Friday, 16 December 2011

Most people invest for wealth creation!
Everybody invest money for their different need or requirement, most of people invest for wealth creation & some of them invest for their future planning say child education, marriage retirement and some needs efficient financial planning partners to manage their wealth. Here at Investor’s Point, we cater to all segments, those who need help with wealth creation & those who have wealth management needs or future planning. We provide financial planning solutions & investment advice which allows you to balance your returns & financial risk effectively. This inherently results in long term growth & also allows for short term monetary gains should you need working capital. Our investment philosophy is based on deep knowledge of the Indian Market, expert man power & proven reliable financial tools for customizing your investment roadmap according to your needs.
We believe that everyone has different financial needs. So, at Investor’s Point, we suggest such products  are built around investment needs of our clients. We design a balanced portfolio which provide a best return on your investment and security of your wealth as well. Effective asset allocation portfolio which ensures high returns & performance for our investors. Our endeavour is to constantly review market trends & identify new growth sectors in order to create a diverse product portfolio which suits the investment needs of the investor across categories.
            To be able to manage your investments effectively, it is imperative that we have the financial expertise! At Investor’s Point, we believe that people drive an organization. Our team consists of expert financial advisors with proven track records so you can be sure that your financial future is in the hands of experts. Our team is focused & committed to delivering the best results for our investors & the organization.
At Investor’s Point, we are well aware of the fact that without performance there can be no growth! We churn portfolio as per current need by keeping on our eye market condition.
Our Service
At Investor’s Point, our endeavour is to always provide you with a “first time” resolution. Our service experience is built to ensure hassle free & timely service to you, no matter what your concern is. Right from planning your investments, managing your financial needs to resolving the smallest of your queries, we strive to give you the highest standards of service.

Investor's Point team
Shaibal Kr. Bhaduri
Partner
+91-9431159178
skbhaduri21@yahoo.co.in

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10 important steps in wealth building

Wealth creation is a time consuming, easy to understand and very difficult to implement process. There are no cut fast rules on how to create wealth.
Deepak Parekh, Uday Kotak, Rashesh Shah, Nirmal Jain, Raheja, Hiranandani, are all people who have created wealth by the greatest method. Run a good business, leverage with people and brand building. Leverage with geography and borrowed funds….then take the company public. By doing this every rupee of earning gets valued at 30 for Mr. Deepak Parekh (HDFC has a P/E of 30) and similar numbers for the others. These people made their money from equities, debt, commodities and of course listing their companies!  I am not talking that league, yet.
Let us see what all you should know — we will start with 10 steps:
1. Understand the Power of Compounding: it looks odd to realise that the power of compounding is NOT taught well at school! They give you some simple examples — rarely are you taught the POWER! Even people working in financial services do not appreciate the power of compounding. Ignore this only at YOUR OWN PERIL.
2. Understand the Power of NOW: LEARN the power of starting to compound as soon as possible in life. If you have not understood, NO TIME LIKE TODAY..pick up the pen, call the advisor, click on the net — whateva…just start, NOW, TODAY.
3. Understand the Power of Regularity — start a SIP AND make sure you do it regularly — not missing a single month. If by chance you do miss a month of investing, immediately pick up a cheque and send it in! At the end of a YEAR you should have invested 12* Amount being invested every month. If suddenly you have money, top up the SAME account.
4. Understand the power of Not Touching the Money for 'n' years: Capital and Wealth creation needs long periods of growth. If you do not touch the money for any sundry purpose, leave it untouched. This helps in compounding. REmember this for life!
5. Understand the power of LEARNING: If you are willing to wish to invest in equities — directly or through mutual funds,    learn as much  as possible about equities. Invest in learning, before you invest your money.
6. If you do not (or will not) learn about equities, never mind, learn the power of indexing in equities!
7. Learn simple things like keeping your accounts in an excel sheet and keep track of the paise….the rupee will take care of itself. Track your income, collect all monies due, track your expenses, track your investing and returns.
8. For events which you know invest. For sad events which MAY happen,insure. You never know….
9.Remember delayed gratification may not be easy, learn it. Food which gives 30 seconds of pleasure on the tongue stays in your waist for 30 years. I understand this….but when I see a sweet I still fall for it. Knowing and implementing are completely different animals. Alas!
10. Invest in education, training, health, travel and fun. Very important to remember do not forget the present for doing something great in the future. The future is important, but the present is vital.
The author P V Subramanyam is a Chartered Accountant by qualification and a financial trainer by profession. Writing being a passion he also regularly pens his thought in his blog Subramoney.com

