SIP illustration based on Different Amount, Time and Return Assumption.
|
|
|
Percentage |
|
(Amount in Rs after SIP Time Period) |
|
Monthly SIP Amount |
Returns |
20 years |
15 years |
10years |
5years |
3years |
|
|
|
9% |
643,456 |
369,281 |
191,086 |
75,271 |
41,230 |
|
Rs 1000 per month |
12% |
919,858 |
475,931 |
224,036 |
81,104 |
43,079 |
|
|
|
15% |
1,327,073 |
616,366 |
263,018 |
87,342 |
44,983 |
|
|
|
20% |
2,476,194 |
955,960 |
344,311 |
98,704 |
48,280 |
|
|
|
9% |
1,930,368 |
1,107,843 |
573,258 |
225,814 |
123,689 |
|
Rs 3000 per month |
12% |
2,759,572 |
1,427,794 |
672,108 |
243,311 |
129,238 |
|
|
|
15% |
3,981,220 |
1,849,097 |
789,055 |
262,026 |
134,950 |
|
|
|
20% |
7,428,582 |
2,866,380 |
1,032,933 |
296,112 |
144,841 |
|
|
|
9% |
3,217,281 |
1,846,405 |
955,430 |
376,357 |
206,148 |
|
Rs 5000 per month |
12% |
4,599,287 |
2,379,657 |
1,120,179 |
405,518 |
215,396 |
|
|
|
15% |
6,635,367 |
3,081,828 |
1,315,091 |
436,710 |
224,917 |
|
|
|
20% |
12,380,967 |
4,777,300 |
1,721,555 |
493,520 |
241,401 |
|
|
|
9% |
6,434,561 |
3,692,810 |
1,910,860 |
752,715 |
412,296 |
|
Rs 10000per month |
12% |
9,198,574 |
4,759,314 |
2,240,359 |
811,036 |
430,793 |
|
|
|
15% |
13,270,734 |
6,163,656 |
2,630,182 |
873,421 |
449,834 |
|
|
|
20% |
24,761,940 |
9,554,599 |
3,443,110 |
987,040 |
482,803 |
Source: Kotak SIP O Meter
10 Calculations to understand
the the worth of an Investment
To arrive at a result, calculations can be done in a
different way or by using a different formula.
Even the same formula can be used differently to arrive at a
certain result. Here are a few commonly used money management formulas.
Use an excel sheet to do these .
1. Compound Interest
XVZ wants
to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at
an annual interest rate of 8 per cent for four years?
The compound interest formula can be used here to calculate
the final cost, which would include the loan amount and the interest paid. The
amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount
of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed;
R: rate of interest; N: time in years.
Also used for: Calculating the maturity value on lumpsum
investment (bank fixed deposits and National Savings Certificate, for example)
over a fixed period at a certain rate of interest.
2. Compound Annualised Growth
Rate
XYZ had invested Rs 1
lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70.
How should I calculate my returns on an annual basis?
Compound annualised growth rate (CAGR) will be used here to
calculate the growth over a period of time. The gain of Rs 50 over five years on
the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100).
However, it should not be construed as 50 per cent average return over five
years.
Formula: CAGR = {[(M/I)^(1/N)] - 1} * 100
Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity
value; I: initial value; N: time in years. CAGR here is 28.47%.
Also used for: Calculating the annualised returns on a
lumpsum investment in shares.
3. Internal Rate of Return
DP paid Rs 18,572 every year on a moneyback insurance policy
bought 20 years back. Every fifth year, he received Rs 40,000 back and Rs 4.5
lakh on maturity. What was DP's rate of return?
The internal rate of return (IRR) has to be calculated here.
It is the interest rate accrued on an investment that has outflows and inflows
at the same regular periods.
In the excel page type Rs 18,572 as a negative figure
(-18572), as it is an outflow, in the first cell. Paste the same figure till the
twentieth cell.
Then, as every fifth year has an inflow of Rs 40,000, type in
Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in
�18572. In the twenty first cell, type in Rs 4,50,000, which is
the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and
hit enter.
5.28% will show in the cell. This is your internal rate of
return.
Also used for: Calculating returns on insurance endowment
policies.
4. XIRR
Dev bought 500 shares on 1 January 2007 at Rs 220, 100 shares
on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008,
I sold off all the 650 shares at Rs 655. What is the return on my investment?
XIRR is used to determine the IRR when the outflows and
inflows are at different periods. Calculation is similar to IRR's. Transaction
date is mentioned on the left of the transaction.
In an excel sheet type out the data from the top most cell as
shown here. Outflows figures are in negative and inflows in positive. In the
cell below with the figure 4,25,750, type out
=XIRR (B1:B4,A1:A4)*100
Hit enter. The cell will show 122.95%, the total return on
investment.
