A Major Project Report

On
A Study of Awareness and Knowledge about Wealth
Management among Individuals

Submitted by: Submitted to:

Shubham Gaba Mr. Raj Karan
03621201815
BBA (B&I) – 6th Semester

Department Of Business Administration

MAHARAJA SURAJMAL INSTITUTE

(An ISO 9001:2000 Certified Institute)

Recognised by UGC u/s 2(f)

Affiliated to GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY

C-4 JanakPuri, New Delhi- 110058

 Acknowledgement

Project work is never the work of an individual. It is more a combination of views,

ideas, suggestions, contributions and work involving many individuals. This
project report forms an integral part of our curriculum.

I would like to pay my sincere regards to MR. Raj Karan (My Project Guide)
whose wisdom words and teaching had guided me during the preparation of this
report.).I express my gratitude for their continuous support without which this
project could not have reached a successful completion.

Last but not the least; I am thankful to all my friends for their continuous
encouragement.

Shubham Gaba
03621201815
 CONTENTS

Chapter Title of the chapter Page no.

No.

1. Wealth Management & Portfolio Analysis

 Introduction
 Objective of the study
 Research Methodology

 Limitation of the study

2. Literature Review & Conceptual Framework

 Role of Equity
 Active & Passive exposure
 Leveraging
 Role of Debt
 Deposits & Debt securities
 Credit exposure & Debt investments
 Role of Gold
 Role of Real Estate
 Mutual Funds
 Risk profiling
 Asset allocation
 Fixed & Flexible asset allocation
 Risk assessment
 Life insurance
 Safeguards in insurance

3. Analysis & Interpretation

4. Conclusion

References

Annexure
Chapter -1
 Introduction

Wealth management combines both financial planning and specialized financial services,
including personal retail banking services, estate planning, legal and tax advice, and investment
management services. The goal of wealth management is to sustain and grow long-term wealth.
The Indian Economy is growing at a robust rate. Indian Financial Services Industry gets a rub-
off of this growth, but also has some complexities to shoulder along the way. The investor
today is not only looking for a financial product in isolation but in a holistic manner for meeting
his/her life goals and risk factors. Therefore, there is a crying need to enhance and upgrade the
skill set of the financial product advisor to protect and safeguard the interest of the investor and
develop a long-term relationship with him.

The Wealth Management industry in India is a prime example of the success of free competition
in the country. Wealth Management is one of the fastest growing disciplines of the banking
sector and with a GDP growth rate hovering around the 7% mark and a strong outlook, India’s
growth story is making it an increasingly attractive market for wealth management firms. This
trend is expected to continue, with India estimated to become the third largest global economy
by 2030.

How it works (Example):

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

The goal of wealth management is to sustain and grow long-term wealth. The net worth
needed to qualify for wealth management services vary among institutions, but the net worth
threshold typically starts at about $20 million. Also, depending on the institution, the range of
services available is highly customizable in order to meet the specific needs of the client.

Why it Matters:

Wealth management clients are highly sought after by financial institutions and financial
service companies. Many banks that combine traditional banking and wealth management
services have specialized sales and service teams to specifically cater to wealth management
clients.
 Objective of the study

 To study the level of awareness of wealth management.

 To analyse the investment preferences of various individuals.

 To study the factors considered by the individuals and those which ultimately influence
them while investing.

 To analyse the needs and requirements of today’s investors – students, service class, self
Employed and housewives.

 Trying to do Wealth management for the investors – devising them the best fit of investment
products, keeping their individual risk taking ability into consideration

.
 Research Methodology

Type of Research:
Descriptive method has been used in this research for the collection of data.

Source of Data:
To overcome the limitation of incompatibility, obsolescence, and bias, I went for the primary
data, considering the time and geographic constraints, I found sampling method of data
collection suitable for the project.

Data Collection Method:

Data has been collected through questionnaire. The question was design in such a way to cover
as many aspects as possible.

Tools and techniques used:

 Bar Diagram

 Pie Chart

 Tables

Sampling Method:
The sampling is drawn on probability sampling basis i.e., random sampling. Samples have
been collected from different part of Panipat.
Sample Size:
120 persons were contacted and interviewed.
 Limitations of the study

 Most of the people trust only insurance policies. So, because of this point this study was
restricted to insurance policies mostly.
 People are skeptical about mutual funds, stock & bonds.
 In Wealth Management, the wealth manager needs to build trust with the client before
pitching in for data collection, which is a time-consuming task. In my case, I did not have that
much flexibility in time. So, I had to rush while collecting data. This might result in some
errors.
 Due to some constraints, I was not able to include Gold & Real Estate in the study. Although
these two are very prominent among investors.
Chapter-2
Literature Review & Conceptual Framework Wealth
Management Industry in India
The Indian Economy is growing at a robust rate. Indian Financial Services Industry gets
a rub-off of this growth, but also has some complexities to shoulder along the way. The
investor today is not only looking for a financial product in isolation but in a holistic
manner for meeting his/her life goals and risk factors. Therefore, there is a crying need
to enhance and upgrade the skill set of the financial product advisor to protect and
safeguard the interest of the investor and develop a long-term relationship with him.

The Wealth Management industry in India is a prime example of the success of free
competition in the country. Wealth Management is one of the fastest growing
disciplines of the banking sector and with a GDP growth rate hovering around the 7%
mark and a strong outlook, India’s growth story is making it an increasingly attractive
market for wealth management firms. This trend is expected to continue, with India
estimated to become the third largest global economy by 2030.

Given the nascent stage of the market and a demographic and regulatory environment
that is significantly different from elsewhere in the world, Wealth Management Business
Houses consider the following to succeed in the Indian market –

› Building of brand & focus on overcoming the trust barrier.

