SUMMER INTERNSHIP PROJECT

PROJECT REPORT ON
“IMPORTANCE OF SYSTEMATIC INVESTMENT PLANNING IN
PORTFOLIO MANAGEMENT”

SUBMITTED TO:
BENGAL INSTITUTE OF BUSINESS STUDIES, KOLKATA
IN THE PARTIAL FULFILMENT OF THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION
SUBMITTED BY:
MD SAMYAK JAIN (FB-2)
UNDER THE GUIDANCE OF:
PROFESSOR PINAKI BHATTACHARYA
BENGAL INSTITUTE OF BUSINESS STUDIES, KOLKATA

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 ACKNOWLEDGEMENT

No task is single man’s effort. Any job in this world however trivial or tough
cannot be accomplished without the assistance of others. An assignment puts
the knowledge and experience of an individual to litmus test. There is always a
sense of gratitude that one likes to express towards the persons who helped to
change an effort in a success. The opportunity to express my indebtness to
people who have helped me to accomplish this task.

I deem it a proud privilege to extend my greatest sense of gratitude to my

Project Guide PROFESSOR MR. PINAKI BHATTACHARYA for the keen
interest, inspiring guidance, continuous encouragement, valuable suggestions
and constructive criticism throughout the pursuance of this report. I am highly
indebted to him for sparing time from their busy schedule for providing me
with their able guidance at the time of need and helping me to achieve the
ultimate goal of the study. I would also like to thank PROFESSOR
SHASHANK KUMAR for his valuable support in helping me to gain this
opportunity of being associated with an organization of such esteem.

Last but not the least, it would be unfair if I don’t express my indebtness to my
parents and all my friends for their active cooperation which was of great help
during the course of my training project.

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 DECLARATION

I declare that the thesis entitled “IMPORTANCE OF SYSTEMATIC INVESTMENT PLANNING

IN PORTFOLIO MANAGEMENT” submitted by me for the master degree of business
administration is the record of research work carried out by me during the period from 5th June 2022
– to 20th June 2022 under the supervision of PROFESSOR PINAKI BHATTACHARYA, and,
PROFESSOR SHASHANK KUMAR and this has not formed the basis for the award of any degree,
diploma, associateship, fellowship, titles in this or any other University or other institution of higher
learning.
I further declare that the material obtained from other sources has been duly acknowledged in the
thesis. I shall be solely responsible for any plagiarism or other irregularities, if noticed in the thesis.
Signature of the Research Scholar: ……………………………
Date: 15TH JAN 2023
Name of Research Scholar: SAMYAK JAIN
Place: KOLKATA, W.B

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 TABLE OF CONTENTS

SERIAL NUMBER PARTICULARS PAGE NUMBER

1 TITLE PAGE 1

2 ACKNOWLEDGEMENT 2

3 DECLARATION 3

4 CHAPTER-1 5

5 CHAPTER-2 6

6 CHAPTER-3 32

7 CHAPTER-4 52

8 CHAPTER-5 62

9 ANNEXURES 65

10 BIBLIOGRAPHY 66

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 CHAPTER 1: EXECUTIVE SUMMARY

Mutual funds have emerged as a strong financial intermediary I'm financial intermittently and are the
fastest growing segment of the financial services sector in India mutual funds play a very significant
role in channel rising the savings of millions of individuals a mutual fund is the most suitable
investment for the common persons as it offers an opportunity to invest in our diversified
professionally managed "for you at a relatively low cost there are wide varieties of add varieties of
mutual fund schemes that cater to Investor needs whether as the foundation of one's investment
program or as a supplement mutual fund schemes can help the investors to meet their financial goals
a host of factors has contributed to this exclusive growth of the industry the industry has made
significant stride significant strides in terms of its variety sophistication and regulation due to the
economic boom entry of foreign asset management companies favourable stock markets and
aggressive marketing by mutual funds the asset management industry in India is witnessing dying
Investor needs whether as the foundation of one's investment program or as a supplement mutual
fund schemes can help the investors to meet their financial goals a host of factors has contributed to
this exclusive growth of the industry the industry has made significant stride significant strides in
terms of its variety sophistication and regulation due to the economic boom entry of foreign asset
management companies favourable stock markets and aggressive marketing by mutual funds the
asset management industry in India is witnessing dramatic growth in terms of new fund openings the
number of mutual fund families and in the total assets under management in recent years despite
various attractions offered the total net assets of mutual funds are very yes as compared to other
developed countries in the product offering to the Indian fund industry is not close to the developed
countries India 32 member fund industry has to scale new heights to narrow the gap with the other
developed countries to achieve this the Indian mutual fund industry need to widen its range of
products with affordable and competitive schemes that combine various elements of liquidity return
of liquidity return and security in making mutual fund products the best possible alternative for the
small investors in the Indian market besides mutual funds can survive only if they perform well and
satisfy the expectations of the investors in this context a sincere attempt has been made by the
researcher to examine the steady growth of the industry the innovations and the development that has
taken place in India.

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 CHAPTER 2: INTRODUCTION

2.1 INTODUCTION TO THE TOPIC

2.1.1 Systematic Investment Plan (SIP): It is an investment vehicle offered by mutual funds to
investors allowing them to invest using small periodically amounts instead of lump sums the
frequency of investment is usually weekly monthly or quarterly in SIP, a fixed amount of money is
debited by the investors in bank accounts periodically and invested in a specified mutual fund the
investor is as located 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 systematic investment plan is a simple time
honoured strategy designed to help investors accumulate wealth in a disciplined manner over the
long period of time and plan a better future for them. This disciplined approach of investing provides
with the following benefits.

 Power Of Compounding: The benefit of investing now most of us delay investments until the
last moment needless to say the longer one delay the greater will be the financial burden on
him to meet his financial goals on the other hand 1 would be surprised what 1 could achieve
by saving a small sum of money regularly at an early age moreover the earlier 1 invests the
longer his money works for him and greater will be the power of compounding. The benefit of
investing now most of us delay investments until the last moment needless to say the longer
one delay the greater will be the financial burden on him to meet his financial goals on the
other hand 1 would be surprised what 1 could achieve by saving a small sum of money
regularly at an early age moreover the earlier 1 invests the longer his money works for him
and greater will be the power of compounding.

The power of compounding underlines the importance of making his money work for him at
an early age take this example Shyam starts investing ₹5000 every year from the age of 20 and
continues to do till he reaches 35 after which he stops making any further investments Sanjay
starts saving ₹12000 every year from the age of 35 and continues to do so till he reaches 65
years of age if both earn, say 12% per annum on their investments which of them would be
wealthier when they Retire at 65. At 65 Shyam would have accumulated 55.84 lakhs whereas
Sanjay’s wealth would have been lower at 28.92 lakhs the power of compounding can have a
significant impact on wealth accumulation especially if one remains invested over a long
period of time.

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 Rupee Cost Averaging: Investing would be simple if one always picks the best time to buy
and sell however timing the market Consistently can be difficult tasks and one could be hit
with a loss sooner or later what 1 need is an automatic market timing mechanism like rupee
cost averaging that eliminates the need to time your investments.

In other words, with rupee cost averaging, you don't have to worry about where share prices or
interest rates are headed you simply invest a fixed amount at regular intervals regardless of the
net asset value the idea is that you buy fewer units when the net asset value is high and more
when it is low automatically this is in line with our natural desire to buy low and sell high.

For instance, you could opt for a systematic investment plan by investing ₹1000 every month
into an open-ended equity scheme with a net asset value of ₹10 the average cost per unit under
the SIP will always be less than the average purchase price per unit regardless of whether the
market is rising or falling or fluctuating.

Rupee cost averaging however does not guarantee a profit but with a sensible and long-term
investment approach it can smooth and out the market ups and downs and reduce the risk of
investing in volatile markets. In a nutshell rupee cost averaging is an efficient and convenient
vehicle to accumulate wealth in a time bound and disciplined manner.

 Convenience: Save yourself from the trouble of doing the same thing. You do not have to take
time out from your busy schedule to make your investments enroll for the SIP by starting an
account and providing post-dated checks of periodic investments (monthly or quarterly) based
on your convenience you can relax once you have sent in your checks with the completed
enrolment form.

 Disciplined investing: Investment via SIP inculcates the value of disciplined investing in an
investor as they are committed to investing a specific amount for a fixed period of time which
is essential in long term wealth creation.


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2.1.2 PORTFOLIO MANAGEMENT: We all dream of beating the market and being super
investors and spend an inordinate amount of time and resources in this endeavour.
consequently, we are easy prey for the magic bullets and the Secret formula offered by eager
sales people pushing their wares in spite of our best efforts most of us fail in our attempts to be
more than average investors. None the less we keep trying hoping that we can be more like the
investing legends another Warren Buffett or Peter Lynch we read the words written by and
about successful investors hoping to find in them the key to their stock picking abilities so that
we can replicate them and become wealthy quickly.

