A project on

MUTUAL FUND VS SYSTEMATIC INVESTMENT

PLAN

submitted to
university of mumbai
in the partial fulfuilment of the B.M.S degree

BY
RIZWAN SHARIF KHAN
roll no 103

under the guidance of

PORF TAUSIF ANSARI

studying at
rizvi educaton societys
rizvi college of arts ,science , & commerce
rizvi edcation complex , bandra [west]
academis year
 DECLARATION

I RIZWAN SHARIF KHAN a student of the TYBMS

class. ROLL NO 103 of the academic year 2016-
2017 studying at RIZVI COLLEGE , hereby declare
that the work done on the project entittle of
MUTUAL FUND VS SYSTEMATIC INVESTMENT
PLAN is true and original to the best of my
knowledge and any reference used in the project
is duly acknowledge.

Date
[RIZWAN SHARIF KHAN]
 CERTIFICATE
This is to certify that RIZWAN SHARIF KHAN of
T.Y.BMS CLASS, ROLL NO 103 of the year 2016-
2017 studying at RIZVI COLLEGE OF ARTS SCIENE
AND COMMERCE ,has succesfully complete the
project entitled MUTUAL FUND VS SYSTEMATIC
INVESTMENT PLAN

Prof. tausif ansari prof. furqan

shaikh
[project guide] [BMS CO-
ORDINATOR]

EXTERNAL EXAMINER POUL R. P.

[PRINCIPAL]
 ACKNOWLEDGEMENT

In an earnest attempt to study the basic and the perplexing details of

my project. I was offered tremendous help and support. Hereby, I extend my sincere gratitude
towards all those who have helped me in this project.

I thank my project Prof. For her invaluable advice

and support that is made it possible to understand various fundamentals of project and also
for her moral support and guidance. Her suggestions definitely helped me to enhance the
nature of my work.

I would like to thank Prof. The co-ordinator of

department of management studies, for giving me an opportunity to work on this project and
all other college authorities for their contribution in this project.
 INDEX

SR NO. TOPIC PAGE NO

1 Executive Summary

2 Literature Review

3 Research Design

Chapter 1 Introduction

1.1 Indian Capital Market

1.2 Investor Psychology And Capacity

Chapter 2 Overview of Mutual Fund

2.1 What Is Meant By Mutual Fund

2.2 Investment By Mutual Funds

2.3 Types of Mutual Funds

Chapter 3 Risk In Mutual Funds

3.1 Are Mutual Funds Suitable For Small

Investor

3.2 Risk in Mutual Funds

Chapter 4 Mutual Funds Works

4.1 How does mutual Funds different from

Portfolio Management

4.2 Mutual Fund under Trapped Market

Chapter 5 Case Study of HDFC Bank

Chapter 6 Introduction

6.1 Systematic Investment Planning

6.2 Best SIP Plan

6.3 Feature

Chapter 7 Overview of Systematic Investment Planning

7.1 Benefits

7.2 Limitations

7.3 Comparison

4 Conclusion

5 Appendices - Questionnaire

6 Bibliography
 LIST OF CHARTS

Chapter No Title Page No

1.1 How many Mutual Funds do you have ?

2.1 How do Mutual Fund works

4.1 Reasons for not investing in Mutual

Funds

4.2 Reasons for investing in Mutual Funds

6.1 An Example of SIP

 LIST OF TABLES

Chapter No Title Page No

2.1 Determining the NAV

Profit and Loss Account

Balance sheet

5.1 Comparison of SIP and One Time

Investment

7.1 Rupee Cost averaging

7.2 Comparison between SIP and Lump Sum

 EXECUTIVE SUMMARY

SIP is a method of investing a fixed sum, regularly, in a mutual fund. It is very similar
to regular saving schemes like a recurring deposit. An SIP allows you to buy units on a given
date each month, so that you can implement an investment / saving plan for yourself. Once
you have decided on the amount you want to invest every month and the mutual fund scheme
in which you want to invest, you can either give post-dated cheques or ECS instruction, and
the investment will be made regularly. SIPs generally start at minimum amounts of Rs. 1000
per month and the upper limit for using an ECS is Rs. 25000 per instruction. Therefore, if you
wish to invest Rs. 100,000 per month, you may need to do it on 4 different dates.

In few years Mutual Fund has emerged as a tool for ensuring ones financial well
being. Mutual Funds have not only contributed to the India growth story but have also
helped families tap into the success of Indian Industry. As information and awareness is
rising more and more people are enjoying the benefits of investing in mutual funds. The main
reason the number of retail mutual fund investors remains small is that in nine in ten people
with incomes in India do not know that mutual fund exist.

But once people are aware of mutual fund investment opportunities, the number who
decide to invest in mutual funds increases to; as many as one in five people. The trick for
converting a person with no knowledge of mutual funds to a new Mutual Fund customer is to
understand which of the investors are more likely to understand which of the potential
investors are more likely to buy mutual funds and to use the right arguments in the sales
process that customers will accept as important and relevant to their decision.

To understand the concept of investment plan in mutual fund a mutual fund is a type
investment company that invests in a diversified portfolio of securities. To evaluate the
investment processor of the mutual fund have to contact a distributer / agent of mutual fund
to study the benefits of SIP : SIP is one of the most popular methods of investing. A person
can invest in SIP without any fear of high risk. The data for this report collected on basic of
both primary data as well as secondary data. A questionnaire was constructed for survey to
analysis the SIP in mutual fund for the investors. This study will help to understand
investment pattern of the investor and also the limitations which are there in SIP.
 LITERATURE REVIEW

A large number of studies on the growth and financial performance of Mutual Funds
have been carried out during the past, in the developed and developing countries. Brief
reviews of the following research works reveal the wealth of contributions towards the
performance evaluation of mutual fund, market timing and stock selection abilities of fund
managers. In India, one of the earlier attempts was made by National Council of Applied
Economics Research (NCAER) in 1964 when a survey of households was undertaken to
understand the attitudes towards and motivation for saving of individuals. Another NCAER
study in 1996 analyzed the structure of the capital market and presented the views and
attitudes of individual shareholders. SEBI-NCAER Survey (2000) was carried out to estimate
the number of households and the population of individual investors, their economic and
demographic profile, portfolio size, and the investment preference for equity as well as other
saving investment instruments. Data was collected from 30, 00, 000 geographically dispersed
rural and urban households. Some of the relevant findings of the study are : Households
preference for instruments match their risk perception; Bank Deposit has an appeal across all
income class; 43% of the non investor households equivalent to around 60million households
apparently lack awareness about stock markets; and, compared with low income groups, the
higher income groups have higher share investments in Mutual Funds signifying that Mutual
Funds have still not become truly the investment vehicle for small investors.

2
 RESEARCH DESIGNS

It took me around 2 months to complete this project. I have been through each
website thoroughly and assembled all the useful information and finally segregated all
unwanted topics and kept which is purposeful. I also referred newspapers like Economic
Times and Times of India and also went through some business magazines.

For completing the survey it took me 15 days. And finally I completed the project
within the span of 2 months. I also did the survey of 30 people in which I gave them a
questionnaire to fill up. It helped me a lot for my project work.

