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The Scenario of Investment in Systematic Investment Plan (SIP) among the

Retail Customers

Article · January 2011

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Debalina Roy Koushik Ghosh

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Global Journal of Finance and Economic Management.
Volume 1, Number 1 (2011), pp. 49-62
© Research India Publications
http://www.ripublication.com

The Scenario of Investment in Systematic Investment

Plan (SIP) among the Retail Customers

Debalina Roy1 and Koushik Ghosh2

1
Department of HR, Reliance Communications Limited,
Reliance House Kolkata, Chowringhee Road, Kolkata-700071, India
E-mail: debalinaroyster@gmail.com
2
Department of Mathematics,
University Institute of Technology, University of Burdwan
Golapbag (North), Burdwan-713 104, India
E-mail: koushikg123@yahoo.co.uk

Abstract

In the present work we have studied how the investment in mutual funds
through Systematic Investment Plan (SIP) can gain momentum and increase
percentage of income. Investigations are also performed to find out what
percentage of bank customers invest in mutual funds especially through SIP
with specific reference to HDFC Bank, Shyambazar Branch, Kolkata, India. In
the present analysis we found that people with higher income tend to show
higher risks and service holders generally prefer investments in fixed deposits,
bonds, post office while the businessmen are more inclined to equity market.
By our present mathematical analysis we have also established that the risk in
investment by Systematic Investment Plan (SIP) is expected to be less than
that by lump sum investment in mutual funds. Hence, SIP seems to be a safer
and beneficial mode of investment for the small investors and in a large
context it is beneficial also for the big investors. Our sample study also
suggests that young investors are tending towards mutual fund investments
and preferring SIPs more than the aged investors.

Introduction
A mutual fund is a trust that pools the savings of a number of investors who share
common financial goal .the money thus collected is then invested in the capital market
such as shares, debentures and other securities. The income earned through these
investments and the capital appreciation realized is shared by its unit holders in
proportion to the number of units owned by them.
50 Debalina Roy and Koushik Ghosh

The plan of investing the same amount of money every month over an extended
period of time regardless of whether the market is up or down is known as Systematic
Investment Plan (SIP). Mutual Fund gives us four good reasons for investing through
SIP:
• Lighter on the wallet
• Makes timing of market irrelevant
• Helps build for future by the power of compounding
• Rupee cost averaging lowers your chances of losses.

Rupee cost averaging is an effective market-timer mechanism that eliminates the

need to time the markets. All one has to do is to invest a fixed, pre-decided amount of
money on a regular basis over a long period of time. Since the amount invested per
month is constant, one buys more units when the price is low and fewer units when
the price is high. As a result the average unit cost will always be less than the average
sale price per unit, irrespective of the market rising, falling or fluctuating.

The invested money can be utilized in three types of markets those are:
1. Equity market
2. Debt market and
3. Money market.

Equity market in India consists of

1. Shares and
2. Equity related securities.

Debt Market in India consists of

1. Government of India securities,
2. Bonds,
3. Debentures,
4. Treasury Bills and
5. Commercial papers.

Again Money market in India consists of

1. Call and
2. Repurchase Agreement (REPO).

In the present work our research objectives are:

1. To study how the investment in mutual funds through Systematic investment
plans (SIP) can gain momentum and increase percentage of income.To find
out what percentage of bank customer invest in mutual funds especially
through Systematic investment plan (SIP) with specific reference to HDFC
Bank, Shyambazar Branch, Kolkata, India.To compare risk between SIP and
lump sum investment in mutual funds.To make a probabilistic approach of the
The Scenario of Investment in Systematic Investment Plan 51

risk in investing money in mutual funds.To make a SWOT Analysis in SIP

investments.

Methodology of the Research Work

The survey work for the present analysis has been done taking the population as the
customers of the HDFC Bank, Shyambazar Branch, Kolkata, India. Hence naturally
the target market was Kolkata region mainly the North Kolkata. The methods adopted
were: [1]

Telecalling
The first method adopted in the process was Telecalling. The first author Roy called
different types of customers over telephone and tried to make them understand about
SIP. If they were interested Roy used to take appointment from him/her.

