The document discusses why patience pays off for investors in equities over the long term. It provides several reasons why equities have consistently delivered higher returns than other asset classes over periods of 10-15 years. It emphasizes that short-term volatility in stock markets averages out over long periods. By staying invested for decades and not panicking over short-term dips, investors can earn high returns while facing minimal risk. It also highlights India's strong economic growth potential and improving social indicators, noting this bodes well for the country and stock market performance in the coming decades.

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PATIENCE PAYS
Presented by
Equities deliver the best
returns if held for the long
term. Here’s how you can
create wealth from this
asset class
The content for this booklet has been developed and designed exclusively for Franklin Templeton
Investments by Money Today, a part of the India Today Group (Living Media India Ltd.).

2. 1Patience Pays
2 High Growth
The power of compounding helps build
a large corpus in the long term
3 Starting Early
Investing early gives your money the
opportunity to grow more
4 Best Performance
Equities is the only asset class to offer
protection against rising prices
5 Profit Over Time
Equities overcome short-term volatility
to give stable returns in the long run
6 Minimising Loss
By investing for the long term, you can
earn high returns at minimal risk
8 India on the Growth Path
All indicators forecast a high rate of
economic development in India
10 Patience Pays
All the reasons why “Patience Pays”
for investors
11 Advantage Mutual Funds
Why mutual funds are the safest and
easiest way to invest in equities
Cover Illustration: PRAGATI
Equities
CONTENTS
4
No other asset class has given
higher returns than equities in
the long run
2
By investing small
amounts regularly, you
can optimise the power
of compounding
8
India’s potential for
high growth is good
news for the stock
markets

3. A
nswer this simple question. In
which case will you have more
money at the end of a month—
one paisa that doubles every day or -
Rs 1 lakh a day? It seems like a no-
brainer. Of course, Rs 1 lakh a day will
build a larger corpus, right?
Wrong. Actually, one paisa per
day will grow to Rs 1.07 crore in one
month, whereas Rs 1 lakh a day gen-
erates a corpus of Rs 31
lakh (assuming 31 days in
a month). Sounds incredi-
ble, but it is the magic of
the power of
compounding.
The concept of com-
pounding is simple: when
you first make an invest-
ment, you earn interest on
the principle. If you do not
withdraw the money, the
interest is reinvested and you earn
interest on not just the principle but
also the interest. Over
time, the total returns
from the prin-
ciple and reinvested inter-
est grow exponentially,
resulting in a large corpus.
According to the
example in the graph, (see
Magic of Compounding), if
you start investing as little
as Rs 1,000 a month, at the
end of 30 years, your cor-
pus will total about Rs 69
lakh, assuming that the
instrument grows at an annu-
alised rate of 15%.
This is why experts sug-
gest that you invest a small amount
regularly as it gives a huge payback
in the long term if you do not with-
draw the money.
The more time you
give your money,
the more it can
grow. For example,
Rs 1,000 invested
every month at
15% p.a. can grow
to Rs 69 lakh over
30 years.
All rate of returns are annualised.
Magic of Compounding
70
50
30
10
-10
Rsinlakh
Months
15 %
10%
6%
Rs 69.23 lakh
Rs 22.60 lakh
Rs 10.04 lakh
50 100 150 200 250 300 350
High GrowthThe key to financial success is investing for the long term. This allows you to
optimise the benefits of the power of compounding

4. 3Patience Pays
T
o optimise the benefits of
compounding, you must keep
your money invested for a long
period of time. The two variables are
directly proportional: the longer the
time period, the higher the returns.
As you grow older, the number of
years for which you remain invested
reduces. Consequently, if you start
investing early, you have more time to
exploit the power of compounding.
Consider the graph, Early Bird
Advantage. Both Preeti and Rohit
invest the same amount, Rs 10,000,
every year. However, Preeti starts
investing at the age of 25, 10 years
before Rohit. By the time they retire
at the age of 60, Preeti’s corpus (Rs
33.41 lakh) is more than
double that of Rohit’s
(Rs 15.03 lakh) though
both investments were
earning the same rate of
return. This is because,
by starting at the age of
25, Preeti invested for 35
years, whereas Rohit
invested for 25 years
only. The power of com-
pounding yielded better
returns for Preeti as she remained
invested for a longer time.
A practical reason for starting
early is that between the ages of 25-35
years, most people need
not dip into their invest-
ments for big-ticket
expenses, such as chil-
dren’s education or mar-
riage. If you withdraw
money from your invest-
ments, the effect of the
power of compounding
gets diluted. As a result,
you will be unable to
build a very large corpus.
Starting Early
Preeti invests for only 10 years compared with Rohit’s 25 years.
However, as she started earlier, her money grows to Rs 33 lakh
as opposed to Rohit’s Rs 15 lakh.
40
30
20
10
0
Rsinlakh
40
30
20
10
0
Rsinlakh
Preeti Rohit
Rs 33.41 lakh
Rs 15.03 lakh
25 30 35 40 45 50 55 60
Early Bird Advantage
The assumed rate of return is 12% per annum
Illustrations: PRAGATI
Investing early gives your money more time to grow. There is also lesser chance of
dipping into the investments that dilutes the effect of compounding

