1

A PROJECT REPORT

On

Business Development & Client Portfolio Management

At

IIFL Wealth

Under the guidance of

Mr. Manish Kothari Dr. Niti Bhasin

Vice –President Associate Professor

IIFL Wealth Department of Commerce

Towards Partial fulfilment of the requirements for the award of

Master of Business Administration-International Business

Submitted By:

Vipul Boylla

MBA-International Business

Department of Commerce

Delhi School of Economics, University of Delhi

2

Declaration

I hereby declare that the project work entitled Business development & Client

Portfolio Management at IIFL Wealth is a record of an original work done by me,

and is submitted in the partial fulfilment of the requirements for the award of the

degree of Master of International Business. The appropriate references have been

mentioned at the end of the report and wherever required.

Signature: Signature:

Dr.Niti Bhasin Vipul Boylla

Associate Professor Roll no:64,MBA-IB

3

Acknowledgement

At the outset, I would like to sincerely thank India Infoline Group & IIFL Wealth,

for providing me with this wonderful opportunity to work in their esteemed

organisation for my summer training program.

Working at IIFL Wealth was a great learning experience. It gave me an opportunity

to have a first-hand experience of daily management functions of an organisation

and also the challenging nature of the work really helped me discover new domains

completely foreign to my existing skillset.

I wish to express my deepest gratitude to Mr. Manish Kothari, and Ms. Niti

Bhasin, Associate Professor, Department of Commerce, for their patience, support

and guidance throughout the internship period and after. Their continued efforts to

make me learn and challenge me with new assignments have been invaluable for the

success of this project.

Also, I would like to thank all other participants who provided with valuable

information about emerging trends in the industry. Without their active support, the

project would not have been a success.

4

INDEX

S.no Chapter Page No.

1 Abstract 5

2 About the Wealth Management Industry

2.1 Current Focus

2.2 Strategies

2.3 Immediate Issues

6

3 About IIFL Wealth 8

4 Products Offered 9

5 Objectives 18

6 Methodology 22

7 Learnings & Conclusion 31

9 References 32

5

CHAPTER-1

1.0 Abstract

PURPOSE: The purpose of the summer internship was to gain industry exposure

and understand the Wealth management industry as well as learn about the

organization, India Infoline Group and IIFL Wealth.

DESIGN: The Internship was broadly divided into two main roles/objectives

namely:

1. Business Development

2. Client Portfolio Management

In the initial two weeks, I was asked to create a database of the prospective clients

in the Ecommerce Industry based in Delhi & NCR. Later, I was involved in the

Client Portfolio Management, which involved the risk assessment of the client

using a questionnaire, creating a portfolio for the investment objective set by the

client, and giving evaluations and reports regarding the portfolio using debt &

equity analytics tools.

6

CHAPTER-2

2.0 About the Wealth Management Industry

The Indian Economy is growing at a robust rate. Indian Financial Services Industry

gets a rub-off of this growth, but also has some complexities to shoulder along the

way. The challenges are a transition from Commission based to Advisory based

services as a result of “No load” regime in Mutual Fund schemes. The investor

today is not only looking for a financial product in isolation but in a holistic

manner for meeting his/her life goals and risk factors. Therefore, there is a crying

need to enhance and upgrade the skill set of the financial product advisor in order

to protect and safeguard the interest of the investor and develop a long term

relationship with him

The Wealth Management industry in India is a prime example of the success of

free competition in the country. Wealth Management is one of the fastest growing

disciplines of the banking sector and with a GDP growth rate hovering around 7 %

and a strong future outlook, India’s growth story is making it an increasingly

attractive market for wealth management firms. This trend is expected to continue,

with India estimated to become the third largest global economy by 2030.

Given the nascent stage of the market and a demographic and regulatory

environment that is significantly different from elsewhere in the world, Wealth

Management Business Houses consider the following to succeed in the Indian

market:

Building of brand and focus on overcoming the trust barrier.

Invest in advisor technology to improve advisor productivity and retention.

Evaluate a partnership-based model, coupled with innovative use of

technology, to increase reach.

