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INTRODUCTION TO STOCK MARKET

Every individual tries to plan & secure his/her future using various avenues of
investment. An individual invests money because of multiple reasons. A few of
these can be listed as :-

More and more returns on money invested, thus a new source of income.

• Planning/ securing one’s future


• Tax benefits
• Saving for children’s education/ social obligation
• Safety
• Hedging against devaluation
• Possessing liquidity

The growth of an economy and hence development of a nation depends on the


amount of resources that are readily available to various factors of production in
the economy. Implicit in this statement is the fact that savings/investment of the
inhabitants and other like Non- residents, foreigners, both individual and
institutions play a key role. It is financial markets which help in channelising the
savings/ investments into the economy and makes it available to factor of
production.

A Stock Market is a private or public market for the trading of company stock and
derivatives of company stock at an agreed price; these are securities listed on a
stock exchange as well as those only traded privately.

All the participants in the stock market range from small individual to large hedge
fund traders, who can be based anywhere.

The purpose of a stock exchange is to facilitate the exchange of securities between


the buyers and sellers and thus providing a marketplace (virtual or real).

Years ago, buyers and sellers were the individual investors, such as wealthy
businessmen, with long family histories to particular corporations. Over the time,
markets have become more 'institutionalized', buyers and sellers are largely
institutions such as pension funds, insurance companies, mutual funds, index
funds, banks and various other financial institutions.
The stock market is one of the most important sources for the companies to raise
money. This allows businesses to be publicly traded, or raise additional capital for
expansion by selling shares of ownership of the company in a public market.

Last but not the least, Riskier long term savings requires that an individual possess
the ability to manage the associated increased risks. Stock prices fluctuate widely,
in a marked contrast to the stability of bank deposits or bonds. This is something
that could affect not only the individual investor or household, but also the
economy on a large scale.

Financial Markets consist of Money Market and Capital Market.


Money Market provides short-term capital to borrowers for meeting their short
term working requirement.
“Capital Market is a market for long term funds.”

ABOUT CAPITAL MARKET

The market where investment funds like bonds, equities and mortgages are traded
is known as the capital market. The primal role of the capital market is to
channelize investments from investors who have surplus funds to the ones who are
running a deficit. The capital market offers both long term and overnight funds.
The financial instruments that have short or medium term maturity periods are
dealt in the money market whereas the financial instruments that have long
maturity periods are dealt in the capital market. The different types of financial
instruments that are traded in the capital markets are equity instruments, credit
market instruments, insurance instruments, foreign exchange instruments, hybrid
instruments and derivative instruments.

The capital market is the market for securities, where companies and governments
can raise long term funds. Selling stock and selling bonds are two ways to generate
capital and long term funds. Thus bond markets and stock markets are considered
capital markets. The capital markets consist of the primary market, where new
issues are distributed to investors, and the secondary market, where existing
securities are traded. The Indian Equity Markets and the Indian Debt markets
together form the Indian Capital markets

The Indian Equity Market depends mainly on monsoons, global funds flowing into
equities and the performance of various companies. The Indian Equity Market is
almost wholly dominated by two major stock exchanges -National Stock Exchange
of India Ltd. (NSE) and The Bombay Stock Exchange (BSE). The benchmark
indices of the two exchanges - Nifty of NSE and Sensex of BSE are closely
followed. The two exchanges also have an F&O (Futures and options) segment for
trading in equity derivatives including the indices. The major players in the Indian
Equity Market are Mutual Funds, Financial Institutions and FIIs representing
mainly Venture Capital Funds and Private Equity Funds.

Indian Equity Market at present is a lucrative field for investors. Indian


Stocks are profitable not only for long and medium-term investors but also the
position traders, short-term swing traders and also very short term intra-day
traders. In India as on December 30 2007, market capitalization (BSE 500) at US$
1638 billion was 150 per cent of GDP, matching well with other emerging
economies and selected matured markets.
For a developing economy like India, debt markets are crucial sources of capital
funds. The debt market in India is amongst the largest in Asia. It includes
government securities, public sector undertakings, other government bodies,
financial institutions, banks and companies.

Capital market is further sub divided in to:

PRIMARY MARKET (New issues market)

‘Primary market’ denotes the market for new issues. It has no physical existence. It
is concerned with the floatation and issue of new shares and debentures by new or
existing companies. The shares are offered to the public. The primary market
establishes a linkage between the companies raising finance and the investing
public. To make new issues, companies are assisted by brokers, underwriters or
commercial banks, in general. The public, who are interested in subscribing for the
shares of the company, must submit an application form. The forms will be
available with the brokers, underwriters, etc. The investing public invests their
saving in securities for varied reasons. They should be able to dispose the
securities, in case of need. Sale of securities is a specialized activity. Hence, the
companies issuing the securities should make use of the services of agencies/
institutions who are specialists in issue of securities.

Methods of new issues

The company, which raises finance through new issues, may


Follow any of the following methods:
a) Public issue
b) Offer for sale
c) Through intermediaries
(i) Private placement
(ii) Sundry intermediaries
(iii) Managing brokers
d) Underwriting
e) Rights issue
Secondary market

A market where investors purchase securities or assets from other investors, rather
than from issuing companies themselves. The national exchanges - such as the
New York Stock Exchange and the NASDAQ are secondary markets.
Secondary markets exist for other securities as well, such as when funds,
investment banks, or entities such as Fannie Mae purchase mortgages from issuing
lenders. In any secondary market trade, the cash proceeds go to an investor rather
than to the underlying company/entity directly.

In the case of assets like mortgages, several secondary markets may exist, as
bundles of mortgages are often re-packaged into securities like GNMA Pools and
re-sold to investors.

Definition

A market in which an investor purchases a security from another investor rather


than the issuer, subsequent to the original issuance in the primary market. also
called aftermarket.

STOCK EXCHANGE

The word ‘Stock’ means a fraction of the capital of a company and the word
‘Exchange’ means a place for purchasing and selling something. Stock exchanges
deal in securities like shares, debentures or bonds issued by the companies or
corporations in the private as well as public sector and bonds issued by the central
and state governments. The Securities Contracts (Regulations) Act, 1956 defines
stock exchange “as an association, organization or body of individuals, whether
incorporated or not, established for the purpose of assisting, regulating and
controlling the business of buying, selling and dealing in securities”.

According to Hastings “stock exchange or securities market comprises all the


places where buyers and sellers of stock and bonds or their representatives,
undertake transactions involving the sales of securities”.

FUNCTIONS OF STOCK EXCHANGE

The functions performed by a stock exchange are as follows:


1. Ready Market: Stock exchange ensures increased liquidity and
ready market for the securities. This enables it to attract people
Who have surplus money even for a short period of time.
2. Mobilization of Savings: Stock exchange helps in mobilization
of surplus funds of individuals, business firms and cooperatives
for investment in popular securities.
3. Evaluation of Securities: Stock exchange helps in determining
the price of various securities. The prices at which transactions
take place are recorded and they are made public in the form of
market quotations which help the investors to know current market
prices of various securities.
4. Capital Formation: Stock exchange not only mobilizes the
existing savings but also induces the public to save money. This
facilitates capital formation in the country.
5. Proper Canalization of Capital: Stock exchange directs the
flow of savings into the most productive channels. When an existing
Company issues securities to raise more capital, it will be successful
only if it is earning sufficient profits. Public response to such issues
by weaker companies will be discouraging.
6. Fair Dealings: Stock exchanges ensure fair dealings and safety
of funds because of strict regulations on the working of stock
Exchange. The members of the stock exchange have to operate under
certain rules which checks over trading, illegitimate speculation
and manipulation. Thus, stock exchange safeguards the interest of
the investors.
7. Control of Corporate Sector: Every company has to conform
to the rules framed by the stock exchange. Through these rules,
stock exchange exercises influence on the management and working
of companies in public interest
8. Barometer of Business Progress: Stock exchange acts as a
Barometer of the business conditions in the country. Booms and
Depressions are reflected by the index of prices of various securities
maintained by the stock exchange.
Optional. Listing is now made compulsory for all public companies,
However, subject to certain exemptions.
STOCK MARKET IN INDIA

Stock markets refer to a market place where investors can buy and sell stocks. The
price at which each buying and selling transaction takes is determined by the
market forces.

In earlier times, buyers and sellers used to assemble at stock exchanges to make a
transaction but now with the dawn of IT, most of the operations are done
electronically and the stock markets have become almost paperless. Now investors
dont have to gather at the Exchanges, and can trade freely from their home or
office over the phone or through Internet.

HISTORY OF THE INDIAN STOCK MARKET – THE ORIGIN

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years
old history.

18th East India Company was the dominant institution and by end of the
Century century, busuness in its loan securities gained full momentum
1830's Business on corporate stocks and shares in Bank and Cotton presses
started in Bombay. Trading list by the end of 1839 got broader
1840's Recognition from banks and merchants to about half a dozen brokers
1850's Rapid development of commercial enterprise saw brokerage business
attracting more people into the business
1860's The number of brokers increased to 60
1860-61 The American Civil War broke out which caused a stoppage of cotton
supply from United States of America; marking the beginning of the
"Share Mania" in India
1862-63 The number of brokers increased to about 200 to 250
1865 A disastrous slump began at the end of the American Civil War (as an
example, Bank of Bombay Share which had touched Rs. 2850 could
only be sold at Rs. 87)

PRE- INDEPENDENCE SCENARIO – ESTABLISHMENT OF DIFFERENT


STOCK EXCHANGE.
1874 With the rapidly developing share trading business, brokers used to
gather at a street (now well known as "Dalal Street") for the purpose of
transacting business.
1875 "The Native Share and Stock Brokers' Association" (also known as
"The Bombay Stock Exchange") was established in Bombay
1880's Development of cotton mills industry and set up of many others
1894 Establishment of "The Ahmedabad Share and Stock Brokers'
Association"
1880 - 90's Sharp increase in share prices of jute industries in 1870's was followed
by a boom in tea stocks and coal
1908 "The Calcutta Stock Exchange Association" was formed
1920 Madras witnessed boom and business at "The Madras Stock
Exchange" was transacted with 100 brokers.
1923 When recession followed, number of brokers came down to 3 and the
Exchange was closed down
1934 Establishment of the Lahore Stock Exchange
1936 Merger of the Lahore Stock Exchange with the Punjab Stock
Exchange
1937 Re-organization and set up of the Madras Stock Exchange Limited
(Pvt.) Limited led by improvement in stock market activities in South
India with establishment of new textile mills and plantation companies
1940 Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange
Limited was established
1944 Establishment of "The Hyderabad Stock Exchange Limited"
1947 "Delhi Stock and Share Brokers' Association Limited" and "The Delhi
Stocks and Shares Exchange Limited" were established and later on
merged into "The Delhi Stock Exchange Association Limited"

Government policies during 1980's also played a vital role in the development of
the Indian Stock Markets. There was a sharp increase in number of Exchanges,
listed companies as well as their capital, which is visible from the following table:

S. As on 31st December 194 196 197 197 198 1985 1991 1995
No. 6 1 1 5 0
1 No. of Stock Exchanges 7 7 8 8 9 14 20 22
112 120 159 155 226
2 No. of Listed Cos. 4344 6229 8593
5 3 9 2 5
No. of Stock Issues of Listed 150 211 283 323 369
3 6174 8967 11784
Cos. 6 1 8 0 7
Capital of Listed Cos. (Cr. 181 261 397
4 270 753 9723 32041 59583
Rs.) 2 4 3
Market value of Capital of 129 267 327 675 2530 11027
5 971 478121
Listed Cos. (Cr. Rs.) 2 5 3 0 2 9
Capital per Listed Cos. (4/2)
6 24 63 113 168 175 224 514 693
(Lakh Rs.)
Market Value of Capital per
7 86 107 167 211 298 582 1770 5564
Listed Cos. (Lakh Rs.) (5/2)
Appreciated value of Capital
8 358 170 148 126 170 260 344 803
per Listed Cos. (Lak Rs.)

Trading Pattern of the Indian Stock Market


Indian Stock Exchanges allow trading of securities of only those public limited
companies that are listed on the Exchange. They are divided into two categories:
Types of Transactions
The flowchart below describes the types of transactions that can be carried out on
the Indian stock exchanges:

Indian stock exchange allows a member broker to perform following activities:

• Act as an agent,
• Buy and sell securities for his clients and charge commission for the same,
• Act as a trader or dealer as a principal
• Buy and sell securities on his own account and risk.
INTRODUCTION TO STOCK EXCHANGE

Stock exchange market refers to an organized market where govt. Securities and
shares, bonds and debentures of the benefited trading units are regularly transacted.
Its business is carried on with in a particular building in which a person can easily
convert his shares into cash or new securities. Thus it is a market for the exchange
of transfer able securities by providing a continuous market.

The term stock exchange is referred by some people to stat Market. Therefore
some writer says, "It is a place to get rich quick while others regard as place of
gambling. The securities of public companies can be transacted in the exchange
only if they have been approved by the committee of the stock exchange.

A company desiring its shares to be approved must first satisfy very rigid rules
concerning the prospectus. It must also agree to abide by the regulations of the
stock exchange about any aspects of its conduct.
Stock Exchange Defined:

The supreme court of India has enunciated the roll of stock exchanges in
these worlds:

“A stock exchange fulfills a vital function in the economic development


of a nation. Its main function is to liquefy capital by enabling a person
who has invested money in, say a factory to convert it in to cash by
disposing off his shares in the enterprise to someone else.”

OPERATORS AT STOCK EXCHANGE

Members of stock exchange

a) Jobbers

Jobbers are security merchants dealing in shares, debentures


as independent operators. They buy and sell securities on their own
behalf and try to earn through price changes. Jobbers cannot deal
on behalf of public and are barred from taking commission. In India,
they are called Taravaniwalas.
b) Brokers

Brokers are commission agents, who act as intermediaries


between buyers and sellers of securities. They do not purchase or
sell securities on their behalf. They bring together the buyers and
sellers and help them in making a deal. Brokers charge a commission
from both the parties for their service. Brokers are experts in
estimating trends of price and can effectively advice their clients in
getting a fruitful gain. Brokers get orders from investing public
and execute the orders through Jobbers and they are entitled to a
prescribed sale of brokerage.

Non-members acting for members:

Some non-members with limited rights are allowed to enter


the house and to act on behalf of members. There are two types of
such agents.

a. Remiser

He acts as an agent of a member of a stock exchange. He obtains


business for his principal ie., the member and gets a commission
for that service.

b.Authorised clerk

The authorised clerks are mere employees of the members,


appointed by the member of stock exchange. The authorised clerks
transact business on behalf of their employers on the floor of the
stock exchange. They are paid a salary, plus a commission.

Features of Stock Exchange Market.

1. Specialized market. Stock exchange is a specialized market for the purchase


and sale of industrial and financial securities.
2. Rigid rules. There are large number of buyers and sellers who conduct their
activities according to rigid rules.
3. Basis of formation. Its activities are controlled by the company ordinance in our
country. It can be formed as company limited by guarantee or company limited by
shares.
4. It is an association of persons known as members.
5. Membership is must for transacting business.

LIST OF VARIOUS STOCK EXCHANGES IN INDIA

Sr_No Name of the Stock Exchange


1 OTC Exchange of India
2 The Uttar Pradesh Stock Exchange Association Ltd.
3 Jaipur Stock Exchange Ltd.
4 Madras Stock Exchange Ltd.
5 Cochin Stock Exchange Ltd.
6 Bangalore Stock Exchange Ltd.
7 National Stock Exchange of India Ltd.
8 Gauhati Stock Exchange Ltd.
9 The Ludhiana Stock Exchange Ltd.
10 The Calcutta Stock Exchange Association Ltd.
11 Bhubaneshwar Stock Exchange Ltd.
12 The Delhi Stock Exchange Ltd.
13 Vadodara Stock Exchange Ltd.
14 Ahmedabad Stock Exchange Ltd.
15 Madhya Pradesh Stock Exchange Ltd.
16 Pune Stock Exchange Ltd.
17 Bombay Stock Exchange Ltd.
18 Inter connected Stock Exchange of India Ltd.
19 MCX Stock Exchange Ltd
20 Coimbatore Stock Exchange

De-recognized Stock Exchanges.


1 Hyderabad Stock Exchange
2 Magadh Stock Exchange
3 Saurashtra Kutch Stock Exchange (SKSE)
4 Mangalore Stock Exchange
WHO BENEFITS FROM STOCK EXCHANGE?

Benefits of Stock Exchange :-

Stock exchange renders invaluable services to the investors and the corporations.
The companies whose shares are listed and dealt in on the stock exchange enjoy
better credit standing. This is because investors are aware of the fact that stock
exchange exercises some element of control over the management of such
companies.

Benefits to Companies :-

1) A company whose shares are dealt in on a stock exchange enjoys great


reputation in the capital market.

2) The marketability of shares is ensured and in consequence, the company enjoys


a wide market for its shares.

3) Because of their shares listed on the stock exchange, the market value of shares
of a company is likely to be higher in relation to earnings, dividends and property
values. This helps the company in merger plans.

4) New companies can raise funds easily from the capital market because of
indirect support provided by the stock exchange.

5) The activities of speculators save the listed securities from frequent fluctuations
in the prices of securities.

Benefits to Investors :-

1) Stock exchange safeguards the interests of the investors. They are assured of a
ready and continuous market for the securities held by them. The brokers can’t
cheat the investors.

2) It provides liquidity of investments by providing a continuous market in shares


and debentures.

3) Securities can be used as collateral security for loans.


4) Price quotations of stock exchange help the investor to know the real value of
his investments.

5) Normally the securities of sound companies are traded in the stock exchange.
The investors are saved from the risk of investment in unsound companies.

Benefits to the Community or Society :-

1) The stock exchange helps in the economic development by encouraging


investors to invest their savings in securities of corporate sector. It encourages
capital formation in the country.

2) By encouraging marketability of securities, the stock exchange upholds the


position of efficiently managed companies.

3) It facilitates a well managed enterprise to raise further funds easily.

4) It helps the Government to borrow from the public and thus enables it to
undertake development projects of national importance.

5) Stock exchange helps in optimum utilisation of scarce financial resources.

6) A stock exchange is a barometer of the economic conditions of a country. It


reflects the trends in the economy through fluctuation of prices of various
securities.

Limitations of stock exchange :-

The important limitations of stock exchange are:

1. There is lack of uniformity in organisation and control of stock exchanges.

2. There is no restriction in the membership of the stock exchanges. In India no


stock exchange prescribes any minimum educational qualification for admission as
a member.

3. Many times, stock exchanges have failed to control unhealthy speculation.

4. There is no proper regulation of listing of securities in the stock exchange.


5. There is no margin requirement in the stock exchange as in the case of
commodity exchange.

6. More than one stock exchange is allowed to function in some cities or towns.
SECURITIES AND EXCHANGE BOARD OF INDIA

For proper development of Indian stock market, the functioning of stock exchanges
must be brought under the control and supervision of an independent regulatory
agency. Central government therefore established SEBI.

SEBI

The SEBI was set up as an administrative body in April 1988. It was given
statutory status on 30.1.92 by promulgation of SEBI ordinance. The ordinance is
considered to be an Act of parliament.

Objectives:

1. The basic purpose of establishing SEBI is to protect the interest of the investors
in securities.

2. To promote, develop and regulate the securities market and deal with the matters
connected therewith or incidental thereto. When SEBI was established as a board
in 1992, the task before it was to regulate the functions and conduct of
intermediaries in the stock market, check insider trading and ensure fair play in
takeover bids by a code of conduct.

Features of SEBI

1. The SEBI shall be a body corporate established under SEBI ACT, with perpetual
succession and a common seal.

2. The head office of the board shall be at Mumbai. SEBI can have branch offices
at other places in India.

3. The board shall consist of the following members.


(i)A chairman
(ii)Two members from amongst the officials of the Ministries of the Central
Government dealing with finance and law.
(iii) One member from amongst the officials of the Reserve Bank of India.
(iv) Two other members Chairman and other members of the Board are appointed
by the central Government.
4. The general superintendence, direction and management of the SEBI shall vest
in the Board of members. Those members exercise all powers and do all acts and
things which may be exercised by the Board (SEBI)

5. Central Government shall have the power to remove a member or the chairman
appointed to the Board

6. Central government shall provide finance and also make appropriate grants to
the Board.

7. Central government has power to issue direction to the board on the policy
matters and shall supercede the board in the event of default by the Board.

