systematic investing a perspective
TRANSCRIPT
For Broker/Dealer Use Only. Not for Distribution to the Public
SYSTEMATIC INVESTINGA Perspective
Contents
Emotions and Investing
Systematic investing The Nuts & BoltsBenefitsSystematic Transfer Plans
Current EnvironmentIssues and a perspective
Cycle of Market Emotions
"Will the market ever go up?"
“Has been one of my best investment decisions…"
HOPE
"Markets are on a roll…"
EXUBERANCE
RELIEF
"Once I recover my principal I'll exit"
"Should I have exited when I was making money"
RELIEF
"I've finally recovered my principal. But should I exit
now?"
EXCITEMENT
"I can withstand this, things should turn around…"
ANXIETY
"How long will this correction last?"
FEAR
PANIC
"Should be a temporary correction"
1,000
3,000
5,000
7,000
9,000
11,000
13,000
15,000
17,000
19,000
21,000
May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08
NDA w ins elections, Vajpayee becomes PM 9/11 attacks
BJP loses elections
GDP grow th forecasts top 6%
US rate rise fears
Dr Singh appointed PM
F&O unw inding and interest rate rise fears spark correction
SEBI’s announcement on P-Note restrictions
Fed reduces grow th forecast for US
Global Markets correct w ith fear of US recession
UPA govt has successfully passed confidence votes
Mumbai Terrorist Attack
Tech bubble burst
UPA w ins elections - Congress bags majority votes
Cycle of Market Emotions
Sensex Returns : 13.94%* (10 years)
Past performance may or may not be sustained in future Source: CLSA. * Compounded and Annualized Returns as on May 29, 2009
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Sep-
94
Sep-
96
Sep-
98
Sep-
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Sep-
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Sep-
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Sep-
08
SIPs take out emotions from investing…Franklin India Prima Plus has seen it all since its inception – scams, natural disasters, coalition governments, economic slowdowns, terrorist attacks
Long-term performance: Throughout the rollercoaster ride since its inception, a regularSIP would have helped you take advantage of market volatility
Rs.1.75 lakhs invested had grown toRs.15.86 lakhs, Returns : 26.86%#
Past performance may or may not be sustained in futureCompounded and Annualised returns as on May 29, 2009. SIP: FIPP : 1 year : 63.01%, 3 years : 11.22%, 5 years : 20.43%, S&P CNX 500 : 1 year : 74.45%, 3 years : 8.77%, 5 years : 15.11%, Inception: 15.74%; One Time - FIPP : 1 year : -4.33%, 3 years : 15.90%, 5 years : 28.94%, S&P CNX 500 : 1 year : -9.59%, 3 years : 10.76%, 5 years: 23.90%; Load is not taken into consideration.# Compounded and Annualised returns as on May 29, 2009.
Rs.1000 invested every month since inception
Ignoring short term noises can help you gain from the growth potential of strong economic fundamentals.
0
10000
20000
3000040000
50000
60000
70000
80000
2000
2001
2002
2003
2004
2005
FIOF BSE 200 #
How you invest can make a difference…
An investment in Franklin India Opportunities Fund at its inception.....
…may have just about broken even in a period of 5 years…
Yet a SIP of Rs.1,000 per month, during the same period…
Past performance may or may not be sustained in future and the same is for illustrative purpose only
Rs. 15,943
Rs. 68,820 Total investment madeRs.60,000
Value of investment as on Feb 28, 2005
Rs. 114,965
Annualized Return on investment26.37% p.a.
This example is provided for illustrative purposes only and returns are compounded. Load is not taken into consideration in the calculations. Compounded and annualised returns as on May 29, 2009 - FIOF : 1 year : 52.50%, 3 years : 2.52%, 5 years : 14.33% and inception : 21.17%; BSE 200# : 1 year :68.05%, 3 years : 7.80%, 5 years : 15.05% and inception : 13.77%; #Index adjusted for the period February 21, 2000 to March 10, 2004 with the performance of ET Mindex
Systematic Investing
Systematic InvestingThe Nuts and Bolts…
What are Systematic Investment Plans (SIPs)?
