1.

1 INTRODUCTION

As per definition of SEBI Portfolio means “a collection of securities owned by an investor”

It represents the total holdings of securities belonging to any person". It comprises of
different types of assets and securities. In finance, a portfolio is an appropriate mix or
collection of investments held by an institution or an individual. Holding a portfolio is a
part of an investment and risk-limiting strategy called diversification. By owning several
assets, certain types of risk (in particular specific risk) can be reduced. The assets in the
portfolio could include stocks, bonds, options, warrants, gold certificates, real estate,
futures contracts, production facilities, or any other item that is expected to retain its value.
In building up an investment portfolio a financial institution will typically conduct its own
investment analysis, whilst a private individual may make use of the services of a financial
advisor or a financial institution which offers portfolio management services.

Portfolio Management

Portfolio management refers to the management or administration of a portfolio of securities

to protect and enhance the value of the underlying investment. It is the management of
various securities (shares, bonds etc) and other assets (e.g. real estate), to meet specified
investment goals for the benefit of the investors. It helps to reduce risk without sacrificing
returns. It involves a proper investment decision with regards to what to buy and sell. It
involves proper money management. It is also known as Investment Management.

Portfolio management involves deciding what assets to include in the portfolio, given the
goals of the portfolio owner and changing economic conditions. Selection involves deciding
what assets to purchase, how many to purchase, when to purchase them, and what assets to
divest. These decisions always involve some sort of performance measurement, most
typically expected return on the portfolio, and the risk associated with this return. Typically
the expected return from portfolios of different asset bundles is compared.

The unique goals and circumstances of the investor must also be considered. Some investors
are more risk averse than others. Mutual have developed particular techniques to optimize
their portfolio holdings.

1
The art and science of making decisions about investment mix and policy, matching
investments to objectives, asset allocation for individuals and institutions, and balancing risk
against performance. Portfolio management is all about strengths, weaknesses, opportunities
and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and
many other tradeoffs encountered in the attempt to maximize return at a given appetite for
risk.

Portfolio management involves maintaining a proper combination of securities which

comprise the investor’s portfolio in a manner that they give maximum return with minimum
risk. This requires framing of proper investment policy. Investment policy means formation
of guidelines for allocation of available funds among the various types of securities including
variation in such proportion under changing environment. This requires proper mix between
different securities in a manner that it can maximize the return with minimum risk to the
investor. Broadly speaking investors are those individuals who save money and invest in the
market in order to get return over it. They are not much educated, expert and they do not
have time to carry out detailed study. They have their business life, family life as well as
social life and the time left out is very much limited to study for investment purpose. On the
other hand institutional investors are companies, mutual funds, banks and insurance company
who have surplus fund which needs to be invested profitably. These investors have time and
resources to carry out detailed research for the purpose of investing.

1.2 NEED OF THE STUDY:

The portfolio is needed for the selections of optimal, portfolio by rational risk averse
investors i.e. by investors who attempt to maximize their expected return consistent with
individually acceptable portfolio risk. The portfolio is essential for portfolio construction.
The portfolio construction refers to the allocation of funds among a variety of financial assets
open for investments. Portfolio concerns itself with the principles governing such allocation.
The objective of the portfolio theory is to elaborate the principles in which the risk can be
minimized, subject to the desired level of return on the portfolio or maximize the return,
subject to the constraints of a tolerable level of risk.

The need for portfolio management arises due to the objectives of the investors. The
emphasis of portfolio management varies from investors to investor. Some want income,
some capital gains and some combination of both. However, the portfolio analysis enables

2
 the investors to identify the potential securities, which will maximize the following
objectives:

Securities of principal, stability of income, capital growth, marketability, liquidity and

diversification.

Thus the basic need of portfolio is to maximize yield and minimize yield and minimize the
risk. The other ancillary needs are as follows:

1. Providing regular or stable income.

2. Creating safety of investments and capital appreciation.

3. Providing marketability and liquidity.

4. Minimizing the tax liability.

1.3 SCOPE OF THE STUDY:

This study covers the Markowitz model. The study covers the calculation of correlations
between the different securities in order to find out at what percentage funds should be
invested among the companies in the portfolio. Also the study includes the calculation of
individual Standard Deviation of securities and ends at the calculation of weights of
individual securities involved in the portfolio. These percentages help in allocating the funds
available for investment based on risky portfolios.

1.4 OBJECTIVES OF THE STUDY:

 To do sufficient research and arrive at methods or ways with which we can arrive at
an optimum portfolio which will give maximum return on investors assets that has
minimum risk.

 To provide basic idea of portfolio and modern portfolio theory given by HARRY
MARKOVITZ and to construct an optimal portfolio.

 To estimate the individual company securities ,using beta coefficients.

 To have a fair idea of how different companies are managing their portfolio, i.e ,
when and how and which criteria are they using.

 Understand importance of portfolio management and performance evaluation.

 Understand risk adjusted performance measures.

 To identify the best portfolio depending upon their portfolio risk and portfolio return.


3
  To provide knowledge to investor about various types of risk associated with various
Investment instruments.

1.5 RESEARCH METHODOLOGY:

In the study historical data of the BOMBAY STOCK EXCHANGE and particular scripts of a
particular period are being used by me to arrive at a trend for generalization of results after
analyzing them carefully. These results are being used as standard for arriving at an
Optimum mix of organizing the company’s various assets.

Moreover while arriving at an optimum portfolio which will give a good return at some
specific risk, information and experience of personnel at IDBI FEDERAL LIFE
INSURANCE COMPANY LIMITED is also being used since they can provide with a very
good idea as to which portfolio can provide with the best risk return trade off with their
experience and knowledge.

SECONDARY DATA:

Magazines, reference books, newspaper, Wealth trends, company annual reports.

SAMPLING DESIGN

Sampling unit:

Financial Statements of the IDBI FEDERAL INSURANCE COMPANY LTD.

Sampling Size:

Last three years financial statements are used

Tools and techniques used:

Average retun, Standard Deviation, Covariance , Correlation ,Average Returns, Portfolio

Beta, Sharpe Ratio , Treynor Ratio , Jensen’s Alpha.

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 1.6 LIMITATIONS OF THE STUDY :

 Time duration given to complete the project was not adequate or enough as
portfolio management is a broad area and needs experience to arrive at an
optimum portfolio.


 The time duration of the project is 7 weeks and as such since the market is quite
unpredictable or dynamic so the risks return trade off might not reflect a true
picture.



 The various portfolio management theories are based on efficient markets and in
reality none of the industry operates under perfect market conditions.


 At times it’s really difficult for an individual to know or identify companies which
have growth prospects for investment.

5
REVIEW OF LITERATURE

Operational Risk in Current Assets Investment Decisions: Portfolio Management

Approach in Accounts Receivable

Grzegorz Michalski,
february2,2008

Agricultural Economics – Czech, Vol. 54, pp. 12-19, 2008

The basic financial purpose of an enterprise is maximization of its value. Trade credit
management should also contribute to the realization of this fundamental aim. Many of the
current asset management models that are found in the financial management literature
assume book profit maximization as the basic financial purpose. These book profit-based
models could be lacking in what relates to another aim (i.e., maximization of the enterprise
value). The enterprise value maximization strategy is executed with a focus on risk and
uncertainty. This article presents the consequences that can result from operating risk that is
related to purchasers using payment postponement for goods and/or services. The present
article offers a method that uses the portfolio management theory to determine the level of
accounts receivable in a firm. An increase in the level of accounts receivables in a firm
increases both net working capital and the costs of holding and managing accounts
receivables. Both of these decrease the value of the firm, but a liberal policy in accounts
receivable coupled with the portfolio management approach could increase the value.
Efforts to assign ways to manage these risks were also undertaken; among them, a special
attention was paid to adapting the assumptions from the portfolio theory as well as gauging
the potential effect on the firm value.

Customer Portfolio Management: Toward a Dynamic Theory of Exchange

Relationships

Michael D. Johnson, Fred Selnes (2004) Customer

Portfolio
Management: Toward a Dynamic Theory of Exchange Relationships. Journal of Marketing:
April 2004, Vol. 68, No. 2, pp. 1-17.

Management of an entire portfolio of customers who are at different relationship

stages requires a dynamic theory of exchange relationships that captures the trade-offs
between scale economies and lifetime customer value. This article contributes to the
understanding of relationship management by developing a typology of exchange

6
relationship mechanisms and a model of relationship dynamics and by simulating the
model to provide guidelines for customer portfolio management. An important insight
from the research is that a key to the creation of value through closer relationships lies
in bringing weaker relationships into a portfolio in the first place. Another insight is
that firms that position themselves toward offerings with low economies of scale, such
as personal services, must build closer relationships to create value.

