FINANCIAL MODELLING

PART 1

Q. Identify 10 asset classes (stocks / mutual funds / etc where people can look to invest).

Prepare a descriptive chart in terms of - risk, return, benchmarking agencies, top performing
companies, for each of these classes.

ANS-

Asset Class Risk Return Top Options/Performers

Medium to Apple, Amazon, Microsoft, Alphabet,

Stocks/Equities 7-10%
High Tesla

Asset Class Risk Return Top Options/Performers

Low to Fidelity Contrafund, Vanguard Funds,

Mutual Funds 6-10%
Medium BlackRock

Low to SPDR S&P 500 ETF, Invesco QQQ,

ETFs 6-9%
Medium Vanguard S&P

Low to
Bonds 2-5% U.S. Treasuries, Corporate Bonds, Munis
Medium

Simon Property Group, American Tower,

REITs Medium 5-8%
Prologis

Commodities High 5-15% Barrick Gold, ExxonMobil, Chevron

Highly Bitcoin, Ethereum, Binance Coin,

Cryptocurrencies Very High
speculative Cardano

Private Equity/Venture Sequoia, Andreessen Horowitz,

Very High 15-25%
Capital Blackstone

Medium to
Hedge Funds 5-20% Bridgewater, Renaissance Technologies
High

Brookfield Infrastructure, Vanguard Real

Real Assets Medium 5-7%
Estate

Detailed Breakdown:

1. Stocks/Equities:
 o Risk: High due to market volatility and individual company performance.

Return: Historically, stocks have delivered an average annual return of 7-10% over the long term.
However, short-term performance can vary significantly.

 Benchmarking Agencies: S&P 500, MSCI, Russell 2000.

 Top Companies: Apple, Microsoft, Amazon, Alphabet (Google), Tesla.

 Suitable For: Investors looking for high growth and willing to tolerate market fluctuations.

2. Mutual Funds:

o Risk: Low to Medium, depending on the fund type (equity, bond, balanced).

o Return: 6-10% depending on the asset allocation.

o Benchmarking Agencies: Morningstar, Lipper.

o Top Funds: Fidelity Contrafund, Vanguard Total Stock Market Index Fund, BlackRock
Global Allocation Fund.
 o Suitable For: Long-term investors looking for diversified, professionally managed
portfolios.

3. Exchange-Traded Funds (ETFs):

o Risk: Low to Medium. ETFs tracking broad indexes are less risky than sector-specific
or leveraged ETFs.

o Return: 6-9% depending on the underlying assets.

o Benchmarking Agencies: MSCI, S&P, CRSP.

o Top ETFs: SPDR S&P 500 ETF Trust (SPY), Vanguard S&P 500 ETF (VOO), Invesco QQQ
Trust (QQQ).

o Suitable For: Investors seeking low-cost diversification with the flexibility to trade
like stocks.

4. Bonds:

o Risk: Low to Medium. Government bonds are safer than corporate or junk bonds.

o Return: 2-5% depending on bond type and interest rates.

o Benchmarking Agencies: Moody’s, Fitch, S&P.

o Top Bonds: U.S. Treasury Bonds, Corporate Bonds (Apple, AT&T), Municipal Bonds.

o Suitable For: Conservative investors looking for steady income and capital
preservation.

5. Real Estate Investment Trusts (REITs):

o Risk: Medium. REITs are subject to property market cycles and interest rate changes.

o Return: 5-8% in the form of dividends and capital appreciation.

o Benchmarking Agencies: NAREIT, FTSE NAREIT Index.

o Top REITs: Simon Property Group, American Tower Corporation, Prologis.

o Suitable For: Investors seeking exposure to real estate without direct property
ownership.

6. Commodities (Gold, Oil, etc.):

o Risk: High due to supply-demand volatility and geopolitical factors.

o Return: 5-15%, depending on the commodity and market conditions.

o Benchmarking Agencies: S&P GSCI, Bloomberg Commodity Index.

o Top Performers: Barrick Gold (Gold), ExxonMobil (Oil), Chevron, SPDR Gold Shares
(ETF).

o Suitable For: Investors looking to hedge against inflation and diversify into real
assets.

7. Cryptocurrencies:
 o Risk: Very High. Prices are highly volatile and driven by speculation and regulatory
news.

o Return: Potential for high returns, often exceeding 100% in short periods, but also
prone to large losses.

o Benchmarking Agencies: None (tracked by exchanges like CoinMarketCap, Binance).

o Top Cryptos: Bitcoin, Ethereum, Binance Coin, Solana, Cardano.

o Suitable For: High-risk investors looking for speculative opportunities in digital

assets.

