IF you're not gung-ho on India now, when will you be?
by Mr. B. Padmanaban, CFPCM
Certified Financial Planner,
Chennai
Whenever one invest, few
things are very important to consider before.
1. Investment should beat
the inflation.
2. One should understand
the power of compounding.
3. When you put everything
in number and find out whether the instrument has really delivered return or
not. Many will form opinion about hearsay, without getting into many
investments.
4. Whatever the return we
make, should be excluding the taxes.
5. Except Mutual funds and
direct stocks many other investments are not tax efficient.
Do not invest for the
sake of hearsay, do your homework and consult with any financial advisor about
how each investments work and what is the risk versus return which is very
important.
Today, everybody is so
busy making money, and do not find time to deploy those money properly.
The biggest challenge
today is the awareness about investments and investment products. Very few are
really understand before they invest and created a huge wealth so far.
Here, I would like to
give few data points which are very important to make decision about the
investment.
 |
| B. Padmanaban, CFPCM., Chennai |
This also clearly
indicates how fortunate everyone is today with huge opportunity in our hands.
1. January, 8- 2008, SENSEX has closed all time high of 20873
points. We are exactly 100 months ((8 Years & 4 Months).) from now and on
May 13, 2016 the Share market has closed 25489.
CAGR works out to 2.4% in
the last 100 months. Do remember in those periods, savings account interest is
3.5% CAGR!
2. January,
29- 2015, SENSEX has touched all time
29,681 (closing) from that it has fallen to 25489 on May 13,2016.
In the last 15 months, market is down by
14.12% in absolute terms. 15%
Discount!!!
3.
In the last 23 Months (nearly 2 Years), SENSEX is flat.that is
Nil Return.
|
Date
|
Sensex
|
|
11-Jun-14
|
25473
|
|
13-May-16
|
25489
|
Mutual fund
performance
Look at the mutual fund
performance during that time, the following returns are CAGR, whereas the SENSEX
return is point to point. If you want to calculate the point to point returns
for the below funds then you need to multiply by 2 because of 2 years and see
how much return it has generated.
Do not anchor Sensex
value when you invest, your investments are always beyond Sensex number.
|
Category
|
Best
Fund
|
Worst
Fund
|
|
Largecap
|
14.94%
|
3.35%
|
|
Multicap
|
25.44%
|
9.02%
|
|
Midcap
|
25.76%
|
11.66%
|
|
Small cap
|
31.93%
|
14.13%
|
|
ELSS (Sec. 80C)
|
21.72%
|
6.57%
|
|
Balanced
|
15.03%
|
4.13%
|
4.
Many investors
have the habit of asking this question nowadays. You always advise investor to
stay long, but whenever I saw the performance of the fund it is coming down as
the year increases. Why I should not book profit every year or more frequently
to capture whatever the funds generated.
|
Investment
|
1,00,000
|
|
Return
|
16.16%
|
|
Duration (In Years)
|
20
|
|
Final Value
|
20,00,000
|
Assume every year it
generates consistently 16.16% if someone book profit year on year he will get
16160*20=3,23,200 (profit) plus 1,00,000 principle. Totally Rs. 4,23,200. In
the growth mode it will be Rs. 20 Lakhs.
5. The below table captures
the real time performance of the fund called Sundaram Select Midcap. In the
first 3 years it has compounded 66.98% which is nothing but 4.65 times.
If somebody looks at it
has given 66.98% now it is only giving 29.52%. Yes, percentage wise it will
come down as the year increases for sure. But, look at the power of
compounding, in the last 14 years it has multiplied by 35 times! The
illustration is to understand how power of compounding works in the long run
and how to understand the numbers!
|
Sundaram
Select Midcap
|
Investment
|
1,00,000
|
|
Date
|
CAGR
Returns
|
Current
Value
|
|
Aug 1, 2002 - July 31
2003
|
41.44%
|
₹
1,41,440
|
|
Aug 1, 2002 - July 31
2004
|
57.63%
|
₹
2,48,472
|
|
Aug 1, 2002 - July 31
2005
|
66.98%
|
₹
4,65,579
|
|
Aug 1, 2002 - July 31
2006
|
64.95%
|
₹
7,40,303
|
|
Aug 1, 2002 - July 31
2007
|
59.91%
|
₹
10,45,630
|
|
Aug 1, 2002 - July 31
2008
|
44.83%
|
₹
9,22,893
|
|
Aug 1, 2002 - July 31
2009
|
40.30%
|
₹
10,70,049
|
|
Aug 1, 2002 - July 31
2010
|
40.17%
|
₹
14,90,186
|
|
Aug 1, 2002 - July 31
2011
|
36.06%
|
₹
15,97,991
|
|
Aug 1, 2002 - July 31
2012
|
30.82%
|
₹
14,68,052
|
|
Aug 1, 2002 - July 31
2013
|
27.78%
|
₹
14,82,831
|
|
Aug 1, 2002 - July 31
2014
|
31.02%
|
₹
25,58,887
|
|
Aug 1, 2002 - July 31
2015
|
31.89%
|
₹
36,53,880
|
|
Aug 1, 2002 - May 13 2016
|
29.52%
|
₹
34,95,490
|
6. Remember,
Investment in mutual fund is only your surplus, not the borrowed money. At the
time of investment you have intended to save for longer period, but seeing the
volatility you tend to move out which is not right. Volatility is the way of
life, it is not RISK!
7. This is
the only investment which is highly transparent, regulated and you have an
advisor to handhold you. Investment through your advisor, you are buying a
peace of mind. Today, every advisor’s assumed responsibility of reaching all
your financial goals is very true and they are really working for you.
With them you can reach
your financial goal much faster and you being concentrate on your profession
and give more money to create more wealth for your loved ones. Believe me; advisors
are working like your personal CFO.
8. Today,
many parents have the habit of introducing to their sons and daughters into
housing loan the moment they joined. Their intention is to save money but don’t
understand beyond that.
Today anyone job is not
defined to one particular area and they keep moving, so either they will not
enjoy what they bought are keep buying wherever they move! I will explain how
bad it is with numbers to understand one on one if you really want to
understand.
9. Markets
are irrespective of the government, environment so on and so forth. Yet it
delivered substantial returns in the past. The next 10 years will be better
than the last 10 years are equal to 10 years not less than that. This
government has all the positive environments to create more growth to our
country in the coming years, but it will not be felt immediately and it takes
time. We should look only the direction. Direction is right.
10. Last
but not the least, after 10 years from now, am
sure everyone will regret for one thing. Either I have not participated in the
market rally or I don’t have the guts to invest more money what I had and I
invested very little and it’s a costly miss!
We are in a sweet spot
both lump sum as well as SIP. SIP is ever green mode of investment. Avoid
investing money in PPF for tax saving and invest in ELSS for first 3 years and
keep investing the same once 3 years is completed.
Happy Investing
B. Padmanaban, CFPCM
Certified Financial Planner, Chennai
9884349173
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