Mr Guptas’ Money Journey: A tale of safety and steady income

Once upon a time in the bustling city of Mumbai, there lived a prudent man named Mr. Gupta. Renowned for his cautious and conservative approach to investments, Mr. Gupta, in his mid-40s, had always favored the safety of traditional investment avenues such as Insurance, Fixed Deposits, and Company Deposits. His financial philosophy rested on the bedrock of stability and security.

One day, while sipping chai at his favorite local tea stall, Mr. Gupta's longtime friend, Rohit, an avid follower of financial trends, approached him and suggested him to explore Mutual Funds as a potential avenue to plan his retirement corpus.

Intrigued by the prospect, Mr. Gupta delved into the world of Mutual Funds and stumbled upon Hybrid Funds. These funds, he learned, fine-tuned their equity and debt exposure based on risk and reward, offering a dynamic approach that aligned with his cautious nature. Within the realm of Hybrid Funds, Mr. Gupta found himself drawn to the concept of Equity Savings Fund and decided to unravel the layers of this intriguing fund category.

--> Stability in Volatility

Mr. Gupta learned that while traditional investments like Fixed Deposits offered stability, they might fall short in terms of wealth accumulation. Equity Savings Fund, on the other hand, struck a harmonious balance among Equity, Arbitrage, and Debt, providing stability with the potential for growth. The historical performance of the Nifty Equity Savings Index showcased lower volatility than pure Equity Indices such as Nifty 50 Total Return Index, offering a smoother ride for conservative investors like Mr. Gupta.

Over 3-year daily rolling time period* since April 1, 2005, the standard deviation (a measure of risk or volatility) was 2% for Nifty Equity Savings Index vs 7% of Nifty 50 Total Return Index. A lower standard deviation means lower risk.

--> Reasonably Consistent Returns

Given Mr. Gupta's preference for stable returns and risk aversion, he appreciated the consistency offered by Nifty Equity Savings Index. For instance, on an average, the 5 year returns of the index has been over 7% on over 87%* of the observations.

*Data as on November 30, 2023. Data based on rolling returns calculated since inception i.e 2005 of the index at a daily frequency. Past performance may or may not be sustained in the future and is not a guarantee of any future returns.

--> Systematic Withdrawal Plan (SWP)

Recognizing the mid-40s as a crucial period for retirement planning, Mr. Gupta learned about the unique advantage of SWP in Mutual Fund Schemes. This feature allowed conservative investors like him to systematically withdraw$ a fixed amount at regular intervals. Envisioning a strategy for retirement, Mr. Gupta contemplated accumulating capital until retirement age and then withdrawing a fixed amount at regular intervals.

Mr Gupta back tested the results by investing Rs 1 cr in Nifty Equity Savings Index on April 1, 2005 and initiating monthly withdrawals of Rs 50000 (6% of corpus per annum divided by 12) from May 1, 2006. Till November 30, 2023

Total Amount Withdrawn – RS 1,05,5000

Market Value of Investment– Rs 2,80,96,340

XIRR (Internal Rate of Return): 9.46%