Investment Plans in India

8/10/2019 Investment Plans in India

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JAIPURIA INSTITUTE OF MANAGEMENT,LUCKNOW

MUTUAL FUND INVESTMENT ROUTE IS SAFERWAY OF INVESTMENT IN EQUITY SHARESTHAN DIRECT INVESTMENT IN STOCK

MARKET FOR RETAIL INVESTOR. F.M.S. PROJECTTO, Mr.P.K.SRIVASTAVA

12/19/2013

REPORT BY GROUP 1-

PRAKRITI FS40

PANKAJ KUMAR SINGH FS34

PARITOSH SINGH FS35

ROMANSHU VARSHNEY FS64

RAJNEESH SHARMA FS44


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Table of ContentsACKNOWLEDGEMENT ................................................................................................................................... 4

A. MEANING ............................................................................................................................................ 5

B. HERE ARE SOME OF THE ADVANTAGES WHICH MUTUALFUNDS PROVIDES ITSINVESTORS VIS--VIS THE DIRECT ROUTE TO EQUITY INVESTMENTS: ................................. 5

I. Diversification ................................................................................................................................... 5

II. Professional Management ................................................................................................................. 6

III. Lower Entry Level ........................................................................................................................ 6

IV. Economies Of Scale ...................................................................................................................... 6

V. Innovative Plans For Unit-Holders ................................................................................................... 6

VI. Liquidity ........................................................................................................................................ 7

VII. Minimizes Loss ............................................................................................................................. 7

C. INVESTING IN EQUITIES HAS A RISK-REWARD ASSOCIATION WITH IT. ................................................ 7

D. CONSIDERATION FOR INVESTMENT IN EQUITIES: .................................................................. 8

Determine Your Risk Taking Capacity: ............................................................................................ 8

Align Investments To Overall Financial Plan: .................................................................................. 8

E. DIRECT INVESTMENT VERSUS INVESTMENTS THROUGH MUTUAL FUNDS .................. 9

F. COMPARISION OF TOP THREE MUTUAL FUND OF DIFFERENT EQUITY SECTORS VS DIRECT EQUITYINVESTMENT. ................................................................................................................................................ 9

1) Fund Name- ICICI Prudential Mutual Fund ................................................................................... 9

2) Fund Name- Birla Sun Life Mutual Fund .................................................................................... 12

3) Fund Family- UTI Mutual Fund .................................................................................................... 14

G. CONCLUSION: ...................................................................................................................................... 17


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TABLE OF TABLETable 1 ......................................................................................................................................................... 10Table 2 ......................................................................................................................................................... 12Table 3 ......................................................................................................................................................... 15


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TABLE OF FIGUREFigure 1 ....................................................................................................................................................... 10Figure 2 ....................................................................................................................................................... 11Figure 3 ....................................................................................................................................................... 11

Figure 4 ....................................................................................................................................................... 12Figure 5 ....................................................................................................................................................... 13Figure 6 ....................................................................................................................................................... 14Figure 7 ....................................................................................................................................................... 15Figure 8 ....................................................................................................................................................... 16Figure 9 ....................................................................................................................................................... 16


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ACKNOWLEDGEMENT We would like to express our special thanks of

gratitude to my sir Mr.P.K.SRIVASTAVA who gaveus the golden opportunity to do this wonderful project on the topic Mutual Fund Investment RouteIs Safer Way of Investment in Equity Shares thanDirect Investment in Stock Market for Retail Investor.Elaborate By Studying The Performance Of Top 3Equity Mutual funds Over The Last 3 Year PeriodVis-A-Vis Performance Of Stock Market IndexDuring The Same Period which also helped us indoing a lot of research and we come to know aboutso many new things. I am really thankful to you.

We are making this project not only for marks butalso to increase our knowledge

Thanking you.


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A. MEANINGMutual funds are investment vehicles that pool money from many differeninvestors to increase their buying power and diversify their holdings. Thiallows investors to add a substantial number of securities to their portfolio for much lower price than purchasing each security individually.

