Manager – The British Journal of Administrative Management (TBJAM)

Special Issue, Vol.58, Issue.5

A Study of Performance Analysis of Selected Equity

Exchange Traded Funds in India
Dr. Inderpal Singh1 Anchal Juneja2

ABSTRACT

The prime objective behind every financial investment is to generate a high return with the least
degree of risk. As an investment is always concerned with the outlay of some asset today in hope
of a greater profit in the future. Exchange-traded funds are yet another model of a mutual fund
scheme. In other nations, the notion of exchange-traded funds is widely popular, but it is still in
the growth phase in India. The emphasis of this research is on four exchange-traded funds,
notably Kotak AMC, Motilal Oswal AMC, Birla Sun life AMC, and UTI AMC. The nifty 50
index serves as the benchmark for all of thses funds. For five financial years, average returns,
standard deviation, beta, Sharpe Ratio, Treynor Ratio, and Jensen Ratio have been computed to
test the efficiency of these funds (April 1 st 2017 to March 31st 2022).

Keywords: Benchmark, ETF (Exchange- Traded funds), Jensen ratio, Sharpe ratio, and Treynor
ratio

INTRODUCTION

An Exchange-Traded fund (ETF) is a fusion index fund that combines closed-ended and open-
ended index funds, that is publicly traded, just like a closed-ended index fund, and it issues and
units are reimbured in response to change in demand, just like an open-ended fund. (Chandra,
2012).

An ETF’s advantage is that it gives you access to an entire index, market, or predetermined
portfolio plan while which is far less complex. An Exchange traded fund functions similarly to a
regular share that may be exchanged on a daily basis, but its underlying assets are a
comprehensive index or portfolio, offering for diversification. Their investment goal is to match
results in terms of price and yield of a publicly available index. As why they are usually referred
to as shares in an index. (Hehn, 2005)

The rising popularity of ETFs is thought to be due to their improved qualities. ETFs have a lot in
common with index monitoring funds, which are traded on a stock market like equities. The

1
Professor and HOD, Department of Management, Lyallpur Khalsa College Technical Campus,
2
Research Scholar, IKG-PTU

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Special Issue, Vol.58, Issue.5

majority of ETFs are organized as open-ended mutual funds that are registered in their respective
jurisdictions. Each exchange-traded fund is intended to keep track of a certain index or securities
portfolio. They deliver a diverse range of investing strategies, asset group, markets and key
industries. (Hehn, 2005).

Despite the fact that ETFs normally mirror their underlying index perfectly, they can use
optimization and direct representation. To follow indexes, ETFs use two types of investing
strategies: replication and representative sampling.

Replication – This strategy is used by ETFs that attempt to closely track their underlying index
by holding almost all index members in the same weights as the benchmarks.

Representative Sampling- when a full replication technique is hard to happen, representative

sampling is applied. ETFs that use this method invest in a basket of companies in terms of
performance, industry weights, market size, and liquidity; they are equivalent to the underlying
index. (Hehn, 2005)

REVIEW OF LITERATURE

Exchange traded funds (ETFs) are a perfect example of financial innovation that combines the
benefits of a mutual fund and a common stock to give investors with a unique combination of
benefits. The majority of research looked at how equity funds grew and performed. For complete
understanding of the concept, some of the relevant research has been scrutinized:

(Dhabolkar & Reddy, 2019) The researcher investigated the efficacy of index mutual funds and
ETFs to monitor a certain market index using a sample of 16 index mutual funds and 14 ETFs
from their creation to March 31,2017. According to the research, index mutual funds have a
much larger tracking error than their counterparts. ETFs fund managers have also been able to
design a portfolio that is more similar to the chosen index than its equivalent, according to
regression research.

(Esampally & B., 2015) CNX Nifty is used to compare the performance of the Gold ETF and the
Infrastructure ETF to the market index. For the period of Jan 2011 to Dec 2014, the monthly net
asset value was used for both the schemes. Researcher when compared to the infrastructure ETF,
the gold ETF has less volatility. The Gold ETF outperformed the market index, while the
infrastructure ETF lagged the market index.

(Mahajan & Saxena, 2014) compared the index funds and ETFs performance during the months
of April,2008 to March,2013 using the daily NAVs of seven ETFs and fourteen stock indices
which mirror the same index. Various statistical techniques that is risk, return, beta, sharpe ratio,
treynor ratio, Jensen alpha, tracking error have been used with respect to these two passive
investment vehicles tracking the same benchmark index. Researcher concluded that the returns
of the sample ETFs are higher than the index fund.

