do a series of investments outweigh lump sum investments in kse
TRANSCRIPT
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This report is submitted in partialfulfillment of the requirements for
the degreeof
B.S. Actuarial Science and Risk
Management
Department of Statistics
University Of Karachi
DO
SERIES
OF
INVESTMENTS
OUTWEIGH
LUMP
SUM
INVESTMENTIN KARACHI STOCKEXCHANGE?
Submitted
Farheen Aqeeq Wasti
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ABSTRACT
This report is intended to introduce the concept and significance of
Investment through variable annuities in Karachi Stock Exchange. The
hypothesis following this study is, whether investment through
annuities offer improved returns than lump sum investment -- or not. It
is a widely experienced piece of evidence that investments returns in
equity markets customarily outperform risk-free investments by more
than 100% year by year. However, Underperformance of a single year
could change the directions of decade long investments into negative
zone. In order to minimize losses or to receive an early indication, an
algorithm has been designed in this report using index and volumes of
both,-- KSE All share index and KSE 100 indexas per requirement.
Data as, is the most pivotal ingredient of any research, KSE index data
has been used which is limited from year 1992 to 2008 and volumes
from December 2005 to June 2009,whereas data for all other indices is
from 1995 to 2008.
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Contents
Abstract
Table of Contents
1. Introduction 1
2. Models3
2.1 Methodology: Model 3
2.2 Strategy: Model 4
2.3 Product: Model 4
3. Analysis & Results 6
3.1 Analysis: Momentum 6
3.2 Analysis: Projections 6
3.3. Results 7
3.3.1 Comparison of Indices 7
3.3.2. Strategy 8
3.3.3 Product 8
3.4. Regulations 8
3.5 Conclusion 9
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Appendix : Tables and Charts 11
References and important websites 22
Endnotes 24
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1Introducti
on
Does a series of investments outweigh a lumpsum investment in Pakistan equity market:
Karachi Stock Exchange?
1.1 Introduction
The political driven financial drive-down that began in 2007 and
accelerated greatly in 2008, has posed a unique challenge for the
regulators of financial intermediaries. The rate of knots and severity of
the events that transpired have been quite a shock to the financial and
political system in Pakistan, and subsequently, to its markets. As
December 2008 closing level of KSE 100 describes steep loses from
index level 14077 of December 2007 to index leveled at 5865 of
December 2008 a decline of 58%. Much can be figured out from history
as right from its establishment, Pakistan inhabits a turmoil situation, a
few good years here and a few left some where are the ones on itsresume.
Stock exchange existed even before partition of sub-continent,
yet history and statistics demonstrate us that a very undersized group
of people including market makers, corporate sector and individuals
knows about it, so whether there is a gain or loss it is associated with
this small group. Financial disasters in stock exchanges arent the
newbie here but perceptibly their upshot on a country as whole is
negligible. Last three major calamities occurred in 1998, 2005 and
2008. Comparing these with USA and similar number of market
turnaround would be found, if not more, in the last decade but their
impact was substantial and hazardous. Therefore certainly, no market
is immune to crisis whether developed markets like in US or
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1Introducti
on
underdeveloped markets like in Pakistan, ( Our markets are driven by
political stability and there markets, actually driven by capital
stability).
Another crisis due, as soon we are out of current one. My
motivation behind this report is whenever next crisis happened, some
products, regulations, strategies should be in place which could
minimize individual loses.
As economic data suggests the need of derivatives, most of us
know how to trade derivatives but a very small group has information
about why we need derivatives. Even in that particular group not all
has information about several kinds of derivatives like Put and Call
options because our exchanges not started trading in them yet. One
important thing I like to mention, there are approximately 700
companies registered with Karachi Stock Exchange and probably 70
outperform market. So if an investor looks for places where he can put
his investment it has few choices to pick, than if investor wants tosafeguard his investment no options available other than future market
above all short selling is not an option. So, where to invest, in equity
directly or in mutual funds, both ways we dont have much space.
