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Series 1 Aquinas Prem S

Save early, Retire early. Uffff Not yet another investment gyaan and statistics garbage. Chillax, nothing.. it is just going to be 2 stories, stories which you may have heard. So after reading I assure you that your entire viewpoint of investment is going to change, gothca ..never. It is same old story told by your parents and elders in another way. I work in a IT company, everyone wants to save a corpus and retire early. Reason: The company says they are building tommorrows enterprise today. So if they build tommorrows entreprise today what they will do tommorrow. . So no one knows what they will do day after tommorrow. So save early retire early. The company is powered is Powered by CtrlX and Driven by CtrlV. You may differ but thats what I am doing. By not prolonging I will jump into the pool.. Splash. So what is the connect between Indias growth story , Aishwarya Rai and your investment. Strange.

I will start with the first story Chanakyas Chant.

In age old times, Chanakya was a wise man in the court. The king, impressed with his talents asked Chankya to wish for anything. Chanakya said that he would ask just one thing and if the king feels it feasible he may give it to him. This was the wish by Chanakya Take a chessboard, put one grain in the first square, mulitply it by 2 in the second square and again by 2 in third square and so on till the 64th square. I want all the grains in the chessboard The King thought for a moment 1 grain in the first sqaure, 2 grains in second square, 4 in third, 8 in fourth. Just a few sacfull of grains. He said ok and asked the servant to fill it.

Investment Perspective: series -1

It went on like this 2,4,8,16,32,64,128,256 by the 31st square it is 107crores and by 38th square it was 6871crores. All the production of wheat in the country cannot suffice it. The same way by which a single virus multiplies itself into millions in a matter of hours is called Power of Compunding This Power of compunding was called as the eight wonder of the world by Albert Einstein. So it is not Aishwarya Rai but this power was rigthly called the eight wonder. The secret is compound interest. Over short time periods, the compounding effect is not all that prominent, but over a longer time frame, the results are spectacular. So what is the connection with Indias growth story. India grows at 8.0% and USA grows at 1.5%. 8% and 1.5% Kya farak hai. There is a farak.

Indias GDP is $1.85 trillion whereas US is $15 trillion. Before that I will state a rule called Rule 72. If anything grows at say x%, it will take 72/x years to get doubled. Suppose you invest Rs.100 for an interest of 10%. It will take 72/10 i.e 7.2 years for Rs.100 to get doubled to Rs.200. So if India grows at 8% for every 9 ( 72/8%) years its GDP will double. Isnt that startling. All the wealth that our country has gained, all the resources it gained in the last 4000 years of history is going to double in just 9 years. Now you know why Indias growth of 8% is not a small thing. If Indias wealth doubles every 9 years , by 45 years our $1.85 trillion wealth will become $60 trillion. Whereas USA wealth will double only once in 48 years. (72/1.5%). So by 2050 its GDP will be $30 trillion compared to Indias $60 trillion. Country India USA GDP $1.85 trillion $15 trillion Growth 8.0% 1.50% Years to double (Rule 72) 72/8 72/1.5 9 years 48 years At 2050 GDP $ 60 trillion $ 30 trillion Growth % 6000% 100%

So now I think you appreciate the beauty of Power of compounding . A small difference like 1.5% and 8% creates wonders in the long run. Financial success doesnt come for most of us unless we dont understand this concept well.

Investment Perspective: series -1

So now lets turn into personal finance. Here is the second story. The story of hare and the tortoise. As you might heard this story numerous times. I dive straight into the finance world. Suppose the tortoise invests Rs.10,000 every year in for which interest is 15% for period of 10 years and stops its invesment after 10 years and leaves the money to compound for the next 20 years. The hare wakes up late and starts investing from the 10th year and invest Rs.20,000 for the next 20 years. See the pic for more clarity

10 years
Tortoise invests 10k for the first 10 years and leaves it to compound.

20 years

30 years

Hare invests 20k from 10th for 20 years

So at the end of the 30th years, whom do you think would have a higher corpus amount? If we use something which is uncommon called common sense, the answer would be the Hare. The hare would have invested 4 lacs, Whereas the tortoise would have invested only Rs. 1 lacs, so obviously it should be the hare. Here lies the beauty of power of compounding. Tortoise earns a corpus 50% higher than the Hare. Invested amount Tortoise Hare 1 lac 4 lacs 23,56,200 Corpus at 30th year 38,21,460

Investment Perspective: series -1

Moral of the story: Even though the Hare invested twice the amount for twice the duration more than tortoise, just because the Tortoise started early it has a 50% more corpus than the hare. So what you should you do to make you piggy bank look bigger? Invest as early as possible and invest consistently. So starting early is half work done.

Consider 3 persons Chottu, Mottu, Rottu. All invest montly Rs. 10,000 at 15% rate. All want a retirement corpus at the age of 60. Chottu get his job early and starts investing at 20 years of his age. Mottu studies MBA , so he get his job late at 25 years and starts investing from thereon. Rottu plans that he would start investing after getting married and having a child and so he starts at 30 years. So what would be their corpus at their 60 years of age. Name Rottu Mottu Chottu Age when they started investing 30 25 20 Corpus at age 60 6.7 crores 14.11 crores 29.56 crores

So here is fact why one should start early. But starting early doesnt make the job complete. The rate of return also does the magic. Remember the India- USA GDP growth datas. Suppose all three starts investing Rs 10,000 a month at their age of 25. Chottu invests in an FD which gives 11% return Mottu in a balanced mutual fund which gives 15% return Rottu in equity mutual fund which gives 19% return over a long run.

Rub your eyes before looking at the data, as you may not believe it.

Investment Perspective: series -1

Presto

Name Rottu Mottu Chottu

Rate of return 19% 15% 11%

Corpus at age 60 42.13 crores 14.11 crores 4.84 crores

Dont think its just fake. Go to google and search for a RD calculator. Change the time period and interest and check it for yourself. Final word : A good time frame of investment and an excellent rate of return would make you sit on a heap of gold. But how did you arrive at 19% return, is it some arbitrary figure. The best rated equity mutual fund gives 95% return on one year and -32% the other and how can you be so sure of it? The 19% figure is arrived after analyzing a series of empirical datas for longer time periods by some of the great financial minds. By this built up you should have known, its none other than me. This is where I leave for my next episode. 19% how?.As I said in the start I will leave you with just two stories with as little data as possible for you to interpret. If you have any queries post me in my Infy blog or write me to Aquinas_s@infosys.com. Also read the story again to get a better understanding of what is being said. P.S.: One of my school friend, against my advice went to a financial consultant. He charged 5000 rupees for a 30 minute sitting. And all he got was an excel with just some datas most of which we can get from websites. So moral of the story: No more free investment gyaans .No probs ..i leave it here ..see you again at 19% how

Investment Perspective: series -1