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A Project Study Report On “Systematic Investment Plan (The Better Way to Invest In Mutual Funds)” AT SBI MUTUAL FUND Submitted in Partial Fulfillment for The Award of Degree of Master of Business Administration 2011-2013Submitted by: Submitted to:Chanchal Salvi Dr.Sunita AgarwalMBA Semester III Professor Advent Institute of Management Studies Udaipur
PREFACEThere are four steps to Accomplishment & Success – Plan, Purposefully, Preparethoroughly, Proceed Positively & Pursue Persistently.In this development and changing world, I feel proud for being a student of M.B.Aprogrammed at Advent Institute of Management Studies UDAIPUR. The summertraining in the MBA course is the major event that gives you an insight into theexpectations that a company has from the MBAs. It provides a „pre working‟experience for a student and gives enough exposure so that one can give his/her bestin the organization which he/she joins in the future. Due to ever increasingcompetitiveness in the market today the specific skills of management are alwayscalled for.For this project my training place was State Bank of India. Udaipur. During my study Igot enough information. This report is purely based on what I worked and analyzedduring my training.In preparing this report I have drawn a vast amount of literature Naturally, I owe anintellectual debt to numerous lectures that enrich the stream of my study.This project is a summary of the information gathered during the study. I Confident thatmy sincere effort and special attention will justify the subjects in the report.
ACKNOWLEDGEMENTI express my sincere thanks to Dr. R.K. Balyan, Director, Advent Institute ofManagement Studies and my project guide Dr. Sunita Agrawal, Professor, DepttAIMS, for guiding me right from the inception till the successful completion of theproject. I sincerely acknowledge her for extending their valuable guidance, support forliterature, critical reviews of project and the report and above all the moral support shehad provided to me with all stages of this project.I would also like to thank the supporting staff of Advent Institute of ManagementStudies for their help and cooperation throughout our project.Chanchal salvi
Executive SummaryMutual funds have emerged as a strong financial intermediary and are the fastestgrowing segment of the financial services sector in India. Mutual funds play a verysignificant role in channelizing the savings of millions of individuals. A mutual fund isthe most suitable investment for the common person as it offers an opportunity toinvest in a diversified, professionally managed portfolio at a relatively low cost. Thereare wide varieties of mutual fund schemes that cater to investor needs. Whether as thefoundation of one‟s investment programme or as a supplement, mutual fund schemescan help the investors to meet their financial goals.A host of factors has contributed to this explosive growth of the industry. The industryhas made significant strides in terms of its variety, sophistication and regulation. Dueto the economic boom, entry of foreign asset management companies, favorable stockmarkets and aggressive marketing by mutual funds, the asset management industry inIndia is witnessing dramatic growth in terms of new fund openings, the number ofmutual 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 lessas compared to other developed countries. In the product offering too, the Indian fundindustry is not close to the developed countries. India‟s 32 member fund industry hasto 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 productswith affordable and competitive schemes that combine various elements of liquidity,return and security in making mutual fund products the best possible alternative for thesmall investors in the Indian market. Besides, mutual funds can survive only if theyperform well and satisfy the expectations of the investors.In this context a sincere attempt has been made by the researcher to examine thesteady growth of the industry, the innovations and the development that has takenplace in India. This research on Mutual Fund industry will specifically focus on the SBIMutual Funds.
