PARIPEX - INDIAN JOURNAL OF RESEARCH Volume-7 | Issue-5 | May-2018 | PRINT ISSN No 2250-1991

ORIGINAL RESEARCH PAPER Management

A COMPARATIVE ANALYSIS BETWEEN LARGE- CAP KEY WORDS: Large-cap and

Mid-cap mutual funds, Absolute
AND MID -CAP MUTUAL FUND RETURNS return, T-Test

Prof. Parameshwar
IFIM Business School, Bangalore parameshwar
H.S.
Manish Soni* PGDM Student, IFIM Bangalore manish.*Corresponding Author
Pranjul Bajpayee PGDM Student, IFIM Bangalore pranjul.
Utkarsh Pandey PGDM Student, IFIM Bangalore utkarsh
Jayant Singh
PGDM Student, IFIM Bangalore jayant.
Bhadoria
Mutual Fund Investment is one of the emerging investment instrument in financial market. Investors are highly concerned about
ABSTRACT

fair return from different mutual fund schemes. Present study compares absolute returns of large-cap and mid-cap funds of
diversified equity Funds for different time periods. We have collected 59 large cap funds and 40 mid cap funds of different
financial institutions for different time period such as 1Day, 1Week, 2Week, 1 Month, 3Month, and 6Month. We applied F-Test
and T-test to test the significance difference between two sample funds returns. The result reveals that the returns from the Mid-
Cap funds are greater than the return from the Large-Cap funds when the time period is less than a year but as far as long term
returns are concerned the Large-Cap funds are taken into consideration for investment purposes

