fs portfolio management final copy
TRANSCRIPT
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INTRODUCTION TO PORTFOLIO MANAGEMENT
Investing in securities such as shares, debentures, and bonds is profitableas well as exciting. It is indeed rewarding, but involves a great deal of risk and
calls for scientific knowledge as well artistic skill. In such investments both
rationale and emotional responses are involved. Investing in financial securities
is now considered to be one of the best avenues for investing one savings while
it is acknowledged to be one of the best avenues for investing one saving while
it is acknowledged to be one of the most risky avenues of investment.
It is rare to find investors investing their entire savings in a single
security. Instead, they tend to invest in a group of securities. Such a group
of securities is called portfolio.
Creation of a portfolio helps to reduce risk, without sacrificing returns.
Portfolio management deals with the analysis of individual securities as well as
with the theory and practice of optimally combining securities into portfolios.
An investor who understands the fundamental principles and analytical aspects
of portfolio management has a better chance of success.
Portfolio is none other than Basket of Stocks. Portfolio Management is
the professional management of various securities (shares, bonds and other
securities) and assets (e.g., real estate) in order to meet specified investment
goals for the benefit of the investors.
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PORTFOLIO MANAGEMENT
An investor considering investment in securities is faced with theproblem of choosing from among a large number of securities and how to
allocate his funds over this group of securities. Again he is faced with problem
of deciding which securities to hold and how much to invest in each. The risk
and return characteristics of portfolios. The investor tries to choose the optimal
portfolio taking into consideration the risk return characteristics of all possible
portfolios.
As the risk return characteristics of individual securities as well as
portfolios also change. This calls for periodic review and revision of investment
portfolios of investors. An investor invests his funds in a portfolio expecting to
get good returns consistent with the risk that he has to bear. The return realized
from the portfolio has to be measured and the performance of the portfolio has
to be evaluated.
It is evident that rational investment activity involves creation of an
investment portfolio. Portfolio management comprises all the processes
involved in the creation and maintenance of an investment portfolio. It dealsspecifically with the security analysis, portfolio analysis, portfolio selection,
portfolio revision & portfolio evaluation. Portfolio management makes use of
analytical techniques of analysis and conceptual theories regarding rational
allocation of funds. Portfolio management is a complex process which tries to
make investment activity more rewarding and less risky.
DEFINITION
The process of managing the assets of a mutual fund, including choosing and
monitoring appropriate investments and allocating the funds accordingly.
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Portfolio management is the process of clarifying, prioritizing, and
selecting the projects an organization wishes to pursue. It evaluates and
prioritizes the features targeted for inclusion in specific product releases. It
encompasses techniques to ensure the projects and feature sets are aligned with
business objectives, that technical impacts are well understood, and that productreleases include the highest value features.
A strong portfolio management process enables organizations to
effectively and efficiently determine which projects and features provide the
most significant return on investment. It aids technology-selection decisions,
provides guidance to on going architecture work, enables capacity planning, andinforms development decisions.
The lack of an effective process can reduce the desirability of the end
product because guidance on priorities is not shared throughout the
organization. It can reduce development productivity because significant time,
effort, and money is spent making decisions about priorities in the early or even
the mid to late stages of a project. Portfolio is a collection of asset. The asset
may be physical or financial like Shares Bonds, Debentures, and Preference
Shares etc.
The individual investor or a fund manager would not like to put all his
money in the shares of one company, for that would amount to great risk. Main
objective is to maximize portfolio return and at the same time minimizing theportfolio risk by diversification. Portfolio management is the management of
various financial assets, which comprise the portfolio.
According to Securities and Exchange Board of India (Portfoliomanager) Rules, 1993; portfolio means the total holding of securities
belonging to any person; Designing portfolios to suit investor requirement often
involves making several projections regarding the future, based on the current
information. When the actual situation is at variance from the projections
portfolio composition needs to be changed.
One of the key inputs in portfolio building is the risk bearing ability of
the investor. Portfolio management can be having institutional, for example,
Unit Trust, Mutual Funds, Pension Provident and Insurance Funds, Investment
Companies and non-Investment Companies. Institutional e.g. individual, Hindu
undivided families, Non-investment Companys etc.
