Systematic Investment Plan

(SIP)

The Smart Investors’ Preference

1
Human Life Cycle

Phase I Phase II Phase III

Child’s Marriage

Child’s Education

Housing

Child birth
Marriage

22 yrs 38 yrs 10- 20 yrs

Education Earning Years Post Retirement Years

Age- 22 yrs Age- 60 yrs

2
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

3
It is Critical, Yet Most Don’t Do It

I don’t have I don’t have I will start from

money to save time next month

The returns are

I don’t have the
hardly worth the
requisite skills
effort

The alternatives
The paper work is
are not exciting
just too tedious
enough

And the list goes on…………..!!!!

4
Getting rich is simpler than you
think !!
Rs.1000 invested every month for 30 years
Value of investment (Rs.)

8000000
7000000
Rs.70 lakhs
6000000
5000000
6% p.a.
4000000
10% p.a.
3000000
15% p.a.
2000000
1000000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Rs.22 lakhs
No. of years
Rs.10 lakhs

The Power of Compounding

Even small amounts invested regularly can grow
substantially
5
The Formula for Creating Wealth

Start Early Invest Regularly Create Wealth

Make your money work hard for you

6
Start Early!
You Your Twin
• Age : 25 years • Age : 25 years
• Start : Today • Start : at age 40
• Invest : 5 years • Invest : 20 years
• Amount : Rs 10,000 p.a. • Amount : Rs 10,000 p.a.
• Redemption on • Redemption on
retirement (age 60) retirement (age 60)
Value of Investments

11.72
You Your Twin
(Rs. in Lacs)

6.3

You start You stop

4.52 Your twin
1.74 1.75
0.1 investing0.67 starts investing
0 0 investing 0.1

25 30 40 50 60
Age (in yrs)

Note- Returns are assumed to be 10% p.a.

7
Delays affect wealth creation

Rs. 1000 invested p.m. @ 10% p.a. till the age of 60 yrs

The Power of Starting Early Just 5 years of delay

4,500,000 reduces the wealth
4,000,000 by half!
Wealth on Retirement

3,500,000
3,000,000

2,500,000 Gains from Investment

2,000,000 Investment
1,500,000
1,000,000
500,000
0
25 30 35 40 45 50
If you start investing when you are (years)

8
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
6650 Highest price
6500 Lowest
Price per 10 grams

6070 6100 6100

6000
6000 5800
5900 quantity
5400
20 5700
5400
5600
5500 grams 15
5000
5000 grams
4500
Lowest price
4000
J an Feb M ar Apr M ay Highest
J un J ul Aug Sep Oct Nov Dec
quantity

9
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 !!
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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?

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Create Wealth 2+2 > 5

• All we need is…. a blend of

– Paycheck
– Time
– Discipline

• We already have two of them- Paycheck and Time

• All we need is Discipline

– The Discipline of making small… but regular investments

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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
• No entry load
– No entry charge for systematic investments
• Forced saving
– Similar to PF : Small amount invested every month to become a
huge sum after some years
• Light on the wallet

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The Million Dollar Question

I am convinced that I should save and invest regularly,

but the million dollar question is…

Where should I invest?

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Risk Return Spectrum
High

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
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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 Se cs Bank FD Equitie s

Cumulative annualised returns (1980 - 2004)

Source : CLSA

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Equities outperform in long term

100%

80% 56% 63%

86% Equities outperf ormed
60%

40% Other Inv es tments

44% 37% outperf ormed
20%
14%
0%
1 year 3 years 5 years

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
Source : RBI Report on Currency and Finance (1997-98)
BSE Sensitive Index of Equity Prices – BSE

Cumulative annualised returns (1980 - 98)

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Benefits of long term investing

Inve stm e nt Num be r Positive Ne ga tive % a ge M a x im umM inim um

Horiz on of Re turns or Ze ro tim e s Re turn Re turn
pe riods Re turns P ositive
re turns
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%

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

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Benefits of long term investing

Rs. 1000 p.m. invested in BSE Sensex for 10 years

SIP( monthly) - 10years

300000
250000
Rs. 2,41,162
200000
150000
100000
50000
0

109

121
13

25

85
37

49

61

73

97
1

As on June 30, 2005

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Outperformance

SIP investments in Birla Mutual Fund have consistently done

better than the benchmark
Value of SIP of Rs. 1000 p.m. in BSE Sensex and BAF
O rig in a l V a lu e * o f S IP in CAGR*
P e r i o d In v e stm e Sn et n se x B A F S e n se x B A F
L a s t 1 0 y e a rs 1 2 0 , 0 0 0 2 2 4 , 9 2 0 4 3 7 , 0 6 6 1 2 % 2 5 %
L a s t 5 y e a rs 60,000 106,95 6 134,16 9 24% 33 %
L a s t 3 y e a rs 36,000 58 ,43 8 69 ,4 07 35% 49%
Las t 1 y ear 12,000 14 ,00 9 14 ,6 01 36% 47%

