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A

PROJECT REPORT

ON

PORTFOLIO MANAGEMENT SERVICES AN INVESTMENTOPTION

WITH REFERENCE TO

(SHAREKHAN LIMITED)

SUBMITTED TO

BARODA INSTITUTE OF MANAGEMENT STUDIES

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF

MASTER OF BUSINESS ADMINISRTATION

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NAME:- PATEL MAMTA A. PROJECT GUIDE

3RD SEM MBA(FINANCE) MR. SUHELGAJRA

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Chapter no. Table of contents Page no

Executive summary

1 Introduction

Introduction to study 10

Introduction to stock exchange 12

Company profile 31

2 Product profile 37

Product and services offeredby Sharekhan

42

Sharekhan PMS 48

3 Literature review

PMS

Portfolio construction

Type of asset4 Research methodology

Objective of study

Limitation of project

Scope of Study

5 Findings

6 Conclusion and suggestions

7 Bibliography

8 Annexure


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Baroda Institute of Management

Studies

PROJECT COMPL E TION CERTIFICATE

This is to certify that Project Report entitled:

____________________________________________________

is submitted in partial fulfillment of the requirementsfor the degree of

Masters of Business Administration (MBA)

By : _____________________________________________

Registration no. : __________________

Semester : __________________ Specialization :_____________

The degree awarded is approved by UGC, Ministry of HRD,DEC and AIU. It is to further certify that he/she has workedunder my supervision and Guidance and that no part of

this report has been submitted for the Award of any otherdegree, Diploma, Fellowship or other similar titles or prizesand that the work has not been published in any Journal or Magazine.

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Certified by:

Nainil Bhatt

Faculty Finance UmeshPandya

MBA(Finance) Vice Dean

(Guides Name & Qualification)

Date -1st Jan.2011

ACNOWLEDGEMENT

Education is simply the soul of a society as it passes from

one generation to another

First of all I thank God who has bestowed with such lovely

atmosphere, good health and good luck in my life. I know before him

with reverence so that nothing untoward happens to anyone

connected to me in anyway and any field.

With regard to my Project with Share khan, Bharuch. I would like to

thank each and every one who offered help, guidelines and support

whenever required.

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I sincerely express my thankfulness to Mr. Suhel Gajra for his

valuable suggestions and help during the project.

I express my deep sense of gratitude to my company mentors, Mr.

Aaftab Hansoti(Territory manager) and Mr. Shailesh Bhatt

(Branch Manager) without whose support and coopration this

project could not have been completed successfully.

Last, but not least my heartfelt love for my parents and my friends,

whose constant support and blessings kept me enthusiastic

throughout this project.

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EX ECUTIVE SUMMARY

Investing is both Arts and Science. Every Individual has their own

specific financial need and expectation based on their risk taking

capabilities, whereas some needs and expectation are universal.

Therefore, we find that the scenario of the Stock Market is

changing day by day hours by hours and minute by minute. The

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evaluation of financial planning has been increased through decades,

which can be best seen in customers. Now a days investments have

become very important part of income saving.

In order to keep the Investor safe from market fluctuation and

make them profitable, Portfolio Management Services (PMS) is fast

gaining Investment Option for the High Networth Individual (HNI).

There is growing competition between brokerage firms in post

reform India. For investor it is always difficult to decide which

brokerage firm to choose. The research design is analytical in nature.

A questionnaire was prepared and distributed to Investors. The

investors profile is based on the results of a questionnaire that the

Investors completed.

The Sample consists of 100 investors from various brokers

premises. The target customers were Investors who are trading in the

stock market.

In order to identify the effectiveness of Sharekhan PMS services

this Research is carried throughout the area of Bangalore. At the timeof investing money everyone look for the Risk factor involve in the

Investment option.

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The Report is prepared on the basis of Research work done

through the different Research Mythology the data is collected from

both the source

Primary sources which consist of Questionnaire and secondary

data is collected from different sources such as Company website,

Magazine and other sources.

In this project I have shown the details of financial planning as

well as wealth management so as to understand about the customers

needs and wants with respect to market and how a clients portfolio

can be designed and what factors a portfolio manager must consider

for designing a portfolio.

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Chapter 1

Introduction

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INTRODUCTION TO STUDY

The field of investment traditionally divided into security analysis

and portfolio management. The heart of security analysis is valuation

of financial assets. Value in turn is the function of risk and return.

These two concepts are in the study of investment .Investment

can be defined the commitment of funds to one or more assets that

will be held over for some future time period.

PMS is an investment portfolio in stocks, fixed income, debt,

cash, structured products and other individual securities, managed by

a professional money manager that can potentially be tailored to

meet specific investment objectives.

The field of investment traditionally divided into security analysis

and portfolio management. The heart of security analysis is valuation

of financial assets. Value in turn is the function of risk and return.

These two concepts are in the study of investment .Investment can be

defined the commitment of funds to one or more assets that will be

held over for some future time period.

In today fast growing world many opportunities are available, so

in order to move with changes and grab the best opportunities in the

field of investments a professional fund manager is necessary.

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Therefore, in the present scenario the Portfolio Management Services

(PMS) is fast gaining importance as an investment alternative for the

High Net worth Investors.

Portfolio Management Services (PMS) is an investment portfolio

in stocks, fixed income, Debt, cash, structured products and other

individual securities, managed by a professional money manager that

can potentially be tailored to meet specific investment objectives.

When you invest in PMS, you own individual securities unlike a mutual

fund investor, who owns units of the entire fund. You have the

freedom and flexibility to tailor your portfolio to address personal

preferences and financial goals. Although portfolio managers may

oversee hundreds of portfolio, your account may be unique.

Investment Management Solution in PMS can be provided in thefollowing ways:

i. Discretionary

ii. Non Discretionary

iii. Advisory.

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Discretionary:

Under these services, the choice as well as the timings

of the investment decisions rest solely with the Portfolio Manager.

Non Discretionary:

Under these services, the portfolio manager only

suggests the investment ideas. The choice as well as the timings of

the investment decisions rest solely with the Investor. However the

execution of trade is done by the portfolio manager.

Advisory Under these services, the portfolio manager only suggests

the investment ideas. The choice as well as the execution of the

investment decisions rest solely with the Investor.

INTRODUCTION TO STOCK EXCHANGE

The emergence of stock market can be traced back to 1830. InBombay, business passed in the shares of banks like the commercial

bank, the chartered mercantile bank, the chartered bank, the oriental

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bank and the old bank of Bombay and shares of cotton presses. In

Calcutta, Englishman reported the quotations of 4%, 5%, and 6%

loans of East India Company as well as the shares of the bank of

Bengal in 1836. This list was a further broadened in 1839 when the

Calcutta newspaper printed the quotations of banks like union bank

and Agra bank. It also quoted the prices of business ventures like the

Bengal bonded warehouse, the Docking Company and the storm tug

company.

Between 1840 and 1850, only half a dozen brokers existed for the

limited business. But during the share mania of 1860-65, the number

of brokers increased considerably. By 1860, the number of brokers

was about 60 and during the exciting period of the American Civil war,

their number increased to about 200 to 250. The end of American

Civil war brought disillusionment and many

Failures and the brokers decreased in number and prosperity. It was

in those troublesome times between 1868 and 1875 that brokers

organized an informal association and finally as recited in the

Indenture constituting.

Articles of Association of the Exchange

On or about 9th day of July,1875, a few native brokers doing

brokerage business in shares and stocks resolved upon forming in

Bombay an association for protecting the character, status and

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interest of native share and stock brokers and providing a hall or

building for the use of the Members of such association.

As a meeting held in the broker Hall on the 5th day of February,

1887, it was resolved to execute a formal deal of association and to

constitute the first managing committee and to appoint the first

trustees. Accordingly, the Articles of Association of the Exchange and

the Stock

Exchange was formally established in Bombay on 3rd day of

December, 1887. The Association is now known as The Stock

Exchange.