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The large institutional investors avail services of professionals. A
professional, who manages other peoples or institutions investment portfolio
with the object of profitability, growth and risk minimization, is known as a
portfolio manager. The portfolio manager performs the job of security analyst.
In case of medium and large sized organization, job function of portfoliomanager and security analyst are separate. Portfolios are built to suit the returnexpectations and the risk appetite of the investor.
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OBJECTIVES OF PORTFOLIO MANAGEMENT
1. Security of Principal Investment :
Investment safety or minimization of risks is one of the most important
objectives of portfolio management. Portfolio management not only involves
keeping the investment intact but also contributes towards the growth of its
purchasing power over the period. The motive of a financial portfolio
management is to ensure that the investment is absolutely safe. Other factors
such as income, growth, etc., are considered only after the safety ofinvestment is ensured.
2. Consistency of Returns :
Portfolio management also ensures to provide the stability of returns by
reinvesting the same earned returns in profitable and good portfolios. The
portfolio helps to yield steady returns. The earned returns should compensatethe opportunity cost of the funds invested.
3. Capital Growth :
Portfolio management guarantees the growth of capital by reinvesting in
growth securities or by the purchase of the growth securities. A portfolio shall
appreciate in value, in order to safeguard the investor from any erosion in
purchasing power due to inflation and other economic factors. A portfolio
must consist of those investments, which tend to appreciate in real value afteradjusting for inflation.
4. Marketability :
Portfolio management ensures the flexibility to the investment portfolio.
A portfolio consists of such investment, which can be marketed and traded.
Suppose, if your portfolio contains too many unlisted or inactive shares, then
there would be problems to do trading like switching from one investment to
another. It is always recommended to invest only in those shares and
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securities which are listed on major stock exchanges, and also, which areactively traded.
5. Liquidity :
Portfolio management is planned in such a way that it facilitates to take
maximum advantage of various good opportunities upcoming in the market.The portfolio should always ensure that there are enough funds available atshort notice to take care of the investors liquidity requirements.
6. Diversification of Portfolio :
Portfolio management is purposely designed to reduce the risk of loss of
capital and/or income by investing in different types of securities available in
a wide range of industries. The investors shall be aware of the fact that thereis no such thing as a zero risk investment. More over relatively low risk
investment give correspondingly a lower return to their financial portfolio.
7. Favorable Tax Status :
Portfolio management is planned in such a way to increase the effective
yield an investor gets from his surplus invested funds. By minimizing the tax
burden, yield can be effectively improved. A good portfolio should give a
favorable tax shelter to the investors. The portfolio should be evaluated afterconsidering income tax, capital gains tax, and other taxes.
The objectives of portfolio management are applicable to all financial
portfolios. These objectives, if considered, results in a proper analytical
approach towards the growth of the portfolio. Furthermore, overall risk needs tobe maintained at the acceptable level by developing a balanced and efficient
portfolio. Finally, a good portfolio of growth stocks often satisfies all objectivesof portfolio management.
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FUNCTIONS OF PORTFOLIO MANAGEMENT
The basic purpose of portfolio management is to maximize yield and minimize
risk. Every investor is risk averse. In order to diversify the risk by investing intovarious securities following functions are required to be performed.
The functions undertaken by the portfolio management are as follows:
1. To frame the investment strategy and select an investment mix to
achieve the desired investment objective;
2. To provide a balanced portfolio which not only can hedge against the
inflation but can also optimize returns with the associated degree of
risk;
3. To make timely buying and selling of securities;
4. To maximize the after-tax return by investing in various taxes saving
investment instruments.
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TYPES OF PORTFOLIO MANAGEMENT:
The two types of portfolio management services are available o the investors:
1.The Discretionary portfolio management services (DPMS):
In this type of services, the client parts with his money in favor of
manager, who in return, handles all the paper work, makes all the
decisions and gives a good return on the investment and for this he
charges a certain fees.
In this discretionary PMS, to maximize the yield, almost all
portfolio managers parks the funds in the money market securities
such as overnight market, 182 days treasury bills and 90 days
commercial bills.
