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Suitability Assessment

ASSET TYPE EXPLAINED:

In the financial industry, there are two concepts that form the basis of most transactional activities. One is savings and the other is investments. There is a huge overlap between the two concepts though, it terms of execution. Investments made in the finance industry can be divided into two distinct types namely, Traditional and Alternative.

Traditional Investments

Investing in well-known financial products falls into the category of traditional investments. These include bonds, shares, real estate etc. These are categories which are quite popular among investors as active investment strategies to make your money grow. Following are the investment products that fall under the category of traditional investment.

Bonds

Suitable for Investors Low Risk Appetite

A Bond can be understood as an IOU which is issued by an issuer (borrower) and to a lender. Generally, bonds are instruments used by public and private sector enterprises to raise huge sums of money which any bank is incapable of lending. These bonds are then issued in the public market by the borrowing entity and are bought by lenders for specific amounts of money. Thousands of lenders then come together to lend the required amount and the borrowing organization is able to raise capital for its operational or growth purposes.

However, since money is being lent to the issuer of bonds, there is also an interest component involved that is paid back to the investor in turn for his/her money. This interest is paid at a predetermined rate and for a specific period of time. Bonds fall under the category of fixed income securities since the interest on these can be exactly calculated for the time for which the bond is held. Bonds fall under the debt category and are therefore, comparatively safer financial instruments to invest in. However, with all financial tools risk is inversely proportional to returns and as such the low-risk attribute of this tool makes it a low return instrument as well.

Stocks

Suitable for Investors Moderate and High-Risk Appetite

Stocks or equity are shares that are issued by companies and are bought by the general public. This offers an avenue to companies to raise funds. Stocks entitle a customer ownership of a company. Shares, stocks and equity all imply the same thing. Shares are one of the most popular investment avenues in the world. This is because the returns offered by stocks is generally higher than any other financial instrument. However, to balance out the high return associated with stocks, the risk associated with these products is also quite high.

Any business may issue different types of shares based on the financial urgency and need. In exchange for the money, shareholders are issued Stock certificates.

Stocks are mostly divided into two basic types, common stocks and preferred stocks.

Small saving schemes

Suitable for Investors Low Risk Appetite

Small savings is another popular savings tool in the Indian financial market. The name itself suggests that these tools are meant for saving money in small amounts. The idea behind this financial tool is to enable the habit of saving in people from almost all economic sections. Some of the most common small savings tools are Sukanya Samriddhi Scheme, EPF (Employees Provident Fund), NPS (National Pension Scheme, Kisan Vikas Patra, Personal Provident Fund (PPF) etc. Almost all small savings schemes are initiated and facilitated by the government so as to enhance the spread and penetration of savings schemes in the country. Let us look into some of the most prominent schemes out of these:

Employees Provident Fund

Employees Provident Fund is another small savings scheme that is primarily offered by your employer. This includes salaried individuals of both private and public organizations. Any company with a workforce of more than 20 employees is mandated to register for the EPF scheme. Around 12% each month is deducted from the salary and contributed towards the EPF account of an employee. This EPF account is maintained by the Employees Provident Fund Organization, commonly known as the EPFO. The amount deposited towards EPF is eligible for tax exemption under section 80C of the Income Tax Act.

Sukanya Samriddhi Scheme

Sukanya Samriddhi Yojana is a special scheme which has been launched by the central government to facilitate the financial wellbeing of girl child in the country. This scheme can be availed by parents or legal guardian of a girl child and an amount as low as Rs.1000 per annum can be deposited under the scheme. The account matures only after the girl child reaches the age of 21. Premature withdrawal is allowed only after the girl reaches the age of 18 years and has financial need pertaining to wedding or education.

National Pension Scheme

National pension Scheme is one of the most popular schemes for ensuring a regular pension amount to individuals working in both the private and the public sector. NPS is offered to individuals either as part of their corporate perks or is availed by individuals on their own. The amount set aside towards NPS is eligible for tax rebate under section 80C of the Income Tax Act. The scheme offers withdrawal of deposited amount only once the account holder reaches the age of 60 years. The corpus withdrawn on maturity is absolutely tax-free.

