Top 10 careers in finance

Finance sector - The most happening one currently is attracting everyone’s attention. Although a lot of us may want to take advantage of this, a lot of questions may also arise in our mind.

What are the roles these financial companies offer? What is the meaning of all the perplexing finance positions in these companies? What does one do exactly? What is the skill set required? How much does one get paid?

Finance as a career option is a very wide term. In a survey by an education portal, it was pointed out that over 75 per cent students took finance purely because they felt that it paid the most. That shows one thing: mostly students and job-seekers find who opt for this specialization do not know what they are getting into.

This is an attempt to simplify some of the financial career options students should look at when contemplating a career in finance.

1.      Private equity:

The role of private equity is to raise funds from large investors and invest the money directly into businesses. The usual manner is to raise money from overseas investors and then find businesses in the growth stage. Most private equity funds 'exit' the investment after a period of time by selling their holding in the business to some other investors or doing an initial public offering of the shares of the business.

2.      Investment Banking/Merchant Banking:

Investment banking comprises two major businesses. One is the advisory/ corporate finance role which entails mergers and acquisitions. This would entail understanding valuations, finding targets, negotiation and compliance with legal regulations. The second role is what is more popularly called equity capital markets role. This entails helping corporate raise funds from investors or the public. So it may entail working on IPOs or Institutional Offerings.

 3.      Fund Management: 

As a fund manager, one is an important decision-maker typically at a mutual fund. The fund manager has a good overall understanding of the macro factors which affect the markets as well as the micro factors about which company to invest in. He invests money in stock market, debt market, directly into companies, etc depending upon his fund mandate.

 4.      Equity Research & Sales:

The role of equity research is to find out the correct value of the stock which is trading on the stock exchange doing various types of research namely fundamental and technical analysis. There are two types of ERs though. One is the sell-side research which belongs to a brokerage, the aim is to do research and sell investment ideas to investors so as to earn commission on trading by the investor. The second is buy-side research, which is a part of usually a buy side fund like a mutual fund. They analyze the research results of various brokerages in addition to their own research on investment ideas for the fund manager.

 5.      Project Finance & Debt Syndication:

This role entails arranging for long-term finance for infrastructure and industrial projects which will take a long time to pay back. The first step is to understand the project, conduct a feasibility study, risk assessment and a detailed financial model. This is done with the purpose to rope in equity partners (known as sponsors) and lenders. Generally the lending part is done by multiple banks under leadership of the syndicate bank.

 6.      Financial Risk Management: 

Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. Financial risk management can be qualitative and quantitative. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk. In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks.

 7.      Corporate Banking:

This role entails the entire plethora of banking services required by corporate. Corporate can be divided into largely two sections Large Corporate and SME which is Small and Medium enterprises. A corporate banker would thus have companies as his clients and service them. Within corporate banking some of the departments are:

• Credit Borrowing to companies for their expansion and working capital requirements. Would entail doing a credit evaluation on the company and sanctioning the loan
•  Treasury Help companies manage various types of risks such as foreign exchange, interest rate fluctuations. Treasuries also take proprietary positions to make profit in the 'Forex' and bond markets.
•  Cash Management Solutions: As most companies have a large number of customers, distributors or branch offices across the country it becomes a huge challenge to deal in money. Banks offer cash management solutions to help streamline this entire operation for its corporate customers

 8.    Wealth Management: 

Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. High net worth individuals, small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management.

Wealth managers can be independent, certified financial planners. One must already have accumulated a significant amount of wealth for wealth management strategies to be effective. Wealth management can be provided by banks, brokerages, independent financial advisers or multi-licensed portfolio managers whose services are designed to focus on high-net worth customers.

The fallout of the events of 2008 has produced a high level of skepticism and distrust among investors, and they demand greater transparency from their providers to understand what they own, the value of their investments and associated risks.

 9.      Retail Banking:

Also known as consumer banking, it entails dealing with products / services for individual customers. So the scope encompasses getting business for products such as credit cards, savings accounts, personal loans and auto loans. Operational roles would entail teller, authorizing, clearing, remittances and customer service.

  

10.Corporate Finance: 

A career in corporate finance means you would work for a company to help it find money to run the business, grow the business, make acquisitions, plan for its financial future and manage any cash on hand. You might work for a large multinational company or a smaller player with high growth prospects.

The job of the financial officer is to create value for a company. As a corporate finance professional, one is typically involved in four main activities to meet its objectives:

1) Designing, implementing and monitoring financial policies

2) Planning and executing the financing programme,

3) Managing cash resources, and

4) Interfacing with the financial community and investors.

