CHAPTER 1

1.1 Introduction to Mutual Funds

Mutual fund is a pool of funds which is divided into units of equal value and sold to
investing public and the funds so collected are utilized for collective investments in
various capitals and money market instrument. In today’s market people invest money
to gain more. So when they take into account, they mostly look out for Investment
Company where they can get more income.

Investment companies can be classified into closed-end and open-end investment

companies. Closed-end is when it is readily transferable in the market. Open-end
funds sell their own shares to investors and ready to buy back their old shares. If we
talk about the investment options today, in India we have so many investment
companies like UTI, LIC etc., all have their own special ways of servicing the
customers. The investors also feel that they are worth to be the part of that company.
These days’ people mainly look for avoiding tax so normally they look out for some
investments which can help them in doing so. When it comes to this point of view,
people mainly look out for mutual fund.

Mutual fund is a trust at law; it is a special type of managed, pooled portfolio

financial company or financial service organization that sells shares/units/stocks in
itself, to the public to obtain its resources and it invests the savings so mobilized or
pooled in a large, diversified, & sound portfolio of equity shares, bonds, money
market instruments etc., Redeemable trust certificates are sold to investors at net asset
value (NAV) plus a small commission. All interest/dividend and principal repayments
are distributed to the holders of the certificates.

Mutual Funds are a vehicle for retail and institutional investors to benefit from the
capital markets. They offer different kinds of schemes to cater 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 investors, though these can be bought on
the stock exchanges where they are listed. Open-ended schemes sell and re-purchase

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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
once 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
expense 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 the long term.

Mutual funds are closely regulated by the Securities & Exchange Board of India
(SEBI). The applicable regulation is the SEBI (Mutual Fund) 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 investments is with an independent custodian. Investor records
are mostly maintained by the 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 investor’s investments across various mutual funds in the
industry are consolidated into a single monthly statement. Even those investors, who
do not transact, receive their statement of accounts every 6 months.

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1.2 CHARACTERISTICS OF MUTUAL FUND

 A mutual fund actually belongs to the investors who have pooled their funds.
The ownership of the MF is in the hands of the investors.
 A MF is managed by investment professionals and other service providers,
who earn a fee for their services from the fund.
 The pool of funds is invested in a portfolio of marketable investment. The
value of the portfolio is updated every day.
 The investor’s share in the fund is denominated by units. The value of the
units changes with change in the portfolio’s value, every day. The value of one
unit of investment is called as the net assets value or NAV.
 The investment portfolio of the Mutual fund is vested according to the stated
Investment objectives of the fund.
 Investors purchase mutual fund shares from the fund itself (or through a
broker for the fund) instead of from other investors on a secondary market
such as the New York Stock Exchange or Nasdaq Stock Market.
 Mutual fund shares are “redeemable,” meaning investors can sell their shares
back to the fund (or to broker acting for the fund).
 Mutual Funds generally create and sell new shares to accommodate new
investors. IN other words, it sells its shares on a continuous basis, although
some funds stop selling when, for example, they become too large.
 The investment portfolios of mutual funds typically are managed by separate
entities known as “investment advisers” that are registered with the SEC.

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1.3 STRUCTURE OF MUTUAL FUNDS

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset
Management Company (AMC) and custodian. The trust is established by a sponsor or
more than one sponsor who is like promoter of a company. The trustees of the mutual
fund hold its property for the benefit of the unit holders. Asset Management Company
(AMC) approved by SEBI manages the funds by making investments in various types
of securities. Custodian, who is registered with SEBI, holds the securities of various
schemes of the fund in its custody. The trustees are vested with the general power of
superintendence and direction over AMC. They monitor the performance and
compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company
or board of trustees must be independent i.e. they should not be associated with the
sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds
are required to be registered with SEBI before they launch any scheme. However,
Unit Trust of India (UTI) is not registered with SEBI (as on January 15, 2002).

The Structure of Mutual Funds

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Securities Exchange Board of India –
Set up in the year 1992, SEBI Act was passed. The objectives of SEBI are – “to
protect the interest of investors in securities and to promote the development of and to
regulate the securities market”

Role of SEBI –
 Formulates policies and regulates the mutual funds to protect the interest of the
investors. SEBI notified regulations for the mutual funds in 1993.
 SEBI has also issued guidelines to the mutual funds from time to time to protect
the interests of investors.
 All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations.
 All mutual funds are subject to monitoring and inspections by SEBI.

Sponsor -
 They are the Promoters of the Mutual Fund
 They are given the charge to form a Trust and appoint Trustees. They are also
responsible for appointing the Custodian and AMC
 Eligibility Criteria for Selection of Sponsors: Over5 year of sound financial Track
Record 3 Year Profit making record at least 40% contribution to AMC Capital
 He must have net worth in the immediate preceding year more than the capital
contribution in AMC.

Trustees Trustee Company -

 Fiduciary Responsibility for investor funds as a Board of Trustees or Trustee
Company Appointed by Sponsor with SEBI approval.
 They in turn appoint an Asset Management Company (AMC) to manage the
portfolio of securities registered ownership of investments is with Trust. Trustees
hold the Unit Holders’ money in “fiduciary capacity”.
 There should be at least 4 Trustees (2/3 should be independent) right to seek
regular information and remedial action. All major decisions need trustee
approval.

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Asset Management Company -
 The AMC is responsible for the operational aspects of the Mutual Fund. It holds
an Investment Management agreement with Trustees.
 It is a SEBI registered entity Requirement of minimum 10 crores of net worth to
be maintained at all times at least 1/2 of the board members to be independent and
it cannot have any other business interest Structured as a private limited company
(Sponsors and Associates hold capital)
 AMC of one Mutual Fund cannot be trustee of another Mutual Fund. 75% of the
Unit Holders jointly can terminate the AMC appointment.
 To define and maintain high professional and ethical standards in all areas of
operation of mutual fund industry.
 To interact with the Securities and Exchange Board of India (SEBI) and to
represent to SEBI on all matters concerning the mutual fund industry.
 To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.
 To undertake nationwide investor awareness programme so as to promote proper
understanding of the concept and working of mutual funds.
 To disseminate information on Mutual Fund Industry and to undertake studies and
research directly and/or in association with other bodies.

Custodian -
 Responsible for the safe keeping of investments of the funds and receipt of all
benefits due to the fund. Participates in Clearing System on behalf of the Fund
 Registered with SEBI

Registrar & Transfer Agent

 Responsible for unit holders record maintenance and servicing including purchase,
 repurchase and transfer of units
 Responsible for updating Investor Records and Transactions.

