sbimf project report

8/3/2019 Sbimf Project Report

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A

PROJECT REPORT

ON

MERITS AND DEMERITS OF MUTUAL FUND

TRAINING UNDERTAKEN AT

SUBMITTED FOR THE

PARTIAL FULFILLMENT OF TWO YEARS FULL TIME COURSE

MASTERS IN BUSINESS ADMINISTRATION

Batch(2010-2012)

Submitted By: -

Aman Gupta

MBA SEM-III(2010-2012 )

Faculty of Management Studies

Maharishi Arvind Institute of Engineering & Technology, Jaipur

Affiliated to Rajasthan Technical University, Kota
http://www.sbimf.com/Index.aspx


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PREFACE

A professional course like business management demands in depththeoretical knowledge and practical exposure to its realistic application. For the samepurpose, the course designs one and a half month summer training. The course

aims to groom the students professionally and offer him/her a chance to work incorporate world, so as to have an opportunity to gain experience on practical aspectsand supplement his/her theoretical knowledge.

Mutual Funds being the ideal investments vehicle in todays complexand modern financial scenario. Mutual Funds are emerging as the most attractiveinvestment avenue as the investments across is globally facing a southern trend andvolatility prevails in all the global markets.

I was fortunate enough to closely watch and learn the working of a mutual fund,during my Project Training at one of the Indian pioneers in Mutual Funds- SBI

MUTUAL FUND

The project assigned was MERITS AND DEMERITS OF MUTUALFUND

The relevance of mutual funds increases as the international financialsituations going in tailspins day by day and India now is by real means beingattached to global swings of Fed rate cuts, Sub Prime crises, crude oil prices etc.


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ACKNOWLEDGMENT

The project would not be complete without a mention of those, who havespared their valuable time and shared their rich experience, in making this projecthappen.

I owe indebtedness to Mr. Sameer saxena, Branch Manager, Jaipur forsbi mutual fund AMC, for granting me an opportunity to work with the esteemedorganization. He has been benevolent enough to lend his help and spare hisvaluable time throughout the project. I am thankful for his continuous motivation andencouragement.

I extend my heartfelt thanks to Mr.Praveen saini, & Mrs.Alka jain fortheir incessant guidance and support all through the project. I also feel privileged to

place on record the excellent financial and marketing tactics, which I had learnt fromthem during the project.

I express my deep gratitude to all the staff members at SBI MUTUALFUND AMC, JAIPUR; who gave me a full-fledged support to complete my project ontime.

(Aman Gupta)


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DECLERATION

I hereby declare that this Project Report entitled Mutual Funds: MERITS AND

DEMERITS OF MUTUAL FUND submitted in the partial fulfillment of the

requirement of Master of Business Administration (M.B.A) of S.I.M.C.S, Jaipur . It is

based on primary & secondary data found by me in various institutes, books,

magazines and websites & collected by me in under guidance of PRAVEEN SIR .

DATE: 15.07.2011

Aman Gupta

M.B.A


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EXECUTIVE SUMMARY

Todays mutual fund industry is characterized by cut throat competition, so it

is very important for a company, which offers a basket of offerings, to design clear

cut strategies.

The project that I had worked upon in my training provided a lot of scope to

learn, right from the basics, about the investment opportunities available in mutual

funds in India, various factors involved in selecting an investment option. It further

included a market research where I interacted with different people, to gain more

knowledge about the different investment opportunities in India.

The research work contains a comprehensive study of the Mutual Funds in

India and how it emerged as one of the most rapidly growing investment avenue.

The project also involves some practical learning of working in the bank as well. It

involves interaction with the customers that walk in to the bank to understand their

needs to invest in which fund and market, and to draw out the information which is

necessary.

I tried to introduce different marketing strategies and put up new ideas to

attract more customers that helped SBI MUTUAL FUND the sales process and to

generate leads.

Finally, it included a market research using questionnaires to find out

awareness of mutual funds among people as compared to other investment

avenues. I also need to find out the various investment avenues of people.


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CONTENTS

1. Introduction to the industry

2. Mutual fund as an investment avenue

3. Introduction to the Organization

4. History of Indian mutual fund

5. Concept of mutual fund

6. Three tier structure of mutual fund

7. Types of mutual fund schemes

8. Various investment options available for investors

9. Benefits of mutual fund

10. Disadvantages of mutual funds

11. Factors to be considered before selecting mutual fund

12. Systematic Investment Plan

11.1 Merits of SIP

11.2 Dmerits of SIP

13. Research Methodology

13.1. Title of the Study

13.2. Duration of the Project

13.3. Objective of the Study

13.4. Research Strategy

13.5. Type of Research

13.6. Data Types

13.7. Sources of Data

13.8. Sample Size for Study13.9. Scope of the Study

14. Limitations of the Study

15. Facts and Findings

16. Analysis and Interpretation

17. SWOT Analysis

18. Conclusion

19. Recommendations and Suggestions

20. Bibliography


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MUTUAL FUNDS AS AN INVESTMENT AVENUE

A Mutual Fund is a company that invests in a diversified portfolio of

securities. People who buy shares of a Mutual Fund are its owners or shareholders.

Their investments provide the money for a Mutual Fund to buy securities such as

stocks and bonds. A Mutual Fund can make money from its securities in two ways: a

security can pay dividends or interest to the fund or a security can rise in value. A

fund can also lose money and drop in value.

The money thus collected is then invested by the fund manager indifferent types of securities. These could range from shares to debentures to money

market instruments, depending upon the scheme's stated objectives. The income

earned through these investments and the capital appreciations realized by the

schemes are shared by its unit holders in proportion to the number of units owned by

them. Thus a Mutual Fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost.

The growth of Mutual funds in any economy is an indicator of the

development of financial sector and the extent to which investors have faith in the

regulatory environment.


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INTRODUCTION TO THE ORGANIZATION

SBI mutual fund was setup on June 29th, 1987 and incorporated on February

7th, 1992. It is a result of joint venture between State Bank of India andSociete Generale Asset Management of France. This is a bank sponsoredmutual fund and has a base of 3.5 million investors (approx). Over the years ithas carved a niche for itself through prudent investment decisions andconsistent wealth creation for its customers. They offer Mutual Fund productsin Equity Funds, Index Funds, Balanced Funds, Debt Funds, etc.

The assets under management are Rs 33,727.90 crores as of June, 30, 2010.

InvestmentYogi analyses the best performing SBI mutual fund in theBalanced Fund, Equity Fund and Equity Linked Savings Scheme (ELSS)

categories.

SBI Mutual Fund operates under State Bank of India and Socit GnraleAsset Management of France and has asset management experience of more than25 years. SBI Mutual Fund offers different kinds of products like growth basedproducts, income based products and balanced funds.

The SBI Mutual Fund operates under State Bank of India and Socit GnraleAsset Management of France. With over twenty years of experience in asset

management, the company has grown immensely since its establishment. SBIMutual Funds offer innovative mutual fund products to its wide pool of customers andits products are available across India. It has a wide portfolio of products that meetthe requirements of different types of investors. The SBI Mutual Fund is headed byMr Syed Shahabuddin, Managing Director of the company.


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Contact details of SBI Mutual Fund are as follows:

Corporate Office :191, Maker Tower 'E', Cuffe Parade,Mumbai - 400 005.Email : [email protected]

SBI Mutual Funds Investor's Service Center are located at Ahmedabad, Bangalore,Bhillai, Bhubaneshwar, Bhopal, Chandigarh, Chennai, Coimbatore, Cochin, Goa,Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Lucknow, Ludhiana, Mumbai,New Delhih, Patna, Pune, Ranchi, Siliguri, Vadodara, and Vijaywada.

