PERCEPTION OF STOCK MARKETS-A FUNNY TALE

Before writing about SIP-one of the most beautiful topic and the Evergreen sectors, I couldn't stop myself from writing about this funny tale which somewhere describes how most of the people see the Indian stock markets. The person involved is sort of my client and a close friend. So this funny story starts like this -

"Once two persons set on a journey and stopped somewhere near the village Mahi (fictious) in the western part of our country. They stopped near a large village and decided to settle there for few days. In the morning they called a meeting of the villagers and made an announcement and this announcement read : 'We have come from a far off country and one of us is the King of that place and the other my minister. We are very wealthy and have come here for some specific task. We want you to catch monkeys for us from the interior of the forests and we will pay you guys heavily for this'. The remuneration announced for each monkey was Rs. 1000. To your surprise the villagers got hold of 700 monkeys and got their payments. The same announcement was made but with a remuneration amounting to Rs. 2000. This time 300 monkeys came in the trap and they were again paid off for their hard labour. Few days followed and again a meeting was called and the remuneration was increased to Rs. 5000 as the task was getting more and more difficult day-by-day (monkeys were getting lesser in number). After making this announcement, the King went back to the city and the minister was left. The villagers tried hard but no success. They were sad. They went to the minister to suggest them some way out as they didn't want to lose the 5000 offer. The minister told them that he had 1000 monkeys in his custody, he can release 500 of them but at a price Rs. 4000 and they could easily earn Rs. 1000 on each monkey from the King. The offer was not bad. The villagers were convinced. They did the same. The minister after selling them the 500 monkeys also went back to the city. The poor villagers kept hoping that the King would return but none has returned till date".

King's Profit  :-

Total investment in the story: (1000*700)+(2000*300)= Rs. 13 lakhs

Total returns on his investment: (4000*500)= Rs. 20 lakhs

Total profits made = Rs. 7 lakhs.

This is how the people think about the working of Indian stock markets or the companies listed in the market. They do not understand the mere fact that markets are all about ROI (Return On Investments). You can't exchange a Rs. 100 note for Rs. 200 in the same currency, then why to expect unreasonable returns (200-1000%) on your investments. No sensible business even give these returns. My advice to such people Don't greed, invest right and sit tight. Rest is luck because there is no hard work involved in the stock markets. It's just your brain and instinct that works.

Have a Good Day !!!

SIP - AN EASY WAY TO WEALTH CREATION & COMPOUNDING

SIP (Systematic Investment Planning) - a tool to invest systematically in any asset class and get more than expected returns. The charm and beauty of this tool lies in the very fact that it doesn't come with a pre-requisite of being wealthy but comes with some sort of guarantee to make you wealthy. How ??? We will see in the space that follows. I will keep my discussion confined to equity class only and discard all other asset classes here. When we talk of equity class or the cash market, we tend to remember a rule (10% return on a monthly basis on our investments). By this rule, we count 120% return in an year. Isn't it high ??? Yes, it is high but people do achieve this when they trade, for investors anything between 50-60% return is decent and good enough (reason being the busy schedule of our investors-jobs, family and lots of other preoccupations in life). 50-60% returns, Do you still feel it high ??? Okay, let us strictly confine it to 50% return an annum and then see the magic that SIP does. SIP creates wealth taking help of a mathematical funda called "COMPOUNDING". Mind You !!! You don't have to learn mathematics to take help of compounding, it will start working automatically as soon as you decide to put your money to work.

Let us go back to that 50% return rule & see some heart-stealing calculations.

NOTE: Here it is that 1 lakh amount was invested in a distributed way or all at a once, not necessarily equal amount every month.

This table reveals what ???

• An investment of Rs. 1 lakh every year for a period of 25 years when left to compound @50% p.a. becomes a whopping Rs. 757.5 crores.
• An investment of Rs. 1 lakh just once in a lifetime will yield Rs. 252.5 crores when left to compound @50% p.a. after a period of 26 years.
• An investment of Rs. 1 lakh just once in a lifetime will yield Rs. 49.9 crores when left to compound @50% p.a. after a period of 21 years.
• An investment of Rs. 1 lakh just once in a lifetime will yield Rs. 6.5 crores when left to compound @50% p.a. after a period of 16 years.
• An investment of Rs. 1 lakh just once in a lifetime will yield Rs. 0.86 crores when left to compound @50% p.a. after a period of 11 years.
• An investment of Rs. 1 lakh just once in a lifetime will yield Rs. 0.12 crores when left to compound @50% p.a. after a period of 6 years.

Note:-

With the actual SIP route where your investment in the month of January is also put to work for the remaining 11 months of the year, returns are much higher than what the table above shows. (the SIP calculator below will clear this doubt - amount:8300; rate-50%; time-25 years; return:4000 crores+)

How would we calculate 1 lakh/annum ???

My definition of 1 lakh is saving Rs. 8300 every month from your sources of earning after making all necessary expenses and keeping aside some money for any medical emergency and automobile maintenance.

So by a simple rule, follow any one of the above mentioned approaches to SIP and create wealth to meet all your super luxury needs and desires and create a better world for your future  generations than what you have witnessed.

Advantage of SIP 

When you invest through the SIP route, you always have an advantage of averaging your purchases and take full advantage of the market fluctuations. eg. 100 shares of XYZ @30 on 1   July & 100 shares of XYZ @28 on 15 July brings down the average value of these 200 shares to 29. Same is true for higher levels. Now if 100 more shares are bought@33 on 27 July, the average value of these 3 transactions would be 30.33 (something very similar to our initial purchase value for 100 shares). Your average value is 30.33 and the shares are trading @33 (we just purchased @33), you have made a 10% profit. That's what SIP does for us. While averaging, remember -

• Buy more at lower levels.
• Buy less at higher levels.

Create your own SIP (use this tool from http://money.bhaskar.com/)

http://money.bhaskar.com/personal-finance/calculator-details/mutual-fund/sip-as-per-need/

Use this simple tool to know how much you can make after a certain time @ a certain rate of interest and with a certain investment amount every month.

Have a Good Day !!!