In our search, though, we are whipsawed by contradictions and anomalies. In one corner of the
investment town square, stands one adviser, yelling to us to buy businesses with solid cash
flows and liquid assets because that’s what worked for Buffet. In another corner, another
investment expert cautions us that this approach worked only in the old world, and that in the
new world of technology, we have to bet on companies with solid growth prospects. In yet
another corner, stands a silver-tongued salesperson with vivid charts and presents you with
evidence of his capacity to get you in and out of markets at exactly the right times. It is not
surprising that facing this cacophony of claims and counterclaims that we end up more
confused than ever.

In this introduction, we present the argument that to be successful with any investment
strategy, you have to begin with an investment philosophy that is consistent at its core and
which matches not only the markets you choose to invest in but your individual characteristics.
In other words, the key to success in investing may lie not in knowing what makes Peter
Lynch successful but in finding out more about you.

What is an investment philosophy?

An investment philosophy is a coherent way of thinking about markets how they work (and
sometimes do not) and the types of mistakes that you believe consistently underlie investor
behaviour. why do we need to make assumptions about investor mistakes? as we will argue,
most investment strategies are designed to take advantage of errors made by some or all
investors in pricing stocks those mistakes themselves are driven by far more basic assumption
about human behaviour to provide an illustration the rational or irrational tendency of human
beings to join crowds can result in price momentum — stocks that have gone up the most in
the recent past are more likely to go up in the near future. Let us consider, therefore, the
ingredients of an investment philosophy.

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Human Frailty:

Underlying all investment philosophies is a view about human behaviour. In fact, one weakness of
conventional finance and valuation has been the short shrift given to human behaviour. It is not
that we (in conventional finance) assume that all investors are rational, but that we assume that
irrationalities are random and cancel out. Thus, for every investor who tends to follow the crowd
too much (a momentum investor), we assume an investor who goes in the opposite direction (a
contrarian), and that their push and pull in prices will ultimately result in a rational price. While
this may, in fact, be a reasonable assumption for the very long term, it may not be a realistic one
for the short term.

Academics and practitioners in finance who have long viewed the rational investor assumption
with scepticism have developed a new branch of finance called behavioural finance which draws
on psychology, sociology and finance to try to explain both why investors behave the way they
do and the consequences for investment strategies. As we go through this section, examining
different investment philosophies, we will try at the outset of each philosophy to explore the
assumptions about human behaviour that represent its base.

Market Efficiency:

A closely related second ingredient of an investment philosophy is the view of market efficiency
or its absence that you need for the philosophy to be a successful one. While all active
investment philosophies make the assumption that markets are inefficient, they differ in their
views on what parts of the market the inefficiencies are most likely to show up and how long
they will last. Some investment philosophies assume that markets are correct most of the time
but that they overreact when new and large pieces of information are released about individual
firms — they go up too much on good news and down too much on bad news. Other investment
strategies are founded on the belief that markets can make mistakes in the aggregate — the entire
market can be under or overvalued — and that some investors (mutual fund managers, for
example) are more likely to make these mistakes than others. Still other investment strategies
may be based on the assumption that while markets do a good job of pricing stocks where there
is a substantial amount of information — financial statements, analyst reports and financial press
coverage —they systematically misprice stocks on which such information is not available.

Tactics and Strategies:

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 Once you have an investment philosophy in place, you develop investment strategies that
build on the core philosophy. Consider, for instance, the views on market efficiency
expounded in the last section. The first investor, who believes that markets over react to news,
may develop a strategy of buying stocks after large negative earnings surprises (where the
announced earnings come in well below expectations) and selling stocks after positive
earnings surprises. The second investor who believes that markets make mistakes in the
aggregate may look at technical indicators (such as mutual fund cash positions and short sales
ratios) to find out whether the market is overbought or oversold and take a contrary position.
The third investor who believes that market mistakes are more likely when information is
absent may look for stocks that are not followed by analysts or owned by institutional
investors.
It is worth noting that the same investment philosophy can spawn multiple investment strategies.
Thus, a belief that investors consistently overestimate the value of growth and under estimate the
value of existing assets can manifest itself in a number of different strategies ranging from a passive
one of buying low PE ratio stocks to a more active one of buying such companies and attempting to
liquidate them for their assets. In other words, the number of investment strategies will vastly
outnumber the number of investment philosophies.

Why do you need an investment philosophy?

Most investors have no investment philosophy, and the same can be said about many money
managers and professional investment advisors. They adopt investment strategies that seem to work
(for other investors) and abandon them when they do not. Why, if this is possible, you might ask, do
you need an investment philosophy? The answer is simple. In the absence of an investment
philosophy, you will tend to shift from strategy to strategy simply based upon a strong sales pitch
from a proponent or perceived recent success. There are three negative consequences for your
portfolio:
Lacking a rudder or a core set of beliefs, you will be easy prey for charlatans and pretenders, with
each one claiming to have found the magic strategy that beats the market.
As you switch from strategy to strategy, you will have to change your portfolio, resulting in high
transactions costs and you will pay more in taxes.
While there may be strategies that do work for some investors, they may not be appropriate for you,
given your objectives, risk aversion and personal characteristics. In addition to having a portfolio
that under performs the market, you are likely to find yourself with an ulcer or worse.

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With a strong sense of core beliefs, you will have far more control over your destiny. Not only will
you be able to reject strategies that do not fit your core beliefs about markets but also to tailor
investment strategies to your needs. In addition, you will be able to get much more of a big picture
view of what it is that is truly different across strategies and what they have in common.

The Big Picture of Investing:

To see where the different investment philosophies fit into investing, let us begin by looking at the
process of creating an investment portfolio. Note that this is a process that we all follow — amateur
as well as professional investors - though it may be simpler for an individual constructing his or her
own portfolio than it is for a pension fund manager with a varied and demanding clientele.

Step 1: Understanding the Client

The process always starts with the investor and understanding his or her needs and preferences. For a
portfolio manager, the investor is a client and the first and often most significant part of the
investment process understands the client's needs the client's tax status and most importantly, his or
her risk preferences. For an individual investor constructing his or her own portfolio, this may seem
simpler, but understanding one's own needs and preferences is just as important a first step as it is for
the portfolio manager.

Step 2: Portfolio Construction

The next part of the process is the actual construction of the portfolio, which we divide into three
sub-parts.

I. The first of these is the decision on how to allocate the portfolio across different asset classes
defined broadly as equities, fixed income securities and real assets (such as real estate, commodities
and other assets). This asset allocation decision can also be framed in terms of investments in
domestic assets versus foreign assets, and the factors driving this decision.

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2. The second component is the asset selection decision, where individual assets are picked
within each asset class to make up the portfolio. In practical terms, this is the step where the stocks
that make up the equity component, the bonds that make up the fixed income component and the real
assets that make up the real asset component are selected.

3. The final component is execution, where the portfolio is actually put together. Here investors
must weigh the costs of trading against their perceived needs to trade quickly. While the importance
of execution will vary across investment strategies, there are many investors who fail at this stage in
the process.

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 Step 3: Evaluate portfolio performance:

The final part of the process, and often the most painful one for professional money managers, is
performance evaluation. Investing is after all focused on one objective and one objective alone,
which is to make the most money you can, given your particular risk preferences. Investors are not
forgiving of failure and unwilling to accept even the best of excuses, and loyalty to money
managers is not a commonly found trait. By the same token, performance evaluation is just as
important to the individual investor who constructs his or her own portfolio, since the feedback
from it should largely determine how that investor approaches investing in the future.

These parts of the process are summarized in Figure 1.1, and we will return to this figure to
emphasize the steps in the process as we consider different investment philosophies. As you will
see, while all investment philosophies may have the same end objective of beating the market,
each philosophy will emphasize a different component of the overall process and require different
skills for success.

Categorizing Investment Philosophies

We will present the range of investment philosophies in this section, using the investment process
to illustrate each philosophy. While we will leave much of the detail for later, we will attempt to
present at least the core of each philosophy here.

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Market Timing versus Asset Selection

The broadest categorization of investment philosophies is on whether they are based upon timing
overall markets or finding individual assets that are mispriced. The first set of philosophies can be
categorized as market timing philosophies, while the second can be viewed as security selection
philosophies.

Within each, though, are numerous strands that take very different views about markets. Consider
market timing first. While most of us consider market timing only in the context of the stock
market, there are investors who consider market timing to include a much broader range of markets
— currency markets, bond markets and real estate come to mind. The range of choices among
security selection philosophies is even wider and can span charting and technical indicators,
fundamentals (earnings, cashflows or growth) and information (earnings reports, acquisition
announcements).

While market timing has allure to all of us (because it pays off so well when you are right),
it is difficult to succeed at for exactly that reason. There are all too often too many investors
attempting to time markets, and succeeding consistently is very difficult to do. If you decide to
pick stocks, how do you choose whether you pick them based upon charts, fundamentals or growth
potential? The answer, as we will see, in the next section will depend not only on your views of the
market and empirical evidence but also on your personal characteristics.