7

Focus on transparency and compliance, while targeting customers with

attractive, segment focused products.

2.1 Current Primary Focus of Wealth Management Business Houses

Qualified advisors will be the best brand ambassadors for new firms seeking

to gain a competitive edge against established players.

Investor education programs could deliver information pertaining to various

asset classes and the associated risks, fee structures and benefits of each.

Establishing trust is a vital component for any successful brand-building

exercise in India.

2.2 Strategies Opted by Wealth Management Business Houses

Invest in brand building to build trust.

Invest in advisor technology to improve productivity and advisor retention.

Offer a 360-degree view.

Shifting to a profit-sharing model (where the advisor’s fees are based on the

overall performance of the portfolio) would help mitigate issues to some

extent.

2.3 Immediate Issues before Wealth Management Business Houses

Difficulty in putting a value to your service & advice.

Building the right business model.

Maintaining brokerage structure may be difficult and cumbersome and

bulky.

Technology – Online platforms with direct investments.

Immediate cash-flow concerns.

8

CHAPTER-3

3.0 About IIFL Wealth

IIFL Wealth Management Ltd. is a subsidiary of IIFL Holdings Ltd. formerly

known as India Infoline Limited.

IIFL Private Wealth was formed when a group of senior professionals with

significant Private Banking experience joined hands with India Infoline Group and

started operations in April 2008. During that time trust and reliability were scarce

as the financial turmoil had left the investors jittery and confused. The initial years

required the team to put in extra efforts to assuage the fears of the investors and

prove that even in tough times they could count on the firm for information and

support.

The three pillars on which IIFL Wealth is based on:

Employee Ownership is the cornerstone of the ensuing partnership:

Employees own up to 24% of the company and the sponsoring parent India

Infoline owns the remaining 76%

Alignment of Interests: Employees are able to take a long-term view on the

firm and its clients, as their emoluments are linked more to stock options and

ownership as opposed to annual incentive payouts

Innovation: Innovations such as fixed fee structures, pricing of Structured

Products at par, independent fixed-income trading desk, have helped the

team sit on the same side of the table as the client, at the same time gain

market share

Over the years IIFL Wealth Ltd. has built a practice based on the principles of

modesty, simplicity and Client centricity. This has helped it to be firmly rooted on

the side of the Client.

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CHAPTER-4

4.0 Products & Financial Instruments:

DIRECT EQUITY: Investing into a company by directly purchasing shares

either through an Initial Public Offer or the secondary market. Direct equity

investments involve high risk and hence the compensated returns are high

too. When investors invest directly in equity they are benefited in three

ways:

1. Dividend Income- A form of profit sharing by the company among

shareholders. Not all companies pay dividend. So if one wants to

invest for dividend income, one must check how regularly the

company has paid dividends in the past.

2. Capital Appreciation- Share prices of growth stocks grow faster than

other stock prices since they reinvest all profits within the company to

maintain a high growth rate.

3. Bonus Issue- A Company may also decide to distribute additional

shares to their shareholders. Like two shares for every share held by

an investor (2:1 bonus share). This means that if an investor has 10

shares of a company then he gets a bonus of 20 shares increasing his

total holding to 30 shares.

MUTUAL FUNDS: These are a collection of stocks and/ or bonds and sell

as units rather than individual stocks. It is a vehicle through which a small

investor can avail professional fund management services offered by an

Asset Management Company.

Size of the stock is determined by a company's market capitalization (large

cap, mid cap, small cap, multi cap) , while the investment style (debt, equity,

balanced) is reflected in the fund's stock holdings.

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Affordable Portfolio Diversification- Units of a scheme give investors

exposure to a range of securities held in the investment portfolio of the

scheme. Thus, even a small investment of Rs. 500 in a mutual fund scheme

can give investors a diversified investment portfolio.

With diversification, an investor ensures that all the eggs are not in the same basket.

Consequently, the investor is less likely to lose money on all the investments at the

same time. Thus, diversification helps reduce the risk in investment. In order to

achieve the same diversification as a mutual fund scheme, investors will need to set

apart several lacs of rupees. Instead, they can achieve the diversification through an

investment of less than thousand rupees in a mutual fund scheme.

