PROJECT REPORTON
Wealth Management Sector An Analysis Of Existing And Potential
MarketAT
AXIS BANK LTD. AHEMDABAD Submitted By:Ankit kanungo (MBA-III
SEM), In Partial Fulfillment for Degree ofMaster of Business
Administration during the year 2008-09
AMITY BUSINESS SCHOOL, AMITY UNIVERSITY RAJASTAN, JAIPUR
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ACKNOWLEDGEMENT
It is a matter of great satisfaction and pleasure to present
this report on Analysis of Wealth Management taking Axis bank as
basis. I take this opportunity to owe my thanks to all those
involved in my training. This project report could not have been
completed without the guidance of our COORDINATOR - MBA, Dr. SHEELA
SRIVASTVA & project guide Dr. AMIT DIWIDI. Their timely help
& encouragement helped me to complete this project
successfully. I thank Mrs. VINEET AGRAWAL (VICE PRESIDENTHR) for
giving me opportunity to work at AXiS BANK, as a FINANCE TRAINEE. I
am thankful to Ms. PAMPA GHOSH (MANAGER WEALTH MANAGEMENT) and MR.
SAURABH TRIPATHI (DGM, WEALTH MANAGEMENT) for their encouragement
and able guidance at every stage of my training work. I express my
gratitude towards staff of WEALTH MANAGEMENT DEPARTMENT -AXIS BANK,
those who have helped me directly or indirectly in completing the
training.
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WEALTH MANAGEMENT SECTOR
AN ANALYSIS OF EXISTING AND POTENTIAL MARKETCOMPANY GUIDE :
GUIDE : Ms. Pampa Ghosh(Manager) Wealth Management Department
School
FACULTY Dr. Amit Diwidi(Prof.) Amity Business
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AXIS BANK (DELHI)
Jaipur
INDEX
No.
Particulars
Page No
1 2 3 4 5 6
Executive Summary Objective & Scope of Project Company
Profile Theoretical Background** Projections Bibliography
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**1. INTRODUCTION 2. CONCEPT OF WEALTH MANAGEMENT Wealth
Management Range Key Elements of Wealth Management Services Key
Challenge Area 3 Solution Framework 4. Wealth Management An
Emerging Sector 5. Core Elements of Wealth Management Packaged at
various levels Advisory Investment Processing (transaction
oriented) Custody, Safekeeping and Asset Servicing End-to-end
Investment Lifecycle Management Services
Key function areas Financial Planning
7
Client Profiling Investment Objective Portfolio Strategy
Definition / Asset Allocation Defining Portfolio Strategies and
Portfolio Modeling Determination of Portfolio Constituents and
Allocation of Assets
Strategy Implementation Portfolio Management Portfolio
Administration Performance Evaluation and Analytics Strategy Review
and Alignment Recalibration of Portfolio Strategy Rebalancing,
Reallocation and Divestment of Assets 6. Key Challenge Areas Highly
Personalized and Customized Services. Personal relationship driving
the business. Evolving Client Profile. Client Involvement Level.
Passion Investment (Philanthropy and Social Responsibility).
Limited Leveraging Capabilities of Technology (as an enabler).
Technical Architecture and Technology Investment. Intricate
Knowledge of Cross-functional Domain.
8
7. Solution Framework Quality of Service Level Universal Service
Offering Investment in People Processes Price not a True
Differentiator Unconventional Delivery Channel and Communication
Flexibility of Technical Architecture
9
8. SERVICES PROVIDED BY WEALTH MANAGEMENT INSTITUTIONS Custodian
Services Trust Services Retirement Plan Services 9. ADVANTAGES AND
LIMITATIONS 10. Consumer Point Of View : Wealth Management PMS vs
Wealth manager and fund manager. Is PMS for you? How to choose a
PMS.
Investment philosophy.
Scheme benchmarks. Minimum investment.
Returns. Frequency of disclosure. Broking house.
Cost structure.
Assets under management (AUM).