Normally, return on such investment varies from 14 to 18 per cent,
depending on the call money rates prevailing at the time of
investment.
Discretionary portfolio
Management
Non-discretionary
portfolio Management
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2. The Non-discretionary portfolio management services:
The manager function as a counselor, but the investor is free to
accept or reject the managers advice; the manager for a services
charge also undertakes the paper work.
The manager concentrates on stock market instruments with a
portfolio tailor made to the risk taking ability of the investor.
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ADVANTAGES OF PORTFOLIO MANAGEMENT
Individuals will benefits immensely by taking portfolio management services
for the following reason: -
a) Whatever may be the status of the capital market; over the long period
capital markets have given an excellent return when compared to other
forms of investment. The return from bank deposits, units etc., is
much less than from stock market.
b) The Indian stock markets are very complicated. Though there are
thousands of companies that are listed only a few hundred, which have
the necessary liquidity. It is impossible for any individual whishing to
invest and sit down and analyses all these intricacies of the market
unless he does nothing else.
c) Even if an investor is able to visualize the market, it is difficult to
investor to trade in all the major exchanges of India, look after his
deliveries and payments. This is further complicated by the volatile
nature of our markets, which demands constant reshuffling of port
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IMPORTANCE OF PORTFOLIO MANAGEMENT
In the past one-decade, significant changes have taken place in the
investment climate in India.
Portfolio management is becoming a rapidly growing area serving a
broad array of investors- both individual and institutional-with
investment portfolios ranging in asset size from thousands to cores of
rupees.
It is becoming important because of:
i. Emergence of institutional investing on behalf of individuals. A
number of financial institutions, mutual funds, and other agencies
are undertaking the task of investing money of small investors, ontheir behalf.
ii. Growth in the number and the size of invisible fundsa large part
of household savings is being directed towards financial assets.
iii. Increased market volatility- risk and return parameters of financial
assets are continuously changing because of frequent changes in
governments industrial and fiscal policies, economic uncertainty
and instability.
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iv. Greater use of computers for processing mass of data.
v. Professionalization of the field and increase use of analytical
methods (e.g. quantitative techniques) in the investment decision-
making, and
vi. Larger direct and indirect costs of errors or shortfalls in meeting
portfolio objectives- increased competition and greater scrutiny by
investors.
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SELECTION OF PORTFOLIO
The selection of portfolio depends upon the objectives of the investor. Theselection of portfolio under different objectives are dealt subsequently,
Objectives and asset mix
If the main objective is getting adequate amount of current income, sixty
percent of the investment is made in debt instruments and remaining in equity.
Proportion varies according to individual preference.
Growth of income and asset mix
Here the investor requires a certain percentage of growth as the income from
the capital he has invested. The proportion of equity varies from 60 to 100 %
and that of debt from 0 to 40 %. The debt may be included to minimize risk and
to get tax exemption.
Capital appreciation and Asset Mix
It means that value of the investment made increases over the year. Investment
in real estate can give faster capital appreciation but the problem is of liquidity.
In the capital market, the value of the shares is much higher than the original
issue price.
Safety of principle and asset mix
Usually, the risk adverse investors are very particular about the stability of
principal. Generally old people are more sensitive towards safety.
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Risk and return analysis
The traditional approach of portfolio building has some basic assumptions. An
investor wants higher returns at the lower risk. But the rule of the game is that
more risk, more return. So while making a portfolio the investor must judge therisk taking capability and the returns desired.
Diversification
Once the asset mix is determined and riskreturn relationship is analyzed the
next step is to diversify the portfolio. The main advantage of diversification is
that the unsystematic risk is minimized.
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ROLE OF PORTFOLIO MANAGEMENT
There was a time when portfolio management was an exotic term. A
practice which is beyond the reach of the small investor, but the time has
changed now. Portfolio management is now a common term and is widelypracticed in INDIA. The theories and concepts relating to portfolio management
now find there way in the front pages of the financial newspapers andmagazines.
