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Know Your Client

Discuss about the Investment Decision for Standard Chartered.

The title of the report is Investment decision. Investment plays very significant role in the life of not the individuals only but also dusting the life time of the company. Most of the companies end up with liquidation due to improper decision about the projects in which the amounts have been invested. The same situation happens with the individuals. Individuals, being a salaried employee, always strive to save some amount from the salary income and invest in the better options so as to secure the future. Therefore, whether it is company or whether it is individual, investment plays very important role for saving the current and future position of life. This report has been prepared to go through the study of financial position of Priscilla Cher, who being a salaried employee and belonging to rich family, ends up with the huge obligation containing the interest component and other consumable used for luxurious living. The report has started with discussing the highest common factor which has caused such situation of the client. Thereafter, traits of Priscilla Cher have discussed regarding the effects of the current standard of living on future investment decision. Then ways have been identified as to build the net assets and at the last report has ended up with the conclusion and recommendation on the suitable investment portfolio.

Know Your Client is the phrase which has nowadays been common for every customer dealing with the banks, financial institutions and lending institutions. Know your client refers to the procedure whereby the service provider obtains all the necessary information about the client or customer to whom he or she is going to serve in the near future. The information shall be obtained before starting the service. It is necessary because without knowing the details of the client one cannot answer their questions or serve them in the efficient manner (HSBC, 2016, Standard Chartered, 2016 and Prime Financial Planners, 2016). Secondly, the details or information shall be obtained using the HCF Model. HCF models denote the factor which is highest common in the particular case. It means the information shall be obtained taking in consideration the profile of the customer and that too with the customer prevailing position and how many factors prevails. In the given case, Priscilla Cher, being a senior wealth manager, lavishly spends for her life. To start with the Know your client procedure, at first the common pattern of the financial performance of her is checked. How much has been the earning pattern and how much has been the expending pattern over the period. Earning pattern is defined by the income sources like Salary, Interest on fixed deposits or Dividend earned from any sort on investment, etc. Expenditure pattern is defined by the applications of the funds on operating the life like food and shelter and finance activities like interest paid on borrowing and repayment of loan. After understanding the earning and expenditure pattern, next information that is required is the requirements of Priscilla Cher as to what should be future pattern of the income and expenditure.

Behavioral Traits Impacting Future Investment Decision

Behavior is referred as the deployment of an individual towards any kind of activity. Behavioral finance is referred to as the area of finance where the individual decision about the investment and the results of the same depends upon the structure of market information and the traits of the individuals participating in the investment structure. It means the behavioral finance is related to the psychology of individual participants which is further required to explain the market results and outcomes (Sewell,2005). According to behavior concept of finance, there are three concepts which depict the traits of individuals. First is confirmation bias. In this, individual gives more attention to the information which stands along with the opinion or prediction framed by them for any particular market condition or situation or proposed market condition. This perception is very hard for anyone to shake as the individual will ignore the rest of the things and will concentrate only on the information that will support their thoughts. Second major concept is Hindsight bias. This is very dangerous one and is referred as major factor leading to more one’s overconfidence. In this the individual have faith that the event that has already been happened was predictable and almost positive to happen but in fact the event in any case could not be possibly predicted. The last concept is avoiding confirmation bias. It is opposite to confirmation bias concept and reveals that no one can be refrained from doing something in spite of the fact that he or she knows that fact. So to overcome such kind of situation one dissented person shall be identified who can explain the reason for not doing something. As per the case study, Priscilla Cher behaves in confirmation bias model. She relies on that information only which supports her opinion or thought. It is because she belongs to rich family and has perception that she should spend on her living on the basis of luxurious standards and she cannot bear another opinion which does not supports her thought. Thus, she has irrelevant behavioral trait.

