Neil Wealth Magt

8/9/2019 Neil Wealth Magt

1/87

A Report

On

WEALTH MANAGEMENT SERVICES INHSBC AND WMS PROVIDINGALTERNATIVE INVESTMENT

PLATFOR M

ByNeelesh Wadhwani

(08BS0001879)

(HSBC BANK)


2/87

2

A Report

On

WEALTH MANAGEMENT SERVICES INHSBC AND WMS PROVIDINGALTERNATIVE INVESTMENT

PLATFOR M

Submitted By:Neelesh Wadhwani

(08BS0001879)

(HSBC BANK)

Date: 15/05/2009


3/87

3

LETTER OF AUTHORIZATION

This report, Wealth Management Services in HSBC and WMS providing alternative investment

platform and Estimation of Beta during Bull and Bear Period is authorized by Mr. Nitin

Verma and Mr. Hemant Chandak the company guide and Prof.G.D. Rathore and Dr. Deepak

Khanna the faculty guide with the partial fulfillment of the requirement of Summer Internship

Program of the MBA Program of ICFAI Bu siness School.

Company guide Faculty guide----------------------- ---------------------

(Mr. Nitin Verma) (Prof. G.D. Rathore)

SM-HSBC Bank

Jaipur

Date: 15/05/2009


4/87

4

ACKNOWLEDGEMENT

It gives me immense pleasure in acknowledging the valuable assistance and co-operation Ireceived from the people around me for the successful completion of my internship.I would like to express my sincere thanks to Mr. Nitin Verma (SM, HSBC Bank, Jaipur) and

Mr. Hemant Chandak (FPM HSBC Bank, Jaipur) for providing me opportunity to work withhim. I feel indebted to them for their constant support, encouragement, guidance and inspirationall through my association with them. I would also be greatful to them for their co-operation andproviding me various facilities to work with him.

I am also indebted to Mr. Vivek Mathur , Branch Manager, HSBC, Jaipur, for providing me anopportunity to work in an esteemed organization and gather the realities of the market .

I earnestly express my gratitude to our able and competent faculty guide Prof. G.D. Rathore Faculty guide, IBS Jaipur. His support and full-fledged guidance, encouragement and valuablesuggestion were instrumental in making this project.

Completing this project would not have been possible without active assistance of CAT(Custome r Acquisition Team ) comprising of Mr. Gaurav, Mr. Avinash, Mr. Dilip, Mr. Bharatand Relationship Managaers Mr. Vasu Dev and Mr. Sanjay with whom I was working despitetheir busy schedule. All of them were quite generous to devote time and energy in answering myqueries, solving my problems and passing me valuable amount of Knowledge towards my studyof Wealth Management Services in HSBC and WMS providing alternative investment platform and Estimation of Beta during Bull and Bear Period .

Thanks are also due to my family, friends, and colleagues who were with me through all timesand encouraged me on towards accomplishing this project objective.

Neelesh Wadhwani Date: - May 15, 2009


5/87

5

Table of Contents

Letter of authorization..................................................................................................................... 3

ACKNOWLEDGEMENT .............................................................................................................. 4

Abstract ........................................................................................................................................... 7

INTRODUCTION TO BANKING INDUSTRY ........................................................................... 9 WIDER COMMERCIAL ROLE .............................................................................................. 10

LAW OF BANKING ................................................................................................................ 11

ENTRY REGULATION .......................................................................................................... 12

RISKS FOR A BANK .............................................................................................................. 12

Who is HSBC? .............................................................................................................................. 14

HSBC IN INDIA....................................................................................................................... 14

Introduction of firm/branch....................................................................................................... 15

INTRODUCTION TO WEALTH MANAGEMENT SERVICES .............................................. 16 Need-based sales approach with innovation ...................................................................... 17

Key Elements of Wealth Management Services....................................................................... 18

Process of Wealth Management................................................................................................ 18

Products offered by HSBC............................................................................................................ 20

Savings account......................................................................................................................... 20

Features & Benefits:.................................................................................................................. 20

ATM access: HSBCs wide network of ATMs has made banking all the moreconvenient for customers. Withdraw cash, transfer funds, deposit cheques and cash, requestfor a bank statement, cheque-book or mini-statement and check balances. ......................... 21



CritiCare.................................................................................................................................... 26

MUTUAL FUNDS ................................................................................................................... 28

ADVANTAGES OF INVESTING IN MUTUAL FUNDS: ................................................ 31

DISADVANTAGES OF INVESTING IN MUTUAL FUNDS: .......................................... 31

TYPES OF MUTUAL FUNDS ............................................................................................ 32

ULIP (Unit Linked Insurance Plan) .......................................................................................... 39

INTRODUCTION: ............................................................................................................... 39

ULIP Advantages .................................................................................................................. 39

ULIP VS TRADITIONAL INSURANCE PLAN ................................................................ 39

Retail Broking ................................................................................................ ........................... 45

WEALTH MANAGEMENT IN RETAIL BANKING ................................................................ 46


6/87

6

ALTERNATIVE INVESTMENT ASSET CLASSES ............................................................. 49

ALTERNATIVE INVESTMENTS AN AID TO BUILD CORPUS FOR INVESTORS .... 52

CONSUMER FINANCIAL PROFILING AT HSBC .............................................................. 53

SURVEY AND RESEARCH ....................................................................................................... 54

METHODOLOGY........................................................................................................................ 56 OBSERVATIONS AND FINDINGS ........................................................................................... 57

Future of Alternative Investments in India ................................................................................... 63

CHALLENGES AND LIMITATIONS ........................................................................................ 64

RECOMMENDATIONS FOR HSBC INDIA ............................................................................. 65

CONCLUSION ............................................................................................................................. 66

B] ESTIMATION OF BETA DURING BULL AND BEAR PERIOD ....................................... 67

Research Study.............................................................................................................................. 71

Research Objective ................................................................................................................... 71 Methodology ............................................................................................................................. 71

FINDINGS ................................................................................................................................ 73

SNAPSHOT OF BETA CALCULATION ................................................................................... 79

LARGE CAP BETA ................................................................................................................. 79

MID CAP BETA....................................................................................................................... 80

SMALL CAP BETA ................................................................................................................. 81

ANNEXURE................................................................................................................................. 82

REFERENCES ............................................................................................................................. 86


7/87

7

ABSTRACT

It has been wisely said by the retail banking industry that brewing coffee and creating wealth areexactly analogous in their spheres of operation. Even the slightest of miscalculation can causeentire efforts to be ruined. The Indian wealth management industry is brewing the best coffee for

its customers today!! My project deals with Wealth Management Services in Retail Banking andwealth management providing channel for alternative investment platforms. There has beentremendous growth in the investment values of the high-net-worth individuals. One thingcommon to all the wealth management service providers is all are market driven only. If weglance through the world scenario, we would see that it is not just the mutual fund, equities andinsurance sector in which these wealthy people are interested in, but the horizon is much wider.Though they want the aim of wealth creation, wealth maintenance/enrichment and wealthpreservation, but they also are interested in lifestyle quotient, bullions, estate planning, etc.

In this project I have determined the investment pattern of customers in the traditional wealthmanagement services such as Mutual Funds, Insurance, Fixed Deposits and alternativeinvestment classes which are Hedge Fund Investment, overseas investment, Education andretirement planning, Estate Planning, Private Equity and others. To create a picture regarding allthese aspects, a questionnaire was used mainly. Secondary data was also collected on the samethrough brochures and various websites. The investment patterns were determined based oncustomers Risk Appetite, Time Horizon and Return on Investment.

The responses received through questionnaires were analyzed by preparing various kinds of charts using MS Excel. Analysis of the questionnaire revealed the fact that there has been changein investment pattern of customers.

Also a supplementary project was done by me on Estimating Beta of Large Cap, Mid Cap and

Small Cap companies during Bull and Bear period. In this project I have tested whether thestock market volatility presents a different behavior in bull and bear phases and made anappropriate portfolio. Data for closing value of NSE index and closing price of stock wascollected from NSEs website for a sample period from 1 st January 2007 to 31 st January 2009.This sample period was divides into Bull Period and Bear Period. The duration of Bull periodwas from 1 st January 2007 to 14 th January 2008 and the bear period was taken from 15 th January2008 to 31 st January 2009.