Functions

To provide the development of, and to regulate the securities market SEBI
undertakes the following function

1. Regulating the business in stock exchanges.

2. Registering and regulating the working of stock brokers, sub brokers, issue
bankers, underwriters and such other intermediaries who may be associated with
securities markets in any manner.

3. Registering and regulating the working of collective investment schemes


including mutual funds.

4. Promoting and regulating self-regulatory organizations.

5. Prohibiting fraudulent and unfair trade practice relating to securities market.

6. Promoting investor’s education and training of intermediaries of securities


market.

7. Prohibiting insider trading in securities.

8. Regulating substantial acquisition of shares and take-over of companies

9. Calling for information from, undertaking inspection, conducting inquires and


audits of the stock exchanges
10. Performing such functions as may be delegated to it by the central government.

ROLE OF “SEBI” IN A STOCK EXCHANGE

SEBI Act, 1992 was passed by Central Government for establishing a board to
protect the interest of investors in securities and to promote the development of and
to regulate the securities market and for matters connected therewith or incidental
thereto. Every stock exchange needs recognition from Central Government. SEBI
helps the Government in ensuring compliance of rules for recognition. Any stock
exchange, which is desirous of being recognized, may make an application to the
Central Government. The application should be accompanied by a copy of the bye-
laws of the stock exchange for the regulation and control of contracts and a copy of
the rules relating, in general, to the constitution of the stock exchange. Recognition
may be given to a stock exchange subject to the fulfillment of the following
conditions:

a) Bye laws of the exchange should ensure fair dealings and it must protect the
interests of investors and the trade.

b) Compliance of other conditions imposed by the Central Government.

SEBI’s powers in relation to stock exchanges

The SEBI ordinance has given it the following powers:

(i) It may call periodical returns from stock exchanges.

(ii) It has the power to prescribe maintenance of certain documents by the stock
exchanges.

(iii) SEBI may call upon the exchange or any member to furnish explanation or
information relating to the affairs of the stock exchange or any members.

(iv) It has the power to approve bye-law of the stock exchange for regulation and
control of the contracts.

(v) It can amend bye-laws of stock exchange.

(vi) In certain areas it can grant to licence the dealers in securities.


(vii) It can compel a public company to list its shares. Securities Contract
(Regulation) Act empowers Central Government to delegate some of its powers, to
SEBI. They are as follows:

1. Power to grant recognition to a stock exchange.

2. Power to direct any stock exchange to amend the rules relating to constitution of
stock exchange, admission of new members, etc.

3. Power to supersede governing body of any stock exchange.

4. Power to suspend business of a recognised stock exchange.

5. Power to prohibit contracts in certain cases.

Working of SEBI
SEBI has been carrying on its duties successfully. It has issued and clarified
guidelines on disclosure and investor protection. It has also issued guideline for
merchant bankers, advertising code for mutual funds. To safeguard the interests of
investors, it has registered a number of investors associations. A series of
advertisement are also being issued by SEBI to educate investors. Also, it has
recognized many self-regulatory organizations.

OTC EXCHANGE OF INDIA


OTCEI (Over the Counter Exchange) was set up to address the problems of both
investors and small and medium sized companies whose shares could not be listed
on any stock exchange. OTECI was promoted by premier financial institutions
such as UTI, ICICI, IDBI, SBI, IFCI, GIC. It is a recognized stock exchange under
sec 4 of Security Contract (Regulation) Act.
INTRODUCTION OF LUDHIANA STOCK EXCHANGE

HISTORICAL BACKGROUND

The Ludhiana Stock Exchange Limited was established in 1983, by Sh. S.P. Oswal
and Sh. B.M. Munjal, leading industrial luminaries, to fulfill a vital need of having
a Stock Exchange in this region. Since its inception, the Stock Exchange has grown
phenomenally. The Stock Exchange has played an important role in channelising
savings into capital for the various industrial and commercial units of the State of
Punjab and other parts of the country.

The exchange had a total of 284 brokers, out of which 79 were corporate brokers.
Among 284 brokers, it was further classified as 212 proprietor brokers, 2
partnership brokers and 70 corporate brokers. Then, there were only 23sub-brokers
registered.

Ludhiana Stock Exchange became the second bourse in India to introduce


modified carry forward system after BSE on April 6, 1998. On the same date, LSE
also introduced a settlement guarantee fund (SGF). The SGF guarantees settlement
of transactions and the carry forward facility provides liquidity to the market.

LSE became the first in India to start LSE Securities Ltd., a 100% owned
subsidiary of the exchange. The LSE Securities got the ticket as sub-broker of the
NSE. In 1998, the exchange also got permission to start derivative trading.

For the settlement of dematerialized securities, the Ludhiana Stock Exchange has
also been linked up with National Securities Depository Ltd. (NSDL).

OBJECTIVE

LSE Securities Limited is a subsidiary of the Ludhiana Stock Exchange, which was
formed with an objective to enhance business and investment opportunities for the
investors and members of Ludhiana Stock Exchange at large, through innovative
products by encompassing a variety of activities related to the capital market.The
company has a paid-up capital of Rs 5.55 crores.

1. To channelize the savings into investment in Capital Market there by


providing funds for growth and expansion.
2. To provide liquidity to the investors of the region by providing them with a
Secondary Market Network.
3. Disseminating information among investors thereby saving their interests.
4. To main high standard of commercial honour and integrity.
5. To promote and inculcate honorable practices and just and equitable
principle of trade and business.
6. To discourage and to suppress malpractice detrimental to the interest of
investors at large.

FEATURES OF LUDHIANA STOCK EXCHANGE

1. First regional stock exchange to give proposal of making subsidiary as


broker of NSE and BSE for survival of stock exchange and second to start
operations like broker of NSE and BSE.
2. First regional stock exchange to start trading in commodities market.
3. First regional stock exchange to start courses on capital market, only BSE is
performing this sort of activities and NSE is also performing courses on
capital market only for members but ludhiana stock exchange will start for
outsiders also.

TERRITORIAL JURISDICTION:

LSE has played an important role in generating capital for the companies in the
states of Punjab, Jammu and Kashmir and Himachal Pradesh with only six
companies listed in the beginning, now it has risen to nearly 357 companies (231
regional and 126 non-regional).

ADMINISTRATION AT LSE OF IST PROFILE

The council of management of the Exchange consists of nine members, out of


which two are Government Nominees, four are Public Representatives and one
Executive Director who is also Ex- officio member of Board. At every Annual
General Meeting, one third of the elected the Exchange is managed by the
Executive Director who is also Ex- officio member of the Board. At every Annual
General Meeting, one third of the elected Directors retire by rotation.
Administration of the Exchange is managed by the Executive Director who is
assisted by a Company Secretary and a team of Executives, Assistants, Technicians
and Sub- Staff.
TRADING MECHANISM

To do trading of LSESL, an investor must identify a Registered Broker who is


willing to deal on his behalf. The transaction is made at level where the bidding is
at the highest and offering is at the lowest and is acceptable to both buying and
selling brokers. The operation of sale and purchase of scrip’s is as follows. Walk to
any Broker/ Sub-Broker.

See the prices of the Shares



Scan the Counter at LSESL

It will display the Five best Bidding
Offer for all the scrips Listed/ Traded

Decide to buy and sell, ask your
broker to deal on your behalf.

Make the Payment/ Margin Money/ Shares
Certificate be for the pay-in-day

Collect the Confirmation Slip

Visit the same counter on pay

Out day to collect Delivery/ Payment

PROCEDURE OF TRADING:

In order to buy or sell securities in a stock exchange, the following procedure has
to be followed:

(i) Selection of a Broker:

A non member of a stock exchange is not authorized to do any business on the


floor of a stock exchange. He can transact through a broker While selecting a
broker, a person can either talk directly to authorized brokers or he can act upon
the advice of his friends who are already dealing with the broker.

(ii) Placing the order:


Before placing an order, he can consult his friends and the broker. The order can be
communicated to the broker through wire, or telephone or by meeting personally to
avoid delay.

A client can place order in any of the following forms:

(a) Limit or fixed price order:

Under this, the client instructs the broker to buy or sell some security at a fixed
price mentioned in the order.

(b) At best or at market price order:

Such an order must be executed immediately at the best possible favorable price
prevailing in the market.

(c) Open order: Under this type of order, the client does not place any limit on the
time during which the order is to be executed.

(d) Immediate or Cancel order:

Under this type of order, the instructions of the client must be executed
immediately. If the broker cannot execute the order because of unfavorable prices,
it would be treated as cancelled.

(e) Stop loss order:

This order is placed to safeguard against the Heavy rise or fall in prices of a
security. For instance, a person who has bought a share at Rs.50 and its price is
going down he may place the order in the following words, “Sell at Rs.45 stop”.
Thus, his loss will be restricted to Rs.5 per share.

(f) Discretionary order:

A client may give a free hand to his broker to buy or sell a particular security at
his discretion.

(iii) Executing the Order:


After receiving the order, the broker will note it down in his diary from which it
will be transferred to the ‘order book’. The broker will contact other brokers of the
stock exchange and will give and receive offers to execute the order of his client.
When the deal is over, the broker and the other broker with whom he has entered
into the transaction will make brief notes of the price of their transactions in their
diaries. After this, contract notes are prepared on the prescribed forms. A copy of
the contract note is sent to the client.

(iv) Settlement:

The mode of settlement depends upon the nature of the contract. It may be
classified into two categories, namely, ready delivery contracts and forward
delivery contracts.

Ready Delivery Contracts

A ready delivery contract involves the actual payment of the amount by the buyer
in cash and the delivery of securities by the seller. A ready delivery Contract is to
be settled on the same day or within the period fixed by the stock exchange
authorities.

Forward Delivery Contracts

Such contracts are entered into without any intention of taking and giving delivery
of the securities. The traders in forward delivery securities are interested in profits
out of share price movements in the future. Such transactions are settled on the
settlement days fixed by stock exchange authorities.
CORPORATE GOVERNANCE PROFILE:

Although the LUDHIANA STOCK EXCHANGE is not a Listed Company, yet it


has followed a model of corporate governance, which is evident from the
composition of the Statutory Committee. The Investor Services Committee
comprises of Four Public Representatives and Broker Member.

It is headed by Sh. D.K. Malhotra, a legal expert. The Audit Committee is headed
by Sh. R.K.Bansal, Chartered Accountant. Statutory Committees are represented
by Broker and Non-Brokers in 20:80 ratio.

TURNOVER

LUDHIANA STOCK EXCHANGE is one of the leading Stock Exchange among


the Regional Stock Exchanges of the country, and has been providing trading
platform for the investors situated in Punjab, J&K, Himachal Pradesh &
Chandigarh. At present, it has 335 Listed Companies and among them, 193 are
Listed as Regional Companies. It had been generating significant amount of the
business in the Secondary Market.

The Structural changes that took place in recent past in the Capital Market of the
country had a negative impact on the trading volume of the Regional Stock
Exchanges. There has been a significant reduction of turnover during the financial
year 2001-02, but the reduction in turnover of the Exchanges has been more than
adequately compensated rise in the turnover of LSE Securities Limited, a
subsidiary of Ludhiana Stock Exchange.

LISTING

Listing is one of the major functions of the Stock Exchange wherein the Securities
of the Companies are enlisted for trading purpose. Any Company Incorporated
under COMPANIES ACT, 1956, coming out with an IPO, has to mandatorily list
its Shares on a Stock Exchange.

The Listing Department of Ludhiana Stock Exchange deals with listing of


Securities, further listing of issues like Bonus and Right Issues, Post- Listing
compliance of the companies, which are already listed with Ludhiana Stock
Exchange. The companies desirous of listing its Securities on the Exchange have to
sign a Listing Agreement with the Stock Exchange. After getting the
Listing approval, the company has to ensure and report compliance of the post
listing requirements. The listing section of LSE monitors the post- listing
compliance of all the listed companies, which are found deficient in compliance.
SETTLEMENT GUARANTEE FUNDS (SGF)

The Stock Exchange established a settlement guarantee fund (SGF) on April 6,


1998. It provides guarantee of all the genuine trades made through the Screen
Based Trading System of the Stock Exchange.

END OF AN ERA

The management of the Stock Exchange apprehended that the smaller regional
Stock Exchanges would not be able to meet the challenges imposed by expansion
of bigger Stock Exchange like NSE and BSE and might end up loosing their
business to VSAT counters of the bigger Stock Exchanges. In order to prepare for
such a eventually, Stock Exchange set up a broking arm in the name of LSE
Securities Limited (a subsidiary company of the Stock Exchange) in January 2000
and built Infrastructure and IT based sophisticated systems to enable its members
and investors to trade on NSE and BSE through the subsidiary route.

The Stock Exchange was thus able to convert the “threat” if faced from expansion
of NSE and BSE through the Subsidiary Company. The shift became more
prominent when SEBI introduce Compulsory Rolling Settlement and banned the
deferral products like Badla, MCFS and ALBM w.e.f. July 2, 2001 causing thereby
an end to arbitrage opportunities between the Stock Exchange and NSE/BSE.
Ultimately. There was complete shift of trading from the Stock Exchange to the
LSE Securities Limited in January 2002.

TRADING ON BIGGER STOCK EXCHANGES THROUGH


SUBSIDIARY ROUTE

As stated in the preceding para, the Exchange acquired the membership of NSE &
BSE through its subsidiary, the LSE Securities Limited, with the
objective of the providing an enabling mechanism to its member brokers to trade
on NSE and BSE as sub-brokers of LSE Securities Limited.
Trading at BSE and NSE was commenced through the subsidiary route from
September 2000 and December 2000, respectively, and the trading in F&O
segment of NSE commenced in February 2002.
DEPARTMENTS

The aim of LUDHIANA STOCK EXCHANGE is to ensure the secure channel to


the investment of the investor & to provide the proper services under the
prescribed guidelines of SEBI. To maintain the proper system of working of Stock
Exchange, there are so many Departments in which particular functions are
performed. The LSE has categorized its functioning of Department into Two types.
These are Services and Operational.

DEPARTMENTS

OPERATIONAL SERVICE

OPERATIONAL DEPARTMENT:

• LEGAL DEPARTMENT
• SECRETARIAL DEPARTMENT
LISTING DEPARTMENT
MEMBERSHIP DEPARTMENT

• TECHNICAL & MAINTENANCE DEPARTMENT


• PERSONAL DEPARTMENT
• ACCOUNTS DEPARTMENT

SERVICES DEPARTMENT:
• EDP/ Computer Section
• MARGIN SECTION
• CLEARING SECTION
• SURVEILLANCE SECTION
• DEPOSITORY SECTION

OPERATIONAL DEPARTMENTS

√ LEGAL DEPARTMENT:

• When a broker or outsider clients do not settle the claims in between then
they move to the Legal Court. The Legal Department comes in to a picture
to fight for the cause of the Investors & against the Defaulting Member.
Legal Department also assists the members & to settle their dispute through
the arbitration committee or investor grievance committee so that they may
be settled at earliest without incurring heavy dues on amount regarding
account fee, advocate fee etc.

The main objective of Legal Department is to undertake & make effective, the bye-
laws, rules & regulations of the Exchange & to see the guidelines, circulars & any
amendments in bye- laws made by SEBI & to enforce them at right time so that the
further complications may be reduced or avoided.

√ SECRETARIAL DEPARTMENT:

The duties and the function of this department include maintenance of records of
minutes like:
• Meeting of Various Committees.
• Meeting of Members.

Meeting of Board of Directors


• Minutes of Annual General Meeting (AGM)
• Minutes of Extra Ordinary General Meeting (EGM)

√ TECHNICAL & MAINTENANCE DEPARTMENT:

The Technical and Maintenance Section of LSE is regulated the activities of


Electrical, Mechanical and Security of LSE. It looks after the following functions:

• Electrification of Building.
• Air Conditioning of Plant.
• Maintenance of Generators.
• Fire Fighting System.
• Other.

√ PERSONNEL DEPARTMENT

Motive of this Department is to choose a right person for right job. It deals with the
Appointment, Interview and Leaves, PF of Employees, Recruitment and Selection.
Employees get salary after 5 years of duration. DA is not more than 43% of Basic
Salary. Now the LTC is freezed. LUDHIANA STOCK EXCHANGE DOES NOT
HAVE PERSONNEL DEPARTMENT IN ITS ORGANIZATION CHART.

√ ACCOUNTS DEPARTMENT

Most of the work in Accounts Department of LSE is done manually. Help is taken
from the computers for the purpose of making the Trial Balance, Income and
Expenditure Statement and Balance Sheet. The Annual Report of the Exchange is
generally published in September after Annual General Meeting every year. It
performs the following functions:-

• To make and receive payment to the outside agencies.


• To disburse personal expenses.
• To keep the record of all incomings and outgoing money and preparation of
Financial Statement at the end of the Financial Year.
• To get their Accounts Audited from the third party.

SERVICES DEPARTMENT

√ EDP SECTION

The growing Technicalities and increasing work load has enhanced the importance
of computer section of LSE. This department is mainly referred as “EDP Section”
i.e. Electronic Data Processing Section. In the present time this section is the
backbone of entire Stock Exchange because it is performing many important
activities. The whole function of Stock Exchange would come to halt, if this
department becomes inactive. It prepares several reports namely:-
Scrip Wise Statement of Number of Each Settlement Period.
• Sub Broker wise delivery bills receives order.
• Downloading of delivery orders.
• Sub Broker wise Final Statement.
• HDFC Bank Entry.

√ MARGIN SECTION

Behind the establishment of the Margin Section, there is some rationale, which is

• To prevent broker from indulging in excessive speculation.


• To keep a track of Base Minimum Capital (BMC) and Additional Base
Minimum Capital (ABMC) and set exposure limit for the each broker
member.

Before the Trading being started a broker has to deposit BMC to this Department

CASH PORTION CASH/ FDR/ BG CRIPS


Cash track only RS. 1.25 Lakhs RS. 3 Lakhs

The Margin Section allows two types of limit to broker. They are:
NET EXPOSURE LIMIT
NSE = 25 times gross 3.5 times net.
BSE = 25 times gross 6 times net.

√ SERVELLANCE SECTION

In LSE, for the purpose of ensuring a fair market, this section is responsible for
monitoring the trading activity. Some Companies rig the price of their scrips. So
this section keep track of trading patterns of the broker to prevent the market
manipulation. Whenever a member makes excessive exposure, beyond the limit
alert (signals) are given by the system. Then large variations in the price as well as
the volume of the scrip are scrutinized and appropriate actions are taken.

√ DEPOSITORY PARTICIPANT DEPAERTMENT

Another most important section is depository in LSE. This system commenced


trading in demat shares from November 6, 1998 by becoming a depository is a
system, which holds out shares in the form of electronic accounts in the same way
a bank holds our money in a saving account. Depository system provide the
following advantages:-
• Shares can not be lost or stolen and there is no need to doubt the
genuineness of shares i.e. whether they are forged or fake.
• There is no risk of bad delivery shares transactions like transfer etc. can no
delay in transfer.

√ CLEARING HOUSE

There are rolling settlement cycles w.e.f. 1st April 2002 which is prevailing at LSE
and commenced on daily basis. At the end of settlement date member have scrips
wise delivery notes and have to deposit it with clearing house as per following:-

T = Trading period (say Monday)


T+2 = Pay in of funds on Wednesday by 10.30 a.m.
T+2 = Pay in of Securities on Wednesday at 2.00 p.m.
T+3 = Auction for undelivered scripts on Thursday.
T+4 = Auction pay in securities and funds on Monday by 10.30 a.m.
T+5 = Auction pays of securities and funds on Monday at 2.00 p.m.

