S.

S MEMORIAL COLLEGE

A project report on
Investment in mutual fund – Cost and
benefit analysis

Under the guidence of

Ms. Pranjal shah
Submitted by

Name :- Rohit Kumar

Class :- B. Com (Honours) sem 6

Session :- 2021-2024

Class roll no. :- 166

Exam roll no. :- 21BC8172880

1
 S.S MEMORIAL COLLEGE
RANCHI

Certificate
This is to clarify that this project has been submitted by Rohit Kumar a student of B. Com
(Honours), semester VI, Session 2021-2024, bearing Exam roll no. – 21BC8172880, of SurajSingh
Memorial College Ranchi on the given topic, “ Investment of mutual fund – Cost and benefit
analysis”,

This is for partial fulfilment for the award of Bachelor of commerce degree under RanchiUniversity,
Ranchi. The work done by her is appreciable of an outstanding level.

I wish her for every success in their life.

Signature of internal guide

( Dept. Of Commerce)
Signature of HOD
( Dept. Of Commerce)
Signature of external

Place – Ranchi
Date:-

2
 DECLARATION
I am Rohit here by declare that the project titled “ Investment in mutual fund- cost and benefits
analysis” has been prepared by me and submitted under B. Com curriculum. Allthe information,
facts and figures are collected by me and firsthand nature.

Any resemblance from existing work is purely coincidental in nature.

Name :-Rohit kumar

Class :- B. Com ( Honours)

Session. :- 2021- 2024

Class roll no :-166

Exam roll no :-21BC8172880

3
 Acknowledgement

I take the opportunity with much pleasure to thanks the all of the people who helped me through the
course of my journey towards producing this project. I sincerely thanks my project guide dept. Of
Commerce, for her guidence, help and motivation. Apart from the subject of my research, I learnt from
her, I am sure will be usefulin different stage of my life.I would like to express my gratitude to Ms.
Pranjal shah, dept. Of Commerce, for her review and helpful comments.

I am specifically grateful to my colleague for their assistance, criticism and useful insight,. Iwould like to
acknowledge the support and encouragement of my friends. My sincerely gratitude goes to all those
who instructed through the year.

Finally, this project would not have been possible without the confidence endurance and support of
my family. My family always has been source of inspiration and encouragement.I wish to thanks my
parents. Whose love, teaching and support have bought me this far.

4
 INDEX
. Investment in mutual fund 6-28

_What are mutual fund. 6

_why invest in mutual fund 10

_What are the considerations when investing in mutual fund 12

_what are the way to invest in mutual fund scheme. 18

_what are the charged involved for investing in mutual fund. 25

_what are the benefits for investing in mutual fund. 27- 28

.Cost and benefit analysis 29-59

_what is cost benefits analysis. 29

_Cost and benefits analysis defined_ The ultimate guide 35

_when should business conduct a cost benefits analysis 36

_what input are include in a cost benefits analysis 39

_Manage your cost benefits analysis with accounting 49

_cost benefits analysis: 5 step to make better choice. 53

_when should you use cost benefits analysis. 55-59

. Conclusion 60

.Reference 61

5
Mutual Funds
What are mutual funds?

A mutual fund is a company that pools money from many investors and invests themoney
in securities such as stocks, bonds, and short-term debt. The combined holdings of the
mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share
represents an investor’s part ownership in the fund and the income it generates.

Why do people buy mutual funds? What

types of mutual funds are there?
What are the benefits and risks of mutual funds?How
to buy and sell mutual funds Understanding fees
Avoiding fraud
Additional information

Why do people buy mutual funds?

Mutual funds are a popular choice among investors because they generally offerthe
following features:

• Professional Management. The fund managers do the research for you. Theyselect
the securities and monitor the performance.
• Diversification or “Don’t put all your eggs in one basket.” Mutual funds typically
invest in a range of companies and industries. This helps to loweryour risk if one
company fails.
• Affordability. Most mutual funds set a relatively low dollar amount for initial
investment and subsequent purchases.
• Liquidity. Mutual fund investors can easily redeem their shares at any time,for the
current net asset value (NAV) plus any redemption fees.

6
What types of mutual funds are there?

Most mutual funds fall into one of four main categories – money market funds,bond
funds, stock funds, and target date funds. Each type has different features,risks, and
rewards.

• Money market funds have relatively low risks. By law, they can invest only in
certain high-quality, short-term investments issued by U.S. corporations, andfederal,
state and local governments.
• Bond funds have higher risks than money market funds because they typically
aim to produce higher returns. Because there are many different
types of bonds, the risks and rewards of bond funds can vary dramatically.
• Stock funds invest in corporate stocks. Not all stock funds are the same.Some
examples are:
o Growth funds focus on stocks that may not pay a regular dividend buthave
potential for above-average financial gains.
o Income funds invest in stocks that pay regular dividends.
o Index funds track a particular market index such as the Standard &Poor’s
500 Index.
o Sector funds specialize in a particular industry segment.
• Target date funds hold a mix of stocks, bonds, and other investments. Over time, the
mix gradually shifts according to the fund’s strategy. Target date funds, sometimes
known as lifecycle funds, are designed for individuals withparticular retirement
dates in mind.

What are the benefits and risks of mutual funds?

Mutual funds offer professional investment management and potentialdiversification.

They also offer three ways to earn money:

• Dividend Payments. A fund may earn income from dividends on stock or

interest on bonds. The fund then pays the shareholders nearly all the
income, less expenses.
• Capital Gains Distributions. The price of the securities in a fund may increase.
When a fund sells a security that has increased in price, the fund has a capital gain.
At the end of the year, the fund distributes these capital gains,minus any capital
losses, to investors.

7
 • Increased NAV. If the market value of a fund’s portfolio increases, after deducting
expenses, then the value of the fund and its shares increases. Thehigher NAV
reflects the higher value of your investment.

All funds carry some level of risk. With mutual funds, you may lose some or all of the
money you invest because the securities held by a fund can go down in value.Dividends or
interest payments may also change as market conditions change.

A fund’s past performance is not as important as you might think because past
performance does not predict future returns. But past performance can tell you how
volatile or stable a fund has been over a period of time. The more volatile thefund, the
higher the investment risk.

How to buy and sell mutual funds

Investors buy mutual fund shares from the fund itself or through a broker for the fund,
rather than from other investors. The price that investors pay for the mutualfund is the
fund’s per share net asset value plus any fees charged at the time of purchase, such as sales
loads.

Mutual fund shares are “redeemable,” meaning investors can sell the shares back to the
fund at any time. The fund usually must send you the payment within sevendays.

Before buying shares in a mutual fund, read the prospectus carefully. The prospectus
contains information about the mutual fund’s investment objectives, risks, performance,
and expenses. See How to Read a Mutual Fund Prospectus Part1 (Investor Objective,
Strategies, and Risks), Part 2 (Fee Table and Performance), and Part 3 (Management,
Shareholder Information, and Statement of Additional Information) to learn more about
key information in a prospectus and How to Reada Mutual Fund Shareholder Report to
learn more about key information in a shareholder report.

Understanding fees

As with any business, running a mutual fund involves costs. Funds pass along thesecosts to
investors by charging fees and expenses. Fees and expenses vary from fund to fund. A fund
with high costs must perform better than a low-cost fund to generate the same returns for
you.

8
Even small differences in fees can mean large differences in returns over time. For example,
if you invested $10,000 in a fund with a 10% annual return, and annual operating expenses
of 1.5%, after 20 years you would have roughly $49,725. If you invested in a fund with the
same performance and expenses of 0.5%, after 20 yearsyou would end up with $60,858.

It takes only minutes to use a mutual fund cost calculator to compute how the costsof
different mutual funds add up over time and eat into your returns. See Mutual Fees and
Expenses to learn about some of the most common mutual fund fees and expenses. As with
any business, running a mutual fund involves costs. Funds pass along these costs to investors
by charging fees and expenses. Fees and expenses vary from fund to fund. A fund with high
costs must perform better than a low-cost fund to generate the same returns for you.

Even small differences in fees can mean large differences in returns over time. For example,
if you invested $10,000 in a fund with a 10% annual return, and annual operating expenses
of 1.5%, after 20 years you would have roughly $49,725. If you invested in a fund with the
same performance and expenses of 0.5%, after 20 yearsyou would end up with $60,858.

It takes only minutes to use a mutual fund cost calculator to compute how the costsof
different mutual funds add up over time and eat into your returns. See Mutual Fees and
Expenses to learn about some of the most common mutual fund fees and expenses.

Avoiding fraud

By law, each mutual fund is required to file a prospectus and regular shareholderreports
with the SEC. Before you invest, be sure to read the prospectus and the required
shareholder reports. Additionally, the investment portfolios of mutual funds are managed
by separate entities know as “investment advisers” that are registered with the SEC. Always
check that the investment adviser is registered before investing.

