A STUDY OF PORTFOLIO MANAGEMENT

A project submitted to
University of Mumbai for partial Completion of the degree

Bachelor in commerce (accounting and finance)

Under the faculty of commerce

By

RASIKA VIJAY BAMANE

Under the guidance OF

Mrs. Rajshree Vyas
Dr. Anjali Alekar

Government of Maharashtra’s
Ismail Yusuf college of Arts Science and Commerce
Re-accredited ‘A’ Grade by NAAC
Jogeshwari(East) Mumbai-60
March
2018-19

Page 1 of 88
A STUDY OF PORTFOLIO MANAGEMENT

A project submitted to
University of Mumbai for partial Completion of the degree

Bachelor in commerce (accounting and finance)

Under the faculty of commerce

By

RASIKA VIJAY BAMANE

Under the guidance OF

Mrs. Rajshree Vyas
Dr. Anjali Alekar

Government of Maharashtra’s
Ismail Yusuf college of Arts Science and Commerce
Re-accredited ‘A’ Grade by NAAC
Jogeshwari(East) Mumbai-60
March
2018-19

2
 Ismail Yusuf Of Arts, Science and Commerces
Jogeshwari (East), Mumbai-400 060.

CERTIFICATE

This is to certify that Ms. RASIKA VIJAY BAMANE has worked and duly
completed her project work for the degree of Bachelor of Management Studies under
the Faculty of Commerce in the subject of ACCOUNTING AND FINANCE and her
project is entitled, “A STUDY OF PORTFOLIO MANAGEMENT” under my
supervision.
I further certify that the entire work has been done by the learner under my
guidance and that no part of it’s has been submitted previous for any Degree or
Diploma of any University.
It is her own work and facts reported by her personal findings and investigations.

MRS. RAJSHREE VYAS

Name of Guiding Teacher and

Sign

External Teacher

Sign

Date of Submission

3
 DECLARATION

I the undersigned Miss. RASIKA VIJAY BAMANE here by. Declare that the work
embodied in this project work titled “A STUDY OF PORTFOLIO
MANAGEMENT” forms my own contribution to the research work carried out
under the guidance of MRS. RAJSHREE VYAS is a result of my own research
work and has not been previously submitted to any other University for any other
Degree/ Diploma to this or any other University.

Wherever reference has been made you previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with rules and ethical conduct.

RASIKA VIJAY BAMANE

Certified by
DR. ANJALI ALEKAR

4
 Acknowledgment

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do
this project
.
I would to thank my Principal, Dr. SWATI WAVHAL for providing the necessary
facilities required for completion of this project.

I take this opportunity to thank our Coordinator, MRS. RAJSHREE VYAS for her
moral support and guidance.

I would also like to express my sincere gratitude towards my project guide Prof.
UTTAM KATARMAL whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my parents and peers who supported
me throughout my project.

5
 INDEX
Sr. Sub Title Page No.
No Sr. No.

1 Title page (cover)

2 Title Page (Inside)

3 Index

4 Certificate

5 Declaration by Learner

6 Acknowledgement

7 Executive Summary 7

1 Introduction

1.1 Introduction of portfolio 8

1.2 Introduction of portfolio Manager 14

1.3 Types of portfolio Management 19

1.4 Phases of Portfolio Manager 36

1.5 Objective of portfolio Management 39

1.6 Scope of Portfolio Management 40

1.7 Need of Portfolio Management 41

1.8 Basic Principles of Portfolio Management 42

1.9 Investment 42

1.10 Risk Return Analysis 46

1.11 Capital Market 53

1.12 Asset Allocation 55

2 RESEARCH AND METHDOLOGY

2.1 Objective of Study 60

2.2 Methodology of Project

6
 2.3 Data Collection
2.4 Limitation of Study
2.5 Scope of study
2.6 Need of study
3 Litrture review
4 Data Analysis
5 Conclusion
Suggestion
Bibilography
Appendix

7
 EXCUTIVE SUMMARY

Investing in equities requires time, knowledge and constant monitoring of the

market. For those who need an expert to help to manage their investments, portfolio
management service(PMS) comes as an answer. The business of portfolio
management has never been an easy one. Juggling the limited choices at hand with
the twin requirements of adequate safety and sizeable returns is a task fraught with
complexities. Given the unpredictable nature of the market it requires solid experience
and strong research to make the right decision. In the end it boils down to make the
right move in the right direction at the right time. That’s where the expert comes in.
The term portfolio management in common practice refers to selection of securities
and their continuous shifting in a way that the holder gets maximum returns at
minimum possible risk. Portfolio management services are merchant banking
activities recognized by SEBI and these activities can be rendered by SEBI authorized
portfolio managers or discretionary portfolio managers .A portfolio manager by the
virtue of his knowledge, background and experience helps his clients to make
investment in profitable avenues. A portfolio manager has to comply with the
provisions of the SEBI (portfolio managers) rules and regulations, 1993.This project
also includes the different services rendered by the portfolio manager. It includes the
functions to be performed by the portfolio manager. What is the difference between
the value of time and money? In other words, learn to separate time from money.
When it comes to the importance of time, how many of us believe that time is
money. We all know that the work done by us is calculated by units of time. Have you
ever considered the difference between an employee who is working on an hourly rate
and the other who is working on salary basis? The only difference between them is of
the unit of time. No matter whether you get your pay by the hour, bi-weekly, or
annually one thing common in all is that the amount is paid to you according to
amount of time you spent on working. In other words, time is precious and holds
much more importance than money. That is the reason the time is considered as an
important factor in wealth creation. The project also shows the factors that one
considers for making an investment decision and briefs about the information related
to asset allocation.

8
 PORTFOLIO MANAGEMENT

Nowadays, organizations face challenges in their environment and

organization are changing need efficient strategy processes in this changing world. A
part of this strategy process is a company strategy implementation. The effective
company strategy implementation has addressed the increasing importance of project
portfolio management. Stock exchange operation are peculiar in nature and most of
the Investor 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 captive on the growth on the growth opportunities Even
after identifying thru growth oriented companies and their securities, the trading
practices are also complicated, making it is difficult task for investor to trade in all the
exchange and follow up on post trading formalities. Investor chooses to hold groups
of securities rather than single security that offer the greater expect return. They
believe that a combination of securities held together will give a beneficial result they
are grouped in a manner to secure higher return after taking into consideration the risk
elements. That is why professional investment advice through portfolio management
service can help the investor to make an intelligent and informed choice between
alternative investments opportunities without the worry of post trading hassles. 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.

Page | 1
 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.
The art of selecting the right investment policy for the individuals in
terms of minimum risk and maximum return is called as portfolio management.
They believe that a combination of securities held together will give a benefic
ial 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.

What is Portfolio Management?

A portfolio refers to a collection of investment tools such as stocks, shares, mutual
funds, bonds, and cash and so on depending on the investor’s income, budget and
convenient time frame.
Portfolio management is 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 determining strengths, weaknesses, opportunities and threats
in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and
much other trade-offs encountered in the attempt to maximize return at a given
appetite for risk.
Portfolio management refers to managing money of an individual under the expert
guidance of portfolio manager.
In a layman’s language, the art of managing an individual’s investment is
called as portfolio management.
2
 An investor considering investment in securities is faced with the problem of
choosing from among large number of securities. His choice depends upon the risk-
return characteristics of individual securities. He would to choose the most desirable
securities. Again he faced the problem of deciding which securities to hold and how
much to invest in each. The investor faces an infinite number of possible portfolios or
group of securities. The risk and return characteristics of portfolios differ from those
of individual securities combining to form of portfolio. The investor tries to choose
the optimal portfolio taking into consideration the risk-return characteristics of all
possible portfolios. Phases of Portfolio Management Portfolio management are a
process encompassing many activities aimed at optimizing the investment of one’s
funds. A portfolio manager has knowledge about the stock market and uses it to
further other investor's gains. The manager must have a clear picture of the investor's
expectations to find a suitable strategy and deliver the best possible returns. We turn
towards the stock market expecting to make big money. Yet a majority of times we
fall prey to over enthusiasm and frenzy. The trouble is that many investors add more
and more stocks to their portfolio in the hope that the bulk will give way to bigger
bucks. Yet stocking up on useless investments is likely to take you ten steps
backwards rather than two steps forward.
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 recogn
ized bySecurities 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.