The term “systematic investing” applies to the process of investing regularly i.e. at fixed intervals – say – monthly or quarterly
Why should one do a SIP?
To achieve your financial goals, the simplest form of planning is to invest regularlyMost of us calculate our earnings, expenses and savings monthlyThe easiest way to plan our investments, therefore, is on a monthly basis
What are the Benefits of SIPs?
The Power of CompoundingRupee Cost Averaging – ideal way to deal with market volatility ConvenienceAffordability
A Very Famous Folk Tale…
Once a poor farmer challenged the King for a game of chess and won
The King asked the Farmer to choose his reward and all that Farmer asked for was 1 grain of wheat for the first square, 2 grains for second, 4 grains for third, 8 for the fourth and so on and so forth for all the 64 squares…
The King was very happy and readily granted the wish…
The real snag came when he had to settle the claim…
A Very Famous Folk Tale…
Would you like to guess the number????
Watch Out…
The King required 18,446,774,073,709,600,000 grains of wheat for all the 64 squares!!!!!!!
If there are approximately 25,000 grains in 1 Kg. of wheat, the King required 7,37,870 million tonnes of wheat to settle this claim
India’s total Food grain Production last year (2007-08) was 230 million tonnes* – the required quantity is over 3,200 times of this amount
If King wanted to settle this for cash assuming super whole sale rate of Rs.3.50 per Kg., he would require Rs. 25,82,54,417 Crore to settle this claim!!!
This is over 60 times of the country’s Gross Domestic Product for 2007-08 (Rs. 43,03,654 Crore)*
* Source – RBI Annual Report 2007-08
What exactly happened here?
Farmer used power of compounding to his advantage
Things were fine till the first few squares, it was only by the 10th square or so that it went out of hand…
We could call Compounding the “Eighth Wonder of the World”
But it works only if used over the long term...
Welcome to the world of “SYSTEMATIC INVESTING” and use “POWER OF COMPOUNDING” to meet your Long Term Financial Goals
Systematic Investment PlansThe Power of Compounding
The Compound Interest formula as we know…
A = P * (1 + R) ^ n
Where, A = Amount at maturity,P = Principal amount invested,R = Rate of return earned,n = Time period of investment
OR
FV = PV * (1 + R) ^ n
Where, FV = Future Value,PV = Present Value
FV = PV (1 + r)n
Systematic Investment PlansThe Power of Compounding
Enhancing Future Value
The more you The more you save, makes a save, makes a
differencedifferenceThe sooner The sooner you start, you start, makes a makes a
differencedifference
PV nr
The more The more you earn, you earn, makes a makes a
differencedifference
Systematic Investment PlansRupee Cost Averaging
Rupee Cost Averaging - Investing a fixed amount of money at regular intervals, irrespective of market conditions
It enables investors to buy less when prices are high and buy more when prices are low
Making volatility work for you
Amount Invested – Rs. 5,000/-Units accumulated – 508.33Value of Investment – Rs. 5,083/33
Average Price per unit: Rs. 10.00Average Cost per unit: Rs. 9.83
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
Month 1 Month 2 Month 4Month 3 Month 5NAV = 10.00
Units = 100.00
NAV = 12.00Units = 83.33
NAV = 10.00Units = 100.00
NAV = 8.00Units = 125.00
NAV = 10.00Units = 100.00
Systematic Investment Plans
Scenarios In declining markets, SIP investors reduce the effects of market risk by acquiring more Units at increasingly lower Unit prices.
In fluctuating markets, the cost of Units purchased by SIP investors will always be lower than the average market price of Units over the same period.
In rising markets, lump sum investors benefit more than SIP investors if their money was invested in one lump sum at the lowest price.
Convenience Direct debit facility / ECS
Post-dated cheques
Flexibility - You can choose to invest every month either on 1st, 7th, 20th or 25th..
