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A Report

On

“WEALTH MANAGEMENT SERVICES IN


HSBC AND WMS PROVIDING
ALTERNATIVE INVESTMENT
PLATFORM”

By
Neelesh Wadhwani
(08BS0001879)

(HSBC BANK)
A Report

On

“WEALTH MANAGEMENT SERVICES IN


HSBC AND WMS PROVIDING
ALTERNATIVE INVESTMENT
PLATFORM”

Submitted By:
Neelesh Wadhwani
(08BS0001879)

(HSBC BANK)
Date: 15/05/2009

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LETTER OF AUTHORIZATION

This report, “Wealth Management Services in HSBC and WMS providing alternative investment
platform” and “Estimation of Beta during Bull and Bear Period” is authorized by Mr. Nitin
Verma and Mr. Hemant Chandak– the company guide and Prof.G.D. Rathore and Dr. Deepak
Khanna – the faculty guide with the partial fulfillment of the requirement of Summer Internship
Program of the MBA Program of ICFAI Business School”.

Company guide Faculty guide


----------------------- ---------------------
(Mr. Nitin Verma) (Prof. G.D. Rathore)
SM-HSBC Bank
Jaipur
Date: 15/05/2009

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ACKNOWLEDGEMENT

It gives me immense pleasure in acknowledging the valuable assistance and co-operation I


received from the people around me for the successful completion of my internship.
I would like to express my sincere thanks to Mr. Nitin Verma (SM, HSBC Bank, Jaipur) and
Mr. Hemant Chandak (FPM HSBC Bank, Jaipur) for providing me opportunity to work with
him. I feel indebted to them for their constant support, encouragement, guidance and inspiration
all through my association with them. I would also be greatful to them for their co-operation and
providing me various facilities to work with him.

I am also indebted to Mr. Vivek Mathur, Branch Manager, HSBC, Jaipur, for providing me an
opportunity to work in an esteemed organization and gather the realities of the market .

I earnestly express my gratitude to our able and competent faculty guide Prof. G.D. Rathore
Faculty guide, IBS Jaipur. His support and full- fledged guidance, encouragement and valuable
suggestion were instrumental in making this project.

Completing this project would not have been possible without active assistance of CAT(
Custome r Acquisition Team) comprising of Mr. Gaurav, Mr. Avinash, Mr. Dilip, Mr. Bharat
and Relationship Managaers Mr. Vasu Dev and Mr. Sanjay with whom I was working despite
their busy schedule. All of them were quite generous to devote time and energy in answering my
queries, solving my problems and passing me valuable amount of Knowledge towards my study
of “Wealth Management Services in HSBC and WMS providing alternative investment platform”
and “Estimation of Beta during Bull and Bear Period”.

Thanks are also due to my family, friends, and colleagues who were with me through all times
and encouraged me on towards accomplishing this project objective.

Neelesh Wadhwani Date: - May 15, 2009

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Table of Contents
Letter of authorization..................................................................................................................... 3
ACKNOWLEDGEMENT .............................................................................................................. 4
Abstract ........................................................................................................................................... 7
INTRODUCTION TO BANKING INDUSTRY ........................................................................... 9
WIDER COMMERCIAL ROLE .............................................................................................. 10
LAW OF BANKING ................................................................................................................ 11
ENTRY REGULATION .......................................................................................................... 12
RISKS FOR A BANK .............................................................................................................. 12
Who is HSBC? .............................................................................................................................. 14
HSBC IN INDIA....................................................................................................................... 14
Introduction of firm/branch....................................................................................................... 15
INTRODUCTION TO WEALTH MANAGEMENT SERVICES .............................................. 16
Need-based sales approach with innovation ...................................................................... 17
Key Elements of Wealth Management Services....................................................................... 18
Process of Wealth Management................................................................................................ 18
Products offered by HSBC ............................................................................................................ 20
Savings account......................................................................................................................... 20
Features & Benefits:.................................................................................................................. 20
 ATM access: HSBC‟s wide network of ATM‟s has made banking all the more
convenient for customers. Withdraw cash, transfer funds, deposit cheques and cash, request
for a bank statement, cheque-book or mini-statement and check balances. ......................... 21
Features & Benefits:.................................................................................................................. 22
Features & Benefits:.................................................................................................................. 25
CritiCare.................................................................................................................................... 26
MUTUAL FUNDS ................................................................................................................... 28
ADVANTAGES OF INVESTING IN MUTUAL FUNDS: ................................................ 31
DISADVANTAGES OF INVESTING IN MUTUAL FUNDS: .......................................... 31
TYPES OF MUTUAL FUNDS ............................................................................................ 32
ULIP (Unit Linked Insurance Plan) .......................................................................................... 39
INTRODUCTION: ............................................................................................................... 39
ULIP Advantages .................................................................................................................. 39
ULIP VS TRADITIONAL INSURANCE PLAN ................................................................ 39
Retail Broking ........................................................................................................................... 45
WEALTH MANAGEMENT IN RETAIL BANKING ................................................................ 46

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ALTERNATIVE INVESTMENT ASSET CLASSES ............................................................. 49
ALTERNATIVE INVESTMENTS – AN AID TO BUILD CORPUS FOR INVESTORS .... 52
CONSUMER FINANCIAL PROFILING AT HSBC .............................................................. 53
SURVEY AND RESEARCH ....................................................................................................... 54
METHODOLOGY........................................................................................................................ 56
OBSERVATIONS AND FINDINGS ........................................................................................... 57
Future of Alternative Investments in India ................................................................................... 63
CHALLENGES AND LIMITATIONS ........................................................................................ 64
RECOMMENDATIONS FOR HSBC INDIA ............................................................................. 65
CONCLUSION ............................................................................................................................. 66
B] ESTIMATION OF BETA DURING BULL AND BEAR PERIOD ....................................... 67
Research Study.............................................................................................................................. 71
Research Objective ................................................................................................................... 71
Methodology ............................................................................................................................. 71
FINDINGS ................................................................................................................................ 73
SNAPSHOT OF BETA CALCULATION ................................................................................... 79
LARGE CAP BETA ................................................................................................................. 79
MID CAP BETA....................................................................................................................... 80
SMALL CAP BETA ................................................................................................................. 81
ANNEXURE................................................................................................................................. 82
REFERENCES ............................................................................................................................. 86

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ABSTRACT

It has been wisely said by the retail banking industry that brewing coffee and creating wealth are
exactly analogous in their spheres of operation. Even the slightest of miscalculation can cause
entire efforts to be ruined. The Indian wealth management industry is brewing the best coffee for
its customers today!! My project deals with Wealth Management Services in Retail Banking and
wealth management providing channel for alternative investment platforms. There has been
tremendous growth in the investment values of the high- net-worth individuals. One thing
common to all the wealth management service providers is – all are market driven only. If we
glance through the world scenario, we would see that it is not just the mutual fund, equities and
insurance sector in which these wealthy people are interested in, but the horizon is much wider.
Though they want the aim of wealth creation, wealth maintenance/enrichment and wealth
preservation, but they also are interested in lifestyle quotient, bullions, estate planning, etc.
In this project I have determined the investment pattern of customers in the traditional wealth
management services such as Mutual Funds, Insurance, Fixed Deposits and alternative
investment classes which are Hedge Fund Investment, overseas investment, Education and
retirement planning, Estate Planning, Private Equity and others. To create a picture regarding all
these aspects, a questionnaire was used mainly. Secondary data was also collected on the same
through brochures and various websites. The investment patterns were determined based on
customers Risk Appetite, Time Horizon and Return on Investment.
The responses received through questionnaires were analyzed by preparing various kinds of
charts using MS Excel. Analysis of the questionnaire revealed the fact that there has been change
in investment pattern of customers.

Also a supplementary project was done by me on “Estimating Beta of Large Cap, Mid Cap and
Small Cap companies during Bull and Bear period”. In this project I have tested whether the
stock market volatility presents a different behavior in bull and bear phases and made an
appropriate portfolio. Data for closing value of NSE index and closing price of stock was
collected from NSE‟s website for a sample period from 1 st January 2007 to 31st January 2009.
This sample period was divides into Bull Period and Bear Period. The duration of Bull period
was from 1st January 2007 to 14th January 2008 and the bear period was taken from 15th January
2008 to 31st January 2009.

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After collection of data, using SPSS Package‟s Regression Analysis (Linear regression) I
calculated Beta for the stocks. For calculating beta I used Capital Asset Pricing Model(CAPM)
model. Per day index return was calculated using closing value of index and then per day risk
free rate of return (which was taken as 6% per annum) was deducted from it (Rm -Rf). This value
was regressed with per day earning of stock(K j), which was calculated using closing price of
stock. Rm -Rf was taken as independent variable and K j was taken as dependent variable.

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INTRODUCTION TO BANKING INDUSTRY

The word "bank" reflects the origins of banking in temples. According to the famous passage
from the New Testament, when Christ drove the money changers out of the temple in Jerusalem,
he overturned their tables. In Greece, bankers were known as trapezitai, a name derived from the
tables where they sat. Similarly, the English word bank comes from the Italian banca, for bench
or counter.
The history of banking is closely related to the history of money As monetary payments became
important, people looked for ways to safely store their money. As trade grew, merchants looked
for ways of borrowing money to fund expeditions.
The first banks were probably the religious temples of the ancient world, and were probably
established sometime during the 3rd millennium B.C. Banks probably predated the invention of
money. Deposits initially consisted of grain and later other goods including cattle, agricultural
implements, and eventually precious metals such as gold, in the form of easy-to-carry
compressed plates. Temples and palaces were the safest places to store gold as they were
constantly attended and well built. As sacred places, temples presented an extra deterrent to
would-be thieves. There are extant records of loans from the 18th century BC in Babylon that
were made by temple priests to merchants. By the time of Hammurabi's Code, banking was well
enough developed to justify the promulgation of laws governing banking operations.
Global banking and capital market services proliferated during the 1980s and 1990s as a
result of a great increase in demand from companies, governments, and financial institutions, but
also because financial market conditions were buoyant and, on the whole, bullish. Interest rates
in the United States declined from about 15% for two- year U.S. Treasury notes to about 5%
during the 20-year period, and financial assets grew then at a rate approximately twice the rate of
the world economy. Such growth rate would have been lower, in the last twenty years, were it
not for the profound effects of the internationalization of financial markets especially U.S.
Foreign investments, particularly from Japan, who not only provided the funds to corporations in
the U.S., but also helped finance the federal government; thus, transforming the U.S. stock
market by far into the largest in the world.
Banking is the mirror reflection of an economy. All the countries economy sail on banking. The
major function of the bank is to lend to the economy. We have many cases at the back of our
mind in which collapse of banking sector lead to failure of economy. So if there is anything
wrong with this sector, entire economy can collapse like earthquake suffered buildings. Thus we
can say that performance of large part of the economy depend on banking sector.

The definition of a bank varies from country to country.

Under English law, a bank is defined as a person who carries on the business of banking, which
is specified as:

conducting current accounts for his customers


paying cheques drawn on a him
collecting cheques for his customers.

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In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law
in relation to negotiable instruments, including cheques, and this Act contains a statutory
definition of the term banker: Banke r includes a body of persons, whether incorporated or not,
who carry on the business of banking' (Section 2, Interpretation). Although this definition seems
circular, it is actually functional, because it ensures that the legal basis for bank transactions such
as cheques do not depend on how the bank is organized or regulated.

The business of banking is in many English common law countries not defined by statute but by
common law, the definition above. In other English common law jurisdictions there are statutory
definitions of the business of banking or banking business. When looking at these definitions it is
important to keep in mind that they are defining the business of banking for the purposes of the
legislation, and not necessarily in general. In particular, most of the definitions are from
legislation that has the purposes of entry regulating and supervising banks rather than regulating
the actual business of banking. However, in many cases the statutory definition closely mirrors
the common law one. Example of statutory definitions:

"Banking Business" means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar
account repayable on demand or within less than [3 months] ... or with a period of call or
notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers

Since the advent of EFTOPS(Electronic Funds Transfer at Point Of Sale), direct credit, direct
debit and internet banking, the cheque has lost its primacy in most banking systems as a payment
instrument. This has lead legal theorists to suggest that the cheque based definition should be
broadened to include financial institutions that conduct current accounts for customers and
enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.

WIDER COMMERCIAL ROLE

However the commercial role of banks is wider than banking, and includes:

issue of banknotes (promissory notes issued by a banker and payable to bearer on


demand)
processing of payments by way of telegraphic transfer, EFTOPS, internet banking or
other means
issuing bank drafts and bank cheques
accepting money on term deposit
lending money by way of overdraft, installment loan or otherwise

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providing documentary and standby letter of credit, guarantees, performance bond,
securities underwriting commitments and other forms of off balance s heet exposures
safekeeping of documents and other items in safe deposit boxes
currency exchange
sale, distribution or brokerage, with or without advice, of insurance, unit trusts and
similar financial products as a 'financial supermarket'

LAW OF BANKING

Banking law is based on a contractual analysis of the relationship between the bank and the
customer. The definition of bank is given above, and the definition of customer is any person for
whom the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the customer,
when the account is in credit, the bank owes the balance to the customer, when the
account is overdrawn, the customer owes the balance to the bank.
2. The bank engages to pay the customer's cheques up to the amount standing to the credit
of the customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from t he customer,
e.g. a cheque drawn by the customer.
4. The bank engages to promptly collect the cheques deposited to the customer's account as
the customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an
aspect of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that the
customer is indebted to the bank.
7. The bank must not disclose the details of the transactions going through the customer's
account unless the customer consents, there is a public duty to disclose, the bank's
interests require it, or under compulsion of law.
8. The bank must not close a customer's account without reasonable notice to the customer,
because cheques are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customer
and the bank. The statutes and regulations in force in the jurisdiction may also modify the above

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terms and/or create new rights, obligations or limitations relevant to the bank-customer
relationship.

ENTRY REGULATION

Currently in most jurisdictions commercial banks are regulated by government entities and
require a special bank license to operate.

Usually the definition of the business of banking for the purposes of regulation is extended to
include acceptance of deposits, even if they are not repayable to the customer's order, however
money lending, by itself, is generally not included in the definition.

Unlike most other regulated industries, the regulator is typically also a participant in the market,
i.e. government owned bank (a central bank). Central banks also typically have a monopoly on
the business of issuing banknotes. However, in some countries this is not the case, e.g. in the UK
the Financial Service Authority licenses banks and some commercial banks, such as the Bank Of
Scotland, to issue their own banknotes in competition with the Bank Of England, the UK
government's central bank.

The requirements for the issue of a bank license vary between jurisdictions but typically include:

1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior
officers
4. Approval of the bank's business plan as being sufficiently prudent and plausible.

RISKS FOR A BANK

Banks are susceptible to many forms of risk which have triggered occasional systemic crises.
Risks include:

Liquidity Risk: the risk that many depositors will request withdrawals beyond available funds

Credit Risk: the risk that those who owe money to the bank will not repay

Inte rest Rate Risk: the risk that the bank will become unprofitable if rising interest rates force it
to pay relatively more on its deposits than it receives on its loans

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The major regulations and acts that govern the banking business are:

Banking Regulations Act, 1949

Foreign Exchange Management Act, 1999

Indian Contract Act

Negotiable Instrument Act, 1881

Banks lend money either for productive purposes to individuals, firms, corporates etc. or for
buying house property, cars and other consumer durable and for investment purposes to
individuals and others. However, banks do not finance and speculative activity. Lending is risk
taking. Having prudent norms for lending should cover the risk. The depositors of banks are also
assured of safety of their money by deploying some percentage of deposits in statutory reserves
like SLR and CRR.

SLR and CRR

The regulations like Banking Regulations Act and Reserve Bank of India Act govern the
business of banking. It is obligatory on the part of a bank to invest a fixed proportion-known as
Statutory Liquidity Ratio (SL invest a fixed proportion-known as Statutory Liquidity Ratio
(SLR) - of their liabilities which include time and tem deposits in certain approved government
securities.

A certain proportion - known as Cash Reserve Ratio (CRR) - of the net time and demand
liabilities of the bank is also to be placed with Reserve Bank of India as Cash Reserve, this can
vary between 3 to 20 percent as announce by RBI.

"The Banker - Customer relationship is established when either an account is opened or


there is evidence that the bank is contractually bound to provide services normally
provided by a bank."

With years, banks are also adding services o their customers. The Indian banking industry is
passing through a phase of customers market. The customers have more choices in choosing
their banks. A competition has been established within the banks operating in India.

With stiff competition and advancement of technology, the services provided by banks have
become more easy and convenient. The past days are witness to an hour wait before withdrawing
cash from accounts or a cheque from north of the co untry being cleared in one month in the
south.

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WHO IS HSBC?
We are the world's local bank.

Headquartered in London, HSBC is one of the largest banking and financial services
organizations in the world. HSBC's international network comprises around 10,000 offices in 82
countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and
Africa.

With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares
in HSBC Holdings plc are held by around 200,000 shareholders in over 100 countries and
territories. The shares are traded on the New York Stock Exchange in the form of American
Depositary Receipts.

