Wealth management as a concept originated in year 1990’s in the US.

Essentially it is
the investment advisory covering financial planning that provides individuals with
private banking/ asset management/ taxation advisory & portfolio management.
Warren buffett is the most successful investor in world. He says that “The basic ideas
of investing are to look at stocks as business, use the market’s fluctuations to your
advantage and seek a margin of safety. That’s what Ben Graham taught us. A hundred
years from now they will still be the cornerstones of investing”. He is even called as
wealth creator.

Wealth Management meaning:

Wealth management combines both financial planning and specialized financial
services, including personal retail banking services, estate planning, legal and tax
advice, and investment management. The goal of wealth management is to sustain and
grow long- term wealth. A wealth manager provides a “one stop solution” to his
clients to help them achieve their goals. It involves a deeper understanding of the
various aspects of an individual like his social status, family situation, health business,
estate and succession.
In other words it is basically an investment advice or assistance to manage person’s
financial needs. These services are offered to investors in packages to provide benefits
with two main goals growth and safety of their existing investments.

Financial planning:
Everyone has needs and aspirations. Financial Planning is an approach to assess the
adequacy of income and assets of a person to meet the financial requirements for
fulfillment of these needs and aspirations. The role of financial planning has been
increasing in the market because:
Needs and aspirations of people are ever-increasing. This increases the financial
challenge that people face. Investors need to be counseled on the difference between
needs (essentials) and wants (desires). Prioritization of expenses is critical for people
who are struggling to make both ends meet.
Joint families are giving way to nuclear families. The nuclear family stays in a
separate house. The rentals or the acquisition cost of a house, are an important
financial need to plan for.
In a nuclear family, the individual is responsible for his immediate family. The
extended family, staying under a different roof, cannot be expected to support the
regular financial needs of the individual.
The period of earning for individuals is reducing, while the longevity (life span) of
people is increasing. This means that incomes earned over a shorter time period need
to finance the needs over a longer period of time. Hence the need for retirement
planning.
Income levels are going up. Higher investible surplus needs to be invested prudently
for the future. Hence the need for professional financial planning advice. The
financial assets and liabilities that are available in the market for various needs are
getting more and more complex. It is difficult for a layman to have a comprehensive
understanding of these financial products.
Tax provisions keep changing. People need to plan their taxes and ensure that they
take full benefit of the concessions available. This has opened the doors for
professional tax advisers.
Increasing complexities in family structure can create problems while transfer wealth
to the next generation. Therefore, estate planning is important. A professional
financial planner helping individuals navigate these challenges is an important
member of our society. The role and influence of financial planners is bound to grow
in India.

Financial literacy:
. Financial Literacy is the ability to understand how money works in the world i.e.
how someone manages to make or earn it how that person manages it (increase
overtime) and donates it to help others.
. It involves a good understanding of financial concepts like compound interest,
financial planning, saving methods, consumer rights, time value of money, etc.
. Individuals should develop skills and confidence to be aware of the financial risks
and opportunities that will benefit them in the long run.
. Financial ignorance carries significant (huge) costs due to poor decision making i.e.
higher debts and less savings.
. Making good financial choices about savings, spending, insurance, investing,
analyzing risks and returns, assets diversification and asset allocation (in bonds, debts,
and mutual funds) is important to save more and diversity the risks.
. Investors with good financial literacy diversity (spread) the risks by investing in
many ventures and exploring the best opportunities.

Financial Literacy Initiatives in INDIA:

India needs a national strategy for spreading awareness about financial products.
Some of the financial literacy initiatives in India include:
1. RBI’s initiative on financial education:
a. The reserve bank of India (RBI) has undertaken a project titled”
Project Financial Literacy”.
b. The objective of this project is to provide information regarding the
central bank and general banking concepts to various target groups
including school and college students, women, poor people from urban
and rural areas, defence personnel and senior citizens.
c. The project has been implemented in two modules i.e. one focusing on
the economy whereas the second focusing on general banking.
d. The material (in English and vernacular languages) is distributed to the
target audience through appropriate channels.
2. SEBI’s Initiatives on Financial Educations:
a. The securities and Exchange Board of India (SEBI) has provided
financial education all across the nation in campaigns.
b. To provide financial education to the various target segments i.e.
school and college students, middle income group, home makers,
working executives etc. the resource persons are provided training on
the various aspects of financial and the knowledge about financial
markets.
c. SEBI also publishes study material (in English and vernacular
languages) and has successfully held various programs regionally. An
online help desk is also available.

3. IRDA’s Initiatives on Financial Education :

a. The Insurance Regulatory and Development Authority of India has taken
various Initiatives in the area of financial literacy.
b. IRDA conducts an annual seminar on policy holder protection and welfare
along with partially sponsored seminars on insurance by consumer bodies.
c. IRDA has organized many awareness programmes about the rights and
duties of policyholders in English, Hindi and 11 other Indian languages.
d. They have an Integrated Grievance Management System (IGMS) for
peacefully setting any disputes along with their publication and online
assistance.

4. PFRDA Initiatives on Financial Education :

a. The Pension Fund Regulatory and development Authority (India’s
youngest regulator) has been engaged (involved) in spreading social
security messages to the public.
b. PFRDA has developed FAQs i.e. Frequently Asked Questions on pension
related topics on the web.
c. It is actively associated with various NGOs (Non - Government
Organization) in India to make the pension services available to the
disadvantages community.
d. PFRDA has issued advertisement in print and electronic media (radios and
television) and has appointed aggregators (intermediaries) who created
pension related awareness in vernacular languages.
5. Market Players Initiatives on Financial Education:
a. Commercial banks are realizing that they are missing out on a large
segment of financially illiterate and excluded (missing out or left) segment
of prospective (future) customers.
b. Awareness about the electronic benefits transfer (done through the
commercial banks) is created through financial literacy, counselling
centers and rural self – employment training institutes.

6. The Objectives of these centers is :

a. To advise people to gain access to the financial systems including banks,
creating awareness about financial management.
 b. Counselling people who are struggling to meet their debts and help them
resolve the same.
c. Helping in rehabilitation of the borrowers in distress.

7. Various commercial banks, stock exchanges, broking houses insurance

companies etc. spread awareness on financial literacy.
Together with financial inclusion and consumer protection, financial literacy is
necessary for ensuring financial stability.

Kind of financial planning:

There are two approaches to financial plan:
1. Goal based financial planning: Goal based planning is the process of helping
clients to prioritize their financial plan to fund them. The main aim is to ensure
that people meet their personal and lifestyle goals and ensuring that they have
enough income to live off (sustain) in their retirement. Some advantages are
avoid under saving, plan ahead and achieve more, guilt free spending, better
match assets and liabilities to avoid debts.
2. Compressive financial planning: A compressive address the above limitations
of a goal-based financial plan. It provides complete information on the overall
financial position of the investor and how the financial goals will be met
periodically. Multiple forms of comprehensive financial plan are possible, for
various situation.

Role of Financial Planner/ Wealth Manager:

The Financial planner’s fundamental role is to ensure that the investors have adequate
money/ wealth for various financial needs/ goals.
While performing this role, financial planners offer some or all of the following
services:
1. Preparing a financial blue print for the investors future.
2. Advice on investment in share market.
3. Advice on investment in mutual funds and other investment products.
4. Advice on investment in small savings schemes and other debt instruments.
5. Suggestions a suitable asset allocations based on risk profile of the investors.
6. Management of loans and other liabilities.
7. Insurance planning and risk management.
8. Tax planning
9. Planning for smooth inheritance of wealth to the next generation.

Life cycle
People go through various stages in the life cycle, such as:
. Young and unmarried

. Young and married

 . Married and having young children

. Married and having older children

. Retirement

Position on the life cycle determines the kinds of challenges the investors is likely to
face and therefore the approach to financial planning.

For instance, younger investors have the entire earning cycle ahead of them. Their
insurance needs will be high. Those will dependents need to have adequate life
insurance to protect the family against untimely demise.

At a young age, saving and spending habits are formed. Systematic investments plans
(SIPs) are a good way to ensure that the investor does not fritter away any money.
They need to be educated on how starting saving early ensures a comfortable future.
Parents with young children need to prepare for sudden significant outflow for
education or marriage or such other requirement of children. They also need to plan
for their retirement, not only in terms of financial assets, but also corporate perks that
may not be available in future, such as medical re-imbursement, accommodation, car,
club facilities etc.

On retirement if salary or business earnings were to stop then investors need to be

cautious in taking risks. At a young age, the investors can take greater risk. Asset
allocation is a key decision across the life cycle of the investors.

Wealth cycle

As with life cycle the position of the investor on the wealth cycle changes over time.
The keys stages are:

1. Accumulation: The accumulation phase is usually young adulthood to early

middle age. At this stage, individuals accumulate many things to meet their
immediate needs and longer term goals. They include buying homes, cars,
furniture, providing for children’s college education and retirement planning.
At this stage, developing an early investing habit is important as individuals at
this phase have a longer time horizon and should be willing to make higher
risk investments. Set aside money to invest on a regular basis.
 2. Consolidation: the consolidation phase typically begins between the ages of 45
and 54. At this phase, the outstanding debts would have been paid off or very
less amount of loans are left to be paid off. Funds can also be identified at this
stage of pay off children’s college bills. Capital preservation is important in
this phase and the investor is usually able to set aside a greater portion of his
earnings. At this stage, debt management gives way to asset accumulation,
income tends to be high and net worth needs to rapidly grow enabling the
investors to take moderate amount risk.
3. Spending: The spending and gifting stage of investment is like a reward to the
investor for his disciplined investment practices over the years. This stage
usually occurs at retirement, where the investor would be receiving income
from possibly an employer retirement plan as well as income from their
investment portfolio. The investor feels comfortable at this stages knowing
that his living expenses are taken care of thus making the risk tolerance low.
This is the stage where the investor reaps the benefit of proper asset allocation
and a structured investment portfolio.
4. In this phase, excess assets if any will be used to provide financial assistance
to relatives and friends and even to charities. These can reduce the income
taxes and keep aside some sum for future uncertainties.