Group SIP / Corporate Salary Deduction
Systematic Transfer Plans
Requirements…
Do not want to issue cheques everytime I want to invest in an equity fund
Do not want to worry about maintaining balances in the bank account
Am a fixed income investor looking to gradually increase my equity exposure to boost potential returns
Have received a lumpsum amount and want to invest it gradually in equities
Systematic Transfer Plan is the solution for you, if any one of the above matches your requirements
Systematic Transfer Plans
Facility wherein you can transfer an amount regularly from an income scheme / liquid scheme to an equity or hybrid scheme
Provides the benefits of Rupee cost averaging, where your investments are not tied to any particular level of the market
Makes the power of compounding work for you
All the benefits of systematic investing
Then why aren't SIPs popular ? – Some common myths
I have put my money in the bank. Why should I worry? Traditional savings avenues are not the answer for all financial goals considering the impact of inflation
I am young right now I should just spend. I have plenty of timeDelaying your investment only increases your burden and makes the realization of your goals harder…
I don’t have enough money to investYou can start a SIP with as low as Rs.500. As they say, small drops of water make the ocean !!
I don’t have the time or expertise to follow market movements and makeinvestments at the right time
Mutual funds and SIPs are an ideal way to invest without worrying about market movements
Systematic Investment PlansThe Nuts and Bolts…
Current environment…
Market declines and SIP returns
SIP performance Last 1 Year Last 3 Years*BSE Sensex 62.96% 7.53%S&P CNX 500 74.45% 8.77%
Market declines Last 1 YearBSE Sensex -10.91%S&P CNX 500 -9.59%
Common thoughts/Issues
Don’t want to invest now – I have enough time to decide
I’m probably better off in cash and will catch the lows/ the global events have been very alarming – should one invest now ?
“I’ll wait for the market to get better”
“Why should I continue to invest in stocks when my recent returns are negative ?
Past performance is no guarantee of future…
Past performance may or may not be sustained in future. * Compounded and Annualised returns as on May 29, 2009
Don’t want to invest…can delay
Story of my friend, Ganesh
33 years oldWants to retire at 51 yearsCan save Rs. 3.00 Lakh per yearLooking at a conservative return of 8% p.a. on his investments
Let us look at how his life will change????
Don’t want to invest…can delay
Cost of Delay
Average stock market returns following the recent bear markets (1992-94 and 2000-2002)
This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton Mutual Funds
Past performance does not guarantee future results.
Wait for the market to get better…Should I invest now ?
56.3%62.7%
-5.5%
1st 12 months 1st 6 Months 2nd 6 Months
Source : CLSA
Wait for the market to get better…Cash is better..
Watching from the sidelines may cost you…Just like it is difficult to spot a declining market – it is also difficult to see an upward trend till the opportunities are missedMissing out opportunities can take a big bite out of returns
Past performance may or may not be sustained in future. This table is for illustrative purposes only. BSE Sensex is unmanaged, and one cannot invest directly in an Index. Best days : Top performance days based on daily returns for the last 10 years .
…Should I not wait for a year to start my SIP?
Period of Investment10 years ended May 29, 2009
Average Annual Return of BSE Sensex
Stayed Fully Invested 9.53 Missed the 10 Best Days 1.16 Missed the 20 Best Days -4.36 Missed the 30 Best Days -9.17 Missed the 40 Best Days -13.23
Wait for the market to get better…Will catch the lows…
It’s time in the market that matters, not timing…Date Lowest S&P
CNX 500 ValueFIPP NAV (Rs.) Current Value of Rs.
