Wealth Management

WEALTH MANAGEMENT
FINANCE
DOCTOR
Course objectives
n What is wealth? Can everyone be wealthy?

n Identifying values and financial goals
n Inflation and Quantifying goals
n How can I achieve my goals?
Ø Knowing present state – organizing information
Ø Asset classes – stocks, debt, insurance, derivatives
& real estate
Ø Putting it all together
Ø Implementation & Behavioural finance
n Summary
FINANCE
DOCTOR
WEALTH
Passive income sufficient

to sustain the desired
lifestyle
FINANCE
DOCTOR
Identifying Values → Goals
n Retirement
n Education
n Housing
n Protection
FINANCE
DOCTOR
Quantifying Needs
RETIREMENT
Visualize retirement expenses in relation to current expenses
Monthly expenses Current Retirement

Food 7000 6000
Clothing 4000 2500
Housing 3000 6000
Children related 8000 0
Health & Insurance 2000 5500
Transportation 3000 4500
Appliances 3000 2500
Discretionary 5000 3000
any other 0 0
FINANCE
TOTAL EXPENSES 35000 30000 D O C T O R
Quantifying Needs
TOTAL RETIREMENT MONTHLY EXPENSES 30,000
TOTAL RETIREMENT ANNUAL EXPENSES 360000
Inflation rate assumption 6%
no of years 20
inflation factor 3.21
Taxation assumption 10%
Inflation adjusted retirement requirement 1155600
Inflation & tax adjusted retirement requirement 1284000
Return assumption on retirement 8%

Lump sum requirement at retirement 16050000
FINANCE
DOCTOR
Quantifying Needs
EDUCATION
1 children's names Kavi Deepika

2 ages 10 7
3 no. of years until univ. 8 11
4 estimated no. of yrs in univ. 4 4
5 no. of years for infl. Adj. 10 13
6 estimated annual infl. Rate 6% 6%
7 inflation factor 1.79 2.13
8 est. annual univ. cost today 200000 200000
9 est. annual costs adj. 358000 426000
10 estimated total costs adj. 1432000 1704000
money reqd. 2013 2016F I N A N C E

DOCTOR
Quantifying Needs
HOUSING
1 present value of the house 2500000
2 down payment 500000
3 Soft loan from the company 1000000
4 Home loan reqd. 1000000
3 EMI Rs. 945 per lakh- approx. Rs. 9450 per month
4 no. of years reqd. 20 years
5 House rent allowance and taxation benefit Rs. 4450 per month inflow
6 Net monthly cash outflow Rs. 5000
assuming housing grows at 7% for the next 20 years

money required to buy comparable house Rs. 97 lakhs
FINANCE
DOCTOR
Quantifying Needs
TIMELINE
Need Money reqd. Year

Education 14.32 lakhs 2013
Education 17.04 lakhs 2016
Housing 97 lakhs 2025
Retirement1.605 crores 2025
FINANCE
DOCTOR
Organizing Information-
Score card
INCOME ASSETS
EXPENSES LIABILITIES
FINANCE
DOCTOR
Income
INCOME
Active sources
employment salary
professional income
business income
Passive sources
rent from property
investment income
royalties
any other
COMBINED INCOME
Deductions
Taxation
Pension Contribution
any other
NET INCOME
FINANCE
DOCTOR
Expenses – Latte factor
EXPENSES
Food
Clothing
Housing
Children related
Health & Insurance
Transportation
Appliances
Discretionary
any other
TOTAL EXPENSES
FINANCE
DOCTOR
Liabilities – Debt management
LIABILITIES
Short term
credit card loan
borrowings on life insurance
personal loan installment
accrued income taxes
other obligations
Long term
home loan principal yet to be repayed
loans to purchase investmnt assets
loans to purchase personal assets
TOTAL LIABILITIES
FINANCE
DOCTOR
Assets –Most powerful
ASSETS
Liquidity 12 mths basic expense
short term deposits
liquid funds
Safety current income
bonds
saving schemes
real estate on rent
long term
provident fund,pension plans
rbi bonds
real estate for own usage
fixed term deposits
gold, jewellery
Yield Enhancing
stocks-direct equity
stocks-mutual funds
bonds
bond funds
real estate for investment
commodities
art,antique
investible part of insurance policy
TOTAL ASSETS FINANCE
DOCTOR
As Is
SCORE CARD
INCOME Monthly in Rs. ASSETS
Active sources Liquidity 12 mths basic expense amount present return
employment salary short term deposits 50000 3%
professional income liquid funds 0
business income Safety current income generating
Passive sources bonds 0
rent from property saving schemes 150000 7%
investment income real estate on rent 0
royalties long term
any other provident fund,pension plans 1250000 8%
rbi bonds 0
Deductions real estate for own usage 0
Taxation fixed term deposits 150000 5%
COMBINED INCOME post taxn. 55000 gold, jewellery 300000 3%
Provident Fund Contribution 15000 Yield Enhancing
stocks-direct equity 150000 15%
stocks-mutual funds 0
bonds 0
bond funds 0 6%
real estate for investment 0
commodities 0
art,antique 0
investible part of insurance policy 100000 4%
NET INCOME 40000 TOTAL ASSETS 2150000
Food 7000 Short term
Clothing 4000 credit card loan 0
Housing 3000 borrowings on life insurance 0
Children related 8000 personal loan installment 0
Health & Insurance 2000 accrued income taxes 0
Transportation 3000 other obligations 0
Appliances 3000 Long term
Discretionary 5000 home loan principal yet to be repayed 0
any other 0 loans to purchase investmnt assets 0
loans to purchase personal assets 0
FINANCE
TOTAL EXPENSES 35000 TOTAL LIABILITIES 0
DOCTOR
If ‘As Is’ continues
1 Education 2013 -----14.32 lakhs

