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?