Project Report

Wealth Management
Why it’s becoming quintessential and exigent today
Project Report - 5 January 2015
Submitted by: Shubham Mehta
Bsc(H) Statistics
Ramjas College 
WEALTH MANAGEMENT 1

Wealth comes when you save, wealth grows when you are
savvy.
WEALTH MANAGEMENT 2

Certificate
This
is
to
certify
that
Shubham
Mehta
has
prepared
the

project
report
entitled:
“Wealth
Management-‐why
it’s

becoming
quintessential
and
exigent
today?”

This
project
is
a
part
of
the
winter
internship
and
has
no

commercial
implications.
The
report
being
submitted
is

original
and
does
not
indulge
in
plagiarism
of
any
sort.

Mr.
Chirag
Jain

Wealth
Manager,
Wealth
Management

Aditya
Birla
Money
Mart
Limited

WEALTH MANAGEMENT 3

Acknowledgements

The internship opportunity I had with Aditya Birla Money Mart (ABMM)
was a great chance for learning and professional development. Therefore, I
consider myself as a very lucky individual as I was provided with an
opportunity to be a part of it.
At ABMM, I was fortunate to have the opportunity to interact with our
outstanding mentors and colleagues who made the learning a pleasure and
challenge. This is how the present project has evolved.
In acknowledging the help I have received from others in the work presented
here, I must begin by recording my greatest debt to Chirag Jain Sir, who
inspired us to work in this area. He is also a marvellous mentor and his ideas
continued to influence me throughout the internship. During the period of
evolution of this work, I was fortunate to receive comments, suggestions,
questions and dismissals and encouragement from myriad number of
people, especially Shailendra Talwar Sir, who was motivating at every point
during this internship.
It is impossible for me to express adequately my gratitude to the benefit I
had received from him not only as a mentor but as a friend in general
throughout the work. I will be failing in my duty if I miss out to articulate
our earnest thanks to Rajesh Soni Sir, for if he won’t have provided me with
this staggering chance, this project won’t have been successful. Lastly, the
harmonious climate at office proved efficacious for preparing the project.
I perceive this opportunity as a big milestone in my career development. I
will strive to capitalise the gained skills and knowledge in the best possible
manner, and I will continue to work for their improvement.
Sincerely,
Shubham Mehta
WEALTH MANAGEMENT 4

Contents

• Introduction

• Sources
of
Wealth

• Concept
of
Wealth
Management

• Objectives

• Research
Methodology

• State
of
Wealth
Management
Industry
in
India

• Opportunity
for
Local
and
Foreign
Players

• Instruments
of
Wealth
Management

• Bank
Deposits
v/s
Equity
v/s
Mutual
Funds

• Merits
and
Demerits
of
investing
in
Mutual
funds

• The
role
of
Finance
Department
in
a
company

• Conclusion

• Bibliography

WEALTH MANAGEMENT 5

Introduction

Wealth
usually
refers
to
money
and
property
or
something
which
has
economic

value

attached
to
it.
It
is
the
abundance
of
objects
of
value
and
also
the
state
of
having

accumulated
these
objects.
The
use
of
the
word
itself
assumes
some
socially-‐accepted

means
of
identifying
objects,
land,
or
money
as
belonging
to
someone,
i.e.
a
broadly

accepted
notion
of
property
and
a
means
of
protection
of
that
property
that
can
be

invoked
with
minimal
(or,
ideally,
no)
effort
and
expense
on
the
part
of
the
owner.

Concepts
of
wealth
vary
among
societies.
Anthropology
characterises
societies,
in
part,

based
on
a
society's
concept
of
wealth,
and
the
institutional
structures
and
power
used

to
protect
this
wealth.
Several
types
are
deXined
below.
They
can
be
viewed
as
an

evolutionary
progression.
Industrialisation
emphasised
the
role
of
technology.
Many

jobs
were
automated.
Machines
replaced
some
workers
while
other
workers
became

more
specialised.
Labour
specialisation
became
critical
to
economic
success
However,

physical
capital,
as
it
came
to
be
known,
consisting
of
both
the
natural
capital
(raw

materials
from
nature)
and
the
infrastructural
capital
(facilitating
technology),
became

the
focus
of
the
analysis
of
wealth.

SOURCES
OF
WEALTH

• Wealth
is
created
through
several
means.

• Natural
resources
can
be
harvested
and
sold
to
those
who
want
them.

• Material
can
be
changed
into
something
more
valuable
through
proper
application

of
labour
and
equipment.

• Better
methods
also
create
wealth
by
allowing
faster
creation
of
wealth.

• Ideas
create
wealth
by
allowing
it
to
be
created
faster
or
with
new
methods.

THE
CONCEPT
OF
WEALTH
MANAGEMENT

The
concept
of
wealth
management
refers
to
management
of
both
the
sources
and
the

facets
of
various
forms
of
both
tangible
and
non-‐tangible
wealth.
India
has
become
a

highly
potential
market
for
wealth
management
because
wealth
managers,
both

domestic
and
international,
are
able
to
establish
the
beginnings
of
a
market
with
few

obstacles,
relative
to
the
other
emerging
markets.
Where
there
are
regulatory

restrictions,
these
are
less
problematic
than
those
in
China
or
the
Middle
East.

WEALTH MANAGEMENT 6

OBJECTIVES
OF
THIS
REPORT

• To
analyse
the
evolution
and
growth
of
wealth
management
market
in
India.

• To
analyse
whether
Indian
economic
development
is
creating
a
broad
and

competitive
wealth
management
market
in
India.

• To
discuss
the
factors
that
have
acted
as
facilitators
and
obstructions
for
the
growth

of
wealth
management
market
in
India.

• From
the
above
three
objectives,
to
derive
the
potentiality
and
the
future
prospect
of

the
wealth
management
industry
in
India.

• This
project
report
also
analyses
both
the
onshore
and
offshore
aspects
of
liquid

wealth
in
India
and
sizes
the
mass
afXluent
and
high
net
worth
customers
by

onshore
wealth.

RESEARCH
METHODOLOGY

The
present
study
is
purely
an
exploratory
study,
dependent
on
both
the
primary
and

the
secondary
sources
of
data.
The
primary
sources
of
data
constitutes
the
interaction

(both
formal
and
informal)
of
the
researcher
with
the
managers
and
other
ofXicials

who
are
directly
associated
with
the
wealth
management
industry
in
India.
The

ofXicials
were
selected
on
the
method
of
simple
random
sampling.
The
Annual
Reports

of
the
concerned
agencies
and
the
relevant
literature
and
facts
and
Xigures
available
on

the
problem
of
the
study
in
various
books,
journals
and
magazines
constitutes
the

secondary
sources
of
data.

• Macroeconomic
and
savings
and
investment
data
collected
directly
from

governmental
sources
such
as
the
Reserve
Bank
of
India.

• Insight
into
the
Indian
Xinancial
services
market

SIGNIFICANCE
OF
THE
STUDY:

• Allows
wealth
managers
to
monitor
threats
and
opportunities
posed
by
their
main

competition.

• Helps
plan
products
and
services
by
giving
key
information
on
customers
Xinancial

services
preferences.

• Looks
at
the
onshore
liquid
wealth
of
mass
afXluent
and
high
net
worth
individuals

in
India
and
in
India's
largest
and
most
afXluent
states.

• Offers
access
to
key
statistics
providing
a
clear
picture
of
the
scale,
composition
and

direction
of
the
developing
landscape
on
a
regional
basis.

• Find
out
why
India
is
an
attractive
market
and
its
advantages
over
other
emerging

economies.