9
 Why invest in mutual funds?

Over half of U.S. households own mutual funds.* Here are some of the reasonsthey're so
popular:

Diversification

o Mutual funds give you an efficient way to diversify your portfolio,

without having to select individual stocks or bonds.

o They cover most major asset classes and sectors.

Low cost

o Schwab offers 50+ core mutual funds with no loads Tooltip , no

transaction fees, and no investment minimums.

o Schwab Mutual Fund OneSource® allows you to buy and sell mutualfund
shares without incurring loads or transaction fees.

Convenience

o You can automatically reinvest dividends and capital gains

distributions.

10
 Professional management

o Fund managers do the research for you. They research and select
securities and monitor the fund's performance.

o If you want to match market performance, consider index funds.

o If you want to potentially outperform the market, look at active funds.

• Performance
o It's typically best to look at a fund's performance through a full-marketcycle,
which is typically three to ten years.

o Be sure to also compare a fund's returns to an appropriate benchmark (for

example, the S&P 500®), as well as funds that investsimilarly

• Expense ratios
o These are the percentage of invested assets paid to run the fund.

o Expense ratios vary by fund management (index vs. active), category,

company, and even from fund to fund.

o Generally, index funds have the lowest expense ratios becausethey're

passively managed.

Taxes
• For mutual funds outside of your retirement account, be aware youmay
be taxed on the fund's distributions, even if you continue to hold the fund
or just purchased your shares.

11
 • Consider a fund's turnover ratio; the longer the fund holds its
securities, the lower the turnover and the lower the potential tax
liability, and vice versa

Manager’s tenure
How long the current manager or management team has been in place can be key when
considering active funds, since they choose the fund’s investments.
Be sure the timeframe you’re reviewing represents the same length of time the
manager has been running the fund.

What are the considerations when investing in a mutualfund?

Active vs. passive management

o Most funds are actively managed. Active funds aim to outperform the
market compared to a specific benchmark.

o Index funds are passively managed, aiming to mimic the investment

holdings and performance of a specific index.

Role in your portfolio

o Think about the goals you want to achieve with a fund – total return,
income, social responsibility, etc.

o If you want to match market performance, consider index funds.

o If you want to potentially outperform the market, look at active funds.

What are mutual fund fees?

Once you've found the mutual fund you want, take a close look at the fees and costs. And
remember, the relative importance of fees and costs depends on howyou plan to use the
fund in pursuit of your investment goals.

12
 Operating expense ratio (OER)
An OER is the percentage of fund assets taken out annually to cover fund operating
expenses. For example, if you have $10,000 in a mutual fund witha 0.50% expense
ratio, you're paying about $50 per year in expenses.

Load
A load is a one-time commission some fund companies charge whenever you buy or sell
shares in certain load-based mutual funds to compensate the brokerfor the sale.

Transaction fee
This is a trading fee some brokerages may charge whenever you buy or sellmutual fund
shares.

taxes on annual gains, even if you don't sell—or, in some cases, just bought yourshares.
So it's important to understand a mutual fund's tax efficiency. Here are a few things to
look for:

Turnover ratio

Turnover is a measurement of how long a fund holds the securities it buys. The
longer the holding period, the lower the turnover and vice versa. Index funds,
because of their limited buying and selling activity, are generally moretax-efficient
than actively managed funds.

Tax cost ratio

This is a metric developed by mutual fund research firm Morningstar, Inc. that
indicates how much a fund's annualized return is reduced by the taxesinvestors pay
on dividends.

13
How Does Mutual Fund Work?
Let us understand the working of a mutual fund from the following steps:

Step 1: Select an Appropriate Mutual Fund

You choose the best mutual fund scheme for higher returns as per the followingfactors:

Your investment goals

Your risk tolerance
Investment objectives of the fund
Past performance of the fund
Experience and track record of the fund manager
Step 2: Make Investments to Purchase Mutual Fund Units
You start investing in a fund by buying shares or units of a mutual fund. Each sharerepresents a
portion of the fund's overall holdings.

Step 3: Professional Management of Your Funds

Your funds are managed by professional fund managers who have expertise in selecting and
managing investments. These managers diversify your funds in variousassets and make
investment decisions on behalf of the fund.

Step 4: Buying and Selling of Mutual Funds at Net Asset Value (NAV)
At the end of each trading day, the fund calculates its Net Asset Value (NAV). The NAV
represents the per-share value of the fund which fluctuates with market conditions. This
NAV is used to determine the share price at which you can buy orsell your fund units.

Step 7: Charging of Fees and Expenses

14
The AMC will charge fees to cover operating expenses and fund manager's salary and
administrative costs of the mutual fund. These fees are typically expressed as anexpense
ratio and are deducted from the fund's assets.

Step 8: Distribution of Earnings

The earnings generated from mutual funds as dividends, interest, and capital gains are
distributed among investors by some fund schemes, while others reinvest themto increase
the fund's value.

Step 9: Regulation by Government Agencies

The authorities of Government of India , such as the Stock Exchange Board of India(SEBI)
and Reserve Bank of India (RBI) regulate the mutual funds, to protect the interests of
investors and ensure transparency.

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• Term Insurance

• Investment Plans

• Health Insurance

• Car Insurance

• Bike Insurance

• Travel Insurance

• Business Insurance

15
 • Other Insurance

• Renewal
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What are the Types of Mutual Funds?

The following table shows the types of mutual funds available in India in 2023:

Types of Details
Mutual Funds

Equity Funds These funds primarily invest instocks or equities. They

focus on different categories of
stocks, such as large-cap, mid-cap, or small-cap, or in
specificsectors, like technology or healthcare funds.

Fixed-Income Fixed-income funds invest inbonds and other debt

Funds securities. They are generallyconsidered less risky than
equity funds and provide
regular income through interestpayments.

Money Market Money market funds invest inshort-term, highly liquid

Funds securities like Treasury bills and commercial paper.
They are low-risk investments and are often used for
preserving capital and providing liquidity.

16
Balanced or These funds combine both
Hybrid Funds stocks and bonds in their
portfolios. They aim to strike a
balance between growth and
income, making them suitablefor
investors seeking a mix of
stability and potential returns.

Index Funds Index funds aim to replicate the

performance of a specific market
index, such as the S&P
500. They offer broad market
exposure and typically have lower
expense ratios comparedto actively
managed funds.

Sector Funds These funds concentrate on a

specific industry or sector, like
technology, healthcare, or real
estate. They are more focusedand
can be riskier due to theirlack of
diversification.

Internationalor These funds invest in stocks

Global Funds and bonds from foreign
markets. They provide
diversification across global
markets but also carry currency
risk.

Speciality or Speciality funds invest in a

Thematic particular theme or strategy, such
Funds as sustainable investing,emerging
markets, or dividend-focused
strategies.

Target-Date These funds are designed for

Funds retirement planning. They adjust
their asset allocation

17
 over time, becoming more
conservative as the target
retirement date approaches.

Alternative Alternative funds employ non-

Funds traditional investment strategies,
including hedge fund-like
strategies such as long-short,
managed futures, and market-
neutral
approaches.

Tax-Efficient These funds are structured to

Funds minimize taxes on capital gainsand
income, making them
suitable for taxable investment
accounts.

Socially These funds invest in

Responsible or companies that align with
ESG Funds certain environmental, social, and
governance (ESG) criteria,
reflecting investors' ethical and
sustainability preferences.

What are the Ways to Invest in Mutual Fund Schemes?

There are two main ways to invest in mutual funds:

Lump sum: You can invest a large amount of money in a single mutualfund
scheme at once.
SIP (Systematic Investment Plan): You Invest a fixed amount of moneyin a
mutual fund scheme at regular intervals, such as monthly or quarterly.

18
How to Calculate the Returns from Mutual Fund Schemes?
Calculating returns from mutual fund schemes is essential for you to assess the performance
of your investments and make informed decisions. Two commonly usedtools for calculating
returns are mentioned below:

1. Mutual Fund Calculator

2. SIP (Systematic Investment Plan) Calculator
These calculators help you to determine how your investments have grown over timeand
project future returns based on your investment strategies.

Benefits of using Mutual Fund Calculator and SIP Calculator:

1. Helps you to plan your investments effectively by providing insights intohow

your investments may grow over time.
2. Mutual Fund and SIP calculators are user-friendly and require minimal
input.
3. You can use these calculators to set specific financial goals, such as saving for
retirement, buying a home, or funding your child's education.
4. You can compare the potential returns of different mutual fund schemesor SIP
amounts.
5. By using these calculators, you can assess the impact of various rates ofreturn
on your investments.

• Term Insurance

• Investment Plans

• Health Insurance

19
 • Car Insurance

• Bike Insurance

• Travel Insurance

• Business Insurance

• Other Insurance

• Renewal

What is a Mutual Fund (MF)?