SBI Mutual Fund

Mutual Fund SBI Mutual Fund

Setup Date Jun-29-1987

Incorporation Date Feb-07-1992

Sponsor State Bank of India

Trustee SBI Mutual Fund Trustee Company Private Limited

Chairman Mr. Pratip Chaudhri

CEO / MD Mr. Deepak Kumar Chatterjee

CIO Mr. Navneet MunotCompliance Officer Ms. Vinaya Datar

Investor Service Officer Mr. C A Santosh

Assets Managed Rs. 47874.46 crore (Jun-30-2011)

Other Details

Auditors Haribhakti & Co / M/S. Chandabhoy & Jassoobhoy

CustodiansBank of Nova Scotia / Citi Bank / HDFC Bank / Stock HoldingCorporation of India

Registrars

Computer Age Management Services Pvt. Ltd, Computronics

Financial Services (I) Ltd, Datamatics Financial SoftwareServices LtdAddress 191 Maker Tower E, Cuffe Parade, Mumbai - 400005.

Telephone Nos. 022 - 22180221-27

Fax Nos. 022 22189663

E-mail [email protected]


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Products and services offered by the SBI Mutual Fund are as follows

Equity / Growth based products- The equity based funds offered by SBI Mutual

Fund, are as follows .

Magnum COMMA Fund

Magnum Equity Fund Magnum Global Fund Magnum Index Fund Magnum MidCap Fund Magnum Multicap Fund Magnum Multiplier Plus 1993 Magnum Sector Funds Umbrella MSFU - FMCG Fund MSFU - Emerging Businesses Fund MSFU - IT Fund MSFU - Pharma Fund MSFU - Contra Fund SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund - Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND - SERIES I

Debt / Income based products-The debt based funds that are inoperation now, are as follows

Magnum Children's Benefit Plan Magnum Gilt Fund Magnum Gilt Fund (Long Term) Magnum Gilt Fund (Short Term) Magnum Income Fund Magnum Income Plus Fund Magnum Income Plus Fund (Saving Plan) Magnum Income Plus Fund (Investment Plan) Magnum Insta Cash Fund Magnum InstaCash Fund -Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum Monthly Income Plan Floater Magnum NRI Investment Fund SBI Capital Protection Oriented Fund - Series I

SBI Debt Fund Series SDFS 15 Months Fund


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SDFS 90 Days Fund SDFS 13 Months Fund SDFS 18 Months Fund SDFS 24 Months Fund SDFS 60 Days Fund

SDFS 180 Days Fund SBI Premier Liquid Fund SBI Short Horizon Fund SBI Short Horizon Fund - Liquid Plus Fund SBI Short Horizon Fund - Short Term Fund

Balanced funds - The balanced funds that are in operation now, are as follows-

Magnum Balanced Fund Magnum NRI Investment Fund - FlexiAsset Plan


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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank the. The

history of mutual funds in India can be broadly divided into four distinct phases

First Phase 1964-1987

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.

It was set up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked fromthe RBI and the Industrial Development Bank of India (IDBI) took over the regulatory

and administrative control in place of RBI. The first scheme launched by UTI was

Unit Scheme 1964. At the 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 sector banks and Life Insurance Corporation of India (LIC) and General

Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual

Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab

National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of

India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund

in June 1989 while GIC had set up its mutual fund in December 1990. At the end of

1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the

Indian mutual fund industry, giving the Indian investors a wider choice of fund

families. Also, 1993 was the year in which the first Mutual Fund Regulations came

into being, under which all mutual funds, except UTI were to be registered and


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governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was

the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry nowfunctions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual

fund houses went on increasing, with many foreign mutual funds setting up funds in

India and also the industry has witnessed several mergers and acquisitions. As at

the end of January 2003, there were 33 mutual funds with total assets of Rs.

1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under

management was way ahead of other mutual funds.

Fourth Phasesince February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963

UTI was bifurcated into two separate entities. One is the Specified Undertaking of

the Unit Trust of India with assets under management of Rs.29,835 crores as at the

end of January 2003, representing broadly, the assets of US 64 scheme, assured

return and certain other schemes. The Specified Undertaking of Unit Trust of India,

functioning under an administrator and under the rules framed by Government of

India and does not come under the purview of the Mutual Fund Regulations. The

second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores

of assets under management and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking

place among different private sector funds, the mutual fund industry has entered its

current phase of consolidation and growth. As at the end of September, 2004, there

were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.


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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational

set up of a mutual fund:

THREE-TIER STRUCTURE OF MUTUAL FUNDS

The structure of Mutual Funds in India is governed by the SEBI (Mutual Fund)

Regulations, 1996 (hereinafter referred to as SEBI Regulations). These regulations

make it mandatory for Mutual Funds to have a Three-tier Structure of Sponsor

Trustee- Asset Management Company (AMC).

Sponsor

The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual

fund and registers same with SEBI. It appoints the trustees, Custodians and the

AMC with prior approval of SEBI, and in accordance with SEBI Regulations. Sponsor

is required to contribute at least 40% of the capital of the AMC.


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TYPES OF MUTUAL FUND SCHEMES

Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial

position, risk tolerance and return expectations etc. Since the needs and aspirations

of different individuals vary from person to person, there are absolutely different

kinds of mutual funds for investment. There could be various categories of mutual

funds in India. The governing body for these funds being the Securities Exchange

Board of India (SEBI). All varieties of mutual funds are governed by it in an all-

pervasive manner.

Schemes can be differentiated by two broad parameters:

(a) Their constitution or structure.

(b) Their stated investment objective.

Differentiation on the basis of structure of schemes

Schemes are classified as Close-ended or Open-ended depending upon whether

they give the investor the option to redeem at any time (open-ended) or whether the

investor has to wait till maturity of the scheme.

Open-Ended-Schemes

The units offered by these schemes are available for sale and repurchase on any

business day at NAV based prices. Hence, the unit capital of the schemes keeps

changing each day. Such schemes thus offer very high liquidity to investors and are

becoming increasingly popular in India. Please note that an open-ended fund is not

obliged to keep selling/issuing new units at all times, and may stop issuing further

subscription to new investors. On the other hand, an open-ended fund rarely denies

to its investor the facility to redeem existing units.


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Close-Ended-Schemes

The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed

number of units. These schemes are launched with an initial public offer (IPO) with a

stated maturity period after which the units are fully redeemed at NAV linked prices.In the interim, investors can buy or sell units on the stock exchanges where they are

generally listed. Unlike open-ended schemes, the unit capital in Close-ended

schemes usually remains unchanged. After an initial closed period, the scheme may

offer direct compared to open-ended schemes and hence trade at a discount to the

NAV. This discount tends towards the NAV closer to the maturity date of the

scheme.

Interval-Schemes

These schemes combine the features of Open-ended and Close-ended schemes.

They may be traded on the stock exchange or may be open for sale or redemption

during pre-determined intervals at NAV based prices.

Differentiation on the basis of investment objectives

Schemes can be classified by way of their stated investment objective such asGrowth Fund, Balanced Fund, Income Fund etc.

Equity/Growth Schemes

These schemes, also commonly called Growth Schemes, seek to invest a majority of

their funds in equities and a small portion in money market instruments. Such

schemes have the potential to deliver superior returns over the long term. However,

because they invest in equities, these schemes are exposed to fluctuations in value

especially in the short term.

Equity schemes are hence not suitable for investors seeking regular income or

needing to use their investments in the short-term. They are ideal for investors who

have a long-term investment horizon. The NAV prices of equity fund fluctuates with

market value of the underlying stock which are influenced by external factors such as

social, political as well as economic. HDFC Equity Fund and HDFC Top200 Fund are

examples of equity schemes.


