1. Wealth Management Basic Level
Conference Call with BSDL Sales Managers
February 2010

2. Return and Risk Concepts
Chapter 1
Return and Risk Concepts

3. Steps to Calculate RoI Compute total returns
Periodic income and appreciation
RoI= Total return/Original investment
RoI % per annum = RoI x 100 x1/n
n is the holding period of the investment

4. Compounded Annual Growth Rate (CAGR)
CAGR = {(V1/V0)^365/n}-1
CAGR is the annualized rate at which investment grew over a period of time
Considers time value of money and re-investment of income

5. Impact of Taxation Income earned on an investment is liable to tax
Tax depends upon the type of income
Effective return is calculated net of taxes
Rate of return x (1- applicable tax rate)

6. Types of Risk Purchasing power risk Credit risk Liquidity risk
Market risk
Reinvestment Risk

7. Asset Allocation and Diversification
Chapter 2
Asset Allocation and Diversification

8. Broad Asset Classes
Assets are broadly categorized based on the nature of return
Equity is for growth
Debt generates income
Cash is for parking funds
Other asset classes include
Commodities
Real estate
Gold
Asset classes have sub-categories
Opportunity to reduce risks

9. Asset Categorization- Equity
Market capitalisation-based categorisation
Liquidity, return and risk are impacted by size
Large cap, mid cap and micro cap
Sector-based categorisation
Sector-indices and thematic classification
Style-based categorisation
Growth, value, momentum

10. Asset Categorization - Debt
Tenor-based categorisation
Long tenor bonds have a higher interest rate risk
Credit risk-based categorisation
Government securities are credit risk free
High Yield and Junk Bonds
Issuer-based categorisation
Municipalities, Corporates, Government, Government institutions

11. Impact of Correlation
Correlation between assets in a portfolio determines risk
Negative correlation (-1): takes portfolio risk to zero
Positive correlation (+1): risk increases linearly
Risk can be reduced up to a certain point using asset classes with correlation less than 1
Asset Class B
Asset Class A

12. Approaches to Asset Allocation
Asset class selection for a portfolio impacts its risk and return
Selection driven by expected future performance
Re-balanced in the light of actual performance
Approaches to asset allocation
Strategic asset allocation
Dynamic asset allocation
Tactical asset allocation