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Perspectives on Investing WHAT REALLY MATTERS 1. 3 Some questions we will try to address today returns? I always seem to buy when the market has peaked,

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Presentation on theme: "Perspectives on Investing WHAT REALLY MATTERS 1. 3 Some questions we will try to address today returns? I always seem to buy when the market has peaked,"— Presentation transcript:

1 Perspectives on Investing WHAT REALLY MATTERS 1

2 3 Some questions we will try to address today returns? I always seem to buy when the market has peaked, is there a better way? What, when, how do I buy financial products? What are the factors that determine Are market levels relevant?? What is better: buy and hold or trade?

3 Are you Saving or are you Investing?

4 PROFESSIONINVESTMENTS INCOME CREATION/ ACCUMULATION OF WEALTH NURTURE/ PRESERVATION OF WEALTH Profession vs. Investments 5

5 PROFESSIONINVESTMENTS INCOME YOU KNOW BEST TRUST YOUR ADVISOR TO KNOW BEST Profession vs. Investments 6

6 Consider the rising cost of living! 7

7 8 Wedding at the Taj Guests : Price per plate: Decoration: Other Expenses / Gifts, etc: 500 Rs. 2,000 Rs. 10,00,000 Rs. 15,00,000 Planning a wedding today Total Expenses Rs. 35,00,000 RISING COST OF LIVING

8 9 Wedding at the Taj Guests : Price per plate: Decoration: Other Expenses / Gifts, etc: 500 Rs. 6,414 Rs. 32,07,135 Rs. 48,10,703 Planning a wedding for your child in 20 years Total ExpensesRs. 1,12,24,838 Assuming 6% for 20 years RISING COST OF LIVING

9 Household expenses are on the rise 1 Liter Carton Milk Amount Rs. 25 Rs. 40 Rs. 72 Rs. 128 Year * 2030* A Loaf of Bread Amount Rs. 10 Rs. 16 Rs. 29 Rs. 51 Year * 2030* 1 Kg Apples Amount Rs. 25 Rs. 80 Rs. 143 Rs. 257 Year * 2030* Inflation will further shrink your buying power! Assuming 6% for years 2020 and 2030 RISING COST OF LIVING 10

10 11 Yesterdays luxuries are becoming todays necessities Products previously thought as luxuries are the norm today RISING COST OF LIVING

11 Incom e Our life cycle: Focused on meeting current needs only Birth and Education Working Life 75 + Retired Life Child 1s College Child 1 Car Marriage College Age Child 2 Can we ignore planning for the future? Retirement Child 2s Marriage Child 1s Marriage House Child 2s RISING COST OF LIVING 12

12 Failing to plan today is as good as planning to fail in the future! 13

13 14 What typically drives us to invest? Greed / Fear? News, hot tips, gut feeling? Macro-economic or global scenario? Political environment? Should these be the main motivators to invest?

14 5% of the return – Relative performance of selected funds 95% of the return – Asset Allocation – Ability to handle emotional & financial stress – Monitoring and tracking your portfolio periodically Creating long term wealth: What really matters? 15

15 Importance of Asset Allocation 16

16 Asset 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 goals RISK PROFILE FINANCIAL GOALS ASSET ALLOCATION ASSET ALLOCATION 17

17 Benefits 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 ASSET ALLOCATION 18

18 19 Risk: Low to Medium Period: Less than 1 year Money Market Funds Short-term deposits / Government Paper Period: 1 to 3 years Income/Bond Funds Company Fixed Deposits Capital Preservation Asset Allocation: Need based strategy Capital Growth Risk: Medium to High Period: 3 to 5 years Income Risk: Medium to Low Stocks Growth Funds Bonds Debentures ASSET ALLOCATION

