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INDEX

SRNO.

TOPICS

1.

PORTFOLIO MANAGEMENT - INTRODUCTION

2.

TYPES OF PORTFOLIO MANAGEMENT

3.

PORTFOLIO MANAGEMENT PROCESS

4.

RISK – RETURN ANALYSIS

5.

PORTFOLIO THEORIES

6.

PAGE NO

PERSONS INVOLVED IN PORTFOLIO MANAGEMENT
CONCLUSION

BIBLOGRAPHY

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CHAPTER: 1
PORTFOLIO MANAGEMENT

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

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

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MEANING OF PORTFOLIO MANAGEMENT
Portfolio management in common parlance refers to the selection of securities and
their continuous shifting in the portfolio to optimize returns to suit the objectives of an
investor. This however requires financial expertise in selecting the right mix of securities
in changing market conditions to get the best out of the stock market. In India, as well as
in a number of western countries, portfolio management service has assumed the role of a
specialized service now a days and a number of professional merchant bankers compete
aggressively to provide the best to high net worth clients, who have little time to manage
their investments. The idea is catching on with the boom in the capital market and an
increasing number of people are inclined to make profits out of their hard-earned savings.
Portfolio management service is one of the merchant banking activities recognized by
Securities and Exchange Board of India (SEBI). The service can be rendered either by
merchant bankers or portfolio managers or discretionary portfolio manager as define in
clause (e) and (f) of Rule 2 of Securities and Exchange Board of India(Portfolio
Managers)Rules, 1993 and their functioning are guided by the SEBI.
According to the definitions as contained in the above clauses, a portfolio manager
means any person who is pursuant to 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. A merchant banker acting as a Portfolio Manager shall also
be bound by the rules and regulations as applicable to the portfolio manager.
Realizing the importance of portfolio management services, the SEBI has laid down
certain guidelines for the proper and professional conduct of portfolio management
services. As per guidelines only recognized merchant bankers registered with SEBI are
authorized to offer these services.
Portfolio management or investment helps investors in effective and efficient
management of their investment to achieve this goal. The rapid growth of capital markets
in India has opened up new investment avenues for investors.
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The stock markets have become attractive investment options for the common man.
But the need is to be able to effectively and efficiently manage investments in order to
keep maximum returns with minimum risk.
Hence this is the study on “PORTFOLIO MANAGEMENT & INVESTMENT
DECISION” so as to examine the role, process and merits of effective investment
management and decision.

DEFINITIONS OF PORTFOLIO
1) Investor’sWords.com
A collection of investments (all) owned by the same individual or organization.
These investments often include stocks, which are investments in individual
businesses; bonds, which are investments in debt that are designed to earn interest;
and mutual funds, which are essentially pools of money from many investors that are
invested by professionals or according to indices.
2) Financial Dictionary and WikiAnswers.com
A collection of various company shares, fixed interest securities or money-market
instruments. People may talk grandly of 'running a portfolio' when they own a couple
of shares but the characteristic of a serious investment portfolio is diversity. It should
show a spread of investments to minimize risk - brokers and investment advisers
warn against 'putting all your eggs in one basket'.

3) YourDictionary.com
a) All the securities held for investment as by an individual, bank, investment
company, etc.
b) A list of such securities.

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An investor who prefers active portfolio management will choose managed funds which have the potential to outperform the market. 3) Financial Dictionary Managing a large single portfolio or being employed by its owner to do so. 5 . Investors are generally charged higher initial fees and annual management fees for active portfolio management. Investors must balance risk and performance in making portfolio management decisions. An investor who prefers passive portfolio management will likely choose to invest in low cost index funds with the goal of mirroring the market's performance. including choosing and monitoring appropriate investments and allocating funds accordingly. The ultimate goal of portfolio management is to achieve the optimum return for a given level of risk. Portfolio management strategies may be either active or passive. A fundamental aspect of portfolio management is choosing assets which are consistent with the portfolio holder's investment objectives and risk tolerance. 2) Investor Glossary Determining the mix of assets to hold in a portfolio is referred to as portfolio management.com The process of managing the assets of a mutual fund. Portfolio managers have the knowledge and skill which encourage people to put their investment decisions in the hands of a professional (for a fee).DEFINITIONS OF PORTFOLIO MANAGEMENT 1) Investor’swords.

refers to a software package that enables corporate and business users to organize a series of projects into a single portfolio that will provide reports based on the various project objectives. short for project portfolio management. 2) Bitpipe. Also called as Enterprise Project management and PPM 6 . costs. Project portfolio management software allows the user. accomplishments. however.com – Webopedia PPM. The manager. spread resources appropriately and adjust projects to produce the highest departmental returns. costs. timelines.com Project portfolio management organizes a series of projects into a single portfolio consisting of reports that capture project objectives. resources.DEFINITION OF DISCRETIONARY PORTFOLIO MANAGEMENT  BusinessDictionary.com Investment account arrangement in which an investment manager makes the buy-sell decisions without referring to the account owner (client) for every transaction. to review the portfolio which will assist in making key financial and business decisions for the projects. usually management or executives within the company. Executives can then regularly review entire portfolios. resources. must operate within the agreed upon limits to achieve the client's stated investment objectives. risks and other pertinent associations. DEFINITIONS OF PROJECT PORTFOLIO MANAGEMENT 1) Internet. risks and other critical factors.

Pursuant to such arrangement he advises the client or undertakes on behalf of such client management or administration of portfolio of securities or invests or manages the client’s funds. He shall independently or individually manage the funds of each client in accordance with the needs of the client in a manner which does not resemble the mutual fund. exercise any degree of discretion in respect of the investment or management of portfolio of the portfolio securities or the funds of the client. as the case may be.MEANING OF PORTFOLIO MANAGERS Portfolio manager means any person who enters into a contract or arrangement with a client. 7 . background and experience is expected to study the various avenues available for profitable investment and advise his client to enable the latter to maximize the return on his investment and at the same time safeguard the funds invested. A discretionary portfolio manager means a portfolio manager who exercises or may under a contract relating to portfolio management. A portfolio manager by virtue of his knowledge. A non discretionary portfolio manager shall manage the funds in accordance with the directions of the client.