The full form of MF is Mutual Fund, which is an investment instrument where multiple
investors pool their money and invest in a mix of market-linked assets, suchas:

• Stocks
• Bonds
• Money Market Instruments
• Exchange Traded Funds (ETFs)
The mutual fund companies that are eligible to launch mutual funds establish Asset
Management Companies (AMCs) or Fund Houses. These organizations collect funds from
investors, promote mutual fund offerings, manage investments, and streamlineinvestor
transactions. Skilled fund managers from the AMCs handle your investments.

20
When you invest in a mutual fund, you essentially buy shares of that fund, and the fund uses
that money to purchase a variety of assets. This helps to reduce market-risks and potentially
offers profits to those who own shares of the mutual fund scheme. These organizations collect
funds from investors, promote mutual fundofferings, manage investments, and streamline
investor transactions. Skilled fund managers from the AMCs handle your investments.

When you invest in a mutual fund, you essentially buy shares of that fund, and the fund uses
that money to purchase a variety of assets. This helps to reduce market-risks and potentially
offers profits to those who own shares of the mutual fund scheme.

How Does Mutual Fund Work?

Let us understand the working of a mutual fund from the following steps:

Step 1: Select an Appropriate Mutual Fund

You choose the best mutual fund scheme for higher returns as per the followingfactors:

• Your investment goals

• Your risk tolerance
• Investment objectives of the fund
• Past performance of the fund
• Experience and track record of the fund manager
Step 2: Make Investments to Purchase Mutual Fund Units
You start investing in a fund by buying shares or units of a mutual fund. Each sharerepresents a
portion of the fund's overall holdings.

21
Step 3: Professional Management of Your Funds
Your funds are managed by professional fund managers who have expertise in selecting and
managing investments. These managers diversify your funds in variousassets and make
investment decisions on behalf of the fund.

Step 4: Buying and Selling of Mutual Funds at Net Asset Value (NAV)
At the end of each trading day, the fund calculates its Net Asset Value (NAV). The NAV
represents the per-share value of the fund which fluctuates with market conditions. This
NAV is used to determine the share price at which you can buy orsell your fund units.

Step 7: Charging of Fees and Expenses

The AMC will charge fees to cover operating expenses and fund manager's salary and
administrative costs of the mutual fund. These fees are typically expressed as anexpense
ratio and are deducted from the fund's assets.

Step 8: Distribution of Earnings

The earnings generated from mutual funds as dividends, interest, and capital gains are
distributed among investors by some fund schemes, while others reinvest themto increase
the fund's value.

Step 9: Regulation by Government Agencies

The authorities of Government of India (GoI), such as the Stock Exchange Board of India
(SEBI) and Reserve Bank of India (RBI) regulate the mutual funds, to protect theinterests of
investors and ensure transparency.

What are the Types of Mutual Funds?

The following table shows the types of mutual funds available in India in 2023:

22
Types of Details
Mutual Funds

Equity Funds These funds primarily invest in

stocks or equities. They focus on
different categories of
stocks, such as large-cap, mid-cap,
or small-cap, or in specificsectors,
like technology or healthcare
funds.

Fixed-Income Fixed-income funds invest in

Funds bonds and other debt
securities. They are generally
considered less risky than
equity funds and provide
regular income through interest
payments.

Money Market Money market funds invest in

Funds short-term, highly liquid
securities like Treasury bills and
commercial paper. They are low-
risk investments and are often
used for preserving capital and
providing liquidity.

Balanced or These funds combine both

Hybrid Funds stocks and bonds in their
portfolios. They aim to strike a
balance between growth and
income, making them suitablefor
investors seeking a mix of
stability and potential returns.

Index Funds Index funds aim to replicate the

performance of a specific market
index, such as the S&P
500. They offer broad market

23
 exposure and typically have lower
expense ratios comparedto actively
managed funds.

Sector Funds These funds concentrate on a

specific industry or sector, like
technology, healthcare, or real
estate. They are more focusedand
can be riskier due to theirlack of
diversification.

Internationalor These funds invest in stocks

Global Funds and bonds from foreign
markets. They provide
diversification across global
markets but also carry currency
risk.

Speciality or Speciality funds invest in a

Thematic particular theme or strategy, such
Funds as sustainable investing,emerging
markets, or dividend-focused
strategies.

Target-Date These funds are designed for

Funds retirement planning. They adjust
their asset allocation over time,
becoming more
conservative as the target
retirement date approaches.

Alternative Alternative funds employ non-

Funds traditional investment strategies,
including hedge fund-like
strategies such as long-short,
managed futures, and market-
neutral
approaches.

24
 Tax-Efficient These funds are structured to
Funds minimize taxes on capital gainsand
income, making them
suitable for taxable investment
accounts.

Socially These funds invest in

Responsible or companies that align with
ESG Funds certain environmental, social, and
governance (ESG) criteria,
reflecting investors' ethical and
sustainability preferences.

Benefits of using Mutual Fund Calculator and SIP Calculator:

6. Helps you to plan your investments effectively by providing insights intohow

your investments may grow over time.
7. Mutual Fund and SIP calculators are user-friendly and require minimal
input.
8. You can use these calculators to set specific financial goals, such as saving for
retirement, buying a home, or funding your child's education.
9. You can compare the potential returns of different mutual fund schemesor SIP
amounts.
10. By using these calculators, you can assess the impact of various rates ofreturn
on your investments.

What are the Charges Involved for Investing in Mutual FundSchemes?

Following are the major charges involved in investing in mutual fund schemes:

25
1. Transaction Charges:

These charges are levied by the mutual fund house or the distributor for each
transaction, such as buying, selling, or switching mutual fund units. Transactioncharges
are typically a percentage of the investment amount, with a minimum charge.

2. Expense ratio:

This is an annual fee that is charged by the mutual fund house to manage thescheme.
The expense ratio is expressed as a percentage of the fund's Assets Under Management
(AUM). It covers all the costs of managing and running a mutual funds scheme, such
as investment management fees, marketing and distribution expenses, brokerage fees,
and custodial, transfer agency, legal, and accountants' fees The expense ratio is
expressed as a percentage of the fund's Assets Under Management (AUM). It covers
all the costs of managing and running a mutual funds scheme, such as investment
management fees, marketing and distribution expenses, brokerage fees, and custodial,
transfer agency, legal, and accountants' fees.

3. Exit load:

Some mutual funds charge an exit load when you sell or redeem your units within a
certain period after purchasing them. The purpose of the exit load is to discourage
short-term trading and promote long-term investing. The exit load percentage and the
holding period required to avoid it can vary betweenfunds.

26
What are the Benefits of Investing in Mutual Funds?
The key advantages of investing in mutual funds are as follows:

1. Diversification: Mutual funds pool money from multiple investors to invest in

a diversified portfolio of stocks, bonds, or other securities. Thisdiversification
helps spread risk because your investment is not reliant on the performance of
a single asset.
2. Professional Management: Mutual funds are managed by experiencedfund
managers and investment professionals who make investment decisions on
behalf of investors. These experts conduct research and analysis to select the
best investments, which can save individual investors time and effort.
3. Liquidity: Mutual fund shares can usually be bought or sold on any business
day at the fund's Net Asset Value (NAV). This provides liquidity,allowing you
to access your money relatively quickly compared to some other types of
investments.
4. Affordability: Mutual funds typically have a low minimum investment
requirement, making them accessible to a wide range of investors, including
those with limited capital.
5. Automatic Investment Options: Many mutual funds offer automatic
investment plans, such as Systematic Investment Plans (SIPs)
or Systematic Withdrawal Plans (SWPs), which allow you to regularly
invest or withdraw funds, making it convenient for long-term planning.
6. Transparency: Mutual funds provide regular updates on your holdings,
performance, and NAV. You can easily track your investments and assesshow
the funds are performing.
7. Professional Research and Analysis: Fund managers have access to extensive
research and analysis tools, which can help in making informed

27
 investment decisions. They have the expertise to adjust the fund'sportfolio as
market conditions change.
8. Variety of Investment Options: Mutual funds offer a wide range
of investment options, including equity funds, debt funds, hybrid funds,
sector-specific funds, and more. This allows you to choose fundsthat align
with your risk tolerance and financial goals.
9. Tax Benefits: In some countries, certain types of mutual funds offer tax
benefits, such as tax-saving mutual funds (e.g., ELSS in India) that provide
deductions under the tax code.

28
 Cost-Benefit Analysis

In any business, department heads have competing priorities. For example, the chief
revenue officer of a B2B software-as-a-service provider wants to establish an indirect
channel sales program, while marketing wants to hire a content writerto help organically
acquire new leads. Both make good cases — each department is sure they can increase
revenue with a few more people and a little more money, after all.

Finance teams acting as mediators should consider a formal cost-benefit analysis exercise.
Also sometimes called a benefit-cost analysis, this is a well- established process for
guiding leaders to make decisions that are rooted in and informed by data on company
goals and priorities and budget realities. For example, the chief revenue officer of a B2B
software-as-a-service provider wants to establish an indirect channel sales program, while
marketing wants to hire a content writer to help organically acquire new leads. Both make
good cases — each department is sure they can increase revenue with a few more people
and alittle more money, after all.

