“A comprehensive book from a professional who has seen it all in the financial world. If all wealth seekers and wealth professionals read Wealth Engine, the investment world will be a much safer place.”
— Mani Subramanian CEO, Barclays Bank PLC, India
“For too long, financial planning and wealth management services in the country have tended to follow text books that do not consider the uniqueness of Indian markets or the cultural context of Indians. Wealth Engine uses data and intuitive analytical frameworks to force you to re-think some of the fundamental assumptions in the street.”
— Mr. Deepak Chatterjee, MD & CEO, SBI Funds Management Pvt. Ltd.
Preface | 13 | |
Acknowledgements | 15 | |
Part 1 | ||
Wealth Engine | ||
---|---|---|
1. | The Wealth Engine | 19 |
Part 2 | ||
PEDI-Cure | ||
2. | Pension | 27 |
Defined Benefit Pension Plans | 27 | |
Defined Contribution | 28 | |
Choice of Portfolio and Pension Fund Manager | 28 | |
Annuity | 29 | |
Commutation | 30 | |
Family Benefit | 30 | |
Pension of Government Employees | 30 | |
Pension under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 New Pension Scheme (NPS) |
30 | |
3. | Equity — Passive Exposure Approach | 34 |
Absolute Returns from Equity | 34 | |
Equity and Inflation | 35 | |
Rolling Returns from Equity | 39 | |
4. | Equity — Active Exposure Approach | 44 |
Standard Terms in Equity Analysis | 44 | |
Types of Shares | 47 | |
Risk in Equity Investing | 52 | |
Value Drivers in Equity Market | 58 | |
Management of Equity Portfolio | 64 | |
Pearls of Wisdom and Best Practices | 66 | |
Investment Fables | 70 | |
Five Issues of Particular Concern | 71 | |
Three Cognitive Biases | 72 | |
Ten Lessons for Investors | 72 | |
5. | Equity — Business Value Approach | 73 |
6. | Debt | 78 |
Interest | 78 | |
Instruments | 79 | |
Absolute Returns from Debt Securities | 83 | |
TRI Returns and Inflation | 84 | |
Rolling Returns from Debt | 87 | |
Risks in the Debt Market | 90 | |
Yield to Maturity and Price | 93 | |
Debt Valuation | 96 | |
Investment Style | 98 | |
Management of Debt Portfolio | 98 | |
7. | Insurance | 100 |
Types of Life Insurance Products | 100 | |
How Much Life Insurance is Adequate | 102 | |
General Insurance | 104 | |
Part 3 | ||
MANI-Cure | ||
8. | Mutual Funds | 109 |
What is a Mutual Fund? | 109 | |
Scheme and Units | 110 | |
Types of Schemes | 111 | |
Schemes versus Options or Plans | 122 | |
Scheme Selection | 125 | |
Investors in a Mutual Fund Scheme | 125 | |
Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), Systematic Transfer Plan (STP) | 127 | |
Benefits of Investing in Mutual Funds | 129 | |
Exit from Mutual Fund Schemes | 131 | |
Comparison with Other Investment Products | 131 | |
Appendix 8.1: SIP — NAV up 1% | 135 | |
Appendix 8.2: SIP — NAV down 1% | 136 | |
Appendix 8.3: SIP — Random | 137 | |
9. | Alternate Assets | 138 |
Gold | 139 | |
Real Estate | 145 | |
Art | 151 | |
Temptations | 153 | |
10. | New Investment Structures | 154 |
Portfolio Management Schemes (PMS) | 154 | |
Hedge Funds | 155 | |
Venture Capital (VC) / Private Equity (PE) Funds | 155 | |
Angel Networks | 156 | |
Structured Notes | 156 | |
Derivatives | 156 | |
Structured Obligations | 162 | |
Securitisation | 163 | |
Evaluating a New Investment Structure | 164 | |
Part 4 | ||
EconoView | ||
11. | EconoView — Economy and Markets | 171 |
Appendix 11.1: Will the Tremors of Japan Hit the World Economy? | 175 | |
Part 5 | ||
CASTLE | ||
12. | Cash Flow Planning | 181 |
Future Value of Bullet | 181 | |
Future Value of SIP | 182 | |
Pitfalls of Future Value Calculations | 182 | |
Cash Flow Planning for the Wealthy | 183 | |
13. | Asset Allocation | 185 |
Asset Classes | 185 | |
Portfolio Performance Analyses | 187 | |
Asset Allocation Types | 192 | |
14. | Succession Management | 195 |