3
CHAPTER 1 : INTRODUCTION

INDIAN CAPITAL MARKET

Financial market is a market where financial instruments are exchanged or traded and
helps in determining the prices of the assets that are traded in and is also called the
price discovery process.

Financial market can broadly be divided into money and capital market.

Money Market: Money market is a market for debt securities that pay off in the short
term usually less than one year,

Example: the market for 90-days treasury bills.

This market encompasses the trading and issuance of short term non equity debt
instruments including treasury bills, commercial papers, bankers acceptance,
certificates of deposits, etc.

Capital Market:Capital market is a market for long-term debt and equity shares. In
this market, the capital funds comprising of both equity and debt are issued and
traded. This also includes private placement sources of debt and equity as well as
organised markets like stock exchanges. Capital market includes financial instruments
with more than one year maturity.

4
Significance of Capital Markets:-
A well functioning stock market may help the development process in an economy
through the following channels:

1. Growth of savings,
2. Efficient allocation of investment resources,
3. Better utilization of the existing resources

In market economy like India, financial market institutions provide the

avenue by which long-term savings and mobilized and channelled into investments.
Confidence of investors in the market is imperative for the growth and development
of the market. For any stock market, the market Indices is the barometer of its
performance and reflects the prevailing sentiments of the entire economy. Stock Index
is created to provide investors with the information regarding the average share price
in the stock market. The ups and downs in the index represent the movement of the
equity market. These indices need to represent the return obtained by typical
portfolios in the country. Generally, the stock price of any company is vulnerable to
three types of news:

Company specific
Industry specific
Economy specific

An all shares index includes stocks from all the sectors of the economy and thus
cancels out the stock and sector specific news and events that affect stock prices, (law
of portfolio diversification) and reflect the overall performance of the company/equity
market and the news affecting it.

The most important use of an equity market index is as a benchmark for a portfolio
stocks. All diversified portfolios, belonging either to retail investors or mutual funds.
The common stock index as a yardstick for their returns. Indices are useful in modern
financial application of derivative.

5
 INVESTORS PSYCHOLOGY AND CAPACITY

Although cognitive and emotional weakness affects all people, traditional and
standard finance ignore these biases because it assumes that people always behave
rationally. One of the central propositions of financial theory for the past three
decades is that markets are efficient. Efficiency means that the price of each security
coincidences with fundamental value, even if some investors commits errors due to
biases or frame dependencies (eg...how they view a decision problem.). Although a
case can be made against efficient markets, existing evidence does not generally
support the ability of investors to consistently produce excess returns. That is,
although market inefficiencies may exist, they are generally not easy to explicit. If
stock prices are efficient and transaction cost and taxes are ignored, investors should
not do serious harm to their wealth if they trade frequently or follow specific investing
strategies. Therefore traditional finance has developed in a normative manner. As
consequences traditional finance typically does not focus on actual investor behaviour
and its consequences.

Alternatively, behavioural finance examines how real people actually behave

in financial settings and is, therefore, descriptive, Behavioural finance is what Thaler
(1993) calls open minded finance because it entertains possibility that some agents
in the economy behave less than fully rationally some of the time. At the most general
level, behavioural finance is the application of psychology to financial behaviour.
Proponents of behavioural finance is contend that people may not always be
rational, but they are always human. Thus behavioural finance exposes the
irrationally of investors in general and shows human fallibility in competitive
markets. By combining psychology and finance researchers hope to better explain
certain features of securities markets and investors behaviour that appear irrational.

6
 HOW INVESTORS THINK????

In this section we focus on various rules of thumb or heuristics that can lead
the psychology biases and systematic errors involving how investors think. To
decrease the amount and complexity of informative requiring analysis, the brain filters
out some information and uses shortcuts to decrease the complexity of other
information. These shortcuts allow the brain to generate estimates before fully
digesting all the available information. This process called heuristic simplification,
causes several psychological biases for the investor. For example, people generally
think they are better decision makers than they really are. In addition, they seek
information that confirms this belief. This ongoing self-deception leads to decision
leads to decision errors. Individuals become too confident

That their opinions are correct and thus place too much value on their previous
decision.

MOOD AND OPTIMISM: -

Mood affects the way investors analyze and make judgements. People in a
good mood make more optimistic judgements than people in a bad mood, being in a
bad mood makes investors more critical. This, in turn helps them to engage in more
detailed analytical activity. Alternatively, people in good moods tend to use less
critical modes of information processing. This mood-effect particularly affects
relatively abstract judgements where people lack full or accurate information. Of
course, this situation describes the investments environment. Bad moods call for
critical analysis in stock market judgements whereas good mood cause decision
without the detailed analysis. Therefore making investments decisions while in a bad
mood may not have a detrimental effect on an investors portfolio. However, if a good
mood causes an investor to buy a stock without conducting a proper analysis, the
investor may regret this decision in the future.

7
SOCIAL EFFECTS ON INVESTORS: -

To date, most of the behavioural finance research on investor decision making

has focused on the investors emotions and psychology. Yet many social interactions
probably affect these emotions and may also directly affect investment decision. In
short, people learn through interacting with other people. That is they watch the
behaviour of others to interpret their beliefs. The model of Elliion and Pundenberg
(1995) illustrate the importance of talking as way to obtain information and detect the
emotional reactions of others, which help from opinions. Indeed, this observational
leaning to the informational cascades that are the bases of some investor herding
models.

8
How many Mutual funds do Indians Have?

9
CHAPTER 2:
OVERVIEW OF MUTUAL FUNDS
WHAT ARE MUTUAL FUNDS?

Mutual funds are a vehicle for retail and institutional investor to benefit from the
capital markets. They offer different kinds of schemes to carter to various types of investors,
retail, companies and institutions. Mutual fund schemes are offered to investors for the first
time through a New Fund Offering (NFO). Thereafter, close-ended schemes stop receiving
money from investor, though these can be bought on the stock exchange (s) where they are
listed. Open-ended schemes sell and re-purchase their units on an ongoing basis. Know Your
Client (KYC) process is centralized in the mutual fund industry. Therefore, the Investor
needs to complete the formalities only one with the designated KYC service provider. The
KYC confirmation thus obtained is valid for investment with any mutual fund.

A feature of mutual fund schemes is the low minimum investment amount as

low as Rs. 1,000 for some schemes. This makes it possible for small investors to invest. The
expenses ratio (which is not more than 2.5% in many schemes, especially liquid and index
funds and goes below 0.05% in some schemes)being low also helps in making mutual funds a
good instrument for building wealth over a long term. Mutual funds are closely regulated by
the securities and Exchange Board of India (SEBI). The applicable regulation is the SEBI
(Mutual Funds) Regulations, 1996. Under the regulations, the Board of Trustees performs an
important role in protecting the interests of investors in mutual fund schemes. Another
protective feature is the checks and balances in the mutual fund system. For instance, while
the Asset Management Company (AMC) handles the investment management activity, the
actual custody of the investment is with an independent custodian. Investors records are
mostly maintained by registrar and transfer agents (RTAs), who offer their services to
multiple mutual funds. In some cases, the AMC itself maintains the investor records. SEBI
also regulates the investments that mutual fund schemes can make. For instance, commodities
other than gold are not permitted. Even within the permissible investments, SEBI has
prescribed limits for different kinds of schemes. Rigorous standards of disclosure and
transparency make sure that investors get a complete view of their investments on a regular
basis. Consolidated Account Statements, Mandated by SEBI, ensure that the investors
investments across various mutual funds in the industry are consolidated into a single
monthly statement. Even those investor who do not transact, receive their statement of
Accounts every 6 months.