Saving scheme-1.5 lakhs at 7% 2.6 lakhs
Fixed`deposit-1.5 lakhs at 5% 2.2 lakhs
insurance inv. 1 lakh at 4 % for 8 years 1.4 lakhs
Total 6.2 lakhs
2 Education 2016 ------17.04 lakhs
stocks-1.5 lakhs at 15% 6.98 lakhs
3 Retirement 2025----- 1.6 crores
monthly savings Rs. 15000 in PF at 8% 88.4 lakhs
monthly savings 5000 in deposits at 5% 23.1 lakhs
Total 1.11 crores
4 Housing 2025------97 lakhs
provident fund 12.5 lakhs at 8 % 58.2 lakhs
5 Protection----- 50 lakhs
presently minimal cover
FINANCE
DOCTOR
Things can be different
n Higher returns are possible at
minimal risk and make significant
difference
FINANCE
DOCTOR
Power of Compounding
n For example, if 12 lakhs is
required for children s education in
10 years:
Rate of Return Monthly saving
6% Rs. 7322
15% Rs. 4367
18% Rs. 3622
FINANCE
DOCTOR
Power of Compounding
Time / 8% 15%
Annualized
returns
15 years 29 lakhs 56 lakhs
20 years 49 lakhs 1.25 crores
FINANCE
DOCTOR
Inter Relationships
employment salary short term deposits
professional income liquid funds
Passive sources bonds
rent from property saving schemes
investment income real estate on rent
royalties long term
any other provident fund,pension plans
rbi bonds
Deductions real estate for own usage
Taxation fixed term deposits
COMBINED INCOME post taxn. gold, jewellery
Pension Contribution Yield Enhancing
stocks-mutual funds
bonds
bond funds
commodities
art,antique
NET INCOME TOTAL ASSETS
Food Short term
Clothing credit card loan
Housing borrowings on life insurance
Children related personal loan installment
Health & Insurance accrued income taxes
Transportation other obligations
Appliances Long term
Discretionary home loan principal yet to be repayed
any other loans to purchase investmnt assets
loans to purchase personal assets
FINANCE
TOTAL EXPENSES TOTAL LIABILITIES
DOCTOR
Asset Quadrant-
Allocation is the key
decision
Maximizing wealth within

business cycle & personal cycle
constraints
FINANCE
DOCTOR
Personal Cycle
n Accumulation stage
n Transition stage
n Reaping stage
FINANCE
DOCTOR
Personal Constraints
n Liquidity
n Safety
n Current income
FINANCE
DOCTOR
Assets –Most powerful
ASSETS
Liquidity 12 mths basic expense
short term deposits
liquid funds
Safety current income
bonds
saving schemes
real estate on rent
long term
provident fund,pension plans
rbi bonds
real estate for own usage
fixed term deposits
gold, jewellery
Yield Enhancing
stocks-mutual funds
bonds
bond funds
commodities
art,antique
TOTAL ASSETS FINANCE
DOCTOR
Business Cycle
Consists of economic
expansions followed by
contractions and revivals which
merge into the expansion stage
of the next cycle
FINANCE
DOCTOR
Business Cycle Stage &
Asset Allocation
n Stocks will be the best assets

in certain phases of business
cycle
n Bonds will be the best assets
in certain other phases
n Commodities might thrive in
certain other conditions
FINANCE
DOCTOR
Asset classes
n Equity / Stocks
n Debt
n Insurance
n Derivatives
n Real estate
FINANCE
DOCTOR
What is stock?
Two major types of financing

n Debt – Borrowing & lending
n Stocks – Ownership
FINANCE
DOCTOR
STOCKS
Asset class with best returns and

low risk – therefore most
important for Wealth Creation
FINANCE
DOCTOR
Total Nominal Return
Stocks
Indexes, 1801 – 2001
$8,800,000
Bonds
$13,975
Gold
$14.38
1801 2001
FINANCE
DOCTOR
Comparative Indian Returns
(As of 30-06-2005)
CATEGORY COMPOUNDED ANNUALISED RETURN
1 YEAR 2 YEAR 3 YEAR 5YEAR
Stock Fund 74.83 72.83 61.64 40.57
Debt Fund 4.42 4.58 7.87
Fixed Deposits 5.0 5.0 6.0 6.0
FINANCE
DOCTOR
Low Risk
Price
Time
FINANCE
DOCTOR
International Experience for Stocks
n USA
n Germany
n Japan
FINANCE
DOCTOR
What explains the consistency of
worldwide stock returns?
n Related to economic activity

n Corporate sector is the
engine of economic growth
FINANCE
DOCTOR
Risk Profiling
n Can lead to erroneous

allocation, to be used
carefully
FINANCE
DOCTOR
Market Timing
Should we be always
invested in stocks?
FINANCE
DOCTOR
Yes, except when stocks are
severely over valued and
when personal constraints are
present
FINANCE
DOCTOR
Bluechip fund
Worst possible time to invest

in stocks
n 22nd February, 2000 – NAV 30.78
n 17th September, 2001 – NAV 15.02
n 10th June, 2005 – NAV 64.23
FINANCE
DOCTOR
Returns
n Dividends
n Capital gains
FINANCE
DOCTOR
Risks
n Company specific
n Sector specific
n Market level risk
FINANCE
DOCTOR
Valuation
n P/E
n P/B
n Dividend Yield
n Market Value/GDP
FINANCE
DOCTOR
Valuation Example
Date Sensex Level Price/EarningsPrice/Book Dividend Yield Verdict Subsequent Move

Historical range 11-29 1.9-4.1 0.95-2.4
Feb 2000 6200 28 3.98 1 overvalued Big downward move for 3 years
Dec 2002 3400 14.37 2.24 2.18 undervalued 125 % returns in year 2003
August 2004 5200 15.38 2.88 2.24 undervalued Expected to move up significantly
FINANCE
DOCTOR
Indian Equity Markets
Strong long term potential
FINANCE
DOCTOR
Advantage Asia
Mixed economic data out of US, Europe and Japan. Concerns
remain on structural imbalances, especially in a high oil price and
inflation scenario
US is unlikely to be the world s sole growth engine, given the

gaping current account deficit and low savings rates.
Multiple growth engines are likely to emerge with the Asian region
in particular leading the way
Changing demographical profile favors developing countries as

developed countries are saddled with an ageing population
Asia remains relatively insulated in an uncertain environment
FINANCE
DOCTOR
Global Scenario- Growth in Brics
Goldman Sachs: Over the next 50 years, Brazil, Russia, India
and China (BRICs) could together be larger than the G6 countries
by 2039.
UBS : By 2030, the combined purchasing power of China's and

