report on wealth management
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sandeep aroraTRANSCRIPT
INSTITUTE OF TECHNOLOGY AND MANAGEMENT
GURGAON
PROJECT REPORT
ON
“FUTURE OF WEALTH MANAGEMENT
IN INDIA”
SUBMITTED TO: GUIDE:
Controller of Examination Mr. Vivek Bhatia
MDU, Rohtak ITM,GURGAON
SUBMITTED BY:
SANDEEP ARORA
BATCH: (2007-2009)
ROLL NO.: 07-MBA-140
ITM, GURGAON
CERTIFICATE FROM GUIDE
This is to certify that this Project report titled “Future of Wealth Management in
India” is prepared and completed successfully by SANDEEP ARORA under my
guidance.
The project report has been completed to my satisfaction and I wish her all the best in her
future
Endeavor.
Mr. Vivek Bhatia
2
ACKNOWLEDGEMENT
The present work is an effort to throw some light on “Future of Wealth Management in
India” The work would not have been possible to come to the present shape without the
able guidance, supervision and help to me by number of people.
With deep sense of gratitude I acknowledged the encouragement and guidance received
by Prof. VIVEK BHATIA, for completion of my project report.
Sandeep Arora
(07-MBA-140)
3
TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION------------------------------5-7
Sources of Wealth
CHAPTER 2 OBJECTIVES OF THE STUDY------------8-9
CHAPTER 3 RESEARCH METHODOLOGY--------10-12
Significance of the study:
CHAPTER 4 LITERATURE REVIEW------------------10-53
Position of India in wealth management
State of world wealth
The state of asia pacific wealth
State of wealth management industry in India
Opportunity for local and foreign players
Major wealth management agencies in India:
Instruments of wealth management
Stock markets
Mutual funds
Risks
CHAPTER 5 DATA ANALYSIS--------------------------54-74
CHAPTER 6 CONCLUSION------------------------------75-77
CHAPTER 7 BIBLIOGRAPHY-------------------------------78
CHAPTER 8 APPENDIX-----------------------------------79-81
Questionnaire
4
5
INTRODUCTION
INTRODUCTION
DEFINE WEALTH
Wealth usually refers to money and property or something which has economic value
attached to it. It is the abundance of objects of value and also the state of having
accumulated these objects. The use of the word itself assumes some socially-accepted
means of identifying objects, land, or money as "belonging to" someone, i.e. a broadly
accepted notion of property and a means of protection of that property that can be
invoked with minimal (or, ideally, no) effort and expense on the part of the owner.
Concepts of wealth vary among societies. Anthropology characterizes societies, in
part, based on a society's concept of wealth, and the institutional structures and power
used to protect this wealth. Several types are defined below. They can be viewed as an
evolutionary progression. Industrialization emphasized the role of technology. Many
jobs were automated. Machines replaced some workers while other workers became
more specialized. Labour specialization became critical to economic success.
However, physical capital, as it came to be known, consisting of both the natural
capital (raw materials from nature) and the infrastructural capital (facilitating
technology), became the focus of the analysis of wealth.
6
ECONOMIC AND PHILOSOPHICAL ASPECTS OF WEALTH
Adam Smith saw wealth creation as the combination of materials, labour, land, and
technology in such a way as to capture a profit. The theories of David Ricardo, John
Locke, John Stuart Mill, and later, Karl Marx, in the 18th century and 19th century
built on these views of wealth that we now call classical economics and Marxist
economics. Michel Foucault commented that the concept of Man as an aggregate did
not exist before the 18th century. The shift from the analysis of an individual's wealth
to the concept of an aggregation of all men is implied in the concepts of political
economy and then economics. This transition took place as a result of a cultural bias
inherent in the Enlightenment. Wealth was seen as an objective fact of living as a
human being in a society. Some people believe wealth is a zero-sum game, where
there is a limited amount of wealth and some must lose in order for others to gain. As
a result they are concerned primarily with issues of wealth distribution rather than
wealth creation.
Others believe that wealth can be readily created. They feel that wealth is not a fixed
amount to be distributed. To most of these people, organizing a society so as to
optimize the growth of wealth is more important than distribution issues. Many of
these people believe in some version of the trickle-down theory in which newly
created wealth "trickles down" to all strata of society, thereby making the question of
distribution mute.
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SOURCES OF WEALTH
Wealth is created through several means.
Natural resources can be harvested and sold to those who want them.
Material can be changed into something more valuable through proper application
of labor and equipment.
Better methods also create wealth by allowing faster creation of wealth.
Ideas create wealth by allowing it to be created faster or with new methods.
THE CONCEPT OF WEALTH MANAGEMENT
The concept of wealth management refers to management of both the sources and the
facets of various forms of both tangible and non-tangible wealth. India has become a
highly potential market for wealth management because wealth managers, both
domestic and international, are able to establish the beginnings of a market with few
obstacles, relative to the other emerging markets. Where there are regulatory
restrictions, these are less problematic than those in China or the Middle East.
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9
OBJECTIVES
OBJECTIVES
To analyze the evolution and growth of wealth management market in India.
To analyze whether Indian economic development is creating a broad and
competitive wealth management market in India.
To discuss the factors that have acted as facilitators and obstructions for the
growth of wealth management market in India.
From the above three objectives, to derive the potentiality and the future prospect
of the wealth management industry in India.
This project report also analyzes both the onshore and offshore aspects of liquid
wealth in India and sizes the mass affluent and high net worth customers by
onshore wealth.
10
11
RESEARCH
METHODOLOGY
RESEARCH METHODOLOGY
The present study is purely an exploratory study, dependent on both the primary and
the Secondary sources of data. The primary sources of data constitutes the interaction
(both formal and informal) of the researcher with the managers and other officials
who are directly associated with the wealth management industry in India. The
officials were selected on the method of simple random sampling. The Annual
Reports of the concerned agencies and the relevant literature and facts and figures
available on the problem of the study in various books, journals and magazines
constitutes the Secondary sources of data.
Macroeconomic and savings and investment data collected directly from
governmental sources such as the Reserve Bank of India.
Insight into the Indian financial services market .
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SIGNIFICANCE OF THE STUDY:
Allows wealth managers to monitor threats and opportunities posed by their main
competition.
Helps plan products and services by giving key information on customers
financial services preferences.
Looks at the onshore liquid wealth of mass affluent and high net worth individuals
in India and in India's largest and most affluent states.
Offers access to key statistics providing a clear picture of the scale, composition
and direction of the developing landscape on a regional basis.
Find out why India is an attractive market and its advantages over other emerging
economies.
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14
LITERATURE REVIEW
LITERATURE REVIEW
POSITION OF INDIA IN WEALTH MANAGEMENT
According to the report, India is slated to become a US$1 trillion market (in assets
under management) for wealth management providers by 2012, with a target market
size of 42 million households
In the annual survey done by Cap Gemini, SA and Merrill Lynch it was found that
ranks of millionaires grew 6% in the previous year, because the number of richer
people grew in India & China where India is competing China. India & China posted
the biggest gain in millionaires advancing by 23% & 20% respectively.
When They are watching the world wide increase in number of millionaires the facts
collected by Cap Gemini, S.A. and Merrill Lynch survey report. India has 23%
growth in the year (2006-07). The biggest Asian economy China stands on second
position with 20%, west Asia 16%, United States 4% and United Kingdom (UK) 2%.
So They can understand that there is more opportunities in the Wealth management
business in Asia specially in India.
SOURCE:
INDIA is now home to a new breed of billionaires: Those created by an almost
inexplicable rise in the values of the stocks they hold.
Forbes List of Top 10 Richest People in India
Rank Name Net Worth ($ in
Billion)
7 MUKESH AMBANI 19.5
8 LAKSHMI MITTAL 19.3
34 ANIL AMBANI 10.1
59 SUNIL MITTAL 7.7
83 AZIZ PREMJI 5.7
15
86 SHASHI& RAVI RUJA 5.6
98 KUSHAL PAL SINGH 5.0
124 KUMAR BIRLA 4.2
183 ADI GODREJ & FAMILY 3.3
205 DILIP SHANGHVI 3.0
The combined wealth of the 20-million strong non-resident Indians community is
estimated to be over $1 trillion dollars -- more than the country's entire economy.
