Equity Investment

Through

Mutual Funds
 Agenda

• Why Save

• Why Save through Equities

• Why Equities through mutual funds

• Why Systematic Investment Plan

 Why Save?

• B’cos the cost of living is Ç…

• 1983 2003 2023
• Toothpaste Rs.4 Rs.20 Rs.100
• LPG Gas Rs.27 Rs.250 Rs.2315
• Education 1000’s 100,000’s ?
 Why Save?

•…while sources of revenue are È

•Age 25 Start career 100% dependent on job

•Age 30 Marriage

•Age 40 Buying a house

•Age 55 Children’s Education/
• Marriage

•Age 60 Retirement
100% dependent on
earnings from investment
 Are your savings earning you enough?

• Ram, 30 yrs

• Present monthly
• spending: Rs. 15,000

• Estimated monthly
• spending at 60: Rs. 65,000

• Accumulation
• required at 60: Rs. 85 lakhs

Inflation assumed @5% p.a

Returns assumed @9% p.a.
 Reality Check…
• Falling rates will reduce the net accumulation from traditional
Investment avenues

• Age: 30 yrs; Annual savings: Rs.40,000; Increase in Annual Saving: 5%

Rs.85.0 lakhs
Accumulation at 60
Rs.71.4 lakhs

Rs.60.1 lakhs

9%
Rs.50.9 lakhs
8%
7%
6%
 Savings(Wealth creation)– Basic Principles…(1)

• Start early…
Value at the age 60
Rs.17.45 lakhs

Rs.12.97 lakhs

Ram: Shyam:
Rs.1 lakh invested Rs.5 lakhs invested
at the age of 30 at the age of 50

Returns: 10%
Power of Compounding
 Savings(Wealth creation)– Basic Principles…(2)

• Save regularly…it all adds up!

25
Rs.21.7 lakhs
20 Rs.1000 invested
every month for 30
Rs. Lakhs

15 years @10%

10

0
1 5 9 13 17 21 25 29 30

No. years
A small amount invested regularly can grow to substantial lumpsum
 Savings(Wealth creation)– Basic Principles…(3)

• 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

 OR

Wealth Creation Principle is nothing

but
Enhancement Of future Value.
 Enhancing Future Value

• Wealth creation is nothing but enhancement of future value

• FV = PV
PV (1 + rr ) n
n
The more you The sooner
save, makes a The more you start,
difference you earn, makes a
makes a difference
difference
 How to enhance Future Value in the Long run
??

• Starting Early & Saving Regularly helps in wealth creation

but the most important part in wealth creation are the
returns
&
EQUITY is the only asset class which has a potential to
generate higher
returns in the long term………

BUT PEOPLE OFTEN LOOSE MONEY IN EQUITY ………

 Why People Loose money in Equity ?

T h e c y c le o f fe a r, g re e d a nd hope
Fe a r G r ee d H o pe

Z u ri ch I n d ia M u u
t a l F u nd

Investors gets trapped in the Cycle of fear , greed and hope

Simply put …
 Other Reasons of Failure

• Equity Investments are made on Tips & Flavors

• Equity Investments are tracked part time & not full time

• Equity Investments are made for short term

• Equity Investments are not adequately diversified

• People look at acquisition price & not future value

 Wealth Creation MANTRA

To break the cycle of Fear,Greed & Hope &

become a successful equity investor one should START

WHY !!!!
 Why Equity Mutual Funds are successful?
Does a
Qualities Description Do mutual
you fund
have ? have it?
A systematic method of selection of
Investment the scrips, with the synchronization ?? Yes
process of objective.

Technology, information at hand,

Infrastructure statistical tools, research team, ?? Yes
time etc.

The experience of making

Experience investment decisions on a regular ?? Yes
basis & experience of standing all
the business/economy cycles.
 Why Equity Mutual Funds are successful?

Does a
Qualities Description Do mutual
you fund
have ? have it?
Most Fund managers are
Knowledge & professionally qualified. Moreover, ?? Yes
qualification their knowledge is assisted by a
lot many support which they get
in the form of their research team,
study etc.

Reviewing & analyzing your

Constant monitoring investment at every moment of ?? Yes
time .
Why

Systematic
Investment
Plan?
 What is Rupee Cost Averaging / SIP
• We call it Disciplined Regular Investment

• Science, Art or A Habit?

