report on wealth management

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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

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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.

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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)

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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

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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.

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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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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.

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RESEARCH

METHODOLOGY

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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.

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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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LITERATURE

REVIEW

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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

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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 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

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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.

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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

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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.

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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.

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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

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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

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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

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⇒ Corporate Finance India, India

⇒ Financial Planning Standards Board, India

⇒ Credit Suisse Asset Management, UK

⇒ 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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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

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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 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

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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 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

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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 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

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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 the report. Globally, the number of HNWIs grew 7.3% to 8.3 million, a net increase of 600,000 worldwide.

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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

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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

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⇒ Invites to seminars on capital markets, mutual funds, budget and taxation.

⇒ 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."

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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.

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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.

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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.

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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.

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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.

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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

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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.

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DATA

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[[

1. DO YOU BELIEVE THAT WEALTH MANAGEMENT HAS

INCREASINGLY BECOMING A BOOMING INDUSTRY IN

INDIA?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% yes no not sure ⇒ Yes --- --- 87 percent ⇒ No --- --- 9 percent

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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.

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2. IS WEALTH MANAGEMENT ONLY FOR THE WEALTHY?

0% 10% 20% 30% 40% 50% 60% 70% 80% yes no not sure 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.

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3. WHICH IS YOUR MAIN MARKET?

⇒ Stock Options--- 65% ⇒ Expansion of Business--- 32% ⇒ Not Sure--- 3% 0% 10% 20% 30% 40% 50% 60% 70% stock options expansion of business not sure

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

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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.

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4. WHAT VALUE-ADDED SERVICES DO YOU PROVIDE?

⇒ Financial planning--- 88% ⇒ Individual requirements--- 12% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% financial planning individual requirements

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

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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.

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5. DO YOU RECOMMEND YOUR OWN PRODUCTS?

⇒ Yes--- 79% ⇒ No--- 11% ⇒ Not sure---10% 0% 10% 20% 30% 40% 50% 60% 70% 80% yes no not sure

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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 65-50-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.

6. SHOULD THE ALLOCATION CHANGE BE BASED ON

ECONOMIC CONDITIONS?

⇒ Yes --- 56 per cent

⇒ No --- 30 per cent

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0% 10% 20% 30% 40% 50% 60% yes no not sure

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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 0% 10% 20% 30% 40% 50% 60% domestic market foreign market both

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.

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⇒ 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

0% 10% 20% 30% 40% 50% 60% 70% 80% yes no not sure

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.

Figure

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References

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