The document discusses estate planning and transferring wealth to the next generation. It summarizes a talk given by lawyers from Nishith Desai Associates about legal options for wealth transfer, including wills and trusts. Wills have certain requirements like witnesses needing to outlive the writer. Trusts are more advisable if disinheriting someone, the heirs are minors, or recipients are disabled or financially dependent. Trusts allow attaching conditions and protecting assets. The presentation aimed to explain complications and solutions for leaving wealth, not disputes, to future generations.

1. communiqué October 2010
FROM THE DESK OF SRIKANTH BHAGAVAT
OVERVIEW It's a complicated life. There are times, when one truly feels that ignorance is bliss!
We are better off not knowing so many things. The pharaohs of Egypt, I believe were
From the desk of Srikanth such a people, in spite of their acknowledged prowess in building pyramids. I say they
Bhagavat
were ignorant because they believed that they could carry their wealth with them to
Transferring wealth to the next their afterlife by stuffing their tombs with their wealth. In India, we know better – we
generation only carry our Karma to the next life! The wealth ... we leave behind.
Positives & Negatives It goes without saying that we want to leave behind happiness rather than disputes
among our loved ones. That is where good estate planning comes into play. The
Let’s Learn! simplest thing is to write out a Will. But will that be solution enough? Aren't twenty
Fund of the Month first century problems trickier? Relationships have become complex and unreliable
to say the least. How does one ensure that their wishes for their loved ones get
fulfilled? How does one ensure that an invalid receives adequate attention even after
POSITIVES
her benefactor's death? How do you ensure that youngsters do not blow up their
Growth rate of India being inheritance even before they realise its value?
maintained
Good estate planning starts from an assessment of assets, then an assessment of
Improvement in relationships and then moves on to assessing solutions. But for all this to happen,
agriculture’s contribution one must be aware of what could be the problems to even start looking for solutions.
to GDP We discuss this issue in this month's edition of the “Communiqué”.
Manufacturing growth at
12.4% (y-o-y) TRANSFERRING WEALTH TO THE NEXT GENERATION
The Month of August saw Hexagon hosting a special event for the business families
NEGATIVES among our clients on a topic that assumes great importance today not only because
it is an essential component of wealth planning but also because of the plethora of
No improvement in global options available. The event was titled “Transferring wealth to the next generation”.
situation. This is reflected in
falling crude prices and It was a talk given by two young but immensely knowledgeable lawyers from Nishith
rising gold prices Desai Associates – Ms. Shreya Rao and Ms. Neha Sinha. The idea was to understand
the options available for wealth transfer from a legal perspective and the audience
Rising interest rates participated with great interest.
P/E multiples remain higher
than historical averages and
more than what our growth
rate justifies
Impending large IPOs could
suck out liquidity from
secondary markets

2. October 2010
Ms. Rao brought out many simple but important points that people need to keep in mind while writing their will, like:
The beneficiaries of the will cannot be witnesses as it leads to a conflict of interest
?
? It is important that the witnesses be significantly younger than the person who is writing the will as there is a need that the
?
witnesses outlive the writer of the will. This is because if the witnesses are deceased at the time of the execution of the
will, then it can lead to a situation where disputes that arise are difficult to resolve.
? In the case of Parsis and Christians, wills need to be remade on marriage as the will existing till then gets revoked.
?
The topic of forming trusts and the nuances involved received plenty of attention from the audience.
A trust is basically defined as the obligation of a person to take care of someone else's property for the sake of his/her
benefactors (who can be children, adults or the public at large). The trust is formed as a contract and has no legal personality of
its own. An important aspect that was dealt with was when it is advisable to create a trust rather than a will. It is advisable to go
for a trust when:
? planning to disinherit a family member
? You are
? the heirs are minors
? If any of
? relies on you financially
? If anyone
? the recipients are disabled
? If any of
Trusts also allow people to attach certain conditions to gifts; to protect assets against actual and potential creditors; to create a
tax effective structure; to allow administrative, investment and record keeping functions and centralizing property
management functions which can be handled more efficiently and at a lower cost. Different needs allow you to create different
kinds of trusts like discretionary trusts, non-discretionary trusts, revocable trusts, irrevocable trusts etc. Since the trust
behaves like a contract, the terms can be specified in whatever detail required and the structure can be as rigid or flexible as
required too. Can the beneficiaries replace the trustee? Yes they can, but on the basis that the trust is not being administered
as laid down in the terms as the reason for replacement needs to be defined as a breach of contract. However, if all the
beneficiaries agree that the trustee needs to be replaced then they can unanimously do so. Trusts were also established as tax
efficient vehicles. Trust income is taxed at the beneficiary/trustee level (where the benefactors and proportion received are
clearly mentioned) or at the trustee level only (where the benefactors are ambiguous, like public trusts). Since dividend
distribution tax does not come into picture here, it becomes more tax efficient than creating a company. As wealth today is
situated not only in India but also abroad, the exercise of wealth transfer gets complicated a fair bit. Understanding the legal
context of the various tax and exchange control laws and private International law becomes very important too.
The idea of the whole presentation was not to confound the audience with legal jargon but to present the complications that
arise and provide solutions when one wants to leave behind only wealth and not disputes to the next generation.

