February 22, 2018
Note: The article is intended to clarify young aspirants who find it struggle-some to decide upon what and how to choose career in Finance and also convincing their parents to allow them pursue their dreams by going for fancy looking courses and certifications.
Having setup a Wealth Management firm (Financial planning and Equity brokerage with Motilal Oswal Securities ltd) in a Tier 2 city, Bhopal, has introduced me with a lot of practical issues, a person faces which deciding upon career choices in Financial Vertical.
These issues are mainly ‘lack of information’ induced.
Simply put, if you ask a father regarding possible career options, the conventional choices are as per the past trends. For example, during the decade for IT craze, (2005-2015) when Indian tech giants were positioned as the single stop, cheap and skilled tech-labor for the world, every parent was satisfied if his/her kid is choosing his/her profession around IT. Lately, it has been towards increasing bank job vacancies and the towards government jobs which has picked up like a high tide in past 5 years.
Specifically, for a career in finance, the general thought is either being a CA (audits) or working in a Bank (Probationary officer) and earning a decent remuneration according to the Tier 1 city he/she resides in.
Everyone who is working or struggling to make a decent earning in Finance industry, is directly or indirectly dealing with processes to make right investment decisions.
1. Working as decision makers like Portfolio managers, Research Analysts etc.
2. Working to help the above to make those decisions like Credit Analysts, Statisticians, Operations etc.
Lets understand this from a prospect of CFA (Chartered Financial Analyst).
How will a student benefit if he/she pursue CFA?
Job Opportunity: In India, higher education is measured in terms of the package (salary, in lakhs) it fetches to an individual. (At least for the people from Tier 2,3 cities, it is mostly the case). Let me assure, CFA is a professional degree and does not promise double salary, or enhanced perks (Sorry to disappoint!).
Even if you happen to qualify it, it only gives you a chance to feature among-st the most knowledgeable and ethical professional in your work circle which might end up with better opportunities coming your way.
CFA, as a professional degree, will enable you to understand the opportunity cost of money with respect to Inflation, Tax and Real Growth. For a simple example, if inflation is 8% in an economy, then earning 5% post tax is an under-performance of 3%. But, earning 10% post tax gives a 2% positive return with respect to inflation.
CFA has 10 broad subjects which covers almost all the verticals in Financial markets.
1. Ethics: Money management business is built around trust, and it becomes even more important to have a ‘Code of Conduct’ to maintain that trust.
1. The daily fluctuation of Sensex is not a risk which should stop you from investing, rather its to be understood and mitigated to earn better returns on long term
2. The Companies are valued not based on their financial charts, but based upon their potential of future incremental cash flows
3. The difference between Value and Price is as good as the difference between a Horse and a Mule (Khacchar, in hindi).
4. There is a separate, dedicated profession which base their earning on the basis of analysis of good companies and recommend investing
3. Fixed Income:
1. A lot of pensioners have been complaining about FD rates falling (last 3 years), but you’ll understand how their purchasing power has relatively improved with respect to inflation.
2. Relation between the interest rates, inflation and economic growth
Dynamics of Bond Markets
3. How much return-efficient and tax-efficient is bond market investing (underdeveloped in Indian markets) w.r.t FD investing from individual’s point of view
1. This is about speculation, but also used for hedging and avoiding transaction costs.
2. Why it is important for large funds (Pension fund, hedge funds) to use derivatives as a useful tool to minimize their trading costs.
3. Just like BPOs, outsourced work from other emerged nations to Indian labor markets have done well as an option for young aspirants (FRM deals deeper in this vertical)
5. Corporate Finance:
1. Major decisions regarding the financial health of the company and eventually shareholder’s value
2.Mergers and Acquisitions, Takeovers and Share buybacks are few of the terminologies frequently dealt
6. Portfolio Management:
From Governments to Banks, from Insurance companies to Mutual fund houses, from treasury department to personal finance, each of them deals with fund (money) and its allocation. It requires strong portfolio management skills to be able to achieve beneficiary’s goals.
7. Quantitative Analysis:
1. Financial field is full of numbers (data), achieving statistical proficiency makes you an asset for such operations
2. This vertical is more detailed explained in FRM (Financial Risk management)
1. Economics is probably the next most important subject after science, I believe. CFA or not, but economics help in understanding the practical working of the world.
2. Unlike Politics, Economics is about choosing from limited resources to make the best utility output.
9. Financial Reporting and Analysis:
It is generally confused that CFA and CA are similar. Simply put, CA primarily does the reporting and auditing; CFA does the analysis of the reported numbers.
This topic deals with a few principles of reporting
10. Alternate Investments:
Apart from Equities and Debt markets, which is easily accessible for normal individual or institutional investor, there is a segment of sophisticated clients who can take more risk and have unusually more funds to invest, which we call ultra HNIs. This segment deals in understanding those other sophisticated instruments like Private Equity, Venture Capital, Qualified Institutional Placements etc. ideally suited for these U-HNIs
Having said that, let me re-iterate, CFA qualification is not a ticket to a high paying job with attractive perks. It is indeed an entry into organizations which might offer you your dream job over time.
In the end, CFA Institute puts a lot of emphasis over Ethics, and making sure that the candidates are governed under Professional Standards and Code of Conduct to make sure that the Fiduciary responsibility is served to the best of the intention and purpose.
“Dont chase success, Chase knowledge; Success will follow”- Phunsuk Wangdoo (3 Idiots)
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