In early 90s India embarked on a program of economic liberalization
and globalization, with high participation of private players. This reform
process has made the Indian industry efficient, with rapid computerization,
increased market transparency, better infrastructure and customer services,
closer integration and higher volume. The markets are dominated by largeinstitutional investors with their diversified portfolios. A large number of
mutual funds have come up in the market since 1987. With this development
investment in securities has gained considerable momentum
Along with the spread of the securities investment way among Indian
investors have changed due to the development of the quantitative techniques.
Professional portfolio management, backed by research is now being adopted
by mutual funds, investment consultants, individual investors and big brokers.
The Securities Exchange Board of India (SEBI) is a regulatory body in INDIA.It ensures that the stock market is free from fraud, and of course the main
objective is to ensure that the investors money is safe.
With the advent of computers the whole process of portfolio management
has become quite easy. The computer can absorb large volumes of data, perform
the computations accurately and quickly give out the results in any desired
form. Moreover simulation, artificial intelligence etc. provides means of testing
alternative solutions.
The trend towards liberalization and globalization of the economy has
promoted free flow of capital across international borders. Portfolio not onlynow include domestic securities but foreign too. So financial investments cant
be reaped without proper management.
Another significant development in the field of investment management
is the introduction to Derivatives with the availability of Options and Futures.
This has broadened the scope of investment management.
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Investment is no longer a simple process. It requires a scientific
knowledge, a systematic approach and also professional expertise. Portfolio
management is the only way through which an investor can get good returns,
while minimizing risk at the same time.
So portfolio management objectives can be stated as: -
Risk minimization.
Safeguarding capital.
Capital Appreciation.
Choosing optimal mix of securities.
Keeping track on performance.
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ELEMENTS OF PORTFOLIO MANAGEMENT
Portfolio Management is an on-going process involving the followingbasic tasks.
Identification of the investors objective, constrains and preferences whichhelp formulated the invest policy.
Strategies are to be developed and implemented in tune with invest policyformulated. 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 investorscircumstances.
Finally, the evaluation of portfolio for the results to compare with thetargets 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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QUALITIES OF PORTFOLIO MANAGER
1.Sound general knowledge:
Portfolio management is an existing and challenging job.
He has to work in an extremely uncertain and conflicting
environment.
In the stock market every new piece of information affects the
value of the securities of different industries in a different way.
He must be able to judge and predict the effects of the information
he gets.
He must have sharp memory, alertness, fast intuition and self-
confidence to arrive at quick decisions.
2.Analytical Ability:
He must have his own theory to arrive at the value of the security.
An analysis of the securitys values, company, etc. is continues job
of the portfolio manager.
A good analyst makes a good financial consultant.
The analyst can know the strengths, weakness, opportunities of the
economy, industry and the company.
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3.Marketing skills:
He must be good salesman.
He has to convince the clients about the particular security.
He has to compete with the Stock brokers in the stock market.
In this Marketing skills help him a lot.
4.Experience:
In the cyclical behaviour of the stock market history is often
repeated, therefore the experience of the different phases helps to
make rational decisions.
The experience of different types of securities, clients, markets
trends etc. makes a perfect professional manager.
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SEBI GUIDELINES FOR PORTFOLIO MANAGERS
It will thus be seen that Portfolio Management is an art and requires high
degree of expertise. The merchant banker has been authorised to do Portfolio
Management Services, if they belong to Categories I and II as licensed by theSEBI.
This classification of merchant bankers was dropped in 1996 and only thecategory I merchant bankers is allowed to operate in India. Others who want to
provide such services should have a minimum net worth of Rs. 50 lakhs and
expertise, as laid down or changed from time-to-time by the SEBI and would
have to register with the SEBI.
The SEBI have set out the guidelines in this regard, in which the relations
of the client vis-a-vis the Portfolio Manager and the respective rights and dutiesof both have been set out. The code of conduct for Portfolio Managers has been
laid down by the SEBI. The job of Portfolio Manager in managing the clients
funds, either on discretionary or nondiscretionary basis has thus become
challenging and difficult due to the multitude of obligations laid on his
shoulders by the SEBI, in respect of their operations, accounts, audit etc.
