REPORT ON

1. PORTFOLIO MANAGEMENT SERVICES: LANDSCAPE IN INDIA 2. WRAP ACCOUNT 3. MULTI-MANAGER INVESTMENTS 4. ALTERNATIVE INVESTMENTS

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1. PORTFOLIO MANAGEMENT LANDSCAPE IN INDIA
Contents
Page No.
1.0 OVERVIEW 1.1 1.2 1.3 INTRODUCTION……………………………………………….………………..……………………. 7 SCOPE OF THE STUDY……………………………………………………………..……………. 7 LIMITATIONS OF THE STUDY............................................................................................ 7

2.0 BRIEF REVIEW OF FEW OF THE PROVIDERS OF PMS IN INDIA 2.1 KOTAK SECURITIES……………………………………………………………………………….. 9

PRODUCTS 2.1.1 GEMS………………………………………………………………………………………………………. 9 2.1.2 ORIGIN…………………………………………………………………………………………………….. 9 2.1.3 SELECT PORTFOLIO……………………………………………………………………………………..9 2.1.4 SELECT OPTIMA…………………………………………………………………………………………. 10 2.1.5 KLASSIC PORTFOLIO – FLEXI………………………………………………………………………… 10 2.1.6 INVESTGUARD PORTFOLIO…………………………………………………………………………… 10 2.1.7 CORe PORTFOLIO……………………………………………………………………………………….. 10

2.2 2.2.1 2.2.2 2.3

ABN – AMRO ASSET MANAGEMENT……………………………….……………….……..11
EXCLUSIVE PORTFOLIO…………………….…………………………….…………………………… 11 ADVANTAGES OF PMS AT ABN AMRO…………….................................................................... 11

MOTILAL OSWAL PMS……………………………………..…………………………………….. 12

PRODUCTS 2.3.1 VALUE PORTFOLIO…………………………...………………………………………………………… 12 2.3.2 BULLS EYE PORTFOLIO…………...…………………………………………………………………… 13 2.3.3 NEXT TRILLION DOLLAR OPPORTUNITY PORTFOLIO……………………………………………14 2.3.4 ADVANTAGES OF PMS AT MOTILAL OSWAL………………………………………………………. 15

2.4

HSBC PORTFOLIO MANAGEMENT SERVICES………………………..……………… 16

PRODUCTS 2.4.1 CAPITAL GUARD PORTFOLIO……………………………. ………………………………………….. 16 2.4.2 SIGNATURE PORTFOLIO………………………………………...……………………………………..16 2.4.3 STRATEGIC PORTFOLIO…………………….……………. ………………………………………….. 16 2.4.4 85% CAPITAL PROTECTION ORIENTED PORTFOLIO……………………………………………. 17 2.4.5 LARGE CAP ORIENTED PORTFOLIO…………………..……………………………………………. 17

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SHAREKHAN PORTFOLIO MANAGEMENT SERVICES………..…………………. 18

PRODUCTS 2.5.1 PMS PRO PRIME…………….……………………………………….………………………………….. 18 2.5.2 PMS PRO TECH………………………...…………………………………………….…………………..19

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2.6 2.6.1

ICICI PRUDENTIAL PORTFOLIO MANAGEMENT……………….……………………. 20

ADVANTAGES OF PMS AT ICICI PRUDENTIAL…………………………………………………..... 20 PRODUCTS 2.6.2 AGGRESSIVE PORTFOLIO......................................................................................................... 21 2.6.3 DIVIDEND YIELD PORTFOLIO………………………………………………………………………... 21 2.6.4 DEEP VALUE PORTFOLIO.......................................................................................................... 21 2.6.5 THE FOCUSED PORTFOLIO………………………………………………………………………….. 21 2.6.6 ALPHA PORTFOLIO..................................................................................................................... 22 2.6.7 PRESERVATION OF INVESTMENT AMMOUNT (ASSET SHEILD)........................................... 22 2.6.8 DEFINED TENURE SERIES PORTFOLIO……………….…………………………………………... 23 2.6.9 ONLY OPTIONS PORTFOLIO......................................................................................................23 2.6.10 PRINCIPAL PROTECTED PORTFOLIO.......................................................................................

23 2.6.12 2.6.12 2.6.13 2.6.14 2.7

INFRASTRUCTURE PORTFOLIO................................................................................................ 23 DIVERSIFIED PORTFOLIO.......................................................................................................... 24 ABSOLUTE RETURN PORTFOLIO………………………….………………………………………...24 INDIA OPPORTUNITIES PORTFOLIO……………………………………………………………….. 24

RELIGARE PORTFOLIO MANAGEMENT……….………………………………………… 25

PRODUCTS 2.7.1 PANTHER…………………………………………………………………………………………………. 25 2.7.2 TORTOISE………………………………………………………………………………………………… 25 2.7.3 ELEPHANT………………………………………………………………………………………………... 25 2.7.4 CATERPILLAR…………………………………………………………………………………………..... 26 2.7.5 LEO……………………………………………………………………………………………………….... 26 2.7.6 ADVANTAGES OF PMS AT RELIGARE……………………………………………………………..... 26

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ANGEL BROKING PORTFOLIO MANAGEMENT……….…………………………….. 27

PRODUCTS 2.8.1 ANGEL OYSTER…………………………….................................................................................... 27 2.8.2 ANGEL BLUE CHIP ………..……………………………………………………………………………. 28 2.8.3 ANGEL GROWTH FUND..………………………………………………………………………………. 28 2.8.4 EQUITIES AND DERIVATIVES FUND………………………………………………………………… 29 2.8.5 ADVANTAGES OF PMS AT ANGEL BROKING..……………………………………………………. 29

2.9 2.10

BONANZA PORTFOLIO MANAGEMENT……………….………………………………… 30 DEUTSCHE BANK………………………….……………………………………………………... 31

PRODUCTS 2.10.1 EQUITY ADVISORY PRODUCTS……........................................................................................ 31 2.10.2 CAPITAL PROTECTED PRODUCTS ……………………………………………………………….. 32 2.10.3 DERIVATIVE ARITRAGE PRODUCTS………………………………………………………………. 32 2.10.4 PURE DERIVATIVE PRODUCTS…………………..………………………………………………… 32 2.10.5 ALPHA PRODUCTS……………………………………………………………………………………. 32

3.0

PORTFOLIO MANAGEMENT & MUTUAL FUNDS………………….………………………… 33

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..... 40 5....………………………………………………………….....0 PROVIDERS OF WRAP PRODUCTS…………………………………………………………………...............0 WRAP ACCOUNT AND MASTER TRUSTS………………………………………………………......0 9.............0 MUTUAL FUND WRAP………………………….0 THE EVOLUTION OF WRAP SERVICES 2........……………………………………………...2 DISADVANTAGES...................... WRAP ACCOUNT Contents Page No........2 CONCEPT…………………. 47 4 . 45 WRAP ACCOUNT & MUTUAL FUND……………………………………………………………….............……………................ 41 5.............0 FUTURE OF PORTFOLIO MANAGEMENT SERVICES……………………….....……………………….......……………………......………………………………………………………........……………………………………………………… 38 2... 37 2...... 41 5.....…………………..1 ADVANTAGES....................…………………………………....0 KEY FINDINGS…………………………………………………..............……………………………………………… 38 3......................................0 8....3 WEALTHVIEW eWRAP...........……….......……………………………………………………….………………………………………………………………………………...4.......................0 ADVANTAGES OF WRAP………………………………………………………………………………….......… 46 10..0 OVERVIEW 1........…....1 INTRODUCTION………………………………………………………………………………………... 1..2 AUSTRALIA………………………………………........................ 44 6.…………… 34 2............1 DISCRETIONARY…………............... 36 1....…………………… 36 2................................ 41 5............. 45 WRAP ACCOUNT & PORTFOLIO MANAGEMENT…………………………………………...... 39 4............3 SOUTH AFRICA………………………………………….... 43 6....................... 44 6..... 36 1...................0 AMP WRAP PROVIDER.2 NON-DISCRETIONARY…………….......3 VARIATIONS OF WRAP ACCOUNTS……………............3 ADVISORY…….................. 44 7...... 42 6..………………………………………………………....1 USA………..………………………………………………………...

.........……………………………………………………….....…….. 56 3..6 THE DOWNSIDE OF FUND OF FUNDS: MULTI LAYERED COSTING…………..............2 SELECTING THE BEST…………………….0 MANAGER OF MANAGER 2....7...4..4......... 60 3....7 LIFE CYCLE FUNDS………………………………………………………………………......………………………………………………..........1 SCREENING MONEY MANAGERS………………………………………………… 53 2....... MULTI MANAGER INVESTMENTS Contents Page No...5 FUND OF FUNDS IN INDIA......1 INTRODUCTION……………………........5...... 52 2..3 CURRENT SCENARIO………………………………………………………………..............1 FRANKLIN LIFE STAGE FUNDS…………………………………...................………............8 MYWRAP “A PMS FOF”……………………........ 55 3.......2 LIFE CYCLE FUNDS IN INDIA……………………………………………………...... 62 3... 53 2.......7.1 FOF GUIDELINES……………………………………………………………………….......3 ADVANTAGES OF MULTI-MANAGER FUNDS…….………………….........2 TYPES OF MULTI-MANAGER FUNDS………………………………………………………… 49 1..3 GLOBAL SCENARIO….1 INTRODUCTION……………………..........2 MOTIVE………………….4 DISADVANTAGES………………………………………………………….........63 3.......0 FUND OF FUNDS 3.…………………….. 50 2..3........ 65 5 ...........4 FRANK RUSSELL COMPANY…………........ 51 2.....…………………………………………................ 58 3...………….... 57 3.......49 1.......... 63 3......………………………….…………………………… 55 3.2 HISTORY OF FUND OF FUNDS IN INDIA……………………………...1 THE CONCEPT………………………………………………………………………….………………….…………………………………………… 54 3..…………………………………………………………………………………........ 55 3...…………….2 NEED FOR MULTI MANAGER FUND………………. 62 3...........7...........3 ADVANTAGES OF FUND OF FUND……………………………….……………..0 OVERVIEW 1......…………………..............5.. 1.. 51 2...... 57 3.........2......1 INTRODUCTION…………………………………….... 59 3....……….5.........................…………......

PORTFOLIO MANAGEMENT SERVICES Landscape in India 6 .

1. and balancing risk against performance. require knowledge. with a special emphasis on their investment process/philosophy and the products provided by them. It will also help to understand the future prospects of portfolio services.0 OVERVIEW 1. information is not easily available to the general public as the AMC’s (Asset Management Company) do not need to disclose it compulsorily. While there are many investment avenues such as fixed deposits. investors have unique needs which are derived from their risk appetite and financial goals. But regardless of this. asset allocation for individuals and institutions. it is tough to make a comparison between the portfolio management service providers due to lack of information/data.1 INTRODUCTION In today's complex financial environment. growth vs. income funds. 7 . opportunities and threats in the choice of debt vs. The art and science of making decisions about investment mix and policy. For those who need an expert to help to manage their investments. weaknesses. It is a proven fact that equities as an asset class typically tend to outperform all other asset classes over the long run. The report aims to understand the product offerings and customized services provided by the PMS houses. Portfolio management is all about strengths. safety.2 SCOPE OF THE STUDY The scope of the report is to analyze the portfolio management services landscape in India. international. Information such as past performance. portfolio management service (PMS) comes as an answer. every investor seeks to maximize his returns on investments without capital erosion. 1. bonds. asset under management. time and a right mind-set. given other commitments. Investing in equities. Few of the leading portfolio management providers have been selected for in depth analysis of their business model.3 LIMITATIONS OF THE STUDY The SEBI rules and regulations for PMS are not very stringent and as a result. domestic vs. and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk. equities etc. portfolio statements etc are not reported publicly. Equity as an asset class also requires constant monitoring & it may not be possible for investors to give the necessary time. matching investments to objectives. equity.1. Therefore.

In advisory services. The fund management industry using the PMS route has lately witnessed stunning growth with a large number of players now offering specialized fund management services and catering to the needs of the investors.gov.in 8 .2 There are mainly three kinds of portfolio management services. It is up to the discretion of the investor to invest or not to invest. In non-discretionary fund management service. Currently. namely • • • Discretionary Portfolio Management Non-discretionary Portfolio Management & Advisory Services Discretionary Portfolio Management is where the fund manager has the liberty to invest the funds at his discretion without consulting the client. all investment decisions are carried out after consultation with the client."Portfolio manager" means any person who pursuant to a contract or arrangement with a client. there are 174 PMS providers in the country registered with SEBI. The fund manager independently manages the funds of each client.1 PMS (Portfolio Management Service) offers customized solutions to the high net worth investors and invests on their behalf in both the equity and debt markets.sebi. advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client. 1 2 SEBI www. clients are given advice about investment prospects for a fee.

