15 mf21 summer internship report_bhushan patil

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JAMNALAL BAJAJ INSTITUTE OF MANAGEMENT
STUDIES
164, Backbay Reclamation, H. T. Parekh Marg, Mumbai 400 020, India
Project Report
On
Comparative Study of Various Alternatives Available in the
Market for Wealth Management
Summer Internship Report
Submitted by:
Bhushan Patil
Roll No. 15-MF-21
Semester 3, MSc Finance
Year of Submission: 2016

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DECLARATION
I hereby declare that the presented report of internship titled “Comparative study of various
Alternatives available in the market for Wealth Management” is uniquely prepared by me
after the completion of two months’ project in the Wealth Management Division of Bank of
Baroda, Mumbai. I also confirm that; the report is only prepared for my academic requirement
and not for any other purpose. The data within the report cannot be reproduced or misused.
Place: Mumbai Bhushan Patil
Date: MSc Finance 2015-17

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Acknowledgement
“Accomplishment of any task necessarily depends upon the willingness and enthusiastic
contribution of time and energy of many people.”
I take this opportunity to express my profound gratitude and deep regards to my mentor Mrs.
Rekha G Amin, AGM, Khand Bazar Branch for his exemplary guidance, mentoring and constant
encouragement throughout the course of the internship. The help and guidance given by him will
carry me a long way in my banking career which is about to embark.
I would like to take this opportunity to thank Dr. C. R. Chavan, Director, JBIMS and other
esteemed faculties of MSc Finance for giving me the permission to carry out my summer
internship
Last but not the least; it is the invaluable contributions of my family members for their constant
encouragement without which this assignment would not be possible.
Place: Mumbai Bhushan Patil
Date: MSc Finance 2015-17

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EXECUTIVE SUMMARY
Bank of Baroda Wealth Management provides discretionary wealth management service, in
which wealth managers give recommendations to customers and invest according to customer
discretion.
This report starts with concept of Wealth Management, its advantages & disadvantages. Wealth
Management is evolving in India. Then I understood key function areas in wealth management
services. Identified potential of Wealth Management sector. The key function areas including
financial planning, portfolio strategy, portfolio management, strategy review & modification are
studied which is helpful for efficient wealth management. Wealth management providers faces
challenges like personal relationship driving business, client involvement, technological issues.
Solution framework for sustainable business growth is derived. Then studied services provided
by wealth management firms.
Next part includes wealth management by consumer point of view. Then understood how it is
different from PMS services. Then looked into concept of asset classes, risk & return associated
with it. Overviewed some of the wealth management firms, their products & asset classes used
by them. Customer profiling based on age, income & investment objectives.
Further overviewed India’s position in wealth management field. Post that alternative investment
options like hedge funds, PE funds, real estate,commodities.
Bank Of Baroda is one of the major banks of India offering wealth management services. Their
major competitors are-
 Kotak securities
 Morgan Stanley
 Standard chartered
 HSBC Financial Planning Services
 Citi Bank
 ICICI Wealth Management

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BoB offers guidance and services to perspective investors and offers products and services
through which they can maximize their wealth. It offers services suited to the needs of different
class of customers, as have been discussed in detail later in the report.
The study was conducted at the Khand Bazar branch, of Bank of Baroda, Mumbai. The project
was of 2 months duration. During the project I had taken the guidance of bank managers & staff
to collect the data, & also made use of Company’s various reports. I also conducted a survey on
the topic of alternatives of wealth management and the level of customer awareness of various
facilities provided by the bank.
Apart from objectives, Some of the points which were considered in this topic to make project
report more comprehensive were :-
1. What a customer expects from a wealth management service provider.
2. Solution framework for wealth management.
3. Key Challenge Areas.
4. Core Elements of Wealth Management Services.
OBJECTIVES
1) Through the past results, to identify the potential of wealth management sector.
2) Understanding company’s procedure in wealth management department.
3) To know the comparative position of the companies offering wealth management services.
4) To have a general notion on different asset classes available in financial market.
5) To have a conceptualized view on wealth management services.

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COMPANY PROFILE
A saga of vision and enterprise. It has been a long and eventful journey of almost a century
across 25 countries. Starting in 1908 from a small building in Baroda to its new hi-rise and hi-
tech Baroda corporate Centre in Mumbai, is a saga of vision, enterprise, financial prudence and
corporate governance.
It is a story scripted in corporate wisdom and social pride. It is a story crafted in private capital,
princely patronage and state ownership. It is a story of ordinary bankers and their extraordinary
contribution in the ascent of Bank of Baroda to the formidable heights of corporate glory. It is a
story that needs to be shared with all those millions of people - customers, stakeholders,
employees & the public at large - who in ample measure, have contributed to the making of an
institution.
The Bank has strengths in both retail and corporate banking and is committed to adopting the
best industry practices internationally in order to achieve excellence.

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Table of Contents
Topic Page No.
CompanyCertificate 02
Declaration 03
Acknowledgement 04
ExecutiveSummary 05
CompanyProfile 07
TableofContents 08
1. Introduction 09
2. ConceptofWealthManagement 10
3. Advantages & Limitation 19
4. ConceptAssetClasses 21
5. Companies Providing Wealth Management 30
6. Bank ofBarodaWealthManagement 35
7. Wealth Management- Indian Position 48
8. Alternative Investments 50
9. Learnings 68
10.Conclusion 69
Reference

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1. INTRODUCTION
Wealth management is a high-level professional service that combines financial/investment
advice, accounting/tax services, retirement planning and legal/estate planning for one fee. Clients
work with a single wealth manager who coordinates input from financial experts and can include
coordinating advice from the client's own attorney, accountants and insurance agent. Some
wealth managers also provide banking services or advice on philanthropic activities. Now a day
Wealth Management has a lot of craze in the corporate world. In a survey it was found that India
had 364,000 millionaires by end of year 2015.
Considering long-term high value business proposition, number of banks and niche players has
started offering full range of wealth management services targeted to HNWIs and emerging
effluents.
While growing volume of premium services to affluent clients becomes the key driver for most
of the service provider firms, many unique elements inherent to wealth management services
requires completely different service offering model
than the existing model for transactional services. Greatly accustomed in offering commoditized
financial services so far, demand of unconventional form of service model poses a big challenge
in charting growth path for these wealth
management firms.

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2. CONCEPT OF WEALTH MANAGEMENT
The term Wealth management formed with two words Wealth & Management. The Meaning of
Management They have already seen in the steering introduction. The meaning of Wealth is –
Funds, Assets, investments and cash it means the term Wealth management deft with funds
Asset, instrument, cash and any other item of similar nature. While defining Wealth Management
They have to think in planned manner. “Wealth Management is an all inclusive set of strategies
that aims to grow, manage, protect and distribute assets in a much planned systematic and
integrated manner”.
Key Elements of Wealth Management Services
Wealth management services involve fiduciary responsibilities in providing professional
investment advice and investment management services to a client. Depending on the mandate of
the services given to the Wealth Manager, wealth management services could be packaged at
various levels:
a) Advisory
b) Investment processing (transaction oriented)
c) Custody, Safekeeping and Asset Servicing
d) End-to-end Investment Lifecycle Management
Wealth management services comprises of following key function areas of:
(a) Financial Planning
(b) Portfolio Strategy Definition/ Asset Allocation / Strategy Implementation
(c) Portfolio Management –Administration, Performance Evaluation and Analytics
(d) Strategy Review and Modification.
a) Financial Planning

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Client Profiling
Client profiling takes in account multitude of behavioral, demographic and investment
characteristics of a client that would determine each client’s wealth management requirements.
Some of key characteristics to be evaluated for defining client’s investment objective are:
 Current and future Income level
 Family and life events
 Risk appetite / tolerance
 Taxability status
 Investment horizon
 Asset Preference /restriction
 Cash flow expectations
 Religious belief (non investment in sin sector like - alcohol, tobacco, gambling firms or
compliant with Sharia laws)
 Behavioral History (Pattern of past investment decisions)
 Level of client’s engagement in investment management (active / passive)
 Present investment holding and asset mix
Investment Objective
Based on the client profile, investment expectations and financial goals of the client could be
clearly outlined. Defining investment objectives helps to identify investment options to be
considered for evaluation. Investment objective for most of the investors could be generally
considered amongst the
Following:
 Current Income
 Growth (Capital Appreciation)
 Tax Efficiency (Tax Harvesting)
 Capital Preservation (often preferred by elderly people to make sure they don’t outlive their
money.)

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b) Portfolio Strategy Definition / Asset Allocation
Defining Portfolio Strategies and Portfolio Modeling
After establishing investment objectives, a broad framework for harnessing possible investment
opportunities is formulated. This framework would factor for risk-return tradeoff of considered
options, investment horizon and provide a
clear blueprint for investment direction. Investment strategy helps in forming broad level
envisioning of asset class (Securities, Forex, Commodity, Real State,
Reference and Indices, Art/Antique and Lifestyle Assets (Car, Boat, Aircraft)), market,
geography, sector and industry. Each of these asset classes is to be comprehensively evaluated
for inclusion in portfolio model, in view of defined investment
While defining the strategy, consideration of client preference or avoidance for specific asset
class, risk tolerance, religious beliefs is the key element, which would come into picture. Thus,
for a client with a belief of avoidance of investment in sin industries (alcohol, tobacco, gambling
etc.) is to be duly
taken care of. Likewise, for a client looking for Sharia-compliant investment, strategy
formulation should consider investment options meeting with the client expectations.
Determination of Portfolio Constituents and Allocation of Assets
Guided with the investment strategy, constituents in portfolio model are determined, which
would directly and efficiently contribute towards client’s investment objectives. Thus, a broad
level investment guidance of – “investment in fixed income in emerging market” would further
determine classification within Fixed Income such as Govt. or corporate bonds, fixed or variable
rate bonds, Long or short maturity bonds, Deep discounted or Par bonds, Asset backed or other
debt variants. Return profile, risk sensitivity and co-relation of constituents within portfolio
model would help to determine the size (weightage) of each individual constituent in the
portfolio.

