Post on 15-Apr-2017
Systematic Investment Plan (SIP)
The Smart Investors’ Preference
Human Life Cycle
EducationEducation Earning YearsEarning Years
Phase IPhase I Phase IIPhase II Phase IIIPhase III
Age- 22 yrsAge- 22 yrs Age- 60 yrsAge- 60 yrs
MarriageMarriageChild birthChild birth
Child’s EducationChild’s Education
Child’s MarriageChild’s Marriage
HousingHousing
22 yrs22 yrs 38 yrs38 yrs 10- 20 yrs10- 20 yrs
Post Retirement Years Post Retirement Years
Phase II: The Most Challenging Phase
Meet current recurring expenses– Rent, Electricity, Telephone– Child’s education, Child’s marriage– Annual Holiday with family….
Build capital assets– House; Car….
Make provisions for– Retirement ; Contingencies- Illness, Accidents, etc.
Do you save and invest so that your dreams turn into reality
It is Critical, Yet Most Don’t Do It
I will start from next month
I don’t have the requisite skills
The paper work is just too tedious
And the list goes on…………..!!!!
I don’t have time
I don’t have money to save
The returns are hardly worth the
effort
The alternatives are not exciting
enough
Getting rich is simpler than you think !!
Rs.1000 invested every month for 30 years
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
No. of years
Valu
e of
inve
stm
ent (
Rs.
)
6% p.a.
10% p.a.
15% p.a.
Rs.70 lakhs
Rs.22 lakhs
Rs.10 lakhs
The Power of CompoundingEven small amounts invested regularly can grow
substantially
The Formula for Creating Wealth
Create WealthStart Early Invest Regularly
Make your money work hard for you
Start Early!You
• Age : 25 years• Start : Today• Invest : 5 years• Amount : Rs 10,000 p.a.• Redemption on retirement
(age 60)
Your Twin• Age : 25 years• Start : at age 40• Invest : 20 years• Amount : Rs 10,000 p.a.• Redemption on retirement
(age 60)
Note- Returns are assumed to be 10% p.a.
1.74
4.52
11.72
0.11.75
6.3
0.670.1 00
25 30 40 50 60
Age (in yrs)
Valu
e of
Inve
stm
ents
(R
s. in
Lac
s) You Your Twin
You start investing
Your twin
starts investing
You stop
investing
Delays affect wealth creationRs. 1000 invested p.m. @ 10% p.a. till the age of 60 yrs
The Power of Starting Early
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
25 30 35 40 45 50
If you start investing when you are (years)
Wea
lth o
n R
etire
men
t
Gains from Investment
Investment
Just 5 years of delay reduces the wealth
by half!
Invest Regularly Builds wealth over the long term
– Just Rs. 1500 per month invested for 17 years @10% would grow to Rs. 8 lacs…could be used for your daughter’s marriage
5600 5400
61005900
6650
6070
5700
6000
5000
58005400
6100
4000
4500
5000
5500
6000
6500
7000
J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec
Pric
e pe
r 10
gram
s Highest priceLowest
quantity
Lowest priceHighest quantity
20 grams 15
grams
Rs. 10,000 worth of Gold bought every month
Invest Regularly Myth: Timing is essential to generate high returns Reality: It is the time and not the timing that
matters
Is it worth the risk or the tension? Who can time the market to perfection?
Not even the experts can !!
On the worst day to buy (highest sensex each yr)
The resultInvested a fixed amount in BSE Sensex annually for 25 yrs
On the best day to buy (lowest sensex each yr)
15% p.a.
17% p.a.
Invest Regularly It is the small drops that make an ocean!!Relieves you of the last minute pressureSlow and steady wins the race
– E.g. Split your Sec 80C investments into smaller amounts and invest every month
Reduces the risk of investing at the wrong time– Difficult to predict the market and know when is
the right time
We earn regularly; We spend regularlyShouldn’t we also invest regularly?
Create Wealth 2+2 > 5
All we need is…. a blend of– Paycheck– Time – Discipline
We already have two of them- Paycheck and TimeAll we need is Discipline
– The Discipline of making small… but regular investments
Systematic Investing
A method of investing regularly to benefit from the stock market volatility
Regular- Similar to Recurring Deposit Convenient and Hassle-Free
– Automatic investments, one-time instruction, transactions on the net
Forced saving– Similar to PF : Small amount invested every month to
become a huge sum after some years Light on the wallet
The Million Dollar QuestionI am convinced that I should save and invest regularly,
but the million dollar question is…
Where should I invest?
