perspectives on investing what really matters 1. 3 some questions we will try to address today...
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Some questions we will try to address today
returns?
I always seem to buy when themarket has peaked, is there a better
way?
What, when,how do I buy
financialproducts?
What are thefactors thatdetermine
Are market levelsrelevant??
What is better:buy and hold or
trade?
Are you Saving or are you Investing?
PROFESSION INVESTMENTS
INCOME
CREATION/ACCUMULATION
OF WEALTH
NURTURE/PRESERVATION
OF WEALTH
Profession vs. Investments
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PROFESSION INVESTMENTS
INCOME
YOU KNOWBEST
TRUST YOURADVISOR TOKNOW BEST
Profession vs. Investments
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Consider the rising cost of living!
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Wedding at the Taj
Guests :
Price per plate:
Decoration:
Other Expenses / Gifts, etc:
500
Rs. 2,000
Rs. 10,00,000
Rs. 15,00,000
Planning a wedding today
Total Expenses Rs. 35,00,000
RISING COST OF LIVING
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Wedding at the Taj
Guests :
Price per plate:
Decoration:
Other Expenses / Gifts, etc:
500
Rs. 6,414
Rs. 32,07,135
Rs. 48,10,703
Planning a wedding for your child in 20 years
Total Expenses Rs. 1,12,24,838
Assuming Inflation @ 6% for 20 years
RISING COST OF LIVING
Household expenses are on the rise
1 Liter Carton Milk
Amount
Rs. 25
Rs. 40
Rs. 72
Rs. 128
Year
2000
2010
2020*
2030*
A Loaf of Bread
Amount
Rs. 10
Rs. 16
Rs. 29
Rs. 51
Year
2000
2010
2020*
2030*
1 Kg Apples
Amount
Rs. 25
Rs. 80
Rs. 143
Rs. 257
Year
2000
2010
2020*
2030*
Inflation will further shrink your buying power!
Assuming Inflation @ 6% for years 2020 and 2030
RISING COST OF LIVING 10
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Yesterday’s luxuries are becoming today’s necessities
Products previously thought as luxuries are the norm today
RISING COST OF LIVING
Items 1991 TodayCable T. V. No YesLCD T. V. No YesMobile No YesWashing Machine No YesMicrowave No YesCar No YesHome Theatre System
No Yes
Income
Our life cycle: Focused on meeting current needs only
Birth and
Education0 25 60Working Life 75 +Retired Life
Child 1’sCollege
Child 1Car
Marriage
College
Age
Child 2
Can we ignore planning for the future?
RetirementChild 2’sMarriage
Child 1’sMarriage
House
Child 2’s
RISING COST OF LIVING 12
Failing to plan today is as good asplanning to fail in the future!
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What typically drives us to invest?
Greed / Fear?
News, hot tips, gut feeling?
Macro-economic or global scenario?
Political environment?
Should thesebe the mainmotivators to
invest?
5% of the return– Relative performance of selected funds
95% of the return– Asset Allocation– Ability to handle emotional & financial stress– Monitoring and tracking your portfolio periodically
Creating long term wealth: What really matters?