8/87

8

After collection of data, using SPSS Packages Regression Analysis (Linear regression) Icalculated Beta for the stocks. For calculating beta I used Capital Asset Pricing Model(CAPM)model. Per day index return was calculated using closing value of index and then per day risk free rate of return (which was taken as 6% per annum) was deducted from it (R m-Rf ). This valuewas regressed with per day earning of stock(K j), which was calculated using closing price of

stock. R m-Rf was taken as independent variable and K j was taken as dependent variable.


9/87

9

INTRODUCTION TO BANKING INDUSTRY

The word "bank" reflects the origins of banking in temples. According to the famous passagefrom the New Testament, when Christ drove the money changers out of the temple in Jerusalem,

he overturned their tables. In Greece, bankers were known as trapezitai , a name derived from thetables where they sat. Similarly, the English word bank comes from the Italian banca , for benchor counter.The history of banking is closely related to the history of money As monetary payments becameimportant, people looked for ways to safely store their money. As trade grew, merchants lookedfor ways of borrowing money to fund expeditions.The first banks were probably the religious temples of the ancient world, and were probablyestablished sometime during the 3rd millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agriculturalimplements, and eventually precious metals such as gold, in the form of easy-to-carrycompressed plates. Temples and palaces were the safest places to store gold as they were

constantly attended and well built. As sacred places, temples presented an extra deterrent towould-be thieves. There are extant records of loans from the 18th century BC in Babylon thatwere made by temple priests to merchants. By the time of Hammurabi's Code, banking was wellenough developed to justify the promulgation of laws governing banking operations.

Global banking and capital market services proliferated during the 1980s and 1990s as aresult of a great increase in demand from companies, governments, and financial institutions, butalso because financial market conditions were buoyant and, on the whole, bullish. Interest ratesin the United States declined from about 15% for two-year U.S. Treasury notes to about 5%during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy. Such growth rate would have been lower, in the last twenty years, were itnot for the profound effects of the internationalization of financial markets especially U.S.

Foreign investments, particularly from Japan, who not only provided the funds to corporations inthe U.S., but also helped finance the federal government; thus, transforming the U.S. stock market by far into the largest in the world.Banking is the mirror reflection of an economy. All the countries economy sail on banking. Themajor function of the bank is to lend to the economy. We have many cases at the back of ourmind in which collapse of banking sector lead to failure of economy. So if there is anythingwrong with this sector, entire economy can collapse like earthquake suffered buildings. Thus wecan say that performance of large part of the economy depend on banking sector.

The definition of a bank varies from country to country.

Under English law, a bank is defined as a person who carries on the business of banking, whichis specified as:

conducting current accounts for his customerspaying cheques drawn on a himcollecting cheques for his customers.


10/87

10

In most English common law jurisdictions there is a Bills of Exchange Act that codifies the lawin relation to negotiable instruments, including cheques, and this Act contains a statutorydefinition of the term banker : Banker includes a body of persons, whether incorporated or not,who carry on the business of banking' (Section 2, Interpretation). Although this definition seemscircular, it is actually functional, because it ensures that the legal basis for bank transactions such

as cheques do not depend on how the bank is organized or regulated.The business of banking is in many English common law countries not defined by statute but bycommon law, the definition above. In other English common law jurisdictions there are statutorydefinitions of the business of banking or banking business . When looking at these definitions it isimportant to keep in mind that they are defining the business of banking for the purposes of thelegislation, and not necessarily in general. In particular, most of the definitions are fromlegislation that has the purposes of entry regulating and supervising banks rather than regulatingthe actual business of banking. However, in many cases the statutory definition closely mirrorsthe common law one. Example of statutory definitions:

"Banking Business " means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similaraccount repayable on demand or within less than [3 months] ... or with a period of call ornotice of less than that period;

2. paying or collecting cheques drawn by or paid in by customers

Since the advent of EFTOPS(Electronic Funds Transfer at Point Of Sale), direct credit, directdebit and internet banking, the cheque has lost its primacy in most banking systems as a paymentinstrument. This has lead legal theorists to suggest that the cheque based definition should bebroadened to include financial institutions that conduct current accounts for customers andenable customers to pay and be pa id by third parties, even if they do not pay and collect cheques.

WIDER COMMERCIAL ROLE

However the commercial role of banks is wider than banking, and includes:

issue of banknotes (promissory notes issued by a banker and payable to bearer ondemand)processing of payments by way of telegraphic transfer, EFTOPS, internet banking orother meansissuing bank drafts and bank chequesaccepting money on term depositlending money by way of overdraft, installment loan or otherwise
http://en.wikipedia.org/wiki/English_common_lawhttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/English_common_lawhttp://en.wikipedia.org/wiki/Chequeshttp://en.wikipedia.org/wiki/Chequeshttp://en.wikipedia.org/wiki/Negotiable_instruments


11/87

11

providing documentary and standby letter of credit, guarantees, performance bond,securities underwriting commitments and other forms of off balance s heet exposuressafekeeping of documents and other items in safe deposit boxescurrency exchange

sale, distribution or brokerage, with or without advice, of insurance, unit trusts andsimilar financial products as a ' financial supermarket'

LAW OF BANKING

Banking law is based on a contractual analysis of the relationship between the bank and thecustomer . The definition of bank is given abo ve, and the definition of customer is any person forwhom the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the customer,when the account is in credit, the bank owes the balance to the customer, when theaccount is overdrawn, the customer owes the balance to the bank.

2. The bank engages to pay the customer's cheques up to the amount standing to the creditof the customer's account, plus any agreed overdraft limit.

3. The bank may not pay from the customer's account without a mandate from the customer,

e.g. a cheque drawn by the customer.4. The bank engages to promptly collect the cheques deposited to the customer's account as

the customer's agent, and to credit the proceeds to the customer's account.

5. The bank has a right to combine the customer's accounts, since each account is just anaspect of the same credit relationship.

6. The bank has a lien on cheques deposited to the customer's account, to the extent that thecustomer is indebted to the bank.

7. The bank must not disclose the details of the transactions going through the customer's

account unless the customer consents, there is a public duty to disclose, the bank'sinterests require it, or under compulsion of law.

8. The bank must not close a customer's account without reasonable notice to the customer,because cheques are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customerand the bank. The statutes and regulations in force in the jurisdiction may also modify the above


12/87

12

terms and/or create new rights, obligations or limitations relevant to the bank-customerrelationship.

ENTRY REGULATION

Currently in most jurisdictions commercial banks are regulated by government entities andrequire a special bank license to operate.

Usually the definition of the business of banking for the purposes of regulation is extended toinclude acceptance of deposits, even if they are not repayable to the customer's order, howevermoney lending, by itself, is generally not included in the definition.

Unlike most other regulated industries, the regulator is typically also a participant in the market,i.e. government owned bank (a central bank). Central banks also typically have a monopoly onthe business of issuing banknotes. However, in some countries this is not the case, e.g. in the UKthe Financial Service Authority licenses banks and some commercial banks, such as the Bank Of

Scotland, to issue their own banknotes in competition with the Bank Of England, the UKgovernment's central bank.

The requirements for the issue of a bank license vary between jurisdictions but typically include:

1. Minimum capital

2. Minimum capital ratio

3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or seniorofficers

4. Approval of the bank's business plan as being sufficiently prudent and plausible.

RISKS FOR A BANK

Banks are susceptible to many forms of risk which have triggered occasional systemic crises.Risks include:

Liquidity Risk: the risk that many depositors will request withdrawals beyond available funds

Credit Risk: the risk that those who owe money to the bank will not repay

Interest Rate Risk: the risk that the bank will become unprofitable if rising interest rates force itto pay relatively more on its deposits than it receives on its loans


13/87

13

The major reg ulations and acts that govern the banking business are:

Banking Regulations Act, 1949

Foreign Exchange Management Act, 1999

Indian Contract Act

Negotiable Instrument Act, 1881

Banks lend money either for productive purposes to individuals, firms, corporates etc. or forbuying house property, cars and other consumer durable and for investment purposes toindividuals and others. However, banks do not finance and speculative activity. Lending is risk taking. Having prudent norms for lending should cover the risk. The depositors of banks are alsoassured of safety of their money by deploying some percentage of deposits in statutory reserveslike SLR and CRR.

SLR and CRR

The regulations like Banking Regulations Act and Reserve Bank of India Act govern thebusiness of banking. It is obligatory on the part of a bank to invest a fixed proportion-known asStatutory Liquidity Ratio (SL invest a fixed proportion-known as Statutory Liquidity Ratio(SLR) - of their liabilities which include time and tem deposits in certain approved governmentsecurities.

