Wealth

Management

Prof. Shashank Divekar

 WEALTH MANAGEMENT

What is WEALTH?

Wealth measures the value of all the assets of worth

owned by a person, community, company or country.

‘Assets’ are a mix of various tangible and intangible

things that add economic value to any individual or
institution.

Wealth is expressed in a variety of ways. For individuals,

net worth is the most common expression of wealth,
while countries measure by gross domestic product
(GDP), or GDP per capita.
 WEALTH MANAGEMENT
What is Wealth Management?

The term Wealth Management refers to a professional

investment and advisory service that offers financial
planning, investment management and other types of
specialized financial advice.

Wealth management combines both financial planning and

specialized financial services, including personal retail
banking services, estate planning, legal and tax advice, and
investment management services.

The objective of wealth management is to sustain and grow

long-term wealth. It essentially means creation and
administration of wealth, to meet individual goals and the
goals of the family.
 WEALTH MANAGEMENT
World Wealth – Key Statistics (IMF 2016-17)
Top 10 GDP (US$ Bn) Top 10 GDP (US$) Per Capita
1. China (23,194) 1. Luxembourg (103,199)
2. EU (20,852) 2. Switzerland (79,242)
3. United States (19,417) 3. Macau (67,079)
4. India (9,489) 4. Ireland (62,562)
5. Japan (5,420) 5. Qatar (60,787)
6. Germany (4,134) 6. Iceland (59,629)
7. Russia (3,938) 7. United States (57,436)
8. Indonesia (3,257) 8. Denmark (53,744)
9. United Kingdom (2,905) 9. Singapore (52,961)
10. Brazil (3,216) 10. Australia (51,850)
 WEALTH MANAGEMENT
World Wealth Report 2016 : Important Findings
1. In 2016, the total global wealth has risen by US$ 3.5 Trn
to US$ 256 Trn. (Credit Suisse Wealth Report 2016)

2. With US$ 17.4 trillion in HNWI wealth, Asia-Pacific

surpassed North America for the first time to become the
region with the largest amount of both HNWI wealth and
population globally.

3. Globally the total wealth held by HNWIs in 2016 is US$

58.7 Trn. By 2025, this is expected to reach US$ 100
trillion primarily propelled by the Asia-Pacific region.

4. From 2006 to 2015, Asia-Pacific doubled its HNWI

population and wealth.
Contd..
 WEALTH MANAGEMENT
World Wealth Report 2016 : Important Findings Contd..
5. Wealth owned by world’s eight richest individuals is
equal to that held by the poorest half of the globe’s
population.

6. The top 1 per cent of India’s population owns 58.4 per

cent of the country’s wealth, as per the Global Wealth
Databook 2016 released by Credit Suisse Research
Institute.

7. According to the 11th edition of the Wealth Report 2017

that tracks the growing super-rich population in 125
cities across 89 countries, India has 2 per cent of world’s
millionaires (13.6 million) and 5 per cent of 2,024
billionaires across the world. (Source: The Hindu
Businessline) Contd..
 WEALTH MANAGEMENT
World Wealth Report 2016 : Important Findings Contd..

8. The country has witnessed a 12 per cent increase in

UHNWI between 2015 and 2016 and is expected to grow
at 150 per cent in the next decade. (Source: The Hindu
Businessline)

9. In the last 10 years, India saw addition of around 500

UHNWI annually and over the next decade the number is
expected to reach 1,000. (Source: The Hindu Businessline)

10. India, the world's top gold consumer, is in 10th position

among the top countries that hold the most gold in their
central banks.
Contd..
 WEALTH MANAGEMENT
World Wealth Report 2016 : Important Findings Contd..

11. RBI holds approx. 558 Tonnes of gold in its reserves.

12. In 2011, Australian investment bank Macquarie

estimated that 78% of India’s household savings were
held in gold.

13. In 2012 the World Gold Council estimated that Indian

household gold reserves stood at almost 20,000 Tonnes.

14. Gold and real estate together form nearly 92% of the
physical wealth in India.
WEALTH MANAGEMENT

Source: Credit Suisse Global Wealth Databook 2016

 WEALTH MANAGEMENT

Financial Planning :

A financial plan is a comprehensive evaluation of an investor's

current and future financial state by using currently known
variables to predict future cash flows, asset values and
withdrawal plans.

A key aspect of financial planning is to ensure that one has

adequate money available to meet one’s financial goals at
various stages in life. Financial planning is the process of
meeting life goals through the proper management of finances.

Financial Planning is process of framing objectives, policies,

procedures, programs and budgets regarding the financial
activities of a concern. This ensures effective and adequate
financial and investment policies.
 WEALTH MANAGEMENT

The importance of Financial Planning can be outlined as :

1. It helps identify future financial requirements.

2. It helps set long and short-term life goals (Buying a house,

children’s education, travel & leisure, marriages, managing
risks etc.)

3. It makes easier to make financial decisions during

emergencies and unforeseen situations.

4. It helps avoid unnecessary expenditure.

5. It helps build a corpus for retirement years.

 WEALTH MANAGEMENT

Difference between Financial Planning & Wealth Management

Financial Planning Wealth Management

1. Deals with day to day 1. Deals with preservation

aspects of planning cash. and increase of wealth.

