Smart investor workshop

Ranjan Varma

Founder, RupeeManager.com

Ranjan Varma

Founder, RupeeManager.comAuthor, Lights Camera Action Steps on Money

Management

How to be a smart investor

WLTTS?and

WWIL? or WIIFM?

Lights, Camera & ActionLights, Camera & ActionLights! Stories and Scripts

Camera!!

Shooting the film

Action!!! In Cinemas, plans fast filling

• Act I: Stories & Scripts– The Hare & Tortoise Story– The Yaksha Story– The Monkey Story– The Chessboard story

• Act II: Shooting the film– Using the DIY Financial Planner

• Act III: In Cinemas– Taking Cover– Choosing Investment Products– Tax Planning

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Act I, II & III

TheTortoise and Hare Story

Asset Class ReturnsAsset Class Returns

Period Debt Equity1979-2007

10.14% 19.67%

2008 5.79 -51.842009 9.07% 71.46%2010 4.68% 17.25%2011 5.36% -24.90%2012 8.71% 27.35%1979-2012

8-9%* 16.6%

Slow & Steady wins the raceSlow & Steady wins the race

Fast and disciplined always beat

the slow and steady

Fast and disciplined always beat

the slow and steady

The River of lifeThe River of life

Teaming up wins Teaming up wins

The Yaksha StoryThe Yaksha Story

What is the most “surprising” thing in this world?

Why is it Important ?Why is it Important ?

• Academic skill vs Life Skill

• Inflation erodes the value of your money.

• You are responsible for other people’s life and well beinghttp://ranjanvarma.com

If you have subscribed in 100 shares of _____ Company with a face value of Rs.100/- in 1980If you have subscribed in 100 shares of _____ Company with a face value of Rs.100/- in 1980

In 1981 company declared 1:1 bonus = you have 200 shares

• In 1985 company declared 1:1 bonus = you have 400 shares

• In 1986 company split the shares to Rs.10 = you have 4000 shares

• In 1987 company declared 1:1 bonus = you have 8000 shares

• In 1989 company declared 1:1 bonus = you have 16000 shares

• In 1992 company declared 1:1 bonus = you have 32000 shares

• In 1995 company declared 1:1 bonus = you have 64000 shares

• In 1997 company declared 1:2 bonus = you have 1.92,000 shares

• In 1999 company split the shares to Rs.2 = you have 9.60,000 shares

• In 2004 company declared 1:2 bonus = you have 28,80,000 shares

• In 2005 company declared 1:1 bonus = you have 57.60.000 shares

• In 2010 company declared 2:3 bonus = you have 86,40,000 shares

Your present valuation is about

Rs.354 Cr. + &

The Company name Is ‘WIPRO’

How many invest?How many invest?

• Less than 2 crore demat account holders.

• Stock investing is like gambling.

• There are big sharks in the Stock Markets

A group of scientists placed 5 monkeys in a cage and in the

middle, a ladder with bananas on the top.

Every time a monkey went up the ladder, the scientists soaked the rest of the monkeys with cold

water.

After a while, every time a monkey went up the ladder, the others beat up the one on the

ladder.

After some time, no monkey dare to go up the ladder regardless of the temptation.

Scientists then decided to substitute one of the monkeys. The 1st thing this new monkey did was to go up the ladder. Immediately the other monkeys beat him up. The new

member learned not to climb the ladder even though never knew why.

A 2nd monkey was substituted and the same occurred. The 1st

monkey participated on the beating for the 2nd monkey.

A 3rd monkey was changed and the same was repeated (beating). The 4th was substituted and the beating was repeated and finally the 5th monkey was replaced.

What was left was a group of 5 monkeys that even though never

received a cold shower, continued to beat up any

monkey who attempted to climb the ladder.

“I don’t know – that’s how things are done around

here”

What’s the risk of taking risks • If you win, you will be happy• If you lose, you will be wise.

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Skills

Knowledge

Profile

Attitude

Motives/Goals

The Ice Berg Model of a Competency

Visible

Hidden

Tip of an IcebergTip of an Iceberg

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Ready to play a game of chess?