3
 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.
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. 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
share bonds etc. and other assets to meet specified investment goals for the benefit of
the investor. It helps to reduce risk without sacrificing returns. It involves a proper
investment decision with regards to what to but 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 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 funds have developed
particular techniques to optimize their portfolio holdings. Portfolio management is all
strengths, weakness, opportunities and threats in the choice of debt vs., equity
4
domestic vs. international, growth vs. safety, and many other tradeoffs encountered in
the attempt to maximize 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 investments 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 out is very much limited to study for investment purpose. On the other
hand institutional investor are companies, mutual funds, banks and insurances
company who have surplus funds which needs to be invested profitably. These
investors have time and resources to carry out detailed research for the purpose of
investing.
Investing is an art form. It takes knowledge about the stock market, but more
importantly it requires a strategy. The top investors don't get there by hoarding, but
instead know the value of a strategized approach.
While it may take some time to become an ace investor, you can start with the basics
and work your way up from there. The first step to succeeding in your money-making
goal is to systematically create a portfolio which works for you best.
A portfolio is essentially a record of your gains and losses. Any asset which can
ultimately procure a profit, such as real estate, stocks or other investments is
considered part and parcel of this compilation of your worth. Building up a healthy
investment collection is a step by step process. The art of creating a profitable
portfolio lays in tailor-making it to fit the goals and limitations of the investor. Before
you begin to select your investments, you must determine how tolerant you are of the
risk involved. If you base your decisions on your risk profit .it will guarantee you
some peace of mind. Another point to consider while creating your portfolio is that
diversification is your safety net. Having a good mix of investments is the key to
minimizing risk while building up your profits. Apart from these essentials, a
profitable portfolio things on being well-maintained. The entire exercise of staying
5
 updated about the stock market and analyzing various risks and returns can be
extremely choice. To ease the process you must create some order and this is where
portfolio management comes in play.

DEFINATIONS OF PORTFOLIO

Investor’s Words.com

A collection investments owned by the same individual or organization. These

investments often include stocks, which 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 indices.

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 serious investment portfolio is diversity. It should
show a spread of investments to minimize risk- brokers and investments advisers
warn against putting your eggs in basket.

DEFENITIONS OF PORTFOLIO MANAGEMNET

Investor’s words.com

The process of managing the assets of a mutual funds including choosing and
monitoring appropriate investments and allocating funds accordingly.

INVESTORS GLOSSARY: Determining the mix of assets to hold in a

portfolio is referred to as portfolio management. A fundamental aspect of portfolio
management is choosing assets which are consistent with the portfolio holder’s
investment objectives and risk tolerance. The ultimate goal of portfolio management
is to achieve the optimum return for a given level of risk. Investors must balance risk
and performance in making portfolio management decision. Portfolio management’s
strategies may be either active or passive. An investor who prefers passive portfolio
management will choose managed funds which have the potential to outperform the

6
market. Investors are generally charged higher initial fees and annual management
fees for active portfolio management.

FINANCIAL DICTIONARY: Managing a large portfolio or being employed

by its owner to do. Portfolio managers have the knowledge and skill which encourage
people to put their investment decision in the hands of professional.

DEFINATION OF DISCRETIONARY PORTFOLIO

MANAGEMENT

Business dictionary.com

Investment account arrangement in which an investment manager makes the buy-

sell decisions without referring to the account owner for every transaction. The
manager, however, must operate within the agreed upon limits to achieve the client’s
stated investments objectives.

1.2 PORTFOLIO MANAGER

A portfolio manager is a person or group of people responsible for investing a

mutual, exchange traded or closed-ended funds assets implementing its investment
strategy and managing day-to-day portfolio trading. A portfolio manager is one of the
most important factors to consider when looking at fund investing. Portfolio
management can be active or passive. And historical performance records indicate
that only a minority of active fund managers consistently beat the market.

7
 PERSON INVOVLED IN PORTFOLIO MANAGEMENT

INVESTORS

Are the people who are interested in investing their funds?

PORTFOLIO MANAGER

Is a person who is in the wake of a contract agreement with a client, advice or

directs or undertakes on behalf of the clients, the management or distribution or
management of the funds of the client as the case may be.

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 arrangement of
portfolio or securities of funds of clients as the case may be. The relationship between
an investor and portfolio manager is of a highly interactive nature. The portfolio
manager carries out all the transaction pertaining to the investor under the power of
attorney during the last two decades and increasing complexity was witnessed in the
capital market and its trading procedures in this context a key investors found himself
in a tricky situation, to keep track of market movement, update his knowledge, yet
stay in the capital market and make money, therefore in looked forward to resuming
help from portfolio manager to do the job for him. The portfolio management seeks to
strike a balance between risk’s and return. The generally rule in that greater risk more
of the profits but S.E.B.I. in its guidelines prohibits portfolio manager to promise any
return to investor.

MEANING OF PORTFOLIO MANAGERS

Portfolio manager means any person who enters into a contract or arrangement
with a client. Pursuant to such arrangements he advise the client or undertakes on
behalf of such client management or administration or portfolio of securities or
invests or managers the client’s funds. A discretionary portfolio managers means a
portfolio manager who exercise or may under a contract relating to portfolio
managements, excursive any degree of discretion in respect of the investment or
management of portfolio of the portfolio securities or the funds of the clients, as case
8
may be. He shall independently or individually manage the funds of each client in
accordance with the needs of the clients in a manner which does not resemble the
mutual funds. A non discretionary portfolio manager shall manage the funds in
accordance with the direction of the client. A portfolio manager by virtue of his
knowledge, background and experience is expected to study the various avenues
available for profitable investment and advice his client to enable the latter to
maximize the return on his investments and the same time safeguard the funds
invested.

Only those who are registered and pay the required license fee are eligible to
operate as portfolio managers. An applicant for this purpose should have necessary
infrastructure with professionally qualified person and with a minimum of two people
with experience in this business and minimum net worth of Rs. 50lakh's. The
certificate one granted is valid for three years fees payable for registration are Rs.
2.5lakh's every for two years and Rs. 1lakh’s for the third year. Form the fourth year
onwards, renewal fees per alum are Rs.75000. These are subjected to change by the
S.E.B.I. The S. E.B.I. has imposed a number of obligation and a code conduct on
them. The portfolio manager should have a high standard of integrity, honesty and
should not have been convicted of any economic offence or moral turpitude. He
should not resort to rigging up of prices, insider trading or creating false markets etc.,
their books of accounts are subject to inspection to inspection and audit by S.E.B.I.
Are subjected to inspection and penalties for violation are imposed. The manager has
to submit periodical returns and documents as may be required by the S.E.B.I. from
time-to-time.

FUNCTIONS OF PORTFOLIO MANAGERS

 Advisory role: Advice new investments, review the existing ones,

identification of objectives, recommending high yield securities etc.
 Conducting market and economic service:This is essential for
recommending good yielding securities they have to study the current fiscal
policy, budget proposal, individual policies etc further portfolio manager
should take in to account the credit policy, industrial growth, foreign exchange
possible change in corporate law’s etc

9
  Financial analysis: He should evaluate the financial statements of company
in order to understand, their new worth future earrings, prospectus and
strength.
 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 investments
 Study of industry: He should study the industry to know its future
prospects, technical changes etc, required for investments proposal he should
also see the problems of the industry.
 Decide the type of portfolio: Keeping in mind the objectives of
portfolio a portfolio manager has to decide whether the portfolio should
comprise equity preference shares, debentures convertibles, non-convertibles
or partly convertibles, money market, securities etc or a mix of more than one
type of proper mix ensure higher safety, yield and liquidity coupled with
balanced risk techniques of portfolio management.