Professional Management- Mutual funds offer investors the opportunity to

earn an income or build their wealth through professional management of

their investible funds. There are several aspects to such professional

management viz. investing in line with the investment objective, investing

based on adequate research, and ensuring that prudent investment processes

are followed.

Economies of Scale- The pooling of large sums of money from so many

investors makes it possible for the mutual fund to engage professional

managers to manage the investment. Individual investors with small

amounts to invest cannot, by themselves, afford to engage such professional

management.

Large investment corpus leads to various other economies of scale. For instance,

costs related to investment research and office space get spread across investors.

Further, the higher transaction volume makes it possible to negotiate better terms

with brokers, bankers and other service providers.

Thus, investing through a mutual fund offers a distinct economic advantage to an

investor as compared to direct investing in terms of cost saving.

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1. Liquidity- At times, investors in financial markets are stuck with a

security for which they can’t find a buyer – worse, at times they can’t

find the company they invested in! Such investments, whose value the

investor cannot easily realize in the market, are technically called

illiquid investments and may result in losses for the investor.

Investors in a mutual fund scheme can recover the value of the moneys invested,

from the mutual fund itself. Depending on the structure of the mutual fund scheme,

this would be possible, either at any time, or during specific intervals, or only on

closure of the scheme. Schemes, where the money can be recovered from the

mutual fund only on closure of the scheme, are listed in a stock exchange. In such

schemes, the investor can sell the units in the stock exchange to recover the

prevailing value of the investment.

2. Regulatory Comfort- The regulator, Securities & Exchange Board of

India (SEBI), has mandated strict checks and balances in the structure

of mutual funds and their activities. These are detailed in the

subsequent Chapters. Mutual fund investors benefit from such

protection.

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PORTFOLIO MANAGEMENT SERVICES: These are more customized

services. The managers match investments to objectives, decide asset

allocation according to individual risk assessment and goals, and balance

risk against performance.

PMS is broadly of two types:

1. Discretionary

2. Non-Discretionary

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DIFFERENCE BETWEEN PMS AND MUTUAL FUNDS

Portfolio Management

Services

Mutual Funds

Asset Holding The investor knows the

name and the amount of

stock held and they hold

“stocks”

Investor holds “units” and it

is difficult to know the

name and amount of each

stock within the unit

Fee Structure There is an annual fee plus

profit sharing (usually 20%

above the hurdle rate).

Also the fee is negotiable if

the assets managed are big

in value

The fee is fixed and in %

terms. It usually includes

the front load, exit load and

management fee

Portfolio The portfolio can be

standardized to fit client

goals and clients can invest

a large amount in a single

stock. There is no public

record but it is easy to get a

performance report

Allocations are fixed and

investors cannot hold more

than 10% net asset value in

a single stock. Performance

of mutual funds are there in

public domain

Accountability Investors can seek direct

clarification from managers

This is not possible with

mutual funds

Minimum

Investment

Rs. 2500000

Rs. 500

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PRIVATE EQUITY FUND: Collective investment schemes used to make

investments in various securities according to one’s investment strategy

associated with private equity. Investments in private equity funds are

usually made by High Net worth Individuals. These investments are usually

long term (10-13 yrs) and investors are expected to keep their money parked

in for the entire period.

STRUCTURED PRODUCTS: These are products whose performance is

linked to an index, commodity or security. It is like betting on the

performance of a market or security. The payoff from these products are

contingent on the return of the underlying assets.

A feature of some structured products is a principal guarantee function, which

offers protection of principal if held to maturity. For example a bank offers a

structured product with a notional face value of $1000 then each note is actually a

package of two components- a zero coupon bond and call option on an underlying

equity instrument, such as a common stock or an ETF mimicking a popular stock

index like the S&P 500. Given that maturity is three years, the following figure

explains what happens between the issue and maturity date:

15

(Source:www.investopedia.com)

This is a fully principal protected product which means that at maturity it will give

back at least the invested amount. This is accomplished via the zero coupon bond

accreting from its original issue discount to face value.