The last choice goes to investment in company shares and debentures. The professional managers provide a variety of services including diversification. personal preferences. Portfolio management in India is still in its infancy. An investor’s attempt to find the best combination of risk and return is the first and usually the foremost goal. active portfolio management. 8 . attributes and investor preferences.e. The first preference normally goes to the necessities and comforts like purchasing a house or domestic appliances. return and tax benefits from these shares and debentures. For most investors it is not possible to choose between managing one’s own portfolio. The next preference goes to short term investments such as UTI units and post office deposits which provide easy liquidity. The third preference goes to make a provision for savings required for making day to day payments. The final decision is taken on the basis of alternatives. liquid securities and performance of duties associated with keeping track of investor’s money. They can hire a professional manager to do it. if they offer higher returns. b) The management of investment alternatives to expand the set of opportunities available at the investors acceptable risk level. There are number of choices and decisions to be taken on the basis of the attributes of risk. i. The very risk-averse investor might choose to invest in mutual funds. The more risktolerant investor might choose shares. An investor has to choose a portfolio according to his preferences. In choosing among different investment opportunities the following aspects risk management should be considered: a) The selection of a level or risk and return that reflects the investor’s tolerance for risk and desire for return.SCOPE OF PORTFOLIO MANAGEMENT: Portfolio management is an art of putting money in fairly safe. quite profitable and reasonably in liquid form. His second preference goes to some contractual obligations such as life insurance or provident funds.

The changes in the portfolio are to be effected to meet the changing condition. It is a dynamic and flexible concept and involves regular and systematic analysis. A combination of securities held together will give a beneficial result if they grouped in a manner to secure higher returns after taking into consideration the risk elements. It involves construction of a portfolio based upon the investor’s objectives.NEED FOR PORTFOLIO MANAGEMENT: Portfolio management is a process encompassing many activities of investment in assets and securities. judgment and action. in different industries or those producing different types of product lines. The evaluation of portfolio is to be done in terms of targets set for risk and returns. The modern theory is the view that by diversification risk can be reduced. Diversification can be made by the investor either by having a large number of shares of companies in different regions. preferences for risk and returns and tax liability. The portfolio is reviewed and adjusted from time to time in tune with the market conditions. Portfolio construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. 9 . constraints. Modern theory believes in the perspective of combination of securities under constraints of risk and returns. Portfolio theory concerns itself with the principles governing such allocation. The objective of this service is to help the unknown and investors with the expertise of professionals in investment portfolio management. The modern view of investment is oriented more go towards the assembly of proper combination of individual securities to form investment portfolio.

yield can be effectively improved. Nearness to Money: It is desirable to investor so as to take advantage of attractive opportunities upcoming in the market.e. 5) Liquidity i.OBJECTIVES OF PORTFOLIO MANAGEMENT: The major objectives of portfolio management are summarized as below:- 1) Security/Safety of Principal: Security not only involves keeping the principal sum intact but also keeping intact its purchasing power intact. is the case with which a security can be bought or sold. 2) Stability of Income: So as to facilitate planning more accurately and systematically the reinvestment consumption of income. This is essential for providing flexibility to investment portfolio. 10 . By minimizing the tax burden. 3) Capital Growth: This can be attained by reinvesting in growth securities or through purchase of growth securities. 4) Marketability: i. 7) Favorable Tax Status: The effective yield an investor gets form his investment depends on tax to which it is subject.e. 6) Diversification: The basic objective of building a portfolio is to reduce risk of loss of capital and / or income by investing in various types of securities and over a wide range of industries.

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

) or private investors (both directly via investment contracts and more commonly via collective investment schemes e. corporations etc..g. pension funds. INVESMENT MANAGEMENT: Investment management is the professional management of various securities (shares.g.S. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". (not necessarily) whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. 12 . The term asset management is often used to refer to the investment management of collective investments.CHAPTER – 2 TYPES OF PORTFOLIO MANAGEMENT There are various types of portfolio management:  Investment Management  IT Portfolio Management  Project Portfolio Management 1.) and assets (e. Investors may be institutions (insurance companies. real estate). bonds etc. mutual funds or Exchange Traded Funds). Fund manager (or investment adviser in the U.) refers to both a firm that provides investment management services and an individual who directs fund management decisions. to meet specified investment goals for the benefit of the investors.

The concept is analogous to financial portfolio management. a purely financial view is not sufficient. a balanced scorecard approach). IT Portfolio management is accomplished through the creation of two portfolios: (i) Application Portfolio . The promise of IT portfolio management is the quantification of previously mysterious IT efforts. enabling measurement and objective evaluation of investment scenarios. The comparison can be based upon the level of contribution in terms of IT investment’s profitability. Additionally. projects. but there are significant differences. and are measured using both financial and non-financial yardsticks (for example. IT PORTFOLIO MANAGEMENT: IT portfolio management is the application of systematic management to large classes of items managed by enterprise Information Technology (IT) capabilities.Management of this portfolio focuses on comparing spending on established systems based upon their relative value to the organization. IT investments are not liquid.2. and ongoing IT services (such as application support). this comparison can also be based upon the 13 . like stocks and bonds (although investment portfolios may also include illiquid assets). At its most mature. Examples of IT portfolios would be planned initiatives.

This finite characteristic of projects stands in contrast to processes. Executives can then regularly review entire portfolios. 14 . accomplishments. The management issues with the second type of portfolio management can be judged in terms of data cleanliness.non-tangible factors such as organizations’ level of experience with a certain technology. Project management is the discipline of planning. In practice. and external forces such as emergence of new technologies and obsolesce of old ones. spread resources appropriately and adjust projects to produce the highest departmental returns. timelines. or operations. users’ familiarity with the applications and infrastructure. resources. (ii) Project Portfolio . costs. and suitability of resulting solution and the relative value of new investments to replace these projects.This type of portfolio management specially address the issues with spending on the development of innovative capabilities in terms of potential ROI and reducing investment overlaps in situations where reorganization or acquisition occurs. PROJECT PORTFOLIO MANAGEMENT: Project portfolio management organizes a series of projects into a single portfolio consisting of reports that capture project objectives. 3. which are permanent or semi-permanent functional work to repetitively produce the same product or service. risks and other critical factors. A project is a finite endeavor (having specific start and completion dates) undertaken to create a unique product or service which brings about beneficial change or added value. maintenance savings. organizing and managing resources to bring about the successful completion of specific project goals and objectives. the management of these two systems is often found to be quite different. and as such requires the development of distinct technical skills and the adoption of separate management.

