Investor Education
The Foundation of Wealth Creation
A Comprehensive Guide to Goal-Based Investing
Risk Profiling | Inflation Impact | Time Value of Money
Presented by: Certified Mutual Fund Distributor
NISM Certified | AMFI Registered
About This Presentation
What We'll Cover Today:
- Understanding your risk profile and its importance
- Goal-based investing strategy
- The silent enemy: Inflation and its impact
- Stephen Covey's Time Management Matrix for investing
- Cost of delay in starting investments
- Historical market performance insights
- The power of time in wealth creation
- Mutual fund concepts and benefits
Our Objective
To educate you about the fundamental principles of successful investing, helping you make informed decisions that align with your financial goals and risk tolerance.
What are Mutual Funds?
Simple Definition
A mutual fund is a professionally managed investment vehicle that pools money from many investors to purchase securities like stocks, bonds, and other assets.
How It Works
1. Money Collection
Thousands of investors contribute money
2. Professional Management
Fund manager invests the pooled money
3. Diversification
Money spread across various stocks/bonds
4. Units Allocation
Investors get units based on investment amount
Key Benefits
- Professional Management: Expert fund managers handle your investments
- Diversification: Risk spread across multiple securities
- Liquidity: Easy to buy and sell (for open-ended funds)
- Affordability: Start with as little as ₹500
- Transparency: Regular updates on portfolio holdings
Understanding NAV (Net Asset Value)
What is NAV?
NAV is the price per unit of a mutual fund. It represents the per-unit market value of all securities held by the fund.
NAV Calculation
NAV = (Total Market Value of Securities - Expenses) ÷ Total Number of Units
Simple Example
Fund's Total Portfolio Value: ₹100 crores
Fund's Expenses: ₹1 crore
Total Units Outstanding: 99 lakh units
NAV = (₹100 cr - ₹1 cr) ÷ 99 lakh = ₹100 per unit
Common NAV Myths
❌ Myth: Lower NAV is better
Reality: NAV doesn't determine fund performance. A fund with ₹500 NAV isn't better than one with ₹50 NAV.
❌ Myth: High NAV means expensive
Reality: You get proportional units. ₹1000 investment gives you 2 units at ₹500 NAV or 20 units at ₹50 NAV.
✅ Fact: Returns matter, not NAV
Focus on: Fund's track record, consistency, and alignment with your goals.
Rupee Cost Averaging
What is Rupee Cost Averaging?
When you invest a fixed amount regularly through SIP, you buy more units when NAV is low and fewer units when NAV is high, potentially reducing your average cost per unit over time.
How It Works - Example
Average Cost per Unit: ₹30,000 ÷ 617 units = ₹48.62
Simple Average NAV: (₹50 + ₹40 + ₹60) ÷ 3 = ₹50
Benefit: You paid ₹1.38 less per unit on average!
Benefits of Rupee Cost Averaging
- Reduces timing risk: No need to predict market highs and lows
- Emotional discipline: Removes emotion from investment decisions
- Market volatility advantage: Volatility becomes your friend
- Automatic investing: Set it and forget it approach
Mutual Funds vs Direct Stocks
Who Should Choose What?
Choose Mutual Funds If:
- You're a beginner investor
- You have limited time for research
- You want professional management
- You prefer lower maintenance investing
- You want instant diversification
Choose Direct Stocks If:
- You have extensive market knowledge
- You enjoy researching companies
- You have time for portfolio management
- You can handle higher volatility
- You want direct ownership
💡 Smart Approach: Core + Satellite
Core (70-80%): Diversified mutual funds for stability
Satellite (20-30%): Direct stocks for potential alpha
Professional Management
What Do Fund Managers Do?
🔍 Research & Analysis
Deep dive into company financials, industry trends, and market conditions
📊 Portfolio Construction
Build diversified portfolios based on fund's investment objective
⚖️ Risk Management
Monitor and manage various types of risks in the portfolio
📈 Performance Monitoring
Continuously track and optimize portfolio performance
The Team Behind Your Investment
Fund Manager
Senior investment professional with years of experience
Research Analysts
Specialists who analyze specific sectors and companies
Risk Management Team
Ensures portfolio stays within defined risk parameters
Operations Team
Handles trade execution and portfolio administration
Value You Get from Professional Management
Expertise
Access to professional investment knowledge and experience
Time Saving
No need to spend hours researching stocks and market trends
Emotional Discipline
Professional managers make rational, not emotional decisions
Full-time Focus
Dedicated professionals working on your investments daily
Remember: Even the best fund managers can't eliminate market risk, but they can help optimize your risk-return profile through professional expertise.
