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40 Years Fixed deposit Vs Sensex : A yearly rollover in a bank fixed deposit over 40 years would convert Rs.10/- into Rs.377/-, taking an average bank FD Rate of 9.5% over the past 40 years ending March 2019. The sensex, in the same period would convert Rs. 10/- into Rs.3867/-. That’s a difference of more than 10 times to your wealth in 40 years!
25 Years Fixed Deposit Vs Mutual Funds : Four of the best managed Mutual Fund schemes in the industry have completed around 25 years of performance and on an average have compounded wealth @ 19% per annum. So, while a fixed deposit would have converted Rs.10/- into 97/-, any of the 4 Mutual Fund schemes would have converted Rs.10/- into 774/-, a difference of 8 times to your wealth in 25 years!
As you can see from the chart above, the 19% returns did not come in a linear fashion. Returns from Equity markets are erratic but in the long term reflect the growth in the economy and in the profitability of the underlying companies. During the journey there will be phases of low or negative returns followed by a big corrective surge (circled periods) that would make newer highs and compensate returns for the entire period!
The ups and downs can be unnerving for investors who have not experienced a few such cycles. The key is to invest that portion of your savings which is not required in the near term – Ideal for accumulating a retirement corpus, or planning for any other long-term financial goal
Take a leap out of the comfort zone of fixed, predictable, linear returns, as there is big opportunity cost to pay for that comfort
An analysis done by a large fund house shows that in every election year in the history of the Sensex, the markets go up! This is simple to understand…
In the period before the elections, there is a buildup of Uncertainty– the biggest enemy of the markets. For a year or so the markets could be subdued. A large percentage of investors wait on the sidelines for the outcome as the perceived risk is very high. Every stakeholder in the markets, would have their own favorite party which may win or lose. It is only after the election results that logical reasoning comes back and considerations of demand, growth and profits start commanding their rightful space in the investors mind
The Indian democracy has evolved into a two-party domination. Even in a coalition, the two parties have the stronger role to play respectively. While every state election may look like a bizarre series of events, finally the results show some method to the madness. In the just concluded state elections, the second large party has re-emerged after a long losing spree which had demoted it to the verge of insignificance. At least two strong national parties are good for our democracy. This is also very good for markets, as the biggest worry for investors is the third alternative of a coalition of small, regional parties with no national agenda
Over the years since independence, our policy making has also evolved to a great extent. Our great institutions that regulate industry and society, are often lauded by their peers the world over. If anything slips, in this information age, the electorate is smart enough to ensure change in leadership that brings about laws to correct the situation. The Indian Bankruptcy Code 2016, Auctioning of natural resources (esp. coal) and mobile telephony frequency (3G / 4G…), Direct Benefit Transfer, Digitization to increase transparency etc. are some of the examples of such irreversible policy changes
With our minds off the noise of the upcoming elections, let’s focus on the reasonable current valuations in the markets. With the earnings cycle gradually picking up, it’s a good time to increase your equity allocation!
Rich is a relative term, hence, by definition, very few people can be rich! The most popular money-making ideas and methods may not work after all…
Investing in stock markets is a proven avenue to get wealthy, but there is a huge variation in results. One individual, just by investing in stock markets became the richest person in the world while there are many other not-so-popular stories about people who lost everything to the share markets. While most get carried away by the prevailing common sentiment, very few have the willpower to stick to the thumb-rules. Consideration of fundamental factors and those alone, often requires a contrarian approach
In the history of our stock markets there have been many instances where large number of investors, acting in unison, eventually destroyed wealth for themselves. Be it the IPO craze in the 90s and again in the early 2000s or be it the Technology stocks that people thronged to in 1999, a few months before the Y2K euphoria abruptly ended with a huge crash in the sector – what the majority participants did, soon proved to be wrong. In 2007, many investors had become fond of real-estate stocks, the sub-prime crisis in the US that followed made global stocks tumble and while other sectors recovered fast, these stocks haven’t been able to recover even after a decade. Sometimes investors have blindly picked up stocks favored by star investors, who were later found to be involved in financial scams bringing those favorite scrips down sharply
The common investor is cluttered with the noise of stock-tips, sector recommendations, penny stocks, bluechips, smallcap, largecap etc. There is also this popular urge to try and time the markets. The unknowingly-collective decisions to buy or sell, tend to be the exact opposite of good timing!
Children education and marriage, health care for parents, emergencies – fulfilment of our responsibilities make us feel good, but none of it comes free
I think the person who coined the famous adage was already quite prosperous and was looking at life from a spiritual and philosophical lens. Realistically, all the good things in today’s world are anything but free
Even a simple, peaceful lifestyle after years of hard work is a luxury for only those who have saved enough for retirement
At simplymutual, we wish for you to achieve all the best things in life….. we also plan your finances accordingly!
