Systematic INVES plan

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Chapter-1

Introduction

1.11.1 Introduction of the StudyIntroduction of the Study

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In this project I have studied Systematic Investment schemes of HDFC Fund House & ICICIIn this project I have studied Systematic Investment schemes of HDFC Fund House & ICICI

Fund House. Schemes of both the House are analyzed, a comparison is also made to determineFund House. Schemes of both the House are analyzed, a comparison is also made to determine

which fund is better for the investor and which would give him good returns in future.which fund is better for the investor and which would give him good returns in future.

Sip schemes of two different fund houses are compared with the help of Performance evaluatingSip schemes of two different fund houses are compared with the help of Performance evaluating

Techniques that are:Techniques that are:

1.1. Trenyor ratio methodTrenyor ratio method

2.2. BetaBeta

On Applying these techniques investor can make his decision of choosing the fundOn Applying these techniques investor can make his decision of choosing the fund

thats better for himthats better for him

that gives good return over a period of timethat gives good return over a period of time

less riskyless risky

What is Systematic Investment Plan ?

A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you save

regularly.

It is just like a recurring deposit with the post office orbankwhere you put in a small amountevery month. The difference here is that the amount is invested in a mutual fund.

The minimum amount to be invested can be as small as Rs 100 and the frequency of investmentis usually monthly or quarterly.

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A Systematic Investment Plan is not a type of mutual fund. It is a method of investing in a

mutual fund.

There are two ways in which you can invest in a mutual fund :

A one-time outright payment

If you invest directly in the fund, you just hand over the cheque and you get your fund units

depending on the value of the units on that particular day.

Periodic investments

This is referred to as a SIP.

That means that, every month, you commit to investing, say, Rs 1,000 in your fund. At the end

of a year, you would have invested Rs 12,000 in your fund.

Many Banks & Financial institutions provide various SIP schemes for investing. Market status is

the important criterion in this method. If the market is down, more number of units is bought at

low cost. If the market is up, less number of units is bought at high cost. Though this variation

occurs, the investment is not affected. This is due to a concept called "Averaging out the cost.

Let's say you want to invest Rs 10,000. All you have to do is approach the fund and buy units

worth Rs 10,000. There will be two factors determining how many units you get.

Entry load

This is the fee you pay on the amount you invest. Let's say the entry load is 2%. Two percent on

Rs 10,000* would Rs 200. Now, you have just Rs 9,800 to invest.

NAV

The Net Asset Value is the price of a unit of a fund. Let's say that the NAV on the day you invest

is Rs 30.

So you will get 326.67 units (Rs 9800 / 30).

Exit Load

An exit load is a fee you pay the fund when you sell the units, just like the entry load is a fee you

pay when you buy the units. An exit load may be charged if you stop the SIP mid-way. Let's say

you have a one-year SIP but discontinue after five months, then an exit load will be levied. These

conditions will wary between mutual funds.

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Minimum Investment

If you do a onetime investment, the minimum amount that you have to invest is Rs 5,000.

If you invest via an SIP, the amount drops. Each fund has their own minimum amount. Somemay keep it at least Rs 500 per month, others may keep it as Rs 1,000.

Modes for Payment of sip

You can opt for the Electronic Clearance Service from your bank; this means the mutual fund

will, as per your instructions, debit a certain amount from your account every month.

Let's say you have a SIP of Rs 1,000 every month and you have chosen to invest in it on the 10th

of every month. Under this option, you can instruct your mutual fund to directly debit your bank

account of Rs 1,000 on the due date.

If you don't have the required money in your account, then for that month, no units will be

allocated to you.

Alternately, you can give cheques to your mutual fund. In this case, they may ask for five Post

Dated Cheques upfront with your first investment. Since these cheques are dated ahead of time,

they cannot be processed till the date indicated.

1.21.2 FUND HOUSE PROFILEFUND HOUSE PROFILE

HDFC FUND HOUSEHDFC FUND HOUSE

To

Form

Incorporated 30/6/2000

Ownership Private

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Ownership Pattern Foreign - 40%,Domestic-60%

Sponsor Housing Development Finance Corporation Ltd,

Standard Life Investments Ltd.

Total Assets (Rs Cr) 87,883.09 as on 12/31/2010

Equity Funds (Open End) 13

Debt Funds (Open End) 24

Commodities (Open End) 1

Hybrid Funds (Open End) 10

Closed-end Funds 36

Chief Executive Milind Barve

Chief Investment Officer Prashant Jain

Investor Relations Officer Yezdi Khariwala

Address Ramon House, 3rd Floor, H.T.Parekh Marg, 169,Backbay Reclamation, Churchgate,Mumbai - 400020

Telephone 022-22029111 / 66316333

Fax 022-22028862

URL www.hdfcfund.com

Email [email protected]

(www.valueresearchonline.com)(www.valueresearchonline.com)

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HDFC Bank

HDFC TaxSaver Growth Fund

Current Stats & Profile

Latest NAV 223.01(04/03/11)

52-Weak High 261.19(09/11/10)

52-Weal Low 198.54(25/05/10)

Fund Category Equity- Tax planning

Type Open End

Launch Date March 1996

Risk Grade Below Average

Return Grade Above Average

Net Assets 2937.3(31/12/10)Benchmark S&P CNX500

Performance Detail

Returns and Risk Aggregates

Rating & RiskModernPortfolio Stat

Volatility Measures

Fund Rating R-Squared 0.94 Mean 13.10Fund RiskGrade

BelowAverage

Alpha7.09

StandardDeviation

32.30

Fund ReturnGrade

AboveAverage

Beta0.95

SharpeRatio

0.27

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(www.valueresearch.com)