Why Risk Profiling Matters
What is Risk Profiling?
Risk profiling is the process of assessing an investor's willingness and ability to take financial risk, considering factors like:
- Age and life stage
- Income stability
- Financial goals and timeline
- Past investment experience
- Emotional comfort with volatility
SEBI Mandate: All distributors must conduct proper risk profiling of investors before any investment.
Why It's Essential
- Prevents unsuitable investment recommendations
- Aligns investments with investor's comfort level
- Reduces anxiety during market volatility
- Ensures regulatory compliance
- Creates realistic return expectations
Understanding Your Risk Profile
Key Assessment Areas
Financial Capacity
- Current income and expenses
- Emergency fund availability
- Existing investments and assets
- Debt obligations
Risk Tolerance
- Comfort with market volatility
- Previous investment experience
- Emotional response to losses
- stress bearing capcity during market downturns
Time Horizon
- When do you need the money?
- Short-term vs long-term goals
- Flexibility in timeline
- Age and retirement planning
Risk Profile Categories
Conservative (Low Risk)
Characteristics: Capital preservation priority, low volatility tolerance
Suitable for: Debt funds, liquid funds, short-term goals
Moderate Conservative
Characteristics: Some risk acceptable, steady growth preference
Suitable for: Hybrid funds, balanced advantage funds
Balanced
Characteristics: Moderate risk for moderate returns
Suitable for: Large cap funds, flexi cap funds
Growth-Oriented
Characteristics: Higher risk tolerance, long-term focus
Suitable for: Mid cap funds, multi-cap funds
Aggressive (High Risk)
Characteristics: High risk tolerance, maximum growth seeking
Suitable for: Small cap funds, sectoral funds
Goal-Based Investing - The Smart Way
Why Link Investments to Goals?
- Purpose-driven investing: Every rupee has a specific objective
- Better discipline: Less likely to withdraw during market volatility
- Appropriate asset allocation: Match risk with time horizon
- Measurable progress: Track whether you're on target
- Emotional stability: Clear purpose reduces panic decisions
Common Financial Goals
Short-term (1-3 years)
- Emergency fund
- Vacation planning
- Car purchase
Medium-term (3-7 years)
- Home down payment
- Child's education
- Business expansion
Long-term (7+ years)
- Retirement planning
- Child's marriage
- Wealth creation
Linking Investments to Goals
Goal-Based Investment Strategy
*Note: Expected returns are indicative and based on historical data. Actual returns may vary.
Key Principle: Longer the time horizon, higher the risk you can afford to take for potentially better returns.
The Hidden Enemy: Inflation
What is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power over time.
Current Inflation Rates in India
General Inflation
~6%
Education Inflation
~11%
Healthcare Inflation
~8%
Why Inflation Matters for Investors
- Erodes purchasing power: Same amount buys less over time
- Real returns: If inflation is 6% and your investment gives 8%, real return is only 2%
- Goal achievement: Higher future costs mean you need more money
- Fixed income impact: Traditional savings become inadequate
How Inflation Destroys Purchasing Power
Purchasing Power Erosion Over Time
Today
₹1,00,000
Current purchasing power
After 10 Years
₹55,800
Equivalent purchasing power at 6% inflation
After 20 Years
₹31,180
Equivalent purchasing power at 6% inflation
Real-Life Impact Example
Today's Value: ₹1,00,000 can buy a certain basket of goods
After 10 years (6% inflation): You'll need ₹1,79,085 to buy the same basket
After 20 years: You'll need ₹3,20,714 to buy the same basket
Key Insight: Parking money in traditional savings (3-4% returns) actually makes you poorer over time when adjusted for inflation!
Inflation's Impact on Different Goals
Child's Education Goal
Current Cost: ₹10 lakhs for engineering degree
Education Inflation: 11% per annum
Time to Goal: 15 years
Future Cost: ₹46.7 lakhs
You need 4.7x more money!