Smart investments not only certain where to invest but they also took
care how to invest to maximize profit or minimize loss. I intend to limit
this report on a subject how to invest further emphasize whether series
of investments provide better returns than lump sum investment. To
support my hypothesis I will use data of 4 indices DOW 30, S&P 500,
Nikkei 225 and FTSE 100 and later will compare them with KSE 100.
More precisely this report is about KSE so other indices are used for
data analysis only or anyway demonstrate any mutual or contrary
trends with Pakistan economy, KSE and its indices.
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3Analysis &Results
Annuities and Lump sum Investments
2.1 Methodology: Model
Series of payments could be termed as annuity, there are two
type of annuities fixed annuities and variable annuities. In fixed
annuities investors are protected and get fixed amount of returns no
matter how actual investment behaves. In variable annuities returns
are varied to profit gain on investment, here we are working on
variable monthly annuities having 2 time periods which are 5 years
and 10 years and their payouts are lump sum amount including returns
and principal at the end of each annuity.
Indices are benchmarks, which are Nikkei 225, S&P 500, DOW
30, FTSE 100 and KSE 100. Using monthly closings of above mentioned
indices calculated for period between years 1999 to 2008 for 5 years
annuity and time between years 1995 to 2008 for 10 years. In case of
KSE 100 index only, following time interval is used 1992 to 2008 for
both terms 5 and 10 years. Returns are calculated in between any two
time period which should be any two consecutive months through
simple difference formula, instead of log difference for no specific
reason.
Positive or negative returns are then added in current annuity
value, month by month basis. Annual returns are calculated using
Rateiii function: Rate function returns the interest rate per period of an
annuity. In summary (see table 1C and 1D) rate function being
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3Analysis &Results
changed to calculate annual returns, as it is known rate function
calculates period returns and in this case retuning a monthly value.
RATE(nper,pmt,pv,fv,type)
Lump sum investment could be termed as investment being
made at the beginning of any term and no further investment done
after that. For Lump sum investment, year end closings are used to
calculate annual returns over the same terms 5 and 10 years as used
in calculating annuities returns. Yearly returns are calculated through
simple difference equation. Returns then added to investment value
over year to year basis. Time interval as mentioned above in annuities
returns remains the same for all indices. Returns after expiring the
terms will be lump sum also.
2.2 Strategy: Model
It has been assumed that abnormal variation in volumes of KSE
All share index and KSE 100 index can be an indication that market
conditions will be more volatile in near future and consequently, will
generate steep losses. Availability of data restricts to calculate the
difference of volumes of KSE all share index over KSE 100 index from
November 2005 to latest. Besides, calculated standard deviation of
KSE 100 index where differences are over certain limits, difference
greater than 25% and difference greater than 35%, for minimum at
least 5 consecutive values. Different limits are used due to a trend
seen in KSE, high volumes till 2006 than gradually decreasing volume
with increasing index. Compare them with monthly and yearly
standard deviation of available data. Due to unavailability and
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3Analysis &Results
Analysis & Results Summary
3.1 Analysis: Momentum
Positive trend can be spotted out while analyzing data of KSE
100 index. Closing index of December 2008 was 5865 points, 58%
down from last year closing. Now stand at 7400s level up 26%. Major
rating agencies including Moodys and Fitch holds the current
investment rating for Pakistan which is only a step higher than
becoming a bankrupt not a preferable situation for foreign investors
looking for investment in current global financial crisis. Political
government is more stable than 6 months before. Budget deficits and
BOP could be made through IMF and other made arrangements. About
6 month before to insure 5 years short term loans to Pakistan it cost
34% while now down to 22% but well above 2.5% level of January2007. Since 1997 the time span in negative trend in KSE remains for 1
year only, happened in 1998, 2001 and 2008. Energy crisis could be
resolved or contained in the end of 2009. Volumes in KSE are back in
normal condition but in low side, average trading in 1st 6 months of
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3Analysis &Results
2009 in KSE was 163 million, while last 6 months and 1st 6 month of
year 2008 record 38 million and 220 million shares respectively.
Global recession will further ease commodities prices especially wheat
and oil, which will lower inflation. Most important P.E ratio is 6-8 times
of companies trading in KSE 100 which is down from 10-14 level back
in 2007-2008.