5. 4 Patience Pays
Y
es, the stock market registers
bouts of zero growth or even
negative returns, but in the
long run, no asset class comes close
to generating returns as high as equi-
ties. In the past 15 years, the price of
gold has risen by 7.2%, whereas oil
gave 10.29% returns. But the king of
returns was equities, with the Sensex
growing by 11.39% in the same time
period.
Equities is the
best hedge
against inflation
which singed wallets
as it rose from 4.95% in
January 2009 to
8.56% in
January 2010.
This is why if
you’re investing for long-term goals
such as retirement or your children’s
education and marriage, you cannot
afford to ignore the corrosive effect of
rising prices on the value of your
assets.
The only effective weapon against
inflation is equities. Consider this:
for the period between January
2000 and January 2010,
the compound annual
growth rate (CAGR) for
the Sensex was 12.31%,
which was 6.84% more
than the aver-
age Wholesale
Price Index (WPI)
of 5.47%.
It seems that
the era of high
prices is here to
stay. Therefore, you
must create a portfolio
of instruments that will
provide sufficient returns
after factoring in the rate of infla-
tion. Equities is the only asset class
that does so consistently. You can opt
to invest in equities via stocks or
mutual funds.
Equities
King of Returns
1 year
5 years
10 years
15 years
96.02
20.50
12.57
11.39
19.51
20.28
14.41
7.20
74.26
7.74
10.49
10.29
Sensex Gold Oil
Data as on 15 March, 2010; Returns are CAGR (%). Source: BSE
Equities has consistently outperformed all other asset classes. Therefore, it works
well against rising prices
Best Performance

6. 5Patience Pays
V
olatility is inherent to the
stock markets as share prices
change starkly in a very short
span of time. Most investors find this
scary and, in order to sleep peaceful-
ly, they eschew equity investment
altogether.
However, this is not necessary.
Though short-term market swings
can give you negative returns, in the
long run such phases of zero growth
are averaged out. Over decades, equi-
ties generate higher returns than less
volatile instruments and are less risky
than the apparently safe instruments.
This is what investors do not realise
and chase quick returns from the
market while looking for long-term
safety in debt.
Short-term share price fluctua-
tions are influenced by fads and news.
In the long term, only the good busi-
nesses survive. So the investors who
let their fears overwhelm their good
senses are the ones who lose out
when the markets are volatile.
Consider the graph showing
investor emotions in the short term.
As the market swings down, investors
move from anxiety to fear and, finally,
panic when the market hits the bot-
tom. This is when most investors exit
the markets and ignore the opportu-
nity to invest more at low valuations.
Subsequently, the markets rise again
and this process evens out the nega-
tive returns in the long run.
Profit Over Time
Relief
Excitement
Exuberance
Anxiety
Fear
Panic
Hope
Relief
Mood shifts in the Short Term
When markets hit a low, they offer a buying opportunity but
investors are too panicky to exploit it.
The stock market overcomes volatility in the short term to
give high returns over time.
Data as on 15 March, 2010; Source: BSE, Data as of March 15, 2010
One Way up in the Long Term
24,000
20,000
16,000
12,000
8,000
4,000
0
Rsinlakh
CAGR since launch
15.27%
1986 1998 2010
Though the stock market is volatile in the short term, it has the potential to create
immense and stable wealth in the long run