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Activist versus Passive Investing

At the broadest level, investment philosophies can also be categorized as active or passive
strategies. In a passive strategy, you invest in a stock or company and wait for your investment to
pay off. Assuming that your strategy is successful, this will come from the market recognizing and
correcting a misevaluation. Thus, a portfolio manager who buys stocks with low price earnings
ratios and stable earnings is following a passive strategy. So is an index fund manager, who
essentially buys all stocks in the index. In an activist strategy, you invest in a company and then try
to change the way the company is run to make it more valuable. Venture capitalists can be
categorized as activist investors since they not only take positions in promising companies but they
also provide significant inputs into how these firms are run. In recent years, we have seen investors
like Michael Price and the California State pension fund (Calpers) bring this activist philosophy to
publicly traded companies, using the clout of large positions to change the way companies are run.
We should hasten to draw a contrast between activist investing and active investing. Any investor
who tries to beat the market by picking stocks is viewed as an active investor. Thus, active investors
can adopt passive strategies or activist strategies.

Time Horizon

Different investment philosophies require different time horizons. A philosophy based upon the
assumption that markets overreact to new information may generate short term strategies. For
instance, you may buy stocks right after a bad earnings announcement, hold a few weeks and sell
(hopefully at a higher price, as the market corrects its overreaction). In contrast, a philosophy of
buying neglected companies (stocks that are not followed by analysts or held by institutional
investors) may require much longer time horizons.
One factor that will determine the time horizon of an investment philosophy is the nature of the
adjustment that has to occur for you to reap the rewards of a successful strategy. Passive value
investors who buy stocks in companies that they believe are undervalued may have to wait years for
the market correction to occur, even if they are right. Investors, who trade ahead or after earnings

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reports, because they believe that markets do not respond correctly to such reports, may hold the
stock for only a few days. At the extreme, investors who see the same (or very similar) assets being
priced differently in two markets may buy the cheaper one and sell the more expensive one, locking
in arbitrage profits in a few minutes.

Coexistence of Contradictory Strategies

One of the most fascinating aspects of investment philosophy is the coexistence of investment
philosophies based upon contradictory views of the markets. Thus, you can have market timers who
trade on price momentum (suggesting that investors are slow to learn from information) and market
timers who are contrarians (which is based on the belief that markets over react). Among security
selectors who use fundamentals, you can have value investors who buy value stocks, because they
believe markets overprice growth, and growth investors who buy growth stocks using exactly the
opposite justification. The coexistence of these contradictory impulses for investing may strike
some as irrational, but it is healthy and may actually be responsible for keeping the market in
balance. In addition, you can have investors with contradictory philosophies co-existing in the
market because of their different time horizons, views on risk and tax status. For instance, tax
exempt investors may find stocks that pay large dividends a bargain, while taxable investors may
reject these same stocks because dividends are taxed at the ordinary tax rate.

Investment Philosophies in Context

We can consider the differences between investment philosophies in the context of the investment
process. Market timing strategies primarily affect the asset allocation decision. Thus, investors
who believe that stocks are undervalued will invest more of their portfolios in stocks than would be
justified given their risk preferences. Security selection strategies in all their forms — technical
analysis, fundamentals or private information — all centre on the security selection component of

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the portfolio management process. You could argue that strategies that are not based upon grand
visions of market efficiency but are designed to take advantage of momentary mispricing of assets
in markets (such as arbitrage) revolve around the execution segment of portfolio management. It is
not surprising that the success of such opportunistic strategies depends upon trading quickly to take
advantage of pricing errors, and keeping transactions costs low.

Developing an Investment Philosophy: The Step

If every investor needs an investment philosophy, what is the process that you go through to come
up with such a philosophy? While portfolio management is about the process, we can lay out the
three steps involved in this section.
Step I: Understand the fundamentals of risk and valuation

Before you embark on the journey of finding an investment philosophy, you need to get your

financial toolkit ready. At the minimum, you should understand how to measure the risk in an

investment and relate it to expected returns.

how to value an asset, whether it be a bond, stock or a business

the ingredients of trading costs, and the trade-off between the speed of trading and the cost of
trading
We would hasten to add that you do not need to be a mathematical wizard to do any of these and it
is easy to acquire these basic tools.

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Step 2: Develop a point of view about how markets work and where they might break down

Every investment philosophy is grounded in a point of view about human behaviour (and
irrationality). While personal experience often determines how we view our fellow human beings,
we should expand this to consider broader evidence from markets on how investors act before we
make our final judgments.
Over the last few decades, it has become easy to test different investment strategies as data
becomes more accessible. There now exists a substantial body of research on the investment
strategies that have beaten the market over time. For instance, researchers have found convincing
evidence that stocks with low price to book value ratios have earned significantly higher returns
than stocks of equivalent risk but higher price to book value ratios. It would be foolhardy not to 19

review this evidence in the process of developing your investment philosophy. At the same time,
though, you should keep in mind three caveats about this research:
Since they are based upon the past, they represent a look in the rear-view mirror. Strategies that
earned substantial returns in the 1990s may no longer be viable strategies now. In fact, as successful
strategies get publicized either directly (in books and articles) or indirectly (by portfolio managers
trading on them), you should expect to see them become less effective.
Much of the research is based upon constructing hypothetical portfolios, where you buy and sell
stocks at historical prices and little or no attention is paid to transactions costs. To the extent that
trading can cause prices to move, the actual returns on strategies can be very different from the
returns on the hypothetical portfolio.
A test of an investment strategy is almost always a joint test of both the strategy and a model for
risk. To see why, consider the evidence that stocks with low price to book value ratios earn higher
returns than stocks with high price to book value ratios, with similar risk (at least as measured by
the models we use). To the extent that we mismeasure risk or ignore a key component of risk, it is
entirely possible that the higher returns are just a reward for the greater risk associated with low
price to book value stocks.

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Since understanding whether a strategy beats the market is such a critical component of investing,
we will consider the approaches that are used to test a strategy, some basic rules that need to be
followed in doing these tests and common errors that are made (unintentionally or intentionally)
when running such tests. As we look at each investment philosophy, we will review the evidence
that is available on strategies that emerge from that philosophy.

Step 3: Find the philosophy that provides the best fit for you

Once you understand the basics of investing form your views on human foibles and behaviour and
review the evidence accumulated on each of the different investment philosophies, you are ready to
make your choice. In our view, there is potential for success with almost every investment
philosophy (yes, even charting) but the prerequisites for success can vary. In particular, success may
rest on:

Your risk aversion: Some strategies are inherently riskier than others. For instance, venture capital
or private equity investing, where you invest your funds in small, private businesses that show
promise is inherently riskier than buying value stocks — equity in large, stable, publicly traded
companies. The returns are also likely to be higher. However, more risk averse investors should
avoid the first strategy and focus on the second. Picking an investment philosophy (and strategy)
that requires you to take on more risk than you feel comfortable taking can be hazardous to your
health and your portfolio.

The size of your portfolio: Some strategies require larger portfolios for success whereas others
work only on a smaller scale. For instance, it is very difficult to be an activist value investor if you
have only S 100,000 in your portfolio, since firms are unlikely to listen to your complaints. On the
other hand, a portfolio manager with S 100 billion to invest may not be able to adopt a strategy that
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requires buying small, neglected companies. With such a large portfolio, she would very quickly
end up becoming the dominant stockholder in each of the companies and affecting the price every
time she trades.

Your time horizon: Some investment philosophies are predicated on a long-time horizon, whereas
others require much shorter time horizons. If you are investing your own funds, your time horizon is
determined by your personal characteristics — some of us are more patient than others — and your
needs for cash — the greater the need for liquidity, the shorter your time horizon has to be. If you
are a professional (an investment adviser or portfolio manager), managing the funds of others, it is
your clients time horizon and cash needs that will drive your choice of investment philosophies and
strategies.

Your tax status: Since such a significant portion of your money ends up going to the tax collectors,
they have a strong influence on your investment strategies and perhaps even the investment
philosophy you adopt. In some cases, you may have to abandon strategies that you find attractive on
a pre-tax basis because of the tax bite that they expose you to.

Thus, the right investment philosophy for you will reflect your particular strengths and weaknesses.
It should come as no surprise, then, that investment philosophies that work for some investors do
not work for others. Consequently, there can be no one investment philosophy that can be labelled
best for all investors.
In this introduction, we considered a broad range of investment philosophies from market timing to
arbitrage and placed each of them in the broad framework of portfolio management. We also
examined the three steps in the path to an investment philosophy, beginning with the understanding
of the tools of investing — risk, trading costs and valuation — continuing with an evaluation of the
empirical evidence on whether, when and how markets break down and concluding with a self-

41
assessment, to find the investment philosophy that best matches your time horizon, risk preferences
and portfolio characteristics.
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 less 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. SIPS 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.

