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PROJECT REPORT ON Wealth Management Services “A Catering Tool for Investor” An Analysis of Existing And Potential Market At Centre for management Technology Knowledge Park-1 Gr. Noida 1 Gaurav PGDM TABLE OF CONTENTS Seria l No. 1 2 3 4 5 6 7 8 9 10 11 12 13 Particulars Page No. Preface Acknowledgement Objective of training Executive Summary My Project Objective Company Profile About Wealth Management Service Market Segmentation Core Element of Wealth Management Services Key Functional Area of Wealth Management Services Key Challenge Areas Solution Frame Work Consumer Point of View: Wealth Management 2 3 4 5 6 7 8 12 19 21 23 27 30 Gaurav PGDM 14 15 16 17 18 19 20 21 22 23 24 Wealth Management Practice Orientation Overview Expanding the wealth management canvas Revenue drivers Concept of Assets Classes Reliance Money Wealth Management Service Advantage & Limitation Research Methodology Data Analysis & Interpretation Findings & Suggestion Conclusion Annexure(Questionnaire) 35 39 41 42 47 65 75 77 81 103 104 3 Gaurav PGDM Preface Private sector is one of the fastest growing sectors in the country. After the Liberalization the Private industry still holds vast opportunities for young and experienced professionals. After Privatization, the PSU has been making efforts to improve efficiency and customer services. Among the private Brokage House player Reliance Money is the key player. 4 Gaurav PGDM Reliance money - Anil Dhirubhai Ambani Group offers most dynamic web based trading environment to its customers .The Reliance Money stock trading websites uses special security features 'Security Token', which makes you online trading experience more secure without complexity. Reliance ADG Provide the vast opportunities to the new aspirants of the business administration. The financial Sector is full of competition even if there are a lot of opportunities to the job in Reliance Money and It is the platform to go on the highest peak in the life of any coming one. Reliance Money is single windows that provide the multisystem facilities of the financial Products. There are many companies in the market which are providing the financial product like insurance, demat account services, mutual funds, general insurance, Portfolio management services(PMS), Wealth management, gold coins, Money changing, Money Transfer, and the others. Hence Reliance Money provides many financial products on the single window. Reliance money deals with the product and Investment options are available in...· .Equity (Stock) Trading · Derivatives Trading Special feature is available first time positions online, in real time. · Forex Trading · Commodity Trading · IPO's · Mutual Funds . Insurance to track your ACKNOWLEDGEMENT Knowledge is an experience gained in life, it is the choicest possession, which should not be shelved but should be happily shared with others”. 5 Gaurav PGDM It is a matter of great satisfaction and pleasure to present this report on Analysis of Wealth Management taking Reliance Money as basis. I take this opportunity to owe my thanks to all those involved in my training. We owe a debt of gratitude to many people who helped us to complete this thesis. We would like to acknowledge the help of all. First of all we would like to express our deepest Acknowledgement to our supervisor, Professor Mr. Rajnish Mallick for his invaluable advice and recommendations and also to Mr. Anrudh Ghosh (Faculty of Finance), for her preparedness to answer any pressing question. This project report could not have been completed without the guidance & their support to provide such opportunity as to do training with that organization. I express my gratitude to my esteemed guide, Mr. Annant Joyti (COORDINATOR – PGDM), Their timely help & encouragement helped me to complete this project successfully. I thank Mrs. Rachana Dubey (Centre Manager –House Hold) for giving me opportunity to work at Reliance Money, as a FINANCE TRAINEE. I am also expressing my gratitude towards my friends, those who have helped me directly or indirectly in completing the training. 6 Gaurav PGDM Objective of training Frankly speaking, any job or the task, have the specific objective i.e. what is need and what is the requirement of the particular work. In the same way my objective is also to learn something from the summer internship program. It means that the training program in any reputed company give the market knowledge of its subject matter of study. The right choice of the company in which a student has to do the training is also the part of the learning and what he/she wants to learn in the summer training. Reliance money began exploring new areas; it introduced modern products, like Unit linked Product where returns are linked to the market performance of the underlying assets. Reliance Money a growing reputed company gives the good Platform in selling of the product like insurance, Equity & commodities, derivative, IPO’s, offshore investment, mutual fund, gold coins etc. So the objective of study is to see in the basket of product and satisfaction of customers with the company through research work in NCR. 7 Gaurav PGDM EXECUTIVE SUMMARY Reliance Money Wealth Management provides discretionary wealth management service, in which wealth managers give recommendations to customers and invest according to customer discretion. This project has been a great learning experience for me; at the same time it gave me enough scope to implement my analytical ability. The first part gives an insight about the Demat Account, Life Insurance, General Insurance and mutual funds and theirs various aspects. It is purely based on whatever I learned at Reliance Money. I have a the knowledge of wealth Management about and all its basics through the project All the quarries of the customer asked by them had been solved with the support of the seniors in the organization. The problems of the customer were being recorded for the purpose of the research and development. My Project is the study of Wealth Management Service “A Catering Tool for Investor” An Analysis of Existing and Potential Market. The study was conducted at the branch of Reliance Money, Sec-50, Noida. Apart from objectives, some of the points which is considered in this topic to make project report more comprehend are:1. What a customer expects from a wealth management service provider. 2. Solution framework for wealth management. 8 Gaurav PGDM 3. Key Challenge Areas. 4. Core Elements of Wealth Management Services. My Project Objectives 1. To define the Wealth Management Market. 2. To provide an idea of its size and recent growth 3. Examine the key drivers of the wealth management Industry. 4. Expanding wealth management canvas 5. Assets allocation or segmentation of your investment into multiple assets classes and strategies. 6. Understanding company’s procedure in wealth management department. 9 Gaurav PGDM 10 Gaurav PGDM COMPANY PROFILE 11 Gaurav PGDM Reliance Capital Reliance Life Reliance Insurance Mutual fund Reliance General Insurance Reliance Money Reliance Consumer Finance Reliance money is a part of the reliance Anil Dhirubai Ambani Group and is promoted by Reliance capital, the fastest growing private sector financial services company in India, ranked amongst the top 3 private sector financial companies in terms of net worth. Reliance money is a comprehensive financial solution provider that enables you to carry out trading and investment activities in a secure, costeffective and convenient manner. Through reliance money, you can invest in a wide range of asset classes from Equity, Equity and commodity Derivatives, Mutual Funds, insurance products, IPO’s to availing services of Money Transfer & Money changing. Reliance Money offers the convenience of on-line and offline transactions through a variety of means, including its Portal, Call & Transact, Transaction Kiosks and at it’s network of affiliates. Some key steps of the company that are as….. 12 Gaurav PGDM “Success is a journey, not a destination.” If we look for examples to prove this quote then we can find many but there is none like that of Reliance Money. The company which is today known as the largest financial service provider of India. Success sutras of Reliance Money: The success story of the company is driven by 8 success sutras adopted by it namely Trust, Integrity, Dedication, Commitment, Enterprise, Hard work and team play, Learning and innovation, Empathy and Humility. These are the values that bind success with Reliance Money. Vision of Reliance Money: To achieve & sustain market leadership, Reliance Money shall aim for complete customer satisfaction, by combining its human and technological resources, to provide world class quality services. In the process Reliance Money shall strive to meet and exceed customer's satisfaction and set industry standards. Mission statement: “Our mission is to be a leading and preferred service provider to our customers, and we aim to achieve this leadership position by building an innovative, enterprising , and technology driven organization which will set the highest standards of service and business ethics.” Business Overview: Reliance Money is the largest brokerage and distributor of financial products in India with more than 2.5 million customers and the largest distribution network. Reliance Capital ranks among top 3 private sector financial services companies, in terms of net worth. Reliance Consumer finance has a loan book of over Rs. 8,000 crore at the end of June 2008. Reliance Capital has a net worth of Rs.6,862 crore (US$ 1.6 billion) and total assets of Rs. 19,940 crore (US$ 4.6 billion) as of June 30, 2008 and over 26,000 13 Gaurav PGDM employees. Money has increased its market share among private financial companies to nearly Convenient & effective – Anytime & anywhere financial transaction capability. Launched in April 2007. It provides the Flat fees system. It has 2.2 million customers in 1 year of official launch. It has over 5,000 outlets across 700 towns/cities. Average daily turnover in excess of Rs 2,000 crore. In fact, this scenario has led some analysts to wonder if the company is not a trifle too aggressive. But others say this has more to do with the companies’ customercentric 14 focus, its pan-India presence and superior risk management and investment strategies Reliance Money is not, however, resting on its laurels. Company’s customer centric approach will be studied during the training period and the finding of the research work will definitely focus on the present condition & future requirement (if any) relating to products of company. Product of the Company: Reliance Capital has interests in Asset Management, Mutual Funds, Life & General Insurance, Broking & Distribution, Credit Cards, Loans and other financial products and services. Reliance Money currently offers its services in Broking and Distribution of Financial Services and Products. Reliance Money offers a single window facility, enabling you to transact (Buy, Sell or Trade) in : Equity Credit Card & Loans Equity & Commodity Derivatives Mutual Funds Money Transfer & Changing Life & General Insurance Offshore Investment 14 Gaurav PGDM Wealth Management Services Portfolio Management Services Theoretical Background INTRODUCTION: The term Wealth management also now a days having very importance. So many Banking companies are engaged in the business of Wealth management. The premier insurance industry is now booming because so many bankers are also adopting and playing safe in the business of insurance the term called is Bancassurance. Now days Wealth Management has very craze in the business world. In a survey it was found that India had 123,000 milliner day end of year 2007 is now grow up by 22.7% from a year earlier (Asia pacific Wealth report). Wealth management services area in financial sector has been witnessing more attention during last couple of years. Capgemini Merrill Lynch Wealth Report 2008 cites number of HNWIs globally to be around 10.1 million with wealth held by them totaling to US$40.7 trillion in the year 2007. Value of wealth held by 15 Gaurav PGDM HNWIs represents 14.5% an increase of around 10.4% since 2006. India, China and Brazil had the highest HNWI population growth at the country level. Considering long-term high value business proposition, number of banks and niche players has started offering full range of wealth management services targeted to HNWIs and emerging affluent. While growing volume of premium services to affluent clients becomes the key driver for most of the service provider firms, many unique elements inherent to wealth management services requires completely different service offering model than the existing model for transactional services. Greatly accustomed in Offering commoditized financial services so far, demand of unconventional form of service model poses a big challenge in charting growth path for these wealth management firms. What is wealth? Most of us associate wealth with money, our savings, our investments, our homes or other forms of “financial capital.” But did you know that the word wealth comes from the Old English words “weal” (well-being) and “th” (condition) which taken together means “the condition of well-being”? Did you also know that the word “economic” comes from the Greek “oikonomia” meaning “the management of the household.” When have you heard a report from economists or business analysts talk about conditions of household living and management? Instead we have