Académique Documents
Professionnel Documents
Culture Documents
Declaration
(Priyanka Shukla)
Roll No.- 201109
ACKNOWLEDGEMENT
I would like to express my profound gratitude to all those who have been instrumental
in the preparation of my report on Personal Wealth Management.
To start with, I would like to thank Prof. Vinay Dutta, Faculty- Finance, FORE
School of Management, for providing me the chance to undertake this project & gain
insights about Personal Wealth Management which would prove out to be very
beneficial to me in my future assignments, my studies and my career ahead.
I express a profound sense of gratitude and veneration to you for your deep insights
and classroom teaching and insightful reading material which provided me with
valuable qualitative data that have formed the backbone of this study.
I would also like to thank my friend and client Miss Deepti Sinha for her continuous
co-operation.
(Priyanka Shukla)
Contents
Chapter-5 Suggestion..............................................................24
Chapter-6 How to Use funds to achieve the financial goals.25
Chapter-7 Investment..............................................................27
Portfolio Designing.............................................................................................................28
Equity.............................................................................................................................29
Fixed Income.................................................................................................................30
Mutual Funds................................................................................................................30
Gold Investing...............................................................................................................31
TABLE OF QUESTIONNAIRES
1.
2.
3.
4.
5.
6.
7.
8.
Literature Review
LIFE
L-Love others and they will love you back
I-Importance in workplace, from family and friends
F-Financial relaxation in mind
E- Empathy to others, since there is no use in living just for self.
If we can define life in this form, financial freedom and tension from all financial burden is a
very important aspect of life. And personal wealth management is the tool to achieve that
goal.
Definition
Personal Money Management involves a whole range of personal wealth
management issues including:
Planning for and reaching your retirement goals,
Securing your personal financial future,
Exploring new revenue/income sources, that are well within your risk threshold,
and
Providing a secure financial future for your family and your loved ones.
In order for you enjoy a comfortable retirement lifestyle, you need to not only protect
all your financial assets, but also to grow your wealth by making your hard-earned
cash work hard for you -before and after your retirement. Additionally, you would
also want to make sure you are doing everything you possibly can for providing for
your family, and for minimizing your taxes -while keeping all your investment
expenses to the minimum.
revenue goals and your retirement plans, but also your margin of risk tolerance.
Unlike the many broker-firm affiliated financial advisors whose primary interest is to
make more money for the broker firm (and thereby more commission for themselves),
you should look for an independent financial/wealth management advisor that guides
you in all matters related to reaching your financial goals, and does not charge
excessive fees for the same.
An experienced personal wealth and retirement planning expert is usually wellpositioned to assist you in all facets of personal money management including:
investments options, ongoing investment portfolio management, and tax planning
before and after you reach your retirement.
Experts in personal wealth management perform an important role for clients who
wish to make the most of their financial assets. Beyond just overseeing investments,
handling individual monetary resources can reach past stocks, mutual funds, and
bonds and administer other issues as well. Retirement planning that starts early is a
much easier and more painless way to provide for future needs. Insurance needs and
tax concerns can be difficult to direct without professional help. Money set aside for
educational purposes can offer children the kinds of choices that can influence their
futures in positive ways. Vacation homes and family travel can become a reality
through the skilled administration of finances. All in all, personal wealth management
constitutes a lot more than just paying bills and investing in the stock market. Most
organizations will help clients by going over their individual income and assets and
create a plan of action that is uniquely tailored to them. Whether the need is for asset
protection or trust administration, inheritance issues or tax expertise, consulting
professionals in the field can make the difference between financial success and fiscal
disappointment.
When searching for an organization to handle personal wealth management, there are
a number of qualities to look for. Most agencies are interested in sticking with the
client over the course of their life, so finding a qualified organization is very
important. A potential client should seek professionals that are able to answer
complex questions and are willing to go the extra mile to make sure that a client's
individual needs are met. If an agency is not willing to dedicate a great deal of time to
develop a plan of action that covers current and long range needs, a client might be
better off going elsewhere. As tax laws and markets change, professionals should be
able to demonstrate that they are taking pains to stay up to date with current
conditions. Is an agency willing to regularly review a client's personal wealth
management issues to make sure that everything is staying on target? As years pass,
families change. Does the agency seem willing to help the client adapt to these
changes and is there an understanding of what these changes can mean to the financial
health and future of the client?