11. CONCEPT OF ASSET CLASSES Asset Mix List Of Different Asset
Class Fixed Deposits Merits and Demerits Interest rates on FDs
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Effective Return
MUTUAL FUND
Open-end fund Exchange-traded funds Equity funds Capitalization
Bond funds Money market funds Funds of funds Hedge funds
Equity investment
Direct holdings and pooled fundsCommodities Market ART FUND
Diversified portfolio Tie-ups with galleries
REAL ESTATE FUND Insurance Product General Insurance Unit Linked
Insurance Plan (ULIP) Structured Product
Composition Risks
GOLD
Factors influencing the gold price gold becomes desirable in
times of
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Bank failures Low or negative real interest rates War, invasion,
looting, crisis
Currency Portfolio composition of currency
12. Companies providing Wealth management services Kotak
securities INTRODUCTION PRODUCTS ASSET CLASSES USED ASSET SIZE
INVESTMENT PHILOSPHY Morgan Stanley INTRODUCTION PRODUCTS ASSET
CLASSES USED ASSET SIZE INVESTMENT PHILOSPHY
Moti Lal Oswal INTRODUCTION PRODUCTS ASSET CLASSES USED ASSET
SIZE INVESTMENT PHILOSOPHY
Religare Wealth Management
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INTRODUCTION
PRODUCTS ASSET CLASSES USED ASSET SIZE INVESTMENT PHILOSOPHY
Standard chartered INTRODUCTION PRODUCTS ASSET CLASSES USED
ASSET SIZE
INVESTMENT PHILOSPHY
Abn Amro Wealth Management INTRODUCTION PRODUCTS ASSET CLASSES
USED ASSET SIZE INVESTMENT PHILOSPHY HSBC Financial Planning
Services PRODUCTS ASSET CLASSES USED
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ASSET SIZE INVESTMENT PHILOSOPHY
14
Citi Bank INTRODUCTION PRODUCTS ASSET SIZE ASSET CLASSES USED
INVESTMENT PHILSPOHY
ICICI Wealth Management INTRODUCTION PRODUCTS ASSET CLASSES USED
ASSET SIZE INVESTMENT PHILSPOHY 13. AXIS BANK & WEALTH
MANAGEMENT Procedure for entertaining a client in AXIS BANK
Coustmer Profiling at Axis Bank Upto 30 years of age 30-45 years of
age 45-60 years of age over 60 years
14. WEALTH MANAGEMENT : INDIAN CONCERN
Position of India in Wealth Management Risk aversion of Indian
customers
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15. MIDDLE EAST & WEALTH MANAGEMENT
16. WEALTH MANAGEMENT ON GLOBAL PRESPECTIVE
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EXECUTIVE SUMMARYAxis Bank Wealth Management provides
discretionary wealth management service, in which wealth managers
give recommendations to customers and invest according to customer
discretion. My Project is the study of Wealth Management Sector,An
Analysis Of Existing And Potential Market.
The study was conducted at the main branch of AXIS BANK,CP,NEW
DELHI. The project was of 6 weeks duration.During the project I had
taken the guidance of Wealth managers & staff to collect the
data, & also made use of Companys various reports. The data
collected were then compiled, tabulated and analyzed. 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. 3. Key Challenge Areas. 4. Core Elements of
Wealth Management Services.
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OBJECTIVES1) Through the past results, to identify the potential
of wealth management sector. 2) Understanding companys procedure in
wealth management department. 3) To know the comparative position
of the companies offering wealth management services. 4) To have a
general notion on different asset classes available in financial
market. 5) To have a conceptualized view on wealth mangagment
services.
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COMPANY PROFILEAxis Bank was the first of the new private banks
to have begun operations in 1994, after the Government of India
allowed new private banks to be established. The Bank was promoted
jointly by the Administrator of the specified undertaking of the
Unit Trust of India (UTI - I), Life Insurance Corporation of India
(LIC) and General Insurance Corporation of India (GIC) and other
four PSU insurance companies, i.e. National Insurance Company Ltd.,
The New India Assurance Company Ltd., The Oriental Insurance
Company Ltd. and United India Insurance Company Ltd. The Bank today
is capitalized to the extent of Rs. 358.56 crores with the public
holding (other than promoters) at 57.60%. The Banks Registered
Office is at Ahmedabad and its Central Office is located at Mumbai.
