Investing in India

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Information about Investing in India
Finance

Published on December 10, 2008

Author: wealthindia

Source: slideshare.net

Description

Insights into investing in multiple asset classes in India. Illustrated with data over multiple holding periods. Created by Sundaram Mutual funds

E quity M arket I nsights Sundaram SKORe Sundaram Keys to Optimum Returns An Investor Education Initiative

Annual returns 17.6% for equity index Figures as of July 2008; Data Source: Bloomberg; Analysis: In house BSE Sensitive Index Deep corrections do not matter for long-term investors First Major Bull Market 22% one-day decline in US, no linkage then Harshad Mehta Scam Asian Crisis; Unaffected Tech bull market & bust Start of five-year bull market All time high & correction begins

Average Sensex levels for five-year blocks Figures as of July 2008; Data Source: Bloomberg; Analysis: In house Almost 25 years of close to or below long-term average Index Levels 1979–1984: 183 1984–1989: 480 1989–1994: 1876 1994–99: 3568 1999–2004: 3998 2004–2008 YTD: 11,078 Average index level over 29-+ years: 3640

Build up of annual returns over the years Figures as of July 2008; Data Source: Bloomberg; Analysis: In house Lowest level of annual returns over 25 years: 14.6% Long-term average over 29 years: 17.6%

Volatility of returns reduces over time Height of each bar shows the range of returns. Smaller the range shown by the bar, the better for investors Longer the time frame, the greater is the reduction in risk without an impact on returns Data Source: Bloomberg; Analysis: In house using SKORe as of July 31, 2008 Effective Annual Returns % Returns % 16.9 13.7 21.1 17.2 17.2 18.5 19.9 Average Low High 7.7 27.8 -7.0 53.0 -15.5 81.7 -2.1 34.7

Height of each bar shows the range of returns. Smaller the range shown by the bar, the better for investors

Longer the time frame, the greater is the reduction in risk without an impact on returns

Benefit of discipline long-term investing Value now of Re 1 invested in SENSEX over a 29-year period Significant gains only if you had remained invested at all times Daily Returns since launch to July 2008 Data Source: Bloomberg; Analysis: In house using SKORe as of July 31, 2008 Rs Rs Rs Rs Rs POWER OF COMPOUNDING ON BEST DAYS

Emphatic NO to market timing Figures as of July 2008; Data Source: Bloomberg; Analysis: In house Average annual return: 17.35% Average annual return: 17.27% No Market Timing Market Timing More certain outcome Low risk Average Annual Returns provided based on the analysis given in the next slide Close-to-impossible outcome High risk

More certain outcome

Low risk

Close-to-impossible outcome

High risk

Time matters, not timing Certain outcome over the past 29.3 years Risk only in line with the market and no more Practical approach for every investor Figures as of July 2008; Data Source: Bloomberg; Analysis: In house One-timed investment every year (Rs 12000) Amount Invested in Sensex: 3,52,000 Periodic investment every month (Rs 1000) Amount Invested in Sensex: 3,52,000 One market-timed investment every year CAGR % Investment every month on specific dates CAGR % Value Rs Lakh Value Rs Lakh No Market Timing Market Timing Date Day Probability of predicting each day every year successfully is .0040 and over 29 years, almost no chance – only more risk 83.0 77.4 96.2 69.4 81.6 81.6 80.1 82.1

Certain outcome over the past 29.3 years

Risk only in line with the market and no more

Practical approach for every investor

Equity is the superior asset class to beat inflation Compounded annual returns based on investing Rs 1000-a-month Figures as of July 2008 Data Source: Bloomberg; Analysis: In house Returns in % Only equity outpaces inflation comfortably across time periods 5.6 5.1 5.8 6.8 6.7 Inflation 7.8 8.8 9.9 10.2 10.1 Bond yield Years Asset Class 5 10 15 20 25 9.2 8.4 15.2 8.8 11.3 14.5 7.5 17.1 20.0 6.6 9.2 FD 22.7 6.6 Gold 22.4 16.7 Sensex

Wealth creation in different asset classes Value in Rs lakh Rs 1000-a-month invested over different time periods is now worth Figures as of July 2008 Even after the deep correction in 2008, wealth creation in equity is significantly superior to other asset classes Data Source: Bloomberg; Analysis: In house; Rs 1000-a-month invested n Equity is an investment made in Sensex 0.6 1.2 1.8 2.4 3.0 Investment 0.8 2.0 4.1 7.9 14.1 Bond yield Years Asset Class 5 10 15 20 25 6.8 6.0 13.6 3.7 4.5 5.9 1.9 3.0 3.5 0.8 11.8 FD 1.1 7.4 Gold 1.0 36.7 Equity

