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What is Wealth Management?

dateKnowledge Centre Team dateAugust 30, 2022 views224 Views
Wealth Management | Manage your Wealth

Wealth provides you with money that can be used to realize your financial and personal goals. It aids you to sustain life and remain in good stead even when you are no longer employed. Wealth can get eroded, i.e., reduce in value, over time, if parked on the wrong avenues. Proper wealth management can help plan your money better so that it continues to grow.

Wealth Management – Definition

Wealth management is a part of financial services that assists you in managing your money and provides you with advisory services.

Wealth management includes comprehensive guidance on finance, taxation, estate and legal. Your wealth manager can be your single point of contact who will collaborate with accountants, estate managers, and tax experts to design a holistic wealth plan.

How does Wealth Management Work?

Wealth management revolves around financial planning with a crystal-clear objective of offering better returns on investments. Some broad pointers on how wealth management works:

a) Your wealth manager will note your financial goals with specific timelines if any.

b) By probing with a wide variety of questions, they will figure out your risk appetite.

c) Needless to say, you must provide details of how much money you want the wealth manager to “manage” or invest.

d) At this stage, your wealth manager will draft an investment plan recommending different asset classes, financial instrument, timelines and allocations.

e) Taxation will always be factored in so that you get the best possible exemptions and rebates.

f) Once you approve the plan, your wealth manager would go ahead and execute the same.

g) The investments are monitored and modified if the need arises.

Click here - What are Financial Assets?

Advantages of Wealth Management

There are several benefits of using professional wealth management methods. The margins of error reduce because the dos and don’ts are clear.

a) Wealth management is customized to suit your need, objective, funds available and risk appetite

b) It is a 360-degree service comprising tax advice, investment advice, legal advice, retirement planning, accounting, and estate management.

c) Wealth management is more strategic than investment advice. Investment advice is a subset of wealth management and is more tactical in approach. For wealth creation, a holistic approach to strategic wealth management is needed.

d) If the magnitude of your assets is huge, the wealth manager will work alongside a team of specialized wealth managers who have expertise in specific domains of finance and investments.

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Wealth Management Strategies

Earning money, creating wealth and managing wealth does not mean the same. Some points to note:

a) Your primary source of income gave you considerable money because of your expertise in your chosen profession.

b) You must invest wisely so that this income works by itself and generates wealth.

c) All along, managing this entire process is critical so that your money is safe, growing and available at planned intervals/milestones.

A few pro tips for SMART wealth management:

1. Set Specific, Measurable, Attainable, Realistic and Time-Bound (SMART) goals.

2. Work on clear budgets

3. Diversify your investment

4. Stay clear of the bad debt or at least keep them to the minimum

5. Buy insurance to mitigate risks. Term insurance, health insurance, property insurance etc should be in place.

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6. Work with reputed, credible, qualified wealth managers

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Types of Financial Goals | Financial Planning

Financial goals, plans, and aspirations change as you traverse through the journey of life. Needs and wants are dynamic and therefore your wealth management plan should adapt to your life stage. Retirement is the final stage and you most certainly do not want to enter this stage with inadequate money in hand. Adopting different strategies for different life stages is recommended:


Start investing early on, in your career. Get your priorities right, have a clear budget and stick to it. Do not buy things you don’t need. Invest the money instead. Start planning for retirement. Invest in high-growth instruments such as equities.


If you haven’t covered your health and life with insurance, do so on top priority. Balance your investment portfolio with equity and debt. The proportion of the amount in debt should gradually increase as you inch towards retirement. Take calculated risks because you will not have time to bounce back if your riskier bets do not pan out as planned.


Time to reap the benefits of all the hard work, due diligence, financial prudence and planning. Earn income from your investments in the form of interest pay outs, annuities, profits etc. Keep ploughing back the surplus, if any.

Investment Options in India for Wealth Management

Each of the strategies described above has corresponding investment options that can help you achieve the goals for that stage. Some examples of popular instruments for each stage are listed below:

1. Accumulation Strategy

The focus is clearly on getting above-average returns and building a strong base so that the power of compounding gives better returns in the medium/long run.

i. Mutual Funds/ELSS:

Mutual funds invest in equities and have funds focused on specific industries and or stock indices. You can choose the type of fund depending on the risk appetite and targeted return.

ii. Unit Linked Insurance Plan (ULIP):

ULIPs also invest in equity and debt just like mutual funds do. But ULIPs come with additional advantages. ULIPs have an insurance cover that comes along with the investment. Moreover, both the investment and the maturity amounts have tax benefits which means you save money on taxes as well.

iii. National Pension System (NPS):

NPS helps you invest in a diversified and dynamic portfolio of equity, debt and alternative assets. This automated portfolio investment reduces your portfolio risk as you age and will ensure safe investments by the time of maturity. You can withdraw up to 60% of the corpus as a lump sum and must invest the rest to receive an annuity.

Recommended Reading - NPS Withdrawal Rules

Other than the diversified portfolios you can also consider buying stocks directly. Stocks can offer huge value accretion over time as well as a possibility of dividend income. Investing in Gold ETFs, and REITs (Real Estate Investment Trusts) will also fall under this strategy. However, these investment options may not allow tax-saving.

2. Preservation Strategy

Consolidation is the mantra here. The degree of consolidation will increase as you progress through this stage and approach retirement.

i. National Savings Certificate (NSC):

NSC is offered by the Post Office and is very similar to the tax-saving 5-year bank deposit. The rate of interest for an NSC is 6.8% which is a tad higher than the current rate of interest for bank deposits. The lock-in period is 5 years and the amount invested is deductible, from taxable income, under section 80C. Interest is compounded annually and this annual interest can also be deducted from taxable income. However, the interest amount receivable on maturity is taxable.

Also Read - Is Pension Taxable?

ii. Life Insurance Savings Plans:

Savings plans from life insurers offer guaranteed maturity benefits with bonus additions for long-term investors. The plans also have a tax-free maturity and investment. Thus, you can protect your wealth from inflation as well as taxes.

iii. ULIP/Guaranteed Return Plans:

ULIP plans offer you investment into safer debt funds. You can allocate 100% of your funds to debt funds while enjoying the tax benefits on your investment. Even when you had started with 100% equity investment you can later switch to 100% debt in ULIPs. Tax benefits and bonuses ensure that your wealth is safe from market forces, inflation and taxes.

Alternatively, you may invest in guaranteed return life insurance plans where the return is assured so that you can predict the maturity value.

3. Distribution or Income Strategy

You need the money at this stage. Moreover, you need guaranteed cash flow post retirement when your income from employment or profession will dry up.

i. Life Insurance Annuity:

An annuity is a long-term investment wherein your contributions are converted into periodic payments that can last for life. In addition, you also get a life insurance cover.

ii. Bank and Post Office Fixed Deposit (FD):

Both bank and post office FDs give almost the same rates of interest. If one is highly risk averse, FD is the right choice for investment. The interest rate hardly beats inflation but the person is assured that the money is in safe hands.

Unless one is investing in the 5-year tax-saving FDs, you will not get any tax benefits for other FDs. But you can receive a defined sum into your account as interest payments.

iii. Monthly Income Plans:

Monthly income plans are mutual funds which aim to provide a monthly income pay out. These funds invest in blue chip stocks to generate income through dividend payments.

Your current state of finance portfolio is important when planning your wealth growth strategies. Keep a holistic view when investing and have the patience to stay invested. Hiring professional wealth managers to help you make decisions basis concrete data and preclude you from making costly mistakes. Factoring in constraints, opportunities, goals, and personal circumstances is essential when drawing a wealth management strategy.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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