Download Mutual Fund Preferance by SIP and more Thesis Investment Management and Portfolio Theory in PDF only on Docsity!
Study on Invertors preference over investment in Mutual
Fund through-Systematic Investment Planning (SIP)
A Thesis Submitted to
The Department of Finance at
K J Somaiya Institute of Management Studies and Research, Mumbai
In Partial Fulfilment of the Requirements for the MMS Finance Course
By
Nitish Shrivas
Roll. No. 01-34-
March, 2018
Under the Guidance of
Dr. Nilakantan Narasinganallur, Ph.D.
Associate Professor - Quantitative methods
Operations Department
K. J. Somaiya Institute of Management Studies and Research
Acknowledgement
I would like to take this occasion to express my sincerest gratitude to all of the stakeholders who
have provided their valuable inputs to the project through their suggestions, help, advises and
guidance during the Master Thesis.
I would like to sincerely express my gratitude to my faculty mentor Professor Dr. Nilakantan
Narasinganallur, who with his vast experience and knowledge has guided, helped and
encouraged me to complete this research.
I would also like to thank all professors of KJ SIMSR who have given me the opportunity to
study finance and imparted knowledge to me from their vast experiences, so as to make me ready
to take up the challenges posed by the industry.
Contents
List of Tables ……………………………………………………………………………. i
List of Graphs …………………………………………………………………………… ii
Abbreviation …………………………………………………………………………….. iii
Executive Summary………………………………………………………………………iv
Chapter 1: Introduction ………………………………………………………………..…
1.1. Mutual Fund ……………………………………………………………. 1.1.2. Advantages of Investing in a Mutual Fund …………………. 1.1.3. Mutual Fund Schemes …………………………………......... 02 1.1.4. Modes of Investment in Mutual Fund ………………………. 03 1.2. Systematic Investment Plan ………………………………………………0 5 1.2.1. How to invest through SIP…………………………………... 05 1.2.2. Why invest using SIP? ............................................................. 05 1.2.3. How a SIP Works? …………………………………………. 1.3. Difference between Lump-Sum and Systematic Investment Planning… 1.4. Difference between Systematic Investment Planning (SIP) and Systematic Transfer Plan (STP)……………………………………………………...
Chapter 2: Literature Review…………………………………………………………… 09
Chapter 3: Research Methodology …………………………………………………….. 10
Chapter 4: Data Analysis ………………………………………………………………. 11
Chapter 5: Discussion and summary of results ……………………………………….… 22
Chapter 6: Conclusion ………………………………………………………………….. 23
Reference …………………………………………………………………………………
Appendix ………………………………………………………………………………….
ii
List of Graphs
Graph. 1: Average Investment Period (Page 11)
Graph. 2: Factor preferred while investment (Page 12)
Graph. 3: Risk taking appetite (Page 13)
Graph. 4: Willingness to accept low return of little ups and down in value (Page 14)
Graph. 5: Begin taking money from investment (Page 15)
Graph. 6: Estimated return from investment (Page 16)
Graph. 7: Preferred mode of investment (Page 17)
Graph. 8: Investor’s satisfaction with Systematic Investment Planning (Page 18)
Graph. 9: Current investment portfolio (Investment period more than 2 year) (Page 19)
iii
Abbreviation
AMC: Asset Management Company
NAV: Net Asset Value
SIP: Systematic Investment Plan
STP: Systematic Transfer Plan
SEBI: Securities Exchange Board of India
AMFI: Association of Mutual Fund in India
VIP: Value Averaging Investing Plan
VTP: Value Transfer Plan
NSE: National Stock Exchange
S&P: Standard and Poor
ECS: Electronic Clearing Scheme
CHAPTER 1. INTRODUCTION
1.1. Mutual Fund
“A Mutual Fund is that pools the reserve funds of a various investors who share or having a common financial objective. The money in this way collected and contributed is at that point contributed in instruments such as offers, equities, debentures and other securities. Mutual Fund is the most reasonable and beneficial investment for the common man as it gives a chance to contribute in an expanded, safe and professionally managed basket of securities at a generally low cost with low risk.”
“Management of the fund by the experts or specialists is one of the key points of interest of contributing through a mutual fund. They frequently carry out and preform broad inquire about - on the company, the industry and the economy – in this way a less risky investment. Furthermore, they frequently study the market. Thus for number of us who do not have the desired ability and are as well active with our livelihood to give proper time and effort in investment. To accomplish the craved enhancement huge sum would be required for a person, which would impossible for numerous of us. Huge effect on return from portfolio reduced by expansion, on the basis of specific sector/fund. SEBI and AMFI regulate the mutual fund industry.”
1.1.2 Advantages of Investing in a Mutual Fund
Small investments: The benefit of return you get from mutual fund is by a diversify portfolio across various company with small and medium investment. Without the assistance such diversification in impossible.
Professional Fund Management: The professionals and the expertise consist of resources, expertise and experiences to take care and efficiently management of the pool of money through the mutual fund. They properly and thoroughly study, analyze the current, future and the past market moment, as well as the economy to get out the best investment option and opportunity.