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1.4 ADVANTAGES OF MUTUAL FUNDS

 Portfolio diversification: is a benefit derived from investment in securities spread

across various companies, industries, issuers and maturities. The portfolio will not
be affected by the performance of one or few of the securities.
 Mutual funds feature low transaction cost from economies of scale. Since the
fund invests large sums of money, the costs of research, broking, demat and
custodial services come down. Small amounts invested in a fund get the benefits
of the large pool.
 Professional Management by mutual funds offers expertise in managing the
investors’ funds, bringing the benefits of research, analysis and process-driven
approach to investing.
 Portfolio diversification and the professional management of funds offer
reduction in risk for the investors. The investment is always in a managed
portfolio and not a single stock or sector. Instead of a large outlay of funds to
achieve these objectives directly, investors can choose mutual funds, investing as
little as Rs. 500 to get these benefits at a low cost.
 Investors can choose their investment to suit their particular needs and
preferences. Mutual funds offer closed and open-ended schemes, offer options to
stay invested, receive or reinvest dividends. These variations offer higher
flexibility of when to invest, how to receive the returns, how to stay invested and
when to redeem the units.
 Investor’s interests are protected while investing in mutual funds as they are
governed by the Securities and Exchange Board of India (SEBI) (Under the SEBI
mutual funds) Regulations, 1996, which require extensive disclosures and fair
business practices.
 Mutual funds encourage systematic investments .Investors can choose
systematic investment plans to invest regularly ,systematic withdrawal plans to
withdraw regularly in order to structure regular cash flow from the investment
account or systematic transfer plans to transfer money from one scheme to
another.
 Mutual fund transactions are convenient, flexible and easy to conduct. Investors
are assigned a folio when they buy units and they can use transactions slips to

7
 conduct various transactions, including purchasing more units from the folio.
Mutual funds also offer convenience of part withdrawal of investments and make
additional investments in the account.
 Mutual funds structure the portfolio in such a way that they are able to provide
liquidity to the investor. Investors can take their money out when they need it by
redeeming their units with the fund, or by selling units on the stock exchange
where they are listed.
 Mutual funds’ investments offer significant tax advantages to investors.
Incomes that are taxable when earned directly, such as interest income, can be left
invested in the fund to grow over years .incidence of tax is only when the investor
transacts in a fund and as capital gains rather than interest income.
 Mutual fund distributors have to be registered with AMFI obtain an ARN and
abide by the prescribed code of ethics .The structure of mutual funds is also well
regulated, offering a high level of information disclosure ,investor protection and
regulatory controls.

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1.5 DISADVANTAGES OF MUTUAL FUNDS

 Mutual funds are not customized portfolios: Mutual Funds are like pre-plated
meals; there is no customized assembling of the meal by the customer. Mutual
funds are standard products, managed centrally, offering significant advantages to
investors who are not equipped to make complex investment choices. Investors do
not exercise any direct control on how the portfolio is managed, but participate
equitably in it. Customized portfolios are usually offered as portfolio management
services (PMS).
 No direct control over cost: investors in a mutual fund participate in the pool of
funds, according to the proportion they have contributed. The costs for managing
the fund are centrally incurred and apportioned to every unit. Investors cannot
directly determine what cost can be incurred and how it would be apportioned.
SEBI has however, imposed limits on the amount and type of cost a mutual fund
can incur.
 Mutual funds offer too many products: to the investors, making a choice among
many funds become tough when so many variants of the same product are
available in the market. Mutual funds try to vary their products, even if slightly, to
provide a choice to customers. If these are similar in objective and performance,
investors may find it tough to differentiate the products and make the right choice
for their needs.

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1.6 CONCEPT OF MUTUAL FUNDS

Concept of Mutual
Funds

Many investors with common financial

objectives pool their money

Investors, on a proportionate basis, get mutual fund units

for the sum contribution to the pool

The money collected from investors is invested into shares,

debentures and other securities by the fund manager.

the fund manager realizes gains or losses, and collects dividend or interst
income.

any capital gains or losses from such investments are passed on to the investors in
proportion of the number of units held by them.

When an investor subscribes for the units of a mutual fund, he becomes part owner of
the assets of the fund in the same proportion as his contribution amount put up with
the corpus (the total amount of the fund). Mutual Fund investor is also known as a
mutual fund shareholder or a unit holder. Any change in the value of the investments
made into capital market instruments (such as shares, debentures etc.) is reflected in
the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the
Mutual Fund scheme's assets net of its liabilities.

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History of the Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank. The history of
mutual funds in India can be broadly divided into four distinct phases.

First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and
the Industrial Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under
management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of
India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund
in June 1989 while GIC had set up its mutual fund in December 1990. At the end of
1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

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 MOBILIZATION AS
AMOUNT ASSETS UNDER % OF GROSS
1992-93
MOBILIZED MANAGEMENT DOMESTIC
SAVINGS

11,057 UTI 38,247 5.2%

PUBLIC
1,964 8,757 0.9%
SECTOR

13,021 TOTAL 47,004 6.1%

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were
substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.
The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The
number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets
under management was way ahead of other mutual funds.

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Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29, 835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The Specified Undertaking of Unit Trust of India, functioning
under an administrator and under the rules framed by Government of India and does
not come under the purview of the Mutual Fund Regulations. The second is the UTI
Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI
and functions under the Mutual Fund Regulations. With the bifurcation of the
erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI
Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of October 31, 2003, there were 31 funds,
which manage assets of Rs.126726 crores under 386 schemes.

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 CHAPTER 2

2.1 SYSTEMATIC INVESTMENT PLAN

A mutual fund is an investment security that enables investors to pool their money
together into one professionally managed investment. Mutual funds can invest in
stocks, bonds, cash or a combination of those assets. The underlying security types,
called holdings, combine to form one mutual fund, also called a portfolio.

In simpler terms, mutual funds are like baskets. Each basket holds certain types of
stocks, bonds or a blend of stocks and bonds to combine for one mutual fund
portfolio.

For example, an investor who buys a fund called XYZ International Stock is buying
one investment security — the basket — that holds dozens or hundreds of stocks from
all around the globe, hence the "international" moniker.

It's also important to understand that the investor does not actually own the underlying
securities — the holdings — but rather a representation of those securities; investors
own shares of the mutual fund, not shares of the holdings. For example, if a particular
mutual fund includes shares of stock in Apple, Inc. (AAPL) among other portfolio
holdings, the mutual fund investor does not directly own Apple stock.

Systematic Investment Plan is one of the types of mutual fund.

‘Systematic Investment Plan' (SIP) is an investment vehicle offered by mutual funds

to investors, allowing them to invest small amounts periodically instead of lump
sums. The frequency of investment is usually weekly, monthly or quarterly.

14
In SIP (Systematic Investment Plans), a fixed amount of money is debited by the
investors in bank accounts periodically and invested in a specified mutual fund. The
investor is allocated a number of units according to the current Net asset value. Every
time a sum is invested, more units are added to the investors account.

The strategy claims to free the investors from speculating in volatile markets by
Dollar cost averaging. As the investor is getting more units when the price is low and
fewer units when the price is high, in the long run, the average cost per unit is
supposed to be lower.

SIP claims to encourage disciplined investment. SIP's are flexible, the investors may
stop investing a plan anytime or may choose to increase or decrease the investment
amount. SIP is usually recommended to retail investors who do not have the resources
to pursue active investment.

SIP investment is a good choice for those investors who do not possess enough
understanding of financial markets. The benefits of SIP is it reduces the average cost
of units purchased, as well as consistent investment, ensures that no opportunity is
missed arising out of the market.

In India, a recurring payment can be set for SIP using Electronic Clearing Services
(ECS). Some mutual funds allow tax benefits under Equity-linked savings schemes.

15
This, however, has a locking period of three years and is provided by many company
including Kotak.

TYPES OF SYSTEMATIC INVESTMENT PLAN

1. Step-up SIP

Also known as Top-up SIP, enables you to increase your SIP amount at regular
intervals. This is helpful especially in goal planning, where you say you have a
windfall income or bonus and want to invest. So, you can start with a small amount
initially and gradually increase the amount you invest. Consequently, as our income
increases, so do our expenses. Therefore, increasing your investment level will protect
you on rainy days.

Many a times, investors continue the same monthly investment through SIP for over
5-7 years. Though they may have earned good returns on the investment, they would
have lost out on earning an additional income had they topped up or stepped-up their
SIP. Adding up the SIP amount regularly is an easy way to build up wealth.

