A HANDBOOK OF

MANAGING
MONEY
• What are the different
avenues for investing in
different asset classes?

• What are the drawbacks in

different investing
avenues?

• How can mutual funds

overcome these
drawbacks?

• How are equity mutual

funds better than direct
stocks?
Why Mutual Fund?
Investing in various asset classes like Gold, Debt and Equity in traditional way – often brings many
drawbacks while purchasing, accumulating and liquidating.

ASSET CLASSES
Gold and Silver Debt Equity

Traditional Routes of Physical Gold / Fixed Deposits /

Gold Bonds Direct Equity
investment Corporate Bonds
• Safety and • Inefficient • Requires time and
purity taxation in FDs expertise

Drawbacks of • In case of Gold • Medium to Low • Relatively riskier

investing in bonds - Buying Liquidity (Penalty
traditional way limits, lock-in of for premature
5 years, low withdrawal)
liquidity
Why Mutual Fund?
Investing in various asset classes like Gold, Debt and Equity with the help of mutual funds can help
eliminate many drawbacks of investing through other routes.

ASSET CLASSES
Gold and Silver Debt Equity
Mutual Fund Routes Gold ETF and Gold
Debt Mutual Fund Equity Mutual Fund
of investment Fund
• High liquidity • High Liquidity • High Liquidity
• Buying limits – • Different schemes • Professional
Min. 1 unit for different management
through investment
Benefits of investing exchange and horizon
in Mutual Funds no upper limit
• No lock-in • Tax efficient • Diversification /
returns if held for robust risk
3 years and above management
• Why are equities volatile?

• Have equities given

positive real returns over
the long run?

• How have equities

performed compared to
other asset classes?
It is normally seen that entrepreneurs
create wealth for themselves and
their shareholders by running good
and growing businesses.

How can an individual

learn and benefit from
these business stalwarts?
• Either by starting a business
(which may not be as easy to scale
up)

• Or, by investing in an established

and growing business
Why Invest in Equities?

Long Term Wealth Creation

Investing in equities could help you to create
wealth over the long term

Becoming a Part-Owner
When you buy equity of a company,
you become a part owner and could make
money as the company’s profit increases

Real Return is Higher

Investing in equities could help you beat
inflation as it generates positive real returns
over the long term
Equities for long-term wealth creation
Equity markets do not move up in a linear fashion.
Various news and events, both domestic and global, drive the market in the short run.
However, in the long term, returns could be in line with the growth of the underlying economy.

Equity Returns - NIFTY 50

100%
81%
80% 74% 71%
67%
60%
42%
40% 27%
24%
15% 18% 19% 15% 19%
20% 12% 11% 10%
7%
0%
-3% -2%
-20% -13% -9%
-19%
-40% -25% -26%
-36%
-60%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

As shown in chart, markets have given positive returns in some years and negative in others.
Source: MFI
Equities vs Other Asset Classes - Performance

Equity* 15.68%

Gold 8.85%

Bank FD 8.08%

Avg. Inflation 7.63%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00%

However, in the long term, S&P BSE SENSEX has delivered 15.68% CAGR between Mar 80 and Mar
22; which way higher than the average inflation rate during that period.

Source: World Bank; Based on data from March 31, 1980 till March 31, 2022
*S&P BSE Sensex
• Are equity markets
volatile in the short
term?

• What is the probability of

gain from equities in the
long run?
Understanding volatility

Ratio of Positive Based on Sensex Data • Markets are volatile in the short term.
Rolling Return Mar-79 to Mar-22 (44)
• As the investment horizon increases,
1 YR Growth 29/43 probability of loss reduces. E.g., the table
shows that, in the last 43 years of SENSEX,
3 YR Growth 34/41 the likelihood of losing money for periods
of 15 years or more has been NIL.
5 YR Growth 36/39
• SENSEX has compounded wealth at
10 YR Growth 33/34 15.96% over the long run. At this rate, an
investment in the stock market has
15 YR Growth 29/29 historically doubled approximately every
4.5 Years.
20 YR Growth 24/24
Decadal Growth Rates of India
16
14.7
14.2 13.9
14
11.6
12
6.4
10 8.6 9.1

8
6.3

4 7.5
5.6 5.6 5.3
2

0
CY: 1981-1990 CY: 1991-2000 CY: 2001-2010 CY: 2011-2020

Real GDP Growth Inflation

1981-90 1991-00 2001-10 2011-20

• Indira Gandhi Assassination •Global Oil Crisis - Gulf War • 9/11, Dotcom Bubble • QE Tapering, PIGS, Greece
• Birth of IT Industry • BoP Crisis, Reforms commence • Growth of Indian Generics Cos. • High FD & CAD, high inflation
• Advent of TV, Maruti Car • Growth of IT, Satellite TV, Mobiles • Lehman Crisis, Quantitative Easing • Demonetisation, GST, Make in india

