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. 1.

A Project Study Report On Systematic Investment Plan (The Bett

er Way to Invest In Mutual Funds) AT SBI MUTUAL FUND Submitted in Partial Fulfill
ment for The Award of Degree of Master of Business Administration 2011-2013Submi
tted by: Submitted to:Chanchal Salvi Dr.Sunita AgarwalMBA Semester III Professor
Advent Institute of Management Studies Udaipur
. 2. PREFACEThere are four steps to Accomplishment & Success Plan,
Purposefully, Preparethoroughly, Proceed Positively & Pursue Persistently.In th
is development and changing world, I feel proud for being a student of M.B.Aprog
rammed 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 workingexperience for a stude
nt and gives enough exposure so that one can give his/her bestin the organizatio
n 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 pr
oject my training place was State Bank of India. Udaipur. During my study Igot e
nough information. This report is purely based on what I worked and analyzedduri
ng 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 strea
m of my study.This project is a summary of the information gathered during the s
tudy. I Confident thatmy sincere effort and special attention will justify the s
ubjects in the report.
. 3. ACKNOWLEDGEMENTI express my sincere thanks to Dr. R.K. Balyan
, Director, Advent Institute ofManagement Studies and my project guide Dr. Sunit
a Agrawal, Professor, DepttAIMS, for guiding me right from the inception till th
e 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 stage
s of this project.I would also like to thank the supporting staff of Advent Inst
itute of ManagementStudies for their help and cooperation throughout our project
.Chanchal salvi
. 4. Executive SummaryMutual funds have emerged as a strong financ
ial intermediary and are the fastestgrowing segment of the financial services se
ctor in India. Mutual funds play a verysignificant role in channelizing the savi
ngs of millions of individuals. A mutual fund isthe most suitable investment for
the common person as it offers an opportunity toinvest in a diversified, profes
sionally managed portfolio at a relatively low cost. Thereare wide varieties of
mutual fund schemes that cater to investor needs. Whether as thefoundation of on
es investment programme or as a supplement, mutual fund schemescan help the inves
tors to meet their financial goals.A host of factors has contributed to this exp
losive growth of the industry. The industryhas made significant strides in terms
of its variety, sophistication and regulation. Dueto the economic boom, entry o
f foreign asset management companies, favorable stockmarkets and aggressive mark
eting by mutual funds, the asset management industry inIndia is witnessing drama
tic growth in terms of new fund openings, the number ofmutual fund families, and
in the total assets under management in recent years.Despite various attraction
s offered, the total net assets of mutual funds are very lessas compared to othe
r developed countries. In the product offering too, the Indian fundindustry is n
ot close to the developed countries. Indias 32 member fund industry hasto scale n
ew 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 afford
able and competitive schemes that combine various elements of liquidity,return a
nd 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
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 F
. 5. Table of ContentsSr. Chapter Name of content PageNo:- no1. In
troduction 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 st
udy 34 2.4 Simple size &method 36 2.5 Scope of the study 37 2.6 Limitation of th
e study 414. Findings & Facts 3.1 Findings 455. Data Analysis 606. SWOT analysis
of the 62 company7. Conclusion 638. Suggestions 64 Recommendations9. Appendix 6
510. Bibliography 67
. 6. Chapter 1Introduction to the Industry
. 7. IntroductionThe financial system is a set of institutional ar
rangements through which financialsurpluses available in the economy are mobiliz
ed. A financial system, which isinherently strong, functionally diverse and disp
lays efficiency and flexibility, is critical increating a market-driven, product
ive 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 expl
osivegrowth of the economy, opening up of the Indian financial market to foreign
and privateIndian players, large inflow of Foreign Ninth AIMS International Con
ference onManagement Institutional Investors, increased competition and better p
roductofferings to consumers. One of the major developments of this decade has b
een thetake-off of mutual funds. Mutual funds have emerged as a strong financial
intermediaryand are the fastest growing segment of the financial services secto
r in India. It aims atpromoting a diversified, efficient and competitive financi
al sector increasing the returnon investment and promoting and accelerating the
growth of the economy. It is amedium of investment suitable to the small investo
rs, who are not able to invest instock market directly.Mutual funds now play a v
ery significant role in channelizing the savings of millions ofindividuals. The
mutual fund industry in India over the years has seen dramaticimprovements in te
rms of quantity as well as quality of product and service offerings inrecent yea
rs. The tremendous growth of Indian Mutual Funds industry is an indicator ofIndi
as efficient financial market and the trust which investors have on the regulator
yEnvironment. Millions of investors rely on mutual funds as their primary invest
mentsbecause they offer a convenient, cost-effective and easy way to invest in t
he financialmarkets. The Securities Exchange Board of India (SEBI) regulates thi
s 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 ga
ins) 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
. 8. as income or reinvested to purchase more shares. A mutual fun
d 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 f
und divided by the totalnumber of shares owned by its shareholders. As the price
of the NAV increases ordecreases, the shareholders value will increase or decre
ase.Current Scenario of Mutual FundsThe global economic environment was conduciv
e and this led to the explosive growthof mutual funds in most countries particul
arly since 1980s. This growth can beattributed to the strong emergence of the mar
ket economy which depends more on thegrowth led by the stock market. Mutual fund
s found increasing acceptance in thedeveloped countries when compared to the dev
eloping countries in the early and mid90s but gradually it found its place even i
n the developing countries because of itsadvantages. Gradually the number of mut
ual 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 ye
ar 1963. The primary objective at that time was to attract the smallinvestors an
d 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 di
fferent provisions of the UTI Actlaid down the structure of management, scope of
business, powers and functions ofthe trust as well as accounting, disclosures a
nd regulatory requirements for the trust.Even though the growth of the mutual fu
nd industry was very slow in the beginning, itaccelerated when the public sector
and private sector mutual funds entered the marketafter the year 1987. The mobi
lization of funds and the number of players operating inthe industry reached new
heights as investors started showing more interest in mutualfunds. Investors in
terests were safeguarded by SEBI and the Government offers taxbenefits to the in
vestors in order to encourage them. SEBI also introduced SEBI
. 9. (Mutual Funds) Regulations, 1996 and set uniform standards fo
r 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 im
provement,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 b
illion. Theprivate sector entry to the fund family raised the Aum to Rs. 470 bil
lion 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 mu
tualfund industry can be broadly put into four phases according to the developme
nt of thesector. Each phase is briefly described as under.First Phase 1964-87Uni
t Trust of India (UTI) was established on 1963 by an Act of Parliament by theRes
erve Bank of India and functioned under the Regulatory and administrative contro
lof the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and theInd
ustrial Development Bank of India (IDBI) took over the regulatory and administra
tivecontrol in place of RBI. The first scheme launched by UTI was Unit Scheme 19
64. 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 Corp
oration of India (LIC) and General InsuranceCorporation of India (GIC). SBI Mutu
al Fund was the first non- UTI Mutual Fundestablished in June 1987 followed by c
an bank Mutual Fund (Dec 87), Punjab NationalBank Mutual Fund (Aug 89), Indian B
ank 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 mutua
l fund in December 1990.At the end of 1993, themutual fund industry had assets u
nder management of Rs.47,004 crores.Third Phase 1993-2003 (Entry of Private Sect
or Funds)