Finance teams acting as mediators should consider a formal cost-benefit analysis

exercise. Also sometimes called a benefit-cost analysis, this is a well- established process
for guiding leaders to make decisions that are rooted in and informed by data on company
goals and priorities and budget realities.

What Is Cost-Benefit Analysis (CBA)?

A cost-benefit analysis involves comparing the explicit and implicit costs oftaking an
action versus expected benefits. The process of gathering that
information may be enlightening because it may require the business to assign

29
monetary value to factors that don’t have explicit costs. The resulting analysisallows
decision-makers to weigh all information and make rational choices.

As a pros-and-cons evaluation tool, CBAs are most closely associated with public-
sector decision-making. But they’re also used in business when it comes time for project
planning around adding employees, purchasing technology or equipment, expanding
facilities and more. A CBA can weigh the benefits of takingan action over maintaining the
status quo or help a business compare two or more options to see which one makes the most
sense. it may require the
business to assign monetary value to factors that don’t have explicit costs. Theresulting
analysis allows decision-makers to weigh all information and make rational choices.

As a pros-and-cons evaluation tool, CBAs are most closely associated with public-
sector decision-making. But they’re also used in business when it comes time for project
planning around adding employees, purchasing technology or equipment, expanding
facilities and more. A CBA can weigh the benefits of takingan action over maintaining the
status quo or help a business compare two or more options to see which one makes the
most sense. But they’re also used in business when it comes time for project planning
around adding employees, purchasing technology or equipment, expanding facilities and
more. A CBA can weigh the benefits of taking an action over maintaining the status quo or
help a business compare two or more options to see which one makes the most sense. it
may require the business to assign monetary value to factors that don’t have explicit costs.
The resulting analysis allows decision-makers to weigh all
information and make rational choices.

As a pros-and-cons evaluation tool, CBAs are most closely associated with public-
sector decision-making. But they’re also used in business when it comes time for project
planning around adding employees, purchasing technology or equipment, expanding
facilities and more. A CBA can weigh the benefits of takingan action over maintaining the
status quo or help a business compare two or more options to see which one makes the
most sense.

30
Key Takeaways
1. Cost-benefit analyses help businesses weigh pros and cons in a data-driven way sothey can
make complex decisions in a systematic manner.
2. For a successful CBA, leaders need to identify and project the explicit and implicitcosts and
benefits of a proposed action or investment.
3. It’s also a good idea to assign someone to make the case for the status quo as a wayto compare
the opportunity cost of doing nothing and investing cash versus proposed actions.
4. A cost-benefit analysis is only as good as the data on which it’s based, so
companies with more mature financial reporting have a higher likelihood ofsuccess.

Cost-Benefit Analysis Explained

Each action a business takes has explicit cost and revenue expectations. But there are also
implicit costs, often expressed as the opportunity cost — that is, the money or other benefit
lost by pursuing one option over another or of taking no action. Opportunity cost is not an
accounting concept, it’s an economic one, butit can be associated with a quantitative value.

A cost-benefit analysis adds up the benefits and costs of a program or purchase, extracts a CBA
ratio and then compares that result with both stasis and
alternative programs or purchases.

A CBA requires considering both monetary and opportunity costs over a period of time. To
compare multiple CBAs, extract a CBA ratio from each. The formula for a cost-benefit
analysis ratio can be expressed as:

31
 Projected benefits / projected costs= CBA ratio

For example, the CMO of our fictional SaaS provider wants to hire a content
writer to improve the company’s web site content so that it helps deliver more qualified
leads to sales. The CRO thinks a channel program can win both new customers and more
mindshare. In all cases, the leaders would be asked to approve at least one additional FTE
along with some required software and other services.identify and attach dollar values to the
explicit and implicit costs of theirprojects and compare those to the explicit and implicit
benefits. The CFO may also run the numbers on “none of the above.”

If that sounds straightforward, it isn’t. An in-depth, precise cost-benefit analysisis a

complex undertaking because of the inputs required, the need to set parameters, the fact
that not every factor the business needs to measure has anexplicit cost or return and the
number of indirect or intangible properties that make future outcomes difficult to forecast.

Then there’s the fact that while a project or purchase with a high benefit-to-costratio is
generally considered the most favorable option, that’s not a given. The CRO thinks a
channel program can win both new customers and more mindshare. In all cases, the
leaders would be asked to approve at least one
additional FTE along with some required software and other services.identify andattach
dollar values to the explicit and implicit costs of their projects and compare those to the
explicit and implicit benefits. The CFO may also run the numbers on “none of the above.”

If that sounds straightforward, it isn’t. An in-depth, precise cost-benefit analysisis a

complex undertaking because of the inputs required, the need to set parameters, the fact
that not every factor the business needs to measure has anexplicit cost or return and the
number of indirect or intangible properties that make future outcomes difficult to forecast.

32
Then there’s the fact that while a project or purchase with a high benefit-to-costratio is
generally considered the most favorable option, that’s not a given.

Purpose of a Cost-Benefit Analysis

Businesses perform cost-benefit analyses to help leaders remove emotion from
assessments and provide an apples-to-apples basis to compare competing priorities.
And, when intangible benefits are expressed as a “benefits value,” withdollar amounts
assigned, that helps finance calculate a break-even point — the time it takes for a product’s
or purchase’s benefits to exceed the cost.

In the future, a CBA can be revisited to evaluate the actual cost and ROI of a projector purchase
compared with projections and improve the analysis process.

For example, the CMO’s plan to employ a writer to attract new customers
involves recurring investments in both marketing software subscriptions and salary and
benefits. Expected returns include increased revenue, a larger customer base and better
visibility for the company. Some of these costs and returns are difficult to quantify. In
contrast, the CROs ’plan will require the attention of sales leaders to create an entirely new
revenue stream that may takea year or two to become profitable. There’s a substantial
opportunity lost in
pursing more sales through existing channels, but the payoff could be substantial. There’s
also the internal dynamic that will surface as the new
indirect sales channel takes some of the revenue of the existing sales team.A CBA seeks to
select the project with the greatest overall benefit for the incurred costs. And, when
intangible benefits are expressed as a “benefits value,” with dollar amounts assigned, that
helps finance calculate a break-even point — thetime it takes for a product’s or purchase’s
benefits to exceed the cost.

In the future, a CBA can be revisited to evaluate the actual cost and ROI of a projector purchase
compared with projections and improve the analysis process.

33
For example, the CMO’s plan to employ a writer to attract new customers
involves recurring investments in both marketing software subscriptions and salary and
benefits. Expected returns include increased revenue, a larger customer base and better
visibility for the company. Some of these costs and returns are difficult to quantify. In
contrast, the CROs ’plan will require the attention of sales leaders to create an entirely new
revenue stream that may takea year or two to become profitable. There’s a substantial
opportunity lost in
pursing more sales through existing channels, but the payoff could be substantial. There’s
also the internal dynamic that will surface as the new
indirect sales channel takes some of the revenue of the existing sales team.A CBA seeks to
select the project with the greatest overall benefit for the incurredcosts.

Importance of Cost-Benefit Analysis

Leaders need to make sometimes difficult decisions in a timely manner. Cost- benefit
analyses help by providing financial context and data-driven justificationfor sometimes
painful choices that may not be viewed favorably by staff.

A cost-benefit analysis, often paired with the sensitivity or “what if” analyses used in
financial modeling, also offsets biases that may sway decisions, like thedreaded HiPPO —
highest-paid person’s opinion.

Sensitivity Analysis Template

Below is a sample sensitivity analysis worksheet a CIO might use to evaluate a product
purchase alongside a CBA — it’s overly simplified for the sake of space.
It combines product attributes, like suitability for the task, with businessconsiderations.
Criteria sets may be added and customized.

• Company
• Educational Resources

34
 • Business Solutions Articles
• Accounting

Cost-Benefit Analysis Defined – The

Ultimate Guide
In any business, department heads have competing priorities. For example, the chief
revenue officer of a B2B software-as-a-service provider wants to establish an indirect
channel sales program, while marketing wants to hire a content writer to help organically
acquire new leads. Both make good cases — each department is sure they can increase
revenue with a few more people and alittle more money, after all.
Finance teams acting as mediators should consider a formal cost-benefit analysis
exercise. Also sometimes called a benefit-cost analysis, this is a well- established process
for guiding leaders to make decisions that are rooted in and informed by data on company
goals and priorities and budget realities. while marketing wants to hire a content writer to
help organically acquire new leads.
Both make good cases — each department is sure they can increase revenuewith a few
more people and a little more money, after all.

Finance teams acting as mediators should consider a formal cost-benefit analysis

exercise. Also sometimes called a benefit-cost analysis, this is a well- established process
for guiding leaders to make decisions that are rooted in and informed by data on company
goals and priorities and budget realities. Finance teams acting as mediators should
consider a formal cost-benefit analysis exercise. Also sometimes called a benefit-cost
analysis, this is a well- established process for guiding leaders to make decisions that are
rooted in andinformed by data on company goals and priorities and budget realities.