Source: World Bank, Bloomberg; CAGR – Compounded Annual Growth Rate, GDP - Gross Domestic Product
Decadal Growth Rates of India
• The nominal growth of the
economy (real growth plus
inflation) is a good proxy for
the average growth in
businesses of a country (Ref.
Previous slide)

• Indian economy has grown at

a nominal growth of ~ 14%
p.a., while SENSEX has grown
at a CAGR of 15.96%. (From
Mar 1979 to Mar 2022)
• Does few years delay in
starting investment really
make a huge difference
in the long term?
Big impact - Power of Compounding

If you want to walk towards the

moon and start with 1 step on
the first day and double the
steps every day.

How long do you think it will take

to reach the moon?

2 years?
20 years?
Let’s find out!
Big impact - Power of Compounding
Distance Covered
Days Steps
(in KM)

Within 30 days, you will cover

1 1 0.001
2 2 0.002
3 4 0.003
4
5
8
16
0.006
0.012
over 3.84 lakh km (distance of
6 32 0.024
7 64 0.049 moon from earth) and thus cross
8 128 0.098
9
10
256
512
0.195
0.390 the moon!
11 1024 0.780
12 2048 1.561
13 4096 3.121
14
15
8192
16384
6.242
12.485
Yes, it will just take 30 days.
16 32768 24.969
17 65536 49.938
18 131072 99.877
19
20
262144
524288
199.754
399.507
But what if you delay by 15
21
22
1048576
2097152
799.015
1598.030 days? You will cover only 12 km!
23 4194304 3196.060
24 8388608 6392.119
25 16777216 12784.239
26
27
33554432
67108864
25568.477
51136.954
That’s the
POWER OF COMPOUNDING!!
28 134217728 102273.909
29 268435456 204547.817
30 536870912 409095.635
31 1073741824 818191.270
Impact of Power of Compounding on your wealth
The below graph depicts how much an amount of Rs. 1,00,000 would grow
to if invested each year, at various rates of return across time.

30000000 2.71 Crore The difference in the rate of

@12%
returns between Asset class 4
25000000
and 3 is only 3%. However,
20000000 when invested over the long
1.50 Crore term, the difference in terms of
@9%
15000000 value is huge.
10000000
84.80 Lakhs
@6% E.g., at the end of 30 years the
5000000 59.32 Lakhs amount of money accumulated
@4%
from Asset Class 3 is just Rs.
0 1.50 Crore, while that of Asset
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Class 4 is Rs. 2.71 Crore.

The difference in the rate of returns between Asset class 4 and 3 is only 3%.
However, when invested over the long term, the difference in terms of value is huge.
Power of Compounding - How it Works?
Let's see how much money can be accumulated (assumed CAGR 12%) through an SIP investment
of Rs.10,000/month.

3 Yrs 5 Yrs 10 Yrs 15 Yrs 20 Yrs 25 Yrs 30 Yrs

Investment Amt Appreciation

It is evident from the graph that as the number of years increase, money compounds at a much
higher rate. Even though the original investment is very low, the capital appreciation is much higher.
Difficulty in Timing the Market

16.00%

13.71%
14.00%

12.00%
10.20% This chart shows that if you
10.00%
8.36%
had stayed fully invested in
8.00% stocks (as measured by the S&P
6.32% BSE Sensex) from 1st Jan 1990
6.00%
4.50%
to 31st Mar 2022, you would
4.00% have earned compounded
annual returns of 13.71%.
2.00%

Source: Internal calculations based on data

0.00%
procured from www.bseindia.com
All Days Invested Missed 10 Best Missed 20 Best Missed 30 Best Missed 40 Best
Days Days Days Days

It’s Time, not timing - that makes money in the market

• How does inflation affect
your day-to-day life?
Understanding Inflation
• 1 Litre of petrol which used to cost 9.84 in 1990, costs 101.81 (2022)
• Over the last 4 decades CPI Inflation in India has averaged at ~7% per year.*
• A few specific examples below show how small increases over time end up increasing costs
dramatically.
120
107
101.81
100

80

60 1990
2022
40
27
20 9.84 8
2.35
0
Petrol (per litre) Wheat (per kg) Toor Daal (per kg)

Source: Petrol costs are as on March 20, 1990 in Delhi (Source: www.in.reuters.com), and on March 31, 2022 in Delhi (Source: Ministry of Petroleum and Natural Gas). The
price of wheat grains is as sold as wholesale in Mumbai in April, 1990 (Source: Ministry of Agriculture) and on March 31, 2022 (Source: Ministry of Consumer Affairs, Food &
Public Distribution). The prices of toor daal are as sold as retail in Mumbai in April 1990 (Source: Ministry of Agriculture), and on March 31, 2022 (Source: Ministry of
Consumer Affairs, Food & Public Distribution).