Through an international network linked by advanced technology, including a rapidly growing e-


commerce capability, HSBC provides a comprehensive range of financial services: personal
financial services; commercial banking; corporate, investment banking and markets; private
banking; and other activities

HSBC group comprises of around 10,000 offices in 82 countries and territories across the world.
With headquarter in London,

HSBC has been both a pioneer and pillar of banking in many communities around the world and
is very proud of its history.

A visual record of the group‟s history, the History Wall, was developed for the group‟s
headquarters in London. Through 3,743 images, the History Wall captures HSBC‟s rich and
fascinating pedigree, as shown below.

HSBC IN INDIA

The antecedents of the HSBC Group in India can be traced back to October 1853 when the
Mercantile Bank of India, London and China were founded in Bombay (now Mumbai). Starting
with an authorized capital of Rs. 5 million, the Mercantile Bank soon opened offices in London,
Madras (Chennai,) Colombo and Kandy, followed by Calcutta (Kolkata), Singapore, Hong
Kong, Canton (Guangchow) and Shanghai by 1855. The following hundred years were in many
ways propitious for the Mercantile Bank. In 1950 it moved into its new head office building in
Mumbai at Flora Fountain.

The acquisition in 1959 by The Hong Kong and Shanghai Banking Corporation Limited of the
Mercantile Bank was a decisive factor in laying the foundation for today's HSBC Group.
Founded in 1865 to serve the needs of the merchants of the merchants of the China coast and
finance the growing trade between China, Europe and the United States, HSBC has been an
international bank from its earliest days.

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After the Mercantile Bank was acquired by The Hong Kong and Shanghai Banking Corporation,
the Flora Fountain building became and remains to this day, the Head Office of the HSBC Group
in India.

Through the 1990s, HSBC has vigorously developed its role as one of the leading banking and
financial services organizations in the world. Its strategy of 'managing for value' emphasizes the
Group's unique balance of business and earnings between older, mature economies and faster-
growing emerging markets.

HSBC in India is proud to have retained the Group's pioneering streak by being an active partner
in the development of the Indian banking industry-even giving Indian its first ATM way back in
1987. The organization's adaptability, resilience and commitment to its customers have further
enabled it to service through turbulent times and prosper through good times over the past 150
years.

INTRODUCTION OF FIRM/BRANCH
HSBC being one of the leading international banks opened its branch at Jaipur on 13 th Nov 2003.
Jaipur is a big market of jewels import export and with new opportunities of business and
personnel growth this fact was noticed by the organization a nd finally a branch of HSBC was
inaugurated by Sir John Bond on 23rd Nov. 2003. Branch is now working efficiently and has a
good deal of investments. Branch has sufficient weapons to defeat its competitors which includes
punctual and efficient employs who r always ready in the service of bank.
Branch is located in c-scheme which is most of the suitable area for such organizations. Branch
has the following organizational structure

Head Office – Registered office and Group Head Office

8 Canada Square

London E14 5HQ

United Kingdom

Telephone: 44 020 7991 8888

Facsimile: 44 020 7992 4880

Web: www.hsbc.com

Branch office- Vasanti, 61-A,

Sardar Patel Marg

C-Scheme, Jaipur-302001

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INTRODUCTION TO WEALTH MANAGEMENT SERVICES
Wealth Management is an advanced investment advisory discipline that incorporates financial
planning and specialist financial services. The key objectives are to provide high net worth
individuals and families with tailored retail banking services, estate planning, legal resources,
taxation advice and investment management, with the goal of sustaining and growing long-term
wealth. Whereas financial planning can be helpful for individuals who have accumulated
wealth or are just starting to accumulate wealth, one must already have accumulated a significant
amount of wealth for the wealth management process to be effective.

Wealth management can be provided by independent financial advisers or large corporate


entities whose services are designed to focus on high- net worth retail customers. Such customers
would be considered 'mass affluent' or 'upper retail' clients because of their net worth, the
number of potential products they own from financial institutions, their assets under management
and other methods of segmentation. Large banks and brokerage houses create separate sales
forces, services and other 'benefits' to retain or attract these customers who are typically more
profitable than other retail banking, brokerage, or insurance customers.

Bank has a dedicated team of Customer Relationship Managers (CRMs) to assist customers in
their Financial Planning, including

Analyzing customers risk profile,


Understanding customer‟s present and future financial needs,
Matching customer‟s requirements with the available investment options,
Explaining the risk inherent in such investments
Achieving the returns to fulfill with customer‟s financial objectives and goals.

Wealth management is an integral part of financial planning. It is a systematic process of


maintaining wealth over a long period of time.

Owing to the increasing uncertainty in global job market and fluctuating prices of common
goods and services, wealth management services have gained huge importance in the recent
times. Banks, brokerage firms, trust companies, and many other financial service providers offer
wealth management services in the world market.

Success of wealth management is essentially dependent on financial planning. A well- guided


financial plan ensures proper allocation of resources. Financial planning also helps to increase
savings of individuals. Wealth management service providers help customers to select the best
investment options. This is turn results in increased returns from investments and financial
growth in long term.

Individual can manage wealth on their own. However, efficient management of wealth requires
specialized knowledge on this field. It is always good to take assistance from professionals for
portfolio building.

Wealth management if done in a proper way can save indivisual‟s family from future liabilities.

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It protects their assets from harms that may come up all of a sudden. Wealth management a lso
involves planning for post retirement period, in advance. Besides fulfilling day-to-day financial
needs it makes arrangements for savings and investments.

Wealth management also helps to reduce tax burden of individuals. Efficient management of
wealth assists one to save money for securing child‟s future.

Need-based sales approach with innovation


There is a team which works to suggest financial solutions based on customer‟s risk
appetite, profile and needs. Using customer insight, officials have developed a financial
planning tool. It analyses and generates a comprehensive financial plan based on
customer‟s existing financial position, expected future cash flows, inflation and identified
financial objectives. Relationship Managers extensively use this tool to do financial
planning for their custoers taking into account their long-term objectives and / or medium
to short term requirements.
For consistent and uniform delivery of financial planning as per the defined customer
need centric process, there is a dedicated, independent Sales Quality team to conduct
regular quality checks close to the point-of-sale.

Wealth management is classified as a type of financial planning tool that provides corporates and
their families with private banking, asset management, legal resources, real estate planning,
investment management and portfolio management with the goal of sustaining and growing
long-term wealth. Wealth management service providers have segmented the Indian market into
four categories: the mass market (investible surplus USD5,000 to 25,000); the mass affluent
(USD25,000 to 1 million); the high-net-worth (USD1 million to 30 million) and the ultra-high
net worth (greater than USD 30 million)

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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
Wealth manger‟s role is limited to the extent of providing guidance on investment / financial
planning and tax advisory, based on client profile. Investment decisions are solely taken by
the client, as per his /her own judgment.
b) Investment Processing (transaction oriented)
Client engages wealth manager to execute specific transaction or set of transactions.
Investment planning, decision and further management remain vested with the client.
c) Custody, Safekeeping and Asset Servicing
Client is responsible for investment planning, decision and execution. Wealth manager is
entrusted with management, administration and oversight of investment process.
d) End-to-end Investment Lifecycle Management
Wealth manager owns the whole gamut of investment planning, decision, execution and
management, on behalf of the client. He is mandated to make financial planning, implement
investment decisions and manage the investment throughout its life .

PROCESS OF WEALTH MANAGEMENT

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BANKING CHANNELS
Banks offer many different channels to access their banking and other services:

A Branch, banking centre or financial centre is a retail location where a bank or financial
institution offers a wide array of face to face service to its customers

ATM is a computerized telecommunications device that provides a financial institution's


customers a method of financial transactions in a public space without the need for a human
clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a
wider range of services to a wider range of users. For example in Hong Kong, most ATMs
enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and
entering the account number to be credited. Also, most ATMs enable card holders from other
banks to get their account balance and withdraw cash, even if the card is issued by a foreign
bank.

Mail is part of the postal system which itself is a system wherein written documents typically
enclosed in envelopes, and also small packages containing other matter, are delivered to
destinations around the world. This can be used to deposit cheques and to send orders to the bank
to pay money to third parties. Banks also normally use mail to deliver periodic account
statements to customers.

Telephone Banking is a service provided by a financial institution which allows its customers to
perform transactions over the telephone. This normally includes bill payments for bills from
major billers (e.g. for electricity).

Online Banking is a term used for performing transactions, payments etc. over the Internet
through a bank, credit union or building society's secure website

BUSINESS CAPABILITIES

 Personal Banking
 Credit and Debit Cards
 Private Clients
 Corporate and Institutional banking
 Commercial banking

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 Payments and Cash Management
 Trade Services
 Bullion
 Treasury and Capital Markets
 Custody and Clearing
 Investment Banking
 Insurance services
 Asset Management
 Private Equity
 Global Data Processing Software Development

COMPETITIVE STRENGTHS

 Wide International Network


 Comprehensive range of products & services
 Long term customer orientation
 Quick response times
 The business capabilities Mentioned as under:-
 Personal Banking
 Corporate Banking
 Investment Banking

PRODUCTS OFFERED BY HSBC


SAVINGS ACCOUNT

Mass market saving account (A.Q.B.-Rs. 25,000)

FEATURES & BENEFITS:

 Customer can automatically transfer extra savings from their savings account to a
fixed deposit, through a standing instruction, to enable them to earn higher interest
 Customers are also eligible for a fee waiver on HSBC credit cards

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 Card-to-Card Transfer facility - a funds transfer service that enables customer to
transfer money in an easy, fast, convenient and safe manner using the VISA
MONEY TRANSFER service from VISA.
 HSBC Demat Account services with waiver on account opening charges
 Customer can keep track of their account with free quarterly account statements
 Free personalized chequebook
 Buy mutual fund products offered by select mutual fund houses
 Manage account, make transactions, pay bills and much more by taking advantage of
HSBC's free Internet Banking facilities

 ATM ACCESS: HSBC‟S WIDE NETWORK OF ATM‟S HAS MADE BANKING ALL
THE MORE CONVENIENT FOR CUSTOMERS. WITHDRAW CASH, TRANSFER
FUNDS, DEPOSIT CHEQUES AND CASH, REQUEST FOR A BANK STATEMENT,
CHEQUE-BOOK OR MINI-STATEMENT AND CHECK BALANCES.
 Inte rnational debit card: Use the international debit card to make purchases at 3, 50,000
merchant establishments in India and at 26 million across the world. Withdraw cash from
over 23,500 HSBC/Visa/Plus ATMs in India and from over 1 million VISA ATMs across
the world.
 Credit card: Get an HSBC credit card that lets you access your Savings Account at
HSBC ATMs worldwide. Perform banking transactions like cash withdrawals, balance
inquiries and transfer of funds. customer can also withdraw cash from their HSBC Current
/ Savings Account at any of VISA / MasterCard ATMs worldwide.
 Special relationship discounts: HSBC customers (for 6 months or more) are entitled to a
0.5% discount on the upfront processing fee for Home loans and Personal/Professional
loans and on the annual service charges for Asset Link.
 Maintain a quarterly average balance of Rs. 25,000

Service charges and fees:

Eligibility Service Charges

Minimum Average Quarterly Balance (AQB) INR 750 per quarter for non maintenance of
of INR 25,000 for Resident Savings Account AQB
Minimum AQB of INR 25,000 for Non-
Resident Savings (NRE)
Minimum AQB of INR 10,000 for NRO
Savings Account

Services Service Charges and Fees

Account not operated for more than 2 years INR 150 per quarter

Cheque Book Facility Free

21
Issue of Pass Book or Statement Free

Issue of duplicate Pass Book or Statement INR 100 per statement cycle
(For PVA / Premier - Monthly Composite
Statement)
(For Savings Account - Quarterly Account
Statement)

ATM Cards Free

Stop Payment INR 100

Balance Enquiry at HSBC branches and ATMs Free


in India

Account Closure INR 500 (if closed in less than 6 months of


account opening)

Cheque Return - Inward (Cheque Received) INR 275

Signature Verification INR 50

RTGS transfers outside of Internet Banking INR 250

Reorder of cheque book (if minimum balance Savings Account: INR 100
is not maintained) Power Vantage Account: INR 250

Standing Instructions# Money Transfers between HSBC accounts:


Free
Money Transfer to Non-HSBC accounts:
INR 100 per instruction for set up
INR 25 per instruction for amendment

Phone Banking Free

Internet Banking Free

Power vantage Plus account (A.Q.B.- Rs. 1,00,000)

FEATURES & BENEFITS:

 A Power Vantage Plus Relationship Manager to assist customer in their banking and
financial planning needs

22
 Personal Financial Review helps customer to evaluate their finances, identify their
current and future financial needs and assist them in drawing up a plan to meet them
 Unlimited free transactions (cash withdrawals and balance enquiries) at 23,500 HSBC
and non - HSBC Visa ATMs in India using Power Vantage debit card
 Dedicated Service Desk and Teller Counters to assist customers with their banking needs,
enabling customers to save time
 Higher cash withdrawal limit of up to Rs. 50,000 and funds transfer up to Rs. 100,000
with Power Vantage debit card, across 23,500 HSBC and non-HSBC Visa ATMs in India
and more than 1 million ATMs overseas
 Use Power Vantage debit card for purchases of up to Rs. 50,000 per day at over 350,000
merchant establishments in India and over 26 million such establishments o verseas
 Free Cheques Payable at Par (CPP) facility in all cities where HSBC has branches,
helping customers save on out-station clearing time and costs
 No-bounce Cheque Protection which means cheques presented through clearing
irrespective of funds available, will be honored (overdrawing of a maximum of Rs.
10,000).
 Monthly Composite Statement giving customers a snapshot of all deposits and loans
 Joining fee waiver and 50% off on the annual fee for credit card.
 Free passbook facility. Passbooks can be co llected from the nearest branch and can be
updated personally with transactions up to three preceding months.

Service charges and fees:

Eligibility Service Charges

Minimum Average Quarterly Balance (AQB) INR 750 per quarter for non maintenance of
(Resident / Non Resident customers) of INR AQB
100,000 in a combination of deposits and loans
(minimum of INR 50,000 in deposits)
OR
Minimum investment of INR 500,000
purchased through HSBC
OR No minimum balance required
Home loan customers

Features / Services Service Charges and Fees

HSBC ATM Cash withdrawal & balance Free


enquiry (India)

Other bank VISA ATM Cash withdrawal & Unlimited Free transactions
balance enquiry (India)

Other bank VISA ATM Cash withdrawal & INR 120 per withdrawal / INR 15 per enquiry

23
balance enquiry (outside India)

HSBC Group ATM transactions (outside India) INR 120 per withdrawal / INR 15 per enquiry

ATM Card (Primary and Add-on) - For NRO's Free


only

Replacement of lost / damaged ATM Card - Free


For NRO's only

Debit Card (Primary and Add-on) INR 150 Annual Fee per card

Replacement of lost / damaged Debit Card INR 100

Credit Card Fees Waiver of Joining Fees


Annual fees 50% off every year for Primary
card
Add-on Card 50% off for 1st year

Discount on Locker rentals 10%

Out-of-pocket expenses# for payments by Charges as applicable


Cashier Orders / DDs / TTs

Cheque Book Facility Free

Issue of Pass Book or Statement Free

Issue of duplicate Pass Book or Statement INR 100 per statement cycle
(For PVA / Premier - Monthly Composite
Statement)
(For Savings Account - Quarterly Account
Statement)

ATM Cards Free

Stop Payment INR 100

Balance Enquiry at HSBC branches and ATMs Free


in India

Account Closure INR 500 (if closed in less than 6 months of


account opening)

24
Cheque Return - Inward (Cheque Received) INR 275

Signature Verification INR 50

RTGS transfers outside of Internet Banking INR 250

Reorder of cheque book (if minimum balance Savings Account: INR 100
is not maintained) Power Vantage Account: INR 250

Standing Instructions# Money Transfers between HSBC accounts:


Free
Money Transfer to Non-HSBC accounts:
INR 100 per instruction for set up
INR 25 per instruction for amendment

Phone Banking Free

Internet Banking Free

HSBC Premier (A.Q.B.- Rs. 25,00,000)

FEATURES & BENEFITS:

 ATM withdrawal limit of Rs 1,00,000


 Premier Relationship Manager to assist customer in their banking and
financial planning needs
 Personal Financial Review helps customer to evaluate their finances,
identify their current and future financial needs and assist them in
drawing up a plan to meet them
 International recognisation and emergency support
 Worldwide online premier banking
 24/7 banking services
 Worldwide ATM network and premier Debit/Credit cards
 Premier customer can view their accounts from anywhere in the world
with the unique Global vies online banking system.
 Emergency cash advance of US$ 2,000 together with the next day card
replacement in the event of loss or theft
 Local HSBC Premier staff offer free and friendly advice on places to go
and things to do while on your international trip.
 Free cheque book
 No DD charges

25
CRITICARE

CritiCare is an illness insurance policy which allows u to nurse yourself back to good
health without financial burdens about the medical expenses. It is a group insurance policy
from TATA-AIG general insurance company ltd providing you with the coverage for a set of
11 critical illness and surgeries. HSBC customers between the ages of 18 to 60 years can
apply and coverage can be availed on renewals until the age o f 64 years.