A portfolio manager in the Indian context has been Brokers who on the basis of their
experience, mark trends, Insider trader, helps the limited knowledge person. The
one’s who use to manage the funds of portfolio, now being managed by the portfolio
of Merchant Bank’s professional like MBA’s CA’s and many financial institution
have entered the market in a big way to manage portfolio for their clients. According
to S.E.B.I. rule it is mandatory for portfolio manager to get them self’s registered.
Registered merchant bankers can act’s as portfolio managers. Investor’s must look
forward, for qualification and performance and ability and research base of the
portfolio managers.

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, investment in the
securities of such companies has become quite attractive. At the same time, the
stock market becoming volatile on account of various facts, a layman is puzzled as
to how to make his investments without losing the same. He has felt the need of an
expert guidance in this respect. Similarly non resident Indians are eager to make
their investments in Indian companies. They have also to comply with the
10
 conditions specified by the RESERVE BANK OF INDIA under various schemes
for investments by the non residents. The portfolio manager with his background
and expertise meets the needs of such investors by rendering service in helping them
to invest their funds profitably.

PORTFOLIO MANAGERS OBLIGATION

 He shall transact in securities within the limit placed by the client himself with
regard to dealing in securities under the provision of RESERVE BANK OF
INDIA Act 1934
 He shall not derive any direct or indirect benefit out of the client’s funds or
securities.
 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.
 While dealing with his client’s funds, he shall not indulge in speculative
transaction.
 He shall pay the money due and payable to a client forthwith
 He shall not place his interest above those of his clients
 He shall not disclose to any person or any confidential information about his
client, which has come to his knowledge.
 He shall deploy the money received from his client for an investment purpose as
soon as possible for that purpose
 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. In such a case, his records and his
report to his clients should clearly indicate that such securities are held by him on
behalf of his client.

ROLES AND RESPONSIBILITIES OF PORTFOLIO MANAGER

 A portfolio manager has a wide range of roles and responsibilities. He/she checks
the status of dynamic financial markets and monitors the changes in the market
economy. He/she should be aware of the various current events in the market and
stay informed. A portfolio manager also engages in meeting with his or her
analysts regularly for discussing the market developments and tracking the trends
of applicable current events.

11
 A day of a portfolio manager is governed by the beginning of the financial
markets and they are among the first employees who come to the office in the
morning. A portfolio manager also directs all the trades of fund or securities in the
market by taking final decisions on the securities involved.
 A portfolio manager has to work in team with his team members and analysts that
conduct research on various securities. The final decisions are made by the
portfolio manager after their recommendations about buying or selling of
securities. In some cases, a portfolio manager communicates with the high-level
investors or potential investors over the phone or by meeting them in person.

1.3 TYPES OF PORTFOLIO MANAGEMENT

 ACTIVE PORTFOLIO MANAGEMENT

A quantitative approach for producing superior returns and controlling risk.
Active portfolio management involves the quantitative analysis of companies to
determine the cost of stock in relation to its potential. To do this, the active
manager shuns the efficient market hypothesis and instead relies on ratios to
support his claim. The aim of the active portfolio manager is to make better
returns than what the market dictates. Those who follow this method of investing
are usually contrarian in their approach. Active managers buy stocks when they
are undervalued and start selling when they climb above the normal. To downsize
risk, the active manager prefers to diversify investments amongst the various
sectors. The issue with active portfolio management is that it all comes down to
the manager's skill. But should you find one with the necessary know how, the
value investing method will likely bring in good gains.
"This new edition of Active Portfolio Management continues the standard of
excellence established in the first edition, with new and clear insights to help
investment professionals."
William E. Jacques, Partner and Chief Investment Officer, Martingale Asset
Management.
"Active Portfolio Management offers investors an opportunity to better understand
the balance between manager skill and portfolio risk. Both fundamental and
quantitative investment managers will benefit from studying this updated edition
by Grin old and Kahn."

12
 "This Second edition will not remain on the shelf, but will be continually
referenced by both novice and expert. There is a substantial expansion in both
depth and breadth on the original. It clearly and concisely explains all aspects of
the foundations and the latest thinking in active portfolio management."
Eric N. Remold, Managing Director, Head of Global Structured Equity, Credit
international Asset Management.
Mathematically rigorous and meticulously organized, Active Portfolio
Management broke new ground when it first became available to investment
managers in 1994. By outlining an innovative process to uncover raw signals of
asset returns, develop them into refined forecasts, then use those forecasts to
construct portfolios of exceptional return and minimal risk, i.e., portfolios that
consistently beat the market, this hallmark book helped thousands of investment
managers. Active Portfolio Management, Second Edition, now sets the bar even
higher. Like its predecessor, this volume details how to apply economics,
econometrics, and operations research to solving practical investment problems,
and uncovering superior profit opportunities. It outlines an active management
framework that begins with a benchmark portfolio, and then defines exceptional
returns as they relate to that benchmark. Beyond the comprehensive treatment of
the active management process covered previously, this new edition expands to
cover asset allocation, long/short investing, information horizons, and other topics
relevant today. It revisits a number of discussions from the first edition, shedding
new light on some of today's most pressing issues, including risk, dispersion,
market impact, and performance analysis, while providing empirical evidence
where appropriate. The result is an updated, comprehensive set of strategic
concepts and rules of thumb for guiding the process of-and increasing the profits
from-active investment management.

 PASSIVE PORTFOLIO MANAGEMENT

At the opposite end of active management comes the passive investing strategy.
Those who subscribe to this theory believe in the efficient market hypothesis. The
claim is that the fundamentals of a company will always be reflected in the price
of the stock. Therefore, the passive manager prefers to dabble in index funds
which have a low turnover, but good long-term worth. With index funds, your
cash is invested percentage-wise in proportion to the market capitalization. What
13
 this means is that if a company represented 2% of the 500 Index, then Rest. 2
would be invested into the company for every Rs.100 put into the 500 fund. The
point of opting for the lower yield is to combat the cost of management fees, while
profiting through stability.

 DISCRETIONARY PORTFOLIO MANAGEMENT

A discretionary manager is given full leeway to make decisions for the
investor. While the individual goals and time-frame are taken into account, the
manager adopts whichever strategy he thinks best.
Once the cash has been handed to the professional, the investor sits back and
trusts that the profits will roll in.

 NON-DISCRETIONARY PORTFOLIO MANAGEMENT

The non-discretionary manager is simply a financial counselor. He advises the
investor in which routes are best to take. While the pros and cons are clearly
outlined, it is up to the investor to choose his own path. Only once the manager
has been given the go ahead, does he makes a move on the investor's behalf.

Whether you decide to use a portfolio manager or you choose to take on the role
yourself, it is important to opt for a viable strategy and ensure that it is put
forward in a logical way. The merit of maintaining a sensible portfolio is that it
cuts down the confusion while providing investments that fit the individual's
goals.

 THE AGGRESSIVE PORTFOLIO

An aggressive portfolio portfolio includes those stocks with a high-risk/high-
reward proposition. Stocks in this category typically have a high beta or sensitivity to
the overall market. Higher beta stocks consistently experience larger fluctuations
relative to the overall market. If you’re individual stock has a beta of 2.0, it will
typically move twice as much as the overall market in either direction. Most
companies with aggressive stock offerings are in the early stages of growth and have a
unique value proposition. Building an aggressive portfolio requires an investor who is
willing to seek out such companies, because most of them, with a few exceptions, are

14
 not going to be common household names. Look online for companies with rapidly
accelerating earnings growth have not been discovered by Wall Street. The most
common sector to scrutinize would be technology, but many firms in
other sectors pursuing an aggressive growth strategy can be considered. Risk
management becomes very important when building and maintaining an aggressive
portfolio. Keeping losses to a minimum and taking profit are keys to success in this
type of investing.

