Portfolio Management

(Understanding & Designing Portfolio, Investment Proposals &

Portfolio Review)
AT

ADITYA BIRLA MONEY MART LIMITED

Submitted By: ISHITA SHARMA

Enrollment No. 11BSP0395

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PROJCT REPORT
ON

PORTFOLIO MANAGEMENT

By
Ishita Sharma
Enroll no.: 11BSP0395
IBS MUMBAI

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A REPORT
ON

PORTFOLIO MANAGEMENT
Submitted by:

Ishita Sharma
Enroll no.: 11BSP0395
At
Aditya Birla Money Mart Ltd.

Submitted to:

Mr. Joseph Thomas

Head Investment Research & Advisory
Aditya Birla Money Mart Ltd.
&
Dr Meenaxi Dhariwal
(Associate Dean)
IBS Mumbai

This report is submitted in partial fulfillment of the requirement of PGPM program of IBS
Mumbai
Date of Submission: 12.06.2012

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AUTHORISATION -

11.06.2012

To whom so ever it may concern,

The report is submitted as a partial fulfillment of the requirement of the PGPM Program of
IBS Mumbai. The report titled Portfolio Management is an original work assigned &
performed by Ishita Sharma at Aditya Birla Money Mart Ltd. from April 09, 2012 to June 8,
2012 for the sole purpose of Summer Internship Program. It is hereby stated that this report
has not been submitted to any other institute or university for award of any degree.
Thank you

Joseph Thomas

(Head Investment Research & Advisory)

Aditya Birla Money Mart ltd.

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ACKNOWLWEDGEMENT

I express my heartfelt gratitude and thanks to my highly cooperative company guide Mr.
Joseph Thomas. This project would not have been possible without his immense guidance
and support. His constant encouragement and mentoring helped me in successfully
completing the project. I would also like to thank the whole research team at ABMML for
their constant support.
I am also thankful to my faculty guide Dr Meenaxi Dhariwal for her constant guidance and
suggestions throughout the project. Her belief in my abilities constantly kept me motivated
and helped me in successfully completing the project.

CONTENTS
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1. Executive Summary7
2. Objective Of the study.....................................................................................................................8
3. Introduction-......9
3.1 About Aditya Birla Group..10
3.2 About Aditya Birla Money..11
3.3 About ABMML ....12
4. Portfolio Management...13
4.1 What is Portfolio.....13
4.2 Portfolio Items.13
4.3 Portfolio Management13
4.4 Objectives Of Portfolio Management.....14
4.5 Functions of a portfolio manager....14
4.6 Elements of Portfolio Management....15
5. Portfolio Management Process...16
6. Portfolio Management Theories 18
6.1 Traditional Theory.19
6.2 Modern Theory19
7. Approaches to Portfolio Management21
8. Risk and Return Concept..21
8.1 Concept.21
8.2 Risk Return Trade-off.23
8.3 Types Of Risk...24
8.4 Types of Returns.24
8.5 Optimum Portfolio..25
9. Financial Markets.26
10. Asset Classes..28
11. Mutual Fund..31
11.1 Entities involved in Mutual Funds31
11.2 Terminology..32.
11.3 Types of Schemes.35
11.4 Statistical Measures.39
12. Fundamental and Technical Analysis41
13. Model Portfolio.44
14. SEBI Guidelines to the Portfolio Managers..46
15. How to construct a Portfolio..47
16. Designing Investment Proposal....49
17. Portfolio Profiling for 100 crore Rupee..51
17.1 Initial Investment Proposal.51
17.2 Why such Spot Allocation...53
17.3Factors governing the selection of the funds....56
17.4 Sample Equity selection reasoning...59
17.5 Changes made in the Portfolio...60
17.6 Scenario at the end of 45 days61
18. How Portfolio Review is done?.................................................................................................62

EXECUTIVE SUMMARY6 | Page

Aditya Birla Money Mart Limited offers wealth management, financial planning and
investment solutions, mainly through a range of products like mutual funds, insurance, PE
funds, alternate investments, select fixed deposits and IPOs and structured products. The
Corporate & Institutional section caters to banks, financial institutions and other companies;
Wealth Management service focuses on HNIs; while the Retail section offers solutions
through Channel Partners and branches.
My summer internship project at ABMML was to understand the concept of Portfolio
management, important factors that are required in formulating a portfolio, designing of
portfolio and constantly reviewing the same, making changes in it accordingly. Also, in
designing the portfolio the major focus was on understanding the client, personal profiling
and analyzing the risk appetite of the investor, asset allocation. I also got an opportunity to
understand the model used by the company in selecting the schemes of various AMCs.
The Portfolio returns were being compared to the Benchmark return on a weekly basis. For
this a synthetic benchmark was formulated. Beating the benchmark returns was one of the
major criteria which showed that the portfolio is performing up to the mark.
In my internship, I also learnt how the staff here designs the investment proposals and do the
portfolio reviews. Investment proposals is nothing but suggesting a prospect investor that
how he should deploy his funds. This consists of two types of allocation, i.e. spot allocation
and final allocation. It considers the current economic scenario also. Investment proposals
also consist of the suggested schemes in which one can invest.
Portfolio reviews on the other hand is nothing but reviewing the already existing portfolio of
the individual. Here, the portfolio managers responsibility is to suggest the investor the
changes that are required to be made in his portfolio, like from which fund one should exit,
which fund one should hold, what are the other funds that one can look for, if exit is made.
This project helped me a lot in understanding the various avenues to investment based on the
profile of the individual and also how should one investment optimally in order to maximize
his return and minimize the risk.

OBJECTIVE OF THE STUDY7 | Page

To study and understand the concepts of portfolio management.

To build a simulated investment proposal.
To constantly review it, and change the instruments accordingly.
To come to an optimum portfolio, beating the benchmark.

INTRODUCTION
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ADITYA BIRLA GROUP

Vision- To be a premium global conglomerate with a clear focus on each business.

Mission- To deliver superior value to our customers, shareholders, employees and society at
large.

The Aditya Birla Group is an Indian multinational conglomerate corporation

headquartered in Mumbai, India. The group has diversified business interests and
is dominant player in all the sectors in which it operates such as viscose staple
fibre, metals, cement, viscose filament yarn, branded apparel, carbon black,
chemicals, fertilizers, insulators, financial services, telecom, BPO and IT services.
A US $35 billion corporation, the Aditya Birla Group is in the League of Fortune
500. It is anchored by an extraordinary force of over 133,000 employees,
belonging to 42 different nationalities.
The Aditya Birla group is a US$ 35 billion conglomerate which gets 60 % of its
revenues from outside India. The origins of the group lie in the conglomerate
once held by one of India's foremost industrialists Mr. Ghanshyam Das Birla. The
Group consists of SIX main companies, which operate in various industry sectors
through subsidiaries, joint ventures, etc. These are Hindalco, Grasim, Aditya Birla
Nuvo, Idea cellular, Novelis and UltraTech Cement.

Globally, the Aditya Birla Group is:

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Hindalco-Novelis is the largest aluminium rolling company. It is one of the three

biggest producers of primary aluminium in Asia, with the largest single location
copper smelter.

No.1 in viscose staple fibre

No.1 in carbon black

The fourth-largest producer of insulators

The fifth-largest producer of acrylic fibre

Among the top 10 cement producers

Among the best energy-efficient fertiliser plants

The largest Indian MNC with manufacturing operations in the USA

In India:

A top fashion (branded apparel) and lifestyle player

The second-largest player in viscose filament yarn

The largest producer in the chlor-alkali sector

Among the top three mobile telephony companies

A leading player in life insurance and asset management

Among the top two supermarket chains in the retail business

Among the top 10 BPO companies

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ADITYA BIRLA MONEY

Aditya Birla Money is a single brand offering the combined products and services of Aditya
Birla Money Limited and Aditya Birla Money Mart Limited.
Aditya Birla Money Limited is a broking and distribution player, offering Equity and
Derivative trading through NSE and BSE and Currency derivative on MCX-SX. It is
registered as Depository Participant with both NSDL and CDSL and also provides
commodity trading on MCX and NCDEX through its subsidiary company.
Aditya Birla Money Mart Limited is a wealth management and distribution player, offering
third party products like company deposits, mutual funds, insurance, structured products,
alternate investments, property services and has a premier wealth management service arm to
cater to HNI customers.

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ADITYA BIRLA MONEY MART LIMITED-

Aditya Birla Money Mart Limited ABMML (formerly Birla Sun Life Distribution
Company Limited) is a wholly owned subsidiary of Aditya Birla Nuvo Ltd. (Nuvo). Earlier it
was established as a joint venture between Aditya Birla Nuvo and Sun Life (India)
Distribution Investments. In March 2009, Nuvo purchased the remaining 50.001 per cent
stake from its joint venture partner.
The company was launched in the year 1999 with the vision to be 'the first preference of our
customers as a leading integrated provider of financial services through superior value
creation and technology.
Aditya Birla Money Mart Limited offers wealth management, financial planning and
investment solutions, mainly through a range of products like mutual funds, insurance, PE
funds, alternate investments, select fixed deposits and IPOs and structured products. The
company provides life insurance products of Birla Sun Life Insurance, sourced through its
wholly owned subsidiary BSDL Insurance Advisory Services Ltd (BSDLIAS), licensed to act
as a Corporate Agent of Birla Sun Life Insurance Company Limited. The Corporate &
Institutional section caters to banks, financial institutions and other companies; Wealth
Management service focuses on HNIs; while the Retail section offers solutions through
Channel Partners and branches
A combination of personal attention, ethical practices, strong research, state-of-the-art
technology, streamlined processes and innovative marketing has made ABMML one of the
premier distribution companies in India, well poised to serve the growing economy and
increasing investor population. ABMML has also been honored with awards and
certifications by leading industry watchers.
The company caters to the corporate and institutional segment, the wealth management
segment, the B2C segment and channel business. With a direct presence through its own
branches (347) and additional reach through its network of business associates (7,000) across
more than 100 centre, ABMML has a trusted investor base of over 260,000.

