A PROJECT REPORT

ON

“A STUDY OF CORRELATION BETWEEN INDIAN STOCK

MARKETS & GLOBAL STOCK MARKETS”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION

PREPARED BY
KRISHA P. PATEL
(T.Y. BBA- FINANCE, ROLL NO. 8)

GUIDED BY
Dr. HETAL D. TANDEL
ASSISTANT PROFESSOR, NLCCM, NAVSARI

NARAN LALA COLLEGE OF COMMERCE AND MANAGEMENT

NAVSARI
VEER NARMAD SOUTH GUJARAT UNIVERSITY
SURAT
MARCH – 2025
 CERTIFICATE

This is to certify that the project report on “Comparison of Mutual Fund Schemes of HDFC,
Reliance and ICICI” is submitted by Krisha D. Patel, student of T.Y.BBA (Finance), Exam
Seat No. ( ) to the Naran Lala College of Commerce and Management, Navsari in the
partial fulfillment of the requirements for the degree of Bachelor of Business Administration at
Veer Narmad South Gujarat University, Surat.

____________________ ____________________

Dr. Hetal D. Tandel Dr. Chirangi H. Desai

(Assistant Professor, NLCCM) (Principal)
Project Guide NLCCM, Navsari
 DECLARATION

I, the undersigned, Ms. Krisha D. Patel, hereby declare that the project work entitled
“Comparison of Mutual Fund Schemes of HDFC, Reliance and ICICI” is based on my own
work. This is an original piece of work and references whenever taken have been duly
acknowledged. No part of the report has been copied and without references.

I further declare that information collected is not submitted to any other university for any other
purpose.

Place: Navsari. Ms. Krisha D. Patel

Date: / / T.Y.BBA (Finance)

ACKNOWLEDGEMENT

Ms. Krisha D. Patel

(T.Y.BBA, Finance)
 EXECUTIVE SUMMARY

Mutual Fund is a pool of money, collected from investors and is invested according to pre-started
investment objective. A Mutual Fund collects the savings from investors and invest them in
government and other corporate securities and earn income through interest and dividend,
besides capital gain.

Descriptive research design has been used for the project, to create clear idea about mutual fund
and its working. Mainly secondary data has been used for project. Secondary data are collected
from fact sheet of Mutual Fund Company as well as from books and internet websites.

Entire project has been done in five parts;

 Introduction which includes introduction about the topic and objectives of the study.
 Research methodology which includes research design used for the project and
limitations of the study.
 Theoretical framework which includes Introduction, Importance, Advantages &
Disadvantages, Types, Structure, Cost, Risk, Risk measurement techniques and NAV of
Mutual Fund.
 Comparison where different schemes of HDFC, Reliance and ICICI Mutual Funds are
compared.
 Conclusion of various schemes of HDFC, Reliance and ICICI Mutual Fund schemes
from where an investor can get knowledge in which they should invest.

Refer…………………………it is to be prepared as per your topic.

 TABLE OF CONTENTS
 CERTIFICATE………………………………………………………….(i)
 DECLARATION……………………………………………………….(ii)
 ACKNOWLEDGEMENT …………………………………………….(iii)
 EXECUTIVE SUMMARY……..……………………………………..(iv)
 TABLE OF CONTENTS………………………………………………(v)
 LIST OF TABLES…………………………………………………….(vi)
 LIST OF FIGURES……………………………………………………(vii)