India has a diversified financial sector, which is undergoing rapid expansion. The sector comprises
commercial banks, insurance companies, non-banking financial companies, co-operatives, pension
funds, mutual funds and other smaller financial entities. India's services sector has always served the
country's economy well, accounting for about 57 per cent of the gross domestic product (GDP). In
this regard, the financial services sector has been an important contributor. The size of banking
assets in India reached USS 1.8 trillion in FY 14 and is expected to touch USS 28.5 trillion by
FY25.
The Association of Mutual Funds in India (AMFI) data show that assets of the mutual fund industry
have hit an all-time high of about Rs 12 trillion (USS 189.83 billion). Equity funds had inflows of
Rs 5,217 crore (USS 825.49 million), taking total inflows on a year-to-date basis to Rs61 ,089 crore
(USS 9.66 billion). Income funds and liquid funds account for the largest proportion of AUM, with
Income funds accounting for Rs 5.22 trillion (USS 82.59 billion) and equity funds accounting for Rs
3.06 trillion (USS 48.41 billion). According to this report, this industry is growing at CAGR of
17%p.a.

There is a big unorganized market as a competitor to our organization which includes individual
Chartered Accountants and online government portals but the biggest and major competitor is Clear
tax, Tax Planner, HR Block, My IT Return etc.

42
2.2 INTRODUCTION TO THE INDUSTRY:

Service industry sector with an around 57 per cent contribution to the gross domestic product
(GDP), has made rapid strides in the last few years and emerged as the largest and fastest-growing
sector of the economy. Besides being the dominant sector in India's GDP, it has also contributed
substantially to foreign investment flows, exports, and employment. India's services sector covers a
wide variety of activities that have different features and dimensions. They include trade, hotel and
restaurants, transport, storage and communication, financing, insurance, real estate, & business
services, community, social and personal services and services associated with construction.
Services in India are emerging as a prominent sector in terms of contribution to national and states'
incomes, trade flows, foreign direct investment (FDI) inflows, and employment.
The compound annual growth rate (CAGR) of services sector GDP was 8.5 per cent for the period
2000-01 to 2013-14.
As per the survey, in India, the growth of services-sector gross domestic product (GDP) has been
higher than that of overall GDP between the FYOI- FY14. Services constitute a major portion of
India's GDP with a 57 per cent share in GDP at factor cost (at current prices) in 2013-14, an
increase of 6 per cent points over 2000-01.
The shift from primary and secondary activities to tertiary activities by the citizens of a country
indicates that it is on the path of progress. The growth in the services sector can be attributed mostly
to the emergence of the Indian Information Technology (IT) and IT enabled Services
(ITES) sectors as well as e-commerce.

MARKET SIZE:
The services sector in India comprises a wide range of activities such as transportation, logistics,
financial, business process outsourcing services, healthcare, trading, and consultancies, among
many others.
The HSBC India Services PMI stood at 51.1 in November 2014 — a reading above 50 signals
expansion.

43
According to the data provided by International Data Corporation (IDC), the total mobile services
market revenue in India is expected to touch USS 37 billion in 2017 growing at a compound annual
growth rate (CAGR) of 5.2 percent.

The growth in the ITES sector has resulted in increasing competition between the different brands in
the e-commerce sector. As a result, it is expected that the e-commerce sector will generate close to
150,000 jobs within the next 2-3 years.
The logistics sector in India which was valued at USS 101 billion in 2013 is expected to grow by 10
per cent per annum to reach USS 136 billion by 2016, according to Mr R Dinesh, Chairman,
CII Institute of Logistics Advisory Council and Joint Managing Director, TVS Sons Ltd.

Investments:

The Indian services sector has attracted the highest amount of FDI equity inflows in the period April
2000-December 2014, amounting to about USS 41,755.46 million which is about 18 per cent of the
total foreign inflows, according to the Department of Industrial Policy and Promotion (DIPP).

The Government of India has awarded a contract worth Rs 1,370 crore (US$ 221.63 million) to
Ricoh India Ltd and Telecommunications Consultants India Ltd (TCIL) to modernise 129,000
Taxi service aggregator Ola plans to scale up operations to 100 cities from 19 currently. The
company, which is looking at small towns for growth, also plans to invest in driver eco-system, such
as training centres and technology upgrade.

Government Initiatives:

Strong and consistent emphasis on self-reliance in its economic development programmes over the
years by the Government of India has also enabled India to build up a big and versatile cadre of
professionals. They now have expertise and skills across a vast and wide-ranging spectrum of
44
disciplines, such health care, tourism, education, engineering, communications, transportation,
information technology, banking, finance, management, among others.

The Government of India has adopted a few initiatives in the recent past. Some of these are as
follows:

The Government of India plans to take mobile network by December 2016 to nearly 10 per cent of
Indian villages that are still unconnected.
The Reserve Bank of India (RBI) has allowed third-party white label automated teller machines
(ATM) to accept international cards, including international prepaid cards, and has also allowed
white label ATMs to tie up with any commercial bank for cash supply.

The Government of India has launched tourist visa on arrival (TVOA) enabled by electronic travel
authorization (ETA) to 43 countries.
India and Japan held a Joint Working Group conference for Comprehensive Cooperation
Framework for Information and Communication Technologies (ICT). India also offered Japan to
manufacture ICT equipment in India.

Citizens of India is expected to get a minimum of 2 megabits per second (MBPS) Wi-Fi speed at
every government owned service point such as railways stations, airports, bus stops, hospitals and
all government departments that deal with the public on a daily basis.
Road Ahead

Services sector growth is governed by both domestic and global factors. The sector is expected to
perform well in FY16. Some improvement in global growth and recovery in industrial growth will
drive the services sector to grow 7.4 per cent in FY16 (FY 15: 7.3 per cent). The performance of
trade, hotels and restaurants, and transport, storage and communication sectors are expected to
improve in FY16. Loss of growth momentum in commodity-producing sectors had adversely
impacted transport and storage sectors over the past two years. The financing, insurance, real estate
and business services sectors are also expected to continue their good run in FY 16. The growth

45
performance of the community, social and personal services sector is directly linked with
government expenditure and we believe that the government will remain committed to fiscal
consolidation in FY16.
Exchange Rate Used: INR I = USS 0.016 as on February 26, 2015

References: Media Reports, Press Releases, DIPP publication, Press Information Bureau, Indian
budget publication.

The Institute of Chartered Accountants of India (ICAI) is the national professional accounting body
of India. It was established on I July 1949 as a body corporate under the Chartered Accountants Act,
1949 enacted by the Parliament (acting as the provisional Parliament of India) to regulate the
profession of Chartered Accountancy in India. ICAI is the second largest professional accounting
body in the world in terms of membership, after American Institute of Certified Public Accountants.
ICAI is the only licensing cum regulating body of the financial audit and accountancy profession in
India. It recommends the accounting standards to be followed by companies in India to The
National Financial Reporting Authority (NFRA) and sets the accounting standards to be followed by
other types of organizations. ICAI is solely responsible for setting the auditing and assurance
standards to be followed in the audit of financial statements in India. It also issues other technical
standards like Standards on Internal Audit (SIA), Corporate Affairs Standards (CAS) etc. to be
followed by practicing Chartered Accountants. It works closely with the Government of India,
Reserve Bank of India and the Securities and Exchange Board of India in formulating and enforcing
such standards.

Members of the Institute are known as Chartered Accountants. However, the word chartered does
not refer to or flow from any Royal Charter. Chartered Accountants are subject to a published Code
of Ethics and professional standards, violation of which is subject to disciplinary action. Only a

46
member of ICAI can be appointed as auditor of an Indian company under the Companies Act, 1956.
The management of the Institute is vested with its Council with the president acting as its Chief
Executive Authority. A person can become a member of ICAI by taking prescribed examinations
and undergoing three years of practical training. The membership course is well known for its
rigorous standards. ICAI has entered into mutual recognition agreements with other professional
accounting bodies world-wide for reciprocal membership recognition

47
2.4 Introduction to the project

Types/ Methods of SIP's

There are many investment methods in SIP now you can invest in your desired shares through
SIP. You can invest on the daily, weekly, fortnightly or quarterly basis with the help of SIP.

Monthly Systematic Investment Plan (SIP)

This is the traditional way of SIP investment in Equity Mutual Fund. This is the best option for
salaried people. Investor can choose any date of each month falling from I to 10.

Daily Systematic Investment Plan (SIP)

In this method, your investment is invested in the fund on daily basis. Some mutual funds offer
'Daily SIP' option. This product is best for small traders involved in micro segment. But some
people don't like Daily SIP and sometimes it gives you losses. Actually, it averages your
investment on a regular basis but it proves to be a burden sometimes.