 DEFENSIVE PORTFOLIO
Defensive stocks do not usually carry a high beta and are fairly isolated from
broad market movements. Cyclical stocks, on the other hand, are those that are most
sensitive to the underlying economic business cycle. For example, during recessionary
times, companies that make the basic necessities tend to do better than those focused
on fads or luxuries. Despite how bad the economy is companies that make products
essential to everyday life will survive. Think of the essentials in your everyday
life and find the companies that make these consumer staple products.The benefit of
buying cyclical stocks is they offer an extra level of protection against detrimental
events. Just listen to the business news and you will hear portfolios managers talking
about "drugs," "defense" and "tobacco." These really are just baskets of
stocks the managers are recommending based upon where the business cycle is
currently and where they think it is going. However, the products and services of
these companies are in constant demand. Many of these companies offer a dividend as
well which helps minimize capital losses. A defensive portfolio is prudent for most
investors.

 INCOME PORTFOLIO
An income portfolio focuses on making money through dividends or other
types of distributions to stakeholders. These companies are somewhat like the safe
defensive stocks but should offer higher yields. An income portfolio should generate
positive cash flow. Real estate investment trusts (REITs) and master limited
partnerships (MLP) are excellent sources of income-producing investments. These
companies return a great majority of their profits back to shareholders in exchange for
favorable tax status. REITs are an easy way to invest in real estate without the hassles

15
 of owning real property. Keep in mind however these stocks are also subject to the
economic climate. REITs are groups of stocks that take a beating during an economic
downturn, as real estate building and buying activity dries up. An income portfolio is
a nice complement to most people's paycheck or other retirement income. Investors
should be on the lookout for stocks that have fallen out of favor and have still
maintained a high dividend policy. These are the companies that can not only
supplement income but also provide capital gains. Utilities and other slow growth
industries are an ideal place to start your search.

 THE SPECULATIVE PORTFOLIO

A speculative portfolio is closest to a pure gamble. A speculative portfolio
presents more risk than any others discussed here. Finance gurus suggest that a
maximum of 10% of one's investable assets be used to fund a speculative portfolio.
Speculative "plays" could be initial public offerings (IPOs) or stocks that are rumored
to be takeover targets. Technology or health care firms in the process of researching a
breakthrough product, or a junior oil company about to release its initial production
results would also fall into this category. One could argue that the widespread
popularity of leveraged ETFs in today's markets represent speculation. Again, these
types of investments are alluring because picking the right one could lead to huge
profits in a short amount of time. Speculation may be the one portfolio that, to be
done successfully, requires the most homework. Speculative stocks are typically
trades, not your classic buy-and-hold investment.

 THE HYBRID PORTFOLIO

Building a hybrid portfolio means venturing into other investments, such as
bonds, commodities, real estate and even art. There is a lot of flexibility in the hybrid
portfolio approach. Traditionally, this type of portfolio would contain blue chip stocks
and some high grade government or corporate bonds. REITs and MLPs may also be
an investable theme for the balanced portfolio. A common fixed income investment
strategy approach advocates buying bonds with various maturity dates and is
essentially a diversification approach within the bond asset class itself. Basically, a
hybrid portfolio would include a mix of stocks and bonds in relatively fixed
proportions.

16
 THE BOTTOM LINE
At the end of the day, investors should consider all of these portfolios and decide on
the right allocation across all five. Building an investment portfolio does require more
effort than a passive, index investing approach. By going it alone, you will be
required to monitor your portfolio(s) and rebalance more frequently, thus racking up
commission fees. Too much or too little exposure to any portfolio type introduces
additional risks. Despite the extra required effort, defining and building a portfolio
will increase your investing confidence, and give you control over your finances.

 PERSONAL PORTFOLIO MANAGEMENT

A personal portfolio management comprises of the management of all the investments
and securities held by an investor. The procedure of managing all the securities and
assets is very complicated and thus, many big investors take the services of portfolio
managers that assist in managing their portfolios. The personal portfolio managers
utilize their skills and market knowledge and take help of portfolio management
software’s for managing the investor’s portfolio.

Important concepts that are of primary importance in personal portfolio management

are as mentioned below.

 Average return and risk by asset class

 Risk associated with different investments
 Understanding your ‘risk tolerance’
 Relationship between risk and return
 Accounting for fees in portfolio planning
 Correlations in returns between assets
 Portfolio diversification
 Valuation of options

In order to invest for the future income, there are four levels of planning that should
be considered by the investors

 Savings rate
 Tax efficiency

17
 Broad asset allocation across various sectors, cash, real estate, funds, bonds, etc
 Allocation by specific portfolio choices

Broadly, the personal portfolio management can be categorized into three phases
including o Planning, Implementing and Controlling.

Planning
As the name suggests, this phase involves planning like any other business planning
where investor has to determine his/her investment objectives and goals. It helps the
investors in providing a clear vision of his goals and set of requirements. The
planning also helps the investors in selecting efficient portfolio investment over
others.

The determination of the investment objectives is not restricted to deciding the

amount of profit one would like to make after investments. Investor should also
consider about various other factors such as time and liquidity factors. Investor should
also consider the amount of risk he/she can bear.

There are various possible scenarios like inflation, market economy or changes in
law; that should be taken into consideration during the planning phase. Investor
should realize that the returns obtained may differ from the expected risks and returns
therefore all the factors that can lead to uncertainty should be taken into account.

Implementing
Once a decision is made on the basis of expected risk & return, time frame,
investment objectives and other factors, other step involves the implementation of
selected strategy. Investors should go for the selected securities and follows the
diversification rule while implementing the investment strategy. The diversification of
the securities and investment in securities helps in minimizing the losses and reduces
the risk in times of financial crisis. To achieve diversification, investors can either
select local market or select even the global markets.

Controlling
Investor should keep a constant check on the market to analysis and evaluating the
performance of portfolio in changing conditions of the dynamic market. As an
investor you should make constant modifications in your portfolio by selling

18
overweight securities and purchasing underweight securities. It is a challenging task
to make all the decisions based on the market fluctuations. With the passage of time,
investor’s experience can grow and he/she can learn managing the personal portfolio
with ease.

 INVESTMENT PORTFOLIO MANAGEMENT

Investment management involves the professional management of various assets and
securities including shares, bonds, commodities and other securities for meeting the
particular investment goals for the advantages of the investors.

Examples of Investors
 Institutions
 Insurance companies
 Pension funds
 Corporations
 Charities
 Educational establishments
 private investors via investment contracts
 collective investment schemes such as mutual funds

The investment management of collective investments is also known as Asset

Management. It also includes investment management for private investors and all
forms of institutional investment. Investment managers who are experts in
discretionary management for wealthy private investors also termed their services as
wealth management or portfolio management in perspective of private banking.

Investment styles
Investment Portfolio Management involves implementation of a wide range of
investment styles of fund management.

 Growth
 Value
 Growth at a reasonable price (GARP)
 Market neutral
 Small capitalization
 Indexed

19
Challenges of Investment Portfolio Management
 Revenue is correlated to the market valuations directly therefore major fall in asset
prices can lead to steep decline in revenues related to costs
 Difficult to sustain above-average fund performance and clients may get impatient
during periods of poor performance
 Successful fund managers are high-priced and are headhunted by competitors
 Fund performance depends on the unique skills of the fund manager
 Analysts who earn above-average returns manage their personal portfolios on their
own.

