Reformers Business School Indore

A Project Report On

Portf olio Management
Submitted to Submitted by
Prof. Sakheel Khan Choubey Deepak

ACKNOWLEDGEMENT
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Reformers Business School Indore
The present project report is submitted to REFORMERS BUSINESS SCHOOL, INDORE under BHARATI VIDYAPEETH UNIVERSITY, PUNE, (SDE) for partial fulfillment of Masters Degree in Business Administration (MBA). We being the student of REFORMERS BUSINESS SCHOOL convey our sincere thanks to Dean Mr. Manmeet Arora for providing all the facilities for making our project successful. We take a deep pleasure in thanking Prof. Shakheel Khan for all the move and educational support, which he gave throughout the year. We are having deep sense of guidance of our faculties for providing us the guidance for this project work, embarked upon planned and executed his sincere suggestion greatly in bringing out this work as its present shape.

NEED FOR SELECTING THE PROJECT

To get the overall knowledge of securities and investment.

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Reformers Business School Indore

To know how the investment made in different securities minimizes the risk and

maximizes the returns.  To get the knowledge of different factors that affects the investment decision of investors.  To know how different companies are managing their portfolio i.e. when and in

which sectors they are investing.

To know what is the need of appointing a Portfolio Manager and how does he

meets the needs of the various investors.   To get the knowledge about the role (played) and functions of portfolio manager. To get the knowledge of investment decision and asset allocation.

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Reformers Business School Indore

INDEX
SRNO. TOPICS PAGE NO
5-14 15-17 18-29 30-33

1.
2.

PORTFOLIO MANAGEMENT INTRODUCTION TYPES OF PORTFOLIO MANAGEMENT PORTFOLIO MANAGEMENT PROCESS RISK – RETURN ANALYSIS PORTFOLIO THEORIES PERSONS INVOLVED IN PORTFOLIO MANAGEMENT CONCLUSION BIBLOGRAPHY

3. 4. 5. 6.

34-41

42-45

46-47 48

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Reformers Business School Indore

CHAPTER: 1
PORTFOLIO MANAGEMENT INTRODUCTION
Stock exchange operations are peculiar in nature and most of the Investors feel insecure in managing their investment on the stock market because it is difficult for an individual to identify companies which have growth prospects for investment. Further due to volatile nature of the markets, it requires constant reshuffling of portfolios to capitalize on the growth opportunities. Even after identifying the growth oriented companies and their securities, the trading practices are also complicated, making it a difficult task for investors to trade in all the exchange and follow up on post trading formalities.

Investors choose to hold groups of securities rather than single security that offer the greater expected returns. They believe that a combination of securities held together will give a beneficial result if they are grouped in a manner to secure higher return after taking into consideration the risk element. That is why professional investment advice through portfolio management service can help the investors to make an intelligent and informed choice between alternative investments opportunities without the worry of post trading hassles.

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the SEBI has laid down certain guidelines for the proper and professional conduct of portfolio management services. Portfolio management or investment helps investors in effective and efficient management of their investment to achieve this goal. According to the definitions as contained in the above clauses. The idea is catching on with the boom in the capital market and an increasing number of people are inclined to make profits out of their hard-earned savings. 6 . 1993 and their functioning are guided by the SEBI. as the case may be. A merchant banker acting as a Portfolio Manager shall also be bound by the rules and regulations as applicable to the portfolio manager. The service can be rendered either by merchant bankers or portfolio managers or discretionary portfolio manager as define in clause (e) and (f) of Rule 2 of Securities and Exchange Board of India(Portfolio Managers)Rules. Portfolio management service is one of the merchant banking activities recognized by Securities and Exchange Board of India (SEBI). as well as in a number of western countries. The rapid growth of capital markets in India has opened up new investment avenues for investors. portfolio management service has assumed the role of a specialized service now a days and a number of professional merchant bankers compete aggressively to provide the best to high net worth clients. Realizing the importance of portfolio management services. advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client. This however requires financial expertise in selecting the right mix of securities in changing market conditions to get the best out of the stock market. As per guidelines only recognized merchant bankers registered with SEBI are authorized to offer these services.Reformers Business School Indore MEANING OF PORTFOLIO MANAGEMENT Portfolio management in common parlance refers to the selection of securities and their continuous shifting in the portfolio to optimize returns to suit the objectives of an investor. who have little time to manage their investments. a portfolio manager means any person who is pursuant to contract or arrangement with a client. In India.

2) YourDictionary. DEFINITIONS OF PORTFOLIO Investor’sWords. bank. But the need is to be able to effectively and efficiently manage investments in order to keep maximum returns with minimum risk.Reformers Business School Indore The stock markets have become attractive investment options for the common man.com A collection of investments (all) owned by the same individual or organization. Hence this is the study on “PORTFOLIO MANAGEMENT & INVESTMENT DECISION” so as to examine the role. which are investments in individual businesses. fixed interest securities or money-market instruments. which are investments in debt that are designed to earn interest. People may talk grandly of 'running a portfolio' when they own a couple of shares but the characteristic of a serious investment portfolio is diversity. etc. b) A list of such securities. 1) Financial Dictionary and WikiAnswers. process and merits of effective investment management and decision.brokers and investment advisers warn against 'putting all your eggs in one basket'.com A collection of various company shares. It should show a spread of investments to minimize risk . and mutual funds.com a) All the securities held for investment as by an individual. bonds. which are essentially pools of money from many investors that are invested by professionals or according to indices. investment company. These investments often include stocks. 7 .

Investors are generally charged higher initial fees and annual management fees for active portfolio management. An investor who prefers active portfolio management will choose managed funds which have the potential to outperform the market. including choosing and monitoring appropriate investments and allocating funds accordingly. Portfolio management strategies may be either active or passive.Reformers Business School Indore DEFINITIONS OF PORTFOLIO MANAGEMENT 1) Investor’swords. 8 . An investor who prefers passive portfolio management will likely choose to invest in low cost index funds with the goal of mirroring the market's performance. The ultimate goal of portfolio management is to achieve the optimum return for a given level of risk. 3) Financial Dictionary Managing a large single portfolio or being employed by its owner to do so. A fundamental aspect of portfolio management is choosing assets which are consistent with the portfolio holder's investment objectives and risk tolerance. Portfolio managers have the knowledge and skill which encourage people to put their investment decisions in the hands of a professional (for a fee).com The process of managing the assets of a mutual fund. Investors must balance risk and performance in making portfolio management decisions. 2) Investor Glossary Determining the mix of assets to hold in a portfolio is referred to as portfolio management.

spread resources appropriately and adjust projects to produce the highest departmental returns. must operate within the agreed upon limits to achieve the client's stated investment objectives. risks and other critical factors. costs. Also called as Enterprise Project management and PPM 9 . The manager. Executives can then regularly review entire portfolios. timelines. DEFINITIONS OF PROJECT PORTFOLIO MANAGEMENT 1) Internet. refers to a software package that enables corporate and business users to organize a series of projects into a single portfolio that will provide reports based on the various project objectives.com Project portfolio management organizes a series of projects into a single portfolio consisting of reports that capture project objectives.com Investment account arrangement in which an investment manager makes the buy-sell decisions without referring to the account owner (client) for every transaction. resources.Reformers Business School Indore DEFINITION OF DISCRETIONARY PORTFOLIO MANAGEMENT BusinessDictionary. however. accomplishments. usually management or executives within the company. resources. costs. risks and other pertinent associations.com – Webopedia PPM. short for project portfolio management. to review the portfolio which will assist in making key financial and business decisions for the projects. 2) Bitpipe. Project portfolio management software allows the user.