The entrance fee for new member was Re.1 and there were 318

members on the list, when the exchange was constituted. The

numbers of members increased to 333 in 1896, 362 in 1916and 478

in 1920 and the entrance fee was raised to Rs.5 in 1877, Rs.1000 in

1896, Rs.2500 in 1916 and Rs. 48,000 in 1920. At present there are

23 recognized stock exchanges with about 6000 stock brokers.

Organization structure of stock exchange varies.

14 stock exchanges are organized as public limited companies, 6

as companies limited by guarantee and 3 are non-profit voluntary

organization. Of the total of 23, only 9 stock exchanges have been

permanent recognition. Others have to seek recognition on annual

basis.

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These exchange do not work of its own, rather, these are run by

some persons and with the help of some persons and institution. All

these are down as functionaries on stock exchange. These are:

i. Stockbrokers

ii. Sub-broker

iii. Market makers

iv. Portfolio consultants etc.

1. Stockbrokers:

Stock brokers are the members of stock exchanges. These are

the persons who buy, sell or deal in securities. A certificate of

registration from SEBI is mandatory to act as a broker. SEBI can

impose certain conditions while granting the certificate of

registrations. It is obligatory for the person to abide by the rules,

regulations and the buy-law. Stock brokers are commission broker,

floor broker, arbitrageur etc.

detail of Registered Brokers Total no. of registered brokers as on

31.03.09 9000

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Total no. of sub-broker as on 31.03.09

24,000

2. Sub-broker:

A sub-broker acts as agent of stock broker. He is not a

member of a stock exchange. He assists the investors in buying,

selling or dealing in securities through stockbroker. The broker and

sub-broker should enter into an agreement in which obligations of

both should be specified. Sub-broker must be registered SEBI for a

dealing in securities.For getting registered with SEBI, he must fulfill

certain rules and regulation.

3. Market Makers:

Market maker is a designated specialist in the specified

securities. They make both bid and offer at the same time. A market

maker has to abide by bye-laws, rules regulations of the concerned

stock exchange. He is exempt from the margin requirements. As per

the listing requirements, a company where the paid-up capital is Rs. 3

Crore but not more than Rs. 5 core and having a commercial

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operation for less than 2 years should appoint a market maker at the

time of issue of securities.

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Functions of sharemarket

In every economic System, some units which may be individual

or Institution are surplus-generating while others are deficit-

generating. Securities Market in India

Surplus-Generating Units are called Savers while Deficit-generating

units are called spenders. Households are surplus-generating andCorporates and Government are deficit generators.By placing the

surplus funds in Financial claims or Financial securities the Spending

community gets funds at a cost and saving community gets various

benefits like interest, dividend, capital appreciation, Bonus etc.

The Surplus generating units (Savers) are investors and Deficitgenerating units (spenders) are issuers.These investors and issuers of

financial securities constitute two important elements of the securities

markets.The third critical element of markets is the intermediaries

who act as conduit between the investors and issuers.Regulatory

bodies, which regulate the functioning of the securities markets,

constitute the last but very significant element of securities markets.

Thus the four important elements of securities markets are:

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Investors

Issuers

Intermediaries

Regulators

Securities Can be

Government or Industrial

Long-term or short-term

Primary Market or Secondary Market

Securities Market in India

Primary Market is the segment in which new issues are made whereas

secondary market is the segment in which outstanding issues are traded.

It is for this reason that the Primary Market is called the New issues

Market and the secondary market is called Stock Market. Securities

Market in India

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companies are anxious to obtain permission from reputed exchanges

for securing quotations of their shares and the management of a

company is anxious to inform the investing public that the shares of

the company will be quoted on the stock exchange.

Introduction to stock market

The stock exchange is really an essential pillar of the private sector

corporate economy. It discharges three essential functions:

First, the stock exchange provides a market place for purchase and

sale of securities viz. shares, bonds, debentures etc. It, therefore, ensures

the free transferability of securities which is the essential basis for the

joint stock enterprise system.

Secondly, the stock exchange provides the linkage between the

savings in the household sector and the investment in the corporate

economy. It mobilizes savings, channelises them as securities into

these enterprises which are favoured by the investors on the basis of

such criteria as future growth prospects, good returns and

appreciation of capital.

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Thirdly, by providing a market quotation of the prices of shares and

bonds- a sort of collective judgment simultaneously reached by many

buyers and sellers in the market- the stock exchange serves the role of a

barometer, not only of the state of health of individual companies, but

also of the nations economy as a whole.

A stock market or equity market is a public (a loose network of

economic transactions, not a physical facility or discrete entity) for

the trading of company stock (shares) and derivatives at an agreed

price; these are securities listed on a stock exchange as well as those

only traded privately.

The size of the world stock market was estimated at about

$36.6 trillion at the start of October 2008. The total world derivatives

market has been estimated at about $791 trillion face or nominal

value, 11 times the size of the entire world economy.

The value of the derivatives market, because it is stated in terms

ofnotional values, cannot be directly compared to a stock or a fixed

income security, which traditionally refers to an actual value.

Moreover, the vast majority of derivatives 'cancel' each other out (i.e.,

a derivative 'bet' on an event occurring is offset by a comparable

derivative 'bet' on the event notoccurring). Many such relatively

illiquid securities are valued as marked to model, rather than an

actual market price.

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The stocks are listed and traded on stock exchanges which are

entities of a corporation or mutual organization specialized in the

business of bringing buyers and sellers of the organizations to a listing

of stocks and securities together. The largest stock market in the

United States, by market cap, is the New York Stock Exchange, NYSE.

In Canada, the largest stock market is theToronto Stock Exchange.

Major European examples of stock exchanges include the London

Stock Exchange, Paris Bourse, and the Deutsche Brse (Frankfurt

Stock Exchange). Asian examples include theTokyo Stock Exchange,

the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and

the Bombay Stock Exchange. In Latin America, there are such

exchanges as the BM&F Bovespa and the BMV.

Trading

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http://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/NYSEhttp://en.wikipedia.org/wiki/Toronto_Stock_Exchangehttp://en.wikipedia.org/wiki/London_Stock_Exchangehttp://en.wikipedia.org/wiki/London_Stock_Exchangehttp://en.wikipedia.org/wiki/Paris_Boursehttp://en.wikipedia.org/wiki/Deutsche_B%C3%B6rsehttp://en.wikipedia.org/wiki/Frankfurt_Stock_Exchangehttp://en.wikipedia.org/wiki/Frankfurt_Stock_Exchangehttp://en.wikipedia.org/wiki/Tokyo_Stock_Exchangehttp://en.wikipedia.org/wiki/Hong_Kong_Stock_Exchangehttp://en.wikipedia.org/wiki/Shanghai_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/BM&F_Bovespahttp://en.wikipedia.org/wiki/Mexican_Stock_Exchangehttp://en.wikipedia.org/wiki/File:Paternoster_Square.jpghttp://en.wikipedia.org/wiki/File:Paternoster_Square.jpghttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/NYSEhttp://en.wikipedia.org/wiki/Toronto_Stock_Exchangehttp://en.wikipedia.org/wiki/London_Stock_Exchangehttp://en.wikipedia.org/wiki/London_Stock_Exchangehttp://en.wikipedia.org/wiki/Paris_Boursehttp://en.wikipedia.org/wiki/Deutsche_B%C3%B6rsehttp://en.wikipedia.org/wiki/Frankfurt_Stock_Exchangehttp://en.wikipedia.org/wiki/Frankfurt_Stock_Exchangehttp://en.wikipedia.org/wiki/Tokyo_Stock_Exchangehttp://en.wikipedia.org/wiki/Hong_Kong_Stock_Exchangehttp://en.wikipedia.org/wiki/Shanghai_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/BM&F_Bovespahttp://en.wikipedia.org/wiki/Mexican_Stock_Exchange


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The London Stock Exchange.