3 Ps of Investment Portfolio Management

 Philosophy means the beliefs of the investment organization.

 Process is the procedure for implanting the overall philosophy.
 People constitute the staff including the fund managers.

Asset Allocation

There are four common asset classes including real-estate, commodities

stocks, and bonds. Investment portfolio management firms are responsible for
allocating the funds among the various classes of assets and also among the individual
securities within each such asset class. Asset classes demonstrate varied market
dynamics, and interaction effects. The performance of the fund depends on the
allocation of money among asset classes.

As per some research studies, the allocation of funds among asset classes exhibit more
projecting power in determining portfolio return as compared to selecting individual
holdings. The successful investment manager constructs the asset allocation and the
individual holdings separately for breaking certain benchmarks.

Long-term returns

Investment portfolio management involves studying the long-term returns to different

assets and analyzing the holding period returns. For example, during the longer
periods of time, equities may yield higher returns than bonds, and bonds may yield

20
higher returns than cash. As per the financial theory, equities are riskier than bonds
and bonds are more risky than cash.

Diversification
The degree of diversification is considered by investment portfolio managers against
the asset allocation and planned holdings list is constructed. The list comprises of the
details regarding what percentage of the fund is required to be invested in a specific
stock or bond.

The effective diversification needs the effective management of the following factors.

 Relationship between Asset returns and the liability returns

 Issues internal to the portfolio
 Cross-correlations between the returns

 EQUITY PORTFOLIO MANAGEMENT

The Equity Portfolio Management refers to the planning and implementation

of various philosophies, methodologies, and strategies for beating the equity market.
The primary objective of all investment analysis is to take investment decisions or
advise others for making their own investment decisions. Thus, there exists a strong
correlation between equity portfolio management and science of equity analysis.

Equity Portfolio Investment Philosophy

Professional portfolio managers follow the rigid policy with strictly defined
parameters for investment management and stock selection. These portfolio managers
work for an investment
management company and do not have freedom to follow general investment
philosophy for governing the portfolios they manage. The portfolio managers are
generally guarded by market capitalization guidelines and thus, equity portfolio
management involves understanding of the investment universe for selecting the
efficient investments.

Tax Sensitivity
There are many institutional equity portfolios that are not taxable like pension funds.
This provides more managerial flexibility to portfolio managers as compared to
21
taxable portfolios. These non-taxable portfolios utilize greater exposure to short-term
capital gains and dividend income than their taxable counterparts.

Portfolio managers of taxable portfolios take special care of following factors.

 Stock holding periods

 Tax lots
 Capital losses
 Tax selling
 Dividend income generated by portfolios

In comparison to non-taxable portfolio, the taxable portfolios are more successful

with a lower portfolio turnover rate. The portfolio management activity plays a major
part in building and managing portfolios over time.

Building the Portfolio Model

Building and maintaining a portfolio model is a common aspect of equity portfolio
management. It may involve running either one portfolio or many portfolios in one
equity investment product. The individual portfolios are matched against a portfolio
model.

Every stock in the portfolio model is assigned a percentage weighting by a Portfolio

manager. It is followed by modifications of individual portfolios for matching against
this weighting mix. The computerization of Portfolio models is done by using either
Microsoft Excel or portfolio management software tools.

Achieving Portfolio Efficiency

An equity portfolio manager can achieve analytical efficiency by running all the
portfolios in a similar way. The portfolio manager is required to have the knowledge
and understanding of 30 or 40 stocks that are owned in comparable proportions in all
portfolios instead of 100 or 200 stocks. The analysis of 30 or 40 stocks is easily
applied to other portfolios by modifying the model weights in the portfolio model
with passage of time. The dynamic market causes the rise and fall of individual stocks
over time and the portfolio manager is required to change the model weightings that
for reflecting the investment decision in all portfolios.

22
Equity portfolio management involves the portfolio modeling as an effective way for
evaluating the key set of stocks to a set of portfolios in one group. It acts as an
efficient link between portfolio management and equity analysis. With the rise and
fall in outlook of individual stocks, the weightings of these stocks needs to be
changed accordingly in the portfolio model for optimizing the return of all portfolios
in the group.

 CAREER PORTFOLIO MANAGEMENT

The career in portfolio management is regarded as one of the most desirable and
rewarding careers in the financial industry. Portfolio managers are required to work in
collaboration with a team of analysts and researchers. They are responsible for taking
crucial decisions regarding making final investment decisions regarding various assets
or securities.

A Portfolio manager usually has the exposure to diverse array of financial fields and
project management scenarios. The portfolio manager has to play diverse kinds of
roles in the organization. The position of a portfolio manager in an organization
depends on the following criteria:

Size of Fund: A portfolio manager may be assigned the responsibility of managing

the assets for a comparatively small independent fund or big asset management
institution. A portfolio manager is also accountable for managing the capital of a large
business like bank or organization like college or university with huge donations.
A portfolio manager manages the assets for management institution with large sums
of money while fund manager are responsible for managing the smaller fund assets. In
cases, where a portfolio manager is assigned the tasks of managing the assets for a
large business organization, he/she is called as a chief investment officer (CIO).

Investment Vehicles: The management of the assets for the respective investment
vehicle is the common task of various money managers. There is a wide range of
investment vehicles comprising of commodity, hedge fund products, retail or mutual
funds, high net worth investment pools, institutional funds, trust and pension funds,
etc. Portfolio managers may also perform the asset management for equity or fixed-
income investment vehicles. They may also specialize in one investment vehicle or
multiple investment vehicles.

23
Investing Style: A portfolio manager may also specialize in various styles of
investing apart from the specialization in equity or fixed income investing.
The range of investment styles incorporates the following.

 Hedging techniques
 Growth style of management
 Value style of management
 Small cap specialties
 Large cap specialties
 Domestic fund investing
 International fund investing

 IT’S PORTFOLIO MANAGEMENT

IT portfolio management is the application of systematic management to the

investments, projects and activities of enterprise Information Technology (IT)
departments. Examples of IT portfolios would be planned initiatives, projects, and
ongoing IT services (such as application support). The promise of IT portfolio
management is the quantification of previously informal IT efforts, enabling
measurement and objective evaluation of investment scenarios.

Debates exist on the best way to measure value of IT investment. As pointed

out by Jeffery and Relived,[1] companies have spent billions of dollars on IT
investments and yet the headlines of miss-spent money are not uncommon. Nicholas
Carr (2003) has caused significant controversy in IT industry and academia by
positioning IT as an expense similar to utilities such as electricity.

IT portfolio management started with a project-centric bias, but is evolving to

include steady-state portfolio entries such as infrastructure and application
maintenance. IT budgets tend not to track these efforts at a sufficient level of
granularity for effective financial tracking. The concept is analogous to
financial portfolio management, but there are significant differences. Financial
portfolio assets typically have consistent measurement information (enabling accurate
and objective comparisons), and this is at the base of the concept’s usefulness in
application to IT. However, achieving such universality of measurement is going to
take considerable effort in the IT industry (see, for example, Val IT). IT investments

24
are not liquid, like stocks and bonds (although investment portfolios may also include
illiquid assets), and are measured using both financial and non-financial yardsticks
(for example, a balanced score card approach a purely financial view is not sufficient.
Finally, assets in an IT portfolio have a functional relationship to the organization,
such as an inventory management system for logistics or a human resources system
for tracking employees' time. This is analogous to a vertically integrated company
which may own an oil field, a refinery, and retail gas stations.

IT portfolio management is distinct from IT financial management in that it has an

explicitly directive, strategic goal in determining what to continue investing in versus
what to divest from.

