A new marathon begins

Analysing the returns on an investment of Rs 10,000 per month in Systematic Investment Plans (SIPs) of some of the consistent diversified equity funds since early 2000,I realised that what the power of compounding had achieved was nothing short of astounding. If one had invested in a disciplined manner for 10 years,an investment of Rs 12 lakh (10 years x 12 months x Rs 10,000) would have turned into Rs 48-50 lakh today. In the case of some of the top-performing funds,the corpus size would have touched Rs 90 lakh.

Missed opportunity

Why did I miss this opportunity,you may ask yourself? Actually,several investment advisors too failed to realise the opportunity available over the last decade. Moreover,the number of people who get a financial plan prepared through a certified financial planner (CFP) is negligible. Even today,in a working population of about half a billion,only an insignificant number has a written financial plan in place.

Its still not too late

If you feel that you missed the bus in the last decade,it is still not too late. The India story has just begun. Indias GDP grew at an average of 7.2 per cent over the last decade,which includes a low of 3.22 per cent in 2002 and a high of 9.67 per cent in 2006. Even in FY09,with the world economy in the throes of a recession,Indias GDP grew at a respectable 6.7 per cent. Given the Indian economys current growth momentum,it could easily supersede the average GDP growth rate of the past decade.

Portfolio inflows from foreign institutional investors (FII) into India has grown from USD 1.4336 billion in 2000 to USD 17.4575 billion in 2009. Globally BRIC economies have grown faster over the last decade and account for a larger slice of the FII investment pie now. India continues to be an attractive investment destination for direct and portfolio investors,thanks to the potential of Indian businesses and of the domestic consumer market.

Besides the macro economics,India is receiving world recognition for being a knowledge centre where new technologies are developed and for its prowess in telecom. The earlier oft-citied problem of high population has now turned into an asset which is likely to transform the country into one of the worlds five largest consumer markets. With the youth comprising a majority of the population,the productivity of industries is likely to increase. Higher productivity implies higher revenues and increased salaries,which will in turn translate into higher spending power,and hence higher demand. Consumerism in India is,in fact,set to enter its strongest phase.

Tipping point

A vital tipping point in Indias growth story is its per capita income which crossed the USD 1,000 mark at the end of 2009. Historically,Asian economies have exhibited a much faster growth rate after achieving this figure. For example,China took 25 years to grow from a per capita income of USD 400 (1978) to USD 1,000 (2003). However,it took just another five years (2008) to reach the $3,000 mark and is expected to touch $4,000 by 2010. Malaysia crossed USD 1,000 in 1975,Thailand in 1985,and Philippines in 1995. Growth in each of these countries exploded thereafter. A higher per capita income implies higher savings and higher consumption levels for individuals. In the next five to 10 years India too can expect to move into a faster growth trajectory.

Opportunities galore

Looking at historical data,the next decade offers an opportunity that is at least as good as the last one. But the differentiator will again be putting a financial plan in place and adhering to it rigorously. Earlier,financial planning was a nascent industry with few people aware of its purpose. But now the number of CFPs in the country has increased and access to them has improved. A financial planner can help you define your goals and create a financial plan that will help you achieve those goals a childs education or marriage,buying a home,or saving for retirement. With a disciplined approach you can achieve them all.

If in 2000 you had a goal of raising Rs 10 lakh by 2009 to fund your childs higher education,you would have had to invest Rs 3,235 per month. With returns of around 15 per cent,which many diversified equity funds offered during the last decade,this goal would have been easily met. Similarly,to buy a house worth Rs 70 lakh in 2009,investing around Rs 22,500 per month starting in 2000 would have sufficed.

Investors also need to remember that it is not possible to time the markets to get the best deals. If you invest regularly,then the law of averages works in your favour and ensures that you are able to meet your goals.

One can be forgiven for being ignorant about the opportunity during the 2000s. But it would be unpardonable if one were to not start saving and investing now,knowing fully well the growth prospects of the next decade.

Think of this. In 2000,if one had started investing Rs 10,000 via an SIP in diversified equity funds (see table) and increased the SIP amount by 10 per cent every year,one would have ended up with a sum of Rs 1.36 crore in 2009. Do you want to let go of another chance to make your future secure by not getting a financial plan made? As the adage goes,failing to plan is planning to fail.

The author is a CFP and MD,Ffreedom Financial Planners