A Report

A REPORT
ON
PORTFOLIO MANAGEMENT OF ADVANCED AGED CITIZEN INCLUDING

SENIOR CITIZENS
BY
VIVEK BHAGAT
(09BS0002750)
RELIANCE LIFE INSURANCE COMPANY LIMITED
A report submitted in partial fulfillment of the requirements of MBA

program of the ICFAI University, Dehradun
DISTRIBUTION LIST:
PROF. SUJOY DHAR
(FACULTY GUIDE)
Mr. ABHIJIT BHADRA
(COMPANY GUIDE)
DATE OF SUBMISSION:
AUTHORIZATION
I hereby declare that the project “PORTFOLIO MANAGEMENT OF ADVANCED

AGE CITIZENS INCLUDING SENIOR CITIZENS” is original and bon-a-fide work done
by me.
The project is being submitted in partial fulfillment of the requirement of MBA

Program of IBS.
The contents of this project are based on the field work and analysis done by me
during my tenure at RELIANCE LIFE INSURANCE COMPANY LIMITED.
VIVEK BHAGAT
Enroll. No. 09BS0002750
3
ACKNOWLEGEMENT
Surpassing milestones towards a mission sometimes gives us such degree of

satisfaction that we tend to forget the precious guidance and help extended by
the people to whom the success of mission is solely dedicated.
I express my sincere thanks to RELIANCE LIFE INSURANCE COMPANY LIMITED for

giving me an opportunity to work with them through this summer project. I take
this opportunity to express my profound sense of gratitude to my company guide
MR. ABHIJIT BHADRA, for his invaluable guidance, constant encouragement and
practical suggestions based on the experience to focus my efforts to which this
work has come to the presentable form. I would like to extend my sincere thanks
to my faculty guide PROF. SUJOY DHAR who has been my constant source of
inspiration throughout. Lastly I would also like to thank the insurance companies,
advisors and the customers who helped and cooperated with me during the
survey.
VIVEK BHAGAT
4
TABLE OF CONTENT
SERIAL CONTENTS PAGE NOS.

NO.
1 AUTHORIZATION 3
2 ACKNOWLEDGEMENT 4
3 ABSTRACT 6
4 COMPONY PROFILE 7-13
5 OBJECTIVE OF PROJECT 14
6 METHODOLOGY 15
7 INTRODUCTION 16-28
8 SPSS ANALYSIS 29-40
9 BEHAVIOURAL ANALYSIS 41-64
10 CONSTRUCTION OF PORTFOLIO 65-74
11 INVESTMENT PLAN 75-79
12 CONCLUSION 80
13 RECOMMENDATIONS 81
14 LIMITATIONS OF THE PROJECT 82
15 ANNEXURE 83-89
16 REFERRNCES 90
5
ABSTRACT
I joined Reliance Life Insurance Company Limited on 20th February 2010. On my
first day I met my company guide Mr. Abhijeet Bhadra, who is the Territory
Manager of Dumdum Branch. I had initial discussion about my project with him.
He explained me in brief the workings of the department. In the insurance
department; I met Mr. Anit Dey who is the Sales Manager of Insurance
Department of Dumdum Branch.
Reliance Life Insurance Company Limited deal with all the insurance products
(whether life or non- life). For the first week I was given product training, that is,
full details about the products which included their features, type of plan,
benefits, any riders, tax benefit etc. I was also asked to meet agents of different
companies, so that I can clear my queries in details. I was also given details about
the Reliance Life Highest NAV Gurantee Plan which I personally found quite
useful. In my training I was helped a lot by Mr. AbhijI09t Bhadra.
During training I was asked to visit natural market (it means calling people whom
we know or who know us) like friends, relatives, neighbors, etc. as it is easy to get
appointment from them and pitch our product, I was also taught to do cold
calling. Doing this helped me to overcome my fear of facing people and speaking
and convincing them, it also helped me in building my confidence. I was also
equipped with sales skills by Anit Sir, that is, how to approach the client, and
analyzing their requirement and pitching them those products. He taught us there
are two kind of people one who do not want to take risk and are willing to wait
for returns, these kind of people always go for traditional plan which gives low but
guaranteed return and there is another kind of person who can take risk but want
high returns on whatever they will invest, these people mainly go for Unit Link
Plan (ULIP).
Apart from Natural market I also started doing cold calling for which I was even
asked to prepare the database of my own, which is referred as Gold Mine. My job
during this tenure was to call people and fix appointments, so that I can meet
them analysis their need and give them a demonstration of our product and
convince them for investing in that product. I met variety of people and got
variety of responses over the phone.
This project has been a great learning experience for me; at the same time it gave
me enough scope to implement my analytical ability.
6
INTRODUCTION TO COMPANY
RELIANCE LIFE INSURANCE CO. LTD.
Our Founder
Few men in history have made as dramatic a contribution to their country’s

economic fortunes as did the founder of Reliance, Sh. Mr. Dhirubhai Ambani H
Ambani. Fewer still have left behind a legacy that is more enduring and timeless.
As with all great pioneers, there is more than one unique way of describing the
true genius of Mr. Dhirubhai Ambani: The corporate visionary, the unmatched
strategist, the proud patriot, the leader of men, the architect of India’s capital
markets, and the champion of shareholder interest.
But the role Mr. Dhirubhai Ambani cherished most was perhaps that of India’s
greatest wealth creator. In one lifetime, he built, starting from the proverbial
scratch, India’s largest private sector enterprise.
When Mr. Dhirubhai Ambani embarked on his first business venture, he had a
seed capital of barely US$ 300 (around Rs 14,000). Over the next three and a
half decades, he converted this fledgling enterprise into a Rs 60,000 crore
colossus—an achievement which earned Reliance a place on the global
Fortune 500 list, the first ever Indian private company to do so.
Mr. Dhirubhai Ambani is widely regarded as the father of India’s capital

markets. In 1977, when Reliance Textile Industries Limited first went public,
the Indian stock market was a place patronized by a small club of elite
investors which dabbled in a handful of stocks.
7
Undaunted, Mr. Dhirubhai Ambani managed to convince a large number of
first-time retail investors to participate in the unfolding Reliance story and put
their hard-earned money in the Reliance Textile IPO, promising them, in
exchange for their trust, substantial return on their investments. It was to be
the start of one of great stories of mutual respect and reciprocal gain in the
Indian markets.
Under Mr. Dhirubhai Ambani’s extraordinary vision and leadership, Reliance

scripted one of the greatest growth stories in corporate history anywhere in
the world, and went on to become India’s largest private sector enterprise.
Through out this amazing journey, Mr. Dhirubhai Ambani always kept the
interests of the ordinary shareholder uppermost in mind, in the process making
millionaires out of many of the initial investors in the Reliance stock, and
creating one of the world’s largest shareholder families.
8
RELIANCE CAPITAL
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd. of the
Reliance - Anil Mr. Dhirubhai Ambani Group. Reliance Capital is one of India’s
leading private sector financial services companies, and ranks among the top 3
private sector financial services and banking companies, in terms of net worth.
Reliance Capital has interests in asset management and mutual funds, stock
broking, life and general insurance, proprietary investments, private equity and
other activities in financial services.
Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC)

registered with the Reserve Bank of India under section 45-IA of the Reserve
Bank of India Act, 1934.
Reliance Capital sees immense potential in the rapidly growing financial

services sector in India and aims to become a dominant player in this industry
and offer fully integrated financial services.
Reliance Life Insurance is another step forward for Reliance Capital Limited to
offer need based Life Insurance solutions to individuals and Corporates.
Reliance capital entered into the life insurance business by acquiring AMP Sanmar
in October 2005. The business was thereafter renamed Reliance Life Insurance.
Today RLIC has over 20 products - 16 individual plans and 4 employees benefit
plans - including the two new innovative products – Connect to Life and Reliance
Money Guarantee Plan - that were launched recently.
Reliance Life Insurance Company (RLIC) has been accorded the ISO 9001-2000
certificate for its best-in-class management systems in Quality, Customer &
Process orientation.
9
With this, RLIC is one of the only two life insurance companies in India to get ISO
9001:2000 certifications covering all functional areas.
The scope of the certification covers the entire gamut of business processes
ranging from product design, sales - front-end and back-end operations, customer
care and investment, to all business support functions. The certification has been
awarded by internationally acclaimed Bureau Veritas and is valid till 2010 subject
to continued satisfactory operation of RLIC's Quality Management System.
"This certification is a significant milestone in our continuous quest to offer

innovative products, outstanding services and improved customer satisfaction. It
indicates that we have been able to install systems, processes & performance
measures that are in line with the best in the industry and will form the basis of
our business growth in future", said P Nandagopal, CEO, Reliance Life Insurance
Company.
Reliance Life Insurance is the fastest growing life insurance company in India and
has an incremental market share of 4 per cent amongst private insurers. The
company has third largest distribution network in terms of number of agents
operating out of 143 locations across the country.
CORPORATE OBJECTIVE
At Reliance Life Insurance, we strongly believe that as life is different at every

stage, life insurance must offer flexibility and choice to go with that stage. We are
fully prepared and committed to guide you on insurance products and services
10
through our well-trained advisors, backed by competent marketing and customer
services, in the best possible way.
It is our aim to become one of the top private life insurance companies in
India and to become a cornerstone of RLI integrated financial services
business in India.
CORPORATE VISION AND MISSION
Vision
Empowering everyone live their dreams.
Mission
Create unmatched value for everyone through dependable, effective, transparent

and profitable life insurance and pension plans.
Our Goal
Reliance Life Insurance would strive hard to achieve the 3 goals mentioned below:
 Emerge as transnational Life Insurer of global scale and standard