At its most mature, IT portfolio management is accomplished through the creation

of three portfolios:

 Application Portfolio - Management of this portfolio focuses on comparing

spending on established systems based upon their relative value to the
organization. The comparison can be based upon the level of contribution in terms
of IT investment’s profitability. Additionally, this comparison can also be based
upon the non-tangible factors such as organizations’ level of experience with a
certain technology, users’ familiarity with the applications and infrastructure, and
external forces such as emergence of new technologies and obsolescence of old
ones.
 Infrastructure Portfolio - For an organization's information technology,
infrastructure management (IM) is the management of essential operation
components, such as policies, processes, equipment, data, human resources, and
external contacts, for overall effectiveness. Infrastructure management is
sometimes divided into categories of systems management, network management,
and storage management. The ability of organizations to exploit IT infrastructure,
operations and management sourcing/service solutions not only depends on the
availability, cost and effectiveness of applications and services, but also with
coming to terms with solution providers, and managing the entire sourcing
process. In the rush to reduce costs, increase IT quality and increase
competitiveness by way of selective IT sourcing and services, many organizations
do not consider the management side of the equation. The predictable result of

25
 this neglect is overpayment, cost overruns, unmet expectations and outright
failure.
 Project Portfolio - This type of portfolio management specially addresses the
issues with spending on the development of innovative capabilities in terms of
potential ROI, reducing investment overlaps in situations where reorganization or
acquisition occurs, or complying with legal or regulatory mandates. The
management issues with project-oriented portfolio management can be judged by
criteria such as ROI, strategic alignment, data cleanliness, maintenance savings,
suitability of resulting solution and the relative value of new investments to
replace these projects.

Information Technology portfolio management as a systematic discipline is more

applicable to larger IT organizations; in smaller organizations its concerns might be
generalized into IT planning and governance as a whole.

Benefits of using IT portfolio management[

Jeffery and Leliveld (2004) have listed several benefits of applying IT portfolio
management approach for IT investments. They argue that agility of portfolio
management is its biggest advantage over investment approaches and methods. Other
benefits include central oversight of budget, risk management, strategic alignment of
IT investments, demand and investment management along with standardization of
investment procedure, rules and plans.

 PROJECT PORTFOLIO MANAGEMENT

Project portfolio management (PPfM) is fundamentally different from project and

program management. Project and program management are about execution and
delivery---doing projects right. In contrast, PPfM focuses on doing the right projects
at the right time by selecting and managing projects as a portfolio of investments. It
requires completely different techniques and perspectives. Good portfolio
management increases business value by aligning projects with an organization’s
strategic direction, making the best use of limited resources, and building synergies
between projects. Unfortunately, organizations often do portfolio management poorly.
As a result, they fail to deliver strategic results because they attempt the wrong
projects or can’t say “no” to too many projects. This paper summarizes current
26
techniques for selecting, prioritizing, and coordinating projects as a portfolio to
increase value to an organization.

The Business Problem

Nearly all organizations have more project work to do than people and money to do
the work. Often the management team has difficulty saying “no.” Instead, they try to
do everything by cramming more work onto the calendars of already overworked
project teams or by cutting corners during the project. Despite a heavy investment of
people and money in projects, the organization still gets poor results because people
are working on the wrong projects or on too many projects. Trying to do too much
causes all projects to suffer from delays, cost overruns, or poor quality.

The Solution

Effective project organizations focus their limited resources on the best projects,
declining to do projects that are good but not good enough. PPfM enables them to
make and implement these tough project selection decisions. PPfM is a funnel that
connects strategic planning to the execution of projects, making the strategic
objectives executable.

Portfolio Management Connects Strategy with Execution

The mouth of the funnel takes in all of the ideas for projects that the organization
might do. These ideas may come from strategy, customer requests, regulatory
requirements, or ideas from individual contributors. The purpose of the funnel is to
select only those projects that meet certain criteria and to say “no” to the others. The
resulting collection of projects is a focused, coordinated, and executable portfolio of
projects that will achieve the goals of the organization. PPfM complements project
and program management. It aims the organization in the right direction by selecting
the best projects to do. The selected projects are turned over to program and project
management, which is the engine that initiates and completes them successfully.
Doing projects right, doing projects together, and doing the right projects: Project

organizations must excel at all three to have long-term success

27
 The Portfolio Management Process
the five primary steps of the portfolio management process. The Standard for
Portfolio Management shows a more detailed breakdown of these steps (Project
Management Institute, 2006)

 Clarify business objectives

 Capture and research requests and ideas

 Select the best projects using defined differentiators that align, maximize, and
balance

 Validate portfolio feasibility and initiate projects

 Manage and monitor the portfolio

Portfolio Management Process Follows Five Steps

This process identifies the most important differentiators between projects, such
as Return On Investment, risk, efficiency, or strategic alignment. Then it uses these
differentiators to select the high impact projects, clear out the clutter, and set
priorities. Trade-offs are made in a disciplined way, rather than by allowing the
loudest voice to win.

The PPfM process accomplishes three things (Outman, 2006)

1. Aligns execution with strategy. Each selected project must play a role in
carrying out the strategy of the organization. No more pet projects!

2. Maximizes the value of the entire portfolio of projects to get the “most bang for
the buck.” Taken together, the projects must have a high return on the
organization’s investment. This may be in terms of dollars or other measures
that are important to the organization.

3. Balances the portfolio. Makes sure that it is not lopsided---for example, by

being too risky or too focused on short-term results.

28
1.4 FIVE PHASES CAN BE IDENTIFIED AS THIS PROCESS: -
1. Security analysis
2. Portfolio Analysis
3. Portfolio Selection
4. Portfolio revision
5. Portfolio Evaluation
An investment portfolio can be thought of as a pie that is divided into pieces of
varying sizes, representing a variety of asset classes and/or types of investments to
accomplish an appropriate risk-return portfolio allocation. Many different types of
securities can be used to build a diversified portfolio, but stocks, bonds and cash are
generally considered a portfolio's core building blocks. Other potential asset classes
include, but aren't limited to, real estate, gold and currency.
PHASES OF PORTFOLIO MANAGEMENT

SECURITY
ANALYSIS

SECURITY PORTFOLIO
ANALYSIS ANALYSIS

PORTFOLIO PORTFOLIO
REVISION SELECTION

 SECURITY ANALYSIS
This is a first phase of portfolio management. Assets with some financial
value are called securities. There are many types of securities available in the market
including equity shares, preference shares, debentures and bonds. Apart from it, there
are many new securities that are issued by companies such as Convertible debentures,
Deep Discount bonds, floating rate bonds, flexi bonds, zero coupon bonds, global
depository receipts, etc.

29
It forms the initial phase of the portfolio management process and involves the
evaluation and analysis of risk return features of individual securities. The basic
approach for investing in securities is to sell the overpriced securities and purchase
underpriced securities. The security analysis comprises of Fundamental Analysis and
technical Analysis. Securities are tradable and represent a financial value. Securities
are fungible.

 PORTFOLIO ANALYSIS

A portfolio refers to a group of securities that are kept together as an investment.

Investors make investment in various securities to diversify the investment to make
it risk averse. A large number of portfolios can be created by using the securities
from desired set of securities obtained from initial phase of security analysis by
selecting the different sets of securities and varying the amount of investments in
each security, various portfolios are designed. After identifying the range of possible
portfolios, the risk-return characteristics are measured and expressed quantitatively.
It involves the mathematically calculation of return and risk of each portfolio

 PORTFOLIO SELECTION

During this phase, portfolio is selected on the basis of input from previous
phase Portfolio Analysis. The main target of the portfolio selection is to build a
portfolio that offer highest returns at a given risk. The portfolios that yield good
returns at a level of risk are called as efficient portfolios. The set of efficient portfolios
is formed and from this set of efficient portfolios, the optimal portfolio is chosen for
investment. The optimal portfolio is determined in an objective and disciplined way
by using the analytical tools and conceptual framework provided by Markowitz’s
portfolio theory.

