0701079 portfolio managemnet services
TRANSCRIPT
A
PROJECT REPORT
ON
“PORTFOLIO MANAGEMNET SERVICES”
FOR
“SHAREKHAN LIMITED.”
BY
“MOIZ CHAIWALA”
UNDER THE GUIDANCE OF
“DR. VAISHAMPAYAN”
SUBMITTED TO
“UNIVERSITY OF PUNE”IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD
OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (MBA)
THROUGHVISHWAKARMA INSTITUTE OF MANAGEMENT
PUNE-48.
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ACKNOWLEDGMENT
Doing a project study involves a great deal of encouragement, innovative ideas and
support from different people. After all, success is the epitome of hard work,
perseverance, steadfast determination and most of all encouraging guidance. This
summer project at SHAREKHAN LTD. was a knowledge gathering experience and
opened a vast frontier of practical aspect of theoretical knowledge.
A successful project can never be prepared by the singular effort of the person to
whom project is assigned but, it also demands help and guardianship of some
acquainted person who are involved actively or passively in the completion of a
successful project.
I would like to express my sincere thanks to my Director, Prof. Sharad L Joshi for
giving me the opportunity to be a part of an esteemed institution and without whose
support this project would not have been possible.
I take this opportunity to express my heartiest thanks to Mr. AMIT CHAVAN,
Assistant Manager, SHAREKHAN LTD, my project guide, for his invaluable
guidance, active involvement and assistance at all stages, despite his busy schedule
that made it possible to complete this summer project.
The project couldn’t have been complete without timely and vital help of my faculty
guide Dr. VAISHAMPAYAN would like to thank him for the entire support &
guidance which he provided me throughout this project. He has been a source of
inspiration through his constant guidance, personal interest, encouragement and help.
I convey my sincere thanks to him. In spite of his busy schedule he always found time
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to guide me through the project. I am also grateful to him for reposing confidence in
my abilities and giving me the freedom to work on my project.
I express my sincere gratitude to all employees at SHAREKHAN LTD. for providing
me useful assistance and resources required for the successful completion of this
project.
And in the end I would like to thank my parents, my brother and my friends for their
motivational support.
I as a student of VISHWAKARMA INSTITUTE OF MANAGEMENT, Pune-48,
would like to take this opportunity to thank all those who had made this project a
tremendous learning experience for me.
MOIZ CHAIWALA.
3
Sr.
NoTITLE PAGE No.
1 Executive Summary 5
2 Company Profile 7
3 Objective of the Study 19
4 Portfolio Management Services 24
5 Methodology of the Study 62
6 Data Analysis 66
7 Finding’s 70
8 Suggestions 72
9 Limitations 74
10 Conclusions 77
11 Bibliography 80
12 Annexure 82
INDEX
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CHAPTER 1:
EXECUTIVE SUMMARY
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Executive summary
The project at SHAREKHAN LTD. i.e. “Portfolio Management Services” helps the
individual investors in constructing a portfolio from the funds they want to put in the
various securities or financial instruments that are available in the market.
It emphasizes on what is a “Portfolio Management Service”. Then I
mentioned the need or the objective for the investors to have their portfolio. The
objective of portfolio is to diversify risk, using the investment tools and gain
maximum returns on the constructed portfolio. Along with these features I have
mentioned about the various services & product offered in PMS along with its
objective and advantages.
It emphasizes on the entire methodology of my study the parameters kept in the
mind while designing of the report, various sources of data collection, portfolio
management & under it the types of portfolio and various activities of portfolio
management, concept of risk management.
It includes the various investment instruments which are included in the portfolio,
along with example of actual designed portfolio.
It consists of my learning’s from the project and few suggestions for the
organization which I feel will be useful for them in improving their services even
further and at last but not the least this phase of the project talks about the final
CRUX of the report under the name of conclusion, it talks all about the findings
and my beautiful experience with “SHAREKHAN LIMITED”.
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CHAPTER 2:
COMPANY PROFILE
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Company Profile
Sharekhan Limited is a retail financial services provider with a focus on Equities,
Derivatives and Commodities, Brokerage execution on the National Stock Exchange
of India Ltd. (NSE), Bombay Stock Exchange Ltd. (BSE), National Commodity and
Derivatives Exchange India (NCDEX) and Multi-Commodity Exchange of India Ltd.
(MCX). Sharekhan provides trade execution services through multiple channels - an
Internet platform, Telephone and Retail Outlets and is present in 225 cities through a
network of 615 locations. The company was awarded the 2005 Most Preferred
Stock Broking Brand by Awwaz Consumer Vote.
SHAREKHAN covers the entire spectrum of financial services such as Stock broking,
Depository Participants, Distribution of financial products like Mutual Funds, Bonds,
Fixed Deposit, Merchant Banking and Corporate Finance, Insurance Broking,
Commodities Broking, Personal Finance Advisory Services, Placement of Equity,
IPO’s, among others.
Sharekhan is one kind of mediator between clients that are investors and Exchange
board. Without mediator nobody can directly purchased shares from the exchange.
Sharekhan is one of the leading stock broking companies in India. Sharekhan is the
retail broking arm of SSKI, an organization with more than 84 years of trust and
credibility in the stock market. But before 7 years the business was changed from
being a discount brokerage house to complete investment solutions provider.
Sharekhan was officially launched in February 2000 as a brand Sharekhan. With
branches and outlets across the country, their ground network is one of the biggest in
India!
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History of Sharekhan
A member of the Bombay Stock Exchange for the last 3 generations and serving
investors since 1922, SSKI is a member of the National Stock Exchange, the Inter-
connected stock exchange and a depository participant registered with both NSDL &
CDSL. SSKI made its foray into institutional broking and corporate finance 19 years
ago. Mr. Shripal Morakhia, chairman of the SSKI group turned into a professional
outfit and established the group as the pioneer of the investment research in the Indian
market. The SSKI group of companies is distributed in to four such divisions and they
are as follows:-
SSKI Investors Services Ltd.(Sharekhan)
S.S. Kantilal Ishwarlal Securities Pvt. Ltd.
SSKI Corporate Finance.
I dream Productions.
Sharekhan falls under the umbrella of S.S. Kantilal Ishwarlal Securities Pvt. Ltd
(SSKI). Thus becoming the leading domestic player in Indian institutional business.
Sharekhan has more than $1 billion of private equity deals.
SSKI has been voted as Top Domestic Brokerage House in the research category as
well as derivatives, depository services, commodities trading on the MCX & NCDEX
and most importantly, investment advice tempered by eighty years of broking
experience. Sharekhan is known for its research and it big share of its profit on
research.
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NAME DESIGNATION
1) Mr. Shripal Morakhia CHAIRMAN
2) Mr. Tarun Shah Chief Executive Officer
3) Mr. Abhay Havaldar Managing Director
4) Mr. Pathik Gandotra Head Of Research
5) Mr. Rishi Kohli Vice President Of Equity Derivatives
6) Mr. Nikhil Vora Vice President Of Research
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VARIOUS ACTIVITIES UNDERTAKEN BY
SHAREKHAN STOCK BROKING LTD
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DEMAT SERVICE
Dematerialization and trading in the demat mode is the safer and faster alternative to
the physical existence of securities. Demat as a parallel solution offers freedom from
delays, thefts, forgeries, settlement risks and paper work. This system works through
depository participants (DPs) who offer demat services and the securities are held in
the electronic form for the investor directly by the Depository.
Sharekhan Depository Services offers dematerialization services to individual and
corporate investors. They have a team of professionals and the latest technological
expertise dedicated exclusively to our demat department, apart from a national
network of franchisee, making their services quick, convenient and efficient.
At Sharekhan, their commitment is to provide a complete demat solution which is
simple, safe and secure
DAIL AND TRADE
Trade in Equity by using your phone!
Free with Sharekhan Classic Account, the Dial-n-Trade service enables customers to
place orders for buying and selling shares through your telephone.
FEATURES:
Simple and Secure Interactive Voice Response based system for
authentication.
