Professional Documents
Culture Documents
capacity
to
India
from
developing
country
to
Page 1 of 77
Table of Contents
1.
Acknowledgement
1
2.
Abstract
4
3.
Introduction
5
4.
(Part-1):
Selling
Of
Life
Insurance
6
4.1
Direct
selling
Method
6
4.2
Telecalling
Method
9
4.3 Internet Method
13
4.4 Survey Method
16
4.5 Canopy Method
18
4.6 Event
21
5. (Part-2): Analysis of Wealth Management Instruments
24
Page 2 of 77
Page 3 of 77
7.1 Conclusion
70
8. Appendices
71
9. References
76
ABSTRACT
This report is basically divided into Four Parts.
Part One: Selling of life insurance
Salesmanship offer adventure, excitement and the competition
we all need to lead a full and enjoyable life. During course of this
Page 4 of 77
period I have used six methods of selling which are- Direct selling,
Tele-calling, Internet, Canopy, Survey, and Event. These are
explained in this report with their benefits, limitations, learnings
and suggestions if any.
The second part of the report is about wealth management that is
an advanced type of financial planning that provides High net
worth individuals and families with private banking, estate
planning, asset management, legal resources, and investment
management, with the goal of sustaining and growing long-term
wealth. The various instruments under it are equity, mutual fund,
real estate, equity linked instruments, Portfolio Management
Services. I have analyzed all of these instruments in this report
and share my ideas regarding what are the best instruments in
various conditions.
The third part of the report is about scope of wealth management
in middle class. For this part I did survey to find out how many
people are aware about wealth management, how many of them
taking wealth management companies services and how many
are willing to take services of wealth management company for
the minimal fee of Rs. 365 annually.
The fourth part of the report speaks about Mutual Fund and
Inclusiveness. Inclusiveness means not excluding any section of
society. In this part I tried to find out can mutual fund include
lower income section of society to provide the benefits of growth?
Introduction
Page 5 of 77
Page 6 of 77
PART-1
SELLING OF LIFE INSURANCE
Sales methods:
1) Direct Selling:
Under this method, sales leads are generated by telesales girls and I was
required to visit the client and sale the insurance. This was a scientifically
correct method as according to one research people like much to talk to
opposite sex on phone than to people of same sex. As in India mainly
financial decision making power vests with male so it is the scientifically
correct that girls make calls and boys are required to go to field as they are
more mobile and it is risky to send girl alone to field.
My role:
I work under this method for 10 days and I visit 20 people during this period.
According to system I was required to visit clients whose leads are generated
by telecallers.
Learnings:
Little things matters most:
I learned that how little things such as your dressing sense, shoes are
polished or not, whether your hairs are well combed or not matters a
lot as these things create first impression about the person selling in
Page 7 of 77
the mind of client. As before we sell the product we are required to sell
our self.
Gain of money
Caution: fear of prospect of losing something
Utility value: utility of product
Pride
Sentiment
Pleasure
Page 8 of 77
VII.
Benefits to health
Page 9 of 77
Suggestions:
Target of telecallers should be quality calls and they should be
explained what are the things to verify to judge quality of their lead.
I observed that telecallers indulge in non quality leads as they fear of
non completion of their targets so they should be motivated to achieve
targets but if they dont achieve once a while they shouldnt be cursed
and if they fail to achieve this targets on regular basis then on first
basis it should be understand why they are unable to achieve their
targets
They should be provided a standard sales script which is based on the
basis of rule AIDA that is attention interest, desire, action. A standard
script based on this will improve their performance and will also take
out the possibility of missing something while talking to customer
Any news related to their industry which they can be used by them
should be explained by senior on regular basis to improve their skills
In office, telecallers should be provided daily NAV of product, Share
market position to update them and improve quality of their calls
They should also be explained uses of annuity table and be provided
the same so that they could solve the investment queries of customers
skillfully.
2) Telecalling:
Under this method I was to call 100 people daily for a week. I called 30% of
them using life insurance pitch. 30% of them on investment pitch and 40% of
them on financial planning pitch.
Page 10 of 77
I developed sales script for each of the pitches that are insurance pitch,
investment pitch and financial planning pitch on the basis of formula AIDA
(Attention, Interest, Desire, and Action). I also call without sales script in 25%
of cases to understand the usefulness of sales script.
Sales pitches:
Investment Sales Pitch:
Good morning sir, am I talking to Mr. XYZ? This is Ravi from Bharti Axa. I
have called you regarding the newly launched investment plan which can
give you return of more than double which you earn through banks.
Is this the right time to talk to you?
The product is Aspire Life in which you are required to deposit money for a
minimum period of 7 years. Suppose you invest Rs. 30000 for a period of 7
years at the end of 20 years you will get around Rs. 3000000. Plus you will
get free life insurance cover of 15 times of your annual premium. Plus you
will get a guaranteed amount of 160% of your first year premium. Moreover
it will provide you flexibility as if you need money in between you can
withdraw money in between but your plan will continue.
The biggest benefits of all is that whatever the premium you pay is tax
deductible under Section 80C of Income Tax Act,1961 and the amount you
get at maturity or amount you withdraw in between is totally tax free.
