Equity Investment Through

Mutual Funds

AgendaAgenda

• Why Save

• Why Save through Equities

• Why Equities through mutual funds

• Why Systematic Investment Plan

• Budget 2005-06 & Taxation Benefits - MFs

Why Save?

• B’cos the cost of living is …•

• Toothpaste

• LPG Gas

• Education

1983

Rs.4

Rs.27

1000’s

2003

Rs.20

Rs.250

100,000’s

2023

Rs.100

Rs.2315

?

Why Save?

•…while sources of revenue are

•Age 25 Start career 100% dependent on job

•Age 30 Marriage

•Age 40 Buying a house

•Age 55 Children’s Education/• Marriage

•Age 60 Retirement100% dependent on earnings from investment

Are your savings earning you enough?

• Ram, 30 yrs

• Present monthly • spending: Rs. 15,000

• Estimated monthly• spending at 60: Rs. 65,000

• Accumulation • required at 60: Rs. 85 lakhs

Inflation assumed @5% p.a

Returns assumed @9% p.a.

Reality Check…

• Falling rates will reduce the net accumulation from traditional Investment avenues

• Age: 30 yrs; Annual savings: Rs.40,000; Increase in Annual Saving: 5%

Accumulation at 60Rs.85.0 lakhs

Rs.71.4 lakhs

Rs.60.1 lakhs

9%

8%

7%

Rs.50.9 lakhs

6%

Savings(Wealth creation)– Basic Principles…(1)

• Start early…

Value at the age 60

Ram: Rs.1 lakh invested at the age of 30

Rs.17.45 lakhs

Rs.12.97 lakhs

Shyam: Rs.5 lakhs invested

at the age of 50

Returns: 10%Power of Compounding

Savings(Wealth creation)– Basic Principles…(2)

A small amount invested regularly can grow to substantial lumpsum

• Save regularly…it all adds up!

0

5

10

15

20

25

1 5 9 13 17 21 25 29

No. years

Rs.

Lak

hs

Rs.21.7 lakhs

30

Rs.1000 invested every month for 30 years @10%

Savings(Wealth creation)– Basic Principles…(3)

One time investment of Rs.1 lakh invested for 30 yrs

@ 6%

5.7 lakhs

@ 10% @ 15%

17.45 lakhs 66.2 lakhs

• Earn more…it can make a big difference

O R

Wealth Creation Principle is nothing but

Enhancement Of future Value.

• Wealth creation is nothing but enhancement of future valueWealth creation is nothing but enhancement of future value

• FV = PV (1 + r ) n

Enhancing Future Value

The more you The more you save, makes save, makes a differencea difference

The The sooner sooner

you start, you start, makes a makes a

differencedifference

PV nr

The more The more you earn, you earn, makes a makes a differencdifferenc

ee

How to enhance Future Value in the Long run ??

• Starting Early & Saving Regularly helps in wealth creation but the most important part in wealth creation are the returns

& EQUITY is the only asset class which has a potential to

generate higher returns in the long term………

BUT PEOPLE OFTEN LOOSE MONEY IN EQUITY ………

Why People Loose money in Equity ?

Investors gets trapped in the Cycle of fear , greed and hope

Other Reasons of Failure

• Equity Investments are made on Tips & Flavors

• Equity Investments are tracked part time & not full time

• Equity Investments are made for short term

• Equity Investments are not adequately diversified

• People look at acquisition price & not future value

To break the cycle of Fear,Greed & Hope &

become a successful equity investor one should START

Wealth Creation MANTRA

WHY !!!!

Qualities Description Do you

have ?

Does a mutual

fund have it?

Investment process

A systematic method of selection of the scrips, with the synchronization of objective.

?? Yes

Infrastructure

Technology, information at hand, statistical tools, research team, time etc.

?? Yes

Experience

The experience of making investment decisions on a regular basis & experience of standing all the business/economy cycles.

?? Yes

Why Equity Mutual Funds are successful?Why Equity Mutual Funds are successful?

Why Equity Mutual Funds are successful?Why Equity Mutual Funds are successful?

Qualities Description Do you have ?

Does a mutual fund have it?

Knowledge & qualification

Most Fund managers are professionally qualified. Moreover, their knowledge is assisted by a lot many support which they get in the form of their research team, study etc.

?? Yes

Constant monitoring

Reviewing & analyzing your investment at every moment of time .

?? Yes

Systematic Investment Plan?

Why

What is Rupee Cost Averaging / SIP

• We call it Disciplined Regular Investment

• Science, Art or A Habit?