Standard document require to open an Online Trading Account

1. Proof of residence (Address proof)


o
o Driving license
o
o Voter's ID
o
o Passport
o
o Photo credit card
o
o Photo ration card
o
o Utility Bill (Telephone, Electricity etc)
o
o Bank Statement
o
2. Proof of identity
o
o Driving license
o Voter's ID
o
o Passport
o
o Photo ration card
3. PAN Card
4. Two photographs
LEADERSHIP TEAM

Sr.No. Name Designation

1. Mr. Rajesh K. Sharma Chief Executive Officer


2. Mr. Gurbhagwant Singh General Manager
3. Ms. Kajal Rai Company Secretary
Manager (Information &
4. Mr. Shammi Kohli
Systems)
Manager (Clearing &
5. Mr. Vipen Goyal
Settlement)
6. Mr. Rajinder Pal Singh Head (Margin)
7. Mr. Ramji Head (Accounts-I)
8. Mr. Ravinder Saini Head (Accounts-II)
Head (Depository
9. Mr. Vinay Mahajan
Participant)
10. Ms. Sangeeta Gupta Head (Personnel)
Head – KYC (Know Your
11. Ms. Sonia Makkar
Client)
LIST OF DIRECTORS OF LSE SECURITIES LIMITED

Sr.No. Name Designation

1. Mr. Krishan Kant Puri Chairman


2. Mr. Manoj Sarna Vice-Chairman
3. Mr. Manjit Singh Sarna Member-Director
4. Mr. Vishal Goomber Member-Director
5. Mr. Lalit Kishore Member-Director
Public Representative Director-
6. Dr. Anil Kumar Angrish
Independent Director
Public Representative Director-
7. Mr. Vijay K. Bansal
Independent Director
Public Representative Director-
8. Mr. Susheel Bhakoo
Independent Director
Public Representative Director-
9. Mr. Pawan Kumar Garg
Independent Director
Public Representative Director-
10. Dr. Prem Kumar
Independent Director
11. Mrs. Pooja M. Kohli LSE-Representative Director
SOURCES OF FUNDS:

• Membership fee from brokers at the beginning.


• Initial Listing fee from companies i.e. RS.1,000 /-
• Annual Listing fee from companies.
• Fines and Penalties from brokers.
• Maintenance charges @ RS. 1216 per room per month from those members
having room and those not having room are charged at the rate of RS. 3000
p.a.
• Interest earned on fixed deposits.
• Broker members served a notice for 60 days. If the member fails to comply
with notice, then he can be expelled.

APPLICATION OF FUNDS:

• 5% of Listing Fees to SEBI each year.


• 20% for Providing Services to Investors.
• Personal Expenses.
• Administrative Expenses.
• Electricity Charges.
• Security Charges.
• Telephone Charges.
• VSAT Charges.
• Printing and Stationary.

PAY-IN

All the members are required to honor their pay in obligations up to T+2 day at
10:30 am e.g. a member who has traded on Monday can meet his/ her pay-in
obligation up to Wednesday.
The LSESL in turn is required to pay in the Securities and funds on T+2 day to the
Clearing House of NSE and BSE (as the case may be).

PAY-OUT

The pay-out of Securities/ funds is done on T+2 basis up to 1:30 pm.

THE DEPOSITORY SYSTEM


Depository system is concerned with Conversion of Securities from Physical to
Electronic form, Settlement of Trades in Electronic Segment, Electronic Transfer
of Ownership of Shares and Custody of Securities. The system results in instant as
compare to six week’s time under Physical Mode.

In depository system, there is no physical script and as such most sat eh problem of
fraudulent transfer, take certificate, hare lose etc. virtually disappear. Electronic
transfer is faster in comparison to paper work. Stamp duty exempted and turns over
& liquidity enhances manifold.

After going through we are in position to state that the principal function of a
depository is to dematerialize securities and enable their transactions in book entry
from. Debiting the transfer’s depository account and crediting the transfer’s
depository account transfer the securities.

Re- Materialization.

Rematerialization refers to the process of conversion of conversion of shares from


electronic from into physical form. This process is prevalent in certain case only
and used selectively.

Pledge Creation and Closure.

DP provides the services of pledge creation, in case the account holder gets a loan
granted against the pledge of securities. The balance lying in the account of person
or part thereof is pledged with the institution granting loan to the holder or the
account.

Pledge closure refers to the process whereby the securities already pledged are
credited to the account of the person after the person has repaid the loan. This is
done as per instructions of account holder.

Settlement of Trades.

All the trades are settled through either market or off market transfers. In case of
settlement of trades by market transfers the buyer’s account in the DP is credited
on the account of seller of securities is debited in the concerned DP. This way the
DP trades the market or off market transfers.
DP BRANCHES

Chandigarh
Amritsar
SCO 50, 1st Floor, Sector 34-A,
35-36, 2nd Floor, Deep Complex,
Adj. Mukat Hospital, Chandigarh- 160
Opp. Centurion Bank of Punjab
022
Court Road, Amritsar 143001
Contact# 0172-501255, 3258091, and
Contact# 0813-2542212, 5018601-02
5065459-60

Jalandhar Una

15-B, Link Road, Model Town, Chaudhary Ram Sharan Saini Complex,
Near State Bank of India, Near Bus Stand, Dist. UNA (U.P.),
Jalandhar Contact# 01975-224245

Ferozepur
Sangrur
Near HM School, Malwal Road,
Near Main Post Office,
Ferozepur City
Banasar Bagh Road, Sangrur-148001,
Sector 34-A,
Contact# 01672-503281-82
Contact#01632-503438
LSE SECURITIES LIMITED

PROFILE

OBJECTIVES OF THE COMPANY

LSE Securities Limited is a subsidiary of the Ludhiana Stock Exchange, which


was formed with an objective to enhance business and investment opportunities
for the investors and members of Ludhiana Stock Exchange at large, through
innovative products by encompassing a variety of activities related to the capital
market. The company has a paid-up capital of Rs 5.55 crores.

INTRODUCTION OF THE LSE SECURITIES LTD.

LSE Securities Ltd., was incorporated in January, 2000 with a view to revive
the capital market in the region and for taking full advantage of the emerging
opportunities being provided by expansion of bigger stock exchanges like NSE
and BSE. The company since its inception has marched forward rapidly and
achieved many milestone in a short span of existence.

GOVERNING COUNCIL

The Council of the management of the Company comprises of 10 directors of


which 3are broker members and 7non-brokers. Five non broker members are
Independent Directors of eminent status from the field of finance, law and
management and remaining two are Chief Executive Officer of LSE Securities
Limited and Executive Director of the holding company (Ludhiana Stock
Exchange), who are on the Board of the company as ex-officio Directors. Thus
the council of management has representation of sub-brokers as well as
professionals and subject specialists representing various fields of business
activities. Operations of the company are run in a professional, transparent and
fair manner keeping in view of the interest of investors as well as other stake-
holders.

CORPORATE MEMBERSHIP OF NSE & BSE

SEBI, at the initiative of LSE, permitted smaller Stock Exchanges, to trade on


bigger Stock Exchanges through their subsidiary companies. The Ludhiana
Stock Exchange floated its subsidiary company, the LSE Securities Limited,
with the objective of obtaining trading rights on bigger Stock Exchanges. It has
obtained corporate membership of both NSE and BSE in the first half of year
2000.

TRADING AT NSE AND BSE

The LSE Securities Ltd. commenced trading operations in Capital Market


Segments of BSE and NSE in September, 2000 and December 2000
respectively. The turnover of the Company at NSE and BSE is growing by
leaps and bounds ever since in incorporation. There was encouraging response
from the sub-brokers specially at NSE counters.During the financial year 2005-
06, the Company recorded a turnover of Rs. 7975 crores and Rs.3834 crores in
"Capital Market" segments of NSE and BSE respectively. For the year ended
2005-2006, there were 128 sub-brokers registered for NSE and 68 for BSE.

F&O SEGMENT OF NSE

The LSE Securities Ltd. commenced trading operations in Future and Options
Segment of NSE in February 2002. The Company became the first subsidiary of
any Regional Stock Exchange which commenced trading in “F&O” Segment of
NSE. Response to trading facilities in the “F&O” segment of NSE has been
very encouraging and volumes generated in this segment soon exceeded those
in “Capital Market” segment.

TRADING THROUGH V-SATS

The LSE Securities Limited has provided facility to its sub-brokers for trading
on NSE and BSE through VSAT counters which are located outside Stock
Exchange Building. During 2005-2006, 27 sub-brokers of the company have
been trading through VSAT on NSE and 13 on BSE.

CERTIFICATION IN FINANCIAL MARKET

In order to provide professional services to the investors of LSE Securities


Limited through its sub-brokers, the company motivated its sub-brokers and its
staff to qualify the certification in financial markets conducted by NSE. All
trading terminals for Capital Market Segment and F&O segment are being
operated by the persons after having qualified the said certification
DEPOSITORY PARTICIPANT SERVICES – NATIONAL SECURITIES
DEPOSITORY LIMITED (NSDL)

The LSE Securities Ltd. commenced its operations as Depository Participant of


NSDL in August 2000. The DP services provided by the Company have
technology edge over other DPs, as DP of the company is the only On-line
Real-Time DP in the region. As a result of efficient services and competitive
rates, the Company has been able to increase its market share in the DP
business at the cost of other DPs in the region. As on date DP of NSDL and
CDSL of the Company at Ludhiana is servicing over 35000 beneficiary
accounts.

DEPOSITORY PARTICIPANT SERVICES – CENTRAL DEPOSITORY


SERVICES (INDIA) LIMITED (CDSL)

In order to further strengthen its services to sub-brokers and investors, the


Company applied for the DP of CDSL. It started DP operations of CDSL in
December 2001. With the operationalisation of DP Services of CDSL, the
Company has been able to provide delivery of shares to sub-brokers and
investors on the day of pay-out which in turn helps the sub-brokers to give
timely deliveries to their clients. Introduction of CDSL operations has also
enabled the sub-brokers and investors of the Company to timely meet the pay-in
obligations of securities purchased by the investors on BSE and sold next day
on NSE through the Company and vice-versa.

EXPANSION PROJECTS

To increase its presence in the region further, the company plans to open its
branches of Depository Services in the major cities of the region. To start with,
it has already opened its branches at Jalandhar Amritsar and Chandigarh.
Portfolios
A Portfolio, for our purposes, is a collection of programs and/or projects and other
work that are grouped together to facilitate effective management of that work to
meet strategic business objectives. Unlike a program itself, the projects or
programs of the portfolio may not necessarily be interdependent or directly related.

Thus, a portfolio will typically be the umbrella structure over a group of related
and unrelated projects and other work. A program could be contained within a
portfolio, although the reverse would not likely be true. A portfolio may also be
defined to contain support, operations, non-labor expenses, although those types of
work do not have to be included if there are good reasons not to do so.

The portfolio allows you to optimize investment decisions by prioritizing and


balancing all work within the portfolio. For maximum effectiveness, a portfolio
should encompass all of the work that draws on common resources such as that
contained within an entire Business Unit or department.

However, again, work is not done at the portfolio level. Instead, the work is done
through the projects, support teams and operational teams that are working within
the portfolio.

“Portfolio Management primarily involves reducing risk rather than increasing


return.”

portfolio is nothing but the combination of various


securities. portfolio is minimizing risk
and maximizing returns through diversification of funds
into different securities.

Portfolio Investment

Investment made (usually in another country) in bonds and shares. An alternative


form of foreign investment is direct investment, buying commercial assets such as
factory premises and industrial plant.

Portfolio Company

A company in which a private equity firm invests. All of the companies currently
backed by a private equity firm can be spoken of as the firms portfolio.
Efficient Portfolio

A portfolio that offers the highest expected return for a given level of risk
(standard deviation) and the lowest risk for its expected return.

Optimal Portfolio

A portfolio which provides the highest possible utility, given the constraints
imposed by the opportunity set and efficiency frontier.

What is Beta?

It measures the risk associated with individual portfolio


in relation to the market portfolio.

THE TWO KEY CONCEPTS IN FINANCE

The two key concepts in finance (1) A dollar today is worth more than a dollar
tomorrow, and a safe dollar is worth more than a risky dollar.

RISK

A risk situation must involve a chance of loss. Risk is something you encounter
everyday. Even crossing a busy street involves some risk. With investments,
balancing risk and return can be a tricky operation. All investors want to maximize
their return, while minimizing risk.

Types of Risk

When most people think of "risk" they translate it as loss of principal. However,
there are many kinds of risk. Let's take a look at some of them:

Capital Risk: Losing your invested monies.

Inflationary Risk: Investment's rate of return doesn't keep pace with inflation rate.

Interest Rate Risk: A drop in an investment's interest rate.

Market Risk: Selling an investment at an unfavorable price.


Liquidity Risk: Limitations on the availability of funds for a specific period of
time.

Legislative Risk: Changes in tax laws may make certain investments less
advantageous.

Default Risk: The failure of the institution where an investment is made.

How Do Different Assets Perform?

It may seem that there are countless types of investment products to choose from
but, basically, there are three types of core investments: cash (or cash equivalents),
bonds, and stocks.

Cash

Investments such as bank savings and checking accounts, Certificates of Deposit


(CDs), and Treasury Bills. The prices generally don't fluctuate very much. To
investors concerned with loss of capital risk, cash would appear to be the most
secure choice, as principal is guaranteed and/or insured. Savings and checking
accounts are highly liquid, as they can be readily converted into cash. With CDs,
you may face liquidity risk, as they must be held for a predetermined period of
time or may be subject to penalties for premature withdrawal. Although risk to
principal may be minimal, loss of purchasing power, or inflationary risk, must be
taken into consideration. When inflation and taxation are taken into account,
returns can be considerably lower. Hypothetically, let's say in 1981 you earned
14% in an investment. It sounds astronomical; however, the inflation rate at one
point that year soared to 15%. That's a net loss of value of at least 1% — and that's
before taxes take another bite.

Bonds

Commonly called "fixed income investments," they are basically loans or "IOUs."
Interest is earned on the money you lend. The prices of bonds do move up and
down, but normally not as much as stocks. Many people think of bonds as
conservative investments, but the returns can have a high degree of volatility. The
fluctuation of interest rates is called interest rate risk, and a downturn in the bond
prices could significantly decrease the overall return of any particular bond.

Stocks
Represent equity in, or partial ownership of, a company. An easy way to remember
the difference between stocks and bonds is: "With stocks, you own. With bonds,
you loan." The price of a stock or share can move up or down, sometimes a lot.
The returns of stocks from year to year can be quite volatile, but, as the graph
illustrates, the returns from stocks have significantly outpaced inflation, and topped
the returns from cash and bonds as well, over this twenty-year period.

PORTFOLIO OBJECTIVES

Although the precise terminology varies among portfolio management firms, there
are four main portfolio objectives. These are

Stability of Principal.

Income.

Growth of Income.

Capital Appreciation.

Primary and secondary portfolio objectives

Secondary Primary objective


Objective
Stability of * Debt and Unacceptable ?
Principals Preferred Goals
Stock

Income Short Term * At Least 40% ?


Debt Equity
Growth of Unacceptable Varies: often * At Least 75%
Income Goals > 40% Equity
Equity
Capital Unacceptable ? At Least 75% *
Appreciation Goals Equity

? = Unusual combinations involving a need to tailor a portfolio to a very specific


need.
* = Not applicable.

A good rule of thumb is to have 10% of your portfolio in fixed- income investment
for each decade of your life.

PICKING THE EQUITY PLAYERS.

“You buy a stock, and when it goes up, you sell it. If it does not go up, do not buy
it.”

A Dictionary of Finance and Banking ; equity share capital The share capital
of a company that consists of its equity shares as opposed to its non-equity shares .

A portfolio manager needs to understand the basics of security analysis, which


were a hallmark of investment analysis in earlier days, confusion can arise when
familiar investment terms are used incorrectly. One objective of this is explanation
of the principals categorizes of stock suitable, for one portfolio but not for another.

DIVIDEND

A distribution of a portion of a company's earnings, decided by the board of


directors, to a class of its shareholders. The dividend is most often quoted in terms
of the dollar amount each share receives (dividends per share). It can also be
quoted in terms of a percent of the current market price, referred to as dividend
yield.

Also referred to as "Dividend Per Share (DPS)."

Dividend Payout Ratio

Gordon Growth Model


A model for determining the intrinsic value of a stock, based on a future series of
dividends that grow at a constant rate. Given a dividend per share that is payable in
one year, and the assumption that the dividend grows at a constant rate in
perpetuity, the model solves for the present value of the infinite series of future
dividends.

Where:
D = Expected dividend per share one year from now
k = Required rate of return for equity investor
G = Growth rate in dividends (in perpetuity)

PREFERRED STOCK

“It is neither wealth nor splendor, but tranquility and occupation, which give
happiness.”

Capital stock which provides a specific dividend that is paid before any dividends
are paid to common stock holders, and which takes precedence over common stock
in the event of a liquidation. Like common stock, preference shares represent
partial ownership in a company, although preferred stock shareholders do not
enjoy any of the voting rights of common stockholders. Also unlike common
stock, preference shares pay a fixed dividend that does not fluctuate, although the
company does not have to pay this dividend if it lacks the financial ability to do so.
The main benefit to owning preference shares are that the investor has a greater
claim on the company's assets than common stockholders. Preferred shareholders
always receive their dividends first and, in the event the company goes bankrupt,
preferred shareholders are paid off before common stockholders. In general, there
are four different types of preferred stock: cumulative preferred, non-cumulative,
participating, and convertible. also called preferred stock.

BOND SELECTION

Buy a bunch of bonds, Add a batch of stock,


Put them in a stack; Keep a little cash;
Worry about their coupons, Never go in hock,
Keep the risk on track. Do not do nothing’ rash
A debt investment in which an investor loans money to an entity (corporate or
governmental) that borrows the funds for a defined period of time at a
fixed interest rate. Bonds are used by companies, municipalities, states and U.S.
and foreign governments to finance a variety of projects and activities.

Bonds are commonly referred to as fixed-income securities and are one of the three
main asset classes, along with stocks and cash equivalents..

SECURITY SCREENING

“ Never tell people how to do things. Tell them what to do and they will surprise
you with their ingenuity.”

Security screening is an important part of portfolio construction process. Picking


stocks is an art rather than a science; there is no best way to do the screening, nor is
there even a right or wrong way.

Why Screening is Necessary

Time Constraints.

Easy to administer.

Relevant and appropriate.

Acceptable to the users.

SCREENING PROCESSES

Possible Screening Variables for Common Stock using only Data from the
Financial press

PE ratio

Dividend yield

Stock Price

Exchange Listing
Familiarity

Relation of current price to 52- weeks high and low

VALUE/ SCREEN II VARIABLES

RATINGS AND ESTIMATES


Timeliness rank Price stability index
Safety rank Beta
Financial strength rank Current earnings per share
Industrial code Current dividend
Industrial rank Technical rank
MARKET DATA
Recent price Price/book value
52- week high price 13- week % price change
52- week low price 26- week %price change
Current PE ratio Market value
Current yield(%) Option listing
HISTORICAL MEASURES
Sales in RS. Last quarter EPS % change
% return net worth 12- month EPS % change
% retained to common equity 5- year EPS growth
Book value per share 5- year dividend growth
Debt as % of capital 5- year book value growth

GROWTH PROJECTIONS
Estimated % change EPS, Q1 Projected EPS growth
Estimated % change EPS, Q2 Projected dividend growth
Estimated % change EPS, Fiscal year Projected book value growth
Projected 2- to 5- year appreciation Projected 3- to 5- year average return
FISCAL YEAR DATA
Cash Current liabilities
Current asset Net worth
Total assets Cash flow per share
Long- term debt Net profit
IDENTIFICATION DATA
Company name Exchange code
Ticker symbol % institutional holdings
Industry name Shares outstanding
THE ROLE OF REAL ASSET

“ For all things are not profitable for all men, neither hath every soul pleasure in
every thing.”

Portfolio managers should keep abreast of new developments in their field and not
exclude potential investments simply because “ No one else does it.” Many worthy
portfolio components are ignored because of a lack of understanding of their
merits.

Timberland is an increasingly popular investment with some of the nation’s largest


pension funds. Its historic returns have been at least as high as those of common
stocks and timberland offers significant portfolio risk- reduction benefits because
of its poor correlation with other financial assets. Real estate in general, and
timberland in particular, are expected to make up a much large percentage of
managed portfolios in the next five years.

Many investors consider gold to be a good hedge against times of uncertainty, As


well as against inflation. Gold is an especially popular investment in Europe and is
becoming more so in the United States. These are various ways to invest in gold as
Gold certificates, Bullion, Coins, some of them very convenient.