3.2 Analysis: Projections
Using forecast function KSE projected to gain 28% from last year
closing. Current gain also demonstrate same positive trend but much
better. There is a trend forming since 1994 after every six years KSE
returns positive or negative single digit growth first happened in 1994
than in 2000 than in 2006 and next term is due in 2012 which is also a
election campaign year. Rest of the years remain in double digit
territory with most gain in 2002 of 112% and losses of 2008 returns
negative 58% remain on top on other side. Average return from 1992is 17%, for last 10 years its 30% and for last 5 years its 16%.
3.3 Results
3.3.1Comparison of indices
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3Analysis &Results
Based on our findings, both 10 years and 5 years results exhibit
KSE 100 annuity returns are better than lump sum investment;
average gain of annuity to annuity over lump sum investment in 5 and
10 years are 220% and 56% respectively. 5-year values upholds much
deviation from mean therefore, if one value from each of the extremes
is skipped over, then average annuity gain over lump sum investment
will trim down to 14.5%. It is also noted that FTSE 100 follows S&P 500
and DOW 30, premium over risk free rate of equity investment is
adequate, DOW 30 results better returns than both of other
exchanges, Nikkei 225 still is in restructuring phase after the financial
melt down of 80s and that is the reason it doesnt follow the North
American exchanges as FTSE does. In case of FTSE 100, S&P 500 and
DOW 30 lump sum investment returns are better than annuity returns.
While Nikkei 225 and KSE 100 produces a trend where annuity returns
are superior to lump sum investment, initiating from 1995 Nikkei 225
dropped down almost 55% of its value yearly return of (5.5) %, S&P
500 reaped 96% with a yearly return of 4.9%; DOW 30 achieved 130%with a return of 6% yearly; FTSE 100 gained 43% of its value with
yearly returns of 2.6%.As for KSE 100 index, it raised up to 250% of its
value and yielding returns of 7.6% annually over a time horizon of 17
years-- from 1992 to 2008. In 2008 Nikkei 225, S&P 500, DOW 30, FTSE
100 and KSE 100 lost (42%), (38%), (34%), (32) and (58%) of there
value respectively from year 2007.
KSE 100 performed exceptionally better in case of returns as it is
shown (See table 1C and table 1D) for 10 years annuity in contrast to
lump sum investment not any single term in either format of any
equity market indices including DOW 30, Nikkei 225, S&P 500 and FTSE
100 performed better than KSE 100. In case of 5 years annuities the
last term from years 2004-2008 annuity returns of KSE 100 remain the
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3Analysis &Results
lowest among all indices but lump sum investment still remains on top.
We also know that one factor producing high returns as our risk free
rate is much higher than other markets. If we add Inflation variable or
associate index value with US dollars than market returns may decline
further.
3.3.2Strategy
In strategy model, the differences in volumes of KSE all share
index and KSE 100 may amplify the volatility. Finding of analysis
cannot be deduced as data integrity is a subject to qualm as it is
insufficient. More specific results could be concluded in future if lack of
data problem gets resolved. Though volatility did increase several
times after a period of increased differences in volumes but volatility
remains low while we are in the period. Steep decline in December
2008 also couldnt help our results because decline was imminent due
to lower cap in index. Even before it started political uncertainty,
security situation and global financial crisis should drag down theindex.
3.3.3Product
Limited availability of data starting from year 1992, being a
major reason, product analysis on returns can be executed on 5 years
annuities only. Analysis shows losses could be minimized while
applying given approach, as losses distributed to other annuities and
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3Analysis &Results
investor may outgain losses by other annuities as it is happened in 7
out of 9 observations in table 2A.
