2. Savings v/s Investments
Savings = Income – Expenditure
Investments = Savings + (Savings X Returns)
Inflation cannot be avoided but its impact can be minimised with prudent investment planning
3. How to be your own investment counselor
– Dick Fabian
Evidence shows that investors - investors in anything – make no money over a
10 year period. There are several reasons for this tragic statistic, including:
1. Not setting a goal
2. Chasing trendy investments
3. Relying on reports from the financial press
4. Blindly taking advice from brokers or financial planners
5. Making emotional mistakes and so on
Without a clear cut investment plan, you will fail eventually
4. Why do we save money?
The future is uncertain
Cost of living (education, marriage) is rising - INFLATION
Needs and aspirations are increasing – better housing, vehicles, holidays abroad
It is not possible to continue working for long hours beyond a certain age…time
to sit back and make your money work for you, essentially retirement planning
5. Options You Have Checked Out
Gold
Fixed Income
Confusion
Equities
6. How good is the money you invest in
fixed income securities?
8
7
6
You are losing your
5 purchasing power!
4
3
2
1
0
Interest Rate Less Inflation Less Tax Post Tax and Inflation
-1 8% 5.5% 2.72% -0.22%
Instrument under consideration – 8% taxable Bonds
1 year average inflation rates assumed at 5.5%
Assuming highest tax rate.
7. Cumulative annualised returns of different asset classes
(1985 – 2010*)
Equity 16.7
G Sec 10.8
Bank FD 10.1
Gold 9.4
Inflation 6.5
(% Annualized returns)
0.0 5.0 10.0 15.0 20.0
Over time, a portfolio of well chosen stocks is likely to outperform other asset classes
But equities are more risky …
*Returns till October 31, 2010
Source: CLSA
8. The voting machine & the weighing scales
(short term volatility & long term returns)
Source Data: www.bseindia.com
Past performance of the SENSEX may or may not be sustained in the future .
Note: The base year of the SENSEX is 1978-79 and the base value is 100. Please visit
www.bseindia.com for the SENSEX calculation methodology.
9. Voting Machine and Weighing Scale
1-Year 5-Years 10-Years 15-Years
Max Returns 267% 53% 35% 27%
(March 1992) (March 1992) (March 1992) (March 1994)
Min Returns -47% -5% -2% 6%
(March 1993) (March 1997) (March 2002) (March 2009)
Average Returns 28% 18% 18% 18%
Loss Probability 10/29 3/25 1/20 0/15
To conclude, the longer you remain invested:
1. Lower is the probability of loss
2. The volatility of returns reduces
3. The returns from equities become predictable and is equal to earnings growth plus dividends
Source Data: www.bseindia.com, Internal Calculations
Past performance may or may not be sustained in the future.
10. Equities – An Asset Class worth
considering
Equities, while being volatile and extremely unpredictable over short periods of
time, tend to be a prudent investment over longer time horizons
Over the long run equity returns tend to track underlying fundamentals and are
determined by the following factors:
The dividend yield at the time of initial investment
The subsequent rate of growth in earnings
The change in the price – earnings ratio during the period of investment
The total of these three components explains nearly all of the stock
market returns over extended holding periods
Source: Common Sense on Mutual Funds, John C. Bogle
11. Sensex growth and profit growth
BSE Sensex - Profit growth versus Index growth
3,000.00
Profit growth vs index growth
2,500.00
2,000.00
1,500.00
1,000.00
500.00
-
Mar-89
Mar-90
Mar-91
Mar-92
Mar-93
Mar-94
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Year
Profit growth Sensex grow th
Source : DSP Merrill Lynch & Motilal Oswal Securities FY10 – As on March 31, 2010.