Estimation Error and Portfolio Optimization: A Resampling Solution

Richard O. Michau posted: September 10, 2015, last revised: September 29, 2015

Markowitz (1959) mean-variance (MV) portfolio optimization has been the practical
standard for asset allocation and equity portfolio management for almost fifty years.
However, it is known to be overly sensitive to estimation error in risk-return estimates and
have poor out-of-sample performance characteristics. The Resample Efficiency™ (RE)
techniques presented in Michaud (1998) introduce Monte Carlo methods to properly
represent investment information uncertainty in computing MV portfolio optimality and in
defining trading and monitoring rules. This paper reviews and updates the literature on
estimation error and RE portfolio optimization and rebalancing. We resolve several open
issues and misunderstandings that have emerged since Michaud (1998). In particular, we
show RE optimization to be a Bayesian-based generalization and enhancement of
Markowitz’s solution.

BCP: Applying Business Continuity Practices, November 2009

David T. Owyong, MSCI Inc.November 13, 2009,MSCI Barra Research Paper No. 2009-45

Catastrophic events can lead to change in established practices. This paper argues that
organizations may get a competitive advantage by applying practices used in Business
Continuity Planning (BCP) to then the management of institutional portfolios. We propose
a framework to prepare for extreme market events and mitigate their impact. This paper
describes the required elements of BCP as applied to portfolios, reviews these tools and
processes necessary to monitor the level of stress in financial markets, and tests the
effectiveness of a number of mitigating strategies.

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Alliance Portfolio Resource Diversity and Firm Innovation

Anna S. Cui, Gina O'Connor (2012) Alliance Portfolio Resource Diversity and Firm
Innovation, Journal of Marketing: July 2012, Vol. 76, No. 4, pp. 24-43.

As interfirm collaboration plays an increasingly important role in firm innovation, many

firms are engaged in multiple partnerships, forming portfolios of alliances. Research in
marketing has predominantly focused on dyadic relationships without considering the
important interdependencies among different alliances. This study takes a portfolio
approach to examine the resource diversity of multiple alliance partners and its
contribution to firm innovation. The authors argue that resource diversity in an alliance
portfolio can only benefit innovation when resources and information are shared across
alliances. They examine factors that may facilitate or inhibit information and the market
environment, that moderate the relationship between alliance portfolio resource diversity
and firm innovation. This study not only demonstrates the conditions for a firm to benefit
from diverse partners but also highlights the importance of coordination among different
alliances, suggesting a portfolio approach for alliance research.

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PORTFOLIO:
As per definition of SEBI Portfolio means “a collection of securities owned by an investor” It
represents the total holdings of securities belonging to any person".

PORTFOLIO MANAGEMENT:
“The process of managing the assets of a mutual fund, including choosing and monitoring
appropriate investments and allocating funds accordingly.”

BENEFITS OF PORTFOLIO MANAGEMENT:

These days, many people are taking investment very seriously. Many folks always want the
best advice in regards to investment and that is why they hire experts to manage their
portfolios. In other words, portfolio services help to build and manage inventory of your
company projects and products.
1. Investors make informed decision
Portfolio management is very important when it comes to investing to ascertain that investors
make informed decisions based on all the risk factors. When investors learn how to control
risks in their business portfolios, they often feel contented. A portfolio management service is
therefore beneficial to investors as it helps them make informed decisions.
2. Improves business performance
Portfolio management facilitates good corporate and project governance as it uses performance
and corporate resources against key objectives. In addition to that, it helps to improve business
performance by handling the priorities for better project delivery.
3. Equitable use of resources
Programs and business projects are often achieved by resources which are evenly shared
alongside other project duties. Moreover, multiple projects may end up competing for
resources. This is where portfolio management comes in handy, to help in planning so that
resources are equitably distributed in all business processes.
4. Align objectives with goals
When you learn the importance of portfolio management, it will become easier to handle
management issues since it helps improve your communication skills in order to ensure that
projects are delivered on time. It will also show you the steps to take if the financial objectives
were to change, keeping you informed on how to improve your business.

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 5. Monitors all business processes
The main advantage of portfolio management is the fact that it helps companies manage all
their processes, including personnel issues, finances, as well as set objectives.
Small businesses may not have a structure for portfolio management, but most companies
often appoint someone to handle their projects

GOALS OF PORTFOLIO MANAGEMENT

1. Value Maximization

Allocate resources to maximize the value of the portfolio via a number of key objectives such
as profitability, ROI, and acceptable risk. A variety of methods are used to achieve this
maximization goal, ranging from financial methods to scoring models.

2. Balance

Achieve a desired balance of projects via a number of parameters: risk versus return; short-
term versus long-term; and across various markets, business arenas and technologies. Typical
methods used to reveal balance include bubble diagrams, histograms and pie charts.

3. Business Strategy Alignment

Ensure that the portfolio of projects reflects the company’s product innovation strategy and
that the breakdown of spending aligns with the company’s strategic priorities. The three main
approaches are: top-down (strategic buckets); bottom-up (effective gate keeping and decision
criteria) and top-down and bottom-up (strategic check).

4. Pipeline Balance

Obtain the right number of projects to achieve the best balance between the pipeline
resource demands and the resources available. The goal is to avoid pipeline gridlock (too
many projects with too few resources) at any given time. A typical approach is to use a rank
ordered priority list or resource supply and demand assessment.

5. Sufficiency

Ensure the revenue (or profit) goals set out in the product innovation strategy are achievable
given the projects currently underway. Typically this is conducted via a financial analysis of the
pipeline’s potential future value. Ensure the revenue (or profit) goals set out in the product
innovation strategy are achievable given the projects currently underway. Typically this is
conducted via a financial analysis of the pipeline’s potential future value.

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 Steps for portfolio management:
1. Specification of Investment Objectives and Constraints:
The first step in the portfolio management process is to specify the investment policy that
consists of investment objectives, constraints and preferences of investor. The investment
policy can be explained as follows:
Specification of investment objectives can be done in following two ways:

 Maximize the expected rate of return, subject to the risk exposure being held within
a certain limit (the risk tolerance level).

 Minimize the risk exposure, without sacrificing a certain expected rate of return (the
target rate of return).
An investor should start by defining how much risk he can bear or how much he can afford to
lose, rather than specifying how much money he wants to make. The risk he wants to bear
depends on two factors:
a) Financial situation
b) Temperament

To assess financial situation one must take into consideration position of the wealth,
major expenses, earning capacity, etc and a careful and realistic appraisal of the assets,
expenses and earnings forms a base to define the risk tolerance.

After appraisal of the financial situation assess the temperamental tolerance of risk. Risk
tolerance level is set either by one’s financial situation or financial temperament whichever
is lower, so it is necessary to understand financial temperament objectively. One must realize
that risk tolerance cannot be defined too rigorously or precisely. For practical purposes it is
enough to define it as low, medium or high. This will serve as a valuable guide in taking an
investment decision

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2. SELECTION OF ASSET MIXES:
Based on the objectives and constraints, selection of assets is done. Selection of assets refers
to the amount of portfolio to be invested in each of the following asset categories:

 Cash:
The first major economic asset that an individual plan to invest in is his or her own house
their savings are likely to be in the form of bank deposits and money market mutual fund
schemes. Referred to broadly as “cash”, these instruments have appeal, as they are safe and
liquid.

 Bonds:
Bonds or debentures represent long-term debt instruments. They are generally of
private sector companies, public sector bonds, gilt-edged securities, RBI saving
bonds, national saving certificates, Kisan Vikas Patras, bank deposits, public
provident fund, post office savings, etc.

 Stocks:
Stocks include equity shares and units/shares of equity schemes of mutual funds. It
includes income shares, growth shares, blue chip shares, etc.

 Real estate:
The most important asset for individual investors is generally a residential house. In
addition to this, the more affluent investors are likely to be interested in other types of real
estate, like commercial property, agricultural land, semi-urban land, etc.

 Precious objects and others:

Precious objects are items that are generally small in size but highly valuable in monetary
terms. It includes gold and silver, precious stones, art objects, etc. Other assets includes like
that of financial derivatives, insurance, etc.

3. FORMULATION OF PORTFOLIO STRATEGY:

After selection of asset mix, formulation of appropriate portfolio strategy is required.
There are two types of portfolio strategies, active portfolio strategy and passive portfolio
strategy.

 Active Portfolio Strategy:

Most investment professionals follow an active portfolio strategy and aggressive
investors who strive to earn superior returns after adjustment for risk. The four principal

12
vectors of an active strategy are:
1. Market Timing
2. Sector Rotation
3. Security Selection
4. Use of a specialized concept

1. Market timing:
Market timing is based on an explicit or implicit forecast of general market movements.
The advocates of market timing employ a variety of tools like business cycle analysis,
advance-decline analysis, moving average analysis, and econometric models. The forecast
of the general market movement derived with the help of one or more of these tools are
tempered by the subjective judgment of the investor. Often, of course, the investor may
go largely by his market sense.

