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Management
FORE School of Management
Submitted to: - Prof Vinay Dutta
Prepared by:
Sourabh Kwatra
FMG 22C
221147
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 my profound sense of gratitude and veneration to you for your deep insights and
classroom teaching which provided me with valuable qualitative data that have formed the
backbone of this study.
I would also like to thank my client Mr Vipin Bhardwaj for her continuous co-operation.
(Sourabh Kwatra)
Contents
References: .................................................................................. 22
Questionnaires ........................................................................... 23
TABLE OF QUESTIONNAIRES
1.
2.
3.
4.
5.
6.
7.
Literature review
Personal Wealth management:
Personal wealth management (PWM) is the term generally used to describe highly customized
and sophisticated investment management and financial planning services delivered to high net
worth investors. Generally, this includes advice on the use of trusts and other estate planning,
vehicles, business succession or stock option planning, and the use of hedging derivatives for
large blocks of stock.
Private wealth management is the investment management specialization focused on high-networth individuals and families. Portfolio design and investment solutions in private wealth
management are customized to reflect the complexities of the investors unique circumstances.
This review reflects the current best thinking on private wealth management. Wealth
management is defined as an all-inclusive service to optimize, protect and manage the financial
goal of an individual, household, or corporate. (Wiiliam J. Jennings, 2010)
Each stage requires a different focus. In order that the process is successful, the wealth
manager and the client need to understand the nature of the process and appreciate that are
needed at each stage.
Some of the key things that need to be taken care at different stages of this process are as
under:
Investment strategy: Deploying the proper investment strategy requires that the investors
clearly define the long, medium and short term rational for the investment. The decision should
be based upon clear understanding and evaluation of the: (Vinod Mehta,2011)
Depending upon various objectives such as Capital preservation, capital growth, cash flows,
aggressive growth, capital growth and cash flows, wealth building etc. various combinations
could be made of various investment options available such as.
1. The ultra high net worth bankers handbook
The book is written by two leading private bankers and dismantles services for clients with
extremely high capital from the perspective of the customer and banker. The main idea is the
importance of confidentiality of client and need to understand complex customer problems and
their correlation with available financial resources. The book is written in simple language
accessible and contains several specific examples from the authors experience in working with
clients, addressing concerns such as family management, the structuring of state, advising on
the risks, asset management and corporate finance and asset monetization. Equifax Free Credit
Report.
surveys since 2009, as the most recent surveys, is not publicly available. Updated information is
presented in the survey in 2011 Euromoney, but complete results are available only to
subscribers. (William Reichenstein,2011)
Personal Details
Name: Vipin Bhardwaj
Age: 50 years
Marital Status: single father
Educational Background: 10th standard
Occupation: retail outlet owner
Spending Habits: donations, eating, reading novels
Financial Knowledge: very low
Family Details
Financial Details
Income: Rs. 3 lakh per annum plus 60 k (from rent but not sure income) total 3.6 lakh per
annum
Liabilities: Nil
Investments: Gold and property
Investment details:
Name
of
the Duration
Total
investment
Gold( 250 gm )
Property(
Long term
1 Long term
7,50,000
2,00,00,000
commercial shop ,
1 450 sq ft flat and
1 2 storey 450 sq
ft house)
6000
1000
6000
Utilities
2000
Telephone
500
Medical Expenses
1000
1000
Electricity bill
1000
Water bill
500
1000
There for depending upon net inflows and outflows the surplus is 1.2 lakh per annum
Rs.
Rs.
Liquid Assets
Cash at hand
100,000
Total liquid assets
1,00,000
1,00,000
Real Estate
Current market value of property
2,00,00,000
Personal possessions
Market value of scooty
15,000
25,000
10,000
Jewellery
7,50,000
Total Household assets
Investment assets
2,08,00,000
2,08,00,000
00
Total Investment Assets
00
Total assets
00
2,09,00,000
Liabilities
Current liabilities
Total liabilities (no long term liabilities)
Net Worth (assets minus liabilities)
Nil
00
2,09,00,000
Objectives (measureable)
Key Dates(
bound)
Save Rs 40,000
2014
Buy a bike
Save 70,000
2016
Trip
2016
Buy a car
Save Rs 10 lakh
2018
2022
Marriage of son
Save up to 25 lakh
2024
Retirement Planning
2027
time
What is missing here is the attainable and realistic part that will depend upon the surplus that is
1.2 lakh per annum savings.