SR PARTICULARS PAGE
NO. NO.
CH.1 INTRODUCTION TO MUTUAL FUNDS
1.1 HISTROY OF MUTAUL FUNDS 1

1.2 Objective of The Study 1

1.3 Limitations of the Study 1
CH.2 RESEARCH METHODOLOGY
2.1 Title of The Study 2

2.2 Research Objectives 2

2.3 Research Design 2

2.4 Sources of Data 3

2.5 Sampling Design 3

2.5.1 Sample Population 3

 2.5.2 Sample Unit 3

2.5.3 Sample Size 3

SR PARTICULARS PAGE
NO. NO.
2.6 Tools and Techniques 3

2.7 Limitations of The Study 4

Ch.3 Theoretical Framework

3.1 Meaning and Definition of Security 5

3.2 Types of Security 5

3.2.1 Debt Securities 5

3.2.2 Equity Securities 6

3.2.3 Derivative Security 6

3.3 Portfolio 8

3.3.1 Portfolio Management 8

3.3.2 Types of Portfolios 8

3.3.3. Need For Portfolio Management 9

3.3.4 Objectives of Portfolio Management 10

 3.3.5. Processes Of Portfolio Management 10

3.4 Risk and Return 10

SR PARTICULARS PAGE
NO. NO.
3.4.1 Types of Risk 11

3.4.2 Methods of Measurement for Investment Risk Mgt 11

3.5. Sharpe Model 12

3.5.1 Sharpe Ratio Formula 13

3.5.2 Sharpe Ratio Grading Thresholds: 13

3.5.3 Application of The Sharpe Index 14

3.5.4 Example of The Sharpe Index 14

3.5.5 Calculation of Sharpe Model 15

3.5.6 Limitation of Sharpe Model 18

3.6 Introduction to Stock Exchange 19

3.6.1 The BSE and NSE 19

3.6.1.1 BSE 20
 3.6.1.2 NSE 21

3.6.1.2.1 Various Indices Of NSE 22

3.6.1.2.2 Nifty 50 24

SR PARTICULARS PAGE
NO. NO.
CH.4 DATA ANALYSIS
4.1 Data Needed for Optimal Portfolio 29

4.2 Creation of Optimal Portfolio: 31

4.2.1 Calculation Of (Ri-Rf)/Β And Ranking of Securities 31

4.2.2 Rearrangement of Securities According to The Rank: 33

4.2.3 Data Required for Calculation of Cut-Off Rate 35

4.2.4 Calculation of Cut-Off Rate (Ci) And Selection of 37

Scrips

4.2.5 Calculation of Proportion to Be Invested in Each 40

Security

4.2.6 Optimal Portfolio 42

 CONCLUSION 46
  BIBLIOGRAPHY

 ANNEXURE

LIST OF TABLES
Sr. Title Page No.
No.
1.1 3
1.2 3
1.3 4
1.4 7
1.5 8-10
1.6 11
1.7 12
1.8 15
2.1 24
 LIST OF FIGURES
Sr. Title Page No.
No.
1.1 5
1.2 10
1.3 11
1.4 25
1.5 71
1.6 72
1.7 73
1.8 74
2.1 24
 CHAPTER-1
INTRODUCTION TO
MUTUAL FUNDS
1.1 HISTROY OF MUTAUL FUNDS
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, through the growth was slow.
But it accelerated from the year 1987 when non-UTI players entered the industry.
In the past decade, indian mutual fund industry had seen a dramatic improvement both qualities
wise as well as quantity wise, before, the monopoly of the market had seen an ending phase;
the assets under management (AUM) was rs67 billion. The private sector entry to the fund
family raised the aum to rs.470 billion in march 1993 and till April 2004 ; it reached the
height if rs.1540 billion. The mutual fund industry is obviously growing at a tremendous space
with the mutual fund industry can be broadly put into four phases according to the development
of the sector. Each phase is briefly described as under.
First phase:

Unit trust of India (UTI) was established on 1963 by an act of parliament 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 from the 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.6700 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 setup by public sector
banks and life insurance corporation of india (LIC) and general insurances corporation of
india (GIC). SBI mutual fund was the first non-UTI mutual fund established in June 1987
followed by can bank mutual fund (Dec 87). Punjab national bank mutual fund (Aug. 89).
Indian bank mutual fund (nov 89). Bank of india (jun90), bank of Baroda mutual fund (oct
92), LIC established its mutual fund in June 1989 while GIC had setup 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)
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 governed. The erstwhile Kothari pioneer
(now merged with franklin Templeton) was the first private sector mutual fund registered in July
1993.
The 1993 SEBI regulations were substituted by a more comprehensive and revised mutual
fund regulation in 1996. As at the end of January 2003. There were 33 mutual funds with
total assets of Rs 1,21,805 Crores.
Fourth phase – (since February 2003 – april 2014)
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 schemes, assured return and certain other schemes.
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. Consolidation and growth. As at
the end of September, 2004. There were 29 funds, which manage assets of rs.153108 Crores
under 421 schemes.

