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Jab “Returns” met “Sejal” , Volatility??


“Jab Harry Met Sejal” had met so much criticism or negative feedback may be due to the high expectation. Shah Rukh, Anushka & Imtiaz Ali had high expectation running and the movie may be of another kind (Am yet to watch the movie at this time). There was even a funny tweet sent to our external affairs minister to rescue them from the Movie.

 

Tweets cant go crazy than this. Reason for this short movie review which came in from last friday was due to the blog topic. Each of SRK movies have high expectations and extra ordinary promotions he does every time makes the expectations even higher. So when the movie doesn't match those expectations it will be trolled. He has given so many different kind of movies in the last few years yet none of them had gone down well with people or distributors like the movies of other actors.

 

The same goes with returns of any investment product. When we knew that real estate is going to do good, many will rush to buy a piece of land comparing it with high returns it has generated in the last few years but the problem is already the price is factored in and it will take many more years to keep rising.

 

Similarly during 2003-08, Gold had huge rally and people has been trying to buy it before it disappears. Reason being, Equity had crashed due to banking woes in US and it had impact across the world. In this circumstances people will go towards safe heavens which is Gold. Hence the enormous rally. In 2011, it had it around 32-33000 & after that it had came down to 25000 & it is rangebound. Till date it had not breached its previous high.

 

So we will see returns of some of the investment products which will give you compounding advantage beyond volatility.

 

Is Real Estate the best investment ?

 

Below is the article as came in Economic times,

 

The iconic Lincoln House in Mumbai was recently bought by industrialist Cyrus Poonawalla for Rs 750 crore. The 50,000 sq. ft property had been leased to the US government by Pratabsinhji Jhala, the Maharaja of Wankaner, for a sum of Rs 18 lakh in 1957. In the past 58 years, its value has grown 4,000-times at an annual growth rate of 15.45%. Most people infer that the property has given astronomical returns. Has it?

If you go beyond the headlines and dig deeper, you will find that the return is not as spectacular as it appears. There was no Sensex when Lincoln House was being leased to the US Consulate in 1957. But if we assume that it existed and extrapolate the same 17.22% returns it has notched since its launch in 1980, an investment of Rs 18 lakh would have grown to Rs 1,809 crore by now. In absolute terms, the money would have grown more than 10,000 times.

Investment in equity would have given a 2.5-times higher return than real estate. What if the money was not invested in the Sensex but handled by a skilled portfolio manager? He would have worked harder to pick winning stocks and invested the money to earn better returns than the index.

If his equity fund gave 1% higher returns than the Sensex, then the same sum of Rs 18 lakh would have exceeded the return from real estate and the average Sensex return, swelling to a Rs 2,960-crore corpus, a staggering growth of 16,000-times—four times more than the 'spectacular' return delivered by real estate.

If the fund manager was able to outperform the index by a bigger margin of, say 3%, the investment would have grown to Rs 7,833 crore. True, equity can be volatile in the short term. But in the long term, no other asset class can churn out such high returns. Since its inception in 1980, the Sensex has fallen by a maximum 60% in a year.

But every decline has been temporary and the index has eventually moved up. Had the Maharaja of Wankaner invested Rs 18 lakh in equities, his investment might have suffered a few ups and downs. But today his investment would be worth almost Rs 7,800 crore—more than 10-times what Poonawalla paid.

 

So this clearly shows that real estate shows itself as better investment unless you work down the CAGR or yearly returns.

 

All the metro cities in India command premium as the actual growth had happened only in those cities. All the growth had happened in and around those cities, people who came in search of job had settled down in and around. This had created real estate price to shoot up drastically. As most of the flats or villas are bought as investment purpose and inventory of most of the real estate companies are in plenty it is difficult to sell when you are desperate in need of money.

 

Is “ Mutual fund Sahi Hai “ ?

 

Mutual fund is one of the investment tool through which you can invest in equity markets. Just like river which has many ups and downs along its way to reach the sea, equity mutual fund may also have have volatile period but it will help in achieving your dreams. Only condition is that you need to stick to the fund till the goal period.

 

Below is the example of “Reliance Growth fund” which was launched in October, 1995. lumpsum investment of 1 lakh would have been more than 1 crore.

 

Can you believe it ?

 

At the time of launching, each fund will have the NAV priced as 10. Now the NAV is trading above 1000.

 

For 1 lakh, you will be allocated 10000 units. 

