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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
TO EVALUATE WHETHER ONE TIME INVESTMENT OR
SYSTEMATIC INVESTMENT PLAN (SIP) WOULD GIVE HIGHER
RETURNS AND TO FIND OUT THE TOP FIVE SCHEMES ON THE
BASIS OF RETURN IN THE SAME – A CASE STUDY OF HDFC BANK
Shelly Singhal*
Manisha Goel**
ABSTRACT
Indian Mutual fund industry has witnessed a structural transformation during the past many
years. Systematic Investment Plans (SIP) is among the most successful financial innovations
grown at a fairly rapid pace in emerging markets and India is no exception to it. This paper
aims at evaluating the performance of SIP plans against one time investment. HDFC mutual
funds return has been compared with the HDFC SIP return for the past 10 year period from
April1, 2001 to Feb, 28,2011.For this purpose we have used annual returns based on
NAV(Net Asset Value).CRISIL has been used as a proxy for benchmark return, while annual
yields on 364-day Treasury bill as a surrogate for the Risk free rate of Return.The investment
performance has been measured in terms of Sharpe’s Ratio, Treynor’s Ratio and Jensen
Ratio. The Empirical result reported that SIP Plans has performed better than the one time
investment. After that, from the various SIP Plans available top five plans have been found
out by doing ranking of the Returns from the various kinds of SIP Plans.
Keywords: Mutual funds, SIP (Systematic Investment Plan), Net Asset Value
*Lecturer,Maharaja Agrasen Institute of Management and Technology, Jagadhri, Haryana,
India
**Maharaja Agrasen Institute of Management and Technology, Jagadhri, Haryana, India
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
INTRODUCTION
Stock selection is the nucleus of investment decision making as it determines the contour of risk
bearing & diversification. Generally, the investors get confused regarding the investment option
whether to go for one time or systematic mode of investing and they generally remain in a
dilemma of in which plan to invest in to get maximum returns. Hence the decision is to be taken
regarding which mode of investment should be adopted. This decision can be taken by
comparing the risk & return from each mode of investment. not only this, even when a particular
mode of investment is selected there still remains a confusion regarding in which plan the money
should be invested as there are a number of plans available with a mode of investment. So in this
study the researcher has tried to reveal ,out of SIP & One –Time Investment which option is
better taking the case of HDFC Bank.
The Systematic Investment Plan (SIP) is a simple and time honored investment strategy for
accumulation of wealth in a disciplined manner over long term period .In case of systematic
investment plan; a specific amount is invested at specific period of time so the average cost of
investment is reduced as the amount is invested. It can also be called as a Rupee cost averaging
formula Plan which is a passive Portfolio Revision Strategy.
Let us assume that an investor decides to buy approx Rs 1000 worth shares for four Quarters in
one Particular Year, ignoring the transaction costs and share price movements, the details are
given as under:-
Quarter Market
Price
Shares
Purchased
Rupee cost averaging
Cumulative
Investment
Market
Value
Rs.)
(in
Profit/loss
Average
cost
share
1 100 10 1000 1000 0 100 100
2 90 11 1990 1890 (100) 94.76 95
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per
Average
Market
price
per
share
3 100 10 2990 3100 110 96.45 96.67

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4 110 9 3980 4400 420 99.50 100
Source –Punitavathy & Pandian(SAPM)
In the above example, the stock price fell in the second quarter but recovered in the third quarter.
So the no. of shares purchased varies in each quarter.The investor was able to buy more stock in
second quarter instead of first quarter. In the second quarter, the average cost per share is lower
than the average market price per share. This is the benefit derived from SIP.
SELECTIVE REVIEW OF LITERATURE
Sen(2009) concluded that the average performance of sample mutual funds lagged behind the
average returns of the market proxy. The researcher found that the performance of mutual funds
in India support the Efficient Market Hypothesis and the fund managers do not make use of any
superior information for fund selection. Singh (2003) calculated that the salaried class people &
retired people give maximum weight to past record of the organization while business class
people give preference to liquidity position. As per scheme wise breakup, out of the total
schemes currently operative, income/debt schemes outnumbered the growth and balanced
schemes. Chander (2005) studied that Investment performance on the stock selection refers to
the managers’ ability to identify under or overvalued securities. The author examined the stock
selection abilities of investment managers’ in India across the fund features as well as the
persistence of such performance. Guha Deb (2008) find that Investment style of a fund refers to
the combination of long positions in passive indexes, which would have most closely replicated
the actual performance of a fund over a specified time period. The author finds that all domestic
asset classes have generated positive mean monthly returns with return and volatility increasing
commensurately. Sethu & Baid (2003) they concluded that the valuation of the networth of the
AMCs is influenced by the nature of the scheme and the growth rate in AUM envisaged. They
also find that the AMCs are not listed. Ansari (2007) concluded that the relation between the
fund size and the mutual fund performance has been an unsettled issue as the empirical studies
have reported mixed results. The study reveals a quadratic relationship between the size and
performance of mutual funds. Gupta (2004) found that sample funds are not adequately
diversified. . The author suggested that there is no conclusive evidence, which suggests that the
performance of mutual funds is superior to the market during the study period.