Participants in the stock market range from small individual stockinvestors to large hedge fundtraders, who can be based anywhere.

Their orders usually end up with a professional at a stock exchange,

who executes the order.

Some exchanges are physical locations where transactions are carried

out on a trading floor, by a method known as open outcry. This type of

auction is used in stock exchanges and commodity exchanges wheretraders may enter "verbal" bids and offers simultaneously.

The other type of stock exchange is a virtual kind, composed of a

network of computers where trades are made electronically via

traders.

Actual trades are based on an auction market model where a

potential buyer bids a specific price for a stock and a potential sellerasks a specific price for the stock. (Buying or selling at marketmeans

you will accept anyask price or bid price for the stock, respectively.)

When the bid and ask prices match, a sale takes place, on a first-

come-first-served basis if there are multiple bidders or askers at a

given price.

The purpose of a stock exchange is to facilitate the exchange ofsecurities between buyers and sellers, thus providing a marketplace

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(virtual or real). The exchanges provide real-time trading information

on the listed securities, facilitating price discovery.

The New York Stock Exchange.

The New York Stock Exchange is a physical exchange, also referred to

as a listedexchange only stocks listed with the exchange may be

traded. Orders enter by way of exchange members and flow down to

a floor broker, who goes to the floor trading post specialist for that

stock to trade the order. The specialist's job is to match buy and sell

orders using open outcry.

If a spread exists, no trade immediately takes placein this case the

specialist should use his/her own resources (money or stock) to close

the difference after his/her judged time. Once a trade has been made

the details are reported on the "tape" and sent back to the brokerage

firm, which then notifies the investor who placed the order. Although

there is a significant amount of human contact in this process,

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http://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Floor_brokerhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Bid-offer_spreadhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/File:Photos_NewYork1_032.jpghttp://en.wikipedia.org/wiki/File:Photos_NewYork1_032.jpghttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Floor_brokerhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Bid-offer_spreadhttp://en.wikipedia.org/wiki/New_York_Stock_Exchange


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computers play an important role, especially for so-called "program

trading".

The NASDAQ is a virtual listed exchange, where all of the trading is

done over a computer network. The process is similar to the New York

Stock Exchange.However, buyers and sellers are electronically

matched.

Stockbrokers met on the trading floor or the Palais Brongniart. In

1986, the CATS trading system was introduced, and the order

matching process was fully automated. From time to time, active

trading (especially in large blocks of securities) have moved away

from the 'active' exchanges. Securities firms, led by UBS AG, Goldman

Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of

U.S. security trades away from the exchanges to their internal

systems. That share probably will increase to 18 percent by 2010 as

more investment banks bypass the NYSE and NASDAQ and pair

buyers and sellers of securities themselves, according to data

compiled by Boston-based Aite Group LLC, a brokerage-industry

consultant.[5]

Now that computers have eliminated the need for trading floors like

the Big Board's, the balance of power in equity markets is shifting

investors pay in trading commissions as well as the surplus of the

century had taken place.

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History

Established in 1875, the Bombay Stock Exchange is Asia's first stock

exchange.

BSE SENSEX is the benchmark index for the Indian stock market. It isthe most frequently used indictor while reporting on the state of themarket. Sensex is not only scientifically designed but also based onglobally accepted construction and review methodology. Firstcompiled in 1986, SENSEX is a basket of 30 constituent stocksrepresenting a sample of large, liquid and representative companies.

The base year of SENSEX is 1978-79 and the base value is 100. Theindex is widely reported in both domestic and international marketsthrough print as well as electronic media.

The Index was initially calculated based on the Full MarketCapitalization methodology but was shifted to the free-floatmethodology with effect from September 1, 2003. The Free-floatMarket Capitalization methodology of index construction is regardedas an industry best practice globally. All major index providers like

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MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-floatmethodology.

Due to is wide acceptance amongst the Indian investors; SENSEX isregarded to be the pulse of the Indian stock market. As the oldestindex in the country, it provides the time series data over a fairly longperiod of time (From 1979 onwards). Small wonder, the SENSEX hasover the years become one of the most prominent brands in thecountry.

The growth of equity markets in India has been phenomenal in thedecade gone by. Right from early nineties the stock market witnessedheightened activity in terms of various bull and bear runs. The

SENSEX captured all these events in the most judicial manner. Onecan identify the booms and busts of the Indian stock market throughSENSEX.

Major Milestones

Here is a timeline on the rise and rise of the Sensex through Indianstock market history.

1000, July 25, 1990 On July 25, 1990, the Sensex touched thefour-digit figure for the first time and closed at 1,001 in the wakeof a good monsoon and excellent corporate results.

4000, March 30, 1992 On March 30, 1992, the Sensexcrossed the 4,000-mark and closed at 4,091 on the expectationsof a liberal export-import policy. It was then that the HarshadMehta scam hit the markets and Sensex witnessed unabatedselling.

5000, October 11, 1999 On October 8, 1999, the Sensexcrossed the 5,000-mark as the BJP-led coalition won the majorityin the 13th Lok Sabha election.

6000, February 11, 2000 On February 11, 2000, the infotechboom helped the Sensex to cross the 6,000-mark and hit and alltime high of 6,006.

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7000, June 21, 2005 On June 20, 2005, the news of the

settlement between the Ambani brothers boosted investor

sentiments and the scrips of RIL, Reliance Energy, RelianceCapital and IPCL made huge gains.

10,000, February 7, 2006 The Sensex on February 6, 2006touched 10,003 points during mid-session.

11,000, March 27, 2006 The Sensex on March 21, 2006crossed 11,000 and touched a life-time peak of 11,001 pointsduring mid-session at the Bombay Stock Exchange for the firsttime. However, it was on March 27, 2006 that the Sensex firstclosed at over 11,000 points.

12,000, April 20, 2006 The Sensex on April 20, 2006 crossed12,000 and touched a life-time peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time.

13,000, October 30, 2006 The Sensex on October 30, 2006crossed 13,000 and still riding high at the Bombay StockExchange for the first time. It took 135 days to reach 13,000from 12,000. And 124 days to reach 13,000 from 12,500. On30th October 2006 it touched a peak of 13,039.36 & closed at13,024.26.

14,000, December 5, 2006 The Sensex on December 5,2006 crossed 14,000 and touched a life-time peak of 14028 at9.58AM(IST) while opening for the day December 5, 2006.

15,000, July 6, 2007-The Sensex on July 6, 2007 crossedanother milestone and reached a magic figure of 15,000. it tookalmost 7 month and 1 day to touch such a historic milestone.

16,000, September 19, 2007-The Sensex on September 19,2007 crossed the 16,000 mark and reached a historic peak of

16322 while closing. The bull hits because of the rate cut of 50bit/s in the discount rate by the Fed chief Ben Bernanke in US.

17,000, September 26, 2007-The Sensex on September 26,2007 crossed the 17,000 mark for the first time, creating a

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record for the second fastest 1000 point gain in just 5 tradingsessions. It failed however to sustain the momentum and closed

below 17000. The Sensex closed above 17000 for the first timeon the following day. Reliance group has been the maincontributor in this bull run, contributing 256 points. This alsohelped Mukesh Ambanis net worth to grow to over $50 billion orRs.2 trillion. It was also during this record bull run that theSensex for the first time zoomed ahead of the Nikkei of Japan.

18,000, October 9, 2007-The Sensex crossed the 18k markfor the first time on October 9, 2007. The journey from 17k to18k took just 8 trading sessions which is the third fastest 1000

point rise in the history of the sensex. The sensex closed at18,280 at the end of day. This 788 point gain on 9 October wasthe second biggest single day absolute gains.

