Saturday, September 29, 2012

The 3rd wealth management session – A discussion on Mutual funds

A discussion on Mutual funds – the types of MF’s and how to select the MF for investing

Mutual  funds are a very good way to start your investment journey and I recommend it to everyone who is looking at becoming rich. This session was aimed at sharing with my MBA students the logic used behind selecting the right MF -  many of my students will become Wealth managers next year  and this would be useful learning for them in their jobs (last year appx. 200 students from my institute joined the WM industry and this year I believe it will be similar numbers).

As a primer to this session, I had requested my students to read the document on MF available at

In the class, they went through a 90 min quiz on MF’s  - here we discussed the basic concepts through the quiz format.  My ppt for this session is mostly these quiz questions – may be you must look at it to figure out your basics on Mutual funds as well.  You can download it at

Post the quiz, we logged on to and studied the various types of MF’s available in the Indian market – we saw the details of a few mutual funds – we looked at where they have invested currently, what is their relative performance, who is the fund manager etc and discussed how to evaluate the mutual fund and which fund to invest in.

So the class was one half quiz and one half browsing the internet portal on MF’s .

I would recommend that you too browse and look through the various types of mutual funds available and drill down into a few funds to look at detailed data on their performance and the portfolio that they hold.

The key question in your mind would be “how do I select that particular mutual fund where I can invest  and get good returns”. My session ppt does not have much content on that as it was a freewheeling discussion.  However, my forthcoming book has a lot of content on the various types of MF’s available in the Indian market and how does one select that particular MF where you can invest in.

It obviously depends on your investment objective and broadly the objectives could be described in the following scenarios:

         Growth objective “I want to invest Rs 10,000 today and after five years take back Rs 25,000 and I want this to be tax free”. The funds that try to meet these objectives invest in equities – hence they are called Equity funds

         Income objective “I am retiring next year and would get a gratuity of Rs 30 lacs - I want to invest it such that my gratuity is preserved and I get a monthly income better than a post office deposit interest”. The funds that try to meet these objectives typically invest in debt instruments issued by government, banks, corporate and financial institutions - hence they are called Fixed income funds or debt funds.

         A combination of growth and fixed income “I have received my annual bonus of Rs 10 lacs just now – I want to invest it such that in 5 years it becomes 15-18 lacs plus I get a payoff of Rs. 60,000 per annum for my vacation out of this fund”. The funds that try to meet these objectives typically invest in both equities and debt instruments – these funds are called Balanced funds.

         Short term investments “I have Rs 100,000 with me for the next three months – it is meant for my child’s school admission in May and I need to park it somewhere till then – I would like to have a better return than a savings bank account”.The funds that try to meet these objectives typically invest in short term debt instruments like interbank money markets – hence these are called Money market funds.

         Tax saving “I want to reduce my tax out go and is there some place I can invest beyond PPF and Post office schemes?”. The funds that offer tax rebates are called Equity linked saving schemes (ELSS), - these funds invest in equities and typically have a three year lock-in period.

So you have to start with your investment objectives  and then select that particular mutual fund where you can invest and reach your objectives? 

There is a whole industry out there that makes selecting and recommending Mutual funds look very difficult and complex – but that is not really true. One can easily select which MF to invest.

My forthcoming book has more than enough content on “how to select the right MF”it is really not that difficult and anyone can do it.

Wednesday, September 19, 2012

The 2nd wealth management session

A discussion on risks that we face and how does the wealth management industry quantify the risk taking ability of a customer?

Prior to this session, the students had prepared and sent me a 20 year cash flow plan for an MBA couple - this was done in groups. I had picked a few of these cash flow plans – and specific groups got a chance to present their plans and as a class we critiqued the work. I am sharing one of the better plans in this blog –with permission from the students who made this.  Here is the link

The key message that I wanted to convey was that anyone of my MBA students can become rich in the next 10-15 years - with smart investing; they can reach a stage where they “do not have to work for money”.  This is a mindset change – it does not come easily as most of us are from middle class back grounds and this 20 year financial plan proves to the students that they can also become rich – all they need to know is how to invest smartly.

This template can be used by my other readers as well – anyone can and should make a 20 year financial plan for himself/ herself –as I had said in my first session, “Failing to plan is planning to fail.”