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Income/Debt-Schemes

These schemes invest in money markets, bonds and debentures of corporate

companies with medium and long-term maturities. These schemes primarily target

current income instead of capital appreciation. Hence, a substantial part of the

distributable surplus is given back to the investor by way of dividend distribution.

These schemes usually declare quarterly dividends and are suitable for conservative

investors who have medium to long term investment horizon and are looking for

regular income through dividend or steady capital appreciation.


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These schemes, also commonly known as Income Schemes, invest in debt

securities such as corporate bonds, debentures and government securities. The

prices of these schemes tend to be more stable compared with equity schemes and

most of the returns to the investors are generated through dividends or steady

capital appreciation. These schemes are ideal for conservative investors or those

who are not in a position to take higher equity risks. However, as compared to the

money market schemes they do have a higher price fluctuation risk and compared to

a Gilt fund they have a higher credit risk. HDFC Income Fund is an example of bond

schemes.

Money-Market-Schemes

These schemes invest in short term instruments such as commercial paper ("CP"),

certificates of deposit ("CD"), treasury bills ("T-Bill") and overnight money ("Call").

The schemes are the least volatile of all the types of schemes because of their

investments in money market instrument with short-term maturities. These schemes

have become popular with institutional investors and high net-worth individuals

having short-term surplus funds.

Hybrid/Balanced Schemes

These schemes are also commonly called balanced schemes. These invest in both

equities as well as debt. By investing in a mix of this nature, balanced schemes seek

to attain the objective of income and moderate capital appreciation. Such schemes

are ideal for investors with a conservative, long-term orientation. HDFC Prudence

Fund and HDFC Balance Fund are perfect examples of such hybrid schemes.


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Other Schemes:

Tax-Saving-Schemes

Investors (individuals and Hindu Undivided Families ("HUFs")) are being encouraged

to invest in equity markets through Equity Linked Savings Scheme ("ELSS") by

offering them a tax rebate. Units purchased cannot be assigned / transferred/

pledged / redeemed / switched - out until completion of 3 years from the date of

allotment of the respective Units. The Scheme is subject to Securities & Exchange

Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the

Ministry of Finance (Department of Economic Affairs), Government of India regarding

ELSS. Subject to such conditions and limitations, as prescribed under Section 88 of

the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would

be eligible to a deduction, from income tax, of an amount equal to 20% of the

amount subscribed.

Special Schemes:

Sector-Specific-Equity-Schemes


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These schemes restrict their investing to one or more pre-defined sectors, e.g.

technology sector. They depend upon the performance of these select sectors only

and are hence inherently more risky than general purpose equity schemes. These

schemes are ideally suited for informed investors who wish to take a risk on the

concerned sector.

Index-Schemes

An Index is too used as a measure of the performance of the market as a whole, or a

specific sector of the market. It also serves as a relevant benchmark to evaluate the

performance of mutual funds. Some investors are interested in investing in the

market in general rather than investing in any specific fund. Such investors are

happy to receive the returns posted by the markets. As it is not practical to invest in

each and every stock in the market in proportion to its size, these investors are

comfortable investing in a fund that they believe is a good representative of the

entire market. Index Funds are launched and managed for such investors.

VARIOUS INVESTMENT OPTIONS AVAILABLE TO THE INVESTORS AND

THEIR RESPECTIVE DISADVANTAGES

Savings form an important part of the economy of any nation. With the savings

invested in various options available to the people, the money acts as the driver for

growth of the country. Indian financial scene too presents a plethora of avenues to

the investors. Though certainly not the best or deepest of markets in the world, it has

reasonable options for an ordinary man to invest his savings. The possible avenues

for investment can be divided into following categories:

EQUITIES: Options available are secondary market (buying or selling shares in the

stock exchanges) or the primary market (IPOs). These are generally classified as

high risk high return asset.


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FIXED INCOME INSTRUMENTS: This product class includes options such as Fixed

Deposits, Debentures, Bonds, Preference shares etc. These investments are

relatively safer but limited upside on returns.

FOREIGN CURRENCY INVESTMENTS: Wherever allowed by the govt. regulations,

investors particularly in developing countries will prefer to keep their assets in foreign

currency. Hard currencies like US Dollars or pound or Euro are relatively stable. The

risk of currency depreciation in case of economic /political turmoil is high.

COMMODITIES: Investing in commodities on a large scale is typically done traders

or speculators who generally are skilled. Normally in commodities high risk investors

would invest for high returns in a short period. A proxy for this is the way retail

households stock up commodities in anticipation of price increase, such as stocking

sugar or wheat requirements for the full year.

ART/ANTIQUES: Art has proved to be an important investment avenue, particularly

for the rich and wealthy. However, one has to be an expert in evaluating the value of

art. Investment in paintings is illiquid and has a long gestation period, entails high

risk but high rewards too.

PROPERTY: This offers a limited option to investors as in India most people buy a

house to live in. only the very rich buy property as an investment. Real estate is veryilliquid investment option.

BULLION MARKET (GOLD): This is one avenue which has been a major area for

investing in the Indian society. The importance of gold and silver has been prevalent

through historic time. The importance of this market is due to the liquidity it provides.


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BANKS: Considered as the safest of all options, banks have been the roots of the

financial systems in India. Promoted as the means to social development, banks in

India have indeed played an important role in the rural upliftment. For an ordinary

person though, they have acted as the safest investment avenue wherein a person

deposits money and earns interest on it. The two main modes of investment in

banks, Savings accounts and fixed deposits have been effectively used by one

and all. However, today the interest rate structure in the country is headed

southwards, keeping in line with global trends. With the banks offering 9 percent in

their fixed deposits for one year, the yields have come down substantially in recent

times. Add to this, the inflationary pressures in economy and people have a position

where the savings are not earning. The inflation is creeping up, to almost 8 percent

at times, and this means that the value of money saved goes down instead of going

up. This effectively mars any chance of gaining from the investments in banks.

POST OFFICE SCHEMES: Just like banks, post offices in India have a wide

network. Spread across the nation, they offer financial assistance as well as serving

the basic requirements of communication. Among all saving options, Post office

schemes have been offering the highest rates. Added to it is the fact that the

investments are safe with the department being a Government of India entity. So the

two basic features, those of return safety and quantum of returns were being

handsomely taken care of. Though certainly not the most efficient systems in terms

of service standards and liquidity, these have still managed to attract the attention of

small, retail investors. However, with the government announcing its intention of

reducing the interest rates in small savings options, this avenue is expected to lose

some of the investors.


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PUBLIC PROVIDENT FUNDS: Public Provident Funds act as options to save for the

post retirement period for most people and have been considered good option

largely due to the fact that returns were higher than most other options and also

helped people gain from tax benefits under various sections. This option too is likely

to lose some of its sheen on account of reduction in the rates offered. The options

discussed above are essentially for the risk-averse, people who think of safety and

then quantum of return, in that order. For the brave, it is dabbling in the stock market.

Stock markets provide an option to invest in a high risk, high return game. While the

potential return is much more than 10-11 percent any of the options discussed above

can generally generate, the risk is undoubtedly of the highest order. But then, the

general principle of encountering greater risks and uncertainty when one seeks

higher returns holds true. However, as enticing as it might appear, people generally

are clueless as to how the stock market functions and in the process can endanger

the hard-earned money. For those who are not adept at understanding the stock

market, the task of generating superior returns at similar levels of risk is arduous to

say the least. This is where Mutual Funds come into picture. Mutual Funds are

essentially investment vehicles where people with similar investment objective come

together to pool their money.