The PMS helps investors to identify their investment objectives and also outline important requirements like liquidity. It is also one of the largest. Portfolio with companies across large cap.Long term (approx. with Assets Under Management of around Rs. At the very base of a financially sound portfolio lies the identification of one’s investment objective. 2500 Crores. Buy & Hold a basket of 15-25 companies with a medium to long term horizon The portfolio is constructed with long term view for an investor who is unperturbed by short term returns. capital appreciation. mid cap and small cap. • • • 2.1 GEMS PORTFOLIO • • • • • • The main objective of the scheme is to generate capital appreciation in the medium term to long term through investments in equities and equity related instruments.0 BRIEF REVIEW OF FEW OF THE PROVIDERS OF PMS IN INDIA 2. volatility and market momentum. time span and fiscal implications and then suggest an appropriate scheme. Any investor with a penchant for high risk taking qualifies for the portfolio. Sectors expected to benefit from infrastructure spending. Tenure .1.2 ORIGIN EQUITY PORTFOLIO • The portfolio would aim to invest in growth oriented companies with sustainable business models backed by strong management capabilities with emphasis on smaller capitalized companies with a market capitalization not exceeding Rs.3 SELECT PORTFOLIO • Multi cap portfolio with companies spread across large cap.1.1. PRODUCTS 2.2500 crores at the time of investment. • • • • 9 . 18 Months) Aggressive Concentrated Portfolio consisting of 10-12 stocks Buy & hold approach Investment Domain: Sectors expected to be beneficiaries of demographic patterns & reforms. current income.1 KOTAK SECURITIES Kotak Securities is one of India’s oldest portfolio management companies with over a decade of experience.2. mid cap and small cap segments Option to participate in pre FPO or private placements of listed companies This is a diversified scheme investing across the sectors and does not have sectoral restriction Benchmark: BSE 200 Index These investments have a lock in clause for a pre specified time horizon 2.

Corporate Bonds and deposits. securitised instruments and / or any other instruments permitted by SEBI. Target Domain: Companies having marketing capitalisation of more than Rs. the product increases its holdings in shares. 4000 Crores. moving from shares into fixed interest investments when the fund's value drops below a predetermined "floor".7 CORe PORTFOLIO • • CORe Portfolio aims to capture the long term upside of the India Growth Story by diversifying across the major themes.1.4 SELECT OPTIMA • Portfolio seeks to achieve returns through broad based participation in equity markets by constructing a focused portfolio of sizably capitalised companies. The equity portion would be primarily invested in large cap stocks with high liquidity and closely follows the BSE Sensex movement. medium and large capitalized companies Sectoral Composition .up to 20 Scan the investment universe Identify companies with higher growth as compared to the market Scout for companies which can result in higher growth in earnings on a sustained basis • • • • • 2. Suitable for investor with a penchant for low risk taking qualifies for the portfolio. Government securities.5 KLASSIC PORTFOLIO . Gilt schemes.1. Liquid schemes. • • • 2.FLEXI • The scheme will seek to achieve returns through broad based participation in equity markets by creating a diversified equity portfolio of small.1. When markets start to move up.6 INVESTGUARD PORTFOLIO • • Invests across shares and fixed income products.Across all market capitalization No of Stocks . money market instruments. tapping into these growth opportunities Exposure: Equity: 0-100%. Investments driven by both medium and long term investment horizon Medium term: 9-12 months Long term: 12 to 24 months Portfolio shall be diversified over 15-20 stocks across the sectoral spectrum • • • • • 2.1.2. The debt portion will be invested in debt oriented schemes of mutual funds. Debt: 0-100%. Sectoral Composition Diversified across sectors and Market Capitalisation with focus on companies benefiting from: • Increase in consumer spending 10 .

stocks where asset value is more than enterprise value Investments governed by stage of business cycle of the company & not restricted by size Bottom-up stock selection process & screening based on financial health.1 EXCLUSIVE PORTFOLIO OBJECTIVE • • • To generate capital appreciation over the medium to long-term Achieved by concentrated investments in stocks across businesses Ideal for investors with a reasonably high risk appetite and with an investment horizon of more than 18 months Approach Investments guided by fundamentals of: • • • Growth Investing .• Outsourcing • Increase in infrastructure spending • Real estate growth 2.2. processes & expertise Innovative & up-to-date Financial Solutions Complete transparency Information at your fingertips Strong client-servicing support Backed by a tradition of trust & confidentiality 11 .2 ABN – AMRO ASSET MANAGEMENT 2.2 ADVANTAGES OF PMS AT ABN – AMRO • • • • • • Advantage of globally proven investment management.Growth At Reasonable Price) Value Investing . earnings visibility and management credibility Number of stocks in the portfolio will be restricted to approximately 15 Cash will be used as an effective portfolio management tool Portfolio Benchmark .companies with long-term earning growth at reasonable valuation (GARP .BSE Sensitive Index • • • • 2.2.

• • • • 12 . A business is prudently picked for investment after a thorough study of its underlying hidden long-term potential.3. They are one of the leading portfolio service providers. with asset under management worth Rs. As such. The aim is to identify potential long-term wealth creators by focusing on individual companies and their management bandwidth. The Fund manager conservatively picks 12 to 15 value stocks for a portfolio with a long-term investment philosophy.1 VALUE PORTFOLIO Value Portfolio is meant for investors with a Long Term investment horizon in the Indian Equity Markets. the investment philosophy is not dependent on the market trends but banks on the power of the intellect. keeping the portfolio churn very low and high margin of safety. Risk Return Matrix Features • • Long Term Perspective: Maturity 3-5years Medium Risk & Medium to High Returns Investment identified with a bottom up approach Investment approach – Buy & Hold Aim to maximize post tax returns due to low churn Investments are identified by a Bottom up Approach. The portfolio’s investments philosophy revolves around finding value. PRODUCTS • Value Portfolio • Bulls Eye Portfolio • Next Trillion Dollar Opportunity Portfolio 2. 590 Crores. The aim of the theme is to maximizing post tax returns.2.3 MOTILAL OSWAL PMS Motilal Oswal Securities Ltd brings with more than 2 decades of experience & expertise in equity research and stock broking.

coupled with active profit booking.Momentum In value Medium – High Risk/Return Objective – Regular Profit Booking Ability to sit on cash • • • • 13 . for a minimum 15-20% move. Portfolio Objective • The Scheme aims to deliver superior returns in Low to medium term by investing in fundamentally strong stocks with momentum approach. The investment philosophy is to find “Momentum in Value”.2 BULL’S EYE PORTFOLIO Bull’s Eye PMS Portfolio under is designed to invest in stocks with short-medium term perspective. Investment Strategy The investments timing is event based and do not take help of technical analysis. funds are temporarily parked in the safety of liquid mutual funds or exchange traded Liquid fund.3. Risk Return Matrix Features • • • • • • • Minimum Portfolio Value – 50 lakhs (Investors can join at 25 lakhs and scale up) Short to Medium Term Perspective Tenure 6 months to 1 year Investment Approach .2. Buying when the stock is just ripe to begin its big move upwards or vise versa. It follows an active process driven method of profit booking and is parked temporarily in the safety of liquid mutual funds/ exchanges traded liquid funds till further opportunities are identified. It would participate in emerging sector and turn around stories so as to participate and capture sharp rallies. The investments are done with a predefined price targets and portfolio follows an active process of Profit Booking. In absence of investment opportunities. The stock selection lays greater emphasis on companies which good corporate governance and excellent management track record.

Wealth is created by sitting. Risk Return Matrix Features • • Tenure 3-5 years High Risk & High Return Target to invest in Small & Mid Cap opportunities which have the potential of delivering above average growth.2.3 NEXT TRILLION DOLLAR OPPORTUNITY PORTFOLIO Objective The Product aims to deliver superior returns by investing in Small & Mid cap ideas that are part of the next Trillion Dollar GDP growth opportunity. The Portfolio would target to invest in Small & Mid Cap Opportunities which have the potential of delivering above-average growth over the next 2-3 years. • • • • High Growth Story Sector and Companies which promise a higher than average growth Reasonable Valuation Invest in high growth companies at reasonable price / value Emerging Themes Focus on Identifying Emerging Stocks / Sectors Buy & Hold Strategy The Portfolio shall focus on above philosophies and hold them till it realizes it true market potential. The portfolio would aim to identify emerging themes. The portfolio is designed to invest in themes /stocks in the small and mid cap segment which are going to be a part the “NEXT TRILLION DOLLAR GDP GROWTH”. Investment Philosophy The investment philosophy is to invest in stocks which are available at reasonable valuations and promise more than average growth.3. Bottom Up selection approach Open ended scheme with Exit fee Benchmark – CNX Midcap Quarterly Disclosure of Portfolio Low Portfolio Churn – Buy & Hold philosophy • • • • • • 14 .

15 . Convenience Portfolio Management Service relieves investors from all the administrative hassles of their investments. They provide periodic reports on the performance and other aspects of investor’s investments. Transparency Investors get account statements and performance reports on a monthly basis. Risk Control Well defined investment philosophy & strategy acts as a guiding principle in defining the investment universe. and account performance reports. A password protected web login will enable to access details on their investment on click of a button.2.4 ADVANTAGES OF PMS AT MOTILAL OSWAL • Professional Management The service offers professional management of equity investments with an aim to deliver consistent return with an eye on risk.3. That’s not all. web access will enable them to track all information relating to their investment on daily basis. Robust portfolio management software that enables the entire construction. . The relationship managers. Constant Portfolio Tracking Understand the dynamics of equity as an asset class. monitoring and the risk management processes. the one point contact will bestow personalized service and ensure that the investors receive periodic updates. tracking the investments continuously to maximize the returns. The following portfolio reports are accessible online: o o o o • Performance Statements Portfolio Holding Reports Transactions Statements Capital Gain / Loss Statements • • • • Dedicated Relationship Manager Relationship manager will help the investors carefully understand their financial goals and advise the right product mix.

the investor will need to remain invested till maturity 100% Initial Equity Exposure – They offer optimal allocation to actively managed equities aimed at Capital Appreciation Profit Lock-in Mechanism – The portfolio endeavors to capture upside by providing a 3% lock-in for every 10% increase in initial portfolio Easy Liquidity – 4 year tenor with liquidity provided through the tenor of the product (subject to exit loads) Minimum Investment Amount – Rs 25 lacs 2.2. they choose stocks that have the potential to provide long-term value to you.4. they buy enough to make a real difference to returns. ably guided by their talents and convictions. 2.3 STRATEGIC PORTFOLIO Fund Managers take a keen look at stocks that are undervalued as they are currently in an unusual situation resulting in a significant price-value mismatch. and when they do not like a company. they do not have to own it.4 HSBC PORTFOLIO MANAGEMENT SERVICES PRODUCTS 2.1 CAPITAL GUARD PORTFOLIO HSBC Capital Guard Portfolio is the first Capital Guaranteed portfolio in India from HSBC. The key strengths of this product are: • • • • • 100% Capital Protection Guaranteed – 100% of initial investment back at maturity (after 4 years).4.4. this portfolio is ideal for investors who wish to gain from a potential equity upside. at the Right Value. yet seek a capital guarantee on the investment amount. For the guarantee to be applicable. 16 . Guaranteed by HSBC Bank. With their knowledge and training.2 SIGNATURE PORTFOLIO With the ‘Signature’ investment strategy. They choose the stocks they believe in. the fund management team aims to deliver potential results by investing in the Right Stocks. If they know it is a good company. with the Right Exposure.

The Scheme will have a preference for large-cap companies and would normally be invested at least 70% in large-cap stocks. sensitivity to economic factors.4. • Key is in selecting scrip’s that would focus on the fundamentals of the business. The portfolio provides daily liquidity. The protection level is reset every year as of the strategy’s launch anniversary date. The aim is to deliver above-benchmark returns by providing long-term capital growth from an actively managed portfolio. the industry structure.2. with redemptions allowed on an ongoing basis without any exit load applicable.4 85% CAPITAL PROTECTION ORIENTED PORTFOLIO • This is an open ended product that seeks to generate capital appreciation by investing in equity / equity related securities while endeavoring to partially protect (i. targets out-performance without compromising on the fundamentals. Hong Kong as the Investment Advisor to the product. It aims to generate capital appreciation by investing in predominantly large and established companies having a proven track record and possessing high return potential. the financial strength of the company. the quality of management. money market funds or instruments will be managed in such a way that the Portfolio endeavors not to lose more than 15% over a period of one year starting on the launch date and reset on each subsequent anniversary date. 2. The product is managed using CPPI methodology with Sinopia Asset Management. Downside protection is an investment objective only and does not represent a formal guarantee.e. The allocation between the basket of stocks and the liquid. • • • • • Protection orientation of 85% of the total asset value of the pooled account prevailing at the last reset date.5 LARGE CAP ORIENTED PORTFOLIO This portfolio thinks big. key earnings drivers & valuations.4. The Portfolio will invest primarily in a basket of stocks aimed at replicating the NSE NIFTY Index composition and/or money market instruments through the liquid schemes of HSBC Mutual Fund. • • 17 . Protection is based on the subscription amount (net of subscription fees). 85% of the capital) the downside by investing in debt / money market instruments / funds.

• • This portfolio consists of a blend of quality bluechip and growth stocks ensuring a balanced portfolio with relatively medium risk profile.1 PMS PRO PRIME • Ideal for investors looking at steady and superior returns with low to medium risk appetite. The portfolio will mostly have large capitalization stocks based on sectors & themes that have medium to long term growth potential.5% per annum AMC charged every quarter o o o • 0.5 SHAREKHAN PORTFOLIO MANAGEMENT SERVICES PRODUCTS 2.2. Product Approach Investments are based on 3 beliefs: • Consistent.5% brokerage 20% profit sharing after 15% hurdle is crossed-chargeable at the end of the fiscal year.5. Profit withdrawal in multiples of 25000 after lock in period. independent fundamental research. Disciplined valuation approach applying multiple valuation measures Medium to long term vision. bottom up stock selection High quality companies with relatively large capitalization. 18 . steady and sustainable returns • Margin of Safety • Low Volatility Product Characteristics • • • • In-depth. quarterly reporting of portfolio holdings/transactions Charges: o 2. resulting in low portfolio turnover Product Details • • • • Minimum Investment: Rs 10 lakhs Lock in period: 6 Months Reporting: Online access to portfolio holdings.