 Create best value for Customers, Shareholders and all Stake holders
 Achieve impeccable reputation and credentials through best business
practices
11
Achievements
RLIC has been one of the fast gainers in market share in new business
premium amongst the private players with an incremental market share of
4.1% in the Financial Year 2007-08 – from 3.9% in April 07 to 8% in Feb 08. (
Source: IRDA)
Also continues to be amongst the fast growing Private Life Insurance
Companies with a YOY growth of 195% in new business premium as of
Mar’08.
A Company that has crossed 1.7 Million policies in just 2 years of
operation, post take over of AMP Sanmar business.
Initiated Express Life – an Unique ’Over the Counter’ sales process for Unit
Linked Insurance Policies in the Industry.
Accomplished a large distribution ramp-up in the Industry in a short span of
time by opening 600 branches in 10 months taking the overall branch
network above 740.
RLIC continues to be one of the two Life Insurance companies in India to be
certified ISO 9001:2000 for all the processes.
Awarded the Jamnalal Bajaj Uchit Vyavahar Puraskar 2007- Certificate of
Merit in the Financial Services category by Council for Fair Business
Practices (CFBP).
12
GROWTH OF RELIANCE LIFE INSURANCE SOME FACTS (MAY 2008) :
HOW THEY STACK UP

Premium income of life insurers in Rs crore
April – June Growth Total

2007 2008 % Share (%)
LIC 8580.84 7524.56 -12 52.55
ICICI Prudential 1056.45 1,590.27 51 11.11
Bajaj Allianz 731.85 829.24 13 5.79
SBI Life 426.39 1,148.67 169 8.02
HDFC Standard 355.93 490.40 38 3.42
Max New York 289.74 501.16 73 3.50
Reliance Life 204.10 557.33 173 3.89
Birla Sun Life 174.63 501.53 187 3.50
Total Private 3930.95 6,795.64 73 47.45
Total Market 12511.80 14,320.20 14 100.00
(Source: www.irdaindia.org)
OUTLOOK:-
o Reliance life expect to break even by 2010-11 and until then they may require an additional
Rs.700 cr. of capital
o Around 97% of reliance life’s business comes from unit linked insurance plans
o Average tenor of its ULIPs is 12.7 yrs and avg. ticket size of the policy stands around 21000/-
o Alternate channel incl. corporate agents, broker, and direct marketing brought in 25% of
company’s business
o Business premium at Rs.2754 crores in 2007-08 against 930 crores in the previous year
o The company had added 600 more branches in the last year to expand its business network and
now it has 744 branches. As only 30% of the business comes from the top 25 cities and the
balance comes 70% comes through the other smaller towns, company has followed a conscious
strategy to setup branches in smaller towns to tap the blue oceans
13
OBJECTIVE OF THE PROJECT:-
 To understand the entire treasury management process at RLI and to build

an asset allocation model by minimizing the risk of the portfolio keeping in
mind the IRDA guidelines
 The objective is to understand the dynamics of the different instruments

like stocks, bonds and cash equivalents. But special emphasis is given to
debt market to understand and learn factors that need to be assessed
when making investment in debt instruments and the various risk
management tools and its implication and application on the portfolio as a
whole
 To build an interest forecasting model for the company with the help of
multivariate regression analysis
 To give suggestions on the basis of analysis this can be beneficial to the

organization
14
METHODOLOGY:-
Study of the theories related to the portfolio risk and return
Understanding of the various ways of the risk management and the role of
fund managers
Understanding of different techniques used for selecting efficient portfolios
Collect data from primary and secondary sources (If available)
15
INTRODUCTION
The age-old wisdom about not putting “all your eggs in one basket” applies very
much in the case of portfolios. Portfolio risk (standard deviation of returns) is not
the weighted average of the risk of individual assets in the portfolio. This gives
raise to opportunities to elimination the risk of assets, at least partly, by
combining risky asset in a portfolio.
APPROACHES IN PORTFOLIO CONSTRUCTION
- TRADITIONAL APPROACH
- MARKOWITZ EFFICIENT FRONTIER APPROACH
(I) TRADITIONAL APPROACH
It deals with two major decisions:
- DETERMINING THE OBJECTIVES OF THE PORTFOLIO

- SELECTION OF SECURITIES TO BE INCLUDED IN THE PORTFOLIO
This is carried out in four to six steps:
(i) ANALYSIS OF CONSTRAINTS:
- Income needs
- Need for current income
- Need for constant income
- Liquidity
- Safety of the principal
- Time horizon
- Tax consideration
- Temperament
16
STEPS IN TRADITIONAL APPROACH
ANALYSIS OF CONSTRAINTS
DETERMINATION OF OBJECTIVES
SELECTION OF PORTFOLIO
BOND AND BOND COMMON STOCK

COMMON STOCK
ASSESSMENT OF RISK AND RETURN
17
(II) MODERN APPROACH
- In the modern approach, Markowitz Model is used

- More importance is given to risk and return analysis
PORTFOLIO – MARKOWITZ MODEL
SIMPLE DIVERSIFICATION
Diversification and Portfolio Risk
Unique Risk
Market Risk Total Risk
No. of stocks
PROBLEMS OF VAST DIVERSIFICATION
- Purchase of poor performers

- Information Inadequacy
- High research costs
- High transaction costs
18
THE MARKOWITZ MODEL
ASSUMPTIONS
- The individual investor estimates risk on the basis of variability of

returns
- For a given level of risk, investor prefers high return to lower return.
Likewise, for a given level of return investor lower risk than higher risk
CALCULATION OF RISK AND RETURN
It is possible to develop a fairly simple decision rule for selecting an optimal

portfolio for an investor that can take both risk and return into consideration. This
is called risk adjusted return. For simplicity it can be termed the utility of the
portfolio for the investor in question. Utility is the expected return of the portfolio
minus a risk penalty. This risk penalty depends on portfolio risk and the investors
risk tolerance.
The Risk Penalty: The more risk one must bear, the more undesirable is an
additional unit of risk. Theoretically and as a computational convenience, it can be
assumed that twice the risk is four times as undesirable. The risk penalty is as
follows:
Risk Penalty = Risk squared/Risk tolerance
Risk squared is the variance of return of the portfolio. Risk tolerance is a number
from 0 through 100. The size of risk tolerance number reflects the investor‘s
willingness to bear more risk for more return. Low (High) tolerance indicates low
(high) willingness. Risk penalty is less as the tolerance is increased.
For example, if a portfolio‘s expected return is 13%, variance of return (risk

squared) is 225%, and investors risk tolerance is 50, the risk penalty is 4.5%:
Risk penalty = 225%/50 = 4.5%
19
Because utility is expected return minus the risk penalty, we have:
Utility = 13 – 4.5 = 8.5%
The optimal (best) portfolio for an investor would be the one from the
opportunity set (efficient frontier) that maximizes utility.
EFFICIENT FRONTIER WITH BORROWING AND LENDING

(LEVERAGED PORTFOLIOS)
P
O EFFICIENT FRONTIER
R
T E
F A
O
B
L
D
I
O
R C
FEASIBLE SET
E
T
U
R
N PORTFOLIO STANDARD DEVIATION
All the feasible portfolio combinations can be represented by the space enclosed
by the curved line and the straight line. The curved line represents combinations
of stocks or portfolios where correlations are less than 1; whereas portfolios
along the straight-line represent combinations of stocks or portfolios with the
maximum correlation (+1.0) (no portfolios would lie to the right of the straight
line).
20
Obviously, a mean-variance investor would prefer portfolio A to B, given that it
has lower risk for the same level of return offered by B. Similarly, portfolio A
would be preferred to portfolio C, given that it offers higher return for the same
level of risk. D is the minimum variance portfolio among the entire feasible set. A
close examination of the feasible set of portfolios reveals that portfolios that lie
along D-E represent the best available combination of portfolios. Investors with
various risk tolerance levels can choose one of these portfolios. These portfolios
offer the maximum return for any given of risk. Therefore, these are called the
efficient portfolios and the set of all such portfolios, the efficient frontier, as
represented in the above figure.
THE SHARPE INDEX MODEL
Developed on the assumption that the return of a security is linearly related to a

single index like market index.
SINGLE INDEX MODEL
Ri = i + i Rm + ei
Where
Ri = expected return on security ‘i'

i = intercept of the straight line or alpha co-efficient
i = slope of the straight line or beta co-efficient
Rm = rate of return on market index
ei = error term
21
2 2 2
The variance of security’s return i = j m + ei
2
The covariance of returns between securities i and j, ( ij) = j j m
Total Risk = Systematic Risk + Unsystematic Risk
2
Systematic Risk = i X Variance of market index
2 2
= i m
Unsystematic Risk = Total variance – Systematic risk
ei2 = 2
i– Systematic Risk
2 2
Then, Total Risk = j m+ ei2
Portfolio Variance
N N
2 2 2
p = [ xi i) m] + [ xi2 ei2]
i=1 i=1
Where,
2
p = Variance of the portfolio
2
m = Expected variance of index
2
ej = Variation in Security’s return not related to the market
index
xi = The portion of stock ‘i' in the portfolio
Portfolio Return
N
Rp = xi ( i + i Rm )
i=1
22
Portfolio Alpha
N
p = xi i
i=1
Where,
p = Value of the alpha for the portfolio
xi = Proportion of the investment on security ‘i'
i = Value of alpha for security ‘i'
N
= The number of securities in the portfolio
SHARPE’S OPTIMAL PORTFOLIO
- A model for the selection of appropriate securities in a portfolio
- The selection of a stock is directly related to its excess return – beta ratio
Ri – Rf
---------
i
Where,
Ri = The expected return on stock ‘i'
Rf = The return on a riskless asset
i = The expected change in the rate of return on stock ‘i'
associated with one unit change in the market return
- Ranking of the stocks done on the basis of their excess return to beta
- The selection of the stocks depends on a unique cut-off rate. Al stocks with
higher ratios of Ri – Rf / i are included and the stocks with lower ratios; are
left off.
23
- The cut-off point is
N (Ri – Rf) i
2
Ci = m --------------
i=1 2
ei
----------------------
2
N i
2
1+ m ------
i=1 2
ei
Where,
2
m = Variance of the market index
2
ei = Variance of stock’s movement that is not associated with
the movement of market index i.e., Unsystematic Risk
CONSTRUCTION OF THE OPTIMAL PORTFOLIO
The percentage of funds to be invested in each security is estimated in the