India's consumers will be five times greater than that of today's
United States
Growth economies driven by domestic demand offer superior

investment opportunities and have a better chance of attracting
new capital
Global companies across sectors are looking to cut costs and

improve efficiencies by outsourcing
China and India offer an unique advantage of low cost outsourcing and a vast
domestic market in a world of scarce growth FINANCE
DOCTOR
2010 - 2030 : Favourable
Demographic Bulge
India Demographic Profile China Demographic Profile France Demographic Profile
(2020) (2020) (2025)
Age group
80+ 80+ 80+
75-79 75-79 75-79
70-74 70-74 70-74
65-69 65-69 65-69
60-64 60-64 60-64
55-59 55-59 55-59
50-54 50-54 50-54
45-49 45-49 45-49
40-44 40-44 40-44
35-39 35-39 35-39
30-34 30-34 30-34
25-29 25-29 25-29
20-24 20-24 20-24
15-19 15-19 15-19
10-14 10-14 10-14
5-9 5-9 5-9
0-4 0-4 0-4
-60
60 -40
40 -20
20 0 20 40 60 -60
60 -40
40
40 -20
20 0 20 40 60 -3
3 -2
2 1
-1 0 1 2 3
Mn people Mn people Mn people
20 - 35 age group : 20 - 35 age group : 20 - 35 age group :
325 mn people ( ~ 25 %) 308 mn people ( ~ 21 %) 11 mn people ( ~ 17 %)

Female
Source: CII Conference 2002; CSFB Report; UN Population Division; BCG Analysis
Male
Demand growth in consumer items over the next few years to remain strong
FINANCE
DOCTOR
The growth surge
70 C onsumer loans to GDP
62 62
60
Economic reform has raised product 53
52
affordability through price stability 49
50
Job creation in services driving

creation of +200m urban consumer 40
base by FY07
Consumer credit is just starting to 30

reach out to next tier of towns
20
Rising consumer aspirations reflected
15
in high growth of cars, mobile subs
10 8
7 6
Increased consumption of services
such as healthcare and tourism are
also spin off benefits 0
Phil.
Taiwan
Thailand
Malaysia
India
Indonesia
Korea
Singapore
HK
Source: CLSA
FINANCE
DOCTOR
Services India s strength
14
Indian IT Software & Services Exports (US$bn)
12.2
12
IT exports contributes to 3.5% of

India s GDP and contributes to nearly 9.9
10
1% of the economy s growth
Nearly 500,000 employees directly

8 7.6
recruited by IT exports growing at a
fast pace of over 30%
6.2
6
ITES is emerging to be a larger
employment generator than IT
Services 4.0
4
2.6
IT explosion creating traction in real
estate of over 1 million square feet per 2 1.8
quarter in main cities. Support facilities

is an additional employment generator.
0
FY98 FY99 FY00 FY01 FY02 FY03 FY04
IT exports continues to push Indian economy into a higher growth orbit
FINANCE
DOCTOR
Indian equities offer sustainable
growth paradigm
India An economic superpower in the making as demographics
and consumerism play out
Corporate India Gaining in strength and confidence after a

period of restructuring
Indian Markets Closed 2004 a volatile year on a high note as

FII inflows turned robust, reflecting the vote of confidence
amongst global fund managers for India
FINANCE
DOCTOR
Industry leaders are now
24
(%) value creators
22
Return on equity
20
18
Value created
16
14
Current c ost of Equity
12
10 Cost of Equity
8
FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 05CL 06CL
Source: CLSA
Capex phase in the late nineties sets foundation for value creation
FINANCE
DOCTOR
Favourable indicators for
investment cycle
4500
Outstanding mfg. investments (Rsbn)
Up tick in investment proposals, after

6 years of decline 4000
Capex fuelled by need for new

capacity with utilization c. 90%
3500
Cost competitiveness, strong balance
sheets support growth with value
creation
3000
Upside from step-up in spend on
infrastructure led by power
Concurrent investment, consumption 2500

cycle potential for +10% IIP growth
Capacity Utilisation (%)
FY02 FY03 FY04 FY05E

Refining 96 96 98 92 2000
Cement 84 86 81 82 94 95 96 97 98 99 00 01 02 03 04
Steel 82 88 82 88 Source: CLSA, CMIE
Aluminium
Source: Cris Infac
88 95 94 90 FINANCE
DOCTOR
Domestic equity ownership
25
(%) on the way up?
20
Equity savings as % of Financial Savings
15
10
Equity savings as % of Market C ap

0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
Source: RBI, CLSA
Household savings into equities bottoming out
FINANCE
DOCTOR
Tax changes support rise
in equity ownership
120
Distribution of financial savings by households (%)
Capital gains tax on listed equities cut; 100
NIL for holdings > 12mths

80
10% (from 30%) for holding <12mths
Dividends tax free since FY03 60
Friendly tax regime will remove a hurdle for

entry of many foreign funds 40
Retail investors invest sub 1.5% of

20
financial savings in equities
Reduced yields on bank deposits (43% of 0

savings), bonds also favor equities
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
Currency Deposits
Claims on Govt Insurance funds
Providend and pension funds Shares and debentures
FINAN CE
DOCTOR
India The bottom line
Economic future is bright
Per capita income expected to double by 2010 will have cascading effect on
companies across sectors
India could emerge as the third largest economy in world by 2050
India and China together expected to become a market 5 times the size of today s
United States in purchasing power terms in 25 years
Medium to long term story strong
Paradigm shift in exports
Robust domestic demand
Improved efficiencies leading to higher wealth creation by Corporate India
Under ownership of equity assets will lead to higher allocation in future as risk
perceptions change FINANCE
DOCTOR
How to invest in stocks?
n Current valuation
n Comparative yields
n Time horizon
n Diversification
n When to take profits?
FINANCE
DOCTOR
Mutual fund Vs Direct equity
n Debate redundant
n Personal choice of control vs
convenience
n Basic principles of
diversification and time
horizon should be followed
FINANCE
DOCTOR
What is a mutual fund?
n Collection of money from a

large group of investors,
pooling it and investing in
various securities, in line
with the fund’s specified
objective
FINANCE
DOCTOR
Equity Fund Style
Growth Blend Value
Large
Mid
Small
FINANCE
DOCTOR
Types of Mutual Funds
n Diversified equity
n Index
n Tax planning
n Sectoral
FINANCE
DOCTOR
RANKINGS
Forward looking as compared to traditional

rankings based only on past performance
Criteria
n Past performance
n Resilience in the falling market
n Risk
n Stability of fund management
n Investment style
n Costs
n Service levels
n MNC s Indian orientation FINANCE
DOCTOR
EQUITY DIVERSIFIED
PERFORMANCE
NAME RETURN (As of 30-06-2005)

