INTRODUCTION TO INVESTMENT MANAGMENT

Investment managementis the professionalasset managementof varioussecurities(shares, bonds and other securities) and otherassets(e.g.,real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations, charities, educational establishments etc.) or private investors (both directly via investment contracts and more commonly viacollective investment schemese.g.mutual fundsorexchange-traded funds).The term asset management is often used to refer to the investment management ofcollective investments, while the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize inadvisoryordiscretionarymanagement on behalf of (normally wealthy) private investors may often refer to their services asmoney managementor portfolio management often within the context of so-called "private banking".The provision of investment management services includes elements offinancial statement analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Coming under the remit offinancial servicesmany of the world's largest companies are at least in part investment managers and employ millions of staff.Fund manager (orinvestment advisorin the United States) refers to both afirmthat provides investment management services and an individual who directs fund management decisions.According to aBoston Consulting Groupstudy, the assets managed professionally for fees reached an all-time high of US$62.4 trillion in 2012, after remaining flat-lined since 2007.[1]Furthermore, these industry assets under management were expected to reach US$70.2 trillion at the end of 2013 as per a Cerulli Associates estimate.The global investment management industry is highly concentrated in nature, in a universe of about 70,000 funds roughly 99.7% of the US fund flows in 2012 went into just 185 funds. Additionally, a majority of fund managers report that more than 50% of their inflows go to just three funds.

INVESTMENT MANAGEMENT INDUSTRY IN INDIA

PurposeTheInvestment Management(IM) component provides functions tosupport the planning,investment, and financing processes for:Capital investments, such as the acquisition of fixed assets as the result of-house production or purchaseInvestments in research and developmentProjects that fall primarily under overhead, such as continuing education of employees or establishing new marketsMaintenance programsThe term investment, therefore, is not limited only to investments you capitalize for bookkeeping or tax purposes. An investment in this context can be any measure that initially causes costs, and that may only generate revenue or provide other benefits after a certain time period has elapsed (for example, plant maintenance projects).

The IM component contains functions for managing investments in the area of fixed assets. Financial assets are managed in theTreasurycomponent.Implementation considerationsFor information on implementing the IM component, refer to the Implementation Guide (IMG) for Investment Management. ChooseSAP Customizing Implementation GuideInvestment Management.IntegrationThe investment program and the appropriation request are objects that originate in the IM component. In order to represent the measure, the IM component uses internal orders from Overhead Cost Controlling - Overhead Orders (CO-OM-OPA) and Plant Maintenance (PM), as well as work breakdown structure (WBS) elements from the Project System (PS).The integration with Asset Accounting (FI-AA) enables you to easily capitalize the costs of internal orders and WBS elements that require capitalization to a fixed asset. Costs that do not require capitalization can be settled to cost accounting.You can post acquisitions to a measure in the Logistics components of the SAP System.

Sub-Components of Investment Management and their IntegrationThe integrated planning process allows you to roll up planned values from appropriation requests and measures on the investment program to which they are assigned. You carry out budgeting of measures, on the other hand, from the top down within the investment program.You can transfer expected depreciation on all planned investments to management accounting in the form of planned costs.FeaturesInvestment Management consists of the following components:ComponentUsed for

Investment Program cyclical planning and management of investment budgets for a number of measures, throughout your whole enterprise

Appropriation Requests management of the planning and approval phase of investments and other types of measures

Investment Measures parallel handling of cost accounting and financial accounting needs for individual investments. Measures take the form of internal orders, projects and maintenance orders.

Investment Programs

PurposeYou can use investment programs as a supplement for any planning for individual measures and for budgeting in the following areas:PlanningAdministrationMonitoring of a global budgetInvestment programs support the annual creation of an investment plan and budget if these are to be monitored globally.You can obtain an overview of planning and budgeting processes in complex enterprise structures for all investments and large projects of the group, while at the same time maintaining strict budgetary control.FeaturesTheInvestment Programscomponent provides functions for planning and monitoring of investment budgets encompassing many different measures, on a cyclical basis, of an entire corporate group. You can benefit from the integration of this component with theInvestment MeasuresandAppropriation Requestscomponents. Measures and appropriation requests can be assigned to investment program positions. By rolling up their plan values in the investment program, these measures and appropriation requests are integrated in the comprehensive investment planning process. At the same time, you can budget and oversee the measures using the investment program.Comprehensive investment programs in the SAP System offer the advantage of their direct integration with the individual measures (orders or WBS elements), in contrast to non-integrated planning systems. By means ofthis integration, you are quickly made aware if your comprehensive budget is overrun.You can also monitor expenses for both external acquisitions as well as internal costs (activity allocation, overhead).TheInvestment Programscomponent includes the following processes and functions:Process/FunctionAreas Used

Structure of the Investment ProgramInvestments listed in a hierarchy

Planning and Budgeting of Investment Programs-Bottom-up: Planning investments in an investment program-Top-down: Budget distribution

Fiscal Year ChangeCarrying forward a current investment program into a new approval year

Structure of the Investment Program

UseThe system displays the program structure in maintenance transactions in the form of a horizontal tree diagram. You can assign investment measures and appropriation requests to the investment program positions.FeaturesCreating the Program Structure and Program PositionsWhen you create or change the tree diagram, you can also directly define the corresponding program positions and assign them to the desired position in the hierarchy using fast entry.The system uniquely identifies each program position based on its:Investment program name and approval yearPosition ID that has a maximum of 24 characters

The maximum number of hierarchy levels is 99.There are limitations on how complex the investment program can be, due to performance considerations. Since performance is strongly dependent on your system configuration, we can only offer a figure for orientation: If your investment program has more than 10,000 positions, you should contact your SAP consultant.You can make organizational assignments for each program position (such as, assignment to a company code, business area, plant, or cost center). When you create new program positions below existing positions in the hierarchy, the system automatically copies the assignments and the general data from the higher-level position to the new lower-level position you are creating.However, if you later change the organizational assignment of a program position that has subordinate positions in the hierarchy, the system doesnotautomatically copy the changes to these subordinate program positions.There is a report you can use to check the consistency of the organizational units in investment programs (refer toTop Positions and Controlling AreaYou have to assign the top positions of a program to a controlling area. The system then automatically copies this controlling area to all subordinate positions. In this way, it is guaranteed that a subtree of an investment program always belongs to a given controlling area.MeasuresThe program positions that do not have any subordinate positions assigned to them in the hierarchy are called end nodes The individual measures of the investment program can be assigned to these end node positions. You can assign internal orders, maintenance orders and WBS elements to investment programs as measures (refer toConnection between Programs and Measures).You can makeoneof the following specifications for an end node position:The individual measures assigned to the end node can be budgeted separately, and the totals of these budgets are compared with the budget for the program position only on a periodic basis in reports. (TheBudget dist. overallindicator isnotset.Union bank Asset Management GroupUnion Banks Asset Management Group offers you a complete range of financial planning, investment and estate servicesall from the same source you already rely on for your personal and business banking. Regardless of the current value of your savings, portfolio or estate, Union Banks experienced advisors are happy to work with you to develop a plan and identify strategies that will help you manage your money and assets to meet your goals.Our wide range of expertise includes:Investment Managementfrom advisory to fully managed accountsPersonal Trustswith the fiduciary services you expectRetirement Strategiestailored to your lifestyleEstate Servicescovering both planning and settlementCommercial Client Servicesincluding escrow, investment management and custodial accountsInvestment ManagementAll of our clients are unique. That's why from the very first moment we meet with you, we listen. We believe listening is the basic ingredient of all good relationships. What we learn from you forms the basis for our recommendations. Understanding your present need is crucial to laying the foundation for your investments and for your familys future. Add a strong local presence to our experience, and the result is excellent service, insight and care that you can count on over time. We believe you deserve that!Our investment strategy balances your risk with careful diversification to reduce your overall exposure.We offer:Advisory accountsfor investors who like a hands-on approach to their investments, but whom also want to work with an expert.Custodial accountsincludes safekeeping of securities and record keeping. A custodial account can also be a retirement account managed for eligible employees by a custodian.Fully managed accountscompletely managed personalized asset management and investment portfolios tailored to your specific needs.

Personal TrustsProtecting your assets just makes sense, and to do that well you need the counsel of a trustworthy financial advisor. Union Banks expert staff, long history and solid reputation ensure you that the guidance and service you receive will help establish your financial security.One of the most effective means of guarding your estate is setting up a trust. The trust can include a variety of assetsmoney, real estate, furniture, etc. The trust itself is a financial agreement used to benefit either a person (child, spouse or whomever) or group of people (a charity, other non-profit or cause, etc.).Living trusts" provide for the control and use of your assets during your lifetime and are distributed when you die as directed by the trust. The probate process is avoided for assets put into the trust.Testamentary trusts" take effect when you die and are tied to a will. A testamentary trust can help distribute your assets to those you wish to inherit at a future date.A Union Bank Asset Management advisor can offer you the financial services and management required to deliver on your wishes, including:A revocable trust is in place as long as the grantor is still living; at any time, the grantor can revoke the trust.An irrevocable trust cannot be changed.A charitable trust is an irrevocable trust set up to benefit a charitable organization.A supplemental needs trust is for someone who has special needs or requirements.

Retirement Strategies

It is never too early to consider your retirement. A Union Bank Asset Management advisor can create a multifaceted plan for your retirement that matches your goals and dreams. We select among traditional and non-traditional investment vehicles based on your income, assets and lifestyle so that your hard work pays off. We also keep an eye to how your retirement investments should be structured given the stage of life you are in. Long-term vision and sensible balancing of your portfolio can make all the difference.Retirement services we offer include:

Estate Services

Estate Planning & SettlementThe best way to ensure that your beneficiaries receive what you wish them to is to have a clear, well-thought-out, documented plan of action, with due consideration given to taxes and other issues. Union Bank Asset Management advisor will give you the guidance you need to ensure that your wishes are followed and that those you care for are the recipients.

Commercial Client ServicesUnion Bank's Asset Management Group offers escrow, investment management and custodial services to commercial clients.EscrowInvestment managementCustodial serviceHISTORY OF UNION BANK ASSET MANAGEMENT CO

Union Bank of India (UBI) was registered on 11 November 1919 as a limited company inMumbaiand was inaugurated byMahatma Gandhi. At the time of India's Independence in 1947, UBI only had four branches - three in Mumbai and one inSaurashtra, all concentrated in key trade centres. After Independence UBI accelerated its growth and by the time the government nationalised it in 1969, it had grown to 240 branches in 28 states. Shortly after nationalisation, UBI merged inBelgaum Bank, a private sector bank established in 1930 that had itself merged in a bank in 1964, the Shri Jadeya Shankarling Bank. Then in 1985 UBI merged inMiraj State Bank, which had been established in 1929. In 1999 theReserve Bank of Indiarequested that UBI acquireSikkim Bankin a rescue after extensive irregularities had been discovered at the non-scheduled bank. Sikkim Bank had eight branches located in the North-east, which was attractive to UBI.UBI began its international expansion in 2007 with the opening of representative offices in Abu Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of China. The next year, UBI established a branch in Hong Kong, its first branch outside India. In 2009, UBI opened a representative office in Sydney, Australia.At present, the offshore banking operations of Union Bank of India are led by its branches in Hong Kong and newly opened branch in Dubai at Dubai International Financial Centre.

Established in 1995, as the 8th indigenous Bank, Union Bank is positioned to be the preferred Bank for the Small and Medium Enterprises and Retail sectors in Sri Lanka. As one of Sri Lanka's fastest growing Banks, Union Bank offers its preferred customer segments a range of comprehensive financial solutions to support the development and growth of these sectors. Known for its strong shareholder strength which includes high caliber local and foreign investors, financial stability, innovative range of technology-driven products, supported by superior service delivery enables Union Bank to forge ahead as a key player in the Banking industry in Sri Lanka.In order to deliver the Bank's unique value proposition to customers, Union Bank continues to expand its reach rapidly in Sri Lanka through its growing branch network which also includes 7 branches in the Northern and Eastern provinces in the country. A number of new branches are expected to open in several new areas in the coming year and beyond, which is specially focused and geared to grow Union Bank's SME portfolio.Listed in the Colombo Stock Exchange in March 2011, the Bank's Initial Public Offering (IPO) received overwhelming response making the IPO one of the highest oversubscribed in Sri Lanka and globally further highlighting public confidence in Union Bank as a rapidly progressing and potential business entity.The Bank's expansion also includes the Bank actively pursuing opportunities for related diversifications in the Finance Industry and as such acquired 51% stake in National Asset Management Limited, Sri Lanka's premier Asset Management Company in February 2011 and subsequently in November 2011, acquired 98% of voting shares with a strategic foreign investor Shorecap in The Finance and Guarantee Company Limited, one of Sri Lanka's oldest finance companies established in 1961.August 2014, UBC announced it has entered into an investment agreement with Culture Financial Holdings Ltd. an affiliate of TPG, a leading global private investment firm with over $59Bn of capital under management. The investments is one of the largest foreign direct investments into Sri Lanka in recent years and places Union Bank amongst the top 5 banks in Sri Lanka. Under the agreement, TPG will invest up to approximately US$117 million ( or LKR 15Bn) in UBC through a combination of primary and secondary shares, representing up to 70% of the issued share capital.

Union Bank of IndiaUnion Bank of India(UBI) (BSE:532477) is one of the largest government-owned banks of India (the government owns 60.13% of its share capital). It is listed on theForbes 2000, and has assets of USD 13.45billion. All the bank's branches have been networked with its 6420 ATMs. Its online Telebanking facility are available to all its Core Banking Customers - individual as well as corporate. It has representative offices inAbu Dhabi,United Arab Emirates, Beijing,Peoples Republic of China, London, Shanghai, and Sydney, and branches in Hong Kong,Dubai(Dubai International Financial Centre) and Antwerp, Belgium.The bank is in the process of upgrading its representative offices in London and Sydney to branches. UBI is active in promoting financial inclusion policy and is a member of theAlliance for Financial Inclusion (AFI).

INVESTMENT MANAGERS AND PORTFOLIO STRUCTURES OF UNION BANK ASSET MANAGEMENT

At the heart of the investment management industry are the managers who invest and divest client investments.A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. The advisor then recommends appropriate investments.Asset allocationThe different asset class definitions are widely debated, but four common divisions arestocks,bonds,real estateandcommodities. The exercise of allocating funds among these assets (and among individual securities within each asset class) is what investment management firms are paid for. Asset classes exhibit different market dynamics, and different interaction effects; thus, the allocation of money among asset classes will have a significant effect on the performance of the fund. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Arguably, the skill of a successful investment manager resides in constructing the asset allocation, and separately the individual holdings, so as to outperform certain benchmarks (e.g., the peer group of competing funds, bond and stock indices).Long-term returnsIt is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). For example, over very long holding periods (e.g. 10+ years) in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. According to financial theory, this is because equities are riskier (more volatile) than bonds which are themselves more risky than cash.DiversificationAgainst the background of the asset allocation, fund managers consider the degree ofdiversificationthat makes sense for a given client (given its risk preferences) and construct a list of planned holdings accordingly. The list will indicate what percentage of the fund should be invested in each particular stock or bond. The theory of portfolio diversification was originated by Markowitz (and many others). Effective diversification requires management of the correlation between the asset returns and the liability returns, issues internal to the portfolio (individual holdings volatility), andcross-correlationsbetween the returns.Investment stylesThere are a range of differentstylesof fund management that the institution can implement. For example,growth, value, growth at a reasonable price (GARP),market neutral, small capitalisation, indexed, etc. Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics. For example, there is evidence thatgrowthstyles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully.Performance measurementFund performance is often thought to be the acid test of fund management, and in the institutional context, accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their management, and performance is also measured by external firms that specialize in performance measurement. The leading performance measurement firms (e.g.Frank Russellin the USA or BI-SAM[1]in Europe) compile aggregate industry data, e.g., showing how funds in general performed against given indices and peer groups over various time periods.In a typical case (let us say an equity fund), then the calculation would be made (as far as the client is concerned) every quarter and would show a percentage change compared with the prior quarter (e.g., +4.6% total return in US dollars). This figure would be compared with other similar funds managed within the institution (for purposes of monitoring internal controls), with performance data for peer group funds, and with relevant indices (where available) or tailor-made performance benchmarks where appropriate. The specialist performance measurement firms calculate quartile and decile data and close attention would be paid to the (percentile) ranking of any fund.Generally speaking, it is probably appropriate for an investment firm to persuade its clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short term fluctuations in performance and the influence of the business cycle. This can be difficult however and, industry wide, there is a serious preoccupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions).An enduring problem is whether to measure before-tax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary. Before-tax measurement can be misleading, especially in regimens that tax realised capital gains (and not unrealised). It is thus possible that successful active managers (measured before tax) may produce miserable after-tax results. One possible solution is to report the after-tax position of some standard taxpayer.Risk-adjusted performance measurementPerformance measurement should not be reduced to the evaluation of fund returns alone, but must also integrate other fund elements that would be of interest to investors, such as the measure of risk taken. Several other aspects are also part of performance measurement: evaluating if managers have succeeded in reaching their objective, i.e. if their return was sufficiently high to reward the risks taken; how they compare to their peers; and finally whether the portfolio management results were due to luck or the managers skill. The need to answer all these questions has led to the development of more sophisticated performance measures, many of which originate inmodern portfolio theory. Modern portfolio theory established the quantitative link that exists between portfolio risk and return. The Capital Asset Pricing Model (CAPM) developed by Sharpe (1964) highlighted the notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios (Sharpe ratio, information ratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and best known performance measure. It measures the return of a portfolio in excess of the risk-free rate, compared to the total risk of the portfolio. This measure is said to be absolute, as it does not refer to any benchmark, avoiding drawbacks related to a poor choice of benchmark. Meanwhile, it does not allow the separation of the performance of the market in which the portfolio is invested from that of the manager. The information ratio is a more general form of the Sharpe ratio in which the risk-free asset is replaced by a benchmark portfolio. This measure is relative, as it evaluates portfolio performance in reference to a benchmark, making the result strongly dependent on this benchmark choice.Portfolio alpha is obtained by measuring the difference between the return of the portfolio and that of a benchmark portfolio. This measure appears to be the only reliable performance measure to evaluate active management. In fact, we have to distinguish between normal returns, provided by the fair reward for portfolio exposure to different risks, and obtained through passive management, from abnormal performance (or outperformance) due to the managers skill (or luck), whether throughmarket timing,stock picking, or good fortune. The first component is related to allocation and style investment choices, which may not be under the sole control of the manager, and depends on the economic context, while the second component is an evaluation of the success of the managers decisions. Only the latter, measured by alpha, allows the evaluation of the managers true performance (but then, only if you assume that any outperformance is due to skill and not luck).Portfolio return may be evaluated using factor models. The first model, proposed by Jensen (1968), relies on theCAPMand explains portfolio returns with the market index as the only factor. It quickly becomes clear, however, that one factor is not enough to explain the returns very well and that other factors have to be considered. Multi-factor models were developed as an alternative to theCAPM, allowing a better description of portfolio risks and a more accurate evaluation of a portfolio's performance. For example, Fama and French (1993) have highlighted two important factors that characterize a company's risk in addition to market risk. These factors are the book-to-market ratio and the company's size as measured by its market capitalization. Fama and French therefore proposed three-factor model to describe portfolio normal returns (Fama-French three-factor model). Carhart (1997) proposed to add momentum as a fourth factor to allow the short-term persistence of returns to be taken into account. Also of interest for performance measurement is Sharpes (1992)style analysismodel, in which factors are style indices. This model allows a custom benchmark for each portfolio to be developed, using the linear combination of style indices that best replicate portfolio style allocation, and leads to an accurate evaluation of portfolio alpha.

UNION BANK ENTERS MUTUAL FUND SPACE BY JOINING HANDS WITH KBC ASSET MANAGEMENT OF BELGIUM TO LAUNCH UNION KBC ASSET MANAGEMENT COMPANY.

Union Bank of India on Wednesday announced its foray into the crowded mutual fund space joining hands with KBC Asset Management of Belgium to launch Union KBC Asset Management Company. The joint venture will see Union Bank of India hold 51 per cent stake and KBC Asset Management own 49 per cent stake in the joint venture firm. Union KBC AMC will float its first open-ended equity scheme called Union KBC Equity Fund, which would be open from May 20 to June 3. We would want to be amongst top 10 mutual fund houses in the country in the next five years,said MV Nair, chairman and managing director, Union Bank of India. A total of 43 mutual fund houses are operating in the country with total assets under management in the end March standing at slightly over Rs 7,00,000 crore, as per details available on the Amfi website. The mutual fund will look to raise Rs 600 crore by the end of 2011 for its equity fund schemes. Depending on the market condition, the fund house may also look to launch equity linked savings scheme (ELSS) and a mid-cap fund, but floating an offshore fund in the near-term is not in the radar, said Ashish Ranawade, chief investment officer at Union KBC Mutual Fund. The first scheme, Union KBC Equity Fund, will primarily invest in a portfolio consisting of equity and equity related securities, the company said in a media release. We will invest 80 per cent of the corpus in large-cap stocks consisting of BSE-100 companies in order to bring stability to the product, said Ranawade. The bank will use it extensive 3,000 branch network spread across the country and tap its three crore odd customers to sell its mutual fund schemes. Union Bank of India brings an extensive network and knowledge of Indian customers, while KBC brings valuable expertise gained from more than 50 years in investment management,said G Pradeepkumar, chief executive officer at Union KBC AMC.

The first scheme, Union KBC Equity Fund, will primarily invest in a portfolio consisting of equity and equity related securities, the company said in a media release. We will invest 80 per cent of the corpus in large-cap stocks consisting of BSE-100 companies in order to bring stability to the product, said Ranawade

PORTFOLIO MANAGEMENT SERVICES

In Todays Competitive world, where banks and financial institutions provide number of services which provides a customer with a wide spectrum of investment opportunities. They in order to retain their customers provide them special services besides traditional services.The invention of new technology and services by banks and financial institutions has given the consumers a wide range of investment avenues to invest in. One of the special services brought out by banks and financial institutions is PORTFOLIO MANAGEMENT SERVICES (PMS) which aims at providing an investor to invest a combination of securities all together which enables him to earn maximum returns at minimum level of risk.The main objective of this project is to review the real meaning of Portfolio Management, its objectives, role, framework, responsibilities of portfolio manger and the study of various other issues related to it such as its comparison with, Mutual funds, role of Merchant Bankers in Portfolio Management, SEBI guidelines. I am inclined to this topic, as it has given me actual knowledge of this service along with its working and how the portfolio manager manages the portfolio.Moreover, it has guided me to understand this so called complex world of investment and also increase my knowledge to such extent. I hope it will prove beneficial to me in developing my further career.

INTRODUCTION

PORTFOLIO MANAGEMENT SERVICES PROVIDED BY UNION BANK

As per definition of SEBI Portfolio means a collection of securities owned by an investor. It represents the total holdings of securities belonging to any person". It comprises of different types of assets and securities. Portfolio management refers to the management or administration of a portfolio of securities to protect and enhance the value of the underlying investment. It is the management of various securities (shares, bonds etc) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. It helps to reduce risk without sacrificing returns. It involves a proper investment decision with regards to what to buy and sell. It involves proper money management. It is also known as Investment Management.Portfolio Management Services, called, as PMS are the advisory services provided by corporate financial intermediaries. It enables investors to promote and protect their investments that help them to generate higher returns. It devotes sufficient time in reshuffling the investments on hand in line with the changing dynamics. It provides the skill and expertise to steer through these complex, volatile and dynamic times. It is a choice of selecting and revising spectrum of securities to it with the characteristics of an investor. It prevents holding ofStock investors constantly hear the wisdom of diversification. The concept is to simply not put all of your eggs in one basket, which in turn helps mitigate risk, and generally leads to better performance orreturn on investment. Diversifying your hard-earned dollars does make sense, but there are different ways of diversifying, and there are different portfolio types. We look at the following portfolio types and suggest how to get started building them:aggressive, defensive, income, speculativeandhybrid. It is important to understand that building a portfolio will require research and some effort. Having said that, let's have a peek across our five portfolios to gain a better understanding of each and get you started.

The AggressivePortfolioAnaggressiveportfolio or basket of stocks includes those stocks with high risk/high reward proposition. Stocks in the category typically have a highbeta, or sensitivity to the overall market. Higher beta stocks experience larger fluctuations relative to the overall market on a consistent basis. If your individual stock has a beta of 2.0, it will typically move twice as much in either direction to the overall market - hence, the high-risk, high-reward description.Most aggressive stocks (and therefore companies) are in the early stages of growth, and have a unique value proposition. Building an aggressive portfolio requires an investor who is willing to seek out such companies, because most of these names, with a few exceptions, are not going to be common household companies. Look online for companies with earnings growth that is rapidly accelerating, and have not been discovered by Wall Street. The most common sectors to scrutinize would be technology, but many other firms in various sectors that are pursuing an aggressive growth strategy can be considered. As you might have gathered, risk management becomes very important when building and maintaining an aggressive portfolio. Keeping losses to a minimum and taking profit are keys to success in this type of portfolio.

The Defensive PortfolioDefensive stocksdo not usually carry a high beta, and usually are fairly isolated from broad market movements. Cyclical stocks, on the other hand, are those that are most sensitive to the underlying economic "business cycle." For example, during recessionary times, companies that make the "basics" tend to do better than those that are focused on fads or luxuries. Despite how bad the economy is, companies that make products essential to everyday life will survive. Think of the essentials in your everyday life, and then find the companies that make theseconsumer stapleproducts.The opportunity of buying cyclical stocks is that they offer an extra level of protection against detrimental events. Just listen to the business stations and you will hear portfolios managers talking about "drugs," "defense" and "tobacco." These really are just baskets of stocks that these managers are recommending based upon where the business cycle is and where they think it is going. However, the products and services of these companies are in constant demand. Adefensive portfolio is prudentfor most investors. A lot of these companies offer a dividend as well which helps minimize downside capital losses.

The IncomePortfolioAn income portfolio focuses on making money through dividends or other types of distributions tostakeholders. These companies are somewhat like the safe defensive stocks but should offer higher yields. An income portfolio should generate positive cash flow.Real estate investment trusts(REITs) andmaster limited partnerships(MLP) are excellent sources of income producing investments. These companies return a great majority of their profits back to shareholders in exchange for favorable tax status. REITs are an easy way to invest in real estate without the hassles of owning real property. Keep in mind, however, that these stocks are also subject to the economic climate.

The Speculative PortfolioA speculative portfolio is the closest to a pure gamble. A speculative portfolio presents more risk than any others discussed here. Finance gurus suggest that a maximum of 10% of one's investable assets be used to fund a speculative portfolio. Speculative "plays" could beinitial public offerings(IPOs) or stocks that are rumored to be takeover targets. Technology or health care firms that are in the process of researching a breakthrough product, or a junior oil company which is about to release itsinitial productionresults, would also fall into this category.Another classic speculative play is to make an investment decision based upon a rumor that the company is subject to a takeover. One could argue that the widespread popularity ofleveraged ETFsin today's markets represent speculation. Again, these types of investments are alluring: picking the right one could lead to huge profits in a short amount of time. Speculation may be the one portfolio that, if done correctly, requires the most homework. Speculative stocks are typically trades, and not your classic "buy and hold" investment.

The Hybrid PortfolioBuilding a hybrid type of portfolio means venturing into other investments, such as bonds, commodities, real estate and even art. Basically, there is a lot of flexibility in the hybrid portfolio approach. Traditionally, this type of portfolio would containblue chipstocks and some high grade government or corporate bonds. REITs and MLPs may also be an investable theme for the balanced portfolio. A common fixed income investment strategy approach advocates buying bonds with various maturity dates, and is essentially a diversification approach within the bond asset class itself. Basically, a hybrid portfolio would include a mix of stocks and bonds in a relatively fixed allocation proportions. This type of approach offers diversification benefits across multiple asset classes as equities and fixed income securities tend to have a negative correlation with one another.

The Bottom LineAt the end of the day, investors should consider all of these portfolios and decide on the right allocation across all five. Here, we have laid the foundation by defining five of the more common types of portfolios. Building an investment portfolio does require more effort than a passive, index investing approach. By going it alone, you will be required to monitor your portfolio(s) and rebalance more frequently, thus racking up commission fees. Too much or too little exposure to any portfolio type introduces additional risks. Despite the extra required effort, defining and building a portfolio will increase your investing confidence, and give you control over your finances.

ROLE OF PORTFOLIO MANAGEMENT SERVICES

In the beginning of the nineties India embarked on a programme of economic liberalization and globalization. This reform process has made the Indian capital markets active. The Indian stock markets are steadily moving towards capital efficiency, with rapid computerization, increasing market transparency, better infrastructure, better customer service, closer integration and higher volumes. Large institutional investors with their diversified portfolios dominate the markets. A large number of mutual funds have been set up in the country since 1987. With this development, investment securities have gained considerable momentum.Along with the spread of securities investment among ordinary investors, the acceptance of quantitative techniques by the investment community changed the investment scenario in India. Professional portfolio management, backed by competent research, began to be practiced by mutual funds, investment consultants and big brokers. The Securities and Exchange Board of India, the stock market regulatory body in India, is supervising the whole process with a view to making portfolio management a responsible professional service to be rendered by experts in the field. With the advent of computers the whole process of portfolio management has become quite easy. The computer can absorb large volumes of data, perform the computations accurately and quickly give out the results in a desired form.

The trend towards liberalization and globalization of the economy has promoted free flow capital across international borders. Portfolios now include not only domestic securities but also foreign securities. Diversification has become international. Another significant development in the field of portfolio management is the introduction of derivatives securities such as options and futures. The trading in derivative securities, their valuation, etc. has broadened the scope of portfolio management. Portfolio management is a dynamic concept, having systematic approach that helps it to achieve efficiency in investment.

DIFFERENCE BETWEEN PORTFOLIO MANAGEMENT SERVICES (PMS) AND MUTUAL FUNDS

While the concept of Portfolio Management Services and Mutual Funds remains the same of collecting money from investors, pooling them and investing the funds in various securities. There are some differences between them described as follows: In the case of portfolio management, the target investors are high net-worth investors, while in the case of mutual funds the target investors include the retail investors. In case of portfolio management, the investments of each investor are managed separately, while in the case of MFs the funds collected under a scheme are pooled and the returns are distributed in the same proportion, in which the investors/ unit holders make the investments. The investments in portfolio management are managed taking the risk profile of individuals into account. In mutual fund, the risk is pooled depending on the objective of a scheme.In case of portfolio management, the investors are offered the advantage of personalized service to try to meet each individual clients investment objectives separately while in case of mutual funds investors are not offered any such advantage of personalized services.

ROLE OF MERCHANT BANKERS IN RESPECT TO PORTFOLIO MANAGEMENT

Merchant Banking is the institution, which covers a wide range of activities such as customer services, portfolio management, credit syndication, insurance, etc. Merchant bankers are the persons who are engaged in business of issue management by making arrangements regarding selling, buying or subscribing securities as a manager, consultant, and advisor or by rendering corporate advisory services.Let us have a look on the role played by Merchant bankers in relation to Portfolio Management:Portfolio refers to investment in different kinds of securities such as shares, debentures, etc. it is not merely a collection of un-related assets but a carefully blended asset combination within a unified framework. Portfolio management refers to maintaining proper combination of securities in a manner that they give maximum return with minimum risk.Merchant Bankers provide portfolio management services to their clients. Today the investor is very prudent and he is interested in safety, liquidity, and profitability of his investment, but he cannot study and choose the appropriate securities, he requires expert guidance. Merchant bankers have a role to play in this regard. They have to conduct regular market and economic surveys to know the following needs: Monetary and fiscal policies of the government. Financial statements of various corporate sectors in which the investments have to be made by the investors. Secondary market position i.e., how the share market is moving. Changing pattern of the industry. The competition faced by the industry with similar type of industries.

The Merchant bankers have to analyze the surveys and help the prospective investors in choosing the shares. The portfolio managers will generally have to classify the investors based on capacity and risk they can take and arrange appropriate investment. Thus portfolio management plans successful investment strategies for investors. Merchant bankers also help NRI-Non Resident Indians in selecting right type of securities and offering expertise guidance in fulfilling government regulations. By this service to NRI account holders, Merchant bankers can mobilize more resources for the corporate sector.

PORTFOLIO MANAGEMENT BY CORPORATES

Investors, whose objective is maximization of their wealth, own Corporates. Corporate ownership pattern in India shows that the bulk owners are the financial institutions and mutual funds, LIC, GIC, and other corporates, leaving aside, the FFIs, FIIs and NRIs. The ownership of individual shareholders does not exceed an average to 20-30%. The interest of financial and non-financial institutions and corporates do not coincide with that of individual shareholders who are the true savers of the household sectors while the former categories are only intermediaries.Corporate Managers secure funds from banks, and financial institutions, next only to promoters and hence their interest stands prominent in the minds of the portfolio managers in the corporate business. In case of listed corporate securities, there is no direct dialogue between Corporate Managers and the individual investors, except through the daily price quotation of the scrip on the exchanges. The share price reflects the investors perception of that company, relative to others in the field.The companies generally keep continuous contact and dialogue with financing bankers and financial institutions and not with other categories of investors, in matter of operations. The role of individual investors and remaining categories of investors can have their say only in the Annual general body meetings or other extra ordinary general body meetings, called by the corporate management.The Government and SEBI regulations, the Company law and the Listing Agreement with the Stock Exchange also guide the performance of corporates and their operations. The prudential norms for raising resources, allocation of funds and declaration of dividends, etc., are governed by the Law and Government notifications from time-to-time.

PORTFOLIO INVESTMENT BY FOREIGN INSTITUTIONAL INVESTORS

A country with a developing economy cannot depend exclusively on its own domestic savings to propel its economy's rapid growth. The domestic savings of India presently are 25% of its GDP. But this can provide only a 2 to 3% growth of its economy on annual basis. The country has to maintain an 8 to 10% growth for a period of two decades to reach the level of advanced nations and to wipe out widespread poverty of its people. The gap is to be covered by inflow of foreign investment along with advanced technology. As per the Development Goals and Strategy of the 10th Plan, which is currently under implementation:"The strategy to achieve a high annual growth target of 8.00% combines accelerated capital accumulation to raise the average investment rate from 24.23% to 28.41% with an increase in capital-use efficiency to reduce the ratio of incremental capital to output from 4.00 to about 3.55. Private sector development, infrastructure development, and increased foreign investment and trade are key to increasing efficiency"The regular inflow of external capital investment is indispensable to sustain our economic growth at the planned level and this is well recognized by the plan document itself. When remittances are made by Foreign Institutional Investors for portfolio investments, such remittances are on trading account, as securities can be bought, as well as sold back through approved stock exchanges. This may be trading transaction, but net amount at any time (purchases minus sales) is a significant figure and this adds to the foreign exchange reserves of the country.

MANAGEMENT OF INVESTMENT PORTFOLIOS

Investment Management or Portfolio Management deals with the manner in which investors analyze, select and evaluate investments in terms of their risks and expected returns. It is both an art and a science. The art aspect derives from the notion that some investors, by whatever means, have the ability to consistently pick up investments that outperform other investments on a risk/expected-return basis. Although many techniques have been developed to assist investors in the selection of investments, the concept of market efficiency maintains that for most investors, the ability to consistently select high-return/low risk investments may be difficult to do. An efficient market is one where prices reflect a given body of information. In such a situation, one investment should not persistently dominate another in terms of risk and expected return. In other words, markets are said to be efficient if there is a free flow of information and market absorbs this information quickly. James Lorie has defined the efficient security market as, the ability of the capital market to function, so that the prices of securities react rapidly to new information. Such efficiency will produce prices that are appropriate in terms of current knowledge, and investors will be less likely to make unwise investments.This brings to the science aspect of portfolio/investment management. If markets are reasonably efficient in a risk/expected-return sense, investors objective should be to choose their preferred levels of risk and expected return and to diversify as easily as possible to meet their investment goal. As a consequence, portfolio management has become very analytical. Various techniques are today available which enable investors to identify the diversified portfolio that has the highest expected return at their preferred level of risk.

ASPECTS OF PORTFOLIO MANAGEMENT

Basically, portfolio management involves: A proper investment decision-making of what to buy and sell Proper money management in terms of investment in a basket of assets to satisfy the asset preferences of the investors. Reduce the risk and increase the returns.

Investment Strategy: In India there are large number of savers, barring the 37% of population who are below the poverty line. In a poor country like this, it is surprising that saving rate is high as 24% of GDP per annum and investment at 26% of GDP. But the return in the form of output growth is as low as5 to 7% per annum. One may ask why is it that high levels of investment could not generate comparable rates of growth of output? The answer is poor investment strategy; involving high capital output ratios, low productivity of capital, and high rates of obsolescence of capital. The use of capital in India is wasteful and inefficient, despite the fact that India is labour rich and capital poor. Thus the portfolio managers in India lack the expertise and experience, which will enable them to have proper strategy for investment management.Secondly, the average Indian household saves around 60% in the financial form and 40% in the physical form. Of those in the financial form, nearly 42% is held in cash and bank deposits, as per RBI data and they have return less than inflation rates. Besides a proportion of 35% of financial savings is held in the form of insurance, pension funds, etc. while another 12% is in government instruments and certificates like post office deposits, public provident fund, national saving scheme, etc. the real returns on insurance and pension funds are low and many times lower than average inflation rates. With the removal of many tax concessions from investments in Post Office Savings, certificates, etc. they also become less attractive to small and medium investors. The only investment, satisfying all their objectives is capital market instruments. These objectives are income, capital appreciation, safety, liquidity, and hedge against inflation and investment.

Objectives of Investors: The return on equity investments in the capital market particularly if proper investment strategy is adopted would satisfy the above objectives and real returns would be higher than any other saving instruments.All investment involves risk taking. However, some risk free investments are available like bank deposits or post-office deposits whose returns are called risk free returns of about 5-12%. So, the returns on more risky investments are higher than that having risk premium. Risk is variability of return and uncertainty of payment of interest and repayment of principal. Risk is measured by standard deviation of the returns over the mean for a given period. Risk varies directly with the return. The higher the risk taken, the higher is the return, under normal market conditions.

Risk and Beta:Risk is of two components systematic market related risk and unsystematic risk. The former cannot be eliminated or managed with the help of Beta (), which is explained as follows: = % change of Scrip return% change of Market return

If = 1, the risk of the company is the same as that of the market and if > 1, the companys risk is more than market risk and if < 1, the reverse is the position.

ROLE OF PORTFOLIO MANAGER

Portfolio Manager is a professional who manages the portfolio of an investor with the objective of profitability, growth and risk minimization. According to SEBI, Any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client the management or administration of a portfolio of securities or the funds of the client, as the case may be is a portfolio manager. He is expected to manage the investors assets prudently and choose particular investment avenues appropriate for particular times aiming at maximization of profit. He tracks and monitors all your investments, cash flow and assets, through live price updates. The manager has to balance the parameters which defines a good investment i.e. security, liquidity and return. The goal is to obtain the highest return for the client of the managed portfolio. There are two types of portfolio manager known as Discretionary Portfolio Manager and Non Discretionary Portfolio Manager. Discretionary portfolio manager is the one who individually and independently manages the funds of each client in accordance with the needs of the client and non-discretionary portfolio manager is the one who manages the funds in accordance with the directions of the client.

GENERAL RESPONSIBILITIES OF A PORTFOLIO MANAGER

Following are some of the responsibilities of a Portfolio Manager: The portfolio manager shall act in a fiduciary capacity with regard to the client's funds. The portfolio manager shall transact the securities within the limitations placed by the client. The portfolio manager shall not derive any direct or indirect benefit out of the client's funds or securities. The portfolio manager shall not borrow funds or securities on behalf of the client. The portfolio manager shall ensure proper and timely handling of complaints from his clients and take appropriate action immediately The portfolio manager shall not lend securities held on behalf of clients to a third person except as provided under these regulations.

CODE OF CONDUCT OF A PORTFOLIO MANAGER

Every portfolio manager in India as per the regulation 13 of SEBI shall follow the following Code of Conduct:1. A portfolio manager shall maintain a high standard of integrity fairness.2. The clients funds should be deployed as soon as he receives.3. A portfolio manager shall render all times high standards and unbiased service.4. A portfolio manager shall not make any statement that is likely to be harmful to the integration of other portfolio manager.5. A portfolio manager shall not make any exaggerated statement.6. A portfolio manager shall not disclose to any client or press any confidential information about his client, which has come to his knowledge.7. A portfolio manager shall always provide true and adequate information.8. A portfolio manager should render the best pose advice to the client.

SCOPE OF PORTFOLIO MANAGEMENT SERVICES

Portfolio management is a continuous process. It is a dynamic activity. The following are the basic operations of a portfolio management:

Monitoring the performance of portfolio by incorporating the latest market conditions. Identification of the investors objective, constraints and preferences. Making an evaluation of portfolio income (comparison with targets and achievements). Making revision in the portfolio. Implementation of strategies in tune with the investment objectives.

ELEMENTS OF PORTFOLIO MANAGEMENT

Portfolio management is an on-going process involving the following basic tasks:

Identification of the investors objectives, constraints and preferences, which will help formulate the investment policy. Strategies are to be developed and implemented in tune with the investment policy formulated. This will help the selection of asset classes and securities in each class depending upon their risk-return attributes. Review and monitoring of the performance of the portfolio by continuous overview of the market conditions, companies performance and investors circumstances. Finally, the evaluation of the portfolio for the results to compare with the targets and needed adjustments have to be made in the portfolio to the emerging conditions and to make up for any shortfalls in achievement vis--vis targets.

The collection of data on the investors preferences, objectives, etc., is the foundation of portfolio management. This gives an idea of channels of investment in terms of asset classes to be selected and securities to be chosen based upon the liquidity requirements, time horizon, taxes, asset preferences of investors, etc. these are the building blocks for the construction of a portfolio. According to these objectives and constraints, the investment policy can be formulated. The policy will lay down the weights to be given to different asset classes of investment such as equity share, preference shares, debentures, company deposits, etc., and the proportion of funds to be invested in each class and selection of assets and securities in each class are made on this basis. The next stage is to formulate the investment strategy for a time horizon for income and capital appreciation and for a level of risk tolerance. The investment strategies developed by the portfolio managers have to be correlated with their expectation of the capital market and the individual sectors of industry. Then a particular combination of assets is chosen on the basis of investment strategy and managers expectations of the market.

OBJECTIVES OF PORTFOLIO MANAGEMENT

The objective of portfolio management is to maximize the return and minimize the risk. These objectives are categorized into:1. Basic Objectives.2. Subsidiary Objectives.

1. Basic ObjectivesThe basic objectives of a portfolio management are further divided into two kinds viz., (a) maximize yield (b) minimize risk. The aim of the portfolio management is to enhance the return for the level of risk to the portfolio owner. A desired return for a given risk level is being started. The level of risk of a portfolio depends upon many factors. The investor, who invests the savings in the financial asset, requires a regular return and capital appreciation.

2. Subsidiary ObjectivesThe subsidiary objectives of a portfolio management are expecting a reasonable income, appreciation of capital at the time of disposal, safety of the investment and liquidity etc. The objective of investor is to get a reasonable return on his investment without any risk. Any investor desires regularity of income at a consistent rate. However, it may not always be possible to get such income. Every investor has to dispose his holding after a stipulated period of time for a capital appreciation. Capital appreciation of a financial asset is highly influenced by a strong brand image, market leadership, guaranteed sales, financial strength, large pool of reverses, retained earnings and accumulated profits of the company. The idea of growth stocks is the right issue in the right industry, bought at the right time. A portfolio management desires the safety of the investment. The portfolio objective is to take the precautionary measures about the safety of the principal even by diversification process. The safety of the investment calls for careful review of economic and industry trends. Liquidity of the investment is most important, which may not be neglected by any investor/portfolio manager. An investment is to be liquid, it must have termination and marketable facility at any time.

PORTFOLIO MANAGEMENT PROCESS

INTER RELATIONSHIP AMONG VARIOUS PHASES OF PORTFOLIO MANAGEMENT

1. SPECIFICATION OF INVESTMENT OBJECTIVES AND CONSTRAINTS: The first step in the portfolio management process is to specify the investment policy that consists of investment objectives, constraints and preferences of investor. The investment policy can be explained as follows:

OBJECTIVES Return requirements: Return is the primary motive that drives investment. It is the reward for undertaking the investment. The commonly stated investment goals are income, growth and stability. Since income and growth represent two ways through which income is generated and stability implies containment or elimination of risk. But investment objectives may be more clearly expressed in terms of returns and risk. However, return and risk go hand in hand. An investor would primarily be interested in a higher return (in the form of income or capital appreciation) and lower level of risk. So he has to bear higher level of risk in order to earn high return. How much risk he would be willing to bear to earn a high return depends on his risk disposition. The investment objective should state the investor the preference of return in relation to risk.

Specification of investment objectives can be done in following two ways: Maximize the expected rate of return, subject to the risk exposure being held within a certain limit (the risk tolerance level). Minimize the risk exposure, with out sacrificing a certain expected rate of return (the target rate of return).An investor should start by defining how much risk he can bear or how much he can afford to lose, rather than specifying how much money he wants to make. The risk he wants to bear depends on two factors:a) Financial situation b) Temperament

To assess financial situation one must take into consideration: position of the wealth, major expenses, earning capacity, etc and a careful and realistic appraisal of the assets, expenses and earnings forms a base to define the risk tolerance.After appraisal of the financial situation assess the temperamental tolerance of risk. Risk tolerance level is set either by ones financial situation or financial temperament which ever is lower, so it is necessary to understand financial temperament objectively. One must realize that risk tolerance cannot be defined too rigorously or precisely. For practical purposes it is enough to define it as low, medium or high. This will serve as a valuable guide in taking an investment decision. It will provide a useful perspective and will prevent from being a victim of the waves and manias that tend to sweep the market from time to time.

Risk tolerance: Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. More specifically, most of the investors are concerned about the actual outcome being less than the expected outcome. The wider the range of possible outcomes, the greater is the risk. It all depends on the investor, how much risk he is able to bear. If he is willing to bear high risk, he is expected to get high return and if he is willing to bear low risk, he will get low return.

CONSTRAINTS AND PREFERENCES Liquidity: Liquidity refers to the speed with which an asset can be sold, without suffering any loss to its actual market price. For example, money market instruments are the most liquid assets, whereas antiques are among the least liquid. Investment horizon: the investment horizon is the time when the investment or part of it is planned to liquidate to meet a specific need. For example, the investment horizon for ten years to fund the childs college education. The investment horizon has an important bearing on the choice of assets. Taxes: The post tax return from an investment matters a lot. Tax considerations therefore have an important bearing on investment decisions. So, it is very important to review the tax shelters available and to incorporate the same in the investment decisions.

Regulations: While individual investors are generally not constrained much by laws and regulations, institutional investors have to conform to various regulations. For example, mutual funds in India are not allowed to hold more than 10 percent of equity shares of a public limited company. Unique circumstances: Almost every investor faces unique circumstances. For example, an endowment fund may be prevented from investing in the securities of companies making alcoholic and tobacco products.

2. SELECTION OF ASSET MIX: Based on the objectives and constraints, selection of assets is done. Selection of assets refers to the amount of portfolio to be invested in each of the following asset categories:

Cash: The first major economic asset that an individual plan to invest in is his or her own house. Their savings are likely to be in the form of bank deposits and money market mutual fund schemes. Referred to broadly as cash, these instruments have appeal, as they are safe and liquid. Bonds: Bonds or debentures represent long-term debt instruments. They are generally of private sector companies, public sector bonds, gilt-edged securities, RBI saving bonds, national saving certificates, Kisan Vikas Patras, bank deposits, public provident fund, post office savings, etc. Stocks: Stocks include equity shares and units/shares of equity schemes of mutual funds. It includes income shares, growth shares, blue chip shares, etc. Real estate: The most important asset for individual investors is generally a residential house. In addition to this, the more affluent investors are likely to be interested in other types of real estate, like commercial property, agricultural land, semi-urban land, etc. Precious objects and others: Precious objects are items that are generally small in size but highly valuable in monetary terms. It includes gold and silver, precious stones, art objects, etc. Other assets includes like that of financial derivatives, insurance, etc.

Conventional wisdom on Asset Mix: The conventional wisdom on the asset mix is embodied in two propositions: Other things being equal, an investor with greater tolerance for risk should tilt the portfolio in favor of stocks, whereas an investor with lesser tolerance for risk should tilt the portfolio in favor of bonds. This is because, in general, stocks are riskier than bonds hence earn higher return than bonds. Other things being equal, an investor with a longer investment horizon should tilt his portfolio in favor of stocks whereas an investor with a shorter investment horizon should tilt the portfolio in favor of bonds. This is because the expected rate of return from stocks is very sensitive to the length of the investment period; the risk from stock diminishes as investment period lengthens.

The fallacy of Time Diversification: The notion or the idea of time diversification is fallacious. Even though the uncertainty about the average rate of return diminishes over a longer period, it also compounds over a longer time period. Unfortunately, the latter effect dominates. Hence the total return becomes more uncertain as the investment horizon lengthens.

3. FORMULATION OF PORTFOLIO STRATEGY: After selection of asset mix, formulation of appropriate portfolio strategy is required. There are two types of portfolio strategies, active portfolio strategy and passive portfolio strategy. ACTIVE PORTFOLIO STRATEGY: Most investment professionals follow an active portfolio strategy and aggressive investors who strive to earn superior returns after adjustment for risk. The four principal vectors of an active strategy are: Market Timing Sector Rotation Security Selection Use of a specialized concept

Market timing: This involves departing from the normal (or strategic or long run) asset mix to reflect ones assessment of the prospects of various assets in the near future. Suppose an investors investible resources for financial assets are 100 and his normal (or strategic) stock-bond mix is 50:50. In short and intermediate run however he may be inclined to deviate from long-term asset mix. If he expects stocks to out perform bonds, on a risk-adjusted basis, in the near future, he may perhaps step up the stock component of his portfolio to say 60 to 70 percent. Such an action, of course, would raise the beta of his portfolio. On the other hand, if he expects the bonds to outperform stocks, on a risk-adjusted basis, in the near future, he may set up the bond component of his portfolio to 60 to 70 percent. This will naturally lower the beta of his portfolio. Market timing is based on an explicit or implicit forecast of general market movements. The advocates of market timing employ a variety of tools like business cycle analysis, advance-decline analysis, moving average analysis, and econometric models. The forecast of the general market movement derived with the help of one or more of these tools are tempered by the subjective judgment of the investor. Often, of course, the investor may go largely by his market sense.

Sector Rotation: The concept of sector rotation can be applied to stocks as well as bonds. It is however, used more commonly with respect to stock component of portfolio where it essentially involves shifting the weightings for various industrial sectors based on their assessed outlook. For example if it is assumed that cement and pharmaceutical sectors would do well compared to other sectors in the forthcoming period, one may overweight these sectors, relative to their position in market portfolio. With respect to bonds, sector rotation implies a shift in the composition of the bond portfolio in terms of quality, coupon rate, term to maturity and so on. For example, if there is a rise in the interest rates, there may be shift in long term bonds to medium term or even short-term bonds. But we should remember that a long-term bond is more sensitive to interest rate variation compared to a short-term bond.

Security Selection: Security selection involves a search for under priced securities. If an investor resort to active stock selection, he may employ fundamental and or technical analysis to identify stocks that seems to promise superior returns and overweight the stock component of his portfolio on them. Likewise, stocks that are perceived to be unattractive will be under weighted relative to their position in the market portfolio. As far as bonds are concerned, security selection calls for choosing bonds that offer the highest yield to maturity at a given level of risk.

Use of a specialized Investment Concept: A fourth possible approach to achieve superior returns is to employ a specialized concept or philosophy, particularly with respect to investment in stocks. As Charles D. Ellis words says, a possible way to enhance returns is to develop a profound and valid insight into the forces that drive a particular group of companies or industries and systematically exploit that investment insight or concept. Some of the concepts of investment practitioners are as follows:

Growth stocks Value stocks Asset-rich stocks Technology stocks Cyclical stocks

The advantage of cultivating a specialized investment concept or philosophy is that it will help you to:a) Focus efforts on a certain kind of investment that reflects ones abilities and talentsb) Avoid the distractions of pursuing other alternativesc) Master an approach through sustained practice and continual self-critique.As against these merits, the great disadvantage of focusing on a specialized concept is that it may become obsolete. The changes in market may cast a shadow over the validity of the basic premise underlying the investment philosophy.

PASSIVE PORTFOLIO STRATEGY: The passive strategy rests on the tenet that the capital market is fairly efficient with respect to the available information. The passive strategy is implemented according to the following two guidelines: Create a well-diversified portfolio at a predetermined level of risk. Hold the portfolio relatively unchanged over time, unless it becomes inadequately diversified or inconsistent with the investors risk-return preferences.

4. SELECTION OF SECURITIES: The following factors should be taken into consideration while selecting the fixed income avenues: SELECTION OF BONDS (fixed income avenues) Yield to maturity: The yield to maturity for a fixed income avenue represents the rate of return earned by the investors if he invests in the fixed income avenue and holds it till its maturity.

Risk of default: To assess the risk of default on a bond, one may look at the credit rating of the bond. If no credit rating is available, examine relevant financial ratios (like debt-to-equity ratio, times interest earned ratio, and earning power) of the firm and assess the general prospects of the industry to which the firm belongs.

Tax Shield: In yesteryears, several fixed income avenues offered tax shield, now very few do so.

Liquidity: If the fixed income avenue can be converted wholly or substantially into cash at a fairly short notice, it possesses liquidity of a high order.

SELECTION OF STOCK (Equity shares)Three board approaches are employed for the selection of equity shares: Technical analysis Fundamental analysis Random selectionTechnical analysis looks at price behavior and volume data to determine whether the share will move up or down or remain trend less.Fundamental analysis focuses on fundamental factors like the earnings level, growth prospects, and risk exposure to establish the intrinsic value of a share. The recommendation to buy, hold, or sell is based on a comparison of the intrinsic value and the prevailing market price. Random selection approach is based on the premise that the market is efficient and securities are properly priced.

5. PORTFOLIO EXECUTION: The next step is to implement the portfolio plan by buying or selling specified securities in given amounts. This is the phase of portfolio execution which is often glossed over in portfolio management literature. However, it is an important practical step that has a significant bearing on the investment results. In the execution stage, three decision need to be made, if the percentage holdings of various asset classes are currently different from the desired holdings.

6. PORTFOLIO REVISION: In the entire process of portfolio management, portfolio revision is as important stage as portfolio selection. Portfolio revision involves changing the existing mix of securities. This may be effected either by changing the securities currently included in the portfolio or by altering the proportion of funds invested in the securities. New securities may be added to the portfolio or some existing securities may be removed from the portfolio. Thus it leads to purchase and sale of securities. The objective of portfolio revision is similar to the objective of selection i.e. maximizing the return for a given level of risk or minimizing the risk for a given level of return.The need for portfolio revision has aroused due to changes in the financial markets since creation of portfolio. It has aroused because of many factors like availability of additional funds for investment, change in the risk attitude, change investment goals, the need to liquidate a part of the portfolio to provide funds for some alternative uses. The portfolio needs to be revised to accommodate the changes in the investors position. Portfolio Revision basically involves two stages: Portfolio Rebalancing: Portfolio Rebalancing involves reviewing and revising the portfolio composition (i.e. the stock- bond mix). There are three basic policies with respect to portfolio rebalancing: buy and hold policy, constant mix policy, and the portfolio insurance policy. Under a buy and hold policy, the initial portfolio is left undisturbed. It is essentially a buy and hold policy. Irrespective of what happens to the relative values, no rebalancing is done. For example, if the initial portfolio has a stock-bond mix of 50:50 and after six months it happens to be say 70:50 because the stock component has appreciated and the bond component has stagnated, than in such cases no changes are made.The constant mix policy calls for maintaining the proportions of stocks and bonds in line with their target value. For example, if the desired mix of stocks and bonds is say 50:50, the constant mix calls for rebalancing the portfolio when relative value of its components change, so that the target proportions are maintained.

The portfolio insurance policy calls for increasing the exposure to stocks when the portfolio appreciates in value and decreasing the exposure to stocks when the portfolio depreciates in value. The basic idea is to ensure that the portfolio value does not fall below a floor level. Portfolio Upgrading: While portfolio rebalancing involves shifting from stocks to bonds or vice versa, portfolio-upgrading calls for re-assessing the risk return characteristics of various securities (stocks as well as bonds), selling over-priced securities, and buying under-priced securities. It may also entail other changes the investor may consider necessary to enhance the performance of the portfolio.

7. PORTFOLIO EVALUATION: Portfolio evaluation is the last step in the process of portfolio management. It is the process that is concerned with assessing the performance of the portfolio over a selected period of time in terms of return and risk. Through portfolio evaluation the investor tries to find out how well the portfolio has performed. The portfolio of securities held by an investor is the result of his investment decisions. Portfolio evaluation is really a study of the impact of such decisions. This involves quantitative measurement of actual return realized and the risk born by the portfolio over the period of investment. It provides a mechanism for identifying the weakness in the investment process and for improving these deficient areas. The evaluation provides the necessary feedback for designing a better portfolio next time.

The portfolio insurance policy calls for increasing the exposure to stocks when the portfolio appreciates in value and decreasing the exposure to stocks when the portfolio depreciates in value. The basic idea is to ensure that the portfolio value does not fall below a floor level. Portfolio Upgrading: While portfolio rebalancing involves shifting from stocks to bonds or vice versa, portfolio-upgrading calls for re-assessing the risk return characteristics of various securities (stocks as well as bonds), selling over-priced securities, and buying under-priced securities. It may also entail other changes the investor may consider necessary to enhance the performance of the portfolio.

ROLE OF MERCHANT BANKERS IN RESPECT TO PORTFOLIO MANAGEMENT

Merchant Banking is the institution, which covers a wide range of activities such as customer services, portfolio management, credit syndication, insurance, etc. Merchant bankers are the persons who are engaged in business of issue management by making arrangements regarding selling, buying or subscribing securities as a manager, consultant, and advisor or by rendering corporate advisory services.Let us have a look on the role played by Merchant bankers in relation to Portfolio Management:Portfolio refers to investment in different kinds of securities such as shares, debentures, etc. it is not merely a collection of un-related assets but a carefully blended asset combination within a unified framework. Portfolio management refers to maintaining proper combination of securities in a manner that they give maximum return with minimum risk.Merchant Bankers provide portfolio management services to their clients. Today the investor is very prudent and he is interested in safety, liquidity, and profitability of his investment, but he cannot study and choose the appropriate securities, he requires expert guidance. Merchant bankers have a role to play in this regard. They have to conduct regular market and economic surveys to know the following needs: Monetary and fiscal policies of the government. Financial statements of various corporate sectors in which the investments have to be made by the investors. Secondary market position i.e., how the share market is moving. Changing pattern of the industry. The competition faced by the industry with similar type of industries.

The Merchant bankers have to analyze the surveys and help the prospective investors in choosing the shares. The portfolio managers will generally have to classify the investors based on capacity and risk they can take and arrange appropriate investment. Thus portfolio management plans successful investment strategies for investors. Merchant bankers also help NRI-Non Resident Indians in selecting right type of securities and offering expertise guidance in fulfilling government regulations. By this service to NRI account holders, Merchant bankers can mobilize more resources for the corporate sector.

MERCHANT BANKING SERVICES PROVIDED BY UNION BANK

Merchant banking primarily involves financial advice and services for large corporations and wealthy individuals. MERCHANT BANKING ACTIVITIES:The Major Merchant Banking activities which the Bank offers to its clients are:Issue Management - Management of Public Issues i.e. IPOs, FPOs, Right Issues, etc. as Book Running Lead ManagerBankers to the IssuePayment of Dividend Warrants / Interest Warrants / Refund OrdersDebenture TrusteeUnderwritingMonitoring AgencyBesides promoting / marketing the above Merchant Banking Business in the Bank through specialized Capital Market Services Branches, Merchant Banking Cells and identified branches, the Merchant Banking Division also looks after the following activities:Marketing of Merchant Banking BusinessMonitoring / Supporting Capital Market Service BranchesRefund Paid / PayableMERCHANT BANKERS ASSIGNMENTS:At present, the Bank is holding following Licenses from SEBI:Merchant BankerBanker to the IssueUnderwritingDebenture Trustee

1. Bankers to the Issue (Collecting Banker):Being a licensed Banker to Issue registered with SEBI, enables us to provide Escrow Collecting Bank/services and refund Bank services related to Initial Public Offering (IPO), Follow on Public Offering (FPO) and Right Issue.The process of collections, needs a high degree of close co-ordination between various capital market intermediaries such as the Book Running Lead Manager, the Syndicate Members, the Registrar and most importantly the issuer Company. Our large network of branches and strong bonds with various capital market constituents enable us to offer better solutions for clients.2. Payment Of Dividend Warrants / Interest Warrants (Paying Banker):The Merchant Banking Division has also got enabled a functionality of a new system in CBS branches for payment assignments, which is similar to Demand Draft Payable Account under Finacle. The product has the following unique features that ensure that the payment account of the corporate remains reconciled at any point of time: Facility for upfront uploads of the instruments issued by the companies into Core Bankingsystem o Online payment of the instruments by CBS branches o Validation of instruments details by the system o Online status update of paid instruments by the system o Online MIS on paid/unpaid instruments at any point of time o Facility to cancel lost instruments and to re-upload duplicate instruments issued in lieu thereof o MIS on cancelled instruments o 100% reconciliation of the corporate dividend / refund order payable by a/c by the system without manual interventionFacility to provide MIS on paid / outstanding instruments in ASCII format, which can be suitably converted by the corporate for updating their in-house databaseThis new facility will help in solving the major problem in handling these assignments i.e. reconciliation of accounts. This will also help in reducing the cost of reconciliation, postage and handling cost.3. Payment of Refund Orders:The detailed guidelines / procedures to be followed. Powers of the Branches / Charges etc. for handling the assignments of Bankers to the Issue/ Payment of Dividend warrants / Refund Orders etc. are available in the circulars of the Division at the Banks website.4. Underwriting:Underwriting is a contingent liability and this is one sphere of Merchant banking where outlay of funds on the part of the bank may be involved. As such, it is necessary to be very careful in accepting / recommending such business. Proposals that pose clear risk of devolvement should be declined at the outset unless there is sub underwriting tie up directly or indirectly with promoters and their related investment companies or a firm commitment of buy back on reasonable terms.Major aspects which need close scrutiny before underwriting can be considered are the project and its viability, project location, promoters and their track record, product and its marketability, past performance of existing companies in the same line, Government Policy, projected financial performance, capital market conditions, underwriting / sub underwriting / buy back arrangements, etc.

5. Debenture Trustee:In terms of SEBI guidelines, all debenture issues (public/rights) of the companies with the maturity period exceeding 18 months are required to have "Debenture Trustee" and its name must be stated in the prospectus of the issue.We are registered with SEBI for handling of the debenture trustee assignments registration No.IND000000023.Dissemination of information on Debentures in default

UNION KBC BANK PLANS ENTRY INTO WEALTH MANAGEMENT BUSINESSNEW DELHI: State-ownedUnion Bank of Indiaplans to enter the wealth management business in partnership with a foreign player to increase its fee-based income, after recently receiving Sebi nod for entering into the mutual fund sector."Once the asset management business is in place, we will start the process of looking for the internationally reputed player for our proposed wealth management business," Union Bank of India Chairman and Managing Director M V Nair told PTI.Possibly after next 5-6 months, the bank will start scouting for a partner to offer the best in class wealth management products and services, he said.Last week, Union Bank of India got the approval from the market watchdog Sebi to enter the mutual fund arena.The bank had tied up with the Belgian financial firm KBC Asset Management to enter the MF business in November, 2008.After getting shareholders' approval, the bank moved the Sebi for approval in early 2009.Union Bank holds 51 per cent stake in the JV, which has a capital base of Rs 50 crore, while the balance is with the Belgian firm.On overseas expansion plan, Nair said the bank plans to set up a subsidiary in the United Kingdom and a branch in Australia and Belgium, and is expected to get regulatory approval for the same in the next six months."We hope to get approval from the respective regulators in the next six months," he said.The bank has already got nod from the Reserve