following manner.
Zi
Xi = ---------
N
Zi
i=1
i Ri - Rf
Zi = ----- [--------- – C]
2
ei i
Xi = Indicates the weights on each security and they sum up-to

one
Zi = Indicates the relative investment in each security
24
CAPITAL ASSET PRICING MODEL (CAPM)
The CAPM:
Markowitz, William Sharpe, John Linter and Jan Mossin provided the basic
structure for the CAPM model.
According to this theory, the required return of an asset will have a linear
relationship with asset’s beta value i.e., in diversifiable for systematic risk.
Assumptions of CAPM:
An individual seller or buyer cannot affect the price of a stock

Investors make their divisions only on the basis of the expected return, SDs
and covariance at all pairs of securities.
Investors are assumed to have homogeneous expectations
The investor can lend or borrow any amount of funds at the riskless rate of
interest
Assets are infinitely divisible
No transaction costs
No personal income taxes
Unlimited quantum of short sales is allowed
Portfolio Return
Rp = Rf Xf + Rm(1-Xf)
Where,
Rp = Portfolio Return
Rp = The proportion of funds invested in risk free assets
1-Xf = The proportion of funds invested in risky assets
Rf = The Risk free rate of return
Rm = Return on risky assets
25
Portfolio Risk (variance)
2 2
p = f X2f + 2
m (1-Xf)2 + 2 Covfm Xf + (1-Xf)
CAPITAL MARKET LINE (CML):
CML represents linear relationship between the required rates of return for
efficient portfolios and their standard deviations.
Rf + (Rm – Rf)
E(Rp) = ------------------ X p
m
Where,
E(Rp) = Portfolio rate of return
Rm = Expected return on market portfolio
m = Standard deviation of market portfolio
p = Standard deviation of the portfolio
Rp CML
S
Rf
26
SECURITY MARKET LINE (SML):
SML indicates the risk – return tradeoff for inefficient portfolios and individual
securities
It helps to determine the expected rate of return for a given security beta
E(Ri) = Rf + j [E (Rm) – Rf]
Rp
SML
Rm S
Rf
0 Beta
27
ARBITRAGE PRICING THEORY (APT)
A model of asset pricing developed by Stephen Ross

Explains the nature of equilibrium in the asset pricing in a less complicated
manner with fewer assumptions operational to CAPM
Arbitrage
It is a process of carrying profit by taking advantage of differential pricing for

the same asset
The Buying and Selling activities of the arbitrage reduces and eliminates the
profit margin, brining the market price to the equilibrium
Assumptions:
The investors have homogeneous expectations

The investors are risk averse and utility maximisers
Perfect competition prevails in the market and
There are no transaction costs
Arbitrage Pricing Equation
In a single factor model, the linear relationship between the return Ri and
sensitivity bi is given by
Ri = o + i bi
Where,
Ri = Return from stock A
o = Riskless rate of return
bi = The sensitivity related to the factor
i = Slope of the arbitrage pricing line
28
DISCRIMINANT ANALYSIS:
TABLE: ANALYSIS CASE PROCEEDING SUMMARY
 The Case Processing Summary table provides information on the number

and percentage of valid and missing cases.
 The number of missing cases is based on the variables used in the
procedure.
TABLE: GROUP STATISTICS
 This table displays descriptive statistics for each variable across groups and
for the total sample.
 The mean is the average value.
 The standard deviation measures the variability (or spread) of the values.
 Discriminant analysis assumes equal variances. Therefore, the standard
deviations should not vary greatly across groups.
 Valid N is the number of cases with non-missing values.
 The weighted N value is weighted by the weight variable.
29
TABLE: LOG DETERMINANTS
 In the multi group model, log determinant values provide an indication of

which groups' covariance matrices differ most. For each group, its log
determinant is the product of the eigen values of it’s within group
covariance matrix.
 The rank is the row or column rank which is the maximum number of
linearly independent rows or columns.
TABLE: TEST RESULTS
 Box's M statistic tests the null hypothesis of equal population covariance

matrices.
 The significance of Box's M statistic is based on an F transformation.
 The hypothesis of equal covariance matrices is rejected if the significance
level is small (less than say 0.10).The hypothesis of equal covariance
matrices is not rejected if the significance level is large (more than say
0.10).The test can be significant when within-group sample sizes are large
or when the assumption of multivariate normality is violated.
DEPENDENT VARIABLE: PERCENTAGE OF INVESTMENT
30
It provides the Mean and Standard Deviation for the variables for the groups.
Below tables show the Box’s Test of Covariance Matrices. The rank column
signifies the number of independent variables. The determinants are relatively
equal. The Box’s M test shows that groups have different covariance and thus do
not confirm to the assumption of homogeneity of covariance.
31
The Eigen values and Canonical Regression values are shown in the below table.
The Eigen value gives the amount of variance in the original variables accounted
for by each component.
32
The Wilk’s Lambda shown in the below table tests the significance of the Eigen
value for each component. In this case there is one function that is significant.
33
DEPENDENT VARIABLE: RETURN ON INVESTMENT
34
35
36
37
DEPENDENT VARIABLE: RISK APPETITE
38
39
40
INCOME TAB LESS THAN Rs. 1.5 LAKHS
PERCENTAGE OF INCOME
LESS THAN 10% 10%-<20% 20%-<30% 30%-<40% 40%->40%
LESS THAN 10% 19
10%-<20% 11 2%3%
20%-<30% 6 16%
30%-<40% 1
50%
40%->40% 1
TABLE 1: PROPORTION OF 29%

INCOME INVESTED
FIG1: PIE CHART (1) OF PROPORTION OF INCOME INVESTED
From the above pie chart (1) we can say that the investors having the income of
less than 1.5 lakhs are willing to invest less than 10% of their income to enhance
their income level. Some investors are even willing to invest 10%-<20% of their
income.
Since their disposable income is low (Disposable income is nothing but annual
income minus annual expenses), investors are not able to invest. In this scenario
investors must increase their expenses to increase their disposable income. As a
result of which they can invest more. Hence will be the higher regular returns.
41
RETURN ON INVESTMENT
5%-10% 11%-15% 16%-25% 26%-30% 31%-40% 40%->40%
5%-10% 18
0%
5%3%
11%-15% 14 8%
16%-25% 3
26%-30% 2 47%
31%-40% 1
40%->40% 0 37%
TABLE 2: EXPECTED RETURN

ON INVESTMENT
FIG 2: PIE CHART (2) OF EXPECTED RETURN ON INVESTMENT
Now for this group of income level has certain expected return which can be seen
with the help of above chart.
From the pie chart (2) we can state the lower income group i.e. less than Rs. 1.5
lakhs are asking for lower returns. At large this income tab asks for 5%-10% of
their investment as return. This investment sector also demands 11%-15% as their
return. Investors falling in this income tab can’t ask for more returns as higher
income as higher the return is higher the risk factor will be.
They need to settle for lower or moderate rate of margin. The only way to
increase their return is by increasing their investment proportion.
42
PREFERRED TOOL OF
PREFERRED TOOL OF INVESTMENT INVESTMENT
REAL ESTATES 0
Series3
MUTUAL FUND 4
BANK ( FD'S ETC.) 14 14
PAINTINGS 0
8
EQUITY 0 6
GOVT. BONDS 8 4 4
2
GOLD/SILVER 0 0 0 0 0 0 0
INSURANCE 2
DERIVATIVES 0
CORPORATE BONDS 0
PPF 6
POST OFFICE SCHEMES 4
TABLE 3: PREFERRED TOOL OF

INVESMENT
FIG 3: COLUMN CHART (1) OF PREFFERED TOOL OF INVESTMENT
The rate of return can be gained with the help of several tools of investments. The
most preferred tool of investment for this income group can be known with the
help of above chart.
The above pie chart (3) signifies the most preferred tool of investment for these
income groups are bank (fd’s, etc.) and government bonds. The next set of
preference is public provident fund (PPF), post office schemes and mutual funds.
This income group has preferred likings for safety stocks. As their income is low
they try to play safe and take lesser amount of risk. Investors don’t have the tax
burden on their shoulders as their income level is fully exempted from tax. So
they don’t have to invest is assets which save their income on the tax basis.
43
RISK APPETITE
RISK APPETITE
Rs. 0 Rs.10 Rs. 20 Rs. 30 Rs. 40 >Rs. 40
Rs. 0 25
Rs.10 10
Rs. 20 3 8%0%
Rs. 30 0
Rs. 40 0 26%
>Rs. 40 0
66%
TABLE 4: RISK APPETITE
FIG 4: PIE CHART (3) OF RISK APPETITE
As the investors were looking for more safety stocks, it was obvious the risk
appetite for this group of investors would be less. Hence from the pie chart (4) we
can find out this group of investors are not willing to take any risk.
Due to low disposable income of the investors they can’t take higher risk.
Therefore their risk appetite of the investors is almost negligible. During the time
of withdrawing they are not willing to loose even a penny. We can see this from
the above chart that the majority is opting for Rs. 0 as their loss during the time of
withdraw. This proves their lower risk appetite. Though second preference can
take up to 10% risk.
44
INCOME TAB 1.5 lakhs – 3 lakhs
PERCENTAGE OF INCOME LESS THAN 10% 10%-<20% 20%-<30% 30%-<40% 40%->40%
LESS THAN 10% 8
10%-<20% 12
20%-<30% 2 9%0%
30%-<40% 0 36%
40%->40% 0
TABLE 5: PERCENTAGE OF INCOME

