gain vs loss

uff uff uff !
Once again I caught a dear friend of mine discussing how he has invested in a 10 year scheme that will give him ~8% return which is better than Fixed Deposits because now-a-days FD's give only 7-7.5% return and how it is not that risky and the money he gets after 10 years will be useful when kids grow up. uff!

For the last time, I will try to convince anyone who has such thoughts. This time using a different approach :D The right way to look at it is not how much you gain but how much you gain vs how much you loose (opportunity cost). For a nominal investment of 10 Lakh rupees over a 15 year period let's see how much you gain and how much you loose when compared to potential returns from the equity market.

• In Bank deposit you gain 0.1 Crore but you also loose 2.1 Crore Rs
• In Fixed deposit you gain 0.2 Crore but you also loose 2 Crore Rs
• In Debt you gain 0.4 Crore but you also loose 1.8 Crore Rs
• In MF you gain 0.9 Crore but you also loose 1.3 Crore Rs

So none of these give you even half of the actual potential returns that can be achieved from the equity market.

Table Summary (All CAGR % is approximate but more realistic than what ur fund manager/Investment broker tells you net of all charges)

15 Yr 10L Inv	CAGR (%) Approx	Gain (Cr)	Loss Vs Equity (Cr)
Bank Deposit	4	0.1	2.1
Fixed Deposit	8	0.2	2
Debt	12	0.4	1.8
MF	18	0.9	1.3
Equity	25	2.2	-

Detailed Yearly Calculation

Investment	Bank Deposit	Fixed Deposit	Debt	MF	Equity
CAGR	4	8	12	18	25
1	1000000	1000000	1000000	1000000	1000000
2	1040000	1080000	1120000	1180000	1250000
3	1081600	1166400	1254400	1392400	1562500
4	1124864	1259712	1404928	1643032	1953125
5	1169859	1360489	1573519	1938778	2441406
6	1216653	1469328	1762341	2287758	3051758
7	1265319	1586874	1973822	2699554	3814698
8	1315932	1713824	2210681	3185474	4768373
9	1368569	1850930	2475963	3758859	5960466
10	1423312	1999004	2773079	4435454	7450583
11	1480244	2158924	3105848	5233836	9313229
12	1539454	2331638	3478550	6175926	11641536
13	1601032	2518169	3895976	7287593	14551920
14	1665073	2719623	4363493	8599360	18189900
15	1731676	2937193	4887112	10147245	22737375
Gain on Capital	731676	1937193	3887112	9147245	21737375
Gain in Crores	0.1	0.2	0.4	0.9	2.2
Loss Vs Equity	21005699	19800182	17850263	12590130	-
Loss in Crores	2.1	2	1.8	1.3	-

Risks?

Yes there are risks and there are rewards. Make a good judgement. Try to choose what is better than average. Trying to be risk free throws you to the bottom of the list with huge losses (for you and your future generation) in terms of potential return on investment on a compounding basis while others who sell you this junk enjoy good bonuses, great parties and free commissions for the next 10-15-25 years from your hard earned money. Think about it !