A certain proportion - known as Cash Reserve Ratio (CRR) - of the net time and demandliabilities of the bank is also to be placed with Reserve Bank of India as Cash Reserve, this can

vary between 3 to 20 percent as announce by RBI."The Banker - Customer relationship is established when either an account is opened orthere is evidence that the bank is contractually bound to provide services normallyprovided by a bank."

With years, banks are also adding services o their customers. The Indian banking industry ispassing through a phase of customers market. The customers have more choices in choosingtheir banks. A competition has been established within the banks operating in India.

With stiff competition and advancement of technology, the services provided by banks have

become more easy and convenient. The past days are witness to an hour wait before withdrawingcash from accounts or a cheque from north of the country being cleared in one month in thesouth.


14/87

14

WHO IS HSBC?

We are the world's local bank .

Headquartered in London, HSBC is one of the largest banking and financial services

organizations in the world. HSBC's international network comprises around 10,000 offices in 82countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East andAfrica.

With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, sharesin HSBC Holdings plc are held by around 200,000 shareholders in over 100 countries andterritories. The shares are traded on the New York Stock Exchange in the form of AmericanDepositary Receipts.

Through an international network linked by advanced technology, including a rapidly growing e-commerce capability, HSBC provides a comprehensive range of financial services: personal

financial services; commercial banking; corporate, investment banking and markets; privatebanking; and other act ivities

HSBC group comprises of around 10,000 offices in 82 countries and territories across the world.With headquarter in London,

HSBC has been both a pioneer and pillar of banking in many communities around the world andis very proud of its history.

A visual record of the groups history, the History Wall, was developed for the groupsheadquarters in London. Through 3,743 images, the History Wall captures HSBCs rich and

fascinating pedigree, as shown below.

HSBC IN INDIA

The antecedents of the HSBC Group in India can be traced back to October 1853 when theMercantile Bank of India, London and China were founded in Bombay (now Mumbai). Startingwith an authorized capital of Rs. 5 million, the Mercantile Bank soon opened offices in London,Madras (Chennai,) Colombo and Kandy, followed by Calcutta (Kolkata), Singapore, HongKong, Canton (Guangchow) and Shanghai by 1855. The following hundred years were in many

ways propitious for the Mercantile Bank. In 1950 it moved into its new head office building inMumbai at Flora Fountain.

The acquisition in 1959 by The Hong Kong and Shanghai Banking Corporation Limited of theMercantile Bank was a decisive factor in laying the foundation for today's HSBC Group.Founded in 1865 to serve the needs of the merchants of the merchants of the China coast andfinance the growing trade between China, Europe and the United States, HSBC has been aninternational bank from its earliest days.


15/87

15

After the Mercantile Bank was acquired by The Hong Kong and Shanghai Banking Corporation,the Flora Fountain building became and remains to this day, the Head Office of the HSBC Groupin India.

Through the 1990s, HSBC has vigorously developed its role as one of the leading banking and

financial services organizations in the world. Its strategy of 'managing for value' emphasizes theGroup's unique balance of business and earnings between older, mature economies and faster-growing emerging markets.

HSBC in India is proud to have retained the Group's pioneering streak by being an active partnerin the development of the Indian banking industry-even giving Indian its first ATM way back in1987. The organization's adaptability, resilience and commitment to its customers have furtherenabled it to service through turbulent times and prosper through good times over the past 150years.

INTRODUCTION OF FIRM/BRANCH

HSBC being one of the leading international banks opened its branch at Jaipur on 13th

Nov 2003.Jaipur is a big market of jewels import export and with new opportunities of business andpersonnel growth this fact was noticed by the organization and finally a branch of HSBC wasinaugurated by Sir John Bond on 23 rd Nov. 2003. Branch is now working efficiently and has agood deal of investments. Branch has sufficient weapons to defeat its competitors which includespunctual and efficient employs who r always ready in the service of bank.Branch is located in c-scheme which is most of the suitable area for such organizations. Branchhas the following organizational structure

Head Office Registered office and Group Head Office

8 Canada SquareLondon E14 5HQ

United Kingdom

Telephone: 44 020 7991 8888

Facsimile: 44 020 7992 4880

Web: www.hsbc.com

Branch office- Vasanti, 61-A,

Sardar Patel Marg

C-Scheme, Jaipur-302001


16/87

16

INTRODUCTION TO WEALTH MANAGEMENT SERVICES

Wealth Management is an advanced investment advisory discipline that incorporates financialplanning and specialist financial services. The key objectives are to provide high net worthindividuals and families with tailored retail banking services, estate planning, legal resources,

taxation advice and investment management, with the goal of sustaining and growing long-termwealth. Whereas financial planning can be helpful for individuals who have accumulatedwealth or are just starting to accumulate wealth, one must already have accumulated a s ignificantamount of wealth for the wealth management process to be effective.

Wealth management can be provided by independent financial advisers or large corporateentities whose services are designed to focus on high-net worth retail customers. Such customerswould be considered 'mass affluent' or 'upper retail' clients because of their net worth, thenumber of potential products they own from financial institutions, their assets under managementand other methods of segmentation. Large banks and brokerage houses create separate salesforces, services and other 'benefits' to retain or attract these customers who are typically more

profitable than other retail banking, brokerage, or insurance customers.

Bank has a dedicated team of Customer Relationship Managers (CRMs) to assist customers intheir Financial P lanning, including

Analyzing customers risk profile,Understanding customers present and future financial needs,Matching customers requirements with the available investment options, Explaining the risk inherent in such investmentsAchieving the returns to fulfill with customers financial o bjectives and goals.

Wealth management is an integral part of financial planning. It is a systematic process of maintaining wealth over a long period of time.

Owing to the increasing uncertainty in global job market and fluctuating prices of commongoods and services, wealth management services have gained huge importance in the recenttimes. Banks, brokerage firms, trust companies, and many other financial service providers offerwealth management services in the world market.

Success of wealth management is essentially dependent on financial planning. A well-guidedfinancial plan ensures proper allocation of resources. Financial planning also helps to increasesavings of individuals. Wealth management service providers help customers to select the best

investment options. This is turn results in increased returns from investments and financialgrowth in long term.

Individual can manage wealth on their own. However, efficient management of wealth requiresspecialized knowledge on this field. It is always good to take assistance from professionals forportfolio building.

Wealth management if done in a proper way can save indivisuals family from future liabilities.
http://en.wikipedia.org/wiki/Financial_planninghttp://en.wikipedia.org/wiki/Financial_planninghttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Estate_planninghttp://en.wikipedia.org/wiki/Taxationhttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Mass_affluenthttp://en.wikipedia.org/wiki/Net_worthhttp://en.wikipedia.org/wiki/Assets_under_managementhttp://en.wikipedia.org/wiki/Brokeragehttp://en.wikipedia.org/wiki/Brokeragehttp://en.wikipedia.org/wiki/Assets_under_managementhttp://en.wikipedia.org/wiki/Net_worthhttp://en.wikipedia.org/wiki/Mass_affluenthttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Taxationhttp://en.wikipedia.org/wiki/Estate_planninghttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/Financial_planninghttp://en.wikipedia.org/wiki/Financial_planninghttp://en.wikipedia.org/wiki/Financial_planning


17/87

17

It protects their assets from harms that may come up a ll of a sudden. Wealth management a lsoinvolves planning for post retirement period, in advance. Besides fulfilling day-to-day financialneeds it makes arrangements for savings and investments.

Wealth management also helps to reduce tax burden of individuals. Efficient management of

wealth assists one to save money for securing childs future.

Need-based sales approach with innovationThere is a team which works to suggest financial solutions based on customers risk appetite, profile and needs. Using customer insight, officials have developed a financialplanning tool. It analyses and generates a comprehensive financial plan based oncustomers existing financial position, expected future cash flows, inflation and ident ifiedfinancial objectives. Relationship Managers extensively use this tool to do financialplanning for their custoers taking into account their long-term objectives and / or mediumto short term requirements.For consistent and uniform delivery of financial planning as per the defined customer

need centric process, there is a dedicated, independent Sales Quality team to conductregular quality checks close to the point-of-sale.

