Presentation on theme: "Perspectives on Investing"— Presentation transcript:
1 Perspectives on Investing WHAT REALLY MATTERS1Perspectives on Investing
2 Some questions we will try to address today 3Some questions we will try to address todayWhat, when,how do I buyfinancialproducts?What are thefactors thatdetermineAre market levelsrelevant??What is better:buy and hold ortrade?returns?I always seem to buy when themarket has peaked, is there a betterway?
4 Profession vs. Investments 5Profession vs. InvestmentsPROFESSIONINVESTMENTSINCOMECREATION/NURTURE/ACCUMULATIONPRESERVATIONOF WEALTHOF WEALTH
5 Profession vs. Investments 6Profession vs. InvestmentsPROFESSIONINVESTMENTSINCOMETRUST YOURYOU KNOWADVISOR TOBESTKNOW BEST
6 Consider the rising cost of living! 7Consider the rising cost of living!
7 Planning a wedding today RISING COST OF LIVING8Planning a wedding todayWedding at the TajGuests :Price per plate:Decoration:Other Expenses / Gifts, etc:500Rs. 2,000Rs. 10,00,000Rs. 15,00,000Total ExpensesRs. 35,00,000
8 Planning a wedding for your child in 20 years RISING COST OF LIVING9Planning a wedding for your child in 20 yearsWedding at the TajGuests :Price per plate:Decoration:Other Expenses / Gifts, etc:500Rs. 6,414Rs. 32,07,135Rs. 48,10,703Total ExpensesRs. 1,12,24,838Assuming 6% for 20 years
9 Household expenses are on the rise RISING COST OF LIVING10Household expenses are on the riseInflation will further shrink your buying power!A Loaf of Bread1 Liter Carton Milk1 Kg ApplesYear200020102020*2030*AmountRs. 10Rs. 16Rs. 29Rs. 51Year200020102020*2030*AmountRs. 25Rs. 40Rs. 72Rs. 128Year200020102020*2030*AmountRs. 25Rs. 80Rs. 143Rs. 257Assuming 6% for years 2020 and 2030
10 Yesterday’s luxuries are becoming today’s necessities RISING COST OF LIVING11Yesterday’s luxuries are becoming today’s necessitiesProducts previously thought as luxuries are the norm today
11 Our life cycle: Focused on meeting current needs only RISING COST OF LIVING12Our life cycle: Focused on meeting current needs onlyCan we ignore planning for the future?RetirementChild 2’sMarriageChild 1’sHouseIncomeChild 2CollegeChild 1’sCollegeChild 1CarMarriageBirth andEducation25Working Life60Retired Life75 +Age
12 Failing to plan today is as good as planning to fail in the future! 13Failing to plan today is as good asplanning to fail in the future!
13 What typically drives us to invest? 14What typically drives us to invest?Greed / Fear?News, hot tips, gut feeling?Macro-economic or global scenario?Political environment?Should thesebe the mainmotivators toinvest?