Presently, the Bank has a very wide network of more than 701 branch
offices and Extension Counters. The Bank has a network of over 2854
ATMs providing 24 hrs a day banking convenience to its customers.
This is one of the largest ATM networks in the country. The Bank
has strengths in both retail and corporate banking and is committed
to adopting the best industry practices internationally in order to
achieve excellence.
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Theoretical BackgroundINTRODUCTIONThe 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 a days Wealth Management has very craze in the business world.
In a survey it was found that India had 100,000 miolliners day end
of year 2006 is now grow up by 21% 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 2007 cites
number of HNWIs globally to be around 9.5 million with wealth held
by them totaling to US$37.2 trillion in year 2006. Value of wealth
held by HNWIs represents an increase of around 11.4% since 2005.
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 affluents. 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.
CONCEPT OF WEALTH MANAGEMENT
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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, manage, protect and distribute assets in a much
planned systematic and integrated manner.
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WEALTH MANAGEMENT RANGEThe 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) will 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. The range of Wealth
management can be expressed by this exhibit chart.
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STUDENT
START OF CAREER
CAREER ESTABLISHED
RETIREMENT
* Deposit based A/c
comfort * Comfort A/c with credit limit * Gold Card
* Premium A/c * Platinum Card
*
Premium
A/c
Liquidity Management (Cash Mgt)
* Credit cards * * * Money Near Overnight Market Money &
money Fixed Market Income Fund A/c* * * Top Flagship portfolio*
portfolio* * Top Flagship Titan * portfolio* portfolio* Overnight
Near
* Platinum Card money Market A/c Fund Plus portfolio portfolio
Fund* Money Market & Fixed Income Fund Money ZINS Top
Flagship
* ZINS Plus * *
* Special InvestmentsWealth Formation (Savings Plans)
* Titan portfolio
portfolio* Titan portfolio Absolute Holding Modular Individual
and Wealth Wealth Premium Return Private Portfolio Equities
Management Management Portfolio
* Capital formation benefit funds * *
Wealth Optimization (Lump Investment) sum
* *
* Titan Portfolio
Key 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: a) Advisory b) Investment Processing (transaction
oriented) c) Custody, Safekeeping and Asset Servicing d) End-to-end
Investment Lifecycle Management
Wealth management services comprises of following key function
areas of:(a) (b) Financial Planning Portfolio Strategy Definition/
Asset Allocation / Strategy Implementation
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(d)
Portfolio Management Administration, Performance Evaluation and
Analytics Strategy Review and Modification.
25
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Key Challenge Area Wealth management firms face many challenges
in formulating winning services offering meeting the client needs.
Some of key challenges faced by wealth management firms are: 1.
Highly Personalized and Customized Services 2. Personal
relationship driving the business 3. Evolving Client Profile 4.
Client Involvement Level 5. Passion Investment (Philanthropy and
Social Responsibility) 6. Limited Leveraging Capabilities of
Technology(as an enabler) 7. Technical Architecture and Technology
Investment 8. Intricate Knowledge of Cross-functional Domain
Solution Frame work A HNWI client expects exclusiveness in
services and key to success for a firm lies in offering
exclusiveness in services delivery (high quality services on most
personalized basis), going beyond 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: 1. Quality of Service Level: Highly
focused around client needs, a broad framework of service offering
would be revolving around: Anticipate, Analyze, Advice, Act and
Monitor cycle. 2. Universal Service Offering 3. Investment in
People Processes 4. Price not a True Differentiator 5.
Unconventional Delivery Channel and Communication 6. Flexibility of
Technical Architecture: Against the background of lack of clarity
on business model and involved process, A loosely oriented
technical architecture with optionality and mix of Build Buy
Integrate components would be considered as a good beginning point.