There are two main attraction of the structured product:

1. Ability to customize a variety of assumptions into one instrument. For

example the “Rainbow Note” offers exposure to more than one

underlying asset.

2. Look back is another popular feature where in the value of the

underlying asset is based not on the final value at expiration but on the

average of the values taken over the note’s term (monthly/ quarterly).

16

BONDS: A bond is a debt investment against which an investor lends

money to a corporate or the government for a fixed period of time for a fixed

or variable interest rate. Bonds are used by companies, municipalities, state

and sovereign governments to raise money and finance various projects and

activities.

Most bonds share common basic characteristics including:

1. Face Value- the money amount that the bond will be worth at

maturity. It is also the reference amount the bond issuer uses when

calculating interest payments.

2. Coupon Rate- the rate of interest that the bond issuer will pay on the

face value of the bond. It is in percentage terms.

3. Coupon Dates- the dates on which the bond issuer will make interest

payments. Typical intervals are annual or semi- annual coupon

payments.

4. Maturity Date- the date on which the bond will mature and the bond

issuer will pay the bondholder the face value of the bond.

5. Issue Price- the price at which the bond issuer originally issues the

bond.

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Determinants of a bond’s interest rate:

The different varieties of bonds are:

1. Zero Coupon Bonds- these bonds do not payout regular coupon

payments. Rather, they are issued at a discount and their market price

eventually converges to face value upon maturity.

2. Convertible Bonds- they are debt instruments with an embedded call

option that allows bondholders to convert their debt into stock at some

point if the share prices rise to a sufficiently high level to make such a

conversion attractive.

3. Callable Bonds- these bonds are callable in the sense that the issuer

can call back the bond from the debt holders if the interest rate drops

significantly. These bonds usually trade at a premium as compared to

a non-callable bond due to its risk of being called away

Credit Quality

•If the issuer has poor credit rating, the risk of default is greater and these bonds will tend to trade at a discount. Credit ratings are calculated and issued by credit rating agencies.

Duration

•The longer the bond maturity, the greater the chances of adverse effects. Londer duration bonds also tend to have lower liquidity. Due to these reasons bonds with a longer time to maturity usually command a higher intertest rate.

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CHAPTER-5

5.0 OBJECTIVES

5.1 Following were my objectives for pursuing an internship:

To gain an overall idea about the Wealth Management Industry.

To correlate between the textbook knowledge of management and management applied in

the industry.

To get a first-hand experience of Business Development & maintaining and building

relationships with clients.

To understand the whole process of building an investment portfolio according to the needs

and requirements of the client.

To gain clarity in my academic and career direction as well as identify personal values and

developmental needs

To expand upon my professional skills where to gain insight on professional expectations in

today’s work environment

To gain an understanding of the challenges that the wealth management industry is facing

along with the opportunities that exists

5.2 Tasks assigned during internship:

1. To create a database of the prospective clients from the E-commerce industry based in Delhi

& NCR.

2. Read and understand about various financial instruments and the products & services offered

by IIFL Wealth.

3. To scrutinize risk appetite and investment objectives of the investor.

4. To check whether the portfolio meets the investment objective of the investor by performing

debt & equity analytics on the portfolio and give a screenshot of the performance of the

portfolio.

5. To analyse a client’s portfolio for annual indicative yield and the linearity of returns.

6. To suggest and additional allocation of Rs.9.3Cr. for a client with very low risk tolerance.

19

5.2.1 To create a database of the prospective clients from the E-commerce

industry based in Delhi & NCR

I was asked to create a database of the prospective clients in the e-commerce

industry based in Delhi & NCR.

The database had the following information:

1. Organisation Name

2. Industry

3. Headquarters’ location

4. Year of founding

5. Total Funding

6. Last Round Funding

7. Investors/Promoters

8. Contact info of the Top 3-5 management of the organisation.

5.2.2 Read and understand about various financial instruments and the

products & services offered by IIFL Wealth

I was asked to read about the various financial instruments and the products &

services offered by IIFL Wealth.