10
INVESTMENST BY MUTUAL FUNDS???

EQUITY:

A scheme cannot invest more than 10% of its assets in a single companys
shares or share-related instruments. However, sector funds can have a higher investment in a
single company, as providing their Scheme Information Document. Index funds invest as per
the index they track. In the index construction, a single company may have a weight age
higher than 10%. In such cases, the higher single company investment limit is applicable. The
10% limit is applicable when the scheme invests. Breach of the limit on account of
subsequent market movements is permitted. For example, a scheme with net assets of Rs.
100Crores may have invested Rs. 10crores in a single company, XYZ. Later on account of
markets movements, the net assets of the scheme increase to Rs. 102crores, while the value of
the investment in XYZ company goes up to Rs. 11Crores. XYZ company now represents Rs.
11crores / Rs. 102crores i.e. 10.78%. The Scheme is not obliged to sell any shares of XYZ
Company to fail within the 10% limit. However, fresh purchases of XYZ companys shares
would need to be suspended, until the investment value goes below 10% of the schemes net
assets.

11
DEBT:

Mutual fund schemes can invest in debt securities, but they cannot give loans.

A scheme cannot invest more than 15% of its net assets in debt instruments issued
by a single issuer. If prior approval of the boards of the Assets Management
Company and Trustees is taken, then the limit can go up to 20%. If the paper is
unrated, or rated below investment grade, then a lower limit of 10% is applicable.
These limits are exempted for money market securities and government securities.
However, the exemption is not available is not available for debt securities that are
issued by public bodies/institutions such as electricity boards, municipal
corporations, state transport corporations, etc. guaranteed by either state or central
government.

Investment in unrated paper and paper below investment grade is subject to an

overall cap of 25% of net assets of the scheme.

Liquid funds can only invest in money market securities of up to 91 days maturity.

The following regulations are applicable for investment in short term deposits:

a. Short term means not more than 91 days

b. The deposits can only be placed in scheduled banks
c. The deposits are to be held in the name of the specific scheme
d. Liquid funds can only invest in money market securities of up to 91 days
maturity
e. The following regulations are applicable for investment in short term
deposits:
f. short term means not more than 91 days
g. The deposits can only be placed in scheduled banks
h. The deposits are to be held in the name of the specific scheme
i. Not more than 15% of the net assets of the scheme can be placed in such
short term deposits. With the permission of trustees, the limit can go up to
20% short term deposits with associate and sponsor scheduled commercial
banks together cannot exceed 20% of the total short term deposits placed the
mutual fund.

12
GOLD:

Gold ETFs invest primarily in gold and gold-related instruments.

Gold-related instruments are defined to mean instruments that have gold as the underlying
and specified by SEBI. If the gold acquired by the gold exchange traded fund scheme is not
in the form of standards bars, it is to be assayed and converted into standard bars which
comply with good delivery norms of the London Bullion Market Association (LMBA). Until
the funds are deployed in gold, the funds may invest in short term deposits with scheduled
commercial banks. The fund may also maintain liquidity, as disclosed in the offer document
to meet.

INTERNATIONAL INVESTMENTS:

Indian mutual fund scheme are permitted to take exposure to the following international
investment:

American Depository Receipts (ADRs) and Global Depository Receipts (GDRs)

issued by Indians and foreign companies.

Equity of overseas companies listed on recognized stock exchange overseas.

Initial and follow on public offerings for listing at recognized stock exchanges
overseas.

Government securities issued by countries that are rated not below investment Grade.

Foreign debt securities (short term as well as long term with rating not below
investment grade by accredited/registered credit rating agencies) in countries whose
currencies are fully convertible.

Money market instruments rated not below investment grade.

Repos in form of investment, where the counterparty is rated investment grade or

above. However, borrowing of funds through repos is not allowed.

Derivatives traded on recognized stock exchange overseas only for hedging and
portfolio balancing with securities as the underlying.

13
 Short term deposits with banks overseas where the issuer is rated not below
investment grade.

Units/securities issued by overseas mutual funds or unit trusts, registered

with overseas regulators, that invest in: The above securities; or Real estate investment trusts
(REITS) Listed on recognized stock exchanges overseas unlisted overseas securities not more
than 10% of the schemes net assets.

The mutual fund needs to appoint a dedicated fund manager for overseas
investment (other than for investment in units / mutual funds / unit trusts). The mutual fund
industry is permitted to invest up to USD 1Bn, in overseas ETFs that invest in securities. A
single mutual fund cannot invest more than USD 50Mn.

14
15
 NET ASSET VALVE

NAV means Net Asset Value. The investments made by a mutual fund are
marked to market on daily basis. In other words, we can say that current market value of such
investments is calculated on daily basis. NAV is arrived at after deducting all liabilities
(except unit capital) of the fund from the realizable value of all assets and dividing by
numbers of units outstanding. Therefore, NAV on a particular day reflects the realizable
value that that the investor will get for each unit if the scheme is liquidated on that date. This
NAV keeps on changing with the changes in the market rates of equity and bond markets.
Therefore, the investments in mutual funds is not risk free, but a good managed fund can give
you regular and higher returns than when you can get from fixed deposits of a bank etc.

Determining the NAV

Net assets represent the unit-holders funds in the scheme. If all the schemes
assets are realized, and the schemes dues other than to unit-holders are paid out, what
remains are the net assets of the scheme. This amount, divided by the number of units, is the
Net Asset Value (NAV) per unit.

The concept can be easily understood, considering the balance sheet about of a scheme viz.
listing of its assets and liabilities.

Suppose a close-ended scheme mobilized Rs. 100Crore during its NFO. It would have issued
10crore units of Rs. each. The money would be in the bank. The schemes balance sheet
would read as follows:

LIABILITIES RS. CR ASSETS RS. CR

Unit capital 100 Balance in bank 100

10 Cr units of 10 each

Total liabilities 100 Total Assets 100

NAV of the scheme at this stage would be Rs. 100crore/10crore units i.e. Rs. 10 per unit.

16

The scheme invests Rs. 80crore in equity shares. The market value of the investment is Rs.
80.25crore at the end of the day. The idle funds of the scheme have been kept in the bank to
earn interest at 8% p.a. As per the scheme Information document, investment advisory fee is
chargeable at 1.25% p.a. ; other recurring expenses limit is 1.25% p.a.
Let us build the schemes profit and loss account.

Rs. Crore

Income

Interest accrued on bank deposits 0.022

Expenses -

Recurring expenses 0.003

Investment advisory fees 0.003

Profit before unrealized gains 0.016

Unrealized gains 0.0250

Profit of the scheme 0.266

ADVANTAGES

1. Advanced portfolio Management

You pay a management fee as a part of your expenses ratio, which is used to hire a
professional portfolio manager who buys and sells stocks, bonds etc. This is relatively
small price to pay for help in the management of an investment portfolio
.
2. Dividend Reinvestment
As dividend and other interest income is declared for the fund, it can be used to
purchase additional shares in the mutual fund, thus helping your investment grow.