 

Now after these many years, multiply 10000 units by 1000(NAV) which is 1 crore.

 

returns-your-money-matters.in

 

Now look at the SIP investments. SIP returns are in excess of 20% for these many years. Look at the below chart where the monthly SIP of 10000 would have made you to invest close to more than 26 lakhs & as per current market rates the Market value will be more than 70 lakhs as the data is of last year, 2016.

 

 SIP-Your-money-matters.in

 

The only thing which draw away many of the common man from Mutual funds are the speedy way of saying “Mutual funds are subject to market risk……(bla..bla..) “.

 

It is difficult for a common man to understand the risk factor what they are actually trying to say or convey. For every one whether he is rich or poor, the only he earns is hard earned and they will not be ready to lose it some were based on some one else mistake. On top of it if an investment advertisement comes with good returns of a long or short terms with great emphasis on “Market risk” then people will think twice or thrice to invest. Now AMFI along with regulatory body SEBI, has made new age advertisement which makes it simple for everyone to understand with tag line “ Mutual funds ahi hai “.

 

If you haven't watched check out one of that ad here,

 

 

In all the ads it clearly says Mutual fund is for everyone either short or long or medium term goals. Based on the risk categories you can be classified as conservative, moderate or Aggressive.

 

As said in our previous blogs, investment can be done based on the below points,

 

1)      Plan for how much you want to invest in advance

2)      Choose the mutual fund depending on the number of years you will not be in need of the money

3)      Break down the amount you invest according to the goals, say money for child education, for retirement, for buying home, for buying car etc

4)      Ask the number of years the fund has been in the market and returns since inception

5)      Ask the risk category it falls in, as of now High, Moderately high, Moderate, Moderately low and low is available as proposed by SEBI

 

What is this volatility in Mutual funds?

 

If we take fixed deposit rates, the returns will not vary much during a period and hence people prefer this instrument. Another advantage capital is protected in this investment. If you compare with direct equities or mutual funds, returns will vary and there may be capital losses at times. This is called as volatility, most of us will not be able to bear our money getting dwindling in front of our eyes.

 

Good thing is all the downs will have the equal ups and more higher. Earlier in the blog reference had been given to “Reliance growth fund” were the value had grown from 10 to 1000 now.

 

Reasons for volatility in the last 2 decades,

 

  1. First in the year 2000, it was dot-com bubble. All the internet companies got crashed and market had fallen along with it. Most of the investors who had started during this time had burnt their money and left away from investing.
  2. Then from 2001-2003 it was flat period as the market was rangebound. People were skeptical to invest during this time.
  3. Actually the bull run started from 2003 itself, but many started looking into stock market once it had crossed 10000. Many were in awe as any investment in stock market got doubled. Everybody was minting money. Slowly from 2005 people started investing slowly and when it had started hovering around 20000 many had plunged into direct equity or through mutual funds.
  4. So many new funds were launched and as the market euphoria was positive everybody launched new themes in mutual funds to collect money and many IPO’s got launched successfully.

 

There is a quote often said during tough times, “When the going gets tough, the tough gets going”

 

If you compare it with equity markets, it is often, “When the return makes the show, then the investment runs the show”

 

People had started pumping in money and more money to get better returns in shorter period. All were lost when the crash happened slowly in 2008. Those who didn't had an idea about how this equity works came out with whatever was left in their account. 

 

Only the few brave hearts stayed invested for few more years to reap the benefit. They had increased their investment slowly and started creating wealth.

 

5) From 2008-2012, it was rangebound market, returns were based on when you were making it as lumpsum, if you had followed or started SIP you would have made a fortune in the next few years to come.

 

6) Change in regime were expected and market started picking up by itself and market started touching new highs and it reached close to 30000 when the new government came into power by late 2014.

 

so this is the brief history showing how the stock market had withstood volatility in the long run and created wealth for everyone.

 

Below is the cycle of wave, which had started moving from few thousands to more than 31000 now.

 

 your-money-matters-7.png

 source : moneycontrol.com

Conclusion;

 

So if you see any dip in stock market, purchase more. The biggest advantage you can take is getting onto SIP mode of investing. This Systematic Investment Planning helps you in stop worrying about this market noises and helps in creating wealth

 

The most funny review i had read for “Jab Harry Met seghal” was “Why Harry met sejal? “, but when it comes to investment market “Jab returns met sejal” i.e volatility invest more, if Your Money Matters

Tags: Investment returns

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