So if you like the plan I will like to meet you to explain the plan in detail and
collect documents.
years at the end of 20 years you will get around Rs. 3000000. Plus you will
get free life insurance cover of 15 times of your annual premium with no
allocation charges and you will also get free guaranteed gift of 160% of your
first year premium. Moreover it will provide you flexibility as if you need
money in between you can withdraw money in between but your plan will
continue.
The biggest benefits of all is that whatever the premium you pay is tax
deductible under Section 80C of Income Tax Act,1961 and the amount you
get at maturity or amount you withdraw in between is totally tax free.
We have some other products also so I will like to meet you so that I can offer
you best product according to your needs.
Method
Life Insurance pitch
Calls
88
Listen
7
7.95
Page 12 of 77
Investment pitch
Financial planning pitch
100
112
14
51
14
45.53
So I find out that under financial planning pitch people listen most. The
success rate was 45.53% under this method so it was the most successful
method.
This method will provide result only if sales field executive are trained
to articulate their sales story in financial planning way.
Sales field are needed to be trained for more products and some
techniques to understand customer needs although they can still focus
on Aspire Life- the most revenue generating product for us.
As our OCR lacks experience and deep knowledge so our most
experienced and quality work force that is Branch and Territory
Managers should teach OCR how to tackle customer with this pitch and
how to make customer belief that Aspire Life cater to different needs.
OCR should also be provided some regular knowledge about markets
and different financial instruments available in market.
A little effort of mentioning Daily NAVs And Sensex on notice board in
branch should also be done as it improves quality of OCRs
Observations:
I find out that people from middle class or people with less income and
low designation listen more on all methods compared to people with
high income and high designations.
there were some people who were interested under Financial Planning
pitch but do lacks money as this moment so they have promised to call
whenever they wished to invest
I observed that mood also affects the success of call.
No. of people who disconnected phone or do not listen my full sales
script was highest in case of life insurance pitch and lowest in case of
financial planning pitch.
Page 13 of 77
I also observed that no. of people who give me time to meet was
highest in case of financial planning pitch.
My conversion rate was less when I was calling without script when
compared to with script.
I also observed that sales story for financial planning should be
different from insurance pitch as in that case emphasis should be on
understanding the needs of customer and then suggesting product
according to their needs but in case of insurance pitch our emphasis
should be on benefits of having policy.
Limitation of method:
Data: there were some people on data which dont have much
capacity to invest.
Quality of sales pitch can also affect calls
I feel girls making calls could increase the success rate of people
listening calls.
Suggestions:
Sales script must be used as it improves success rate
Financial planning pitch is most successful as that gives the person
impression that his needs are judged and product suggested is tailor
made to his needs
Sales script must be according to AIDA rule
Learnings:
3) Internet:
Under this method I develop an advertisement on the financial
planning pitch and send it to 100 persons on their e -mail id for a
Page 14 of 77
Findings:
The response I get was nothing as I got only 4 responses and only one out of
these 4 was positive and that too didnt follow up.
The message I sent was.
Dear
sir/madam,
Dear sir/madam,
A
to assist
assist you
you in
in achieving
achievingyour
yourdreams.
dreams.
A friend
friend to
Plz find the attached document.
Plz find the attached document.
The advertisement
If, no?
And money is stopping you to live these dreams,
Dont worry just contact us we can help you to live these dreams
through good financial planning.
Ravi Gumber
E-mail: ravigumber1985@gmail.com
Mobile: 9873801272
Responses got:
1. Thank you very much
2. Who are you and how did you get my no.
3. What it is?
4. This is nice, I will catch you later.
But again this person didnt contact me again and I couldnt as I didnt has
his number only e-mail id.
Results:
Responded
4/500= .8%
Positive response
1/500=.1%
Achievement
0/500=0%
Limitation:
Quality of advertisement could be a limitation
Recommendation:
A more attractive advertisement should be used again to verify the result of
this method.
4) Survey:
Objective:
I prepared a questionnaire on wealth management and surveyed around 200
people to judge the effectiveness of survey as method of sales.
The Questionnaire
Survey for Wealth Management
1. Do you invest?
Yes
No
RANK
Page 17 of 77
Insurance
Shares
Property
All
3. How do you invest?
Self
Financial Advisor
Family/Friends advice
Wealth Management Company
(If Wealth Management Company is not selected in Q.N.3, then move to
Q.N.7)
4. Which wealth management companys services are you taking?
No
Page 18 of 77
No
Service/Profession/Business
Finding:
No lead generation
No sales
Observations:
it is a good method for collecting data, introduce company and share
ideas but not a good method for sales
female refuse to give mobile no. and other details in most cases
people avoid to give their details for the fear of misuse
Page 19 of 77
Limitations:
survey is done in busy places so there is less time to sales
people dont give that much time that required for sales
people wont even pay heed when you approach for sales
Learnings:
5) Canopy:
Under this method, I was to establish canopy at different places and sit there
daily for promoting company and to assess usability of this method for sales
For the conduct of this method the first decision is: location of canopy
Conduct of canopy:
We establish canopy at three different places 2 days each. The places
were.
1. Japanese Park, Rohini
2. Netaji Subhash Place, Pitampura
3. Kamla Nagar
Page 20 of 77
Suitability of location:
Location choice was prove to be good as it was a very famous and big
park, around 1000 people visit daily there.