A mutual fund is set up in the form of a trust that has a Sponsor, Trustees, AsseManagement Company (AMC). The trust is established by a sponsor(s) who is lika promoter of a company and the said Trust is registered with Securities anExchange Board of India (SEBI) as a Mutual Fund. The Trustees of the mutuafund hold its property for the benefit of unit holders. An Asset ManagemenCompany (AMC) approved by SEBI manages the fund by making investments

various types of securities.The trustees are vested with the power of superintendence and direction over thAMC. They monitor the performance and compliance of SEBI regulations by thmutual fund. The trustees are vested with the general power of superintendencand direction over AMC. They manage the performance and compliance of SEBRegulations by the mutual fund.

B. HERE ARE SOME OF THE ADVANTAGESWHICH MUTUALFUNDS PROVIDES ITSINVESTORS VIS--VIS THE DIRECTROUTE TO EQUITY INVESTMENTS:

I. Diversification Investing in stocks directly has one serious drawback - lack ofdiversification. By putting all money in just a few stocks, the investor

subjects himself to considerable risk should even one of those stocksdecline.On the other hand, a mutual fund scheme by investing in several stocks triesto overcome the risk of investing in just 3-4 stocks. By holding say 20 to 30stocks, the fund avoids the danger that one rotten apple will spoil the whole portfolio. Mutual fund schemes own a couple of dozen to more than ahundred stocks in their portfolio. A diversified portfolio can generally
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hold its downside even if a few stocks fall dramatically. This helps incontaining the overall risks.

II. Professional Management No matter how sound an investment sense a stock investor may have, soonethan later he will realize that active portfolio management requiresconsiderably more skill, not to mention a lot of time too. There is an oceanof a difference between part-time stock-picking and full-time fundmanagement. Now compare this to mutual fund investing; the mutual fund investor doesnot have to track the prospects and potential of companies in the portfolio. Mutual funds are managed by skilled professionals whocontinuously monitor these companies and take decisions on whether to buysell or hold a particular stock in the portfolio.

III. Lower Entry Level There are few quality stocks today an investor can enter into, with just Rs3,000 Rs 5,000. Investing in stocks can be an expensive affair. Sometimeswith as much as Rs 5,000 an investor can buy just a single stock.The minimum investment in a mutual fund may be as low as Rs 500. Thisimplies that with just Rs 500, a mutual fund investor can take exposure in afund portfolio of 20-30 stocks. The entry barrier in mutual funds is low so ato encourage investor participation.

IV. Economies Of ScaleBy buying a handful of stocks the stock investor loses out on economies ofscale. This tends to pull down the profitability of the portfolio. If the investo buys/sells actively, the impact on profitability would be that much higherdue to the various charges involved.Due to frequent purchases/sales, mutual funds incur proportionately lowertrading costs than individuals. Lower costs translate into significantly betterinvestment performance and returns to the investors.

V. Innovative Plans For Unit-HoldersBy investing in the stock market directly, the investor deprives himself ofvarious innovative plans that are offered by fund houses. Fund houses offerautomatic re-investment plans; systematic investment plans (SIPs), systematic withdrawal plans, asset allocation plans, triggers, etc. These
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features allow investors to enter/exit or switch from funds seamlessly and onthe whole facilitate investment ease significantly. This is something theinvestor can never duplicate individually.

VI. Liquidity A stock investor may not always find the liquidity in a stock to his liking.There could be days when the stock is hitting the up / down circuit and buying/selling is curtailed. This does not allow him to enter / exit a stock.