Jobs in corporate finance are also relatively stable. Performance in these jobs counts, but your job is not going to depend on whether you're selling enough this week or getting good deals finished this quarter. Rather the key to performing well in corporate finance is to work with a long view of what's going to make your company successful. Many would argue that corporate finance jobs are the most desirable in the entire field of finance. Some of the benefits of working in corporate finance are:

• You generally work in teams which help you work with people
• It's a lot of fun to tackle business problems that really matter
• You'll have many opportunities to travel and meet people and
• The pay in corporate finance is generally quite good

Thus, a budding financial wiz should look at understanding which area interests him/her the most and build skill sets which can help take the leap into financial sector.

Gold ETFs v/s Normal Gold v/s E-Gold :

Gold loan market:

Gold loan market is growing with the highest growth rate and is expected to grow with a CAGR of 38.7% from 2011-2016. The availability of Gold among almost every middle class Indian family has accounted for this growth. 

"The Indian population holds world's 11% of the total Gold that value's around Rs. 32,100 Billion was in 2010".

What are gold ETFs?

Gold ETFs are like mutual funds. A mutual fund buys stocks. Instead of stocks, a gold ETF buys gold. Gold ETFs are traded in stock exchanges. Like stocks and mutual funds you can buy gold ETFs in your demat account. 

Generally 1 share of gold ETF is roughly equivalent to 1 gram of gold, and hence price of 1 share of gold ETF is also roughly equal to price of 1 gram of gold. You can buy a minimum of 1 unit of gold ETF, which is roughly equivalent to 1 gram of gold.

"Gold ETF is more convenient than Normal Gold".

What are the advantages of investing in gold ETFs over other form of investment in gold?

The main advantage of investing in gold ETFs is that it is hassle free. You can buy and gold ETFs at a click of your mouse from the convenience of your home. If you buy gold coins then you may find it difficult to find a buyer at the time you wish to sell. 

Moreover there always remains some doubt about the purity of the gold coin you may have bought and you may have to sell them at a discount. In gold ETFs there are no such hassles. The minimum investment requirement in Gold ETF is also very low.

You can buy only 1 unit of gold ETF which is roughly equivalent to 1 gram of gold. By buying few units of gold ETFs every month, you can slowly build up your gold portfolio. When you sell your gold ETF, you do not get physical delivery of the gold. You get the prevailing market price of the ETF which is roughly equal to the price of 1 gram of gold per unit of ETF. But if you prefer to get physical delivery of gold then you can look for a product E-gold launched by National Spot Exchange. 

Conclusion : 

42% was the one-year (August 2010-August 2011) return delivered by e-gold compared with 40% for gold ETFs. While the marginal difference in returns can be attributed to the cost-effectiveness of e-gold, both these avenues provide ease of investing by allowing people to hold gold in the demat form. 

However, each product has its pros and cons - while gold ETF is a more tax-efficient means of investing, e-gold offers the option of physical delivery. This is perhaps the reason experts remain divided on which route makes for better investment, finds out ET. Based on their opinion and depending on your individual needs, find out whether you should go for e-gold or gold ETF.

Tips for Choosing a Home Loan :

Once you’ve found your dream home, the one that ticks all the boxes on your list, the next thing you’ve got to sort out is the financing. However, actually choosing a home loan that meets your needs and doesn’t cost the world is much easier said than done. And without a road map, the process of choosing a home loan can become a long and drawn out affair. So if you’re looking for a home loan and don’t know what to look out for, here are some tips to help simplify the process.

You are in Charge:

Since you want a home, and you need a lender to give you the money in order to buy one, it is tempting to feel as though you need to please the lender in order to get the money that you need. This mindset is dangerous.

It is not difficult to turn this mindset on its head and remember that lenders need borrowers in order to earn interest and stay in business. There are plenty of lenders to choose from, we currently have 10 big banks and non-major bank lenders to compare, and if you ever walk away from a bank they will not hesitate to let you walk back in. When you approach home loans and creditors from this perspective, you are much more likely to pursue the interest rate that you truly deserve, and find it.

Fixed or Variable Rate?

A variable rate will typically have the smallest interest rate up front, but it can grow out of proportion at a later date, depending on how the rate is determined. In most cases, a variable rate home loan will have a fixed rate for a given amount of time. Once this period is over, the rate will then be adjusted according the state of the economy on a periodic basis.

A variable rate is idea for an individual who plans on moving out of the home within the fixed rate period. It is also the best choice if the interest rates are especially high, and can be expected to drop down within the next several years.

Lock in the Rate:

Home loan rates change all the time, typically after when the Reserve Bank changes the base rate of interest. Basically you’re riding up and down with the market. But if you are happy with the rate as it is, and you think that rates are going to go up then you might want to lock it in. When you choose to lock in the rate, be sure to get the information in writing so that there is no confusion about the rate in the future. This will give you secure that for “X” number of years your repayments are going to be stable.