› Invest in advisor technology to improve advisor productivity & retention.
› Evaluate a partnership based model, coupled with innovative use of technology,
to increase reach.
› Focus on transparency and compliance, while targeting customers with attractive,
segment focused products.

Current primary focus of wealth management business houses

› Qualified advisors will be the best brand ambassadors for new firms seeking to
gain a competitive edge against established players.
› Investor education programs could deliver information pertaining to various asset
classes & various associated risks, fee structure & benefits of each.
› Establishing trust is a vital component for any stressful brand building exercise in
India.

Strategies opted by wealth management business houses

› Invest in brand building to build trust.

› Invest in advisor technology to improve productivity & advisor retention.
› Offer a 360-degree view.
› Shifting to a profit sharing model would help mitigate issues to some extent.
Immediate issues before wealth management business houses

› Difficulty in putting a value to the service & advice.

› Building the right business model.
› Maintaining brokerage structure may be difficult, cumbersome &
bulky. › Immediate cash-flow concerns.

Top 10 players in India

Of India’s top 10 wealth managers by Assets Under Management (AUM) &

Relationship Manager (RM) headcount for 2016, four are domestic & six are global
players.

Domestic wealth managers account for US$21.5bn, or just under 38% of the total, while
the global manage US$35.4bn.

AUM RM(No.) AUM/RM

Citi $12bn 20 $600mn
IIFL Private Wealth Management $9.5bn 220 $43mn
Kotak Wealth Management $8bn 30 $267mn
Julius Baer $6bn 35 $171mn
Barclays Wealth $6bn 40 $150mn
BNB Paribas Wealth Management $5.4bn 19 $284mn
Deutsche Bank Wealth $3bn 18 $167mn
Management
Standard Chartered Private Bank $3bn 25 $120mn
Sanctum Wealth Management $2.5bn 30 $83mn
Centrum Wealth Management $1.5bn 70 $21mn
Portfolio Analysis:

Portfolio Management refers to the science of analyzing the strengths, weaknesses,

opportunities and threats for performing wide range of activities related to the one’s
portfolio for maximizing the return at a given risk. It helps in making selection of Debt
Vs Equity, Growth Vs Safety, and various other tradeoffs.

Major tasks involved with Portfolio Management are as follows –

› Matching investments to objectives.

› Asset allocation for individual & institutions.

› Balancing risk against performance.

› Taking decisions about investment mix & policy.

Portfolio – A portfolio is built by buying bonds, mutual funds, stocks or other

investments. If a person owns more than one security, he has an investment portfolio.
The main target of the portfolio owner is to increase value of portfolio by selecting
investments that yield good returns.

As per the modern portfolio theory, a diversified portfolio that includes distinct types
or classes of securities reduces the investment risk.

In the case of mutual and exchange-traded funds (ETFs), there are two forms of
portfolio management: passive and active. Passive management simply tracks a market
index, commonly referred to as indexing or index investing. Active management
involves a single manager, co-managers or a team of managers who attempt to beat
the market return by actively managing a fund's portfolio through investment decisions
based on research and decisions on individual holdings.

Key elements of Portfolio Management –

Asset allocation - The key to effective portfolio management is the long-term mix of
assets. Asset allocation is based on the understanding that several types of assets do not
move in concert, and some are more volatile than others. Asset allocation seeks to
optimize the risk/return profile of an investor by investing in a mix of assets that have
low correlation to each other. Investors with a more aggressive profile can weight their
portfolio toward more volatile investments. Investors with a more conservative profile
can weight their portfolio toward more stable investments.

Diversification – The only certainty in investing is it is impossible to consistently predict

the winners and losers, so the prudent approach is to create a basket of investments
that provide broad exposure within an asset class. Diversification is the spreading of risk
and reward within an asset class. Because it is difficult to know which subset of an asset
class or sector is likely to outperform another, diversification seeks to capture the returns
of all the sectors over time but with less volatility at any one time.
Rebalancing – This is a method used to return a portfolio to its original target allocation
at annual intervals. It is important for retaining the asset mix that best reflects an
investor’s risk/return profile. Otherwise, the movements of the markets could expose
the portfolio to greater risk or reduced return opportunities. For example, a portfolio
that starts out with a 70% equity and 30% fixed-income allocation could, through an
extended market rally, shift to an 80/20 allocation that exposes the portfolio to more
risk than the investor can tolerate. Rebalancing almost always entails the sale of
highpriced/low-value securities and the redeployment of the proceeds into low-
priced/highvalue or out-of-favor securities. The annual iteration of rebalancing enables
investors to capture gains and expand the opportunity for growth in high potential
sectors while keeping the portfolio aligned with the investor’s risk/return profile.

Financial planning to Wealth Management

Financial planning seeks to ensure adequacy of assets and cash flows for meeting the
financial goals of the client. In the case of a wealth management client, adequacy of
assets is not an issue. The client will have the assets, though cash flow (liquidity) can be
an issue if not suitably invested.

A wealth manager seeks to understand what the client wants with the wealth viz. grow
the wealth with an openness to take risk; or consolidate the wealth with a conservative
approach to risk; or preserve the wealth while avoiding risk to the extent possible.
Different asset allocation mix would be appropriate for each of these profiles.

In the case of a wealth management client, the stakes are likely to be large enough to
invest time and effort in superior formats of transmitting wealth to the next generation,
including creation of new structures like trusts.
Role of Equity
Equities are growth assets. In a portfolio, their role is to grow the investor’s wealth, and protect
him from inflation. Equities may also offer a return in the form of dividend. However, in most
cases, the portion of the yield of an investor coming through dividend is likely to be much
smaller than the yield coming through capital gains.