Mutual Funds

Suitable for Investors Moderate Risk Appetite

Mutual funds are financial instruments that are professionally managed and that invest money on behalf of any investor, in different securities. These mutual funds are classified into various types based on the type of securities that they invest in. Some of the most popular mutual fund types are balanced funds, stock funds, open-ended funds etc. These funds are classified based on their percentage allocation in different securities. So, an equity fund invests purely is equity and is a high-risk high return product compared to a debt fund invests purely in debt and money market instruments and is hence a low risk low return financial product.

Fixed Deposits

Suitable for Investors Low Risk Appetite

As the name itself indicates, fixed deposits are financial instruments that are one of the oldest and safest ways to save money. These are not necessarily active investment tools, but are rather a passive way to save and earn returns. A fixed amount of money is kept aside with a financial institution for a fixed number of days or months or years. In turn, interest is earned on this money. The rate of interest differs with the deposit tenure and also with the banking entity.

Similar to fixed deposit is the concept of recurring deposit. However, the only point of difference in the two investment tools is that while a lump-sum amount needs to be fixed in case of fixed deposit, a smaller amount needs to be deposited at regular intervals in case of a recurring deposit. Hence, customers who do not have a large chunk of money to fix in a single go can opt for a recurring deposit wherein money is usually deposited monthly for a specific deposit tenure. The rate of interest earned on recurring deposit is similar and comparable to that earned on fixed deposit.

Real Estate

Suitable for Investors High Risk Appetite

Property rates are soaring with every passing day which has made real estate a hot investment avenue for investors. Buying, selling and leasing of property offers substantial returns to investors. Appreciation of property makes real estate a good investment tool. With urbanization gaining ground rapidly, real estate prices in certain major cities like Mumbai, Bangalore, New Delhi, are skyrocketing. This has made these places hot hubs for real estate investors. Most investors take loans from banks to purchase real estate and then lease out or sell the same property to enjoy returns offered due to appreciation in price of the property.

Alternative Investments

Suitable for Investors Low and Moderate Risk Appetite

Alternative Investments are those that are not regular investments like stocks, bonds etc. These are investments made in order to acquire jewellery, precious metals etc. which are expected to yield returns in future. Hedge funds, some real estate types, venture capital and derivatives also form a part of alternative investment. Alternative investments are so called due to their non-traditional as well as complex nature. Also, another distinguishing feature of alternative investments is relatively low liquidity and well as very high minimum investment limits.

While a common investor may not access alternative investments like hedge funds or derivatives due to their complex nature, others like gold and real estate are available to even the common man. Let us look into some of the most prominent alternative investment tools known to investors.

Hedge Funds

Suitable for Investors Moderate Risk Appetite

These can be understood as a professionally managed private investment company or partnership structure. Techniques to manage the fund can be those that are not commonly allowed for SEC regulated companies. Hedge funds invest in both financial derivatives and/or publicly traded securities. These are popular as an alternative investment tool owing to their high leverage and high returns. However, they are characterized by high fees as well as low liquidity. It is seen that managers of hedge funds generally have a personal stake in the fund.

Private Equity

Suitable for Investors High Risk Appetite

Private equity is trading in shares of an operating company that is not publicly listed and whose shares are not available on the stock market. Institutional investors employ various strategies to indulge in private equity trading. Private equity is popular since it offers diversification of financial portfolio by allowing investment in avenues that are not tightly coupled to normal investments.

Venture Capital

Suitable for Investors High Risk Appetite

Venture Capital is one of the most popular investment strategies currently being deployed by investors in the Indian start-up scene. The idea behind this investment strategy is to invest substantial capital in a budding company in return for stocks of the same. This is done with companies who are either in their initiation phase or in their growth phase. Venture capitalism is generally based on ideas that find substance with the investors or any new technology that the investors feel might take the market by storm in future.