2. Flex SIP

At times if you do not wish to SIP owing to uncertain cash flows, you can opt in for
flex SIP (also known as flexible SIP) and still stay invested. With this, you can adjust
your installment as you would want. Not only this, you can even opt for a trigger-
based option (explained in the following point). For example, if you are rewarded by a
bonus of Rs 1, 00,000, with the help of Flex SIP, you can allocate the investible
surplus to directly into one of the funds of your existing portfolio. This gives you the
flexibility to either increase or decrease the amount in any particular month.

3. Trigger SIP

This facility is more viable if you are experienced as it involves some amount of
awareness and knowledge.

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With Trigger SIP, you can set either an index level, NAV, date or an event. This is to
take advantage of any movement in anticipation. For example, if you know a certain
kind of Government policy is due next week and that will impact the index crossing a
certain mark, you can set it as a trigger date.

Similarly, you can set trigger target for your fund NAV appreciation or depreciation
(in percentage terms) or capital appreciation or depreciation trigger.

4. Perpetual SIP

Usually when signing up a SIP mandate, you must enter the start and end date. This is
for a pre-decided term period say 1 year, 2 years, 3 years, 5 years, etc. And once the
SIP matures, many a times investors tend to procrastinate and delay renewal due to
operational hassles. In turn, they end up missing few installments, which upsets the
saving discipline and affect returns in the long run.

5. Pause SIP

God forbid, but when in a financial crunch or crisis, you can even pause SIP
installments instead of stopping SIPs altogether and impeding your path to systematic
wealth creation. By doing so you don't have to undergo the process of re-starting SIPs
all over again.

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STEPS:

1) Start Early – be the first to take the first step

Consider the following scenarios where different investors start investments at

different age levels and invest Rs 2000 per month till the age of 60 years. The person
who started investing at the age of 25 years stands benefitted more as he has started
early and can benefit from power of compounding. Even a higher investment amount
may not compensate for the growth potential of starting early.

2) Invest in the Right asset class – Risk return balance to optimize growth

Inflation for the past 18 years has been on an average at 7.80% on CAGR basis; an
investor should always look at an asset class which has the potential to generate
positive inflation adjusted returns. Historically on analysis for the past 25 years,
equity as an asset class has the potential to beat inflation and generate positive post
tax and inflation adjusted returns. (Refer to the chart below)

18
3) Investing with a plan – Consistent and continuous investment

Systematic Investment Plans (SIPs) in mutual funds has long been considered one of
the better ways for the common man to invest in Mutual Funds

Fees:-A number of mutual funds do not charge an entry load for an SIP. If not exited
(selling the units) within a year of buying the units, they may not charge an exit load.
However, if units are sold within a year, there may be an exit load. Different fees
charged by different MF companies.

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2.2 PROBLEM STATEMENT

One of the common ways in which an investor makes their investment is through a
systematic investment plan. This means that they will be investing a regular sum of
money each month that will go on a specific date. And this will build an element of
fixed investment that will lead to an averaging out of cost over a longer period of
time. This mode of investment ensures that while there are a larger number of units
allotted when the price of the fund is low the situation reverses and there are a lower
number of units allotted when the prices are high. There are two ways in which this
investment can be made where the first one involves the submission of cheques
wherein post-dated cheques are given for this particular purpose in advance. The other
route is to have a direct debit through the ECS system and hence here too the money
goes automatically each month from the bank account.

Since both the steps involved in this process involves instructions and actions that are
made in advance there could be a position wherein the account from which the money
is to be invested does not have a balance at the time of the debit. This can pose a
problem as the investment in this case will just not go through as the bank will reject
either the cheque or the effort to debit money from the account on the due date will
fail. This is one of the most common reasons why an individual will find that even
though they have done the hard work of starting a SIP there is actually no transaction
that has taken place when it should have. This can be avoided by simply ensuring that
there is a minimum additional amount maintained in the account or that there is an
alert system put in place which tell the individual before the due date about the
approaching payment and hence there can be action taken if required to make up any
shortfall.

It is not that the fault lies just with the investor because there are a lot of occasions
when the SIP also makes some mistake. In some cases especially when there are post-
dated cheques given for this purpose it can happen that the mutual fund fails to
deposit the cheque at the appropriate time. This could mean that the investor actually
does not get the units even after doing the necessary or required things and hence
there has to be care taken to see that there is no such miss from the side of the mutual
fund. Another thing is that often there is a double debit that takes place especially

20
when the amount is given through an ECS and this can mean twice the amount being
taken. Again a check of the account statement will ensure that such mistakes are
easily caught and brought to the notice of the mutual fund so that they can be
corrected.

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2.3 ADVANTAGES OF INVESTING IN SYSTEMATIC

INVESTMENT PLAN:

There are several that can be attributed to the growing popularities and suitability of
Systematic Investment Plan as an investment vehicle especially for retail investors.

1. Professional management:

Mutual funds (SIP) provide the services of experienced and skilled professionals,
backed by a dedicated investment research team that analysis the performance and
prospects of companies and selects suitable investments to achieve the objectives of
the scheme.

2. Diversification:

Systematic investment plan invest in a number of companies across a broad cross-

section of industries and sectors. This diversification reduces the risk because seldom
do all stocks decline at the same time and in the same proportion. You achieve this
diversification through a mutual fund with far less money than you can do on your
own.

3. Convenient administration:

Investing in a SIP reduces paperwork and helps you avoid many problems such as bad
deliveries, delayed payment and follow up with brokers and companies. Mutual funds
save your time and make investing easy and convenient.

4. Low costs:

Systematic investment plan are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in brokerage,
custodial and other fees translate into lower costs for investors.

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 5. Liquidity:

In SIP, the investors get the money back promptly at net asset value related prices
from the mutual fund. In closed end schemes, the units can be sold on a stock
exchange at the prevailing market price or the investor can avail of the facility of
direct repurchase at NAV related prices by mutual fund.

6. Transparency:

You get regular information on the value of your investment in addition to disclosure
on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund manager’s investment strategy and outlook.

7. Flexibility:

Through features such as regular investment plans, regular withdrawal plans and
dividend reinvestment plans, you can systematically invest or withdraw funds
according to your needs and convenience.

8. Affordability:

Investors individually may lack sufficient funds to invest in high-grade stocks. A

Systematic investment plan because of its large corpus allows even a small investor to
take the benefit of its investment strategy.

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2.4 DISADVANTAGE OF SYSTEMATIC INVESTMENT PLANS

 No downside Protection- Investors should remember that despite of all the

advantages that SIP’s have, they are subject to market risks and do not protect
investors from making a loss or ensure them profits in falling markets.
 Portfolio risk remains- SIP’s are also subject to security risk. Mutual fund
schemes investing in portfolios that turns out to generate negative returns are
bound to make investors incur a loss even if the investment is made through SIP’s.
 Ideal Profile of investors- Investors opting to invest through an SIP option
should have a long- term investment horizon, be willing to invest regularly, keep
patience; and who cannot invest enough amount at one go before opting for SIP’s.
 Defining the investment objective- Investors should invest with a clear
objective in their mind. It helps to figure out an indicative time period for which
the investments would have to be made.
 Determining the investment surplus- investors should estimate the amount
that they can afford to invest on a periodical basis. Investors should be
conservative while making this estimate as an over estimated periodical
investment amount may turn out to be a burden for investors.
 Matching periodicity to fund flows- SIP’s are available in monthly and
quarterly options. Investors should opt for an option that is in tandem with the
periodicity of cash inflows.
 Selecting an appropriate scheme category- before investing investors should
take the risk- return profile of a scheme into consideration. Investors should
choose a scheme that suits their investment objective.
 Periodical review of investments- after selecting an appropriate scheme and
making investment in it, investors should continuously monitor the performance
of similar schemes to the one in which the investment is done. This enables
investors to compare the performance of their scheme with correspondence
schemes and make necessary adjustments, if required.