Active & Passive exposure

Whenever investors invest in equities, they need to decide whether they would prefer an active
exposure or a passive exposure. Stock selection is a feature of active exposure. Investors choose
active exposure with a view to get returns that are better than the market.

With active management, investors or their adviser, actively decide the stocks to invest in, and
the stocks to dispose of. Alternatively, they invest in an actively managed fund. Active
management comes with the risk of selecting wrong stocks and consequently losing money.

With a passive exposure, the investor is not seeking to beat the benchmark. He is looking for
returns that are in line with the market. This is achieved by buying an index (such as the S&P
CNX Nifty) or buying stocks in the same proportion as an index or investing in an index fund.

The portfolio thus tracks the performance of the index.

Since the stock selection flows from the index, there is no active selection of stocks in the case
of passive investment. Although losses on account of stock selection are eliminated, passive
exposures can result in losses when the market itself is weak.

Costs always cause a negative tracking error (i.e the investment performance will be lower than
the index), while the timing lags can cause the investment performance to be better or worse
than the index. Therefore, the overall tracking error in passive investment may be positive or
negative.

An investor who is bullish about the overall economy and not interested in beating the
benchmark will prefer passive investment through a diversified equity index. In developed
markets, significant moneys are invested in equities through such a passive approach.

However, it is believed that in developing countries, active exposure offers scope for attractive
returns.

Leveraging

An investment approach where the investor relies on borrowed funds to support the investment
position is called leveraging. This might take various forms, as follows:

› Investing in a derivative instrument like a future or option. Derivatives allow investors to

take positions that are a multiple of the funds they have committed to the transaction.
› Margin trading, where a broker or other financier offers to fund a percentage of the
investor’s position on an ongoing basis. As the position goes up, the investor is able
toavail of more funds; if the market goes down, the investor faces a margin call. This is
 to be fulfilled at very short notice. If the margin call is not met by depositing more
money or securities, the margin financier will sell a part of the investment holding at
the prevailing market price.
› Term loan for a fixed period, which the investor deploys in the market. Depending on the
security structure for the term loan, the short term margin call situations can be avoided.

However, the investor may end up in situations where he is bearing interest cost for a period
when the market does not offer any attractive opportunities. Irrespective of the leveraging
structure, the investor needs to realise that the capital invested is a form of protection against a
loss. In the worst case, the investor can hold on to the position in a weak market, until it
recovers.

Since the capital invested is lesser in leveraging, the investor needs to be sure he has adequate
access to capital or other securities to bear the consequences of market declines.

This requirement of additional capital comes up during weak market conditions, which is the
phase when it is difficult to mobilise capital. Inability to raise the capital at short notice leads,
to distress sale of the investments in a weak market. This can be quite costly, particularly when
the market decline is a temporary aberration.

Leveraging can deliver superior returns in favourable market conditions; but it can deliver
significant losses in adverse market conditions. Therefore, leveraging is a risky approach to
investment.
Role of Debt
Debt is an income asset. With most debt investments, the proportion of yield that an investor
gets out of regular return is likely to be much higher than any capital gains.

Although debt is not meant to provide significant capital gains, such gains (or losses) are
possible when yields in the market change significantly.

Debt may not protect investors against inflation. However, it fluctuates less than growth assets
like equity. Therefore, it is considered less risky. Debt provides a stabilising influence in a
portfolio that also includes growth assets.

Deposits & Debt Securities

An investor seeking fixed income through debt exposure can place his funds in fixed deposits
(with a bank or company) or debentures. Fixed deposits entail commitment of funds for a
period. Early exit from these deposits would depend on the conditions set by the investee
company, when the deposit was accepted. Since the deposits are not traded in the market, they
offer a perception of stability in values.

On the other hand, debt securities like debentures can be traded in the market. This contributes
to liquidity of the investment, independent of the issuer. The trading also contributes to
transparency in pricing.

The value of debt securities in the market keeps changing in line with changing views of market
participants. Investment vehicles like mutual fund schemes are expected to mark their
investments to the prevailing market prices. Such mark-to-market (MTM) valuation contributes
to volatility of their net asset values (NAV).

Fluctuations in value of debt securities or debt fund NAVs lead most investors to believe that
these are more risky than deposits. Fundamentally however, an investor who placed moneys in
a 3-year 10% fixed deposit and a 3-year 10% non-convertible debenture will feel shortchanged
in both investments, if yields in the market were to go up to 11% p.a. for similar investments.
Since deposits are not traded, there is no facility to capture their prevailing market value;
transparent trades in the market ensure that the current value of debt securities is captured and
publicised.

Credit Exposure & Debt Investments

Debt securities issued by the govt. are called Sovereign debt. The govt. has the means to fulfil
its obligations on all debt securities, which it has issued, that are denominated in the local
currency (e.g. Rupee-denominated debt securities issued by Government of India).

Therefore, they do not suffer a credit risk. This is the reason sovereign yields are the best
(lowest in the market). Yields in the market for non-sovereign issuers are higher because they
entail a credit risk.

The yield spread for any issuer is determined by its credit rating. Poorer the credit, higher the
yield spread. Therefore, one avenue for an investor to receive higher yield is by compromising
on the credit risk (i.e. going to lower credit quality). This will however increase the risk of
default by the issuer on interest and / or principal.

Chances of a company defaulting on its obligations are much higher during weak economic
conditions. In such situations therefore, the investor prefers to compromise on yield and invest
in safer instruments. Favourable economic situations can lead investors to take higher credit
risk.