It is thus clear that Portfolio Management has become, a complex and
responsible job which requires an in-depth training and expertise. It is in this
context that the regulations of SEBI on Portfolio Management become
necessary so that the minimum qualifications and experience are also ensuredfor those who are registered with SEBI. Nobody can do Portfolio Management
without SEBI registration and licence.
The SEBI has given permission to Merchant Bankers to do Portfolio
Management. As per the guidelines of September, 1991 a separate category ofPortfolio Managers is also licensed by SEBI for which guidelines were given in
January 1993. A code of conduct was also laid down for this category, as is the
case with all categories of capital market players and intermediates.
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SECURITIES AND EXCHANGE BOARD OF INDIA RULES,
1993 REGARDING PORTFOLIO MANAGERS
No person to act as portfolio manager without certificate.
No person shall carry on any activity as a portfolio manager unless
he holds a certificate granted by the Board under this regulation.
Provided that such person, who was engaged as portfolio manager
prior to the coming into force of the Act, may continue to carry on
activity as portfolio manager, if he has made an application for
such registration, till the disposal of such application.
Provided further that nothing contained in this rule shall apply in
case of merchant banker holding a certificate granted by the board
of India Regulations, 1992 as category I or category II merchant
banker, as the case may be.
Provided also that a merchant banker acting as a portfolio manager
under the second provision to this rule shall also be bound by the
rules and regulations applicable to a portfolio manager.
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Conditions for grant or renewal of certificate to portfolio
manager.
The board may grant or renew certificate to portfolio manager
subject to the following conditions namely:
a) The portfolio manager in case of any change in its status and
constitution, shall obtain prior permission of the board to carry on
its activities;
b) He shall pay the amount of fees for registration or renewal, as the
case may be, in the manner provided in the regulations;
c) He shall make adequate steps for redressed of grievances of the
clients within one month of the date of receipt of the complaint and
keep the board informed about the number, nature and other
particulars of the complaints received;
d) He shall abide by the rules and regulations made under the Act in
respect of the activities carried on by the portfolio manager.
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Period of validity of the certificate.
The certificate of registration on its renewal, as the case may be,
shall be valid for a period of here years from the date of its issue to
the portfolio manager.
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SECURITIES AND EXCHANGE BOARD OF INDIA
REGULATIONS, 1993
Registration of Portfolio Managers:
1. Application for grant of certificate
An application by a portfolio manager for grant of a certificate
shall be made to the board on Form A.
Notwithstanding anything contained in sub regulation (1), any
application made by a portfolio manager prior to coming into force
of these regulations containing such particulars or as near thereto
as mentioned in form A shall be treated as an application made in
pursuance of sub-regulation and dealt with accordingly.
2. Application of confirm to the requirements
Subject to the provisions of sub-regulation (2) of regulation 3, any
application, which is not complete in all
respects and does not confirm to the instructions specified in the
form, shall be rejected:
Provided that, before rejecting any such application, the applicant
shall be given an opportunity to remove within the time specified
such objections as may be indicated by the board.
3. Furnishing of further information, clarification and personal
representation.
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The Board may require the applicant to furnish further information
or clarification regarding matters relevant to his activity of a
portfolio manager for the purposes of disposal of the application.
The applicant or, its principal officer shall, if so required, appear
before the Board for personal representation.
4. Consideration of application.
The Board shall take into account for considering the grant of
certificate, all matters which are relevant to the activities relating to
portfolio manager and in particular whether the applicant complies
with the following requirements namely:
The applicant has the necessary infrastructure like to adequate
office space, equipments and manpower to effectively discharge
his activities;
The applicant has his employment minimum of two persons who
have the experience to conduct the business of portfolio manager;
A person, directly or indirectly connected with the applicant has
not been granted registration by the Board in case of the applicant
being a body corporate;
The applicant, fulfils the capital adequacy requirements specified
in regulation 7
The applicant, his partner, director or principal officer is not
involved in any litigation connected with the securities market and
which has an adverse bearing on the business of the applicant;
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The applicant, his director, partner or principal officer has not at
any time been convinced for any offence involving moral turpitude
or has been found guilty of any economic offences;
The applicant has the professional qualification from an institution
recognized by the government in finance, law, and accountancy or
business management.