3.4 Regulations
The regulatory authority over Karachi Stock Exchange
(Guarantee Ltd.) is SECP. Foreign investment in KSE approximately
worth 500 million US Dollari in 2008 with market capital over 50 billion
US Dollars, which now stand at 27 billion US Dollar. None of any single
foreign investment company relies heavily on KSE on its portfolio
returns. Loses or gain in KSE doesnt greatly effect their earnings. So
whenever rating agencies downgrade Pakistan rating not necessarily
due to financial crisis mostly because of instability in government to
run the system. These foreign investment companies quickly unload
their portfolios having KSE securities because they dont want to risk
their own rating downgrades from these agencies for having low level
securities. So in my proposal SECP should regulate these foreign
investments by not allowing bias investment directly related with
rating agencies. If its a financial sector to blame for rating downgrade,
if equity not performing well they can offload their portfolios but due to
rating downgrade from international rating agencies which may not
effect equities in KSE All Share they should hold their investments a
quarter or two. There should be a cool down period for all investment
funds, financial investment firms both local and international.
3.5 Conclusion
Revealed in table 1A-- 7 out of 8 terms of 10 years disclose
improved returns than those of lump sum investment. On run of the
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3Analysis &Results
mill, returns from annuity investments are 56% elevated than lump
sum investment over the years 1992 to 2008. Highest returns on
annuity and lump sum investment in years 1998-2007 are 34% and
23% respectively, is displayed whilst, investment losses with its
maximum amount in years 1992-2001 which are (2%) for annuities and
(3%) for lump sum investment is shown. Short term investment may
present higher returns in lump sum investment as it is determined by
several observations in 5-year investment plan, due to a incessant
positive growth years from 2002 to 2007, however, we also
experienced huge fall off in short term investments divergent to long
term investments as extreme losses show decline in portfolio (20%)
and (15%) in years 1994-1998 for annuities and lump sum investments
respectively. In case of equity investment, pension & retirement funds,
private investors and all other kinds of long term investments should
be invested in annuities to achieve higher returns.
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Reference
Appendix: Tables and ChartsTable 1A: 10 years annuities & lump sum investment
returns
Term 92-01 KSE MonthlyAnnuity 1200000 1064835 -0.02389585
KSE Yearly 1200000 906355 -0.027674426
Term 93-02 KSE MonthlyAnnuity 1200000 2197671 0.116386859
KSE Yearly 1200000 2606469 0.080655161
Term 94-03 KSE Monthly
Annuity 1200000 3384473 0.196820081KSE Yearly 1200000 2479332 0.07526459
Term 95-04 KSE MonthlyAnnuity 1200000 4523382 0.250453302
KSE Yearly 1200000 3641620 0.117406872
Term 96-05 KSE MonthlyAnnuity 1200000 6416160 0.315179622
KSE Yearly 1200000 7656722 0.203611042
Term 97-06 KSE Monthly
Annuity 1200000 6073188 0.304983685KSE Yearly 1200000 8991962 0.223115083
Term 98-07 KSE MonthlyAnnuity 1200000 7623635 0.347272285
KSE Yearly 1200000 9631884 0.231552697
Term 99-08 KSE MonthlyAnnuity 1200000 2631453 0.150090056
KSE Yearly 1200000 7445740 0.200252618
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Reference
Table 1B: 5 years annuities & lump sum investmentreturns
Term 92-96 KSE MonthlyAnnuity 600000 517184 -0.058148608
KSE Yearly 600000 476982 -0.04485315
Term 93-97 KSE MonthlyAnnuity 600000 648404 0.030611724
KSE Yearly 600000 846091 0.071157086Term 94-98 KSE MonthlyAnnuity 600000 358099 -0.200110945
KSE Yearly 600000 262049 -0.152682353
Term 95-99 KSE MonthlyAnnuity 600000 614050 0.009114457
KSE Yearly 600000 412543 -0.072180289
Term 96-00 KSE MonthlyAnnuity 600000 661852 0.038741411
KSE Yearly 600000 603937 0.001308902
Term 97-01 KSE MonthlyAnnuity 600000 573461 -0.017771158
KSE Yearly 600000 570056 -0.01018677
Term 98-02 KSE MonthlyAnnuity 600000 1198933 0.280903216
KSE Yearly 600000 924180 0.090237367
Term 99-03 KSE MonthlyAnnuity 600000 1690431 0.428626075
KSE Yearly 600000 2838390 0.364533378
Term 2000-04 KSE MonthlyAnnuity 600000 1813196 0.459614124KSE Yearly 600000 2648174 0.345733468
Term 2001-05 KSE MonthlyAnnuity 600000 2220679 0.550993421
KSE Yearly 600000 3803398 0.446785357
Term 2002-06
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Reference
KSE MonthlyAnnuity 600000 1550357 0.390804086
KSE Yearly 600000 4732141 0.511406499
Term 2003-07 KSE Monthly
Annuity 600000 1375947 0.339332194KSE Yearly 600000 3126624 0.391184984
Term 2004-08 KSE MonthlyAnnuity 600000 414260 -0.144113812KSE Yearly 600000 786967 0.055749913
Table 1C: 10 years annuities & lump sum investmentreturns
Term 92-01
KSE MonthlyAnnuity 1200000 1064835
-0.0238958
5
KSE Yearly 1200000 906355
-0.0276744
26
Term 93-02 KSE MonthlyAnnuity 1200000 2197671
0.116386859
KSE Yearly 1200000 26064690.0806551
61
Term 94-03 KSE MonthlyAnnuity 1200000 3384473
0.196820081
KSE Yearly 1200000 24793320.0752645
9
Term 95-04
IndexTotal Investment(Rs.)