35
When Should a Business Conduct a Cost-
Benefit Analysis?
CBAs are useful anytime there are priorities competing for limited resources. But
companies do need to set some ground rules for analyses. For example, all stakeholders
should understand the company’s expectation on whether a CBA will address short-, mid
or long-term impacts. The further into the future analysisextends, the more difficult it is to
accurately forecast costs and benefits.

In general, most companies should do a cost-benefit analysis for majordecisions in these

five areas:

1. Capital investments: Should the business purchase a new delivery

vehicle, production machinery, computer hardware or office furniture, or
invest in renovating a building? Assign costs with the understanding that the benefit of the
investment is derived from the use of the asset, not from its market value. For instance, an
investment in new manufacturing equipment should allow me to
produce more goods at a lower cost, resulting in more revenue and better margins.I'll retain this
benefit even as the value of the equipment declines.

2. Business process change: A business process is any defined set

of actions that are repeated often and produce a desired result. A company may think that a
task that’s high volume, high touch, repetitive and proneto error is a candidate for business
process automation. A CBA can help prove the theory. For example, should you
purchase software that automatically
adds inventory receipts to the inventory ledger and the asset column on the balancesheet versus
manual entry? Or, a growing company may run a CBA and find
that hiring a third-party to manage the payroll process now makes senseand is a
source of savings.
In any cost-benefit analysis, ensure the stakeholder asks: How can we drive
inefficiency out of this business function? And how do we attach adollar value to
that?

36
 3. Organizational change: This is often related to business process
change and refers to human capital. An example is comparing hiring staff versus outsourcing.
Adding an indirect sales channel, for example, is a significant organizational change. For a
CBA, you’ll need to consider that a productive on-staffsales rep might cost more on a per-sale
basis versus indirect, but turnover is high.
Commissions may be a wash. Will you need to hire a channel manager
(organizational change), set up a portal for functions such as deal registration (abusiness
process change) and/or allocate marketing development funds?

4. Adjusting pricing or introducing new product or

service: Managers in companies that use cost
accounting have pretty granular data on the total costs and revenue attached to a good or
service and thus have a head start on cost-benefit analyses. Factors to
quantify may include whether the company should introduce a subscription model, or whether
it should discontinue a certain product or service because of poor salesbefore adding a new
SKU.

5. Entering into a merger, acquisition or

divestiture: Decisions around whether to acquire or merge with a company or sell
parts of the business are among the most complex analyses, and the most important. A merger
that may seem desirable at first glance, upon further consideration, may come with significant
process and organizational changes, legalfees, costly layoffs and other factors which may
diminish the relative value of the merger.

5 Cost-Benefit Analyses Gotchas to Avoid

• p n n

37
 and prone to bias. The more people who weigh in, the more objective the analysis islikely to be.
For important CBAs, assemble a panel with a mix of expertise — HR, engineers and new and
longtime employees.

• Dubious data sources: Even line items that should be

readily quantifiable may be open to interpretation in the absence of accounting andfinancial
management software. If the quality of data is in question, apply
a sensitivity analysis or other valuation method to formalize how thecompany
measures uncertainty for CBA purposes.

• Unrecognized resource constraints: A CBA on hiring a

content producer, for example, must recognize the limited number of skilled writers available and
the volume of content that one employee can produce.
Likewise, lowering the cost of a product may increase consumer demand beyond what the
supply chain can bear, thus raising COGS — if an existing supplier can't support increased
demand, the manufacturer will either sell out of product or be forced to pay a higher price to
purchase raw materials.

• Extended timelines: In general, three years is doable; five years is a

stretch. Adjust for extended projections by A: Applying discounted or present value. Select
a reasonable interest rate at which future earnings are to be discounted to reduce them to their
present value, and use that rate in all analyses.
And B: Applying scenario analysis, which provides a rational and structured wayto analyze
the future and account for externalities.

• Double counting benefits or costs: For example, if

an anti-phishing project is predicted to reduce the likelihood of a successful ransomware
attack on a SaaS provider, the CIO might be tempted toinclude both the benefit of
increased uptime for the business and higher
productivity for employees, yet the cost of downtime probably already includes lostproductivity.

38
What Inputs are Included in a Cost-Benefit
Analysis?
In performing a cost-benefit analysis, include:

Costs
The costs of taking an action or of doing nothing include:

• Explicit costs: These are accounting costs with explicit monetary value and
may include direct costs such as labor, manufacturing and the cost ofsoftware or machinery
and indirect costs, such as utilities or rent.

• Intangible costs: These are qualitative items, such as lost

productivity or reduced customer satisfaction if an existing product is retiredbecause a
new SKU is being introduced.

• Implicit costs: These are opportunity costs, both financial and non- financial,
like purchasing a capital asset versus investing free cash, or of pulling employees off one
project to work on the new initiative.
Benefits
As with costs, benefits should be categorized:

• Direct benefits: This is the accounting profit from the decision and could
include, for instance, cost savings or increased revenue from a new productor service.

• Indirect: These are tangential benefits. For instance, as a result of a new technology
implementation, customers may be incentivized to spend more.

• Intangible: These benefits could include, for instance, improved customer

satisfaction, employee morale or employee safety.

39
 • Competitive: The business may want to include in its CBA the benefits of
gaining a competitive edge in its industry and factor in, for example, increased market share,
thought leadership and first-mover advantage.

Pros and Cons of a Cost-Benefit Analysis

A well-conducted cost-benefit analysis provides a level of predictability when undertaking a
project. However, leaders need to set parameters and ensure allparticipants are working with a
common set of assumptions.

Advantages of cost-benefit analyses:

• It supports decision-making with data to increase

confidence or build support for making a move.

• It provides a way to incorporate qualitative

factors into quantitative analysis.
• It can help businesses arrive at the total cost of taking a particular action that eclipses
its explicit price tag and contributes to determining the ROI of a projector action.

• By incorporating net present value, businesses may view future

investments at current dollar values.
Challenges of cost-benefit analyses:

10. It requires assigning explicit monetary value to intangible

factors. This can be challenging and introduce ambiguity.

40
11. Gathering accurate data may be challenging, as is forecasting implicit
cost and benefits.

12. Businesses can become over-reliant on CBAs as a tool for

making decisions and as a project-costing and budgeting method.

13. Forecasting is inherently difficult. Unless a company

regularly performs financial planning & analysis (FP&A) and scenario planning
exercises, it should use caution with extended-outlook CBAs.

How to Conduct a Cost-Benefit Analysis

Companies may need to expand the CBA process based on the complexity of theproposals under
consideration, but the basic steps are:

14. List the projects, investments or actions to

evaluate, and identify all stakeholders. Ensure each stakeholder has access to the financial data
that will be needed to evaluate the project or investment; understands parameters, such as
how far into the future to extend theanalysis; and has insights into intangibles, including
access to FP&A and scenarioplanning.

15. Determine costs. List all explicit and implicit costs of each action under
consideration and assign dollar values to the implicit, or opportunity, costs. For example, if
current IT employees are redirected to installing and running new security software, what tasks
will no longer be performed?

41
16. Document assumptions. Valuing implicit costs and benefits
requires a certain amount of judgement. Any assumptions used to estimatethe values should be
clearly documented before comparing alternatives.

17. Determine benefits. List and assign dollar values to all explicit and
implicit benefits of each action under consideration. As with costs, this will beeasier for
benefits that can be quantified, for example, in terms of saving FTE costs for one or more sales
professionals by launching an indirect channel sales program.Others, such as employee
productivity or engagement, will be more challenging to quantify. Bring in HR or other
experts as needed to check stakeholder assumptions.

18. Add perspective. Not everything is a purely dollars-and-cents

decision. Senior leaders need to weight options based on company culture, valuesand goals.

19. Compare alternatives. Calculate the cost-benefit analysis ratio for

each option under consideration and compare those against one another and against the costs
and benefits of doing nothing.

Cost Benefit Analysis Example

Let’s look at a simplified version of the CBA that the head of sales presented forestablishing an
indirect channel.

Our fictional SaaS provider has a traditional direct sales model, where its asset
maintenance scheduling software is sold as service directly to end customers. Customers
may also purchase direct from the website, which does not generate a commission.

Goal: The company sells mainly to manufacturers but believes it can expand toserve
healthcare groups, which need to perform regular maintenance on expensive medical
equipment.

42
The problem is that the sales team would need to start from scratch to make contacts in
this new market. The CMO believes her marketing team can generatesales-qualified leads
by hiring a content producer familiar with healthcare, but the chief revenue officer thinks
there’s a better way.