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. Service Bureau /ASP
Model: Information technology service providers offering integrated
end-to-end processing infrastructure and services including core of
business processes of wealth management.
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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.
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To provide enough resilience and high business relevance, any of
the considered option and associated technical structure should
keep due provisions for the following key elements: Rule based
processing to manage complex business rules and service
definitions. Client profile / data management to cater a profile
driven solution offering. Complex decision support and client
oriented analytics. Flexibility to incorporate manual processing
interfaces in applications.
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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)1, the
unsaid tagline of earlier days Dont call us. Well 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
affluents. As per recently published Capgemini Merrill Lynch Wealth
Report 2007, number of HNWIs around the world and value of their
assets has been continuously rising. Number of HNWIs globally is
estimated to be around 9.5 million in year 2006, an increase of
over 8.35% over previous year. HNWI wealth totals US$37.2 trillion,
representing an increase of around 11.4% since 2005. 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 100,000 in year 2006 - an increase of over 20.5% over
previous year. Though, in absolute terms the above number appears
pretty miniscule (if we compare that with the number of retail
investors in India2), however, in terms of value it really makes a
really huge sum of serviceable investment3. 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 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.
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Core Elements of Wealth Management ServicesIn most basic sense,
wealth management services involve fiduciary responsibilities
investment in providing professional services to investment advice
and funds management Institutions,
(Pension/mutual/Hedge), corporations, trusts as well as HNWIs.
In the present context of our discussion,we would keep our focus
limited to HNWIs. Some of analogous terms used for wealth
management could be considered as Portfolio Management, Investment
Management and many times Fund Management or Asset Management.
Depending on the mandate of the services given to the Wealth
Manager, wealth management services could be Packaged
at various levels
a) Advisory Wealth mangers 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. b) 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. c) 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. d) End-to-end Investment Lifecycle
Management 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
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throughout its life .Wealth management services comprises of
following Key a) b) c) d) e)
function areas : Financial Planning Portfolio Strategy
Definition / Asset Allocation Strategy Implementation Portfolio
Management Strategy Review and Alignment
a)
Financial Planning Client Profiling
Client profiling takes in account multitude of behavioural,
demographic and investment characteristics of a client that would
determine each clients wealth management requirements. Some of key
characteristics to be evaluated for defining clients investment
objective are: Current and future Income level Family and life
events Risk appetite / tolerance Taxability status Investment
horizon Asset Preference /restriction Cash flow expectations
Religious belief (non investment in sin sector like - alcohol,
tobacco, gambling firms, or compliant with Sharia laws) Behavioural
History (Pattern of past investment decisions) Level of clients
engagement in investment management (active / passive) Present
investment holding and asset mix
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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 dont outlive their
money.)
b)Portfolio Strategy Definition / Asset AllocationDefining
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 tradeoff 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,Aircraft)), market, geography, sector and industry. Each
of these asset classes is to be comprehensively evaluated for
inclusion in portfolio model, in view of defined investment
objectives. 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
Shariacompliant investment, strategy formulation should consider
investment options meeting with the client expectations.
Determination of Portfolio Constituents and Allocation of
Assets
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Guided with the investment strategy, constituents in portfolio
model are determined, which would directly and efficiently
contribute towards clients 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.
c) 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. d) Portfolio
ManagementPortfolio 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.
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e)Strategy Review and AlignmentRecalibration 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
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.
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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. Client Involvement Level
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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.
37
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.
Ultra-HNWIs 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, 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
38
guidance, a relationship manager is required to have intricate
knowledge of domestic/cross-border finance, accounting, legal and
taxation subjects.
39
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. 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..
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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 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/affiliates 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
42
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.
43
Flexibility of Technical Architecture
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: a) 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. b) Service Bureau /ASP Model: A recent
trend has been witnessed in the solution providers 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 model, the key consideration of providing high
quality of service level with enhanced responsiveness may not be
adequately answered. c) Stand-alone commercial software
product/solutions: Prepackaged solutions that can be focused to
specific part of services or provide comprehensive end-to-end
processing. These can be
44
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
involved business rules, rule based processing would be the core of
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.