Wealth management is classified as a type of financial planning tool that provides corporates andtheir families with private banking, asset management, legal resources, real estate planning,investment management and portfolio management with the goal of sustaining and growinglong-term wealth. Wealth management service providers have segmented the Indian market intofour categories: the mass market (investible surplus USD5,000 to 25,000); the mass affluent(USD25,000 to 1 million); the high-net-worth (USD1 million to 30 million) and the ultra-highnet worth (greater than USD 30 million)


18/87

18

KEY ELEMENTS OF WEALTH MANAGEMENT SERVICESWealth management services involve fiduciary responsibilities in providing professionalinvestment advice and investment management services to a client. Depending on the mandate of the services given to the Wealth Manager, wealth management services could be packaged atvarious levels

a) AdvisoryWealth mangers role is limited to the extent of providing guidance on investment / financialplanning and tax advisory, based on client profile. Investment decisions are solely taken bythe client, as per his /her own judgment.

b) Investment Processing (transaction oriented)Client engages wealth manager to execute specific transaction or set of transactions.Investment planning, decision and further management remain vested with the client.

c) Custody, Safekeeping and Asset ServicingClient is responsible for investment planning, decision and execution. Wealth manager isentrusted with management, administration and oversight of investment process.

d) End-to-end Investment Lifecycle ManagementWealth manager owns the whole gamut of investment planning, decision, execution andmanagement, on behalf of the client. He is mandated to make financial planning, implementinvestment decisions and manage the investment throughout its life .

PROCESS OF WEALTH MANAGEMENT


19/87

19

BANKING CHANNELS

Banks offer many different channels to access their banking and other services :

A Branch , banking centre or financial centre is a retail location where a bank or financialinstitution offers a wide array of face to face service to its customers

ATM is a computerized telecommunications device that provides a financial institution'scustomers a method of financial transactions in a public space without the need for a humanclerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing awider range of services to a wider range of users. For example in Hong Kong, most ATMsenable anyone to deposit cash to any customer of the bank's account by feeding in the notes andentering the account number to be credited. Also, most ATMs enable card holders from other

banks to get their account balance and withdraw cash, even if the card is issued by a foreignbank.

Mail is part of the postal system which itself is a system wherein written documents typically

enclosed in envelopes, and also small packages containing other matter, are delivered todestinat ions around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic accountstatements to customers.

Telephone Banking is a service provided by a financial institution which allows its customers toperform transactions over the telephone. This normally includes bill payments for bills frommajor billers (e.g. for electricity).

Online Banking is a term used for performing transactions, payments etc. over the Internetthrough a bank, credit union or building society's secure website

BUSINESS CAPABILITIES

Personal Banking Credit and Debit Cards

Private C lients

Corporate and Institutional banking

Commercial banking


20/87

20

Payments and Cash Management

Trade Services

Bullion

Treasury and Cap ital Markets

Custody and Clearing

Investment Banking

Insurance services

Asset Management

Private Equity

Global Data Processing Software Development

COMPETITIVE STRENGTHS Wide International Network

Comprehensive range of products & services

Long term customer orientation

Quick response times

The business capabilities Mentioned as under:-

Personal Banking

Corporate Banking Investment Banking

PRODUCTS OFFERED BY HSBC

SAVINGS ACCOUNT

Mass market saving account (A.Q.B.-Rs. 25,000)

FEATURES & BENEFITS:

Customer can automatically transfer extra savings from their savings account to afixed deposit, through a standing instruction, to enable them to earn higher interest

Customers are also eligible for a fee waiver on HSBC credit cards


21/87

21

Card-to-Car d Transfer facility - a funds transfer service that enables customer totransfer money in an easy, fast, convenient and safe manner using the VISAMONEY TRANSFER service from VISA.

HSBC Demat Account services with waiver on account opening charges Customer can keep track o f their account with free quarterly account statements

Free personalized chequebook Buy mutual fund products offered by select mutual fund houses Manage account, make transactions, pay bills and much more by taking advantage of

HSBC's free Internet Banking facilities

ATM ACCESS: HSBCS WIDE NETWORK OF ATM S HAS MADE BANKING ALLTHE MORE CONVENIENT FOR CUSTOMERS. WITHDRAW CASH, TRANSFERFUNDS, DEPOSIT CHEQUES AND CASH, REQUEST FOR A BANK STATEMENT,CHEQUE-BOOK OR MINI-STATEMENT AND CHECK BALANCES.

Inte rnational debit card: Use the international deb it card to make purchases at 3, 50,000merchant establishments in India and at 26 million across the world. Withdraw cash from

over 23,500 HSBC/Visa/Plus ATMs in India and from over 1 million VISA ATMs acrossthe world. Credit card: Get an HSBC credit card that lets you access your Savings Account at

HSBC ATMs worldwide. Perform banking transactions like cash withdrawals, balanceinquiries and transfer of funds. customer can also withdraw cash from their HSBC Current

/ Savings Account at any of VISA / MasterCard ATMs worldwide. Special relationship discounts: HSBC customers (for 6 months or more) are entitled to a

0.5% discount on the upfront processing fee for Home loans and Personal/Professionalloans and on the annual service charges for Asset Link.

Maintain a quarterly average ba lance of Rs. 25,000

Service charges and fees:

Eligibility Service Charges

Minimum Average Quarterly Balance (AQB)of INR 25,000 for Resident Savings AccountMinimum AQB of INR 25,000 for Non-Resident Savings (NRE)Minimum AQB of INR 10,000 for NROSavings Account

INR 750 per quarter for non maintenance of AQB

Services Service Charges and Fees

Account not operated for more than 2 years INR 150 per quarter

Cheque Book Facility Free
http://www.banking.hsbc.co.in/in/personal/cards/visa_money.htmhttp://www.banking.hsbc.co.in/in/personal/cards/visa_money.htmhttp://www.banking.hsbc.co.in/in/personal/cards/visa_money.htmhttp://www.banking.hsbc.co.in/in/personal/cards/visa_money.htmhttp://www.banking.hsbc.co.in/in/personal/cards/visa_money.htmhttp://www.banking.hsbc.co.in/in/personal/cards/visa_money.htm


22/87

22

Issue of Pass Book or Statement Free

Issue of duplicate Pass Book or Statement INR 100 per statement cycle(For PVA / Premier - Monthly CompositeStatement)(For Savings Account - Quarterly AccountStatement)

ATM Cards Free

Stop Payment INR 100

Balance Enquiry at HSBC branches and ATMsin India

Free

Account Closure INR 500 (if closed in less than 6 months of account opening)

Cheque Return - Inward (Cheque Received) INR 275

Signature Verification INR 50

RTGS transfers outside of Internet Banking INR 250

Reorder of cheque book (if minimum balanceis not maintained)

Savings Account: INR 100Power Vantage Account: INR 250

Standing Instructions # Money Transfers between HSBC accounts: FreeMoney Transfer to Non-HSBC accounts: INR 100 per instruction for set upINR 25 per instruction for amendment

Phone Banking Free

Internet Banking Free

Power vantage Plus account (A.Q.B.- Rs. 1,00,000)


A Power Vantage Plus Relationship Manager to assist customer in their banking andfinancial planning needs


23/87

23

Personal Financial Review helps customer to evaluate their finances, identify theircurrent and future financial needs and assist them in drawing up a plan to meet them

Unlimited free transactions (cash withdrawals and balance enquiries) at 23,500 HSBCand non - HSBC Visa ATMs in India using Power Vantage debit card

Dedicated Service Desk and Teller Counters to assist customers with their banking needs,

enabling customers to save time Higher cash withdrawal limit of up to Rs. 50,000 and funds transfer up to Rs. 100,000with Power Vantage debit card, across 23,500 HSBC and non-HSBC Visa ATMs in Indiaand more than 1 million ATMs overseas

Use Power Vantage debit card for purchases of up to Rs. 50,000 per day at over 350,000merchant establishments in India and over 26 million such establishments o verseas

Free Cheques Payable at Par (CPP) facility in all cities where HSBC has branches,helping customers save on out-station clearing time and costs

No-bounce Cheque Protection which means cheques presented through clearingirrespective of funds available, will be honored (overdrawing of a maximum of Rs.10,000).

Monthly Composite Statement giving customers a snapshot of all deposits and loans Joining fee waiver and 50% off on the annual fee for credit card. Free passbook facility. Passbooks can be collected from the nearest branch and can be

updated personally with transactions up to three preceding months.