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Advantages and Disadvantages of mutual funds

Advantages of Mutual Funds

1. Professional Investment Management.

By pooling the funds of thousands of investors, mutual funds provide full-time, high-level

professional management that few individual investors can afford to obtain independently. Such

management is vital to achieving results in today's complex markets. Your fund managers'

interests are tied to yours, because their compensation is based not on sales commissions, but

on how well the fund performs. These managers have instantaneous access to crucial market

information and are able to execute trades on the largest and most cost-effective scale. In short,

managing investments is a full-time job for professionals.

2. Diversification.

Mutual funds invest in a broad range of securities. This limits investment risk by reducing theeffect of a possible decline in the value of any one security. Mutual fund shareowners can benefit

from diversification techniques usually available only to investors wealthy enough to buy

significant positions in a wide variety of securities.

3. Low Cost.

If you tried to create your own diversified portfolio of 50 stocks, you'd need at least $100,000

and you'd pay thousands of dollars in commissions to assemble your portfolio. A mutual fund

lets you participate in a diversified portfolio for as little as $1,000, and sometimes less. And if

you buy a no-load fund, you pay no sales charges to own them.

4. Convenience and Flexibility.

You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a

wide range of services. Fund managers decide what securities to trade, clip the bond coupons,

collect the interest payments and see that your dividends on portfolio securities are received and

your rights exercised. It's easy to purchase and redeem mutual fund shares, either directly online

or with a phone call.

5. Quick, Personalized Service.

Most funds now offer extensive websites with a host of shareholder services for immediate

access to information about your fund account. Or a phone call puts you in touch with a trained

investment specialist at a mutual fund company who can provide information you can use to

make your own investment choices, assist you with buying and selling your fund shares, and

answer questions about your account status.

6. Ease of Investing

You may open or add to your account and conduct transactions or business with the fund by

mail, telephone or bank wire. You can even arrange for automatic monthly investments by

authorizing electronic fund transfers from your checking account in any amount and on a date

you choose. Also, many of the companies featured at this site allow account transactions online.

7. Total Liquidity, Easy Withdrawal

You can easily redeem your shares anytime you need cash by letter, telephone, bank wire or


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15. Safekeeping

When you own shares in a mutual fund, you own securities in many companies without having to

worry about keeping stock certificates in safe deposit boxes or sending them by registered mail.

You don't even have to worry about handling the mutual fund stock certificates; the fund

maintains your account on its books and sends you periodic statements keeping track of all your

transactions.

16. Retirement and College Plans

Mutual funds are well suited to Individual Retirement Accounts and most funds offer IRA-

approved prototype and master plans for individual retirement accounts (IRAs) and Keogh,

403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest -- for college,

children or other long-term goals. Many offer special investment products or programs tailored

specifically for investments for children and college.

17. Online ServicesThe internet provides a fast, convenient way for investors to access financial information. A host

of services are available to the online investor including direct access to no-load companies.

18. Sweep Accounts

With many funds, if you choose not to reinvest your stock or bond fund dividends, you can

arrange to have them swept into your money market fund automatically. You get all the

advantages of both accounts with no extra effort.

19. Asset Management Accounts

These master accounts, available from many of the larger fund groups, enable you to manage allyour financial service needs under a single umbrella from unlimited check writing and automatic

bill paying to discount brokerage and credit card accounts.

20. Margin

Some mutual fund shares are marginable. You may buy them on margin or use them as collateral

to borrow money from your bank or broker. Call your fund company for details.

4 Disadvantages of Mutual Funds:

1. Professional Management.

Did you notice how we qualified the advantage of professional management with the word

"theoretically"? Many investors debate whether or not the so-called professionalsare any better

than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses

money, the manager still takes his/her cut. We'll talk about this in detail in a later section.

2. Costs.

Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The

mutual fund industry is masterful at burying costs under layers of jargon. These costs are so

complicated that in this tutorial we have devoted an entire section to the subject.

3. Dilution.


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It's possible to have too much diversification. Because funds have small holdings in so many

different companies, high returns from a few investments often don't make much difference on

the overall return. Dilution is also the result of a successful fund getting too big. When money

pours into funds that have had strong success, the manager often has trouble finding a good

investment for all the new money.

4. Taxes.

When making decisions about your money, fund managers don't consider your personal tax

situation. For example, when a fund manager sells a security, a capital-gains tax is triggered,

which affects how profitable the individual is from the sale. It might have been more

advantageous for the individual to defer the capital gains liability.

FACTORS TO BE CONSIDERED BEFORE SELECTING A MUTUAL FUND

1. Making Risk- adjusted returns comparison. By doing this the investor will

know whether the returns generated by the scheme have been adequately

compensated for the extra risk undertaken by the scheme.

2. The investor depending upon his risk appetite and preferences should sub-

classify the schemes on the basis of the characteristics of the schemes, which

may be defensive or aggressive in nature.

3. Portfolio concentration is also an important factor to be considered. It is

always advisable to choose a scheme, which has a well-diversified portfoliorather than a concentrated portfolio, as it carries lesser risk.

4. Liquidity of the portfolio is also one of the critical parameters.

5. The corpus size of the scheme is also of importance. A large corpus size

firstly denotes investors confidence in the scheme and its fund manger

abilities over the years and, secondly it allows the fund manager to diversify

the portfolio, which reduces the overall market risk.


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6. Other factors like turnover rates, low expense ratio, load structure etc of the

schemes etc should also be considered before finally zeroing down on a

scheme of your choice.

7. The rankings undertaken by ICRA are an initiative to inform the investors-who does not have the time or the expertise to undertake the analysis on their

own- about the relative performance of the schemes. It considers all important

parameters to arrive at a comprehensive rank with a view to help investors

decide the scheme which may suit their investment profile.

8. Although much neglected, the due diligence in selection of the right mutual

fund scheme is of utmost importance as an investor cannot move in and out

of a particular scheme on a regular basis, because of the high costs involved,

and investments made into a particular scheme should be looked on a long-

term basis as a wealth creation tool.

5 EASY STEPS TO INVEST IN MUTUAL FUNDS


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Where to look for if you want to begin savings in Mutual Funds

Mutual funds are much like any other product, in that there are manufacturers who

provide the product and there are dealers who sell them.

Large banks to organized brokerage houses to Individual Financial agents get

empanelled with Mutual Funds to provide advice and assistance to customers who

want to buy units. Mutual funds units can now also be bought over the Internet.

Contacting an Investment advisor in a bank or a brokerage house or an Independent

Financial Advisor is the first step to gathering information.

1. Evaluation: choosing the right mutual fund for you

Each Mutual fund offers a variety of schemes to suit differing needs of

investors. The Bank/ Brokerage house/ Individual Financial Advisor help you

make the choice based on your needs. As an investor one may:

a) For the short term or long term want to invest.

b) Want regular income or growth.

c) Want to target lower risk or higher returns.

d) Be convinced of a particular sector and want to invest in it.

Remember, just like a salesman in a gift shop, your investment advisor can

help you the most if he knows what you are looking for.

2. Purchase

After you have decided to save, you may have to decide among the various

investment and withdrawal options that any fund offers to its investors.

Most of these schemes also offer various options to customize your operation

of the fund to your needs:


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Systematic Investment Plan (SIP):Allows you to save a part of your income

regularly. It is also used to reduce risk when investing in schemes targeting

aggressive growth.

Systematic Withdrawal Plan (SWP): Allows you to withdraw a part of your

investment regularly. Used when you want to withdraw your investment for a

specific regular payment, like insurance premium payments of

monthly/quarterly frequency.

Automatic debit: Saves the hassle of writing a cheque when making an

investment. Your account is debited automatically for the amount invested.

Automatic credit: The reverse of Automatic Debit. It saves the hassle of

enchasing a cheque when withdrawing an investment. Your account is

credited automatically with the amount withdrawn.