55%
FIG (5): PIE CHART (4) OF PERCENTAGE OF INCOME
Unlike the above income tab, this group of investors is able to invest more part of
their income i.e. the majority opt for only 10%-<20%. And likely the second set is
ready to invest less than 10% of their income. As their income is higher there is
increase in disposable income. Due to which there is rise in investment.
Investors are willing to invest more as in percentage of their income resulting in

higher investment amount.
Still there are investors who are opting for low investment. This may be due to
their higher expenses. Suggestion to this set of investors is that they must try to
cut down their expenses so that they can some up with higher investment
margins.
45
5%-10% 8 5%-10% 11%-15% 16%-25% 26%-30% 31%-40% 40%->40%
11%-15% 12
16%-25% 2 9%0%
26%-30% 0
36%
31%-40% 0
40%->40% 0
TABLE 6: RETURN ON INVESTMENT 55%
FIG 6: PIE CHART (5) OF RETURN ON INVESTMENT
From the above pie chart we can clearly state the most expected rate of return is
11-15% which is opted by nearly 55% of the investors falling in this income tab. As
they are able to invest more, their expected return will also be high. We can see
from the above chart that there are some investors who are asking for return as
low as 5%-10%. This is due to their low investments. And some are also asking for
returns as high as 16%-25%, which is because their income must be at the right
edge of the income tab i.e. highest income of this income tab. So their disposable
income is high compared to other investors of this income tab. Therefore their
disposable income is higher.
46
PREFERRED TOOL OF INVESTMENT
REAL ESTATES 0 PREFERRED TOOL OF INVESTMENT
MUTUAL FUND 2 8
BANK ( FD'S ETC.) 8
5
PAINTINGS 0
EQUITY 2 3
2 2 2
GOVT. BONDS 0 0 0 0 0 0 0
GOLD/SILVER 0
INSURANCE 2
DERIVATIVES 0
CORPORATE BONDS 0
PPF 3
TABLE 7: PREFERRED TOOL OF FIG 7: COLUMN CHART (2) OF PREFERRED TOOL OF INVESMENT
INVESTMENT
As this income tab is above the tax tab of Rs. 1.8 lakhs, they need to opt for tools
where they can save on taxes. Therefore the most viable option for the investors
is post office schemes. Majority opts for banks as in savings accounts and fixed
deposits. These tools give a base return on the investment and comprises of
lower risk. The second preference is post office schemes and public provident
funds. This helps not only with the return factor but also the tax factor.
Since the income is moderate, investors must opt for post office schemes and PPF
as their preferable tools as it will give a return of 8.16% (cumulative) and gives a
tax exempt upto Rs. 1 lakhs. PPF gives tax exempt of Rs. 70,000 under NSC
(National Savings Certificate). And since investors have a risk constraint as one of
the important factors, they must opt for instruments having lower risks.
47
RISK APPETITE RISK APPETITE
Rs. 0 8
Rs. 0 Rs.10 Rs. 20 Rs. 30 Rs. 40 >Rs. 40
Rs.10 10
Rs. 20 4
Rs. 30 0 18%0%
Rs. 40 0 36%
>Rs. 40 0
46%
FIG 8: PIE CHART (6) OF RISK APPETITE OF INVESTORS
Risk appetites of the investors are low, but better than the above income tab.
Investors are willing to take up to 10% risk. But still large percentage of investors
is not willing to take any risk as their income is a constraint. Whereas some
investors are their who are not risk averse and are willing for greater challenges
and are ready for risk level of 20%.
48
INCOME TAB 3 lakhs – 5 lakhs
PERCENTAGE OF INCOME PERCENTAGE OF INCOME

LESS THAN 10% 4 LESS THAN 10% 10%-<20% 20%-<30% 30%-<40% 40%->40%
10%-<20% 4
20%-<30% 10
5%5% 20%
30%-<40% 1
40%->40% 1
20%
50%
TABLE 9: RETURN ON INVESTMENT
FIG 9: PIE CHART (7) OF RETURN ON INVESTMENT
With the increase in income, the level of disposable income also increases. As a
result of which they are willing to invest more. Nearly 50% of the investors of this
segment are ready to invest up to 20% - 30% of their income.
Since their income is moderately high they are willing to invest it through
different financial tools to ascertain their different financial goals like tax saving,
capital appreciation, etc.
Investors having tax saving as their major goal must opt for tools like PPF and
different post office schemes (NSC, etc). And investors seeking capital
appreciation as their one of the important fundamentals behind investment must
go for tools like equity and derivative market.
49
5%-10% 11%-15% 16%-25% 26%-30% 31%-40% 40%->40%
5%-10% 4
11%-15% 10
13%0%
16%-25% 2 25%
26%-30% 0
31%-40% 0
40%->40% 0
62%
FIG 10: PIE CHART (8) ON EXPECTED RETURN ON INVESTMENT
As investors are investing more money in the market, they expect something
more. This pumps up their expected return on their investment and is 11% - 15%.
As their disposable income is more they are able to take higher risks which leads
in the rise of their disposable income.
Nearly 25% of the investors falling in this category are asking for return as low as
5%-10%. This set of investors are risk averse investors and they are not willing to
take any risk. Thus are ready to settle themselves with low returns.
Investors are not hinting for higher returns as they are not able to grab
opportunities being income as one of the major constraints. No investor is
expecting a return above 26%.
50
REAL ESTATES 4 PREFERRED TOOL OF
MUTUAL FUND 0
BANK ( FD'S ETC.) 2
INVESTMENT
PAINTINGS 0 4
3
EQUITY 3 2 2 2 2 2
GOVT. BONDS 2 1 1 1
0 0
GOLD/SILVER 2
INSURANCE 1
DERIVATIVES 1
CORPORATE BONDS 1
PPF 2
TABLE 11: PREFERRED TOOL OF FIG 11: COLUMN CHART (3) OF PREFERRED TOOL OF INVESTMENT
INVESTMENT
Due to higher income they are able to take risk in order to achieve their financial
targets. And in order to attain these targets they need to take higher risk.
Therefore they are option for tools like real estates and equity.
Other preferable tools are banks, govt. bonds, gold/silver, PPF and post office
schemes.
Now the above mentioned tools can be used to as per different goals of the
investors. Investors who can take risk and are able to invest for longer period may
invest in real estates or equity. And investors who are seeking to seek tax saving
as one of the options can opt for PPF and post office schemes.
51
Rs. 0 4
Rs.10 6 Rs. 0 Rs.10 Rs. 20 Rs. 30 Rs. 40 >Rs. 40
Rs. 20 8
Rs. 30 2 0%
10% 20%
Rs. 40 0
>Rs. 40 0
40%
30%
FIG 12: PIE CHART (9) OF RISK APPETITE OF INVESTORS
We can see from the above charts that the risk appetite of the investors is
increasing and is nearly 20%. The risk factor is not stopping investors to invest.
They are not risk averse.
This can only be said for the majority i.e. 40% falling in this segment of investors.
Some 30% of the investors are still willing to take only 10% risk of their capital
invested and some are not willing to take only any risk.
Investors who are not willing to take any risk must drop their safe play idea and
must grab opportunities. As income does not act as a constraint so they can easily
go for some risk. Some external factors may impact as their disposable income
but still some risk can be taken with that income level.
These investors may opt for safety stocks which have lower amount of risk.
52
PERCENTAGE OF INCOME LESS THAN 10% 10%-<20% 20%-<30% 30%-<40% 40%->40%
LESS THAN 10% 1
10%-<20% 2 8% 8%
20%-<30% 5 15%
30%-<40% 4
31%
40%->40% 1