No waiting time. Enter your T-PIN to be transferred to our telebrokers.
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You also get the trusted, professional advice of our telebrokers
STOCK BROKING
SHAREKHAN offers trading on a vast platform; National Stock Exchange, Bombay
Stock Exchange. More importantly, they make safe to the maximum possible extent,
by accounting for several risk factors and planning accordingly. They assisted in this
task by their in-depth research, constant feedback and sound advisory facilities. Their
highly skilled research team, comprising of technical analysts as well as fundamental
specialists, secure result oriented information on market trends, market analysis and
market predictions. This crucial information is given as a constant feed back to the
customers, through daily reports delivered along with their updated portfolio. Besides
this they are also offered special portfolio analysis packages that provide daily
technical advice on scrip’s for successful portfolio management and provide
customize advisory services to help customer make the right financial moves that are
specifically suited to their portfolio.
Factors such as their success in the electronics custody business has helped build on
our trading of trust even more. Consequentially their retail client base expanded very
fast. To empower the investor further they have made serious efforts to ensure that
their research calls are disseminated systematically to all their stock broking clients
through various delivery channels like e-mail, chat, SMS, phone calls etc.
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Advisory Services
Under their reail brand SHAREKHAN LIMITED’ they deliver advisory services to a
cross-section of customers. The service is backed by a team of dedicated and expert
professionals with varied experience and background in handling investment
portfolios. They are continually engaged in designing the right investment portfolio
for each customer according to individual needs and budget considerations with a
comprehensive support system that focuses on trading customers portfolios providing
valuable inputs, monitoring and managing the potfolio through varied technological
intiatives. Those is made possible by the expertise they have gained in the business
over the years.
COMMODITIES
At SHAREKHAN Commodities, they are focused on taking commodities trading to
new dimensions of reliability and profitability. They have made commodities trading,
an essentially age-old practice, into a sophisticated and scientific investment option.
Company enables trade in all goods and products of agriculture and mineral origin
that include lucrative commodities like gold and silver and popular items like oil,
pulses and cotton through a well-systematized trading platform. The technological
and infrastructural strengths and especially the street smart skills make them an ideal
broker. Their service matrix is holistic with a gamut of advantages, the first and
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foremost being their legacy of human resources, technology and infrastructure that
comes from being part of the SHAREKHAN Group.
Their wide national network, spanning the length and breadth of India, further
supports these advantages. Regular trading workshops and seminars are conducted to
hone trading strategies to perfection. Every move made is a calculated one, based on
reliable research that is converted into valuable information through daily, weekly and
monthly newsletters.
KEY BENEFITS OF COMMODITIES AT SHAREKHAN
Complete online support.
Cutting edge analysis of the most relevant news in commodities.
An excellent information facility through SMS messages provides you with
appropriate market information as well as buy/sell calls.
A team of dedicated Relationship Managers/Dealers provide you non-stop
support through messenger. You will be assisted on market information,
buy/sell recommendation and other information to guide you through.
SHARESHOPS
SHAREKHAN HAVE 900 SHARE SHOPS IN 280 CITIES IN INDIA.
A Sharekhan outlet offers the following services:
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Online BSE and NSE executions (through BOLT & NEAT terminals).
Free access to investment advice from Sharekhan's Research team.
Sharekhan Value Line (a monthly publication with reviews of
recommendations, stocks to watch out for etc).
Daily research reports and market review (High Noon & Eagle Eye).
Pre-market Report (Morning Cuppa).
Daily trading calls based on Technical Analysis.
Cool trading products (Daring Derivatives and Market Strategy).
Personalized Advice.
Live Market Information.
Depository Services: Demat & Remat Transactions.
Derivatives Trading (Futures and Options).
Commodities Trading.
IPO’s & Mutual Funds Distribution.
Internet-based Online Trading: SpeedTrade.
MUTUAL FUNDS
Sharekhan is glad to announce that customers will now be able to invest in Mutual
Funds through sharekhan. They have started this service for online mutual funds, and
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in the near future will be expanding our scope to include a whole lot more. Applying
for a mutual fund through them is open to everybody, regardless of whether you are a
Sharekhan customer or not. For investing in mutual funds through share khan you
have to just download the form from internet, fill it and submit it in any sharekhan
office.
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AN OVERVIEW OF SHAREKHAN BUSINESS
Stock Broking Distribution Depository
(1) Mutual Funds
(2) IPO’s – Equity, Bonds
(3)Debt products
(1)Participant with both NSDL and CDSL(2) 640,000+ accounts(3) Amongst the top DPs in the country
SHAREKHAN LIMITEDSHAREKHAN LIMITED
India’s No.1 integrated financial services group
COMMODITIES
Member of both the commodities exchange
(1) NSE and BSE membership
(2) Equity, Derivatives and Debt market operations
(3) 900 SHOPS
(4) 220,000+ accounts
(5) Around 4.5% market share (NSE Cash)
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CORNERSTONES OF STRAREGY
1) Focus on retail segment.
2) Build a strong Pan-India network managed by experienced professionals, build
presence across both metros and Class A/B town.
3) Build full-service capabilities leveraging the network-offer the entire gamut of
financial services, backed by strong transaction processing and high volume
handling capability.
4) Established a high degree of customer ownership and top-of-mind recall in the
local markets- ensures steady customer traffic and repeat business.
5) Build a trusted brand; ensure high visibility
Competetors of sharekhan
Indiabulls
Karvy consultant
ICICI Direct
Religare
HDFC
Relience money
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IL&FS Investsmart.
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CHAPTER 3:
OBJECTIVE OF THE STUDY
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OBJECTIVE OF THE STUDY
My project on “Portfolio Management Services” is meant to study the nature of
different investment instruments available in the market and then finally suggest the
same to the clients in the form of a structured product. I do this by suggesting the
investor as to go for which all investments that can fetch out real good returns to them
in future, as per their risk appetite regarding the investments and their needs. I suggest
them the investments that they can opt for and the one’s which can bring a huge value
addition to their portfolio. Few objectives are given below:
Guide a client to determine the level of investment risk they are willing to take
and then suggest them an appropriate asset allocation.
To study and compare various investment instruments available in the market.
To advise High Net-worth Individuals (HNI’s) on different investment avenues
like mutual funds, insurance, real estate, stock broking etc.
To know the investment pattern of the individuals & hence creating a better
portfolio of investment for these individual clients.
To advise them on tax planning, so as to minimize their tax liability.
To provide the client with an appropriate asset allocation mix based on certain
factors time horizon and risk tolerance.
Understanding consumer behavior towards various investment options
available.
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INVESTORS DESK
Today an investor is interested in tracking the value of his investments, whether to
invest directly in the market or through some funds which play in the market. This
dynamic change has taken place because of a number of reasons. With globalization
and the growing competition in the investments opportunity available, investor would
have to make guided and have to make rational decisions on whether they get an
acceptable return on the current investments, or if there is needs to switch to another
investments plan.
It is of paramount importance to keep in mind the risk involved in any investment.
Before making any investment plans for any client, firstly we need to know his/her
risk taking ability. “Investments that have the greatest return potential tend to
give the greatest risk potential.”
On the other side of the coin, investments with conservative return are the least risky.
So for successful and stress free investment, a balance between the financial objective
and the ability to tolerate risk is the best. This overall balance can be obtained by
diversifying money across low, medium and high-risk investments so that both short
term and long term goals are met.
Q: What is Investment?
The money earn is partly spent and the rest saved for meeting future expenses.
Instead of keeping the savings idle person may like to use savings in order to get
return on it in the future. This is called Investment.
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Q: Why should one invest?
One needs to invest:
To earn return on idle resources.
To generate a specified sum of money for a specific goal in life
To make a provision for an uncertain future.
One of the important reasons why one needs to invest wisely is to meet the cost of
Inflation. Inflation is the rate at which the cost of living increases. The cost of
living is simply what it costs to buy the goods and services you need to live.