Building Financial Plans:

Creating a personal financial plan will help you achieve any goal that you have set
for yourself. They help you to understand how you are spending your money and
creating a strategy to pay off all your debts and saving maximum money for the
future.
The steps in building a financial plan are:
1. Determine your current financial situation: The first step is to determine
your current financial situation to formulate realistic and well informed goals.
To understand your current situation determine your current net worth. Take a
detailed look at your current situation that helps you to identity the specific
changes that you can make to ensure that you achieve your goals in the future.
2. Develop your financial goals i.e. determine where you are going: Develop
financial goals that give you a direction of your plan and consider various
objectives like monthly savings or retirement savings. Once you have set your
goals, establish priorities on the basis of long term, short term and medium
term. You can set a monthly savings goal once you know how much you need
to save and for how long it is to be saved.
 3. Identity alternative courses of action: In order to achieve your long term,
medium term and short term goals, devise strategies that bridge the gap from
where you are today to where you would like to be. Identify alternative
courses of action that will help you to achieve your goals. Create a “goal
strategies worksheet” selecting your short term, medium term or long term
goals and consider the target date and monthly costs to make sure you achieve
them. Build in milestones along the way that will motivate you to stick with
your financial plan and track your progress.
4. Evaluate your alternatives: before you select strategies to complete your
financial plan thoroughly evaluate your options. While evaluating your
alternatives consider the opportunity costs along with the pros and cons with
regards to the risks and returns involved. Properly evaluating your alternatives
will ensure that you select the best course of action to achieve your financial
goals.
5. Create and implement your financial plan: After identifying the options to
reach your goals and working on each strategy it is easy to determine the cost
of your goals in terms of your current situation. Prioritize your goals and
consider the best course of action to take. After mapping your path to goals,
have a disciplined approach to ensure that the planning is successful. You can
also set monthly goals to ensure that your spending habits are in control.
6. Review and Revise your plan: Reviewing your financial plan will help you
to track your progress towards meeting your goals. Your goals may change
from time to time. Be faithful in revising and re-evaluating your plan from
time to time to ensure that your goals haven’t changed and that you are on the
right track to achieve them.

Systematic approach to Investing

In the long term, equity share prices track corporate performance. More profitable a
company, higher is likely to be its share price. However, in shorter time frames, the
market is unpredictable. Market fluctuations are a source of risk for investors. Over
the period of time equity has given a better return than any other source of
investments. Hence it is the major investment avenue in wealth management. Because
of this reason investors are advised to take a systematic approach to investing. This
can take any of the following forms:
1. Systematic Investment Plan (SIP): A systematic investment plan (SIP) is an
investment vehicle offered by many mutual funds to investors, allowing them
to invest small amounts periodically instead of lump sums. The frequency of
investment is usually weekly, monthly or quarterly. In SIPs, a fixed amount of
money is debited by the investors in bank accounts periodically and invested
in a specified mutual fund. The investor is allocated a number of units
according to the current Net asset value. Every time a sum is invested, more
units are added to the investors account. The strategy claims to free the
investors from speculating in volatile markets by dollar cost averaging. As the
investor is getting more units when the price is low and fewer units when the
 price is high, in the long run, the average cost per unit is supposed to be lower.
SIP claims to encourage disciplined investment. SIPs are flexible; the
investors may stop investing a plan anytime or may choose to increase or
decrease the investment amount. SIP is usually recommended to retail
investors who do not have the resources to pursue the active investment. In
India, a recurring payment can be set for SIP using Electronic Clearing
Services (ECS). Some mutual funds allow tax benefits under equity-linked
savings schemes. This, however, has a lock-in period of three years.
2. Systematic Withdrawal Plan (SWP): A systematic withdrawal plan (SWP)
is a scheduled investment withdrawal plan typically used in retirement.
Investors can structure SWPs in various ways. Mutual funds typically allow an
investor to determine a systematic withdrawal plan that includes interval
payouts monthly, quarterly, semi-annually or annually. A systematic
withdrawal plan is most commonly used for retirement. However, investors
can structure and use SWPs for various payout needs. Systematic withdrawal
plans can be set up for withdrawals from nearly any type of investment vehicle
in the market. Common investment vehicles used for SWPs include mutual
funds, annuities, brokerage accounts, 401k plans and individual retirement
accounts (IRAs). Annuities are a common type of systematic withdrawal plan
that provides a set series of cash flows based on some initial contribution.
3. Systematic transfer plan (STP): An STP is a plan that allows investors to
give consent to a mutual fund to periodically transfer a certain amount / switch
(redeem) certain units from one scheme and invest in another scheme of the
same mutual fund house. Thus at regular intervals an amount/number of units
you choose is transferred from one mutual fund scheme to another of your
choice. This facility thus helps in deploying funds at regular intervals.

Cash flow:
A cash flow is a real or virtual movement of money:
1. A cash flow in its narrow sense is a payment (in a currency), especially from
one central bank account to another; the term 'cash flow' is mostly used to
describe payments that are expected to happen in the future, are thus uncertain
and therefore need to be forecast with cash flows.
2. A cash flow is determined by its time t, nominal amount N, currency CCY and
account A; symbolically CF = CF (tN ,CCY,A).
3. It is however popular to use cash flow in a less specified sense describing
(symbolic) payments into or out of a business, project, or financial product.
Cash flows are narrowly interconnected with the concepts of value, interest rate
and liquidity. A cash flow that shall happen on a future day tN can be transformed
into a cash flow of the same value in t0.

CASH FLOW ANALYSIS:

1. Cash flow analysis is an examination (determination) of a company’s cash
Inflows and outflows during a specific period.
2. Cash flow analysis is generally used for financial reporting purposes.
3. Cash flows are often transformed into measures that give information e.g. on a
company's value and situation:
4. The changes in cash both at the beginning and at the end of the period can be
known with help of a cash flow statement.
5. To determine a project's rate of return or value. The time of cash flows into
and out of projects are used as inputs in financial models such as internal rate
of return and net present value.
6. To determine problems with a business's liquidity. Being profitable does not
necessarily mean being liquid. A company can fail because of a shortage of
cash even while profitable.
7. As an alternative measure of a business's profits when it is believed that
accrual accounting concepts do not represent economic realities. For instance,
a company may be notionally profitable but generating little operational cash
(as may be the case for a company that barters its products rather than selling
for cash). In such a case, the company may be deriving additional operating
cash by issuing shares or raising additional debt finance.
8. Cash flow can be used to evaluate the 'quality' of income generated by accrual
accounting. When net income is composed of large non-cash items it is
considered low quality.
9. To evaluate the risks within a financial product, e.g., matching cash
requirements, evaluating default risk, re-investment requirements, etc.
10. Cash flow notion is based loosely on cash flow statement accounting
standards. The term is flexible and can refer to time intervals spanning over
past-future. It can refer to the total of all flows involved or a subset of those
flows. Subset terms include net cash flow, operating cash flow and free cash
flow.

Cash flow statement:

Cash flow statements report a company’s inflows and outflows of cash. This is
important because a company needs to have enough cash on hand to pay its
expenses and purchase assets. While an income statement can tell you whether a
company made a profit, a cash flow statement can tell you whether the company
generated cash. A cash flow statement shows changes over time rather than
absolute dollar amounts at a point in time. It uses and reorders the information
from a company’s balance sheet and income statement. The bottom line of the
cash flow statement shows the net increase or decrease in cash for the period.
Generally, cash flow statements are divided into three main parts. Each part
reviews the cash flow from one of three types of activities: (1) operating activities;

(2) investing activities; and (3) financing activities.

Operating Activities

The first part of a cash flow statement analyzes a company’s cash flow from net
income or losses. For most companies, this section of the cash flow statement
reconciles the net income (as shown on the income statement) to the actual cash
the company received from or used in its operating activities. To do this, it
deducts from net income any non-cash items (such as depreciation expenses) and
any cash that was used or provided by other operating assets and liabilities.
Investing Activities

The second part of a cash flow statement shows the cash flow from all investing
activities, which generally include purchases or sales of long-term assets, such as
property, plant and equipment, as well as investment securities. If a company buys
a piece of machinery, the cash flow statement would reflect this activity as a cash
outflow from investing activities because it used cash. If the company decided to
sell off some investments from an investment portfolio, the proceeds from the
sales would show up as a cash inflow from investing activities because it provided
cash.

Financing Activities

The third part of a cash flow statement shows the cash flow from all financing
activities. Typical sources of cash flow include cash raised by selling stocks and
bonds or borrowing from banks. Likewise, paying back a bank loan would show
up as a use of cash flow.

Risk profiling
 In Risk Profiling Investor data analysis including positioning on the Life Cycle
and Wealth Cycle which will suggest the investor’s risk profile. Planners classify
their investors into groups, such as:

1. Extremely Risk Averse

2. Moderately Risk Averse
3. Risk Neutral
4. Moderately Risk Oriented
5. Extremely Risk oriented

The more risk oriented investor is having greater risk so the exposure that can be
suggested to risky assets. In general, equity is viewed as the risky asset, while
debt is considered the safer asset. Gold protects the portfolio in extremely adverse
situations, where both debt and equity under-perform. Real estate is an illiquid
asset that can grow over time, and also give rental income. Debt, Equity, Gold
and Real Estate are asset classes.

Asset Allocation

Asset Allocation Different asset classes perform well in varied economic and
market scenarios. The analyst seeks to interpret the leading indicators and
anticipate likely market trajectory. However, it is not possible to predict the
market with certainty. An approach to balance the uncertainty is to invest in a mix
of asset classes. This ensures that some asset classes in the portfolio perform well,
when others don’t. Such distribution of investment portfolio between asset classes
is “asset allocation”

Why Asset Allocation is Important

There is no simple formula that can find the right asset allocation for every individual.
However, the consensus among most financial professionals is that asset allocation is
one of the most important decisions that investors make. In other words, the selection
of individual securities is secondary to the way that assets are allocated in stocks,
bonds, and cash and equivalents, which will be the principal determinants of your
investment results.

Investors may use different asset allocations for different objectives. Someone who is
saving for a new car in the next year, for example, might invest her car savings fund
in a very conservative mix of cash, certificates of deposit (CDs) and short-term bonds.
Another individual saving for retirement that may be decades away typically invests
the majority of his individual retirement account (IRA) in stocks, since he has a lot of
time to ride out the market's short-term fluctuations. Risk tolerance plays a key factor
as well. Someone not comfortable investing in stocks may put her money in a more
conservative allocation despite a long time horizon.

Age-Based Asset Allocation

In general, stocks are recommended for holding periods of five years or longer. Cash
and money market accounts are appropriate for objectives less than a year away.
Bonds fall somewhere in between. In the past, financial advisors have recommended
subtracting an investor's age from 100 to determine how much should be invested in
stocks. For example, a 40-year old would be 60% invested in stocks. Variations of the
rule recommend subtracting age from 110 or 120 given that the average life
expectancy continues to grow. As individuals approach retirement age, portfolios
should generally move to a more conservative asset allocation so as to help protect
assets that have already been accumulated.