INCOME INVESTED
FIG 13: PIE CHART (10) OF PERCENTAGE OF INCOME INVESTED
This group of investors is able to invest more part of their income i.e. the majority
opt for 20%-<30% i.e. nearly 38% of the investors. And likely the second set is
ready to invest more than 30% of their income. As their income is higher there is

margins.
53
5%-10% 0 5%-10% 11%-15% 16%-25% 26%-30% 31%-40% 40%->40%
11%-15% 4
16%-25% 7 15% 0%
26%-30% 2 31%
31%-40% 0
40%->40% 0
54%
16%-25% which is opted by nearly 54% of the investors falling in this income tab.
As they are able to invest more, their expected return will also be high.
We can see from the above chart that there are some investors who are asking
for return as low as 11%-15%. This is due to their low investments. And some are
also asking for returns as high as 26%-30%, which is because their income must be
at the right edge of the income tab i.e. highest income of this income tab. So their
disposable income is high compared to other investors of this income tab.
As their disposable income is higher.
54
MUTUAL FUND 0
BANK ( FD'S ETC.) 1
INVESTMENT
PAINTINGS 0 2 2 2 2 2 2
EQUITY 2 1
GOVT. BONDS 0
0 0 0 0 0
GOLD/SILVER 2
INSURANCE 0
DERIVATIVES 2
CORPORATE BONDS 2
PPF 0
INVESTMENT
The rate of return can be gained with the help of several tools of investments. The
most preferred tool of investment for this income group can be known with the
help of above chart.
The above column chart (4) signifies the most preferred tool of investment for
these income groups are real estates, equity, gold/silver, derivatives, corporate
funds and post office schemes. The next set of preference is banks (fixed deposits
and savings account, etc.).
55
Rs. 0 0 Rs. 0 Rs.10 Rs. 20 Rs. 30 Rs. 40 >Rs. 40
Rs.10 3
Rs. 20 6
0%
Rs. 30 4 31% 23%
Rs. 40 0
>Rs. 40 0
46%
TABLE 16: RISK
APPETITE
invested and some are not willing to take 30% risk.
56
PERCENTAGE OF INCOME LESS THAN 10% 10%-<20% 20%-<30%
LESS THAN 10% 0 30%-<40% 40%->40%
10%-<20% 1
20%-<30% 2 0%11%
30%-<40% 6
40%->40% 0 22%
INCOME INVESTED
FIG 17: PIE CHART (13) OF PROPORTION OF INCOME INVESTED
With the increase in income, the level of disposable income also increases. As a
result of which they are willing to invest more. Nearly 67% of the investors of this
segment are ready to invest up to 30% -<40% of their income.
Since their income is high they are willing to invest it through different financial
tools to ascertain their different financial goals like tax saving, capital
appreciation, etc.
Investors having tax saving as their major goal must opt for tools like PPF and
different post office schemes (NSC, etc). And investors seeking capital
appreciation as their one of the important fundamentals behind investment must
go for tools like equity and derivative market.
57
5%-10% 11%-15% 16%-25%
26%-30% 31%-40% 40%->40%
5%-10% 0
11%-15% 2
16%-25% 4 0%
22%
26%-30% 3 33%
31%-40% 0
40%->40% 0
TABLE 18: RETURN ON INVESTMENT 45%
As investors are investing more money in the market, they expect something
more. This pumps up their expected return on their investment and is 16% - 25%.
As their disposable income is more they are able to take higher risks which leads
in the rise of their disposable income.
Nearly 22% of the investors falling in this category are asking for returns 11%-
15%. This set of investors are risk averse investors and they are not willing to take
low risk. Thus are ready to settle themselves with low returns.
No investor is expecting a return above 31%.
58
MUTUAL FUND 0
INVESTMENT
BANK ( FD'S ETC.) 0
PAINTINGS 1 2 2 2
EQUITY 2 1 1 1
GOVT. BONDS 0
0 0 0 0 0 0
GOLD/SILVER 2
INSURANCE 0
DERIVATIVES 0
CORPORATE BONDS 1
PPF 0
INVESTMENT
Therefore they are option for tools like real estates, equity and gold/silver.
Other preferable tools are paintings, corporate bonds and post office schemes.
59
Rs. 0 0
Rs. 0 Rs.10 Rs. 20 Rs. 30 Rs. 40 >Rs. 40
Rs.10 0
Rs. 20 4
Rs. 30 5 0%
Rs. 40 0
>Rs. 40 0
44%
TABLE 19: RISK APPETITE 56%
Risk appetites of the investors are high, and better than the above income tab.
Investors are willing to take up to 30% risk. And another large percentage of
investors are willing to take 20% risk.
Whereas every investor is willing to take risk. Every investor is willing to put
something for higher returns.
60
INCOME TAB MORE THAN 10 lakhs
PERCENTAGE OF INCOME LESS THAN 10% 10%-<20% 20%-<30%
LESS THAN 10% 0 30%-<40% 40%->40%
10%-<20% 1
20%-<30% 2 0%12%
30%-<40% 5
40%->40% 0
25%
TABLE 20: PERCENTAGE OF INCOME 63%
FIG 20: PIE CHART (15) ON PERCENTAGE OF INCOME
This group of investors is able to invest more part of their income i.e. the majority
opt for 30%-<40% i.e. nearly 63% of the investors. And likely the second set is
ready to invest more than 20% of their income. As their income is higher there is

margins.
61
5%-10% 11%-15% 16%-25% 26%-30% 31%-40% 40%->40%
5%-10% 0
13% 0% 12%
11%-15% 1
16%-25% 3
26%-30% 3
31%-40% 1 38% 37%
40%->40% 0
FIG 21: PIE CHART (16) ON RETURN ON INVESTMENT
26%-30% which is opted by nearly 38% of the investors falling in this income tab.
As they are able to invest more, their expected return will also be high.
We can see from the above chart that there are some investors who are asking
for return as low as 11%-15%. This is due to their low investments. And some are
also asking for returns as high as 31%-40%, which is because their income must be
at the right edge of the income tab i.e. highest income of this income tab. So their
disposable income is high compared to other investors of this income tab.
62
REAL ESTATES 2 PREFERRED TOOL OF INVESTMENT
MUTUAL FUND 0
2 2 2
BANK ( FD'S ETC.) 0
PAINTINGS 2 1 1
EQUITY 1
GOVT. BONDS 0 0 0 0 0 0 0 0
GOLD/SILVER 2
INSURANCE 0
DERIVATIVES 0
CORPORATE BONDS 1
PPF 0
TABLE 22: PREFERRED TOOL OF FIG 22: COLUMN CHART (6) ON PREFERRED TOOL OF INVESTMENT
INVESTMENT
Therefore they are option for tools like real estates, paintings and gold/silver.
Other preferable tools are equity and corporate bonds.
63
RISK APPETITE
Rs. 0 Rs.10 Rs. 20 Rs. 30 Rs. 40 >Rs. 40
RISK APPETITE
Rs. 0 0
Rs.10 0 13% 0%
25%
Rs. 20 2
Rs. 30 5
Rs. 40 1
>Rs. 40 0
TABLE 23: RISK APPETITE 62%
FIG 23: PIE CHART (17) ON RISK APPETITE OF INVESTORS
invested and some are willing to take higher risk (i.e. 40%).
64
Assumptions
For the completion of this project, I have made several assumptions which are as
follows:
1. For simplicity of calculation each year’s salary has been increased by 5%

and expenses by 3%. In real life however expenses will depend on the
inflation rate prevailing in the respective years.
2. For simplicity of calculation, Rs. 28000 has been assumed to the net
amount after tax.
3. No separate tax calculations have been made.
4. Certain investments have been made to get the benefit of Deduction under
Section 80 C.
5. LIC- Sum assured Rs.200000 for 15 yrs so premium Rs. 15000 pa and for
second investor the sum assured is Rs. 5000000 for 15 yrs so premium Rs.
37500 pa
6. Investments in shares are mostly long term in nature so there is no tax on
long term capital gains.
7. However shares in mid-cap companies could be traded in the short run
however the short term capital gains on the same has been ignored for
simplicity of calculation.
8. For simplicity of calculation income from investments (like from sale of
shares, interest on FD, income from mutual funds, interest from savings
account and any other kind of investments have been ignored).
9. The cash balance after all expenses and investments have been transferred
to Savings account.
65
10.The cash balance at the end of each year has not been carried forward in
the calculation tables
11.Return from shares has been calculated through Compound Annual Growth
Rate (CAGR). I have taken the closing prices of 2009 and 2005 (or in
whichever later year it was listed).
Why Invest?
A man has various needs to fulfill. Based on ‘Maslow’s hierarchy of needs’ his
priorities will change. The savings a man makes goes on increasing (in most cases)
as he progresses in life up till a certain period. For the unforeseen future he has to
make certain provisions and investments. The motives of investment will also
depend on the individual’s requirement. Some most common investment goals
are:
 Buying a new house

 Financing child’s education
 Saving for independence in old age
 Saving for a trip abroad
 Saving now to start a venture later
According to the life cycle model, an individual has the following four life stages:
1. Accumulation Stage
2. Consolidation Stage
3. Spending Stage
4. Gifting Stage
In a span of ten years, for the first 6-7 years an individual falls in the Accumulation
Stage. After that he is in the Consolidation Stage. My investment in the next 10
years would be based on these two stages which I will undergo.
66
Objective of portfolio creation:
1. Stability of principle – Stability is the main objective hence he invests in

securities like bonds, debentures, money market instruments and
preference shares. The securities are Held till maturity (HTM) and as a
result the principle is guaranteed.
2. Income – When income is the objective, investments include corporate
bonds, government bonds, government securities, preferred stock and
probably some good common stocks.
3. Growth of income – When growth of income is the main objective, the
portfolio is diversified in such a way that the growth rate is greater than
the inflation rate.
4. Capital Appreciation – For capital appreciation, investments are made in
shares and various derivative instruments like futures and options.
Keeping the life cycle model in view the objective of portfolio creation will differ.
The priority of each of the objectives will change depending on the stage of the
life cycle model where he is. Based on the primary and secondary objective of an
investor, his portfolio can be as follows:
Matrix to judge the nature of the investor
Primary Stability of Income Growth of Capital