Pursuant to such arrangement he advises the client or undertakes on behalf of such client management or administration of portfolio of securities or invests or manages the client’s funds.Reformers Business School Indore MEANING OF PORTFOLIO MANAGERS Portfolio manager means any person who enters into a contract or arrangement with a client. 10 . He shall independently or individually manage the funds of each client in accordance with the needs of the client in a manner which does not resemble the mutual fund. A portfolio manager by virtue of his knowledge. exercise any degree of discretion in respect of the investment or management of portfolio of the portfolio securities or the funds of the client. A non discretionary portfolio manager shall manage the funds in accordance with the directions of the client. background and experience is expected to study the various avenues available for profitable investment and advise his client to enable the latter to maximize the return on his investment and at the same time safeguard the funds invested. A discretionary portfolio manager means a portfolio manager who exercises or may under a contract relating to portfolio management. as the case may be.

For most investors it is not possible to choose between managing one’s own portfolio. In choosing among different investment opportunities the following aspects risk management should be considered: a) The selection of a level or risk and return that reflects the investor’s tolerance for risk and desire for return.Reformers Business School Indore SCOPE OF PORTFOLIO MANAGEMENT: Portfolio management is an art of putting money in fairly safe.e. quite profitable and reasonably in liquid form. The last choice goes to investment in company shares and debentures. An investor has to choose a portfolio according to his preferences. The very risk-averse investor might choose to invest in mutual funds. There are number of choices and decisions to be taken on the basis of the attributes of risk. if they offer higher returns. The next preference goes to short term investments such as UTI units and post office deposits which provide easy liquidity. The first preference normally goes to the necessities and comforts like purchasing a house or domestic appliances. His second preference goes to some contractual obligations such as life insurance or provident funds. The third preference goes to make a provision for savings required for making day to day payments. An investor’s attempt to find the best combination of risk and return is the first and usually the foremost goal. They can hire a professional manager to do it. i. 11 . The final decision is taken on the basis of alternatives. active portfolio management. The more risk-tolerant investor might choose shares. liquid securities and performance of duties associated with keeping track of investor’s money. personal preferences. b) The management of investment alternatives to expand the set of opportunities available at the investors acceptable risk level. attributes and investor preferences. return and tax benefits from these shares and debentures. Portfolio management in India is still in its infancy. The professional managers provide a variety of services including diversification.

The modern view of investment is oriented more go towards the assembly of proper combination of individual securities to form investment portfolio. preferences for risk and returns and tax liability. Diversification can be made by the investor either by having a large number of shares of companies in different regions. Modern theory believes in the perspective of combination of securities under constraints of risk and returns. constraints. Portfolio theory concerns itself with the principles governing such allocation. 12 . It is a dynamic and flexible concept and involves regular and systematic analysis. Portfolio construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. A combination of securities held together will give a beneficial result if they grouped in a manner to secure higher returns after taking into consideration the risk elements. judgment and action. The evaluation of portfolio is to be done in terms of targets set for risk and returns. It involves construction of a portfolio based upon the investor’s objectives. The objective of this service is to help the unknown and investors with the expertise of professionals in investment portfolio management. The modern theory is the view that by diversification risk can be reduced.Reformers Business School Indore NEED FOR PORTFOLIO MANAGEMENT: Portfolio management is a process encompassing many activities of investment in assets and securities. The portfolio is reviewed and adjusted from time to time in tune with the market conditions. The changes in the portfolio are to be effected to meet the changing condition. in different industries or those producing different types of product lines.

5) Liquidity i. 4) Marketability: i. yield can be effectively improved. 7) Favorable Tax Status: The effective yield an investor gets form his investment depends on tax to which it is subject. This is essential for providing flexibility to investment portfolio.Reformers Business School Indore OBJECTIVES OF PORTFOLIO MANAGEMENT: The major objectives of portfolio management are summarized as below:- 1) Security/Safety of Prinicpal: Security not only involves keeping the principal sum intact but also keeping intact its purchasing power intact. 13 . 3) Capital Growth: This can be attained by reinvesting in growth securities or through purchase of growth securities. 6) Diversification: The basic objective of building a portfolio is to reduce risk of loss of capital and / or income by investing in various types of securities and over a wide range of industries. By minimizing the tax burden.e. is the case with which a security can be bought or sold. 2) Stability of Income: So as to facilitate planning more accurately and systematically the reinvestment consumption of income.e Nearness To Money: It is desirable to investor so as to take advantage of attractive opportunities upcoming in the market.

financial and and monetary policies of the Govt. Prospect in terms of prospective technological changes. b) Industrial economic environment and impact industry. Effective investment planning for the investment in securities by considering the following factors- a) Fiscal. competition in the market. c) To analyze the security market and its trend in continuous basis to arrive at a conclusion as to whether the securities already in possession should be disinvested and new securities be purchased. 14 . Constant Review of Investment: It requires to review the investment in securities and to continue the selling and purchasing of investment in more profitable manner.Reformers Business School Indore BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT: There are two basic principles for effective portfolio management which are given below:I. If so the timing for investment or dis-investment is also revealed. capacity utilization with industry and demand prospects etc. b) To assess the financial and trend analysis of companies Balance Sheet and Profit and Loss Accounts to identify the optimum capital structure and better performance for the purpose of withholding the investment from poor companies. For this purpose they have to carry the following analysis: a) To assess the quality of the management of the companies in which investment has been made or proposed to be made. its of India on and the Reserve Bank of India. II.

Reformers Business School Indore CHAPTER – 2 TYPES OF PORTFOLIO MANAGEMENT There are various types of portfolio management:  Investment Management  It Portfolio Management  Project Portfolio Management 1. to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies. mutual funds or Exchange Traded Funds). real estate). pension funds.g. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking".g.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e. INVESMENT MANAGEMENT: Investment management is the professional management of various securities (shares. bonds etc..) and assets (e.(not necessarily) whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. The term asset management is often used to refer to the investment management of collective investments. corporations etc. 15 .