Types of Asset Allocation

1. Tactical Asset Allocation: Tactical asset allocation is an active management

portfolio strategy that shifts the percentage of assets held in various categories
to take advantage of market pricing anomalies or strong market sectors. This
strategy allows portfolio managers to create extra value by taking advantage of
certain situations in the marketplace. It is as a moderately active strategy since
manager return to the portfolio's original strategic asset mix once reaching the
desired short-term profits.
Tactical Asset Allocation (TAA) Basics:
To understand tactical asset allocation, one must first understand strategic
asset allocation. A portfolio manager may create an investor policy statement
(IPS) to set the strategic mix of assets for inclusion in the client's holdings.
The manager will look at many factors such as the required rate of return,
acceptable risk levels, legal and liquidity requirements, taxes, time horizon,
and unique investor circumstances.
The percentage of weighting that each asset class has over the long term is
known as the strategic asset allocation. This allocation is the mix of assets and
weights that help an investor reach their specific goals. The following is a
simple example of typical portfolio allocation and the weight of each asset
class.

Cash = 10%
Bonds = 35%
Stocks = 45%
Commodities = 10%
The Usefulness of Tactical Asset Allocation:
Tactical asset allocation is the process of taking an active stance on the
strategic asset allocation itself and adjusting long-term target weights for a
short period to capitalize on the market or economic opportunities. For
example, assume that data suggests that there will be a substantial increase in
demand for commodities over the next 18 months. It may be prudent for an
investor to shift more capital into that asset class to take advantage of the
opportunity. While the portfolio's strategic allocation will remain the same, the
tactical allocation may then become:

Cash = 5%
Bonds = 35%
Stocks = 45%
Commodities = 15%
Tactical shifts may also come within an asset class. Assume the 45% strategic
allocation of stocks consists of 30% large-cap and 15% small-cap holdings. If
the outlook for small-cap stocks does not look favorable, it may be a wise
tactical decision to shift the allocation within stocks to 40% large-cap and 5%
small-cap for a short time until conditions change.
 Usually, tactical shifts range from 5% to 10%, though they may be lower. In
practice, it is unusual to adjust any asset class by more than 10% tactically.
This large adjustment would show a fundamental problem with the
construction of the strategic asset allocation.

Tactical asset allocation is different from rebalancing a portfolio. During

rebalancing, trades are made to bring the portfolio back to its desired strategic
asset allocation. Tactical asset allocation adjusts the strategic asset allocation
for a short time, with the intention of reverting to the strategic allocation once
the short-term opportunities disappear.
Types of Tactical Asset Allocation:
TAA strategies may be either discretionary or systematic. In a discretionary
TAA, an investor adjusts asset allocation, according to market valuations of
the changes in the same market as the investment. An investor, with
substantial stock holdings, for instance, may want to reduce these holdings if
bonds are expected to outperform stocks for a period. Unlike stock picking,
tactical asset allocation involves judgments on entire markets or sectors.
Consequently, some investors perceive TAA as supplemental to mutual fund
investing.

Conversely, a systematic tactical asset allocation strategy uses a quantitative

investment model to take advantage of inefficiencies or temporary imbalances
among different asset classes. These shifts use a basis of known financial
market anomalies, or inefficiencies, backed by academic and practitioner
research.
2. Dynamic Asset Allocation: Dynamic asset allocation is a portfolio
management strategy that frequently adjusts the mix of asset classes to suit
market conditions. Adjustments usually involve reducing positions in the
worst performing asset classes while adding to positions in the best
performing assets.

Dynamic Asset Allocation Explained

The general premise of dynamic asset allocation is to respond to current risks

and downturns and take advantage of trends to achieve returns that exceed a
 targeted benchmark, such as the Standard & Poor’s 500 index (S&P 500).
There is typically no target asset mix, as investment managers can adjust
portfolio allocations as they see fit. The success of dynamic asset allocation
depends on the portfolio manager making good investment decisions at the
right time. Dynamic asset allocation is just one portfolio management strategy
available to investors.

Dynamic Asset Allocation Example

Suppose global equities enter a six-month bear market. An investment manager

using dynamic asset allocation may decide to reduce a portfolio’s equity holdings and
increase its fixed-interest assets to reduce risk. For example, if the portfolio was
initially equities heavy, the manager may sell some of its equity holdings and
purchase bonds. If economic conditions improve, the manager may increase the
portfolio’s equity allocation to take advantage of a more bullish outlook for stocks.

Advantages of Dynamic Asset Allocation

Performance: Investing in the best performing asset classes ensures investors’

portfolios have the highest exposure to momentum and reap returns if the trend
continues. Conversely, portfolios that use dynamic asset allocation reduce asset
classes that are trending lower to help minimize losses.

Diversification: Dynamic asset allocation exposes a portfolio to multiple asset classes

to help manage risk. Portfolio managers may make investments in equities, fixed
interest, mutual funds, index funds, currencies and derivatives. Top performing asset
classes can help offset underperforming assets if the manager makes a bad call.

Limitations of Dynamic Asset Allocation

Active Management: Actively adjusting portfolio allocations to meet changing market

conditions takes time and resources. Investment managers need to keep up-to-date
with breaking macro- and company-specific news to determine its impact on various
asset classes. Additional research analysts may need to be hired to help ensure the
correct investment decisions get made.

Transaction Costs: Dynamic asset allocation involves frequently buying and selling
different assets. This increases transaction costs that reduce the portfolio’s overall
return. If most holdings in the portfolio are trending higher, a management strategy
the favors buy-and-hold investing, such as constant-weighted asset allocation, may
outperform dynamic asset allocation due to fewer transaction costs.

3. Strategic Asset Allocation: This method establishes and adheres to a base

policy mix—a proportional combination of assets based on expected rates of
return for each asset class. You also need to take your risk tolerance and
investment time-frame into account. You can set your targets and then
rebalance your portfolio every now and then.
A strategic asset allocation strategy may be akin to a buy-and-hold strategy
and also heavily suggests diversification to cut back on risk and improve
returns.
For example, if stocks have historically returned 10% per year and bonds have
returned 5% per year, a mix of 50% stocks and 50% bonds would be expected
to return 7.5% per year.
But before you start investing, you should first read if you can make money in
stocks.
4. Constant-Weighting Asset Allocation:
Strategic asset allocation generally implies a buy-and-hold strategy, even as
the shift in values of assets causes a drift from the initially established policy
mix. For this reason, you may prefer to adopt a constant-weighting approach
to asset allocation. With this approach, you continually rebalance your
portfolio. For example, if one asset declines in value, you would purchase
more of that asset. And if that asset value increases, you would sell it.There
are no hard-and-fast rules for timing portfolio rebalancing under strategic or
constant-weighting asset allocation. But a common rule of thumb is that the
portfolio should be rebalanced to its original mix when any given asset class
moves more than 5% from its original value.
5. Insured Asset Allocation:
With an insured asset allocation strategy, you establish a base portfolio value
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,
relying on analytical research, forecasts, judgment, and experience to decide
 which securities to buy, hold, and sell with the aim of increasing the portfolio
value as much as possible.
If the portfolio should ever drop to the base value, you invest in risk-free
assets, such as Treasuries (especially T-bills) so the base value becomes fixed.
At this time, you would consult with your advisor to reallocate assets, perhaps
even changing your investment strategy entirely.
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. For example, an investor who wishes to establish a minimum standard
of living during retirement may find an insured asset allocation strategy
ideally suited to his or her management goals
6. Integrated Asset Allocation
With integrated asset allocation, you consider both your economic
expectations and your risk in establishing an asset mix. While all of the
strategies mentioned above account for expectations of future market returns,
not all of them account for the investor’s risk tolerance. That's where
integrated asset allocation comes into play.
This strategy includes aspects of all the previous ones, accounting not only for
expectations but also actual changes in capital markets and your risk tolerance.
Integrated asset allocation is a broader asset allocation strategy. But it cannot
include both dynamic and constant-weighting allocation since an investor
would not wish to implement two strategies that compete with one another.
7. The Bottom Line
Asset allocation can be active to varying degrees or strictly passive in nature.
Whether an investor chooses a precise asset allocation strategy or a
combination of different strategies depends on that investor’s goals, age,
market expectations, and risk tolerance.
Keep in mind, however, these are only general guidelines on how investors
may use asset allocation as a part of their core strategies. Be aware that
allocation approaches that involve reacting to market movements require a
great deal of expertise and talent in using particular tools for timing these
movements. Perfectly timing the market is next to impossible, so make sure
your strategy isn’t too vulnerable to unforeseeable errors.
Portfolio Management Services (PMS):

Portfolio management is the art and science of making decisions about investment
mix and policy, matching investments to objectives, asset allocation for individuals
and institutions, and balancing risk against performance. Portfolio management is all
about determining strengths, weaknesses, opportunities and threats in the choice of
debt vs. equity, domestic vs. international, growth vs. safety, and many other trade-
offs encountered in the attempt to maximize return at a given appetite for risk.

Understanding Portfolio Management

Although it is common to use the terms "portfolio management" and "financial

planning" as synonyms, these staples of the financial services industry are not the
same. Portfolio management is the act of creating and maintaining an investment
account, while financial planning is the process of developing financial goals and
creating a plan of action to achieve them. Professional licensed portfolio managers are
responsible for portfolio management on behalf of others, while individuals may
choose to self-direct their own investments and build their own portfolio. Portfolio
management's ultimate goal is to maximize the investments' expected return given an
appropriate level of risk exposure.

Portfolio management, in general, can by either passive or active in nature.. Passive

management is a set-it-and-forget-it long-term strategy that often involves simply
tracking a broad market index (or group of indexes), commonly referred to as
indexing or index investing.

Active management instead involves a single manager, co-managers or a team of

managers who attempt to beat the market return by actively managing a fund's
portfolio through investment decisions based on research and decisions on individual
holdings. Closed-end funds are generally actively managed.

The Key Elements of Portfolio Management:

Asset Allocation: The key to effective portfolio management is the long-term mix of
assets. Asset allocation is based on the understanding that different types of assets do
not move in concert, and some are more volatile than others. Asset allocation seeks to
optimize the risk/return profile of an investor by investing in a mix of assets that have
low correlation to each other. Investors with a more aggressive profile can weight
their portfolio toward more volatile investments. Investors with a more conservative
profile can weight their portfolio toward more stable investments. Indexed portfolios
may employ modern portfolio theory (MPT) to aid in building an optimized portfolio,
while active managers may use any number of quantitative and/or qualitative models.

Diversification: The only certainty in investing is it is impossible to consistently

predict the winners and losers, so the prudent approach is to create a basket of
investments that provide broad exposure within an asset class. Diversification is the
spreading of risk and reward within an asset class. Because it is difficult to know
which particular subset of an asset class or sector is likely to outperform another,
diversification seeks to capture the returns of all of the sectors over time but with less
volatility at any one time. Proper diversification takes place across different classes of
securities, sectors of the economy and geographical regions.