Service charges and fees:

Eligibility Service Charges

Minimum Average Quarterly Balance (AQB)(Resident / Non Resident customers) of INR100,000 in a combination of deposits and loans(minimum of INR 50,000 in deposits)ORMinimum investment of INR 500,000purchased through HSBCORHome loan customers

INR 750 per quarter for non maintenance of AQB

No minimum ba lance required

Features / Services Service Charges and Fees

HSBC ATM Cash withdrawal & balanceenquiry (India)

Free

Other bank VISA ATM Cash withdrawal &balance enquiry (India)

Unlimited Free transactions

Other bank VISA ATM Cash withdrawal & INR 120 per withdrawal / INR 15 per enquiry


24/87

24

balance enquiry (outside India)

HSBC Group ATM transactions (outside India) INR 120 per withdrawal / INR 15 per enquiry

ATM Card (Primary and Add-on) - For NRO'sonly

Free

Replacement of lost / damaged ATM Card -For NRO's only

Free

Debit Card (Primary and Add-on) INR 150 Annual Fee per card

Replacement of lost / da maged Debit Card INR 100

Credit Card Fees Waiver of Joining FeesAnnual fees 50% off every year for PrimarycardAdd-on Card 50% off for 1st year

Discount on Locker rentals 10%

Out-of-pocket expenses for payments byCashier Orders / DDs / TTs

Charges as app licable

Cheque Book Facility Free

Issue of Pass Book or Statement Free

Issue of duplicate Pass Book or Statement INR 100 per statement cycle(For PVA / Premier - Monthly CompositeStatement)(For Savings Account - Quarterly AccountStatement)

ATM Cards Free

Stop Payment INR 100

Balance Enquiry at HSBC branches and ATMsin India

Free

Account Closure INR 500 (if closed in less than 6 months of account opening)


25/87

25

Cheque Return - Inward (Cheque Received) INR 275

Signature Verification INR 50

RTGS transfers outside of Internet Banking INR 250

Reorder of cheque book (if minimum balanceis not maintained)

Savings Account: INR 100Power Vantage Account: INR 250

Standing Instructions # Money Transfers between HSBC accounts: FreeMoney Transfer to Non-HSBC accounts: INR 100 per instruction for set upINR 25 per instruction for amendment

Phone Banking FreeInternet Banking Free

HSBC Premier (A.Q.B.- Rs. 25,00,000)


ATM withdrawal limit of Rs 1,00,000 Premier Relationship Manager to assist customer in their banking and

financial planning needs Personal Financial Review helps customer to evaluate their finances,

identify their current and future financial needs and assist them indrawing up a plan to meet them

International recognisation and emergency support Worldwide online premier banking 24/7 banking services Worldwide ATM network and premier Debit/Credit cards Premier customer can view their accounts from anywhere in the world

with the unique Global vies online banking system. Emergency cash advance of US$ 2,000 together with the next day card

replacement in the event of loss or theft Local HSBC Premier staff offer free and friendly advice on places to go

and things to do while on your international trip. Free cheque book No DD charges


26/87

26

CRITICARE

CritiCare is an illness insurance policy which allows u to nurse yourself back to goodhealth without financial burdens about the medical expenses. It is a group insurance policyfrom TATA-AIG general insurance company ltd providing you with the coverage for a set of 11 critical illness and surgeries. HSBC customers between the ages of 18 to 60 years canapply and coverage can be availed on renewals until the age o f 64 years.

Advantages of CritiCare

Widest illness coverage : It provides an insurance cover for 11 critical illnesses,these includes:-

Stroke Cancer (excluding skin cancer) Coronary artery bypass surgery Kidney failure First heart attack Major organ transplant Coma Major burns Multiple sclerosis Paralysis Total b lindness

Provides an insurance benefit cove r, not reimbursementSecond opinion: It is the only policy which offers a unique opportunity to receive asecond opinion on the illness, from an international panel of doctors. Other advantages

Offers guaranteed acceptance up to the age of 60 yearsEasy proceduresThe premium paid under CritiCare(up to Rs. 15,000/-) is exempt from incometax under Sec 80D of Income Tax ActCoverage & Annual Premium (in Rs.)

Coverage Limit 250000 350000 500000 750000 1000000 1500000

Age In yrs

18-24 962 1347 1925 2887 3850 5775

25-29 1365 1911 2731 4095 5460 8191


27/87

27

30-34 1955 2736 3909 5864 7817 11726

35-39 3330 4661 6659 9988 13317 19976

40-44 6089 8525 12178 18267 24356 36534

45-49 10607 14849 21214 31820 42427 63640

50-54 16695 23374 33392 50087 66783 100175

55-59 25339 35474 50676 76015 101353 152029

60-64 38597 54035 77193 115790 154386 231579

Services HSBC provide

1. Free access to VISA ATMs across the country : Customer can use the HSBCS VISA

Electron International debit card to withdraw cash from all VISA Electron ATMs. Cashwithdrawal from these ATMs 4 times a month absolutely free of cost. You wouldcontinue to get unlimited free access to all the 24 hour ATMs of HSBC across thecountry.

2. Free Cash and Cheque Pickup and delivery : Customer is also given the facility wherehe dont have to Come to bank. This is the logistic facility in which customer is givencash and Cheque pick up as well as delivery without any charges according to theaccount he hold.

3. Relationship Discounts : On the Interest and Processing fees on lending products areavailable for all Eligible customers.

4. Free Investment Advisory : HSBC also provide Free Investment Advisory services, toensure that all the customers get maximum returns on the investment and surplus funds.

5. Any Branch Banking : Customer can operate their account from any of the branches thatStandard HSBC Bank have across in the country, irrespective of the branch at which theaccount has opened.

6. 365 days and 9.00 AM to 6 P.M Banking : Bank is open 365 days and it is up to 6.00PM,allowing Customer to conduct banking at a time most convenient to you.

7. HSBC Online : Customer can access all their bank accounts through the Internet fromAnywhere, 24 hrs a day, and 365 days a year. A range of Banking Services is nowavailable at the click of a mouse from the comfort of the home or office. It includes:

Transfer of funds between accounts

Requests for Cheque BooksOrder for DraftsMaking Fixed DepositsPaying Credit card billsChecking transaction details


28/87

28

8. Phone Banking : By giving call on easy to remember Phone banking numbers, customercan now, not only get answers to balance and service queries, but can also access a wholesuite of other banking services over the phone. It includes:

Transfer funds between accounts

Open new fixed depositsRenew depositsRequest for statementsRequest Cheque BooksBalance CertificatesCheck transaction history.

9. Pay Orders : Bank issues free pay order to the customer on his demand according to theaccount he holds.

MUTUAL FUNDSA mutual fund is a pool of money, collected from investors, and is invested according to certa ininvestment objectives. A mutual fund uses the money collected from the investors to buy thoseassets which are specifically permitted by its stated investment objective. The funds assets areowned by the investors in the same proportion as their contribution bears to the totalcontributions of a ll investors put together.

CHARGES:

The Asset Management Companies (AMCs) managing the Mutual Funds levy a load as apercentage of NAV at the time of entry into the Schemes or at the time of exiting from theSchemes.

Entry Load - It is the load charged by the fund when an investor invests into the fund. Itincreases the price of the units to more than the NAV and is expressed as a percentage of NAV.


29/87

29

Exit Load - It is the load charged by the fund when an investor redeems the units from the fund.It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV.

Cost of Churning/Turnover cost - It refers to the costs associated with the churning (orchanges made to the holdings) of the portfolio. Portfolio changes have associated costs of

brokerage, custody fees, transaction fees and registration fees, which lower the returns. Thequantum depends on the management style of the fund manager.

Expense Ratio - The Expenses of a mutual fund include management fees and all the feesassociated with the fund's daily operations. Expense Ratio refers to the annual percentage of fund's assets that is paid out in expenses.

Tax:

Capital Gains Tax - The profit realizations on sale of securities and certain other capital assets(including units of mutual funds) are called capital gains. The gains can be classified into long-

term or short-term depending on the period of holding of the asset and are charged to tax atdifferent rates. Gains on mutual fund units held for a period of 12 months or more are long-termgains. These gains are taxable.

Dividend Distribution Tax The Mutual Fund schemes distributing dividends on their units tothe investors attract a distribution tax as per tax laws.

Securities Transaction Tax AMCs managing the portfolio have to pay STT on transaction(buying/selling) of different securities in the stock market. Presently the tax rate is 0.025%.