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Having decided the portfolio constituents and its composition, transactions to acquire specific
instruments and identified asset class is initiated. As acquisition cost would be having bearing on
overall performance of the portfolio, many times
process of asset acquisition may be spread over a period of time to take care of market
movement and acquire the asset at favourable price range.
Portfolio Administration involves handling of investment processes and asset servicing. This
would also require tax management, portfolio accounting, fee administration, client reporting,
document management and general administration relating with portfolio and client. This
function would involve back office administration and custodial services to manage transaction
processes (trading and settlement) – interfacing with brokers/dealers/agents, Fund managers,
Custodians, Cash,
agent and many other market intermediaries.
Performance Evaluation and Analytics
Performance evaluation of the portfolio is an ongoing process. Portfolio return is continuously
monitored and analyzed with respect to defined portfolio objectives. Analysis dimension could
be varied – simple and complex. These may include -
absolute return, relative return (in comparison to chosen benchmark), trend, pattern, cost impact,
tax impact, concentration, lost opportunity and other form of sensitivity and what-if analysis.
Any deviation of portfolio performance
observed during performance evaluation would lead to strategy review and any possible
alignment of portfolio strategy.
Strategy Review and Alignment Recalibration of Portfolio Strategy
Based on performance evaluation and future outlook of the investment, portfolio strategy is
evaluated on periodic basis. To keep it aligned with the defined investment objectives, portfolio
strategy is suitably re-calibrated from time to time. Many times, review of portfolio strategy
would be necessitated due to change in client profile or expectations.

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Rebalancing, Reallocation and Divestment of Assets
Any re-calibration of strategy and consequent change in portfolio model would require
rebalancing of the assets in portfolio. This would be achieved through rebalancing the asset
(divesting over-allocated part and acquiring under allocated), relocation (from one sector the
other or from one instrument to other instrument in the same class) or complete divestment.
Key Challenge Areas
While immense business potentiality of this emerging sector is a driving point for most of the
firms, they face many challenges in formulating winning services offering meeting the client
needs. In the following section, we would briefly take
a look on the key challenges area in the present context.
 Highly Personalized and Customized Services
Unlike other stream of financial services, mostly being transactional / commoditized in nature,
wealth management services require client specific solution and service offering. No one
solution exactly meets the needs of other client. In a situation of highly personalized and
customized nature of service offering, developing any form of generic service model does not
support growth of the business.
 Personal relationship driving the business
To meet client expectation of personal attention, mode of communication in wealth management
services tends to be highly personalized. Thus, the conventional grids of communication, such as
call centre, data centre does not fit
well. Success of wealth management services heavily draws on personal interaction with the
dedicated relationship manager, who takes care of whole investment management lifecycle for
bunch of clients on one-to-one basis. This essentially requires service firm to invest heavily in
human processes to groom and retain a team on competent relationship managers with cross
functional skills.

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 Evolving Client Profile
The biggest challenge in providing wealth management service offering is to factor and reckon
the evolving nature of client profile, in terms of investment objective, time horizon, risk
appetite and so on. Thus, a service model developed for a particular client cannot remain static
over a period of time. Any service model has to be flexible enough to consider the dynamic
nature of client profile and expectations arising out of it.
 Intricate Knowledge of Cross-functional Domain
By very nature of wealth management, it not just involves matters of plain vanilla finance but
has intricate relationship with many elements of domestic / international law, taxation and
regulatory norms. In order to provide sound investment guidance, a relationship manager is
required to have intricate knowledge of domestic/cross-border finance, accounting, legal and
taxation subjects.
Solution Framework
Generic services offering model is going to draw big blank in case of wealth management
services. A HNWI client expects exclusiveness in services in a normal manner. In highly
competitive market, key to success for a firm lies in offering exclusiveness in services delivery
(high quality services on most personalized basis), going beyond the client expectations. A
solution framework with considered inclusion of following key elements would help firms in
meeting and exceeding client needs towards sustainable business growth.
Key Challenge Area
Wealth management firms face many challenges in formulating Winning services offering
meeting the client needs. Some of the key challenges faced by wealth management firms are:
1. Highly Personalized and Customized Services
2. Personal relationship driving the business
3. Evolving Client Profile
4. Client Involvement Level
5. Passion Investment (Philanthropy and Social Responsibility)
6. Limited Leveraging Capabilities of Technology(as an enabler)

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7. Technical Architecture and Technology Investment
8. Intricate Knowledge of Cross-functional Domain
Solution Frame work
A HNWI client expects exclusiveness in services and key to success for a firm lies in offering
exclusiveness in services delivery (high quality services on most personalized basis), going
beyond client expectations. A solution framework with considered inclusion of following key
elements would help firms in meeting and exceeding client needs towards sustainable business
growth:
1. Quality of Service Level: Highly focused around client needs, a broad framework of service
offering would be revolving around: Anticipate, Analyze, Advice, Act and Monitor cycle.
2. Universal Service Offering
3. Investment in People Processes
4. Price not a True Differentiator
5. Unconventional Delivery Channel and Communication
6. Flexibility of Technical Architecture: Against the background of lack of clarity on business
model and involved process, A loosely oriented technical architecture with optionality and mix
of Build – Buy – Integrate components would be considered as a good beginning point.
Wealth Management – An Emerging Sector
Wealth management services area in financial sector, hitherto used to be the preserve of some
top multinational banks and financial firms- offering exclusive services to a select few, has been
witnessing more attention during last couple of years. A booming economy, rising stock prices
and an increase in income and spending power have brought sharp focus on this sector.
With an increasing population of High Net worth Individuals (HNWIs)1, the unsaid tagline of
earlier days -
“Don’t call us. We’ll call you (if you are that wealthy!)” seems to be completed altered in recent
times. Considering long-term high value business proposition, number of banks, financial firms
and niche players has started offering full range of wealth management services targeted to
HNWIs and emerging effluents.

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SERVICES PROVIDED BY WEALTH MANAGEMENT INSTITUTIONS
(1) Custodian Services
A. Securities Safekeeping
B. Income collection from Securities
C. Settlement of Securities trades as directed
D. Payment of fund when directed
E. Timely settlement delivery
(2) Trust Services
A. Charitable Trust
B. Revocable Trust
C. Irrevocable life Insurance Trust
D. Special Need Trust
E. Institutional Trust
(3) Retirement Plan Services
A. IRA’s Custodian Or Trustee
B. Defined Benefit Plans
C. Defined Contribution Plans

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Wealth Management Practice Orientation Overview
Transactors:
 Product Expert: Handles high-volume transactions involving sophisticated products or asset
classes, such as foreign exchange derivatives.

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 Investment Broker: Handles transactions involving basic asset classes, such as equities, fixed
income and options.
Investment Managers:
 Investment Advisor: Offers strategic investment planning, as well as playing a handsome role in
constructing, reviewing and rebalancing client portfolios.
 Relationship Manager: Establishes and nurtures client relationships, delegating portfolio
management to internal or external managers.
Wealth Planners:
 Wealth Planner: Offers holistic advice in accordance with client’s finances and short/long-term
goals, such as real estate, retirement and generational wealth transfer.
 Personal CFO: Aspires to provide quasi family-office services, often acting in a lead
discretionary role coordinating with the client’s other trusted advisors.
The significance of these practice-model categories is that each reflects a different advisory
approach, borne of a different perspective. While some firms claim to have a single practice
orientation, many actually use multiple models in and across regions—and often leverage
different models within their core markets to capitalize on the strengths of individual advisors.
As they move into new markets, firms can create or exacerbate friction among the different
advisory approaches they use. Importantly, practice orientations need not be mutually exclusive,
but the mix of intra-firm practice models does need to be consciously managed
3. ADVANTAGES AND LIMITATIONS
ADVANTAGES: The following are the advantages of Wealth management concept.
1) Helpful In Tax Planning : The Wealth management professional always shows the good path
to the customers and provide the service of tax planning. How to minimize the tax and save more
money?

