summer training project report parth

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SUMMER TRAINING PROJECT REPORT

ON

PORTFOLIO MANAGEMENT SERVICES

With Reference to

(SPAN CAPLEASE PVT LTD)

By

PARTH BHAVSAR

BATCH : PGP/FW/ISBE

INDIAN INSTITUTE OF PLANING ANDMANAGEMENT

1 | P a g e
http://www.iipm-del-fw-abrahammaslow.com/images/logo-iipm_1.jpg


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ACKNOWLEDGEMENT

Expression of feelings by words makes them less significant when it comes to make

statement of gratitude

With regard to my Project with Span capleasepvt ltd, I would like to thank eachand every one who offered help, guidelines and support whenever required.

I sincerely express my thankfulness to IIPM Ahmedabad for their valuablesuggestions and help during the project.

I am extremely grateful to my college guide, Mr. Kausik Das (Lecturer-Executive Communication) and all the faculty member of my college for theirvaluable suggestions and able guidance.

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

Mr.RaviSwami(Equity and Commodities Manager) without whose support andcooperation this project could not have been completed successfully.

Last, but not the least, my heartfelt love for my parents and my friends, whoseconstant support and blessings kept me enthusiastic throughout this project.

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DECLARATION

I hereby declare that this Summer Internship Project Report entitled

POTFOLIO MANAGEMENT SERVICES in Span capleasepvtLtd is based

on primary and secondary data founded by me in various department ,books

,magazines and websites .

This is an original piece of work and has not been submitted to any other

institution or university for any purpose.

Place:-Ahmedabad ParthBhavsar

Date:-05/05/2010

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CHAPTER TABLE OF CONTENTS PAGE NO. EXECUTIVE SUMMARY 5

CHAPTER-1INTRODUCTION 6

Introduction to Study 6-7

Myths About PMS 8-9

Introduction to Stock Exchange 10-14

CHAPTER-2 COMPANY PROFILE 15

Work structure of Span caplease ltd 15

Product and Services offered by

Company16

Reasons to Choose Span 17-18

CHAPTER-3RESEARCH METHODOLOGY

19 Objective of the Project 19

Scope of the Study 23

Methodology for Data Collection 24-25

CHAPTER-4PORTFOLIO MANAGEMENT

SERVICES 23

Need of PMS 24

Objective of PMS 25

Portfolio Construction 25-30

Risk and Risk Aversion

31-32 Risk versus Return 33-38

Portfolio Diversification 39-43

Techniques of PMS 44-54

CHAPTER-5DATA ANALYSIS AND

INTERPRETATION 49-64

CHAPTER-6 CONCLUSION & SUGGESTIONS 65

Observation and Findings 66-67

Limitations of the Project

68 Suggestions & Recommendations 70

ANNEXURE 71-72

REFERENCES 73

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EXECUTIVE SUMMARY

Investing is both Arts and Science. Every Individual has their own specific financial need andexpectation based on their risk taking capabilities, whereas some needs and expectation areuniversal. Therefore, we find that the scenario of the Stock Market is changing day by day hoursby hours and minute by minute. The evaluation of financial planning has been increased throughdecades, which can be best seen in customers. Now a days investments have become veryimportant part of income saving.

In order to keep the Investor safe from market fluctuation and make them profitable, PortfolioManagement Services (PMS) is fast gaining Investment Option for the High Net worth 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 toInvestors. The investors profile is based on the results of a questionnaire that the Investorscompleted. The Sample consists of 100 investors from various brokers premises. The targetcustomers were Investors who are trading in the stock market.

In order to identify the effectiveness of Span PMS services this Research is carriedthroughout the area of Ahmedabad. At the time of investing money everyone look for the Riskfactor involve in the Investment option. The Report is prepared on the basis of Research work

done through the different Research Mythology the data is collected from both the sourcePrimary sources which consist of Questionnaire and secondary data is collected from differentsources such as Company website, Magazine and other sources.

As the PMS services ofSpan caplease Ltd have the best result in its field .

In this project I have shown the details of financial planning as well as wealth management soas to understand about the customers needs and wants with respect to market and how a clientsportfolio can be designed and what factors a portfolio manager must consider for designing aportfolio.

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CHAPTER-1

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 riskand return. These two concepts are in the study of investment .Investment can be defined thecommitment 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 withchanges and grab the best opportunities in the field of investments a professional fund manager is

necessary.

Therefore, in the present scenario the Portfolio Management Services (PMS) is fast gainingimportance as an investment alternative for the High Networth 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 moneymanager that can potentially be tailored to meet specific investment objectives.

When you invest in PMS, you own individual securities unlike a mutual fund investor, whoowns units of the entire fund. You have the freedom and flexibility to tailor your portfolio toaddress personal preferences and financial goals. Although portfolio managers may overseehundreds of portfolio, your account may be unique.

Investment Management Solution in PMS can be provided in the following ways:

i. Discretionary

ii. Non-Discretionary

iii. Advisory

Discretionary: Under these services, the choice as well as the timings of the investmentdecisions rest solely with the Portfolio Manager.

Non-Discretionary: Under these services, the portfolio manager only suggests the investmentideas. 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.

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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.

Rule 2, clause (d) of the SEBI (portfolio managers) Rules, 1993 defines the term Portfolioas total holding of securities belonging to any person.

As a matter of fact, portfolio is combination of assets the outcomes of which cannot bedefined with certainty new assets could be physical assets, real estates, land, building, gold etc. orfinancial assets like stocks, equity, debenture, deposits etc.

Portfolio management refers to managing efficiently the investment in the securities held byprofessional for others.

Merchant banker and the portfolio management with a view to ensure maximum return bysuch investment with minimum risk of loss of return on the money invested in securities held bythem for their clients. The aim Portfolio management is to achieve the maximum return from aportfolio, which has been delegated to be managed by manger or financial institution.

There are lots of organization in the market on the lookout for the people like you who needtheir portfolios managed for them .They have trained and skilled talent will work on your moneyto 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.

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MYTHS ABOUT PMSThere 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 andmaximize the profit of the Investors. The objectives are similar as in both the product but they aredifferent from each other in certain aspects. They are as follows.

Management Side

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 MutualFund Portfolio structured to meet the fund's stated investment objectives.

Ownership

In PMS, Investors directly own the individual securities in their portfolio, allowing for taxmanagement flexibility, whereas in Mutual Fund Shareholders own shares of the fund and cannotinfluence 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.

Minimums

PMS generally gives higher minimum investments than mutual funds. Generally, minimumranges from: Rs. 1 Crore + for Equity Options Rs. 5 Crore + for Fixed Income Options Rs. 20Lacs + for Structured Products, whereas in Mutual Fund Provide ongoing, personalized access toprofessional money management services.

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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 RiskFactor 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 involvemore risk than investments in larger companies.

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INTRODUCTION TO STOCK EXCHANGE

The emergence of stock market can be traced back to 1830. In Bombay, business passed inthe shares of banks like the commercial bank, the chartered mercantile bank, the chartered bank,the oriental 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 asthe shares of the bank of Bengal in 1836. This list was a further broadened in 1839 when theCalcutta newspaper printed the quotations of banks like union bank and Agra bank. It also quotedthe prices of business ventures like the Bengal bonded warehouse, the Docking Company and thestorm tug company.

Between 1840 and 1850, only half a dozen brokers existed for the limited business. Butduring the share mania of 1860-65, the number of brokers increased considerably. By 1860, thenumber of brokers was about 60 and during the exciting period of the American Civil war, theirnumber increased to about 200 to 250. The end of American Civil war brought disillusionmentand many

Failures and the brokers decreased in number and prosperity. It was in those troublesometimes between 1868 and 1875 that brokers organized an informal association and finally asrecited in the Indenture constituting the Articles of Association of the Exchange.

On or about 9th day of July,1875, a few native brokers doing brokerage business in sharesand stocks resolved upon forming in Bombay an association for protecting the character, statusand interest of native share and stock brokers and providing a hall or building for the use oftheMembers of such association.

As a meeting held in the broker Hall on the 5th day of February, 1887, it was resolved toexecute a formal deal of association and to constitute the first managing committee and to appointthe 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 isnow known as The Stock Exchange.

The entrance fee for new member was Re.1 and there were 318 members on the list, when theexchange was constituted. The numbers of members increased to 333 in 1896, 362 in 1916and478 in 1920 and the entrance fee was raised to Rs.5 in 1877, Rs.1000 in 1896, Rs.2500 in 1916

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and Rs. 48,000 in 1920. At present there are 23recognized stock exchanges with about 6000stockbrokers. Organization structure of stock exchange varies.

14 stock exchanges are organized as public limited companies, 6 as companies limited byguarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9 stock exchangeshave been permanent recognition. Others have to seek recognition on annual basis.

These exchange do not work of its own, rather, these are run by some persons and with thehelp 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 stockexchanges. These are the persons who buy, sell or dealinsecurities. A certificate of registration from SEBI ismandatory to act as a broker. SEBI canimpose certainconditions while granting the certificate of registrations. Itis obligatory for theperson to abide by the rules,regulations and the buy-law. Stock brokers arecommission broker,

floor broker, arbitrageur etc.

Detail of Registered Brokers

Total no. of registered brokers as on

31.03.09

Total no. of sub-broker as on 31.03.09

9000 24,000

2. Sub-broker:

A sub-broker acts as agent of stock broker.He is not a member of a stock exchange. He assiststheinvestors in buying, selling or dealing in securitiesthrough stockbroker. The broker and sub-

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broker shouldenter into an agreement in which obligations of bothshould be specified. Sub-brokermust be registered SEBIfor a dealing in securities. For getting registered withSEBI, he mustfulfill certain rules and regulation.

3. Market Makers:Market maker is a designatedspecialist in the specified securities. They make both bidand

offer at the same time. A market maker has to abideby bye-laws, rules regulations of theconcerned stockexchange. He is exempt from the margin requirements.As per the listingrequirements, a company where thepaid-up capital is Rs. 3 Crore but not more than Rs. 5core andhaving a commercial operation for less than 2years should appoint a market maker at the time ofissue of securities.

4. Portfolio Consultants:A combination of securities such as stocks, bonds and money market instruments

iscollectively called as portfolio. Whereas the portfolioconsultants are the persons, firms orcompanies whoadvise, direct or undertake the management oradministration of securities or fundson behalf of theirclients.

Traditionally stock trading is done through stock brokers, personally or through telephones.As number of people trading in stock market increase enormously in last few years, some

issues like location constrains, busy phone lines, miss communication etc start growing in stockbroker offices. Information technology (Stock Market Software) helps stock brokers in solvingthese problems with Online Stock Trading.

Online Stock Market Trading is an internet based stock trading facility. Investor can tradeshares through a website without any manual intervention from Stock Broker.

There are two different type of trading environments available for online equity trading.

1. Installable software based Stock Trading Terminals

This trading environment requires software to be installed on investors computer. Thissoftware is provided by the stock broker. This software requires high speed internet connection.These kind of trading terminals are used by high volume intraday equity traders.

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2.Web (Internet) based trading application

This kind of trading environment doesn't require any additional software installation. Theyare like other internet websites which investor can access from around the world through normalinternet connection.

Stock exchanges are like market places, where stockbrokers buy and sell securities for individualsor institutions. As per the SCRA (Securities Contracts Regulation Act) 1956, the definition ofsecurities includes shares, bonds, stocks, debentures, government securities, derivatives ofsecurities, units of collective investment scheme (CIS) etc. The securities market has twointerdependent segments: the primary and secondary market.

The primary market is the channel for creation of new securities issued by public limitedcompanies or by government agencies. New securities issued in the primary market are traded inthe secondary market.

The secondary market operates through the over-the-counter (OTC) market and the exchangetrade market.

Advantages of Stocks Trading

1. Better returns

Actively trading stocks can produce better overall returns than simply buying and holding.

2. Huge Choice

There are thousands of stocks listed on markets around the world. There is always a stock

whose price is moving - its just a matter of finding them.

3. Familiarity

The most traded stocks are in the largest companies that most of us have heard ofandunderstand - Microsoft, IBM, and Cisco etc.

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Disadvantages of Stocks Trading

1. LeverageWith a margined account the maximum amount of leverage available for stock trading is

usually 4:1. Meaning a $25,000 could trade up to $100,000 of stock. This is pretty low comparedto Forex trading or futures trading.

2. Pattern Day Trader Rules

It requires at least $25,000 to be held in a trading account if the trader completes more than 4trades in a 5 day period. No such rule applies to Forex trading or futures trading.

3. Uptick Rule on Short Selling

A trader must wait until a stock price ticks up before they can short sell it. Again there are nosuch rules in Forex trading or futures trading where going short are as easy as going long.

4. Need to Borrow Stock to Short

Stocks are physical commodities and if a trader wishes to go short then the broker must havearrangements in place to borrow that stock from a shareholder until the trader closes theirposition. This limits the opportunities available for short selling. Contrast this to futures trading

where selling is as easy as buying.

5. Costs

Although online trading costs for stock trading are low they still add considerably to the costsof day trading. Online futures trading are about 1/4 of the cost for the equivalent value. In the UK0.5% stamp duty is also levied on all share purchases making trading virtually impossible, hencethe popularity of spread betting.

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Chapter - 2

COMPANY PROFILE

SPAN GROUP

We provide the entire bouquet of product & services coming under the umbrellaof financial services space with offerings ranging from Equity research, Equitiesand derivatives trading, Commodities trading, Portfolio Management Services,Mutual Funds, IPO and Life & General Insurance. We are well suited to handleall your wealth creation and wealth management needs under one roof.

Span group is promoted by Mr. Anil Shah who has got 15 years of hardcoreexperience of the Capital Markets and MrSaumilTrivedi , Chief Mentor of thegroup Heads the Technical & fundamental Research and Analysis division

Member of BSE, NSE, ASE & CDSL underSpan CapleasePvt Ltd.Member of NCDEX & MCX under Span Commodities & Derivatives

SPAN group is promoted by Mr. Anil Shah, who has been associated in the Capitalmarket for more than 15 years.

SPAN Group has achieved 2 nd ranking in India in Life Insurance business with

RELIANCE ADA Group in a special facilitation ceremony in Switzerland for theyear 2006-2007.

Mr. SaumilTrivedi, Chief mentor of the group spearheads the Strategic Researchand Analysis wing of SPAN with a Capital Market experience of 17 years

Zero Net debt at the Group level.

Clocking YOY turnover growth of 73 %

Clocking PAT YOY growth of 44 %

State of the art 20000 sqft ofSPAN House located in the prime CG Road is ourHub of operation and our

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Our VisionWe want to be the most respected and admired financialmarket services brand that is serious about building ourcustomers wealth. We are focused on service excellence,where valued teams of intelligent and skilled people workcollaboratively, to support the aspirations of customer andthe vitality of the community.

Our Mission

REASON TO CHOOSE SPAN CAPLEASE LIMITED

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Service Excellence

Personal Touch

Always Accessible

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Experience

Span group is promoted by Mr. Anil Shah who has got 15 years of hardcore experience of theCapital Markets and MrSaumilTrivedi , Chief Mentor of the group Heads the Technical &fundamental Research and Analysis division

Technology

With their online trading account one can buy and sell shares in an instant from any PC withan internet connection. Customers get access to the powerful online trading tools that will help

them to take complete control over their investment in shares.

AccessibilitySpan group provides ADVICE, EDUCATION, TOOLS ANDEXECUTION services for

investors. These services are accessible through many centers across the Gujarat as well as overthe Voice Tool.Desk: 079 - 30414162, 30414100 e-mail:[email protected]

Knowledge

In a business where the right information at the right time can translate into direct profits,investors get access to a wide range of information on the content-rich portal,

email :[email protected]. Investors will also get a useful set of knowledge-based toolsthat will empower them to take informed decisions.

Convenience

One can call Spans Dial-N-Trade number to get investment advice and execute his/hertransactions.

Customer Service

Its customer service team assist their customer for any help that they need relating totransactions, billing, demat and other queries. Their customer service can be contacted via a toll-free number, email or live chat on [email protected].

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Investment Advice

Span has dedicated research teams of more than 30people for fundamental and technicalresearch. Theiranalysts constantly track the pulse of the market andprovide timely investmentadvice to customer in the formof daily research emails, online chat, printed reports etc.

Benefits

Free Depository A/c

Instant Cash Transfer

Multiple Bank Option.

Secure Order by Voice Tool Dial-n-Trade.

Automated Portfolio to keep track of the value of youractual purchases.

24x7 Voice Tool access to your trading account.

Personalized Price and Account Alerts delivered instantly to your Mobile Phone & E-mail

address.

Live Chat facility with Relationship Manager on Yahoo Messenger

Special Personal Inbox for order and trade confirmations.

On-line Customer Service via Web Chat.

Enjoy Automated Portfolio.

Buy or sell even single share

Anytime Ordering.

CHAPTER-3

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RESEARCH METHODOLOGY

OBJECTIVE OF THE PROJECT

Each research study has its own specific purpose. It is like to discover to Question through theapplication of scientific procedure. But the main aim of our research to find out the truth that ishidden and which has not been discovered as yet. Our research study has two objectives:-

OBJECTIVES

To know the concept of Portfolio Management.

To know about the awareness towards stock brokers and share market.

To study about the competitive position of Span Ltd in Competitive Market.

To study about the effectiveness & efficiency ofSpan Ltd in relation to its competitors

To study about whether people are satisfied withSpan Services & Management System or

not.

To study about the difficulties faced by persons while Trading in Span.

To study about the need of improvement in existingTrading system.

Scope of the Study

The study of the Portfolio Management Services is helpful in the following areas.

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In today's complex financial environment, investors have unique needs which are derivedfrom their risk appetite and financial goals. But regardless of this, every investor seeks tomaximize his returns on investments without capital erosion. Portfolio Management

Services (PMS) recognize this, and manage the investments professionally to achievespecific investment objectives, and not to forget, relieving the investors from the day today hassles which investment require.

It is offers professional management of equity investment of the investor with an aim todeliver consistent return with an eye on risk.

Identify the key Stock in each portfolio.

To look out for new prospective customers who are willing to invest in PMS.

To find out the Span, PMS services effectiveness in the current situation.

It also covers the scenario of the Investment Philosophy of a Fund Manager.

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RESEARCH DESISGN OF THE STUDY

This report is based on primary as well secondary data, however primary data collection wasgiven more importance since it is overhearing factor in attitude studies. One of the mostimportant users of research methodology is that it helps in identifying the problem, collecting,analyzing the required information data and providing an alternative solution to the problem .Italso helps in collecting the vital information that is required by the top management to assist themfor the better decision making both day to day decision and critical ones.

The study consists of analysis about Investors Perception about the Portfolio ManagementServices offered by Span Limited.

SOURCES OF DATA

Primary data: Questionnaire

Secondary data: Published materials of Span Limited. Such as periodicals, journals,newspapers, and website.

Duration of Study

The Study was carried out for the period of one and half months from 3rd March to 25 ofApril 2010.

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SAMPLING PLAN

Sampling:

Since Span Limitedhas many segments I selected Portfolio Management Services (PMS)segment as per my profile to do market research. 100% coverage was difficult within the limitedperiod of time. Hence sampling survey method was adopted for the purpose of the study.

Population:(Universe) customers & non consumers of Span limited

Sampling size:

A sample of hundred was chosen for the purposeof the study. Sample consisted of Investor asbased on their Income and Profession as well as Educational Background.

Sampling Methods:

Probability sampling requires completeknowledge about all sampling units in the universe.Due to timeconstraint non-probability sampling was chosen for the study.

Sampling procedure:From large number of customers & nonconsumers sample lot were randomly picked up by

me.

Field Study:

Directly approached respondents by the following strategies

Tele-calling Personal Visits Clients References Promotional Activities Database provided by the Span Limited.

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CHAPTER-4

PORTFOLIO MANAGMENTSERVICES

PORTFOLIO MANGEMNT SERVICES (PMS)

Portfolio (finance) means a collection of investments held by an institution or a privateindividual. Holding a portfolio is often part of an investment and risk-limiting strategy calleddiversification. By owning several assets, certain types of risk (in particular specific risk) can bereduced. There are also portfolios which are aimed at taking high risks these are calledconcentrated portfolios.

Investment management is the professional management of various securities (shares, bondsetc) and other assets (e.g. real estate), to meet specified investment goals for the benefit of theinvestors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or

private investors (both directly via investment contracts and more commonly via collectiveinvestment schemes e.g. mutual funds).

The term asset management is often used to refer to the investment management of collectiveinvestments, whilst the more generic fund management may refer to all forms of institutionalinvestment as well as investment management for private investors. Investment managers whospecialize in advisory or discretionary management on behalf of (normally wealthy) privateinvestors may often refer to their services as wealth management or portfolio management oftenwithin the context of so-called "private banking".

The provision of 'investment management services' includes elements of financial analysis,asset selection, stock selection, plan implementation and ongoing monitoringofinvestments.Outside of the financial industry, the term "investment management" is oftenapplied to investments other than financial instruments. Investments are often meant toincludeprojects, brands, patents and many things other than stocks and bonds. Even in thiscase,the term implies that rigorous financial and economic analysis methods are used.

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Need of PMS

As in the current scenario the effectiveness of PMS is required. As the PMS gives investorsperiodically review their asset allocation across different assets as the portfolio can get skewedover a period of time. This can be largely due to appreciation / depreciation in the value of theinvestments.

As the financial goals are diverse, the investment choices also need to be different to meetthose needs. No single investment is likely to meet all the needs, so one should keep some moneyin bank deposits and / liquid funds to meet any urgent need for cash and keep the balance in otherinvestment products/ schemes that would maximize the return and minimize the risk. Investmentallocation can also change depending on ones risk-return profile.

Objective of PMS

There are the following objective which is full filled by Portfolio Management Services.

1. Safety Of Fund: -The investment should be preserved, not be lost,and should remain in the returnable

position in cash or kind.

2. Marketability: -

The investment made in securities should bemarketable that means, the securitiesmustbelisted and tradedin stock exchange so 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 involvementof time to meet urgent need for funds. Marketabilityensuresliquidity to the portfolio.

4. Reasonable return: -

The investment should earn a reasonable return toupkeep the declining value ofmoney and be compatible withopportunity cost of the money in terms of current incomein theform of interest or dividend.

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5. Appreciation in Capital: -

The money invested in portfolio should grow andresult into capital gains.

6. Tax planning: -

Efficient portfolio management is concerned withcomposite tax planning coveringincome tax, capital gain tax,wealth tax and gift tax.

7. Minimize risk: -

Risk avoidance and minimization of risk are important objective of portfoliomanagement. Portfoliomanagers achieve these objectives by effective investmentplanningand periodical review of market, situation andeconomic environment affecting thefinancial market.

PORTFOLIO CONSTRUCTION

The Portfolio Construction of Rational investors wish to maximize the returns on their fundsfor a given level of risk. All investments possess varying degrees of risk. Returns come in theform of income, such as interest or dividends, or through growth in capital values (i.e. capitalgains).

The portfolio construction process can be broadly characterized ascomprising the following

steps:

1. Setting objectives.

The first step in building a portfolio is to determinethe main objectives of the fund given theconstraints (i.e. tax andliquidity requirements) that may apply. Each investor hasdifferentobjectives, time horizons and attitude towards risk. Pension funds havelong-termobligations and, as a result, invest for the long term. Theirobjective may be to maximize totalreturns in excess of the inflation rate.A charity might wish to generate the highest level of incomewhilstmaintaining the value of its capital received from bequests. An individual may have certain

liabilities and wish to match them at a future date.Assessing a clients risk tolerance can bedifficult. The concepts ofefficient portfolios and diversification must also be consideredwhensetting up the investment objectives.

2. Defining Policy.

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Once the objectives have been set, a suitable investmentpolicy must be established. Thestandard procedure is for the moneymanager to ask clients to select their preferred mix of assets,for exampleequities and bonds, to provide an idea of the normal mix desired. Clientsare

thenasked to specify limits or maximum and minimum amountsthey will allow to be invested inthe different assets available. The mainasset classes are cash, equities, gilts/bonds and other debtinstruments,derivatives, property and overseas assets. Alternative investments, suchas privateequity, are also growing in popularity, and will be discussed ina later chapter. Attaining theoptimal asset mix over time is one of thekey factors of successful investing.

3. Applying portfolio strategy.

At either end of the portfolio managementspectrum of strategies are active and passivestrategies. An active strategyinvolves predicting trends and changing expectations about the

likelyfuture performance of the various asset classes and actively dealing inand out ofinvestments to seek a better performance. For example, if themanager expects interest rates torise, bond prices are likely to fall andso bonds should be sold, unless this expectation is alreadyfactored intobond prices. At this stage, the active fund manager should also determinethe style ofthe portfolio. For example, will the fund invest primarily in companies with large marketcapitalizations, in shares of companiesexpected to generate high growth rates, or in companieswhosevaluations are low?A passive strategy usually involves buying securities to match apreselectedmarket index. Alternatively, a portfolio can be set up to matchthe investors choice oftailor-made index. Passive strategies rely ondiversification to reduce risk. Outperformance versusthe chosen index isnot expected. This strategy requires minimum input from theportfoliomanager.In practice, many active funds are managed somewhere between theactive andpassive extremes, the core holdings of the fund being passivelymanaged and the balance beingactively managed.

4.Asset selections .

Once the strategy is decided, the fund manager mustselect individual assets in which toinvest.Usually a systematic procedureknown as an investment process is established, which setsguidelines or criteria for asset selection. Active strategies require that the fundmanagers applyanalytical skills and judgment for asset selection in orderto identify undervalued assets and to try

to generate superiorperformance.

5.Performance assessments.

In order to assess the success of the fundmanager, the performance of the fund is periodicallymeasured against apre-agreed benchmark perhaps a suitable stock exchange index oragainst agroup of similar portfolios (peer group comparison).The portfolio construction process is

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continuously iterative, reflectingchanges internally and externally. For example, expectedmovements inexchange rates may make overseas investment more attractive, leading tochangesin asset allocation. Or, if many large-scale investors simultaneouslydecide to switch from passive

to more active strategies, pressure will be puton the fund managers to offer more active funds.Poor performance of afund may lead to modifications in individual asset holdings or, asanextreme measure; the manager of the fund may be changed altogether.

Steps to Stock Selection Process

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Types of assets

The structure of a portfolio will depend ultimately on the investorsobjectives and on the assetselection decision reached. The portfoliostructure takes into account a range of factors, includingthe investors timehorizon, attitude to risk, liquidity requirements, tax position and availabilityofinvestments.The main asset classes are cash, 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 interest income,in a range of highly

liquid or easily redeemable instruments, from simplebank deposits, negotiable certificates ofdeposits, commercial paper (shortterm corporate debt) and Treasury bills (short term governmentdebt) tomoney market funds, which actively manage cash resources across a rangeof domesticand foreign markets. Cash is normally held over the short termpending use elsewhere (perhaps forpaying claims by a non-life insurancecompany or for paying pensions), but may be held over thelonger term aswell. Returns on cash are driven by the general demand for funds in aneconomy,interest rates, and the expected rate of inflation. A portfolio willnormally maintain at least a smallproportion of its funds in cash in orderto take advantage of buying opportunities.

Bonds

Bonds are debt instruments on which the issuer (the borrower) agrees to make interestpayments at periodic intervals over the life of the bond thiscan be for two to thirty years or,sometimes, in perpetuity. Interestpayments can be fixed or variable, the latter being linked toprevailinglevels of interest rates.Bond markets are international and have grown rapidly overrecent years.The bond markets are highly liquid, with many issuers of similar standing,includinggovernments (sovereigns) and state-guaranteed organizations.Corporate bonds are bonds that areissued by companies.To assist investors and to help in the efficient pricing of bond issues,manybond issues are given ratings by specialist agencies such as Standard &Poors and Moodys.

The highest investment grade is AAA, going all the waydown to D, which is graded as indefault.Depending on expected movements in future interest rates, the capitalvalues of bondsfluctuate daily, providing investors with the potential for capital gains or losses. Future interestrates 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-term horizonsand liquidity requirements may chooseto invest in bonds because of their relatively higher returnthan cash andtheir prospects for possible capital appreciation. Long-term investors, suchas

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pension funds, may acquire bonds for the higher income and may holdthem until redemption for perhaps seven or fifteen years. Because of the greater risk, long bonds (over ten years tomaturity) tend to be more volatilein price than medium- and short-term bonds, and have a higher

yield.

Equities

Equity consists of shares in a company representing the capital originally provided byshareholders. An ordinary shareholder owns a proportionalshare of the company and an ordinaryshare carries the residual risk andrewards after all liabilities and costs have been paid.Ordinaryshares carry the right to receive income in the form of dividends(once declared out ofdistributable profits) and any residual claim on thecompanys assets once its liabilities have beenpaid in full. Preferenceshares are another type of share capital. They differ from ordinary shares

inthat the dividend on a preference share is usually fixed at some amount anddoes not change.Also, preference shares usually do not carry voting rightsand, in the event of firm failure,preference shareholders are paid beforeordinary shareholders.Returns from investing in equitiesare generated in the form of dividendincome and capital gain arising from the ultimate sale of theshares. Thelevel of dividends may vary from year to year, reflecting the changingprofitability of acompany. Similarly, the market price of a share will changefrom day to day to reflect all relevantavailable information. Although notguaranteed, equity prices generally rise over time, reflectinggeneraleconomic growth, and have been found over the long term to generategrowing levels ofincome in excess of the rate of inflation. Granted, theremay be periods of time, even years, whenequity prices trend downwards usually during recessionary times. The overall long-termprospect, however,for capital appreciation makes equities an attractive investment propositionformajor institutional investors.

Derivatives

Derivative instruments are financial assets that are derived from existingprimary assets asopposed to being issued by a company or governmententity. The two most popular derivatives arefutures and options. The extentto which a fund may incorporate derivatives products in the fundwill bespecified in the fund rules and, depending on the type of fund established forthe client and

depending on the client, may not be allowable at all.

A futures contractis an agreement in the form of a standardized contractbetween twocounterparties to exchange an asset at a fixed price and datein the future. The underlying assetofthe futures contract can be acommodity or a financial security. Each contract specifies thetypeandamount of the asset to be exchanged, and where it is to be delivered (usually one of a fewapproved locations for that particular asset). Futurescontracts can be set up for the delivery of

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cocoa, steel, oil or coffee.Likewise, financial futures contracts can specify the delivery offoreigncurrency or a range of government bonds.The buyer of a futures contract takes a longposition, and will make aprofit if the value of the contract rises after the purchase. The seller of

thefutures contract takes a short position and will, in turn, make a profit if the price of thefutures contract falls. When the futures contract expires, theseller of the contract is required todeliver the underlying asset to the buyerof the contract. Regarding financial futures contracts,however, in the vastmajority of cases no physical delivery of the underlying asset takes placeasmany contracts are cash settled or closed out with the offsetting position before the expiry date.

An option contractis an agreement that gives the owner the right, but notobligation, to buyor sell (depending on the type of option) a certain assetfor a specified period of time. A calloption gives the holder the right to buythe asset. A put option gives the holder the right to sell theasset. Europeanoptions can be exercised only on the options expiry date. US options canbeexercised at any time before the contracts maturity date. Option contractson stocks or stockindices are particularly popular. Buying an optioninvolves paying a premium; selling an optioninvolves receiving thepremium. Options have the potential for large gains or losses, andareconsidered to be high-risk instruments. Sometimes, however, optioncontracts are used toreduce risk. For example, fund managers can use a calloption to reduce risk when they own anasset. Only very specific funds areallowed to hold options.

Property

Property investment can be made either directly by buying properties, orindirectly by buyingshares in listed property companies. Only majorinstitutional investors with long-term timehorizons and no liquiditypressures tend to make direct property investments. Theseinstitutionspurchase freehold and leasehold properties as part of a property portfolio held for thelong term, perhaps twenty or more years. Property sectors ofinterest would include prime, quality,well-located commercial office andshop properties, modern industrial warehouses and estates,hotels,farmland and woodland. Returns are generated from annual rents and anycapital gains onrealization. These investments are often highly illiquid.

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Risk and Risk Aversion

Portfolio theory also assumes that investors are basically risk averse, meaning that, given achoice between two assets with equal rates of return they will select the asset with lower level ofrisk.

For example, they purchased various type of insurance including life insurance, Healthinsurance and car insurance. The Combination of risk preference and risk aversion can beexplained by an attitude toward risk that depends on the amount of money involved.

A discussion of portfolio or fund management must include some thought given to theconcept of risk. Any portfolio that is being developed will have certain risk constraints specifiedin the fund rules, very often to cater to a particular segment of investor who possesses a particularlevel of risk appetite. It is, therefore, important to spend some time discussing the basic theories

of quantifying the level of risk in an investment, and to attempt to explain the way in whichmarket values of investments are determined

Definition of Risk

Although there is a difference in the specific definitionsof risk and uncertainty, for our purposeand in most financialliterature the two terms are used interchangeably. In fact, oneway to definerisk is the uncertainty of future outcomes. Analternative definition might be the probability ofan adverseoutcome.

Composite risks involve the different risk as explained below:-

(1). Interest rate risk: -

It occurs due to variability cause in return by changes in level of interest rate. In long runs all

interest rate move up or downwards. These changes affect the value of security. RBI, in India, is

the monitoring authority which effectalises the change in interest rate. Any upward revision in

interest rate affects fixed income security, which carry old lower rate of interest and thus

declining market value. Thus it establishes an inverse relationship in the prize of security.

TYPES RISK EXTENT Cash equivalent Less vulnerable to interest rate risk

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Long term Bond More vulnerable to interest rate risk.

(2) Purchasing power risk:

It is known as inflation risk also. This risk emanates from the very fact that inflation affectsthe purchasing power adversely. Purchasing power risk is more in inflationary times in bonds andfixed income securities. It is desirable to invest in such securities during deflationary period or aperiod of decelerating inflation. Purchasing power risk is less in flexible income securities likeequity shares or common stuffs where rise in dividend income offset increase in the rate ofinflation and provide advantage of capital gains.

(3) Business risk:

Business risk emanates from sale and purchase ofsecurities affected by business cycles,technological change etc. Business cycle affects all the type of securities viz. there is cheerfulmovement in boom due to bullish trend in stock prizeswhere as bearish trend in depression bringsdownfall in theprizes of all types of securities.Flexible income securities are nearly affected thanfixrate securities during depression due to decline n the market prize.

(4) Financial risk:

Financial risk emanates from the changes in the capital structure of the company. It is also knownas leveraged risk andexpressed in term of debt equity ratio. Excess of debts againstequity in thecapital structure indicates the company to behighly geared or highly levered. Although leveragedcompanysearnings per share (EPS) are more but dependence onborrowing exposes it to the riskof winding up. For, its inability to the honorits commitments towards the creditors are mostimportant.

Here it is imperative to express the relationship between riskand return, which is depicted

graphically below

Maximize returns, minimize risks

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RISK VERSUS RETURN

Risk versus return is the reason why investors invest in portfolios. The idealgoal in portfoliomanagement is to create an optimal portfolio derived fromthe best riskreturn opportunities

available given a particular set of riskconstraints. To be able to make decisions, it must bepossible to quantifythe degree of risk in a particular opportunity. The most common method istouse the standard deviation of the expected returns. This methodmeasures spreads, and it is thepossible returns of these spreads thatprovide the measure of risk.The presence of risk means thatmore than one outcome is possible. Aninvestment is expected to produce different returnsdepending on the set ofcircumstances that prevail.

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For example, given the following for Investment A:

Circumstance Return(x) Probability(p)I 10% 0.2II 12% 0.3III 15% 0.4IV 19% 0.1

It is possible to calculate:

1. The expected (or average) returnMean (average) = x = expected value (EV) = px

Circumstance

Return(x) Probability(p) px

I 10% 0.2 2.0II 12% 0.3 3.6III 15% 0.4 6.0IV 19% 0.1 1.9

Expected Return (px) = 13.5%

2. The Standard deviation

Standard deviation == p(x- x) 2

Also. Variance (VAR) is equal to the standard deviation squared or2

Circumstance Return Probability

Deviation from

expected Return (x -x) p(x -x)2

I 10% 0.2 -3.5% 2.45

II 12% 0.3 -1.5% .68

III 15% 0.4 +1.5% 1.90

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IV 19% 0.1 +5.5% 3.03

VARAIANCE= 7.06

Standard deviation () =Variance

= 7.06

=2.66%

The standard deviation is a measure of risk, whereby the greater the standard deviation, thegreater the spread, and the greater the spread, the greater the risk.

If the above exercise were to be performed using another investment that offered the sameexpected return, but a different standard deviation, then the following result might occur:

If the above exercise were to be performed using another investment that offered the same

expected return, but a different standard deviation, then the following result might occur:

Plan Expected Return Risk(standard deviation)

Investment A 9% 2.5%

Investment B 9% 4.0%

Since both investments have the same expected return, the best selection of investment would

be Investment A, which provides the lower risk. Similarly, if there are two investmentspresenting the same risk, but one has a higher return than the other, that investment would be

chosen over the investment with the lower return for the same risk.

In the real world, there are all types of investors. Some investors are completely risk averseand others are willing to take some risk, but expect a higher return for that risk. Differentinvestors will also have different tolerances or threshold levels for riskreturn trade-offs i.e. fora given level of risk, one investor may demand a higher rate of return than another investor.

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INDIFFERNCE CURVE

Suppose the following situation exists

Plan Expected Return Risk(StandardDeviation)

Investment A 10% 5%

Investment B 20% 10%

The question to ask here is, does the extra 10% return compensate for the extra risk? There is noright answer, as the decision would depend on the particular investors attitude to risk. Aparticular investors indifference curve can be ascertained by plotting what rate of return the

investor would require for each level of risk to be indifferent amongst all of the investments.

For example, there may be an investor who can obtain a return of 50% with zero risk and a returnof 55 %with a risk or standard deviation of 5% who will be indifferent between the twoinvestments. If further investments were considered, each with a higher degree of risk, theinvestor would require still higher returns to make all of the investments equally attractive. Theinvestor being discussed could present the following as the indifference curve shown in Figure.

Indifference Curve

Expected Return Risk 50% 0%55% 5%70% 10%100% 15%120% 18%230% 25%

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Risk

Indifference curve

It could be the case that this investor would have different indifference curves given adifferent starting level of return for zero risk. The exercise would need to be repeated for variouslevels of riskreturn starting points. An entire set of indifference curves could be constructed that

would portray a particular investors attitude towards risk

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Indifference Curve

Utility scores

At this stage the concept of utility scores can be introduced. These can be seen as a way of

ranking competing portfolios based on the expected return and risk of those portfolios. Thus if afund manager had to determine which investment a particular investor would prefer, i.e.Investment A equaling a return of 10% for a risk of 5% or Investment B equaling a return of 20%for a risk of 10%, the manager would create indifference curves for that particular investor andlook at the utility scores. Higher utility scores are assigned to portfolios or investments with moreattractive riskreturn profiles. Although several scoring systems are legitimate, one functionthatis commonly employed assigns a portfolio or investment with expected return or value EVand variance of returns 2the following utility value:

U = EV .005A2where:

U = utility valueA = an index of the investors aversion, (the factor of .005 is a scaling convention that allows

expression of the expected return and standarddeviation in the equation as a percentage ratherthan a decimal).

Utility is enhanced by high expected returns and diminished by high risk.Investors choosingamongst competing investment portfolios will select theone providing the highest utility value.

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Thus, in the example above, the investor will select the investment (portfolio) with the higherutility value of 18.

ExpectedReturn(EV)

Standard deviation() Utility=EV-.005A2

10% 5% 10 .005 4 25 = 9.5

20% 10% 20 .005 4 100 = 18

(Assume A= 4 in this case)

Portfolio Diversification

There are several different factors that cause risk or lead to variability inreturns on anindividual investment. Factors that may influence risk in anygiven investment vehicle includeuncertainty of income, interest rates,inflation, exchange rates, tax rates, the state of the economy,default riskand liquidity risk (the risk of not being able to sell on the investment). Inaddition, aninvestor will assess the risk of a given investment (portfolio)within the context of other types ofinvestments that may already be owned,i.e. stakes in pension funds, life insurance policies withsavings components, and property.

One way to control portfolio risk is via diversification, whereby investmentsare made in awide variety of assets so that the exposure to the risk of anyparticular security is limited. Thisconcept is based on the old adage do notput all your eggs in one basket. If an investor ownsshares in only onecompany, that investment will fluctuate depending on the factorsinfluencingthat company. If that company goes bankrupt, the investormight lose 100 per cent of theinvestment. If, however, the investor ownsshares in several companies in different sectors, thenthe likelihood of allof those companies going bankrupt simultaneously is greatlydiminished.Thus, diversification reduces risk. Although bankruptcy risk has beenconsidered here,the same principle applies to other forms of risk.

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RISK RETURN MATRIX

Covariance and Correlation

The goal is to hold a group of investments or securities within a portfolio potentially to reducethe risk level suffered without reducing the level of return. To measure the success of apotentially diversified portfolio, covarianceand correlationare considered. Covariance measuresto what degree the returns of two risky assets move in tandem. A positive covariance means thatthe returns of the two assets move together, whilst a negative covariance means that they move ininverse directions.

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Covariance

COV(x, y) = p(x-x) (y-y)for two investments x and y, where p is the probability.

Covariance is an absolute measure, and covariances cannot be compared with one another. Toobtain a relative measure, the formula for correlation coefficient [r] is used.

Correlation coefficient

r = COVxyxy

To illustrate the above, here is the example:

Circumstance Probability x-x y-yp(x-x) (y-y)

I 0.2 +1.0 -3.5 -0.7

II 0.3 0 -1.5 0

III 0.4 +1.5 +1.5 0.9

IV 0.1 -4 +5.5 -2.2

COVxy =-2.0

For data regarding (y y), see earlier example. Assume that a similar exercise has been runfor data regarding (x x). Assume the variance or 2 of x=2.45, and the variance or2 of y =7.06. Thus, the correlation coefficient would be

r=-2.0 = -0.481

2.45*7.056

If, the same example is run again, but using a different set of numbers for y, a differentcorrelation coefficient might result of say, 0.988. It can be concluded that a large negativecorrelation confirms the strong tendency of the two investments to move inversely.

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Perfect positive correlation(correlation coefficient = +1) occurs when the returns fromtwo securities move up and down together in proportion. If these securities were combined in aportfolio, the offsetting effect would not occur.

Perfect negative correlation(correlation coefficient = 1) takes place when one securitymoves up and the other one down in exact proportion. Combining these two securities in aportfolio would increase the diversification effect.

Uncorrelated(correlation coefficient = 0) occurs when returns from two securities moveindependently of each other that is, if one goes up, the other may go up or down or may notmove at all. As a result, the combination of these two securities in a portfolio may or may notcreate a diversification effect. However, it is still better to be in this position than in a perfect

positive correlation situation.

Unsystematic and systematic risk

As mentioned previously, diversification diminishes risk: the more shares or assets held in aportfolio or in investments, the greater the risk reduction. However, it is impossible to eliminateall risk completely even with extensive diversification. The risk that remains is called market risk;the risk that is caused by general market influences. This risk is also known as systematic risk ornon-diversifiable risk. The risk that is associated with a specific asset and that can be abolishedwith diversification is known as unsystematic risk, unique risk or diversifiable risk.

Total risk = Systematic risk + Unsystematic risk

Systematic risk= the potential variability in the returns offered by a securityor asset caused bygeneral market factors, such as interest rate changes,inflation rate movements, tax rates, state ofthe economy.

Unsystematic risk= the potential variability in the returns offered by asecurity or asset caused by factors specific to that company, such asprofitability margins, debt levels, quality of

management, susceptibility todemands of customers and suppliers.As the number of assets in a portfolio increases, the total risk may declineas a result of the

decline in the unsystematic risk in that portfolio.The relationship amongst these risks can bequantified as follows

TR2 = SR2 + UR2 or 2i = s2 + u2

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Where:

= the investments total risk (standard deviation)s=the investments systematic risku =the investments unsystematic risk.

The correlation coefficient between two investment opportunities can beexpressed as:

s = iCORim

Where,

s= the investment systematic riski = the investments total risk (systematic and unsystematic)CORim= the correlation coefficient between the return of the investment and those of

the market.

If an investment were perfectly correlated to the market so that all its movements could be

fully explained by movements in market, then all of the risk would be systematic & i = s If aninvestment were not correlated at all to the market, then all of its risk would be unsystematic

TECHNOQUES OF PORTFOLIO MANAGEMENT

Various types of portfolio require different techniques to be adopted to achieve the desiredobjectives. Some of the techniques followed in India by portfolio managers are summarizedbelow.

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EPS increase rapidly and result in higher P/E ratiowhen a company finances its expansion

program from internalsources and borrowings without offering new stock.

(B) Quality of reported earning: -

Quality of reported earnings affects P/E ratio. The factorsthat affect the quality of reported

earnings are as under:

Depreciation allowances: -

Larger (Non Cash) deduction for depreciation providesmore funds to company tofinance profitable expansion schemesinternally. This builds up future earning power of

company.

Research and development outlets : -

There is higher P/E ratio for a company, which carriesR&D programs. R&D

enhances profit earning strength of thecompany through increased future sales.

Inventory and other non-recurring typeof profit : -

Low cost inventory may be sold at higher price due toinflationary conditions among

profit but such profit may notalways occur and hence low P/E ratio.

(C) Dividend policy: -

Dividend policy is significant in affecting P/E ratio. Withhigher dividend ratio, equity price goes

up and thus raises P/Eratio. Dividend rates are raised to push in share prices up.Dividend cover is

calculated to find out the time the dividend isprotected, In terms of earnings. It is calculated as

under:

Dividend Cover = EPS / Dividend per Share

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(D) Investors demand: -

Demand from institutional investors for equity alsoenhances the P/E ratio.

(3) Quality of management: -

Investors decide about the ability and caliber ofmanagement and hold and dispose of equity

academy. P/E ratiois more where a company is managed by reputed entrepreneurswith good past

records of management performance.

Types of Portfolios

The different types of Portfolio which is carried by any Fund Manager to maximize profit andminimize losses are different as per their objectives .They are as follows.

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Aggressive Portfolio:

Objective: Growth. This strategy might be appropriate for investors who seekHigh growth and who can tolerate wide fluctuations in market values, over theshort term.

Growth Portfolio:

Objective: Growth. This strategy might be appropriate for investors who have apreference for growth and who can withstand significant fluctuations in marketvalue.

Balanced Portfolio:

Objective:Capital appreciation and income. Thisstrategy might be appropriatefor investors who want thepotential for capital appreciation and some growth, andwhocan withstand moderate fluctuations in market values

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Conservative Portfolio:

Objective: Income and capital appreciation. This strategy may be appropriatefor investors who want to preserve their capital and minimize fluctuations in marketvalue.

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CHAPTER -5

DATA ANALYSIS AND

INTERPRETATION

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1. Do you know about the Investment Option available?

Interpretation

As the above table shows the knowledge of Investor out of 100 respondentcarried throughout the Ahmedabad Area is only 85%.The remaining 15% takehis/her residential property as an investment. According to law purpose this is notan investment because of it is not create any profit for the owner. The main

problem is that in this time from year 2009-2010, the Inflation make the investorthink before investing aeven a Rs.100.So,it also create the problem for the Investorto not take interest in Investment option.

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2. What is the basic purpose of your Investments?

Interpretation

As with the above analysis, it is found 75% people are interested in liquidity,returns and tax benefits. And remaining 25% are interested in capital appreciations,risk covering, and others. In the entire respondent it is common that this timeeveryone is looking for minimizing the risk and maximizing their profit with theshort time of period.

As explaining them About the Portfolio Management Services of Span, theywere quite interested in Services.

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3. What is the most important factor you consider at the time ofInvestment?

Interpretation

As the above analysis gives the clear idea that most of the Investors consideredthe market factor as around 12% for Risk and 23% Return, but most importantcommon things in all are that they are even ready for taking both Risk and Returnin around 65% investor.

Moreover, the Market is fluctuating now days, so as it also gettingimprovement. So, Investor are looking for Investment in long term and Short-term.

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4. From which option you will get the best returns?

Interpretation

Most of the respondents say they will get more returns in Share Market. SinceShare Market is said to be the best place to invest to get more returns. The risk inthe investment is also high.

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Similarly, the Investor are more Interested in Investing their money in MutualFund Schemes as that is also very important financial product due to its nature ofminimizing risk and maximizing the profit. As the commodities market is doingwell from last few months so Investor also prefer to invest their money inCommodities Market basically in GOLD nowadays.

Moreover, even who dont want to take Risk they are looking for investing inFixed Deposit for long period of time.

5. Investing in PMS is far safer than Investing in Mutual Fund. Do you

agree?

Interpretation

In the above graphs its clear that 24% of respondent out of hundred feel thatinvesting their money in Mutual Fund Scheme are far safer than Investing in PMS.this is because of lack of proper information about the Portfolio managementservices.As the basis is same for the mutual fund and PMS but the investment

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pattern is totally different from each other and which depends upon different riskfactor available in both the Financial Products.

6. How much you carry the expectation in Rise of your Income from

Investments?

Interpretation

The optimism is shown in the attitude of the respondents. The confidence wasappreciable with which they are looking forward to a rise in their investments.Major part of the sample feels that the rise would be of around 15%. Only 8% ofthe respondents were confident enough to expect a rise of upto 35%.

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As all the respondents were considering the Risk factor also before filling thequestionnaire and they were asking about the performance report of all the PMSservices offered by Span limited.

7. If you invested in Share Market, what has been your experience?

Interpretation

20% of the respondents have invested in Share market and received satisfactoryreturns, 40% of the respondents have not at all invested in Share Market. Some ofthe investors face problems due to less knowledge about the market. Some of therespondents dont have complete overview of the happenings and invest theirmoney in wrong shares which result in Loss. This is the reason most of the

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respondents prefer Portfolio Management Services to tradenow a days, which givesthe Investor the clear idea when is the right time to buy and right time to sell theshares which is recommended by their Fund Manger.

8. How do you trade in Share Market?

Interpretation

As we know that Share market is totally based on psychological parameters ofInvestors, which changed as per the market condition, but at the same time thearound 45%investor trade on the basis of speculation and 31% depend uponInvestment option Bonds, Mutual Funds etc.

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Moreover, the now a days Hedging is most common derivatives tools which isused by the Investor to get more return from the Market ,this is mostly used in theCommodities Market.

9. How do you manage your Portfolio?

Interpretation

About57% of the respondents say they themselves manage their portfolio and

43% of the respondents say they depends on the security company for portfolioManagement. 43% of the respondents prefer PMS of the company because theydont have to keep a close eye on their investment; they get all the information timeto time from their Fund Manager.

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Moreover, talking about the Span PMS services they are far satisfied with theand during last year. They are satisfied with the quick and active services of Spancustomer services where, they get the updated knowledge about the scrip detaileveryday from their Fund Manager.

10. If you trade with Span limited then why?

Interpretation

As the above research shows the reasons and the parameters on which investor

lie on Span and they do the trade.Among hundred respondents 35% respondents do the trade with the company

due to its research Report, 28% based on Brokerage Rate whereas 22 % are happywith its Services.

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Last but not the least, 15% respondents are depends upon the tips of Span whichgives them idea where to invest and when to invest.

At the time of research what I found is that still Span need to make the clientsmore knowledge about their PMS product.

11. Are you using Portfolio Management services (PMS) of Span?

Interpretation

As talking about the Investment option, in most of clients it was common that

they know about the Option but as the PMS of Span have different Product

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offering, Product Characteristics and the Investment amount is also different this

makes the clients to think differently.

It is found that 56% of Span client where using PMS services as for their

Investment Option.

12. Which Portfolio Type you preferred?

Interpretation

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The above analysis shows, in which portfolio the investor like to deal more in

PMS.

As 45% investor likes to go for Equity Portfolio and 28% with Balanced

Portfolio, whereas around 27% investor like to, go for Debt Portfolio.

13. How was your experience about Portfolio Management services (PMS)

of Span Limited?

Interpretation

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In the above analysis it is clear that the Investor have the good and the bad

experience both with the Span PMS services.

In this current scenario 52% of the Investor earned, whereas around 18% have to

suffer losses in the market. Similarly 30% of the Respondents are there in

Breakeven Point (BEP), where no loss and no profit.

14. Does Span Limited keep it PMS process Transparent?

Interpretation

The above analysis is talking about the Span Transparency of their PMS

services. In hundred respondents 63% said that they get all the information about

their scrip buying and selling information day by day, where as 37% of respondents

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are not satisfied with the PMS information and Transparency because they dont

get any type of extra services in PMS as they were saying.

15. Do you recommend Span PMS to others?

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Interpretation

The above analysis shows the Investor perception toward the Span PMS as onthe basis of their good and bad experience with Span limited. Among hundred

respondents 86% respondents were agree to recommend the PMS of Span to their

peers, relatives etc.

CHAPTER-6

CONCULSIONAND

SUGGESTIONS

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OBSERVATION AND FINDING

About 85% Respondents knows about the Investment Option, becauseremaining 15% take

his /her residential property as Investment, but in actual it not an investment philosophy

carries that all the Investment does not create any profit for the owner.

More than 75% Investors are investing their money for Liquidity, Return and Tax

benefits.

At the time of Investment the Investors basically considered the both Risk and Return in

more %age around 65%.

As among all Investment Option for Investor the most important area to get more return is

share around 22%after that Mutual Fund and other comes into existence.

More than 76% of Investors feels that PMS is less risky than investing money in Mutual

Funds.

As expected return from the Market more than 48% respondents expect the rise in Income

more than 15%, 32% respondents are expecting between 15-25% return.

As the experience from the Market more than 34% Investor had lose their money during

the concerned year, whereas 20% respondents have got satisfied return.

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About 45% respondents do the Trade in the Market with Derivatives Tools Speculation

compare to 24% through Hedging .And the rest 31% trade their money in Investments.

Around 57% residents manage their Portfolio through the different company whereas

43%Investor manage their portfolio themselves.

The most important reasons for doing trade with Span limited is Span Research

Department than its Brokerage rate Structure.

Out of hundred respondents 56% respondents are using Span PMS services.

Investors preferred more than 45% equity Portfolio, 28%Balanceed Portfolio and about

27% Debt Portfolio with Span PMS.

About 52% Respondents earned through Span PMS product, whereas 18% investor faced

loses also.

More than 63% Investor are happy with the Transparency system of Span limited.

As based on the good and bad experience with Span limited around 86% are ready to

recommended the PMS of Span to their peers, relatives etc.

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LIMITATION OF THE PROJECT

As only Ahmedabadwas dealt in the survey so it does not represent the view of the total

Indian market.

The sample size was restricted with hundred respondents.

There was lack of time on the part of respondents.

The survey was carried through questionnaire andthe questions were based on perception.

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There may be biasness in information by marketparticipant.

Complete data was not available due to companyprivacy and secrecy.

Some people were not willing to disclose the investment profile.

CONCLUSION AND SUGGESTIONS

On the basis of the study it is found that Span Ltd isbetter services provider than the other

stockbrokersbecause of their timely research and personalized adviceon what stocks to buy and

sell. Span Ltd. provides the facility of Trade tiger as well as relationship managerfacility for

encouragement and protects the interest of theinvestors. It also provides the information through

theinternet and mobile alerts that what IPOs are coming inthe market and it also provides its

research on the futureprospect of the IPO. We can conclude the following with above analysis.

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Span Ltd has better Portfolio Management services than Other Companies

It keeps its process more transparent.

It gives more returns to its investors.

It charges are less than other portfolio Management Services

It provides daily updates about the stocks information.

Investors are looking for those investment options where they get maximum returns withless returns.

Market is becoming complex & it means that the individual investor will not have the

time to play stock game on his own.

People are not so much ware aware about the Investment option available in the Market.

Suggestions

The company should also organize seminars and similaractivities to enhance the

knowledge of prospective andexisting customers, so that they feel more comfortablewhile

investing in the stock market.

Investors must feel safe about their money invested.

Investors accounts must be more transparent as compared to other companies.

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Span limited must try to promote more its Portfolio Management Services through

Advertisements.

Span needs to improve more its Customer Services

There is need to change in lock in period in all PMS

ANNEXURE

QUESTIONNAIRE

NAME.

AGE

OCCUPATION... PHONE

NO..................................

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1. Do you know about the Investments Option available?

A) YES B) NO

2. What is the basic purpose of your Investments?

A) Liquidity B) Return C) Tax Benefits D) Risk Covering

E) Capital Appreciation F) Others

3. What is the most important factor you consider at the time of Investment?

A) Risk B) Return C) Both

4. From which option you will get the best returns?A) Mutual Funds B) Shares C) Commodities Market D) Bonds

E) Fixed Deposits F) Property G) Others

5. Investing in PMS is far safer than Investing in Mutual Fund. Do you agree?

A) Yes B) No

6. How much you carry the expectation in Rise of your Income from Investments?

A) Upto 15% B) 15-25% C) 25-35% D) More than 35%

7. If you invested in Share Market, what has been your experience?

A) Satisfactory Return B) Burned Finger C) Unsatisfactory ResultsD) No

8. How do you trade in Share Market?

A) Hedging B) Speculation C) Investment

9. How do you manage your Portfolio?

A) Self B) Depends on the company for portfolio

10. If, you trade with Span limited then why?

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A) Research B) Brokerage C) Services D) Investments Tips

11. Are you using Portfolio Management services (PMS) of Span?

A) Yes B) No

12. Which Portfolio Type you preferred?

A) Equity B) Debt C) Balanced

13. How was your experience about Portfolio Management services (PMS) of Span Limited?

A) Earned B) Faced Loss C) No profit No loss

14. Does Span Limited keep it PMS process Transparent?

A) Yes B) No

15. Do you recommend Span PMS to others?

A) Yes B) No

REFERENCES

www.google.com

www.sebi.gov.in

www.moneycontrol.com

www.karvy.com

www.valueresarchonline.com

www.yahoofinance.com

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http://www.google.com/http://www.moneycontrol.com/http://www.karvy.com/http://www.valueresarchonline.com/http://www.yahoofinance.com/http://www.google.com/http://www.moneycontrol.com/http://www.karvy.com/http://www.valueresarchonline.com/http://www.yahoofinance.com/


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www.theeconomist.com

www.nseindia.com

www.bseindia.com

Book Referred

Value guide by Span

Investors Eyes by Span

Business world.

The economist
http://www.theeconomist.com/http://www.nseindia.com/http://www.bseindia.com/http://www.theeconomist.com/http://www.nseindia.com/http://www.bseindia.com/

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