Here is a small paragraph from my upcoming book (which is with my publishers right now) that explains this better -“As you plan for the next 20 years, you will get more clarity in your mind on your way forward – this financial planning exercise compels you to find a strategy to achieve your dreams – you will figure out the factors that are under your control that will help you achieve your dreams. You will meet and befriend people who will help you get closer to what you want. You will eventually reach your dreams earlier than your plans – the world will call it luck – but you will know that it is not just luck – subconsciously, you have been working on achieving your dreams and you have succeeded. Planning for long term and achieving will become a habit - a lifelong quest - and you will surely succeed in whatever you do.”

The second half of the session (90 mins) was used to talk about Risk as a concept.  We addressed two issues here –

  • What are the types of risks and how does one mitigate these risks - Here we discussed the kind of risks that we face as individuals –  theft of our valuables, an accident, a heart attack, sudden death, unplanned hospitalisation, a customer suing a doctor for a mistaken surgery etc etc. We classified these risks, and discussed approaches to mitigating them. The message was that each one of us needs to be aware of the risks we face and that we must figure out ways of mitigating them.
  • What is your risk taking ability and how do I link it to your asset allocation?  -Each one of us has a psychological risk tolerance level – some of us are Ok with higher risks and some of us are not. Plus the risk taking capacity is also defined by how much financial assets you have amassed – someone with 100 lacs assets can afford to risk Rs 10,000 in King fisher airlines stock right now – but someone with Rs 10,000 assets, should not think of taking that kind of risk with that stock. Needless to say, the kind of investments we should make should be in sync with both these factors –the psychological tolerance to risk and the financial capability to take risks – I shared with the class, how the wealth management industry does this –

The ppt for the session can be downloaded from here:

Wednesday, September 12, 2012

The 1st wealth management session – The importance of defining the term “Rich”:

In any journey, if we do not define our destination, we will find it difficult to reach it.  

Similiarly, in the wealth journey, we all need to define the term “rich” – otherwise we will not reach it. The reason why many people do not reach the “rich” stage is that their definition of rich is not a very clear cut definition.  

The class discussed a few common definitions of the term “rich” (two of which are in the ppt) – obviously everyone has a different take of this term - we then agreed that any goal needs to be Specific, Measurable, Achievable, Realistic and Time bound (SMART goal) – and so the definition of “rich” also needed to be SMART.

 I then introduced them to the definition by Robert Kiyosaki in his book “Rich Dad Poor Dad”. We went one level deeper and discussed the quantification of this term “rich” based on this definition. In order to quantify this definition, we discussed the case of an MBA couple (that my students can relate to) and tried to make a 20 year financial plan for them – this 20 year financial plan is not finalised yet as the students are supposed to work on it over the week and so I will share one or two of the finalised plans in my next week’s notes.

This was the key issue we discussed for 2 hours of the three hour session.

The last hour was devoted to an over view of the wealth management industry in India. Here we discussed the market estimates, the key players, the kind of business models and the current challenges that the wealth managers face today.

Monday, September 10, 2012

Knowledge has value only if it is shared

As a faculty, I have learnt to take life trimester by trimester. This is my eighth trimester as a faculty and just like the prior seven trimesters, I am looking forward to the starting of the new session. This trimester is also special as I am teaching Wealth Management. This subject is close to my heart.  I learnt it by actually doing it. It comes to me naturally.  I know that I am good at it and I know that my students too like these sessions.

Even though the course is designed to prepare students for a career in Wealth management, I am also teaching them “how to become rich”. After all as MBA students, they are all a privileged lot - the top 1% of the population in their age group in India. They will have many opportunities post their MBA and I surely think each one should become a High Net worth Individual (HNI) over the next 10 years. That is what I am aiming to teach – “How to become rich”.  

This trimester I intend to put my content on my blog with every session – most probably every Thursday. The blog will carry the key points discussed and there will be a link to the ppt that I used in the session. This is for those who are not in the campus and still want to follow the sessions.

For those who are in the campus but are not part of my class, you are welcome to join us. I have sessions in Kengeri campus on Tuesdays and Thursdays from 10 till 1 pm and in the city campus on Wednesdays from (I think) 8.30 am till 11.30 am.

I hope that this works for you and that you will be a co traveller with me in the wealth journey.
I am interested to find out your feedback on the content – whether you agree with what I am saying or not -  So please do pen your comments on my blog or you can send me a message through FB or gmail. Also request that you register your mail id on my blog –it is on the right hand side  -a box called "follow by email" -  that way my updates will reach you automatically every week.