Overseas Indians are estimated to hold financial wealth, apart from real estate, gold
and art, of over $500 billion. The total wealth would be over $1 trillion, according to
the report by High-Powered Expert Committee appointed by the Centre to suggest
ways to make Mumbai an international financial centre. These NRIs were a natural
beachhead as a customer base where an Indian Personal Wealth Management industry
can get started. Their wealth management services were presently being sourced
almost exclusively from abroad, the report said. The report listed 11 activities
typically provided by an international financial centre (IFC) and referred to PWM as
one of the most important activities undertaken at an IFC. According to the report,
PWM for high-net worth individuals is estimated to involve management of personal
assets of $8-10 trillion globally.
The acceleration in growth during 2006-07 is driven by continued momentum in the
services and manufacturing sectors, growth of which are expected to be in double-
digit figures.
India is both attracting foreign wealth managers to set up business and domestic
banks to set up wealth management businesses. Going forward this is a trend that
is likely to continue, with India’s key advantages attracting more and more
competitors.
The attractiveness of Mumbai as a location for banks is backed up by the figures
on deposits held by foreign banks in India. Of the total value of deposits held by
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foreign banks – USD16bn – 49.2% is in Maharashtra and all of this is in
urban/metropolitan areas of which Mumbai is a large part.
In the view of many in the industry there is a challenge of client education that
must be addressed going forward. The primary area of concern is in equity
investment and the need to invest long-term rather than short-term. This is not a
problem that is confined to India; many other countries around the globe have
similar problems.
In view of the above stated conditions, it is highly likely that over the next 20
years, wealth management will witness significant developments in the way that
clients are segmented. Following from this, client service will change to
complement the shift in emphasis, as factors other than the level of the client's
wealth are taken into consideration.
Datamonitor research indicates that there are significant benefits in the area of
liability management for the wealthy, and that the importance of liability
management as part of wealth management will inevitably grow over the next 20
years, until it becomes a key service area.
17
STATE OF WORLD WEALTH
HNWI (high net worth individuals) SECTOR GAINS IN 2007
10.1 million individuals worldwide held at least US$1 million in financial
assets, an increase of 6.0% over 2006.
Global HNWI wealth totaled US $ 40.7 trillion, a 9.4% gain from 2006, with
average HNWI wealth surpassing US $ 4 million for the first time
The Ultra-HNWI “wealth band” experienced the strongest growth, gaining
8.8% in population size and 14.5% in accumulated wealth
Emerging markets, especially those in the Middle East and Latin America,
scored the greatest regional HNWI population gains
HNWI financial wealth is projected to reach US $ 59.1 trillion by 2012,
advancing at an annual growth rate of 7.7%
For the global economy, 2007 was a transitional year that began and ended with
sharply opposing macroeconomic environments: Momentum that was carried over
from 2006 sustained unabated growth in the early months. By the latter end,
heightened uncertainty and instability marked the deep change that was underway.
Overall, market performances were solid in 2007. However, closer analysis of the
key drivers and inhibitors of wealth reveals how the many fundamental changes that
took place over the course of the year led to deteriorating economic conditions in key
markets, including the United States and several mature European nations. Evenly
split, the two halves of the year tell very different stories: steady global growth in the
first six months, followed by sharply diverging paths between mature and emerging
economies in the second half.
In early 2007, strong economic gains spurred impressive performances in equity
markets and various investment products, reflecting high levels of investor
confidence. Robust growth in emerging markets, driven by high commodity prices
and rising domestic demands, supported solid growth in mature economies. Stock
markets worldwide performed well into the summer, led by Latin America and
Emerging Asia, which saw roughly 25% and 17% growth, respectively, through
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July.1 A variety of investment products performed well during the first half of the
year; for instance, total announced private equity deals worldwide were on pace to
shatter their 2006 record.
The second half of 2007, however, revealed a distinct and growing divergence
between mature and emerging economies—with the advantage going to emerging
nations. Whether hobbled by the downturn taking hold in the United States or
challenged by the slowed growth of a major trading partner, with few exceptions, the
performances of mature economies weakened significantly in the closing months of
the year. In the European Union, for example, growth was dampened by a confluence
of key market forces: slowing domestic consumer spending, a result of high levels of
personal debt amid tightening credit conditions; a drop-off in exports brought on
by easing demand in the United States, which received nearly 24% of E.U. goods and
services shipped abroad; and an appreciating euro.Growth slowed among other global
powers as well: In Japan—the world’s second-largest economy—a decline in housing
investment and low levels of consumer confidence took their toll.4 In essence,
a long period of “easy money” in mature economies was routed by financial and
credit market turmoil.
By contrast, emerging markets proved resilient and posted robust gains in the second
half of 2007, even as uncertainty grew in mature markets. Building on their core
competency, export-driven growth, many emerging economies converted sharp
increases in energy and commodity prices into sources of high profitability and
significant growth. Both GDP and market capitalization gains, particularly in
Brazil, Russia, India and China—the BRIC nations—were strong, capping another
impressive year for HNWI growth and investment opportunity. Given these nations’
more stable consumption habits, rising domestic demand and healthy business
environments, the slowing United States economy, which accounts for 21% of global
GDP, did not appear to significantly compromise their economic growth in 2007
19
BRIC Nations Are at the Forefront of Global Growth
In 2007, the BRIC nations continued their roles as pivotal economies, building on
relationships with their mature trading partners and capitalizing on the growth of their
emerging counterparts. As mature economies slowed, the BRIC nations turned in
particularly strong performances. They posted in aggregate the greatest gains in
HNWI populations, 19.4%, and accumulated wealth, 25.1%, driven both by
impressive economic gains and robust market capitalization growth. As a result of
these record-setting performances, the BRIC nations are rapidly winning fiscal
credibility and increasingly playing a central role on the world stage.
Today, the greatest single impediment to the BRIC nations’ continued growth is the
high level of inflation now sweeping the globe and most pronounced in emerging
markets. In Russia, year-over-year money-supply growth in excess of 50% has kept
inflation rates propped at around 12%. Similar levels of excess liquidity are evident in
China and across the Middle East. With BRIC nations’ inflation rates averaging
roughly 7.5% at year-end,it is increasingly clear that this is the challenge most likely
to shape 2008 outlooks.
In 2007, India led the world in HNWI population growth, rocketing ahead 22.7% and
exceeding gains of 20.5% in 2006. Boosted by market capitalization growth of 118%
and real GDP growth of 7.9%, HNWI sector gains reached all-time highs. Although
the country’s real GDP growth decelerated from 9.4% in 2006, current growth levels
are considered more stable and sustainable. Market capitalization growth more than
doubled from roughly 50%, accounting for greater HNWI gains. India’s two largest
exchanges, the Bombay Stock Exchange and the National Stock
Exchange of India, benefited from rapidly expanding initial public offering (IPO)
markets and heightened international interest; by the end of 2007, they ranked among
the world’s top-12 exchanges in total market capitalization terms. Once recognized as
a manufacturing superpower, characteristic of a more nascent market, much of India’s
recentgrowth has been driven by the technology, financial services, property,
construction and infrastructure sectors. Growth in these arenas is indicative of the
developing state of the Indian economy relative to other high-growth players.
20
China ranked second in HNWI population growth, advancing 20.3% in 2007, more
than two-and-a-half times greater than its 2006 pace. Market capitalization and real
GDP growth rates exploded last year, at 291% and 11.4%, respectively. Fueled by
impressive price increases and strong IPO activity, the Shanghai Exchange grew to be
the sixth largest exchange in the world in terms of total market capitalization. Yet,
despite rapid growth in its financial services sector, China’s economy still is built on
its manufacturing capacity. This helps explain why its HNWI population growth is
slower than that of India—and why the gap continues to widen between China’s
richest citizens, a group with a particularly high concentration of wealth, and the
middle-class, which continues to grow in size but remains largely unable to cross the
HNWI threshold. Nonetheless, 2007 HNWI growth in China greatly exceeded its
2006 performance of 7.8% growth, reflecting strong economic fundamentals and great
potential for future gains.