8. Private Equity/Venture Capital:

o Risk: Very High. Investments are illiquid and long-term, with high uncertainty.

o Return: 15-25%, with potential for large gains if successful but also the risk of
complete capital loss.

o Benchmarking Agencies: Cambridge Associates, Preqin.

o Top Firms: Sequoia Capital, Andreessen Horowitz, Blackstone, KKR.

o Suitable For: Wealthy, accredited investors with long investment horizons.

9. Hedge Funds:

o Risk: Medium to High. Hedge funds employ strategies like long/short, global macro,
and derivatives, which can be risky.

o Return: 5-20%, depending on the strategy and market conditions.

o Benchmarking Agencies: HFRI, Barclay Hedge.

o Top Hedge Funds: Bridgewater Associates, Renaissance Technologies, Two Sigma

Investments.

o Suitable For: Accredited investors seeking uncorrelated returns and advanced

investment strategies.

10. Real Assets (Farmland, Infrastructure):

 Risk: Medium. While they offer stable cash flows, they are subject to environmental risks and
economic cycles.

 Return: 5-7%, primarily from income and asset appreciation.

 Benchmarking Agencies: MSCI, FTSE, NCREIF.

 Top Investments: Brookfield Infrastructure Partners, Vanguard Real Estate ETF, Global X U.S.
Infrastructure.

 Suitable For: Investors looking for inflation protection and long-term, stable cash flows.

PART 2

Q.Identify 10 more asset classes (stocks / mutual funds / etc where people can look to invest).
Prepare a descriptive chart in terms of - risk, return, benchmarking agencies, top performing
companies, for each of these classes.

ANS-

Asset Class Risk Return Top Options/Performers

Low to Vanguard 500 Index Fund, Fidelity 500

Index Funds 6-8%
Medium Index Fund

Preferred Stocks Medium 4-7% Bank of America, Citigroup, Wells Fargo

Treasury Inflation-Protected
Low 1-3% U.S. Treasury
Securities (TIPS)

0.5- JPMorgan Chase, Bank of America, Wells

Certificates of Deposit (CDs) Low
2% Fargo

Peer-to-Peer Lending (P2P) High 5-12% LendingClub, Prosper, Funding Circle

Medium to
International Stocks 7-10% Alibaba, Nestlé, Samsung, Tencent
High

Medium to Vanguard Health Care Fund, Fidelity

Sector Funds 5-15%
High Select Tech

Small-Cap Stocks High 8-12% AMC, Etsy, GameStop, Shopify

Managed Futures High 5-15% Winton Group, AQR, Man Group

Ford Motor, Frontier Communications,

High-Yield Bonds (Junk Bonds) High 6-10%
Sprint

Detailed Breakdown:

1. Index Funds:

o Risk: Low to Medium. The risk is spread across all companies in an index.

o Return: 6-8% annually over the long term, typically matching the index’s
performance.

o Benchmarking Agencies: S&P 500, CRSP, MSCI.

o Top Funds: Vanguard 500 Index Fund, Fidelity 500 Index Fund, Schwab S&P 500
Index Fund.

o Suitable For: Investors seeking low-cost, passive investments with broad market
exposure.

2. Preferred Stocks:
 o Risk: Medium. Less risky than common stocks but more risky than bonds.

o Return: 4-7%, primarily through fixed dividends.

o Benchmarking Agencies: S&P, MSCI.

o Top Companies: Bank of America, Wells Fargo, Citigroup (Financials).

o Suitable For: Income-focused investors who prioritize steady dividends over capital
appreciation.

3. Treasury Inflation-Protected Securities (TIPS):

o Risk: Low. Backed by the U.S. government and protected against inflation.

o Return: 1-3%, based on inflation-adjusted principal.

o Benchmarking Agencies: Bloomberg, Barclays.

o Top Options: U.S. Treasury (direct government issuance).

o Suitable For: Conservative investors seeking inflation protection and low risk.

4. Certificates of Deposit (CDs):

o Risk: Low. Insured by the FDIC and offer guaranteed returns.

o Return: 0.5-2%, depending on the term.

o Benchmarking Agencies: FDIC.

o Top Providers: JPMorgan Chase, Bank of America, Wells Fargo.

o Suitable For: Conservative investors looking for guaranteed returns over a fixed
period.

5. Peer-to-Peer Lending (P2P):

o Risk: High. Subject to borrower default risk, though returns can be attractive.

o Return: 5-12%, depending on borrower creditworthiness and loan terms.

o Benchmarking Agencies: None, platform-specific ratings.

o Top Platforms: LendingClub, Prosper, Funding Circle.

o Suitable For: Investors willing to take on higher risk for potential higher returns,
often via lending to individuals or small businesses.

6. International Stocks:

o Risk: Medium to High. Exposure to currency, political, and economic risks.

o Return: 7-10%, driven by global growth.

o Benchmarking Agencies: MSCI ACWI, FTSE All-World.

o Top Companies: Alibaba (China), Nestlé (Switzerland), Samsung (South Korea),

Tencent (China).
 o Suitable For: Investors seeking global diversification.