3 MONTH 1 YEAR 2 YEAR 3 YEAR 5YEAR
Index 9.09 47.49 39.93 28.04 8.58

HDFC Equity 10.37 61.68 56.91 49.61 27.63
Franklin India Blue 7.04 42.86 53.72 45.20 22.22
Chip
Magnum Contra 10.51 98.87 88.77 59.08 38.88
Franklin Prima 8.15 74.83 72.83 61.64 40.57
FINANCE
DOCTOR
Active Vs Passive
Active funds have

outperformed passive
funds by significant
margin
FINANCE
DOCTOR
Bluechip Composition
Franklin India Bluechip fund jan 31, 2005
no. name % P/E
1 Grasim 6.5 13
2 Infosys 6.19 36
3 SBI 5.9 9.3
4 ITC 5.5 19
5 HPCL 5.4 9
6 Hindalco 5.3 14
7 Reliance 5.2 12.3
8 BPCL 4.6 12
9 Satyam 4.5 19.5
10 TISCO 4.2 7.6
Weighted P/E 15.5
FINANCE
DOCTOR
Prima Composition
Franklin Prima jan 31,2005
no. name % P/E
1 Indian rayon 7.5 26
2 LIC housing fin. 6.5 13.3
3 IPCA labs 5.5 11.2
4 eicher motors 4.4 17
5 MICO 3.9 17.4
6 goodlass nerolac 3.8 14
7 amtek auto 3.4 25
8 birla corp. 3.2 18.5
9 GE shipping 3.1 4.6
10 raymond 2.9 10
Weighted P/E 16.4
FINANCE
DOCTOR
INVESTMENT TAXATION
Equity / Equity Funds

n Long term capital gains tax = 0
n Short term capital gains tax =

10%
n Dividends exempt from dividend
distribution tax
Dividend reinvestment, FIFO
n Section 80C, ELSS, SIP
FINANCE
DOCTOR
Allocation for Stocks
10 lakhs to be invested:
Franklin Bluechip 2 lakhs
Fidelity Fund 2 lakhs
HDFC Equity 3 lakhs
Franklin Prima 4 lakhs
FINANCE
DOCTOR
Conclusion
n Stocks are the best assets

for wealth creation
n However these have to be
utilized in a certain manner
FINANCE
DOCTOR
Debt
FINANCE
DOCTOR
Debt
Two major sources of

financing
n Stocks – Ownership
n Debt – Borrowing and

lending
FINANCE
DOCTOR
Fixed Income Securities
n Debt also known as fixed

income
n Bond is the most familiar
debt security
FINANCE
DOCTOR
Bond
n A long agreement between

borrower & lender stating the
terms of a loan
n Principal
n Interest
n Maturity
n Face value
FINANCE
DOCTOR
Characteristics
n Steady instruments
n Moderate returns
n Providing stability under difficult

conditions
Bonds are wealth preservers while
stocks are wealth builders
FINANCE
DOCTOR
Unique proposition
n Low or inverse correlation

with stocks
n Generally useful in business
cycle stage where stocks are
not favored
n Today’s example
FINANCE
DOCTOR
Types of bonds
Two most useful factors for

categorization
n Issuers and their credit
worthiness
n Maturity
FINANCE
DOCTOR
Types of bonds
n Government bonds
n Corporate bonds
FINANCE
DOCTOR
Yield to maturity
Yield on a bond, taking into

consideration the price paid,
interest to be received and
the principal amount to be
repaid at maturity
FINANCE
DOCTOR
Price Yield Relationship
Inversely Related
FINANCE
DOCTOR
Return
n Coupon payment
n Capital gain
FINANCE
DOCTOR
Risk
Can fixed income securities be

considered risk less?
FINANCE
DOCTOR
Risk
n Credit Risk
n Interest Rate Risk
n Reinvestment Risk
n Liquidity Risk
FINANCE
DOCTOR
What should be counted
as Debt in portfolio?
n Debt Funds
n Bonds bought directly
n Bank deposits
n Small saving schemes
n Provident funds
FINANCE
DOCTOR
Debt & Personal Cycle
Useful for every category within

asset quadrant
FINANCE
DOCTOR
Debt Fund Style
Credit Quality
Interest rate sensitivity

High Medium Low
High
Medium
Low
FINANCE
DOCTOR
Types of debt funds
n Gilt funds duration > 3 years,

sovereign credit
n Gilt short term duration 1 3 years
n Debt medium term duration 3 6
years, both corporate & Govt.
n Debt short term
n Debt ultra short term (liquid funds)
n Floating rate fund
n Hybrid funds
FINANCE
DOCTOR
DEBT FUNDS PERFORMANCE
(As of 30-06-2005)
NAME ANNUALISED RETURN (EXCEPT FOR 3 MONTHS)
3 MONTH 1 YEAR 2 YEAR 3 YEAR
HDFC Gilt 0.23 -0.40 2.30 8.27

Kotak Bond 1.53 4.42 4.58 7.87
Prudential ICICI 1.74 5.20

short term
DSPML floating rate 1.32 5.02
Can liquid 0.10 (7days) 0.20 0.41
(14d) (28d)
Templeton MIP 2.37 9.94 10.56 10.83
FINANCE
DOCTOR
INVESTMENT TAXATION
Debt Funds
n Long term capital gains tax = 10%
n Short term capital gains tax =
treated as normal income

n Dividends tax free in hands of
investors, 12.5% dividend

distribution tax
FINANCE
DOCTOR
Insurance
FINANCE
DOCTOR
Insurance
n Financial protection against
unexpected event
n A risk management tool, a risk
transferring product
n Similar to option
FINANCE
DOCTOR
Low insurance
penetration in India
Total insurance premium as a % of

GDP is very low comparatively
FINANCE
DOCTOR
Protection & Investment
n Insurance generally sold as a

mixed product-
protection+investment
n Main issue- how good is the
comparative performance of
insurance investment ?
FINANCE
DOCTOR
Premium
n Dependent on probability
distributions and individual factors
(actuarial studies)
FINANCE
DOCTOR
Types of Policies
n Term insurance
n Endowment
n Money back
n Whole life
n Pension policies
n Unit linked
n Children s plans
n Riders
FINANCE
DOCTOR
Term insurance=pure protection
All other policies=term insurance+investment
FINANCE
DOCTOR
Calculation of ‘Rate of Return’ on
‘Insurance Investment”
n Reduce everything to actual cash

flows
n Deduct term premium from actual
premium paid
n Calculate rate of return
FINANCE
DOCTOR
With Profit Endowment
n Annual premium=Rs. 22,617
n Payment period=20 years
n Expected payback=Rs. 9.4 lakhs
n Term premium=Rs. 1500
n PMT= Rs. 21,117
n Rate=7.75%
FINANCE
DOCTOR
Money Back
n Expected payback=Rs. 1 lakh at
5,10,15 years and 6.4 lakhs at 20
years
n PMT= Rs. 32,623
n Rate=5.15%
FINANCE
DOCTOR
Calculation of Rate
money back
year cash flows