 PORTFOLIO REVISION

After selecting the optimal portfolio, investor is required to monitor it

constantly to ensure that the portfolio remains optimal with passage of time. Due to
dynamic changes in the economy and financial markets, the attractive securities may
cease to provide profitable returns. These market changes result in new securities that
promises high returns at low risks.

30
In such conditions, investor needs to do portfolio revision by buying new securities
and selling the existing securities. As a result of portfolio revision, the mix and
proportion of securities in the portfolio changes.

 PORTFOLIO EXECUTION
The process of portfolio management involves a logical set of steps common to
any decision, plan, implementation and monitor. Applying this process to actual
portfolios can be complex. Therefore, in the execution stage, three decisions need to
be made, if the percentage holdings of various asset classes are currently different
from desired holdings. The portfolio than, should be rebalanced. If the statement on
investment policy requires pure investment strategy, this is only thing, which is done
in the execution stage. However, many portfolio managers engage in the speculative
transactions in the belief that such transactions will generate excess risk-adjusted
returns. Such speculative transactions are usually classified as timing or selection
decisions. Timing decisions over or under weight various asset classes, industries or
economic sector from the strategic asset allocation. Such timing decisions are known
as tactical asset allocation and selection decision deal with securities within a given
asset class, industry group or economic sector. The investor has to begin with
periodically adjusting the asset mix to the desired mix, which is known as strategic.
Within a given asset classified, industry group or economic sector. The investor has to
begin with periodically adjusting the asset mix to the desired mix, which known as
strategic asset allocation. Then the investor or portfolio manager can make any
tactical asset allocation or security selection decision.

31
1.5 OBECTIVE OF PORTFOLIO MANAGEMENT

The major objective of portfolio management is summarized as below:

1. Security/ safety of principle: Security not only involves keeping the principal
sum intact but also keeping intact its purchasing power intact.
2. Stability of income: So as to facilitate planning more accuracy and
systematically the reinvestment consumption of income.
3. Capital growth: This can be attained by reinvesting in growth securities or
through purchase of growth securities.
4. Marketing: That is the case with which a security can be bought or sold. This
is essential for providing flexibility to investment portfolio.
5. Liquidity that is nearness to money: It is desirable to investor so as to take
advantage of attractive opportunities upcoming in the market.
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 business.
7. Favorable tax status: The effective yield an investor gets form his investment
depends on tax to which it is subject. By minimizing the tax burden, yield can
effectively improved.
8. Stable Current Return: Once investment safety is guaranteed, the portfolio
should yield a steady current income. The current returns should at least match
the opportunity cost of the funds of the investor. What we are referring to her
current income by way of interest of dividends, not capital gains.

32
 9. Marketability: A good portfolio consists of investment, which can be
marketed without difficulty. If there are too many unlisted or inactive shares in
your portfolio, you will face problems in encasing them, and switching from
one investment to another. It is desirable to invest in companies listed on
major stock exchanges, which are actively traded.
10. Tax Planning: Since taxation is an important variable in total planning, a
good portfolio should enable its owner to enjoy a favorable tax shelter. The
portfolio should be developed considering not only income tax, but capital
gains tax, and gift tax, as well. What a good portfolio aims at is tax planning,
not tax evasion or tax avoidance.
11. Appreciation in the value of capital: A good portfolio should appreciate in
value in order to protect the investor from any erosion in purchasing power
due to inflation. In other words, a balanced portfolio must consist of certain
investments, which tend to appreciate in real value after adjusting for inflation.
12. Liquidity: The portfolio should ensure that there are enough funds available at
short notice to take care of the investor’s liquidity requirements. It is desirable
to keep a line of credit from a bank for use in case it becomes necessary to
participate in right issues, or for any other personal needs.
13. Safety of the investment: The first important objective of a portfolio, no
matter who owns it, is to ensure that the investment is absolutely safe. Other
considerations like income, growth, etc., only come into the picture after the
safety of your investment is ensured.

Investment safety or minimization of risks is one of the important objectives of

portfolio management. There are many types of risks, which are associated with
investment in equity stocks, including super stocks. Bear in mind that there is no such
thing as a zero risk investment. Moreover, relatively low risk investment gives
correspondingly lower returns. You can try and minimize the overall risk or bring it to
an acceptable level by developing a balanced and efficient portfolio. A good portfolio
of growth stocks satisfies the entire objectives outline above.

1.6 SCOPE OF PORTFOLIO MANAGEMENT

Portfolio management is an art of putting money in fairly safe, quite profitable
and reasonably in liquid form. An investor’s attempt to find the best combination of

33
risk and return is the first and usually the foremost goal. 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.
B. The management of investment alternatives to expand the set of opportunities
available at the investors acceptable risk level.
The very risk-averse investors might choose to invest in mutual funds. The more
risk-tolerant investor might choose shares, if they offer higher return. Portfolio
management in India is still in its infancy. An investor has to choose a portfolio
according to his preferences. The first preference normally goes to the necessities and
comfort like purchasing a house or domestic appliances. His second preference goes
to make a provision for saving required for making day to day payments. The next
preference goes to short term investments in company shares and debentures. There
are number of choices and decision to be taken on the basis of the attributes of risk,
return and tax benefits from the shares and debentures. The final decision is taken on
the basis of alternatives, attributes and investors preferences.
For most investors it is not possible to choose between managing one’s own
portfolio. They can hire a professional manager to do it. The professional manager
provide a variety of service including diversification, active portfolio management,
liquid securities and performance of duties associated with keeping track of investors
money.

1.7 NEED FOR PORTFOLIO MANAGEMENT

Portfolio management is a process encompassing many activities of
investment in assets and securities. It is a dynamic and flexible concept and involves
regular and systematic analysis, judgment and action. The objective of this service is
to be unknown and investors with the expertise of professional in investment portfolio
management. It involves construction of portfolio based on the investor’s objectives,
constraints, preference for risk and returns and tax liability. The portfolio is reviewed
and adjusted from time to time in tune with the market conditions. The evaluation of
portfolio is to be done in return of targets set for risk and returns. The changes in the
portfolio are to be effected to meet the changing condition.

34
 Portfolio construction refers to the allocation of surplus funds in hard among a
variety of financial assets open for investment. Portfolio theory concern itself with the
principle governing such allocation. The modern view of investment so oriented more
goes towards the assembly of proper combination of individual securities from
investment portfolio. A combination of securities held together will give a biennial
result if they grouped in a manner to secure higher returns after taking into
consideration the risk elements. 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 share of companies in different regions, in different industries or
those producing different types of product lines. Modern theory believes in the
perspective of combination of securities under constraints of risk and returns.

1.8 BASIC PRINCIPLES OF PORTFOLIO

MANAGEMENT
There are two basic principles for effective portfolio management which are given
below:
1. Effective investment planning for the investment in securities by considering the
following factors
a) Fiscal financial and monitory policies of the Govt. of India and the Reserve Bank
of India.
b) Industrial and economic environment and its impact on industry. Prospect in the
term of prospective technological changes, competition in the market, capacity,
utilization with industry and demand prospects etc.