2. Is passive management of 2. Is active management in

wealth through asset terms of identifying
allocation and risk opportunities and threats
management. and shuffling portfolios.

3. Is primarily used by those 3. Primarily used after

who need money to meet accumulating assets, for
future financial obligations value appreciation.
and build assets.
 WEALTH MANAGEMENT

Difference between Financial Planning & Wealth Management

Financial Planning Wealth Management

4. One does not need existing 4. Needs existing wealth as

source of wealth to a platform or a base upon
undertake financial which further capital or
planning. investment funds are
accumulated.

5. More opted by middle- 5. Used mostly by wealthy

class or lower middle-class
individuals who need
financial advise.
individuals (HNWI) or
elite class of the society
whose objective is to
employ their assets for
value appreciation.
 WEALTH MANAGEMENT
Functions of a Wealth Manager
Wealth management is a combination of personal investment
management, financial advisory, and planning disciplines
directly for the benefit of high-net-worth clients.
a wealth manager helps a client construct an entire investment
portfolio and advises on how to prepare for present and future
financial needs.
The planning function of wealth management often
incorporates tax planning around the investment portfolio, real
estate, risk management as well as philanthropy.
The investment portion of wealth management normally entails
both asset allocation of a whole portfolio as well as the
selection of individual investments.
 ELEMENTS OF WEALTH MANAGEMENT

Risk
Management Tax Planning

Expenditure
Estate Planning Planning

Retirement Education
Planning Planning

Gift/
Succession Philanthropic
Planning Planning
 WEALTH MANAGEMENT
Family Life Cycle
Individuals and families tend to go through a "life cycle:"
The simple life cycle goes from

Young Full Nest

Young Single
Couple I/ II/ III

Empty Nest
I/ II

Older /
Single
 WEALTH MANAGEMENT

Stages of the Family Life Cycle (FLC)

1. Young and single

2. Engaged couples

3. DINKS (Double Income No Kids)

4. SINKS (Single Income No Kids)

5. Married with children: Babies, Toddlers, Elementary
School Age (5-7), Tweens (8-12), Teens (13-19), Older

6. Single parents
7. Empty nester
 WEALTH MANAGEMENT

Asset Class :

An Asset Class is a group of assets that exhibits similar

characteristics, behaves similarly in the marketplace
and is subject to the same laws and regulations.

Each asset class is expected to reflect different risk and

return investment characteristics, and performs
differently in any given market environment.

Financial advisors view investment vehicles as asset

class categories that are used for diversification
purposes.
 WEALTH MANAGEMENT

Various Asset Classes : DEBT

Fixed Deposits
Fixed Maturity Plans

Floating Rate Funds

PPF, EPF, NSC, KVP, NPS,

EPF

Govt. Bonds, Sr. Citizens

Saving Schemes, Infra
Bonds, RBI Bonds

Endowment Policies
 WEALTH MANAGEMENT

Various Asset Classes : EQUITY

DIRECT EQUITY

Mutual Funds (Equity)

Unit-Linked Plans

ETF
 WEALTH MANAGEMENT

Various Asset Classes : REAL ESTATE

RESIDENTIAL (Plots,
Apartments, Bungalows)

COMMERCIAL (Plots,
Buildings)

REIT (Real Estate

Investment Trusts)

REMF (Real Estate Mutual

Funds)
 WEALTH MANAGEMENT

Various Asset Classes : COMMODITIES

PRECIOUS METALS (Gold,

Silver, Platinum etc.)

Other Metals (Copper,

Aluminium, Nickel etc.)

AGRI (Wheat, Corn,

Cotton, Oils, Oilseeds etc.)

SOFT (Coffee, Coco, Sugar

etc.)

Livestock
 WEALTH MANAGEMENT

ASSET ALLOCATION

Asset allocation is an investment function by which an

investor or a portfolio manager decides distribution of the
investible amount across various asset classes, thereby
attempting to balance risk and rewards, according to the risk
tolerance of the investor, his/her goals and the investment
time frame.

The three main asset classes - equities, fixed-income, and

cash and equivalents - have different levels of risk and return,
so each will behave differently over time.

Asset allocation is an important factor that determines the

returns from an investment portfolio.
 WEALTH MANAGEMENT
ASSET ALLOCATION STRATEGIES

1. Strategic Asset Allocation : This method is the traditional

approach to building a portfolio. It establishes and
adheres to a "base policy mix" - a proportional
combination of assets based on expected rates of return
for each asset class. The approach is mostly long-term.

In strategic asset allocation, the target allocations depend

on a number of factors – such as the investor’s risk
tolerance, time horizon and investment objectives – and
may change over time as these parameters change.

The primary goal of strategic asset allocation is to create

an asset mix which will provide an optimum balance
between expected risks and returns for a long-term
investment.
Contd..
 WEALTH MANAGEMENT
ASSET ALLOCATION STRATEGIES

2. Constant-Weighting Asset Allocation : With this approach,

the portfolio is continually rebalanced according to the
shift in the value of assets, so as to avoid a drift from the
initially established policy mix.

Although similar to Strategic asset allocation, this is a

moderately active portfolio management strategy. The
strategy includes readjustment of portfolio in accordance
with performance of assets. Unlike strategic method
where yield required is constant and weights change
accordingly, here weight of assets remains the same
irrespective of the portfolio yield.