Fifth phase – (since may 2014)

Taking cognizance of the lack of penetration of MFs, especially in tier ll and tier lll cities,
and the need for greater alignment of the interest of various stakeholders, SEBI introduced
several progressive measures in September 2012 to “re-energize” the indian mutual fund
industry and increase MFs penetration.
MF distributers have also had a major role in popularizing systematic investment plans (SIP)
over the years. In April 2016, the no. of SIP accounts has crossed 1 crore mark and as on 30 th
April, 2021 the total no. of SIP accounts are 3.80 crore.

1.2 Introduction Of Mutual funds

The global economic environment was conductive and this led to explosive growth of
mutual funds in most countries particularly since 1980‟s. this growth can be attributed to the
strong emergence of the market economy which depends more on the growth led by the stock
market. Mutual funds found increasing acceptance in the developed countries when compare
to the developing countries in the early and mid 90”s but gradually it found its place even in
the developing countries because of its advantages. Gradually in number of mutual funds
increased significantly worldwide and many developed countries started designing country
specific funds to match the trend prevailing in other developed countries.

1.3 Structure of mutual fund in india

The structure of mutual fund in india is a three-tier one that comes with other substantial
components. It is not only about varying AMCs or banks creating or floating a variety of
mutual fund schemes. However there are a few other players that play a major role into the
mutual fund structure. There are three distinct entities involved in the process- the sponsor
(who creates mutual fund), trustees and the asset management company (which oversees the
fund management). The structure of mutual funds has come into existence due to SEBI mutual
fund regulations, 1996 that plays the role of primary watchdog in all of the transactions. Under
these regulations, a mutual fund is created as public trust. We will look into the structure of
mutual funds in a detailed manner.
An overview

What is popular known as a mutual fund, in reality, a business type. In the mutual fund business,
there are almost 30-40 companies and firms that are reffered to as the fund houses.
These are registered and have got the allowance to operate mutual fund schemes through a
government regulatory body, known as the securities and exchange board of india (SEBI).
It is such schemes that are purchased and sold daily by investors, who are the common
people. Basically, it works as
Mutual fund > fund house > individual scheme > investors
 CHAPTER-2
THEORETICAL
FRAMEWORK
2.1 CONCEPT OF MUTUAL FUNDS

A mutual fund is an investment vehicle that pools money from many individual investors to
collectively invest in a diversified portfolio of assets, such as stocks, bonds, or other securities.
These funds are managed by professional fund managers or asset management companies, who
make investment decisions on behalf of all the investors, based on the fund’s objectives. Each
investor in the mutual fund holds shares that represent a portion of the fund’s holdings. Mutual
funds allow small and large investors alike to access a broad range of investments that would be
difficult to manage on their own, ensuring diversification. This diversification helps reduce risk,
as the fund spreads the investment across various asset classes.

The key advantage of mutual funds is that they are managed by professionals, which is
particularly helpful for those who don’t have the time or expertise to manage their own
investments. Mutual funds also offer liquidity, meaning investors can buy or sell shares of the
fund on any business day, making it easier to access their money. They come in various types,
including equity funds (investing primarily in stocks), bond funds (investing in fixed-income
securities), and money market funds (investing in short-term, low-risk investments). Investors
can also choose between actively managed funds, where fund managers make decisions to try
and beat the market, and passively managed funds, like index funds, which aim to replicate the
performance of a particular market index.

Despite their benefits, mutual funds also come with costs, such as management fees and other
associated expenses, which can vary depending on the type of fund. Additionally, while mutual
funds are generally considered a relatively low-risk investment option, the performance is still
subject to market fluctuations, and returns are not guaranteed.