. 10. 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 (M
utual Fund) Regulations were substituted by a more comprehensiveAnd revised Mutu
al Fund Regulations in 1996. The industry now functions under theSEBI (Mutual Fu
nd) Regulations 1996. As at the end of January 2003, there were 33Mutual funds w
ith total assets of Rs. 1,21,805 crores.Fourth Phase since February 2003: In Feb
ruary 2003, following the repealof the Unit Trust of India Act 1963 UTI wasBifur
cated into two separate entities. One is the Specified Undertaking of the Unit T
rustOf India with assets under management of Rs.29,835 crores as at the end of J
anuary2003, representing broadly, the assets of US 64 scheme, assured return and
certainOther schemes.The second is the UTI Mutual Fund Ltd, sponsored by SBI, P
NB, BOB and LIC. It isRegistered with SEBI and functions under the Mutual Fund R
egulations. ConsolidationAnd growth. As at the end of September, 2004, there wer
e 29 funds, which manageAssets of Rs.153108 crores under 421 schemes.
. 11. Mutual FundA mutual fund is a company that brings together m
oney from many people and investsit in stocks, bonds or other assets. The combin
ed holdings of stocks, bonds or otherassets the fund owns are known as its portf
olio. Each investor in the fund owns shares,which represent a part of these hold
ings A mutual fund is a professionally managedinvestment product that sells shar
es to investors and pools the capital it raises topurchase investments A fund ty
pically 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 fu
nd 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 inves
ting in securities such as stocks, bonds, moneymarket instruments and similar as
sets. Mutual funds are operated by moneymanagers, who invest the funds capital a
nd attempt to produce capital gains andincome for the funds investors. A mutual
funds portfolio is structured and maintainedto match the investment objectives s
tated in its prospectus.
. 12. Advantages of Mutual Funds - Diversification - Professional
Management - Regulatory oversight - Liquidity - Convenience - Low cost - Transpa
rency - Flexibility - Choice of schemes - Tax benefits - Well regulatedWorking o
f Mutual Funds:The following figure explains the working of Mutual funds
. 13. The important terms of the figure are explained asfollows:Fu
nd Sponsor:The sponsor is the company which sets up the mutual fund. It means an
ybodycorporate acting alone or in combination with another body corporate establ
ished amutual fund after initiating and completing the formalitiesTrust:MF or tr
ust can either be managed by the Board of Trustees, which is abody of individual
s, or by a Trust Company, which is a corporate body. Most of thefunds in India a
re managed by Board of Trustees. The trustee being the primaryguardian of the un
it holders funds and assets has to be a person of high repute andintegrity. The t
rustees, however, do not directly manage the portfolio securities. Theportfolio
is managed by the AMC as per the defined objectives, accordance with TrustDeed a
nd 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 i
nvestment manager of the trust. The AMC functions under thesupervision of its ow
n Board of Directors, and also under the direction of the trusteesand SEBI. AMC,
in the name of the trust, floats and manages the different investmentschemes as p
er the SEBI Regulations and as per the Investment Management
. 14. Agreement signed with the Trustees.OtherApart from these, th
e MF has some other fund constituents, such ascustodians and depositories, banks
, transfer agents and distributors.The custodian is appointed for safe keeping o
f securities and participating in theclearing system through approved depository
. The bankers handle the financialdealings of the fund. Transfer agents are resp
onsible for issue andredemption of units of MF.RiskReturnMatrix:The risk return
trade-off indicates that if investor is willing to take higher risk thencorrespo
ndingly he can expect higher returns and vice versa if he pertains tolower risk
instruments, which would be satisfied by lower returns. For example, if aninvest
or opts for bank FD, which provide moderate return with minimal risk. But as hem
oves ahead to invest in capital protected funds and the profit-bonds that give o
utmore 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, diversificat
ion, convenience and liquidity.That doesnt 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 inv
olves a higher risk but can expect higherreturns.Mutual funds can be classified
as follow:
. 15. Based on their structure: Open-ended funds: Investors can bu
y and sell the units from the fund, at any point of time. Close-ended funds: The
se 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 sto
cks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fu
nd). Recently, most of the New Fund Offers of close-ended funds provided liquidi
ty 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 l
iquidity. Based on their investment objective:
. 16. Equity funds: These funds invest in equities and equity rela
ted instruments. With fluctuating share prices, such funds show volatile perform
ance, even losses. However, short term fluctuations in the market, generally smo
othens out in the long term, thereby offering higher returns at relatively lower
volatility. At the same time, such funds can yield great capital appreciation a
s, 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 st
ock market index, like BSE Sensex or Nifty istracked. Their portfolio mirrors th
e benchmark index both in terms of compositionand individual stock weight ages.i
i) Equity diversified funds- 100% of the capital is invested in equities spreadi
ngacross 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, con
struction, cements sectors etc.v) Sector funds- Invest 100% of the capital in a
specific sector. e.g. - A bankingsectorfund will invest in banking EL
SS- 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.
. 17. 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 In
dia 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 f
unds depending on your investment horizon and needs.i)Liquid funds- These funds
invest 100% in money market instruments, a largeportion being invested in call m
oney 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 pa
pers. Floaters invest in debtinstruments which have variable coupon rate.IV)Arbi
trage fund- They generate income through arbitrage opportunities due tomispricin
g between cash market and derivatives market. Funds are allocated toequities, de
rivatives and money markets. Higher proportion (around 75%) is put inmoney marke
ts, in the absence of arbitrage opportunities.v) Gilt funds LT- They invest 100%
of their portfolio in long-term Income funds LT- Typic
ally, 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 anexpos
ure of 10%-30% to equities.
. 18. viii) FMPs- fixed monthly plans invest in debt papers whose
maturity is in line withthat of the fund.Investment Strategies:1. Systematic Inv
estment 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 lo
w. This is called as the benefit of Rupee Cost Averaging (RCA)2. Systematic Tran
sfer Plan: under this an investor invest in debt oriented fundand give instructi
ons 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 Op
tionUnder the dividend plan dividend are usually declared on quarterly or annual
basis.Mutual fund reserves the right to change the frequency of dividend declar
ed. - Dividend reinvestment option
. 19. Instead of remittances of units through payouts, Units holde
r may choose to invest theentire dividend in additional units of the scheme at N
AV related prices of the nextworking day after the record date. No sales or entr
y load is levied on dividend reinvest. - Growth OptionUnder this, plan returns a
ccrue 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 wh
o opt for this plan will not receive any income from the scheme.Instead of incom
e earned on their units will remain invested within the scheme and willbe reflec
ted in the NAV.Risk Return Hierarchy of Different Funds
. 20. BANKS V/S MUTUAL FUNDS:Mutual Funds are now also competing w
ith commercial banks in the race for retailinvestors savings and corporate float
money. The power shift towards mutual fundshas become obvious. The coming few ye
ars will show that the traditional savingavenues are losing out in the current s
cenario. Many investors are realizing thatinvestments in savings accounts are as
good as locking up their deposits in a closet.The fund mobilization trend by mu
tual funds indicates that money is going to mutualfund in a big way.CATEGORY BAN
KS MUTUAL FUNDSReturns Low HighAdministrative exp. High LowRisk Low ModerateInve
stment options Less MoreNetwork High penetration Low but improvingLiquidity At a
cost BetterQuality of assets Not transparent Transparent Minimum balance betwee
nInterest calculation Everyday 10th & 30th of every month Maximum Rs.1 lakh onGu
arantee None deposits
. 21. Chapter 2Profile of Company
