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EFFECTIVE SHARE MARKET INVESTMENT STRATEGY

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3 Step Process - Selling Equity

Step 1: UNDERSTAND why ONE should invest in Equity rather than FD’s, Gold, etc?

Step 2: Remove the fears of Equity Investment.

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Step 1: Why Equity?You still have to convince people to buy equity….

Source: CSO - 2003 - 2004

*Contractual saving comprises Life Insurance, Provident and Pension Funds

Current Share of Household SavingsIndividual Investor: Savings Profile

Contractual Savings*

27.90%

Small Savings 17.70%

Bank FDs 42.90%

Cash10.10%

Equity & Debentures

1.40%

Low penetration of equity in household

savings

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Step 1: Why Equity?Performance of Various Asset Classes (Cumulative annualised

returns 1980-2004)

Equities outperform other asset classes over the long term

6.7%5.7%

10.3%

3.55%

15.6%

8.9%

-1.1%

Inflation Gold Bank FDs BSE Sensex

Growth Real Growth

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Step 1: Why Equity? Note the 5% difference in return

between equity and FD’s in the previous slide… What does it actually mean for the customer?

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Step 1: Why Equity?Monthly Investment for 21 years

Final corpus Rs. 1.9 croreRs. 89 lakhRs. 43 lakh

Annualised return 20%15%10%

Monthly investment Rs. 5,000Rs. 5,000Rs. 5,000

EquityScenario B

EquityScenario A

Debt Instrument

Note that a 5% differential more than doubles your corpus over 21 years

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Step 1: Why Equity? The reality today:

FD rates are around 7-7.5% today. Equities gave a return of around 17% in the

last 25 years, when average GDP was 4-4.5%.

Equities may grow at 25-30% riding on strong GDP growth projections of 8-10%.

If a 5% difference in growth doubles the final corpus, imagine the difference that investments in equity can make.

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Step 1: Why Equity? Your saving capacity is limited

(Income less Expenses). Your savings must work more for

you, because you cannot increase your savings significantly.

See the impact in the next slide that higher returns can have on your savings requirement.

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Step 1: Why Equity?

10% 15% 20% 25%10 570,413 428,279 321,023 240,58015 286,125 182,757 115,684 72,93520 158,724 84,882 44,638 23,32725 92,437 40,864 17,656 7,584

Rate of Return

Year

s

Investment per Annum for Target Income = 1 crore

Look at the differences in amount of savings required to reach a target corpus of 1 crore…..

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Step 1: Why Equity? So, equities provide you with the

opportunity to provide the big BANG your investments need, through the possibility of better returns.

As a good investor, we would be benefited if we come into equity with a 15-20 year investment horizon.

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Step 2: Remove the Fear Investors are afraid to invest in

equity for 3 main reasons: Downside risk (fear of loss) Risk of market timing (don’t want to

enter at high levels) No guarantees…..

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Step 2: Remove the Fear Investors are afraid to invest in

equity for 3 main reasons: Downside risk (fear of loss) Risk of market timing (don’t want to

enter at high levels) No guarantees…..

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Step 2: Remove the Fear (Risk of Loss)

Risk

Time

With time risk

REDUCES

EQUITIES ARE GENERALLY PERCEIVED AS HIGH RISK HIGH POTENTIAL RETURN INSTRUMENTS, BUT WITH MORE TIME SPENT IN THE MARKET, THE RISK ASSOCIATED WITH EQUITY INVESTMENTS REDUCES. THE NEXT SLIDE WILL SHOW YOU HOW….

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Step 2: Remove the Fear (Risk of Loss)

262%

-53%

24%55%

-5%

20%35%

9%22%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

1 year 5 years 10 years

Max. ReturnMin. ReturnAverage Return

ACTUAL BSE SENSEX PERFORMANCE FOR BUY-HOLD-SELL FOR A PERIOD OF 1, 5 AND 10 YEARS (data 1980-2001). AS YOU CAN SEE, WITH INCREASE IN TIME SPENT IN INVESTENT IN EQUITY, THE RISK OF LOSS REDUCES (YOU NEVER LOST MONEY IN A 10 YEAR PERIOD). SO LONG TERM INVETMENT IN EQUITY IS A SAFE OPTION.

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Step 2: Remove the Fear (Risk of Market Timing)

16.02%

Fixed investment on 1st day of every month

16.90%15.07%

Fixed investment athighest sensex value

every year

Fixed investment atlowest sensex value

every year

Data source: ICRA MFIE

Market timing does not matter over the long term…..every time is the right time to enter the equity market, if you coming into a systematic investment plan

Returns shown for 3 investors, each making same investment in the BSE Sensex every year (25 year history)…..

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Step 3: The Power of SIP

A Systematic Investment Plan is a plan where you invest a fixed amount every time at predetermined dates (monthly/quarterly/half-yearly/annual) in a particular investment option.

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Step 3: The Power of SIP Lets see actual BSE Sensex performance on SIP…..

