Why invest?
• Different financial goals
– Children’s education/ marriage – Medical emergency – Retirement – Aspirational goals - House, Foreign holiday – Other obligations
Time value of money
A fixed monthly expense of INR 30,000 p.m today over time…..
Inflation assumed @5%
Time value of money
While the value of your savings erodes over time, thanks to inflation
Inflation assumed @5%
The expense - savings mismatch
?
Investors need to save regularly into assets that can beat inflation to meet their financial goals.
Performance of various asset classes
Cumulative annualised returns of different asset classes (1985 - 2006)
Equity 17.9
G Sec
11.3
Bank FD
10.4
Gold
7.2
Inflation
0 5
6.8
10 15 20
Equities - clearly the best bet in the long term
Market Timing- Does it matter?
Market Timing: Does it matter?
Say, an investor invests INR 10,000 in equities for 10 consecutive years at the peak of the market every year.
Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sensex Value 4,069 4,548 4,281 5,075 5,933 4,438 3,713 5,839 6,603 9,398 13,399
This provides a compounded annualized return of 10.70%
Investments into the Sensex at prevailing levels
Market Timing: Does it matter?
Say, an investor invests INR 10,000 in equities for 10 consecutive years at the lowest levels of the market every year.
Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sensex Value 2,745 3,225 2,764 3,060 3,594 2,600 2,834 2,924 4,505 6,103 8,929
This provides a compounded annualized return of 11.13%
Investments into the Sensex at prevailing levels
Market Timing: Does it matter?
Say, an investor invests INR 10,000 in equities for 10 consecutive years on March 31st, every year, irrespective of market levels.
Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sensex Value 3,367 3,361 3,893 3,740 5,001 3,604 3,469 3,049 5,591 6,493 11,280
This provides a compounded annualized return of 11.50%
Investments into the Sensex at prevailing levels
Market Timing doesn’t matter
Portfolio value
Invest for the long term
Moral: Market Timing doesn’t help!! …. it is the time in the markets that matters
Case Study-Systematic Investing
Little Drops of Water Make the Mighty Ocean
Systematic Investment Plan
• Anil is a businessman. He is married to Tina who is a housewife. He has a son and daughter, both are in school Over next couple of years, he desires to follow a savings plan to build wealth for his children’s education/ marriage and buy a bigger house In order to hedge against uncertainties of business, he has been regularly investing in fixed income instruments
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Systematic Investment Plan
• • • The Lower interest rates over the years has been worrying him He decides to take the help of Sreeni, financial advisor After carefully evaluating his financial goals and time required to achieve his financial goals, he advises him to invest in equity mutual funds for following reasons – Portfolio diversification – Superior returns (refer slide on cumulative annualised returns for different asset classes for details)
Systematic Investment Plan
• However, Anil is not comfortable investing into equity mutual funds as they are volatile and therefore risky and avoidable Sreeni advises Mahesh to register for Systematic Investment Plan (SIP) and make use of volatility in the market rather than get worried and avoid investing in equity mutual funds. Anil is not clear as to how SIP will work to his advantage and requests for more details Sreeni explains as follows :
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Systematic Investing, An Example using SIP whereas Viru decides Rahul & Viru are two friends. Rahul decides to invest
to make lump sum investment
Month Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Total NAV * 9.345 9.399 8.123 8.750 8.012 8.925 9.102 8.310 7.568 6.462 6.931 7.600 Rahul's Investment SIP Amount(Rs.) Units 1000 107.01 1000 106.39 1000 123.11 1000 114.29 1000 124.81 1000 112.04 1000 109.87 1000 120.34 1000 132.14 1000 154.75 1000 144.28 1000 131.58 12000 1480.60 Viru's Investment Lump Sum Amount(Rs.) Units 12000 1284.11