become immune to strong 16 Gaurav PGDM “language like the word “mortgage” which literally means in French “a pledge unto death” or what I call “a grip of death!” How we have twisted the meaning of words. Did you know that the father of accounting Lucca Paciolli, a 16th century Fransiscan monk and mathematician, never defined the word “wealth” nor did he provide a definition of “profit.” To this day accountants have no clear definition of either word. If real wealth is not just about financial possessions and if accountants have no real understanding of how to either define or measure or account for wealth then we have a wonderful opportunity to both redefine and rediscover our real or wealth. With that opportunity to redefine “wealth” Robert Kennedy have Developed, the things that make life worthwhile. The wealth system I have developed attempts to align our values and principles as a community with the actual conditions of our wellbeing (personal, professional, spiritual, environmental and financial). Moreover, the wealth system is a tool and process for measuring or assessing the actual physical and qualitative conditions of all the things that make life worthwhile. CONCEPT OF WEALTH MANAGEMENT: The term Wealth management formed with two words Wealth & Management. The Meaning of Management They have already seen in the steering introduction. The meaning of Wealth is – Funds, Assets, investments and cash it means the term Wealth management deft with funds Asset, instrument, cash and any other item of similar nature. While defining Wealth Management They have to think in planned manner. “Wealth Management is an all inclusive set of strategies that aims to grow, 17 Gaurav PGDM manage, protect and distribute assets in a much planned systematic and integrated manner”. Wealth Management Process at Reliance Money: 18 Gaurav PGDM In a bid to expand its gamut of financial services, broking and distribution house major Reliance Money has announced its foray into wealth management. This was announced by Sudip Bandyopadhyay, director & CEO of Reliance Money. So far, wealth management services in linked portfolio management services, India mainly include investment in equitystructured products, insurance and mutual funds. “We aim to widen this definition by including tax planning & assessment, real estate, art advisory and estate planning, among others, within the ambit of wealth management. The idea is to provide clients a comprehensive range of ‘cradle to grave’ services in the financial arena,” said Bandyopadhyay. Each investor will be assigned a dedicated wealth manager having access to dedicated and experienced advisory resources that allows them to design optimal asset allocation strategies customized solutions), and provide ongoing reviews of investment performance. With the help of its wealth managers and in-house research team, Reliance Money, part of the $100 billion Reliance Anil Dhirubhai Ambani Group, will target high net worth individuals and aims to create a wealth management process that extends beyond mere investments. The company already serves the needs of lower income group through mutual funds and insurance products, and the middle income group with portfolio management services for as low as Rs 5 lakh. Under its wealth management services, Reliance Money also plans to have a separate module to exclusively concentrate and cater to the financial planning needs of senior citizens. The company will launch its wealth management services across India with a focus on retail clients, through its network of over 10,000 plus retail outlets across 5,000 plus towns and cities. “The wealth management market in India is growing faster. We plan to expand the overall pie by also concentrating on tier II and tier III cities,” added,Bandyopadhyay. 19 Gaurav PGDM The wealth management services of Reliance Money will also be available to the 25 million NRIs and PIOs (person of Indian origins) through its overseas offices in the UAE, Oman and Hong Kong. The company plans to expand its operations in over 15 countries spread across Europe (London), North Africa, the Middle East and South East Asiaby2009. Industry studies indicate that there will be two million wealthy individuals in India, holding over $510 billion in liquid assets, by 2011. Investment Process at Reliance Money Understanding Customers` Investment Requirements Identifying Companies with Growth Dynamics (Earning & Business) Identifying Companies with Growth Dynamics (Earning & Business) Evaluation by Qualitative & Quantitative Method & Selection of Stock Evaluation by Qualitative & Quantitative Method & Selection of Stock 20 Gaurav PGDM Dynamic Portfolio Construction Following Portfolio Objectives Continuously Identifying New Opportunities Investments & Continuous Review Process 21 Gaurav PGDM 22 Gaurav PGDM Wealth Management Range The Indian market has been segmented by Wealth management service providers into five categories, namely: Ultra-high net worth, or Ultra-HNW (in excess of US$30 million), will have a total population of 10,500 households by 2012. Super high net worth (between US$10 and $30 million) will have a total population of 42,000 households by 2012. High net worth (between US$1 million and $10 million) have a total population of 320,000 by 2012. Super affluent (between US$125,000 and $1 million) will have a total population of 350,000 households by 2012. Mass affluent (between US$25,000 and $125,000) will have a total population of 1.8 million households by 2012. Mass market (between US$5,000 and $25,000) will have a total population of 39 million households by 2012. will 23 Gaurav PGDM Core Elements of Wealth Management Services Wealth management services involve fiduciary responsibilities in providing professional investment advice and investment management services to a client. Depending on the mandate of the services given to the Wealth Manager, wealth management services could be packaged at various levels: Advisory: Wealth manger’s role is limited to the extent of providing guidance on investment / financial planning and tax advisory, based on client profile. Investment decisions are solely taken by the client, as per his /her own judgment. Investment processing (transaction oriented): Client engages wealth manager to execute specific transaction or set of transactions. Investment planning, decision and further management remain vested with the client. Custody, Safekeeping and Asset Servicing: Client is responsible for investment planning, decision and execution. Wealth manager is entrusted with management, administration and oversight of investment process. End-to-end Investment Lifecycle Management: 24 Gaurav PGDM Wealth manager owns the whole gamut of investment planning, decision, execution and management, on behalf of the client. He is mandated to make financial planning, implement investment decisions and manage the investment throughout its life. 25 Gaurav PGDM 26 Gaurav PGDM Wealth Management – An Emerging Sector Wealth management services area in financial sector, hitherto used to be the preserve of some top multinational banks and financial firms- offering exclusive services to a select few, has been witnessing more attention during last couple of years. A booming economy, rising stock prices and an increase in income and spending power have brought sharp focus on this sector. With an increasing population of High Net worth Individuals (HNWIs), the unsaid tagline of earlier days - “Don’t call us. We’ll call you (if you are that wealthy!)” seems to be completed altered in recent times. Considering long-term high value business proposition, number of banks, financial firms and niche players has started offering full range of wealth management services targeted to HNWIs and emerging affluent. As per recently published Capgemini Merrill Lynch Wealth Report 2008, number of HNWIs around the world and value of their assets has been continuously rising. Number of HNWIs globally is estimated to be around 10.1 million in year 2007, an increase of over 10.4% over 2005-2007 (CAGR) year. HNWI wealth totals US$40.7 trillion, representing 14.5%. As per report, number of HNWIs in India is increasingly growing – at a rate higher than other region of world. Number of HNWIs in India is estimated to be around 123,000 in year 2007 - an increase of over 22.7% over previous year. Though, in absolute terms the above number appears pretty miniscule (if we compare that with the number of retail investors in India), however, in terms of value it really makes a really huge sum of serviceable investment. While growing volume of premium services to affluent clients becomes the key driver for most of the service provider firms, many unique elements inherent to wealth management services requires completely different service offering model than the existing model for transactional services. To meet the client service expectations 27 Gaurav PGDM accurately, servicing model and framework has to be deeply oriented with high level of client satisfaction. It is not a surprise that many of successful firms in wealth management sector draw lessons from successful service leaders from hospitality, entertainment and retailing industries, to learn the trick of enhanced client satisfaction. Greatly accustomed in offering commoditized financial services so far, demand of unconventional form of service model poses a big challenge in charting growth path for these wealth management firms. Number of Wealthy Individuals (000's) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $60K-$100K 218.5 264.4 274.5 324.6 391.2 399.8 424.9 460.7 501.0 546.4 $100K-$200K $200K-$300K $300K-$400K 427.7 142.2 58.4 20.6 10.8 12.2 9.3 472.9 552.5 649.4 771.8 768.6 808.5 869.6 937.1 1,012.8 165.8 56.6 25.0 197.2 63.8 29.8 233.9 75.9 35.4 287.9 92.9 43.9 300.7 96.3 46.0 324.1 103.0 49.6 349.5 111.1 53.8 379.4 120.7 58.6 412.6 131.4 64.1 $400K$500K $500K$600K $600K$700K $700K$800K $800K-$1m $1m-$1.5m $1.5m-$2m $2m-$3m 8.7 11.4 13.9 17.3 18.1 19.5 21.5 23.8 26.5 11.1 13.1 16.0 19.8 20.7 22.1 24.3 26.9 29.7 7.1 7.7 9.6 11.9 12.5 13.6 15.2 17.0 19.1 9.5 4.5 4.3 3.0 9.9 6.3 3.5 1.7 11.7 7.1 4.5 2.4 14.1 8.5 5.4 2.9 17.6 10.6 6.6 3.5 18.4 11.2 6.9 3.7 19.8 12.1 7.3 4.0 21.8 13.2 8.0 4.3 24.0 14.4 8.7 4.7 26.5 15.7 9.6 5.2 28 Gaurav PGDM $3m-$4m $4m-$10m $10m+ Total 2.5 2.5 0.9 921.6 2.9 2.9 0.8 1,036.7 3.2 3.2 0.9 1,179.9 3.8 3.8 1.1 1,394.5 4.7 4.7 1.4 1,681.1 4.9 4.9 1.5 1,709.2 5.2 5.2 1.6 1,815.2 5.6 5.6 1.7 1,960.3 6.1 6.1 1.9 2,124.4 6.7 6.7 2.0 2,308.5 Number of wealthy individuals in India, 2003-12 (Asia Pacific Wealth Market Review) 2008 Wealth management services comprises of following key function areas of: (a) Financial Planning Client Profiling Client profiling takes in account multitude of behavioral, demographic and investment characteristics of a client that would determine each client’s wealth management requirements. Some of key characteristics to be evaluated for defining client’s investment objective are: Current and future Income level Family and life events Risk appetite / tolerance Taxability status Investment horizon Asset Preference /restriction 29 Gaurav PGDM Cash flow expectations Religious belief (non investment in sin sector like - alcohol, tobacco, gambling firms, or compliant with Sharia laws) Behavioral History (Pattern of past investment decisions) Level of client’s engagement in investment management (active / passive) Present investment holding and asset mix Investment Objective Based on the client profile, investment expectations and financial goals of the client could be clearly outlined. Defining investment objectives helps to identify investment options to be considered for evaluation. Investment objective for most of the investors could be generally considered amongst the following: Current Income Growth (Capital Appreciation) Tax Efficiency (Tax Harvesting) Capital Preservation (often preferred by elderly people to make sure they don’t outlive their money). Portfolio Strategy Definition / Asset Allocation: Defining Portfolio Strategies and Portfolio Modeling: After establishing investment objectives, a broad framework for harnessing possible investment opportunities is formulated. This framework would factor for risk-return trade-off of considered options, investment horizon and provide a clear blueprint for investment direction. Investment strategy helps in forming broad level envisioning of asset class (Securities, Forex, Commodity, Real State, Reference and Indices, Art/Antique and Lifestyle Assets (Car, Boat, and Aircraft)), market, geography, 30 Gaurav PGDM sector and industry. Each of these asset classes is to be comprehensively evaluated for inclusion in portfolio model, in view of defined investment Objective: While defining the strategy, consideration of client preference or avoidance for specific asset class, risk tolerance, religious beliefs is the key element, which would come into picture. Thus, for a client with a belief of avoidance of investment in sin industries (alcohol, tobacco, gambling etc.) is to be duly taken care of. Likewise, for a client looking for Sharia- compliant investment, strategy formulation should consider investment options meeting with the client expectations. Determination of Portfolio Constituents and Allocation of Assets: Guided with the investment strategy, constituents in portfolio model are determined, which would directly and efficiently contribute towards client’s investment objectives. Thus, a broad level investment guidance of – “investment in fixed income in emerging market” would further determine classification within Fixed Income such as Govt. or corporate bonds, fixed or variable rate bonds, Long or short maturity bonds, Deep discounted or Par bonds, Asset backed or other debt variants. Return profile, risk sensitivity and co-relation of constituents within portfolio model would help to determine the size (weightage) of each individual constituent in the portfolio. Strategy Implementation: Having decided the portfolio constituents and its composition, transactions to acquire specific instruments and identified asset class is initiated. As acquisition cost would be having bearing on overall performance of the portfolio, many times process of asset acquisition may be spread over a period of time to take care of market movement and acquire the asset at favourable price range. 