19 21 Asset Allocation: Age based strategy ASSET ALLOCATION 15.00% Age Group % Growth (Equity) Income (Bonds) Liquidity (Banks) Growth (Equity) Income (Bonds) 35.00% 15.00% Age Group % Age Group Income (Bonds) Growth (Equity) Liquidity (Banks) 45.00% 20.00% 35.00% Income (Bonds) Growth (Equity) Liquidity (Banks) 50.00% Age Group Above 60 yrs 50.00% 25.00% The above are only hypothetical examples and are not necessarily indicative of the strategies to follow for the age groups mentioned above 20

20 EXAMPLEEquity FundsIncome Funds Profile & objective based allocation70%30% Bull Market fluctuation80%20% Rebalance70%30% Making asset allocation work Periodic Rebalancing Rebalancing helps investors enter equities at lows and exit at highs without having to time the market ASSET ALLOCATION EXAMPLEEquity Funds Income Funds Profile & objective based allocation70%30% Bull Market fluctuation80%20% Rebalance70%30% 21

21 22 Making asset allocation work Periodic Review Periodic review of objectives can ensure an investor is not left at the vagaries of equity markets when he needs his money ASSET ALLOCATION

22 Creating long-term wealth: What really matters? 23

23 Where you invest WHAT REALLY MATTERS Equities can outperform other asset classes over time Average inflation figures for the past 5, 10 & 15 years were 5.29%, 5.03% & 4.98% respectively As 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 for deposits below Rs. 1 crore as offered by State Bank of India (Source: Bank Fixed Deposits are relatively safer as they are covered under Deposit Insurance and Credit Guarantee Corporation of India to the extent of Rs. 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

24 When you invest Consider the case of Franklin India Bluechip Fund (FIBCF) Over the 17 period December – March , spanning 4186 business days, 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 best days, 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 and benchmark (BSE Sensex): 1 yr, 3 yr, 5 yr, since inception: FIBCF: 12.77%, 14.20%, 14.38%, 25.67%; BSE Sensex: 10.94%, 7.52%, 11.50%, 10.79%. Returns are compounded and annualized based on 31 Mar 2011 Growth Plan NAV of Rs Inception Date: 01 Dec The scheme became open-ended in Jan Dividends are assumed to be reinvested and bonus has been adjusted. Load is not taken into consideration. 25

25 26 When you invest 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% Take another example, the BSE Sensex For the 20 year period ended March if you had: WHAT REALLY MATTERS The example given above is purely hypothetical and illustrative only since one cannot invest directly in the BSE Sensex. Past performance may or may not be sustained in future.

26 27 When you invest Points to ponder Perfect market timing requires one to get two things right: the right exit point and the right re-entry point Getting even one of these wrong can affect ones returns Mathematically, the odds are heavily against one being able to perfectly time the market The probability of getting the timing right is 0.23%* So whats a better way to invest? WHAT REALLY MATTERS * 10 best days from 4186 as shown in the example of FIBFC

27 28 Not market timing but time in the market matters! Consider the example of Franklin India Bluechip Fund, a fund with a 17 year track record across market cycles Assumed Rs invested at Inception in FIBCF and BSE Sensex. Past performance may or may 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 WHAT REALLY MATTERS

28 Maximum Returns Minimum Returns Average Returns Possibility of Making Money Possibility of Losing Money 1 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%100.00%0.00% Staying invested helps! While equities may be volatile in the short-term, over the long term, the probability of loss decreases. Consider the example of FIBCF Past performance may or may not be sustained in future. Annualized Compounded returns based on Growth Plan NAVs. Period - Inception date to 31 March 2011; BSE Sensex rolling returns for the same period: Maximum returns, Minimum returns, Average returns, Possibility of making money, Possibility of losing 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%, %, 0.00%. Sales load has not been taken into consideration. Dividend/Bonus are adjusted. Inception Date: 01 December Over a 5 year horizon, investors have made money! Maximum Returns Minimum Returns Average Returns Possibility of Making Money Possibility of Losing Money 1 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%100.00%0.00% 29

