Systematic Investment Plan (SIP)-RR Investors

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  • Systematic Investment Plan (SIPs)RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • I dont have enough money to invest

    Im too busy making money to worry about managing it.

    I dont have the time or expertise to follow market movements and make investments at the right time

    SIP is an investment program that allows you to contribute a fixed amount (as low as Rs. 1000/-) in mutual funds at regular intervals.RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • You must have heard this statement more than n times now that

    SIP is the best investment style

    So lets understand why SIP has emerged as the most powerful style of investing in recent times throughSome real life examples.RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • There are basically three points that makes SIP such a strong concept

    Rupee Cost AveragingPower of CompoundingMarket timing irrelevanceLet us simplify these terms in next few slidesRR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Rupee Cost Averaging To understand this concept more practically look at the illustration below. The SIP investor finishes with an investment that is worth more than the lump sum investor after six months - even though the starting price and finishing price are exactly the same. Unlikely but it is true. Check the figures yourself .This is the first thing what SIP does; it averages the buying cost automatically.RR Investors Retail Services (P) Ltd. www.rrfinance.com

    Sheet1

    THE POWER OF RUPEE COST AVERAGING

    Lum-Sum InvestorRegular Investor

    MonthUnit PriceAmount InvestedUnits BoughtAmount InvestedUnits Bought

    12060000300010000500

    218----10000556

    314----10000714121

    422----10000455620.1666666667

    526----10000385

    620----10000500

    Total Amount InvestedRs 60000Rs 600003044

    Average price paid2019

    Total units bought30003109

    Value of investment after six monthsRs 60000Rs 62018

    This example uses assumed figures and is for illustrative purposes only.

    Sheet2

    Sheet3

  • Power of CompoundingThis mathematical formula of compounding : FV = PV (1 + r) is known to all of us but is seldom understood in terms of investing. Lets use an i.e.: If you invested Rs. 100000 PV (Present Value) in a instrument that grows @ 15% per year (the r) for a period of 25 years (the n), its FV (Future Value) will become Rs.3291895. Unbelievingly the amount multiplied to a whopping 33 timesNow the lets see how the same compounding plays in a SIP over a period of time. The table below justifies all statements of the Power of Compounding. A meager amount of Rs. 1000 per month over 25 years at an annualized growth rate of 15% accumulates to a humongous number of approx Rs. 33 lakhsRR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Market timing is irrelevant

    Data Source : BloombergLets look at the above analysis in the next slide whether it actually happens RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Time in the market matters VS not timing

    Data Source : Bloomberg

    *CAGR (Compound Annual Growth Rate) -The year-over-year growth rate of an investment over a specified period of timeRR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Now that we have seen the Power of SIP; lets try to address this point

    When SIP works best for us

    Few slides from hereon will explain this more clearly.RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • SIP will work best if following acts are done:

    Start EarlyInvest RegularlyInvest for Long TermInvest in the Right Asset Class

    RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Invest Regularly

    RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Invest for Long Term

    Data Source : BloombergLower the riskGreater the effect of compoundingMore predictable average returns

    Hence longer your SIP PeriodRR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Invest in the Right Asset Class

    Undoubtedly Equity is the winner overtimeRR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Now that we have seen why and how SIP can best work - a question still remains unanswered .

    Can SIP help individuals like you and me in real life situation to meet our financial goals ?

    Lets try to answer this question through a simple case study and see whether benefits of SIP really work RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Case Study Real Life SituationAssume You are 30 yrs of age; have a wife and kidCurrent Annual expenditure of Rs. 5,00,000Retirement expected at age 60 yrsMore Average prices (i.e. inflation) will rise by 7% paAfter 30 yrs when you retire, the low risk rate of return will be 6% pa (Considering you put all your accumulated corpus post retirement in a bank deposit)You will live for more 20 years post retirement

    So lets see what will be the corpus required at the time of your retirement to maintain the same current lifestyle additionally with enhanced medical expensesRR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Current Expenditure Rs.5,00,000 p.a.Inflated at 7% p.a. for 30 yearsExpenditure at the time of Retirement Rs. 36,00,000 p.a.Income to be generated post Retirement Rs. 36,00,000 p.a.Corpus Required at the time of Retirement

    Your first reaction Impossible! It cannot be achieved.But then there is a solutionTherefore to generate this income every year post retirement you need to accumulate a corpusR R Investors Retail Services (P) Ltd. www.rrfinance.com

  • So whats the SolutionJust one simple thingSubscribe for an SIP of Rs.15,000 per month in a good diversified equity fund for 30 years and forget itYou still dont believe it that it can be that simple; let us validate our conviction with actual returns generated in a equity fund over the yearsFrom the table it is crystal clear that if an investor did an SIP of Rs.15000 per month in Equity Fund for 15 years, he would have invested 27 lacs and that would have grown to a whopping number of 3.4 crore as on date; in spite of so many pitfalls in equity markets in last 15 years.RR Investors Retail Services (P) Ltd. www.rrfinance.com

    Equity FundSIP Investments15 year SIP10 year SIP5 year SIP3 year SIPTotal Amount Invested @ Rs.15000 per month ( Rs.)2,700,0001,800,000900,000540,000Market Value as on July 29, 2011 (Rs.)34,379,0938,682,0241,427,405798,522Returns (Annualized)*(%)29.87%29.64%18.56%27.29%Benchmark Returns (Annualized)(%)#15.87%18.42%8.36%14.08%Market Value of SIP in Benchmark#9,967,0574,737,4231,110,339664,982

  • Still need to think; No pressure but see this what the delay can cost in the same case study10152530Time to Retirement (yrs)

    9,60,0005,76,0002,32,0001,80,000Annual80,00048,00021,00015,000MonthlyInvestment Required

    Current Age : 30 years Retirement Age : 60 yearsRetirement Corpus to be accumulated : 8 cr. Assumed Rate of Return on Investment : 15% p.a.With every passing year the time to retirement is reducing and increasing the burden of investment required. Now the choice is our whether we wantTO START NOW OR STILL WAIT..TodayAfter 5 years from nowAfter 20 years from nowAfter 15 years from now

    RR Investors Retail Services (P) Ltd. www.rrfinance.com

  • Thank YouRR Investors Retail Services Pvt. Ltd.Email: rrinvestor@rrfcl.com Toll Free: 1800110444Telephone: 011-23636363/2Website: www.rrfinance.com RR Investors Retail Services (P) Ltd. www.rrfinance.com

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