Tag: wealth

BCG, BFSI News, ET BFSI

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Financial wealth and people’s lives during the pandemic are inversely related to each other. According to a new report by Boston Consulting Group (BCG), financial wealth in India grew by 11% p.a. to USD 3.4 trillion from 2015 to 2020. In line with the emerging economic recovery, the report reveals growth in prosperity and wealth significantly through the crisis and is likely to expand in the next five years. India is expected to lead a percentage growth of fortunes worth $100 million in 2025.

Ashish Garg, a member of Boston Consulting Group’s Center for Digital Government, and a core member of the Financial Institutions and Public Sector practices said, “The next five years have the potential to usher in a wave of prosperity for individuals and wealth managers alike. They now have a chance to put that perspective into practice in their own work and pursue a client agenda. The report lays out what it takes to attract and retain clients and serve them in a competitively sustainable way.”

The report, titled ‘Global Wealth 2021: When Clients Take the Lead’ states that India represents 6.5% of the region’s financial wealth in 2020. 13.7% were the region’s real assets in 2020 which grew from 2015 to 2020 by 12.1% p.a. to USD 12.4 trillion. Liabilities grew by 13.3% p.a. to USD 0.9 trillion and Liabilities are expected to grow by 9.4% p.a. to USD 1.3 trillion by 2025. Bonds are expected to grow the fastest with 15.1% p.a. Life Insurance and Pensions will be the 3rd largest asset class in the future.

According to the report, North America, Asia (excluding Japan), and Western Europe will be the leading generators of financial wealth globally, accounting for 87% of new financial wealth growth worldwide between now and 2025.

Embracing fresh options

With the aim of earning higher returns than usual, many wealth management clients shifted away from low-yield debt securities in 2020. Hence, real assets, led primarily by real estate ownership, reached an all-time high of $235 trillion. Nevertheless, Asia, which has the largest concentration of wealth in real assets ($84 trillion, 64% of the regional total) will see financial asset growth exceed real asset growth (7.9% versus 6.7%) in coming years. In particular, investment funds in the region will become the fastest-growing financial asset class, with a projected compound annual growth rate (CAGR) of 11.6% through 2025, according to the report.

Attractive segments

The report talks about three market opportunities and segments for wealth managers. One consists of individuals with simple investment needs and financial wealth between $100,000 and $3 million. This “simple-needs segment” comprises 331 million individuals worldwide, holds $59 trillion in investable wealth, and has the potential to contribute $118 billion to the global wealth revenue pool.

“Wealth managers often underserve those in the simple-needs segment with a standardized set of products, and the result is a poor client experience with no “wow” factor. This is essentially a missed opportunity. To better serve this key segment, wealth managers must embrace a new approach that lets them reach a larger audience in a cost-effective and scalable way, but with a highly personalized offering.” said Anna Zakrzewski, a BCG managing director and partner, global leader of the firm’s wealth management segment.

Retirees form the second lucrative market, according to the report. Individuals over 65 own $29.3 trillion in financial assets accessible to wealth managers. This figure is expected to grow at a CAGR of close to 7% over the next five years. By 2050, 1.5 billion people globally will fall into the 65+ category, representing an enormous source of wealth.

The third category is the “ultra” wealth category—individuals whose personal wealth exceeds $100 million—expanded in 2020, with 6000 people joining the 60,000-strong cohort, which has seen year-on-year growth of 9% since 2015. The category currently holds a combined $22 trillion in investable wealth, 15% of the world’s total.

The BCG report reveals that China is on track to overtake the US as the country with the largest concentration of ultras by the end of the decade. If investable wealth continues to rise there at its current annual rate of 13%, China will host $10.4 trillion in ultra assets by 2029, more than any other market in the world. The US will be close behind, with a forecasted total of $9.9 trillion in such wealth by 2029.

“High-growth markets represent a massive opportunity, but wealth managers must build a genuine understanding of local differences and also key demographic changes.” said BCG’s Zakrzewski. “For example, women now account for 12% of ultras, most of whom are based in the US, Germany, and China. The next-gen segment is also going to be an influential driver of future growth in the next decade or so. Whether it’s a simple-needs or ultra-high-net-worth client, managers need to offer a personalized service in order to effectively capture the next wave of growth.”