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Importance of Asset Allocation
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Asset Allocation
Diversifies your investments across asset classes like equities /stocks, bonds / debt, cash, real estate, etc
A common sense investment strategy
Tailored to your needs and goals
RISK PROFILE FINANCIALGOALS
ASSETALLOCATION
ASSET ALLOCATION 17
Benefits of Asset Allocation
May reduce overall risk
May improve your chances to earn more consistent returns over time
Helps keep you focused on your goals
ASSET ALLOCATION 18
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Risk: Low to Medium
Period: Less than 1 year
Money Market Funds
Short-term deposits / Government Paper
Period: 1 to 3 years
Income/Bond Funds
Company Fixed Deposits
Capital Preservation
Asset Allocation: Need based strategy
Capital Growth
Risk: Medium to HighPeriod: 3 to 5 years
Income
Risk: Medium to Low
Stocks
GrowthFunds
BondsDebentures
ASSET ALLOCATION
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Asset Allocation: Age based strategy
ASSET ALLOCATION
15.00%
Age Group 25-40
10.00%
Growth (Equity)
Income (Bonds)
Liquidity (Banks)
Growth (Equity)
Income (Bonds)
35.00%
15.00%
Age Group 41-50
75.00%
Age Group 51-60
Income (Bonds)
Growth (Equity)
Liquidity (Banks)
45.00%
20.00%
35.00%
Income (Bonds)
Growth (Equity)
Liquidity (Banks)
Liquidity (Banks)
50.00%
Age Group Above 60 yrs
50.00%
25.00%
25.00%
The above are only hypothetical examples and are not necessarily indicative of the strategies to follow for the age groupsmentioned above
EXAMPLE Equity Funds Income Funds
Profile & objective based allocation 70% 30%
Bull Market fluctuation 80% 20%
Rebalance 70% 30%
Making asset allocation work
Periodic Rebalancing
Rebalancing helps investors enter equities at ‘lows’ and exit at‘highs’ without having to ‘time’ the market
ASSET ALLOCATION
EXAMPLE Equity Funds
Income Funds
Profile & objective based allocation 70% 30%
Bull Market fluctuation 80% 20%
Rebalance 70% 30%
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Making asset allocation work
Periodic Review
Periodic review of objectives can ensure an investor is not left at thevagaries of equity markets when he needs his money
ASSET ALLOCATION
EXAMPLE Years to goal Equity Allocation %Today 10 70%After 5 yrs 5 60%After 7 yrs 3 40%After 9 yrs 1 10%
Creating long-term wealth:What really matters?
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Where you invest
WHAT REALLY MATTERS
Equities can outperform other asset classes over time
Average inflation figures for the past 5, 10 & 15 years were 5.29%, 5.03% & 4.98% respectively
As of 31 March, 2011. *Compounded Annualized Growth Rate (CAGR), Gold Data: International Spot Gold Prices;# Average of 10yr GOI yield to maturity, N.A.: Not Available. FD rate shown above is rate effective from 14.02.2011 fordeposits below Rs. 1 crore as offered by State Bank of India (Source: www.sbi.co.in). Bank Fixed Deposits arerelatively safer as they are covered under Deposit Insurance and Credit Guarantee Corporation of India to the extent ofRs. 1 lakh per account. GOI bond offers fixed and assured returns.Source: BSE, Newswire18. Past performance may or may not be sustained in future.
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When you invest
Consider the case of Franklin India Bluechip Fund (FIBCF)
Over the 17 period December 01 1993 – March 31 2011, spanning 4186 businessdays, Franklin India Bluechip Fund grew at an annualized rate of 25.67% p.a.
If in the process of timing, an investor had been out of the market on the 10 bestdays, his returns would be 4.89%.
Staying out on the 30 best days, his returns would be 1.86%.
Past performance may or may not be sustained in future. Returns of FIBCF andbenchmark (BSE Sensex): 1 yr, 3 yr, 5 yr , since inception: FIBCF: 12.77%, 14.20%,14.38%, 25.67%; BSE Sensex: 10.94%, 7.52%, 11.50%, 10.79%. Returns arecompounded and annualized based on 31 Mar 2011 Growth Plan NAV of Rs.219.1105. Inception Date: 01 Dec 1993. The scheme became open-ended in Jan1997. Dividends are assumed to be reinvested and bonus has been adjusted. Load isnot taken into consideration.
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When you invest
Stayed fully invested, your returns would be:
Missed the 10 best days, your returns would be:
Missed the 20 best days, your returns would be:
Missed the 30 best days, your returns would be:
Missed the 40 best days, your returns would be:
15.10%
9.23%
5.68%
2.75%
0.02%
Take another example, the BSE Sensex
For the 20 year period ended March 31 2011 if you had:
WHAT REALLY MATTERS
The example given above is purely hypothetical and illustrative only since onecannot invest directly in the BSE Sensex. Past performance may or may not besustained in future.