Contd..
 WEALTH MANAGEMENT
ASSET ALLOCATION STRATEGIES

3. Tactical Asset Allocation : Tactical asset allocation is an

investment style in which the three primary asset classes
(stocks, bonds and cash) are actively balanced and
adjusted with the intention of maximizing portfolio
returns and minimizing risk compared to a benchmark,
such as an index.

Sometimes it is necessary to occasionally engage in short-

term, tactical deviations from the mix to capitalize on
unusual or exceptional investment opportunities. Tactical
asset allocation is a dynamic investment strategy that
actively adjusts a portfolio's asset allocation. The goal of a
TAA strategy is to improve the risk-adjusted returns of
passive management investing.
Contd..
 WEALTH MANAGEMENT
ASSET ALLOCATION STRATEGIES

4. Dynamic Asset Allocation : Under this strategy, the investor

makes long-term investments in certain asset classes or
securities and periodically buys and sells those securities in
order to keep the allocations in their original proportions.
The mix of assets is constantly adjusted as markets rise and
fall, and as the economy strengthens or weakens.

DAA involves rebalancing a portfolio so as to bring the asset

mix back to its long-term target. Such rebalancing would
generally involve reducing positions in the best-performing
asset class, while adding to positions in underperforming
assets. The general premise of dynamic asset allocation is to
reduce the fluctuation risks and achieve returns that exceed
the target benchmark.
Contd..
 WEALTH MANAGEMENT

ASSET ALLOCATION STRATEGIES

5. Insured Asset Allocation : A base portfolio value is
established, under which the portfolio should not be
allowed to drop. As long as the portfolio achieves a return
above its base, you exercise active management to try to
increase the portfolio value as much as possible.

Insured asset allocation may be suitable for risk-averse

investors who desire a certain level of active portfolio
management but appreciate the security of establishing a
guaranteed floor below which the portfolio is not allowed
to decline.

Contd..
 WEALTH MANAGEMENT

ASSET ALLOCATION STRATEGIES

6. Integrated Asset Allocation : This factors in the risk

elements while establishing an asset mix. Integrated asset
allocation is a broader asset allocation strategy, albeit
allowing only either dynamic or constant-weighting
allocation.

IAA includes aspects of all strategies, accounting not only

for expectations but also actual changes in capital markets
and risk tolerance.
 WEALTH MANAGEMENT

Fundamental Principles of Asset Allocation :

1. Market Efficiency 6. Risk & Return Trade-off

2. Investor Risk Profile 7. Correlation

3. Identifiable Financial 8. Diversification

Goals
9. Optimal Asset-Mix
4. Time Horizon
10. Re-optimization
5. Expected Total Return
 WEALTH MANAGEMENT PROCESS

Status
Assessment
Strategic Asset
Portfolio Review
Allocation

Wealth
Management
Approach
Portfolio Tactical Asset
Implementation Allocation

Portfolio
Construction
 WEALTH MANAGEMENT PROCESS

DISCOVERY
Identifying Values &
Goals

IMPLEMENTATION ANALYSIS &

RECOMMENDATIONS
Ongoing Evaluation
& Reporting Build Action Plan

PLANNING
Choose Services &
Providers
 WEALTH MANAGEMENT PROCESS

1. Discovery :
• Family, Key Issues
• Goals, Retirement Plans, Special Needs
• Values
• Comprehensive view of current financial status
• Risk tolerance, Time horizon, Attitude towards volatility

2. Analysis, Recommendations :
• Analyse Personal/ Financial information
• Income goals, Probability Analysis
• Liability Analysis
• Risks & Threats
• Coordination with external advisors
• Action Plan : Growth, Preservation, Transfer of wealth
 WEALTH MANAGEMENT PROCESS

3. Implementation :
• Retirement & Education Plans
• Estate Plan, Trust/ Philanthropic Plans
• Borrowing Plans
• Diversification, Hedging, Insurance, Tax minimisation
• Family Mission & bylaws
• Asset Management

4. Monitoring :
• Track Progress vis-à-vis Goals
• Set/ Follow Guidelines for liquidity & asset allocation
• Alerts re. Shortfalls and Deviations
• Performance Reporting
• Online Access
 Ethical Principles in Wealth Management
Ethics in Wealth Management :

A wealth manager is a fiduciary to each and every client.

Wealth managers are expected to adhere to a code of
ethical behaviour while working in the best interests of the
client, and ensure confidentiality.

A relationship between a client and a financial advisor/

manager can last over a long term and can be mutually
fruitful, if it is based on the most essential factors of Trust,
Faith and Integrity.

Worldwide, corporations and associations of wealth

management companies have developed certain codes of
ethics which are universally accepted and applied.
 Ethical Challenges in Wealth Management

Over the years, the financial services industry has suffered

from a serious dent in its image, owing to a variety of factors:

1. Misselling : Sometimes, performance and target pressures

on one hand, and the greed to earn lucrative incentives on
the other force advisors to push products which may not
be suitable to the client requirement or situation. This
ends in bitterness and disputes, thus damaging the
reputation and credibility of the industry as a whole.

