Journal of Commerce & Management Thought

Vol. 6-3, 2015, pp 477-486

DOI : 10.5958/0976-478X.2015.00029.4

A Study On Customer’s Preference

While Investing In Systematic
Investment Plan
Laxman Prasad [Link]
Abstract
A Systematic Investment Plan (SIP) is the option available to both big and
small investors, to pick the best benefit from the investment market that
provides returns, liquidity, safety and tax benefit. Tax benefit is available to
the investor who can earn capital gains on Systematic Investment Plan. It is
a common pool of money into which investors place their investments that are
to be invested in accordance with a pre-stated objective. The funds collected
by the investors are invested by the fund manager to fulfil the pre-stated
objective. The fund manager invests this collected fund in debt, equity
according to the investment objective of that particular scheme.
Keywords: Systematic Investment Plan (SIP), Risk factors, Investors
services.
Introduction
In nation like India Systematic Investment Plan is constituted as a
‘Trust’ and the investor subscribes the ‘Units’ issued by the fund, hence the
term “Unit Trust” comes into the picture .Systematic Investment Plan forms
of a management investment company that combines the money of its
478 Journal of Commerce and Management Thought 6 - 3

shareholders and invests those funds in a wide variety of stocks, bonds, and
so-called money market instruments. The latter include short term investment
such as Govt Treasury bills and other Govt securities, commercial paper,
and bank certificate of deposits. Systematic Investment Plan provide the
investor with professional management of funds and diversification of
investment among the securities offered by leading companies, Central and
State governments, and other entities.
Objectives
The objectives of this study are as under:
• To study the awareness of customers about various investment options
available in market and to evaluate in terms of risk & return of different
investment option.
• To know the satisfaction level of investors towards the investment
options available in market and to identify the most popular investment
option.
• To know whether income level and education have any impact on
investment decision.
• To identify the features which attract, the investors to invest their money
in particular investment option.
Overview of Mutual Fund Business: Schemes, Services and Risk Factors
The Systematic Investment Plan (SIP) may take various forms and
offers through following schemes:
• Open Ended Scheme: These schemes have no specific closing date.
They are open for investment and exit in any time.
• Close Ended Scheme: These schemes are open for a specific period of
time. The scheme windup by repairing the money collected along with
gain, if any, to the investor.
• Money Market Funds: These schemes invest in the securities like
treasury bills, commercial paper issued by companies, certificates of
deposit issued by bank and in money market (inter market).
• Balanced Fund: These schemes invent both in equity and debt in a
variable ratio, which is generally 40 % in equity and 60 % in dept or
vice versa. The objective of this scheme is to provide
 A Study on Customer’s... 479

Some amount of appreciation from investment in equity and at the same

time income from investment in debt.
• Debt Income Fund: This scheme invests in debt instruments issued by
the government, banks, financial institution and companies. The
objective is to earn a well- mannered and Gilt fund regular income. In
this scheme investment is done in government securities, having
maturity nearly in one year.
• Index Fund: This scheme invests in companies, in which are list in
stock market index, in same proportion, as they constitute in the index.
• Sector Fund: These schemes invest in to a specific sector of market
such as FMCG sector, IT sector, PHARMA sector and COMMODITY
sector.
Transactions on a mutual fund account can be broadly classified as under:
480 Journal of Commerce and Management Thought 6 - 3

Systematic Investment Plan and Services

The term “investment plans” generally refers to the services that the
funds provided to the investor offering different to invest or reinvest. These
plans are an important consideration in the investment decision, because they
determine the flexibility available to the investor.
Automatic Reinvestment Plan
Many funds offer two options under the same schemes-the dividend
plan and the Growth option. The growth option or the automatic reinvestment
plan allows the investor to reinvest in additional units, the amount of
dividends or other distributions made by the funds, instead of receiving them
in cash.
Automatic Investment Plan
In this plan, the investor is required to invest a fixed sum periodically.
The mode of investment could be through direct debit to the investor’s salary
or bank account. Such plans are known as systematic investment plans.
Systematic Withdrawal Plan
Such plans allow the investor to make systematic withdrawals from the
fund investment account on a periodic basis, thereby providing the same
benefit as regular income. The investor must withdraw a specific minimum
with the facility to have withdrawal amounts sent to his residence by a
cheque or directly credited to his bank account. The amount withdrawn is
treated as redemption of units of the applicable NAV as specified in offer
document.
Systematic Transfer Plan
These plans allow the investor to transfer on a periodic basis a specified
amount from one scheme to another within the same fund family. A transfer
will be treated as redemption of units from the scheme and as investment in
units of the schemes into which the transfer is made. Such redemption or
investment will be at the applicable NAV for the respective schemes as
specified in offer document.
 A Study on Customer’s... 481