Thursday, 15 December 2011

INDIAN FIXED INCOME MARKET OVERVIEW & OUTLOOK

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Source: Bloomberg
INDIAN FIXED INCOME MARKET OVERVIEW & OUTLOOK
MARKET OVERVIEW
Inflation:
rate hikes by the central bank. The CPI inflation however has shown some positive ease as Food & Primary Articles
Inflation has dropped down. The inflationary pressures are likely to remain going forward on account of the supply side
constraints and consumption pattern undergoes a change.
The WPI inflation for the month of October 2011 remained at alarmingly high level of 9.73% in spite of 13 consecutive
policy rate actions in the remaining months of FY 12.
RBI has already hinted of a pause in the key policy rate in the last monetary policy review, thus we may not see key
2012.
We expect inflation rates to marginally soften on account of high base effect and could range around 7% by March
Fiscal Deficit:
increasingly out of reach.
India aims to pare its fiscal deficit to 4.6 percent of GDP for the fiscal year that ends in March, a target that seems
direct and indirect tax collections. Slower growth and weak markets may lead to government missing its disinvestment
targets.
Revenue side pressures – The slowdown in growth and dampening of world economic activity has impacted both the
development schemes like NREGS are making it difficult for the Government to meet its fiscal deficit targets. With oil
prices expected to remain at elevated levels, the expenditure related issues may persist.
Expenditure side pressures – The increasing expenditures on account of oil subsidies, fertilizer subsidies and
indicated that the Centre would take harsh steps to contain sovereign debt and fiscal deficit.
However, with the Government adopting the Fiscal Responsibility & Budget Management Act, the Finance Minister has
Long Term Interest Rates:
budgeted fiscal deficit levels led to long term interest rates
coming under pressure. The increased supply of G-Secs and fear
of global economic crisis led to long term interest rates moving
closer to 9%.
The high inflationary environment coupled with higher than
the long-term trends. The 10 Yr Benchmark yield has breached
the long term trend line only twice in the last 13 years which
presents a strong case for drop in long term interest rates
Historical analysis indicates that such high yields are breaching
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Source: Bloomberg
Source: Bloomberg
eventually.
bps to 90 bps (10 yr AAA PSU corporate bonds over 10 yr G-sec) from June 11 to Nov 11. Primary reason being the lesser
supply of bonds as yields have continuously gone up.
Corporate Bonds have remained sticky as far as spreads are concerned. Actually the spreads have narrowed from 140
the long term trend and thus a strong case for long term interest rates to come off exists.
Thus, with the long term outlook of lower inflation, controlled fiscal deficit and higher growth, the yields have to follow
Liquidity situation and Short Term yields:
System liquidity turned deeper into negative territory towards
the second half of October. We expect system liquidity to
remain under pressure and float in range of 75k cr to 100k cr
negative. There would be additional demand for funds by
corporate sector that would have to roll over their short term
external borrowing in domestic INR market as problems in
Europe would mean that forex liquidity is expensive.
Expected actions from RBI:
With respect to the current market conditions, RBI may embark on the following measures - Stem fall in INR; ease
Government bond yields and reduce sovereign risk.
to keep liquidity in moderate deficit range (1% of NDTL), we could see liquidity easing measures to the extent of INR
500-600 bn by RBI over coming weeks, particularly as system liquidity is set to tighten again by mid December onwards
on account of advance tax outflows.
Money Market liquidity remains tight: Structural money market deficit remains close to INR 1 trillion. Given RBI’s aim
that RBI has been intervening in a small extent and will continue to do so to stem the fall in INR. INR has depreciated by
15%-16% against USD in past 3-4 months and by 7% since
31
terms. Any further fall would have a disruptive consequence
on domestic economy. It also brings along a huge risk of
imported inflation, which RBI would be wary of. Given these
conditions, we believe, RBI would inject equivalent liquidity