12. Avoid ‘Decision Paralysis’
Stop worrying about market fluctuations
Start thinking about your goals and the time you have to achieve them
Get invested into a mutual fund and benefit from portfolio diversification
Focus on long term investing – short term thinking is the enemy of long term
investment success
Have reasonable return expectations
Enroll for SIP – A disciplined approach
Take advantage of the ups and downs in the market
14. What is Rupee Cost Averaging (RCA)
RCA refers to an investment technique intended to reduce exposure to risk
associated with making a single large purchase
Invest a fixed amount at regular intervals (e.g. monthly) regardless of the
market levels. In this way more units are purchased when prices are low and
fewer units are purchased when prices are high
Limits / avoids the worst case scenario of an immediate drop in asset value after
a lump sum investment
Investors can expect a reduction in variance in performance by implementing
rupee cost averaging
15. Systematic Investment Plan
A Graphical Illustration
Identical amounts invested through a SIP and in one lumpsum. Investor A starts investing ` 1,000 every month in an equity mutual
fund scheme starting in January. Investor B invests ` 12,000 in one lump sum in the same scheme
Investor A Investor B
Month NAV* Amount Units Amount Units
(`) (`) (`)
January 16.240 1,000 61.5764 12,000 738.9163
February 16.266 1,000 61.4779
March 15.123 1,000 66.1244
April 15.266 1,000 65.5050
May 16.845 1,000 59.3648
June 16.991 1,000 58.8547
July 15.501 1,000 64.5120
August 15.114 1,000 66.1638
September 12.774 1,000 78.2840
October 13.848 1,000 72.2126
November 14.566 1,000 68.6530
December 15.111 1,000 66.1770
Total 12,000 788.906 12,000 738.916
*NAV as on the 10th of every month. These are assumed NAVs in a volatile market.
Disclaimer: The illustration above is merely indicative in nature and should not be construed as investment advice. It
does not in any manner imply or suggest current or future performance of any HDFC Mutual Fund Scheme(s). SIP
neither ensures profits nor protects you from making a loss in declining markets.
16. Systematic Investment Plan
A Graphical Illustration (Continued)
As seen in the table, by investing through SIP, you end up buying more units when the price is low
and fewer units when the price is high. However over a period of time these market fluctuations
are generally averaged and the average cost of your investment is often reduced.
18 16.991
16
14
12 12.774
When the price is the
10 When the price is the
lowest, you buy the
highest, you buy the
8 least number of units highest number of units
6
4 58.854 78.284
units units
2
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
17. Systematic Investment Plan
A Graphical Illustration (Continued)
At the end of the 12 months, Investor A has more units than Investor B, even
though they invested the same amount
That’s because the average cost of Investor A’s units is lower than that of
Investor B
Investor B made only one investment and that too when the per unit price was
high
Investor A’s average unit price = 12,000 / 788.905 = ` 15.211
Investor B’s average unit price = 12,000 / 738.916 = ` 16.240
18. Benefits of Systematic Investing
Disciplined investments (Remember, an investor’s worst enemy is not the stock
market, but his own emotions)
Reach your financial goals
Take advantage of Rupee Cost Averaging
Grow your investments with compounded benefits
Do all this effortlessly
19. Steps to financial success…
Invest regularly
Start early
Control consumption and exercise self control
Benefit from power of compounding
20. Consider the following situation:
Four friends plan to save and invest for retirement at the age of 60
Due to their individual circumstances, cash flows etc. each of them start saving
at different periods of time / ages
The following table illustrates their investment decisions and outcomes…
21. Starting early matters!
An Illustration
Particulars Option 1 Option 2 Option 3 Option 4
Amount invested 1,000 1,000 1,000 1,000
p.m. (`)
Starting age 20 30 35 40
(Years)
Investment for 40 30 25 20
years
Assumed Rate of 12% 12% 12% 12%
Return p.a.