Best and Worst Performance

Best (Period) Worst (Period)

Month34.19 (15/12/1999 -14/01/2000)

-32.30 (26/09/2008 -27/10/2008)

Quarter

78.93 (09/03/2009 -10/06/2009)

-39.75 (02/09/2008 -02/12/2008)

Year272.59 (24/02/1999 -24/02/2000)

-55.57 (03/12/2007 -02/12/2008)

Annual Returns

2010 2009 2008 2007 2006

Fund Return 26.42 99.07 -51.55 39.44 34.12

Rank InCategory

5/37 3/32 8/29 24/26 10/23

CategoryAverage

18.78 81.79 -55.56 59.25 30.18

Sensex 17.43 81.03 -52.45 47.15 46.70S&P CNX Nifty 17.95 75.76 -51.79 54.77 39.83

HDFC Balanced Growth

Snapshot of the Fund


Latest NAV 52.816 (04/03/11)

52-Week High 58.38 (09/11/10)

52-Week Low 46.251 (05/03/10)

Fund Category Hybrid: Equity-oriented

Type Open End

Launch Date August 2000

Risk Grade Below Average

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Return Grade High

Net Assets (Cr) 224.97 (31/12/10)

Fund Details

VR Category Hybrid: Equity-oriented

Type Open End

Load

Entry Load Nil

Exit Load 1% for redemption within 365 days

Systematic Investment Plan

SIP Yes

Initial Investment (Rs) --

Additional Investment (Rs) 500

No of Cheques 12

Note

The scheme also offers Quarterly SIP

with a minimum investment in multiplesof Rs 1500 and 4 cheques.


Rating & RiskModern PortfolioStat

Volatility Measures

Fund Rating R-Squared0.92

Mean 13.65

Fund Risk Grade BelowAverage

Alpha 9.27

StandardDeviation

23.88

Fund ReturnGrade

High Beta0.97

Sharpe Ratio 0.39

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HDFC debt income

Detail of the Fund

Fund Details

VR Category Debt: Income

Type Open End

LoadEntry Load Nil

Exit Load 0.5% forredemption within

180 days

Eligiblity

Who is eligible to invest?

Individuals HUFs NRI Minors

Association of Persons Company PartnerShip Firm Trust

Societies FIIs OCBs

Repatriable Yes

Investment Details

BasicsMin Investment (Rs) 5000

Subsequent Investment (Rs) 1000

Min Withdrawal (Rs) 500

Min Balance --

Pricing Method Forward

Purchase Cut-off Time (hrs) 15

Redemption Cut-off Time (hrs) 15

Redemption Time (days) 3

Lock-in --

Cheque Writing --


SIP Yes



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No of Cheques 12

Note

The scheme also offers Quarterly SIP with aminimum investment in multiples of Rs

1500 and 4 cheques.



Latest NAV 22.5874 (04/03/11)52-Week High 22.5874 (04/03/11)

52-Week Low 21.1844 (08/03/10)

Fund Category Debt: Income

Type Open End


Risk Grade High

Return Grade Above Average

Net Assets (Cr) 594.77 (31/12/10)

Benchmark Crisil Comp BFI



Volatility Measures


Mean 5.43

Fund Risk Grade High Alpha1.56

StandardDeviation

2.46

Fund ReturnGrade

AboveAverage

Beta0.03

Sharpe Ratio 0.64

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ICICI PRUDENTIAL FUND HOUSE

Top of Form

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Bottom of Form

Incorporated 25/8/1993

Ownership Foreign JV

Ownership Pattern Foreign - 49%,

Domestic-51%

Sponsor Prudential plc, ICICI Bank

Total Assets (Rs Cr) 65,876.50 as on 12/31/2010

Equity Funds (Open End) 28

Debt Funds (Open End) 73

Commodities (Open End) 1

Hybrid Funds (Open End) 15

Closed-end Funds 64

Chief Executive Nimesh Shah

Chief Investment Officer Sankaran Naren

Investor Relations Officer Ranganath Athreya

Address 3rd Floor, Hallmark Business Plaza, Sant Dyaneshwar Marg,

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Bandra(East),

Mumbai - 400051

Telephone 022-26428000

Fax 022-26554165

URL www.icicipruamc.com

Email [email protected]

ICICI Prudentiual EQUITY Taxplaning Fund

Fund Detail of the FundCurrent Stats & Profile

Latest NAV 135.1 (04/03/11)

52-Week High 155.09 (10/11/10)

52-Week Low 121.25 (25/05/10)

Fund Category Equity: Tax Planning

Type Open End


Risk Grade Average

Return Grade High

Net Assets (Cr) 1,320.28 (31/12/10)

Benchmark S&P CNX Nifty

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Relative Performance of the Fund

Relative Performance (Fund Vs Category Average)



Volatility Measures

Fund Rating R-Squared 0.92 Mean 13.73

Fund Risk Grade Average Alpha 7.60StandardDeviation

35.01

Fund ReturnGrade

High Beta 1.01 Sharpe Ratio 0.27

Performance of the Fund



Month41.05 (03/12/1999 -04/01/2000)

-38.84 (11/04/2000 -12/05/2000)

Quarter85.19 (22/11/1999 -22/02/2000)

-55.59 (22/02/2000 -23/05/2000)

Year 158.38 (05/03/2009 -05/03/2010)

-57.93 (13/03/2000 -13/03/2001)

Annual Returns

2010 2009 2008 2007 2006

Fund Return 24.11 112.00 -56.03 40.95 26.15

Rank InCategory

9/37 1/32 16/29 22/26 17/23

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CategoryAverage

18.78 81.79 -55.56 59.25 30.18

Sensex 17.43 81.03 -52.45 47.15 46.70

S&P CNX Nifty 17.95 75.76 -51.79 54.77 39.83

ICICI Pru Balanced Growth


Fund Details

VR Category Hybrid: Equity-oriented

Type Open End

Load

Entry Load Nil

Exit Load 1% for redemption within 365 days

(www.valueresearchonline.com)


SIP Yes

Initial Investment (Rs) 1000


No of Cheques 5

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Note

The scheme also offers a quarterly SIP withminimum investment of Rs 5000 and 4 post-

dated cheques of Rs 5000 each.