INTRODUCTION Literature Review

A Mutual Fund is a professionally-managed investment scheme Jenkinson et al. (2013) examined the aggregate recommendations
that is usually run by an Asset Management Company (ACM) that of consultants with a share of 90% of the consulting market. The
brings investors and then invest their money in stocks, bonds and main source of data is a series of surveys conducted by Greenwich
other securities. The formation of Unit Trust of India in 1963 Associates in which they were asked to rate fund managers on
started the mutual fund industry by the Government of India and various measures of performance and service, and also to state the
Reserve Bank of India. In 1993 the entry of private sector funds names of the fund managers they recommend to their clients for
started a new period in the Indian mutual fund industry, giving the each of a number of investment styles. They analysed the influence
Indian investors wider varieties of fund choices. All the mutual and performance of consultants in one key area, the
funds are registered with SEBI to protect the interests of the recommendation of investment products, and found no evidence
investor. As an investor, they can buy mutual fund 'units', which that their recommendations add value.
basically represent their share of holdings in a scheme. The
benefits of investing through a mutual fund is that it gives small Berk And Binsbergan (2013) identified that a mutual fund extracts
investors access to diversified portfolios of equities, bonds and from capital markets as the measure of skill, finding average
mutual fund has used this skill to generate about $2 million per
other securities, which would be quite difficult to create with a
year. Our main source of data is the CRSP survivorship bias free
small amount of capital.
database of mutual fund data first compiled in Carhart
(1997).They show that the average mutual fund has generated
Mutual fund investment is more comprehensive, easy and flexible value of about $2 million/year. The evidence of skill that we
among other investment avenues, to cater different need of uncover cannot easily be attributable to luck because cross-
investors. The past carries the information of the future (Elton and sectional differences in skill are persistent for as long as 10 years
Gruber 2011). Funds that did well in the past tend to do well in the into the future
future on a risk-adjusted basis. The rise in stock prices encouraged
investors to book profits and shift money to debt schemes because Ammann and Verhofen (2006) analysed the behaviour of mutual
the latter will generate healthy returns when interest rates soften, fund managers with a special focus on the impact of prior
fund managers said. To get higher return comparison of return for performance. For the empirical analysis, they use a Bayesian
different time horizon can help investors to take better decision. In Network. For the analysis, they use a complete sample about all US
the light with this, present study focuses on comparative absolute open-end equity funds containing 1923 funds. The data set has
return analysis of two sample of Diversified Equity mutual funds been provided by Reuters Lipper. Analysis extends the existing
namely, Large-Cap Funds & Mid-Cap Funds. literature in a number of ways in which they do not solely focus on
volatility as a measure of risk.
Large Cap funds are those funds which invest a larger proportion
of their corpus in companies with large market capitalization. On Haslem and shreraga (2001) determined whether Morningstar's
the risk-return spectrum, large-cap funds deliver steady returns classification of the investment styles of large-cap mutual funds as
with relatively lower risk, compared to small & mid cap funds. Mid- large growth, large blend, and large value is consistent with the
cap equity funds are advised for investors with a higher risk groups and styles identified by cluster analysis.They use cluster
tolerance than large-cap investors. You seek higher capital analysis to avoid these kinds of subjectivity problems for
appreciation, with reasonably higher risk. Thus looking from classification and is designed explicitly to identify groups of entities
investor perspective both the funds provide good opportunity to sharing certain common characteristics.Cluster analysis of the
Morningstar 500 style classifications (growth, blend, and value) of
earn better. Scholars have studied the performance of mutual
large-cap mutual funds identifies three homogeneous style
funds using evaluations techniques like Sharpe ratio, Treynor ratio,
groups: growth, and two versions of value.
Jension ratio. Though there is death of research on comparison of
returns obtain from mutual fund investment over a different Black and Szado (2016), "The fund performance analysis in this
period of time. Thus, present study investigates the return of two article examines funds that focus on the use of options in portfolios
sample funds of diversified equity for a different time period to find with broadly diversified U.S. equity holdings. Our study documents
the better return for the investment. a significant growth in the number of funds available to U.S.
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investors that focus on options trading, expanding from a list of statistical parameters such as (alpha, beta, standard deviation, r-
five funds in 1999 to 119 in 2014. This study analyzed the equally squared, Sharpe ratio) . The findings of this research study will be
weighted performance of 80 options-based funds that focus on help investors for his future investment decisions. Different
use of U.S. stock index options and/or equity options during the statistical and financial tools are used to evaluate the performance
15-year period from 2000 through 2014. Because of of these mutual fund schemes under the present study. In the
benchmarking issues, funds tracking objectives such as ultimate analysis it may be concluded that all the funds have
commodity markets or global equities were excluded from the performed well in the high volatile market movement..
return analysis in this article."
Switzer and Huang (2007) examined whether small and mid-cap
Blake and Morey (2000), this study examines the degree to which fund performance is related to fund manager human capital
the well-known Morningstar rating system is a predictor of out-of- characteristics including tenure, investment experience, education
sample mutual fund performance, a critical issue given that high- and gender. Based on a sample of 1,004 mi-cap and large-cap
rated funds receive the lion's share of investor cash inflow. We use equity funds identified on the Morningstar database as of 31
a data set based on growth mutual funds that is free from December 2005, several statistical tests were applied which