7. 6 Patience Pays
I
t is every investor’s dream to get
high, yet, secure returns. This
proverbial pot of gold at the end
of the rainbow can be real if you stay
invested in equities long enough. If
you consider the rolling Sensex
returns over different time periods,
(1, 3, 5, 7, 10 and 15 years), the results
reveal that as the investment horizon
increases, the probability of loss
drops. You never lose money in the
long run, yet stand to get decent
returns. Since its launch, the Sensex
has grown at a CAGR of 15.27%.
Equities has been the best per-
forming asset class in India over the
past 5, 10 and 15 years and it is like-
ly to be the best performing
asset in the coming decade
too. According to a Morgan
Stanley research, the
Sensex is expected to
deliver annual returns
of 14% over the next 10
years.
Also, Indian equi-
ty returns are likely
to be less volatile in
the coming decade
than they were in the
previous 10 years. As
far as volatility is con-
cerned, the research
points out that return
volatility in the coming
years is also likely to be
reminiscent of the post-1987
9
Minimising Loss
Market volatility affects returns the most when the holding
period is the shortest (one year in this case).
Over a 10-year period, all the possible short-term losses are
more than recouped.
One-year Rolling Return
1996 2010
120
80
40
0
-40
-80
CAGR(%)
Ten-year Rolling Returns
2002 2010
25
20
15
10
5
0
-5
CAGR(%)
Though investing in the stock market is a risky proposition, it is possible to minimise
the probability of loss by staying invested for the long term

8. 7Patience Pays
period, when the volatility in equity
returns moderated after hitting a
peak. The fundamentals of the Indian
corporate sector are in a good shape
backed by the strong domestic
growth (on the back of robust domes-
tic demand), robust balance sheets,
high capital efficiency and the likeli-
hood of decoupling from the rest of
the world. This will be a source of
strength to the market in the medium
to long run.
Thus, on a risk-adjusted basis,
equities are likely to be the most
attractive asset class in the future.
3
6
12
20-year Rolling Returns
2006 2010
22
20
18
16
14
12
10
CAGR(%)
The base of 0% return is not even a factor for a holding
period of up to 20 years.
Chances of Loss over Time
1 year
3 years
5 years
10 years
15 years
20 years
36.29
19.82
13.40
2.16
0
0
21.43
18.51
17.73
12.81
12.83
17.07
Probability
of loss
Holding period Avg return
CAGR (%)
Only buy something that you would be perfectly happy to
hold if the stock market shuts down for ten years.
– WARREN BUFFETT
As the holding period increases, the possibility of incurring a
loss becomes virtually nil.
Data as on 15 March, 2010; Source: BSE

9. 4 Patience Pays8
N
ot only did India weather the
recent crisis, it actually grew
at a pace second only to
China, demonstrating that it has built
the foundation for a strong growth.
This is good news for all investors. A
high-growth trajectory will directly
influence the stock market, which will
mirror the same path. Here is evidence
to prove that the good times may be
here for a long time:
Economic Factors
The global economy is reviving, which
means that trade and credit offtake
will improve. Back home, the empha-
sis on fiscal consolidation should
ensure that the government meets its
target growth rates and the public
debt is under control. The accom-
modative monetary policy environ-
ment created by policymakers shows
a flexibility that is necessary at a
time when we are recovering
from a slowdown.
The fact that the Indian
banking system was not
crippled by the global
malaise stands testi-
mony to its strength
in terms of capitali-
sation. A strong
banking net-
work is cru-
cial for
industrialStrong GDP Growth
12
6
0
Percentage
1990-91 2011-12E Illustration: RAJ
All macro indicators reveal that India has the potential of becoming an economic
superpower in the next decade, which will reflect in the stock market
India on a High
Growth Path

10. 9Patience Pays
growth and
Indian banks
are prepared to
back both the
industry and com-
mon people.
Similarly, the govern-
ment’s thrust on infra-
structural growth should
boost productivity, whereas
programmes for rural areas
will ensure inclusive growth.
This is possible due to a stable
political environment, which goes
hand in hand with economic stability.
Social Factors
India is famous for its domestic sav-
ings. The consistently high savings
rate implies greater economic securi-
ty for its people. So far, the Indian
growth story has not been as inclu-
sive as it ought to have been. A large
section of the rural population does
not have access to infrastructural
amenities like banks, educational
institutions, etc. This means, there is
enormous potential for growth in
infrastructure, consumer goods, etc.
Though there is much work to be
done, recent social welfare pro-
grammes like the National Rural
Employment Guarantee Act, pay
revision, higher minimum support
prices, etc, have ensured an increase
in the purchasing capacity of rural
India. However, one of the most
favourable social factor is the demo-
graphic profile of India. The working
age population is expected to shoot
up by 240 million in 20 years. This will
result in a dramatic growth in pro-
ductivity and savings. So the long-
term positive outlook for India is
based on strong fundamentals.
Net Domestic Savings
1400
0
Rs’000crore
1989-90 2007-8
A high domestic savings rate will result in greater economic
security for people in the future.
Outlay on Rural Employment
450
0
Rs’000crore
2004-5 2010-11
As rural employment increases, the purchasing power of
villagers will go up, generating demand.
Source: CSO, Budget Estimates