Dividend plan:Allows you to get Tax-free dividends from your investment. (As

per current Tax laws).

Growth plan: Allows the income generated from investment to be ploughed

back into the scheme. Used by investor targeting growth in their investment.

Some funds carry an entry load, which is a percentage fee deducted from the

amount invested before investment. Thus a 2.5% entry load will mean that if

you invest Rs. 1 lakh in a Rs. 10 per unit IPO, instead of getting 10,000 units,

you will be allotted 9,750 units. Check for presence of such loads and other

conditions before investing.

After deciding the choice of mutual fund, investment and withdrawal, you are

ready to begin your savings. You need to now fill up an application form and

attach a cheque of the value of your investment or mention your account

number to have it automatically debited from your account.


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3. Post Purchase Monitoring

Once you have invested in an ongoing fund, expect a period of two to three

days before you receive an account statement on the address mentioned by

you in your application form.

Your account statement indicates your current holding in the scheme that you

have invested. Please ensure that all your details have been correctly

captured in account statement. Please point out any discrepancies to your

nearest CAMS investor Service Centre or the Mutual Fund office. You can

request an account statement any time by calling up your nearest CAMS/

Mutual fund offices usually mentioned on the back of the account statement.

The transaction slip at the end of the account statement can be used for

additional purchases, redemptions or to intimate the mutual fund on any

change in bank mandates/address. The NAVs of all the open-ended schemes

are published at the fund's website, financial newspapers and

AMFI (Association of Mutual Funds) web-site www.amfiindia.com.

4. Exit

While you should periodically monitor the performance of your investments,

we recommend you do not get swayed by short term considerations in

deciding your exit. If you have invested in a long term fund, you can spare

yourself undue worries by not monitoring the NAV every day or week.

Checking the performance once in a while along with your advisor should be

fine. Most mutual funds will provide you with a toll free number that works

from 9 am to 5 am and a website. For specific assistance you can also use

your financial advisors help.

5. Redemption/ Withdrawal

Just submit your completed transaction within the transacted time for the

scheme that you are invested in and deposit the same at the nearest CAMS

Investor Service Centre or the office of the fund. You can either get a direct

credit to your bank account or you can generally collect the cheque at the

CAMS Investor Service Centre/ AMC offices. If you fail to do so then thecheque is couriered to the address mentioned in your account statement.


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Most funds take 1-3 days to credit your account with your redemption

proceeds.

In case an exit load is applicable to your withdrawal and you have redeemed

a fixed amount, an additional number of units equivalent to the exit load

amount will be liquidated from your investment. You can check this amount

with the mentioned exit load when you get the account statement using a

simple calculator.

SOME OF THE MUTUAL FUND PLANS OFFERED BY SBI

SBI Magnum Balanced fund: The objective of the scheme is to provide itsinvestors growth through capital appreciation and provide periodic incomethrough declaration of dividends. This scheme was launched on October, 9th1995. The top sector allocations are BFSI, Energy, Engineering. This fund hasgiven 18.24% returns from its inception date. The fund managers are Mr.Dharmendra Grover and Mr. Sankar V. B. Chebiyyam.

The annualized returns for this fund seem to be volatile. Returns had drop to

9.16% for the last three years due to the recession but its commendable.
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When the markets recovered in the last one year the fund delivered 20.08%returns. This seems attractive for investments in balanced fund category.

Best performing Equity Funds are:

SBI Magnum Global Fund 94: The objective of the scheme is to providegrowth opportunities through investment in equities. This scheme waslaunched on September, 30th 1994. The benchmark index is BSE 100. Thetop sector allocations are Engineering, Information Technology andAutomobiles. This fund has given 14.50% returns from its inception date. Thefund manager is Mr. R. Srinivasan.

SBI Magnum Contra Fund: The objective of the scheme is to invest in undervalue stocks which are currently out of favor but have potential to grow in thelong term. This scheme was launched on July, 5th 1999. The benchmarkindex is BSE 100. The top sector allocations are BFSI, Energy. This fund has

given 14.48% returns from its inception date. The fund manager is Mr. PankajGupta.

The annualized return for SBI Magnum Global Fund 94 is volatile. During therecession (in last 3 years) returns of this fund dropped drastically to 5.21%.Now, when the markets have been recovering the fund has managed torecover quickly and its giving 40.96% returns.

On the other hand, the SBI Mangum Contra Fund had delivered 9.78% duringrecession which is 4.57% higher returns while comparing with SBI MagnumGlobal Fund 94. But, when the markets were recovering there was onlynominal increase in returns of SBI Mangum Contra Fund by comparing toother fund.

In the long term, the annualized 5 year return is 2.61% higher for SBIMagnum Contra fund while comparing with SBI Magnum Global Fund 94.

Best performing Tax Saving Schemes are:

SBI MAGNUM TAXGAIN SCHEME: The objective of the scheme is to investin a portfolio of equities and offering tax benefits to investors. This scheme
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was launched on March, 31st 1993. The benchmark index is BSE 100. Thetop sector allocations are Engineering, BFSI, Oil and Gas. This fund has given19.40% returns from its inception date. This is an open ended scheme. Thefund manager is Mr. Jayesh Shroff.

SBI Tax Advantage Fund - Series 1: The objective of the scheme is togenerate capital appreciation in the long term by investing in large cap, midcap and small cap companies. Also, offering income tax benefit to itsinvestors. This scheme was launched on March, 3rd 2008. The benchmarkindex is BSE 100. The top sector allocations are Engineering, BFSI,Information Technology. This fund has given 8.95% returns from its inceptiondate. This is a close ended scheme. The fund manager is Mr. DharmendraGrover

Five main indicators of investment risk that

apply to the analysis of stocks, bonds andmutual fund portfolios:

There are five main indicators of investment risk that apply to the analysis of stocks, bonds andmutual fund portfolios. They arealpha,beta,r-squared, standard deviation and theSharpe ratio.These statistical measures are historical predictors of investment risk/volatility and are all majorcomponents ofmodern portfolio theory(MPT). The MPT is a standard financial and academicmethodology used for assessing the performance of equity, fixed-income and mutual fundinvestments by comparing them to market benchmarks.

All of these risk measurements are intended to help investors determine therisk-

rewardparameters of their investments. In this article, we'll give a brief explanation of each ofthese commonly used indicators.

1. AlphaAlpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility(price risk) of a security or fund portfolio and compares its risk-adjusted performance to abenchmark index. The excess return of the investment relative to the return of the benchmarkindex is its "alpha".

Simply stated, alpha is often considered to represent the value that a portfolio manager adds orsubtracts from a fund portfolio's return. A positive alpha of 1.0 means the fund has outperformedits benchmark index by 1%. Correspondingly, a similar negative alpha would indicate anunderperformance of 1%. For investors, the more positive an alpha is, the better it is. (To learn

more, seeAdding Alpha Without Adding Risk.)

2. BetaBeta, also known as the "beta coefficient," is a measure of the volatility, orsystematic risk, of asecurity or a portfolio in comparison to the market as a whole. Beta is calculatedusingregressionanalysis, and you can think of it as the tendency of an investment's return torespond to swings in the market. By definition, the market has a beta of 1.0. Individual securityand portfolio values are measured according to how they deviate from the market.

A beta of 1.0 indicates that the investment's price will move in lock-step with the market. A betaof less than 1.0 indicates that the investment will be less volatile than the market, and,correspondingly, a beta of more than 1.0 indicates that the investment's price will be more

volatile than the market. For example, if a fund portfolio's beta is 1.2, it's theoretically 20% morevolatile than the market.
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Conservative investors looking to preserve capital should focus on securities and fund portfolioswith low betas, whereas those investors willing to take on more risk in search of higher returnsshould look for high beta investments. (Keep reading about beta inBeta: Know the Risk.)