1 -34123
2 -34123
3 -34123 IRR calculation
4 -34123 5.15%
5 65877
6 -34123
7 -34123
8 -34123
9 -34123
10 65877
11 -34123
12 -34123
13 -34123
14 -34123
15 65877
16 -34123
17 -34123
18 -34123
19 -34123
20 605877 FINANCE
DOCTOR
Whole Life

n Expected payback=Rs. 8 lakhs at
the age of 80 years
n PMT= Rs. 10,355
n Rate=less than 3 %
FINANCE
DOCTOR
Unit linked Insurance
Plans (ULIPs)
n Returns are much less than

comparable investment products
n Additionally, entry costs are very
high
FINANCE
DOCTOR
Pension Plans
n Accumulation phase
n Vesting
n Generation of annuity returns
FINANCE
DOCTOR
Taxation
n Payment-exempt
n Accumulation-exempt
n Maturity-exempt
FINANCE
DOCTOR
Taxation of ELSS
n Payment-exempt
n Accumulation-exempt
n Maturity-exempt
FINANCE
DOCTOR
Overall Comparison
n Return-inferior
n Risk-same
n Costs-higher
n Taxation-same
n Liquidity-inferior
FINANCE
DOCTOR
Conclusion
n Insurance is tremendously
beneficial product for protection
n But investment performance and
costs are inferior to those of
mutual fund
n Conclusion only term insurance
policy should be bought till the
investment performance comes up
FINANCE
DOCTOR
Estimating Appropriate
Cover
n Present income approach- a lump

sum which can generate a return
almost equivalent to the present
income.
n Roughly 10 times the annual
income is a good estimate
n In the case study, 50 lakhs will be
the amount
FINANCE
DOCTOR
Derivatives & Structured
Products
FINANCE
DOCTOR
Derivatives
n A derivative security derives its
value from an underlying
n Underlying can be stocks,
commodities, bullion, currency &
many others
FINANCE
DOCTOR
Basic Types
n Futures
n Options
FINANCE
DOCTOR
Rationale
n Actual transaction not happening
today
n Instead, there is an intent or
commitment
n Origin lies in both buyers and
sellers benefiting
FINANCE
DOCTOR
Oil Prices
An example of usefulness of
derivatives
FINANCE
DOCTOR
Futures
n Obligation to buy or sell an asset at a

pre-specified price and at a pre-specified
time
n Quantity is also determined before hand
Note that this is an obligation
FINANCE
DOCTOR
Terms
n Expiration date
n Initial margin
n MTM margin
n Cash settled vs delivery settled
FINANCE
DOCTOR
Options
n Options are deferred delivery
contracts that give the buyers
the right, but not the obligation,
to buy or sell an asset at a pre-
specified price and on or before a
specified date
Note that this is a right
FINANCE
DOCTOR
Option Terminology
n Call Option
n Right to buy
n Put Option
n Right to sell
n Option Buyer
n has the right but not the obligation
n Option Writer/Seller
n has the obligation but not the right
FINANCE
DOCTOR
Option Terminology
n Option Premium
n Price paid by the buyer to acquire the right
n Strike Price OR Exercise Price
n Price at which the underlying may be
purchased or sold
n Expiration Date
n Last date for exercising the option
n Exercise Date
n Date on which the option is actually
exercised
FINANCE
DOCTOR
Derivatives in Investment
Management
n Hedging
n Portfolio rebalancing
n Capital protection
FINANCE
DOCTOR
Taxation
n For an investor short term & long
term capital gains taxation
n For a business loss can be set off
against other business income
FINANCE
DOCTOR
Real Estate
FINANCE
DOCTOR
Real Estate
Characteristics
n Dominant role in total wealth
n Housing one of the biggest expenses
n For most people, biggest & one of the
best investment decisions
n Decision making not based on financial
aspect alone
n Need for shelter & prestige also gets
fulfilled
n Bungalow occupies an important place
in an individual s psyche Deewar s
Maa comparison FINANCE
DOCTOR
Real Estate
Characteristics
n Fall back asset in unfavourable times
like in rampant inflation
n Important role in multi asset portfolio
n Low correlation with bonds and stocks
n Versatile and multifaceted liquidity,
safety & yield enhancing
n Holding a physically visible asset is
good
n Financial leverage
n Taxation benefits FINANCE
DOCTOR
Historical Return/ Risk
Investment statistics from Real Estate and other categories of Assets 1973-1984
(USA statistics-but provide an indication about comparative return & risk)
Investment Average rate of return Risk-Std. Deviation
Residential Real estate 10.53% 4.44%
Farmland 14.03 11.06
Business real estate 10.78 2.77
Common stocks 9.62 19.71
Corporate bonds 7.51 13.92
Small stocks 21.96 28.11
FINANCE
DOCTOR
Risks
n Market Risk
n Property destruction & cost of
replacement
n Developer Risk, Title deeds
n Tenants refusing to vacate
n Structural flaws
FINANCE
DOCTOR
Risks
n Changes in neighborhood quality
n Liquidity risk
n High transaction costs
n Loan rate risk
n Landlord s duties onerous
FINANCE
DOCTOR
Distinctiveness of
Real Estate
n Psychological value
n Concentration rather than
diversification
n Each unit is distinct
n Liquidity less, transaction cost much
higher
n Ideal time horizon longer than stocks
n There is no exchange for uniform price
discovery
FINANCE
DOCTOR
Placing Real Estate in
Portfolio
PORTFOLIO
NEEDS INSTRUMENTS PERCENTAGE RETURN
LIQUIDITY
SAFETY Real Estate for self-occupation
YIELD ENHANCING Real estate as an investment
FINANCE
DOCTOR
Valuation of Real Estate
n Physical
n Land
n Labor
n Material
n Market sentiment
n Demand & Supply
When demand goes up supply might
follow at a sluggish pace
n Zoning/ Planning Laws
n Controlled Release of Land Stock
n Limited supply of suitable land in a city,
area or a compound FINANCE
DOCTOR
Valuation of Real Estate
n Like for any other asset, valuation
determined by income stream its
ability to generate rent is an
important determinant
n Rental yield R/P
n Potential for capital gain
FINANCE
DOCTOR
Financial Leverage Factor
n Buying cash outflows