Handling trusts can be another important concern in the area of personal wealth
management. Establishing a trust is an alternative means to ensure that valuable assets
are passed on to loved ones. A trust involves a transfer of assets to institutions or
individuals. A trustee is appointed to oversee these assets. This trustee does not
necessarily own the property, but is responsible for making sure that the wishes of the
client are carried out. The client will remain in control of these assets and could even
appoint themselves as trustee. Concerns over lawsuits and other liabilities often
motivate clients to establish trusts. Assets that have been transferred to a trust will
generally remain protected from risk and from any future claims of creditors. Of
course, knowledgeable expertise in this area is very important since every situation is
8
different. Qualified personal wealth management personnel can work with a client to
handle these issues in a way that best suits the client's individual needs.
There are many benefits associated with personal wealth management. By turning
these complex issues over to experts in the financial field, a client is free to handle
other life priorities with reduced stress and less distraction. Seasoned professionals
can look at the life goals of the client and zero in on the best way to meet those goals.
Solid planning can address current as well as future issues. When assets need to be
liquidated, a professional in the field can help an individual do so in the most
advantageous and tax savvy way possible. Saving toward retirement while making
current ends meet can be a real challenge. Financial experts can help clients find
creative and practical ways to meet retirement goals. Since comprehensive company
retirement plans are becoming rarer, a consumer is often left to their devices to plan
for the future. If a company does offer some kind of retirement, the chances of it
actually generating enough cash to live on are slim. Making wise investments and
helping assets to grow is the role of a qualified financial planning agency.
Organize your current financial condition. This means that you have to organize
everything related to your financial condition such as managing your earning, your
expense, living costs, amount of debts, mortgage and managing your assets. The
knowledge of your current financial condition will help a person to decide which
needs to choose according to its priority.
2.
Defining Your Financial Plan. This is the next crucial step where you must set a
goal of your financial planning activity. Write down your dream for example you
want to go on a vacation to Europe, or you want to buy a car. This is just example but
the most important thing is you must write down a goal that is realistic, specific, and
measurable so it will be clear when you can achieve it.
3.
4.
Creating and implementing your financial plan. This act should be done after
you set your financial goals and an example of implementing your financial plan is
doing action such as saving money every month, buying gold and etc.
5.
financial planning then you must revise it as soon as possible, for an example if you
do a wrong step in investing you have to change it as soon as possible.
10
Deepti Sinha
Age:
24 years
Education qualification:
B.Tech (IT)
Occupation
Father
Business
Mother
Home Maker
Brother
11
FINANCIAL FIGURES
Personal Balance Sheet as on 31st October, 2012.
(Prior to the suggestion of financial planning)
Balance Sheet
Common Size
Assets
Amount (in `)
All in %
LIC
100000
17.95
PF
27000
4.85
Gratuity
10000
1.79
A/c
40000
7.18
Cash in Hand
15000
2.69
Scooty
40000
7.18
Car
140000
25.13
Stereo/Video
15000
2.69
Laptop
120000
21.54
Sundry
50000
8.99
Total
557000
100.00%
Personal Loan
120000
54.54
Credit Card
100000
45.46
Total (B)
Total
220000
100%
Net Worth
337000
Liquid Assets
Cash In Saving
Personal
Possessions
Total (A)
Liabilities
12
Size
Inflow
2013
(Predicted)
Salary
642000
Bonus
150000
100%
706200
165000
0
Outflow
0
0
Discretionary
Cell Phone
12000
1.86
13200
Connection
12000
1.86
13200
Entertainment
60000
9.34
66000
Restaurants
50000
7.79
55000
health Clubs
10000
1.55
11000
Clothing
30000
4.67
33000
Gifts
50000
7.78
55000
Cosmetics
10000
1.55
11000
Family Trip
25000
3.89
27500
Total
259000
40.34
284900
0.00
Internet
Total (A)
Non
Discretionary
Toiletries
12000
1.87
13200
Home Repairs
6000
0.94
6600
Transportation
10000
1.55
11000
Living expenses
60000
9.34
66000
Electricity
5000
0.77
5500
13
Total (B)
Loan instalment
57600
9.90
Total
150600
23.45
102300
0.00
Total
(A+B)
Expenses
409600
48.19
592994
0.00
Surplus
14
232400
36.13
319000
1. Clear the debts on credit card in at most 6 months (Short term 0-2 years)
S-Specific :
M-Measurable :
A- Attainable:
She has a yearly bonus due in March 2013 of Rs. 1.5 lac
R- Realistic :
Same as above
T-Time Bound:
A corpus for footing her expense for 1 year during the course
She needs Rs 10000 per month at current date
A- Attainable:
R- Realistic :
Same as above
T-Time Bound:
25 months
15
3. Start building a corpus for down payment of a house, which she will buy at
age 30. ( MID TERM goal )
S-Specific :
M-Measurable :
A- Attainable:
R- Realistic :
Same as above
T-Time Bound:
25 months
A- Attainable:
R- Realistic :
Same as above
T-Time Bound:
Once a year.
