CIS & Market applications Wealth Management Skills Program THE ACADEMY OF FINANCIAL MARKETS WELCOME TO THE SESSION! THOUGHT FOR THE SESSION The wise listen and add to learning, because understanding guards them. Module 12: Market Knowledge application and CIS � Application of market knowledge is always done through the financial planning process. � Six step financial planning process 1
Module 12: Market Knowledge application and CIS � Funding and investment needs: � Establish client’s needs: � Corporate � Individual � Tools: � Credit ratings (Corporates) � Credit checklist � Risk profile questionnaire Module 12: Market Knowledge application and CIS � Source of funding and investment instruments: The Financial Markets � Money Market (Cash type) � Bonds � Equity � Property Module12: Market Knowledge application and CIS � Finding solutions for customers needs: � Funding solution for individuals: � Overdrafts � Personal loans � Home loans � Asset finance � Credit cards � Consolidated loans 2
Module12: Market Knowledge application and CIS � Investment solution for individuals: � Level 4 funds � Part of financial planning � Four important steps � Active vs. passive investment (See interesting information) � Active investment – According to economic cycles Module12: Market Knowledge application and CIS � Investment solution for individuals: � Passive strategy guidelines � Static portfolio � Age rule portfolio � Time horizon portfolio � Risk profiled portfolio � Example 2 & 3 3
Module12: Market Knowledge application and CIS � Ex 2: � Static: Cash 10, Bonds 35, Equities 55 � Age: Equities 60 � Horizon: Cash 0, Bonds 5, Equities 95 � Risk profile: Cash 10, Bonds 5, Equities 85 � Ex 3: � Salary: R20 000 x 3 = R 60 000 � Risk profile 10% x 500 000 = R 50 000 Module 12: Market Knowledge application and CIS � Finding solutions for customers needs: � Investment solution for individuals – supervising the portfolio: � Re-balancing – Example 4 Module 12: Market Knowledge application and CIS � Finding solutions for customers needs: � Investment solution for individuals – supervising the portfolio: � Risks (Behavioral finance): � Overconfidence � Mental accounting � Loss aversion - Example 5 � Framing � Gamblers fallacy � Regret aversion � Examples 6, 7, 8, 9 4
Module 12: Market Knowledge application and CIS � Finding solutions for customers needs: � Funding solution for corporates: � Corporate have wider choices, such as local or foreign funding, equity vs. debt � Money and capital market options with fixed or floating rates � Company looks at capital structure and use (project projections) of money borrowed. � Credit ratings play a role � Structured finance is often used (Combination of products, liquidity and cash-flow) Module 12: Market Knowledge application and CIS � Finding solutions for customers needs: � Investment solution for corporates: � Often project investment rather than other equities or instruments � IRR is important � Can buy back own shares � Example 10, 11 Module 12: Market Knowledge application and CIS � Measuring the solution: � Benchmarking � Choice and usefulness of benchmark � Example 12 5
Module 12: Market Knowledge application and CIS � CIS: Collective investments � Definition � Industry overview � Role-players � Classification of unit trusts � Pricing of unit trusts (see textbook) � TER � Other CIS Module 12: Market Knowledge application and CIS � CIS: Collective investments � The ACF Unit trust has 60m units in issue and the NAV per unit is 95c. The initial fee is 2% excl. VAT. The total expense of the fund is R2,5m. You are required to indicate: � The effective purchase price � By how much must the investment increase for you to break even? � The TER? � How many units will you get for an investment of R 10 000? Module 12: Market Knowledge application and CIS � CIS: Collective investments � Initial fee incl. = 2% + (14%) = 2.28% Effective price = 95/(100-2.28%) = 97.22c � (97.22-95)/95 = 2.34% � 2.5m / (60m x 95c) = 4.39% � R 10 000 / 97.22c = 10 285.95 units 6
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