ICICI Hybrid Fund



Latest NAV 44.12 (07/03/11)

52-Week High 48.59 (09/11/10)

52-Week Low 39.44 (25/05/10)

Fund Category Hybrid: Equity-oriented

Type Open EndLaunch Date October 1999

Risk Grade Average

Return Grade Below Average

Net Assets (Cr) 274.21 (31/12/10)

Benchmark Crisil Balanced

Returns and Risk AggregatesRating & Risk

Modern PortfolioStat

Volatility Measures


Mean 4.29

Fund Risk Grade Average Alpha-

0.09

StandardDeviation

22.47

Fund ReturnGrade

BelowAverage

Beta0.93

Sharpe Ratio -0.00

(www.valueresearchonline.com)

` ICICI Prudential Income

Snapshot of the FundFund Details

Eligiblity

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VR Category Debt: Income

Type Open End

Load

Entry Load Nil

Exit Load Nil

Who is eligible to invest?

Individuals HUFs NRI Minors

Association of Persons Compan PartnerShip Firm Trust Societies FIIs

OCBs

Repatriable Yes

Investment Details

Basics

Min Investment (Rs) 5000

Subsequent Investment (Rs) 500

Min Withdrawal (Rs) 500Min Balance (Rs) 5000

Pricing Method Forward

Purchase Cut-off Time (hrs) 15

Redemption Cut-off Time (hrs) 15

Redemption Time (days) 1

Lock-in --

Cheque Writing


SIP Yes



No of Cheques 5

Note

The scheme also offers a quarterly SIP withminimum investment of Rs 5000 and 4 post-date

cheques of Rs 5000 each.

(www.valueresearchonline.com

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ICICI Pru Debt Income Fund

Snapshot of the Fund(www.Valueresearchonline.com)


Latest NAV 30.8096 (04/03/11)

52-Week High 30.8096 (04/03/11)

52-Week Low 29.7623 (05/03/10)

Fund Category Debt: Income

Type Open End

Launch Date June 1998

Risk Grade Above Average

Return Grade AverageNet Assets (Cr) 328.10 (31/12/10)

Benchmark Crisil Comp BFI

Trailing Returns

As on 04 Mar 2011 Fund Categ

Year to Date 0.18 0

1-Month 0.55 0

3-Month 0.92 1

1-Year 3.52 5

3-Year 8.79 65-Year 8.70 6

Return Since Launch 9.29

Returns upto 1 year are absolute and over 1 year are annualize.


Rating & Risk Modern Portfolio Stat Volatility MeasuresFund Rating R-Squared 0.04 Mean 3Fund Risk Grade Above Average Alpha -0.66 Standard Deviation 1

Fund Return Grade Average Beta 0.07 Sharpe Ratio -0

(www.Valueresearchonline.com)

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Month 15.77 (18/11/2008 - 18/12/2008) -6.76 (05/01/2009 - 04/02/2009)Quarter 21.54 (06/10/2008 - 05/01/2009) -6.88 (05/01/2009 - 06/04/2009)

Year 26.60 (03/07/2008 - 03/07/2009) -1.91 (16/10/2003 - 15/10/2004)(www.Valueresearchonline.com)

REGULATORY BODIESREGULATORY BODIES

Mutual funds in India are regulated by two following regulatory bodies. These governing make

rules and to make its functioning smooth so that care can be taken of all the parties involve in

the industry. To protect the interest of the investors, SEBI formulates policies and regulates the

mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from

time to time.SEBI approved Asset Management Company (AMC) manages the funds by making

investments in various types of securities. Custodian, registered with SEBI, holds the securities

of various schemes of the fund in its custody

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ASSOCIATION OF MUTUAL FUNDS IN INDIA

SECURITIES AND EXCHANGE BOARD OF INDIA

ESTABLISHMENT

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government

of India through an executive resolution, and was subsequently upgraded as a fully autonomous

body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board

of India Act (SEBI Act) on 30th January 1992. The basic objectives of the Board were identified

as:

To protect the interests of investors in securities;

To promote the development of Securities Market;

To regulate the securities market and

For matters connected therewith or incidental thereto.

PREAMBLE

[ACT NO. 15 OF 1992]

The Preamble of the Securities and Exchange Board of India describes the basic functions of the

Securities and Exchange Board of India as:

..to protect the interests of investors in securities and to promote the development of, and to

regulate the securities market and for matters connected therewith or incidental thereto

ROLE OF SEBI IN MUTUAL FUND INDUSTRY

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds.

It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time

THE SEBI (MUTUAL FUNDS) REGULATIONS, 1996:

The revised regulations embodied far reaching changes in the regulation and functioning of

mutual funds. The revised regulations provide for enhanced level of investor protection

empowerment of investors stringent disclosure norms in the offer documents, so that investors

are better informed, better advised, better aware of risks and rewards standardization of norms

for valuation of assets, computation of Net Asset Values (NAVs) of schemes of mutual funds

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and accounting standards and policies complete freedom to asset management companies to

structure schemes in accordance with investor preferences removal of quantitative restrictions on

investment by mutual funds and replacement by prudential supervision replacement of vetting of

offer documents by filing guaranteed return schemes by mutual funds permitted provided returns

including capital were guaranteed indication of expected returns based on hypothetical portfolio

permitted better governance of mutual funds through higher responsibilities and empowerment

of trustees as front-line regulators of mutual funds closer scrutiny through off site and on site

inspections code of ethics for asset management companies

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India

was generated to function as a non-profit organization. Association of Mutual Funds in India(AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management

Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have

launched mutual fund schemes are its members

ASSOCIATION OF MUTUAL FUNDS IN INDIA

706-708, Balarama

Bandra-Kurla Complex

Bandra (East)

Mumbai - 400 051.