3. Risk Reduction (safety)

A reduced portfolio risk is achieved through the use of diversification, as most of
mutual funds will invest in anywhere from 50 to 200 different securities depending on
their focus. Several index stock mutual funds own 1,000 or more individual stock
positions.
17
4. Convenience and fair pricing
Mutual funds are common and easy buy. They typically have low minimum
investments (some around $2,500) and they are traded only once per day at the
closing net asset value (NAV). This eliminates price fluctuation throughout the day
various arbitrage opportunities that day traders practice.
 DISADVANTAGES

1. High Expenses Ratios and sales charges

If youre not paying attention to mutual fund expenses ratios and sales charges, they
can get out of hand. Be very cautious when investing in funds with expense ratio
higher than 1.20%, as they will be considered on the higher cost end. Be weary of
12b-1 advertising fees and sales charges in general. There are several good fund
companies out there that have no sales charges. Fees reduce overall investment
returns.

2. Management Abuses
Churning, turnover and window dressing may happen if your manager is abusing his
or her authority. This includes unnecessary trading, excessive replacement and selling
the losers prior to quarter-end to fix the books.

3. Tax Inefficiency
Like it or not, investors do not have a choice when it comes to capital gain payouts in
mutual funds. Due to the turnover, redemptions, gains and losses in security holdings
throughout the year, investors typically receive distributions from the fund that are an
uncontrollable tax event.

4. Poor Trade Execution

If you place your mutual fund trade anytime before the cut-off time for same-day
NAV, youll receive the same closing price NAV for your buy or sell on the mutual
fund. For investors looking for faster execution time, maybe because of short
investment horizons, day trading, or timing the market, mutual funds provide a weak
execution strategy.

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TYPES

A common man is so much confused about the various kinds of Mutual

Funds that he is afraid of investing in these funds as he cannot differentiate between various
types of Mutual Funds with fancy names. Mutual Funds can be classified into various
categories under the following heads:

(A) ACCORDING TO TYPE OF INVESTMENTS:-

While launching a new scheme, every Mutual Fund is supposed to declare in the
prospectus the kind of instrument in which it will make investments of the funds
collected under the scheme. Thus, the various kind of Mutual Fund schemes as
categorized according to the type of investments are as follows:

a) EQUITY FUNDS / SCHEMES

b) DEBT FUND / SCHEMES ( Also called Income Funds )
c) DIVERSIFIED FUNDS / SCHEMES ( Also called Balanced Funds )
d) GILT FUNDS / SCHEMES
e) MONEY MARKET FUNDS / SCHEMES
f) SECTOR SPECIFIC FUNDS
g) INDEX FUNDS

(B) ACCORDING TO THE TIME OF CLOSURE OF THE SCHEME:

While launching new schemes, Mutual Funds also declare whether this will be an
open ended scheme (i.e. there is no specific date when the scheme will be closed) or
there is a closing date when finally the scheme will be wind up. Thus, according to the
time of disclosure schemes are classified as follows:

(a) OPEN ENDED SCHEMES

(b) CLOSE ENDED SCHEMES

Open ended funds are allowed to issue and redeem units any time during the life
of the scheme, but close ended funds cannot issue new units except in case of bonus or right
issue. Therefore, unit capital of open ended funds can fluctuate on daily basis (as new
investors may purchase fresh units), but that is not the case for close ended schemes. In other
words we can say that new investors can join the scheme by directly applying to the mutual
fund at applicable net asset value related prices in case of open ended schemes but not in case

19

of close ended schemes. In case of close ended schemes, new investors can buy the units only
from secondary markets.
 (C) ACCORDIND TO TAX INCENTIVE SCHEMES:
Mutual Funds are also allowed to float some tax saving schemes. Therefore,
sometimes the schemes are classified to this also:

(a) TAX SAVING FUNDS

(b) NOT TAX SAVING FUNDS / OTHER FUNDS

(D) ACCORDING TO THE TIME PAYOUT:

Sometimes Mutual Fund schemes are according to the periodicity of the pay outs
(i.e. dividend etc.).

The\categories are as follows:

(a) DIVIDEND PAYING SCHEMES

(b) REINVESTMENT SCHEME

The mutual fund schemes come with various combinations of the above categories.
Therefore, we can have an Equity Fund which is open ended and is dividend paying plan.
Before you invest, you must find out what kind of scheme you are being asked to invest. You
should choose a scheme as per your risk capacity and the regularity at which to have the
dividends from such schemes.

20
CHAPTER 3: RISK IN MUTUAL FUNDS

ARE MUTUAL FUNDS SUITABLE FOR SMALL INVESTORS??

We have already mentioned that like all other investments in equities and
debts, the investments in Mutual Funds also carry risk. However, investments through
Mutual Funds are considered better due to the following reasons:

Your investments will be managed by professional finance managers who are

in a better positions to assess the risk profile of the investments;

In case you are a small investor, then your investment cannot be spread into
equity shares of various good companies due to high prices of such shares.
Mutual Funds are in a much better position to effectively spread your
investments across various sectors and among several products available in the
market. This is called risk diversification and can effectively shield the steep
slide in the value of your investments.

Thus, we can say that Mutual Funds are better options for investments
as they offer regular investors a chance to diversify their portfolios, which is
something they may not be able to do if they decide to make direct investment in
stock market or bond market. These are particularly good for small investors who
have limited funds and are not aware of the intricacies of stock markets. For
example, if you want to build a diversified portfolio of 20 scrips, you would
probably need Rs 2 00,000 to get started (assuming that you make minimum
investment of Rs 10000 per scrip). However, you can invest in some of the
diversified Mutual Fund Schemes for a low as Rs. 10,000/-

21
WHAT ARE THE RISK BY INVESTING FUNDS IN MUTUAL
FUNDS???

We are aware that investments in stock market are risky as the value of our
investments goes up or down with the change in prices of the stocks where we have invested.
Therefore, the biggest risk for an investor in Mutual Funds is the market risk. However,
different Schemes of Mutual Funds have different risk profile, for example, the Debt
Schemes are far less risk than the equity funds. Similarly, Balance Funds are likely to be
more risky than Debt Schemes, but less risky than the equity schemes.

22
CHAPTER 4:

HOW DOES A MUTUAL FUNDS SCHEME DIFFERENT FROM A

PORTFOLIO MANAGEMENT SCHEME???

In case of Mutual Fund schemes, the fund of large number of investors is pooled to
form a common investable corpus and the gains / losses are same for all the investors during
that are given period of time. On the other hand, in case of Portfolio Management Scheme,
the funds of a particular investor remain identifiable and gains and losses for that portfolio
are attributable to him only. Each investors funds are invested in a separate portfolio and
there is no pooling of funds.

MUTUAL FUNDS ARE UNDER TAPPED MARKET .

REASONS FUNDS ARE UNDER TAPPED MARKET ...

Despite being available in the market for over two decades now with assets under
management equaling Rs. 7,81,71,152 Lakhs (as of 28 February 2010), less than 10% of
Indian households have invested in mutual funds. A recent report on Mutual fund
Investments in India published by research and analysis firm, Boston Analytics, suggest
investors holdings back from putting their money into mutual funds due to their perceived
high risk and a lack of information on how mutual funds work. This report is based on a
survey of approximately 10,000 respondents in 15 Indian cities and town as of march 2010.
There are 46 Mutual Funds as of June 2013.