2. Sector Rotation:
The concept of sector rotation can be applied to stocks as well as bonds. It is however,
used more commonly with respect to stock component of portfolio where it essentially
involves shifting the weightings for various industrial sectors based on their assessed
outlook. For example if it is assumed that cement and pharmaceutical sectors would do
well compared to other sectors in the forthcoming period, one may overweight these
sectors, relative to their position in market portfolio. With respect to bonds, sector
rotation implies a shift in the composition of the bond portfolio in terms of quality,
coupon rate, term to maturity and so on. For example, if there is a rise in the interest
rates, there may be shift in long term bonds to medium term or even short-term bonds.
But we should remember that a long-term bond is more sensitive to interest rate
variation compared to a short-term bond.

3. Security Selection:
Security selection involves a search for under priced securities. If an investor resort to
active stock selection, he may employ fundamental and or technical analysis to identify
stocks that seems to promise superior returns and overweight the stock component of his
portfolio on them. Likewise, stocks that are perceived to be unattractive will be under
weighted relative to their position in the market portfolio. As far as bonds are concerned,

13
security selection calls for choosing bonds that offer the highest yield to maturity at a
given level of risk.

4. Use of a specialized Investment Concept:

A fourth possible approach to achieve superior returns is to employ a specialized concept
or philosophy, particularly with respect to investment in stocks. As Charles D. Ellis
words says, a possible way to enhance returns “is to develop a profound and valid insight
into the forces that drive a particular group of companies or industries and systematically
exploit that investment insight or concept

PASSIVE PORTFOLIO STRATEGY:

The passive strategy rests on the tenet that the capital market is fairly efficient with
respect to the available information. The passive strategy is implemented according to
the following two guidelines:
1. Create a well-diversified portfolio at a predetermined level of risk.
2. Hold the portfolio relatively unchanged over time, unless it becomes
inadequately diversified or inconsistent with the investor’s risk-return
preference.

4. SELECTION OF SECURITIES:
The following factors should be taken into consideration while selecting the fixed income
Avenue:
SELECTION OF BONDS (fixed income avenues)
Yield to maturity: The yield to maturity for a fixed income avenue represents the rate
of by the investors if he invests in the fixed income avenue and holds it till its maturity.

 Risk of default:
To assess the risk of default on a bond, one may look at the credit rating of the bond.
If no credit rating is available, examine relevant financial ratios (like debt-to-equity
ratio, times interest earned ratio, and earning power) of the firm and assess the general
prospects of the industry to which the firm belongs

 Tax Shield:
In yesteryears, several fixed income avenues offered tax shield, now very few do so.

14
  Liquidity:
If the fixed income avenue can be converted wholly or substantially into cash at a
fairly short notice, it possesses liquidity of a high order.

SELECTION OF STOCK (Equity shares):

Three board approaches are employed for the selection of equity shares:

 Technical analysis looks at price behavior and volume data to determine

whether the share will move up or down or remain trend less.

 Fundamental analysis focuses on fundamental factors like the earnings
level, growth prospects, and risk exposure to establish the intrinsic value
of a share. The recommendation to buy, hold, or sell is based on a
comparison of the intrinsic value and the prevailing market price.

 Random selection approach is based on the premise that the market is
efficient and securities are properly price.


5. PORTFOLIO EXECUTION:
The next step is to implement the portfolio plan by buying or selling specified securities
in given amounts. This is the phase of portfolio execution which is often glossed over in
portfolio management literature. However, it is an important practical step that has a
significant bearing on the investment results. In the execution stage, three decision need
to be made, if the percentage holdings of various asset classes are currently different
from the desired holdings.
6. PORTFOLIO REVISION:
In the entire process of portfolio management, portfolio revision is as important stage as
portfolio selection. Portfolio revision involves changing the existing mix of securities.
This may be effected either by changing the securities currently included in the portfolio
or by altering the proportion of funds invested in the securities. New securities may be
added to the portfolio or some existing securities may be removed from the portfolio.
Thus it leads to purchase and sale of securities. The objective of portfolio revision is
similar to the objective of selection i.e. maximizing the return for a given level of risk or
minimizing the risk for a given level of return.
The need for portfolio revision has aroused due to changes in the financial markets since
creation of portfolio. It has aroused because of many factors like availability of additional
funds for investment, change in the risk attitude, change investment goals, the need to

15
liquidate a part of the portfolio to provide funds for some alternative uses. The portfolio
needs to be revised to accommodate the changes in the investor’s position.

Portfolio Revision basically involves two stages:

a) Portfolio Rebalancing:

Portfolio Rebalancing involves reviewing and revising the portfolio composition (i.e. the

stock- bond mix). There are three basic policies with respect to portfolio rebalancing: buy

and hold policy, constant mix policy, and the portfolio insurance policy.

Under a buy and hold policy, the initial portfolio is left undisturbed. It is essentially a
“buy

and hold‟ policy. Irrespective of what happens to the relative values, no rebalancing is

done. For example, if the initial portfolio has a stock-bond mix of 50:50 and after six

months it happens to be say 70:50 because the stock component has appreciated and the

bond component has stagnated, than in such cases no changes are made.

The constant mix policy calls for maintaining the proportions of stocks and bonds in line

with their target value. For example, if the desired mix of stocks and bonds is say 50:50,
the

constant mix calls for rebalancing the portfolio when relative value of its components

change, so that the target proportions are maintained.

The portfolio insurance policy calls for increasing the exposure to stocks when the
portfolio

appreciates in value and decreasing the exposure to stocks when the portfolio depreciates

in value. The basic idea is to ensure that the portfolio value does not fall below a floor

level.

b) Portfolio Upgrading:

While portfolio rebalancing involves shifting from stocks to bonds or vice versa,
portfolio-

16
 upgrading calls for re-assessing the risk return characteristics of various securities (stocks
as

well as bonds), selling over-priced securities, and buying under-priced securities. It may
also

entail other changes the investor may consider necessary to enhance the performance of
the

portfolio.
7. PORTFOLIO EVALUATION:
Portfolio evaluation is the last step in the process of portfolio management. It is the
process that is concerned with assessing the performance of the portfolio over a selected
period of time in terms of return and risk. Through portfolio evaluation the investor tries
to find out how well the portfolio has performed. The portfolio of securities held by an
investor is the result of his investment decisions. Portfolio evaluation is really a study of
the impact of such decisions. This involves quantitative measurement of actual return
realized and the risk born by the portfolio over the period of investment. It provides a
mechanism for identifying the weakness in the investment process and for improving
these deficient areas.
The evaluation provides the necessary feedback for designing a better portfolio next time.

TYPES OF RISK IN PORTFOLIO MANAGEMENT:

Each and every investor has to face risk while investing. What is Risk? Risk is the
uncertainty of income/capital appreciation or loss of both. Risk is classified into:
Systematic risk or Market related risk and Unsystematic risk or Company related risk.

TYPES OF RISK IN PORTFOLIO MANAGEMENT

SYSTEMATIC RISK UN SYSTEMATIC RISK

1. Market risk 1. Business risk

2. Interest rate risk 2. Internal risk
3. Inflation rate risk 3. Financial risk

SYSTEMATIC RISK :

17
 Systematic risk refers to that portion of variation in return caused by factors that affect the
price of all securities. It cannot be avoided. It relates to economic trends with effect to the
whole market.
This is further divided into the following:
1. Market risks:
A variation in price sparked off due to real, social political and economical events
is referred as market risks.
2. Interest rate risks:
Uncertainties of future market values and the size of future incomes, caused by
fluctuations in the general level of interest are referred to as interest rate risk.
Here price of securities tend to move inversely with the change in rate of interest.
Inflation risks: Uncertainties in purchasing power is said to be inflation risk.

UNSYSTEMATIC RISK:
Unsystematic risk refers to that portion of risk that is caused due to factors related to a
firm or industry. This is further divided into:
1. Business risk:
Business risk arises due to changes in operating conditions caused by conditions
that thrust upon the firm which are beyond its control such as business cycles,
government controls, etc.
2. Internal risk:
Internal risk is associated with the efficiency with which a firm conducts its
operations within the broader environment imposed upon it.
3. Financial risk:
Financial risk is associated with the capital structure of a firm. A firm with no debt
financing has no financial risk.

SEBI Guidelines to Portfolio Management

SEBI has issued detailed guidelines for portfolio management services. The guidelines
have been made to protect the interest of investors.
The salient features of these guidelines are:
 The nature of portfolio management service shall be investment consultant.


18
  The portfolio manager shall not guarantee any return to his client.

 Client’s funds will be kept in a separate bank account.

 The portfolio manager shall act as trustee of client’s funds.

 The portfolio manager can invest in money or capital market.

PORTFOLIO MANAGEMENT SERVICES

A Portfolio in Securities Market refers to basket of securities that a person has invested
into. Sometimes this includes Debt Instruments, Mutual Funds and even Bank Balance
in addition to regular equities.

The person designated to manage the portfolio is called Portfolio Manager. The
Portfolio Manager advises, manages and administers the securities and funds on behalf
of the entrusting client.

The service is offered by a Portfolio Manager under a specific license from Securities
and Exchange Board of India.