Objective principal Income Appreciation
Secondary
Objective
Stability of x Debt and Unacceptable ?
principal preferred goals
stock
Income Money market x 40% in stock ?
instruments
Growth of Unacceptable Varies. Often x At least 75% in
Income goals >40% in stock equity
Capital Unacceptable ? At least 75% in x
Appreciation goals equity
67
The portfolio of investment for an investor also depends on his risk- return
appetite. Risk refers to the variability in return. It could arise from systematic risk
or unsystematic risk or both. While constructing the portfolio, the assets should
be selected in such a manner that the risk-returns paradigm for the investor gets
maximizes. The time horizon and objective of the investment should always be at
the back of the investor’s mind so as to derive benefit out of his investment
portfolio.
Investments of an individual can be also categorized on the basis of risk capacity

and risk tolerance.
Investments based on risk capacity and tolerance level
Direct Equity Mutual Debt Gold Real

Equity Funds Estate
Risk capacity Low
- 20% 70% 10% -
Risk tolerance moderate
Risk capacity Moderate
10% 30% 50% 10% -
Risk tolerance Moderate
Risk capacity High
10% 40% 45% 5% -
Risk tolerance Moderate
Risk capacity High
15% 45% 30% 5% 5%
Risk tolerance High
Where to invest?
As per the given case, in the next 10 years I would like to invest in the following
securities:
Stocks
Mutual Funds
Bonds
Gold
Other instruments
68
A. STOCKS
The stock market is highly volatile and unpredictable. In spite of the presence of
various models SENSEX has no sense because the market is governed by the
sentiments of common man. So it is very difficult to say that in which stocks I as
an investor will invest for the next 10 years. It will be governed by the market
conditions and various others macro economic variables affecting the stock
movements. However keeping in mind the current market scenario I would like to
include the stocks from the following sectors in my portfolio:
1. Fast Moving Consumer Goods (FMCG) Sector

It is the fourth largest sector in the Indian economy. It is a defensive sector
and has low seasonality. It has a tremendous growth prospects and huge
untapped opportunities. No matter what the market conditions are this
sector will be insulated from the external environment to a considerable
extent. The stocks that I would pick from this sector are:
i. Nestle India Ltd.: We expect Nestle to witness 19.1% CAGR in
revenues and 24.5% in net profit over CY09-11. Maintain BUY with a
target price of Rs2,915
ii. Hindustan Uniliver Ltd.(HUL): In the past three years, HUL’s net
sales have witnessed a CAGR of 11%, while net profit has posted a
CAGR of 17%. The company is set to gain further momentum, given
the revival of consumer spending. HUL‘s recent performance has not
been very impressive. However since the company has a huge
product line and has very good fundamentals, I would pick up the
stock.
iii. ITC Ltd.: During the past three fiscals, ITC’s consolidated revenue has
seen a CAGR of 22%. Its profit has grown at just 12% during the same
period.The return from this stock is quite impressive.
69
2. Finance/Banking
The Indian banking sector is well regulated and it one of the strongest in
the world. Some of the top picks in this sector would be .
i. Axis Bank: This bank has a CAGR of 36.61%. With a balance sheet
size of Rs.15 trillion, its key strengths have been its ability to grow
(Current and Savings account) CASA deposits and diversified fee
income. The Net Interest Margin (NIM) for the bank is expected to
remain over 3.4% due to higher CASA deposits, capital raising and the
benefit of deposits pricing/repayment.
ii. HDFC Bank: It has a CAGR of 24.62%. Its recently announced
quarterly results have been very impressive and moreover the bank’s
strong fundamentals is something to look out for.
iii. Bank of Baroda: It has a CAGR of 22.36%.
3. Auto
The auto sector has performed well in the recent times. I would invest in
the stocks of the following companies:
i. Hero Honda: It has a CAGR of 15.9%. The company has performed
very well in the recent time.
ii. Mahindra & Mahindra Ltd.: It has a CAGR of 18.32%. According to
financial experts the estimated growth in volume will be around
19.8% in FY 10 and the margin expansion would be at 13.5%.
4. Metal
This sector is one of the most promising sectors. The two chosen stocks from this
sector has the highest CAGR. Hence in my portfolio this sector will have a high
weightage.
i. JSW Steel Ltd.: It has a CAGR of 37.22%

ii. Steel Authority of India Ltd. (SAIL): It has a CAGR of 33.92%
70
5. Oil and Gas
i. Reliance Industries: It has a CAGR of 22.82%. The recent Ambani
brothers price war over gas price from KG Basin had raised some
confusion in the investors’ minds. However the company which has
the highest weightage in the BSE Sensex is a good pick. The company
is close to a nearly $6 billion overseas acquisition of petrochemicals
firm LyondellBasell. Since the company has a huge cash pile and is
comfortable with the leverage position, if the acquisition happens it
would not really burden its balance sheet.
6. Mid- cap companies
The mid caps have the ability to generate long term wealth. They have the
potential to perform better than large caps in the prolonged growth cycles.
Since the domestic economy has seen some stimulus packages and a high
growth is expected from it so more positive results are expected from these
companies. So as a long term investment, I can buy quite a number of
stocks in a few of this companies and wait till adequate capital
appreciation. However a constant watch on the company’s growth
trajectory has to be maintained. Some top picks would be:
i. Balaram Chini Mills Ltd.: This is one of the most operationally
efficient players backed by optimal integration and a strong
management team.
ii. Prakash Industries Ltd.: From the expanding capacities of sponge
iron and billets coupled with commissioning of iron ore the company
would substantially reduced costs and improved margins. Moreover,
its expansion of power capacities will bring assured revenues.
iii. Sterlite Technologies Ltd.: The company is a very good player with
strong management team, world class scale, cutting edge technology
and a comprehensive product profile. With capital expansion plans
in power and telecommunication infrastructure segments, the
company is sure to witness huge success.
71
iv. Great Eastern Shipping Co. Ltd.: The company has a great
management team, strong cash reserves and conservative
leveraging. Emergence of its offshore division will add to the value of
the company and its stock could see an upsurge.
The sectors where I would refrain from investing now but will take a stance in
the future:
1. Telecom
I believe the stance in this sector should be “wait and watch”. Huge number of
players in this market has made it extremely competitive. There is always a pricing
war raging in this industry. The per second billing concept introduced by some of
the player will greatly impact their revenue collection and customer base.
Moreover with the 3G auction the scenario could see some change. The telecom
stocks have fallen in the recent time the sector outlook remained weak after
disappointing quarterly results and a deepening price war.
2. Information Technology (IT)
This industry is export dependent. Hence it is easily affected by the global

movements. The rupee dollar movement has huge effect on the earnings of the
companies in this sector. The returns of two stocks in this industry are as follows:
i. Tata Consultancy Services Ltd. (TCS): It has a CAGR of (22.23%)
ii. Wipro Ltd.: It has a CAGR of 6.79%
Since the stocks are giving low returns and the global conditions have not revived
completely so for the time being I would not invest in this sector. However these
companies have strong fundamentals so on getting revival cues I shall invest in
them in the next 10 years according to the market situation.
3. Realty
The real estate sector is a highly sensitive sector hence very risky. In the recent
past most of the companies like in this sector DLF Ltd. and Unitech Ltd. have a
negative CAGR. This was mainly because of the global meltdown due to the
72
subprime crisis. However the economy is reviving so once this sector revives and
promises future growth, investment can be made in this sector either in form of
stocks in the company or by purchase of property. However I shall undertake such
a stance much later (say in the 7th or 8th year) depending on my financial situation
and my risk appetite.
B. MUTUAL FUNDS
I shall invest in Mutual Funds (MFs) right from the first year as these provide
diversification, liquidity and are well regulated. They give investors an array of
investment options in terms of investment in different asset class like securities,
physical assets, sector funds, index funds and exchange traded funds and funds
of funds. In my opinion the following investment in the securities funds suit my
risk and return appetite:
Equity Oriented Schemes: It provides capital appreciation over medium to

long-term by investing a major part of the corpus in equities.
Balanced Schemes: They provide both growth and regular income as they
invest in both equities and fixed income securities in a specific proportion.
Money Market Schemes: These give easy liquidity and preserves capital,
although it generates moderate income. They invest in safer short-term
instruments such as treasury bills, certificates of deposit, commercial
paper, inter-bank call money and government securities.
I would make the following investments in MFs:
1. Equity Linked Savings Schemes (ELSS): This provides deduction under

Section 80 C. Both the deposit and the return are tax free. There is a
minimum lock-in period for 3 years. ELSS gives an ideal opportunity to
invest in the stock market through MFs where the risk is comparatively
lower than direct investment in equity. The investment can be made in
some of the best performing ELSS like:
i) ICICI Prudential Tax Plan
ii) HDFC Tax Saver
iii) Sundaram Tax Saver
73
2. Systematic Investment Plan (SIP): Diversification of risk can be done
through this fund. I would allocate some funds every month to this fund.
Investment can be made in funds like HDFC MF SIP.
C. BONDS
Participation in the debt market is another effective way of investment.