10,000 invested23-Jun-04 1,192.50 43.9 36,427 24-Jan-05 1,653.80 57.87 27,633 2-Jun-05 1,821.45 66.16 24,171 6-Dec-05 2,318.45 87.53 18,270 14-Jun-06 2,163.95 84.78 18,862 5-Mar-07 2,957.85 125.62 12,730 21-Aug-07 3,405.15 147.4916 10,842 17-Mar-08 3,642.35 150.1670 10,649 27-Oct-08 1,973.70 100.1890 15,961 9-Mar-09 1,966.85 94.5896 16,906 Total investment Rs. 100,000 Current Value Rs. 192,453
Past performance may or may not be sustained in future. For illustrative purposes only. Prima Plus (FIPP) Growth Plan NAV as on 29.5.2009 –Rs. 159.9150; Current value of Rs.10000 invested in S&P CNX 500 – Period, Value (Rs.) - 23-Jun-04, 30020; 24-Jan-05, 21647 ; 02-Jun-05, 19654; 06-Dec-05, 15441; 14-Jun-06, 16543; 05-Mar-07, 12103; 21-Aug-07, 10513; 17-Mar-08, 9829; 27-Oct-08, 18138; 09-Mar-09, 18201. Total investment of Rs.1 Lakh would have grown to Rs. 172,089. Sales Load has not been taken into consideration. Lowest S&P CNX 500 values considered on a half-yearly basis for the last 5 years.
Wait for the market to get better…Will catch the lows…
It’s time in the market that matters, not timing…
Key takeaways…
Over the long-term, timing loses relevance
The more time you give to your investments, the better the growth prospects
Investment Period
Investment in the best days
Investing on the first business day
Difference in performance
5-year period 25.9% 21.3% 4.6%
10-year period 30.4% 27.5% 2.9%
Past performance may or may not be sustained in future. Annualized Compounded Returns as on May 29, 2009. For illustrative purposes only.
Sales Load has not been taken into consideration.
Black Tuesday Crash of New York
Stock Exchange
10/29/29
Global Uncertainty There Have Always Been Reasons Not to Invest
Operation Iraqi Freedom
2003–Present
Global Credit Meltdown
2008
Korean Conflict
1950–53
Black Thursday Plunge of New York Stock Exchange
10/24/29
Cuban Missile Crisis
1962
World War II1939–45
Iran Hostage Crisis
1979–81
Savings & Loan Crisis
1988
Bloody Mondayfall of Dow Jones Industrial Average
10/27/97
Vietnam War (U.S. engagement)
1964–73
Black Monday fall of Dow JonesIndustrial Average
10/19/87
Operation Desert Storm
1991 Subprime Lending Crisis
2007
Attacks on the World Trade Center and Pentagon
9/11/01
World Events
Global Uncertainty Step Back and Take a Long-Term View
Growth of $10,00012/31/1928–3/31/2009
Source: © 2009 Morningstar. Indexes are unmanaged, and one cannot invest directly in an index.Past performance does not guarantee future results.
This chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton or Mutual Series fund.
Black Thursday Plunge of New York Stock Exchange
Black Tuesday Crash of New York Stock Exchange
World War II
Korean Conflict
Cuban Missile Crisis
Vietnam WarU.S. Engagement
Iran Hostage Crisis
Black MondayFall of DJIA
Operation Desert Storm
Bloody MondayFall of DJIA
Attacks on World Trade Center and Pentagon
Operation Iraqi Freedom
Global Credit Meltdown
Subprime Lending Crisis
S&P 500 Index$8,274,950
$1,000
$10,000
$100,000
$1,000,000
$10,000,000
$100,000,000
12/28 1/45 1/61 2/77 2/93 3/09
2004 132002 41997 19
1995 -21 1994 17 2007 472000 -21 1993 29 2006 472001 -18 1989 17 2005 421998 -16 1984 7 1992 37 2003 731987 -16 1983 7 1990 35 1999 641996 -1 1982 4 1988 51 1991 82
2008 -52 1986 -1 1980 25 1981 54 1985 94Year % Year % Year % Year % Year %
>60-31 to -60 -30 to 0 0 to 30 31 to 60
Indian contextRecent fall steep, but positive return years outnumber
While the >50% market fall in 2008 seems jarring, this needs to be seen in the context of six consecutive years of gains (2002-07)
Of these, four years marked gains of over 40% and feature in the top 10
Over a 20-year horizon, no. of years and quantum of positive returns outnumbers the declines by a wide margin
Positive years – 21Negative years – 8
Sensex annual returns (%) since 1980
Source: Motilal Oswal, Bloomberg Note all calculations based on calendar years
Negative returns…
…My 3 year old SIPs are showing negative return, should I continue?