15 . The above activities are directed to achieve the sole purpose of maximizing return and minimizing risk on investment. c) Finally they select the security within the asset classes as identify. With higher risk higher return may be expected and vice versa. There can be many objectives of making an investment. (B) INVESTMENT DECISION: Given a certain sum of funds. Objectives of Investment Portfolio: This is a crucial point which a Finance Manager must consider. The manager of a provident fund portfolio has to look for security and may be satisfied with none too high a return. allocation of investment and also identifying the classes of assets for the purpose of investment. proportion of different assets in the portfolio by taking in to consideration the related risk factors. where as an aggressive investment company be willing to take high risk in order to have high capital appreciation. b) They have to decide the major weights.CHAPTER: 3 PORTFOLIO MANAGEMENT PROCESS (A) THERE ARE THREE MAJOR ACTIVITIES INVOLVED IN AN EFFICIENT PORTFOLIO MANAGEMENT WHICH ARE AS FOLLOWS:a) Identification of assets or securities. the investment decisions basically depend upon the following factors:I. It is well known fact that portfolio manager balances the risk and return in a portfolio investment.

Equity shares. preference share. So it is obvious that the objectives must be clearly defined before an investment decision is taken. Govt. convertible bond. It is important to recognize that at a particular point of time. For example. The decision what to buy has to be seen in the context of the following:- a) There is a wide variety of investments available in market i. Selection of Investment: Having defined the objectives of the investment. Out of these what types of securities to be purchased. b) What should be the proportion of investment in fixed interest dividend securities and variable dividend bearing securities? The fixed one ensures a definite return and thus a lower risk but the return is usually not as higher as that from the variable dividend bearing shares. there was a time when jute industry was in great favour because of its growth potential and high profitability. II. then the industries showing a potential in growth should be taken in first line. where as the ordinary unit are meant to provide a steady return only. The investment manager under both the scheme will invest the money of the Trust in different kinds of shares and securities.e. the industry is no longer at this point of time as a growth oriented industry. a particular industry may have a better growth potential than other industries. securities and bond. debentures. Industry-wise-analysis is important since various industries are not at the same level from the investment point of view. c) If the investment is decided in shares or debentures. 16 . the next decision is to decide the kind of investment to be selected.How the objectives can affect in investment decision can be seen from the fact that the Unit Trust of India has two major schemes : Its “capital units” are meant for those who wish to have a good capital appreciation and a moderate return. capital units etc.

d) Once industries with high growth potential have been identified. 17 . the next step is to select the particular companies. in whose shares or securities investments are to be made.

he would assess the various factors which influence the value of a particular share. The related changes in the price index of each industry as compared with the changes in the average price index of the shares of all industries would show those industries which are having a higher growth potential in the past few years. This approach is known as the intrinsic value approach. b) Assessing the Intrinsic Value of an Industry/Company: After an investment manager has identified statistically the industries in the share of which the investors show interest. So he shall now have to make an assessment of the various Industries keeping in view the present potentiality also to finalize the list of Industries in which he will try to spread his investment. These factors generally relate to the strengths and weaknesses of the company under consideration.FUNDAMENTAL ANALYSIS: (A) FUNDAMENTAL ANALYSIS OF GROWTH ORIENTED COMPANIES: One of the first decisions that an investment manager faces is to identify the industries which have a high growth potential. Two approaches are suggested in this regard. 18 . Characteristics of the industry within which the company fails and the national and international economic scene. The Reserve Bank of India index numbers of security prices published every month in its bulletin may be taken to represent the behaviour of share prices of various industries in the last few years. They are: a) Statistical Analysis of Past Performance: A statistical analysis of the immediate past performance of the share price indices of various industries and changes there in related to the general price index of shares of all industries should be made. It is the job of the investment manager to examine and weigh the various factors and judge the quality of the share or the security under consideration. It may be noted that an Industry may not be remaining a growth Industry for all the time.

This would reflect the future growth prospects of the industry. the investment manager will have to rely on the various demand forecasts made by various agencies like the planning commission. both qualitative and quantitative factors are to be considered.The major objective of the analysis is to determine the relative quality and the quantity of the security and to decide whether or not is security is good at current markets prices. cost structure of the industry and other economic and Government constraints on the same. etc. rapid growth. The following factors may particularly be kept in mind while assessing to factors relating to an industry. (B) INDUSTRY ANALYSIS First of all. In order to know the future volume and the value of the output in the next ten years or so. an appraisal of the particular industry’s prospect is essential and the basic profitability of any company is dependent upon the economic prospect of the industry to which it belongs. (i) Demand and Supply Pattern for the Industries Products and Its Growth Potential: The main important aspect is to see the likely demand of the products of the industry and the gap between demand and supply. development. an assessment will have to be made regarding all the conditions and factors relating to demand of the particular product. maturity and decline”. These are “Introduction. As we have discussed earlier. In this. Chambers of Commerce and institutions like NCAER. If an industry has 19 . The management expert identifies fives stages in the life of an industry.