23

The primary reason for not investing appears to be correlated with city size. Among
respondents with a high savings rate, close to 40% of those who live in metro and tier 1 cities
considered such investments to be very risky, whereas 33% of those in tier 2 cities said they
did not know how or where to invest in such assets.
24
REASONS FOR INVESTING IN MUTUAL FUNDS

On the other hand, among those who invested, close to nine out of ten respondents
did so because they felt these assets were more professionally managed than other asset
classes. Exhibit 2 lists some of the influencing factors for investing in mutual funds.
Interestingly, while non-investors cite cite as one of the primary reasons they do not invest
in mutual funds, those who do invest consider that they are professionally managed and
more diverse most often as their reasons to invest in mutual funds versus other investments.
A mutual fund is a type of professionally managed collective investment vehicle that pools
money from many investors to purchase securities. While there is no legal definitions of the
termmutual fund, it is most commonly applied only to those collective investments vehicles
that are regulated and sold to the general public. They are sometimes referred to as
investment companies or registered investment companies. Most mutual funds are
open-ended meaning investors can buy or sell shares of the fund at any time. Hedge funds
are not considered a type of mutual fund.

25
 SOME IMPORTANT TERMS:

Some other important Terms Used in Mutual Funds

Sale Price: It is the price you pay when you invest in as scheme and is also called offer
price. It may include a sales load

Repurchase Price: It is the price at which a mutual funds repurchases its units and it may
include a back- end load. This is also called Bid price.

Redemption Price: It is the price at which open-ended schemes repurchase their units
and close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load / Front End Load; It is a charge collected by a scheme when it sells the
units. Also called, Front-End load. Schemes which do not charge a load at the time of entry
are called no-Load schemes.

Repurchase / Back-end Load: It is a charge collected by a Mutual Fund when it buys

back / Repurchases the units from the unit holders.

26
CHAPTER 5: CASE STUDY OF HADFC BANK

ABSTRACT:

Indian Mutual Fund industry has witnesses a structural transformation during

the past many years. Systematic Investment Plans (SIP) is among the most successful
financial innovations grown at a fairly rapid pace in emerging markets and India is no
exception to it. This paper aims at evaluating the performance of SIP plans against one time
investment. HDFC mutual funds return has been compared with HDFC SIP return for last 10
year period from April 1, 2001 to February 28, 2011. For this purpose we have used annual
returns based on NAV (Net Asset Value). CRISIL has been used as proxy for benchmark
return, while annual yields on 364-days Treasury bill as a surrogate for the Risk free rate
Return. The investment performance has been measured in terms of Sharpes Ratio,
Treynors ratio and Jensen Ratio. The Empirical result reported that a SIP plan has performed
better than the one time investment. After that, from the various SIP plans available top five
plans have been found out by doing ranking of the Returns from the various kinds of SIP
plans.

27
SELECTIVE REVIEW OF LITERATURE:

Sen (2009) concluded that the average performance of sample mutual funds
lagged behind the average returns of the market proxy. The research found that the
performance of mutual funds in India support the Efficient Market Hypothesis and the fund
managers do not make us e of any superior information for fund selection. Singh (2003)
calculated that the salaried class people and retired people give maximum weight to past
record of the organization while business class people give preference to liquidity position.
As per scheme wise breakup, out of the total schemes currently operative, income / debt
schemes outnumbered the growth the growth and balanced schemes. Chander (2005) studied
that Investment performance on the stock selection refers to the mangers ability to identify
under or overvalued securities. The author examined the stock selection abilities of
investment managers in India across the fund features as well as the persistence of such
performance. Guha Deb (2008) find that investment style of a fund refers to the combination
of long positions in passive indexes, which would have most closely replicate actual
performance of a fund over a specified time period. The author finds that all domestic asset
classes have generated positive mean montly returns with return and volatility increasing
commensurately. Sethu and Baid (2003) they concluded that the valuation ot the networth of
the AMCs is influenced by the nature of the scheme and the growth rate in AUM envisaged.
They also find that AMCs are not listed. Ansari (2007) concluded that the realation between
the fund size and the mutual fund performance has been an unsettled issue a the empirical
studies have reported mixed results. The study reveals a quadratic relationship between the
size and performance of mutual FUNDS. Gupta (2004) found that sample funds are not
adequately diversified. The author suggested that there is no conclusive evidence, which
suggest that the performance of mutual funds is superior to the market during the study
period.

29
OBJECTIVES:

The objectives of the study are:

To have a comparative analysis of return while investing in mutual funds

via one time investment and SIP as per Sharpe, Treynor and Jensen among all the options
available with special reference to HDFC Mutual Fund Theoretical Framework.

Construct:

To study which investment option whether SIP or One Time Investments, is a

better option.

Variables: There are basically two types of variables, as follows:

Independent variable:

Dependent variable

The following are the variable of the study:

Independent variable

Market Rate of Return

Risk free Rate of Return

Benchmark i.e. CRISIL return

Dependent variable:

NAV of SIP Plan

NAV of On time Investment

Standard Deviation of SIP plan

Standard Deviation of One Time Investment

Moderating variable: HDFC Mutual Funds

30
Research Design:The purpose of this study is descriptive. A descriptive study is
undertaken in order to be able to describe the characteristics of variables of interest in a
situation. In this type of research the researcher has no control over the variables; he can only
report what has happened or what is happening.

Data & Others sources

The sample

The researcher has used a sample of funds of HDFC including SIP & One Time Investment
to study their performance. The choice of the sample is largely based on the availability of
necessary data. Annual return based on NAV (Net Asset Value) has been used for
performance evaluation. The data regarding the sample funds used in the study has been
taken from the Monthly Fact sheet available on company website (www.hdfcbank.com)

Period of study: -
The study period is the ten years period from April 1, 2001 to Feb. 28, 2011. It
is during this period that a major structural changes has taken place in the Indian Mutual
Fund Industry. The period is long enough to draw meaningful inferences.

The Market Proxy: -

For evaluating the investment performance, it is necessary to choose a
benchmark against which the performance of sample fund is compared. The researcher has
used CRISIL as a benchmark as it is widely use index use by both practitioners and
researchers.

31

The Risk Free Proxy: -

 The study has used the annual yields on 364-day Treasury bill as a surrogate
for the Risk free rate of Return. Beta of the fund. The data regarding the Beta of the fund is
taken from the Monthly Fact sheet of the company.

Methodology
Performance Evaluation Measures

The researcher have utilized following measures to evaluate performance: -

A) Sharpe ratio

Sharpe (1966) derived an index of portfolio performance measure, referred to

as reward to variability ratio denoted by Sp. It measures the excess return per
unit of total risk as measured by standard deviation. The Sharpe ratio for
different mutual
Funds, as well as benchmark portfolios, has been computed by using the
following equation:

Sp=Risk premium/Total Risk

= Rp-Rf
S.D.p
Where,
Sp= Sharpe ratio
Rp=Portfolio return
Rf=Risk-free return
S.D.p=Standard Deviation of portfolio

The Sp for benchmark portfolio is Rm-Rf/S.D.m, where S.D. is the standard

deviation of market returns. If Sp of mutual fund scheme is greater than that of
the market portfolio, the fund has outperformed the market. Sharpe ratio is
considered better as it considers the total risk.