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PORTFOLIO MANAGEMENT

What is a Portfolio Portfolio is a financial term denoting a collection of investments held by an investment
company, hedge fund, financial institution or individual. The term portfolio refers to any
collection of financial assets such as stocks, bonds and cash. Portfolios may be held by
individual investors and/or managed by financial professionals, hedge funds, banks and other
financial institutions. It is a generally accepted principle that a portfolio is designed according
to the investor's risk tolerance, time frame and investment objectives. Investment portfolio
can be represented as a pie that is divided into pieces of varying sizes representing a variety
of asset classes and/or types of investments to accomplish an appropriate risk-return portfolio
allocation.

Portfolio Items
A portfolio can encompass any combination of investments, including bank accounts, bonds,
stocks, warrants, deeds, options, futures, certificates and businesses. Any item that is likely to
retain its value and/or produce a return can be included in an investment portfolio.
A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their
mutual, exchange-traded and closed-fund counterparts.
The types of items included in investors portfolios vary based on individual circumstances
and investment goals. The first thing you will want to do in establishing a portfolio is
determine your investment budget and what goals you want to achieve through investing.
Different kinds of investment vehicles offer different rates of return. Each vehicle carries its
own unique degree of risk as well.

Portfolio management
Portfolio management concerns the construction & maintenance of a collection of
investment. It is investment of funds in different securities in which the total risk of the
Portfolio is minimized while expecting maximum return from it. It primarily involves
reducing risk rather that increasing return. Return is obviously important though, and the
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ultimate objective of portfolio manager is to achieve a chosen level of return by incurring the
least possible risk.
Portfolio management involves deciding what assets to include in the portfolio, given the
goals of the portfolio owner and changing economic conditions. Selection involves deciding
what assets to purchase, how many to purchase, when to purchase them, and what assets to
divest. These decisions always involve some sort of performance measurement, most
typically expected return on the portfolio, and the risk associated with this return (i.e. the
standard deviation of the return). The unique goals and circumstances of the investor must
also be considered. Some investors are more risk averse than others. Mutual funds have
developed particular techniques to optimize their portfolio holdings.
Thus, portfolio management is all about strengths, weaknesses, opportunities and threats in
the choice of debt vs. equity, domestic vs. international, growth vs. safety and numerous other
trade-offs encountered in the attempt to maximize return at a given appetite for risk.

Objectives of Portfolio Management

The basic objective of Portfolio Management is to maximize yield and minimize risk. The
other ancillary objectives are as per needs of investors, namely:

Regular income or stable return

Appreciation of capital

Marketability and liquidity

Safety of investment

Minimizing of tax liability.

Functions of Portfolio Manager

Advisory role:

He advises new investments, review of existing ones, identification of objectives, recommending high
yield securities etc.

Conducting Market and Economic Surveys:

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There is essential for recommending high yielding securities, they have to study the current physical
properties, budget proposals, industrial policies etc,. Further portfolio manager should take into
account the credit policy, industrial growth, foreign exchange position, changes in corporate laws etc.

Financial Analysis:

He should evaluate the financial statements of a company in order to understand their net worth,
future earnings, prospects and strengths.

Study of Stock Market:

He should see the trends of at various stock exchanges and analyze scripts, so that he is able to
identify the right securities for investments.

Study of Industry:

To know its future prospects, technological changes etc, required for investment proposals he should
also foresee the problems of the industry.

Decide the type of Portfolio:

Keeping in the mind the objectives of a portfolio, the portfolio manager have to decide whether the
portfolio should comprise equity, preference shares, debentures convertible, non-convertible or partly
convertible, money market securities etc,. or a mix of more of one type.

Elements of Portfolio Management Portfolio Management is an on-going process involving the following basic tasks :

Identification of the investors objective, constrains and preferences which help

formulated the invest policy

Strategies are to be developed and implemented in tune with invest policy formulated.
This will help the selection of asset classes and securities in each class depending upon
their risk-return attributes

Review and monitoring of the performance of the portfolio by continuous

Overview of the market conditions, companys performance and investors circumstances

Finally, the evaluation of portfolio for the results to compare with the targets and needed
adjustments have to be made in the portfolio to the emerging conditions and to make up
for any shortfalls in achievements (targets).
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PORTFOLIO MANAGEMENT PROCESS:

Portfolio management is a complex activity, which may be broken down into the following
steps:
1. Specification of investment Objectives and Constraints:
The first step in the portfolio management process is to specify one's investment objectives
and constraints. The commonly stated investment goals are:
a) Income
b) Growth
c) Stability
The constraints arising from liquidity, time horizon, tax and special circumstances must be
identified.
Here, the risk taking ability of an individual matters a lot. The risk can be measured by
interviewing the individual through a questionnaire. The questionnaire used by ABMML
consists of 14 questions. The same has been attached in the annexure.
2. Choice of Asset mix:
The most important decision in portfolio management is the asset mix decision.
Very broadly, this is concerned with the proportions of 'stocks' and 'bonds' in the portfolio.
This again is done keeping in mind the preferences and the risk apetite of the investor. More
exposure to equity would be given, if the investor is ready to take risk.
3. Formulation of Portfolio Strategy:
Once a certain asset mix is chosen, an appropriate portfolio strategy has to be
Hammered out. Two broad choices are available an active portfolio strategy or a passive
portfolio strategy. An active portfolio strategy strives to earn superior risk adjusted returns by
resorting to market timing, or sector rotation, or security selection, or some combination of
these. A passive portfolio strategy, on the other hand, involves holding a broadly diversified
portfolio and maintaining a pre-determined level of risk exposure.
4. Selection of Securities:
Generally, investors pursue an active stance with respect to security selection. For stock
selection, investors commonly go by fundamental analysis and / or technical analysis. The
factors that are considered in selecting bonds are yield to maturity, credit rating, term to
maturity, tax shelter and liquidity.
5. Monitoring Portfolio:
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After the portfolio have been executed, periodic rebalancing of the portfolio is also required.
The performance of a portfolio should be evaluated periodically. The key
dimensions of portfolio performance evaluation are risk and return and the key issue is
whether the portfolio return is commensurate with its risk exposure.
6. Reassess needs and goals:
Just as markets shift, so do the goals and objectives of investors. With the flexibility of the
Portfolio Program and Asset Management Program, when the investors needs or other life
circumstances change, the portfolio has the flexibility to accommodate such changes. The
required changes can be made in the portfolio as and when required but generally any such
changes are done on the quarterly basis in order to reduce the churning.

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PORTFOLIO MANAGEMENT THEORIES Traditional portfolio theory

Modern portfolio theory

Traditional portfolio theory

This theory aims at the selection of such securities that would fit in well with the asset
preferences, needs and choices of investor. Thus, a retired executive invest in fixed income
securities for a regular and fixed return. A business executive or a young aggressive investor
on the other hand invests in new and growing companies and in risky ventures.

Modern portfolio theory

A theory on how risk averse investors can construct portfolios to optimize or maximize
expected return based on a given level of market risk, emphasizing that the risk is an inherent
part of higher reward. Also called as the Portfolio theory or the Portfolio management
theory. MPT is a theory of finance which attempts to maximize portfolio expected return for
a given amount of portfolio risk, or equivalently minimize the risk for a given level of
expected return, by carefully choosing the proportions of various assets. According to the
theory, its possible to construct an efficiency frontier of optimal portfolios offering the
maximum possible expected return for a given level of risk. This theory was pioneered by
Harry Markowitz.
There are four basic steps involved in portfolio construction
Security valuation
Asset allocation
Portfolio optimization
Performance measurement.
The fundamental concept behind MPT is that the assets in an investment portfolio should not
be selected individually, each on their own merits. Rather, it is important to consider how
each asset changes in price relative to how every other asset in the portfolio changes in price.
Investing is a trade-off between risk and expected return. In general, assets with higher
expected returns are riskier. For a given amount of risk, MPT describes how to select a
portfolio with the highest possible expected return. Or, for a given expected return, MPT
explains how to select a portfolio with the lowest possible risk (the targeted expected return
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cannot be more than the highest-returning available security, of course, unless negative
holdings of assets are possible.)
Therefore, MPT is a form of diversification. Under certain assumptions and for
specific quantitative definitions of risk and return, MPT explains how to find the best
possible diversification strategy.
The efficient frontier is a concept in modern portfolio theory. A combination of assets, i.e. a
portfolio, is referred to as "efficient" if it has the best possible expected level of return for its
level of risk (usually proxied by the standard deviation of the portfolio's return). Here, every
possible combination of risky assets, without including any holdings of the risk-free asset,
can be plotted in risk-expected return space, and the collection of all such possible portfolios
defines a region in this space. The upward-sloped part of the left boundary of this region, a
hyperbola, is then called the "efficient frontier". A set of optimal portfolios that offers the
highest expected return for a defined level of risk or the lowest risk for a given level of
expected return. Portfolios that lie below the efficient frontier are sub-optimal, because they
do not provide enough return for the level of risk. Portfolios that cluster to the right of the
efficient frontier are also sub-optimal, because they have a higher level of risk for the defined
rate of return.

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APPROACHES TO PORTFOLIO MANAGEMENT-

Passive Approach:
Passive approach is the defensive approach. Here the Fund Manager invests investors money
in those securities where the risk is low with an assured return. It can probably be fixed
interest bearing securities which provide regular and constant return with the minimum
amount of risk.

Semi-Active Approach:
This approach is the mixture of both active and passive approach. Here about 50 percent of
the total investment is dependent on the active approach of the investor and 50 percent on the
passive approach. Here the investor invests partly in high return based investments which
also bear high risks and partly invests in low return based investments with lower risks.

Active Approach:
Active approach is an aggressive approach. Here, investor likes to earn more and more
money by taking more amount of risk. Here funds are managed more actively then in other
two situations. It is the best approach as far as returns are concerned for an investor but at the
same time it requires lot of risk taking capacity also.
Moreover, there are three more types of Portfolios:

The Patient Portfolio:

This type invests in well-known stocks. Most pay dividends and are candidates to buy and
hold for long period. The vast majority of the stocks in this portfolio represent classic growth
companies, those that can be expected to deliver higher earnings on a regular basis regardless
of economic conditions.