The Investor Services offered by the Mutual Funds under different plans
are as follows:
Phone Transaction
Investor may return or purchase units by calling a fund representative or
registrar or investor services enter. They may also telephonically modify
instruction regarding their automatic investment plan, transfer plan and so on.
Cheque Writing
Some open ended systematic investment plan allows the facility of
cheque writing by providing the investor with a cheque-book and treating his
fund account as equivalent of a bank saving account for this purpose. The
investor can issue cheques against his fund balance subject to maintaining a
minimum balance.
Periodic Statements & Tax Information
Some systematic investment plan issue one-time investment certificate
to the investors. While others issue fund account statements. Account
statements for each investor show units purchased, redeemed or transferred
between schemes, distributions and re-investments and the investor’s current
holding in units and in amounts. SEBI regulations require all funds to send
annual financial statements to unit holders within six months of the close of
the accounting year.
Loan against Units
Several banks lend to investors against mutual funds units held by them.
The amount of loan is usually a percentage of the value of the investor’s
holdings in units. Banks are usually inclined to sanction higher amounts
against holdings in liquid schemes.
Nomination by Unit-Holders
If an applicable for units is made in the name of a single holder, the unit
holder may subsequently nominate a successor to get the transferred in the
name of the nominee upon the death of the original holder.
Risk Factors
Risk is the second face of the coin, where the first is the profit .Everyone
wants to avoid or run away from it, but risk cannot be fully eliminated.
482 Journal of Commerce and Management Thought 6 - 3

However, the degree of risk could be minimized. Investing in systematic

investment plan is not without risk. All systematic investment plan carry
risks, but the degree of risk varies with the specific schemes and the risk
bearing capacity of the investor. While, some are standards risks, there are
some scheme specific risk factors.
Standard Risk Factor
systematic investment plan and securities investments are subject to
market risk and there is no assurance or guarantee that funds objective will
be achieved .The NAV of the units issued under the schemes can go up or
down depending upon the factors and forces affecting the capital markets.
Past performance of the sponsor / AMC /systematic investment plan does not
guarantee the future performance of the schemes of the systematic
investment plan.
Scheme Specific Risk
The schemes are mainly of three types viz. Equity, Debt & Gilt, each
having its own risk factors, which are detailed hereunder:
Equity Based
Generally sector funds are more aggressive, holding a smaller number
of stocks NAV fluctuates with the Sensex in the stock market. Economic
condition of the country affects the NAV such as, in the boom period, the
NAV will push up in the specific sector of the industry at a higher rate.
Debt Based: Interest Rate Risk
The risk refers to the changes in the market rates at interest which have
direct impact /effect on the debt instruments .The NAV move inversely with
the changes in interest rates.
Default Risk
Default risk is the risk of credit worthiness of the issuer of the debt.
Credit worthiness is the ability of the issuer to make the scheduled interest
payment.
 A Study on Customer’s... 483

Inflation Risk
When the rates of inflation rises, bond prices tend to fall because of
purchasing power of the coupon payments is reduced. To resist the inflation
risk, one should invest in bonds whose rate of return exceeds that of
anticipated inflation being uncertain in future, one should invest in floating
rates bonds, whose coupon rates are adjustable.
In an open ended fund, any disruption in the normal functioning of the
market of the market or extreme ill-liquidity in any of the debt instruments,
may affect the ability of the fund manager to buy or sell freely in the market.
Gilt Based
Gilt fund is prone to interest rate risks like any other debt instruments,
Changes in interest rates will affect the schemes NAV as the prices of
securities generally increase as interest rates decline and vice versa .The
systematic investment plan do not assure any monthly or quarterly dividend
distribution .All dividend distributions are subject to the investment
performance of the scheme. It is evident that the risk cannot be avoided and
not even with the most conservative investments, however, by diversification
certain level of risk can minimized. Fund managers manage the total risk by
understanding & recognizing the different levels of risk for each type of
investor. The risk hierarchy of mutual funds is shown graphically on the
following page. Types of products are further classified and shown on the
graph such as debt funds are classified in high yield debt fund, focused debt
funds & diversified debt funds etc.
Research Methodology
Research referred to a search for knowledge. It can also be defined as a
scientific systematic search for pertinent information on a specific topic. In
fact research is an art of scientific investigation. Research is thus an original
contribution to the existing stock of knowledge making for its advancement.
It is the pursuit of truth with the help of study, observation, comparison and
experiment. In short the search for knowledge through objective and
systematic method of finding solution to a problem is research. Thus
systematic approach concerning generalization and formulation of a theory is
also research. The research processes carried out according to the designed
series of steps which are required to be taken in the chronological order.
484 Journal of Commerce and Management Thought 6 - 3