21
The State of Asia-Pacific’s Wealth
The number of HNWIs grew by8.7% in 2007,to 2.8 million, exceeding global
HNWI population gains of 6.0%.
Asia pacific HNWI wealth expanded by 12.5% in 2007,to US $ 9.5
trillion ,exceeding both the 10.5% rate posted a year earlier and total world
wealth growth in 2007 of 9.4%.
Asia pacific is home to 27.8% of the world’s HNWI population and 23.3%of
global HNWI wealth.
India ,China , South Korea experienced the highest HNWI population growth
with in the region ,gaining 22.7%,20.3% and 18.8% respectively.
Together Japan and China accounted for 68.8% of the pacific HNWI
population and 62.4% of its wealth.
Over the past five years, HNWI wealth has soared in the Asia- Pacific region. In
2007, five of the world’s 10 fastest-growing HNWI populations were concentrated in
Asia-Pacific markets, with India and China posting the largest gains. However, the
slow growth of some of the larger Asia-Pacific HNWI populations, such as the 2.2%
rate posted in Japan, kept overall regional growth levels at or near global averages. As
a result, Asia-Pacific HNWI gains exceeded global averages but fell short of advances
made in the very highest growth regions, namely the Middle East and Latin America.
Real GDP and market capitalization continued to be key drivers of Asia-Pacific
wealth generation, despite mixed results relative to 2006 performances. Two-thirds of
the markets reported on2 boasted real GDP growth above the 5.1% global average,3
while market capitalization in all of the Asia-Pacific economies analyzed, with the
exception of Japan’s, experienced strong, positive growth throughout 2007.
The global “story of two halves,” as told in the 2008 World Wealth Report, accurately
reflects 2007 trends evident in Asia-Pacific as well: Steady growth across the region
defined the first half of 2007 whereas heightened volatility and a sharp divergence
between mature and emerging economies characterized the second. Unlike some other
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parts of the world, the economic slowdown in the United States did not dampen
overall 2007 Asia-Pacific gains. However, deteriorating global conditions over the
course of the year heightened uncertainty regarding the global economic outlook and
cast a shadow on many of the region’s primary export markets. Further, while some
Asia-Pacific economies were faced with slowing growth, high—and steadily rising—
inflation became the most pressing challenge for the entire region. This issue grew
more pronounced in 2008, amid severely weakened Asia-Pacific equity markets, and
drew attention to related policy-action decisions. Nonetheless, in 2007, rapidly rising
domestic demand and improving socioeconomic and political fundamentals within the
region, particularly among the emerging markets, buoyed growth in most Asia-Pacific
economies.
The net result of strong growth in emerging markets and weak performances in
mature markets was above-global-average gains for HNWIs in the Asia-Pacific
region. In 2007, the number of HNWIs in the region grew by 8.7%, to 2.8 million.
With those gains, Asia- Pacific ended the year hosting 27.8% of the world’s 10.1
million wealthiest individuals, with the nine key markets studied accounting
for 93.1% of the region’s HNWIs. During the same period, HNWI wealth in Asia-
Pacific expanded by 12.5%, to US$9.5 trillion, significantly exceeding gains of 10.5%
in 2006. By year-end 2007, Asia-Pacific HNWI financial holdings accounted for
23.3% of the US $ 40.7 trillion held by HNWIs globally.
In 2007, the Ultra-HNWI4 population in Asia-Pacific grew by 16.4%, to 20,400
individuals—nearly double the 8.8% growth of the global Ultra-HNWI population
and significantly higher than the 12.2% growth witnessed in the region a year earlier.
Notably, Asia- Pacific’s Ultra-HNWI segment accounted for only 0.7% of its entire
HNWI population, less than in any other region. This trend has been consistent over
the past few years and reflects how the Asia- Pacific HNWI population is weighted
more heavily in the lower wealth bands than HNWI populations in other regions
23
STATE OF WEALTH MANAGEMENT INDUSTRY IN INDIA
Wealth management is just emerging in India. The growth of the economy has already
been widely showcased. Wealth management services have been getting more
attention over the last two years. A booming economy, rising stock prices and an
increase in salaries and spending power have turned the spotlight on this sector. The
wealth management space was earlier the preserve of some foreign banks which
offered these "exclusive services" to a select few. This was not a service you could
apply for. The unsaid tagline was "Don't call us. We'll call you (if you are that
wealthy!)." Today, a number of private banks offer this service. Also entering this
arena and carving a niche for themselves are standalone entities that offer the full
range of services — investment advice, portfolio management, taxation advice et al.
A new report from independent market analyst Datamonitor (DTM.L) reveals the
Indian wealth market is offering competitors enormous opportunities. In the last five
years, affluent wealth in India has grown at a rate of 17.6% with affluent individuals
totalling 618,000 at the end of 2007. India’s large skilled population and robust
domestic stock market will ensure that this wealth continues to grow to almost one
million individuals, with a collective wealth of over US $ 200bn by 2012. "India has
its own merits as one of the developing BRIC economies (Brazil, Russia, India and
China). Competitors are realising this fact and are beginning to bring their
propositions to the table. Today, India is attracting both foreign wealth managers and
domestic banks to set up wealth management businesses. Going forward this is a trend
that is likely to continue," says Alan Shields, Datamonitor financial services analyst
and author of the study. The number of mass affluent individuals in India has more
than doubled since 1998. India is becoming an increasingly attractive market in many
industries, and wealth management is no exception. Driving the attractiveness of the
market has been the country’s exceptional economic performance over the last
decade. The economy has grown at an average of 7.6% since 1994, due to the
continued development of the service industry and strong growth in the technology
sector. The opportunities that have been created by a booming economy have in turn
driven individual wealth growth. The wealth of India’s residents has grown from
US$79bn in 1998 to US$177bn at the end of 2008. This amounts to an increase of
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123% in just five years. Of India’s 1.1 billion population, wealth is concentrated
among a 618,000 individuals. Of the total individual wealth in India, more than 65%
or US $ 116bn is owned by both mass affluent and high net worth individuals.
Combined, this amount of wealth in the hands of just 618,000 individuals. Those with
more than US$3m in liquid wealth represented the most valuable sub-segment of the
wealth market in India at year-end 2003, owning USD17bn. The band accounted for
over 9% of total savings and investments despite only accounting for only a tiny
percentage of the adult population.
OPPORTUNITIES FOR LOCAL AND FOREIGN PLAYERS
The fact that affluent wealth is growing at a rate of 17.6% compounded annually is
attracting both foreign wealth managers to set up business and domestic banks to set
up wealth management businesses. "There are certainly opportunities to be had in the
Indian wealth market" says Alan Shields head of Asia-Pacific wealth management
analysis at Datamonitor. "Whilst on the world stage, the Indian wealth market is
underdeveloped, there are still a large number of affluent individuals who are not
being served by the current competitors and the pool of potential clients created each
year is huge." Datamonitor forecasts that affluent wealth in India will grow rapidly .
India is still at a stage where the wealth manager is not necessarily a certified entity
and the term itself is used rather loosely. With banks and distribution houses,
insurance agents, mutual fund distributors and chartered accountants liberally calling
themselves 'wealth managers', there is a mind boggling array of people to choose
from. So, it becomes imperative to first identify the type of people you can sign on as
your wealth managers. There are wealth managers in banks who will eagerly do your
financial planning if you fall in the HNI (high net worth individual) block. The banks
assign a relationship manager (RM) to you, who is expected to manage the
relationship with you by proactively using his knowledge to tailor unique and
innovative financial solutions that will create value. However, he is restricted by the
number of distribution tie-ups he has -- not all of them can sell all products. Besides,
as banks and distribution houses increasingly compete with each other with a similar
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set of products, an RM may end up just pushing his own brands instead of delivering
long-term advice. The high churn among RMs in banks often leads to sudden breaks
in "relationship" building and a whole lot of miscommunication between the customer
and the bank ensues.