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 Manager – The British Journal of Administrative Management (TBJAM)
Special Issue, Vol.58, Issue.5

(Singh & Gupta, 2009) over the period of January 2003 to December 2008, this study examines
the effectiveness of exchange traded funds in India in terms of their tracking ability and efficacy
in mimicking the underlying index returns. A comparison of multiple ETFs demonstrates that,
while their tracking skills differ, they are all equally good at reproducing the returns of the
underlying indexes over the specified time intervals.

The literature on exchange-traded funds(ETFs) is split. While many publications focused on the
bad performance of ETFs, others provided compelling evidence for their favorable performance.

STATEMENT OF THE PROBLEM

The Mutual Fund Industry’s Assets Under Management, in the pervious five years, it has more
than doubled from Rs. 19.04 trillion on 2017 to Rs. 37.22 trillion as on may 31, 2022.
(https://www.amfiindia.com/indian-mutual). Despite the fact that the ETF market is rising, there
is still a ways away to go. The current effort is an attempt to bridge the gap and assist investors
in making worthwhile investments. As a result, the current study aims to raise awareness of the
benefits of ETFs among small and middle-sized investors. As a result, the researcher plans to
investigate the performance of ETFs.

SIGNIFICANCE AND SCOPE OF THE STUDY

Many studies have looked at the performance of mutual fund products in India, but none have
looked at ETFs, hence the goal of the study is to examine ETF performance from risk-return
viewpoint. For the ordinary investor, analyzing performance is quite tough. As a result, it’s
critical to evaluate ETF performance so that retail investors may make informed decisions about
which ETFs to participate in. In the view of the aforementioned observations, the current
research was begun.

The research is limited to equities ETFs that track the Nifty 50 index. The analysis was confined
to ETFs that track the Nifty 50 index and are generated from equities and are listed on the NSE.
The research is limited to the months of April 2017 and March 2022.

OBJECTIVES

Present study is intended –

1. To monitor the efficiency of chosen ETFs using a variety of performance metrics.

2. To analyses the performance of selected ETFs in relation to its Nifty 50 index.

RESEARCH METHODOLOGY

Data Collection

The study is being conducted to measure the performance of selected ETFs. To achieve this
objective, relevant data has been taken from secondary data sources i.e. NSE India, RBI website.

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Period of the study

The research spans five years, from April 2017-18 to March 2021-22.

Population ,Sample size and Design

There are 86 ETFs schemes (including 27 Equity ETFs, 27 Gold ETFs, 16 World Indices ETFs,
16 Debt ETFs) as per National Stock Exchange. For present analyses, only equity ETFs are
considered.

Out of 27 equity ETFs, only 4 ETFs who are following Nifty 50 index were taken using a
random sample approach.

Descriptive research design is being followed for the present study.

A brief profile of the selected ETFs is given below in the Table 1.

Issuer Name Name Symbol Underlying Launch Date

Kotak AMC Kotak Nifty ETF KOTAKNIFTY NIFTY 50 Index 02-02-2010
Motilal Oswal MOSt Shares M50 NIFTY 50 Index 28-07-2010
AMC M50
Birla Sun life Birla Sun life BSLNIFTY NIFTY 50 Index 21-07-2011
AMC Nifty ETF
UTI AMC UTI Nifty ETF UTINIFTETF NIFTY 50 Index 03-09-2015
Source: www.nseindia.com

Research tools for analysis

The data are analyzed with the help of various tools like average returns, standard deviation,
beta, Sharpe ratio, Treynor ratio, and Jensen ratio.

a. Average Returns- the fundamental mathematical mean of a sequence of returns over a

certain time period is the average return. The average return is used by investors and
market analysts to determine a security’s or portfolio’s previous performance. The
average return is often used to determine a company’s portfolio yields.
(https://corporatefinanceinstitute.com)

b. Beta – The ‘beta’ of a mutual fund is one of its most significant aspects. A mutual find’s
beta is a numerical representation of its relative risk; beta can be any amount above or
below zero. Beta offers us a sense of how risky a mutual fund is in comparison to its
benchmark. (https://zerodha.com). A lower beta indicates that the investment has been
less volatile than the benchmark, and a higher beta infers a higher risk investment with a
greater return possibility.