WEALTH MANAGEMENT 7

STATE
OF
WEALTH
MANAGEMENT

INDUSTRY
IN
INDIA

Wealth
management
is
just
emerging
in
India.
The
growth
of
the
economy
has
already

been
widely
showcased.
Wealth
management
services
have
been
getting
more

attention
over
the
last
two
years.
A
booming
economy,
rising
stock
prices
and
an

increase
in
salaries
and
spending
power
have
turned
the
spotlight
on
this
sector.
The

wealth
management
space
was
earlier
the
preserve
of
some
foreign
banks
which

offered
these
"exclusive
services"
to
a
select
few.
This
was
not
a
service
you
could

apply
for.
The
unsaid
tagline
was
"Don't
call
us.
We'll
call
you
(if
you
are
that
wealthy)!"

Today,
a
number
of
private
banks
and
wealth
management
companies
offer
this

service,
though
they
can
be
choosy
in
terms
of
their
clients
as
per
company’s
policy.

Also
entering
this
arena
and
carving
a
niche
for
themselves
are
standalone
entities

that
offer
the
full
range
of
services
—
investment
advice,
portfolio
management,

taxation
advice
etc.

A
report
published
by
independent
market
analyst,
Datamonitor
reveals
the
Indian

wealth
market
is
offering
competitors
enormous
opportunities.
In
the
last
few
years,

afXluent
wealth
in
India
has
grown
at
a
rate
of
17.6%
with
afXluent
individuals
totalling

618,000
at
the
end
of
2007.
Competitors
are
realising
this
fact
and
are
beginning
to

bring
their
propositions
to
the
table.
Going
forward,
this
is
a
trend
that
is
likely
to

continue.
The
number
of
mass
afXluent
individuals
in
India
has
more
than
quadrupled

since
1998.
India
is
becoming
an
increasingly
attractive
market
in
many
industries,

and
wealth
management
is
no
exception.
India
is
attracting
both
foreign
wealth

managers
and
domestic
banks
to
set
up
wealth
management
businesses.
Driving
the

attractiveness
of
the
market
has
been
the
country’s
exceptional
economic
performance

over
the
last
decade.
The
economy
has
grown
at
an
average
of
7.6%
since
1994,
due
to

the
continued
development
of
the
service
industry
and
strong
growth
in
the

technology
sector.
The
opportunities
that
have
been
created
by
a
booming
economy

have
in
turn
driven
individual
wealth
growth.
The
wealth
of
India’s
residents
has

grown
from
US$
79
billions
in
1998
to
US$
177
billions
at
the
end
of
2008.
This

amounts
to
an
increase
of
123%
in
just
Xive
years.
This
wealth
is
usually
concentrated

with
a
few
individuals
of
the
country
as
well
as
NRI’s.
Another
important
fact

delineates
that
the
gross
wealth
concentrated
with
NRI’s,
NRO’s
and
citizens
of
Indian

origin
exceeds
the
wealth
with
local
HNI’s.

WEALTH MANAGEMENT 8

OPPORTUNITIES
FOR
LOCAL
AND
FOREIGN

PLAYERS

The
fact
that
afXluent
wealth
is
growing
at
a
rate
of
17.6%
compounded
annually
is

attracting
both
foreign
wealth
managers
to
set
up
business
and
domestic
banks
to
set

up
wealth
management
businesses.
There
are
certainly
opportunities
to
be
had
in
the

Indian
wealth
market.
Whilst
on
the
world
stage,
the
Indian
wealth
market
is

underdeveloped
and
dormant,
there
are
still
a
large
number
of
afXluent
individuals

who
are
not
being
served
by
the
current
competitors
and
the
pool
of
potential
clients

created
each
year
is
huge.
Datamonitor
forecasts
that
afXluent
wealth
in
India
will

grow
rapidly
.

India
is
still
at
a
stage
where
the
wealth
manager
is
not
necessarily
a
certiXied
entity

and
the
term
itself
is
used
rather
loosely.
With
banks
and
distribution
houses,

insurance
agents,
mutual
fund
distributors
and
chartered
accountants
liberally
calling

themselves
'wealth
managers',
there
is
a
mind
boggling
array
of
people
to
choose
from.

So,
it
becomes
imperative
to
Xirst
identify
the
type
of
people
you
can
sign
on
as
your

wealth
managers.
There
are
wealth
managers
in
banks
and
wealth
management
Xirms

who
will
eagerly
do
your

Xinancial
planning
if
you
fall
in
the
HNI
(high
net
worth

individual)
block.
These
Xirms
assign
a
relationship
manager
(RM)
to
you,
who
is

expected
to
manage
the
relationship
with
you
by
proactively
using
his
knowledge
to

tailor
unique
and
innovative
Xinancial
solutions
that
will
create
value.
However,
he
is

restricted
by
the
number
of
distribution
tie-‐ups
he
has
-‐
not
all
of
them
can
sell
all

products.
Besides,
as
banks
and
distribution
houses
increasingly
compete
with
each

other
with
a
similar
set
of
products,
an
RM
may
end
up
just
pushing
his
own
brands

instead
of
delivering
long-‐term
advice.
The
high
churn
among
RM’s
often
leads
to

sudden
breaks
in
relationship
building
and
a
whole
lot
of
miscommunication
between

the
customer
and
the
Xinancial
services
Xirm
ensues.

Then
there
is
everyone
else
keen
on
getting
a
slice
of
your
pie
with
assurances
to
make

you
richer
than
you
are
today.
Your
friendly
neighbours
who
sell
insurance
and
mutual

funds
may
not
always
be
the
right
source.
After
all,
their
interests
in
selling
you
a

particular
product
is
the
commission
that
they
earn
through
selling
you
a
Xinancial

product.
Besides,
your
accountant
or
stockbroker
may
not
adopt
a
holistic
approach
to

all
your
Xinancial
planning
needs.
If
you
strictly
go
by
the
book
and
look

for
a

qualiXication
that
beXits
a
wealth
manager,
then
you
should
go
to
the
150-‐odd
certiXied

Xinancial
planners
(CFPs)
who
have
been
certiXied
by
the
Financial
Planning
Standards

Board
(FPSB),
India.
Remember
that
a
true
wealth
manager
uses
the
Xinancial
planning

process
to
help
you
Xigure
out
how
to
meet
your
life
goals
through
the
proper

management
of
your
Xinancial
resources.
Once
you
have
identiXied
the
category
of
your

wealth
manager,
it
boils
down
to
choosing
one.
Here
are
eight
questions
to
ask
before

you
hand
over
that
cheque
and
remember
to
keep
asking
as
you
go
along.

1.
Wealth
management
requires
hands-‐on
experience
and
a
strong
technical

understanding
of
topics
such
as
personal
tax
planning,
insurance,
investments,

WEALTH MANAGEMENT 9

retirement
planning
and
estate
planning
and,
how
a
recommendation
in
one
area
can

affect
the
others.

2.

Ask
the
planner
what
his
qualiXications
are
to
offer
Xinancial
advice
and
if,
in
fact,
he

is
a
qualiXied
planner.

3.

Ask
what
training
he
has
successfully
completed.

4.

Ask
what
steps
he
takes
to
keep
up
with
changes
and
developments
in
the
Xinancial

planning
Xield.

5.

Ask
whether
he
holds
any
professional
credentials
including
the
CertiXied
Financial

Planner
certiXication,
which
is
recognised
internationally
as
the
mark
of
a
competent,

ethical,
professional
Xinancial
planner.

6.

Find
out
how
long
the
planner
has
been
in
practice
and
the
number
and
types
of

companies
with
which
he
has
been
associated.

7.

Ask
about
work
experience
and
its
relation
to
current
practice.

8.
Choose
a
Xinancial
planner
who
has
experience
counselling
individuals
on

their
Xinancial
needs.