The following financial instruments were studied:

1. Direct Equity

2. Mutual Funds

3. Portfolio Management Services(PMS)

4. Private Equity Fund

5. Structured Products

6. Bonds

20

5.2.3 To scrutinize risk appetite and investment objectives of the investor

To scrutinize risk appetite and investment objectives of the investor. It consists

of RISK ASSESMENT QUESTIONNARIE which brings out client idea

towards risk or the chances of losses and INVESTMENT OBJECTIVE

QUESTIONNARIE which assess investor’s current attitude towards

investments and view of an investment should perform over the next decade.

5.2.4 To check whether the portfolio meets the investment objective of the

investor by performing debt & equity analytics on the portfolio and give a

screenshot of the performance of the portfolio

To perform a comprehensive analysis of the portfolio, and to determine the

performance of the portfolio. This is done through debt/ equity analytics which

provides a snapshot of the portfolio credit rating, expected cash flow, portfolio risk

and the historical performance of the fund. It provides us with information of the

key ratios of the products, which help analyzing the product better.

5.2.5 To analyse a client’s portfolio for annual indicative yield and the

linearity of returns.

I was handed a portfolio of a retired individual and asked to classify the assets, find

the indicative yield of the portfolio and suggest further allocation in case of surplus

considering that the client required a monthly amount of Rs. 3, 50,000. The

portfolio is explicitly that of a conservative individual with 99% of investment in

Debt (mostly bonds).

21

5.2.6 To suggest an additional allocation of Rs.9.3Cr. for a client with very low

risk tolerance.

To make an additional allocation of Rs.9.3 Cr to an already existing

portfolio. After the additional investment the asset allocation must be around

40% Equity and 60% Debt. The Expected post tax return should be over

10% and expected cash flow were supposed to be Rs.60-70L per annum

(non-accrual).

22

CHAPTER-6

6.0 Methodology

6.1 TASK I - To create a database of the prospective clients from the

Ecommerce Industry based in Delhi & NCR.

The methodology adopted was a mix of primary and secondary research, of which

the majority was secondary research.

The contact details & the organisation details were taken from the respective

company’s website and LinkedIn.

The details about the funding and the promoters were taken from several websites

like:

1. www.yourstory.com

2. www.trak.in

3. www.economictimes.indiatimes.com

4. www.livemint.com

6.2 TASK II: Read about the various financial instruments and products & services

offered by IIFL Wealth.

The primary source of information regarding the financial instruments was www.investopedia.com

Some other resources for understanding the various financial instruments were

1. www.wikipedia.com

2. www.tatamutualfunds.com

3. www.iiflw.com

4. www.moneycontrol.com

23

6.3 TASK III- To scrutinize risk appetite and investment objectives of

the investor.

The risk appetite and the investment objective of any investor was judged by

giving the client two questionnaires ,first being, RISK ASSESMENT

QUESTIONNARIE which brings out client idea towards risk or the chances of losses

and second, INVESTMENT OBJECTIVE QUESTIONNARIE which assess investor’s

current attitude towards investments and view of an investment should perform

over the next decade.

The RISK ASSESMENT QUESTIONNAIRE & INVESTMENT OBJECTIVE

QUESTIONNAIRE considers the following factors to calculate the risk appetite:

Investment Knowledge

Capability to take risk

Situational Questions

Investment Goal

Rationale behind Investment Decision etc.

A sample questionnaire is attached:

24

RISK ASSESSMENT QUESTIONNAIRE:

25

INVESTMENT OBJECTIVE QUESTIONNAIRE:

26

6.4 TASK IV- To check whether the portfolio meets the investment

objective of the investor by performing debt & equity analytics on the

portfolio and give a screenshot of the performance of the portfolio.

This is done through debt/ equity analytics which provides a snapshot of the

portfolio credit rating, expected cash flow, portfolio risk and the historical

performance of the fund. It provides us with information of the key ratios of

the products, which help analyzing the product better. Some of the ratios

used are:

1. Volatility Ratio- It is a statistical measure of dispersion of returns

of a given security or market. The higher the volatility, the riskier

is the security.