Then there is everyone else keen on getting a slice of your pie with assurances to
make you richer than you are today. Your friendly neighbours who sell insurance and
mutual funds may not always be the right source. After all, their interests in selling
you a particular product is the commission that they earn through selling you a
financial product. Besides, your accountant or stockbroker may not adopt a holistic
approach to all your financial planning needs. If you strictly go by the book and look
for a qualification that befits a wealth manager, then you should go to the 150-odd
certified financial planners (CFPs) who have been certified by the Financial Planning
Standards Board (FPSB), India. Remember that a true wealth manager uses the
financial planning process to help you figure out how to meet your life goals through
the proper management of your financial resources. Once you have identified the
category of your wealth manager, it boils down to choosing one. Here are nine
questions to ask before you hand over that cheque. And remember to keep asking as
you go along.
Wealth management requires hands-on experience and a strong technical
understanding of topics such as personal tax planning, insurance, investments,
retirement planning and estate planning and, how a recommendation in one area can
affect the others. Ask the planner what his qualifications are to offer financial advice
and if, in fact, he is a qualified planner. Ask what training he has successfully
completed. Ask what steps he takes to keep up with changes and developments in the
financial planning field. Ask whether he holds any professional credentials including
the Certified Financial Planner certification, which is recognised internationally as the
mark of a competent, ethical, professional financial planner. Find out how long the
planner has been in practice and the number and types of companies with which he
has been associated. Ask about work experience and its relation to current practice.
Choose a financial planner who has experience counselling individuals on their
financial needs.
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MAJOR WEALTH MANAGEMENT AGENCIES IN INDIA:
Association of Mutual Funds in India.
ABN-AMRO Bank, India
Lotus India Asset Management.
Reliance Capital Asset Management.
Dawnay Day AV Financial Services.
ASK Raymond James, India
Emerging Portfolio Fund Research, USA
Jeetay Investments, India
SBI Funds Management, India
Amas Bank, Switzerland
Max New York Insurance, India
Kotak Mahindra Old Mutual Life, India
Centurion Bank of Punjab, India
Naissance Capital, Switzerland
Everest Capital
Goldman Sachs, UK
FMG Fund Managers, USA
The Synergy Partnership, Malaysia
BaseTen Capital Management, India
ICICI Bank, India
Birla Sun Life Insurance, India
Standard Chartered Asset Management, India
Prudential ICICI Asset Management, India
ICICI Prudential Life Insurance, India
Parag Parikh Financial Services, India
Sandstone Capital, USA
Canonbury Group, UK
Corporate Finance India, India
Financial Planning Standards Board, India
Credit Suisse Asset Management, UK
27
Pioneer Client Associates, India
General Life Insurance Council, India
Dubai International Finance Centre, UAE
HSBC Asset Management, India
EM Capital Management, USA
SBI Funds Management, India
Financial Planning Standards Board, India
BNP Paribas, India
Pension Fund Regulatory & Development Authority, India
Blue River Capital, India
ABN Amro Bank, India
Birla Sun Life Asset Management, India
Securities and Exchange Board of India, India
Geojit Financial Services, India
IL& FS, India
Gandhi & Associates, India
Dubai Bank, UAE
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28
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The Indian wealth management market is ripe for development. Strong economic
growth has created wealth that needs somewhere to go and consolidated the position
of those with old money. Despite the country's rapid development the market is
immature; investment propositions have traditionally centred on deposit accounts and
currency controls limit access to the international capital markets. But change is in the
air and both domestic banks and international players alike are now gearing up to
meet the needs of the wealthy. The natural evolution of the wealth management
market can only be helped along by continued economic growth that will do much to
stimulate demand. Raj Parmar, head of Global South Asian Diaspora at HSBC Private
Bank says: "Sustained GDP growth in the last few years has created wealth in many
sectors of the Indian economy, both old, such as gems and jewellery, and new, such as
outsourcing, have benefited and growth is now considered sustainable." The money
being made in the new industries; retailing, financial and BPO (business process
outsourcing) seems to be limited to urban areas. A recent report from Datamonitor
found GDP highly concentrated in three regions: Maharastra, Uttar Pradesh and West
Bengal. Those three regions, according to the report, accounted for 29.7% of total
GDP in 2006/7. Depositary holdings in those regions are correspondingly high:
Mumbai, a part of Maharastra holds 49.2% of deposits held by foreign banks
according to Datamonitor. Old money, meanwhile, should not be underestimated.
Regional market leader at Barclays Private Bank explains that historic wealth stems
back to India's independence when perhaps 30 or 40 families controlled whole
29
industries. "Today they form the ultra high net worth population and in addition each
province has its wealthy landowners and regional powers, especially in the South.
Meanwhile, in Delhi there is a lot of political wealth and a large cash economy for
luxury goods exists. In Mumbai there is a lot of entrepreneurial wealth, most of which
is tied up in companies," he says.
So with such an abundance of wealth then how can banks, both domestic and
international, best meet demand? The wealth management industry at present is
immature compared with offerings by private banks and wealth managers in the West.
There is no doubt however than the Indian market is in the early stages of
development. Indeed Indian banks have traditionally placed most emphasis on broad
asset gathering rather than catering to any one specific group. There is plenty of
evidence the majority of wealth management propositions are, in fact, more focussed
on the mass affluent as it is they who are driving economic growth and thus have most
power of influence over how the investment industry evolves alongside that. Placing
money offshore is not a particular growth area either. Although historically wealthy
Indians may have held assets offshore in the face of the long-term decline of the
Rupee, currency strength now means they are better off at home. In addition, the
terrorist attacks of September 11 and subsequent tightening of international regulatory
standards have contributed to a steady and significant flow of money back into the
country. Where company owners may have floated and issued ADRs as recently as
the early 1990s, the current tendency is to plough money back into the company,
according to Gulam: "Lower interest rates and a stronger Rupee - not even offset by
high oil prices, means that people can get good returns in the home currency.
Confidence is at an all time high." All this points to rich pickings for those wanting to
get involved with the wealth management market. Certainly all the requisite
ingredients are there; the wealth itself, the confidence in the domestic economy, the
readiness to get involved in a variety of different asset classes and widen geographic
allocation of assets. Why then is the market so underdeveloped? Why are 85% of
assets, according to Datamonitior, still in deposit accounts? Relationship manager
says "To all intents and purposes the HNW market has yet to be created. Offerings
tend to be the same for all those with money to invest. Sophisticated products such as
derivatives and hedge funds are barely legislated for and in the context of the middle
30
classes driving the development of the investment landscape, they are not high
priority either. One area where HNWs do tend to invest is in property - reflective of
the undeveloped nature of the market."
The answer also lies in the regulatory environment. Samir Sayeed, global market
manager for the India business at Citigroup Private Bank, adds: "As wealth has grown
and people have excess liquidity they have become more demanding in their financial
needs. The gradually easing regulatory environment is helping meet some of those
needs. Currently portfolio management, mutual funds, insurance products, equity
brokerage and mortgage lending are all allowed but the market remains untapped."
Without a doubt the biggest reason for this is currency control. Initially introduced as
a means to keep currency outflows at a manageable level, the controls are now acting
as a barrier to the country's retail investment industry at all levels. The good news is
that all this is set to change.
"Since 2003, within a set of criteria laid down by the Reserve Bank of India (RBI),
investments can be made in overseas instruments without any quantitative restrictions.