Inflation causes money to lose value because it will not buy the same amount of a
good or a service in the future as it does now or did in the past. For example, if
there was a 6% inflation rate for the next 20 years, the aim of investments should
be to provide a return above the inflation rate to ensure that the investment does
not decrease in value.
Q: When to start Investing?
The sooner one starts investing the better. By investing early investor allow his
investments more time to grow, whereby the concept of compounding increases
income, by accumulating the principal and the interest or dividend earned on it,
year after year. The three golden rules for all investors are:
To Invest early,
To Invest regularly,
To Invest for long term and not short term.
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Q: What are various options available for investment?
One may invest in:
Physical assets like Real Estate, Gold/ Jewellery, Commodities etc.
and/or
Financial assets such as Fixed Deposits with Banks, Small Saving
Instruments with Post Offices, Insurance/Provident/Pension Fund, Mutual
Fund etc. or Securities market related instruments like Shares, Bonds, and
Debentures etc.
VALUE ADDITION TO THE ORGANIZATION
Through this project I can bring in long term clients for my organization by
offering “Portfolio Management Services” to them.
Through this project I am not only bringing long term clients for my
organization but also creating a word of mouth publicity of my organization
by offering the best services to the clients so that a chain of more consumers is
created through these services.
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CHAPTER 4:
PORTFOLIO MANAGEMENT SERVICES:
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PORTFOLIO MANAGEMENT SERVICES
Portfolio management services involve activities that help the investors to arrive at
desired investment goals. A portfolio management service is the process of organizing
and managing businesses or the establishment for the purpose of obtaining maximum
profit. Portfolio management services ensure optimum use of people, money and
other resources. In short, it is the art of optimizing assets and raising the worth of a
portfolio. The major component of the decision process is portfolio management.
After securities have been evaluated an appropriate portfolio should be selected. It
involves managing group of assets (i.e. portfolio) as a unit. The basis of financial
planning process is an asset allocation strategy. Asset allocation is the distribution of
assets among different asset classes, such as stocks, bonds, and cash equivalent
instruments.
The relationship between risk and return is one of the essential concepts to
understand when investing and it is unique for every investor, the personal risk
tolerance could be influenced by current world events, investments experiences- even
your inherited views on saving and investing.
ADVANTAGES OF PORTFOLIO MANGEMENT SERVICES
(1) Individually managed accounts: Provides a flexible format for optimizing
returns through effective fund management.
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(2) Customized portfolios: Tailor-made investment strategies to suit individual
requirements.
(3) Individually managed accounts: Provides a flexible format for optimizing
returns through better information support/client servicing regular investments
disclosures make the investor feel comfortable and in control of his money.
(4) Supportive tax structure: Tax changes support rise in equity, there is a cut in
capital gains tax on listed equities:
i. NIL for holdings greater than 12 months
ii. 10%(from 30%) for holdings less than 12 months
(5) SEBI regulated: A regulated industry makes the investor feel comfortable with
the investments techniques adapted to optimize returns.
OBJECTIVE BEHIND OFFERING PORTFOLIO MANAGEMET SERVICES
This is my objective behind offering the portfolio management services to the clients
so that I can offer them:
1. Safety of Fund: The investment should be preserved, not be lost and remain in
the returnable position in cash or kind.
2. Liquidity: Portfolio must consist if such securities which could be en-cashed
without any difficulty or involvement of time to meet urgent need for funds.
3. Reasonable returns: The investment should earn a reasonable return to
upkeep the declining value of money and must be compatible with the
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opportunity cost of money in terms of current income in the form of interest or
dividend.
4. Appreciation in capital: The money invested in portfolio must grow and
result in capital gains.
5. Tax planning: Efficiently portfolio management is concerned with composite
tax planning covering income tax, capital gains tax, wealth tax and gift tax.
6. Minimize risk: Risk avoidance and minimization is very important and are
most important objectives of portfolio management. Portfolio managers must
ensure these objectives by effective investment planning and periodical review
of marketing and economy.
7. Marketability: The investment made in securities should me marketable that
means, the securities must be listed and traded in stock exchange so as to avoid
risk and difficulty in their encashment. Marketability ensures liquidity to the
portfolio.
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TYPES OF PORTFOLIOS
CONSERVATIVE MODEL PORTFOLIOS generally allocate a large percent of
the present portfolio to lower risk securities such as fixed-income and money market
securities.
The main goal with a conservative model portfolio is to protect the principal value of
your portfolio. As such these models are often referred to as “Capital Preservation
portfolios”.
Even if they are very conservative and prefer to avoid the stock market entirely, some
exposure can help offset inflation. They could invest the equity portion in high quality
blue chip companies, or an index fund, since the goal is not to beta the market.
Fig. 1
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MODERATELY CONSERVATIVE PORTFOLIO is ideal for those who wish to
preserve a large portion of the portfolio’s total value, but are willing to take on a
higher amount of risk to get some inflation protection.
A common strategy within the risk level is called “current income”. With this
strategy, you can choose securities that pay a high level of dividends or coupon
payments.
Fig. 2
MODERATELY AGGRESSIVE PORTFOLIOS are often referred as “balanced
portfolios” since the asset composition is divided almost equally between fixed-
income securities and equities in order to provide a balance of growth and income.
Since these moderately aggressive portfolios have a higher level of risk than those
conservative portfolios mentioned above, select this strategy only if you have a longer
time horizon (generally more than five years), and have a medium level of risk
tolerance.
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Fig. 3
AGGRESSIVE PORTFOLIOS mainly consist of equities, so these portfolios’ value
tends to fluctuate widely. If you have an aggressive portfolio, your main goal is to
obtain long term growth of the capital. As such the strategy of an aggressive portfolio
is often called a “capital growth” strategy. To provide some diversifications,
investors with aggressive portfolios usually add some fixed-income securities.
Fig. 4
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VERY AGGRESSIVE PORTFOLIOS consist almost entirely of equities. As such,
with a very aggressive portfolio, your main goal is aggressive capital growth over a
long term horizon. Since these portfolios carry a considerable amount of risk, the
value of the portfolio will vary widely in the short term.
Fig. 5
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Nothing Is Set in Stone
Note that the above outline of portfolios and the associated strategies offer only a
loose guideline - we modify the proportions above to suit individual investment
needs
Also, the amount of cash and equivalents, or money market instruments to be placed
in a portfolio will depend on the amount of liquidity and safety the investor needs. If
they need investments that can be liquidated quickly or they would like to maintain
the current value of your portfolio, they might want to put a larger portion
of their investment portfolio in money market or short-term fixed-income securities.
Those investors who do not have liquidity concerns and have a higher risk tolerance
will have a small portion of their portfolio within these instruments.
As each asset class has varying levels of return for a certain risk, their risk tolerance,
investment objectives, time horizon and available capital will provide the basis for
the asset composition of their portfolio.
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INVESTMENT STRATEGY IN PMS
(1) Focus on select/clear stock opportunities: Investments in stocks where there is a
clear earnings visibility.
(2) Relatively concentrated portfolio: A portfolio composition of not more than 25-
30 stocks of what there are compelling opportunities.
(3) Usage of derivatives as a tool: One must have a selective use of derivatives in
various options to enhance returns/portfolio protection.
(4) Flexible cash allocation strategy: We have an efficient allocation among assets
with flexibility to sit on 100% cash.
PRODUCT OFFERINGS IN PMS
Sharekhan has two types of portfolio management products:
PMS Pro Prime: Ideal for investors looking at steady and superior returns
with low to medium risk appetite. This portfolio consists of a blend of quality
blue-chip and growth stocks ensuring a balanced portfolio with relatively
medium risk profile. The portfolio will mostly have large capitalization stocks
based on sectors & themes that have medium to long term growth potential.
Investment are based on 3 tenets:
a) Consistent, Steady and Sustainable Returns.
b) Margin of Safety.
c) Low Volatility.
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PMS Pro Tech: These services are for those who want high risk for high
returns.