People again has time there as they came for relaxation there
50% of people coming here were from our target group
Achievements:
In two days, 100 people visit our canopy and we introduced our
company, our product to them.
We generated 5 leads out of these 100 people.
1 policy was sold later on to the one of person contacted there and
another one is in follow up
We get reliable data of 100 people through which we can understand
their needs and their risk appetite
We also promoted our company as 1000 people visit there
Achievements:
In two days, 80 people visit our canopy and we introduced our
company, our product to them.
We generated just two leads from here
No sales till now
But it was a very good place for promoting company as thousands of
people visit there.
Suitability of location:
Location was good as thousands of people visit there but people didnt
have much time there as they were busy in shopping
25% of people visiting there was from our targeted sales group as most
of the people there was either young not working people, housewives
etc.
Achievements:
In two days, 64 people visit our canopy and we introduced our
company, our product to them.
We generated just one leads from here
No sales till now
Observation:
It is a good method for promoting company, generating leads, reliable
data.
But sales cant be closed through canopy method as far as canopy
method for insurance product is concerned as people neither come
with required finance nor with required documents in these places
Insurance is a financial product so people take time to decide while
taking any product so it cant be sold on spot in canopy
Location suitability is must for success of this method
Limitation:
Under Canopy method, people are expected to visit on our on their
own.
If brand of the company is not well known then people visit less to
canopy
Doing cost benefit analysis before selecting any location is difficult.
Learnings:
Formalities for organizing canopy
How to conduct canopy method
Suggestions:
Canopy must be attracted enough to attract people
Page 22 of 77
Objective:
Objective of this method was to collect data, promote our company, and
build up relationship with families of children to generate sales later on.
Conduct:
200 students sit for this competition and each of the participating students
was given pencil, sharpener, eraser, colors to attract maximum students
Achievements:
Promoted our company
Get reliable data
Page 23 of 77
Observations:
This is a good method for collecting data, promoting company but at
the same time it is a costly method
It cant give result in short term but it will prove to be very successful
in long run as it helps to bond a relationship between company and
potential customers
Suggestions:
Prize should be related to discounts in insurance premium as it can
entice parents to have policy and will show result in short term
It should be organized on yearly basis in last half of financial year as it
is the time when most people invest for tax planning so it will grow
chances of making sales if prize are linked to discounts
Annual organization of event will build a permanent bond with
emotions of parents.
Learnings:
How to conduct competition
How the company work with innovation to make sales, collect data,
promote company
Limitation:
Ability of this method to give result in short period
Success is not guaranteed
Costly method
CONCLUSION:
Conducting sales through above six methods was a learning and exciting
experience I learn how all of these method work, what are the things that
affect effectiveness of each of these method. But if I were to rate success of
these methods I will say.
Page 24 of 77
2. Telecalling sales: It is also a good method for sales but it against the
rule of perfection as same person is making calls and going to field
3. Internet method: I feel this is not at all effective method for sale
4. Survey: This is a good method for collecting data and promoting
company but not for sales
5. Canopy: This is good method for generating leads, collecting data and
promoting company but very difficult to make sales as product is financial
one. For success of this method selection of suitable location is most crucial.
Part 2
Page 25 of 77
Where
Financial Planning:
Financial planning is the task of determining how a business or individual will
afford to achieve its strategic goals and objectives. The Financial Plan
describes each of the activities, resources, equipment and materials that are
needed to achieve these objectives, as well as the timeframes involved.
Private Banking:
Private banking is a term for banking, investment and other financial
services provided by banks to private individuals disposing of sizable assets.
The term "private" refers to the customer service being rendered on a more
personal basis than in mass-market retail banking, usually via dedicated
bank advisers.
Estate Planning:
Estate planning is the process of accumulating and disposing of an estate to
maximize the goals of the estate owner. The various goals of estate planning
include making sure the greatest amount of the estate passes to the estate
Page 26 of 77
Investment Management:
Investment management is the professional management of various
securities (shares, bonds etc) assets (e.g. real estate), to meet specified
investment goals for the benefit of the investors. Investors may be
institutions (insurance companies, pension funds, corporations etc.) or
private investors (both directly via investment contracts and more commonly
via collective investment schemes e.g. mutual funds).
Products/Instruments offered:
Page 27 of 77
Diversification:
Considered the essential tool in risk management, mutual funds make
it possible for even small investors to diversify their portfolio. A mutual
fund can effectively diversify its portfolio because of the large corpus.
However, a small investor cannot have a well-diversified portfolio
because it calls for large investment. For example, a modest portfolio
of 10 blue-chip stocks calls for a few a few thousands.
Convenience:
Mutual funds offer tailor-made solutions like systematic investment
plans and systematic withdrawal plans to investors, which is very
convenient to investors. Investors also do not have to worry about
investment decisions; they do not have to deal with brokerage or
depository, etc. for buying or selling of securities. Mutual funds also
offer specialized schemes like retirement plans, children's plans,
industry specific schemes, etc. to suit personal preference of investors.
These schemes also help small investors with asset allocation of their
corpus. It also saves a lot of paper work.