45
SERVICES PROVIDED BY WEALTH MANAGEMENT INSTITUTIONS(1)
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
(2) Trust Services(A) Charitable Trust (B) Revocable Trust (C)
Irrevocable life Insurance Trust (D) Special Need Trust (E)
Institutional Trust
(3) Retirement Plan Services(A) IRAs Custodian Or Trustee (B)
Defined Benefit Plans (C) Defined Contribution Plans
46
47
48
Wealth Management Practice Orientation OverviewTransactors:
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 handson 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:
Wealth Planner: Offers holistic advice in accordance with
clients 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 clients other trusted
advisors.
49
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
regionsand 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 intra-firm practice models does need to be consciously
managed.
50
ADVANTAGES AND LIMITATIONS ADVANTAGES:The following are the
advantages of
Wealth management concept.1) 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? 2) 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. 3) 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. 4) 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.
51
5)
Helpful for Indian Economy: Banks which are engaged in business
of WM earning revenues from the foreign countries i.e. outsourcing
for economy
52
LIMITATIONS1. 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. 2. Chances of
Fraud: Another demerit or limitation of the WM
concept is it is not showing the actual position. The customer
doesnt know about the things going on with using his Wealth and
there may be chances of forgery and fraud with customers. 3. Actual
Picture VS Inflation: What is the actual position of market they
dont 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.
53
Consumer Point Of View : Wealth ManagementTechnically, PMS can
be defined as hybrid service provided by portfolio managers, which
includes customised 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 www.sebi.gov.in.
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?PMS is for those people who dont 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
dont 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.
B.D. Sabu, executive director, Pylon Engineers (India), had opted
for Kotaks PMS services. Though the relationship manager told me
about the commissions and brokerage fees, he 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
54
tumbled suddenly, my earnings fell substantially. He adds, The
company churned the portfolio frequently, which gave them two-way
profit on each transaction, as brokerage and profit sharing. Sabu
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 PMSInvestment philosophy.Akhilesh Singh,
business head, Emkay Wealth, says, The most important factor is to
understand the fund managers investment philosophy and strategy,
which must align with the investors 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 Angels Bluechip is for medium to longterm 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 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 Sebimandated minimum of Rs 5 lakh. Choose a
scheme that fits the size of your portfolio. Returns. It is
difficult to judge a schemes performance based on returns, as it
may vary from the returns of an investor. Also, depending on the
time of entry, an investors 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
55
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.
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.
CONCEPT OF ASSET CLASSES Asset MixAsset 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 proxied by the
standard deviation of returns, how much the return changes about
the long-term average. List Of Different Asset Class 1. Fixed
deposit
56
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
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 isnt 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
57
month or quarter. This option is especially useful for
retirees.On the flip side, a fixed deposit wont 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 710 per cent. A fixed deposit
also doesnt 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
monthly or quarterly according to the investors 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 FDsThe 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
investors 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
58
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.
59
60
MUTUAL FUNDA mutual fund is a professionally managed firm of
collective
investments that collects money from many investors and puts it
in
61
stocks, bonds, short-term money market instruments, and/or other
securities.[1] The fund manager, also known as portfolio manager,
invests and trades the funds 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 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 (UCITS). companies (OEICs), unitized
insurance funds, and undertakings for collective investments in
transferable securities
Types of mutual fundsOpen-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
62
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 fundsA 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 ETFs 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 fundsEquity 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.
63
CapitalizationFund managers and other investment professionals
have varying definitions of mid-cap, and large-cap ranges. The
following ranges are used by Russell Indexes: [7]
Russell Microcap Index - micro-cap ($54.8 - 539.5 million)
Russell 2000 Index - small-cap ($182.6 million - 1.8 billion)
Russell Midcap Index - mid-cap ($1.8 - 13.7 billion) Russell 1000
Index - large-cap ($1.8 - 386.9 billion)
Bond fundsBond 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 fundsMoney 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
64
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 funds
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. 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
65
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 fundsHedge 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 a performance fee of 20% of the
hedge funds profits. There may be a lock-up period, during which an
investor cannot cash in shares. A variation of the hedge strategy
is the 130-30 fund for individual investors.