Flexi Systematic Investment Plan (SIP)

Traditional SIP allows you to invest a specific amount on monthly or daily basis. However, the
investor of Flexi SIP can invest different amounts in SIP investment at different time periods. He
can make modifications month after months in amount to be invested. This cannot be done
through mutual funds. With the help of this facility, investor can invest Rs. 1,000- Rs. 10,000 per
month and this depends on cash in hand. However, the investors who are not much aware of
market conditions should be careful while investing through Flexi Systematic Investment Plan
(SIP).
48
49
 Figure No.
I. Open-Ended: This scheme allows investors to buy or sell units at any point in time. This does
not have a fixed maturity date.
1. Debt/ Income: In a debt/income scheme, a major part of the investable fund are channelized
towards debentures, government securities, and other debt instruments. Although capital
appreciation is low (compared to the equity mutual funds), this is a relatively low risk-low return
investment avenue which is ideal for investors seeing a steady income.

2.Money Market/ Liquid: This is ideal for investors looking to utilize their surplus funds in short
term instruments while awaiting better options. These schemes invest in short-term debt
instruments and seek to provide reasonable returns for the investors.

50
3.Equity/ Growth: Equities are a popular mutual fund category amongst retail investors.
Although it could be a high-risk investment in the short term, investors can expect capital
appreciation in the long run. If you are at your prime earning stage and looking for long-term
benefits, growth schemes could be an ideal investment.
3.I. Index Scheme - Index schemes are a widely popular concept in the west. These follow a
passive investment strategy where your investments replicate the movements of benchmark
indices like Nifty, Sensex, etc.

3.II. Sectoral Scheme: Sectoral funds are invested in a specific sector like infrastructure, IT,
pharmaceuticals, etc. or segments of the capital market like large caps, mid-caps, etc. This scheme
provides a relatively high risk-high return opportunity within the equity space.

3.III. Tax Saving: As the name suggests, this scheme offers tax benefits to its investors. The
funds are invested in equities thereby offering long-term growth opportunities. Tax saving mutual
funds (called Equity Linked Savings Schemes) has a 3-year lock-in period.

4.Balanced: This scheme allows investors to enjoy growth and income at regular intervals. Funds
are invested in both equities and fixed income securities; the proportion is pre-determined and
disclosed in the scheme related offer document. These are ideal for the cautiously aggressive
investors.

II. Closed-Ended: In India, this type of scheme has a stipulated maturity period and investors can
invest only during the initial launch period known as the NFO (New Fund Offer) period.

51
I. Capital Protection: The primary objective of this scheme is to safeguard the principal amount
while trying to deliver reasonable returns. These invest in high-quality fixed income securities
with marginal exposure to equities and mature along with the maturity period of the scheme.

2. Fixed Maturity Plans (FMPs): FMPs, as the name suggests, are mutual fund schemes with a
defined maturity period. These schemes normally comprise of debt instruments which mature in
lines with the maturity of the scheme, thereby earning through the interest component (also called
coupons) of the securities in the portfolio. FMPs are normally passively managed, i.e., there is no
active trading of debt instruments in the portfolio. The expenses which are charged to the scheme,
are hence, generally lower than actively managed schemes.

Ill. Interval: Operating as a combination of open and closed ended schemes, it allows investors to
trade units at pre-defined intervals.

SIP CALCULATOR
Your monthly systematic investment depends on how much corpus you want at the time of your
retirement and how much years do you have for your retirement. The earlier you start, the less you
need to investment at mutual funds and the late you start, the more you need ti invest at mutual
funds. Let's take an example.
Mr. A wants to have corpus of Rs. 5crores at the age of 65 and his current age is 40, he needs to
invest Rs. 29,379 every month for 300 months at CAGR of 12%.
Similarly, Mr. B wants to have corpus of Rs. 5 crores at the age of 65 and his current age is 25, he
just needs to invest Rs. 5,106 every month for 480 months at CAGR of 12%
This is called the power of compounding. Mr. B just started investment 15 years before and just
need to invest Rs. 5,106, which is far less than investing Rs. 29,379.

52
 Thus, it is rightly said that start investing early to get better returns.

CHAPTER 3: STUDY/ PROJECT DETAILS

3.1 Literature Review/ Library Review

53
Gaining from equity investments

To invest in mutual funds, rather than going for a lump sum investment, a Systematic Investment
Plan (SIP) is a much better option. Investing a fixed sum every month in a mutual fund offers rupee
cost averaging, which lowers the investor's average cost and reduces risk. Investors don't have to
worry about the daily volatility in the market. You can start with as little as Rs 500 a month. A long-
term SIP will help you enjoy the benefits of compounding.
Equity investors should avoid New Fund Offers (NFOs) and Initial Public Offerings (IPOs). They
should invest in equity schemes that have completed at least three years, and have a proven track
record. There has been a flood of NFOs, pushed by distributors who are being paid high up-front
commissions, in the past six months. Also, in an accelerating market, companies often choose to go
public. Again, these companies do not have a track record to judge them by and can prove to be
risky investments.

Then, investors must review the performance of the schemes they invest in. Your fund may not
always be among the top three, but it has to be in the first quartile. An active fund must beat its
benchmark. If your fund does not meet these criteria, you must shift to another fund.

Finally, portfolio returns depend more on asset allocation than a fund's performance. Asset
allocation should be followed seriously and the portfolio should be restored to its original asset
allocation, at least once a year. If you can't do it yourself, or do not have access to professional help,
auto rebalancing products like balanced funds can be ideal for you.

54
SLIGHT MODIFICATION IN FILING NORMS MAKES IT EASIER FOR
TAXPAYERS
The Finance Ministry had earlier dropped the mandatory disclosure of dormant bank accounts as
well as foreign trips. This time around, the Ministry has come up with a simpler approach to ITR
Forms, which will ease the process of standard and e-filing of income tax returns on the whole.
Incidentally, the earlier versions of the ITR Forms were a bit on the complex side and were
strongly opposed by the assesses, MPs as well as by the industry. These ITR Forms were brought
to public notice by the CBDT last month and is applicable for the running Assessment Year. These
forms have been provided with specified columns for the purpose of different bank accounts, their
IFSC codes, foreign visits whether personal or provided by the companies as well as the names of
joint account holders.

The first and foremost advantage of e-filing income tax is the reduction in the number of pages of
the ITR Form. This comes as a big relief to assesses as the number of pages in the Form has been
reduced from 14 to a mere three pages. ITR Form 2 and ITR Form 2A will consist of three pages
each. Other details, which are deemed necessary for the e-filing of tax returns, have to be added in
schedules.

Also, the Finance Ministry has relaxed its rule regarding the number of bank accounts held in a
person's name. The Ministry has decided to do away with the disclosure of dormant bank account
details. A dormant account can be defined as one, which is not in operation for the last three years.
According to the recent reform, only the account number and IFS code of those savings bank or
current accounts need to filled up that are active in the previous year. The balance sheet of those
accounts will have to be furnished. Assesses might not bother about such accounts, which have not
been functional over the previous year.

55
Apart from these factors, the Ministry has also relaxed the conditions for taxpayers who need to
take foreign trips frequently. From this year onwards, it has been proposed that the passport
number, if applicable, will be required to be submitted in the ITR Form 2A and ITR Form 2.

56
However, unlike the previous conditions, there will be no requirement to
provide details of the foreign trip and the expenditure incurred during the
process. This brings a huge relief to those who pay a visit to foreign locations
every now and then.

Apart from this factor, an individual who is not an Indian citizen but is in the
country with a student visa or for business or employment will not be required
to report the assets owned, which have been acquired by him or her in previous
years if there is no income from those assets in the running financial year.
Experts have stated that these norms go easy on the taxpayers and they might
find it friendlier. Incidentally, the norms show that the Government wants a
clear perception of the assets that a taxpayer owns apart from smooth filing of
income tax return.

PURPOSE OF SIP’s
Rupee cost averaging: Rupee cost averaging, also commonly known as RCA is
one of the very significant reasons why investing in a systematic investment
plan must be considered by almost every investor. Investors investing a fixed
amount of money every month towards any investment vehicle allow them to
purchase more units or stocks when the price of the investment is lower. This
reduces the average cost of purchasing of the financial asset over time.
Considering a long-term investment approach, rupee cost averaging can even
out any market ups and downs in the long term, allowing the investor to gain
maximum benefits ion his or her investments over time.

In simplistic terms, let us consider an investor is investing a monthly fixed

amount in a mutual fund investment plan. Considering the fact that the investor
invests the same amount each month irrespective of the market cycle, be it a
bull phase or a bear phase, the average cost of investment is eventually
maintained at a lower level allowing maximum gains in the long term.

57
EG.

Most investors want to buy stocks when the prices are low and sell them when
prices are high. But timing the market is time consuming and risky. A more
successful investment strategy is to adopt the method called Rupee Cost
Averaging. To illustrate this we'll compare investing the identical amounts
through a SIP and in one lump sum.

Imagine Suresh invests Rs. 1000 every month in an equity mutual fund scheme
starting in January. His friend, Rajesh, invests Rs. 12000 in one lump sum in the
same scheme. The following table illustrates how their respective investments
would have performed from Jan to Dec.