More recently, the RBI has introduced a liberalised remittance scheme under which
resident Indians can invest up to US$25,000 per annum in any overseas security,"
Parmar says. Pressure on the government from the entrepreneurial generation that is
young, highly educated and mobile is likely to intensify. In addition India's domestic
pension funds are also complaining that they are unable to diversify sufficiently into
international capital markets. Sayeed adds: "This time last year the annual $25,000
allowance for Indians to maintain overseas accounts did not exist so liberalisation is
clearly ongoing. In addition companies that export have slightly different rules for
holding foreign currency and we see that as positive." Irritating it may be but currency
control has not stopped international players from trying to reach this segment of the
market and from there establish a presence in the market. Within what is allowed
moves are already afoot by players such as Barclays, Citibank, HSBC, Deutsche Bank
and BNP Paribas who are all involved to a greater or lesser extent in the market. And
the way to play it is seems to be to gain a toehold in one area, such as structuring debt
in the case of Barclays, and then extend the range of activities, products and services
on offer as soon as regulation and investor appetite allows. Servicing the onshore
market will soon mean the provision of both advisory and discretionary "wealth
31
management" solutions for the HNW market. Even local banks such as ICICI and
HDFC Bank are pouring in resources to tap this rapidly growing business. Sayeed
says: "We are aiming not just to play a part in the wealth management market but we
also want to have a hand in creating it in the first place." Gulam thinks domestic
banks should not be underestimated, adding: "A huge mutual fund complex is in the
process of being built. In addition, a series of tax amnesties over the last few years has
also meant that the parallel economy is diminishing." Ultimately the Indian wealth
management market is about patience while waiting for the regulatory breadth and
depth to become established. "In five years' time we expect to see continued
liberalisation and an end to currency controls. But it's important to understand that a
major dynamic of the Indian market is internal demand, not just access to
international currencies," Sayeed says. Wealth there were an estimated 70,000 high
net worth individuals (defined as those with financial assets of at least $1m excluding
their residential property) in India at the end of 2004, according to the 2005 World
Wealth Report published in June by Merrill Lynch and Capgemini. The number of
HNWI's in India was up 14.6% from with the previous year, registering faster growth
than the world average. Raj Sehgal, Merrill Lynch Global Private Clients' country
head for India, says: "India continued to be one of the high growth areas in 2004 as
around 9,000 more people joined the elite list of HNWIs in 2004.'' The high growth in
the wealthy arose despite a strong slump in stock prices in May 2004 following the
election in which India's pro-market BJP government unexpectedly lost power to a
coalition led by the Congress Party. The market however recovered some of its
ground as the stock market recorded a sharp upward rally in the second half. The
report acknowledged that among developing countries Brazil, Russia, India and China
have emerged as an economic force together accounting for 41% of the world's
population and 8% of its GDP growth. The report says: "Although the combined
output of these economies is a small fraction of world GDP today, the BRIC countries
are significant because of their size and fast-paced economic growth." The report
added however that, over-investment and excess capacity are expected to reduce
China's growth in 2005, which will also impact many of its neighbours. But it cited
India as an exception as its fortunes are less dependent on China and the overall
economy of East and South Asia. The world's high net worth wealth grew strongly in
2004 for a second consecutive year, increasing by 8.2% to $30.8 trillion, according to
32
the report. Globally, the number of HNWIs grew 7.3% to 8.3 million, a net increase of
600,000 worldwide.
33
INSTRUMENTS OF WEALTH MANAGEMENT
Indian weddings have always been grand and festive affairs, as reflected in films like
Monsoon Wedding and Bride and Prejudice. But India's burgeoning middle class -
now 300 million strong - are turning weddings into showcases of their growing
disposable incomes and newfound appetites for the goodies of the global marketplace.
The minimum budget for a wedding ceremony is $34,000, say wedding planners,
while the upper-middle and rich classes are known to spend upward of $2 million.
(The average American wedding costs $26,327.) This doesn't include cash and
valuables given as part of a dowry. According to the National Council for Applied
Economic Research (NCAER), the middle class are those making $4,545 to $23,000 a
year. NCAER projects that the market for all categories of products, from daily
consumables to consumer durables, will double in annual sales by 2010. With the
economy expected to maintain steady 6 percent annual growth, India is widely seen as
one of the world's 10 largest emerging markets.
When it comes to the instruments of wealth management in India, instruments like the
banking sector, stock market, mutual funds can be considered in this category.
BANK DEPOSITS
Independent research shows that customers prefer to deal with a local operator for
management of his assets. The wealth management industry has begun to follow the
trend set by the likes of shoe brand Nike and fashion retailer Gap in moving parts of
its operations to cheaper environments. As ever, the back and middle offices are the
bits that wealth managers want to offload. In India it is both the public sector and the
private sector banks who have demonstrated themselves in the assets management
market to tap the growing potentiality of this sector. State Bank of India, the nation's
largest lender, plans to offer wealth management services to affluent clients, seeking a
share of a fast-growing market that is now worth $10 billion, and that may double
every two years. "Wealth management has tremendous growth potential," said Indrajit
Gupta, managing director of SBI Capital Markets, State Bank's investment banking
unit. Foreign banks with Indian collaborations are not also far from others. For
example, Fidelity and Citibank have some operations in India, including call centres,
processing and systems development. Outsourcing to India is about more than simply
34
saving costs, according to the high commissioner of India, Ronen Sen. “Depending on
the particular operation sought to be outsourced, and the scale of the project, cost
savings range from 30 per cent to as much as 70 per cent. Citigroup, ABN
AMRO Holding, Standard Chartered and ICICI Bank already offer wealth
management services in the nation. About 70,000 Indians had financial assets of more
than $1 million each in 2004, according to a study by the management consultants
Cap Gemini and Merrill Lynch. DSP Merrill Lynch estimates that wealth under
management in India totals about $10 billion. ICICI Bank, India's second-biggest
lender, believes that amount could double every two years, said Arpit Agarwal, the
lender's head of private banking. Now government-controlled banks, including State
Bank, are seeking wealth management business as economic growth, forecast by the
government at an annual average pace of 7 percent, raises incomes and as Indians
seek more ways to earn higher returns on their wealth. "In the current interest rate,
taxation and macroeconomic environment, with a positive corporate performance and
GDP growth, more and more individuals are seeking professional management of
their finances," said Sharad Mohan, a marketing director of wealth management at
Citigroup's India unit. Canara Bank, the third-biggest lender in India, plans to open
branches catering specifically to affluent individuals, said B. Sukumaran, a deputy
general manager. Canara Bank initially would offer financial advice, mutual funds
and insurance products, he said. Bank of India, which started an online stock-trading
system in July, also said it was studying plans to offer wealth management services.
Union Bank of India, the seventh-biggest lender by assets, has also started an online
stock trading service for customers, in addition to offering mutual funds and insurance
products. ICICI has 500 financial advisers for its clients, having expanded the number
fourfold in the past three years. It has 260 billion rupees, or $5.9 billion, of assets
under management. Citibank has a well-organized system of Wealth Management
services in India that give you unparalleled advantage and opens up the opportunity to
maximize wealth. For example, Citigold Wealth Management Scheme. CitiGold
Wealth Management offers exclusive privileges to its customers that comprises of:
Tax and estate advisory services through a leading tax advisory firm in India.
Free for life Citibank International Gold Credit Card.
Updated information on treasury, currency markets.
Invites to seminars on capital markets, mutual funds, budget and taxation.
35
Free insurance benefits - upto Rs 30 lakh personal accident, and baggage and
householder insurance.
Free access to airport lounges at Domestic and International airports in India.
DBS Bank offers power packed Savings Account with convenient features and
charge-free banking options. So now you can bank and transact without the stress of
fees levied on trasnsactions. No Frills account is made to order, working to provide
vital banking services with nominal average quarterly balance requirements. Saving
Power Plus Account is tailored especially for individuals with an investible surplus of
Rs. 5 to 25 lacs. In other words, the account is suited for individuals who are looking
for exclusive banking services. Saving Power Plus operates in INR currency with a
high balance and zero charge structure. With its features and benefits, the accounts is
a unique offering. The minimum balance per month is Rs. 100,000. Account holders
receive free monthly and quarterly statements as well as personalised cheque books.
Saving Power Plus offers all Banking Services without service charges. The Deposit
Plus account is for individuals looking for a medium term investment option with an
investible surplus of 15 lacs or more. This is a pure deposit relationship and is offered
in INR currency. The difference with this account is the bundle of banking services
and competitive interest rates.