• 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 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 leads to HIGHER RETURNS

Power of Compounding - QUIZ

• Rs. 10,000 invested every month for a period of 30 years

At 8% -

At 15% -

At 20% -

1.5 crores

7.0 crores

23 crores

Postal Recurring

SIP in Balance Funds

SIP in Equity Funds

Working of SIP in any kind of marketWorking of SIP in any kind of market

NAVUnits

AllotedNAV

Units Alloted

NAVUnits

Alloted

1 1,000 10 100.00 10 100.00 10 100.00

2 1,000 12 83.33 8 125.00 12 83.33

3 1,000 14 71.43 6 166.67 8 125.00

4 1,000 16 62.50 4 250.00 10 100.00

Total 4,000 52 317.26 28 641.67 40 408.33

Falling Market Volatile MarketAmount

InvestedMonth

10

9.80

Average Purchase Price

Average Cost Per Unit

13

12.61

7

6.23

Rising Market

A Snapshot of poor performing schemesA Snapshot of poor performing schemes

Pru Tech Fund 61,000 105,930 22.06%

Alliance New Millenium 61,000 106,347 22.22%

Pru Tech Fund 61,000 41,480 -7.34%

Alliance New Millenium 61,000 33,673 -11.08%

Scheme Name Amount Invested through

SIP(Rs. 1000 p.m.) from March 2000

Current Value As on

31-03-2005

SIP Returns

Amount Invested One Time

Current ValueAnnualised

Returns

A Snapshot of better performing schemesA Snapshot of better performing schemes

HDFC Equity 61,000 161,209 39.69%

Reliance Growth 61,000 226,349 54.64%

HDFC Equity 61,000 146,501 18.90%

Reliance Growth 61,000 167,023 22.02%

Amount Invested One Time

Current ValueAnnualised

Returns

Scheme Name Amount Invested through

SIP(Rs. 1000 p.m.) from March 2000

Current Value As on

31-03-2005

SIP Returns

SIP Returns of Div. Equity schemesSIP Returns of Div. Equity schemes

Starting - April month of 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

No. of Installments 132 120 108 96 84 72 60 48 36 24 12

Invested Amount 264000 240,000 216,000 192,000 168,000 144,000 120,000 96,000 72,000 48,000 24,000

Schemes

Birla Advantage Fund - - 24.29 24.50 23.55 23.08 29.20 39.77 46.79 46.43 44.18

DSPML Opportunities - - - - - - - 51.29 58.20 53.77 42.49

Franklin India Bluechip Fund Gr 27.45 29.81 32.40 33.24 32.34 31.28 35.01 43.27 48.39 42.98 28.61

Franklin India Prima Fund Gr 31.15 34.72 38.86 42.70 45.18 47.48 56.58 69.01 72.91 70.74 63.62

HDFC Capital Builder-Gr - - - - - - 41.36 52.91 62.55 68.08 58.86

HDFC Equity - - - - - - 40.53 48.94 53.05 47.75 39.61

Reliance Growth - - 38.01 40.51 43.68 46.64 55.97 70.34 76.53 77.91 72.12

Reliance Vision - - 34.62 37.51 41.45 44.59 52.59 63.85 61.82 55.88 52.25

Tata Pure Equity - - - - - 28.27 36.47 47.75 58.47 57.72 45.25

Templeton India Growth - - 25.24 28.41 30.22 34.76 42.17 47.78 42.47 29.16

SIP Returns % as on 31st March 2005 for SIP starting on (From…..to End March 2005)

Returns(Diversified Equity Schemes)

SIP Returns of ELSSSIP Returns of ELSS

Starting - April month of 1997 1998 1999 2000 2001 2002 2003 2004

No. of Installments 96 84 72 60 48 36 24 12

Invested Amount 192000 168000 144000 120000 96000 72000 48000 24000

Schemes

Biral Equity Plan - - 34.77 41.12 54.80 62.75 57.65 52.10

Franklin India Taxshield Gr - - - 34.41 43.98 50.93 50.97 43.47

HDFC Long Term Advantage Fund - - - - - 66.08 64.97 50.75

HDFC Taxsaver - Gr - - - 46.46 57.53 68.96 75.22 82.53

Principal Tax Savings Fund - - - 40.53 46.47 52.14 53.36 47.37

Prudential ICICI Tax Plan-Gr - - - 47.84 60.72 72.49 79.65 92.53

Sundaram Tax Saver - - - 38.34 48.99 57.93 63.22 69.02

Tata Tax Saving Fund 25.11 27.56 31.25 38.27 49.32 57.99 57.89 47.56

SIP Returns % as on 31st March 2005 for SIP starting on (From…..to End March 2005)

Returns (ELSS)

Conclusion – Strike the GOLDMINE Conclusion – Strike the GOLDMINE

START YOUR SIP

Happy Investing !!!