Managed Futures and Options

Suitable for Investors High Risk Appetite

This type alternative investment involves managers using futures also as part of their investment portfolio. Managed futures are a great tool to offer portfolio diversification and therefore are a great alternative to minimize risk and maximize returns. In general, a managed futures account will have sufficient exposure to different markets like energy, agriculture, commodities, currency etc.

Structured Products

Suitable for Investors High Risk Appetite

Structured products are alternative investment tools that generally combine two or more financial instruments to make a packaged investment strategy in a single product. Most often, derivatives are combined with securities or with other derivatives. Structured products have a fixed maturity date like bonds. These offer a convenient strategy to implement a complex investment strategy across various financial products.

Collectible items

Suitable for Investors High Risk Appetite

Collecting artefacts that have substantial value and those that have historical and artistic significance is one of the most difficult types of alternative investments. This requires knowledge of the article that you are purchasing. Mostly, collectibles like stamps, jewellery, boats, planes, art works etc. tend to appreciate in value and are considered good and profitable assets to own. The value of artefacts is generally expected to appreciate and keep pace with inflation and hence collectibles make a good form of alternative investment.

GOVERNANCE

A key part of our investment advisory is the highest standard of processes we have set to select a suitable investment option for you. Our Investment Advisory is led by Mr. Ajay Chouhan (RIA) along with team of professionals having extensive experience as Research Analyst. Our team work independently without any conflict of interest while deriving an opinion on underlying investment options. We also refer to external reports such as research reports by other professionals and analysts, industry specific policy documents issued by government or independent agencies to while deriving our opinion on any underlying investment options.

RISK PROFILING

Risk Attitude

Based on discussion with you and our Risk Profiling Questionnaire we have observed Cautious/Adventurous attitude towards risk associated with investments. Our investment advice will be suitable to your risk profile so as to prevent you from exposure to unnecessary levels of risks.

It is important for you to note that greater the level of risk you take with your investment decision, there are chances of greater rewards as well as possibilities of greater losses.

The value of your investment can go down as well as up.

Risk Profiling Questionnaire:
Our Risk Profiling Questionnaire is attached along with this document. Based on your reply to the questions thereto we have assessed your risk tolerance capacity.

ALL ABOUT THE RISK

Risk

Risk exists in a number of different situations, but your main concern is with financial risk, which is the volatility associated with the prices on and returns from investments.

It is important to remember that investment returns may fluctuate and are not guaranteed, and you might not get back the original value of your investment.

Risk Attitude Profiling

The more risk you are willing to take with your investments, the higher the potential return - but the greater the chance of loss. Lower risk investments on the other hand offer greater security but lower potential returns.

Risk tolerance

Your risk tolerance will depend on your financial circumstances and goals. Financial risk tolerance can be split into two parts:

Risk capacity - the ability to take risk

This relates to your financial circumstances and your investment goals. Generally speaking, someone with a higher level of wealth and income (relative to any liabilities they have) and a longer investment term will be able to take more risk, giving them a higher risk capacity.

Risk attitude - the willingness to take risk

Risk attitude has more to do with the individual’s psychology than with their financial circumstances. Some will find the prospect of volatility in their investments and the chance of losses distressing to think about. Others will be more relaxed about those issues.

OUR SUGGESTED RISK PROFILES

Your risk level:

Low Risk Appetite/ Moderate Risk Appetite/ High Risk Appetite. (based on the risk profiling questionnaire) (Select one of the following notes)

Low Risk Appetite:

Lowe Risk Appetite Investors typically have low levels of knowledge about investment matters and limited interest in keeping up to date with investment issues. They may have some limited experience of investment products, but will be more familiar with bank accounts than riskier investments.

In general, Lowe Risk Appetite investors do not like to take risk with their investments. They would prefer to keep their money in the bank, but may be willing to invest in other types of

investments if they are likely to be better for the longer term.

Lowe Risk Appetite Investors can take a relatively long time to make up their mind on investment matters and can often suffer from regret when investment decisions turn out badly.