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2) Helpful In Selection of Investment Strategy: Another advantage from the customer point of
view is with the help of WM Professional the customer can easily know the investment strategy
and analyze risk and return.
3) Helpful In Estate Management: With the help of Wealth management professional They can
also manage their estate. Estate management is a task to provide objective administration of their
funds tailored to aim in responsible distribution and protection of their overall estate.
4) Helpful in forward looking : They can say planning, that recognizes as Their estate grows
and changes occurs They require some team of professionals who help us in future planning.
5) Helpful for Indian Economy : Banks which are engaged in business of WM earning
revenues from the foreign countries i.e. outsourcing for economy
LIMITATIONS
1. WM Reduces The Scope Of Management : Though They all know that management has
existence at all levels of life and society but the term Wealth management only related with the
higher level means rich people, and is not having any plans and provisions for poor and lower
and middle level of society.
2. Chances of Fraud : Another demerit or limitation of the WM concept is it is not showing the
actual position. The customer doesn’t know about the things going on with using his Wealth and
there may be chances of forgery and fraud with customers.
3. Actual Picture VS Inflation : What is the actual position of market they don’t know because
everything is done by some WM professionals. So they cannot assume their position in the
market that also results in inflation because economy is unknown about the actual state. There
may be chance that the customers are in risk but they are showing the false return and Vice-
versa.
Consumer Point Of View : Wealth Management
Technically, PMS can be defined as hybrid service provided by portfolio managers, which
includes customised stock and mutual fund investing. Portfolio managers can be of two kinds,
discretionary or non-discretionary. Discretionary portfolio managers manage the funds of clients
independently on their own accord, while the latter manage the funds according to their clients’

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direction. Any person who is registered with Securities and Exchange Board of India (Sebi) as a
portfolio manager is allowed to offer PMS. A list of these entities can be found at
www.sebi.gov.in.
PMS vs Wealth manager and fund manager.
PMS is completely different from priority banking and Wealth management. Priority banking or
Wealth management is the umbrella of products while PMS is a product. So if priority banking
and Wealth management is a grocery shop then PMS is a specific grocery. Priority banking is
usually offered to premiere customers who have a relationship manager appointed, who would
advice you on your investments across the products offered by the bank like insurance, and
investment linked products (mutual funds, bonds and unit linked insurance plan).
Mutual funds and PMS differ on the degree of customization, minimum investment and on
the fee structure. Minimum investment required for PMS is more than mutual fund.
Unlike PMS, there is no concept of profit sharing in mutual funds. Also, the level of
customization of your investments is higher in PMS.
Broking house If the broker is internal, it may be possible that your portfolio is churned
frequently. Usually, asset management companies have external brokers, while some, such as
Religare, have both external as Well as internal
broking.
Assets under management (AUM) Though higher AUMs do not guarantee higher returns, it
remains an important factor. A low AUM could be an indicator of poor performance. They
believe that Rs 100 core AUM is a healthy floor.
4. CONCEPT OF ASSET CLASSES
Asset Mix
Asset mix is the allocation of a portfolio between asset classes, it balances return and risk.
Returns are a combination of the income from an investment and the price appreciation over the
period. Risk is usually proxies by the “standard deviation” of returns, how much the return
change about the long-term average.

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List Of Different Asset Class
1. Fixed deposit
2. Mutual Fund
3. Equity
4 Commodities
5. Art Fund
6. Real-Estate Fund
7. Insurance product
8. Structured product
9. Gold
10.Currency
11.Oil
Fixed Deposits
FDs, are the most popular today. With FDs you deposit a lump sum of money for a fixed period
ranging from a few weeks to a few years and earn a pre-determined rate of interest. FDs are
offered by both banks and companies though putting your money with the latter is generally
considered riskier.
Merits and Demerits
The main advantage is that FDs from reputed banks are a very safe investment because such
banks are carefully regulated by the Reserve Bank of India, RBI, the banking regulator in India.
Note that company FDs isn’t as safe as bank FDs because if the company goes bankrupt you may
lose your money. Make sure you check the credit rating of a company before investing in its
FDs. You should be especially wary of companies which offer interest rates significantly higher
than the average to attract your money. The other advantage of FDs is that you have the option of
receiving regular income through the interest payments that are made every month or quarter.
This option is especially useful for retirees. On the flip side, a fixed deposit won’t give you the
same returns that you may get in the stock markets. For instance a stock-portfolio may rise 20-30
per cent in a good year whereas a fixed deposit typically earns only 7-10 per cent. A fixed
deposit also doesn’t offer protection against inflation. If inflation rises steeply during the
maturity of the FD your inflation

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adjusted return will fall. The rate of interest on FDs varies according to the maturity with longer
deposits generally earning a higher interest rate. Interest paid on a fixed deposit is paid either
monthly or quarterly according to the investor’s choice. So if you invest Rs 3 lakhs in a one year
fixed deposit which pays 8 per cent you can earn Rs 2,000 of interest every month or Rs 6,000 of
interest every quarter.
Effective Return
Before you invest in FDs you need to understand the concept of effective return which is higher
than the rate of interest on the FD. Effective return is relevant if you choose to reinvest your
interest every Year.
MUTUAL FUND
A mutual fund is a professionally managed firm of collective investments that collects money
from many investors and puts it in stocks, bonds, short-term money market instruments, and/or
other securities. The fund manager, also known as portfolio manager, invests and trades the
fund’s underlying securities, realizing capital gains or losses and passing any proceeds to the
individual investors. Currently, the worldwide value of all mutual funds totals more than $26
trillion. Since 1940, there have been three basic types of investment companies in the United
States: open-end funds, also known in the US as mutual funds; unit investment trusts (UITs); and
closed-end funds.
Similar funds also operate in Canada. However, in the rest of the world, mutual fund is used as a
generic term for various types of collective investment vehicles, such as unit trusts, open-ended
investment companies (OEICs), unitized insurance funds, and undertakings for collective
investments in transferable securities (UCITS).
Types of mutual funds
Open-end fund
The term mutual fund is the common name for what is classified as an open-end investment
company by the SEC. Being open-ended means that, at the end of every day, the fund issues new
shares to investors and buys back shares from investors wishing to leave the fund. Mutual funds
must be structured as corporations or trusts, such as business trusts, and any corporation or trust
will be classified by the SEC as an investment company if it issues securities and primarily

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invest in non-government securities. An investment company will be classified by the SEC as an
open-end investment company if they do not issue undivided interests in specified securities (the
defining characteristic of unit investment trusts or UITs) and if they issue redeemable securities.
Registered investment companies that are not UITs or open-end investment companies are
closed-end funds. Neither UITs nor closed-end funds are mutual funds (as that term is used in the
US).
Exchange-traded funds
A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-
end investment company. ETFs combine characteristics of both mutual funds and closed-end
funds. ETFs are traded throughout the day on a stock exchange, just like closed-end funds, but at
prices generally approximating the ETF’s net asset value. Most ETFs are index funds and track
stock market indexes. Shares are issued or redeemed by institutional investors in large blocks
(typically of 50,000). Most investors purchase and sell shares through brokers in market
transactions. Because the institutional investors normally purchase and redeem in kind
transactions, ETFs are more efficient than traditional mutual funds (which are continuously
issuing and redeeming securities and, to effect such transactions, continually buying and selling
securities and maintaining liquidity positions) and therefore tend to have lower their expenses.
Equity funds
Equity funds, which consist mainly of stock investments, are the most common type of mutual
fund. Equity funds hold 50 percent of all amounts invested in mutual funds in India. Often equity
funds focus investments on particular strategies and certain types of issuers.
Money market funds
Money market funds hold 26% of mutual fund assets in India. Money market funds entail the
least risk, as Well as their rates of return. Unlike certificates of deposit (CDs), money market
shares are liquid and redeemable at any time. The interest rate quoted by money market funds is
known as the 7 Day SEC Yield.
Hedge funds
Hedge funds are pooled investment funds with loose SEC regulation and should not be confused
with mutual funds. Some hedge fund managers are required to register with SEC as investment
advisers under the Investment Advisers Act. The Act does not require an adviser to follow or

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avoid any particular investment strategies, nor does it require or prohibit specific investments.
Hedge funds typically charge a management fee of 1% or more, plus a “performance fee” of
20% of the hedge fund’s profit. There may be a “lock-up” period, during which an investor
cannot cash in shares. A variation of the hedge strategy is the 130-30 fund for individual
investors.
Equity investment
Generally refers to the buying and holding of shares of stock on a stock market by individuals
and funds in anticipation of income from dividends and capital gain as the value of the stock
rises. It also sometimes refers to the acquisition of equity (ownership) participation in a private
(unlisted) company or a startup (a company being created or newly created). When the
investment is in infant companies, it is referred to as venture capital investing and is generally
understood to be higher risk than investment in listed going-concern situations.
Commodities Market
Commodity markets are markets where raw or primary products are exchanged. These raw
commodities are traded on regulated commodities exchanges, in which they are bought and sold
in standardized contracts. It covers physical product (food, metals, electricity) markets but not
the ways that services, including those of governments, nor investment, nor debt, can be seen as
a commodity. Articles on reinsurance markets, stock markets, bond markets and currency
markets cover those concerns separately and in more depth. One focus is the relationship
between simple commodity money and the more complex instruments offered in the commodity
markets.
Diversified portfolio
Individuals looking at alternative investments rather than the usual investments in equity-related
products. “Investments in alternative asset classes give clients a diversified portfolio across a
variety of asset classes,”
Yes Bank is expected to launch a Wealth management service that will offer investment in real
estate, art and jewellery. It expects to kick start the real estate service during this fiscal.

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“The bank is planning tie-ups with real estate consultant agencies. The service will largely cater
to non-resident Indians seeking opportunities to invest in real estate in the country”.
REAL ESTATE FUND
India Real Estate Fund is a significant component of the Indian realty market flooded with Indian
and foreign financial institutions. The growing increase in the industrial, commercial and
residential projects have boosted the real estate market in India. This has thrown open unlimited
scope for the incoming of the India Real Estate Funds. The profits have encouraged financial
assistance from not only domestic funds but also lured many foreign investors to participate in
the India Real Estate Fund. The cooperating assistance from the government has further
encouraged liquidity flow into the India real estate market sector. The foreign contributions in
the India Real Estate Fund have been witnessing a steady rise of 40%-45% per year. The
domestic financial institutions have also build up their investments like their foreign
counterparts. This combined participations from both along with contributions of the corporate
houses has accelerated the growth of India Real Estate Fund.
Insurance Product
The modern concept of insurance practices in India started during the British rule in 1818 when
Oriental Life Insurance Company was established in Calcutta. India became independent from
British rule in 1946, and by 1956 the insurance sector was nationalized, with the Life Insurance
Corporation of India created by combining almost 245 private life insurance companies; 107
private non-life companies combined in 1973 to form the General Insurance Corporation. But
since the very purpose of nationalizing the insurance sector got sidelined due to the monopolistic
power it enjoyed, coupled with the bureaucratic mindset of LIC and GIC, insurance again was
opened to private players in 1999. During 2000-2006, almost 15 life and 13 nonlife private
insurance players (mostly joint ventures between Indian and foreign players) started operations
in India, indicating the willingness of foreign institutional investors to enter the Indian insurance
sector. But through all these major changes the actual impact was felt only in major urban areas,
while the vast majority of the rural population was excluded from the insurance sector. Around
the world, scholars and financial experts believe that in the next 5 to 10 years, India and China
are going to be the targets for insurance companies. So far, most of the insurance companies in