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‘Managing wealth is managing yourself’, says Ashish Shanker of MOPWM

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A veteran in financial services industry, Ashish Shanker as managing director and chief executive of Motilal Oswal Private Wealth Management (MOPWM) leads a team that advises top corporates/institutions and over 3,000 HNI families. He has played a key role in building the investment, research and advisory platform and creating the proprietary ‘4C fund manager’ framework at the firm. As a captain of ship that advises client assets worth ₹25,000 crore, here is a sneak-peek of how the much sought-after wealth manager tends to his own personal finances.

What does money mean to you?

Money is a means to fulfill needs and desires for self, family and parents. It is a means to an end. You should have enough of it but then the greed for it also can end up destroying us.

What are your top financial goals as an individual?

For any parent, the kid comes first. Providing for my kid is at the top of my mind, so that he has a decent education and he has a decent lifestyle. Then, of course, providing for a high-quality retirement where I don’t have to compromise on lifestyle once I retire. I’m a little bit of a gourmet connoisseur, I like to have my malt as well. There are intermittent goals, such as travel and, at some point, may be housing. I do own a house, but it’s in my hometown (Pune). At some point, if price and wallet permit, buying a house in a Mumbai suburb of my choice is also a goal.

What does your portfolio look like?

Close to 85-90% of my money is invested in equities. All my incremental money also goes in equities. I do not count my PF (provident fund) in this.

My first job was as an equity analyst with a local brokerage firm. Even before that, I fell in love with equities in probably 12th standard. I used to interact with people in my family who were related to stock markets. I’ve been in private wealth firms now for 16 years. Hence, from day one, it’s been equities. Equity investments for me are a combination of stocks and mutual funds. I also hold a lot of my portfolio in ESOPs.

What was your most successful investment? What are the mistakes you’ve made?

All the investments that I made in the late 90s, and mind you I have not sold a single share, have been the most successful in terms of IRR (internal rate of return ). I bought Nestle, ITC etc., but on a very small capital.

I also do remember that I bought a lot of the dot-com stocks which went to zero. My experience has shown that if you buy 20-30 stocks and hold them, the better quality companies more than make up for the duds. So, the lesson I’ve learned is that in equities, patience and longevity beats everything else. It is 90 per cent temperament and 10 per cent skill.

How much emergency funds do you have and where do you keep it?

I’ve always had this principle that you should have at least six months of your expenses as emergency funds. You may call it very inefficient to keep that amount of money idle, but I always have that amount lying in my savings account. Now, there are even savings banks accounts, which give you 6-7 per cent. I tell people that maybe you should have one year’s worth money but six months is good enough for me.

What kind of amount would you require for your retirement?

Ten years back, if you’d asked me, I could have put a number of ₹5 crore. But today, that number doesn’t excite me because my lifestyle has gone up. I have figured it’s a moving target. Today, the target I am looking at is 200-250 times my monthly expenses.

As a private wealth veteran, what is the most important message to people on managing wealth?

As philosophical as it may sound, managing wealth, I believe, is predominantly about managing yourself. If you know your own temperament, you will be a better investor. Also, keeping it simple, and thinking long term is the crux of what I’ve learned in 24 odd years of my career. Ultimately, you are your biggest cash-generating machine. So, invest in yourself as in your career or your training, picking up skills.

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Brokerage CEOs on building customer wealth on digital, BFSI News, ET BFSI

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Brokerage industry has been early adopter of technology and digital capabilities. From quickly onboarding customers with demat account to enabling trading in seamless manner, trading and investing has never been simpler before.

Speaking at 2nd ETBFSI Virtual Summit, Top CEOs of leading brokerage and asset management company share their thoughts on how digital is becoming a game changer for the wealth management industry.

ICICI Securities
Vijay Chandok, MD & CEO at ICICI Securities said, “Broking Industry has been one of the frontrunners in digital adoption. The convergence of advanced analytics and convergence benefits is unleashing a whole new world of opportunity. Wealth business is a big need gap in the marketplace, challenge has been providing wealth services at scale, most offerings are in boutique type services.”

