PORTFOLIO CREATION

Introduction
Portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as
their mutual, exchange-traded and closed-fund counterparts for maximizing the return for the
investors. The art of selecting the right investment policy for the individuals in terms of
minimum risk and maximum return is called as portfolio management. Personal Portfolio
management refers to managing an individuals investments in the form of bonds, shares, mutual
funds etc so that he earns the maximum profits within the stipulated time frame. It refers to
managing money of an individual under the expert guidance of portfolio managers taking into
account factors such as investors risk profile, age, investment philosophy, investment goal and
the background of the investor. Given below is an example of a personal portfolio created for an
individual with a certain set of interests and background.
Introduction to the investor
The investor taken as example in this case is Mr.Rahul (22 years), a young professional who is
working with E&Y in Cochin with a monthly salary of Rs. 38000 per month. He lives in a rented
house, along with his family that consists of his father who is a retired government employee
earning pension, mother who is a housewife and a brother who is a pursuing MBBS. The pension
earned by his father would only be enough to meet the educational expenses of his brother.
Monthly expenses of his family amounts to Rs.15000/ and he is left with an investable amount of
Rs.23000 in hand per month.

Future goals of the investor

Construction of a house within 3 years

Marriage within 7 years

Start his own business within 10 years

Pay off the educational loan

Provide a steady income to his family

Assumptions

Mr.Rahul is a moderate risk taker.

He owns a plot of land (10 cents) in the outskirts of the city.

Owns 25 sovereigns of gold

Inflation rate in the economy fluctuates around 6-7% for the next few years.

No change in the taxation policy is expected in the near future

Current bank balance of Rs.1,50,000 in state bank of India

Investment Philosophy of the investor

I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
Investor risk profile
The investor is a medium risk taker who is ready to take risks to certain extends but is always
cautious about his investments. He is not ready to speculate with his hard earned money and
always looks to invest with a long term perspective.
The method used in finding out the risk profile of the investor is depicted in the figure below.

PORTFOLIO FOR RAHUL

RAHUL ' S Portfolio - Asset Classification

SB a/c
22%

Stock
Mutual Fund
Insurance
6%

PPF
Stock
52%

PPF
9%

Mutual Fund
11%

Insurance
SB a/c

1) STOCKS OF BHARTI AIRTEL

TECHNICAL ANALYSIS OF AIRTEL
Simple Moving Average and Exponential Moving Average Chart for Bharti Airtel

INDICATORS AND OSCILLATORS

Indicators For Bharti Airtel Ltd.

Oscillators & Volume Indicators

Name

Value

Name

Value

MACD (26d ,12d)

-4.07

Stochastic D Fast

13.06

Signal Line

-2.27

Stochastic K Fast

7.26

Macd Above Signal Line

false

Stochastic D Slow

16.22

Relative Strength Index (RSI) (14

day)

40.85

Williams %R

-92.74

Rate of Change

-3.20

Price Volume Trend

10672200.00

Money Flow Index

55.65

Aroon Up

0.00

Aroon Down

44.00

Ultimate Oscillator

36.85

Average True Range

10.41

On Balance Volume

20197400.00

Accumulation Distribution

-20038000.00

Macd/Signal Line trend days 5

Macd Above Zero Line

false

Macd/Zero Line trend days

Bollinger Band Upper

406.51

Bollinger Band Middle

390.83

Bollinger Band Low

375.15

Average Directional Index

26.16

ADX +DI

12.07

ADX -DI

23.30

Chaikin Money Flow

-0.11

Moving Average Trends

Trend Type

15 Day
50 Day
100 Days

Price Above
MA?
false
false
false

Moving Average of Bharti Airtel Ltd.

No of
Days

378.40

Three Days

380.18

Five Days

381.65

Ten Days

390.40

Fifteen Days

391.84

Twenty Two Days

391.42

Thirty Days

395.46

Fifty Days

399.18

Hundred Days

382.76

Two Hundred Days

351.73

6
6
1

15 Day Abv false

50 Days MA

15

50 Day Abv
100 Days
MA

131

true

Current Share Price

JUSTIFICATION
From the graph we can see that Simple moving Average and Exponential Moving Average of
Bharti Airtel shows a bullish trend over the period of 10 years. The share price is expected to go
up in future also. Moreover there is also a bullish trend prevailing in the Indian Stock market.
Sneha should buy Airtel shares with a long-term perspective. Airtel is the market leader of
telecommunication sector and has very strong fundamentals. Airtel has increasing EPS, revenue,
profits, P/E over the 5 years. Technical analysis shows that Airtel shares can be bought even
though the prices are falling due to an expectation of trend reversal. With increase in FDI in
telecommunication sector and bullish run in Indian stock market, the shares are expected to rise
over a span of 3 years. Moreover, Airtel has been selling off its towers in Nigeria to raise funds
for paying off their huge debts. This would decrease their interest liability, which accounted for
15% of their total liability.