27
India are not actively tapping the huge potential of the rural markets. Unless the rural markets are
given priority consideration, all predictions about future insurance industry potential in India are
going to be distant dreams. The present insurance business is not even able to penetrate 20%-
30% of the total population of 1.095 billion, and the projected population figure by 2025 will be
approximately 1.501 billion. The order of the day will be to refocus on micro insurance in India
to capture the huge potential of rural customers Unit Linked Insurance Plan (ULIP) provides for
life insurance where the policy value at any time varies according to the value of the underlying
assets at the time. ULIP is life insurance solution that provides for the benefits of protection and
flexibility in investment. The investment is denoted as units and is represented by the value that
it has attained called as Net Asset Value (NAV).
ULIP came into play in the 1960s and is popular in many countries in the world. The reason that
is attributed to the wide spread popularity of ULIP is because of the transparency and the
flexibility which it offers.
As times progressed the plans They are also successfully mapped along with life insurance need
to retirement planning. In today’s times, ULIP provides solutions for insurance planning,
financial needs, financial planning for children’s marriage planning also can be done with this.
Composition
Structured products are usually issued by investment banks or affiliates thereof. They have a
fixed maturity, and have two components: a note and a derivative. The derivative component is
often an option. The note provides for periodic interest payments to the investor at a
predetermined rate, and the derivative component provides for the payment at maturity. Some
products use the derivative component as a put option written by the investor that gives the buyer
of the put option the right to sell to the investor the security or securities at a predetermined
price. Other products use the derivative component to provide for a call option written by the
investor that gives the buyer of the call option the right to buy the security or securities from the
investor at a predetermined price.
Risks
The risks associated with many structured products, especially those products that present risks
of loss of principal due to market movements, are similar to those risks involved with options.

28
The potential for serious risks involved with options trading are wellestablished, and as a result
of those risks customers must be explicitly approved for options trading.
GOLD
Factors influencing the gold price
Today, like all investments and commodities, the price of gold is ultimately driven by supply and
demand, including hoarding and disposal. Unlike most other commodities, the hoarding and
disposal plays a much bigger role in affecting the price, because most of the gold ever mined still
exists and is potentially able to come on to the market for the right price. Given the huge quantity
of hoarded gold, compared to the annual production, the price of gold is mainly affected by
changes in sentiment, rather than changes in annual production. According to the World Gold
Council, annual mine production of gold over the last few years has been close to 2,500 tonnes.
About 3,000 tonnes goes into jewelry or industrial/dental production, and around 500 tonnes
goes to retail investors and exchange traded gold funds.
This translates to an annual demand for gold to be 1000 tonnes in excess over mine production
which has come from central bank sales and other disposal. Central banks and the International
Monetary Fund play an important role in the gold price. At the end of 2004 central banks and
official organizations held 19 percent of all above-ground gold as official gold reserves. The
Washington Agreement on Gold (WAG), which dates from September 1999, limits gold sales by
its members (Europe, United States, Japan, Australia, Bank for International Settlements and the
International Monetary Fund) to less than 400 tonnes a year. European central banks, such as the
Bank of England and Swiss National Bank, have been key sellers of gold over this period.
Although central banks do not generally announce gold purchases in advance, some, such as
Russia, have expressed interest in growing their gold reserves again as of late 2005. In early
2006, China, which only holds 1.3% of its reserves in gold, announced that it was looking for
ways to improve the returns on its official reserves. Many bulls hope that this signals that China
might reposition more of its holdings into gold in line with other Central Banks. In general, gold
becomes more desirable in times of:

29
Currency
The modern hedge fund manager’s liberal tongue-in-cheek definition is: “If it moves up and
down independently, then it’s an asset class.” While currencies surely do a lot of moving up and
down, they also stand out for other reasons:
Portfolio composition of currency
Modern portfolio theory postulates that relative risk can be reduced by diversification into at
least six or more components. This is not necessarily true for currency portfolios. Most
delivering percentage returns. The index serves as a proxy for available currency manager
portfolio returns in general and has the added benefit of being uncorrelated to returns of other
asset classes. Low correlation, liquidity and transparency are good enough reasons for currencies
to be considered a prime candidate for inclusion in any investment portfolio.

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5. Companies Providing Wealth Management Services
Kotak securities
INTRODUCTION
It is handling Wealth management department with a name of Kotak portfolio
management.
PRODUCTS
GEMS Portfolio
- Flexi
They are providing above products according to the customer requirement. The above products
are varying to high risk customers to low risk customers with a time origin of investment .They
have a separate service for NRI asset management service.
ASSET CLASSES USED
Standard chartered
INTRODUCTION
Priority Banking – personalized Wealth management program at Standard Chartered Bank. It is
their endeavor to be the Right Partner in all their personal and business ventures. That’s why

31
Priority Banking has been tailored to offer you the highest level of service, appropriate to your
unique requirements and status.
PRODUCTS:
Excel Banking
In today’s fast moving, technology-driven world, you need your bank to keep pace with your
banking needs. That’s why you need Excel Banking - a much personalised Wealth management
service that has been designed to help you make the most of your money, without taking up most
of your time. With the services of their personal Relationship Manager customer can access
complete Wealth management solutions, from routine banking and transaction management to
more complex investment services and insurance advisory services. What’s more, you also get
fee waivers on premium savings and current accounts and preferred pricing on a range of
complementary banking products and services.
Here are the unique features of Excel Banking:
lockers,
demat accounts and overdraft against term deposits.
-city cheque book for current account and savings account holders.
.
.
.
.
acilities for 24 hour access
Parivaar Account
Parivaar is a unique Wealth Management Solution from Standard Chartered Bank that offers
your family flexibility, convenience and essential tools for Wealth accumulation and
preservation.
Parivaar is much more than a regular Savings Account. It allows you maintain your individual
identity while allowing you to tap your family’s financial strength.
Here are some of the features of the Parivaar savings account :
accounts with the benefit of clubbing balances
in grouped accounts.

32
Online Banking.
-cum-debit card can be used at 3,26,000 merchant outlets in India and 14
million outlets worldwide.
ASSET CLASSES USED :
HSBC Financial Planning Services
Your portfolio can be managed in a fully discretionary manner from a selection of ‘Best of
Breed’ third party panel of Portfolio Management Service providers.
The main objective is to help you to preserve your wealth in line with your investment
objectives.
Inflation, falling interest rates and fluctuating market conditions require you to plan your
finances carefully. Celebrate important occasions in the future by managing your Wealth Well
now. HSBC’s Financial Planning Services offer assistance to secure your future. Their Financial
Planning Services are available for existing HSBC customers and are free of cost. Launched in
India in November 2002, HSBC Investments manages assets of over INR 10,684 crores, spread
across 21 schemes and plans under the HSBC Mutual Fund umbrella, as of end August 2006.
HSBC Investments has also soft-launched HSBC Alpha Account, the Portfolio Management
services (PMS) Business to manage wealth for High Net worth Individuals. Currently, the PMS
business offers two product baskets, namely, the and
Portfolio.
ASSET CLASSES USED
Traditional investments :
Direct Equity Advisory : Customized advice on direct equity portfolios based on your risk profile
and specific requirements. The proposition, backed by comprehensive in-house research, entails
building portfolios with fresh funds or restructuring legacy portfolios to provide better risk
adjusted returns. Mutual Funds : Our open architecture philosophy and ‘Best of Breed’ selection

33
of debt and equity mutual funds allows you to buy the top performing mutual funds available in
the market.
Non - traditional Investments :
Structured Products : Combinations of derivatives and financial instruments create structures that
have significant risk/return features that may not be otherwise available in the marketplace.
Structured products are designed to provide investors with highly targeted investments tied to
their specific risk profiles, return requirements and market expectations. Real Estate Venture
Funds : To provide you with diversification avenues which reduce the overall portfolio risk, we
seek to bring to you opportunities in real estate space through venture capital funds available in
the market.
Citi Bank
INTRODUCTION
Citi has the largest footprint among wealth managers in the Asia Pacific with more than 20
offices across the region. Over 2,000 wealth management professionals, including 600-plus
private bankers, financial advisors and investment specialists, serve 6000 high net worth
individuals and families, including half of all billionaires in Asia ex-Japan. Citi Global Wealth
Management is a top-tier global wealth manager providing some of the best institutional
capabilities available today. Serving both private and institutional clients, Citi Global Wealth
Management taps the strength and resources of Citigroup to maximize value and service.
The Global Wealth Management division at Citi comprises three of the most respected brands in
wealth management:
PRODUCTS
ICICI Wealth Management
INTRODUCTION

34
In India ICICI bank is a very Well known bank in the field of Wealth management. ICICI Bank
will float subsidiary for the purpose of WM activities in Canada & other market even as ICICI
has rolled out ICICI Group Global Private Clients for those with net worth of $ 1 million or
more. ICICI GCPC launched their business in Dubai very recently in the month of April-08 and
caught 2500 clients. They are going to add another 1000 high network clients this year. ICICI
Bank is using the services of global players like Merrill Lynch, City group, and UBS for catching
the clients for Wealth Management business. ICICI Bank and its subsidiaries are engaged in the
development of various attractive products (services) for the clients with net worth of $ 1
million. The eyes of ICICI Group Global Pvt. Clients on the rising number of dollar millionaires
at present they are 100,000 in number in few year the number will definitely increase. India’s
No.2 lender banker ICICI expects to sustain the 70% growth in its private Wealth management
business. ICICI has 150,000 customers with investible surplus of at least Rs. 10 lakhs equity, real
estate and private equity is driving the
private banking business in India. India has market of Wealth management about $ 600 billion.
Asset classes used
ONLINE TRADING : They also bring to you the best value for money through competitively
priced brokerage charges for online share trading services from www.icicidirect.co. With a 3-in-
1 account consisting of a trading account, ICICI Bank savings account and demat account, you
can stay connected to the market at all times. To add to this, They give you waiver on the
account opening charges too! With a 3-in-1 account consisting of trading, ICICI Bank account
and demat account, you can enjoy:
ed brokerage rates
MUTUAL FUNDS :
They offer you advice on the entire universe of mutual funds. So be it equity funds, where you
look for growth and capital appreciation or debt funds for capital preservation, They can help
you select the right mix to suit you. Choose from an array of more than 15 fund houses with
innumerable schemes.