Latest Asset Under Management for all Mutual Fund houses, sales
& redemption figures..Amount in Rs. Crores
66
Mutual Fund Name
No.
of
Schemes*
Asset Under ManagementAs on Corpus As on Corpus Net inc/dec
in
corpus
ABN AMRO Mutual 368 Fund 926.894 AIG Investment Mutual Fund
-932.63 Benchmark Fund -656.276 Birla Mutual Fund -3980.64 BOB
Mutual Fund -10.968 Canara Mutual Fund -208.72 DBS Fund 149.42
Deutsche Fund 744 DSP Merrill Lynch 226 Mutual 199 Chola Mutual 78
Robeco 59 22 348 Mutual 12 Global 54 Group
Jun 2008
30, 6,993.19
May 2008
31, 6,066.30
Jun 2008
30, 3,206.23
May 2008
31, 4,138.86
Feb 2008
29, 4,954.72
Jan 2008
31, 5,611.00
Jun 2008
30, 37,446.00 May 2008
31, 41,426.64
Jun 2008
30, 53.86
May 2008
31, 64.83
Jun 2008
30, 3,913.65
May 2008
30, 4,122.37
Jun 2008
30, 2,249.56
May 2008
30, 2,100.14
Apr 2008
30, 12,740.00 Mar 2008
31, 11,996.00
Feb 2008
29, 19,940.40 Jan 2008
31, 19,136.00
Mutual Fund 804.396 Escorts Mutual Fund 26.491 Fidelity Mutual
Fund -1044.72 Franklin -3802.607 Templeton 241 39 38
Mar 2008
31, 173.42
Feb 2008
29, 146.93
May 2008
31, 7,898.64
Apr 2008
30, 8,943.36
Mar 2008
31, 25,621.97 Feb 2008
29, 29,424.58
Investments
67
* indicates currently in operation
MUTUAL FUND DATA FOR THE MONTH ENDED - MAY 31 , 2008Amount in
Rs. Crores
No. of new schemes Category launched during monthNew Existing
Total Total as on as 2008 on Inflow/ schemes schemes May 31 Apr 30
, Outflow , 2008
Sales
Redemption
Asset Management
Under
the
B
Bank Sponsored
0 4
0 1328
63987 23914
63987 25242
56330 19680
90719 18649
86736 16136
3983 2513
C Institutions
Private Sector & Joint Venture : Indian Predominantly D
Foreign Predominantly Indian Grand (B+C+D) Total 12 8 16 40 2832
1105 3979 9244 145600 51912 123265 408678 148432 154833 53017 53263
190170 172571 17599 73525 82697 -9172
127244 126730 417922 410836
192744 180667 12077 565807 538807 27000
68
69
70
Equity investmentGenerally 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.
71
Commodities Market
72
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 FUNDWealth 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.
73
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.
Diversified portfolioIndividuals 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
kickstart 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 galleriesIn the art segment, tie-up with art
galleries. Contemporary Indian art will be at focus. The hiring
specialists in the field for advisory, High networth 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.
74
It is difficult to generalise. 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 minimise risk because they are looking at protecting
their capital. Investment in these asset classes requires a review
of clients age, personal ability to take risk and most importantly,
clients interest. What percentage of assets would be allocated to
alternative assets would depend on the clients interest and ability
to take risk.
REAL ESTATE FUNDIndia 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.
75
Leading India Real Estate Fund:Some of the leading India Real
Estate Fund are : 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
FundDHFL 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.
India Advantage Fund (ICICI) Kotak Mahindra Realty Fund India Real
Estate Mutual Fund:
The further involvement 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.