Visiting walk-in customers

It was easy to talk about SIP to the walk-in customers who came to know about
different products of the bank or about any queries and to make them to invest in
mutual funds through SIP.

Third method: personal visit

Some of the walk-in customers as well as some of the customers who were called
over the phone asked to visit them. Roy went to them and discussed about SIP.

Data Gathering
The necessary data were collected by the following manners:
1. Gathering data by filling up the questionnaire from different walk-in
customers.
2. Gathering information over the phone while talking about mutual funds and
SIP.
3. Gathering information while visiting customers in their homes or offices.

The questionnaire what was given to the customers is demonstrated below:

Specimen Questionnaire

Personal Details

Name:

Age: a) 20-30 b) 30-40 c) 40-50 d) 50-60 e) 60 and above.

52 Debalina Roy and Koushik Ghosh

Gender: M/F

Contact No.:

Occupation: A) Service B) Self Employed C) Others.

Income (Per annum): a) 1-2 lacs b) 2-3 lacs c) 3-4 lacs d) 4-5 lacs e) 5 lacs and
above. (1 Lac= 0.1 million).

A] What Are Your Modes Of Investment?

a) Mutual funds b) fixed deposits c) insurance d) bonds e) Shares f) post office.

B] Do You Know About Systematic Investment Plan (SIP)?

a) Yes b) no.

If No Then Why? -------------------------------------------------------

C] Do You Regularly Invest In Mutual Funds?

a) Yes b) no.

If No Then Why? -------------------------------------------------------

D] Do You Prefer Systematic Investment Plan Over Lump Sum Invest Ment?
a) Yes b) no.

If No Then Why?--------------------------------------------------------

E] What Percentage Of Your Investible Fund Do You Invest In SIP?

a) 0-10% b) 10-20% c) 30-50% d) 50% and above.

F] According To You What Is The Average Return From Mutual Funds?

a)10-20% b)20-30% c)30-40% d)40-50% e)50-60% f)60-70% g) more than70%.

G] What Is Your Investment Horizon?

a) 1 year b) 2 years c) 3 years d)) 4 years e) more than 4 years.

Statistical Analysis and Results

Our specimen size was 300 among them 210 were salaried and 90 were businessmen.

Analysis 1
In the group of salaried 129 were doing SIP.
We take HO [null hypothesis]: P=0.6
H1 [alternate hypothesis]: P ≠0.6
The Scenario of Investment in Systematic Investment Plan 53

We have ZCAL=(P-P0)/√(P0Q0/N) [2] where N=210, P0=0.6, Q0=1-P0=0.4, P=129/210.

We get, ZCAL=0.4226 ‹ZTABSo, at 1% significance level we can accept that about 60%
of the salaried customers go for Systematic Investment Plan.

Analysis 2
In the group of businessmen 46 have gone for SIP.
We took Ho: P=0.5
H1: P ≠ 0.5
We again have ZCAL=(p-P0)/√(P0Q0/N) [2] where N=90, P0=0.5, Q0=1-P0=0.5,
p=46/90. We get, ZCAL=0.2108 ‹ZTAB
Hence, at 1% significance level we can accept that about 50% of the Businessmen go
for Systematic Investment Plan.

Analysis 3
We now wish to compare the tendency of investment in SIP between these two
present groups.
For that we go with H0: PSALARIED=PBUSINESSMEN against H1: PSALARIED›PBUSINESSMEN.
We use ZCAL=(P1-P2)/√{P/Q/(N1-1+ N2-1)} [2] where P1=129/210, P2=46/90, N1=210,
N2=90, P/= (N1 P1+ N2 P2)/(N1+N2), Q/=1-P/.
We get ZCAL=1.66 which is less than Z0.01 but greater than Z0.05.
So if we test at 1%level of significance for one tailed test then we get that there is
almost equal tendency of doing SIP among salaried and businessmen. But if we test at
5%level of significance for one-tailed test then we get the salaried people are slightly
more inclined to do SIP.