There are different statistical parameters available on which a fund may be analyzed. These are:

Standard Deviation The most basic of all measures- Standard Deviation allows evaluating the volatility of the fund.Alternatively, it allows measuring the consistency of the returns.Volatility is often a direct indicator of the risks taken by the fund. The standard deviation of afund measures this risk by measuring the degree to which the fund fluctuates in relation to itsmean return, the average return of a fund over a period of time.A security that is volatile is also considered higher risk because its performance may changequickly in either direction at any moment.

A fund that has a consistent four-year return of 3%, for example, would have a mean, or average,of 3%. The standard deviation for this fund would then be zero because the fund's return in anygiven year does not differ from its four-year mean of 3%. On the other hand, a fund that in eachof the last four years returned -5%, 17%, 2% and 30% will have a mean return of 11%. The fundwill also exhibit a high standard deviation because each year the return of the fund differs fromthe mean return. This fund is therefore more risky because it fluctuates widely between negativeand positive returns within a short period.

Beta ()


30/87

30

Beta is a fairly commonly used measure of risk. It basically indicates the level of volatilityassociated with the fund as compared to the benchmark.

So quite naturally the success of Beta is heavily dependent on the correlation between a fund andits benchmark. Thus if the fund's portfolio doesn't have a relevant benchmark index then a beta

would be grossly inadequate.A beta that is greater than one ( >1) means that the fund is more volatile than the benchmark,while a beta of less than one (


31/87

31

benchmark's risk-adjusted returns. It allows you to ascertain if the fund's returns outperformedthe market's, given the same amount of risk.The higher a funds risk level, the greater the returns it must generate in order to produce a highalpha.Normally one would like to see a positive alpha for all of the funds owned. But a high alpha does

not mean a fund is doing a bad job nor is the vice versa true as alpha measures the outperformance relative to beta. So the limitations that apply to beta would also apply to alpha.Alpha can be used to directly measure the value added or subtracted by a fund's manager.

The accuracy of an alpha rating depends on two factors:The assumption that market risk, as measured by beta, is the only risk measure necessary;The strength of fund's correlation to a chosen benchmark such as the BSE Sensex or theNIFTY.

Sharpe RatioSharpe Ratio= Fund return in excess o f risk free return/ Standard deviation of Fund In case funds

have low correlation with indices or benchmarks, they should be evaluated using the Sharperatio. Since it uses only the Standard Deviation, which measures the volatility of the returns thereis no problem of benchmark correlation. The higher the Sharpe ratio, the better a funds returnsrelative tothe amount of risk taken. Sharpe ratios are ideal for comparing funds that have a mixed assetclasses. That is balanced funds that have a component of fixed income offerings.

ADVANTAGES OF INVESTING IN MUTUAL FUNDS:

1. Portfolio diversification-

2. Professional management

3. Reduction in risk

4. Reduction of transaction costs

5. Liquidity

6. Convenience and flexibility

DISADVANTAGES OF INVESTING IN MUTUAL FUNDS:

1. No control over costs: Since investors do not directly, monitor the funds operations theycannot control the costs effectively. Regulators therefore usually limit the expenses of mutual

funds.2. No tailor made portfolios: Mutual fund portfolios are created and marketed by AMCs intowhich investors invest. They cannot create tailor made portfolios.3. Managing a portfolio of funds: As the numbers of mutual funds increase, in order to tailor aportfolio for him, an investor may be holding a portfolio of funds, with the costs of monitoringthem and using them, being incurred by him.


32/87

32

TYPES OF MUTUAL FUNDS By Structure

Open - Ended SchemesClose - Ended SchemesInterval Schemes

By Investment Objective Growth SchemesIncome SchemesBalanced SchemesDebt SchemesMoney Market Schemes

Other Schemes Tax Saving SchemesLoad & No Load SchemesSpecial Schemes

Index Schemes Sector Specific Scheme Gilt Funds

Open-ended Fund/ Scheme-An open-ended fund or scheme is one that is available for subscription and repurchase on acontinuous basis. These schemes do not have a fixed maturity period. Investors can convenientlybuy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis.The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme-A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is openfor subscription only during a specified period at the time of launch of the scheme. Investors caninvest in the scheme at the time of the initial public issue and thereafter they can buy or sell theunits of the scheme on the stock exchanges where the units are listed. In order to provide an exitroute to the investors, some close-ended funds give an option of selling back the units to themutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate thatat least one of the two exit routes is provided to the investor i.e. either repurchase facility orthrough listing on stock exchanges. These mutual funds schemes disclose NAV generally onweekly basis.

Growth / Equity Oriented Scheme-The aim of growth funds is to provide capital appreciation over the medium to long- term. Suchschemes normally invest a major part of their corpus in equities. Such funds have comparatively


33/87

33

high risks. These schemes provide different options to the investors like d ividend option, capitalappreciation, etc. and the investors may choose an option depending on their preferences. Theinvestors must indicate the option in the application form. The mutual funds also allow theinvestors to change the options at a later date. Growth schemes are good for investors having along-term outlook seeking appreciat ion over a period of time.

Income / Debt Oriented Scheme-The aim of income funds is to provide regular and steady income to investors. Such schemesgenerally invest in fixed income securities such as bonds, corporate debentures, Governmentsecurities and money market instruments. Such funds are less risky compared to equity schemes.These funds are not affected because of fluctuations in equity markets. However, opportunitiesof capital appreciation are also limited in such funds. The NAVs of such funds are affectedbecause of change in interest rates in the country. If the interest rates fall, NAVs of such fundsare likely to increase in the short run and vice versa. However, long term investors may notbother about these fluctuations.

Balanced Fund-The aim of balanced funds is to provide both growth and regular income as such schemes investboth in equities and fixed income securities in the proportion indicated in their offer documents.These are appropriate for investors looking for moderate growth. They generally invest 40-60%in equity and debt instruments. These funds are also affected because of fluctuations in shareprices in the stock markets. However, NAVs of such funds are likely to be less volatile comparedto pure equity funds.

Money Market or Liquid Fund-These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instrumentssuch as treasury bills, certificates of deposit, commercial paper and inter-bank call money,government securities, etc. Returns on these schemes fluctuate much less compared to otherfunds. These funds are appropriate for corporate and individual investors as a means to park theirsurplus funds for short periods.

Gilt Fund-These funds invest exclusively in government securities. Government securities have no defaultrisk. NAVs of these schemes also fluctuate due to change in interest rates and other economicfactors as is the case with income or debt oriented schemes.

Index Funds-Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&PNSE 50 index (Nifty), etc These schemes invest in the securities in the same weightagecomprising of an index. NAVs of such schemes would rise or fall in accordance with the rise orfall in the index, though not exactly by the same percentage due to some factors known as"tracking error" in technical terms. Necessary disclosures in this regard are made in the offerdocument of the mutual fund scheme.

Sector Specific Funds/Schemes-


34/87

34

These are the funds/schemes which invest in the securities of only those sectors or industries asspecified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more riskycompared to diversified funds. Investors need to keep a watch on the performance of those

sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.Tax Saving Schemes-These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act,1961 as the Government offers tax incentives for investment in specified avenues. e.g. EquityLinked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer taxbenefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growthopportunities and risks associated are like any equity-oriented scheme.

Fund Of Funds (Fof) Scheme-A scheme that invests primarily in other schemes of the same mutual fund or o ther mutual funds

is known as a FoF scheme. A FoF scheme enables the investors to achieve greater diversificationthrough one scheme. It spreads risks across a greater universe.

Load or no-load Fund-A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time onebuys or sells units in the fund, a charge will be payable. This charge is used by the mutual fundfor marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as wellas exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 andthose who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. Theinvestors should take the loads into consideration while making investment as these affect theiryields/returns. However, the investors should also consider the performance track record andservice standards of the mutual fund which are more important. Efficient funds may give higherreturns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means theinvestors can enter the fund/scheme at NAV and no additional charges are payable on purchaseor sale of units.

Systematic Investment Plan from HSBC Mutual fund (HSBC SIP)

A Systematic Investment Plan (SIP) is an investment vehicle that allows you to invest fixedamounts of money at regular intervals of time (monthly or quarterly) in a mutual fund scheme fora continuous pre-defined period; just like a recurring deposit account with a bank or a postoffice. HSBC SIP allows the investor to invest a fixed amount every month or quarter forpurchasing units of schemes at prevailing NAV based prices. SIP can be activated by givingpost-dated cheques for the duration of the SIP or by using an auto debit facility where a fixedamount is debited from your bank account on a monthly/quarterly basis.