survivorship bias and adjusted for load fees to examine the consider fund performance, risk, expenses, and turnover
predictive qualities of the rating system. While it is relatively easy to simultaneously. The results suggest that there are some systematic
predict inferior performance, it is much more difficult to predict cross-sectional differences in fund performance that can be
superior performance. attributed to differences in managerial human capital
characteristics.
Kothari and Warner (2001), they studied standard mutual fund
performance measures, using simulated funds whose Grinblatt and Titman (1994) analyzed the determinants of mutual
characteristics mimic actual funds. We find that performance fund performance. Tests of fund performance that employ fund
measures used in previous mutual fund research have little ability characteristics, such as net asset value, load, expenses, portfolio
to detect economically large magnitudes EX-three percent per year turnover, and management fee are reported. The daily returns
of abnormal fund performance, particularly if a fund's style were compounded to calculate the monthly portfolio returns used
characteristics differ from those of the value-weighted market to form and test the benchmark portfolios, as well as evaluate the
portfolio. performance of 109 passive investment strategies. The tests
surprisingly suggest that turnover is significantly positively related
Hubner (2007)studied the relevance of the information ratio and to the ability of fund managers to earn abnormal returns.
the alpha, two leading performance measures for multi-index
models, depends on the type of portfolio held by investors. They Lee (2014) proved that the manners of returns generated from
selected a sample of US directional mutual funds data over an 11- Large-, Mid- and Small- Cap stocks in 11 Asia countries are
year period, with end-of-month prices recorded from December different and should not be ignored by international portfolio
1993 to December 2004. Type of hypothesis of imprecision or investors. They examined the country indices and three market
instability —henceforth generically termed “lack of capitalization-based market indices, such as Large, Median and
association”—postulates the absence of relationship between Small-Cap market indices from each country in sample. After the
alternative classifications. So when it is applicable, i.e. when the spanning test, we then examined the returns that generating from
required return on managed portfolios is expected to be positive, market-based indices and their risks affected by factors of global,
the generalized treynor ratio displays superior ranking abilities over local or Idiosyncratic. Results indicate that when the short sale is
its competitors, the alpha and the information ratio, provided that allowed, the portfolio contains country indices and Small-Cap
comparisons are done with proper instruments. markets can reduce the risk majorly; while at the same time, the
portfolio contains country indices and Mid-Cap markets can
Sullivan and Xiong (2012) examined one possible culprit for the enhance the return more.
observed increase in market vulnerability: the rising popularity of
trading passively managed assets. Dataset consisted of all the Cooper et al(2005) examined whether mutual funds change their
stocks on the NYSE, Amex, or NASDAQ that met our criteria over 1 names to take advantage of current hot investment styles, and
January 1979–1 December 2010.They performed a robustness what effects these name changes have on inflows to the funds,
test by examining a smaller sample subset in which we randomly and to the funds' subsequent returns. Used the CRSP mutual funds
selected 500 stocks from the universe of all NYSE/Amex/NASDAQ database to create our initial cut of name change funds. To
stocks. They can infer that the ability of investors to diversify risk by summarize our evidence, funds that have not spent much on
holding an otherwise well-diversified U.S. equity portfolio has marketing fees and that have experienced a significant drop in
markedly decreased in recent decades. their fund inflows change their names to realize an increase in
flows.
Varmaini (2008)Studied for the entire period of 1994-2007 as well
as the two sub periods (1994-1999 and 2000-2007) indicate that Bauer et al. (2004) studied the international performance and style
small cap funds have provided the highest risk-adjusted return for of ethical mutual funds, by constructing a database containing the
the entire period whereas growth funds have exhibited lower two most developed retail markets for ethical investors. The main
returns. Applied Sharpe ratio and Modigliani and Modigliani model used in this research is a CAPM based single index model. As
Measure for analysing data. The data for mutual funds have been a result, it was found that there was no evidence of a statistically
retrieved from Morningstar database. The overall conclusion was significant difference between ethical and conventional mutual
that the market is not always efficient, which makes it possible for fund returns keeping factors like size, book-to-market and
an investor or a mutual fund manager to earn higher than momentum constant.
expected returns.
Eun et al. (2008) accessed the potential of mid-cap stocks as a
Nandhini & Rathnamani (2017) analysed the performance of a vehicle for international portfolio diversification. Data-set includes
selected Equity Large cap mutual fund schemes and to study the monthly stock prices and returns, the number of shares
measures of risk and return associated with selected mutual fund. outstanding for exchange listed companies and MSCI stock
Large Cap Fund - Equity mutual funds that invest more than 75% market indices from 10 major countries. As a result, it was found
in CRISIL – defined large cap stocks for a minimum of four out of six that mid-cap funds have low correlations not only with large-cap
months in each period over the last 2 years. From this study it is funds but also with each other. In contrast, large-cap funds tend
found that there is an impact of mutual fund flow in the Indian to have relatively high correlation with each other, reflecting
equity markets. Volatility and uncertainty are part and parcel of common exposers to global factors.
equity investing.
Otten and Schweitzer (2002) analysed the development and
Narayanasamy and Rathnamani (2013) analysed financial performance of the European mutual fund industry and compare it
performance of selected mutual fund schemes through the with the industry in U.S. Performance of the fund is compared by
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PARIPEX - INDIAN JOURNAL OF RESEARCH Volume-7 | Issue-5 | May-2018 | PRINT ISSN No 2250-1991