24
2.5 IMPORTANCE OF SYSTEMATIC INVESTMENT PLAN

SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP
allows one to buy units on a given date each month, so that one can implement a
saving plan for themselves. An SIP is generally preferred for an equity scheme and
can be started with as small as Rs.500 per month.

The biggest advantage of SIP is that one need not time the market. In timing the
market, one can miss the larger rally and may stay out while markets were doing well
or may enter at a wrong time when either valuation have peaked or markets are on the
verge of declining. Rather than timing the market, investing every month will ensure
that one is invested at the high and the low, and make the best out of an opportunity
that could be tough to predict in advance. SIPs thus make the volatility in the market
work in favour of an investor and help in averaging out the cost called “Rupee Cost
Averaging”. For example, with Rs.1000 one can buy 50 units at Rs.20 per unit or 100
units at Rs.10 per unit depending upon whether the market is up or down. Thus, more
units are purchased when a schemes’ NAV is low and fewer units when the NAV is
high. Hence, when the two cases are taken together, cost is averaged out. The longer
the time-frame, the larger are the benefits of averaging.

SIPs also help in availing benefits of compounding. This means the earlier one starts
an SIP and longer the investment horizon, the larger the benefits. The reason being,
each rupee one invests earns a return, which ends up as more rupees to earn a return,
allowing investment to grow at a fast pace. Higher rates of return or longer investment
time periods increase the principal amount in geometric proportions. This is the single
most important reason for investors to start investing early and keep on investing on a
regular basis to achieve the long-term financial goals.

It is important that you are sincere and make regular investments in SIP as this is less
risky as compared to investing lump sum money in one go. When you invest a big
amount in one go and if the market plunges, then you can incur huge losses. But when
you invest regularly, then the cost of investments gets averaged. As a result, the
chances of suffering from a big loss are possibly reduced

25
2.6 OBJECTIVES OF THE STUDY

 To know reason behind investing in SIP rather than others

Everyone would talk about maximising profits as the main reason for recommending
SIP strategy. But we believe that most important feature of SIP-based investing is
imparting financial discipline in the lives of investors.

 To explore the recent developments in the systematic investment plan

With Rupee-cost averaging, a regular investor gets the benefit of fetches more units
when the price is low and lesser when the price is high. It may help you to achieve a
lower average cost per unit when the market is volatile.

 To know, how SIP encourage saving habit

SIP is one of the most flexible and easy investment plans. You can select auto-debit
option from your savings bank account to transfer money into a specific SIP scheme.
When you invest in a mutual fund, you get certain number of units based on the
ongoing market rate, known as net asset value (NAV), for the day.

 To understand the performances of SIP schemes using various tools to

measure the performances.

26
2.7 SCOPE OF THE STUDY:

 Financial discipline
 Benefit from the power of compounding
 Averaging your purchase cost

2.8 LIMITAION OF THE STUDY

1. The study has been restricted to only one scheme of mutual fund.
2. Much interaction has not been possible with the customer due to;
 Indifference or uninterested of the customers to interact with me.
 Different perceptions about the investment options.

27
 CHAPTER 3

3.1 REVIEW OF LITERATURE

 Nalini Prava Tripathy (1996) pointed that, mutual funds creates awareness
among urban and rural middle class people about the benefits of investment in
capital market, through profitable and safe avenues. Mutual fund could be able
to make up a large amount of the surplus funds available with these people.

 Sant and Zaman (1996) pointed out that the media played a significant part for
retail investors and also at the margins of the mutual funds market. Private
investors are highly dependent on additional comments and share-tipping in
financial news columns because they have little time or specialist knowledge
to make considered decisions. News media was either the only source of
information for a particular investor or there were few alternative source of
information on a particular stock. The retail investors reacted much more to
media information than professional investors.

 Raja Rajan (1997,1998) high lightened segmentation of investors on the basis

of their characteristics, investment size, and the relationship between stage in
life cycle of the investors and their investment.

 Gupta & Sehgal, (1998) in their research paper “Investment Performance of

Mutual Funds: The Indian Experience” tried to find out the investment
performance of 80 schemes managed by 25 mutual funds, 15 in private sector
and 10 in public sector for the time period of June 1992-1996. The study has
examined the performance in terms of fund diversification and consistency of
performance. The paper concludes that mutual fund industry’s portfolio
diversification has performed well. But it supported the consistency of
performance pattern.

28
 Terrance (1998) examined the behaviour of individual investors and found
them exhibiting disposition effects, that is, they realize their profitable stocks
need as investment at a much higher rate than their unprofitable ones. The
disposition effect is found to influence market price; yet its economic
significance is likely to be the greatest for individual investors.

 Chakarabarti and Rungta (2000)7 stressed the importance of brand effect in

determining the competitive position of the AMCs. Their study reveals that
brand image factor, though cannot be easily captured by computable
performance measures, influences the investor’s perception and hence his
fund/scheme selection.

 Gupta, L.C. and Choudhary (2000)8 in their study pointed out that index funds
have gained acceptance among investors because it was found that fund
managers often did worse than the manipulation, speculation and insider
trading. There was no effective regulation and control as in the USA and the
UK.

 Kshama Fernandes (2003) evaluated index fund implementation in India.

In this paper, tracking error of index funds in India is measured. The
consistency and level of tracking errors obtained by some well-run index fund
suggests that it is possible to attain low levels of tracking error under
Indian conditions. At the same time, there do seem to be periods
where certain index funds appear to depart from the discipline
of indexation.
 Mishra, et al., (2002) measured mutual fund performance using lower
partial moment. In this paper, measures of evaluating portfolio performance
based on lower partial moment are developed. Risk from the lower partial
moment is measured by taking into account only those states in
which return is below a pre-specified “target rate” like risk-free rate.
 S. Umamaheshwari, M. Ashok Kumar (2014) Awareness, environment level
of exposure intensions, beliefs, and responsibilities are the factors responsible
for deciding investment policies. Behavioural pattern helps in preparing

29
 various schemes for investments. Investment temperament of salaried strata
based on investment awareness and expected rate of investment return. N.

 Dharani, ET. al. (2014) Investment attracts all people irrespective of their
occupation, education and social status. Women also involve in investment
activities. Women’s below age of 30 are involved in investment activities.
Women’s with graduation are involved in more investment activities.
Women’s with income of 50001 to 100000 are involved in investment
activities.

 Bhawana Bhardwaj, ET. al. (2013) National output is increase for future by
investment. Investment dependents upon awareness about investment
opportunity, level of knowledge, evaluation of investment opportunities and
selection of investment options. Research states that maximum respondents
have selected as Bank deposits and Provident fund as Investment Avenue.
Investors preferred stability in return of investment.

30
 CHAPTER 4

4.1 COMPARATIVE ANALYSIS OF SYSTEMATIC

INVESTMENT PLAN AND LUMP SUM INVESTMENT

Mutual funds over the years have gained immensely in their popularity. Apart from
the many advantages that investing in mutual funds provide like diversification
professional management the ease of investment process has proved to be a major
enabling factor. However, with the introduction of innovative products, the world of
mutual funds nowadays has a lot to offer to its investors. With the introduction of
diverse options, investors needs to choose a mutual fund that meets his risk
acceptance and his risk capacity levels and has similar investment objectives as
the investor.

