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Outline an Appropriate Set of Investments for the Client Being Described on the Attachment. Illustrate your essay with specific examples.

1. Development of Client Profile

In order to determine the risk appetite of the client and then advising on the appropriate set of investments, it is important to develop a profile of the client. While some of the information is given in the brief, other necessary information is assumed. The client profile is as follows:

  • Fixed deposit / government securities / Bonds: this investment will typically have with long-term lock-in period of, say, 3-5 years or more, and thus is an illiquid investment. This investment is regarded almost 100% safe, and thus would protect the capital.
  • Tax saving growth mutual funds with investment only in blue chip companies: the selected mutual funds must have a very good performance track record (at least 10 years) of good performance. This investment also comes with a typical lock-in period of about 3 years, and would hence be illiquid.
  • Growth mutual fund in emerging / mid cap, high-risk high return securities: this investment needs to be watched and tracked regularly for timely exits and entries. This is a liquid investment as there is no lock in, and hence would keep 30% of the total investible surplus (₤45,000) in liquid.
  • Real estate / REIT: this investment has the potential of generating very handsome returns, due to its leveragability. Also, since real estate seldom depreciates, the capital is also fairly secured. Additionally, the rentals earned from the property pretty much take care of the mortgage obligations. Therefore, this is a hands-off investment. However, real estate is illiquid, can be expensive, difficult to find, and can sometimes get difficult to manage sometimes. In order to overcome the liquidity problem, REITs (Real Estate Investment Funds) are a good alternative to physical real estate. Like a mutual fund, REIT is a fund created with investments from many investors, investing mostly in high value commercial properties, for rental incomes and capital appreciation. REITs are publicly listed entities. Alternatively, she can invest in REIT mutual funds, although REIT mutual funds are more diversified, and may not offer the same growth prospects. One of the good REIT mutual funds is Fidelity Real Estate Mutual Fund.


Post-Retirement Period:
The post retirement investment suggested is a conservative income mutual fund, which invests only in the safest securities, such as government securities mostly. Also, "regular income" nature of the investment is critical.

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