As per definition of SEBI Portfolio means “a collection of securities owned by an

investor” It represents the total holdings of securities belonging to any person". It
comprises of different types of assets and securities. Portfolio management refers to the
management or administration of a portfolio of securities to protect and enhance the value
of the underlying investment. It is the management of various securities (shares, bonds
etc) and other assets (e.g. real estate), to meet specified investment goals for the benefit of
the investors. It helps to reduce risk without sacrificing returns. It involves a proper
investment decision with regards to what to buy and sell. It involves proper money
management. It is also known as Investment Management.

Portfolio Management Services, called, as PMS are the advisory services provided by
corporate financial intermediaries. It enables investors to promote and protect their
investments that help.Them to generate higher returns. It devotes sufficient time in
reshuffling the investments on hand

19
In line with the changing dynamics. It provides the skill and expertise to steer through

these Complex, volatile and dynamic times. It is a choice of selecting and revising

spectrum of

Securities to it with the characteristics of an investor. It prevents holding of stocks of

Depreciating-value. It acts as a financial intermediary and is subject to regulatory

control of

SEBI under PMS, the Client and the Portfolio Manager chart out specific needs of the

client And the Portfolio Manager manages the Portfolio in accordance with those needs.

Sometimes

The Portfolio Manager may also have separate ready schemes for the client to choose
from. As a result of this customization, client, with his specific needs, benefits. The
service level in the form of reporting transactions, holdings statements etc., also are
comparable or even better than that of a mutual fund.

Benefits of Choosing Portfolio Management service Instead of Mutual Funds

While selecting a portfolio management service over mutual fund services it is found that
the portfolio manager offer some very service which are better than standardized product
services offered by the mutual fund manager. Such as:

1. Asset Allocation :

Asset allocation plan offered by portfolio management service (PMS) helps in

allocating savings of the client in terms of stock bonds or equity funds. The plan is
tailor made and is designed after a detailed analysis of client’s investment goals,
saving pattern and risk taking goal.

2. Timing:

Portfolio manager preserves client’s money on time. Portfolio management

services helps in allocating right amount of money in right type of saving plan at
right time. This means the portfolio manager provides their expert advice when
his client should invest his money in equity or bonds or when he should take his
money out of particular saving plan. Portfolio manager analyzes market and
provides his expert

20
advice to the client regarding the amount of cash he should take out at the time of
big risk in stock market.

3. Flexibility:

Portfolio manager plan saving of his client according to their need and preferences
But sometime portfolio manager can invest the client’s money according to his
own preferences because they know the market very well than his client. It is his
client’s duty to provide him a level of flexibility so that he can manage the
investment with full efficiency and effectiveness.

4. Rules and Regulation:

In comparison to mutual funds, portfolio managers do not need to follow any rigid
rules of investing a particular amount of money in a particular mode of
investment. Mutual fund managers need to work according to the regulations set
up by financial authorities of their country. Like in India, they have to follow rules
set up by SEBI.

21
INDUSTRY PROFILE:

INSURANCE

The functions of Insurance will give you an idea on how to go ahead with the approach of
insurance and what type of insurance to choose. In a layman's words, insurance means, ‘a
guard against pecuniary loss arising on the happening of an unforeseen event’. In developing
economies, the insurance sector still holds a lot of potential which can be tapped. Majority of
the people in the developing countries remains unaware of the functions and benefits of
insurance and it is for this reason that the insurance sector is still to grow. Tangible or
intangible – an individual can insure anything! Be it a house, car, factory, or the voice of a
singer, leg of a footballer, and the hand of an author.....etc. It is possible to insure all these as
they have the possibility of becoming non functional by any disaster or an accident.

Basic functions of Insurance are

1. Primary Functions

2. Secondary Functions

3. Other Functions

Primary functions of insurance:

 Providing protection – The elementary purpose of insurance is to allow security

against future risk, accidents and uncertainty. Insurance cannot arrest the risk from
taking place, but can for sure allow for the losses arising with the risk. Insurance is in
reality a protective cover against economic loss, by apportioning the risk with others.

 Collective risk bearing – Insurance is an instrument to share the financial loss. It is a
medium through which few losses are divided among larger number of people. All the
insured add the premiums towards a fund and out of which the persons facing a
specific risk is paid.

 Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse
factors that give rise to risk. Risk is the basis for ascertaining the premium rate as
well.

 Provide Certainty – Insurance is a device, which assists in changing uncertainty to
certainty.

Secondary functions of insurance:

22
  Preventing losses – Insurance warns individuals and businessmen to embrace
appropriate device to prevent unfortunate aftermaths of risk by observing safety
instructions; installation of automatic sparkler or alarm systems, etc.

 Covering larger risks with small capital – Insurance assuages the businessmen
from security investments. This is done by paying small amount of premium against
larger risks and dubiety.

 Helps in the development of larger industries – Insurance provides an opportunity
to develop to those larger industries which have more risks in their setting up.

Other functions of insurance:

 Is a savings and investment tool – Insurance is the best savings and investment
option, restricting unnecessary expenses by the insured. Also to take the benefit of
income tax exemptions, people take up insurance as a good investment option.

 Medium of earning foreign exchange – Being an international business, any country
can earn foreign exchange by way of issue of marine insurance policies and a
different other ways.

 Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free
with the help of different types of policies under marine insurance cover.

Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or

disaster. There are different types of insurance policies under the sun cover almost anything
that one might think of. There are loads of companies who are providing such customized
insurance policies. Insurance Policy India provides the clients with the details required for
the coverage’s in the policy, date of commencement of the policy and their adopting
organizations. It plays an important role in the Indian insurance sector.

The Insurance Policy in India is regulated by certain acts like Insurance Act (1938), The Life
Insurance Corporation Act (1956), General Insurance Business (Nationalization) Act (1972),
Insurance Regulatory and Development Authority (IRDA) Act (1999). The insurance policy
determines the covers against risks, sometime opens investment options with insurance
companies setting high returns and also informs about the tax benefits like the LIC in India.

There are two types of insurance covers:

1. Life Insurance

23
 2. General Insurance

Life insurance – this sector deals with the risks and the accidents affecting the life of the
customer. Alongside, this insurance policy also offers tax planning and investment returns.
There are various types of life Insurance Policy India:

a. Endowment Policy
b. Whole Life Policy
c. Term Life Policy
d. Money-back Policy
e. Joint Life Policy
f. Group Insurance Policy
g. Loan Cover Term Assurance Policy
h. Pension Plan or Annuities
i. Unit Linked Insurance Plan

General Insurance – this sector covers almost everything related to property, vehicle, cash,
household goods, health and also one's liability towards others. The major segments covered
under general Insurance Policy India are:

a. Home Insurance
b. Health Insurance
c. Motor Insurance
d. Travel Insurance

Insurance Regulatory & Development Authority (IRDA)

Authority is regulatory and development authority under Government of India in order to

protect the interests of the policyholders and to regulate, promote and ensure orderly growth
of the insurance industry. It is basically a ten members' team comprising of a Chairman, five
full time members and four part-time members, all appointed by Government of India. This
organization came into being in 1999 after the bill of IRDA was passed in the Indian
parliament.

24
Powers and Functions of IRDA:

 It issues the applicants in insurance arena, a certificate of registration as well as

renewal, modification, withdrawal, suspension or cancellation of such registrations.

 It protects the interests of the policy holders in any insurance company in the matters
related to the assignment of policy, nomination by policy holders, insurable interest,
and resolution of insurance claim, submission value of policy and other terms and
proposals in the contract.

 It also specifies obligatory credentials, code of conduct and practical instructions for
mediator as well as the insurance company. Apart from this, it also defines the code
of conduct for the surveyors and loss assessors involved with the insurance business.

 One of the major functions of IRDA includes endorsing competence in the insurance
business. Apart from this, upholding and regulating professional organizations in
insurance and re-insurance business is also a major duty of IRDA.

 IRDA is also entitled to for asking information, undertaking inspection and
investigating the audit of the insurers, mediators, insurance intermediaries and other
organizations related to the insurance sector.

 It is also concerned with the regulation of the rates, profits, provisions and conditions
that may be offered by insurers in respect of general insurance business if it is not
controlled or regulated by the Tariff Advisory Committee.

 It is also entitled to supervise the functioning of the Tariff Advisory Committee.

 IRDA specifies the terms and pattern in which books of accounts are to be maintained
and statement of accounts shall be provided by insurers and other insurance
mediators.

 It also regulates investment of funds by insurance companies as well as the
maintenance of margin of solvency.

 It is also empowered to be involved in the arbitration of disagreements between
insurers and intermediaries or insurance intermediaries.

 It is meant to specify the proportion of premium income of the insurer to finance
policies.


25




Impact of IRDA on Indian Insurance Sector:

The creation of IRDA has brought revolutionary changes in the Insurance sector. In last 10
years of its establishment the insurance sector has seen tremendous growth. When IRDA
came into being; only players in the insurance industry were Life Insurance Corporation of
India (LIC) and General Insurance Corporation of India (GIC), however in last decade 23
new players have emerged in the file of insurance. The IRDA also successfully deals with
any discrepancy in the insurance sector.