Table:
Ranking
of
Wealth
Management
Companies
in
the
world

(
in
the
year
2012-‐13)

Rank 2013 Company Rank 2012
1 UBS 2
2 Credit Suisse 1
3 JP Morgan 4
4 HSBC 3
5 Citi 5
6 Deutsche Bank 6
7 Merrill Lynch Wealth Management 9
8 Santander 8
9 BNP Paribas 7
10 Goldman Sachs 11
WEALTH MANAGEMENT 10

INSTRUMENTS
OF
WEALTH
MANAGEMENT

Indian
weddings
have
always
been
grand
and
festive
affairs,
as
reXlected
in
Xilms
like

Monsoon
Wedding
and
Bride
and
Prejudice.
But
India's
burgeoning
middle
class
-‐
now

300
million
strong
-‐
are
turning
weddings
into
showcases
of
their
growing
disposable

incomes
and
newfound
appetites
for
the
goodies
of
the
global
marketplace.
The

minimum
budget
for
a
wedding
ceremony
is
Rs
20
lacs
while
the
upper-‐middle
and

rich
classes
are
known
to
spend
upward
of
Rs
12.4
crores
(The
average
American

wedding
costs
around
Rs
16
lacs).
This
doesn't
include
cash
and
valuables
given
as

part
of
a
dowry.
According
to
the
National
Council
for
Applied
Economic
Research

(NCAER),
the
middle
class
are
those
making
Rs
2.8
lacs
to
Rs
14.3
lacs
a
year.
With
the

economy
expected
to
maintain
steady
6
percent
annual
growth,
India
is
widely
seen
as

one
of
the
world's
10
largest
emerging
markets.

When
it
comes
to
the
instruments
of
wealth
management
in
India,
instruments
like
the

banking
sector,
stock
market,
mutual
funds
can
be
considered
in
this
category.

Selecting
Xinance

In
selecting
the
most
appropriate
type
of
Xinance
for
a
business
there
are
two
main

determinants:
duration
and
cost.

Duration

For
how
long
is
the
funding
required?
The
repayment
of
funding
should
match
the

proXile
of
the
investment
it
is
used
to
Xinance.
For
example,
the
purchase
of
property,

which
may
have
long-‐term
use
in
the
business,
should
be
funded
by
long-‐term
Xinance

with
repayments
matching
the
revenue
expectations.
Potentially,
these
can
be
spread

far
into
the
future.
This
type
of
long-‐term
funding
would
be
inappropriate
for
a

business
that
needed
to
cover
a
short-‐term
funding
requirement
while
waiting
for
a

receivable
to
be
paid.

Cost

What
is
the
cost
of
the
funding?
The
greater
the
risks
taken
by
the
providers
of

funding,
the
higher
is
the
rate
of
return
they
require.
For
example,
if
a
provider
of

funds
is
promised
that
it
would
be
the
Xirst
to
be
repaid
if
the
business
were
in

difXiculty
and
that
it
can
take
a
charge
over
the
physical
assets
(such
as
property
that
it

could
sell
to
clear
the
debt),
it
has
a
low
risk
of
losing
its
money
and
thus
the
business

would
expect
the
cost
of
this
funding
to
be
relatively
low.

However,
lowering
the
risk
to
one
provider
of
funds
increases
the
risk
to
another.
With

the
assets
all
used
as
security
for
one
party,
another
will
have
no
security
that
its

money
will
be
repaid
in
event
of
difXiculty.
For
this
higher
risk
a
higher
return
will
be


required.
The
cost
of
funding
is
therefore
determined
by
the
level
of
risk
to
each
type

of
funding.

Types
of
funding

There
are
three
main
types
of
funding:

Equity:
This
is
capital
put
in
by
investors
–
the
owners
of
business.
They
are
the
last
to

be
repaid
if
the
business
is
in
trouble
and
have
to
accept
the
risk
that
they
may
lose
all

the
money
they
put
into
the
business
(but
no
more
than
that).
In
return
they
are

entitled
to
the
proXits
generated
by
the
business,
and
to
a
potentially
limitless
return.

Debt
instruments:
These
long-‐term
borrowings
are
typically
used
to
fund

investments
such
as
the
purchase
of
property.
The
lenders
will
have
priority
if
the

business
runs
into
trouble
and
may
even
have
some
protection
by
taking
security
on

the
asset
funded.
Their
reward
will
be
a
predetermined
rate
of
interest
that
is
either

Xixed
or
linked
to
a
central
bank
index.

Bank
borrowing:
This
typically
short-‐term
funding
is
used
to
cover
temporary

shortfalls
and
timing
differences.
The
borrowing
may
be
unsecured
and
consequently

carry
an
interest
rate
above
that
of
a
debt
instrument.
A
business
may
organise
a

borrowing
facility
with
a
bank
to
enable
it
to
draw
on
this
type
of
funding
at
short

notice
without
the
need
for
further
discussion
with
the
bank.

BANK
DEPOSITS

Independent
research
shows
that
customers
prefer
to
deal
with
a
local
operator
for

management
of
his
assets.
The
wealth
management
industry
has
begun
to
follow
the

trend
set
by
the
likes
of
shoe
brand
Nike
and
fashion
retailer
Gap
in
moving
parts
of

its
operations
to
cheaper
environments.
As
ever,
the
back
and
middle
ofXices
are
the

bits
that
wealth
managers
want
to
ofXload.
In
India,
it
is
both
the
public
sector
and
the

private
sector
banks
who
have
demonstrated
themselves
in
the
assets
management

market
to
tap
the
growing
potentiality
of
this
sector.
State
Bank
of
India,
the
nation’s

largest
lender,
plans
to
offer
wealth
management
services
to
afXluent
clients,
seeking
a

share
of
a
fast-‐growing
market
that
is
now
worth
$10
billion,
and
that
may
double

every
two
years.

Wealth
management
has
tremendous
growth
potential.
Foreign
banks
with
Indian

collaborations
are
not
also
far
from
others.
For

example,
Fidelity
and
Citibank
have

some
operations
in
India,
including
call
centres,
processing
and
systems
development.

Citigroup,
ABN
AMRO
Holding,
Standard
Chartered,
Aditya
Birla
Money
and
ICICI
Bank

to
name
a
few
already
offer
wealth
management
services
in
the
nation.
DSP
Merrill

Lynch
estimates
that
wealth
under

management
in
India
totals
about
$30
billion.
Now


government-‐controlled
banks,
including
State
Bank,
are
seeking
wealth
management

business
as
economic
growth,
forecast
by
the
government
at
an
annual
average
pace
of

7
percent,
raises
incomes
and
as
Indians
seek
more
ways
to
earn
higher
returns
on

their
wealth.
In
the
current
interest
rate,
taxation
and
macroeconomic
environment,

with
a
positive
corporate
performance
and
GDP
growth,
more
and
more
individuals

are
seeking
professional
management
of
their
Xinances.
Canara
Bank,
the
third-‐biggest

lender
in
India,
who
planed
to
open
branches
catering
speciXically
to
afXluent

individuals,
initially
offered
Xinancial
advice,
mutual
funds
and
insurance
products.

Among
several
others
to
join
this
tempting
rat
race
are
Bank
of
India,
Union
Bank
of

India,
ICICI
has
500
Xinancial
advisers
for
its
clients,
having
expanded
the

number
fourfold
in
the
past
three
years.
Citibank
has
a
well-‐organised
system
of

Wealth
Management
services
in
India
that
give
you
unparalleled
advantage
and
opens

up
the
opportunity
to
maximise
wealth.
For
example,
Citigold
Wealth
Management

Scheme
which
offers
exclusive
privileges
to
its
customers
that
comprises
of:

• Tax
and
estate
advisory
services
through
a
leading
tax
advisory
Xirm
in
India.

• Free
for
life
Citibank
International
Gold
Credit
Card.

• Updated
information
on
treasury,
currency
markets.

• Invites
to
seminars
on
capital
markets,
mutual
funds,
budget
and
taxation.

• Free
insurance
beneXits
-‐
upto
Rs
30
lakh
personal
accident,
and
baggage
and

householder
insurance.

• Free
access
to
airport
lounges
at
Domestic
and
International
airports
in
India.