2. Incompetence : Inability or unwillingness to study and

understand every client’s unique requirements and
expectations can lead to poor portfolio management and
further to client dissatisfaction.
Contd..
 Ethical Challenges in Wealth Management

3. Lack of Transparency: Transactions and transfers without

adequate information to the client or without his/ her
consent, with the purpose of increasing the income to the
company.

4. Lack of Transparency : Keeping the client in the dark about

the status of the portfolio and the returns thereon.

5. Hidden Costs : Some companies have indulged in loading

charges and costs to the clients, which were not revealed
earlier, or were hidden in small print/ jargon.
 Ethical Principles in Wealth Management

Code of Ethics :

1. Compliance with laws and regulations

2. Diligence & Professionalism
3. Honesty
4. Realistic expectations about risk and return
5. Fairness and Conflict of Interest
6. Record-keeping
7. Reporting
8. Confidentiality
9. Transparency (In transactions and fee structure)
10. Competence
 WEALTH MANAGEMENT
Client Segmentation
Customer segmentation is one of the keys to wealth manager
profitability. Rigorous client segmentation is a critical
component of any successful wealth management program.
Client segmentation mapped to an accurate profiling process
can provide a powerful means for identifying the wealth
management needs of each target client segment and for
tailoring advice and solutions that meet those needs.

Segmentation can help wealth managers to:

✓ Optimise internal resource allocation.

✓ Successfully segment clients to enable efficient commercial

distribution of wealth management products and services.

✓ Drive client satisfaction, loyalty and profitability.

 WEALTH MANAGEMENT

Segmentation can help wealth managers to:

✓ Optimise internal resource allocation.
✓ Successfully segment clients to enable efficient
commercial distribution of wealth management products
and services.
✓ Design appropriate service offerings to various segments

✓ Decide portfolio structure and allocations across various

asset classes.
✓ Focus on client servicing and business development
efforts more accurately and efficiently.
✓ Drive client satisfaction, loyalty and profitability.
 WEALTH MANAGEMENT
Client Segmentation

Bases for Client Segmentation :

The most common base for segmentation in Wealth

Management is the wealth size.

Clients are generally classified based on :

• Net worth
• Investible surplus
• Assets under advise

Only High Networth Individuals (HNWI/ HNI) are

approached by Wealth Managers and Investment Bankers.
 WEALTH MANAGEMENT
Client Segmentation
In India the most common criteria applied is as below:

Annual Income over Rs. 10 to 50 Lacs : Mass Affluent

Annual Income over Rs. 50 Lacs: Affluent
Investible Surplus of Rs. 25 Lac to 2 Cr.: Emerging HNI
Investible Surplus of Rs. 2 Cr. and above : HNI
Investible Surplus of Rs. 10 Cr. and above : UHNI

The Mass Affluent and Affluent segments prefer financial

planning and services, while the HNI segments prefer wealth
management services.
 WEALTH MANAGEMENT
Client Segmentation

Clients can also be segmented based on the basis of :

Structure :
• Individuals
• Families
• Institutions/ Trusts/ Corporates/ Governments

Location :
• Domestic
• Overseas
• Multilocational
 WEALTH MANAGEMENT

Most Common Client Expectations

• Wealth accumulation & preservation

• Wealth appreciation
• Wealth Transfer

• Customised/ Tailor-made solutions

• Flexibility in portfolio structure

• Communication/ Information

• Transparency in transactions & fee structure

• Regulatory Compliance
 WEALTH MANAGEMENT

Personal wealth management follows three stages:

➢ Wealth Accumulation
➢ Wealth Preservation
➢ Wealth Transfer

Wealth Accumulation : This primarily involves accumulation

of money, property and other assets. One may be building a
business, buying a home, starting a family, or saving for
college and retirement.

The financial tools and strategies used as one builds and

manages wealth will change with the timeframe, risk
tolerance and overall financial picture.
This also is the time to lay the foundation for the next stages
of preserving and transferring wealth.
 WEALTH MANAGEMENT

Wealth Preservation : This financial stage requires more

sophisticated financial planning that may require the
experienced guidance of a personal wealth services advisor. A
wealth preservation strategy can ensure that assets not only
grow over time but also provide a legacy for one's family.

Wealth preservation is based on the philosophy that it is more

important not to lose money than it is to make money.
Wealth can be preserved in two ways; you can grow net wealth
at a rate greater than inflation or you can ensure that wealth is
preserved by limiting the charges on wealth.
While risk is unavoidable and markets unpredictable, smart
investment strategies focus on investing in a variety of assets
that hedge inflation while giving optimal time for growth.
 WEALTH MANAGEMENT

Wealth Transfer : The transfer of wealth is an important

component of every estate plan. A smooth, conflict-free,
hassle-free transfer of wealth from one generation to
another is a critical function of wealth management.

Smooth wealth transfer involves impeccable documentation,

legal requirements, tax implications and family
communication. A wealth manager has to ensure proper
handing-over the inheritance according to the intention and
will of the client.

"Succession Planning" is a process, and not an event. Even

when the formal Succession Plan is in place, it must be a
document reviewed and updated from time to time to reflect
changes in the marketplace, competitive conditions and the
health or capabilities of the current owners.
 WEALTH MANAGEMENT

Private Banking :

Private banking is a term for banking, investment and

other financial services provided by banks to private
individuals investing in sizable assets.