in the system that would be drained because of its
intervention in the forex market.
Curtail fall in INR: Though RBI has signaled that INR has been depreciating owing to global economic factors, we believest October 2011 (as on 24th November 2011), in absolute
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Higher Open Market Operations (OMO) buybacks: RBI had announced INR 100 bn bond buybacks on November 16th
2011. We believe that this could be the start of a possibly much larger amount of buyback to follow. The expected RBI
OMO buybacks could be in the range of `500 bn to `1 trn. One might argue that this liquidity infusion could further
stoke inflation; however we believe that infusing liquidity to reduce the shortage when output gap is becoming
increasingly negative, may not affect medium term inflation.
Room with RBI to expand and fund the fiscal deficit
slowing its growth in RBI’s balance sheet. If broad money (M3) growth rate is at 15.5% (RBI’s stated target for FY 2012),
the reserve money growth will be at 11.3% - 11.5%, which could get a figure close to INR 1 trillion for RBI to expand its
balance sheet to absorb government debt.
Reserve money growth has fallen significantly to 13.2% yoy as on Nov 11 as compared to 19.1% yoy at end-March 10,
room for RBI to fund government bonds.
If there are losses in forex reserves, which would further contract RBI’s balance sheet, then there would be additional
MARKET OUTLOOK
Inflation – We believe inflation could peak out and start declining towards the targeted 7% level by March 2012.
hiking rates from here on. Though we might not see rate cuts in very near future, still chances of policy stance reversal
would arise if growth falls significantly below base trend.
Policy rate action – Interest rate hikes have started showing their impact on growth. We believe RBI would refrain from
supply of G-sec may get absorbed by RBI as it tries to ease the liquidity tightness in the system through OMO buybacks.
RBI has the ability to do OMO buybacks to a greater extent as seen from some number crunching on its balance sheet.
Liquidity – Liquidity in the system may not go further negative as it could lead to disruption in the system. The excess
and depreciating INR are some key concerns which are not allowing us to go overly bullish on interest rates, but
nonetheless, we would not be bearish either and stay neutral, keeping a close view on situations and conditions.
Bearish to Neutral view on interest rates – Imported inflation, high fiscal deficit, possible further slippages in the fiscal,
in range of 9.40% - 9.60% and 1 yr CD expected to trade in range of 9.70% - 9.80%
Short Term Interest rates – Short Term rates are expected to remain elevated. Three-month CDs are expected to trade
benchmark to trade in range of 8.75% - 9.00% for near future. The upside risks to yields might come from higher fiscal
deficit, further depreciation in INR and global asset allocation changes. In such a scenario, 10 yr could go upto 9.25%.
Hence, the broad range for 10 yr looks like 8.75% to 9.25% with more likelihood of it trading near the lower end of
range in near future. We believe that a trading range can develop within the broad range and some alpha opportunities
can be captured therein.
Long Term Interest rates – With RBI expected to do much more OMO bond buybacks, we expect the 10 yr GoI
With interest rates rising, growth slowing down and global uncertainties, the credit off-take for investment activity has
reduced considerably in the system. Also, with government fiscal under stress and increased borrowings, the corporate
Corporate Bond rates – Corporate Bond spreads have remained supported due to lack of new issuances in the system.
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balance sheets look in a much better condition as compared to sovereign balance sheet. Hence, we expect spreads to
further narrow down. We believe that corporate bond spreads might compress to 40-50 bps in event of g-sec yields
rising. Thus, we are more bullish on corporate bonds as compared to G-secs.
balanced portfolio positioning in the current environment. Such a portfolio would look to generate alpha from possible
fall in yields, and still protect downside in case interest rates harden further.
Ideal Investment Strategy – A blend of G-secs and corporate bonds with some allocation towards carry would be a
CANARA ROBECO INCOME
