Banking Sector Mutual Funds and Term Deposits: Risk-Return Analysis
Savings-psychic Indian people because of their lack of financial awareness mostly believe in putting their hard-earned savings in some term deposits of nationalized banks, post offices, insurance policies and other financial instruments on the hope getting a secured return after a period of waiting. The retail investors, on the other, with little or less financial literacy mostly channelize their savings arbitrarily alleging their destiny. Investment in mutual fund schemes, whose performance is very much associated with the equity market, still remains unwelcome to those common investors because of their earlier experience and psychosis. The key objective of this paper is to evaluate largely the performance of selected banking sector mutual fund schemes using statistical tools like alpha, beta, standard deviation, r-squared, Sharpe ratio, Treynor ratio, Jensen alpha and compare the return from the term deposits scheme after considering the risks associated with those investments. The analysis gives an insight to those market-ignorant retail investors to review their decision before investing as the banking sector mutual fund schemes provides better return than the term deposits during long run. It is perceived that concerted and effective efforts are the need of the hour to implant financial awareness and create a strong foundation of trust amongst investors resulting financial inclusion and gainfully mobilize substantial quantum of savings of them.
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Note: State Bank term deposit rate decided to revise its Retail Term Deposit Rate (Below Rs One crore) w.e.f 08.12.2014[collected from website].
Investopedia.com,“Understanding The Sharpe Ratio”, http://www.investopedia.com/articles/14/sharpe_ratio.asp
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