So the cost structure of the industry as related to its sale price is an important consideration. The other point to be considered is the ratio analysis. This would give him an idea about the profitability of the industry as a whole. (iii) Labour Management Relations in the Industry: The state of labour-management relationship in the particular industry also has a great deal of influence on the future profitability of the industry. the next stage would be to undertake and analyze all the factors which show the desirability of various companies within an industry group from investment point of view. see whether the industry under analysis has been maintaining a cordial relationship between labour and management. gross profit and net profit ratio of the existing companies in the industry. (ii) Particular Characteristics of the Industry: Each industry has its own characteristics. Such fluctuations in earnings must be carefully examined.already reached the maturity or decline stage. In India there are many industries which have a growth potential on account of good demand position. therefore. especially return on investment. Because the industry having a fast changing technology become obsolete at a faster rate. The investment manager should. (i) Profitability: It is a vital consideration for the investors as profit is the measure of performance and a source of earning for him. Once the industry’s characteristics have been analyzed and certain industries with growth potential identified. many industries are characterized by high rate of profits and losses in alternate years. Similarly. its future demand potential is not likely to be high. which must be studied in depth in order to understand their impact on the working of the industry. 20 .

net income. Hence. the net profits. would help the investment manager in assessing the risk associated with the company. and the industry. it must be emphasized that the past performance and information is relevant only to the extent it indicates the future trends. in general. 1) Size and Ranking: A rough idea regarding the size and ranking of the company within the economy. Theoretically. the return on investment and the sales volume of the company under consideration may be compared with similar data of other company in the same industry group. 2) Growth Record: The growth in sales. this ratio should be same for two companies with similar features. It may also be useful to assess the position of the company in terms of technical knowhow. An illustrative list of factors which help the analyst in taking the investment decision is given below. in particular. the investment manager has to visualize the performance of the company in future by analyzing its past performance. However. In this regard the net capital employed.(C) COMPANY ANALYSIS: To select a company for investment purpose a number of qualitative factors have to be seen. this is not so in practice due to many factors. Before purchasing the shares of the company. research and development activity and price leadership. The following three growth indicators may be particularly looked in to (a) Price earnings ratio. The price earnings ratio is an important indicator for the investment manager since it shows the number the times the earnings per share are covered by the market price of a share. An evaluation of future growth prospects of the 21 . (b) Percentage growth rate of earnings per annum and (c) Percentage growth rate of net block of the company. However. net capital employed and earnings per share of the company in the past few years must be examined. by a comparison of this ratio pertaining to different companies the investment manager can have an idea about the image of the company and can determine whether the share is under-priced or over-priced. Hence. relevant information must be collected and properly analyzed.

For this purpose certain fundamental ratios have to be calculated. the possibility of its product being superseded of the possibility of emergence of more effective method of manufacturing. 22 . book value and the intrinsic value of the share. price earnings ratios. This requires the analysis of the existing capacities and their utilization. in terms of expansion or diversification. proposed expansion and diversification plans and the nature of the company’s technology. Growth is the single most important factor in company analysis for the purpose of investment management. the efficiency with which the funds are used. The nature of technology of a company should be seen with reference to technological developments in the concerned fields. (D) FINANCIAL ANALYSIS: An analysis of financial for the past few years would help the investment manager in understanding the financial solvency and liquidity. the profitability. The yield and the asset backing of a share are important considerations in a decision regarding whether the particular market price of the share is proper or not. yield. The existing capacity utilization levels can be known from the quantitative information given in the published profit and loss accounts of the company. The five elements may be calculated for the past ten years or so and compared with similar ratios computed from the financial accounts of other companies in the industry and with the average ratios of the industry as a whole. the most important figures are earnings per share. but if it does not have growth potential. From the investment point of view. The plans of the company. A company may have a good record of profits and performance in the past. the operating efficiency and operating leverages of the company.company should be carefully made. can be known from the directors reports the chairman’s statements and from the future capital commitments as shown by way of notes in the balance sheets. its shares cannot be rated high from the investment point of view.

(ii) Location and labour management relations: The locations of the company’s manufacturing facilities determine its economic viability which depends on the availability of crucial inputs like power. This is perhaps the reason that an investment manager always gives a close look to the management of the company whose shares he is to invest. 23 . Nearness to market is also a factor to be considered. Quality of management has to be seen with reference to the experience. the investment manager may work out current ratio.Various other ratios to measure profitability. debt equity ratio. He can analyze its strengths and weakness and see whether it is worth the risk or not. operating efficiency and turnover efficiency of the company may also be calculated. (i) Quality of Management: This is an intangible factor. capital turnover ratio and the cost structure ratios may also be worked out. etc. liquidity ratio. the investment manager has begun looking into the state of labour management relations in the company under consideration and the area where it is located. This is because of the quality of management. In the past few years. To examine the financial solvency or liquidity of the company. the confidence that the investors have in a particular business house. etc. The return on owner’s investment. its policy vis-à-vis its relationship with the investors. dividend and financial performance record of other companies in the same group. Every investment manager knows that the shares of certain business houses command a higher premium than those of similar companies managed by other business houses. skill and integrity of the persons at the helm of the affairs of the company. skilled labour and raw materials etc. Yet it has a very important bearing on the value of the shares. These ratios will provide an overall view of the company to the investment analyst. The policy of the management regarding relationship with the share holders is an important factor since certain business houses believe in generous dividend and bonus distributions while others are rather conservative.

To purchase or sell such scripts is a difficult task. (iv) Marketability of the Shares: Another important consideration for an investment manager is the marketability of the shares of the company. was raised considerably. who wish to opt out. It included an analysis of the macro economic and political factors which will have an impact on the performance of the firm. An interesting case in this regard is that of the Punjab National Bank in which the L. This would show the stake of various parties associated with the company. could receive a certain amount as compensation in cash. After having analyzed all the relevant information about the company and its relative strength vis-à-vis other firm in the industry.I. The other relevant factors are the speculative interest in the particular scrip. the particular stock exchange where it is traded and the volume of trading.C.(iii) Pattern of Existing Stock Holding: An analysis of the pattern of the existing stock holdings of the company would also be relevant. It was only at the instant and bargaining strength of institutional investors that the compensation offered to the shareholders. In this regard. and other financial institutions had substantial holdings. who wish to opt out of the company. When the bank was nationalized. Fundamental analysis thus is basically an examination of the economics and financial aspects of a company with the aim of estimating future earnings and dividend prospect. Mere listing of the share on the stock exchange does not automatically mean that the share can be sold or purchased at will. the residual company proposed a scheme whereby those shareholders. There are many shares which remain inactive for long periods with no transactions being affected. dispersal of share holding with special reference to the extent of public holding should be seen. the investor is expected to decide whether he should buy or sell the securities. 24 .