Tel No. : 26590382 / 26590206 / 26590243 / 26590246

FAX No. : 26590235 / 26590209

AMFI Website: http://www.amfiindia.com/

AWARDS

2009

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`

2008

2007

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2006

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A Systematic Investment Plan or SIP allows us to take advantage of the growth potential of stock

mutual funds, even if we do not have a large sum of money to invest. Infact most mutual funds

require a minimum of just Rs.500 per month to get started.

Most of us are used to paying for a car or home purchase with monthly EMIs (Equated MonthlyInvestments). Think of a SIP investment along thoseeth lines - only, you are paying yourself amonthly sum, and investing in the stock market, to build long-term wealth!

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Advantages of a Systematic Investment Plan

You can budget for a SIP investment every month if you are say, looking to invest only a smallamount on a regular basis.

Even if you have a lump sum to invest, you may not want to invest all of it at one go. And asystematic investment plan where you spread out the investment in the stock market over severalmonths can provide several advantages. It will help you mitigate market risk and volatility. Ithelps you test out the waters and build your portfolio one step at a time.

Please look carefully at the table above. It becomes clear that most importantly, a systematic

investment plan provides the benefits of what is called "rupee cost averaging". In other words, if

the stock market goes down, your next payment will buy more units. And If the market goes up,

your investment will increase in value.

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So, What's a good time to start a SIP?

We have seen record highs in 2007 and record lows too, in 2008. Now in June 2009, we areseeing a market that showed a remarkable recovery from the lows of as recent as March 2009.

Will it sustain or go down again? No one knows. It is simply not possible to time the marketaccurately. If it was that easy all the fund managers would be sitting at home with their fortunes,isn't it.

So, how do you decide when is a good time to start investing in a SIP? The answer is simple.Anytime is good. If you can maintain the discipline of making regular monthly investments.

Consider the graphic below carefully. We are looking at an example where a investor started atpossibly the worst time in the recent history of our markets - February 2000 - at the peak of thedot-com bull market. He started investing Rs. 1000 every month in a composite fund (consistingof the 10 largest open-ended equity funds with 10 yr plus track records) and continued investingtill Sep 2008.

With the hindsight knowledge of the huge fall from the dot-com/technology driven high of year

2000, its a good bet that nobody would have advised the investor to start a SIP at that time. But

look at the annualised returns of 29% compounding even after starting just before the market

crashed! Now that's as good a record, as any.

So we can see that it really did not matter when he started. Neither did it matter as much thatagain in Sep 2008 the market was touching record lows. 2001 to 2003 was a sticky bear market.But that meant that the investor was actually buying units of the mutual fund at very low prices.His patience and discipline got rewarded when the market finally took off in 2003.

And again from Sep 2008 to Mar 2009, if he continued investing he would have purchased thoseunits at low prices, and reaping the benefits now.

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There is a lession from this history. That if you have a fairly long investing time-horizon -upwards of 5 years, at the least - a systematic investment plan can reap you huge rewards.

Now that you are convinced of the utility of a SIP, why SIP is a smart move, and why you needto be regular with your instalments, you are probably ready to invest.

There are five main indicators of investment risk that apply to the analysis of stocks, bonds and

mutual fund portfolios. They are alpha, beta, r-squared, standard deviation and the Sharpe ratio.

These statistical measures are historical predictors of investment risk/volatility and are all major

components ofmodern portfolio theory (MPT). The MPT is a standard financial and academic

methodology used for assessing the performance of equity, fixed-income and mutual fund

investments by comparing them to market benchmarks.

So what's a Systematic Investment Plan?

SIP is a way of investing specifically designed for those who are interested in building wealthover a long-term and plan out a better future for themselves and their family. It is useful for thosewho want to get their investments going, but don't have a large sum of money to invest.

Who can buy a Systematic Investment Plan?

Anyone can enrol for this facility by starting an account with minimum investment amount -usually Rs 500 per month for one year. One can give post-dated cheques based on ones

convenience.

Why you should invest in a Systematic Investment Plan?

DisciplineThe cardinal rule of building your corpus is to stay focused, invest regularly and maintaindiscipline in your investing pattern. A few hundreds set aside every month will not pinch yourmonthly disposable income too much. You will also find it easier to part with a few hundredsevery month rather than investing a big lump sum in one go.

Power of compoundingInvestment gurus always recommend that one must start investing early in life. One of the main

reasons for doing that is the benefit of compounding. To explain with an example. Person Astarted investing Rs 10,000 per year at the age of 30. Person B started investing the same amountevery year at the age of 35. When they attained the age of 60 respectively, person A had built acorpus of Rs 12.23 lakh while person Bs corpus was Rs 7.89 lakh. A rate of return of 8%compounded has been assumed. So the difference of Rs 50,000 in amount invested made adifference of more than Rs 4 lakh to their end corpus. That difference is due to the effect ofcompounding. The longer the compounding period, the better for you.

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Now instead of investing Rs 10,000 each year, suppose person A invested Rs 50,000 after every5 years, starting at the age of 35. The total amount invested, thus remains the same, which is Rs 3lakh. However, when he is 60, his corpus will be Rs 10.43 lakh. Again, he loses the advantage ofcompounding in the early years.