Pro-tech uses the knowledge of technical analysis and the power of derivatives
market to identify trading opportunities in the market. The Protech lines of
products are designed around various risk/reward/volatility profiles for different
kinds of investment needs.
MAXIMIZING RETURN WHILE MINIMIZING RISK
The main goal of allocating the assets among various asset classes is to maximize
return for the chosen level of risk, or stated another way, to minimize risk given a
certain expected level of return. Of course to maximize return and minimize risk, we
need to know the risk –return characteristics of the various asset classes. The
following chart compares the risk and potential return of the more popular ones:
Fig. 6
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The above graph shows, equities have the highest potential return, but also the highest
risk. On the other hand, Treasury bills have the lowest risk since they are backed by
the government, but they also provide the lowest return.
The chart also demonstrates that when you choose investments with higher risk, your
expected returns also increase proportionately. But this is simply the result of the risk-
return tradeoff. They will often have high volatility and are therefore suited for
investors who have a high risk tolerance (can stomach wide fluctuations in value), and
who have a longer time horizon.
It’s because of the risk-return tradeoff – which says you can seek high returns only if
you are willing to take losses – that diversification through asset allocation is
important. Since different assets have varying risks and experience different market
fluctuations, proper asset allocation insulates your entire portfolio from the up and
downs of one single class of securities. So, while part of your portfolio may contain
more volatile securities – which you have chosen for their potential of higher returns –
the other part of your portfolio devoted to other assets remains stable. Because of the
protection it offers, asset allocation is the key to maximizing returns while minimizing
risk.
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VARIOUS AVAENUES FOR INVESTMENT
BONDS
Individuals have surplus funds in the form of savings which they want to invest.
Companies need funds to undertake good projects with high returns. Companies
provide individuals with instruments to invest their savings in.
One such instrument is corporate bonds. Similarly, governments also need funds for
various developmental projects. Further, the government also needs to raise money to
finance the fiscal deficit. They too tap the savings by issuing various kinds of bonds.
Characteristics of a bond:
A bond, whether issued by a government or a corporation, has a specific maturity
date, which can range from a few days to 20-30 years or even more. Based on the
maturity period, bonds are referred to as bills or short-term bonds and long-term
bonds.
Bonds have a fixed face value, which is the amount to be returned to the investor
upon maturity of the bond. During this period, the investors receive a regular payment
of interest, semi-annually or annually, which is calculated as a certain percentage of
the face value and know as a 'coupon payment.'
A story goes that in the old days, bond certificates used to come with coupons to
claim interest from the issuer of the bond; hence, the name coupon payments.
However, nowadays, with paperless issues of scripts (demat), coupons are no longer
in use, but the name has stuck and the interest payments are still known as coupon
payments.
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Issuing a bond :
The government, public sector units and corporate are the dominant issuers in the
bond market. The central government raises funds through the issue of dated
securities (securities with maturity period ranging from two years to 30 years, long-
term) and treasury bills (securities with maturity periods of 91 or 364 days, short-
term).
The central government securities are issued for a minimum amount of Rs 10,000
(face value). Thereafter they are issued in multiples of Rs 10,000. They are issued
through an auction carried out by the Reserve Bank of India.
State governments go about raising money through state development loans. Local
bodies of various states like municipalities also tap the bond market from time to
time. Bonds are also issued by public sector banks and PSUs. Corporate on the other
hands raise funds by issuing commercial paper (short-term) and bonds (long-term).
Bonds can be issued at par, which means that the price at which one unit of the bond
is being sold is same as the face value. Alternatively, they can be issued at a discount
(less than the face value) or a premium (more than the face value).
For e.g., a bond with a face value of Rs 100, if issued at Rs 100, is said to be issued at
par. If it is issued at, say, Rs 95, it will be said to have been issued at a discount and
conversely, if issued for, say, Rs 110, at a premium.
Investors:
Banks are the largest investors in the bond market. In the low-interest scenario that
prevailed, it made more sense for banks to invest in government bonds than to give
out loans. Mutual funds, in order capitalize on low interest rates, started a good
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number of debt funds that mobilized a significant amount of money from the
investors.
Thus, mutual funds emerged as important players in the bond markets. However, in
the recent past with the interest rates on their way up, the performance of debt funds
has not been good and so the presence of mutual funds in the bond market has been
limited.
Foreign institutional investors are also allowed to invest in the bond market, though
within certain limits. Also, regulations mandate provident funds and pension funds to
invest a significant proportion of their funds mobilized in government securities and
PSU bonds.
Hence, they continue to remain large investors in the bond market in India. The same
holds true for charitable institutions, societies and trusts.
Since January 2002, individuals categorized by RBI as retail investors can participate
in the auction carried out by RBI. They can submit bids through banks or primary
dealers to invest in these securities on a non-competitive basis.
The minimum bid has to be for an amount of Rs 10,000 (and there on in multiples of
Rs 10,000) and a single bid cannot exceed Rs 1 crore (Rs 10 million). Hence,
company X must ensure that the price, at which they are offering their Bond, is
competitive with similar bonds in the market, and should provide similar yield to the
investors.
40
MUTUAL FUNDS:
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciations realized are shared by its unit
holders in proportion to the number of units owned by them. Thus a Mutual Fund is
the most suitable investment for the common man as it offers an opportunity to invest
in a diversified, professionally managed basket of securities at a relatively low cost.
The flow chart below describes broadly the working of a mutual fund:
41
ADVANTAGES OF MUTUAL FUNDS
The advantages of investing in a Mutual Fund are:
Professional Management
Diversification
Convenient Administration
Return Potential
Low Costs
Liquidity
Transparency
Flexibility
Choice of schemes
Tax benefits
Well regulated
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TYPES OF MUTUAL FUNDS
Mutual Funds have specific investment objectives such as growth of capital, safety of
principal current income or tax exempt income, one can select one fund or any
number of different funds to help one meets ones specific goals.
43
In general mutual fund fall under 3 general categories: -
Equity fund invest in shares of common stocks.
Fixed income funds invest in government or corporate securities which offer fixed
ROR
Balanced fund invest in a combination of both stocks and bonds.
Open-Ended Schemes:
These funds are sold at the NAV based prices, generally calculated on every business
day. These schemes have unlimited capitalization, open-ended schemes do not have a
fixed maturity - i.e. there is no cap on the amount you can buy from the fund and the
unit capital can keep growing. These funds are not generally listed on any exchange.
Open-ended funds are bringing in a revival of the mutual fund industry owing to
increased liquidity, transparency and performance in the new open-ended funds
promoted by the private sector and foreign players. Open-ended funds score over
close-ended ones on several counts. Some of these are listed below:
a) Any time exit option: The issuing company directly takes the responsibility of
providing an entry and an exit. This provides ready liquidity to the investors and
avoids reliance on transfer deeds, signature verifications and bad deliveries.
b) Any time entry option: An open-ended fund allows one to enter the fund at
any time and even to invest at regular intervals (a systematic investment plan).
The open ended funds offered by SCMF Classic Equity Fund, Premier Equity Fund,
Imperial Equity Fund Super Saver income Fund, Dynamic Bond, Cash Fund,
Liquidity manager, Floating Rate Fund, Govt. Securities Fund etc.
44
Close-Ended Schemes
Schemes that have a stipulated maturity period, limited capitalization and the units are
listed on the stock exchange are called close-ended schemes.
These schemes have historically seen a lot of subscription. This popularity is
estimated to be on account of firstly, public sector MFs having floated a lot of close-
ended income schemes with guaranteed returns and secondly easy liquidity on
account of listing on the stock exchanges. The closed-ended funds managed by SCMF
are Enterprise Equity Fund, Fixed Maturity Plan,
Tri-Star Series etc.
CLASSIFICATION ACCORDING TO INVESTMENT OBJECTIVES
i) Growth Funds:
These funds seek to provide growth of capital with secondary emphasis on dividend.
They invest in shares with a potential for growth and capital appreciation. Because
they invest in well-established companies where the company itself and the industry
in which it operates are thought to have good long-term growth potential, growth
funds provide low current income.
