Perspectives on Investing

1. 1 WHAT REALLY MATTERS Perspectives on Investing

2. 3 Some questions we will try to address today What, when, how do I buy financial products? What are the factors that determine Are market levels relevant?? What is better: buy and hold or trade? returns? I always seem to buy when the market has peaked, is there a better way?

3. Are you Saving or are you Investing?

4. 5 Profession vs. Investments PROFESSION INVESTMENTS INCOME CREATION/ NURTURE/ ACCUMULATION PRESERVATION OF WEALTH OF WEALTH

5. 6 Profession vs. Investments PROFESSION INVESTMENTS INCOME TRUST YOUR YOU KNOW ADVISOR TO BEST KNOW BEST

6. 7 Consider the rising cost of living!

7. 8 RISING COST OF LIVING Planning a wedding today Wedding at the Taj Guests : Price per plate: Decoration: Other Expenses / Gifts, etc: 500 Rs. 2,000 Rs. 10,00,000 Rs. 15,00,000 Rs. 35,00,000 Total Expenses

8. 9 RISING COST OF LIVING Planning a wedding for your child in 20 years Wedding at the Taj Guests : Price per plate: Decoration: Other Expenses / Gifts, etc: 500 Rs. 6,414 Rs. 32,07,135 Rs. 48,10,703 Total Expenses Rs. 1,12,24,838 Assuming Inflation @ 6% for 20 years

9. 10 RISING COST OF LIVING Household expenses are on the rise Inflation will further shrink your buying power! 1 Liter Carton Milk 1 Kg Apples A Loaf of Bread Year 2000 2010 2020* 2030* Amount Rs. 10 Rs. 16 Rs. 29 Rs. 51 Year 2000 2010 2020* 2030* Amount Rs. 25 Rs. 40 Rs. 72 Rs. 128 Year 2000 2010 2020* 2030* Amount Rs. 25 Rs. 80 Rs. 143 Rs. 257 Assuming Inflation @ 6% for years 2020 and 2030

10. 11 RISING COST OF LIVING Yesterday’s luxuries are becoming today’s necessities Products previously thought as luxuries are the norm today

11. 12 RISING COST OF LIVING Our life cycle: Focused on meeting current needs only Can we ignore planning for the future? Retirement Child 2’s Marriage Child 1’s Marriage House Child 2’s Incom e College Child 2 Child 1’s College Child 1 Car Marriage Working Life 0 Retired Life 25 60 Birth and Education 75 + Age

12. 13 Failing to plan today is as good as planning to fail in the future!

13. 14 What typically drives us to invest? Greed / Fear? News, hot tips, gut feeling? Macro-economic or global scenario? Political environment? Should these be the main motivators to invest?

14. 15 Creating long term wealth: What really matters? 5% of the return – Relative performance of selected funds 95% of the return – Asset Allocation – Ability to handle emotional & financial stress – Monitoring and tracking your portfolio periodically

15. 16 Importance of Asset Allocation

16. 17 ASSET ALLOCATION Asset Allocation  Diversifies your investments across asset classes like equities / stocks, bonds / debt, cash, real estate, etc  A common sense investment strategy  Tailored to your needs and goals FINANCIAL GOALS ASSET ALLOCATION RISK PROFILE

17. 18 ASSET ALLOCATION Benefits of Asset Allocation  May reduce overall risk  May improve your chances to earn more consistent returns over time  Helps keep you focused on your goals

18. 19 ASSET ALLOCATION Asset Allocation: Need based strategy Capital Growth Risk: Medium to High Period: 3 to 5 years Income Risk: Medium to Low Stocks Growth Funds Bonds Debentures Period: 1 to 3 years Income/Bond Funds Company Fixed Deposits Capital Preservation Money Market Funds Short-term deposits / Government Paper Risk: Low to Medium Period: Less than 1 year