2 PMS PRO TECH Protech uses the knowledge of technical analysis and the power of derivatives market to identify trading opportunities in the market. 20% profit sharing on booked profits on quarterly basis. Brokerage 0.5. The Protech lines of products are designed around various risk/reward/volatility profiles for different kinds of investment needs. 19 . Both long and short strategies to earn returns even in falling markets. Protech is based on: • Long Short strategies • Focus on absolute returns • Timing the market Product Approach • Superior performance can be achieved through sheer market timing. Product Characteristics • Using swing based index -trading systems. Product Details • • Minimum Investment: Rs 10 lakhs Lock in: 6 months Charges: • o o o • AMC fees 0% fixed management charges. by picking Stocks/Nifty before the infection points in their trading cycles • Linear returns are possible from having sell market positions in downtrends and by using the options market to change the portfolio beta • Money management rules will be in place. trend following and momentum trading techniques.2. Reporting: Monthly reporting of transactions. • • • Nifty based products for low impact cost and low product volatility.05% for derivatives. The use of options to enhance the risk reward profile of the product and therefore offers a higher Beta. stop and reverse.

A first in the industry. • A detailed client account statement that allows tracking inflows and outflows.50 lakh investors. 2.6. investors have access to: • A portfolio disclosure statement where the entire portfolio will be disclosed.their portfolio investment guide. • Convenience and customization through services.1 ADVANTAGES OF PMS AT ICICI PRUDENTIAL • Commitment towards transparency and service. • A financial summary comprising the Income Statement and Balance Sheet. • Strong research driven investment process. is created especially to meet the investment needs of a select clientele who require focused portfolios.'s leading insurance company and ICICI Bank Ltd. a division of ICICI Prudential Asset Management Company. 2. ICICI Prudential Portfolio Managers. ICICI Prudential Mutual Fund is the largest and amongst the fastest growing mutual funds in the country with a rapidly growing family of over 14. and a personal Portfolio Manager . • Comprehensive performance tracking. • Information and accessibility is the key Information that is updated on a daily basis and unmatched interactivity.• Profit withdrawal in multiples of 25000 after lock in period.6 ICICI PRUDENTIAL PORTFOLIO MANAGEMENT ICICI Prudential Asset Management Company. • A transaction statement listing all the transactions made. via a password protected website. • Calculations of capital gains.. is the investment manager for ICICI Prudential Mutual Fund. to discuss in depth and understand 20 . U. India's largest private sector bank.K. Customer Relationship Manager Every investor has their one point contact Customer relationship manager. a whole new era in portfolio management has now been ushered in. a joint venture between Prudential.

customer’s investment objectives.6. 2. risk-return appetite and establish required service levels. management quality.4 DEEP VALUE PORTFOLIO • The objective of the portfolio is to generate returns over the long term.6.3 DIVIDEND YIELD PORTFOLIO • • • • This portfolio endeavors to generate superior risk-adjusted returns through a combination of dividend income and capital appreciation.6. 2. offered through the equity markets. It is also suitable for investors looking for tax-efficient investment options that offer the scope for high-returns. PRODUCTS 2. Portfolio Manager seeks to pay particular attention to the dividend track record. 21 . Investors can review their portfolio with their personal Portfolio Manager and Customer Relationship Manager at least once every quarter. The portfolio is constructed with a value-orientation and with diversification. sustainability of free cash flows / dividends. an exposure in momentum stocks. This portfolio may be considered appropriate for investors with a relatively low risk appetite. the Customer Relationship Manager will periodically interact with investors for any other clarifications and services. industry prospects. but which will at times take on certain aggressive positions..2 AGGRESSIVE PORTFOLIO • This portfolio is aimed at investors who are looking for higher returns. with an attempt to include only high-quality companies in the portfolio. business fundamentals etc. adequate • • Depending on the market conditions these could include a greater exposure to high beta / mid-cap / illiquid stocks. Investments are proposed to be made primarily in stocks that offer an attractive dividend yield. by investing in a diversified portfolio of undervalued stocks. they evolve a portfolio that is best-suited for the investor. On the basis of this. who wish to earn potentially higher returns. Thereafter.

dividend yield (DY). Greater concentration of the portfolio will increase both the risks and potential returns from the portfolio. replacement cost. 2. The position may be held till expiry of the futures 22 . valuations relative to history/sector/markets.5 THE FOCUSED PORTFOLIO • • The Focused Portfolio endeavors to generate capital appreciation by taking concentrated positions in stocks and sectors. price/earnings (p/e). The portfolio would remain fully hedged at all times. the stock purchased) to the exchange and also mark to market margins which are a function of market movements. The Focused Portfolio is not limited by any particular theme / sector / market capitalization and has the flexibility to choose between stocks across themes / sectors / investment styles • 2. price/book (p/book). The hedged portfolio would reduce market risk (beta) by insulating the portfolio against market movements.• • Various parameters may be used to judge the degree of under valuation of the stocks including.6 ALPHA PORTFOLIO • • • The Alpha Portfolio seeks to capture Alpha .which is out performance to index in the client’s portfolio. price/cash flow. industry prospects. The entire portfolio will be hedged against market movements by using Nifty futures.7 PRESERVATION OF INVESTMENT AMMOUNT (ASSET SHEILD) The portfolio is invested in a mix of fixed income mutual funds / securities and equity derivatives in such a manner so that the same endeavors to preserve the stated percentage of the Investment Amount while at the same time an attempt would be made to enhance returns by the use of equity derivatives. Due attention will be paid to qualitative parameters such as management quality.6.e. but not limited to. liquidity etc.6. etc. The sale of the futures would require a payment of an initial margin (of which 50% can be paid in the form of securities i. Two simultaneous transactions are undertaken: • Selling the futures • Buying the underlying stock. Cash future arbitrage The cash futures arbitrage strategy can be employed when the price of the futures exceeds the price of the underlying stock.6. 2. Arbitrage opportunities between the cash and futures market may also be undertaken as part of the fixed income component.

The position could even be closed earlier in case the price differential is realized before expiry or better opportunities are available in other stocks. so as to spread the exposure to the option premiums through the investment tenure (i. Returns on the portfolio will be generated through capital appreciation on the options investments. For the purchase of options.contracts. This strategy would require payment of initial margin to the exchange for taking position in both Nifty and stock futures. by investing in a mix of stock options and index options. Thus. Index (Nifty) arbitrage (Future) The Index (Nifty) arbitrage (Future) would attempt to capture arbitrage opportunities between the futures on stocks comprising the Nifty Index (by market weightage) and futures on the Nifty either by buying futures on stocks constituting the Nifty Index and selling futures on the Nifty or viceversa. only a proportion of the total clients capital will be invested in stock option premium in any month). while the upside is unlimited. Thus under all possible circumstances. losses are limited to the premium paid. the price differential between the futures and the stock is realized.9 ONLY OPTIONS PORTFOLIO • • • The objective of the portfolio is to earn capital appreciation on the client’s capital. The investment in options could include pure long positions in call and put options as well as spreads where the total liability is limited to the premium paid. 2. The total capital to be invested will be staggered over the investment tenure.6.e. the Portfolio Manager will seek to manage the funds of the client/invest in securities by combining investments in • • Equity and equity linked securities Debt instruments Units issued by SEBI registered mutual funds and venture capital funds which have open ended/closed ended or defined tenure structures which may be both long/short term in nature as may be agreed with the client. • 2. the losses on the portfolio will be limited to the clients initial capital. • • 23 . The position would either be held till the expiry of the futures contracts or may be closed earlier if arbitrage gets realized. the price of the futures will equal the closing price of the stock.6.8 DEFINED TENURE SERIES PORTFOLIO Under this portfolio. By definition. In no month will an amount greater than the client’s capital be invested in options.

2.6.10 PRINCIPAL PROTECTED PORTFOLIO


The portfolio aims to achieve capital growth along with relatively low capital risk. The portfolio would have a defined tenure and principal protection level. This objective is achieved by investing a part of the capital in an actively managed equity portfolio, while rest of the capital is invested in fixed income, which forms the floor for capital preservation. The portfolio aims to provide capital preservation with the help of a third party guarantee. The third party guarantee would get invoked if the portfolio falls below a certain level.

2.6.11 INFRASTRUCTURE PORTFOLIO • The infrastructure portfolio will invest in companies that are directly or indirectly linked to the infrastructure theme. This could include sectors such as construction, capital goods, power, cement, metals, banking, logistics and other related sectors/sub-sectors.

2.6.12 DIVERSIFIED PORTFOLIO

• •

The portfolio will have a defined tenure. The Portfolio Manager has discretion to invest in a combination of different asset classes including but not limited to listed equities, equity related instruments, or other unlisted securities/instruments (private equity) including but not limited to units issued by SEBI Registered Venture Capital Funds and money market instruments. The terms of tenure of the product, subscription and redemption etc. will be as per the agreement executed with the Investor.

2.6.13 ABSOLUTE RETURNS PORTFOLIO • • • The absolute return portfolio aims to capitalize on the fundamental stock picking ability of the Portfolio Manager. The Portfolio Manager endeavors to deliver absolute performance irrespective of the direction of the markets. The portfolio would buy the ideas with the highest scope for outperforming/appreciation. The Portfolio Manager would sell stocks, which seem overvalued and may under perform / offer little scope for appreciation. The portfolio would invest / trade in cash equities and futures and options. Futures and Options could be on both stocks and indices. Futures / options maybe both bought / sold. Buying of stocks could be through cash equities and / or futures / options. Selling of stocks could be done through the use of futures and / or options. Given the use of

• •

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futures in the portfolio, the notional value of all the portfolio positions may exceed the amount invested.

However, at all points of time sufficient cash will be maintained to enable payment of margins and it will be ensured that in line with the SEBI Portfolio Manager Regulations, at no point of time will the portfolio be borrowing for the purpose of taking its exposures.

2.6.14 INDIA OPPORTUNITIES PORTFOLIO


• •

The objective of this close-ended portfolio is to generate superior risk-adjusted returns on clients’ capital over the long term Investing in instruments including but not limited to equity, equity-linked products, debt, units, hybrid products, convertibles, mortgage backed securities, commercial paper(s), notes and instruments offered by unlisted and listed companies involved in, investing in, developing, constructing, owning, asset managing, project / facility managing and operating real estate assets and related infrastructure opportunities. The portfolio manager would seek to generate capital appreciation as well as regular returns (annual dividends / interest) on clients’ capital by such investments. Until such time the portfolio manager finds appropriate investment opportunities, the Portfolio Manager may, at its discretion invest the funds in bank deposits, units of Mutual Funds, money market instruments and / or gilt securities issued by central / state governments.

2.7 RELIGARE PORTFOLIO MANAGEMENT
Religare offers PMS to address varying investment preferences. As a focused service, PMS pays attention to details, and portfolios are customized to suit the unique requirements of investors. Religare PMS currently extends five portfolio management schemes: • Panther • Tortoise • Elephant • Caterpillar • Leo Each scheme is designed keeping in mind the varying tastes, objectives and risk tolerance of investors Investment Philosophy • • • • • Stock specific selection procedure based on fundamental research for making sound investment decisions. Focus on minimizing investment risk by following rigorous valuation disciplines. Capital preservation. Selling discipline and use of Derivatives to control volatility. Overall to enhance absolute return for investors.

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PRODUCTS 2.7.1 PANTHER The Panther portfolio aims to achieve higher returns by taking aggressive positions across sectors and market capitalization. It is suitable for the “High Risk High Return” investor with a strategy to invest across sectors and take advantage of various market conditions. 2.7.2 TORTOISE The Tortoise portfolio aims to achieve growth in the portfolio value over a period of time by way of careful and judicious investment in fundamentally sound companies having good prospects. The scheme is suitable for the “Medium Risk Medium Return” investor with a strategy to invest in companies which have consistency in earnings, growth and financial performance. 2.7.3 ELEPHANT The Elephant portfolio aims to generate steady returns over a longer period by investing in Securities selected only from BSE 100 and NSE 100 index. This plan is suitable for the “Low Risk Low Return” investor with a strategy to invest in blue chip companies, as these companies have steady performance and reduce liquidity risk in the market.

2.7.4 CATERPILLAR The Caterpillar portfolio aims to achieve capital appreciation over a long period of time by investing in a diversified portfolio. This scheme is suitable for investors with a high risk appetite. The investment strategy would be to invest in stocks which are poised to get a re-rating either because of change in business, potential fancy for a particular sector in the coming years/months, business diversification leading to a better operating performance, stocks in their early stages of an upturn or for those which are in sectors currently ignored by the market. 2.7.5 LEO Leo is aimed at retail customers and structured to provide medium to long-term capital appreciation by investing in stocks across the market capitalization range. This scheme is a mix of moderate and aggressive investment strategies. Its aim is to have a balanced portfolio comprising selected investments from both Tortoise and Panther. Exposure to Derivatives is taken within permissible regulatory limits. 2.7.6 ADVANTAGES OF PMS AT RELIGARE • No experts, only expertise PMS brought by Religare with its solid reputation of an ethical and scientific approach to financial management. They offer the services of a Dedicated Relationship Manager who is at service 24x7; they do not depend on individual expertise alone. This means lower risk, higher dependability and unhindered continuity. Moreover, investors are not limited by a particular individual’s investment style.