n EMI as determined by house prices &
interest rates
n Real Estate Taxes
n Utility Payments
n Home Insurance
n Repairs & Upkeep
n Savings by Tax Reduction
n Net Buying Outflow E
n Net Rental Outflow R
n R/E Ratio also very useful for valuation
FINANCE
DOCTOR
Real Estate Cycle
n Superimposed on the main
business cycle are demand supply
curves of a city, sub-area and
even going down to the unit itself
n While Real Estate in general might
be depressed, one house might be
fetching a very good price
FINANCE
DOCTOR
Gurgaon Example –
Story of a Township
First Phase 1988 to 1992
n South of South Delhi
n Billed as IT Park, residential,
commercial & self sufficient
township
n Attractive prices
n Early adopters, investors & NRIs
FINANCE
DOCTOR
Gurgaon Example –
Story of a Township
Second Phase 1992 to 1996
n Slow release of land stock
n Hype about investment potential
n Post reforms 1992 economy
n Powerful real estate cycle started
kicking in
n Low occupancy, rents remained low
n R/P ratio very low
FINANCE
DOCTOR
Gurgaon Example –
Story of a Township
Third Phase 1996 to 2003
n Investors taking profits by selling
houses
n Developers increased the supply,
looking at high prices
n Slow implementation of economic
reforms
n People (end users) started moving in
n House prices crashed, rents went up
n R/P ratio high FINANCE
DOCTOR
Gurgaon Example –
Story of a Township
Fourth Phase 2003 to to-date
n Economy growing at a healthy rate
n Township living up to its initial potential
n Multiplexes, malls, smart residential

units, multinational companies, schools
& hospitals coming up
n Lower interest rates & booming housing
loans
n 8 lane highway from airport coming up
Prices surging, moved by 250% in some FINANCE

areas in 2004. DOCTOR
Understanding Real Estate Cycle
& Valuation is Beneficial
n In Gurgaon the cycle was giving

strong signals in 2003 that the
property was severely under
valued
n Surprisingly the market stayed low
for quiet some time, thus the
opportunity was there for taking
FINANCE
DOCTOR
Understanding Real Estate Cycle
& Valuation is Beneficial
Other important factors are:

n Motivated seller
n Importance of negotiation
n R/P & R/E ratios time series and

comparative
n Bid offer spreads very high to get
information as buyer and seller
n No price discovery mechanism
n Multiple demand supply curves
FINANCE
DOCTOR
Beneficial Role of Real
Estate in Portfolio
n Presently real estate positively
correlated to stocks and negatively to
bonds
n Flight to safety correlation with other
asset classes can break easily
n Analytical studies show that addition of
real estate to portfolio is very beneficial
returns increase while risks go down
FINANCE
DOCTOR
Buying Vs Renting
n Buying for own usage
n Buying for investment
FINANCE
DOCTOR
Buying for own usage
n Forced saving
n Yields as compared to other safety
instruments is much higher
n Reduces the portfolio risk
n Tremendous financial benefit with
taxation and leverage
FINANCE
DOCTOR
Buying for own usage
n Simulation example
n Buying entailed cash outflow of Rs.
9,450
n There was an inflow in terms of HRA
& Taxation benefit of Rs. 4,450
n With the present value of 20 lakhs &
a monthly outflow of Rs. 5,000 the
effective interest on home loan is less
than 2%
FINANCE
DOCTOR
Buying for Investment
n Concentration
n Illiquid
n High transaction cost
n Disputed titles
n Weak tenancy agreements
n Returns can be higher in other
asset classes
FINANCE
DOCTOR
General Principles
n Long horizon
n Valuation R/P & R/E
n Intensive macro & localized
research
n Comparison with other asset
classes
n Developer s track record
n Legal details to be sorted out
FINANCE
DOCTOR
Taxation
n Interest on home loan up to Rs.
1,50,000 tax deductible
n Payment of Rs. 1,00,000 for returning
home loan principal is also tax
deductible
n Long term capital gain (> 3 yrs) taxed
at 20% with inflation indexation
n This can be saved if gain invested in
property or specified bonds
FINANCE
DOCTOR
Fixed Vs Floating
n Precise placing of interest rate cycle is
difficult
n Estimate broadly whether we are at the
bottom, middle or at the top of the
cycle
n Presently we have just started moving
up from lowest point of the cycle
n Locking in a fixed rate might be
beneficial for a long term loan
FINANCE
DOCTOR
Fixed Vs Floating
n 9.25% floating rate-- Rs. 916 EMI per
lakh for 20 years
n 9.75% fixed rate -- Rs. 949 EMI per
lakh for 20 years
n Even if the floating interest rate goes
up to only 9.75% in next two years,
EMI will go up to Rs. 944, because the
loan amount has gone down only to Rs.
96,000
n Overall in 20 years in floating, the
borrower might end up paying a lot
more FINANCE
DOCTOR
Conclusion
n Versatile & favoured asset class
n For own usage, owning it under more
circumstances is the correct decision
n Effective long term investment
n Increases the return while reducing the
risk of the portfolio
n Does well under unfavourable
circumstances
FINANCE
DOCTOR
Conclusion
n However, when bought for enhancing
yield, investor should be very careful
n Return could be less than other assets
n Illiquid with high transaction costs
n Concentrated
n Local factors need intensive research
this prevents glaring mistakes while
facilitating tremendous investment
opportunities
FINANCE
DOCTOR
Behavioural Finance
FINANCE
DOCTOR
Rationality and Emotion
n Every investment involves a
financial commitment and an
emotional commitment
n Rational advice, even if supported
by lots of data, is much easier to
take in theory than to put in
practice
FINANCE
DOCTOR
Behavioural Finance
n Psychological Factors can thwart
rational analysis and prevent
investors from achieving the best
results for their portfolios
n Volatility of markets cannot be
explained by earnings & growth

Field of Behavioural Finance
FINANCE
DOCTOR
Nobel Prize for
Behavioural Finance
n Daniel Kahneman
n Prospect theory, how individuals
actually behave and make decisions
when faced with uncertainty
n Replacing theories that assumed
investors maximized their expected
utility or well-being and always acted
rationally
FINANCE
DOCTOR
Mismatch between great
opportunities & actual results
Date NAV Market View

Dec. 93 4.69 Introduction of Fund
Apr. 95 10.10 Reforms progressing well
Feb. 97 5.00 Slow implementation of reforms
Feb. 00 30.78 Indian technology, internet, new millennium
Sep. 01 15.02 Global melt down
Dec. 02 23.31 Early signs of Indian corporate resurgence
Dec. 03 51.42 Second stage of reforms, good earnings growth
Apr 23. 04 56.75 India shining, NDA expected to win
May 17. 04 43.51 Surprising election results, Sonia as PM
Oct 4. 04 54.98 Reforms seen as irreversible
FINANCE
DOCTOR
Investor Psychology
Date N A V Investor Psychology