Analysis 4
We have people preferring SIP over lump sum: 140
People preferring lump sum over SIP: 117
Not interested in mutual funds: 43
We like to study whether people like SIP over lump sum investment or not. For that
we go with
H0: PSIP=PLUMP SUM against H1: PSIP›PLUMP SUM.
We use ZCAL= (P1-P2)/√ (2 P/Q//N) [2] where P1=140/300, P2 =117/300, P/=(P1+P2)/2,
Q/=1- P/ and N=300. We get ZCAL=1.881 which is less than Z0.01 but greater than Z0.05.
So at 1% level of significance for one tailed test it is found that people in general
show equal interests in SIP and in lump sum investments. But at 5% level of
significance it is observed that people show a significant inclination towards the SIP
investment over lump sum investments.
54 Debalina Roy and Koushik Ghosh

Analysis 5
Other parameters considered
1. Risk-Appetite Income: People with higher income tend to show higher risks.
2. Risk –Appetite Attitude: Due to the risk factor and unpredictability share
market does not follow a specific trend. So we find that people with low risk
appetite tend to invest in fixed deposits.
3. Risk Appetite Age: It is found that people of age group between 20 and 40 are
more interested in mutual funds.
4. Common Myths about Investments: The investors have some notion about the
mutual fund investments. Notions that have been formed on the basis of
persistent marketing campaigns or on old believe and half truths that appear to
be full truths. Those are:
a. Larger funds generate big returns: “Money Today- Value Research of
Top Equity Diversified Funds” shows no correlation between the fund
size and returns.
b. Topper Today = Topper Tomorrow: A study conducted by Mr.
Prasunjit Mukherjee, CEO, PLEXUS Management, a mutual fund
tracking firm, found that there was only a 50% chance of the best short
term performing fund delivering in the long term. [3].

Figure 1

Table 1: SIP-Opting People: Age wise Distribution from the sample (Sample size:
129).

Serial number Age interval Total number of SIP investors

1 20-30 45
2 30-40 39
3 40-50 15
4 50-60 19
5 More than 60 11
The Scenario of Investment in Systematic Investment Plan 55

It looks like from the discussions what we had with different persons representing
different age groups that always the people with age less than 40 go for the adventure
of SIP. Others with age more than 40 seem to have the taste of adventure not up to
that extent. This picture is quite conspicuous from the above table.

SIP-OPTING PEOPLE: INCOMEWISE DISTRIBUTION FROM THE SAMPLE

1
2
3
4

Figure 2

Table 2: SIP-Opting People: Income wise Distribution from the sample (Sample size:
158)

Serial number Income interval Total number of SIP investors

1 100000-200000 34
2 200000-300000 40
3 300000-400000 37
4 More than 400000 47

A large number of persons did not want to disclose their income status. So we
have not framed out their status in order to avoid errors in the result.
56 Debalina Roy and Koushik Ghosh

DISTRIBUTION IN THE SAMPEL ACCORINDG TO THE PERCENTAGE OF

INVESTIBLE FUND INVESTED FOR SIP.

1
2
3
4
5

Figure 3

Table 3: Distribution in the sample according to the percentage of investible fund

invested for SIP (Sample size: 157).

Serial number Percentage interval Total number of SIP investors

1 0-10% 64
2 10-20% 45
3 20-30% 15
4 30-50% 9
5 More than 50% 24

Apart from the above distribution 6 persons told that the corresponding percentage
varies in a large scale. So we cannot frame out their opinions.
The Scenario of Investment in Systematic Investment Plan 57

DISTRIBUTION IN THE SAMPLE ACCORDING TO THE INVESTMENT

HORIZON OPTED FOR

1
2
3
4
5

Figure 4

Table 4: Distribution in the sample according to the Investment Horizon opted for
(Sample size: 179).

Serial number Horizon (in years) Total number of SIP investors

1 Around 1 40
2 1-2 25
3 2-3 18
4 3-4 36
5 More than 4 60

Apart from the above distribution 52 other persons preferred both long-term as
well as short-term investment horizons.