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
OBJECTIVES
The objectives of the study are:
To have a comparative analysis of return while investing in mutual funds via one time
investment and SIP as per Sharpe, Treynor & Jensen ratio
To find the top 5 schemes (SIP) as per Sharpe, Treynor & Jensen among all the options
available with special reference to HDFC Mutual Fund
Theoretical Framework
Construct: “To study which investment option whether SIP or One Time Investment, is a better
option
Variables: There are basically two types of Variables, as follows:
• Independent Variable
• Dependent Variable
The following are the variables of the study:
Independent Variable:
Market Rate of Return
Risk free Rate of Return
Benchmark i.e. CRISIL return
Dependent variable:
NAV of SIP Plan
NAV of On time Investment
Standard Deviation of SIP plan
Standard Deviation of One Time Investment
Moderating variable:
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
HDFC Mutual Funds
Research Design:
The purpose of this study is descriptive. A descriptive study is undertaken in order to be able to
describe the characteristics of variables of interest in a situation. In this type of research the
researcher has no control over the variables; he can only report what has happened or what is
happening.
Data & other sources
i) The sample
The researcher has used a sample of 24 funds of HDFC including SIP & One Time Investment
to study their performance. The choice of the sample is largely based on the availability of
necessary data. Annual return based on NAV ( Net Asset Value) have been used for
performance evaluation. The data regarding the sample funds used in the study has been taken
from the Monthly Factsheet available on the company website (www.hdfcbank.com)
ii) Period of study
The study period is the ten years period from April 1, 2001 to 28 feb, 2011. It is during this
period that a major structural change has taken place in the Indian Mutual Fund Industry. The
period is long enough to draw meaningful inferences.
iii) The Market Proxy
For evaluating the investment performance, it is necessary to choose a benchmark against
which the performance of sample fund is compared .The researcher has used CRISIL as a
benchmark as it is widely use index use by both practitioners and researchers.
iv) The Risk Free Proxy
The study has used the annual yields on 364-day Treasury bill as a surrogate for the Risk
free rate of Return.
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
v) Beta of the fund
The data regarding the Beta of the fund is taken from the Monthly Factsheet of the company.
Methodology
Performance Evaluation Measures
The researcher have utilized following measures to evaluate performance:-
a) Sharpe ratio
Sharpe (1966) devised an index of portfolio performance measure, referred to as reward to
variability ratio denoted by Sp. It measures the excess return per unit of total risk as measured by
standard deviation. The Sharpe ratio for different mutual funds, as well as benchmark portfolios,
has been computed by using the following equation:
Sp= Risk premium/Total Risk
= Rp-Rf
S.D. p
Where,
Sp=
Rp=
Rf=
Sharpe ratio
portfolio return
risk-free return
S.D.p= standard deviation of portfolio
The Sp for benchmark portfolio is Rm-Rf/S.D.m, where S.D. is the standard deviation of market
returns.
If Sp of the mutual fund scheme is greater than that of the market portfolio, the fund has
outperformed the market. Sharpe ratio is considered better as it considers the total risk.
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
b) Treynor Ratio
The Treynor reward to volatility ratio measures the excess return per unit of market
(systematic) risk. The Treynor ratio for the sample funds has been calculated as follow:-
Tp= risk premium
Systematic risk
= Rp-Rf/βp
Where,
Tp=Treynor ratio
Rp= return from portfolio
Rf= risk-free return
βp= Bata coefficient for portfolio
As the market Beta is 1, Treynor index Tp for market portfolio is (Rm-Rf) where Rm is the
market return.
If Tp of the mutual fund scheme is greater than (Rm-Rf), then the fund has outperformed the
market. The major limitation of the Treynor ratio is that it ignores the reward for
unsystematic risk.
c) Jensen ratio
This ratio attempts to measure the differential between the actual return earned on a portfolio
and the return expected from the portfolio given its level of risk.
The expected return of the portfolio is calculated as under:-
E (Rp) =Rf+βp (Rm-Rf)
Where,
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
E (Rp) = expected portfolio return
Rf= risk-free rate
Rm= return on market index
βp= systematic risk of the portfolio
the differential return is calculated as follow:
αp =Rp-E(Rp)
Where,
αp =Differential return earned
Rp= Actual return earned on the portfolio
E (Rp) = Expected return
If αp has a positive value, it indicates that the superior return has been earned due to superior
management skills.
