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LAKSHYA INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT STUDIES 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] May 2016, Volume 1, Issue 2 ISSN: 2456-2823 “Comparative Analysis of Blue Chip Fund- Direct Plan: Growth v/s Dividend (with specific reference to SBI Mutual Funds)” Saurabh Agarwal1 1 Assistant Professor, Poddar International College, Jaipur Introduction: State Bank of India State Bank of India (SBI) is an Indian multinational, public sector banking and financial services company. It is a government-owned corporation with its headquarters in Mumbai, Maharashtra. As of 2014-15, it had assets of INR 20,480 billion and more than 14,000 branches, including 191 foreign offices spread across 36 countries, making it the largest banking and financial services company in India by assets. The company is ranked 232nd on the Fortune Global 500 list of the world's biggest corporations as of 2016. SBI Mutual Fund SBI Mutual Fund’s corporate headquarters in Mumbai, India. It is a joint venture between the State Bank of India, an Indian multinational, Public Sector banking and financial services company and Amundi, a European asset management company. SBI Mutual Fund offers mutual fund schemes such as Debt Schemes, Equity Schemes, Hybrid Schemes, Exchange-traded fund, Liquid Schemes and Fixed Maturity Plans. It also offers Portfolio Management and Advisory Services to financial institutions and asset management companies. Some of the major competitors for SBI Mutual Fund in the mutual fund sector are Birla Sun Life Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund, UTI Mutual Fund, and Sundaram Mutual Fund A unit of KAKKAR FOUNDATION (Trust) – Empowering Youth Through Education. 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] LAKSHYA INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT STUDIES 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] May 2016, Volume 1, Issue 2 ISSN: 2456-2823 Net asset value (NAV) Net asset value (NAV) is the value of an entity's assets minus the value of its liabilities, often in relation to open-end or mutual funds, since shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net asset value. This may also be the same as the book value or the equity value of a business. Net asset value may represent the value of the total equity, or it may be divided by the number of shares outstanding held by investors, thereby representing the net asset value per share. Net asset value and other accounting and recordkeeping activities are the result of the process of fund accounting (also known as securities accounting, investment accounting, and portfolio accounting). Fund accounting systems are sophisticated computerized systems used to account for investor capital flows in and out of a fund, purchases and sales of investments and related investment income, gains, losses and operating expenses of the fund. The fund's investments and other assets are valued regularly; daily, weekly, or monthly, depending on the fund and associated regulatory or sponsor requirements. There is no universal method or basis of valuing assets and liabilities for the purposes of calculating the net asset value used throughout the world, and the criteria used for the valuation will depend upon the circumstances, the purposes of the valuation and any regulatory and/or accounting principles that may apply. For example, for U.S.-registered open-ended funds, investments are commonly valued each day the New York Stock Exchange is open, using closing prices (meant to represent fair value), typically 4:00 p.m. Eastern Time. For U.S.-registered money market funds, investments are often carried or valued at "amortized cost" as opposed to market value for expedience and other purposes, provided various requirements are continually met. At the completion of the valuation process and once all other appropriate accounting entries are posted, the accounting books are "closed" enabling a variety of information to be calculated and produced including the net asset value per share. A unit of KAKKAR FOUNDATION (Trust) – Empowering Youth Through Education. 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] LAKSHYA INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT STUDIES 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] May 2016, Volume 1, Issue 2 ISSN: 2456-2823 There are two options available to investors – Growth option and Dividend option. The key differences between them are as follows: Growth Option Investments made under the growth option will not yield any short term income, in the sense that all money invested will continue to be invested until redeemed - i.e. this will give you capital appreciation and hence returns, but not regular income. In this case the annual income This type of investment is more suited for long term investing in equity mutual funds, as there are no taxes on long term capital gains. Also, equity mutual funds are prone to short term risk, but in the long term they typically give good returns. This option benefits from the power of compounding since not only is the principal invested, but also the notional profit. It is a good option for those who do not need to depend on a monthly income from their investments for their living. Also, since the fund does not pay out any dividends the NAV is much higher than that of the dividend option for the same fund - however it is to be noted that this difference is only due to the payment of dividends and not due to a substantial variation in the fund performance. Dividend Option