End Term Total Amnt(Rs.)
TotalReturn %
NIKKEI MonthlyAnnuity 1200000 1001498
-0.0363198
52
NIKKEI Yearly 1200000 699006
-0.0526074
49
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Reference
S&P MonthlyAnnuity 1200000 1565919
0.051978746
S&P Yearly 1200000 31665550.1018959
3
DOW MonthlyAnnuity 1200000 1641248
0.061008411
DOW Yearly 1200000 33745760.1089291
42
FTSE MonthlyAnnuity 1200000 1242522
0.00689143
FTSE Yearly 1200000 18845730.0461721
92
KSE MonthlyAnnuity 1200000 4523382
0.250453302
KSE Yearly 1200000 36416200.1174068
72
Term 96-05
IndexTotal Investment
(Rs.)End Term Total Amnt
(Rs.)Total
Return %
NIKKEI MonthlyAnnuity 1200000 1451432
0.037303096
NIKKEI Yearly 1200000 973108
-0.0207400
8
S&P MonthlyAnnuity 1200000 1454605 0.037726752
S&P Yearly 1200000 24320100.0731944
33
DOW MonthlyAnnuity 1200000 1460696
0.038537171
DOW Yearly 1200000 25133270.0767299
04
FTSE MonthlyAnnuity 1200000 1377948
0.027194842
FTSE Yearly 1200000 1827598 0.0429655
KSE MonthlyAnnuity 1200000 6416160
0.315179622
KSE Yearly 1200000 76567220.2036110
42
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Reference
Table 1C: 10 years annuities & lump sum investment
returns
Term 97-06
IndexTotal Investment
(Rs.)End Term Total Amnt
(Rs.)Total
Return %NIKKEI MonthlyAnnuity 1200000 1581284
0.05385846
NIKKEI Yearly 1200000 1067661
-0.0116171
22
S&P MonthlyAnnuity 1200000 1526494
0.047061827
S&P Yearly 1200000 22976480.0671125
44
DOW MonthlyAnnuity 1200000 1566157
0.052008016
DOW Yearly 1200000 23193470.0681160
68
FTSE MonthlyAnnuity 1200000 1460961
0.038572345
FTSE Yearly 1200000 18184290.0424410
63
KSE MonthlyAnnuity 1200000 6073188
0.304983685
KSE Yearly 1200000 89919620.2231150
83
Term 98-07
IndexTotal Investment
(Rs.)End Term Total Amnt
(Rs.)Total
Return %
NIKKEI Monthly
Annuity 1200000 1413348
0.0321369
21
NIKKEI Yearly 1200000 12038360.0003192
08
S&P MonthlyAnnuity 1200000 1492713
0.042736798
S&P Yearly 1200000 18157220.0422857
76
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Reference
DOW MonthlyAnnuity 1200000 1569545
0.052424152
DOW Yearly 1200000 20128070.0530817
56
FTSE MonthlyAnnuity 1200000 1468190
0.039529168
FTSE Yearly 1200000 15134410.0234777
95
KSE MonthlyAnnuity 1200000 7623635
0.347272285
KSE Yearly 1200000 96318840.2315526
97
Term 99-08
IndexTotal Investment
(Rs.)End Term Total Amnt
(Rs.)Total
Return %
NIKKEI MonthlyAnnuity 1200000 835582
-0.0737575
1
NIKKEI Yearly 1200000 768049
-0.0436413
99