FIOF Performance History
Past performance may or may not be sustained in the future
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inve
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NAV(Rs.)
PrincipalInvested as on date (Rs.)
Value of investment as on date(Rs.)
Lowest NAV @ Rs.3.43
3 year's returns negative
Break even at NAV @ Rs.5.30
Negative returns…
…My 3 year old SIPs are showing negative return, should I continue?
A 3 year SIP in FIBCF at the end of each month over last 1 year looks like this…
This graph shows the value of Rs. 1,000 invested for 36 months and annualized returns during the period April’ 08 to May’ 09 (for illustrative purposes only) – Past performance may or may not be sustained in future, Load is not taken into consideration
Still, a since inception SIP in FIBCF at end of each month looks like…
This graph shows the movement of a SIP of Rs. 1,000 per month since January’ 07 – amount invested, value of investment and annualized returns during the period April’ 08 to May’ 09 (for illustrative purposes only) – Past performance may or may not be sustained in future, Load is not taken into consideration
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
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Val
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0 in
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ars
-30.00%
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-10.00%
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Ann
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Value in Rs. Annualised Returns
0
200,000
400,000
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800,000
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May
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Jul-0
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Oct
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-09Val
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of R
s. 1
000
per
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th
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sin
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Ann
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etur
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Value in Rs. Annualised Returns
Negative returns…A long term perspective
…My 3 year old SIPs are showing negative return, should I continue?
If you had invested Rs. 1,000/- per month since January’ 97 in
Franklin India Bluechip Fund
BSE Sensex
Amount Invested per month Rs. 1,000/- Rs. 1,000/-
Total Amount Invested Rs. 149,000/- Rs. 149,000/-
Value of Investment(As on May 29, 2009)
Rs. 1,051,937/- Rs. 436,447/-
Return (% p.a.) 28.68% 16.25%
Past performance may or may not be sustained in future. Compounded and Annualised returns as on May 29, 2009 Growth Plan NAV of Rs. 147.8682 : FIBCF : 1 year : 63.98%, 3 years : 10.29, 5 years : 18.32%; BSE Sensex : 1 year : 62.96%, 3 years : 7.53%, 5 years : 16.55. Load is not taken into consideration
Past Performance is no Guarantee of Future…
Yes, one should not chase past performance
But as George Santanya said "Those who forget the lessons of history are condemned to repeat them.“
Do not let market declines and recent performance influence your decisions
o India remains a vibrant economy and is going to be one of the fastest growing economies in the world.
Stock markets get swayed by ‘sentiment’, but fundamentals will prevail over the long run
1,000
3,000
5,000
7,000
9,000
11,000
13,000
15,000
17,000
19,000
21,000
Jan-91 Jan-92 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08
Securities marketscam
Tech bubble burst
Vajpayee becomes PM 9/11 attacks
Babri Masjid,Bombay blasts
BJP loses elections
GDP grow th forecasts top 6%
US rate rise fears
Dr Singh appointed PM
Economic reforms
kicked off
F&O unw inding and interest rate rise fears spark correction
phase of political instability
SEBI’s announcement on P-note restrictions Fed reduces grow th forcast for US
Economic reforms
kicked off
Global Markets correct w ith fear of US recession
UPA govt has successfully passed confidence votes
Mumbai Terrorist Attack
NDA w ins elections, Vajpayee becomes PM
Global f inancial crisis intesif ies
UPA w ins elections - Congress bags majority votes
Past Performance is no Guarantee of Future…
Source: CLSA
* Compounded and Annualized Returns as on May 29, 2009
Sensex Returns : 15.38%* (18 years)
It helps to…
Start Early…
Save Regularly…
Maximize Real Return…
&
Create Wealth!
