How to calculate returns. Pls advise!!

[life2007]

Hi

I just read an article where it showed some calculation how your money would grow if you stay invested for some years in stock market.

What I could not understand is the fact that it showed from period June 2008 where the sensex level was 20000 and June 2010 where the sensex level was again close to 20000.

I thought if I had invested 10K in June 2008 and want to withdraw in June 2010, I would have only 10K (no returns) as the sensex level is same. However the writer said in between the above period you would have got absoulte 34% returns.

How is that possible if I selected growth option. Would my money be more than 10K in June 2010? I know it could be a dumb question, but hope some experts will help me to unreveal this.

If I am going to get some returns then what is profit booking all about I wonder.

Guys, please do reply.

Thanks

Jeet

 

[asterix24]

Hi Jeet,

There is some mistake here. I cross-verified about Sensex values and it was definitely not 20K in June 2008. The meltdown started in Jan 2008 and hence, by June it was around 15k and down to 13k by July.

The reason why the article says that you could have made money is simple economic rule: Buy Low, Sell High. In other words, if your investment bought funds during this phase and sold the same when sensex was back around 20K, you would have definitely made a lot of profit. This is the essence of the article which you read.

Happy Investing !!

 

[life2007]

Ok yes it could be a strong possiblity that there is some mistake.

Let me put this in simple way.

If I invest 10K today and sensex is 18K and I redeem it after 5 years and the sensex after toss between highs and lows comes back to 18K, will my profits be 'zero' or I would still have some profits please..

Thanks

Jeet

Hi Jeet,

There is some mistake here. I cross-verified about Sensex values and it was definitely not 20K in June 2008. The meltdown started in Jan 2008 and hence, by June it was around 15k and down to 13k by July.

The reason why the article says that you could have made money is simple economic rule: Buy Low, Sell High. In other words, if your investment bought funds during this phase and sold the same when sensex was back around 20K, you would have definitely made a lot of profit. This is the essence of the article which you read.

Happy Investing !!

 

[asterix24]

Hi Jeet,

It is difficult to predict profit/loss as it purely depends on the investment vehicle you subscribe to. For example, let's say that you bought into an index fund that invests in Sensex, then it's possible that your money will stay as is.

However, let's say you bought a stock (complete money) which appreciates over the course of time and irrespective of sensex, can give a bumper returns. This is also possible. On the flip side, if the stock goes down (as is the case with some of my stocks ) then you will loose money.

MF are a relatively better bet as they hedge against all these fluctuations or rather volatility and ensure that the invested capital appreciates. Typically, there is a churning of stocks so that they are bought when they are low and as they appreciate profits are booked.

Sensex is a weighted sum of 30 companies' price fluctuations. So even if one company with a big weight goes down, it will definitely impact the overall index. Most large-cap funds follow the Sensex and hence, your capital may remain intact. Do remember that irrespective of whether you as a consumer made profit or not, an administrative charge is cut and this goes out of your capital.

Happy Investing !!

 

[life2007]

Hi asterix24

Thank you.

You answered my question.

As a normal layman and poor student of economics and mathematics, I was thinking if the sensex was 20K in 2011 and comes back to 20K in 2014, there would be no difference in price. i.e If I had invested 10K in 2011 I would get back 10K in 2014 as the the sensex moved up and down like snake and ladder and came back where it was, so no gain no loss:lol:.

But now I understand the mechanism that between the show of 2011 and 2014, the funds would have gone up or down etc.

I was always thinking what is the use of investing in MFs or stocks if the sensex came back every few years to where it was.

Thanks again

Regards

Jeet

 

[rvm123]

when in June 2008, you have started picking up shares at a lower level, in between, when the index has gone up, u would have sold some of them (and earned profits) and bought some other shares, which you felt under-priced. Those shares also may have gone up, resulting in a gain of about 34% return or so.

Sensex, Nifty, etc are all index numbers only. In absolute figures, some scrips may have gone against the trend also, resulting in profits.