Simulation – Wealth Management

Asset Class – Equity

Wealth Managers – Kaushik Gowda 2009, Dipesh Sharma 2028, Shuvra Bera 2002.
Clients – Utsav Kanakia 2014 and Namrata Harsh 2035.
Company Name – Green Wealth Financials LLP

1) Namrata Harsh(prospect) is a single mother of 1. She is a math teacher. Earns a salary of Rs.
85,000 p.m. She is looking for investment avenues where her money can generate returns
for her kids future education. Age – 36
2) Utsav Kanakia (prospect) family business. Utsav is a young businessman who runs his
father’s business Gada Electronics. He is 27 and a postgraduate in Family Business. Though
he has business expertise under his belt he is still a bit unaware about the opportunity of
generating money through investments.
SCENE 1 - Shuvra – Namrata Harsh

Namrata who is a neighbor of Shuvra got to know about his firm. And she wanted to know more
about investing and how her investment can accumulate some benefit in the future.

Shuvra, a partner in the Green Wealth Fin LLP arranged an appointment with Namrata to make her
more aware about investing and potentially turning her into an investor.

At the office

Shuvra : Good morning Namrata, please have a seat. Would you like to have something? Tea or
coffee or a cold drink?

Namrata : Good Morning Shuvra. A glass of water would be fine.

Shuvra : So Namrata tell me more about yourself and what do you do?

Namrata : Talking about my profession I am a Math teacher at XYZ school, I have been teacher since
the last 7 years. And about my personal life I am a single mother with a kid. I earn 10 lac p.a. My
expenses are high because of the education fees of my daughter.

Shuvra : Oh a teacher, that’s great, I’m sure your kids are already calculating hundreds with their
fingers! Haha. And I understand the education fees nowadays compared to few years back are too
high. So Namrata, out of all this how much do you manage to save for extra purpose like investing.

Namrata : I manage to keep aside 10,000 every month from my earnings.

Shuvra : Okay that’s great! Investment is important to accomplish one's financial goals, also it
provides buffer for unforeseen expenses that may arise in future. So, the decision of you wanting to
invest is right. And I believe it is for your kid’s future.

Namrata : Yes Shuvra, I already have a fixed deposit with my bank but I believe there are better
investment avenues compared to FD’s

Shuvra : Yes, FD’s are safe and they have a predetermined rate of interest which will accumulate
over time. But investments like Equity which are also long term, and which will comparatively
generate higher return in the long run.

(Disadvantage of FDs - Rate of interest as on date of fixed deposit will remain the same and you will
not get the benefit of rise in rate on a future date till its maturity date of that fixed period.

On premature closure, you will be penalized with 1% as you have broken the contact of fixed period.

If the FD is fetching periodical interest, it is paid with fixed rate of that period for which the FD is
done. But if you close that FD before its maturity, you will be in a loss to lose some amount of
principal also. It is because on premature closure, interest payable (Think it is 7%) will be less than
interest paid(Think it is 9%) up till the closure. Interest on closure will be paid only for the period
that the deposit remained with the bank and excess interest paid will be recovered on its closure
before maturity.

Some investments which depend on market NAV, will gain more profit than FDs though risk factor is
more in it.

You will have to pay the TDS on interest income of FDs if that income exceeds Rs 40000/— p.a.
If your deposit in FD exceeds Rs 10.00 lakhs, you are required to show the source of income of such
deposit.)

Namrata : So as you know, I don’t have much knowledge about how equity works. Can you please
brief me more about it.

Shuvra : Sure Namrata, I will let you know all about equity that you should know before investing in
it.

(PPT will cover topics like

What is equity investment?

Four Categories of Stocks

How Equity Investments differs from Mutual Funds Investments ?

Performance of stock market a decade back and now.

Namrata : What are the benefits of investing in equity?

Benefits of Equity Investment

Risk involved in equity/Disadvantages

Insider Trading

Namrata : What about taxation regards to equity?