2.2 CLASSIFICATION OF MUTUAL FUNDS

1. Equity Schemes

Invest primarily in stocks and shares of companies.

Offer higher returns but come with higher risk.

Suitable for long-term investors.

Examples: Large-cap funds, Mid-cap funds, Small-cap funds, Sectoral funds.

2. Debt Schemes

Invest in fixed-income securities like government bonds, corporate bonds, and treasury bills.

Lower risk compared to equity funds but provide stable returns.

Suitable for conservative investors or those looking for regular income.

Examples: Liquid funds, Gilt funds, Corporate bond funds.

3. Hybrid Schemes

A mix of equity and debt to balance risk and return.

Suitable for moderate-risk investors.

Examples: Balanced funds, Dynamic asset allocation funds.

4. Solution-Oriented Schemes

Designed for specific financial goals such as retirement or children's education.

Have a lock-in period to ensure disciplined investing.

Examples: Retirement funds, Children’s education funds.

5. Other Schemes

Include unique investment strategies like index funds, ETFs (Exchange Traded Funds), and Fund
of Funds (FoFs).

Index funds mimic a stock market index like Nifty 50 or S&P 500.

ETFs are traded on stock exchanges like individual stocks

2.3 Risks in Mutual Funds

Investing in mutual funds comes with various risks. Here are the main types:

1. Market Risk

The value of investments can fluctuate due to economic downturns, geopolitical events, or stock
market crashes.
Affects equity funds the most.

2. Credit Risk (Default Risk)

Common in debt funds, where the issuer of a bond may default on interest payments or
repayment.

High-risk bonds (low-rated) have higher credit risk.

3. Interest Rate Risk

Applies to debt mutual funds; bond prices fall when interest rates rise.

Long-term bonds are more affected by interest rate changes.

4. Liquidity Risk

Difficulty in selling mutual fund units when needed, especially in low-traded or sector-specific
funds.

Can result in forced selling at lower prices.

5. Inflation Risk

If inflation rises faster than returns, the real value of investments decreases.

Fixed-income funds are most vulnerable to inflation risk.

6. Currency Risk

Relevant for mutual funds investing in international assets.

Exchange rate fluctuations can impact returns.

7. Expense Ratio Risk

High management fees and expenses reduce overall returns.

Actively managed funds usually have higher expense ratios than passive funds like index funds.

How to Manage Mutual Fund Risks?

 Diversify across asset classes (equity, debt, gold).

 Invest with a long-term perspective.
 Choose funds based on risk appetite.
 Regularly review and rebalance the portfolio.

2.4 HOW TO INVEST IN MUTUAL FUNDS

1. Via Physical Mutual Fund Application Form

Visit a mutual fund house or an AMFI (Association of Mutual Funds in India) registered
distributor.

Fill out the application form and submit the necessary KYC documents (PAN card, Aadhaar,
bank details, etc.).

Choose the desired scheme and make the payment via cheque or demand draft.

2. Via Online Mode (Website of Mutual Fund)

Visit the official website of the mutual fund company.

Register by completing the KYC process.

Choose the fund, enter the investment amount, and make an online payment.

SIP (Systematic Investment Plan) or lump sum options are available.

3. Via Mobile App of Mutual Fund

Download the mutual fund’s official mobile app.

Register using mobile number, email, and KYC details.

Select a mutual fund scheme, make payments, and track investments easily.

4. Via AMFI Registered Mutual Fund Distributor

Investors can use AMFI-registered mutual fund distributors.

Distributors help in selecting suitable funds and managing transactions.

Investment can be done via physical forms, online portals, or mobile apps.

Key Requirement: KYC Registration

KYC (Know Your Customer) is mandatory for investing in mutual funds.

It can be done through KYC Registration Agencies (KRAs) regulated by SEBI.

Once KYC is completed, investors can invest in any mutual fund without repeating the process.

2.5 Advantages of Mutual Funds

Mutual funds offer several benefits to investors, making them a popular choice for wealth
creation and financial planning. Here are the key advantages:

1. Diversification

Mutual funds invest in a variety of assets (stocks, bonds, etc.), reducing the risk of loss from a
single investment.