Using the investment pyramid The chart arranges various investment choices
according to the risk-reward relationship. The higher the investment is located in
the pyramid, the higher the potential return, and the higher the risk. Since cash and
cash equivalents offer the lowest risk and return, you will find them at the bottom
of the pyramid. Mutual funds are included in all categories because there are many
different kinds of mutual funds. Each fund has its own level of return and risk. The
classification of a stock as low, moderate or high risk depends on your point of
view. What seems risky to you may not seem risky to the next person.
MODERN PORTFOLIO THEORY

The Primary principle upon which Modern Portfolio Theory is based (MPT) is the
RANDOM WALK HYPOTHESIS which sates that the movement of asset prices
follows an Unpredictable path: the path as a TREND that is based on the long-run
nominal growth of corporate earnings per share, but fluctuations around the trend
are random. There are 3 Forms of the Hypothesis:

Weak Form:

Security Prices reflect ALL information about price &


Trading behavior in the market. Thus, analyzing the security’s or market’s
data contains NO information that enables predictions on future price to be
made. Thus, CHARTING & TECHNICAL ANALYSIS do NOT Work.

Semi-strong Form:

The Markets react quickly to new public information,


whether it relates to trading activity (weak form) or fundamental earnings.
Studying historical information, thus, is not too relevant and won’t enable
superior results.

Strong Form:

All relevant information knowable about a company is


already imbedded in the price of a security Only new information
produces systematic (non-random) price changes. Since new information
enters the marketplace randomly, asset price movements are random.

Definition

Overall investment strategy that seeks to construct an optimal portfolio by


considering the relationship between risk and return, especially as measured by
alpha, beta, and R-squared. This theory recommends that the risk of a particular
stock should not be looked at on a standalone basis, but rather in relation to how
that particular stock's price varies in relation to the variation in price of the market
portfolio. The theory goes on to state that given an investor's preferred level of
risk, a particular portfolio can be constructed that maximizes expected return for
that level of risk. also called modern investment theory.
Return as a Random Variable

When Security prices are determined within an efficient market structure, a


PROBABILITY DISTRIBUTION can be used to describe them.

Expected Return:

the return around which the probability distribution is


centered; the expected value or mean of the probability distribution of
returns

Standard Deviation:

The parameter which describes the width & shape of


the distribution of possible returns.

Measuring Risk:

Risk exists when more than one outcome is possible from an investment. It can be
defined as the probability that the ACTUAL RETURN will be SIGNIFICANTLY
DIFFERENT from the EXPECTED RETURN. With small standard deviations,
there is little chance that the actual return will be significantly different from the
expected return. With large standard deviations, there is a good chance that the
actual return will be significantly different from the expected return. The
SOURCES of Risk are Business risk, financial risk, Liquidity risk, and exchange
rate/country risk (for foreign stocks). The Variance and Standard Deviations of
Returns are MEASURES of Risk. In reality, the distribution of returns is probably
NOT NORMAL.

Devising a Good Measure of Investment Risk

The FIRST Criterion of a good measure of investment risk is that it should be a


RELATIVE measure of risk (i.e., it should define risk as the probability that a
portfolio’s return will fall below some BENCHMARK RETURN RB. This
Benchmark return is the minimum return objective of the investor. Some possible
Benchmarks include _

RB = 0. Risk is when a portfolio’s return is zero or less.

RB = I. Risk that the portfolio will grow as fast as inflation. If not, the
investor loses purchasing power & wealth

RB = RM. Risk that the portfolio under-performs the Market

RB = RAvg. Portfolio Manager. Risk of under-performing peers

RB = Actuarial Assumptions (like Pensions & Insurance)

When Risk is Defined that the Portfolio’s Actual Return (RP) will fall below the
Benchmark (RB), There are a few ways to QUANTIFY that risk in a Single
Summary Measure

Relative First Order Lower Partial Moment – measures the expected


shortfall below the Benchmark.

RLPM1 = ∑(RP – RB) * P(RP - RB)

This works for both normal & non-normal distributions. But, it does
assume that the investor utility functions are linear, rather than quadratic
or logarithmic.

2. Portfolio Construction

Weighted Average of Past Returns.


n
R p = ∑ xi Ri
i =1

Where :
xi = relative weight of asset i
Ri = return on asset i

Measuring Risk of the Individual Security

Risk is the possibility that the actual return that will be realized, will turn out to
be different than what we expect (or have forecast).

This can be measured using standard statistical measures of dispersion for


probability distributions. They include:
variance
standard deviation
coefficient of variation

Standard Deviation

The formula for the standard deviation when analyzing population data (realized
returns) is:
n

∑ (k i − ki ) 2
σ= i =1
n −1

The formula for the standard deviation when analyzing forecast data (ex ante
returns) is:
n
σ= ∑(k
i =1
i − k i ) 2 Pi

it is the square root of the sum of the squared deviations away from the expected
value.

Forecasts to Estimate Beta


Cov (k s k M )
Bs =
Variance ( k M )

Grouping Individual assets into portfolios

The riskiness of a portfolio that is made of different risky assets is a function of


three different factors:

the riskiness of the individual assets that make up the portfolio

the relative weights of the assets in the portfolio

the degree of comovement of returns of the assets making up the


portfolio

The standard deviation of a two-asset portfolio may be measured using the


Markowitz model:
σp = σA2 wA2 +σB2 wB2 +2 wA wB ρA, BσAσB
Risk of a Three-asset Portfolio

σp = σA2 wA2 +σB2 wB2 +σC2 wC2 +2 wA wB ρA, BσAσB +2 wB wC ρB ,CσBσC +2 wA wC ρA,CσAσC

To find this, you solve for the required return in the CAPM:
R ( k ) = R f +βs [ k M −R f ]

Risk under the Capital Asset Pricing Model

Total risk = systematic risk + unsystematic risk

The Real Risk Free Rate = RF-real

An Inflation Premium = RInfl.

A Capital Market Risk Premium = RCMRP

RM = RF-real + RInfl. + RCMRP

Traditionally, it has been assumed that the inflation risk premium equals the
expected rate of inflation

RInfl. = E(Infl.)

Furthermore, the nominal risk-free rate is assumed to be the real risk-free rate plus
the expected rate of inflation. Thus, the expected rate of return on the capital
market portfolio is often stated to be the sum of the nominal risk-free rate plus the
market risk premium

RM = RF + RCMRP

Thus, the premium for risk paid by the market is the difference between the
expected return on the market & the nominal risk free rate

RCMRP = RCM - RF

The Expected Return on any efficient portfolio can be determined by CAPM

RP = RF + β P(RCM – RF)
However, the β of the Portfolio is
β P = rP,CM(δP δCM/ δ²CM) = rP,CM(δP/ δCM)

Therefore, the expected return on any asset class or portfolio (RP) in an efficient
market must be:

RP = RF + rP,CM[(RCM – RF) / δ CM]( δ P)

The term [(RCM – RF)/ δ CM] is the Sharpe Ratio of the Capital Market Portfolio
(SCM). It can be viewed as the price that the capital market pays for taking the
normal amount of capital market risk.
THE GAZETTE OF INDIA
EXTRAORDINARY
PART –III – SECTION 4
PUBLISHED BY AUTHORITY
NEW DELHI, August, 2008
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 11th August, 2008
SECURITIES AND EXCHANGE BOARD OF INDIA

(PORTFOLIO MANAGERS) (AMENDMENT) REGULATIONS,2008

No. LAD-NRO/GN/2008/19/134764 - In exercise of the powers conferred by


section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992),
the Board hereby makes the following Regulations to further amend the Securities
and Exchange Board of India (Portfolio Managers) Regulations, 1993, namely :-

1. These Regulations may be called the Securities and Exchange Board of India
(Portfolio Managers) (Amendment) Regulations, 2008.

2. They shall come into force on the date of their publication in the Official
Gazette.

3. In the Securities and Exchange Board of India (Portfolio Managers)


Regulations, 1993: -

(i) in regulation 6, in sub regulation (2), in clause (d), for the words ‘experience
as portfolio manager or stock broker or investment manager’ the words ‘experience
in related activities in portfolio management or stock broking or investment
management’ shall be substituted;

(ii) in regulation 7, -

(a) for the words “fifty lacs rupees” occurring at the end, the words “two crore
rupees” shall be substituted;

(b) before the Explanation, the following provisos shall be inserted, namely:-
“Provided that a portfolio manager, who was granted a certificate under these
regulations prior to the commencement of the Securities and Exchange Board of
India (Portfolio Managers) (Amendment) Regulations, 2008, shall raise its
networth to not less than one crore rupees within six months from such
commencement and to not less than two crore rupees within six months thereafter;

Provided further that the portfolio manager shall fulfill capital adequacy
requirement under these regulations, separately and independently, of capital
adequacy requirements, if any, for each activity undertaken by it under the relevant
regulations.”

(iii) in regulation 16, for sub - regulation (8), the following shall be inserted
namely:-

“ (8) The portfolio manager shall not hold the listed securities, belonging to the
portfolio account, in its own name on behalf of its clients either by virtue of
contract with clients or otherwise: Provided that any portfolio manager holding the
listed securities belonging to the portfolio account in its own name on behalf of its
clients on the date of commencement of the Securities and Exchange Board of
India (Portfolio Managers) (Amendment) Regulations, 2008 shall segregate each
clients’ listed securities and keep them separately within six months from such
commencement:

Provided further that the Board may in the interest of investors or for the
development of securities market, on an application made in this behalf by a
portfolio manager with respect to any specific investment existing on the date of
commencement of the Securities and Exchange Board of India (Portfolio
Managers) (Amendment) Regulations, 2008, relax the strict enforcement of this
regulation.”

(iv) in Schedule I-

(A) in Form A-

(I) in part I-

(a) in clause 2.3, the words and commas “partnership, proprietary,” shall be
omitted;

(b) in clause 2.5, the marks and words “/partners/Proprietor” shall be omitted;
(c) in clause 5.1, notes 1 and 2 occurring at the end shall be omitted;

(II) in part II-

(a) clause 7.3 shall be omitted;

(b) in clause 7.4 the word “scheme” shall be omitted;

(c) in clause 7.5, the words and brackets “(Clientwise and Schemewise)” shall be
omitted;

(d) in clause 8.3, in para (a), the words “Average period of Portfolio Management
Schemes ” wherever they occur shall be omitted;

(III) in declaration-

(a) for the instruction, the following shall be substituted, namely:-


“This Declaration must be signed by Two Directors”

(b) words and marks “/ Partner or Sole Proprietor” wherever they occur shall be
omitted;

(B) in Form C, in clause (ii) word “Scheme” occurring at the end shall be omitted;

(v) in Schedule IV, in clause 5, sub-clause (ii) shall be omitted;

(vii) in Schedule V, under the heading ‘MODEL DISCLOSURE DOCUMENT


FOR PORTFOLIO MANAGEMENT’-

(I) in item I, sub-item (iv) shall be omitted;

(II) In item III, in sub-item (6)-

(a) for clause (i), the following shall be substituted, namely:-

“(i) Statement to the effect that securities investments are subject to market risks
and there is no assurance or guarantee that the objective of investments will be
achieved.”

(b) for clause (ii), the following shall be substituted, namely:-


“(ii) Statement to the effect that the past performance of the portfolio manager does
not indicate its future performance.”

(c) for clause (v), the following shall be substituted, namely:-

“(v) If the portfolio manager has no previous experience/track record a disclosure


to that effect shall be made.”

C. B. BHAVE
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADVT. III/IV/69ZB/2008/Exty.]
TEN STEPS TO COMPREHENSIVE PROJECT PORTFOLIO
MANAGEMENT.
Step 1 - Portfolio Setup (Categorization)

The Project Management Institute defines "Categorization" as: "The process of


grouping potential components into categories to facilitate further decision
making", and it defines a category as: "A predetermined key description used to
group potential and authorized components to facilitate further decision-making.
Categories usually link their components with a common set of strategic goals."

When first implementing portfolio management, obviously you must first establish
what you are going to manage. That is, you need an overview of the extent and
variety of existing and potential work, how it maps into the organization's overall
strategy and so on. In other words you must have a good idea of the extent and size
of your portfolio mandate.

So, for the first time through this heading comes to the top, but we prefer to call it
"Portfolio Setup". In subsequent passes, you may well decide that it makes more
sense to conduct detailed categorization following identification of all the new
portfolio components. But for now, Setup is where you define the terms, scope and
definition of your portfolio, and gain agreement on your basic portfolio model.

Tips on Step 1 - Portfolio Setup (Categorization)


The first time your organization introduces portfolio management, it must
determine all of the elements that will compose the planned portfolio. In a large
organization there may be more than one portfolio, each designed for a different
division or different focus. Selection of the respective components will depend on
the individual portfolio plan's operational goals and objectives. Your best way to
draw up an inventory of all of the potential components is to establish a set of Key
Descriptors through which the components can be identified, assembled and
compared, i.e. categorized.

For example, the following list suggests possible descriptors that you could adopt
and include:

• Reference number
• Brief description of the component
• Class of component, e.g.
• Project
• Program
• Business Case
• Value Proposition
• Sub-portfolio
• Other related work
• Strategic objectives supported
• Benefits - quantitative
• Benefits - qualitative
• Sponsor, client, customer
• Type of product, deliverable or enabler
• Estimated cost
• Risk category

Based on this data, the potential components can be categorized based on one or
more of the descriptors such as Class, Objectives, Type of Benefits, Client, Cost or
Risk level, depending on whatever makes the most sense to the organization. In
subsequent years, the principles will have been established so this step should
prove to be easier. Nevertheless, the actual components in the various categories
identified will change.

Step 2 - Identify Needs and Opportunities (Identification)

This step starts with an evaluation of your environment through a Current State
Assessment and then contrasting the current state with a Future State Vision that
describes where you want your organization to be in the future. This process
results in the validation (or creation) of your mission, vision, strategy, goals and
objectives. In particular, your strategy and goals will provide the high-level
direction that will help align and prioritize all the work for the coming business
cycle.

The Identification step can also be very lengthy the first time you establish portfolio
management in your organization. The Current State Assessment, for instance, may
take a long time to complete. However, in subsequent years, you only need to
recognize the changes. For instance, your strategy and goals may change slightly to
put new emphasis in a couple different areas. However, they should not be radically
different from one year to the next. Since your organization has probably not
changed a lot over a one-year period, your Current State Assessment may need to be
reviewed and updated, but not necessarily performed again from scratch. The
Identification step is also where all of the potential work is surfaced for the coming
year. At this point, each request should have, at a minimum, a simple Value
Proposition document that describes the work, the value that it will provide to the
organization and the basis of alignment with the overall organizational strategy and
goals. If you are including all work, the Value Propositions will include both
projects and "Other Work".

Tips on Step 2 - Identify Needs and Opportunities


(Identification)
Differentiating Between Needs and Opportunities

"Other Work", as we have already described, encompasses operations and support


work necessary to keep things working in the future pretty much the same as they
are working today. Projects, on the other hand, have a start and finish and are
generally designed to take advantage of opportunities and represent the way an
organization builds new capabilities or responds to events in the marketplace.

But projects come in different sizes and, in fact, could be as little as one hour.
However, from a practical standpoint, organizations should establish thresholds so
that different levels of "ceremony" can be applied, and those "projects" that are so
small that they do not warrant any ceremony will be classified as "Other Work".
For example, you may decide that any request for a specific piece of work that will
take less than 25 hours will definitely be treated as Other Work. If your department
is a larger one, that number of hours may be higher. What is "small" to one
company may be quite "large" to another.

Of course, if the volume of Other Work such as this is significant and fairly steady,
it may be possible to dedicate a group of people to this work. In this case, this
group's work would not be included in the portfolio in the first place. Even so,
including the group as part of the available resources has its advantages. It
provides greater flexibility in the allocation of skills, and more opportunities for
the people involved.

The following demonstrates the concept of "project sizing".

• Support work - Short-run, project-like non-discretionary Other Work


necessary to keep normal operational work going, e.g. a discrete task of, say,
less than 25 man-hours.
• Small project - A non-complex project involving a relatively small number
of man-hours that has some discretion for prioritization, say, 25 to 250 man-
hours

• Medium project - Probably where most projects fit, needs managing but not
necessarily full-scale ceremony, say, 250 to 2,500 man-hours
• Large project - Projects requiring full-scale treatment on account of size
and complexity, say, over 2,500 man-hours

Programs can be similarly scaled to suit organizational requirements.

Regulatory and Legal Requirements

From time to time you may encounter projects that are mandatory on regulatory or
legal grounds. In this case you will be obligated to assign the necessary resources
and schedule the projects during the year. But if any are not urgent, you may not
necessarily assign them immediate priority. For example, you may have to modify
accounting systems and processes to comply with new standards or guidelines
issued by accounting standards groups. Or, you may have to make payroll changes
to account for new tax laws changes, or new Human Resource system changes to
comply with new collective bargaining terms. None of these are necessarily
providing a competitive advantage or building new capability, so perhaps they can
be slotted in later in the year's portfolio program.

Step 3 - Evaluate Options (Evaluation)

You cannot make decisions on prioritizing work without knowing what the
organization feels is important. This is where you need to revisit the documentation
from Step 1 - Portfolio Setup and ensure that you have a proper basis for
evaluation of all the work opportunities included in the portfolio. This will result in
establishing the context within which work priorities and approvals will be made.

This Step 3 includes validating the Value Propositions prepared in Step 2 - Identify
Needs and Opportunities, and perhaps you will need to clarify the most likely
candidates.

Tips on Step 3 - Evaluate Options (Evaluation)


Cutting Work
The purpose of the Identification Step 2 was to uncover all of the potential work
that should be considered for the portfolio in the coming year and beyond. In many
cases, this may have been the result of brainstorming exercises. In any case, this
step should have cast as wide a net as possible to include all of the work that could
possibly be in this year's portfolio.

Now let's assume that all of the potential work for the coming year has been
identified. No doubt you already know that it is more than you can handle and that
some, perhaps much, of the proposed work will not be authorized. So now you
need to start the process of scaling back so that you can bring forward only those
components that are of the most importance and value. In later steps, you will be
prioritizing work from most important to least important. However, at this point
you may have nothing more than a name and brief description and you may or may
not have cost information perhaps based on historical numbers.

Remember that one of the purposes of portfolio management is to make sure that,
after mandatory work, only work with the highest value and best alignment will be
authorized. While you may have some sense of the value of some of the work, you
need solid information to go on if you are to compare the merits of the various
work initiatives, establish linkages and priorities, and plan out the work for the
year.

So this step becomes a matter of cutting work before prioritizing the remainder.
For this you need to ensure that, at a minimum, you have a Value Proposition. Any
item that does not have a Value Proposition, or better, should be cut now -
unceremoniously!

The merit of calling for a Value Proposition is that it is a relatively simple


document involving minimal effort to create and at least provides for the allocation
of sufficient resources to create a proper Business Case or beyond. In other words,
you have inserted a Value Proposition stage into the project life span. This may be
very appropriate for potentially medium to large projects.

Step 4 - Select the Work (Selection)

In this step you or your portfolio group must make serious and potentially far-
reaching decisions. Although it may sound simple, this effort must be meticulous
and rigorous. For instance, if there is any question about a particular but likely
Value Proposition, the Value Proposition may need firming up. In all but minor
work efforts, a more detailed Business Case should be created for all projects that
survive the initial selection.
Thus, during this step you should have had a complete review of all the Value
Propositions and/or Business Cases on the table and end up with a selection of
work that you actually expect to conduct during the ensuing period.

Tips on Step 4 - Select the Work (Selection)


Having evaluated all of the necessary work and the credible opportunities and
initiatives, the next step is to produce a shorter list of portfolio components from
the work done in the previous Steps. The prioritization of this list may almost be
self evident, but not always. So, for each of the components brought forward, you
should have the following information:

• A statement briefly describing the Strategic Plan as one basis of reference


• List of evaluated components, assembled in categories if or where applicable
• A Value Proposition, Business Case or Project Charter (in the case of an on-
going project), documentation that reflects the justification in terms of
benefits, as well as cost time and risk considerations
• A value score for each component
• Graphical representations where these help to clarify relative standings
• The resources required for each component
• Recommendations resulting from the evaluation Step and/or from the
sponsoring Client or Customer

As a result of this Step you will end up with a list of categorized, evaluated and
selected portfolio components, together with a set of recommendations for
subsequent Steps.