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Value Fund. Our family of funds is designed to offer a range of investment options for investors with different objectives and temperaments. The Portfolio Management Services (PMS) team at Angel helps clients navigate these complexities by enabling them to take advantage of opportunities and manage risk by diversifying their portfolio across many different sectors and styles. Growth Fund. Equity Derivatives Fund and an Interest Arbitrage Fund.8. • 2. fund size. Logic works well and thus will be given weightage along with financials.1 ANGEL OYSTER The objective of the scheme is wealth generation by delivering superior returns over long term through investments in equities. Investors can pinpoint where their money is being invested. portfolio concentration and volatility. Timing of investment is important to generate superior returns. But there is a common thread which runs through all the five funds PRODUCTS 2. 24x7. There is a Large-Cap Fund. Investment Strategy • • To generate wealth on consistent basis rather than outperform by taking higher risk. There are differences in investment style. Early identification of stocks to ride through the entire investment cycle.8 ANGEL BROKING PORTFOLIO MANAGEMENT Investors with substantial financial assets confront a situation of considerable complexity and opportunity. Using more broking firms gives us access to a larger number of reports and analysis. more informed decisions. enabling us to make better. This means that the portfolio is not churned needlessly.• No hidden profits They ensure that a part of the broking at Religare Portfolio Management Services is through external broking houses. Daily Disclosures Religare Portfolio Management Services gives daily updates on investments. • • 27 . instead of waiting till the end of the month to keep track.

Portfolio to comprise of a combination of growth & value stocks. Investor Profile • Safety of capital will be of utmost importance. Parameters Driving Investment Decision • • The portfolio strives at all times to achieve a 70% allocation to large cap companies. • Focus on companies which display: • Scalable business potential • Large market opportunity • Beneficiary of favorable economic cycle • Valuation at steep discount to asset value Sectoral Composition • Diversified Portfolio. The portfolio strives to limit the exposure to any sector to less than 25% of the portfolio size. (i. The portfolio strives to insulate an investor from cyclical themes by investing in sectors offering secular growth outlook. 12-18 months) 2. • Investments in companies regardless of market capitalization. The allocation of sectors and stocks in the portfolio may be dynamically structured in tune with changes in broader market conditions. Investment strategy • • • • Overweight on large Cap stocks. However quality mid cap stocks may also be considered for investment.2 ANGEL BLUE CHIP The objective of the scheme is to generate capital appreciation in the medium to long term through investments in equities and equity related instruments comprising predominantly large cap companies.8. Investor Profile • Ideal for investors with low to moderate risk appetite. Parameters Driving Investment Decision • Blend of growth and value stocks.e. Combination of Top-Down & Bottom-Up approaches. • Keen selection of stocks based on potential for value unlocking based on key events. 28 .• Bottom-Up approach. • The scheme would be suited for Investors having medium to long term perspective. • May include under-researched companies.

2. Investor Profile • The scheme would be suited for investors with low to medium risk appetite. Additionally the funds lying idle would be deployed in arbitrage between cash and future and /or place in low maturity debt funds and low risk F&O Strategies. Combination of Top-Down & Bottom-Up approaches. 2. Investment strategy • • • Focus on growth themes such as Infrastructure.3 ANGEL GROWTH FUND The objective of the scheme is to generate capital appreciation in the medium to long term through investments in equities and equity related instruments comprising of predominantly MidCap and Small-Cap companies. Portfolio to comprise of a combination of growth & value stocks • Investor Profile The scheme would be suited for investors with moderate risk appetite. Overweight on Mid-Cap and Small-Cap stocks. Features • • Investments would be in fundamentally strong large cap and Mid Cap companies having high liquidity in Options. having long term perspective.• Angel Bluechip suggested time horizon is 12-15 Months. ADVANTAGES OF PMS AT ANGEL BROKING 29 . be overweight on Mid-Cap and Small-Cap companies. Services. Recommended investment horizon is 15 to 18 months.8. However quality Large-Cap stocks may also be considered for investment depending on market conditions.The portfolio will however. • Suitable for HNI’s and Corporate who want to park money for consistent Return from the market even if market remained flat. Partial hedging of open positions would be done by writing options. Manufacturing & domestic consumption.8. The scheme will seek to achieve returns through broad based participation in equity markets by creating a diversified equity portfolio .4 EQUITIES AND DERIVATIVES FUND Objective • • To generate moderate returns by deployment into Equity assets and partially hedging the portfolio using options and futures & achieving this with a margin of safety.

as well as online access so you are just a click away from all the information that you require about your investments.9 BONANZA PORTFOLIO MANAGEMENT Bonanza provides a highly professional fund management services that is yet flexible to deliver maximum returns to investors. utmost emphasis is given to understanding the risk profile of an investor. Prudent risk management practices provide better downside protection for investor’s portfolio and also help convert paper gains into real profits. Recent Past Performance Returns % (From Aug 13. Transparency: Regular statements and updates from us. 2004 to Nov 30. Professional Management: PMS is provided through professional management by experts on equity with an aim to optimize returns.• • • • • Understanding Risk: At Angel. Investment in bonanza PMS does not automatically become an equity investment. Regular Analysis & Monitoring: Investments undergo regular monitoring and analysis to check any deviation from the structured goal ensuring creation of wealth over a period of time. The flexibility of the PMS allows them to convert cash to equity over period of time. Some highlights of their process: • • • • • Professional research brings out the brightest stock and sector ideas for the portfolio. Greater flexibility to hold cash and allocate investments across sectors and adjust for market trends. Proactive management facilitates monitoring the operational and stock market performance of all companies in the portfolio regularly.this process can be speeded up or slowed down to adjust for market trends. 2007) 30 . Administrative Convenience: Angel focuses on providing hassle free administrative/ operational support & customized services. 2.

Reliance Portfolio Management Services Reliance Portfolio Management Services is an exclusive offering from the portfolio management division of Reliance Capital Asset Management Ltd. Features & Fee structure • • Minimum portfolio size: Rs.Absolute Bonanza PMS Sensex Nifty 327. including graphs & charts. Portfolio Management Service Providers Depending on investor’s risk appetite and desired returns. o Brokerage: 0.. No exit charges.10 DEUTSCHE BANK (THIRD PARTY PMS) Deutsche Bank offers its professional services to recommend Portfolio Management Services from seven reputed third party providers (fund houses / financial institutions). Prudential ICICI. One can also open a PMS account by transferring existing portfolio of stocks or mutual funds. due only if the portfolio has made profits in that quarter. Charged quarterly. a wholly owned subsidiary of Reliance Capital Ltd.10 lacs. expenses and taxes will be on actual.. is also the investment manager for Reliance Mutual Fund. for a fee. Franklin Templeton and Benchmark Asset Management. Charges: o PMS Fees: 15% of profits plus government taxes.28 % 277. who. invest funds after scientifically analyzing the pros and cons of the various options.00 % Source: Bonanza Other benefits • Dedicated portfolio manager contact • Expert initial and ongoing advice • Continual fund monitoring • In-depth reporting on portfolio performance. Exit: No lock-in period.68 % 260.50% plus all applicable regulatory charges and government taxes.18 % 79. • 2. Prudential ICICI 31 . he can select from a range of superior PMS products in the country. o Other charges: Depository and other charges. Reliance Capital Asset Management Ltd.22 % 84. including the products from Reliance Capital.58% Annualized 99. Exit any time with a notice of minimum 3 working days.

2. It gives access to a wide choice of the best fund managers of AMC’s offering customised Portfolio Management Services (PMS).India’s premier financial institution. USA. Benchmark Benchmark is India’s first Asset Management Company to focus exclusively on passive and quantitative asset management. Franklin Templeton Franklin Templeton. Such products are suitable for people with investments in relatively low-risk assets who are looking for potentially higher risk-adjusted returns.UK‘s leading insurance company and ICICI Ltd. PRODUCTS There is a wide range of PMS product options in the market.4 PURE DERIVATIVE PRODUCTS These products endeavor to achieve significant appreciation in capital.10. 2. Prudential ICICI and Benchmark offer options in this category of PMS products.3 DERIVATIVE ARBITRAGE PRODUCTS These are a range of products that enable to take advantage of arbitrage opportunities in the derivative markets. by investing in a mix of stock and index options. is one of the largest financial service groups in the world. equity portfolios investing in stocks across market capitalisations or products investing in large or mid-cap stocks. 2. One can opt for dividend yield portfolios.10. It calls for awareness and understanding of the business and economic variables that affect equity valuations. There are several products that help to make the appropriate equity investments. The portfolio may be considered suitable for investors with a high-risk 32 .1 EQUITY ADVISORY PRODUCTS Equity investment has become a more involved activity. It is promoted by professionals with vast experience in domestic and international capital markets.2 CAPITAL PROTECTED PRODUCTS Equity and derivative-linked capital protection products offer a flavors of the equity markets with capital preservation. They also take advantage of spreads between the price of a stock future and the underlying stock.10. one of India’s largest private sector mutual funds. . based in California.10. The Company serves as the investment manager for Prudential ICICI Mutual Fund. . 2.Prudential ICICI Asset Management Company is a joint venture between Prudential Plc.

3. banks etc.appetite who desire significant appreciation in their capital and are willing to take on risk for the same.0 PORTFOLIO MANAGEMENT & MUTUAL FUNDS • PMS providers target specific segment of investing community which is the rich and affluent class. provident funds. with investment amounts as low as Rs. 500. where as mutual funds attracts diverse set of investors. which may include small investors. the entire portfolio will be hedged against overall market movements by using derivatives. Portfolio Management Service providers on other hand are authorized by the investors to take investment decision on their behalf and have relatively more freedom to choose securities as the investment norms are flexible and depend on the agreement signed with the client While Mutual Fund investment services could be availed by retail investors. PMS is a luxury which only a few affluent investors could afford. corporate.which is out performance to the index on the client’s portfolio. 2.10. The Alpha Portfolio is suitable for investors with a low to medium risk profile and an investment horizon of more than 12 months. Most of the PMS providers ask for minimum portfolio size ranging • • 33 . Thus.5 ALPHA PRODUCTS The Alpha Portfolio seeks to capture Alpha . It seeks only to gain from out performance vis-à-vis market while eliminating beta. Both Mutual Funds as well as PMS industry are regulated by Securities and Exchange Board of India (SEBI) but Mutual Funds work in more regulated and restricted environment and their investments are based on common investment objectives and mandated asset allocation as specified in the offer document.

prepared by Merrill Lynch and Capgemini SA. these investment avenues are tailored to suite the investors risk and return appetite. non discretionary or advisory services. PMS is only feasible for a large portfolio as lot of time is spent into managing the individual portfolios. Mutual Fund schemes on other hand have a common investment objective for all the investors of the scheme and no investor can influence the fund manager’s investment decision. The fund management expenses charged by mutual funds are regulated and are subject to certain limits specified by SEBI. in order for portfolio management services to prosper.000 in 2006. had the highest growth in HNI population in 2006. the minimum amount to avail portfolio management service is Rs 5 Lakhs.5%.3% in 2006.5 million individuals. The global growth rate in HNI population was 8. As per SEBI. liabilities and obligations relating to the management of funds or portfolio of securities containing the details as specified in the SEBI (Portfolio Managers) Regulations. and the annual growth rate of HNI population (millionaires) in the country that year was 20. The fee structure in PMS could also vary from client to client and is decided while signing the contract with the client. • • • 4. he only considers the needs of specific client. the portfolio manager. Indonesia and Russia. Mutual Fund management is a discretionary service whereas PMS may provide discretionary. Mutual Funds help to balance time & cost requirements by grouping investors according to there preferences.from a few lakhs to several crores.3 • The fees charged by mutual funds and PMS also vary considerably. before taking up an assignment of management of funds or portfolio of securities on behalf of the client. along with Singapore. India had an HNI population of 100. The HNI Growth Story in India India. which adds up to 9. enters into an agreement in writing with the client clearly defining the inter se relationship and setting out their mutual rights. Portfolio management services cannot be provided to investors with small sized portfolio’s as it takes a lot of time and effort to manage a portfolio and thus it is not cost efficient to customize small sized portfolio. it is very important that more and more high net worth investors are provided with customized solutions for their investments. Therefore. Client–fund manager relationship: In PMS. 3 SEBI 34 . Thus when the portfolio manager deploys the funds. according to the 2007 World Wealth Report.0 FUTURE OF PORTFOLIO MANAGEMENT SERVICES Portfolio management aims to provide customized investment solutions to high net worth individuals.

The Invest India Income and Savings Survey 2007.7 trillion rupees ($141. Currently India has 33 fund houses. The McKinsey study predicted that more than 23 million Indians—more than Australia’s current population—will be among the country’s wealthiest citizens by 2025. The study did not define “wealthy” The total assets under management (AUM) in India would grow by 33 percent every year to reach as much as $440 billion by 2012 with mutual funds and portfolio management services as key drivers. which manages 5. said that an assumption of an average growth rate of 7. who earn in excess of Rs1 million a year.5 4 5 McKinsey Report AMFI 35 . the overall economic growth will attract participation from the international investment community across retail and institutional segments. are in the age group 36-40.The global trends in the attitude of the wealthy are already apparent in India too. A May 2007 study by the McKinsey Global Institute titled The Bird of Gold: The Rise of India’s Consumer Market.12 billion) at the end of February.3% between 2005 and 2025 would create a large number of wealthy people in India.4 Besides. Other studies suggest these trends will strengthen in future. The report also said that the retail segment would grow by between 36 percent and 42 percent annually to $160 billion to $200 billion by 2012 while institutional investments would grow by 25 percent to 33 percent annually to $160 billion. showed that a little over a quarter of the 8.87 lakh people. with a significant number below 40 years in age. produced by Noida-based market research firm IIMS Dataworks.