DBS
Bank
offers
power
packed
Savings
Account
with
convenient
features
and
charge-‐
free
banking
options.
So
now
you
can
bank
and
transact
without
the
stress
of

fees

levied
on
transactions.
No
frills
account
is
made
to
order,
working
to
provide
vital

banking
services
with
nominal
average
quarterly
balance
requirements.
Saving
Power

Plus
Account
is
tailored
especially
for
individuals
with
an
investible
surplus
of

Rs.
5
to

25
lacs.
In
other
words,
the
account
is
suited
for
individuals
who
are
looking
for

exclusive
banking
services.
Saving
Power
Plus
operates
in
INR
currency
with
a
high

balance
and
zero
charge
structure.
With
its
features
and
beneXits,
the
accounts
is
a

unique
offering.
The
minimum
balance
per
month
is
Rs.
100,000.
Account
holders

receive
free
monthly
and
quarterly
statements
as
well
as
personalised
cheque
books.

Saving
Power
Plus
offers
all
Banking
Services
without
service
charges.
The
Deposit

Plus
account
is
for
individuals
looking
for
a
medium
term
investment
option
with
an

investible
surplus
of
15
lacs
or
more.
This
is
a
pure
deposit
relationship
and
is
offered

in
INR
currency.
The
difference
with
this
account
is
the
bundle
of
banking
services
and

competitive
interest
rates.

Private
banking
is
emerging
as
an
important
segment
of
business
for
some
banks
and

non-‐banking
Xinancial
companies
(NBFCs)
in
India.
Banks
and
NBFCs
say
there
has

been
an
increase
in
the
number
of
private
banking
or
wealth
management
clients
they

are
dealing
with
today.
Foreign
banks,
which
mostly
cater
to
high
net
worth

individuals,
with
Xinancial
surplus
or
investible
incomes
of
over
Rs
2
crore
per
year,
say

that
this
segment
is
expected
to
grow
by
almost
20
per
cent
over
the
next
couple
of

years.
Wealth
management
is
a
fast
evolving
domain
with
tremendous
growth


opportunity
in
India.
In
the
current
interest
rate
and
taxation
environment,
more

individuals
are
seeking
professional
management
of
their
Xinances
and
prefer

outsourcing
in
order
to
manage
their
assets.

ADVANTAGES:

• Banks
offer
stability
for
the
money
put
on
investment.

• The
degree
of
vulnerability
and
risk
is
minimum
in
case
of
banks
than
in
other

instruments
of
wealth
management.

• Free
from
market
adversity.

• Banks
in
India
have
a
wider
network
covering
the
rural
areas
also
which
has
a

potential
for
wealth
augmentation.

DRAWBACKS:

• Interest
rate
offered
by
banks
is
less
in
comparison
to
other
asset
augmentation

instruments.

MUTUAL
FUNDS

A
Mutual
Fund
is
the
most
suitable
investment
for
the
common
man
as
it
offers
an

opportunity
to
invest
in
a
diversiXied,
professionally
managed
portfolio
at
a
relatively

low
cost.
Anybody
with
any
surplus
money
that
can
be
invested,
even
as
little
as
a
few

thousand
rupees
can
invest
in
Mutual
Funds.
Each
Mutual
Fund
scheme
has
a
deXined

investment
objective
and
strategy.
The
team
undertakes
this
in
the
most
professional

manner.

Markets
for
equity
shares,
debentures,
bonds
and
other
Xixed
income
instruments;
real

estate,
derivatives
and
other
assets
have
reached
their
maturity
and
are
driven
by

latest
up-‐to-‐date
information.
A
mutual
fund
is
thus
the
ideal
investment
vehicle
for

today’s
complex
and
modern
Xinancial
scenario.
Price
changes
in
these
assets
are

driven
by
global
events
occurring
every
day,
in-‐fact
every
minute
in
faraway
places.
It

will
be
very
difXicult,
in-‐fact
next
to
impossible
for
an
ordinary
individual
to
have
the

knowledge,
skills,
inclination
and
time
to
keep
track
of
events,
understand
their

implications
and
act
speedily.
An
individual
also
Xinds
it
difXicult
to
keep
track
of

ownership
of
his
assets,
investments,
brokerage
dues
and
bank
transactions
etc.
A

mutual
fund
is
the
answer
to
all
these
situations.
It
appoints
professionally
qualiXied

and
experienced
staff
that
manages
each
of
these
functions
on
a
full
time
basis.
The

costs
of
hiring
these
professionals
per
investor
are
very
low,
as
the
pool
of
money

invested
is
large.
In
effect,
the
mutual
fund
vehicle
exploits
economies
of
scale
in
all

three
areas
-‐
research,
investments
and
transaction
processing.


DiversiXication
of
investments
in
mutual
funds
reduces
the
overall
investment
risks
by

spreading
the
risks
across
different
assets.
The
investment
of
the
mutual
fund

company
depends
on
the
objectives
the
company
peruses.
Some
mutual
funds
invest

exclusively
in
a
particular
sector
while
others
might
target
growth
opportunities
in

general.
Although
mutual
funds
have
been
around
for
a
long
time,
dating
back
to
the

early
19th
century,
the
Xirst
modern
American
mutual
fund
opened
in
1924
and
it
was

only
in
the
1990s
that
mutual
funds
became
a
part
of
the
mainstream
investment.

Today
mutual
funds
collectively
manage
almost
as
such
as
or
more
money
as

compared
to
banks.
The
advantages
of
mutual
funds
include;
high
liquidity,
choice
of

investment,
low
investment
minimums,
low
transaction
costs,
government
regulation,

which
assures
safety
of
the
fund
and
professional
management
of
the
fund,
etc.

Mutual
fund
investment
has
also
its
own
drawbacks
like
lack
of
insurance
of
the
fund

against
losses,
dilution
of
investment
value
and
proXit
thereof,
high
management
and

operating
fees
and
sales
commissions,
lack
of
control
of
the
investor
over
own

investment
portfolio
and
inefXiciency
of
cash
reserves
which
reduces
the
investor’s

potential
return.
The
types
of
mutual
funds
are
subject
to
large
scale
variation
subject

to
investment
objective,
size
strategy
and
style.

ADVANTAGES
AND
RISK
IN
MUTUAL
FUND

INVESTMENT

Mutual
fund
investment,
particularly
mid
cap
investment
in
India
is
very
volatile
in

nature.
There
may
be
high
returns
and
high
risk.

ADVANTAGES:
-‐

1.
Diversi<ication
of
Funds:
DiversiXication
of
Funds
can
reduce
the
overall

investment
risks
by
spreading
the
risk
across
different
assets.
When
some
assets
are

falling
in
price
others
are
likely
to
be
rising.
Thus,
diversiXication
of
funds
lowers
the

risk
than
investment
in
just
one
or
two
funds.

2.
Choice:
Mutual
funds
come
in
a
wide
variety
of
types.
Some
mutual
funds
invest

exclusively
in
a
particular
sector,
while
others
might
target
growth
opportunities
in

general.
There
are
thousands
of
funds,
and
each
has
its
own
objectives
and
focus.
The

key
for
an
investor
is
to
Xind
the
mutual
funds
which
closely
match
his
investment

objectives.

3.
Liquidity:
This
refers
to
the
ease
at
which
one
can
convert
his
assets
into
cash.
In

the
case
of
mutual
funds,
it
is
as
easy
to
sell
a
share
of
a
mutual
fund
as
it
is
to
sell
a

share
of
stock.


4.
Low
Investment
Minimums:
An
investor
need
not
be
very
wealthy
in
order
to

invest
in
a
mutual
fund.
Most
mutual
funds
allows
an
investor
to
buy
into
the
fund
with

as
little
as
$
1000
or
$
2000
or
even
allows
a
no
minimum
investment
but
on
the
terms

of
payment
of
regular
monthly
contributions.