Secondary Selection Criteria for Screening


In a sense, you have developed a "first cut" selection basis for projects when you
developed your portfolio Categorization in Step 1 earlier, and subsequently when
you worked through the follow-on Steps of Identification and Evaluation. That is
you looked at where you are, the projects that you need to implement to get to
where you want to be, and the respective needs of other clients that you serve.

In the course of this process, we have emphasized that projects for inclusion should
be:

• Subjected to a screening or selection process that is formal and consistent


• Based on a viable Value Proposition for small projects or Business Case for
medium and large projects
• All consistent with your organization's strategic direction, and/or your
department's goals, objectives and other identified criteria

The concept of screening is shown graphically in Figure 4. Note that a project,


particularly if medium to large, could pass the Business Case criteria but on further
scoping and feasibility planning, it could still be rejected from actual
implementation.

Figure 4: The concept of project screening

However, at this point, for purposes of focusing on the short term, i.e. your next
year's work, you may now wish to establish a hierarchical selection list to help with
the next step of prioritization. That is, your work list will be submitted to your
Steering Committee (or a selection committee made up of functional department
representatives) and to facilitate their decisions, your projects will be assembled
according to the following hierarchical listing:

Government regulatory requirements :-

1. Need to satisfy public safety concerns


2. Operational efficiency improvements
3. Environmental improvements or public relations opportunity
4. New business or economic opportunity
5. Projects that are "morally right" but with benefits difficult to quantify
The distribution of resources across these groups will be established in a
subsequent Balancing Step (Step 6). However, within each of these groups you can
now select projects for consideration according to your established criteria, or
perhaps specific group criteria as appropriate, such as:

• Cost/benefit analysis
• Economic analysis
• Cash flow or pay-back analysis
• Financial sensitivity to risk, or
• Some other measure of benefit such as contribution to corporate image, etc.

Step 5 - Prioritize the Work (Prioritization)

One of the key assumptions of Project Portfolio Management is that there is much
more work requested than the organization can execute in one year. (If, in fact, you
could do everything requested, you might not need such a process. However,
experience tells us that this is very unlikely unless, perhaps, the business is in a
state of decline.)

Once all the work has been selected, a prioritization process begins. First, work is
prioritized within each business unit or group, and the Business Cases for all the
work are then prioritized to come up with a final list of prioritized work. This
process is easily described, but hard to accomplish because of the need for
collaboration and consensus amongst all the senior managers and/or stakeholders.

Ranking the Portfolio Components


Assuming that there has been a general categorization in Step 1, as described
earlier, you can now perform ranking of the categories and components within
each category. If the gathering of potential portfolio components has taken place
at, say, a departmental level, but portfolio management takes place at the next
management level up, say, at the divisional level, then this Step 5 may be
conducted twice. That is, assembly and ranking will take place once at each level.

Ranking of portfolio components may be assigned according to some hierarchy


such as:

1. Mandatory. You do not need to rank this work. It will all be authorized,
although you may have some discretion in how much funding you provide
and when the work starts.
2. Business critical. This category of work must also be performed; however,
there is much more discretion in terms of scheduling, funding level and
balancing.
3. High priority. These projects are ranked in terms of value, urgency and
alignment to your goals, objectives and strategy.
4. Medium priority. As for high priority but at a lower level.
5. Low priority. Everything else goes here. It is likely that anything in this
category will not be funded.

Note that in some companies, funding is authorized on a project basis and any
project-allocated funding not consumed in one year is carried over to the next. This
approach to project financing is much more robust and auditable. From a resource
planning perspective, it means that on-going projects have first call on the
available resources.

Who Does the Ranking?

Ostensibly, the ranking is done by the organization's Steering Committee.


Remember that this Steering Committee is a group of high-level clients and
stakeholders who are responsible for providing portfolio strategic guidance,
prioritization and approval of the work for the portfolio and then monitoring the
portfolio throughout the year. If new work comes up or if changes occur in the
authorized workload, the Steering Committee determines the impact on the
portfolio and adjusts accordingly.

In practice, because this work is numbers intensive, it may be assigned to a


supporting committee, or it may be done by people in the PMO who will present
their recommendations.

Resolving Ranking Issues


Ranking is fraught with difficulties, not because it is fundamentally difficult, but
because of the competing interests. There are a number of ways to resolve project-
ranking issues, especially when there are multiple projects on a similar level to
consider and it is difficult to keep all in mind at once.

Choosing From a Lot of Projects

Probably the simplest approach to choosing from among a lot of portfolio


components is to establish an agreed hierarchy and mark every component
accordingly.
Simple Comparative Matrix

The next simplest method is to compare pairs of projects in a matrix format. This
can be done by an individual, or in a teamwork session. The comparison of any
two projects relies on the participants' personal knowledge, objectivity and sound
judgment. The result is strictly qualitative, but with the right people involved, this
is probably as good as any.

The approach is as follows:

1. Number the components from 1 to n in no particular order


2. Compare the components in pairs using the chart shown in Figure 5
3. The winner of each pair is flagged in the score line
4. The ranking follows from the number of flags in the score line

Figure 5: Comparison Matrix Chart

Multiple Criteria Weighted Ranking

Where you have to take into account multiple rating criteria for project ranking,
you can develop a spreadsheet along the lines shown in Figure 6. Even then, you
may need to invoke the Simple Comparative Matrix described above to resolve
competition between closely ranked projects within a given criterion.

Proj# Criticality Project Success Benefits


1-9 Rank Prob Cost PxC Rank Prob Value PxV Rank Score Priority
A 7 2 80% $1M 0.8 4 50% $20M 10 5 3.7 4=
B 4 3 65% $2.5M 1.6 2 75% $40M 30 1 2 1
C 2 4 70% $500K 0.35 5 95% $20M 19 2 3.7 4=
D 9 1 45% $3M 1.35 3 40% $30M 12 4 2.7 2
E 1 5 90% $7M 6.3 1 25% $70M 18 3 3 3

Note: Projects A and C score equally, and since they are low on the list may have
to be resolved subjectively.

Step 6 - Balance and Optimize the Portfolio (Balancing)

Having selected and prioritized the work, it is important for you to step back and
take an overall hard look at the resulting work now contemplated. The question is,
is it "balanced"? That is, does the resulting mix satisfy the overall direction of the
organization and its overall priorities? Just as important, does the resulting mix
produce the best or optimum benefit value?

You may find the answer to the first question is relatively easy to answer by adding
up the estimated work under each of the categories and comparing that with the
strategic plan. The answer to the second question is more difficult because you not
only need to estimate the value of the anticipated future benefits, but you may find
yourself trying to compare different types of benefits. Some of these benefits may
not necessarily be identifiable in financial terms and you will need to apply
subjective judgment.

As an example, a new process or system will lead to a reduced number of steps


compared to a previous process. However, the benefit is not likely to be realized in
reduced cost because no one will be laid off as a result, but it should lead to
reduced errors, consequent higher customer satisfaction, customer loyalty and
repeat business. Here there is a clear and desirable benefit, but not one that can be
readily compared in direct financial terms.

Tips on Step 6 - Balance and Optimize the Portfolio


(Balancing)
Balancing your portfolio of components is an essential step in the project portfolio
management responsibility. Portfolio Balancing is the process of organizing the
prioritized components into a component mix that has the best potential for
collectively supporting and achieving your organization's strategic goals in terms
of the benefits to be derived. It means establishing Balance Points that require
Executive decisions on the allocation of resources, financial or otherwise, between
competing demands within a portfolio, such as between Operations, Projects, Other
Work, and so on. It may even mean establishing a balance between competing
internal "political" demands. The Balance Points may be set in terms of actual
dollar amounts, but more usually are set in terms of percentages. However that
may be, when you are first starting portfolio management you may need to keep
two particular Balance Points in mind.

Long Term (Desired) Balance

Being able to balance your portfolio requires that you define your balancing
categories as well as your optimum Balance Points. The results of this definition
process give you a sense for what your future state looks like. This is your desired
state and reflects many of your departmental values. For example, if you decide to
keep high-risk projects to less than 10% of your portfolio, it would give a sense
that your department is risk averse. Keep in mind that this balance represents your
desired state. You may have to make compromises in any given year that will keep
you from your optimum state (see below). However, you can make these
compromises deliberately and with proper forethought as to the consequences,
rather than thoughtlessly and by accident.

Short Term Balance

The fact is, you may not be able to achieve your optimum Balance Points in the
first year or in any given year. For example, imagine that a company would ideally
like to balance 50% of their funding in "Grow the Business" type work. In 1999,
however, they found that they needed to spend an unusual percentage of their
available budget on the YR2K problem. This work fits in the "Support the
Business" category. This should not alter their longer-term plan for 50% in the
"Grow the Business" category. However, they did need to make an exception for
one year.

Optimizing

At this point, you have your prioritized list of work for the portfolio, as well as
guidance on your available funding. If the available funding will cover all of the
proposed work, you will be in the enviable position of moving forward without
further portfolio adjustment. Unfortunately, this is rarely the case. On the other
hand, if you did not need to balance the portfolio, the process would be as simple
as cutting back the work based on priorities until the remaining work fits within the
available budget. Optimizing the portfolio means making some final adjustments
and/or cuts such that the combination of projects and other work gives rise to the
maximum benefits to the organization given the resources and funds available. So,
the combination of cutting the proposed work requests and balancing and
optimizing the portfolio will take more time. It may also take a few iterations, as
cutting back in one area may free up funding that will allow you to re-authorize
work that was previously cut elsewhere.

Integrity of Data

Overall, this balancing and optimizing is no easy task. It can be very subjective
depending on the amount and quality of the data available. Bear in mind that in
most cases you are dealing with Value Propositions and Business Cases providing
justification and high-level estimates of costs and benefits for purposes of
comparing projects and other work. All of these tend to be subjective to a greater
or lesser degree, and perhaps exaggerated either deliberately or subconsciously.
After all, who would not want to put the best possible face on their pet project?

Often, it is not so much because of the complexity involved but because of the
difficulty in reaching agreement between self-interested parties. Obviously, it is
easier to reach agreement if the process is logical and makes sense. However,
whether or not it actually makes sense is very dependent upon the integrity of that
data. The best way to look at this last part is to stand back and, having arrived at a
conclusion, ask the question: "Does what we've ended up with really make sense?"

In the last analysis, it may be up to the Executive to make somewhat arbitrary


decisions. Nevertheless, if the process is, for the most part, logical and reasonable,
it will be easier to get buy in from the people down the line who will actually do
the work.

Techniques That Help


Graphical representations of various types are very effective in presenting the
results of portfolio analyses making it easier for Executive management to reach
decisions. Such charts include X-Y charts, bubble charts, pie charts and histograms
for example. If the charts are presented in color, even more data can be indicated
as, for instance, the respective shares between competing business units. Microsoft
Excel provides an easy way to create dozens of different types of chart display
automatically from numerical data.

Bubble charts appear to be particularly popular for presenting portfolio data


because it displays a set of numerical values as circles. This is especially useful for
data sets with dozens to hundreds of values, or when the values differ by several
orders of magnitudes, as is often the case in comparing projects in a portfolio.

Probability analysis similarly includes a variety of approaches such as Decision


Trees, Flowcharts, Monte Carlo Simulations and so on. Here, portfolio components
are assessed using success and failure probabilities for such variables as estimated
cost, projected benefits and so on. Probability analysis is particularly relevant in
examining relative project risks and is used extensively in project risk
management.

Quantitative analysis typically involves the use of spreadsheets for comparing the
factors of interest such as resource requirements, or cash flow, spread over the
planning horizon, usually the fiscal year. In Scenario Analysis the idea is to draw
up a range of portfolio component collections of different projects and other work,
both ongoing and new, for Executive consideration. The intent is to examine the
impacts of each and to select that collection that appears to be the most favorable
to the organization as a whole.

Step 7 - Authorize the Work (Authorization)

After the Balancing step, the work thus finally selected is authorized for the
coming year. This process lists and sets aside requisite budget and resources to
carry out the selected work. This is not necessarily a guarantee that the work will
be funded because changes in business conditions or newly surfaced work during
the year could bump some authorized work off this approved list. However, all
things being equal, authorized work will be scheduled and executed during the
year.

Tips on Step 7 - Authorize the Work (Authorization)


This particular process needs to be customized for each organization based on how
you're funding process works. In some project-oriented organizations involving
large projects, approval of the project automatically means approval of the
necessary funding. However, in other organizations a tight rein must be maintained
over the organization's cash flow and so a process is in place for separate release of
funding for projects and other work as the year progresses.

In this case, it is likely that the funding requests need to be included in your overall
annual Business Plan. The plan will cover other things such as your goals,
objectives, strategy, capabilities, etc., but it is unlikely that you will be required to
attach Value Propositions and Business Cases to the plan. The funding requests
may just be in terms of the major work categories and perhaps the major projects.
Much of this information can be gathered from

Step 2 - Identification.

Actual authorization means that work has been approved by the Steering
Committee and the managers that submitted the original requests are all notified
accordingly. In most cases, work will be authorized pretty much as it was
requested. In other cases, work may be released on a reduced basis. Either way, it
is essential that the Steering Committee proactively communicate the funding
situation so that managers can manage their work accordingly.

Step 8 - Plan and Execute the Work (Activation)

Activation is the process of actually scheduling and executing the work throughout
the year. In this Activation step, managers build schedules to start and complete as
much of the approved work as possible. Operations and support staff are in place at
the start of the year and will be in place all year. Obviously, you cannot start all
projects at once at the beginning of the year otherwise at some point everyone will
be overloaded.

If did try to schedule all your projects to start at once, you would have to hire more
staff for the peak workload, and then have them idle during the slower time.
Hence, projects and other work need to be scheduled throughout the year based on
business urgency, availability of staff and/or the logical relationships of outputs.
Just as with resource leveling in project management, this is rather like assembling
a jigsaw where everything must fit together.

This Activation step should also contain a mini-Business Plan Process to account
for new and unexpected work that arises during the year. Such work also needs to
be selected, prioritized and authorized. If new work is authorized, it may mean that
some work that was previously authorized will need to be delayed or even
canceled.

So, Activation includes keeping track of old projects to track value metrics and
lifecycle costs, as well as keeping track of future work to ensure that all work
Authorizations and Activation is scheduled appropriately based on business
priorities and availability of staff.

Tips on Step 8 - Plan and Execute the Work (Activation)


Progressive Activation of the Work

Project portfolio management is more than a one-time event that you perform once
a year during your Business Planning Process. It is an ongoing process that you use
throughout the year. When you build a financial portfolio of stocks, bonds and
other assets, you must monitor and manage the resulting portfolio continuously or
at least at frequent intervals. The same concept holds true when you are building a
portfolio of assets. That means that the required work must be planned and
executed throughout the year. In project portfolio management this sequencing of
projects and Other Work is called "Activation".

Activation takes various forms. First, when the Steering Committee originally
authorizes the work for the coming year, the portfolio managers need to plan for
how the work will be staffed and when the work will start. Some of the portfolio
work, like support and operations, should already have a staff in place that will
continue to perform those functions. The staff may need to be reduced or grown,
but the basic staff should already be in place. The project work, however, will need
to be scheduled during the year based on priorities, deadlines and staff availability.

Management of the portfolio includes managing the resources, proactively


communicating expectations, gathering progress status, confirming continued
Business Case validity and project viability in terms of projected benefits.
However, your business will undergo changes during the year that may, more
likely will, call for new projects and perhaps deletion of others. Hence, if new
work is added to the portfolio it could mean that other previously authorized work
will need to be removed. This ongoing process of replanning and rebalancing the
work based on changing business needs is all a part of portfolio management.

Portfolio management is a mindset. All resource allocation decisions are made in


the context of how they will impact the overall portfolio objectives. The result
should be that the performance of the entire portfolio is continuously optimized for
the greatest benefit to the organization.

A Brief Word on Staffing

For augmenting resources for portfolio work, there are at least three staffing
options available. These are:

• Hire a new employee. Adopt this option if you foresee a long-term need.
• Train or retrain current staff. Do this if you have spare capacity. This is
probably the best option from the view of existing staff and it also
encourages flexibility
• Hire people under contract. Do this if your need is only short term,
especially if the need is urgent.

What is the Right Mix?

It is worth noting here that if more than about 25% of an IT project effort is
outsourced, the learning opportunity provided by the project will likely be lost
when the project is completed. This includes the knowledge and experience
necessary for maintenance and support of the resulting product.

Managing the Portfolio


The Portfolio Work Schedule

Subject to the previous steps as we have described earlier, then the portfolio work
schedule is directly related to the available resources. It may be necessary to go
through multiple iterations of a staffing plan and work schedule before everyone
feels comfortable with the work schedule. This is especially true for project work
that may have business deadlines to meet and will obviously need staff available to
work on them.

However, it should be borne in mind that individuals should not be expected to


work on more than three projects at the same time. More than this simply reduces
their efficiency to unacceptable levels because of the time taken to switch from one
project area to another. The result of multiple project over-load is prolonged
project schedules and delayed activities. So-called multi-tasking is not an efficient
practice.

Project Management

The actual work of managing individual projects falls under the discipline of
project management and is well-established elsewhere.

However, from a project portfolio management perspective, your most important


consideration is to ensure that all projects follow a consistent project management
sequence so that you can track the portfolio as a whole. The key to monitoring a
portfolio of projects, consistently across all projects and without overburdening
those responsible, is to ensure that these essential documents are prepared,
approved, distributed and maintained on all active projects.

Project Management Office

Organizations around the world are implementing formal project management


processes and disciplines to deliver their work initiatives on time, within budget
and to an agreed upon level of quality. Part of the ability to execute better, faster
and cheaper comes from an ability to implement common processes and practices
across the entire organization. This way, there is a very small learning curve for the
project manager and the team members as they transition from one project to
another. This is because everyone in the organization is already familiar with the
general ways that projects are planned and managed..

Technology Management

While project management should be standardized to the extent possible across all
projects, this is not the same thing as managing the technology. The methodology
that you adopt for managing technology should be that which is most suited to the
technology vested in the particular project.

Step 9 - Report on Portfolio Status (Reporting & Review)

It is one thing to report on the progress of individual work and individual projects,
but with a large portfolio this results in a lengthy and often too detailed report. In
any case, what senior executives or senior management will want to know is how
the overall portfolio is progressing, what results are being achieved, what the
overall portfolio picture looks like, and so on. In short, are the various benefit
enablers being achieved, and if so, what results are they currently returning?

Put another way: What is the status of our strategic goal achievement, asset
contribution, current corporate risk profile, and our corporate resource capability?
Answers to these questions may well lead to some modification of the authorized
and activated work, and the need for further review and re-forecasting.

Tips on Step 9 - Report on Portfolio Status (Reporting &


Review)
Portfolio management requires a commitment to metrics. Metrics are units of
measurement used to assess, calculate, or determine progress performance in terms
of monetary units, schedule, or quality results. Metrics are required to show how
effectively the portfolio is being managed, and are required to show the value of
the work that the portfolio produces. The reason you gather portfolio metrics and
feedback on resulting products is to determine if you are meeting your portfolio
objectives and where you should be improving your portfolio processes.

In general, the approach for measuring and improving the performance of a


portfolio is:

1. Determine client expectations or help set expectations where none exist


today
2. Establish objectives based on the expectations
3. Create performance targets (scorecard) that quantify the achievement of your
objectives.
4. Gather metrics throughout the year to determine how you are performing
against your targets and to forecast whether you will achieve your objectives
5. Communicate the ongoing results of the metrics versus your targets to all
appropriate stakeholders
6. Introduce process improvements as needed to ensure that performance
targets and objectives are met.

Measuring the Success of Projects, Within Tolerances


All projects should establish a scorecard that describes what it means to be
successful. This should include project management metrics covering estimated
effort, project duration and cost, as well as client satisfaction with the process. It
should also include technical metrics such as defect rates, rework targets, and other
important product characteristics. When you are defining your metrics, make sure
you build in the idea of target tolerances.

Tolerances are a way to build in "reasonableness" - there is no such thing as


perfection in project management! Your organization should establish the tolerance
levels that they consider acceptable for project management. For instance, a normal
tolerance range for a typical project might be plus or minus 10%. That is, if you
delivered the project for no more than 10% over budget, it is still considered a
success.