3. R-Squared

R-Squared is a statistical measure that represents the percentage of a fund portfolio's orsecurity's movements that can be explained by movements in a benchmark index. For fixed-income securities and their corresponding mutual funds, the benchmark is theU.S. TreasuryBilland, likewise with equities and equity funds, the benchmark is theS&P 500 Index.

R-squared values range from 0 to 100. According toMorningstar, a mutual fund with an R-squared value between 85 and 100 has a performance record that is closely correlated to theindex. A fund rated 70 or less would not perform like the index.

Mutual fund investors should avoid actively managed funds with high R-squared ratios, whichare generally criticized by analysts as being "closet"index funds. In these cases, why pay thehigher fees for so-called professional management when you can get the same or better results

from an index fund? (To learn more, readUnderstanding Volatility Measurements,TheLowdown On Index FundsandBenchmark Your Returns With Indexes.)

4. Standard DeviationStandard deviation measures the dispersion of data from its mean. In plain English, the morethat data is spread apart, the higher the difference is from the norm. In finance, standarddeviation is applied to the annualrate of returnof an investment to measure its volatility (risk). Avolatile stock would have a high standard deviation. With mutual funds, the standard deviationtells us how much the return on a fund is deviating from the expected returns based on itshistorical performance.

5. Sharpe RatioDeveloped by Nobel laureate economist William Sharpe, this ratio measures risk-adjusted

performance. It is calculated by subtracting therisk-free rate of return(U.S. Treasury Bond) fromthe rate of return for an investment and dividing the result by the investment's standarddeviation of its return.

The Sharpe ratio tells investors whether an investment's returns are due to smart investmentdecisions or the result of excess risk. This measurement is very useful because although oneportfolio or security can reap higher returns than its peers, it is only a good investment if thosehigher returns do not come with too much additional risk. The greater an investment's Sharperatio, the better its risk-adjusted performance. (Keep reading about this subjectinUnderstanding The Sharpe RatioandThe Sharpe Ratio Can Oversimplify Risk.)

Conclusion

Many investors tend to focus exclusively on investment return, with little concern for investmentrisk. The five risk measures we have just discussed can provide some balance to the risk-returnequation. The good news for investors is that these indicators are calculated for them and areavailable on several financial websites, as well as being incorporated into many investmentresearch reports. As useful as these measurements are, keep in mind that when considering astock, bond, or mutual fund investment, volatility risk is just one of the factors you should beconsidering that can affect the quality of an investment.
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Systematic Investment Plan

What is an SIP?

SIP, also known as Regular Savings Plan (RSP) in some countries, allows you toinvest a fixed amount at pre defined frequencies in mutual funds. A bank / post officerecurring deposit is the only other investment option that is similar to SIP. There arebasically two options that an investor could take when they are making investments,one would be to invest lump sum into mutual funds and the other would be to investusing an SIP. The following are some of the benefits associated with investing in anSIP:

SIP is actually a Systematic Investment Plan of investing in Mutual Fund. It is

specially 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 be done in two ways. First way is one timepayment i.e. making payment to a fund at once and gets the units of the fund as perthe Net Asset Value (NAV) of the fund on that day.

A person wishes to invest in a fund Rs. 24,000/- . On the day of Investment, the NAVof the fund was Rs. 10/-. He gets 2400 units @ Rs. 10/- per unit.

The other way of investment is making payment to the fund periodically, which is

termed as Mutual Fund SIP. When you commit to invest a fixed amount monthly in afund, it is called as Systematic Investment.

It is actually beneficial for those investors who wish to invest a large amount in afund and wishes to create a large chunk of wealth for long term but due to financialconstraints are able to do so.

The SIP provides them a way to invest in the fund of their choice in installments.

Eg. A person wishes to invest Rs. 24000/- in a fund but due to other obligations, it isnot possible for him to invest such an amount in a fund. He takes the SIP route and

contributes to the fund Rs. 2000/- monthly for a year. At the end of the year, hellhave invested Rs. 24,000/- in the fund. When the NAV is high, he will get the fewerunits and when the NAV is low, hell get the more units. So, hell get the benefit ofaveraging through the SIP route.

The NAV in the first month was Rs. 10/-, hell get 200 units in the first monthThe NAV in the second month was Rs. 9.50/-, hell get 210.52 units in second monthThe NAV for the following month was Rs. 10, hell get 200 units in the next monthSo, at the end of the year he may get more units as compared to the units hell getthrough single investment.


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Systematic investment plans are a systematic and disciplined approach toinvestment and wealth creation. Instead of making a large investment at one time, inSIP you can invest small sums at regular intervals thus creating a habit of regularsavings. If you are a big spender and find your expenditures are more than yourearnings then go for SIP mutual funds. This will force you to spend at least some

part of your earnings every month. Mutual funds are a very safe way of investingmoney and SIP mutual funds are even better. These are perfect solutions to most ofus who cannot afford to make a large investment at one go. This is a good way tosave for your child's education, marriage or comfortable retirement for you and yourspouse. The lowest start up investment amount is 500 rupees per month which isaffordable by most people.

StateBankof India is one of the most trusted public sector banks in India. If you area beginner in investment thenSBISIP plans may be good option for you. Here aresome SBI SIP mutual funds available.

Magnum Equity Fund - Minimum application of thousand rupees is needed andSIP is Rs. 500/month for 12 months.

Magnum Tax Gain - Minimum application amount is Rs 500 and minimum SIPamount is Rs.500/month for12 months

Magnum Index Fund - Minimum SIP amount is Rs.500/month for12 monthsMagnumSector FundsUmbrella - Minimum investment amount is Rs. 2000 per

sector and minimum SIP amount is Rs.500/month for12 monthsMagnum Global Fund - Minimum SIP amount is Rs.500/month for12 monthsMagnum Midcap Fund - Minimum SIP amount is Rs.500/month for12 monthsMagnum Mutlicap Fund - Minimum SIP amount is Rs.500/month for12 monthsBlue Chip Fund - Minimum investment - Rs. 5000 and in multiples of Rs. 1000

SBI mutual funds, has launched equity-based Micro Systematic Investment Plan(Micro SIP) aimed at getting in low income households in rural and semi-urban areasto benefit from the long-term investment in Equity as an asset class. This plan willbe called SBI Chota SIP.

For monthly investment as low as Rs. 100, investors from low-income group as wellas investors who intend to invest small portion of their savings would now be able to

participate in capital markets and be a part of India growth story.

Micro SIP facility will be available in respect of four equity diversified schemes of SBIMutual fund with effect from April 15, 2009. They are Magnum Balanced Fund,Magnum Multiplier Plus Scheme 93, Magnum Sector Funds Umbrella-Contra fund,and SBI Blue Chip fund.

The minimum investment amount will be Rs.100 and multiples of Rs.50/- thereof.The minimum redemption amount will be Rs.500/-. Minimum tenure of SIP will be 5years.
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Systematic Investment Plan is the best option for retail investors to invest in MutualFunds. SBI Mutual Fund is one of the best performing mutual fund company in India.The investors feel more comfortable in SBI SIP plan. You can make a SIP planscomparison and find the best SBI SIP fund.

There are many reasons for the investors feeling that SBI SIP fund is the bestsystematic investment plan in india. Most of the schemes under SBI Systematicinvestment plan has been generating returns more consistently. If you check thereturns for most of the SIP plans, they are generating consistent returns for the past6 months, 1 year and 3 years. This would prove that the SBI schemes areperforming well than the funds launched by the other companies.