Dear Business and Enduring Business | 195 | |
Stakeholders in Enduring Businesses | 196 | |
Best Practices in Succession Management for Family Businesses | 197 |
17.Estate Planning233
15. | Tax Planning | 201 |
Income Tax Concepts | 201 | |
Setting Off Capital Gains and Losses; and Speculation Profits and Losses | 208 | |
Taxation of Mutual Funds and Other Investments | 209 | |
Wealth Tax | 225 | |
Direct Tax Code (DTC) | 225 | |
16. | Liability and Leverage Management | 227 |
Business Debt | 227 | |
Personal Debt | 229 | |
Leverage | 231 | |
Assets and Associated Records | 233 | |
Liabilities and Associated Records | 234 | |
Scheme of Transfer of Estate | 235 | |
Formats for Estate Transfer | 236 | |
Living Will | 239 | |
Part 6 | ||
MISCHIEF | ||
---|---|---|
18. | Misrepresentation | 243 |
19. | Insolvency and Bankruptcy | 247 |
20. | Scam | 252 |
Stock Exchange Scams | 252 | |
Illiquid Asset Scams | 254 | |
“Exercise of Authority” Scams | 254 | |
Phishing and Vishing Scams | 255 | |
21. | Circular Trading | 256 |
22. | Hawala | 259 |
23. | Illegal Transactions | 262 |
24. | Easy Money Schemes | 264 |
Ponzi Schemes | 264 | |
Nigerian Scheme | 264 | |
Easy Loans | 265 | |
25. | Fraud | 266 |
26. | MISCHIEF — Cases from India and Abroad | 268 |
“Big Bull” Harshad Mehta | 268 | |
Nick Leeson (Barings Bank) | 270 | |
Ketan Parekh | 271 | |
Worldcom | 272 | |
Bernard Madoff (Ascot Partners) | 273 | |
Ramalinga Raju (Satyam) | 274 | |
Shivraj Puri (Citi) | 275 | |
Part 7 | ||
Paradigms in Financial Advising and Wealth Creation | ||
27. | Financial Planning Tradition | 279 |
Steps to Financial Planning | 279 | |
Comprehensive Financial Plan and Goal-Oriented Investing | 290 | |
Tips and Tricks | 291 | |
28. | 3-D Framework for Optimal Portfolio (3-D FOP) | 294 |
Risk Profile and Model Portfolio | 294 | |
3-D Framework | 295 | |
Towards an Optimal Portfolio | 296 | |
Speculative Component in Portfolio | 297 | |
3-D FOP Profile | 297 | |
29. | SSELECTIVVELLY-Invest | 299 |
Classification Scheme for Investment Products Why a Standard Classification Scheme is Essential |
299 | |
SSELECTIVVELLY-Invest | 299 | |
The SSELECTIVY Sub-set | 301 | |
30. | Risk Management and Recovery Framework | 303 |
Risk Management Framework | 303 | |
Selection of Market Intermediaries | 307 | |
Recovery Framework | 308 | |
31. | Financial Blood-Test Report (FBR) | 311 |
The Financial Planning Ritual | 311 | |
The Financial Blood-Test Report (FBR) | 312 | |
Conclusion | 314 | |
32. | Building a Sustainable Financial Advising Organisation | 316 |
Financial Adviser — Generalist or Specialist? | 316 | |
The Role of Fees | 317 | |
Know Your Customer (KYC) | 318 | |
Client Management | 320 | |
Likely Shape of the Industry | 321 | |
33. | Ethics in Financial Advising | 322 |
Key Ethical Standards | 322 | |
Association of Mutual Funds in India (AMFI) and Code ofEthics [ACE] | 323 | |
AMFI Guidelines and Norms for Intermediaries [AGNI] | 328 | |
34. | Dawn of a New Era of Riches | 334 |
Wealth Engine — the Indian Context: Points to Ponder | 330 | |
Wealth Engine — the Story So Far | 336 | |
What is Rich? | 337 | |
How Much is Enough? | 338 | |
A Balance in Life | 338 | |
Negative Balance — No Aspiration, No Drive | 339 | |
Institutionalising a Positive Balance — The Heart of Giving | 339 | |
Virtuous Wheels of Earning and Giving | 340 | |
Annexure 1: Future Value of Bullet | 341 | |
Annexure 2: Future Value of SIP | 343 | |
Annexure 3: Present Value of Bullet | 345 | |
Annexure 4: Equated Monthly Instalment | 347 | |
Epilogue | 349 | |
Further Learning | 350 | |
References | 351 | |
Index | 357 |
As strategy consultant for companies, I have always valued the importance of analysis in suggesting strategies that are relevant. I do not believe in “strategy through LBR”, namely last book read.