Investing in equities can help you beat inflation better than other asset classes and
provides positive real returns over the long term.
Inflation erodes purchasing power of money
• Inflation reduces your purchasing power.
• Hence, today’s money will not buy you the same things tomorrow.
120

100
100

80

60

40

20
11.34

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Real value of Rs. 100 will become Rs. 11.34 in 30 years at inflation of 7% p.a.
• Why should I not invest in a
Fixed Deposit when it is
giving me guaranteed
returns?
Real Returns in FD vs Equity Mutual Funds
The graph illustrates how much real returns you can get by putting your money in FDs vs Equity MF.

8% 7% 14%
7% 12%
6% 12%
6%
5% 10%
4% 8%
3% 2.18% 6%
2% 6% 4.80%
1% 4%
0%
2% 1.20%
-1%
-2% -1.18% 0%
Rate of Interest Inflation Tax on Interest Real Return Rate of Interest Inflation Tax on Interest Real Return

Real Return in FD Real Return in Equity MF

(assuming tax bracket of 31.20%) (assuming LTCG of 10%)

Even though FDs offer guaranteed returns, after deduction of inflation and tax, the real returns
amount to negative. Equity Mutual Funds, on the other hand, have the potential to beat inflation
and give higher returns over the long term.
Real Returns in FD vs Equity Mutual Funds
The graph illustrates how much real returns you can get by putting your 100 rupee
in Cash vs Fixed Deposits vs Equity Mutual Fund for 30 years

Cash FD MF

450
408.17
400

350

300

250

200

150
69.95
100
11.34
50

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Even though FDs offer guaranteed returns, after deduction of inflation and tax, the real returns
amount to negative. Equity mutual funds, on the other hand, have the potential to beat inflation
and give higher returns over the long term.
Debt MFs Vs Fixed Deposits
Retail investors AUM as a percentage of Total Debt AUM is minuscule. The primary reason behind the
under penetration of Debt MFs among retail investors has been lack of understanding and awareness.

Over the years, retail investors have favored Bank FDs due to their inherent nature of providing fixed
return on investments. However, Debt MFs tend to score over Banks FDs on other parameters which
are mentioned below:

• Tax Efficient - Investment held for more than 3 years in Debt MFs is eligible for indexation
benefit. (refer table below)
• Interest income is taxed on accrual basis in FDs while in Debt MFs income is taxed only when
dividend is received or units are redeemed

• Diversification - The portfolio of Debt MF is generally spread across various issuers and
securities, thus reducing the single issuer risk

• Debt MFs provide wide array of investment opportunities.

Debt MFs Vs Fixed Deposits
Below is a hypothetical illustration to explain the concept of indexation and its benefit

The features of fixed deposit investments and Debt Funds are not comparable. The comparison is
limited to tax efficiency, which is subject to changes in prevailing tax laws. Interest calculation is
assumed on yearly cumulative basis. Purchase FY is 2015-16 and sale FY is 2020-21.
Guidelines For New Earners
Term Insurance
Buy a Term Insurance policy
as the premium is low when
you are in your early 20s. Sum
assured should ideally be 10x
of your initial annual salary.
Tax Saving
Investors can save tax and
create wealth by investing in
Equity Linked Savings Scheme
(ELSS)
SIP Wealth Creation
Start an SIP in long term
growth focused funds when
you are young as it is rightly
said that an early bird catches
the worm.
Equity Linked Saving Scheme ELSS

ELSS FEATURES

Invests Lowest Tax Claim deduction

primarily in lock-in period efficient under section
equities of 3 years returns 80C*

*Claim deduction of up to Rs. 1.50 Lakhs from taxable income and save tax up to Rs. 46,800
Tax Saving Options
Investment Options Minimum Lock-in Returns Tax
Under Section 80C Inv (in Rs.) Years (%) Treatment

Public Provident Interest

500 15 7.10%
Fund (PPF) Tax free
National Saving Interest
100 5 6.80%
Certificate (NSC) income taxable
Bank Interest
1000 5 5.10%
Fixed Deposit income taxable
Equity-Linked Saving Market IDCW taxed at marginal rate
500 3
Scheme (ELSS) Linked and capital gains taxed at 10%^