Most importantly mutual funds provide risk diversification of a portfolio is amongst

the primary tenets of portfolio structuring, and a necessary one to reduce the level of
risk assumed by the portfolio holder. Most of us are not necessarily well qualified to
apply the theories of portfolio structuring to our holdings and hence would be better
off leaving that to a professional. Mutual funds represent one such option.

Lastly, evaluate past performance, look for stability and although past performance is
no guarantee of future performance, it is a useful way to assess how well or badly a
fund has performed in comparison to its stated objectives and peer group. A good way
to do this would be to identify the five best performing funds & (within your selected
investment objectives) over various periods, say 7 months, 8 months, one year, two
years and three years. Shortlist funds that appear in the top 9 in each of these time
horizons as they would have thus demonstrated their ability to be not only good but
also, consistent performers.

SIP and Lump sum are the two techniques to invest in mutual funds. Any investor can
choose one out of them and can invest their money into mutual funds. SIP is
Systematic Investment Plan which is very helpful to salaried and middle class man.

31
They can invest their saving into Systematic Investment Plan and can collect huge
funds for future.

SIP is paid in monthly or quarterly as per the scheme. But lump sum is paid only
one time and the whole transaction is based on this investing money. Opting SIP, an
investor can invest their saving into it and can safe his money doing that. SIP is good
.because if it seems that market will goes down in few days so an investor can safely
withdraw his money and can safe his money.

An illustration below explains the benefit of an SIP over a lump

sum:-

SIP - Rupee Cost Averaging

Lump-Sum Investor SIP Investor

Month Unit Price (Rs.) Investment Unit Investment Units

(Rs.) Purchased^ (Rs.) Purchased^
1 50 9,000 180 1,000 20
2 47 1,000 21
3 45 1,000 22
4 44 1,000 23
5 46 1,000 22
6 48 1,000 21
7 49 1,000 20
8 50 1,000 20
9 52 1,000 19
Total Investment Rs.9,000 Rs.9,000
Total Units Purchased 180 188
Average Unit Price Rs.50 Rs.48
Value After 9 Months Rs.9,360 Rs.9,799

32
4.2 SYSTEMATIC INVESTMENT PLAN (SIP) VS LUMP SUM
INVESTMENT IN EQUITY MUTUAL FUND

Systematic Investment Plans (SIP) or Lump Sum Investment in a Mutual fund, how
can I get a better return on my investment? People have asked this question
for several years, but there is no clear-cut answer to this.

Actually, the result of both these investment methodologies depends upon the market
behaviour. Globally, different markets behave differently. Share market of developing
countries swings wildly but the markets of developed countries are relatively stable.

It also depends upon the person who is investing. Some learned people like warren
buffet can earn well by investing lump sum, but it is not true for the common investor.
You yourself have to decide which method of investment will suit you. I am putting
different scenarios for understanding of SIP vs. lump sum investment.

SIP vs. Lump Sum Investments in Different Years

Scenario 1- Year of 2013

Suppose Adarsh and his wife Priti got 12 lakh rupees each as a gift from their father at
the end of 2012. Both of them rely on equity and decided to invest in the Nifty index
fund. Adarsh invested whole 12 lakh every month. Now let us see what would be the
return of both of them after the end of 2013.

33
 INVESTMENT OF ADARSH

INVESTMENT
NIFTY VALUE

Jan, 2013 6035 12,00,000

Jan, 2014 6090 12,10,936 =12,00,000 *(6090/6035)

INVESTMENT OF PRITI

NIFTY SIP VALUE AT JAN’ 14

Jan, 2013 6035 100000 100907

Feb, 2013 5693 100000 106964

Mar, 2013 5683 100000 107161

Apr, 2013 5930 100000 102686

May, 2013 5986 100000 101730

34
Jun, 2013 5842 100000 104233

Jul, 2013 5742 100000 106052

Aug, 2013 5472 100000 111289

Sep, 2013 5735 100000 106176

Oct, 2013 6299 100000 96672

Nov, 2013 6176 100000 98598

Dec, 2013 6304 100000 96597

Jan, 2014 6090

TOTAL 12,39,065

As you can see, nifty gone through ups and downs during 2013. It started with 6035
and ended only slightly higher. Consequently, investment of Adarsh only grew from
12 lakh to 12.11 Lakhs. The return was less than 1%. But due to the SIP method, Priti
was in a far better place. She earned a 3.26% return.

35
Also, if you have a lump sum amount such as Priti, then you can put your whole
money in liquid funds. Create a systematic withdrawal plan and invest regularly in the
growth fund. Priti could put her remaining 11 lakh in the liquid fund after the first SIP
in Jan 2013. After that, she has to only withdraw 1 lakh every month from the liquid
fund and put it in the Nifty Index fund as shown above. In this scenario, if a liquid
fund has given 8% annual return then she would have earned 46,000 extra. Therefore,
her total return would have been 12.39+.46 = 12.85 lakhs. This would have been the
return of more than 7%.

Scenario 2 – Year of 2009

This was the year when stock market came out from big jolt. Suppose Adarsh and
Priti have the same amount and same method as of investment as stated above. Now
let us see what would be their return by investing in the Nifty Index Fund at 2009.

INVESTMENT OF PRITI

NIFTY SIP VALUE AT JAN’ 10

Jan 2009 2875 100000 169822

36
Feb 2009 2764 100000 176652

Mar 2009 3021 100000 161606

Apr 2009 3474 100000 140533

May 2009 4449 100000 109735

June 2009 4291 100000 113772

July 2009 4636 100000 105297

Aug 2009 4662 100000 104718

Sep 2009 5084 100000 96029

Oct 2009 4712 100000 103615

Nov 2009 5033 100000 97007

Dec 2009 5201 100000 93867

Jan 2010 4882

TOTAL 14,72,653

37
 INVESTMENT OF ADARSH

NIFTY VALUE

Jan 2009 2875 12,00,000

Jan 2010 4882 20,37,867

This time, the Situation is totally changed. As you can see in the chart, Nifty has
grown constantly during the year. The year started with Nifty at 2875 and ended at
4882 Lakhs. It is 26.58% return. This return is quite decent but less than Adarsh
return. His amount has grown to 20.38 lakhs, the return of 70%. It is a big difference.

38
 CHAPTER 5

5.1 FACTS ON EQUITY INVESTMENTS

Any investment requires careful assessment and proper planning. Mutual fund
investment is no different, even if you have a fund manager to rely on.
To benefit from your investments, you need to clear half-baked truth offered from
various sources and get your facts straightened out.
Here are a few misconceptions and facts about mutual funds.

 Misconception 1: Mutual funds need large investment

Fact:
Truth is, you can get started with very low amount in mutual funds. Based on the
mutual fund you invest in, sometimes with as low as INR 1,000.
For example, to directly invest in a real estate project you would need lakhs or even
crores. With a real estate mutual fund, you can invest as low as a few thousand
rupees and still benefit from the real estate price appraisals.

 Misconception 2: All mutual funds are long term investments

Fact
Mutual funds can be short term or long term investments based on the underlying
assets the mutual funds invest in. Short term investors (less than 5 years) can
choose debt mutual funds which is better than bank FDs for the short term. For
long term investments, equity mutual funds are the most suitable options.