Also used for: Calculating MF returns, especially SIP, or
that for unit-linked insurance plans.
5. Post-Tax Return
My father wants a bank FD at 10 per cent return for five
years. He pays income tax. What will be the returns?
The post-tax return has to be calculated here. The idea is to
know the final returns on a fully taxable income. Interest income from the bank
is taxed as per your tax slab.
Formula: ROI -
(ROI * TR)=Post-tax return
Type in: =10 - (10 * 30.9%) and hit enter. You will get 6.91%
ROI: rate of interest; TR: tax rate (depends on tax slab)
Also used for: Calculating post-tax returns of national
savings certificates, post-office time deposits, and Senior Citizens' Savings
Scheme.
6. Pre-Tax Yield
My brother says that the investment in public provident fund
(PPF), which gives 8 per cent, is the best. Isn't 8 per cent a low rate of
return?
An investment's pre-tax yield tells us if its return is high
or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared
with returns of a taxable income to estimate its worth. For someone paying a tax
of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there
is no fixed, safe and assured-return option that has 11.57 per cent return and a
post-tax return comparable to PPF's 8 per cent.
Formula: Pre-tax yield = ROI / (100-TR)*100
Type in: =8/(100-30.9)*100 and hit enter. You will get
11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)
Also used for: Calculating the yield on an Employees'
Provident Fund or any other tax-free instrument.
7. Inflation
M y family's monthly expense is Rs 50,000. At an inflation
rate of 5 per cent, how much will I need 20 years hence with the same expenses?
The required amount can be calculated using the standard
future value formula. Inflation means that over a period of time, you need more
money to fund the same expense.
Formula: Required amt.=Present amt. *(1+inflation) ^no. of
years
Type in: =50000*(1+5% or .05)^20 and hit enter. You will get
Rs 1,32,664 as the answer, which is the required amount.
Also used for: Calculating maturity value on an investment.
8. Purchasing Power
M y family's monthly expense is Rs 50,000. At an inflation
rate of 5 per cent, how much will be the purchasing value of that amount after
20 years?
Inflation increases the amount you need to spend to fetch the
same article and in a way reduces the purchasing power of the rupee. Here, Rs
50,000 after 20 years at an inflation of 5 per cent will be able to buy goods
worth Rs 18,844 only.
Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of
yrs
Type in: =50000/(1+5%)^20 and hit enter. You will get Rs
18,844, which is the reduced amount
9. Real Rate of Return
M y father wants to make a one-year bank FD at 9 per cent. On
maturity, he says, the capital will be preserved and he would get assured return
on it.
It is true that fixed deposit is safe and gives assured
returns. However, after adjusting for inflation, the real rate of return can be
negative.
Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100
Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the
real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per
cent here).
10. Doubling, Tripling of Money
I can get 12 per cent return on my equity investments. In how
many years can I double or even triple my money?
Formula: No. of years to double = 72/expected return
Type in: =72/12 and hit enter. You will get 6 years. For
tripling, type in: =114/12 and hit enter. You will get 9.5 years. For
quadrupling, type in: =144/12 and hit enter to get 12 years.
11. Decoding Risk Ratio:Standard Deviation
Standard Deviation (σ)
The volatility risk of a mutual fund scheme is measured by ‘Standard Deviation’ (SD). A Higher SD number indicates that the net asset value (NAV) of the scheme is more volatile and it is riskier than a fund with a lower SD.
Standard deviation as a standalone number does not help in drawing any conclusion. It is best to compare it either with the Standard deviation of the benchmark or its peers. A fund generating higher returns may not always be better than its peers. The returns are looked at, in tandem with the extra risk (standard deviation) that the fund takes to generate those returns.
12. Decoding Risk Ratio:Beta
Beta (β) is a measure of the volatility of a security or a portfolio in comparison to the benchmark. Beta can be described as the tendency of a security to respond to swings in the market. The higher the beta, the more sharply the value of the investment can be expected to fluctuate (in either direction) with relation to a market index.
There are various interpretations for Beta (β):
If Value of Beta (β),
Interpretation
β > 1
Fund moves in the same direction, but more than the movement of the benchmark (e.g β= 2.5)
β = 1
Fund moves in the same direction, about the same amount as the movement of the benchmark
0 < β < 1
Fund moves in the same direction, but less than the movement of the benchmark (e.g β= 0.5)
β = 0
Movement of the fund is uncorrelated with the movement of the benchmark
β < 0
Fund moves in the opposite direction as compared to the index (e.g β = - 1.5)
13. Decoding Risk Ratio:Alpha
Alpha (α)
Alpha is the excess return of a fund over its benchmark index. It is a common measure of assessing a fund manager's performance as it highlights the “extra” returns over the benchmark. A positive alpha means the fund has outperformed its benchmark index whereas, a negative alpha would indicate an underperformance