Table of ContentsSr. Chapter Name of content PageNo:- no1. Introduction 1.1 An overview 1-152. Profile of company 16-3. Research 2.1 Title of the study 30 methodology 2.2 Duration of the project 32 2.3 Objective of the study 34 2.4 Simple size &method 36 2.5 Scope of the study 37 2.6 Limitation of the study 414. Findings & Facts 3.1 Findings 455. Data Analysis 606. SWOT analysis of the 62 company7. Conclusion 638. Suggestions 64 Recommendations9. Appendix 6510. Bibliography 67
IntroductionThe financial system is a set of institutional arrangements through which financialsurpluses available in the economy are mobilized. A financial system, which isinherently strong, functionally diverse and displays efficiency and flexibility, is critical increating a market-driven, productive and competitive economy. A mature financialsystem has to gear up and undergo varied and comprehensive changes in order toachieve rapid economic development.The financial sector reforms in India in the early nineties has resulted in explosivegrowth of the economy, opening up of the Indian financial market to foreign and privateIndian players, large inflow of Foreign Ninth AIMS International Conference onManagement Institutional Investors, increased competition and better productofferings to consumers. One of the major developments of this decade has been thetake-off of mutual funds. Mutual funds have emerged as a strong financial intermediaryand are the fastest growing segment of the financial services sector in India. It aims atpromoting a diversified, efficient and competitive financial sector increasing the returnon investment and promoting and accelerating the growth of the economy. It is amedium of investment suitable to the small investors, who are not able to invest instock market directly.Mutual funds now play a very significant role in channelizing the savings of millions ofindividuals. The mutual fund industry in India over the years has seen dramaticimprovements in terms of quantity as well as quality of product and service offerings inrecent years. The tremendous growth of Indian Mutual Funds industry is an indicator ofIndia‟s efficient financial market and the trust which investors have on the regulatoryEnvironment. Millions of investors rely on mutual funds as their primary investmentsbecause they offer a convenient, cost-effective and easy way to invest in the financialmarkets. The Securities Exchange Board of India (SEBI) regulates this fast growingindustry and it is the representative body of all mutual funds in thecountry. Every mutual fund has a goal - either growing its assets (capital gains) and/orgenerating income (dividends) for its investors. Distribution in the form of capital gains(short-term and long-term) and dividends may be passed on (paid) to the shareholders
as income or reinvested to purchase more shares. A mutual fund is valued daily andreports a price known as a Net Asset Value (NAV) per share. In its simplestForm, a NAV is the total value of all the securities held in a fund divided by the totalnumber of shares owned by its shareholders. As the price of the NAV increases ordecreases, the shareholders value will increase or decrease.Current Scenario of Mutual FundsThe global economic environment was conducive and this led to the explosive growthof mutual funds in most countries particularly since 1980‟s. This growth can beattributed to the strong emergence of the market economy which depends more on thegrowth led by the stock market. Mutual funds found increasing acceptance in thedeveloped countries when compared to the developing countries in the early and mid90‟s but gradually it found its place even in the developing countries because of itsadvantages. Gradually the number of mutual funds increased significantly worldwideand many developed countries started designing country specific funds to match thetrend prevailing in other developed countries. Evolution of Mutual Fund Industry in IndiaThe mutual fund revolution that was sweeping the other countries bypassed India also.The formation of Unit Trust of India marked the evolution of the Indian mutual fundindustry in the year 1963. The primary objective at that time was to attract the smallinvestors and it was made possible through the collective efforts of the Government ofIndia and the Reserve Bank of India.UTI commenced its operations from July 1964 and different provisions of the UTI Actlaid down the structure of management, scope of business, powers and functions ofthe trust as well as accounting, disclosures and regulatory requirements for the trust.Even though the growth of the mutual fund industry was very slow in the beginning, itaccelerated when the public sector and private sector mutual funds entered the marketafter the year 1987. The mobilization of funds and the number of players operating inthe industry reached new heights as investors started showing more interest in mutualfunds. Investors interests were safeguarded by SEBI and the Government offers taxbenefits to the investors in order to encourage them. SEBI also introduced SEBI
(Mutual Funds) Regulations, 1996 and set uniform standards for all mutual funds inIndia.History of the Indian Mutual Fund IndustryThe mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank. Though theGrowth was slow, but it accelerated from the year 1987 when non-UTI players enteredthe Industry.In the past decade, Indian mutual fund industry had seen a dramatic improvement,both qualities wise as well as quantity wise. Before, the monopoly of the market hadseen an ending phase; the Assets Under Management (AUM) was Rs67 billion. Theprivate sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993and till April 2004; it reached the height if Rs. 1540 billion.The Mutual Fund Industry is obviously growing at a tremendous space with the mutualfund industry can be broadly put into four phases according to the development of thesector. Each phase is briefly described as under.First Phase – 1964-87Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by theReserve Bank of India and functioned under the Regulatory and administrative controlof the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and theIndustrial Development Bank of India (IDBI) took over the regulatory and administrativecontrol in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. Atthe end of 1988 UTI had Rs.6,700 crores of assets under management.Second Phase – 1987-1993 (Entry of Public Sector Funds)1987 marked the entry of non- UTI, public sector mutual funds set up by public sectorbanks and Life Insurance Corporation of India (LIC) and General InsuranceCorporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fundestablished in June 1987 followed by can bank Mutual Fund (Dec 87), Punjab NationalBank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June1989 while GIC had set up its mutual fund in December 1990.At the end of 1993, themutual fund industry had assets under management of Rs.47,004 crores.Third Phase – 1993-2003 (Entry of Private Sector Funds)
1993 was the year in which the first Mutual Fund Regulations came into being, underwhich all mutual funds, except UTI were to be registered and governed. The erstwhileKothari Pioneer (now merged with Franklin Templeton) was the first private sectorMutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensiveAnd revised Mutual Fund Regulations in 1996. The industry now functions under theSEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33Mutual funds with total assets of Rs. 1,21,805 crores.Fourth Phase – since February 2003: In February 2003, following the repealof the Unit Trust of India Act 1963 UTI wasBifurcated into two separate entities. One is the Specified Undertaking of the Unit TrustOf India with assets under management of Rs.29,835 crores as at the end of January2003, representing broadly, the assets of US 64 scheme, assured return and certainOther schemes.The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It isRegistered with SEBI and functions under the Mutual Fund Regulations. ConsolidationAnd growth. As at the end of September, 2004, there were 29 funds, which manageAssets of Rs.153108 crores under 421 schemes.