29 investment decisions…" EXUBERANCE RELIEF "Should I have exited when I was making money" "Once I recover my principal I'll exit" RELIEF "I've finally recovered my principal. But should I exit now?" EXCITEMENT "I can withstand this, things should turn around…" ANXIETY FEAR "Markets are on a roll…" "Should be a temporary correction" Cycle of market emotions should not rule you… Has been one of my best How you invest "Will the market ever go up?" "How long will this correction last?" HOPE PANIC There is often no relationship between performance of a fund and an investors performance WHAT REALLY MATTERS 30

30 Rs lacs Rs Crores When you start WHAT REALLY MATTERS So what do you think is their Starting early can make a difference to your wealth Gita, Age 30 Sita, Age 40 retirement corpus at age 60 assuming a return of 10% annually on their investments? 10,000 p.m 31

31 What are the returns you earn WHAT REALLY MATTERS Value at age 60 of Rs. 100,000 invested every year at age 30 upto 58 at different rates of returns The returns you earn over time can make a difference Rs.4.97 Crores Rs Crores Rs Crores 8%12% 15% 32

32 33 What is a Systematic Investment Plan (SIP)? The term systematic investing applies to the process of investing regularly 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 – Isnt it obvious we should also invest monthly? SYSTEMATIC INVESTMENT PLAN

33 Two basic principles on which SIP works Power of Compounding Rupee Cost Averaging SYSTEMATIC INVESTMENT PLAN 34

34 35 Rupee Cost Averaging at work SYSTEMATIC INVESTMENT PLAN 1-Jan-101-Feb-101-Apr-10 NAV = 10.0 Units = Mar-10 1-May-10 NAV = 10.0 Units = 100 NAV = Units = 83.3 NAV = 8.0 Units = 125 Average Price per unit: Rs Average Cost per unit : Rs Assume Rs. 1,000 invested per month

35 Rs. 1,00,000 per Month overFIBCFBSE Sensex Rs.CAGRRs.CAGR 1 year (Rs. 12,00,000)12,65, %12,61, % 3 years (Rs. 36,00,000)51,82, %47,93, % 5 years (Rs. 60,00,000)91,52, %81,57, % 7 years (Rs. 84,00,000)1,74,01, %1,52,06, % 10 years (Rs. 1,20,00,000)5,06,37, %3,51,13, % Since Jan 97* (Rs. 1,71,00,000)15,84,36, %6,09,01, % How SIP has worked SYSTEMATIC INVESTMENT PLAN If you had invested Rs. 1,00,000 every month through an SIP in FIBCF, it would have grown to: Past performance may or may not be sustained in future. Annualized and compounded returns based on 31 March 2011 Growth Plan NAV of Load is not taken into consideration. Dividends assumed to be reinvested and Bonus adjusted. *The scheme became open end in January Monthly investment of equal amounts invested on the 1st day of every month has been considered. Inception Date: 01 December Rs. 1,00,000 per Month overFIBCFBSE Sensex Rs. 1,00,000 per Month over Rs.CAGRRs.CAGR 1 year (Rs. 12,00,000)12,65, %12,61, % 3 years (Rs. 36,00,000)51,82, %47,93, % 5 years (Rs. 60,00,000)91,52, %81,57, % 7 years (Rs. 84,00,000)1,74,01, %1,52,06, % 10 years (Rs. 1,20,00,000)5,06,37, %3,51,13, % Since Jan 97* (Rs. 1,71,00,000)15,84,36, %6,09,01, % 36

36 To put it in perspective Where you invest: Equities can outperform other asset classes over time When you invest: Time in the market and not market timing matters! How you invest: Avoid market emotions and market noise When you start: Starting early can help in the long-run What are the returns you earn: A small difference over the long term can make the difference to your overall corpus 37

37 A word on risk… 43

38 44 We all view risks in our own way There is a risk to investing There is a risk to not investing, as well There is a risk to investing in equities There is a risk to not investing in equities, as well There is no such thing as a risk-free investment It is important that you are comfortable with the risks associated with whatever investment avenue you choose Heres wishing you all success in investing!

39 Thank You 53


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