Systematic Investment Plan

(SIP)
The Smart Investors Preference

Human Life Cycle

Phase I

Phase II

Phase III

Childs Marriage
Childs Education
Housing
Child birth
Marriage
22 yrs

38 yrs

10- 20 yrs

Education

Earning Years

Post Retirement Years

Age- 22 yrs

Age- 60 yrs
2

Phase II: The Most Challenging Phase

Meet current recurring expenses
Rent, Electricity, Telephone
Childs education, Childs marriage
Annual Holiday with family.

Build capital assets

House; Car.

Make provisions for

Retirement ; Contingencies- Illness, Accidents, etc.

Do you save and invest so that your

dreams turn into reality
3

It is Critical, Yet Most Dont Do It

I dont have
money to save

I dont have the

requisite skills

The alternatives
are not exciting
enough

I dont have
time

I will start from

next month

The returns are

hardly worth the
effort

The paper work is

just too tedious

And the list goes on..!!!!

4

Getting rich is simpler than you

think !!
Value of investment (Rs.)

Rs.1000 invested every month for 30 years

8000000
Rs.70 lakhs

7000000
6000000
5000000

6% p.a.

4000000

10% p.a.

3000000

Rs.22 lakhs

2000000

15% p.a.

Rs.10 lakhs

1000000
0
1

9 11 13 15 17 19 21 23 25 27 29

No. of years

The Power of Compounding

Even small amounts invested regularly can grow
substantially
5

The Formula for Creating Wealth

Start Early

Invest Regularly

Create Wealth

Make your money work hard for you

Start Early!
You

Age :
25 years
Start :
Today
Invest :
5 years
Amount : Rs 10,000 p.a.
Redemption on
retirement (age 60)

V a lu e o f In v e s tm e n ts
(R s . in L a c s )

Your Twin

You

You start
investing

0.1

11.72

Your Twin

You stop

Your twin

investing

starts investing
1.74

0.67

6.3
4.52
1.75

0.1

25

Age :
25 years
Start :
at age 40
Invest :
20 years
Amount : Rs 10,000 p.a.
Redemption on
retirement (age 60)

30

40

50

60

Age (in yrs)

Note- Returns are assumed to be 10% p.a.

Delays affect wealth creation

Rs. 1000 invested p.m. @ 10% p.a. till the age of 60 yrs

The Power of Starting Early

Wealth on Retirement

4,500,000

Just 5 years of delay

reduces the wealth
by half!

4,000,000
3,500,000
3,000,000
2,500,000

Gains from Investment

2,000,000

Investment

1,500,000
1,000,000
500,000
0
25

30

35

40

45

50

If you start investing when you are (years)

Invest Regularly
Builds wealth over the long term
Just Rs. 1500 per month invested for 17 years @10% would grow
to Rs. 8 lacscould be used for your daughters marriage

Take advantage of market volatility

Buy more when the markets are down
Rs. 10,000 worth of Gold bought every month
Price per 10 grams

7000
6500
6000
5500

Highest price
Lowest
6100
6100
quantity

6650

5400

20
grams

5800

6070

6000

15
grams

5700

5600

5900

5400

5000

5000

Lowest price
Highest
quantity

4500
4000
J an

Feb

M ar

Apr

M ay

J un

J ul

Aug

Sep

Oct

Nov

Dec

Invest Regularly
Myth
Reality

: Timing is essential to generate high returns

: It is the time and not the timing that matters

Invested a fixed amount in BSE Sensex

annually for 25 yrs

The result

On the worst day to buy

(highest sensex each yr)

15% p.a.

On the best day to buy

(lowest sensex each yr)

17% p.a.

Is it worth the risk or the tension?