Investment Strategy:
investments. The yields for both short term and long term were on continuous rise, with high inflation & fiscal deficit
the rupee witnessed incessant fall against USD. Given the economic scenario, the fund has maintained lower average
maturity by investing primarily in short term securities to tap the opportunity to benefit from increasing short term
yields and reduce the downside risk on the portfolio.
Since the start of the year the markets displayed unfavorable trends for long term G-secs & corporate bonds
term trends, the longer end of the curve presents an investment opportunity for an investment horizon of at least a
year. While the G-Sec allocation aims to gain from the falling long term interest rate conditions, the corporate bonds
would gain from the high yields and aid alpha creation from fall in interest rates.
In current economic scenario, with G-secs & Corporate Bonds yields being at a 3 year high and considerably above long
exposure to short term instruments would be endeavored. It will help generate alpha from expected fall in yields of
long term G-secs in the coming future and still protect downslide by benefitting from the high carry yields.
A well blended strategy aiming at 40% exposure to G-secs, 40% exposure to Corporate Bonds and remaining 20%
of minimal credit risk.
Investor Suitability: This fund may be suitable for investors with medium to long term investment horizon and appetite
Fund Specifics
Fund Inception
19th September, 2002
AAUM (Rs.)*
118.77 crs
Minimum Investment Amount
Lump Sum: Rs. 5000 in multiples of Rs. 1 thereafter SIP/STP: For monthly
frequency - Rs. 1000 and in multiples of Rs. 1 thereafter. For quarterly frequency -
Rs. 2000 and in multiples of Rs. 1 thereafter
Entry Load (Lump Sum/SIP/STP)
Nil
Exit Load (Lump Sum/SIP/STP)
0.5% - if redeemed/switched out within 6 months from the date of allotment
Benchmark
CRISIL Composite Bond Fund Index
Fund Manager
*Quarterly Average AUM- Quarter Ending 30
Ritesh Jainth Sep, 2011.
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The Asset Allocation pattern of the Scheme under normal circumstances would be as under:
Instruments
Indicative allocations
(% of total assets)
Risk Profile
Minimum Maximum High/Medium/Low
Debt (Including Securitised Debt) 50 100 Medium
Money Market Instruments / Call Money 0 50 Low
Statutory Disclosures / Risk Factors:
maturity and issuers of different risk profiles.
Investment Objectives: Canara Robeco Income To generate income through investment in Debt and Money Market securities of different
Management Company Limited (CRAMC) is the asset management company registered under The Companies Act, 1956. Sponsors:
Canara Bank, Head Office, 112 J C Road, Bangalore; Robeco Groep N.V., Coolsingel 120, 3011 Rotterdam, The Netherlands.
Factors: Mutual Funds and securities investments are subject to market risks and there can be no assurance or guarantee that the
objectives of the scheme will be achieved. As with any investment in securities, the NAV of the units issued under the scheme may
go up or down depending on the various factors and forces affecting capital markets and money markets.
sponsors / Investment Manager / Mutual fund does not indicate the future performance of the scheme and may not necessarily
provide a basis of comparison with other investments.
manner indicate the quality of the scheme, its future prospects or returns.
any loss or shortfall resulting from the operations of the schemes of CRMF, beyond the initial contribution of a sum of Rs. 10 lacs
made towards setting up of CRMF.
other details before investing.
Statutory Details: Canara Robeco Mutual Fund (CRMF) has been set up as a Trust under Indian Trust Act, 1882. Canara Robeco AssetRiskPast performance of theCanara Robeco Income is the name of the scheme and does not in anyThe Sponsors of the Fund are not responsible or liable forInvestors should read the Scheme Information Document for Scheme specific risk factors and
such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates
or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its
employees, officers, directors, etc assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are
subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.
Disclaimer: The information used towards formulating the outlook have been obtained from sources published by third parties. WhileData Source: Bloomberg