* As on July 14, 2005

Notes:
1. SIP assumed to be on the first working day of each month
2. Brokerages and dividends are assumed to be Nil for the purpose of the above calculations

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BMF vs Benchmark

Annualised Returns* for SIP

B e n c h m a rk B M F sc h e m e s
P e r i o d B S E S e n seNxi fty BEP M N C B IO F
L a s t 5 y e a rs 24% 22% 41% 34% 33%
L a s t 3 y e a rs 35% 32% 59% 47% 41%
Last 1 y ear 36% 28% 62% 50% 35%

Benchmark BMF schemes

Period BSE Sensex Nifty BDYP Midcap
Last 1 year 36% 28% 39% 60%

* As on July 14, 2005

Notes:
1. SIP assumed to be on the first working day of each month
2. Brokerages and dividends are assumed to be Nil for the purpose of the above calculations

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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

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Birla Sun Life

• Promoted by the Aditya Birla Group & Sun Life Financial of

Canada
• 10 years of performance track record
• Recipient of awards/ recognitions for its fund performance
• One of the largest private sector mutual funds
– AUM > Rs. 11,000 crores
• One of the pioneers in the Indian MF industry
• Strong processes & in-house research
• Offers the complete bouquet of investment schemes
– Across all risk profiles and all investment horizons

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Start an SIP today

and

Sit back and Relax

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Asset Allocation

• The art of allocation of your investments across asset

classes
• Allocate assets based on
– Goals: Long term or short term
– Risk taking capacity: Conservative or Aggressive
– Age: Young or old
• Model Portfolios

Note- The above model portfolio is for illustrative purpose only 25

Short Term Needs

• Besides asset allocation,

– one also needs to keep side some money in liquid form- to meet the
planned and unplanned requirements in the short term
– and still earn optimally on these short term funds set aside

What is the option that comes to your mind?

Savings Account ??
Fixed Deposit ??

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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
..\savingsbank_effectiverateofreturn.xls

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Birla Cash Plus*- A superior alternative

• Generates market related return

– Currently in the range of 4%-4.5% p.a.
– Investor earns each day till the investment remains in the Fund
• Returns accrue on the investment amt o/s at each day end
– As against a savings bank account
• Liquid
– No lock-in period- as against FD
• Ease in transacting
– Redemptions online/ on phone, Direct credit, Readicheque
Individual

• Taxation
Particulars Savings 30days BCP- Div
Account FD Reinv
Annual Appreciation(Assumed) 3.50% 4.00% 4.50%
Appreciationfor 30days 0.29% 0.33% 0.37%
Tax Rate 33.66% 33.66% 14.025%
Tax 0.10% 0.11% 0.05%
Post Tax Returnsfor 30 days 0.19% 0.22% 0.32%
Effective Pre-Tax Returnfor 30days 0.29% 0.33% 0.49%
Effective Pre-Tax Return(Annualised) 3.50% 4.00% 5.95%
assumedassesse's GTI is >Rs. 10lacs

* select locations 28
Readicheque*

• Undated cheques of prespecified denominations issued in

favour of investor against his investment
– At the time of investment itself
– Can be banked as and when the investor desires
– No intimation required to be given to BMF by the investor
• Relieves the investor of the hassles of
– Giving a redemption request
– Waiting for the cheque to reach him
• Reduces turnaround time
– Quickens the redemption cycle
• Returns intact
– Returns accrue till the day prior to the day on which the cheque hits
BMF’s bank account

*available only in BCP subject to certain conditions and in select locations

29
Disclaimer

The information contained in this document is not a complete presentation of

every material fact regarding any industry/security or the fund and is neither an
offer for units nor an invitation to invest. This communication is meant for use by
the recipient and not for circulation/reproduction without prior approval. The
views expressed are based on current market conditions and information
available to and do not constitute investment advice.
Risk Factors: Mutual Fund investments are subject to market risks and the
NAVs of the schemes may go up or down depending upon the factors and
forces affecting the securities market. Past performance of the schemes
managed by Birla Mutual Fund is not necessarily indicative of future
performance of the schemes. Please refer to the offer document before
investing.

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Thank
You

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