The Aggressive Portfolio:

This portfolio invests in "expensive stocks" (in terms of such measurements as price-earnings
ratios) that offer big rewards but also carry big risks. This portfolio "collects" stocks of
rapidly growing companies of all sizes, that over the next few years are expected to deliver
rapid annual earnings growth. Because many of these stocks are on the less-established side,
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this portfolio is the likeliest to experience big turnovers over time, as winners and losers
become apparent.

The Conservative Portfolio:

They choose stocks with an eye on yield, as well as earnings growth and a steady dividend
history.

CONCEPT OF RISK AND RETURN -

Risk:
Risk refers to the probability that the return and therefore the value of an asset or security
may have alternative outcomes. Risk is the uncertainty (today) surrounding the eventual
outcome of an event which will occur in the future. Risk is uncertainty of the income/capital
appreciation or loss of both. All investments are risky. The higher the risk taken, the higher is
the return. But proper management of risk involves the right choice of investments whose
risks are compensation.

Return:
Return-yield or return differs from the nature of instruments, maturity period and the creditor
or debtor nature of the instrument and a host of other factors. The most important factor
influencing return is risk return is measured by taking the price income plus the price change.

Portfolio Risk:
Risk on portfolio is different from the risk on individual securities. This risk is reflected by in
the variability of the returns from zero to infinity. The expected return depends on probability
of the returns and their weighted contribution to the risk of the portfolio.

Return on Portfolio:
Each security in a portfolio contributes returns in the proportion of its investment in security.
Thus the portfolio of expected returns, from each of the securities with weights representing
the proportionate share of security in the total investments.

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Risk Return Relationship:

The risk/return relationship is a fundamental concept in not only financial analysis, but in
every aspect of life. If decisions are to lead to benefit maximization, it is necessary that
individuals/institutions consider the combined influence on expected (future) return or benefit
as well as on risk/cost. The requirement that expected return/benefit be commensurate with
risk/cost is known as the "risk/return trade-off" in finance. All investments have some risks.
An investment in shares of companies has its own risks or uncertainty. These risks arise out
of variability of returns or yields and uncertainty of appreciation or depreciation of share
prices, loss of liquidity etc. and the overtime can be represented by the variance of the
returns. Normally, higher the risk that the investors take, the higher is the return.

Risk-Return Trade off :

The principle that potential return rises with an increase in risk. Low levels of uncertainty
(low risk) are associated with low potential returns, whereas high levels of uncertainty (high
risk) are associated with high potential returns. According to the risk-return trade off,
invested money can render higher profits only if it is subject to the possibility of being lost.

Graphical Representation of Risk and Return Analysis

Here, the risk or the standard deviation is on the x-axis and the return on the y-axis. Greater
the risk you take, higher will be the chances of returns being earned. Similarly, Lower risk
implies lower potential returns. The curve starts from above the y-axis and not the origin

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because of the certain available risk-free instruments like Government bonds etc., where the
return is guaranteed even at zero risk. This was the risk return trade off.

TYPES OF INVESTMENT RISK

Specific Risk The individual asset such as a company can have problems that are
specific to that asset. Maybe a catastrophe (i.e. BP oil spill), bad management, a large
product failure, etc. causes the individual assets price to fall. Specific risk can be
mitigated with diversification.

Market Risk In the short term stock market prices cannot be predicted. But long
term returns can be predicted with some accuracy. In other words, the variation of
returns (risk) is less over long periods of time than short periods of time. The stock
market has fallen 30 -50% many times in short periods of time, but it has never
fallen even 15% over a 10 year period. Market risk can be mitigated by long term
investing, using a tactical asset allocation strategy, and hedging.

Interest Rate Risk When interest rates increase the price of bonds decline.

Default Risk Sometimes a company is unable to pay back debts or bills.

Inflation Risk Higher prices lower the purchasing power of your investments. If
your investment returns dont exceed inflation you are losing purchasing power.

Economic Risk Economic recession and depression can increase the risk of an
investment.

Political Risk Because the government is involved in a large percentage of our

lives; changes in policies can have profound effects on entire industries or even the
whole economy.

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Diversification Diversification is a risk-management technique that mixes a wide variety of investments

within a portfolio in order to minimize the impact that any one security will have on the
overall performance of the portfolio. Diversification lowers the risk of your portfolio.

CONCEPT OF RETURN

Absolute Return- Returns are calculated based on the NAV to NAV movement for a
particular time period. Return is calculated as percentage change in NAV after adjusting for
dividend, if any. The formula for calculating the absolute return is as under:
{(Ending Value-Beginning Value)/Beginning Value}*100
Simple Annualised Return- Absolute returns are adjusted for the holding period of the
investment to arrive at the annualised returns. The formula for calculating the simple
annualised return is as under :
{(Ending Value-Beginning Value)/Beginning Value}*100*365/Holding Period
Compounded Annualised Return (CAGR) It reflects the year on year growth rate of an
investment over a specified period of time. It is based on the concept of geometric mean and
the formula for calculating the CAGR is as under :
[{(Ending Value/Beginning Value)^(1/No. of yrs)}-1]*100

The Annualized is the return an investment provides over a period of time, expressed as a
time-weighted annual percentage. The rate of annual return is measured against the initial
amount of the investment.

Benchmark return is the return for a time period calculated taking into consideration the
weighted benchmark NAVs of each and every instrument in the portfolio.

The Absolute return can be compared with the benchmark returns in order to find out the
profit earned or the loss incurred on running the portfolio on a particular day.

Absolute return differs from Relative return because it is concerned with the return of a
particular asset and does not compare it to any other measure or benchmark.
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OPTIMUM PORTFOLIO

The chart below illustrates how the optimal portfolio works. The optimal-risk portfolio is
usually determined to be somewhere in the middle of the curve because as you go higher up
the curve, you take on proportionately more risk for a lower incremental return. On the other
end, low risk/low return portfolios are pointless because you can achieve a similar return by
investing in risk-free assets, like government securities.

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FINANCIAL MARKETS

Financial market is a marketplace where buyers and sellers participate in the trade of assets
such as equity, bonds, currencies, derivatives. Financial markets are typically defined by
having transparent pricing, basic regulations on trading, costs and fees and market forces
determining prices of securities that trade.

Money Market & Capital Market: Money Market is a place for short term lending and
borrowing, typically within a year. It deals in short term debt financing and investments. On
the other hand, Capital Market refers to stock market, which refers to trading in shares and
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bonds of companies on recognized stock exchanges. Individual players cannot invest in

money market as the value of investments is large, on the other hand, in capital market,
anybody can make investments through a broker. Stock Market is associated with high risk
and high return as against money market which is more secure. Further, in case of money
market, deals are transacted on phone or through electronic systems as against capital market
where trading is through recognized stock exchanges.
Money Market: Money market means market where money or its equivalent can be traded.
Money is synonym of liquidity. Money market is known as a place where large institutions
and government manage their short term cash needs. For generation of liquidity, short term
borrowing and lending is done by these financial institutions and dealers. Money Market is
part of financial market where instruments with high liquidity and very short term maturities
are traded. Due to highly liquid nature of securities and their short term maturities, money
market is treated as a safe place. One of the primary functions of money market is to provide
focal point for RBIs intervention for influencing liquidity and general levels of interest rates
in the economy.
Commonly used Money Market instruments

Time deposit, commonly offered to consumers by banks, thrift institutions, and

credit unions.
Repurchase agreements - Short-term loansnormally for less than two weeks and
frequently for one dayarranged by selling securities to an investor with an
agreement to repurchase them at a fixed price on a fixed date.
Commercial paper - Unsecured promissory notes with a fixed maturity of one to
270 days; usually sold at a discount from face value.
Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located
outside the United States.
Federal agency short-term securities - (in the U.S.). Short-term securities issued
by government sponsored enterprises such as the Farm Credit System, the Federal
Home Loan Banks and the Federal National Mortgage Association.
Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other
depository institutions at the Federal Reserve; these are immediately available funds
that institutions borrow or lend, usually on an overnight basis. They are lent for
the federal funds rate.
Municipal notes - (in the U.S.). Short-term notes issued by municipalities in
anticipation of tax receipts or other revenues.
Treasury bills - Short-term debt obligations of a national government that are issued
to mature in three to twelve months.
Money funds - Pooled short maturity, high quality investments which buy money
market securities on behalf of retail or institutional investors.
Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the
reversal of the exchange of currencies at a predetermined time in the future.
Short-lived mortgage- and asset-backed securities.

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Capital Market is a market for securities (debt or equity), where business enterprises
and governments can raise long-term funds. It is defined as a market in which money is
provided for periods longer than a year. The capital market includes the stock market (equity
securities) and the bond market (debt). Money markets and capital markets are parts of
financial markets. Capital markets may be classified as primary markets and secondary
markets. In primary markets, new stock or bond issues are sold to investors via a mechanism
known as underwriting. In the secondary markets, existing securities are sold and bought
among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.
Both the stock and the bond markets are parts of the capital market

ASSET CLASSES When we save and invest we actually put our money in things that would earn you an interest
or a dividend, something that will help the money grow. These different things, like the
shares of companies, bonds and securities, bank deposits, gold, real estate, mutual fund
schemes etc. into which you put your money are called assets or asset classes. All these
assets belong to broadly three categories:

Fixed income,
Equity and
Alternate assets.

These assets may again be subdivided into financial assets and physical assets. Bonds or bank
deposits are financial assets whereas real estate is a physical asset.
Among financial assets, equity and fixed income are known as primary asset classes or
traditional asset classes. Where as assets like gold, real estate, private equity are a part of the
secondary assets or the alternate assets.

Equity

A share or equity investment is a basic unit of ownership in a company.

They provide income in the form of dividends
They provide capital growth
They are highly liquid
Diversity can be obtained across a whole range of shares in different market sectors such as
mining, industrials, banks and media.

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Fixed Income
These constitute of bank deposits or bonds etc. These assets carry a fixed rate of interest or
coupon for a particular period. Say, for example, if you place a deposit with a bank for a
period of one year, you will get the interest at the rate agreed and for the period. Much the
same way, a bond with a coupon of 9.50 per cent payable semi-annually, will pay you the
coupon at this rate every six months irrespective of what is happening in the economy and
markets. That is why they are called fixed income instruments.

Types of interest bearing investments:

1.
2.
3.
4.
5.
6.