The problem with setting reasonable tolerance targets, however, is that project
managers may come to conclude that, in addition to a contingency allowance, they
have a sort of "unofficial" allowance of another 10%. Another issue is that any
such "forgiveness" should be tied to the risk level of the project in question. It is
not reasonable that a project involving entirely new technology should be tied to
the same tolerance as a standard run-of-the-mill type project.

Declaring success from a project management perspective is normally what the


project team is asked to be accountable for. But from a project portfolio
perspective, it is the quality and performance of the product that brings value to the
organization. So, the ultimate issue is whether the organization received the value
that was promised from the original benefit projections.

However, whether the expected benefits are actually harvested from the product
usually depends, not on the project team, but on Operations management. That's
why the project team is typically held to the narrower goals of project
management. Nevertheless, if the project was a failure from a project perspective,
the chances are that it will also prove to be a failure from a corporate perspective
as well. (This is not always the case. You may complete a project over budget and
schedule, but the organization may still gain value over the long-term lifetime of
the product.)

Conversely, there are also many examples of projects that were successfully
delivered, yet are not delivering the value promised. If the project team delivered
successfully within tolerances, there is usually nothing else that can be done from
their perspective. However, in a portfolio, the overall business value derived from
its projects should be monitored over time by the portfolio team after each project
has been completed.

Portfolio Variances
Current Projects Exceed Authorized Budget

If a project budget overrun is small and incremental, the Steering Committee


probably needs to go ahead and approve the excess. However, if the cost overrun is
substantial, it may require that the entire Business Case be re-validated for that
project. A project that makes great business sense at a certain investment level may
not make as much business sense at a higher cost level. Money that is already spent
must be considered a "sunk cost". The question is whether the additional funding is
better spent on this current investment or whether the money would be better spent
on the next high priority project. It is always a dramatic step to cancel a project that
is in progress, but if the Business Case no longer supports the investment,
canceling the project may be the right and proper course. Sound portfolio
management requires that you cut work that no longer makes business sense.

Current Projects Exceed Estimated Deadline

Some projects may not exceed their budget, but they may still miss their required
deadline or they will end up taking longer than estimated. This situation has the
added complication that this usually means that resources are tied up on this
project rather than being able to start on new projects. This is a concern for all
subsequently scheduled projects because they are being delayed not by lack of
budget but by not having the required resources available.

Quality Assurance on Outsourced Projects

Outsourcing of project work is even more common today. However, even though
you outsource the work, you cannot outsource your obligation to make sure the
project is progressing smoothly. If all goes well with the outsourcer, you have less
direct work to do. Unfortunately, in many instances, the outsourcing vendor does
not perform against expectations. If that happens, you want to know about it as
soon as possible.

Even though work is outsourced, you still have responsibilities that cannot be
performed by the outsource project manager and must therefore be done in-house.
This includes: arranging the required in-house participation or interfacing and
working space if applicable, coordination with in-house units and integration with
their work during cutover, checking progress payments and seeing that they get
paid, and so on. So, it is usual still to assign the project to an in-house project
manager, but the roles are obviously quite different.

Instead of assigning the work and managing detailed issues, scope, risk, quality,
etc., the in-house project manager is responsible for making sure work is being
done on time and the project is progressing as it should. He or she is therefore
"directing" the work rather than "managing" it, which is why that person is often
referred to as a "Project Director". Nevertheless, he or she is still held accountable
for the success of the project.

Estimate to Complete

Managers performing a supervisory role inevitably ask questions such as "How far
along are you?" and "How are you tracking against budget?" These questions are
vague, and so the equally vague answer of "Yup, we're pretty close to schedule"
sounds like an appropriate response. You might even hear the equally vague "we're
about half done" or "we're 90% complete." If the project manager does not have a
valid work plan, or if he or she is not keeping the work plan up-to-date, the answer
is pretty much a guess. In project portfolio management that simply is not good
enough. (It isn't good enough in project management either!)

However, if there is a good, up-to-date work plan, a good project manager will
have a sense of how much work is remaining and how long it will take. But the
total numbers at the end of the project can only be determined with a reasonable
degree of accuracy if the project manager has a clear idea of

where the project was at, as of the last reporting date. The project manager must
then conduct a review of all the remaining work as now contemplated and do a
careful estimate of how much effort that will take and for how long.

Often that is not a trivial exercise on a medium to large project and hence should
be called for only at less frequent intervals than the regular reporting periods. If the
project were being reported weekly, then a rigorous estimate to complete would be
required, say, every month. If the project is longer and is being reported monthly,
then every quarter.

The Earned Value Technique


From a project portfolio perspective, "value" is derived from the product of the
project, something that can only be realized once the project is complete and the
product delivered. Hence, if a project gets canceled 90% through to completion,
the business value might well be zero. The Basic Concepts of Earned Value are
quite different.

Earned Value is a technique for measuring project progress, not product value. It
looks at "value earned" relative to what was expected according to the project's
budget and schedule. So, you are earning the value of the project on an incremental
scale as the project is being executed. When 50% of the work is completed, you
can say that 50% of the value of the project has been realized as well. If, at this
point, you have only spent 50% of your budget, then you are right on target.

Earned Value metrics were established to remove the guesswork from where you
are in relation to a baseline. In theory, this concept is very elegant and interesting.
Using it allows a project manager to know precisely how far along they are, how
much work is remaining, what the expected cost and end date will be, and all sorts
of other interesting information.

Unfortunately, the necessary measurements of project status in terms of cost and


schedule for a project in "mid flight" are not easily obtained without meticulous
care - and perhaps even then only by making estimates of work in progress.
Further, remaining work still has to be estimated, even though better productivity
factors may have been determined from recent work. Still, there is a lot of time-
consuming estimating involved. Moreover, this is particularly difficult in IT work
where intellectual work is involved that is difficult to quantify. Consequently, all
of this estimating tends to undermine the claim of removing the "guesswork" out of
status reporting. This is probably why the technique is not used on projects
generally, unless it is mandated by contract or government fiat.

Step 10 - Improve the Portfolio (Benefits & Change)

Over the longer term, that is, annually when products and other benefit enablers
have been launched and the harvesting of benefits commenced, the results of the
Portfolio process can be collected. These results should be fed back from
Operations to the Executive for information and to the Steering Committee for
thorough examination and analysis. These results should enable you to assess the
effectiveness of the portfolio process and propose changes to improve the whole
cycle in the future.

Some of these changes may even imply or require changes in the Executive vision
and strategy. Other changes may be focused on how the process itself is conducted
but nevertheless involve any of the three main parts of the organization, the
Executive, Project Management, and Operations.

For example, you have established a Portfolio Management Process and in its
second year you have gained experience of the process in the organization and are
ready with changes to detailed procedures and guidelines designed to improve
process effectiveness. You have also identified opportunities to improve
efficiencies in project management, by inviting that group to adopt a common
project management methodology (not the same as the technology management
methodology.

However, you feel that expected benefits are not being realized to their full
potential because of weaknesses in product launches, marketing, selling, training,
support, and so on. From the table Figure 1 you can see that these shortcomings are
essentially the responsibilities of Executive management and Operations. You will
need to make a carefully documented case of how the portfolio process can be
improved overall, and who must be responsible, if the organization is to reap the
full benefits of its project work investments.

Tips on Step 10 - Improve the Portfolio (Benefits & Change)


Improving the portfolio may just mean that you want to juggle the work, or the
Portfolio Components, around a bit. Or it may be you can see ways to improve the
portfolio management processes. Generally, these are relatively minor moves that
you can make with little difficulty and little fan fair. Much more likely is that you
need to redirect the goals of your portfolio as a result of a strategic change
ordained by executive management with a consequent need for portfolio
"improvement".

However, this is not likely to happen until management can see and experience the
results of the portfolio outcomes in terms of the actual benefits being realized. And
this in turn will not be clear until three important intermediate steps have taken
place all of which fall within the responsibility of the Operations people. For this
reason we have grouped the following four sequential headings together as a part
of this Step 10 - Improve the Portfolio.

They may be collectively described as Strategic Change and are:

1. Product launch
2. Benefits harvesting
3. Benefits reporting, and
4. Improving the portfolio

Product Launch: Transfer of Care, Custody and Control


You really cannot start to properly gather benefits from your portfolio work or the
products of projects unless they are properly launched and established.
Regrettably, this is often a vital step that "falls between the cracks". Project
management believes that their work is done once the product is created, tested and
proved functional according to requirements. Operations and support people are
content to wait to be called when needed. Why should they "interfere" sooner?
Meantime the frustrated user of a new product or service is busy deciding that "the
old way" was far superior until, after several weeks, even months, they come to
realize the advantages of the new product. In short, there is a gap in the flow of
communication, improvements and consequent benefits.
Filling the Transition Phase Gap

This gap corresponds to the transfer of the products of the portfolio work to the
"care, custody and control" of the user. This is an important concept that is not
generally recognized in project work. What does it mean? It means the formal
handing over of a project's completed deliverable into the hands of the new owner
of this product and, more particularly, into the hands of the user or users. Someone
must also take responsibility for the product's care, usage and maintenance. In
practice, it is a transition period in which a number of activities should be
organized and conducted, but that may vary according to the product and the
relationship between the parties.

Where IT projects are concerned, typical activities that are generally well
recognized include: Introduction, rollout, marketing or promotion, training and
support. In addition, this is the time when project records including "lessons
learned" and "construction history" must be sifted and archived should the product
need to be "reopened", or for when it comes time to upgrade. Also, accounts must
be closed and costs finalized for purposes of establishing relevant asset investment
value Training in the use of the new product will also be necessary. This may
include "Change Management" that arises from any revision to the way people
should think and work. And finally, this transition phase includes the traditional
product support to fix any bugs or minor interface changes that surface as usage
ramps up to full capacity.

Selling the Product

Perhaps the best answer is to look at it as an opportunity to "sell" the product into
its operating environment. Here are Ten Tips for preparing to sell your project's
product to the product's users:

1. Make sure you understand the product's value


2. Target those who will value it and be responsible
3. Clearly communicate the benefits it will bring
4. Understand how people actually buy, or buy in
5. Differentiate on value (not on cost)
6. Listen hard, sell softly
7. Make your user's job easier to adopt and adapt
8. Sell to the individual, not to the organization
9. Provide product use initiation or startup support
10.Better yet, become a part of the user's team
Portfolio Management Flexibility

We must emphasize that all the steps described above do not necessarily have to be
strictly sequential. Management is often an iterative exercise and so you must
exercise judgment as to how far you go with each step and in what order, to make
the whole system work together.

Establishing the Management Environment


As we said in our Introduction, portfolio management is a business process that
requires a set of detailed processes to be conducted in an interrelated continuous
sequence. It presumes that the organization has a strategic plan, along with
customary mission and vision statements, together with strategic goals and
objectives. The organization's strategic plan, and the benefits that are intended to
flow from it, provides the decision base for the portfolio management effort and
the determining factors that will make the portfolio unique.

For portfolio management to be successfully implemented, the following


conditions must also exist:

• The management of the organization embraces the concepts of portfolio


management
• A number of projects, programs and other related work exist
• Appropriately skilled staff is available to manage the portfolio
• Relevant project management processes exist
• Organizational roles and responsibilities exist
• Effective communications exist throughout the organization impacted to
convey business decisions and receive feedback

To craft the best arrangement of the portfolio management process in your


organization, you must:

• Examine your organization to see how and where it would best fit
• Understand the organization's strategic plan
• Establish the determining factors for managing the portfolio, including
available capacity
• Consider all of the potential and actual projects, programs and other related
work that will be encompassed within the portfolio area
• Adhere to a set of agreed-upon processes, and
• Apply them with a degree of rigor only to the extent necessary for the
portfolio to be effective and efficient
• Establish Key Performance Indicators to enable "continuous improvement"

Although some changes may be obvious and necessary, it is probably best to start
with minimum disruption to existing operations.

The Organization's Strategic Plan


Organizations frequently invest in change, almost for the sake of change. That's
because others are doing it, it is perceived as "best practice" and, so the argument
goes, is bound to bring improved capability and performance. Or even perhaps
because management subconsciously feels that it will be seen to be "doing
something" and thereby justify its existence. However, much research suggests that
such approaches produce poor success rates and poor returns.

As we have said earlier, the need is for focus, but you also have to start in the right
place. Just as with project management, you don't "do a project" simply because it
seems like a good idea, you do it for the sole purpose of creating a deliverable, that
is, a product or service. You then work backwards to establish what you have to
do, in what order and when, in order to "evolve" the project.

In a very similar way, a whole organization needs to understand what it is about,


where it is today, where it wants to be tomorrow and beyond, and what benefits
that will produce to keep it afloat. In short, it needs a clearly defined set of end
goals resulting from a vision, mission and set of objectives, and a properly planned
route to get there. Of course, this is standard management stuff, and most
organizations have some kind of stated vision or end goal.

Unfortunately, this goal is often:

• Poorly defined
• Not adequately communicated, understood, shared and owned
• Vague, unrealistic, or without the means for achievement
• Requiring some leap of faith and perhaps miraculous intervention
• Expressed in terms of establishing capability rather than in attaining benefit
value

If you are faced with this problem, the subject must be approached delicately. It is
not generally well received if you start by telling senior management what they
should be doing. However, it is quite feasible to research the organization's
records, gather whatever information is available and hold a brainstorming session
amongst your group and invite them to "translate" that information into a realizable
and valuable end state. You can then take that to senior management and ask:
"This is what we understand, is it where we should be headed?" The results may
even be surprising.

Having validated an end state, it should be possible in a similar way to establish a


set of associated benefits and their necessary enablers. The enablers are the
products of projects, often a set of projects, a program and ultimately a portfolio of
work. When fully assembled and prioritized, this becomes the strategic plan.

Note again that we have worked backwards. We have not started with a strategic
plan and tried to figure out all the projects that we can think of to fulfill the
strategic plan. Those that do take this approach should not be surprised that they
quickly find themselves overwhelmed and overloaded.

As an example, you may have decided that your end goal is increased market
share. One enabler of increased market share could be improved image. Improved
image could be enabled by improved service. Improved service could result from
fewer complaints. Fewer complaints would flow from fewer errors. Fewer errors
would result from substituting a simpler process, or fewer steps in an existing
process, or more automation, or some of all three. These four options represent the
most immediate projects and the portfolio management issue is to decide which
project or projects will produce the most effect - i.e. the most benefit.

This example is obviously a very simple case but it serves to illustrate the
approach. In more complex cases, you will find it useful to plot the situation
graphically. Such graphical illustrations are called benefit maps and benefit maps
provide very clear depictions of the strategic plan.

The Role of the Project Management Office


In many organizations, higher levels of management are increasingly viewing a
Project Management Office (PMO) as an essential element that enables the success
of projects, and hence, the future success of the entire organization. There are a
number of compelling reasons.

Consistency

Where there is any significant number of projects, it is simply not possible to


conduct successful portfolio management unless there is consistency of method
and consistency in the resulting data being fed back to the management of the
portfolio, that is, the Steering Committee. This simply means that there MUST be
standard project processes and procedures in place, and a PMO is the best vehicle
to ensure that this happens.

An Even More Compelling Reason

There is yet another reason that will comfort the financial administration of the
organization. Again where there are a significant number of projects, it is simply
not financially efficient for every project to be carrying its own contingency fund.
Better that these contingency allowances are identified and earmarked, but retained
in a central repository held within the PMO. This way the funds can be usefully
applied towards cash flow requirements, rather than sitting idle in disparate
pockets.

Allocation of Responsibilities

The PMO can ensure that responsibilities are properly identified and correctly
assigned. These obviously include the following.

The Project Manager - Obviously, this is the person with the authority to manage
the day-to-day work of the project. This includes leading the planning and
development of all project deliverables and responsibility for managing budget,
work plan and the appropriate technology management procedures and processes.
Project managers should be responsible for managing a project from inception to
closure as evidenced by successful delivery and transfer of the project's product
into the care, custody and control of the Client or Customer. Project managers are
stakeholders in the portfolio management process, and may provide assistance
though they do not have a formal role.

The Project Sponsor - This is the person who puts forward project work during
the Portfolio Selection process and has ultimate authority over the project if
selected. For example, the Sponsor provides project funding, resolves issues and
scope changes, approves major deliverables and provides high-level direction. He
or she also champions the project within his/her department.

The Steering Committee - This is a group of high-level clients and stakeholders


who are responsible for prioritizing work, providing strategic guidance to the
portfolio, prioritizes work for the portfolio and then monitors the portfolio during
the year. If new work comes up or if changes occur in the authorized workload, the
Steering Committee determines the impact on the portfolio and adjusts
accordingly. This group may, or may not fall under the heading of PMO.

However, if the Steering Committee is a completely separate entity, then the PMO
can perform an important role in ensuring that members of that committee do not
interfere with the day-to-day work of the project managers.

The Role of the Project Portfolio Steering Committee


Managing a portfolio does place special demands on project management. As we
noted earlier, where there is any significant number of projects, it is simply not
possible to conduct successful portfolio management unless there is consistent
reporting of data being fed back to the Steering Committee.

Without interfering in the project management process, or trespassing on the


program/project management responsibilities of a PMO, the Steering Committee
will want to gain a regular overview picture. This will include indications of
project progress with a view to cancellation and substitution if very unsatisfactory,
the status and availability of resources, the performance and reception of
deliverables, and so on. This means that there MUST be standard project
management processes and procedures in place.

The Most Important Process: Design of a Common Project Life Span

Perhaps the most important standard project management process, from the
portfolio perspective, is a gated project life span methodology within which the
appropriately adopted methodology for the technology is conducted. That is
because overall portfolio progress status reporting depends on receiving reports
from project management, especially at key milestones, that are in a consistent
format across all projects.

These key milestone reports are typically, and in progressive order: Value
Proposition; Business Case; Project Charter; and Delivery Acceptances as shown
in Figure 3.

Standard templates for each of these milestone documents are available elsewhere.
Figure 3: Idealized high-level gated project management process

From the diagram you will see that each of the documents listed serve quite
different purposes. It is worthwhile emphasizing this point by briefly describing
each in the context of portfolio management as follows.

The Value Proposition is a quick one-page document briefly describing a


potential project or initiative and its justification. It is used for initial screening and
its purpose is to reduce overhead by avoiding unnecessary preparatory detail by
weeding out work that is obviously of little benefit value and/or not aligned with
the overall management strategy. It is a very simplified form of Business Case.
However, for a small project you may decide that it represents sufficient
documentation for the project to proceed through to completion and product
delivery. Apart from this, you may find that the Value Propositions screen out
some 50% of the potential opportunities, while the rest proceed on to a Business
Case

The Business Case is a more elaborate document required to justify a medium or


large project. It is obviously a key document in the early life of a project or
program. It describes the reasons and the justification for the project's undertaking
based on its estimated costs, the risks involved and the expected future business
benefits and value. You may find that the Business Case screens out, say, another
25% of the potential opportunities. The Business Case provides the basis for
selection and authorization of further expenditure of resources for detailed
investigation, feasibility, planning and so on that will be contained in a full Project
Charter. The Project Charter is a key approval document in the on-going life of a
medium to large project or program. It provides the project manager with the
authority to consume portfolio resources to execute the project within scope,
quality, time, and cost constraints. The content and effort to prepare the Project
Charter should be scaled to the size of the project. It also provides portfolio
management with the basis for final selection, authorization and release or
expenditure of further resources from within the portfolio.

The Delivery Acceptances of deliverables may be documented in different ways


depending on the nature of the physical items or measurable outputs that are
identified as part of the project's product or objectives. Deliverables can also
include intermediate products or services that are necessary for achieving the
project's final results. These reports will alert portfolio management of pending
project completion, and the transfer of the care, custody and control of the
deliverables over to operations, or to another client or customer.
RULES

THE GAZETTE OF INDIA


EXTRAORDINARY
PART II - SECTION 3 - SUB-SECTION (i)
PUBLISHED BY AUTHORITY
NEW DELHI 7th JANUARY 1993
MINISTRY OF FINANCE
(DEPARTMENT OF ECONOMIC AFFAIRS)
NOTIFICATION
NEW DELHI 7th JANUARY 1993
SECURITIES AND EXCHANGE BOARD OF INDIA
(PORTFOLIO MANAGERS) RULES, 1993
G.S.R. 4 (E) In exercise of the powers conferred by section 29 of the Securities and
Exchange Board of India, Act 1992 (15 of 1992), the Central Government hereby
makes the following rules, namely: -

Short title and commencement

1. (1) These rules may be called the Securities and Exchange Board of India
(Portfolio Managers) Rules, 1993.