Some of the best performing SBI SIP schemes are:

SBI Magnum Sector Funds Umbrella - Contra Fund SBI Magnum Sector Funds Umbrella - Emerging Fund SBI Magnum Sector Funds Umbrella - IT Fund SBI Magnum Midcap Fund SBI Magnum Taxgain Scheme 93

The minimum amount that has to be paid every month is Rs 500. Recently SBI haslaunched another fund "SBI Chotta SIP Scheme" in which the minimum investmentamount is Rs 100. This scheme was introduced to encourage more retailparticipation. The low income people will be more benefited from this scheme as thistype of investment is similar to investing in a recurring deposit and they can get thebenefits of the stock markets.

SBI Chota SIP:

Recently SBI has launched micro systematic investment plan called "SBI ChotaSIP", where you can make a minimum payment of Rs 100 every month. This helpsthe low income people in the rural areas to invest their money in the equity. There isalso SIP auto debit facility for this plan. If you have opted for this option, then yourmonthly installment will be withdrawn automatically from your bank savings accounteach month. You can get the sip application form from the various SBI Mutual fundoffices available all over India or in the designated state bank of india branches.

You have to fill the form and submit a PAN Card copy along with the applicationform. If you apply for a sip auto debit facility, you should also fill a authorization formfor the banks. Once the application form is processed, you will get a statementindicating the number of units allotted for you and also the price at which it is allotted.This statement you will get every month when the monthly payments are sent fromthe bank and credited to the fund account. The price at which the new units areallotted will change depending on the latest NAV.
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The following are some of the benefits associated with investing in an SIP:

1) SIP enforces investing discipline

Many people have burnt their fingers and in some case even their hands by

investing at will and on rumours. SIPs take away the risk from both investing at willand on rumors. As SIPs require you to invest periodically and continuously and overtime, SIPs make periodic investing more of a habit. By regularly investing you tend tobe more focused on achieving your financial goals. This brings in investing discipline.

2) No need to time the markets

Everyone in the market wants to buy low and sell high. This is known as timing themarket. But, the only catch is we dont know when to buy and when to sell. Timingthe market is risky and time consuming process as

i) One has to do research to identify which stocks are undervalued andinvest in them.

ii) Even after investing in the stock, one is not guaranteed of the returns.

Table 1: An example of afunds NAV movement

Price (Rs/ Unit)

January 10.00

February 11.40March 9.00

April 10.30

May 9.50

June 8.90

July 10.80

August 11.90

September 8.50

October 9.80

November 11.70

December 8.30

Source: iFAST Compilations

Table 1 shows an example of a funds NAV movement. If you believed in timing themarket, then in September you would have bought each unit for Rs.8.5 and inNovember you would have sold at Rs. 11.70. This sounds easy in hindsight but thebigger issue would be, when you bought into the stock in September:

a) You are not sure when will it go up

b) You are not sure when to sell it


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With SIP, the need to time the markets is taken away due to the concept of RupeeCost Averaging.

3) Rupee Cost Averaging (RCA)

Rupee Cost Averaging (usually known as Dollar Cost Averaging) is an investmentstrategy widely used by investors all over the world. This calls for you to invest afixed amount of money regularly (on a monthly, quarterly or yearly basis) in adisciplined manner. The main benefit of Rupee Cost Averaging is that it takes theguesswork out of investing and thereby the need to time the markets. A lot of stressis avoided as you do not have to decide whether the fund is expensive or not andwhether the market condition is suitable to invest. Table 2 shows an example of howmore units are acquired when prices are low and vice versa assuming that youinvest Rs. 1000 every month.

Table 2: Units acquired every month for Rs.1000 invested through SIP

Monthly InvestmentAmount (Rs.)

Price (Rs /Unit)

UnitsAcquired

January 1000 10.00 100.00

February 1000 11.40 87.72

March 1000 9.00 111.11

April 1000 10.30 97.09

May 1000 9.50 105.26

June 1000 8.90 112.36

July 1000 10.80 92.59

August 1000 11.90 84.03

September 1000 8.50 117.65

October 1000 9.80 102.04

November 1000 11.70 85.47

December 1000 8.30 120.48

Total 12,000 - 1215.8

Source: iFAST Compilations

Since the amount is fixed, the number of units that you can subscribe to in aparticular fund varies. If the price of the fund increases, you would naturally be able

to subscribe to a lesser number of units. You would buy more units during marketslumps and fewer units during market up-turns.

Table 2 shows an example of RCA. If you had Rs.12,000 to invest, you could chooseto invest all of your money (lump sum) or invest Rs. 1,000 every month (SIP). If youchose to invest a lump sum of Rs.12,000 in January, you would have 1,200 units.The cost per unit is Rs. 10. On the other hand, if you invest through an SIP, youwould have 1,215.8 units by the end of December. The cost per unit is Rs.9.87, andhence, the potential loss is lessened. From the above example, the return wheninvesting a lump sum is -17%, the return of the SIP is -15.9%. One might contendthat the period we illustrated in the examples looked like a good period to do Rupee

Cost Averaging. However, how about during other time periods? Would it still makesense to do Rupee Cost Averaging?


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Rupee Cost Averaging Works When Markets Are Moving Nowhere!

Let us look at another example of how a better return can be achieved by using theRupee Cost Averaging strategy, under different market scenarios.

From the three scenarios shown in Chart 1,the total investment amount for each of thescenarios is Rs.12,000, for both investmentstrategies. From the table, we found thatthe Rupee Cost Averaging strategy gave abetter return in scenarios 2 and 3. This isespecially noticeable in scenario 2, wherethere is a 4.8% gain by using Rupee CostAveraging, while there is no capital gainfrom using lump sum investing. This isbecause there were a larger number ofunits subscribed from July to November(compared to the lump sum subscriptionprice).

Hence, the average cost of units is lessthan Rs.10 (unit price at the beginning).Generally, if the market is going downduring the period one is invested; better

performance will be achieved using theRupee Cost Averaging strategy, versus thelump sum investing method. In fact, sinceno one can know exactly what will happennext, you may still earn a good return inscenario 1 going through a sustaineduptrend for a prolonged period of time.

There are three major benefits of usingRupee Cost Averaging. First, it helpsdecrease your loss if the unit price drops

below your initial price, as the average unitcost is lowered by using Rupee CostAveraging. Second, there is no need to domarket timing. Third, the initial investmentoutlay is lower compared with lump suminvesting.

The Rupee Cost Averaging strategy isuseful for investors who have a longinvestment time horizon (10 years or more).

Chart 1: Three different marketscenarios


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Table 3: Returns of different marketsscenario

Final Value Profit/Loss

Rupee

CostAveraging

Lump

SumInvesting

Rupee

CostAveraging

Lump

SumInvesting

Scenario 1

Rs.18,421

Rs.24,000 53.5% 100.0%

Scenario 2

Rs.12,571

Rs.12,000 4.8% 0.0%

Scenario 3

Rs.6,641

Rs.6,000 -44.7% -50.0%

Source: iFast compilations

4) No entry or exit loads

Certain fund houses have schemes that waive off entry and exit loads, if investedthrough SIPs. Please note though, that the decision to waive off entry and exit loadsis that of the mutual fund house and may be limited to certain schemes only. Waivingoff loads for SIPs is not an industry practice.

5) Very low monthly investments

Most SIP schemes require you to put in very low amounts. The amounts can be aslow as Rs. 500 to Rs. 1000 per month and some schemes have even lowered thebar by requiring you to pay Rs. 100 only per month. This way, you can do regularinvestments and never feel a pinch in your pocket.

