Simple
Simple
Simple
Treat equity investment as a long term one for 10-15 years like your insurance or PPF
(or at least as your 5-yr NSC) and you will most probably end up with very good
returns
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Investing in equity is one of the few ways of making big money—sometimes very big money.
However, it comes with the risk of losing money—sometimes the entire amount. Therefore,
despite the high potential, investment in equity is negligible when compared to the bank
deposits / post-office schemes. The fear of loss is simply too overwhelming.
I did some number crunching on the Nifty from its beginning in mid-1990s till 1 st week of
March 2012 i.e. a period of almost 22 years. I worked out the following
What were the returns after 5 years, if a person did SIP of Rs. 1,000 for 5 years (60
months) starting on any given day (around 4,000 data points).
What were the returns after 10 years, if a person did SIP of Rs. 1,000 for 10 years (120
months) starting on any given day (around 2,800 data points).
Here is what I observed
No. of SIP per month Max. Return Returns Min. Return Returns Avg. Return Returns
months
60 Rs. 1,000 Rs.1,74,000 37.14% Rs. 45,450 -11.40% Rs. 84,400 12.84%
As you can see, in the worst case the loss was 11.4% in a five-year SIP, and it was 3% for a
10-year SIP.
The average returns of around 13% were far better than returns on FDs (moreover these
returns are tax-free whereas your FDs would be taxable based on your tax slab).
Treat equity investment as a long term one for 10-15 years like your insurance or PPF (or at
least as your 5-year National Savings Certificates) and you will most probably end up with
very good returns.
The writer is the promoter of The Wealth Architects.
Tags insurance PPF
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