Reformers Business School Indore Fund manager (or investment adviser in the U.S.) refers to both a firm that provides investment management services and an individual who directs fund management decisions. 16 .

projects. The concept is analogous to financial portfolio management. a balanced scorecard approach). users’ familiarity with the 17 . Examples of IT portfolios would be planned initiatives. Additionally. and ongoing IT services (such as application support).Reformers Business School Indore IT PORTFOLIO MANAGEMENT: IT portfolio management is the application of systematic management to large classes of items managed by enterprise Information Technology (IT) capabilities. like stocks and bonds (although investment portfolios may also include illiquid assets). The comparison can be based upon the level of contribution in terms of IT investment’s profitability. IT Portfolio management is accomplished through the creation of two portfolios: (i) Application Portfolio . At its most mature.Management of this portfolio focuses on comparing spending on established systems based upon their relative value to the organization. this comparison can also be based upon the non-tangible factors such as organizations’ level of experience with a certain technology. a purely financial view is not sufficient. and are measured using both financial and non-financial yardsticks (for example. but there are significant differences. The promise of IT portfolio management is the quantification of previously mysterious IT efforts. IT investments are not liquid. enabling measurement and objective evaluation of investment scenarios.

resources. In practice. or operations. the management of these two systems is often found to be quite different. and as such requires the development of distinct technical skills and the adoption of separate management. Executives can then regularly review entire portfolios.This type of portfolio management specially address the issues with spending on the development of innovative capabilities in terms of potential ROI and reducing investment overlaps in situations where reorganization or acquisition occurs. spread resources appropriately and adjust projects to produce the highest departmental returns.Reformers Business School Indore applications and infrastructure. 2. organizing and managing resources to bring about the successful completion of specific project goals and objectives. suitability of resulting solution and the relative value of new investments to replace these projects. maintenance savings. This finite characteristic of projects stands in contrast to processes. (ii) Project Portfolio . A project is a finite endeavor (having specific start and completion dates) undertaken to create a unique product or service which brings about beneficial change or added value. 18 . PROJECT PORTFOLIO MANAGEMENT: Project portfolio management organizes a series of projects into a single portfolio consisting of reports that capture project objectives. risks and other critical factors. accomplishments. and external forces such as emergence of new technologies and obsolesce of old ones. timelines. Project management is the discipline of planning. which are permanent or semi-permanent functional work to repetitively produce the same product or service. The management issues with the second type of portfolio management can be judged in terms of data cleanliness. costs.

b) They have to decide the major weights. allocation of investment and also identifying the classes of assets for the purpose of investment. With higher risk higher return may be expected and vice versa. c) Finally they select the security within the asset classes as identify. It is well known fact that portfolio manager balances the risk and return in a portfolio investment. (B) INVESTMENT DECISION: Given a certain sum of funds. proportion of different assets in the portfolio by taking in to consideration the related risk factors. the investment decisions basically depend upon the following factors:I.Reformers Business School Indore CHAPTER: 3 PORTFOLIO MANAGEMENT PROCESS: (A) THERE ARE THREE MAJOR ACTIVITIES INVOLVED IN AN EFFICIENT PORTFOLIO MANAGEMENT WHICH ARE AS FOLLOWS:a) Identification of assets or securities. Objectives of Investment Portfolio: This is a crucial point which a Finance Manager must 19 . The above activities are directed to achieve the sole purpose of maximizing return and minimizing risk on investment.

convertible bond. There can be many objectives of making an investment. Govt. c) If the investment is decided in shares or debentures. The manager of a provident fund portfolio has to look for security and may be satisfied with none too high a return. where as an aggressive investment company be willing to take high risk in order to have high capital appreciation. where as the ordinary unit are meant to provide a steady return only. The investment manager under both the scheme will invest the money of the Trust in different kinds of shares and securities. then the industries showing a potential in growth should be taken in first line. debentures. capital units etc. Industry-wise-analysis is important since various industries are not at the same level from the investment point of view. a particular industry may have a 20 . the next decision is to decide the kind of investment to be selected.Reformers Business School Indore consider. So it is obvious that the objectives must be clearly defined before an investment decision is taken. Equity shares. b) What should be the proportion of investment in fixed interest dividend securities and variable dividend bearing securities? The fixed one ensures a definite return and thus a lower risk but the return is usually not as higher as that from the variable dividend bearing shares.e. securities and bond. Out of these what types of securities to be purchased. II. The decision what to buy has to be seen in the context of the following:- a) There is a wide variety of investments available in market i. Selection of Investment: Having defined the objectives of the investment. preference share. It is important to recognize that at a particular point of time. How the objectives can affect in investment decision can be seen from the fact that the Unit Trust of India has two major schemes : Its “capital units” are meant for those who wish to have a good capital appreciation and a moderate return.

the next step is to select the particular companies. in whose shares or securities investments are to be made.Reformers Business School Indore better growth potential than other industries. For example. there was a time when jute industry was in great favour because of its growth potential and high profitability. the industry is no longer at this point of time as a growth oriented industry. 21 . d) Once industries with high growth potential have been identified.

he would assess the various factors which influence the value of a particular share. In this. both qualitative and quantitative factors are to be considered. The Reserve Bank of India index numbers of security prices published every month in its bulletin may be taken to represent the behaviour of share prices of various industries in the last few years. The related changes in the price index of each industry as compared with the changes in the average price index of the shares of all industries would show those industries which are having a higher growth potential in the past few years. It may be noted that an Industry may not be remaining a growth Industry for all the time. The major objective of the analysis is to determine the relative quality and the quantity of the security and to decide whether or not is security is good at current markets prices. They are: a) Statistical Analysis of Past Performance: A statistical analysis of the immediate past performance of the share price indices of various industries and changes there in related to the general price index of shares of all industries should be made.Reformers Business School Indore FUNDAMENTAL ANALYSIS: (A) FUNDAMENTAL ANALYSIS OF GROWTH ORIENTED COMPANIES: One of the first decisions that an investment manager faces is to identify the industries which have a high growth potential. This approach is known as the intrinsic value approach. Two approaches are suggested in this regard. So he shall now have to make an assessment of the various Industries keeping in view the present potentiality also to finalize the list of Industries in which he will try to spread his investment. These factors generally relate to the strengths and weaknesses of the company under consideration. b) Assessing the Intrinsic Value of an Industry/Company: After an investment manager has identified statistically the industries in the share of which the investors show interest. 22 . Characteristics of the industry within which the company fails and the national and international economic scene. It is the job of the investment manager to examine and weigh the various factors and judge the quality of the share or the security under consideration.