Unlike the growth option, investors opting for the dividend option will get a payout in the form of dividend. This option is ideal for short term investments, especially in debt. Debt mutual funds with dividend options are a good option for senior citizens who require a steady income flow and not only capital appreciation. This option will give the investor the benefit of moderate capital appreciation along with dividend returns over the period of holding. It is important to note that due to the payouts, the power of compounding is not as efficient as compared to that of the growth option. Also, investors who do not depend on the dividend income will face the risk of re-investment, i.e. re-investing the money earned via dividend in an asset class which offers good return. It is important to keep in mind that dividends are not guaranteed, and also that sometimes no dividend is declared throughout the year. 1. Growth Option: No dividend is declared or paid to the investor. It is more suited to investors who are looking for long term growth. Under such a plan, an investor realizes the greatest benefit of compounding. A unit of KAKKAR FOUNDATION (Trust) – Empowering Youth Through Education. 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] LAKSHYA INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT STUDIES 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] May 2016, Volume 1, Issue 2 ISSN: 2456-2823 2. Dividend Option: Under dividend option, mutual fund scheme pays a dividend and the NAV of the fund goes down by the same amount. It is more suited for investors who desire regular income from their investment. Please note payment of dividend is not guaranteed. Mutual fund scheme may or may not pay out the dividend. 3. Dividend Re-Investment Option: Dividend reinvestment option is a variant of dividend option. Under this option, dividend is not paid out to the investor but gets reinvested in the scheme i.e. the investors get additional units for the dividend amount. Please understand this will be considered a fresh investment and these new units will be subject to lock-in restrictions, if any. Exit load and capital gains implications will also be there if the investor sells off these new units soon after. Since the scheme does not pay out anything to the investor, investor can look to dividend re-investment option as an alternative to growth option. The factors which will affect the choice are investment horizon, applicable income tax slab and tax treatment of capital gains and dividend income. Research Methodology As an Observer I analyzed four year NAV Trend of SBI Blue Chip Fund - Direct Plan: Growth as well as Dividend. Objectives To Study and suggest the best Investment option for the Market among two of the Mutual Fund Stated above. A unit of KAKKAR FOUNDATION (Trust) – Empowering Youth Through Education. 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] LAKSHYA INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT STUDIES 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] ISSN: 2456-2823 May 2016, Volume 1, Issue 2 SBI BLUE CHIP FUND- DIRECT PLAN (GROWTH) YEAR NAV % From PY % From BY 2013 16.1755 100 100 2014 19.2666 119.1098 119.1098 2015 28.7501 149.2225 177.7386 2016 29.0819 101.1541 Sources of Data: SBI Mutual Fund Website 179.7898 A unit of KAKKAR FOUNDATION (Trust) – Empowering Youth Through Education. 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] LAKSHYA INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT STUDIES 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] ISSN: 2456-2823 May 2016, Volume 1, Issue 2 SBI BLUE CHIP FUND- DIRECT PLAN (DIVIDEND) YEAR NAV % From PY % From BY 2013 12.6563 100 100 2014 15.0737 119.1004 119.1004 2015 22.502 149.2798 177.7928 2016 19.589 87.0545 Sources of Data: SBI Mutual Fund Website 154.7767 Analysis & Interpretation (1) Increase in NAV of Growth Plan is higher in all the year in comparison to Dividend Plan. A unit of KAKKAR FOUNDATION (Trust) – Empowering Youth Through Education. 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] LAKSHYA INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT STUDIES 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected] May 2016, Volume 1, Issue 2 ISSN: 2456-2823 (2) In Year 2015-16 NAV of Growth Plan Showing Slight up while NAV of Dividend Plan is Showing Downward Movement Line Chart. (3) Year 2014-15 showing the highest hike in both the plans. (4) Percentage increase from previous year is higher in dividend plan than growth plan in 2014-15. (5) Percentage increase from base year is higher in dividend plan than growth plan in 2014-15 Conclusion Overall SBI Blue Chip Fund- Direct Plan (Growth) is showing higher returns than SBI Blue Chip Fund- Direct Plan (Dividend). As a researcher, it is advised to the potential consumers seeking an investment in mutual funds to carefully invest in different market options available as investments options are subject to market risks. Further the potential consumers who are willing to invest in SBI Mutual Funds can invest in SBI Blue Chip Fund- Direct Plan (Growth) as it is showing higher returns as compared to dividend pan but investors do need to be aware about other investment plans which may be working better than SBI Blue Chip Fund- Direct Plan (Growth) as this study is only based on comparative analysis of SBI Blue Chip Fund- Direct Plan (Growth) and SBI Blue Chip Fund- Direct Plan (Dividend). A unit of KAKKAR FOUNDATION (Trust) – Empowering Youth Through Education. 12, Shivam Nagar 1st, Jagatpura, Jaipur – 302017. Rajasthan. e-mail: [email protected]