Rupee cost averagingThis is especially true for investments in equities. When you invest the same amount in a fund atregular intervals over time, you buy more units when the price is lower. Thus, you would reduceyour average cost per share or per unit over time. This strategy is called 'rupee cost averaging'.With a sensible and long-term investment approach, rupee cost averaging can smooth out themarket's ups and downs and reduce the risks of investing in volatile markets.

Sharma aptly sums it up, "In developing economies like India, where securities markets (equitiesand fixed income instruments) can be volatile and it is rarely possible to time the markets andpredict the future. We can seldom accurately predict when a particular stock will move up orwhere the interest rates are headed."

He says, "Systematic Investment Plan makes the volatility of the securities markets work in yourfavor. Since the amount invested per month is a constant, the investor ends up buying more unitswhen the price is low and fewer units when the price is high. Therefore, the average unit costwill always be less than the average sale price per unit, irrespective of the market rising, falling,or fluctuating. This concept is called Rupee Cost Averaging (RCA)."

Some examples:HDFC MUTUAL FUNDSCHEME: HDFC CAPITAL BUILDER FUND

PRU ICICI MUTUAL FUNDSCHEME: PRU ICICI GROWTH FUND

RELIANCEMUTUAL FUNDSCHEME:RELIANCE

GROWTH FUND

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Returns SIP Normal5 year 41.81% 19.39%

3 year 69.28% 56.15%

1 year 86.47% 47.62%

Returns

SIP Normal

5 year 27.60%

7.37%

3 year 44.89% 35.3%

1 year 54.39%

13.89%


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ConvenienceThis is a very convenient wayof investing. You have to just

submit cheques with the completed enrollment form. The mutual fund will deposit the chequeson the requested date and credit the units to ones account and will send the confirmation for thesame.

Other advantagesMost fund houses waive entry or exit loads on SIP investmentsCapital gains, wherever applicable, are taxed on a first-in first-out basis.

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Returns

SIP Normal

5 year 52.17%

20.19%

1 year 80.34% 37.89%


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Chapter2

Literature Review

SIP or systematic investment planning is method through which you can invest in mutual

funds through small and periodic installments. Infact you can invest as low as Rs. 1000/- on

a monthly basis. Moreover you can also select the tenure of the instalments.

Investing in SIPs is a smart choice

SIPs Inculcate financial discipline and helps you make investment your first priority from itbeing your last priority.SIPs Average out your cost of investment and hence reduces your risk of investment.

29


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Lets say you invested Rs 1000 every month. And lets say the scheme invested in is

available at a rate of Rs 20 per unit. Then in month 1, you will be able to obtain 50 units. In

month 2 if the unit value goes down to Rs 10 then you will be able to obtain 100 units.

Hence for Rs 2000 invested over 2 months the total value of your investment at the end of 2months is Rs 1500. However if you had invested a straight sum of Rs 2000 in month 1 when

the

rate was Rs 20 per unit your net value at the end of month 2 will only be Rs 1000/-.

Hence an SIP helps you average out your cost and thereby reduce risk resulting ingenerating superior returns. Helps in compounding your wealth.

Sip provides disciplined savings

Every month you are forced to keep aside a fixed amount. This could either be debited directlyfrom your account or you could give the mutual fund post-dated cheques. it helps you make

money over the long term. Since you get more units when the NAV drops and fewer when itrises, the cost averages out over time. So you tide over all the ups and downs of the marketwithout any drastic losses.

Also, a number of mutual funds do not charge an entry load if you opt for an SIP. This fee is apercentage of the amount you are investing. And if you do not exit (sell your units) within a yearof buying the units, you do not have to pay an exit load (same as an entry load, except this ischarged when you sell your units).

If, however, you do sell your units within a year, you would be charged an exit load. So it pays tostay invested for the long-run.

The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP, think of at

least a three-year time frame when you won't touch your money.Of course you would lose money if your units lost value over time.

What most SIP Mutual funds don't tell you is that they recover their fees as monthly charges byselling your units, so while you are buying more units when the market is down, more of yourunits are also being sold to fund the monthly charges of the Mutual fund. Also the Bid and Offerof the Mutual Fund is around 7% and this is the front load or expense you pay for buying theunits each month. Also sometimes the Mutual fund will have annual fee charges.

In spite of the above drawbacks the retail investors' benefit in the long term horizon of 5-8 yearsis enormous. Only make sure that you can switch your funds from stock market to money marketat short notice when the markets are really in a correction phase to safeguard the profits whichyou have made when the market was in a booming phase.

SBI introduced Systematic Investment Plans for the benefit of the investors where theinvestors can make monthly payments like investing in a recurring deposit.

There are some schemes in SBI SIP plan which are generating good returns more consistently.Some of the schemes are:

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SBI Magnum Sector Funds Umbrella

SBI Chotta SIP fund

SBI Magnum Sector Funds Umbrella - Emerging Fund

SBI Magnum Midcap FundSBI Magnum Taxgain Scheme

SBI Blue Chip Fund

Example of one such fund offered by SBI is:

Magnum Sector Funds Umbrella

Launched in August 1999

Minimum investment of Rs. 2000 per sector

Entry Load : Investments below Rs. 5 crores 2.25%Investments of Rs.5 crores and above NIL" SIP/STP - 2.25%

Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6months and < 12 months - 0.50% Investments of Rs.5 crores andabove - NIL

SIP /STP-< 6 months from the date of investment of eachinstalment - 1.00%

SIP : Minimum amount Rs.500/month - 12 monthsRs.1000/month - 6months, Rs.1500/quarter - 12 months

STP : Minimum amount Rs.1000/- month - minimum period of 6months Rs.3000/ Quarter - minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exitload will be applicable. In respect of STP transactions, an investor would now be permitted totransfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balancerequirement as stipulated for the switch out scheme. The minimum period for STP will beatleast 6 months.