Reformers Business School Indore (B) INDUSTRY ANALYSIS First of all. As we have discussed earlier. The management expert identifies fives stages in the life of an industry. etc. The following factors may particularly be kept in mind while assessing to factors relating to an industry. maturity and decline”. These are “Introduction. (i) Demand and Supply Pattern for the Industries Products and Its Growth Potential: The main important aspect is to see the likely demand of the products of the industry and the gap between demand and supply. In order to know the future volume and the value of the output in the next ten years or so. rapid growth. If an industry has already reached the maturity or decline stage. development. an assessment will have to be made regarding all the conditions and factors relating to demand of the particular product. an appraisal of the particular industry’s prospect is essential and the basic profitability of any company is dependent upon the economic prospect of the industry to which it belongs. the investment manager will have to rely on the various demand forecasts made by various agencies like the planning commission. its future demand potential is not likely to be high. 23 . Chambers of Commerce and institutions like NCAER. cost structure of the industry and other economic and Government constraints on the same. This would reflect the future growth prospects of the industry.

Such fluctuations in earnings must be carefully examined. Once the industry’s characteristics have been analyzed and certain industries with growth potential identified. 24 . The other point to be considered is the ratio analysis. (iii) Particular Characteristics of the Industry: Each industry has its own characteristics. see whether the industry under analysis has been maintaining a cordial relationship between labour and management. (iv) Labour Management Relations in the Industry: The state of labour-management relationship in the particular industry also has a great deal of influence on the future profitability of the industry. Because the industry having a fast changing technology become obsolete at a faster rate. many industries are characterized by high rate of profits and losses in alternate years. The investment manager should.Reformers Business School Indore (ii) Profitability: It is a vital consideration for the investors as profit is the measure of performance and a source of earning for him. In India there are many industries which have a growth potential on account of good demand position. which must be studied in depth in order to understand their impact on the working of the industry. gross profit and net profit ratio of the existing companies in the industry. Similarly. therefore. This would give him an idea about the profitability of the industry as a whole. especially return on investment. So the cost structure of the industry as related to its sale price is an important consideration. the next stage would be to undertake and analyze all the factors which show the desirability of various companies within an industry group from investment point of view.

proposed expansion and diversification plans and the nature of the company’s technology. However. Theoretically. relevant information must be collected and properly analyzed. this ratio should be same for two companies with similar features. 25 . would help the investment manager in assessing the risk associated with the company. An illustrative list of factors which help the analyst in taking the investment decision is given below. The following three growth indicators may be particularly looked in to (a) Price earnings ratio. However. in particular. Before purchasing the shares of the company. An evaluation of future growth prospects of the company should be carefully made. Hence. 2) Growth Record: The growth in sales. the net profits. the investment manager has to visualize the performance of the company in future by analyzing its past performance.Reformers Business School Indore (C) COMPANY ANALYSIS: To select a company for investment purpose a number of qualitative factors have to be seen. Hence. 1) Size and Ranking: A rough idea regarding the size and ranking of the company within the economy. net capital employed and earnings per share of the company in the past few years must be examined. The price earnings ratio is an important indicator for the investment manager since it shows the number the times the earnings per share are covered by the market price of a share. in general. (b) Percentage growth rate of earnings per annum and (c) Percentage growth rate of net block of the company. net income. by a comparison of this ratio pertaining to different companies the investment manager can have an idea about the image of the company and can determine whether the share is under-priced or over-priced. this is not so in practice due to many factors. research and development activity and price leadership. it must be emphasized that the past performance and information is relevant only to the extent it indicates the future trends. This requires the analysis of the existing capacities and their utilization. In this regard the net capital employed. It may also be useful to assess the position of the company in terms of technical knowhow. the return on investment and the sales volume of the company under consideration may be compared with similar data of other company in the same industry group. and the industry.

price earnings ratios. book value and the intrinsic value of the share. the profitability. A company may have a good record of profits and performance in the past. capital turnover ratio and the cost structure ratios may also be worked out. The plans of the company. Various other ratios to measure profitability. debt equity 26 . the operating efficiency and operating leverages of the company. yield. Growth is the single most important factor in company analysis for the purpose of investment management. the possibility of its product being superseded of the possibility of emergence of more effective method of manufacturing. (D) FINANCIAL ANALYSIS: An analysis of financial for the past few years would help the investment manager in understanding the financial solvency and liquidity. the most important figures are earnings per share. can be known from the directors reports the chairman’s statements and from the future capital commitments as shown by way of notes in the balance sheets. its shares cannot be rated high from the investment point of view. The yield and the asset backing of a share are important considerations in a decision regarding whether the particular market price of the share is proper or not. To examine the financial solvency or liquidity of the company. in terms of expansion or diversification. the investment manager may work out current ratio. The return on owner’s investment. From the investment point of view. the efficiency with which the funds are used. The nature of technology of a company should be seen with reference to technological developments in the concerned fields.Reformers Business School Indore The existing capacity utilization levels can be known from the quantitative information given in the published profit and loss accounts of the company. The five elements may be calculated for the past ten years or so and compared with similar ratios computed from the financial accounts of other companies in the industry and with the average ratios of the industry as a whole. For this purpose certain fundamental ratios have to be calculated. liquidity ratio. operating efficiency and turnover efficiency of the company may also be calculated. but if it does not have growth potential.

The policy of the management regarding relationship with the share holders is an important factor since certain business houses believe in generous dividend and bonus distributions while others are rather conservative. (iii) Pattern of Existing Stock Holding: An analysis of the pattern of the existing stock holdings of the company would also be relevant. the residual company proposed a scheme whereby those shareholders. (ii) Location and labour management relations: The locations of the company’s manufacturing facilities determine its economic viability which depends on the availability of crucial inputs like power. These ratios will provide an overall view of the company to the investment analyst. He can analyze its strengths and weakness and see whether it is worth the risk or not.C. An interesting case in this regard is that of the Punjab National Bank in which the L. In the past few years. etc. skilled labour and raw materials etc. Nearness to market is also a factor to be considered. Quality of management has to be seen with reference to the experience. This would show the stake of various parties associated with the company.Reformers Business School Indore ratio. etc. and other financial institutions had substantial holdings. the investment manager has begun looking into the state of labour management relations in the company under consideration and the area where it is located. could receive a certain amount as compensation in cash. skill and integrity of the persons at the helm of the affairs of the company. (i) Quality of Management: This is an intangible factor. 27 . dividend and financial performance record of other companies in the same group. Every investment manager knows that the shares of certain business houses command a higher premium than those of similar companies managed by other business houses. its policy vis-à-vis its relationship with the investors. This is perhaps the reason that an investment manager always gives a close look to the management of the company whose shares he is to invest. Yet it has a very important bearing on the value of the shares. When the bank was nationalized. the confidence that the investors have in a particular business house. who wish to opt out. This is because of the quality of management.I.