Conclusion
Investor should buy 20 stocks of Airtel for continuously 12 months and accumulate this over a
period of 3 years and sell it off to take advantage of capital gains.The long term capital gains
arising from this is tax exempted. Rahul can use this fund for meeting expenses of constructing
house. Airtel shares are expected to go to the range of Rs 450 500 in a span of three to five
years.
Rating by Standard and Poor : Stable
2) STOCKS OF LARSEN AND TOUBRO
TECHNICAL ANALYSIS OF L & T

INDICATORS AND OSCILLATORS

Indicators For Larsen & Toubro Ltd.Oscillators & Volume Indicators

Name

Value

Name

Value

MACD (26d ,12d)

19.20

Stochastic D Fast

44.39

Signal Line

24.46

Stochastic K Fast

54.97

Macd Above Signal Line

false

Stochastic D Slow

40.83

Macd/Signal Line trend

days

Relative Strength Index (RSI) (14 56.84

day)

Macd Above Zero Line

true

Williams %R

-45.03

Macd/Zero Line trend days

25

Rate of Change

1.72

Bollinger Band Upper

1674.24 Price Volume Trend

2476530.00

Bollinger Band Middle

1638.01 Money Flow Index

53.26

Bollinger Band Low

1601.77 Aroon Up

28.00

Average Directional Index

14.74

Aroon Down

0.00

ADX +DI

21.69

Ultimate Oscillator

51.26

ADX -DI

20.47

Average True Range

34.60

Chaikin Money Flow

-0.06

On Balance Volume

58815800.00

Accumulation Distribution

9439410.00

Moving Average Trends

Trend Type

15 Day
50 Day
100 Days

Price Above
MA?
true
true
true

Moving Average of Larsen & Toubro Ltd.

No of Days
Current Share Price

1644.15

Three Days

1635.27

Five Days

1632.86

Ten Days

1641.32

Fifteen Days

1638.02

Twenty Two Days

1639.70

Thirty Days

1613.53

Fifty Days

1560.36

Hundred Days

1571.88

Two Hundred Days

1457.79

2
28
23

15 Day Abv true

50 Days MA

20

50 Day Abv
100 Days
MA

46

false

JUSTIFICATION
L and T share price average movements shows a bullish trend and we can expect a further bullish
trend for this share.The share is technically strong and shows a buy signal for the long term.
Infrastructure is an industry which has huge prospects of growth in the future. With the Make in
India Campaign active and FDI in the industry going up, there is huge expectations of bullish
trend in the industry. Moreover L and T is the market leader in this industry. It has signed
various crucial contracts in the future like Metro Rails, Malls etc leading to huge profitability and
expectation for investors. Rahul should invest in 5 Stocks of L & T and then hold it for 5 year
prospective and sell it off and enjoy capital gains.This long term capital gains can be used for
construction of house expenses.
Rating : CRISIL A +

(iii)TATA BALANCED FUND

Balanced fund is a mutual fund in which a portion is invested in debt, equity as well as money
market instruments. It assures security, profitability and liquidity. Debt gives a steady income to
the investor, Equity provides profitability in the form of high returns and money market
instruments provides liquidity. The investment can be in a proportion of 60:20:20.
Performance of the fund over the last 10 years

This

shows

that

the

return

from

the

fund

is

on

an

increasing

trend.

From the above analysis we can find that the Balanced fund is expected to get a return of 16.40
for a period of 5 years and 19.65 for a period of 10 years. The return from this is also tax
exempted under long term capital gains.
Rahul should invest Rs 2500 monthly in this balanced fund.
(iv) SBI Public Provident Fund
PPF refers to Public Provident Fund and is a Long Term Debt Scheme of the Govt. of India on
which regular interest is paid. Any Individual (whether Salaried or Self-Employed or any other
category) can invest in this scheme and can earn a tax-free return on the same which is usually
higher than the return offered by Banks on Fixed Deposits.
The entire amount in your account could be withdrawn only on maturity. However, in times of
financial crises partial withdrawals are permitted subject to certain ceiling limits. You could
withdraw once a year, from the 7th year onwards. Such withdrawals, must not exceed, 50% of the
balance at the end of the fourth year, or 50% of the balance at the end of the immediate
preceding year, whichever is lower.
It is a savings cum tax savings instrument, which ensures security. The rate of interest on PPF is
8.7%. it is also tax exempted under 80(c). It will provide a steady income for Rahul as well as
security for income after retirement. It is also low risk investment. Moreover, loans can be taken
on this PPF after a period of 5 years for meeting any emergency.
The return from PPF can be used for his marriage expenses as he has a marriage plan after 7
Years.
Rahul should invest Rs 2000 for every month for earning the below returns.

Returns from PPF

(v) LIC TERM INSURANCE

Term insurance is associated with lower premium and it can be used to meet a specific financial
obligation. Moreover it can be converted to cash after a certain period by surrendering the
insurance policy.

Rahul must invest Rs 1500 in insurance for getting 2.5 crores at the end of ten years.This amount
can be used to start a business as his initial capital.
(vi) SBI Savings Bank Deposit
The interest rate for SBI bank deposits are 4%. This offers liquidity as money can be withdrawn
any time for meeting any contingencies that may happen (medical expenses etc). The left over
money after investing in stocks , mutual fund etc can be taken to SBI Savings Account. Already
there is a balance of Rs 150000 in his savings bank account.Moreover he can contribute Rs 5000
per month to this account.He can pay off his educational loan from this balance.

CONCLUSION
Rahul can satisfy his dream of constructing his own house by getting funds from the shares and
balance fund. Moreover, he can pay off his educational loans from the returns he get from
investments. He can meet the expenses of his marriage from PPF or through balance funds. Long
term funds for starting business can be got from term insurance. Moreover, PPF, long term
capital gains are tax exempted. So totally after meeting all the expenses, he has got Rs 23000
which has been invested in the portfolio. This portfolio addresses the need for security, liquidity
and profitability and will help him realize his future goals .

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