7. Sector Funds:

o Risk: Medium to High. Sector-specific risks can increase volatility.

o Return: 5-15%, depending on the performance of the chosen sector.

o Benchmarking Agencies: MSCI Sector Indices, S&P GICS.

o Top Funds: Vanguard Health Care Fund, Fidelity Select Technology Fund, SPDR
Energy Select Sector.

o Suitable For: Investors seeking targeted exposure to specific industries.

8. Small-Cap Stocks:

o Risk: High. More volatile than large-cap stocks but with higher growth potential.

o Return: 8-12% over the long term.

o Benchmarking Agencies: Russell 2000, S&P SmallCap 600.

o Top Companies: AMC Entertainment, GameStop, Etsy, Shopify.

o Suitable For: Aggressive investors looking for high growth opportunities.

9. Managed Futures:

o Risk: High. Speculative investments in futures contracts can be volatile.

o Return: 5-15%, depending on market trends and management.

o Benchmarking Agencies: BarclayHedge, CISDM.

o Top Firms: Winton Group, AQR Managed Futures, Man Group.

o Suitable For: Advanced investors seeking diversification through alternative

strategies.

10. High-Yield Bonds (Junk Bonds):

 Risk: High. These bonds offer higher returns but come with a higher risk of default.

 Return: 6-10%, depending on the issuing company’s financial health.

 Benchmarking Agencies: Bloomberg High-Yield Index, S&P.

 Top Companies: Ford Motor Company, Frontier Communications, Sprint (pre-T-Mobile

merger).

 Suitable For: Investors willing to accept higher default risk for better yields.

PART 3
 Q.Conduct a primary research to find out the behavioural aspects of investment and
preferences of an investor. ( Min 80 and Max 200 responses)

ANS- Conducting primary research to understand the behavioral aspects and preferences of investors
is a great way to gather direct insights. To proceed, here's a step-by-step guide on how to design and
implement a survey for this research:

1. Research Objective:

The primary goal is to understand the behavioral aspects of investment and the preferences of
investors. You want to analyze factors like risk tolerance, decision-making influences, investment
goals, time horizon, asset preferences, and factors affecting choices.

2. Methodology:

 Survey Type: Online questionnaire (most accessible).

 Sample Size: Minimum of 80 responses, maximum of 200.

 Target Group: Individual investors (both experienced and novice), between the ages of 25-
65.

 Survey Tools: Use tools like Google Forms, SurveyMonkey, or Typeform to gather responses.

3. Survey Design:

The questionnaire should consist of multiple-choice, Likert scale, and open-ended questions. Here's a
sample questionnaire design:

Section 1: Demographics

1. Age Group:

o 18-25

o 26-35

o 36-45

o 46-55

o 56+

2. Gender:

o Male

o Female

o Prefer not to say

3. Occupation:

o Salaried

o Self-employed/Business Owner
 o Retired

o Student

o Other (please specify)

4. Annual Income:

o Less than $25,000

o $25,000 - $50,000

o $50,000 - $100,000

o More than $100,000

Section 2: Investment Preferences and Behavior

5. How long have you been investing?

o Less than 1 year

o 1-5 years

o 5-10 years

o More than 10 years

6. What are your primary reasons for investing? (Choose up to 2)

o Wealth growth

o Retirement planning

o Financial security

o Short-term goals (e.g., buying a home, vacation)

o Education or children’s future

7. Which of the following do you currently invest in? (Select all that apply)

o Stocks

o Bonds

o Mutual Funds

o ETFs

o Real Estate

o Cryptocurrencies

o Commodities (gold, oil)

o Fixed Deposits/Certificates of Deposit (CDs)

o Private Equity/Venture Capital

o Other (please specify)

 8. What level of risk are you comfortable with in your investments?

o Very High

o High

o Medium

o Low

o Very Low

9. How frequently do you review or adjust your investment portfolio?

o Weekly

o Monthly

o Quarterly

o Annually

o Rarely/Never

10. Who or what influences your investment decisions the most? (Select up to 2)

o Financial advisors

o News and media

o Friends and family

o Personal research

o Social media/Influencers

o Economic and political environment

11. What is your preferred time horizon for your investments?

o Less than 1 year

o 1-3 years

o 3-5 years

o More than 5 years

12. What is your preferred mode of investment?

o Direct investment (e.g., buying stocks/bonds)

o Through mutual funds or ETFs

o Through a financial advisor or robo-advisor

o Other (please specify)