Ignoring the inflation factor as the income will also be growing in the same proportion so the
inflation impact on goals will either be nil or marginal to consider (assumption).
Liquid Ratio:
Liquidity ratio = Liquid assets / Net worth
In the given case:
Liquid assets are only cash i.e. 1, 00,000 and net worth is 2.09 crore
Which means its like .5 % and At least 15% is the ideal ratio.
The liquidity is a huge matter of concern.
Savings Ratio:
Savings ratio = Savings / Gross income, where
In given case:
Savings are 1.2 lakh per annum against the gross income of 3.6 lakh
Age
50
Type Of Investor
Conservative
Occupation
Business
No. Of Dependents
1 son
Liability
Zero
Risk Appetite
Very low
Return Required
Knowledge
Low
Absorbing Power
Medium
Money attitude
Money dependent
Liquidity
Very low
In the given case at the person is at 50 age, single father, unstable income souse 3 times
is not adequate. It has to be much at least close to 10 times at no medical cover is there
nether possible at 50 age.
The liquidity conditions are very low apart from some cash in hand nothing else is liquid,
though gold can be but there is emotional cost associated with it.
The risk is too high as life is uncertain estate planning is required, so that if anything
happened to Mr Bhardwaj his child can still be safe. The wealth will be in the right hand
and no legal problems will be created.
Retirement planning is required as he had already reached a stage of retirement but still
working, which is causing health issues to him. Now its time he start thinking about
retirement and put illiquid assets into good investable options, so that he will not only
be able to increase the corpus but also get regular flow of income to meet various
financial goals he has.
Its the time he should think who will look upon his child if in case anything happened to
him to feed him.
Invest in PPF, which not only help in post retirement time but also helps in tax benefit.
Take life insurance even if costly for both he and his child with medical cover as well.
The first restructuring suggested is to sell the flat he owns and shift to the 2 storey
house he has. This will result in cash generation of approx 40 lakh to him but it will
result in the elimination of rent income he was generation (60 thousand per year).
The second suggestion will be to invest a part of this 40 lakh in various investment
option depending upon the profile in the following manner
As Mr Bhardwaj is 55 years of age the possible investment in equity at this stage for a normal
profile is 100-age i.e. 45 % but given the fact his risk tolerance level is low plus he is single
father this % could be well low to 20 % ( and is because along with capital preservation capital
appreciation is also required given near term retirement and child related expenses) rest 80 %
will be divide between fixed income and mutual funds in the ratio of 50% and 30 % so that
regular flow and retirement plan will be fulfilled with fixed income investments and capital
appreciation will be done by mutual funds and equity investments.
So even in equity the investment should be made in:
1.
2.
3.
4.
10
Growth
15
50
25
Income
Balanced
Momentum
Now after equity investment in fixed income securities are required that will reduce risk and
provide other benefits such as tax benefit and regular flow of income etc.
30
40
FD
NSC
Bonds
Savings Bank/flexi deposit
20
10
Sales
10
40
20
Growth
Fixed Income
Balanced
Money Market related
30
Apart from investing this 40 lakh the surplus of 60 thousand after eliminating rented income
should also go in creation of emergency fund every yr.
Now based on the following investment of 40 lakh in the given proportion the following tax
planning can also be done:
Donations: Tax advantages under Section 80G entitle the donations to particular
funds/institutions.
1 Make full use of the entire Section 80C deduction - The maximum reduction available
in Section 80C is Rs 100,000
Duration
Total
Gold( 250 gm )
Long term
7,50,000
1,60,00,000
8,00,000
20,00,000
Mutual funds
12,00,000
6000
1000
6000
Utilities
2000
Telephone
500
Medical Expenses
1000
1000
Electricity bill
1000
Water bill
500
1000
1500
5000
Rs.
Rs.