HISTORY OF INSURANCE INDUSTRY:

In some sense we can say that insurance appeared simultaneously with appearance of human
society. In earlier economies, we can see insurance in the form of people helping each other.
For example, if a house is burnt, the members of the community help build a new one.
Should the same thing happen to one’s neighbor, the other neighbors must come to help?
Otherwise, neighbors will not receive help in the future. Insurance in the modern sense,
started as a methods of transferring or distributing risk were practiced by Chinese and
Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese
merchants traveling treacherous river rapids would redistribute their cargo across many
vessels to limit the loss due to any single vessel’s capsizing. The Babylonians developed a
system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by
early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he
would pay the lender an additional sum in exchange for the lender’s guarantee to cancel the
loan should the shipment be stolen. Greek monarchs were the first to insure their people and
made it official by registering the insuring process in governmental notary offices. They
invented the concept of the ‘general average’. Merchants whose goods were being shipped
together would pay a proportionally divided premium which would be used to reimburse any
merchant whose goods were jettisoned during storm or sinking of the vessel in the se The
Greeks and Romans introduced the origins of health and life insurance c.600 AD when they
organized guilds called “benevolent societies” which cared for the families and paid funeral
expenses of members upon death. Guilds in the middle Ages served a similar purpose. Before
insurance was established in the late 17th century, “friendly societies” existed in England, in
which people donate amounts of money to a general sum that could be used for emergencies

26
Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of
contracts) were invented in Greeks rulers in the 14th century, as were insurance pools backed
by pledges of landed estates. These new insurance contracts allowed insurance to be
separated from investment, a separation of roles that first proved useful in marine insurance.
Insurance became far more sophisticated in post-Renaissance Europe, and specialized
varieties developed. Insurance as we know it today can be traced to the Great Fire of London,
which in 1666 A.D devoured 13,200 houses. In the aftermath of this disaster, Nicholas
Barbon opened an office to insure buildings. In 1680, he established England’s first fire
insurance company, “The Fire Office,” to insure brick and frame homes. The first Insurance
company in the United States underwrote fire insurance and was formed in Charles Town
(modern-day Charleston), South Carolina, in 1732.

THE HISTORY OF INDIAN INSURANCE INDUSTRY:

The insurance sector in India has completed all the facets of competition –from being an open
competitive market to being nationalized and then getting back to the form of a liberalized
market once again. The history of the insurance sector in India reveals that it has witnessed
complete dynamism for the past two centuries approximately.

India’s, insurance sector has a deep-rooted history. It finds mention in the writings of Manu
(Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in
terms of pooling of resources that could be re-distributed in times of calamities such as fire,
floods, epidemics and famine. This was probably a precursor to modern day insurance.
Ancient Indian history has preserved the earliest traces of insurance in the form of marine
trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing
from other countries, England in particular. With the establishment of the Oriental Life
Insurance Company in Kolkata, the business of Indian life insurance started in the year 1818.

Important milestones in the Indian life insurance business:

 1912: The Indian Life Assurance Companies Act came into force for regulating the
life insurance business.

 1928: The Indian Insurance Companies Act was enacted for enabling the government
to collect statistical information on both life and non-life insurance businesses.

 1938: The earlier legislation consolidated the Insurance Act with the aim of
safeguarding the interests of the insuring public.

27
 


 1956: 245 Indian and foreign insurers and provident societies were taken over by the
central government and they got nationalized. LIC was formed by an Act of
Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too
from the Government of India

The history of general insurance business in India can be traced back to Triton Insurance
Company Ltd. (the first general insurance company) which was formed in the year 1850 in
Kolkata by the British.

Important milestones in the Indian general insurance business:

 1907: The Indian Mercantile Insurance Ltd. was set up which was the first company
of its type to transact all general insurance business.

 1957: General Insurance Council, an arm of the Insurance Association of India,
framed a code of conduct for guaranteeing fair conduct and sound business patterns.

 1968: The Insurance Act improved for regulating investments and set minimal
solvency levels and the Tariff Advisory Committee was set up.

 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated and grouped into four companies’ viz. the National Insurance India
Company Ltd., the New Assurance Company Ltd., the Oriental Insurance Company
Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company.

28
INDIAN INSURANCE INDUSTRY-PRESENT:

With an annual growth rate of 15-20% and the largest number of life insurance policies in
force, the potential of the Indian insurance industry is huge. Total value of the Indian
insurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). According to
government sources, the insurance and banking services’ contribution to the country's gross
domestic product (GDP) is 7% out of which the gross premium collection forms a
significant part. The funds available with the state-owned Life Insurance Corporation (LIC)
for investments are 8% of GDP. Till date, only 20% of the total insurable population of
India is covered under various life insurance schemes, the penetration rates of health and
other non-life insurances in India is also well below the international level. These facts
indicate the of immense growth potential of the insurance sector. The year 1999 saw a
revolution in the Indian insurance sector, as major structural changes took place with the
ending of government monopoly and the passage of the Insurance Regulatory and
Development Authority (IRDA) Bill, lifting all entry restrictions for private players and
allowing foreign players to enter the market with some limits on direct foreign ownership.

Though, the existing rule says that a foreign partner can hold 26% equity in an insurance
company, a proposal to increase this limit to 49% is pending with the government. Since
opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have
poured into the Indian market and 21 private companies have been granted licenses.
Innovative products, smart marketing, and aggressive distribution have enabled fledgling
private insurance companies to sign up Indian customers faster than anyone expected.
Indians, who had always seen life insurance as a tax saving device, are now suddenly turning
to the private sector and snapping up the new innovative products on offer. The life
insurance industry in India grew by an impressive 36%, with premium income from new
business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition
from private insurers. RNCOS’s report, “Indian Insurance Industry: New Avenues for
Growth 2012”, finds that the market share of the state behemoth, LIC, has clocked 21.87%
growth in business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But
this was still not enough to arrest the fall in its market share, as private players grew by
129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04. Though the
total volume of LIC's business increased in the last fiscal year (2004-2005) compared to the
previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers

29
increased their market share from about 13% to about 22% in a year's time. The figures for
the first two months of the fiscal year 2005-06 also speak of the growing share of the private
insurers. The share of LIC for this period has further come down to 75 percent, while the
private players have grabbed over 24 percent.

COMPANY PROFILE

IDBI Federal Life Insurance Co Ltd., (formally IDBI Fortis Life Insurance) is a joint-
venture of IDBI Bank, India’s premier development and commercial bank, Federal Bank; one
of India’s leading private sector banks and Ageas, a multinational insurance giant based out
of Europe started its operation in March 2008. In this venture, IDBI Bank owns 48% equity
while Federal Bank and Ageas own 26% equity each. At IDBI Federal, we endeavor to
deliver products that provide value and convenience to the customer. Through a continuous
process of innovation in product and service delivery we intend to deliver world-class wealth
management, protection and retirement solutions to Indian customers. Having started in
March 2008, in just five months of inception we became one of the fastest growing new
insurance companies to garner Rs 100 Cr in premiums. The company offers its services
through a vast nationwide network across the branches of IDBI Bank and Federal Bank in
addition to a sizeable network of advisors and partners. As on 29th February, 2012, the
company has issued over 3.56 lack policies with over Rs 20220 Cr in Sum Assured.

IDBI Bank Ltd. continues to be, since its inception, India’s premier industrial development
bank. It came into being as on July 01, 1964 (under the Companies Act, 1956) to support
India’s industrial backbone. Today, it is amongst India’s foremost commercial banks, with a
wide range of innovative products and services, serving retail and corporate customers in all
corners of the country from 973 branches and 1535 ATMs. The Bank offers its customers an
extensive range of diversified services including project financing, term lending, working
capital facilities, lease finance, venture capital, loan syndication, corporate advisory services
and legal and technical advisory services to its corporate clients as well as mortgages and
personal loans to its retail clients. As part of its development activities, IDBI Bank has been
instrumental in sponsoring the development of key institutions involved in India’s financial
sector –National Stock Exchange of India Limited (NSE) and National Securities Depository
Ltd, SHCIL (Stock Holding Corporation of India Ltd), CARE (Credit Analysis and Research
Ltd).

30
Federal Bank is one of India’s leading private sector banks, with a dominant presence in the
state of Kerala. It has a strong network of over 950 branches and 1002 ATMs spread across
India. The bank provides over four million retail customers with a wide variety of financial
products. Federal Bank is one of the first large Indian banks to have an entirely automated
and interconnected branch network. In addition to interconnected branches and ATMs, the
Bank has a wide range of services like Internet Banking, Mobile Banking, Tele Banking, and
Any Where Banking, debit cards, online bill payment and call centre facilities to offer round
the clock banking convenience to its customers. The Bank has been a pioneer in providing
innovative technological solutions to its customers and the Bank has won several awards and
recommendations.

