INVESTING OVERVIEWMost of us will earn and spend money throughout our lives. Along the way, we will make pretty big decisions, which could involve spending more than our income provide – like:o Homeo Education expenseso Weddings o Holidayso Medical careo Retirement ( Increased life expectancy, Standard life, Nuclear family system).

So, how do we make sure that we have enough money to meet all our goals?

Yes, you are right! By investing…

WHY DO I NEED TO INVEST?

Inflation… eats up ordinary savings…

Did you know that though your money may be physically safe in a savings account, its not risk- free?

For instance, if you have Rs. 10,000 in a savings account earning 3.5% annual interest, in 20 years time your savings would be worth Rs. 19,898. However, if inflation is about 7%, Rs. 19,898 would only be worth Rs. 5,142 in today’s terms!

Adjusted for inflation, your savings account gives you an annual return of -3.27%

Note: Food inflation was reported 17.05% on 3-Feb-2011.

IMPACT OF INFLATION:

WHEN SHALL I INVEST?

The earlier, the better…The sooner you start, the more time your money will have to grow as

you benefit from “the power of compounding”- When the interest on your investment also starts to grow.

Here is an example that demonstrates the difference time can make to your savings :

If you started investing Rs. 5,000 a month on your 40th birthday, in 20 years time, at 12% annual interest your money will grow to approx. Rs. 50 lakhs when you reached 60. However, if you started investing 10 years earlier, your Rs. 5,000 per month would be worth Rs. 1.76 crores on your 60th birthday.

Notice the difference!

GRAPHICAL REPRESENTATION

INVESTING OPTIONSDifferent options… for different peopleDifferent investments suit different people at different stages

in their lives. And each one has its own level of risk and reward. The basic rule of thumb? The greater the risk, the greater the potential reward. And vice versa.

Here is a broad description of some investment options: Gold and Real Estate Post office schemes ( PPF, KVP, NSC, POMIS, Term Deposit,

SCSS, RD etc.) Savings account and Bank deposits FD, Bonds and Debentures Individual Equity Shares Mutual Funds PMS Products.

RISK-RETURN OF INVESTMENT OPTIONS

EQUITIES

Champion… in the long runEquities are another name of shares. If a company does well , the

value of your share could go up and vice versa. Over the long term, equities offer significant growth potential, but tend to fluctuate in the short term.

For example, had you invested Rs. 1,00,000 @ Rs. 195 per share on 1-Jan-2001 in SBI shares, your money would have grown to Rs. 14,46,590 @ Rs.2,821 per share on 3-Jan-2011 apart from the periodical dividends.

That is a CAGR of 31%.

Caution: Never invest in equities to make quick money. It is your patience that pays in long run.

SENSEX : BAROMETER OF INDIAN ECONOMY

Historical Movements:

SENSEX: HISTORICAL PERFORMANCE

Period1991-1995

1991-2000

1991-2005

1991-2010

1991-2011

Last 10 yrs

Last 5 yrs

CAGR% 31% 18% 13% 15% 15% 16% 13%

APPROACHES TO EQUITY INVESTING

We can enter into equity investment in the following ways:

1. Direct investment to individual shares2. Exchange Traded Funds ( ETFs)3. PMS Products4. Equity Mutual Funds

We’ll discuss more on mutual funds in the following slides.

MUTUAL FUNDS Chances are that most of your money resides in a savings account.

Bank deposits are generally safe, but have not been known to offer strong potential growth. Post tax and inflation, you might get negative returns on your hard earned money. But there are ways to make your money earn enough to beat inflation and earn you worthwhile returns.

And simplest way to earn handsome returns is to begin investing in mutual funds.

WHAT IS A MUTUAL FUND?Simply put, a mutual fund pools together money from many

investors just like you to make a large sum. The money collected is either invested in stocks, bonds and other securities , or in a combination of the three. As an investor, you are issued units in proportion to the money you have invested.

Isn’t that simple?

BENEFITS OF MUTUAL FUNDS

Professional Management Diversification Convenience Superior return potential Low costs Liquidity Transparency Flexibility Affordability Choice of schemes Well regulated Tax-efficient

TYPES OF MUTUAL FUNDS

Broadly, mutual funds are of two types: Open-ended schemes Close-ended schemes

Other than these two broad classes, there are three basic types of mutual funds

1. Equity mutual funds

2. Debt or income funds

3. Cash or money-market funds

Other variants of the above three are schemes like Index funds, ELSS, Sector Funds, Gold ETFs, Balanced funds, MIPs, FMPs, Floating rate funds, Gilt funds, Fund of funds etc.

COMPARATIVE RISK AND RETURNS:

CHOOSING A MUTUAL FUND

Define your investment objective – pinpoint what you are investing for.

Define how long you can stay invested – if you need your money back in short term, an equity fund is probably inappropriate as equity funds offer the best potential for returns over the long term.

Define your risk tolerance and thereafter select a fund type that best meets your need.

INVESTMENT STRATEGIES

Lump sum investment Systematic Investment Plan ( SIP ) or Rupee cost

averaging Systematic Transfer Plan ( STP ) Systematic Withdrawal Plan ( SWP ) Value- averaging Asset- allocation

SIP – A SMART MOVE Can you invest if you don’t have a large sum of money? Sure. If you want to put aside just a small amount regularly, plan a SIP

as part of your monthly budget.

Advantages: Disciplined investing Convenience & Affordability Market neutral Control volatility Better returns Rupee cost averaging

POWER OF RUPEE COST AVERAGING

LUMP SUM INVESTOR REGULAR SIP

MonthUnit Price

(Rs.)Amount

invested Units boughtAmount

invested Units bought

1 20 50000 2500 10000 500

2 18 10000 556

3 14 10000 714

4 22 10000 455

5 26 10000 385

Total Invested 50000 50000

Average price paid 20 19

Total units bought 2500 2609

Value after 5 months 65000 67834

TAXATION OF MUTUAL FUNDS

PERFORMANCE OF EQUITY MUTUAL FUNDS

Return of Select Equity Mutual Funds(CAGR%)

Equity Funds/Period 1 year 3 years 5 years 10 years 15 years

HDFC Top 200 Fund 19% 11% 20% 29% 25%

Franklin India Bluechip Fund 16% 8% 16% 24% 26%

DSP BR Equity Fund 14% 9% 20% 25% 25%

Birla Sun Life Frontline Equity Fund 12% 8% 19% - -

IDFC Premier Equity Fund 15% 10% 23% - -

Reliance Banking Fund 41% 17% 27% - -

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