Liquid Assets
Cash at hand
160,000
Total liquid assets
1,60,000
1,60,000
Real Estate
Current market value of property
1,60,00,000
Personal possessions
Market value of scooty
15,000
25,000
10,000
Jewellery
7,50,000
Total Household assets
1,68,00,000
1,68,00,000
Investment assets
Equity
8,00,000
20,00,000
Mutual funds
12,00,000
Total Investment Assets
40,00,000
Total assets
2,09,00,000
Liabilities
Current liabilities
Total liabilities (no long term liabilities)
Net Worth (assets minus liabilities)
Nil
00
2,09,00,000
Such a portfolio will not only provide the liquidity plus help in corpus building for financial
goals he have.
References:
www.cfainstitute.org/learning/topics/pages/privatewealth
PRIVATEBANKING_guide_SEPT10.pdf
Economic times article Top 10 financial steps to take in your lifetime published on
Oct 16, 2014
Economic times article Invest in mutual funds for better retirement planning
published on Aug 13, 2014
Economic times article Ensure your dependents get insurance policy benefits, not
creditors published on 5 Oct, 2014
Questionnaires
Questionnaire-1
Money Attitude:
Statements :
Options
Yes
No
No
Yes
No
Yes
No
I worry that I will not have enough money to live comfortably Yes
when I retire.
Money controls the things I do or dont do in my life.
Yes
No
No
No
No
No
This exercise on money attitude is meant to check what value does money have in an
individuals life and how much control does money have in his/her life. Count of yes is more
than the count of no which means that money has more influence over the life of Mr. Vipin
Bhardwaj.
Questionnaire-2 Financial values Inventory This exercise is meant to decide the priorities
where the individual will put in his/her money if asked to choose between two options.
S.no.
1
2
3
4
Option 1
Housing (Dream Home)
Education: Self/Others
Retirement Savings/Investment
Hobbies/Sports
Vacation/Travel
6
7
8
9
10
11
12
13
14
15
16
17
Option 2
Investments/Retirement Savings
Vacation/Travel
Hobbies/Sports
Charitable Giving/Religious Activity
Personal
Appearance/Grooming/Clothes
Social Activities/Eating Out
Car
Housing (Dream House)
Housing (Dream House)
Car
Hobbies/Sports
Car
Social Activities/Eating Out
Vacation/Travel
Car
Charitable
Giving/Religious
Vacation/Travel
Activities
Personal Appearance/Grooming/Clothes Education: Self/Others
3
2
4
Hobbies/Sports
Housing
Retirement
0
1
4
Vacation/Travel
We can see that the things that are coming out as most important are retirement, child
education and travel and car for child in future. As housing is not a matter of concern for them,
they are high on real assets.
Questionnaire-3
Emergency Fund
Is your income stable?
Not at all
More or less
Completely
Slightly
Not at all
Some
covered
Two months
Three months
6-15 %
Over 15%
Limited access
Ample access
Mr Vipin Bhardwaj is having a highly risky lifestyle with no insurance cover at the age of 50 now
he is not even insurable even if premium will be too high. The regular income sources are on
lower side despite current cash in hand he not even enjoying a bank account facility. In case of
big medical emergency like heart problem or any other thing at 50 age the emergency fund or
liquid assets have to be huge which is not the case here.
Questionnaire 4:Are you in a DEBT TRAP?
You are using your savings to pay current Yes
No
expenses.
You dont know how much you owe.
Yes
No
Yes
No
Rented flat
2. Transportation
New car
Used car
Motor cycle
Public transportation
3. Food
Food at home
Eat out
4. Utilities
Electricity/gas
Water
Telephone
Mobile
5. Expenses
Internet
Clothing
Personal care
Health care
6. Entertainment
Cable
Cds
Movies
Sports events
Concerts
Club/Gym
Vacations
Lessons
7. Personal
Cosmetics/make up
Laundry
Newspaper
Pets
Gifts
Personal hygiene
Reading/educationof child
Tobacco/alcohol products
Religious contributions/charity
Savings
Questionnaire 6
Even if some things are to be assumed
RISK TAKING ABILITY
1. How do you think of risk in a money context?
a. Danger
b. Uncertainty
c. Opportunity
b.
10%
c. 20%
4. 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
a. Not important
b. Not sure
c. Very important
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)
None ( 0 point)
3. A month after you invest in a share, it suddenly goes up 15 percent. With no further
information, what would you do?
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)
Depending on the answers given we can see that the risk taking ability is marginal or even zero
to some extent.