S&P MonthlyAnnuity 1200000 903841
-0.0573815
15
S&P Yearly 1200000 881771
-0.0303445
19
DOW MonthlyAnnuity 1200000 1006259
-0.0353547
98
DOW Yearly 1200000 1147061
-0.0045016
91
FTSE MonthlyAnnuity 1200000 998250
-0.0369812
75
FTSE Yearly 1200000 896069
-0.0287835
7
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Reference
KSE MonthlyAnnuity 1200000 2631453
0.150090056
KSE Yearly 1200000 74457400.2002526
18
Table 1D: 5 years annuities & lump sum investmentreturns
Term 92-96
KSE MonthlyAnnuity 600000 517184
-
0.058148608
KSE Yearly 600000 476982
-0.0448531
5
Term 93-97 KSE MonthlyAnnuity 600000 648404
0.030611724
KSE Yearly 600000 846091 0.0711570
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Reference
86
Term 94-98
KSE MonthlyAnnuity 600000 358099
-0.2001109
45
KSE Yearly 600000 262049
-0.1526823
53
Term 95-99 KSE MonthlyAnnuity 600000 614050
0.009114457
KSE Yearly 600000 412543
-0.0721802
89
Term 96-00 KSE MonthlyAnnuity 600000 661852
0.038741411
KSE Yearly 600000 603937 0.001308902
Term 97-01
KSE MonthlyAnnuity 600000 573461
-0.0177711
58
KSE Yearly 600000 570056
-0.0101867
7
Term 98-02 KSE MonthlyAnnuity 600000 1198933
0.280903216
KSE Yearly 600000 924180
0.0902373
67Term 99-03
IndexTotal Investment(Rs.)
End Term TotalAmount (Rs.)
TotalReturn %
NIKKEI MonthlyAnnuity 600000 527444
-0.0504895
69
NIKKEI Yearly 600000 462787
-0.0506070
99
S&P Monthly
Annuity 600000 582308
-0.0117634
25
S&P Yearly 600000 542739
-0.0198603
55
DOW MonthlyAnnuity 600000 641252
0.02622457
DOW Yearly 600000 6831560.0262985
78
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Reference
FTSE MonthlyAnnuity 600000 518315
-0.0572973
48
FTSE Yearly 600000 456624
-
0.053149317
KSE MonthlyAnnuity 600000 1690431
0.428626075
KSE Yearly 600000 28383900.3645333
78
Table 1D: 5 years annuities & lump sum investmentreturns
Term 00-04
IndexTotal Investment(Rs.)
End Term Total Amnt(Rs.)
TotalReturn %
NIKKEI MonthlyAnnuity 600000 607024
0.004581052
NIKKEI Yearly 600000 364061
-0.0950916
8
S&P MonthlyAnnuity 600000 652798
0.033284982
S&P Yearly 600000 494913
-0.0377774
68
DOW MonthlyAnnuity 600000 660743
0.038076778
DOW Yearly 600000 562732
-0.0127433
4
FTSE MonthlyAnnuity 600000 593146
-0.0045184
58
FTSE Yearly 600000 416810
-0.0702688
63
KSE MonthlyAnnuity 600000 1813196
0.459614124
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Reference
KSE Yearly 600000 26481740.3457334
68
Term 01-05
IndexTotal Investment
(Rs.)End Term TotalAmount (Rs.)