5.
Convenience:
Purchasing
and
selling
of
mutual
fund
is
very
easy.
Secondly,
an

investor
of
mutual
funds
need
not
to
worry
about
tracking
the
various
securities
in

which
the
funds
invest
rather
all
he
needs
to
keep
track
of
the
funds
performance.

6.
Low
Transaction
Costs:
Mutual
are
able
to
keep
the
transaction
costs
at
the

minimum
because
they
beneXit
from
reduced
brokerage
commissions
for
buying
and

selling
large
quantities
of
investments
at
a
single
time.

7.
Regulation:
Mutual
funds
are
regulated
by
the
government
through
the
Securities

and
Exchange
Board
of
India
(SEBI).
It
regulates
the
way
the
mutual
funds
approach

the
investors
the
way
they
conduct
their
internal
operations.
This
provides
some
level

of
safety
to
the
investors.

8.
Professional
Management
and
other
additional
services
provided
by
the
mutual

funds.

9.
If
the
fund
house
has
very
strong
research
and
is
able
to
really
spot
strong

opportunities
in
a
disciplined
manner,
the
fund
should
be
a
great
long-‐term

investment.

10.
The
best
returns
are
always
derived
from
spotting
the
opportunity
early
and

holding
on
for
7-‐10
years
or
more.
These
funds
test
the
fund
manager’s
conviction.

11.
The
fund
gives
an
opportunity
to
diversify
across
mid-‐caps
as
well
as
use
some

scientiXic
method
to
identify
mid-‐cap
stories,
rather
than
the
next
hot
tip
from
your

neighbour.
If
you
are
planning
to
pick
mid-‐caps
anyway,
this
is
probably
the
safest

avenue.

RISKS:
-‐

1.
No
Insurance:
Mutual
funds,
although
regulated
by
the
government,
are
not
insured

against
losses.
Mutual
fund
returns
are
subject
to
market
risks.
Despite
the
risk

reducing
diversiXication
beneXits
provided
by
the
mutual
funds,
losses
can
occur,
and
it

is
possible
that
one
may
even
lose
the
entire
investment.

2.
Dilution:
Although
diversiXication
reduces
the
amount
of
risks
involved
in
investing

in
mutual
funds,
it
may
lead
to
dilution
which
can
be
disadvantageous
to
the
investor.

If
a
single
security
held
by
a
mutual
fund
doubles
in
value,
the
mutual
fund
itself
will

not
double
in
value
because
that
security
is
only
one
small
part
of
the
fund’s
holdings.


3.
Fees
and
Expenses:
Most
mutual
funds
charge
management
and
operating
fees
that

pay
for
the
fund’s
management
expenses.
Some
mutual
funds
also
charge
high
sales

commissions.
And
some
buy
and
trade
shares
so
often
that
the
transaction
costs
add

up
signiXicantly.
Some
of
the
fees
and
expenses
are
also
recurring.

4.
Poor
Performance:
Returns
on
a
mutual
fund
are
by
no
means
guaranteed.
On
an

average,
around
75%
of
all
mutual
funds
fail
to
beat
the
major
market
indexes.
Critics

have
also
questioned
whether
or
not
professional
money
managers
have
better
stock

picking
capabilities
than
the
average
investor.

5.
Loss
of
Control:
The
managers
of
mutual
funds
make
all
the
decisions
about
which

securities
to
buy
and
sell
and
when
to
do
so.
This
makes
difXicult
on
the
part
of
the

investor
in
managing
his
portfolio.
For
example,
the
tax
consequences
of
a
decision
by

the
manager
to
buy
or
sell
an
asset
at
a
certain
time
might
not
be
optimal
for
the

investor.

6.
Trading
Limitations:
Although
mutual
funds
are
highly
liquid
in
general,
most

mutual
funds
i.e.
open
ended
mutual
funds
cannot
be
bought
or
sold
in
the
middle
of

the
trading
day.
One
can
only
buy
and
sell
them
at
the
end
of
the
day,
after
the
current

value
of
their
holdings
have
been
calculated.

7.
Size:
Some
mutual
funds
are
too
big
to
Xind
any
investment
i.e.
the
funds
that
focus

on
small
companies
given
that
where
are
strict
rules
about
how
much
of
a
single

company
a
fund
may
own.
As
a
result,
the
fund
might
be
forced
to
lower
its
standards

when
selecting
companies
to
invest
in.
However,
mid
cap
investment
is
not
suffering

from
this
type
of
problem.

8.
Inef<iciency
of
Cash
Reserves:
Mutual
funds
usually
maintain
large
cash
reserves

as
protection
against
a
large
number
of
simultaneous
withdrawals.
Although
this

provides
investors
with
liquidity,
it
means
that
some
of
the
fund’s
money
is
invested
in

cash
instead
of
assets,
which
tends
to
lower
the
investor’s
potential
return.


The
role
of
the
Finance

Department
in
Companies

THE
DIRECTORS
OF
A
COMPANY
have
a
legal
responsibility
for
ensuring
that

the
company
keeps
appropriate
accounting
records
which
enable
them
to

report
the
Xinancial
position
of
the
business
to
investors,
regulators
and
tax

authorities.

What
managers
need
to
know

In
an
organisation
Xinancial
acumen
is
a
skill
that
will
support
any
manager
in

their
career.
The
skill
is
not
about
knowing
the
intricacies
of
transaction

recording
or
the
details
of
Xinancial
reporting;
it
is
about
having
the
ability
to
do

six
things:

• Engage
with
the
business
strategy
–
know
the
organisation’s
mission,

objectives,
strategy
and
tactics
at
a
macro
level
to
make
sure
that
all
actions

that
are
taken
align
with
these
overarching
principles.

• Understand
performance
indicators
–
know
the
portfolio
of
measures
that
are

used
to
monitor
business
performance
at
a
company,
department
and
project

level.
This
includes
knowing
how
the
indicators
are
calculated
to
make
sure

that
actions
taken
can
be
translated
into
how
the
indicators
will
be
affected.

• Read
and
interpret
Xinancial
reports
–
be
able
to
read
the
Xinancial
reports

that
are
generated
within
the
business.
This
includes
company,
department,

budget
area
and
projects.
The
skill
is
being
able
to
assess
strengths
and

weaknesses
and
identify
appropriate
actions
that
will
improve
performance.

• Contribute
to
the
budgetary
process
–
participate
in
the
budgetary
process,

the
setting
of
budgets
and
the
monitoring
of
performance
through
the

Xinancial
year.
At
a
detailed
level
this
includes
using
variance
analysis
to

interpret
the
causes
of
deviation
from
budget
predictions
and
producing

year-‐end
forecasts
that
predict
the
likely
outturn
for
the
year.

• Know
the
Xinancial
consequences
of
the
decisions
–
identify
the
Xinancial

implication
of
decisions
through
the
creation
and
evaluation
of
a
business

case
that
takes
into
account
the
likely
Xinancial
effects
of
the
changes
to
the

business
that
will
take
place
as
a
result
of
any
decision.
This
involves


venturing
beyond
Xinance
into
judgment,
but
the
judgment
is
made
on
the

basis
of
experience
and
sound
evidence.

• Seek
ways
to
add
value
not
cost
–
continually
improve
the
performance
of
the

products
and
services
by
adding
customer
value
while
eliminating
cost
and

waste
in
their
provision.

• Although
strength
in
these
six
abilities
is
by
no
means
a
fast-‐track
ticket
up

through
an
organisation,
the
opposite
is
almost
certainly
true.
Weakness
in

them
will
hold
back
even
the
most
ambitious
individual.

