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While many people make investments in financial products in the first quarter of the calendar year with the purpose of saving tax, few care about the financial repercussions of such investments. We talk to Rahul Jain, head, personal wealth advisory, Edelweiss, on the need of wealth management and how India compares to other countries when it comes to savings and investments

How is wealth management different in India compared to other countries?

So the biggest difference between India and other countries, say, the US was that in India primarily the products which people used to invest earlier in was real estate, fixed deposits and gold. As high as 80-90% of the total portfolio used to consist of these three assets. So overall awareness and financial products and their penetration was very low in India, compared to the US where a large portion of a portfolio was into equity, mutual funds, exchange-traded funds and so on. But in the last few years there has been a transition from real estate to financial products in India. For instance, the total assets under management (AUM) of the mutual fund industry have crossed 20 trillion.

But still the biggest difference is that awareness and confidence on financial products in developed countries like the US is much higher compared to India, but things are improving now. And that’s why we believe that wealth management is a need.

Also, India needs wealth management services because savings rate in India is very high, but we don’t have social security like developed countries have and people need to save for their retirement, medical needs and so on.

Also, growth rate in India is high, salaries are going up, more and more millennials have neutral views towards real estate—it is not the first choice for them—and they have information and want to invest in stocks and SIPs. Their ticket size could be low, but as they grow, their awareness of financial products will be much higher compared to the previous generation.

Not investing in a financial product is a gap in awareness. For instance, still a lot of people in the 45-plus category believe that bank FDs are the safest things. But effectively, in case of default, a depositor’s fund is secured only to the extent of 1 lakh.

In developed countries, most clients prefer fee-based advisory. Is India also moving in the same direction? Do Indians want to pay for financial advisory services?

We have seen a very positive shift in India with clients preferring this model. It is still growing and will require some time to evolve. As of now we don’t charge for the advisory service to our clients, we generally make money through distribution of products. Many financial planners also operate like this, some financial planners who only do advisory services and don’t distribute products charge their client a fixed fee. There is no set model across the industry in India.

How are wealth managers and financial planners different?

There is no big difference between a financial planner and a wealth manager. When you approach financial planners, they give you answers on what you should ideally do to manage your finances or to achieve your goals. Mostly financial planners just advise where you should invest and ask you to do so through service providers. On the other hand, a wealth manager not only evaluates and analyses your financial situation and advises based on that, we also make suitable products available to clients. If a financial planner also offers investment services to their clients, in that case there is no difference, they can also be considered as wealth manager.

Why do we need a wealth manager?

Wealth management is for everyone—whether a person earns 10 lakh per annum or 25 lakh, 50 lakh or 5 crore and above. But there is a difference in the risk assessment and complexity of each one of them. The thing is that work becomes complex as the income of the person increases. For instance, someone living in a metro and earning about 10 lakh will not save much; he or she will only look for advice to invest for tax saving. But someone earning 50 lakh or more can have substantial savings, and it becomes a little more complex and diversified. As income increases, it become more complex. Our aim is to make things simpler. We help them create a portfolio, within that how much should go in equity and how much in fixed income, within fixed income how much in liquid funds, debt funds and non-convertible debentures and so on.

Do you suggest direct mutual fund plans to your clients?

Direct plans have low expense ratio as compared to regular plans and investors can save money in commission. We do suggest direct plans, but right now the default offerings are non-direct plan. Our aim is to offer direct plans as a default offering and if the client needs more advisory, research and help, then we might want to offer non-direct plans to him.

If a client just takes advice and doesn’t invest through you, how will you earn?

This is part of the game. If your product offering and proposition is right, the chances of conversation of your clients which comes as a lead will be okay. Until and unless we observe that the large numbers of people are coming up for advice and not getting converted, then there is a question mark on our advisory.

Both equity and debt markets are witnessing volatility. What’s your advice to investors?

Equity investors should await market correction to increase allocation, avoid leverage and focus on investing in companies with strong earnings growth. Mutual fund equity investors should increase allocation in rising amounts as markets correct towards cheaper valuations.

For debt investors, yields are likely to remain sticky till general elections. Invest into accrual funds or liquids funds. NCDs and mutual funds with longer-term maturities in the portfolio should be in the mix of your portfolios.

What is your view on real estate as an investment in the present scenario?

If someone does not have a house, it is a good time to buy for your living. But if you already own a house, then real estate might not be a good investment option right now.

It depends on the situation. I have clients with very high allocation in real estate and I have been telling them that whenever you get a chance to liquidate some portion of your real estate, you should do so and invest in fixed income products. In some cases, we suggest our clients to book losses in real estate.

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