Such liquidity problems are not confronted by a mutual fundinvestor.Sometimes a mutual fund may be more liquid than other investmenavenues. For instance, there are days when there are no buyers or sellers foran individual stock. But an open-ended fund can be bought / sold at thatday's NAV by simply approaching the fund house or its registrar or a

distributor.VII. Minimizes Loss Investing in mutual funds assures more safety of investment than investingdirectly in stocks. A company may shut shop or may go bankrupt andaccording to the law, the equity shareholders are paid last, after paying alldues to the creditors of the company.A mutual fund may lose money, but may not go down as easily as acompany. The legal structure and stringent regulations that bind a mutualfund safeguard a unit-holder's interests far better. As highlighted above,

investing in mutual funds has some unique benefits that the direct stockinvestor would find it difficult to duplicate. By no means are we are statingthat mutual fund investing is a sure-shot way of logging growth. This can bedone even by investing directly in stocks. However, mutual funds offer theinvestor a relatively safer and surer way of picking growth minus the hassleand stress that has become synonymous with stocks over the years.

C. INVESTING IN EQUITIES HAS A RISK-REWARD ASSOCIATION WITH IT.

Before we take the plunge, here are a few things you need to remember:

Investing in equities is highly risky, but at the same time, can get youattractive returns over the long term. Direct investment in equities is possibl by purchasing shares of companies listed on stock exchanges. You can also
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enter equities by investing in mutual funds, getting into portfoliomanagement schemes or playing through the derivatives market by takingexposure to futures, options and structured products. With such a plethora ooptions available, it is sometimes confusing as to what is the best mode ofentering the equity markets.

The mode of investing in equities depends on your risk tolerance and riskaptitude, in addition to your goals and financial situation. Those with highrisk appetite would wish to invest directly in stocks or take an exposure toderivative products. In these methods, although the returns would be high,the risk is also very high, which may sometimes result in erosion of yourinvestment.

The risk-averse would prefer to enter equities by investing through mutual

funds. Here, although mutual funds mirror the stockmarket performance,you may get slightly lower returns than if you would have invested directlyin high-return stocks.

As a long-term strategy, it is best to invest in mutual funds, especially if youdo not have the time and knowledge for direct stockmarket investing.

D. CONSIDERATION FOR INVESTMENT IN

EQUITIES:Here are a few things you must consider when you invest in equities: Determine Your Risk Taking Capacity:

As mentioned earlier, equity investments come with high risks. You maysometimes even lose out on your initial investment amount. Hence, you must thinof getting into equities only if you are comfortable with the volatility associatedwith stock markets, especially over the short term. Equity exposure should be based on your goals, age and risk profile.

Align Investments To Overall Financial Plan:The objective and duration of your investment are important determining factors.Your investments should be aligned to your financial goals. Equity mutual fundsare best suited for long-term goals, with duration of over five years.


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E. DIRECT INVESTMENT VERSUSINVESTMENTS THROUGH MUTUALFUNDS

Under RGESS there is a limited flexibility in terms of investment. As per RGESSinvestments made in shares which are part of BSE-100 or CNX 100 index are onleligible. Additionally listed shares of Navratna, Maharatna and Miniratna public-sector undertakings, and initial public offers (IPO) of PSUs, whose turnover ismore than Rs 4,000 crores, are also eligible for investment. If you decide to investhrough mutual funds, you end up paying costs which depend upon the slab andcan go as high as 3% of the corpus. This is definitely higher than the investmentexpense that you will end up incurring. With brokerage charges nose-diving, thecost of charges will be less than 3% for you. Additionally since the mutual fundscan invest in limited stocks, benefits arising from skills that mutual funds have wiget diluted. In the earlier version of equity linked tax savings scheme i.e. ELSS,mutual funds could not perform exceptionally well. Since mutual funds willredeem RGESS scheme after 3 years, there is limited time available to mutualfunds to perform, while as an individual investor you can stock for longer period ithe investment. Mutual funds offer one advantage over direct investment sincemutual funds are allowed to churn portfolio which individual investors are not

allowed for a year under RGESS. Of course, other conventional advantages ofinvestment through mutual fund stay. Since investors in RGESS will be first timeinvestors, it will be better to start investments through mutual funds in spite of allshortcomings that mutual funds have.

F. COMPARISION OF TOP THREE MUTUAL FUNDOF DIFFERENTEQUITY SECTORS VS DIRECT

EQUITY INVESTMENT.