Advantages of CritiCare
Widest illness coverage : It provides an insurance cover for 11 critical illnesses,
these includes:-

Stroke
Cancer (excluding skin cancer)
Coronary artery bypass surgery
Kidney failure
First heart attack
Major organ transplant
Coma
Major burns
Multiple sclerosis
Paralysis
Total blindness

Provides an insurance benefit cove r, not reimbursement


Second opinion: It is the only policy which offers a unique opportunity to receive a
second opinion on the illness, from an international panel of doctors.
Other advantages

Offers guaranteed acceptance up to the age of 60 years


Easy procedures
The premium paid under CritiCare(up to Rs. 15,000/-) is exempt from income
tax under Sec 80D of Income Tax Act
Coverage & Annual Premium (in Rs.)

Coverage Limit 250000 350000 500000 750000 1000000 1500000


Age In yrs
18-24 962 1347 1925 2887 3850 5775
25-29 1365 1911 2731 4095 5460 8191

26
30-34 1955 2736 3909 5864 7817 11726
35-39 3330 4661 6659 9988 13317 19976
40-44 6089 8525 12178 18267 24356 36534
45-49 10607 14849 21214 31820 42427 63640
50-54 16695 23374 33392 50087 66783 100175
55-59 25339 35474 50676 76015 101353 152029
60-64 38597 54035 77193 115790 154386 231579

Services – HSBC provide

1. Free access to VISA ATMs across the country: Customer can use the HSBC‟S VISA
Electron International debit card to withdraw cash from all VISA Electron ATMs. Cash
withdrawal from these ATMs 4 times a month absolutely free of cost. You would
continue to get unlimited free access to all the 24 hour ATM‟s of HSBC across the
country.
2. Free Cash and Cheque Pickup and delivery: Customer is also given the facility where
he don‟t have to Come to bank. This is the logistic facility in which customer is given
cash and Cheque pick up as well as delivery without any charges according to the
account he hold.
3. Relationship Discounts: On the Interest and Processing fees on lending products are
available for all Eligible customers.
4. Free Investment Advisory: HSBC also provide Free Investment Advisory services, to
ensure that all the customers get maximum returns on the investment and surplus funds.
5. Any Branch Banking: Customer can operate their account from any of the branches that
Standard HSBC Bank have across in the country, irrespective of the branch at which the
account has opened.
6. 365 days and 9.00 AM to 6 P.M Banking: Bank is open 365 days and it is up to 6.00PM,
allowing Customer to conduct banking at a time most convenient to you.
7. HSBC Online: Customer can access all their bank accounts through the Internet from
Anywhere, 24 hrs a day, and 365 days a year. A range of Banking Services is now
available at the click of a mouse – from the comfort of the home or office. It includes:

Transfer of funds between accounts

Requests for Cheque Books


Order for Drafts
Making Fixed Deposits
Paying Credit card bills
Checking transaction details

27
8. Phone Banking: By giving call on easy to remember Phone banking numbers, customer
can now, not only get answers to balance and service queries, but can also access a whole
suite of other banking services over the phone. It includes:

Transfer funds between accounts


Open new fixed deposits
Renew deposits
Request for statements
Request Cheque Books
Balance Certificates
Check transaction history.

9. Pay Orders: Bank issues free pay order to the customer on his demand according to the
account he holds.

MUTUAL FUNDS
A mutual fund is a pool of money, collected from investors, and is invested according to certa in
investment objectives. A mutual fund uses the money collected from the investors to buy those
assets which are specifically permitted by its stated investment objective. The fund‟s assets are
owned by the investors in the same proportion as their contribution bears to the total
contributions of all investors put together.

CHARGES:

The Asset Management Companies (AMCs) managing the Mutual Funds levy a load as a
percentage of NAV at the time of entry into the Schemes or at the time of exiting from the
Schemes.

Entry Load - It is the load charged by the fund when an investor invests into the fund. It
increases the price of the units to more than the NAV and is expressed as a percentage of NAV.

28
Exit Load - It is the load charged by the fund when an investor redeems the units from the fund.
It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV.

Cost of Churning/Turnover cost - It refers to the costs associated with the churning (or
changes made to the holdings) of the portfolio. Portfolio changes have associated costs of
brokerage, custody fees, transaction fees and registration fees, which lower the returns. The
quantum depends on the management style of the fund manager.

Expense Ratio - The Expenses of a mutual fund include management fees and all the fees
associated with the fund's daily operations. Expense Ratio refers to the annual percentage of
fund's assets that is paid out in expenses.

Tax:

Capital Gains Tax- The profit realizations on sale of securities and ce rtain other capital assets
(including units of mutual funds) are called capital gains. The gains can be classified into long-
term or short-term depending on the period of holding of the asset and are charged to tax at
different rates. Gains on mutual fund units held for a period of 12 months or more are long-term
gains. These gains are taxable.

Dividend Distribution Tax – The Mutual Fund schemes distributing dividends on their units to
the investors attract a distribution tax as per tax laws.

Securities Transaction Tax – AMCs managing the portfolio have to pay STT on transaction
(buying/selling) of different securities in the stock market. Presently the tax rate is 0.025%.

There are different statistical parameters available on which a fund may be analyzed. These are:

Standard Deviation
The most basic of all measures- Standard Deviation allows evaluating the volatility of the fund.
Alternatively, it allows measuring the consistency of the returns.
Volatility is often a direct indicator of the risks taken by the fund. The standard deviation of a
fund measures this risk by measuring the degree to which the fund fluctuates in relation to its
mean return, the average return of a fund over a period of time.
A security that is volatile is also considered higher risk because its performance may change
quickly in either direction at any moment.

A fund that has a consistent four-year return of 3%, for example, would have a mean, or average,
of 3%. The standard deviation for this fund would then be zero because the fund's return in any
given year does not differ from its four-year mean of 3%. On the other hand, a fund that in each
of the last four years returned -5%, 17%, 2% and 30% will have a mean return of 11%. The fund
will also exhibit a high standard deviation because each year the return of the fund differs from
the mean return. This fund is therefore more risky because it fluctuates widely between negative
and positive returns within a short period.

Beta (ß)

29
Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility
associated with the fund as compared to the benchmark.

So quite naturally the success of Beta is heavily dependent on the correlation between a fund and
its benchmark. Thus if the fund's portfolio doesn't have a relevant benchmark index then a beta
would be grossly inadequate.

A beta that is greater than one (ß >1) means that the fund is more volatile than the benchmark,
while a beta of less than one (ß <1) means that the fund is less volatile than the index. A fund
with a beta very close to 1 (ß ~1) means the fund's performance closely matches the index or
benchmark.

If, for example, a fund has a beta of 1.03 in relation to the BSE Sensex, the fund has been
moving 3% more than the index. Therefore, if the BSE Sensex increased 10%, the fund would be
expected to increase 10.30%.

Investors expecting the market to be bullish may choose funds exhibiting high betas, which
increase investors' chances of beating the market. If an investor expects the market to be bearish
in the near future, the funds that have betas less than 1 are a good choice because they would be
expected to decline less in value than the index.

R-Square
The success of Beta is dependent on the correlation of a fund to its benchmark or its index. Thus
whilst considering the beta of any security, investors should also consider another statistic- R
squared that measures the Correlation.

The R-squared of a fund advises investors if the beta of a mutual fund is measured against an
appropriate benchmark. Measuring the correlation of a fund's movements to that of an index, R-
squared describes the level of association between the fund's volatility and market risk, or more
specifically, the degree to which a fund's volatility is a result of the day-to-day fluctuations
experienced by the overall market.

R-squared values range between 0 and 1, where 0 represents no correlation and 1 represents full
correlation. If a fund's beta has an R-squared value that is close to 1, the beta of the fund should
be trusted. On the other hand, an R-squared value that is less than 0.5 indicates that the beta is
not particularly useful because the fund is being compared against an inappropriate benchmark.

Alpha
Alpha = (Fund return-Risk free return) - Funds beta *(Benchmark return-risk free return)

Alpha is the difference between the returns one would expect from a fund, given its beta, and the
return it actually produces. An alpha of -1.0 means the fund produced a return 1% higher than its
beta would predict. An alpha of 1.0 means the fund produced a return 1% lower. If a fund returns
more than its beta then it has a positive alpha and if it returns less than it has a negative alpha.
Once the beta of a fund is known, alpha compares the fund's performance to that of the

30
benchmark's risk-adjusted returns. It allows you to ascertain if the fund's returns outperformed
the market's, given the same amount of risk.
The higher a funds risk level, the greater the returns it must generate in order to produce a high
alpha.
Normally one would like to see a positive alpha for all of the funds owned. But a high alpha does
not mean a fund is doing a bad job nor is the vice versa true as alpha measures the out
performance relative to beta. So the limitations that apply to beta would also apply to alpha.
Alpha can be used to directly measure the value added or subtracted by a fund's manager.

The accuracy of an alpha rating depends on two factors:


The assumption that market risk, as measured by beta, is the only risk measure necessary;
The strength of fund's correlation to a chosen benchmark such as the BSE Sensex or the
NIFTY.

Sharpe Ratio
Sharpe Ratio= Fund return in excess of risk free return/ Standard deviation of Fund In case funds
have low correlation with indices or benchmarks, they should be evaluated using the Sharpe
ratio. Since it uses only the Standard Deviation, which measures the volatility of the returns there
is no problem of benchmark correlation. The higher the Sharpe ratio, the better a fund‟s returns
relative to
the amount of risk taken. Sharpe ratios are ideal for comparing funds that have a mixed asset
classes. That is balanced funds that have a component of fixed income offerings.

ADVANTAGES OF INVESTING IN MUTUAL FUNDS:

1. Portfolio diversification-
2. Professional management
3. Reduction in risk
4. Reduction of transaction costs
5. Liquidity
6. Convenience and flexibility

DISADVANTAGES OF INVESTING IN MUTUAL FUNDS:

1. No control over costs: Since investors do not directly, monitor the fund‟s operations they
cannot control the costs effectively. Regulators therefore usually limit the expenses of mutual
funds.
2. No tailor made portfolios: Mutual fund portfolios are created and marketed by AMCs into
which investors invest. They cannot create tailor made portfolios.
3. Managing a portfolio of funds: As the numbers of mutual funds increase, in order to tailor a
portfolio for him, an investor may be holding a portfolio of funds, with the costs of monitoring
them and using them, being incurred by him.

31
TYPES OF MUTUAL FUNDS

 By Structure
Open - Ended Schemes
Close - Ended Schemes
Interval Schemes

 By Investment Objective
Growth Schemes
Income Schemes
Balanced Schemes
Debt Schemes
Money Market Schemes

 Other Schemes
Tax Saving Schemes
Load & No Load Schemes
Special Schemes
 Index Schemes
 Sector Specific Scheme
 Gilt Funds

Open-ended Fund/ Sche me-


An open-ended fund or scheme is one that is available for subscription and repurchase on a
continuous basis. These schemes do not have a fixed maturity period. Investo rs can conveniently
buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis.
The key feature of open-end schemes is liquidity.

Close-ended Fund/ Sche me-


A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open
for subscription only during a specified period at the time of launch of the scheme. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the
units of the scheme on the stock exchanges where the units are listed. In order to provide an exit
route to the investors, some close-ended funds give an option of selling back the units to the
mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that
at least one of the two exit routes is provided to the investor i.e. either repurchase facility or
through listing on stock exchanges. These mutual funds schemes disclose NAV generally on
weekly basis.

Growth / Equity Oriented Sche me-


The aim of growth funds is to provide capital appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus in equities. Such funds have comparatively

32
high risks. These schemes provide different options to the investors like d ividend option, capital
appreciation, etc. and the investors may choose an option depending on their preferences. The
investors must indicate the option in the application form. The mutual funds also allow the
investors to change the options at a later date. Growth schemes are good for investors having a
long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Sche me-


The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity schemes.
These funds are not affected because of fluctuations in equity markets. However, opportunities
of capital appreciation are also limited in such funds. The NAVs of such funds are affected
because of change in interest rates in the country. If the interest rates fall, NAVs of such funds
are likely to increase in the short run and vice versa. Howe ver, long term investors may not
bother about these fluctuations.

Balanced Fund-
The aim of balanced funds is to provide both growth and regular income as such schemes invest
both in equities and fixed income securities in the proportion indicated in their offer documents.
These are appropriate for investors looking for moderate growth. They generally invest 40-60%
in equity and debt instruments. These funds are also affected because of fluctuations in share
prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared
to pure equity funds.

Money Market or Liquid Fund-


These funds are also income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. These schemes invest exclusively in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter-bank call money,
government securities, etc. Returns on these schemes fluctuate much less compared to other
funds. These funds are appropriate for corporate and individual investors as a means to park their
surplus funds for short periods.

Gilt Fund-
These funds invest exclusively in government securities. Government securities have no default
risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic
factors as is the case with income or debt oriented schemes.

Index Funds-
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P
NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage
comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or
fall in the index, though not exactly by the same percentage due to some factors known as
"tracking error" in technical terms. Necessary disclosures in this regard are made in the offer
document of the mutual fund scheme.

Sector Specific Funds/Schemes-

33
These are the funds/schemes which invest in the securities of only those sectors or industries as
specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods
(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of
the respective sectors/industries. While these funds may give higher returns, they are more risky
compared to diversified funds. Investors need to keep a watch on the performance of those
sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

Tax Saving Schemes-


These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act,
1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity
Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax
benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth
opportunities and risks associated are like any equity-oriented scheme.

Fund Of Funds (Fof) Scheme-


A scheme that invests primarily in other schemes of the same mutual fund or o ther mutual funds
is known as a FoF scheme. A FoF scheme enables the investors to achieve greater diversification
through one scheme. It spreads risks across a greater universe.

Load or no-load Fund-


A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one
buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund
for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well
as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and
those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The
investors should take the loads into consideration while making investment as these affect their
yields/returns. However, the investors should also consider the performance track record and
service standards of the mutual fund which are more important. Efficient funds may give higher
returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the
investors can enter the fund/scheme at NAV and no additional charges are payable on purchase
or sale of units.

Systematic Investment Plan from HSBC Mutual fund (HSBC SIP)

A Systematic Investment Plan (SIP) is an investment vehicle that allows you to invest fixed
amounts of money at regular intervals of time (monthly or quarterly) in a mutual fund scheme for
a continuous pre-defined period; just like a recurring deposit account with a bank or a post
office. HSBC SIP allows the investor to invest a fixed amount every month or quarter for
purchasing units of schemes at prevailing NAV based prices. SIP can be activated by giving
post-dated cheques for the duration of the SIP or by using an auto debit facility where a fixed
amount is debited from your bank account on a monthly/quarterly basis.

34
HSBC Mutual Fund offe rs SIP in its following schemes

 HSBC Equity Fund  HSBC Gilt Fund


 HSBC India Opportunities Fund  HSBC Floating Rate Fund
 HSBC Midcap Equity Fund  HSBC Cash Fund
 HSBC Advantage India Fund  HSBC MIP
 HSBC Tax Saver Equity Fund  HSBC Liquid Plus Fund
 HSBC Dynamic Fund  HSBC Income Fund
 HSBC Emerging Markets Fund  HSBC Flexi Debt Fund

HSBC SIP offers the following advantages


1. Inculcates a disciplined investment approach that builds a savings habit: Most people
tend to continually delay their financial planning process. This results in Savings being
postponed to a later date. To break this habit, HSBC SIP offers the facility to invest small
amounts regularly instead of investing large amounts sporadically. HSBC SIP inculcates a
discipline in your investment habits not only by making you invest regularly but also by making
you invest early rather than postponing your investment till the point you accumulate a sizeable
amount.

2. Allows Rupee Cost Averaging, which takes advantage of market volatility: With HSBC
SIP you buy more units when the prices are low and fewer units when the prices are high. This
results in averaging of the cost per unit which may lead to gains arising out of market volatility.

3. Prevents sentiment-driven investments: By making you invest the same amount every
month (or every quarter), the HSBC SIP helps you avoid the common error of investing larger
sums in Bull markets (when the markets are at a high) and smaller sums in Bear markets (when
the markets are at a low).

4. Allows investments in small amounts: With a monthly investment of as little as Rs 1,000/-*,


you can easily include the HSBC SIP within your monthly budget, without altering your
financial plans significantly.

5. Offers convenience in investing: You have the option of directly debiting your bank account
for payments made towards the HSBC SIP.

35
SIP Returns of HSBC Equity Fund (HEF)

If you had invested Rs 10,000 every month in HEF


Rs 1,20,000 over Rs 3,60,000 over Rs 6,00,000 over Rs 6,20,000
the last 1 year the last 3 years the last 5 years since inception
would have grown would have would have would have
to grown to grown to grown to

HEF 1,41,488 6,09,602 17,81,772 19,73,379


35.34% 37.59% 45.33% 46.56%
BSE 1,37,299 5,85,766 14,76,637 15,90,150
200 28.20% 34.51% 37.09% 37.43%

The SIP facility is available in the following schemes of HSBC Mutual Fund. A brief write-
up on the schemes is given below.

HSBC Equity Fund (HEF)

HEF aims to generate long-term capital growth from an actively managed portfolio of equity and
equity related securities. It invests in a diversified range of large and mid-sized companies, with
some exposure to smaller companies.