32
B) Treynor Ratio

The Treynor reward to volatility ratio measures the excess return per unit of
market (systematic) risk. The Treynor ratio for the sample funds has been
calculated as follows: -

Tp=Risk Premium

Systematic risk

= Rp-Rf/_p

Where,

Tp=Treynor ratio

Rp=return from portfolio

Rf=risk-free return

_p=Beta coefficient for portfolio

As the market Beta is 1, Treynor index Tp for market portfolio is (Rm-Rf)

where Rm is the market return. If Tp of the mutual fund scheme is greater than
(Rm-Rf), then the mutual fund has outperformed the market. The major
limitation of the Treynor ratio is that it ignores the reward for unsystematic
risk.

33
C) Jensen Ratio

This ratio attempts to measure the differential between the actual return earned
on a portfolio and the return expected from the portfolio given its level of risk.

The expected on a portfolio and the return expected as under: -

E (Rp) = Rf+_p (Rm-Rf)

Where,

E (Rp) = expected portfolio return

Rf = risk free return

Rm = return on market index

_p = systematic risk of the portfolio

the differential return is calculated as follow:

_p =Rp-E(Rp)

Where,

_p =Differential return earned

Rp =Actual return earned on the portfolio

E (Rp) = Expected return

If _p has a positive value, it indicates that the superior return has been earned
due to superior management skills.

When _p =0, it indicates neutral performance. It means that the portfolio

manager has done just as well as an unmanaged randomly selected portfolio
with a buy and hold stratergy.

34
RESULTS & DISCUSSION

Measure :

Scheme Rp (one Rp SD (one SD One time SIP

time) (SIP) time) (SIP) investment Return
Return (As per
sharpe)
Tax saver 22.36 31.99 12.23 15.92 30.32 31.62
fund
Equity 22.17 28.64 11.73 15.49 21.88 28.26
Fund
Capital 14.66 20.36 10.14 14.49 14.08 19.95
builder
funder
Growth 24.74 26.57 11.85 13.59 21.67 26.14
Fund

Top 200 30.81 26.5 12.05 15.01 24.24 26.11

Fund

Risk-free return =5.82 (364 days T-bills yield o 28-02-11

35
 Interpretation:

As per Jensen ratio Tax Saver Fund has shown the best
performance. It is 76.21%. The major findings of the study are as under:

Obejective 1:To havea comparative analysis of return while investing in

mutual funds

via

one time investment and SIP as per Sharpe, Treynor& Jensen measure.

Findings

_The comparative analysis of return as per Sharpe, Treynor & Jensen measure

Shows

That the return from the SIP is much better than the return from one time
mode of investment. Under Tax saver fund the return form SIP is 31.62%
while under one time mode of investment it is 30.32%.

Instead of return the amount needed to invest in SIP is also less, so it is

profitable to invest in SYSTEMATIC INVESTMENT PLANS.

Objective 2:To find the Top 5 schemes (SIP) as per Sharpe, Treynor & Jensen
measure among all the option available with special reference to HDFC
Mutual Fund.

Findings

As per all the measures Tax Saver fund has performed best among all the SIP
plans. Equity fund has been ranked as 2 while long term advantage fund,
Growth fund & Top 200 funds has been ranked as 3, 4 & 5.

It shows that the results of all, the schemes as per Sharpe, Treynor & Jensen
measure are same.

36
 CONCLUSION

This paper has aimed at testing the performance of SIP Plans against
one time investment. Using HDFC Bank SIP plans and one time investment
plan as the sample and annual returns based on NAV, the results indicated
that the return from the SIP is much better than the return from onetime
investment mode. In order to get better results from SIP these plans should be
held for long time and the revision of plans to be included in portfolio is
necessary so that the results are better. In order to know about the profitability
of various plans their comparative study & corpus of fund should be studied as
per various analytical measures. By studying the corpus of a fund information
regarding allocation of funds is known and accordingly the decision to invest
in a particular scheme can be taken. Overall, the results reported here are in
consensus with the ones reported earlier from the foreign markets.

37
CHAPTER 6 : SYSTEMATIC INVESTMENT
PLANNING

INTRODUCTION

What is SIP?

SIP or the systematic investment plans are those schemes that require
monthly investment and not investment just once. There are many people in
India who find it extremely difficult to invest just once. It is because of this
reason that these schemes are considered to be greatly helpful. SIP is a word
used many times by mutual Fund Houses and Advisors to clients as the best
form of investing in Equities through Mutual Funds. This form of investing is
best understood in these difficult times (read volatile market) Given below is a
ready reference to guide to SIP

Systematic Investment Plan an SIP entails making regular investments

(generally) in smaller denominations as opposed to making a one-time lump
sum investment. The intention is to capitalize on the volatility in equity
markets by lowering the average purchase cost. While few would dispute the
utility that an SIP can offer, there is a flipside to the same as well. Given
below are the pros and cons of SIP investing. A specific amount is invested for
a continuous period at regular intervals under SIP. SIP is similar to a regular
saving scheme like a recurring deposit. It is a method of investing a fixed sum
regularly in a mutual fund. SIP allows the investor to buy units on a given date
every month. The investor decides the amount and also the mutual fund
scheme. While the investors investment remains the same, more number of
units can be bought in a declining market and less number of units in rising
market. The investor automatically participants in the market swings once the
option for SIP is made.
 38

How do SIP work?

It is the mutual funds that initiated the scheme of the SIP so that it
becomes easy for the people of India to save money on a monthly basis. Every
month a fixed amount of money has to be invested depending on the scheme
that a person has chosen. However, the minimum amount of money that can
be invested in a month varies according to the schemes launched by the
different companies. There are some companies for which the minimum
monthly investment is Rs.500 while there are some companies that allow even
a minimum monthly investment of justRs.50 or Rs.100.

Best SIP Plans:

There are several companies that allow investment in the SIP.

However, the investor has to find out the best plan so that he can get the
maximum return in future. Currently, some of the best SIP plans in India
include:

The Top 10 SIP Plans in India are:

1. Religare Mid N small Cap Fund Growth

2. DSP Blackrock Small and Midcap Fund Growth
3. SBI MSFU Emerging Business Fund Growth
4. HDFC Midcap Opportunities Fund Growth
5. UTI Mastervalue Fund Growth
6. ING Dividend Yield Fund Growth
7. Religare Midcap Fund Growth
8. Canara Robeco Emerging Equities Growth
9. Reliance Equity Opportunities G
10. BNP Paribus Future Leaders Fund
 39

FEATURES: -

SIP is a disciplined way of investing ones money in order to take advantage

of volatility in the market, and thus drawing maximum benefit out of investments over
a long period of time. In SIP, an investor invests a pre-specified amount in a scheme
at pre-specified intervals at the prevailing NAV. By investing through this route the
investor actually ends up with more number of units and hence can get more
returns.whenever he disposes them off. This happens due to the reduction in average
cost of each unit of the scheme that is purchased. SIP helps in averaging out the cost
of purchase and benefit from power of compounding, thereby, creating wealth over
the long run. It greatly combats the uncertainties of the market and reduces the impact
of a highly volatile market condition. Thereby, allowing the investor test out the
waters and build a portfolio one step at a time.