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c. Standard Deviation – Risk can be measured by finding out the magnitude of its deviation
from the expected outcome. SD is the mean variation in a set of data values from its
average (expected outcome). The greater the standard deviation, the higher the stock’s
volatility. Higher the volatility, higher is the risk.

d. Sharpe Ratio – The Sharpe ratio calculates the amount of profit of received per unit of
risk taken. The Sharpe ratio is a measure of how well a fund performs.
(https://zerodha.com)
Fund Return – Risk free return
Sharpe ratio= _______________________________
Standard Deviation of the fund

e. Treynor ratio – It assesses a financial asset’s or a portfolio’s excess returns for each extra
unit of risk taken on by the portfolio. (https://groww.in)
Fund Return – Risk free return
Treynor ratio= _______________________________
Beta of the fund

f. Jensen Ratio – On a risk-adjusted basis, alpha is defined as the mutual fund’s excess
return over the benchmark return. (https://zerodha.com).
Mathematically,
Jensen ratio = (Portfolio return) – (Risk free return + beta * (benchmark return – Risk
free return))

DATA ANALYSIS AND INTERPRETATION

1. Combined Average Returns and Standard Deviation

Nifty 50 has presented an average return of 22.85%, among the selected equity ETFs the
highest average return is given by UTI AMC i.e. 27%. Motilal Oswal AMC and Kotak
AMC gives equal average returns with minor differences i.e. 25.92% and 24.17%
respectively. Birla Sun Life AMC on the other hand gives negative average returns i.e. -
2%.

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 Manager – The British Journal of Administrative Management (TBJAM)
Special Issue, Vol.58, Issue.5

70.00%

60.00%

50.00%

40.00%

30.00%

20.00% Average Returns

10.00% Standard Deviation

0.00%

-10.00%
MOTILAL
KOTAK BIRLA SUN
NIFTY 50 OSWAL UTI AMC
AMC LIFE AMC
AMC
Average Returns 22.85% 24.17% 25.92% -2% 27.00%
Standard Deviation 22.43% 19.56% 23.65% 59.50% 25.84%

Source: Computed by MS Excel

Nifty 50 has showed a standard deviation of 22.43% while among the selected equity
ETFs Birla Sun Life AMC has the highest standard deviation of 59.5%, therefore, is the
riskiest ETF. Kotak AMC has the lowest standard deviation of 19% and is the least risky
ETF among the selected ETFs.
2. Beta

BETA
1.2
1
0.8
Axis Title

0.6
0.4
0.2
0
-0.2
MOTILAL BIRLA SUN LIFE
NIFTY 50 KOTAK AMC UTI AMC
OSWAL AMC AMC
BETA 1 0.029150992 0.210901896 0.078258308 -0.017695822

Source: Computed by MS Excel

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The analysis represents that all the ETFs have beta less than 1 implies that they are
less volatile than Nifty 50 and have market-defensive link.

3. Sharpe Ratio
ETF Sharpe Ratio Rank

Kotak AMC 4.83 1

Motilal Oswal AMC 3.81 2
Birla Sun Life AMC -1.43 4
UTI AMC 3.49 3
Source: Computed by MS Excel

As we all know, the Sharpe Ratio indicates how well a fund has behaved in relation to
the taken risk. A negative Sharpe ratio indicates that a risk-free asset would
outperform an ETF.
According to the study, among the chosen ETFs, Kotak AMC has the best Sharpe
Ratio of 4.83, meaning that it gives the most excess return beyond the risk-free asset
to investors.
4. Treynor Ratio
ETF Treynor Ratio Rank
Kotak AMC 32.46 1
Motilal Oswal AMC 4.27 2
Birla Sun Life AMC -10.91 3
UTI AMC -51.09 4
Source: Computed by MS Excel

As we all know, the greater Treynor ratio, the better the portfolio’s performance. The risk
adjusted return of an ETF with ahigher Treynor ratio is higher than that of one with a
lower Treynor ratio.
Kotak AMC has the highest Treynor ratio i.e., 32.46 means it gives best risk adjusted
return while UTI AMC has the negative Treynor ratio i.e. -51.09 hence it is the least
performer and has a lesser risk adjusted return than that of the other ETFs.

5. Jensen Ratio
ETF Jensen Ratio Rank
Kotak AMC 0.92 1
Motilal Oswal AMC 0.72 2
Birla Sun Life AMC -0.92 3
UTI AMC 0.92 1
Source: Computed by MS Excel

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A positive alpha, as we all know, indicates the fund exceeded its benchmark index. A
negative alpha, on the other hand, would suggest underperformance. ETFs with high
Jensen Alpha ratios are usually suggested to investors.
The greatest Jensen Alpha is 0.92 for Kotak AMC and UTI AMC, while the lowest
Jensen Ratio is -0.92 for Birla Sun Life AMC.