When αp =0, it indicates neutral performance. It means that the portfolio manager has done
just as well as an unmanaged randomly selected portfolio with a buy and hold strategy.
RESULTS &DISCUSSION
Objective 1: To have a comparative analysis of return while investing in mutual funds via
one time investment and SIP as per Sharpe, Treynor & Jensen measure.
Comparison of return of schemes from SIP & one-Time investment as per Sharpe
Measure
Comparison of returns as per Sharpe measure
Scheme
R p (one
R p (SIP)
SD (one
SD (SIP)
One time
SIP
time)
time)
investment
Return(as
return(as
per
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
per sharpe) sharpe)
Tax Saver Fund 22.36 31.99 12.23 15.92 30.32 31.62
Equity Fund 22.17 28.64 11.73 15.49 21.88 28.26
Capital builder 14.66 20.36 10.14 14.49 14.08 19.95
fund
Growth Fund 24.74 26.57 11.85 13.59 21.67 26.14
Top 200 Fund 30.81 26.5 12.05 15.01 24.24 26.11
Risk- free return=5.82 (364 days t-bills yield 0n 28-02-11
(source:hdfcbank.com/monthlysheet)
35
30
25
20
15
10
5
SIP return
one time investment
return
0
tax saver
fund
equity
fund
capital
builder
fund
growth
fund
top 200
fund
Comparison of returns as per Sharpe measure
Interpretation
The result of graph shows that the return from the SIP is much higher than the return from one
time investment. So it is more beneficial to invest in SIP plans instead of one time investment.
Also there is no need to invest all the money in lump sum.
Comparison of return of schemes from SIP & one time investment as per Treynor Measure
Comparison of returns as per Treynor measure
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Scheme Beta R p (one R p (SIP) One time SIP Return
time)
investment
return
Tax Saver Fund 2.69 22.36 31.99 28.64 29.82
Equity Fund 2.69 22.17 28.64 20.19 26.47
Capital builder 2.69 14.66 20.36 12.49 18.19
fund
Growth Fund 2.69 24.74 26.57 20 24.40
Top 200 Fund 2.69 30.81 26.5 22.57 24.33
Risk- free return=5.82 (364 days t-bills yield 0n 28-02-11)
(source:hdfcbank.com/monthlysheet)
35
30
25
20
15
10
5
One time investment
SIP Return
0
Tax
Saver
Fund
Equity
Fund
Capital
builder
fund
Growth
Fund
Top 200
Fund
Comparison of returns as per Treynor measure
Interpretation
The result as per Treynor measure also shows that the return from SIP is much higher in
comparison to return from one time investment. It shows that SIP plans are more schemes
profitable in comparison to one time investment.
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
Comparison of return of schemes from SIP & one time investment as per Jensen Measure
Comparison of returns as per Jensen measure
Scheme Beta R m (One
R m (SIP)
One time
SIP Return
time )
investment
Return
Tax Saver Fund 2.69 22.36 31.99 73.04 76.21
Equity Fund 2.69 22.17 28.64 50.31 67.20
Growth Fund 2.69 14.66 20.36 49.80 61.63
Top 200 Fund 2.69 24.74 26.57 56.71 61.44
Capital builder Fund 2.69 30.81 26.5 29.59 44.93
Risk- free return=5.82 (364 days t-bills yield 0n 28-02-11)
(source:hdfcbank.com/monthlysheet)
90
80
70
60
50
40
30
20
one time investment
return
SIP Return
10
0
Tax
Saver
Fund
Equity
Fund
Growth
Fund
Top 200
Fund
Capital
builder
Fund
Comparison of returns as per Jensen measure
Interpretation : As per Jensen ratio also return from SIP plans is more than return from one
time investment. The result from all these shows that SIP plans are better than one time
investment schemes. SIP plans are beneficial over a long period of time.
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
Objective 2 To find the top 5 schemes (SIP) as per Sharpe, Treynor & Jensen among all the
options available with special reference to HDFC Mutual Fund
Table-32, Ranking of SIP schemes on the basis of Sharpe’s index
Scheme
Sharpe ratio
= Rp-Rf
S.D. p
Rank
Growth Fund 26.14 4
Equity Fund 28.26 2
Top 200 Fund 26.11 5
Capital Builder Fund 19.95 7
Multi Cap Fund 13.90 11
Core & Satellite Fund 16.89 9
Balance Fund 18.39 8
Prudence Fund 23.57 6
Children Gift Fund 16.88 10
Children Saving Plan 8.67 13
Long term Advantage Fund 27.17 3
Tax Saver Fund 31.62 1
MF MIP-Short Term 5.75 14
MF MIP- Long Term 10.80 12
Returns from top 5 SIP plans as per Sharpe measure
SIP Scheme
SIP Return
Tax Saver Fund 31.62
Equity Fund 28.26
Long term advantage fund 27.17
Growth Fund 26.14
Top 200 Fund 26.11
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
SIP Return
35
30
25
20
15
10
SIP Return
5
0
Tax Saver
Fund
Equity Fund Long term
advantage
fund
Growth
Fund
Top 200
Fund
Figure-Top 5 SIP plans as per Sharpe measure
Interpretation
As per Sharpe Ratio among SIP Plans Tax Saver Fund has shown the best result over time.