Even if the economy is in good shape, weak companies can default. The possibility of default
is captured by its credit rating, which is based on the company’s financials and other factors.

A reading of the economy and interpretation of the issuer’s financial strength are therefore
factors that help a debt investor decide on the credit risk to take.

Shrewd debt investors buy into non-sovereign debt in anticipation of an improvement in its
credit rating, or sell them in anticipation of a deterioration of credit quality.

Role of Gold
Gold is a safe haven asset that investors opt for, in the event of any problems in the physical
world (e.g. war) or the financial world (e.g. serious global recession or lack of confidence in
financial markets).

Since the turn of the century, gold has also offered Indians a good hedge against inflation,
though this was not the case in the 1990s.

Gold prices in India are determined from the international prices of gold. Therefore, any
weakness in the rupee raises gold prices in India. Thus, it operates as an international asset for
Indian residents to invest in.

Across the country, gold can be quickly sold or pawned to raise money. Gold is thus more
liquid than financial assets like equity.

Role of Real estate

Like equity, real estate is a growth asset. It also offers an income stream through rentals that
can be more attractive than the dividend yield from equity investments.

Real estate is less volatile than equity. It goes up and down on a more secular basis. Given the
inherent demand for occupation from a large population, the long term trend appears to be up.

Unfortunately, real estate is an illiquid asset. A related problem is the lack of transparency on
pricing etc.

Unaccounted money has a significant role in real estate sector. This is a major problem given
the non-standard nature of the asset and the lack of transparent pricing.

Transaction costs associated with real estate ownership, in the form of stamp duties, registration
charges and brokerage are high.
Mutual Funds

Mutual Funds offer schemes that invest as per their investment objective. Investors invest in
schemes that are in line with their financial goals. The wealth manager needs to recognise the
following highlights of the nature of each type of mutual fund scheme:

› Debt schemes are seen as safer than equity schemes. Debt securities at least have a
maturity date, on which the company is expected to repay the principal amount. Equities
do not offer such a comfort; recovery of moneys from equity investments is therefore
entirely exposed to market risk. Hybrid schemes, which invest in a mix of debt and
equity, are seen as more risky than pure debt schemes, but less risky than pure equity
schemes.
› Amongst debt schemes, money market / liquid schemes are least risky because they only
invest in short term debt securities. lower the modified duration, lesser the fluctuation
in debt security value (and consequently the NAV of debt schemes) when interest rates
in the market change.
› Gilt Funds invest only in government securities (which are the safest form of debt
investment, from a credit risk point of view). Yet, their NAV can fluctuate significantly,
depending on the portfolio maturity. This price risk in the portfolio is the reason Gilt
funds are viewed as more risky than liquid schemes.
› Exposure to non-government corporate securities (which have a credit risk) contributes to
the higher risk in diversified debt funds.
› High yield funds (also called junk bond schemes) are highest in risk among debt funds
because of their investment philosophy viz. they invest in debt securities that offer
superior yield (which is generally paid by companies of inferior credit quality).
Therefore, the portfolio of high-yield funds suffers a high degree of credit risk.
› Amongst equities, some companies have relatively stable and profitable operations. These
shares of such companies fluctuate less, yet they offer an attractive dividend yield. They
are therefore called income stocks. High weightage of such equities in the

› portfolio of equity income / dividend yield funds contributes to their low risk among
equity schemes.
› The relatively low risk of value funds comes out of their value investment philosophy viz.
invest in equities of under-valued companies (that are available at relatively low
valuations) and hold on to them for a longer term. The downside risk in such equities
is therefore relatively less; in a portfolio of such equities (also called value stocks), the
few that perform will generate very high returns, which will make up for some
investments in the portfolio that may not perform.
› Unlike income stocks and value stocks, growth stocks are equities of companies that are
fast growing. These are generally available in the market at high P/E ratios. In a market
decline, they also suffer large falls.
› Index funds mirror an index. Different indices have varying weightages to higher risk
growth stocks. The element of higher risk equities makes index funds riskier than value
funds.
 › The portfolio of diversified equity funds is determined by a fund manager. There is a risk
of poor stock selection by the fund manager. Therefore, diversified equity funds are
riskier than index funds.
› Growth funds have large exposure to higher risk growth stocks. This contributes to the
high risk of such funds.
› Sector funds invest in only one sector - unlike diversified equity funds which invest in
multiple sectors. A benefit of investing in multiple sectors is that some may perform
well, and make up for some others that may not perform well. The risk in a sector fund
is that if that specific sector runs into trouble, then the fund performance will be severely
affected. Therefore, sector funds are viewed as highest risk among equity funds.

Risk profiling
Risk profiling is an exercise to determine how much risk is appropriate for an investor.

Risk profile is subjective. Few investors have the ability or objectivity to determine their risk
profile appropriately. Therefore, determining risk profile based on a question to the client –

“How much risk can you take?” is not a suitable approach. The adviser needs to understand the
risk profile of the client in a deeper sense. This is done by asking several questions, as part of
a structured data gathering exercise. Some of these are:

› What is your age?

A younger person is more likely to be able to handle market downsides psychologically.

Further, the person has a longer earning period in future, to make up for any losses.

› How many earning members are there in the family?

The more the number, greater may be the ability to handle market risk.

› How many dependent members are there in the family?

A client who does not have any responsibility towards dependents is in a better position to take
risks than someone who has several dependents in the family.

› How stable are the income streams in the family?

Stability of income cycles are an important requirement before the client should consider taking
market risks.

› What is the level of the investor’s current wealth, in relation to the fund requirement for
various needs?

An investor who has adequate wealth to take care of the needs is better placed to take market
risks.

› What is the liability and loan servicing requirement of the client?