Who can time the market to perfection?
Not even the experts can !!
10

Invest Regularly
It is the small drops that make an ocean!!
Relieves you of the last minute pressure
Slow and steady wins the race
E.g. Split your Sec 80C investments into smaller amounts and
invest every month

Reduces the risk of investing at the wrong time

Difficult to predict the market and know when is the right time

We earn regularly; We spend regularly

Shouldnt we also invest regularly?
11

Create Wealth

2+2 > 5

All we need is. a blend of

Paycheck
Time
Discipline

We already have two of them- Paycheck and Time

All we need is Discipline
The Discipline of making small but regular investments

12

Systematic Investing
A method of investing regularly to benefit from the stock
market volatility
Regular- Similar to Recurring Deposit
Convenient and Hassle-Free
Automatic investments, one-time instruction, transactions on the net

No entry load
No entry charge for systematic investments

Forced saving
Similar to PF : Small amount invested every month to become a
huge sum after some years

Light on the wallet

13

The Million Dollar Question

I am convinced that I should save and invest regularly,
but the million dollar question is

Where should I invest?

14

High

Risk Return Spectrum

Equity
Real Estate
Return potential

Gold

Debt Funds
PPF, NSC, KVP, PO Deposits, RBI Bonds
Liquid Funds

Low

Savings Bank/ FD
Low

Risk

High

Note:The above chart is for illustrative purpose only and is not marked to scale. The chart is based
on our perception of the risk and return potential of various investment avenues

15

Equities- The Most Attractive Asset Class

Equities have outperformed all other asset classes in the long run globally as well as in India
18.25%

10.64%
7.47%

Inflation

10.27%

7.12%

Gold

G Secs

Bank FD Equities

Cumulative annualised returns (1980 - 2004)

Source :

CLSA

16

Equities outperform in long term

100%
80%

56%

63%
86%

60%
40%
20%

44%

Equities outperformed
Other Investments
outperformed

37%
14%

0%
1 year

3 years

5 years

In the 5-year period, equities have outperformed all other

traditional forms of investment in 12 out of 14 five-year periods
(86%) since 1980
Source : RBI Report on Currency and Finance (1997-98)
BSE Sensitive Index of Equity Prices BSE

Cumulative annualised returns (1980 - 98)

17

Benefits of long term investing

Investment Number Positive Negative % age Maximum Minimum
Horizon
of
Returns or Zero
times
Return
Return
periods
Returns Positive
returns
15 years
12
12
0
100%
27%
13%
10 years
17
16
1
94%
35%
-2%
5 years
22
19
3
86%
53%
-5%
3 years
24
19
5
79%
82%
-15%
1 year
26
16
10
62%
267%
-47%

In the twelve 15-year periods between 31.3.79 and 31.3.05, the Sensex
has not given negative return even on a single period

18

Benefits of long term investing

Rs. 1000 p.m. invested in BSE Sensex for 10 years
SIP( monthly) - 10 years
300000

Rs. 2,41,162

250000
200000
150000
100000
50000

121

109

97

85

73

61

49

37

25

13

As on June 30, 2005

19

Outperformance
SIP investments in Birla Mutual Fund have consistently done
better than the benchmark
Value of SIP of Rs. 1000 p.m. in BSE Sensex and BAF

Period
Last 10 years
Last 5 years
Last 3 years
Last 1 year

Value* of SIP in
CAGR*
Original
BAF
Sensex BAF
Investment Sensex
120,000
224,920
437,066
12%
25%
60,000
106,956
134,169
24%
33%
36,000
58,438
69,407
35%
49%
12,000
14,009
14,601
36%
47%

* As on July 14, 2005

Notes:
1.

SIP assumed to be on the first working day of each month

2.

Brokerages and dividends are assumed to be Nil for the purpose of the above calculations
20

BMF vs Benchmark
Annualised Returns* for SIP

Benchmark
BMF schemes
Period BSE Sensex Nifty
BEP
MNC
BIOF
Last 5 years
24%
22%
41%
34%
33%
Last 3 years
35%
32%
59%
47%
41%
Last 1 year
36%
28%
62%
50%
35%
Period
Last 1 year

Benchmark
BMF schemes
BSE Sensex Nifty
BDYP
Midcap
36%
28%
39%
60%

* As on July 14, 2005

Notes:
1.

SIP assumed to be on the first working day of each month

2.