Helps balance market fluctuations.

2. Professional Management

Experienced fund managers handle investment decisions.

They analyze market trends and adjust portfolios accordingly.

3. Liquidity
Mutual fund units can be bought or sold easily (except for closed-ended funds).

Investors can redeem their investments whenever needed.

4. Affordability & Accessibility

Investors can start with small amounts (as low as ₹500 in SIPs).

Suitable for beginners who want to invest in the stock market indirectly.

5. Systematic Investment & Withdrawal Options

Systematic Investment Plan (SIP): Allows investing small amounts regularly, reducing market
timing risk.

Systematic Withdrawal Plan (SWP): Provides regular income for retirees or those needing
periodic withdrawals.

6. Tax Benefits

Some mutual funds, like ELSS (Equity Linked Savings Scheme), offer tax deductions under
Section 80C of the Income Tax Act.

Long-term investments in equity funds may be taxed at lower rates compared to short-term
gains.

7. Transparency & Regulation

Mutual funds are regulated by SEBI (Securities and Exchange Board of India), ensuring investor
protection.

Regular updates on portfolio holdings and performance.

8. Automatic Reinvestment

Dividends and capital gains can be reinvested to maximize returns through compounding.

2.6 Disadvantages of Mutual Funds

While mutual funds offer several benefits, they also have some drawbacks. Here are the key
disadvantages:

1. Market Risk

Mutual funds are subject to market fluctuations, and returns are not guaranteed.

Equity funds are highly volatile, and even debt funds may be affected by interest rate changes.

2. Management Fees & Expense Ratio

Fund houses charge management fees, known as the expense ratio, which can reduce overall
returns.

Actively managed funds have higher costs than passive funds (e.g., index funds).

3. No Control Over Investments

Investors do not have direct control over stock selection or asset allocation.

The performance depends on the fund manager’s decisions.

4. Exit Load & Lock-in Period

Some funds charge an exit load (a fee for early withdrawal).

ELSS (Equity Linked Savings Scheme) has a 3-year lock-in period.

5. Taxation on Gains

Short-term capital gains (STCG) and long-term capital gains (LTCG) on mutual funds are
taxable.

Debt funds are taxed based on slab rates after indexation benefits were removed in 2023.

6. Over-Diversification Risk
While diversification reduces risk, too much diversification can lower potential returns.

Some funds invest in too many stocks, reducing the impact of high-performing assets.

7. Performance Variability

Past performance does not guarantee future results.

Some funds underperform even when the market is doing well.

2.7 Systematic investment plan

Introduction
A systematic investment plan (SIP) is good tool that retail investors can utilize to optimize
their investment strategy. SIP is nothing but a simple method of investing a fixed sum of
money in a specific investment scheme. On a regular basis, for a pre-determined period of
time. A recurring deposit with the post office or a recurring deposit with a bank also a SIP.
Systematic investment plan was already famous and proven in mutual fund context but now
SIP has also come directly into equity stocks which is essentially individual stocks. equity SIP is
anew facility through which you can buy a script for a regular interval over a period of time for
specified amount or for a specified quantity. Investing in mutual fund is not everybody‟s cup of
tea. Being dependent on factors such as a fluctuating stock market and risking your hard-earned
money for a measly profit does not really help. If you are a disciplined investor however, and
are interested in mutual funds, then the equity systematic investment plan (SIP) would work well
for you.

SIP requires you to invest a particular amount in a specific mutual fund scheme. In
comparison, it functions must like a recurring deposit. You can plan a savings scheme for
yourself and commit a particular sum of money each month on a pre-fixed date to the
scheme. You can begin with as low as Rs 500 in ELSS (equity linked saving schemes)
schemes and move on to Rs 1000 a month for other diversified schemes. SIP follows a simple
mantra – buy when high and sell when low. This is a simple way to win in the stock markets.