Investments can be made in government securities (G- sec). Investments can be
made through funds like SBI DFHI Invest and SBI DFHI Trade for participation in
G-sec and corporate debt market.
D. GOLD
Investments can be made in gold coins or gold bars. We know that the price of
gold and stock market generally move in the opposite direction. Hence some
investment can be made in this yellow metal. Presently the price of 5g of Mudra
gold bar is hovering around Rs. 9000-10000. So I would wait for a while for the
prices to ease and would then invest in this precious metal in the next few years.
E. OTHERS INVESTMENTS
These investments are mainly aimed at reduce my tax burden by way of getting
deduction under Section 80 C.
1. Public Provident Fund (PPF): Maximum investment amount is Rs. 7o,ooo

with a maturity of 15 years at 8% interest. The entire deposit is tax free
under Section 80 C.
2. National Savings Certificate (NSC): Deposit under this is fully tax free under
Section 80 C. Only the sixth year’s return is taxable.
3. Bank Fixed Deposit (FD): Bank FDs provide initial tax benefit but interest is
taxable hence there is no terminal benefit.
4. Savings Bank Account: The interest on this account is generally lesser than
that of FDs. However different banks provide different rates of return on
FDs.
74
PLAN I (INCOME- Rs. 5LAKHS)
Heads Year 1 Year 2 Year 3 Year 4 Year 5
Annual Income 500,000 525,000 577,500 635,250 698,775
Less: Regular Expenses
Food & Stay 120,000 123,600 127,308 131,127 135,061

Yearly holiday & misc. 24,000 24,720 25,462 26,225 27,012
expenses
Balance 356,000 376,680 424,730 477,897 536,702

Less: Investments:
1.LIC Premium 15,000 15,000 15,000 15,000 15,000
2.MFs:
SIP 6,000 12,000 12,000 12,000 6,000
ELSS 24,000 36,000 40,000 45,000 5,000
3.Bank FD 50,000 20,000
4.Shares 25,000 55,000 85,000 100,000 80,000
5.Bonds 10,000
6.Gold 20,000 30,000
7. PPF 6,000 5,000 5,000 5,000
8.NSC 10,000 9,000 9,000 8,000
Balance (Savings 236,000 232,680 258,730 251,897 387,702
account)
75
Year 6 Year 7 Year 8 Year 9 Year 10
768,653 845,518 930,070 1,023,076 1,125,384
139,113 143,286 147,585 152,012 156,573

27,823 28,657 29,517 30,402 31,315
601,717 673,574 752,968 840,662 937,497
15,000 15,000 15,000 15,000 15,000
8,000 10,000 9,000 12,000 5,000

10,000 10,000 8,000 15,000 8,000
25,000 35,000 5,000
170,000 250,000 280,000 350,000 420,000
10,000 15,000
25,000 30,000 10,000 15,000 10,000
15,000 10,000 12,000 8,000 10,000
10,000 4,000 5,000 8,000 8,500
313,717 329,574 378,968 417,662 455,997
 Since all kinds of interests, capital gains and income from investments or
any other sources have not been shown so it has been assumed that the
variable balance in the savings account does not impact investor’s financial
soundness. If looked more intently, investor’s risk appetite for the stock market
has increased and assuming that investor’s have been getting good returns from
there, I have made increasing investments in the same. I have refrained from
purchasing real estate. However, in the later part of 10 years, my investments
for the plan proposed in shares can include subscription to such company’s
stocks.
76
 In case of family structure, it has been considered that owing to investor’s
marriage in the fifth year of the plan period, he has incurred some extra
expenses, which has been shown in Misc. expenses. Thereafter, any extra
expenses caused by the addition of family members have been added with misc.
expenses. The weightage of shares in each year’s investments will depend on
the price of the stock, risk-return profile of the stock, his financial conditions and
several other influencing factors.
PLAN II (INCOME- Rs. 12LAKHS)
Heads Year 1 Year 2 Year 3 Year 4 Year 5

Annual Income 1,200,000 1,260,000 1,386,000 1,524,600 1,677,060
Less: Regular Expenses
Food & Stay 430,000 442,900 456,187 469,873 483,969

Yearly holiday & misc. 24,000 24,720 25,462 26,225 27,012
expenses
Balance 746,000 792,380 904,351 1,028,502 1,166,079

Less: Investments:
1.LIC Premium 37,500 37,500 37,500 37,500 37,500
2.MFs:
SIP 6,000 12,000 12,000 12,000 6,000
ELSS 24,000 36,000 40,000 45,000 5,000
3.Bank FD 100,000 40,000
4.Shares 27,500 60,500 93,500 110,000 88,000
5.Bonds 10,000
6.Gold 40,000 60,000
7. PPF 23,000 20,000 20,000 20,000
8.NSC 20,000 18,000 18,000 16,000
Balance (Savings 551,000 593,380 683,351 706,002 933,579
account)
77
Year 6 Year 7 Year 8 Year 9 Year 10
1,844,766 2,029,243 2,232,167 2,455,384 2,700,922
498,488 513,442 528,846 544,711 561,052

27,823 28,657 29,517 30,402 31,315
1,318,456 1,487,143 1,673,804 1,880,270 2,108,555
37,500 37,500 37,500 37,500 37,500
8,000 10,000 9,000 12,000 5,000

10,000 10,000 8,000 15,000 8,000
50,000 70,000 10,000
187,000 275,000 308,000 385,000 462,000
10,000 15,000
50,000 60,000 22,000 32,000 12,000
45,000 18,000 30,000 26,000 20,000
20,000 8,000 10,000 16,000 17,000
900,956 1,053,643 1,179,304 1,356,770 1,537,055
 Since all kinds of interests, capital gains and income from investments or
any other sources have not been shown so it has been assumed that the
variable balance in the savings account does not impact investor’s financial
soundness. If looked more intently, investor’s risk appetite for the stock market
has increased and assuming that investor’s have been getting good returns from
there, I have made increasing investments in the same. I have refrained from
purchasing real estate. However, in the later part of 10 years, my investments
for the plan proposed in shares can include subscription to such company’s
stocks.
78
 In case of family structure, it has been considered that owing to investor’s
marriage in the fifth year of the plan period, he has incurred some extra
expenses, which has been shown in Misc. expenses. Thereafter, any extra
expenses caused by the addition of family members have been added with misc.
expenses. The weightage of shares in each year’s investments will depend on
the price of the stock, risk-return profile of the stock, his financial conditions and
several other influencing factors.
79
CONCLUSIONS
The three months summer internship project has been a learning experience for
me. My first on job experience at Reliance Life Insurance Company Limited will
always serve me as a guiding map for the rest of my career. My project was aimed
at promoting the investment decision being based on rational behavior and not
driven by sentiments. Their risk taking attitudes were analyzed with the help of a
questionnaire and specific portfolios customized to their risk appetite were
formulated.
In this process I have met a lot of investors and have got a brief idea about their
perceptions and attitude, indeed a real market exposure. My Summer Internship
Project at Reliance Life Insurance Company Limited, a perfect blend of corporate
and market exposure coupled with hands on experience will serve as an
important ingredient in my recipe of success in all future endeavors.
The process started with the collection of data base and customer profiling and
ended with the sales follow up. During this fourteen week I had been given to
analyze some behavioral pattern of investors having different income level. It was
seen that the preferred percentage of investment, Expected Return on
Investment and Preferred percentage of Risk Appetite are in direct proportion of
the income of the investor. Investors with a high income go for investments in
Real Estates, Paintings, gold and Equity and lower income investors prefer
investing in Banks and Post Office schemes.
80
RECOMMENDATIONS:
Don’t put all your eggs in one basket- This phrase means that one should not
focus all one's resources on one hope, possibility, or avenue of success as there is
a risk of losing everything all at one time
Higher income investors were investing less in safety stocks- This is because
their preferred percentage of investment, Expected Return on Investment and
Preferred percentage of Risk Appetite is high and they prefer investing in Real
Estates, Paintings, gold and Equity.
Invest during the down turn of market- When there's a market correction, we
can't help thinking about reallocating our investments to safer investments for
our asset management. If you're able to contribute to the downturns, you'll enjoy
stock market rallies even more. The contributions that you make during the
downturns can make future gains even more enjoyable
For lower income group boot strapping is a good alternative - Financial

bootstrapping is a term used to cover different methods for avoiding using the
financial resources of external investors. Bootstrapping can be defined as “a
collection of methods used to minimize the amount of outside debt and equity
financing needed from banks and investors.
81
LIMITATIONS OF THE STUDY:-
 The market volatility has to be incorporated in the study which might not
give accurate results
 There is a time constraint. Since it is a 14 weeks project
 It was not possible to gain access to certain information which might be
relevant and useful for such analysis
 There are many theories and models of such analysis and each have their
own assumptions and limitations, applicability of all cannot be examined
due to time constraint
 The data which will be collected from customers and dealers is through
questionnaires and is subject to response errors
 The data that will be collected is primary and secondary and have chances
of discrepancy
 Our observation is confined to some parts of West Bengal only
82
ANNEXURE:
QUESTIONNAIRE
Disclaimer: - The survey is conducted solely for the research work under the programme of
IBS Kolkata as a part of my project and as such the responses generated will be used
strictly for academic purpose.
. Kindly attach your visiting card
NAME: CONTACT NO:
1. What is your income per annum?
a) Less than 1.5 lakhs

b) 1.5 – 3 lakhs
c) 3 – 5 lakhs
d) 5 – 7 lakhs
e) 7 -10 lakhs
f) >10 lakhs
2. How many dependents you have in your family?
a. 0 b. 1 c. 2 d. 3 e. 4 f. 5 g. >5
3. What is your current age?
a) 30- 35 years b) 36-41 years c) 42-47 years d) 48-53 years e) 54-60 years f) above 60
4. Generally, what proportion of your income would you prefer to invest?
a. <10% b. 10% - <20% c. 20% - <30% d. 30% - <40% e. 40% - >40%
5. From investment, what amount of return do you expect?

a) 5 – 10% c) 16-25% e) 31-40%
b) 11 – 15% d) 26-30% f) more than 40%
83
6. Suppose you have Rs. 100, what is the maximum amount of loss you would like to bear at
the time of disinvestment?
a. Rs. 0 b. Rs. 10 c. Rs. 20 d. Rs. 30 e. Rs. 40 f. Rs. >40
7. What is your most preferable tool of investment?
In case of selecting more than one option as your answer, please indicate your preferences
by numbering them in order of your priority
Maximum priority -1, least priority -5
Forms of Investment 1 2 3 4 5
Real Estate
Equity
Derivatives
Mutual Funds
Government Bonds/Debentures/Guilt edged
securities
Corporate Bonds/debentures/Preference shares
Gold/Silver
Bank (FD, Savings, etc)
Post Office Scheme
Insurance
Public Provident Fund
Paintings & Antiques
8. What is the objective of your investment?