76
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. India Real
Estate Foreign Funds-
The 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 Zells Equity
International
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Insurance Product
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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 nonlife 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 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.
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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 todays times, ULIP
provides solutions for insurance planning, financial needs,
financial planning for childrens marriage planning also can be done
with this.
Structured ProductA 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, 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
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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 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.
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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 wellestablished, and as a result of those risks
customers must be explicitly approved for options trading.
GOLDFactors 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, 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.
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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 times
of:Bank failures
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 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
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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.
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Currency The modern hedge fund managers liberal tongue-in-cheek
definition is: If it moves up and down independently, then its 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.
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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
transparency are good enough reasons for currencies to be
considered a prime candidate for inclusion in any investment
portfolio.
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Companies Providing Wealth Management Services
Kotak securitiesINTRODUCTION
is handling Wealth management department with a name of Kotak
portfolio management.PRODUCTS
GEMS Portfolio Origin Select Portfolio Select Optima Klassic
Portfolio - Flexi Investguard Portfolio Core Portfolio NRI
They are providing above products according to the customer
requirement. The above products are varying to high risk customers
to low risk customers with a time origin of investment .They have a
separate service for NRI asset management service.ASSET CLASSES
USED
Direct Equity Mutual funds Structured products Insurance
products Fixed deposits.
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Asset Size
It is also one of the largest, with Assets Under Management of
over Rs. 3300 Crores.INVESTMENT PHILOSPHY
Our mission is to provide clients with wealth management
services that result in a performance that meets or exceeds their
investment goals. Exposing our clients to undue risk is contrary to
this mission. We believe that the tools of Modern Portfolio Theory
empower us with a methodology for building superior investment
portfolios. This has been tested in all types of market conditions
for decades and has consistently protected investor wealth from the
perils of nondiversification.
Morgan StanleyINTRODUCTIONMorgan Stanley is a leading global
financial services firm providing a wide range of investment
banking, securities, investment management and Wealth management
services. The Firms employees serve clients worldwide including
corporations, governments, institutions and individuals from more
than 600 offices in 33 countries Mutual Fund has a unique
investment team model, best described as a Community of Boutiques,
which aims to ensure that each investment strategy is managed by a
dedicated team with specific experience in that strategy. Morgan
Stanley which has been active in the country since 1993 and is
seeking to develop an integrated platform in India, which
encompasses the full range of businesses the Firm conducts
globally.
PRODUCTS
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Large Cap Growth Equity with Sridhar Sivaram and Amay Hattangadi
as Lead Portfolio Managers.
Multi/Mid cap Equity with Jayesh Gandhi as Lead Portfolio
Manager. Multi-Strategy with Navneet Munot as Lead Portfolio
Manager. Morgan Stanley A.C.E. (Across Capitalisations Equity)
Fund, an open-ended equity scheme managed by Jayesh Gandhi, was
launched in February, 2008 as the first fund open ended offering of
Morgan Stanley Mutual Fund in India.
ASSET CLASSES USED Mutual funds Structured products Insurance
products Fixed deposits.
Asset sizeThe India Magnum Fund, an offshore fund set up in
1989, marked the entry of Morgan Stanley in the Indian market. In
1994, Morgan Stanley launched its first domestic fund, Morgan
Stanley Growth Fund (MSGF). As of December 31, 2007, Morgan Stanley
Rs 4380 crores in assets under management. Morgan Stanley
Investment Management, together with its investment advisory
affiliates, has nearly 1000 investment professionals around the
world and approximately US$577 billion in assets under
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management or supervision as of February 29, 2008. By leveraging
its global community of boutiques structure and the strength of
Morgan Stanley, MSIM strives to provide outstanding long-term
investment performance, service and a comprehensive suite of
investment management solutions to a diverse client base, which
includes governments, institutions, corporations and
individuals.
