A COMPARATIVE STUDY ON DIRECT EQUITY INVESTING AND

MUTUAL FUND INVESTING

INTRODUCTION

Geojit BNP Paribas, today, is a leading retail financial services company in

India with a growing presence in the Middle East. The company rides on its

rich experience in the capital market to offer its clients a wide portfolio of

savings and investment solutions. The gamut of value-added products and

services offered ranges from equities and derivatives to Mutual Funds, Life &

General Insurance and third party Fixed Deposits. The needs of over 710,000

clients are met via multichannel services - a countrywide network of over 486

offices, phone service, dedicated Customer Care Centre and the Internet.

PRODUCTS & SERVICES OF GEOJIT BNP PARIBAS Derivatives Currency futures Equities Mutual fund distribution Life insurance, general insurance & IPO PMS Property services Margin funding 3 in 1 account

THE EQUITY CAPITAL

Investors owning equity shares of a company are owners of the company.

They are issued equity shares of the company, as evidence of such ownership.

Equity investors are not entitled to any fixed return or repayment of capital.

However, they are entitled to the benefits that arise out of the performance of

the company. If the business fails, they may lose the entire investment. Of all

the financiers, they take the most risk.

Total equity capital of a company is divided into equal units of small

denominations, each called a share.

MUTUAL FUND

A mutual fund is a professionally managed type of collective investment

scheme that pools money from many investors and invests it in stocks,

bonds, short-term money market instruments and other securities.

Mutual funds have a fund manager who invests the money on behalf of the

investors by buying / selling stocks, bonds etc.

Currently, the worldwide value of all mutual funds totals more than $US 26

trillion.

RESEARCH METHODOLOGY Aim: This study aims at creating awareness in the minds of investor in terms of

risk, return, liquidity & marketability of their investments. Also focuses on which would be the better investment for an individual investor.

Objectives: To compare Equity and Mutual Fund Schemes in respect of their risk &

return. Analysing the performance of equity shares and mutual fund schemes with

their benchmark NSE CNX Nifty. Finding the performance by taking the quarterly average of 10 years. Provide information about pros and cons of investing in Equity and Mutual

Funds

Scope of the study:

The study is primarily deals with equity and mutual fund investments. The

study covers 10 randomly selected stocks out of 50 NSE CNX NIFTY

companies and 10 randomly selected mutual fund schemes out of mutual

fund industry in India for comparison. The analysis is strictly based on

share prices and Net asset values of the mutual funds which will help an

investor to identify better investment avenues from the market. The study

goes through a period in which the market has shown booms, depression,

and consistent performance.

Research Methodology:

Sampling technique: - Since the population is heterogeneous stratified

random sampling were taken

Sample size: - Ten companies and ten mutual fund scheme were selected.

Sample description: - In this study 10 companies have been selected from

NSE CNX Nifty and 10 mutual funds selected on the basis of their Net

Asset Value and after that comparison made between them, using their

benchmark.

Data collection methods:

The entire date were collected from the secondary source. Internet is

main source of secondary sources of date collection used. Magazines,

Newspapers and Journals were also used for collecting data.

Analysis and Interpretations:

The analysis and interpretation has been made with the help of graphs

and percentage of returns of securities. Microsoft Excel 2013 is the

software used for this purpose.

Limitations of the study:

The sample size is limited by 10 each on equity shares and mutual funds

The benchmark for equity shares and mutual funds is NSE CNX NIFTY, other benchmarks for securities may have shown good or bad performance.

The data was collected from the time horizon of 10 financial years starting from April 2004 to March 2014.

The comparison here made strictly on price of equity shares and NAV of mutual funds, the study hasn’t gone deep into other factors.

The data has been collected from secondary sources only, relevance of information may not fully trustworthy.

ANALYSIS AND INTERPRETATION Benchmark:

NSE CNX NIFTY

FY POINT(Avg) %RETURN % RETURN(YoY)

2004-05 1841.81 0% 0%

2005-06 2765.28 50% 50%

2006-07 3626.14 97% 31%

2007-08 5053.19 174% 39%

2008-09 3485.46 89% -31%

2009-10 4956.30 169% 42%

2010-11 5827.68 216% 18%

2011-12 5127.63 178% -12%

2012-13 5642.46 206% 10%

2013-14 6146.43 234% 9%

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-140.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

7000.00

-50%

0%

50%

100%

150%

200%

250%

NSE CNX NIFTY

POINT(Avg) %RETURN % RETURN(YoY)