58
 Suresh's Investment Rajesh’s Investment

Month NAV Amount Units Amount Units

Jan 9.345 1000 107.0091 12000 1284.1091

-04

Feb-04 9.399 1000 106.3943

Mar-04 8.123 1000 123.1072

Apr- 8.750 1000 114.2857

04

May-04 8.012 1000 124.8128

Jun-04 8.925 1000 112.0448

Jul- 9.102 1000 109.8660

04

Aug-04 8.310 1000 120.3369

Sep-04 7.568 1000 132.1353

Oct-04 6.462 1000 154.7509

Nov-04 6.931 1000 144.2793

Dec- 7.600 1000 131.5789

04

59
At the end of the 12 months, Suresh has more units than Rajesh, even though
they invested the same amount. That's because the average cost of Suresh's units
is much lower than that of

Rajesh. Rajesh made only one investment and that too when the per-unit price
was high.
60
Suresh's average unit price = 12000/1480.6012 = Rs. 8.105

Rajesh's average unit price = Rs. 9.345

Power of compounding: One of the basic rules of being a successful investor is

to start early. Since all investment and returns are based on the power of
compounding, an investor starting out early can earn much higher returns than
a one starting out late even with a slightly higher corpus. Since a systematic
investment plan do not seek a large amount of investment and users can start
investing with a low sum each month depending on their financial condition, it
allows them to start investing much early in life.

Let us consider Mr. A and Mr. B and understand how the power of
compounding helps the investor using a systematic approach. Mr. A started
investing in a systematic investment plan investing a sum of Rs. 1000 when he
was 30 years old. By the time Mr. A reaches 50 years of age, he would have
invested Rs. 24 Lakhs if the money grew on an average rate of 7% per annum.

Now let us consider Mr. B who starts out earlier than Mr. A and started
investing the same amount of Rs. 1000 from the time he was 20 years old or
ten years earlier than Mr. A. Mr. B's investment growing at the same rate of
7% per annum would end up as high as Rs. 36 Lakhs by the time he is 50
years old. So, while both Mr. A and Mr. B invested same amount each month,
the one starting out early has made a substantial gain compared to the one
starting out late.

Investment convenience: A systematic investment plan as the name suggest

Mic 39/65 nature allowing the investor the advantage of investing
small amount of no.
without any hassles. The investor can send a onetime instruction to his or her
bank to allow auto debit of the investment amount each month from his or her
savings bank account allowing systematic investments without worrying about
missing out on any monthly investment.

Other benefits: A systematic investment plan offers a number of miscellaneous

benefits that make investment quite comfortable and an enjoyable experience.

61
One can start investing in a systematic investment plan with a very low amount
of Rs. 500 or Rs. 1000 per month. This allows users of all financial backgrounds
to invest in capital markets without feeling the pinch of a lump sum investment.
A large number of fund houses waive off entry or exit load on mutual funds in
case the investment is done through a systematic investment plan. SIPS also
offer a taxation benefit as SIPS are taxed for capital gains on first in first out
basis.

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 SIP INVESTMENT MYTHS

SIP is a great way to invest but there are few myths surrounded. Let me burst few of these through
this post.

SIP Investment— Myth 1

SIP in direct equities/stocks is a biggest myth.
When you do a direct investment in Equities the first decision that you take is why you are buying
a particular stock? Are you aiming a Value buying or a momentum gain? And in both the cases a
prudent investor is clear of an entry level and target appreciation when he would enter or exit a
stock. So why would he try to do a Rupee Cost Averaging if he has done the fundamental
analysis? One would do a SIP in direct equities if he is unsure of growth of a particular company
and sanity says one should invest equities when you have done your homework. But if your reason
is that you don't have a lump sum amount to invest, I have another important point to share.
Second reason is SIP works for portfolios/indexes/mutual funds and not stand-alone investments.
Imagine what will happen to your investments if that stock price never recovered but now you
will say that you will do SIP only in blue chip stocks or index stocks. And I am not surprised by
your argument but let me tell you that even couple of year's good performance of a stock or
sector can make it a blue chip & even part of index. Let me share:

 Do you know about Zenith Ltd — I am not talking about Zenith Computers. Zenith Ltd was a
top steel company & part of Sensex from 1982 to 1992.
 Few more stocks (definitely blue chips of that time) that were part of Index Couple of years
back — Premier Auto, Arvind Mills, Balarampur Industries, Century Textiles, Hindustan
Motors, Indian Organics, Indian Rayon, Mukund, Zee Telefilms, SCI India, GE Shipping,
MTNL, NIIT. (If you keep interest in direct equity investments then you can check what
happened with these stocks) What happened with Jaiprakash Associates — it was part of
Index till Jan 2012.
Now you can say I would have avoided all these stock & many more that have not performed
good. Just would like to share Warren Buffett here "In the business world, the rear-view mirror is
always clearer than the windshield."

SIP Investment — Myth 2

63
SIP is for small investors or salaried guys
Once I was talking to an HNI, and was explaining him about SIP, he was grinning all the time
and at last he asked- Do Mutual Funds allow SIP of Rs 5 Lakh per month? Yes, why not? It is
made to believe that SIP is for Rs 1000 and that's all. In fact, the messages have gone wrong that
if you are salaried and have a small disposable income; SIP is the only tool for wealth creation.
SIP as we all know is a concept and not limited to the amount of investment. Irrespective of the
amount one invests, he is investing in an asset where instead of timing the purchase he is
averaging his per unit cost of his investment. The returns that he gets are in percentages and he
tends to benefit in proportion to his investment.

SIP Investment — Myth 3

SIP is a fund or a scheme.

As I mentioned in starting that SIP are not mutual funds. When I was working for HDFC Mutual
Fund, investors called and asked "What's the NAV of HDFC Top 200 SIP Fund"? Lot of people
thinks that SIP is a security or a fund. Basically, SIP is a concept and not a fund or a stock or an
investment avenue. It is a vehicle to invest. So almost all open-ended mutual funds (yes,
including debt and money market funds) offer a SIP. Besides mutual funds one can do a SIP in
almost every asset class. Do you think a person investing Rs 5000/- every I St of the month when
he gets his salary in NPS is a SIP? Yes, it is a SIP investment your ULIP investment & similarly.

SIP Investment— Myth 4

SIP should be started when markets are high and should be stopped when it is low or vice versa
If you know when the markets will be high or low why are you doing a SIP in first case? SIP is a
method where you tend to average the cost of investment through the volatility that is built in the
price of the asset in which you are investing. So, when we say something is volatile it means that
it will have ups and downs. So, if you play only when it is "up" or "down" how do you expect
that the concept will work for you? SIP works when you give it time, whether the time is smooth,
breezy or cyclonic. I know it is tough to invest when markets are bad, but here comes the
Financial Behavioural aspects of disciplined investing.

64
SIP Investment— Myth 5

I can withdraw money entire from ELSS after 3 years of SIP

It is true that you can withdraw the money in ELSS after 3 years, when you invest in a lump sum.
But in case of a SIP each instalment is a purchase transaction and each of these instalments is
locked for 3 years from the day it is invested. It works on the First-in First-out (FIFO) method.
So, in case you wish to withdraw entire amount you invested in 3 years through SIP, it will take 6
years. Be clear of it and then take a decision to invest.

SIP Investment— Myth 6

SIP is a magical prescription for success

Many readers after reading the Magic of Systematic Investment Plans get the wrong impression
that an SIP is a magical formulation that works irrespective of any other criteria. It is true that
SIPS make more money even if the Sensex goes nowhere over a period of time. It is also true that
you can expect to make some money even if you are investing via SIP in an average mutual fund.
But it must be realized that no investing strategy is immune to the kind of collapse that the stock
market witnessed in 2008-2009.
An SIP does not guarantee returns or positive returns. If you opt for an SIP in a falling market
and the market continues to fall as it happened last year, then your investment will suffer a loss
on the whole.

The choice of the fund, the tenure of the SIP and the period of investment have a bearing on your
overall returns. SIP works on the simple principle that you get more units at low NAV and less
units at high NAV. Over time it evens out. It works best when the market is in the doldrums.
Unfortunately, during this time most investors panic and terminate their SIPS in disappointment.

SIP Investment— Myth 7

65
 SIP gives better returns than lump sum investment
Just because SIP is considered to be the best way of investing in a mutual fund does not mean
that it always gives you the best returns. If you make a onetime investment when the Sensex is at
its bottom, then lump sum investment will perform better as compared to carrying out an SIP by
spreading the investment over a period of time. SIPS work to smoothen out the volatility in the
medium term. Over the long run, in a rising market in a growing economy like India, lump sum
investing will always out perform an SIP.

However, we should not be comparing returns of SIPS with lump sum investing. Both serve
different purposes. In reality investments are made at various points in time and it is not possible
for anyone to know the top or the bottom of the market. Moreover, most small investors do not
have the financial capability to make large lump sum investments. As soon as you decide to
invest lump sum amounts, you are instantly a host to market timing.

