2. Investment Options :Mapping to Needs
Equity Markets
Creation of wealth
Creation of wealth
Unit Trusts/ Mutual Funds
Bank Fixed Deposits
Secured returns
Secured returns
Post Office Deposits
Estate and legacy creation
Estate and legacy creation
Real Estate
Financial Protection for family
Financial Protection for family
in case of death, disability and
in case of death, disability and
Insurance disease
disease
3. Risk vs Return
Selection of Instrument with Goal in mind
Selection of Instrument with Goal in mind
What is the instrument that you would prefer to invest in for
What is the instrument that you would prefer to invest in for
achievement of the goal?
achievement of the goal?
Risk of the Instrument Selected
Risk of the Instrument Selected
Are you willing to face potential loss for a chance of higher
Are you willing to face potential loss for a chance of higher
gains?
gains?
Risk taking Ability
Risk taking Ability
Are you willing to accept lower returns with high security?
Are you willing to accept lower returns with high security?
Chance of
Risk
Returns
4. Risk Return Profile
Risk Maximum Risk
Maximum Risk
Gambling
Shares Commodities
ULIP
Mutual
Fund/Unit
Company Trust
Bonds Company
Insurance FD
Bank/Post
Office
Government
Bonds
Minimum Risk
Minimum Risk Return
5. NO. YEAR END SENSEX ROLLING 1 ROLLING 3 ROLLING 5 ROLLING 7 ROLLING 10 ROLLING 15 ROLLING 20
YEAR YEAR YEAR YEA R YEAR YEAR Y EAR
GROWTH GROWTH GROWTH GROWTH GROWTH GROWTH GROWTH
0 31-Mar-79 100.00
1 31-Mar-80 128.57 28.57%
2 31-Mar-81 173.44 34.90%
3 31-Mar-82 217.71 25.52% 29.58%
4 31-Mar-83 211.51 -2.85% 18.05%
5 31-Mar-84 245.33 15.99% 12.24% 19.64%
6 31-Mar-85 353.86 44.24% 17.56% 22.43%
7 31-Mar-86 574.11 62.24% 39.45% 27.03% 28.33%
8 31-Mar-87 510.36 -11.10% 27.66% 18.57% 21.76%
9 31-Mar-88 398.37 -21.94% 4.02% 13.48% 12.60%
10 31-Mar-89 713.60 79.13% 7.51% 23.79% 18.47% 21.70%
11 31-Mar-90 781.05 9.45% 15.22% 17.15% 20.50% 19.76%
12 31-Mar-91 1167.97 49.54% 43.12% 15.25% 24.96% 21.00%
13 31-Mar-92 4285.00 266.88% 81.66% 52.97% 42.76% 34.68%
14 31-Mar-93 2280.52 -46.78% 42.88% 41.73% 21.76% 26.82%
15 31-Mar-94 3778.99 65.71% 47.85% 39.54% 33.08% 31.43% 27.37%
16 31-Mar-95 3260.96 -13.71% -8.70% 33.07% 35.02% 24.85% 24.04%
17 31-Mar-96 3366.61 3.24% 13.85% 23.55% 24.79% 19.33% 21.84%
18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.16% 20.72% 20.00%
19 31-Mar-98 3892.75 15.82% 6.08% 11.28% 18.75% 25.59% 21.41%
20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.01% 19.90% 19.85%
21 31-Mar-00 5001.28 33.73% 14.15% 8.92% 11.86% 20.39% 19.30% 20.09%
22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.92% 13.02% 16.38%
23 31-Mar-02 3469 -3.76% -2.48% 0.64% 0.89% -2.09% 13.63% 14.85%
24 31-Mar-03 3049 -12.11% -15.21% -4.77% -1.41% 2.95% 14.53% 14.27%
25 31-Mar-04 5528 81.31% 15.32% 8.13% 7.37% 3.88% 14.62% 16.85%
26 31-Mar-05 6492.82 85.14% 23.24% 5.36% 10.34% 2.64% 15.16% 16.55%
27 31-Mar-06 11356.95 57.17% 55.01% 25.80% 17.20% 12.16% 16.37% 17.01%
Probability of Los s 10/27 5/25 3/23 3/21 1/18 0/13 0/8
This shows the investments made in equity over aalong term period. The breakups are for aanumber of terms. The
Avg. re turn 30.16% 19.41% 17.39% 17.60% 17.54%
This shows the investments made in equity over long term period. The breakups are for number of terms. The
12.70% 16.98%
statistical data proves the fact that one has to give time to the market rather than finding the right time for the market.
statistical data proves the fact that one has to give time to the market rather than finding the right time for the market.