1) Fund Name- ICICI Prudential Mutual FundFund Class- Large Cap


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Comparison of return of this fund and Nifty over 5 years

Figure 1 Fund Return over five years

Table 1

1 year (%) 2 year (%) 3 year (%) 5 year (%)12.3 19.8 7.3 20.3

Comparison of return of this MF with some of its holding


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Bharti Airtel return over 5 years

Figure 2 Price on 13th of April 2009 is 337

Price on 6th of December 2013 is 331

So its return over 5 years of Airtel is -1.8%

Reliance Industries return over 5 years



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So its return over 5 years is 2.87%

Here return of Large cap equity mutual fund is 20% over five years butstocks have given poor return over 5 years of span.

2) Fund Name- Birla Sun Life Mutual FundFund Class- Small & Mid Cap



Table 2




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Jain Irrigation Systems return over 5 years

Figure 5 Price on 4th of February 2009 is 65




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Fulford (India) returns over 5 years




Here return of mid and Small cap equity mutual fund is 28% over fiveyears but some stocks have given poor return while some have givengood return over 5 years of span.

3) Fund Family- UTI Mutual FundFUND CLASS Diversified Equity



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Table 3




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Ashok Leyland returns over 5 years

Figure 8 Price on 8th April 2009 is 10

Price on 10th December is 16

So return of this stock is 6%

Suzlon Energy return over 5 years

Figure 9


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Price on 17th April 2009 is 58.

Price on 13th December 2013 is 9.

So return of this stock is -84%.

Here return of Diversified equity mutual fund is 25% over five years but stockshave given poor return over 5 years of span.

G. CONCLUSION: Investments may be in direct equities or mutual funds require a lot of time andenergy. Each approach has its own advantages and disadvantages. Direct equity

investing is considered more dynamic by the investor community and thus, thosewho can keep a continuous tab on the equity markets prefer the direct equity routas it gives them much needed zing and excitement. However, the dynamism in thedirect equity investment comes with risk. Hence, only those investors who are ablto understand the nitty-gritty of the equity markets and who are able to devote timand energy can adopt this route to equity

But not all investors are same in their intelligence and understanding levels. Andeven if someone has the ability to understand the direct equity route, he or she

lacks the time to devote to such investment activity and thus prefer taking theindirect route to equity investments which is mutual funds. Mutual funds providethe much needed ease while investing in the equity asset class.

As its shown above that how equity mutual funds of different categories

like large cap, mid cap, small cap and diversified have given average return ofalmost 23% over 5 years of span and on the other hand some stocks those mutualfund have given return of less than 10% over five years or even some have given

negative returns also.So this shows that how risky it could be investing in individual stocks incomparison to investing through mutual fund.

Though mutual funds havent given much return over 3 years of span but they haveoutperformed market over 5 years of span.


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So according to me an individual should firstly decide the purpose of his or herinvestment than they should select investment plan according to it like if they wanto go for short term investment of 1 or 2 years than they should go for some debtinstrument or if they have long horizon for investment and they are looking toinvest in equity market than rather than investing directly in some selected equitiethey should go for some top mutual fund schemes as investing directly in stockinvolves high risk and one may lose his or her money or may get small return andif they will choose the mutual fund scheme than they may get high return over fivyears of span.

As return of some stocks have outperformed badly the return of the mutual fundschemes like some have given return of 400% to 500% but investor cannot bealways sure that will get opportunity to pick such stocks as some have givennegative return to. So to be on safe side and one should intelligently go for mutuafund scheme.


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REFERENCES

www.moneycontrol.com

www.rbi.co

www.businesstimes.com

www.economicstimes.com
http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.rbi.co/http://www.rbi.co/http://www.businesstimes.com/http://www.businesstimes.com/http://www.economicstimes.com/http://www.economicstimes.com/http://www.economicstimes.com/http://www.businesstimes.com/http://www.rbi.co/http://www.moneycontrol.com/

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