Treasury Bills
Government of India Securities
Bonds and debentures
Indexed Bonds
Commercial Paper
Bank deposits and fixed deposits
7. Certificate of Deposits

1. Treasury Bills: These are issued by RBI, either for 91 days 0r 365 days. Yields at the time
of issue are determined through an auction or predetermined by RBI.
2. Government of India Securities: These are the vehicles through which government of
India borrows money from the public and institutions for more than one year. On account of
lower default risk, government securities tend to offer lower interest rates than bonds and
debentures.
3. Bonds and Debentures: Bonds are generally issued by the public sector companies and
financial institutions in the form of promissory notes. Private sector companies issue
debentures. The interest rates on these instruments depend upon the term and the credit rating
of the issuer.
4. Indexed Bonds: These are also called inflation linked securities, the interest payments or
the capital outstanding on these indexed bonds is linked to inflation index such as consumer
price index. The interest rates are fixed above inflation. Indexed bonds can be very attractive
to long term investors, as they provide a guaranteed protection from the inflation.
5. Commercial Paper: Its a negotiable, short term, unsecured promissory note issued by
companies of repute. They are issued at a discount and have a maturity period of a minimum
30 days to 364 days.
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6. Bank deposits and fixed deposits: The interest on fixed deposits offered by the banks
is higher than that offered on savings accounts. Fixed term deposits can also be issued by non
banking manufacturing or finance companies. They are generally for one to three years.

7. Certificate of Deposits: They are issued by banks (maximum one year) of financial
institutions (one to three years).

Alternate investments
This is the name commonly used for non-traditional investment avenues. Alternate assets
compared to normal asset classes are less liquid, in other words, if you need to liquidate these
assets and raise cash it may take time. A second feature is that alternate assets carry a higher
risk compared to traditional products. Therefore, they naturally tend to give much higher
returns too. Real estate, gold and structured products are examples of alternate products.

Cash
This is also sometimes considered to be an asset class.
Portfolio managers always keep some amount of liquidity as a buffer
For the portfolio managers F & O must be backed by equivalent cash in bond
portfolios.
Most portfolios generally have limitations on the maximum cash they can hold; usually it is
0-15%, depending upon market outlook.

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MUTUAL FUNDS

A Mutual Fund is a trust that pools together the savings of a number of investors who share a
common financial goal. The fund manager invests this pool of money in securities- ranging
from shares and debentures to money market instruments or in a mixture of equity and debt,
depending upon the objectives of the scheme as stated in the SID / KIM In India, Mutual
Funds are governed by Association of Mutual Funds of India (AMFI) and Securities
Exchange Board of India (SEBI).

Entities in a Mutual Fund operation:

In India the following entities are involved in a Mutual Fund operation: The Sponsor, The
Mutual Fund, The trustees, and The Asset management company, The Custodian and The
Registrars and Transfer Agents.
Sponsor:
The sponsor of the Mutual Fund is like the promoter of the company. The sponsor may be a
bank, a financial institution, or a financial service company. It may be an Indian or foreign.
For Example, the sponsor of Templeton Mutual Fund is Templeton International Inc. The
sponsor has to obtain a license from the SEBI for which it has to satisfy several conditions
relating to capital, profits, track record etc.

Mutual Fund:
The Mutual Fund is constituted as a trust under the Indian Trust Act, 1881, and registered
with SEBI. The beneficiaries of the trust are the investors who invest in the various schemes
of the Mutual Fund.

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Trustees:
A trust is a notional entity that cannot contract in its own name. So, the trust enters into
contracts in the name of the trustees. Trustees can be either an individual or a corporate body.
Typically it is the latter. The trustees appoint the asset management company, secure
necessary approvals, periodically monitor hoe the AMC work and hold the properties of
various schemes. Trustees can be held accountable for the financial irregularities of the
Mutual Fund.
Asset Management Company (AMC):
The AMC also referred to as an Investment Manager is a separate company appointed by the
trustees to run the Mutual Fund. For example, Templeton Asset Management (India) Pvt. Ltd.
Is the AMC of Templeton Mutual Fund. The AMC should have a certificate from SEBI to act
as a portfolio manager under SEBI Portfolio Managers Rules and Regulations, 1993. The
AMC handles all operational matters such as designing the schemes, launching the schemes,
managing investments and interacting with investors.

Custodian:
The custodian handles the investment back office operations of a Mutual Fund. It looks after
the receipt and delivery of securities collection of income, distribution of dividends etc.

Registrar and Transfer Agents:

They handle investor related services such as issuing units, redeeming units, sending fact
sheets, annual reports and so on.

Related Terminology
Scheme & Units Investors invest in a scheme by buying its units and disinvest by selling these units.

Net Asset Value (NAV) Net Asset Value is the market value of all the assets that the fund is holding minus its
liabilities. The per unit NAV is the net asset value of the scheme divided by the number of
units outstanding on a particular date.
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Mutual Fund NAV = (Total Assets Liabilities) / Total number of units

Assets Under Management The total outstanding units of a scheme multiplied by the NAV of the scheme constitutes the
total assets under management for the scheme.

Growth, Dividend Payout & Dividend Reinvestment Options Regular flow of Income (Dividend payout) NAV reduces by the amount
distributed as dividend
Re investing the Dividend in the same scheme (Dividend Reinvest) NAV remains
the same but the no. of units under the scheme increases
Growth of Income (Growth) NAV appreciates but the no. of units remain the
same

Retail & Institutional Plans Retail Plans- Expense Ratio is higher and minimum investment amount is lower
Institutional Plan- Expense Ratio is lower and minimum investment amount is
higher.
Expense Ratio It is a measure of cost or expenses incurred by an asset management company too per ate
mutual fund scheme. It is determined by dividing the fund's operating expenses by the total
value of its assets under management.

Exit Load The fee charged by a mutual fund from the investors in case of a nearly redemption viz
redemption prior to a specified period under a particular scheme. It varies based on the nature
of the scheme, tenure of the scheme, etc.

Open Ended & Close Ended Funds Funds which are open for purchase and redemption on all working days for investors are
referred to Open Ended Funds. Where as funds which are open only on certain specific dates
for purchase and redemption by investors are referred to as Close Ended Funds.

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As per the latest SEBI guidelines all the instruments with a maturity of more than 90 days are
to be valued on mark to market basis where in the profit / loss on the instrument is calculated
on a daily basis. Where as the instruments with a maturity of less than 90 days are valued
based on a mortisation method.
Average Portfolio Maturity The maturity of a debt instrument refers to the time when it will get matured. The average
portfolio maturity of a debt mutual fund refers to the weighted average of the maturity of
each instrument that the debt fund is holding as a part of its portfolio. It indicates how
sensitive a debt fund is to changes in interest rates. The change in value of as cheme with
along er average maturity will be much higher than a scheme with a very shorter average
maturity, given a certain percentage point change in interest rate. Average maturity of a fund
portfolio undergoes a change with the passage of time or when the portfolio is churned. As a
debt security approaches its maturity date , the length of time to maturity becomes shorter
Yield to Maturity (YTM) YTM is annual discount rate at which the present value of bonds promised cash flows is
equal to its current market price plus accrued interest. It is the expected rate of return that an
investor will receive on investing in a debt instrument, in case he holds the security till its
maturity and the coupons received in the form of dividend or otherwise are also reinvested at
the same rate as the YT Similarly, the YTM for a debt fund is the weighted average of the
YTMs of all the securities that the fund is holding. However, for an open ended debt fund the
portfolio of the fund keeps on changing and consequently, its maturity and YTM will also
change. It assure of the return of the scheme and is expressed in annualised term
Negotiated Dealing System
An electronic trading platform, operated by the RBI, used to facilitate the exchange of
government securities and other money market instruments. The NDS will also be
responsible for hosting new issues of government securities. Once fully implemented, it eill
eliminate physical exvahnge of forms between itd trading members.

Subsidairy General Ledger

It is a facility provided by RBI to large banks and financial institutions to hold their
investments in Government securities and Treasury bills in the electronic book entry form.
The SGL or Subsidiary general ledger accounts, can be considered as the Demat account of
all the financial institutions, Banks with RBI.eg.- HDFC has an SGL account with RBI.
Constituent SGLs are used by the smaller financial institutions, eg Aditya Birla Money
Mart Limited. These helps in the trade of the government securities.

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TYPES OF SCHEMES -

Based on Structure

Open Ended Funds

Close Ended Funds

FMPs/Interval Funds

Capital Protection Funds

Interval Funds

Based on Asset Class

Equity Funds
Diversified Equity Funds

Index Funds

Sector Equity Funds

ELSS (Equity Linked Savings Scheme)

Fund of Fund (Invests in Equity funds)

Debt Funds

Money Market Funds Liquid & Ultra Short term

Bond Funds Income, Short term & Dynamic

FMPs/Interval Funds
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Gilt Funds

Hybrid Funds
Balanced Funds

MIPs

Arbitrage Funds

Capital Protection Funds

A brief description of all the types of mutual fund schemes

Open ended funds

An open ended fund is a collective investment scheme which can issue and redeem
share at any time.
Closed ended funds
Here, the number of shares are limited. And the shares are not normally redeemable
for cash or securities until the fund liquidates.
Interval Fund
A fund that combines the features of open-ended and closed-ended schemes, making
the fund open for sale or redemption during pre-determined intervals.
Fixed Maturity Plans The Fund takes money from the investors and deploy it in instruments which have a
maturity which is less than or equal to the maturity date of the fund, but for a fixed
period of time. So this is more or less like a fixed deposit but has tax advantages
compared to a fixed deposit. Because the maturity profile is fixed and most of the
time not more than a year, this keeps the interest rate risk at controlled levels. Credit
risk arises out of the type of instruments that the scheme or the fund buys.
Capital protection Fund
A type of fund that guarantees an investor at least the initial investment, plus any
capital gain, if it is held for the contractual term. The capital invested remains safe.
Equity Fund
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A mutual fund that invests principally in stocks. It can be actively or passively (index
fund) managed. Also known as a "stock fund".
Diversified Equity funds
These are the funds which invest in diversified and varied pattern of debt and equity
instruments. As a result of which the risk is mitigated even in the worse of the market
scenario.
Fund of Fund A mutual fund that invests in other mutual funds. It consists of a
variety of fund categories that are all wrapped into one fund.