M-Measurable :
A- Attainable:
R- Realistic :
Same as above
T-Time Bound:
Till retirement
16
1. There seems to be an inherent flaw in the way Miss Deepti has been spending her income.
More than 40% of her income goes into discretionary expenses.
It is very high amount.
2. Also her surplus are very less considering that she is staying in accommodation provided
by her father and all other expenses are shared between her housemates(elder brother and
sister) .
3. Also her personnel loan(Rs 1 lac) was to meet her credit card expenses, which were
incurred while she was earning less in her previous job.
It seems to be wrong practice but she has been able to reduce the credit card debt of over Rs 2
lac to 1 lac after taking a personal loan of 1lac. She has not let the expenses pyramid on her
credit card in the last 6 months.
4. There is no income generating asset at this time in the portfolio.
Let us try to realign her expenses (discretionary):
Current
Cell Phone
1000
Internet Connection
1000
Entertainment
5000
Restaurants
4200
health Clubs
900
Clothing
2500
Gifts
4200
Cosmetics
900
Family Trip
2100
21800
17
Proposed
Internet Connection
1000
Entertainment
1500
Restaurants
1500
health Clubs
1000
Clothing
1000
Gifts
1000
Cosmetics
900
Family Trip
2100
10,900
Common
Amount
Size
Salary
642000
100%
Bonus
150000
Cell Phone
12000
1.86
Internet Connection
12000
1.86
Entertainment
18000
2.81
Restaurants
18000
2.81
health Clubs
10000
1.55
Clothing
12000
1.86
Inflow
Outflow
Discretionary
18
Total (A)
Gifts
12000
1.86
Cosmetics
10000
1.55
Family Trip
25000
3.89
Total
129000
20.1
0.00
Non
Discretionary
Total (B)
Toiletries
12000
1.87
Home Repairs
6000
0.94
Transportation
10000
1.55
Living expenses
60000
9.34
Electricity
5000
0.77
Loan instalment
57600
9.90
Total
150600
23.45
0.00
Total
Expenses
(A+B)
279600
43.55
0.00
Surplus
362400
56.45
We can see that the surplus now becomes very huge, even though the lifestyle is maintained.
This can be explained as below:
1.
2.
3.
4.
19
20
Savings account
Bank fixed deposit
Liquid funds
Cash in hand
Equities (shares)
All open-ended mutual funds
And any other type of assets, which can be liquidated within three to four working
days!
What is this ratio for Deepti:
55000/337000
16.3 %.
Is it sufficient?
Yes it is good. Atleast 15% is the ideal ratio.
21
Savings Ratio:
Savings ratio = Savings / Gross income, where
Savings include all your regular form of savings such as any systematic investment
plan (SIP) of mutual funds, recurring deposits of post office, or any banks or any
other form of regular savings.
Gross Income includes
Personal loan
Car loan
Home loan
Money taken from private moneylenders
Consumer durable loan
Credit card outstanding
Any other form of loan or liabilities you might have taken
Cash/ Near cash assets like savings account, fixed deposit and liquid funds
Invested assets (market value) which includes your share investments, PPF,
bonds, real estate investments, mutual funds and any other investments
Personal assets include your house, jewellery, car/ scooter and others
22
Is it good?
Yes. Anything below 50% is good enough.
23
Chapter-5 Suggestions
After seeing the personnel financial ratio and the goals and needs of my client Miss
Deepti, following are my suggestion:
1. This is the perfect time to save and start planning for the future since her disposable income
is very high and there are no dependents. Also she is not paying any house rent since she is
living in a house owned by her father. But this state is not going to continue for long.
2. Saving has to be started from the coming month.
3. There is no good fixed asset like land or house. Investment has to be made in this direction.
4. Invest in PPF, which not only help in post retirement time but also helps in tax benefit.
24
1. To create emergency fund: Following the saving rule, 10% of gross income will go
into saving. That means Rs 7000 per month will go to savings.
