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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Two stocks and a fund

Posted by Muthu on September 28, 2014

I’ve written in the past how well equity compound wealth over time. I’ve used some funds as example for the same.

Once I gave an example of Wipro, as to how Rs.10,000 invested in 1980 became Rs.465 crores in 2012 in addition to earning crores as dividend every year.

The above example is a rare one as Wipro was not a well known company in 1980.

I’ve given other examples as well as to how one could have multiplied wealth by investing in known names.

In today’s Nanayam Vikatan, I came across an article giving detailed examples of few such names.

I thought I’ll share two of those examples for inspiration.

Let us travel back to January 2000. Both ITC and Infosys are known names then as much as we know them now.

January 2000 to September 2014 is 14.75 years- 177 months.

Many of us had the ability to save Rs.5000 every month in 2000.

If you’ve invested Rs.5000 every month for 177 months, the total investments over the period would be Rs.8.85 lakhs. This 15 year period comprises both strong bull and bear markets.

In case of ITC, Rs.8.85 lakhs invested in above manner (with 5K a month), would have accumulated 45,159 shares which is worth Rs.1.61 crores as on September 19th 2014. Not only that the dividend received over the above 15 year period is around Rs.22 lakhs. The dividend itself is close to 3 times the invested amount. Including dividend and capital gain, the annualized returns is roughly around 31.45%.

In case of Infosys, Rs.8.85 lakhs invested in above manner (with 5K a month), would have accumulated 4249 shares which is worth Rs.1.56 crores as on September 19th 2014. Not only that the dividend received over the above 15 year period is around Rs.15 lakhs. The dividend itself is close to 2 times the invested amount. Including dividend and capital gain, the annualized returns is roughly around 30.79%.

So by saving Rs.10K a month, you would now have Rs.3.12 crores and would have received Rs.37 lakhs as dividend, more than recovering the invested amount.

I checked Value Research as to how much Rs.10K invested every month in the same period would have given in an equity fund. I chose Reliance Growth Fund. The value of 10K invested for 177 months is around Rs.1.66 crores, annualized return of around 24.07%.

I would not recommend direct equity investing unless you can spend 8 to 10 hours every week solely for this purpose. Also it would take at least couple of years of reading and experience to reach the required threshold.

I don’t give advice on stocks; giving advice on funds is my profession:-) However for those of you who want to develop expertise and willing to do the home work, I would hand hold by recommending good books and articles.

If you want to learn stock picking in a structured manner, I would recommend you to get in touch with Vishal Khandelwal of www.safalniveshak.com

The idea of writing this piece is to reinforce the power of equity and the necessity of ‘time’ as the critical factor in investing coupled with temperament to stay through both bull and bear cycles.

6 Responses to “Two stocks and a fund”

  1. ramesh said

    Hi muthu, you mentioned you have several examples like infosys and itc for wealthcreation. Can you share few more examples that will inspire people more. Maybe many other housuehold names have compunded as well?

    • Muthu said

      I’ll share one more for you.

      L&T:

      In case of L&T, Rs.8.85 lakhs invested in above manner (with 5K a month for 177 months), would have accumulated 45,140 shares which is worth Rs.7.13 crores as on September 19th 2014. Not only that the dividend received over the above 15 year period is around Rs.36 lakhs. The dividend itself is around 4 times the invested amount. Including dividend and capital gain, the annualized returns is roughly around 43.47%.

  2. ltinvestment said

    ITC is still good wealth creator. we can do similar excersise again to reap the benefits. In 1996, they diversified from Tobacco to Other activity such as hotel, infotech, FMCG…etc. During last AGM, They want to diverisy to Milk bsuiness as well. ITC is very good in terms of their brand and it will prove again as a great wealth creator….
    thanks for bringing it from 2000 instead of from 1979 or 1992.

    • Muthu said

      I share your view.

      • ltinvestment said

        Presently PE is at very high for ITC or Infosys….How this wll be digested for long term welath creation. Because in Last decade PE rerating is in progress. now it is rerated…how the growth will be ?please enlighten us.

      • Muthu said

        I’ve not given any recommendation for buying / not buying ITC & Infosys now. I’ve just given some examples from the past.

        Please read Prof.Bakshi’s blog to understand more about quality, value and the price we pay for the same.

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