Sector Equity Fund

These invests in particular sectors. It can also follow sectoral benchmark. Like BSE
METAL, BANKEX etc..

Equity linked Savings schemesThese are equity funds floated by mutual funds. They offer a 20 per cent tax rebate on
investments upto Rs 10,000 in a given financial year. There is a three year lock-in on
investments and there is no assurance on returns. The ELSS funds have to invest more
than 80 per cent of their money in equity and related instruments. Returns form ELSS
funds tend to fluctuate widely. The other way of investing in these funds could be a
systematic investment, which essentially means investing a small sum regularly
(monthly or quarterly).
Index Funds
A type of mutual fund with a portfolio constructed to match or track the components
of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index
mutual fund is said to provide broad market exposure, low operating expenses and
low portfolio turnover.
Debt Funds
The fund that invests in fixed income instruments such as debentures (bonds),
Treasury bills etc. Preferred by investors who want steady income and are not willing
to take much of risk.
Gilt Fund A mutual fund which invests in high quality low risk debt, mainly from
government securities. It consists of both medium and long term Government
securities in addition to the top quality corporate debt. The safe custody of Gilt funds,
is done through SGL, and are traded through NDS or the Negotiated Dealing system.
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 Hybrid Funds
A category of mutual fund that is characterized by portfolio that is made up of a mix
of stocks and bonds, which can vary proportionally over time or remain fixed.
Short term fund
Portfolio composition CD, CP, call money, short term debt.
Risk Moderate
Average maturity 170-730 days
Time horizon for investment - 6 month to 1 year
Advantages Variable return based on short term yield movement.

Income Funds An income fund invests in bonds and other debt securities. Bond funds generate
income through regular coupon / interest income on the fund's underlying securities
and through the capital appreciation. Provides higher returns than liquid, ultra short
and short term fund. These Funds invest in medium term to long term instruments viz.
government securities, corporate bonds, debentures, fixed deposits, etc. Long term
makes it riskier too.

Liquid Funds
Portfolio composition Short term institutions like CDs, CPs, Call money, CBLO,
Treasury Bills
Average maturity Below 90 days
Very low risk
Very stable returns
Time horizon 1 day to 1 month.
Ultra Short Term
Portfolio Composition Liquid funds instruments and some short term debentures.
Average maturity Upto 120 days
Moderate Risk
Fairly stable returns.
Time Horizon 1 month to 3 months.
Balanced Fund
A fund that combines a stock component, a bond component and, sometimes, a money
market component, in a single portfolio. Generally, these hybrid funds stick to a
relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity
component) or conservative (higher fixed-income component) orientation.
Monthly Income Plan
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A type of investment vehicle that provides a specified monthly payment to the

investor. This monthly payment is intended to be a stable form of income and is
therefore typically suited for retired persons or senior citizens
without other substantial
sources
of
monthly
income.
Arbitrage fund
A fund which tries to take advantage of price discrepancies for the same asset in
different markets.

STATISTICAL MEASURES RELATED TO PORTFOLIO

Sharpe Ratio Sharpe ratio or excess return to variability measures the portfolio excess return over the
sample period by the standard deviation of returns over that period. This ratio measures the
effectiveness of a manager in diversifying the total risk ( s ). It measures the risk adjusted
returns. The formula for measuring the Sharpe ratio is:
Sharpe Ratio = (rp rf ) / sp
Where, rp = actual return on portfolio
Rf = risk free rate of return
And, sp = standard deviation of the fund.
This will be compared to the Shape ratio of the market portfolio. A higher ratio is preferable
since it implies that the fund manager is able to generate more return per unit of total risks.

Treynor Ratio Treynors measure evaluates the excess return per unit of systematic risks ( b ) and not total
risks. The formula for measuring the Treynor Ratio is:
Treynor Ratio = (rp rf ) / bp
Here, bp = Beta of the portfolio.

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Jensen measure or (Portfolio Alpha) The Jensen measure, also called Jensen Alpha, or portfolio alpha measures the average return
on the portfolio over and above that predicted by the CAPM, given the portfolios beta and
the average market returns. It is measured using the following formula:
ap = rp [rf + bp (rM rf )]
The returns predicted from the CAPM model is taken as the benchmark returns and is
indicated by the formula within the brackets. The excess return is attributed to the ability of
the managers for market timing or stock picking or both.
This measure is widely used in evaluating mutual fund performance. If aP is positive and
significant, it implies that the fund managers are able to identify stocks with high potential for
excess returns.

Beta
This is the level of the risk involved while dealing with a mutual fund. The market and the
nature of the instrument plays an important role in the same.
Beta > 1 implies that the scheme is less volatile than the market of the index.
Beta < 1 implies that the funds prices are more volatile than the market.

Standard Deviation
This is a technique which measures the variation in NAV. It helps measuring the consistency
of a fund over a period of time. Lower the standard deviation, the better is the consistency.

Mutual Fund Performance We can evaluate the performance of a mutual fund based on the following parameters :

Returns Absolute/Simple Annualised Returns & CAGR

Consistency Rolling Returns & Standard Deviation

Risk Adjusted Returns - Sharpe Ratio

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Portfolio Maturity Profile

Portfolio Composition

FUNDAMENTAL AND TECHNICAL ANALYSIS:

Although the Fundamental and Technical Analysis are different concepts altogether still
they share the common objectives.
The various objectives of Fundamental & Technical analysis are as follows:

Understand the market and economy:

The technical and fundamental analysis both focus on having a good understanding of the
market. They both can work only when one has a good knowledge of the market as well as
the economy. A good and complete analysis can be done only when person first understands
the economy of the country as a whole, the phase in which economy is currently, the
driving forces of the economy, the flow of funds in the economy, the government policies,
the current scenario of the world as a whole. Once a person has a good understanding of the
economy the next step is to understand the market, if the economy is performing well then
the market will also do well, so there is always some sort of correlation between the
economy and the market.

Understand the directions going up and down:

Technical and Fundamental analysis also helps in understanding the directions in which
the stock of the company is going tom go. Due to this analysis one can understand the
trend in which the market currently is and through current pattern one can also understand
the way the markets are going to behave in near future because the trend repeats itself.
Economy always follows the same phase once again because its an economic cycle.
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Understand the quantum of change:

Technical & Fundamental analysis also helps in understanding the quantum with which the
market change. Although there is no such guarantee that how much will be the change but
still we can have some idea of the quantum with which the economy and the markets will
change on the basis of past trends and figures.

What kind of product should be selected for the portfolio:

Technical & Fundamental analysis also helps us in understanding the security or
instrument that one should select. Through these we can understand that how the securities
are behaving right now and how they are going to behave in the near future due to the
movement in the past. Since trends have a habit of repeating themselves.

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Fundamental Analysis:

Characteristics of Fundamental Analysis:

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Economic Factors
Fundamental analysis foremost consider the growth of the economy i.e. the rate with
which the economy is growing and the future expectation about the growth of the
economy. If the economy is growing well then the industry will automatically perform
well and once the economy does well then the company will also do well provided it is
build on good foundation, having a good management body. Similarly, the rate of inflation,
the interest rates, liquidity, unemployment, commodity prices etc also plays a role in the
same.

Industrial Factors Industrial growth is a very important concept as far as the growth of the economy is
concerned. As the figures for the industrial growth improves directly the figures for the
growth rate of the economy improves. Also, the capacity utilization, the total available
capacity, the demand and supply, inventories, raw material availability, Cost of funds,
production process, Governmental policies for a certain industry etc also fundamentally
determines the same.

Company Factors
These include factors such as the life of the company, management policies, functions, the
dividend policy, the asset structure of the same. The debtors and the creditors of the
company.

Technical Analysis:

Study of the past price trend:

The technical analysis is the study of the past price trends, it studies the various price
charts, sees the movement of the scrip accordingly and helps the analyst in deciding
whether to invest in such shares or not. The past price trend also helps in understanding the
future trend of the prices.

History repeats itself:

The Technical analysis believes that history repeats itself. Thing that has happened today is
again going to happen sometime in future because the market moves like a cycle and
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hence they come back to the same position from where they started and this is why it is
said that history repeats itself.

Prices reflect everything

This implies that the prices of the instrument alone reflects everything, and covers all the
factors. It reflects all the organizational, industrial, and economic factors together.

MODEL PORTFOLIOModel Portfolio is nothing but investment in the various assets according to the risk taking
capability of the investor.
Every investor has a different investment and risk taking capacity, but at the same time we
should not forget that there is always a direct relationship between risk and return, i.e. higher
the risk higher is the return. In order to understand this first of all we should understand the
risk-reward tradeoff.
Model Portfolio indicates the investment of money of investors in various Asset Classes,
namely, Cash, Fixed Interest, Domestic Shares, International Shares, Domestic Property. Now
the investment of the money of the client by a Fund Manger depends upon the risk taking
capacity of the client, there are always two types of clients who are either risk averse or the
other ones are whose risk taking capabilities are very high.
Model Portfolio puts different Investors into different categories namely Wealth Guard,
Wealth Keeper, Wealth Builder, wealth enhancer, Wealth Multiplier based on each clients risk
taking capacity and reward appetite.
The people who come under Risk Guard category are those who have low risk taking
capacity and would like to invest highly in Long Term and Short Term Debts. They are the
ones who like to spend almost about 70 percent in Low risk debt and 30 percent in Long
Term and Short Term Debt and hence their risk taking capacity is very low.
The people who come under Wealth Keeper category are those who have a better risk taking
capability than Risk Guard people but still even they like to play safe game. They invest
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about 50percent in the Low Risk Debts, 35 percent in Long and Short Term Debts, and 15
percent in Equities.
The people who come under Wealth Builder category are those who like to remain in almost
every asset classes and like to keep a much diversified portfolio. They keep about 30 percent
of their investments in Low Risk Debts and about 30 percent in Long term and Short term
Debts, 30 percent In Equities and the remaining in other types of Asset Classes and hence
they are the ones who have higher risk taking capacities as compared to Wealth Guards and
Wealth Keepers.
The People who come under Wealth Enhancer category are according to their names and they
believe in enhancing the size of their capital and this like to take higher risk in order to get
higher amount of return. They invest highly in Equities and invest about 40 percent in
Equities, 20 percent each in Low Risk Debt, Long Term and Short term Debts, and other asset
classes.
The last category consists of the investors who fall under the category of Wealth Multipliers.
They are the ones who like to multiply their money and like to take very high risks. They are
the ones who invest about 50 percent in Equities, 20 percent in other asset classes, and 15
percent each in Low Risk debts and Long Term and Short Term Debts.
One of the most important aspects of knowing your client involves accurately assessing your
clients risk profile. Not only do clients need to understand the risks, they need to accept them
as a part of their investment process.