3. October 2010
State of the Markets
K. Pavan Kumar
Sensex at 20,000: Good, Bad but NOT Ugly - Senior Manager-Research
FIIs (Foreign institutional investors) are getting aggressive toward our domestic markets. FII equity inflow in the calendar year
has crossed over Rs. 82,900 crore. Of this, 43% (Rs. 35,771 till 28th Sep 2010) came in the last month alone, making it the best
performer and also the most expensive among the other BRIC markets: Brazil, Russia and China.
The BSE's Sensitive Index has gained 25% from its May 2010 low, mainly driven by FII inflows, helping it breach the so-called
psychological 20,000 levels for the first time since January 2008. On trailing PE basis we were trading at 27 times in the peak of
2008 and currently we are trading at 24 times. The Sensex advanced 14% in this calendar year, as compared to negative or
marginal returns elsewhere. Hang Seng (up 1.36%), Dow Jones (up 2.61%), RTSI - Russia (down 4.15%), Shanghai Composite
(down 20.11%) and Bovespa - Brazil (down 2.64%) have all been significant underperformers. Of course, India's robust
economic growth indicators such as 8.5% estimated GDP growth for 2010 and 20% estimated company earnings growth for
the year have helped pull in money.
Globally, analysts have a positive view on emerging markets as they believe that the growth for emerging economies could be
far better than that of developed markets. Also, the emerging markets are becoming indirect beneficiaries (FII flows) of the
stimulus spending in the developed countries.
But, there are also some rising concerns amongst foreign investors, if we look at India on a forward price earnings multiple
(19.6) relative to China (16.28), Brazil (15.17), Russia (7.93), Dow Jones (14.58), UK (11.72), Hang Seng (13.98), France (13),
South Korea (9.77) perceptibly India is now looking as one of the most expensive emerging markets. Hence, on that basis, only
on a valuation basis but not on the basis of the strong macroeconomic fundamentals, there could be some slowdown in the
foreign flow, though the chances of any major reversal are thin. However, given that this rally has been powered by foreign
money and the pace at which this money has come in, has made us cautious.
Given the fact that our domestic markets are driven and dependent on foreign flows, any changes affecting the FII flows will
have significant impact on our secondary markets. Going forward, we are taking a cautious view on the markets due to some of
the major events lined up such as the Coal India & SAIL IPO which can moderate the FII flow to our secondary markets. Also, the
government action on increase in the FII limit into debt markets and he attractive bond rates should draw FII attention.
MF Industry
Mutual funds were seen booking profit during most of the trading sessions over the month. Though, we had very strong FII
inflows into equity markets, mutual funds were seen booking profit during most of the trading sessions in the month. Mutual
funds remained net sellers to the tune of Rs 3,169.3 crore. But, Fund houses' debt investments climbed heavily to Rs 22,241.5
crore over the month from Rs 1,018.2 crore in July, due to positive inflows into debt funds.

4. October 2010
Fund of the month ICICI Prudential Dynamic Fund
Fund Note Low Moderate High
ICICI Prudential Dynamic fund is managed by an astute fund manager, Mr. Sankaran Naren who has an overall experience of over 19
years in almost the entire spectrum of the financial services industry ranging from stock broking operations to investment banking.
lCICI Prudential Dynamic Plan, unlike various other diversified funds, follows a dynamic asset allocation strategy. Most of the
diversified funds have a static strategy, wherein the movement between asset classes is contained in a narrow range. However for
ICICI Prudential Dynamic Plan the allocation gets adjusted across various assets classes, equity and debt, based upon market
movements and valuations.
This flexibility permits the fund manager to capture upside opportunities
across value and growth, large and mid-cap, index and non-index stocks. On
the flip side, it also has ability to move into cash whenever markets appear to
be overvalued. Simply put, the idea here is to reduce exposure to equities
when stock markets are highly priced and vice versa. Hence this approach
helps mitigate risks during a downside and also provides more stable return
during the market rallies.
The fund has a well-diversified portfolio of 47 stocks across 25 sectors. The top three sectors are Technology, pharmaceuticals and
banks that account for nearly 29% of the portfolio. The fund has been reducing its exposure in Small and Mid-cap space since
December 2009 while increasing exposure to large cap stocks.
Above all we like I-Pru Dynamic for these main reasons:
Its ability to
?Sit on greater amounts of cash when markets are in
?
risky territory
?defensive stocks when it wants to be cautious
?To pick
? market on the way up with great sector and
?Ride the
stock picks
? profile compared to the peer group
?Lower risk
?Significant out performance of the index on the upside
?
and downside
The asset allocation graph exemplifies the movement from equity to
cash/debt and movement within equity class over a period of 3 years.
During times when bears took over bulls, we can observe the cash
levels moving to as high as 30% of the portfolio. The CAGR as on 6th
September 2010 over the time horizon of 6 months, 1 year, 3 years
and 5 years is 11.30%, 32.64%, 12.27% and 22.77% respectively
beating the benchmark index comfortable across the periods.
Please contact:
Aravind Thondan: 9008355222, Neelam Pachauria: 9740019203 if you would like to know more about us
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