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INVESTMENT PHILOSPHYwe use a strict value-investment
methodology. We believe this to be the best way to generate
consistently strong returns, whilst minimizing risks for our
clients. Value Investing has outperformed the stock markets
consistently for more than 80 years. It is a very researchintensive
discipline and eschews future projections, focusing instead on what
is the intrinsic value of a company today. Wealth Management runs
focused portfolios comprising 15-25 stocks. We are only interested
in the best value companies in the entire market. Our goal is to
find companies that offer a substantial Margin of Safety, which
both reduces the risk of losses, whilst allowing for superior
returns.
Moti Lal Oswal Wealth ManagementINTRODUCTION
In todays complex financial environment, investors have unique
needs which are derived from their risk appetite and financial
goals. But regardless of this, every investor seeks to maximize his
returns on investments without capital erosion. While there are
many investment avenues such as fixed deposits, income funds,
bonds, equities etc. It is a proven fact that Equities as an asset
class typically tend to outperform all other asset classes over the
long run. Investing in equities, require knowledge, time and a
right mind-set. Equity as an asset class also requires constant
monitoring may not be possible for you to give the necessary time,
given your other commitments. They recognize this, and manage your
investments professionally to achieve specific investment
objectives, and not to forget, relieving you from the day to day
hassles which investment require.
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PRODUCTS
Value Portfolio Bulls Eye Portfolio Next Trillion Dollar
Opportunity Portfolio
ASSET CLASSES USED
Direct Equity Mutual funds Structured products Insurance
products Fixed deposits
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Asset SizeMotilal Oswal Securities Ltd brings with more than 2
decades of experience & expertise in equity research and stock
broking. They are one of the leading portfolio service providers,
with asset under management worth Rs. 590 Crores
Investment philosophyWe have established a disciplined and
dynamic investment process that is rooted in the premise that asset
allocation and investment style diversification consistent are the
most returns critical with determinants acceptable in achieving of
risk. investment levels
Our investment process is solid and consistent at its core, yet
dynamic in its application. The premise, as outlined above, remains
constant. At the same time, we continually update its application
for the most current economic climate so as to keep our investment
recommendations up-to-date and relevant. Additionally, when applied
to each clients portfolio, the process accommodates that clients
specific situation, time horizon, risk tolerance, and other factors
so that the result is a truly customized portfolio.
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Religare Wealth ManagementINTRODUCTION Wealth Spectrum Portfolio
management Art Intiative Priority Client Equity Service
In The continuous endeavour to provide the best of the product
and services to the clients, it The Religare and Macquarie are now
50:50 Joint venture partners in the newly created entity Religare
Macquarie Wealth Management Limited. The new entity is testimony to
Religares firm commitment to all its businesses wherein, it
believes in offering nothing short of the very best to its clients
and the end consumers. In order to do so, it believes in creating
and delivering value by either going solo or by leveraging relevant
and meaningful partnerships with global majors and domain
specialists. They believe that this joint venture with Macquarie is
a marriage of strengths that combines the sharp understanding,
insights and execution capabilities of Religare in the Indian
context with the global expertise of Macquarie. The new brand for
the venture-Religare Macquarie Private Wealth shall strive to
proactively manage their Wealth and is hungry and keen to bring
about a much needed refreshingly different paradigm shift in the
Indian market place.
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Religare Macquarie Private Wealth shall draw strength and its
core essence from the values of Religares Diligence and Macquaries
Forward Thinking.
PRODUCTS :
Panther Tortoise Leo Panther Elephant Caterpillar
The Panther portfolio aims to achieve higher returns by taking
aggressive positions across sectors and market capitalizations. It
is suitable for the High Risk High Return investor with a strategy
to invest across sectors and take advantage of various market
conditions.
Tortoise
The Tortoise portfolio aims to achieve growth in the portfolio
value over a period of time by way of careful and judicious
investment in fundamentally sound companies having good prospects.
The scheme is suitable for the Medium Risk Medium Return investor
with a strategy to invest in companies which have consistency in
earnings, growth and financial performance.
Elephant
The Elephant portfolio aims to generate steady returns over a
longer period by investing in Securities selected only from BSE 100
and NSE
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100 index. This plan is suitable f