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STEPS TO PORTFOLIO MANAGEMENT
1. Standardize and automate the governance processes. Define multiple workflows to subject each project to the appropriate
governance controls throughout its life cycle from proposal to post-
implementation resulting in lowered costs, faster cycle times, and
increased quality.
2. Capture all investments within a central repository.
Consolidate business and information technology (IT) investments within
an enterprise repository to improve visibility, insight, and control.
Implement repeatable processes as templates to standardize and
streamline data collection across the organization. Centralized datafacilitates cross project analysis of finances, resources, schedules as wellas other data trends and status for informative reports.
3. Objectively prioritize business strategy and competing
investments.
Employ proven techniques to define and prioritize your organizations
business strategy for the upcoming planning period, and automatically
derive objective prioritization scores to effectively evaluate thecompeting investments from multiple dimensions.
4. Align the selected portfolios with the business strategy.
Run optimization what-if scenarios to identify trade offs and select the
optimal portfolio under varying budgetary and business constraints that
best align with your organizations business strategy. Take advantage of
advanced portfolio analytical techniques to identify and break theconstraints prohibiting the portfolio from reaching the Efficient Frontier.
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5. Effectively manage resources.
Without understanding long-term workloads and capacity, companies can
experience inefficient hire-fire cycles, resulting in higher overhead, lost
knowledge, and poor employee morale. By providing visibility intooverall work commitments, actual timesheets, and resource capabilities,
create resource plans to align your strategic recruiting and outsourcingwith your long-term business objectives.
6. Collaborate and coordinate easily.
Helping to ensure that teams share common goals and work together
effectively becomes more vital as organizations become moregeographically and culturally diverse. Web-based access to timely,
business-critical project information means teams can share knowledge,collaborate smoothly to complete tasks and deliverables, and adjustactivities quickly to accommodate project changes and updates.
7. Measure and track portfolio performance.
Effectively measure and track projects, programs, and applications
throughout their life cycle, giving you the visibility to proactively identify
potential issues, make decisions, and help ensure that your portfolios
maximize return on investment (ROI) and improve operational
efficiencies.
8. Quickly realize a return on investment.
By enabling increased employee productivity, faster cycle times, reduced
costs, and improved time management, portfolio management solutions
provide a positive and sustainable return on investment. In IT portfoliomanagement, software can cut costs 2-5 percent, improve productivity
20-25 percent, and shift 10-15 percent of budgets to more strategic
projects. In developing and bringing new products to market, the best
performersthose who have applied rigorous process and technology to
their research and development and go-to-market activities can reducetime to market by more than 30 percent.
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PORTFOLIO MANAGEMENT PROCESS
The process of portfolio management can stand alone, or act as a component ofa larger wealth management process. Typically when we partner with our
clients for portfolio management purposes, the process involves the following
basic steps.
Risk profile and objective analysisThrough personal consultations with you, we develop a personal profile of your
individual investment needs and objectives, time horizon and attitude toward
investing.
Investment policy statementThis statement considers your needs and objectives and acts as guideline for
making investment decisions. Our goal is to maximize your investment returns,relative to your risk tolerance, through the carefully diversified allocation of
your investments.
DiversificationYour asset allocation policy is implemented by investing across asset classes
and within various investment styles. Your well-diversified portfolio will thenbe managed by preeminent institutional money management firms which are notnormally accessible to an individual investor.
Portfolio rebalancingYour investment portfolio is carefully monitored on an on going basis to ensure
that it remains consist-tent with your agreed-upon asset allocation policy. If the
relative value of investment in your portfolio changes enough to become
inconsistent with this policy, it will be rebalanced.
Result reportsWe will communicate with you on a regular basis and provide a comprehensive
reporting package, including account level performance reports and statements
providing details of your account, as well as total asset value and a record of all
transactions that occurred during the reporting period.
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TECHNIQUES OF PORTFOLIO MANAGEMENT
Various types of portfolio require different techniques to be adopted to achieve
the desired objectives. Some of the techniques followed in India by portfolio
managers are summarized below.