Wednesday, 14 December 2011

A Guide for a better Financial Life

A Guide for a better Financial Life
For most people, investing becomes a by-product of earning and spending. Some lack the time and others the inclination to make investing a serious planned activity.
Assess your life. You go through your education from childhood to about 22 years of age. Once you are equipped with your educational qualifications you walk into the world looking for work. From then, till the time you retire, you are earning and spending. But when you retire, you end up only spending.
Clearly, the 40 years of working life becomes critical for rest of life as the amount of wealth you retain directly determines the quality of life after you retire. Moreover the amount you earn during your working life not only goes towards taking care of your regular expenses, it also needs to meet your aspirations, such as buying a home or children’s education or marriage. No matter how much you earn, you cannot fulfil your aspirations, without a PLAN.
Your Aspirations
While making small compromises in our day to day lives, such as eating out once a week instead of twice seems alright, compromising on our aspirations takes away the fragrance of life.
But aspirations are extremely challenging to fulfil. What is worse is that the further away they are, the more they cost. For instance, if you have a young child and believe that a lavish wedding for him would cost you Rs 10 lakhs today, when he is actually ready for marriage, the cost would have significantly risen, for the same level of lavishness. This is because the value of your money reduces over time, due to inflation.
Consider this:
Price of
              1985
                2008
                  2025
Toothpaste
         Rs. 6
            Rs. 45
         Rs. 115?
Masala Dosa
         Rs. 5
            Rs. 25
         Rs. 100?
1 Kg of Sugar
         Rs. 4
            Rs. 22
         Rs. 100?
1 Litre of Milk
        Rs. 3.5
            Rs. 30
        Rs. 70?
Petrol per litre
         Rs. 10
            Rs. 52
          Rs. 180?
An MBA degree  your child
      Few Thousand  
        Few Lakhs
      Few Crores?


The table clearly shows that a few years down the line we will not be able to buy, with Re 1, what we can buy today. This means that one rupee saved is not always worth a rupee. The only way to retain the value of your money is to invest in avenues that give you a rate that is higher than the rate of inflation. This means, you need to earn positive ‘real’ returns on your investment. A real return is simply the return on your investment, minus the inflation and tax rate. For instance, if you are earning 8% on your investment and inflation stands at 5% and you are at 30% tax bracket then your real return is just 0.6%.

Financial Health tips:
1.       Start Early : The more you give your money to compound, the larger will be your wealth accumulation.
2.       Invest Regularly: Regularly set aside a portion of your earnings and invest it – money in the bank is as good as money spent. Make sure that while you cultivate the savings habit, you also quickly invest your savings, where they are out of your reach from wasteful spending.
Understanding Risk:
Risk is very objective factor, but your risk bearing capacity and risk tolerance are very subjective.
To get a clear picture of your investment risk personality, examine two personal aspects:
1.       Your inclination to understand and learn about investing.
2.       Your risk taking ability.
Inclination: To understand how inclined you are to involve yourself in your investment , ask three simple question to yourself:
1.       Do new opportunities in investments excite me?
2.       How much time and effort am I willing to devote towards my investment?
3.       Do I have affinity for finance, numbers, business and commerce?
Based on your response to these questions, you can either be:
1.       Enterprising: willing to invest time, energy and are interested in maximising returns.
2.       Defensive: you are content to forego highest possible returns, in exchange for safety and freedom for concern.
Match your investments to your liquidity needs:
Your liquidity requirement is also an important factor while deciding your investment avenues. You should look at equity only if you are willing to put aside the money for a fairly long term, say for at least 5 years. For your short term needs, you should look at investing in liquid investment, like Money Market Funds.
For instance, if you need cash next year, for a down payment to buy a house or for your child’s college fees, use one of the shorter term and low capital risk investments for your money, such as Liquid/Gilt/Money Market Funds or Bank Term Deposit/top rated Co. FD. /Fixed investment options.
Invest only whatever money you’re actually going to need in the short-term, in short term instruments. For money that you won’t need for five years or more choose the stock market or Equity Mutual Fund.
                                                                         