14 Creating long term wealth: What really matters? 15Creating long term wealth: What really matters?5% of the return– Relative performance of selected funds95% of the return– Asset Allocation– Ability to handle emotional & financial stress– Monitoring and tracking your portfolio periodically
15 Importance of Asset Allocation 16Importance of Asset Allocation
16 ASSET ALLOCATION17Asset 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 goalsASSETALLOCATIONFINANCIALGOALSRISK PROFILE
17 Benefits of Asset Allocation 18Benefits 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
18 Asset Allocation: Need based strategy 19Asset Allocation: Need based strategyCapital GrowthRisk: Medium to HighPeriod: 3 to 5 yearsIncomeRisk: Medium to LowStocksGrowthFundsBondsDebenturesPeriod: 1 to 3 yearsIncome/Bond FundsCompany Fixed DepositsCapital PreservationMoney Market FundsShort-term deposits / Government PaperRisk: Low to MediumPeriod: Less than 1 year
19 Asset Allocation: Age based strategy 20ASSET ALLOCATION21Asset Allocation: Age based strategyAge Group 25-4010.00%Age Group 41-5015.00%Growth (Equity)Income (Bonds)Growth (Equity)Income (Bonds)15.00%Liquidity (Banks)35.00%Liquidity (Banks)50.00%Age Group Above 60 yrs75.00%Age Group 51-6020.00%35.00%25.00%Income (Bonds)Growth (Equity)Liquidity (Banks)Income (Bonds)Growth (Equity)Liquidity (Banks)45.00%50.00%The above are only hypothetical examples and are not necessarily indicative of the strategies to follow for the age groupsmentioned above
20 Making asset allocation work 21Making asset allocation workPeriodic RebalancingRebalancing helps investors enter equities at ‘lows’ and exit at‘highs’ without having to ‘time’ the marketEXAMPLEEquity FundsIncome FundsProfile & objective based allocation70%30%Bull Market fluctuation80%20%RebalanceEXAMPLEEquity FundsIncome FundsProfile & objective based allocation70%30%Bull Market fluctuation80%20%Rebalance
21 Making asset allocation work 22Making asset allocation workPeriodic ReviewPeriodic review of objectives can ensure an investor is not left at thevagaries of equity markets when he needs his money
23 Where you invest Equities can outperform other asset classes over time WHAT REALLY MATTERS24Where you investEquities can outperform other asset classes over timeAverage inflation figures for the past 5, 10 & 15 years were 5.29%, 5.03% & 4.98% respectivelyAs of 31 March, *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 fordeposits below Rs. 1 crore as offered by State Bank of India (Source: 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.
24 25When you investConsider the case of Franklin India Bluechip Fund (FIBCF) Over the 17 period December – March , 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%, %; BSE Sensex: %, 7.52%, %, %. Returns arecompounded and annualized based on 31 Mar Growth Plan NAV of Rs.Inception Date: 01 Dec The scheme became open-ended in Jan1997. Dividends are assumed to be reinvested and bonus has been adjusted. Load isnot taken into consideration.
25 When you invest Stayed fully invested, your returns would be: WHAT REALLY MATTERS26When you investTake another example, the BSE SensexFor the 20 year period ended March if you had: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%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.
26 WHAT REALLY MATTERS27When you investPoints to ponderPerfect market timing requires one to get two things right: the right exitpoint and the right re-entry pointGetting even one of these wrong can affect one’s returnsMathematically, the odds are heavily against one being able toperfectly time the marketThe probability of getting the timing right is 0.23%*So what’s a better way to invest?* 10 best days from 4186 as shown in the example of FIBFC
27 Not market timing but time in the market matters! WHAT REALLY MATTERS28Not 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 cyclesAssumed Rs 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
28 Possibility of Staying invested helps! 29Staying invested helps!While equities may be volatile in the short-term, over thelong term, the probability of loss decreases. Consider theexample of FIBCFPast 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: %, %, 14.93%, 62.24%, 37.76%; 3 Year: 62.30%, %, 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!MaximumReturnsMinimumAveragePossibility ofMaking MoneyLosing Money1 Year199.42%-50.60%31.86%75.72%24.28%3 Year79.75%-9.57%26.89%88.63%11.37%5 Year56.08%9.66%28.81%100.00%0.00%10 Year40.19%19.47%28.42%MaximumReturnsMinimumAveragePossibility ofMaking MoneyLosing Money1 Year199.42%-50.60%31.86%75.72%24.28%3 Year79.75%-9.57%26.89%88.63%11.37%5 Year56.08%9.66%28.81%100.00%0.00%10 Year40.19%19.47%28.42%
29 How you invest Cycle of market emotions should not rule you… WHAT REALLY MATTERS30How you investCycle of market emotions should not rule you…“Has been one of my bestEXUBERANCEinvestment decisions…""Markets are on a roll…""Should be a temporaryEXCITEMENTcorrection""I can withstand this, thingsshould turn around…""I've finally recovered myprincipal. But should I exitnow?"RELIEFANXIETY"Should I have exited when Iwas making money""Once I recover my principalI'll exit"FEAR"Will the market ever go up?""How long will this correctionlast?"HOPEPANICThere is often no relationship between performance of a fundand an investor’s performanceRELIEF
30 When you start Starting early can make a difference to your wealth WHAT REALLY MATTERS31When you startStarting early can make a difference to your wealthGita, Age 30Sita, Age 40So what do you think is theirretirement corpus at age 60assuming a return of 10%annually on their investments?10,000 p.mRs lacsRs Crores
31 What are the returns you earn WHAT REALLY MATTERS32What are the returns you earnThe returns you earn over time can make a differenceRs.4.97 CroresRs CroresRs Crores8%12%15%Value at age 60 of Rs. 100,000 invested every year at age 30 upto 58at different rates of returns