EQUITY SHARES 1. Hindustan Unilever limited

2. Larsen & Toubro Ltd.

3. Bharat Petroleum Corporation Limited

4. Infosys Ltd.

5. Dr. Reddy's Laboratories Ltd.

6. State Bank of India

7. Tata Steel Ltd.

8. Maruti Suzuki India Ltd.

9. Bharat Heavy Electricals Limited

10. Bharti Airtel Ltd.

MUTUAL FUNDS 1. Birla sun life equity fund-regular plan-growth

2. Reliance growth fund-regular plan-growth

3. ICICI prudential top 200 fund-regular plan-growth

4. Tata pure equity fund-regular plan-growth

5. SBI magnum equity fund-regular plan-growth

6. Canara Robeco equity diversified fund-regular plan-growth

7. HDFC top 200 fund-regular plan-growth

8. Franklin India prima fund-regular plan-growth

9. UTI equity fund-regular plan-growth

10. Sundaram growth fund-regular plan-growth

COMPARATIVE ANALYSIS AND INTERPRETATION One of the main advantage of investing directly into equity stocks is that,

huge fluctuations will affect 100% positively or negatively to investors. Wherein such a huge fluctuations will balanced in mutual funds, as mutual funds has a bunch of equity stocks in its portfolio. Thus investing in mutual funds are less risky than direct equity investing.

Here 2 of the companies – State bank of India and Bharti airtel limited has given returns to long term investors in 400s percent. The mutual funds has not given such huge returns. As the graphs and tables shows that the price of direct investing in equity stocks is too high than the NAV of mutual funds, which is not affordable for investors with small amount of money.

One of the main advantage of mutual fund is that diversification, if an investor has got lessor money, as he buys mutual fund units, his/her money is investing in diversified manner. In a mutual fund industry the portfolio is managed by the fund manager and his team. But in a direct investing method his/her portfolio has to manage by the investors himself.

All is about the investor’s preference, some investors find satisfaction in managing his funds in portfolio. An investor can’t order the fund manager to buy stocks of his preference in a mutual fund investing.

The main 3 things every investor has to bear in mind before going to invest directly are:

1. The time of entry,

2. Choosing a company, and

3. Time of exit.

But it is not so important when an investor invest in a mutual funds, because the fund’s fund manager will take care of these things. Only one thing the investor has to bear in mind which is choosing a scheme from the bunch of schemes of the AMCs. If an investor is investing through a distributor, he will help the investor to choose a better funds which suit with the investors financial goals.

About the huge fluctuation in equity shares, few of the main examples of stock which had fluctuate more for the past 10 years are:

Suzlon Energy – low: ₹ 5.72 (mid 2013) & high: ₹ 460(early 2008)

Adani Enterprises – low: ₹ 5(mid 2001) & high: ₹ 785.25(late 2011)

Reliance Communications – low: ₹ 46.50(mid 2012) & high: ₹ 844(early 2008)

Wockhardt Pharma – low: ₹ 67.50(early 2009) & high: ₹ 2166.05(early 2013)

CONCLUSION AND RECOMMENDATIONS Conclusion For a start-up investor mutual fund investment method is more favourable

and affordable, as risk is low compared to direct investing.

For an investor with lessor money, he/she should go for mutual fund investing as NAV is lower than the price of a stock.

If an investor wants to make profits out of speculation then he should choose direct investing in equity shares.

Investing in direct equities makes an investor to study more about the company, the financial market, and the economy.

People need a systematic way of investing should go for mutual fund investing.

Investing with a fixed income strategy, should choose mutual fund as an investment choice.

Short term as well as medium term investors should choose direct equity investing as an investment choice.

Mutual fund investing is termed as a long term horizon of getting a good return, as the fund is going in a systematic way.

If an investor has got time in making a market study and managing his/her portfolio, should invest in equity shares directly, otherwise go for mutual fund investing.

If an investor like in buying and selling stocks, managing the stocks in his portfolio should choose direct investing in equity stocks.

Recommendations

Direct investing in equity shares is the best way to learn about stock market and economy of a nation.

If you really enjoy in managing the portfolio, should choose direct investing.

If you don’t know anything about stock market, just getting an income is your concern, you should choose a mutual fund scheme.

Make a good study before choosing an investment option.

Be aware that investing in any securities whether direct investing or mutual fund investing, involves a certain risk. Analysis the risk with the financial backups and then choose an investment option.

THANK YOUBY,

MR. AKASH JEEVAN

BBA+GDBA(2013-2016)

AGBS, COCHIN