time horizon. 2) Choice Of The Asset Mix : The most important decision in portfolio management is the asset mix decision very broadly. The appropriate ‘stock-bond’ mix depends mainly on the risk tolerance and investment horizon of the investor. In short we can conclude by saying that Investment management is a complex activity which may be broken down into the following steps: 1) Specification Of Investment Objectives And Constraints: The typical objectives sought by investors are current income. everybody joins in buying without any delay because every day the prices touch a new high. The ordinary investor regretted such situation by thinking why he did not sell his shares in previous day and ultimately sell at a lower price. capital appreciation. this is concerned with the proportions of ‘stocks’ (equity shares and units/shares of equity-oriented mutual funds) and ‘bonds’ in the portfolio. The decision regarding timing of purchases is particularly difficult because of certain psychological factors. buy when the share are selling at a low price and sell when they are at a higher price. he should buy cheap and sell dear. and safety of principle. tax and special circumstances must be identified. When the prices are rising in the market i. It is obvious that if a person wishes to make any gains. i. prices tumble down every day and everybody starts counting the losses. But in practical it is a difficult task.(C) TIMING OF PURCHASES:- The timing of dealings in the securities.e. there is bull phase.e. because after correctly identifying the companies one may lose money if the timing is bad due to wide fluctuation in the price of shares of that companies. The relative importance of these objectives should be specified further the constraints arising from liquidity. This kind of investment decision is entirely devoid of any sense of timing. Later when the bear face starts. specially shares is of crucial importance. 25 .

profit & loss a/c (account) of the company.ELEMENTS OF PORTFOLIO MANAGEMENT: Portfolio management is on-going process involving the following basic tasks:  Identification of the investor’s objectives.  Finally the evaluation of the portfolio Technique’s Of Portfolio Management: As of now the under noted technique of portfolio management: are in vogue in our country. Political stability etc. Trade cycle’s. 1) Equity Portfolio: It is influenced by internal and external factors the internal factors affect the inner working of the company’s growth plans are analyzed with referenced to Balance sheet. OF EQUITY SHARES PRICE EARNING RATIO = _MARKET PRICE (PER SHARE) _ EARNING PER SHARE 26 .  Review and monitoring of the performance of the portfolio. Among the external factor are changes in the government policies. 2) Equity Stock Analysis: Under this method the probable future value of a share of a company is determined it can be done by ratio’s of earning per share of the company and price earnings ratio EARNING PER SHARE = _ PROFIT AFTER TAX__ NO.  Strategies are to be developed and implemented in tune with investment policy formulated. constraints and preferences.

etc. Prices are based upon demand and supply of the market. high illiquidity. a high rating is preferable. working capital. competition within. and outside the industry. 27 .Based on Dow Jone’s Theory. and quality of management.  Variable returns. to Trade cycle. cash flows. 1) Nature of the industry and its product: Long term trends of industries. The wise principle of portfolio management suggests that “Buy when the market is low or BEARISH. b) Technical approach: . profit earnings ratio. are worked out to decide the portfolio. labour relations. sensitivity. Stock market operation can be analyzed by: a) Fundamental approach: . net worth.  Diversification reduces risk and volatility.Based on intrinsic value of shares. returns on investment.One can estimate trend of earning by EPS. and sell when the market is rising or BULLISH”. etc. 3) Ratio analysis: Ratios such as debt equity ratio. Technical changes. dividend policy. 2) Industrial analysis of prospective earnings. The following points must be considered by portfolio managers while analyzing the securities. current ratio. Random Walk Theory. which reflects trends of earning quality of company. Price Earnings ratio indicate a confidence of market about the company future. etc.  Objectives are maximization of wealth and minimization of risk. dividends.

Hence. because as to spread risk by not putting all eggs in one basket. price of the security tends to move inversely with change in rate of interest. 28 . The expected return depends on the probability of the returns and their weighted contribution to the risk of the portfolio. Following are the some of the types of Risk: 1) Interest Rate Risk: This arises due to the variability in the interest rates from time to time. Risk on the portfolio is different from the risk on individual securities. but the risk and return of the portfolio as a whole. Risk is mainly reduced by Diversification.4 RISK – RETURN ANALYSIS RISK ON PORTFOLIO: The expected returns from individual securities carry some degree of risk. Risk of the individual assets or a portfolio is measured by the variance of its return.CHAPTER . These are two measures of risk in this context one is the absolute deviation and other standard deviation. The risk is reflected in the variability of the returns from zero to infinity. what really matters to them is not the risk and return of stocks in isolation. Interest rate risk vulnerability for different securities is as under: TYPES RISK EXTENT Cash Equivalent Less vulnerable to interest rate risk. Long Term Bonds More vulnerable to interest rate risk.e. Most investors invest in a portfolio of assets. long term securities show greater variability in the price with respect to interest rate changes than short term securities. A change in the interest rate establishes an inverse relationship in the price of the security i.

raw material availability. 5) Systematic Risk or Market Related Risk: Systematic risks affected from the entire market are (the problems. Business cycles affect all types of securities i. Although a leveraged company’s earnings per share are more but dependence on borrowings exposes it to risk of winding up for its inability to honor its commitments towards lender or creditors. It is also known as leveraged risk and expressed in terms of debt-equity ratio. 3) Business Risk: Business risk emanates from sale and purchase of securities affected by business cycles. Inflation rates vary over time and investors are caught unaware when rate of inflation changes unexpectedly causing erosion in the value of realized rate of return and expected return. The risk is known as leveraged or financial risk of which investors should be aware and portfolio managers should be very careful. Excess of risk vis-à-vis equity in the capital structure indicates that the company is highly geared. It is not desirable to invest in such securities during inflationary periods. less in flexible income securities like equity shares or common stock where rise in dividend income off-sets increase in the rate of inflation and provides advantage of capital gains. technological changes etc. tax policy or 29 . there is cheerful movement in boom due to bullish trend in stock prices whereas bearish trend in depression brings down fall in the prices of all types of securities during depression due to decline in their market price. Purchasing power risk is however. Purchasing power risk is more in inflationary conditions especially in respect of bonds and fixed income securities.2) Purchasing Power Risk: It is also known as inflation risk also emanates from the very fact that inflation affects the purchasing power adversely.e. 4) Financial Risk: It arises due to changes in the capital structure of the company. Nominal return contains both the real return component and an inflation premium in a transaction involving risk of the above type to compensate for inflation over an investment holding period.