31 Gaurav PGDM Portfolio Management: Portfolio Administration: Portfolio Administration involves handling of investment processes and asset servicing. This would also require tax management, portfolio accounting, fee administration, client reporting, document management and general administration relating with portfolio and client. This function would involve back office administration and custodial services to manage transaction processes (trading and settlement) - interfacing with brokers/dealers/agents, Fund managers, Custodians, Cash Agent and many other market intermediaries. Performance Evaluation and Analytics: Performance evaluation of the portfolio is an ongoing process. Portfolio return is continuously monitored and analyzed with respect to defined portfolio objectives. Analysis dimension could be varied – simple and complex. These may include absolute return, relative return (in comparison to chosen benchmark), trend, pattern, cost impact, tax impact, concentration, lost opportunity and other form of sensitivity and what-if analysis. Any deviation of portfolio performance observed during performance evaluation would lead to strategy review and any possible alignment of portfolio strategy. Strategy Review and Alignment: Recalibration of Portfolio Strategy: Based on performance evaluation and future outlook of the investment, portfolio strategy is evaluated on periodic basis. To keep it aligned with the defined investment objectives, portfolio strategy is suitably re-calibrated from time to time. Many times, review of portfolio strategy would be necessitated due to change in client profile or expectations. Rebalancing, Reallocation and Divestment of Assets: 32 Gaurav PGDM Any re-calibration of strategy and consequent change in portfolio model would require rebalancing of the assets in portfolio. This would be achieved through rebalancing the asset (divesting over-allocated part and acquiring under allocated), relocation (from one sector the other or from one instrument to other instrument in the same class) or complete divestment. 33 Gaurav PGDM Key Challenge Areas While immense business potentiality of this emerging sector is a driving point for most of the firms, they face many challenges in formulating winning services offering meeting the client needs. In the following section, we would briefly take a look on the key challenges area in the present context. Highly Personalized and Customized Services: Unlike other stream of financial services, mostly being transactional / commoditized in nature, wealth management services require client specific solution and service offering. No one solution exactly meets the needs of other client. In a situation of highly personalized and customized nature of service offering, developing any form of generic service model does not support growth of the business. Personal relationship driving the business: To meet client expectation of personal attention, mode of communication in wealth management services tends to be highly personalized. Thus, the conventional grids of communication, such as call centre, data centre does not fit well. Success of wealth management services heavily draws on personal interaction with the dedicated relationship manager, who takes care of whole investment management lifecycle for bunch of clients on one-to-one basis. This essentially requires service firm to invest heavily in human processes to groom and retain a team on competent relationship managers with cross functional skills. Evolving Client Profile: The biggest challenge in providing wealth management service offering is to factor and reckon the evolving nature of client profile, in terms of investment objective, time horizon, risk appetite and so on. Thus, a service model developed for a particular client cannot remain static over a period of time. Any service model has to be flexible enough to consider the dynamic nature of client profile and expectations arising out of it. 34 Gaurav PGDM Client Involvement Level: The conventional adage – the more money you have, more effort is needed to manage it – proves to be otherwise in case of HNWIs. Generally, client involvement in managing the finance remains on the lower side. This brings onus of managing the whole gamut of investment and due performance single-handedly on the shoulders of investment manager. Passion Investment (Philanthropy and Social Responsibility): In the recent years a trend has been observed that bulk of investments by HNWIs has been directed towards passion investments (art, antique, jewellery, coins, unique assets, luxury), philanthropy and social/community causes. As per World Wealth report, 11% of HNW investors worldwide contributed to philanthropic causes with a contribution over 7% of their wealth in year 2006. UltraHNWIs contribution was even more - 17% of Ultra-HNW investors that gave to philanthropy contributed over 10% of their wealth. In total, this equates to more than US$285 billion globally. Against this backdrop, new breed of HNWIs expect to strategically manage the wealth and personal resources allocated to philanthropy purpose, in order to maximize its impact. This demands a Relationship manager not just to be a passive financial advisor rather a passionate partner sharing interest and inclination of the associated client. Limited Leveraging Capabilities of Technology (as an enabler): In the recent times, we have witnessed technology a key enabler to help business to expand its market reach with reduced cost of services offering. Online banking and online trading/brokerage services are the best examples in this regard. Technology leveraging has helped services firm to achieve universal proliferation of market with substantially reducing transaction cost. As business rules and service definitions to guide the applications tends to be quite composite in wealth management services, 35 Gaurav PGDM leveraging the capabilities of technology to meet the business requirement may not be highly feasible in the initial years. Technical Architecture and Technology Investment: As business architecture is still evolving, a proven basis of resilient technical architecture and framework to support the emerging business greatly remains missing. In absence of this framework, any investment commitment towards application development / system implementation would be fraught with severe risk. Intricate Knowledge of Cross-functional Domain: By very nature of wealth management, it not just involves matters of plain vanilla finance but has intricate relationship with many elements of domestic / international law, taxation and regulatory norms. In order to provide sound investment guidance, a relationship manager is required to have intricate knowledge of domestic/crossborder finance, accounting, legal and taxation subjects. 36 Gaurav PGDM Solution Framework Generic services offering model is going to draw big blank in case of wealth management services. A HNWI client expects exclusiveness in services in a normal manner. In highly competitive market, key to success for a firm lies in offering exclusiveness in services delivery (high quality services on most personalized basis), going beyond the client expectations. A solution framework with considered inclusion of following key elements would help firms in meeting and exceeding client needs towards sustainable business growth. Quality of Service Level: Quality of service level provided by the service provider firm would the key determinant of growth and success in client acquisition, client satisfaction and client retention aspects. 37 Gaurav PGDM In a sense, service offering could be developed in the form of partnership with the client based on trust and integrity, where the relationship manager remains highly responsive to client sensitivities and expectations. Without over-emphasizing, a satisfied client would provide multitude of opportunities of growth of business – through deepening the relationship, direct / indirect referencing as well as cross selling of products. In the other situation of deficiency in service level, he would not hesitate to move the business to another firm. This keeps strong emphasis on continued engagement with the client on the aspects of client expectation and servicing, rather than showing extra attention only during the period of client acquisition. Focused around client needs, a broad framework of service offering during whole lifecycle of client investment management would be revolving around: Anticipate Analyze, Advice, Act and Monitor cycle. Universal Service Offering: To meet the client needs in holistic manner, product and service offering range of the firm should be wide enough to cover the investment spectrum across its lifecycle. In an ideal situation, a client would expect to deal with a single firm to get complete range of investment management services. However, for various business considerations of the service provider firm, in many situations it may not be a viable proposition to offer those services. While universal service offering with assortment of services under single umbrella is not attainable in house, it could be achieved through active partnership and affiliation. But, due consideration is required that 38 Gaurav PGDM quality of service level provided by partners/affiliates does not get compromised in any manner. Any shortcoming in service quality, even if caused by partner/affiliate’s services, would be ultimately impairing client satisfaction towards the firm. Investment in People Processes: As relationship manager remains the face of the firm to a client, success of the firm would be greatly dependent on the skills, drive and enthusiasm of relationship managers (to take an extra mile), while bonding and dealing with any of client issues. This aspect is more challenging than as it appears. This necessitates transformation of organizational philosophy towards its people and people processes contributing to business success. Firms would be required to invest heavily in human processes to attract, groom and retain a motivated team of relationship managers, who will make the real difference between winning and losing the game. Price not a True Differentiator: Pricing as a key differentiator to distinct the service offering from one firm to other may not be highly relevant in case of wealth management services. Focused on performance and quality of service, pricing in isolation will not make much meaning to service seeking clients. Client would always value the pricing from the quality of services received. He will certainly not mind paying extra, if he finds services offered to him meeting and exceeding his expectations. Unconventional Delivery Channel and Communication: Delivery channel for service content and mode of communication has to be greatly customized – aligned with the client-desired vehicles. This would require a process of continuous re-inventing and re-defining the grid of delivery and communication channels to meet client expectations. Impact of technological advancements and its interplay on service delivery and communication method would certainly be an equally challenging aspect to be factored in, while designing such strategies. Flexibility of Technical Architecture 39 Gaurav PGDM While business potential appears to be quite high, existing business architecture still does not provide any sound basis to formulate technical roadmap. Added to that, dynamic characteristics of client profile bring an increased challenge in drawing a firm implementation blueprint. In the given situation, any big-bang commitment towards technical implementation plan would not be a wise idea. A prudent approach would be to get started on modular basis with progressive integration of functional components in order of its functional significance. Gaining insight and confidence around the business processes, this could be gradually scaled over the period of time. To meet the information technology requirements, a firm has several alternatives (or combination of Alternatives) to consider: Integrated solution approach: Developing in-house applications to meet end-to-end new business requirements. These applications are based on existing technology architecture of the firm and are closely integrated with the existing service models. It would be a least preferred choice in the current situation, on count of cost, time, lack of clarity and complexity of solution. Service Bureau /ASP Model: A recent trend has been witnessed in the solution provider’s landscape. Many of information techno service providers have come out with novel solution for investment management / investment processing platform in the form of service bureau / ASP. This