2. Sharpe- It is a measure for calculating risk adjusted return. Sharpe

ratio is the average return earned in excess of the risk free rate per

unit of volatility. (They can be inaccurate when applied to a

portfolios or assets that do not have a normal distribution.

The Sharpe ratio of a zero risk investment like a treasury bill is

exactly zero. The greater a portfolio’s Sharpe ratio, the better its

risk adjusted performance has been. A negative Sharpe ratio

indicates that a risk free asset would perform better that the

security being analyzed.

3. Tensen’s Alpha- It takes the volatility of a mutual fund and

compares its risk adjusted performance to a benchmark index. A

positive alpha of 1.0 means the fund out performed its benchmark

index by 1% while a negative alpha indicates that the fund

underperformed its benchmark. Anything over/ below of what is

estimated by the Capital Asset Pricing Model is called the alpha.

27

4. Beta- This is the measure of the volatility of a security or a

portfolio in comparison to the market as a whole. A Beta value of 1

indicates that the security will move with the market. A Beta

greater than 1 indicates that the security is more volatile than the

market and a security of less than 1 indicates that the security is

less volatile than the market. (** Risk averse investors usually

prefer a lower Beta value**)

6.5 TASK V- To analyse a client’s portfolio for annual indicative yield

and the linearity of returns

The method of weighted average is used to find the indicative yield of the

portfolio. Thereafter the cash flows are calculated considering the maturity dates

and the periodic returns. Cash flows are then checked for linearity.

28

29

6.6 TASK IV- To suggest and additional allocation of Rs.9.3Cr. for a

client with very low risk tolerance.

Asset allocation depends upon investor’s objective, time horizon, risk appetite and

many more things.

GUIDELINES FOR ALLOCATION-

A) EQUITY-The allocation includes ‘absolute return’ and ‘relative return

Strategies.

1. Absolute return strategy-seeks to generate alpha over the benchmark. It

includes:

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Mutual funds-choice of funds will depend on history of out performance, size of

fund, qualitative analysis of AMC and quantitative analysis of risk adjusted

returns.

Direct equity and managed accounts: Fund managers with expertise in picking

undervalued stocks with strong fundamentals and robust fundamentals and

robust balance sheets would be preferred for this allocation.

Private Equity-Focus on cherry picked deals, primarily in companies with visibility

to the IPO as well as in sunrise sectors

2. Relative returns strategy-endeavours to generate returns as per benchmarked

index. It includes

a) Exchange traded funds-preference for top picks across all available ETFs.

b) Structured products-The case for investments in a structured product over

equity funds is justified when the expected post tax- payoffs for structures are

sufficiently high.

B) FIXED INCOME-

1) Interest risk-typically investments with less interest risk are preferable.

Interest –rate calls may be taken only if the risk- reward is heavily in favour

of interest rate call strategy.

2) Credit risk-As a principle IIFL prefer investments in high credit quality

papers i.e. funds with at least 80% invested in AA+ or above rated papers.

31

CHAPTER-7

LEARNINGS & CONCLUSION

To gain an understanding of the e-commerce industry in the Delhi & NCR

region, about the major and new players, the major investors & the major

promoters.

To have a first-hand experience of business development and client

meetings.

Understanding the risk assessment & profiling of clients according to their

risk appetite & Investment objective.

Understanding of the process of asset allocation and the factors be to be

considered while making an allocation in an investment portfolio.

Learning to find out the indicative yield of a portfolio using weighted

averages and also checking the linearity of the cash flows.

Understanding the significance of various ratios, such as the volatility ratio,

alpha ratio, and beta ratio & using these to evaluate the performance of a

portfolio.

32

CHAPTER-9

9.0 REFERENCES

www.investopedia.com

www.tatamutualfunds.com

www.wikipedia.com

NISM-SERIES-V-A: MUTUAL FUND DISTRIBUTORS CERTIFICATION

EXAMINATION Preparation Material

www.moneycontrol.com

www.bseindia.com

www.profit.ndtv.com