Total Amount 4,80,000 3,60,000 3,00,000 2,40,000
invested
(`)
Maturity amount at 1,18,82,420 35,29,914 18,97,635 9,99,148
60
(`)
Disclaimer: The above investment simulation is for illustration purpose only and should not be construed as a promise
on minimum returns and safeguard of capital. HDFC Mutual Fund / HDFC Asset Management Company Ltd. Is not
guaranteeing or promising or forecasting any returns. SIP does not assure a profit or guarantee protection against loss in
a declining market. It does not in any manner imply or suggest current or future performance of any HDFC Mutual Fund
Scheme(s)
22. The power of compounding
Illustration (Cont’d)
Maturity amount at age 60 – Figures in Lacs
140
119
120
100
Starting late earned you 12 times
80 less wealth!!
60
40 35
19
20
10
0
Option 1 Option 2 Option 3 Option 4
Investment Options
23. Consider another situation
An Illustration
Four investors start investing in the S&P CNX Nifty on the 1st business day of each month at different periods
of time.
Start Date Amount Invested Per month (`)
Investor A March 1, 1993 5,000
Investor B January 1, 1999 7,500
Investor C December 3, 2001 10,000
Investor D November 1, 2004 15,000
24. On September 30, 2010 they review their
portfolios and realize this startling fact:
Illustration ( Cont’d)
The more you delay starting your investment…
Investor A Investor B Investor C Investor D
Monthly Investment March 1, 1993 January 1, 1999 December 3 ,2001 November 1, 2004
Commenced on
Amount per Month(`)
(`) 5,000 7,500 10,000 15,000
No. of installments 210 140 105 70
Total Amount Invested 1,050,000 1,050,000 1,050,000 1,050,000
(`)
Compounded 15 19 22 20
Annualised Returns as
on 30th Sept, 2010(%)
(p.a)
Market Value as on 4,459,384 3,475,142 2,947,182 1,874,528
September 30, 2010
(`)
…less is the amount of wealth created, inspite of earning a substantially
higher return and investing more per month!!!
Disclaimer: The above investment simulation is for illustrative purposes only and should not be construed as a promise
on minimum returns and safeguard of capital. The AMC / Mutual Fund is not guaranteeing or promising or forecasting
any returns. It does not in any manner imply or suggest current or future performance of any HDFC Mutual Fund
Scheme (s). SIP does not assure a profit or guarantee protection against a loss in declining market.
25. Analysis
Investor A’s portfolio is worth 138% more than Investor D’s
This is inspite of Investor D investing three times more per month and
earning a higher return than that of Investor A’s per year on
his investment!!!
The benefits of starting early (albeit in smaller amounts) and investing regularly
far outweigh anything else; compound interest is indeed a miracle
26. Power of Compounding
The Eighth Wonder of the World
An analysis of ` 10,000/- invested in the S&P CNX NIFTY on July 11, 1990
Date Market Value (`) in S & P CNX Nifty % of Total Capital Appreciation Missed
Index
July 11, 1990 10,000
January 2, 1995 40,305 80%
January 1, 1998 36,863 82%
January 1, 2001 42,765 79%
January 1, 2002 35,980 82%
January 1, 2003 37,509 82%
January 1, 2004 65,198 68%
January 2, 2007 136,631 34%
January 1, 2008 209,490 -2%
January 1, 2009 103,425 50%
January 4, 2010 178,391 13%
September 20, 2010 205,590
The cost of missing out on just ~9% of the total time (the last 18 months of the 20 year period) under analysis results in the investor
losing out on 50% of the capital appreciation possible by staying invested for the entire duration.
Compounding is truly a miracle if given the time to work its magic!!
Disclaimer: The above investment simulation is for illustrative purposes only
and should not be construed as a promise on minimum returns and safeguard
of capital. HDFC Mutual Fund/ HDFC Asset Management Company Limited
is not guaranteeing or promising or forecasting any returns.