(1). Equity portfolio-
Equity portfolio is affected by internal and external factors:
(a) Internal factors
Pertain to the inner working of the particular company of which equity shares
are held. These factors generally include:
(1) Market value of shares
(2) Book value of shares
(3) Price earnings ratio (P/E ratio)
(4) Dividend payout ratio
(b) External factors
(1) Government policies
(2) Norms prescribed by institutions
(3) Business environment
(4) Trade cycles
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(2). Equity stock analysis
The basic objective behind the analysis is to determine the probable future
value of the shares of the concerned company. It is carried out primarily fewer
than two ways. :
(a) Earnings per share
(b) Price earnings ratio
(A)Trend of earning: -
A higher price-earnings ratio discount expected profit growth.
Conversely, a downward trend in earning results in a low price-earnings
ratio to discount anticipated decrease in profits, price and dividend.
Rising EPS causes appreciation in price of shares, which benefits
investors in lower tax brackets? Such investors have not pay tax or togive lower rate tax on capital gains.
Many institutional investor like stability and growth and support high
EPS.
Growth of EPS is diluted when a company finances internally its
expansion program and offers new stock.
EPS increase rapidly and result in higher P/E ratio when a companyfinances its expansion program from internal sources and borrowings
without offering new stock.
(B) Quality of reported earning: -
Quality of reported earnings affects P/E ratio. The factors that affect the quality
of reported earnings are as under:
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Depreciation allowances: -
Larger (Non Cash) deduction for depreciation provides more funds to
company to finance profitable expansion schemes internally. This builds
up future earning power of company.
Research and development outlets: -
There is higher P/E ratio for a company, which carries R&D programs.
R&D enhances profit earning strength of the company through increased
future sales.
Inventory and other non-recurring type of profit: -
Low cost inventory may be sold at higher price due to inflationary
conditions among profit but such profit may not always occur and hence
low P/E ratio.
(C) Dividend policy: -
Dividend policy is significant in affecting P/E ratio. With higher dividend ratio,
equity price goes up and thus raises P/E ratio. Dividend rates are raised to push
in share prices up. Dividend cover is calculated to find out the time the dividend
is protected, In terms of earnings. It is calculated as under:Dividend Cover = EPS / Dividend per Share
(D) Investors demand: -
Demand from institutional investors for equity also enhances the P/E ratio.
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(3) Quality of management: -
Investors decide about the ability and caliber of management and hold and
dispose of equity academy. P/E ratio is more where a company is managed by
reputed entrepreneurs with good past records of management performance.
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CURRENT STATUS OF PORTFOLIO
MANAGEMENT IN INDIA
Now-a-days, portfolio management is very popular concept. Because
every investor wants to increase his investment. In the earlier days, it was not sogood. People make optimise profits but now investors are taking the help of the
professionals and they help them in various decisions. Select the right blend of
projects that can increase ROI, market share and achieve a sustainable growth
portfolio. They apply an investment plan to maintain a balance between
investment risk and return. They follow certain rules to allocate the major
portion of resources to invest whether in extremely volatile markets like share
and equity market or in treasury notes, money market funds. They provide agood investment option, excellent return at manageable risk. So any individuals,
a beginner or an experienced investor or a monthly earner for living can take the
advantages of portfolio management service.
With the considerable investments required to expand new products andthe risks involved, portfolio Management in India is becoming a progressively
more important tool to make strategic decisions about product development and
the investment of company reserves. All professionals and business leaders in
the investment services have become mindful that only right technologies andactive financial management can achieve financial goals.
Portfolio management in India has provided the vital insights to expand
competitive initiation in this complex financial market. The portfolio
management team involves managers who try to increase the market return by
actively managing financial portfolio through investment decisions based on
research and individual investment choices. They actively manage closed endfunds because they have years of actual daily trading experience. These
managers are highly skilful and adept at carrying on profound research. Theycan perform with passion and innovation in investment services. So they can
give fruitful financial advice to expand financial gains.
Investment services involve different financial instruments such as pensionfund, mutual fund, equity and share, investment on property, commodity, IT,
stock, and bond, financial derivatives. These instruments have a certain level of
risk and give returns in the long run.