Ageas is an international insurance company with a heritage spanning more than 180 years.
Ranked among the top 20 insurance companies in Europe, Ageas has chosen to concentrate
its business activities in Europe and Asia, which together make up the largest share of the
global insurance market. These are grouped around four segments: Belgium, United
Kingdom, Continental Europe and Asia and served through a combination of wholly owned
subsidiaries and partnerships with strong financial institutions and key distributors around the
world. Ageas operates successful partnerships in Belgium, UK, Luxembourg, Italy, Portugal,
Turkey, China, Malaysia, India and Thailand and has subsidiaries in France, Germany, Hong
Kong and UK. It is the market leader in Belgium for individual life and employee benefits, as
well as a leading non-life player, through AG Insurance, and in the UK, it has a strong
presence as the third largest player in private car insurance and the over 50’s market. It
employs more than 13,000 people and has annual inflows of more than EUR 17 billion.

Sponsorships, Awards

 IDBI Fortis Life Insurance Company was selected as the title sponsor for the India-Sri
Lanka Cricket Series 2009, consisting of five One-Day Internationals and a Twenty
20 match. The ODI series will be called the IDBI Fortis Wealthsurance Cup. This will
be followed by the IDBI Fortis Wealthsurance Twenty20.


31
  ‘Wealthsurance Made Easy’ (WME), a knowledge aid by IDBI Fortis for its sales
force, won The Bronze Dragon in the category for ‘Best Dealer/Sales Force activity’
at the Promotion Marketing Awards of Asia (PMAA).

VISION OF THE COMPANY:

To be the leading provider of wealth management, protection and retirement solutions that
meets the needs of our customers and adds value to their lives.

MISSION OF THE COMPANY:

 To continually strive to enhance customer experience through innovative product

offerings, dedicated relationship management and superior service delivery while
striving to interact with our customers in the most convenient and cost effective
manner.

 To be transparent in the way we deal with our customers and to act with integrity.

 To invest in and build quality human capital in order to achieve our mission.

VALUES OF THE COMPANY:

 Transparency: Crystal Clear communication to our partners and stakeholders.


 Value to Customers: A product and service offering in which customers perceive
value.

 Rock Solid and Delivery on Promise: This translates into being financially strong,
operationally robust and having clarity in claims.

 Customer-friendly: Advice and support in working with customers and partners.

 Profit to Stakeholders: Balance the interests of customers, partners, employees,
shareholders and the community at large.

PRODUCT MIX OF THE IDBI FEDERAL LIC CO.

LTD BONDSURANCE:

IDBI Federal Bondsurance Plan (Bondsurance) is a single premium plan which allows you to
make a one-time investment and get a guaranteed amount on maturity. You can choose a

32
maturity period of 5 or 10 years for your investment. At the end of the chosen period, you
will receive a guaranteed maturity amount.

Besides the guaranteed maturity amount, Bondsurance also provides a life insurance cover. In
case of death before the maturity date, a Death Benefit which is also guaranteed will be paid.

Thus you can get life insurance cover, while earning an assured return on your investment.

A. Guaranteed Return on your investment

Bondsurance gives you guaranteed returns on your one-time investment. All you have to do
is choose the Maturity Benefit, and the Maturity Period for your investment. Based on your
choice, the investment you have to make by way of single premium is determined.

Maturity Benefit

Guaranteed Return on your investment with life insurance. You can choose any amount as
the Maturity Benefit. The amount you choose is guaranteed and will be paid to you on the
maturity date.

Maturity Period

You can choose the Maturity Period, which can be either 5 or 10 years. The Maturity Period
is also the policy term of your Bondsurance.

- Single Premium Amount

The single premium amount is based on your choice of Maturity Benefit, Maturity Period and
the age of the Insured Person in completed years as on the date of application, as per the
Premium Table below. Minimum single premium payable is Rs 20,000. There is no
maximum limit.

B. Life Insurance Cover of 5 times the invested amount:

Besides giving assured returns, Bondsurance also provides a life insurance cover. In the
unfortunate event of death of the Insured Person before the maturity date, a Death Benefit
equal to five times the single premium amount will be paid. The Death Benefit (which is the
Sum Insured) is guaranteed. The Plan will terminate upon payment of Death Benefit. The life
insurance cover ensures that the financial security of loved ones is secured.

33
CHILDSURANCE:

Whether your child wants to be a doctor, an engineer, an MBA, a sportsman, a performing

artist, or dreams of being an entrepreneur, the IDBI Federal Childsurance Dream builder
Insurance Plan will keep you future-ready against both, changing dreams and life’s twists. It
allows you to create build and manage wealth by providing several choices and great
flexibility so that your plan meets your specific needs. However, what makes Childsurance a
must-have for any parent who is looking to make their child’s future shock-proof is its
powerful insurance benefits. Childsurance allows you to protect your child plan with triple
insurance benefits so that your wealth-building efforts remain unaffected by unforeseen
events and your child’s future goals can be achieved without any hindrance.

INCOMESURANCE:

IDBI Federal Incomesurance Endowment and Money Back Plan is loaded with lots of
benefits which ensure that you get Guaranteed Annual Payout along with insurance
protection which will help you to reach you goals with full confidence. Incomesurance Plan
is very flexible and allows you to customize your Plan as per your individual and family’s
future requirements. Moreover it also allows you to choose Premium Payment Period, Payout
Period, Payout Options and more. IDBI Federal Incomesurance Endowment and Money Back
Plan (Incomesurance) not only gives you unmatched transparency and flexibility but there are
lots of other features which are inbuilt in the product like convenient premium payment
options, Tax benefits and double advantage of Endowment and Money Back plan.

Advantage of Endowment and Money Back:

Incomesurance combines Endowment and Money Back benefits into one plan. we can get
periodic payments as in Money Back or get a lump sum at maturity as in Endowment. We
can make it into an Endowment plan or Money Back plan, as you wish.

Tax Benefits: Incomesurance gives you two tax benefits in a single plan. Your premium is
deductible under Sec 80C, so you save income-tax when you pay premium. Even better, the
payouts you receive are fully tax-free under Sec 10(10D) so you can enjoy the additional
income without any tax outgo.

34
Premiums waived in case of death: Incomesurance protects your plan with insurance. If
unfortunately anything happens to you, your premiums can be fully waived and your
beneficiary can receive payouts just as you had envisaged. You can also choose to get a lump
sum that provides financial security to your family.

Convenient premium payment options: Incomesurance allows you to choose 5, 10 or 15

years as your Premium Payment Period. For the same payout amount, the premium is lower
if you choose longer Premium Payment Period, so you can save more comfortably.
Therefore, even if you want the payout in a short period of 5 years, you can pay premiums
over a long period up to 15 years.

Complete transparency: Incomesurance offers complete transparency in declaration of

your payouts. Please refer to 'Determination of Additional Annual Payout' in the brochure
for a detailed explanation of how the Additional Annual Payout will be computed and
determined. Incomesurance offers complete transparency in declaration of your payouts.

LOANSURANCE:

Loansurance is a cost-effective way to ensure that the outstanding debt is settled in the
unfortunate event of death of the insured member. This term assurance plan provides cover
to a person directly liable for loan repayment (and the partners, in case of a partnership), as
per the benefit schedule.

WEALTHSURANCE:

Wealthsurance plans combine wealth creation with insurance protection into one powerful
financial solution. Unlike other investment alternatives, it allows you to ensure that your
goals of wealth creation are achieved even in the event of serious illness, accidents,
disablement or death.

Insured Wealth Plans to grow wealth under a protective cover:

Wealthsurance offers you Insured Wealth Plans. They allow you to create build and manage
wealth by giving several choices and great flexibility so that your plan meets your specific
needs. You can decide how you wish to save so that it suits your savings habit. You can
choose how your money is invested so that you can grow wealth as per your investment
preferences. What is even better, Wealthsurance protects your wealth plans with life
insurance benefits so that your wealth-building efforts remain unaffected in unforeseen
events and your financial goals can still be achieved.

35
DATA ANALYSIS:
EQUITY FUND CALCULATIONS:

Holding Period Return:

Holding Period Return is simply the percentage increase in the value of an investment over
a given period of time.