. 22. Company profileSBI Mutual Fund is Indias largest bank sponsor
ed mutual fund and has an enviabletrack record in judicious investments and cons
istent 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 th
e country with an investor base of over 4.6 millionand over 20 years of rich exp
erience in fund management consistently delivering valueto its investors.SBI Fun
ds Management Pvt. Ltd. is a joint venture between The State Bank of Indiaone of
Indias largest banking enterprises, and Societe Generale Asset Management(Franc
e), one of the worlds leading fund management companies that manages overUS$ 500
Billion worldwide. Today the fund house manages over Rs 28500 crores ofassets a
nd has a diverse profile of investors actively parking their investments across3
6 active schemes. In 20 years of operation, the fund has launched 38 schemes and
successfully redeemed 15 of them, and in the process, has rewarded our investors
with consistent returns. Schemes of the Mutual Fund have time after timeoutperfo
rmed benchmark indices, honored us with 15 awards of performance and haveemerged
as the preferred investment for millions of investors. The trust reposed on usb
y over 4.6 million investors is a genuine tribute to our expertise in fund manag
ement.SBI Funds Management Pvt. Ltd. serves its vast family of investors through
a networkof over 130 points of acceptance, 28 Investor Service Centers, 46 Inve
stor ServiceDesks and 56 District Organizers.SBI Mutual is the first bank sponso
red fund to launchan offshore fund Resurgent India Opportunities Fund. Growth th
rough innovation andstable investment policies is the SBI MF credo.
. 23. MUTUAL F U N D S STRUCTURE The SEBI (Mutual Funds) Regulatio
ns 1993 define a mutual fund (MF) as a fund established in the form of a trust b
y a sponsor to raise monies by the Trustees through the sale of units to the pub
lic under one or more schemes for investing in securities in accordance with the
se regulations. These regulations have since been replaced by the SEBI (Mutual F
unds) Regulations, 1996. The structure indicated by the new regulations is indic
ated as under. A mutual fund comprises four separate entities, namely sponsor, m
utual 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 for
m of a trust and the instrument ofthe trust should be in the form of a deed regi
stered under the provisions of the IndianRegistration Act,1908.The Custodian mai
ntains 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 com
panies in which the fund has invested. The Custodian is appointed by theBoard of
Trustees. The Custodian also participates in a clearing and settlementsystem th
rough approved depository companies on behalf of mutual funds, incase of demater
ialized securities. The sponsor is required to contribute at least 40% of the mi
nimum net worth (Rs. 10 crore) of the asset management company. The board of tru
stees manages the MF and the sponsor executes the trust deeds in favor of the tr
ustees. 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
. 24. Taxation of Mutual Funds and Investor Finance Act 1999 radic
ally 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(23
d) of the IT Act. Finance Act 1999 made income (dividend) from UNITS totally exe
mpt from tax u/s 10(33) in the hands of investors. Income (dividends) distribute
d 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 (sin
ce changed to 65% in FY 06-07. Individuals 14.02% , Companies 22.44%. Security T
ransaction Tax (STT) is charged as applicable. 80 C benefits under ELSS up to Rs
1 lack.
. 25. Types of Investment in Mutual Fund Lump Sum Systematic Inves
tment 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 th
e entire sum of money at onego. For instance, if you have Rs 1 lakh which you ar
e willing to fully invest in stocks orMFs, it is a lump-sum investment.Systemati
c Investment PlanSBI Mutual Fund on Wednesday, April 15th started its equity bas
ed 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 atge
tting in low income households in rural and semi-urban areas to benefit fromlong
-term investment in equity as an asset class," said Achal Gupta, ManagingDirecto
r, SBI Mutual Fund.
. 26. 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 initiat
ive taken by the bank.The bank plans to market the product through intermediarie
s 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 Fu
nd, 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 investmen
t of only Rs 100 per month withminimum tenure of 5 years.The bank has also reque
sted the government to remove the permanent accountnumber (PAN) requirement, whi
ch is a must for all mutual fund investments, for thisplan. Presently the invest
ors who want to opt for this plan have the option of investingin SBI Mutual Fund
s Magnum Balanced Fund, MMPS 93, MSFU Contra Fund, andSBI Blue Chip Fund and lat
er on this plan would be extended to other schemes aswell.SIP is actually a Syst
ematic 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. F
irst way is onetime payment i.e. making payment to a fund at onceand gets the un
its of the fund as per the Net Asset Value (NAV) of the fund on thatday. A perso
n 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 ofi
nvestment 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 calle
d asSystematic Investment. It is actually beneficial for those investors who wis
h 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 Inve
stment Plan in Mutual Fund is commonly named SIP is really gettingpopular in Ind
ia. Systematic Investment Plan is such a beautiful tool, which if usedproperly c
an help you to achieve all your financial goals. Some time back we wrote Doyou re
ally understand Systematic Investment Plan which is one of the most populararticl
es of TFL, but readers requested that they want to read more about basics ofMutu
al Fund SIP.
. 27. What is Systematic Investment Plan?Systematic Investment Pla
n (SIP) is a smart financial planning tool that helps you tocreate wealth, by in
vesting small sums of money every month, over a period of time.Systematic Invest
ment 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 ban
king institutions in India. It is not onlyreliable but investing money is also s
afe with a guarantee that great returns can beobtained from here. Currently, inv
estment 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 fun
ds, by investing a fixed sum at a regularfrequency, to buy units of a mutual fun
d schemes. It is quite similar to a recurringdeposit of a bank or post office. F
or 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 us
ing hypothetical figures indicating how theSIP can work for investors:Suppose an
investor would like to invest Rs.4,000 under the Systematic InvestmentPlan on q
uarterly basis.
. 28. Period Invested Premium NAV of Maxi Units allocated miser Fu
nd (Rs (Rs) per unit)7th April10 4000 11.34 352.737th May10 4000 11.01 363.317th J
une10 4000 12.05 331.957th July10 4000 13.13 304.657th 4000 13.67 292.61August107th
Sept10 4000 15.81 253.007th Oct10 4000 16.78 238.387th Nov10 4000 18.28 218.827th
Dec10 4000 18.71 213.797th Jan11 4000 21.48 186.227th Feb11 4000 21.49 186.137th 40
00 21.98 181.98March11Total 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 (4,00
0 * 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
. 29. 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 ha
d invested Rs. 1000 ever year (SIP)he would by earned a return of 9% vis--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 re
turn would have been 16.52% compared to14.09% for a one-time investment at the b
eginning of the period.Using the SIP strategy the investor can reduce his averag
e cost per unit. The investorgets the advantage of getting more units when the m
arket is turned down.Benefits of SIP 1. SIP can be started with a minimum invest
ment 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 I
nvestment through SIP. 4. A small withdrawal from the account doesnt affect the b
ank 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 couldnt be
able to continue its SIP, he may give instructions at least 25 days before to th
e 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 of
fers 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. S
ome 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 an
d effective way to create wealth but to create such wealth, one should think abo
ut 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..
. 30. SBI and SIP:The relationship between SBI and SIP is quite lo
ng and strong. SBI has introducedseveral SIPs because it is definitely one of th
e greatest and the smartest way ofinvestment in the present scenario. Not only i
s 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
. 31. Chapter 3Research Methodology
. 32. Research Methodology Title of the studySystematic Investment
Plan(The Better Way to Invest In Mutual Funds) Duration of the ProjectThe duratio
n of the project is 45 days Objective of the study The purpose of choosing the p
roject is to know: Investors option for entry into mutual fund Lump sum SIP Compa