35/87

35

HSBC Mutual Fund offe rs SIP in its following schemes

HSBC SIP offers the following advantages1. Inculcates a disciplined investment approach that builds a savings habit: Most peopletend to continually delay their financial planning process. This results in Savings beingpostponed to a later date. To break this habit, HSBC SIP offers the facility to invest smallamounts regularly instead of investing large amounts sporadically. HSBC SIP inculcates adiscipline in your investment habits not only by making you invest regularly but also by makingyou invest early rather than postponing your investment till the point you accumulate a sizeableamount.

2. Allows Rupee Cost Averaging, which takes advantage of market volatility: With HSBC

SIP you buy more units when the prices are low and fewer units when the prices are high. Thisresults in averaging of the cost per unit which may lead to gains arising out of market volatility.

3. Prevents sentiment-driven investments: By making you invest the same amount everymonth (or every quarter), the HSBC SIP helps you avoid the common error of investing largersums in Bull markets (when the markets are at a high) and smaller sums in Bear markets (whenthe markets are at a low).

4. Allows investments in small amounts: With a monthly investment of as little as Rs 1,000/-*,you can easily include the HSBC SIP within your monthly budget, without altering yourfinancial plans significantly.

5. Offers convenience in investing: You have the option of directly debiting your bank accountfor payments made towards the HSBC SIP.

HSBC Equity Fund HSBC India Opportunities Fund HSBC Midcap Equity Fund HSBC Advantage India Fund HSBC Tax Saver Equity Fund HSBC Dynamic Fund HSBC Emerging Markets Fund

HSBC Gilt F und HSBC Floating Rate Fund HSBC Cash Fund HSBC MIP HSBC Liquid Plus Fund HSBC Income Fund HSBC F lexi Debt Fund


36/87

36

SIP Returns of HSBC Equity Fund (HEF)

If you had invested Rs 10,000 every month in HEF

Rs 1,20,000 overthe last 1 yearwould have grownto

Rs 3,60,000 overthe last 3 yearswould havegrown to

Rs 6,00,000 overthe last 5 yearswould havegrown to

Rs 6,20,000since inceptionwould havegrown to

HEF 1,41,488 6,09,602 17,81,772 19,73,379

35.34% 37.59% 45.33% 46.56%

BSE200

1,37,299 5,85,766 14,76,637 15,90,150

28.20% 34.51% 37.09% 37.43%

The SIP facility is available in the following schemes of HSBC Mutual Fund. A brief write-up on the schemes is given below .

HSBC Equity Fund (HEF)

HEF aims to generate long-term cap ital growth from an actively managed portfolio of equity andequity related securities. It invests in a diversified range of large and mid-sized companies, withsome exposure to smaller companies.

HSBC India Opportunities Fund (HIOF)

HIOF seeks to generate long-term capital growth through investment across all marketcapitalisations including small, mid and large cap stocks. It aims to be predominantly invested inequity and equity related securities. However, it could move a significant portion of its assetstowards fixed income securities if the Fund Manager becomes negative on equity markets. TheFund retains the flexibility to invest up to 50 per cent of the portfolio in debt and money marketinstruments.

HSBC Midcap Equity Fund (HMEF)

HMEF is an open-ended diversified equity scheme seeking to generate long-term capital growthfrom an actively managed portfolio of equity and equity related securities primarily beingmidcap stocks. However, it could move a portion of its assets towards fixed income securities if the Fund Manager becomes cautious or negative on the Indian equity markets.


37/87

37

HSBC Advantage India Fund (HAIF)

HAIF is an open-ended, flexi-theme equity scheme that seeks to generate long-term capitalgrowth by investing primarily in themes that play an important role in, and/or benefit fromIndias progress and economic development. It will use a flexi -theme approach in selection of

areas in which to invest. The Fund will look to predominantly invest in one or more themes that,according to the Fund Manager, will drive Indias growth story at a given point in time. TheFund Manager will be flexible in changing the theme based on changing market conditions andeconomic factors.

HSBC Tax Saver Equity Fund (HTSF)

HTSF is an open-ended equity linked savings scheme (ELSS) that aims to provide long-termcapital appreciation by investing in a diversified portfolio of equity and equity relatedinstruments of companies across various sectors and market capitalisations while providing Sec80C benefits. The Fund has a lock-in period of 3 years and may also invest in fixed income

securities.HSBC Dynamic Fund (HDF)

HDF is an open-ended scheme seeking to capitalize on the potential upside in equity markets,and yet attempts to limit the downside risk by the active use of money market instruments andderivatives. The fund aims to normally invest in equity but can react quickly to a negative marketby moving 100% of its assets into money market instruments, fixed income securities andderivatives with an aim to limit the downside risk, in the event that the fund manager is bearishon the market. Since inception returns are ca lculated on Rs 10 invested at inception. Calculationsare based on Growth NAVs. Load, if any, has not been considered for calculation. SIP returns

have been calculated using 3rd of the month. If the 3rd of the month is a non-business day, thenthe NAV of the next business day has been considered.

HSBC Emerging Markets Fund (HEMF)

HEMF is an open-ended scheme seeking to provide long-term capital growth by investing inemerging economies the world over. The fund would invest both within and outside India, inequity and equity related instruments, share classes and units/securities issued by overseasmutual funds or unit trusts. Outside India, the fund would focus on emerging economies such asBrazil, South Africa, China, Russia, etc. The fund may also invest a limited proportion indomestic debt and money market instruments.

HSBC MIP (HMIP)

An open-ended Fund. Monthly income is not assured and is subject to availability of distributable surplus. HMIP, launched in February 2004, seeks to generate reasonable returnsthrough investments in debt and money market instruments. The secondary objective of thisscheme is to invest in equity and equity related instrument to seek capital appreciation. The Fundoffers two Plans: Regular Plan and Savings Plan. The Regular Plan can have up to 15 percent of


38/87

38

the corpus invested in equities while the Savings Plan can have up to 25 per cent invested inequities. Investors with higher risk-taking ability should opt for the latter and vice versa.

HSBC Income Fund (HIF)

HIF, launched in December 2002, seeks to generate reasonable income through a diversifiedportfolio of fixe d income securities. The AMCs view of interest rate trends and the nature of thePlans will be reflected in the type and maturities of securities in which the Short Term andInvestment Plans are invested. The Fund may invest in bonds, debentures, short-term instrumentslike commercial papers, repos, etc.

HSBC Gilt Fund (HGF)

HGF seeks to generate reasonable returns through investments in Government Securities (G-Secs) of various maturities.

HSBC Floating Rate Fund (HFRF)

HFRF, launched in November 2004, is an open-ended scheme that seeks to generate reasonablereturns commensurate with prudent risk from a portfolio comprising of floating rate debtinstruments and fixed rate debt instruments swapped for floating rate returns. The Scheme mayalso invest in fixed rate money market and debt instruments. The Fund has two Plans - Long-term and Short-term - and is suitable for investors with different investment horizons.

HSBC Cash Fund (HCF)

A liquid fund, it seeks to generate reasonable returns with a high level of liquidity. Instead of

letting cash, available for short periods of time, remain idle in a bank savings or current account,by investing in HCF the cash could earn reasonable returns with almost equal liquidity vis-a-visa bank account. HCF primarily invests in money market instruments and short-term debt marketinstruments, thus facilitating the possibility of speedy conversion back into cash.

HSBC Liquid Plus Fund (HLPF)

HLPF, launched in October 2006, is an open-ended debt scheme that seeks to provide liquidityand reasonable returns by investing primarily in a mix of short-term debt and money marketinstruments. The risk-return profile of HLPF falls between that of a Cash Fund and a short-termIncome Fund. It is suited for an investment horizon of 3-6 months.

HSBC Flexi Debt Fund (HFDF)

HFDF is an open-ended debt scheme, which endeavors to deliver returns through activeinvestments in debt and money market instruments under all market conditions. It aims toactively trade duration and credit to generate alpha. The Fund also has aggressive limits ascompared to traditional bond funds.


39/87


40/87

40

endowment plans. Of course, the regulator -- IRDA (Insurance and Regulatory DevelopmentAuthority) was instrumental in signaling the end of assured return plans.

Today, there is just one insurance plan from LIC (Life Insurance Corporation) -- Komal Jeevan -- that assures return to the policyholder.