In this regard. It included an analysis of the macro economic and political factors which will have an impact on the performance of the firm. After having analyzed all the relevant information about the company and its relative strength vis-à-vis other firm in the industry. Mere listing of the share on the stock exchange does not automatically mean that the share can be sold or purchased at will. the particular stock exchange where it is traded and the volume of trading. who wish to opt out of the company. 28 . was raised considerably. Fundamental analysis thus is basically an examination of the economics and financial aspects of a company with the aim of estimating future earnings and dividend prospect. To purchase or sell such scripts is a difficult task.Reformers Business School Indore It was only at the instant and bargaining strength of institutional investors that the compensation offered to the shareholders. (iv) Marketability of the Shares: Another important consideration for an investment manager is the marketability of the shares of the company. the investor is expected to decide whether he should buy or sell the securities. dispersal of share holding with special reference to the extent of public holding should be seen. The other relevant factors are the speculative interest in the particular scrip. There are many shares which remain inactive for long periods with no transactions being affected.

The appropriate ‘stock-bond’ mix depends mainly on the risk tolerance and investment horizon of the investor. and safety of principle. he should buy cheap and sell dear. When the prices are rising in the market i. 29 . In short we can conclude by saying that Investment management is a complex activity which may be broken down into the following steps: 1) Specification Of Investment Objectives And Constraints: The typical objectives sought by investors are current income. The decision regarding timing of purchases is particularly difficult because of certain psychological factors. The ordinary investor regretted such situation by thinking why he did not sell his shares in previous day and ultimately sell at a lower price. specially shares is of crucial importance.e. i. this is concerned with the proportions of ‘stocks’ (equity shares and units/shares of equity-oriented mutual funds) and ‘bonds’ in the portfolio. This kind of investment decision is entirely devoid of any sense of timing. time horizon. The relative importance of these objectives should be specified further the constraints arising from liquidity. tax and special circumstances must be identified. But in practical it is a difficult task. capital appreciation. Later when the bear face starts. everybody joins in buying without any delay because every day the prices touch a new high. It is obvious that if a person wishes to make any gains. 2) Choice Of The Asset Mix : The most important decision in portfolio management is the asset mix decision very broadly.e. prices tumble down every day and everybody starts counting the losses. there is bull phase. because after correctly identifying the companies one may lose money if the timing is bad due to wide fluctuation in the price of shares of that companies. buy when the share are selling at a low price and sell when they are at a higher price.Reformers Business School Indore (C) TIMING OF PURCHASES:- The timing of dealings in the securities.

 Review and monitoring of the performance of the portfolio. profit & loss a/c (account) of the company.  Finally the evaluation of the portfolio Technique’s Of Portfolio Management: As of now the under noted technique of portfolio management: are in vogue in our country. Political stability etc.Reformers Business School Indore ELEMENTS OF PORTFOLIO MANAGEMENT: Portfolio management is on-going process involving the following basic tasks:  Identification of the investor’s objectives. constraints and preferences. Among the external factor are changes in the government policies. 1) Equity Portfolio: It is influenced by internal and external factors the internal factors affect the inner working of the company’s growth plans are analyzed with referenced to Balance sheet. Trade cycle’s. 2) Equity Stock Analysis: Under this method the probable future value of a share of a company is determined it can be done by ratio’s of earning per share of the company and price earnings ratio EARNING PER SHARE = _ PROFIT AFTER TAX__ NO. Strategies are to be developed and implemented in tune with investment policy  formulated. OF EQUITY SHARES 30 .

net worth. competition within. 1) Nature of the industry and its product: Long term trends of industries. sensitivity. The following points must be considered by portfolio managers while analyzing the securities. Stock market operation can be analyzed by: a) b) Fundamental approach: . labour relations. dividends. 3) Ratio analysis: Ratios such as debt equity ratio. etc. 2) Industrial analysis of prospective earnings. Random Walk Theory.Based on intrinsic value of shares. returns on investment. Technical changes. are worked out to decide the portfolio. dividend policy. Price Earnings ratio indicate a confidence of market about the company future. to Trade cycle. 31 . and quality of management.Based on Dow Jone’s Theory. cash flows. etc. current ratio. working capital. Technical approach: . The wise principle of portfolio management suggests that “Buy when the market is low or BEARISH. which reflects trends of earning quality of company. profit earnings ratio.Reformers Business School Indore PRICE EARNING RATIO = _MARKET PRICE (PER SHARE)_ EARNING PER SHARE One can estimate trend of earning by EPS. a high rating is preferable. and sell when the market is rising or BULLISH”. and outside the industry.

The expected return depends on the probability of the returns and their weighted contribution to the risk of the portfolio. but the risk and return of the portfolio as a whole. etc. because as to spread risk by not putting all eggs in one basket. high illiquidity. what really matters to them is not the risk and return of stocks in isolation. Risk on the portfolio is different from the risk on individual securities. long term securities show greater variability in the price with respect to interest rate changes than short term securities. Risk of the individual assets or a portfolio is measured by the variance of its return. The risk is reflected in the variability of the returns from zero to infinity. Hence. price of the security tends to move inversely with change in rate of interest. Diversification reduces risk and volatility.Reformers Business School Indore Prices are based upon demand and supply of the market.    Objectives are maximization of wealth and minimization of risk. Risk is mainly reduced by Diversification. Following are the some of the types of Risk: 1) Interest Rate Risk: This arises due to the variability in the interest rates from time to time. Most investors invest in a portfolio of assets.4 RISK – RETURN ANALYSIS RISK ON PORTFOLIO : The expected returns from individual securities carry some degree of risk.e. 32 . These are two measures of risk in this context one is the absolute deviation and other standard deviation. CHAPTER . Variable returns. A change in the interest rate establishes an inverse relationship in the price of the security i.

3) Business Risk: Business risk emanates from sale and purchase of securities affected by business cycles. 33 . Nominal return contains both the real return component and an inflation premium in a transaction involving risk of the above type to compensate for inflation over an investment holding period. More vulnerable to interest rate risk.Reformers Business School Indore Interest rate risk vulnerability for different securities is as under: TYPES Cash Equivalent Long Term Bonds RISK EXTENT Less vulnerable to interest rate risk. It is not desirable to invest in such securities during inflationary periods. technological changes etc. there is cheerful movement in boom due to bullish trend in stock prices whereas bearish trend in depression brings down fall in the prices of all types of securities during depression due to decline in their market price. Purchasing power risk is however. 2) Purchasing Power Risk: It is also known as inflation risk also emanates from the very fact that inflation affects the purchasing power adversely. Inflation rates vary over time and investors are caught unaware when rate of inflation changes unexpectedly causing erosion in the value of realized rate of return and expected return. Business cycles affect all types of securities i. It is also known as leveraged risk and expressed in terms of debt-equity ratio. 4) Financial Risk: It arises due to changes in the capital structure of the company. less in flexible income securities like equity shares or common stock where rise in dividend income off-sets increase in the rate of inflation and provides advantage of capital gains. Purchasing power risk is more in inflationary conditions especially in respect of bonds and fixed income securities. Excess of risk vis-à-vis equity in the capital structure indicates that the company is highly geared.e.