Premise: The CRO believes the company can more quickly succeed by
establishing an indirect sales channel to complement existing sales capabilities.The
program would be open to 10 to 15 value-added resellers and managed service providers
that focus on healthcare. The CRO would sign on the partners Our fictional SaaS provider
has a traditional direct sales model, where its asset maintenance scheduling software is
sold as service directly to end customers.
Customers may also purchase direct from the website, which does not generate a
commission.

Goal: The company sells mainly to manufacturers but believes it can expand toserve
healthcare groups, which need to perform regular maintenance on expensive medical
equipment.

The problem is that the sales team would need to start from scratch to make contacts in
this new market. The CMO believes her marketing team can generatesales-qualified leads
by hiring a content producer familiar with healthcare, but the chief revenue officer thinks
there’s a better way.

Premise: The CRO believes the company can more quickly succeed by
establishing an indirect sales channel to complement existing sales capabilities.The
program would be open to 10 to 15 value-added resellers and managed service providers
that focus on healthcare. The CRO would sign on the partners
initially then pass them to a channel salesperson. The company would develop an online
portal for partners to register opportunities and execute purchases onbehalf of customers.

Note: The numbers below are designed to be illustrative, not a representation ofthe industry.

Assumptions: The software costs $15000 per year fifty seats – an average sale. TheCRO
believes that the partner program can bring in 50 new customers in Year 1 and that all will
renew. By year three, the partners will bring in 200 new logos per

43
year. Partners earn 20% of sales. Support will take1 $70,000 FTE specialist per 75logoss.
The product for indirect sale is the same as what is sold through the
direct sales channel, and pricing will be the same. To avoid channel conflict, Ourfictional SaaS
provider has a traditional direct sales model, where its asset
maintenance scheduling software is sold as service directly to end customers. Customers
may also purchase direct from the website, which does not generate a commission.

Goal: The company sells mainly to manufacturers but believes it can expand toserve
healthcare groups, which need to perform regular maintenance on expensive medical
equipment.

The problem is that the sales team would need to start from scratch to make contacts in
this new market. The CMO believes her marketing team can generatesales-qualified leads
by hiring a content producer familiar with healthcare, but the chief revenue officer thinks
there’s a better way.

Premise: The CRO believes the company can more quickly succeed by
establishing an indirect sales channel to complement existing sales capabilities.The
program would be open to 10 to 15 value-added resellers and managed service providers
that focus on healthcare. The CRO would sign on the partners
initially then pass them to a channel salesperson. The company would develop an online
portal for partners to register opportunities and execute purchases on behalf of customers.
The problem is that the sales team would need to start fromscratch to make contacts in this
new market. The CMO believes her marketing team can generate sales-qualified leads by
hiring a content producer familiar
with healthcare, but the chief revenue officer thinks there’s a better way.

Premise: The CRO believes the company can more quickly succeed by
establishing an indirect sales channel to complement existing sales capabilities.The
program would be open to 10 to 15 value-added resellers and managed service providers
that focus on healthcare. The CRO would sign on the partners
initially then pass them to a channel salesperson. The company would develop an online
portal for partners to register opportunities and execute purchases onbehalf of customers.

44
Note: The numbers below are designed to be illustrative, not a representation ofthe industry.

Assumptions: The software costs $15000 per year fifty seats – an average sale. The CRO
believes that the partner program can bring in 50 new customers in Year 1 and that all will
renew. By year three, the partners will bring in 200 new logos per year. Partners earn 20% of
sales. Support will take1 $70,000 FTE specialist per 75logoss. The product for indirect sale
is the same as what is sold through the
direct sales channel, and pricing will be the same. To avoid channel conflict, Ourfictional SaaS
provider has a traditional direct sales model, where its asset
maintenance scheduling software is sold as service directly to end customers. Customers
may also purchase direct from the website, which does not generate a commission.

Goal: The company sells mainly to manufacturers but believes it can expand toserve
healthcare groups, which need to perform regular maintenance on expensive medical
equipment.

The problem is that the sales team would need to start from scratch to make contacts in
this new market. The CMO believes her marketing team can generatesales-qualified leads
by hiring a content producer familiar with healthcare, but the chief revenue officer thinks
there’s a better way.

Premise: The CRO believes the company can more quickly succeed by
establishing an indirect sales channel to complement existing sales capabilities.The
program would be open to 10 to 15 value-added resellers and managed service providers
that focus on healthcare. The CRO would sign on the partners
initially then pass them to a channel salesperson. The company would develop an online
portal for partners to register opportunities and execute purchases onbehalf of customers.

Note: The numbers below are designed to be illustrative, not a representation ofthe industry.

Assumptions: The software costs $15000 per year fifty seats – an average sale. TheCRO
believes that the partner program can bring in 50 new customers in Year 1 and that all will
renew. By year three, the partners will bring in 200 new logos per

45
year. Partners earn 20% of sales. Support will take1 $70,000 FTE specialist per 75logoss.
The product for indirect sale is the same as what is sold through the
direct sales channel, and pricing will be the same. To avoid channel conflict,
direct sales wouldn't be allowed to work deals in certain verticals. And they won'tfollow up
on website leads for those verticals.

Year 1 Cost Income Notes

Develop One time

$50,000
Portal expense

Share of
App Hosting $6000 App deliver
costs

Partner
Commissions sales
to Partners (50 $150,000 numbers
sales) grow each
year

Channel First year, 1

management $150,000 channel
team manager

Each can
1 Support
$70,000 support 75
FTE
users

Moves to
25% CRO
channel
comp to $50,000
team next
launch
year

46
 Year 1 Cost Income Notes

Revenue 50
$750,000
customers

First Year Gross Profit

$476,000 $750,000
total $274,000

Bugs,
Portal maint $10,000
security, etc

Proportional
App Hosting $18,000
to sales

Channel
Commissions partners are
(50 existing + $450,000 better at
100 New) selling aftera
year

One leader
Channel and two
$300,000
management channel
managers

2 support
$140,000
FTEs

Revenue 150 Assume no

$2,225,000
customers attrition

Second Year Gross Profit

$918,000 $2,225,000
Total $1,307,000

47
 Year 1 Cost Income Notes

Bugs,
Portal maint $10,000
security, etc

Proportional
App Hosting $42,000
to sales

Channel
Commissions partners are
(150 existing $1,050,000 better at
+ 200 New) selling aftera
year

One leader
Channel and two
$300,000
management channel
managers

2 support
$350,000
FTEs

Revenue 350
$5,250,000
customers

Third Year Gross Profit

$1,752,000 $5,250,000
Total $3,498,000

Gross Profit
5,079,000
Total $3,296,000 $8,225,000
Gross
Margin 62%

48
Manage Your Cost Benefit Analysis with
Accounting Software
The most important contributor to an accurate, insightful cost-benefit analysisis
accurate data. Modern finance and accounting software combined
with integrated planning, budgeting and forecasting tools and enterprise resource
planning software suites with HR, supply chain and other insights mean all
transactional and forward-looking data is in a central location. Thismakes it easier for
authorized stakeholders to pull accurate, up-to-date
information to inform their analyses. Numbers can be automatically exportedto
Excel or provided in the form of a report to key decision-makers.

Perhaps one of the more challenging parts of a CBA is when a leader selectsa project
that the numbers say is less profitable than other options. The reason may be a desire
to forward long-term goals, or that company culture and values dictate spending
more or leaving profit on the table.

And of course, sometimes the right answer will be “do nothing.” At least with asolid
cost-benefit analysis, companies can make hard decisions with their eyes wide open
with HR, supply chain and other insights mean all
transactional and forward-looking data is in a central location. This makes it easier
for authorized stakeholders to pull accurate, up-to-date information toinform their
analyses. Numbers can be automatically exported to Excel or provided in the form
of a report to key decision-makers.

Perhaps one of the more challenging parts of a CBA is when a leader selectsa project
that the numbers say is less profitable than other options. The reason may be a desire
to forward long-term goals, or that company culture and values dictate spending
more or leaving profit on the table.

And of course, sometimes the right answer will be “do nothing.” At least with asolid
cost-benefit analysis, companies can make hard decisions with their eyes wide open.

49
 1. Company
2. Educational Resources
3. Business Solutions Articles
4. Accounting

Cost-Benefit Analysis Defined – The

Ultimate Guide
Scott Beaver | Senior Product Marketing ManagerJuly

26, 2023

In any business, department heads have competing priorities. For example, the chief
revenue officer of a B2B software-as-a-service provider wants to establish an indirect
channel sales program, while marketing wants to hire a content writer to help
organically acquire new leads. Both make good cases — each department is sure they
can increase revenue with a few more people and a little more money, after all
business, department heads have competing priorities. For example, the chief revenue
officer of a B2B software-as-a-service provider wants to establish an indirect channel
sales program, while marketing wants to hire a content writer to help organically
acquire new leads. Both make good cases — each department is sure they can
increase revenue with a few more people and a little more money, after all acting as
mediators should consider a formal cost-benefit analysis exercise. Also sometimes
called a benefit-cost analysis, this is a well-established process for guiding leaders to
make decisions that are rooted in and informed by data on company goals and
priorities and budget realities.

