whose money is it anyway? what are the benchmarks for money management? insurance inflation peace of...
TRANSCRIPT
Whose Money is It Anyway?
What are the benchmarks for money management?
• Insurance• Inflation• Peace of mind
Inflation in India: Some Real Numbers
Jan 1995 to May 2014
What is goal-based investing?
yearsfuture present(1 inflation)
What is goal-based investing?
Start early to invest less!
(b) Retirement(a) long-term goals
Accident insurance
Term Lifeinsurance
Emergencyinsurance
Health insurance
Inflation insurance
Retirement Planning
Asset Allocation
Time Frame Conservative Moderate Risky Mad-Max
< 5 Years FD/RD ~ 10% Eq 30-40% Eq > 60% Eq
7 Years FD/RD 10-20% Eq 40-50% Eq >60% Eq
10 years FD/RD 40% Eq >60% Eq 100% Eq
10-15 Years <40% Eq 60% Eq 80% Eq FD/RD100% Eq
>15 Years < 60% Eq 60% Eq 80% Eq FD/RD100% Eq
Time Frame Conservative Moderate Risky Mad-Max
< 5 Years FD/RD/Debt ~ 10% Eq 30-40% Eq > 60% Eq
7 Years FD/RD/Debt 10-20% Eq 40-50% Eq >60% Eq
10 years FD/RD/Debt 40% Eq >60% Eq 100% Eq
10-15 Years <40% Eq 60% Eq 80% Eq FD/RD100% Eq
>15 Years < 60% Eq 60% Eq 80% Eq FD/RD100% Eq
What is a CAGR?
Year 1 Year 2 Year 3 Year 4 Year 5
10% 9% 8% 7% 6%
5
Investment = 100
After 5 years:
?
100× 1+10% 1+ 9% × 1+ 8% 1+7% 1+6%
100× 1+
5
After 5 years:
100× 1+10% 1+10% × 1+10% 1+10% 1+10%
100× 1+10%
Year 1 Year 2 Year 3 Year 4 Year 5
10% 10% 10% 10% 10%
5
Investment = 100
After 5 years:
100× 1+10% 1+ 9% × 1+ 8% 1+7% 1+6%
100× 1+CAGR
Year 1 Year 2 Year 3 Year 4 year 5 CAGR10% 10% 10% 10% 10% 10.00%
Year 1 Year 2 Year 3 Year 4 year 5 CAGR25% 7% 7% 7% 7% 10.05%
Year 1 Year 2 Year 3 Year 4 year 5 CAGR-25% 21% 9.96%
Year 1 Year 2 Year 3 Year 4 year 5 CAGR-25% 7% 7% 7% 7% -0.34%
Illustration: Volatile Compounding
Year 1 Year 2 Year 3 Year 4 year 5 CAGR25% -25% 7% 7% 7% 2.81%
Average
Arithmetic average ~ 7%Standard deviation ~ 2%CAGR ~ 7% (12 year)Difference ~ 0.02%
HDFC Liquid Fund
Sensex Total Returns Index: 1979 to 2013
Sensex Total Returns Index: 1979 to 2013
Sensex 1979 to 201315 year CAGR
Transformed Distribution: Square Root
14% +/- 4%
Higher risk does not imply higher return!
Return
RiskStandard Deviation
Higher risk does not imply higher return!
Return
RiskStandard Deviation
FD
Debt mf Equity mf
Gold
How Important is
Mutual Fund Selection?
Large Cap funds• 10-year old funds: 34• 13 index + LIC Nomura+ JM fund• 10 year SIP XIRR• Baroda Pioneer Growth: 14.45%• UTI Equity: 17.68%
Mid and Small-cap funds• 10-year old funds: 20• 17 + Sahara+Escorts+Taurus• 10 year SIP XIRR• ICICI Value Discover: 24.23%• Kotak Mid-cap: 18.03%
How to select an equity mutual fund?
• Decide on the strategy.(1) Why are you investing?(2) What kind of portfolio will you be using?
Equity mutual funds: How to select/evaluate
Equity mutual funds: How to select/evaluate
Upside Capture ratio and downside capture ratios
Equity mutual funds: How to select/evaluate
Source: http://thefundoo.com/welcome/articlepage/44/Are+you+invested+in+the+Ideal+Outperforming+schemes%3F
How to select a debt mutual fund?
Understand risks• interest rate risk capital gain/loss• credit risk accrual
How to select a debt mutual fund?
Interest rate risk
Creditrisk
How to select a debt mutual fund?
How to select a debt mutual fund?
How to select a debt mutual fund?