Tuesday, May 13, 2014

An SIP or One-Time Investment?

An SIP or One-Time Investment?

If I continuously invest Rs 5,000 per month in an equity fund, is it possible to build a corpus over 15 years? Would I not make much more by investing it all at one go and holding on for that long? Would I need to change funds to keep the growth going?
— Ashwin Arora

Regarding the possibility of building a corpus over 15 years, it certainly is plausible. Even if you invest just Rs 5,000/month and earn an annual return of 12 per cent, you would end up with Rs 25.20 lakh at the end of 15 years.
Alright, that's theoretical. So let's look at some actual funds to see if this thesis holds up. I have taken a 15-year time frame and looked at a Systematic Investment Plan (SIP) of Rs 5,000/month over this entire period. The diverse line up includes some superstars as well as dogs. That's deliberate. It will convey a more realistic picture. As you can see, there is no arguing with the numbers. And even though the worst performing fund made money, the difference between the best and the worst is nothing short of glaring.
Your second question is interesting, and you may even be right, but look at the table below for a reality check. If you are looking at a one-time investment, you would first of all need to be in possession of capital, in this case Rs 9 lakh, that too 15 years ago. Once you overcome this hurdle, you would end up being a hostage to market timing. What if you had invested the money at the peak of the market cycle, say January 2008 when the Sensex was at around 21,000. Can you imagine the worth of your investment by December 2008 when the Sensex dipped to an abysmally low 8,500? Psychologically, the impact of seeing your investment reduce to half can be disastrous. The good thing about a systematic investment plan (SIP) is that it helps you ride the market upheavals to your advantage. And it does what you want, which is accumulate wealth over the years in a low-cost, transparent fashion without a strain on your finances.

RuPay, India's own payment gateway, launched

President Pranab Mukherjee on Thursday launched a payment gateway'RuPay', which has been set up by theNational Payments Corporation of India. Like the internationally-accepted Visa and MasterCard gateway, RuPay will also facilitate ATM withdrawals, payments at merchant outlets and online purchases. 

ICICI BankState Bank of Indiaand Punjab National Bank, among others, are already using the gateway for clearing and settlement. The government hopes RuPay will help reduce cash transactions. It is the seventh such payment gateway in the world. 

Dedicating RuPay to the nation, Mukherjee said India is one of the few countries in the world to have its own card payment gateway. 

Public sector banks have already installed 25,331 RuPay card-enabled ATMS and 9,000 more ATMs would be installed in the current fiscal, financial services secretary GS Sandhu said at the launch. 

How does RuPay hope to make a mark? 

- Lower transactions cost: transaction processing will happen in India as opposed to outsider for other gateways. This will reduce clearing and settlement cost, the benefit of which will be available to customers. 40% lower cost for banks compared to international gateways. 

- Higher level of customisation: being locally developed, the National Payments Corporation is confident it will be able to offer better customisation for local needs. 

- Data protection: data will remain in India. 

- Higher penetration: right pricing of RuPay products to make them economically feasible for banks to offer to untapped population. 

What are the immediate plans? 

- IRCTC will launch a variant of pre-paid RuPay for booking railway tickets. 

- NPCI wants to take RuPay card overseas and is already in talks with Discover Financial Services in the US and JDC in Japan for partnership.

Wednesday, January 15, 2014

Coal India jumps 5% on special dividend of Rs 29/share

Shares of  Coal India jumped over 5 percent, hitting a two-month high in early trade on Wednesday. Investors are euphoric about the company as last evening it declared an interim dividend of Rs 29 per share , amounting to Rs 18,317 crore, for 2013-14. 

The company will pay the dividend from January 25. The government will get Rs 16,485.71 crore for its 90 percent stake in the Maharatna company.