Cost Effectiveness:
A small investor will find that the mutual fund route is a cost-effective
method (the AMC fee is normally 2.5%) and it also saves a lot of
transaction cost as mutual funds get concession from brokerages. Also,
the investor gets the service of a financial professional for a very small
Page 28 of 77
Liquidity:
You can liquidate your investments within 3 to 5 working days (mutual
funds dispatch redemption cheques speedily and also offer direct credit
facility into your bank account i.e. Electronic Clearing Services).
Tax breaks:
You do not have to pay any taxes on dividends issued by mutual funds.
You also have the advantage of capital gains taxation as proceeds from
sale of mutual fund after one is long term capital gain which is tax free.
Tax-saving schemes and pension schemes give you the added
advantage of benefits under section 88.
Transparency:
Mutual funds offer daily NAVs of schemes, which help you to monitor
your investments on a regular basis. They also send quarterly
newsletters, which give details of the portfolio, performance of
schemes against various benchmarks, etc. They are also well regulated
and SEBI monitors their actions closely
Taxes:
During a typical year, most actively managed mutual funds sell
anywhere from 20 to 70 percent of the securities in their portfolios.
Page 29 of 77
If your fund makes a profit on its sales, you will pay taxes on the
income you receive, even if you reinvest the money you made
Management Risk:
When you invest in a mutual fund, you depend on the fund's
manager to make the right decisions regarding the fund's portfolio.
If the manager does not perform as well as you had hoped, you
might not make as much money on your investment as you
expected. Of course, if you invest in Index Funds, you forego
management risk, because these funds do not employ managers.
Return and Tax Implications:
For long period I calculated the average return on diversified mutual
funds on a period of 5 years on 58 diversified schemes
Average Return= 47.53% compounded annually
Suppose you invested Rs. 10000 on March 15, 2007 in XYZ Mutual
Fund and purchase 1000 units at Rs. 10 each
You redeemed these units on March 18, 2008 at Rs. 15 per unit so
you earn a profit of Rs. 5000 on it you are not required to pay any
tax on it as long term capital tax is free.
So you earn return of 5000/10000*100= 50% on your return
So your post tax return is 50%
But now suppose you redeemed units on March 10, at the same
NAV of Rs. 15 and your other taxable income is Rs. 500000. Now
your income of Rs. 5000 will be added in Rs. 500000 and you will be
tax of 30.9% on this Rs. 5000
TOTAL INCOME MF INCOME
AFTER TAX RETURN
Rs.500000
34.55%
Rs.250000
39.70%
Rs.150000
44.85%
TAX RATE
TAX
NET INCOME
5000
30.9%
1545
3455
5000
20.6%
1030
3970
5000
10.3%
515
4485
Page 30 of 77
Leverage:
Being able to buy a piece of property by borrowing a percentage of
its value. No other type of investment offers such a high degree of
leverage. It is not unusual for investors to purchase a single family
house by obtaining 100 percent finance i.e. no money down real
estate investing. This of course is very attractive if you can flip
the property at a profit, quickly repay the loan and pocket the
Page 31 of 77
Amortizing:
You have bought the property with other peoples money, but as
you repay, your principal is being reduced. That means your equity
your level of ownership of the property - is being increased.
Tax advantages:
There are several ways in which property ownership can be used for
legitimate tax avoidance though this should not be your first and
foremost reason for buying the property, more a side benefit.
These are the main tangible benefits of property investing. There
are many more associated with the satisfaction and enjoyment,
and the residual nature of the income as opposed to linear
income i.e. the money comes in even when youre not actually
working. Above all theres the buzz which many claim beats the
excitement of any other type of investment!
Huge money :
To invest in real estate huge money is required so this is not
possible for everybody and anybody
High risk:
If you choose a wrong property or property at wrong price it is very
difficult to recover from that loss.
Page 32 of 77
Technical Knowledge:
Before selecting a piece of property a lot of things are to be look
after like documents, location, ownership so it requires a technical
knowledge to invest in real estate.
Time Consuming:
Looking for a perfect piece of land is a tough job as it takes a lot of
time to purchase a property.
Unscrupulous persons:
It is also important to verify the credibility of the person whom with
you is dealing as there are lots of scrupulous persons who are
involved in the real estate market.
Return:
I try to measure return from property market by comparing prices of
property in various area of Delhi with its one year old and five year old
prices. Following were the Results..
Places
2008
Price in 2003
Price in 2007
Price in
Narela
600000
1500000
2500000
Rithala
2200000
5000000
8200000
Pitam Pura
Bankner
1700000
300000
3500000
500000
5000000
800000
has doubled but there are again some areas where prices has just
increased by 10-20% in the same period.
Tax Implication:
If property is kept for more than three years then profits from property
are long term capital gain so taxed at 20.6% otherwise profit is added
in normal income and taxed according to applicable tax rate.
Insurance cover:
Flexibility:
It also offers the flexibility of withdrawing some money in between if
required.
Disadvantages:
Higher charges:
Page 34 of 77
ULIP plans carry a very high allocation charges and other charges
which wipe out a good amount of return
Lock in period:
Less Returns:
Returns are less in case of ULIP as a large part of premium is wipe out
in allocation charges so higher the allocation, lower is the amount
invested and lower the return.
