100X returns in 30 Years .... Read on

It has been seen quite often people from all walks of life, whether employed, professionals, businessmen give least priority to their financial goals. Is this due to lack of proper knowledge to identify goals or if the goals are defined, is there lack of proper execution ??

As per the data below, Indians deployed 69% of Household savings in Physical Assets, in anticipation that it will give fantastic returns, but question is .... Can it be liquidated it when one is in need of funds?? How long will it take to liquidate a Physical Asset. If one needs a Physical Asset for end use, there is always a good time, but if one wants to invest in Physical Asset for decent returns as we saw in between 2008-2012 period, please give a second thought. Since last 3 years Real Estate has been going through a tough period. It is a very good saying :: "Don't put all your eggs in one basket". What all options do we have which is liquid, which has historically given best returns.....It is Equities markets in India which has given CAGR returns of 17% in last 30 years.

The BSE Sensex has a base of 100 for the year 1979. The Sensex first touched 10,000 in February 2006, i.e. 100x in 27 years (almost 19% CAGR). As of March 2014, the Sensex stood at 22,400 levels. It was at 224-levels in 1984, i.e. 100x in 30 years (CAGR of 17%).Source ::.Economic Times edition 10/01/2015.

	Chart 1: Distribution of Household Savings
		(%)
	Financial Savings	Physical savings
FY01	46.4	53.6
FY02	45.4	54.6
FY03	44.9	55.1
FY04	47.6	52.4
FY05	42.9	57.1
FY06	50.4	49.6
FY07	48.7	51.3
FY08	51.9	48.1
FY09	42.9	57.1
FY10	47.5	52.5
FY11	43.0	57.0
FY12	30.8	69.2
FY13	32.4	67.6

Just 2.5%-3% of Indian population has been investing in Equities. I don't know why people are afraid of Equities when it has beaten all the asset classes in terms of returns. Is it the fear to lose capital, patience, knowledge or guidance ??

Those who are exposed to this asset class do not like to invest in other Saving instruments such as FDs,/ Debt Funds/ Gold etc. They feel that sooner or later Equity, as an asset class, will give the best returns .

If one doesn't have the knowledge, please invest through Equity Schemes of Mutual Funds. Equity Mutual Funds are the funds managed by Fund Managers who have experience in this field. If one has lumpsum amount, he/she can invest at one go. If one hasn't and want to build capital over a period of time and achieve goals, best way is SIP (Systematic Investment Plan). In SIP a monthly predecided amount is deducted from bank account and is invested via Mutual Funds in the Markets.

SIP averages out the highs and lows of the market and give decent returns over a period of time. Ensure, that SIP is for medium term to long term (5 years and above) to actually view the returns generated by the fund.

If still scary about Equity markets, one can invest in Balanced Schemes of Mutual Funds wherein investment in Equity Funds are 65% - 75% and Debt Funds 25%-35%.

The last but not the least :: All Equities/ Equity Mutual Funds/ Balanced Mutual Funds fall under 15% short term capital gain if gains are booked in less than 1 year. Above 1 year of investments, these gains fall under long term which stands NIL as on date.

Happy Investing !!!

 

 

Equities have given equivalent returns as Real Estate has....

Equities have given equivalent returns as Real Estate has....

Film actor Rajesh Khanna bought a bungalow in iconic Carter Road in Mumbai for Rs.3.5 lakhs in 1970. His heirs sold it recently for Rs.85 crores. The property has multiplied by 2428 times or an annualized return of 19.38% over 44 years.

Samudhra Mahal in Mumbai is another expensive property. A flat purchased in 1970 at Rs.700 per sq.ft was sold at Rs.1,18,000 per sq.ft in 2013. Money multiplied by 168 times in 43 years. This works out to an annualized return of 12.66%

In 1963, Godrej paid Rs.1 lakh to buy his first house, a 2916 sq.feet apartment at Usha Kiran, Carmicheal road, in tony South Mumbai. In 2011 he sold it for Rs.25 crore. Money multiplied by 2500 times over 48 years or an annualized return of 17.70%

 Film actor Rajesh Khanna bought a bungalow in iconic Carter Road in Mumbai for Rs.3.5 lakhs in 1970. His heirs sold it recently for Rs.85 crores. The property has multiplied by 2428 times or an annualized return of 19.38% over 44 years.

Samudhra Mahal in Mumbai is another expensive property. A flat purchased in 1970 at Rs.700 per sq.ft was sold at Rs.1,18,000 per sq.ft in 2013. Money multiplied by 168 times in 43 years. This works out to an annualized return of 12.66%

In 1963, Godrej paid Rs.1 lakh to buy his first house, a 2916 sq.feet apartment at Usha Kiran, Carmicheal road, in tony South Mumbai. In 2011 he sold it for Rs.25 crore. Money multiplied by 2500 times over 48 years or an annualized return of 17.70%

In Dalal Street, Mumbai a sq.feet was Rs.100 in 1980. After 34 years, it sells at Rs.27,000 per sq.ft. Money multiplied by 270 times in 33 years. This works out to an annualized return of 17.90%.

The first three properties can be bought and owned by cream or elite of the society who are worth at least tens of crores, mostly hundreds of crores.

The last property in Dalal street; your father could have bought with whatever money available at his disposal. You can buy it even now. Your son or daughter would be able to buy it even 20 years down the line.

The last property is Sensex. A sq.feet is a metaphor for one unit. If dividend yield is also included (assuming 2% CAGR), Sensex would have delivered 20% annualized returns over last 34 years, higher than the most expensive prime properties in the country.

Good mutual funds and many stocks have delivered returns far superior to Sensex itself.

Power of equity is least understood in this country (India).

If you can withstand notional loss (if you don’t book) in portfolio during bear markets, not worry about daily price movements, it is possible to make much better money than what can be made out of best of real estate.

Give at least the same importance to equity as you give to real estate.

Please remember... Real Estate is an illiquid Asset whereas Equities and Equity Mutual Funds can be liquidated immediately. You can get funds in 3 to 4 days in your bank account if you wish to liquidate Equities whereas in Real Estate it may take months to materialise a transaction.

Thanks