Loans need to be paid, irrespective of the earning cycle. Therefore, heavy loans are a reason to
limit the risk that the client is exposed to.

› If the market were to fall down by 25%, how will you respond?

Such questions help in understanding the psyche of the investor. The investor who believes in
increasing his position when the market falls is obviously comfortable with risk and losses. If
a market fall were to trigger an exit from the investment with whatever can be recovered, then
the client is not a candidate for risky approaches to investment.

Some advisers use risk profile models where the investor responds to a standard set of
questions. The response determines the investor’s risk score / grouping. Although the models
disclose the risk profile objectively, it is important to recognise that risk profile of a person is
extremely subjective.

Why Asset allocation?

The discussions on various asset classes in the previous chapters highlight the unpredictability
of markets. Different asset classes perform well in varied economic and market scenarios.

The analyst seeks to interpret the leading indicators and anticipate likely market trajectory.

However, it is not possible to predict the market with certainty.

An approach to balance the uncertainty is to invest in a mix of asset classes. This ensures that
some asset classes in the portfolio perform well, when others don’t.

Perpetual debt represents an extremely portion of the debt market. Thus, most debt has a date
on which the principal is scheduled to be repaid, independent of prevailing interest rates.

This feature of debt makes it safer than equity. Many investors find it difficult to handle the
fluctuations in equity prices.

Allocation of investment between risky and relatively less risky asset classes makes it smoother
for the investor to fulfil his financial goals.
Strategic Asset allocation
Let us consider a few examples:

› A young investor, who is in the accumulation phase can afford to take more risk. Even if
he were to lose money, he can recover it from future earnings. Besides, he is exposed
to inflation over a long period. His portfolio needs to include a liberal portion of risky
growth assets that are likely to protect him from inflation. Such an investor may be
advised to have an equity-debt mix of 80:20.
› A senior citizen is exposed to inflation too. However, the exposure is for a shorter time
period determined by life expectancy. Besides, the senior citizen may not have a future
earnings stream to make up for losses. The physical health of the person too may or
may not be in a position to handle the shock of investment losses. These factors mandate
a significantly lower exposure to risky assets. EquityDebt mix of 20:80 is quite common
for such investors.
› A client who is in transition mode knows that a large requirement of funds is coming up.
This will call for liquidity in the short term. When the liquidity requirement comes up,
the market conditions may not be favourable. Therefore, the client should exit some
investments much earlier and park the funds in debt.

This will increase the debt component in the investment portfolio, for even an investor
who can take risk. Once the purpose for which the liquidity was required is settled, the
investor goes back to the strategic asset allocation suggested by the risk profile.
› A client who has earned windfall gains may choose to invest them in risky assets. But it
would not be advisable to invest all the money at the same time. The investor may
therefore opt to invest in a liquid fund, with a STP into an equity fund. Until the STP is
completed, the investor will find himself over-invested in debt.

These examples are illustrative. Specifics of situations may vary. The strength of the wealth
manager lies in understanding the client’s risk profile and suggesting the most appropriate asset
allocation.

Tactical Asset allocation

Investors who are oriented to take risk do take asset allocation calls based on their views of the
market. When they fell the market is undervalued they increase their exposure to equity.

They exit their equity investment when the view is that the market is overheated. Such an
approach is called tactical asset allocation.

Tactical asset allocation is clearly a risky style of investing. Wrong market calls can cause
serious losses to the investor. Therefore, this approach is suitable only for wealth investors who
are in a position to take risk.
Fixed Asset allocation
An investor who practices fixed asset allocation will seek to maintain the allocation even when
the market moves.

Suppose an investor’s portfolio is structured with equity to debt mix of 30:70. In a short period,
if the equity market were to go up by 70%, 30 will become 51. During this phase, if debt gave
a 5% return, 70 would have become 73.5. Thus, the equity-debt mix has now become 51: 73.5,
which can be re-written as 41:59. The complexion of the portfolio has changed.

An investor adopting fixed asset allocation will re-balance the portfolio in such a situation.

This would entail selling some equity and re-investing in debt. Thus, the investor ends up
booking profits in the rising market. Until the desired asset allocation is reached, the investor
will keep investing fresh surpluses in the asset class where he is short.

Portfolio re-balancing does entail costs such as brokerage and stock exchange charges. Profits
booked may also become liable for short term capital gains. Further, frequent trading is likely
to lead the income tax officer to conclude that the investor is speculating.

Most investors therefore do not try to re-balance more frequently than annually, unless there is
a significant change in the valuations of, or views about an asset class.

Most mutual fund schemes operate with a fixed asset allocation, though within a wide
investment range defined in the Offer Document. For instance, the proposed investment
distribution may be defined in the Offer Document as follows:

Equity and equity related securities 70 – 90%

Debt and debt related securities 10 – 30%

Mutual fund schemes do not pay a tax on their capital gains or losses. So portfoliorebalancing
is more efficient when it is handled by the scheme, as compared to any other investor.

Flexible Asset allocation

Let us continue with the previous example of investor with Equity: Debt mix of 30:70, which
changed to 41:59 when the market changed. We saw that an investor adopting fixed asset
allocation will re-balance his portfolio to arrive at the targeted equity: debt mix.

An investor who adopts flexible asset allocation will allow the equity : debt ratio to drift. There
will be no re-balancing in line with the market. As is demonstrated later in this chapter, this
kind of lazy approach to investment is not desirable.