27. Power of Compounding
The table below shows the difference in the overall returns due to compounding of interest rates
An Illustration at their respective levels
A marginal difference of 2% has a significant impact on eventual wealth creation
Year Cashing on Interest Interest Reinvested
Assumed Rate of Interest Value at the end of the year
( Simple interest) Assumed Rate of Interest ( Compound Interest)
8% 8% 10% 12%
1 8,000 1,08,000 1,10,000 1,12,000
5 8,000 1,46,933 1,61,051 1,76,234
10 8,000 2,15,892 2,59,374 3,10,585
15 8,000 3,17,217 4,17,725 5,47,357
20 8,000 4,66,096 6,72,750 9,64,629
25 8,000 6,84,848 10,83,471 17,00,006
30 8,000 10,06,266 17,44,940 29,95,992
Total Interest Earned (1) 2,40,000 71% 2,40,000 24% 3,00,000 17% 3,60,000 12%
Principal (2) 1,00,000 29% 1,00,000 10% 1,00,000 6% 1,00,000 3%
Interest on Interest (3) 0 6,66,266 66% 13,44,940 77% 25,35,992 85%
Total Amount 3,40,000 100% 10,06,266 100% 17,44,940 100% 29,95,992 100%
(4)= (3)+(2)+(1)
Einstein refers to the “Power of Compounding” as the “Eighth wonder of the World”
Disclaimer: The above investment simulation is for illustrative purposes only and should
not be construed as a promise on minimum returns and safeguard of capital. HDFC Mutual
Fund/ HDFC Asset Management Company Limited is not guaranteeing or promising or
forecasting any returns.
29. Mahesh
Mahesh has recently graduated from a premier management institute. He gets a
job as an executive at a MNC. He’s living at home with his parents and saving
every last rupee so he can make the ` 80,000 down payment on a ` 8,00,000
new car
He takes out a car loan for the remaining ` 7,20,000. It’s a five year loan at
11.67% p.a. interest, so he pays EMI of ` 16,000 every month to the finance
company
He cringes the first time he pays the ` 16,000 EMI, but forgets all that when
he’s driving around in the new car
A few months later, the car’s condition deteriorates. There are scratches on the
doors and stains on the carpets; its just another car now but Mahesh is stuck
with the payments
30. Ramesh
Ramesh has also just graduated from the same institute and works with
Mahesh as an executive at the MNC. He also lives at home with his parents
Ramesh took the ` 80,000 he’d saved up and bought a second hand car. Since
he paid cash, he didn’t have car payments to be made to the finance company
So instead of paying an EMI of ` 16,000 to the finance company, he invested
` 16,000 a month in a diversified equity mutual fund
31. Mahesh (Five years later)
At the end of five years, he’s sick of the car
He’s finally paid off the car loan, which cost him an extra ` 2,40,000 in interest
charges
So between the loan and the original purchase price, Mahesh has invested
` 10,40,000 in this car, not including taxes and fees, insurance premiums, gas,
oil and maintenance
If he sold the car now, its resale value would fetch him ` 2,00,000. So what he’s
got to show for his ` 10,40,000 investment is a ` 2,00,000 car that he doesn’t
even like anymore
32. Ramesh (Five years later)
Five years later, when Mahesh was mailing out his last car payments, the value
of Ramesh’s mutual fund had increased
Between the increase of the fund itself and the steady stream of ` 16,000
contributions to the fund, Ramesh has an asset of nearly ` 12,00,000 (at an
assumed rate of return of ~8% p.a.)
He also has the used car, which gets him back and forth OK, and he never
worries about dents and scratches because he never thought of it as an
investment, its only transportation
As we leave this economic morality tale, Ramesh has enough money to make a
down payment on his own house and move out of his parent’s house, while
Mahesh continues to mooch
Disclaimer : The above illustration is merely indicative in nature and should not be construed as an
investment advice. It does not in any manner imply or suggest current or future performance of any HDFC
Mutual Fund Scheme(s). SIP does not assure a profit or guarantee protection against loss in a declining
market.
