“ A Study of the Risk and Return of alternative Investment Opportunities available to High Net worth Individuals – A Case Study of ING Vysya Bank Limited”
Portfolio Management has been an integral part for any investor. Each Investor, whether small or big is trying to maximize his/ her returns by making a diversified investment. To diversify the investment the risk and return trade off of each investment avenue has to be studied. Therefore the study of portfolio management and risk and return is very important of an investor.
Now days there are professional investment advisors who study the risk and return portfolio of each investor and design the most well suited portfolio from him/ her. Banks also provide professional investment advice. This has opened up a huge market for the advisors and has become very competitive.
ING Vysya Bank also provides professional advise to its clients. A common problem faced by the bank’s advisors is that they have a low conversion rate on the advice given by them.
Therefore a study and analysis has been conducted on a sample of 10 HNI’s of the bank to analyze their investment portfolio and risk appetite. An analysis of the bank’s products is also conducted to understand them in detail. Then the required suggestions are made to the investment advisors to improve the conversion rate and retain HNI’s.
The area of study, which my project report covers, is financial management. In financial management my project report covers two subjects:
– Portfolio management of ING Vysya bank’s HNI clients and;
– Risk and return analysis of each investment avenue open to a HNI client.
Finance is an area of study which is namely concerned with two distinct areas i.e. financing and investing. We will be dealing with financial management relating to investment activities. This area of finance deals with finding out the best combination or portfolio of financial assets and thus focuses attention on the allocation of funds once they are acquired. This area focuses attention whether an investor should put all his money in one financial asset or in a combination of different financial assets.
Every bank and financial institute provides investors with various instruments of investments. They are enumerated below:
1. Mutual funds
2. Insurance policies
3. Government securities
4. Corporate bonds
5. Fixed deposits
6. Land and property
10. Preference shares
The project report analyzes the portfolio of ING’s HNI customers. A sample study of 10 HNI’s was conducted and on the basis of which the recommendations were made. The risk and return of each investment instrument available to a HNI on the whole and through the ING Vysya Bank was conducted. The products and services of the bank are compared to other banks also
It has been noticed that HNI’s provide a huge opportunity to the RM’s of the bank for giving professional investment advice. Now a days the customers are well aware of the surrounding market and don’t really take any type of advice. They are looking for investment advice, which are supported by strong conviction. The market of professional advisors are growing at such a huge rate that if the client is not happy with the services of the RM he/she can easily look for a better advisors. Therefore the RM’s along with personal advice have to also provide quality advice.
An enthusiastic relationship manager should show computation of the risk of HNI’s by using statistical computations like Standard Deviation, which shows how much on an average, the return has moved away from an average number. Basic tents one should understand before taking a risk argument to a client. Risk, popularly measured by Standard Deviation, tells us about the range of return that can probably occur. Its interpretation is appropriate for an asset class. For example if we say that equity is more risky than PPF, we will substantiate that by saying that the probability that the investor will get a return different than 8 % is low in a PPF. However, in equity while he may look at a 20% coverage. It can swing between 4% and 46%, indicating the presence of risk.
The risk to the investor is always distilled in terms of his goals, investments and the target rate that his investments must achieve to meet the goal. Therefore, the investor will not care for standard deviation in itself, but about the risk that his investment will fall short. If one is planning for the child’s education or retirement, such shortfalls are too tough to make good, on a later date. So, to the investor, risk is only about down side deviation from a target rate. How does one put the two together? The choice of asset classes and percentage allocation will have to be driven by standard deviation and its understanding. But the subsequent monitoring and review of the portfolio will have to be in terms of the investor’s goals, and the possibility that such allocation will fall short. Movement from one stock to another is unlikely to alter the risk profile of the portfolio in any significant manner. But adjusting the proportion that is invested in equity is likely to impact both the risk and return of the portfolio. Relationship managers need to train their eyes to watch if the investor’s goals are best served by the current allocation, or should a change be made, given downside risks. Learning investment concepts is all fine, but to apply them to an investor’s situation, one has to view the portfolio from the investor’s angle rather
My project does not go into the details of calculating the risk and returns of each investment avenue, as it would have been very technical and cumbersome. The sample study of 10 does not really show the true findings, as there could be other clients with different opinions about the investment instruments than the ones stated.
Download Risk and Return of alternative Investment Opportunities available to High Net worth Individuals MBA Project