Howevwer, the market needs to be timed well and this will take some time to figure out for the
novice or busy player. That‟s where SIP with its monthly pay scheme comes into the picture.
Putting in a sum of money each month will ensure that you have something in when the
market is high, and when it is low securing your position in an unstable market.
Geojit BNP Paribas recently launched SIP for stock investment where in investors with a
regular monthly income can invest their monthly savings in stocks of their choice or a
basket of stocks. The service is a system driven and once the process is initiated, the investor
can enjoy the convenience of investing regularly into the selected stocks in a seamless manner.
Geojit BNP Paribas provides this service on the internet, which makes it easy for investors to
plan their savings and investments at regular intervals.
The discipline associated with investing strictly on a regular basis works much better that setting
aside lump sum each month. Since you begin at a relatively younger age, the benefits of
compounding are all yours. The convenience involved too is good, since you have to submit a
request for purchase of shares only once. SIPs work for investor in the slightly long run and are
useful to those who work on fixed budgets for the month, since the pre-planning helps. SIP is
very useful for a time horizon of 10-15 rears. An investor should carefully fix the amount to
be invested so that it does not impact his cash flows over this time horizon. SIP imparts
discipline to savings. On giving a post dated cheques or ECS instruction to any fund saving and
investing happens automatically.

WHAT IS SYSTEMATIC INVESTMENT PLAN

A systematic investment plan (SIP) is a vehicle offered by mutual funds to help investors
save regularly. It is just like a recurring deposit with the post office or bank where you put
in a small amount every month. The difference here is that the amount is invested in a mutual
fund.

Systematic investment plan (SIP) is a method of investing in mutual funds wherein an investor
chooses a mutual fund scheme and invests the fixed amount his choice at fixed intervals.

SIP investment plan is about investing a small amount over time rather than investing one-
time huge amount resulting in a higher return.
SIP mainly helps us to get addicted to an investment principle-
Income - savings = expenditure, instead of following the principle of-
Income – expenditure = savings.

SIP helps investors to overcome the problem of „when‟ to invest in the equity markets as
irrespective of the state of the market an investor is always invested. SIP takes away the
decision-making and converts it into a mechanized one. The lowering of risk, by entering at
different time periods, however has the disadvantage of “averaging” out returns.
A very important aspect to be kept in mind is the entry and exit load charged by all mutual
funds. In a normal investment most funds either charge entry load or exit load. But in a SIP
along with an entry load charged for each installment, an exit load is charged if the program
is withdrawn before a specified period. This period could vary from six months to two years.
this double whammy wil reduce the returns in the short term. This makes SIP an inflexible
investments program and expensive if withdrawn prematurely due to unforeseen emergencies.
Finally, when considering SIP, investors should note that it does not assure a return and
continue investing without intruption as missing a few installments could lead to
termination of the SIP. When an investor chooses to invest in mutual funds via an SIP, he makes
investments in smaller denominations at regular intervals of time rather than making a single
lump sum investment.
SIP allows you to invest a fixed amount regularly, so when funds NAV is more you get less
units and when funds NAV is higher you get less units, so over a longer time frame, SIP will
lower the average purchase cost of an investments.

As an investor, when you extend the investment period, you can earn profit on your current
profit, and accumulate more wealth. This reiterates the fact that investing fresh capital at
periodic intervals raises the accumulated investment.

Working of SIP
Let us take an example to understand how an SIP works. Suppose „X‟ decides to invest in
mutual fund through SIP. He commits making a monthly investments of Rs 1000 for a period
of twelve months (starting 1st January 2006) in a fund named „ABC‟. The payment can be
done by issuing twelve post-dated cheques of Rs 1000 each or through ECS facility (if
available).