 Shaibal Kumar Bhaduri (email: skbhaduri21@yahoo.co.in)
 Investors Point,
Dhanbad


In life people want shortcut

I think that’s the reason rules of thumb find some place in once life. These financial planning rules of thumb are very basic & not at all full-proof as requirement of 2 different people can never be same. They can just give you some idea but important financial decisions should not be taken on basis of these. Editor of The Journal of Financial Planning (US), once noted that “Rules of thumb are for people who want to decide things without thinking about them.” But still it will be unfair to suggest ignoring all of them.
Saving & Investing rules of thumb
1. What should be my asset allocation or how much equity should I have?
This is the most common rule of thumb which is used in investment world. Rule says Equity percentage in your portfolio should be equal to 100 minus your age or in other words debt should be equal to your age. For eg if you are 30 you should have 30% of your investments in debt & 70% (100 – your age) in equity. This doesn’t take care of risk appetite, risk tolerance or how far your goals are.
2. How much emergency fund I should have?
Emergency Fund helps people in case of sudden loss of income, medical emergency etc. Thumb rule says one should have emergency fund equal to 3 to 6 months of monthly expenses. You can keep it at 3 month if you are a government servant but in case of private job or profession you should keep it on the higher side of the range. Make sure you don’t use this amount for day to day needs/wants. For retired person emergency fund should be equal to 1 year of expense.
Retirement rules of thumb
3. How much money will I need in retirement or how much corpus I should build?
You should have 20 times your income saved for retirement and plan to replace 80 percent of pre-retirement income. But here retirement means a retirement at age of 60 & life expectancy of 80 – and a conservative lifestyle. But now things have changed & you would have dream/planned lot of things for retirement.
4. How much I need to invest every month to achieve retirement goal?
“Indians are great savers” sorry “Indians were great savers”.  New generation is in some different mood they would like to enjoy the present & have no idea about future. If you have just started to work & would like to have a very simple lifestyle & retirement at age of 60 you can do it with saving (read investing) 10% of your income. If you are planning for an early retirement start with 20% savings. Other rule says if you are in early 30s Save 10% for basics, 15% for comfort, 20% to escape. If you are late by decade add 5% more in each category.
Insurance rules of thumb
5. How much insurance should I have?
Here insurance means insurance. Rule says one should have sum assured of 8-10 times of his yearly income. I think this rule is far from perfect but still can be used as starting point. This does not take care of any of your goals, liabilities & even complete expenses. Some modified version of this rule says that if you are in early 30s insurance should be 12-15 times of your annual income & if you are in 50s take 6-8 times.
Loan/liability/home rules of thumb
6. How big should be my House?
The value of house should be equal to 2-3 times of your family annual income. So if you & your spouse are earning total Rs 20 lakh – you should buy a house in Range of Rs 40-60 Lakh.
7. Maximum EMI that I can have?
Ideally 0 will be the best answer but few of the big assets like home require some loan to buy them. Experts agree that your EMIs should not be more than 36% of Gross Monthly Income at any point of time. It should be even lesser when you are close to your retirement. If you want to talk about home loan EMI, it should not be greater than 28% of your gross income. Now TENURE of loan is missing here – for tenure read No. 6 & 8 rules of thumb.
8. Rules of thumb for buying a car
This is one of the biggest purchases after your home. And this is depreciating asset – today morning you purchase a car for Rs 10 lakh & by the evening it will be worth Rs 8-9 Lakh. After 5 years it will not be even of half value but still you keep buying cars regularly – buy at 10, sell at 4 & loose 6. (repeat the cycle) There are few rules that you can follow:
  • Value of car should not be more than 50% of the annual income of the owner.
  • Purchase a used car or buy a new & use it for 10 years.
  • While buying car with loan stick to 20/4/10 – Minimum 20% down payment, loan tenure not more than 4 years & EMI should not be higher than 10% of your income.
Rate of return Rules of Thumb
9. In how many years my amount will double?
It’s a very simple & most common rule – if you divide 72 by rate of return you will get the number of years in which your money will double. For Eg. If you expect a rate of return of 12% you money will double in 6 years (72/12=6) & what about if rate of return is 8% – 72/8=9 years. This can also be used in reverse order at what rate your money will double in 5 years – 72/5=14.4%
Rules similar to rule of 72:
Rule of 114 & 144
These can help you in how many years your money will be triple (114) or quadruple (144) at some rate of returns.
Rule of 70
You know it or not but inflation is your biggest enemy – rule of 70 will tell you in how many years value of money will be half. You just need to divide 70 with rate of inflation so if rate of inflation is 7% – 70/7=10 years. So in 10 years your Rs 100 note will be worth Rs 50.
10. Rule 10/5/3
This is a US rule of thumb which says in long term you can get 10% return from equity, 5% return from bonds (let’s say FDs) & 3% from the t-bills (liquid funds – these returns are more or less close to the range of inflation). Indian economy is growing at some different pace & even inflation numbers are different. Can we safely say if inflation is 6% (t-bill rates) we can get 8% from the fixed deposits & 12% from the equity or in other words – in long term equities will deliver twice the return of inflation. Try combining Rule of 72 with this rule – you will get some amazing numbers.
Some time Rules of thumb will give you false sense of security or wrong guidance – so take them with pinch of salt.