2. To Invest in PPF: Rs 100000 from yearly bonus will go for this purpose.
5. Corpus for downpayment for house loan: A corpus of around Rs 1500000 is required.
Considering inflation and rate of return, per month Rs 17500 will go as a investment
for this purpose. Since this money is required after 7 years, investment in equity
(particularly growth shares) is advisable.
25
Chapter-7 Investment
Investor profile:
We will now try to find a perfect portfolio for Miss Deepti considering her goals and her
profile.
Investor
Deepti Sinha
Age
24
Type Of Investor
Moderate
Occupation
Salaried Person
No. Of Dependents
None
Liability
Very Less
Risk Appetite
Medium
Return Required
Medium
Knowledge
Low
Absorbing Power
Medium
most
typically
the expected
return on
the
portfolio,
and
the risk associated with this return (e.g., the expected standard deviation of the
expected return). However, due to the almost-complete uncertainty of future values,
26
this performance measurement is often done on a casual qualitative basis, rather than
a precise quantitative basis (which would give a false sense of precision). Typically
the expected return from portfolios of different asset bundles is compared.
Portfolio Designing
We recommend the following portfolio for Miss Deepti. This portfolio has been
designed keeping in mind the following factors:
Time- Since she is yet to start a family many of her requirements are going to
change in future.
Transaction Costs- Investments that require high transaction costs are avoided
as it creates a liquidity issue and also affects the return on investment.
27
Sales
30%
40%
Equity
Fixed Income
Gold
Mutual Fund
20%
10%
Now let us look at the type of investment option under each instrument:
1. EquityIn equity investment also there can be various kinds of strategy, like investing in
1.
2.
3.
4.
Again seeing the profile of investor, I will suggest a moderate risk strategy.
Sales
10
40
30
Growth
Income
Balanced
Momentum
20
2. Fixed Income:
28
Sales
15
FD
15
NSC
50
Bonds
Savings Bank
20
3.Mutual Funds
Investment strategy for mutual funds:
Sales
10
40
30
Growth
Fixed Income
Balanced
Money Market related
20
29
4. Gold Investing
Suggestion to invest in gold may seem an odd advice but at such times it is very good option.
Following are the benefits in investing in gold.
Benefits:
Portfolio
diversification
Inflation
hedge
Risk
management
30
Currency
hedge
Demand and
supply
Tax Planning in India is an application to reduce tax liability through the finest use of
all accessible allowances, exclusions, deductions, exemptions, etc, to trim down
income and/or capital profits.
Salaried individuals in India are not fully aware of the tax planning exercise which is
why they rush at the end of the tax-planning season and make investments to reduce
their tax liability. This has negative effect on tax payable by them and they eventually
end up paying more taxes than they are required to.
Tax-planning can be done by the following ways
1. Make full use of the entire Section 80C deduction - The maximum reduction
available in Section 80C is Rs 100,000 and salaried citizens whose gross salary is Rs
250,000 or more are entitled to use the full Rs 100,000 limit.
Individuals who make monetary infusions of over Rs 100,000 in Section 80C in
selected areas fail to understand that the advantages are limited. In spite of investing
Rs 70,000 and Rs 40,000 in Public Provident Fund and ELSS respectively, the
amount entitled by the investor is only Rs 100,000.
Following investments/contributions meet the criteria for Section 80C reduction:
31
Home loan: Interest payments of upto Rs 150,000 pa are entitled for reduction
under Section 24.
3. Assert tax advantages on house rent paid - If HRA is not included in the salary
structure then the salaried individuals can asset rent paid by them for residential
lodging. This reduction is accessible under Section 80GG and is smallest amount of
the following:
32
benefits salary reform is a more competent measure. The following can be included in
an individual's salary structure:
33
References:
http://www.mint.com/blog/goals/12-steps-to-financial-fitness/
http://www.christianet.com/debt/personalwealthmanagement.htm
"The Handbook of Personal Wealth Management"- Jonathan Reuvid
Hinden, Stan, How To Retire Happy: Everything You Need to Know About the 12
Most Important Decisions You Must Make Before You Retire, McGraw-Hill
Professional Publishing, 2000.