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SEBI GUIDELINES TO THE PORTFOLIO MANAGERS:

On 7th January 1993 securities exchange board of India issued regulations to the portfolio
managers for the regulation of portfolio management services by merchant bankers. They are
as follows:

Portfolio management services shall be in the nature of investment or consultancy

management for an agreed fee at client's risk.

The portfolio manager shall not guarantee return directly or indirectly the fee
should not be depended upon or it should not be return sharing basis .

Various terms of agreements, fees, disclosures of risk and repayment should be

mentioned .

Client's funds should be kept separately in client wise account, which should be
subject to audit.

Manager should report clients at intervals not exceeding 6 months .

Portfolio manager should maintain high standard of integrity and not desire any
benefit directly or indirectly form client's funds .

The client shall be entitled to inspect the documents .

Portfolio manager should maintain high standard of integrity and not desire any
benefit directly or indirectly form client's funds .

The client shall be entitled to inspect the documents .

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Portfolio manager shall not invest funds belonging to clients in badla financing, bills
discounting and lending operations .

Client money can be invested in money and capital market instruments .Settlement on
termination of contract as agreed in the contract.

Client's funds should be kept in a separate bank account opened in scheduled

commercial bank.

Purchase or Sale of securities shall be made at prevailing market price .

Portfolio managers with his client are fiduciary in nature. He shall act both as an agent
and trustee for the funds received.

HOW TO CONSTRUCT A PORTFOLIO While constructing a portfolio following points are to be taken into account:

1. Liquidity: For any types of investments the most basic thing that is needed is the
liquidity. In liquidity funds and quantum may differ from company to company and
investor to investor but still for every portfolio manager there should be some amount of
liquidity in hand which can be utilized in the case of emergency and moreover when the
markets are down. It is advisable to keep some minimum amount of liquidity in hand may
be 10-15%.
2. Time Horizon: Time horizon is a very important factor for any type of investments.
Once we are aware of the time horizon for which investment has to be kept we can easily
understand the demand for liquidity. Suppose, if the funds will be needed after a short
period of time then more money will be invested in liquid and ultra short term funds.
Therefore, time horizon gives a good idea of the liquidity required.
3. Risk Profile: While designing a portfolio the one more important aspect that has to be
kept in mind is risk profile, the capability of the investor to take risk. Every investor has a
different risk appetite, like, HNIs belong to high income group and thus have the ability to
take higher risks, while the retail investors dont have that high risk taking capacity, thus,
while designing portfolio it should be kept in mind that the money of the small retrial
investors is not lost, because they are generally risk averse people and this loss of money
would hurt them more s it would hurt to the HNIS. Blue Chip companies like Hindalco,
ITC, dont invest in risky schemes instead they invest more in debt because their aim is not
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to make money but to get a little return on the idle money. Thus, while designing a
portfolio or any investor it should b kept in mind that how much risk one is able to take.
4. Asset Allocation: Basically, the asset classification can be done on two parameters, the
traditional assets and non- traditional assets. The traditional asset consists of fixed income
bearing assets and equities whereas the non-traditional consists of Alternate assets. Fixed
income assets consists of GOI securities, Bonds, CDs, CPs, RBI relief bonds, Indexed
bonds, Gilt funds, short term funds, FMPs etc. On the basis of the time horizon, liquidity
and risk taking capacity the asset allocation is done. If the investor has a long term
investment horizon and has a good ability of taking risk then more investments can be
made in the equities and the remaining can be allocated in the fixed income instruments
and the alternate asset class. On the other side if the time horizon is big but investor is risk
averse then more investments can be made into government bonds, on contrary if the
investor has a short term investment horizon and low risk taking capacity then funds can
be invested into the money market instruments like, treasury bills, commercial papers,
certificate of deposits etc.

5. Market View: For any portfolio manager the direction in which markets are going to go
is of utmost importance. Based on the economic scenario and the market scenario the
portfolio manager would be able to decide that in which instruments the money of the
investor would be invested. Suppose, if the inflation is rising then the interest rates are
going to go up, the bond yield will increase, the stock markets will come own then in that
scenario it is better to invest money in government bonds and other fixed income bearing
securities. On the contrary if economy is free of inflation and stock markets are doing
good then it is better to invest in equity market.

6. Positioning Strategy: For any investments positioning strategy is very important.

Positioning strategy is nothing but the spot allocation and the final allocation. Spot
allocation deals with the allocation in which it is decided that how much money has to be
allocated to each asset class whereas final allocation deals with the investments in the
various schemes or stocks or bonds etc. therefore, the positioning strategy is also
dependent upon the market view, i.e. the direction in which markets are going to go.
7. Target Return: Generally, every investor gives an idea to the portfolio manager that
how much return he wants through the questionnaire. In the questionnaire every question
has been assigned some weightage and based on the answers of the questions one can
understand the risk appetite and the need of return of every investor. On the basis of the
target return of the investor the investments in various asset classes is made. For higher
returns the more investments are made in equity funds and direct equities and lesser in
fixed income and alternate assets.

8. Risk Mitigation: Every portfolio manager should keep in mind that no matter how rich
the investor is efforts to minimize the risk should always be there. Risk minimization is
very important for every type of investors and hence efforts should be made on better
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understanding of the economy and the market so that the better investments with low risks
can be made.
9. Benchmarking: Each portfolio should have a benchmark, benchmark is necessary
because through this only one can decide that how the portfolio has progressed because
this will only act as a measure for the comparison between the actual performance of the
portfolio and the benchmark.
10. Portfolio Evaluation: Portfolio is evaluated when the portfolio is compared with the
benchmark, if the portfolio performs better than the benchmark, it means that the portfolio
is doing well and if the portfolio is unable to beat the benchmark then it means that the
portfolio is underperforming.

DESIGNING INVESTMENT PROPOSAL-

1.

Filing up of questionnaire

2.

Risk profiling

3.

Economic outlook

4.

Suggested Asset allocation: Spot

5.

Suggested Final allocation: Schemes of various AMCs

6.

Information on the funds suggested

1. Filing up questionnaire: The very first thing that is to be done in the designing in the
investment proposal is to get the information about the investor from the investor himself.
The information can be gathered through the questionnaire which will be filled by the
investor, wherein there will be various questions based on the clients profile, like, his age,
goals if any, the duration for which he wants the money to be invested, the risk profile, i.e.,
depending upon the asset allocation. Thus, the questionnaire helps in profiling an investor
which is the basic requirement in designing any investment proposal.
2. Risk Profiling: Once the questionnaire is designed the next important thing is risk
profiling. The risk profiling can be done by allocating the investor the categories of model
portfolio based on the risk taking capacity of the investor and the type of return that investor
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wants from the portfolio. If the investor wants the higher return and is able to take higher
risk then he will be allocated the wealth multiplier category where the investor can invest
maximum up to 50 percent of the corpus in equities and remaining in other asset classes
whereas in the categories like wealth enhancer, wealth builder, wealth keeper, wealth guard,
the investor would usually keep an investment of 40, 30, 20 and 10 percent in equities
respectively.

3. Economic Outlook: Once the risk profiling is done he next most important thing that is
done is getting an insight of the economy. Every good fund/portfolio manager would study
an economic outlook in order to have the better knowledge of instruments in which the
investment can be made.
4. Suggested Spot Allocation: Once all the above mentioned steps have been followed the
next step is to do the spot allocation. The spot allocation is nothing but the asset allocation, it
tells the investor that how much investment should be made in various asset classes, how
much to be done in equity funds, how much to be done in direct equity, how much in debt
funds, how much in balanced funds, how much in hybrid funds, how much in gilt funds,
monthly income plans, fixed maturity plans etc.

5. Suggested Final Allocation: Final allocation deals with the investment in the various
schemes, it tells us specifically that in which schemes of AMC the investor should invest, be
it debt schemes, be it equity schemes, be it any other scheme of the alternate assets like,
investments in gold funds, gold ETFs etc.
6. Information on funds suggested: Once all the steps mentioned above are done, the
next step is to give away the information about the various funds that have been suggested.
Here the information about the return of the fund, risk involved (standard deviation), AUM,
benchmark and other criteria to measure performance are given.

Principles of Instrument Selection 1.

2.
3.
4.
5.

Safety
Risk appetite
Returns
Liquidity
Time horizon.

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THE PORTFOLIO PROFILING FOR 100 CRORE

RUPEES
Factors taken into account while constructing the portfolio:

1. Risk Profiling: The risk profiling is done with the help of a questionnaire consisting of 10 or
14 questions, each answer carrying a certain weight. The points are allocated to the answers
in accordance to the weights. The sample questionnaire has been attached in the annexure.
According to ABMML, the risks can be classified as
Risk profile Conservative
Moderately Conservative
Balanced
Moderately aggressive
Aggressive

Meaning Wealth Protector

Wealth Saver
Wealth Builder
Wealth Enhancer
Wealth Multiplier

2. Asset Allocation: The model portfolio type we have selected is somewhat similar to that of
the wealth builder, where the allocation is as follows62% - Debt
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26% - Equity
12% - Alternate assets.