Brokerages and dividends are assumed to be Nil for the purpose of the above calculations
21

Mutual Funds: The easy way to invest

Professional Management
Ensures that the best brains are managing your money

Diversification
Ensures risk reduction

Liquidity
Ensures that you get back your money, whenever you want

Transparent
Ensures you are apprised of the portfolio regularly

Extremely well regulated

Ensures that the fund follows laid down processes

Tax efficient
Tax free dividends, LTCG on equity completely tax free, Sec 80C
22

Birla Sun Life

Promoted by the Aditya Birla Group & Sun Life Financial of
Canada
10 years of performance track record
Recipient of awards/ recognitions for its fund performance
One of the largest private sector mutual funds
AUM > Rs. 11,000 crores

One of the pioneers in the Indian MF industry

Strong processes & in-house research
Offers the complete bouquet of investment schemes
Across all risk profiles and all investment horizons

23

Start an SIP today

and
Sit back and Relax

24

Asset Allocation
The art of allocation of your investments across asset
classes
Allocate assets based on
Goals: Long term or short term
Risk taking capacity: Conservative or Aggressive
Age: Young or old

Model Portfolios

Note- The above model portfolio is for illustrative purpose only

25

Short Term Needs

Besides asset allocation,
one also needs to keep side some money in liquid form- to meet the
planned and unplanned requirements in the short term
and still earn optimally on these short term funds set aside

What is the option that comes to your mind?

Savings Account ??
Fixed Deposit ??

26

Did You Know

Returns
Current Savings Bank interest rate is 3.5% p.a.
Current FD returns for a 7-15 day FD is 3.5%-3.75% p.a.

Savings bank interest- calculated on the min of the

balances in the account between the 10th and 31st
Effective interest rate turns out to be MUCH lower !!

Taxation
Interest Income is taxable at the Maximum Marginal Tax Rate
30% (+ surch. & edu. cess) for assesses in the highest tax slab
Sec 80L deduction no longer available
..\savingsbank_effectiverateofreturn.xls

27

Birla Cash Plus*- A superior alternative

Generates market related return
Currently in the range of 4%-4.5% p.a.
Investor earns each day till the investment remains in the Fund

Returns accrue on the investment amt o/s at each day end

As against a savings bank account

Liquid
No lock-in period- as against FD

Ease in transacting
Redemptions online/ on phone, Direct credit, Readicheque

Taxation

Particulars
Annual Appreciation (Assumed)
Appreciation for 30 days
Tax Rate
Tax
Post Tax Returns for 30 days
Effective Pre-Tax Return for 30 days
Effective Pre-Tax Return (Annualised)

assumed assesse's GTI is > Rs. 10 lacs

* select locations

Individual
Savings 30 days
BCP- Div
Account FD
Reinv
3.50%
4.00%
4.50%
0.29%
0.33%
0.37%
33.66%
33.66%
14.025%
0.10%
0.11%
0.05%
0.19%
0.22%
0.32%
0.29%
0.33%
0.49%
3.50%
4.00%
5.95%

28

Readicheque*
Undated cheques of prespecified denominations issued in
favour of investor against his investment
At the time of investment itself
Can be banked as and when the investor desires
No intimation required to be given to BMF by the investor

Relieves the investor of the hassles of

Giving a redemption request
Waiting for the cheque to reach him

Reduces turnaround time

Quickens the redemption cycle

Returns intact
Returns accrue till the day prior to the day on which the cheque hits
BMFs bank account
*available only in BCP subject to certain conditions and in select locations
29

Disclaimer
The information contained in this document is not a complete presentation of
every material fact regarding any industry/security or the fund and is neither an
offer for units nor an invitation to invest. This communication is meant for use by
the recipient and not for circulation/reproduction without prior approval. The
views expressed are based on current market conditions and information
available to and do not constitute investment advice.
Risk Factors: Mutual Fund investments are subject to market risks and the
NAVs of the schemes may go up or down depending upon the factors and
forces affecting the securities market. Past performance of the schemes
managed by Birla Mutual Fund is not necessarily indicative of future
performance of the schemes. Please refer to the offer document before
investing.

30

Thank You

31