DATE MONTHLY NAV NO.OF UNITS

INVESTMENT
1-January Rs 1000 46.29 21.603
1-Febrary Rs 1000 48.08 20.799
1-March Rs 1000 52.78 18.947
1-April Rs 1000 56.36 17.743
1-May Rs 1000 58.42 17.117
1-June Rs 1000 56.42 17.724
1-July Rs 1000 62.14 16.093
1-August Rs 1000 67.58 14.797
1-September Rs 1000 71.7 13.947
1-October Rs 1000 76.19 13.125
1-November Rs 1000 83.97 11.909
1-December Rs 1000 89.92 11.121

Brief summry

Monthly investment : 1000

Period of investment : 12 months

Total amount invested : Rs 12000

Total number of units credited to „X‟ : 194.925

Average cost/unit : Rs 61.5621
Note : entry and exit load are applicable while investing through SIP option also. However, in
this example, load has not been taken into consideration for the purpose of simplification.
Benefits to „X‟

Convenience and affordability because of an easy payment methoded payment every month.

Helps X to develop the habit of disciplined investing as he/she is compelled to fulfill his/her
commitment of making a fixed payment every month.

Rupee cost average benefit – by investing through SIP route, „X‟ receives 194.925 units at an
average cost of Rs 61.5621. however, had „X‟ invested the whole of Rs 12000 at one go, he
would have received a different number of units. Suppose „X‟ had invested Rs 12000 on:

1st jan 2006 – he would have received 259.24 units

1st july 2006 – he would have received 193.11 units

1st dec 2006 – he would have received 133.45 units

Since, it is not so simple for anybody to perfectly time the market; it makes a more sensible
approach to invest through SIP option (for long-term, say 3 to 5 years). It actually makes the
volatility in the stock markets work for investors. This example helps us to understand how
SIP allows „X‟ to take benefit of all the highs and lows of the market during this twelve
months time period.

Flexibility to redeem units at any time or making a change in the monthly investment amount.
Why systematic investment plan
SIP refers to systematic investment plan which is a mode of investment in equity in a
consistent way. Timing the market is noteasy; hence a systematic investment plan worksas
the best vehicle to ride through the market volatilities.
For instance- Rs 5000 saved and invested every month for a period of 20 years would grow to
Rs 30 lakhs at a conservative rate of 8% whereas a steady return of 15% through SIP can grow
upto 76 lakhs. SIP is an ideal way for retail investors to benefit from power of compounding and
create wealth long term.
SIP best works to achieve your medium and long term goals ; it may be building corpus for
child‟s education and child‟s marriage, planning for retirement, planning for home, buying a
car etc. all the goals can‟t be achieved from monthly earnings alone, one needs to build
corpus over a period of time. So the best way to realize that is systematic investment plan.
Small amounts saved and invested every month over a period of time can help create a large
corpus. In a rising market the amount invested will fetch lesser units while in a falling market
the same amount will get more units thereby providing the investor a low average cost per
unit. Consequently in prevents the investor from trying to time the market. The point we want
to drive home is that no matter the state of market, stick with SIP.
SIPs tend to underperform in a consistently rising market since the basic principle of a SIP is
cost averaging. If markets are consistently rising, you would end up investing at higher
markets and get lower number of units. So SIPs lose their edge if markets are not volatile and
there are no ups and downs since averaging concept will not work. So in nutshell, you don‟t
have to commit big amount in one go but small amount each month will just be perfect. Don‟t
worry about stopping and starting of SIP in rising or falling markets as this defeats purpose of
SIP. The whole point of SIP‟s is that market movement need not concern you at all.
It is important to understand that indian capital market is one of the most attractive in terms
of risk adjusted return in the world. Sensex has yielded an average compounded annual return
of 18-20 per cent over the last thirty years. To capture these attractive returns from the market,
one should start investing early in his/her career. SIP is a good tool to go about investing a
small amounts right from the beginning and reaping the reward at the end of your career. Young
people usually don‟t take interest in long term investments and tend to look for short term gains.
This often leads them to riskier investments and if the investments fail then they usually lose
faith in the very concept of invesments.

Starting early + investment regularly = wealth creation

Start early, be consistent, be patient – reap rich dividends in long run.

When to invest in SIP

SIP investment can be started anytime ensuring minimum risk with the correct suitable scheme
plan for the investor. It is very important for the investor to choose the scheme which suits his
long-term goals well. Hence, there is no suitable time frame within which an investor
should start a SIP investment paln, the sooner the better.