33. To summarize:
If you start saving and investing early enough, you’ll get to a point where your
money is supporting you
This is what most people hope for, a chance to have financial independence
where they’re free to go places and do what they want, while their money stays
home and works for them
It will never happen unless you get into the habit of saving and investing and
putting aside a certain amount of money every month wisely
35. Product Features
Type of Scheme Open-ended Growth Scheme
Inception Date (Date of allotment) January 1, 1995
Investment Objective To achieve capital appreciation
Fund Manager $ Prashant Jain (Since June 19, 2003)*
Plans / Options Growth and Dividend
The Dividend Option offers Dividend Payout and Reinvestment facility
Minimum Application Amount Purchase: ` 5,000 and any amount thereafter
(Under Each Plan) Additional Purchase: ` 1,000 and any amount thereafter
Load Structure Entry Load:
Not Applicable. Pursuant to SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated June 30, 2009,
no entry load will be charged by the Scheme to the investor. Upfront commission shall be paid
directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors’
assessment of various factors including the service rendered by the ARN Holder.
Exit Load:
In respect of each purchase / switch – in of units, an exit load of 1.00% is payable if units are
redeemed / switched – out within 1 year from the date of allotment.
No exit load is payable if units are redeemed / switched out after 1 year from the date of
allotment.
No entry / exit load shall be levied on bonus units and units allotted on dividend reinvestment.
Benchmark S&P CNX 500
*Date of Migration from Zurich India Mutual Fund.
$ Dedicated Fund Manager for Overseas Investments: Miten Lathia
36. Start early, continue regularly:
The table below shows notional loss of wealth due to delay in starting SIP
# Past Performance may or may not be sustained in the future.
Load is not taken into consideration. Investors are advised to refer to the Relative Performance table on slide No. 38.
Disclaimer: The above investment simulation is for illustrative purposes only and should not be construed as a promise on
minimum returns and safeguard of capital. HDFC Asset Management Company Limited / HDFC Mutual Fund is not guaranteeing
or promising or forecasting any returns. SIP does not assure a profit or guarantee protection against a loss in a declining market.
37. HDFC Equity Fund- SIP Returns
Snapshot as on 30th November 2010
This is how your investments would have grown if you had invested say ` 1,000 systematically on the first
business day of every month over a period of time.
Since 10 Year 5 Year 3 Year 1 Year
SIP Investments Inception $ SIP SIP SIP SIP
SIP
Total Amount 191,000 120,000 60,000 36,000 12,000
Invested (`)
Market Value (`) 3,138,270 739,040 113,510 63,040 14,180
Returns (annualised) 30.59 34.14 25.82 39.94 35.49
(%) * ^
Benchmark Returns 16.64 21.77 14.47 22.28 15.00
(annualised) (%) #
^ Past Performance may or may not be sustained in the future.
# S&P CNX 500 $ Inception Date: January 1, 1995
*Load is not taken into consideration and the Returns are of Growth Option. Investors are advised to refer to Relative Performance
table on slide 15 for Non – SIP Returns
Please refer to the SIP enrolment form or contact the nearest ISC for SIP load structure.
Disclaimer: The above investment simulation is for illustrative purpose only and should not be construed as a promise on
minimum returns and safeguard of capital. HDFC Mutual Fund / HDFC Asset Management Company Ltd. is not guaranteeing
or promising or forecasting any returns. SIP does not assure a profit or guarantee protection against loss in a declining market.
Please refer SIP enrolment form or contact nearest ISC for SIP load structure.
38. HDFC Equity Fund – Relative Returns
as on 30th November 2010
Period Returns (%) ^ S&P CNX 500 Returns (%) #
Last 1 Year (365 Days) 31.87 15.34
Last 3 Years (1098 Days) 12.74 -0.61
Last 5 Years (1826 Days) 24.41 15.69
Last 10 Years (3653 Days) 31.71 17.84
Since Inception (5751 Days) 23.70 10.51
^ Past performance may or may not be sustained in the
future
Above returns are compounded annualized (CAGR)
# Benchmark Index
Date of Inception: January 1, 1995
39. A few simple rules to conclude with:
Invest you must – The biggest risk is the long-term risk of not putting your
money to work at a return which beats inflation, not the short term risk of price
volatility
Time is your friend – Give yourself all the time you can. Start early, even with
a small amount and never stop. Even modest investments in tough times will
help you sustain the pace and will become a habit; compound interest is a
miracle
Stay the course – No matter what happens, stick to your program. It is the
most important single piece of investment wisdom you will receive
40. “Failing to plan is planning to
fail”
-Robin Sharma.
