Importance of Wealth Management | PAPER IV – RETAIL BANKING & WEALTH MANAGEMENT | Module D: Wealth Management
Module D: Wealth Management
1. Importance of Wealth Management
Wealth management helps individuals and families effectively plan and manage their financial assets to meet life goals such as retirement, children's education, and estate transfer. It integrates investment management, financial planning, tax services, and estate planning.
2. Broad View of Wealth Management
This involves comprehensive financial services including investment advice, accounting/tax services, retirement planning, legal/estate planning, and more. The goal is to grow and preserve long-term wealth.
3. Wealth Management Business Structures
- Bank-based WM services
- Independent financial advisors
- Multi-family offices
4. Wealth Management Process
- Client onboarding and goal setting
- Risk profiling and data collection
- Asset allocation and product selection
- Implementation
- Monitoring and rebalancing
5. Wealth Management Products and Services
- Mutual Funds
- Insurance (Life, Health, ULIPs)
- Alternative Assets (Gold, REITs, etc.)
- Bonds and Fixed Income
- Retirement Products (NPS, Pension Funds)
6. Retirement Planning
Helps individuals build a retirement corpus through systematic investment and insurance planning. Products like PPF, NPS, and annuity schemes are key tools.
7. Will Writing & Estate Planning
Crucial in preserving and distributing wealth. Legal instruments like wills, trusts, and power of attorney help in smooth transition of assets.
8. Private Wealth Management & Private Banking
Targeted at High Net-worth Individuals (HNIs) offering tailor-made services including discretionary portfolio management and family office services.
9. Personal Financial Planning
Includes budgeting, goal planning, debt management, tax planning, and emergency funds creation.
10. Strategic Business Strategy in Wealth Management
Firms focus on client relationship, technology-driven advisory, fee-based structures, and scalable models to sustain profitability.
11. Wealth Management Assessment
Involves evaluation of risk tolerance, investment objectives, asset mix, and wealth goals to design a financial strategy.
Illustrative Mathematical Examples
- A client invests ₹1,00,000 in a mutual fund earning 12% per annum. What will be the corpus after 5 years?
Solution: FV = P(1 + r)^n = 1,00,000 × (1.12)^5 = ₹1,76,234.09 - Annual premium of a retirement plan is ₹50,000 for 20 years. If return is 8%, find future corpus.
Solution: FV = P × [(1 + r)^n – 1]/r = 50,000 × [(1.08)^20 – 1]/0.08 = ₹24,59,183 - A bond of ₹10,000 with 8% coupon pays annually for 3 years. What is the total interest earned?
Solution: 8% × ₹10,000 × 3 = ₹2,400 - Insurance premium is ₹20,000/year for 10 years. Returns 6% p.a. What is maturity amount?
FV = 20,000 × [(1.06)^10 – 1]/0.06 = ₹2,63,799 - A portfolio returns 14% with 18% standard deviation. What is Sharpe ratio if risk-free rate is 6%?
Solution: (14 - 6)/18 = 0.444 - A client allocates ₹5 lakhs: 40% equity, 30% bonds, 30% real estate. How much in each?
Solution: Equity: ₹2L; Bonds: ₹1.5L; Real Estate: ₹1.5L - If monthly SIP is ₹5,000 for 15 years at 10% annual return, what is maturity amount?
FV = P × [{(1 + r)^n – 1}/r] × (1 + r); r = 0.10/12, n = 180 = ₹20,53,599 - Cost of mutual fund units bought: ₹10,000; NAV after 2 years: ₹13,000. What is CAGR?
CAGR = (FV/P)^(1/n) - 1 = (13,000/10,000)^(1/2) - 1 = 14.02% - A property was bought for ₹50L and sold at ₹80L in 5 years. What is annualized return?
CAGR = (80/50)^(1/5) - 1 = 9.8% - A retirement corpus required is ₹2 Cr. If 20 years left and 10% return expected, what annual investment is needed?
P = FV × r / [(1 + r)^n – 1] = 2Cr × 0.10 / [(1.10)^20 – 1] = ₹3,68,619 per year
Multiple Choice Questions (MCQs)
- Which of the following is a component of wealth management?
a) Loan underwriting
b) Financial planning ✅
c) Trade settlement
d) Margin trading - What is the primary goal of wealth management?
a) Tax avoidance
b) Maximizing credit limits
c) Growing and preserving wealth ✅
d) Trading daily in markets - Which product is most suitable for retirement planning?
a) Credit card
b) Mutual Fund
c) National Pension Scheme ✅
d) Fixed Deposit - ULIP combines:
a) Mutual fund and equity
b) Insurance and investment ✅
c) Real estate and gold
d) Bonds and loans - Private Wealth Management targets:
a) Students
b) High Net-worth Individuals ✅
c) Loan defaulters
d) Start-ups - Asset allocation is part of:
a) Operational risk
b) Financial Planning ✅
c) Tax audit
d) Real estate brokerage - REITs are classified under:
a) Fixed assets
b) Alternative assets ✅
c) Floating rate assets
d) Inventory - Will writing primarily helps in:
a) Loan closure
b) Asset transfer post-death ✅
c) Mutual fund redemption
d) Tax deduction - Sharpe Ratio measures:
a) Liquidity
b) Credit Risk
c) Risk-adjusted return ✅
d) Profit margin - The final step in the wealth management process is:
a) Product recommendation
b) Onboarding
c) Risk profiling
d) Monitoring and review ✅
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