Limitations in the present survey

1. Small span of time and small target area.
2. Paucity of resources.
3. Lack of proper knowledge about Mutual Funds, particularly in SIP on
respondents’ part.
58 Debalina Roy and Koushik Ghosh

4. Due to reasons like confidentiality and security concerns all the respondents
did not gave their complete and correct data

Comparative Analysis of Risk between Systematic Investment Plan and Lump

Sum Investment in Mutual Funds
We suppose that an amount CX is to be invested in some mutual fund with investment
horizon X months. We can certainly consider two modes of investment in this case.

First case: The total amount CX is invested once as a lump sum investment working
for X months.

Second case: The amount CX is distributed as C per month for X months in

Systematic Investment Plan.

Risk in Investment: We can consider that the risk in investment is directly

proportional to the amount invested as well as it is directly proportional to the time
span of investment (the longer is the time span the number of ups and downs in the
amount is expected to be larger). So if an amount A is invested for N months and if R
be the corresponding risk, then certainly,
R α A.N

Risk in the first case: In the first case for the lump sum investment the risk is
given by,
RLUMP=K.CX.X=KCX2.

Here K is the corresponding proportionality constant.

Risk in the second case: In the second case we have to consider the composite risk
analysis. Firstly, the amount C is working for X months. So the corresponding risk is
R1=KCX. In the second turn, the amount C works for (X-1) months. So the risk in this
stage is R2=KC(X-1). Similarly in the third stage the risk is R3=KC(X-2) and so on.
Finally, at the last stage the risk is RX=KC.1.

Hence the composite risk will be,

RSIP=R1+R2+R3+…. + RX
=KCX+KC(X-1) +KC(X-2) +….KC.1
= KCX+KC(X-1) + KC(X-2) + ….KC.{X-(X-1)}
=KCX.X-KC {1+2+3+…. + (X-1)}
=KCX2-KCX.(X-1)/2

Comparison of risks in the above two cases: Now to have RSIP< RLUMP we must
have KCX2- KCX.(X-1)/2 < KCX2 and this is possible if KCX(X-1)/2 › 0 i.e. X › 1.
The Scenario of Investment in Systematic Investment Plan 59

This means for any investment horizon greater than one month the risk is expected
to be lower for investment by Systematic Investment Plan than by Lump Sum
Investment.

Risk Analysis in Investment in Mutual Funds: A Probabilistic Approach

Time Span of Investment. Parbabolic Curve Fitting against the Growth of Fund.

Figure 5

Here we fit a parabola as the best fitted curve for the growth of fund for certain
months starting with the amount c in the first cycle. Assuming the vertex to be (xp, yp)
the equation of the parabola can be taken as (x-xp)2 =-4a (y-yp).
Since at x=0, y=c we have, 4a=xp2/ (yp-c) hence we get, (x-xp)2=xp2(y-yp)/(c-yp) or
in other words,
y=yp+(c-yp)(x-xp)2/xp2 (1)

Now the probability that the grown amount at a certain time falls below the initial
investment c can be considered as the corresponding measure of risk. We can observe
from the figure that this happens in the first cycle only at the region x › 2xp. So the
corresponding risk for investment horizon of n months is given by
60 Debalina Roy and Koushik Ghosh

Although the figure depicts a very rough estimation of growth of a mutual fund
but it certainly exhibits the common trend of working of mutual funds in India. We set
the trend in the figure from the features of common mutual funds running in India for
last three years. It is always suggested to check the Net Asset Value (N.A.V.) of a
mutual fund where money has been invested at a regular period of time. If it is
observed that after gaining a certain altitude the fund continues to fall for consecutive
number of weeks then we can believe that the peak has been already achieved and
now the time is to withdraw the fund. Otherwise it may happen that the fund will fall
even below the initially invested amount and the investor may have to wait for the
next cycle to have a satisfactory increase in the fund. But this kind of waiting may be
fatal. So it is always suggested to withdraw the fund in the period xp≤ x ≤ 2xp. From
the equation (5) we can certainly have the idea of risk within the first cycle in
probabilistic sense in investment in mutual funds. Multiplying the right hand side of
(5) by 100 we get the risk in percentage.
In the earlier analysis of comparison of risks between the two familiar modes of
investment in mutual funds it was observed that RSIP < RLUMP. Higher risk may give a
very large growth, or else it can show a deep fall. Big investors can tolerate a deep fall
in fund as they usually run with multiple investments. But any large fall in capital is
fatal for the small investors. Hence, Systematic Investment Plan (SIP) seems to be a
safer and beneficial way of investment for the small investors.