In case of selecting more than one option as your answer, please indicate your preferences
by numbering them in order of your priority
Reasons for Investment 1 2 3 4 5

Capital Appreciation
Tax Saving
Stability of Principal
Liquidity
Retirement Planning
Income Generation
84
9. If you prefer to invest in stock markets, which sector will you opt for preferably?
In case of selecting more than one option as your answer, please indicate your
preferences by numbering them in order of your priority
Sectors of Investment 1 2 3 4 5
Financial Institution/Banking sector
Pharmaceutical
FMCG
IT Sector
Entertainment
Textiles
Real Estate
Iron and Steel Industries
Power
Oil and Natural Gas
Metal
Cement
Auto & Ancillary
Telecommunication
10. What is your investment horizon?
a) Intra-day
b) Within a month
c) Within a quarter
d) Within a year
e) More than 1 year less than 3 year
f) More than 3 year less than 5 year
g) More than 5 year
85
11. Which factors influence your investment decisions?
Factors influencing your Investment Decision 1 2 3 4 5

Market Rating
Print media (including newspapers
like business standard, ET)
Television (including CNBC, NDTV

etc)
Reference Group (Friends/Relatives)

Websites from the internet
From the broker/fund manager
12. From which brokerage firm you like to transact?
a. ICICI DIRECT b. HDFC SECURITIES c. INDIA BULLS
d. SHAREKHAN e. MOTILAL OSWAL f. INDIA INFOLINE g. EDELWEISS
h. OTHERS (PLEASE SPECIFY)
13. What are the facilities you consider when you opt for a brokerage firm?
Facilities of a Brokerage Firm 1 2 3 4 5

Lower brokerage
Online Transaction Facility/ efficient server &
system
Close proximity to your residence
Market reputation
Good R & D input
14. What is your current occupation?

a) Service
b) Business
c) Independent profession
d) Vocation (where specific skills are required)
e) Senior Citizen
86
15. What type of mutual funds you invest in?
a. Liquid fund b. Index Fund c. Equity Fund d. Debt Fund

e. Hybrid Fund
16. In case of Mutual fund, you will go for-

a) Open ended fund
b) Close ended fund
c) Systematic investment plan
d) Fixed Maturity Plan(FMP)
e) Monthly Income Plan (MIP)
17. If you are investing in mutual fund, which companies fascinate you most?
a) Franklin Templeton
b) DSP –Merill Lynch
c) HDFC Mutual Fund
d) ICICI mutual fund
e) Others
18. What type of Insurance Policies you would like to invest in?
a. Endowment Plan b. Money Back Plan c. Whole Life Assurance Plan

d. ULIP Plan e. Term Assurance Plan f. Annuity Plan
19. In which company, you would like to go for Insurance?
a. Bajaj Allianz b. Bharati Axa Life c. Birla Sun Life d. HDFC Standard e. ICICI
Prudential f. Kotak Life g. Max New York Life h. Reliance Life i. SBI Life
j. Tata AIG Life k. Life Insurance Corporation of India
20.If you prefer to invest in FD, what is your time horizon for investment?
a) 1 yr b) 2 yr c) 3 yr d) 4 yr e) 5 yr
21.If you go for FD, you will select-

a) PSU banks
b) Private banks
c) Foreign banks
22. If you are planning a vacation trip to Goa in the peak season after two months, say
December. What would you choose out of the given options?
a) Make all the arrangements in December only.
87
b) Make travel arrangements well in advance & decide rest of the things on the
spot.
c) Make travel & Hotel arrangements well in advance & decide rest of the things
on the spot.
d) Make travel, hotel & local conveyance arrangements well in advance.
23. On Monday morning, you have an urgent meeting scheduled with an important
customer. But you are a little bit late today. You rush to local train station quickly but see
that the train has just started moving. What would you do?
a) Can't say
b) Leave the train & wait for next train, but you may get delayed
c) Leave the train & take a taxi, which also takes appx. same time to reach Head
Office (Costly with no assurance of reaching in time)
d) Catch the running train to reach in time
24. What would your reaction be if in 6 months after placing your investments, you
discover that, inline with what is happening in the financial markets generally; your
portfolio has decreased in value by 20%?
a) Horror. Security of your capital is critical and you did not intend to take risks.
b) You would cut your losses and transfer your money into more secure
investment sectors.
c) This was a calculated risk and you would leave the investments in place,
expecting performance to improve.
d)You would invest more funds to lower your average investment price, expecting
future growth.
25. Planning for your Children’s Future Plans:
Child name Goal Name Current Age Start age of Today’s cost Expected
of the child the goal of the goal growth of the
goal
88
26. Retirement Planning:
Description Annual Expenses

Current Annual Expenses
Expenses that will not be there
/ Decrease Post Retirement
Medical Expenses that will
increase Post Retirement
Travel Expense that will
Miscellaneous that will
Age at which Planned to
Retire
Number of years after
retirement Corpus to be used
Existing PF / PPF / Other
Investments Towards
Retirement
27. Family Security Planning:
Description Annual Expenses

Household Expenses
Personal + Car Loan
Medical Expenses
Investments/Insurance Commitments
Traveling Expenses
Systematic Investment Plan
Other Expenses
Existing Insurance Policy Coverage
89
REFERENCES:
 WEBSITES:-
www.google.com
www.investopedia.com
www.irdaindia.com
www.reliancelife.com
 COURSE MATERIAL:-
FUNDAMENTALS OF INVESTMENTS VALUATION AND MANAGEMENT
(CHARLES J. CORRADO)
INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT (PRASANNA
CHANDRA)
INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT MODULE
(NCFM)
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT- SIXTH EDITION
(DONALD E. FISCHER AND RONALD J. JORDON)
90

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A REPORT

PORTFOLIO MANAGEMENT OF ADVANCED AGED CITIZEN INCLUDING

RELIANCE LIFE INSURANCE COMPANY LIMITED

A report submitted in partial fulfillment of the requirements of MBA

PROF. SUJOY DHAR

Mr. ABHIJIT BHADRA

I hereby declare that the project “PORTFOLIO MANAGEMENT OF ADVANCED

The project is being submitted in partial fulfillment of the requirement of MBA

Enroll. No. 09BS0002750

Surpassing milestones towards a mission sometimes gives us such degree of

I express my sincere thanks to RELIANCE LIFE INSURANCE COMPANY LIMITED for

SERIAL CONTENTS PAGE NOS.

RELIANCE LIFE INSURANCE CO. LTD.

Few men in history have made as dramatic a contribution to their country’s

Mr. Dhirubhai Ambani is widely regarded as the father of India’s capital

Under Mr. Dhirubhai Ambani’s extraordinary vision and leadership, Reliance

Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC)

Reliance Capital sees immense potential in the rapidly growing financial

"This certification is a significant milestone in our continuous quest to offer

At Reliance Life Insurance, we strongly believe that as life is different at every

CORPORATE VISION AND MISSION

Empowering everyone live their dreams.

Create unmatched value for everyone through dependable, effective, transparent

 Emerge as transnational Life Insurer of global scale and standard

HOW THEY STACK UP

April – June Growth Total

 To understand the entire treasury management process at RLI and to build

 The objective is to understand the dynamics of the different instruments

 To give suggestions on the basis of analysis this can be beneficial to the

Study of the theories related to the portfolio risk and return

Understanding of different techniques used for selecting efficient portfolios

Collect data from primary and secondary sources (If available)

APPROACHES IN PORTFOLIO CONSTRUCTION

(I) TRADITIONAL APPROACH

It deals with two major decisions:

- DETERMINING THE OBJECTIVES OF THE PORTFOLIO

This is carried out in four to six steps:

(i) ANALYSIS OF CONSTRAINTS:

BOND AND BOND COMMON STOCK

ASSESSMENT OF RISK AND RETURN

- In the modern approach, Markowitz Model is used

PORTFOLIO – MARKOWITZ MODEL

Diversification and Portfolio Risk

Market Risk Total Risk

PROBLEMS OF VAST DIVERSIFICATION

- Purchase of poor performers

- The individual investor estimates risk on the basis of variability of

CALCULATION OF RISK AND RETURN

It is possible to develop a fairly simple decision rule for selecting an optimal

For example, if a portfolio‘s expected return is 13%, variance of return (risk

Risk penalty = 225%/50 = 4.5%

Utility = 13 – 4.5 = 8.5%

EFFICIENT FRONTIER WITH BORROWING AND LENDING

THE SHARPE INDEX MODEL

Developed on the assumption that the return of a security is linearly related to a

SINGLE INDEX MODEL

Ri = expected return on security ‘i'

Total Risk = Systematic Risk + Unsystematic Risk

Unsystematic Risk = Total variance – Systematic risk

SHARPE’S OPTIMAL PORTFOLIO

- A model for the selection of appropriate securities in a portfolio

CONSTRUCTION OF THE OPTIMAL PORTFOLIO

The percentage of funds to be invested in each security is estimated in the