How can we create wealth?

1
How can we create wealth?
Start Saving Early
The longer you save, the more you make
Save in the Right Asset Class
This will dictate how much wealth you create
Save Regularly
Even a small amount saved regularly, is good
2
Starting Early
  Ram Shyam
Investment Starting Age 25 40
Investment - Monthly SIP Rs.5,000/- Rs.10,000/-
Saving Years till age 60 35 years 20 years
Total Investment Made Rs.21 lacs Rs.24 lacs
Give time to your investments rather than timing
Constant Savings
Note The above figures are for illustrative
purpose only. There is no guarantee that the
projection given would materialize.
3
Selecting Right Asset Class

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

4
Save Regularly
Disciplined Investing through Systematic
Investment Plans (SIPs) is the ideal way to
reduce risk
Twin Benefits of Investing Regularly
Market
Units Purchased
Market
Units Purchased
Falling Market
Rising Market
5
Investing in the BSE Sensex 25 years
Give Time rather than Timing the Equity market
Data source ICRA MFIE
6
Managing Investors Psyche Wrong emotion
dominates at wrong time
Greed
Fear
Hope
Cycle of Fear, Greed Hope
7
SIP Your companion for all times
Returns of SIP of Rs.10000 started from Feb 97
(Investment Amount is Rs. 14.40 lacs)
Scheme Returns Value on 31 Jan 09 Returns above Sensex
Reliance Growth Fund - Gr 28.58 9,322,942 6,589,197
Reliance Vision Fund - Gr 25.03 7,336,44 4,602,899
SBI Magnum Multiplier Plus 93 17.04 4,290,546 1,556,801
HDFC Capital Builder-Div 17.24 4,121,703 1,387,958
HDFC Equity Fund-Div 24.85 7,250,252 4,516,507
HDFC Top 200-Div 21.48 5,779,028 3,045,283
Franklin India Bluechip Fund Gr 23.55 6,641,813 3,908,068
Franklin India Prima Fund Gr 21.18 5,663,786 2,930,041
Franklin India Prima Plus Gr 23.89 6,795,525 4,061,780
Birla Sunlife Capital Taxrelief 96 21.73 5,876,311 3,142,566
SBI Magnum Tax Gain Fund 22.10 6,021,638 3,287,893
BSE 30(Sensex) 10.21 2,733,745 0
NSE 50 10.20 2,732,963 -782
Returns as on 31.10.08
These SIPs have gone through Technology Bust,
9/11 attacks, Stagnant markets (2000-2003) and
current 60 fall in the market
8
SIP The best way for investment

• Case Study
• Market hit a high of 5450 in Mar 2000
• Market crashed to lows of 2600
• It took almost 4.5 years for the market to scale
  back the level of 5400 in Sep 2004.
• Lets see how did the SIP investors fare in that
  scenario

9
Investor 1 Panic Investors

• These investors had started their SIP of Rs. 2000
  in Mar 2000 peak. With the decline in the market
  they panicked stopped their SIP in a span of
  13 months

SIP Start Date Mar-00
SIP End Date Mar-01
No. of installments 13
Scheme Name Investment Value in Mar 01 Returns
Reliance Growth 26,000 18,846 -46.1
HDFC Equity Fund 26,000 20,870 -33.9
ICICI Technology Fund 26,000 14,944 -67.3
Birla New Millennium 26,000 14,596 -69.0
These investors actually made a loss on their
SIPs by stopping it in the downturn
10
Investor 2 Smart Investors

• These investors had started their SIP of Rs. 2000
  in Mar 2000 peak. They continued their SIP and
  kept on investing in the SIPs.

SIP Start Date Mar-00
No. of installments 55
Scheme Name Investment Value in Sep 04 Returns
Reliance Growth 1,10,000 3,25,736 50.5
HDFC Equity Fund 1,10,000 2,53,337 38.1
ICICI Technology Fund 1,10,000 1,74,300 20.5
Birla New Millennium 1,10,000 1,64,224 17.8
These investors have made phenomenal returns even
though market has delivered no return (From 5400
level in Mar 00 to 5400 level in Sep 04
11
Investor 3 New Investor

• These investors started their SIP of Rs. 2000 in
  Mar 2001, 1 year after the fall in the market

SIP Start Date Mar-01
No. of installments 43
Scheme Name Investment Value in Sep 04 Returns
Reliance Growth 86,000 2,48,528 66.8
HDFC Equity Fund 86,000 1,90,341 48.3
ICICI Technology Fund 86,000 1,50,844 33.2
Birla New Millennium 86,000 1,43,954 30.3
Investors who have started SIP in lean period
have made fantastic returns
12
Dont be afraid of Falls Stay Long Term, Wealth
would be created
Sr No Date HDFC Tax saver (in Rs.) Sensex Change Hdfc Change Sensex Particular
1 31-Mar-96 10000.00 3366.00
2 5-Dec-96 7630.00 2812.00 -23.70 -16.14 Initial Fall
3 22-Feb-00 71918.22 5883.00 842.57 109.21 Tech Rally
4 21-Feb-01 42061.73 2600.00 -41.51 -55.80 Twin Tower Attack
5 14-Jan-04 128092.51 6194.00 204.53 138.23 Recovery
6 17-May-04 107723.95 4505.00 -15.90 -27.27 Govt Change
7 14-Dec-04 174912.85 6325.00 62.37 40.40 Recovery
8 10-May-06 436782.83 12612.00 149.71 99.40 India Re Rating
9 14-Jun-06 293623.03 8929.00 -32.78 -29.20 Heavy FII Selling
10 07-Jan-08 617573.53 20812.00 110.33 133.08 All Time High
11 31-Jan-09 276947.92 9424.00 -55.16 -54.57 US Sub Prime
Total Absolute Returns CAGR(Annual Returns) Total Absolute Returns CAGR(Annual Returns) Total Absolute Returns CAGR(Annual Returns) 3529.72 29 235.14 8.30 Inception of Current

• Investments of Rs.10000/- becomes Rs.276947/-
  even after several falls in the NAV during the
  period of 13 Years.
• And finally, with the current correction, its
  NAV has fallen by 50 3 times over the period of
  past 14 years.
• Even after the current fall, the fund is still
  delivering a CAGR of 29 widely beating the index
  which has given 8.3 returns.
• The Absolute returns from the fund even after
  the current fall are staggering 3529.72.
• Equity investments through Mutual Funds deliver
  15-20 of returns over Long term.
• Bull and bear market cycles are nature of Equity
  markets and are going to contine in future also.