35
Customised Products
-made to suit your
investment objective and risk appetite. Their services include Portfolio Management Services
and specially designed products that are Equity or Index-linked in nature.
your existing investments
eg. Art Funds, Private Equity Funding, Realty Funds
Life and General Insurance
AXIS BANK & WEALTH MANAGEMENT
One of India’s leading private sector banker Axis bank also combined with Banque Privee
Edmond de Rothschild Europe based Wealth management expertise institution & is going to
make new standard for the NRI’s Wealth management.
The LCF Rothschild group has based its reputation in the area of Wealth management on its big
banking experience. Actually the institution is engaged in the task of providing financial advise
to the Europe’s leading families, Government and various corporations for the last ‘7’
generations.
The Axis Bank 5th largest bank by market capitalization in India provides payroll services to
over 12000 corporates across 2.8 million salary accounts. The market capitalization of Axis
Bank was 235 million in the last year 2007 is engaged in the business of Wealth management,
with its international presence in Dubai, Singapore Hong Kong, Shanghai and so on.
6. BANK OF BARODA
The Bank Of Baroda Wealth Management includes
 Insurance
 Mediclaim Insurance
 Mutual Fund
 Domestic Operations
 e-Broking
Bank of Baroda has set up dedicated desks at the SITB, headed by experienced professionals, for
undertaking various types of treasury activities in different financial markets. Apart from

36
activities pertaining to management of funds and liquidity, the domestic treasury also handles
financial instruments like:
 Commercial Papers (CP)
 Certificate of Deposits (CD)
 Government Securities
 Treasury Bills (TB)
 Bonds and Debentures
 Equities and various other derivatives.
The products and services offered by SITB cater to the inter-bank market as well as to the
corporate customers of the bank. The Bank is an active participant both in the inter-bank market
and the corporates for all the products.
The Bank offers its customers, including firms, companies, corporate bodies, institutions,
provident funds trusts, Regional Rural Banks, Urban Cooperative Banks and Non-Banking
Financial Companies opportunities to invest in Government Securities as allowed by Reserve
Bank of India for non-competitive bidding.
Forex Operations
Bank of Baroda, one of the major public sector banks in India having a strong global presence
with a wide network of 61 overseas offices, including those of subsidiaries, spread over 16
countries, is considered as a market leader in foreign exchange operations in India. At present the
Bank is having branches / offices in countries like USA, UK, Belgium, South Africa, Hong
Kong, UAE, Oman, Fiji Islands, Mauritius, Seychelles, Bahamas, Guyana, Kenya, Uganda and
Zambia
The Bank has completed fifty years of operations in overseas territories and is poised to expand
its reach to countries like Tanzania and China, apart from consolidating its overseas operations in
those countries where the bank has already made its presence felt.

37
The modern state-of-the-art dealing room at its Specialised Integrated Treasury Branch (SITB) at
Mumbai provides the necessary wherewithal to its 95 designated branches across the length and
breadth of the country authorized to handle foreign exchange business of its clientele. The bank
has retained its primacy as a leading market maker both in spot and forward markets, along with
foreign exchange swap markets.
The forex dealing desk at the SITB is provided with all modern communication facilities and is
in the process of linking all its authorized branches via Reuters Automated Dealing System, to
provide on-line quotes for foreign exchange transactions.
Through its large network of authorized branches, the bank caters to the foreign exchange needs
of its clientele engaged in export and import trade and the SITB provides rates for conversion of
all major world currencies like U S Dollar, Sterling Pounds, Euro, Swiss Francs, Japanese Yen
and other exotic currencies. The services to the customers of the Bank include hedging of foreign
currency risks by providing forward covers and various derivatives product.
Baroda e-Trading
Bank of Baroda in association with M/s. India Infoline Ltd. brings forward a fast, easy,
transparent and hassle-free way for investing / trade in shares in secondary capital market
through National Stock Exchange and Bombay Stock Exchange. Investment in shares traded on
the NSE and BSE can be made without having to visit your share-broker. All other associated
hurdles like tracking of settlement cycles, paying and receiving funds in savings account, paying
and receiving shares in Demat accounts have been removed. Now from a remote location while
on tour, picnic, holiday - through internet and laptop / personal computer - you can also trade in
the stock market. What's more you have access to world class research reports, absolutely free,
on trading and investment from India Infoline.
India Infoline Baroda e-Trading, an on-line share trading in shares facility is offered under a tie-
up arrangement with M/s India Infoline Ltd. (IIL), one of the most reputed and leading brokerage
house. IIL is SEBI registered member of both the stock exchanges NSE, BSE. They are also
leading brokers in commodities market. Under Baroda e-Trading following will be provided to
you by IIL:

38
 Investor Terminal & Trader Terminal - Trading work station that refreshes the rates on its own of
stocks that are of interest to you. For traders, this is a premium service and available at a cost or
minimum brokerage amount.
 Multi exchange trading :Trade execution on both the exchanges, BSE & NSE.
 Instant Limit - based on funds transferred to trading account
 MIS - You can generate / view / print your accounts related reports and details
(contracts/bills/ledger, trade register, net position details, etc.) any time any where.
Baroda e-Trading : 3-in-1 Account: will help you to
 open your account with any of our CBS branches
 open Demat account can be opened either with us or with IIL
 open e-Trading account with IIL
 The account opening forms contain all necessary agreement cum power of attorney for enabling
online trading
 All these agreements are as per the guidance of SEBI
Baroda Health
"Baroda Health" (Mediclaim Insurance Policy) for Bank’s Account holders.
With a view to offer value added services to our customers, we have developed a co-
branded insurance product called as "BarodaHealth" (Mediclaim Insurance Policy) for
Bank's Account holders w.e.f. 23rd February 2006 available at all branches across the
country.
What is Baroda Health Policy?
It is a Medical Insurance Scheme, available only to account holders of our Bank, which

39
takes care of the hospitalization expenses incurred by the customer up to the amount of
sum insured, in respect of the following eventualities.
 Any illness / disease
 Accidental injury and/ or any ailment.
 Any surgery that is required in respect of any disease or accident that has arisen during the
policy period
 The minimum hospitalization should be for 24 hours
Key Benefits :
 Very low premium
 In this co-branded product, single premium (generally payable for a single person) is
payable and Medical Health insurance cover is available to family of -4- (self, spouse and 2
dependent children) up to the amount insured without any additional premium.
 A member or all the members in insured family can avail hospitalization benefits during
the policy period, to the extent of aggregate sum not exceeding the sum insured.
 Premium paid is eligible for Income Tax exemption under Section 80 D as per Income Tax
Rules.
Salient features:
 No medical examination required for commencement of health cover.
 Pre-existing diseases also get coverage after 3 continuous claim-free policy years.
 Coverage options available: 8 slabs ranging from Rs. 50,000/- to Rs. 5,00,000/- per family
of 1+3.
 Upper age limit of primary member (first named person) is allowed upto 80 years, if a

40
person obtains the insurance cover before completion of 65 years and continue to renew the
policy up to the age he wishes to or 80 years, whichever is earlier.
Scope of cover:
 Room, Boarding expenses as provided by the Hospital / Nursing Home.
 Nursing expenses.
 Surgeon, Anaesthetist, Medical Practitioner, Consultants, Specialists Fees.
 Anaesthesia, Blood, Oxygen, Operation Theatre Charges, Surgical appliances, Medicines
& Drugs, Diagnostic Materials and X-Ray, Dialysis, Chemotherapy, Radiotherapy, Cost of
pacemaker, Artificial Limbs and cost of organs and similar expenses.
Terms and Conditions:
 This policy is available only to account holders of our Bank.
 Period of insurance cover is one year. The policy needs renewal on or before the expiry
date for continuity.
 The Premium Payable (currently in force).
 The family for this purpose means self, spouse and two dependent children.
 Non-earning son / daughter is considered dependent (scholarship amount is not considered
as income). However, Married daughters are not considered dependent.
 There are certain diseases / expenses which are not covered in the scheme.
CUSTOMER PROFILING
Based on different financial needs an average life cycle has been divided into 4 stages of
Financial Planning as given below.
I. Upto 30 years of age

41
II. 30-45 years of age
III. 45-60 years of age
IV. Over 60 years
Upto 30 years of age
General Profile :-
Out of college/Professional Course.
Junior or Mid level employment.
Have had an average work life of 5-8 yrs.
Unmarried or recently married.
Small family.
Nuclear family / Joint family.
General Characteristics:-
Salary surpluses, especially if single or DINK.
Minimal family responsibilities
Propensity to spend/overspend
Find investment/saving as Boring & waste of time.
Lack of inclination to invest.
Lack of proper information on investment.
Do not need regular income from investment.
Investment Needs:-
Repayment of professional studies loan.
Plan for tax.
Saving for white goods/new vehicle.
Biggest need is to save enough for a down payment for a house.
Start to build an emergency fund.
Recommendation:-
Negotiate tax-efficient salary.