HSBC India Opportunities Fund (HIOF)

HIOF seeks to generate long-term capital growth through investment across all market
capitalisations including small, mid and large cap stocks. It aims to be predominantly invested in
equity and equity related securities. However, it could move a significant portion of its assets
towards fixed income securities if the Fund Manager becomes negative on equity markets. The
Fund retains the flexibility to invest up to 50 per cent of the portfolio in debt and money market
instruments.

HSBC Midcap Equity Fund (HMEF)

HMEF is an open-ended diversified equity scheme seeking to generate long-term capital growth
from an actively managed portfolio of equity and equity related securities primarily being
midcap stocks. However, it could move a portion of its assets towards fixed income securities if
the Fund Manager becomes cautious or negative on the Indian equity markets.

36
HSBC Advantage India Fund (HAIF)

HAIF is an open-ended, flexi-theme equity scheme that seeks to generate long-term capital
growth by investing primarily in themes that play an important role in, and/or benefit from
India‟s progress and economic development. It will use a flexi-theme approach in selection of
areas in which to invest. The Fund will look to predominantly invest in one or more themes that,
according to the Fund Manager, will drive India‟s growth story at a given point in time. The
Fund Manager will be flexible in changing the theme based on changing market conditions and
economic factors.

HSBC Tax Saver Equity Fund (HTSF)

HTSF is an open-ended equity linked savings scheme (ELSS) that aims to provide long-term
capital appreciation by investing in a diversified portfolio of equity and equity related
instruments of companies across various sectors and market capita lisations while providing Sec
80C benefits. The Fund has a lock- in period of 3 years and may also invest in fixed income
securities.

HSBC Dynamic Fund (HDF)

HDF is an open-ended scheme seeking to capitalize on the potential upside in equity markets,
and yet attempts to limit the downside risk by the active use of money market instruments and
derivatives. The fund aims to normally invest in equity but can react quickly to a negative market
by moving 100% of its assets into money market instruments, fixed income securities and
derivatives with an aim to limit the downside risk, in the event that the fund manager is bearish
on the market. Since inception returns are calculated on Rs 10 invested at inception. Calculations
are based on Growth NAVs. Load, if any, has not been considered for calculation. SIP returns
have been calculated using 3rd of the month. If the 3rd of the month is a non-business day, then
the NAV of the next business day has been considered.

HSBC Eme rging Markets Fund (HEMF)

HEMF is an open-ended scheme seeking to provide long-term capital growth by investing in


emerging economies the world over. The fund would invest both within and outside India, in
equity and equity related instruments, share classes and units/securities issued by overseas
mutual funds or unit trusts. Outside India, the fund would focus on emerging economies such as
Brazil, South Africa, China, Russia, etc. The fund may also invest a limited proportion in
domestic debt and money market instruments.

HSBC MIP (HMIP)

An open-ended Fund. Monthly income is not assured and is subject to availability of


distributable surplus. HMIP, launched in February 2004, seeks to generate reasonable returns
through investments in debt and money market instruments. The secondary objective of this
scheme is to invest in equity and equity related instrument to seek capital appreciation. The Fund
offers two Plans: Regular Plan and Savings Plan. The Regular Plan can have up to 15 percent of

37
the corpus invested in equities while the Savings Plan can have up to 25 per cent invested in
equities. Investors with higher risk-taking ability should opt for the latter and vice versa.

HSBC Income Fund (HIF)

HIF, launched in December 2002, seeks to generate reasonable income through a diversified
portfolio of fixed income securities. The AMC‟s view of interest rate trends and the nature of the
Plans will be reflected in the type and maturities of securities in which the Short Term and
Investment Plans are invested. The Fund may invest in bonds, debentures, short-term instruments
like commercial papers, repos, etc.

HSBC Gilt Fund (HGF)

HGF seeks to generate reasonable returns through investments in Government Securities (G-
Secs) of various maturities.

HSBC Floating Rate Fund (HFRF)

HFRF, launched in November 2004, is an open-ended scheme that seeks to generate reasonable
returns commensurate with prudent risk from a portfolio comprising of floating rate debt
instruments and fixed rate debt instruments swapped for floating rate returns. The Scheme may
also invest in fixed rate money market and debt instruments. The Fund has two Plans - Long-
term and Short-term - and is suitable for investors with different investment horizons.

HSBC Cash Fund (HCF)

A liquid fund, it seeks to generate reasonable returns with a high level of liquidity. Instead of
letting cash, available for short periods of time, remain idle in a bank savings or current account,
by investing in HCF the cash could earn reasonable returns with almost equal liquidity vis-a-vis
a bank account. HCF primarily invests in money market instruments and short-term debt market
instruments, thus facilitating the possibility of speedy conversion back into cash.

HSBC Liquid Plus Fund (HLPF)

HLPF, launched in October 2006, is an open-ended debt scheme that seeks to provide liquidity
and reasonable returns by investing primarily in a mix of short-term debt and money market
instruments. The risk-return profile of HLPF falls between that of a Cash Fund and a short-term
Income Fund. It is suited for an investment horizon of 3-6 months.

HSBC Flexi Debt Fund (HFDF)

HFDF is an open-ended debt scheme, which endeavors to deliver returns through active
investments in debt and money market instruments under all market conditions. It aims to
actively trade duration and credit to generate alpha. The Fund also has aggressive limits as
compared to traditional bond funds.

38
ULIP (UNIT LINKED INSURANCE PLAN)

INTRODUCTION:

A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a life
insurance cover and the premium paid is invested in either debt or equity products or a
combination of the two. In other words, it enables the buyer to secure some protection for his
family in the event of his untimely death and at the same time provides him an opportunity to
earn a return on his premium paid. In the event of the insured person's untimely death, his
nominees would normally receive an amount that is the higher of the sum assured or the value of
the units (investments). To put it simply, ULIP attempts to fulfill investment needs of an investor
with protection/insurance needs of an insurance seeker. It saves the investor/insurance-seeker the
hassles of managing and tracking a portfolio or products.
A ULIP, as the name suggests, is a market-linked insurance plan. The main difference between a
ULIP and other insurance plans is the way in which the premium money is invested. Premium
from, say, an endowment plan, is invested primarily in risk-free instruments like government
securities (govt. secs) and AAA rated corporate paper, while ULIP premiums can be invested in
stock markets in addition to corporate bonds and govt. securities.
ULIPs offer a variety of options to the individual depending on his risk profile. For instance, an
individual with an above-average risk appetite can choose a ULIP option that invests up to 60%
of premium in equities. Likewise, an individual with a lower risk appetite can select a ULIP that
invests up to 20% of premium in equities.

ULIP ADVANTAGES
investments

Sum assured

Flexibility
Advantages of
ULIP over Liquidity
Traditional
Transparency
insurance plans
Tax Benefits

ULIP VS TRADITIONAL INSURANCE PLAN

It wasn't too long back, when the good old endowment plan was the preferred way to insure
oneself against an eventuality and to set aside some savings to meet one's financial objectives.
Then insurance was thrown open to the private sector. The result was the la unch of a wide
variety of insurance plans; including the ULIPs. Two factors were responsible for the advent of
ULIPs on the domestic insurance horizon. First was the arrival of private insurance companies
on the domestic scene. ULIPs were one of the most significant innovations introduced by private
insurers. The other factor that saw investors take to ULIPs was the decline of assured return

39
endowment plans. Of course, the regulator -- IRDA (Insurance and Regulatory Development
Authority) was instrumental in signaling the end of assured return plans.

Today, there is just one insurance plan from LIC (Life Insurance Corporation) -- Komal Jeevan -
- that assures return to the policyholder.

These were the two factors most instrumental in marking the arrival of ULIPs, but another factor
that has helped their cause is a booming stock market. While this now appears as one of the
primary reasons for their popularity, we believe ULIPs have some fundamental positives like
enhanced flexibility and merging of investment and insurance in a single entity that have really
endeared them to individuals.

SUM ASSURED

Perhaps the most fundamental difference between ULIPs and traditional endowment plans is in
the concept of premium and sum assured.

When you want to take a traditional endowment plan, the question your agent will ask you are --
how much insurance cover do you need? Or in other words, what is the sum assured you are
looking for? The premium is calculated based on the number you give your agent.

With a ULIP it works in reverse. When you opt for a ULIP, you will have to answer the question
-- how much premium can you pay?

Depending on the premium amount you state, you are offered a sum assured as a multiple of the
premium. For instance, if you are comfortable paying Rs 10,000 annual premium on your ULIP,
the insurance company will offer you a sum assured of say 5 to 20 times the premium amount.

INVESTMENTS

Traditionally, endowment plans have invested in government securities, corporate bonds and the
money market. They have shirked from investing in the stock markets, although there is a
provision for the same.

However, for some time now, endowment plans have discarded their traditional outlook on
investing and allocate about 10%-15% of monies to stocks. This percentage varies across life
insurance companies.

ULIPs have no such constraints on their choice of investments. They invest across the board in
stocks, government securities, corporate bonds and money market instruments. Of course, within
a ULIP there are options wherein equity investments are capped.

EXPENSES

ULIPs are considered to be very expensive when compared to traditional endowment plans. This
notion is rooted more in perception than reality.

40
Sale of a traditional endowment plan fetches a commission of about 30% (of premium) in the
first year and 60% (of premium) over the first five years. Then there is ongoing commission in
the region of 5%.

Sale of a ULIP fetches a relatively lower commission ranging from as low as 5% to 30% of
premium (depending on the insurance company) in the first 1-3 years. After the initial years, it
stabilizes at 1-3%. Unlike endowment plans, there are no IRDA regulations on ULIP
commissions.

Broadly speaking, ULIP expenses are classified into three major categories:

1) Mortality charges
Mortality expenses are charged by life insurance companies for providing a life cover to the
Individual. The expenses vary with the age, sum assured and sum-at-risk for the individual.
There is a direct relation between the mortality expenses and the abovementioned factors. In a
ULIP, the sum-at-risk is an important reference point for the insurance company. Put simply, the
sum-at-risk is the difference between the sum assured and the investment value the individual's
corpus as on a specified date.

2) Sales and administration expenses


Insurance companies incur these expenses for operational purposes on a regular basis. The
expenses are recovered from the premiums that individuals pay towards their insurance policies.
Agent commissions, sales and marketing expenses and the overhead costs incurred to run the
insurance business on a day-to-day basis are examples of such expenses.

3) Fund manage ment charges (FMC)


These charges are levied by the insurance company to meet the expenses incurred on managing
the ULIP investments. A portion of ULIP premiums are invested in equities, bonds, govt.
securities and money market instruments. Managing these investments incurs a fund
management charge, similar to what mutual funds incur on their investments. FMCs differ across
investment options like aggressive, balanced and debt ULIPs; usually a higher equity option
translates into higher FMC.

Apart from the three expense categories mentioned above, individuals may also have to incur
certain expenses, which are primarily 'optional' in nature- the expenses will be incurred if certain
choices that are made available to individuals are exercised.

a) Switching charges
Individuals are allowed to switch their ULIP options. For example, an individual can switch his
fund money from 100% equities to a balanced portfolio, which has say, 60% equities and 40%
debt. However, the company may charge him a fee for 'switching'. While most life insurance
companies allow a certain number of free switches annually, a switch made over and abo ve this
number is charged.

b) Top-up charges
ULIPs allow individuals to invest a top-up amount. Top-up amount is paid in addition to the

41
premium amount for a particular year. Insurance companies deduct a certain percentage from the
top-up amount as charges. These charges are usually lower than the regular charges that are
deducted from the annual premium.

c) Cancellation charges
Life insurance companies levy cancellation charges if individuals decide to surrender their
policies (usually) before three years. These charges are levied as a percentage of the fund value
on a particular date.

FLEXIBILITY

As we mentioned, one aspect that gives ULIPs an edge over traditional endowment is flexibility.
ULIPs offer a host of options to the individual based on his risk profile.

There are insurance companies that offer as many as five options within a ULIP with the equity
component varying from zero to a maximum of 100%. You can select an option that best fits
your objectives and risk-taking capacity.

Having selected an option, you still have the flexibility to switch to another option. Most
insurance companies allow a number of free 'switches' in a year.

Another innovative feature with ULIPs is the 'top- up' facility. A top-up is a one-time additional
investment in the ULIP over and above the annual premium. This feature works well when you
have a surplus that you are looking to invest in a market- linked avenue, rather than stash away in
a savings account or a fixed deposit.

ULIPs also have a facility that allows you to skip premiums after regular payment in the initial
years. For instance, if you have paid your premiums religiously over the first three years, you can
skip the fourth year's premium. The insurance company will make the necessary adjustments
from your investment surplus to ensure the policy does not lapse.

With traditional endowment, there are no investment options. You select the only option you
have and must remain with it till maturity. There is also no concept of a top-up facility.

Your premium amount cannot be enhanced on a one-time basis and skipped premiums will result
in your policy lapsing.

TRANSPARENCY

ULIPs are also more transparent than traditional endowment plans. Since they are market- linked,
there is a price per unit. This is the net asset value (NAV) that is declared on a daily basis. A
simple calculation can tell you the value of your ULIP investments. Over time you know exactly
how your ULIP has performed.

ULIPs also disclose their portfolios regularly. This gives you an idea of how your mo ney is
being managed. It also tells you whether or not your mutual fund and/or stock investments

42
coincide with your ULIP investments. If they are, then you have the opportunity to do a rethink
on your investment strategy across the board so as to ensure yo u are well diversified across
investment avenues at all times.

With traditional endowment, there is no concept of a NAV. However, insurers do send you an
annual statement of bonus declared during the year, which gives you an idea of how your
insurance plan is performing.

Traditional endowment also does not have the practice of disclosing portfolios. But given that
there are provisions that ensure a large chunk of the endowment portfolio is in high quality
(AAA/sovereign rating) debt paper, disclosure of portfolios is likely to evoke little investor
interest.

LIQUIDITY

Another flexibility that ULIPs offer the individual is liquidity. Since ULIP investments are
NAV-based it is possible to withdraw a portion of your investments before maturity. Of course,
there is an initial lock-in period (3 years) after which the withdrawal is possible.

Traditional endowment has no provision for pre- mature withdrawal. You can surrender your
policy, but you won't get everything you have earned on your policy in terms of premiums paid
and bonuses earned. If you are clear that you will need money at regular intervals then it is
recommended that you opt for money-back endowment.

TAX BENEFITS

Taxation is one area where there is common ground between ULIPs and traditional endowment.
Premiums in ULIPs as well as traditional endowment plans are eligible for tax benefits under
Section 80C subject to a maximum limit of Rs 100,000. On the same lines, monies received on
maturity on ULIPs and traditional endowments are tax- free under Section 10.

ULIP - KEY FEATURES (IN GENERAL):

1. Premiums paid can be single, regular or variable. The payment period too can be regular or
variable. The risk cover can be increased or decreased.

2. As in all insurance policies, the risk charge (mortality rate) varies with age.

3. The maturity benefit is not typically a fixed amount and the maturity period can be advanced
or extended.

4. Investments can be made in gilt funds, balanced funds, money market funds, growth funds or
bonds.

5. The policyholder can switch between schemes, for instance, balanced to debt or gilt to equity,
etc.

43
6. The maturity benefit is the net asset value of the units.

7. The costs in ULIP are higher because there is a life insurance component in it as well, in
addition to the investment component.

8. Insurance companies have the discretion to decide on their investment portfolios.

9. They are simple, clear, and easy to understand.

10. Being transparent the policyholder gets the entire episode on the performance of his fund.

11. Lead to an efficient utilization of capital.

12. ULIP products are exempted from tax and they provide life insurance.

13. Provides capital appreciation.

14. Investor gets an option to choose among debt, balanced and equity funds.

Canara HSBC Oriental Bank of Comme rce Life Insurance Company Ltd

A partnership between two nationalised banks -- Canara Bank and Oriental Bank of Commerce
and HSBC Insurance (Asia Pacific) Holdings Ltd, the Asian insurance arm of HSBC.

The new company, headquartered in Gurgaon, is capitalised at Rs 325 crore ($81 million). The
shareholding pattern of the Joint Venture is as follows - Canara Bank holds 51% equity, HSBC
Insurance (Asia Pacific) Holdings Ltd 26% and Oriental Bank of Commerce 23%. The Venture
has an initial paid up capital of INR 325 crores which will further increase in line with our
expansion plans.

The Company commenced business 16th of June, 2008 after receiving requisite approvals from
the Insurance Regulatory Development Authority (IRDA). The new company has e xclusive
access to the customer bases of both the Public Sector Banks, Canara Bank and Oriental Bank Of
Commerce, and of HSBC in India. This comprises more than 40 million people and Canara
HSBC Life has access to a distribution network of over 4100 branches all over India.

Canara Bank
Canara Bank, established back in 1906, is today one of the largest nationalised banks in India in
terms of aggregate business comprising of deposits and loans. It has an asset size valued at about
US$65.13 billion as at 31 March 2008. 73.17% of the Bank's ownership is with the Government
of India. Known for its strong fundamentals and sound business policies, Canara Bank has the
distinction of posting profits every year since inception. The bank has a network of over 2,678
branches nationwide and 45,000 employees serving more than 32 million customers.