platform provides integrated end-to-end processing infrastructure and services including core of business processes of wealth management. On the part of a wealth management firm, paying agreed charges to service bureau provider, option of service bureau completely eliminates the requirement of ongoing resource commitment and cost of maintaining information technology infrastructure. While total cost of owning may be the key motivating point for a wealth management firm to adopt service bureau 40 Gaurav PGDM model, the key consideration of providing high quality of service level with enhanced responsiveness may not be adequately answered. Stand-alone commercial software product/solutions: Pre-packaged solutions that can be focused to specific part of services or provide comprehensive end-to-end processing. These can be deployed independently or could be integrated with existing systems. Cost, customization and integration difficulties would be the challenging points. A loosely oriented technical architecture with optionality and mix of Build – Buy – Integrate components would be considered as a good beginning point. To provide enough resilience and high business relevance, any of the considered option and associated structure should keep due provisions for the following key elements: Considering the complexity of business processes and processing. Client profile acquires many new dimensions with plethora of attributes. Client data is required to be appropriately managed (aggregate / segregate) to build a profile driven solution offering. Decision support and client oriented analytics acquire more importance. Applications should provide adequate flexibility to incorporate manual processing interfaces. involved business rules, rule based processing would be the core of 41 Gaurav PGDM 42 Gaurav PGDM Consumer Point of View: Wealth Management Technically, PMS can be defined as hybrid service provided by portfolio managers, which includes customized stock and mutual fund investing. Portfolio managers can be of two kinds, discretionary or non-discretionary. Discretionary portfolio managers manage the funds of clients independently on their own accord, while the latter manage the funds according to their clients’ direction. Any person who is registered with Securities and Exchange Board of India (Sebi) as a portfolio manager is allowed to offer PMS. A list of these entities can be found at PMS vs Wealth manager and fund manager: PMS is completely different from priority banking and Wealth management. Priority banking or Wealth management is the umbrella of products while PMS is a product. So if priority banking and Wealth management is a grocery shop then PMS is a specific grocery. Priority banking is usually offered to premiere customers who have a relationship manager appointed, who would advice you on your investments across the products offered by the bank like insurance, and investment linked products (mutual funds, bonds and unit linked insurance plan). Mutual funds and PMS differ on the degree of customization, minimum investment and on the fee structure. Minimum investment required for PMS is more than mutual fund. Unlike PMS, there is no concept of profit sharing in mutual funds. Also, the level of customization of your investments is higher in PMS. Is PMS for you? 43 Gaurav PGDM PMS is for those people who don’t have the time or the expertise to do enough research to take informed investment decisions. If you have the required time and expertise, then you don’t need these services. Also, SEBI has prescribed a minimum of Rs 5 lakh investment for PMS, which means the service, is not for small and medium investors. Risks involved, though PMS is a good option for managing your Wealth, it is not entirely without risk or pain. “Though the relationship manager did no promise any cut-off or absolute number when asked about returns. The market was moving up when I invested and my money grew to about one and half times. But when the market tumbled suddenly, my earnings fell substantially.” “The Company churned the portfolio frequently, which gave them two-way profit on each transaction, as brokerage and profit sharing.” consumer now feels it is better to understand the market and invest on your own. He withdrew his investments after 14 months, even though he got returns of 25 per cent. Outlook Money tried unsuccessfully to get a response from Kotak Securities on this episode. How to choose a PMS? Investment philosophy: Akhilesh Singh, business head, Emkay Wealth, says, “The most important factor is to understand the fund manager’s investment philosophy and strategy, which must align with the investor’s objectives.” Singh adds, “Some portfolio managers structure long-term portfolios, while some prefer to actively churn the portfolio for higher short-term returns, which adds to the overall cost and tax liability.” HSBC, for instance, has a product called Strategic, which is for the long term, while Angel’s Bluechip is for medium to long-term investors. Scheme benchmarks: Make sure that the portfolio is benchmarked to an appropriate index. This helps measure the performance of the scheme and the portfolio manager. Benchmarks are important also as profit-sharing is linked to the performance of the portfolio above the benchmark. So, an aggressive portfolio 44 Gaurav PGDM benchmarked to a low-return index will mean higher over-the-benchmark returns. This means that you will have to share a larger portion of your profit. The wrong benchmark distorts the performance of the fund. Minimum investment: There are many portfolio managers whose thresholds are much higher than the Sebi-mandated minimum of Rs 5 lakh. Choose a scheme that fits the size of your portfolio. Returns: It is difficult to judge a scheme’s performance based on returns, as it may vary from the returns of an investor. Also, depending on the time of entry, an investor’s returns may vary from that of others. Before signing the contract, make sure your portfolio manager has a fair record of surpassing the returns from the benchmark index for numerous years. I.V. Subramaniam, CEO and chief investment officer, Quantum Advisors, says: “The performance should be judged over long periods of time during both high and low market levels. There should not be any survivor bias. This happens when an investor withdraws a portfolio due to bad performance, or a portfolio manager removes a portfolio to show the performance numbers of only good portfolios.” Cost structure Portfolio managers usually have two kinds of charges—management fee, which is fixed, and profit sharing, which is variable. You can also pay a fully fixed fee. Further, if the portfolio is churned frequently, it adds to the cost due to higher tax and brokerage. On each transaction you pay brokerage and short-term gains tax of 20 per cent. Management fee ranges from scheme to scheme. You could opt for a higher performance-linked charge as it puts pressure on the fund manager to perform better as he has a share in the profits. 45 Gaurav PGDM Frequency of disclosure: This varies from firm to firm, and largely depends on the agreement between the investor and the company. Most NAVs are disclosed daily, but you can opt for a company that also discloses portfolios daily. Broking house: If the broker is internal, it may be possible that your portfolio is churned frequently. Usually, asset management companies have external brokers, while some, such as Religare, have both external as Well as internal broking. Assets under management (AUM): Though higher AUMs do not guarantee higher returns, it remains an important factor. A low AUM could be an indicator of poor performance. They believe that Rs 100 core AUM is a healthy floor. SERVICES PROVIDED BY WEALTH MANAGEMENT INSTITUTIONS Custodian Services (A) Securities Safekeeping (B) Income collection from Securities (C) Settlement of Securities trades as directed (D) Payment of fund when directed (E) Timely settlement delivery Trust Services (A) Charitable Trust (B) Revocable Trust (C) Irrevocable life Insurance Trust (D) Special Need Trust (E) Institutional Trust Retirement Plan Services 46 Gaurav PGDM (A) Trustee (B) Defined Benefit Plans (C) Defined Contribution Plans Wealth Management Practice Orientation Overview Transactors: Product Expert: Handles high-volume transactions involving sophisticated products or asset classes, such as foreign exchange derivatives. Investment Broker: Handles transactions involving basic asset classes, such as equities, fixed income and options. Investment Managers: Investment Advisor: Offers strategic investment planning, as well as playing a hands-on role in constructing, reviewing and rebalancing client portfolios. Relationship Manager: Establishes and nurtures client relationships, delegating portfolio management to internal or external managers. Wealth Planners: 47 Gaurav PGDM Wealth Planner: Offers holistic advice in accordance with client’s finances and short-/long-term goals, such as real estate, retirement and generational wealth transfer. Personal CFO: Aspires to provide quasi family-office services, often acting in a lead discretionary role coordinating with the client’s other trusted advisors. The significance of these practice-model categories is that each reflects a different advisory approach, borne of a different perspective. While some firms claim to have a single practice orientation, many actually use multiple models in and across regions—and often leverage different models within their core markets to capitalize on the strengths of individual advisors. As they move into new markets, firms can create or exacerbate friction among the different advisory approaches they use. Importantly, practice orientations need not be mutually exclusive, but the mix of intrafirm practice models does need to be consciously managed. 48 Gaurav PGDM 49 Gaurav PGDM Expanding the wealth management canvas The spectrum of offerings is spreading and the scope of services is widening significantly. A quick glimpse reveals: Delivery channels: Anywhere and anytime through branch / call centre / online / POS Personalized services: Advisory services, relationship managers and financial planning experts to manage accounts and plan financial goals Investment tools for customers and their financial planners to manage wealth: Analyze portfolio, rebalance portfolio against model portfolio, portfolio simulation and ‘what-if’ tools Product types: Traditional banking, traditional investment products and alternate investments Straight Through Processing: End-to-end transaction processing for investments Tax planning: Country-specific tax and social security One-stop financial shop: Interface with market data vendors, banks, depositories, clearing houses, custodians and brokerage houses Concierge services: Lifestyle related value-added services Customized views and reports: Portfolio-specific or across portfolios Consolidated view: Complete financial picture in one screen 50 Gaurav PGDM Strict adherence: Financial regulation, compliance and other country-specific mandates Secure and trusted environment: Data storage Revenue drivers Retail banks are establishing themselves in a space traditionally dominated by private banks and niche service providers, in order to handle the booming mass affluent segment and the lower end of the high net worth segment. The typical model on view is the distribution model with end-to-end services across the banking and investment domains. Banks have identified key revenue drivers as: Revenue from distribution (third party products) Commission on transaction-based revenue (from execution broker) Revenue from advisory services Cross-sell opportunities to existing customers Product manufacturing and revenue based on assets under management and ROI (Discretionary PMS) would be the way forward for banks. 51 Gaurav PGDM Wealth Management Model Wealth management platforms are integrating front-office with the middle- and backoffice components to leverage an end-to-end solution. Platforms provide the technical infrastructure for wealth management services. Designed with open architecture, these platforms offer the ability to integrate with third party solutions, adding a broad range of features and functionalities. Service-oriented Architecture (SOA) The wealth management process is dynamic and factors in change at a rapid pace, primarily to incorporate new products, new processes, and regulatory requirements and address ever-changing customer demands. Service providers must respond quickly to business changes and leverage existing investments in applications and the application infrastructure to address new business requirements, while supporting new channels of interactions with customers, partners and market data vendors. 