Content 1. About WealthTech 2. Key concepts: 2a. Capital Market 2b. Mutual Funds Module 8: WealthTech Contents 1. Introduction 2. Categories 3. Business models 4. Emerging Trends 1 About WealthTech 1.1 Introduction What is WealthTech? WealthTech is a combination of wealth and technology with the goal of G providing digital solutions to enhance wealth management and investing. WealthTech describes a new class of financial G technology companies which are creating digital solutions to transform the investment management industry. WealthTech players employ advanced G analytics to offer digital solutions to transform traditional wealth management and investment management services. 1.2 Categories Key categories In India, the technological trends in WealthTech include digital onboarding; robo- advisory; personal finance management apps; reduced paperwork, tools for wealth managers, etc. PERSONAL FINANCE MANAGEMENT ROBO ADVISORS: These applications provide a more They provide financial advice structured way of managing money with minimal human intervention Categories INVESTING TOOLS: INVESTMENT PLATFORMS: These help traders make informed A platform through which one decisions while trading. Financial can buy, sell, and hold funds calculators help in quick thereby simplifying the computations and help create process of investing diversified portfolios DIGITAL BROKERS: They are online platforms and software tools that aim to facilitate access to stock market information and investment 1.3 Business Models Business model trends Business model trends in India include: Discount broking Here buying and selling happens at a minimal rate as the brokers don’t give advice or perform models any analysis on clients’ behalf An investment method where performance is measured by success of investments which help Goals-based investing a person meet his personal and lifetime goals. Eg: clients goal of saving for children's education. This model helps to invest in long-term trends or Thematic investing themes by identifying macro level trends in investments Comprises of both traditional models and robo- Hybrid models advisors, thereby using all emerging technologies to make investment decisions 1.4 Emerging trends Key Trends Micro-Investments 2 Voice controlled investing 1 • Allow their users to invest small • Adoption of Google home, Alexa is amounts of money on a regular basis encouraging advisors to adopt voice without having to pay a commission interfaces to access client data and reports quickly and verbally Account Aggregators 4 Expected regulatory SOPs and scrutiny 3 • Allows for advisors to accumulate all • Government strengthening avenues of a client’s account details in a single to invest and save beyond traditional portal so as to provide more assets meaningful, holistic advice Open Banking and APIs Increasing participation by non- 6 5 traditional players • Easy, seamless and secure access, collection and sharing of data which • New, direct competition from e-tailors, tech-fins, financial infrastructure firms would lead to reduced TATs and hyper-personalized services 2. Key concepts in WealthTech Next two sections capture key basic concepts relevant to the WealthTech space 2a Capital Market Contents 1. Starting with basics – Why invest? 1. Assumptions 2. Numbers Stack 3. The big question 2. Where to invest? 3. Things to know before investing 2a. 1 Introduction to Stock Markets 1 Starting with basics – Why invest? 1.1 Why invest? Assume you are 30 years as of today, plan to work for another 20 years and retire at 50 You earn 50K a month and spend 30K, save 20K in cash Assume you don’t want to invest the 20K in cash, save it in the form of cash What would happen if you were to retain the cash (20K a month for 20 yrs) and never make any investment? To answer the question above, we need to do some math. Before we stack up the numbers, lets make a few assumptions – • The employer is kind enough to give you • You don’t intend to work after you retire a 10% salary hike every year • Your expenses are fixed and don’t foresee • The cost of living is likely to go up by 8% any other expense year on year • The balance cash of Rs.20,000/- per month is • You are 30 years old and plan to retire retained in the form of hard cash at 50. This leaves you with 20 more years to earn 1.2 The numbers stack Years Yearly Income Yearly expense Cash retained 1 600,000 360,000 240,000 2 660,000 388,800 271,200 3 726,000 419,904 306,096 4 798,600 453,496 345,104 