A Wrap Account is sometimes referred to as a "Investment Universe".including shares.1 INTRODUCTION A wrap account is one in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. This fee covers all administrative. They can also bring together the various tax wrappers such as ISA (Individual Savings Account). All the costs are "wrapped" into a single fee equal to a percentage of assets under management. A wrap account brings together all investments . unit trusts and pensions . bonds. advisory.under one roof. 36 . "asset aggregation" and "hypermarket" and they are about to change the way people view their investments in the future. “investment platform“. investment trusts.0 OVERVIEW 1. and self-invested personal pensions (SIPPS). commission and management expenses.WRAP ACCOUNT 1. cash. making completing the investor’s tax return a much easier task. "master trust".

were to ensure that customers received professional advice that served their interests rather than the advisers’ interests. 6 1. so they formed a larger part of the wrap service. 2. The main attraction of traditional wraps is that they offer investors access to one or more investment managers to manage their funds. A second version of the wrap service appeared in the 1990s. These were initially limited to the fund managers’ own funds. Because advisers are paid on a percentage of the value of the assets in the wrap service. is to allay the fears of stock and bond purchasers that a single broker would merely be trying to sell products solely for the commission.2 CONCEPT The initial intent. The fees for both types of wrap have fallen as well. MUTUAL FUND WRAP A mutual fund wrap account is a basket of mutual funds that caters to the investment goals of the investor. about 65 per cent of new funds are going into wraps. wrap accounts have experienced a 40 per cent growth rate in assets year on year since 1996. In Australia.1. The Wrap-Account has been popular for some time in the United States of America and Australia and is starting to break into the mainstream financial market in the UK. This system could be worthwhile to customers with relatively complex portfolios because the fees were significantly higher (as much as 3 per cent) than managed mutual funds. for wealthier clients who wished to manage their finances through a professional intermediary. whereas the consultant wrap tended to place funds in equities and institutional money managers. and probably the major continuing aspect of such accounts. In the USA. then as now. Wrap accounts are great if investors don't have time to invest on their own and wish to have a money manager take care of their assets. but have now expanded to cover third-party funds as well.0 THE EVOLUTION OF WRAP SERVICES 2.1 percent. they had no incentive to encourage frequent trading in order to generate broking commissions. termed the “mutual fund wrap” in contrast to the earlier “consultant wrap”. Their advantages. As differentiated.com 37 . encouraging their take-up. investments are placed in brand-name mutual funds. Cerulli Associates (a Boston-based research and advisory firm specializing in trends in financial services) estimate that the average fee paid for a consultant wrap is now 2.3 VARIATIONS OF WRAP ACCOUNTS TRADITIONAL WRAP A traditional wrap account offers many different types of securities to meet the investment needs of the individual investor. 6 www.datamonitor. wrap accounts charge the overall account an annual fee irrespective of how often the stocks within the account are bought or sold. As direct equities formed a larger part of investors’ portfolios in the USA than elsewhere. Here.1 USA Wrap services were first developed in the USA in the 1970s.

As wrap services have gained flexibility and reduced their costs. Altogether. rather it aggregates the funds of a number of managers. property funds. both Australia and the US have a high concentration of independent advisors that acts as a further stimulant to the development of wrap products as these can be the most suitable distribution channel. compared to $10. bonds.000 for a mutual fund wrap.7 The entry level for a consultant wrap is still high. 7 Cerulli Associates. and are already worth about half that amount. • One example of the expansion of wrap services comes from Skandia Asset Management. The service offers access to funds from different providers as well as bonds. Consultant wraps now hold over $200bn. as well as in equities. wrap products and mutual funds make up more than 50 per cent of sales in the independent broker-dealer channel and Skandia is currently one of the largest vendors of investment products to the independent broker-dealer channel worldwide. The reason why wrap services are popular in the US lies in high investor sophistication. including Alliance Capital. The assets are often held in the investor’ name.2 AUSTRALIA A distinctive characteristic of the wealth management market in Australia is the existence of wrap products and master trusts. which makes it more costly to administrate and makes transactions take longer. assets are held in nominees’ names.compared to 1. In the US. which makes many of the world’s best money managers available to investors. who in turn service their clients. These allow individuals to have a single service incorporating different products. In Australia. However. savings and equities. Macquarie. Moreover. Skandia was one of the first providers in the US to introduce the concept of ‘multimanager’ funds. they have attracted investments very fast. mutual fund wraps are more common. These services will offer management and advice of all investment types including pensions and insurance. Deutsche Asset Management. such as CDs.25 per cent for a mutual fund wrap. INVESCO Funds and ProFunds Advisors.000. Internationally. There are other aspects of wrap services in the USA which differ from those in other countries: • The underlying assets are more commonly invested in fixed interest products. since it mainly offers services to financial advisors. depending on the level of risk an individual is willing to take. Survey 38 . Skandia does not manage the funds itself. including bank deposits. product providers offer wrap products to independent brokers and dealers who then provide advisory services to their clients. equities and other investment vehicles. as in Australia. they can also offer sophisticated management systems and advisory services that facilitate a total wealth management solution. a form of financial services shop including information tracking and presentation of these investments. reducing both costs and transaction times. at a minimum of $100. On a simplistic level these are ‘product menus’ offering a consolidated access point. Westpac and Suncorp Metway are examples of providers of these types of services. while the newer mutual fund wraps have been catching up with them. 2. The company is a typical example of a wrap product provider.

and loans or other liabilities. the introduction of capital gains tax in October 2001 has brought about an adverse change in the environment for wrap funds as investors are liable to be taxed each time they switch fund within a wrap structure.com. not liable for capital gains tax. This is because the wrap service is transaction-based rather than fee-based and.000-15. Clients can view all their assets and liabilities including AMP products such as investment funds. for small investments the costs would be extremely high. Investors with more than $75. Godfrey Pembroke – (www. offering investment.000 mainly use the service although.com. but are mainly used by the upper mass market and high net worth individuals. which emerged onto the investment scene after 1998 as a means of offering some protection against market volatility through spreading funds over several unit trusts rather than a single fund. Indeed.au) The My Portfolio service provides a complete picture of clients’ assets. BoE Asset Management. has followed this approach. wrap products are available to all. those with $10. Macquarie – (www.amp. 3. superannuation and investment accounts.au) 39 . who then offer the wrap service together with advice to their clients. One of the key drivers of growth in the retail mutual funds sector has been the development of wrap funds. therefore. in some cases.3 SOUTH AFRICA The unit trust industry has been one of the great success stories of the South African financial services market over the past decade. The network of over 190 consultants offers financial planning services to a wide range of clients including individual investors. financial products from other institutions. However. 2.000 can also use the service. In general. With wrap funds the client is essentially deciding only on the level of risk he or she is willing to take with the rest being managed by the fund managers.au) One of Australia's premier financial planning organizations. small businesses and corporations. Indeed.macquarie. As such.com. superannuation and insurance options and related taxation services. many fund providers have converted wrap propositions to “funds of funds” in order to circumvent this tax loophole. other assets such as personal possessions or investments. therefore. formerly a leading provider of wrap structures. fund managers have offered investors the opportunity to invest in “funds of funds” in which switches between individual funds are invisible and.godfreypembroke. wrap services are mainly offered by means of IFAs.0 PROVIDERS OF WRAP PRODUCTS AMP – (www.The main reason for the popularity of wrap services in Australia is the high level of investor sophistication combined with the popularity of IFA (independent financial adviser) services. insurance. For example.

pension and non-superannuation administration solutions for the back office and practice management needs. This is when a broker or money manager trades an account excessively to create extra commission. clients can benefit from flexible investment choice and consolidated performance and tax reporting on their entire portfolio.com 40 . • 8 www.usually a single annual management charge instead of a range of separate costs such as set-up charge. The company specializes in superannuation. But with their ever-increasing growth and popularity. to transact and report on their investments.$100. Macquarie's wrap account allows its clients to take clients' portfolios online with the internet as the interface. they also provide for the new “mass affluent” class with a route to the sort of quality financial advice normally available only to the very rich. A traditional wrap typically requires an initial investment of at least $25.000. Mutual fund wraps have relatively smaller investment minimums of as low as $2.8 Another advantage to a wrap is that it protects investors from overtrading.000. 4.000 $25. which were once only available to large institutional investors and the extremely wealthy. Other Benefits of a Wrap Account include: • • Wrap accounts are an uncomplicated and simple service In addition to investments being kept under one roof. Wrap accounts have a simple charging structure . At the same time. Initial set up and ongoing training support for advisers and back office staff are available to ensure that they are utilizing the service in the most beneficial way. dealing costs and management fees.000 .Macquarie Portfolio Services is a provider of wrap account solutions to financial intermediaries and advisory dealer groups.0 ADVANTAGES OF WRAP The advent of wraps has allowed smaller investors to access professional portfolio managers.investopedia. the deposit minimums are continually being lowered. or churning.

-based mutual funds. Like a multi-discipline account. there were about 61.506 mutual funds as on Jan 2007. 7 days per week. 52 weeks per year The popularity of wrap accounts is widely attributed to their flexibility. selecting one can be a real challenge.0 MUTUAL FUND WRAP The mutual fund industry is enormous.• Wrap accounts allows investors to adjust investment goals as income and lifestyle change without high cost Wrap accounts are available on the Internet to give immediate information (often in real time) meaning investors can review their wrap account Information 24 hours per day. and assets totaling about $25. So. The structure of a discretionary mutual fund advisory program is similar to the structure of a multi-discipline account. Based on those goals. ongoing due diligence of 41 . each fund representing a specific discipline.1 DISCRETIONARY A discretionary mutual fund advisory program provides a variety of portfolios that incorporate multiple mutual funds into pre-selected asset allocation models. completing tax return is a much easier task with all their investments stored in a wrap account • • • 5. the arrangements take full account of each other’s situations. the advisor reviews the offerings in the mutual fund advisory program and selects the asset allocation model that matches the investor's goals. To ease this burden. Many of the portfolios divide the equity and fixed-income portions among multiple mutual funds. the industry has created the mutual fund advisory program. One of the principal advantages is that whole families can organize their affairs together.82 trillion as on Feb 2008. Building and monitoring a diversified portfolio can be an overwhelming burden. 5. The Investment Company Institute (ICI). a conservative investor interested in income generation would be guided to select a portfolio that allocates the majority of its assets to fixed-income investments. also known as the mutual fund wrap. With so many funds to choose from. a mutual fund advisory program offers a diversified portfolio. For example. a trade organization representing mutual fund providers. and worldwide. Investors work with a professional financial advisor to map out their personal financial goals. cites more than 8. professional advice and guidance. while they maintain their individual aims and objectives. An aggressive investor primarily interested in capital appreciation would be guided to select a portfolio that allocates the majority of its assets to equity investments.S.120 U. For investors.

While mutual fund advisory programs offer many of the same benefits provided by their more expensive managed-money cousins. are mutual investments. Mutual fund advisory programs offer significantly lower minimum investment requirements than other managed-money products. perhaps 2% to 3% for equity accounts and from 1. Both discretionary and non-discretionary mutual fund advisory programs provide consolidated performance reporting. the investor and the financial advisor review a list of mutual funds that have been pre-screened and selected for inclusion in the program.75% for income accounts. and choose funds from that list to create a customized asset allocation model. 2006) 42 .000. making it easy for investors to review results at the portfolio level. compared to $100. NON-DISCRETIONARY In the non-discretionary program. diversified portfolio that includes multiple mutual funds. the program sponsor oversees the mutual fund managers and the investment advisor provides assistance with the initial investment selection and ongoing monitoring of the portfolio's performance in relation to the investor's objectives. The basic premise of a mutual fund involves a group of investors who pool their assets so that they can afford the services of a professional money manager. Mutual funds. The discretionary mutual fund advisory program delegates authority to the program sponsor (often the financial advisor's employer or a subsidiary of the advisor's employer) to make changes to the asset allocation model and to add or remove mutual funds from the portfolio without approval from the investor. The fee-based compensation reduces concerns about the objectivity of the advisor's recommendations. The mutual fund managers each oversee their portfolios. by removing the firm's vested interest in commission based products. a mutual fund advisory program provides three levels of oversight. as the name implies. As one adviser stated.3 ADVISORY A mutual fund advisory program offers more benefits than those generally associated with a mutual fund purchase.000 or more for other managedmoney offerings.the investments in the portfolio and automatic rebalancing of the portfolio to maintain the desired asset allocation. Some mutual fund advisory programs are available at investment minimums as low as $25. 5. its advisers would retain more objectivity and flexibility in structuring and moving client investments. Fees generally range from 1% to 3% of the account value. there is also an important difference. Article (July. Assets in a mutual fund advisory program are not separate and distinct from the accounts of other investors. The investor is responsible for providing approval of the rebalancing of the portfolio and for the decision to replace any of the mutual funds.25% to 1. In addition to a professionally managed. The money manager then makes portfolio management decisions on behalf of the collected pool of investors. 9 9 Wall Street Journal.

