Traditional Investment Avenues
Traditionally, Indian Investors invest in Life Insurance sector & they call it as an investment. But, the fact is that Life Insurance provides you with safety & saving’s, not returns.
“Safety” not from death! “Safety to the policy holder family members”. Life Insurance was sold as an investment avenue, even nowdays it is sold as investment tool by many agents/brokers.
Other Traditional Investment Avenues
- Provident Funds ( PPF, GPF etc. )
- Post Office Schemes ( NSC, Senior Citizen etc. )
- Gold
- Real Estate
- GOI Bonds
- Fixed Deposits
- Stock Exchange ( Shares, Mutual Funds etc. )
Much importance was given to avenues other than stock exchange investments & still the story is the same.
Need Returns Then Take Some Risk
Investors are not keen to take much risk, to some extent they are right but if some what
Risk pays you good return its not that bad choice. Huge Returns/Profits only come in
long term & by taking risk only. For instance- You are a hunter and you want to hunt
a tiger, you cannot hunt in city so you have to go to jungle to hunt tiger. So, you took the
risk for your benefit, by going inside the jungle.
But, in long term investment, risk reduces & returns are increased.
You Won’t Lose Money, Even A Singe Penny
One cannot lose his/her money if invested in Sensex for a minimum duration of 15 years.
On first thought for few investors it is very hard to believe in this statement “ We Won’t
Lose Money, Even A Single Penny”. Then on second thought the investor will ask one
question only i.e. How?
How? Answered!
Any investment in Sensex for a 15 years duration assures a return from 2% to 26%, while
if we calculate the average it is 14%. So any chance of loss is irrespective of the time
& date of investment. Any investor can actually earn about 14% per annum on an
average.
Assumption- If we see inflation is some where around 4% on an average. But, as we get
14% on an average by investing in Sensex, we beat inflation by 10% on an average basis.
BSE SENSEX Average Rolling Returns Per Annum
Investment Duration | Max. | Min. | Volatility | Per Annum Average Returns |
| 1 Year | 251% | -50% | 301 | 20% |
| 5 Years | 58% | -9% | 67 | 15% |
| 10 Years | 36% | -4% | 30 | 14.5% |
| 15 Years | 26% | 2% | 28 | 14% |
| 20 Years | 21% | 11% | 10 | 15% |
| 25 Years | 18% | 16% | 2 | 17% |
Hence, by looking at average rolling returns of BSE SENSEX on per annum basis the
“Probability Of Loss Is Decreasing & Probability Of Returns Is Increasing”.
Points To Remember
- Stock markets are very volatile.
- Volatility reduces with longer investment duration.
- Probability of loss also reduces, since longer investment horizon is there.
- After 15 years the risk of negative returns is completely eliminated.
- This trend is same in worldwide markets not only in Sensex, but yes past performance is not giving you guarantee of future returns.
- Global returns is around 5.8%,
- The above theory works only is diversified portfolio only.
- If one fears from Shares they can opt for Mutual Funds- The Market Out-performers ( Rest Depends On Scheme To Scheme )
- Don’t time the market, just invest on time & for longer duration to get maximum out of the stock market.
Written by- Varun Vaid ( vaid.varun@yahoo.co.in )