Thus, investors should start investing through Sip, for achieving their long term
financial goals.

AN EXAMPLE OF SYSTEMATIC INVESTMENT PLANNING

 40

CHAPTER 7 : OVERVIEW OF SYSTEMATIC IVESTMENT PLANNING

BNEFITS OF SIP........

1. Lowers the average purchase cost (RUPEE COST AVERAGING)

Perhaps the single most important advantage offered by SIP is the

opportunity to lower the average purchase cost. This is achieved in periods when
equity markets experience a trubulentpatch. Since the investment is fixed, the
investor gains by receiving a higher number of units.

Date Amount NAV Units Total

Jan-07 1000 10 100.00 100.00

Feb-07 1000 20 50.00 150.00
Mar-07 1000 30 33.33 183.33
Apr-07 1000 40 20.00 203..33
May-07 1000 50 25.00 278.33
Jun-07 1000 60 50.00 292.62
Jul-07 1000 70 14.29 292.62
Aug-07 1000 80 12.50 305.12
Sep-07 1000 90 15.38 320.50
Oct-07 1000 100 18.18 338.69
Nov-07 1000 110 20.00 358.69
Dec-07 1000 120 25.00 383.69

Total Invested 12000

Total units consumed 383.69
Average Cost Per unit 31.28
Average Price during the year 44.17

Average Price per unit is significantly lower than the average Price during the
year.
 41

2. Induces disciplined investing

Lack of disciplined investing is one the major reasons for investors not
achieving their financial goals. Often monies kept aside for investment
purpose end up getting used for extraneous purposes. As a result, the
investor is even further divorced from his goals. An SIP ensures that
the investors continues to be invested in a disciplined manner and
thereby stays on course to achieve his financial goals.

3. Lighter on the wallet

An often-heard excuse for not investing in lack of funds. SIP takes care
of this problem by lowering the minimum investment amount. While
the minimum investment amount for a lump sum investment in a
diversified equity fund could typically be Rs. 5,000, for an SIP it can
as low as Rs. 500. As a result, investing via the SIP route becomes
lighter on the wallet.

4. Make market timing irrelevant

Timing the market ranks as a popular pastime. Investors have an

inexplicable urge for timing markets and trying to get invested when
markets have bottomed out. Its a different matter that timing markets
to perfection and doing so consistently is beyond most investors. An
investment via the SIP route makes market timing irrelevant.

42
 LIMITATATIONS OF SIP.....

1. In rising markets :

An SIP could fail to deliver on its proposition of lowering the average

purchase cost, if equity markets rise in a secular manner. Such a scenario is
fairly possible over shorter periods. As a result, investing via an SIP could
prove to be more expensive vis-a- vis a lump sum investment. Hence, the
solution lies in opting for an SIP that runs over an appropriate timeframe, say
at least 12-24 months.

2. A directionless SIP

Here we are referring to an SIP that is not a part of an investment plan

or an aimless SIP. It should be understood that an SIP is not an end; instead,
it is the means to achieve an end.

Hence, the SIP should form part of an investment plan aimed at

achieving a predetermined objective.

3. An SIP is the wrong fund :

Investing via the SIP mode doesnt improve the prospects of a wrong
fund. A poorly managed fund stays that irrespective of the investment mode.
An SIP will not eliminate its shortcomings.

Hence, the key lies in first selecting a well-managed fund that is right
for the investor and then investing in it via an SIP

As can be same, the SIP mode of investing has a fair number of advantages to offer;
conversely, there can be instances when it may not deliver as expected. Investors on their part
should make well-informed investment decisions after acquainting themselves of both the
pros and cons.

43
` COMPARISON BETWEEN LUMPSUM AND SIP

Cost-averaging has been one of the most popular approaches to invest

in stocks or mutual funds worldwide and financial planners swear by it.
Pioneered in the 1940s in the U.S. (hence often referred to as dollar-cost
averaging) and popularized by the 401 (k) systems, the approach also
commonly called the systematic investment plan (SIP) in India requires an
individual to invest set amounts into a portfolio of securities at regular periods.

In India, the SIP, found its way into the investing lexicon in the early
2000s but after the experience with the so-called hot retail money in the pre-
2008 boom and the subsequent intemperate redemptions during the financial
crash, mutual funds have started promoting SIPs in a big way in a bid to attract
more long-term, sticky capital.

The idea of an SIP is simple and forceful : it, by default, not only paves
the way for regular investments, but also, thanks to forcing a present amount,
eliminates the behavioural greed and fear cycle which could otherwise make
the investor over-or under-ivest during up or down markets. DCA
underperforms LSI in an eye-opening research that has taken the global
financial-planning industry by a bit of a storm, a study by mutual fund giant
Vanguard showed that lump-sum investing (LSI) outperformed dollar-cost
averaging (DCA) two-thirds of the time.

In the simulation, researchers picked $1 million and invested it into a

portfolio either via LSI or drip-fed the amount into the same portfolio through
DCA over the course of 6, 12, 18, 24 and 30months and both portfolios were
held for a period of 10 years. In order to create as many scenarios as possible,
the researchers started with portfolios going back to 1926 in the U.S., 1976 in
the U.K. and 1984 in Australia and tested a variety of allocations ranging from
all-stock to 60:40 stock:bond to all-bond and looked up the result for rolling
10-years periods (that is, from January 1926 to December 1935 followed by
January 1927 to December 1936 and so on).

44
 The conclusion: LSI portfolios outperformed DCA portfolios 66% of
the time for 100% equity, 67% for 60:40 stock : bond and 65% for 100% bond
in the U.S. Similar results were seen across the U.K. and Australia data.
Takeaways the results of the study werent surprising as markets have
historically tended to move upwards over long durations of time, so the cash
that waits to be invested in the

DCA approach has a greater probability of losing out on gains than

improving cushion in a downtown.

Not surprisingly, authors of the study concluded that DCA works best
when the start of the investment horizon co-incides withmarket peaks as the
investor is able to buy more investment, which would face a bigger immediate
loss from which it may take longer to recover. Of the 1021 hypothetical
portfolios they analysed in the U.S., 229 LSI portfolios faced the prospect of a
loss at the end of 10years, compared to only 180 for DCA, meaning the latter
helps insulate better from downtowns. But they added that even as the short-
term fluctuations were likely greater in LSI portfolios, investors must
remember that the relative insulation from volatility could also result in
sacrificing greater portfolio gains.

They finally stated that if markets are trending upward, its logical to
implement a strategic asset allocation as soon as possible because it should
offer a high long-run expected return than cash. Investor Return is the catch
while being an expansive study, the Vanguard research only does a historic
analysis of various possible scenarios and should not become a reason to
advocate LSI over DCA.

The simplest reason for this being the biggest virtue of DCA is it
eliminates the need on the investor to try and guess where the markets are
trending 9to quote the authors)whereas LSI involves timing the market,
something that most investors have been shown to historically do woefully.
Thus, the angle which the Vanguard study does not take into account is
capital-weighted return.

