Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called professionals are 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.
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
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Systematic Investment Plan
What is an SIP?
SIP, also known as Regular Savings Plan (RSP) in some countries, allows you to invest a fixed amount at pre defined frequencies in mutual funds. A bank / post office recurring deposit is the only other investment option that is similar to SIP. There are basically 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 invest using an SIP. The following are some of the benefits associated with investing in an SIP:
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 a better future for him and their dependants.
The investment in a Mutual fund can be done in two ways. First way is one time payment i.e. making payment to a fund at once and gets the units of the fund as per the 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 NAV of 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 a fund, it is called as Systematic Investment.
It is actually beneficial for those investors who wish to invest a large amount in a fund and wishes to create a large chunk of wealth for long term but due to financial constraints 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 is not 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, he‟ll have invested Rs.
24,000/- in the fund. When the NAV is high, he will get the fewer units and when the NAV is low, he‟ll get the more units. So, he‟ll get the benefit of averaging through the SIP route. The NAV in the first month was Rs. 10/-, he‟ll get 200 units in the first month
The NAV in the second month was Rs. 9.50/-, he‟ll get 210.52 units in second month The NAV for the following month was Rs. 10, he‟ll get 200 units in the next month So, at the end of the year he may get more units as compared to the units he‟ll get through single investment.
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Systematic investment plans are a systematic and disciplined approach to investment and wealth creation. Instead of making a large investment at one time, in SIP you can invest small sums at regular intervals thus creating a habit of regular savings. If you are a big spender and find your expenditures are more than your earnings 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 investing money and SIP mutual funds are even better. These are perfect
solutions to most of us who cannot afford to make a large investment at one go. This is a good way to save for your child's education, marriage or comfortable retirement for you and your spouse. The lowest start up investment amount is 500 rupees per month which is affordable by most people.
State Bank of India is one of the most trusted public sector banks in India. If you are a
beginner in investment then SBI SIP plans may be good option for you. Here are some SBI
SIP mutual funds available.
Magnum Equity Fund - Minimum application of thousand rupees is needed and SIP is Rs. 500/month for 12 months.
Magnum Tax Gain - Minimum application amount is Rs 500 and minimum SIP amount is Rs.500/month for12 months
Magnum Index Fund - Minimum SIP amount is Rs.500/month for12 months
Magnum Sector Funds Umbrella - Minimum investment amount is Rs. 2000 per sector and
minimum SIP amount is Rs.500/month for12 months
Magnum Global Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Midcap Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Mutlicap Fund - Minimum SIP amount is Rs.500/month for12 months Blue 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 areas to benefit from the long-term investment in „Equity‟ as an asset class. This plan will be called SBI Chota SIP. For monthly investment as low as Rs. 100, investors from low-income group as well as 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.
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Micro SIP facility will be available in respect of four equity diversified schemes of SBI Mutual 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 5 years. Systematic Investment Plan is the best option for retail investors to invest in Mutual Funds. 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 plans comparison and find the best SBI SIP fund.
There are many reasons for the investors feeling that SBI SIP fund is the best systematic investment plan in india. Most of the schemes under SBI Systematic investment plan has been generating returns more consistently. If you check the returns for most of the SIP plans, they are generating consistent returns for the past 6 months, 1 year and 3 years. This would prove that the SBI schemes are performing 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 has launched another fund "SBI Chotta SIP Scheme" in which the minimum investment amount is Rs 100. This scheme was introduced to encourage more retail participation. The low income people will be more benefited from this scheme as this type of investment is similar to investing in a recurring deposit and they can get the benefits of the stock markets.
- 59 - SBI Chota SIP:
Recently SBI has launched micro systematic investment plan called "SBI Chota SIP", where you can make a minimum payment of Rs 100 every month. This helps the low income people in the rural areas to invest their money in the equity. There is also SIP auto debit facility for this plan. If you have opted for this option, then your monthly installment will be withdrawn automatically from your bank savings account each month. You can get the sip application form from the various SBI Mutual fund offices 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 application form. If you apply for a sip auto debit facility, you should also fill a authorization form for the banks. Once the application form is processed, you will get a statement indicating 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 from the bank and credited to the fund account. The price at which the new units are allotted will change depending on the latest NAV.
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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 100, 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.
Costs associated: Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio
Loads:
Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying the fund to cover the cost of selling, processing etc.
Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to zero with increase in holding period.
Measuring and evaluating mutual funds performance:
Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. Therefore it‟s very necessary to continuously evaluate the funds‟ performance with the help of factsheets and newsletters, websites, newspapers and
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professional advisors like SBI mutual fund services. If the investors ignore the evaluation of funds‟ performance then he can loose hold of it any time. In this ever-changing industry, he can face any of the following problems:
1. Variation in the funds‟ performance due to change in its management/ objective. 2. The funds‟ performance can slip in comparison to similar funds.
3. There may be an increase in the various costs associated with the fund. 4 .Beta, a technical measure of the risk associated may also surge.
5. The funds‟ ratings may go down in the various lists published by independent rating agencies.
6 .It can merge into another fund or could be acquired by another fund house.
Performance measures:
Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.
Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio.
Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.
Concept of benchmarking for performance evaluation:
Every fund sets its benchmark according to its investment objective. The funds performance is measured in comparison with the benchmark. If the fund generates a greater return than the benchmark then it is said that the fund has outperformed benchmark , if it is equal to
benchmark then the correlation between them is exactly 1. And if in case the return is lower than the benchmark then the fund is said to be underperformed.
- 62 - Some of the benchmarks are :
1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE 500 index, BSE bankex, and other sectoral indices.
2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds.
3. Liquid funds: Short Term Government Instruments‟ Interest Rates as Benchmarks, JPM T- Bill Index
To measure the fund‟s performance, the comparisons are usually done with: I)with a market index.
ii) Funds from the same peer group.
iii) Other similar products in which investors invest their funds.
Financial planning for investors( ref. to mutual funds):
Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning. Steps in financial planning are:
Asset allocation. Selection of fund.
Studying the features of a scheme.
In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to fund managers. A fund manager has to closely follow the objectives stated in the offer document, because financial plans of users are chosen using these objectives.
Why has it become one of the largest financial instruments?
If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. measuring
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these investment options on the basis of the mentioned parameters,
we get this in a tabular form:
Return Safety Volatility Liquidity Convenienc e
Equity High Low High High Moderate
Bonds Moderate
High Moderate Moderate High
Co.Debenture Moderate
Moderate Moderate Low Low
Co. FDs Moderate
Low Low Low Moderate
BankDeposits Low High Low High High
PPF Moderate
High Low Moderate High
LifeInsurance Low High Low Low Moderate
Gold Moderate
High Moderate Moderate Gold
Real Estate High Moderate High Low Low
- 64 - RESEARCH METHODOLOGY table
Universe JAIPUR SOUTH Area,JAIPUR
(JAIPUR SOUTH BRANCH,HAWA SADAK BRANCH,INCOME TAX BRANCH WITH A.G.OFFICE)
Sample size 100 customer
Sample unit Customers visiting at SBI bank
Sampling technique technique
Convenience sampling
Research design Descriptive
Collection of data: Primary data through Questionnaires and interaction with customers
Secondary data Internet.
Duration 45 Days