Mutual FundA mutual fund is a company that brings together money from many people and investsit in stocks, bonds or other assets. The combined holdings of stocks, bonds or otherassets the fund owns are known as its portfolio. Each investor in the fund owns shares,which represent a part of these holdings A mutual fund is a professionally managedinvestment product that sells shares to investors and pools the capital it raises topurchase investments A fund typically buys a diversified portfolio of stock, bonds, andmoney market securities, or a combination of stock and bonds, depending on theinvestment objectives of the fund. Mutual funds may also hold other investments, suchas derivatives. A fund that makes a continuous offering of its shares to the public andwill buy any shares an investor wishes to redeem, or sell back, is known as an open-end fund. An open-end fund trades at net asset value (NAV).An investment vehicle that is made up of a pool of funds collected from many investorsfor the purpose of investing in securities such as stocks, bonds, moneymarket instruments and similar assets. Mutual funds are operated by moneymanagers, who invest the funds capital and attempt to produce capital gains andincome for the funds investors. A mutual funds portfolio is structured and maintainedto match the investment objectives stated in its prospectus.
Advantages of Mutual Funds - Diversification - Professional Management - Regulatory oversight - Liquidity - Convenience - Low cost - Transparency - Flexibility - Choice of schemes - Tax benefits - Well regulatedWorking of Mutual Funds:The following figure explains the working of Mutual funds
The important terms of the figure are explained asfollows:Fund Sponsor:The sponsor is the company which sets up the mutual fund. It means anybodycorporate acting alone or in combination with another body corporate established amutual fund after initiating and completing the formalitiesTrust:MF or trust can either be managed by the Board of Trustees, which is abody of individuals, or by a Trust Company, which is a corporate body. Most of thefunds in India are managed by Board of Trustees. The trustee being the primaryguardian of the unit holders‟ funds and assets has to be a person of high repute andintegrity. The trustees, however, do not directly manage the portfolio securities. Theportfolio is managed by the AMC as per the defined objectives, accordance with TrustDeed and SEBI (Mutual Funds) Regulations.Asset Management Company(AMC):The AMC, which is appointed by the sponsor or the trustees and approved by SEBI,acts like the investment manager of the trust. The AMC functions under thesupervision of its own Board of Directors, and also under the direction of the trusteesand SEBI. AMC, in the name of the trust, floats and manages the different investment‟schemes‟ as per the SEBI Regulations and as per the Investment Management
Agreement signed with the Trustees.OtherApart from these, the MF has some other fund constituents, such ascustodians and depositories, banks, transfer agents and distributors.The custodian is appointed for safe keeping of securities and participating in theclearing system through approved depository. The bankers handle the financialdealings of the fund. Transfer agents are responsible for issue andredemption of units of MF.RiskReturnMatrix:The risk return trade-off indicates that if investor is willing to take higher risk thencorrespondingly he can expect higher returns and vice versa if he pertains tolower risk instruments, which would be satisfied by lower returns. For example, if aninvestor opts for bank FD, which provide moderate return with minimal risk. But as hemoves ahead to invest in capital protected funds and the profit-bonds that give outmore return which is slightly higher as compared to the bank deposits but the riskinvolved also increases.Thus investors choose mutual funds as their primary means of investing, as Mutualfunds provide professional management, diversification, convenience and liquidity.That doesn‟t mean mutual fund investments are risk free. This is because the moneythat is pooled in are not invested only in debts funds which are less riskier but arealso invested in the stock markets which involves a higher risk but can expect higherreturns.Mutual funds can be classified as follow:
Based on their structure: Open-ended funds: Investors can buy and sell the units from the fund, at any point of time. Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments cannot be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity. Based on their investment objective:
Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as:i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty istracked. Their portfolio mirrors the benchmark index both in terms of compositionand individual stock weight ages.ii) Equity diversified funds- 100% of the capital is invested in equities spreadingacross different sectors and stocks.iii|) Dividend yield funds- it is similar to the equity diversified funds except thattheyinvest in companies offering high dividend yields.iv) Thematic funds- Invest 100% of the assets in sectors which are related throughsome theme.e.g. -An infrastructure fund invests in power, construction, cements sectors etc.v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A bankingsectorfund will invest in banking stocks.vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes.