Private banking is personalized financial and banking

services that are traditionally offered to a bank's
wealthy high net worth individual (HNWI) clients.

The term ‘private’ refers to the customer service being

rendered on a more personal basis than in mass-market
retail banking, usually via dedicated bank advisers.
 WEALTH MANAGEMENT

Private Banking & Wealth Management :

Private banking and wealth management are terms that

overlap. However there are certain slight differences which
need to be understood.

Wealth management is a broader category that involves

dealing with the optimization of a client's portfolio, taking
into account his aversion to, or comfort with risk, and
investing assets according to his plans and financial goals.

Private banking typically refers to an envelope solution for

high-net-worth-individuals (HNWIs) wherein a public or
private financial institution employs staff members to offer
high-net-worth clients personalized care and management of
their finances.
 WEALTH MANAGEMENT

Private Banking & Wealth Management :

Private banking does not always deal with investing clients'

assets. They may not necessarily be involved in the actual
process of investing in assets for the clients.

In contrast, Private banking provides investment-related

advice and aims to address the entire financial circumstances
of each client.

In comparison with Wealth management, Private banking

tends to be exclusive and is reserved for clients with
substantial amounts of cash and other assets to be deposited
into accounts and to be invested.
Family Office
“Wealth and wealth alone is important, in as much as
charity and desire depend upon wealth for their realisation"
- Kautilya's Arthasastra
 WEALTH MANAGEMENT

Family Office

Private wealth management advisory firms that serve ultra-

high-net-worth investors are known as ‘Family Offices’.

A family office performs centralized management or

oversight of investments, tax planning, estate planning, as
well as philanthropic planning, exclusively for an affluent
individual or family.

They are different from traditional wealth management

services as they offer a total outsourced solution to
managing all financial and investment decisions These
decisions include budgeting, insurance, charity, family-
owned businesses, taxation matters etc.
 WEALTH MANAGEMENT

Family Office
The concept of Family Office originated in Europe in the 18th
century.
Family Office is utilized when assets grow in size and
complexity, demanding full-time professional management.
The world's most affluent families establish the Family Office
to ensure their wealth is well preserved for their heirs.
The scope of Family Office is significantly broader than a pure
investment advisory. It also facilitates the provision of other
value added services to provide a complete solution.

This ensures that a client has a single point contact for taking
care of wealth, family and administrative needs.
 WEALTH MANAGEMENT
Services provided by Family Office
Diverse range of services for Ultra High Net-worth
Individuals (UHNI) families:
➢ Wealth Advisory and Investment Services
➢ Banking and Credit
➢ Estate Planning Services
➢ Consolidated Reporting
➢ Referral for Philanthropy Services
➢ Professional, Taxation and Administrative Services
➢ Concierge Services
 WEALTH MANAGEMENT
Financial Assets :

A financial asset is a tangible liquid asset that derives value

because of a contractual claim of what it represents.

Financial Assets could be in the form of money at hand, or

easily accessible, in the form of cash deposits, loans,
accounts receivable, and marketable securities (bonds,
notes, shares etc.).

To qualify as a financial asset, three important conditions

must be met. It must be:
✓ Something you can own
✓ Something of monetary value
✓ That monetary value is derived from a
contractual claim
 WEALTH MANAGEMENT
Types of Financial Assets :

1. Money Market Instruments : Money Market is part of

financial market where instruments with high liquidity
and very short term maturities are traded. Money
market consists of financial institutions and dealers in
money or credit who wish to produce liquidity. It is
better known as a place where large institutions and
government direct their short term cash needs.

a. Treasury Bills (T-Bills)

b. Repurchase Agreements
c. Commercial Papers
d. Certificate of Deposit
e. Banker’s Acceptance
 WEALTH MANAGEMENT
MONEY MARKET INSTRUENTS
Treasury Bills (T-Bills) : Treasury Bills are one of the safest
money market instruments. These are short term borrowing
instruments of the Central Government of the Country
issued through the Central Bank (RBI in India).

They are risk free instruments and therefore the returns are
not so attractive.
T-Bills are available both in primary market as well as
secondary market. They are issued with three-month, six-
month and one-year maturity periods.

At present the Indian government issues three types of

treasury bills through auctions namely 91-day, 182-day and
364-day. There are no treasury bills issued by State
Governments. Treasury bills are accessible for a minimum
amount of Rs.25K and in its multiples.
 WEALTH MANAGEMENT
MONEY MARKET INSTRUENTS
Repurchase Agreements : These are called Repo or Reverse
Repo or short term loans in which two parties agree to sell and
repurchase the same security. They are usually used for
overnight borrowing. Repo/Reverse Repo dealings can be done
only between the parties approved by RBI and in RBI approved
securities viz. GOI and State Govt. Securities, T-Bills, PSU
Bonds, FI Bonds, Corporate Bonds etc.

Under repurchase contract the seller sells particular securities

with an agreement to repurchase the same at an equally
determined future date and price. Likewise the buyer
purchases the securities with an agreement to resell the same
to the seller on a decided date at a prearranged price.