Dec. 93 4.69 Memories of gold going out, 1992 scam
Apr. 95 10.10 Investor confident and gets in
Feb. 97 5.00 Investor sells at a loss, vows never to invest
Feb. 00 30.78 Draws up courage to get in at 25
Sep. 01 15.02 Extremely disillusioned, sells at a loss
Dec. 02 23.31 Remembers the past unfavorable experience
Dec. 03 51.42 Gets in at 42
Apr 23. 04 56.75 Period of happiness, expecting more gains
May 17. 04 43.51 Unnerved by rapid erosion
Oct 4. 04 54.98 Can t really understand, state of confusion
FINANCE
DOCTOR
The Emotions of Investing
FINANCE
DOCTOR
Follow the Crowd &
Asset Bubbles
n Herding instinct
n Disbelief that a large group of people
could be wrong
n Hard to remain separate from a crowd
n Social dynamics & facts
n Information cascade
Asset bubbles, prices overshooting what

is determined by fundamentals
FINANCE
DOCTOR
Self Attribution Bias
n Taking credit for a favourable turn
of events, when credit is not due
n Over confidence
An investor or a fund manager

taking credit for high returns in the
year 1999 & remaining over
invested in technology stocks
FINANCE
DOCTOR
Representative Bias
n Too many parallels between events
that seem the same but are
remarkably different
n Example: Sensex at 6000 in year
2000 & at 6000 in year 2005
FINANCE
DOCTOR
Reluctance to accept
randomness
n Psychological need to know why

something happens and forming a
template for future events
FINANCE
DOCTOR
Cognitive Dissonance
n Predisposition to disregard news
that does not correspond to your
view
n Shutting out bad news
FINANCE
DOCTOR
Reference Point for
Judging Performance
n Mental accounting with purchase
price as the reference point
n Loss aversion, much more upset
about losing from this reference
point
n Holding on to losses
FINANCE
DOCTOR
Anchoring
n Prospect theory predicts that investors
rather than realize loss, will increase
their position, since stock is now
cheaper than their reference point
n Anchoring in their mind more important
than future prospects
n Investors sell their stocks much more
frequently for a gain rather than a loss
They run their losses and take early
profits rather than the other way round
FINANCE
DOCTOR
Myopic Loss Aversion &
Portfolio Monitoring
n Tendency to base decisions on the
short term fluctuations in the
market
n Frequent portfolio changes
FINANCE
DOCTOR
Applications
n Basic factors generating returns change
far less than we think
n Asset allocation should be based on
broad factors
n Investment discipline adhering to
asset allocation based on long term
factors
n Getting rid of temptation to trade
stocks & other volatile assets in the
short term
FINANCE
DOCTOR
Applications
n Diversified portfolio
n Looking at future prospects rather than
reference point/ anchoring
n Avoiding averaging if future prospects
are dim
n Non-participation in asset bubbles (by
curbing herding instinct)
n To buy in undervalued markets even if
everybody else is selling
FINANCE
DOCTOR
Putting it all together
FINANCE
DOCTOR
As Is
SCORE CARD
employment salary short term deposits 50000 3%
professional income liquid funds 0
rent from property saving schemes 150000 7%
royalties long term
rbi bonds 0
Deductions real estate for own usage 0
stocks-direct equity 150000 15%
stocks-mutual funds 0
bonds 0
bond funds 0 6%
commodities 0
art,antique 0
any other 0 loans to purchase investmnt assets 0
loans to purchase personal assets 0
FINANCE
TOTAL EXPENSES 35000 TOTAL LIABILITIES 0
DOCTOR
If ‘As Is’ continues

Saving scheme-1.5 lakhs at 7% 2.6 lakhs
Fixed`deposit-1.5 lakhs at 5% 2.2 lakhs
insurance inv. 1 lakh at 4 % for 8 years 1.4 lakhs
Total 6.2 lakhs
stocks-1.5 lakhs at 15% 6.98 lakhs
3 Retirement 2025----- 1.6 crores
monthly savings Rs. 15000 in PF at 8% 88.4 lakhs
monthly savings 5000 in deposits at 5% 23.1 lakhs
Total 1.11 crores
4 Housing 2025------97 lakhs
provident fund 12.5 lakhs at 8 % 58.2 lakhs
5 Protection----- 50 lakhs
presently minimal cover
FINANCE
DOCTOR
Should Be
Active sources Liquidity 6months basic expense amount present return
employment salary short term deposits
professional income liquid funds 200000 3%
rent from property saving schemes 0
royalties long term
rbi bonds 0
Deductions real estate own usage(housing) 2500000
HRA & Taxation Benefit 4450 stocks-direct equity 30000 15%
stocks-mutual funds(Education) 900000 15%
bonds 0
bond funds 0 6%
commodities 0
art,antique 0
Housing Loan EMI 9450 loans to purchase investmnt assets 0
Term Ins. premium(protection) 2000 loans to purchase personal assets 0
TOTAL EXPENSES 46500 TOTAL LIABILITIES FINANCE

