RISK RETURN ANALYSIS AND COMPARATIVE STUDY OF MUTUAL FUNDS

portfolio, which in turn can be done by identifying highly volatile shares.

Alternatively, these can take advantage by diversification, which goes to reduce the risk if the same return is given to the investor at a reduced risk level, the compensation for risk might seem adequate. The fund manager of HDFC Capital Builder Fund, HDFC Long term Advantage Fund can earn better returns by adopting the marketing timing strategy and selecting the under priced securities.  The fund manager can divide all securities into several asset classes and tries to construct an efficient portfolio based on expected returns, risk, and correlations of indexes representing these asset classes. The investment should be done in the bench mark indexes to get an “efficient” portfolio in such a way that no other combination of these indexes would result in a portfolio with a higher return for a given level of risk. It should be emphasized, however, that this is not a fully efficient portfolio because information about correlations among individual securities within an index and across the indexes is lost in the transition from individual securities to the benchmarks that represent them.  These measures are more useful to investors who are putting their money into one diversified fund and are able to use leverage or invest in the risk-free asset. When the investor is investing in the different funds, the fund’s marginal contribution to the portfolio’s risk and return is more important than its individual security characteristics. To construct an efficient portfolio, an investor must take account of the correlations among the being considered.

It is not advisable to apply just procedure or approach for all situations at least when it comes to investments though the used measures are highly reliable in the studies done on similar veins. Even at this juncture it would still be recommended that instead of going ahead only on the basis of risk and return, other indicators like new projects, sector impact, individual sentiments about companies etc besides ‘common sense and intuition’ may also be looked into.