44
Oriental Bank of Comme rce
Oriental Bank of Commerce is the eleventh largest bank in India by assets, which totaled
US$17.15 billion at 31 March 2007. It has 1,380 service outlets throughout India and over
14,700 staff serving its 10 million customers. The India Government owns 51.1% of Oriental
Bank of Commerce.

Individual products

 Canara HSBC Life Unit Linked whole life plan


 Canara HSBC Life Unit Linked Endowment plan
 Canara HSBC Oriental Bank of Commerce Life Unit Linked pension plan
 Canara HSBC Oriental Bank of Commerce Life Unit Linked pay endowment
plan
 Canara HSBC Oriental Bank of Commerce life pure term plan

Group products

 Canara HSBC Oriental Bank of Commerce life group loan protection plan

RETAIL BROKING

HSBC India has decided to acquire retail brokerage house IL&FS Investsmart Ltd in a bid to
foray into retail broking business in the country. The UK banking major, after picking up 73.21%
stake in Investsmart at an investment of $241.6 million, will make an open offer to acquire up to
20% of the remaining shares in the company.

HSBC has made the acquisition through its group subsidiaries, including HSBC Securities and
Capital Markets (India) Pvt Ltd, the group‟s securities arm in India.

IL&FS Investsmart will also be used as a distribution channel for the HSBC‟s asset management
and forthcoming insurance operations. Sandy Flockhart, group MD and CEO, HSBC Asia
Pacific, said, “With over 20 million retail investors, India has the world‟s third largest investor
base and its National and Bombay stock exchanges are respectively the third and fifth largest
stock exchanges globally by transaction volume.” With a market capitalisation of approximately
$300 million, Investsmart is listed on the NSE and the BSE and its global depository shares are
listed on the Luxembourg Stock Exchange.

IL&FS Investsmart Limited (Investsmart)


IL&FS Investsmart Group ("IIL") is one of India's leading financial services organizations.
IIL, through its subsidiaries in India and Singapore, provides a wide range of investment
products to its retail and institutional clients including equity and commodity broking,
investment banking, insurance broking and distribution, mutual funds distribution and related
financing services. IIL's 2,000 employees provide a complete range of investment solutions to
over 138,000 customers in India through its 88 branches and 190 franchisee outlets.

45
WEALTH MANAGEMENT IN RETAIL BANKING
Wealth Management till date has been only known to the consumers as an investment strategy to
reinvest the money earned/acquired to enhance the wealth of the „High Net worth Individuals‟.
These HNWI‟s are the big guns of the market who have high amounts of liquid money available
to them and thus the capacity to invest in the form of Mutual Funds, Insurances, ULIP‟s and Tax
Planning, Overseas Investments, etc. To add to this class of people are the NRI‟s who source in
the foreign currencies to India for their families and investment purpose. The downturn of capital
markets world over has shaken the stocks of even the fundamentally strongest companies. Along
with the situation there exist a cycle of economic slowdown pressurizing higher inflation and
thus lower returns from interest accrued by savings accounts.
Recently a change has been observed in the investors‟ attitude. People are now willing to invest
their wealth for longer periods say eight to ten years and are also planning for all family purposes
at very early age rather than previous trends, where people ended up taking loans for children‟s
education or for their marriage, etc. instead of cashing on the day-to-day returns or the short term
gains. The present economic scenario has pumped the desire of investors to pour in higher assets
for longer durations. The rising inflation rates, lower interest rate accompanied by changing
lifestyles has led to the emergence of new asset classes, and these have been named as the
Alternative Investment Classes.
Investors are also concerned with their funds flow once they retire and this can be mainly
attributed to the fact that Western Culture is also affecting the Indian cultural values. Children
now move away from their parents once they graduate in search of job and to touch the skies,
with their parents once again leading their own lives. Hence the need for retirement planning is
also of major concern with regard to financial planning review. Thus the investments are made in
spheres which can act as decorative items in your house, help build your status symbol and at
later stages of life give you high returns enabling you to maintain the similar lifestyles once
maintained in your society.
The HNWI‟s are now not only exploring newer and unconventional ways to reap out returns
from the market by creation, management and preservation of wealth, but also are becoming
aware of luxury lifestyles, style statement and societal upbringing. With the booming economy,
people are getting high incomes and now not only entrepreneurs are the riches of the society, but,
the blue collared and highly paid salaried people also fall under the same category with high
disposable incomes.
The portfolio management services provided by some of the elite banks in India also include
advisory services to the UHNWI‟s regarding matters like lifestyle, golf courses, estate planning,
vacations, restaurants, post retirement life, etc. However the bracket to which these services are
offered is highly exclusive. HDFC Bank offers these services to people with portfolios of Rs 30
lakhs, while HSBC Bank offers similar services to clients with portfolios of value more than Rs
50 lakhs.
Thus it has become imperative in today‟s world that the Wealth Management Services be
included to Retail Banking, because the banking experience is moving from savings services to
more like reality banking. The days have gone when investments were secluded from banking,

46
and more of were concentrated only in the metro cities of India. Today even the Tier 2 cities
have hundreds of millionaires waiting to be pampered. The trick lies in to get the money out of
the bags of these wealthy people. And thus seems the need to evaluate the platform for
alternative investment classes – this being clubbed under wealth management services. The
alternative investment markets cover the spheres like overseas investments, bullions investments,
forex dealings, estate planning, private equity, social investments, film making & event
sponsorships, wine & lifestyle investments, while for the new to wealthy classes, hedge fund
investments, educational & retirement planning, arts & crafts markets might evoke great interest.

The rise in wealth of people have increased the number of high net worth individuals and this has
made them feel really elite because every bank is now entering into the wealth management
market and in order to capture the larger market share are offering the best of services at very
reasonable prices.
Retail banking which was earlier considered to the domain for savings accounts is now linked
with wealth creation and management. The need for inclusion of wealth management services in
retail banking was felt when it was observed that the money available with the HNWI‟s is not
being monitored in a proper fashion. It is inevitable that such a loss goes unnoticed, because the
main problem lies in the proper management when huge amount of money is involved. Today if
we decide to manufacture a Television at our home it is possible that we might succeed in our
endeavor, but the cost involved would be very high and the s uccess rate of the instrument
operating in a proper condition for longer periods very low. However if we purchase the same
television set from a professional manufacturer who has expertise in this field, the cost would be
extremely low. Moreover the after sales service would ensure that if someday, something goes
wrong, we can approach the concerned personnel regarding our query. Similar is the case with
wealth management.
It is possible that the person, who has created the huge corpus, can manage his investments in the
future too, but then not as efficiently as a person who has been trained in this field and has the
knowledge of all the other avenues also available in the markets. Moreover, if the creator starts
to just sit and monitor his assets grow, when he would work to pile up more and more financial
assets. Thus in order to manage the wealth people today either take up the portfolio management
services wherein the investments involved are very large or approach an agency which
expertise‟s in management of such resources, taking into view the customers short term as well
as long term investment perspectives.
As quoted by the HSBC Australia division – “Wealth management means more than just sticking
to a budget! It helps you plan for the future. You‟ll find yourself in the midst of services that
claim to help you manage your money and provide you with complete wealth management
services. You can find a customized solution for your assets and follow the right avenue to
ensure that you achieve your financial goals. What do you need to do? Just offer the necessary
details on your finances to the wealth management executive. The executive will help you build
your financial plans so you can feel comfortable and be assured that you‟ve mana ged your
wealth in the best way.”
According to Maslow‟s hierarchy theory, every human being has a similar approach towards life
wherein he first tries to fulfill his basic and physical need of food, water, shelter. Then he moves
on to the next stage of family and their basic need. His step by step approach one day takes him

47
to higher levels where he feels to take care of his social status, children‟s education & marriage,
his own retirement. Finally when the final stage arrives, the man has his dreams to be fulfilled
which he might have once taken as a small kid – this is the stage of self elicitation or self
actualization. With this approach comes the true picture why the need of professional wealth
managers was felt in the society. The motive of every individual is not only to live, but to enjoy
his life with all the avenues he has. From ages it has been observed that the practices involved
included collection of gold/jewelry or purchasing land so that it could be disposed off in times of
need, but nobody ever thought of incorporating these asset classes in their portfolios in a proper
amount so as to use these sources efficiently.

Source: http://www.annettfedy.com, http://www.steves.blogharbor.com


As can be seen from the equivalence diagram, every man has first of his basic needs, wants &
desires to be fulfilled which he does so by a basic financial planning.
The pyramid for income level starts at this point wherein is felt the need of life insurance,
medical aid, etc Once these requirements are realized which would take an investor
through his life only then he can think to invest his surplus at the next stage.
To be followed is the wealth preservation, wherein the investors‟ motive is to keep his
realized savings and investments in a planned manner for future use.
With ascending hierarchy comes the desire to invest and reap out the returns from market
fluctuations and enhance his portfolio size.
Now as man moves up in the hierarchy, though he is moving from lower income class to
middle to upper income class of the society, but his risk appetite need to be enhanced too.

48
The Ultra High Net-Worth Individuals sit at the pinnacle of this pyramid wherein they are
ready to sacrifice the short term gains for the long-term returns to be realized from the
speculative investments

ALTERNATIVE INVESTMENT ASSET CLASSES


Investment returns are desired to be yielded at the time when needed most i.e. in case of
emergency, for children‟s purpose, at retirement or when the investor wants to reap out the
results when the market is at a boom. The returns might be planned on the investment avenues
which in turn might be either of short term type or long term investments. Since ages it has been
known to mankind that land and gold are the two long term investments, which can be made
liquid in times of emergency. However in the present scenario, almost all other investment
avenues are of short term, which include investments in Equities, Mutual Fund, Term Deposits
and Commodities, and here too the value is dependent on the market dynamics.
Another class of investment avenues that has categorized as a long term asset investment asset is
relatively free from the market changes and dynamics of trade. The reason being that these asset
classes form a part of hobbies and interest of the individuals who invest in such assets. Moreover
the categories covered under these classes are not even known to many investors and thus only a
handful of people know the real and potential returns that can be generated from investing here.

Source: Bench mark for Alternative Investments – Whitepaper by HSBC A lternative Investment Management

The alternative investment asset classes cover the following under their gamut:

a) Hedge Fund Investments


b) Overseas Investments

49
c) Educational & Retirement Planning
d) Estate Planning
e) Antique Jewelry & Precious Gems
f) Arts & Crafts Market
g) Private Equity
h) Film Making, Event Organizing & Sports Sponsorships
i) Vintage Cars
j) Yachts, Racing Cars, Racing Horses
k) Inflation Protection & Risk Controls
l) Social Investments i.e. CSR (e.g. Donations, Rewards, Gifts, Sponsorship)
Hedge Funds – These are the funds which often seek to offset the potential risk due to market
fluctuations by generally short selling the stocks of some strong fundamental companies in
which the investor trades. They provide a cushion to the capital market trading at a higher risk.
Overseas Investments – These investments are somewhat similar to the International Capital
Market Investments wherein the investor not only floats his GDR/ADR or invest in Samurai
Bonds etc but also ventures into Infrastructure & Development funds. These investments are
generally seen as FDI in form of JV or expansion projects.
Antique Jewelry & Precious Gems – These are the valuable possessions of collectors who are
fond of storing cultural heritage at any expense. The va lue of such possessions over the years,
with depleting cultural resources, increase at a high pace and are highly fetched in the
international resale market.
Arts & Crafts Fund – Once thought to be a piece of attraction in galleries or lobbies, these
pieces have recently been finding place in big auction houses. Another form of art is the Wax
Statues of celebrities who would bank upon the master pieces of appreciation.
Private Equity – Though it is not an easy job to become big business tycoon like the Mallya‟s or
Ambani‟s but still UHNWI‟s are the ones who have a large share holding in big business
establishments and this is by way of private venture wherein a few people are invited to invest in
upcoming business opportunity. The risk involved is high, but returns are generated for years to
come on a regular note.
Film Making, Event Organizing & Sports Sponsors hip – The recent example of this high
class of investment has been the IPL matches wherein each state team was sponsored and backed
by a big name. This helped bring back higher returns for the sponsors and also created an image
for the sport in India which is held for Football Club matches in Europe. Such sponsorships also
enhance the goodwill of the promoter and add to his credit in the long run.
Inflation Protection & Risk Controls – Although this section of investment class is not open to
individual investors, however the financial institutions and governments can definitely invest
surplus into this category of investments for the betterment of society as this helps to lower the
inflation rates prevalent in the country.

50
Social Investments – This category of investment is again for the UHNWI‟s who want to build
upon their personal goodwill. By doing so they are prominently placed on the CSR map and are
known to the masses as well.
The other asset classes though bring returns in the long run, however they help you show up to
the status symbol, rather than bring in immediate money. They form a part of life statement for
the investor and investment in such classes depends on the appetite of the investor whether he
wants to reflect his stature by his hobbies or not.
According to the 2006 Merrill Lynch Analysts report, it is expected that the disposable income in
India would grow from present 2% to 5% over the next 10 years. The estimated share of
financial institutions would grow to 18% over the next 5 years. The wealth management market
currently ticking a 30% plus growth is expected to touch $ 1 trillion and the number of
households under the category of affluent masses and the high- net-worth would also increase
from current 13 million to 42 million over the next 5 years.
Another Merrill Lynch report shows that sports investments attract only 6% of the HNWI
investments. While for the luxury collectibles, the percentage of people who know about these
investment classes, and have bought luxury pieces is over 26% of the HNWI investments
worldwide. This was followed by art at 20% and jewelry with 18% people from the HNWI
population. While the results for UHNWI‟s investments stood at 25% for luxury collectibles,
25% to art and 16% to jewelry. Only handfuls really dare to trade in the Hedge Funds and
Private Equity markets. But on the other hand, the trend as speculated by Merrill Lynch says that
the sudden spurt in HNWI investments in these classes could lead to overvalued products
because the main purpose then would become financial gains rather than passion & interest.
The research carried out resulted in about 9% of the respondents replying that their net
investments would grow by more than 50% of the net investments in the present year, are the
ones who would invest in the alternative investment classes. The reason in such great rise is that
these investments require large chunks of money to be invested. Thus it is indicative of the fact
that people around the world have started to think of lifestyle quotient and long term benefits
from the invaluable art & crafts work.

Source: www.celent.com
Thus it can be seen that with such tremendous growth and people getting to know more about the
alternative investment classes, these would definitely come to limelight as more and more people

51
treasure these invaluable art pieces. As can be seen from the broad spectrum covered under
alternative investment asset classes, not only individuals but also corporations and government
bodies can invest heavily in these areas to control inflation, to control price measures, and the
demand-supply dynamics of the market. Business houses can bank upon their goodwill by
sponsoring sport/cultural events or by investing in film making and also from the social
investments by operating NGO‟s and CSR camps. These in turn would help them to reap out
more benefits from the brand image.
The overall impact can be seen worldwide, however the Indian HNWI‟s are very much unaware
of the strong potential of the Alternative Investment Asset Classes. This fact is brought to light
by some secondary research by industry experts, however to justify this stand I would also
conduct a survey to come up with results indicating towards the awareness of such investment
avenues to the Indian retail investors.