6) Unsystematic Risks: The unsystematic risks are mismanagement. inflation risk.I or long term. The unsystematic risk stems from inefficiency magnitude of those factors different form one company to another. however. the higher is the return. Normally. This risk 30 . this is diversifiable or avoidable because it is possible to eliminate or diversify away this component of risk to a considerable extent by investing in a large portfolio of securities.government policy. defective marketing etc. It is managed by the use of Beta of different company shares. a risk less return on capital of about 12% which is the bank. losses of liquidity etc The risk over time can be represented by the variance of the returns while the return over time is capital appreciation plus payout. Investment in shares of companies has its own risk or uncertainty. yielded on government securities at around 13% to 14%. There is. divided by the purchase price of the share.B. rate charged by the R. wrong financial policy. RISK RETURN ANALYSIS: All investment has some risk. the higher the risk that the investor takes. interest risk and financial risk). these risks arise out of variability of yields and uncertainty of appreciation or depreciation of share prices. increasing inventory.

etc. this pattern of investment in different asset categories. liquidity and hedge against loss of value of money etc. but are rewarded by the total return on the capital. it is according to the modern approach diversification should not be quantity that should be related to the quality of scripts which leads to quality of portfolio.. safety. may however remain. his objectives of income. Thus the portfolio expected return is the weighted average of the expected return. 31 .. would all be described under the caption of diversification. with weights representing the proportions share of the security in the total investment. RETURNS ON PORTFOLIO: Each security in a portfolio contributes return in the proportion of its investments in security. Risk-return is subject to variation and the objectives of the portfolio manager are to reduce that variability and thus reduce the risk by choosing an appropriate portfolio.less return refers to lack of variability of return and no uncertainty in the repayment or capital. Traditional approach advocates that one security holds the better. Experience has shown that beyond the certain securities by adding more securities expensive. types of investment. which aims at the reduction or even elimination of nonsystematic risks and achieve the specific objectives of investors. from each of the securities. Why does an investor have so many securities in his portfolio? If the security ABC gives the maximum return why not he invests in that security all his funds and thus maximize return? The answer to this questions lie in the investor’s perception of risk attached to investments. appreciation. But other risks such as loss of liquidity due to parting with money etc.

Although Dow never gave a proper shape to the theory. who established the Dow Jones & Co. These phases are known as bull and bear phases. ideas have been expanded and articulated by many of his successors. 1) Primary Movements: They reflect the trend of the stock market and last from one year to three years. DOW JONES THEORY: The DOW JONES THEORY is probably the most popular theory regarding the behavior of stock market prices. The Dow Jones theory classifies the movement of the prices on the share market into three major categories: 1. P3 P2 P1 T3 T2 T1 Graph 1 32 . and was the first editor of the Wall Street Journal – a leading publication on financial and economic matters in the U.A.S. The theory derives its name from Charles H. Primary Movements. or sometimes even more. 2. Daily Fluctuations. If the long range behavior of market prices is seen. Secondary Movements and 3. Dow.CHAPTER: 5 PORTFOLIO THEORIES I. it will be observed that the share markets go through definite phases where the prices are consistently rising or falling.

The theory argues that primary movements indicate basic trends in the market. However. Thus P2 is higher than P1 and T2 is higher than T1. Graph 2 shows the typical behavior of prices on the stock exchange in the case of a P3 P2 T1 P1 T2 T3 Graph 2 Bear phase. is at a higher level than the earlier one. prices reach higher levels with each rise. However. As can be seen from the graph that each trough prices reach. This means that prices do not rise consistently even in a bull phase.During a bull phase. You would notice from the graph that although the prices fall after each rise. they fall. the basic trend is that of rising prices. Once the prices have risen very high. price will start falling. As a result. after each fall. the rise is not much as to take the prices higher than the previous peak. Graph 1 above shows the behavior of stock market prices in bull phase. the basic trend is that of rise in prices.e. there is a rise in prices. It states that if cyclical swings of stock market prices indices are successively higher. each peak that the prices reach is on a higher level than the earlier one. It would be seen that prices are not falling consistently and. the falls are of a lower magnitude then earlier.. Similarly. 33 . the bear phase in bound to start i. They rise for some time and after each rise. It means that each peak and trough is now lower than the previous peak and trough.

Even the most astute investment manager can never know when the highest peak or the lowest through have been reached. Speculation is beyond the scope of the job of an investment manager. He is not a speculator and should always resist the temptation of speculating. in practice. Thus is the daily share market price index for a few months are plotted on the graph it will show both upward and downward fluctuations. The investment manager should scrupulously keep away from the daily fluctuations of the market. These fluctuations are without any definite trend. even where the primary trend is downward.the market trend is up and there is a bull market. 2) Secondary Movements: We have seen that even when the primary trend is upward. 34 . On the contrary. Such a temptation is always very attractive but must always be resisted. 3) Daily Movements: There are irregular fluctuations which occur every day in the market. It may be reiterated that anyone who tries to gain from short run fluctuations in the stock market. These movements normally last from three weeks to three months and retrace 1/3 to 2/3 of the previous advance in a bull market of previous fall in the bear market. Similarly. there is upward movement of prices also. there are also downward movements of prices. if successive highs and low are successively lower. This theory thus relies upon a behavior of the indices of share market prices in perceiving the trend in the market. These movements are known as secondary movements and are shorter in duration and are opposite in direction to the primary movements. These fluctuations are the result of speculative factor. An investment manger really is not interested in the short run fluctuations in share prices since he is not a speculator. can make money only be sheer chance. However. this seldom happens. Timing of investment decisions on the basis of Dow Jones Theory: Ideally speaking the investment manage would like to purchase shares at a time when they have reached the lowest trough and sell them at a time when they reach the highest peak. the market is on a downward trend and we are in bear market.