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When you invest
Points to ponder
Perfect market timing requires one to get two things right: the right exitpoint and the right re-entry point
Getting even one of these wrong can affect one’s returns
Mathematically, the odds are heavily against one being able toperfectly time the market
The probability of getting the timing right is 0.23%*
So what’s a better way to invest?
WHAT REALLY MATTERS
* 10 best days from 4186 as shown in the example of FIBFC
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Not market timing but time in the market matters!
Consider the example of Franklin India Bluechip Fund, a fundwith a 17 year track record across market cycles
Assumed Rs. 10000 invested at Inception in FIBCF and BSE Sensex. Past performance may ormay not be sustained in future. Dividends are assumed to be reinvested and Bonus is adjusted.Load is not taken into consideration. Period: Since Inception (01 Dec 1993) to 31 March 2011
WHAT REALLY MATTERS
MaximumReturns
MinimumReturns
AverageReturns
Possibility ofMaking Money
Possibility ofLosing Money
1 Year 199.42% -50.60% 31.86% 75.72% 24.28%
3 Year 79.75% -9.57% 26.89% 88.63% 11.37%
5 Year 56.08% 9.66% 28.81% 100.00% 0.00%
10 Year 40.19% 19.47% 28.42% 100.00% 0.00%
Staying invested helps!
While equities may be volatile in the short-term, over thelong term, the probability of loss decreases. Consider theexample of FIBCF
Past performance may or may not be sustained in future. Annualized Compounded returns based onGrowth Plan NAVs. Period - Inception date to 31 March 2011; BSE Sensex rolling returns for the sameperiod: Maximum returns, Minimum returns, Average returns, Possibility of making money, Possibility oflosing money: 1 Year: 110.38%, -56.26%, 14.93%, 62.24%, 37.76%; 3 Year: 62.30%, -18.52%, 11.98%,71.90%, 28.10%; 5 Year: 47.22%, -7.81%, 12.91%, 80.67%, 19.33%; 10 Year: 19.85%, 0.92%, 11.80%,100.00%, 0.00%. Sales load has not been taken into consideration. Dividend/Bonus are adjusted. InceptionDate: 01 December 1993.
Over a 5 year horizon, investors have made money!
MaximumReturns
MinimumReturns
AverageReturns
Possibility ofMaking Money
Possibility ofLosing Money
1 Year 199.42% -50.60% 31.86% 75.72% 24.28%
3 Year 79.75% -9.57% 26.89% 88.63% 11.37%
5 Year 56.08% 9.66% 28.81% 100.00% 0.00%
10 Year 40.19% 19.47% 28.42% 100.00% 0.00%
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investment decisions…"EXUBERANCE
RELIEF
"Should I have exited when Iwas making money"
"Once I recover my principalI'll exit"
RELIEF
"I've finally recovered myprincipal. But should I exit
now?"
EXCITEMENT
"I can withstand this, thingsshould turn around…"
ANXIETY
FEAR
"Markets are on a roll…"
"Should be a temporarycorrection"
Cycle of market emotions should not rule you…
“Has been one of my best
How you invest
"Will the market ever go up?""How long will this correction
last?"HOPE
PANIC
There is often no relationship between performance of a fundand an investor’s performance
WHAT REALLY MATTERS 30
Rs. 76.56 lacs Rs. 2.27 Crores
When you start
WHAT REALLY MATTERS
So what do you think is their
Starting early can make a difference to your wealth
Gita, Age 30
Sita, Age 40
retirement corpus at age 60assuming a return of 10%
annually on their investments?
