Hi people

When the sensex was formed in the year 1979 the value it had was 100
Value of sensex on 1/3/2011 = 18500
Compunded Annual Growth Rate (CAGR)=17.71%
Time period = 32 years.
Rs One lakh invested in 1979 @ index value 100 = 1.85 crores today
Rs One Crore invested in 1979 @ index value 100 = 185 crores.
Returns apart from CAGR = 185x (185 times)
All the above if we invested in a simple index fund(pls dont come up with there were no index funds that time & all that, this is a assumption)

All of this has happened when India was underdeveloped,governments toppled,wars raged,india faced recession,india was on the brink of defaulting its payments,it faced the asian crisis, faced terrorism etc etc etc. But yet everyone has or is leading a better standard of living than 1979.

Going forward if we think about the next 30 years(difficult i know) can we assume the below & what are your suggesttions on what CAGR can one expect for the next 30 years & how many times can the sensex grow ?

Rate of growth for markets = GDP + Inflation + Dividend yield of sensex stocks
Rate of growth = 8.5% + 6.5% inflation + 1.5% div yield = 16.5% CAGR
Taking a more conservative view of 15% CAGR over the next 30 years below are the values you get.
To find amount after 30 years @ 15% CAGR Rate if Rs One Lakh is invested in an index fund after deducting 0.5% management fees & tracking error of 0.35

Principal : 1,00,000
Years: 30
Rate: 15% Compounded Annually
Amount at end = 66,21,177
Returns = 66x (66 times)

Value of sensex
Principal: 18500 (taking this as base)
Years: 30
Rate: 15% CAGR
Value : 12,24,917 (Sensex value after 30 years)

My question is that if this is manageable by the large corporates in india who are in the sensex & nifty then why try to pick among thousands of mutual funds in the country by loosing out on your sleep & also wealth erosion & increasing turnover cost of ones portfolio by continuously shifting from one MF to another or one stock to another just for another 2 to 3% averaged over 30 years.No one can ever know what returns any MF in this country or anywhere in the world can give.

Pls treat all this as one big question & share your views

Yes you could be right.I guess 15% to 17% should be the base case scenario. Remember that over 30 years there would be many new additions to the index & portfolio managers will have to adjust accordingly by buying selling which will increase the tracking error.

All said an index fund should form at least 50 to 65% of your portfolio of Equity mutual funds so that if all else fails & you are wrong you have something to back on

Could resist copying you!

Absolute Sensex Values

In 2010- 15,000

(will be) in 2019- 50,000

Years: 9years

Rate: 16% CAGR

 

In 2037- (will be) 1,00,000

18years(from 2019-2037)

Rate: 4% CAGR

Yes, Nikhilji