ALTERNATIVE INVESTMENTS – AN AID TO BUILD CORPUS FOR INVESTORS


We have already seen that Alternative Investment Asset Classes are the long term high return
yielding as well as the trend following pattern, this ensures that the class of investment is here to
stay for long. World over people have been appreciating Indian art and overseas investors have
been investing into the India real estate for the past 4-5 years. Thus it surely would help build
high value assets. On the other hand land is not as volatile as capital markets. When we talk of
the art industry, there also the Indian middle class has been craving for unique art as well it has
been fascinated by the modern art. With little care and knowledge one can go for art investments
that would yield similar returns like any other asset class.
Primary reasons to invest in real estate are –
Higher risk adjusted returns as compared to other asset classes
Assured regular income
Capital appreciation
Inflation hedge
Portfolio diversification
On other hand timely and proper retirement planning also helps in a great way. As has been said
by Leon Trotsky that “Old age is the most unexpected of all things that happen to ma n”, so one
should be prepared to face this challenge with all his vigor and strength saved during the early
years. Investments put as retirement option while as saving help support the country economy
and during later years help the investor himself. Lifestyle investments become a good option
here as they can be liquidated as easily as any other liquid asset.
Another age old investment in our country has been Gold. Today the world is not only buying
gold jewelry but is also creating and preserving its wea lth for their younger generations – the
commodity in demand. Even in the present scenario, Gold scrap bought today will fetch higher
returns than its present cost. This can be mainly attributed to the global rise in prices of Bullion
and higher use of jewelry in East Asian countries of lately. Many analysts feel that gold prices
are bound to fall because once they reach a threshold level, the demand in market for gold falls
down and thus it is the right time to sell off gold. As happened in the year 2005, at high inflation

52
rates, gold prices fell and this is similar time as during that year. However, as per some analysts,
gold will remain bullish in times to come and especially when the stock markets are tumbling
down, crude oil and gold will see a surge in the prices and thus if investors are willing to buy
gold they still will see better returns. Now the banks are also showing interest in retail gold
business and vigilant investors will gain from the right investment.
Private Equity is one sphere which has the potential to yield high returns and for all those
budding entrepreneurs who could not start up their own business, no field provides better option
than Venture Capitalist & Private Equity. Even banks and wealth management services have also
included this aspect of wealth creation in their portfolio building exercise. With the right mix of
knowledge and propelling economy the private equity sector makes a good investment move for
development and corpus building. In this sector the presence of business giants make things little
easier in the path for new establishment and thus generate better and continuous return. Some
other features of Private Equity are -
Gain capital for growth
Better returns over a period of time
Benefit from strategic financial advice
Sense of ownership and responsibility
Providing platform for generation of jobs and development of economy
Indian art has always been known and praised for the fineness and richness of its legacy. Today
this sector contributes a large part towards the development of our country‟s economy. Investors
receive exclusive invitations to Art Seminars featuring renowned artists. The latest trends in the
Indian art scene and an art index with the valuation of art available for purchase are made
available by the trading houses and wealth managers. Art investment also provides safe options
for building on corpus because the auction houses and trading companies cannot cheat the
investor because of the trading in white economy. However the investors are warned not to take
art pieces just because the market is hot.
CONSUMER FINANCIAL PROFILING AT HSBC
As has been discussed earlier that HSBC has segregated its customers into three different classes
visually of –
 Mass Market
 Power Vantage Plus
 Premier
The need for consumer financial profiling is felt for the clients who are offered the wealth
management services. These services require a model wherein first of all the needs of the clients
are determined by assessing his income, expenditure, investments and savings, future demands,
his estate planning, planning for his children, his retirement and finally his legacy.
For this purpose Personal Financial Review is used where all the facts, requirements, etc. are
keyed in, the values being on the base present year. Next a deta iled discussion with the client is
carried out so as to he understands what is the purpose of his PFR, and based on his
53
understanding an investment strategy is chalked out. The job of wealth manager is to allocate
resources to the investment classes as discussed with the client. The corpus is then invested
depending on the account position as well as keeping in mind the current market conditions.
Continuous review of the invested portfolio is done by the wealth manager and if any flaws are
found at any stage or it is found that the invested value has lost its market value, a refinement of
the strategy takes place. The clients are time and again updated of their holdings with the bank.
The PFR is a complete need-availability based analysis and takes into acco unt the present
sources of income, number of dependents, household expenditures, children‟s education at
present cost, their marriages and one‟s own retirement requirements at the present cost. Next is
prepared a complete datasheet suggesting the requireme nt patterns depending on by what extent
the corpus is falling short from the future requirements and the avenues available for investment.
Here comes into picture the need of expert relationship manager who can guide the investors
through the correct alternatives for building a balanced and diversified portfolio. The use of a
diversified portfolio is felt at times when the capital markets crash and the high returns get
transformed into losses. And this totally depends on the investor‟s risk taking capability. A
moderate investor would rather go for a lower return rate rather than going into loss. Also the
wealth manager‟s expertise in fields of alternative investment classes count for the portfolio
balancing.
This would enable the bank to assist its customers in a rightful manner and thus help them
achieve their life goals. Thus HSBC would be looked upon as highly esteemed institution for
benefitting from the expertise in fields of investment and wealth management. Taking on the first
mover advantage, these services in India would prove to be immensely helpful for getting to the
larger customer base.
With a view in mind, the consumer financial profiling is done so that the objective of the client is
achieved to garner returns from his investment and the bank a lso has grounds for relationship
building with the customers. The methodology adopted by HSBC, to start a new relationship is
by means of references and word of mouth. Thus in this process the bank develops advocates for
itself who would go out and suggest some of their own relatives and friends to start banking
relationship with HSBC. The bank is already working in the direction of suggesting alternative
investment classes through its monthly magazine „Premier Hues‟ which would definitely work
out wonders in making the Indian HNWI‟s aware of these investment options available.

SURVEY AND RESEARCH


This project was meant to be an entirely secondary data based research. But the facts and figures
indicated that although these alternative investment asset classes are known to HNWI‟s in the
Americas and Europe, but very few people from the developing countries like India are exposed
to this knowledge. Thus in the Indian context the study about alternative investment markets
would not have been complete without a survey of the Indian psyche. To know how the Indian
consumers perceive this class of investments, what is the degree of their knowledge with regard
to this field and whether or not are they ready to shell out money from their pockets, I have
designed a survey to be conducted in the market as well as in online format.
The methodology adopted by wealth managers across the world generally comprise of catering
to all the services of its customers. One such model adopted by Edelweiss Capital is shown

54
below wherein most of the investment avenues present are taken care of. To discuss the
observations of the research, it is essential to know that what opportunities lie for the customers
in fields of asset management and which spheres are the ones that need to be taken care of.

Another research carried out by Celent Technologies covers the aspects for developing a new
Wealth Management platform. Here the respondents were enquired on various problems that the
industry experts feel might pose a problem in the course of development. The answers were
obtained in the format as to whether the problem identified is really a challenge or not.

55
Source: www.celent.com- top challenges in developing WM platform

METHODOLOGY
This is a Financial Profiling survey to know that what the general income and investment
patterns in India are and which products are known to the Indian consumers. This would also tell
us about the period for which Indians generally invest and its correlation with their income
patterns. The main reason for this survey is to see whether the consumers feel that the mentioned
asset classes are really a part of long term investment or not and whether they can be a part of the
organized portfolio for future financial planning. The results of this survey would be computed
by the use of some Business Research techniques and SPSS. The survey questionnaire consists
of some demographic questions to be followed by 9 basic questions. These questions would be
tested on Likert scale as well as on qualitative aspects to get the answers of the respondents.
Initially it was decided that the sample size be taken on a substantial figure and thus 1000 was
the decided figure for number of respondents. However due to time constraints and respondents
inhibition for not disclosing their income status and expenditure levels, the level of 280
successful questionnaires could be only achieved. The main aspects covered on Likert scales are-
Annual Income
Annual Investment
Expected Annual Returns
Frequency of monitoring the Investments
Time Horizon for Expected Returns

56
It is required for the financial profiling, that the respondents must have annual disposable
incomes in excess of INR 25 Lakhs for the HNWI‟s and more than INR 1 Crore for annual
investment in case of UHNWI‟s. These criteria have been set because the kind of investment
asset classes which have been covered deal with huge sums of money and thus would not be
available with a person who earn about INR 1 lakh per month. Also it has been taken care of by
knowing the present scenario for wealth management services preferred by the HNWI‟s &
UHNWI‟s, whether they rely more on the traditional management expertise from Government
Banks with whom they have had banking relations for years, or people have Private
Bankers/Chartered Accountants to manage their wealth. In order to get closest to the result and
risk appetite of HNWI‟s with respect to the Alternative Investment Asset classes, individuals
have been selected who maintain banking relations with ABN AMRO, CITIBANK, HDFC,
HSBC, ICICI, ING VYSYA and STANDARD CHARTERED bank. However the higher
proportion of HSBC customers exists because most of the respondents were HSBC walk-in
customers or the respondents were approached at their premises.

OBSERVATIONS AND FINDINGS


The survey consisted of responses towards Demographic details and Investment patters of 100
customers of Jaipur.
It can also be observed that as the annual disposable incomes increase, individuals are content
with even lower annual returns because in literal terms the increase is of the order of 5-8 lakhs
per year. Thus with annual investment options of the order of INR 25 lakhs, the returns gained
are in the range from 20%- 30%. Of the total respondents 68%, mainly comprising of the HNWI
class, want their return to be of the order of monthly 2%-2.5% and thus they are willing to invest
more in the Bullions and Real Estate. On the other hand, higher returns are expected by people
who can be termed as the „neo-rich‟ class and mainly belong to the service sector. Their
aspirations are to invest money in those asset classes which yield more than 30% annual returns.

ANNUAL INCOME LEVEL

30
NO. OF 20
RESPONDENT 10
0
less than 5 5-10 lakhs 10-20 lakhs 20-50 lakhs more than 50
lakhs lakhs

57
EXPECTED ANNUAL RETURN
40%
37%
35% 34%
30%
25%
20%
15%
12%
10% 10%
7%
5%
0%
less than 5 5-10 lakhs 10-20 lakhs 20-50 lakhs more than
lakhs 50 lakhs

Another aspect that was brought into light by the survey was that people who belonged to higher
age group and were established in their domain for quite long period still preferred to maintain
investment relationship with Government Banks or worked as per the advice of their Chartered
Accountants. On the other hand the younger generation prefers to maintain advisory services
with Private/MNC Banks where they also get other add-on facilities for being esteemed clients of
that particular banking/financial organization.

It is thus now evident that as the income level increases, the annual investment and thus annual
returns also increase, however individuals with very high net worth are not the ones with higher
return expectations. Instead it is the desire of people with lower portfolio values who wish to
enhance their asset size. The survey also indicates that the horizon for people who are investing
in alternate investment classes is somewhere around 10 years, i.e. the investment duration is
considered to be on a long term basis, rather than reaping out benefits from the day-to-day
market fluctuations.
One major aspect that has been observed from this respondent analysis is that people are in the
process of creating wealth and preserving it for their children rather than Tax Planning or
Insurance Planning. This phenomenal change has surfaced due to the impact of Western Culture
on the Indian Society. People are paying the legitimate taxes even though the tax structure in
India is one of the heaviest in Asia, third only after Hong kong and Singapore.

58
As from the survey observations, it can be seen that as the income status of HNWI‟s increase
their desire to move more from conventional investment opportunities to alternative investment
assets increases. The more preferred sections being Overseas Investment, Private Equity,
Bullions Investment and Film Making & Event Sponsorship. Even among these asset classes
Private Equity has been an eye catcher because this attracts almost 55% of the respondents from
all spheres of investor classes.

59
PIE CHART showing various aspects considered for investment and
frequency of respondents

aspect considered for investment


financial s ecurity
s ervice quality
attractive plans

Pies s how counts

This pie chart shows the various aspects that are considered for investment by respondents. 85%
of respondents consider Financial security before making any investment.10% respondents make
investment by looking at attractive plans. While rest looks for service quality.

BAR GRAPH relationship between ULIP and respondent’s age


whether respondent is
20 an existing investor in
ulip or not
yes
no

15
Count

10 20
19
18
17
15

2 2
0
18-25 years 26-45 years 45-60 years above 60
respondent's age

This bar graph shows the number of respondents in various age groups who are existing investor
in ULIP. Only 56% of respondents are existing investors in ULIP. The maximum number of
investors in ULIP is from age group 45-60 years.

60
BAR GRAPH relationship between Fixed deposit and respondent’s age

whether respondent is
25 an existing investor in
Fixed deposit or not
yes
no

20

15
Count

24

10 20
18
16

13

2 2
0
18-25 years 26-45 years 45-60 years above 60
respondent's age

This bar graph shows the number of respondents in various age groups who are existing investor
in Fixed Deposit. Only 51% of respondents are existing investors in FD .The maximum number
of investors in FD is from age group 26-45 years. Therefore HSBC should focus on this age
group for increasing their amount of Fixed Deposits.

61
BAR GRAPH relationship between NSC and respondent’s age

whether respondent is
40 an existing investor in
NSC or not
yes
no

30
Count

20

32

10 20

15 14
10

5
2 2
0
18-25 years 26-45 years 45-60 years above 60
respondent's age

This bar graph shows the number of respondents in various age groups who are existing investor
in NSC. Only 31% of respondents are existing investors in NSC. The maximum number of
investors in NSC is from age group 45-60 years. Therefore HSBC should focus on this age
group for increasing their amount of NSC.

62
BAR GRAPH showing the reason due to which respondent make a choice for
insurance plan
30

20
Count

29

10
19
17

13
12
10

0
company premium benefits term period returns claims credibility charges
how do respondent make a choice for insurance plan

This bar graph shows various factors that respondent consider for making a choice for insurance
plan.29% of respondents give highest priority to “Returns”. 19% of respondents give highest
priority to “Term Period”. Therefore HSBC and TATA AIG must launch such insurance plans
which give maximum returns (i.e. bonus).
It is also observed that as the society is modernizing, people take the guidance from wealth
managers whom they can rely on and get international exposure and the new avenues of
investments. Thus in entirety we can say that the field of Alternative Investment Assets has a
vast potential yet to be discovered and brought to light with the investors.

FUTURE OF ALTERNATIVE INVESTMENTS IN INDIA


The Alternative Investment Assets market is now rushing towards India, after conquering the
field in the Americas, Europe and Australia. Today India stands as one of the largest consumer
market for each and every product available in the market. With the evolving economy there are
buyers of every kind of service while at the same time there are numerous sellers for the same.
As of the present situation, Assets under Management in India are only to the extent of around
30% and this ratio has huge scope to be enhanced. This implies that the situation in India calls
for professionally managed Alternative Investments Assets. As also can be realized that the
younger generation of businessmen, yuppies and service class people are preoccupied with their
jobs, so to get assistance in their portfolio management they are also willing to be charged if
expert advice is provided to them.

63
The main motive of every individual is growth of money or his wealth; however it is not possible
to have a tree or a fountain of wealth. So, people today want to focus towards their main jobs
while they leave the portfolio rebalancing and management act for their wealth managers.
Professionally handled Alternative Investments and an expert team of researchers if employed in
India would not only be beneficial to the financial institutions, but also to the investors. The
reason being, when Indian Art, Antiques, Jewelry and Technology is being appreciated
elsewhere, why not it be available to the people who deserve it first being the first buyers of such
great works of human brains!!!!!!

CHALLENGES AND LIMITATIONS


 The first and biggest challenge for wealth managers before adopting the alternative
investment classes is lack of knowledge and acquaintance about the underlying assets
classes and market tools to the retail investors and thus his inhibition from buying the
assets.
 Another challenge that poses problem will be a cost-effective operational platform for
private banks along with increasing complexity of changing regulations. The transaction
charges would be high in such asset classes and also the money once invested would not
be as liquid because disposal of such assets is not easy.
 Lack of professionalism and competence of the wealth manager, their underdeveloped
expertise, and the clients‟ resistance to change might inhibit the relation to turn fruitful
between the investor and the relationship manager with regard to alternative investment
asset classes.
 Need for a change from the traditional Customer Service Management to Customer
Experience Management. The Client Experience Framework needs to be developed so as
to make the client understand the approach of „managing money with me‟ not „managing
money for me‟.
 Due to time constraint, the study could not be conducted on an extensive research.
 Throughout this time period the study was restricted to secondary analysis only, because
of the realization of unawareness of people for the alternative investment classes.
 The result of the study so far are based on the current market and available research
work, and if need arises this can be changed in the near future.
 The customers need to be made aware of the alternative investment avenues by means of
conducting special seminars and exhibitions for the HNWI‟s by the wealth managers, so
that the bank can take up an initiative in the near future for its existing clients

64
 To reduce the operational costs, banks can segment their clients within the existing gamut
(e.g. emerging affluent, mass affluent, high net worth, mid-tier millionaires and ultra high
net worth) and then service these classes accordingly.
 Special training programs for the wealth managers must be conducted so that they also
get a clear picture of the alternative asset class, how to guide the clients, how to manage
the money and in what avenue to invest in what amounts.
 To overcome the lack of adequate data available with regard to Indian context, it was
decided to rake in the primary research as well, in accordance with the secondary data
available with the industry researchers.

RECOMMENDATIONS FOR HSBC INDIA


 Alternative Investment Classes need to be promoted in India as very little is known to
investors about the existence of the field.

 HSBC has entered into organizing Art exhibitions, which it should not only restrict for its
existing investors, but also for people who are interested in getting expert advice
regarding purchase of these paintings and crafts pieces.

 The existing WMS employed at HSBC Banks deals only with Mutual Funds, but this
should also incorporate Hedge Funds, Bullions and Equities. With the takeover of IL&FS
Investments, this could be made easier by building a common platform for the service
managers at both the ends.

 The current market scenario must be evaluated judiciously and the best can be made out
by employing the expertise in fields of alternative investments.

 As in the case of HSBC Australia, a separate team for researchers can be formulated to
work continuously on Art Management, Bullions Trading and advisory for Antiques and
Gems & Jewelry. Buyback facilities for Bullion trading can also be promoted.

 HSBC Private Equity division must be made to work in tandem with the Bank division,
and unique offers be not presented to a selected few, instead an open offer can be floated
before the Venture Capitalists come into the scene.

 The untapped markets for Social Investments too need to be taken care of by promoting
the importance of Social Networking and the growth aspects associated with it.

65
 The Banks‟ presence must be felt at the esteemed exhibition centers and galleries and for
this impact the Bank need to bank upon the brand value of people by engaging
celebrities.

 HSBC website should be made more attractive and should also provide online portfolio
building prototypes as well as online PFR builder modules. Apart from the regular
services, concierge services can be offered to the Premier clients.