Private banking is emerging as an important segment of business for some banks and
non-banking financial companies (NBFCs) in India. Banks and NBFCs say there has
been an increase in the number of private banking or wealth management clients they
are dealing with today. Foreign banks, which mostly cater to high net worth
individuals, with financial surplus or investible incomes of over Rs 2 crore per year,
say that this segment is expected to grow by almost 20 per cent over the next couple
of years. About the potential for wealth management, Mr. Sharad Mohan, Marketing
Director, CitiGold Wealth Management, CitiBank, said, "Wealth management is a
fast evolving domain with tremendous growth opportunity in India. In the current
interest rate and taxation environment, more individuals are seeking professional
management of their finances."
36
ADVANTAGES
Banks offer stability for the money put on investment. The degree of vulnerability
and risk is minimum in case of banks than in other instruments of wealth
management.
Free from market adversity.
Banks in India have a wider network covering the rural areas also which has a
potential for wealth augmentation.
DRAWBACKS
Interest rate offered by banks is less in comparison to other asset augmentation
instruments.
37
STOCK MARKETS
Stock Exchange is a place where the buyers and sellers meet to trade in shares in an
organized manner. There are at present 25 recognized stock exchanges in the country
and are governed by the Securities Contracts (Regulation) Act, 1956. India's major
stock exchange have seen strong growth in recent times. The domestic market
capitalizations of the two largest exchanges have grown by more than 500% since the
beginning of 2003. This stands in contrast to China where domestic markets are
underdeveloped and have been on a steady downward trend over the last few years.
DEPOSIT STRUCTURE
WDM
Segment
CM Segment F & O - Index
Futures sub-
segment
With NSE
Interest Free Security Deposit Rs. 150 lacs Rs. 91 lacs Rs. 8 lacs
VSAT Deposit - Rs. 3.25 lacs -
With NSCCL
Interest-free Security Deposit Rs. 9 lacs Rs. 25 lacs*
Collateral Security Deposit Rs. 25 lacs Rs. 25 lacs*
Payable in cases where the applicants opt to take up the Clearing Membership for the
F&O Segment as well.
38
MUTUAL FUNDS
A Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed portfolio at a relatively
low cost. Anybody with any surplus money that can be invested, even as little as a
few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a
defined investment objective and strategy. The team undertakes this in the most
professional manner.
Markets for equity shares, debentures, bonds and other fixed income instruments; real
estate, derivatives and other assets have reached their maturity and are driven by latest
up-to-date information. A mutual fund is thus the ideal investment vehicle for today’s
complex and modern financial scenario. Price changes in these assets are driven by
global events occurring every day, in-fact every minute in faraway places. It will be
very difficult, in-fact next to impossible for an ordinary individual to have the
knowledge, skills, inclination and time to keep track of events, understand their
implications and act speedily. An individual also finds it difficult to keep track of
ownership of his assets, investments, brokerage dues and bank transactions etc. A
mutual fund is the answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a full time basis. The
costs of hiring these professionals per investor are very low, as the pool of money
invested is large. In effect, the mutual fund vehicle exploits economies of scale in all
three areas - research, investments and transaction processing.
39
Diversification of investments in mutual funds reduces the overall investment risks by
spreading the risks across different assets. The investment of the mutual fund
company depends on the objectives the company peruses. Some mutual funds invest
exclusively in a particular sector while others might target growth opportunities in
general. Although mutual funds have been around for a long time, dating back to the
early 19th century, the first modern American mutual fund opened in 1924 and it was
only in the 1990s that mutual funds became a part of the mainstream investment.
Today mutual funds collectively manage almost as such as or more money as
compared to banks. The advantages of mutual funds include; high liquidity, choice of
investment, low investment minimums, low transaction costs, government regulation,
which assures safety of the fund and professional management of the fund, etc.
Mutual fund investment has also its own drawbacks like lack of insurance of the fund
against losses, dilution of investment value and profit thereof, high management and
operating fees and sales commissions, lack of control of the investor over own
investment portfolio and inefficiency of cash reserves which reduces the investor’s
potential return. The types of mutual funds are subject to large scale variation subject
to investment objective, size strategy and style.
40
ADVANTAGES AND RISK IN MUTUAL FUND INVESTMENT:
Mutual fund investment, particularly mid cap investment in India is very volatile
in nature. There may be high returns and high risk.
ADVANTAGES:
1. Diversification of Funds: - Diversification of Funds can reduce the overall
investment risks by spreading the risk across different assets. When some assets
are falling in price others are likely to be rising. Thus, diversification of funds
lowers the risk than investment in just one or two funds.
2. Choice: - Mutual funds come in a wide variety of types. Some mutual funds
invest exclusively in a particular sector, while others might target growth
opportunities in general. There are thousands of funds, and each has its own
objectives and focus. The key for an investor is to find the mutual funds which
closely match his investment objectives.
3. Liquidity: - This refers to the ease at which one can convert his assets into cash.
In the case of mutual funds, it is as easy to sell a share of a mutual fund as it is to
sell a share of stock.
4. Low Investment Minimums: - An investor need not be very wealthy in order to
invest in a mutual fund. Most mutual funds allows an investor to buy into the fund
with as little as $ 1000 or $ 2000 or even allows a no minimum investment but on
the terms of payment of regular monthly contributions.
5. Convenience: - Purchasing and selling of mutual fund is very easy. Secondly, an
investor of mutual funds need not to worry about tracking the various securities in
which the funds invest rather all he needs to keep track of the funds performance.
6. Low Transaction Costs:- Mutual are able to keep the transaction costs at the
minimum because they benefit from reduced brokerage commissions for buying
and selling large quantities of investments at a single time.
41
7. Regulation: - Mutual funds are regulated by the government through the
Securities and Exchange Board of India ( SEBI). It regulates the way the mutual
funds approach the investors the way they conduct their internal operations. This
provides some level of safety to the investors.
8. Professional Management and other additional services provided by the
mutual funds.
9. If the fund house has very strong research and is able to really spot strong
opportunities in a disciplined manner, the fund should be a great long-term
investment.
10. The best returns are always derived from spotting the opportunity early and
holding on for 7-10 years or more. These funds test the fund manager’s
conviction.
11. The fund gives an opportunity to diversify across mid-caps as well as use some
scientific method to identify mid-cap stories, rather than the next hot tip from
your neighbour. If you are planning to pick mid-caps anyway, this is probably
the safest avenue.
RISKS: -
1. No Insurance: - Mutual funds, although regulated by the government, are not
insured against losses. Mutual fund returns are subject to market risks. Despite
the risk reducing diversification benefits provided by the mutual funds, losses
can occur, and it is possible that one may even lose the entire investment.
2. Dilution: - Although diversification reduces the amount of risks involved in
investing in mutual funds, it may lead to dilution which can be
disadvantageous to the investor. If a single security held by a mutual fund
doubles in value, the mutual fund itself will not double in value because that
security is only one small part of the fund’s holdings.
3. Fees and Expenses: - Most mutual funds charge management and operating
fees that pay for the fund’s management expenses. Some mutual funds also
42
charge high sales commissions. And some buy and trade shares so often that
the transaction costs add up significantly. Some of the fees and expenses are
also recurring.
4. Poor Performance;- Returns on a mutual fund are by no means guaranteed.
On an average, around 75% of all mutual funds fail to beat the major market
indexes. Critics have also questioned whether or not professional money
managers have better stock picking capabilities than the average investor.
5. Loss of Control: - The managers of mutual funds make all the decisions about
which securities to buy and sell and when to do so. This makes difficult on the
part of the investor in managing his portfolio. For example, the tax
consequences of a decision by the manager to buy or sell an asset at a certain
time might not be optimal for the investor.
6. Trading Limitations: - Although mutual funds are highly liquid in general,
most mutual funds i.e. open ended mutual funds can not be bought or sold in
the middle of the trading day. One can only buy and sell them at the end of the
day, after the current value of their holdings have been calculated.