^Plus applicable surcharge and cess. ₹1 lakh exemption available for capital gains.
Source: https://www.indiapost.gov.in/Financial/Pages/Content/Post-Oce-Saving-Schemes.aspx
https://www.sbi.co.in/web/interest-rates/deposit-rates/retail-domestic-term-deposits?inheritRedirect=true,
as on 31-3-2022.
Systematic Approach

SIP SWP STP

(Systematic (Systematic (Systematic
Investment Plan) Withdrawal Plan) Transfer Plan)

offers facilities to help offers facilities to help offers facilities to move

investors invest regularly investors auto withdrawal money between different
and create wealth to meet regular expenses schemes at regular interval
Key Benefits of Investing Through SIP

Brings Financial Discipline in Life

Market Timing Risk Minimised

Power of Compounding

Can Start With Small Amount

Helps To Achieve Various Life Goals

Small Sacrifices can Make a Huge Difference
• Can you give up 1 cigarette per day?
• Can you drink one pint of beer less over the weekend?
• Can you spend less on one movies / dinner p.m?

Skip 1 Cigarette Skip 1 Beer over Spend less on

A small sacrifice
Per day weekend movies & dinner

Cost Rs. 15 Rs. 200 Rs. 1500

Amount Saved
5,475 10,400 18,000
per year (in Rs.)
INVEST THE AMOUNT SAVED ANNUALLY FOR NEXT 35 YEARS
Assumed Rate of
12% 12% 12%
Return (%)

Accumulated amt 26,46,961 50,28,016 87,02,336

at the end of 35 years (in Rs.)
Regular SIP V/S Top-Up SIP

Topping up / increasing a
Rs. 10,000 SIP by just 10% every
year increases the corpus at the
end of 30 years by 150%.

(increased by 10% per year)

10,000 SIP per month (Rs) 10,000
36 Lacs Total Amount Invested (Rs) 1.97 Cr
3.08 Cr Corpus at the end (Rs) 7.99 Cr
Period of Investment is 30 Years
Assumed Rate of Return is 12%
Advantages Top-Up SIP
It is difficult to convince people to cut their spending now & save more.
Instead, simply encourage them to save more tomorrow.

Adapt your investments to your rising income levels

Reach your financial goals faster

Fight Inflation

Ease of transacting on Digital Platforms

Helps To Achieve Various Life Goals

• Why is starting to invest
early so critical?
• What will be the cost of
delaying investment by few
years?
Starting Early & Cost of Dely

Mr. A V/s Mr. B

35 Starts investing at the age of (in years) 25

15,000 Monthly SIP instalment (in Rs) 10,000

12% Assumed rate of return (p. a.) 12%

55 Investment till the age of (in years) 55

36 Total Investment (Rs in Lakhs) 36

1.38 Cr Accumulated value at the end (Rs in Crs) 3.08 Cr

Monthly Instalment required for

Mr. A to catch up with Mr. B Rs. 33,494
Starting Early & Cost of Delay

It is evident from the previous slide, that at the end of the investment
period, Mr. B’s investments grew to 3.08 Cr
while that of Mr. A grew to 1.38 Cr

A DIFFERENCE OF MORE THAN Rs. 1.70 Cr.

This is what starting to invest early in your life can do to your wealth.

If Mr. A wants to accumulate similar wealth as Mr. B,

he will have to invest ₹33,494 every month, i.e.,
More than 3 times the monthly instalment amount of Mr. B.

SO, START EARLY AND AVOID THE COST OF DELAY

Repay Your Home Loan Smartly

Who is smarter at
repaying a Home Loan
Mr. X of Rs. 25 Lakhs? Mr. Y
20 years Loan Repayment Term 30 years
19,382 (A) EMI (in Rs.) per Month @7% 16,633 (B)
- SIP per Month (in Rs.) 2,750 (A-B)
AFTER 17 YEARS
39,54,025 Total EMI paid (in Rs) 33,93,043
NIL Total SIP Investment 5,60,982
39,54,025 Total Outflow 39,54,025

NA Total SIP Corpus (in Rs) @ Assumed CAGR of 12% 17,16,146

6,27,730 Principal outstanding (in Rs) 17,00,542
NA SIP Corpus Left After Paying O/S Principal (in Rs) 15,604
Repay Your Home Loan Smartly
• Assume you have taken a home loan of 25 lakh at the rate of 7%^.
• The EMI payable for 20 year period would be 19,382.
• However, if you extend the loan period to 30 years, the same EMI would reduce to 16,632.

• So rather than taking a shorter loan period, opt for 30 year loan period and start an SIP of the
differential amount i.e., 2,750 in an Equity Mutual Fund scheme.