52 Gaurav PGDM Wealth management providers and private banks must focus on open standards for communication with external entities. Service-oriented Architecture and web service standards will be the key components of current and future wealth management systems as it will help technology vendors deliver flexible and cost effective solutions. Wealth management is a complex process and to support this the system needs to embed, incorporate and interface with multiple systems for customer information, market data, transaction data and accounting. Account aggregation, one of the critical components in the wealth management process will be served well by the ‘SOA trend’ as it will enable service providers to share, integrate and mine data across multiple systems and entities. One system or multiple systems? The ideal wealth management system should provide a complete ‘front-to-back’ functionality for all asset classes, product types and related processes. It must facilitate Straight Through Processing (STP) for all transactions, account aggregation and, portfolio planning, monitoring and reporting. Wealth management essentially runs across various product types in the investment and banking domains. There are ‘one system’ vendors and ‘niche area’ vendors currently servicing the ever increasing technology requirements in this domain. In recent times, there has been a growing trend of adoption of the ‘one system’ approach which offers an integrated platform for traditional banking and wealth management products and processes. Retail banks entrenched, expanding or venturing into the wealth management space are increasingly seeking integrated platforms to service customers. The typical ‘one system’ provides the necessary infrastructure to support various asset classes and provide banks with a consolidated view of customers’ portfolio across banking and investment products. With a topping of SOA, web service 53 Gaurav PGDM standards and robust work flow engine, it would provide the ideal ‘one system’ solution for banks to service their customers. However, going by the business domain it caters to, wealth management systems inevitably need to interface with niche area systems and external entities. The shortcomings of the ‘one system’ approach are in terms of depth of functionality and infrastructure changes that have to be optimally countered across the system. This could entail higher costs and migration related issues. ASP model A wealth management platform in the ASP model is another emerging trend. The platform provides for an integrated front-to-back office system serving the entire gamut of client management and advisory services, transaction processing and reporting. The application is hosted by a service provider. Banks, brokers and investment houses which offer wealth management solutions can opt for this standard application by paying charges either annually or based on transactions or assets under management. The model may seem attractive to relatively smaller players in this space who would want to effectively eliminate technology infrastructure maintenance but it has not attracted much success due to the ‘same infrastructure for all providers’ model. It is critical that banks evolve their IT infrastructure in line with their service delivery model. The future lies in the current trends: Mass affluent and high net worth client segments will continue to grow their wealth but at the same time look at more risk-mitigated strategies Acquiring and retaining clients and their assets with robust client servicing are the key challenges for service providers 54 Gaurav PGDM Service providers have determined the ‘criteria’ for success but believe that adequate technology tools are still not available Service providers are convinced that they need flexible service delivery models IT strategy should evolve around the service delivery models Service providers are taking a holistic view of their technology infrastructure moving away from the product silo approach Ultimately, the greatest success will be realized by those banks that comprehensively understand their clients. They will be able to leverage existing strengths to transform and adapt their service delivery and technology to cater effectively to client needs in theirS target growth markets. Without doubt, technology is an important enabler in delivering efficient actionable advice, but it is only a supporting tool in the client-to-advisor relationship, which plays a key role in managing the institution’s customers. Other factors contributing to the success of a wealth management strategy include the quality of advisors, the business model, organizational structure, customer segmentation and diversity of offerings. Most effective revenue drivers for wealth managers over the next Two years: Regional average CLiENT acquisition Technique techniques 55 Gaurav PGDM CONCEPT of ASSET CLASSES 56 Gaurav PGDM 57 Gaurav PGDM Asset Mix Asset mix is the allocation of a portfolio between asset classes, it balances return and risk. Returns are a combination of the income from an investment and the price appreciation over the period. Risk is usually proxies by the “standard deviation” of returns, how much the return change about the long-term average. List of Different Asset Class 1. Fixed deposit 2. Mutual Fund 3. Equity 4 Commodities 5. Art Fund 6. Real-Estate Fund 7. Insurance product 8. Structured product 9. Gold 10.Currency 11.Oil 58 Gaurav PGDM Fixed Deposits FDs, are the most popular today.With FDs you deposit a lump sum of money for a fixed period ranging from a few weeks to a few years and earn a pre-determined rate of interest. FDs are offered by both banks and companies though putting your money with the latter is generally considered riskier. Merits and Demerits The main advantage is that FDs from reputed banks are a very safe investment because such banks are carefully regulated by the Reserve Bank of India, RBI, the banking regulator in India. Note that company FDs isn’t as safe as bank FDs because if the company goes bankrupt you may lose your money. Make sure you check the credit rating of a company before investing in its FDs. You should be especially wary of companies which offer interest rates significantly higher than the average to attract your money. The other advantage of FDs is that you have the option of receiving regular income through the interest payments that are made every month or quarter. This option is especially useful for retirees.On the flip side, a fixed deposit won’t give you the same returns that you may get in the stock markets. For instance a stock-portfolio may rise 20-30 per cent in a good year whereas a fixed deposit typically earns only 7-10 per cent. A fixed deposit also doesn’t offer protection against inflation. If inflation rises steeply during the maturity of the FD your inflation adjusted return will fall. The rate of interest on FDs varies according to the maturity with longer deposits generally earning a higher interest rate. Interest paid on a fixed deposit is paid either 59 Gaurav PGDM monthly or quarterly according to the investor’s choice. So if you invest Rs 3 lakhs in a one year fixed deposit which pays 8 per cent you can earn Rs 2,000 of interest every month or Rs 6,000 of interest every quarter. Interest rates on FDs The rate of interest on FDs varies according to the maturity with longer deposits generally earning a higher interest rate. Here are the interest rates offered by ICICI Bank on their FDs. Note that FDs vary quite a bit from bank to bank so you should search around before investing. Interest paid on a fixed deposit is paid either monthly or quarterly according to the investor’s choice. So if you invest Rs 3 lakhs in a one year fixed deposit which pays 8 per cent you can earn Rs 2,000 of interest every month or Rs 6,000 of interest every quarter. Effective Return Before you invest in FDs you need to understand the concept of effective return which is higher than the rate of interest on the FD. Effective return is relevant if you choose to reinvest your interest every year which means that you will be earning compound interest. Mutual Fund A mutual fund is a professionally managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities.[1] The fund manager, also known as portfolio manager, invests and trades the fund’s underlying securities, realizing capital gains or losses and passing any proceeds to the individual investors. Currently, the worldwide value of all mutual funds totals more than $26 trillion. [2] Since 1940, there have been three basic types of investment companies in the United States: open-end funds, also known in the US as mutual funds; unit 60 Gaurav PGDM investment trusts (UITs); and closed-end funds. Similar funds also operate in Canada. However, in the rest of the world, mutual fund is used as a generic term for various types of collective investment vehicles, such as unit trusts, open-ended investment companies (OEICs), unitized insurance funds, and undertakings for collective investments in transferable securities (UCITS). Types of mutual funds Open-end fund The term mutual fund is the common name for what is classified as an open-end investment company by the SEC. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. Mutual funds must be structured as corporations or trusts, such as business trusts, and any corporation or trust will be classified by the SEC as an investment company if it issues securities and primarily invest in non-government securities. An investment company will be classified by the SEC as an open-end investment company if they do not issue undivided interests in specified securities (the defining characteristic of unit investment trusts or UITs) and if they issue redeemable securities. Registered investment companies that are not UITs or open-end investment companies are closed-end funds. Neither UITs nor closed-end funds are mutual funds (as that term is used in the US). Exchange-traded funds A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-end investment company. ETFs combine characteristics of both mutual funds and closed-end funds. ETFs are traded throughout the day on a stock exchange, just like closed-end funds, but at prices generally approximating the 61 Gaurav PGDM ETF’s net asset value. Most ETFs are index funds and track stock market indexes. Shares are issued or redeemed by institutional investors in large blocks (typically of 50,000). Most investors purchase and sell shares through brokers in market transactions. Because the institutional investors normally purchase and redeem in in kind transactions, ETFs are more efficient than traditional mutual funds (which are continuously issuing and redeeming securities and, to effect such transactions, continually buying and selling securities and maintaining liquidity positions) and therefore tend to have loTheyr expenses. Equity funds Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States.Often equity funds focus investments on particular strategies and certain types of issuers. Capitalization Fund managers and other investment professionals have varying definitions of midcap, and large-cap ranges. The following ranges are used by Indian Indexes: Large-cap stock - These are shares issued by large companies with a market capitalization generally greater than Rs 500 Crore. Mid-cap stock - These are issued by mid-sized companies with a market cap generally between Rs 200 billion and Rs 500 Crore. Small-cap stocks - These represent smaller-sized companies with a market cap of less than Rs 200 Crore. These types of equities tend to have the highest risk due to lower liquidity. 62 Gaurav PGDM Bond funds Bond funds account for 18% of mutual fund asse Types of bond funds include term funds, which have a fixed set of time (short-, medium-, or long-term) before they mature. Municipal bond funds generally have loTheyr returns, but have tax advantages and loTheyr risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk. Money market funds Money market funds hold 26% of mutual fund assets in the United States. Money market funds entail the least risk, as Well as loTheyr rates of return. Unlike certificates of deposit (CDs), money market shares are liquid and redeemable at any time. The interest rate quoted by money market funds is known as the 7 Day SEC Yield. Funds of funds Are mutual funds which invest in other underlying mutual funds (i.e., they are funds comprised of other funds). The funds at the underlying level are typically funds which an investor can invest in individually. A fund of funds will typically charge a management fee which is smaller than that of a normal fund because it is considered a fee charged for asset allocation services. The fees charged at the underlying fund level do not pass through the statement of operations, but are usually disclosed in the fund’s annual report, prospectus, or statement of additional information. The fund should be evaluated on the combination of the fund-level expenses and underlying fund expenses, as these both reduce the return to the investor. 