CONCLUSION
The future of wealth management or as can be said the asset management seems to be very
bright. As per some analysts, the market for Ultra High Net-Worth Individuals would almost
double in the next four- five years. The shift from bank saving to mutual funds to hedge funds
and now towards Lifestyle Statement, Art & Antiques‟ Investment avenues will also drive the
growth in upper middle income classes. Accompanied with the demographic changes and
innovation and research by the wealth managers across will lead to an overall demand for the
professional Wealth Management Expertise. An upward movement of income classes leading to
increase in wealth of individuals along with movement of highly active and easy to liquidate
wealth will lead to the overall development of handsome returns for the HNWI‟s.
 This report thus shows that how Wealth Management emerged from a very niche service
to a service required by and offered by all the Retail Banks.
 As indicative of the fact that as the total wealth of a society grows, the economy also
grows and thus the betterment of people in and around takes place, the returns generated
by alternative investment asset classes can build grounds for betterment of economic
conditions of the Indian society as a whole.
 Last but not the least, it is also indicative of the fact that today, not only the MNC Banks
are moving to the field of Alternative Investment Assets but the nationalized Private
Banks are also providing equivalent services. Thus if now HSBC actively takes up
Alternative Investment Asset Classes into consideration while designing the portfolios
and guides its investors about the relatively high returns even during market slumps, the
Bank can bank upon its image and also the customer base – its reason for existence!!!

66
B] ESTIMATION OF BETA DURING BULL AND BEAR PERIOD

The objective of any investor is to maximize the expected returns from his investments,
subjected to various constraints primarily the risk. Return is the motivating force for undertaking
the investment. The importance of return in any investment decision can be traced to the
following factors:
 It enables the investor to compare alternative investments in term of what they have to
offer the investor.
 Measurement of historical return enables the investor to access how well they have done.
 Measurement of historical return also helps in determining future return.

The rate of return is the total return investor receives during the holding period stated as the
percentage of the purchase price of the investment at the beginning of the holding period.
Return and risk go hand in hand in investment. Risk can be defined as the chance that the actual
outcome from an investment will differ from the expected outcome. There is some degree of risk
involved in financial assets in the sense that there is always a chance that the expected return
from the asset will not materialize. These risks, by their nature, can be divided into two main
categories; namely, systematic risk and unsystematic risk.
Non Diversifiable or Systematic Risks are general market conditions that affect large number
of assets (or companies), each to a greater or lesser extent and are sometimes called market risks.
Uncertainties about general economic conditions such as GNP, interest rates, exchange rates,
inflation or unemployment levels are some of the examples of systematic risks. Let us assume
that there is an unanticipated increase in inflation which would affect cost of supplies, wages, the
value of the raw materials and affect the prices of the finished products leading to a fall in the
real purchasing power of the individuals. Forces such as these, which all companies are
susceptible, are the essence of systematic risks. It is not possible to avoid systematic risk because
these types of risks affect the whole economy and which would adversely affect the values of the
financial assets irrespective of the different types of assets in the portfolio. Fluctuations in
corporate earnings have a major influence on the share prices. If a country‟s economy is going
through a rough period, then we can expect a greater risk in the share prices as a whole.

67
Diversifiable or Unsystematic risk is due to factors specific to an industry or a company like
labor unions, product category, research and development, pricing, marketing strategy etc. The
various types of unsystematic risks can be subdivided into several categories depending on the
root causes. Business Risk is where the revenues of the company are insufficient to cover the
fixed cost of the operations. Financial Risk occurs when the revenues are insufficient to co ver
fixed charges such as interest rate payments on debt. Collateral Risk, which refers to the
inadequacy of the claims (security) that a lender may have on a borrower. In the case of a
company going into liquidation, an ordinary shareholder faces a much higher Collateral Risk
than a secured creditor. We can see from the above points that unsystematic risk does not depend
on economic activities and therefore it can be reduced and essentially eliminated by applying a
diversification strategy. This means, if you have a number of assets in your portfolio, and as long
as the unsystematic risk associated with these assets are not correlated (not moving in the same
direction), the positive and negative events should largely cancel out each other.
Portfolio can be described as a group of assets such as shares, debentures, Treasury Bills held by
an investor. Generally, it is said that there should be at least twenty or more different types of
assets in a well-diversified portfolio.
Unsystematic risk is the one that is particular to a single asset or a small group of assets. For
example, if a company discovers a new production technique that will increase production and
reduce costs, then shares of the company will tend to increase. This is a positive event that
results in value addition to the company and events such as mergers with large companies, an
increase in market share, introduction of innovative products are some of the other examples of
positive events.
On the other hand, unanticipated law suits, trade union actions such as strikes, industrial
accidents, large scale frauds by employees or management and similar negative events will tend
to decrease the value of the future cash flows and thereby the share prices. Since such a negative
event is particular only to a single company, the values of the financial assets in the market as a
whole will not be affected.
Suppose you hold shares of only one company, and then the value of that share would fluctuate
because of positive and negative company-specific events. But if you held a large portfolio, some
of the shares in the portfolio will go up because of positive company specific events and some
will go down in value because of negative events. The net effect on the overall portfolio will be
relatively small, as these effects tend to cancel out each other. The principle of diversification
says that spreading an investment across various assets will eliminate some of the risks
(unsystematic) and there is a minimum level of risk that cannot be eliminated by diversifica tion,
i.e.; systematic risk. Since systematic risk affects almost all assets in the economy to some
degree, even in a well- diversified portfolio, that portion of the risk will still exist.
Total Risk= Diversifiable risk +Non-Dive rsifiable risk
Non- diversifiable risk or market risk is measured by Beta (ß). Beta measures the relative risk
associated with any individual portfolio as measured in relation to the risk of the market
portfolio. It is calculated by relating the return on the security with the return for the market.

ßj= Non -diversifiable risk of asset or portfolio j


Risk of market portfolio

When using beta, there are a number of issues that one need to be aware of:

68
1) Betas may change through time
2) Betas may be different depending on the direction of the market (i.e. betas may be greater
for down moves in the market rather than up moves)
3) The estimated beta will be biased if the security does not frequently trade
4) The beta is not necessarily a complete measure of risk (you may need multiple betas).

Beta measures the volatility of the portfolio relative to the particular benchmark index. For
example portfolio manager who trade large capitalization equities in India, would most likely
compare the volatility of holdings in their portfolio to a broad based market index such as Sensex
or Nifty. International holdings would need to be compared to other benchmarks. Other market
sectors would use other indices. For fixed income instruments, one would most likely use the
CRISIL Composit Board Index. Beta is most widely used risk management tool by market
professionals.
Beta is easy to interpret. A beta that is greater than one is more volatile than the benchmark
index. A beta that is less than one is less volatile than the benchmark index. For example a beta
of one means that if benchmark index move up or down ten percent, the equity of beta one
should also move ten percent. If the equity has beta of 1.2 it should move up or down 20% in
relation to a10% move by the benchmark index. While those having beta of 0.75 will move up or
down to the extent of 75% of the corresponding market movement. Some equities can have a
negative beta which means that an upward movement of the market will result in the downward
movement of the equity to the degree of beta.
Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected
return of an asset based on its beta and expected market returns. Beta is calculated using
regression analysis, and beta can be thought of as the tendency of a security's ret urns to respond
to swings in the market.
A model that describes the relationship between risk and expected return and that is used in the
pricing of risky securities.

Kj =Rf + βa(Rm -Rf)


where:
Rf = Risk free rate
βa = Beta of the security
Rm = Expected market return
Kj = required rate of return on security

The general idea behind CAPM is that investors need to be compensated in two ways: time value
of money and risk. The time value of money is represented by the risk-free (Rf) rate in the
formula and compensates the investors for placing money in any investment over a period of
time. The other half of the formula represents risk and calculates the amount of compensation the
investor needs for taking on additional risk. This is calculated by taking a risk measure
(beta) that compares the returns of the asset to the market over a period of time and to the market
premium (Rm -rf). The stability of the beta coefficient in the market model over bull and bear
market conditions is therefore of considerable interest since if beta does in fact differ with
market conditions the single beta estimated over an entire period can result in erroneous
conclusions in each case

69
The CAPM says that the expected return of a security or a portfolio equals the rate on a risk- free
security plus a risk premium. If this expected return does not meet or beat the required return,
then the investment should not be undertaken.
The CAPM approach further asserts that the expected return for a security is related only to the
security‟s beta, which is the measure of systematic risk. Unfortunately, financial managers
cannot directly observe beta, but must estimate it. To estimate the beta of a firm, a time-series
regression is often used and requires the financial manager to select both a return interval and an
estimation period.

The CAPM says that the expected return of a security or a portfolio equals the rate on a risk- free
security plus a risk premium. If this expected return does not meet or beat the required return,
then the investment should not be undertaken. The security market line plots the results of the
CAPM for all different risks (betas).

Alpha- Alpha measures risk-adjusted return, or the actual return an equity security provides in
relation to the return you would expect based on its beta. Beta measures the security's volatility
in relation to its benchmark index. If a security's actual return is higher than its beta, the security
has a positive alpha, and if the return is lower it has a negative alpha. For example, if a stock's
beta is 1.5, and its benchmark gained 2%, it would be expected to gain 3% (2% x 1.5 = 0.03, or
3%). If the stock gained 4%, it would have a positive alpha .

Alpha is derived from a in the formula


Ri = a +βRm
which measures the return on a security (Ri) for a given return on the market (Rm) where β is
beta.

Alpha is a measure of risk-adjusted performance. An alpha is usually generated by regressing the


security on the market return. The beta adjusts for the risk (the slope coefficient). The alpha is
the intercept. Example: Suppose the mutual fund has a return of 25%, and the short term intrest
rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose
the beta of the mutual fund is 2.0 (twice as risky as the market). The expected excess return
given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2%.

In the project I have calculated Beta for 50 each LARGE CAP, MID CAP AND SMALL CAP
companies during BULL PERIOD and BEAR PERIOD.

Market capitalization(market cap or capitalized value) is a measurement of corporate or


economic size equal to the share price times the number of shares outstanding of a public
company. As owning stock represents owning the company, including all its assets,
capitalization could represent the public opinion of a company's net worth and is a determining
factor in stock valuation.

Large cap are companies which have a market cap between 10-200 billion US Dollars.

Mid cap have a market share ranging from 2-10 billion dollars. These might not be industry
leaders but are well on their way to becoming one.

70
Small caps are typically new or relatively young companies and have a market cap between 300
million – 2 billion dollars. Small cap do present the possibility of greater capital appreciation but
at the cost of greater risk.

Big companies tend to be less risky than small fries. But smaller companies can ofte n offer more
growth potential. The best idea is probably to have a mix of funds that give you exposure to
large-cap, midsize and small companies.

A Bull market tends to be associated with increasing investor confidence, motivating investors
to buy in anticipation of future price increases and future capital gains.

A Bear market is a phase in the like of a stock market in which the value of most listed shares
of stock falls consistently, as reflected by downward movement of one or more key stock
indexes. It is described as being accompanied by widespread pessimism. Investors anticipating
further losses are often motivated to sell, with negative sentiment feeding on itself in a vicious
circle.

RESEARCH STUDY

RESEARCH OBJECTIVE
Research refers to a search for knowledge. The purpose of research is to discover answers to
questions through the application of scientific procedures. The main aim of research is to find out
the truth which is hidden and which has not been discovered as yet.
Main objectives of my research is to:
 Estimate Beta of stocks for Bull and Bear Period

 On the basis of Alpha and Beta calculated identifying stocks to make good portfolio

METHODOLOGY
In my project I have estimated beta for 2 years which is from 1st January 2007 to 31st January
2009. In this duration Bull Period was from 1 st January 2007 to 14th January 2008 and Bear
period was from 15th January 2008 to 31 st January 2009.
Historical data of closing value of NSE index and closing price of stocks of 50 each companies
of LARGE CAP, MID CAP and SMALL CAP was collected from the NSE‟s website which is
www.nseindia.com. Beta has been calculated for these stocks during the bull period which was
from 1st January 2007 to 14th January 2008 and during bear period which was from 15 th January
2008 to 31st January 2009 using SPSS(Statistical Package for Social Science) package‟s
regression analysis ( Linear Regression). For calculating beta, CAPM Model was used.

Kj =Rf + βa(Rm -Rf)

71
where:
Rf = Risk free rate
βa = Beta of the security
Rm = Expected market return
Kj = required rate of return on security

Per day index return was calculated using closing value of index and then per day risk free rate
of return (which was taken as 6% per annum) was deducted from it (Rm-Rf) (the independent or
X variable). This value was regressed with per day earning of stock(K j) (the dependent or Y
variable), which was calculated using closing price of stock.

The securities return on any day is defined as:

Today’s return= Today‟s price – Yesterday‟s price


Yesterday‟s price

The Market return on any day is defined as:

Today’s market return= Today‟s index – Yesterday‟s index


Yesterday‟s index
Beta levels and their indications

Expected
asset
return
Expected asset for
return for negative
positive market market
Beta Stock Relation to Market return return

below
β>1 Stocks tend to amplify movements of the Market above market market
β=1 Stocks replicate movements of the market. market market
Stocks tend to move in same direction as market, above
0<β<1 but not as far. below market market
β<0 Stocks tend to move in opposite direction to market. negative positive

Few things about β estimation that we must be careful about:


 Daily Returns: We prefer daily returns because it gives us more number of returns and
therefore improves the accuracy of β estimate.
 Period of analysis: Using a longer period gives more data to estimate the beta correctly.
 Exceptional price movement: occasionally, we find that on some specific days, the share
price has recorded exceptional rise or fall of a kind which we do not to reoccur in near

72
future. We may find sometime advantageous to eliminate the returns of these days before
estimating β.

Alpha level and their indication

Alpha Expected Return

alpha > 0 above normal return


alpha < 0 below normal return

Standard errors of alpha and beta. Betas are simply estimates based on a specified number of
observations. Therefore it may useful to have an idea of the extent of the possible error in these
estimates. Statisticians set up a confidence interval of the estimated value plus or minus two
standard errors. Thus if a stock has a beta of .86 and a standard error of .08, the confidence
interval for that stock‟s beta would be .86 plus or minus 2*.08. This indicates that if you state
that the true beta for that stock lies between .70 and 1.02, you have a 95% chance of being right.

For a given estimation period, daily returns provide a smaller standard error of the estimated beta
than do weekly, two-weekly, or monthly returns. Thus, the financial manager should use the
daily return interval to estimate beta because it increases its precision. Shorter estimation period,
two to three years, is more appropriate for financial managers to use when estimating beta with
daily returns .
Estimating alpha and beta using SPSS also gives their significance level. Significance level of
0.05 is considered to be significant i.e. stock has 95% chance of getting beta or Alpha is right. If
it is more than 0.05 we consider it as insignificant.

FINDINGS

Using SPSS following values of beta and alpha were obtained:

LARGE CAP
ALPHA APLHA SIG.
BETA BULL BETA BEAR BULL SIG.LEVEL BEAR LEVEL

RIL 1.066 1.209 0.002 0.003 0.001 0.538


RCOM 1.188 1.412 0 0.619 0 0.734
MARUTI 0.981 0.653 -0.002 0.088 0.001 0.653
LT 1.152 1.042 0.003 0.02 -0.003 0.288
ONGC 1.067 0.889 6.4 0.943 0 0.745
NTPC 0.851 0.958 0.002 0.152 0.002 0.165
TCS 0.702 0.847 -0.002 0.043 0.001 0.725

73
BHEL 1.103 1.0229 0 0.853 0.001 0.437
SAIL 1.536 1.293 0.002 0.14 0.001 0.775
ITC 0.545 0.591 0 0.818 0.001 0.359
RPL 0.909 1.155 0.004 0.014 0 0.805
HDFC 0.917 1.14 0.001 0.315 0.002 0.369
WIPRO 0.854 0.919 0.002 0.047 0.001 0.712
HDFC BANK 1.066 0.975 0.001 0.597 0.001 0.558
TATA STEEL 1.143 1.234 0.001 0.583 -0.001 0.528
TATA MOTOR 0.895 0.999 -0.002 0.051 -0.003 0.131
TATA POWER 1.027 1.078 0.003 0.113 0.001 0.498
SUZLON 1.126 1.765 0.001 0.698 -0.005 0.295
GRASIM 0.702 0.722 0 0.742 -0.001 0.33
GAIL 0.808 0.933 0.002 0.278 0 0.934
ABB 0.798 0.887 -0.002 0.58 -0.001 0.373
SIEMENS 0.991 0.967 0.001 0.474 -0.004 0.118
HCL 0.723 1.052 0.003 0.165 0.001 0.806
RELIANCE CAPITAL 1.143 1.662 0.004 0.012 -0.001 0.567
SUN PHARMA 0.488 0.284 0 0.901 0.001 0.52
M&M 0.896 0.914 -0.002 0.071 0 0.926
PNB 1.098 0.895 0 0.79 0.001 0.45
RANBAXY LABS 0.634 0.653 0 0.473 0 0.899
ACC 0.927 0.697 0.002 0.131 0 0.825
ICICI BANK 1.053 1.492 0 0.718 0.001 0.66
BHARTI AIRTEL 1.075 0.87 -1.2 0.991 0.002 0.247
HERO HONDA
MOTORS 0.419 0.401 0 0.423 0.002 0.11
CIPLA 0.583 0.543 0.001 0.225 0.002 0.22
BPCL 0.585 0.622 0.001 0.649 0.002 0.387
VSNL 1.09 0.963 0 0.823 -0.004 0.59
DR REDDY'S 0.371 0.401 0.001 0.192 -9.01 0.996
MTNL 0.871 0.831 4.9 0.997 0 0.512
GLAXO 0.42 0.267 0 0.506 0.001 0.304
BIOCON 0.491 0.67 0.001 0.516 -0.003 0.227
DABUR 0.394 0.524 -0.001 0.514 0.001 0.569
GVKPIL 0.847 1.11 0.003 0.067 -0.005 0.298
JET AIRWAYS 0.741 1.062 0 0.742 -0.002 0.452
SESA GOA 0.775 0.93 0.003 0.096 -0.003 0.495
TECH MAHINDRA 0.735 0.944 0.003 0.073 -0.002 0.336

AVERAGE BETA 0.85877273 0.91995227

74
If we look at alpha of all the stocks we will see either the alpha value is not significant or if it is,
then it is almost 0. So for determining the suitable stock we will consider beta of the stock.
From the SPSS result we can find that following stocks have beta more than 1 during bull period,
so investing in these stocks during bull period would give return more than the market return-
RIL, RCOM, Maruti, L&T, ONGC, BHEL, SAIL, HDFC Bank, Tata Steel, Tata Power, Suzlon
Energy, Reliance Capital, PNB, ICICI Bank, Bharti Airtel, VSNL.
Out of these stocks RIL, RCOM, L&T, BHEL, SAIL, Tata Steel, Tata Power, Suzlon Energy,
Reliance Capital, ICICI Bank have beta more than 1 during bear period. This means when the
market falls these stocks fall more than the market. Whereas Maruti, ONGC, PNB, VSNL,
Bharti Airtel have beta less than 1, which means they will fall less as compared to market. These
stocks can be considered in the portfolio because they have high beta during bull period and low
beta during bear period, which means they will give better return when the market is rising and
will fall less when the market is falling, hence they are considered appropriate for portfolio.
Stocks like ITC, Sun Pharma, Ranbaxy Laboratories, ACC, Hero Honda Motors, Cipla and
Glaxo have beta less than one during both bull and bear period. This means these stocks are less
risky and give less return than the market.

