Smart Investor’s Preference
(SIP)
What is the Average Age
when one starts Earning?
25 Years
What is the Average Retirement Age?
60 Years
What is an Average Income of an
Middle-Class House-hold?
Rs.15,000/- p.m.
How much can a person
save on a regular basis?
Rs.5,000/- p.m.
If a person can save Rs.5,000/- per month
What will be his wealth when he retires?
Assuming:
He increases his investments by 5% every year
Invests in an Asset class that gives returns of 20%
At Age 60 his wealth would have been
Rs.27 Crores
Starting Early
Ram Shyam 27
Crores*
Savings Starting Age 25 40
Savings - Monthly SIP Rs.5,000/- Rs.15,000/-
Saving Years till age 60 35 years 20 years
Total Amount Saved (appx.) Rs.57 lacs Rs.62 lacs
4.90
Give time to your investments
Give time to your investments Crores*
rather than timing
rather than timing
25 years 40 years 60 years
Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR
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
• Take advantage of market volatility
– Buy more when the markets are down
Rs. 10,000 worth of Gold bought every month
7000 Highest price
6650
6500 Lowest quantity
Price per 10 grams
6070 6100 6100
6000 20 grams 5800
6000
5900
5400
5700 15 grams 5400
5600
5500
5000
5000
Lowest price
4500 Highest quantity
4000
J an Feb M ar Apr M ay J un J ul Aug Sep Oct Nov Dec
Invest Regularly
• Myth: Timing is essential to generate high returns
• Reality : It is the time and not the timing that matters
Invested a fixed amount in BSE Sensex
The result
annually for 25 yrs
On the worst day to buy 15% p.a.
(highest sensex each yr)
On the best day to buy
(lowest sensex each yr) 17% p.a.
Is it worth the risk or the tension?
Who can time the market to perfection?
Not even the experts can !!
Invest Regularly
• It is the small drops that make an ocean!!
• Relieves you of the last minute pressure
• Slow 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 regularly
Shouldn’t we also invest regularly?
Invest Regularly
• …….It all adds up!
25
Rs.21.7 lakhs
20 Rs.1000 invested
every month for 30
years @10%
Rs. Lakhs
15
10
0
1 5 9 13 17 21 25 29 30
No. years
A small amount invested regularly can grow to substantial lumpsum
EARN MORE
• Earn more…it can make a big difference
One time investment of Rs.1 lakh invested for 30 yrs
@ 6% @ 10% @ 15%
5.7 lakhs 17.45 lakhs 66.2 lakhs
EARN MORE
Power of Compounding - QUIZ
• Rs. 10,000 invested every month for a period of 30 years
At 8% - 1.5 crores Postal Recurring
At 15% - 7.0 crores ??????
??????
At 20% - 23 crores
The Formula for Creating Wealth
Start Invest Earn More Create
Early Regularly Wealth
Make your money work hard for you
TheI amMillion Dollar Question
convinced that I should save and invest regularly,
but the million dollar question is…
Where should I invest?
High Risk Return Spectrum
Equity
Real Estate
Gold
Return potential
Debt Funds
PPF, NSC, KVP, PO Deposits, RBI Bonds
Liquid Funds
Savings Bank/ FD
Low
Low Risk High
Note:The above chart is for illustrative purpose only and is not marked to scale. The chart is based
on our perception of the risk and return potential of various investment avenues
Equities- The Most Attractive Asset Class
Equities have outperformed all other asset classes in the long run -
globally as well as in India
18.25%
10.64% 10.27%
7.47% 7.12%
Inflation Gold G Secs Bank FD Equities
Source : CLSA
Cumulative annualised returns (1980 - 2004)
Which product among all above has the
potential to create greatest wealth for you?
Equities …
Do you agree?
Risk??
Returns are unsure!
Equity – owners’ risk
Volatility of returns
Market Risk
Sentiments in ST, Herd Mentality
Investor’s Psyche - Wrong emotion dominates at
wrong time
Greed
Fear Hope
The Cycle of Fear, Greed & Hope
Simply put …
Selecting Right Asset Class
Equity market (represented by BSE Sensex) has
outperformed all other investment avenues
Sensex
Compan Bank
y Deposit
Deposits s
Inflation
Gold
Past Performance (BSE Sensex)
Year Sensex Investment Rs.
1979 100 1,00,000
2006 13,000 1,30,00,000
In past 27 years BSE Sensex has given about 19.5% returns
This is in spite of …
• Two wars • At least 3 recessionary periods
• At least three major financial scandals • 10 different governments and
• Assassination of 2 prime ministers • An unfair share of natural disasters
Using the Wisdom
We can direct our savings
in such a manner that we create wealth,
the way we wish
DISCIPLINED SAVINGS
+
SUFFICIENT TIME
+
RIGHT ASSET CLASS
=
Smart Investor’s Preference
What is SIP
• Invest a fixed amount, at regular, Dates Monthly Investment NAV Units Alloated
predetermined intervals and use the 1 1-Jan-05 1000 10 100.00
market fluctuations to your benefit 2 1-Feb-05 1000 8 125.00
3 1-Mar-05 1000 6 166.67
4 1-Apr-05 1000 18 55.56
5 1-May-05 1000 22 45.45
6 1-Jun-05 1000 12 83.33
7 1-Jul-05 1000 19 52.63
8 1-Aug-05 1000 14 71.43
11.981 9 1-Sep-05 1000 17 58.82
10 1-Oct-05 1000 14 71.43
11 1-Nov-05 1000 10 100.00
12 1-Dec-05 1000 14 71.43
TOTAL 12000 1001.75
Average NAV 13.67
Average Cost per unit 11.98
A Snapshot of poor performing
schemes
A Snapshot of better
performing schemes
Start an SIP today and Sit back and Relax