rative analysis between Lump Sum and SIP Investors Delight when investment is th
rough SIP Procedure for investment in SIP Research TypeConclusive and explorativ
e approach has been adopted in the study. As here thetopic of research problem h
as been explored so that hidden facts can come into thelight and then the maximu
m 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 men
tioned objectives. Theselection of sample was based on the following criteria: -
People belonging to different state of society.
. 33. Servicemen working in government organization & private orga
nization. Professionals who includes doctors, lawyers, teachers etc Research Des
ignThis research is Explorative and conclusive in nature because it aims to coll
ect thedata about the behavior of investors in which way they invest in Mutual F
unds. Theresearch approach used is survey based and the analysis is largely base
d on theprimary data. Research InstrumentStructured questionnaire: open- ended a
nd close- ended. Contact MethodPersonal interview Research ApproachAny methodolo
gy includes the overall research design, the sampling procedure anddata collecti
on method. The methodology adopted by me for purpose of finding theinvestment be
havior of investors was DIRECT SURVEY METHOD POPULATIONUdaipur City Study scope
of the
. 34. Udaipur onlyThis project will help existing/prospective inve
stor 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 t
he researcher as per his/her needsSecondary Data is that data which is collected
through references as websites,journals, books, magazines , etc. LIMITATIONS TO
. 35. Though research based decision-making is now considered but
still there is a gapbetween the understanding of researcher and users.Research i
s 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 : So
me respondents gave vague information and were not serious while responding. Som
e respondents were hesitant to reveal information about their finances because o
f income tax queries. It was difficult to find whether respondents actually part
icipate in their financial planning. Research can provide number of facts but it
does not provide actionable results. It cannot provide answer to any problem bu
t can only provide a set of guidelines. Management rely more on the intuitions a
nd judgments rather than research. Area of research was restricted to some locat
ion of the city and state.
. 36. Chapter 4Facts and Finding
. 37. FindingThe analysis is done based on the structured question
s and we got following points: - 55% investor invests in SIP mode. - 84% got mor
e 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%
. 38. Chapter 5Analysis and Interpretation
. 39. Q 1: In which Financial Instrument do you invest into?Ans: F
inancial Instruments Investment in % Mutual 76 Bond 15 Online Trading 07 Derivat
ives 02Interpretation: From above pie chart, I have analyzed that 76% of investo
rs invest inthe analysis is done on the basis of the response of respondents, wh
ich is collectedthrough the questions present in questionnaire.
. 40. 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 fun
ds 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.
. 41. 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 Sc
hemes, 13% investor invest in Income Schemes, and 32%investors invest in Balance
d Funds.
. 42. 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 44Interpret
ation: The above chart depicts that the maximum numbers of investor.i.e.41%inves
tors invest in Sectoral Funds , 44% in Index Funds and 15% in Tax Saver Funds.
. 43. Q.5 Do you repeat your investment after initial investment?A
ns : Repetition of Investors in % investment Yes 68 No 32Interpretation: The abo
ve pie chart depicts that 68% of investors invest again after theinitial investm
. 44. 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 A
bove 50% 10Interpretation: The above chart depicts that 43% investor invest that
up to 10% of theirearning in Mutual Fund.
. 45. Q.7 :How many investors invested in SIP , Lump sum or both?A
ns : 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 l
ump sum and 35% in both the category.
. 46. Q.8 what is an allocation criteria of an investor in SIP? An
s : Allocation criteria (in Rs) Investment in % Less than 1000 9 1000-3000 45 30
00-5000 36 More than 5000 10 50 Allocation criteria (in Rs) 45 40 35 30 25 20 in
vestment in % 15 10 5 0 less than 1000 1000-3000 3000-5000 more than 5000Interpr
etation: From above chart b I have analyzed that the allocation criteria ofinves
tment is 45% in the range Rs1000 to Rs 3000.
. 47. Q.9 What is the time duration of investment?Ans : Time durat
ion Investment in % Less than or equal to 5 years 25 Less than or equal to 4 yea
rs 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 th
e investors (i.e. 33.33%)invest in less than 3 years.
. 48. Q.10 which has given more profit to investors?Ans : Investme
nt in Profit in % Lump sum 84 SIP 16Interpretation: The above Pie chart depicts
that 84% of investors have got more profitin Systematic Investment Plan.
. 49. Chapter 5SWOT Analysis
. 50. SWOT ANALYSIS STRENGTH WEAKNESS No access to rural market. N
o direct link between investors A well known name in and AMC. financial companie
s. Wide experience in this field. Dedicated employees. Tie up with many financia
l institutions. Ever growing distribution network. Good infrastructure. Experien
ced fund manager. Easy access to branch. Opportunities THREATS Positive outlook
of People Highly volatile and uncertain toward mutual funds. market. Untapped ma
rket. Large number of financial giants present in this market
. 51. Chapter 7Conclusion
. 52. Conclusion:Findings:Our findings during the training with St
ate 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 NS
E 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 som
e more points :- Mutual fund advisors give emphasis on mutual funds than other i
nvestment options. The awareness level of investor is low as advisors are intere
sted in dealing in mutual funds. Very less advisors are knowing about services p
rovided by State Bank of India (Mutual Fund) Mutual funds have given a new direc
tion to the flow of personal saving and enable small and medium investors in rem
ote rural and semi urban areas to reap the benefits of the stock market investme
nts. Indian mutual funds are thus playing a very important role in allocation of
scarce resources in the emerging economy.
. 53. Chapter 8Suggestion
. 54. RECOMMENDATION AND SUGGESTIONSThough the State Bank of India
have a very good ascribed plan with exclusive band ofopportunities but as nothi
ng is free from the hurdles therefore there are fewshortcomings which I felt mak
es SBI fail to achieve its target : There is high potential market for mutual fu
nd advisors in Udaipur city but this market needs to be explored as investors ar
e still hesitated to invest their money in mutual fund. In Udaipur investors hav
e inadequate knowledge about mutual fund, so proper marketing of various schemes
is required. Company should arrange more and more seminars on mutual funds. Awa
reness of mutual fund services among the investors are very low so Asset Managem
ent Company needs proper marketing of their all services by advertising , distri
bution of pamphlet , arranging seminars etc. Most advisors are not interested in
dealing of mutual funds because they get very low commission. Company should al
so provide knowledge about the growth rate and expected growth rate of mutual fu
nd 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.
. 55. Chapter 9Annexure
. 56. QUESTIONNAIRE(Hello, I am Chanchal Salvi. I need your spare
time to fill up the questionnaire, as this isthe part of my Summer Internship Tr
aining under MBA curriculum)NAME: ______________________________________ _______
___________AGE0-18_____ 18-36_____ 36-54_____ 54-72______ 72 ABOVE______GENDER:
Male FemaleOCCUPATION: Businessman [ ] Pvt. Employee [ ] Govt. Employee [ ] Prof
essional [ ] Student [ ] other (specify):________CONTACT NO: ___________________
_______________Q1. In which of these Financial Instruments do you invest into? M
utual 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 yo
u invested? Growth Schemes [ ] Income Schemes [ ] Balanced Schemes [ ]
. 57. Q4.In which type of funds you want to invest? Tax Saver Fund
s [ ] Index Funds [ ] Sactorial Funds [ ]Q5. Did you repeat your investment afte
r your initial investments? Yes [ ] No [ ]Q6. What percentage of your earnings d
o you invest in Mutual Funds? Up to 10% Up to 25% Up to 50% Above 50%Q7. In whic
h you have invested? SIP [ ] Lump Sum [ ] Both [ ]Q8. What is your allocation cr
iterion? <1000b [ ] 1000-3000 [ ] 3000-5000 [ ] >5000b [ ]Q9. For what time peri
od you have invested? <= 1 yr. [ ] <= 2 yr. [ ] <= 3 yr. [ ] <= 4 yr. [ ] <= 5 y
r. [ ]Q10. Which has given you more profit? SIP [ ] Lump Sum [ ]
. 58. Chapter 10Bibliography
. 59. Bibliography 1. Internet 2. Magazines and journal of the com
pany 3. Book of financial Management 4. Website:- www.amfi.coms ww