A few mutual fund schemes adopt flexible asset allocation as part of their scheme structure.
This is not meant to be lazy investing, but part of a tactical approach to investment. The scheme
retains its flexibility to increase exposure to any asset class, depending on the fund manager’s
view on the markets.
Flexible asset allocation schemes can help investors benefit from swings in the returns in
different asset classes. However, as seen earlier, tactical asset allocation is risky. Further, since
the asset allocation of the scheme is not known in advance, the investor has to accept the
following uncertainties:

› He does not know how well the asset allocation will fit in his risk profile.
› He does not know whether his investment will be taxed as an equity scheme or a debt
scheme.

Risk Assessment
A wealth manager has to assess the risks to which the client is exposed to, and suggest suitable
products to mitigate those risks. The following insurance products are available for risk
mitigation:

› Life insurance policies, to protect the family from the financial consequences of demise
of the assured
› Health insurance policies to cover medical expenses that the client may have to incur on
self or family
› General insurance for protection against loss of assets through fire, theft, earth quake,
terrorism and such other exigencies.

Life Insurance
While policies are sold under various names, broadly a policy is either a pure insurance plan or
a savings-cum-insurance plan. Insurance premium may be payable only one-time (single
premium policy) or regularly over the life of the policy.

Pure insurance policies are also called term plans. They cover the life of the assured for a fixed
period of 5 to 30 years. In the event of death of the assured, the policy amount is payable by
the insurer to the family of the deceased. If the assured survives the term of the policy, then
nothing is payable by the insurer.

Term plans offer life insurance cover at the lowest premium. Younger the age at which the
assured buys the policy, lower would be the premium.

Endowment plans are typically used for covering long term financial planning goals such as
child’s education or marriage. In the event of death of the assured, the policy amount is received
by the family. If the assured survives the policy period, then an agreed endowment is paid.

Whole life plans offer cover for the entire life of the assured. Policy amount is payable to the
family on death of the assured. Depending on the terms of the policy, the assured has to pay
premium for 35 years or until he attains the age of 80, whichever is later.

Money-back plans offer the assured the benefit of some money being paid back by the insurer
at regular intervals during the policy period. For example, 20% of the policy amount may be
paid every 5 years in a 20 year policy. In the event of death during
the policy period (of say, 20 years), the entire policy amount would be payable by the insurer.

Mortgage redemption plans are linked to mortgage loans that the assured may have availed.
They protect the family of the assured, in the event of death of the assured. The family does
not have to repay the loan to retain the property. The policy amount will cover the amount
payable by the assured as on the date of demise.

Over the life of the loan, the outstanding amount will reduce with each equated monthly
instalment. The cover offered by the mortgage redemption plan also keeps reducing
accordingly.

The premium on a mortgage redemption plan can be quite attractive, especially when the
mortgage financier works out special arrangements with an insurer.

Unit linked insurance plans (ULIP) offer the facility to investors to decide how the savings
component should be invested. Out of the premium paid, a certain percentage is appropriated
by the insurer for the risk cover and expenses. The balance is invested. As in a mutual fund
scheme, the policy-holder can choose between portfolios. The insurer announces the NAV from
time to time.

These were primarily investment vehicles with some insurance offered. The insurance regulater
has however taken steps to enhance the role of insurance in such products. Insurers assess the
need for insurance based on the human life value. For instance, if the client is earning Rs. 10
lakh p.a., the adviser may suggest insurance cover of 20 times that amount viz. Rs. 2 crores.

Term plans are critical in situations where cash flow constraints affect the premium paying
ability, and thus limit the cash value plans that the client can buy. Even if affordability is not
an issue, investors are advised to go for a judicious mix of term plans and cash value plans,
because the latter can be quite costly.

Professional investors prefer insurance only to the extent it covers risk. The lower cost structure
makes them opt for other investment products for their investment needs.

Safeguards in Insurance
While insurance offers a lot of protection, the insurance buyer should be watchful about the
following:

› Choice of insurer

The claims re-imbursement record of the insurer is available in the websites of the insurer. One
can also ask around with insurance advisers, family and friends. It is better to avoid insurers
who have a poor claim re-imbursement track-record.

› Choice of policy
Slick insurance sellers can sell insurance policies that are worthless for the buyer. Therefore,
the buyer should make a comprehensive list of the risks against which he wants coverage. He
has to ensure that the policy provides the requisite coverage. He should also check that there
are no important exclusions or inconvenient conditions attached to the policy.

› Choice of rider

Riders help the buyer extend the coverage of the policy at a cost. But riders come with a cost.
The buyer should compare the total cost of the basic policy plus the cost of riders on a policy,
with alternate policies where the same risk may be covered by the basic policy, without the
need for riders.

› Documentation

At the stage of buying the insurance itself, the buyer should be perfect on documentation. He
should retain a copy of the filled application form, rather than leave it in the hands of the
adviser.

When the insurance policy is delivered, it is important to go through the important clauses to
ensure they are in line with what was purchased. Policies have a free look in period during
which they can be returned and the premia will be paid back by the insurer.

Insurers do reject claims on account of minor clerical errors made while filling the application
form or even in the insurance policy issued by the insurer.

Similarly, care should be exercised while filling the claims with the insurer. The wording used
in the claim form can become a ground for the insurer to reject the claim entirely or
significantly. Good insurance advisers help clients through the entire claims process.

The insurance buyer should consider buying insurance only through advisers who have a
reputation for offering such support.

The project started on 15th March 2017 & finished by 15th June 2017. The various parts of the
project are briefly discussed below –

1) Questionnaire development – it is required so that all the information is mined

obligatory to generate IPS.
2) Investment policy statement(IPS) – it is an agreement cum statement which is
developed in the following layout.
a. Brief introduction about the client stating annual income, family members, age,
earning members in the family etc.
b. Present financial position of the client.
c. Goals.
d. Recommendations.
3) Life charts – it is used to determine the stage at which a person is present in terms of
professional life in terms of monetary value.
 4) Risk profiling – process of finding the optimal level of investment risk for the client

Financial tools –

Insurance – this is the most widely used financial tool in wealth management. There are five
types of insurance –

› Term insurance.
›
Endowmen
t. › Whole life.
› Money
back. ›
ULIP.