Performance of Equity Fund is also good.
Ranking of SIP schemes on the basis of Treynor’s index
Scheme Treynor Ratio = Rp-Rf/βp Rank
Growth Fund 24.40 4
Equity Fund 26.47 2
Top 200 Fund 24.33 5
Capital Builder Fund 18.19 7
Multi Cap Fund 12.09 11
Core & Satellite Fund 15.07 10
Balance Fund 16.80 8
Prudence Fund 21.85 6
Children Gift Fund 15.40 9
Children Saving Plan 8.10 13
Long term Advantage Fund 25.43 3
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
Tax Saver Fund 29.82 1
MF MIP-Short Term 4.86 14
MF MIP- Long Term 9.59 12
Return from Top 5 SIP plans as per Treynor measure
Scheme
SIP Return
Tax Saver Fund 29.82
Equity Fund 26.47
Long term advantage fund 25.43
Growth Fund 24.40
Top 200 Fund 24.33
SIP Return
35
30
25
20
15
10
SIP Return
5
0
Tax Saver
Fund
Equity Fund Long term
advantage
fund
Growth
Fund
Top 200
Fund
Interpretation
Figure- Return from Top 5 SIP plans as per Treynor measure
As per Treynor ratio Tax Saver Fund has shown the best performance. It is 29.82%.
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
Table-36 Ranking of SIP schemes on the basis of Jensen’s index
Scheme Jensen Ratio Rank
Growth Fund 61.63 4
Equity Fund 67.20 2
Top 200 Fund 61.44 5
Capital Builder Fund 44.93 7
Multi Cap Fund 28.52 11
Core & Satellite Fund 36.53 10
Balance Fund 41.19 8
Prudence Fund 54.77 6
Children Gift Fund 37.42 9
Children Saving Plan 17.79 13
Long term Advantage Fund 64.40 3
Tax Saver Fund 76.21 1
MF MIP-Short Term 9.07 14
MF MIP- Long Term 21.79 12
Return from Top 5 SIP plans as per Jensen measure
Scheme
SIP return
Tax Saver Fund 76.21
Equity Fund 67.20
Long term advantage fund 64.40
Growth Fund 61.63
Top 200 Fund 61.44
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
SIP return
90
80
70
60
50
40
30
20
10
0
SIP return
Tax Saver
Fund
Equity Fund Long term
advantage
fund
Growth
Fund
Top 200
Fund
Return from Top 5 SIP plans as per Jensen measure
Interpretation
As per Jensen ratio also Tax Saver Fund has shown the best performance. It is 76.21%.
The major findings of the study are as under:
Objective 1: To have a comparative analysis of return while investing in mutual funds via
one time investment and SIP as per Sharpe, Treynor & Jensen measure.
Findings
The comparative analysis of return as per Sharpe, Treynor & Jensen measure shows that
the return from the SIP is much better than the return from one time mode of investment.
under Taxsaver fund the return from SIP is 31.62% while under one time mode of
investment it is 30.32%.
Instead of return the amount needed to invest in SIP is also less, so it is profitable to
invest in SYSTEMATIC INVESTMENT PLANS.
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IJRFM Volume 1, Issue 3 (July, 2011) (ISSN 2231-5985)
Objective 2: To find the Top 5 schemes (SIP) as per Sharpe, Treynor & Jensen measure
among all the options available with special reference to HDFC Mutual Fund.
Findings
As per all the measures Tax saver fund has performed best among all the SIP plans.
Equity fund has been ranked as 2 while long term advantage fund, Growth fund & Top
200 fund has been ranked as 3, 4&5.
It shows that the results of all the schemes as per Sharpe, Treynor &Jensen measure are
same.
CONCLUSION
This paper has aimed at testing the performance of SIP Plans against one time investment. Using
HDFC bank SIP plans and one time investment plan as the sample and annual returns based on
NAV, the results indicated that the return from the SIP is much better than the return from one
time investment mode. In order to get better results from SIP these plans should be held for a
long period of time and the revision of plans to be included in portfolio is necessary so that the
results are better. In order to know about the profitability of various plans their comparative
study & corpus of fund should be studied as per various analytical measures. By studying the
corpus of a fund information regarding allocation of funds is known and accordingly the decision
to invest in a particular scheme can be taken. Overall, the results reported here are in consensus
with the ones reported earlier from the foreign markets.
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