Private Wealth Management: The Complete Reference for the Personal Financial
Planner G. Victor Hallman, Jerry S. Rosenbloom McGraw-Hill Professional
34
Myiris.com
Questionnaires
Questionnaire-1
Identification of Goals
1=most important
9= least important
Financial Concerns
6
planning
3
techniques.
standard of
etc.
4
serious
5
illness.
To develop an investment program that will provide hedge
against inflation
2
event of my
death.
35
Questionnaire-2.
Financial Values
Read the pair of words below, then circle one item in the pair that would be your first choice
in answering the question If you had an extra Rs. 1 Lac, on which of the two items would
you spend your money? You must make one choice in each pair.
Housing (Dream Home)
Investments/ Retirement Savings
Education: Self/Others
Vacation/Travel
Retirement Savings/ Investments
Hobbies/Sports
Social Activities/ Eating Out
Car
Education: Self/Others
Housing (Dream Home)
Personal Appearance/Grooming/ Clothes
Car
Retirement Savings/ Investments
Hobbies/Sports
Hobbies/Sports
Car
Housing (Dream Home)
Vacation/Travel
Vacation/Travel
Charitable Giving/Religious Activities
Hobbies/Sports
Charitable Giving/Religious Activities
Vacation/Travel
Personal Appearance/Grooming/ Clothes
Charitable Giving/Religious Activities
Social Activities/ Eating Out
Housing (Dream Home)
Retirement Savings/ Investments
Hobbies/Sports
Housing (Dream Home)
Charitable Giving/Religious Activities
Social Activities/ Eating Out
Personal Appearance/Grooming/ Clothes
Vacation/Travel
Retirement Savings/ Investments
Social Activities/ Eating Out
Education: Self/Others
Car
Personal Appearance/Grooming/ Clothes
Education: Self/Others
Total the number of times you circled each item in the pair activity
Rank your values
Car
Charitable Giving
Education
Hobbies/Sports
Housing
Personal Care
Social
36
Not at all
More
or Completely
less
How dependent are you on interest, dividends and Totally
Slightly
Not at all
insurance?
Covered
cover
risk
Covered
months
percent
Limited
Ample
access
access
home?
37
15
Yes
No
No
expenses.
If you or your spouse lost your job, you have less Yes
No
No
Yes
No
Yes
No
Yes
No
No
No
overdue bill?
Are you threatened with repossession of your Yes
car, cancellation of your credit cards, or other
legal action?
38
No
Questionnaire 5
RISK TAKING ABILITY
1. How do you think of risk in a money context?
a. Danger
b. Uncertainty
c. Opportunity
b. Some resistance
c. Very easily
c. High salary
stocks
b.
10%
c.
20%
b. Not sure
c. Definitely
7. A PSU bank making an IPO is offering a soft loan to subscribe. Will you take it?
a. No.
b.
Maybe
c. Yes
b. Average
c. Good
b. Not sure
c. Very important
39
1. You are winner of a TV game show. Which price would you choose?
2. You are down Rs 15,000 in a game. How much you would be willing to put up to
win Rs 15,000 back?
Rs 15,000 ( 6 points)
Rs 7,500 (4 points)
Rs 3,000 ( 2 points)
4. Your investment suddenly goes down 15 percent one month after you invest. Its
fundamentals still look good. What would you do?
Buy more. If it looked good at the original price, it looks even better now
(4 points)
40
5. Youre a key employee in a start-up company. You can choose one of two ways to
take your year-end bonus. Which would you pick?
Company stock options that could bring you Rs 300,000 next year if the
company succeeds, but will be worthless if it fails ( 5 points)
41
Answer all the questions given below, circling yes or no, depending in how you feel
about the statements
Yes
No
No
Yes
No
No
money.
I dream I will one day be fabously rich.
Yes
No
Yes
No
No
Yes
No
No
Yes
No
Count the number of yes answers to find out the degree to which money controls
your life.
4
42
Questionnaire-8
Measuring and Reviewing Insurance Coverage
No
2. Does your current insurance protection make sense given your current
financial situation (as opposed to your situation when you bought the
policies)?
No
3. If you wouldnt be able make it financially without your income, do you have
adequate long-term disability insurance coverage?
No
4. If you have family members who are dependent on your continued income, do
you have adequate life insurance coverage to replace your income should you
die?
Yes
7. Have you recently (in the last year or two) shopped around for the best price
on your insurance policies?
No
8. Do you know whether your insurance company has good track records when it
comes to paying claims and keeping customers satisfied?
Yes
43