Smart Investor’s Preference
સમજદાર રોકાણકાર ની પસંદગી
(SIP)
એસ આઇ પી
What is the Average Age when one starts Earning?
વ્યક્તી સરે રાશ કેટી ઉંમર કમવા નુ શરુ કરે છે ?
25 Years
What is the Average Retirement Age?
વ્યક્તી સરે રાશ કેટી ઉંમરે નીવ ૃત થાય છે ?
60 Years
What is an Average Income of an Middle-Class House-hold?
ઍક મધ્યમ વગગ પરીવાર ની સરે રાશ માસીક આવક કેટી હોય?
Rs.15,000/- p.m.
How much can a person save on a regular basis?
Rs.5,000/- p.m.
If a person can save Rs.5,000/- per month What will be his wealth when he retires?
Assuming: He increases his investments by 5% every year Invests in an Asset class that gives returns of 20%
At Age 60 his wealth would have been
Rs.27 Crores
Starting Early
Ram
Savings Starting Age Savings - Monthly SIP Saving Years till age 60 25 Rs.5,000/35 years
Shyam
40 Rs.15,000/20 years
27 Crores*
Total Amount Saved (appx.)
Rs.57 lacs
Rs.62 lacs
Give time to your investments Give time to your investments rather than timing rather than timing
4.90 Crores*
25 years
40 years
60 years
Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR
Invest Regularly
• Builds wealth over the long term – Just Rs. 1500 per month invested for 17 years @10% would grow to Rs. 8 lacs…could be used for your daughter’s marriage • Take advantage of market volatility – Buy more when the markets are down
Rs. 10,000 worth of Gold bought every month
7000
6650
Price per 10 grams
6500 6000
5400
Highest price Lowest quantity
6100 5900 5400 6100
20 grams
5600 5000
6000 5800 5700
6070
15 grams
5500 5000 4500 4000
Jan Feb
Lowest price Highest quantity
M ar Apr M ay Jun Jul Aug Sep Oct Nov Dec
Invest Regularly
• Myth: Timing is essential to generate high returns • Reality : It is the time and not the timing that matters Invested a fixed amount in BSE Sensex annually for 25 yrs On the worst day to buy (highest sensex each yr) On the best day to buy (lowest sensex each yr) The result
15% p.a. 17% p.a.
Is it worth the risk or the tension? Who can time the market to perfection? Not even the experts can !!
Invest Regularly
• It is the small drops that make an ocean!! • Relieves you of the last minute pressure • Slow and steady wins the race – E.g. Split your Sec 80C investments into smaller amounts and invest every month • Reduces the risk of investing at the wrong time – Difficult to predict the market and know when is the right time We earn regularly; We spend regularly Shouldn’t we also invest regularly?
Invest Regularly
• …….It all adds up!
Rs.21.7 lakhs Rs.1000 invested every month for 30 years @10%
30
A small amount invested regularly can grow to substantial lumpsum
EARN MORE
• Earn more…it can make a big difference
One time investment of Rs.1 lakh invested for 30 yrs
@ 6% 5.7 lakhs
@ 10% 17.45 lakhs
@ 15% 66.2 lakhs
EARN MORE
Power of Compounding - QUIZ
• Rs. 10,000 invested every month for a period of 30 years At 8% 1.5 crores Postal Recurring
At 15% -
7.0 crores
??????
At 20% -
23 crores
??????
The Formula for Creating Wealth
6,000 5,000 4,000 3,000 2,000 1,000 0
1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 200491 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Start Early
Invest Regularly
Earn More
Create Wealth
Make your money work hard for you
The Million Dollar Question
I am convinced that I should save and invest regularly, but the million dollar question is…
Where should I invest?
Risk Return Spectrum
High
Equity Real Estate
Return potential
Gold
Debt Funds PPF, NSC, KVP, PO Deposits, RBI Bonds Liquid Funds Savings Bank/ FD
Low
Low
Risk
High
Note:The above chart is for illustrative purpose only and is not marked to scale. The chart is based on our perception of the risk and return potential of various investment avenues
Equities- The Most Attractive Asset Class
Equities have outperformed all other asset classes in the long run globally as well as in India
18.25%
10.64% 7.47% 7.12%
10.27%
Inflation
Gold
G Secs
Bank FD Equities
Source : CLSA
Cumulative annualised returns (1980 - 2004)
Which product among all above has the potential to create greatest wealth for you?
Equities …
Do you agree?
Risk??