Portfolio
Management

Among
the
many
reasons
a
company
may
build
up
a
portfolio
of
businesses,

products
or
services
are:

• economies
of
scale
–
for
example,
having
a
single
head
ofXice
for
all
business

units
to
avoid
overhead
duplication
and
to
derive
economies
of
scale
in

funding
each
business

• diversiXied
risk
–
selling
ice
cream
and
umbrellas
to
ensure
that
sales
are
less

vulnerable
to
weather;

• vertical
integration
–
owning
different
parts
of
the
supply
chain,
such
as
oil

companies
owning
the
oilXields,
platforms,
pipelines,
reXineries
and
gas

stations;

• purchasing
power
–
the
ability
to
obtain
better
prices
from
suppliers
by
being

able
to
offer
them
more
business;

• life-‐cycle
stages
–
for
example,
car
companies
will
typically
have
several

models
that
they
relaunch
in
rotation.
The
cash
generated
from
the
new

models
provides
the
resources
to
invest
in
development
to
replace
the
old

models;

• common
customers
–
a
strong
brand
to
which
customers
are
attracted
and

loyal
can
be
exploited
by
expanding
into
different
product
or
service
areas.

There
can
also
be
an
economy
of
scale
in
the
marketing
that
supports
the

separate
businesses.

Optimising
a
portfolio
can
involve
fundamental
changes
that
might
include

deleting
products,
launching
new
products,
and
relocating
and
laying
off
staff.


The
decisions
made
need
to
be
objective
and
based
on
long-‐term
value
creation,

not
on
sentimentality.

The
management
of
a
portfolio
and
its
complexities
involves
consideration
of

the
following:

• Heritage
–
the
relevance
of
maintaining
the
accumulated
legacy
of
past

acquisitions,
including
products,
services
and
operating
sites,
while

respecting
crucial
cultural
factors.

• Resources
–
whether
the
human
and
other
resources
such
as
equipment
and

systems
currently
in
place
are
appropriate.

• Product
life
cycle
–
changes
in
technology
or
customer
needs
that
create

opportunities
as
well
as
close
them.

• Market
dynamics
–
changes
in
the
operating
landscape
caused
by
new

competitors,
dominance
of
suppliers
or
customers,
regulation
and
trends.

To
manage
a
portfolio
effectively
requires
a
combination
of
strategic

engineering
and
excellent
operational
effectiveness.
Decisions
need
to
be
made

for
the
long-‐term
beneXit
of
the
product,
service
and
business,
not
just
as
a

response
to
short-‐term
targets
and
pressures.

Stock
market
and
investor
measures

THE
STOCK
MARKET
is
where
investors
buy
and
sell
shares
and
make
and
lose

money
–
in
some
cases
a
lot
of
money.
To
monitor
the
performance
of
stocks

there
is
a
range
of
measures
that
are
regularly
quoted
in
Xinancial
media

showing
absolute
and
relative
performance
of
shares.
This
chapter
explores
a

number
of
these
measures.

Why
are
companies
quoted
on
a
stock
market?

A
private
company
is
one
where
shares
are
typically
bought
and
sold
by
the

owner
managers
or
a
small
group
of
investors,
and
a
public
company
is
one

where
shares
are
bought
and
sold
on
the
stock
market.
There
are
many

successful
private
companies
such
as
Cargill,
an
agricultural
commodities
and

food
business,
and
Mars,
a
confectionery
and
pet-‐food
business.
Both
would
be


in
the
top
300
of
the
Fortune
500
biggest
global
corporations
if
they
were
listed

on
a
stock
exchange.

The
advantage
of
a
quotation
on
a
stock
market
is
the
ability
to
gain
access
to

equity
investment
by
issuing
tradable
shares.
Balancing
the
mix
of
debt
and

equity
is
a
fundamental
part
of
managing
leverage
(gearing)
levels
to
provide

optimum
levels
of
WACC.
Shares
have
an
added
advantage
of
no
repayment
date

and
no
interest
payments.
This
means
that
in
the
growth
phase
of
a
business
the

cash
Xlow
can
be
directed
towards
the
operations
and
not
the
investors.
The

growth
in
share
price
provides
the
investors
with
their
required
return.

A
stock
exchange

Shares
in
publicly
traded
companies
are
bought
and
sold
on
a
stock
market.
The

New
York
Stock
Exchange
(NYSE)
and
the
Bombay
Stock
Exchange
(BSE)
are

two
examples.

The
exchanges
make
buying
and
selling
easy.
A
stockbroker
will
act
on
behalf
of

its
clients
and
trade
on
the
market.
If
a
client
wants
to
buy
some
shares,
the

broker
will
place
a
buy
order.
However,
it
is
not
like
a
supermarket
where
there

are
products
on
shelves
waiting
to
be
purchased.
At
any
point
in
time
all
the

shares
are
owned
by
somebody
(either
an
individual
or
an
organisation).
For
a

purchase
to
take
place
there
must
be
someone
willing
to
sell.
If
there
are
no

sellers
wanting
to
part
with
their
shares,
the
market
makers
will
raise
the
share

price
to
entice
a
shareholder
to
sell
and
complete
the
trade.

If
there
are
more
buyers
than
sellers
in
the
market,
the
price
of
a
share
will
rise

and
vice
versa.
Brokers
will
not
take
more
than
a
few
shares
onto
their
own

book
so
trades
have
to
be
matched.
Therefore
share
prices
rise
and
fall
as
trades

take
place.
Sophisticated
investors
watch
this
movement
minute
by
minute

when
the
markets
are
open
to
spot
opportunities
to
make
money
out
of
even
the

smallest
changes
in
price.

What
drives
a
share
price?

Although
there
are
equal
numbers
of
buyers
and
sellers
at
any
share
price,
the

views
of
the
shareholders
on
whether
the
share
price
is
rising
or
falling
will
be

at
variance
with
each
other.

The
main
factors
can
be
categorised
in
three
groups:
track
record,
external

factors
and
future
expectations.
The
track
record,
comprising
facts
and


attributes
of
past
performance,
is
the
most
tangible
of
these
groups,
but
it
is

perhaps
the
poorest
at
predicting
the
future
potential
of
a
business.

However,
much
management
credibility
is
created
by
the
delivery
of
a
strong
set

of
Xinancial
results,
increased
earnings
and
in
particular
a
strong
cash
Xlow.
If

management
has
a
proven
track
record
and
the
strength
to
exceed
investor

expectations,
there
is
justiXication
for
trusting
them
to
continue
the
process
in

the
future.

The
uncontrollable
inXluence
is
the
combination
of
external
factors:

• A
change
of
government
will
create
uncertainty
in
the
market.

• Changes
in
regulation,
policy
and
taxes
will
alter
the
market
conditions
for

businesses.

• Rises
in
interest
rates
and
commodity
prices
can
reduce
consumer
spending,

which
in
turn
can
reduce
demand
across
the
economy.

•
Events
in
the
global
economy
will
affect
exchange
rates
and
prices
for
dealing

with
foreign
suppliers
and
customers.

Ultimately,
the
main
inXluence
on
a
share
price
is
the
expectation
of
future

returns
for
the
investor.
This
is
a
combination
of
the
factors
from
all
three

groups,
and
expectations
can
be
assimilated
and
then
projected
into
the
future

to
determine
whether
the
current
share
price
offers
the
potential
for
gain
or

loss.

Indicators
of
future
growth
potential

The
P/E
ratio

An
important
measure
used
by
investors
to
compare
future
expectation
with
the

current
share
price
is
a
price/earnings
(P/E)
ratio.
This
is
the
share
price

divided
by
earnings
per
share
and
is
a
factor
or
multiple.

The
share
price
is
the
current
value
from
the
market,
and
for
active
shares
this

will
constantly
move
when
the
market
is
open.

Earnings
is
the
proXit
generated
by
the
business
that
is
attributable
to
the

shareholders
and
is
after
tax
and
interest.
If
the
total
earnings
are
divided
by
the

number
of
shares
in
issue,
a
value
of
earnings
per
share
(EPS)
will
result.
The

value
is
usually
small
and
therefore
expressed
in
rupees.


Appendix

(Edited
excepts
from
interviews
and
responses)

Q.
Do
you
believe
that
Wealth
Management
has
increasingly
becoming
a
booming

industry
in
India?