Tax Regulations)

Namrata – Thank you Shuvra, that was very informative and now I am much more aware about
equity as an investment option for me. But as you mentioned there is much more risk involved when
it comes to equity. How can we manage against that risk?

Shuvra – Namrata, you need not worry. Yes, it is true that risk is factor which is attached to equity
but there are few measures which we can take to mitigate those risks. At Green Wealth Financial we
do asset allocation. Asset allocation helps investors reduce risk through diversification. Historically,
the returns of stocks, bonds, and cash have not moved in unison. Market conditions that lead to one
asset class outperforming during a given timeframe might cause another to underperform. The
result is less volatility for investors on a portfolio level since these movements offset each other. In
addition to diversification, asset allocation is essential to ensure that you reach your financial goals.
An investor that isn’t taking on enough risk might not generate high enough returns to reach their
goal, while an investor that’s taking on excessive risk may not have enough money when they need
to access it. Selecting the right asset allocation helps avoid these issues by ensuring that a portfolio is
ideally positioned to reach a goal.

Namrata – So, for an investor like me, you would want to invest in equity because of the higher
returns but that would be for a long time, something like 7 years, to get the maximum returns?

Shuvra – Exactly in those 7 years the money that you pump in would be managed by us in such a way
that risk is minimized, and your returns are maximized.

Namrata – I believe I can trust you and your company Shuvra, your expertise and patience along
with the understanding for your clients is enough for me to give my money to you.
Shuvra – I’m glad we could make you understand ma’am. Investing is very important in this day and
age. You are in your 30’s and if you start investing now, the time when you reach the age of 60 you
would have a lot of money!

Namrata – That is very true, and I understand its importance much more now. Thank you Shuvra!

Shuvra – You are welcome Namrata, It is our job to make sure you get to know everything you are
required to know. So, when would you like to go ahead with the formalities?

Namrata – I will come tomorrow, with the required documents.

Shuvra – Sure, no problem!

 SCENE 2

Utsav is a young businessman who runs his father’s business Gada Electronics. He is 27 and a post
graduate in Family Business. Though he has business expertise under his belt he is still a bit unaware
about the opportunity of generating money through investments. Utsav happens to be our previous
customer Namrata’s friend and gets the recommendation for Green Wealth Fin LLP.

Utsav gets in contact with Dipesh and Kaushik who arrange a meeting on a fine Saturday.

Kaushik/Dipesh – Good Afternoon Mr. Utsav, how are you doing? Would you like to have something
to drink?

Utsav – Good Afternoon Mr. Dipesh and Mr. Kaushik. No, thanks for asking!

Kaushik – So Utsav, tell me more about your business.

Utsav – Gada Electronics is an electronic store which my father used to own since 1995, now after
his retirement he has passed on the ownership to me. I as businessman, look many ways to grow my
business and make sure that it is sustainable. Gada Electronics has its own identity around the
locality. The business generates approximately 25 lacs p.a. excluding all the expenses which goes for
maintenance of the shop and taxes which I pay on my earnings.

Dipesh – Oh following the footsteps of your dad! Mr. Utsav is there any specific reason you want to
invest?

Utsav – Yes, the reason I want to invest is to have a money generating asset besides my business. I
want to make more of my money rather than just keeping it idle.

Kaushik – Well, that is great because there are many benefits for a businessman if he/she invests in
equity. They can -

 Fulfill personal financial goals

 Diversification of business
 Tap market opportunities
 Create capital for future use

Utsav – Wow, equity seems like a great investment avenue. But it is still new to me. Can you please
explain to me about equity and things related to it?

(PPT will not be shown again, as we will assume that we have presented the same PPT to Utsav
too)

Dipesh – So these are some main things, you should be aware about before investing in equity.

Utsav - What about the long- or short-term returns? Which is better.