Formula:

HPR = end of the period value _ 1

Beginning of period value

Table: 4.1 Holding period Returns of Equity Fund

DATE CNX nifty NAV HPR of HPR of

values OF CNX IDBI
IDBI nifty equity
growth
1-Jan-14 4841.6 12.0797
Feb 5283.85 13.1419 9.1343 8.793264
733
Mar 5240.5 13.1454 -0.8204 0.0266
Apr 5258.5 13.0571 0.3434 -0.6717
May 5704.75 14.3865 8.4862 10.1814
Jun 5609.85 14.2317 -1.6635 -1.0760
Jul 5879.85 14.7926 4.8129 3.9412
Aug 5937.65 15.0203 0.9830 1.5392
Sep 6040.95 15.0933 1.7397 0.4860
Oct 5702.45 14.3014 -5.6034 -5.2466
Nov 5697.35 14.114 -0.0894 -1.3103
Dec 5911.4 14.6212 3.7570 3.5935
1-Jan-15 5985.95 14.6851 1.2611 0.4370
Feb 5834.1 14.4706 -2.5367 -1.4606
Mar 5776.9 13.7443 -0.9804 -5.0191
Apr 5480.25 13.2494 -5.1351 -3.600
May 5756.1 14.163 5.0335 6.8954
Jun 6289.75 15.7573 9.2710 11.2567
Jul 6171.15 15.6034 -1.8856 -0.9766
Aug 6323.8 16.0881 2.4736 3.1063
Sep 6058.8 15.4872 -4.1905 -3.7350
Oct 6264.35 15.9406 3.3925 2.9275
Nov 6729.5 17.1798 7.4253 7.7738

36
Dec 6709.95 17.3427 -0.2905 0.9482
1-Jan-16 7264.05 19.2082 8.2578 10.7566
Feb 7629 20.5942 5.0240 7.2156
Mar 7662.5 20.4518 0.4391 -0.6914
Apr 7990.35 21.3578 4.2786 4.4299
May 7960.5 20.9902 -0.3735 -1.7211
Jun 8348.15 22.0361 4.8696 4.9828
Jul 8605.1 22.3465 3.0799 1.4085
Aug 8272.8 21.7915 -3.8616 -2.4836
Sep 8802.5 23.0216 6.4029 5.6448
Oct 8953.85 22.9555 1.7193 -0.2871
Nov 8483.7 22.3259 -5.2508 -2.7426
Dec 8181.5 21.1967 -3.5621 -5.0578
1-Jan-17 8417.25 21.7754 2.8815 2.7301

MIDCAP FUND CALCULATIONS:

Table: 4. 2 Holding period Returns for Mid Cap Funds

DATE CNX NAV of HPR of HPR of

Nifty IDBI CNX IDBI
Midcap MIDCAP Nifty MIDCAP
MIDCAP
1-Jan- 6898.8 9.371
14
Feb 7352.8 10.1735
Mar 7168.45 10.1592 6.5808 8.5636
Apr 7066.75 10.0694 -2.5072 -0.1405
May 7841 11.3797 -1.4187 -0.8839
Jun 7763.8 11.2912 10.9562 13.0126
Jul 8141.3 11.7471 -0.9845 -0.7777
Aug 8507.1 12.254 4.8623 4.0376
Sep 8365.55 11.7986 4.4931 4.3151
Oct 7543.6 10.6553 -1.6639 -3.7163
Nov 7430.95 10.3741 -9.8254 -9.6901
Dec 7812.55 10.6781 -1.4933 -2.6390
1-Jan- 7813.6 10.5609 5.1352 2.9303
15
Feb 7357.15 10.2638 0.0134 -1.0975
Mar 6894.1 9.193 -5.8417 -2.8132

37
Apr 6606 8.8855 -6.2938 -10.4327
May 7005.35 9.5384 -4.1789 -3.344
Jun 7524.1 10.5444 6.0452 7.3479
Jul 7703.95 11.2106 2.3903 6.3180
Aug 8084.6 12.1592 4.9409 8.4616
Sep 7515.45 11.5238 -7.0399 -5.2256
Oct 7807.3 11.7772 3.8833 2.1989
Nov 8639.5 13.144 10.6592 11.6054
Dec 8832.45 13.8332 2.2333 5.2434
1-Jan- 10175.1 17.1583 15.2013 24.037
16
Feb 11142.65 19.5901 9.5089 14.1727
Mar 10749.1 19.6279 -3.5319 0.1929
Apr 11151.2 20.0447 3.7407 2.1235
May 11407.75 20.7099 2.3000 3.3185
Jun 11849.6 21.605 3.8732 4.3220
Jul 12402.9 22.3572 4.6693 3.4816
Aug 12579.2 23.0954 1.4214 3.3018
Sep 13135.05 24.0524 4.4188 4.1436
Oct 13207.1 23.9423 0.5485 -0.4577
Nov 13006.3 23.9007 -1.5203 -0.1737
Dec 12689.6 23.1704 -2.4349 -3.0555
1-Jan- 13149.65 23.7994 3.62540 2.7146
17

*Data are taken on the monthly basis for the 3 years

Average returns:
The arithmetic mean return is simply average of a series of periodic returns. It has the
statistical property of being an unbiased estimator of the true mean of the underlying
distribution of returns:

xarithm = (1/n)∑𝑛𝐼=1

38
 Table4.3:Caluclation of Average returns:

Cnx nifty IDBI Equity Cnx midcap Midcap

IDBI

Average
1.63% 1.74% 1.94% 4.99%
returns

Interpretation:

Equity idbi fund and midcap idbi fund are performing better than their indexes.

Variance (standard deviation) of returns:

To measure the risk of an investment, both the variance and standard deviation for that
investment can be calculated.

FORMULA:

Variance = S² = ∑(X- )

n- 1

Standard deviation:
Standard deviation is used to measure the risk of an investment. Looking at historical

performance and calculating standard deviation will tell how much variation an investment

has around a mean return. The bigger the standard deviation, the bigger the difference

between the various individual returns and the mean return making it more volatile and

risky.

Formula
Standard deviation formula = ∑(X- )²
n

where
∑ =Sum of
X = Each value in the data
=Mean of the given data
n = Number of values in the data

39
 Table4.4: Caluculation of Standard deviation;
Midcap
Cnx nifty IDBI Equity Cnx midcap
IDBI
Standard
4.16% 4.59% 4.75% 6.72%
deviation

*Data calculated based on the Holding Period Returns of the year are taken into account.
Interpretation: Risk wise midcap idbi has greter risk than equity idbi. Overall both the
funds have high risk than the respective bench mark indexes.
Covariance:

The covariance is the measure of how two assets relate (move) together. If the covariance of
the two assets is positive, the assets move in the same direction. For example, if two assets
have a covariance of 0.50, then the assets move in the same direction. If however the two
assets have a negative covariance, the assets move in opposite directions. If the covariance of
the two assets is zero, they have no relationship.
Formula:

Cov(X,Y) = ∑(Xі- )*(Yі- )

n-1

Table 4.5 Calculation of covariance:

Equity IDBI IDBI midcap
COVARIANCE 17.98 33.51
Interpretation:

Here we interpret that the positive covariance is the two assets move in the same
direction.

Correlation:
Correlation measures the degree to which two investments move up & down together.
Portfolio management involves managing different investments of varying correlation
coefficients to achieve a return. Some stocks are unattractive
by themselves but attractive as part of a portfolio.

40
 The correlation coefficient is the relative measure of the relationship between two assets. It is
between +1 and -1, with a +1 indicating that the two assets move completely(up and down)
together, and a -1 indicating that the two assets move in opposite directions from each other i.e.,
when one investment is going up, the other is going down and a 0 indicating that the two assets are
unrelated to each other. There is a tendency of stocks to go up and down together. To achieve
diversification, a portfolio manager searches for cases of negative correlation.
Formula:
Correlation = ∑ (Xi − )(Yi − )

∑ (Xi − )² ∑(Yi − )²

Table 4.6Calculation of correlation:

EQUITY IDBI IDBI midcap

CORRELATION 0.95 0.94
*From the holding period returns calculated before

Interpretation:

Both the funds have + ve correlation with their respective indices.

Sharpe ratio:

The Sharpe ratio measures excess return per unit of total risk is useful for comparing
portfolios on a risk-adjusted basis.

Formula:

Sharpe ratio (p) = Expected return (RM)-Risk Free Return (RF)

Standard deviation (SD)

Calculation:
The below calculations are done for 3 years of IDBI Equity and Midcap funds.
Table: 4.7Calculation of Sharpe Ratio of Equity and Midcap Funds
Equity IDBI Midcap IDBI
CAGR 13.2832 16.2818
Standard deviation 4.59 6.72
Risk free rate 7% 7%
(Treasury Bills)
Sharpe Ratio 1.36 1.38

41
Interpretation:

As per sharpe ratio midcap funds are ranked better than equity IDBI.

Portfolio beta:

The beta of portfolio is the weighted sum of individual asset betas according to the
proportions of the investments in the portfolio.