Mr. X continues to pay his EMI

till the end of the loan repayment term (for 3 more years)
While Mr. Y repays his loan from his returns from SIP after 17 years

Effects of taxation have not been considered in the above illustration of previous slide.
*Calculation - https://www.hdfc.com/home-loan-emi-calculator. Calculations are for illustrative purposes only.
^7% is an assumed median floating rate of interest over the tenure of the loan. The actual rate of interest might move up or down
throughout the tenure of the loan due to the floating nature of interest rates, and thereby changing the overall calculations.
Recover Home Loan Interest
Alternatively, if you cannot opt for a 30 year home loan due to any reason,
you can choose to set aside a marginal amount (0.15% of principal) from your savings
to start an SIP with an aim to recover the interest paid.

Loan Amount (A) 25,00,000

EMI (20 yrs tenure; 7% ROI) 19,382
Total Interest Paid (B) 21,51,794 This way you can create enough
wealth through SIP appreciation (Rs.
SIP Amount (0.15% of A) 3,750 25.49 Lacs) so that you can recover
the more than the entire amount you
Assumed CAGR 12% have paid as Home Loan interest
SIP Outgo in 20 Years (C) 9,00,000 payment (Rs. 21.52 Lacs)
SIP Future Value (D) 34,49,465
SIP Appreciation (E = D - C) 25,49,465

Effects of taxation have not been considered here.

Calculation - https://www.hdfc.com/home-loan-emi-calculator
Assumed rate of return on the SIP - 12% p.a. Calculations are for illustrative purposes only.
Systematic Investment Plan – Ready Reckoner
Target Amt -> Reqd. SIP (In multiple of Rs. 1000)

SIP Amt -> Future Value (In multiple of Rs. 1,00,000)

Lump Sum Investment Plan – Ready Reckoner
Target Amt -> Reqd. Lump-Sum (In multiple of Rs. 1,00,000)

Lump Sum Amt -> Future Value (In multiple of Rs. 1,00,000)
Guidelines for Married Investor with Kids

Insurance Investments Goal Contingency fund

Buy Health Insurance to get
hospitalization expenses
reimbursed / cashless and
Term Insurance to financially
secure your family in case of
eventuality
Start investing for Children's
future and own Retirement
through goal planning. This
will help to achieve goals
through systematic
investment
Invest a reasonable amount in
Liquid Fund for any near-term
contingencies (should ideally
be 3 to 6 times of total
monthly Income).
Asset Allocation
It’s an age old saying and applies to investments as well.
Asset Allocation is one of the important steps in one's investment strategy. It means to diversify
investment portfolio among different asset categories such as:

EQUITY DEBT CASH GOLD

They have a potential They have a potential Cash is suitable Gold is a hedge
for capital growth for stable growth with for very short against inflation and
with high volatility low volatility term needs currency risk.

Don’t put all your eggs in one basket

Asset Allocation Strategies
1. Strategic Asset Allocation
• Risk profiling – to identify whether you are a
conservative investor or an aggressive investor.
• Time frame – to identify how much time is there
for each of your goals.
• Return requirement – Return requirement is
expected returns, based on which calculations are
made for desired corpus.

2. Tactical Asset Allocation

• Tactical asset allocation is view based and decision
is made based on the behaviour of the market.
• If you believe that market will move up, you will
increase your allocation towards equity or if you
believe the interest rate are going to fall, you will
increase your allocation towards GILT funds (which
is part of Debt).
Winners Rotate
No single asset classes has consistently delivered highest return year after year and different
asset classes perform differently under different market cycles. Winner of one year may become
loser in the following year and vice-a-versa.

This table shows how various

indices have performed year-on-
year basis and thereby the
importance of diversifying within
the asset classes while creating the
portfolio.

Liquid is represented by Crisil Liquid Fund Index, GILT is represented by Crisil Dynamic Gilt Index, Corporate Bond is represented by Nifty
Corporate Bond Index, Credit Risk is represented by Nifty Credit Risk Bond Index, Large Cap is represented by Nifty 100 TRI, Midcap is
represented by Nifty Midcap 100 TRI, small cap is represented by Nifty Small Cap 100 index and Gold is represented by World Gold Council
INR.
Source: www.amfiindia.com and Gold prices from World Gold Council
Equity Allocation and Risk Appetite
How much equity exposure should an individual
investor have?
• As much as one does not need for a long term
(minimum 5 to 7 years)

• As much investment wherein one can digest a

temporary erosion to the tune of 25% to 30%
• As much equity which keeps one financially and
emotionally stable (if one is temperamentally
weak and gets disturbed with any short-term
volatility then one needs to have commensurate
exposure to equity)

