Title: Systematic Investment Plan (SIP)-Smarter way to meet your financial goals
1Systematic Investment Plan (SIPs)
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2- I dont have enough money to invest
- Im too busy making money to worry about managing
it. - I dont have the time or expertise to follow
market movements and make investments at the
right time
SIP is an investment program that allows you to
contribute a fixed amount (as low as Rs. 1000/-)
in mutual funds at regular intervals.
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3- You must have heard this statement more than n
times now that - SIP is the best investment style
- So lets understand why SIP has emerged as the
most powerful style of investing in recent times
through
Some real life examples.
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4- There are basically three points that makes SIP
such a strong concept - Rupee Cost Averaging
- Power of Compounding
- Market timing irrelevance
Let us simplify these terms in next few slides
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5- Rupee Cost Averaging
- To understand this concept more practically
look at the illustration below. The SIP investor
finishes with an investment that is worth more
than the lump sum investor after six months -
even though the starting price and finishing
price are exactly the same. Unlikely but it is
true. Check the figures yourself .This is the
first thing what SIP does it averages the buying
cost automatically.
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6- Power of Compounding
- This mathematical formula of compounding
FV PV (1 r) is known to all of
us but is seldom understood in terms of
investing. Lets use an i.e. If you invested
Rs. 100000 PV (Present Value) in a instrument
that grows _at_ 15 per year (the r) for a
period of 25 years (the n), its FV
(Future Value) will become Rs.3291895.
Unbelievingly the amount multiplied to a whopping
33 times - Now the lets see how the same compounding plays
in a SIP over a period of time. The table below
justifies all statements of the Power of
Compounding. A meager amount of Rs. 1000 per
month over 25 years at an annualized growth rate
of 15 accumulates to a humongous number of
approx Rs. 33 lakhs
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7Market timing is irrelevant
Lets look at the above analysis in the next
slide whether it actually happens
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Data Source Bloomberg
8Time in the market matters VS not timing
Data Source Bloomberg CAGR (Compound Annual
Growth Rate) -The year-over-year growth rate of
an investment over a specified period of time
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9- Now that we have seen the Power of SIP lets try
to address this point - When SIP works best for us
- Few slides from hereon will explain this more
clearly.
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10- SIP will work best if following acts are done
- Start Early
- Invest Regularly
- Invest for Long Term
- Invest in the Right Asset Class
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11Invest Regularly
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12Invest for Long Term
Data Source Bloomberg
Hence longer your SIP Period
- Lower the risk
- Greater the effect of compounding
- More predictable average returns
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13Invest in the Right Asset Class
Undoubtedly Equity is the winner overtime
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14- Now that we have seen why and how SIP can
best work - a question still remains unanswered
. - Can SIP help individuals like you and me in
real life situation to meet our financial goals ? - Lets try to answer this question through a
simple case study and see whether benefits of SIP
really work
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15- Case Study Real Life Situation
- Assume
- You are 30 yrs of age have a wife and kid
- Current Annual expenditure of Rs. 5,00,000
- Retirement expected at age 60 yrs
- More
- Average prices (i.e. inflation) will rise by 7
pa - After 30 yrs when you retire, the low risk rate
of return will be 6 pa (Considering you put all
your accumulated corpus post retirement in a bank
deposit) - You will live for more 20 years post retirement
- So lets see what will be the corpus
required at the time of your retirement to
maintain the same current lifestyle additionally
with enhanced medical expenses
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16Current Expenditure Rs.5,00,000 p.a.
Inflated at 7 p.a. for 30 years
Expenditure at the time of Retirement Rs.
36,00,000 p.a.
Therefore to generate this income every year
post retirement you need to accumulate a
corpus
Income to be generated post Retirement Rs.
36,00,000 p.a.
Your first reaction Impossible! It cannot be
achieved. But then there is a solution
Corpus Required at the time of Retirement
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17So whats the Solution Just one simple thing
Subscribe for an SIP of Rs.15,000 per month in a
good diversified equity fund for 30 years and
forget it
You still dont believe it that it can be that
simple let us validate our conviction with
actual returns generated in a equity fund over
the years
Equity Fund Equity Fund Equity Fund Equity Fund Equity Fund
SIP Investments 15 year SIP 10 year SIP 5 year SIP 3 year SIP
Total Amount Invested _at_ Rs.15000 per month ( Rs.) 2,700,000 1,800,000 900,000 540,000
Market Value as on July 29, 2011 (Rs.) 34,379,093 8,682,024 1,427,405 798,522
Returns (Annualized)() 29.87 29.64 18.56 27.29
Benchmark Returns (Annualized)() 15.87 18.42 8.36 14.08
Market Value of SIP in Benchmark 9,967,057 4,737,423 1,110,339 664,982
From the table it is crystal clear that if an
investor did an SIP of Rs.15000 per month in
Equity Fund for 15 years, he would have invested
27 lacs and that would have grown to a whopping
number of 3.4 crore as on date in spite of so
many pitfalls in equity markets in last 15 years.
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18Still need to think No pressure but see this
what the delay can cost in the same case study
Time to Retirement (yrs)
10
15
25
30
After 5 years from now
After 20 years from now
After 15 years from now
Investment Required
Today
80,000
48,000
21,000
15,000
Monthly
9,60,000
5,76,000
2,32,000
1,80,000
Annual
Current Age 30 years Retirement Age 60
years Retirement Corpus to be accumulated 8 cr.
Assumed Rate of Return on Investment 15 p.a.
With every passing year the time to
retirement is reducing and increasing the
burden of investment required. Now the choice is
our whether we want TO START NOW OR STILL WAIT..
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19Thank You
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1800110444 Telephone 011-23636363/2 Website
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RR Investors Retail Services (P) Ltd.
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