 Misconception 3: All mutual funds qualify for tax deduction

Fact
Mutual funds investments do provide tax savings benefits, but only the Equity
Linked Savings Scheme (ELSS) is eligible for tax deduction under Section 80C of
Income Tax Act.

39
  Misconception 4: Mutual funds = equities
Fact
Investing in mutual funds is not only about investing in stocks or the equity market.
Mutual funds are typically classified based on the underlying asset classes they
invest in, equity mutual funds (investment mostly in equities), debt mutual funds
(investment in mostly debt or fixed income) and money market funds (investment
in instruments such as treasury bills and repurchase agreements).

 Misconception 5: A mutual fund with a lower net asset value (NAV) is

cheaper, so you can profit from buying more units
Fact
NAV of a fund is irrelevant, because it represents the market value of the fund's
investments and not the market price.
For example, you have 2 choices, 1,000 units of Fund A with a NAV of Rs.10 and
100 units of Fund B with a NAV of Rs. 100. You decide to buy 1,000 units of Fund
A. After a year, as both funds have the same portfolio they grow equally at around
20%. The NAV of Fund A would then be Rs. 12 and NAV of Fund B would be
Rs.120. Your investment value would then increase to Rs. 12,000, and the return
would be the same irrespective of which fund you choose.

 Misconception 6: Mutual fund schemes designed for children will secure

your child's future
Fact
Like any other fund scheme, returns are based on market performance. A children
focussed fund would carry more or less the same risk as a normal mutual fund .

 Misconception 7: One needs to invest in several mutual funds for proper

diversification
Fact
Mutual funds, by nature offer diversification. Holding a large number of funds does
not necessarily offer you better diversification.

40
5.2 GOOD REASONS TO INVEST IN SIP

Systematic investing in a mutual fund is the answer to preventing the pitfalls of equity
investment and still enjoying the high returns. And it makes all the more sense today
when the stock markets are booming.

 It's an expert's field - Let's leave it to them

Management of the fund by the professionals or experts is one of the key advantages
of investing through a mutual fund. They regularly carry out extensive research - on
the company, the industry and the economy - thus ensuring informed investment.
Secondly, they regularly track the market. Thus for many of us who do not have the
desired expertise and are too busy with our vocation to devote sufficient time and
effort to investing in equity, mutual funds offer an attractive alternative.

 Putting eggs in different baskets

Another advantage of investing through mutual funds is that even with small amounts
we are able to enjoy the benefits of diversification. Huge amounts would be required
for an individual to achieve the desired diversification, which would not be possible
for many of us. Diversification reduces the overall impact on the returns from a
portfolio, on account of a loss in a particular company/sector.

 It's all transparent & well regulated

The Mutual Fund industry is well regulated both by Securities and Exchange Board of
India and Association of mutual funds in India. They have, over the years, introduced
regulations, which ensure smooth and transparent functioning of the mutual funds
industry. This makes it safer and convenient for investors to invest through the mutual
funds.

41
  Market timing becomes irrelevant

One of the biggest difficulties in equity investing is WHEN to invest, apart from the
other big question WHERE to invest. While, investing in a mutual fund solves the
issue of 'where' to invest, SIP helps us to overcome the problem of 'when'. SIP is a
disciplined investing irrespective of the state of the market. It thus makes the market
timing totally irrelevant. And today when the markets are high, it may not be prudent
to commit large sums at one go. With the next 2-3 years looking good from Indian
Economy point of view, one can expect handsome returns thru' regular investing.

 Does not strain our day-to-day finances

Mutual Funds allow us to invest very small amounts (Rs 500 - Rs 1000) in SIP, as
against larger one-time investment required, if we were to buy directly from the
market. This makes investing easier as it does not strain our monthly finances. It,
therefore, becomes an ideal investment option for a small-time investor, who would
otherwise not be able to enjoy the benefits of investing in the equity market.

 Reduces the average cost

In SIP we are investing a fixed amount regularly. Therefore, we end up buying more
number of units when the markets are down and NAV is low and less number of units
when the markets are up and the NAV is high. This is called rupee-cost averaging.
Generally, we would stay away from buying when the markets are down. We
generally tend to invest when the markets are rising. SIP works as a good discipline as
it forces us to buy even when the markets are low, which actually is the best time to
buy.

 Helps to fulfil our dreams

The investments we make are ultimately for some objectives such as to buy a house,
children's education, marriage etc. And many of them require a huge one-time
investment. As it would usually not be possible raise such large amounts at short
notice, we need to build the corpus over a longer period of time, through small but

42
regular investments. This is what SIP is all about. Small investments, over a period of
time, result in large wealth and help fulfil our dreams & aspirations.

43
5.3 INVESTMENT MANTRAS FOR SIP’s

1. Do not invest without a sensible investment strategy

It is difficult to predict the direction; the markets will take in the coming years. We
will see the markets that reflect the fast changing, world shaking events of this era.
The markets are going to be unpredictable and full of surprises. We live in uncertain
volatile times and the markets reflect these things.

2. Do not fall for get-rich-quick schemes

A disciplined, long term strategy makes great sense in this unpredictable environment.
Many opportunities will emerge in the coming years and these opportunities must be
approached prudently by investors with long term objectives.

3. Remain Humble Investor

Do not constantly judge your own success by that of others. Do not resent success of
others when your own investments falter. Do not refuse to accept help or advice from
others. Do not think that you alone know what the best investment is.

Being humble allows you to guard against thinking too highly of yourself. Humility
reminds you not to bite off more than you can chew. It robs greed of its power over
you, decreasing the odds that you will want more than what the market can provide
you.

4. Beware of deceitful financial advisors

The best way to honour your financial advisor is by choosing one whose fee is based
on a fixed percentage of the assets under management. Evaluate your advisor based
on comparisons with a reasonable benchmark.

44
5. Do not be impatient with your investments

Do not press the panic button in a fluctuating market condition. Do not sacrifice long
term growth for the quick hit. Your investment decisions must be based on common
sense and what cold hard numbers tell you and not on media hype or industry buzz. If
you have invested your money thoughtfully, then there is no need to worry.

Do not worship profits and take them just because you have them. It is wiser to hold
on to your investment to meet your long term goals.

6. Avoid Speed Investing

For long term investors – slow is always better than fast. Entering and exiting the
market with a short term objective is not good for your financial health. Regular and
systematic investment for a long time is the best mode of investing.

7. Stop Performance Chasing

Daily price movements seduce people to go for the most attractive investment. Do not
buy something just because it is hot.

8. Say No to Emotional Investing

An investor’s worst enemy is not the stock market but his own emotions. Do not let
emotions drive your investment decision making. You need to be aware of your
emotional temperature while making an investment decision. Calm investors have a
far better track record than highly emotional ones. It is best to stay focused on your
goals and be aware of risks at play while investing.

9. Show “The Door” to Ignorance

You must know your investments better than you know yourself. Do not act first and
ask questions later. Thorough investigation is required before taking all investment

45
decisions. It does not pay to live in ignorance. The only way to eliminate ignorance is
by ensuring that you spend more time and effort towards being an informed investor.

10. Do Not Be Over-Optimistic

Avoid being too optimistic, too enthusiastic or too confident while making your
investment decisions. Your investment decisions have to be logical and rational. Does
not hold on to your investments long after they have lost their value, convince that
some day they will deliver a big return. Optimism is good but over-optimism is
definitely a self-kill.

11. Do not sit on your savings

Remember that your money lying in savings account will not create wealth. Remove
it from your bank account and put it at some place where it can grow. Accumulated
money will not grow as fast as money that is spread across asset classes. Diversify
your investments across asset classes to spread your risk. The sooner you start
investing your savings the better it is for your financial health.