these risks arise out of variability of yields and uncertainty of appreciation or depreciation of share prices. divided by the purchase price of the share. The unsystematic risk stems from inefficiency magnitude of those factors different form one company to another. defective marketing etc. The risk is known as leveraged or financial risk of which investors should be aware and portfolio managers should be very careful. raw material availability.Reformers Business School Indore Although a leveraged company’s earnings per share are more but dependence on borrowings exposes it to risk of winding up for its inability to honor its commitments towards lender or creditors. 6) Unsystematic Risks: The unsystematic risks are mismanagement. wrong financial policy. inflation risk. RISK RETURN ANALYSIS: All investment has some risk. losses of liquidity etc The risk over time can be represented by the variance of the returns while the return over time is capital appreciation plus payout. It is managed by the use of Beta of different company shares. 34 . Investment in shares of companies has its own risk or uncertainty. 5) Systematic Risk or Market Related Risk: Systematic risks affected from the entire market are (the problems. tax policy or government policy. interest risk and financial risk). this is diversifiable or avoidable because it is possible to eliminate or diversify away this component of risk to a considerable extent by investing in a large portfolio of securities. increasing inventory.

with weights representing the proportions share of the security in the total investment. RETURNS ON PORTFOLIO: Each security in a portfolio contributes return in the proportion of its investments in security. it is according to the modern approach diversification should not be quantity that should be related to the quality of scripts which leads to quality of portfolio. There is. but are rewarded by the total return on the capital. This risk less return refers to lack of variability of return and no uncertainty in the repayment or capital. rate charged by the R.. Why does an investor have so many securities in his portfolio? If the security ABC 35 . however.I or long term. Experience has shown that beyond the certain securities by adding more securities expensive. Risk-return is subject to variation and the objectives of the portfolio manager are to reduce that variability and thus reduce the risk by choosing an appropriate portfolio. Traditional approach advocates that one security holds the better. the higher is the return.B. Thus the portfolio expected return is the weighted average of the expected return. a risk less return on capital of about 12% which is the bank. from each of the securities. But other risks such as loss of liquidity due to parting with money etc.Reformers Business School Indore Normally. yielded on government securities at around 13% to 14%. the higher the risk that the investor takes. may however remain.

his objectives of income. would all be described under the caption of diversification. 36 . this pattern of investment in different asset categories. appreciation. which aims at the reduction or even elimination of non-systematic risks and achieve the specific objectives of investors. liquidity and hedge against loss of value of money etc..Reformers Business School Indore gives the maximum return why not he invests in that security all his funds and thus maximize return? The answer to this questions lie in the investor’s perception of risk attached to investments. safety. types of investment. etc.

S. Dow. 1) Primary Movements: They reflect the trend of the stock market and last from one year to three years. P3 P2 P1 T2 T1 Graph 1 T3 37 . These phases are known as bull and bear phases. Daily Fluctuations. ideas have been expanded and articulated by many of his successors. The Dow Jones theory classifies the movement of the prices on the share market into three major categories: 1. The theory derives its name from Charles H. 2. Primary Movements.A. If the long range behavior of market prices is seen. and was the first editor of the Wall Street Journal – a leading publication on financial and economic matters in the U. or sometimes even more. it will be observed that the share markets go through definite phases where the prices are consistently rising or falling. Although Dow never gave a proper shape to the theory. DOW JONES THEORY: The DOW JONES THEORY is probably the most popular theory regarding the behavior of stock market prices. Secondary Movements and 3. who established the Dow Jones & Co.Reformers Business School Indore CHAPTER: 5 PORTFOLIO THEORIES I.

the basic trend is that of rising prices. the rise is not much as to take the prices higher than the previous peak. the basic trend is that of rise in prices. The theory argues that primary movements indicate basic trends in the market. This 38 . the bear phase in bound to start i. there is a rise in prices. each peak that the prices reach is on a higher level than the earlier one. It states that if cyclical swings of stock market prices indices are successively higher. Similarly. Graph 1 above shows the behavior of stock market prices in bull phase. It would be seen that prices are not falling consistently and. As a result. the market is on a downward trend and we are in bear market. This means that prices do not rise consistently even in a bull phase. As can be seen from the graph that each trough prices reach. They rise for some time and after each rise. On the contrary. they fall.. However. if successive highs and low are successively lower. Graph 2 shows the typical behavior of prices on the stock exchange in the case of a P3 P2 T1 T2 T3 P1 Graph 2 Bear phase. It means that each peak and trough is now lower than the previous peak and trough. Thus P2 is higher than P1 and T2 is higher than T1.e. price will start falling. is at a higher level than the earlier one.Reformers Business School Indore During a bull phase. However. the market trend is up and there is a bull market. You would notice from the graph that although the prices fall after each rise. prices reach higher levels with each rise. after each fall. the falls are of a lower magnitude then earlier. Once the prices have risen very high.

Timing of investment decisions on the basis of Dow Jones Theory: Ideally speaking the investment manage would like to purchase shares at a time when they have reached the lowest trough and sell them at a time when they reach the highest peak. there is upward movement of prices also. These fluctuations are without any definite trend. he has to time his decision in such a manner that he buys the shares when they are on the rise and sells then when they are 39 . Even the most astute investment manager can never know when the highest peak or the lowest through have been reached. Such a temptation is always very attractive but must always be resisted. It may be reiterated that anyone who tries to gain from short run fluctuations in the stock market. even where the primary trend is downward. Thus is the daily share market price index for a few months are plotted on the graph it will show both upward and downward fluctuations. Therefore. He is not a speculator and should always resist the temptation of speculating. These fluctuations are the result of speculative factor. The investment manager should scrupulously keep away from the daily fluctuations of the market. 2) Secondary Movements: We have seen that even when the primary trend is upward. However. These movements are known as secondary movements and are shorter in duration and are opposite in direction to the primary movements. in practice. Speculation is beyond the scope of the job of an investment manager. there are also downward movements of prices. this seldom happens. can make money only be sheer chance.Reformers Business School Indore theory thus relies upon a behavior of the indices of share market prices in perceiving the trend in the market. 3) Daily Movements: There are irregular fluctuations which occur every day in the market. An investment manger really is not interested in the short run fluctuations in share prices since he is not a speculator. These movements normally last from three weeks to three months and retrace 1/3 to 2/3 of the previous advance in a bull market of previous fall in the bear market. Similarly.