These were the two factors most instrumental in marking the arrival of ULIPs, but another factorthat has helped their cause is a booming stock market. While this now appears as one of theprimary reasons for their popularity, we believe ULIPs have some fundamental positives likeenhanced flexibility and merging of investment and insurance in a single entity that have reallyendeared them to individuals.

SUM ASSURED

Perhaps the most fundamental difference between ULIPs and traditional endowment plans is inthe concept of premium and sum assured.

When you want to take a traditional endowment plan, the question your agent will ask you are --how much insurance cover do you need? Or in other words, what is the sum assured you arelooking for? The premium is calculated based on the number you give your agent.

With a ULIP it works in reverse. When you opt for a ULIP, you will have to answer the question-- how much premium can you pay?

Depending on the premium amount you state, you are offered a sum assured as a multiple of thepremium. For instance, if you are comfortable paying Rs 10,000 annual premium on your ULIP,the insurance company will offer you a sum assured of say 5 to 20 times the premium amount.

INVESTMENTS

Traditionally, endowment plans have invested in government securities, corporate bonds and themoney market. They have shirked from investing in the stock markets, although there is aprovision for the same.

However, for some time now, endowment plans have discarded their traditional outlook oninvesting and allocate about 10%-15% of monies to stocks. This percentage varies across lifeinsurance companies.

ULIPs have no such constraints on their choice of investments. They invest across the board instocks, government securities, corporate bonds and money market instruments. Of course, withina ULIP there are options wherein equity investments are capped.

EXPENSES

ULIPs are considered to be very expensive when compared to traditional endowment plans. Thisnotion is rooted more in perception than reality.


41/87

41

Sale of a traditional endowment plan fetches a commission of about 30% (of premium) in thefirst year and 60% (of premium) over the first five years. Then there is ongoing commission inthe region of 5%.

Sale of a ULIP fetches a relatively lower commission ranging from as low as 5% to 30% of

premium (depending on the insurance company) in the first 1-3 years. After the initial years, itstabilizes at 1-3%. Unlike endowment plans, there are no IRDA regulations on ULIPcommissions.

Broadly speaking, ULIP expenses are classified into three major categories:

1) Mortality charges Mortality expenses are charged by life insurance companies for providing a life cover to theIndividual. The expenses vary with the age, sum assured and sum-at-risk for the individual.There is a direct relation between the mortality expenses and the abovementioned factors. In aULIP, the sum-at-risk is an important reference point for the insurance company. Put simply, the

sum-at-risk is the difference between the sum assured and the investment value the individual'scorpus as on a specified date.

2) Sales and administration expenses Insurance companies incur these expenses for operational purposes on a regular basis. Theexpenses are recovered from the premiums that individuals pay towards their insurance policies.Agent commissions, sales and marketing expenses and the overhead costs incurred to run theinsurance business on a day-to-day basis are examples of such expenses.

3) Fund management charges (FMC) These charges are levied by the insurance company to meet the expenses incurred on managing

the ULIP investments. A portion of ULIP premiums are invested in equities, bonds, govt.securities and money market instruments. Managing these investments incurs a fundmanagement charge, similar to what mutual funds incur on their investments. FMCs differ acrossinvestment options like aggressive, balanced and debt ULIPs; usually a higher equity optiontranslates into higher FMC.

Apart from the three expense categories mentioned above, individuals may also have to incurcertain expenses, which are primarily 'optional' in nature- the expenses will be incurred if certainchoices that are made available to individuals are exercised.

a) Switching charges

Individuals are allowed to switch their ULIP options. For example, an individual can switch hisfund money from 100% equities to a balanced portfolio, which has say, 60% equities and 40%debt. However, the company may charge him a fee for 'switching'. While most life insurancecompanies a llow a certain number of free switches annually, a switch made over and above thisnumber is charged.

b) Top-up charges ULIPs allow individuals to invest a top-up amount. Top-up amount is paid in addition to the


42/87

42

premium amount for a particular year. Insurance companies deduct a certain percentage from thetop-up amount as charges. These charges are usually lower than the regular charges that arededucted from the annual premium.

c) Cancellation charges

Life insurance companies levy cancellation charges if individuals decide to surrender theirpolicies (usually) before three years. These charges are levied as a percentage of the fund valueon a particular date.

FLEXIBILITY

As we mentioned, one aspect that gives ULIPs an edge over traditional endowment is flexibility.ULIPs offer a host of options to the individual based on his risk profile.

There are insurance companies that offer as many as five options within a ULIP with the equitycomponent varying from zero to a maximum of 100%. You can select an option that best fits

your objectives and risk-taking capacity.Having selected an option, you still have the flexibility to switch to another option. Mostinsurance companies allow a number of free 'switches' in a year.

Another innovative feature with ULIPs is the 'top-up' facility. A top-up is a one-time additionalinvestment in the ULIP over and above the annual premium. This feature works well when youhave a surplus that you are looking to invest in a market-linked avenue, rather than stash away ina savings account or a fixed deposit.

ULIPs also have a facility that allows you to skip premiums after regular payment in the initial

years. For instance, if you have paid your premiums religiously over the first three years, you canskip the fourth year's premium. The insurance company will make the necessary adjustmentsfrom your investment surplus to ensure the policy does not lapse.

With traditional endowment, there are no investment options. You select the only option youhave and must remain with it till maturity. There is also no concept of a top-up facility.

Your premium amount cannot be enhanced on a one-time basis and skipped premiums will resultin your policy lapsing.

TRANSPARENCY

ULIPs are also more transparent than traditional endowment plans. Since they are market- linked,there is a price per unit. This is the net asset value (NAV) that is declared on a daily basis. Asimple calculation can tell you the value of your ULIP investments. Over time you know exactlyhow your ULIP has performed.

ULIPs also disclose their portfolios regularly. This gives you an idea of how your money isbeing managed. It also tells you whether or not your mutual fund and/or stock investments


43/87

43

coincide with your ULIP investments. If they are, then you have the opportunity to do a rethink on your investment strategy across the board so as to ensure you are well diversified acrossinvestment avenues at a ll times.

With traditional endowment, there is no concept of a NAV. However, insurers do send you an

annual statement of bonus declared during the year, which gives you an idea of how yourinsurance plan is performing.

Traditional endowment also does not have the practice of disclosing portfolios. But given thatthere are provisions that ensure a large chunk of the endowment portfolio is in high quality(AAA/sovereign rating) debt paper, disclosure of portfolios is likely to evoke little investorinterest.

LIQUIDITY

Another flexibility that ULIPs offer the individual is liquidity. Since ULIP investments are

NAV-based it is possible to withdraw a portion of your investments before maturity. Of course,there is an initial lock-in period (3 years) after which the withdrawal is possible.

Traditional endowment has no provision for pre-mature withdrawal. You can surrender yourpolicy, but you won't get everything you have earned on your policy in terms of premiums paidand bonuses earned. If you are clear that you will need money at regular intervals then it isrecommended that you opt for money-back endowment.

TAX BENEFITS

Taxation is one area where there is common ground between ULIPs and traditional endowment.

Premiums in ULIPs as well as traditional endowment plans are eligible for tax benefits underSection 80C subject to a maximum limit of Rs 100,000. On the same lines, monies received onmaturity on ULIPs and traditional endowments are tax-free under Section 10.

ULIP - KEY FEATURES (IN GENERAL):

1. Premiums paid can be single, regular or variable. The payment period too can be regular orvariable. The risk cover can be increased or decreased.

2. As in all insurance policies, the risk charge (mortality rate) varies with age.

3. The maturity benefit is not typically a fixed amount and the maturity period can be advancedor extended.

4. Investments can be made in gilt funds, balanced funds, money market funds, growth funds orbonds.

5. The policyholder can switch between schemes, for instance, balanced to debt or gilt to equity,etc.


44/87

44

6. The maturity benefit is the net asset value of the units.

7. The costs in ULIP are higher because there is a life insurance component in it as well, inaddition to the investment component.

8. Insurance companies have the discretion to decide on their investment portfolios.

9. They are simple, clear, and easy to understand.

10. Being transparent the policyholder gets the entire episode on the performance of his fund.

11. Lead to an efficient utilization of capital.

12. ULIP products are exempted from tax and they provide life insurance.

13. Provides capital appreciation.

14. Investor gets an option to choose among debt, balanced and equity funds.

Canara HS

Documents

Neil Wealth Magt