Deposit:

It is a good idea to invest as large a deposit as possible. The smaller the deposit, the larger the size of the loan, which ultimately means spending more in interest. It is surprising how much longer a loan can take to pay off, or how much more interest payments are wasted, when a small deposit is paid. Use our home loan comparison tool to play around with the numbers and see what a difference it makes.

Ideally, a buyer would only purchase a home that they could save up a 2% deposit for which will mean that you need to borrow 80% of the property value. This means that the homeowner will not, in most cases, be required to pay for private mortgage insurance (PMI) and also significantly reduces the amount of interest and time required to pay off the mortgage. Sometimes the interest rate itself can be reduced by paying a larger deposit.

Fees:

Always make sure that you understand the associated fees before agreeing to anything. There can be setup fees, monthly fees, annual fees, controversial exit fees and penalty fees for paying it off sooner than your agreed loan term. Get a good estimate in order to get an idea of what the involved costs will be.

Conclusion:

Like most people, you’ll probably choose a variable rate home loan. That being the case, it is very wise to calculate the repayments if the interest rate were to go up 2% higher than the rate you can start off with. This will give you wiggle room. If you can’t afford the home loan repayments at the higher interest rate than you need to reduce your loan amount.

Start-up Guide for Mutual Funds

Basics of Mutual Fund

Net Asset Value or NAV

NAV is the total asset value (net of expenses) per unit of the fund and is calculated by the AMC at the end of every business day.

How is NAV calculated?

The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the fund’s NAV.

Expense Ratio

AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management.

A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio.

Load

Some AMCs have sales charges, or loads, on their funds (entry load and/or exit load) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds.

Open- and Close-Ended Funds

1) Open-Ended Funds

At any time during the scheme period, investors can enter and exit the fund scheme (by buying/ selling fund units) at its NAV (net of any load charge). Increasingly, AMCs are issuing mostly open-ended funds.

2) Close-Ended Funds

Redemption can take place only after the period of the scheme is over. However, close-ended funds are listed on the stock exchanges and investors can buy/ sell units in the secondary market (there is no load).

Important documents

Two key documents that highlight the fund's strategy and performance are

1)      The prospectus (legal document)

2)      Shareholder reports (normally quarterly).

Why invest through Mutual Funds?

Professional Money Management

Fund managers are responsible for implementing a consistent investment strategy that reflects the goals of the fund. Fund managers monitor market and economic trends and analyze securities in order to make informed investment decisions.

Diversification

Diversification is one of the best ways to reduce risk (to understand why, read The need to Diversify). Mutual funds offer investors an opportunity to diversify across assets depending on their investment needs.

 

Liquidity

Investors can sell their mutual fund units on any business day and receive the current market value on their investments within a short time period (normally three- to five-days).

Affordability

The minimum initial investment for a mutual fund is fairly low for most funds (as low as Rs500 for some schemes).

Convenience

Most private sector funds provide you the convenience of periodic purchase plans, automatic withdrawal plans and the automatic reinvestment of interest and dividends.

Mutual funds also provide you with detailed reports and statements that make record-keeping simple. You can easily monitor the performance of your mutual funds simply by reviewing the business pages of most newspapers or by using our Mutual Funds section.

Flexibility and variety

You can pick from conservative, blue-chip stock funds, sectoral funds, funds that aim to provide income with modest growth or those that take big risks in the search for returns. You can even buy balanced funds, or those that combine stocks and bonds in the same fund.

Tax benefits on Investment in Mutual Funds

1) 100% Income Tax exemption on all Mutual Fund dividends

2) Equity Funds - Short term capital gains is taxed at 15%. Long term capital gains is not applicable.
Debt Funds - Short term capital gains is taxed as per the slab rates applicable to you. Long term capital gains tax to be lower of - 10% on the capital gains without factoring indexation benefit and 20% on the capital gains after factoring indexation benefit.

3) Open-end funds with equity exposure of more than 65% (Revised from 50% to 65% in Budget 2006) are exempt from the payment of dividend tax for a period of 3 years from 1999-2000.

Note: Equity Funds are those where the investible funds are invested in equity shares in domestic companies to the extent of more than 65% of the total proceeds of such funds.

EPF v/s PPF

Employee Provident Fund (EPF) and Public Provident Fund (PPF) are long term investment instruments for retirement. The beauty of these options lie in their slow, steady and secure nature. You keep investing a small amount and end up with a big corpus by the time you retire. It is very important for every working individual to take advantage of these instruments. However a lot of people are confused between these two. We clarify all your doubts.