Registrar

NAV Information

Fact sheet

Archives

Application Form

Apply Online

31
http://www.sbimf.com/portal/application/sbimfnavcorner.asp?sccode=O-MSFUhttp://www.sbimf.com/portal/application/sbimfnewfactsheet.asp?schemecode=MSFUhttp://www.sbimf.com/portal/static/archives.htmlhttp://www.sbimf.com/portal/static/downloads/msfu-app.pdfhttp://www.sbimf.com/portal/application/sbimfApplyonline.asphttp://www.sbimf.com/portal/application/sbimfnavcorner.asp?sccode=O-MSFUhttp://www.sbimf.com/portal/application/sbimfnewfactsheet.asp?schemecode=MSFUhttp://www.sbimf.com/portal/static/archives.htmlhttp://www.sbimf.com/portal/static/downloads/msfu-app.pdfhttp://www.sbimf.com/portal/application/sbimfApplyonline.asp


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Chapter 3RESEARCH

METHODOLOGY

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Research Methodology

3.1 Objectives:

a) To study Systematic Investment schemes

b)Comparing schemes of two Fund House & selecting the one in which maximum return can be

gained.

c) To ascertain the factors for differential performance in various schemes.

d) To study how can an investor gain good returns by having proper understanding of the the sip

plans.

Data collection:

Secondary Data is taken for this study and based on that performance evaluation of the

schemes is done.

Sampling Framework:

a.) Sampling PlanThe sampling plan calls for two decisions.

i. Sampling unit:The target must be defined that has to be sampled. It is necessary so as to develop a samplingframe so that everything in the target population has an equal chance of being sampled. Thesampling unit of this project are Fund House of ICICI & HDFC Bank.

ii. Sample Size: How many Funds are selected?The sample Consist of three funds from each of the fund houses.1. Tax saving Fund from both the fund house are taken2. Income Fund of HDFC & ICICI are considered.

3. Balanced- Growth Fund from both the Fund House are taken.

Selection of Funds from each of the Fund Houses is done on the basis of Convenient Sampling.

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TOOLS FOR EVALUATING PERFORMANCE

The tools which are taken for evaluating the performance are risk adjusted

measures.

RISK ADJUSTED MEASURES ARE:

BETABeta is a fairly commonly used measure of risk. It basically indicates the level of volatility

associated with the fund as compared to the benchmark. A beta that is greater than one means that

the fund is more volatile than the benchmark, while a beta of less than one means that the fund is

less volatile than the index.

ALPHAAlpha is the difference between the returns one would expect from a fund, given its beta, and the

return it actually produces. An alpha of 1.0 means the fund produces a return 1% higher than its

beta would predict. An alpha of -1.0 means the fund produces a return 1% lower.

TREYNOR RATIO

This ratio is similar to the above except it uses beta instead of standard deviation. It's also knownas the Reward to Volatility Ratio, it is the ratio of a fund's average excess return to the fund's beta.It measures the returns earned in excess of those that could have been earned on a risklessinvestment per unit of market risk assumed.

T = Return of Portfolio - Return of Risk Free Investment

Beta of Portfolio

SCOPE OF THE STUDY

Scope of the study is limited only to MUTUAL Fund Sip schemes. And moreover only HDFC &

ICICI Fund House schemes are taken in this study. This study will prove helpful for those

investors who want to invest their money for long terms.

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IMPORTANCE OF THE STUDY

The investor would naturally be interested in knowing which (SIP) scheme is better for him. He

would have to make intelligent decision that which funds to choose so that he can get a good

return on his investment. So to help the investor in choosing the right fund by evaluating certain

criterias and then stating which fund is better is the motto of this study.

CChapter 4hapter 4

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Data AnalysisData Analysis

AndAnd

InterpretationsInterpretations

ANALYSIS AND FINDINGSANALYSIS AND FINDINGS

Comparing HDFC Debt Income Fund Vs ICICI Debt Income Fund

Snapshot of the two Funds

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Fund

Name

Lau

nch

Date

Category

Filter

Rating

Fil ter

Risk Grade

Filter

Return Grade

Filter

1

Yea

r

Ret

urn

Expe

nse

Ratio

HDFC

Incom

e

200

0-

08A

ug-

200

0

Debt: Income 3 Star High Above Avg. 6.5

4

2.02

ICICI

Prude

ntial

Incom

e

199

8-

06J

un-

199

8

Debt: Income 2 Star Above Avg. Avg. 3.5

2

2.09

Risk & Volatility Chart

Fund Name

Fund Risk Grade

Filter

Standard

Deviation

Sharpe

RatioBeta Alpha

R-

Squared

HDFC Income High 2.46 0.64 0.03 1.56 0.01

ICICI Prudential

Income

Above Avg. 1.97 -0.33 0.07 -0.66 0.04

(SOURCE: WWW.VALUERESEARCHONLINE.COM)

Performance Evaluation of Fund on the basis of Beta of the two

Funds

Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility

associated with the fund as compared to the benchmark. So quite naturally the success of beta is

heavily dependent on correlation between a fund and its benchmark. Thus if the funds portfolio

doesnt have a relation with the benchmark index then a beta would be grossly inadequate. A

beta that is greater than one means that the fund is more volatile than the benchmark, while a

beta of less than one means that the fund is less volatile than the index. A fund with a beta very

close to 1 means the funds performance closely matches the index or benchmark. If, for

37
http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=845http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=537http://www.valueresearchonline.com/


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example, a fund has a beta of 1.03 in relation to the BSE Sensex, the fund has been moving 3%

more than the index. Therefore, if the BSE Sensex increased 10% the fund would be expected to

increase 10.30%.