Rebalancing is a method used to return a portfolio to its original target allocation at

annual intervals. It is important for retaining the asset mix that best reflects an
investor’s risk/return profile. Otherwise, the movements of the markets could expose
the portfolio to greater risk or reduced return opportunities. For example, a portfolio
that starts out with a 70% equity and 30% fixed-income allocation could, through an
extended market rally, shift to an 80/20 allocation that exposes the portfolio to more
risk than the investor can tolerate. Rebalancing almost always entails the sale of high-
priced/low-value securities and the redeployment of the proceeds into low-
priced/high-value or out-of-favor securities. The annual iteration of rebalancing
enables investors to capture gains and expand the opportunity for growth in high
potential sectors while keeping the portfolio aligned with the investor’s risk/return
profile.

Active Portfolio Management:

Investors who implement an active management approach use fund managers or

brokers to buy and sell stocks in an attempt to outperform a specific index, such as the
Standard & Poor's 500 Index or the Russell 1000 Index.

An actively managed investment fund has an individual portfolio manager, co-

managers, or a team of managers actively making investment decisions for the fund.
The success of an actively managed fund depends on combining in-depth research,
market forecasting, and the experience and expertise of the portfolio manager or
management team.

Portfolio managers engaged in active investing pay close attention to market trends,
shifts in the economy, changes to the political landscape, and factors that may affect
specific companies. This data is used to time the purchase or sale of investments in an
effort to take advantage of irregularities. Active managers claim that these processes
will boost the potential for returns higher than those achieved by simply mimicking
the stocks or other securities listed on a particular index.

Since the objective of a portfolio manager in an actively managed fund is to beat the
market, he or she must take on additional market risk to obtain the returns necessary
to achieve this end. Indexing eliminates this, as there is no risk of human error in
terms of stock selection. Index funds are also traded less frequently, which means that
they incur lower expense ratios and are more tax-efficient than actively managed
funds. Active management traditionally charges high fees, and recent research has
cast doubts on managers' ability to consistently outperform the market.

Passive Portfolio Management:

Passive management, also referred to as index fund management, involves the

creation of a portfolio intended to track the returns of a particular market index or
benchmark as closely as possible. Managers select stocks and other securities listed
on an index and apply the same weighting. The purpose of passive portfolio
management is to generate a return that is the same as the chosen index instead of
outperforming it.

A passive strategy does not have a management team making investment decisions
and can be structured as an exchange-traded fund (ETF), a mutual fund, or a unit
investment trust. Index funds are branded as passively managed because each has a
portfolio manager replicating the index, rather than trading securities based on his or
her knowledge of the risk and reward characteristics of various securities. Because
this investment strategy is not proactive, the management fees assessed on passive
portfolios or funds are often far lower than active management strategies.

Financial Planning to Wealth Management:

Financial Planning is a process achieving your financial life goals by aligning your
finances with them. It means that you create a roadmap for your life which includes
your goals.

This is a roadmap everyone should follow irrespective of income levels. Yes, the
number of goals and the quantitative measure of your goals varies with your income
levels but setting the goals and aligning your finance with them is something
everyone should follow.

What does “goals” mean? Goals, in personal finance, means the objectives you want
to achieve in life with your money. It could be quitting your job to build a start-up or
funding your child’s education or buying your dream car or constructing your dream
home or taking early retirement.

But doesn’t investing regularly for these goals enough? What does financial planning
do differently?

Financial planning takes into account your current financial situation and your risk
profile and helps you set specific and measurable goals. It also includes budgeting,
efficient tax planning for your income and investments, your insurance needs and
your retirement needs.

An example of a measurable goal is, “I want to accumulate Rs.20 lakhs for my

daughter’s education in 2030”. An unmeasured goal will look like, “I want to
accumulate enough money for my daughter’s education when she turns 18”.

Financial planning thus gives you clarity and direction to every financial decision of
yours.

Another term often heard in the finance sector is “Wealth Management”. Finance
Planning and Wealth Management are often confused to be the same. Finance
Planning is about creating a strategy and executing it to achieve your goals. As you
execute the strategy, you will create wealth. Wealth management is about growth,
preservation, and enjoyment of wealth. It may involve creating multiple long-term
and short-term strategies to expand and preserve wealth.
A Wealth Manager has to take active decisions to identify opportunities to grow and
preserve wealth. It involves managing a large category of asset classes or managing a
set of assets for an individual.

Core Differences between two

1. Financial planning is more opted by the middle class or the lower- middle
class people, who need financial advice to help them make ends meet while
wealth management is chosen by high net worth or the highly elite class of the
society. These high worth individuals aim at identifying business opportunities
which can either double or triple their existing wealth.
2. Financial managers are always in demand and job opportunities for financial
managers are abundant. For the wealth managers, there are fewer opportunities
while the profession is a much highly paying one.
3. One does not need existing source of wealth to undertake financial planning as
it deals with day to day aspects of managing your finance. Wealth
management needs existing wealth as a platform or a base upon which future
capital or investment funds are accumulated.
4. Financial planning deals with day to day aspects of planning your cash, while
wealth management deals with preservation and increase of wealth. Here cash
is not the constraint. Asset like land, property, business corporates offices,
high- end furniture etc are taken into consideration
5. Financial planning does not require active participant by the concerned
recipients. It is the advisor who does most of the homework as far as assessing
your finances are concerned. While in wealth management, active participant
of the concerned recipient is absolutely necessary.

Having spoken about the differences of financial planning and wealth

management on a broader note, let us also discuss some of the key phase where
financial planning and wealth management activities are carried out:

Learning phase: It first starts with financial management. You learn more
about investment strategies business that operate in favor of customers, allocating
your cash in a wise manner, budgeting and many lot. Though you carry out the
aforesaid tasks on a day to day basis, you first need to familiarize yourself with
how the financial system actually works. Here no health management is
necessary. With a wise follow- up of procedures pertaining to financial planning
you invariable accumulate assets to create a sizeable amount of wealth. It is the
stage a proper wealth management strategy actually comes in the play.

Accumulation phase: Now, you have started applying your investment

strategy one by one. Again you follow up with a rigorous financial planning
methodology. You may not require wealth management at the initial stage. Here
are you at the threshold of amassing wealth.

Retirement phase: Now that you have inherited wealth on large scale you
need to have a proper wealth management system in place. Financial planning
now becomes the need of the hour as you need to make the right decision as to
where you want to invest your money in with respect to the real estate market.in a
nutshell you can conclude that wealth management is a part of financial planning.

Final Words

Having a financial plan in place is the first step to create wealth. A holistic plan
will help you identify your risks, fix your income leakages, set measurable goals,
and create wealth in the process. Financial planning does not require you to have
sufficient wealth.

As you execute the plan, you will be able to create an investible surplus, cover
your risks through insurance and make investments suiting your risk profile.

On the other hand, wealth management comes into picture when you have created
wealth and need professional help to grow, preserve and enjoy your wealth. It
requires the active monitoring of the wealth manager to identify the right mix of
investments for you.

Most people get into financial troubles and fail to create wealth because of wrong
decisions and not having a financial plan in place. Even if you have accumulated
sufficient wealth, a financial plan helps you to channelize your wealth in the right
manner to achieve your financial goals, meet your wants and realize your dreams.

Financial Planning in India:

Mutual Fund distributors and others involved in selling or distributing mutual

funds need to pass the prescribed examination before they can start selling mutual
 fund schemes. However, no such requirements have been set for financial
planners and wealth advisers. Securities & Exchange Board of India (SEBI) has
come out with a concept paper on the proposed regulatory structure for investment
advisers. The highlights are as follows:

1. There is an inherent conflict of interest between a distributor earning a

commission as agent of a product manufacturer (such as a mutual fund) and
performing the role of financial adviser claiming to protect the investor’s
interests.
2. The proposed model to tackle this conflict of interest is as follows: The
person who interfaces with the customer should declare upfront whether he is
a financial advisor or an agent of the companies. Advisers should be governed
They should be subject to Investment Advisors Regulations. Advisors should
acquire higher level of qualifications. They may act as advisor to investor for
multiple financial products.
They will receive all payments from the investor. There would be no limits
set on these payments.

Wealth management industry in India

The Indian Wealth Management market is on a sustained path of growth, given

India’s long-term economic prospects, positive demographics, rising income levels
and current low penetration. India is currently ranked among the Top 10 nations in
terms of total private wealth held as per Capgemini’s World Wealth report. The
aggregate wealth held by Indian High Net worth Individuals (HNI)

(i.e. individuals with investable assets of $ 1 million or more) is expected to grow at a

CAGR of 27 percent over next five years to approximately Rs.400 Trillion.

This, combined with robust GDP estimate by IMF of 7.5 percent in 2016 and 2017
and growing allocation to financial assets by HNIs, augurs well for the Indian Wealth
management industry.

Though wealth management is a new concept for India, some companies are started
working in this direction. Here is list of some companies:

1. ICICI Asset Management Company

2. HDFC Asset Management Company

3. Reliance Asset Management Company

4. UTI Asset Management Company

5. Birla Sun Life Asset Management Company

6. Kotak Mahindra Asset Management

7. Religare Asset Management Company

8. Tata Asset Management Company

9. Franklin Templeton

10. L & T Finance Limited

11. BNP Paribas Asset Management Company Limited

12. Morgan Stanley STBF

13. Sundaram Asset Management Company

14. Axis Asset Management Company

15. Bajaj Holdings or Bajaj Capital

16. Motilal Oswal Asset Management Company

17. Edelweiss Asset Management Limited

18. Muthoot Asset Management Company

Some are Indian companies whereas some are foreign companies who have started
giving guidance on wealth management to customers. Investment Avenues
Investment Avenues are different ways that you can invest your money. Following
investment avenues that are considered in this report are as follows: 1. Saving
Account 2. Bank Fixed Deposit 3. Public Provident Fund 4. National Saving
Certificate 5. Post Office Saving 6. Government Securities 7. Mutual Funds 8. Life
Insurance 9. Debentures 10. Bonds 11. Equity Share Market 12. Commodity Share
Market 13. FOREX Market 14. Real Estate (Property) 15. Gold 16.Chit fund

Importance of Wealth Management in India:

Although 8 percent of the total population in India represent 45 percent of the total
wealth, only 20 percent wealthy families take advice from wealth managers.
However, this number is growing steadily as more and more client seek advice for:

1) Asset Management

2) Financial Planning (specific short term and long term goals)

3) Tax Planning

4) Estate Planning

Around 69 percent of total HNI population in India is below the age of 55 years. This
population seek a wealth manager as they neither have the expertise nor the time to
monitor their investments. Everyone has needs and aspirations. Financial Planning is
an approach to assess the adequacy of income and assets of a person to meet the
financial requirements for fulfillment of these needs and aspirations. The role of
financial planning has been increasing in the market because:

Needs and aspirations of people are ever-increasing. This increases the financial
challenge that people face. Investors need to be counseled on the difference between
needs (essentials) and wants (desires). Prioritization of expenses is critical for people
who are struggling to make both ends meet.