According to Chandok, Industry players are poised to take the opportunity of the huge gap which exists in the wealth management market

LIC Mutual Fund

Dinesh Pangtey, CEO at LIC Mutual Fund said, “Direct market access was the real game changer for building customer wealth on digital modes. Computing powers and leveraging emerging tech has enabled market players to offer seamless digital services Going forward Blockchain and AI will be playing a vital role in the wealth management space.”

Axis Securities

B Gopkumar, MD & CEO, Axis Securities said, “The brokerage industry is a 30 year old FinTech industry from ring to mobile a lot has changed. Regulators and exchanges have created a superior ecosystem for all players involved. At large, wealth industry is changing while still products are being pushed and should be goal based driven.”

Gopkumar believes that savers have been turning towards investing and that is what’s helping the industry to grow. Only scalable technologies can tap to build the mass affluent business and create an informed investing ecosystem and they aim to build products which provide all asset classes on their platforms.

HDFC Securities
Dhiraj Reli, MD & CEO, HDFC Securities, said, “BFSI was the earlier adopter of technology, banks did a better job but brokerages were born digital. Broking firms have always been in forefront in adopting emerging technology, regulators and exchanges have accelerated the digital journey.”

There’s a need to build products and services which exceed customer’s requirements.

Reli adds, “JAM Trinity & Smartphones have enabled us to serve the length and breadth of the country. Financialisation of saving is on the cusp of exponential growth, we’ve just seen the tip of the iceberg Only 18mn customers are active on the exchanges with one trade despite the spurt we have seen recently so it’s a long way to go.”



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Are FinTechs building wealth for Indians?, BFSI News, ET BFSI

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– By Shashank Singhal

India’s Fintech ecosystem and underlying opportunities have gained global recognition. According to a report by RedSeer Consulting, India’s financial technology companies are expected to triple in value over the next five years, hitting a valuation of USD 150-160 billion by 2025. While digital payments and lending have been critical in the foundation of Indian fintech base however the strong performance of equity and mutual funds led to strengthening and entry of several Wealth management models, with ‘Wealth-tech’. The Indian Wealth-tech market is expected to expand to over $60 billion by FY25.

India currently has 4 million Wealth-tech investors (FY20), which is expected to triple to 12 million by FY25 driven by rising investors, high digital platforms awareness and usage across equity and mutual fund investments, financially literate millennials etc.

The Wealth-Tech Model

Different players are offering different services to investors starting from zero commission plans to customised plans to subscription based modes.

Tarrakki, a wealth management platform enables its customers to subscribe to premium models or invest in zero commission plans directly. Saumya Shah, Founder at Tarrakki said, “Tarrakki pro is a premium model where you get a dedicated financial advisor providing services like financial planning, portfolio creation and asset allocation and assistance at all stages. We also provide equity advisory plans containing model portfolios designed especially for retail investors, selling plans and mutual funds assistant plans.”

Leading player Scripbox believes wealthtech is all about creating, conversing and accumulating wealth. Prateek Mehta, Co-founder & Chief Business Officer at Scripbox describes his business as getting rich slowly. He said, “The Scripbox provides a two-fold advisory model to the customers where they can directly invest in mutual fund plans from several AMCs and above a certain threshold advisory plan opens for customers. Plans and advice are built on customer goals, aspirations, time horizon.”

As digital and smartphone penetration goes deeper across India, access to financial services and markets becomes easier for the underpenetrated segment. Experts believe many people switch to an advisory model or subscription model after burning their fingers after trying it on their own driven by tips and lack of awareness.

Ranjit Sinha, Co-founder of MyWealthGrowth says that the advisory model works on a model portfolio.
He adds, “We have 2 aspects, First; in the back end, the system itself creates a library, under the supervision of analysts. Second; the client interface, where certain questions like age, risk, returns, tenure are asked, and the persona of the person is created and then matched and mapped with the model portfolio. Customers can invest their money in direct plans of mutual funds or purchase a plan where customers get services like financial planning, not only in mutual funds but other avenues.”