*Source: BSE Index
6. Investing in equities gives an opportunity for higher
returns*.
Maximum Return?
Mantra
Start Early, Invest
Start Early, Invest
Steadily
Steadily
Stay More, Earn More
Stay More, Earn More
… The magic of Systematic Investments
* Investments are subject to market risk
7. Inflation
Inflation is a gradual price rise in an economy and reduction in the
purchasing power of money.
Beat Inflation?
– Your money can beat inflation, if it grows atleast at the inflation rate to
maintain your standard of living.
8. Power of Compounding
A,B & C need Rs. 50,000 per month after they retire, to meet their
standard of living
A
A Saves for only 10 years
Saves for only 10 years
B
B Saves for 20 years
Saves for 20 years
C
C Saves for 30 years
Saves for 30 years
A needs to save the most, since he
A needs to save the most, since he
will be saving only for 10 years
will be saving only for 10 years
Since C will save for 30 years, he
Since C will save for 30 years, he
needs to save the least.. Because
needs to save the least.. Because
of the power of compounding.
of the power of compounding.
9. Magic of Compounding
Simply put, it is interest earned on interest.
Interest that is earned by the initial capital also earns interest and hence multiplying the
rate at which money grows.]
Assume a person needs 25 Lakhs for a comfortable retired life.
How will he need to save?
Investment Amount Years Expected Return -10% Corpus- 10% Returns
11000 30 10% 25,072,578.57
19000 25 10% 25,419,916.61
33000 20 10% 25,267,998.02
60000 15 10% 25,075,455.95
125000 10 10% 25,819,002.55
Investment Amount Years Expected Return -6% Corpus- 6% Returns
25000 30 6% 25,238,440.44
37000 25 6% 25,768,980.49
54000 20 6% 25,074,959.38
87000 15 6% 25,427,734.12
157000 10 6% 25,857,702.74
Saving just Rs. 25,000 a year can help you create a corpus of Rs. 25
lakhs over 30 years @ 6% returns.
10. Life Insurance helps provide financial security
to your family if something happens to you. Protection
Investment in the market helps you generate Wealth Creation
more wealth.
Is there a plan which provides
both these benefits?
* Investments are subject to market risk
11. Life Insurance + Wealth Creation under a single plan
Protection Investment
Unit Linked Insurance Plan
(ULIP)
Protection
Protection Wealth Creation
Wealth Creation
12. How does a Unit Linked Insurance
Plan work?
Customer selects the sum assured or the premium that he/ she wants to
Customer selects the sum assured or the premium that he/ she wants to
pay.
pay.
Policy Expenses such as fund management charges, Cost of insurance
Policy Expenses such as fund management charges, Cost of insurance
cover get deducted.
cover get deducted.
This gives you the allocated premium. This is invested in the funds of
This gives you the allocated premium. This is invested in the funds of
the customers choice.
the customers choice.
The entire allocated premium can be invested in one fund or a
The entire allocated premium can be invested in one fund or a
combination of funds as per the customers choice
combination of funds as per the customers choice
Units are purchased using the allocated premiums and the value of the
Units are purchased using the allocated premiums and the value of the
fund grows as per the market performance. Customer can “Switch”
fund grows as per the market performance. Customer can “Switch”
Funds.
Funds.
In case of death, the sum assured or
In case of death, the sum assured or On Maturity, the fund value is paid
On Maturity, the fund value is paid
fund value is paid, whichever is higher.
fund value is paid, whichever is higher.
13. Offerings of a Unit Linked Plan
The security of a life insurance cover with the excitement of
investment.
Different types of funds to invest in, tailored to meet individuals’
risk appetites.
Liquidity by means of partial withdrawals.
Freedom to invest additional amounts
* Investments are subject to market risk
14. Concept 1: Units
A fruit vendor has Rs.400/- and goes to buy mangoes
Day1 He invests Rs.100 at Re.1per mango and buys mangoes
Day2 He invest Rs.100 at Re.1.25 per mango and buys 80 mangoes
Day3 He invest Rs.100 at Re.1.75 per mango and buys 57 mangoes
Day4 He invest Rs.100 at Re.2 per mango and buys 50 mangoes
Each Mango is a Unit
The total Mangoes in his hand as on day 4 is 287
The current market rate per mango is Rs. 2, in this case.