Joint families are giving way to nuclear families. The nuclear family stays in a
separate house. The rentals or the acquisition cost of a house, are an important
financial need to plan for.

In a nuclear family, the individual is responsible for his immediate family. The
extended family, staying under a different roof, cannot be expected to support the
regular financial needs of the individual.

The period of earning for individuals is reducing, while the longevity (life span) of
people is increasing. This means that incomes earned over a shorter time period need
to finance the needs over a longer period of time. Hence the need for retirement
planning.

Income levels are going up. Higher investible surplus needs to be invested prudently
for the future. Hence the need for professional financial planning advice. The
financial assets and liabilities that are available in the market for various needs are
getting more and more complex. It is difficult for a layman to have a comprehensive
understanding of these financial products.

Tax provisions keep changing. People need to plan their taxes and ensure that they
take full benefit of the concessions available. This has opened the doors for
professional tax advisers.

Increasing complexities in family structure can create problems while transfer wealth
to the next generation. Therefore, estate planning is important. A professional
financial planner helping individuals navigate these challenges is an important
member of our society. The role and influence of financial planners is bound to grow
in India.

Evolving landscape of the Wealth Management industry in India:

With the growing population of HNIs outside of tier 1 cities, penetration and access to
services becomes a growing challenge. With technology being the prime driver of
businesses, there is lesser and lesser affinity to be tied down to a specific geographic
location. This has made use of technology to deliver solutions to HNIs a very
important part of the offering as the cost of delivering service in tier 2 and tier 3
locations is becoming difficult. Slowly and steadily Wealth Management firms are
finding technology solutions for offering advice by use of Robo advisors. These
computer driven asset allocation models can do the mundane jobs of basic asset
allocation with ease. However, for high involvement solutions like tax minimizing
strategies, estate planning etc. will continue to be done with human intervention. In
terms of offerings, Family Office solutions and Estate Planning is increasingly in
demand as more and more family run businesses see the next generation wanting to
start afresh and not necessarily continue with the traditional family business.

Another aspect of note is the emergence of the mass affluent. With increasing
urbanization and organized jobs (IT being the leader in this aspect), more and more
families are able to generate surplus income and would like to channelize this into
productive investments and not just savings in banks.

Future scope for Wealth Management in India:

Wealth management industry in India is still in a very nascent stage. The industry is
slowly and gradually moving from a one size fits all models to a more customized
offering. This is supplemented by technology to take care of the non-core activities.
As high as 25.5 percent HNI population in Asia pacific (ex Japan) is using credit to
enhance their returns. Hence, there is increased thrust on lending and credit solutions
for HNIs. The thrust on customization, technology dependence, need for lending
solutions and rising awareness and thrust on financial assets as against physical assets
is creating large opportunities for the Wealth Management industry in India. As
investors and products evolve over time, the industry can position itself to be able to
serve specific needs of clients across situations.

What success can a Wealth Management bring in to an organization and how

relevant is its role?

The whole concept of Wealth Management is ever changing. Clients' expectations are
ever changing and the ability to deliver differentiated service is continuously
diminishing. Having said that, the key differentiated service is provided by
engagement with organizations and HNIs at various levels. Organizations and HNIs
constantly want to focus more on their respective areas of expertise while leaving
activities like Financial Planning, Tax Planning etc. to the experts. Organizations want
one view of their investments; want higher customized offerings and need easy access
to credit and many such differentiated offerings. Wealth Management firms with their
ability to provide one stop shop for all these requirements save a lot of cost, time and
energy for their clients.

Various Avenues and Investments Alternative

Different avenues and alternatives of investment include share market, debentures or

bonds, money market instruments, mutual funds, life insurance, real estate, precious
objects, derivatives, non-marketable securities. All are differentiated based on their
different features in terms of risk, return, term etc.

INVESTMENT AVENUES

Are you searching for investment alternatives for parking idle funds? This article
provides a comprehensive list of such investment alternatives. Investment in any of
the alternatives depends on the needs and requirements of the investor. Corporates
and individuals have different needs. Before investing, these alternatives of
investments need to be analyzed in terms of their risk, return, term, convenience,
liquidity etc.

EQUITY SHARES

Equity investments represent ownership in a running company. By ownership, we

mean share in the profits and assets of the company but generally, there are no fixed
returns. It is considered as a risky investment but at the same time, depending upon
situation, it is liquid investments due to the presence of stock markets. There are
equity shares for which there is a regular trading, for those investments liquidity is
more otherwise for stocks have less movement, liquidity is not highly attractive.
Equity shares of companies can be classified as follows:

Blue chip scrip

Growth scrip

Income scrip

Cyclical scrip

Speculative scrip

DEBENTURES OR BONDS

Debentures or bonds are long-term investment options with a fixed stream of cash
flows depending on the quoted rate of interest. They are considered relatively less
risky. An amount of risk involved in debentures or bonds is dependent upon who the
issuer is. For example, if the issue is made by a government, the risk is assumed to be
zero. However, investment in long term debentures or bonds, there are risk in terms of
interest rate risk and price risk. Suppose, a person requires an amount to fund his
child’s education after 5 years. He is investing in a debenture having maturity period
of 8 years, with coupon payment annually. In that case there is a risk of reinvesting
coupon at a lower interest rate from end of year 1 to end of year 5 and there is a price
risk for increase in rate of interest at the end of fifth year, in which price of security
falls. In order to immunize risk, investment can be made as per duration concept.
Following alternatives are available under debentures or bonds:

Government securities
Savings bonds

Public Sector Units bonds

Debentures of private sector companies

Preference shares

MONEY MARKET INSTRUMENTS

Money market instruments are just like the debentures but the time period is very less.
It is generally less than 1 year. Corporate entities can utilize their idle working capital
by investing in money market instruments. Some of the money market instruments are

Treasury Bills

Commercial Paper

Certificate of Deposits

MUTUAL FUNDS

Mutual funds are an easy and tension free way of investment and it automatically
diversifies the investments. A mutual fund is an investment only in debt or only in
equity or mix of debts and equity and ratio depending on the scheme. They provide
with benefits such as professional approach, benefits of scale and convenience.
Further investing in mutual fund will have advantage of getting professional
management services, at a lower cost, which otherwise was not possible at all. In case
of open ended mutual fund scheme, mutual fund is giving an assurance to investor
that mutual fund will give support of secondary market. There is an absolute
transparency about investment performance to investors. On real time basis, investors
are informed about performance of investment. In mutual funds also, we can select
among the following types of portfolios:

Equity Schemes

Debt Schemes

Balanced Schemes

Sector Specific Schemes etc.

LIFE INSURANCE AND GENERAL INSURANCE

They are one of the important parts of good investment portfolios. Life insurance is an
investment for the security of life. The main objective of other investment avenues is
to earn a return but the primary objective of life insurance is to secure our families
against unfortunate event of our death. It is popular in individuals. Other kinds of
general insurances are useful for corporates. There are different types of insurances
which are as follows:

Endowment Insurance Policy

Money Back Policy

Whole Life Policy

Term Insurance Policy

General Insurance for any kind of assets.

REAL ESTATE

Every investor has some part of their portfolio invested in real assets. Almost every
individual and corporate investor invest in residential and office buildings
respectively. Apart from these, others include:

Agricultural Land

Semi-Urban Land

Commercial Property

Raw House

Farm House etc.

PRECIOUS OBJECTS

Precious objects include gold, silver and other precious stones like the diamond. Some
artistic people invest in art objects like paintings, ancient coins etc.

DERIVATIVES

Derivatives means indirect investments in the assets. The derivatives market is

growing at a tremendous speed. The important benefit of investing in derivatives is
that it leverages the investment, manages the risk and helps in doing speculation.
Derivatives include:

Forwards

Futures

Options

Swaps etc.

NON-MARKETABLE SECURITIES

Non-marketable securities are those securities which cannot be liquidated in the

financial markets. Such securities include:

Bank Deposits

Post Office Deposits

Company Deposits

Provident Fund Deposits

STEPS OR PROCESS OF SELECTING INVESTMENT ALTERNATIVES

INVESTMENT ALTERNATIVES WITH THEIR ATTRIBUTES

Investment alternatives for any person are divided into a real asset and financial asset.
Real assets deal with property, precious objects etc. Though real asset takes a large
portion of money when it comes to investment, major efforts for making investment
decision are dedicated to financial assets. Any investment has two aspects – time and
risk. An investment in an asset is a sacrifice of current consumption to get some return
in future. Assets are expected to generate cash flows and the probabilities of variation
in the expected cash flow in future give rise to risk. So, all the alternatives are
analyzed for their time and risk factor before selecting a particular asset for
investment.

ANALYSIS AND SELECTION OF ASSETS IN A PORTFOLIO

Broadly, the investment in the financial asset can be divided into equity, debt, and
cash or cash equivalent. These alternatives play an important role in building a
portfolio. One asset helps in offsetting the weakness of other. But, even within these
broad financial assets, there are many alternatives available. So, now the question
arises, “where to invest?” or “which asset to select?” Just building portfolio will not
ensure the better return. So, before deciding the specific securities among different
asset class proper analysis should be carried on. In the case of stocks, generally
fundamental or technical analysis is adopted. Whereas, in the case of debt, factors like
yields, rating, tax shelter, and liquidity are taken into consideration. A part of the
portfolio is also allocated to cash and cash equivalent for liquidity and contingencies
or any sudden opportunity.

ALLOCATION OF FUNDS BY PORTFOLIO THEORY OF DIVERSIFICATION

The riskiness of an asset can be measured alone and also of a portfolio. The magic of
diversification can be seen when assets are assessed in a portfolio. So, portfolio theory
emphasizes that instead of investing your money into one asset, spread it between
different investment alternatives. However, what amount should be allocated to what
asset class or alternative depends on individual’s investment objective and constraint?
Within the parameter of one’s objectives, a better return can be achieved with the help
of proper investment management.

As soon the money is divided into different assets, the attributes of all these assets
form a base for assessing portfolio, for e.g. risk & return of individual investment
avenue. The expected return of a portfolio is the weighted average of the expected
returns on the individual asset with weights as the percentage of portfolio or the
amount of investment in the individual asset. Please note that the portfolio risk is not
the weighted average of the risks of individual securities. Rather risk is measured by
taking into consideration the covariance of securities. Therefore, mixing asset classes
can help moderate the risk.