TotalReturn %
NIKKEI MonthlyAnnuity 600000 897922
0.161256239
NIKKEI Yearly 600000 7012240.0316707
18
S&P MonthlyAnnuity 600000 692039
0.056450242
S&P Yearly 600000 567284
-0.0111512
77
DOW MonthlyAnnuity 600000 659044
0.037056556
DOW Yearly 600000 596079
-0.0013104
3
FTSE MonthlyAnnuity 600000 719401
0.071899579
FTSE Yearly 600000 541788
-0.0202040
81
KSE MonthlyAnnuity 600000 2220679
0.550993421
KSE Yearly 600000 3803398 0.446785357
Term 02-06
IndexTotal Investment
(Rs.)End Term TotalAmount (Rs.)
TotalReturn %
NIKKEI MonthlyAnnuity 600000 916679
0.169688443
NIKKEI Yearly 600000 9803530.1031796
61
S&P MonthlyAnnuity 600000 774246
0.101313737
S&P Yearly 600000 741220
0.0431798
17DOW MonthlyAnnuity 600000 751392
0.089295277
DOW Yearly 600000 7461790.0445719
38
FTSE MonthlyAnnuity 600000 792353
0.110608943
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Reference
FTSE Yearly 600000 7177130.0364775
8
Table 1D: 5 years annuities & lump sum investmentreturns
Term 02-06 KSE MonthlyAnnuity 600000 1550357
0.390804086
KSE Yearly 600000 47321410.5114064
99
Term 03-07
IndexTotal Investment
(Rs.)End Term TotalAmount (Rs.)
TotalReturn %
NIKKEI MonthlyAnnuity 600000 740824
0.083624784
NIKKEI Yearly 600000 10706050.1227824
18
S&P MonthlyAnnuity 600000 744751
0.085740464
S&P Yearly 600000 10013590.1078672
16
DOW MonthlyAnnuity 600000 748956
0.087994667
DOW Yearly 600000 9541170.0972108
07
FTSE MonthlyAnnuity 600000 775023
0.101716646
FTSE Yearly 600000 9862290.1044989
41
KSE MonthlyAnnuity 600000 1375947
0.339332194
KSE Yearly 600000 31266240.3911849
84
Term 04-08
IndexTotal Investment
(Rs.)End Term Total Amnt
(Rs.)Total
Return %
NIKKEI MonthlyAnnuity 600000 397905
-0.1596255
84
NIKKEI Yearly 600000 497884
-0.0366249
74
S&P MonthlyAnnuity
600000 430813 -0.1290014
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49
S&P Yearly 600000 487400
-0.0407167
64
DOW MonthlyAnnuity 600000 467907
-0.0970561
7
DOW Yearly 600000 503718
-0.0343777
95
FTSE MonthlyAnnuity 600000 489685
-0.0794052
02
FTSE Yearly 600000 588712
-0.0037913
06
KSE MonthlyAnnuity 600000 414260
-0.1441138
12
KSE Yearly 600000 7869670.0557499
13
Table 2A: 9 years annuities plan consisting of 5 years annuities
1992-2000
1995-2003
1998-2006
112000
12000 1
12000
12000 1
12000
12000
224000
36000 2
24000
36000 2
24000
36000
3
360
00
7200
0 3
360
00
7200
0 3
360
00
7200
0
448000
120000 4
48000
120000 4
48000
120000
560000
180000
-0.058
15 5600
001800
000.009
11 560000
180000
0.28090
448000
228000
0.03061 4
48000
228000
0.03874 4
48000
228000
0.42863
3 36000
264000
-0.200
3 36000
264000
-0.017
3 36000
264000
0.45961
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Reference
11 77
224000
288000
0.00911 2
24000
288000
0.28090 2
24000
288000
0.55099
112000
300000
0.03874 1
12000
300000
0.42863 1
12000
300000
0.39080
1993-2001
-0.035
961996-2004
0.14792
1999-2007
0.42219
112000
12000 1
12000
12000 1
12000
12000
224000
36000 2
24000
36000 2
24000
36000
336000
72000 3
36000
72000 3
36000
72000
448000
120000 4
48000
120000 4
48000
120000
560000
180000
0.03061 5
60000
180000
0.03874 5
60000
180000
0.42863
448000
228000
-0.200
11 4480
002280
00
-0.017
77 448000
228000
0.45961
336000
264000
0.00911 3
36000
264000
0.28090 3
36000
264000
0.55099
224000
288000
0.03874 2
24000
288000
0.42863 2
24000
288000
0.39080
112000
300000
-0.017
77 1120
003000
000.459
61 112000
300000
0.33933
1994-2002
-0.027
881997-2005
0.23802
2000-2008
0.43387
112000
12000 1
12000