i.)Debt-oriented funds -Investment below 65% in equities. ii.)Equity-oriented funds -Invest at least 65% in equities, remaining indebt. Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs.i)Liquid funds- These funds invest 100% in money market instruments, a largeportion being invested in call money market.ii) Gilt funds ST- They invest 100% of their portfolio in government securities ofandT-bills.iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debtinstruments which have variable coupon rate.IV)Arbitrage fund- They generate income through arbitrage opportunities due tomispricing between cash market and derivatives market. Funds are allocated toequities, derivatives and money markets. Higher proportion (around 75%) is put inmoney markets, in the absence of arbitrage opportunities.v) Gilt funds LT- They invest 100% of their portfolio in long-term governmentSecurities.vi) Income funds LT- Typically, such funds invest a major portion of the portfolio inlong-term debt papers.vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and anexposure of 10%-30% to equities.
viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line withthat of the fund.Investment Strategies:1. Systematic Investment Plan: under this a fixed sum is invested each monthon a fixed date of a month. Payment is made through post dated cheques or directdebit facilities. The investor gets fewer units when the NAV is high and more unitswhen the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)2. Systematic Transfer Plan: under this an investor invest in debt oriented fundand give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme ofthe same mutual fund.3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutualfund then he can withdraw a fixed amount each month.Options Available To Investors:Each plan of every mutual fund has three options – Growth, Dividend and dividendreinvestment. Separate NAV are calculated for each scheme. - Dividend OptionUnder the dividend plan dividend are usually declared on quarterly or annual basis.Mutual fund reserves the right to change the frequency of dividend declared. - Dividend reinvestment option
Instead of remittances of units through payouts, Units holder may choose to invest theentire dividend in additional units of the scheme at NAV related prices of the nextworking day after the record date. No sales or entry load is levied on dividend reinvest. - Growth OptionUnder this, plan returns accrue to the investor in the form of capital appreciation asreflected in the NAV. The scheme will not declare the dividend under the Growth planand investors who opt for this plan will not receive any income from the scheme.Instead of income earned on their units will remain invested within the scheme and willbe reflected in the NAV.Risk Return Hierarchy of Different Funds
BANKS V/S MUTUAL FUNDS:Mutual Funds are now also competing with commercial banks in the race for retailinvestor‟s savings and corporate float money. The power shift towards mutual fundshas become obvious. The coming few years will show that the traditional savingavenues are losing out in the current scenario. Many investors are realizing thatinvestments in savings accounts are as good as locking up their deposits in a closet.The fund mobilization trend by mutual funds indicates that money is going to mutualfund in a big way.CATEGORY BANKS MUTUAL FUNDSReturns Low HighAdministrative exp. High LowRisk Low ModerateInvestment options Less MoreNetwork High penetration Low but improvingLiquidity At a cost BetterQuality of assets Not transparent Transparent Minimum balance betweenInterest calculation Everyday 10th & 30th of every month Maximum Rs.1 lakh onGuarantee None deposits
Company profileSBI Mutual Fund is India‟s largest bank sponsored mutual fund and has an enviabletrack record in judicious investments and consistent wealth creation SBI Mutual FundSet up on 29 June 1987, SBI Mutual Fund is a joint venture between the State Bank ofIndia, Indias largest bank and Societe Generale Asset Management of France, one ofthe worlds leading fund houses in the country with an investor base of over 4.6 millionand over 20 years of rich experience in fund management consistently delivering valueto its investors.SBI Funds Management Pvt. Ltd. is a joint venture between The State Bank of Indiaone of Indias largest banking enterprises, and Societe Generale Asset Management(France), one of the worlds leading fund management companies that manages overUS$ 500 Billion worldwide. Today the fund house manages over Rs 28500 crores ofassets and has a diverse profile of investors actively parking their investments across36 active schemes. In 20 years of operation, the fund has launched 38 schemes andsuccessfully redeemed 15 of them, and in the process, has rewarded our investorswith consistent returns. Schemes of the Mutual Fund have time after timeoutperformed benchmark indices, honored us with 15 awards of performance and haveemerged as the preferred investment for millions of investors. The trust reposed on usby over 4.6 million investors is a genuine tribute to our expertise in fund management.SBI Funds Management Pvt. Ltd. serves its vast family of investors through a networkof over 130 points of acceptance, 28 Investor Service Centers, 46 Investor ServiceDesks and 56 District Organizers.SBI Mutual is the first bank sponsored fund to launchan offshore fund – Resurgent India Opportunities Fund. Growth through innovation andstable investment policies is the SBI MF credo.