Investors expecting the market to be bullish may choose funds exhibiting high betas,

which increase investors chances of beating the market. If the investor expects the market to be

bearish in the near future, the funds that have betas less than 1 are a good choice because they

would be expected to decline less in value than the index.

Interpretation

The Beta for ICICI Pru Income Fund is .07 & Beta for HDFC Income fund is .03, in terms ofrisk HDFC Fund is less risky than ICICI Pru Fund but as the value of beta for both funds is less

than one and close so investment can be made in any of the two.

Beta less the 1 signifies that the fund is less volatile than the index.

Evaluation of Performance based on treynor ratio :

The Treynor ratio, as devised by Jack Treynor, is a measurement of a portfolios return earned in

excess of what would be earned on a risk-free investment. The higher the Treynor ratio, the

better the performance of the portfolio or stock being analyzed.

The formula for the Treynor Ratio is as follows:

Treynor ratio = (Average portfolio return Average risk return of risk-free investment)

Beta of portfolio

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So average Portfolio return of HDFC Income Fund 14.5% (7/03/11) (3yrs)

(marketcontrol.com)

Average Risk return of risk-free investment 8%

Beta of Portfolio - .03

(valueresearchonline.com)

Treynor ratio - (.145 .08 )/ .03 =

Treynor ratio for HDFC income Fund is 2.1600

Treynor ratio for ICICI Pru Income Fund : Average Portfolio return of ICICI Pru Income

Fund 15.2% (for 3yrs)

Risk free return 8% Beta of Portfolio - .07

Treynor ratio ( .15 2- .08 )/ .07 = 1.02 Trenyor ratio for ICICI Pru Income Fund 1.02`Interpretation

High the treynor ratio High is the performance of the Fund so HDFC Income Fund is a better

option for investment as the Trenyor ratio is more .Hence the fund will perform more and give

good returns.

Comparing HDFC Taxsaver Plan Vs ICICI Pru Taxsaver Plan

Fund

Name

Lau

nch

Dat

e

Category

Eq u ity : T a x Pla n n in g

Rating

Fil te r

Risk Grade

Filte r

Return

Grade

A b o v e A v g .

1

Yea

r

Ret

urn

Exp

ense

Rati

o

HDF

C

Taxsa

ver

199

6-

03

Ma

r-

199

6

Equity: Tax

Planning

5 Star Below Avg. Above Avg. 12.

14

1.86

ICICI

Prude

199

9-

Equity: Tax

Planning

4 Star Avg. High 8.1

6

1.99

39
http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640


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Fund

Name

Lau

nch

Dat

e

Category

Eq u ity : T a x Pla n n in g

Rating

Fil te r

Risk Grade

Filte r

Return

Grade

A b o v e A v g .

1

Yea

r

Ret

urn

Exp

ense

Rati

o

ntial

Tax

Plan

08

Au

g-

199

9

Comparing Risk & Volatality of Funds

Fund Name

Fund Risk Grade

Filter

Standard

Deviation

Sharpe

RatioBeta Alpha

R-

Squared

HDFC Taxsaver Below Avg. 32.30 0.27 0.95 7.09 0.94

ICICI Prudential

Tax Plan

Avg. 35.01 0.27 1.01 7.60 0.92

Evaluating Performance on the basis of Beta coefficient

Value of Beta for HDFC taxsaver Fund - .95

Value of Beta for ICICI Prudential Tax Plan 1.01





InterpretationValue of Beta for HDFC taxsaver Fund is less than 1, so this fund is less volatile than the index. If

the market falls also it would not have much effect on the fund. Whereas ICICI Prudential Taxsaver

Fund is more volatile than its benchmark index. So here the better option for the customer is to go

for HDFC Taxsaver fund as this Fund is less risky and less volatile. It also offers better returns over

time. Evaluation of Performance of Fund on basis of Treynor Ratio The Treynor ratio, as devised by

40
http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.qfinance.com/dictionary/treynor-ratiohttp://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=854http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=640http://www.qfinance.com/dictionary/treynor-ratio


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Jack Treynor, is a measurement of a portfolios return earned in excess of what would be earned on a

risk-free investment. The higher the Treynor ratio, the better the performance of the portfolio or

stock being analyzed.


Treynor ratio = (Average portfolio return Average risk return of risk-free investment)

Beta of portfolio

Average Portfolio return of HDFC Taxsaver Fund 16.53 (3yrs) (moneycontrol.com)

Risk Free Return on Investment 8%

Beta of Portfolio for HDFC Taxsaver Fund .95 (valueresearchonline.com)

Treynor ratio = ( .1653 - .08 )/ .95 = .0897

Average Porfolio return of ICICI Pru Taxplan 15.6 ( 3yrs) ( moneycontrol.com)

Risk Free Return On Investment 8%

Beta of portfolio for ICICI Pru Taxplan 1.01 (valueresearchonline.com)

Treynor ratio ( .156 - .08 )/1.01 = .075

Interpretation

High the Treynor ratio High is the performance of the fund so one should go for investing in HDFC

taxsaver Plan.

Comparing HDFC Balanced Growth Vs ICICI Pru Balanced Growth

Fund

Name

Lau

nch

Dat

e

Category

H y b r i d : Eq u i ty - o r i en te d

Rating

5 S ta r

Risk Grade

Filte r

Return Grade

Hig h

1

Yea

r

Ret

urn

Exp

ense

Rati

o

HDF

C

Balan

ced

200

0-

08

Au

g-

200

0

Hybrid: Equity-oriented 5 Star Below Avg. High 13.