12000
1284.11
•Disclaimer:
The illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any Schemes(s) of UTI Mutual Fund. Rupee Cost Averaging neither ensures you profits nor protects you from making a loss in declining markets. Please read factors. •NAV as on the 10th of every month. These are assumed NAVs in a volatile market of a hypothetical scheme
Systematic Investing, An Example
10 9 8 7 6 5 4 3 2
Jan- 07 Feb- 07 Mar - 07 Apr - 07 May- 07 Jun- 07 Jul- 07 Aug- 07 Sep- 07 Oct - 07 Nov- 07 Dec- 07 9.35 9.40 8.12 8.75 8.01 8.93 9.10 8.31 7.57 6.46 6.93 7.60
106.39 units
154.75 units
When the price is highest, you buy the least number of units
When the price is lowest, you buy the highest number of units
Systematic Investing, An Example
10 9 8 7 6 5 4 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec07 07 07 07 07 07 07 07 07 07 07 07
Rahul’s average unit price (SIP) Viru’s average unit price (lump sum) Rahul’s Saving = 12000/1480.60 = Rs. 8.105 = Rs. 9.345 = Rs. 1.24 per unit
Actual Price Movement Rahul’s Average Cost Price (SIP) Viru ‘s Average Cost Price (lump sum)
Rahul’s Systematic Investing helps him purchase 196.49 units more at price which is Rs. 1.24 lower than Viru’s
Why Systematic Investing
• The Goal of Most Investors it to Buy when the prices are Low, and Sell when the prices are High Sounds simple, but trying to time the market like this is: – Time Consuming – Risky – and Almost Impossible A more successful strategy is to adopt Rupee Cost Averaging
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What is Rupee Cost Averaging?
• The Markets are volatile: they move up and down in an unpredictable manner • Invest a fixed amount, at regular, predetermined intervals and use the market fluctuations to your benefit • How does it help you: – You buy more when the market is down – You buy less when the market is up – Over time the market fluctuations are averaged – Most likely you will realise a saving on the cost per unit – This may lead to HIGHER RETURNS
Three common Reasons for not Investing
• • • I don’t have enough money to invest I am too busy making money to worry about managing it I don’t have the time or expertise to follow the market movements and make investments at the right time
Investment made easy -SIP
SIP is an investment program that allows you to contribute a fixed amount (as low as Rs.1000) in mutual funds at regular intervals.
Presenting
UTI Systematic Investment Plan…
An early & regular investment today, leads to a prosperous tomorrow
Convenience
Accumulate Wealth in a much relaxed manner - UTI SIP can be started with as little as Rs. 500/-, Reduce the Risk - UTI SIP helps you average out your cost. It is best way to participate in equity markets by reducing risk, Unlimited Choice host of schemes Fund categories. – Through SIP, UTI under Equity, Balanced MF & offers, Income
Convenience …..contd.
Auto Debit Facility banks with which UTI UTI Bank),
(Direct Facility) AMC has tie up Payment
with (currently ECS
the with via
Auto Debit (ECS Debit) RBI select branches across cities,
through
Post Dated Cheques - Number of cheques reduced to 6 from 12.
How to make UTI SIP work for you ?
Set your financial goal Identify the scheme Decide the SIP amount Look for a long-term commitment Aim for the big picture Start investing
SIP RETURNS - UTI SCHEMES
UTI Infrastructure Fund SIP Investments Total Amount Invested (Rs.) Market Value as on February 29, 2008 Returns (Annualised)*% Lumpsum Investment -CAGR Retirement Benefit Pension Fund SIP Investments Total Amount Invested (Rs.) Market Value as on February 29, 2008 Returns (Annualised)*% Lumpsum Investment -CAGR 5 Years SIP 3 Years SIP 36,000.00 64,110.00 41.17% 48.68% 3 Years SIP 36,000.00 42,922.00 11.72% 14.66% 1 Year SIP 12,000.00 13,419.00 22.36% 55.23% 1 Year SIP 12,000.00 12,702.00 10.91% 18.59%
5 Years SIP 60000 86245 14.46% 17.81%
Thank You