FINDINGS

We calculated different ratios of the data from April 1, 2017 to March 31, 2022 to analysis the
performance of selected ETFs. Findings are as under:-

1. The highest average return is given by UTI AMC i.e. 27%. Motilal Oswal AMC
and Kotak AMC gives equal average returns with minor differences i.e. 25.92%
and 24.17% respectively. Birla Sun Life AMC on the other hand gives negative
average returns i.e. -2%.
2. Birla Sun Life AMC has the highest standard deviation of 59.5%, therefore, is the
riskiest ETF. Kotak AMC has the lowest standard deviation of 19% and is the
least risky ETF among the selected ETFs.
3. The analysis represents that all the ETFs have beta less than 1 implies that they
are less volatile than Nifty 50 and have market-defensive link.
4. According to the study, among the chosen ETFs, Kotak AMC has the best Sharpe
Ratio of 4.83, meaning that it gives the most excess return beyond the risk-free
asset to investors.
5. Kotak AMC has the highest Treynor ratio i.e., 32.46 means it gives best risk
adjusted return while UTI AMC has the negative Treynor ratio i.e. -51.09 hence it
is the least performer and has a lesser risk adjusted return than that of the other
ETFs.
6. The greatest Jensen Alpha is 0.92 for Kotak AMC and UTI AMC, while the
lowest Jensen Ratio is -0.92 for Birla Sun Life AMC.

SUMMARY AND CONCLUSION

The study examined four ETFs against the Nifty 50 index. Investors who want to simply
duplicate the performance of the benchmark can choose from a range of exchange traded funds.
This study employed some fundamental financial measures that each investor should review
before picking which scheme to invest in to ensure that their ris tolerance and projected returns
are correctly balanced. Return and risk analyses, as well as risk adjusted performance indicators,
were used to assess the performance of all four ETFs. When comparing the performance of all
the ETFs over the five years, UTI AMC, Motilal Oswal AMC, and Kotak AMC have showed
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better and superior returns than the Nifty 50. In terms of standard deviation, Birla Sun Life AMC
has the biggest variance, indicating that it is the riskiest ETF of the selected Group. All of the
ETFs has a beta of less than one, indicating that they were less riskier than the Nifty 50 index,
Except for Birla Sun Life AMC, which has negative Sharpe Ratio, all of the ETFs have positive
Sharpe Ratio, indicating that the ETF under study has outperformed arisk-free asset. The Treynor
Ratio of Birla Sun Life AMC and UTI AMC is negative, indicating that the ETFs have
underperformed a risk-free asset. Because all the ETFs have positive Jensen alpha, they have
surpassed the Nifty 50 except Birla Sun Life AMC.

LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH

If they undertake any study in this subject, the researcher has possessed the capability to provide
suggestions and recommendations to help other researchers get more valuable information.

The following are some of the suggestions:-

There are various other ETFs in the Equity Exchange Traded Funds listed on NSE, but only four
are examined for study, namely Kotak AMC, Motilal Oswal AMC, Birla Sun life AMC, and UTI
AMC. Other ETFs might be studied, and or the sample size of the ETFs could be enlarged.

Only a few approaches are adopted for the analyses of performance of ETFs. In addition, the
researcher can further use Information Ratio, Sortino Ratio to generalize their findings.

REFERENCES

 Chandra, P. (2012). Investment Analysis And Portfolio Management (4th ed.). New
Delhi: Tata McGraw Hill Education Private Limited.

 Dhabolkar, P., & Reddy, Y. V. (2019). Evaluating and Tracking Performance of Index
Mutual Funds and Exchange Traded Funds in India . The IUP Journal of Financial Risk
Management , 37-49.

 Esampally, C., & B., A. (2015). A Comparative Study on the Performance of Gold ETF
and Infrastructure ETF as against CNX Nifty Index. An International Journal of
Management Studies , 169-173.

 Hehn, E. (2005). ETFs- A Leading Financial Innovation. In E. Hehn, Exchange Traded

Funds- Structure, Regulation and Application of a New fund Class (pp. 7-8). Berlin:
Springer.

 https://corporatefinanceinstitute.com. (n.d.). Retrieved 06 11, 2022, from

www.corporatefinanceinstitute.com:

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https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/average-
return/

 Mahajan, P., & Saxena, S. (2014). Performance Comparison of Index Funds and ETFs in
India. The Indian Journal of Commerce , 67, 21-35.

 Singh, Y., & Gupta, S. (2009). Performance Of Exchange Traded Funds in India. Indian
Journal Of Accounting , 16-26.

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