Start early to reap maximum benefits Rs 1000 a-month investment till age 55 Portfolio value reckoned at age 60 Asset Allocation: Equity 70% and Fixed Income 30% Returns based on historical average. In the equity, based on the Sensex and in the Fixed income, based on the government bond yield Returns assumed 15.3% Data Source & Analysis: In house Starting age of investing Value in Rs lakh From age 25, Rs 1000-a-month could deliver Rs 1.55 crore at age 60 Amount Invested at Rs lakh 2.4 1.8 1.2 0.6 3.0 3.6

Early start also means more by way of gains Data Source & Analysis: In house The returns and values are indicated and not assured Early Start Late Start % % Rs Lakh Rs Lakh Years Years 67.5 32.5 1.8 0.6 5 50 79.3 20.7 5.8 1.2 10 45 87.4 12.6 14.3 1.8 15 40 92.6 7.4 32.5 2.4 20 35 3.0 3.6 Amount Invested 71.6 155.4 Value of investment 4.2 2.3 Share Cost 95.8 25 30 97.7 30 25 Share Gain Year of investing Starting Age

Multiple benefits for longer SIP periods Data Source: Bloomberg; Analysis: In house using SKORe as of July 31, 2008 Risk-return profile for SIPs over different periods in Sensex 19 15 13 11 Average annual returns 9 14 18 32 % of SIP with negative returns 91 86 82 68 % of SIP with positive returns 36 60 120 12 SIP period in months

Importance of investing in difficult phases Analysis based on Rs 1000-a-month SIP between 1997-2006 Daily Returns since launch to July 2008 Data Source: Bloomberg; Analysis: In house About 75% of wealth creation attributable to investing during tuff times 3.8 6.0 7.8 11.7 13.3 12.4 9.4 11.0 13.0 11.5 Share in Wealth (%) 11345 Bullish Phase 2006 7313 More strength to bullish phase 2005 5535 Bull market continues 2004 3789 Lackluster First Half 2003 3241 Lackluster, Poor Depth 2002 3519 Lackluster, Poor Depth 2001 4637 Tech-led boom & bust 2000 3990 Lackluster, tech boom starts 1999 3356 Lackluster, Poor Depth 1998 3774 Lackluster, Poor Depth 1997 Average Sensex Nature of Market Period

Periodic Table of Investment Returns Figures as of July 2008; Data Source: Bloomberg; Analysis: In house Diversified equity funds outpace indices comfortably over ten years RANK RANK 1999-2008 YTD 6 5 4 3 2 1 Nifty 17.2 MSCI India 17.9 BSE 100 18.6 BSE 200 18.7 CNX Mid Cap 20.2 Diversified Fund 26.7 I-SEC Bond 10.0 12 11 10 9 8 7 Gold 12.3 MSCI EM 13.3 CNX 500 15.9 Nifty Junior 16.4 Sensex 16.7

Periodic Table of Investment Returns Analysis: Sundaram BNP Paribas Asset Management; Methodology: www.sundarambnpparibas.in Diversified equity funds: most top quartile presence & absent in 4 th quartile

Periodic Table of Investment Returns Figures as of July 2008; Data Source: Bloomberg; Analysis: In house Diversified equity funds and mid cap stocks dominate top end

Contact us Call: 044 28578700 Toll Free: 1800-425-1000 www.sundarambnpparibas.in SMS: SFUND to 56767 E-mail:service@sundarambnpparibas.in

Disclaimer Mutual fund investments are subject to market risks. Please read the offer document carefully before taking an investment decision. Risk Factors: All mutual funds and securities investments are subject to market risks, and there can be no assurance or guarantee that fund's objectives will be achieved. NAV may go up or down, depending on the factors and forces affecting the securities market. There is uncertainty of dividend distribution and risk of capital loss. Statutory: Mutual Fund Sundaram BNP Paribas Mutual Fund is a trust under the Indian Trusts Act, 1882 Sponsors (Collective liability is limited to Rs 1 lakh): Sundaram Finance Limited & BNP Paribas Asset Management. Investment Manager: Sundaram BNP Paribas Asset Management Company Ltd. Trustee: Sundaram BNP Paribas Trustee Company Ltd. Past performance of Sponsors//Asset Management Company/Fund does not indicate or guarantee future performance. General Disclaimer: Equity Market Insights is for information purposes only. Equity Market Insights should not be construed as prospectus, offer document, offer, solicitation for an investment or investment advice. Information in this document has been obtained from reliable sources in the opinion Sundaram BNP Paribas Asset Management. Opinions expressed by authors may not necessarily represent that of the organization. The detailed disclaimer/disclosures/risk factors available at www.sundarambnpparibas.in must also be treated as an integral part of this communication.

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