41. Think of each SIP payment as laying a
brick. One by one, you can lay the
foundation of a secured financial future.
Thank You
42. DISCLAIMER: This presentation has been prepared and issued on the basis of internal data, publicly available information and other sources believed to be
reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact and terms and conditions
and features of HDFC MF Systematic Investment Plan (SIP). The information/ data herein alone is not sufficient and shouldn’t be used for the development or
implementation of an investment strategy. It should not be construed as investment advice to any party. The statements contained herein may include
statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown
risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The
recipient alone shall be fully responsible / liable for any decision taken on the basis of this presentation. The content of this presentation is confidential and
intended solely for the use of the addressee. If you are not the addressee, or the person responsible for delivering it to the addressee, any disclosure, copying,
distribution or any action taken or omitted to be taken in reliance on it is prohibited and may be unlawful. No part of this document may be duplicated in whole or
in part in any form and/or redistributed without prior written consent of the HDFC Mutual Fund/ HDFC Asset Management Company Limited (HDFC AMC). The
recipient(s) should before investing in the Scheme(s) make his/their own investigation and seek appropriate professional advice. HDFC MF SIP does not assure a
profit or guarantee protection against loss in a declining market. HDFC Mutual Fund/ HDFC AMC is not guaranteeing or promising or forecasting any returns.
Risk Factors: All mutual funds and securities investments are subject to market risks and there can be no assurance that the Schemes’
objectives will be achieved and the NAV of the Schemes may go up or down depending upon the factors and forces affecting the securities
market. Past performance of the Sponsors and their affiliates / AMC / Mutual Fund and its Scheme(s) do not indicate the future performance of the Scheme of
the Mutual Fund. There is no assurance or guarantee to unit holders as to the rate of dividend distribution nor that dividends will be paid regularly. Investors in
the Schemes are not being offered any guaranteed / assured returns. The NAV of the units issued under the Schemes may be affected, inter-alia by changes in
the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. The NAV will inter-alia be exposed to Price /
Interest Rate Risk and Credit Risk. HDFC Equity Fund, an open-ended growth scheme is only the name of the Scheme and does not in any manner
indicate either the quality of the Scheme, its future prospects and returns. Please read the Scheme Information Document and Statement of
Additional Information before investing. In view of the individual nature of tax consequences, each investor is advised to consult his/her professional tax
advisor. Investment Objective: To achieve capital appreciation. Asset Allocation Pattern: Equity and equity related instruments (80%-100%); Debt and
Money Market Instruments (0-20%). Investment in securitised debt, if undertaken, will not exceed 20% of the net assets of the Scheme. Load Structure:
Entry Load: Not Applicable. Upfront commission shall be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors’
assessment of various factors including the service rendered by the ARN Holder. Exit Load: In respect of each purchase / switch - in of units, an exit load of
1.00% is payable if units are redeemed / switched out within 1 year from the date of allotment. No exit load is payable if units are redeemed / switched - out
after 1 year from the date of allotment. Terms of Issue: Applications for subscriptions /redemptions /switches would be accepted at official points of acceptance
on all Business Days at NAV based prices. The AMC will calculate and publish NAVs on all Business Days. Statutory Details: HDFC Mutual Fund has been set up
as a trust sponsored by Housing Development Finance Corporation Limited and Standard Life Investments Limited (liability restricted to their contribution of ` 1
lakh each to the corpus) with HDFC Trustee Company Limited as the Trustee (Trustee under the Indian Trusts Act, 1882) and with HDFC Asset Management
Company Limited as the Investment Manager.