42
Budget and keep track of expenses.
Use credit card prudently.
Save regularly and consciously.
Recommended Investment Style :-
Should be an aggressive investor.
Should focus on long term capital growth rather than
short term capital preservation.
Have a long term investment horizon, as a balance of productive working life is high.
Can invest in high risk, high gain products
Recommended distribution of asset :-
90 % investments in equity.
10 % investment in debt.
Should start SIP or recurring deposit through auto debit facilities to ensure disciplined and
compulsory savings.
Should start planning for or at least start thinking about retirement.
Product Recommendations :-
If salaried, approximately 24% of basic is necessarily invested in PF and can be supplemented
with NSC & PPF.
If self employed/professional, should start a PPF/Pension plan investment to provide for
retrials.
Invest part of the surplus marked for equity investment , in equity oriented funds like :
 Diversified equity funds(60%)
 Sector funds(10%)
 Tax saving funds(20%)

43
Between 30-45 yrs :-
General profile :-
Married , usually with children
Middle to senior level employees.
Have had an average work life of 10-15 yrs.
May have dependent parents
Usually a personal vehicle owner.
Already invested in a home/seriously thinking of investing in a home.
General Characteristics :-
Surplus funds are limited.
Lifestyle expenses go up
Children need/expenditure is of prime importance.
Household expenses are gradually increasing
Realize the need for investment planning but lack time for investment planning.
Investment Needs :-
Shelter income from taxes.
Plan for children’s higher education
Start to build capital for retirement ,if not started already.
Maintain an emergency fund & keep adding to it.
Buy a home/service a home loan.
Save for holidays/recreation.
Can take medium to high risk.
Should continue to focus on capital growth.
Investment horizon is still more than 5 yrs.
Follow thumb rule of 100 less your age in years as percentage of savings to be invested in
equity.

44
Upto 60% of surplus funds can be invested in equities.
15% of surplus funds in liquid funds.
25% in Bonds/PPF/NSC.
Product Recommendations :-
Diversified equity funds, more tilted towards large caps for capital growth for retirement or
seed money for home loan.
Build up a direct equity.
Invest in children specific mutual funds to provide for children’s higher education needs .
NSC and PPF to balance investments in equity.
Tax efficient saving through ELSS.
Keep adding to short term floating rate funds and bank FD’s for emergency fund.
Get medical insurance for your dependent parents.
Get household contents insured.
Get a life insurance against your home loan.
Get an accident insurance against any disabilities.
Between 45-60 yrs.
General Profile :-
Usually at the peak of career
Grown up children.
May need take care of dependent children.
Retirement is not very distant.
Could opt for VRS.
May have a inherited portfolio of investments from
parents.
General Characteristics:-
surplus fund higher than in previous life stage.
High outgo on household expenses.
Children expenses continue to increase.

45
Life style expenses still high.
2-3 major outflows of money (overseas education/marriage/set up business).
High liquidity is a must.
Sensitized to medical and retirement needs.
Recommendations :-
Decide when to retire.
Acquire all necessary consumer durables while still to plug future outflows.
Consolidate and continue with wealth creation
Start de-risk taking your portfolio.
Revisit and revise financial goals.
Rebalance your portfolio as per future needs.
Medical insurance a must.
Pension plans must be started if not done already.
Prepare a will.
Greater vulnerability to risk hence focus on moderate
balanced growth.
Shift focus from capital growth to capital preservation.
Investment time horizon comes down.
Turning point as investment debt now outpaces investment in equity.
Up to 40% of surplus funds in equity.
Up to 60 % of surplus funds in debt.
Product recommendation :-
Prepay or finish all loans by 55 years of age.
Invest in balanced funds or MIP’s
Phase out high risk sector funds gradually.
Keep investment in well-diversified large cap funds.
Investment in debt should be around NSC & Bonds.

46
Short term deposits and floating rate funds,along with cash or liquid funds should be
maintained for liquidity.
Consolidate direct equity portfolio : gradually move part of it to high dividend yield stocks.
Keep all surplus funds in liquid/floater funds.
Above 60 years of age
General profile
Retired/working part time
Living in self owned house.
Children may be living separately.
Dependent parents, needing medical attention, may be part of family.
Could have grand children.
Have more leisure time.
General Characteristics
Income from existing investments, usually the only source of regular income.
Surplus funds usually not available for additional investments.
Capital preservation is the primary need.
High life expectancy hence present capital has to stretch over a long time.
Life style expenses go down.
Medical expenses go up.
Investment needs
Regular income needed from investments.
Emergency funds for medical etc.
to be liquid and high.
Preservation of wealth.
Money for traveling/gifts.
Need funds to pursue hobbies to keep busy.

47
Recommendation
Monitor expenses to fit into the retirement income.
Ensure tax efficiency of returns on investments
Explore second careers/part time employment.
Check excess liquidity as it needs to reduced returns on investments.
Too much cash should not be kept with oneself in the house, as it may be a risk.
Do maximum purchase transaction through debit cards to avoid the needs of cash withdrawals.
Recommended investment style
Most challenging phase of life.
Capital preservation of utmost importance.
Low risk appetite.
Income generation & consumption phase of investment.
Investment horizon low.
Maximum 15% equity exposure.
Product Recommendations
Invest in MIP’s and balanced equity funds.
Senior citizen’s saving schemes.
Post office monthly schemes.
FD’s with monthly schemes.
RBI Bond
Continue with direct equity portfolio with high dividend yield stocks.
Avail all possible tax breaks available to senior citizens
Switch some investments from equity to debt and money market products.
Go for systematic withdrawal plans(reverse of SIP).
Growth portion of portfolio should be reduced to maintain only enough amount.
Health mediclaim.

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BASED ON 2006-2009 DATA
POSITION OF INDIA IN WEALTH MANAGEMENT
DATA FROM ICICI PRUDENTIAL
7. Wealth Management- India Position
The wealth management industry in India is experiencing an evolutionary phase of development,
according to Celent. With the liberalization of the Indian economy and subsequent growth and

49
prosperity across sectors, the wealth management industry is poised to gain greater traction.
Celent segments the Indian wealth management market and looks at trends and opportunities at
the provider end. According to the report, India has become a US$1 trillion market (in assets
under management) for wealth management providers in 2012, with a market size of 42 million
households. In the annual survey done by Cap Gemini, SA and Merrill Lynch it was found that
ranks of millionaires grew 6% in the previous year, because the number of richer people grew in
India & China where India is competing China. India & China posted the biggest gain in
millionaires advancing by 27% & 20% respectively.
Risk aversion of Indian customers
The repercussions of the mutual fund scandal of the 1990s are still evident. Many Indian retail
customers averse to diversifying their asset base into higher risk classes. To account for this
conservative tendency, PFS offerings can be tailored to emphasize the value of a lower-risk
investing approach.
“New money” mass affluent customers are not accustomed to Wealth management. Most
customers are used to obtaining financial services on an as needed basis without much regard to
a full view of their financial Well-being. As part of the opportunity to define and develop
offerings for India’s emerging HNW population, customers may need an introduction to the
concept of private banking (or Wealth management). There is a shortage of skilled personal
financial advisors. To date, the PFS opportunity has been limited to a very small segment of the
population, so domestic banks have not generally developed expertise in comprehensive personal
financial management. Global banks can take advantage of this gap by leveraging advisory
competencies that they have cultivated in other markets, importing that expertise into the Indian
market.

50
8. Alternative Investments
Alternative investments fall outside of the definition of long-only, publicly traded investments in
stocks, bonds, and cash (often referred to as traditional investments). In other words, they are
alternatives to long-only positions in stocks, bonds, and cash. The usage of the terms traditional
and alternatives should not be construed to imply that alternatives are necessarily uncommon
and/or relatively recent additions to the investment universe. Alternative investments include
investments in assets such as real estate and commodities, which are arguably two of the oldest
investment classes.
Alternative investments also include non-traditional approaches to investing within special
vehicles, such as private equity funds, hedge funds, and some exchange traded funds (ETFs).
These funds typically give the manager flexibility to use derivatives and leverage, make
investments in illiquid assets, and take short positions. The assets invested in by these vehicles
can include traditional assets (stocks, bonds, and cash) as well as other assets. Management of
alternative investments is almost always active. Alternative investments, particularly investments
through special vehicles, are often characterized by high fees, low diversification of managers
and investments within the alternatives investment portfolio (because of the large size of
investments), high use of leverage, and restrictions on fund redemptions.
There are several other characteristics common to many alternative investments. An alternative
investment may not be expected to have all these characteristics but will typically be expected to
have many of them. These characteristics include the following:
 Illiquidity of underlying investments
 Narrow manager specialization
 Low correlation of returns with those of traditional investments
 Low level of regulation and less transparency
 Limited and potentially problematic historical risk and return data
 Unique legal and tax considerations

51
Categories of Alternative Investments
Considering the variety of characteristics common to many alternative investments, it is not
surprising that no consensus exists on a definitive list of these investments. There is even
considerable debate as to what represents a category versus a sub-category of alternative
investments. For instance, some listings define distressed securities as a separate category
whereas other listings consider distressed securities as a sub-category of the hedge funds and/or
private equity categories, or even a subset of high yield bond investing. Similarly, managed
futures are sometimes defined as a separate category and sometimes as a sub-category of hedge
funds and/or commodities. The listing below is one approach to define broad categories of
alternative investments. Each of the categories is described in detail later in this reading.
 Hedge Funds: Hedge funds are private investment vehicles that manage portfolios of securities
and derivative positions using a variety of strategies. They may employ long and short positions,
are often highly leveraged, and aim to deliver investment performance that is independent of
broad market performance.
 Private Equity Funds: Private equity funds generally invest in companies (either start-up or
established) that are not listed on a public exchange, or in public companies with the intent to
take them private. The majority of private equity activity involves leveraged buyouts of
established profitable and cash generative companies with solid customer bases, proven
products, and high quality management. Venture capital, which typically involves investing in or
providing financing to start-up or young companies with high growth potential, is a small portion
of the private equity market.
 Real Estate: Real estate investments may be in buildings and/or land, including timberland and
farmland, either directly or indirectly. The growing popularity of securitizations broadened the
definition of real estate investing. It now includes private commercial real estate equity (e.g.,
ownership of an office building), private commercial real estate debt (e.g., directly issued loans
or mortgages on commercial property), public real estate equity (e.g., REITs), and public real
estate debt (e.g., mortgage-backed securities) investments.