INVESTMENT MONITORING

Investment management does not just end with building the portfolio, but the work
starts here. Now, one needs to regularly monitor, review and upgrade it. Investor
should make sure that at correct time investment is made and at correct time
investment is sold. Also, performance evaluation of the same is crucial because
feedback of results can only ensure you whether you have made right investment
decisions or not. No time is too late to build a portfolio because it can be tailored as
per the needs and objectives of the individual. However, a better return can be
achieved, if one believes and follow the process of investment management.

Top Investment Options:

Most investors want to make investments in such a way that they get sky-high returns
as fast as possible without the risk of losing the principal money. This is the reason
why many investors are always on the lookout for top investment plans where they
can double their money in few months or years with little or no risk.

However, it is a fact that investment products that give high returns with low risk do
not exist. In reality, risk and returns are inversely related, i.e., higher the returns,
higher is the risk, and vice versa. So, while selecting an investment avenue, you have
to match your own risk profile with the risks associated with the product before
investing. There are some investments that carry high risk but have the potential to
generate high inflation-adjusted returns than other asset class in the long term while
some investments come with low-risk and therefore lower returns.

There are two buckets that investment products fall into - financial and non-financial
assets. Financial assets can be divided into market-linked products (like stocks and
mutual funds) and fixed income products (like Public Provident Fund, bank fixed
deposits). Non-financial assets - most Indians invest via this mode - are the likes of
gold and real estate.

a. Direct equity: Investing in stocks may not be everyone's cup of tea as it's a volatile
asset class and there is no guarantee of returns. Further, not only is it difficult to
pick the right stock, timing your entry and exit is also not easy. The only silver
lining is that over long periods, equity has been able to deliver higher than
inflation-adjusted returns compared to all other asset classes. At the same time, the
risk of losing a considerable portion of capital is high unless one opts for stop-loss
method to curtail losses. In stop-loss, one places an advance order to sell a stock at
a specific price. To reduce the risk to certain extent, you could diversify across
sectors and market capitalizations. Currently, the 1-, 3-, 5 year market returns are
around 13 percent, 8 percent and 12.5 percent, respectively. To invest in direct
equities, one needs to open a demat account.
b. Equity mutual funds: Equity mutual funds predominantly invest in equity stocks.
As per current Securities and Exchange Board of India (SEBI) Mutual Fund
Regulations, an equity mutual fund scheme must invest at least 65 percent of its
assets in equities and equity-related instruments. An equity fund can be actively
managed or passively managed.
In an actively traded fund, the returns are largely dependent on a fund
manager's ability to generate returns. Index funds and exchange-traded fund
(ETFs) are passively managed, and these track the underlying index. Equity
schemes are categorised according to market-capitalization or the sectors in which
they invest. They are also categorised by whether they are domestic (investing in
stocks of only Indian companies) or international (investing in stocks of overseas
companies). Currently, the 1- 1-, 3-, 5-year market return is around 15 percent, 15
percent, and 20 percent, respectively.
c. Debt mutual funds: Debt funds are ideal for investors who want steady returns.
They are less volatile and, hence, less risky compared to equity funds. Debt
mutual funds primarily invest in fixed-interest generating securities like corporate
bonds, government securities, treasury bills, commercial paper and other money
market instruments. Currently, the 1-, 3-, 5-year market return is around 6.5
percent, 8 percent, and 7.5 percent, respectively.
d. National Pension System (NPS): The National Pension System (NPS) is a long
term retirement - focused investment product managed by the Pension Fund
Regulatory and Development Authority (PFRDA). The minimum annual (April-
March) contribution for an NPS Tier-1 account to remain active has been reduced
from Rs 6,000 to Rs 1,000. It is a mix of equity, fixed deposits, corporate bonds,
liquid funds and government funds, among others. Based on your risk appetite,
you can decide how much of your money can be invested in equities through NPS.
Currently, the 1-,3-,5-year market return for Fund option E is around 9.5 percent,
8.5 percent, and 11 percent, respectively.
e. Public Provident Fund (PPF): The Public Provident Fund (PPF) is one product a
lot of people turn to. Since the PPF has a long tenure of 15 years, the impact of
compounding of tax-free interest is huge, especially in the later years. Further,
since the interest earned and the principal invested is backed by sovereign
guarantee, it makes it a safe investment.
f. Bank fixed deposit (FD): A bank fixed deposit (FD) is a safe choice for investing
in India. Under the deposit insurance and credit guarantee corporation (DICGC)
rules, each depositor in a bank is insured up to a maximum of Rs1 lakh for both
principal and interest amount. As per the need, one may opt for monthly,
quarterly, half-yearly, yearly or cumulative interest option in them. The interest
rate earned is added to one's income and is taxed as per one's income slab.
g. Senior Citizens' Saving Scheme (SCSS): Probably the first choice of most retirees,
the Senior Citizens' Saving Scheme (SCSS) is a must-have in their investment
portfolios. As the name suggests, only senior citizens or early retirees can invest
in this scheme. SCSS can be availed from a post office or a bank by anyone above
60. SCSS has a five-year tenure, which can be further extended by three years
once the scheme matures. Currently, the interest rate that can be earned on SCSS
is 8.3 per cent per annum, payable quarterly and is fully taxable. The upper
investment limit is Rs15 lakh, and one may open more than one account.
h. RBI Taxable Bonds: The government has replaced the erstwhile 8 percent Savings
(Taxable) Bonds 2003 with the 7.75 per cent Savings (Taxable) Bonds. These
bonds come with a tenure of 7 years. The bonds may be issued in demat form and
credited to the Bond Ledger Account (BLA) of the investor and a Certificate of
Holding is given to the investor as proof of investment.
i. . Real Estate: The house that you live in is for self-consumption and should never
be considered as an investment. If you do not intend to live in it, the second
property you buy can be your investment.
The location of the property is the single most important factor that will determine
the value of your property and also the rental that it can earn. Investments in real
estate deliver returns in two ways - capital appreciation and rentals. However,
unlike other asset classes, real estate is highly illiquid. The other big risk is with
getting the necessary regulatory approvals, which has largely been addressed after
coming of the real estate regulator.
j. Gold: Possessing gold in the form of jewellery has its own concerns like safety
and high cost. Then there's the 'making charges', which typically range between 6-
14 per cent of the cost of gold (and may go as high as 25 percent in case of special
designs). For those who would want to buy gold coins, there's still an option. One
can also buy ingeniously minted coins. An alternate way of owning paper gold in
a more cost-effective manner is through gold ETFs. Such investment (buying and
 selling) happens on a stock exchange (NSE or BSE) with gold as the underlying
asset. Investing in Sovereign Gold Bonds is another option to own paper-gold.
k. Life Insurance: Life insurance is a protection against the loss of income that
would result if the insured passed away. The named beneficiary receives the
proceeds and is thereby safeguarded from the financial impact of the death of the
insured. The goal of life insurance is to provide a measure of financial security for
your family after you die. So, before purchasing a life insurance policy, you
should consider your financial situation and the standard of living you want to
maintain for your dependents or survivors.
l. Debentures & Bonds: A debenture is a type of debt instrument that is not secured
by physical assets or collateral. Debentures are backed only by the general
creditworthiness and reputation of the issuer. Both corporations and governments
frequently issue this type of bond to secure capital. Like other types of bonds,
debentures are documented in an indenture. There are 2 types of debentures:
Convertible and nonconvertible. 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 are
used by companies, municipalities, states and sovereign governments to raise
money and finance a variety of projects and activities.
m. Equity Market Equity market one of the most vital areas of a market economy
because it gives companies access to capital and investors a slice of ownership in
a company with the potential to realize gains based on its future performance. The
securities traded in the equity market can be either public stocks, which are those
listed on the stock exchange, or privately traded stocks.
n. Commodity Market A physical or virtual marketplace for buying, selling and
trading raw or primary products. For investors' purposes there are currently about
50 major commodity markets worldwide that facilitate investment trade in nearly
100 primary commodities. Commodities are split into two types: hard and soft
commodities. Hard commodities are typically natural resources that must be
mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are
agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, etc.
o. FOREX Market: FOREX is the market in which currencies are traded. The
FOREX market is the largest, most liquid market in the world, with average
traded values that can be trillions of dollars per day. It includes all of the
 currencies in the world. There is no central marketplace for currency exchange;
trade is conducted over the counter. FOREX transactions take place on either a
spot or a forward basis
p. Chit Fund: A Chit fund is a kind of savings scheme practiced in India. A chit fund
company is a company that manages, conducts, or supervises such a chit fund,
such chit fund schemes may be conducted by organized financial institutions, or
may be unorganized schemes conducted between friends or relatives. In some
variations of chit funds, the savings are for a specific purpose.

Guide to Financial Statements

Basics

If you can read a nutrition label or a baseball box score, you can learn to read basic
financial statements. If you can follow a recipe or apply for a loan, you can learn basic
accounting. The basics aren’t difficult and they aren’t rocket science.

This brochure is designed to help you gain a basic understanding of how to read
financial statements. Just as a CPR class teaches you how to perform the basics of
cardiac pulmonary resuscitation, this brochure will explain how to read the basic parts
of a financial statement. It will not train you to be an accountant (just as a CPR course
will not make you a cardiac doctor), but it should give you the confidence to be able
to look at a set of financial statements and make sense of them.

Let’s begin by looking at what financial statements do.

“Show me the money!”

We all remember Cuba Gooding’s immortal line from the movie Jerry Maguire,
“Show me the money!” Well, that’s what financial statements do. They show you the
money. They show you where a company’s money came from, where it went, and
where it is now. There are four main financial statements. They are: (1) balance
sheets; (2) income statements; (3) cash flow statements; and (4) statements of
shareholders’ equity. Balance sheets show what a company owns and what it owes at
a fixed point in time. Income statements show how much money a company made and
spent over a period of time. Cash flow statements show the exchange of money
between a company and the outside world also over a period of time. The fourth
financial statement, called a “statement of shareholders’ equity,” shows changes in the
interests of the company’s shareholders over time.

Balance sheet

A balance sheet provides detailed information about a company’s assets, liabilities

and shareholders’ equity.

Assets are things that a company owns that have value. This typically means they can
either be sold or used by the company to make products or provide services that can
be sold. Assets include physical property, such as plants, trucks, equipment and
inventory. It also includes things that can’t be touched but nevertheless exist and have
value, such as trademarks and patents. And cash itself is an asset. So are investments a
company makes.

Liabilities are amounts of money that a company owes to others. This can include all
kinds of obligations, like money borrowed from a bank to launch a new product, rent
for use of a building, money owed to suppliers for materials, payroll a company owes
to its employees, environmental cleanup costs, or taxes owed to the government.
Liabilities also include obligations to provide goods or services to customers in the
future.