Dipesh - Long-term Investments

If you are looking to save up for the long-term i.e. more than a year, then investing in the stock
market is a good option. Stocks can offer you attractive returns in long-term if you invest in high-
growth and multi-bagger shares after evaluation of risk. Long-term investment in large cap shares
can yield consistent returns for decades. Other lucrative options for long-term investment include
mutual funds and bonds – government and corporate, which would yield moderate but steady
returns. Long-term equity investments can be highly profitable if the market potential and
performance of the company is analysed diligently before investing. Additionally, according to
Section10(38) of the Income Tax Act, you can get a tax exemption on capital gains derived from
equities that are held for at least one year.

And Short-Term Investments

Short-term investments are a good option when you are looking to save your money for a shorter
period viz. 1 year or lesser. Some of the best options in terms of short-term investments include Mid
cap shares and money-market mutual funds that fetch higher returns in a shorter period. When you
are investing in equities for short-term capital gains, one of the drawbacks is that there is a lot of
unpredictability and the risks are much higher. Moreover, it is difficult to judge a company’s
performance and stock market momentum in the short-term. For short-term capital gains in equities
involving Intra-day trades, BTST trades or equities trading by holding it for less than a year, you need
to pay a tax of 15% on the capital gains that you have earned in the investment period, according to
Section111A.

Utsav – Okay, so what do you reckon is good for me?

Kaushik – We would suggest pooling your money towards Long term investment is the right choice.
Because long-term investments are vehicles that you can expect to pay off after holding them for a
period of several years. When investing long-term, you can be more aggressive because you have a
longer time horizon. As investing for short term has a higher risk attached to it too.

Utsav – Okay, long term it is then. Also, what is volatility in the markets? And what causes it?
Because it seems to affect my business too.

Dipesh – Volatility is a statistical measure of the dispersion of returns for a given security or market
index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as
either the standard deviation or variance between returns from that same security or market index.

It can be caused by –

Economic crises. It is obvious that any financial market is very sensitive to major economic
situations.

Changes in national economic policy, Economic indicators, Volatility overseas, Political

developments, Public relations.

Kaushik - The stock market will always have its ups and downs. Volatility in the market can be
beneficial for traders, as it offers an opportunity to profit. However, it also increases the risk of loss.
It is recommended that traders follow a basic trading strategy and try to prepare in advance. A well-
defined trading plan, tailored to your personal goals, will help you to be ready for the most volatile
markets.

Utsav – Okay, that is about volatility. The next thing I wanted to know is whether I can invest
globally?

Dipesh – Yes, Mr. Utsav you can invest or trade globally. That is possible through international
broking houses which provide this facility. Also investing globally will help one diversify their
portfolio and give them an opportunity in investing in broader market. Also, if for some reason let us
assume that the Indian equity market starts falling due to some local region. However, investing in
foreign stocks can mitigate the risk in your portfolio as the local reason may not have a significant
effect on the international markets.

Utsav – Kaushik and Dipesh, you guys have answered all my queries in the best way possible. Please
let me know if I’m still missing something that I should know.

Kaushik – One thing which is the most important and which we wanted to explain to you at last is
Risk appetite. It is very important for us to know what your risk appetite is. Because based on that
we would make our final recommendations to you.

How to assess your risk appetite?

First know what you can afford to lose.

Working out your goals and timings

Understanding your risk attitude

Dipesh – Also diversification for you is very important, as you deal in electronics. It would be the
wrong to invest your money in the electronic sector. As if the electronic sector suffers some
uncertainty in the near future, it will double your losses. Hence investing in different sectors and
diversifying your portfolio is very important.

Utsav – Thank you so much guys. Your time and efforts for explaining me about where my money
would benefit me the most and at the same time being real about the risk involved in equity has
convinced me to work with you.

Dipesh/Kaushik – Mr. Utsav we should be thanking you for your patience and avid interest in
knowing what is best for you. It truly helps us perform better.

Utsav – Haha, we meet on Monday then, for the formalities?

Dipesh – Sure, whenever you feel comfortable.