Building Wealth through Systematic Investing in Mutual Funds A Case Study

Note This is a guest post by Ajay a regular reader of Stable Investor.He has writte
n many useful posts on Stable Investor about accumulating funds for recurring ex
penses, investingsurplus money in mutual funds, his own experience of accumulati
ng Rs 3.7 crores in 10 years. Alongwith with him, I also did a detailed comparat
ive analysis about Real Estate Investments vs. Mutual Fund Investments.
So over to Ajay who is once again highlighting the importance of systematic inve
sting in creating wealth.

For years, mutual fund companies have been trying hard to convince retail invest
ors about the benefits of SIP. Investment advisors, newspapers, personal finance
magazines and even blogs have been doing it for years.
But sadly, despite the Indian mutual fund industry being 22+ years old, only a s
mall section of the retail investor community has benefited in the real sense, f
rom investing in mutual funds.
And this is not a general observation. Its a fact and has also been highlighted b
y a well-respected fund manager from Franklin Templeton, based on the analysis o
f their mutual fund folios after completion of 20 years of Franklin Blue Chip Fu
nd. According to their study, despite the fund delivering consistently high and
market-beating returns, there are hardly any investors who have profited fully f
rom this fund.
The reason for this can be attributed to the fact that most of the times, retail
investors are sold products that dont meet their requirements. The distributors
and agents are only selling products, which give them the highest commissions. A
nd this does not stop at that. These agents and distributors then convince inves
tors, to churn their portfolios continuously to extract more commissions from th
Now there is nothing new or radical that is being said in this post. And you mig
ht have already read similar articles about SIPs on other blogs and personal fin
ance magazines. This post is a reiteration of our strong faith on the power of r
egular investments through Systematic Investing Plan (SIP). We will use fact and
figures to further substantiate this faith.
So let us get into the details now:
For this multi-scenario case study, we have chosen the mutual fund scheme: Frank
lin India Prima Plus Fund Growth.
An amount of Rs 10,000 was invested monthly (via SIP) in this fund starting from
July 2000 (for a 15-Year Period for this case study).
Now we did not attempt to time the markets or try any other complex techniques.
We just focused on doing a plain and simple, monthly SIP of Rs 10,000 for a peri
od of 15 years.
If you want, you can see the entire investment statement by clicking on the smal
l image below:

To summarize, a regular monthly investment of Rs. 10,000/- from July 2000 to Jun
e 2015 (with 1st trading day of the month taken as the SIP day) was done. This a
mounted to an actual investment of Rs 18 lacs.
Now in June 2015, which is after 15 years of starting the SIP, the invested amou
nt of Rs 18 lacs has grown into a corpus of Rs 1.28 crores! Not a small amount c
onsidering that just Rs 10,000 was invested every month. And to put it on record
, we did nothing spectacular. We just did SIP. Thats it.
Rs 10,000 x 180 Months = Rs 1,28,00,000 (!)
Looks crazy? But that is the power of long term investing.
As a retail investor, you dont need to be super intelligent or a financial wizard
to create a big corpus. As Buffett famously said,
Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.
For retail investors, the rule of the game of wealth is simple:
Dont do anything else apart from investing small amount (as much as you can manag
e) every month for long periods.
In our case study, its about investing an amount of Rs 10,000 every month for a p
eriod of 15 Years. Not a very difficult thing to do for quite a few of us. Isnt i
So if its so easy to create wealth through a simple SIP, then why do people cont
inuously talk about equities being risky and complain about losing money by inve
sting in stocks and equity mutual funds?
Are the equity mutual funds really that risky? The answer is a big No. It is not r
isky provided you play by the rules of the game. And to convince the skeptics, l
ets analyze the returns earned by the chosen mutual fund during different period
Since the investment is SIP-based, we calculated the XIRR returns over different
period. In our opinion, 7 years and above is a suitable time frame for investin
g in equity mutual funds.
However we will calculate XIRR (or internal rate of return) for 3 years, 5 Years
, 7 years, 10 years and 15 years.
Rolling 3-Year Returns
Please note that 3 years is not a suitable time period for investing in equity f
An amount of Rs 10,000 was invested via SIP on 1stof every month for 3 years. So
in 15 years, we get 13 data points on a rolling 3-year basis. The XIRR results
are as follows:

Out of the 13 available data points, not even once were the returns negative. Th
e returns ranged from lows of 4.28% to highs of 48.45%.
9 of the 13 three-year periods gave returns in excess of 18% which is not a smal
l achievement.
4 of the 13 three-year periods gave single digit returns ranging from 4.28% to 8
.32%. No doubt, these figures are low. But there still hasnt been a loss. Now let
s agree to one fact. In short time periods, bull and bear markets can significan
tly distort the returns. Both on the higher, as well as on the lower sides.
So lets carry out similar analysis for longer time-frames.
Rolling 5-Year Returns
Now 5 years is the bare minimum, which one should consider for investing in equi
ty funds.
In this particular scenario, an investment of Rs 10,000 was made via SIP on 1st
of each month in each of the 5-year periods. In a 15-year period, we get 10 data
points on a rolling 5-year basis. The results are as follows:

Once again, not even once did the returns turn negative. i.e. there were no lose
s. In fact, the returns ranged from lows of 8.71% to highs of 49.43%. It is wort
h noting that the minimum returns are quite close to risk-free (and most of the
times taxable) returns provided by PPFs and bank fixed deposits.
7 out of the 10 five-year periods gave returns in excess of 17%. There was just
one single digit return period of 8.71%.
Lets now move further.
Rolling 7-Year Returns
For a 7-year SIP, the return figures are as follows:

The most important thing to observe here is that once again, there are no negati
ve returns periods. And the returns range from lows of 9.54% to highs of 42.52%.
7 out of the 9 available periods gave returns in excess of 16%. The two lowest r
eturns were 9.54% and 11.04%. And both these are well above the returns given by
traditional bank deposits, PPFs, NSCs, etc.
Now lets move to 10-year period now.
Rolling 10-Year Returns
In this, we only get 6 rolling periods of 10 years each. The returns correspondi
ng to each of these periods is given below:

No losses. Lowest is 17.40%. Highest is 28.18%.

And all the six period have provided returns in excess of 15%.
It is worth understanding that these type of returns are the best among all avai
lable financial instruments like fixed deposits, PPFs, NSC, etc. And unless you
were lucky in real estate, you could not have made such returns in any other ass
et class.
Now the interesting thing about these 10-year periods is that these started with
a bear market in 2002 2003, which was then followed by mega bull-run of 2003-20
07. Then came the crash of 2008-2009, which was then followed by the sideways mo
ve of 2009-2014. Since 2014, its been a practical bull market till June 2015. So
most of the data points in 10-year periods have gone through couple of bull and
bear markets. Yet the returns have been positive and in fact, exceeded 15% in ea
ch of the period.
Rolling 15-Year Returns
In a 15 year period, we just have one data point. And returns for this period of
2000-2015 are 23.25%.

It can be safely said that over a 15-year period, none of the investments (exclu
ding real estate in some specific areas) would have provided such returns. More
importantly, such returns have been achieved by small monthly investments withou
t straining your pocket or cash flows.
Now we know what you must be thinking.
Why was this particular fund chosen?
Or what would have happened had we taken any other fund?
Now as per Value Research, the scheme Franklin India Prima Plus Fund is rated hi
ghly as a 5 Star Fund. It ranks in top 3 in the Large & Midcap Equity Funds cate
gory over a 5-year period. It is also among the top 3 funds over a 10 Year Perio
d. To sum it up, its one of the best performing funds in its category over short,
medium and long term.
So lets admit that we intentionally chose the best and the top rated fund in the
Large & Mid Cap Category for the above study. Hence, all results were bound to
be in our favor. Isnt it?
No worries. Lets change the fund now. 
What if we choose a fund that is one of the worst performing funds of its catego
That will be an interesting analysis.
So we take one of the worst performing funds Sundaram Growth Fund, and repeat ou
r analysis.
As of June 2015, Sundaram Growth Fund has been rated as a 1 Star Fund, and ranke
d in bottom three of the Large & Midcap category over a 5-year period. It is als
o ranked last in all funds over a 10-year period.
So once again, lets analyse the power of SIP using the worst performing fund.
If you want, you can see the entire investment statement by clicking on the smal
l image below:

To summarize, a regular monthly investment of Rs. 10,000/- from July 2000 to Jun
e 2015 was done. This amounted to an actual investment of Rs 18 lacs.
Now in June 2015, which is after 15 years of starting the SIP, the invested amou
nt of Rs 18 lacs had grown into a corpus of Rs 68.42 lacs!
So this has been achieved by a simple SIP in 15 years, when invested in one of t
he worst performing funds.
Comparatively, the best fund created a final corpus of Rs 1.28 crores. The total
investment was same in both the funds, i.e. Rs 18 lacs.
This divergence in returns highlights the importance of choosing the right fund
and monitoring the same regularly for its performance.
Now lets proceed to our XIRR analysis for various time-periods.
Rolling 3-Year Returns
Below is the table giving the rolling 3 year returns in our chosen fund:

So while the best fund delivers returns between 4.28% and 48.45%, the not-so-gre
at fund delivers returns between -0.44% to 47.10%.
Although, the best fund had no negative returns in any of the 3 year investment
periods, this fund gives negative returns in 2 of the 13 data points.
Rolling 5-Year Returns

Out of the 10 data points, not even once the returns were negative. And we are t
alking about one of the worst funds here. 
Lets move on to longer periods now.
Rolling 7-Year Returns

The returns in 7-year period range from lows of 4.08% to highs of 37.72%. Compar
e this with the range of returns (9.54% to 42.52%) produced by the best performi
ng fund.
7 out of the 9 data points for the best performing funds gave returns in excess
of 16%. For worst performing fund, only 4 out of the 9 data points provided retu
rns in excess of 16%.
Now 2 out of 9 data points gave returns of 5.52 % and 4.08%. Though theoreticall
y, its not a loss, it is still lower than what could have been earned through saf
er options like FDs, etc. In case of best performing fund, it did beat the fixed
deposit returns even at its worst. So once again, it proves that fund selection
is very important.
Rolling 10-Year Returns

No losses. Low of 9.21%. High of 24.03%.

Compare this with the returns given by the best fund which had a low of 17.40% a
nd a high of 28.18%. The best performing fund managed to give returns in excess
of 15% in all 6 ten-year periods. The worst performing fund could manage it only
Now comes the most important part.
Even though the returns of the worst performing funds were (obviously) lower tha
n the best performing fund, the it were still higher than those given by other i
nstrument like fixed deposit, NSCs, PPFs, etc.
Read the previous paragraph again to understand its importance.
Rolling 15-Year Returns
The story is similar for the 15-year period too. The chosen fund delivers return
of 16.09%, which is way below 23.25% achieved by the best performing fund.