Wrap Account holders remain the beneficial owner of these investments.the larger the account.000 account. • $750 went to the money manager. the money manager and the wrap account provider. This is one of the key reasons why wrap accounts have become so popular. but rather a service.The charges are also usually based on a sliding scale similar to that of break points on mutual funds. 6. Most importantly. investor can still make all decisions about his investments. provided by the WSJ (Wall Street Journal) noted the following breakdown on a 3% fee on a $100. With a wrap account. It is not a product in which to invest.or wraps . The technology associated with a wrap account gives the financial planner more time to deal with the more constructive tasks of working out asset allocation.000 to invest in a wholesale fund. but they also no longer have to worry with the endless paperwork associated with a diversified portfolio.investments into a single manageable account so that investors can see their total portfolio at a glance and eliminate a whole heap of paperwork. so they can still enjoy dividend payments and other direct investor benefits such as shareholder discounts. One single document will present a complete picture of all investments. Choice and convenience Not only do investor’s get access to wholesale funds at cheaper rates. the lower the overall fees. Ordinarily one needs a minimum $500. investors can instantly see their portfolio at a glance on a daily basis via the Internet. although he may need the services of a financial planner to help with the asset allocation and fund manager selection to best suit his risk profile. which have the attraction of lower fees than their retail counterparts. 43 . But it delivers much more than just administration. Brokers may also discount the fees to better customers (20% to 30%) or when they simply want to gather additional accounts. the wrap provider will send a consolidated tax statement at the end of each year to help with tax returns. A further split. a wrap account gives access to a wide range of wholesale funds.0 AMP WRAP PROVIDER A wrap account is basically an administrative service that combines . By pooling investor’s money with others. The fees are split between the broker offering the account to the client. • $1350 to the brokerage firm. And generally. • $400 paid for the manager selection and • $450 went to cover custody of securities and clearing charges. helping with investment decisions and generally giving financial planning advice.

8 % and 1. While it makes sense to move existing direct assets such as shares into a wrap account. it's probably not wise to include current retail managed fund investments as investor’s would end up paying unnecessarily high fees. phone and Internet banking and branch access 44 . Generally speaking.1 ADVANTAGES • • • • • • • Access to wholesale funds and therefore wholesale fees Wide choice of investments and flexibility to change portfolio Consolidation of reporting into one single document Generally an instant view of total portfolio at any given time Consolidated end-of-year tax statement Maintain greater control of investment decisions Hold beneficial ownership of investments 6. a wrap account may well deliver the goods. if someone has a diversified portfolio and are tired of working their way through a mountain of paperwork at the end of each financial year. With Wealth View eWRAP.2 DISADVANTAGES • • • Minimum of $100. 6. which allows investor’s to wrap all investments into the one simple Investment. Another plus is the ability to switch between investments or change strategies without incurring any exit fees. investor’s can: • Invest in an extensive range of wholesale funds • Buy and sell shares listed on the ASX • Choice of cash accounts offering competitive interest rates. According to ASGARD's Gillett this is usually between 0. the ASGARD wrap account 'eWRAP' has more than 200 managed funds and investors can buy shares in any ASX listed company.5%. one of the main advantages of a wrap account is to give access to the cheaper fees from wholesale funds. As with all things in life. There would seem little point in still paying the higher retail fees plus the wrap account charges. After all. Superannuation and Pension account. For instance. you also have to pay a fee for the wrap service.000 to make it cost effective Possible capital gains tax implications from selling current retail funds Generally not suitable for investors with a non-diversified portfolio WEALTHVIEW eWRAP Overview AMP's Wealth View eWRAP is an administration service. a wrap account comes at a price.Choice is another key element. BPAY. While the fees on your wholesale fund investments are lower than if you were in a retail fund. or much less if investors have a larger amount to invest.

Both products are fee-based. wrap accounts and mastertrusts are fairly similar. property and cash holdings. • • Wrap products offer more sophisticated services and access to wholesale prices. retail banks and asset managers. Wrap is to be contrasted with a master trust. They can be discretionary or non-discretionary. Master trusts are a way of administering investment portfolios giving access to a range of different investments vehicles through one consolidated reporting document and one trustee. thus they are only really viable for individuals within the upper levels of the wealth spectrum. • But generally speaking. They are similar to master trusts but include a wider range of assets such as shares.0 WRAP ACCOUNT AND MASTER TRUSTS • Master trusts are primarily offered through investment banks. managed funds. and managed on a consolidated administration system. 8. wrap accounts are often referred to as the next generation of mastertrusts. consolidated tax statement • The convenience of a cash account with competitive interest rates 7. with a single administration fee • Access to the expertise of experienced and reputable fund managers • Access to wholesale funds offering lower fees • Flexibility to change and mix investments • Quick online processing of investment transactions • Consolidated transaction reports across all investments • A simpler.Benefits of WealthView eWRAP The WealthView eWRAP offers: • Convenient account information online 24 hours a day. • All investments held in a master trust are in the name of the trustee so investor’s don't retain beneficial interest and will probably have to pay Capital Gains Tax if they move from trust to trust. 7 days a week • Flexible fees across managed investments and shares.0 WRAP ACCOUNT & MUTUAL FUND 45 . Indeed. aside from the different legal structures. The complexity of this system makes them relatively expensive.

advisory. etc. • The choice of a manager is left to the stockbroker and. Another difference would be that Wraps also allows investors to combine their pension account (self invested pension plan). the main objective of Portfolio Management is to offer customized solutions to the high net worth investors and invests on their behalf in both the equity and debt markets. The brokerage commissions and advisory fees are wrapped in the overall fee. PMS providers aim to increase the investor's capital. The fee’s structure for WRAPS and Portfolio Management differ in the sense that in Wraps there is a fixed percentage of fees charged on the assets under management whereas Portfolio Management involves different fee structures.The closest proxy for a mutual fund is a wrap account. • 9. The amount of assets required to avail Portfolio management services is considerably higher than the assets required for setting up a wrap account. Brokerage firm’s use wraps to shift from commission based charge to fee based charge. Most importantly. may involve a potential conflict of interest. For a single fee. with reduced fees available to investors with assets of $1 million (2. mutual funds. bonds. but it is not. stocks. individual savings account etc whereas portfolio management allows investors to invest through cash.0 WRAP ACCOUNT & PORTFOLIO MANAGEMENT SERVICES • The main objective of a wrap is to minimize the charges (brokerage. and in doing so they also provide the investors with other facilities such as asset management. the costs involved in wrap accounts are very high. depending on the relationship between the adviser and the broker. etc. management. However. etc. • • • • 46 . apart from having a fixed percentage charge on the asset under management as for the management charge. they may charge percentage share of the profits.5%) or $5 million (2%). who then invests their assets in a diversified portfolio of stocks and bonds. investor’s get the services of a professional money manager. It carries some significant baggage since • It is difficult to ascertain the validity of past performance data. etc) and charge the investor a flat or fixed percentage of the investor’s asset under management. It sounds like a mutual fund. advisory services. Maximum annual fees typically total 3% of assets.

The future of wrap services (move from commission to fee based advice) will largely depend on the distribution channels in use and on customers’ attitudes. by moving away from commissions paid per transaction to fees based on regular advice and money management.10. offer wrap services. generally by means of the independent financial advisory channel which plays an important role in the distribution of investment products in that country. Such services have enjoyed strong development already in some countries. effectiveness and security of the technology supporting wrap services should encourage financial services institutions to offer such services. and the growth in the Indian Financial markets theoretically paves the way for the development of wrap services whereby the products of different providers are packaged together into individualized financial services solutions. Moreover. the increasing availability. The increasing base of individual investors in India and the growing likelihood of their contracting multiple products across the savings and investments spectrum from a variety of providers potentially create an environment in which wrap products can prosper. notably the USA and Australia.0 KEY FINDINGS Key findings of the work are as follows: Wrap services have the potential to change the relationship between financial advisers and their clients. many of the leading financial services providers. The main stimulants to the development of wrap products in India are increasing investor appetite for customized financial services. Macquarie and Westpac. 47 . In Australia. including AMP. and encourage customers to use them.

MULTI-MANAGER INVESTMENTS Manager of Managers & Fund of Funds 48 .

1. This theory is founded on the premise that not all investment managers are good in all markets and that not all managers are successful at all times. Another very important benefit of the multimanager approach is the flexibility to include funds with different management styles and techniques. This use of complimentary investment styles adds further diversification to an investment portfolio and therefore helps reduce risk. Many fund groups are recognised as being a specialist in certain sectors. For example. or having managers investing in the same asset class but have different investment styles. The simple fact is no one individual or group will lead the fund management league tables at all times as no single investment organisation has the best funds in all areas.1 INTRODUCTION The use of other funds and fund managers within the one product is known in the financial services industry as ‘multi-manager investing’. Multi-manager investment is an investment product that consists of multiple specialized funds. ‘Multi-manager investing’ concept enables to use the best fund managers from many of the world’s largest and highly respected investment companies. large cap value fund versus large cap growth fund. Using the multi-manager concept within a range of portfolio funds is a suitable solution for investors who do not wish to take day-today responsibility for the management and ongoing monitoring of their investment portfolio.0 OVERVIEW 1. Spreading the investment money across different asset class or markets 49 . Each specialized fund may invest across different sectors and markets.

and 1% for all professionally managed assets. Annual compound growth rate of the fund size is 18% in the five years to the end of 2004. always trying to add/delete funds that he expects to over or under perform the market. MOM arrangement requires contractual agreements between the two parties.) Assets in multimanager products—a segment that includes both funds of funds and managers-ofmanagers vehicles—expanded by 40% during 2005 to exceed US$1. where the assembler effectively “hires” the manager as a sub advisory. FOF are easy to setup. 1. 50 .This fund has one manager who looks to invest in a portfolio of funds offered by other fund managers. 1. this rapid growth was outstripped by funds of funds.2 TYPES OF MULTI-MANAGER FUNDS • MANAGER OF MANAGERS . compared to a 3% CAGR for all mutual funds during the same time frame. as opposed to a managers-of-managers (MOM) arrangement.This is where a manager will allocate money directly to fund managers (not therefore investing in funds themselves) to invest into the market. FOF’s allow the assembler to effectively “purchase” an asset manager’s existing portfolio.3 GLOBAL SCENARIO (Multi-manager assets are one of the fastest growing product segments.3 trillion. Multimanager products continue to represent one of the fastest growing subsets of the fund management industry. A Multi-Manager fund aims with the help of its manager to cherry pick and invest in the best funds on the market. However. Managers-ofmanagers assets grew by 31% to $668 billion.allows the investor to achieve the necessary diversification. • FUND OF FUNDS . the FOF arrangement is fluid and undocumented—assemblers may “sell” underlying managers and invest the proceeds into another manager’s collective scheme. which grew by 51% to $665 billion. reduces risk without sacrificing the return.

The torrid pace of lifecycle funds made up a huge component of this growth.8 trillion before the end of the decade. This is different from the traditional mutual fund where only one manager invests the fund capital in stock. professional fund managers whose core competency is evaluating and identifying quality securities. hire a consultant. The assumption underpinning MoM is that diversification and balance can be achieved more readily by having a group of specialists. and alter the composition of the team to adapt to market conditions or fund performance.1 INTRODUCTION There are three ways for an institution to manage their investment programs: do it themselves. A "manager of manager’s fund" (MoM fund) is an investment fund that uses an investment strategy of directly selecting different investment managers and gives them mandate to make investment decisions. portfolio managers (PMS) and even independent.0 MANAGER OF MANAGERS 2. investing the fund's capital. closely monitor their performance. bond (finance) or other investment vehicles. 51 . which is outside the core competency of many organizations. 2. or hire a manager-of-managers. These include fund houses. organizations providing Multi Manager Funds rely on objective third-party investment managers to manage and advise on security selection. who in turn helps them select a line-up of investment managers. with multimanager products worldwide doubling in size to more than $2. Cerulli Associates expects that multimanager vehicles will maintain their five year compound annual growth rate of 16% until 2010.Funds of funds (FOF) made up the fastest growing multimanager product segment. Rather than build extensive in-house teams. instead of one individual. This means that the role of the manager of managers is to assemble a group of investment experts.

whether it’s growth or value. and industry sectors and market segments rise and fall. 2.2 NEED FOR MULTI MANAGER FUND Investment styles go in and out of favor. This extends to managers style. Factors such as track record. With all factors considered.For example. or in market focus such as large caps or small caps. • Fund selection process Funds and specialist managers are selected through a vigorous research process that includes both qualitative and quantitative analysis from track record to team dynamics. bonds. and commodities.3 ADVANTAGES OF MANAGER OF MANAGERS FUNDS • Access to the leading funds and fund managers For individuals. The multi-manager fund aims to reduce the uncertainty of 52 . managers stray from their investment styles. without having to conduct the research themselves. or in regional markets such as Hong Kong or US equities. Basic portfolio theory tells that combining different risks enables a better risk return payoff within the portfolio. The performance of those managers will then be measured against their respective benchmarks. industry reputation and charges are valuable information that affects each person’s decision process. choosing fund managers can be just as difficult as choosing which assets to invest in. small cap or mid cap. 2. Each specialist manager may have their strength in a particular asset class such as equities or bonds. the manager of a large pension fund would appoint different investment managers for different asset classes such as equities (stocks). replacing as necessary to maintain the fund’s overall performance and risk control measures. Their strategies may produce different results in different market conditions and it is difficult to determine which strategy will work best. the process is aimed at delivering a portfolio combination that can achieve the maximum return for a given level of risk. Individual investors will therefore have access to the leading managers in the industry. With the multi-manager approach investors are spreading their risk among various managers and different investment themes. • Diversification of manager risk Each specialist manager has their unique investment approach and process. One of the key benefits of a multimanager fund is that it brings together the expertise of different specialist fund managers under one single product. These styles can all be combined and produce a richer mix than anyone of the components on their own and deliver a better risk return payoff over time.