12. Accept a Loss /mistake

What would you do if you have taken a wrong route? Obviously you will return back,
though it may have cost you time and money. But the same thing does not apply with
most of the investors when they have chosen a wrong investment. Correct yourself, if
you find that there is a mistake; don’t hang up with that investment.

46
 CHAPTER 6

6.1 DATA ANALYSIS AND INTERPRETATION

The most important task of any research is data analysis and proper interpretation.
Without appropriate interpretation primary and secondary data were useless. The
main objective of this chapter is to analyze the collected data from the various sources
of information and convert them into some meaning full result. This chapter divided
into two part, first part concern with the result of secondary data set and remaining
part concern with the result of primary data set which has been collected through the
structured questionnaire.

Depend on the number of variables different types of parametric and non parametric
tests (Frequency, Mean, Central tendency, Dispersion, etc) were performed with the
help of statistical software.

 Demographics factors of the respondents:

Respondents are classified based on their age. The data are shown in table (5.1) and
chart (5.1). Majority of the respondents belongs to the categories of 31- 40 years and
below 30 years age groups as 231 and 137 numbers of respondents respectively. It
shows, that most of the respondents purchase or willing to purchase any mutual fund
scheme maximum at the age of 40 years.

Less numbers of respondents wants to purchase the mutual fund scheme at the age of
50 years and above.

47
 (Table: 5.1 Frequency for age)

Age (Years) Frequency Percentage (%)

Below 30 years 137 30.4

31-40 years 231 51.3

40-50 years 50 11.1

Above 50 years 32 7.1

Total 450 100.0

(Chart: 5.1 Frequency in terms of (%) for age)

Above 50 years
40-50 years
31-40 yeras
Below 30 years

Gender wise classification of the respondents is shown in Table (5.2) and Chart (5.2).
Out of 450 respondents from the various regions 71.3% (321) respondents are male
and 28.7% (129) respondents are female. The mean value of the 122 gander class is
1.29. The result shows, that male respondent are purchases the mutual funds as
compare to female respondent.

48
 (Table: 5.2 Frequency for Gander)

Gander Frequency Percentage (%)

Male 321 71.3

Female 129 28.7

Total 450 100.0

(Chart: 5.2 Frequency in terms of (%) for gander)

500

450

400

350

300

250 Frequency
Percentage (%)
200

150

100

50

0
Male Female Total

Another classification based on their occupation of the respondents is given in Table

(5.3) and Chart (5.3). Majority of the respondents are belongs to the employed and
professional categories with 42.4% and 25.1% respectively. The mean value of the
occupation class is 3.10. It shows that employed and professional respondents are
purchases the mutual funds as compare to other class of occupations (Business and
agriculture).

49
 (Table: 5.3 Frequency for occupation)

Occupation Frequency Percentage (%)

Business 66 14.7

Agriculture 58 12.9

Professional 113 25.1

Employed 191 42.4

Others 22 4.9

Total 450 100.0

(Chart: 5.3 Frequency in terms of (%) with respect to occupation)

others Business Agriculture Professional Employed

The next classification based on the education qualification of the respondents in

Table (5.4) and Chart (5.4). Most of the respondents have at least graduates and post
graduates degree with the 28.2% (127) and 51.8% (233) respectively. The mean value
of the education class is 2.68. Very less number of respondents are under graduates,
while 12.2% (55) respondents have a professional degree. It 124 means graduates and
post graduates respondents are invested their financial resources in the mutual fund.
50
 (Table: 5.4 Frequency for education class)

Education Frequency Percentage (%)

Up to higher secondary 35 7.8

Graduates 127 28.2

Post Graduates 233 51.8

Professional Degree 55 12.2

Total 450 100.0

(Chart: 5.4 Frequency in terms of (%) for education class)

500

450

400

350

300

250

200

150

100

50

0
Up to higher Graduates Post Graduates Professional Degree Total
secondary

Frequency Percentage (%)

Further classification of the respondents related to the martial status depict in Table
(5.5) and Chart (5.5). Out of 450 respondents 54.7% (246) respondents are unmarried
and remaining 45.3% (204) respondents are married. The mean value of the martial
class is 1.55. As compare to married individuals, unmarried individuals are invested
their money in mutual funds.

51
 (Table 5.5 Frequency for marital status class)

Marital Status Frequency Percentage (%)

Married 204 45.3

Unmarried 246 54.7

Total 450 100.0

(Chart: 5.5 Frequency in terms of (%) for marital status class)

Chart Title
500
450
400
350
300
250
200
150
100
50
0
Married Unmarried Total

Series 1 Series 2

The next classification related annual incomes of the respondents are given below in
table (5.6) and chart (5.6). Out of 450 respondents 65.3% (i.e.294) respondents are
generated the income between Rs. 100,000 to 500,000 PA. It means most the
respondents belong to the middle income group, who have purchases any mutual fund
scheme. The mean value of the income class is 1.90.

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 (Table: 5.6 Frequency for various income groups)

Annual Income (Rs.) Frequency Percent (%)

Less than 100,000 101 22.4
100,000-500,000 294 65.3
above 500,000 55 12.2
Total 450 100.0

(Chart: 5.6 Frequency in terms of (%) for various income groups)

Above 500,000 Less then 100,000 100,000-500,000

The last demographic category is annual saving shown in table (5.7) and Chart (5.7).
53.1% (i.e. 239) respondents annually saved Rs. 25,000 to 100,000, while 39.6%
(i.e.178) respondents saved less than Rs. 25,000 PA., and remaining 7.3% (i.e.33)
respondents saved more than Rs.100, 000 during the financial year. The mean value
of the annual saving class is 1.68. It means, Rs. 25,000 100,000 annually saving
income groups are purchases any mutual fund scheme.

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 (Table: 5.7 Frequency for different annual saving groups)

Annual Saving (Rs.) Frequency Percentage (%)

Less than Rs. 25,000 178 39.6
Rs. 25,000-100,000 239 53.1
Above Rs. 100,000 33 7.3
Total 450 100.0

(Chart: 5.7 Frequency in terms of (%) for different annual saving groups)

Above Rs. 100,000 Rs. 25,000-100,000 Less then Rs. 25,000

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6.2 SIP Calculation

With the help of the SIP calculator you can find out how much you can receive from
your investment after a number of years, or you can find out how much you need to
invest to get his desired amount.

For example:
1. Suppose you want to invest per month is Rs. 1,000 for 10 years, and the expected
rate of return is 12%. At the end of 10 years you will receive Rs. 2,30,039.

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2. Suppose you want to receive Rs. 5, 00,000 by the end of 10 years, and the expected rate
of return is 12%. You will need to invest Rs. 2174 per month.

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6.3 Case Study on SIP – Real Life Situation

Assume that you are 30 years of age and have a wife and kid. Your Current Annual
expenditure is of Rs.5, 00,000. And you are expected to retire at the age of 60 years.

The average prices (i.e. inflation) will rise by 7% pa. After 30 years when you retire,
the low risk rate of return will be 6% pa (Considering you put all your accumulated
corpus post retirement in a bank deposit). You will live for 20 years more post
retirement.