MUTUAL F U N D S STRUCTURE The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund established in the form of a trust by a sponsor to raise monies by the Trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations. These regulations have since been replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure indicated by the new regulations is indicated as under. A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and custodian. The sponsor establishes the mutual fund and gets it registered with SEBI.The mutual fund needs to be constituted in the form of a trust and the instrument ofthe trust should be in the form of a deed registered under the provisions of the IndianRegistration Act,1908.The Custodian maintains the custody of the securities in which the scheme invests. Italso keeps a tab on corporate actions such as rights, bonus and dividends declaredby the companies in which the fund has invested. The Custodian is appointed by theBoard of Trustees. The Custodian also participates in a clearing and settlementsystem through approved depository companies on behalf of mutual funds, incase of dematerialized securities. The sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10 crore) of the asset management company. The board of trustees manages the MF and the sponsor executes the trust deeds in favor of the trustees. It is the job of the MF trustees to see that schemes floated and managed by the AMC appointed by the trustees are in accordance with the trust deed and SEBI guidelines
Taxation of Mutual Funds and Investor Finance Act 1999 radically changed taxation of Dividends received by investors in Mutual Funds. Mutual Fund as an entity is not taxed since it is a Pass through entity. Section 10(23d) of the IT Act. Finance Act 1999 made income (dividend) from UNITS totally exempt from tax u/s 10(33) in the hands of investors. Income (dividends) distributed by a debt fund was made liable to Dividend Distribution Tax at applicable rate. Open ended funds with more than 50% invested in equity do not pay any DDT (since changed to 65% in FY 06-07. Individuals 14.02% , Companies 22.44%. Security Transaction Tax (STT) is charged as applicable. 80 C benefits under ELSS up to Rs 1 lack.
Types of Investment in Mutual Fund Lump Sum Systematic Investment PlanLump Sum PaymentA lump sum is a single payment of money, as opposed to a series of payments madeover time (such as an annuity) This means investing the entire sum of money at onego. For instance, if you have Rs 1 lakh which you are willing to fully invest in stocks orMFs, it is a lump-sum investment.Systematic Investment PlanSBI Mutual Fund on Wednesday, April 15th started its equity based micro systematicinvestment plan (Micro SIP) at Alibaug, near Mumbai.Micro SIP has been launched to offer long-term investment benefits in equity to lowincome households residing in the rural and semi-urban areas. "This plan is aimed atgetting in low income households in rural and semi-urban areas to benefit fromlong-term investment in equity as an asset class," said Achal Gupta, ManagingDirector, SBI Mutual Fund.
The first 100 investors from the low income group in Alibaug were basically the dailywage earners who enrolled with the SIP in the presence of Mr. O. P. Bhatt, Chairman,State Bank of India. This was a part of the initiative taken by the bank.The bank plans to market the product through intermediaries like Self-Help Groups(SHGs), NGOs and Micro Credit/ Finance Institutions. "We plan to take this product tothe masses partly through marketing by SBI Mutual Fund, and partly by setting targetsfor SBI branches for the sale of this product," said Bhatt. The plan is called as SBIChota SIP and requires a minimum investment of only Rs 100 per month withminimum tenure of 5 years.The bank has also requested the government to remove the permanent accountnumber (PAN) requirement, which is a must for all mutual fund investments, for thisplan. Presently the investors who want to opt for this plan have the option of investingin SBI Mutual Funds Magnum Balanced Fund, MMPS 93, MSFU Contra Fund, andSBI Blue Chip Fund and later on this plan would be extended to other schemes aswell.SIP is actually a Systematic Investment Plan of investing in Mutual Fund. It isspecially designed for those who aim to build wealth over a long period and want abetter future for him and their dependants. The investment in a Mutual fund can bedone in two ways. First way is onetime payment i.e. making payment to a fund at onceand gets the units of the fund as per the Net Asset Value (NAV) of the fund on thatday. A person wishes to invest in a fund Rs. 24,000/- . On the day of Investment, theNAV of the fund was Rs. 10/-. He gets 2400 units @ Rs. 10/- per unit. The other way ofinvestment is making payment to the fund periodically, which is termed as Mutual FundSIP. When you commit to invest a fixed amount monthly in a fund, it is called asSystematic Investment. It is actually beneficial for those investors who wish to invest alarge amount in a fund and wishes to create a large chunk of wealth for long term butdue to financial constraints are able to do so.Systematic Investment Plan in Mutual Fund is commonly named SIP – is really gettingpopular in India. Systematic Investment Plan is such a beautiful tool, which if usedproperly can help you to achieve all your financial goals. Some time back we wrote “Doyou really understand Systematic Investment Plan” which is one of the most populararticles of TFL, but readers requested that they want to read more about basics ofMutual Fund SIP.