44

2.15

ICICI 199 Hybrid: Equity-oriented 2 Star Avg. Below Avg. 9.2 2.30

41
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Fund

Name

Lau

nch

Dat

e

Category

H y b r i d : Eq u i ty - o r i en te d

Rating

5 S ta r

Risk Grade

Filte r

Return Grade

Hig h

1

Yea

r

Ret

urn

Exp

ense

Rati

o

Prude

ntial

Balan

ced

9-

10

Oct

-

199

9

9

Risk & Volatality comparison

Fund Name

Fund Risk Grade

Filter

Standard

Deviation

Sharpe

RatioBeta Alpha

R-

Squared

HDFC Balanced Below Avg. 23.88 0.39 0.97 9.27 0.92

ICICI Prudential

Balanced

Avg. 22.47 -0.00 0.93 -0.09 0.95

Evaluating Performance of the Funds on the basis of Beta Coefficient

Value of Beta for HDFC Balanced Growth Fund - .97

Value of Beta for ICICI Prudential Balanced Growth Plan .93





Interpretation

As the Beta in both the cases is less than one so both the funds are less volatile than theier

Benchmark index. But as Beta of ICICI Prudential Balanced G Fund is less than that of HDFC

Balanced G Fund so ICICI Fund is a better option for investment as it is less risky than HDFC

42
http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=844http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=844http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686


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Fund and also would offer better returns because if the market slips than it would have a less

impact on the performance of the fund.

Evaluation of Performance based on treynor ratio :The Treynor ratio, as devised by Jack

Treynor, is a measurement of a portfolios return earned in excess of what would be earned on a risk-free

investment. The higher the Treynor ratio, the better the performance of the portfolio or stock being

analyzed.


Treynor ratio = (Average portfolio return Average risk return of risk-free

investment) Beta of portfolio

Average portfolio return = 16.4 %

Average risk return of risk free investment = 8%

Beta for HDFC Balanced G Fund = .93

Treynor ratio = (.164 - .08 )/.97= .086

Average portfolio return of ICICI Prudential Fund = 14.7%

Average risk return of risk frre investment = 8%

Beta for ICICI Balanced _ G Fund = .97

Treynor ratio = (.147 - .08 )/.93 = .072

Interpretation :

One should go for HDFC Balanced Growth Fund as more the Treynor ratio more

is the performance of the fund and more are the returns which is what the investor

wants

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Chapter -5 Findings ofChapter -5 Findings of

the Studythe Study

5.15.1 FINDINGS OF THE STUDYFINDINGS OF THE STUDY

FINDINGS OF THE STUDY

1. On the Basis of Beta of HDFC taxsaver plan & ICICI Prudential Tax plan,

the Best Fund is

HDFC Taxsaver plan

1. On the Basis of Trenyor ratio best Fund to invest is

HDFC Taxsaver Plan

45


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1. On the Basis of Beta of HDFC Balanced Growth & ICICI Prudential

Growth, the best one is

ICICI Prudential Growth Plan

1. On the Basis of Treynor ratio best fund to invest is

HDFC Balanced Growth

1. On the Basis of Beta of HDFC Income Fund & ICICI Pru Income Fund, the

Best one is

HDFC Income Fund

1. On the Basis of Treynor ratio, best fund to invest is

HDFC Income Fund

46


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Chapter-6

Recommendation &

Conclusion

1.1 Recommendations

1. Investor should have knowledge of factors which could help him in makinggood investment and getting good returns in future.

2. Beta & trenyor ratios are values using which Investor can invest his money in

Funds that are less risky & generate good returns in long term.3. Past performances are areas investor should look into before selecting an SIP to

invest.4. Investor should invest in SIPs only if he is willing to invest for a longer period

because only then they are beneficial.

47


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5. Sips are most lucrative schemes where you get benefits of Compounding,Rupee cost averaging SO ARE BETTER options for long term investment thanbank FDs , mutual Funds.

6.2 Conclusion

From this study we found that there are various factors which should beconsidered before selecting a fund that is better and good for investment.Investor can gain high returns if he has the right knowledge aboutfactors such as beta , alpha ,treynor ratio using them Investor can select

funds/schemes which are less risky & also generate high returns oninvestment in a longer period.

6.3 LIMITATION

The time constraint was one of the major problems. The study is limited to the schemes available under the mutual funds

sips selected. The study is limited to selected mutual fund sip schemes. lack of

information sources for the analysis part. As there are hundreds of sip schemes available, it was tough to analyze

all of them. So through convinent sampling only few could be analzed.

BIBLIOGRAPHYBIBLIOGRAPHY

www.amfiindia.com

www.sebi.gov.inwww.sbimf.comwww.mutualfundsindia.comwww.valueresearchonline.comwww.utimf.comwww.hdfcmf.com

48
http://www.amfiindia.com/http://www.sebi.gov.in/http://www.sbimf.com/http://www.mutualfundsindia.com/http://www.valueresearchonline.com/http://www.utimf.com/http://www.hdfcmf.com/http://www.amfiindia.com/http://www.sebi.gov.in/http://www.sbimf.com/http://www.mutualfundsindia.com/http://www.valueresearchonline.com/http://www.utimf.com/http://www.hdfcmf.com/


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www.birlamf.comwww.licmf.comwww.icicimf.com

www.moneycontrol.com

REFERENCE BOOKS:

Financial Management - Fisher and Jorden

INVESTMENT MANAGEMENT - V.K.BHALLA
http://www.birlamf.com/http://www.licmf.com/http://www.icicimf.com/http://www.birlamf.com/http://www.licmf.com/http://www.icicimf.com/

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