Spreading Risk: By investing in only one or two stocks an investor with very limited amount of fund increases his/her risk. Here mutual fund spread his risk through investing in diversify stocks/bond with good return. The risk is diversified at the same time taking advantage of the spot price it holds, as the funds are invested in companies across a large and wide range of industries. Mutual fund have the benefit of redemption option at NAV or at the market price, if there were liquidity crises where stocks are selling at very low price.
Transparency and Interactivity:
The investment strategy is clearly shown to the investors in mutual fund. The proportion of investment in different assets type and there is complete disclosure of portfolio about different schemes. Regularly investors get information about the NAV of their investment.
Liquidity:
At the stock exchange closes ended funds have their units list, so at the market value the units can be bought and sold. When AMC announce the repurchase the units can be directly repurchase to the specific mutual fund.
Choice:
The investors can chose the scheme from a wide variety that a large amount of mutual fund offers. So depending on the own requirement the investor can pick-up a scheme.
Regulations:
Each and every mutual funds are registered with SEBI. And within the provision of regulation designed to protect the interests of the investor they function.
1.1.3 Mutual Fund Schemes
1.1.3.1 Schemes according to Maturity Period:
Open-ended Fund/ Scheme:
An open-ended scheme is that is available for participation and repurchase without any interface. They don’t have any specific settled improvement or modification period. Day by day basis offer units at NAV related costs are reported that financial specialist can buy. Liquidity is the key point of such scheme.
Close-ended Fund/ Scheme:
These scheme has a stipulated development/improvement period. At the time of dispatch of conspire, it were amid an indicated period. As the fiancé is open for the membership. Investors can contribute in these scheme at the starting open issue and after that they can purchase the units of the scheme to the stock trader where these units are recorded.
1.1.4.2 Systematic Investment Plan (SIP) – SIP offer the facility to invest the money partially each
month and quarter. Where investor can guide or operate the mutual fund to buy the units of stock/debt/bond from the different scheme in his portfolio. There is fixed sum of charge by the bank by each month or quarter according to the investment. To gain a lower rate of return, the adjust cash lying in your bank's reserve funds account may proceed
1.1.4.3 Systematic Transfer Plan (STP) – “ An investor can invest entire 1 lakh in safe scheme of
mutual fund such as liquid scheme, and at that point systematically exchange cash on a standard basis from the liquid scheme to an equity fund or any other mutual fund scheme of the same fund house.” These mode of investment means as a systematic investment plan. The liquid schemes provides you a chance or opportunity to gain high return than other form of investment like bank deposit, while you are able to invest your fund on a regular basis.
1.1.4.4 Value Averaging Investment Plan (VIP) – The method if investing in the market that tries to decrease the cost of purchase of units very effectively as compare to the regular SIP. In this the amount of money invested on a periodical basis is varies within a range of maximum and minimum limit and it is flexible. As this money helps in averaging the total NAV of the fund invested across the investment period.
1.1.4.5 Value-averaging transfer plan (VTP) – This method is as similar as to VIP. Here on month to month basis money is not charged from the bank, but it is exchange from debut/liquid fund to the equity fund for the investment. In the mode the investor either do a SIP in a liquid fund or invest a huge sum of money in a liquid fund and setup a VTP to the equity fund. And to get the benefit out of it investors need to give proper gap period between the SIP and date of VTP.
1.2. Systematic Investment Plan
“A systematic investment plan (SIP) commits the investor to invest a specified amount every month (or every quarter) in the units of a fund’s equity scheme.” The ruling price: few purchase on high price, and large purchase at low price, it derives the number of units each month an investor will buy. SIPs gives a built-in advantage. It averages the entire period of holding of units over the buying price. SIP solves the dilemma of investors that occurs due to fluctuations in the market NAVs. In this case invests feels difficulties that when to invest in the equity scheme.
1.2.1. How to invest through SIP
Mutual funds through SIP allow to periodically invest in them (let’s say 5 investments of Rs 20 each) on a weekly, monthly or quarterly basis. Risk of locking into one single valuation can be avoided by it but investor get an average of the valuation on the various period that the investor invest in. In volatile market SIP is very useful. It is the tendency of the investor that they invest a fixed amount, buy more securities when the price of the securities goes down and sell them well market goes up. The data on which an investor can make regular investment is define by the mutual fund. The surplus money that a salaried employee manage as a savings, it can be the preferred option for the investor to invest. As a person get his salary on 1st^ of the month and hence he can make an investment at every 3rd or 4rh day. Investor/person can fill the SIP form and inform to the mutual fund holding company/AMC that he/she wants to invest on a particular date of every month. Electronic Clearing Scheme (ECS) is given by almost all the mutual fund of all the banks. Almost all mutual funds give an Electronic Clearing Scheme (ECS) with the major banks: this implies that investor can sign an order to the bank that permit the mutual fund company to take an indicated sum of money from our bank account on specified dates for a specified period to invest in the scheme.