63 Gaurav PGDM Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor), although some invest in funds managed by other (unaffiliated) advisors. The cost associated with investing in an unaffiliated underlying fund is most often higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. Recently, FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are passively managed (the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis). The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard, and Fidelity have also entered this market to provide investors with these options and take the “guess work” out of selecting funds. The allocation mixes usually vary by the time the investor would like to retire: 2020, 2030, 2050, etc. The more distant the target retirement date, the more aggressive the asset mix. Hedge funds Hedge funds in the United States are pooled investment funds with loose SEC regulation and should not be confused with mutual funds. Some hedge fund managers are required to register with SEC as investment advisers under the Investment Advisers Act. The Act does not require an adviser to follow or avoid any particular investment strategies, nor does it require or prohibit specific investments. Hedge funds typically charge a management fee of 1% or more, plus“performance fee” of 20% of the hedge fund’s profits. There may be a “lock-up” period, during 64 Gaurav PGDM which an investor cannot cash in shares. A variation of the hedge strategy is the 130-30 fund for individual investors. Equity investment Generally refers to the buying and holding of shares of stock on a stock market by individuals and funds in anticipation of income from dividends and capital gain as the value of the stock rises. It also sometimes refers to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup (a company being created or newly created). When the investment is in infant companies, it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed going-concern situations. Direct holdings and pooled funds The equities held by private individuals are often held via mutual funds or other forms of pooled investment vehicle, many of which have quoted prices that are listed in financial newspapers or magazines; the mutual funds are typically managed by prominent fund management firms (e.g. Fidelity Investments or The Vanguard Group). Such holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund managers in charge of the fund(s). An alternative, usually employed by large private investors and pension funds, is to hold shares directly; in the institutional environment many clients that own portfolios have what are called segregated funds as opposed to, or in addition to, the pooled e.g. mutual fund alternative. Commodities Market 65 Gaurav PGDM Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. This article focuses on the history and current debates regarding global commodity markets. It covers physical product (food, metals, electricity) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. Articles on reinsurance markets, stock markets, bond markets and currency markets cover those concerns separately and in more depth. One focus of this article is the relationship between simple commodity money and the more complex instruments offered in the commodity markets. Art Fund: Wealth management now includes art, real estate investments. With prices of paintings rising 10 times in the last two years, three new financial entities have launched ‘art advisory’ services as part of Wealth management services. While Citibank has been providing art advisory services like art insurance, art storage and using art as a tradable collateral for some time, the recent surge in prices has driven Yes Bank, ABN Amro and Dawnay Day to start this service. The works of M.F. Hussain, Jatin Das or Anjolie Ela Menon are sought after by art lovers not only for their aesthethic value but also as an asset. Art galleries are involved in art valuations, i.e. mapping the pricing history of an artist or research on art. Art is now being treated as an investment and high net worth individuals are prompting banks to look at alternative asset classes, such as art or real estate, for investment as a part of Wealth management products. 66 Gaurav PGDM Diversified portfolio Individuals looking at alternative investments rather than the usual investments in equity-related products. “Investments in alternative asset classes give clients a diversified portfolio across a variety of asset classes,” Yes Bank is expected to launch a Wealth management service that will offer investment in real estate, art and jeWellery. It expects to kick-start the real estate service during this fiscal. “The bank is planning tie-ups with real estate consultant agencies. The service will largely cater to non-resident Indians seeking opportunities to invest in real estate in the country,”. Tie-ups with galleries In the art segment, tie-up with art galleries. “Contemporary Indian art will be at focus. The hiring specialists in the field for advisory,” High net worth individuals in India are increasingly looking at contemporary Indian art as a good investment. With the advent of private art funds and galleries, art is becoming an emerging asset class. ABN Amro advises clients on investment in art. However, the execution depends on the client in conjunction with experts in the field. 67 Gaurav PGDM It is difficult to generalize. The majority of clients begin with an investment of around 4-5 per cent of their portfolio,” targets customers with Rs 2-2.5 crore threshold for investment. According to the banks, some clients also invest in these asset classes to minimize risk because they are looking at protecting their capital. Investment in these asset classes requires a review of client’s age, personal ability to take risk and most importantly, client’s interest. What percentage of assets would be allocated to alternative assets would depend on the client’s interest and ability to take risk. Real Estate Fund: India Real Estate Fund is a significant component of the Indian realty market flooded with Indian and foreign financial institutions. The growing increase in the industrial, commercial and residential projects have boosted the real estate market in India. This has thrown open unlimited scope for the incoming of the India Real Estate Funds. The profits have encouraged financial assistance from not only domestic funds but also lured many foreign investors to participate in the India Real Estate Fund. The cooperating assistance from the government has further encouraged liquidity flow into the India real estate market sector. The foreign contributions in the India Real Estate Fund have been witnessing a steady rise of 40%-45% per year. The domestic financial institutions have also build up their investments like their foreign counterparts. This combined participations from both along with contributions of the corporate houses has accelerated the growth of India Real Estate Fund. Leading India Real Estate Fund: Some of the leading India Real Estate Fund are : 68 Gaurav PGDM 1. HDFC Property Fund- HDFC India Real Estate Fund (HI-REF), the first scheme HDFC Property Fund, invest in all the stages of the real estate projects. 2. DHFL Venture Capital Fund- DHFL Venture Capital Fund, promoted by Dewan Housing, has a focus on developing properties rather than investing in real estate. 3. Kshitij Venture Capital Fund - Kshitij Venture Capital Fund, a group venture of Pantaloon Retail India Ltd., will be deploying funds exclusively in developing malls specially in western and southern India. 4. 5. 6. India Advantage Fund (ICICI) Kotak Mahindra Realty Fund Reliance Infrastracture India Real Estate Mutual Fund: The further involvements of the real estate mutual funds have improved the quality of the construction practices. The 10th Five-Year Plan has proposed that Securities and Exchange Board of India would regulate the India real estate mutual funds. Real Estate Investment Trusts: The primary difference between Real Estate Investment Trusts and a mutual fund is that investments made in the former are traded in real estate stocks and not invested in company stocks moreover they provides a heavier liquidity than the mutual funds. 69 Gaurav PGDM India Real Estate Foreign FundsThe significant international investments in the India Real Estate Fund are like: 1.Warburg Pincus 2.Blackstone Group 3.Broadstreet 4.Morgan Stanley Real Estate Fund 5.Columbia Endowment Fund 6.Hines 7.Tishman Speyer 8.Sam Zell’s Equity International Insurance Product The modern concept of insurance practices in India started during the British rule in 1818 when Oriental Life Insurance Company was established in Calcutta. India became independent from British rule in 1946, and by 1956 the insurance sector was nationalized, with the Life Insurance Corporation of India created by combining almost 245 private life insurance companies; 107 private non-life companies combined in 1973 to form the General Insurance Corporation. But since the very purpose of nationalizing the insurance sector got sidelined due to the monopolistic power it enjoyed, coupled with the bureaucratic mindset of LIC and GIC, insurance again was opened to private players in 1999. During 2000-2006, almost 15 life and 13 non-life private insurance players (mostly joint ventures between Indian and foreign players) started operations in India, indicating the willingness of foreign institutional investors to enter the Indian insurance sector. But through all these 70 Gaurav PGDM major changes the actual impact was felt only in major urban areas, while the vast majority of the rural population was excluded from the insurance sector. Around the world, scholars and financial experts believe that in the next 5 to 10 years, India and China are going to be the targets for insurance companies. So far, most of the insurance companies in India are not actively tapping the huge potential of the rural markets. Unless the rural markets are given priority consideration, all predictions about future insurance industry potential in India are going to be distant dreams. The present insurance business is not even able to penetrate 20%?30% of the total population of 1.095 billion, and the projected population figure by 2025 will be approximately 1.501 billion. The order of the day will be to refocus on micro insurance in India to capture the huge potential of rural customers Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). ULIP came into play in the 1960s and is popular in many countries in the world. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers. As times progressed the plans Theyre also successfully mapped along with life insurance need to retirement planning. In today’s times, ULIP provides solutions for insurance planning, financial needs, financial planning for children’s marriage planning also can be done with this. Structured Product A structured product is generally a pre-packaged investment strategy which is based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuances and/or foreign currencies, and to a lesser extent, 71 Gaurav PGDM swaps. The variety of products just described is demonstrative of the fact that there is no single, uniform definition of a structured product. A feature of some structured products is a “principal guarantee” function which offers protection of principal if held to maturity. For example, an investor invests 100 dollars, the issuer simply invests in a risk free bond which has sufficient interest to grow to 100 after the 5 year period. This bond might cost 80 dollars today and after 5 years it will grow to 100 dollars. With the leftover funds the issuer purchases the options and swaps needed to perform whatever the investment strategy is. Theoretically an investor can just do this themselves, but the costs and transaction volume requirements of many options and swaps are beyond many individual investors. As such, structured products were created to meet specific needs that cannot be met from the standardized financial instruments available in the markets. Structured products can be used as an alternative to a direct investment, as part of the asset allocation process to reduce risk exposure of a portfolio, or to utilize the current market trend. Composition Structured products are usually issued by investment banks or affiliates thereof. They have a fixed maturity, and have two components: a note and a derivative. The derivative component is often an option. The note provides for periodic interest payments to the investor at a predetermined rate, and the derivative component provides for the payment at maturity. Some products use the derivative component as a put option written by the investor that gives the buyer of the put option the right to sell to the investor the security or securities at a predetermined price. Other 72 Gaurav PGDM products use the derivative component to provide for a call option written by the investor that gives the buyer of the call option the right to buy the security or securities from the investor at a predetermined price. Risks The risks associated with many structured products, especially those products that present risks of loss of principal due to market movements, are similar to those risks involved with options. The potential for serious risks involved with options trading are well-established, and as a result of those risks customers must be explicitly approved for options trading. Gold Factors influencing the gold price Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand, including hoarding and disposal. Unlike most other commodities, the hoarding and disposal plays a much bigger role in affecting the price, because most of the gold ever mined still exists and is potentially able to come on to the market for the right price. Given the huge quantity of hoarded gold, 73 Gaurav PGDM compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production. According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes. About 3,000 tonnes goes into jewelry or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds. This translates to an annual demand for gold to be 1000 tonnes in excess over mine production which has come from central bank sales and other disposal. Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves. The Washington Agreement on Gold (WAG), which dates from September 1999, limits gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 400 tonnes a year. European central banks, such as the Bank of England and Swiss National Bank, have been key sellers of gold over this period. Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005. In early 2006, China, which only holds 1.3% of its reserves in gold, announced that it was looking for ways to improve the returns on its official reserves. Many bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks. In general, gold becomes more desirable in that times. Bank failure: When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This is what happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose 74 Gaurav PGDM a national emergency and to outlaw the holding of gold by US citizens known as Executive Order 6102 which has since been ended. Low or negative real interest rates If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals. War, invasion, looting, crisis In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises. Currency 75 Gaurav PGDM The modern hedge fund manager’s liberal tongue-in-cheek definition is: “If it moves up and down independently, then it’s an asset class.” While currencies surely do a lot of moving up and down, they also stand out for other reasons: The global foreign-exchange (FX) market can be considered by far the largest marketplace in the world, not only geographically but also with reference to trading volume. The daily turnover is growing constantly and has long ago surpassed the $1 trillion mark: forty times the size of world trade. An important difference between currencies and other markets is that currency prices allow us to analyse also their reciprocal values. A falling dollar/yen is synonymous with a rising yen because the dollar can be expressed in yen and, vice versa, the yen in dollars. By comparison, the dollar is never measured in units, as the Dow Jones for example. For the same reason the expression ‘short sale’ – so much maligned in equity trading – does not exist in currency trading because the short sale of a currency is equivalent to a purchase of the other currency. For similar reasons, the currency market cannot suffer a ‘crash’ (such as the stock market crashes of 1929 or 1987) through which the wealth of all market participants dwindles. In the currency market eachloss is matched by an equivalent gain of the counter-party. Another unique feature of the currency market is that it is active without interruption ‘round-the-clock’. Portfolio composition of currency Modern portfolio theory postulates that relative risk can be reduced by diversification into at least six or more components. This is not necessarily true for currency portfolios. Most delivering percentage returns. The index serves as a proxy for available currency manager portfolio returns in general and has the added benefit of being uncorrelated to returns of other asset classes. Low correlation, liquidity and 76 Gaurav PGDM transparency are good enough reasons for currencies to be considered a prime candidate for inclusion in any investment portfolio. Reliance Money Wealth Management Service Under its wealth management services, Reliance Money also plans to have a separate module to exclusively concentrate and cater to the financial planning needs of senior citizens. The company will launch its wealth management services across India with a focus on retail clients, through its network of over 10,000 plus retail outlets across 5,000 plus towns and cities. The wealth management services of Reliance Money will also be available to the 25 million NRIs and PIOs (person of Indian origins) through its overseas offices in the UAE, Oman and Hong Kong. The company plans to expand its operations in over 15 countries spread across Europe (London), North Africa, the Middle East and South East Asia by 2009. Reliance Money, part of the $100 billion Reliance Anil Dhirubhai Ambani Group, will target high net worth individuals and aims to create a wealth management process that extends beyond mere investments. The company already serves the needs of lower income group through mutual funds and insurance products, and the middle income group with portfolio management services for as low as Rs 5 lakh. Asset Size: 20 billion Procedure for entertaining a client in Reliance Money: Customer Profiling at Reliance Money: Based on different financial needs an average life cycle has been divided into 4 stages of Financial Planning as given below. Up to 30 years of age 30-45 years of age 77 Gaurav PGDM 45-60 years of age over 60 years Up to 30 years of age General Profile :Out of college/Professional Course. Junior or Mid level employment. Have had an average work life of 5-8 yrs. Unmarried or recently married. Small family. Nuclear family / Joint family. General Characteristics :Salary surpluses,especially if single or DINK. Minimal family responsibilities Propensity to spend/overspend Find investment/saving as Boring & waste of time. Lack of inclination to invest. Lack of proper information on investment. Do not need regular income from investment. Investment Needs :Repayment of professional studies loan. Plan for tax. 78 Gaurav PGDM Saving for white goods/new vechile. Biggest need is to save enough for a down payment for a house. Start to build an emergency fund. Recommendation :Negotiate tax-efficient salary. Budget and keep track of expenses. Use credit card prudently. Save regularly and consciously. Recommended Investment Style :Should be an aggressive investor. Should focus on long term capital growth rather than short term capital preservation. Have a long term investment horizon,as a balance of productive working life is high. Can invest in high risk, high gain products Recommended distribution of asset : 90 % investments in equity. 10 % investment in debt. Product Recommendations : If salaried, approximately 24% of basic is necessarily invested in PF and can be supplemented with NSC & PPF. If self employed/professional, should start a PPF/Pension plan investment to provide for retrials. 79 Gaurav PGDM Invest part of the surplus marked for equity investment , in equity oriented funds like : Diversified equity funds(60%) Sector funds(10%) Tax saving funds(20%) Should start SIP or recurring deposit through auto debit facilities to ensure disciplined and compulsory savings. Should start planning for or at least start thinking about retirement. Between 30-45 yrs : General profile :Married ,usally with children Middle to senior level employees. Have had an average work life of 10-15 yrs. May have dependent parents Usually a personal vehicle owner. Already invested in a home/seriously thinking of investing in a home. General Characteristics:Surplus funds are limited. Lifestyle expenses go up Children need/expenditure is of prime importance. Household expenses are gradually increasing 80 Gaurav PGDM Realize the need for investment planning but lack time for investment planning. Investment Needs :Shelter income from taxes. Plan for children’s higher education Start to build capital for retirement ,if not started already. Maintain an emergency fund & keep adding to it. Buy a home/service a home loan. Save for holidays/recreation. Recommended Investment Style :Can take medium to high risk. Should continue to focus on capital growth. Investment horizon is still more than 5 yrs. Follow thumb rule of 100 less your age in years as percentage of savings to be invested in equity. Upto 60% of surplus funds can be invested in equities. 15% of surplus funds in liquid funds. 25% in Bonds/PPF/NSC. Product Recommendations :Diversified equity funds,more tilted towards large caps for capital growth for retirement or seed money for home loan. Build up a direct equity. Invest in children specific mutual funds to provide for children’s higher education needs . NSC and PPF to balance investments in equity. 81 Gaurav PGDM Tax efficient saving through ELSS. Keep adding to short term floating rate funds and bank FD’s for emergency fund. Get medical insurance for your dependent parents. Get household contents insured. Get a life insurance against your home loan. Get an accident insurance against any disabilities. Between 45-60 yrs. General Profile :Usually at the peak of carrer Grown up children. May need take care of dependent children. Retirement is not very distant. Could opt for VRS. May have a inherited portfolio of investments from parents. General Characteristic: Surplus fund higher than in previous life stage. High outgo on household expenses. Children expenses continue to increase. Life style expenses still high. 82 Gaurav PGDM 2-3 major oputflows of money (overseas education/marriage/set up business). High liquidity is a must. Sensitized to medical and retirement needs. Recommendations :Decide when to retire. Acquire all necessary consumer durables while still to plug future outflows. Consolidate and continue with wealth creation Start de-risking your portfolio. Revisit and revise financial goals. Rebalance your portfolio as per future needs. Medical insurance a must. Pension plans must be started if not done already. Prepare a will. Recommended Investment Style :Greater venerability to risk hence focus on moderate balanced growth. Shift focus from capital growth to capital preservation. Investment time horizon comes down. Turning point as investment debt now outpaces investment in equity. Up to 40% of surplus funds in equity. Up to 60 % of surplus funds in debt. Product recommendation :83 Gaurav PGDM Prepay or finish all loans by 55 years of age. Invest in balanced funds or MIP’s Phase out high risk sector funds gradually. Keep investment in well-diversified large cap funds. Investment in debt should be around NSC & Bonds. Short term deposits and floating rate funds, along with cash or liquid funds should be maintained for liquidity. Consolidate direct equity portfolio: gradually move part of it to high dividend yield stocks. Keep all surplus funds in liquid/floater funds. Above 60 years of age General profile Retired/working part time Living in self owned house. Children may be living separately. Dependent parents, needing medical attention, may be part of family. Could have grand children. Have more leisure time. 84 Gaurav PGDM General Characteristics Income from existing investments, uselly the only source of regular income. Surplus funds usually not available for additional investments. Capital preservation is the primary need. High life expectancy hence present capital has to stretch over a long time. Life style expenses go down. Medical expenses go up. Investment needs: Regular income needed from investments. Emergency funds for medical etc. to be liquid and high. Preservation of wealth. Money for traveling/gifts. Need funds to pursue hobbies to keep busy. Recommendation Monitor expenses to fit into the retirement income. Ensure tax efficiency of returns on investments Explore second careers/part time employment. Check excess liquidity as it needs to reduced returns on investments. 85 Gaurav PGDM Too much cash should not be kept with oneself in the house,as it may be a risk. Do maximum purchase transaction through debit cards to avoid the needs of cash withdrawals. Recommended investment style Most challenging phase of life. Capital preservation of utmost importance. Low risk appetite. Income generation & consumption phase of investment. Investment horizon low. Maximum 15% equity exposure. Product Recommendations Invest in MIP’s and balanced equity funds. Senior citizen’s saving schemes. Post office monthly schemes. FD’s with monthly schemes. RBI Bond Continue with direct equity portfolio with high dividend yield stocks. Avail all possible tax breaks available to senior citizens Switch some investments from equity to debt and money market products. Go for systematic with drawls plans(reverse of SIP). 86 Gaurav PGDM Growth portion of portfolio should be reduced to maintain only enough amounts. Silver health mediclaim. ADVANTAGES AND LIMITATIONS Advantages: The following are the advantages of Wealth management concept. Helpful In Tax Planning: The Wealth management professional always shows the good path to the customers and provide the service of tax planning. How to minimize the tax and save more money? Helpful In Selection of Investment Strategy: Another advantage from the customer point of view is with the help of WM Professional the customer can easily know the investment strategy and analyze risk and return. Helpful In Estate Management: With the help of Wealth management professional They can also manage their estate. Estate management is a task to provide objective administration of their funds tailored to aim in responsible distribution and protection of their overall estate. Helpful in forward looking: They can say planning, that recognizes as Their estate grows and changes occurs They require some team of professionals who help us in future planning. 87 Gaurav PGDM Helpful for Indian Economy: Banks which are engaged in business of WM earning revenues from the foreign countries i.e. outsourcing for economy Limitations WM Reduces The Scope Of Management: Though They all know that management has existence at all levels of life and society but the term Wealth management only related with the higher level means rich people, and is not having any plans and provisions for poor and lower and middle level of society. Chances of Fraud: Another demerit or limitation of the WM concept is it is not showing the actual position. The customer doesn’t know about the things going on with using his Wealth and there may be chances of forgery and fraud with customers. Actual Picture VS Inflation: What is the actual position of market they don’t know because every thing is done by some WM professionals. So they can not assume Their position in the market that also results in inflation because economy is unknown about the actual state. There may be chance that the customers are in risk but they are showing the false return and vice-versa. 