Swot Analysis of Systematic Investment Plan

Table 5: SWOT Analysis.

Strengths Weaknesses Opportunity Threat

In Systematic Companies charge The emphasis on There is a plan called Systematic
Investment Plan entry and exit averaging out in an SIP Transfer Plan (STP) In this plan one
(SIP) one can loads. makes it more useful in can invest everyday instead of an
invest very small Same amount of case of an equity fund. SIP with monthly or quarterly
amount per month. money is to be As the volatility is investment plan. In STP the investor
SIP reduces invested at regular greater, an SIP can be can enjoy the power of
average cost. interval over a useful for a debt fund as compounding and rupee cost
SIP helps to avail period of well to build a pool of averaging more densely as in this
the power of specified time savings. plan the investor can follow up the
compounding. span. market on day to day basis.
SIP avoids the
pitfalls of market
timings.
SIP makes one
present in the
market over a
period of time.
SIP helps to
accumulate wealth
in a disciplined
manner by rupee-
cost averaging.
The Scenario of Investment in Systematic Investment Plan 61

Conclusion
During the present project work the following have been found:
• People don’t want to take risks but want to enjoy high rate of returns.
• Many investors start the investment process without determining the investment
objectives and proper planning.
• Service holders generally prefer investments in fixed deposits, bonds, post
offices whereas the group of businessmen or self-employed individuals is more
inclined to the equity market.
• Systematic Investment Plan (SIP) is the best way to build up capital over a
period of time for those who don’t have a lump sum to invest as our present
analysis suggests that the risk in investment by Systematic Investment Plan is
expected to be lower than that for lump sum investment.
• Different mutual funds schemes have different risk profiles but generally
investors tend to forget that their returns will be commensurate to that.
• Young investors are tending towards mutual fund investments and preferring
Systematic Investment Plans more than the aged investors.

Recommendations
1. ‘Slow and steady wins the race’-this message is often lost on mutual fund
investors. The investors invest a huge amount at one go and end up burning
their hands when markets take a dip. Stock markets are inherently volatile.
SIPs help investors make this volatility work for them. So enough
advertisements on SIPs should be conveyed to the potential customers.
2. It is found that there are three types of customers in the branch:
a. Seasoned Investors: They require no explanations on mutual funds.
They do regular investments in mutual funds.
b. New Investors: They have just started investment in mutual funds.
c. Orthodox Non-investors: They never invest in mutual funds.

Banks may try to educate the third category of investors as primarily they don’t
invest due to the lack of knowledge and time.

Acknowledgement
The first author Roy likes to declare that all these samples were taken while doing
Summer Internship Programme during the summer of the year 2007 at the HDFC
Bank, Shyambazar Branch, Kolkata, India as a part of the academic curriculum
required for the fulfillment of the two years MBA Programme of Roy. Roy owes a lot
to a number of people in this branch for their guidance and advice particularly, Mr.
Samrat Dutta, Branch Manager at that time of HDFC Bank, Shyambazar Branch,
Kolkata, India for approving her project and advising her how to go about doing it and
 62 Debalina Roy and Koushik Ghosh

Mrs. Tanupriya Prashant, Relationship manager at that time of HDFC Bank,

Shyambazar Branch, Kolkata, India for being her project guide and making her
understand the intricacy of the product.

References
[1] C.R. Kothari: Research Methodology-Methods and Techniques, Wiley Eastern
Limited, 1987.
[2] A.M. Goon, M.K. Gupta & B. Dasgupta: Fundamentals of Statistics, World
Press Private Limited, 1963.
[3] Money Today, pp 88-89, 23rd August, 2007.

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