Retirement Goal
Current Monthly Expenses: ₹50,000
General Inflation: 6% per annum
Years to Retirement: 25 years
Future Monthly Need: ₹2,14,548
You need 4.3x more money monthly!
The Solution
Invest in inflation-beating assets that can potentially deliver returns higher than inflation rates over the long term.
Target Return: At least 13% CAGR for long-term goals to comfortably beat inflation and create real wealth.
Stephen Covey's Time Management Matrix
From "The Seven Habits of Highly Effective People"
Quadrant 1
Urgent & Important
- Crises and emergencies
- Pressing deadlines
- Medical emergencies
- Last-minute preparations
Reactive - "Fire fighting"
Quadrant 2
Not Urgent but Important
- Prevention and planning
- Relationship building
- Personal development
- WEALTH BUILDING
Proactive - "Prevention & Planning"
Quadrant 3
Urgent but Not Important
- Interruptions
- Some phone calls
- Others' immediate concerns
- Popular activities
Reactive - "Deception"
Quadrant 4
Neither Urgent nor Important
- Time wasters
- Excessive TV/social media
- Gossip
- Busy work
Waste - "Excess"
Urgent vs Important in Investing
Covey's Key Insight for Investors
"The key is not to prioritize what's on your schedule, but to schedule your priorities."
Most People's Investment Behavior
Quadrant 1 & 3 Reactive Investing:
- Investing only when there's an immediate need
- Panic during market crashes
- Following hot tips and market noise
- Last-minute tax saving
- Chasing past performance
Result: Poor returns, emotional stress, goal misses
Successful Investor's Behavior
Quadrant 2 Proactive Investing:
- Regular systematic investments
- Long-term planning and goal-setting
- Disciplined asset allocation
- Starting early, staying consistent
- Focus on fundamentals, not noise
Result: Wealth creation, financial freedom, peace of mind
The Cost of Delay - A Real Example
Two Friends, Same Goal, Different Start Times
Person A (Smart Starter)
- Starting Age: 25 years
- Monthly SIP: ₹10,000
- Investment Period: 35 years (till age 60)
- Expected Return: 13% CAGR
Person B (Delayed Starter)
- Starting Age: 35 years
- Monthly SIP: ₹10,000
- Investment Period: 25 years (till age 60)
- Expected Return: 13% CAGR
Person B's Common Reasons for Delay
- "I'm too young, I'll start when I get married"
- "Let me first buy a house, then I'll invest"
- "I need to enjoy life first"
- "I'll start when my salary increases"
- "Market is too high right now"
These seemingly logical reasons cost Person B dearly...
Cost of Delay Calculation (13% CAGR)
Person A (Started at 25)
Total Investment: ₹42 lakhs (35 years × ₹10,000 × 12)
Final Corpus at 60: ₹8.52 Crores
Wealth Created: ₹8.10 crores
Person B (Started at 35)
Total Investment: ₹30 lakhs (25 years × ₹10,000 × 12)
Final Corpus at 60: ₹2.27 Crores
Wealth Created: ₹1.97 crores
The Shocking Cost of 10-Year Delay
₹6.25 Crores!
Despite investing ₹12 lakhs more, Person A created ₹6.25 crores more wealth!
Key Learning: Time is more valuable than the amount invested!
SIP Formula Used: FV = PMT × (((1+r)^n - 1) / r) × (1+r)
This demonstrates the true power of starting early and consistent investing!
NIFTY's Historical Performance
NIFTY 50 Historical Returns
Since Inception
11.5% CAGR
20-Year Average
12.59% CAGR
15-Year Average
10.73% CAGR
10-Year Average
11.24% CAGR
Why 13% is a Reasonable Planning Assumption
Long-term Track Record
NIFTY 50 has delivered consistent returns across various time periods, with most periods showing 11-12% CAGR.
Conservative Planning
Using 13% for planning provides a reasonable buffer while being achievable based on historical data.
SEBI Guidelines
SEBI mandates not to project higher returns that might lure investors into wrong decisions. 13% strikes the right balance.
Market Cycles
Long-term investing helps navigate through various market cycles, smoothing out volatility over time.