Once an investor is convinced of these points, he/she can start investing based on his/her asset
allocation, irrespective of market valuation.
Equity Mutual Fund and Suitability
Equity Mutual Fund Taxation
Short Term Capital Gains
• Short Term Capital Gain: < 1 Year
• Short Term Capital Gain Tax Rate: 15%

Long Term Capital Gains

• Long Term Capital Gain: > 1 Year
• Long Term Capital Gain Tax Rate: 10% (up to 1 lakh exempted)

Dividend Distribution Tax

• Dividends are taxable in the hands of unit holders at
the applicable rate as per their tax slab
Debt Mutual Fund and Suitability
Debt Mutual Fund Taxation
Short Term Capital Gains
• Short Term Capital Gain: < 3 Year
• Short Term Capital Gain Tax Rate: As per Tax Slab

Long Term Capital Gains

• Long Term Capital Gain: > 3 Year
• Long Term Capital Gain Tax Rate: 20% with Indexation

Dividend Distribution Tax

• Dividends are taxable in the hands of unit holders at
the applicable rate as per their tax slab
Hybrid Fund
Investor 1 invests Rs. 100 in equity and debt separately, with 25% of his capital in equity and rest
75% in debt. Investor 2, on the other hand, invests -100 in a Hybrid Debt Fund which has the
same asset allocation. Let’s see what happens in 2 years.

Investors tend to evaluate each investment separately. Fear of loss leads to irrational decisions.
E.g. Investor 1 is tempted to sell his equity investment after year 1 due to losses.
Hybrid products have lower volatility and thereby reduces panic amongst investors.
Equity and Debt Cycles
It is difficult to predict market cycles – hybrid funds provide a solution. The below asset classes
are not strictly comparable as different asset classes have different risk profile.
100%
77% 78%
80%
57%
60%
39% 42%
40% 29% 33% 30%
28% 27% 26%
23% 19%
20% 13% 13% 13% 11% 8% 15% 15% 13% 16%
5% 4% 5% 7% 4% 3% 7% 4% 5%6% 9% 9% 1%
0%
0%
-4% -1% -3%
-20% -13% -12%
-15%
-40% -24%

-60% -51%
CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21

NIFTY 50 TRI NIFTY 10 YR G-SEC

Over the years, it has been observed that performance of various asset classes keep on changing and
no single asset class continues to outperform or underperform. As hybrid funds invest in both, equity
and debt, it can be an ideal solution for a retail investor, with low to moderate risk appetite.
Hybrid Mutual Fund and Suitability
Pre-Retirement Stage

Rebalance SWP Equity Exposure

Consider moving your Opt for SWP that can provide Consider keeping some
investments from high risk (e.g. you with monthly cash flows investments in equities as it
Equity) into low/moderate risk post retirement in a tax may provide a hedge against
asset class (e.g. Debt/Hybrid) efficient manner. longevity risk
Why Should We Worry for Retirement?

Nuclear
Families

Increased Higher
Cost of Living Medical Cost

Early Decreasing High Life

Retirement Returns Expectancy
SWP VS IDCW
Retail investors may be better off opting for SWP under Growth option over IDCW option, as it
helps to provide monthly cash flow in a tax efficient manner. The below table shows the
difference between withdrawing money regularly through SWP and receiving IDCW.

It is advisable to choose a SWP amount lower than the expected return.

If we opt for a higher amount for withdrawal, we may end up withdrawing our capital.
A Tax Efficient Option – SWP
SWP in Equity Mutual Fund
• SWP IN THE FIRST YEAR OF INVESTMENT: Short
term capital gains tax at 15% only on the gains
made.
• SWP AFTER THE FIRST YEAR OF INVESTMENT:
LTCG tax @ 10% only on the gains made, subject
to exemption# of Rs. 1 lakh for the financial year.

SWP in Debt Mutual Fund

• SWP IN THE FIRST 3 YEARS OF INVESTMENT: Short
term capital gains tax at applicable tax slab of the
investor only on the gains made.
• SWP AFTER 3 YEARS OF INVESTMENT: Long term
capital gains tax @ 20% only on the gains made,
with indexation benefit.
SWP – Tax Impact Explained
Mr. Sharma opts for SWP in the growth option of a equity oriented mutual fund. In SWP, every
withdrawal consists of principal component and gain component. Tax is applicable only on the
gain component. Gain component is smaller as compared to principal component during initial
withdrawals. Hence, tax is lower.
Over time, the principal component of the payout decreases giving way to the gain component.
Let us consider the example below:

Short Term Capital Gains (STCG) at the rate of 15% plus applicable surcharge and cess. Investors are advised to consult their tax advisers. As
the units redeemed are less than 15% of the units allotted on 01.01.2021, NIL exit load has been considered.
^This is for illustration purpose only, tax as a % of SWP could be higher in subsequent years.
Note: Ideally SWP should be started after completion of 1 year so that the gains are taxed under long term capital gains tax.
SWP – An Illustration
Equity Mutual Fund Fixed Deposit
Illustration of SIP+SWP Retirement Plan
SWP works out to be a tax efficient solution to structuring regular payout.
Illustration of I-Pru Freedom SIP

This is for illustrative purposes only. Please refer to the terms & conditions in the application form for further details. ICICI Prudential Freedom SIP is
an optional feature offered by ICICI Prudential AMC. This feature does not in any way give assurance of the performance of any of the Schemes of
ICICI Prudential Mutual Fund or provide any guarantee of withdrawals through SWP mode. Effective SWP rate is calculated by dividing the annual
SWP amount by the market value.
What are the various Debt Investment Options?
Should You Pause Your SIP?
Below table shows example of Mr. A and Mr. B, both started their SIP
on 1st April 2018. Mr A paused his SIP for 6 months while Mr. B
continued with his disciplined approach of investing regularly.

A A
Mr. Mr.
BB
SIP Start Date 1st April 2018 1st April 2018

SIP Pause Date Yes No

Pause Period 6 Months NA

Amount Invested 3,00,000 3,60,000

Market Value 3,71,270 4,62,428
(As on 31st March 2021)

Difference - 91,000

To benefit from SIP, one should invest on periodic basis and not allow
emotions to drive their investment decisions.
Concepts
Price
• Price of a company’s stock is market driven. It fluctuates based on demand and
supply of the share

Earning Per Share (EPS)

• EPS = (Profit after tax) / (Number of outstanding shares)

Market Capitalization
• Market Capitalization = Total no. of shares * Current market price
Concepts
Price to Earnings Ratio (PE)
• PE ratio = Price / EPS;
This helps to understand the valuation of a company.
• Index PE = Index/Index’s EPS;
This helps to understand whether the market is trading at a higher PE (overvalued)
or lower PE (undervalued).

Book Value
• Book Value = Total assets – intangible assets – liabilities;
• Book value refers to the total amount a company would be worth if it liquidated its assets and
paid back all its liabilities.

Price to Book Value

• PB or Price to Book Value = Price / Book value; Higher the PB, costlier the price is;
Lesser the PB more attractive the price is.
Concepts
Debt Markets instruments can be categorized as follows:

• Govt. Securities Market (Dated securities)

• Corporate Bond Market (Coupon bearing bonds, zero coupon bonds, floating rate bonds,
debentures etc.)

• Money Market (T-Bills, Commercial Papers, Certificate of Deposit), Returns of debt funds are
a combination of

• Coupon Accrual (Strategy applied: hold till maturity) &

• Mark to Market gain (Strategy applied: duration calls).

Concepts
Weighted Average Maturity
• Weighted Average Maturity tells us how sensitive a bond fund's NAV is to change in interest
rates. Funds with higher avg. maturity are supposed to be more volatile.

Modified Duration
• Modified Duration helps us in measuring the sensitivity of the bond fund’s NAV to interest
rate movement. So, if modified duration of a fund is 10 years, then if interest moves up by
1%, the NAV of fund will move down by 10%.

Intrest Rate <-> Prices

• When interest rate increases, bond prices decrease.
Need for Insurance

INSURANCE
BENEFITS

Protection Financial
for you and Security
your family

Reduces A legacy to Income Tax

stress during leave behind benefit
difficult times
Health and Term Insurance

TERM HEALTH

Term Insurance Helps meet

is a must medical expenses
Sum assured should Higher Sum assured
minimum be 10x of doesn’t cost much.
your annual income Take higher SA.

Premium paid up to Rs. Premium paid can be

1.5 lakh can be claimed claimed for deduction
for deduction u/s 80C u/s 80D
Need for Health Insurance
Inflation
• Retail Inflation : 4.40%; Medical Inflation : 7.74%

Uncertanities
• COVID type uncertanities

Avoid out-of-pocket expenses

• With cashless plans, immediate hospitalization costs can be avoided
Invest With Peace of Mind

Focus on the
downside, and
the upside will SAFETY
take care of itself
- Mark Sellers