What is Systematic Investment Plan?Systematic Investment Plan (SIP) is a smart financial planning tool that helps you tocreate wealth, by investing small sums of money every month, over a period of time.Systematic Investment Plan (SIP) is a planned approach to investments and aninvestment technique that allows you to provide for the future by investing smallamounts of money in Mutual Fund schemes of your choice.State Bank of India is one of the largest banking institutions in India. It is not onlyreliable but investing money is also safe with a guarantee that great returns can beobtained from here. Currently, investment in the mutual funds and in the SIP schemesof the mutual funds has become quite common. There are many companies that offerthe opportunity of investment in the SIP. SBI is also one of them.A SIP is a method of investing in mutual funds, by investing a fixed sum at a regularfrequency, to buy units of a mutual fund schemes. It is quite similar to a recurringdeposit of a bank or post office. For the convenience, an investor could start a SIP withas low as Rs 500; however this amount may differ from one fund house to other. TheSIP provides them a way to invest in the fund of their choice in installments.Here is an illustration using hypothetical figures indicating how theSIP can work for investors:Suppose an investor would like to invest Rs.4,000 under the Systematic InvestmentPlan on quarterly basis.
Period Invested Premium NAV of Maxi Units allocated miser Fund (Rs (Rs) per unit)7th April‟10 4000 11.34 352.737th May‟10 4000 11.01 363.317th June‟10 4000 12.05 331.957th July‟10 4000 13.13 304.657th 4000 13.67 292.61August‟107th Sept‟10 4000 15.81 253.007th Oct‟10 4000 16.78 238.387th Nov‟10 4000 18.28 218.827th Dec‟10 4000 18.71 213.797th Jan‟11 4000 21.48 186.227th Feb‟11 4000 21.49 186.137th 4000 21.98 181.98March‟11Total 48000 Actual average NAV= (11.34+11.01+12.05+13.13+13.67+15.81+16.78+18.28+18.71+21.48+21.49+21. 98) / 12 = 16.29 NAV for Mr. X (4,000 * 12) / (352.73+ 363.31 + 331.95 + 304.65 + 292.61 + 253.00+ 238.38 + 218.82 + 213.79 + 186.22 + 186.13+ 183.74) = Rs.15.36
Based on the historical analysis for BSE Sensex for last 10 to 12 years (i.e.1-Jan-1998to 1-Jan- have 2010) we find that if an individual had invested Rs. 1000 ever year (SIP)he would by earned a return of 9% vis-à-vis 5% earned an individual who had investedRs. 1000 at the beginning of 10 year period. Similarly over a five-year period (1-Jan-1994 to 1-Jan-1999) SIP investment return would have been 16.52% compared to14.09% for a one-time investment at the beginning of the period.Using the SIP strategy the investor can reduce his average cost per unit. The investorgets the advantage of getting more units when the market is turned down.Benefits of SIP 1. SIP can be started with a minimum investment of Rs. 500/- per month or Rs. 1000/- per month. 2. It is good and effective way of creating wealth for long term. 3. ECS facility is available in case of Investment through SIP. 4. A small withdrawal from the account doesn‟t affect the bank balance of an individual as compared to a hefty withdrawal. 5. It can be for a year, two years, three years etc. if a person at any point of time couldn‟t be able to continue its SIP, he may give instructions at least 25 days before to the fund house. His SIP be discontinued. 6. All type of funds except Liquid funds, cash funds and other funds who invest in very short fixed return investments offers the facility of SIP. 7. Capital gains, if applicable, are taxed on a first-in first-out basis. 8. As the investment made through SIP are not at one time. Some units bought at high price and some at low price, so chances of making gain through SIP is higher than the one time investment. In short, SIP is a simple and effective way to create wealth but to create such wealth, one should think about the investment in SIP for a period of at least for time frame of three years because it pays to invest in a longer run..