11. 10 Patience Pays
B
y now, it must be clear that
investing in equities is indis-
pensable for a healthy growth
of your portfolio. However, do not be
greedy and seek returns in the short
term. Most investors lose money by
taking on more risk than they should
and churning their equity portfolios
too often. Instead, stay invested for
the long term and use the money only
when the financial goal is near. Here
are some of the things you must
remember about equities:
Invest for the long term: The best
returns come to those who
wait. Equities generate
the highest returns
in the long term
and face minimal
chances of loss. So if you
have bought good
companies, stick with
them.
Review your portfolio:
This does not mean
you must make unnec-
essary changes.
By doing so,
you do not
allow your investments to multiply in
value through the power of com-
pounding. Too much churning also
increases the cost of investment. You
may have to pay short-term capital
gains tax of 15% if you book profits
within a year.
Do not try to time the market: Stock
markets are inherently volatile.
Therefore, you cannot predict the
movement of stock prices. Do not be
influenced by fads or trends. Stick to
good businesses and you will reap
rich dividends in the long term.
Believe in India’s economic growth: All
factors seem to favour the predic-
tion of high growth.
Domestic savings have
been over 30% for the
past six years. The
workforce is
expanding, which
should lead to high-
er savings and produc-
tivity. Over 70% of the
population is rural;
focusing on their needs
will boost income and
generate demand for
the economy.
Patience PaysInvesting in equities is a must to ensure high growth for your portfolio. To minimise
the chances of loss and maximise gains, stay invested for the long term

12. 11Patience Pays
RETURNS
H
ow can you be sure that a
stock will come good in the
next 10 years? You can’t,
because you don’t have the required
insight into the markets. So why not
leave the task to the people who are
trained to invest in equities? This is
exactly what mutual funds do. A spe-
cialised fund manager invests your
money in a cache of stocks, which
are chosen according to the
fund’s mandate. The manager
tweaks the investments regular-
ly to ensure that you get maxi-
mum returns. Here are some of
the reasons mutual funds are a
must-have in your portfolio:
Big and safe returns
Mutual funds offer the
best of both worlds:
high returns and safety.
Though the returns
may not equal to
those from the
best stocks, you
rarely lose money by investing in
funds for the long run. This is prima-
rily because funds spread invest-
ments across stocks and sectors,
which maximises the benefits of
diversification. Therefore, you forgo
less in terms of returns and gain more
in terms of security.
Best minds at work
As mentioned earli-
er, mutual funds
are run by fund
managers who
make moves based
on in-depth research
and analysis. These
investment professionals
don’t follow the sound bytes
on TV but make forecasts
with the help of teams of experts that
regularly study the market. As an
ordinary investor, you do not have the
time or the expertise to analyse the
markets like these managers. Funds
offer you the opportunity to tap into
The most convenient and safe way to invest in equities without compromising on
high returns is through mutual funds
Advantage
Mutual Funds

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the resources of trained professionals
to make money for you.
Financial planning
There is a fund for
every need,
strategy and
time period. This
is why they are
perfect instru-
ments for finan-
cial plan-
ning. If
you are
a conservative
investor, choose large-cap equity
diversified or index funds. If you are
aggressive, pick from mid-cap, small-
cap or sector funds. In case you want
high returns without too much risk,
opt for balanced funds, which invest
in a mix of debt and equity. You can
also bet on sectors by puting your
money in funds that invest in stocks
belonging to a particular industry,
such as infrastructure funds,
banking funds, etc.
Another option is to retro-
fit a fund to your financial goal.
For instance, to build a retire-
ment corpus, choose from equity
diversified funds, which is one of the
safest category of funds.
Starting small
Systematic Investment Plans (SIPs)
allow you to invest small amounts in
mutual funds regularly. The lower
limit is as less as
Rs 50 a month.
Not only does
this discipline
your invest-
ments, it also
averages out
returns in a volatile
market. A lump-
sum investment
before a bear day can
wipe out all your invest-
ments. With SIPs, the hit impacts
smaller amounts. Similarly, you never
miss a bull run because you did not
see it coming or because you were out
of money. SIPs automatically ensure
that you participate in every market
movement.
Tax saving
Equity-linked
s a v i n g s
s c h e m e s
(ELSS) is one of the
two market-linked,
tax-saving instru-
ments under
Section 80C of
the Income Tax
Act (the other being Ulips). By
committing to SIPs in ELSS, you can
spread out your tax savings through-
out the year without sweating to
meet the deadline in March.
This also gives you the benefit of
rupee-averaging much like the SIPs
in other mutual funds.
12 Patience Pays