For the purpose of this Research Design Study used is exploratory and
descriptive. The Research Instrument viz Questionnaire is chosen. A sample
plan consists of sample size of 100 respondents selected on the basis of
convenience sampling design. A sample unit includes middle income level
class, Professions, Business Class, High Class and Students. The sample
location is selected from Durg and Bhilai area. The measurement instrument
used is Likert’s Scale
Findings
• The number of people that make investment is 56%. 28% people are
investing in mutual fund, 39% investor invests in bank and 26%
investors invest in post office also. And very less in share market its
percentage is 7%.
• According to the survey maximum people invest their money in SBI(
State Bank of India) Mutual Fund because of Good returns and positive
image in the minds of customers regarding SBI. 47% of the people are
investing in Mutual Fund for 1-2 Years, 31% are from less than one year
and 22% are from more than two years.
• According to the survey 63% of the people are aware about the various
scheme offered by SBI Mutual Fund and 37% people are still unaware.
32% people are investing in Open ended fund, 19% people in Close
ended fund and 49% in both.43% people are invested in Equity
diversified, 27% in Sector fund, 19% in Balance fund and 11% people
in Money Market fund. From the above 69% of the people are aware
with risk factor associated with SBI mutual fund and 31% people are
unaware about it.
• More respondent invest Rs 5000-20000 in mutual fund, it is 37%.
Whereas 44% of respondents invest less than Rs 5000 and 19%
respondents invest more than Rs 20000. From the above, 59% of the
people are getting good returns in SBI mutual fund and remaining 41%
people want to move anywhere else rather than opting SBI.
• According to the survey, majority of the people (38%) come to know
about mutual fund from Brokers, (43%) from Relatives/Friends, (19%)
from News Paper.
• From the 30 people not a single person are facing problem with their
 A Study on Customer’s... 485

mutual fund. The people are partly satisfied with their investment those
who get appreciation of fund and others want to shift other mutual fund.
Recommendations
1. Many of the people are still want to know more about the concept of
mutual fund. Thus there arise need to provide more information to the
people about the concept of mutual fund.
2. Mutual fund schemes should have perfect blend of safety, Returns, Tax
benefit if people observing the market properly otherwise it is too risky.
3. Brokers are the most important link in channel of distribution with
respect to mutual fund industry and can influence the people to invest in
Mutual Funds. Therefore the fund houses should do their best to inspire
and motivate the broker by providing them good incentives.
4. Rather than blind faith of broker its investors liability to search and
investigate while investment and try to cross check the information
provided by broker with the help of facilities provided by companies.
Conclusions
In this paper an attempt has been made to study the mutual funds
business and to go for the analysis of investor behaviour. The analysis is done
on the basis of primary and secondary data and thus increasing the
authenticity of the result obtained. According to the analysis , both the
primary and secondary data reflects that SBI Mutual fund is not the only most
promising fund among the mutual funds. The people who invest in SBI
mutual funds are not fully satisfied with their investment.
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486 Journal of Commerce and Management Thought 6 - 3

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14. Dr Joity Tomar, Nisar A Khan, 2014 , Problems and prospects of Mutual Funds in
India , Journal of Commerce & Management Thought , Vol V, No 3, July 2014

The Authors
Laxman Prasad is Assistant Professor in St. Thomas College, Bhilai
[Link] is Principal, Govt. College Gurur (Balod) and Dean of Pt. R. S.
University, Raipur
Email: [Link]@[Link] • Recieved on: 17, May.2015
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