Public Provident Fund (PPF)

PPF is a statutory scheme of the central government started with the objective of providing old age income security to the unorganized sector workers and self employed persons

Employee Provident Fund (EPF)

Employee Provident Fund (EPF) is a retirement benefit applicable only for salaried employees. It is a fund to which an employee and employer contributes 12% every month (Pre-set by the Government of India) of the employee’s basic salary. Every year, the employer deposits with the Employee Provident Fund Organization (EPFO), the contribution from the employer and the employee. Knowingly or unknowingly, 24% of your basic salary is saved every month. Amount accumulated in the EPF account can be withdrawn to the employee at the time of retirement or resignation. This can also be transferred from one company to the other if one switches jobs.

Return on Investment

EPF : 8.5% per annum (For the year, 2010-2011, EPF is at 9.5%)

PPF: 8 % Per annum

Investment Tenure

EPF: Amount is paid at the time of retirement or resignation whichever is earlier. It can be transferred to one company to other in case of a job change

PPF: Amount can be withdrawn on maturity i.e. after 15 years. It can be extended for a period of 5 Years

Loan Option

EPF: Can make withdrawals for personal needs by disclosing suitable documents

PPF: Can avail loans up to 50% of balance of the 4 ^th year from 6 ^th year onwards

Tax Implication

EPF: Investment qualifies for deduction under Section 80C .Withdrawal of EPF amount is subject to tax if withdrawal within 5 years of employment with the same employer. If you have not worked for at least five years with the same employer but the EPF has been transferred to the new employer, it is not taxed

PPF: Investment qualifies U/s 80C . On maturity amount, there is no tax

Which is better?

EPF has an edge over PPF because of the following reasons

Employer contribution

Employer contributes to the Employee Provident whereas in case of public provident fund no such contribution happens

Return on Investment

Rate of interest on EPF is higher than interest on PPF

Liquidity

An individual having EPF can withdraw amount for personal needs anytime providing necessary documents while an individual holding PPF cannot withdraw money till the completion of tenure

Conclusion :

Though both the investment options has got their own pros and cons, from above we can observe that EPF has got edge over PPF in terms of Return on investment, Employer Contribution, Liquidity. For salaried people who have the option of contributing in EPF schemes, make sure you make the contribution to the fullest extent. Since EPF is not available to self-employed and employees in un-organized sector, PPF is a good alternative.

Choosing Best Term Plan

How to choose best term plan?

As it has always been mentioned by financial experts there is no best financial product be it mutual fund or insurance. If they are best today there is no guarantee that they will be best when we will need those most. So as a client you have to stick to some basic principals while choosing the products. So let’s check this for term plans.

Important factors in choosing term insurance plan

1 Claim settlement Ratio: The most important criteria of selecting any insurance policy including term plan is claim settlement ratio. Why we are buying life insurance? If I am not there my family will get the sum assured & have financial security. But what will happen if our claim gets denied – whole purpose of taking term plan will be defeated. So it’s better to check it rather than sorry.

How can you reduce chances of claim rejection?

1.      Don’t allow agent to play checkers. If you are buying term plan there is 90% chances that you called the agent. He is in very hurry to fill the form & pocket his commission.

2.      Don’t hide anything – if you smoke or drink mention it – if you have any other medical ailment disclose it.(even if you think it is very small)

3.      Mention which other life insurance policies that you hold – from any insurance company including ulip & endowment.

        If you follow these points there is a good chance that your claim will not be declined.

2 Reputation of the company – there is no definition or cannot be easily explained as it depends on 2 factors working style/financial health of the company & your past experience. So it is very subjective & changes with the time but still will be considered to increase your confidence. Or take it other way round there are 10-15 good insurance companies & you are not having confidence on 2 of them you can eliminate them from total choices.

3 Low Premium – People think this is the most important criteria but actually it is least important. This criterion should be explored only when you have shortlisted polices on above 2 points.

So this way you can reach the term plan that you should buy.

In Financial Planning there are many strategies that can be followed to make sure that you are adequately insured & your claims will not be denied but there is a very simple strategy that we think everyone should follow.

Divide your Term Plan into 2 parts:

There are lots of benefits of this strategy.

1 In case if in future you realize that your sum assured is more you can discontinue one of the policies. This can happen due to either demotion or loss in job OR a windfall profit that you get which was not anticipated.

2 In case one of the insurance claims got denied or delayed still your family has a chance that they will not lose everything.

3 If you have rightly filled details in the forms & one of your claims got denied – your family or your advisor can reach insurance ombudsman that claim got passed from X co but Y co has denied it. Your family has a great chance that even this claim will be passed if followed properly.

Now,you know how and which term plan to choose. Reach your financial advisor & ask him to calculate your insurance requirement. Go for it and believe me your approach to life will change.