19,000, October 15, 2007- The Sensex crossed the 19k markfor the first time on October 15, 2007. It took just 4 days to reachfrom 18k to 19k. This is the fastest 1000 points rally ever andalso the 640 point rally was the second highest single day rally inabsolute terms. This made it a record 3000 point rally in 17trading sessions overall.

20,000, October 29, 2007-The Sensex crossed the 20k markfor the first time with a massive 734.5 point gain but closedbelow the 20k mark. It took 11 days to reach from 19k to 20k.

The journey of the last 10,000 points was covered in just 869sessions as against 7,297 sessions taken to touch the 10,000mark from 1,000 levels. In 2007 alone, there were six 1,000-point rallies for the Sensex.

21,000, January 8, 2008 The Sensex opened with a hugepositive gap of 157 points at 20,970, and rallied past the 21,000-

mark to a fresh all-time high of 21,078.

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The main trading room of theTokyo Stock Exchange,where

trading is currently completed through computers. The stock market

is one of the most important sources for companies to raise money.

This allows businesses to be publicly traded, or raise additional capital

for expansion by selling shares of ownership of the company in a

public market.

The liquidity that an exchange provides affords investors the

ability to quickly and easily sell securities. This is an attractive feature

of investing in stocks, compared to other less liquid investments such

as real estate.

National stock exchange

National Stock Exchange A+ A-

National Stock Exchange of India (NSE) is India's largest StockExchange & World's third largest Stock Exchange in terms oftransactions. Located in Mumbai, NSE was promoted by leadingFinancial Institutions at the behest of the Government of India, and

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was incorporated in November 1992 as a tax-paying company. In

April 1993, NSE was recognized as a Stock exchange under the

Securities Contracts (Regulation) Act-1956. NSE commencedoperations in the Wholesale Debt Market (WDM) segment in June1994. Capital Market (Equities) segment of the NSE commencedoperations in November 1994, while operations in the Derivativessegment commenced in June 2000. NSE has played a catalytic role inreforming Indian securities market in terms of microstructure, market

practices and trading volumes. NSE has set up its trading system as anation-wide, fully automated screen based trading system. It haswritten for itself the mandate to create World-class Stock Exchangeand use it as an instrument of change for the industry as a whole

through competitive pressure. NSE is set up on a demutualised modelwherein the ownership, management and trading rights are in thehands of three different sets of people. This has completelyeliminated any conflict of interest.

NSE was set up with the objectives of:

Establishing nationwide trading facility for all types of securities

Ensuring equal access to investors all over the country throughan appropriate telecommunication network

Providing fair, efficient & transparent securities market usingelectronic trading system

Enabling shorter settlement cycles and book entry settlements

Meeting International benchmarks and standards

Within a very short span of time, NSE has been able to achieve itsobjectives for which it was set up. Indian Capital Markets are a far cryfrom what they were 12 years back in terms of market practices,infrastructure, technology, risk management, clearing and settlement

and investor service. To ensure continuity of business, NSE has built afull fledged BCP site operational for last 7 years.

NSE's markets

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NSE provides a fully automated screen-based trading system withnational reach in the following major market segments:-

Equity OR Capital Markets {NSE's market share is over 65%} Futures & Options OR Derivatives Market {NSE's market share

over 99.5%}

Wholesale Debt Market (WDM)

Mutual Funds (MF)

Initial Public Offerings (IPO)

What are the IT initiatives of NSE in the last one year?NSE believes that technology shall continue to provide necessary

impetus for any organisation to retain its competitive edge, ensuretimeliness & satisfaction in customer service. Being fully dependanton Information Technology, NSE has stressed on innovation andsustained investment in technology on a continual basis to ensurecustomer satisfaction, improvement in services which automaticallyhelps in sustaining business and remain ahead of competition. As apolicy, NSE looks to improve the quality of Services to its customers.Projects are not initiated based on a business model to reap profitsbut from a strategic perspective of better productivity, Value-adds &

features, improving efficiency, reducing operational costs,compliance, operational transparency etc for the customers, investorsand to the entire Indian Securities Industry.

Company profile

Sharekhan was established by Morakhia family in 1999-2000 and

Morakhia family, continues to remain the largest shareholder. It is the

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retail broking arm of the Mumbai-based SSKI [SHRIPAL

SHEWANTILAL KANTILAL ISWARNATH LIMITED] Group.

SSKI which is established in 1930 is the parent company of

Sharekhan ltd. With a legacy of more than 80 years in the stock

markets, the SSKI group ventured into institutional broking and

corporate finance over a decade ago. Presently SSKI is one of the

leading players in institutional broking and corporate finance

activities. Sharekhan offers its customers a wide range of equity

related services including trade execution on BSE, NSE, and

Derivatives.

Depository services, online trading, Investment advice,

Commodities, etc. Sharekhan Ltd. is a brokerage firm which is

established on 8th February 2000 and now it is having all the rights of

SSKI.

Story of sharekhan

Sharekhan is Indias leading online retail broking house.

Launched on February 8, 2000 as an online trading portal, Sharekhan

has today a pan-India presence with over 1,529 outlets serving morethan 1 million customers across 450 cities.

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It also has international presence through its branches in the

UAE and Oman. Sharekhan offers services like portfolio management,

trade execution in equities, futures & options, commodities, and

distribution of mutual funds, insurance and structured products. These

services are backed by quality investment advice from an

experienced research team which offers investment and trading ideas

based on fundamental and technical research respectively, market

related news, statistical information on

equities, commodities, mutual funds, IPOs and much more.Sharekhan is a member of the Bombay Stock Exchange, the National

Stock Exchange and the countrys two leading commodity exchanges,

the NCDEX and MCX. Sharekhan is also registered as a depository

participant with National Securities Depository and Central Depository

Services.

Sharekhan has set category leadership through

pioneering initiatives like Trade Tiger, an Internet-based

executable application that emulates a broker terminal

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besides providing information and tools relevant to day

traders.

Its second initiative, First Step, is targeted at empowering the

first-time investors. Sharekhan has also set its global footprint

through the India First initiative, a series of seminars conducted by

Sharekhan to help the non-resident Indians participate and benefit

from the huge investment opportunities in India.

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INTRODUCTION OF SHAREKHAN LTD .

Misson of the sharekhan is

To educate and empower the individual investor to make

better investment decision through

QUALITY ADVICE

INNOVATIVE PRODUCTS

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SUPERIOR SERVICE

Share khan Limited is a retail financial services provider with a

focus on equities, derivatives and

Commodities brokerage execution on the National Stock

Exchange of India Ltd.

(NSE), Bombay StockExchange Ltd. (BSE), National Commodity

and Derivatives Exchange India (NCDEX) and MultiCommodity

Exchange of India Ltd. (MCX).

Share khan provides trade execution services through Multiple

channels - an Internet platform, telephone and retail outlets andis present in 225 cities through a network of 615 locations.

The company was awarded the 2005 Most Preferred Stock

Broking Brand by Awwaz Consumer Vote.

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Chapter 2

Product profile

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PRODUCT PROFILE

1- Equity Trading platform ( online/offline)

2- Commodities trading platform (online / offline)

3- Portfolio management services.

4- Mutual fund Advisory and Distribution.

5- Insurance Distribution

6- Forex

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REASON TO CHOOSE SHAREKHAN LIMITED

Experience

SSKI has more than eight decades of trust and credibility in the Indian

stock market. In the Asia money brokers poll held recently,SSKI won

the Indias best broking house for 2004 award. Ever since it launched

Sharekhan as its retail broking division in February 2000, it has been

providing institution-level research and broking services to individual

investors.

Technology

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With their online trading account one can buy and sell shares in an

instant from any pc with an internet connection. Customers get

access to the powerful online trading tools that will help them to take

complete control over their investment in shares.

Accessibility

Sharekhan provides ADVISE, EDUCATION, TOOLS AND EXECUTION

services for investors. These services are accessible thou gh many

centers across the country (over 650 location in 150 cities), over the

internet (through the website www.sharekhan.com) as well as over

the voice tool

Knowledge

In a business where the right information at the right time can

translate into direct profits, investor get access to a wide range of

information on the content rich portal www.sharekhan.com investor

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will also get a useful set of knowledge based tools that will empower

them to take informed decisions.

Convenience

One can call Sharekhans Dial-N-Trade number to get investment

advice and execute his/her transaction. They have a dedicated call-

center to provide this service via a Toll free number 1800 22 7500 &

39707500 from India

Customer service

Its customer service team assist their customer for any help that they

need relating to transaction, billing, demat and other queries. Their

customer service an be contacted via a toll free number , email or live

chat on www.sharekhan.com

Investment Advice

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Sharekhan has dedicated research teams of more than 30 people of

fundamental and technical research. Their analyst constantly track

the pulse of the market and provide timely investment advise to

customer in the form of daily research emails, online chat , printed

reports etc.

Benefits

Instant Cash Transfer.

Multipal Bank Option.

Secure Order By Voice Trade Dial-N-Trade.

Automated Portfolio to keep Track of the value of your

actual purchases

24x7 Voice Tool access to your Trading account.

Personalized Price and Account Alerts delivered instantly

to your mobile phone and E-mail address. Live chat Facility with relationship manager on Yahoo

Messenger.

Special personal Inbox for order and trade confirmation.

Online Customer service via web chat.

Enjoy Automated Portfolio.

Buy or Sell even single share.Anytime ordering.

Sharekhan offers the following product:-

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ShareKhan Classic account

Allow investor to buy and sell stocks online along with the

following features like multiple watch lists, Integrated Banking,

demat and digital contracts, Real-time portfolio tracking with

price alerts and Instant credit & transfer.

Online trading account for investing in Equities and

Derivatives

Free trading through Phone (Dial-n-Trade) Two dedicated numbers for placing your orders with

your cellphone or landline.

Automtic funds tranfer with phone banking .

Simple and Secure Interactive Voice Response based

system for authentication

get the trusted, professional advice of our telebrokers

After hours order placement facility between 8.00 am

and 9.30 am

Integration of: Online trading + Bank + Demat account

Instant cash transfer facility against purchase & sale of

shares IPO investments

Instant order and trade confirmations by e-mail

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Single screen interface for cash and derivatives

ShareKhan SpeedTrade account

This accounts for active traders who trade frequently during the day's

trading session. Following are few popular features of SpeedTrade

account.

Single screen interface for cash and derivatives

Real-time streaming quotes with Instant order Execution &

Confirmation

Hot keys similar to a traditional broker terminal

Alerts and reminders

Back-up facility to place trades on Direct Phone linesBrokerage:

Some stock trading companies charge direct percentage while others

charge a fixed amount per Rs 100. Sharekhan charges 0.5% for inter

day shares and 0.1% for intra day or you could say Sharekhan

charges 50 paise per Rs 100.

CLASSIC ACCOUNT:1. A/C OPENING CHARGES:Rs750/-

2. MARGIN CHEQUE OF Rs 10000/-(where you can use this

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margin for investment purpose)

3. Brokerage charges are

For delivery its 0.5%

Intraday its 0.1% only on buy side sell side nil

** Note: If the customer generated Rs 750/- brokerage in 6

months after a/c opening the 750 will be refunded to the client.

2. PREPAID CLASSIC ACCOUNT:

1. A/C OPENING CHARGES: NIL

2. PREPAID BROKERAGE CHEQUE OF Rs 2000/-

3.BROKERAGE WILL BE 0.4% ON DELIVERY &

0.07% ON INTRADAY TRADING ONLY ON BUY SIDE SELL SIDE NIL.

3. PREPAID SPEEDTRADE ACCOUNT:

1. A/C OPENING CHARGES : NIL2.PREPAID BROKERAGE CHEQUE Rs 6000/-

3.BROKERAGE WILL BE 0.25% ON DELIVERY &

0.05% ON INTRADAY TRADING ONLY ON BUY SIDE,SELL SIDE NIL

SPEED TRADE: Speed trade is a next generation online trading

products that brings the power of your brokers terminal to your

PC. It is ideal for active traders who transact frequently duringmovements. SPEEDTRADE is an internet-based application

available on a CD, which provides everything a trader needs on

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one screen, thereby, reducing the time required to execute a

trade.

KEY FEATURES OF SPEED TRADE:

1. Single Screen Trading Terminal

2. Real time Streaming Quotes

3. Live Tic-by-Tic Intra day Charting

4. Instant Order / Trade Confirmations in the same window

5. Hot keys similar to Brokers Terminal

6. Customized Alerts based on multiple Parameters

7. Back-up Facility to Place Trading on Direct Phone Lines

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DIAL-N-TRADE:-

It is also an exclusive service available to all Sharekhan

customers for trading in

shares via the telephone. On dialing the toll free number 1800-22-

7500 the

customer will be directed to a tele-broker who will buy or sell shares

for him.

Mobile-N-Trade facility: -

Now Sharekhan is providing the facility that their customers can

do trading with the help of their mobile handset. For tat purpose they

have to pay some extra charge to activate that facility.

Customers:

In now days each and every person is the customer of Sharekhan.

All the Business Man, Shopkeepers, Young Generation i.e. students ,

Adults,Housewife and the person who have money and likes to take risk

are the

potential customer of the Sharekhan. The person who likes to invest their

money in share market is also the customer of Sharekhan.

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But mostly the customers are divided into two types depending

upon the transactions they do or money they invest in the share

market. They are Investoror Traders.The investors are those

who Invest their money in the market once when they have

money in excess after fulfilling their needs and wants and the

traders are those who daily do the share transactions as their

business and called as Intraday transaction and the previous is

called as Delivery transaction.

Competitors:

Sharekhan is one of the major player in on line Trading. In Mumbai the

main competitors of Sharekhan are ICICI Direct, India bulls, Kotak

Securities, HDFC Securities, Anand Rathi, and Motilal Oswal.

1. Religare Enterprises

2. India Info line3. ICICI DIRECT

4. INDIA BULLS

5. RELIANCE MONEY

6. Kotak Securities

7. MOTILAL OSWAL

These are some of the competitors of sharekhan Sharekhan has set category leadership through

pioneering initiatives like Trade Tiger, an Internet-based

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executable application that emulates a broker terminal

besides providing information and tools relevant to day

traders.

Its second initiative, First Step, is targeted at empowering the

first-time investors. Sharekhan has also set its global footprint

through the India First initiative, a series of seminars conducted by

Sharekhan to help the non-resident Indians participate and benefit

from the huge investment opportunities in India.

Sharekhan offers product

A trading-based Portfolio Management Scheme

Presenting Share khans ProTech - PMS for Technicals. Using

scientific rules and time-tested strategies, it delivers consistent

returns no matter where the market is headed. Reason enough to be

happy and stay that way.

ProTech PMS products

A) Thrifty Nifty: Nifty futures are bought/ sold through a automated

trading system that generates calls to go long/short at any given

time. Being short allows you to earn returns even in falling markets.

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B) Beta Portfolio: 80% is traded in stocks in long term technical up

trends, the balance in Options. Portfolio rebalancing is done based on

segment profitability.

---------------------------------------------

Investment Details

> Minimum investment Rs 5 Lakhs

> 0% AMC fees

> Lock in for 3 months

> Fortnightly Networth reporting

> Monthly reporting of Portfolio Holdings/Transactions

> 20% profit sharing fees on booked profits quarterly basis./ 15% if

1cr investment or 1 year Lockin.

> Brokerage 0.05% for derivatives and 0.30% for delivery

ProTech Investing

Protech uses the knowledge of technical analysis and the power of the

derivatives market to identify trading opportunities in the market.

Superior performance can be achieved through sheer market timing,

by picking Stocks/Nifty before the infection points in their trading

cycles.The product characteristics are as follows

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Having positions in cash and options

Using swing/momentum based index trading systems with stop

and reverse trend following

PRODUCTS OFFERED

Momentum trading

techniques are used to

spot short term

momentum of 5-10 days

in stocks and

stocks/index futures.

Trailing stop loss method

of risk management or

profit protection is used

to lower the portfolio

volitality and maximize

returns.Trading

opportunities are

explored both on the

long and the short side

as the market demands

ProPrime Investing

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Ideal for investors looking at steady and superior returns with low to

medium risk appetite. This portfolio consists of a blend of quality

bluechip and growth stocks ensuring a balanced portfolio with

relatively medium risk profile. Investment are selected are to give

consistent, steady and sustainable returns. The main features are:

Bottom up stock selection

In-depth, independent fundamental research

High quality companies with relatively large capitalization Disciplined valuation approach applying multiple valuation

measures Medium to long term vision, resulting in low portfolio

turnover.

4 Reasons why Sharekhan PMS is more than Management:

For any market condition: Choose from our range ofPMS

products that are designed to perform in any market based on your

investment objectives.

Exclusive Service: Proactive management of your funds by fund

manager; backed by a Central Research team of Analysts and

serviced by your dedicated Relationship Manager

Performance-Focused: Profit-sharing option with PMS ProTech

and not based on churn

Convenient Reporting: Regular up-to-date views of portfolio

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Difficult for clients!

1) Tracking the Market is a full time job

2) Judging the impact of the News for sectors & scrip may not be

always possible

3) Maintaining the news flow & apply at proper time is difficult

4) Availability of basic Research may not always be possible

5) Basic fund management rules may not be in place like Investment

Philosophy, Sector Allocation, Scrip Allocation, etc.

Product Range: ProTech PMS has a range of 4 product schemes to

choose from based on your risk-return appetites. You can choose

between an automated model and a portfolio managed by our fund

managers

Stock Market Expertise, Exclusively for you, Ideal Investment

Platform for HNIs??

Portfolio Management Services (Growing your Wealth with

Sharekhan PMS)

PMS Minimum Investment Rs 5 Lakh and a Lock in period for 6months

Sharekhan PMS which are based on

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Fundamental Analysis ProPrime

Technical Analysis ProTech & ProTech Diversified

PMS schemes that suit your needs.

PROTECH Diversified: Moderate Risk High Return product

PROTECH - Nifty Trifty: Technical Analysis Trading

PROPRIME: Investing on Fundamentals

Product Offerings

Pro prime

The Balanced Scheme:Ideal for investors looking at steady and superior

returns with low to medium risk appetite. This portfolio

consists of a blend of quality bluechip and growth

stocks ensuring a balanced portfolio with relat vely

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medium risk profile. The portfolio will mostly have large

capitalization stocks based on sectors & themes who

have medium to long term growth potential.

Product Approach

Investment are based on 3 tenets:i] Consistent, steady and sustainable returnsii] Margin of Safety

iii]

Low Volatility

Product Characteristics

Bottom up stock selection

In-depth, independent fundamental research

High quality companies with relatively large

capitalization.

Disciplined valuation approach applying multiple

valuation measures

Medium to long term vision, resulting in low portfolioturnover

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protech.

Nifty Thrifty: Nifty futures are bought and sold on the basis of an

automated trading system that generates calls to go long/short. The

exposure never exceeds value of portfolio i.e. there is no leveraging;

but being short in Nifty allows you to earn even in falling markets and

there by generateslinear

Product Approach

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Superior performance can be achieved through sheer market

timing, by picking Stocks/Nifty before the infection points in

their trading cycles

Linear returns are possible from having sell market positions in

downtrends and by using the options market to change the

portfolio beta

Money management rules will be in place.


Using swing based index -trading systems, stop and reverse,

trend following and momentum trading techniques.

Nifty based products for low impact cost and low product

volatity.

Both long anf short strategies to earn returns even in falling

markets.

The use of options to enchance the risk reward profile of the

product and therefore offer a higher Beta.

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Product Details

> Minimum Investment: Rs 5 lakhs

> Lock in: 6 months> AMC fees:0%---------------------------------------------------

> Reporting: Monthly reporting of transactions, brokerage 0.05% for

derivatives, 20% profit sharing on booked profits on quaterly basis.

> Profit withdrawal in multiples of 25000 after lock in period.

Beta Portfolio:Positional trading opportunities are identified in the futures

segment based on technical analysis. Inflection points in the

momentum cycles are identified to go long/short on stock/index

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futures with 1-2 month time horizon. The idea is to generate the

best possible returns in the medium term irrespective of the

direction of the market without really leveraging beyond the

portfolio value. Risk protection is done based on stop losses on

daily closing prices.

STAR Nifty:Swing trading techniques and Dow theory is used to identify

short term reversal levels for Nifty futures and ride with the

trend both on the long & short side. Thus returns can be earned

in bull&bear markets. Stop & reverse ones position from long to

short or short to long at reversal level simultaneously. The

exposure never value of portfolio i.e there is no leveraing.

Trailing Stops:

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Momentum trading techniques are used to spot short term

momentum of 5-10 days in stocks and stocks/index futures.

Trailing stop loss method of risk management or profit protection

is used to lower the portfolio volitality and maximize

returns.Trading opportunities are explored both on the long and

the short side as the market demands to get the best of both

upwards & downward trends.

Product Approach

> Superior performance can be achieved through sheer market

timing, by picking Stocks/Nifty before the infection points in their

trading cycles> Linear returns are possible from having sell market positions in

downtrends and by using the options market to change the

portfolio beta> Money management rules will be in place.


> Using swing based index -trading systems, stop and reverse, trend

following and momentum trading techniques.> Nifty based products for low impact cost and low product volatity.

> Both long anf short strategies to earn returns even in fallingmarkets.

> The use of options to enchance the risk reward profile of the

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product and therefore offer a higher Beta.

Product Details

> Minimum Investment: Rs 5 lakhs

> Lock in: 6 months> AMC fees:0%---------------------------------------------------

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> Reporting: Monthly reporting of transactions, brokerage 0.05% for

derivatives, 20% profit sharing on booked profits on quaterly basis.

> Profit withdrawal in multiples of 25000 after lock in period.

ShareMobile

Sharekhan, one of India's leading brokerage houses, is the retail arm oWith over 510 share shops in 170 cities, and India's premier online tradportal, our customers enjoy multi-channel access to the stock markets

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Sharekhan launchs ShareMobile, an exclusive live streaming quotes antrading facility for its online trading customers

Next time when you are on move, you need not worry about yourfavourite stocks price movement. You can carry stock marketterminal with you anywhere anytime.

Special offer- 3 month free trial usage for all Sharekhan tradingcustomers. Contact Silicon for details.

Prerequisites for ShareMobile are

Java enabled Mobile Handset.

GRPS connection - For getting a GPRS connection, get in touch withyour Service provider.

ShareMobile will not work if

Your Mobile Handset does not support JAVA Applications.

If user has WAP connection of BPL (Also known as BPL WAPconnection or MMS Pack)

For all Reliance Mobile Users

SHAREKHANS SERVICES

Sharekhan is one of India's leading financial services companies. Weprovide a complete life-cycle of investment solution in Equities,

Derivatives, Commodities, IPO, Mutual Funds, Depository Services,

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Portfolio Management Services and Insurance. We also offer

personalized wealth management services for High Networth

individuals.With a physical presence in over 300 cities of India

through more than 800 "Share Shops", and an online presence

through Sharekhan.com, India's premier online destination, we reach

out to more than 800,000 trading customers.

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Chapter 3

Literature review

PORTFOLIO MANGEMNT SERVICES (PMS)

Portfolio (finance) means a collection of investments held by aninstitution or a private individual. Holding a portfolio is often part of

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an investment and risk-limiting strategy called diversification. Byowning several assets, certain types of risk (in particular specific

risk) can be reduced. There are also portfolios which are aimed attaking high risks these are called concentrated portfolios.

Investment management is the professional management ofvarious securities (shares, bonds etc) and other assets (e.g. realestate), to meet specified investment goals for the benefit of theinvestors. Investors may be institutions (insurance companies,pension funds, corporations etc.) or private investors (both directlyvia investment contracts and more commonly via collectiveinvestment schemes e.g. mutual funds).

The term asset management is often used to refer to theinvestment management of collective investments, whilst the moregeneric fund management may refer to all forms of institutionalinvestment as well as investment management for private investors.Investment managers who specialize in advisory or discretionarymanagement on behalf of (normally wealthy) private investors mayoften refer to their services as wealth management or portfoliomanagement often within the context of so-called "private banking".

The provision of 'investment management services' includes

elements of financial analysis, asset selection, stock selection, planimplementation and ongoing monitoring of investments. Outside ofthe financial industry, the term "investment management" is oftenapplied to investments other than financial instruments.Investments are often meant to include projects, brands, patentsand many things other than stocks and bonds. Even in this case, theterm implies that rigorous financial and economic analysis methodsare used.

The SEBI (portfolio managers) Rules, 1993 defines the

term Portfolio as total holding of securities belonging to any

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person. As a matter of fact, portfolio is combination of assets the

outcomes of which cannot be defined with certainty new assets

could be physical assets, real estates, land, building, gold etc. or

financial assets like stocks, equity, debenture, deposits etc.

Portfolio management refers to managing efficiently the investment

in the securities held by professional for others.

Merchant banker and the portfolio management with a view to

ensure maximum return by such investment with minimum risk of

loss of return on the money invested in securities held by them for

their clients. The aim Portfolio management is to achieve the

maximum return from a portfolio, which has been delegated to be

managed by manger or financial institution.

There are lots of organization in the market on the lookout for thepeople like you who need their portfolios managed for them .They

have trained and skilled talent will work on your money to make it

do more for you. Therefore, if any investors still insist on managing

their own portfolio, then ensure you build discipline into their

investment. Work out their strategy and stand by it.

PMS

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to their need and preferences. But sometimes, portfolio managers

can invest client's money according to his preference because they

know the market very well than his client. It is his client's duty to

provide him a level of flexibility so that he can manage the

investment with full efficiency and effectiveness.

In comparison to mutual funds, portfolio managers do not need to

follow any rigid rules of investing a particular amount of money in a

particular mode of investment.

Mutual fund managers need to work according to the regulations set

up by financial authorities of their country. Like in India, they have

to follow rules set up by SEBI.

MYTH S ABOUT PMS

There are two most common myths found about Portfolio

Management Services (PMS)Which we found among most of the Investors. They are as follows.

Myth No. 1: PMS and Mutual Fund are Similar as the

investment option

As in the Finance Basket both the PMS and Mutual Fund are used for

minimizing risk and maximize the profit of the Investors. The

objectives are similar as in both the product but they are different

from each other in certain aspects. They are as follows.

Management Side

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In PMS, its ongoing personalized access to professional money

management services.Whereas, in Mutual fund gives personalize

access to money.

Customization

In PMS, Portfolio can be tailored to address each investor's specific

needs. Whereas in Mutual Fund Portfolio structured to meet the

fund's stated investment objectives.

Ownership

In PMS, Investors directly own the individual securities in their

portfolio, allowing for tax Management flexibility whereas in Mutual

Fund Shareholders own shares of the fund and cannot influence buy

and sell decisions or control their exposure to incurring tax liabilities.

Liquidity

In PMS, managers may hold cash; they are not required to hold cash

to meet redemptions, whereas, Mutual funds generally hold some

cash to meet redemptions

.

MinimumsPMS generally gives higher minimum investments than mutual

funds. Generally, minimum ranges from: Rs. 1 Crore + for Equity

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Options Rs. 5 Crore + for Fixed Income Options Rs. 20 Lacs + for

Structured Products, whereas in Mutual Fund Provide ongoing,

personalized access to professional money management services.

Flexibility

PMS is generally more flexible than mutual funds. The Portfolio

Manager may move to 100% cash if it required. The Portfolio

Manager may take his own time in building up the portfolio. The

Portfolio Manager can also manage a portfolio with disproportionate

allocation to select compelling opportunities whereas, in Mutual

Fund comparatively less flexible.

Myth No. 2: PMS is more Risk free than other Financial

Instrument

In Financial Market Risk factor is common in all the financial

products, but yes it is true that Risk Factor vary from each other due

to its nature. All investments involve a certain amount of risk,

including the possible erosion of the principal amount invested,

which varies depending on the security selected. For example,

investments in small and mid-sized companies tend to involve morerisk than investments in larger companies.

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These services are backed by quality investment advice

from an experienced research team which offers investment

and trading ideas based on fundamental and technical research

respectively, market related news, statistical information on

equities, commodities, mutual funds, IPOs and much more.

Sharekhan is a member of the Bombay Stock Exchange, the

National Stock Exchange and the countrys two leading

commodity exchanges, the NCDEX and MCX. Sharekhan is also

registered as a depository participant with National Securities

Depository and Central Depository Services.

PORTFOLIO CONSTRUCTION

The Portfolio Construction of Rational investors wish to maximizethe returns on their funds for a given level of risk. All investmentspossess varying degrees of risk. Returns come in the form ofincome, such as interest or dividends, or through growth in capitalvalues (i.e. capital gains).

The portfolio construction process can be broadly characterized as

comprising thefollowing steps:

1. Setting objectives.

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The first step in building a portfolio is to determine the mainobjectives of the fund given the constraints (i.e. tax and liquidity

requirements) that may apply. Each investor has differentobjectives, time horizons and attitude towards risk. Pension fundshave long-term obligations and, as a result, invest for the long term.

Their objective may be to maximize total returns in excess of theinflation rate. A charity might wish to generate the highest level ofincome whilst maintaining the value of its capital received frombequests. An individual may have certain liabilities and wish tomatch them at a future date. Assessing a clients risk tolerance canbe difficult. The concepts of efficient portfolios and diversification

must also be considered when setting up the investment objectives.2. Defining Policy.

Once the objectives have been set, a suitable investment policymust be established. The standard procedure is for the moneymanager to ask clients to select their preferred mix of assets, forexample equities and bonds, to provide an idea of the normal mixdesired. Clients are then asked to specify limits or maximum andminimum amounts they will allow to be invested in the differentassets available. The main asset classes are cash, equities,

gilts/bonds and other debt instruments, derivatives, property andoverseas assets. Alternative investments, such as private equity, arealso growing in popularity, and will be discussed in a later chapter.Attaining the optimal asset mix over time is one of the key factors ofsuccessful investing.

3. Applying portfolio strategy.

At either end of the portfolio management spectrum of strategiesare active and passive strategies. An active strategy involvespredicting trends and changing expectations about the likely future

performance of the various asset classes and actively dealing in andout of investments to seek a better performance. For example, if themanager expects interest rates to rise, bond prices are likely to falland so bonds should be sold, unless this expectation is already

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factored into bond prices. At this stage, the active fund managershould also determine the style of the portfolio. For example, will the

fund invest primarily in companies with large market capitalizations,in shares of companies expected to generate high growth rates, orin companies whose valuations are low? A passive strategy usuallyinvolves buying securities to match a preselected market index.Alternatively, a portfolio can be set up to match the investorschoice of tailor-made index. Passive strategies rely on diversificationto reduce risk. Outperformance versus the chosen index is notexpected. This strategy requires minimum input from the portfoliomanager. In practice, many active funds are managed somewhere

between the active and passive extremes, the core holdings of thefund being passively managed and the balance being activelymanaged.

4. Asset selections .

Once the strategy is decided, the fund manager must selectindividual assets in which to invest. Usually a systematic procedureknown as an investment process is established, which setsguidelines or criteria for asset selection. Active strategies requirethat the fund managers apply analytical skills and judgment for

asset selection in order to identify undervalued assets and to try togenerate superior performance.

5. Performance assessments.

In order to assess the success of the fund manager, theperformance of the fund is periodically measured against a pre-agreed benchmark perhaps a suitable stock exchange index or

against a group of similar portfolios (peer group comparison). Theportfolio construction process is continuously iterative, reflectingchanges internally and externally. For example, expectedmovements in exchange rates may make overseas investment more

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attractive, leading to changes in asset allocation. Or, if many large-scale investors simultaneously decide to switch from passive to

more active strategies, pressure will be put on the fund managers tooffer more active funds

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Objective of PMS

There are the following objectives which are full filled by PortfolioManagementServices.

1. Safety Of Fund: -

The investment should be preserved, not be lost, and should remainin thereturnable position in cash or kind.

2. Marketability: -

The investment made in securities should be marketable thatmeans, the securities must be listed and traded in stock exchangeso as to avoid difficulty in their encashment.

3.Liquidity:-The portfolio must consist of such securities, which could be en-

cashed without any difficulty or involvement of time to meet urgentneed for funds. Marketability ensures liquidity to the portfolio.

4.Reasonable return: -

The investment should earn a reasonable return to upkeep thedeclining value of money and be compatible with opportunity cost ofthe money in terms of current income in the form of interest ordividend.

5. Appreciation in Capital: -

The money invested in portfolio should grow and result into capitalgains.

6. Tax planning:-

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Efficient portfolio management is concerned with composite tax

planningcovering income tax, capital gain tax, wealth tax and gift tax.

7. Minimize risk:-Risk avoidance and minimization of risk are important objective of

portfolio management. Portfolio managers achieve these objectivesby effective investment planning and periodical review of market,situation and economic environment affecting the financial market.

Types of assetsThe structure of a portfolio will depend ultimately on the investors

objectives and on the asset selection decision reached. The portfoliostructure takes into account a range of factors, including theinvestors time horizon, attitude to risk, liquidity requirements, taxposition and availability of investments. The main asset classes arecash, bonds and other fixed income securities, equities, derivatives,property and overseas assets.

Cash and cash instruments

Cash can be invested over any desired period, to generate interestincome, in a range of highly liquid or easily redeemable instruments,from simple bank deposits, negotiable certificates of deposits,commercial paper (short term corporate debt) and Treasury bills(short term government debt) to money market funds, which

actively manage cash resources across a range of domestic andforeign markets. Cash is normally held over the short term pendinguse elsewhere (perhaps for paying claims by a non-life insurancecompany or for paying pensions), but may be held over the longerterm as well. Returns on cash are driven by the general demand for

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funds in an economy, interest rates, and the expected rate ofinflation. A portfolio will normally maintain at least a small

proportion of its funds in cash in order to take advantage of buyingopportunities.

Bonds

Bonds are debt instruments on which the issuer (the borrower)agrees to make interest payments at periodic intervals over the lifeof the bond this can be for two to thirty years or, sometimes, inperpetuity. Interest payments can be fixed or variable, the latterbeing linked to prevailing levels of interest rates. Bond markets areinternational and have grown rapidly over recent years. The bond

markets are highly liquid, with many issuers of similar standing,including governments (sovereigns) and state-guaranteedorganizations. Corporate bonds are bonds that are issued bycompanies. To assist investors and to help in the efficient pricing ofbond issues, many bond issues are given ratings by specialistagencies such as Standard & Poors and Moodys. The highestinvestment grade is AAA, going all the way down to D, which isgraded as in default. Depending on expected movements in futureinterest rates, the capital values of bonds fluctuate daily, providing

investors with the potential for capital gains or losses. Futureinterest rates are driven by the likely demand/ supply of

money in an economy, future inflation rates, political events andinterest rates elsewhere in world markets. Investors with short-termhorizons and liquidity requirements may choose to invest in bondsbecause of their relatively higher return than cash and theirprospects for possible capital appreciation. Long-term investors,such as pension funds, may acquire bonds for the higher income andmay hold them until redemption for perhaps seven or fifteen

years. Because of the greater risk, long bonds (over ten years tomaturity) tend to be more volatile in price than medium- and short-term bonds, and have a higher yield.

Equities

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Equity consists of shares in a company representing the capitaloriginally provided by shareholders. An ordinary shareholder owns a

proportional share of the company and an ordinary share carries theresidual risk and rewards after all liabilities and costs have beenpaid. Ordinary shares carry the right to receive income in the formof dividends (once declared out of distributable profits) and anyresidual claim on the companys assets once its liabilities have beenpaid in full. Preference shares are another type of share capital.

They differ from ordinary shares in that the dividend on a preferenceshare is usually fixed at some amount and does not change. Also,preference shares usually do not carry voting rights and, in the

event of firm failure, preference shareholders are paid beforeordinary shareholders. Returns from investing in equities aregenerated in the form of dividend income and capital gain arisingfrom the ultimate sale of the shares. The level of dividends may varyfrom year to year, reflecting the changing profitability of a company.Similarly, the market price of a share will change from day to day toreflect all relevant available information. Although not guaranteed,equity prices generally rise over time, reflecting general economicgrowth, and have been found over the long term to generategrowing levels of income in excess of the rate of inflation. Granted,

there may be periods of time, even years, when equity prices trenddownwards usually during recessionary times. The overall long-term prospect, however, for capital appreciation makes equities anattractive investment proposition for major institutional investors

Derivatives

Derivative instruments are financial assets that are derived fromexisting primary assets as opposed to being issued by a company orgovernment entity. The two most popular derivatives are futuresand options. The extent to which a fund may incorporate derivativesproducts in the fund will be specified in the fund rules and,depending on the type of fund established for the client anddepending on the client, may not be allowable at all.

A futures contract is an agreement in the form of a standardized

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contract between two counterparties to exchange an asset at a fixedprice and date in the future. The underlying asset of the futures

contract can be a commodity or a financial security. Each contractspecifies the type and amount of the asset to be exchanged, andwhere it is to be delivered (usually one of a few approved locationsfor that particular asset). Futures contracts can be set up for thedelivery of cocoa, steel, oil or coffee. Likewise, financial futurescontracts can specify the delivery of foreign currency or a range ofgovernment bonds. The buyer of a futures contract takes a longposition, and will make a profit if the value of the contract risesafter the purchase. The seller of the futures contract takes a short

position and will, in turn, make a profit if the price of the futurescontract falls. When the futures contract expires, the seller of thecontract is required to deliver the underlying asset to the buyer ofthe contract. Regarding financial futures contracts, however, in thevast majority of cases no physical delivery of the underlying assettakes place as many contracts are cash settled or closed out withthe offsetting position before the expiry date.

An option contract is an agreement that gives the owner the right,but not obligation, to buy or sell (depending on the type of option) a

certain asset for a specified period of time. A call option gives theholder the right to buy the asset. A put option gives the holder theright to sell the asset. European options can be exercised only onthe options expiry date. US options can be exercised at any timebefore the contracts maturity date. Option contracts on stocks orstock indices are particularly popular. Buying an option involvespaying a premium; selling an option involves receiving the premium.Options have the potential for large gains or losses, and areconsidered to be high-risk instruments. Sometimes, however, optioncontracts are

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