Section 3: Behavioral and Psychological Factors

13. How do you react to significant market volatility?

 o Sell to avoid losses

o Hold and wait it out

o Buy more to take advantage of lower prices

o Seek professional advice

14. How much of your investment decisions are driven by emotions?

o Highly driven by emotions

o Somewhat driven by emotions

o Neutral

o Not at all driven by emotions

15. When making an investment decision, which of these is most important to you? (Select
one)

o Potential returns

o Risk level

o Liquidity (how easily you can access the money)

o Professional recommendations

o Ethical/Environmental considerations (e.g., ESG investing)

16. Do you prefer passive or active management of your investments?

o Passive (buy and hold, long-term)

o Active (frequent trading, taking advantage of market trends)

o A mix of both

Section 4: Personal Investment Outlook

17. What do you expect the stock market to do in the next 12 months?

o Rise significantly

o Rise slightly

o Stay the same

o Fall slightly

o Fall significantly

18. If you had $10,000 to invest today, which asset class would you choose?

o Stocks

o Bonds

o Real Estate
 o Cryptocurrencies

o Mutual Funds

o Other (please specify)

19. What is your current satisfaction level with your investment portfolio?

o Very satisfied

o Satisfied

o Neutral

o Unsatisfied

o Very unsatisfied

20. What are your biggest concerns regarding your investments? (Choose up to 2)

o Market volatility

o Inflation

o Political uncertainty

o Global economic events

o Lack of financial knowledge

o Other (please specify)

Section 5: Additional Comments

21. Please share any additional insights or thoughts you have about investing and your
personal investment strategy. (Open-ended)

4. Distribution:

You can distribute the survey through various channels:

 Social Media: Share on LinkedIn, Facebook, Twitter, or Reddit investment communities.

 Email Lists: If you have access to email lists, you can target people with interest in finance or
investment.

 Investment Forums: Post the survey link on platforms like Seeking Alpha, Investopedia, or
financial subreddits (e.g., r/investing).

5. Data Analysis:

Once the responses are collected, categorize them by demographics, risk appetite, time horizons,
and behavior towards market volatility. Analyze trends such as:

 Age vs. risk tolerance.

 Occupation vs. investment choices.

 Reaction to market volatility vs. years of investing experience.

6. Report the Findings:

After analyzing the responses, you can summarize the key trends. Some insights you might uncover
could include:

 Young investors (25-35) might prefer high-risk, high-reward assets like cryptocurrencies.

 More experienced investors might react calmly to market volatility and focus on long-term
returns.

 Retirees may prefer low-risk investments like bonds or TIPS.

PART 4

Q. Design an investment portfolio for people who are having earnings as per the below figures per
annum with logical reasoning behind the design:-

10 lakhs

15 lakhs

20 lakhs

30 lakhs

50 lakhs

1 Crore

(minimum 2 portfolio per earning class and maximum 6)

ANS-1. Income Group: ₹10 Lakhs per annum

Portfolio 1 (Conservative)

 50% Debt (Bonds and Fixed Deposits): ₹5 Lakhs

o Reasoning: A lower risk appetite and preference for stable returns.

o Includes: Government bonds, high-rated corporate bonds, and fixed deposits.

2. Income Group: ₹15 Lakhs per annum

Portfolio 1 (Conservative)

 40% Debt (Bonds, PPF, NSC): ₹6 Lakhs

o Reasoning: Stable income with low risk.

o Includes: Public Provident Fund (PPF) and National Savings Certificates (NSC).

3. Income Group: ₹20 Lakhs per annum

Portfolio 1 (Conservative)

 30% Debt (Bonds, PPF, Senior Citizens’ Savings Scheme): ₹6 Lakhs

o Reasoning: Focus on stability and capital preservation.

  40% Equity (Large-Cap and Balanced Mutual Funds): ₹8 Lakhs

o Reasoning: Conservative equity exposure with a focus on stability and dividends.

o Includes: SBI Bluechip Fund, HDFC Balanced Advantage Fund.

4. Income Group: ₹30 Lakhs per annum

Portfolio 1 (Conservative)

 40% Debt (Bonds, Fixed Deposits, PPF): ₹12 Lakhs

o Reasoning: Ensures capital protection with reasonable returns.

 30% Equity (Large-Cap and Dividend Paying Stocks): ₹9 Lakhs

o Reasoning: Dividend-paying stocks provide regular income while maintaining growth

potential.

o Includes: HDFC, Reliance, and TCS.

5. Income Group: ₹50 Lakhs per annum

Portfolio 1 (Balanced Conservative)

 30% Debt (Bonds, Fixed Deposits, PPF): ₹15 Lakhs

o Reasoning: A portion of the portfolio is aimed at securing fixed returns and capital
protection.

6. Income Group: ₹1 Crore per annum

Portfolio 1 (Wealth Preservation with Growth)

 30% Debt (Bonds, PPF, Senior Citizens’ Savings Scheme): ₹30 Lakhs

o Reasoning: Ensures capital preservation with low risk for long-term security.