Study On Efficiency Of Automatic Investment Plan For Mutual Fund

Automatic Investment Plan for Mutual Fund (AIP for short) is a way of fundpurchase business, which means using same amount of money for a specific fund orportfolio investment in equal time interval. From2005, as a new financialmanagement mode, AIP entered China Capital Markets and get rapid development.But AIP became an embarrassment in the academic field. In dominant academic view,Constantinides [1979] ignores and opposes AIP. He argues that gambles ontemporarily overpriced or underpriced securities are fallacious. He claims that it ishard to believe that a non-sequential investment policy that neglects all futureinformation (e.g., stock price changes) is superior to the optimal sequential policy atall future times (i.e., when new information becomes available). However Lump-suminvesting, which makes more investment income than dollar cost averaging, is able tolet investor select stocks and choose time effectively according to analyzing newinformation. So in this area, securities practice and academia have a huge contrast.This article will research and demonstrate the effectiveness of AIP throughcombination of theoretical analysis and empirical research.First, by theoretical analysis, this article researches the three major theoreticalbasis of AIP, Cash flow matching principle, principal agent theory and semi-variancerisk measurement, and AIP provide better relationship between benefits and risks.Then, through empirical research, using all closed-end fund transaction data in chinafrom2004to2012as sample, descriptive count and regression analyze rally, declines,and shock slump price respectively according to the sample data, compare the incomeof AIP and LS, then confirm the hypothesis, income spread between AIP and LS ispositive correlate with the negative semi-variance coefficient of fund pricefluctuations, and use negative semi-variance to measure risk. When stock market isdown or shakes down, AIP can get more income than LS. This demonstrates that AIPis effective. AIP can reduce risk and use risk to split cost and avoid the difficult whilechoosing. Also it can explain why in securities practice AIP is popular to investor.After get empirical research conclusion, combining with securities practice, thisarticle give the strategy of efficient AIP. It tells that AIP is not a balm, efficient AIPneed investors according to market situation and their own needs take timelyadjustment to the variety, amount and rate of AIP, and regularly check theeffectiveness of the investment portfolio, adjust the AIP strategy. In this way, investorscan get long-term investment achieve more effectively.On the one side, in foreign academia there has been controversy about DCA and LS which one makes more income, however in china there are few researches aboutthis. And mostly it is the investing suggestion given by financial managementpersonnel in securities practice. On the other side, in security market, DCA is usuallyreflected in the way of the subscription of the fund which is called AIP, that is whyAIP is popular in practical field, but whether AIP is effective in academia has not beenfully demonstrated. So this article compares the relationship of risk and incomebetween DCA and LS directly through China’s fund market transaction data. And byfund subscription Simulation, AIP can split the cost and improve the return oninvestment compared with LS. This article fully expounds the effectiveness of AIP,makes up for blanks about the effectiveness authentication of AIP in China’sacademia.