Phygital models also exist as not all customer segments are tech savvy, Moneyfront in 2016 was India’s first platform to offer direct plans of mutual funds. Mohit Gang, Founder, Moneyfront said, “We are a “Phygital platform, a unique blend of Digital plus physical assistance model. We offer our client a DIY digital interface for all transactions, reporting, research etc. and then complement it with a fully-engaged service and advisory teams. These teams’ hand-hold and assist the clients in every step of their investing journey and also guide them depending on their unique circumstances.”

Customer Trends and Behaviour

Saumya informed that the average age of Tarrkki’s customer base lies within the range of 30-40. He believes the age of 30-40 is the key to wealthtech as targeting the customers above the age of 50 is not feasible because of limited technical know-how. Also, people get serious about wealth management post 26-27 years of the age. According to Saumya, most of their customers have invested before and require assistance in long term planning and the income bracket of their customers is wide with average investment ranging from 25k-35k rupees to even 2 lakh rupees per month.

Scripbox said most of its customer base reflects the Indian workforce and have a higher share of women customers with average age around 30s where people become serious about wealth management and spread across 2500 cities and towns. Prateek said, “The average amount invested by our customers significantly rises by 5x to 10x compared to the first year. We stress up on the importance of financial awareness and run multiple programmes to improve knowledge and awareness for our customers.”

Ranjith of MyWealthGrowth has presence in top 4 cities but technology has led to expansion to ground level even in the villages. The average of customers falls within the range of 32-38 years. He adds, “Usually, customers invest around 70k-80k rupees in lump sum per month. Customer growth is around 20%-25% YoY, while investment increment growth is high. The average amount invested by our customers rises by 15% to 20% every year. We have been putting efforts in educating investors and providing newsletters, video links, pdfs to our customers on a regular basis.”

Mohit said, “Most of the clients on the platform have international exposure which gives a differentiating edge and hedge to the overall portfolios. We have successfully helped clients route over Rs 3500 crore of investments through our platform and client profile is a mix of all groups with a larger proportion being serious investors in the age group of 30-45.”

Managing Uncertain Times
It is important for people to have an emergency fund in case any uncertainty arises. Earlier, six month emergency funds were considered by many advisors but given how the pandemic has unfolded in the last one year, experts have been recommending investors to double their emergency funds to 12 months.

Saumya said people have become more receptive to advice than before and learnt the importance of asset allocation and emergency fund for adverse times. He said, “We have asked our customers to continue their investment on a long-term horizon with some minor changes and not to time the market. Equities and debt allocation are good options of wealth creation in future. We are aiming to target people within the age group of 25-40 in future by building products like digital gold, P2P lending assets to provide a more diversified experience.”

Prateek of Scripbox explains uncertainty exists in the market but being a young country there is opportunity to grow and the economy will keep growing. Because of the pandemic there is an increase in the importance of emergency funds. People must remain patient, invest for a longer period, and should not try to time the market. “We aim to cater the underserviced in the market in future and build products based on customer needs. Also, tech has helped us to reach masses, scale up our operations and remove human bias.”

According to Singh of MyWealthGrowth the opportunity to create wealth is always there but discipline must be maintained and investments shall be made for a longer horizon. India is still unpenetrated in the investment market and there’s a lot of headroom to grow. He said, “The need for financial planning among people has increased. We aim to grow our prospect base by targeting rural customers. On the product side we are planning to add Digital gold in their portfolio. Use of robo-advisory, algo-trading and technology will continue to rise in the wealth management space in future.”

On how the current times are shaping, Mohit said, “Till the time that global interest rates continue to be low and bond yields remain subdued – the surge could persist. However, one has to be cautious of valuations and be pragmatic while investing. At all points, following a proper asset allocation approach is the right way to navigate these markets.”

Moneyfront is looking to expand its reach in the B2B market and analytics space, Mohit added, “We have partnered with over 4000 partners across smaller towns and cities to enable them to offer financial products digitally to their clients.”



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Smart ways to compound your debt investment returns

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Money managers and financial advisors, when pitching financial products to you, love to cite Einstein on compounding being the eighth wonder of the world. Then, they do their best to convince you that if you want to benefit from compounding, you should be maxing out your equity investments. But if you give it a bit of thought, debt investments often turn out to be more predictable compounders of wealth for Indian investors, than equities.