Growth funds generally incur higher risks than income funds in an effort to secure
more pronounced growth. These funds may invest in a broad range of industries or
concentrate on one or more industry sectors. Growth funds are suitable for investors
who can afford to assume the risk of potential loss in value of their investment in the
hope of achieving substantial and rapid gains. They are not suitable for investors who
must conserve their principal or who must maximize current income.
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ii) Growth and Income Funds:
Growth and income funds seek long-term growth of capital as well as current income.
The investment strategies used to reach these goals vary among funds. Some invest in
a dual portfolio consisting of growth stocks and income stocks, or a combination of
growth stocks, stocks paying high dividends, preferred stocks, convertible securities
or fixed-income securities such as corporate bonds and money market instruments.
Others may invest in growth stocks and earn current income by selling covered call
options on their portfolio stocks. Growth and income funds have low to moderate
stability of principal and moderate potential for current income and growth. They are
suitable for investors who can assume some risk to achieve growth of capital but who
also want to maintain a moderate level of current income.
iii) Fixed-Income Funds:
The goal of fixed income funds is to provide current income consistent with the
preservation of capital. These funds invest in corporate bonds or government-backed
mortgage securities that have a fixed rate of return. Within the fixed-income category,
funds vary greatly in their stability of principal and in their dividend yields. High-
yield funds, which seek to maximize yield by investing in lower-rated bonds of longer
maturities, entail less stability of principal than fixed income funds that invest in
higher-rated but lower-yielding securities. Some fixed-income funds seek to minimize
risk by investing exclusively in securities whose timely payment of interest and
principal is backed by the full faith and credit of the Indian Government. Fixed-
income funds are suitable for investors who want to maximize current income and
who can assume a degree of capital risk in order to do so.
46
iv) Balanced Funds:
The Balanced fund aims to provide both growth and income. These funds invest in
both shares and fixed income securities in the proportion indicated in their offer
documents. This fund is ideal for investors who are looking for a combination of
income and moderate growth.
v) Money Market Funds/Liquid Funds:
For the cautious investor, these funds provide a very high stability of principal while
seeking a moderate to high current income. They invest in highly liquid, virtually
risk-free, short-term debt securities of agencies of the Indian Government, banks and
corporations and Treasury Bills. Because of their short-term investments, money
market mutual funds are able to keep a virtually constant unit price; only the yield
fluctuates. Therefore, they are an attractive alternative to bank accounts. With yields
that are generally competitive with - and usually higher than -- yields on bank savings
account, they offer several advantages. Money can be withdrawn any time without
penalty. Although not insured, money market funds invest only in highly liquid, short-
term, top-rated money market instruments. Money market funds are suitable for
investors who want high stability of principal and current income with immediate
liquidity.
vi) Specialty/Sector Funds:
These funds invest in securities of a specific industry or sector of the economy such as
health care, technology, leisure, utilities or precious metals. The funds enable
investors to diversify holdings among many companies within an industry, a more
conservative approach than investing directly in one particular company. Sector funds
offer the opportunity for sharp capital gains in cases where the fund's industry is "in
favor" but also entail the risk of capital losses when the industry is out of favor. While
47
sector funds restrict holdings to a particular industry, other specialty funds such as
index funds give investors a broadly diversified portfolio and attempt to mirror the
performance of various market averages. Index funds generally buy shares in all the
companies composing the BSE Sensex or NSE Nifty or other broad stock market
indices. They are not suitable for investors who must conserve their principal or
maximize current income.
THE RISK RETURNS GRAPHS FOR VARIOUS FUNDS:-
The above Graph shows the Risk and Returns generated by different Funds. Liquid
Funds are less Risky and also generate less Returns where as Sector Funds are more
Risky but generate more Returns by the example of above two Funds it is clear that
Risk and Returns are directly proportional to each other. Other Funds like Equity
Funds, Balanced Funds and Income Funds are also gives the same percentage of
Returns as the Risk involved.
Liquid Funds
Income Funds
Balanced Funds
Equity Funds
Sector Funds
RISKS
RETURNS
48
.Banks v/s Mutual Funds
BANKSMUTUAL
FUNDS
Returns Low Better
Administrative
exp.
High Low
Risk Low Moderate
Investment options Less More
Network High penetration Low but improving
Liquidity At a cost Better
Quality of assets Not transparent Transparent
Interest calculation Minimum balance between 10th. &
30th. Of every month
Everyday
Guarantee Maximum Rs.1 lakh on deposits None
49
ULIPs vs. Mutual Funds
ULIPs Mutual Funds
Investment amounts
Determined by the investor and can be modified as well
Minimum investment amounts are determined by the fund house
Expenses
No upper limits, expenses determined by the insurance company
Upper limits for expenses chargeable to investors have been set by the regulator
Portfolio disclosure Not mandatory* Quarterly disclosures are mandatory
Modifying asset allocation
Generally permitted for free or at a nominal cost
Entry/exit loads have to be borne by the investor
Tax benefits
Section 80C benefits are available on all ULIP investments
Section 80C benefits are available only on investments in tax-saving funds
INSURANCE
A human life is also an income-generating asset. This asset also can be lost through
unexpectedly early death or made non-functional through sickness & disabilities
caused by accidents. Accidents may or may not happen. Death will happen, but the
timing is uncertain. If it happens around the time of one's retirement, when it could be
expected that the income will cease, the person concerned could have made some
other arrangements to meet the continuing needs. But if it happens much earlier when
the alternate arrangements are not in place, insurance is necessary to help the
dependents. In case of a human being, he may have made arrangements for his needs
after his retirement. These would have been made on the basis of some expectations
like he may live for another 15 years, or that his children will look after him. If any of
these expectations do not come true, the original arrangement would become
inadequate and there could be difficulties. Living too long can be as much a problem
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as dying too young. These are risks, which need to be safeguarded against. Insurance
takes care of it.
Need of Insurance:
To provide cash to meet various routine expenses of the family on
or immediately after the death of the income earner of the family.
To prevent the family’s accustomed standard of living even after the death of
the breadwinner.
To provide continuous flow of funds for the living spouse.
To allocate income funds for the children’s education.
To provide a retirement income throughout old age.
To provide a reliable savings plan for the future.
To supplement income when earning power is reduced or eroded by illness,
accident or any handicap.
To furnish surplus earnings for the investors should disaster strike.
TYPES OF INSURANCE PLANS
Term Insurance Policy:
A term insurance policy is a pure risk cover for a specified period of time. What this
means is that the sum assured is payable only if the policyholder dies within the
policy term. For instance, if a person buys Rs 2 lakh policy for 15-years, his family is
entitled to the money if he dies within that 15-year period.
What if he survives the 15-year period? Well, then he is not entitled to any payment;
the insurance company keeps the entire premium paid during the 15-year period.
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So, there is no element of savings or investment in such a policy. It is a 100 per cent
risk cover. It simply means that a person pays a certain premium to protect his family
against his sudden death. He forfeits the amount if he outlives the period of the policy.
This explains why the Term Insurance Policy comes at the lowest cost.
Whole Life Policy:
As the name suggests, a Whole Life Policy is an insurance cover against death,
irrespective of when it happens.
Under this plan, the policyholder pays regular premiums until his death, following
which the money is handed over to his family.
This policy, however, fails to address the additional needs of the insured during his
post-retirement years. It doesn't take into account a person's increasing needs either.
While the insured buys the policy at a young age, his requirements increase over time.
By the time he dies, the value of the sum assured is too low to meet his family's
needs. As a result of these drawbacks, insurance firms now offer either a modified
Whole Life Policy or combine in with another type of policy.
Endowment Policy:
Combining risk cover with financial savings, an endowment policy is the most
popular policies in the world of life insurance.
In an Endowment Policy, the sum assured is payable even if the insured survives the
policy term.
If the insured dies during the tenure of the policy, the insurance firm has to pay the
sum assured just as any other pure risk cover.