Being a behavioral confirmation biased individual, it’s very difficult to change her lifestyle. She cannot change particular life style overnight. In order to build net assets, improve the ratio of expenditure to income tax pattern and to improve the balance sheet, she shall perform the following:

  1. At first, she should repay the obligation of $45000 to the bank immediately. The amount pertains to the platinum credit card accounts obtained from the bank. It should be repaid because this obligation carries interest rate which keeps on accumulating on nonpayment of the amount outstanding on the due date. Also, in case individual fails to pay the obligation within the due date then the penalty amount is also added which in turn may decrease the borrowing score of individual in the eyes of the bank.
  2. Secondly, she should opt for other means of transport on ad hoc basis like metro or cabs. It is because Mercedes car, owned by Priscilla Cher, is conveyance which consumes petrol like water and usually costs too much. By opting another mode of transport the life style will automatically changed will in turn reduce the cost of transportation.
  3. Thirdly, she shall avoid her nigh out plans at the maximum and shall prefer to go for once in a month. It is because going for night out not only changes the life style but also changes the perception and thought of the people. By doing so she can save $4000 per month which counts for 26.67 percent of the monthly salary.
  4. Fourthly, she should buy a house according to its living condition or less than that. It is because it is better to buy a house on loan from the bank or any other financial institution rather than paying the rent to the landlord.
  5. Fifthly, after considering all the steps, next step is to build such an investment portfolio which can give better returns in the current as well as the future. 

Investment portfolio consists of the mixture of investments which can be considered so as to invest the spare amount ready with the individual and earn the interest. In the given case, Priscilla Cher shall consider the following options:

  1. Equity Shares – She should invest some amount in the equity shares of the company listed in Singapore Stock Exchange. The benefit will accrue in the mode of the dividend both final and interim. The selection shall be made by considering the company details like how much the company has earned, how much earning per share they are offering to their shareholders and history of the company and dividend payout ratio of the last three years. She can invest in Woolworths Limited, Wesfarmers Limited, Home Depot, etc.
  2. Derivatives – Second best option within which she can invest is the derivative. Derivative is defined as the security which derives its value from the underlying asset like shares. It gives the right to purchase or sell the instrument at given point of time.
  3. Insurance and Medical Policies – She should invest some amount for insuring her life and the medical expenses. This will also help her to have tax benefits while paying the Income Tax to the Government.

Conclusion and Recommendation 

Investment is treated as the backbone of every individual to earn something out of the spare money. The whole case study of Priscilla Cher has been detailed in this report. The income pattern and expenditure pattern have been discussed and the ways to reduce the same has been discussed in detail. Thereafter, the investment portfolio has been prepared and described in detail. Thus, in order to conclude the report, Priscilla Cher shall consider the entire investment portfolio described so as to improve the balance sheet and income and expenditure pattern.

Our recommendation is to opt for all the three investment portfolios namely equity shares, derivatives and the insurance and medical policies. The investment shall be made in part so that the effective and efficient portfolio shall be build so as to give better return. The major reason is that it will avoid the over expanding nature of Priscilla Cher.

References 

HSBC, (2016), “Know your Customer (KYC)”, available at https://www.assetmanagement.hsbc.com/in/mutual-funds/kyc.html   accessed on 08/02/2017. 

Standard Chartered, (2016), “Know your Customer”, available at https://www.sc.com/in/important-information/kyc.html   accessed on 08/02/02017. 

Prime Financial Planners, (2016), “Know your Client (KYC)”, available at https://www.primefp.in/kyc.htm   accessed on 09/02/2017. 

Sewell M, (2005), “Behavioural Finanace”, available at https://introduction.behaviouralfinance.net/ accessed on 09/02/2017. 

Sewell M, (2010), “Behavioural Finanace”, available at https://www.behaviouralfinance.net/behavioural-finance.pdf accessed on 09/02/2017

Cite This Work

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My Assignment Help. (2018). Investment Decision For Standard Chartered. Retrieved from https://myassignmenthelp.com/free-samples/investment-decision-standard-chartered.

"Investment Decision For Standard Chartered." My Assignment Help, 2018, https://myassignmenthelp.com/free-samples/investment-decision-standard-chartered.

My Assignment Help (2018) Investment Decision For Standard Chartered [Online]. Available from: https://myassignmenthelp.com/free-samples/investment-decision-standard-chartered
[Accessed 18 July 2024].

My Assignment Help. 'Investment Decision For Standard Chartered' (My Assignment Help, 2018) <https://myassignmenthelp.com/free-samples/investment-decision-standard-chartered> accessed 18 July 2024.

My Assignment Help. Investment Decision For Standard Chartered [Internet]. My Assignment Help. 2018 [cited 18 July 2024]. Available from: https://myassignmenthelp.com/free-samples/investment-decision-standard-chartered.

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