Tax Benefits:
Investment
Tax Rate
Rs. 100000
30.9%
Rs. 100000
20.6%
Rs. 100000
10.3%
Tax
Investment
amounts
Expenses
ULIPs
Mutual Funds
Determined
by the
investor and
can be
modified as
well
No upper
limits,
expenses
determined
by the
insurance
Page 35 of 77
company
Portfolio
disclosure
Not
mandatory*
Modifying
asset
allocation
Generally
permitted for
free or at a
Entry/exit loads have to be borne by the
nominal cost investor
Tax benefits
Section 80C
benefits are
available on
all ULIP
investments
Expenses:
Page 36 of 77
Portfolio disclosure:
Offerings in both the mutual funds segment and ULIPs segment are
largely comparable. For example plans that invest their entire corpus
Page 37 of 77
Tax benefits:
Page 38 of 77
Regular Income:
The investor can earn regular income in forms of dividends, bonus, etc.
Capital Appreciation:
Investor earns not only in terms of regular income but also in terms of
income from capital appreciation
Liquidity:
Tax benefits:
On capital appreciation short term capital tax is just 15% and long
term capital gain tax is nil
Voting right:
Technical Knowledge:
High cost:
No Guaranteed Return:
There is no guaranteed return from share market as one can even wipe
out its principal if money is not invested in right stocks and at right
time.
Index Name
BSE Sensex
BSE MID Cap
BSE SMALL CAP
BSE 200
1 Year
2 Year
46.83
46.84
68.15
48.62
92.97
49.78
60.03
49.56
3 Year
45.37
48.1
57.26
44.16
5 Year
43.10
46.44
Tax Implication:
Suppose you invested Rs. 100000 on March 15, 2007 in XYZ Company
and purchase 10000 shares at Rs. 10 each
You sale these shares on March 18, 2008 at Rs. 15 per unit so you earn
a profit of Rs. 50000 on it you are not required to pay any tax on it as
long term capital tax is free.
So you earn return of 50000/100000*100= 50% on your return
So your post tax return is 50%
But now suppose you redeemed units on March 10, at the same Price
of Rs. 15 and now you will be required to pay short term capital gain
tax @15%
Page 40 of 77
Page 41 of 77
But why should you opt for PMS instead of a mutual fund? Here are a few
aspects on which portfolio managers say they score over the
standardized products offered by mutual funds:
Asset Allocation:
You may know what stocks, equity funds or bonds you would like to
own, but do you know how much of your savings you should allocate to
each of these? The decision on asset allocation will be crucial in
determining investment returns over the long term. With PMS, an asset
allocation plan is tailor-made for you, after a detailed check on your
investment goals, savings pattern and appetite for risk.
Timing:
Have you ever kicked yourself for switching your entire portfolio into
equities just before they tanked? If you have, you probably need help
with regard to timing of investments. Once you hire a portfolio
manager, you can expect assistance on when you should be investing
more money into equities and when you should be bailing out. A
portfolio manager may also switch a portion of your portfolio into cash,
if he perceives a big risk to stock prices. The focus is on preserving
value.
Flexibility:
You are bullish on FMCG stocks, but find that equity funds have
marginal exposures to the sector. In a PMS, you can expect the
portfolio manager to accommodate your sector preferences when he
invests. But don't expect to completely dictate what stocks or sectors
your portfolio manager will buy for you, as he will be the best judge of
that.
Also, portfolio managers do not have to stick to any rigid rules on what
proportion of your money will be invested in each sector or stock. They
can also use liberal doses of cash or derivative instruments to pep up
your returns. Mutual fund managers have their hands tied on these
aspects by SEBI regulations.
Page 42 of 77
Benefits:
Personalized Approach:
More handholding from your portfolio manager than you have been
accustomed to from your mutual fund. You can expect to have a
personal relationship manager through whom you can interact with the
fund manager at any time of your choice. You can also expect frequent
(maybe monthly) interaction with the portfolio manager to discuss any
concerns that you might have. Expect to be consulted on any major
changes in asset allocation or in the investment strategy relating to
your portfolio. All administrative matters, including operating a bank
account and dealing with settlement and depository transactions, will
be handled by the PMS.
Transparency:
If you are the type who likes to watch over your money like a baby, the
disclosures offered by a PMS may be just right for you. On handing
over your money, you will receive a user-ID and password from the
PMS, which will grant you online access to your portfolio details. You
can use these to check back on your portfolio as often as you like.
Keeping track of capital gains (and losses) for the taxman can be a
depressing chore, when you have furiously churned your investments
through the year. Opting for PMS will free you of this chore, as a
detailed statement of the transactions on your portfolio for tax
purposes comes as a part of the package.
Fees:
Most portfolio managers allow you to choose between a fixed and a
performance-linked management fee. If you opt for the fixed fee, you
may pay between 2-2.5 per cent of portfolio value; this is usually
calculated on a weighted average basis. The structure for the
performance-linked fee differs across players; usually, this includes a
flat fee of 0.5-1.5 per cent. The portfolio manager also gets to share a
percentage of your profit usually 15-20 per cent earned over and
above a threshold level, which may range between 8 per cent and 15
per cent. Apart from management fees, separate charges will be levied
Page 43 of 77
Suitability of PMS:
Anybody with a nest egg, which meets the minimum investment
requirement, can consider using a PMS. However, a PMS may only
Page 44 of 77
I.