Such a transaction is called a Repo when viewed from the

perspective of the seller of the securities and Reverse Repo
when viewed from the viewpoint of the buyer.
 WEALTH MANAGEMENT
MONEY MARKET INSTRUENTS
Commercial Papers : This is a low-cost alternative to bank
loans. It is a short term unsecured promissory note issued by
corporates and financial institutions at a discounted value on
face value.

They are generally issued with fixed maturity between one to

270 days and for financing of accounts receivables, inventories
and meeting short term liabilities.

Commercial Papers are issued by corporates to impart

flexibility in raising working capital resources at market
determined rates. Commercial Papers are actively traded in
the secondary market since they are issued in the form of
promissory notes and are freely moveable in demat form.
 WEALTH MANAGEMENT
MONEY MARKET INSTRUENTS
Certificate of Deposit: It is a short term borrowing more like a
bank term deposit account. It is a promissory note issued by a
bank in form of a certificate entitling the bearer to receive
interest. The official document bears the maturity date the
fixed rate of interest and the value. It can be issued in any
value. A CD restricts access to the funds for the buyer, until the
maturity date of the investment.

A CD is negotiable and equivalent to a promissory note. It is

either issued in demat form or in the form of a usance
promissory note.

The returns on certificates of deposit are higher than T-Bills

because it assumes higher level of risk. Returns can be based
on Annual (yearly) Percentage Yield (APY) or Annual
Percentage Rate (APR).
 WEALTH MANAGEMENT
MONEY MARKET INSTRUENTS

Banker’s Acceptance: It is a small term credit investment

created by a non financial firm and guaranteed by a bank to
make payment. It is simply a bill of exchange drawn by a
person and accepted by a bank. The most common term for
these instruments is 90 days. However they can very from 30
days to 180 days.

It is a seller’s assurance to pay to the buyer a certain particular

amount at certain date. The same is guaranteed by the banker
of the seller in exchange for a claim on the goods as security.

For corporations it acts as a negotiable time draft for financing

imports, exports and other transactions in goods, and is highly
useful when the credit worthiness of the foreign trade party is
unknown.
 WEALTH MANAGEMENT

Bonds: A bond is a debt investment in which an investor loans

money to an entity (typically corporate or governmental)
which borrows the funds for a defined period of time at a
variable or fixed interest rate.

Bonds provide the borrower with external funds to finance

long-term investments, or in the case of government bonds, to
finance current expenditure.

Bonds are often referred to as fixed-income securities because

the lender can anticipate the exact amount of cash they will
have received if a bond is held until maturity.

Governments (at all levels) and corporations commonly use

bonds in order to borrow money.
 WEALTH MANAGEMENT

Types of Bonds :

• Government Bonds
• Corporate Bonds
• Banks and other financial institutions Bonds
• Tax-Saving Bonds

Benefits of Investing in Bonds :

1. Assured Returns
2. Highest Security as compared to corporate deposits
3. Higher rates of interest as compared to bank deposits
4. Tax exemptions on in certain categories

Risks of investing in Bonds :

1. Lower returns in comparison with other options
2. Tax-saving Bonds offer lower rates of interest
3. Unsecured Bonds carry high risks
 Fundamental Comparison (FMCG)
Note : Share prices as on Sept 6, 2019. Industry P/E 56.64

Price FV RoNW
BV EPS P/E D/E % PH%
P&G 10159 10 377.27 129.12 78.68 0 46.50 71
HUL 1819 1 35.34 27.88 65.63 0 79 67

252 1 31.48 3.98 63.31 0.05 46.61 60

Bajaj Cons.
Dabur 441 1 48.19 17.36 52.68 0.03 32.46 68

Godrej Co. 599 1 46.83 21.23 26.14 0 35.62 63

Colgate P 1249 1 53.19 20.6 45 0 53.60 51
ITC 243 1 46.80 10.44 32 0 22.27 0
Marico 382 1 27.17 9.05 42.15 0.4 32.26 60
Nestle 12613 10 381 175.18 71.90 0.1 43.74 63
 WEALTH MANAGEMENT
Mutual Funds

A Mutual Fund is a professionally managed trust, usually run by

an asset-management company, that pools the savings of a
number of investors who share a common financial goal.
It is essentially a diversified portfolio of financial instruments -
these could be equities, debentures/bonds or money market
instruments.
The income earned through these investments and the capital
appreciation realised are shared by its unit holders in
proportion to the number of units owned by them.

A Mutual Fund is a suitable investment for the common man as

it offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost.
 WEALTH MANAGEMENT
Types of Mutual Funds

By Structure :
• Open-Ended
• Close-Ended
By Investment Objective :
• Growth Funds
• Income Funds
• Balanced Funds
• Money Market Funds

Others :
• Tax-Saving Schemes
• Index Schemes
• Sectoral Schemes
• Thematic Schemes
 WEALTH MANAGEMENT

Private Equity (P/E)Funds :

Private equity actually consists of individuals and firms that

invest directly into private firms or perform buyouts of public
firms with plans to take those firms private. The underlying
motivation for such investments is of course, the pursuit of
achieving a positive return on investment.

Most of the private equity industry is made up of large

institutional investors, such as pension funds, and large private
equity firms funded by a group of accredited investors.