The current value of the stock of mangoes with the Fruit Vendor is Rs. 574.
The total value of the mangoes.
In investment terms this is the Fund Value.
15. Concept 1: Units
In case of Unit Linked Insurance Plans we invest our money to
buy units.
Units are bought at a certain price.
At maturity we get the value of the fund.
16. Concept 2: Net Asset Value (NAV)
NAV is the price of the fund which is used to measure worth of
money invested.
Working is done on the basis of no of units as well as the market
value of the UL fund.
NAV = Net Assets of the fund/ Number of units outstanding.
Returns earned can be calculated using NAV.
17. Concept 2: Net Asset Value (NAV)
Calculated on a daily basis
Depends on four factors:
- Purchase & sale of investment securities
- Valuation of all investment securities held
- Other assets and liabilities
- Units sold or redeemed
Returns are calculated by measuring change in NAV.
– NAV at the time of purchase and NAV at the time of sale is taken into
consideration
– The difference (+/-) is then measured to find out gains / losses.
18. Concept 3: Charges
Premium - Charges
= Investible
Premium
• Initial Charges
• Fund Management Charges
• Cost Of Insurance (Mortality
Charges*)
• Policy Fee Or Adminstration
Charges
* Includes applicable service tax
19. Concept 3: Charges
Initial Charges Fund Management Charges
• It is the charge to run the policy. FMC is a Charge to manage a said
fund.
• Are deducted from the premium to
Expressed in terms of percentage of
meet costs such as office
the fund value.
expenses ,advisor’s commission
etc. It is adjusted with your NAV.
Cost of Insurance Admin Charges
The charge to provide you a life A charge to manage
insurance cover administration of the policy
* Includes applicable service tax
20. Concept 4: Switching and Premium
redirection
Switching:
– Switching refers to movement of money from one fund to another.
– The switching facility is availed to take advantage of the movements in
markets.
– In a premium switch, only the existing value of the fund is transferred and
future premiums will still go to the old fund.
Premium redirection:
– Premium Redirection means allocating future premiums to a different fund
or set of funds, All future payments would go to the new fund.
21. Exercise
Investor (A) invests Rs 100 every month for a period of 6 months. The amount
invested is used to buy units at the current unit price. The unit price at the
beginning of every month is at
– Month 1 = Rs 10 per unit
– Month 2 = Rs 12 per unit
– Month 3 = Rs 14 per unit
– Month 4 = Rs 13 per unit
– Month 5 = Rs 15 per unit
– Month 6 = Rs 16 per unit
Find the number of units allocated every month?
Calculate the total number of unit at the end of 6th month?
Calculate the fund value at the end of the 6th month?
Calculate the profit made by investor A.
22. Answer to Exercise 1
Months Amount Invested Unit Price Units Purchased
1 100 10 10
2 100 12 8.33
3 100 14 7.14
4 100 13 7.69
5 100 15 6.67
6 100 16 6.25
Total 600 46.08
The fund value at the end of the 6th month
= Units purchased X Unit price at the end of the 6th month.
= 46.08 X 16= 737.28.
The profit = Fund value- total amount invested = 737.28- 600= 137.28
23. Understanding Mutual Funds
Individual
Individual
Investors
Investors
invest their
invest their
money into aa
money into
common pool The money
The money
common pool is Invested
is Invested
in the
in the
market
market
Returns to
Returns to
individual
individual
investors
investors
Returns from
Returns from
the market
the market
24. Understanding Mutual Funds
MUTUAL FUND
Investment Others
By Structure
Objectives
Sector Specific Tax
Open Close Interval
Savings
Ended Ended
Equity Debt Balance Cash/ Liquid
25. Understanding ULIPs and Mutual Funds
ULIP PLANS MUTUAL FUNDS
Investment for a longer horizon Investment is fund specific
Money invested as per IRDA Is subject to high redemption
Regulations. Pressure
Regulatory requirement to maintain Depend on Daily fluctuation of the
a solvency margin. market
Multiple fund options under one Over haul portfolio very often
single plan.
During a bear market – a 100%
No redemption pressure – premium Equity Fund cannot mitigate risk
lock for 3 years.
Short term capital gains are taxable.
Make gains by switching funds
(Book profits) without any short
term capital gains
Provides Life Cover