32 What is a Systematic Investment Plan (SIP)? 33What 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?
33 Rupee Cost Averaging Two basic principles on which SIP works SYSTEMATIC INVESTMENT PLAN34Two basic principles on which SIP works Power of Compounding Rupee Cost Averaging
34 Rupee Cost Averaging at work SYSTEMATIC INVESTMENT PLAN35Rupee Cost Averaging at workNAV = 12.00Units = 83.3NAV = 10.0Units = 100NAV = 10.0Units = 1001-Jan-101-Feb-101-Mar-101-Apr-101-May-10NAV = 8.0Units = 125Average Price per unit: RsAverage Cost per unit : Rs. 9.79Assume Rs. 1,000 invested per month
35 SYSTEMATIC INVESTMENT PLAN 36How SIP has workedIf 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 Load is not taken into consideration. Dividends assumed to bereinvested and Bonus adjusted. *The scheme became open end in January 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 overFIBCFBSE SensexRs.CAGR1 year (Rs. 12,00,000)12,65,30010.30%12,61,0009.61%3 years (Rs. 36,00,000)51,82,80025.22%47,93,40019.56%5 years (Rs. 60,00,000)91,52,80016.94%81,57,50012.26%7 years (Rs. 84,00,000)1,74,01,60020.46%1,52,06,00016.67%10 years (Rs. 1,20,00,000)5,06,37,90027.14%3,51,13,30020.37%Since Jan 97* (Rs. 1,71,00,000)15,84,36,20027.83%6,09,01,60016.32%Rs. 1,00,000 per Month overFIBCFBSE SensexRs.CAGR1 year (Rs. 12,00,000)12,65,30010.30%12,61,0009.61%3 years (Rs. 36,00,000)51,82,80025.22%47,93,40019.56%5 years (Rs. 60,00,000)91,52,80016.94%81,57,50012.26%7 years (Rs. 84,00,000)1,74,01,60020.46%1,52,06,00016.67%10 years (Rs. 1,20,00,000)5,06,37,90027.14%3,51,13,30020.37%Since Jan 97* (Rs. 1,71,00,000)15,84,36,20027.83%6,09,01,60016.32%
36 To put it in perspective 37To put it in perspectiveWhere you invest: Equities can outperform other asset classes overtimeWhen you invest: Time in the market and not market timing matters!How you invest: Avoid market emotions and market noiseWhen you start: Starting early can help in the long-runWhat are the returns you earn: A small difference over the long termcan make the difference to your overall corpus
38 We all view risks in our own way 44We all view risks in our own wayThere is a risk to investingThere is a risk to not investing, as wellThere is a risk to investing in equitiesThere is a risk to not investing in equities, as wellThere is no such thing as a ‘risk-free’ investmentIt is important that you are comfortable with the risksassociated with whatever investment avenue you chooseHere’s wishing you all success in investing!