Finance teams acting as mediators should consider a formal cost-benefit analysis

exercise. Also sometimes called a benefit-cost analysis, this is a well-established
process for guiding leaders to make decisions that are rooted in and informed by data
on company goals and priorities and budget realities while marketing wants to hire a
content writer to help organically acquire new leads. Both make good cases — each
department is sure they can increase revenue with a few more people and a little more

50
money, after all business, department heads have competing priorities. For example,
the chief revenue officer of a B2B software-as-a-service provider wants to establish an
indirect channel sales program, while marketing wants to hire a content writer to help
organically acquire new leads. Both make good cases — each department is sure they
can increase revenue with a few more people and a little more money, after all acting
as mediators should consider a formal cost-benefit analysis exercise. Also sometimes
called a benefit-cost analysis, this is a well-established process for guiding leaders to
make decisions that are rooted in and informed by data on company goals and
priorities and budget realities.

Manage Your Cost Benefit Analysis with

Accounting Software
The most important contributor to an accurate, insightful cost-benefit analysis is
accurate data. Modern finance and accounting software combined with integrated
planning, budgeting and forecasting tools and enterprise resource planning software
suites with HR, supply chain and other insights mean all transactional and forward-
looking data is in a central location. This makes it easier for authorized stakeholders
to pull accurate, up-to-date information to inform their analyses. Numbers can be
automatically exported to Excel or provided in the form of a report to key decision-
makers.

Perhaps one of the more challenging parts of a CBA is when a leader selects a project
that the numbers say is less profitable than other options. The reason may be a desire
to forward long-term goals, or that company culture and values dictate spending more
or leaving profit on the table.

And of course, sometimes the right answer will be “do nothing.” At least with a solid
cost-benefit analysis, companies can make hard decisions with their eyes wide open.

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Cost Benefit Analysis FAQs
What is meant by the cost-benefit analysis?

A cost-benefit analysis (CBA) is a systemized approach used to assess the advantages

(benefits) and disadvantages (costs) associated with a particular decision, project, or
policy. The goals is to decide if the benefits outweigh the costs, meaning more
informed business decision-making.

What is an example of a cost-benefit analysis?

A company is considering upgrading its software, so it performs a cost-benefit

analysis of the new system. The cost includes purchasing the software, training staff,
and potential downtime during the transition. The benefits might include increased
productivity, reduced operational errors, and enhanced customer satisfaction. A CBA
would quantify these factors in monetary terms to determine if the investment in new
software is the best decision for the business.

What are the cost-benefit analysis methods?

Various methods are employed in cost-benefit analysis, including:

▪ Net Present Value (NPV): Calculates the present value of future cash flows minusthe initial
investment.
▪ Benefit-Cost Ratio (BCR): Represents the ratio of the benefits to the costs.
▪ Internal Rate of Return (IRR): The discount rate at which NPV becomes zero.
▪ Payback Period: Time taken for the benefits to repay the costs.

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 ▪ Sensitivity analyses are also conducted to account for uncertainties and variables inestimates.
How do you calculate cost analysis?

Cost analysis involves determining all the costs associated with a project or decision.
To calculate:

▪ Identify Direct Costs: These are costs directly attributable to the project, likematerials,
labor, and equipment.
▪ Identify Indirect Costs: Overheads or administrative costs that aren't tied to aspecific
project but are spread over multiple projects.
▪ Factor in Intangible Costs: Costs not easily quantifiable, like potential branddamage
or opportunity costs.
▪ Sum up: Add all identified costs to derive a total cost.

Cost-benefit analysis: 5 steps to make better

choices

Summary
A cost-benefit analysis is a process that helps you determine the economic benefit of a decision,
so you can decide whether it’s worth pursuing. It’s a useful tool when you want to avoid bias in
your decision-making process—especially when you’re faced with a big decision that will impact
your team or project success. Cost-benefit analyses can seem daunting at first, but don’t fret—
we’ve simplified the process into five concrete steps.

In 1848, a French engineer named Jules Dupuit was working on a bridge. As an amateur economist, he
decided to run an experiment to answer this question: How much should the government charge for tolls to
cover building and maintenance costs? This may sound simple, but Dupuit threw in a curveball—when
considering net costs, he subtracted the social benefit the bridge would bring.

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Calculating the social benefit of a bridge sounds like a puzzler, but not for Dupuit. He just measured how
much people were willing to pay to use it. Then with some fancy calculations, he was able to recommend a
toll amount that took into account the costs and benefits of his bridge. And so, the cost-benefit analysis
was born. The process has been refined since Dupuit’s day, and now it’s used less for calculating bridge
tolls and more for figuring out if decisions are economically feasible. But the big picture remains the
same—when it comes to decision-making, costs and benefits are key Calculating the social benefit of a
bridge sounds like a puzzler, butnot for Dupuit. He just measured how much people were willing to pay
to use it. Then with some fancy calculations, he was able to recommend a toll amount that took into
account the costs and benefits of his bridge.
And so, the cost-benefit analysis was born. The process has been refined since Dupuit’s day, and now it’s
used less for calculating bridge tolls and more for figuring out if decisions are economically feasible. But
the big picture remains the same—when it comes to decision-making, costs and benefits are key.
.

What is a cost-benefit analysis?

A cost-benefit analysis (CBA)—also called a benefit-cost analysis—is a decision-making tool that helps
you choose which actions are worth pursuing. It provides a quantitative view of an issue, so you can make
decisions based on evidence rather than opinion or bias.
CBA is particularly useful in project planning; it compares the financial feasibility of new projects against
their potential returns.
During your analysis process, you assign monetary values to the costs and benefits of a decision—then
subtract costs from benefits to determine net gains. The resulting cost-benefitratio helps you estimate the
full economic benefit (or lack thereof) of your choice so you candecide if it’s a good idea to pursue.
CBA is particularly useful in project planning; it compares the financial feasibility of new projects against
their potential returns.
During your analysis process, you assign monetary values to the costs and benefits of a decision—then
subtract costs from benefits to determine net gains. The resulting cost-benefitratio helps you estimate the
full economic benefit (or lack thereof) of your choice so you candecide if it’s a good idea to pursue is
particularly useful in project planning; it compares the financial feasibility of new projects against their
potential returns.
During your analysis process, you assign monetary values to the costs and benefits of a decision—then
subtract costs from benefits to determine net gains. The resulting cost-benefitratio helps you estimate the
full economic benefit (or lack thereof) of your choice so you candecide if it’s a good idea to pursue.
CBA is particularly useful in project planning; it compares the financial feasibility of new projects against
their potential returns.
During your analysis process, you assign monetary values to the costs and benefits of a decision—then
subtract costs from benefits to determine net gains. The resulting cost-benefit

54
ratio helps you estimate the full economic benefit (or lack thereof) of your choice so you can decide if it’s
a good idea to pursue.

When should you use a cost-benefit

analysis?
A cost-benefit analysis works best when you want to decide whether to pursue a specific course of action.
It also helps when your decision has clear economic costs and benefits. For example, it’s easier to create a
CBA to determine the feasibility of a new project than to evaluate whether a new hire would be a good
fit for your team. That’s because it’s hard to assign concrete financial costs and benefits to someone’s
experience and work potential.
This type of economic analysis also takes some time to complete, so it’s best for when you’re faced with a
big decision that will impact your team or project success. For smaller or less complex decisions, try using
a simpler process like a decision matrix.
Here are some examples of when to use a cost-benefit analysis:
6. Developing a new business strategy
7. Making resource allocation or purchase decisions
8. Deciding whether to pursue a new project
9. Comparing investment opportunities
10. Measuring the potential impact or desirability of new company policies
11. Assessing proposed changes to your company structure or processes

How to do a cost-benefit analysis

Creating a cost-benefit analysis may seem daunting at first, but we’ve simplified the methodology into
five concrete steps. After you’ve run through this process once, you can tailor these steps to suit your
specific project or team needs.
1. Build a framework
First, create a framework that lays out the goals of your analysis, your current situation, and the scope of
what your analysis will include.
Your framework should include these components:
The question your analysis will answer
A successful CBA always starts with a good question. It helps to be as specific as possible—for example,
it’s easier to answer “Should we improve our mobile app?” than a broader question like“What products
should we improve to drive adoption?”