Page 45 of 77
Tax Benefits: Apart from Section 80C tax benefits at the time of
investing, interest
income from investments in PPF
is exempt from tax under Section 10(11) of the Income Tax Act.
Illustration: suppose you invest Rs. 50000 in your PPF account.
Tax
Benefits
Total Income PPF
N. Income
10(10) D Total savings ATR*
(80C)
Rs.550000
50000
16686
41.37%
500000
4000
30.9%
15450
1236
Rs.300000
50000
11124
30.25%
250000
4000
20.6%
10300
824
Rs.200000
50000
5562
19.12%
150000
4000
10.3%
5150
412
Liquidity:
NSC scores poorly on the liquidity front. The interest income is received
on maturity. Furthermore, premature withdrawals are only permitted
under specific circumstances like death of the holder(s), forfeiture by
the pledgee or under courts order.
Page 46 of 77
Tax Implication:
Interest income from NSC investments is chargeable to tax. However,
the interest accruing annually is also deemed to be reinvested, hence
it qualifies for deduction under Section 80C.
Illustration: suppose you invest Rs. 50000 in your NSC.
Total Income
Total Savings*
NSC
ATR**
N. Income
Interest
Tax Rate
(80C)
Rs.550000
19530
50000
39.06%
500000
4080
30.9%
15450
Rs.300000
14380
50000
28.76%
250000
4080
20.6%
10300
Rs.200000
9230
50000
18.46%
150000
4080
10.3%
5150
III.
Liquidity:
Premature withdrawals are not permitted. However, investors can
choose the regular interest payout options (subject to the same being
offered by the bank) for liquidity.
Tax Implication:
Interest income from tax-saving fixed deposits is chargeable to tax.
Also unlike PPF and NSC, the same is subject to TDS (tax deduction at
source).
Illustration: suppose you invest Rs. 50000 in your Tax Savings
Fixed Deposits.
Page 47 of 77
Total Income
Total Savings*
FDs
ATR**
N. Income
Interest
Tax Rate
(80C)
Rs.550000
19450
50000
38.90%
500000
4000
30.9%
15450
Rs.300000
14300
50000
28.60%
250000
4000
20.6%
10300
Rs.200000
9150
50000
18.30%
150000
4000
10.3%
5150
IV.
Fixed Deposits:
If we take simple Fixed Deposits with Banks, their
Duration: Duration varies from 7 days to 5 or more years
Tax Implication: these are not exempt u/s 80C and interest Income is
chargeable to tax.
Illustration:
Suppose you invest Rs. 10000@8% for one Year Fixed Deposit.
Total Income Interest
Tax rate
Tax payable
N. Interest
ATR*
500000
800
30.9%
247
553
5.53%
250000
800
20.6%
165
635
6.35%
150000
800
10.3%
82
718
7.18%
*ATR= After Tax Return
This is not a tax efficient instrument of investment but it gives pre tax
higher return as it offer 8%-9% even for one year FD.
V.
Page 48 of 77
FMPs Vs FDs:
Fixed Maturity Plans (FMPs) can be termed as the mutual fund
industrys answer to Fixed Deposits (FDs). Over the years, FMPs have
established themselves as an option for debt fund investors (i.e. riskaverse investors). In many cases, they occupy the slot that used to
belong to FDs. This is not surprising given that both the avenues cater
to the same investor category. Having said that, it is worth noting that
FMPs and FDs also vary across a few critical parameters.
Differentiating Parameters:
Assured returns vs. Indicative returns:
The defining feature of both FMPs and FDs is that investors know in
advance how much return they will earn on maturity. The difference is,
while the returns on FDs are assured, returns on FMPs are indicative.
The tax treatment on interest income is different for FMPs and FDs. In
FDs, the interest income is added to the investors income and is
taxable at the applicable tax slab (or the marginal rate of tax).
As far as FMPs are concerned, the tax implication depends upon the
investment option dividend or growth. In the dividend option,
investors have to bear the Dividend Distribution Tax. Whereas in the
growth option, returns earned are treated as capital gains (short-term
or long-term depending on the investment tenure). In the case of
short-term capital gains (i.e. if investments are held for less than 365
days), the interest income is added to the investors income and is
taxed at the marginal rate of tax.
As for long-term capital gains (if investments are held for more than
365 days), the tax liability is computed using two methods i.e. with
indexation (charged at 20% plus surcharge) and without indexation
(charged at 10% plus surcharge); the tax liability will be the lower of
the two. Thanks to the indexation benefit, FMPs end up delivering more
tax efficient returns than FDs.
Conclusion:
VI.
While FMPs offer superior post-tax returns vis--vis FDs, returns offered
by them are only indicative and not assured. Given the fact that
returns are not assured, FMPs are riskier than FDs
Kisan vikas patra are the certificates which doubles the initial
investment at maturity which is for 8 years and 7 months.