Steadier compounding

In equities, your returns come in fits and starts. You may make a 30 per cent return one year, lose 15 per cent of it in the second year and gain back 10 per cent in the third year. But such zig-zag returns from stock prices don’t really make for steady compounding of your money.

So, when equity fans praise the magic of compounding, what they’re really talking about is owning great companies that manage secular profit growth, reinvest it in their business at high rates of return and thus deliver high earnings compounding, which eventually leads to stock price returns. But then very few companies manage to achieve such earnings consistency in real life. To identify them, you’ve got to be extremely skilled or very lucky.

When you take the mutual fund or index route to equities, your compounding happens at a much lower rate, depending on your timing and staying power. A rolling return analysis of the Nifty50 Total Return Index over the last 20 years tells us that there have been quite a number of occasions (13 per cent of the times) when the Indian market has delivered a less than 7 per cent CAGR to investors with a five-year holding period. Even a 10-year holding period doesn’t guarantee compounding at a high rate. Folks who bought into Nifty 50 in end-2007 and held till 2017 earned less than an FD CAGR of 7 per cent from the Nifty50.

Debt instruments, in contrast, offer greater certainty of compounding. This is why, while making debt allocations towards long-term goals such as children’s education, the purchase of property or retirement, you should pay close attention to whether your interest compounds, to create wealth.

Choice of instruments

Here are ways to ensure that your debt money compounds.

While investing in fixed deposits or non-convertible debentures, choose the cumulative option as your default. If you opt for income, the interest from the deposit can land in your bank account and get spent before you know it.

Prefer instruments with compounded interest even if their interest rate is slightly lower. Today, the seven-year Government of India’s Floating Rate Savings Bond offering a 7.15 per cent interest is one of the most attractive debt options in the market. But this bond has only a payout option and no cumulative option. So, if you’re looking for a debt instrument for your long-term goals, the Public Provident Fund with its tax-free interest, despite its 15-year tenure, is a better choice (unfortunately you can invest only ₹1.5 lakh of your annual savings in it).

If you choose a regular payout debt instrument owing to its safety or high returns, open a separate bank account for your interest receipts and make it a habit to reinvest the balances frequently. This will ensure that your interest receipts compound.

When seeking compounding, do it with sovereign-backed instruments or pedigreed AAA-rated issuers and not with lower-rated entities that offer higher rates. With cumulative options of NCDs, FDs or deposits, you’re allowing the borrower to hang on to your money until maturity. It is not worth risking your principal for higher compound interest.

The manner in which your returns are taxed also affects the rate of compounding. In the case of FDs or NCDs, interest on the cumulative option is added to your income every year and taxed. But with debt mutual funds, if held beyond three years, returns are taxed as long-term capital gains with indexation.

Compounding options

If you’re seeking compound interest, post office schemes offer you the best bet in terms of safety. But then, popular options such as the 5-year time deposits, Monthly Income Account and Senior Citizens Savings Scheme offer only interest payout options and no cumulative options. 5 year plus FDs with leading banks or highly rated NBFCs offer cumulative options, but unfriendly taxation takes a bite out of your returns.

For 3-5 years, accrual debt funds (categories such as corporate bond funds, PSU & Banking Funds and short-duration funds) and Fixed Maturity Plans are good choices. Funds that rely on duration gains (gilt funds, medium duration and dynamic bond funds) behave a little like equities and are less desirable for consistent compounding. For 5 to 7-year horizons, the post office National Savings Certificates and NCDs from top-quality NBFCs make for good choices.

For horizons stretching to 10 years and beyond, the Public Provident Fund, is a great compounding option. For retirement, your EPF account is a good choice. For most investors, the National Pension System flies under the radar as a long-term debt investment. Allocating high proportions of your annual NPS contributions to the C (corporate bond) and G (government bond) options can compound your debt money at a high rate. If you want to withdraw before you turn 60, use the same choices in the NPS Tier 2 account.

While many regular income options are available on tap, cumulative options such as high-quality NCDs, tax-free bonds and FMPs come up only once in a blue moon. Rarely do these issues coincide with an upcycle in interest rates. Therefore, always hold some portion of your long-term debt money in accrual debt funds and switch the money into such options when they do crop up.

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