Mutual fund investments

A presentation by Franklin Templeton Investments

Presentation outline
Paradigm for wealth creation Context of investing Why invest at all and why long term? Case study on prioritisation Various investment strategies A view on the markets

Paradigm for Wealth Creation

Creating Wealth:

Is not a function of income

Is not a function of investment expertise Is really a matter of Regular Savings

The mother of all equations

n FV = PV (1 + r)
FV = Future Value PV = Present Value r = Rate of Return/ Coupon Rate n = No. of compounding periods

Enhancing Future Value

n n FV = PV PV (1 + rr)
The more you save, makes a difference The more you earn, makes a difference The sooner you start, makes a difference

The Power of Compounding

The more you save, makes a difference

Growth Rate of 6% p.a. Amount saved per month 5,000 3,000 2,000 1,000 Total Amount Saved 1,200,000 720,000 480,000 240,000 Value after 20 years 2,278,225 1,366,935 911,290 455,645

For the purpose of illustration only

The Power of Compounding

The sooner you start, makes a difference

Rs 1000 per month @ 6% Starting Age 25 30 35 40 Total Amount Saved 420,000 360,000 300,000 240,000 Value at the age of 60 1,380,290 979,250 679,580 455,645

For the purpose of illustration only

The Power of Compounding

The more you earn, makes a difference

Rs 1000 p.m. Growth Rate 6% 8% 10% 12% Value after 20 years 455,645 572,660 723,990 919,860 Value after 30 years 979,255 1,417,610 2,079,290 3,080,970

For the purpose of illustration only

Savings Habits matter much more than the markets!

Sita Started saving at the age of Was saving on a monthly basis Earning @ Wealth accumulated at 60 years (in Rs lacs)

Gita

30 years 40 years Rs. 5000 Rs. 4000 10% p.a. 9% p.a.

Savings Habits matter much more than the markets!

Sita Started saving at the age of Was saving on a monthly basis Earning @ Wealth accumulated at 60 years (in Rs lacs)

Gita

30 years 40 years Rs. 5000 Rs. 4000 10% p.a. 103.96 9% p.a. 25.74

The cost of delay

Ram aur shyam ki kahani

Ram Shyam Starts investing at the age 28 48 Monthly Savings Rs.5,000 Rs.15,000 Returns (assumed) p.a. 15% 15% Both invest till the age of 58 years Total investment Rs. 18,00,000 each Rs. 299.97 lacs Rs. 42.03 lacs Accumulation at 58

To catch up with Ram, Shyam has two choices Earn on his investment @ 95% p.a. Contents OR Save per month Rs. 1,06,250

Context of Investing

PROFESSION

INVESTMENTS

INCOME
CURRENT EXPENDITURE FUTURE EXPENDITURE SAVINGS

Contents

Why should one look at long term

The biggest two risks faced by individuals: Either you die too soon Or you live too long

Household Expenses

Household Expenditures
are on the rise
New Products

Inflation

Item Colgate toothpaste (100 gm tube) Hamam Soap

1987 8.05 3.05

1997 18.90
(8.91%)

7.85
(9.92%)

Masala Dosa
Petrol (per litre) LPG Cylinder Zodiac Mens shirt

3.50
7.99 56.15

14.00
(14.87%)

25.48
(12.30%)

137.85
(9.40%)

225.00 510.00
(8.53%)

Item Colgate toothpaste (100 gm tube) Hamam Soap

1987 8.05 3.05

1997 18.90
(8.91%)

2017 104.00 52.00

7.85
(9.92%)

Masala Dosa
Petrol (per litre) LPG Cylinder Zodiac Mens shirt

3.50
7.99 56.15

14.00
(14.87%)

224.00
259.12 830.85

25.48
(12.30%)

137.85
(9.40%)

225.00 510.00 2620.27

(8.53%)

LUXURIES or NECESSITIES

Items
Cable T. V. Colour T. V. Telephone Necessities in 1997 Luxuries in 1987

Washing Machine
Microwave Two-wheeler/Car

INFLATION ROBS YOUR PURCHASING POWER

(Assuming inflation @ 8% p.a.)

Rs. 10,000 today

217,200

100,600 46,600 21,500

10 years

20 years

30 years

40 years

Contents

A case study

Ganesh is 28 years old and works with a private firm on a contractual basis. He earns Rs.20,000 p.m.

He has just got married and has shifted from his parents house to an independent flat for which he pays a rent of Rs.5,000 p.m.
He has no investments/ insurance but now plans to correct this situation. He is however unsure of how to prioritize amongst the various choices available. Assuming he has only four choices i.e. (a) SIP in an equity fund, (b) Medical insurance,

(c) Life insurance, (d) Reserve fund (in a savings A/c or liquid fund),
how would you advise him to prioritize amongst these?

Investing in the context of Ganeshs life

THREATS Death Disability Loss of Job
REMEDIES
Life Insurance Med Insurance Reserve Fund Equity SIP CURRENT EXPENDITURE FUTURE EXPENDITURE

Currently, he has no investments

PROFESSION

INVESTMENTS

INCOME
SAVINGS

Contents

An investment strategy is nothing more than common sense approach

REGULAR SAVINGS
THE SIMPLEST WAY TO COMBAT INCREASING HOUSEHOLD EXPENDITURE
103.9

56.3 30.8 17.1

9%

12%

15%

18%

% Per annum
Rs. 1000 saved every month for 30 years can grow to a sizeable amount of wealth depending on the return generated on these savings

Stocks outperform over time

Percentage of studied period in which

44%
Other investment outperformed

37%

14%

86%
Stocks outperformed

63% 56%

1 year

3 year

5 year

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

EQUITIES ARE THE BEST LONG-TERM BET Cumulative Annualised Returns (1980-98)

20.16%

14.47%

9.19%

7.62%

9.74%

Inflation

Gold

Bank FD

Co. FD

Equities

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

There is generally no relationship between performance of a fund and investor performance

Eighth wonder of the world :

S I P
It can create wealth for every person in the world

HYPOTHETICAL EXAMPLE OF AN SIP Rs. 1000 invested every month

12.0

11.5
11.0 10.5 10.0 NAV = 12.00 Units = 83.3

NAV = 10.0 Units = 100

NAV = 10.0 Units = 100 1-Apr-98 1-May-98

1-Jan-98
9.5 9.0 8.5 8.0

1-Feb-98

1-Mar-98

NAV = 8.0 Units = 125

Average Price per unit: Rs. 10.00 Average Cost per unit : Rs. 9.83

CREATING LONG TERM WEALTH What really matters ?

5 % of the return

Relative performance of selected funds

95 % of the return Allocation between Equity & Debt Ability to handle emotional & financial stress

Choice of fund managers, based on their consistent investment style, in a diversified portfolio Contents