Page 49 of 77
7) Commodities:
1 Month
YTD
924.75
4.72%
40.17%
162.56%
26.20%
17.45
8.09%
275.35%
69.25%
99.05
9.37%
173.61%
Conclusion:
Instrument suggested
FDs/ Money Market Instrument/Debt
Diversified Equity Mutual Fund/
Equity/Property/Commodities
Driving Forces:
Page 51 of 77
GDP
Agriculture
Industry
Services
6
4
2
0
PART-3
Scope of wealth Management in
Middle Class
Indian Middle Class is said to number today between 320-350 million
people. This amounts to nearly 30% of Indias total population. The
management consultancy firm, Mckinsey, predicts that Indias middle class
will reach 583 million by the year 2025. India will reach Aristotles ideal by
then, when the middle class will constitute 50 per cent of total population.
According to survey conducted by Max New York Life and the National
Council for Applied Economic Research (NCAER), 81 per cent of Indian
households save for the future
This promotes me to think if 81 per cent of Indian households save for the
future. Do they not need wealth management services to boost their earning
from investments?
Wealth Management Services (WMS) are meant for High Net Worth
Individuals (HNIs). But there is a very big untapped Middle Class with
increasing incomes to tap. So I conducted survey to determine scope of
wealth management in middle class.
Page 53 of 77
11%
7%
1.5-3L
3-5L
26%
5-6L
56%
>6L
Rs.27750 billion
Rs.25740 billion
Rs.11550 billion
Rs.21780 billion
Rs.86820 billion
Page 54 of 77
9%
3%
0%-20%
9%
20%-30%
49%
30%-40%
40%-50%
30%
ABOVE 50%
And mode that is most frequent value is 20% and applying this
representative value of saving to above income power of middle class
suggest that.
Objective of survey:
Objective of survey was to know how many people are aware about wealth
management companies. How many people are taking their services if not
taking why? and will they like to take services of wealth management
companies with a minimum fee of Rs. 365 annually.
Target population:
Target population was young working people from middle class with annual
income of Rs. 150000 or more.
Page 55 of 77
Sample Size:
I choose the sample size of 200
Selection of sample:
The sample was chosen randomly at selected office complexes and shops.
7%
no. of female
no. of male
93%
The sample size was biased towards male because in India still financial
decisions are taken by male and female were also reluctant to discuss their
details in survey.
Qualification wise:
Page 56 of 77
6%
1% 4%
GRA
PG
1%
41%
MBA
10TH
32%
12TH
BELOW 10TH
Professional
14%
Age wise:
7% 4%
UNDER 30
30-40
32%
57%
41-50
ABOVE 50
Page 57 of 77
Occupation wise:
13%
service
business
87%
Findings:
How many people invest their money?
1%
Invest
Not Invest
99%
Page 58 of 77
64%
60%
50%
46%
46%
41%
40%
30%
32%
27%
20%
10%
0%
RISK
PROFILE
CLASS
OF ASSET
RANKS
EQUITY
MUTUAL
FUND
INSURANCE
PROPERTY
BANK FDs
POST OFFICE
Page 59 of 77
Asset
RANK
FOR RISK TAKING ABILITY
SCORE
EQUITY
MUTUAL FUND
INSURANCE (ULIP)
PROPERTY
BANK FD
POST OFFICE
Risk
0-5
Risk Averse
6-10
11-15
These categories has been made on the basis of score of ideal portfolio for
each of the Risk Averse, Medium Risk Taker and High Risk Taker
Page 60 of 77
Page 61 of 77
Age wise:
Qualification wise:
Occupation wise:
Age Wise:
Page 62 of 77
Qualification Wise:
The respondents who are taking services of WMC are mostly highly educated
as
80% of them are MBA and rests 20% are graduates
Occupation Wise:
100% Respondents who are taking WMS were not from business class but
from service class.
These suggest that Wealth Management companies are doing good work so
other should also avail their services.
Now the real question how many people are willing to take
services of wealth management companies:
Page 63 of 77
Gender Wise:
Age wise:
Qualification Wise:
Occupation Wise:
Page 64 of 77
CONCLUSION:
With 320 million current population in middle class and according to
Mckinsey Report, it will touch 583 million by 2025. So it is a very very big
market to be tapped but challenge remains there. The biggest challenge is to
develop confidence among people as a whopping 34% of people dont trust
the services of Wealth Management Companies. Even one respondent touted
that there is no wealth management companies in India, all which are in the
industry are brokers/agents but not advisor or financial advisors
The second big challenge is to provide quality services to people at the lower
cost possible as a whopping 56% of population is income group of Rs.1.5 to
Rs.3 Lacs so they wont be able to pay high fees.
Challenges are big but the opportunity is much bigger than challenges.
Understanding this some companies has started tapping this sector but still
they are concentrating on higher segment of this sector. Equity Intelligence
is one such company as it offers Portfolio Management Services from Rs.
500000 onwards. The less than three-year-old Equity Intelligence has already
built up a client base of 540 and an asset portfolio of Rs 100 crore and its
client bases growth rate is 300%.
But much more growth rate is in lower segment of middle class which is
mammoth in numbers and also willing.