YES

84%

NO

14%

NOT
SURE

2%

Q.
What
is
the
state
of
the
Wealth
Management
Industry?

A.
The
summary
of
the
response
was
that
wealth
and
disposable
income
are
growing

substantially.
We
are
also
noticing
that
for
the
Xirst
time
the
ability
to
earn
and
save
are

slightly
different.
Earlier
you
just
put
away
your
money
in
some
guaranteed
products.

Today,
when
even
the
government
is
withdrawing
from
those
products
(it
recently

stopped
the
maturity
bonus
on
post-‐ofXice
savings),
investors,
whether
they
be

doctors,
architects
or
anyone
else,
need
professional
help.

Q.
Is
Wealth
Management

only
for
wealthy?

A. Only
10
percent
of
the
respondents
were
of
the
opinion
that
yes
wealth

management
industry
is
only
for
those
who
are
having
enormous
wealth.
But
a

massive
84
percent
felt
that
it
is
for
everybody.
The
person
who
is
earning
Rs

30,000
per
month
also
needs
this
advice.
For
instance,
if
there
is
a
25-‐year-‐old
guy

who
earns
this
sum,
his
Xirst
priority
is
to
buy
a
house
for,
say,
around
Rs
20
lakh.

He
has
to
now
protect
this
property
from,
say,
Xlood,
cyclone
or
other
natural

disasters.
You
have
building
insurance
that
doesn't
cost
more
than
Rs
800-‐1,000.

Only
5
percent
responded
in
terms
of
do
not
know/can’t
say.


YES

10%

NO

84%

DON'T
KNOW
/
CAN'T
SAY

5%

Q.
WHICH
IS
YOUR
MAIN
MARKET?

A.
Stock
Options

62%

Expansion
of
Business

33%

Not
Sure

3%

62
percent
prefer
getting
stock
options.
33
percent
operate
on
the
expansion
of

business
and
entrepreneurial
capacity.
3
percent
responded
in
terms
of
do
not
know/
can’t
say.

Q.
What
about
competition
from
foreign
and
Indian
banks?

A.
The
response
was
that
basically,
the
service
the
foreign
banks
offer
is
transaction

oriented.
Most
of
them
offer
some
mutual
funds
and
some
equity
advice.
But
someone

who
has
between
Rs
2
crore
to
Rs
25
crore
don't
want
this.
Whereas
Indian
banks
have

a
customer-‐centric
model.
They
work
with
customers
and
offer
them
a
range
of

services
—
investment
advisory
—
in
debt,
equity,
mutual
funds,
derivatives,
besides

tax
advisory,
succession
planning,
insurance
advisory,
etc.

Q.
What
are
the
emerging
trends
in
wealth
management
in
India?


A.
Real
estate
and
private
equity
are
increasingly
becoming
important
asset
classes
for

high
net
worth
individuals
(HNIs).
The
demand
for
realty
is
on
a
high
growth
path
on

account
of
the
burgeoning
economy.
While
a
few
realty
funds
have
been
launched,
the

agencies
believe
that
retail
investors
have
been
left
out
as
only
HNIs
and
institutional

players
have
the
capacity
to
participate
in
these.
However,
equity
participation
will
be

ensured
by
the
introduction
of
real
estate
mutual
funds,
which
are
fairly
common
in

developed
countries.

Q.
How
is
the
private
equity
scenario
developing?

A.
Alternative
investments
including
private
equity
allow
HNIs
to
broad
base
their

portfolios.
Though
at
a
nascent
stage,
private
equity
in
India
is
on
the
rise
because
of

maturing
Xinancial
sophistication.
Secondary
research
highlights
that
in
the
developed

markets,
there
is
a
growing
conviction
among
HNIs
that
investments
in
fundamentally

strong
businesses
are
a
very
dependable
wealth
management
strategy.

Q.
Is
the
client
base
expanding?
Is
it
becoming
more
expensive
for
people
to
mandate
a

private
wealth
manager?

A.
India
is
becoming
an
increasingly
attractive
market
for
many
industries
-‐
wealth

management
is
no
exception.
There
is
a
promising
onshore
wealth
management

services
sector
here.
Driving
the
development
has
been
the
country's
exceptional

economic
performance
over
the
last
decade.
The
booming
economy
has
led
to

innumerable
opportunities
and
pushed
individual
wealth
growth.
According
to
one

estimate,
India
has
seen
about
19
per
cent
growth
in
HNI
population
in
2005
vis-‐à-‐vis

the
world
growth
rate
of
6.5
per
cent.
The
fee
structure
here
is
yet
to
be
developed
and

is
currently
accrued
from
brokerage
fees
and
commissions
on
the
services
rendered.

Q.
How
can
a
wealth
manager
create
a
difference
in
prevailing
market
conditions?

A.
Wealth
management
is
a
highly
specialised
service,
covering
all
asset
classes.
Asset

allocation
helps
determine
an
optimal
mix
of
asset
classes,
ranging
from
equity,
debt

and
real
estate
to
alternatives.
The
latter
may
include
investments
of
passion-‐even
Xine

art
and
collectables
-‐
as
well
as
structured
products
and
hedge
funds.
Clients'
life
goals,

time
horizon
and
risk
tolerance
are
three
vital
factors
on
this
front.

Q.
What
value
added
services
do
a
Wealth
Management
Firm/Company
provides?

A.
Financial
planning

64%

Individual
requirements
29%

Don’t
Know/Can’t
say

7%


64
percent
responded
that
their
managers
offer
complete
Xinancial
planning.
They
are

able
to
give
the
customers
advice
on
equity
investment,
debt,
commodities,
art,

insurance,
international
investment,
which
home
loans
to
take
and
why,
tax
planning,

estate
planning,
Xiling
tax
returns,
superannuation,
real
estate,
and
do
a
cash-‐Xlow

analysis.
29
percent
responded
that
they
are
specialised
to
meet
the
individual

requirements
of
the
customers
i.e.
in
portfolio
management.

Q.
How
much
do
a
Wealth
Manager
charge
and
on
what
basis?

A.
These
charges
are
over
and
above
any
other
charges
like
an
entry
and
exit
load

charged
by
mutual
funds
when
the
customers
invest
in
them.

Fees:
They
are
based
on
an
hourly
rate,
a
Xlat
rate,
or
on
a
percentage
of
your
assets

and/or
income.
At
times,
it
is
on
the
nature
of
the
work
done.

Commissions:
Though
commissions
are
not
paid
by
you,
but
by
a
third
party
(like
a

mutual
fund
house
or
insurance
company),
it
does
come
out
of
your
pocket.
Fund

houses
and
insurance
companies
use
their
entry
and
exit
loads
to
fund
these

commissions
for
their
brokers
and
distributors.

Combination
of
fees
and
commissions:
Here
you
are
charged
fees
for
the
amount
of

work
done
to
develop
the
Xinancial
plan
and
commissions
are
received
from
any

products
sold.

Q.
Should
the
allocation
change
be
based
on
economic
conditions
?

A.
Yes

50%

No

41%

Not
sure

9%


Q.
With
interest
rates
low
and
the
stock
markets
perhaps
overvalued,
where
should

one
invest
today?

A.
Domestic
Market
71%

Foreign
Market

9%

Both

21%

Q.
Why
should
one
choose
to
invest
in
a
mutual
fund?

A.
For
a
retail
investor
who
does
not
have
the
time
and
expertise
to
analyse
and
invest

in
stocks
and
bonds,
mutual
funds
offer
a
viable
investment
alternative.
This
is
because

Mutual
Funds
provide
the
beneXit
of
cheap
access
to
expensive
stocks.
Mutual
funds

diversify
the
risk
of
the
investor
by
investing
in
a
basket
of
assets.
A
team
of

professional
fund
managers
manages
them
with
in-‐depth
research
inputs
from

investment
analysts.
Being
institutions
with
good
bargaining
power
in
markets,

mutual
funds
have
access
to
crucial
corporate
information
which
individual
investors

cannot
access.