88 Gaurav PGDM Research Methodology The primary aim of the study is to know the customer perception analysis on the investment in portfolio service in reliance money. The base sample is 50-100. The respondents are the customers of the Reliance money. This will be done by carrying out the following process. a) Defining the problem and research objective: The research objective is to find out the perception of the customers about the services provided. And risk involved in investing 5lakh rupees in a single payment. b) Method of data collection: After determining the research objective the nature of data to be collected is given due consideration as it will influence the interpretation of the entire project, after determining the nature of data the next step would be to adopt an appropriate data collection method. The method of data collection adopted by the research is inclusive of a structured well designed questionnaire. 89 Gaurav PGDM c) Sampling Design: i) Sampling units: The respondents of the questionnaire are categorized are the customers of the Reliance money & Financial Market. ii) Sample size: Survey will be conducted for 50 respondents who are the customers of the Reliance money. iii) Sampling technique: The respondents were interviewed with the help of a well structured questionnaire and will be interviewed personally to gather the required information. iv) Sources of data: Data collected for the project study is inclusive of both primary as well as secondary data. Primary Data: Primary Data will be collected from Reliance money Ltd., clients who are already using the services of Reliance for the descriptive information. The purpose of this study is to find out perception of clients in the population (what percentage) of Bangalore city about portfolio management service by reliance money ltd. 90 Gaurav PGDM Secondary Data: Secondary Data will be collected from the company’s website, Reliance booklets, Product hand book of Reliance money Ltd., etc. The sources of collection secondary data are: 1. Websites 2. Brochure d) Analysis: This involves the conversion of raw data into useful information. To analyze each questionnaire of the respondents and to do a critical study on the response to each answer of the respondents. Report research findings: The report with the research findings is a formal written document. The research finding and personal experience will be used to propose the recommendations. Research Design MARKETING RESEARCH Marketing research covers the field of problems, techniques, and other aspects of marketing and related decision-making and their implementation. It studies an economic unit in respect of its various constituents such as consumers, buyers, and sellers. It studies their response pattern towards prize, promotion, purchasing power, and loyalty towards specific brands and similar other marketing activities. It also tries to determine the contribution of other relevant factors such as habits, consumers, and preference to decision making. 91 Gaurav PGDM TYPES OF RESEARCH DESIGN The research design adopted for this study is exploratory research design. Exploratory research includes survey and fact finding enquiries of different kinds. Research design is used to describe the state of affairs, as it exists at present. RESEARCH INSTRUMENT: A structured design questionnaire is used for surveying the consumers. Both open ended and close ended questions are included. SAMPLE SIZE: A sample of 100 people will be taken for the survey. Business persons, Professionals, Non-professional and Retired persons are included. Further these are only the people based on whom analysis and interpretation is done. SAMPLING METHOD: Random sampling method will be chosen to conduct the survey in which the samples are selected randomly. Methodology: The study will be conducted by Personal Interview with the customers who have invested in Various Financial Product in reliance money ltd. Observing & studying the behavior of the customers & their demand towards the trading products. 92 Gaurav PGDM The study on the customer perception about that can be obtained through well formatted & designed questionnaire that is mentioned in the subsequent chapter. Process of collection & analysis of Data: After collecting the entire filled questionnaire the collected data will be transferred to a worksheet, the data related to set objectives will then be classified and the findings will be graphically represented. Schedule: Time frame for completion of the Project is 2 months Need / Importance of Project to the Organization: To find out the customers perception towards Reliance money products. To find out the problems & difficulties faced by the customers while using the Reliance money products & bring it to the notice of the company to improve its quality of services as well as its sales. To find out customers expectations from the Reliance money products. DATA ANALYSIS & INTERPRETATION 93 Gaurav PGDM 1. Your current annual income TABLE - 1 Annual income Less than 3lakh 3-5 lakh 5-7 lakh More than 7 lakh In terms of Percentage 10% 30% 40% 20% 2. Are you looking for a financial advisor? 3. What qualities are you looking for in an advisor? 94 Gaurav PGDM 4. Rate your working relationship with each of the following advisors? 1 = Dissatisfied 5 = Very Satisfied Advisor Applicable 1 2 3 4 5 Not Financial Planner Broker Accountant Insurance Agent 5 . How did you know about Reliance money Ltd? Advertisement Print television 95 Gaurav PGDM In terms of Percentage 10% 5% web relatives broker 30% 15% 40% 6. How many of the following value added services you are aware? 7. From how long you have been investing in Stock Market? Duration <1 yr 1-3 yrs 3-5 yrs <5 yrs In terms of percentage 40% 30% 23% 7% 96 Gaurav PGDM Why rel.mon High returns Low risk Backup support Trust All the above In terms of percentage 21% 13% 15% 32% 19% 8. What will/do Influence you to take wealth Management Services? 97 Gaurav PGDM 9. What are your perception level services provided by the following company? Perception Excellent Good Moderate Poor Very Poor Company Reliance Money ICICI Bank Kotak Securities Religare Wealth Managemen t Moti Lal Oswal Wealth Managemen t Others Pls Specify…… ………………… ……… 12 40 25 23 0 15 17 15 16 37 43 45 32 23 15 24 21 18 20 12 26 7 5 4 5 98 Gaurav PGDM 10. On the basis of product performance, How would you rate these companies? Performance Excellent Good Moderate Poor Very Poor Company Reliance Money ICICI Bank 18% 16% 30% 28% 44% 56% 8% 0% 0% 0% 99 Gaurav PGDM Kotak Securities Religare Wealth Managemen t Moti Lal Oswal Wealth Managemen t Others Pls Specify…… ………………… ……… 25% 15% 45% 28% 30% 35% 0% 22% 0% 0% 5% 20% 60% 20% 0% 11. Rank the following features for Wealth Management Services in Reliance money Ltd? Satisfaction Extremely satisfied Some what Neither dissatisfied satisfied satisfied nor dissatisfied Extremely dissatisfied Features Fund mgt Charge Speed Gaurav PGDM 60% 40% 20% 20% 10% 15% 100 10% 15% 0% 10% Transparency Security Convenience Reliability 15% 30% 40% 10% 20% 40% 30% 40% 20% 20% 25% 20% 30% 10% 5% 10% 15% 0% 0% 20% 12. What are the factors that influence you to continue the services of Reliance money ltd? Important Very features Important Somewhat Important Neither Unimportant Important not 101 Very Gaurav PGDM Unimportant Easy navigation 60% 40% 0% 0% 0% 0% 0% Unimportant 0% 0% Clear indication 100% of investment guidelines from the broker Good service of 100% the company’s website 0% 0% 0% 0% 13. If you are a Reliance money customer what improvements you would like to have? Improvements Customer service Broad network Technical improvement Others In terms of percentage 50% 20% 20% 10% 102 Gaurav PGDM 14. Is quarterly/Semi annual/Annual returns meet your Expectation? Product Share 58 s 66 NA 75 54 Ye 42 34 NA 25 46 No Money Market Instrument Offshore Investment Real Estate Matual Fund CONFIDENTIAL QUESTIONNAIRE 103 Gaurav PGDM Dear Sir / Madam, I am conducting a survey on Reliance Money. I shall be very thankful to you to give your few minutes to me for answering my few question below. Purpose: It will give us the opportunity to learn more about you and your unique needs, including your financial situation, goals, values, concerns and what you as the customer would like our role to be in the context of these needs. This information will enable us to determine how best to serve you. Scope: National Capital Region. Name: …………………………………………………………………………………………… Address: …………………………………………………………………………………………. …………………………………………………………………………………………. Contact No. E-Mail Id. ………………………………………………………………………………………. Occupation: ……………………………………………………………………………………… Gender: M F Age Group: a). < 25 Year c). 40 Year -55 Year b). 30 Year -39 Year d.) 55+ Year Financial Information: 104 Gaurav PGDM Amount No Yes Saving Account: Money Market Account Certificate Of Deposits Mutual Funds: Bonds Share Other Sepecify…………….... ……. 1.Your current annual income <3, 00,000 3-5, 00,000 5-7, 00,000 >700,000 Pls ………………………… 2. Are you looking for a financial advisor? Ye NO 3. What qualities are you looking for in an advisor? ……………………………………………………………………………………………………… ……………………………………………………………………………………………………… ……. 4. Rate your working relationship with each of the following advisors? 1 = Dissatisfied 5 = Very Satisfied Advisor Applicable 1 2 3 4 5 Not Financial Planner 105 Gaurav PGDM Broker Accountant Insurance Agent 5 . How did you know about Reliance money Ltd? Print advertisement Web advertisement Brokers Others please specify………………………………………………………….. 6. How many of the following value added services you are aware? a).Market update on mobile c).Money Changing/Transfer b). Kiosk d).Electronic Securities Token Television advertisement Relatives and Friends 7. From how long you have been investing in Stock Market? a) <1 year c) 3-5 years b) 1-3 years d)>5 years 8. What Influence you to take wealth Management Services? High returns Back up support All of the above 9. What is your perception level services provided by the following company? Low risk Trust 106 Gaurav PGDM Perception Excellent Good Moderate Poor Very Poor Company Reliance Money ICICI Bank Kotak Securities Religare Wealth Managemen t Moti Lal Oswal Wealth Managemen t Others Pls Specify…… ………………… ……… 10. On the basis of product performance, How would you rate these company? Performanc Excellent e Good Moderate Poor Very Poor Company Reliance Money ICICI Bank Kotak Securities 107 Gaurav PGDM Religare Wealth Managemen t Moti Lal Oswal Wealth Managemen t Others Pls Specify…… 11. Rank the following features for Wealth Management Services in Reliance money Ltd? Satisfaction Extremely satisfied Some what Neither dissatisfied satisfied satisfied nor dissatisfied Extremely dissatisfied Features FMC Speed Transparency Security Convenience Reliability 12. What are the factor that influence you to continue the services of Reliance money ltd? 108 Gaurav PGDM Importanct Very Important Somewhat Important Features Easy navigation Clear indication of investment guidelines from the broker Good service of the company’s website Security Cost Effective Neither Important not Unimportant Unimportant Very Unimportant 13. If you are a Reliance money customer what improvements you would like to have? a. b. c. d. e. Customer service Broad Network Technical Improvement Prodoct Diversity Others-------------------------------------------------------------------------------- 14. Is quarterly/Semi annual/Annual returns meet your Expection ? Product share Bond Money Market Instrument Offshore Investment 109 Gaurav PGDM s Ye No Real Estate Matual Fund 15. Would you like to any recommendation about the Welath Management Service in reliance money Ltd? ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………… Findings & Suggestion Customer dissatisfied with the services. 110 Gaurav PGDM Past experience, word of mouth. Misguidance by agents. Excessive pressure from Company. Non-availability of any database. Lacks of motivation as false commitments were made to us by the company. 111 Gaurav PGDM CONCLUSION As students many of us are completely ignorant of the work cultures of various corporate organizations. SIP is an attempt to provide us a practical corporate exposure where we work in certain corporate organizations as interns. All of us students are given certain targets which we have to achieve in certain time constraint, for that we sensitize the work culture and work accordingly. Achievements till now are is very good and I am very sure it will boost my confidence when I will go to my job. Working with Reliance Money is a nice opportunity by which I can explore my knowledge day by day and I should also try to get better job offers in future. Through SIP I learn that to meet and talk to stranger people, really it is a program of grooming the personality. It gives knowledge how manager manage the situations and solve dispute, what type of facility customer wants by which he will retain with company. It shows that how to presents ourselves in front of others. 112 Gaurav PGDM Learning To get initial success in this field is very difficult. Although the business generation becomes easier with time as we serve more people who then get added up in the loyal clientage. Thus time and service are two most factors to get in this field. Also the corporate remains a very important segment which gets business in bulk but retail cannot be ignored which makes your business ticking. Customer remains in the pivotal position. 113 Gaurav PGDM