This is technically known as identification of the turn in the share market prices. Similarly even in a falling market prices keep on rising temporarily. a stock is selling at Rs. even in a rising market. How to be certain that the rise in prices or fall in the same in due to a real turn in prices from a bullish to a bearish phase or vice versa or that it is due only to short run speculative trends? Dow Jones Theory identifies the turn in the market prices by seeing whether the successive peaks and troughs are higher or lower than earlier. Afterwards. if all available information is free to all interested parties. But the 35 . Identification of this turn is difficult in practice because of the fact that.Therefore. It means that he should be able to identify exactly when the falling or the rising trend has begun. 30 the next day. the changes in prices of stock show independent behavior and are dependent on the new pieces of information that are received but within themselves are independent of each other. and if all market participants and potential participants have the same horizons and expectations about prices. the news of a strike in that company will bring down the stock price to Rs. prices keep on falling as a part of the secondary movement. 40 based on existing information known to all investors. The stock price further goes down to Rs. “Samuelson has proved in 1965 that if a market has zero transaction costs. Thus. the market will be efficient and prices will fluctuate randomly. RANDOM WALK THEORY: The first specification of efficient markets and their relationship to the randomness of prices for things traded in the market goes to Samuelson and Mandelbrot. 30 is caused because of some information about the strike.” According to the Random Walk Theory. 25. the market independently receives this information and it is independent and separate from all the other prices of information. Whenever a new price of information is received in the stock market. 40 to Rs. II. he has to time his decision in such a manner that he buys the shares when they are on the rise and sells then when they are on the fall. the first fall in stock price from Rs. For example.

independent pieces of information. market sensitivity index E(Rm) = Expected return on market portfolio [E(Rm)-Rf] = Market risk premium The above model of portfolio management can be used effectively to:- 36 . when they come together immediately after each other show that the price is falling but each price fall is independent of the other price fall. CAPITAL ASSETS PRICING MODEL (CAPM): CAPM provides a conceptual framework for evaluating any investment decision. it may be said that the prices have an independent nature and therefore. This speed of information determines the efficiency of the market. However. It is due to the effective communication system through which information can be disturbed almost anywhere in the country. The theory further states that the financial markets are so competitive that there is immediate price adjustment. 25 is due to additional information on the type of strike. The response makes the movement of prices independent of each other.e. III. each price change is independent of the other because each information has been taken in. The basic essential fact of the Random Walk Theory is that the information on stock prices is immediately and fully spread over that other investors have full knowledge of the information. E(Rp) = Expected return of the portfolio Rf = Risk free rate of return Bp = Beta portfolio i. Therefore. the price of each day is different. 30 to Rs. by the stock market and separately disseminated.second fall in the price of a stock from Rs. It is used to estimate the expected return of any portfolio with the following formula: E (Rp) = Rf +Bp (E( Rm) – Rf ) Where. Thus.

The modern theory points out that the risk of portfolio can be reduced by diversification.  In an efficient market. 37 . Harry Markowitz and William Sharpe have developed this theory. the portfolio manager has to make probabilistic estimates of the future performances of the securities and analyse these estimates to determine an efficient set of portfolios. V. MOVING AVERAGE: It refers to the mean of the closing price which changes constantly and moves ahead in time. It believes in the maximization of return through a combination of securities. all investors react with full facts about all securities in the market.  Reduce the risk of the firm by diversifying its project portfolio. MARKOWITZ THEORY: Markowitz has suggested a systematic search for optimal portfolio. MODERN PORTFOLIO THEORY: Modern Portfolio Theory quantifies the relationship between risk and return and assumes that an investor must be compensated for assuming risk. VI.  Evaluate risky investment projects involving real Assets. IV. There can be various combinations of securities.  Investors’ utility is the function of risk and return on securities. Then the optimum set of portfolio can be selected in order to suit the needs of the investors. The following are the assumptions of Markowitz Theory:  Investors make decisions on the basis of expected utility maximization. The theory states that by combining securities of low risks with securities of high risks success can be achieved in making a choice of investments.  Explain why the use of borrowed fund increases the risk and increases the rate of return. there by encompasses the most recent days and deletes the old one. Estimate the required rate of return to investors on company’s common stock. According to him.

 The risk of portfolio can be reduced by adding investments in the portfolio. when there is lowest level of risk for a specified level of expected return and highest expected return for a specified amount of portfolio risk. The security returns are co-related to each other by combining the different securities. Ri refers to expected return on security ai = the intercept of a straight line or alpha coefficient Bi = slope of straight-line or beta coefficient I = level of market return index ei = error. residual risk of the company.e. VII. 38 .  An efficient portfolio exists. i. market return index.  The combination of securities is made in such a way that the investor gets maximum return with minimum of risk.e. He has made the estimates of the expected return and variance of indexes which are related to economic activity. Individual securities return is determined solely by random factors and on its relationship to this underlying factor with the following formula: Ri = ai + Bi I + ei Where. Sharpe’s Theory assumes that securities returns are related to each other only through common relationships with basic underlying factor i. SHARPE’S THEORY: William Sharpe has suggested a simplified method of diversification of portfolios.

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

update his knowledge.CHAPTER – 6 PERSONS INVOLVED IN PORTFOLIO MANAGEMENT 1) INVESTOR: Are the people who are interested in investing their funds? 2) PORTFOLIO MANAGERS: Is a person who is in the wake of a contract agreement with a client. to keep track of market movement . yet stay in the capital market and make money . in its guidelines prohibits portfolio managers to promise any return to investor. 3) DISCRETIONARY PORTFOLIO MANAGER: Means a manager who exercise under a contract relating to a portfolio management exercise any degree of discretion as to the investment or management of portfolio or securities or funds of clients as the case may be. The portfolio manager carries out all the transactions pertaining to the investor under the power of attorney during the last two decades. The portfolio management seeks to strike a balance between risk’s and return. 40 . the management or distribution or management of the funds of the client as the case may be. Portfolio management is not a substitute to the inherent risks associated with equity investment. and increasing complexity was witnessed in the capital market and its trading procedures in this context a key (uninformed) investor formed ) investor found himself in a tricky situation . The relationship between an investor and portfolio manager is of a highly interactive nature. therefore in looked forward to resuming help from portfolio manager to do the job for him . advices or directs or undertakes on behalf of the clients.I.E. The generally rule in that greater risk more of the profits but S.B.