40 to Rs. the market will be efficient and prices will fluctuate randomly. Thus. Whenever a new price of information is received in the stock market. the first fall in stock price from Rs. For example. 30 to Rs. It means that he should be able to identify exactly when the falling or the rising trend has begun. “Samuelson has proved in 1965 that if a market has zero transaction costs. the news of a strike in that company will bring down the stock price to Rs. each price change is independent of the 40 . if all available information is free to all interested parties. 25. the changes in prices of stock show independent behavior and are dependent on the new pieces of information that are received but within themselves are independent of each other. This is technically known as identification of the turn in the share market prices. and if all market participants and potential participants have the same horizons and expectations about prices. The stock price further goes down to Rs. 40 based on existing information known to all investors. RANDOM WALK THEORY: The first specification of efficient markets and their relationship to the randomness of prices for things traded in the market goes to Samuelson and Mandelbrot. the market independently receives this information and it is independent and separate from all the other prices of information. How to be certain that the rise in prices or fall in the same in due to a real turn in prices from a bullish to a bearish phase or vice versa or that it is due only to short run speculative trends? Dow Jones Theory identifies the turn in the market prices by seeing whether the successive peaks and troughs are higher or lower than earlier. even in a rising market. 25 is due to additional information on the type of strike. 30 the next day. II. Similarly even in a falling market prices keep on rising temporarily.Reformers Business School Indore on the fall. a stock is selling at Rs. 30 is caused because of some information about the strike. Identification of this turn is difficult in practice because of the fact that. prices keep on falling as a part of the secondary movement. But the second fall in the price of a stock from Rs. Therefore. Afterwards.” According to the Random Walk Theory.

market sensitivity index Expected return on market portfolio = Market risk premium The above model of portfolio management can be used effectively to:- 41 . CAPITAL ASSETS PRICING MODEL (CAPM): CAPM provides a conceptual framework for evaluating any investment decision.Reformers Business School Indore other because each information has been taken in. It is due to the effective communication system through which information can be disturbed almost anywhere in the country.e. III. However. it may be said that the prices have an independent nature and therefore. The theory further states that the financial markets are so competitive that there is immediate price adjustment. independent pieces of information. E(Rp) Rf Bp E(Rm) [E(Rm)-Rf] = = = = Expected return of the portfolio Risk free rate of return Beta portfolio i. The response makes the movement of prices independent of each other. by the stock market and separately disseminated. It is used to estimate the expected return of any portfolio with the following formula: E (Rp) = Rf +Bp (E( Rm) – Rf ) Where. the price of each day is different. This speed of information determines the efficiency of the market. The basic essential fact of the Random Walk Theory is that the information on stock prices is immediately and fully spread over that other investors have full knowledge of the information. when they come together immediately after each other show that the price is falling but each price fall is independent of the other price fall. Thus.

There can be various combinations of securities. VI.  Reduce the risk of the firm by diversifying its project portfolio. The following are the assumptions of Markowitz Theory: 42 . the portfolio manager has to make probabilistic estimates of the future performances of the securities and analyse these estimates to determine an efficient set of portfolios. The theory states that by combining securities of low risks with securities of high risks success can be achieved in making a choice of investments. IV. there by encompasses the most recent days and deletes the old one.  Evaluate risky investment projects involving real Assets. Then the optimum set of portfolio can be selected in order to suit the needs of the investors. MOVING AVERAGE: It refers to the mean of the closing price which changes constantly and moves ahead in time. According to him. MODERN PORTFOLIO THEORY: Modern Portfolio Theory quantifies the relationship between risk and return and assumes that an investor must be compensated for assuming risk.Reformers Business School Indore  Estimate the required rate of return to investors on company’s common stock. It believes in the maximization of return through a combination of securities. Harry Markowitz and William Sharpe have developed this theory. MARKOWITZ THEORY: Markowitz has suggested a systematic search for optimal portfolio. V.  Explain why the use of borrowed fund increases the risk and increases the rate of return. The modern theory points out that the risk of portfolio can be reduced by diversification.

residual risk of the company. VII. i.e.  The combination of securities is made in such a way that the investor gets maximum return with minimum of risk.Reformers Business School Indore  Investors make decisions on the basis of expected utility maximization. Individual securities return is determined solely by random factors and on its relationship to this underlying factor with the following formula: Ri = ai + Bi I + ei Where. SHARPE’S THEORY: William Sharpe has suggested a simplified method of diversification of portfolios. 43 . Ri refers to expected return on security ai = the intercept of a straight line or alpha coefficient Bi = slope of straight-line or beta coefficient I = level of market return index ei = error. when there is lowest level of risk for a specified level of expected return and highest expected return for a specified amount of portfolio risk. He has made the estimates of the expected return and variance of indexes which are related to economic activity. Sharpe’s Theory assumes that securities returns are related to each other only through common relationships with basic underlying factor i.e.  The risk of portfolio can be reduced by adding investments in the portfolio. market return index.  In an efficient market.  An efficient portfolio exists.  The security returns are co-related to each other by combining the different securities.  Investors’ utility is the function of risk and return on securities. all investors react with full facts about all securities in the market.

this hypothesis can be true of all other financial.know about the promoters and their back ground. 44 . it is futile to invest in such shares who’s daily movements cannot be kept track. net profit before tax. 3) The higher the trading volume higher is liquidity and still higher the chance of speculation.Reformers Business School Indore RULES TO BE FOLLOWED BEFORE INVESTMENT IN PORTFOLIO’S 1) Compile the financials of the companies in the immediate past 3 years such as turnover. compare the profit earning of company with that of the industry average nature of product manufacture service render and it future demand . we must remember that share market moves in phases and the span of each phase is 6 months to 5 years. if you want to reap rich returns keep investment over along horizon and it will offset the wild intraday trading fluctuation’s. the minor movement of scripts may be ignored. gross profit. dividend track record. 2) Watch out the highs and lows of the scripts for the past 2 to 3 years and their timing cyclical scripts have a tendency to repeat their performance. journals and ledgers. bonus shares in the past 3 to 5 years .reflects company’s commitment to share holders the relevant information can be accessed from the RDC (Registrant of Companies) published financial results financed quarters.

advices or directs or undertakes on behalf of the clients.update his knowledge. to keep track of market movement .Reformers Business School Indore CHAPTER – 6 PERSONS INVOLVED IN PORTFOLIO MANAGEMENT 1) INVESTOR: Are the people who are interested in investing their funds? 2) PORTFOLIO MANAGERS: Is a person who is in the wake of a contract agreement with a client.B.I. The portfolio manager carries out all the transactions pertaining to the investor under the power of attorney during the last two decades.E. yet stay in the capital market and make money . The generally rule in that greater risk more of the profits but S. in its guidelines prohibits portfolio managers to promise any return to investor. 45 . Portfolio management is not a substitute to the inherent risks associated with equity investment. and increasing complexity was witnessed in the capital market and its trading procedures in this context a key (uninformed) investor formed ) investor found himself in a tricky situation . therefore in looked forward to resuming help from portfolio manager to do the job for him . The relationship between an investor and portfolio manager is of a highly interactive nature. 3) DISCRETIONARY PORTFOLIO MANAGER: Means a manager who exercise under a contract relating to a portfolio management exercise any degree of discretion as to the investment or management of portfolio or securities or funds of clients as the case may be. the management or distribution or management of the funds of the client as the case may be. The portfolio management seeks to strike a balance between risk’s and return.