Q.
Can
mutual
funds
be
viewed
as
RISK-‐FREE
INVESTMENTS?

A.
Yes

12%

No

72%

Not
sure

16%


Q.
How
do
one
invest
money
in
mutual
funds?

A.
One
can
invest
by
approaching
a
registered
broker
of
Mutual
funds
or
the
respective

ofXices
of
the
Mutual
funds
in
that
particular
town/city.
An
application
form
has
to
be

Xilled
up
giving
all
the
particulars
along
with
the
cheque
or
Demand
Draft
for
the

amount
to
be
invested.

Q.
What
are
the
parameters
on
which
a
Mutual
Fund
scheme
should
be
evaluated?

A.
Performance
indicators
like
total
returns
given
by
the
fund
on
different
schemes,
the

returns
on
competing
funds,
the
objective
of
the
fund
and
the
promoters
image
are

some
of
the
key
factors
to
be
considered
while
taking
an
investment
decision

regarding
mutual
funds.

Q.
What
are
the
different
types
of
plans
that
any
mutual
fund
scheme
offers?

A.
The
summary
of
the
response
was
that
it
depends
on
the
strategy
of
the
concerned

scheme.
But
generally
there
are
3
broad
categories.
A
dividend
plan
entails
a
regular

payment
of
dividend
to
the
investors.
A
reinvestment
plan
is
a
plan
where
these

dividends
are
reinvested
in
the
scheme
itself.
A
growth
plan
is
one
where
no
dividends

are
declared
and
the
investor
only
gains
through
capital
appreciation
in
the
NAV
of
the

fund.The
plan
one
should
choose
depends
on
his
investment
object,
which
again

depends
on
his
income,
age,
Xinancial
responsibilities,
risk
taking
capacity
and
tax

status.
For

example
a
retired
government
employee
is
most
likely
to
opt
for
monthly

income
plan
while
a
high-‐income
youngster
is
most
likely
to
opt
for
growth
plan.

Q.
What
are
the
beneXits
of
SYSTEMATIC
INVESTMENT
PLAN?

A.
A
systematic
investment
plan
(SIP)
offers
2
major
beneXits
to
an
investor:

•
It
avoids
lump
sum
investment
at
one
point
of
time

•
In
a
scenario
of
falling
prices,
it
reduces
your
overall
cost
of
acquisition
by
a
process

of
rupee-‐cost
averaging.
This
means
that
at
lower
prices
you
end
up
getting
more
units

for
the
same
investment.

Q.
What
proportion
of
one’s
investment
should
be
put
invested
in
mutual
funds?

A.
Major
portion

19
%

Minor
portion

24%

Depends
on
the
economic
position
of
the
investor

57%


Q.
What
are
the
types
of
bank
accounts
available
to
NRIs?

A.
Non-‐Resident
External
[NRE]
Rupee
savings
account:
Your
funds
in
NRE
savings

accounts
are
held
in
convertible
rupees
-‐
principle
and
interest
are
fully
reparable.

Interest
income
is
fully
exempt
from
tax
in
India.
The
savings
account
can
be
opened

jointly
with
a
Non-‐Resident
individual.

Non-‐Resident
External
[NRE]
Rupee
Xixed
deposit:
Fixed
deposit
in
Indian
rupees

where
the
principle
and
interest
are
fully
repatriable.
All
interest
earned
is
fully

exempt
from
tax
in
India.
The
account
can
also
be
opened
jointly
with
a
non-‐resident.

Non-‐Resident
Ordinary
[NRO]
Rupee
savings
account:

Your
funds
in
Non
Resident

Ordinary
(NRO)
savings
account
are
held
in
India,
in
Indian
rupees.
The
NRO
account

can
be
funded
through
NRI
income
in
India.
Only
the
interest
in
an
NRO
account
is

repatriable.
Interest
income
on
this
account
is
liable
for
Indian
Income
Taxes.
Non

Resident
Ordinary
[NRO]
Rupee
Xixed
account
.
Fixed
deposit
in
Indian
rupees
where

the
earnings
in
India
can
be
deposited.
The
interest
is
repatriable
[after
payment
of

tax].

Foreign
current
Non-‐residents
[FCNR]
deposit:
The
FCNR
Deposit
is
a
fully
repatriable

foreign
currency
deposit
available
in
major
currencies:
US
Dollars,
Pound
Sterling,

Euros,
Australian
dollars
and
Canadian
dollars.

Q.
Can
an
NRI
invest
in
mutual
funds?

A.
Yes

81%

No

19%


Conclusions

Wealth
managers
are
beginning
to
investigate
innovative
segmentation
methods
to

manage
the
changing
client
proXile.
Over
the
next
20
years,
wealth
managers
will
hone

their
segmentation
methods.
Wealth
managers
will
develop
segmentation
as
a
service

efXiciency
initiative.
Segmentation
models
will
apply
holistic
criteria
to
wealth

management.
The
most
important
segments
globally
will
be
entrepreneurs
and
SMES/
CEOs
apart
from
Doctors
and
Industrialists.
Financial
advisers
will
become
an

important
separate
client
segment
for
wealth
managers
The
organisation
of
direct

client
ownership
will
also
change
availability
and
Xlexibility
will
become
vital

components
of
the
business
model.
Internal
restructuring
will
aim
to
integrate
client

services.
The
rise
of
the
mass
afXluent
represents
an
opportunity
for
wealth
managers

in
the
medium
term.
Wealth
managers
will
capture
the
higher
value
mass
afXluent

market
by
offering
a
scaled
down
wealth
management
service.
The
mass
afXluent

proposition
will
run
along
the
lines
of
the
current
wealth
management
service.

Liability
management
is
currently
not
part
of
the
wealth
management
agenda
but
has

proven
potential.
Clients
in
developed
markets
are
seeking
more
holistic
wealth

management
services
Liability
management
is
clearly
a
proXitable
area
with
a
proven

existing
client
base.
The
incorporation
of
lending
into
wealth
management
will
shift

the
focus
of
the
service.
Specialist
forms
of
lending
will
also
become
common

additions
to
the
offerings
of
many
wealth
managers.
Some
will
fail
due
to
a
persistence

of
the
asset
focused
service
model
and
a
lack
of

commitment.
There
are
signiXicant

beneXits
in
the
area
of
liability
management
for
the
wealthy,
and
that
the
importance
of

liability
management
as
part
of
wealth
management
will
inevitably
grow
over
the
next

20
years,
until
it
becomes
a
key
service
area.
Rising
income
and
wealth
inequalities,
if

not
matched
by
a
corresponding
rise
of
incomes
across
the
nation,
can
lead
to
social

unrest.
An
area
of
great
concern
is
the
level
of
ostentatious
expenditure
on
weddings

and
other
family
events.
Such
vulgarity
insults
the
poverty
of
the
less
privileged,
it
is

socially
wasteful
and
it
plants
the
seeds
of
resentment
in
the
minds
of
the
have-‐nots.


Bibliography

❖ Guide
to
Financial
Management
by
John
Tennent
(The
Economist)

❖ Economic
&
Political
Weekly
-‐
July-‐August,
2007

❖ Finance
India,
July-‐2006

❖ How
Mutual
Funds
Work
-‐
Fredman
and
Wiles

❖ Mutual
Funds
in
India
-‐
H.
Sadhak

❖ Marketing
Management
by
Philip
Kotler

❖ Marketing
Research
–
Naresh
Malhotra

❖ Marketing
Management-‐
Kotler

❖ Various
Reports
on
Indian
Insurance
Industry

❖ Personal
Financial
Planning
by
Aitken
and
Goodmen

❖ Journal
of
the
ICFAI
on
investments,
2007

❖ www.investopedia.com

❖ www.wikipedia.com


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