Systematic Investment Plan (SIP)

The Smart Investors’ Preference

Human Life Cycle

EducationEducation Earning YearsEarning Years

Phase IPhase I Phase IIPhase II Phase IIIPhase III

Age- 22 yrsAge- 22 yrs Age- 60 yrsAge- 60 yrs

MarriageMarriageChild birthChild birth

Child’s EducationChild’s Education

Child’s MarriageChild’s Marriage

HousingHousing

22 yrs22 yrs 38 yrs38 yrs 10- 20 yrs10- 20 yrs

Post Retirement Years Post Retirement Years

Phase II: The Most Challenging Phase

Meet current recurring expenses– Rent, Electricity, Telephone– Child’s education, Child’s marriage– Annual Holiday with family….

Build capital assets– House; Car….

Make provisions for– Retirement ; Contingencies- Illness, Accidents, etc.

Do you save and invest so that your dreams turn into reality

It is Critical, Yet Most Don’t Do It

I will start from next month

I don’t have the requisite skills

The paper work is just too tedious

And the list goes on…………..!!!!

I don’t have time

I don’t have money to save

The returns are hardly worth the

effort

The alternatives are not exciting

enough

Getting rich is simpler than you think !!

Rs.1000 invested every month for 30 years

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

No. of years

Valu

e of

inve

stm

ent (

Rs.

)

6% p.a.

10% p.a.

15% p.a.

Rs.70 lakhs

Rs.22 lakhs

Rs.10 lakhs

The Power of CompoundingEven small amounts invested regularly can grow

substantially

The Formula for Creating Wealth

Create WealthStart Early Invest Regularly

Make your money work hard for you

Start Early!You

• Age : 25 years• Start : Today• Invest : 5 years• Amount : Rs 10,000 p.a.• Redemption on retirement

(age 60)

Your Twin• Age : 25 years• Start : at age 40• Invest : 20 years• Amount : Rs 10,000 p.a.• Redemption on retirement

(age 60)

Note- Returns are assumed to be 10% p.a.

1.74

4.52

11.72

0.11.75

6.3

0.670.1 00

25 30 40 50 60

Age (in yrs)

Valu

e of

Inve

stm

ents

(R

s. in

Lac

s) You Your Twin

You start investing

Your twin

starts investing

You stop

investing

Delays affect wealth creationRs. 1000 invested p.m. @ 10% p.a. till the age of 60 yrs

The Power of Starting Early

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

25 30 35 40 45 50

If you start investing when you are (years)

Wea

lth o

n R

etire

men

t

Gains from Investment

Investment

Just 5 years of delay reduces the wealth

by half!

Invest Regularly 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

5600 5400

61005900

6650

6070

5700

6000

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

Rs. 10,000 worth of Gold bought every month

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 pressureSlow 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?

Create Wealth 2+2 > 5

All we need is…. a blend of– Paycheck– Time – Discipline

We already have two of them- Paycheck and TimeAll we need is Discipline

– The Discipline of making small… but regular investments

Systematic Investing

A method of investing regularly to benefit from the stock market volatility

Regular- Similar to Recurring Deposit Convenient and Hassle-Free

– Automatic investments, one-time instruction, transactions on the net

Forced saving– Similar to PF : Small amount invested every month to

become a huge sum after some years Light on the wallet

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

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 Equities

Cumulative annualised returns (1980 - 2004)

Equities outperform in long term

In the 5-year period, equities have outperformed all other traditional forms of investment in 12 out of 14 five-year periods

(86%) since 1980

44%

56%

37%

63%

14%

86%

0%

20%

40%

60%

80%

100%

1 year 3 years 5 years

Equities outperformed

Other Investmentsoutperformed

Source : RBI Report on Currency and Finance (1997-98)

BSE Sensitive Index of Equity Prices – BSE

Cumulative annualised returns (1980 - 98)

Benefits of long term investing

In the twelve 15-year periods between 31.3.79 and 31.3.05, the Sensex has not given negative return even on a single period

Investment Horizon

Number of

periods

Positive Returns

Negative or Zero Returns

% age times

Positive returns

Maximum Return

Minimum Return

15 years 12 12 0 100% 27% 13%10 years 17 16 1 94% 35% -2%5 years 22 19 3 86% 53% -5%3 years 24 19 5 79% 82% -15%1 year 26 16 10 62% 267% -47%

Benefits of long term investing

SIP( monthly) - 10 years

0

50000

100000

150000

200000

250000

3000001 13 25 37 49 61 73 85 97 109

121

Rs. 1000 p.m. invested in BSE Sensex for 10 years

As on June 30, 2005

Rs. 2,41,162

Mutual Funds: The easy way to invest

Professional Management – Ensures that the best brains are managing your money

Diversification– Ensures risk reduction

Liquidity– Ensures that you get back your money, whenever you want

Transparent– Ensures you are apprised of the portfolio regularly

Extremely well regulated– Ensures that the fund follows laid down processes

Tax efficient– Tax free dividends, LTCG on equity completely tax free, Sec 80C

Mutual Funds Period ReturnP.A.From To

Reliance Growth Fund 1stJan , 2001 1st April, 2005 67.90 %

F I Prima Fund 29 , Sept 94 29 , July 2005 29.37 %

HDFC Equity Fund 1stJan , 2001 1st April, 2005 47.98 %

HSBC Equity Fund 1stJan , 2003 1st April, 2005 66.42 %

DSPML Opps Fund 1stJan , 2001 1st April, 2005 48.96 %

Birla Advantage fund 1stJan , 2001 1st April, 2005 37.64 %

Note :- Please Read offer document before investing.Past performance may or may not sustain in the future

Systematic Investment Plan –Past performance

Investment AvenuesSr. No.

Avenues Expected Returns (%) P.A.

Remarks

1. Bank Fixed Deposits 5.5 % Approximately 1. Pre Tax2. Liquidity

2. Corporate Deposits 7.00 % approximately 1. Pre Tax2. Liquidity3. Credit risk

3. Direct Equity Shares 15% to 20 %approximately

1. Best but only Long term2. Lot of Maintenance is needed

4. Equity Mutual Funds 10 % to 15 % approximately

1. All the benefits of equity investing

2. Systematic Plan3. Liquidity4. Tax benefits

Start an SIP today

and

Sit back and Relax

Did You Know

Returns– Current Savings Bank interest rate is 3.5% p.a.– Current FD returns for a 7-15 day FD is 3.5%-3.75% p.a.

Savings bank interest- calculated on the min of the balances in the account between the 10th and 31st

– Effective interest rate turns out to be MUCH lower !!

Taxation– Interest Income is taxable at the Maximum Marginal Tax Rate

• 30% (+ surch. & edu. cess) for assesses in the highest tax slab– Sec 80L deduction no longer available