Risk Return Spectrum
Savings Bank/ FD
Liquid Funds
PPF, NSC, KVP, PO Deposits, RBI Bonds
Debt Funds
Gold
Real EstateEquity
Risk
Ret
urn
pote
ntia
l
Low HighLow
Hig
h
Equities- The Most Attractive Asset Class
Equities have outperformed all other asset classes in the long run - globally as well as in India
7.47% 7.12%
10.64% 10.27%
18.25%
Inflation Gold G Secs Bank FD Equities
Cumulative annualised returns (1980 - 2004)
Equities outperform in long term
In the 5-year period, equities have outperformed all other traditional forms of investment in 12 out of 14 five-year periods
(86%) since 1980
44%
56%
37%
63%
14%
86%
0%
20%
40%
60%
80%
100%
1 year 3 years 5 years
Equities outperformed
Other Investmentsoutperformed
Source : RBI Report on Currency and Finance (1997-98)
BSE Sensitive Index of Equity Prices – BSE
Cumulative annualised returns (1980 - 98)
Benefits of long term investing
In the twelve 15-year periods between 31.3.79 and 31.3.05, the Sensex has not given negative return even on a single period
Investment Horizon
Number of
periods
Positive Returns
Negative or Zero Returns
% age times
Positive returns
Maximum Return
Minimum Return
15 years 12 12 0 100% 27% 13%10 years 17 16 1 94% 35% -2%5 years 22 19 3 86% 53% -5%3 years 24 19 5 79% 82% -15%1 year 26 16 10 62% 267% -47%
Benefits of long term investing
SIP( monthly) - 10 years
0
50000
100000
150000
200000
250000
3000001 13 25 37 49 61 73 85 97 109
121
Rs. 1000 p.m. invested in BSE Sensex for 10 years
As on June 30, 2005
Rs. 2,41,162
Mutual Funds: The easy way to invest
Professional Management – Ensures that the best brains are managing your money
Diversification– Ensures risk reduction
Liquidity– Ensures that you get back your money, whenever you want
Transparent– Ensures you are apprised of the portfolio regularly
Extremely well regulated– Ensures that the fund follows laid down processes
Tax efficient– Tax free dividends, LTCG on equity completely tax free, Sec 80C
Mutual Funds Period ReturnP.A.From To
Reliance Growth Fund 1stJan , 2001 1st April, 2005 67.90 %
F I Prima Fund 29 , Sept 94 29 , July 2005 29.37 %
HDFC Equity Fund 1stJan , 2001 1st April, 2005 47.98 %
HSBC Equity Fund 1stJan , 2003 1st April, 2005 66.42 %
DSPML Opps Fund 1stJan , 2001 1st April, 2005 48.96 %
Birla Advantage fund 1stJan , 2001 1st April, 2005 37.64 %
Note :- Please Read offer document before investing.Past performance may or may not sustain in the future
Systematic Investment Plan –Past performance
Investment AvenuesSr. No.
Avenues Expected Returns (%) P.A.
Remarks
1. Bank Fixed Deposits 5.5 % Approximately 1. Pre Tax2. Liquidity
2. Corporate Deposits 7.00 % approximately 1. Pre Tax2. Liquidity3. Credit risk
3. Direct Equity Shares 15% to 20 %approximately
1. Best but only Long term2. Lot of Maintenance is needed
4. Equity Mutual Funds 10 % to 15 % approximately
1. All the benefits of equity investing
2. Systematic Plan3. Liquidity4. Tax benefits
Start an SIP today
and
Sit back and Relax
Did You Know
Returns– Current Savings Bank interest rate is 3.5% p.a.– Current FD returns for a 7-15 day FD is 3.5%-3.75% p.a.
Savings bank interest- calculated on the min of the balances in the account between the 10th and 31st
– Effective interest rate turns out to be MUCH lower !!
Taxation– Interest Income is taxable at the Maximum Marginal Tax Rate
• 30% (+ surch. & edu. cess) for assesses in the highest tax slab– Sec 80L deduction no longer available