Liquidity is only
there when you
LIQUIDITY don’t need it
- Jason Zweig

There are many

things never
worth risking, RETURN
no matter the
potential gain
- Morgan Housel
Case Study – 1 (Portfolio Design)
Mr. Ravi is 50 years old. He has
Rs. 50 lakhs to invest. He wants
you to create a portfolio of
different MF schemes. If there is
no emergency, then Mr. Ravi
would like to stay invested in the
portfolio for next 7 years at least.
Case Study – 2 (Young and salaried)
Mr. Harsh is 27 years old. He is
unmarried and working in an IT
company. He is planning to get
married in next 1 year. He is also
planning buy a house within next
2-3 years. Currently Harsh is
saving most of his salary amount
as he is staying with his parents.
Case Study – 3 (Middle aged, salaried)
Mr. Ajay is 40 years old. His wife
Shruti is 35. Their children Riya
and Rehan are 17 and 12 years
old respectively. Mr. Ajay’s
monthly surplus is Rs. 30,000. He
wants to save for his retirement
days as well as for his children’s
higher education and marriage.
Case Study – 4 (Retired)
• Mr. Narayan is retired. He is
having a corpus of Rs. 1.50
crore. This corpus is divided
into different types of assets
including bank FD, PPF, Post
Office savings, shares, mutual
funds etc. He wants to be
assured that he gets regular
monthly withdrawals (inflation
adjusted) till his lifetime and
manages to fund unexpected
random expenses.
Case Study – 5 (Middle aged businessman)
Mr. Rakesh, 45 years old, is a
businessman. His yearly average
income stands at Rs. 20 lakhs. His
monthly incomes are not fixed
and also uncertain. His daughter
is 15 years old. He wants to
accumulate enough corpus to
fund his daughter’s higher
education and marriage. Though
he wants to work throughout his
life but that should become
optional after age.
Objections Handling - 1 (Equity is risky)
Client
Equity markets are risky, I want
safety first. My bank FD is giving
me 6% guaranteed return then
why should I invest in equity?
Objections Handling - 1 (Equity is risky)

MFD
Sir, what do you think is more
important – preserving the capital or
preserving the purchasing power?
The fact is that in last 35 years CPI
inflation alone has eroded
purchasing power of rupee by more
than 90%. Lifestyle inflation is even
higher than that. Net of tax return
from investment asset should beat
inflation at least.
Objections Handling - 2 (Market is High)
Client
Market is very high. It should
correct. I will wait for the
correction. (Or, market has
corrected, and it will correct
further. I will wait till the things
get settled down.)
Objections Handling - 2 (Market is High)
MFD
We cannot time the market, but we can
surely spend time in the market.
Historically it has been seen that those
who stayed invested with their investment
have made big fortunes. Systematic
approach (SIP or STP) further protects us
from volatility and in fact gets benefitted
out of it. Major returns in equity market is
delivered in few days. By constantly trying
to time the market, chances of losing
those few days are very high.
Objections Handling - 3 (Equity for critical goal)
Client
Mutual fund returns are not
consistent. It goes up and down
along with the market. How can I
then invest into mutual fund for
my critically important goals or if
I require the money anytime
without worrying of capital loss?
Objections Handling - 3 (Equity for critical goal)
MFD
Mutual fund is not all about equity.
There are mutual funds, known as debt
schemes, which invest into bonds,
NCDs, certificate of deposits, G-Sec, T-
Bills etc. When a goal is nearby you
can then move your investment into
such schemes. Depending on your
horizon and risk appetite you can
choose different type of equity or debt
schemes.
Concern over Uncertainty of returns

Q
Prospective Investor – You always say that equity as an asset
class can generate higher ‘real rate of return’ than other asset
classes – but I think there is risk in equities.

Advisor – With time, the volatility and risk of investing in equities

reduces. Let me share this slide with you (Slide 11). And so, to help you

A
create wealth we could take a calculated risk by investing for a long term.
Concern over Poor Return of a scheme

Q Prospective Investor – XYZ Fund has delivered negative returns

over the last 6 months. Should I redeem?

A
Advisor – Equity markets are driven by various events and can be risky
and volatile if held for short term. However, over the long term, it has
beaten inflation by the highest margin (Slide 9). So, we should not get
swayed away by short term market movements.
Concern over Switching to a performing scheme

Q Prospective Investor – ABC Fund has given positive returns

during the same period. What could be the reason for that?

A
Advisor – Different managers have different investment styles and
approaches. Historically, we have seen different styles perform during
different time periods. So, we should understand fund managers’
investment philosophy and keep patience for the strategy to play out.
Concern over right Investment Horizon

Q Prospective Investor – So, for how long should I hold an equity

fund in my portfolio?

A
Advisor – Equities are the best compounding machines if held for long
term. Historically, we have seen that as the tenure increases, chances of
negative returns also reduce (Slide 11). So, we should invest in equities
with a minimum investment horizon of 5 years.