So let’s see what will be the corpus required at the time of your retirement to
maintain the same current lifestyle additionally with enhanced medical expenses.

current
expenditure
Rs. 5,00,000
p.a

Inflated @
7% p.a. for
30 years

expenditure at
the time of
retierment Rs.
36,00,000 p.a.
therefore to generate
this income every
year post retirement
you need to
income to be accumulate a corpus
generated post
retirement Rs.
36,00,000 p.a.

corpus
required at
the time of
retirement your first reaction
immopsible! it cannot
be acheived. but then
there is a solution
8 crore

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So what’s the Solution…Just one simple thing?

Subscribe for an SIP of Rs.15, 000 per month in a good diversified equity fund
for 30 years and forget it. You still don’t believe it that it can be that simple; let us
validate our conviction with actual returns generated in an equity fund over the years.

Equity Fund
SIP Investments 15 year SIP 10 year SIP 5 year SIP 3 year SIP

Total Amount Invested @ 2,700,000 1,800,000 900,000 540,000

Rs.15000 per month (Rs.)

Market Value as on July 34,379,093 8,682,024 1,427,405 798,522

29, 2011 (Rs.)

Returns (Annualized)*(%) 29.87% 29.64% 18.56% 27.29%

Benchmark Returns 15.87% 18.42% 8.36% 14.08%

(Annualized) (%) #

Market Value of SIP in 9,967,057 4,737,423 1,110,339 664,982

Benchmark#

From the table it is crystal clear that if an investor did an SIP of Rs.15000 per month
in Equity Fund for 15 years, he would have invested 27 lacs and that would have
grown to a whopping number of 3.4 crore as on date; in spite of so many pitfalls in
equity markets in last 15 years.

Still need to think; No pressure but see this what the delay can cost in the same case
study

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Current Age: 30 years, Retirement Age: 60 years

Retirement Corpus to be accumulated: 8 crores

Assumed Rate of Return on Investment: 15% p.a.

With every passing year the time to retirement is reducing and increasing the burden
of investment required. Now the choice is whether we want TO START NOW OR
STILL WAIT...

6.4 SIP Auto Debit Form

This form needs to be filled in case the investor wants to have the periodic investment
through SIP deducted automatically through the Auto Debit Facility, if the investor
doesn’t have an account at Canara Bank, the first SIP instalment can be paid through
cheque only (which is mentioned on the form). If the investor does have an account at
Canara Bank, he can have the first instalment process automatically, it will take
around 3 weeks before this will be effective.

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60
61
 Conditions under which SIP would yield positive results
SIP route would ideally yield positive results only under the following conditions:

 Bull or Rising Market: SIP would yield positive results in a bull or rising
market as every new purchase, although made at a higher cost, is ultimately
valued at an even higher price. However, as seen earlier, in such a case it
would be wiser to buy the entire investment lump sum rather than keep
"averaging upwards" through the SIP route.
 Volatile but rising market: SIP should finally perform well in a volatile but
ultimately rising or bull market. This would be the market kind in which the
"rupee cost averaging" would work most favourably for the investor as the
volatility would lead to the best possible average price. The final rising or
subsequent bull market would ensure that the end price is higher than the
average price.
 Market in Median range, corrects downwards and then moves up: This
would be another case in which SIP would perform well and in all likelihood
better than initial lump sum investment. This is because the investor will get
the assistance of the intermediate correction to "lower his average cost".
But then does this mean that SIP works under all market conditions. Certainly no, so
let us now examine the market conditions under which SIP would not work.

Conditions under which SIP would not yield positive results

SIP route would not work under the following market conditions:

 Bear or falling Market: SIP would not work and in fact yield negative
returns in a bear or falling market as every new purchase, although made at a
lower cost would eventually be valued at an even lower price. In such a
market scenario, SIP might outperform lump sum investments as the investor
will get the benefit of "averaging downwards" but the investor will still lose
money - I believe it should be the endeavour of every investor to make money
by investing and not simply "lose less".
 Sideways Market: SIP would not work in a sideways market as you will not
get the benefit of rupee cost averaging and the final value would be closer to

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 the average cost. In a sideways market, the difference between the
performance of SIP and lump sum might not be material.
 Market in Median range, moves upwards and then moves down: This
would yet be one more case in which SIP would not perform because the
investor will actually be hurt by the SIP as he would be "averaging
northwards" while the final value would be much lower due to the subsequent
market correction. In fact, in this scenario, lump sum would perform much
better than SIP as it would not be subjected to the "negative effects of higher
rupee cost averaging".

Market Condition Superior Comments

Investment
Option
Rising or Bull Market Lump sum Since the investor buys lump sum at a
lower price rather than "averaging
upwards" through the SIP route.

Falling or Bear Market Neither of the two Simply because in a bear market an
investor is going to lose money in
equities - whether SIP or lump sum.

Sideways Market Indifferent between Both will lead to somewhat similar results
the two since there is neither any benefit nor
suffering due to using either of the
methods.

Market in median range, SIP SIP would in most probabilities perform

corrects downwards and well because the investor will get the
then moves up. assistance of the intermediate correction to
"lower his average cost".

Market in Median Lump sum Lump sum should in most likelihood

range, moves upwards perform better since the investor will not
and then moves down. average higher.

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 CHAPTER 7

FINDINGS FROM THE STUDY

By the study and analysis of SIP we can conclude that investing by SIP investment is
better than Lump sum investment as it is a more disciplined method and you don’t
have to time the market for the best NAV.

You don’t have to spend a lot all at once. SIP is better than Lump sum in the long run
as you tend to gain more profits since the NAV changes every time you invest.

For example:

You invest Rs 5,000 on 5th-Jan’05 with NAV of 48.15, after 10 years you will receive
Rs 1441007.5 (calculation on Pg. 88)

But in Lump sum if you invest Rs. 6, 05,000 on 5th Jan ’05 with NAV of 48.15, you
will receive Rs. 9, 83,957.31.

[6, 05,000 / 48.15 = 12,564.90

12,564.90 * 78.31 (NAV as on 2nd Jun’14) = 9, 83,957.31]

Thus you will get a profit of Rs. 4, 57,050.19 when you invest in SIP.

[14, 41,007.5 – 9, 83,957.31 = 4, 57,050.19]

Investors can also discontinue the plan at any time they want and can also increase or
decrease the amount being invested.

With the help of Rupee Cost Averaging a person does not need to worry about the
share prices as he is investing on regular intervals.

So he buys few units in a declining market and more is a rising market.

Although SIP does not guarantee profit but it can reduce the effects of investing in a
volatile market in the long way.

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 CHAPTER 8

CONCLUSION

Systematic Investment Plan lets the investors to invest a fixed amount of money in a
Mutual Fund Scheme and reduces the risk of investing in Lump sum all at once.
You don’t need to time the market, since you invest in the NAV of that particular day.
SIP is more feasible to low salaried and middle class men. It helps to save regularly.
Thus SIP is considered as a wise choice when compared to Lump sum investment
since you don’t have to invest a huge sum of money all at once and can help you
generate superior returns in a long run.

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 BIBLIOGRAPHY

 WWW.REBECO.COM
 WWW.VALUERESEARCHONLINE.COM
 WWW.MUTUALFUNDSINDIA.COM
 WWW.MONEYCONTROL.COM
 WWW.AMFIINDIA.COM
 WWW.RBI.ORG.IN
 WWW.INDIAINFOLINE.COM
 WWW.CRISIL.COM
 WWW.CIEL.CO.IN
 WWW.KPMG.COM
 WWW.UTIMF.COM
 WWW.EQUITYMASTER.COM
 WWW.INVESTOPEDIA.COM
 WWW.ECONOMICTIMES.COM
 WWW.CANARABANK.COM
 Book on Understanding Mutual Funds.

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