7. Size: - Some mutual funds are too big to find any investment i.e. the funds that
focus on small companies given that where are strict rules about how much of
a single company a fund may own. As a result, the fund might be forced to
lower its standards when selecting companies to invest in. However, mid cap
investment is not suffering from this type of problem.
8. Inefficiency of Cash Reserves:- Mutual funds usually maintain large cash
reserves as protection against a large number of simultaneous withdrawals.
Although this provides investors with liquidity, it means that some of the
fund’s money is invested in cash instead of assets, which tends to lower the
investor’s potential return.
43
44
45
DATA
ANALYSIS
[[
1. DO YOU BELIEVE THAT WEALTH MANAGEMENT HAS
INCREASINGLY BECOMING A BOOMING INDUSTRY IN
INDIA?
Yes ------------------------------ ----------------- 87 percent
No ------------------------- ----------------------- 9 percent
Not sure ------------------------------------------ 4 percent
46
WHAT IS THE STATE OF THE WEALTH MANAGEMENT INDUSTRY?
The summary of the response was that wealth and disposable income are growing
substantially. We are also noticing that for the first time the ability to earn and save
are slightly different. Earlier you just put away your money in some guaranteed
products. Today, when even the government is withdrawing from those products (it
recently stopped the maturity bonus on post-office savings), investors, whether they
be doctors, architects or anyone else, need professional help.
47
2. IS WEALTH MANAGEMENT ONLY FOR THE WEALTHY?
1. Yes---------------------------- 23%
2. No---------------------------- 71%
3. Not sure-------------------- 4%
Only 23 percent of the respondents were of the opinion that yes wealth management
industry is only for those who are having enormous wealth. But a massive 71 percent
felt that it is for everybody. The person who is earning Rs 30,000 per month also
needs this advice. For instance, if there is a 25-year-old guy who earns this sum, his
first priority is to buy a house for, say, around Rs 20 lakh. He has to now protect
this property from, say, flood, cyclone or other natural disasters. You have building
insurance that doesn't cost more than Rs 800-1,000. only 6 percent responded in terms
of do not know/ can not say.
48
3. WHICH IS YOUR MAIN MARKET?
Stock Options--------------------- 65%
Expansion of Business---------- 32%
Not Sure-------------------------- 3%
65 percent prefer getting stock options. 32 percent operate on the expansion of
business and entrepreneurial capacity. 3 percent responded in terms of do not know/
can not say.
What about competition from foreign and Indian banks?
The response was that basically, the service the foreign banks offer is transaction
oriented. Most of them offer some mutual funds and some equity advice. But
someone who has between Rs 2 crore to Rs 25 crore don't want this. Whereas Indian
banks have a customer-centric model. They work with customers and offer them a
range of services — investment advisory — in debt, equity, mutual funds, derivatives,
besides tax advisory, succession planning, insurance advisory, etc.
What are the emerging trends in wealth management in India?
49
Real estate and private equity are increasingly becoming important asset classes for
high net worth individuals (HNIs). The demand for realty is on a high growth path on
account of the burgeoning economy.
While a few realty funds have been launched, the agencies believe that retail investors
have been left out as only HNIs and institutional players have the capacity to
participate in these. However, equity participation will be ensured by the introduction
of real estate mutual funds, which are fairly common in developed countries.
How is the private equity scenario developing?
Alternative investments including private equity allow HNIs to broadbase their
portfolios. Though at a nascent stage, private equity in India is on the rise because of
maturing financial sophistication. Secondary research highlights that in the developed
markets, there is a growing conviction among HNIs that investments in fundamentally
strong businesses are a very dependable wealth management strategy.
Is the client base expanding? Is it becoming more expensive for people to
mandate a private wealth manager?
India is becoming an increasingly attractive market for many industries - wealth
management is no exception. There is a promising onshore wealth management
services sector here. Driving the development has been the country's exceptional
economic performance over the last decade. The booming economy has led to
innumerable opportunities and pushed individual wealth growth. According to one
estimate, India has seen about 19 per cent growth in HNI population in 2005 vis-à-vis
the world growth rate of 6.5 per cent. The fee structure here is yet to be developed and
is currently accrued from brokerage fees and commissions on the services rendered.
How can a wealth manager create a difference in prevailing market conditions?
Wealth management is a highly specialized service, covering all asset classes. Asset
allocation helps determine an optimal mix of asset classes, ranging from equity, debt
and real estate to alternatives. The latter may include `investments of passion' - even
fine art and collectables - as well as structured products and hedge funds. Clients' life
goals, time horizon and risk tolerance are three vital factors on this front.
50
4. WHAT VALUE-ADDED SERVICES DO YOU PROVIDE?
Financial planning---------------------- 88%
Individual requirements---------------- 12%
88 percent responded that their managers offer complete financial planning. They are
able to give the customers advice on equity investment, debt, commodities, art,
insurance, international investment, which home loans to take and why, tax planning,
estate planning, filing tax returns, superannuation, real estate, and do a cash-flow
analysis. 12 percent responded that they are specialized to meet the individual
requirements of the customers i.e. in portfolio management.
51
How much do you charge and on what basis?
These charges are over and above any other charges like an entry and exit load
charged by mutual funds when the customers invest in them.
Fees: They are based on an hourly rate, a flat rate, or on a percentage of your assets
and/or income. At times, it is on the nature of the work done.
Commissions: Though commissions are not paid by you, but by a third party (like a
mutual fund house or insurance company), it does come out of your pocket. Fund
houses and insurance companies use their entry and exit loads to fund these
commissions for their brokers and distributors.
Combination of fees and commissions: Here you are charged fees for the amount of
work done to develop the financial plan and commissions are received from any
products sold.
52
5. DO YOU RECOMMEND YOUR OWN PRODUCTS?
Yes--------------------------- 79%
No---------------------------- 11%
Not sure-------10%
Assuming the four main asset classes are stocks, bonds, alternative investments (such
as real estate and private equity) and cash, how should ones investments be allocated
if he is 50 years old or if he is 65 years old and newly retired?
The respondents think the total amount of the estate (wealth) should enter into the
determination of asset allocation, along with the health and the expected lifespan of
the individuals. The appetite for risk is another consideration, as is the ability to deal
with contingencies. After saying all that, I would allocate 65% to stocks for the 50-
year-old and 55% for the 65-year-old. I would use alternative investments only if the
total amount was very substantial and the individuals had some expertise in that field.
Bonds and cash would be divided so that there would be enough cash for about six
months' spending, with the balance in bonds.
53
6. SHOULD THE ALLOCATION CHANGE BE BASED ON
ECONOMIC CONDITIONS?
Yes ----------------------------------- 56 per cent
No ------------------------------------ 30 per cent
Not sure ------------------------------ 14 per cent
54
7. WITH INTEREST RATES SO LOW AND THE STOCK
MARKET PERHAPS OVERVALUED, WHERE SHOULD
ONE INVEST TODAY?
Domestic Market ---------------- 55 percent
Foreign Market ------------------ 38 percent
Both ------------------------------- 7 percent
WHY SHOULD ONE CHOOSE TO INVEST IN A MUTUAL FUND?
For a retail investor who does not have the time and expertise to analyze and invest in
stocks and bonds, mutual funds offer a viable investment alternative. This is because:
Mutual Funds provide the benefit of cheap access to expensive stocks
Mutual funds diversify the risk of the investor by investing in a basket of assets
A team of professional fund managers manages them with in-depth research
inputs from investment analysts.
55
Being institutions with good bargaining power in markets, mutual funds have
access to crucial corporate information which individual investors cannot access.
8. CAN MUTUAL FUNDS BE VIEWED AS RISK-FREE
INVESTMENTS?
Yes ----------------- 12 percent
No ------------------ 80 percent
Not sure------------ 8 percent
HOW DO ONE INVEST MONEY IN MUTUAL FUNDS?
One can invest by approaching a registered broker of Mutual funds or the respective
offices of the Mutual funds in that particular town/city. An application form has to be
filled up giving all the particulars along with the cheque or Demand Draft for the
amount to be invested.