(2) They shall come into force on the date of their publication in the Official
Gazette.

Definitions

2. In these rules, unless the context otherwise requires:-


(a) " Act" means the Securities and Exchange Board of India,
Act 1992 (15 of 1992);

(b) " body corporate" shall have the meaning assigned to it in or


under clause (7) of section 2 of the Companies Act, 1956 (1 of
1956);

(c) "certificate" means a certificate of registration issued by the


Board;
(d) " portfolio " means the total holdings of securities belonging
to any person;

(e) " portfolio manager " means any person who pursuant to a
contract or arrangement with a client, 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, as the case may be;

(f) "discretionary portfolio manager" means a portfolio manager


who exercises or may, under a contract relating to portfolio
management, exercises any degree of discretion as to the
investments or management of the portfolio of securities or the
funds of the client, as the case may be;

(g) "regulations" means the Securities and Exchange Board of


India (Portfolio Managers) Regulations, 1993.

No person to act as portfolio manager without certificate

3. No person shall carry on any activity as a portfolio manager unless he


holds a certificate granted by the Board under these regulations :

Provided that such person, who was engaged as portfolio manager, prior to
the coming into force of the Act, may continue to carry on activity as
portfolio manager, if he has made an application for such registration, till the
disposal of such application.

Provided further that nothing in this rule shall apply in case of a merchant
banker holding a certificate granted by the Board under the Securities and
Exchange Board of India (Merchant Banker) Regulations, 1992 as category I
or category II merchant banker, as the case may be:

Provided also that a merchant banker acting as a portfolio manager under the
second proviso to this rule, shall also be bound by the rules and regulations
applicable to a portfolio manager.

Conditions for grant or renewal of certificate to portfolio manager


4. The Board may grant or renew a certificate to a portfolio manager subject
to the following conditions, namely :

(a) the portfolio manager in case of any change in its status and
constitution, shall obtain the prior permission of the Board to
carry on its activities;

(b) he shall pay the amount of fees for registration or renewal,


as the case may be, in the manner provided in the regulations;

(c) he shall take adequate steps for redressal of grievances of


the clients within one month of the date of the receipt of the
complaint and keep the Board informed about the number,
nature and other particulars of the complaints received;

(d) he shall abide by the rules and regulations made under the
Act in respect of the activities carried on by the portfolio
manager.

Period of validity of the certificate

5. The certificate of registration or its renewal, as the case may be, shall be
valid for a period of three years from the date of its issue to the portfolio
manager.
CHAPTER II

REGISTRATION OF PORTFOLIO MANAGERS

3. Registration as portfolio manager :- No person shall act as portfolio manager


unless he holds a certificate granted by the Board under these regulations:

3A. Application for grant of certificate :-

(1) An application by a portfolio manager for the grant of a certificate shall be


made to the Board in Form A and shall be accompanied by a non-refundable
application fee, as specified in clause (1) of Schedule II, to be paid in the manner
specified in Part B thereof.

4. Application to conform to the requirements :-Subject to the provisions of sub-


regulation (2) of regulation 3, any application, which is not complete in all respects
and does not conform to the instructions specified in the form, shall be rejected:

5. Furnishing of further information, clarification and personal representation :-(1)


The Board may require the applicant to furnish further information or clarification
regarding matters relevant to his activity of a portfolio manager for the purposes of
disposal of the application. (2) The applicant or, its principal officer shall, if so
required, appear before the Board for personal representation.

6. Consideration of application :-(1) For considering the grant of certificate of


registration to the applicant, the Board shall take into account all matters which it
deems relevant to the activities relating to portfolio management.

(a) the applicant is a body corporate;

(b) the applicant has the necessary infrastructure like adequate office space,
equipments and the manpower to effectively discharge the activities of a portfolio
manager;

(c) the principal officer of the applicant has either–

1. a professional qualification in finance, law, accountancy or business


management from a university or an institution
recognized by the Central Government or any State Government or a foreign
university; or

2. an experience of at least ten years in related activities in the securities


market including in a portfolio manager, stock broker or as a fund manager.

(d) the applicant has in its employment minimum of two persons who, between
them, have at least five years experience.

(e) the applicant fulfills the capital adequacy requirements specified in regulation
7.

(f) Grant of certificate to the applicant is in the interest of investors.

7. Capital Adequacy Requirement:-The capital adequacy requirement referred to in


clause (g) of regulation 6 shall not be less than the networth of two crore rupees.

8. Procedure for registration:-The Board on being satisfied that the applicant fulfils
the requirements specified in regulation 6 shall send intimation to the applicant and
on receipt of the payment of registration fees and grant a certificate.

9. Renewal of certificate:- (1) A portfolio manager may, three months before the
expiry of the validity of the certificate, make an application for renewal in Form A
along with fees.

(a) it shall take adequate steps for redressal of grievances of the investors
within one month of the date of the receipt of the complaint and keep the
Board informed about the number, nature and other particulars of the
complaints received;

(b) it shall maintain capital adequacy requirements specified in regulation 7 at all


times during the period of the certificate or renewal thereof;

9B. Period of validity of certificate:-The certificate of registration granted under


regulation 8 and its renewal granted under regulation 9, shall be valid for a period
of three years from the date of its issue to the applicant.
10. Procedure where registration is not granted :-(1) Where an application for grant
of a certificate under regulation 3 or of renewal under regulation 9 does not satisfy
the requirements set out in regulation 6, the Board may reject the application, after
giving an opportunity of being heard.

(2) The refusal to grant registration shall be communicated by the Board within
thirty days of such refusal to the applicant stating therein the grounds on which the
application has been rejected.

(3) Any applicant may, being aggrieved by the decision of the Board under sub-
regulation (1), apply within a period of thirty days from the date of receipt of such
intimation, to the Board for reconsideration of its decision.

(4) The Board shall reconsider an application made under sub- regulation (3) and
communicate its decision as soon as possible in writing to the applicant.

11. Effect of refusal to grant certificate:-Any portfolio manager whose application


for a certificate has been refused by the Board shall on and from the date of the
receipt of the communication under sub- regulation (2) of regulation 10 cease to
carry on any activity as portfolio manager.

12. Payment of fees, and the consequences of failure to pay fees :- (1) Every
applicant eligible for grant of a certificate shall pay fees in such manner and within
the period specified in Schedule II.

(2) Where a portfolio manager fails to pay the fees as provided in Schedule II, the
Board may suspend the certificate, whereupon the portfolio manager shall
forthwith cease to carry on the activity as a portfolio manager for the period during
which the suspension subsists.
CHAPTER III

GENERAL OBLIGATIONS AND RESPONSIBILITIES

15. General responsibilities of a Portfolio Manager :-

(1) The discretionary portfolio manager shall individually and independently


manage the funds of each client in accordance with the needs of the client in a
manner which does not partake character of a Mutual Fund, whereas the non-
discretionary portfolio manager shall manage the funds in accordance with the
directions of the client.

(1A) The portfolio manager shall not accept from the client, funds or Securities
worth less than five lacks rupees.

(2) The portfolio manager shall act in a fiduciary capacity with regard to the
client's funds.

(2A) The portfolio manager shall keep the funds of all clients in a separate account
to be maintained by it in a Scheduled Commercial Bank.

(3) The portfolio manager shall transact in securities within the limitation placed
by the client himself with regard to dealing in securities under the provisions of the
Reserve Bank of India Act, 1934 (2 of 1934).

(4) The portfolio manager shall not derive any direct or indirect benefit out of the
client's funds or securities.

(4A) The portfolio manager shall not borrow funds or securities on behalf of the
client.

(5) The portfolio manager shall not lend securities held on behalf of clients to a
third person except as provided under these regulations.

(6) The portfolio manager shall ensure proper and timely handling of complaints
from his clients and take appropriate action immediately.

16. Investment of clients' moneys and management of clients' portfolio of


securities:-
(1)(a) The money or securities accepted by the portfolio manager shall not be
invested or managed by the portfolio manager except in terms of the agreement
between the portfolio manager and the client.

(b) Any renewal of portfolio fund on maturity of the initial period shall be
deemed as a fresh placement.

17. Maintenance of books of accounts, records, etc :-

(1) Every portfolio manager shall keep and maintain the following books of
accounts, records and documents namely:-

(a) A copy of balance sheet, profit and loss account, auditors report, at the end of
each accounting period;

(b) A statement of financial position and;

(c) Records in support of every investment transaction or recommendation which


will indicate the data, facts and opinion leading to that investment decision.

(2) Every portfolio manager shall intimate to the Board the place where the books
of accounts, records and documents are maintained.

18. Submission of half-yearly results: -

Every portfolio manager shall furnish to the Board half-yearly-unaudited financial


results when required by the Board with a view to monitor the capital adequacy of
the portfolio manager.

19. Maintenance of books of accounts, records and other documents: -

The portfolio manager shall preserve the books of account and other records and
documents mentioned in any of the regulations mentioned under this chapter for a
minimum period of five years.

20. Accounts and audit:-

(1) (a) The portfolio manager shall maintain separate client-wise accounts.
(c) If any, shall be properly accounted for and details thereof shall be properly
reflected in the client's account.

(d) The tax deducted at source as required under the provisions of the Income-
Tax Act, 1961, shall be recorded in the portfolio account.

21. Reports to be furnished to the client:-

(1) The portfolio manager shall furnish periodically a report to the client, as agreed
in the contract, but not exceeding a period of six months and as and when required
by the client.

22. Report on steps taken on Auditor's report: -

Every portfolio manager shall within two months from the date of the auditors
report take steps to rectify the deficiencies, made out in the auditors report.

23. Disclosures to the Board: -

A portfolio manager shall disclose to the Board as and when required the following
information namely:-

(i) Particulars regarding the management of a portfolio;

(ii) Any change in the information or particulars previously furnished, which have
a bearing on the certificate granted to him;

(iii) The names of the clients whose portfolio he has managed;

(iv) Particulars relating to the capital adequacy requirement as specified in


regulation 7.
CHAPTER IV

INSPECTION AND DISCIPLINARY PROCEEDINGS

24. Right of inspection by the Board :-

(1) The Board may appoint one or more persons as inspecting authority to
undertake the inspection of the books of account, records and documents of the
portfolio manager.

(a) to ensure that the books of account are being maintained in the manner
required;

(b) that the provisions of the Act, rules and regulations are being complied
with;

(c) to investigate into the complaints received from investors, other portfolio
managers or any other person on any matter having a bearing on the
activities of the portfolio manager; and

(d) to investigate suo motu in the interest of securities business or investors'


interest into the affairs of the portfolio manager.
CHAPTER V

PROCEDURE FOR ACTION IN CASE OF DEFAULT

30. Liability for action in case of default :-

A portfolio manager who contravenes any of the provisions of the Act, Rules or
Regulations framed there under shall be liable for one or more action specified
therein including the action under Chapter V of the Securities and Exchange Board
of India (Intermediaries) Regulations, 2008.]

(1) A portfolio manager who-

(a) fails to comply with any conditions subject to which certificate has been
granted;

(b) contravenes any of the provisions of the Act, rules or regulations; shall be dealt
with in the manner provided under the Securities and Exchange Board of India
(Procedure for Holding Enquiry by the Enquiry Officer and Imposing Penalty)
Regulations, 2002.
SCHEDULE II

Securities and Exchange Board of India (Portfolio Managers)

Regulations, 1993

[Regulation 12]

FEES

1. Every portfolio manager shall pay a non-refundable fee of one lakh rupees

2. Along with the application for grant or renewal of certificate of registration.

Every portfolio manager shall pay a sum of Rs. 25,000/- as application fees
Along with the application for grant of certificate of registration.”

Every Portfolio Manager shall subject to paragraphs 3 and 4 of this Schedule, pay a
sum of Rs 2.50 lakhs every year for the first two years and thereafter a sum of Rs 1
lakh for the third year.

3. Every Portfolio Manager shall to keep his registration in force, pay


Renewal fee of Rs.75, 000/- per annum from the fourth year from the date of
initial registration.
LIST OF REFISTERED PORTFOLIO MANAGERS

SR. NO. NAME


1. ABN AMRO BANK N.V.
2. AIG GLOBAL ASSET MANAGEMENT COMPANY (INDIA)
PVT. LTD.
3. AJMERA ASSOCIATES LIMITED
4. ALANKIT ASSIGNMENTS LTD.
5. ALCHEMY CAPITAL MANAGEMENT PRIVATE LTD
6. ALLEGRO CAPITAL ADVISORS PVT LTD
7. ALLIANZ SECURITIES LIMITED
8. AMBIT CAPITAL PRIVATE LTD
9. AMIDEEP WEALTH MANAGEMENT PVT LTD
10. AMIT JASANI FINANCIAL SERVICES PVT LTD
11. AMJ STOCK BROKERS PRIVATE LIMITED
12. ANAGRAM STOCKBROKING LIMITED
13. ANAND RATHI FINANCIAL SERVICES LTD.
14. ANGEL BROKING LTD.
15. ANTIQUE STOCK BROKING LIMITED
16. ANUGRAH STOCK & BROKING PVT. LTD
17. ANVIL WEALTH MANAGEMENT PVT LTD
18. APOLLO SINDHOORI CAPITAL INVESTMENT LIMITED
19. ARCADIA SHARE & STOCK BROKERS PVT LTD
20. ARIES STOCKTRADES PVT. LTD.
21. ARIHANT CAPITAL MARKETS LTD.
22. ASHIKA STOCK BROKING LTD
23. ASIT C MEHTA INVESTMENT INTERRMEDIATES LTD.
24. ASK RAYMOND JAMES SEC (I) LTD
25. ASTER BUSINESS RESEARCH PVT. LTD.
26. ATLAS INTEGRATED FINANCE LTD
27. AUM CAPITAL MARKET PRIVATE LIMITED
28. AVENDUS PE INVESTMENT ADVISORS PRIVATE
LIMITED
29. AXIS BANK LTD (UTI BANK LTD.)
30. BANYAN TREE ADVISORS PRIVATE LIMITED
31. BARCLAYS SECURITIES (INDIA) PRIVATE LIMITED
32. BELLWETHER CAPITAL PRIVATE LIMITED
33. BENCHMARK ASSET MANAGEMENT COMPANY PVT
LTD

34. BIRLA SUN LIFE ASSET MANAGEMENT COMPANY


LIMITED
35. BMA WEALTH CREATORS PVT. LTD
36. BNP PARIBAS INVESTMENT SERVICES INDIA PVT LTD
37. BRAHMA CAPITAL ADVISORY SERVICES PVT LTD
38. BRICS SECURITIES LIMITED
39. CAMEO WEALTH MANAGEMENT SERVICES LTD
40. CAPSTOCKS AND SECURITIES (INDIA) PRIVATE
41. CARE PORTFOLIO MANAGERS PVT. LTD
42. CENTRUM BROKING PRIVATE LTD
43. CHONA FINANCIAL SERVICES PRIVATE LTD.
44. CITIGROUP WEALTH ADVISORS INDIA PVT LIMITED
45. CONCEPT SECURITIES PRIVATE LIMITED
46. CREDIT SUISSE SECURITIES (INDIA) PRIVATE LIMITED
47. DALAL & BROACHA STOCK BROKING PVT. LTD.
48. DALMIA SECURITIES PVT LTD
49. DARASHAW & COMPANY LTD
50. DAWNAY DAY AV FINANCIAL SERVICES PRIVATE
LIMITED
51. DBS CHOLAMANDALAM SECURITIES LIMITED
52. DEUTCHE ASSET MANAGEMENT INDIA PRIVATE
LIMITED
53. DEUTSCHE BANK AG
54. DEUTSCHE INVESTMENTS INDIA PRIVATE LIMITED
55. DIPAN MEHTA SHARE & STOCK BROKERS PVT. LTD
56. DSP BLACKROCK INVESTMENT MANAGERS LIMITED
57. DSP MERRILL LYNCH LTD
58. EAST INDIA SECURITIES LTD
59. EFG WEALTH MANAGEMENT (INDIA) PRIVATE LIMITED
60. ELITE STOCK MANAGEMENT LIMITED
61. EMKAY GLOBAL FINANCIAL SERVICES LIMITED
62. EMKAY GLOBAL FINANCIAL SERVICES LIMITED
63. ENAM ASSET MANAGEMENT CO.PVT.LTD
64. ENAM SECURITIES DIRECT PRIVATE LIMITED
65. ENVISION CAPITAL ADVISORS PVT. LTD.
66. EQUITY INTELLIGENCE INDIA PVT. LTD.
67. ESCORTS SECURITIES LIMITED
68. ESTEE ADVISORS PVT LTD.
69. EXCLUSIVE SECURITIES LIMITED

70. FAIRWEALTH SECURITIES (P) LTD.


71. FALCON BROKERAGE PRIVATE LTD
72. FINQUEST SECURITIES P LTD
73. FIRST GLOBAL STOCKBROKING PVT LTD
74. FORTIS INVESTMENT MANAGEMENT (INDIA) PRIVATE
LIMITED
75. FORTUNE FINANCIAL SERVICES (INDIA) LIMITED
76. FORTUNE WEALTH MANAGEMENT CO (I) PVT LTD
77. FRANKLIN TEMPLETON ASSET MGT (I) PVT LTD
78. FUTURE CAPITAL HOLDINGS LIMITED
79. GEOJIT FINANCIAL SERVICES LIMITED
80. GLOBE CAPITAL MARKET LTD.
81. GLOVISTA ENTERPRISE PVT. LTD.
82. GOLDMINE STOCKS PVT. LTD.
83. GRYFFON INVESTMENT ADVISORS PVT. LTD.
84. GUARDIAN ADVISORS PVT LTD
85. GUPTA EQUITIES PRIVATE LIMITED
86. HDFC ASSET MANAGEMENT COMPANY LTD
87. HDFC BANK LTD.
88. HDFC SECURITIES LIMITED
89. HSBC ASSET MANAGEMENT (INDIA) PVT. LTD.
90. ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY
LTD.
91. ICICI SECURITIES PRIMARY DEALERSHIP LTD.
92. IDBI CAPITAL MARKET SERVICES LTD.
93. IDFC INVESTMENT ADVISORS LTD.
94. IIFL WEALTH MANAGEMENT LIMITED
95. IL&FS PORTFOLIO MANAGEMENT SERVICES LIMITED.
96. IL&FS INVESTMENT MANAGERS LIMITED
97. IMPETUS WEALTH MANAGMENT PVT LTD
98. INDIA CAPITAL MARKETS PVT. LTD.
99. INDIA INFOLINE LTD
100. INDIABULLS SECURITIES LTD.
101. INDSEC SECURITIES AND FINANCE LTD.
102. ING INVESTMENT MANAGEMENT (INDIA) PVT LTD
103. ING VYSYA BANK LIMITED
104. J.J. BHABHERA SHARE BROKERS PVT. LTD.
105. JAMNADAS KHUSHALDAS SHARES & STOCK BROKERS
PVT. LTD.