3. Economic Outlook
Accordingly, the Reserve Banks baseline projection of GDP growth for the current year is
7.3 per cent. Turning to the domestic macroeconomic situation, economic growth
Decelerated last year, dropping from 7.7 per cent in the first quarter to 6.9 percent in the
second quarter and further down to 6.1 per cent in the third quarter. Moving on to inflation,
WPI inflation, remained above 9 per cent during April-November 2011, moderated to 6.9 per
cent by end March 2012.
These were the major changes bought during the span of 45 days
Announcement of the RBI policy on 17th April 2012.
According to which

There was a reduction in the repo rate under the liquidity adjustment facility (LAF) by
50 basis points. The repo rate will accordingly drop from 8.5 to 8.0 per cent.
Consequent to this, the reverse repo rate under the LAF, determined with a spread of
100 basis points below the repo rate, gets calibrated to 7.0 per cent.
Similarly, the marginal standing facility (MSF) rate, which has a spread of 100 bps
above the repo rate, stands adjusted to 9.0 per cent.
In order to provide greater liquidity cushion, the borrowing limit of scheduled
commercial banks under the marginal standing facility (MSF) have increased from
one per cent to two per cent of their net demand and time liabilities (NDTL).
Expected OutcomesFirst, growth will stabilise around its current post-crisis trend. Second, risks of
inflation and inflation expectations re-surging will be contained. Finally, the liquidity
cushion available to the system will be enhanced.

Petrol prices in India witnessed the steepest increase of Rs 7.54 a litre in its history in
the month of May.
The value of rupee dollar touches to over 56, at the end of May.

4. Market Outlook:
The markets were over 5200 as per the NIFTY index, when we started with the portfolio, i.e.
in the mid of the month of April. Whereas the markets plunged to below the 4900 mark as
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well. The markets are on a diminishing trend since the month of May. The situation still
stands to be unstable and on a down turn.

Overall Nifty trend 5300.00

5200.00
5100.00
5000.00
4900.00
Price 4800.00
4700.00

Date

INITIAL INVESTMENT PROPOSAL FOR OUR PORTFOLIO -

Spot Allocation

o
i
k
b

L
g
s
r
t
m
d
t

Equity

Other Assets

Other Assets; 12%

Equity; 26%
Debt; 62%; 62%

L
w
R
s
D
e
t

Debt

n
/

t
e

r
e

T
O
T
A
L
D
E
B
T

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E
q
u
t
y
F
u
n
d

D
i
i

e
c
E
q
u
t

T
O

T
A
L
E
Q
U
I

i
y

PORTFOLIO FOR RUPEES 100 CRORES 100.00% RS. ( in crore)

44.00%
44
21.00%
21
5.00%
5
5.00%
5
6.00%
6

A) LOW RISK DEBT 1. Short Term Funds a) HDFC short term opportunity (G)
b) Axis ST Retail Plan Fund (G)
c) IDFC SSIF ST
d) ICICI Prudential Short Term Plan Institutional Plan (G)
2. Liquid / Ultra Short Term Funds a) Canara Robeco Treasury Adv S IP (G)
b) ICICI Pru Flexible Income Prm (G)
c) Reliance Liquidity
d) Axis Liquid fund IP
3. Post office & RBI bonds a) NHAI Govt Bond 8.20%
b) NHAI Govt Bond 8.30%

B) LONG / SHORT TERM DEBT 1. Income Funds a) Birla SL Income Plus Ret (G)
b) SBI Dynamic Bond Fund (G)
c) Templeton India IBA -A (G)
3. Fixed Maturity Plan Page

5.00%

20.00%
6.00%
5.00%
5.00%
4.00%

20
6
5
5
4

3.00%
1.50%
1.50%

3
1.5
1.5

18.00%
16.00%
6.00%
4.00%
6.00%

18
16
6
4
6

2.00%

2
54 |

a) Canara Robeco Intrntl Series 2 Qtly Plan 2

Ret

2.00%

C) EQUITY 1. Equity funds a) Canara Robeco Large Cap+ (G)

b) ICICI pru focused blue chip equity fund
growth
c) Franklin India Blue chip (G)

26.00%
6.00%
1.50%

26
6
1.5

3.00%
1.50%

3
1.5

2. Direct Equity Ambuja Cements

CIPLA
Divis Laboratory
Coal India Ltd
Godrej Industries ltd
HDFC Bank
Hindustan Uniliver Limited
ICICI Bank
ITC ltd
Larsen & Toubro
Mahindra and Mahindra
Tata Motors
Tata steel
Hero Motocorp
D) ALTERNATE 1. Other Asset classesa) Kotak Gold ETF
b) Reliance Gold Saving Fund

20.00%
2.00%
2.00%
1.50%
1.50%
1.00%
2.00%
2.00%
2.00%
1.50%
0.50%
1.50%
0.50%
1.00%
1.00%
12.00%
12.00%
6.00%
6.00%

20
2
2
1.5
1.5
1
2
2
2
1.5
0.5
1.5
0.5
1
1
6
12
6
6

If we compare the asset allocation to the different profiles of the model portfolio, then we
realize that the portfolio is somewhat similar to the WEALTH BUILDER profile, which is
ranked in the middle in terms of the risk and return appetite. In the wealth builder profile,
60% of the funds are allocated to the debt, 30% to equity and the remaining 10% to the other
assets. The asset allocation in our case is also similar. 62% of the debt allocation has helped
in mitigating the risk of the whole portfolio. 26% of the money into equity, out of which a
major chunk is in the direct equity in terms of shares. This is the most risky sphere, and has
turned out to be the sphere which showed the negative returns or losses. Never the less, it
does beat the benchmark, even when the markets were on a downturn falling from a
maximum of 5226 to a minimum of 4891 in the particular span of 45 days. The other asset
classes, included the gold ETFs, which is considered to be one of the most safest bets,
especially in the Indian market. 12% of the funds were invested into gold. Even at the time,
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when the markets are not performing well, the portfolio gave positive results, beating the
benchmark drastically.

Why 62% in Debt?

The debt composition of 62%, comprises of 44% of Low risk debt which includes the short
term and the ultra short term, liquid funds. These are the funds which have low risk attached
to it. They invest in money market instruments majorly. The ultra short term and the liquid
funds are a necessity to the portfolio, as they can be liquidated easily without waiting much
and can be invested into any other scheme or stocks as and when the market allows. These
low risk instruments gives a nominal return, are low risk instruments and have superfluous
liquidity. And thus are a necessity as well as the safest bet in order to remain secured from the
market risk. Also, interest rates and the prices of the short term funds are inversely related.
With the fall in the interest rates as per the latest Government notification, the pries of the
short term funds would increase, leading to the price gain and rise in the return. We can also
see the same in our portfolio, where all the schemes under this category are performing well
and giving constant positive returns.
18% of the money was invested in the long term or the medium term schemes including the
income funds and the FMPs, here the prospective is long term. With time, the returns are
expected to keep on increasing. These funds invests in debt instruments like bank deposits,
bonds etc. which gives a constant return.
The remaining 3% have been invested in the Governmental bonds, the reason for the same
being the fal999 the bonds have tax benefits, which are rare to see in any other instruments.
These prices of these government bonds have shown a sharp rise over a period of time. And
thus the returns on the same are also commendable. These bonds gives us 2 types of gain
the capital gain (every 6 months), and the constant price gain (daily basis).
Altogether thus, debt is considered to be a relatively safe option to invest in, specially under
the prevailing market conditions. Also the returns have been positive on every day basis. The
absolute return of each of the fund and the bond under this category stands between 1%1.5%. Also the category has shown us constant results.

Why 26% in Equity?

Equity is a risky stake to invest in. But, higher the risk involved implies higher the chances of
return. Equity has a potential of destroying or making the whole portfolio, depending upon
the prevailing market situation and related factors. One invests in equity markets with the
hope of stupendous returns which comes in when the market is bullish. The long term
investment in the same can yield drastic returns. Equity is a vast sphere consisting of equity
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funds and the scrips of the companies. The benchmark taken in the portfolio is NIFTY.
Although the equity section did not show any positive returns, it is beating the benchmark
successfully.

Why 12% into other asset classes?

12% of the total 100 crore rupees is invested into the other asset classes, which in our
portfolio consists of the Gold ETFs. Gold is considered to be an auspicious investment,
specially when we relate it with the Indian context, Also, it is like an evergreen investment
option, where the prices are expected to rise on a continuous basis. The re sale value of gold
is also good, and thus investing in gold proves to be a beneficial component in our portfolio.
At the end of the portfolio, we can also see that the gold ETF price hike have drastically
shifted the portfolio returns on an upward trend.

How were the instruments under each head selected?

The past return trend Tracking the past 5 year, 3 year, 1 year, 6 months, 3 months, 1
month records on the profits and the returns. The historical trend plays an important
role, due to the notion that - history repeats itself, and the prices alone reflect
everything.
The ratings All these funds have been rated by the rating agencies. CRISIL being the
most prominent one. The ratings differ from AAA to D (on the diminishing trend). In
terms of short term instruments, It ranges from A1 to D. (On the diminishing trend).
The Ratios Treynor ratio and Sharpe ratio
Beta This indicates the riskiness of a particular scheme. It is majorly used while
selecting the equity funds. It implies the volatility. The statistical term used for the
same is standard deviation.
Alpha Which is the Mutual fund return subtracted from the Benchmark return. Higher
the alpha, the better it is.

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 PE ratio this is particularly used for the equity. High PE ratio implies expensive
valuation and the other way round. The PE ratio of a fund or a share should be
compared to the PE ratio of the index or the industry, in order to get a better view on
the same.
Dividend scheme Again this follows in the case of equity shares, the dividend scheme
of the company should be considered while finalising any stock.
Capitalisation Large cap funds are considered to be less risky since they consist of
the companies which are more established. Where as if one takes the small or the
medium cap stocks or funds, whose investment is comparatively lower, and which
consists of relatively new and small companies, the risk increases with the same.
Tax quotient There are certain tax free instruments, like the NHAI bonds which we
have included n our portfolio. These help us in saving the tax expenses.
The exit and the entry load The exit load for certain schemes are way too much, and
thus should be avoided specially while dealing I the short term.

Performance vs the category average is another consideration which shows us how

the fund is performing with respect to the other funds of the same category.

The worst and the best prices or the highest and the lowest NAVs of a particular fund
or a stock, helps in ascertaining the timing of the fund / stock. The investment should
not be done when the prices are at the all time high.
The news and the Company updates The recent news related to the company, to
the industry and to the economy, plays an important role in investing or dis-investing
in a particular fund or share. The change in the management of a company, change in
the fund managers, the mergers and acquisitions, the change in the dividend policy,
the changes in the Governmental policies, tax schemes etc have the potential of
capsizing the prices of an instrument completely.
The funds were also selected on the basis of the internal portfolio composition or the
asset allocation of each fund. The companies and the instruments each fund invested
in.