If you have strong stomach and don't panic on seeing your money evaporating in the short term,
you can definitely try your luck at lump sum investing. But if you are a normal investor with a
comparatively low risk appetite, it will be better for you to stagger your investments via the SIP
route.

SIP Investment — Myth 8

There is a right time for SIP investing

Many investors are always trying to time the market. They do not understand that it is time in the
market not timing the market that is important. The most common question of the investors- Is it
the right time to start SIP? Obviously, the correct answer- All times are good times for starting
SIP.

SIP Investment — Myth 9

I cannot miss my SIP dates

66
You must always ensure that sufficient funds are available on the SIP date in your bank account.
SIP is entirely at your free will. If for some reason you are not able to maintain balance in your
account for the SIP it simply means that you will miss one SIP but you will not be penalised for
that from asset Management Company. (You can check what your bank charges) Your SIP
account remains active even if you miss one SIP date but after 3 miss it get cancelled

67
.

SIP Investment — Myth 10

I cannot make lump sum investment in a fund where my SIP is running

Some investors think that they have to maintain separate accounts for SIP investments and lump
sum investments in the same fund. SIP is just a mode of investing in a mutual fund. You can always
make some lump sum investments in a fund in which your SIP is running. There is no need to
maintain separate accounts.

SIP Investment— Myth 11

SIP dates are important

Many novice Investors feel that SIP date plays an important part in their SIP returns. SIP date has
no significance in long term. It is just a date for your convenience.

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 3.3 Study Methodology
RESEARCH DESIGN
A research design is the specification of method and procedure for acquiring the information needed
to the structure or to solve the problem. It is the overall operation pattern or framework of the project
that stipulates what information is to be collected, from which sources and what procedure.
Research design is needed because it facilitates the smooth sailing of the various research
operations, thereby making research as efficient as possible yielding maximal information with
minimal expenditure of effort, time and money. Research design has a significant impact on the
reliability of the results obtained. It thus acts as a firm foundation for the entire research. Research
design stands for advance planning of the methods to be adopted for collecting the relevant data and
the techniques to be used in their analysis.

There will be two phases for the research as the title suggests importance of Systematic
Investment Planning.
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NATURE OF RESEARCH
The phase I, the nature of research will be Exploratory as we are exploring the unknown variables
like Importance of Systematic Investment Planning. We go for exploratory research when we want
to explore something. Exploratory comes when objective has unknown variables/ factors behind it.
Exploratory research is research conducted for a problem that has not been clearly defined. The
research methodology will be qualitative as depthness of the research is more important that reach
and even importance won't change with the change in sample size. To find the exploratory factors,
data collection source will be primary as one has to gather first-hand information in the form of
survey. Data collection tool will be interview response sheet and observation sheet, thus data which
we will get is Qualitative Data.
In Phase Il, the nature of research will be Descriptive as we will describe the variables found by
doing exploratory research in Phase I. We go for Descriptive Methodology when we are describing
a product/process/variable/person. In this title, we are going to describe the importance of SIP's.
The research methodology will be quantitative as entire research will be affected by the question
'How many respondents feel so'. Here reach is more important than depthness as hence
methodology used will be Quantitative. Thus, data collection source will be Primary source as one
has to gather first hand data in the form of survey. Data collection tool used is Questionnaire which
contains mostly Close Ended Questions. Thus, the data which we will get is Quantitative Data.

SAMPLING DESIGN
Sampling design is a means of selecting a subset of units from a target population for the purpose
of collecting information. This information is used to draw inferences about the population as a
whole. The subset of units that are selected is called a sample. The sample design encompasses all
aspects of how to group units on the frame, determine the sample size, allocate the sample to the
various classifications of frame units, and finally, select the sample. Choices in sample design are
influenced by many factors, including the desired level of precision and detail of the

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information to be produced, the availability of appropriate sampling frames, the availability of
suitable auxiliary variables for stratification and sample selection, the estimation methods that will
be used and the available budget in terms of time and resources.
Population under study are investors who do SIPs regularly. Thus, age group may range from 24
years to 60 years.
For Phase I, population under study will be investors who are investing in systematic Investment
Planning for more than 5 years as they are the qualified individuals who can give us in depth
knowledge about importance of using SIP's instead of Lump sum.
For Phase Il, population under study will be investors who are new or who have just started their
investments in SIP's as they are new investors and want to know their psyche about why they
choose SIP's and which particular Mutual Fund.
The Sampling methodology used will be Convenience Non-Probability Sampling. Non-probability
sampling is a sampling technique where the samples are gathered in a process that does not give all
the individuals in the population equal chances of being selected. Convenience sampling is
probably the most common of all sampling techniques. With convenience sampling, the samples
are selected because they are accessible to the researcher. Subjects are chosen simply because they
are easy to recruit. This technique is considered easiest, cheapest and least time consuming. So, I
will approach investors of SIP in my vicinity.
Thus, the data is taken in selective areas of Powai, Ghatkopar, Malad, Lower Parel, Thane, Fort,
Vile Parley and Vikhroli

SAMPLE
Sample size is an important concept in statistics, and refers to the number of individual pieces of
data collected in a survey. A survey or statistic's sample size is important in determining the
accuracy and reliability of a survey's findings.
For Phase I, sample size does not matter as we need find the in-depth study about importance of
SIPs in portfolio management.

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For Phase Il, sample size will be calculated according to the formula where 'z' is takes as 1.96
which refers to 5% level of significance of 95% level of confidence. 's' refers to standard deviation
and 'e' refers to tolerable error. Sample size depends largely on tolerable error. If one
wants to have less tolerable error, then sample size will increase as n is inversely proportional to e 2.
Thus, high tolerable error leads to less sample size and vice versa. Tolerable error has to be in
between 0.1 to 1.0 depending upon the researcher.

Thus, we take Z as 1.96, S as 0.66 and e as 0.67, sample size will be

(l .96*0.66*5\0.67)2 = 94 sample size
Thus, I have interviewed 100 respondents.

3.4 STUDY LIMITATIONS

Though research-based decision-making is now considered but still there is a gap between the
understanding of researcher and users. Research is there to help in decision-making, not a substitute
of decision-making. Some of the following limitations have restricts the scope of survey to some
extent:

Some respondents gave vague information and were not serious while responding the questionnaire
as they feel it was not important for them.

Some respondents were hesitant to reveal information about their finances because of income tax
queries and even because of money they hold. They might have invested more in mutual funds but
didn 't want to reveal their financials while filling this questionnaire and response sheets.

It was difficult to find whether respondents actually participate in their financial planning as some
investors who were investing didn't knew more about financial planning.

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Research can provide number of facts but it does not provide actionable results as this result is
limited by geographical areas of Mumbai.

It cannot provide answer to any problem but can only provide a set of guidelines and provide a
rough roadmap to the investors.

Since time was a big constrain, area of research was restricted to the city of Mumbai and selected
area of Mumbai.

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 CHAPTER 4: ANALYSIS AND FINDINGS

1. How much do you invest in SIP's Monthly?

SIP Per Month No of persons invest %

<RS1000 27
Rs 1000 - 5000 45
Rs 5001 - 10000 18
>RS10000 10
Table No. 3

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 Figure No. I

From the above figure, it is seen that majority of the people invest Rs 1000 — 5000 Rs per month is
SIPs as this is the average investment what they can afford.

Scheme of Mutual Fund No of person interested%

Debt 12

Equity 8

Liquid 12

Balanced 40

Fixed Maturity Fund 6

Interval Fund 22

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Figure No. 2

From the above figure, there's a trend that most of the people invest in Balanced fund as they are
very securing type of persons and they don't want to have more risky profile. 8% people invest in
mutual Fund that is linked with equity as they feel Equity will give high returns as compared to
balanced.

Q3) Which AMC do you prefer?

Type of AMC Preference in %

SBI 51

L&T 8

Morgan Stanley 24
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 Motilal Oswal 5

ICICI 10

Other 2

Table no. 3

Figure No. 3
It has been observing that people invest more in SBI as SBI has high 5 rated star mutual funds.
This improves the confidence of the investors.

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Q4) How much returns you get on your SIPs annually?
Annual Returns No of Persons Received
<10% 0

1
10-20%
20-30% 13
3 1-40% 10
41-50% 60
51-60% 7
>60% 9

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Figure No. 4

From the data, it is found that most of the mutual funds give average returns of 41 - 50% for a year
which is much higher than equity funds.

Q5) Have you ever faced losses in SIP's?

Losses Investors Response

Yes 3
no 97

Table no. 5

Figure no. 5
There is a trend that almost none of them have faced losses by investing in mutual fund. This is
the reason that Mutual Fund is much safer that equity as returns is positive.
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Q6 Rating of features of their SIP's

High return 4.5

Regular income 2.9

Table no. 6

Figure no. 6

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It is seen that many investors invest in highly diversified mutual fund which leads
to give high returns. Even investors invest because some mutual funds fetch tax
benefits also which is one of the main key tools to invest in Mutual Funds.