MID CAP
BETA ALPHA SIG. ALPHA SIG.
BULL BETA BEAR BULL LEVEL BEAR LEVEL
RNRL 1.212 1.62 0.008 0.003 0.001 0.77
TATA TEA 0.617 0.512 5.7 0.965 0 0.782
ROLTA 0.797 1.113 0.003 0.109 -0.003 0.407
DIVI SLAB 0.956 0.847 -9.9 0.978 0 0.826
PUNJLLOYD 1.255 1.272 0 0.778 -0.002 0.341
TTML 1.157 1.044 0.003 0.11 0 0.906
IVRCLINFRA 1.429 1.477 0 0.738 0 0.963
MPHASIS 0.75 0.735 -0.001 0.448 0.001 0.812
BOMBAY DYEING 1.203 1.434 0 0.715 -0.002 0.491
GESHIP 0.658 1.111 0.003 0.072 0 0.941
APIL 1.12 1.03 0.002 0.288 -0.002 0.324
LITL 1.245 1.682 0.003 0.176 0 0.886
TATA CHEM 0.538 1.009 0.001 0.242 0 0.851
BAJAJHIND 0.837 1.397 0.001 0.671 0 0.799
STERLINBIO 0.704 0.446 -0.002 0.268 0.002 0.316
TITAN INDUSTRIES 0.955 1.382 0.001 0.447 0.032 0.22
SINTEX 0.552 0.853 0.003 0.068 -0.002 0.424
LUPIN 0.643 0.52 0 0.49 0.002 0.314

75
TVS 0.864 0.918 -0.002 0.32 -0.002 0.337
INDIA CEMENT 1.129 0.982 0 0.626 0 0.915
HCC 1.271 1.336 0 0.835 -0.001 0.611
NAGARCONSTRACT 1.355 1.301 0 0.949 -0.002 0.421
BEML 0.803 0.64 0.001 0.609 -0.004 0.014
AMTEK AUTO 0.58 0.762 0 0.833 -0.005 0.04
VOLTAS 1.062 0.993 0.002 0.343 -0.003 0.141
ASHOK LEYLAND 0.848 0.823 0 0.643 -0.002 0.266
MATRIX LABS 0.648 0.957 0 0.772 0 0.935
SYNDI BANK 1.015 0.754 0.001 0.681 8 0.958
CESC 0.997 0.833 0.002 0.302 0 0.672
PETRONET 0.834 1.048 0.002 0.156 0 0.795
MOSERBESR 0.873 1.225 0 0.689 -0.001 0.673
AUROPHARM 0.474 0.75 -0.002 0.033 -0.001 0.635
VIJAYA BANK 1.035 0.843 0.001 0.429 -0.001 0.433
ALBK 0.87 0.81 0 0.77 0 0.581
PRAJIND 1.128 1.434 0 0.913 0 0.948
ANDHRABANK 0.763 0.842 0 0.86 0 0.93
ANSALINFRA 0.9 1.518 -0.003 0.284 -0.004 0.13
MAHSEAMLES 0.827 0.909 0 0.756 -0.002 0.138
SCI 0.976 0.861 0.002 0.378 -0.002 0.463
HOTEL LEELA 0.672 0.831 0 0.841 -0.002 0.288
PATEL ENG 0.961 1.092 0.002 0.292 -0.003 0.151
J&K BANK 0.398 0.547 0.001 0.549 -0.002 0.118
CORP BANK 0.886 0.647 -9.68 0.952 -0.001 0.518
CHENNPETRO 0.571 0.771 0.002 0.332 -0.002 0.282
WOCK PHARMA 0.439 0.685 6.4 0.951 -0.003 0.076
PENINLAND 1.105 1.532 -0.003 0.361 -0.001 0.606
KESORAMIND 0.965 0.772 -0.001 0.508 -0.003 0.076

AVERAGE BETA 0.891 0.99787234

If we look at alpha of all the stocks we will see either the alpha value is not significant or if it is,
then it is almost 0. So for determining the suitable stock we will consider beta of the stock.
Stocks such as RNRL, Punj Lloyd, TTML, IVRCL INFRA, APIL, LITL, India Cement, HCC,
Nagar Const, Voltas, Syndicate bank, Vijya Bank and Peninland have beta greater than 1 during
bull period. Hence these stocks give more return as compared to market.
Out of these stocks RNRL, Punj Lloyd, TTML, IVRCL INFRA, APIL, LITL, HCC, Nagar Const
and Peninland have beta more than 1 during bull period. Thus these stocks have high risk and
high return. When market rises they give return more than market and when market falls they fall
more than market.

76
Stocks like ROLTA, Tata Chemicals, Bajaj Hind, Titan Industries, Petronet, Mosear Bear, Ansal
Infra have beta less than one during bull period and more than one during bear period. This
means when market rises they rise less than the market and when market falls they fall more than
the market. Hence it is recommended not to include these stocks in our portfolio.
Tata Tea, Sterlin Bio, Lupin have beta less than 1 during both bull and bear period. This means
these stocks have low risk and low returns. These can be included in our portfolio to lower the
risk.

SMALL CAP
BETA ALPHA SIG. ALPHA SIG.
BETA BULL BEAR BULL LEVEL BEAR LEVEL
3i INFOTECH 0.528 1.001 -0.001 0.648 -0.002 0.386
BALAJI TELE 0.714 0.566 0.003 0.149 -0.005 0.02
ASIAN HOTEL 0.149 0.576 -6.41 0.958 -0.003 0.389
CINEMAX IND 0.947 0.691 -0.001 0.591 -0.003 0.164
DCW LTD 1.044 0.743 0.004 0.11 -0.003 0.235
EICHER MOTOR 0.752 0.805 0 0.762 0.001 0.669
ELGI EQUIP 0.364 0.417 0.001 0.599 -0.002 0.284
ESAB INDIA 0.436 0.37 0.001 0.636 -0.001 0.38
ESCORT LTD 1.209 1.205 0 0.879 0 0.637
ESS DEE ALUM 0.58 0.649 0.004 0.068 -0.004 0.098
FINOLEX CABLE 0.73 0.636 -0.004 0.305 -0.004 0.015
FAG BEARINGS 0.358 0.336 0 687 -0.002 0.247
GARDEN SILK 0.506 0.806 0.002 0.028 -0.001 0.618
GATI 0.371 0.86 0.002 0.329 -0.002 0.272
GODAWARI POWER 0.982 0.971 0.004 0.062 -0.003 0.155
HANUNG TOYS 1.059 0.91 0.002 0.035 -0.004 0.107
HEXAWARE LTD 0.352 0.67 -0.004 0.041 -0.003 0.194
HIKAL LTD 0.492 0.468 0.001 0.722 -0.022 0.288

77
INFO MEDIA 0.704 0.742 0.001 0.465 -0.002 0.345
ITI LTD 1 0.724 0.001 0.726 -0.003 0.165
LLOYD STEEL 0.817 0.53 0.004 0.062 -0.005 0.042
MASTEK 0.45 0.551 -0.001 0.524 0 0.699
MUKTA ARTS LTD 0.965 0.622 0.005 0.06 -0.003 0.171
MYSORE CEMENT
LTD 0.888 0.755 -0.002 0.35 -0.002 0.258
NDTV LTD 1.167 0.787 0.001 0.51 -0.004 0.105
OCL INDIA LTD 0.893 0.932 0.002 0.45 -0.003 0.258
HOPFL 0.567 0.801 -0.002 0.257 -0.004 0.129
PREMIER LTD 0.692 0.555 0.006 0.006 -0.004 0.115
PVR LTD 0.571 0.617 0.001 0.714 -0.002 0.285
RAMCO INDUSTRIES 0.456 0.564 0 0.833 -0.003 0.279
RAYMOND
INDUSTRIES 0.452 0.586 0 0.755 -0.004 0.045
SHOPPERS STOP 0.46 0.365 -0.002 0.138 -0.004 0.034
TATA SPONGE IRON
LTD 0.834 0.848 0.003 0.086 0 0.931
BSEL INFRA 0.94 0.937 0 0.9093 -0.005 0.032
ROHIT FERRO 0.8 0.741 0.004 0.085 -0.003 0.2

AVERAGE BETA 0.69465714 0.6953429

If we look at alpha of all the stocks we will see either the alpha value is not significant or if it is,
then it is almost 0. So for determining the suitable stock we will consider beta of the stock.

DCW Ltd, Escort Ltd, Hanyung Toys and NDTV Ltd have beta more than 1 during bull period.
Out of these stocks Escort Ltd. Have beta more than 1 during bear period, which means it falls
more than market. The remaining 3 stocks have beta less than 1 during bear period. Thus these
stocks rise more than the market and fall less than the market hence it is suitable to include them
in our portfolio.

ITI Ltd has beta of 1 during bull period, which means it gives the same return as that of market.
And has beta less than 1 during bear period, which indicates that it falls less than market when
market falls. This stock can be included in our portfolio.

The remaining stocks have beta less than 1 during bull period which indicates that they give less
return than the market when market is rising.

78
B
E
T
A
B
E
T
A

0.2
0.6
1.4
1.8

0.4
0.8
1.2
1.6

0
1
0.2
0.6
0.8
1.2
1.6

0.4
1.4

0
1
RIL RIL
MARUTI MARUTI
ONGC ONGC
TCS TCS
SAIL SAIL
RPL
RPL
WIPRO
WIPRO
TATA STEEL
TATA STEEL
TATA POWER
TATA POWER
GRASIM

79
GRASIM
ABB
ABB
HCL

STOCK
HCL

STOCK
SUN PHARMA
LARGE CAP BETA

SUN PHARMA
PNB

BETA BEAR PERIOD


PNB
BETA BULL PERIOD

ACC
ACC
BHARTI AIRTEL
CIPLA BHARTI AIRTEL
SNAPSHOT OF BETA CALCULATION

VSNL CIPLA

MTNL VSNL

BIOCON MTNL

GVKPIL BIOCON
SESA GOA GVKPIL
SESA GOA
B
E
T

B
E
T
A

A
0.2
0.4
0.8
1.2
1.4
1

0
0.6
1.6

0.2
0.4
0.8
1.4
1.6
1.8

0.6
1.2
1

0
RNRL RNRL
ROLTA ROLTA
PUNJLLOYD PUNJLLOYD
IVRCLINFRA IVRCLINFRA
BOMBAY DYEING BOMBAY DYEING
APIL APIL
TATA CHEM TATA CHEM
STERLINBIO STERLINBIO
SINTEX SINTEX
TVS TVS

80
HCC HCC
BEML BEML
MID CAP BETA

STOCK
VOLTAS

STOCK
VOLTAS
MATRIX LABS MATRIX LABS
CESC CESC
MOSERBESR MOSERBESR
VIJAYA BANK VIJAYA BANK
BETA DURING BULL PERIOD

BETA DURING BEAR PERIOD


PRAJIND PRAJIND

ANSALINFRA ANSALINFRA

SCI SCI

PATEL ENG PATEL ENG

CORP BANK CORP BANK

WOCK PHARMA WOCK PHARMA

KESORAMIND KESORAMIND
SMALL CAP BETA

BETA DURING BULL PERIOD


1.4
B 1.2
1
E 0.8
T 0.6
0.4
A 0.2
0

STOCK

BETA DURING BEAR PERIOD


1.4
1.2
B 1
E 0.8
T 0.6
A 0.4
0.2
0

STOCK

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ANNEXURE

ANNEXURE 1

QUESTIONNAIRE

This survey is to assess investment pattern. Please answer to the best of your knowledge.
Confidentiality of the information should be maintained.
Personal information

Name:
Address:

Mobile/ Tel. no:


E-mail id:

General information (Profile based)

What is your age (in years)?


a )18-25 b)26-45
c) 45-60 d)Above 60
What is your Educational Qualification?
a) Under Graduate c) Graduate
b) Post Graduate d) Technical/Professional degree

What is your Marital status?


a) Married b) Unmarried
What is your occupation?
a) Professional /Self employed
b) Service

c) Entrepreneur

d) Any other (specify)

Ideally you fall in which income slab?


a) Below 5 lakh

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b) 5 lakh – 10 lakh

c) 10 lakh –20 lakh


d) 20 lakh -50 lakh

e) Above 50 lakh

Investment behavior information

How often do you invest?


i) Monthly ii) Quarterly iii) Half-yearly iv)Annually
What are your reasons for making investments? Tick as applicable,
Child’s Education Planning
Child’s Marriage Planning
Retirement Planning
Contingency Planning
Property Planning
Tax Planning

What are your annual return expectation


a) Below 5 lakh

b) 5 lakh – 10 lakh
c) 10 lakh –20 lakh

d) 20 lakh -50 lakh

e) Above 50 lakh
What aspects you consider for investment?

a) Financial Security
b) Attractive plan
c) Service quality

You prefer to invest through,


a) Self
b) Bank
c) Personal Relationship Manager
d) Financial Planner

. In which investment avenues have you already invested?


□ ULIP'S □ Fixed deposit
□ NSC'S □ PPF'S
□ Savings account

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Please mention the time frame for which you are comfortable investing your money.
□ 12 months □ 2-3 years
□ 5-10 years □ More than 10 years

How do you make a choice for your insurance plan?

a) Company
b) ULIP or Traditional Plan
c) Premium Benefits
d) Term Period
e) Returns
f) Claims Credibility
g) Charges

Please rank your top 3 investments out of 6 choices given below,

Investments Risk Return Rank

Equities(shares/stocks) high high

Real Estate low high

Insurance(life/ non-life) low high

Mutual Funds medium medium

Bank Deposits, PDFs, SIP low medium

Govt. bonds/ securities low low

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ANNEXURE 2

SPSS REGRESSION ANALYSIS SNAP SHOT

REGRESSION
/MISSING LISTWISE
/STATISTICS COEFF OUTS R ANOVA
/CRITERIA=PIN(.05) POUT(.10)
/NOORIGIN
/DEPENDENT ABB

/METHOD=ENTER NSE.

Regression

Coefficients a

Standardized
Unstandardized Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) -.002 .003 -.554 .580

NSE .798 .203 .238 3.922 .000

a. Dependent Variable: ABB

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REFERENCES

1. http://en.wikipedia.org/wiki/wealth_management
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4. www.investopedia.com
5. http://en.wkipedia.org/wiki/Market_capitalization#Categorisation_of_companies_by_capitali
zation
6. http://en.wkipedia.org/wiki/Beta_(finance)
7. www.nseindia.com
8. www.bseindia.com
9. http://www.sirca.org.au/Papers/1997001.pdf
10. http://www.eurojournals.com/jmib1%20cunado.pdf
11. http://ideas.repec.org/a/ags/sojoae/30276.html
12. http://www.articlesbase.com/investing-articles/understanding-risk-536756.html
13. http://rfs.oxfordjournals.org/cgi/content/abstract/5/1/1
14. www.hsbc.com
15. www.hsbc.co.in
16. www.investment.hsbc.com
17. www.personalfinancewindow.com
18. http://www.insurancebroker.hsbc.com/hsbc/hibl
19. http://www.insurance.asiapacific.hsbc.com/1/2/inah/home
20. http://hsbcril.com
21. www.edelcap.com/pcs
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