Markets are making all time highs nearly every other day and the pace of the rise is creating fears of an impending sharp fall. Our analysis shows that there is much more upside to come and the sharp correction may not happen altogether
The market movements today should be viewed with the perspective of the following series of events: –
2001-08 – A seven year period of 25% average earnings growth => 2008 – US economic crisis followed by slowdown in all major economies including ours => Further drag in the Indian economy due to policy paralysis phase and scams affecting business environment => Barely 5% Average earnings growth in the period 2008-16
2014 onwards – Newly elected government starts efforts to revive economy and improve sentiment to do business. Large government spending in areas of infrastructure => Significant improvement in sentiment => 2017 Demonetization and GST implementation postpones demand comeback by a year => 2018 – Pickup in demand and earnings. Beginning of a long term double-digit growth phase
Strong positive sentiment has been created in the last few years with good policy decisions and effective attraction of international attention. Now this is coupled with visible directional changes in fundamentals – There is decent pickup in demand across industries with improvement in quarterly results being reported by companies in various sectors
Valuations wise, at Price / Earning (PE) of 18.5 for FY 2019 Estimated earnings and @15.7 FY 2020 estimated earnings are around the long-term average of 17
Lastly, a word of advice for investors who have liquidity to invest in equity – It is practically impossible to time the markets and a correction of 500 points after the markets have risen 4000 points is useless to wait for anyway…
Benefit from our experience. Invest wisely with Simplymutual
Our Equity markets, represented by the Sensex, have risen more than 300 times from 1979 @ 16% per annum CAGR. Future economic growth projections by analysts within India and across the world put India amongst the fastest growing economies in the world. Our markets will again provide opportunities for multiplying wealth another 200-300 times or more in the next 3-4 decades. But share markets are not everybody’s cup of tea, with its wild fluctuations on every local or global event. It is only the optimistic that will participate in this wealth creation
From 1979 till date, 12 general elections were held in our country. There were assassinations of two Prime Ministers, at least 2 large financial sector scams and numerous corruption scandals. There were recessionary periods. There were times of large scale communal violence, times of war and conflicts with hostile neighbors. Natural calamities also came frequently, and there was a period of sanctions after our Pokhran nuclear tests. The outside world gave us the oil crisis emanating from the gulf war, the Asian financial crisis, the dotcom bust, 9/11, sub-prime crisis in US, economic crises across nations in Europe, Brexit etc
It is said that a pessimist sees difficulty in every opportunity and an optimist sees opportunity in every difficulty
There are always enough investment opportunities in sectors which are not affected or are only temporarily affected by such events. The few optimists who invested in the equity markets during such situations made much more than the 16% and multiplied wealth way beyond the 300 times
As we have written before, “the Indian economy is rooted in strong fundamental factors of a largely young, educated, hard-working and aspirational population which strives hard to overcome any challenges that arise out of any local or international event.” With an excellent savings pattern and a strong local consumption led economy, our dependence to the outside world is moderate
So next time you witness a crisis situation, don’t listen to the short-sighted doomsday theorists – be an Optimist!
Take benefit from our experience – invest with Simplymutual
It is my firm belief that the key to building long term wealth is to never incur a large loss. The good news is that by following a few thumb-rules we can insulate our investments portfolio from any big jolt
A large loss sets you back by years’ worth of savings and earnings, and recovering from such a setback takes forever. Consider this – to recover from a 60% loss, one needs to get a 150% return (two and a half times) and an 80% loss requires that you should thereon multiply your money five times, to come back to the principal amount
Follow these thumb rules
Say no to the temptation of Direct Stocks – If you are not a fund manager, having a team of research analysts covering all sectors of the Indian economy, who can create a diversified portfolio of closely tracked companies, then do not invest directly in shares. Invest through an Equity Mutual Fund
Diversify – Invest in well-diversified, multicap equity mutual funds. Investing in sector funds or thematic funds is akin to investing directly in stocks
Look at the long-term track record – across market cycles. Performance of the past few months or even a couple of years is no reflection of the capabilities of a fund manager. How well did he manage the big turns in the markets? How well did he contain the risks from a large loss? Was there ever a 60-80% fall in value to the portfolio?
While setting thumb rules are simple, following them is not easy. The emotions of greed and fear can often interfere with commonsensical thinking
The best advice that I ever got for my investments was to “leave it alone”. I remember I didn’t want to follow that advice initially and when a big international event happened, and the markets went into a downward spiral, I wanted to liquidate all my Equity Mutual Funds. I wanted to sit out through the slide and come back later at a better “time”. Unfortunately (I later realized fortunately) at that time, I was travelling on vacation and by the time I was in a position to exit, the markets had already fallen about 10% in just 4-5 days and started to consolidate at those levels. Everyone had realized that the event had little to do with economics and it was a return to business-as-usual
Within a year the investments had recovered very well and were up 20% from the value before the event
Every day, there are small or large events happening around us. Most of these events just effect sentiment in the markets in the short term. I have realized that the Indian economy is rooted in strong fundamental factors of a largely young, educated, hard-working and aspirational population which strives hard to overcome any challenges that arise out of any local or international event. In the last 10 years we have witnessed this phenomena with economic growth slowing down to below 5% and then steadily bouncing back to 7%+
With all the ups and downs, returns from the markets have been 8-9% annualized in these 10 years. Good Mutual Fund managers have delivered upwards of 12% annualized in these challenging times and 18%+ over longer periods
So it’s good to be lazy once you are committed to Equity investments. You may not be doing anything, but the constituent engines of the portfolio are working full throttle
Sometime back we had written about the fact that markets don’t like uncertainty, the reverse is also true – “Markets love certainty”. The results from the recently concluded state elections in India have set our markets on a sure-shot path of bullishness
Business leaders across the world and within India are looking at a 7-year continuity in efforts of the present government towards various reforms. “Ease of doing business in India”, “Skill India”, “Make in India”, “Digital India”, “Startup India”, are some of the slogans that will continue to guide policy making for a more sustained period. This in turn will give clarity and confidence to industry to envision and implement a longer-term strategy
With visible green shoots in demand pick-up across sectors, it’s going to be an excellent mix of strong sentiment and improving fundamentals that will take our markets to new highs and beyond. Although, as always, there will be large divergence in performance across sectors and individual stocks, valuations will play a key role, and few investors will finally reap benefits. As always it will be a stock pickers market requiring strong research, analytical skills, and experience