P/E Funds pool money from a selective bunch of investor into

large fund that is utilised to acquire stakes in businesses.
 WEALTH MANAGEMENT
Types of Private Equity (P/E)Funds :

"PE" is often associated with the funds trolling for mature,

revenue generating companies in need of some revitalization -
maybe even some tough choices - in order to become worth
much more.

Leveraged Buyout Funds : Typically acquire controlling stakes,

either alone or in partnership with other PE firms, of mature,
cash-flow-stable companies. To finance these transactions, they
use a combination of debt and equity capital.

The acquirer (PE firm) seeks to purchase the target with funds
acquired through the use of the target as a sort of collateral. In
essence, in a leveraged buyout, the acquiring PE firms are able
to purchase companies with only having to put up a fraction of
the purchase price.
 WEALTH MANAGEMENT

Types of Private Equity (P/E)Funds :

Venture capital funds : Usually invest in minority stakes in
startup companies, often in high-growth sectors like internet
and consumer technology, bio-tech and healthcare technology,
and energy. VC funds rarely take controlling stakes.

Growth Equity funds invest in more mature businesses that are

looking to scale operations (organically or through M&A) and
enter new markets. They invest more broadly than VC funds in
terms of industries.
 WEALTH MANAGEMENT

The Fund of Funds – This may also be called a collective

investment or a multi-manager investment – simply holds a
portfolio of other investment funds instead of investing
directly in securities.
FoF is a mutual fund which invests in other mutual funds. Just
as a mutual fund invests in a number of different securities, a
fund of funds holds shares of many different mutual funds.

These funds were designed to achieve even greater

diversification than traditional mutual funds. On the
downside, expense fees on fund of funds are typically higher
than those on regular funds because they include part of the
expense fees charged by the underlying funds.
The fund of funds strategy can be applied to any type of
investment fund, from a mutual fund to a private equity fund.
 WEALTH MANAGEMENT

Systematic Investment Plan

A systematic investment plan (SIP) is a plan where investors

make regular, equal payments into a mutual fund, trading
account or retirement account.

Investing via an SIP entails making regular investments

(generally) in smaller denominations as opposed to making
an one-time lump sum investment. The intention is to
capitalise on the volatility in equity markets by lowering the
average purchase cost.
SIP is a convenient way to accumulate wealth in a
disciplined manner over a long-term period. It helps the
small investor to invest regularly in small installments and
thereby build wealth over a period of time.
 WEALTH MANAGEMENT

Benefits of SIP

1. Lowers the average purchase cost, and thus owers risks.

2. Induces disciplined investing

3. Lowers the burden on the investor

4. Makes market timing irrelevant

5. Convenient

6. Power of compounding
 WEALTH MANAGEMENT

Non-Financial Investments :

A non-financial asset is an asset with a physical value, such as

real estate, equipment, machinery, or a vehicle. A financial
asset, on the other hand, is an asset that has value based on a
contractual claim, rather than a physical net worth, such as
stocks, bonds and bank deposits.

Financial assets are generally easier to sell than non-financial

assets, because these assets trade on exchanges frequently.

A non-financial asset has a value based on its tangible

characteristics and properties.
 WEALTH MANAGEMENT

Types of Non-Financial Investments :

Non-financial investments include long-term investment in

intangible assets, residential houses, other buildings and
structures, cultivated assets, technological machinery and
equipment, other fixed assets and inventory; as well as fixed
asset formation and the costs of unfinished construction and
capital repairs.

1. Real Estate
2. Collectables
3. Wine
4. Forestry
5. Gold
 WEALTH MANAGEMENT

Types of Non-Financial Investments :

Real Estate : With the ever-increasing cost of land, real estate

has come up as a profitable investment proposition.

Real Estate includes all immovable properties such as land and

buildings. It can be commercial or residential.

While real estate has become a popular investment vehicle over

the last 50 years, buying and owning brick and mortar is a lot
more complicated than investing in equities and bonds.

Real estate yields benefits to the owner both in the form of

rental income and value appreciation.
“Don’t wait to buy real estate.
Buy real estate, and wait.”
 Real Estate Investment Trust (REIT)
REIT is an entity that lets investors pool their money to invest
in a collection of properties or other real estate assets.

An REIT owns and operates income-producing real estate or

related assets. These may include -office buildings, shopping
malls, apartments, hotels, resorts, self-storage facilities,
warehouses, and mortgages or loans.

An REIT does not develop real estate properties to resell them.

Instead, a REIT buys and develops properties primarily to
operate them as part of its own investment portfolio.

Modeled after mutual funds, REITs provide investors of all

types regular income streams, diversification and long-term
capital appreciation.
 Real Estate Investment Trust

REITs raise funds from a large number of investors and directly

invest that sum in income-generating real estate properties

REITs allow small investors to invest in portfolios of large-scale

properties the same way MFs invest in stocks and other
instruments.

REITs are structured as Trusts. The trusts are listed in stock

exchanges so that investors can buy units in the trust.

The investment objective of an REIT is to provide unit holders

with dividends, usually generated from rental income and
capital gains from the profitable sale of real estate assets.
Typically, the trust distributes 90 per cent of its income among
its investors by issuing dividends.
 Real Estate Investment Trust
REITs in India : An Overview
• Indian real estate is likely to provide investment
opportunity worth up to US $77 billion through REIT-
eligible commercial – office and Retail, properties across
the country’s top seven cities by 2020.