Returns are unsure! Equity – owners’ risk Volatility of returns
Market Risk
Sentiments in ST, Herd Mentality
Investor’s Psyche - Wrong emotion dominates at wrong time
Greed
Fear
Hope
The Cycle of Fear, Greed & Hope
Simply put …
Selecting Right Asset Class
Equity market (represented by BSE Sensex) has outperformed all other investment avenues
6,000 5,000 4,000 3,000 2,000 1,000 0
1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 200491 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Sensex
Company Deposits Bank Deposits
Inflation Gold
Past Performance (BSE Sensex)
Year 1979 2006
Sensex 100 13,000
Investment Rs. 1,00,000 1,30,00,000
In past 27 years BSE Sensex has given about 19.5% returns
This is in spite of … • Two wars • At least 3 recessionary periods • At least three major financial scandals • 10 different governments and • Assassination of 2 prime ministers • An unfair share of natural disasters
Years 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
YEAR END 31-Mar-79 31-Mar-80 31-Mar-81 31-Mar-82 31-Mar-83 31-Mar-84 31-Mar-85 31-Mar-86 31-Mar-87 31-Mar-88 31-Mar-89 31-Mar-90 31-Mar-91 31-Mar-92 31-Mar-93 31-Mar-94 31-Mar-95 31-Mar-96 31-Mar-97 31-Mar-98 31-Mar-99 31-Mar-00 31-Mar-01 31-Mar-02 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06
SENSEX level 100.00 128.57 173.44 217.71 211.51 245.33 353.86 574.11 510.36 398.37 713.60 781.05 1167.97 4285.00 2280.52 3778.99 3260.96 3366.61 3360.89 3892.75 3739.96 5001.28 3604.38 3469.35 3048.72 5590.60 6492.82 11279
1 year 28.57% 34.90% 25.52% -2.85% 15.99% 44.24% 62.24% -11.10% -21.94% 79.13% 9.45% 49.54% 266.88% -46.78% 65.71% -13.71% 3.24% -0.17% 15.82% -3.92% 33.73% -27.93% -3.75% -12.12% 83.38% 16.14% 73.71% 10/27
3 years
5 years
7 years
10 years
15 years
29.61% 18.05% 12.25% 17.58% 39.49% 27.66% 4.03% 7.52% 15.24% 43.12% 81.76% 42.93% 47.90% -8.70% 13.86% -3.83% 6.08% 3.57% 14.17% -2.53% -2.47% -15.21% 15.76% 23.23% 54.66% 5/25 19.66% 22.44% 27.05% 18.58% 13.50% 23.81% 17.16% 15.26% 53.04% 41.76% 39.57% 33.09% 23.58% -4.74% 11.29% -0.21% 8.93% 1.37% 0.64% -4.77% 8.37% 5.36% 25.62% 3/23 28.36% 21.77% 12.61% 18.48% 20.52% 24.97% 42.80% 21.78% 33.11% 35.03% 24.81% 23.18% 18.77% -1.92% 11.87% -0.67% 0.89% -1.41% 7.54% 7.58% 17.08% 3/21 21.72% 19.77% 21.01% 34.71% 26.84% 31.45% 24.87% 19.35% 20.74% 25.60% 18.02% 20.40% 11.93% -2.09% 2.95% 3.99% 7.13% 12.85% 1/18 27.40% 24.05% 21.86% 20.02% 21.43% 19.92% 19.31% 13.03% 13.63% 14.53% 14.71% 15.16% 16.32% 0/13
Probability of Loss
Using the Wisdom
We can direct our savings in such a manner that we create wealth, the way we wish
DISCIPLINED SAVINGS + SUFFICIENT TIME + RIGHT ASSET CLASS = Smart Investor’s Preference
What is SIP
• Invest a fixed amount, at regular, predetermined intervals and use the market fluctuations to your benefit
Dates 1 2 3 4 5 6 7 8
11.981
Monthly Investment 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
NAV 10 8 6 18 22 12 19 14 17 14 10 14
Units Alloated 100.00 125.00 166.67 55.56 45.45 83.33 52.63 71.43 58.82 71.43 100.00 71.43
1-Jan-05 1-Feb-05 1-Mar-05 1-Apr-05 1-May-05 1-Jun-05 1-Jul-05 1-Aug-05 1-Sep-05 1-Oct-05 1-Nov-05 1-Dec-05
9 10 11 12
TOTAL
12000
1001.75
Average NAV Average Cost per unit
13.67 11.98
A Snapshot of poor performing schemes
Scheme Name Pru Tech Fund Alliance New Millenium Amount Invested through SIP(Rs. 1000 p.m.) from March 2000 61,000 61,000 Amount Invested One Time Pru Tech Fund Alliance New Millenium 61,000 61,000 Current Value As on 31-03-2005 105,930 106,347 Current Value 41,480 33,673 SIP Returns 22.06% 22.22% Annualised Returns -7.34% -11.08%
A Snapshot of better performing schemes
Scheme Name Amount Invested through SIP(Rs. 1000 p.m.) from March 2000 61,000 61,000 Amount Invested One Time HDFC Equity Reliance Growth 61,000 61,000 Current Value As on 31-03-2005 161,209 226,349 Current Value 146,501 167,023 SIP Returns 39.69% 54.64% Annualised Returns 18.90% 22.02%
HDFC Equity Reliance Growth
Start an SIP today and Sit back and Relax