October 13, 2007

How to make 6.4 lacs by investing 1000 per month

Is’nt the above title like a typical get rich quick scheme ? Frankly there is no magic in the above. The approach is very simple. The NSE or BSE index on an average has returned around 16-17% per annum for the last 10-15 years. So if one can invest via SIP (systematic investment plan) around 1000 Rs per month, it should amount to around 6.4 lacs after 10 years. This is with the assumption that the gain is evenly distributed ( @ 1.4 % per month) across the entire 120 month time period.

Ofcourse reality is not that convinient. However volatility generally helps in improving the overall returns in an SIP plan. So if one can maintain the discipline of investing 1000 per month irrespective of how the market is doing in the short term, it will work out in the long run.

Let me give a few scenarios (investing 1000/ month)











Anyone can follow this approach by regularly investing in an ETF or an index fund for the long term and come out well. Even better if you can find a mutual fund which can beat the market by 2-3% point.

So where’s the catch? well there is none really. The main problem is us. Think of it … where is the sex appeal or sizzle in this strategy. If you discuss this with your friend, do you think you will get anything more than a yawn? Who is going to be impressed with this approach ?

I know what comes to everyone’s mind (mine included), namely – I am a better investor. I can make 25% per annum and have beaten the daylights out of the market for last 2 years. Who wants this boring strategy, when I can do all kinds of fancy stuff, have fun at it and boast about it too. Maybe its true, but can you be sure?

So the question is – is it better to follow a known strategy and build a decent nest egg in the next 10-15 years, or try for the moon which may or may not happen.

I am not different than anyone else and tend to follow both approaches at the same time. I prefer not to discount a simple and effective approach. As a result a portion of my portfolio is always indexed and in SIP.

7 comments:

Prem Sagar said...

Well Rohit,
if you ask me, I would agree fully. I have a big ego, but have manged to sideline it and convince myself to make my folio 'passive' to a great extent.
It is very hard to tell yourself a passive strategy will work too.....when your entire brain thinks you are second only to Warren Buffett!

The mind is a monkey! We need some real effort I guess in sticking towards being passive.

Well, but these days I like it when someone asks me how the market is doing... I reply in typical Jason Zweig style... I dont know and I dont care! And my folio has still managed to appreciate without my 'interference'!

Rohit Chauhan said...

i agree ..being passive even partly is diffcult. it goes against our basic nature. besides investing can you think of any other activity where being passive can sometimes be more rewarding than hyperactivity. think work, sports ...
that said, to manage my itch for activity, i have passive and active portfolio. my passive portfolio is indexed or in mutual funds and via SIP.the active portfolio is where are my analysis and activity is
the other interesting thing is that there is more activity typically during bull markets than bear markets. no one talks of stocks during bear markets.
any media such as TV, financial website, blogs like this are all baised towards activity. you cant develop a financial services business on a passive startegy

yogesh said...

Hello,

Can you tell me 2/3 index funds, which I should invest into.

Regards
Yogesh

Rohit Chauhan said...

hi yogesh
instead of index funds which carry a high expense load for no reason, try ETF (exchange traded funds) on nifty index. these are like index funds, trade like shares and have a lower expense ratio

regards
rohit

vineet said...

Hi Rohit,

I have googled enuff for ETFs in india especially the ones the track SENSEX or NIFTY can u pls suggest a resource where one can find a comprehensive list of ETFs and their performance over the years. Also, if you please, your suggestions on which would be the good ones to go for.

Thanks for your blogs and time.

--Vineet

Vidyanshu said...

Hi Rohit,

This comment is more to apprise you that I am reading all your posts from 2004 onwards in the inv...process section :)

One more place where being passive really helps is spiritual practice. Detachment while doing work...As the Bhagavad Gita says - Karmanye vadhika rastu..etc and things on Niskama Karma. I read some place that once Ben Graham told Warren Buffett - we will make a lot of money for our near and dear ones but you and me will not need much money ..something like that..The message being that if you are detached and not anxious your decision might be much better.

Buffett strikes me as a very spiritual person (not religious, spiritual).
regards.

Rohit Chauhan said...

Hi vidyanshu

good to know that you are finding the past posts useful

funny you mention this point about buffett ..i have felt the same too ..that comment from graham is in the book - making of an american capitalist i think

i think for buffett it has been about doing what you love ..money has been a byproduct for him

regards
rohit