Shareholders’ equity is sometimes called capital or net worth. It’s the money that
would be left if a company sold all of its assets and paid off all of its liabilities. This
leftover money belongs to the shareholders, or the owners, of the company.

A company’s balance sheet is set up like the basic accounting equation shown above.
On the left side of the balance sheet, companies list their assets. On the right side,
they list their liabilities and shareholders’ equity.

Sometimes balance sheets show assets at the top, followed by liabilities, with
shareholders’ equity at the bottom.
Assets are generally listed based on how quickly they will be converted into cash.
Current assets are things a company expects to convert to cash within one year. A
good example is inventory. Most companies expect to sell their inventory for cash
within one year. Noncurrent assets are things a company does not expect to convert to
cash within one year or that would take longer than one year to sell. Noncurrent assets
include fixed assets.
Fixed assets are those assets used to operate the business but that are not available for
sale, such as trucks, office furniture and other property. Liabilities are generally listed
based on their due dates. Liabilities are said to be either current or long-term. Current
liabilities are obligations a company expects to pay off within the year. Long-term
liabilities are obligations due more than one year away. Shareholders’ equity is the
amount owners invested in the company’s stock plus or minus the company’s
earnings or losses since inception. Sometimes companies distribute earnings, instead
of retaining them. These distributions are called dividends.

A balance sheet shows a snapshot of a company’s assets, liabilities and shareholders’

equity at the end of the reporting period. It does not show the flows into and out of the
accounts during the period.

Income statement

An income statement is a report that shows how much revenue a company earned
over a specific time period (usually for a year or some portion of a year). An income
statement also shows the costs and expenses associated with earning that revenue. The
literal “bottom line” of the statement usually shows the company’s net earnings or
losses. This tells you how much the company earned or lost over the period.

Income statements also report earnings per share (or “EPS”). This calculation tells
you how much money shareholders would receive if the company decided to
distribute all of the net earnings for the period. (Companies almost never distribute all
of their earnings. Usually they reinvest them in the business.)

To understand how income statements are set up, think of them as a set of stairs. You
start at the top with the total amount of sales made during the accounting period. Then
you go down, one step at a time. At each step, you make a deduction for certain costs
or other operating expenses associated with earning the revenue. At the bottom of the
stairs, after deducting all of the expenses, you learn how much the company actually
earned or lost during the accounting period. People often call this “the bottom line.”

At the top of the income statement is the total amount of money brought in from sales
of products or services. This top line is often referred to as gross revenues or sales.
It’s called “gross” because expenses have not been deducted from it yet. So the
number is “gross” or unrefined. The next line is money the company doesn’t expect
to collect on certain sales. This could be due, for example, to sales discounts or
merchandise returns.

When you subtract the returns and allowances from the gross revenues, you arrive at
the company’s net revenues. It’s called “net” because, if you can imagine a net, these
revenues are left in the net after the deductions for returns and allowances have come
out.
Moving down the stairs from the net revenue line, there are several lines that
represent various kinds of operating expenses. Although these lines can be reported in
various orders, the next line after net revenues typically shows the costs of the sales.
This number tells you the amount of money the company spent to produce the goods
or services it sold during the accounting period.

The next line subtracts the costs of sales from the net revenues to arrive at a subtotal
called “gross profit” or sometimes “gross margin.” It’s considered “gross” because
there are certain expenses that haven’t been deducted from it yet.

The next section deals with operating expenses. These are expenses that go toward
supporting a company’s operations for a given period – for example, salaries of
administrative personnel and costs of researching new products. Marketing expenses
are another example. Operating expenses are different from “costs of sales,” which
were deducted above, because operating expenses cannot be linked directly to the
production of the products or services being sold.

Depreciation is also deducted from gross profit. Depreciation takes into account the
wear and tear on some assets, such as machinery, tools and furniture, which are used
over the long term. Companies spread the cost of these assets over the periods they
are used. This process of spreading these costs is called depreciation or amortization.
The “charge” for using these assets during the period is a fraction of the original cost
of the assets.

After all operating expenses are deducted from gross profit, you arrive at operating
profit before interest and income tax expenses. This is often called “income from
operations.” Next companies must account for interest income and interest expense.
Interest income is the money companies make from keeping their cash in interest-
bearing savings accounts, money market funds and the like. On the other hand,
interest expense is the money companies paid in interest for money they borrow.
Some income statements show interest income and interest expense separately. Some
income statements combine the two numbers. The interest income and expense are
then added or subtracted from the operating profits to arrive at operating profit before
income tax. Finally, income tax is deducted and you arrive at the bottom line: net
profit or net losses. (Net profit is also called net income or net earnings).

Financial Statement Ratios and Calculations:

You’ve probably heard people banter around phrases like “P/E ratio,” “current ratio”
and “operating margin.” But what do these terms mean and why don’t they show up
on financial statements? Listed below are just some of the many ratios that investors
calculate from information on financial statements and then use to evaluate a
company. As a general rule, desirable ratios vary by industry.

1. Debt-to-equity ratio compares a company’s total debt to shareholders’ equity.

Both of these numbers can be found on a company’s balance sheet. To
calculate debt-to-equity ratio, you divide a company’s total liabilities by its
shareholder equity, or

Debt-to-Equity Ratio = Total Liabilities / Shareholders’ Equity

If a company has a debt-to-equity ratio of 2 to 1, it means that the company has

two dollars of debt to every one dollar shareholders invest in the company. In other
words, the company is taking on debt at twice the rate that its owners are investing in
the company.

2. Inventory turnover ratio compares a company’s cost of sales on its income

statement with its average inventory balance for the period. To calculate the
average inventory balance for the period, look at the inventory numbers listed
on the balance sheet. Take the balance listed for the period of the report and
add it to the balance listed for the previous comparable period, and then divide
by two. (Remember that balance sheets are snapshots in time. So the inventory
balance for the previous period is the beginning balance for the current period,
and the inventory balance for the current period is the ending balance.) To
calculate the inventory turnover ratio, you divide a company’s cost of sales
(just below the net revenues on the income statement) by the average
inventory for the period, or
 Inventory Turnover Ratio = Cost of Sales / Average Inventory for the Period
If a company has an inventory turnover ratio of 2 to 1, it means that the
company’s inventory turned over twice in the reporting period.
3. Operating margin compares a company’s operating income to net revenues.
Both of these numbers can be found on a company’s income statement. To
calculate operating margin, you divide a company’s income from operations
(before interest and income tax expenses) by its net revenues, or
Operating Margin = Income from Operations / Net Revenues
Operating margin is usually expressed as a percentage. It shows, for each
dollar of sales, what percentage was profit.
P/E ratio compares a company’s common stock price with its earnings per
share. To calculate a company’s P/E ratio, you divide a company’s stock price
by its earnings per share, or
P/E Ratio = Price per share / Earnings per share
If a company’s stock is selling at $20 per share and the company is earning $2
per share, then the company’s P/E Ratio is 10 to 1. The company’s stock is
selling at 10 times its earnings.
4. Working capital is the money leftover if a company paid its current liabilities
(that is, its debts due within one-year of the date of the balance sheet) from its
current assets.
Working Capital = Current Assets – Current Liabilities

Saving and Investing

Define Your Goals

To end up where you want to be, you’ll need a roadmap, a financial plan.

To get started on your plan, you’ll need to ask yourself what are the things you want
to save and invest for. Here are some possibilities:

1. A home
2. A car
3. An education
4. A comfortable retirement
5. Your children
 6. Medical or other emergencies
7. Periods of unemployment
8. Caring for parents

Small Savings Add Up to Big Money

How much does a cup of coffee cost you?

Would you believe $465.83.5? Or more?

If you buy a cup of coffee every day for $1.00 (an awfully good price for a decent cup
of coffee, nowadays), that adds up to $365.00 a year. If you saved that $365.00 for
just one year, and put it into a savings account or investment that earns 5% a year, it
would grow to $465.83.5 by the end of 5 years, and by the end of 30 years, to
$1,577.50.

That’s the power of “compounding.” With compound interest, you earn interest on the
money you save and on the interest that money earns. Over time, even a small amount
saved can add up to big money.

If you are willing to watch what you spend and look for little ways to save on a
regular schedule, you can make money grow. You just did it with one cup of coffee.

If a small cup of coffee can make such a huge difference, start looking at how you
could make your money grow if you decided to spend less on other things and save
those extra dollars.

If you buy on impulse, make a rule that you’ll always wait 24 hours to buy anything.
You may lose your desire to buy it after a day. And try emptying your pockets and
wallet of spare change at the end of each day. You’ll be surprised how quickly those
nickels and dimes add up!

Pay Off Credit Card or Other High Interest Debt

Speaking of things adding up, there is no investment strategy anywhere that pays off
as well as, or with less risk than, merely paying off all high interest debt you may
have. Many people have wallets filled with credit cards, some of which they’ve
“maxed out” (meaning they’ve spent up to their credit limit). Credit cards can make it
seem easy to buy expensive things when you don’t have the cash in your pocket—or
in the bank. But credit cards aren’t free money.

Most credit cards charge high interest rates—as much as 18 percent or more—if you
don’t pay off your balance in full each month. If you owe money on your credit cards,
the wisest thing you can do is pay off the balance in full as quickly as possible.
Virtually no investment will give you the high returns you’ll need to keep pace with
an 18 percent interest charge. That’s why you’re better off eliminating all credit card
debt before investing savings. Once you’ve paid off your credit cards, you can budget
your money and begin to save and invest. Here are some tips for avoiding credit card
debt:
Put Away the Plastic

Don’t use a credit card unless your debt is at a manageable level and you know you’ll
have the money to pay the bill when it arrives.

Know What You Owe

It’s easy to forget how much you’ve charged on your credit card. Every time you use
a credit card, write down how much you have spent and figure out how much you’ll
have to pay that month. If you know you won’t be able to pay your balance in full, try
to figure out how much you can pay each month and how long it’ll take to pay the
balance in full.

Pay Off the Card with the Highest Rate

If you’ve got unpaid balances on several credit cards, you should first pay down the
card that charges the highest rate. Pay as much as you can toward that debt each
month until your balance is once again zero, while still paying the minimum on your
other cards. The same advice goes for any other high interest debt (about 8% or
above) which does not offer the tax advantages of, for example, a mortgage.

Pay Off the Card with the Highest Rate

If you’ve got unpaid balances on several credit cards, you should first pay down the
card that charges the highest rate. Pay as much as you can toward that debt each
month until your balance is once again zero, while still paying the minimum on your
other cards. The same advice goes for any other high interest debt (about 8% or
above) which does not offer the tax advantages of, for example, a mortgage.