• The Markets are volatile: they move up and down in an unpredictable

manner

• Invest a fixed amount, at regular, predetermined intervals and use the

market fluctuations to your benefit

• How does it help you:

– You buy more more when the market is down
– You buy less when the market is up
– Over time the market fluctuations are averaged
– Most likely you will realise a saving on the cost per unit
– This leads to HIGHER RETURNS
 Power of Compounding - QUIZ

• Rs. 10,000 invested every month for a period of 30

years

1.5 crores Postal Recurring

At 8% -

7.0 crores SIP in Balance Funds

At 15% -

23 crores SIP in Equity Funds

At 20% -
 Working of SIP in any kind of market

Rising Market Falling Market Volatile Market

Amount
Month
Invested Units Units Units
NAV NAV NAV
Alloted Alloted Alloted
1 1,000 10 100.00 10 100.00 10 100.00
2 1,000 12 83.33 8 125.00 12 83.33
3 1,000 14 71.43 6 166.67 8 125.00
4 1,000 16 62.50 4 250.00 10 100.00
Total 4,000 52 317.26 28 641.67 40 408.33

Average Purchase Price 13 7 10

Average Cost Per Unit 12.61 6.23 9.80

 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
Years YEAR END SENSEX level 1 year 3 years 5 years 7 years 10 years 15 years
0 31-Mar-79 100.00
1 31-Mar-80 128.57 28.57%
2 31-Mar-81 173.44 34.90%
3 31-Mar-82 217.71 25.52% 29.61%
4 31-Mar-83 211.51 -2.85% 18.05%
5 31-Mar-84 245.33 15.99% 12.25% 19.66%
6 31-Mar-85 353.86 44.24% 17.58% 22.44%
7 31-Mar-86 574.11 62.24% 39.49% 27.05% 28.36%
8 31-Mar-87 510.36 -11.10% 27.66% 18.58% 21.77%
9 31-Mar-88 398.37 -21.94% 4.03% 13.50% 12.61%
10 31-Mar-89 713.60 79.13% 7.52% 23.81% 18.48% 21.72%
11 31-Mar-90 781.05 9.45% 15.24% 17.16% 20.52% 19.77%
12 31-Mar-91 1167.97 49.54% 43.12% 15.26% 24.97% 21.01%
13 31-Mar-92 4285.00 266.88% 81.76% 53.04% 42.80% 34.71%
14 31-Mar-93 2280.52 -46.78% 42.93% 41.76% 21.78% 26.84%
15 31-Mar-94 3778.99 65.71% 47.90% 39.57% 33.11% 31.45% 27.40%
16 31-Mar-95 3260.96 -13.71% -8.70% 33.09% 35.03% 24.87% 24.05%
17 31-Mar-96 3366.61 3.24% 13.86% 23.58% 24.81% 19.35% 21.86%
18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.18% 20.74% 20.02%
19 31-Mar-98 3892.75 15.82% 6.08% 11.29% 18.77% 25.60% 21.43%
20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.02% 19.92%
21 31-Mar-00 5001.28 33.73% 14.17% 8.93% 11.87% 20.40% 19.31%
22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.93% 13.03%
23 31-Mar-02 3469.35 -3.75% -2.47% 0.64% 0.89% -2.09% 13.63%
24 31-Mar-03 3048.72 -12.12% -15.21% -4.77% -1.41% 2.95% 14.53%
25 31-Mar-04 5590.60 83.38% 15.76% 8.37% 7.54% 3.99% 14.71%
26 31-Mar-05 6492.82 16.14% 23.23% 5.36% 7.58% 7.13% 15.16%
27 31-Mar-06 11279 73.71% 54.66% 25.62% 17.08% 12.85% 16.32%
Probability of Loss 10/27 5/25 3/23 3/21 1/18 0/13
 Selecting Right Asset Class

Equity market (represented by BSE Sensex) has outperformed

all other investment avenues

6,000
Sensex
5,000

4,000 Company Bank

Deposits Deposits
3,000

2,000 Inflation
1,000
Gold
0
1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004-
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
 A Snapshot of poor performing schemes
Amount Invested
Current Value
through SIP(Rs. 1000 SIP
Scheme Name As on
p.m.) from March Returns
31-03-2005
2000
Pru Tech Fund 61,000 105,930 22.06%
Alliance New Millenium 61,000 106,347 22.22%
Amount Invested One Annualised
Current Value
Time Returns
Pru Tech Fund 61,000 41,480 -7.34%
Alliance New Millenium 61,000 33,673 -11.08%
 A Snapshot of better performing schemes
Amount Invested
Current Value
through SIP(Rs. 1000 SIP
Scheme Name As on
p.m.) from March Returns
31-03-2005
2000
HDFC Equity 61,000 161,209 39.69%
Reliance Growth 61,000 226,349 54.64%
Amount Invested One Annualised
Current Value
Time Returns
HDFC Equity 61,000 146,501 18.90%
Reliance Growth 61,000 167,023 22.02%
UKD809_26817_7 FINAL.qxd:_ 11/14/08 3:15 PM Page 1

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loss in the schemes or that the schemes’ objectives will be achieved. • As with any investment in securities, the NAV of
the Units issued under the schemes can go up or down depending on various factors and forces affecting capital
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