106. JANAK MERCHANT SECURITIES PVT LTD


107. JAYPEE CAPITAL SERVICES LTD.
108. JEETAY INVESTMENTS PVT LTD
109. JM FINANCIAL ASSET MANAGEMENT PVT. LTD.
110. JM FINANCIAL SERVICES PVT LTD
111. JOINDRE CAPITAL SERVICES LIMITED
112. KANTILAL CHHAGANLAL SECURITIES PVT. LTD
113. KARMA CAPITAL ADVISORS PVT. LTD.
114. KARVY STOCK BROKING LTD.
115. KEYNOTE CAPITALS LIMITED
116. KHANDWALA INT. FIN. SER. PVT. LTD
117. KHANDWALA SECURITIES LTD
118. KISAN RATILAL CHOKSEY SHARES AND SECURITIES
PVT. LTD.
119. KOTAK MAHINDRA BANK LIMITED
120. KOTAK SECURITIES LTD
121. KRONE RESEARCH & BROKERAGE (P) LTD
122. KUMAR SHARE BROKERS LIMITED
123. KUNVARJI FINSTOCK PVT. LTD
124. L&T CAPITAL COMPANY LTD
125. LKP SHARES & SECURITIES LTD
126. M HIND FINANCIAL SERVICES PVT LTD
127. M/S JHP SECURITIES PRIVATE LIMITED
128. MAJORTREND SHARES & STOCK BROKERS PRIVATE
LIMITED
129. MAN FINANCIAL-SIFY SECURITIES INDIA PRIVATE LTD
130. MANGAL KESHAV SECURITIES LIMITED
131. MANSUKH SECURITIES & FINANCE LIMITED
132. MAPE SECURITIES PRIVATE LIMITED
133. MARWADI SHARES & FINANCE LTD.
134. MATHS CAPITAL MANAGEMENT PVT. LTD.
135. MAXIMUS CAPITAL RESEARCH PVT. LTD.
136. MICROSEC CAPITAL LIMITED
137. MIDEAST PORTFOLIO MANAGEMENT LTD.
138. MILESTONE CAPITAL ADVISORS PRIVATE LIMITED
139. MILLENNIUM FINANCE LTD.
140. MIV INVESTMENT SERVICES PVT. LTD.
141. MODERN SHARES AND STOCK BROKERS LTD
142. MONEYBEE SECURITIES PRIVATE LIMITED

143. MORGAN STANLEY INDIA FINANCIAL SERVICES


PRIVATE LIMITED
144. MOTIAL OSWAL SECURITIES LIMITED
145. MSB SECURITIES PVT LTD
146. MULTI ACT-EQUITY CONSULTANTANCY PVT LTD
147. MUNOTH FINANCIAL SERVICES LTD
148. NETWORTH STOCK BROKING LTD
149. NEW HORIZON WEALTH MANAGEMENT PRIVATE
LIMITED
150. NI FUND ADVISORS PRIVATE LIMITED
151. NIPRA FINANCIAL SERVICES PRIVATE LIMITED
152. NIPUN INVESTMENTS MANAGERS PVT LIMITED
153. NIRMAL BANG SECURITIES PRIVATE LIMITED
154. OHM PORTFOLIO EQUI RESEARCH PVT LTD.
155. OXUS INVESTMENTS PVT LTD
156. P N VIJAY FINANCIAL SERVICES PVT LTD
157. P.C.S SECURITIES LIMITED
158. PACE STOCK BROKING SERVICES PVT LTD
159. PARAG PAREKH FINANCIAL ADVISORY SERVICES
160. PATCO INVESTMENTS AND CONSULTANCY SERVICES
LTD
161. PEERLESS SECURITIES LIMITED
162. PHOTON CAPITAL ADVISORS LTD.
163. PIONEER WEALTH MANAGEMENT SERVICES LIMITED
164. PIPAL CAPITAL MANAGEMENT PVT. LTD.
165. PL FUND ADVISORS PVT LTD
166. PRABHUDAS LILLADHER PVT. LTD.
167. PRABODH ARTHA SANCHAY PVT LTD
168. PRAKALA WEALTH MANAGEMENT PRIVATE LIMITED
169. PRIME BROKING COMPANY (INDIA) LTD.
170. PRINCIPAL PNB ASSET MANAGEMENT CO PVT LTD
171. PSSG CAPITAL MANAGEMENT PRIVATE LIMITED
172. QUANTUM ADVISORS PVT.LTD.
173. QUANTUM SECURITIES PVT LTD
174. QUEST INVESTMENT ADVISORS PVT. LTD.
175. R. K. STOCKHOLDING PVT. LTD.
176. RELIANCE CAPITAL ASSET MANAGEMENT LTD
177. RELIANCE SECURITIES LIMITED
178. RELIGARE SECURITIES LTD

179. ROULAC INDIA INVESTMENT ADVISORY PRIVATE


LIMITED
180. SAFFRON GLOBAL MARKETS PRIVATE LIMITED
181. SAHARA ASSET MANAGEMENT CO. PVT. LTD
182. SATCO SECURITIES & FINANCIAL SERVICES LTD.
183. SBI FUNDS MANAGEMENT PVT LTD
184. SBICAP SECURITIES LIMITED
185. SECURITIES INVESTMENT MANAGEMENT PRIVATE
LIMITED
186. SECURITIES TRADING CORPORATION OF INDIA
187. SETHI FUNDS MANAGEMENT PVT. LTD
188. SG WEALTH MANAGEMENT SOLUTIONS PRIVATE
LIMITED
189. SHAREKHAN LIMITED
190. SHARYANS WEALTH MANAGEMENT PVT. LTD.
191. SHCIL SERVICES LTD
192. SHREYAS STOCKS PRIVATE LTD
193. SHRI PARASRAM HOLDING PRIVATE LIMITED
194. SHRIRAM INSIGHT SHARE BROKERS PRIVATE LIMITED
195. SMC WEALTH MANAGEMENT SERVICES LIMITED
196. SMS FINANCIAL SERVICES PVT. LTD.
197. SOMAYAJULU & CO LTD
198. SPA SECURITIES LIMITED
199. SPAN CAPLEASE PVT. LTD.
200. SPARK CAPITAL ADVISORS (I) PVT LTD
201. SPFL SECURITIES LTD.
202. STANDARD CHARTERED BANK
203. STATE BANK OF INDIA
204. STCI PRIMARY DEALER LIMITED
205. SUGAL & DAMANI SHARE BROKERS LTD.
206. SUNDARAM BNP PARIBAS ASSET MANAGEMENT
COMPANY LTD.
207. SUNIDHI SECURITIES & FINANCE LIMITED
208. SUREFIN FINANCIAL CONSULTANTS PVT. LTD
209. SUSHIL FINANCE CONSULTANTS LTD.
210. SWASTIKA INVESTMART LTD
211. SYKES & RAY EQUITIES (I) LTD.
212. SYSTEMATIX SHARES AND STOCKS (INDIA) LIMITED
213. TATA ASSET MANAGEMENT LIMITED

214. TATA CAPITAL LTD.


215. TAURUS ASSET MANAGEMENT CO. LTD.
216. TECHNO SHARES AND SECURITIES LTD
217. TRUST INVESTMENT ADVISORS PVT. LTD.
218. TRUSTLINE HOLDING PVT. LTD.
219. UI WEALTH ADVISORS LIMITED
220. UNICON SECURITIES PRIVATE LIMITED
221. UNIFI CAPITAL PRIVATE LIMITED
222. UTI SECURITIES LTD
223. VCAM INVESTMENT MANAGERS PVT. LTD.
224. WAY2WEALTH BROKERS PRIVATE LTD.
225. ZEN SECURITIES LIMITED
PORTFOLIO SELECTION (1)

Scrip Company Beta Dividend 52- EPS


Code Values weeks
High Low
50041 ACC LTD. 0.64 10.00 880.00 369.00 21.28
0
50010 BHARAT HEAVY 0.99 9.00 2334.00 984.10 63.64
3 ELECTRICALS LTD.
53245 BHARTI AIRTEL 0.88 ---- 990.00 484.00 41.40
4 LTD.
53286 DLF Ltd. 1.48 2.00 576.00 124.15 27.18
8
50044 HINDALCO 1.08 1.85 184.00 36.90 24.51
0 INDUSTRIES LTD
50018 HDFC BANK LTD 0.98 10.00 1498.00 774.00 46.20
0
53217 ICICI BANK LTD 1.58 11.00 826.00 252.75 32.07
4
53253 JAIPRAKASH 1.70 0.30 236.00 47.05 2.82
2 ASSOCIATES
LIMITED
50051 LARSEN & TOUBRO 1.13 15.00 2930.00 557.00 50.87
0 LTD.
50031 ONGC CORPN 0.80 18.00 1218.95 538.10 78.09
2
50052 MAHINDRA & 0.95 10.00 749.00 235.50 48.27
0 MAHINDRA LTD
53271 RELIANCE 1.42 0.75 564.80 131.35 27.41
2 COMMUNICATIONS
LTD.
50039 RELIANCE 1.64 6.30 1373.70 354.00 57.68
0 INFRASTRUCTURE
LTD
50011 STATE BANK OF 1.06 29.00 1935.00 894.00 172.68
2 INDIA
50090 STERLITE 1.29 4.00 891.00 164.50 49.96
0 INDUSTRIES
50057 TATA MOTORS 1.10 6.00 545.00 122.00 20.83
0 LTD.
50768 WIPRO LTD. 0.92 4.00 537.90 181.70 26.72
5
50020 INFOSYS 0.68 13.50 2010.00 1040.0 104.43
9 TECHNOLOGIES 0
LTD.
50040 TATA POWER CO. 0.92 11.50 1326.65 531.50 57.09
0 LTD.
53255 NTPC LTD. 0.68 2.80 233.00 113.00 9.81
5

INITIAL PORTFOLIO VALUE

Product Offerings

The Balanced Scheme:

Ideal for investors looking at steady and superior returns with low to medium risk
appetite. This portfolio consists of a blend of quality bluechip and growth stocks
ensuring a balanced portfolio with relat vely medium risk profile. The portfolio
will mostly have large capitalization stocks based on sectors & themes who have
medium to long term growth potential.

Product Approach

Investment are based on 3 tenets:

i] Consistent, steady and sustainable returns

ii] Margin of Safety

iii] Low Volatility

Product Characteristics

Bottom up stock selection

> In-depth, independent fundamental research.


> High quality companies with relatively large capitalization.

> Disciplined valuation approach applying multiple valuation measures.

> Medium to long term vision, resulting in low portfolio turnover.

Product Details
Minimum Investment: Rs 5 lakhs.
Lock in period: 3 Months

Reporting:

Online access to portfolio holdings, quaterly repeorting of portfolio


holdings/transactions.

Charges: 2.5% per annum AMC charged every quarter,

0.5% brokerage

20% profit sharing after 15% hurdle is crossed-chargeable at the end of the fiscal
year.

Profit withdrawal in multiples of 25000 after lock in period.


Scrip Company Beta Price Qnt. Value % of
Code Values Shares total
portfolio
50041 ACC LTD. 0.64 612.00 50 30600 4.08
0
50010 BHARAT HEAVY 0.99 1764.9 30 52948.5 7.06
3 ELECTRICALS LTD. 5
53245 BHARTI AIRTEL 0.88 712.30 100 71230 9.50
4 LTD.
53286 DLF Ltd. 1.48 250.50 100 25050 3.34
8
50044 HINDALCO 1.08 62.15 150 9323 1.24
0 INDUSTRIES LTD
50018 HDFC BANK LTD 0.98 1099.2 48 52761.6 7.035
0 0
53217 ICICI BANK LTD 1.58 500.25 53 26513.2 3.54
4 5
53253 JAIPRAKASH 1.70 160.65 200 32130 4.284
2 ASSOCIATES
LIMITED
50051 LARSEN & TOUBRO 1.13 1400.0 12 16800 2.24
0 LTD. 0
50031 ONGC CORPN 0.80 960.00 35 33600 4.48
2
50052 MAHINDRA & 0.95 548.20 70 38374 5.12
0 MAHINDRA LTD
53271 RELIANCE 1.42 248.05 100 24805 3.31
2 COMMUNICATIONS
LTD.
50039 RELIANCE 1.64 710.10 95 67459.5 9.0
0 INFRASTRUCTURE
LTD
50011 STATE BANK OF 1.06 1532.4 15 22986.7 3.06
2 INDIA 5 5
50090 STERLITE 1.29 585.60 37 21667.2 2.9
0 INDUSTRIES
50057 TATA MOTORS 1.10 310.20 100 31020 4.14
0 LTD.
50768 WIPRO LTD. 0.92 370.55 200 74110 9.88
5
50020 INFOSYS 0.68 1565.2 15 23478.7 3.13
9 TECHNOLOGIES 5 5
LTD.
50040 TATA POWER CO. 0.92 890.55 40 35622 4.75
0 LTD.
53255 NTPC LTD. 0.68 160.35 100 16035 2.14
5
CASH 43480.4 5.80
5
Total 750000 100.00

INITIAL PORTFOLIO BETA CALCULATION


Scrip Company Beta Value % of total Contribution
Code Values portfolio to Portfolio
Beta
50041 ACC LTD. 0.64 30600 4.08 0.026
0
50010 BHARAT HEAVY 0.99 52948.5 7.06 0.070
3 ELECTRICALS LTD.
53245 BHARTI AIRTEL 0.88 71230 9.50 0.084
4 LTD.
53286 DLF Ltd. 1.48 25050 3.34 0.05
8
50044 HINDALCO 1.08 9323 1.24 0.0134
0 INDUSTRIES LTD
50018 HDFC BANK LTD 0.98 52761.6 7.035 0.07
0
53217 ICICI BANK LTD 1.58 26513.2 3.54 0.060
4 5
53253 JAIPRAKASH 1.70 32130 4.284 0.073
2 ASSOCIATES
LIMITED
50051 LARSEN & TOUBRO 1.13 16800 2.24 0.025
0 LTD.
50031 ONGC CORPN 0.80 33600 4.48 0.036
2
50052 MAHINDRA & 0.95 38374 5.12 0.050
0 MAHINDRA LTD
53271 RELIANCE 1.42 24805 3.31 0.047
2 COMMUNICATIONS
LTD.
50039 RELIANCE 1.64 67459.5 9.0 0.1476
0 INFRASTRUCTURE
LTD
50011 STATE BANK OF 1.06 22986.7 3.06 0.0324
2 INDIA 5
50090 STERLITE 1.29 21667.2 2.9 0.037
0 INDUSTRIES
50057 TATA MOTORS 1.10 31020 4.14 0.046
0 LTD.
50768 WIPRO LTD. 0.92 74110 9.88 0.091
5
50020 INFOSYS 0.68 23478.7 3.13 0.0213
9 TECHNOLOGIES 5
LTD.
50040 TATA POWER CO. 0.92 35622 4.75 0.044
0 LTD.
53255 NTPC LTD. 0.68 16035 2.14 0.015
5
Cash 43480.4 5.80 0.00000
5
Total 750000 100.00

Portfolio Summary Review

The Steering Committee should receive relevant portfolio status information on a


regular basis, say monthly or quarterly. If a Project Management Office (PMO) is
in place, they may be satisfied with the PMO reports. Long winded textual
diatribes are not necessary. Summary information can be provided graphically,
often referred to as a "dashboard".

A portfolio dashboard is a set of metrics collected together and presented


graphically to governance bodies on a regular basis and portraying the latest
performance status of the part of the organization being observed. It is called a
"dashboard" because the charts are often in pie chart form and resemble the
dashboard of an automobile. In this case, the dashboard displays portfolio
performance figures against objectives and expectations.

A more detailed review could include the following:


Component data: Regular updates on the status of portfolio components,
especially at phase-end milestones; current priority; and forecasts of delivery, final
costs, and expected benefits.

Resource allocation and capacity data: Financial, human and production


capacity for purposes of scheduling next-in-queue projects.

Environmental constraints: Includes constraints such as government regulations,


borrowing capacity arising from interest rates, weather, and so on.

Selection criteria: Any changes arising from portfolio optimization calculations;


mandated changes in balancing points; or changes in the weightings to be applied
to specific selection criteria.

Key Performance Indicators: Any changes in the organization's approach to


gathering metrics, especially in the area of benefits realization.

Portfolio management criteria: Changes in details such as diversification; project


management objectives tolerances; and risk tolerances generally.

Governance standards: Any changes in corporate policies, whether or not


government mandated.
Strategic Goals: Any changes in corporate strategy, perhaps arising from a review
of portfolio benefits realization performance, but in any case as they apply to
selection and prioritization of portfolio components.

Obviously, each Steering Committee member should be particularly familiar with


any portfolio work that they are sponsoring and/or portfolio work that is being
performed on their behalf.

Portfolio Flexibility

Business demands are getting tougher and tougher. Organizations must be able to
do more with less. The performance level that was good enough this year will not
meet the higher expectation level of next year. Staff must always be looking for
ways to improve delivery processes, overall service level and ways to leverage
their existing assets to improve the level of benefits being derived from portfolio
products.

Operating environment may be changing:


Overall business priorities could have changed at the organizational or
departmental levels Business revenue may not be trending as expected so that may
impact scheduled projects - for good or bad The organization's Business Planning
Process for the following year may have already started before some projects have
started in the current year. The new business plan may render some current
projects less relevant. This may be reason to postpone a project or even cancel it
for the time being.

Essentially, that means that the project's Business Case has changed. Therefore,
before projects are started in Step 7, the Steering Committee should insist on
revalidation of Business Cases that are no longer current.

This review does not have to be in-depth but at least ensure that the assumptions,
costs and business benefits are still valid. It also follows that the Steering
Committee should keep project managers informed of general business trends as
project managers are often too close to their project work to be sensitive to a
changing environment.

Changing Strategic Direction

So far we have only dealt with improving the portfolio internally, that is, alignment
of portfolio work with established corporate strategy; maximizing selection;
balancing portfolio components; efficiency of production and of product transfer;
and so on. What if the organization's environment changes substantially? This may
be due to a merger, an acquisition or disposal of a Business Unit, or a redirection
following a change at the senior executive level. Or, what if the feedback from
Operations demonstrates that the benefits from products produced as a result of
existing strategies are simply not coming up to expectations? Clearly, these call for
changes in strategy at the Executive level. Hence, strategic reviews should be held
at longer-term intervals, perhaps biannually or annually.

A portfolio strategic review could consider any or all of the following:

The extent to which Benefit Realization Management is working at the Operations


level and returning the benefits expected according to the organization's strategic
plans. Impacts of latest business forecasts, portfolio resource utilization, balance
points, and capacity constraints on portfolio performance Changes to the
organization's strategic vision, goals and direction as it applies to its portfolio
management as a consequence of this feedback Governance standards, and
component sponsorship, accountability, and other ownership criteria set according
to these standards, especially if revised Priority setting, dependencies, scope,
expected returns from the latest enabling products, the risks, and financial
performance, including retention or deletion of component categories and/or
programs in the portfolios. General changes in the way portfolio components are
managed

Strategic Change Reporting.

The status of the corporate management practice of its project portfolio


management in general is of considerable importance to the future of the
organization as a whole. Therefore, a brief summary of the status of the portfolio
as a whole should appear in the organization's annual report. This is especially true
if there has been a particular change in strategic direction during the reporting
period.

Portfolio management is neither simple nor easy, but it helps if you understand the
big picture and where it fits in the overall scheme of management science.

SUGGESTIONS
There are some suggestions for portfolio investment to turn its structure from a
portfolio investment to optimum portfolio investment. This portfolio investment
structure will benefit the investors up to a large extent.

• The moral is simple and obvious: don't put all your eggs in one basket. It
means investor should invest in different securities.

• The portfolio manager should follow the code of ethics given by SEBI.

• The STT should remove from the transaction of securities so that the
investor can make investment more easily without paying higher brokerage.

• Portfolio manager should be cooperative with the investor and able to


understand the investors need.
• Investor should also be cooperative with portfolio managers.

• Portfolio manager should invest in lower risk securities.

• Before entering into contract investor should read the documents carefully
and also come to know about the duties and obligations of both the parties.

• Investor should avoid investing in future market because future market


cannot provide protection against crop failure.

• The stock should not overvalue or undervalued, if the markets are efficient
there is no such thing as an overvalued or undervalued stock.

• Beta must be estimated and the estimate is clouded with substantial


uncertainty.

• Final selection of securities can be assisted by a quick comparison of return


on asset and return on equity over the ten-year period shown in the stock
report.

• Growth stock reinvestment most of their earnings rather than paying them
out as dividends.

• Out of all the categories blue chip stock might be the best known so
portfolio manager should invest in blue chip stock.

• Understanding of duration is essential to modern portfolio management.


BIBLIOGRAPHY

BOOKS

• Indian Securities Market – Issued by NSE

• ‘LSE Bulletin’ issues of April 2008, May 2008, June 2008

• Beuro Report

• Robert A. Strong “University of Maine” ‘Portfolio Management Handbook’


Jaico Publication House

NEWSPAPERS
FINANCIAL EXPRESS

BUSINESS WORLD

THE TRIBUNE

HINDUSTAN TIMES

BUSINMESS LINES

BUSINESS STANDARDS

THE HINDU BUSINESS LINE

ECONOMIC TIMES

WEBSITES

WWW.SEBI.GOV.IN

WWW.BSEINDIA.COM
WWW.NSEINDIA.COM

WWW.MONEYCONTROL.COM

WWW.SHAREKHAN.COM

WWW.KARVY.COM