Equity Investment

Through

Mutual Funds

Agenda

Why Save
Why Save through Equities
Why Equities through mutual funds
Why Systematic Investment Plan
Budget 2005-06 & Taxation Benefits - MFs

Why Save?

Bcos the cost of living is

Toothpaste
LPG Gas
Education

1983

2003

2023

Rs.4

Rs.20

Rs.100

Rs.27

Rs.250

Rs.2315

1000s

100,000s

Why Save?
while sources of revenue are
Age 25

Start career

Age 30

Marriage

Age 40

Buying a house

Age 55

Childrens Education/
Marriage

Age 60

Retirement

100% dependent on job

100% dependent on
earnings from investment

Are your savings earning you enough?

Ram, 30 yrs

Inflation assumed @5% p.a

Returns assumed @9% p.a.

Present monthly
spending:

Rs. 15,000

Estimated monthly
spending at 60:

Rs. 65,000

Accumulation
required at 60:

Rs. 85 lakhs

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:
Rs.1 lakh invested
at the age of 30

Shyam:
Rs.5 lakhs invested
at the age of 50

Returns: 10%

Power of Compounding

Savings(Wealth creation) Basic Principles(2)

Save regularlyit all adds up!
25

Rs.21.7 lakhs
Rs.1000 invested
every month for 30
years @10%

Rs. Lakhs

20
15
10
5
0
1

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 moreit 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

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

The more
you earn,
makes a
differenc
e

The
sooner
you start,
makes a
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 ?

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

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?

Qualities

Description

Does a
mutual
Do
fund
you
have ? have it?

A systematic method of selection of

the scrips, with the synchronization
of objective.

??

Yes

Infrastructure

Technology, information at hand,

statistical tools, research team,
time etc.

??

Yes

Experience

The experience of making

investment decisions on a regular
basis & experience of standing all
the business/economy cycles.

??

Yes

Investment
process

Why Equity Mutual Funds are successful?

Qualities

Knowledge &
qualification

Description

Most Fund managers are

professionally qualified. Moreover,
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
time .

Does a
mutual
Do
fund
you
have ? have it?
??

Yes

??

Yes

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
At 8% -

At 15% -

At 20% -

1.5 crores

Postal Recurring

7.0 crores

SIP in Balance Funds

23 crores

SIP in Equity Funds

Working of SIP in any kind of market

Month

Amount
Invested

Rising Market

Falling Market

Volatile Market

NAV

Units
Alloted

NAV

Units
Alloted

NAV

Units
Alloted

1,000

10

100.00

10

100.00

10

100.00

1,000

12

83.33

125.00

12

83.33

1,000

14

71.43

166.67

125.00

1,000

16

62.50

250.00

10

100.00

Total

4,000

52

317.26

28

641.67

40

408.33

Average Purchase Price

13

10

Average Cost Per Unit

12.61

6.23

9.80

A Snapshot of poor performing schemes

Scheme Name

Amount Invested through Current Value

SIP(Rs. 1000 p.m.)
As on
from March 2000
31-03-2005

SIP
Returns

Pru Tech Fund

61,000

105,930

22.06%

Alliance New Millenium

61,000

106,347

22.22%

Amount Invested One

Time

Current Value

Annualised
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

Scheme Name

Amount Invested through Current Value

SIP(Rs. 1000 p.m.)
As on
from March 2000
31-03-2005

SIP
Returns

HDFC Equity

61,000

161,209

39.69%

Reliance Growth

61,000

226,349

54.64%

Amount Invested One

Time

Current Value

Annualised
Returns

HDFC Equity

61,000

146,501

18.90%

Reliance Growth

61,000

167,023

22.02%

SIP Returns of Div. Equity schemes

SIP Returns % as on 31st March 2005 for SIP starting on (From ..to End March 2005)
Starting - April m onth of

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

No. of Installments

132

120

108

96

84

72

60

48

36

24

12

Invested Amount

264000

240,000

216,000

192,000

168,000

144,000

120,000

96,000

72,000

48,000

24,000

Returns(Diversified Equity Schem es)

Schem es

Birla Advantage Fund

24.29

24.50

23.55

23.08

29.20

39.77

46.79

46.43

44.18

DSPML Opportunities

51.29

58.20

53.77

42.49

Franklin India Bluechip Fund Gr

27.45

29.81

32.40

33.24

32.34

31.28

35.01

43.27

48.39

42.98

28.61

Franklin India Prima Fund Gr

31.15

34.72

38.86

42.70

45.18

47.48

56.58

69.01

72.91

70.74

63.62

HDFC Capital Builder-Gr

41.36

52.91

62.55

68.08

58.86

HDFC Equity

40.53

48.94

53.05

47.75

39.61

Reliance Growth

38.01

40.51

43.68

46.64

55.97

70.34

76.53

77.91

72.12

Reliance Vision

34.62

37.51

41.45

44.59

52.59

63.85

61.82

55.88

52.25

Tata Pure Equity

28.27

36.47

47.75

58.47

57.72

45.25

25.24

28.41

30.22

34.76

42.17

47.78

42.47

29.16

Templeton India Growth

SIP Returns of ELSS

SIP Returns % as on 31st March 2005 for SIP starting on (From ..to End March 2005)
Starting - April m onth of

1997

1998

1999

2000

2001

2002

2003

2004

No. of Installm ents

96

84

72

60

48

36

24

12

Invested Am ount

192000

168000

144000

120000

96000

72000

48000

24000

Returns (ELSS)

Schem es
Biral Equity Plan

34.77

41.12

54.80

62.75

57.65

52.10

Franklin India Taxshield Gr

34.41

43.98

50.93

50.97

43.47

HDFC Long Term Advantage Fund

66.08

64.97

50.75

HDFC Taxsaver - Gr

46.46

57.53

68.96

75.22

82.53

Principal Tax Savings Fund

40.53

46.47

52.14

53.36

47.37

Prudential ICICI Tax Plan-Gr

47.84

60.72

72.49

79.65

92.53

Sundaram Tax Saver

38.34

48.99

57.93

63.22

69.02

Tata Tax Saving Fund

25.11

27.56

31.25

38.27

49.32

57.99

57.89

47.56

Conclusion Strike the GOLDMINE

START YOUR SIP

Happy Investing !!!