Year SENSEX Open SENSEX CloseDividend Yield(%) Investment SIP Units Div Units Cum Units

Market Value at end of yr Cash Flow

1980 118.16 148.25 2.00 1,000 8.46 0.13 8.60 1,275 1,000.00- 1981 152.26 227.72 2.00 1,000 6.57 0.11 15.28 3,479 1,000.00- 1982 252.89 235.83 2.00 1,000 3.95 0.30 19.53 4,605 1,000.00- 1983 236.62 252.92 2.00 1,000 4.23 0.36 24.12 6,100 1,000.00- 1984 252.80 271.87 2.00 1,000 3.96 0.45 28.52 7,754 1,000.00- 1985 273.41 527.36 2.00 1,000 3.66 0.29 32.47 17,125 1,000.00- 1986 549.43 524.45 2.00 1,000 1.82 0.65 34.95 18,328 1,000.00- 1987 542.06 442.17 2.00 1,000 1.84 0.83 37.62 16,635 1,000.00- 1988 439.17 666.26 2.00 1,000 2.28 0.50 40.40 26,915 1,000.00- 1989 659.11 778.64 2.00 1,000 1.52 0.69 42.61 33,174 1,000.00- 1990 783.35 1048.29 2.00 1,000 1.28 0.63 44.51 46,664 1,000.00- 1991 1027.38 1908.85 1.24 1,000 0.97 0.30 45.79 87,408 1,000.00- 1992 1957.33 2615.37 0.80 1,000 0.51 0.27 46.57 121,796 1,000.00- 1993 2617.78 3346.06 0.98 1,000 0.38 0.36 47.31 158,296 1,000.00- 1994 3436.87 3926.90 0.68 1,000 0.29 0.27 47.87 187,993 1,000.00- 1995 3910.16 3110.49 1.13 1,000 0.26 0.68 48.81 151,829 1,000.00- 1996 3114.08 3085.20 1.50 1,000 0.32 0.74 49.87 153,863 1,000.00- 1997 3096.65 3658.98 1.53 1,000 0.32 0.64 50.84 186,013 1,000.00- 1998 3658.34 3055.41 1.80 1,000 0.27 1.10 52.21 159,513 1,000.00- 1999 3064.95 5005.82 1.38 1,000 0.33 0.44 52.97 265,172 1,000.00- 2000 5209.54 3972.12 1.14 1,000 0.19 0.76 53.93 214,199 1,000.00- 2001 3990.65 3262.33 1.83 1,000 0.25 1.20 55.38 180,661 1,000.00- 2002 3262.01 3377.28 2.14 1,000 0.31 1.14 56.83 191,928 1,000.00- 2003 3383.85 5838.96 2.14 1,000 0.30 0.70 57.83 337,656 1,000.00- 2004 5872.48 6602.69 2.01 1,000 0.17 1.03 59.03 389,732 1,000.00- 2005 6626.49 8060.01 1.59 0.00 0.77 59.80 481,949 481,949.28

Return (Compounded Annually) 19.04%

Actual Returns in a SIP on BSE

Sensex over a 25 year

period shows that the

compounded annualised return was

19%.

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Step 3: The Power of SIP The next slide will show you the

returns earned by customers in SIP for 10 years in the equity market.

We have given various scenarios….and you can see that the customer has always earned very good returns.

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Step 3: The Power of SIP on BSE Sensex (10 year SIPs)

Compounded Annualised returns for the Period 1981-90 23.28%Compounded Annualised returns for the Period 1982-91 30.87%Compounded Annualised returns for the Period 1983-92 34.28%Compounded Annualised returns for the Period 1984-93 35.91%Compounded Annualised returns for the Period 1985-94 35.54%Compounded Annualised returns for the Period 1985-94 28.49%Compounded Annualised returns for the Period 1986-95 26.78%Compounded Annualised returns for the Period 1987-96 27.63%Compounded Annualised returns for the Period 1988-97 22.55%Compounded Annualised returns for the Period 1989-98 28.86%Compounded Annualised returns for the Period 1990-99 23.16%Compounded Annualised returns for the Period 1991-00 20.07%Compounded Annualised returns for the Period 1992-01 21.84%Compounded Annualised returns for the Period 1993-02 31.80%Compounded Annualised returns for the Period 1994-03 34.99%Compounded Annualised returns for the Period 1995-04 38.24%

Microsoft Excel Worksheet

Click on the Icon to access the data

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Step 3: The Power of SIP on BSE Sensex (10 year SIPs)

This data in the previous slide shows the power of investing in equities through a systematic investment plan…. You can ask the customer to start at any point and end 10 years later….

Historically, he would have made attractive returns in any scenario.

The 10 year blocks will ride booms and busts and still has given the investor excellent returns.

For example, if an investor started in 1993, he would have started just after the Harshad Mehta Scam….

If he started in 1990, he would have ended at 1999, and would have ridden the Harshad Mehta and the Ketan Parekh scams and still made a return of 23%. Now, how compelling is that statement????

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Step 3: The Power of SIP So, start investing 10 years

investment, irrespective of whether the market goes up or down Actually when the market goes down in the short term the SIP investor benefits because he is buying more units for the same investment.

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Step 3: The Power of SIP The advantages of investing 10 year

SIP’s are: You can invest when the markets are rising

as well as when the markets are falling.

You don’t have to play God and predict what is going to happen tomorrow while making a investment

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Thank You!!! And All the Best.