• 64 squares• start with 1 paisa• double as we go along• return gift of Rs 100 to each participant

Total= 18,446,744,073,709,551,615.

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Magic of CompoundingMagic of Compounding• Starting with Rs 1000 every

month compounded at 10% amounts works out to : 5

years78171

10 yrs 2.02 lakh15 yrs 4.03 lakh20 yrs 7.25 lakh25 yrs 12.44 lakh30 yrs 20.80 lakh40 yrs 55.96 lakh50 yrs 147.13 lakh

Starting earlyStarting early

• Age 25, Invest Rs 2000 p.m. till age 60• Asset @ 10% growth is Rs 65 lacs

• Age 30, Invest Rs 2000 p.m. till age 60• Asset @ 10% growth is Rs 39.5 lacs

• Difference: Rs 25.5 lacs• Investment difference only Rs 1.2 lacs

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Starting Early, Another lookStarting Early, Another look

Example: Suppose, a person starts Investing Rs. 5,000 every month towards his Retirement Corpus. How much will he accumulate?

Assumptions:1) The average Return he gets is 10%

pa2) He retires at 60 years of age3) He starts at AGE ??

Amount he accumulates:

If the Starting Age is 25:

If the starting Age is 30:

If the Starting Age is 35:

If the Starting Age is 40:

If the Starting Age is 45:

If the Starting Age is 50:

Rs.1.91 Crore

Rs. 38.30 lakh

Rs.1.13 Crore

Rs. 66.90 lakh

Rs. 20.90 lakh

Rs. 10.33 lakh

Automobile Engineer

v/s

Driving a Car

Automobile Engineer

v/s

Driving a Car

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The Game of NumbersThe Game of Numbers

• Time Value of Money • Magic of compounding• Rupee Cost Averaging• Asset Allocation• EMI Game• 4 Parameters for a financial product• The Rule of 72

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Time Value of MoneyTime Value of Money

• Savings (t) + Investments = Income (t) – Expenses (t)

• During a lifetime there are periods of saving, and periods of dis-saving.

• Personal finance is about moving money, or purchasing power, backward and forward in time

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Investing RegularlyInvesting Regularly

• Investing regularly can fetch you more shares of a stock through rupee cost averaging. In the example, when investing in lumpsum, the share price was Rs 20 -- meaning, you end up buying 500 shares.

• Instead, if one were to invest Rs 1,000 every month for 10 months, the total number of shares purchased adds up to 520, since these were bought at different price levels and the average cost of each share comes down to Rs 19.6.

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How it pans out Time(mths)

Fixed amountinvested (Rs)

Price pershare (Rs)

Sharespurchased

1 1000 20 50

2 1000 21 48

3 1000 24 42

4 1000 19 53

5 1000 16 63

6 1000 17 59

7 1000 16 63

8 1000 23 43

9 1000 18 56

10 1000 22 45

Total 10,000 19.6 520

Example

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Investing ParametersInvesting Parameters

Four Parameters of Investing1. Growth2. Liquidity3. Security4. Expenses

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Rule of 72Rule of 72

• Know the rule of 72. The number of years taken to double your money is =72/CAGR.

• Or planned CAGR is =72/No. of years wherein you want to double your money.

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Personal Financial

Management

Personal Financial

Management

Phase 2: Shooting the film

Financial Planning ProcessFinancial Planning Process

• Collect relevant Financial Data• Assess current Status (Net Worth & Income-

Expense Statement)• Quantify Life Goals• Develop Strategies• Choose the right Strategy & Develop Plan• Implement & Monitor

Hierarchy in Financial PlanningHierarchy in Financial Planning

Contingency Planning

Risk Management

Planning for Financial Goal

Estate Planning

Retirement Planning

WealthProtectio

n

WealthAccumulatio

n

WealthDistributio

n

Phase 3: Action: In CinemasPhase 3: Action: In Cinemas

•Selecting the right insurance cover

•Selecting the tax products

•Selecting investment products

•Portfolio Tracking and Review

•Tax Filing

email:

ranjan@ranjanvarma.com

Mobile: 9892-393-469

email:

ranjan@ranjanvarma.com

Mobile: 9892-393-469Author, Lights Camera Action Steps on Money

Management