10,000 p.m
10,000 p.m
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What are the returns you earn
WHAT REALLY MATTERS
Value at age 60 of Rs. 100,000 invested every year at age 30 upto 58at different rates of returns
The returns you earn over time can make a difference
Rs.4.97 Crores
Rs. 2.67 Crores
Rs. 1.20 Crores
8% 12% 15%
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What is a Systematic Investment Plan (SIP)?
The term “systematic investing” applies to the process of investingregularly i.e. at fixed intervals, say monthly or quarterly
Why invest systematically?
– Most of us get a monthly remuneration or salary
– Most of us pay monthly EMIs on a car, house, etc
– Isn’t it obvious we should also invest monthly?
SYSTEMATIC INVESTMENT PLAN
Two basic principles on which SIP works
Power of Compounding
Rupee Cost Averaging
SYSTEMATIC INVESTMENT PLAN 34
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Rupee Cost Averaging at work
SYSTEMATIC INVESTMENT PLAN
1-Jan-10 1-Feb-10 1-Apr-10
NAV = 10.0Units = 100
1-Mar-10 1-May-10
NAV = 10.0Units = 100
NAV = 12.00Units = 83.3
NAV = 8.0Units = 125
Average Price per unit: Rs. 10.00
Average Cost per unit : Rs. 9.79
Assume Rs. 1,000 invested per month
Rs. 1,00,000 per Month over FIBCF BSE Sensex
Rs. CAGR Rs. CAGR
1 year (Rs. 12,00,000) 12,65,300 10.30% 12,61,000 9.61%
3 years (Rs. 36,00,000) 51,82,800 25.22% 47,93,400 19.56%
5 years (Rs. 60,00,000) 91,52,800 16.94% 81,57,500 12.26%
7 years (Rs. 84,00,000) 1,74,01,600 20.46% 1,52,06,000 16.67%
10 years (Rs. 1,20,00,000) 5,06,37,900 27.14% 3,51,13,300 20.37%
Since Jan 97* (Rs. 1,71,00,000) 15,84,36,200 27.83% 6,09,01,600 16.32%
How SIP has worked
SYSTEMATIC INVESTMENT PLAN
If you had invested Rs. 1,00,000 every month through an SIPin FIBCF, it would have grown to:
Past performance may or may not be sustained in future. Annualized and compounded returns based on 31March 2011 Growth Plan NAV of 219.1105. Load is not taken into consideration. Dividends assumed to bereinvested and Bonus adjusted. *The scheme became open end in January 1997. Monthly investment ofequal amounts invested on the 1st day of every month has been considered. Inception Date: 01 December1993.
Rs. 1,00,000 per Month over FIBCF BSE SensexRs. 1,00,000 per Month over
Rs. CAGR Rs. CAGR
1 year (Rs. 12,00,000) 12,65,300 10.30% 12,61,000 9.61%
3 years (Rs. 36,00,000) 51,82,800 25.22% 47,93,400 19.56%
5 years (Rs. 60,00,000) 91,52,800 16.94% 81,57,500 12.26%
7 years (Rs. 84,00,000) 1,74,01,600 20.46% 1,52,06,000 16.67%
10 years (Rs. 1,20,00,000) 5,06,37,900 27.14% 3,51,13,300 20.37%
Since Jan 97* (Rs. 1,71,00,000) 15,84,36,200 27.83% 6,09,01,600 16.32%
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To put it in perspective
Where you invest: Equities can outperform other asset classes overtime
When you invest: Time in the market and not market timing matters!
How you invest: Avoid market emotions and market noise
When you start: Starting early can help in the long-run
What are the returns you earn: A small difference over the long termcan make the difference to your overall corpus
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A word on risk…
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We all view risks in our own way
There is a risk to investing
There is a risk to not investing, as well
There is a risk to investing in equitiesThere is a risk to not investing in equities, as well
There is no such thing as a ‘risk-free’ investmentIt is important that you are comfortable with the risksassociated with whatever investment avenue you choose
Here’s wishing you all success in investing!
Thank You
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