Formula:

ßP

Calculation: Equity growth fund

Table: 4.8 Composition of idbi equity fund with their respective beta values:

companies(equity) Percentage Beta

Asian paints 1.35% 129.39%

axis bank 2.93% 219.08%

Britannia industries 1.31% 53.90%

Cipla 1.24% 33.93%

coal India 1.81% 93.00%

divis laboratories 1.42% 2.80%

dr.reddys laboratories 1.64% 39.77%

grasim industries 1.35% 106.24%

gujarat mineral 1.26% 84.20%

devp.corp.ltd

hcl technologies 2.13% 44.21%

hdfc bank ltd 8.21% 109.20%

hdfc ltd 5.38% 80.25%

hero motocorp ltd 1.16% 70.00%

42
hinduja global solutions 2.23% 92.90%

hindustan unilever 1.57% 37.85%

icici bank 5.23% 180.31%

Idfc 1.34% 208.69%

Infosys 8.06% 53.24%

Itc 3.05% 48.31%

Larsen and turbo 5.59% 186.17%

Lupine 2.97% 33.55%

mahindra&Mahindra 1.39% 92.51%

maruti suzuki india ltd 3.14% 171.23%

power grid corp of India ltd 1.60% 78.80%

reliance industries ltd 2.46% 94.85%

state bank of India 1.92% 160.81%

sun pharmaceutical inds.ltd 2.70% 60.51%

supreme infra India ltd 1.25% 117.00%

Tata consultancy services 4.60% 1.28%

Ltd

Tata motors 3.36% 166.86%

ultratech cement ltd 1.49% 98.29%

Wipro ltd 1.65% 24.49%

Portfolio Beta 0.8523

Interpretation: As the beta value is less than 1, which indicates that it is relatively
less sensitive to market moment.

43
 Midcap fund:
Table: 4.9 Comopisition of idbi midcap fund with their respective beta values:
companies(midcap) Weightage Beta
Adani port Special Economic Zone 1.67% 1.51

Ltd
ADITYA BIRLA NUVO LTD 1.04% 1.15

AKZO NOBEL INDIA LTD 1.38% 0.79

APOLLO TYRES LTD. 1.27% 1.07

ASHIANA HOUSING LTD 1.96% 0.85

AUROBINDO PHARMA LTD. 2.07% 1.08

B E M L LTD. 1.75% 2.04

B F UTILITIES LTD. 0.00% 2.18

BAJAJ CORP LTD. 1.37% 0.66

BAJAJ FINANCE LTD. 2.23% 0.77

BAJAJ FINSERV LTD. 1.00% 0.86

BERGER PAINTS INDIA LTD. 1.19% 0.49
BHARTIYA INTERNATIONAL 2.44% 1.17
LIMITED
BIRLA CORPORATION LTD. 1.31% 1.22

BRIGADE ENTERPRISES LTD. 2.32% 1.64

CAPITAL FIRST LTD 1.14% 1.19
CENTURY TEXTILES & INDU 1.59% 2.10

LTD.
CESC LTD. 1.03% 1.45

CHOLAMANDALAM D B S 1.02% 1.20

FINANCE LTD.
Colgate-Palmolive (India)Ltd. 0.00% 0.39

EXIDE INDUSTRIES LTD 1.40% 0.95

GUJARAT MINERAL DEVP. 1.06% 1.19

CORPN. LTD.
Gujarat State Petronet Ltd. 1.09% 0.71
H S I L LTD. 1.07% 1.33

44
HAVELLS INDIA LTD. 1.11% 1.17
HINDUJA GLOBAL SOLUTIONS 3.80% 0.53
LTD.
HINDUSTAN PETROLEUM 1.76% 1.16
CORPORATION LTD.
INDIABULLS HOUSING 1.26% 1.10

FINANCE LTD.
IPCA LABORATORIES LTD. 0.00% 0.351
J K LAKSHMI CEMENT 1.30% 2.11

LIMITED
J.KUMAR INFRAPROJECTS 3.38% 0.74

LIMITED
JAIN IRRIGATION SYSTEMS 1.20% 1.84
LTD.
KALPATARU POWER 1.04% 1.97

TRANSMISSION LTD.
L I C HOUSING FINANCE LTD. 1.53% 1.69

M R F LTD. 1.02% 0.951

MBL INFRASTRUCTURES LTD 2.79% 1.14
MULTI COMM EXCH OF INDIA 1.56% 1.96

LTD.

NAGARJUNA CONSTRUCTION 1.44% 3.35

CO.LTD.
S R E I INFRASTRUCTURE 2.06% 1.51

FINANCE LTD.
SHRIRAM TRANSPORT 1.47% 1.29

FINANCE CO. LTD.

SIYARAM SILK MILLS LTD. 4.28% 1.00
SOLAR INDUSTRIES INDIA 1.06% 0.53

LTD.

45
 SPECIALITY RESTAURANTS 1.30% 0.62

LIMITED
STATE BANK OF TRAVANCORE 1.43% 1.25

STRIDES ARCOLAB LTD. 1.78% 0.893

SUPREME INFRA INDIA LTD. 3.37% 1.15

TECH MAHINDRA LTD 1.43% 0.633

UPL LIMiTED 1.13% 0.99

VOLTAS LTD 1.15% 1.47

WELSPUN INDIA LTD. 3.92% 1.52

YES BANK LTD 1.36% 2.08

Portfolio Beta 0.9941

Interpretation:

As the beta value is less than 1, which indicates that it is relatively less sensitive to
market moment.

Treynor measure:
The treynor measures a portfolios excess return per unit of systematic risk.
Formula:

TP= P- f
ßP

Where

P = the arithmetic average return of the series,

f= Risk free rate,
Β =beta of the series.
Calculation:
CAGR calculated for Sharpe ratio is taken
And a risk free returns of 7% according to treasury bills.
Portfolio beta calculated before is taken for further calculations

46
Table:4.10 Calculation of Treynor ratio of Equity and Midcap Funds

IDBI equity growth IDBI midcap

treynor ratio 7.371701039 9.336397755

Interpretation:

As per treynor ratio midcap funds are ranked better than equity IDBI.

Jensons measure:

A risk-adjusted performance measure that represents the average return on a portfolio over
and above that predicted by the capital asset pricing model (CAPM), given the portfolio's
beta and the average market return. This is the portfolio's alpha. In fact, the concept is
sometimes referred to as "Jensen's alpha."1

Jensen Alpha measures excess performance relative to the Beta, so any limitations to the
Beta calculation also apply to Jensen Alpha.

Formula:

αP = ßP( m-rf)]

Where

=Expected total portfolio return

=Risk free rate of return

ßP =beta of the portfolio

m =expected market return

Table No4.11:Calculation of jenson’s alpha:

IDBI equity growth IDBI midcap

Jenson’s aipha 2.5165% 4.9%

Interpretation: Jenson’s alpha is positive simplying both the funds have performed better
than the market.

47
 5.1 FINDINGS

1. Investment wise midcap idbi is better than equity idbi as if the investor has good

apetite (can earn 3.25% more by taking 2.13% extra risk).

2. As the beta value are + ve it implies fund will perform betten in bull phase rather than

bear phase.

3. Positive correlation states that fund return move with the market returns.

4. Sharpe and Treynor gives the same ranking implying there is a slight unsystematic

risk.

5. +ve jenson’s aipha also staes that both the firms are performing better than the
market.

48
 5.2 SUGGESTIONS

 As the average returns of midcap fund is more compared to the equity funds so we

suggest the investor to invest in midcap funds.


 The midcap funds are having the high risk but it has more returns compare to

 The equity funds if the investors want take the high Risk we can suggest midcap

investment.

 The investors who require minimum return with low risk can invest in equity funds.

 The total portfolio of equity funds is suggested for the investors for the long term

investments and for the medium term investments and high returns midcap funds

portfolio is suggested.

49
 5.3 CONCLUSION

After the overall all study about each and every aspect of this topic it shows that portfolio

management is a dynamic and flexible concept which involves regular and systematic

analysis, proper management, judgment, and actions and also that the service which was not

so popular earlier as other services has become a booming sector as on today and is yet to

gain more importance and popularity in future as people are slowly and steadily coming to

know about this concept and its importance.

It also helps both an individual the investor and FII to manage their portfolio by expert

portfolio managers. It protects the investor’s portfolio of funds very crucially.

Portfolio management service is very important and effective investment tool as on today for

managing investible funds with a surety to secure it. As and how development is done every

sector will gain its place in this world of investment.

50
BIBLOGRAPRHY

BOOKS:

1. Punithavathi Pandian- Security Analysis and Portfolio Management - Vikas

Publications House.

2. Prasanna Chandra- ‘Investment analysis and Portfolio Management’, Tata Mc Graw

Hill, Second Edition, 2005.

3. Donal E.Fischer, Ronal J.Jordan –‘Security Analysis &Portfolio Management’,

4. S.Kevin- ‘Portfolio Management’ Eastern Economy Edition, PHI, 2nd edition, 2007.

5. Preeti Singh-‘Investment Management’, Himalaya Publishing House, 17th Edition,

2010.

6. Sudhindra Baht- ‘Securities analysis and portfolio management’, Excel Books, 1st

edition, 2008.

JOURNALS:

1. The journal of finance (vol) (March 1952)

2. Journal of Marketing April (2004) vol -68, no -2

3. The Economic Challenger no.12, issue no-46 Jan –march 2010.

4. Portfolio Organizer Vol no 32 Issue No 15 (1994).

51
WEB REFERENCES:

http://www.nseindia.com

http://www.bseindia.com

http://www.economictimes.com

http://www.answers.com

http://www.idbifederalinsurance.co.in

NEWS PAPERS :

1.Times of India

2. Business Standard

3.Financial Express

4.The Hindhu

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