using the traditional Structure-Conduct-Performance (SCP) The summary statistics reported in Table 1 reveals that the mean
paradigm. It was found that Europe is still lagging the U.S mutual absolute returns of 1 Day is comparatively higher than the other
fund industry when it comes to total asset size, average fund size time periods. The standard deviation for 6 Months period is higher
and market importance. as compared to the other time periods. The minimum and
maximum absolute returns of different times form the part of the 6
Fama and French (2008) examined mutual fund performance from Months' time. The value of Skewness and kurtosis reported for the
the perspective of equilibrium accounting. The mutual fund variables suggest that there is non-normality in the distribution of
industry as a whole holds a portfolio much like the market sampled data. From the sample 2 Week time period data is
portfolio, and realizes returns close to market returns, before fees negatively skewed towards the left, while others are positive, and
and expenses. Our tests also support the inference that the cross- the kurtosis is heavily tailed for the data collected of 1 Day time
section of average fund returns is consistent with a world where period.
individual fund performance, good and bad, is due to chance
rather than skill. But we have only examined mutual funds. The summary statistics reported in Table 2 reveals that the mean
absolute returns of 6 Months' is comparatively higher than the
Diether et al., (2002) analysed the role of dispersion in analysts' other time periods. The standard deviation for 6 Months period is
earnings forecasts in predicting the cross section of future stock higher as compared to the other time periods. The minimum and
returns. Returns are drawn from the Center for Research in maximum absolute returns of different times form the part of the 6
Securities Prices ~CRSP! Monthly Stocks Combined File, which Months' time. The value of Skewness and kurtosis reported for the
includes NYSE, AMEX, and NASDAQ stocks. Results clearly reject variables suggest that there is non-normality in the distribution of
the notion that dispersion in forecasts can be viewed as a proxy for sampled data. From the sample 1 Month time data is negatively
risk, since the relation between dispersion and future returns is skewed towards the left, while others are positive, and the kurtosis
negative. is heavily tailed for the data collected of 3 Months' time period.
Zhang (2006) investigates the role of information uncertainty in Table 2: Descriptive statistics of Mid Cap Funds
price continuation anomalies and cross-sectional variations in
stock returns. The sample data come from three sources. Returns Mean Min Max
Standard Skewness Kurtosis
are from the CRSP Monthly Stocks Combine File, which includes Deviation
NYSE, AMEX, and Nasdaq stocks. As a result, greater information 1D 0.710805 0.1508 1.3366 0.043566 -0.01464 -0.14889
uncertainty produces relatively lower future returns following bad
news and relatively higher future returns following good news. 1W -0.79101 -1.8388 0.3894 0.56359 -0.03294 -0.74814
The opposite effects of information uncertainty on stock returns 2W -2.85713 -4.0236 -0.4269 0.794215 0.8569420.967536
following good versus bad news amplify the profitability of certain 1M 0.597108 -1.2948 2.25 1.008202 -0.15046 -1.28357
trading strategies.
3M 1.523795 -2.9657 11.0296 2.875914 1.1108251.738036
Mishra & Mahajan (2005) measured the return earned by the 6M 8.611937 -1.0723 20.3869 4.7892874 0.258561 0.001340
sample mutual funds schemes and compare them for different 5 1 074 538
modes of investment. Data collection is done of five open-ended
equity funds selected on the basis of their large cap, mid cap and We analysed data using T Test to investigate the difference
small cap inclination and sound track record of ten year between absolute return of large cap funds and mid cap funds.
performance. As a concluding remark of the research it can be said Thus, it is mandatory to identify first the equality of variance
that one time growth investment Portfolio is suitable for those between two samples. To check the equal Variance, we have run
investor who can invest at a time for long term whereas SIP mode is the F-Test two sample for variance which indicates the equality
suitable for investors who cannot contribute in one time mode. between them. If P value is less than 0.05, suggests there is
unequal variance among two samples. In our study we found 1D,
Data & Methodology 3M and 6M to be unequal while others are having equal variance.
The paper consists two samples, divided from the main Category Thus we categorise three different time set to perform the T-test
of Diversified Equity Funds into Large Cap Funds and mid cap for equal variance (1W, 2W, 1M) and unequal variance (1D, 3M,
funds. The Data includes absolute returns for different time 6M).
periods as 1 Day, 1 Week, 2 Week, 1 Month, 3 Months, and 6
Months. The data has been resourced from Association of Mutual Table 3 shows the result of T-Test for equal variance, comparing
Funds in India (AMFI). The Large Cap Funds includes 59 and the the values of the 1W, 2W and 1M timeline at 5% significance level
Mid-Cap Funds includes 40 different fund schemes from various in the output. It is observed from the table that only 1M returns are
financial institutions. Present study has employed f-test and t-test significant while p values of 1W and 2W (0.09, 0.08) are greater
to investigate the difference between the absolute returns of the than the 0.05 which shows there is no difference between the
Large-Cap funds and the Mid-Cap funds. Based on the literature return of large cap and mid cap mutual funds. While comparing
review that there is no difference between the absolute returns the t-critical value in the output on the worksheet with the t-value
from the Large-Cap and Mid-Cap returns. Generally, investor's
listed. The t-value is smaller than the t-critical value, hence it states
perception is that they find difference between the Large-Cap
that for different time periods there are different returns and the
Fund returns and the Mid-Cap fund returns. This study tries to
investment depends on the investor's choice.
investigate the same.
Table 3: T –Test of Equal variance
Results and Discussion Table 1: Descriptive Statistics of
Large Cap Funds Particular 1W 2W 1M
Time Mean Min Max Standard Skewness Kurtosis Mean -0.6178-0.7910-3.1221-2.8571-1.0005 0.5971
Deviation Variance 0.2032 0.3176 0.4960 0.6307 0.8327 1.0164
1D 0.6499 0.1786 1.729 0.205834 2.290298 12.40573 Pooled 0.24925608 0.550198 0.906614
1W -0.6178 -1.4911 0.7841 0.450863 0.543753 0.416033 variance
769 233 84 t Stat 1.693944651 -1.74447 -8.19218
2W -3.1221 -4.5641-1.6606 0.704283 -0.26082 -0.26684 P(T<=t) one-tail 0.046742299 0.042122 5.23E-13
315 t Critical one- 1.66071461 1.660715 1.660715
1M -1.0005 -2.8964 2.0263 0.912548 0.733708 1.45305 tail
3M -1.2238 -4.7005 4.5893 1.654204 1.577135 3.747183 P(T<=t) two-tail 0.093484597 0.084244 1.05E-12
6M -1.5173 -6.207 6.7807 2.496746 0.682288 1.517847 t Critical two- 1.984723186 1.984723 1.984723
045 794 004 tail
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PARIPEX - INDIAN JOURNAL OF RESEARCH Volume-7 | Issue-5 | May-2018 | PRINT ISSN No 2250-1991