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A pure endowment policy is also a form of financial saving, whereby if the person
covered remains alive beyond the tenure of the policy; he gets back the sum assured
with some other investment benefits.
In addition to the basic policy, insurers offer various benefits such as double
endowment and marriage/ education endowment plans. The cost of such a policy is
slightly higher but worth its value.
Money Back Policy:
These policies are structured to provide sums required as anticipated expenses
(marriage, education, etc) over a stipulated period of time. With inflation becoming a
big issue, companies have realized that sometimes the money value of the policy is
eroded. That is why with-profit policies are also being introduced to offset some of
the losses incurred on account of inflation.
A portion of the sum assured is payable at regular intervals. On survival the remainder
of the sum assured is payable. In case of death, the full sum assured is payable to the
insured. The premium is payable for a particular period of time.
Annuities and Pension:
In an annuity, the insurer agrees to pay the insured a stipulated sum of money
periodically. The purpose of an annuity is to protect against risk as well as provide
money in the form of pension at regular intervals.
Over the years, insurers have added various features to basic insurance policies in
order to address specific needs of a cross section of people.
ULIPs:
53
ULIP is an acronym for Unit Linked Insurance Plan. ULIPs are distinct from the
more familiar ‘with profits’ policies sold for decades by the Life Insurance
Corporation. ‘With profits’ policies are called so because investment gains (profits)
are distributed to policyholders in the form of a bonus announced every year. ULIPs
also serve the same function of providing insurance protection against death and
provision of long-term savings, but they are structured differently.
In ‘with profits’ policies, the insurance company credits the premium to a common
pool called the ‘life fund’ after setting aside funds for the risk premium on life
insurance and management expenses. Every year, the insurer calculates how much has
to be paid to settle death and maturity claims. The surplus in the life fund left after
meeting these liabilities is credited to policyholders’ accounts in the form of a bonus.
In a ULIP too, the insurer deducts charges towards life insurance (mortality charges),
administration charges and fund management charges. The rest of the premium is
used to invest in a fund that invests money in stocks or bonds. They number of units
represents the policyholder’s share in the fund.
The value of the unit is determined by the total value of all the investments made by
the fund divided by the number of units. If the insurance company offers a range of
funds, the insured can direct the company to invest in the fund of his choice. Insurers
usually offer three choices—an equity (growth) fund, balanced fund and a fund,
which invests in bonds.
In both ‘with profits’ policies as well as unit-linked policies, a large part of the first
year premium goes towards paying the agents’ commissions.
Working of ULIP:
The unit-linked plans work as under:
54
The premium paid by the client, less any charges to be deducted, is used to buy units
in the fund selected by the client at the day’s unit price. So, more units are added to
the client’s account each time he pays a premium. If he unit price on that day is
relatively high, the client gets less number of units and if the unit price is relatively
low, then he gets more number of units.
In order to pay the regular monthly costs an equivalent numbers of units are cancelled
and are computed as cost to be deducted divided by unit price on that day.
The value of the fund depends on the unit price, which in turn is determined from the
market value of the underlying assets as seen earlier. Thus, Fund Value = Unit Price x
Number of units
The ideal time to buy a unit-linked plan is when one can expect long-term growth
ahead. This especially so if one also believes that current market values (stock
valuations) are relatively low. BSLI has given superior returns on all its investment
funds.
Advantages of unit-linked plans vis-à-vis traditional plans:
Unit-linked plans enjoy several advantages as under:
1. Simple, clear and easy to understand.
2. Transparent and visible for customers to take decisions
3. Flexible and adaptable
4. Puts the policyholder in control
5. Policyholder gets the entire upside on the performance of his fund
COMMODITIES:
55
Commodity Futures are contracts to buy specific quantity of a particular commodity
at a future date. It is similar to the Index futures and Stock Futures but the underlying
happens to be commodities instead of Stocks and Indices.
Major Commodity Exchanges:
The Government of India permitted establishment of National-level Multi-
Commodity exchanges in the year 2002 and accordingly three exchanges come in
picture. They are:
Multi-Commodity Exchange in India Ltd, Mumbai (MCX).
National Commodity and Derivative Exchange of India, Mumbai (NCDEX).
National Multi Commodity Exchange, Ahmadabad (NMCE).
However there are regional commodities exchanges functioning all over the country.
Sharekhan Commodities Broking Pvt. Ltd has got membership of both the premier
commodity exchanges i.e. MCX and NCDEX.
Major commodities traded in most popular Exchanges of the world are :
Exchange Major Commodities TradedNew York Mercantile Exchange (NYMEX)
Crude Oil, Heating Oil
Chicago Board of Trade(CBOT) Soy Oil, Soy Beans, Corn
London Metals Exchange (LME) Aluminum, Copper, Tin, Lead
Chicago Board Option Exchange (CBOE)
Options on Energy, Interest Rate
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Tokyo Commodity Exchange (TCE) Silver, Gold, Crude Oil, Rubber
Malaysian Derivatives Exchange (MDEX)
Rubber, Soy Oil, Palm Oil
Commodity Exchange (COMEX) Gold ,Silver, Platinum
Q.) Who regulates the Commodity Exchanges?Commodity exchanges are regulated by Forward Market Commission (FMC);
Forward market Commission works under the purview of the ministry of food,
Agriculture and Public Distribution.
Q.) Benefits in dealing commodities futures are:If you are an Investor, commodities futures represent a good form of investment
because of the following reasons.
Diversification: The returns from commodities market are free from the
direct influence of the equity and debt market, which means that they are
capable of being used as effective hedging instruments providing better
diversification.
Less Manipulation: Commodities markets, as they are governed by
international price movements are less prone to rigging or price manipulations
by individuals.
High Leverage: The margins in the commodity futures market are less than
the F & O section of the Equity market.
Q.) How risky are these markets compared to stock & bond markets?
57
Commodity prices are generally less volatile than the stocks and this has been
statistically proven. Therefore it’s relatively safer to trade in commodities.
Also the regulatory authorities ensure through continuous vigil that the commodity
prices are market- driven and free from manipulations.
Top 10 Commodities are:
S.no. Commodity1 Gold
2 Silver
3 Guar Seed
4 Channa
5 Urad
6 Crude Oil
7 Tur
8 Soya Oil
9 Mentha Oil
10 Guar Gum
58
STOCKS:
Q.) WHAT ARE STOCKS?
In financial markets, stock is the capital raised by a corporation through the issuance
and distribution of shares. A person or organization which holds at least a partial
share of stocks is called a shareholder. The aggregate value of a corporation's issued
shares is its market capitalization.
CAPITAL MARKETS
It consists of two markets which are primary market and secondary market.
a) Primary Market:
Primary markets bring together buyers and sellers - either directly or through
intermediaries - by providing an arena in which sellers’ investment propositions can
be priced, brought to the marketplace, and sold to buyers. In this context, the seller is
called the issuer and the price of what’s sold is called the issue price. It is the initial
market for any item or service. It also signifies an initial market for a new stock issue.
The jargon also means a firm, trading market held in a security by a trader who
performs the activities of a specialist by being ready to execute orders in that stock.
b) Secondary Markets
Secondary Markets are the stock exchanges and the over-the-counter market.
Securities are first issued as a primary offering to the public. When the securities are
traded from that first holder to another, the issues trade in these secondary markets.
India has 23 stock exchanges that have hubs of financial activities. These stock
exchanges are in following cities: Mumbai, Pune, Ahmadabad, Rajkot, Jaipur, etc.
Stock exchange provides an organized market for transactions in the shares and other
59
securities. The Bombay Stock Exchange (BSE) and National Stock Exchange
(NSE) together account for nearly 72% of all capital market activity in India.
REAL ESTATE:
Real estate, or immovable property, is a legal term (in some jurisdictions) that
encompasses land along with anything permanently affixed to the land, such as
buildings. Real estate (immovable property) is often considered synonymous with real
property (also sometimes called realty), in contrast with personal property (also
sometimes called chattel or personality). However, for technical purposes, some
people prefer to distinguish real estate, referring to the land and fixtures themselves,
from real property, referring to ownership rights over real estate.