Q7) How do you receive your return?

Type Of Dividend Investors in %

Dividend pay-out 39

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Dividend Re- Investment 46
Growth in NAV 15

Table No 7

It is seen that investors invest in options depending upon their convenience. So,
there's no particular trend about investors investing in particular scheme. I have
observed that investors invest as per their choice and as per their past experience.

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Q8) where do you purchase Mutual Funds from?
Medium Of Purchase Investors in %
Directly form AMC 16
Brokers 48
Dealers 28
Other sources 8

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Table No. 8

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Figure No. 8

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Most of the people purchases investments from brokers as they are their investment
guide and they take consultancy from them.

Q9) Why do you prefer SIP's over Lump sum?

Most of people replied that Sip's is very economic as easy instalments can be
invested instead of
I time payment. Even weighted average cost reduces when investing in instalments.

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CHAPTER 5: CONCLUSION AND
RECOMMENDATION

5.1 CONCLUSION
An investment philosophy represents a set of core beliefs about how investors
behave and markets work. To be a successful investor, you not only have to
consider the evidence from markets but you also have to examine your own
strengths and weaknesses to come up with an investment philosophy that best fits
you. Investors without core beliefs tend to wander from strategy to strategy, drawn
by the anecdotal evidence or recent success, creating transactions costs and
incurring losses as a consequence. Investors with clearly defined investment
philosophies tend to be more consistent and disciplined in their investment choices.
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 Mutual fund brings the benefits of diversification and money management to the
individual investor, providing an opportunity for financial success that was once
available only to selected few. For the individual investor, mutual funds provide
the benefit of having someone else manage your investments and diversify your
money over many different securities that may not be available or affordable to all
otherwise. Today, minimum investment requirements on many funds are low
enough that even the smallest investor can get started in mutual funds. The whole
advantage of the target Investment plan is that an investor does not have to think
about whether it's the right or wrong time to invest. The investor just has to follow
the plan with a secure knowledge that investments will help achieve the target
amount over a desired period and rate of return.

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SIP works on the principle of regular investments and brings the power of
compounding to your fourth. It removes tensions and uncertainty from your
investment plan by making it a mechanical boring process. It inculcates the habit of
regular savings and does not encourage timing and speculation in the markets. All
these are correct and accepted facts. But, don't forget that SIP is just another
method of investing, it is a vehicle not the final destination - it may pass through
straight road or bumpy roads - it may lead you to your destination is a lesser or
sometimes higher

time frame - and sometimes it may even not lead you to your destination by
derailing your plan. SIP is just a method of getting on to the investment vehicle to
reach your destination - if the vehicle you choose is incorrect - whichever method
you may get in- there is less likelihood of you reaching your destination. Therefore,
the next time when a mutual fund or distributor or financial planner advises you
that SIPS are the safest route to invest in equities then remember that they are not
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telling lies - it is safest route but not for you the investor but for their own selves.
Mutual funds have emerged as a strong financial intermediary and are the fastest
growing segment of the financial services sector in India. Mutual funds play a very
significant role in channelizing the savings of millions of individuals. A mutual
fund is the most suitable investment for the common person as it offers an
opportunity to invest in a diversified, professionally managed portfolio at a
relatively low cost. There are wide varieties of mutual fund schemes that cater to
investor needs. Whether as the foundation of one's investment program or as a
supplement, mutual fund scheme scan help the investors to meet their financial
goals. A host of factors has contributed to this explosive growth of the industry.
The industry has made significant strides in terms of its variety, sophistication and
regulation. Due to the economic boom, entry of foreign asset management
companies, favourable stock markets and aggressive marketing by mutual funds,
the asset management industry in India is witnessing dramatic growth in terms of
new fund openings, the number of mutual fund families, and in the total assets

90
 under management in recent years. Despite various attractions offered, the total net
assets of mutual funds are very less as compared to other developed countries. In
the product offering too, the Indian fund industry is not close to the developed
countries. India's 32-member fund industry has to scale new heights to narrow the
gap with the other developed countries. To achieve this, the Indian mutual fund
industry needs to widen its range of products with affordable and competitive
schemes that combine various elements of liquidity, return and security in making
mutual fund products the best possible alternative for the small investors in the
Indian market. Besides, mutual funds can survive only if they perform well and
satisfy the expectations of the investors. ln this context a sincere attempt has been
made by the researcher to examine the steady growth of the industry, the
innovations and the development that has taken place in India.
The factors influencing the selection of Mutual Fund scheme in Surat are Net
Asset Value, High Returns, Repurchase Facility, Reputation of Mutual Fund, and

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Market Trends in their order of priority. The influencing factors for selection of
Mutual Fund scheme in Ahmedabad are High

Returns, Net Asset Value, Market Trends, Tax Policy, and Reputation of Mutual
Fund in their 60

order of priority. The influencing factors for selection of Mutual Fund scheme in
Vadodara are High Returns, Tax Policy, Net Asset Value, Repurchase Facility,
and Easy Transfer in their order of priority. The popular sources through which
respondents get information about mutual fund are friends, Brokers, Professional
Advisors, Media and Newspaper in Surat and Ahmedabad city. In Vadodara the

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first five preferred sources of information are friends, media, newspaper,
colleagues, internet and Brokers. People of Surat and Ahmedabad get the
information regarding Mutual Fund from professionals’ advisors also while people
of Vadodara get the information from colleagues and internet.

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 RECOMMENDATIONS

There is high potential market for mutual fund advisors in Udaipur city but this
market needs to be explored as investors are still hesitated to invest their money in
mutual fund. In Udaipur investors have inadequate knowledge about mutual fund,
so proper marketing of various schemes is required. Company should arrange
more and more seminars on mutual funds. Awareness of mutual fund services
among the investors are very low so Asset Management Company needs proper
marketing of their all services by advertising, distribution of pamphlet, arranging
seminars etc. Most advisors are not interested in dealing of mutual funds because
they get very low commission. Company should also provide knowledge about the
growth rate and expected growth rate of mutual fund industry in India. Most

94
people are aware of Life Insurance, NSC and PPF for tax saving so company
should market various tax saving scheme of mutual fund and their benefits.

They should begin by defining their investment objectives and needs which could
be regular income, buying a home or finance a wedding or education of children or
a combination of all these needs, the quantum of risk, they are willing to take and
their cash flow requirements.

Mutual Investors should choose the right Mutual Fund Scheme which suits their
requirements.
The offer document of the Mutual Fund Scheme should be thoroughly read and
scrutinized.
Some factors to evaluate before choosing a particular Mutual Fund are the track
record of the performance of the fund over the last few years in relation to the
appropriate yard stick and similar funds in the same category. Other factors could be
the portfolio allocation, the dividend yield and the degree of transparency as reflected

95
in the frequency and quality of their communications. Investing in one Mutual Fund
scheme may not meet all the investment needs of an investor. They should consider
investing in a combination of schemes to achieve their specific goals. It is suggested
that the investors should not consider only one or two factors for investing in mutual
fund but they should consider other factors such as higher return, degree of
transparency, efficient service, fund management and Reputation of mutual fund in
selection of mutual funds. The best approach for an investor is to invest a fixed
amount at specific intervals, say every month. By investing a fixed sum each month,
they can buy fewer units when the price is higher and more units when the price is
low, thus bringing down the average cost per unit. This is called rupee cost

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averaging. Systematic investment plan facility is one such plan, incorporating these
features. It is desirable to start investing early and stick to a regular investment plan.
The power of compounding

let’s one earn income on income and also the money multiplies at a compounded rate
of return. A Mutual fund investor should be aware of his rights. The agents or
financial advisors should make investors aware of their rights as per the SEBI
(Mutual Funds).

Regulations and regarding AMFI. A unit holder in a mutual fund scheme governed
by the SEBI.

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 ANNEXURES
1. Response Sheet:
 How much do you invest in SIP?

 Which scheme of Mutual fund you prefer

 Which AMC do you prefer?
 What is your risk profile?
 Do you prefer SIP or lump sum?
 How many SIPs do you have?
 How much return on an average you get on your SIP?
 Have you ever faced any losses on SIPs?

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 Do you prefer in investing in equity or debt or mutual fund?
 Do you invest monthly on a fix date or you invest monthly on a day where
the NAV of mutual fund is less?

 Why do you prefer this mutual fund?

 Do you invest yourself or your agent does it?
 In which kind of mutual fund do you invest?
 How do you come to know about mutual fund?
 Which sector do you prefer?

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 BIBLIOGRAPHY
All information and facts which are mentioned in the project are
gathered from the trusted websites given below: -
[1].
https://rbidocs.rbi.org.in/rdocs/content/pdfs/DraftSoR232020UK.pdf
[2]. https://economictimes.indiatimes.com/
[3]. https://www.moneycontrol.com/
[4]. https://www.businesstoday.in/
[5]. https://www.investopedia.com/

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