 | 0.49 | 15.4 | 6.5 | -19.78 |
The way to interpret this measure is - the higher the Treynor ratio, the better the performance of the fund. For example among all the technology dedicated funds, SBI Technology Opp Fund looks better as it has the highest Treynor’s ratio.
Because the numerator of this ratio is the risk premium and the denominator is a measure of risk, the total expression indicates the portfolio’s risk premium return per unit of risk.
Sharpe Portfolio Performance Measure
Sharpe was the second to come out with the composite measure of performance. His calculation was similar to the Treynor measure; however, it differed slightly as it seeks to measure the total risk of the portfolio by using the standard deviation of returns rather than considering only the systematic risk summarized by beta.
Top Ten Large Cap Funds Based on Sharpe Ratio
| Funds | Fund Manager | Return (%)1 yr | Standard Deviation | Sharpe |
| Axis Bluechip Fund(G) | Shreyash Devalkar | 5.24 | 12.8 | 0.07 |
| LIC MF Large Cap Fund(G) | Sachin Relekar | 1.73 | 13.8 | -0.18 |
| Canara Rob Bluechip Equity Fund-Reg(G) | Shridatta Bhandwaldar | 0.12 | 13.63 | -0.3 |
| Mirae Asset Large Cap Fund-Reg(G) | Neelesh Surana | 0.07 | 13.98 | -0.3 |
| SBI BlueChip Fund-Reg(G) | Sohini Andani | -0.52 | 14.53 | -0.32 |
| HDFC Top 100 Fund(G) | Prashant Jain | -0.99 | 15.44 | -0.33 |
| JM Core 11 Fund(G) | Asit Bhandarkar | -1.72 | 16.97 | -0.33 |
| L&T India Large Cap Fund-Reg(G) | Venugopal M. | -0.35 | 13.93 | -0.33 |
| Sundaram Select Focus(G) | Rahul Baijal | -0.87 | 13.27 | -0.39 |
| Tata Large Cap Fund(G) | Rupesh Patel | -1.32 | 14.29 | -0.39 |