6) Taxes

SIPs are taxed for capital gains on first in first out basis. Consider the values in table1; suppose you sold 300 units in February of the next year. Short term capital gains

will be only levied on the number of units bought in February, March and April andnot on the units bought in January. Gains from the units bought in January will beconsidered for long term capital gains and not for short term capital gains.

Other Benefits of SIP

1. SIP can be started with a minimum investment of Rs. 500/- per month or Rs.1000/- per month.2. It is good and effective way of creating wealth for long term.

3. ECS facility is available in case of Investment through SIP.4. A small withdrawal from the account doesnt affect the bank balance of an


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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 timecouldnt be able to continue its SIP, he may give instructions atleast 25 days beforeto the fund house. His SIP be discontinued.6. All type of funds except Liquid funds, cash funds and other funds who invest in

very short fixed return investments offers the facility of SIP.7. Capital gains, if applicable, are taxed on a first-in first-out basis.8. As the investment made through SIP are not at one time. Some units bought athigh price and some at low price, so chances of making gain through SIP is higherthan the one time investment.

In short, SIP is a simple and effective way to create wealth but to create such wealth,one should think about the investment in SIP for a period of atleast for time frame ofthree years because it pays to invest in a longer run.

Some of the points you might want to think through before starting an SIP:

1) Decide on the monthly investment amount that you can sustain over theinvestment period. For example, it can be Rs.1000, Rs. 2,000, Rs. 5,000 or anyamount that you are comfortable with.

2) Select the funds in which you want to invest through SIP, but make sure thatthe portfolio is diversified. For example, you can invest Rs.500 in 10 mutualfunds or Rs.1000 in 5 funds if you had chosen Rs. 5000 as the sustainablemonthly investments in the previous point.

3) Understand the entry and exit loads applicable for SIPs. Some schemeshave no entry / exit loads for SIPs over certain period. So, if you withdraw fundswithin the specified period, you might be charged the entry and exit loads. Orsome funds require you to keep the funds with the mutual fund for a certainperiod and in case you withdraw within the period, the mutual fund house maycharge you only exit loads.

Risk Factors:Mutual Funds and Securities Investments are subject to marketrisks and there is no assurance or guarantee that the scheme's objectives willbe achieved. As with any other investment in securities, the NAV of theMagnums/Units issued under the scheme(s) may go up or down dependingupon the various factors and forces affecting the securities market. Pastperformance of the Sponsor/AMC/Mutual Fund/Scheme(s) and their affiliates do notindicate the future performance of the Scheme(s) of the Mutual Fund. Statutorydetails: SBI Mutual Fund has been set up as a trust under the Indian Trusts Act,1882. State Bank of India ('SBI'), the sponsor is not responsible or liable for any lossresulting from the operation of the schemes beyond the initial contribution made by itof an amount of Rs. 5 lakhs towards setting up of the mutual fund. Asset


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Management Company: SBI Funds Management Private Limited (A joint venturebetween SBI and AMUNDI) -191, Maker Tower 'E', 19th Floor, Cuffe Parade,Mumbai 400 005. Trustee Company: SBI Mutual Fund Trustee Company Pvt. Ltd.Please read the Scheme Information Document carefully before investing.

RESEARCH METHODOLOGY

A Market Research was performed to find out the actuality from the investors about

what they think about the various Investment Options. It was done to find out the

investment patterns and behavior of the people i.e. how much they invest, what are

the reasons behind their investments, and where they invest.

Thus a questionnaire was devised to fetch the above mentioned information from the

investors. Most of the questions in the questionnaires were objective in nature which

helped the people to fill it with utmost ease. The sample size for the research was

150, which included all the classes of people aged 18 and above. The questionnaire

devised for the market research is attached to the report as Annexure I.

Each question of the questionnaire is discussed on a separate page and the results

are explained with the help of graphs.

TITLE OF THE STUDY

COMPARATIVE ANALYSIS OF VARIOUS INVESTMENT AVENUES FOR

INVESTORS AND CONDUCTING MARKET RESEARCH

The project involved extensive studying and understanding various investmentopportunities available for investors of jaipur. It also involved studying the various

factors that should be kept in mind before selecting a suitable avenue from theavailable avenues in the financial sector.


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DURATION OF THE PROJECT

45 days i.e. from 15th may to 30th June 2011

OBJECTIVE OF THE STUDY

To find out penetration of mutual funds and their popularity among different

investment options To look the future prospects of mutual funds

To increase the customer base regarding SBI Mutual Fund

To create awareness among the investors for this investment vehicle, which

is still at inception stage in Jaipur.

RESEARCH STRATEGY

Market survey & Action Research

Market Survey would be the strategy followed in the initial stage of the project to

gain the information about the market place and to gather data about the present

share of SBI Mutual Fund in each Sample Market.

Action Research in which the researcher is working to bring about changes in the

situation rather than just observing the static situation will be the best method to

achieve the objectives of the project. Action research with its change oriented

approach will make it possible to carry the research and also to measure its impact.


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TYPES OF RESEARCH

Research Methods:

Observation and Interviews.

Observation method will be used to calculate the market share of SBI MUTUAL

FUND in the Mutual Fund Industry and to find out penetration of mutual funds and

their popularity among different investment options.

Interviews of the investors will help in collecting qualitative information that will

reflect the problems in the market and the ideas and suggestions for better execution

in the market. In

DATA TYPES

The project seeks to generate both Qualitative and Quantitative data

SOURCES OF DATA

Primary sources:

Observations

Interviews

o Personal

o Telephonic

Questionnaires

Secondary Sources:

Library


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Journals

Financial Data

References and Bibliography

SAMPLE SIZE FOR STUDY

The sample size used for study was equal to 150.

SCOPE OF THE STUDY

Marketing research is used to find out potential market for the product.

Marketing research is used to identify the market share of the product and thecompany.

Marketing research finds out the competitors strength and weakness inmarketing and current position of the product.

The study aimed at capturing the insights into the psyche of the investors of Jaipuras particularly with regards to their investments in mutual funds and other similar

investment avenues. This helps to determine firms strategies to acquaint of investor

behavior as well as their needs and wants and to tap them effectively.

LIMITATIONS TO THE STUDY

The study performed from the historical data and the market research had some

limitations. These limitations are discussed below:

Mutual funds have small holdings in so many different companies. So, high

returns from a few investments often dont make much difference on the

overall return.


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Taxes: Funds manager, generally, dont consider personal tax situation. For

example: when a fund manager sells a security, a capital gain tax is triggered,

which affects how profitable the individual is from the sale.

While comparing the different Mutual Funds, the historic data that was

collected was of previous five years, which was not sufficient for the

comparison. The time constraint was a problem.

In the Market Research, the small sample size was another limitation, but this

was again due to the time constraint. Moreover, the sample was collected

only from a particular region of the country.

The results are based on the direct findings from the questionnaires, but at

times there are chances that people do not disclose everything just for a

research. This could be another limitation to the project.

Confinement being in Jaipur city leads to only urban exposure as the mutual

fund industry is not spread in semi-urban or rural areas.

FACTS AND FINDINGS


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What do you normally associate the word risk with?

Frequenc

y Percent

Valid

Percent

Cumulative

Percent

Vali

d

DANGER 17 11.1 11.2 11.2

OPPORTUNI

TY

53 34.6 34.9 46.1

THRILL 10 6.5 6.6 52.6

UNCERTAIN

TY

72 47.1 47.4 100.0

Total 152 99.3 100.0

Mis

sing

System 1 .7

Total 153 100.0

Analysis

From the above data it is clear that 47.1 percent of the sample population feels that

the risk associated with investing money is uncertainty. People are not certain what

returns they will get after investing a certain amount of money. From the above

graph it is clear that the mean of the population is more tilted tow

sbimf project report

Documents