1.2.2. Why invest using SIP?
In order to prevent and avoid the clauses of value of investment the SIP investment in mutual fund is the best way/arrangement with continue high return of investment. The SIP helps in maintaining the positive return from the fluctuations in the market. But the purchase cost averaging helps in maintaining the value of NAV at a constant and positive.
1.2.3. How a SIP Works?
I. “An SIP allows to take part in the stock market without trying to second-guess its movements. It is also known as rupee cost averaging.” II. “An SIP means committing yourself to investing a fixed amount every month.” III. “E.g. 1,000 may be invested every month. When the price of share goes down, the investor benefits by purchasing more units; and is protected by purchasing less when the price goes up.” IV. “Thus the average cost of units is always closer to the lower end.) {NAV: Net Asset Value, or the price of one unit of a fund can be computed as follows: NAV = [market value of all the investments in the fund + current assets + deposits - liabilities] divided by the number of units outstanding.}” V.
Table. 1 Within six months, the investor would have 589.45 units by investing just 1,000 every month. Over the long run, he may make money
1.3. Difference between Lump-Sum and Systematic Investment Planning
Lump Sum SIP
Lump Sum Mode helps Invest all your Investible surplus at one go Indeed in the event that you have an expansive corpus to invest, through a single transaction you can invest all your cash in a mutual fund.
SIP is a restrained Mode of Investment, It spreads your speculations over a certain time period of investment. You can contribute a settled whole of cash on a regular and periodical basis, in a mutual fund scheme through SIP If an investor have an appetite for higher level of risk, then hen can go for lump-sum investment. There may be negative of the investment few times.
Begin with a lower investment sum, in the event that you make a one-time investment you may require a least sum of Rs. 5,000/-, but picking for
Date NAV Approx. number of units investor will get at 1000 Jan 1 10 100 Feb 1 10.5 95. Mar 1 11 90. Apr 1 9.5 105. May 1 9 111. Jun 1 11.5 86.
Longer time horizon required while investing in lump-sum investment.
the SIP mode you can begin with a sum as low as Rs. 500/- per month. When the long term trend of the market is positive in that case investment can be fulfilled. Close term market instability effect may fade over time.
Consistently construct a corpus over time. With the control of compounding of fund in SIPs, it can be a keen budgetary arranging apparatus that may give large sum of investment in the long run. Suitable at high risk taking and expectation of high return. Or have to compromise with the return by investing whole money in low risk fund such as liquid funds.
“In SIP when the market patterns higher, you purchase less units and at the same time the value of your existing units grow. So in the long run your cost of buying is averaged out and your Average Cost per Unit may work out to be lesser than the Average Cost per Unit.” You can make your Investment via a Single payment
You can start your SIP with a One-Time Instruction
1.4. Difference between Systematic Investment Planning (SIP) and Systematic Transfer Plan (STP) You can bring new money into the mutual fund scheme in SIP, while in STP it is just transfer between the funds. The most part be moving cash from a liquid fund to an equity fund in STP I case of SIP there is exchange charge that would be appropriate after a certain period, In the case of Systematic Transfer Plan as well there is an exchange charge that gets to be applicable. It would not make sense to allocate money to STP from equity to debt fund in a rising market. The aim of the SIP is to invest in an order, on a discipline way not to time the market. SIP is independent whether market/NAVs is going higher or lower.
In case of a Systematic Transfer Plan as well the objective is completely different. It is to move cash in a systematic way from one mutual fund scheme to another, for the most part each month/quarter.
CHAPTER 3. RESEARCH METHODOLGY
This project is a study done through primary research and secondary sources. The primary data related to the study have collected, through questionnaires. Sampling size is 113 investors and samples are collected through floating the questionnaires The question are mainly focused on the behaviour and preferences of investors towards investment Secondary data have collected through websites and from various books, magazines and journals. The survey form in designed by taking various aspect of investment preferences and compared with other different past research report. Graphical presentation and the comparison of SIP and the other mode of investment will be done by taking the actual figure with correspondent to the past stock exchange moment, these is used as the data analysis technique The analysis have done by evaluating and correlating all the factors and the preferences of the respondent over the questionnaire
CHAPTER 4. DATA ANALYSIS
4.1. Average Investment Period
Graph. 1
Interpretation
The above graph shows, the investment period of the mutual fund investors. It shows that those investors choose for SIP who having long term horizon of investment more than 2 years to get the benefit from the fluctuation. Generally investor go for 9 month two year for reinvest or to change the portfolio. Approximately more the 35% of the respondent remain with the investment of 9 month to 2 years and these are the respondent who get good return, so it is clear that investors who having the medium term investment and having the moderate risk they go for SIP. The investors who have the short investment period they generally opt for equity investment that because of higher liquidity and high return but with high risk. As from the survey it found that the investors who invest for less than 9 months they generally go for the equity investment, because of the high return but there is high degree of risk. So 72 % of the investor are for the mutual fund investments and the fixed deposits, but now changes toward the mutual fund because to compensate the time value money factor.
0% 5% 10% 15% 20% 25% 30% 35% 40%
3 to 9 months
9 months to 2 year
Less than 3 months
more than 2 year