5 878,460 489,776 388,684 6 966,306 528,958 437,348 7 1,062,937 571,275 491,662 8 1,169,230 616,977 552,253 9 1,286,153 666,335 619,818 10 1,414,769 719,642 695,127 11 1,556,245 777,213 779,032 12 1,711,870 839,390 872,480 13 1,883,057 906,541 976,516 14 2,071,363 979,065 1,092,298 15 2,278,499 1,057,390 1,221,109 16 2,506,349 1,141,981 1,364,368 17 2,756,984 1,233,339 2,140,612 18 3,032,682 1,332,006 1,700,676 19 3,335,950 1,438,567 1,897,383 20 3,669,545 1,553,652 2,115,893 1.3 The big question If one were to analyze these numbers, you would soon realize this is a scary situation to be in. Few things are quite startling from the above calculations: 1 After 20 years of hard work you have accumulated Rs.1.7Crs. 2 3 Digital After you retire, assuming the expenses Since your expenses are fixed, your will continue to grow at 8%, Rs.1.7Crs is lifestyle has not changed over the good enough to sail you through years, you probably even suppressed roughly for about 8 years of post your lifelong aspirations – better home, retirement life. 8th year onwards you better car, vacations etc will be in a very tight spot with literally no savings left to back you up. 1.4 Lets Invest Now, lets take another situation, instead of keeping the money idle, lets invest the same. Assume – The monthly surplus of The investment grows 1G 20K gets invested in for 2G at a rate of 12% year the next 20 years on year Retained cash Years Yearly Income Yearly expense Cash retained invested at 12% 1 600,000 360,000 240,000 2067062.8 2 660,000 388,800 271,200 2085518.7 3 726,000 419,904 306,096 2101667.7 4 798,600 453,496 345,104 2115623.4 5 878,460 489,776 388,684 2127487.4 6 966,306 528,958 437,348 2137368.8 7 1,062,937 571,275 491,662 2145363.8 The numbers stack 8 1,169,230 616,977 552,253 2151564.4 (post investment) 9 1,286,153 666,335 619,818 2156067.9 10 1,414,769 719,642 695,127 2158958.9 11 1,556,245 777,213 779,032 2160317.1 12 1,711,870 839,390 872,480 2160228.4 13 1,883,057 906,541 976,516 2158765.8 14 2,071,363 979,065 1,092,298 2156002.6 15 2,278,499 1,057,390 1,221,109 2152011.3 16 2,506,349 1,141,981 1,364,368 2146859.5 17 2,756,984 1,233,339 1,523,645 2140611.5 18 3,032,682 1,332,006 1,700,676 2133328 19 3,335,950 1,438,567 1,897,383 2125069 20 3,669,545 1,553,652 2,115,893 2115893 Total cash after 20 years 42,695,770 1.5 Magic of investment With the decision to The cash balance has grown invest the surplus cash, to Rs.4.26Crs from Rs.1.7Crs. your cash balance has This is a staggering 2.4x times increased significantly the regular amount. This translates to you being in a much better situation to deal with your post retirement life. 2 Where can you invest? Fixed Income Fixed income investments are those which tend to protect your capital. They offer limited risk, hence limited reward. Typical instruments are – Fixed deposits offered by banks Bonds issued by the Government of India Bonds issued by Government related agencies such as HUDCO, NHAI etc Bonds issued by corporate’s As of April, the typical return from a fixed income instrument varies between 7% and 10.5%. Equity Investment in Equities involves When an investor invests in buying shares of publicly listed equity, unlike a fixed income Indian Equities have companies. The shares are instrument there is no capital generated returns close to traded both on the Bombay guarantee. However as a 14% – 15% CAGR (compound Stock Exchange (BSE), and trade-off, the returns from annual growth rate) over the the National Stock Exchange equity investment can be past 15 years. (NSE). extremely attractive. Investing in some of the best Identifying such investments and well run Indian opportunities requires skill, companies has yielded over hard work and patience. 20% CAGR in the long-term. Real Estate Real Estate investment involves transacting (buying and selling) commercial and non commercial land Typical examples would include transacting in sites, apartments and commercial buildings. There are two sources of income from real estate investments namely – Rental income, and Capital appreciation of the investment amount. The transaction procedure can be quite complex involving legal verification of documents The cash outlay in real estate investment is usually quite large. There is no official metric to measure the returns generated by real estate, hence it would be hard to comment on this Commodities - Bullion • Investments in gold and silver are considered one of the most popular investment avenues.