Mutual funds – it is a pool of money from numerous investors. Investing in MF can be a lot
easier than buying & selling individual stocks & bonds.

Chapter-4
Analysis & Interpretation
After analyzing the collected data, I tried to find some universal truths which will be applicable
to almost 90% of the population. The findings & analysis are presented below.

Gender
140

120

100

80

60

40

20

0
Female Male

Interpretation:

83% of the respondents are males & 17% are females.

 Occupation

Working in an organization

Student

Restaurant Manager

Having my own business

0 10 20 30 40 50 60 70

Interpretation:

40% of the people works in a corporate office, 43% have their own business.
 Life Status

Single

Married with no children

Married with children

0 10 20 30 40 50 60 70 80 90 100

Interpretation:

Majority of the respondents are single (63%). Around 7% are married but do not have
children. 30% of them are married with children. This classification will help in
determining the risk-taking ability of an individual.
 Educational Qualification
80

70

60

50

40

30

20

10

0
Graduate Matriculate Post Graduate

Interpretation:
49% of the respondents are graduate. 37% of them are post-graduate. Only 13% are
matriculate.
 Annual Income

Upto 250,000

More than 1,000,000

750,000-1,000,000

500,000-750,000

250,000-500,000

0 10 20 30 40 50 60

Interpretation:
36% of the respondents earn up to 250,000. 7% earn more than 250,000 but less than
500,000. 27% earn more than 500,000 but less than 750,000. 7% earn more than
750,000 but less than 1,000,000. 20% earn more than 1,000,000. 5 respondents did not
disclose their annual income. This may be because of lack of trust & skepticism.
 Investment Objectives

Capital Preservation Income Generation Capital Growth

Short-term returns Medium-term returns Insurance

Interpretation:
In this part, respondents were given six options, they were allowed to choose multiple
options also. From the chart above, it is evident that income generation, insurance &
capital growth was top priorities with 28%, 24% & 24% respectively.
 Investment Time Horizon
50

45

40

35

30

25

20

15

10

0
0 5 10 15 20 25

Interpretation:
According to 56% of the respondents, the investment time-horizon is 5-15 years, with
around 30% voting for 10 years.
 Income in future years

Likely to remain stable.

Likely to grow strongly.

Likely to grow modestly.

Likely to be unpredictable.

Likely to be minimal or declining.

0 10 20 30 40 50 60

Interpretation:
For most of the respondents, income is expected to grow in future years.On asking, to what
extent do you expect to liquidate your non-cash investments to fund your financial
commitments in the next 24 months, the following responses were recorded.
 Substantial Small No Need

Interpretation:
37% of the respondents do not need to liquidate their investments. 33% of the
respondents need to liquidate a small amount of their investments. 30% need to
liquidate a substantial portion to meet their financial commitments.
On asking, a long-term investment product (comprising approximately 20% of your portfolio)
falls sharply in value over a short period of time, you would most likely, following was
recorded.

Hold Sell

Interpretation:

75% people will hold a long-term investment product (comprising approximately 20% of your
portfolio) falls sharply in value over a short period of time.
On asking, In the next few years, your investment portfolio would largely consist of products
with.

Interpretation:
Majority of the respondents preferred financial products with low complexity & moderate
price fluctuations, with low capital risk.
On asking, how familiar are you with investment matters.

Not familiar Somewhat familiar Fairly familiar Very familiar

Interpretation:
Most of the respondents are familiar with financial products & are capable of taking
investment decisions.
 Preferred bank for FD/RD
100
90
80
70
60
50
40
30
20
10
0
Axis bank. HDFC. ICICI. OBC SBI. Union bank

Interpretation:
60% of the respondents prefer SBI for opening an FD account.
 Preferred Insurance company

Tata AIA.

SBI Life.

Life Insurance Corporation of India.

ICICI Prudential.

HDFC Standard.

0 10 20 30 40 50 60 70 80 90 100

Interpretation:
90% people preferred LIC India.
 Preferred Mutual Fund

SBI Blue Chip fund.

Reliance

L&T Infrastructure.

Kotak Select Focus fund.

ICICI Pru Top 100 fund.

DSP-BR Tax Saver fund.

DSP-BR Micro Cap fund.

Birla SL Equity fund.

0 10 20 30 40 50 60

Interpretation:

83% people like Birla SL Equity fund and second preferable is SBI blue chip fund.
Interpretation:
FD/RD are the safest and Stocks are the riskiest avenue for mone
Chapter-4
 Conclusion

 Data helped in bifurcating individuals in three categories, based on their risk-taking factor. .
 Based on the collected data various individuals on their risk taking ability, investment
preferences & then tried to find out some universal truths which are applicable to almost 90%
of the people.
 Insurance is one investment objective which is in demand among all the age groups.
 More than 95% of the people consider stock as the riskiest avenue for their money, may be
because of the volatility. Most of the people invest in stock for short-term returns, but the
reality is it needs time to appreciate the capital.
 People who are in the later stage of life (age>50) tend to invest in a product which preserves
their capital & generate a regular stream of income, whereas young people find avenues
where there are chances of capital appreciation, they tend to take risk also.