19. 20 21 ASSET ALLOCATION Asset Allocation: Age based strategy Age Group 25-40 10.00% Age Group 41-50 15.00% Growth (Equity) Income (Bonds) Growth (Equity) Income (Bonds) 15.00% 35.00% Liquidity (Banks) Liquidity (Banks) 50.00% Age Group Above 60 yrs 75.00% Age Group 51-60 20.00% 35.00% 25.00% 25.00% Income (Bonds) Growth (Equity) Liquidity (Banks) Income (Bonds) Growth (Equity) Liquidity (Banks) 45.00% 50.00% The above are only hypothetical examples and are not necessarily indicative of the strategies to follow for the age groups mentioned above

20. 21 ASSET ALLOCATION Making asset allocation work Periodic Rebalancing Rebalancing helps investors enter equities at ‘lows’ and exit at ‘highs’ without having to ‘time’ the market

21. 22 ASSET ALLOCATION Making asset allocation work Periodic Review Periodic review of objectives can ensure an investor is not left at the vagaries of equity markets when he needs his money

22. 23 Creating long-term wealth: What really matters?

23. 24 WHAT REALLY MATTERS Where you invest Equities can outperform other asset classes over time Average inflation figures for the past 5, 10 & 15 years were 5.29%, 5.03% & 4.98% respectively As of 31 March, 2011. *Compounded Annualized Growth Rate (CAGR), Gold Data: International Spot Gold Prices; # Average of 10yr GOI yield to maturity, N.A.: Not Available. FD rate shown above is rate effective from 14.02.2011 for deposits below Rs. 1 crore as offered by State Bank of India (Source: www.sbi.co.in). Bank Fixed Deposits are relatively safer as they are covered under Deposit Insurance and Credit Guarantee Corporation of India to the extent of Rs. 1 lakh per account. GOI bond offers fixed and assured returns. Source: BSE, Newswire18. Past performance may or may not be sustained in future.

24. 25 When you invest Consider the case of Franklin India Bluechip Fund (FIBCF)  Over the 17 period December 01 1993 – March 31 2011, spanning 4186 business days, Franklin India Bluechip Fund grew at an annualized rate of 25.67% p.a.  If in the process of timing, an investor had been out of the market on the 10 best days, his returns would be 4.89%.  Staying out on the 30 best days, his returns would be 1.86%. Past performance may or may not be sustained in future. Returns of FIBCF and benchmark (BSE Sensex): 1 yr, 3 yr, 5 yr , since inception: FIBCF: 12.77%, 14.20%, 14.38%, 25.67%; BSE Sensex: 10.94%, 7.52%, 11.50%, 10.79%. Returns are compounded and annualized based on 31 Mar 2011 Growth Plan NAV of Rs. 219.1105. Inception Date: 01 Dec 1993. The scheme became open-ended in Jan 1997. Dividends are assumed to be reinvested and bonus has been adjusted. Load is not taken into consideration.

25. 26 WHAT REALLY MATTERS When you invest Take another example, the BSE Sensex For the 20 year period ended March 31 2011 if you had: Stayed fully invested, your returns would be: Missed the 10 best days, your returns would be: Missed the 20 best days, your returns would be: Missed the 30 best days, your returns would be: Missed the 40 best days, your returns would be: 15.10% 9.23% 5.68% 2.75% 0.02% The example given above is purely hypothetical and illustrative only since one cannot invest directly in the BSE Sensex. Past performance may or may not be sustained in future.

26. 27 WHAT REALLY MATTERS When you invest Points to ponder Perfect market timing requires one to get two things right: the right exit point and the right re-entry point Getting even one of these wrong can affect one’s returns Mathematically, the odds are heavily against one being able to perfectly time the market The probability of getting the timing right is 0.23%* So what’s a better way to invest? * 10 best days from 4186 as shown in the example of FIBFC

27. 28 WHAT REALLY MATTERS Not market timing but time in the market matters! Consider the example of Franklin India Bluechip Fund, a fund with a 17 year track record across market cycles Assumed Rs. 10000 invested at Inception in FIBCF and BSE Sensex. Past performance may or may not be sustained in future. Dividends are assumed to be reinvested and Bonus is adjusted. Load is not taken into consideration. Period: Since Inception (01 Dec 1993) to 31 March 2011