52
 Commodities: Commodities investments may be in physical commodity products such as grains,
metals, and crude oil, either through owning cash instruments, utilizing derivative products, or
investing in businesses engaged in the production of physical commodities. The main vehicles
used by investors to gain exposure to commodities are commodity futures contracts and funds
benchmarked to commodity indices. Commodity indices are typically based on various
underlying commodity futures.
 Infrastructure: Infrastructure assets are capital intensive, long-lived, real assets, such as roads,
dams, and schools, which are intended for public use and provide essential services.
Infrastructure assets may be financed, owned, and operated by governments, but increasingly the
private sector is investing in infrastructure assets. Investors may gain exposure to these assets
directly or indirectly. Indirect investment vehicles include shares of companies, exchange-traded
funds, private equity funds, listed funds, and unlisted mutual funds that invest in infrastructure.
 Other: Other alternative investments may include tangible assets (such as fine wine, art, antique
furniture and automobiles, stamps, coins, and other collectibles) and intangible assets (such as
patents).
In addition to diversification benefits in a portfolio context, some of the attraction of alternative
investments seems to be based on expected returns. However, when considering expected
returns, the risks associated with those returns must also be factored in. Risks can be considered
both on a stand-alone basis and within the context of a portfolio. As mentioned earlier, risks for
alternative investments include low liquidity, limited redemption availability and transparency,
and the challenge of manager diversification.
Returns may be measured relative to stand-alone risk using risk ratios and exploring return
distributions. A commonly reported risk ratio is the Sharpe Ratio, which equals an investment’s
return, net of a risk-free rate, divided by its return standard deviation; it is a common measure
among the investment community because of the ease of calculation using historical results.
Other risk measures, such as those that emphasize downside risk, are also frequently considered
Hedge Funds

53
In 1949 Alfred Winslow Jones, a sociologist investigating fundamental and technical research to
forecast the stock market for Fortune magazine, set up an investment fund with himself as
general partner. The fund followed three key tenets: (1) always maintain short positions, (2)
always use leverage, and (3) only charge an incentive fee of 20 percent of profits with no fixed
fees. Jones called his portfolio a “hedged” fund (eventually shortened to “hedge fund”) because
he had short positions to offset his long positions in the stock market. Theoretically, the overall
portfolio was hedged against major market moves.
Although Jones’ original three tenets still have some relevance to the hedge fund industry, not all
hedge funds maintain short positions and/or use leverage, and most hedge funds have some non-
incentive fees. The typical contemporary hedge fund can be characterized as follows:
 It is an aggressively managed portfolio of investments across asset classes and regions that is
leveraged, takes long and short positions, and/or uses derivatives.
 It has a goal of generating high returns, either in an absolute sense or over a specified market
benchmark and has few, if any, investment restrictions.
 It is set up as a private investment partnership open to a limited number of investors willing and
able to make a large initial investment.
 It often imposes restrictions on redemptions. Investors may be required to keep their money in
the hedge fund for a minimum period (referred to as a lockup period) before they are allowed to
make withdrawals or redeem shares. Investors may be required to give notice of their intent to
redeem; the notice period is typically 30 to 90 days in length. Also, investors may be charged a
fee to redeem shares.
The willingness of investors to invest in hedge funds, despite the restrictions on redemptions, is
largely because of the reported returns of some hedge funds and their perceived low correlation
with traditional investments. The positive performance of many funds in the early 2000s when
other investments had declined supported the diversification potential of hedge funds in a
portfolio. The growth of interest in hedge funds as investments led to the emergence of funds of
hedge funds.
Hedge Fund Strategies

54
Hedge funds are typically classified by strategy, but categorizations vary. Many classifying
organizations focus on the most common strategies, but others have classification systems based
on different criteria such as the underlying assets invested in. Also, classifications change over
time as new strategies, often based on new products and opportunities in the market, are
introduced. Classifying hedge funds is important so that investors can review aggregate
performance data, select strategies to build a portfolio of funds, and select or construct
appropriate performance benchmarks.
Hedge Funds and Diversification Benefits
Given the broad range of strategies across hedge funds, general statements about hedge fund
performance are not necessarily meaningful. Further, there is a general lack of performance
persistence; hedge fund strategies that generate the highest returns in some years can be the ones
to perform the most poorly in subsequent years.
The general premise of hedge funds is that they can make money (in other words, earn absolute
returns) regardless of the stock market’s direction. Their flexibility and the fact that they are not
typically restricted to long only positions gives them the opportunity to respond to market
fluctuations. In addition, hedge funds have traditionally been thought of as “arbitrage” players,
meaning that they seek to earn returns while hedging against risks. Of course, in efficient
markets, it is hard to find true arbitrage opportunities. In fact, one of the benefits some hedge
funds provide to the financial marketplace is that they help make the markets more efficient by
providing liquidity with contrarian views. As the hedge fund market has grown, many traditional
hedge fund strategies have become increasingly crowded, forcing funds to take on more risk to
generate competitive returns.
Less than perfect correlation with the stock market may provide diversification benefits.
However, the sometimes claim that hedge fund performance is uncorrelated, not just less than
perfectly correlated, with stock market performance is unsubstantiated.
Hedge Fund Fees and Other Considerations

55
Hedge fund assets under management have grown over the 10-year period of 2000 through 2009,
but they remain a small percentage of the asset management business overall. Hedge funds,
however, earn a significantly higher percentage of fees. For example, in 2007 hedge funds
managed 3 percent of total managed funds (hedge funds plus mutual funds) but earned 28
percent of managed fund revenue (fees).
Fees and Returns
It is important to consider a hedge fund’s fee structure prior to making an investment. The hedge
fund fee structure accounts for the disproportionately high revenues earned relative to mutual
funds and affects the returns to investors. A common fee structure in the hedge fund market is “2
and 20,” which reflects a 2 percent management fee and a 20 percent incentive fee. Additionally,
funds of hedge funds typically charge a 1 percent management fee and a 10 percent incentive
fee. The incentive fee may be calculated on profits net of management fees or on profits before
management fees (in other words, the incentive fee is calculated independent of management
fees).
Sometimes, the fee structure specifies that the incentive fee is only earned after the fund achieves
a specified return known as a hurdle rate. The hurdle rate is frequently set based on a risk-free
rate proxy (e.g., Libor or a specified Treasury bill rate) plus a premium but may be set as an
absolute, nominal, or real return target. The incentive fee can be based on returns in excess of the
hurdle rate (hard hurdle rate) or on the entire return (soft hurdle rate).
The fee structure may specify that before an incentive fee is paid, following a year in which the
fund’s value has declined, the fund’s value must return to a previous high water mark. Note that
the high water mark is typically the highest value reported by the fund; the amount reported is
net of fees. High water marks reflect the highest cumulative return used to calculate an incentive
fee. In other words, the hedge fund must recover its past losses and return to its high water mark
before any additional incentive fee is earned. Clients are not charged an incentive fee if the latest
cumulative return does not exceed the prior high water mark. This use of a high water mark
protects clients from paying twice for the same performance. Although poorly performing hedge
funds may not receive an incentive fee, the management fee is earned irrespective of returns.

56
Private Equity
Private equity generally means investing in privately owned companies or in public companies
with the intent to take them private. There are different stages and types of private equity
investing. The focus of private equity firms, which may manage many private equity funds, may
change through time as business conditions and the availability of financing change. A possible
categorization of private equity identifies leveraged buyouts, venture capital, development
capital, and distressed investing as primary private equity strategies.
Leveraged buyouts (LBOs) or highly leveraged transactions refer to private equity firms
establishing buyout funds (or LBO funds) that acquire public companies or established private
companies with a significant percentage of the purchase price financed through debt. The assets
of the target company typically serve as the collateral for the debt, and the cash flows of the
target company are expected to be sufficient to service the debt. The debt becomes part of the
capital structure of the target company if the buyout goes through. The target company after the
buyout becomes or remains a privately owned company.
Venture capital entails investing in or providing financing to private companies with high
growth potential. Typically, these are start-up or young companies, but venture capital can be
provided at a variety of stages.
Development capital generally refers to minority equity investments in more mature companies
that are looking for capital to expand or restructure operations, enter new markets, or finance
major acquisitions.
Distressed investing typically entails buying the debt of mature companies in financial
difficulties. These companies may be in bankruptcy proceedings, have defaulted on debt, or seem
likely to default on debt. Some investors attempt to identify companies with a temporary cash
flow problem but a good business plan that will help the company survive and in the end