45
 Lets illustrate with an example. A fund with a NAV of Rs.100 rises
10% in one year and falls 50% the next. At the end of year two, the fund
would still be at Rs.100 and would have made a 0% gain. But if the funds
asset size was a meagre Rs.100 crore at the start of the period before it made a
10% gain but swelled to Rs. 1,000 crore at end of year 1 (after the gain) and
before it made a 50% loss, far more investor capital would have been lost in
those two years, even as the statistical net return after two years was 0%. ( At
Morningstar, we call the concept Investor Return data is available, we have
seen a considerable difference between funds stated returns over different
time periods and actual capital-weighted Investor Returns).

So give an the average investor $1 million or any amount to invest via

lump sum and he is more likely to put it to work at the wrong time, that is,
around the peak of a euphoric market when valuations are rich and the
investment is more likely to lose money rather than at trough of a bear market
when recent returns have been poor but compellingly-cheap valuations will
likely result in greater future gains. (Inflows into stocks/stock mutual funds at
the height of the 2007 bull run compared to outflows after the 2008 crash bear
testimony to this point). Had the Vanguard study taken into account capital-
weighted return rather than stated returns, the picture would have likely been
different and in favour of DCA and not LSI. So even as the SIP may have held
the investor form investing in one go at the height of the downtown in January
2009 with the market trading at a price-to-earnings ratio of only 10 and
making a killing, it also stopped him from going all-in in January 2008 when
stocks were above 25 times earnings. And, on average, investors are prone to
taking the latter decision more often than the former.

46
 Months Lump Units SIP Units Unit
Sum Purchased Purchased Price
1 1000 1000 1000 100 10
2 - 1000 105.3 9.5
3 - 1000 114.3 8.8
4 - 1000 115.6 8.7
5 - 1000 118.3 8.5
6 - 1000 125 8
7 - 1000 117.6 8.5
8 - 1000 107.5 9.3
9 - 1000 95.2 10.5
10 - 1000 90.9 11
Total 10000 1000 10000 1089.8
Investment
Total Rs. Rs.11988
Value 11000

The table shows that at the end of the investment period of 10 months Lump
Sum investment has 1000 units with market value of Rs. 11000, whereas,
investments through SIP has 1090units which has a market value of Rs. 11988.

47
 CONCLUSION

A mutual funds brings together a group of people and invests their

money in stocks, bond, and other securities. The advantages of mutual are
professional management diversification, economies of scale simplicity and
liquidity. The disadvantages of mutual are high costs, over-diversification, possible
tax consequences, and the inability of management to guarantee a superior return.
There are many, many types of mutual funds. You can classify funds based on
asset class, investing strategy, region, etc. Mutual Funds have lots of costs. Costs
can be broken down into ongoing fees (represented by the expense ratio) and
transaction fees (loads). The biggest problems with mutual funds are their costs and
fees. Mutual funds are easy to buy and sell. You can either buy them directly from
the fund company or through a third party. Mutual Fund adds can be very
deceiving.

Also systematic investment planning is a good investment. There are

many people in India who find it extremely difficult to invest just once. It is
because of this reason that these schemes are considered to be greatly helpful. SIP
is word used many times by Mutual Fund Houses and Advisors to clients as the
best form of investing in Equities through Mutual Fund. Investing via the SIP
mode doesnt improve the prospects of a wrong fund. A poorly managed fund stays
that irrespective of the investment mode. An SIP will not eliminate its
shortcomings. Hence the key lies in first selecting a well-managed fund that is right
for the investor and then investing in it via an SIP.

48
CHAPTER 8 :

APPENDICES QUESTIONNAIRE

DEPARTMENT OF BMS

THE M.P.S.P. SINGH COLLEGE OF COMMERCE, ARTS AND SCIENCE

Questionnaire to analyse perception of people for Systematic Investment Planning :

What is your good name

What is your profession ?

In this highly volatile market do you think SIP is destination for investments ?
Yes
No

49
 Which SIP plan do you consider the best ?
Saving
Income Plan

How long would you like to hold your SIP investment ?

1 to 3 years
4 to 6 years
7 to 10 years
More than 10 years

How do you rate the risks associated with SIP plan ?

Low
Moderate
High

Which among the following principles do you consider while selecting a SIP
plan ?
Enquiring about the fund manager
Finding about its past performance
Identifying your own objectives
Other :

50
 What is your annual Income ?
Below Rs. 100000
100000 to 300000
30000 to 500000
Above 500000

Which among the following is the safest investment option ??

Mutual Funds
Systematic Investment Planning

51
 CONCLUSION

DATA INTERPRETATION

DEPARTMENT OF BMS

THE M.P.S.P. SINGH COLLEGE OF COMMERCE, ARTS AND

SCIENCE

1. In this highly volatile market do you think SIP is a destination for

investments ?

Yes 21 70%

No 9 30%

Yes No

30%

70%

52
2. Which SIP plan do you consider the best ?

Saving 15 50%

Income 15 50%

Sales Income

50% 50%

53
3. How long would you like to hold your SIP investment?

1 to 3 15 50%

4 to 6 7 23%

7 to 10 6 20%

More than 7 2 7%

1 to 3 4 to 6 7 to 10 More than 10

7%

20%

50%

23%

54
4. How do you rate the risks associated with SIP plans ?

Low 18 60%

Moderate 9 30%

High 3 10%

Low Moderate High

10%

30%

60%

55
5. Which among the following principles do you consider while selecting a SIP
plan?

Option 1 6 20%

Option 2 9 30%

Option 3 15 50%

Option 1 Option 2 Option 3

20%

50%

30%

56
6. What is your annual income ?

Below 1 Lacs 3 10%

2 to 3 Lacs 9 30%

3 to 5 Lacs 12 40%

Above 5 Lacs 6 20%

Below 1 Lacs 2 to 3 Lacs 3 to 5 Lacs Above 5 Lacs

10%
20%

30%

40%

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 7. Which among the following is the safest investment option ??

Mutual Fund 18 60%

SIP 12 40%

Mutual Fund SIP

40%

60%

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 Bibliography

Reading :

Articles from ECONOMIC TIMES

International Journal of Research in Finance & Marketing

http://www.mairec org

Sahoo (2207), Prediction of Mutual Funds : Use of Neural Network

Technique, The ICFAI

Journal of Applied Finance, Vol. 13, No. 11, 5-14

Jensen (1968), The performance of mutual funds in the period

1945-1964, Journal of Finance, vol. 23, 389-416

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 WEBLOGRAPHY

http://www.ftkmc.com/equities.html (1st September)

http://sites.uci.edu/steoh/files/2012/08/Investor-psychology-in-capital-
markets.pdf (5th September)

http://www.allbankingsolutions.com/banking-tutor/Mutual-funds-in-
India.htm (8th September)

http:/www.sebi.gov.in/circulars/2007/ciroverseas.pdf (11th September)

http://www.allbankingsolutions.com/Banking-Tutor/Mutual-funds-in-
India.htm (16th September)

http://articles.economictimes.indiatimes.com/2011-08-28/news/29938361-
1-mutual-funds-small-investors-value-stock (20th September)

http://www.rediff.com/money/2007/apr/03mfseries.htm (25th September)

http://www.studymode.com/essys/Performance-of-Mutual-Funds-Case-
Study-570722.html (28th September)

http://www.investopedia.com/terms/s/systematicinvestmentplan.asp(30th
October)

http://en.wikipedia.org/wiki/Systematic-Investment-Plan (6thOctober)

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