The EPS, DPS of a particular share, which shows the Company-investor relation too.

Relationship between interest rates and debt mutual fund schemes - As interest rates
fall, the NAV of debt mutual funds rise, since the prices of the debt instruments the
mutual fund is holding rises. As interest rates rise, the NAV of debt mutual funds fall,
since the prices of the debt instruments the mutual fund is holding falls.

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THIS IS HOW SOME OF THE STOCKS WERE SELECTED

Infosys The rupee dollar exchange value touching to the extent of Rs 56/$. This implies
that the companies like Infosys which earn in dollars will have increased earnings, and thus
the prices of the shares will be expected to rise.
EPS 147.50, Div % =940%, P/E = 16.40%, Industry P/E = 17.99%.
Result = Absolute return over a span of 45 days, when the markets were on a fall = 2.853%.

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Price trend of Infosys -

Price

2440
2420
2400
2380
2360
2340
2320
2300

Date

Cipla Pharmaceutical industry is considered to be a safe bet at the time of unstable markets.
Cipla being one of the strongest pharmaceutical companies was thus selected. Also, Cipla had
cut the price of the generic version of Bayer's renal cancer drug Nexavar by 75
percent. Also meeting the targeted growth percentage.
Divis Laboratory Showed a 50% growth on the quarter on quarter basis (for
the 4th quarter 2011-12). Again a part of pharmaceutical sector which is a strong
sector in the weak time.

Coal India ltd A large cap fund with PE ratio of 25.45, where the industry PE stand to be
16.36, dividend to be 39%. It was considered to be a safe bet due to past constant price
fluctuations.

Colgate Palmolive A personal care sector company, which meets the market PE ratio, and
has a recent increase of 15% in the volume, for the last Q4. The fast moving consumer goods
were topping out, during this time. Rs 1250 were the all time high price of this share, which
was embedded in our portfolio and thus we can say that the share was a correct pick.

HDFC Bank PE ratio approximately thrice the industry PE ratio. Dividend percentage
being 165%. Upcoming dividend = 215%. Price increase due to allotment of equity shares
under ESOP. Q4 net jumps on 30% with stronger hope, leading to the all-time high price as
on 17th April which is the start of our portfolio. The stock should never be invested on the all60 |
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time high prices, this is the lesson learnt from the same, as now the prices are below the all
time high price.

CHANGES MADE IN THE PORTFOLIO

The portfolio started with the closing prices of 16 th April. The first changes in the portfolio
were embedded on the 20th of April, where we halved the allocation of ICICI focused blue
chip fund and pruned the shares of Ambuja cements. The changes were done keeping in mind
the movement of the prices and the risk attached to the same. To play safe, we exited out of
both of these to prevent any future potential losses. We did make profit on the same, even
after deducting the exit load charges and the minimal loss on the price. In the place of the
same when the money was realized, that is after t+2 days, the 3.5% was reinvested in IDFC
sterling G equity fund and in the stocks of Infosys, which showed a total upward movement,
due to the BPO sector which performed well, also due to the all time rise in the value of
rupee, the stock price of Infosys rose, as the company earns in dollars. Thus, we can say that
Infosys was a right pick.
The other changes were made on the 3rd of May, when we sold the shares of hero motocorp
and godrej, this constituted of 2% of the portfolio. Godrej was bought on the 3 year -high
prices, and the prices after purchasing the same were constantly decreasing, thus we decided
to get out of this stock as soon as possible, by booking loss. The shares of hero motocorp
was also showing a continuous decline, also it was a very aggressive stock, which couldnt
have been afforded at such market conditions. The NIFTY was on the brink of getting lower
than the 4900 mark, and thus divesting in all of them was a safe option and proved to be
beneficial to the portfolio too. In the place of these shares, Colgate palm which deals with
consumer products was purchased. Investing in this sector was a safe option at this time.

AT THE END OF 45 DAYS -

Category-

Mutual Fund/stock

Absolute
return
Highest return giving Birla SL income plus 1.62%
Debt fund
RET G
Highest return giving Divis Laboratory
stock

Weighted return

15.93%

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Worst
stock

performing Tata Motors

Best weighted returns

-21.97%

Kotak Gold ETF

0.36%

At the end of 45 days, we see that the absolute returns stand at 0.9531%. This implies that the
value of 100 crore rupees, now has increased to Rs 100.9531 crore. The profit for the 45 days
on the portfolio can be rounded off as 1 crore rupees. The annualized return is 7.563%.
The portfolio has done well, even at the time when the markets were on the down turn. We
can also notice that all the debt funds, bonds, equity funds, shares, and gold ETFs are
individually beating the benchmark returns too.

We can summarize our Portfolio as follows

These are on the basis of the weekly absolute and the benchmark returns. The x-axis indicates
the weeks and the y-axis the returns.
0.80%
0.60%
0.40%
0.20%
0.00%
-0.20%
-0.40%
-0.60%
-0.80%
-1.00%
-1.20%

Absolute results
Benchmark results

HOW PORTFOLIO REVIEW IS DONE Portfolio Review is done to see that how the investors investments are performing and what
recommendations can be made by the portfolio manager to the investor, such as which
scheme is doing good, which scheme should be held by the investor, from which scheme the
investor should exit, in which scheme should the investor book profits, all these things are
taken care of in portfolio reviews. Portfolio review is done every month but any alteration in
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the portfolio is generally done quarterly in order to reduce the churning and reduce the
churning charges.
The following steps are followed in doing portfolio reviews:
1. Investment Profiling: Investment profiling deals with getting the basic information
about the investor like his name, age, Investment horizon, asset class preference, existing
portfolio details, risk appetite, Money to be deployed if there is any, any withdrawals during
investment horizon etc. This profiling basically deals with every information about the
investor starting from his personal information to his investment strategies and amount if
there is any to be deployed.
2. Investment Details: It contains almost all the details of the investment made by the
client, like, the schemes of various AMCS in which the client has invested, the type of funds,
like, dividend funds, growth funds, the date on which investor invested, number of units
purchased, the investment mode whether in lump sum or installment.
3. Portfolio Analysis: Portfolio Analysis deals with analyzing the complete portfolio of the
investor. Here the review is done twice once the review of current investments is done and
second time the suggestions are made to the investor like in which schemes he can invest
further and from which schemes he should exit, in which schemes he should book profit and
hold. This suggestions made are known as post review and the review of the current
investments is known as the pre review. This analysis is done with the help of the charts and
is done in excel.
Here the portfolio is shown in three ways like,
(a.)

Category wise exposure: Category wise exposure is the one, where the investors
investments are shown in the form of various categories like investments in diversified
schemes, balanced schemes, thematic schemes, monthly income plans, fixed maturity plans
etc.

(b.)

AMC wise exposure: In this case the investors investments are shown as per the
investments made in various asset management companies. Here the investors exposure to
various asset management companies is shown just to give an idea of how much investment
is been made by the investor in a particular asset management company.

(c.)

Scheme wise exposure: In scheme wise exposure the investors investments in various
schemes of various categories in various AMCS is shown. This gives us the picture of
various schemes in which the investor has invested money.

4. Portfolio Review: The portfolio review gives the details about the investors investments
and what should be the current plan of action as far as the current investments are concerned.
Like, from which scheme investor should exit, in which scheme investor should keep his
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investments intact, in which schemes should the investor book profits, and in case if the
switching over has to be advised then to which scheme the switching over should be done.
The portfolio review contains all the details of the investments like the name of the scheme,
the AMC to which it belongs, the category to which it belongs, the investment date, number
of units investor is having, the current NAV, holding period, current value, amount of
exposure, and further the remarks if any, like hold, exit, book profits, switch over etc.

5. Performance: In this step the performance of the various schemes is measured. Here, the
details about the risk and the return (absolute and CAGR) are given; also the benchmark
figures are given in order to compare the actual performance of the scheme with respect to
the benchmark. The benchmark is generally a particular index; therefore the performance of
the particular scheme is measured with the performance of the index. It also contains the
information about the exit load if any in the scheme, usually every scheme does not have exit
load, a few schemes have the exit load charge.
6. Observations and Suggestions: Observations talks about the findings from the current
investment of the investor whereas suggestions talk about the changes that can be made to the
investors investments in order to make his portfolio balanced and more profitable.
The various things that are usually a part of the observations and suggestions are:

The asset class exposure of the client.

The total number of schemes in which the investments are made and what should be the plan
of action (whether the investments should be further made in some more schemes or the
investments should be reduced from so many schemes).

The investments are made in how many AMCs and further the number should be increased
or reduced.

Is the profit booking advisable, and if yews then where that money after booking profits
should be reinvested.

Further the portfolio manager can give any other recommendations on his own seeing the
current market scenario and the movement of economy in near future.

Conclusion:

This project of portfolio management helped me in understanding the concept of portfolio

management and in formulating the portfolio. It also helped in developing know how of
assets allocation as per the risk appetite, age, and investment horizon of the investor.
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This project also helped me in formulating the investment proposal for 100 crore rupees,
which require a good knowledge of asset allocation, based on investor profile. This Project
was very useful from the point of view of understanding the selection of mutual fund
schemes (equity and debt) and also the stocks.
Portfolio review is also an important part of the portfolio management; it helps the holder of
the portfolio in understanding the position of the portfolio, considering economy and the
markets. It also informs the holder of the portfolio that which fund or security is
outperforming and which one is underperforming, so that one can judge that from which fund
he should exit and in which fund he should book profits and which fund should be held.

BIBLIOGRAPHY:

Websites Referred:
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www.sebi.gov.in
www.rbi.org.in
www.investopedia.com
www.google.com
www.nseindia.com
www.amfiindia.com

Books, Journals, Magazines Referred:

The Financial Planning Indian Institute of Banking and Finance
The Mutual Funds - by Sankaran
Monthly Market Review Aditya Birla Money Mart
Investime Aditya Birla Money Mart

Softwares used:
ACE MF Mutual fund Data from AMCs
Reuters 3000 extra
Mutual Fund Insta Portfolio Tracker
Business Beacon Macro-economic data

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