Real estate market is something that is always glowing like the New York City. The
reason being that this market has very rarely seen a downslide. Real estate market in a
common man terms would mean dealing in property which would include purchase
and sale of land and building. It could be both commercial space and residential
property. Commercial space would mean the property that is purchased or occupied
for business purposes by small to large corporate houses. One undeniable reason why
Indian real estate market has been a boom is due to the increasing number of Multi
National Companies thronging the Indian Land. The want for space is always
increasing with government in India giving additional concessions and recognition to
Corporate engaged in building IT parks and commercial complex. The best thing
about real estate business is that every investor is bound to end up with a sure margin
of profit though the amount of profit may vary based on our bargaining skills and the
need of the buyer. People also engage in speculative business by purchasing barren
lands in under developed areas for a very minimal cost and wait for couple of years
till all necessary infrastructure is developed in that locality and then sell the land at a
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huge profit. On the other side residential properties are also on the increase. One main
reason behind this being that the Housing Development Corporation of India is
promoting big Residential Buildings and all banks offer credit to customers for
purchase of property, this way majority of the population will end up owing a
property. And icing on the cake is that the value of the property is always down to
increase and would never decrease as such we would be assured about our share of
profit.
SOURCES OF RISK
What makes financial asset risky? It is the various sources of risk. The following are
the sources of risk.
1. Interest rate risk:
The risk which arises due to variability in securities returns resulting from changes
in interest rate. This type affects bonds more directly than common stocks but
affects both.
2. Market risk:
The variability in returns resulting from fluctuations in the overall market i.e. the
aggregate stock market is referred to as market risk. All securities are exposed to
market risk, although it has major impact on common stocks.
3. Inflation risk:
A factor which affects all components of a portfolio is purchasing power risk, or
the chance that the purchasing of the invested dollars will decline with uncertain
inflation the real (inflation-adjusted) returns involves risk even if nominal return is
safe.
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4. Business risk:
The risk of doing business in a particular industry or environment is called
business risk.
5. Financial risk:
Financial risk is associated with the use of debt financing by companies. Financial
risk involves the concept of financial leverage.
6. Liquidity risk:
Liquidity risk is the risk associated with particular secondary market in which a
security trades. The more uncertainty about the time element and the price
concession, the greater the liquidity risks.
7. Exchanges risk:
It refers to the variability in returns due to currency fluctuations.
8. Country risk:
Country risk is also referred to as political risk. With more investors investing
internationally, both directly and indirectly, the economic stability is to be
considered.
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TYPES OF RISK
1) Systematic risk: These are market risks that cannot be diversified away. Interest rates, recessions and
wars are examples of systematic risks.
2) Non systematic risk:
Also known as “specific risk”, this risk is specific to individual stocks and can be
diversified away as you increase the number of stocks in the portfolio. It represents
the component of a stock’s return that not correlated with general market moves.
Total risk = Systematic risk + Non Systematic risk
For minimizing the risk it is necessary to diversify the investments.
63
CHAPTER 5:
METHODOLOGY OF THE
STUDY
64
METHODOLOGY OF THE STUDY
Research has its special significance in solving various operational and planning
problems of business and industry. Research methodology is a way to systematically
analyze the research problem.
Development of Working Hypothesis:
The hypothesis could be developed by discussing with the consulting department
heads and guides about this exploratory research and reach to the conclusion that the
data is to be collected by personal interaction with the clients, asking them about their
investment planning and their need for financial advisory service from
SHAREKHAN Ltd.
First of all are they aware of tax and investment planning or not and then analyzing
the findings to reach to the objectives of research.
Collection of Data
This research is solely based on primary research done by means of questionnaires
targeted to respondents who primarily belong to the business and service sector.
It is very essential in the research process to know the accuracy of the finding’s which
depends on how systematically the study has been carried out so that it can make
sense.
I have executed the project after prior discussion with our guide and structured in the
following steps:
a. Preparation of a questionnaire
b. The focal point of the designing the questionnaire was to comprehend the
current investment scenario with respect to tax planning part.
65
c. This questionnaire was primarily aimed to respondents who belong to the
service and business class people
d. The questionnaires were discussed through personal interface with the
respondents
The data has been solely based on primary research done by interviewing the
customers who primarily belong to the business and the service sector. The data is
essential for the company so that on that basis they would do asset allocation.
The main research has been done by collecting data from different websites and
books. This can be a benchmark against which the findings can be tested.
66
INTERRELATIONSHIP AMONG VARIOUS PHASES OF
PORTFOLIO MANAGEMENT
SPECIFICATION OF INVESTMENT OBJECTIVES AND CONSTRAINT
CHIOCE OF MIX ASSETS
FORMUATION OF PORTFOLIO STRATEGY
SELECTION OF SECURITES
PORTFOLIO EXECUTION
PORTFOLIO REVISION
PORTFOLIO EVALUATION
67
CHAPTER 6:
DATA ANALYSIS
68
DATA ANALYSISModel Portfolio
Portfolio of Mr. Naushad AliExpenses Income
Title Annual Amt. Monthly Annual Amt. Monthly
Car Loan 120000 10000Annual Inc. 2000000 166667
House Loan 120000 10000
Other Expenses:
Son's Education 60000 5000
Day today Expenses 360000 30000
Car Expenses(Petrol) 60000 5000
Misllenious Expenses 120000 10000
Total Expenses 840000 70000Total Inc. 2000000 166667
Surplus money 350000
Age of Mr. Naushad is 30yrs.
Solution
Net Worth(Total Income- Total Expenses) 1160000
Surplus Money 350000
Total money to Invest(Annual 1510000
Total money to Invest(Monthly) 125833
Assets Allocation % to Invest Monthly(Saving) Monthly Annual(saving)Annual
Mutual Funds 30% 125833 37750 1510000 453000
Stock Market 20% 125833 25167 1510000 302000
Insurance 20% 125833 25167 1510000 302000
Fixed Income (G-Sec, Bonds etc.) 5% 125833 6292 1510000 75500
Commodities 10% 125833 12583 1510000 151000
Contingency Fund 15% 125833 18875 1510000 226500
Total 100% 125833 1510000
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70
Mutual Funds
S.No. Scheme NAV Units Amount
Expected Annual Return (%)
Expected Annual Return (Rs.)
1 HDFC Tax Saver –G 109.78 2000 219560 21.00% 460972 Sundaram Select Midcap-G 69.85 2000 139700 32.09% 448303 SBI magnum Contra 27.88 1350 37638 16.19% 60924 Tata Equity Opportunity (G) 43.53 1300 56589 36.16% 20463
Total 453487 117481
Stock Broking
S.No. Script NamePurchase Price
No. Of Shares Amount
1 Dr. Reddy 1270 75 95250 2 Maruti 750 70 52500 3 Ongc 1000 50 50000 4 Bhel 1850 50 92500 5 Ranbaxy 370 45 16650
Total 306900
Commodities
S.no. Script NamePurchase Price Units Amount
1 Gold 9000 11 99000 2 Silver 20000 3 60000
Total 159000
Insurance
S.no Policy Name Premium Duration
Total Amount (P.A)
Maturity value
1 ULIP 5000 12 60000 2 Endowment 10000 12 120000 3 Child Gain 10000 12 120000
Total 300000
Fixed Income
S.no Types Scheme Duration Return (%)Amount Invested
1 Fixed Deposit 35000 2 yrs. 35000 2 NSC 10000*4 6 yrs 40000
Total 75000
Contingency Fund
S.No. TypeAmount (P.M)
Amount (P.A)
1 Saving A/C 5000 60000 2 Current A/C 14000 168000
Total 226500
71
CHAPTER 7:
FINDINGS
72
FINDINGS
A summer project brings the student face to face with the real corporate world. This is
the time when one learns what the industry practices are and do the practices really
follow what is really taught in the classroom. Further it gives an excellent chance to
the students to apply the concepts in the real world.