No matter which asset or style is in favor at any given time. 53 . hiring. Russell has devoted considerable resources to identifying. 2. 2005 Russell uses a manager-of-managers approach within investment products. The combination enables investors to attain a level of diversification that may be difficult for them to achieve by themselves. • Active management of fund investments Unlike a traditional mutual fund. while the fund manager actively manages the asset allocation of the portfolio of specialist funds.4 FRANK RUSSELL COMPANY Frank Russell Company remains the global market leader among manager-of-managers investment firms. the asset allocation and stock selection process is separated in the multi-manager fund. Manager-of-Managers AUM Market Share by Vendor.performance attributable to the specialist manager’s unique style. this complementary blending of managers can reduce risk and help provide more consistent returns through all kinds of market environments. for more than three decades. Specialist managers exercise their unique style and select securities in their area of expertise. and managing some of the best money managers in the world.

emerging markets. Additional research leads to decisions about which managers will ultimately be selected for Russell products globally.3. multicurrency. and convertibles) • Global and domestic asset allocation • Currency strategies 2.2. 54 . Using various proprietary factors. Russell evaluates more than 3.1 SCREENING MONEY MANAGERS Each year. Russell's approach gives the most weight to the value of the manager's investment process and the strength of the manager's organization. Russell research and monitoring identifies managers worth further scrutiny. Russell determines which managers are currently adding value in their style through superior processes and exceptionally talented individuals. through an integrated worldwide network of analysts.3. Picking Today's Hot Manager Isn't the Solution To be on top one year. • Performance Indicators: Which style and investment techniques and organizational traits best support potentially superior manager performance.800 investment managers and more than 9. a manager has to take a lot of risk — risk that is just as likely to land them on the bottom in the following years.000 research meetings annually — the majority of which are face-toface — to study each manager's quantitative and qualitative characteristics. Russell's analysts hold more than 2. These main factors include: • Stability: Which manager teams and organizations will have the lowest turnover.000 investment products globally. Our goal is to select managers who have historically performed better than average on a consistent basis. covering regional and multicurrency products in all major equity and fixed-income markets: • Equities (single country. Russell evaluates these factors. and global/international) • Fixed income (single currency. • Superior Environments: Which organizations are most likely to produce above-average returns.2 SELECTING THE BEST Because research confirms that past performance is not predictive of future performance.

Fund of funds further extends this concept wherein a mutual fund invests in units of other mutual fund schemes.2 MOTIVE The answer is .S. It works on the same principle as diversifying investments across a basket of securities. 2002 or 2003. since he is hedging his risks across the sector.0 FUND OF FUNDS 3. 27 managers composed the top quartile. in 1998. 55 . of our total of 109 U. For example. Out of those 27.S. Fund of funds takes diversification to a new level. or the top 25% of U. equity managers. bonds and fixed income securities depending on its objective. 3. Qualitative Personnel/administration Investment philosophy Decision-making procedures Economic and securities research Quantitative Performance against peer groups Performance against benchmarks Transactions Portfolio characteristics 3. The following table includes some of the characteristics that Russell analyzes. you may not be prepared for the long run. 2001. equity managers. the loss risk is significantly reduced because the investments are spread over a number of schemes. Hence the investor gets an opportunity to participate in these market-linked instruments while utilizing the fund manager's expertise.If you simply pick today's top manager for your investment. 18 remained in the top quartile the next year. Exodus from the top quartile was swift and no manager was still there in 2000.1 INTRODUCTION A regular mutual fund invests in stocks. Investing in a fund of funds means greater diversification for the investor concerned.Diversification. Insurance companies and investment advisors with six years of return history Russell's research analysts use an unmatched. The rationale behind the FoF is that even if one scheme does not perform. Source: Russell Investment Group's Equity Accounts Universe of 109 major banks. proprietary database of qualitative and quantitative characteristics to identify managers most likely to outperform their benchmark indexes and their peers.

Rs 10. Instead of investing say Rs 2. just investing in a mutual fund scheme saves the investor the trouble of investing in the shares of so many companies and keeping track of them. the investors would benefit from the expertise of more than one leading fund manager. Fund managers will undertake systematic portfolio re-balancing to maximize gains and phase out non-performing funds. FoFs also provide access to top-tier fund investments which are often inaccessible to small or new investors o Convenience: The investor doesn't have to churn his portfolio. the investor won't have to reduce his holding in equity funds and invest in debt schemes. It allows the outsourcing tasks such as investment screening.000 totally. negotiation and monitoring to specialists.e.since fund of funds also need to be categorized according to the type of schemes they are investing in. Professional Management o Diverse management styles: If a FoF were to invest in top performing funds.FoF could invest in equity funds and income schemes simultaneously offering the investor a diversified-across asset class portfolio. • • • o DISADVANTAGES 56 . The cost of investing can reduce significantly for an investor. ADVANTAGES OF FUND OF FUNDS • One point touched on is diversification which leads to risk mitigation. The risk levels associated with such holdings are theoretically even lower than those of conventional mutual fund schemes. With each fund manager comes his unique style and strategies. Investing in a fund of funds also saves the investor the bother of keeping track of all the schemes in the market as the fund manager does it for him. Fund of funds provides the investor an opportunity to be invested in all the schemes at a fraction of the original cost. E.000 each in 5 schemes i. due diligence. the investor can invest the desired amount in one scheme. All the investor has to do is to select his general risk profile . o Fund Selection: Fund selection is important and it stands to reason that an experienced fund manager is in a better position to make superior fund selection decisions. Cost o Fund of Funds also remove the requirement for a dedicated in-house team which would be expensive to recruit and retain. FoF’s allow investors to diversify risk by stage and size of investment and industry sector by investing across a wide spectrum of leading funds.g. The fact that his portfolio is not tampered with implies that the incidence of tax (capital gains) is avoided. The fund manager from his FoF will do the needful. Further. if the equity markets hit a rough patch while the debt markets start looking up.

if there is going to be a churn in the portfolio.sometimes inevitable that it will be investing in the same stock through the different schemes. All of these would end up reducing the returns on FoF’s. Investment The investments made out of a fund of funds scheme can belong to the same mutual fund house as the FoF or belong to different mutual fund houses. however.5 FUND OF FUNDS IN INDIA The Securities and Exchange Board of India (SEBI) cleared the proposal for Fund of Funds (FoF) in 2003. Although this is much lower than what equity and debt funds charge.75 per cent as expenses. Over and above this. 3. Also. Fee The Securities and Exchange Board of India (SEBI) mandates that FoF’s charge a maximum of 0.since the fund of funds is investing in a whole host of schemes which are themselves invested in a wide range of stocks it is possible . a certain percentage of returns will be lost due to the cost of re-balancing.75 per cent as its own expense ratio. paving the way for an altogether new element in the domestic mutual fund industry. it charges 0.since their cost structure will include the fees already charged by the funds in which the investments are made. Expenses will. • There will be a management fee accruing to investors if the AMCs floating the FoF are to invest in funds of other AMCs. • Another flipside . be the only area where a Fund of Fund will be charging anything extra. what needs to be noted here is that FoF’s pay expenses to all their underlying schemes too. Loads will be levied only when the investor buys into a FoF and not when the FoF itself invests in the underlying funds.However one must not run away with the idea that fund of funds are the best thing to happen so far and the solution to all the problems. • For the funds the downside is that expense fees for such schemes are higher that in the case of ordinary schemes since management fees have to be paid twice . Advantage 57 .

In between lay the 'Cautious'. known as “ICICI Pru Advisor Series”. The range starts with a 'Very Cautious' plan that will have no equity exposure and will invest in cash and money market funds. • A fund of funds scheme shall not invest its assets other than in schemes of mutual funds. Investors bear this expenditure in addition to expenses of other schemes in which FoF has invested. So when a FoF rebalances to maintain its stated allocation between equity and debt there is no element of capital gains tax.One of the biggest advantages of a FoF is that it is very tax friendly from an asset rebalancing point of view. If an investor tries to rebalance his own fund or stock holdings then he is liable to pay the capital gains tax that is applicable. as disclosed in the offer document of fund of funds scheme • Investments in the schemes which are under the same fund management should be restricted to five per cent of the asset of the fund.5.75% of the daily or weekly average net assets. which has launched a FoF. That is shifting between equity and debt according to your pre-decided asset allocation. 3. But a FoF by virtue of its being a mutual fund scheme is exempt from capital gains tax on its internal transactions. With asset rebalancing built into them these funds automatically carry out one of your major responsibilities. 'Moderate' and 'Aggressive' plans. So there is just one folio and just one NAV to track. Prudential ICICI is the other fund house.1 FOF GUIDELINES • The total expenses of the scheme including the management fees shall not exceed 0.2 HISTORY OF FUND OF FUNDS IN INDIA The first FoF to be launched in India was Franklin India Dynamic PE Ratio Fund. except to the extent of funds required for meeting the liquidity requirements for the purpose of repurchases or redemptions. offers five FoF’s with varying equity and debt exposure. 58 . • No scheme of a mutual fund shall make any investment in any fund of funds scheme • A fund of funds scheme shall not invest in any other fund of funds scheme. At the other extreme there is the 'Very Aggressive' plan that will invest 90 to 100 per cent of its corpus in equity. This FoF. The fund reallocates between these two schemes on the basis of the PE ratio of the S&P CNX Nifty. FoF’s can also be very convenient to handle as they reduce the number of funds that have to be managed. Source: SEBI 3. each with a larger equity exposure than the preceding fund. All the existing schemes of Prudential ICICI are possible candidates for its FoF plans.5. Specific funds have not yet been announced by the AMC. This FoF has as its underlying schemes Franklin India Bluechip and Templeton India Income Fund. This reallocation is done on a monthly basis.

the moot question to be addressed is will it make sense for retail investors to invest in a Fund of funds in the present scenario. a fact it mentions in all its offer documents. At best it can be regarded as `imported' concept whose feasibility in local conditions remains to be seen. However.78% 45. With the advent of FoF’s.01 23683. For instance.70% 59 . The holy grail of sensible investing is figuring out a good asset allocation and then rebalancing your portfolio dispassionately to stick to your asset allocation. Fund of funds is an untested concept for retail investors.60 % 0.25% 0.47% 1. Recent times have seen mutual fund schemes offer record performances. this task could now be made much easier and of course less taxing. Securities Exchange Board of India gave clearance to mutual fund houses to launch Fund of Funds. but did not find much favor with investors as actively managed funds continued to outperform benchmark indices. assets under management of Rs 1726 crores. index funds had made their debut in the country with much fanfare.64 6740. Conservative plan and Dynamic Debt Plan each having separate asset allocation.53 Asset Management Company ABN AMRO Mutual Fund Birla Sun Life Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund Fidelity Mutual Fund Franklin Templeton Mutual Fund HSBC Mutual Fund Market Share 5.94% 0. AUM (Rs in lacs) 22479. In other words.And recently.63 2871.Aggressive plan. Now after 5 years.78 172683.3 CURRENT SCENARIO In 2003. Index funds clicked in markets like the US. India’s first and only multi manager fund of funds (FoF) mutual fund house is OptiMix— a division of ING Mutual Fund (MF).5.76% 6. Moderate plan.21 2652. It makes one wonder whether Fund of funds is also not a concept that is ahead of its time. only 12 have launched FoF schemes. The scheme provides four different plans . DSP Merrill Lynch stands out with a staggering market share of 45%. it does not invest in ING MF schemes. 3. Birla mutual fund has also launched its FOF called Birla Asset Allocation Fund. the FoF industry is almost worth Rs 3800 crores. where active funds have not had it as easy. By opting for a FoF over a mutual fund (which in any case offers a fair degree of diversification) the investor may lose out on a good investment opportunity.35 1789. What sets OptiMix apart from other mutual funds is that it is the only one to avoid investing in schemes managed in-house. Out of the 33 mutual fund houses in the country.

61 AUM of FoF as on 31st March 2008 9% 1% 7% 6% 1% 2% 21% 1% 6% 1% 1% ABN AMRO DSP Merrill Lynch HSBC Kotak Mahindra Birla Sun Life Fidelity ICICI Prudential Standard Chartered Deutsche 45% Franklin Tem pleton ING Sundaram BNP Paribas 3.16 10 0. Proportionate Pattern (%) Exp (%) 50 0.35 10 0.18 0.88% 20. in Lacs Data source: AMFI As on 31st March 2008 378671.84 78294.ICICI Prudential Mutual Fund ING Mutual Fund Kotak Mahindra Mutual Fund Standard Chartered Mutual Fund Sundaram BNP Paribas Mutual Fund FoF Industry Corpus 3325.03 26306. Underlying fund Costs keep mounting 20s Plan FoF Invest.33 15 0.27 0.23 40 0.95% 100% Rs.19 10 0.25 2.75 33988. Proportionate Pattern (%) Exp (%) 10 0.57 3856.FT India Life Stage Fund of Funds.02 Franklin Bluechip Franklin Prima Fund Templeton Growth Templeton India Income Templeton Income Builder FoF expenses Total expenses (excl.71 50s Plus Plan FoF Invest.7 0. one aspect of a FoF that rarely gets the attention it deserves is the costs/expenses.98% 1. entry 60 .64 40 0.75 2. However.6 THE DOWNSIDE OF FUND OF FUNDS: MULTI LAYERED COSTING The domestic mutual fund industry continues to witness a buzz in the fund of fund (FoF) segment. For illustration purpose let’s take Templeton's Fund of Funds -.96 15 0.02% 6.68% 8. one of the leading FoF’s in the country.