55
An overview of your current situation
An overview provides context for your analysis. It gives you a starting point to work from, so everyone
understands where you’re coming from and why you’re considering a change. Here’s what to include in
your overview:
• Background: A brief description of your current situation.
• Current performance: Quantitative data to demonstrate how things are going in yourcurrent
situation.
• Opportunities: Any areas of improvement from your current situation.
• Projected future performance with the status quo: Quantitative data to predict how thingswill be
going in the future if nothing changes.
• Risks of the status quo: What might go wrong if you don’t change anything.
For example, imagine you’re trying to decide whether to overhaul your mobile app. Here’s what your
overview might look like:
• Background: We have a mobile app and web app.
• Current performance: Our mobile app has 100k users and our web app has 400k users.
• Opportunities: We have 300k users who use the web app but not mobile.
• Projected future performance with status quo: Adoption of our web app has grown 50% YoY. We
project this will continue and there will be 600k users one year from now. Meanwhile, adoption of
our mobile app has grown 10% YoY. We project this will continueand there will be 110k users one
year from now.
• Risks of status quo: Lack of mobile adoption means users have less flexibility. Competitors with
better mobile apps could win the category, while our brand may becomeknown for having a poor
mobile experience. Without an effective mobile app, we’re missing out on a large number of
potential app users.
When building a cost-benefit analysis framework, it's important to accurately estimate the expected costs
associated with your decision, including both direct and indirect expenses.
The scope of your analysis
Finally, your framework should include the scope of your CBA. Like a project scope, this creates
boundaries for your analysis and lays out what type of information you’ll consider in your calculations (plus
what you won’t consider). Typically, your scope includes:
• The timeframe over which you’ll estimate potential costs and expected benefits. For
example, you may decide to limit projections to one year from now.
• The types of costs and benefits you’ll include (or exclude). For example, you coulddecide
to include labor costs and resources, but not opportunity costs.
• How you’ll measure costs and benefits. For example, you may assign dollar values to measure
tangible costs like labor and resources, and assign key performance indicators (KPIs) to measure
intangible costs or benefits like brand awareness.
2. List and categorize costs and benefits
Next, it’s time to list all the costs and benefits of your decision. For this step, it’s helpful to collaborate
with stakeholders so you can benefit from their specific expertise (for example, your

56
IT team would be able to estimate how much new software would cost). Think of your decisionlike a
project you’ll complete to achieve your proposed course of action. Ask yourself what resources you need
(like materials or labor), and what the results of your decision will be (like additional revenue).
As you list out costs and benefits, sort them into the following categories. Then in the next step,you’ll
estimate dollar amounts of each of these items.
Types of costs
• Direct costs: Costs associated with the production of your product, service, or project. This is
typically the materials, equipment, or labor you need to follow through on your proposed course of
action. For example, these could be the direct cost of revamping your mobile app: product team
hours, a contract with a user testing firm, and new development software.
• Indirect costs: Fixed costs that aren’t directly associated with production. These are typically
ongoing overhead costs that you need to operate your business—like rent, utilities, or
transportation fees. For example, these might be the indirect costs to create a new mobile app:
internet for your remote development team, plus subscriptions to new development and collaboration
software.
• Intangible costs: Costs that you can’t assign a dollar amount to, like impacts to brand perception or
customer satisfaction. This might also include opportunity costs, which are lost opportunities when
you make one decision instead of another. For example, you could include this intangible cost
for your app creation project: decreased satisfaction for prospective desktop users. This is an
opportunity cost, since you’re choosing to upgrade your mobile app instead of creating a desktop
app.
• Costs of potential risks: Costs associated with unexpected roadblocks. In other words, what you’ll
need to spend money on if an unforeseen event knocks your project off track.Think of setbacks
you would include in a project risk register—like data security breaches, scheduling delays, or
unplanned work. For example, you might list these potential costs for your mobile app project:
overtime pay for unplanned work, data security team hours to resolve unforeseen app privacy
issues, and rush rates to accommodate for scheduling delays.
When listing out tangible costs (like direct and indirect costs), follow the same process you would when
creating a project budget. Think of all the tasks you need to complete to follow through on your decision,
then list out the resources required for each deliverable. For intangible costs, you’ll have to use a bit more
creativity. If you’re stuck, try looking at similar projects th at have been completed in the past to see what
type of impact they had.
Types of benefits
20. Direct benefits: Benefits you can measure with a currency value, like the revenue you’ll gain
from a project. For example, this could include revenue from new mobile app subscriptions.

57
21. Indirect benefits: Benefits you can perceive but can’t measure with currency values. For
example, this could include increased customer satisfaction and improved brand awareness.
3. Estimate values
Now it’s time to estimate the value of each cost and benefit you’ve listed. This is most straightforward
for tangible categories you can assign a specific dollar amount to—like direct costs, indirect costs, and
direct benefits. For intangible categories li ke intangible costs andindirect benefits, assign KPIs in lieu of
monetary units. For example, you could measure customer satisfaction by tracking customer churn rate
(the rate at which customers stop using your service). If you can, use the same KPIs for both costs and
benefits so you can easily compare them later.
We can’t predict the future, so these are ultimately just estimates. To make your calculations as accurate
as possible, try comparing costs and benefits from similar projects you’ve completed in the past. Old
projects are a gold mine of historical data and lessons learned. They can help you see the real-life economic
value of past costs and benefits—plus any items or circumstances you might have overlooked. Using a
project management tool can make this step easy—since all of your project information and
communications are housed in one place, you can easily look back at past initiative . . This is most
straightforward for tangible categories you can assign a specific dollar amount to—like direct costs, indirect
costs, and direct benefits. For intangible categories like intangible costs and indirect benefits, assign KPIs
in lieu of monetary units. For example, you could measure customer satisfaction by tracking customer
churn rate (the rate at which customers stop using your service). If you can, use the same KPIs for both
costs and benefits so you can easily compare them later.
We can’t predict the future, so these are ultimately just estimates. To make your calculations as accurate as
possible, try comparing costs and benefits from similar projects you’ve completed in the past. Old projects
are a gold mine of historical data and lessons learned. They can help you see the real-life economic value
of past costs and benefits—plus any items or circumstances you might have overlooked. Using a project
management tool can make this step easy—since all of your project information and communications are
housed in one place, you can easily look back at past initiatives. We can’t predict the future, so these are
ultimately just estimates. To make your calculations as accurate as possible, try comparing costs and benefits
from similar projects you’ve completed in the past. Old projects are a gold mine of historical data and
lessons learned. They can help you see the real-life economic value of past costs and benefits—plus any
items or circumstances you might have overlooked. Using a project management tool can make this step
easy—since all of your project information and communications are housed in one place, you can easily
look back at past initiative . . This is most straightforward for tangible categories you can assign a specific
dollar amount to—like direct costs, indirect costs, and direct benefits. For intangible categories like
intangible costs and indirect benefits, assign KPIs in lieu of monetary units. For example, you could
measure customer satisfaction by tracking customer

58
churn rate (the rate at which customers stop using your service). If you can, use the same KPIs for both
costs and benefits so you can easily compare them later.
We can’t predict the future, so these are ultimately just estimates. To make your calculations as accurate
as possible, try comparing costs and benefits from similar projects you’ve completed in the past. Old
projects are a gold mine of historical data and lessons learned. They can help you see the real-life economic
value of past costs and benefits—plus any items or circumstances you might have overlooked. Using a
project management tool can make this step easy—since all of your project information and
communications are housed in one place, you can easily look back at past initiatives.

Make decisions count

A cost-benefit analysis helps you use data to make the best possible decision. That means you can say
goodbye to coin flips and choose your options with confidence.
Creating a cost-benefit analysis can seem like a project in its own right, especially if you’reworking with
multiple stakeholders to get the job done. Before you dive in, consider using
a project management tool to coordinate work. Asana lets you create and assign tasks, organize work, and
communicate with stakeholders directly where work happens. You can also map out your entire cost-benefit
analysis project and save it as a template for future use.

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 CONCLUSION

Mutual Funds now represent perhaps most appropriate investment opportunity for most
investors. As financial markets become more sophisticated and complex, investors needa
financial intermediary who provides the required knowledge and professional expertise on
successful investing. As the investor always try to maximize the returns and minimize the risk.
Mutual fund satisfies these requirements by providing attractive returns with affordable risks:
The fund industry has already overtaken the banking industry, more funds being under mutual
fund management than deposited with banks. With the emergence of tough competition in this
sector mutual funds are launching a variety of schemes which caters to the requirement of the
particular class of investors.
Risk takers for getting capital appreciation should invest in growth, equity schemes.
Investors who are in need of regular income should invest in income plans.

The stock market has been rising for over three years now. This in turn has not only protected
the money invested in funds but has also to helped grow these investments.This has also instilled
greater confidence among fund investors who are investing intothe market through the MF route
than ever before.

Reliance India mutual funds provide major benefits to a common man who wants tomake his life
better than previous.

India's largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, the mutual
fund industry as a whole gets less than 2 per cent of household savings againstthe 46 per cent that
go into bank deposits. Some fund managers say this only indicatesthe sector's potential. "If mutual
funds succeed in chipping away at bank deposits, evena triple digit growth is possible over the
next few years.

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REFRENCE

WEBSITES:

1. www.moneycontrol.com

2. www.drbrambedkarcollege.ac.in

3. www.fincash.com

4. www.groww.in

5. www.amfindia.com

6. https://en.wikipedia.org/

Book:

1. FINANCIAL MARKET AND SERVICES By Gordon & Natarajan

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