In an exclusive interview with Yogita Khatri of myiris.com, Swapnil Pawar, Head - HNI Solutions at Karvy Private Wealth talks about various concepts viz. financial planning, wealth management, markets and interest rates across globe. He also shared his views on markets and interest rate outlook.
Swapnil looks after the private wealth management business for HNI clients. This includes developing teams in leading cities of India and setting up a robust and scalable process of providing central support to the wealth advisors. Prior to this, he was a founder member of PARK Financial Advisors. Swapnil has also worked with The Boston Consulting Group (BCG), Mumbai, across various industries including retail banking services. Swapnil is an MBA from IIM Ahmedabad and a B.Tech in Aerospace Engineering from IIT Bombay. He is a certified financial planner CM.
> What led you to opt for a certified financial planner (CFP) course and to choose a career in financial planning?
Certified Financial Planner course is a structured approach to learn the macro and micro pictures of planning process. Hence I thought of going through it despite sufficient knowledge of finance.
Financial planning is a sunrise business - a large number of Indians are becoming affluent thanks to the high economic growth. Unlike the old rich, the new rich do not have sufficient experience in managing their financial lives. They are good at earning money, not necessarily in managing it well. Hence I thought a career in this field would be rewarding because it would offer an opportunity to be a thought leader and a pioneer.
> What, according to you, is the process of wealth management?
Wealth management is about mapping the family`s aspirations, resources and risks into a well defined structure of activities and then executing this plan meticulously. It is an ongoing process whereby the changes in family`s own context (such as new money, loss in business, new child, retirement etc) and changes in marketplace (such as financial crisis, bull run in real estate, rise in interest rates etc) are fed into a constantly evolving financial plan.
> In India, when it comes to wealth management and financial planning, people do lack initiatives. Why is it taking long for these concepts to gain popularity in India? How long will it take for these concepts to pick up momentum?
As noted above, the newly rich do not fully appreciate the complexities in managing their finances. There is either an utter disregard for the details or a hyperactive participation in public equity markets which is assumed to be sufficient for ``wealth management``. It is inherent in the dynamics of the upwardly mobile Indian affluent families - which spend a lot of time and energy in earning money and thus are invariably short on both. They often almost - without active choice - put thorough management of wealth and financial planning as the last priority. This is not a limitation - simply a matter of most obvious priorities. The financial values of Indian families have been centered on maximizing savings, minimizing loans and building real assets (property and gold). It will take them some time to get educated about and feel comfortable with the wide choice available in the modern financial planning and wealth management solutions. Each affluent family would individually take between 2 to 5 years on average to understand the new landscape - depending on who its advisor is. To this end, in Karvy Private Wealth we focus as much on educating the clients as on providing details on our offerings.
> Most of us think that we don`t have enough money to do financial planning. According to you, is it the ``time`` or ``money`` factor that prevents people to go for it?
It is a combination of time, bandwidth and comfort. No one wants to ``play`` with one`s hard earned money. Hence lack of education leads to lack of comfort which in turn leads to extreme caution. The other issue often is lack of awareness of existence of several product options - e.g. reverse mortgage, yield driven real estate funds, professional indemnity etc.
> What is your take on current market situation? What are the key factors that will drive the stock markets in 2010?
Timing and extent of the withdrawal of stimulus package in China and US and upward revision of US Fed bank rate (if any) will drive the global market sentiment - besides any major negative development such as significant weakening of the health of major global financial institutions. The Indian equity markets will be driven by global sentiment as well as the stimulus package withdrawal in India. To some extent a mildly cautious climate globally (which will force policy makers abroad to keep interest rates low) coupled with robust economic growth in India might propel the Indian equity markets significantly upwards as the global investors seek good quality investment opportunities. Any major shock however would significantly reverse the upbeat mood amongst global investors leading to a blind flight away from emerging markets.
> What is your view on interest rates and how is it likely to affect an investor`s fixed income portfolio?
The global interest rates will most likely to remain low. The US long term yield may go up owing to the renewed demand from the Chinese central bank. The Indian central bank on the other hand may choose to increase the rates sooner owing to robust recovery. The only factor that may hold it back is the likely flood of hot money in Indian debt markets fuelled by carry trade (borrow in USD at rock bottom interest rates and invest in India at a reasonably high interest rate) and the negative impact on the exports owing to the appreciation of Rupee that this inflow may entail.
Fixed income portfolios are unlikely to be very remunerative for investors in this year. Investors are better off waiting in the short term debt waiting for the rates to rise or choosing appropriate corporate credit for somewhat higher yields.
> How often would you suggest reviewing and rebalancing a portfolio?
The core portfolio should be reviewed once a quarter and rebalanced once a year. The satellite portfolio should be reviewed once a month and rebalanced once a quarter or when opportunities arise. The core portfolio consists of government bonds, diversified equity mutual funds, ULIPs and structured products. The satellite portfolio consists of mid-cap or sector equity funds, high yield debt, direct equity stocks and F&O open positions.
> Finance Minister Pranab Mukherjee will roll out his budget on Feb.26, 2010, your wish list for him?
Simplification of taxation - direct and indirect including timetable for introduction of GST, equitable tax treatment of returns on various fixed income instruments.
> Any advice on investing that you would like to share with our readers?
The recent crisis has taught us once again what we always have heard but rarely implemented - be aggressive when others are panicking and be scared when everyone is getting aggressive. The markets deviate from the average range of its fundamental value. We need to watch for the right indicators on either side or act with conviction. For example if another spate of bad news drives the markets into a tailspin and Indian economy is still doing well, that is a time to enter the markets aggressively. On the other hand if the markets overreach itself again on the back of speculative inflows from abroad, one should avoid being part of the last lot of investors to enter the bubbly markets.
The other lesson is also a well articulated but rarely implemented one. It is one of diversification. In the past 5 years - every year a different asset class topped the list of best performing. Likewise a different asset class each year had the misfortune of being at the bottom of the heap. In 2006, equities ruled the roost, 2008 was the worst for equities. Gold was somewhere in the middle of the list in the bull run and then ruled the roost in 2008. Equities were back in the limelight in 2009 again. Over 5 years a diversified portfolio would have always done much better than a single asset class portfolio - what is better, one does not need to know which asset class is going to outperform in a given year.