Based on this.60% 2. FT Founding Funds Allocation Fund Entry load 5.4% 2.load) (Data sourced from Franklin Templeton's fund fact sheet.44% 1. So Franklin Bluechip's expense apportioned to the FoF is 0.21% 3.71% 3.16% 1.1.16% 1.16%.00%+2. Entry Fees: Investors need to add a 2.92% 1. Expenses are as percentage of net assets) As is evident there is a multi-layered cost structure in a FoF.04% 3. Franklin Prima Fund (15%). For instance. take the 20s Plan of Templeton's FoF.75% in the 20s Plan).75% Annual fees 1. So the expenses in the first year of investment for the 20s Plan FoF will be 4.71%). Templeton Growth (15%).16% (The information is sourced from Franklin Templeton's global website.88% 1.96% (half of 1. FOF Management Fees: Over and above this. The FoF expenses are apportioned based on the investment made in each scheme.91% 4.) The expenses structure in this case is pretty uncomplicated. The fund invests in Franklin Bluechip (50%). Typically.71% 4.16% 1. which is way higher than the expenses that regular diversified equity funds incur (Franklin Bluechip itself incurs only 1. it is right that we see how the costs work out in that country. Comparing the expenses over a period of 5 years FT India Life Stage Fund of Funds 1st yr 2nd yr 3rd yr 4th yr 5th yr 2.Franklin Templeton Founding Funds Allocation Fund. I have taken a FoF from Franklin Templeton of USA .00% 0. the expenses are dividend in the investment pattern of the underlying schemes.00% one-time entry load in the 20s Plan FoF.71% 2.16% 6. Templeton Income (10%) and Templeton Income Builder (10%).11% FT Founding Funds Allocation Fund 1st yr 2nd yr 3rd yr 4th yr 5th yr 5. the FoF has its own expenses (0.71% of net assets.71% 2.15% 1.38% 3.91%) since Franklin Bluechip accounts for 50% of the FoF's investment. To facilitate a like-to-like comparison.31% Entry Load ADD: Annual Management Fees Total Expense Entry Load ADD: Annual Management Fees Total Expense One can see that the cost of FT Founding Funds Allocation FoF borne by the investors considerably reduces with time.75%.00% 1.71% (2.71% 2.71% 3.91% as expenses). this also encourages investors to keep invested in the scheme 61 .5% 0.16% 1. the FoF 20s Plan's expenses amount to 2.08% 2. While there is a high entry load of 5. Since FoF is a concept/product 'imported' from the US.71% 2. the operating expenses are fairly low .75% 2.667% 0.

so the investor does not incur short-term capital gains in his books.00% EXPENSE 5.00% 6. Viewed in this context.first deciphered 50 years ago by Italian born American economist Franco Modigliani .00% 0.00% 4. TOTAL EXPENSE 8. with different income levels and investment needs in each of these: the 'accumulation phase'. between the age of twenty and thirty years.00% 3. the FoF does not seem as expensive as the higher costs are set off against capital gains tax.00% 7. between ages 60 and 70. when the individual is no longer working and is living off the interest and dividend income and capital accumulated in the first two phases.00% 2.7 LIFE CYCLE FUNDS The 'Lifecycle' theory of investing . Of course. For a mutual fund investor it would involve selecting the right combination of equity. but is easier 62 .over a longer period of time.00% 1st yr 2nd yr 3rd yr YEAR FT Founding Funds Allocation Fund FT India Life Stage Fund of Funds 4th yr 5th yr One aspect that needs highlighting with the FoF is that the underlying funds are rebalanced periodically to maintain the ideal allocation level. Asset allocation refers to investing money across equity and debt securities to suit one's needs and time horizon. The lifecycle theory recommends that the individual may hold high-risk bearing assets when young. 3. for the investor to incur short-term capital gains there has to be an upward trend in equity markets over time. This may sound straightforward. the rebalancing is done every 6 months. between forty and fifty. the 'consolidation phase'. which he would otherwise have incurred. In Templeton's FoF. The correct asset allocation and timely portfolio re-balancing are two of the key ingredients of a successful investing strategy. Portfolio re-balancing means buying or selling the funds in one's portfolio so as to restore the proportion of different assets classes. but must move towards eliminating the risks of the portfolio. Otherwise the higher FoF expenses he is incurring could pull down his investment portfolio. The theory says that each individual will go through various life stages. as he grows old.offers a logical framework for long-term investing. the 'de-accumulation phase'. balanced and debt funds. This is also beneficial for the investors as any fund takes time to earn returns and the investors will benefit in the long run.00% 1.

For example. This is then rebalanced by fund managers as the investor gets closer to retirement. For example. he holds assets that are most appropriate for his age profile. If the equity markets go up substantially. The idea is to give the investor the right asset allocation at all times without the need of him doing anything. In India. According to the Financial Research Corporation. which maintain an asset allocation suited to investors of a particular age group and keep on re-balancing their asset allocation after fixed intervals of time to maintain the defined allocation. going from a growth stage (when the investor is young) to more of an 'assetprotection' stage as the years go by. after a tremendous run-up in the stock markets. 3. To add to this. minimizes worries about which fund to buy and sell 63 . there are tax considerations that are to be considered which an individual investor can't often ignore. There are two problems in this: Firstly. Introduced in the US in the 1990s. As the investor ages. It's called Stage of Life Fund of Funds (FOF). However. the proportion of equities in one's portfolio may go up significantly and call for a re-balancing by selling some of the equity holdings while adding debt. Even if some do. Hence. Secondly.said than done. and it's open-ended . That apart. re-balancing is a repetitive task and most of the investors do not devote that much of time to it.1 CONCEPT Life stage funds are basically fund of funds. Franklin Templeton is currently the only fund house that has a variation of a Lifecycle Fund to offer. a life stage fund for an investors in his 40s currently will allocate say 35 per cent of assets to equity oriented schemes and 65 per cent to debt oriented ones. the product has caught the fancy of investors there only in the last few years and is fast becoming one of the most popular tools for retirement planning.7.7. the fund would itself sell some of the equity funds' holdings to bring the allocation between debt and equity instruments back to the defined one. they are guilty of not re-balancing the proportion of various asset classes which may get disturbed with time. assets held in Lifecycle Funds has ballooned to $ 255 billion in 2006 from $106 billion in 2003. When used for investment. which means the investor has no option to exit the fund before the stated date. Lifecycle Funds have hardly registered their presence. they offer a readymade answer to an investor's re-balancing needs. rebalancing may involve selling off the asset class which has been doing well recently. the asset allocation may get distorted as the proportion of equities may go up to 40-45 per cent which makes the portfolio riskier. But the lure of extracting more out of equities often keeps the investor from taking a timely action. The original Lifecycle Fund in the US is a fund of funds and is designed to make retirement investing easy.2 LIFE CYCLE FUNDS IN INDIA In India. It is thus a one-stop solution for retirement planning. it rebalances the risk of the portfolio automatically. The only one available is Franklin Templeton's version of the original. such funds have not yet made an entry into the Indian market. These funds are close-ended. Analysts are projecting a compounded annual growth rate of 23 per cent over the next five years. it helps investors access a portfolio of various top-performing funds with a single investment. a research organisation in the US. At this time. Most investors do not decide upon their asset allocation before investing.the investor can quit the fund when he wishes. 3.

the proportion equities will continue to decline progressively. 40s. the concept of life-stage funds simply won't work. All the life stage plans of Franklin Templeton invest in other funds of Franklin Templeton. he can move his money to the 30s Plan and so on till his retirement. Templeton India Income Fund and Templeton India Income Builder Account. but they can add a lot value to investors who want to invest over a long-term in a planned yet hassle-free way. Therefore. An investor in his 20s. For such investors. This way he will ensure that he has an appropriate asset allocation at all times without him having to do much. a risk-averse investor in his 20s can very well choose the 30s plan if he thinks 20s plan will be too risky for him. Franklin India Bluechip Fund. Franklin India Prima Fund. For example. Franklin India Life Stage FoF 20s. The five funds offered by Franklin. Rowe Price and Fidelity offer such funds. Franklin Templeton offers five such funds in its series of life stage funds. 64 .(FOF does this. automatically. Once he reaches his 30s. Templeton India Growth Fund. As we move to the plans for higher age brackets. the concept of life stage funds has been gaining momentum and all major fund management companies like Vanguard. who is supposed to have a higher risk appetite. T. Therefore. In fact one of the reasons for such funds not becoming popular in India is that investors have a very short-term investment horizon. 3. its in-built rebalancing feature ensures that market movements do not allow the asset allocation to change. namely.7. 30s. namely. Another advantage of these funds is that they prevent an investor from acting unnecessarily on his own and trading frequently.2. and that there's diversification across asset classes and investment styles. the 20s Plan invests heavily in equities (around 80 per cent of the assets) while maintaining a small portion in debt. can simply invest in the 20s Plan. and in a tax-efficient manner).1 FRANKLIN LIFE STAGE FUNDS Globally. Though these funds have not really taken off. The 20s plan is meant for an investor in his twenties. In India. The FT Stage of Life Fund of Funds has five funds for persons with different risk appetites: Plan name The 20s Plan The 30s Plan The 40s Plan The 50s Plan The 50s Plus Floating rate Plan Proportion of Equity Debt 80% 20% 55% 45% 35% 65% 20% 80% 20% 80% On should note here that a particular plan merely indicates the age group for which it is suitable but there is no age restriction. 50s Plus and 50s Plus Floating Rate are designed to suit largely to the investors in the respective age groups. How this will work for an investor in a hassle-free way is simple.

Reason why life cycle fund have not done well in India Given its user-friendly features and success in developed countries. There is also the flexibility to shift from one option to the other at zero switching cost. 65 . It is only when the Indian market gains maturity and small investors accept mutual funds as an important component of retirement planning that the concept of Lifecycle Funds will catch on.8 MyWrap “A PMS FoF” MyWrap Account is a joint initiative of Bajaj Capital and OptiMix. The product comes after SEBI’s recent stipulation to not to charge entry load for direct investments in mutual funds. However. all equities and liquid plus. a division of ING Investment Management.The proportion of these funds in each life stage plan varies and portfolio re-balancing is done on a half-yearly basis to ensure adherence to the defined asset allocation. high-capital growth. National Savings Certificates and post office savings • Short term Investment horizon: Indian investors might not be willing to keep their funds locked in for a period of 20-25 years or longer. As the concept of financial planning becomes more prevalent and there is clarity on tax status. As OptiMix is a partner in this product. This is like a PMS of mutual funds where investors would invest in a PMS and this PMS would invest in several mutual funds on behalf of the investors. they come from a very reputed fund family and are investment worthy on a stand alone basis. • Retail investors have a very small presence in the Indian mutual fund market. Therefore. 3. The drawback of such plans is that they offer a limited choice as they will only be investing in a combination of five Franklin Templeton Funds. we could expect such products along with FOF gaining acceptance. there will be annual management fee of 1. This offering is essentially a PMS (portfolio management scheme) FoF that will invest in different asset classes through mutual funds. which will implement the solution. Bajaj Capital will design the portfolio and give it to OptiMix to manage it. • Those who would form the bulk of Lifecycle Fund investors prefer to hold securities like government bonds. The product requires a minimum investment requirement of Rs 5 lakh. the scheme will qualify for ‘no entry load’. Bajaj Capital has outsourced the portfolio management and technology part to OptiMix.6 per cent. • • • • It gives investor four options namely growth. Besides exit charges. which is typically required for a normal Lifecycle Fund. there is little to doubt as far as the quality of portfolio is concerned. The product will provide an opportunity to invest in a basket of mutual funds without any entry load. one wonders why there is so little interest on part of other fund houses in offering 'lifecycle' products in India.

risk profile and other investments made. For instance. There is no exit load after 18 months. liquidity needs. real estate and other structured products. Tax treatment for a PMS–FoF scheme will be at par with its underlying schemes. investments made through this scheme will be done only in mutual funds. • Expenses for Liquid Plus option in the scheme is on the higher side. thematic or sectoral funds. STRENGTHS • • Eliminates paperwork and administration of investments becomes easy because investment done through single account facility. in the real estate space. The fund has not specified whether the exposure would be taken in diversified equity.5-1. the portfolio manager. it is about 0. the only choice is ING Global Real Estate Fund. commodities.5 per cent. 66 . If one is opting for the Liquid Plus option.• Investments will be made in funds that have exposure to Indian and international equities. Before that. • WEAKNESSES • Lack of investment profiles. OptiMix. returns required. And. This offering only provides four options which are limiting. However. time horizon. then the Fund Management fee of 1. there is no scope for direct investments in stocks or other asset classes. debt. Every individual’s portfolio needs to be customized according to his goals. • Unlike PMS. • There are very limited choices in terms of real estate funds and commodity funds.6 per cent is extremely high. which invests 90 per cent of assets in Indian Debt funds. is a part of ING who run the Global Real Estate Fund.