Moderate Risk Appetite Investors

Moderate Risk Appetite Investors typically have moderate levels of knowledge about investment matters and will pay some attention to keeping up to date with investment matters. They may have some experience of investment, including investing in products containing riskier assets such as equities and bonds.

In general, Moderate Risk Appetite Investors understand that they have to take investment risk in order to be able to meet their long-term goals. They are likely to be willing to take risk with part of their available assets.

Moderate Risk Appetite Investors will usually be able to make up their minds on investment matters relatively quickly, but do still suffer from some feelings of regret when their investment decisions turn out badly.

High Risk Appetite

High Risk Appetite Investors typically have high levels of investment knowledge and keep up to date on investment issues. They will usually be experienced investors, who have used a range of investment products in the past, and who may take an active approach to managing their investments.

In general, High Risk Appetite Investors are happy to take investment risk and understand that this is crucial in terms of generating long-term return. They are willing to take risk with most of their available assets.

High Risk Appetite Investors will usually be able to make up their minds on investment matters quickly. While they can suffer from regret when their investment decisions turn out badly, they are able to accept that occasional poor outcomes are a necessary part of long-term investment.

1. Investment Options:

Stocks

(Stocks or equity are shares that are issued by companies and are bought by the general public. This offers an avenue to companies to raise funds. Stocks entitle a customer ownership of a company. Shares, stocks and equity all imply the same thing. Shares are one of the most popular investment avenues in the world. This is because the returns offered by stocks is generally higher than any other financial instrument. However, to balance out the high return associated with stocks, the risk associated with these products is also quite high.

Any business may issue different types of shares based on the financial urgency and need. In exchange for the money, shareholders are issued Stock certificates. Stocks are mostly divided into two basic types, common stocks and preferred stocks.)

• Managed Futures and Options

This type alternative investment involves managers using futures also as part of their investment portfolio. Managed futures are a great tool to offer portfolio diversification and therefore are a great alternative to minimize risk and maximize returns. In general, a managed futures account will have sufficient exposure to different markets like energy, agriculture, commodities, currency etc.

Risk Associated with investing in Stocks and Futures Market:

Market Risk:

An investor may experience losses due to factors affecting the overall performance of financial markets. Stock market bubbles and crashes are good examples of heightened market risk. You can’t eliminate market risk, also called systematic risk, through diversification. You can, however, hedge against market risk.

Inflation risk

Inflation risk, also called purchasing power risk, is the chance that the cash flowing from an investment today won’t be worth as much in the future. Changes in purchasing power due to inflation may cause inflation risk.

Liquidity risk

Liquidity risk arises when an investment can’t be bought or sold quickly enough to prevent or minimize a loss. You can minimize this risk to a good extent by diversifying.

Our Recommendation Methodology:

Technical Research:

Technical analysis of stocks and trends is the study of historical market data, including price and volume. Using both behavioural economics and quantitative analysis, technical analysts aim to use past performance to predict future market behaviour. The two most common forms of technical analysis are chart patterns and technical (statistical) indicators.

• The technical analysis of stocks and trends attempts to predict future price movements, providing traders with the information needed to make a profit.

• Traders apply technical analysis tools to charts in order to identify entry and exit points for potential trades.

• An underlying assumption of the technical analysis of stocks and trends is that the market has processed all available information and that it is reflected in the pricing chart.


OUR SUGGESTED SERVICES:

Risk Assessment Classification
Sr. No. Risk Profile Type Score Range Segment Our Services
1 Low Risk Appetite 0-40 No Segment No Services
2 Moderate Risk Appetite 41-90 Stock Cash Only Intraday/BTST/STBT - Stock Cash (Basic/Ultra/Dynamic), All in one (only Cash Segment).
3 High Risk Appetite 91-100 Derivative (F&O), Commodity Intraday/BTST/STBT - Stock Cash/ F&O/Commodity (Basic/Ultra/Dynamic), All in one (all Segment), DFS Clinic