Value of investments if they generate returns @No. of years
Amount Invested 8% 10% 12% 15%180,000 300,000 420,000 600,000 900,000
203,125 367,070 558,295 906,416
1,698,892
3 209,201 215,396 224,917 5 385,859
599,615 1,007,288 2,008,106
436,710 7
405,518 644,007
1,120,179 716,807
10 1,315,091 15 2,379,657 3,081,8283,081,828
5 Steps You Should Take Now
1 Make an appointment to see your financial advisor.
2 Review your financial plan to determine if your portfolio matches your risk tolerance.
3 Understand the rationale for your investment strategy, plan and choices.
4 Set realistic performance expectations.
5 Discuss how to prepare yourself financially and mentally during times of market decline.
Words from the Wise…..
“To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards”
Sir John Templeton
“Be fearful when others are greedy and greedy when others are fearful.”
Warren Buffett
“Buy when most people...including experts…are pessimistic, and sell when they are actively optimistic”
Benjamin Graham, pioneer of stock analysis
Thank You
Risk FactorsRolling returns are a series of returns calculated for a fixed period, within a given timeframe. Over a 10 year period, there would be 365x5 number of days on which you can investor for a 5 year period (assuming there are no holidays). Thus, if you were to look at 5 year returns during this period, you would get a table of 1825 return values. This entire series of 1825 return values is called the 5 year rolling returns.
SCHEME CLASSIFICATION & INVESTMENT OBJECTIVES : FIBCF : Franklin India Bluechip Fund (FIBCF) is an open end growth scheme with an objective to primarily provide medium to long term capital appreciation. Franklin India Prima Plus (FIPP) is an open end growth scheme with an objective to provide growth of capital plus regular dividend through a diversified portfolio of equities, fixed income securities and money market instruments. Franklin India Opportunities Fund (FIOF) is an open end diversified growth scheme with an objective to generate appreciation by capitalising on long – term growth opportunities in the Indian economy.Load Structure : FIBCF : Entry Load <Rs.5 Crs: 2.25%, =>Rs.5 Crs < Rs.25 Crs : Nil, =>Rs.25 Crs: Nil; Exit : <Rs.5 Crs: 1% (if redeemed/switched out within 6 months of allotment); 0.5% (if redeemed/switched-out after 6 months, but within 1 year of allotment), =>Rs.5 Crs < Rs.25 Crs : 1% (1% if the Units are redeemed/switched-out within 6 months of allotment); =>Rs.25 Crs: Nil. FIOF : Entry Load: <Rs. 5 Crs : 2.25%; =>Rs.5 Crs: Nil, Exit Load: <Rs. 5 Crs : 1% if redeemed/ switched-out within 6 months of allotment; 0.5% if redeemed/switched out after 6 months, but within 1 year of allotment, =>Rs.5 Crs : 1% (if redeemed/switched-out within 6 months of allotment. FIPP: Entry : Entry Load <Rs. 5 Crs : 2.25%; =>Rs.5 Crs: Nil; Exit : <Rs. 5 Crs :1% if redeemed/ switched-out within 6 months of allotment; 0.5% if redeemed/ switched out after 6 months, but within 1 year of allotment, =>Rs.5 Crs : 1% (if redeemed /switched-out within 6 months of allotment). Risk Factors : All investments in mutual funds and securities are subject to market risks and the NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. There can be no assurance that the schemes’ investment objectives will be achieved. The past performance of the mutual funds managed by the Franklin Templeton Group and its affiliates is not necessarily indicative of future performance of the schemes. The names of the schemes/plans do not in any manner indicate the quality of the schemes/plans, their future prospects or returns. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes. The Mutual Fund is also not assuring that it will make any dividend distributions under the dividend plans of the schemes though it has every intention of doing so. All dividend distributions are subject to the investment performance of the schemes and availability and adequacy of distribution surplus. The investments made by the schemes are subject to external risks. Please read the Statement of Additional Information (SAI) and Scheme Information Document (SID) before investing. STATUTORY DETAILS : Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton International Inc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the Trustee (Trustee under the Indian Trusts Act, 1882) and Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager.