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Chapter 1
INTRODUCTION OF BANKING

INTRODUCTION OF BANKING:
Definition Of Bank:
Banking Means "Accepting Deposits for the purpose of lending or Investment
of deposits of money from the public, repayable on demand or otherwise and
withdraw by cheque, draft or otherwise."
-Banking Companies (Regulation) Act,1949

ORIGIN OF THE WORD BANK:-
The origin of the word bank is shrouded in mystery. According to one view point
the Italian business house carrying on crude from of banking were called banchi
bancheri" According to another viewpoint banking is derived from German word
"Branck" which mean heap or mound. In England, the issue of paper money by the
government was referred to as a raising a bank.



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1.1 BANKING SYSTEM IN INDIA
Without a sound and effective banking system in India it cannot have a healthy
economy.The banking system of India should not only be hassle free but it should
be able to meet new challenges posed by the technology and any other external and
internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the
main reasons of India's growth process.

HISTORY OF BANKING IN INDIA
Banking in India has its origin as early or Vedic period. It is believed that the
transitions from many lending to banking must have occurred even before Manu,
the great Hindu furriest, who has devoted a section of his work to deposit and
advances and laid down rules relating to the rate of interest. During the mogul
period, the indigenous banker played a very important role in lending money and
financing foreign trade and commerce.
During the days of the East India Company it was the turn of agency house to carry
on the banking business. The General Bank of India was the first joint stock bank
to be established in the year 1786. The other which followed was the Bank of
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Hindustan and Bengal Bank. The Bank of Hindustan is reported to have continued
till 1906. While other two failed in the meantime. In the first half of the 19th
century the East India Company established there banks, The bank of Bengal in
1809, the Bank of Bombay in 1840 and the Bank of Bombay in1843. These three
banks also known as the Presidency banks were the independent units and
functioned well. These three banks were amalgamated in 1920 and new bank, the
Imperial Bank of India was established on 27th January, 1921.

With the passing of the State Bank of India Act in 1955 the undertaking of the
Imperial Bank of India was taken over by the newly constituted SBI. The Reserve
Bank of India (RBI) which is the Central bank was established in April, 1935 by
passing Reserve bank of India act 1935. The Central office of RBI is in Mumbai
and it controls all the other banks in the country.

In the wake of Swadeshi Movement, number of banks with the Indian management
were established in the country namely, Punjab National Bank Ltd., Bank of India
Ltd., Bank of Baroda Ltd., Canara Bank. Ltd. on 19th July 1969, 14 major banks of
the country were nationalized and on 15th April 1980, 6 more commercial private
sector banks were taken over by the government.

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The first bank in India, though conservative, was established in 1786. From 1786
till today,the journey of Indian Banking System can be segregated into three
distinct phases. They areas mentioned below:

Early phase from 1786 to 1969 of Indian Banks

Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II
and Phase III.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units
and called it Presidency Banks.
These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly Europeans
shareholders.


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In 1865 Allahabad Bank was established and first time exclusively by Indians,
Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore.
Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda,
Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of
India came in 1935.
During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948. There were approximately 1100 banks,
mostly small. To streamline the functioning and activities of commercial banks, the
Government of India came up with The Banking Companies Act, 1949 which was
later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act
No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the
supervision of banking in India as the Central Banking Authority.
During those days public has lesser confidence in the banks. As an aftermath
deposit mobilization was slow. Abreast of it the savings bank facility provided by
the Postal department was comparatively safer. Moreover, funds were largely
given to traders.
Phase II
Government took major steps in this Indian Banking Sector Reform after
independence. In1955, it nationalized Imperial Bank of India with extensive
banking facilities on a large scale especially in rural and semi-urban areas. It
formed State Bank of India to act as the principal agent of RBI and to handle
banking transactions of the Union and State Governments all over the country.

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Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on
19th July,1969, major process of nationalization was carried out. It was the effort
of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial
banks in the country was nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in
1980 with seven more banks. This step brought 80% of the banking segment in
India under Government ownership.
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank India rose
to approximately 800% in deposits and advances took a huge jump by
11,000%.Banking in the sunshine of Government ownership gave the public
implicit faith and immense confidence about the sustainability of these institutions.


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Phase III
This phase has introduced many more products and facilities in the banking sector
in its reforms measure. In 1991, under the chairmanship of M Narasimham,
a committee was set up by his name which worked for the liberalization of banking
practices.
The country is flooded with foreign banks and their ATM stations. Efforts are
being put to give a satisfactory service to customers. Phone banking and net
banking is introduced. The entire system became more convenient and swift. Time
is given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered
from any crisis triggered by any external macroeconomics shock as other East
Asian Countries suffered. This is all due to a flexible exchange rate regime, the
foreign reserves are high, the capital account is not yet fully convertible, and banks
and their customers have limited foreign exchange exposure.
.






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Chapter 2
PORTFOLIO MANAGEMENT.

MEANING OF PORTFOLIO:
A combination of securities with different risk & return characteristics will
constitute the portfolio of the investor. Thus, a portfolio is the combination of
various assets and/or instruments of investments. The combination may have
different features of risk & return, separate from those of the components. The
portfolio is also built up out of the wealth or income of the investor over a period
of time, with a view to suit his risk and return preference to that of the portfolio
that he holds. The portfolio analysis of the risk and return characteristics of
individual securities in the portfolio and changes that may take place in
combination with other securities due to interaction among themselves and impact
of each one of them on others.






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PORTFOLIO MANAGEMENT
Portfolio management is the professional management of various securities
(shares, bonds and other securities) and assets (e.g., real estate) in order to meet
specified investment goals for the benefit of the investors.
The art and science of making decisions about investment mix and policy,
matching investments to objectives, asset allocation for individuals and
institutions, and balancing risk against performance.
Portfolio management is all about strengths, weaknesses, opportunities and threats
in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and
many other tradeoffs encountered in the attempt to maximize return at a given
appetite for risk.
2.1 BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT:
There are two basic principles for effective portfolio management which are given
below:-
I. Effective investment planning for the investment in securities by considering
the following factors:
a) Fiscal, financial and monetary policies of the Govt. of India and the
Reserve Bank of India.
b) Industrial and economic environment and its impact on industry.
Prospect in terms of prospective technological changes, competition in the market,
capacity utilization with industry and demand prospects etc.
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II. Constant Review of Investment:
It requires to review the investment in securities and to continue the selling and
purchasing of investment in more profitable manner. For this purpose they have to
carry the following analysis:
a) To assess the quality of the management of the companies in which
investment has been made or proposed to be made.
b) To assess the financial and trend analysis of companies Balance Sheet and
Profit and Loss Accounts to identify the optimum capital structure and better
performance for the purpose of withholding the investment from poor companies.
c) To analyze the security market and its trend in continuous basis to arrive at a
conclusion as to whether the securities already in possession should be disinvested
and new securities be purchased. If so the timing for investment or disinvestment is
also revealed.
2.2 OBJECTIVES OF PORTFOLIO MANAGEMENT:

The major objectives of portfolio management are summarized as below:-
1. SECURITY/SAFETY OF PRINCIPAL: Security not only involves keeping
the principal sum intact but also keeping intact its purchasing power intact.
2. STABILITY OF INCOME: So as to facilitate planning more accurately and
systematically the reinvestment consumption of income.
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3. CAPITAL GROWTH: This can be attained by reinvesting in growth
securities or through purchase of growth securities.
4. MARKETABILITY: It is the case with which a security can be bought or
sold. This is essential for providing flexibility to investment portfolio.
5. LIQUIDITY I.E. NEARNESS TO MONEY: It is desirable to investor so as
to take advantage of attractive opportunities upcoming in the market.
6. DIVERSIFICATION: The basic objective of building a portfolio is to
reduce risk of loss of capital and / or income by investing in various types of
securities and over a wide range of industries.
7. FAVORABLE TAX STATUS: The effective yield an investor gets form his
investment depends on tax to which it is subject. By minimizing the tax burden,
yield can be effectively improved.
2.3 THE PORTFOLIO MANAGEMENT PROCESS:
The portfolio management process is the process an investor takes to aid him in
meeting his investment goals.
The procedure is as follows:
1. CREATE A POLICY STATEMENT -A policy statement is the statement
that contains the investor's goals and constraints as it relates to his investments.
2. DEVELOP AN INVESTMENT STRATEGY -This entails creating a
strategy that combines the investor's goals and objectives with current financial
market and economic conditions.
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3. IMPLEMENT THE PLAN CREATED -This entails putting the investment
strategy to work, investing in a portfolio that meets the client's goals and constraint
requirements.
4. MONITOR AND UPDATE THE PLAN -Both markets and investors' needs
change as time changes. As such, it is important to monitor for these changes as
they occur and to update the plan to adjust for the changes that have occurred.
2.4 SCOPE OF PORTFOLIO MANAGEMENT:
Portfolio management is a continuous process. It is a dynamic activity. The
following are the basic operations of a portfolio management.
1. Monitoring the performance of portfolio by incorporating the latest market
conditions.
2. Identification of the investors objective, constraints and preferences.
3. Making an evaluation of portfolio income (comparison with targets and
achievement).
4. Making revision in the portfolio.
5. Implementation of the strategies in tune with investment objectives.




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2.5 INSTRUMENT OF SECURITIES

LONG TERM SECURITIES.
SHORT TERM SECURITIES.

INSTRUMENTS OF SECURITIES:
A. LONG TERM SECURITIES:
1. SHARE (EQUITY AND PREFERENCE SHARE ): A unit of ownership that
represents an equal proportion of a company's capital. It entitles its holder (the
shareholder) to an equal claim on the company's profits and an equal obligation for
the company's debts and losses.
Two major types of shares are:
a. ordinary shares (common stock), which entitle the shareholder to share in
the earnings of the company as and when they occur, and to vote at the company's
annual general meetings and other official meetings.
b. preference shares (preferred stock) which entitle the shareholder to a fixed
periodic income (interest) but generally do not give him or her voting rights. See
also stock.
2. DEBENTURE: A debenture is defined as a certificate of agreement of loans
which is given under the company's stamp and carries an undertaking that the
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debenture holder will get a fixed return (fixed on the basis of interest rates) and the
principal amount whenever the debenture matures.
3. BOND: A bond is a fixed interest financial asset issued by governments,
companies, banks, public utilities and other large entities. Bonds pay the bearer a
fixed amount a specified end date. A discount bond pays the bearer only at the
ending date, while a coupon bond pays the bearer a fixed amount over a specified
interval (month, year, etc.) as well as paying a fixed amount at the end date.
B. SHORT TERM SECURITES
1. COMMERCIAL BILL: Commercial bill is a short term, negotiable, and self-
liquidating instrument with low risk. It enhances he liability to make payment in a
fixed date when goods are bought on credit
2. TREASURY BILL: The Treasury bills are short-term money market instrument
that mature in a year or less than that. The purchase price is less than the face
value. At maturity the government pays the Treasury bill holder the full face value.
The Treasury Bills are marketable, affordable and risk free. The security attached
to the treasury bills comes at the cost of very low returns.
3. CALL /NOTICE MONEY: The call/notice/term money market is a market for
trading very short term liquid financial assets that are readily convertible into cash
at low cost.
4. COLLATERALIZED BORROWING AND LENDING OBLIGATION: A
money market instrument that represents an obligation between a borrower and a
lender as to the terms and conditions of the loan. Collateralized borrowing and
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lending obligations (CBLOs) are used by those who have been phased out of or
heavily restricted in the interbank call money market.
5. CERTIFICATE OF DEPOSIT: The certificates of deposit are basically time
deposits that are issued by the commercial banks with maturity periods ranging
from 3 months to five years. The return on the certificate of deposit is higher than
the Treasury Bills because it assumes a higher level of risk.
6. COMMERCIAL PAPER: Commercial Paper is short-term loan that is issued by
a corporation use for financing accounts receivable and inventories. Commercial
Papers have higher denominations as compared to the Treasury Bills and the
Certificate of Deposit. The maturity periods of Commercial Papers are a maximum
of 9 months. They are very safe since the financial situation of the corporation can
be anticipated over a few months.

2.6 MUTUAL FUND.
MUTUAL FUND
Mutual Fund is a mechanism for pooling the resources by issuing units to the
investors and investing the funds in securities in accordance with objectives as
disclosed in other document. Investment in securities are spread across a wide
cross-section of industries and sectors and the thus the risk is reduced.
Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. Mutual fund issues units to be

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investors in accordance with quantum of money invested by them. Investors of
mutual funds are known as the unit holders.
The profit or losses are shared by the investors in proportion to their investments.
The mutual funds normally come out with a number of schemes with different
investment objectives which are launched from time to time. A mutual fund is
required to be registered with Securities and Exchange Board of India (SEBI)
which regulates securities markets before it can collect funds from the public.
A Mutual Fund is a trust that pools the savings of a number of investors who share
a common financial goal. The money thus collected is then invested in capital
market instruments such a shares, debentures and other securities. The income
earned through these investments and the capital appreciations realized are shared
by its unit holders in proportion to the number of units owned by them. Thus
Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities
at a relatively low cost. The flow chart below describes broadly the working of a
mutual fund.
CHARACTERISTICS OF MUTUAL FUND
The Mutual Fund belongs to those investors who have invested their money for
future earning.

It is managed by professionals who charge the fees for their services, from the
fund.

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PROFESSIONAL
MANAGEMENT
AFFORDABILITY
DIVERSIFICATION
FLEXIBILITY
LIQUIDITY
TRANSPARENCY
REGULATION
TAX BENEFITS

Investors purchase Mutual Fund shares from the fund itself (or through a broker
for the fund) instead of from other investors on a secondary market.

The price that investors pay for Mutual Fund shares is the fund's per share NET
ASSET VALUE (NAV) which is updated everyday plus any shareholders fees
that the fund imposes at the time of purchase (such as sales loads).

Mutual Fund shares are "REDEEMABLE," which means investors can sell
their shares back to the fund (or to a broker acting for the fund).

ADVANTAGE OF MUTUAL FUND








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1. PROFESSIONAL MANAGEMENT
Qualified investment professionals who seek to maximize returns and minimize
risk monitor investor's money. When a person buys in to a mutual fund, he/she is
handing his/her money to an investment professional who have experience in
making investment decisions .
2. DIVERSIFICATION
Mutual fund unit-holders can get the benefit from diversification techniques
usually available only to investors wealthy enough to buy significant positions in a
broad variety of securities. The diversification process may add to the stability of
the returns.
3. AFFORDABILITY
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending
upon the investment objective of the scheme. An investor can buy in to a portfolio
of equities, which would otherwise be extremely expensive. Each unit holder thus
gets an exposure to such portfolios with an investment as modest as Rs.500/-. So, it
would be affordable for an investor to build a portfolio of investments through a
mutual fund rather than investing directly in the stock market.
4. FLEXIBILITY
An investor owns just one security rather than many, yet enjoy the benefits of a
diversified portfolio and a wide range of services. Fund managers decide what

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securities to trade collect the interest payments and see that the dividends on
portfolio securities are received and investors rights exercised. It also uses the
services of a high quality custodian and registrar in order to make sure that the
convenience of investor remains at the top of the minds of AMCs.
5. LIQUIDITY
In open-ended mutual funds, investors can redeem or get their money back either
all or part of their units any time they wish. But in some schemes do have a lock-in
period where an investor cannot return the units until the completion of such a
lock-in period.
6. TRANSPARENCY
Open-ended mutual funds release their Net Asset Value daily and the entire
portfolio monthly. By this investor can get regular information on the value of the
investment in addition to disclosure on the specific investments made by the
mutual fund scheme. This level of transparency, where the investor himself sees
the underlying assets bought with his money, is unmatched by any other financial
instrument.
7. TAX BENEFITS
Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to Unit
holders of open-ended equity-oriented funds, income distributions for the year
ending March 31, 2003, will be taxed at a concessional rate of 10.5%.

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In case of Individuals and Hindu Undivided Families (HUF) a deduction up to Rs.
9,000 from the Total Income will be admissible in respect of income from
investments specified in Section 80L, including income from Units of the Mutual
Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax.
8. REGULATIONS
Securities Exchange Board of India (SEBI), the mutual funds regulator has
clearly defined rules, which govern mutual funds. These rules relate to the
formation, administration and management of mutual funds and also prescribe
disclosure and accounting requirements. Such a high level of regulation seeks to
protect the interest of investors.
DISADVANTAGES OF MUTUAL FUNDS:
1. LOWER-THAN-MARKET PERFORMANCE: Generally, most actively
managed mutual funds have not beaten their benchmarks over the long-term.
While in some years actively managed funds outperform their fund counterparts,
the support for actively managed funds for longer periods of time is low.

2. HIGH COSTS: Unless you analyze funds carefully before you buy them,
you may inadvertently choose a mutual fund that charges significant management
fees, custodial fees, and transfer fees.

3. INABILITY TO PLAN FOR TAXES: Mutual funds distribute 95 percent of
all capital gains and dividends to shareholders at the end of each year. Even if
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shareholders do not sell their mutual fund shares, they may be required to pay a
significant tax bill each year.

4. PREMIUMS OR DISCOUNTS: Closed-end mutual funds may be traded at
a premium (discount) to the funds underlying net asset value. These premiums are
based on investor demand more than they are based on actual share value;
therefore, premiums are not constant over time.

5. NEW INVESTOR BIAS: Shares purchased by new investors dilute the
value of the shares owned by current investors. When new money enters the
mutual fund at net asset value, the money must be invested, which costs roughly
0.5 percent in an average U.S. stock fund. Thus, the funds of current investors are
used to subsidize purchase of the new ones.







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Chapter 3
PORTFOLIO MANAGEMENT OF HDFC BANK
The Housing Development Finance Corporation Limited (HDFC) was amongst the
first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to
set up a bank in the private sector, as part of the RBI's liberalisation of the Indian
Banking Industry in 1994. The bank was incorporated in August 1994 in the name
of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank
commenced operations as a Scheduled Commercial Bank in January 1995.
HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to
remain the market leader in mortgages. Its outstanding loan portfolio covers well
over a million dwelling units. HDFC has developed significant expertise in retail
mortgage loans to different market segments and also has a large corporate client
base for its housing related credit facilities. With its experience in the financial
markets, a strong market reputation, large shareholder base and unique consumer
franchise, HDFC was ideally positioned to promote a bank in the Indian
environment.
HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to
build sound customer franchises across distinct businesses so as to be the preferred
provider of banking services for target retail and wholesale customer segments,
and to achieve healthy growth in profitability, consistent with the bank's risk
appetite. The bank is committed to maintain the highest level of ethical standards,
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professional integrity, corporate governance and regulatory compliance. HDFC
Bank's business philosophy is based on four core values - Operational Excellence,
Customer Focus, Product Leadership and People.
3.1 Capital Structure
As on 31st December, 2009 the authorized share capital of the Bank is Rs. 550
crore. The paid-up capital as on said date is Rs. 455,23,65,640/- (45,52,36,564
equity shares of Rs. 10/- each). The HDFC Group holds 23.87 % of the Bank's
equity and about 16.94 % of the equity is held by the ADS Depository (in respect
of the bank's American Depository Shares (ADS) Issue). 27.46 % of the equity is
held by Foreign Institutional Investors (FIIs) and the Bank has about 4,58,683
shareholders.
The shares are listed on the Bombay Stock Exchange Limited and The National
Stock Exchange of India Limited. The Bank's American Depository Shares (ADS)
are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and
the Bank's Global Depository Receipts (GDRs) are listed on Luxembourg Stock
Exchange under ISIN No US40415F2002.
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable
network of 1,725 branches spread in 771 cities across India. All branches are
linked on an online real-time basis. Customers in over 500 locations are also
serviced through Telephone Banking. The Bank's expansion plans take into
account the need to have a presence in all major industrial and commercial centres
where its corporate customers are located as well as the need to build a strong retail
customer base for both deposits and loan products. Being a clearing/settlement
24


bank to various leading stock exchanges, the Bank has branches in the centres
where the NSE/BSE have a strong and active member base.
The Bank also has 4,000 networked ATMs across these cities. Moreover, HDFC
Bank's ATM network can be accessed by all domestic and international
Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express
Credit/Charge cardholders.
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this,
Mr. Capoor was a Deputy Governor of the Reserve Bank of India.
The Managing Director, Mr. Aditya Puri, has been a professional banker for over
25 years, and before joining HDFC Bank in 1994 was heading Citibank's
operations in Malaysia.
The Bank's Board of Directors is composed of eminent individuals with a wealth of
experience in public policy, administration, industry and commercial banking.
Senior executives representing HDFC are also on the Board.
Senior banking professionals with substantial experience in India and abroad head
various businesses and functions and report to the Managing Director. Given the
professional expertise of the management team and the overall focus on recruiting
and retaining the best talent in the industry, the bank believes that its people are a
significant competitive strength.
HDFC Bank operates in a highly automated environment in terms of information
technology and communication systems. All the bank's branches have online
connectivity, which enables the bank to offer speedy funds transfer facilities to its
25


customers. Multi-branch access is also provided to retail customers through the
branch network and Automated Teller Machines (ATMs).
The Bank has made substantial efforts and investments in acquiring the best
technology available internationally, to build the infrastructure for a world class
bank. The Bank's business is supported by scalable and robust systems which
ensure that our clients always get the finest services we offer.
The Bank has prioritised its engagement in technology and the internet as one of its
key goals and has already made significant progress in web-enabling its core
businesses. In each of its businesses, the Bank has succeeded in leveraging its
market position, expertise and technology to create a competitive advantage and
build market share.
HDFC Bank offers a wide range of commercial and transactional banking services
and treasury products to wholesale and retail customers. The bank has three key
business segments:
Wholesale Banking Services
The Bank's target market ranges from large, blue-chip manufacturing companies in
the Indian corporate to small & mid-sized corporates and agri-based businesses.
For these customers, the Bank provides a wide range of commercial and
transactional banking services, including working capital finance, trade services,
transactional services, cash management, etc. The bank is also a leading provider
of structured solutions, which combine cash management services with vendor and
distributor finance for facilitating superior supply chain management for its
corporate customers. Based on its superior product delivery / service levels and
26


strong customer orientation, the Bank has made significant inroads into the
banking consortia of a number of leading Indian corporates including
multinationals, companies from the domestic business houses and prime public
sector companies. It is recognised as a leading provider of cash management and
transactional banking solutions to corporate customers, mutual funds, stock
exchange members and banks.
Retail Banking Services
The objective of the Retail Bank is to provide its target market customers a full
range of financial products and banking services, giving the customer a one-stop
window for all his/her banking requirements. The products are backed by world-
class service and delivered to customers through the growing branch network, as
well as through alternative delivery channels like ATMs, Phone Banking,
NetBanking and Mobile Banking.
The HDFC Bank Preferred program for high net worth individuals, the HDFC
Bank Plus and the Investment Advisory Services programs have been designed
keeping in mind needs of customers who seek distinct financial solutions,
information and advice on various investment avenues. The Bank also has a wide
array of retail loan products including Auto Loans, Loans against marketable
securities, Personal Loans and Loans for Two-wheelers. It is also a leading
provider of Depository Participant (DP) services for retail customers, providing
customers the facility to hold their investments in electronic form.


27


HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Mastercard Maestro debit
card as well. The Bank launched its credit card business in late 2001. By March
2009, the bank had a total card base (debit and credit cards) of over 13 million. The
Bank is also one of the leading players in the merchant acquiring business with
over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at
merchant establishments. The Bank is well positioned as a leader in various net
based B2C opportunities including a wide range of internet banking services for
Fixed Deposits, Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange
and Derivatives, Local Currency Money Market & Debt Securities, and Equities.
With the liberalisation of the financial markets in India, corporates need more
sophisticated risk management information, advice and product structures. These
and fine pricing on various treasury products are provided through the bank's
Treasury team. To comply with statutory reserve requirements, the bank is required
to hold 25% of its deposits in government securities. The Treasury business is
responsible for managing the returns and market risk on this investment portfolio.
Credit Rating
The Bank has its deposit programs rated by two rating agencies - Credit Analysis
& Research Limited (CARE) and Fitch Ratings India Private Limited. The Bank's
Fixed Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by CARE,

28


which represents instruments considered to be "of the best quality, carrying
negligible investment risk". CARE has also rated the bank's Certificate of Deposit
(CD) programme "PR 1+" which represents "superior capacity for repayment of
short term promissory obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary
of Fitch Inc.) has assigned the "AAA ( ind )" rating to the Bank's deposit
programme, with the outlook on the rating as "stable". This rating indicates
"highest credit quality" where "protection factors are very high"
The Bank also has its long term unsecured, subordinated (Tier II) Bonds rated by
CARE and Fitch Ratings India Private Limited and its Tier I perpetual Bonds and
Upper Tier II Bonds rated by CARE and CRISIL Ltd. CARE has assigned the
rating of "CARE AAA" for the subordinated Tier II Bonds while Fitch Ratings
India Pvt. Ltd. has assigned the rating "AAA (ind)" with the outlook on the rating
as "stable". CARE has also assigned "CARE AAA [Triple A]" for the Banks
Perpetual bond and Upper Tier II bond issues. CRISIL has assigned the rating
"AAA / Stable" for the Bank's Perpetual Debt programme and Upper Tier II Bond
issue. In each of the cases referred to above, the ratings awarded were the highest
assigned by the rating agency for those instruments.
Corporate Governance Rating
The bank was one of the first four companies, which subjected itself to a Corporate
Governance and Value Creation (GVC) rating by the rating agency, The Credit
Rating Information Services of India Limited (CRISIL). The rating provides an
independent assessment of an entity's current performance and an expectation on
its "balanced value creation and corporate governance practices" in future. The
bank has been assigned a 'CRISIL GVC Level 1' rating which indicates that the
29


bank's capability with respect to wealth creation for all its stakeholders while
adopting sound corporate governance practices is the highest.

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC
Bank was formally approved by Reserve Bank of India to complete the statutory
and regulatory approval process. As per the scheme of amalgamation, shareholders
of CBoP received 1 share of HDFC Bank for every 29 shares of CBoP.
The merged entity will have a strong deposit base of around Rs. 1,22,000 crore and
net advances of around Rs. 89,000 crore. The balance sheet size of the combined
entity would be over Rs. 1,63,000 crore. The amalgamation added significant value
to HDFC Bank in terms of increased branch network, geographic reach, and
customer base, and a bigger pool of skilled manpower.
In a milestone transaction in the Indian banking industry, Times Bank Limited
(another new private sector bank promoted by Bennett, Coleman & Co. / Times
Group) was merged with HDFC Bank Ltd., effective February 26, 2000. This was
the first merger of two private banks in the New Generation Private Sector Banks.
As per the scheme of amalgamation approved by the shareholders of both banks
and the Reserve Bank of India, shareholders of Times Bank received 1 share of
HDFC Bank for every 5.75 shares of Times Bank.
HDFC Bank Ltd. (BSE: 500180, NYSE: HDB) is a commercial bank of India,
incorporated in August 1994, after the Reserve Bank of India allowed establishing
private sector banks. The Bank was promoted by the Housing Development
Finance Corporation, a premier housing finance company (set up in 1977) of India.
30

HDFC Bank has 1,412 branches and over 3,295 ATMs, in 528 cities in India, and
all branches of the bank are linked on an online real-time basis. As of September
30, 2008 the bank had total assets of INR 1006.82 billion. For the fiscal year 2008-
09, the bank has reported net profit of Rs.2,244.9 crore, up 41% from the previous

fiscal. Total annual earnings of the bank increased by 58% reaching at Rs.19,622.8
crore in 2008-09.
3.2 Business Focus
HDFC Bank deals with three key business segments - WholesaleBanking Services,
Retail Banking Services, Treasury. It has entered the bankingconsortia of over 50
corporates for providing working capital finance, tradeservices, corporate finance
and merchant banking. It is also providingsophisticated product structures in
areasof foreign exchange and derivatives, money markets and debt trading and
equityresearch.
Wholesale Banking Services
The Bank's target m inroads into the banking consortia of a number of leading
Indian corporates including multinationals, companies from the domestic business
houses and prime public sector companies. It is recognised as a leading provider of
cash management and transactional banking solutions to corporate customers,
mutual funds, stock exchange members and banks.
Retail Banking Services
The objective of the Retail Bank is to provide its target market customers a full
range of financial products and banking services, giving the customer a one-stop
31


window for all his/her banking requirements. The products are backed by world-
class service and delivered to customers through the growing branch network, as
well as through alternative delivery channels like ATMs, Phone Banking,
NetBanking and Mobile Banking.
HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Mastercard Maestro debit
card as well. The Bank launched its credit card business in late 2001. By March
2009, the bank had a total card base (debit and credit cards) of over 13 million. The
Bank is also one of the leading players in the merchant acquiring business with
over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at
merchant establishments. The Bank is well positioned as a leader in various net
based B2C opportunities including a wide range of internet banking services for
Fixed Deposits, Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange
and Derivatives, Local Currency Money Market & Debt Securities, and Equities.
These services are provided through the bank's Treasury team. To comply with
statutory reserve requirements, the bank is required to hold 25% of its deposits in
government securities. The Treasury business is responsible for managing the
returns and market risk on this investment portfolio.
Distribution Network
HDFC Bank is headquartered in Mumbai. The Bank has an network of 1,725
branches spread in 771 cities across India. All branches are linked on an online
32


real-time basis. Customers in over 500 locations are also serviced through
Telephone Banking. The Bank has a presence in all major industrial and
commercial centres across the country. Being a clearing/settlement bank to various
leading stock exchanges, the Bank has branches in the centres where the NSE/BSE
have a strong and active member base.
The Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC
Bank's ATM network can be accessed by all domestic and international
Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express
Credit/Charge cardholders.
Housing Development Finance Corporation Limited or HDFC (BSE: 500010),
founded 1977 by Ravi Maurya and Hasmukhbhai Parekh, is an Indian NBFC,
focusing on home mortgages. HDFC's distribution network spans 243 outlets that
include 49 offices of HDFC's distribution company, HDFC Sales Private Limited.
In addition, HDFC covers over 90 locations through its outreach programmes.
HDFC's marketing efforts continue to be concentrated on developing a stronger
distribution network. Home loans are also Sharcket through HDFC Sales, HDFC
Bank Limited and other third party Direct Selling Agents (DSA).
To cater to non-resident Indians, HDFC has an office in London and Dubai and
service associates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi, Al Khobar,
Jeddah and Riyadh in Saudi Arabia.



33


STRUCTURE / PROCESS OF TYPICAL PORTFOLIO
MANAGEMENT

In the small firm, the portfolio manager performs the job of security analyst.
In the case of medium and large sized organizations, job function of portfolio
manager and security analyst are separate.



3.3 TYPES OF PORTFOLIO MANAGEMENT:
1. DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE (DPMS):
In this type of service, the client parts with his money in favor of the manager, who
in return, handles all the paper work, makes all the decisions and gives a good
return on the investment and charges fees. In the Discretionary Portfolio

34


Management Service, to maximize the yield, almost all portfolio managers park the
funds in the money market securities such as overnight market, 18 days treasury
bills and 90 days commercial bills. Normally, the return of such investment varies
from 14 to 18 percent, depending on the call money rates prevailing at the time of
investment.
2. NON-DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE
(NDPMS):
The manager functions as a counselor, but the investor is free to accept or reject
the managers advice; the paper work is also undertaken by manager for a service
charge. The manager concentrates on stock market instruments with a portfolio
tailor-made to the risk taking ability of the investor.
3.4 IMPORTANCE OF PORTFOLIO MANAGEMENT:
Emergence of institutional investing on behalf of individuals. A
number of financial institutions, mutual funds and other agencies are
undertaking the task of investing money of small investors, on their behalf.

Growth in the number and size of ingestible funds a large part of
household savings is being directed towards financial assets.

Increased market volatility risk and return parameters of financial
assets are continuously changing because of frequent changes in
governments industrial and fiscal policies, economic uncertainty and
instability.
35


Greater use of computers for processing mass of data.

Professionalization of the field and increasing use of analytical
methods (e.g. quantitative techniques) in the investment decision making

Larger direct and indirect costs of errors or shortfalls in meeting
portfolio objectives increased competition and greater scrutiny by
investors.
3.5 NEED & IMPORTANCE:
Portfolio management has emerged as a separate academic discipline in India.
Portfolio theory that deals with the rational investment decision-making process
has now become an integral part of financial literature.
Investing in securities such as shares, debentures & bonds is profitable well
as exciting. It is indeed rewarding but involves a great deal of risk & need artistic
skill. Investing in financial securities is now considered to be one of the most risky
avenues of investment. It is rare to find investors investing their entire savings in a
single security. Instead, they tend to invest in a group of securities. Such group of
securities is called as PORTFOLIO. Creation of portfolio helps to reduce risk
without sacrificing returns. Portfolio management deals with the analysis of
individual securities as well as with the theory & practice of optimally combining
securities into portfolios.

36


The modern theory is of the view that by diversification, risk can be reduced. The
investor can make diversification either by having a large number of shares of
companies in different regions, in different industries or those producing different
types of product lines. Modern theory believes in the perspective of combinations
of securities under constraints of risk and return.

3.6 OBJECTIVES OF THE STUDY:
To study the investment pattern and its related risks & returns.

To find out optimal portfolio, which gave optimal return at a minimize risk
to the investor

To see whether the portfolio risk is less than individual risk on whose basis
the portfolios are constituted

To see whether the selected portfolios is yielding a satisfactory and constant
return to the investor

To understand, analyze and select the best portfolio

37


Chapter 4
METHODOLOGY AND FRAMEWORK
SCOPE OF STUDY:
This study covers the Markowitz model. The study covers the calculation of
correlations between the different securities in order to find out at what percentage
funds should be invested among the companies in the portfolio. Also the study
includes the calculation of individual Standard Deviation of securities and ends at
the calculation of weights of individual securities involved in the portfolio. These
percentages help in allocating the funds available for investment based on risky
portfolios.
DATA COLLECTION METHODS
The data collection methods include both the primary and secondary collection
methods.
Primary collection methods:
This method includes the data collection from the personal discussion with the
authorized clerks and members of the hdfc.
Secondary collection methods:
The secondary collection methods includes the lectures of the superintend of the
department of market operations and so on., also the data collected from the
news,magazines and different books issues of this study .
38


4.1 LIMITATIONS OF THE STUDY
1. Construction of Portfolio is restricted to two companies based on Markowitz
model.
2. Very few and randomly selected scripts / companies are analyzed from BSE
listings.
3. Data collection was strictly confined to secondary source. No primary data is
associated with the project.
4. Detailed study of the topic was not possible due to limited size of the
project.
5. There was a constraint with regard to time allocation for the research study
i.e. for a period of five years.

4.2 STEPS IN PORTFOLIO MANAGEMENT:

Specification and qualification of investor objectives, constraints, and
preferences in the form of an investment policy statement.

Determination and qualification of capital market expectations for the
economy, market sectors, industries and individual securities.

39

Allocation of assets and determination of appropriate portfolio strategies for
each asset class and selection of individual securities.

Performance measurement and evaluation to ensure attainment of investor
objectives.

Monitoring portfolio factors and responding to changes in investor
objectives, constrains and / or capital market expectations.

Rebalancing the portfolio when necessary by repeating the asset allocation,
portfolio strategy and security selection.
4.3 CRITERIA FOR PORTFOLIO DECISIONS:
In portfolio management emphasis is put on identifying the collective importance
of all investors holdings. The emphasis shifts from individual assets selection to a
more balanced emphasis on diversification and risk-return interrelationships of
individual assets within the portfolio. Individual securities are important only to
the extent they affect the aggregate portfolio. In short, all decisions should focus on
the impact which the decision will have on the aggregate portfolio of all the assets
held.


40

Portfolio strategy should be molded to the unique needs and
characteristics of the portfolios owner.
Diversification across securities will reduce a portfolios risk. If the
risk and return are lower than the desired level, leverages (borrowing)
can be used to achieve the desired level.
Larger portfolio returns come only with larger portfolio risk. The most
important decision to make is the amount of risk which is acceptable.
The risk associated with a security type depends on when the
investment will be liquidated. Risk is reduced by selecting securities
with a payoff close to when the portfolio is to be liquidated.
Competition for abnormal returns is extensive, so one has to be
careful in evaluating the risk and return from securities. Imbalances
do not last long and one has to act fast to profit from exceptional
opportunities.

Provides user interfaces that allow for the extraction of data based on user
defined parameters.
Provides a comprehensive set of tools to perform portfolio and risk
evaluation against parameters set within the risk framework.
Provides a set of tools to optimise portfolio value and risk position by:
Considering various legs of different contracts to create an optimal trading
strategy.


41

The calculation of residual purchase requirements.
Performs analysis that provides the relevant information to create hedge and
trade plans.
Performs analysis on current and potential trades.
Evaluates the best mix of contracts on offer from counterparties to minimise
the overall purchase cost and maximize profits.
Creates and maintains trading and hedge strategies by:
Allocating trades to contracts and books.
Maintaining trades against contracts and books.
Reviewing trades against existing trading strategy.
Maintains an audit trail of decisions taken and query resolution.
Produces accurate and timely reports
4.4 Project Portfolio Management Software
The Business Need.
Project Professionals need a Project Management solution that enables them to
complete their projects faster, with higher quality and within a logical, easy-to-
follow roadmap.
Executives need a system that identifies the projects with the highest ROI
potential, provides broad, deep and timely reporting, and enables scalability.

42


The Power of Templates:
Standards, Consistency, Repeatability.
Your company and your industry have unique ways of managing processes,
procedures and projects at the highest level. Best Practice Templates, linked
training, productivity tools, and guidelines provide a framework for your optimal
performance.
SigmaFlows Project Portfolio Management Solution is the only solution that uses
flexible templates with an integrated project management, document library and
metric management system to drive your workflow.
Best practice templates are the most efficient way to develop and maintain
standards, consistency and repeatability. With these Templates, new employees
can become more self-sufficient and deliver a higher quality work product - they
know what to do next, with easy access to reference materials and guidelines. The
template roadmap provides structure and enables the interchange of resources mid-
process or project.
Once a project has been completed and designated as successful, the Template
framework can be used again, even by inexperienced employees, with the same
benefits at a fraction of the original implementation cost.




43


Reap the Benefit of Best Practices.
Whether you are a manufacturer or service organization, you can import selected
best practices, standards, and compliance requirements into SigmaFlows system to
ensure that your projects and processes perform at the highest possible level. Once
you create your workflow template in SigmaFlow, youll have a step-by-step
methodology to guide you through the process with all your training, documents,
tools and deliverables at your fingertips.




44


The Sigma Flow Difference
Sigma Flows unique architecture includes operational level process productivity
tools and project management tools, as well as a strategic level web-based
repository for portfolio analysis and reporting. This means you are always working
in the system of record, where the process and project work actually take place.
This leads to a fully integrated information flow, from the lowest level tool to the

highest level scorecard. Optionally, SigmaFlows operational level tools can be
integrated with your existing Project Management system.
SigmaFlows system gives executives timely project status visibility without
burdening practitioners with redundant data entry into a web-based project tracking
system. This provides executives the ability to manage by exception and derive
deeper and more meaningful business insights. The system ensures relevance of
information by automatically populating status detail whenever a SigmaFlow
desktop project file is saved into the system. It also reduces the risk of re-work and
errors caused by having multiple unofficial versions of project documents. As a
result, your practitioners will be more self-sufficient and productive.
By bridging desktop tools with an enterprise system, SigmaFlows solution is fully
scaleable. A small, growing company can start with a single license and expand
into a web system when ready. In addition, SigmaFlow offers integration with
Microsoft Project for easy import and export of project files.

45


Easy, Efficient & Effective.
SigmaFlows Project Portfolio Management System is designed to derive the
greatest benefit with the most efficient use of your time:
Create any template as easily as drawing a process map. The system is
infinitely flexible to match your unique needs.
Easily integrate Project Management Metrics, Document Library and
Performance Metrics with the template, giving you a one-stop shop for your
critical project resources.
Work where you are most efficient, online or offline.
Improve your project consistency: Know what to do next, when to use tools,
and how to use tools throughout your project or process.
Replicate your best practices. Easily convert your recent best practice project
into a template for tomorrows use

4.5 Key portfolio management questions that we address:
Which technologies and product candidates have the greatest potential
commercial value?
How can we broaden and deepen our therapy penetration?
What actions can we take to maximize return on investment for individual
candidates and discoveries?
46


Which proprietary rights do we buy, co-market, license, or sell?
How do we balance short and long term product needs to maximize
therapeutic franchise value?
We detail the value of discoveries in clinical phases, candidates in the pipeline, and
products on the market. These individual and therapeutic category evaluations
enable executives to make strategic investment, licensing and prioritization
decisions to realize their portfolio's full potential.





47


Portfolio Management
You can now receive the same portfolio management services as many institutional
investors-whether it is a separately managed account or a mutual fund wrap
portfolio.
Some benefits of managed portfolios include:
Providing access to top-tier investment management professionals

Tailored portfolios to meet specific investment needs

Ownership of individual securities

Ease of pre-designed mutual fund portfolios
Every investor is unique, and investment advisory services provide you with
professional investment advice and a personalized investment strategy. Whether
you're seeking a tailored, professionally managed portfolio, or the convenience and
simplicity of a diversified mutual fund wrap program, your investment choice
should focus on meeting your financial goals. During this process, you should
consider current and future growth objectives, income needs, time horizon and risk
tolerance. These considerations form the blueprint for developing a portfolio
management strategy. The process involves, but is not limited to, the following
important stages.
48


Set investment objectives
Develop an asset allocation strategy
Evaluate/Select investment vehicle
Portfolio review -- Ongoing portfolio monitoring

Risk Management
A sound financial plan must address the insurance coverages you, your spouse and
family members may require.
Life insurance is used to pay for funeral expenses, repay outstanding debts, make
charitable donations and provide living expenses for surviving family members. It
can also be used to cover estate taxes and probate fees to enable your estate to be
liquidated in the most appropriate manner.
Disability income insurance is to help partially replace income of persons who
are unable to work because of sickness or accident. In terms of its financial effect
on the family, long-term disability can be just as severe as death. Disability income
protection can come from several sources: social insurance programs, employer-
provided benefits, and individually purchased policies.



49


Portfolio Management Maturity
Summarizes five levels of project portfolio management maturity .each level
represents the adoption of an increasingly comprehensive and effective subset of
related solutions discussed in the previous parts of this 6-part paper for addressing
the reasons that organizations choose the wrong projects. Understanding
organizational maturity with regard to project portfolio management is useful. It
facilitates identifying performance gaps, indicates reasonable performance targets,
and suggests an achievable path for improvement.
The fact that five maturity levels have been identified is not meant to suggest that
all organizations ought to strive for top-level performance. Each organization
needs to determine what level of performance is reasonable at the current time
based on business needs, resources available for engineering change, and
organizational ability to accept change. Experience shows that achieving high
levels of performance typically takes several years. It is difficult to leap-frog
several steps at once. Making progress is what counts.






50


Chapter 5
Five levels of project portfolio management.
The detailed definitions of the levels, provided below, are not precise. Real
organizations will tend to be more advanced with regard to some characteristics
and less advanced relative to others. For most organizations, though, it is easy to
pick one of the levels as characterizing the current maturity of project portfolio
management performance.
Level 1: Foundation
Level 1 organizes work into discrete projects and tracks costs at the project level.
Project decisions are made project-by-project without adherence to formal
project selection criteria.
The portfolio concept may be recognized, but portfolio data are not centrally
managed and/or not regularly refreshed.
Roles and responsibilities have not been defined or are generic, and no
value-creation framework has been established.
Only rarely are business case analyses conducted for projects, and the
quality is often poor.
Project proposals reference business benefits generally, but estimates are
nearly always qualitative rather than quantitative.

51


There is little or no formal balancing between the supply and demand for
project resources, and there is little if any coordination of resources across projects,
which often results in resource conflicts.
Over-commitment of resources is common.
There may be a growing recognition that risks need to be managed, but there
is little real management of risk.
Level 1 organizations are not yet benefiting from project portfolio management,
but they are motivated to address the relevant problems and have the minimum
foundation in place to begin building project portfolio management capability. At
this level, organizations should focus on establishing consistent, repeatable
processes for project scheduling, resource assignment, time tracking, and general
project oversight and support.
Level 2: Basics
Level 2 replaces project-by-project decision making with the goal of identifying
the best collection of projects to be conducted within the resources available. At a
minimum this requires aggregating project data into a central database, assigning
responsibilities for project portfolio management, and force-ranking projects.
Redundant projects are identified and eliminated or merged.
Business cases are conducted for larger projects, although quality may be
inconsistent.
Individual departments may be establishing structures to oversee and
coordinate their projects.
52


There is some degree of options analysis (i.e., different versions of the
project will be considered).
Project selection criteria are explicitly defined, but the link to value creation
is sketchy.
Planning is mostly activity scheduling with limited performance forecasting.
There are attempts to quantify some non-financial benefits, but estimates are
mostly "guestimates" generated without the aid of standard techniques.
Overlap and double counting of benefits between projects is common.
Ongoing projects are still rarely terminated based on poor performance.
The PPM tools being used may have good data display and management
capabilities, but project prioritization algorithms may be simplistic and the results
potentially misleading to decision makers.
Portfolio data has an established refresh cycle or is regularly accessed and
updated. Resource requirements at the portfolio level are recognized but not
systematically managed.
Knowledge sharing is local and ad hoc.
Risk analysis may be conducted early in projects but is not maintained as a
continual management process. Uncertainties in project schedule, cost and benefits
are not quantified.
Schedule and cost overruns are still common, and the risks of project failure
remain large.
53


Level 2 organizations are beginning to implement project portfolio management,
but most of the opportunity has not yet been realized. The focus should be on
formalizing the framework for evaluating and prioritizing projects and on
implementing tools and processes for supporting project budgeting, risk and issues
tracking, requirements tracking, and resource management.
Level 3: Value Management
Level 3, the most difficult step for most organizations, requires metrics, models,
and tools for quantifying the value to be derived from projects. Although project
interdependencies and portfolio risks may not be fully and rigorously addressed,
analysis allows projects to be ranked based on "bang-for-the-buck," often
producing a good approximation of the value-maximizing project portfolio.
The principles of portfolio management are widely understood and accepted.
The project portfolio has a well-defined perimeter, with clear demarcation
and understanding of what it contains and does not contain.
Portfolio management processes are centrally defined and well documented,
as are roles and responsibility for governance and delivery.
Portfolio management can demonstrate that its role in scrutinizing projects
has resulted in some initiatives being stopped or reshaped to increase portfolio
value.
Executives are engaged, provide tradeoff weights for the value model, and
provide active and informed support.

54


Plans are developed to a consistent standard and are outcome- or value-
based.
Effective estimation techniques are being used within planning and a range
of project alternatives are routinely considered.
Data quality assurance processes are in place and independent reviews are
conducted.
There is a common, consistent practice for project approval and monitoring.
Project dependencies are identified, tracked, and managed.
Decisions are made with the aid of a tool based on a defensible logic for
computing project value that generates the efficient frontier.
Portfolio data are kept up-to-date and audit trails are maintained.
Costs, expenditures and forecasts are monitored at the portfolio level in
accordance with established guidelines and procedures.
Interfaces with financial and other related functions within the organization
have been defined.
A process is in place for validating the realization of project benefits.
There is a defined risk analysis and management process, with efforts
appropriate to risk significance, although some sources of risk are not quantified in
terms of probability and consequence.

55


Level 3 organizations demonstrate a commitment to proactive, standardized project
and project portfolio management. They are achieving significant return from their
investment, although more value is available.
Level 4: Optimization
Level 4 is characterized by mature processes, superior analytics, and quantitatively
managed behavior.
Tools for optimizing the project portfolio correctly and fully account for
project risks and interdependencies.
The business processes of value creation have been modeled and
measurement data is collected to validate and refine the model.
The model is the basis for the logic for estimating project value, prioritizing
projects, making project funding and resource allocation decisions, and optimizing
the project portfolio.
The organization's tolerance for risk is known, and used to guide decisions
that determine the balance of risk and benefit across the portfolio.
There is clear accountability and ownership of risks.
External risks are monitored and evaluated as part of the investment
management process and common risks across the whole portfolio (which may not
be visible to individual projects) are quantified and in support of portfolio
optimization.

56


Senior executives are committed, engaged, and proactively seek out
innovative ways to increase value.
There is likely to be an established training program to develop the skills and
knowledge of individuals so that they can more readily perform their designated
roles.
An extensive range of communications channels and techniques are used for
collaboration and stakeholder management.
High-level reports on key aspects of portfolio are regularly delivered to
executives and the information is used to inform strategic decision making.
There is trend reporting on progress, actual and projected cost, value, and
level of risk.
Assessments of stakeholder confidence are collected and used for process
improvement.
Portfolio data is current and extensively referenced for better decision
making.
Level 4 organizations are using quantitative analysis and measurements to obtain
efficient predictable and controllable project and project portfolio management.
They are obtaining the bulk of the value available from practicing project portfolio
management.


57


Level 5: Core Competency
Level 5 occurs when the organization has made project portfolio management a
core competency, uses best-practice analytic tools, and has put processes in place
for continuous learning and improvement.
Portfolio management processes are proven and project decisions, including
project funding levels and timing, are routinely made based the value
maximization value.
Processes are continually refined to take into account increasing knowledge,
changing business needs, and external factors.
Portfolio management drives the planning, development, and allocation of
projects to optimize the efficient use of resources in achieving the strategic
objectives of the organization.
High levels of competence are embedded in all portfolio management roles,
and portfolio management skills are seen as important for career advancement.
Portfolio gate reviews are used to proactively assess and manage portfolio
value and risk.
Portfolio management informs future capacity demands, capability
requirements are recognized, and resource levels are strategically managed.
Information is highly valued, and the organization's ability to mitigate
external risks and grasp opportunities is enhanced by identifying innovative ways
to acquire and better share knowledge.
58


Benefits management processes are embedded across the organization, with
benefits realization explicitly aligned with the value measurement framework.
The portfolio is actively managed to ensure the long term sustainability of
the enterprise.
Stakeholder engagement is embedded in the organization's culture, and
stakeholder management processes have been optimized.
Risk management underpins decision-making throughout the organization.
Quantitatively measurable goals for process improvement have been
established and performance against them tracked.
The relationship between the portfolio and strategic planning is understood
and managed.
Resource allocations to and from projects are intimately aligned so as the
maximize value creation.
Level 5 organizations are obtaining maximum possible value from project portfolio
management. By fully institutionalizing project portfolio management into their
culture they free people to become more creative and innovative in achieving
business success.
Building Project Portfolio Management Maturity
Experience shows that building project portfolio management maturity takes time.
As suggested by, significant short-term performance gains can be achieved, but
making step changes requires understanding current weaknesses and the
commitment of effort and resources.
59


Chapter 6
QUALITIES OF PORTFOLIO MANAGER:
1. SOUND GENERAL KNOWLEDGE: Portfolio management is an exciting
and challenging job. He has to work in an extremely uncertain and confliction
environment. In the stock market every new piece of information affects the value
of the securities of different industries in a different way. He must be able to judge
and predict the effects of the information he gets. He must have sharp memory,
alertness, fast intuition and self-confidence to arrive at quick decisions.
2. ANALYTICAL ABILITY: He must have his own theory to arrive at the
instrinsic value of the security. An analysis of the securitys values, company, etc.
is s continuous job of the portfolio manager. A good analyst makes a good
financial consultant. The analyst can know the strengths, weaknesses,
opportunities of the economy, industry and the company.
3. MARKETING SKILLS: He must be good salesman. He has to convince the
clients about the particular security. He has to compete with the stock brokers in
the stock market. In this context, the marketing skills help him a lot.
4. EXPERIENCE: In the cyclical behavior of the stock market history is often
repeated, therefore the experience of the different phases helps to make rational
decisions. The experience of the different types of securities, clients, market
trends, etc., makes a perfect professional manager.


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6.1 PORTFOLIO BUILDING:
Portfolio decisions for an individual investor are influenced by a wide variety of
factors. Individuals differ greatly in their circumstances and therefore, a financial
programme well suited to one individual may be inappropriate for another. Ideally,
an individuals portfolio should be tailor-made to fit ones individual needs.
Investors Characteristics:
An analysis of an individuals investment situation requires a study of personal
characteristics such as age, health conditions, personal habits, family
responsibilities, business or professional situation, and tax status, all of which
affect the investors willingness to assume risk.
Stage in the Life Cycle:
One of the most important factors affecting the individuals investment objective is
his stage in the life cycle. A young person may put greater emphasis on growth
and lesser emphasis on liquidity. He can afford to wait for realization of capital
gains as his time horizon is large.
Family responsibilities:
The investors marital status and his responsibilities towards other members of the
family can have a large impact on his investment needs and goals.



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Investors experience:
The success of portfolio depends upon the investors knowledge and experience in
financial matters. If an investor has an aptitude for financial affairs, he may wish to
be more aggressive in his investments.
Attitude towards Risk:
A persons psychological make-up and financial position dictate his ability to
assume the risk. Different kinds of securities have different kinds of risks. The
higher the risk, the greater the opportunity for higher gain or loss.
Liquidity Needs:
Liquidity needs vary considerably among individual investors. Investors with
regular income from other sources may not worry much about instantaneous
liquidity, but individuals who depend heavily upon investment for meeting their
general or specific needs, must plan portfolio to match their liquidity needs.
Liquidity can be obtained in two ways:
1. By allocating an appropriate percentage of the portfolio to bank deposits,
and
2. By requiring that bonds and equities purchased be highly marketable.
Tax considerations:
Since different individuals, depending upon their incomes, are subjected to
different marginal rates of taxes, tax considerations become most important factor
in individuals portfolio strategy. There are differing tax treatments for investment
in various kinds of assets.
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Time Horizon:
In investment planning, time horizon becomes an important consideration. It is
highly variable from individual to individual. Individuals in their young age have
long time horizon for planning, they can smooth out and absorb the ups and downs
of risky combination. Individuals who are old have smaller time horizon, they
generally tend to avoid volatile portfolios.
Individuals Financial Objectives:
In the initial stages, the primary objective of an individual could be to accumulate
wealth via regular monthly savings and have an investment programmed to achieve
long term capital gains.
Safety of Principal:
The protection of the rupee value of the investment is of prime importance to most
investors. The original investment can be recovered only if the security can be
readily sold in the market without much loss of value.
Assurance of Income:
`Different investors have different current income needs. If an individual is
dependent of its investment income for current consumption then income received
now in the form of dividend and interest payments become primary objective.



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Investment Risk:
All investment decisions revolve around the trade-off between risk and return. All
rational investors want a substantial return from their investment. An ability to
understand, measure and properly manage investment risk is fundamental to any
intelligent investor or a speculator. Frequently, the risk associated with security
investment is ignored and only the rewards are emphasized. An investor who does
not fully appreciate the risks in security investments will find it difficult to obtain
continuing positive results.
6.2 RISK AND EXPECTED RETURN:
There is a positive relationship between the amount of risk and the amount of
expected return i.e., the greater the risk, the larger the expected return and larger
the chances of substantial loss. One of the most difficult problems for an investor is
to estimate the highest level of risk he is able to assume.
Risk is measured along the horizontal axis and increases from the left to right.
Expected rate of return is measured on the vertical axis and rises from
bottom to top.
The line from 0 to R (f) is called the rate of return or risk less
investments commonly associated with the yield on government securities.
The diagonal line form R (f) to E(r) illustrates the concept of expected
rate of return increasing as level of risk increases.


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6.3 TYPES OF RISKS:
Risk consists of two components. They are
1. Systematic Risk
2. Un-systematic Risk
1. Systematic Risk:
Systematic risk is caused by factors external to the particular company and
uncontrollable by the company. The systematic risk affects the market as a whole.
Factors affect the systematic risk are

economic conditions

political conditions

sociological changes




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The systematic risk is unavoidable. Systematic risk is further sub-divided into three
types. They are

a) Market Risk

b) Interest Rate Risk

c) Purchasing Power Risk

a). Market Risk

One would notice that when the stock market surges up, most stocks post higher
price. On the other hand, when the market falls sharply, most common stocks will
drop. It is not uncommon to find stock prices falling from time to time while a
companys earnings are rising and vice-versa. The price of stock may fluctuate
widely within a short time even though earnings remain unchanged or relatively
stable.



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b). Interest Rate Risk:
Interest rate risk is the risk of loss of principal brought about the changes in the
interest rate paid on new securities currently being issued.

c). Purchasing Power Risk:
The typical investor seeks an investment which will give him current income and /
or capital appreciation in addition to his original investment.

2. Un-systematic Risk:
Un-systematic risk is unique and peculiar to a firm or an industry. The nature and
mode of raising finance and paying back the loans, involve the risk element.
Financial leverage of the companies that is debt-equity portion of the companies
differs from each other. All these factors affect the un-systematic risk and
contribute a portion in the total variability of the return.

Managerial inefficiently

Technological change in the production process

Availability of raw materials
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Changes in the consumer preference

Labor problems

The nature and magnitude of the above mentioned factors differ from industry to
industry and company to company. They have to be analyzed separately for each
industry and firm. Un-systematic risk can be broadly classified into:
a) Business Risk
b) Financial Risk

a. Business Risk:
Business risk is that portion of the unsystematic risk caused by the operating
environment of the business. Business risk arises from the inability of a firm to

maintain its competitive edge and growth or stability of the earnings. The volatility
in stock prices due to factors intrinsic to the company itself is known as Business
risk. Business risk is concerned with the difference between revenue and earnings
before interest and tax. Business risk can be divided into.


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i). Internal Business Risk
Internal business risk is associated with the operational efficiency of the firm. The
operational efficiency differs from company to company. The efficiency of
operation is reflected on the companys achievement of its pre-set goals and the
fulfillment of the promises to its investors.
ii).External Business Risk
External business risk is the result of operating conditions imposed on the firm by
circumstances beyond its control. The external environments in which it operates
exert some pressure on the firm. The external factors are social and regulatory
factors, monetary and fiscal policies of the government, business cycle and the
general economic environment within which a firm or an industry operates.
b. Financial Risk:
It refers to the variability of the income to the equity capital due to the debt capital.
Financial risk in a company is associated with the capital structure of the company.
Capital structure of the company consists of equity funds and borrowed funds.
6.4 PORTFOLIO ANALYSIS:
Various groups of securities when held together behave in a different
manner and give interest payments and dividends also, which are different to the
analysis of individual securities. A combination of securities held together will
give a beneficial result if they are grouped in a manner to secure higher return after
taking into consideration the risk element.

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There are two approaches in construction of the portfolio of securities. They are

Traditional approach

Modern approach

TRADITIONAL APPROACH:
Traditional approach was based on the fact that risk could be measured on each
individual security through the process of finding out the standard deviation and
that security should be chosen where the deviation was the lowest. Traditional
approach believes that the market is inefficient and the fundamental analyst can
take advantage of the situation. Traditional approach is a comprehensive financial
plan for the individual. It takes into account the individual need such as housing,
life insurance and pension plans. Traditional approach basically deals with two
major decisions. They are
a) Determining the objectives of the portfolio

b) Selection of securities to be included in the portfolio


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MODERN APPROACH:
Modern approach theory was brought out by Markowitz and Sharpe. It is the
combination of securities to get the most efficient portfolio. Combination of
securities can be made in many ways. Markowitz developed the theory of
diversification through scientific reasoning and method. Modern portfolio theory
believes in the maximization of return through a combination of securities. The
modern approach discusses the relationship between different securities and then
draws inter-relationships of risks between them. Markowitz gives more attention to
the process of selecting the portfolio. It does not deal with the individual needs.
6.5 MARKOWITZ MODEL:
Markowitz model is a theoretical framework for analysis of risk and return and
their relationships. He used statistical analysis for the measurement of risk and
mathematical programming for selection of assets in a portfolio in an efficient
manner. Markowitz apporach determines for the investor the efficient set of
portfolio through three important variables i.e.
Return
Standard deviation
Co-efficient of correlation
Markowitz model is also called as an Full Covariance Model. Through this
model the investor can find out the efficient set of portfolio by finding out the trade
off between risk and return, between the limits of zero and infinity. According to
this theory, the effects of one security purchase over the effects of the other
security purchase are taken into consideration and then the results are evaluated.
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Most people agree that holding two stocks is less risky than holding one stock. For
example, holding stocks from textile, banking and electronic companies is better
than investing all the money on the textile companys stock.
Markowitz had given up the single stock portfolio and introduced diversification.
The single stock portfolio would be preferable if the investor is perfectly certain
that his expectation of highest return would turn out to be real. In the world of
uncertainty, most of the risk adverse investors would like to join Markowitz rather
than keeping a single stock, because diversification reduces the risk.

ASSUMPTIONS:
All investors would like to earn the maximum rate of return that they can
achieve from their investments.

All investors have the same expected single period investment horizon.

All investors before making any investments have a common goal. This is
the avoidance of risk because Investors are risk-averse.

Investors base their investment decisions on the expected return and
standard deviation of returns from a possible investment.

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Perfect markets are assumed (e.g. no taxes and no transition costs)

The investor assumes that greater or larger the return that he achieves on his
investments, the higher the risk factor surrounds him. On the contrary when
risks are low the return can also be expected to be low.

The investor can reduce his risk if he adds investments to his portfolio.

An investor should be able to get higher return for each level of risk by
determining the efficient set of securities.

An individual seller or buyer cannot affect the price of a stock. This
assumption is the basic assumption of the perfectly competitive market.

Investors make their decisions only on the basis of the expected returns,
standard deviation and covariances of all pairs of securities.

Investors are assumed to have homogenous expectations during the
decision-making period

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The investor can lend or borrow any amount of funds at the risk less rate of
interest. The risk less rate of interest is the rate of interest offered for the
treasury bills or Government securities.

Investors are risk-averse, so when given a choice between two otherwise
identical portfolios, they will choose the one with the lower standard
deviation.

Individual assets are infinitely divisible, meaning that an investor can buy a
fraction of a share if he or she so desires.

There is a risk free rate at which an investor may either lend (i.e. invest)
money or borrow money.

There is no transaction cost i.e. no cost involved in buying and selling of
stocks.

There is no personal income tax. Hence, the investor is indifferent to the
form of return either capital gain or dividend.


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THE EFFECT OF COMBINING TWO SECURITIES:

It is believed that holding two securities is less risky than by having only one
investment in a persons portfolio. When two stocks are taken on a portfolio and if
they have negative correlation then risk can be completely reduced because the
gain on one can offset the loss on the other. This can be shown with the help of
following example:

INTER- ACTIVE RISK THROUGH COVARIANCE:
Covariance of the securities will help in finding out the inter-active risk. When the
covariance will be positive then the rates of return of securities move together
either upwards or downwards. Alternatively it can also be said that the inter-active
risk is positive. Secondly, covariance will be zero on two investments if the rates
of return are independent.
Holding two securities may reduce the portfolio risk too. The portfolio risk can be
calculated with the help of the following formula:



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Chapter 7
CAPITAL ASSET PRICING MODEL (CAPM):
Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic
structure of Capital Asset Pricing Model. It is a model of linear general equilibrium
return. In the CAPM theory, the required rate return of an asset is having a linear
relationship with assets beta value i.e. un-diversifiable or systematic risk (i.e.
market related risk) because non market risk can be eliminated by diversification
and systematic risk measured by beta. Therefore, the relationship between an assets
return and its systematic risk can be expressed by the CAPM, which is also called
the Security Market Line.
R = Rf Xf+ Rm(1- Xf)
Rp = Portfolio return
Xf =The proportion of funds invested in risk free assets
1- Xf = The proportion of funds invested in risky assets
Rf = Risk free rate of return
Rm = Return on risky assets EVALUATION OF PORTFOLIO:
Portfolio manager evaluates his portfolio performance and identifies the sources of
strengths and weakness. The evaluation of the portfolio provides a feed back about
the performance to evolve better management strategy. Even though evaluation of
portfolio performance is considered to be the last stage of investment process, it is

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a continuous process. There are number of situations in which an evaluation
becomes necessary and important.


i. Self Valuation: An individual may want to evaluate how well he has done.
This is a part of the process of refining his skills and improving his performance
over a period of time.

ii. Evaluation of Managers: A mutual fund or similar organization might want
to evaluate its managers. A mutual fund may have several managers each running a
separate fund or sub-fund. It is often necessary to compare the performance of
these managers.

iii. Evaluation of Mutual Funds: An investor may want to evaluate the various
mutual funds operating in the country to decide which, if any, of these should be
chosen for investment. A similar need arises in the case of individuals or
organizations who engage external agencies for portfolio advisory services.

iv. Evaluation of Groups: have different skills or access to different
information. Academics or researchers may want to evaluate the performance of a
whole group of investors and compare it with another group of investors who use
different techniques or who
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7.1 NEED FOR EVALUATION OF PORTFOLIO:

We can try to evaluate every transaction. Whenever a security is brought or
sold, we can attempt to assess whether the decision was correct and
profitable.

We can try to evaluate the performance of a specific security in the portfolio
to determine whether it has been worthwhile to include it in our portfolio.

We can try to evaluate the performance of portfolio as a whole during the
period without examining the performance of individual securities within the
portfolio.
7.2 PORTFOLIO REVISION:
The portfolio which is once selected has to be continuously reviewed over a period
of time and then revised depending on the objectives of the investor. The care
taken in construction of portfolio should be extended to the review and revision of
the portfolio. Fluctuations that occur in the equity prices cause substantial gain or
loss to the investors.
The investor should have competence and skill in the revision of the portfolio. The
portfolio management process needs frequent changes in the composition of stocks

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and bonds. In securities, the type of securities to be held should be revised
according to the portfolio policy.
An investor purchases stock according to his objectives and return risk framework.
The prices of stock that he purchases fluctuate, each stock having its own cycle of
fluctuations. These price fluctuations may be related to economic activity in a
country or due to other changed circumstances in the market.
If an investor is able to forecast these changes by developing a framework for the
future through careful analysis of the behavior and movement of stock prices is in
a position to make higher profit than if he was to simply buy securities and hold
them through the process of diversification. Mechanical methods are adopted to
earn better profit through proper timing. The investor uses formula plans to help
him in making decisions for the future by exploiting the fluctuations in prices.









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Chapter 8
CONCULSION AND SUGGESTIONS

OBSERVATION AND FINDING
About 85% Respondents knows about the Investment Option, because
remaining 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.
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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.

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 CD Equisearch Private
Limited is CD Equisearch Research Department than its Brokerage rate
Structure.


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Out of hundred respondents 56% respondents are using CD Equisearch PMs
services.

Investors preferred more than 45% equity Portfolio, 28%Balanceed
Portfolio and about 27% Debt Portfolio with CD Equisearch PMS.

About 52% Respondents earned through CD Equisearch PMS product,
whereas 18% investor faced loses also.

More than 63% Investor are happy with the Transparency system of CD
Equisearch Private limited.

As based on the good and bad experience with CD Equisearch Private
limited around 86% are ready to recommended the PMS of CD Equisearch
to their peers, relatives etc.
LIMITATION OF THE PROJECT
As only Hyderabad was dealt in the survey so it does not represent the view
of the total Indian market.

The sample size was restricted with hundred respondents.

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There was lack of time on the part of respondents.

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

There may be biasness in information by market participant.

Complete data was not available due to company privacy and secrecy.

Some people were not willing to disclose the investment profile.









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CONCLUSION AND SUGGESTIONS
On the basis of the study it is found that CD Equisearch Private Ltd is better
services provider than the other stockbrokers because of their timely research and
personalized advice on what stocks to buy and sell. CD Equisearch Ltd. provides
the facility of Trade tiger as well as relationship manager facility for
encouragement and protects the interest of the investors. It also provides the
information through the internet and mobile alerts that what IPOs are coming in
the market and it also provides its research on the future prospect of the IPO. We
can conclude the following with above analysis.

CD Equisearch Private 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

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It provides daily updates about the stocks information.

Investors are looking for those investment options where they get
maximum returns with less 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 similar activities to
enhance the knowledge of prospective and existing customers, so that they
feel more comfortable while 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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CD Equisearch private limited must try to promote more its Portfolio
Management Services through Advertisements.

CD Euisearch Private Ltd needs to improve more its Customer Services

There is need to change in lock in period in all three PMS i.e.Protech,
Proprime, Pro Arbitrage.












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BIBILOGRAPHY
www.sharekha.com
www.sebi.gov.in
www.moneycontrol.com
www.karvy.com
www.valueresarchonline.com
www.yahoofinance.com
www.theeconomist.com
www.nseindia.com
www.bseindia.com