I have tried to bring the same analytical rigour to the field of financial planning and wealth management in the Indian context. This has led me to question various postulates, developed in the western world, but not validated by Indian data. While including analytics, I have avoided complex statistics that tend to derail most readers. Therefore, you will find that the analytical frameworks used are simple — and the explanations based on the analysis, intuitive. Hopefully, the book will help readers understand the world of money in a better context.
Wealth creation is not just about product. Psychology is a critical aspect that is often forgotten. In this book, I have combined the “market” and “management” perspectives — legal and behavioural approaches. Embellished with anecdotes, I hope you will find it interesting and informative to read.
O. P. Bhatt, former Chairman and Managing Director of State Bank of India (SBI) spoke eloquently at the 5th Banking and Finance Conference organized by the Indian Merchants’ Chamber in Mumbai on 11 November 2010. He spoke about the challenges of capacity creation in the field of managing the wealth of the Indian masses.
I have had the pleasure of interacting with various professionals and academicians who are involved in building this capacity. The lack of talent — even inadequate appreciation of the market opportunity — is mind-boggling. Hopefully, this book will be a useful resource in carrying forward the relevant knowledge.
Readers like you and participants in my programmes contributed to the phenomenal success of my first book, Indian Mutual Funds Handbook. It has been a best-seller, year after year, since the first edition in 2003. Authors need this kind of motivation to keep investing time in writing. I look forward to your support for this book as well. I believe it bridges an important knowledge gap in the market.
As with Indian Mutual Funds Handbook, the purpose of the book is educative. Therefore, you will not see any specific institutions mentioned in either a positive or a negative light. However, rest assured that the frameworks presented are based on real and current data, and are absolutely practical. You will be able to apply the frameworks on data that is easily and freely available on the net to make your own analyses, and draw your own conclusions on the performance of organisations and products in the market place, from time to time.
Despite the analytical rigour in the book, subjectivity is part of the domain. Feel free to get in touch, if you do not agree with any thoughts, or would like to share your own experiences, or feel that something can be added in future editions of this book. Until the next publication, I propose to share knowledge on the subject at www.wealthengine.info.
As a tool for better interactivity, and to give you a platform to share your comments, I also maintain a blog at http://WealthEngineRich.blogspot.com. Do join the blog to stay updated on the developments.
Best wishes to you in designing an effective wealth engine for yourself and your clients. Welcome the dawn of a new era in richness.

SUNDAR SANKARAN is founder-director of Advantage-India Consulting Pvt. Ltd. (www.advantage-india.com), a thirteen-year old strategy consulting and knowledge incubation boutique. He has also founded Finberry Academy Pvt. Ltd. (www.finberry.org) and Stratberry Publishing (www.stratberry.com).
Sundar has won renown as an effective trainer who can simplify concepts and catalyse learning through linkages with day-to-day examples. He operates with equal ease at macro-level perspective programs as well as micro-drill-down programs. His programmes cover the entire range from leadership to product to selling, and are not limited to knowledge dissemination; they also seek to bring change within the participants, so that they are enthusiastic about the desired behaviour.
Wide experience across geographies, markets and products have helped Sundar conceptualise several unique seminars and workshops, such as WealthEngine (www.WealthEngine.biz), EconoView (www.EconoView.biz), ThinkStrat (www.ThinkStrat.biz), AssetClass (www.AssetClass.biz) PondSkill (www.pondskill.biz), Don’t Sell (www.Dont-Sell.biz), MISCHIEF (www.mischief.biz) and Riskey (www.Riskey.biz).
Over the years, Sundar has trained over 20,000 participants from an array of India’s largest mutual funds, banks, financial services companies, press and the media across a range of innovative programmes.
Sundar has worked in senior capacities at Bajaj Auto and Kotak Mahindra. His hands-on feel of financial markets and industry is well complemented by his academic qualifications — Post-Graduate Diploma in Management from Indian Institute of Management, Ahmedabad (1988), Associate of the Institute of Company Secretaries of India (1992) and Associate of the Institute of Cost Accountants of India (1988). He graduated from Podar College (Mumbai University).
Sundar is active with various industry bodies. He is a member of the Banking & Finance Committee and the Accounting Standards Committee of the Indian Merchants’ Chamber.
His other passions include reading, Indian classical music and travel.
“The book is available at Amazon, Flipkart and reputed book-stores all over India. You can also buy it from the publisher, Vision Books.”