But even though the worst fund does poorly when compared to best one, it is stil
l not a bad performance, when compared to other safer options.
The above analysis shows that for the best fund in its category, there were no l
osses in any of the 3, 5, 7, 10 or 15-year periods. Even the worst performing fu
nd managed to avoid losses in 5, 7, 10 and 15-year periods. Though there were mi
nor losses in few of the 3-year periods.
But we need to remember that anything less than 5 years is not suitable for equi
ty fund investing.
Now a very important point to understand here is that even though the difference
in returns of two funds might not look large (23.5% 16.09% = 7%), over a 15 yea
r period, it can have significant impact on the final corpus as shown in table b

Note about Sundaram Growth Fund:

Between 2000 and 2005, this fund was an average performing fund and not counted
among the good ones. Since 2006, this fund has not performed well and currently
stands at the bottom of the large and midcap category.
Lets now try to answer some questions (which readers might have) about SIP inves

Frequently Asked Questions

Why do most investors end up losing money or not getting decent returns from SIP
They do not follow the main rule of the game, i.e. keep investing an amount X ev
ery month for a period of 10 or more years.

They try to time their entries and exits in markets instead of focusing on stayi
ng invested.
Once again, have a look at the complete investment tables for the 2 funds used i
n this analysis. Except for the initial years (up to 2 years), there was no time
when the folio had come into a loss. Even during the 2008-2009 crisis, if one h
ad been a regular investor, the high returns might have been lost, but the value
of folio would still have been very decent in comparison to the money invested.

What if I had entered the markets during the peak of 2008? I would have lost my
money. Isnt it?
On 1st January 2008, the NAV of Franklin India Prima Plus Fund was Rs 212. After
the crash, the NAV was down to nearly Rs 98 by March 2009 (a fall of more than
50%). But it returned to Rs 220 by September 2010. So even though your folio was
down in 2009, it must have been back to its original level by 2010. In addition
, your regular SIP during 2009 would have allowed you to purchase units at cheap
er NAVs, which would have given phenomenal returns by the end of 2010. Hence at
a portfolio level, you would have done well.
You can check the rolling 3-year returns table in the post above (for Franklin I
ndia Prima Plus Fund). The returns are almost 19% to 21% for the periods between
2007-2010 and 2008-2011. So there would have been no loss even if you had enter
ed at the 2008-peak and kept on investing as a regular dumb systematic investor.

I did not get the high returns from markets that people regularly talk about.
The market may or may not give high returns in the short term (spanning 1, 2 or
3 years). But there is data to prove that if one stays invested for periods of 5
, 7 or 10 years in good mutual funds, returns easily beat those of traditional o
ptions like bank FDs.

What is that you want to say?

Equity mutual funds are the best available investment options to build wealth.
SIP is the best way to invest in equity mutual funds.
You dont have to be a financial genius to build wealth.
You have to play as per the rule of the game i.e. keep investing an amount X eve
ry month for more than 10 years.
The markets will crash sharply, stay low, rise slowly, and run up fast. This is
natural. But you can ride over it and make money only if you play according to t
he rule of the game.