Remember: While some schemes may deliver higher returns, planning with 13% ensures realistic expectations and goal achievement.
Time: The Most Powerful Variable
The Magic of Compounding
"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't, pays it." - Albert Einstein
How Compounding Works
Year 1: ₹10,000 × 13% = ₹11,300
Year 2: ₹11,300 × 13% = ₹12,769 (earning on earnings!)
Year 3: ₹12,769 × 13% = ₹14,429
The growth accelerates exponentially!
Time vs Amount: Which is More Powerful?
Scenario A: More Time
₹5,000/month for 25 years at 13%
Result: ₹1.14 Crores
Total invested: ₹15 lakhs
Scenario B: Higher Amount
₹10,000/month for 15 years at 13%
Result: ₹0.56 Crores
Total invested: ₹18 lakhs
Verified Insight: Investing ₹5,000 for 25 years creates more than double the wealth compared to investing ₹10,000 for 15 years!
Action Point: Start NOW with whatever amount you can. You can always increase later!
Performance Examples - Fund Categories
Disclaimer: These are category-wise historical performance ranges, not specific scheme recommendations.
Large Cap Funds
Historical CAGR (10+ years): 12-14%
Risk Level: Moderate
Suitable for: Stable, long-term wealth creation
Time Factor: Consistent performers over long periods
Mid Cap Funds
Historical CAGR (10+ years): 15-17%
Risk Level: High
Suitable for: Higher risk tolerance investors
Time Factor: Volatility smoothens over time
Small Cap Funds
Historical CAGR (10+ years): 18-20%
Risk Level: Very High
Suitable for: Long-term aggressive investors
Time Factor: Extreme volatility, needs patience
ELSS Funds
Historical CAGR (10+ years): 16-18%
Risk Level: High
Suitable for: Tax saving + wealth creation
Time Factor: 3-year lock-in extends to long-term
Flexi Cap Funds
Historical CAGR (10+ years): 14-16%
Risk Level: Moderate-High
Suitable for: Diversified equity exposure
Time Factor: Adaptive strategy benefits over time
The Common Success Factor: TIME
All categories show their true potential only with adequate time horizon (10+ years)
The Investment Formula: Return × Time = Wealth
But TIME is the most crucial variable!
Returns (Partially Controllable)
- Choose the right asset class
- Maintain proper asset allocation
- Regular portfolio review
- Stay invested through cycles
Impact: Moderate - Can optimize but market dependent
Time (Fully Controllable)
- Start investing immediately
- Stay consistent and patient
- Don't try to time the market
- Let compounding work its magic
Impact: Maximum - Exponential growth through compounding
Wealth Creation Principles
1. Start Early
Even small amounts invested early can create substantial wealth
2. Stay Consistent
Regular investing through SIPs harnesses rupee cost averaging
3. Think Long-term
Short-term volatility becomes wealth over long periods
4. Don't Time the Market
Time in the market beats timing the market
Key Takeaways for Investors
🎯 Goal-Based Investing
- Every investment should have a specific purpose and timeline
- Match your risk profile with appropriate investment products
- Regular review and rebalancing ensures you stay on track
📈 Beat Inflation
- Inflation is the silent wealth destroyer - plan for it
- Target returns that beat inflation by a healthy margin
- Equity investments historically provide inflation-beating returns
⏰ Time is Your Best Friend
- Start investing as early as possible - even with small amounts
- Compounding works best over long time horizons
- Every year of delay costs exponentially more
🧘 Quadrant 2 Thinking
- Make investing a priority, not just urgent tasks
- Plan and prevent rather than react to crises
- Systematic investing creates disciplined wealth building
Your Next Steps
Disclosure: Trail Commission & Legal Notice
Trail Commission Disclosure
As an AMFI-registered Mutual Fund Distributor (MFD), I am compensated by Asset Management Companies (AMCs) through trail commission as per regulatory standards. This compensation structure ensures ongoing service support for your mutual fund investments and does not influence your investment decisions.
Role Clarification
As an MFD, I assist investors by:
- Providing educational insights about mutual funds
- Helping you understand different fund categories
- Processing your mutual fund transactions
- Offering ongoing support for your investments
Important Note
Educational Purpose
This presentation is for educational purposes only to help you understand mutual fund concepts and the importance of systematic investing.