insider trading or creating false markets..E.5lakh’s every for two years and Rs. Fees payable for registration are Rs 2.B.. their books of accounts are subject to inspection to inspection and audit by S.time. The manager has to submit periodical returns and documents as may be required by the SEBI from time-to. The observance of the code of conduct and guidelines given by the S.E. These are subjected to change by the S. From the fourth year onwards. renewal fees per annum are Rs 75000.B. 50lakh’s. honesty and should not have been convicted of any economic offence or moral turpitude.E. The S. The portfolio manager should have a high standard of integrity.I.B.E. He should not resort to rigging up of prices.1lakh’s for the third year. 41 . An applicant for this purpose should have necessary infrastructure with professionally qualified persons and with a minimum of two persons with experience in this business and a minimum net worth of Rs. etc.I. has imposed a number of obligations and a code of conduct on them. The certificate once granted is valid for three years. are subject to inspection and penalties for violation are imposed.B.I.I.A PORTFOLIO MANAGER Only those who are registered and pay the required license fee are eligible to operate as portfolio managers.

foreign exchange possible change in corporate law’s etc. securities etc or a mix of more than one type of proper mix ensures higher safety. non-convertibles or partly convertibles.FUNCTIONS OF PORTFOLIO MANAGERS:  Advisory role: Advice new investments. Insider trader. individual policies etc further portfolio manager should take in to account the credit policy. professional’s like MBA’s CA’s And many financial institution’s have entered the market in a big way to manage portfolio for their clients. recommending high yield securities etc. 42 . now being managed by the portfolio of Merchant Bank’s. budget proposal.  Conducting market and economic service: This is essential for recommending good yielding securities they have to study the current fiscal policy. review the existing ones. convertibles. identification of objectives. required for investment proposal he should also see the problem’s of the industry.  Financial analysis: He should evaluate the financial statement of company in order to understand.  Decide the type of port folio: Keeping in mind the objectives of portfolio a portfolio manager has to decide whether the portfolio should comprise equity preference shares. market trends. technical changes etc. industrial growth. A portfolio manager in the Indian context has been Brokers (Big brokers) who on the basis of their experience. The one’s who use to manage the funds of portfolio.  Study of stock market : He should observe the trends at various stock exchange and analysis scripts so that he is able to identify the right securities for investment  Study of industry: He should study the industry to know its future prospects. yield and liquidity coupled with balanced risk techniques of portfolio management. helps the limited knowledge persons. money market. their net worth future earnings. prospectus and strength. debentures.

The portfolio manager with his background and expertise meets the needs of such investors by rendering service in helping them to invest their fund/s profitably.  He shall not pledge or give on loan securities held on behalf of his client to a third person without obtaining a written permission from such clients. 1934. for qualification and performance and ability and research base of the portfolio managers. investment in the securities of such companies has become quite attractive.B. a layman is puzzled as to how to make his investments without losing the same. 43 . Investor’s must look forward. PORTFOLIO MANAGER’S OBLIGATION: The portfolio manager has number of obligations towards his clients. some of them are:  He shall transact in securities within the limit placed by the client himself with regard to dealing in securities under the provisions of Reserve Bank of India Act. They have also to comply with the conditions specified by the RESERVE BANK OF INDIA under various schemes for investment by the non residents.E.According to S. Similarly non resident Indians are eager to make their investments in Indian companies. NEED AND ROLE OF PORTFOLIO MANAGER: With the development of Indian Securities market and with appreciation in market price of equity share of profit making companies. He has felt the need of an expert guidance in this respect. the stock market becoming volatile on account of various facts.I. At the same time. Registered merchant bankers can act’s as portfolio managers.  He shall not derive any direct or indirect benefit out of the client’s funds or securities. rules it is mandatory for portfolio managers to get them self’s registered.

 He may hold the securities in the portfolio account in his own name on behalf of his client’s only if the contract so provides.  He shall deploy the money received from his client for an investment purpose as soon as possible for that purpose.  He shall pay the money due and payable to a client forthwith. he shall not indulge in speculative transactions. While dealing with his client’s funds.  He shall not disclose to any person or any confidential information about his client. which has come to his knowledge. his records and his report to his clients should clearly indicate that such securities are held by him on behalf of his client.  He shall not place his interest above those of his clients. In such a case. 44 .

CONCLUSION From the above discussion it is clear that portfolio functioning is based on market risk. Yet many investors buy securities without attempting to control the odds. 45 . 1893. then knowing what a security should sell for become less important than knowing what other investors expect it to sell for. when he can’t afford it and when he can” – Mark Twin. but by slightly improving their odds with the addition of a “0” and “00”. the determination of price based on future earnings would work magnificently. This breadth of market participants guarantees an element of unpredictability and excitement. “I believe the future is only the past again. If we were all totally logical and could separate our emotions from our investment decisions then. price would only change when quarterly reports or relevant news was released. And since we would all have the same completely logical expectations. 1897. so one can get the help from the professional portfolio manager or the Merchant banker if required before investment because applicability of practical knowledge through technical analysis can help an investor to reduce risk. entered through another gate” –Sir Arthur wing Pinero. If price are based on investors’ expectations. A Casino make money on a roulette wheel. not by knowing what number will come up next. In other words Security prices are determined by money manager and home managers. “There are two times of a man’s life when he should not speculate. If we believe that this dealings is not a ‘Gambling” we have to start up it with intelligent way. students and strikers. the wealthy and the wanting. doctors and dog catchers. lawyers and landscapers.

Portfolio managers can provide the professional advice to the investors to make an intelligent and informed investment. Today the individual investors do not show interest in taking professional help but surely with the growing importance and awareness regarding portfolio’s manager’s people will definitely prefer to take professional help. 46 . Portfolio management role is still not identified in the recent time but due it expansion of investors market and growing complexities of the investors the services of the portfolio managers will be in great demand in the near future.I can conclude from this project that portfolio management has become an important service for the investors to identify the companies with growth potential.

com  www.wikipedia.Dr.com  www.com 47 .yahoo.BIBLIOGRAPHY REFERENCE BOOKS: Security Analysis and Portfolio Management .BANDGAR Investment Analysis and Portfolio Management WEBLIOGRAPHY SOURCES:  www. P.google.K.