57
flourish. These investors buy the company’s debt in expectation of the company and its debt
increasing in value. Turnaround investors buy debt and plan to be more active in the
management and direction of the company. They seek distressed companies to restructure and
revive.
The level of activity in private equity is cyclical.
Private Equity Structure and Fees
Like hedge funds, private equity funds are typically structured as partnerships where outside
investors are Limited Partners (LPs) and the private equity firm, which may manage a number of
funds, is the General Partner (GP). Most private equity firms charge both a management fee and
an incentive fee on a fund basis. The management fees generally range from 1 to 3 percent of
committed capital. Committed capital is the amount that the LPs have agreed to provide to the
private equity fund. Private equity funds raise committed capital, and draw down on those
commitments over 3 to 5 years when they have a specific investment to make. Until the
committed capital is fully drawn down and invested, the management fee is based on committed
capital, not invested capital. The committed capital basis for management fees is an important
distinction from hedge funds where management fees are based on assets under management.
After the committed capital is fully invested, the fees are paid only on the funds remaining in the
investment vehicle; as investments are exited, capital is paid back to the investors, and they no
longer pay fees on that portion of their investment.
For most private equity funds, the GP does not earn an incentive fee until the LPs have received
their initial investment back. The GP typically receives 20 percent of the total profit of the
private equity fund as an incentive or profit sharing fee. The LPs receive 80 percent of the total
profit of the equity fund plus the return of their initial investment. If distributions are made based
on profits earned over time rather than at exit from investments of the fund, the distributions may
result in receipts by the GP of more than 20 percent of the total profit. Most private equity
partnership agreements include policies that protect the LPs from this contingency. These
policies include prohibiting distributions of incentive fees to the GP until the LPs have received
back their invested capital, setting up an escrow account for a portion of the incentive fees, and

58
incorporating a clawback provision that requires the GP to return any funds distributed as
incentive fees until the LPs have received back their initial investment and 80 percent of the total
profit.
In addition to management and incentive (profit sharing) fees, LBO firms may receive fees from
sources other than the fund’s investors. These include a fee for arranging the buyout of a
company based upon the selling (buyout) price of the company, a fee if a deal falls through, and
a fee for arranging for divestitures of assets after the buyout is complete.
Private Equity Strategies
There are many private equity strategies. A common categorization, as indicated earlier,
identifies leveraged buyouts, venture capital, development capital, and distressed investing as the
primary strategies. However, leveraged buyouts and venture capital are the dominant strategies.
Leveraged Buyouts
LBOs are sometimes referred to as “going private” transactions because, after the acquisition of
a publicly traded company, the target company’s equity is generally no longer publicly traded.
When the target company is an established private company, it is not a “going private”
transaction. The LBO may also be of a specific type. In MBOs (management buyouts), the
current management team is involved in the acquisition, and in MBIs (management buy-ins), the
current management team is being replaced and the acquiring team will be involved in managing
the company. LBO managers seek to add value—from improving company operations and
growing revenue and ultimately increasing profits and cash flows. The sources of growth in
earnings before interest, taxes, depreciation, and amortization (EBITDA), in order of
contribution to growth, include organic revenue growth, cost reduction/restructuring, acquisition,
and other. However, the potential returns in this category are to a large extent due to the use of
leverage. If debt financing is unavailable or costly, LBOs are less likely to occur.
Venture Capital

59
Venture capital (VC) is often categorized by the stage at which the venture capital is provided to
the company of interest. The company that is being invested in is often called the portfolio
company because it will become part of the portfolio of the VC fund. The stages range from
inception of an idea for a company to the point when the company is about to make an initial
public offering (IPO) or be acquired—most typically, by a strategic buyer. The investment return
required varies based on the stage of development of the company. Investors in early stage
companies will demand higher expected returns relative to later stage investors. The ultimate
returns realized depend on the portfolio company’s success in transitioning from a start-up to a
going and growing concern.
Venture capitalists are not passive investors. They are actively involved with the companies in
which they invest. The VC fund typically gets an equity interest in the company in which it is
investing. The VC fund may also provide some debt financing.
1. Formative-stage financing occurs when the company is still in the process of being formed and
encompasses several financing steps, which are described as follows:
a. Angel investing is capital provided at the idea stage. Funds may be used to transform the idea
into a business plan and to assess market potential. The amount of financing at this stage is
typically small and provided by individuals (often friends and family) rather than by VC funds.
b. Seed-stage financing or seed capital generally supports product development and/or marketing
efforts, including market research. This point is generally the first stage at which VC funds
invest.
c. Early stage financing (early stage venture capital) is provided to companies moving toward
operation but before commercial production and sales have occurred. Early stage financing may
be provided to initiate commercial production and sales.
2. Later-stage financing (expansion venture capital) is provided after commercial production and
sales have begun but before any IPO. Funds may be used for initial expansion of a company
already producing and selling a product or for major expansion, such as physical plant
expansion, product improvement, or a major marketing campaign.

60
3. Mezzanine-stage financing (mezzanine venture capital) is provided to prepare to go public and
represents the bridge between the expanding company and the IPO.
Formative-stage financing generally is done via ordinary or convertible preferred share transfers
to the investor (VC fund), and management retains control of the company. Later-stage financing
generally involves management selling control of the company to the venture capital investor;
financing is provided through equity and debt (the fund may also use convertible bonds or
convertible preferred shares). The debt financing is not intended for income generation to the VC
fund but rather, it is for the recovery and control of assets in a bankruptcy situation. Simply put,
it provides more protection to the VC fund than equity.
In order to make an investment, a venture capitalist needs to be convinced that the management
team of the portfolio company is competent and that there is a solid business plan with strong
prospects for growth and development. Because these investments are not in mature businesses
with years of operational and financial performance history, the complexity involved with
venture capital involves accurately estimating company valuation based on future prospects. This
estimation is more of an unknown than in LBO investing, which targets mature, underperforming
public companies. As the portfolio company matures and moves into later-stage financing, there
is more certainty around valuation but less so than with an LBO investment.
Other Private Equity Strategies
There are several other specialties for private equity firms. These specialties include
development capital, also called minority equity investing, which earns profits from funding
business growth or restructuring. Many times, minority equity investing is initiated and sought
by management, who are interested in realizing earnings from selling a portion of their shares
before they are able to go public. Although this scenario occurs most commonly with private
companies, publicly quoted companies sometimes seek private equity capital, in opportunities
called PIPEs (private investment in public equities).
Distressed investing by a private equity firm typically involves purchasing the debt of troubled
companies (companies that are bankrupt, in default, or likely to default). The distressed debt
often trades at prices significantly less than the face value of the debt. If the company can be

61
turned around, the debt may recover its value. The return on investment is a function of the
ability of the turnaround investor to restructure the company either operationally or financially.
Distressed debt investors may be involved in the turnaround and may assume an active role in
the management and direction of the company or in the reorganization of the company. Some
distressed investors are passive investors who simply try to identify companies that they expect
to increase in value; debt holders will benefit from the increase before equity holders. Distressed
debt investors are sometimes referred to as vulture investors.
Private Equity: Diversification Benefits, Performance, and Risk
Private equity funds may provide higher return opportunities relative to traditional investments
through their ability to invest in private companies, their influence on portfolio companies’
management and operations, and/or their use of leverage. Investments in private equity funds can
add diversity to a portfolio comprised of publicly traded stocks and bonds because they may
have less than perfect correlation with those investments.
Real Estate
Real estate investing is often thought of as direct or indirect ownership (equity investing) in real
estate property such as land and buildings. However, real estate investing also includes lending
(debt investing) against real estate property. The property generally serves as collateral for the
lending.
Key reasons for investing in real estate include the following:
 Potential for competitive long-term total returns driven by both income generation and capital
appreciation.
 Prospect that multiple-year leases with fixed rents for some property types may lessen cash flow
impact from economic shocks.
 Likelihood that diversification benefits may be provided by less than perfect correlation with
other asset classes.
 Potential to provide an inflation hedge if rents can be adjusted quickly for inflation.

62
Real estate property ownership is represented by a title and may reflect access to air rights,
mineral rights, and surface rights in addition to the rights of use of buildings and land. Titles can
be purchased, leased, sold, mortgaged, or transferred together or separately, in whole or in part.
Real estate investments may also be in the form of partnerships, equity, or debt. Much real estate
is residential, but if it is owned with the intention to let, lease, or rent it in order to generate
income, it is classified as commercial (i.e., income producing) real estate. In addition to
residential real estate classified as commercial, commercial real estate includes other types of
real estate properties such as office and retail properties. Some real estate properties may be
farmed, provide forest products, or have natural resources that can be obtained by extraction to
generate income; the resulting products, such as wheat, timber, gold, and oil, are considered
commodities. As a result, some investors include timberland and farmland in their commodities
portfolio rather than in their real estate portfolio. Other investors simply treat farmland and
timberland as a separate category.
Real estate property exhibits unique features compared with other investment asset classes. The
basic indivisibility, unique characteristics (i.e., no two properties are identical), and the fixed
location of real estate property has implications for investors. For example, the size of
investment may have to be large and may be relatively illiquid. Also, real estate property
typically requires operational management. Real estate may be subject to government regulations
affecting what can be done to modify the existing land or property, to whom and how ownership
can be transferred, and to other restrictions on ownership. Local or regional markets and real
estate property values can be independent of country-wide or global price movements as local
factors may override wider market trends. Cross-border investment in real estate is increasingly
common and requires knowledge of country, regional, and local markets.
Real Estate Performance and Diversification Benefits
There are a variety of indices globally that are intended to measure returns to real estate.
However, these indices vary in the selection and valuation of components and longevity. A real
estate index can generally be categorized as an appraisal index, a repeat sales (transactions-
based) index, or a REIT index. Appraisal indices use estimates of value (appraisals) as inputs to
the indices. These appraisals, which are conducted by experts, rely on comparable sales and cash

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