• Across these cities including Mumbai, Delhi-NCR, Bengaluru

and Pune, ready commercial space eligible for REIT
investments amounts to 277 million sq ft, accounting for
about 44% of total office stock in India, according to a
Cushman & Wakefield-Global Real Estate Institute report.
• In addition to completed stock, around 68 million sq ft of
additional REIT-eligible stock expected to be completed by
2020 across the seven cities.
Contd..
 Real Estate Investment Trust
Contd.. REITs in India : An Overview
• An REIT will need to be registered via an IPO in India. REIT
units will have to get listed with exchanges and
consequently traded as securities. The SEBI has kept the
minimum asset sizes to be invested in at Rs. 500 crore.

• The first REIT listing is expected by June 2017. Global private

equity funds such as Blackstone, Brookfield, Singapore’s GIC
and the Canada Pension Plan Investment Board (CPPIB) are
expected to be the first movers in this space.

• In Budget 2016, the Modi government removed a major

hiccup in the path of a successful listing of REITs: the
Dividend Distribution Tax (DDT). Rules for REITs were
relaxed and the investment cap in under-construction
projects was raised from 10% to 20%.
Contd..
 Real Estate Investment Trust
Contd.. REITs in India : An Overview
• The formation of REITs will help in expansion of the quality
real estate universe in India, besides giving developers
another instrument to exit their projects.

• Most REITs in India will have their shares listed on the stock
exchange. These listings will provide the retail investors a
good and new opportunity to participate in the real estate
growth story in India.
Asset Management
Ratios
Ideal Ratios in Personal Finance:

20-30-50 Budgeting Ratio :

20% for investments or putting down debt.

30% should be the maximum spend on housing
50% should be spent on everything else.

Emergency Fund: At least 6 months of expenses.

The objective is to meet unplanned expenses or

emergencies such as illnesses, job-loss, repairs,
litigation etc.
Ideal Ratios in Personal Finance:

Total debt not to exceed 2.5X your annual

income.:

This helps service the loans more effectively and

also manage savings adequately.

Emergency Fund: At least 6 months of expenses.

The objective is to meet unplanned expenses or

emergencies such as illnesses, job-loss, repairs,
litigation etc.
International
Investments
 WEALTH MANAGEMENT

International Investment :
International investing is the strategy of selecting globally-
based investment instruments as part of an investment
portfolio.
International investing includes such investment vehicles as
mutual funds, American Depository Receipts, exchange-
traded funds (ETFs) or direct investments in foreign markets.
Advantages offered by International Investments:
1. Market opportunities
2. Diversification
3. Benefits of currency fluctuations
4. Wider choices
 WEALTH MANAGEMENT

International investments can be included in an

investment portfolio to provide diversification and growth
opportunities.

International investing may also present certain risks:

➢ Fluctuations in currency exchange rates

➢ Changes in market value
➢ Significant political, economic and social events
➢ Low liquidity
➢ Less access to important information
➢ Foreign legal remedies
➢ Varying market operations and procedures
➢ Geo-Political Factors
 WEALTH MANAGEMENT

International Investments can be made in

various asset-classes:

• Cash & Money Markets

• Corporate, Govt. and High-Yield Bonds
• Global Equities
• Foreign Exchange
• Structured Products
• Third-party Funds and Unit Trusts
• Hedge Funds
• Private Equity
• Real-Estate
 WEALTH MANAGEMENT

Wealth Management Reporting :

For Clients, Wealth Management Reports provide an insight

into the status and positions of the various assets held, and
the yields thereon.

Wealth Reports need to be –

✓ Updated
✓ Comprehensive
✓ Timely
✓ Authentic
✓ Precise
✓ Informative
 WEALTH MANAGEMENT

Rising client expectations require more focus on excellent

customer service and providing reports that are more
transparent, accurate and informative. Client reporting is
critical to customer satisfaction and retention.
Essential Elements in a Client Report:

1. Performance Summary
(Filters: Segment/Strategy or Sector)

2. Performance by Account/ Portfolio

(Filters: Segment/Strategy or Sector)

3. Contributions/ Withdrawals
(Filters : Types of contributions or withdrawals)
Contd..
 WEALTH MANAGEMENT

Essential Elements in a Client Report: Contd..

4. Asset Mix
(Filters: Asset Size/ Class)

5. Equity Holdings
(Filters: Top 10/ 20)

6. Tax-Lot Holdings
(Filters : Acquisition date and tax implications)

7. Realized Gains/ Losses

(Filters: Short Term/ Long Term)

Contd..
 WEALTH MANAGEMENT

Essential Elements in a Client Report: Contd..

8. Sector Allocation
(Filters: % of Equity/ Largest sectors)

9. Country Allocation
(Filters: % of Investments/ Largest countries)

10. Transactions
(Filters : Transaction types/ Size)

11. Cash/ Liquid Assets

(Filters: Currency/ Class)
 WEALTH MANAGEMENT

Five Forces that will shape

next-generation Margin
Wealth Management Squeeze

Restoration
Tech.
of Investor
Advances
Confidence

WEALTH
MANAGEMENT

Emerging
Regulation
Markets