Disclosure: I am an individual investor sharing my personal experience. I have n

o interest in buying or selling any of the funds mentioned in the above analysis
or otherwise. As an investor, readers need to do their own analysis or take hel
p from investment advisors before making any investments. I am also a SIP and lu
mpsum investor in Franklin India Prima Plus Fund since 2006. I am not an investo
r in Sundaram Growth Fund.
Watch the performance of SIP periodically: Though you can trust mutual fund manag
ers, you need to be circumspect about the investments made by you. Watch your in
vestments in SIP atleast once in six months. This does not mean that you withdra
w your investment from SIP if the fund is not performing. This process will help
you track something going substantially wrong with your fund. Suppose the bench
mark against which your fund operates has given 10% return, while your SIP retur
n is abysmally less, then it may be time to change your fund. A recent study by
S & P CRISIL (SPIVA ) shows that more than 50% of large cap funds have failed to
beat the benchmark index against which they operate.
Do not start SIP in two similar types of schemes: Investors put their money in di
fferent schemes of one mutual fund or separate mutual funds. However, they end u
p selecting almost same type of fund. This means that the exposure of the funds
is similar type of stocks. It is very common to find stocks like ITC, HDFC Bank
etc. in various schemes of mutual funds. The reasons are obvious. These stocks h
ave been star performer for long time. As an investor, you need to check if your
fund has significant exposure in similar stocks. This increases risk for you es
pecially when the stocks are not stable performers.
Star funds may not be the star performers always: It is very common for the mutu
al fund investors to look at star rating of the scheme of mutual funds. The star
rating generally comes from past performance and may not always return in good
future returns. Do not get swayed away by star rating. Even star rated schemes n
eed to be watched.
All my funds must have SIP: After an investor enters into the world of mutual fu
nd, SIP is recommended to him like Crocin is recommended for headache. It is imp
ortant to note that all your funds should not have SIP. Let some of your fund pe
rform even for the lump sum investment made by once. This means that for some of
your funds you can allow the investment to grow for one time investment made by
you while for others you can continue with SIP. Riskier schemes should you SIP
route while stable schemes can follow lump sum investment process. Look at the Sh
arpe ratio of the funds to identify the riskiness of mutual funds. Sharpe Ratio
indicates the risk adjusted return of schemes of mutual funds.
In brief as an investor, you need to watchful about your money when you have giv
en the responsibility of handling it to others.
Mutual Fund Systematic Investment Plans (SIP s) are all the rage right now. Advi
sors and Asset Management Companies alike are espousing the benefits of making
bite sized monthly investments into the stock markets via SIP s, rather than ma
king lump sum investments and diving in with both feet. According to informal es
timates, the industry is adding close to 1 Lac new SIP s every month, net of sto
For the vast majority of retail investors, SIP s represent the proverbial promi
sed land - an investment avenue that not only results in the mitigation of risk
over the long term, but one that also has the real potential to grow your savin
gs at a faster rate than inflation. Throw in tax efficiency, and you have an inv
estment avenue that s nearly twice as good as other alternative tools to channel
ize long term savings in a systematic manner. For instance - UTI Midcap Fund del
ivered a compounded annualized SIP return of 26.44 per cent in the 5 years betwe
en June 2011 and June 2016 (which essentially means that a monthly investment of
Rs. 10,000 would have ballooned to over Rs. 11 Lacs in this period). And yet, i
t s a terribly irony that the vast majority of Mutual Fund investors will, in fa
ct, not be reaping the long term benefits of SIP s. Thousands of well-intentione
d investors stop their SIP s every month - goaded either by the need for cash to
fulfill short term needs, by impatience, or by irrational fears about the futur
e of the stock markets.
If you d like to avoid a few common traps associated with SIP investing and go t
he full distance to the achievement of your long term Financial Goals, here are
a few things for you to keep in mind.
Trying to time the market will work against you
An interesting study by Charles Schwab Institute of Financial Research proved th
at investors who perfectly timed the market with lump sum investments only mar
ginally outperformed investors who invested their money immediately and held on
for 20 years. However, not many investors actually have the stomach to be so bol
d and decisive - most investors will prefer to delay their investment in order t
o achieve better timing . This is probably the worst approach of all, as it mig
ht lead to extended periods of sitting in cash investments (and if you re unluck
y, to really poor market timing)
Investing fixed amounts of money every month through SIP s makes for a fitting m
iddle ground between investing everything at once, and perennial procrastination
. However, trying to time the market with a SIP investment defeats its core purp
ose. SIP s are designed to help you avoid procrastination, minimize regret and a
void market timing strategies (which very rarely succeed). Going back to our pre
vious example of a SIP in UTI Midcap Fund - a monthly SIP of Rs. 10,000 started
in January 2008 (before the markets went into panic mode and collapsed) would ha
ve grown to Rs. 26.42 Lacs by June 2016 - a compounded annual growth rate of nea
rly 22 per cent. And this, in spite of the NAV falling from close to Rs. 35 in J
anuary 2008 to as low as Rs. 12 in March 2009. Imagine the plight of the hapless
market timer amidst all this chaos!
R Raja, Head - Products, UTI AMC drives this point home. "It is very difficult t
o get the timing right. In most of the cases, the time in the market is more imp
ortant than timing. An investor could invest systematically invest across all as
sets say a mutual fund investing in equities, debt, balanced fund or an asset al
location fund to moderate the volatility and lend stability to returns" he says.
You ve got to ride out the bad times to reap rewards in the good times
Sometimes, SIP investments go through extended phases of low or even negative re
turns. A case in point is the past 12 months leading up to June 2016, where the
SIP returns from even the most high performing equity schemes would have ranged
from 5-7 per cent. Similarly - those who invested Rs. 10,000 per month in SIP s
between April 2008 and March 2009 would have likely seen their fund values erode
d to Rs. 90,000 or less (annualized returns of over -50 per cent).
Raja of UTI AMC urges investors to stay put. "Be patient -good things come in sp
urts-usually when least expected. If you missed those few and fabulous periods,
you would have missed all the total returns accumulated over three full generati
ons", he advises.
There are two things a SIP investor needs to understand. Firstly, SIP s are a lo
ng term wealth creation tool. They work best when allowed to run dispassionately
across multiple market cycles, because markets are rarely (if ever) rational an
d eventually, the principle of mean reversion will kick in and drag down euphori
c markets or invigorate even the most trampled indices. Secondly, it is the low
return phases (probably a cumulative 3-5 years in a 20 year SIP lifecycle) that
provide the highest unit accumulation potential. Riding out these phases and shu
tting yourself out forcefully will hold you in good stead - getting impatient an
d comparing your SIP investments with fixed return instruments will deprive you
of most of the value creation you could have potentially achieved.
Raja accepts that this is easier said than done. "For most investors, the hardes
t part is not figuring out the optimal investment policy, it is staying committe
d to sound investment policy through bull and bearish markets and maintaining c
onstancy to purpose . Sustaining a long-term focus at market highs or market low
s is notoriously difficult", he says.
Align your SIP s to clearly defined Financial Goals
Aligning your SIP s to tangible, clearly defined future goals will go a long way
in helping you create wealth from them. Your goal must have a clear timeline, a
future value, and most importantly, be significant enough for you to want to sa
ve for it.
You ll be surprised to know that Goal based SIP investing automatically mitigate
s most of the associated pitfalls. The focus automatically shifts from absolute
returns to long term accrual, and the desire to constantly tweak is replaced by
the desire to see your goal based corpus accelerate over time. You ll probably b
e more serious about allowing your SIP s to be debited in a disciplined manner,
which optimizes the associated Rupee Cost Averaging benefit.
Here s a quick pointer - go beyond just planning for your goals as a onetime act
ivity. Use tools, and the support of a Financial Planner, to periodically monito
r your goal progress. "Own" your goals!
Don t change your SIP s frequently
If your SIP s are in relative outperformers with long term track records, you wo
uld be ill advised to change your SIP s frequently to keep up with last quarter
s performers. Over the long run, the relative outperformance you are aiming to a
chieve by being invested in the flavor of the season Mutual Fund will most lik
ely not materialize.
The reasons for this phenomenon are twofold. Firstly, your decision to stop your
SIP in one fund and start in another will in all likelihood be driven by a comp
arison of past returns - which means you ll be reducing your exposure to a fund
which is quite possibly at a takeoff point and increasing your exposure to a fun
d which has already gone through an upcycle . Secondly, in the long run, there s
very little to separate the SIP returns of top performing funds. Starting and s
topping will invariably be accompanied with the human tendency to overanalyze th
e situation and time entries and exits precisely, and this will impact the long
term growth of your portfolio.
Beware of the hyperbolic discounting trap
Hyperbolic discounting refers to the tendency for people to increasingly choose
a "smaller-sooner" reward over a "larger-later" reward as the delay occurs soone
r rather than later in time.
As your SIP s lead to the accumulation of a corpus that is sizeable, you ll sure
ly be tempted to liquidate them to fund other "smaller-sooner" needs. For instan
ce; the newest gadget, a new car or a vacation might suddenly seem more importan
t than your Child s higher studies or your own Retirement.
SIP investors are advised to exercise caution in this regard and stay focused on
their long term Financial Planning objectives. Doing so will not just stretch t
he time horizon of their investments, but eventually lead to the satisfaction of
having used their hard earned money to fulfill more significant goals. Your new
iPhone will become redundant in a year, but your Child s MBA degree will create
value for her for a lifetime.
Turtles can fly - but only if you wait long enough
If the investment universe were re-written as the Jungle Book, SIP s would be "O
o the Turtle" - but with the magical ability to develop a pair of wings after te
n years, and a turbocharged engine after twenty.
SIP s work on the principle of compounding - that is growth on growth . Running
your SIP for three years will not serve much of a purpose - but running them fo
r ten years surely will. Similarly, your SIP investment portfolio will likely do
uble in the five years from years 25 to 30. "Equities outperform other assets ov
er a long period of time and if the markets have not done well during certain pe
riods of time, there is need to wait patiently for the markets to deliver return
s", Raja advises us in this regard.
The moral of the story is that the best time to stop and redeem your SIP is as l
ate as you can afford to. If you can keep them running through thick and thin un
til the day you retire, do so. If you ve just had a new born child and have 18 y
ears to go until her higher studies, plan a SIP right away. Time is fuel for you
r SIP s, so don t clip the wings of a potential wealth creator by redeeming earl