2000000
DOCTOR
‘Should Be’
Adjustments
n Home for own usage bought with 5 lakhs down
payment, 10 lakhs soft loan from the company and 10
lakhs as home loan from the bank
n Term insurance of 50 lakhs cover bought with a
premium of Rs. 2000 per month
n Monthly savings of Rs. 13,000 now being channelized
into stock funds except for the mandatory requirement
for Provident Fund, both for Retirement
n Investible money earmarked for children s education
moved to stock mutual funds
n Minimal money in Existing Provident Fund Account, in
keeping with whatever is required by rules
n Liquidity component now has amount equivalent to 6
months expenses
n Gold & Jewellery totally as before for marital insurance
FINANCE
DOCTOR
If ‘Should Be’ Implemented
EDUCATION
5 lakhs at 15% for 8 years 15.3 lakhs
4 lakhs at 15% for 11 years 18.60 lakhs
RETIREMENT 2025- 1.6 crores
Rs. 10,000 every month at 15 % for 20 years 1.5 crores
Rs. 3000 every month at 8% for 20 years 17.6 lakhs
HOUSING 2025-----97 lakhs
House worth 25 lakhs bought today
5 lakhs down payment
Soft loan of 10 lakhs to be returned after 20 years,
present lump sum in PF earmarked .
Net outflow of Rs. 5000 every month
PROTECTION
FINANCE
insurance premium,monthly outflow of Rs. 2000 DOCTOR
‘Should Be’ Asset Allocation
ASSETS
Liquidity 6months basic expense amount allocation %
short term deposits
liquid funds 200000 5%
Safety current income generating
bonds 0
saving schemes 0
real estate on rent 0
long term
provident fund,pension plans 220000 5%
rbi bonds 0
real estate own usage(housing) 2500000 60%
fixed term deposits 0
gold, jewellery 300000 7%
Yield Enhancing
stocks-direct equity 30000
stocks-mutual funds(Education) 900000 22%
bonds 0
bond funds 0
real estate for investment 0 0%
commodities 0
art,antique 0
investible part of insurance policy 0
TOTAL ASSETS 4150000 100%
art,antique 0
investible part of insurance policy 0
TOTAL ASSETS 4150000 100%
FINANCE
DOCTOR
After 5 Years
ASSETS
Liquidity 12 mths basic expense amount allocation %
short term deposits 10%
liquid funds
bonds
saving schemes
real estate on rent
long term
provident fund
pension plans with fixed return
rbi bonds
short term debt funds
real estate for own usage-own equity
fixed term deposits
gold, jewellery
TOTAL Safety 40%
Yield Enhancing
stocks-mutual funds 30%
bonds
bond funds 20%
commodities
art,antique
TOTAL ASSETS 100%F INANCE
DOCTOR
Asset Allocation
25 – 30 Years Old (Accumulator)
ASSETS
liquid funds
bonds
saving schemes
real estate on rent
long term
provident fund
rbi bonds
fixed term deposits
gold, jewellery
TOTAL Safety 10%
Yield Enhancing
bonds
bond funds 5%
commodities
art,antique
investible part of insurance policy FINANCE
TOTAL ASSETS 100% D O C T O R
Asset Allocation 40 – 45 Years Old
(Mid Life Accumulator/ Harvester)
ASSETS
liquid funds
bonds
saving schemes
real estate on rent
long term
provident fund
rbi bonds
fixed term deposits
gold, jewellery
TOTAL Safety 30%
Yield Enhancing
bonds
bond funds 10%
commodities
art,antique
DOCTOR
Asset Allocation 40 – 45 Years Old
(Mid Life Accumulator/ Harvester)
Business Conditions Change – P/E at 24, Bond Yields at 10.5
ASSETS
liquid funds
bonds
saving schemes
real estate on rent
long term
provident fund
rbi bonds
fixed term deposits
gold, jewellery
TOTAL Safety 35%
Yield Enhancing
bonds
bond funds 40%
commodities
art,antique
DOCTOR
Asset Allocation
55 – 60 Years Old (Harvester)
ASSETS
liquid funds
Safety current income generating 50%
bonds
saving schemes
real estate on rent
long term 20%
provident fund
rbi bonds
fixed term deposits
gold, jewellery
TOTAL Safety 70%
Yield Enhancing
bonds
bond funds 10%
commodities
art,antique
DOCTOR
Asset Allocation
Double Income High Liquidity
ASSETS
liquid funds
bonds
saving schemes
real estate on rent
long term
provident fund
rbi bonds
fixed term deposits
gold, jewellery
TOTAL Safety 15%
Yield Enhancing
bonds
bond funds 15%
commodities
art,antique
DOCTOR
Implementation
n Pay yourself first

n Automate your plan
FINANCE
DOCTOR
Summary
n Everybody can be wealthy
n Achievable at minimal risk and with minimal
adjustments
§ Know values & specific goals
n Organize information & utilize score card
n Asset allocation is the key decision
n Know characteristics & general principles of
various asset classes
n Put together a plan consistent with your
objectives
n Automate your plan so that it gets
implemented FINANCE
DOCTOR

Wealth Management

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WEALTH MANAGEMENT

n What is wealth? Can everyone be wealthy?

Passive income sufficient

Monthly expenses Current Retirement

Return assumption on retirement 8%

1 children's names Kavi Deepika

money reqd. 2013 2016F I N A N C E

assuming housing grows at 7% for the next 20 years

Need Money reqd. Year

1 Education 2013 -----14.32 lakhs

20 years 49 lakhs 1.25 crores

Maximizing wealth within

n Stocks will be the best assets

Two major types of financing

Asset class with best returns and

CATEGORY COMPOUNDED ANNUALISED RETURN

1 YEAR 2 YEAR 3 YEAR 5YEAR

Stock Fund 74.83 72.83 61.64 40.57

Debt Fund 4.42 4.58 7.87

Fixed Deposits 5.0 5.0 6.0 6.0

n Related to economic activity

n Can lead to erroneous

Worst possible time to invest

Date Sensex Level Price/EarningsPrice/Book Dividend Yield Verdict Subsequent Move

US is unlikely to be the world s sole growth engine, given the

Changing demographical profile favors developing countries as

Asia remains relatively insulated in an uncertain environment

UBS : By 2030, the combined purchasing power of China's and

Growth economies driven by domestic demand offer superior

Global companies across sectors are looking to cut costs and

20 - 35 age group : 20 - 35 age group : 20 - 35 age group :

325 mn people ( ~ 25 %) 308 mn people ( ~ 21 %) 11 mn people ( ~ 17 %)

Job creation in services driving

Consumer credit is just starting to 30

IT exports contributes to 3.5% of

Nearly 500,000 employees directly

quarter in main cities. Support facilities

IT exports continues to push Indian economy into a higher growth orbit

Corporate India Gaining in strength and confidence after a

Indian Markets Closed 2004 a volatile year on a high note as

Up tick in investment proposals, after

Capex fuelled by need for new

Concurrent investment, consumption 2500

FY02 FY03 FY04 FY05E

Equity savings as % of Market C ap

Source: RBI, CLSA

Household savings into equities bottoming out

Capital gains tax on listed equities cut; 100

NIL for holdings > 12mths

Dividends tax free since FY03 60

Friendly tax regime will remove a hurdle for

Retail investors invest sub 1.5% of

Reduced yields on bank deposits (43% of 0

India could emerge as the third largest economy in world by 2050

Medium to long term story strong

Paradigm shift in exports

Robust domestic demand

Improved efficiencies leading to higher wealth creation by Corporate India

n Collection of money from a

Growth Blend Value

Forward looking as compared to traditional

NAME RETURN (As of 30-06-2005)

Index 9.09 47.49 39.93 28.04 8.58