12000 1
12000
12000
224000
36000 2
24000
36000 2
24000
36000
336000
72000 3
36000
72000 3
36000
72000
448000
120000 4
48000
120000 4
48000
120000
560000
180000
-0.200
11 5600
001800
00
-0.017
77 560000
180000
0.45961
4
480
00
2280
00
0.009
11 4
480
00
2280
00
0.280
90 4
480
00
2280
00
0.550
99
336000
264000
0.03874 3
36000
264000
0.42863 3
36000
264000
0.39080
224000
288000
-0.017
77 2240
002880
000.459
61 224000
288000
0.33933
112000
300000
0.28090 1
12000
300000
0.55099 1
12000
300000
-0.144
110.022 0.340 0.319
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Reference
18 47 33
Table 2B: 19 years annuities plan consisting of 10years annuities
1992-2000
1992 1 12000 12000
1993 2 24000 36000
1994 3 36000 72000
1995 4 48000
12000
0
1996 5 6000018000
0
1997 6 7200025200
0
1998 7 8400033600
0
1999 8 9600043200
0
2000 910800
054000
0
2001 1012000
066000
0-
0.0239
2002 910800
076800
00.1163
87
2003 8 9600086400
00.1968
2
2004 7 8400094800
00.2504
53
2005 6 7200010200
000.3151
8
2006 5 6000010800
000.3049
84
2007 4 4800011280
000.3472
72
2008 3 3600011640
000.1500
9
2009 2 2400011880
00
2010 1 1200012000
00Avera
ge
Note:Incomplete data, period returns could be calculated if data was available prior to 1990 or will
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Reference
be calculated after
2010 retrns.
Chart 1A Abbreviations
KSE Karachi stock exchangeKSE All share Index comprise of all companies listed in KSE
KSE 100 Index comprise of top 100 companies listed in KSE sorted by market
capitalKSE 30 Index comprise of top 30 companies listed in KSE sorted by their floating
share capital
SECP Security exchange commission of PakistanSBP State bank of Pakistan
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Reference
References
Annual Report 2007-2008 (Volume I & II) SBP
The State of Pakistans Economy Quarterly Reports(2007, 2008 & 2009) SBP
Handbook of Statistics on Pakistan Economy 2005 SBP
Financial Markets Review SBP
Financial Stability Review 2007-2008 SBP
International Energy Outlook 2009 Energy Information Administration (EIA)
Prospects for the Global Economy www.worldbank.org/globaloutlook
The Theory of Interest 2nd Edition by Stephen G Kellison
The Handbook of Fixed Income Securities 7th Edition by Frank Fabozzi
Fixed Income Securities 2nd Edition by Bruce Tuckman
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Reference
References and websites
KSE www.kse.com.pk
SBP www.sbp.org.pk
SECP www.secp.gov.pk
Ministry of Finance www.finance.gov.pk
Business Recorder www.brecorder.com
Yahoo Finance finance.yahoo.com
Variable Annuities www.sec.gov/investor/pubs/varannty.htm
Bloomberg News www.bloomberg.com
Forbes www.forbes.com
Resource www.wikipedia.org
Investors guide www.investopedia.com
New York Stock Exchange www.nyse.com
NASDAQ Stock Market www.nasdaq.com
Tokyo Stock Exchange www.tse.or.jp/english/
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FTSE The Index Company www.ftse.com
CIA- The World Fact book www.cia.gov/library/publications/the-world-factbook/
World Economic Data www.imf.org/external/data.htm
Energy Information www.eia.doe.gov
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Endnotes
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i SBP economic report, CIA-The world fact book and other economic reportsii The theory of interest chapter 3 Basic annuities 2nd edition by Stephen G Kellisoniii For rate and forecast functions see Microsoft Office Excel help