SBI and SIP:The relationship between SBI and SIP is quite long and strong. SBI has introducedseveral SIPs because it is definitely one of the greatest and the smartest way ofinvestment in the present scenario. Not only is it less risky but at the same time it alsogenerates less return. Right from Rs 50 to Rs1500, different amounts can be investedin the SIP monthly scheme of SBI
Research Methodology Title of the study„Systematic Investment Plan(The Better Way to Invest In Mutual Funds)‟ Duration of the ProjectThe duration of the project is 45 days Objective of the study The purpose of choosing the project is to know: Investor‟s option for entry into mutual fund Lump sum SIP Comparative analysis between Lump Sum and SIP Investors Delight when investment is through SIP Procedure for investment in SIP Research TypeConclusive and explorative approach has been adopted in the study. As here thetopic of research problem has been explored so that hidden facts can come into thelight and then the maximum allocation criteria in SIP are Rs. 1000-3000 i.e. the finalconclusion is given 45% SAMPLE SIZEA sample size of 50 investors was chosen to meet the earlier mentioned objectives. Theselection of sample was based on the following criteria: - People belonging to different state of society.
Servicemen working in government organization & private organization. Professionals who includes doctors, lawyers, teachers etc Research DesignThis research is Explorative and conclusive in nature because it aims to collect thedata about the behavior of investors in which way they invest in Mutual Funds. Theresearch approach used is survey based and the analysis is largely based on theprimary data. Research InstrumentStructured questionnaire: open- ended and close- ended. Contact MethodPersonal interview Research ApproachAny methodology includes the overall research design, the sampling procedure anddata collection method. The methodology adopted by me for purpose of finding theinvestment behavior of investors was DIRECT SURVEY METHOD POPULATIONUdaipur City Study scope of the
Udaipur onlyThis project will help existing/prospective investor to understand what the various modeof investment in Mutual Fund are and why Systematic Investment Plan gives betterreturns than Lump sum. So that investors can do better use of their hard earned moneyto earn more profit. Types of data1. Primary Data2. Secondary DataPrimary Data is that data which is collected by the researcher as per his/her needsSecondary Data is that data which is collected through references as websites,journals, books, magazines , etc. LIMITATIONS TO THE SURVEY
Though research based decision-making is now considered but still there is a gapbetween the understanding of researcher and users.Research is there to help in decision-making, not a substitute of decision-making. Someof the following limitations have restricts the scope of survey to some extent : Some respondents gave vague information and were not serious while responding. Some respondents were hesitant to reveal information about their finances because of income tax queries. It was difficult to find whether respondents actually participate in their financial planning. Research can provide number of facts but it does not provide actionable results. It cannot provide answer to any problem but can only provide a set of guidelines. Management rely more on the intuitions and judgments rather than research. Area of research was restricted to some location of the city and state.
FindingThe analysis is done based on the structured questions and we got following points: - 55% investor invests in SIP mode. - 84% got more profit in SIP - The maximum duration of investment in SIP is 3 years i.e. 34%. - The maximum allocation criteria in SIP are 1000-3000 i.e. 45%
Q 1: In which Financial Instrument do you invest into?Ans: Financial Instruments Investment in % Mutual 76 Bond 15 Online Trading 07 Derivatives 02Interpretation: From above pie chart, I have analyzed that 76% of investors invest inthe analysis is done on the basis of the response of respondents, which is collectedthrough the questions present in questionnaire.
Q 2: By structure in which type of schemes have you invested?Ans : Types of schemes on the basis of Investment in % structure Open ended funds 66 Close ended funds 22 Intervals funds 12Interpretation: The above pie chart depicts that 66% investors invest in Open-endedfunds, 22% in Close-ended funds and 12% in Interval funds.
Q. 3: By investment objective In which type of schemes have you invested?Ans: Types of Investment on the basis of Investment in % objective Growth Schemes 55 Income Schemes 13 Balances Schemes 32Interpretation: From the above pie chart, I conclude that there are 55 % investorswho invest in Growth Schemes, 13% investor invest in Income Schemes, and 32%investors invest in Balanced Funds.
Q.4. In which type of fund you want to invest?Ans : TYPES OF FUNDS INVESTMENT IN % Index Fund 41 Tax Saver Fund 15 Sectoral fund 44Interpretation: The above chart depicts that the maximum numbers of investor.i.e.41%investors invest in Sectoral Funds , 44% in Index Funds and 15% in Tax Saver Funds.
Q.5 Do you repeat your investment after initial investment?Ans : Repetition of Investors in % investment Yes 68 No 32Interpretation: The above pie chart depicts that 68% of investors invest again after theinitial investment
Q.6 What percentage of your earnings do you invest in Mutual Funds? Ans : % of earnings Investors in % Upto 10% 43 Upto 25% 32 Upto 50% 15 Above 50% 10Interpretation: The above chart depicts that 43% investor invest that up to 10% of theirearning in Mutual Fund.
Q.7 :How many investors invested in SIP , Lump sum or both?Ans : Type of investment Investment in % SIP 55 Lump sum 10 Both 35Interpretation: From above chart I have analyzed that 55% investors have investedSIP, 10% in lump sum and 35% in both the category.