I. The manager has to submit periodical returns and documents as may be required by the SEBI from time-to. their books of accounts are subject to inspection to inspection and audit by S.5lakh’s every for two years and Rs. has imposed a number of obligations and a code of conduct on them. etc.1lakh’s for the third year.. The certificate once granted is valid for three years. From the fourth year onwards.E. are subject to inspection and penalties for violation are imposed.E. These are subjected to change by the S. The S..I. renewal fees per annum are Rs 75000. An applicant for this purpose should have necessary infrastructure with professionally qualified persons and with a minimum of two persons with experience in this business and a minimum net worth of Rs.I. Fees payable for registration are Rs 2. The observance of the code of conduct and guidelines given by the S.I. 46 .E. The portfolio manager should have a high standard of integrity.E.B.B.B.time. honesty and should not have been convicted of any economic offence or moral turpitude. He should not resort to rigging up of prices. insider trading or creating false markets. 50lakh’s.B.Reformers Business School Indore WHO CAN BE A PORTFOLIO MANAGER? Only those who are registered and pay the required license fee are eligible to operate as portfolio managers.

I.  yielding securities they have to study the current fiscal policy. prospectus and strength. market trends. foreign exchange possible change in corporate law’s etc. Registered merchant bankers can act’s as portfolio managers. recommending high yield securities etc. individual policies etc further portfolio manager should take in to account the credit policy. required for investment proposal he should also see the problem’s of the industry. money market.B. professional’s like MBA’s CA’s And many financial institution’s have entered the market in a big way to manage portfolio for their clients.Reformers Business School Indore FUNCTIONS OF PORTFOLIO MANAGERS:  Advisory role: Advice new investments.E. convertibles. Insider trader. 47 . understand.  Financial analysis: He should evaluate the financial statement of company in order to Study of stock market : He should observe the trends at various stock exchange and Study of industry: He should study the industry to know its future prospects. budget proposal. now being managed by the portfolio of Merchant Bank’s. According to S. identification of Conducting market and economic service: This is essential for recommending good objectives. yield and liquidity coupled with balanced risk techniques of portfolio management. their net worth future earnings. for qualification and performance and ability and research base of the portfolio managers. industrial growth.  Decide the type of port folio: Keeping in mind the objectives of portfolio a portfolio manager has to decide whether the portfolio should comprise equity preference shares. The one’s who use to manage the funds of portfolio. review the existing ones.  analysis scripts so that he is able to identify the right securities for investment  technical changes etc. rules it is mandatory for portfolio managers to get them self’s registered. debentures. helps the limited knowledge persons. non-convertibles or partly convertibles. securities etc or a mix of more than one type of proper mix ensures higher safety. A portfolio manager in the Indian context has been Brokers (Big brokers) who on the basis of their experience. Investor’s must look forward.

investment in the securities of such companies has become quite attractive. a layman is puzzled as to how to make his investments without losing the same. he shall not indulge in speculative transactions. the stock market becoming volatile on account of various facts.  He shall not disclose to any person or any confidential information about his client. He has felt the need of an expert guidance in this respect. At the same time.  He shall pay the money due and payable to a client forthwith. They have also to comply with the conditions specified by the RESERVE BANK OF INDIA under various schemes for investment by the non residents. PORTFOLIO MANAGER’S OBLIGATION: The portfolio manager has number of obligations towards his clients.  He shall not pledge or give on loan securities held on behalf of his client to a third person without obtaining a written permission from such clients. some of them are:  He shall transact in securities within the limit placed by the client himself with regard to dealing in securities under the provisions of Reserve Bank of India Act.  He may hold the securities in the portfolio account in his own name on behalf of his client’s only if the contract so provides. which has come to his knowledge.  While dealing with his client’s funds. The portfolio manager with his background and expertise meets the needs of such investors by rendering service in helping them to invest their fund/s profitably. Similarly non resident Indians are eager to make their investments in Indian companies. 1934. his records and his report to his clients should clearly indicate that such securities are held by him on behalf of his client.  He shall not place his interest above those of his clients. In such a case.  He shall not derive any direct or indirect benefit out of the client’s funds or securities.Reformers Business School Indore NEED AND ROLE OF PORTFOLIO MANAGER: With the development of Indian Securities market and with appreciation in market price of equity share of profit making companies. 48 .  He shall deploy the money received from his client for an investment purpose as soon as possible for that purpose.

so one can get the help from the professional portfolio manager or the Merchant banker if required before investment because applicability of practical knowledge through technical analysis can help an investor to reduce risk. 49 . not by knowing what number will come up next. then knowing what a security should sell for become less important than knowing what other investors expect it to sell for. In other words Security prices are determined by money manager and home managers. 1893. students and strikers. “I believe the future is only the past again. This breadth of market participants guarantees an element of unpredictability and excitement. price would only change when quarterly reports or relevant news was released.Reformers Business School Indore CONCLUSION From the above discussion it is clear that portfolio functioning is based on market risk. when he can’t afford it and when he can” – Mark Twin. “There are two times of a man’s life when he should not speculate. the wealthy and the wanting. If we were all totally logical and could separate our emotions from our investment decisions then. If price are based on investors’ expectations. lawyers and landscapers. And since we would all have the same completely logical expectations. entered through another gate” –Sir Arthur wing Pinero. but by slightly improving their odds with the addition of a “0” and “00”. If we believe that this dealings is not a ‘Gambling” we have to start up it with intelligent way. Yet many investors buy securities without attempting to control the odds. doctors and dog catchers. A Casino make money on a roulette wheel. the determination of price based on future earnings would work magnificently. 1897.

Today the individual investors do not show interest in taking professional help but surely with the growing importance and awareness regarding portfolio’s manager’s people will definitely prefer to take professional help. Portfolio managers can provide the professional advice to the investors to make an intelligent and informed investment. Portfolio management role is still not identified in the recent time but due it expansion of investors market and growing complexities of the investors the services of the portfolio managers will be in great demand in the near future. 50 .Reformers Business School Indore I can conclude from this project that portfolio management has become an important service for the investors to identify the companies with growth potential.

Reformers Business School Indore BIBLIOGRAPHY REFERENCE BOOKS: Security Analysis and Portfolio Management .google.com  www.K.Dr.BANDGAR Investment Analysis and Portfolio Management WEBLIOGRAPHY SOURCES:  www. P.wikipedia.com 51 .yahoo.com  www.

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