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What are the parameters on which a Mutual Fund scheme should be evaluated?
Performance indicators like total returns given by the fund on different schemes, the
returns on competing funds, the objective of the fund and the promoters image are
some of the key factors to be considered while taking an investment decision
regarding mutual funds.
What are the different types of plans that any mutual fund scheme offers?
The summary of the response was that it depends on the strategy of the concerned
scheme. But generally there are 3 broad categories. A dividend plan entails a regular
payment of dividend to the investors. A reinvestment plan is a plan where these
dividends are reinvested in the scheme itself. A growth plan is one where no
dividends are declared and the investor only gains through capital appreciation in the
NAV of the fund.
The plan one should choose depends on his investment object, which again depends
on his income, age, financial responsibilities, risk taking capacity and tax status. For
example a retired government employee is most likely to opt for monthly income plan
while a high-income youngster is most likely to opt for growth plan.
WHAT ARE THE BENEFITS OF S SYSTEMATIC INVESTMENT PLAN?
A systematic investment plan (SIP) offers 2 major benefits to an investor:
It avoids lump sum investment at one point of time
In a scenario of falling prices, it reduces your overall cost of acquisition by a
process of rupee-cost averaging. This means that at lower prices you end up
getting more units for the same investment
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9. WHAT PROPORTION OF ONE’S INVESTMENT SHOULD BE
INVESTED IN MUTUAL FUNDS?
Major portion ------------------------------------------ 23 percent
Minor portion ------------------------------------------ 20 percent
Depends on the economic position of the investor-----------57 percent
What are the types of bank accounts available to NRIs?
Non-Resident External [NRE] Rupee savings account
Your funds in NRE savings accounts are held in convertible rupees - principle and
interest are fully reparable. Interest income is fully exempt from tax in India. The
savings account can be opened jointly with a Non-Resident individual.
58
Non-Resident External [NRE] Rupee fixed deposit
Fixed deposit in Indian rupees where the principle and interest are fully repatriable.
All interest earned is fully exempt from tax in India. The account can also be opened
jointly with a non-resident.
Non-Resident Ordinary [NRO] Rupee savings account
Your funds in Non Resident Ordinary (NRO) savings account are held in India, in
Indian rupees. The NRO account can be funded through NRI income in India. Only
the interest in an NRO account is repatriable. Interest income on this account is liable
for Indian Income Taxes. Non-Resident Ordinary [NRO] Rupee fixed account .
Fixed deposit in Indian rupees where the earnings in India can be deposited. The
interest is repatriable [after payment of tax].
Foreign current Non-residents [FCNR] deposit
The FCNR Deposit is a fully repatriable foreign currency deposit available in major
currencies: US Dollars, Pound Sterling, Euros, Australian dollars and Canadian
dollars.
59
10. CAN ONE OPEN THESE ACCOUNTS IN ANY
CONVERTIBLE CURRENCY?
Yes --------------------- 66 percent
No ---------------------- 30 percent
not sure ---------------- 4 percent[
60
11. CAN AN NRI INVEST IN MUTUAL FUNDS?
Yes --------------------------------------- 89 per cent
No ---------------------------------------- 8 percent
Do not know / Can not say------------ 3 percent
61
62
CONCLUSION
CONCLUSION
Wealth managers are beginning to investigate innovative segmentation methods to
manage the changing client profile. Over the next 20 years wealth managers will hone
their segmentation methods. Wealth managers will develop segmentation as a service
efficiency initiative. Segmentation models will apply holistic criteria to wealth
management. The most important segments globally will be entrepreneurs and SMES/
CEOs. Financial advisers will become an important separate client segment for wealth
managers The organization of direct client ownership will also change Availability
and flexibility will become vital components of the business model Internal
restructuring will aim to integrate client services. The rise of the mass affluent
represents an opportunity for wealth managers in the medium term Wealth managers
will capture the higher value mass affluent market by offering a scaled down wealth
management service. The mass affluent proposition will run along the lines of the
current wealth management service. Liability management is currently not part of the
wealth management agenda but has proven potential. Clients in developed markets are
seeking more holistic wealth management services Liability management is clearly a
profitable area with a proven existing client base. The incorporation of lending into
wealth management will shift the focus of the service. Specialist forms of lending will
also become common additions to the offerings of many wealth managers. Some will
fail due to a persistence of the “asset focused” service model and a lack of
commitment. There are significant benefits in the area of liability management for the
wealthy, and that the importance of liability management as part of wealth
management will inevitably grow over the next 20 years, until it becomes a key
service area. Rising income and wealth inequalities, if not matched by a
corresponding rise of incomes across the nation, can lead to social unrest. An area of
great concern is the level of ostentatious expenditure on weddings and other family
events. Such vulgarity insults the poverty of the less privileged, it is socially wasteful
and it plants the seeds of resentment in the minds of the have-nots.
63
BIBLIOGRAPHY
1. Economic & Political Weekly - July-August, 2007
2. Finance India, July-2006
3. How Mutual Funds Work - Fredman and Wiles
4. Mutual Funds in India - H. Sadhak
5. Kotler, Philip, Marketing Management, Delhi: Pearson Education, 2006
6. Beri, G.C., Marketing Research, New Delhi: Tata McGraw Hill, 2006
7. Marketing Research – Naresh Malhotra
8. Marketing Management- Kotler
9. Consumer Behaviour- Schiffman & Kanuk
10. Various Reports on Indian Insurance Industry
11. Personal Financial Planning by Aitken and Goodmen, Financial Planners
USA, 2005, Edition, 2005
12. Journal of the ICFAI, on investments, 2007
64
APPENDIX
QUESTIONNAIRE
1. DO YOU BELIEVE THAT WEALTH MANAGEMENT HAS
INCREASINGLY BECOMING A BOOMING INDUSTRY IN
INDIA?
Yes ------------------------------ ----------------- 87 percent
No ------------------------- ----------------------- 9 percent
Not sure ------------------------------------------ 4 percent
2. IS WEALTH MANAGEMENT ONLY FOR THE WEALTHY?
Yes ------------------------------ -----23%
No -------------------------------------71%
Not sure--------------------------------4%
3. WHICH IS YOUR MAIN MARKET?
Stock Options--------------------- 65%
Expansion of Business---------- 32%
Not Sure-------------------------- 3%
4. WHAT VALUE-ADDED SERVICES DO YOU PROVIDE?
Financial planning---------------------- 88%
Individual requirements---------------- 12%
5. DO YOU RECOMMEND YOUR OWN PRODUCTS?
Yes--------------------------- 79%
No---------------------------- 11%
Not sure--------------------- 10%
6. SHOULD THE ALLOCATION CHANGE BE BASED ON
ECONOMIC CONDITIONS?
65
Yes ----------------------------------- 56 per cent
No ------------------------------------ 30 per cent
Not sure ------------------------------ 14 per cent
7. WITH INTEREST RATES SO LOW AND THE STOCK
MARKET PERHAPS OVERVALUED, WHERE SHOULD
ONE INVEST TODAY?
Domestic Market ---------------- 55 percent
Foreign Market ------------------ 38 percent
Both ------------------------------- 7 percent
8. CAN MUTUAL FUNDS BE VIEWED AS RISK-FREE
INVESTMENTS?
Yes ----------------- 12 percent
No ------------------ 80 percent
Not sure------------ 8 percent
9. WHAT PROPORTION OF ONE’S INVESTMENT SHOULD BE
INVESTED IN MUTUAL FUNDS?
Major portion ------------------------------------------ 23 percent
Minor portion ------------------------------------------ 20 percent
Depends on the economic position of the investor-----------57 percent
10. CAN ONE OPEN THESE ACCOUNTS IN ANY
CONVERTIBLE CURRENCY?
Yes --------------------- 66 percent
No ---------------------- 30 percent
not sure ---------------- 4 percent[
11. CAN AN NRI INVEST IN MUTUAL FUNDS?
Yes --------------------------------------- 89 per cent
No ---------------------------------------- 8 percent
Do not know / Can not say------------ 3 percent
66
67