Q.8 what is an allocation criteria of an investor in SIP? Ans : Allocation criteria (in Rs) Investment in % Less than 1000 9 1000-3000 45 3000-5000 36 More than 5000 10 50 Allocation criteria (in Rs) 45 40 35 30 25 20 investment in % 15 10 5 0 less than 1000 1000-3000 3000-5000 more than 5000Interpretation: From above chart b I have analyzed that the allocation criteria ofinvestment is 45% in the range Rs1000 to Rs 3000.
Q.9 What is the time duration of investment?Ans : Time duration Investment in % Less than or equal to 5 years 25 Less than or equal to 4 years 8 Less than or equal to 3 years 34 Less than or equal to 2 years 25 Less than or equal to 1 year 8Interpretation: The above bar chart depicts that most of the investors (i.e. 33.33%)invest in less than 3 years.
Q.10 which has given more profit to investors?Ans : Investment in Profit in % Lump sum 84 SIP 16Interpretation: The above Pie chart depicts that 84% of investors have got more profitin Systematic Investment Plan.
SWOT ANALYSIS STRENGTH WEAKNESS No access to rural market. No direct link between investors A well known name in and AMC. financial companies. Wide experience in this field. Dedicated employees. Tie up with many financial institutions. Ever growing distribution network. Good infrastructure. Experienced fund manager. Easy access to branch. Opportunities THREATS Positive outlook of People Highly volatile and uncertain toward mutual funds. market. Untapped market. Large number of financial giants present in this market
Conclusion:Findings:Our findings during the training with State Bank of India (MF), Udaipur was good on thefollowing grounds:- State Bank is a top ranked company listed with NSDL and CDSL; provide trading through both NSE and BSE. Sis providing software to their prospective sub brokers and revisers. Cheque updating in 15 minutes and the credit limit up to 10 times.There are some more points :- Mutual fund advisors give emphasis on mutual funds than other investment options. The awareness level of investor is low as advisors are interested in dealing in mutual funds. Very less advisors are knowing about services provided by State Bank of India (Mutual Fund) Mutual funds have given a new direction to the flow of personal saving and enable small and medium investors in remote rural and semi urban areas to reap the benefits of the stock market investments. Indian mutual funds are thus playing a very important role in allocation of scarce resources in the emerging economy.
RECOMMENDATION AND SUGGESTIONSThough the State Bank of India have a very good ascribed plan with exclusive band ofopportunities but as nothing is free from the hurdles therefore there are fewshortcomings which I felt makes SBI fail to achieve its target : 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 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.
QUESTIONNAIRE(Hello, I am Chanchal Salvi. I need your spare time to fill up the questionnaire, as this isthe part of my Summer Internship Training under MBA curriculum)NAME: ______________________________________ __________________AGE0-18_____ 18-36_____ 36-54_____ 54-72______ 72 ABOVE______GENDER: Male FemaleOCCUPATION: Businessman [ ] Pvt. Employee [ ] Govt. Employee [ ] Professional [ ] Student [ ] other (specify):________CONTACT NO: __________________________________Q1. In which of these Financial Instruments do you invest into? Mutual Funds [ ] Bonds [ ] Derivatives [ ] Online trading [ ]Q2 .By structure in which type of schemes did you invested? Open Ended Fund [ ] Close Ended Fund [ ] Interval Schemes [ ]Q3.By investment objective in which type of schemes have you invested? Growth Schemes [ ] Income Schemes [ ] Balanced Schemes [ ]
Q4.In which type of funds you want to invest? Tax Saver Funds [ ] Index Funds [ ] Sactorial Funds [ ]Q5. Did you repeat your investment after your initial investments? Yes [ ] No [ ]Q6. What percentage of your earnings do you invest in Mutual Funds? Up to 10% Up to 25% Up to 50% Above 50%Q7. In which you have invested? SIP [ ] Lump Sum [ ] Both [ ]Q8. What is your allocation criterion? <1000b [ ] 1000-3000 [ ] 3000-5000 [ ] >5000b [ ]Q9. For what time period you have invested? <= 1 yr. [ ] <= 2 yr. [ ] <= 3 yr. [ ] <= 4 yr. [ ] <= 5 yr. [ ]Q10. Which has given you more profit? SIP [ ] Lump Sum [ ]
Bibliography 1. Internet 2. Magazines and journal of the company 3. Book of financial Management 4. Website:- www.sbimf.com www.amfi.coms www.moneycontrol.com www.valueresearch.com www.google.com www.mutaulfundsindia.com www.investopedia.com