Smart Investor’s Preference(SIP)

25 Years

What is the Average Age when one starts Earning?

What is the Average Retirement Age?

60 Years

Rs.15,000/- p.m.

What is an Average Income of anMiddle-Class House-hold?

Rs.5,000/- p.m.

How much can a personsave on a regular basis?

If a person can save Rs.5,000/- per monthWhat will be his wealth when he retires?

Assuming: He increases his investments by 5% every year

Invests in an Asset class that gives returns of 20%

At Age 60 his wealth would have been

Rs.27 Crores

4.90 Crores*

27 Crores*

40 years25 years 60 years

  Ram ShyamSavings Starting Age 25 40

Savings - Monthly SIP Rs.5,000/- Rs.15,000/-

Saving Years till age 60 35 years 20 years

Total Amount Saved (appx.) Rs.57 lacs Rs.62 lacs

Starting Early

Give time to your investments rather than timing

Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR

Give time to your investments rather than timing

• 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

5600 5400

61005900

6650

6070

57006000

5000

58005400

6100

4000

4500

5000

5500

6000

6500

7000

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec

Pric

e pe

r 10

gram

s

Highest priceLowest

quantity

Lowest priceHighest quantity

20 grams 15

grams

Invest Regularly

• Myth : Timing is essential to generate high returns• Reality : It is the time and not the timing that matters

Is it worth the risk or the tension? Who can time the market to perfection?

Not even the experts can !!

On the worst day to buy (highest sensex each yr)

The resultInvested a fixed amount in BSE Sensex annually for 25 yrs

On the best day to buy (lowest sensex each yr)

15% p.a.

17% p.a.

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 regularlyShouldn’t we also invest regularly?

Invest Regularly

A small amount invested regularly can grow to substantial lumpsum

• …….It all adds up!

0

5

10

15

20

25

1 5 9 13 17 21 25 29

No. years

Rs. L

akhs

Rs.21.7 lakhs

30

Rs.1000 invested every month for 30 years @10%

Invest Regularly

One time investment of Rs.1 lakh invested for 30 yrs

@ 6%

5.7 lakhs

@ 10% @ 15%

17.45 lakhs 66.2 lakhs

• Earn more…it can make a big difference

EARN MORE

Power of Compounding - QUIZ• Rs. 10,000 invested every month for a period of 30 years

At 8% -

At 15% -

At 20% -

1.5 crores

7.0 crores

23 crores

Postal Recurring

??????

??????

EARN MORE

The Formula for Creating Wealth

Create Wealth

Start Early

Invest Regularly

Make your money work hard for you

0

1,000

2,000

3,000

4,000

5,000

6,000

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

Earn More

The Million Dollar QuestionI am convinced that I should save and invest regularly,

but the million dollar question is…

Where should I invest?

Risk Return Spectrum

Savings Bank/ FD

Liquid Funds

PPF, NSC, KVP, PO Deposits, RBI Bonds

Debt Funds

Gold

Real EstateEquity

Risk

Ret

urn

pote

ntia

l

Low HighLow

Hig

h

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

Equities- The Most Attractive Asset Class

Equities have outperformed all other asset classes in the long run - globally as well as in India

7.47% 7.12%

10.64% 10.27%

18.25%

Inflation Gold G Secs Bank FD EquitiesSource : CLSA

Cumulative annualised returns (1980 - 2004)

Do you agree?

Which product among all above has the potential to create greatest wealth for you?

Equities …

Risk??

Returns are unsure!

Equity – owners’ risk

Volatility of returns

Market Risk

Sentiments in ST, Herd Mentality

Investor’s Psyche - Wrong emotion dominates at wrong time

Fear Hope

The Cycle of Fear, Greed & Hope

Greed

Simply put …

0

1,000

2,000

3,000

4,000

5,000

6,000

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

Sensex

Company Deposits

Bank Deposit

s

Inflation

Gold

Equity market (represented by BSE Sensex) has outperformed all other investment avenues

Selecting Right Asset Class

In past 27 years BSE Sensex has given about 19.5% returns

Past Performance (BSE Sensex)

Year Sensex Investment Rs.

1979 100 1,00,000

2006 13,000 1,30,00,000

This is in spite of …

• Two wars• At least three major financial scandals• Assassination of 2 prime ministers

• At least 3 recessionary periods• 10 different governments and• An unfair share of natural disasters

Years YEAR END SENSEX level 1 year 3 years 5 years 7 years 10 years 15 years0 31-Mar-79 100.001 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%

10/27 5/25 3/23 3/21 1/18 0/13Probability of Loss

Using the Wisdom

We can direct our savings in such a manner that we create wealth,

the way we wish

DISCIPLINED SAVINGS +

SUFFICIENT TIME+

RIGHT ASSET CLASS=

Smart Investor’s Preference

What is SIP• Invest a fixed amount, at regular,

predetermined intervals and use the market fluctuations to your benefit

  Dates Monthly Investment NAV

Units Alloate

d

1 1-Jan-05 1000 10 100.00

2 1-Feb-05 1000 8 125.00

3 1-Mar-05 1000 6 166.67

4 1-Apr-05 1000 18 55.56

5 1-May-05 1000 22 45.456 1-Jun-05 1000 12 83.33

7 1-Jul-05 1000 19 52.63

8 1-Aug-05 1000 14 71.43

9 1-Sep-05 1000 17 58.82

101-Oct-05 1000 14 71.43

111-Nov-05 1000 10 100.00

121-Dec-05 1000 14 71.43

         

TOTAL 12000   1001.75

         

         

  Average NAV 13.67  

  Average Cost per unit 11.98  

11.981

A Snapshot of poor performing A Snapshot of poor performing schemesschemes

Pru Tech Fund 61,000 105,930 22.06%

Alliance New Millenium 61,000 106,347 22.22%

Pru Tech Fund 61,000 41,480 -7.34%

Alliance New Millenium 61,000 33,673 -11.08%

Amount Invested One Time Current Value Annualised

Returns

Scheme Name

Amount Invested through SIP(Rs. 1000 p.m.) from March

2000

Current Value As on

31-03-2005

SIP Returns

A Snapshot of better A Snapshot of better performing schemesperforming schemes

HDFC Equity 61,000 161,209 39.69%

Reliance Growth 61,000 226,349 54.64%

HDFC Equity 61,000 146,501 18.90%

Reliance Growth 61,000 167,023 22.02%

Scheme Name

Amount Invested through SIP(Rs. 1000 p.m.) from March

2000

Current Value As on

31-03-2005

SIP Returns

Amount Invested One Time Current Value Annualised

Returns

Start an SIP today and Sit back and Relax