Risk Tolerance

You are approaching the half-way point in your journey to saving and investing. This
is a good point to make sure that you understand some key concepts:

Savings

Your "savings" are usually put into the safest places or products that allow you access
to your money at any time. Examples include savings accounts, checking accounts,
and certificates of deposit. At some banks and savings and loan associations your
deposits may be insured by the Federal Deposit

Insurance Corporation (FDIC). But there's a tradeoff for security and ready
availability. Your money is paid a low wage as it works for you.

Most smart investors put enough money in a savings product to cover an emergency,
like sudden unemployment. Some make sure they have up to 6 months of their
income in savings so that they know it will absolutely be there for them when they
need it.

But how "safe" is a savings account if you leave all your money there for a long time,
and the interest it earns doesn't keep up with inflation? Let’s say you save a dollar
when it can buy a loaf of bread. But years later when you withdraw that dollar plus
the interest you earned, it might only be able to buy half a loaf. That is why many
people put some of their money in savings, but look to investing so they can earn
more over long periods of time, say three years or longer.

Investing

When you "invest," you have a greater chance of losing your money than when you
"save." Unlike FDIC-insured deposits, the money you invest in securities, mutual
funds, and other similar investments are not federally insured. You could lose your
"principal," which is the amount you've invested. That’s true even if you purchase
your investments through a bank. But when you invest, you also have the opportunity
to earn more money than when you save.
Selecting a Financial Professional

Are you the type of person who will read as much as possible about potential
investments and ask questions about them? If so, maybe you don’t need investment
advice. But if you’re busy with your job, your children, or other responsibilities, or
feel you don’t know enough about investing on your own, then you may need
professional investment advice. You should consider consulting with a Board
Certified Wealth Manager www.aafm.us who also has a CPA or law license.

Investment professionals offer a variety of services at a variety of prices. It pays to

comparison shop. You can get investment advice from most financial institutions that
sell investments, including brokerages, banks, mutual funds, and insurance
companies. You can also hire a broker, an investment adviser, an accountant, a
financial planner, or other professional to help you make investment decisions.

Choosing someone to help you with your investments is one of the most important
investment decisions you will ever make. While most investment professionals are
honest and hardworking, you must watch out for those few unscrupulous individuals.
They can make your life’s savings disappear in an instant. Securities regulators and
law enforcement officials can and do catch these criminals. But putting them in jail
doesn’t always get your money back. Too often, the money is gone. The good news is
you can avoid potential problems by protecting yourself.

Let’s say you’ve already met with several investment professionals based on
recommendations from friends and others you trust, and you’ve found someone who
clearly understands your investment objectives. Before you hire this person, you still
have more homework.

Make sure the investment professional and her firm are registered with the SEC and
licensed to do business in your state. And find out from your state’s securities
regulator whether the investment professional or her firm have ever been disciplined,
or whether they have any complaints against them. You should also find out as much
as you can about any investments that your investment professional recommends.
First, make sure the investments are registered. Keep in mind, however, the mere fact
that a company has registered and files reports with the SEC doesn’t guarantee that
the company will be a good investment. Likewise, the fact that a company hasn’t
registered and doesn’t file reports with the SEC doesn’t mean the company is a fraud.
Still, you may be asking for serious losses if, for instance, you invest in a small, thinly
traded company that isn’t widely known solely on the basis of what you may have
read online. Be wary of promises of quick profits, offers to share “inside
information,” and pressure to invest before you have an opportunity to investigate.

Ask your investment professional for written materials and prospectuses, and read
them before you invest. If you have questions, now is the time to ask.

1. How will the investment make money?

2. How is this investment consistent with my investment goals?
3. What must happen for the investment to increase in value?
4. What are the risks?
5. Where can I get more information?

What If I Have a Problem?

Finally, it’s always a good idea to write down everything your investment
professional tells you. Accurate notes will come in handy if ever there’s a problem.

Some investments make money. Others lose money. That’s natural, and that’s why
you need a diversified portfolio to minimize your risk. But if you lose money because
you’ve been cheated, that’s not natural, that’s a problem.

Sometimes all it takes is a simple phone call to your investment professional to

resolve a problem. Maybe there was an honest mistake that can be corrected. If
talking to the investment professional doesn’t resolve the problem, talk to the firm’s
manager, and write a letter to confirm your conversation. If that doesn’t lead to a
resolution, you may have to initiate private legal action. You may need to take action
quickly because legal time limits for doing so vary. Your local bar association can
provide referrals for attorneys who specialize in securities law.
Velmurugan et al (2015) concludes that investment done in various investment
avenues with the expectation of capital appreciation and short and long term earnings.
The basic idea behind investment of all government, private, self-employed and
retired person in this study is to utilize the surplus money in favourable plans so that
the money will be rolled back as well as it will give high returns also. When a
common men thinks about investment he will never go for any risky plan. In the
present scenario the share and gold market is highly uncertain and unpredictable, so
the investor should analyze the market cautiously and then make investment decision.
Wyman et al (2014) says that digital is a threat to established participants in wealth
management. Younger, technologically-savvy investors have a greater comfort level
with self-directed investing than the older generation of today. These investors have
also grown up in a world where young companies routinely disrupt older companies
— and often create entirely new industries. As a result, the next generation of
investors is likely to have a greater openness to directing their savings to entities that
rely on new models and different technologies—all at lower cost—than established
wealth managers. But there are also digitally-oriented opportunities for established
wealth managers to deepen their connection with investors through the use of
enhanced communications platforms, while also improving the overall investor
experience. Significantly, technology can also be harnessed to reduce operating costs
—savings that can be passed along as lower fees to investors.

Nayak (2013) in his report says that there has been a significant change in the levels
and density of savings pattern of the rural households because of the increase in
saving opportunities available with a convenient bar. The increase in the financial
institutions like banks, micro finance institutions, SHGs and other local banks
provided an opportunity to the rural people to save more. The increase in awareness
among the people for their future security as through the unforeseen cases like sudden
death of a family member, medical emergency and any other financial crisis,
education of their children, marriage of a family member has made people inclined to
save. The degree of change in savings as compared to urban communities of the rural
households are not much but still has brought a revolution in the pattern of savings of
the rural households.
Schröder (2013) analyzes the responses to a represent survey of wealth advisors on
private wealth management practices, and compares the advisors’ views to academic
research in household finance. This study demonstrates that many wealth managers do
not apply novel insights proposed by financial economists when advising their
investors. Many practitioners focus on managing only the market risk exposure of
their investors’ portfolios. Although financial research has stressed the importance of
incorporating human capital, planned future expenditures and the investment time
horizon into the investor’s asset allocation, these aspects are neglected by most
practitioners.

Cognizant Reports (2011) published a report which says that India’s wealth
management services sector is largely fragmented, which isn’t surprising given the
industry is still in its early days. Most organized players have so far focused mainly
on the urban segment, leaving untapped about one-fifth of India’s high net worth
individuals (HNWI) population. While early entrants and established local players
have gained trust with potential investors, firms looking to enter the market will need
to invest heavily in brand-building exercises to convey their trustworthiness. Hence, it
is recommended that firms take a long-term view while evaluating potential return on
investment. The overall outlook and trends in India indicate a huge potential for
growth for new and established wealth management firms.

Lucarelli et al (2011) in this paper proposes a theoretical framework which sets

alternative business models (BMs) in the wealth management industry, testing them
with experimental data. Our “map” of business models arises when wealth managers
(WMs) potentially make a mix of business process standardization/customization,
together with ‘make or buy choices’, after an external and internal strategic analysis
has been carried out. Operational data support that our business models map can be a
reliable instrument both to describe and to guide the strategic position of WMs.
Sharma (2008-2010) concluded that Indian investors are very conservative and less
risk taker. They prefer to invest their money into safe securities even they know that
they will get the less return on the investment and may be possible that they could not
cover up the inflation rate but still they prefer to invest in these securities. This is not
because they all are risk averse or they don’t want to get more return but it is because
of lack of knowledge and lack of expertise services in small cities. Investors are not
getting the expert’s services because they are not aware of such kind of services.
Nita et al (2009) examines the features of private banking business focusing on the
substantial growth in private banking over the last decade as commercial banks have
targeted up market high net worth individuals. The accumulation of wealth has
prompted the development of private banking services for high net worth individuals,
offering special relationships and investment services. Private banking is about much
more than traditional banking services of deposits and loans. These kinds of services
include: Protecting and growing assets in the present, providing specialized financing
solutions, planning retirement and passing wealth on to future generations.

Pang et al (2009) says that wealth management strategies for individuals in

retirement, focusing on trade-offs regarding wealth creation and income security.
Systematic withdrawals from mutual funds generally give opportunities for greater
wealth creation at the risk of large investment losses and income shortfalls. Fixed and
variable life annuities forgo bequest considerations and distribute the highest incomes.
A variable annuity with guaranteed minimum withdrawal benefit (VA GMWB)
somewhat addresses both income need and wealth preservation. Mixes of mutual
funds and fixed life annuities deliver solutions broadly similar to an even more
flexible than a VA GMWB strategy.

Caselli et al (2005) explains the segment of banking services that focus on families
and family-owned businesses, within the private banking business, by examining
synergies among the various financial integrated activities and by offering ideas on
how to develop new business opportunities.
Research Methodology is the systematic and theoretical analysis of the methods
applied to a field of study. It involves qualitative and quantities techniques. In other
words, it is a process used to collect information and data for the purpose of the
making business decisions.

This part aims to understand the research methodology establishing a framework of

evaluation and revaluation of primary and secondary research.

Title of study

“A Study of Awareness & Knowledge about Wealth Management among

Individuals”

Research Objective

1. To know the awareness among individual for Wealth Management.

2. To figure out the popular source of investment avenue.

3. Percentage up to which individuals is ready to save at how much risk.

Research Design

Data Collection Survey through questionnaire

Type of Data Primary data
Sample area Individual equal and above the age
young
Research instruments Questionnaire
Type of questionnaire Structured
Statistical Charts used Pie Charts, column & bar graphs
Sample size 63
Sampling Technique Convenient sampling

Limitation

The limitations of the study are those characteristics of design or methodology that
impacted or influenced the interpretation of the findings from your research.

1. Sample size may not complete representative the universe.

2. Completely relying on the data provided by individual through questionnaire.

3. A failure to use a random sampling technique significantly limits the ability to
make broader generalizations from results.

4. Less geographical reach.

5. Man Power constraint.

6. Lack of face to face communication as large number of survey is done through

google forms.

7. Lack of time to study the border concept.

Demographic Analysis

Demographics are characteristics of a population. Characteristics such as race,

ethnicity, gender, age, education, profession, occupation, income level and marital
status, are all typical examples of demographics that are used in surveys.

1. Analysis of Gender

Female
Male