28. 29 Staying invested helps! While equities may be volatile in the short-term, over the long term, the probability of loss decreases. Consider the example of FIBCF Past performance may or may not be sustained in future. Annualized Compounded returns based on Growth Plan NAVs. Period - Inception date to 31 March 2011; BSE Sensex rolling returns for the same period: Maximum returns, Minimum returns, Average returns, Possibility of making money, Possibility of losing money: 1 Year: 110.38%, -56.26%, 14.93%, 62.24%, 37.76%; 3 Year: 62.30%, -18.52%, 11.98%, 71.90%, 28.10%; 5 Year: 47.22%, -7.81%, 12.91%, 80.67%, 19.33%; 10 Year: 19.85%, 0.92%, 11.80%, 100.00%, 0.00%. Sales load has not been taken into consideration. Dividend/Bonus are adjusted. Inception Date: 01 December 1993. Over a 5 year horizon, investors have made money!

29. 30 WHAT REALLY MATTERS How you invest Cycle of market emotions should not rule you… “Has been one of my best EXUBERANCE investment decisions…" "Markets are on a roll…" "Should be a temporary correction" EXCITEMENT "I can withstand this, things should turn around…" "I've finally recovered my principal. But should I exit now?" RELIEF ANXIETY "Should I have exited when I was making money" "Once I recover my principal I'll exit" FEAR "Will the market ever go up?" "How long will this correction last?" HOPE PANIC There is often no relationship between performance of a fund and an investor’s performance RELIEF

30. 31 WHAT REALLY MATTERS When you start Starting early can make a difference to your wealth Gita, Age 30 Sita, Age 40 So what do you think is their retirement corpus at age 60 assuming a return of 10% annually on their investments? 10,000 p.m 10,000 p.m Rs. 76.56 lacs Rs. 2.27 Crores

31. 32 WHAT REALLY MATTERS What are the returns you earn The returns you earn over time can make a difference Rs.4.97 Crores Rs. 2.67 Crores Rs. 1.20 Crores 8% 12% 15% Value at age 60 of Rs. 100,000 invested every year at age 30 upto 58 at different rates of returns

32. 33 SYSTEMATIC INVESTMENT PLAN What is a Systematic Investment Plan (SIP)?  The term “systematic investing” applies to the process of investing regularly i.e. at fixed intervals, say monthly or quarterly  Why invest systematically? – Most of us get a monthly remuneration or salary – Most of us pay monthly EMIs on a car, house, etc – Isn’t it obvious we should also invest monthly?

33. 34 SYSTEMATIC INVESTMENT PLAN Two basic principles on which SIP works  Power of Compounding  Rupee Cost Averaging

34. 35 SYSTEMATIC INVESTMENT PLAN Rupee Cost Averaging at work NAV = 12.00 Units = 83.3 NAV = 10.0 Units = 100 NAV = 10.0 Units = 100 1-May-10 1-Jan-10 1-Feb-10 1-Mar-10 1-Apr-10 NAV = 8.0 Units = 125 Average Price per unit: Rs. 10.00 Average Cost per unit : Rs. 9.79 Assume Rs. 1,000 invested per month

35. 36 SYSTEMATIC INVESTMENT PLAN How SIP has worked If you had invested Rs. 1,00,000 every month through an SIP in FIBCF, it would have grown to: Past performance may or may not be sustained in future. Annualized and compounded returns based on 31 March 2011 Growth Plan NAV of 219.1105. Load is not taken into consideration. Dividends assumed to be reinvested and Bonus adjusted. *The scheme became open end in January 1997. Monthly investment of equal amounts invested on the 1st day of every month has been considered. Inception Date: 01 December 1993.

36. 37 To put it in perspective Where you invest: Equities can outperform other asset classes over time When you invest: Time in the market and not market timing matters! How you invest: Avoid market emotions and market noise When you start: Starting early can help in the long-run What are the returns you earn: A small difference over the long term can make the difference to your overall corpus

37. 43 A word on risk…

38. 44 We all view risks in our own way There is a risk to investing There is a risk to not investing, as well There is a risk to investing in equities There is a risk to not investing in equities, as well There is no such thing as a ‘risk-free’ investment It is important that you are comfortable with the risks associated with whatever investment avenue you choose Here’s wishing you all success in investing!

39. 53 Thank You