Table 4 shows the result of T-Test for unequal variance, comparing 16. Mishra, C., & Mahajan, D. A Study of Risk and Return Relationship Of Different
Modes Of Investment In Indian Equity Mutual Fund Schemes With Reference To
the values of 1D, 3M and 6M the timeline at 5% significance level Large Cap Segment. Altius Shodh Journal of Management and Commerce, ISSN
in the output. It is observed from the table that P values of 1D 2348-8891.
return is (0.21) which is greater than significance level thus not 17. Nandhini and Rathnamani (2017). A study on the performance of Equity Mutual
Funds (with Special Reference to large cap and mid cap mutual funds). Journal of
significant while p values of 3M and 6M are significance, which Business and management (ISOR), 19(2), 67-72.
shows there is no difference between the return of large cap and 18. Narayanasamy, R., & Rathnamani, V. (2013). Performance evaluation of equity
mid cap mutual funds of 1D return. mutual funds (on selected equity large cap funds). International Journal of Business
and Management Invention, 2(4), 18-24.
19. Otten, R., & Schweitzer, M. (2002). A comparison between the European and the
Table 4: T-test of Unequal Variance US mutual fund industry. Managerial Finance, 28(1), 14-34.
20. Sullivan, R. N., & Xiong, J. X. (2012). How index trading increases market
Particular 1D 3M 6M vulnerability. Financial Analysts Journal,68(2), 70-84.
21. Switzer, L. N., & Huang, Y. (2007). How does human capital affect the performance
of small and mid-cap mutual funds?.Journal of Intellectual Capital, 8(4), 666-681.
Mean 0.6498 0.7108 -1.223 1.5237 -1.517 4.6916 22. Varamini, H., & Kalash, S. (2008). Testing market efficiency for different market
8 3 capitalization funds. American Journal of Business, 23(2), 17-28.
23. Zhang, X. (2006). Information uncertainty and stock returns. The Journal of
Variance 0.0423 0.0759 2.7363 8.2708 6.2337 16.374 Finance, 61(1), 105-137.
8
Pooled variance 0.0558 4.9615 10.3110
t Stat -1.2583 -6.0225 -9.4412
P(T<=t) one-tail 0.1056 1.54E-08 1.07946E-15
t Critical one- 1.6607 1.6607 1.6607
tail
P(T<=t) two-tail 0.2112 3.07E-08 2.15892E-15
t Critical two- 1.984 1.9847 1.9847
tail

CONCLUSION
Mutual fund investment is one of the prominent instrument in
financial market. As couple of study suggest the performance of
mutual fund in different categories, but it ignores the
consideration of time. In This Paper we investigated the different
time period with size of market cap considering Diversified equity
funds. In the light of the investor's interest present study has
considered Large-Cap funds and the Mid-Cap funds and Absolute
return of different time period. By using the f-test and the t-test
analysis both the samples were analysed and found that the
returns from the Mid-Cap funds are greater than the return from
the Large-Cap funds when the time period is less than a year but as
far as long term returns are concerned the Large-Cap funds are
taken into consideration for investment purposes.

Acknowledgement
Authors wish to acknowledge with gratitude to Research
Associate Mrs Rajeshri Parmar from Accendere Knowledge
Management Services (P) Ltd., for her valuable comments and
suggestions in preparation of the manuscript.

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