Page 65 of 77
PART 4
MUTUAL FUND AND INCLUSIVENESS
Inclusiveness:
Inclusiveness means not excluding any one. Diversity between rich and poor
are getting bigger and bigger. Poor is becoming poorer not because he not
only earn less but also he does not know where to put his money. He put his
money in post office and banks RDs. He invest systematically every month,
even daily with discipline in post office schemes banks but not in Mutual
Funds which can give him higher profits with almost same security. So higher
profits will increase his standard of living so will bring inclusiveness.
Conduct:
I took all the 58 schemes of diversified equity mutual fund and calculate
average return for 5 years.
Average Return:
5 years:
Average return was 47.53% compounded annually
More than 5 years:
If we took the return of these schemes from inception date that is more
than 5 years it turns out to be 25.16% compounded annually.
PROBABILITY OF LESS THAN 9% RETURN:
5 YEARS:
PROBABILITY= 0 which means all the 58 schemes give more than 9% return
in 5 years
Balanced Schemes:
Page 67 of 77
Balanced schemes are the schemes which invest both in equity and debt
market.
Average Return:
I took all 19 schemes which have track record of 5 years or more.
5 years:
Average return=31.76% compounded annually
Page 68 of 77
91% of respondents said that they save although their saving vary from as
low as Rs. 100 to Rs.1000
So they have the capability to invest as low as Rs. 100 per month, they also
have the opportunity to invest in form of Reliance Mutual Fund SIP.
So they must invest it will improve their standard of living and so the
inclusiveness.
This is also a very big opportunity for mutual fund companies to tap this
market.
But is it enough to introduce one scheme which is in affordable limit to tap
Bottom of Pyramid segment.
CONCLUSION:
Mutual Fund gives very good return with very low probability of default but
still there is no assured return. But seeing past performance of mutual funds,
it could prove to be a tool for bringing inclusiveness in society as poor will
also take part in equity market which is barometer of Economy. In other
words the poor will also grow with country so it will bring inclusiveness. At
the same time it is a very big opportunity for mutual fund companies but
they are required to address accessibility, education of product, and security
of money concerns to tap the actual potential of market.
Page 70 of 77
Appendices
APPENDICE- 1
Calculation of return from mutual fund and probability of less than 9%
compounded return annually.
SCHEME NAME
5 Years
Since
Inception
Probability
65.41
21.77
RELIANCE GROWTH-GROWTH
64.62
33.36
62.88
13.36
59.87
51.68
59.43
14.07
TAURUS STARSHARE
58.33
18.87
57.96
24.98
56.24
52.39
55.75
38.4
10
53.83
25.08
11
52.36
26.03
12
52.31
20.5
13
52.29
47.29
14
52.11
27.49
15
51.83
28.11
16
51.55
27.64
Page 71 of 77
17
51.1
28.22
18
50.64
45.58
19
50.6
49.16
20
49.76
45.97
21
49.73
24.08
22
49.62
15.31
23
49.55
44.76
24
49.49
15.59
25
49.19
23.45
26
49.17
12.65
27
48.48
21.28
28
48.07
22.53
29
47.92
23.95
30
47.73
18.06
31
47.49
40.16
32
47.44
32.57
33
47.44
27.52
34
46.57
10.27
35
45.73
21.81
36
45.59
30.32
37
45.25
32.98
38
44.68
35.98
39
JM EQUITY- GROWTH
43.57
12.09
40
43.23
13.25
41
43.15
27.92
42
43.09
15.02
43
43.06
23.05
Page 72 of 77
44
42.78
26.09
45
42.65
14.05
46
42.57
10.23
47
42.48
15.43
48
41.74
16.64
49
41.18
37.87
50
40.94
14.86
51
39.08
19.88
52
38.92
18.15
53
38.89
13.71
54
37.64
36.53
55
37.62
12.29
56
35.61
14.02
57
32.97
9.43
58
17.98
13.63
47.53724
25.1269
Average Return
Probability of less than 9% return compounded annually
BALANCE FUNDS
S.N.
SCHEME NAME
1
5 Years
since
inception
Probability
42.08
17.99
38
19.8
36.92
16.21
35.97
19.48
35.41
17.49
Page 73 of 77
35.27
26.09
34.99
27.91
33.56
10.54
33.17
17.67
10
32.75
12.51
11
31.59
17.12
12
29.77
18.48
13
29.28
10.31
14
28.33
14.34
15
27.95
18.08
16
JM BALANCED - GROWTH
27.2
11.41
17
26.74
15.62
18
25.75
10.43
19
18.85
15.88
31.76737
16.70316
Average Return
Probability of less than 9% return compounded annually
Appendice-2
Questionnaire for wealth management survey:
Survey for Wealth Management
13. Do you invest?
Yes
No
Page 74 of 77
14. Where do you invest and rank these options according to amount of
investment in each option? (For maximum-1 and minimum-6)
RANK
Bank FDs
Post Office (Kisan Vikas Patra)
Mutual Fund
Insurance
Shares
Property
All
15. How do you invest?
Self
Financial Advisor
Family/Friends advice
Wealth Management Company
No
Page 75 of 77
20. If yes, why dont you take services of wealth management companies?
Lack of confidence
Fees
Lack of awareness
21. Would you like to take services of wealth Management Company with
minimal fees?
Yes
No
Service/Profession/Business
References:
Page 76 of 77
Page 77 of 77