.
 Bibliography

› Indian Wealth Management Industry | Current Status | Challenges for Wealth

Managers. [Online] Cmwindia.com. Available at:
http://cwmindia.com/WealthManagementIndustry.aspx [Accessed - June 7, 2017]

› India's Top 10 wealth managers by AUM & RM headcount 2016 - Asian Private Banker.
[Online] Asian Private Banker. Available at:
https://asianprivatebanker.com/industry/indias-top-10-wealth-managers-aum-rmheadcount-
2016 [Accessed – June 7, 2017]

› Portfolio Management. [Online] Investopedia. Available at:

http://www.investopedia.com/terms/p/portfoliomanagement.asp [Accessed - June 8, 2017]

› Portfolio Management. [Online] Portfoliomanagement.in. Available at:

http://www.portfoliomanagement.in/ [Accessed – June 8, 2017]
 Questionnaire

Personal Information :-
Name –
______________________________________________________________________
Age –
________________________________________________________________________
Gender –
_____________________________________________________________________
Address –
_____________________________________________________________________
Phone –
______________________________________________________________________
Fax –
________________________________________________________________________
E-mail Address –
_______________________________________________________________
Occupation & Title –
___________________________________________________________
Business Address –
_____________________________________________________________
Life Status (Single/Married/Divorced) – ___________________________________________
Education Level –
______________________________________________________________
Annual Income –

Up to 250,000
250,000-500,000
500,000-750,000
 More than 750,000
Annual Expenses –

Up to 100,000
100,000-200,000
200,000-300,000
More than 300,000
Annual Savings –

Up to 100,000
100,000-200,000
200,000-300,000
More than 300,000
Annual Investments –

Up to 100,000
100,000-200,000

200,000-300,000
More than
300,000

Family Information :-
Family Member’s Name D.O.B or Age Dependent (Yes/No)

Financial Needs/Investment Objectives :-

(Please tick all appropriate/relevant boxes from the list below)
Capital Preservation (Preservation of capital with minimal opportunity for capital
growth).
Income Generation (Generate a potential stream of income with less emphasis on capital
appreciation).
Capital Growth (Willing to accept risks in return for potential growth of my money over an
extended period using well diversified investments).
 Short-Term Returns (Potential to achieve higher returns over short term by taking currency,
equity, liquidity or volatility risks).
Medium-Term Returns (Potential to achieve higher returns over medium term by taking
currency, equity, liquidity or volatility risks).
Insurance (Ability to provide financial protection for myself & my dependents).
Your investment time horizon – _____ years.
Mention your major financial goals –

1) ________________________________________________________________________
2) ________________________________________________________________________
3) ________________________________________________________________________
Risk Profiling :-
Which of the following best describes your income expectations over the next few years?
Likely to be minimal or declining.
Likely to be unpredictable.
Likely to remain stable.
Likely to grow modestly.
Likely to grow strongly.
Considering your expected income & planned financial commitments, to what extent do you
expect to liquidate your non-cash investments to fund your financial commitments in the next
24 months?

I must liquidate a substantial portion of my investments to fund my expected financial

commitments.
I must liquidate a small portion of my investments to fund my expected financial
commitments.
I do not need to liquidate my investments to fund my expected financial commitments.

A long-term investment product (comprising approximately 20% of your portfolio) falls

sharply in value over a short period of time, you would most likely –

Sell the investment – I wouldn’t want to lose any more money.

Hold the investment or buy more – it is likely that it will increase in value again soon.
In the next few years, your investment portfolio would largely consist of products with –

Minimal capital risk and/or stable price actions.

Low capital risk and/or minor price fluctuations.
Low complexity and/or moderate price fluctuations.
High complexity and/or high price fluctuations.
If the current benchmark deposit interest rate is 3% p.a. & you have no other investments, which
one of the following two investment options would you select?
 An investment product that pays a fixed coupon (i.e. cash distribution) equal to 5% p.a. of
the original investment amount.
An investment product that pays a variable coupon ranging from 0 to 15% p.a. of the
original investment amount.

How familiar are you with investment matters?

Not familiar at all & I do not understand the numerous factors which influence investment
performance.
Somewhat familiar but I do not fully understand the several factors which influence
investment performance.
Fairly familiar. I understand the numerous factors which influence investment
performance.
Very familiar. I understand the numerous factors which influence investment performance
& use research as well as other information to make investment decisions.

Investment Products :-
Which of the following investment products are you aware of?
Insurance policies.
Mutual Funds.
Stock.
Bonds.
FD/RD.
In which of the following, you have invested?
Insurance policies.
Mutual Funds.
Stock.
Bonds.
FD/RD.
From the following, which bank is preferred by you to open a FD/RD account?
ICICI.
HDFC.
IDBI.
SBI.
Axis bank.
PNB.
Other – ________________________________________________________________

From the following, which of the following insurance company is preferred by you?
Life Insurance Corporation of India.
Tata AIA.
SBI Life.
 ICICI Prudential.
HDFC Standard.
AEGON.
Canara HSBC OBC.
Other – ________________________________________________________________
From the following, which Mutual Fund is preferred by you?
ICICI Pru Top 100 fund.
Kotak Select Focus fund.
SBI Blue Chip fund.
DSP-BR Micro Cap fund.
Birla SL Equity fund.
L&T Infrastructure.
DSP-BR Tax Saver fund.
Other – ________________________________________________________________
According to you, which is the safest avenue for your money?
Insurance policies.
Mutual Funds.
Stock.
Bonds.
FD/RD.
According to you, which is the riskiest avenue for your money?
Insurance policies.
Mutual Funds.
Stock.
Bonds.
FD/RD.
…………………………….

Thank You

Online link for the questionnaire – https://goo.gl/forms/bEy8KMrNpJ0Oktiv1 Analysis