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KOTAK SECURITIES: PORTFOLIO MANAGEMENT
SERVICES
Kotak Securities is one of Indias oldest portfolio management companies
with over a decade of experience. It is also one of the largest, with Assets UnderManagement of over Rs. 3300 Crores. Kotak Portfolio Management fromKotak Securities comes as an answer to those who would like to grow
exponentially on the crest of the stock market, with the backing of an expert.
Kotak Securities is a SEBI registered Portfolio Manager for providing
both Discretionary as well as Non Discretionary portfolio management service.Kotak Securities is a depository participant with National Securities Depository
Limited (NSDL) and Central Depository Services Limited (CDSL).
Unlike many other companies, Kotak Securities Ltd. has a Centralised
Risk Management System and an in-house Research Team which allows it to
offer the same levels of service to customers across all locations. KotakSecurities was awarded as the most customer responsive company in the
Financial Institution sector by AVAYA Global Connect Award both in 2006
and 2007.risk and give returns in the long run.
Kotak Portfolio Management offers various schemes to suit individualinvestment objectives.
Following are the products offered by Kotak Securities
GUARDIAN PORTFOLIO
With the Guardian Portfolio Kotak Securities invests in both gold and equity. Atany time around 20 per cent of the assets will be invested in the gold. The
allocation to gold may go up to 50 per cent depending upon the marketcondition and the rest will be invested in the equity market. The minimuminvestment is Rs 10 lakh.
BEPLarge cap focus portfolio
In the BEPLarge cap focus portfolio, investments will be made in mis-pricedlarge cap stocks that have a high growth potential and can withstand macro
level risks to sustain in an adverse environment. Large Caps are dominant
players in their respective sectors, and hence have the strength and the ability to
maintain margins in a tough operating environment.
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GEMS PORTFOLIO
GEMS are a 30-month closed-end product. The scheme intends to create a
focused portfolio of stocks from across sectors and market capitalization ranges.
Its main feature is its special mandate to participate in the pre-FPO (follow-onpublic offer) placements and private placements of listed companies.
Investments of up to 30 per cent of the overall assets can be made in suchopportunities.
ORIGIN
Origin portfolio aims to invest in growth oriented companies with sustainable
business models backed by strong management capabilities with emphasis on
smaller capitalized companies with a market capitalization not exceeding Rs.2500 crore at the time of investment.
INVEST GUARD PORTFOLIO
The Invest guard Plan is a CPPI Model which invests across shares and fixedincome products, moving from shares into fixed interest investments when the fundsvalue drops below a predetermined floor. When markets start to move up, theproduct increases its holdings in shares, tapping into these growth opportunities.
CORE PORTFOLIO
Core Portfolio aims to capture the long term upside of the India Growth Story by
diversifying across the major themes. The investments are in all equity and equity
related instruments with emphasis on companies in the business areas driven by
consumerism, outsourcing, real estate and core infrastructure players and is
essentially a mix of small, medium and large capitalization companies
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CONCLUSION
With the help of given project I got an in-depth knowledge about the
working of portfolio management. Also I got an insight as too how to invest in portfoliomanagement, which scheme provide better return as compared to other and who are the
portfolio management players in the Indian market.
It can be concluded from the project that future of portfolio management
is bright provided proper regulations prevail and investors needs are satisfied by
providing variety of schemes. The interest of investors is protected by SEBI.
Portfolio management is governed by SEBI Act.
Due to the benefits available to the individuals such as reduction in risk,expert professional management, diversified portfolios, tax benefits etc. younggeneration (i.e. age group bet. 18-30) is willing to invest in different investment
avenues through portfolio manager or through mutual funds which are again managed by
portfolio managers.
On the other hand, age group of 60 & above are least interested in makinginvestment in different avenues through portfolio managers. They believe in
investing and managing their portfolio on their own.
However, it can be said that the future of portfolio management is bright
in years to come.
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BIBLIOGRAPHY
WEBSITE:
www.google.com
www.wikipedia.com
www.managementparadise.com
www.sebi.gov.in
www.investopedia.com
http://www.google.com/http://www.google.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.managementparadise.com/http://www.managementparadise.com/http://www.managementparadise.com/http://www.wikipedia.com/http://www.google.com/