Application on tools and techniques in the real world
Summer training provided me a good opportunity to apply the concepts, tools and
techniques in the real business-life situations.
Main Learning’s;
Having worked with Sharekhan ltd., I have experienced and realized the importance
of operating the Demat account online; trading the shares online; how market
operates, etc. The main thing I learned is that how a portfolio is managed and how the
money should be invested in different assets.
I learned how to study a portfolio and also came to know the difficulties in preparing
and handling a portfolio.
Interaction with superiors and discussing problems, both project based as well as
others, gave me a chance to learn quite a lot. There are many small things which on
the face of it look small but have great value in the long run. I have learnt a lot and I
am confident and sure that this will help me in my future.
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CHAPTER 8:
SUGGESTIONS
74
SUGGESTIONS
Sharekhan’s advertising is done mainly through word of mouth and IPO
releases, which attracts only a fraction of the investors and thereby bringing
down its market capitalization. Sharekhan, like the other leading brokerage
firms should indulge in a more aggressive form of advertising in both print
and electronic media if it looks to keep pace with the cut throat competition in
the years to come.
As Sharekhan is targeting people through software companies but according to
our experience we didn’t get many prospects, so what we suggest is that the
Sharekhan can directly approach to the HR manager in the software company
and give presentations about the product and services so that it would be easy
for the employees to get information and approach Sharekhan directly.
Organize and make accessible a database of customer information.
Allocating marketing investment according to customer value.
The portfolio manager has to very carefully analyze the market and then invest
in different assets.
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CHAPTER 9:
LIMITATIONS
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LIMITATIONS OF THE STUDY:
The main limitation of my study is from the investor side, as for providing them
the PMS I need to know their past investments in detail which they hesitate to
disclose as they find it hard to trust anyone regarding their investments, so I have
to first built up the trust & then talk about the investments, as the main limitation
is time so it takes me at least few days for this procedure through regular visits &
follow up’s.
Time period undertaken for the project was also one of the limiting factors as
“Portfolio Management” is such a vast subject which involves in-depth study
analysis. As a portfolio has to be diversified keeping in mind the risk appetite of
the investor as well as keeping a track record of his past investments and then
finally analyzing the portfolio & for this the proposed time period was a limiting
factor.
The sample size taken for drawing a conclusion is too small to get an accurate
result & is only small portion of actual population.
Changing the mentality of people for investing through a particular Advisory
Services.
It’s hard to change the typical psychological mindset of the investor, limiting the
options available, although feasible.
Difficult to overcome investors who wants return in less time & at times it’s
difficult to get the documents required for formalities from investors.
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Another very important limitation while doing this project which I came across was
that the investors find it hard to trust the products & services offered by the private
companies even though they are performing much better than the government
companies like LIC v/s Private Players (ICICI, Reliance, Met Life…..)
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CHAPTER 10:
CONCLUSION
79
CONCLUSION
Just before starting the conclusion, I would like to show the comparisons of the
various investments opportunities concerning their safety, interest rate, liquidity, etc.
through following table:
INSTRUMENTS RETURN SAFETY VOLATILITY LIQUIDITYSTOCKS HI LO HI HI / LOBONDS MOD HI MOD MOD
FIXED DEPOSITS LO HI LO LOMUTUAL FUNDS HI HI MOD HI
Where; HI= High, LO= Low, MOD= Moderate.
The reason behind showing this comparison is that when we talk about “Portfolio
Management Services” it all start from firstly making a comparison and then making
a decision about what to invest and where to invest. After going through this report
one can actually see that all the advisory is done once the financial advisor analyses
the actual need of the customers, and this all is done once we know what to offer and
when to offer.
Their is lot of scope of promoting PMS in Pune as in the present scenario Pune has
become one of the most recognized IT destination in India, and in IT firms the
Investors are not well versed with the various investment avenues present in the
80
market. They always seek for financial help for their “Tax Planning’s” and for good
“Capital Appreciations” as the annual packages offered to them are quite high so they
need to plan accordingly & that is the right time when we come into the picture, with
best of the PMS which we can offer.
There is great opportunity for Mutual Fund companies as there is a rise in number of
people who want to invest in share market but don’t have time and knowledge to do
so, also these people want to take less risk .With booming market and falling interest
rate of bank deposits, people see mutual funds as an attractive financial tool which
provide a high return rate at lower risk as compared to equity market. Young people
these days are particularly more interested in mutual funds because they see mutual
fund as safe bet. Also these people have large disposable incomes and risk taking
capability too. Advertising can also play a major part as it has been seen that people
buy mutual fund looking at the brand name. While offering them the “Portfolio
Management Services” we see that we offer them the best after carrying out the total
analysis on various schemes running in the market we give them what satisfies their
need the most efficiently. As far as the investment sector is considered, a sharp rise in
the no. of woman a/c holders, with almost 21% of its total 6.53 lakh trading a/c held
by woman, the organization have to concentrate on woman segment. According to the
respondents the quality of the service is very important. So the company should
project itself as a brand in the market that gives end user the best quality of service
with handy operations. Also most of the respondents have their personal consultant or
company consultants, Sharekhan LTD. have to differentiate their services from other
consultant effectively by delivering value added services to its customers. Also
organizations have to concentrate on direct marketing activities. The consultancy
81
should develop its long term relationship with the customers. The consultancy must
give much more emphasis on creation of customer who make repurchase.
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CHAPTER 11:
BIBLIOGRAPHY
83
BIBLIOGRAPHY:
Books:
Prasana Chandra: P (2004) “Investment analysis & portfolio management”Tata Mc Graw Hill (New Delhi).
Websites:
www.sharekhan.com
www.nseindia.com
www.bseindia.com
http://www.amfiindia.com/showhtml.asp?page=mfconcept#B
http://www.moneycontrol.com/bestportfolio/wealth-management-tool/09/58/investments
http://en.wikipedia.org/wiki/Mutual_fund#Types_of_mutual_funds
www.valueresearchonline.com
www.personalfn.com
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CHAPTER 12:
ANNEXURE
85
ANNEXURE:
Questionnaire:
Name:Address: City:Pin:Contact address:
Telephone:Date of birth:Sex:Status:Marital Status:Educational Qualifications:
Q.1) WHAT IS YOUR ANNUAL INCOME?
86
05
1015202530354045
% OF POPULATION
>1 1 to 3 3 to 5 5+
INCOME GROUP
DISTRIBUTION OF INCOME
Maximum number of sample population has income below 1 lakh followed by 1- 3
lakh. Normally people having income below 1 lakh do not invest so our target
population is people having income above 1 lakh.
Q.2) Do you have DEMAT ACCOUNT? IF YES IN WHICH COMPANY?
87
Our survey shows that 28 % of sample population use sharekhan as their brokerage
house followed by ICICI direct and then Reliance money. 11 % of people use other
small brokerage houses so sharekhan have good scope to acquire customers from
there.
88
PREFERED BROKARAGE HOUSES
2014
16
1111
28 SHAREKHAN
ICICI DIRECT
R- MONEY
INDIA BULLS
RELIGARE
OTHERS
Q.3) What percentage of your income do you invest?
About 60% of people said that they invest between 10%-60% of their total income in
some or other types of financial tools. A major chunk of people belonging to this
segment are from IT sector who are young, large disposable income and have a little
knowledge about investment and are willing to take risk.
Q.4) IF YOU WANT INVESTS THEN WHICH INSTRUMENT WILL YOU PREFER?
89
percentage of income invested
0
10
20
30
40
50
60
Below 10% 10%-30% 30%-50% Above 50%
Series1
As per our research 28 % of people prefer insurance as investment instrument. 25 %
people prefer mutual funds followed by share market.
Q.5) How you choose a mutual fund?
90
Choosing of mutual fund
3526
15 12 1205
10152025303540
BRAND NAME
HIGH N
AV
HIGH R
ETURNS
ADVERTISIN
G
OTHER
Series1