1.9 INVESTMENT
Investment is an activity that is engaged in by people who have savings and
investments are made from savings. But all savers are not investors so investment is
an activity which is different from saving. If one person has advanced some money to
another, he may consider his loan as an investment. He expects to get back the money
along with interest at a future date. Another person may have purchased one kilogram
of gold for the purchase of price appreciation and may consider it as an investment.
Yet another person may purchase an insurance plan for the various benefits it
promises in future. That is his investment. Investment involves employment of funds

35
with the aim of achieving additional income or growth in values or the commitment of
resources which have been saved in the hope that some benefits will accrue in future.
Thus, investment may be defined as, “a commitment of funds made in the
expectation of some positive rate of return”. In the financial sense, investment is the
commitment of a person’s funds to derive future income in the form of interest,
dividend, premiums, pension benefits or appreciation in the value of their capital.
Purchasing of shares, debentures, post office savings certificates, insurance policies
are all investments in the financial sense. Such investments generate financial assets.
In the economics sense, investment means the net additions to the economy’s capital
stock which consists of goods and services that are used in the production of other
goods and services. Investment in the sense implies the formation of new and
productive capital in the form of new constructions, plant and machinery, inventories
etc. Such investments generate physical assets. The money invested in financial
investments is ultimately converted into physical assets. Thus, all investments result
in the acquisition of some assets either financial or physical. Risk may relate to loss of
capital, delay in repayment of capital, non-payment of interest, or variability of
returns. While some investments like government securities and bank deposits are
riskless, others are more risky.

MEANING OF INVESTMENT
Investment means employment of funds in produce manner so as to
create additional income. The erode investment means many things to many person.
Investment in financial assets leads to further production and income. It is lending of
funds for income and commitment of money for creation of assets, producing further
income. Investment also means purchasing of securities. Financial instruments or
claims on future income. Investment is made out of income and savings credit or
borrowing and out of wealth. It is reward for waiting for money.

There are two concepts of investments

Economic investment: The concept of economic investment means additions to
the capital stock of the society. The capital stock is the goods which are used in the
production of other goods. The term investments implies the formation of new and
productive capital in the form of new construction and producer’s durable instrument

36
such as plant and machinery, investor and human capital are also included in this
concept. Thus, an investment, in economic term. Means an increase in building.
Equipment. And inventory.

Financial investments: This is an allocation of monitory resources to assets that

are expected to yield some gain or return over a given period of time. It is a general
or extended sense of the term. It means an exchange of financial claims such as shares
and bonds, real estate, etc. in their view; investment is a commitment of funds to
derive future income in the form of interest, dividends, rent premiums, pension
benefits and the appreciation of the value of their principal capital. The economic and
financial concepts of investments are related to each other because investments is a
part of the savings of individuals which flow into the capital market either directly or
through institutions,. Thus, investments decisions and financial decisions interact with
each other. Financial decisions are primarily concerned with the sources of money
where as investments decisions are traditionally concerned with uses or budgeting of
money.

TYPES OF INVESTMENT RISK

1. Market risk
The risk of investments declining in value because of economic developments or
other events that affect the entire market. The main types of market risk are equity
risk, interest rate risk and currency risk.
 Equity risk – applies to an investment in shares. The market price of shares varies
all the time depending on demand and supply. Equity risk is the risk of loss
because of a drop in the market price of shares.
 Interest rate risk – applies to debt investments such as bonds. It is the risk of
losing money because of a change in the interest rate. For example, if the interest
rate goes up, the market value of bonds will drop.
 Currency risk – applies when you own foreign investments. It is the risk of losing
money because of a movement in the exchange rate. For example, if the U.S.
dollar becomes less valuable relative to the Canadian dollar, your U.S. stocks will
be worth less in Canadian dollars.

2. Liquidity risk
37
 The risk of being unable to sell your investment at a fair price and get your money
out when you want to. To sell the investment, you may need to accept a lower price.
In some cases, such as exempt market investments, it may not be possible to sell the
investment at all.

3. Concentration risk

The risk of loss because your money is concentrated in 1 investment or type of

investment. When you diversify your investments, you spread the risk over different
types of investments, industries and geographic locations.

4. Credit risk

The risk that the government entity or company that issued the bond will run into
financial difficulties and won’t be able to pay the interest or repay the principal at
maturity. Credit risk applies to debt investments such as bonds. You can evaluate
credit risk by looking at the credit rating of the bond. For example, long-
term Canadian government bonds have a credit rating of AAA, which indicates the
lowest possible credit risk.

5. Reinvestment risk

The risk of loss from reinvesting principal or income at a lower interest rate.
Suppose you buy a bond paying 5%. Reinvestment risk will affect you if interest rates
drop and you have to reinvest the regular interest payments at 4%. Reinvestment risk
will also apply if the bond matures and you have to reinvest the principal at less than
5%. Reinvestment risk will not apply if you intend to spend the regular interest
payments or the principal at maturity.

6. Inflation risk

The risk of a loss in your purchasing power because the value of your investments
does not keep up with inflation. Inflation erodes the purchasing power of money over
time – the same amount of money will buy fewer goods and services. Inflation risk is
particularly relevant if you own cash or debt investments like bonds. Shares offer
some protection against inflation because most companies can increase the prices they

38
charge to their customers. Share prices should therefore rise in line with inflation.
Real estate also offers some protection because landlords can increase rents over time.

7. Horizon risk

The risk that your investment horizon may be shortened because of an unforeseen
event, for example, the loss of your job. This may force you to sell investments that
you were expecting to hold for the long term. If you must sell at a time when the
markets are down, you may lose money.

8. Longevity risk

The risk of outliving your savings. This risk is particularly relevant for people
who are retired, or are nearing retirement.

9. Foreign investment risk

The risk of loss when investing in foreign countries. When you buy foreign
investments, for example, the shares of companies in emerging markets, you face
risks that do not exist in Canada, for example, the risk of nationalization.

1.10 RISK-RETURN ANALYSIS

The Expected Return From Individual Securities Carry some degree of risk.
Risk on the portfolio is different from the risk on individual securities. The risk is
reflected in the variability of the return from zero to infinity. Risk of the individual
assets or a portfolio is measured by the variance of its return. The expected return
depends on the probability of the returns and their weighted contribution to the risk
of the portfolio. These are two measures of risk in this context one is the absolute
deviation and other standard and deviation. Most investors invest in a portfolio of
assets, because as to spread risk by not putting all eggs in one basket. Hence, what
really matters to them is not the risk and return of stocks in isolation, but the risk and
return of the portfolio as a whole. Risk is mainly reduced by Diversification.
Following are the some of the type of risk
The risk of an investment depends on the following factors:
 The longer the maturity period, the larger is the risk.

39
  The lower credit worthiness of the borrower, the higher is the risk.
 Investments in ownership securities like equity shares carry higher risk
compared to investments in debt instruments like debentures and bonds. Risk
and return of an investment are related.
Normally, the higher the risk, the higher is the return. Return Investments are
made with the primary objective of deriving a return. The return may be received in
the form of capital appreciation plus yield. The difference between the sales price and
the purchase price is capital appreciation. The dividend or interest received from the
investment is the yield.
SYSTEMATIC RISK

In finance and economics, systematic risk (in economics often called aggregate
risk or un diversifiable risk) is vulnerability to events which affect aggregate
outcomes such as broad market returns, total economy-wide resource holdings, or
aggregate income. In many contexts, events like earthquakes and major weather
catastrophes pose aggregate risks that affect not only the distribution but also the total
amount of resources. If every possible outcome of a stochastic economic process is
characterized by the same aggregate result (but potentially different distributional
outcomes), the process then has no aggregate risk.
Properties of systematic risk
Systematic or aggregate risk arises from market structure or dynamics which
produce shocks or uncertainty faced by all agents in the market; such shocks could
arise from government policy, international economic forces, or acts of nature. In
contrast, specific risk (sometimes called residual risk, unsystematic risk,
or idiosyncratic risk) is risk to which only specific agents or industries are vulnerable
(and is uncorrelated with broad market returns). Due to the idiosyncratic nature of
unsystematic risk, it can be reduced or eliminated through diversification; but since all
market actors are vulnerable to systematic risk, it cannot be limited through
diversification (but it may be insurable). As a result, assets whose returns are
negatively correlated with broader market returns command higher prices than assets
not possessing this property.

40
 Systematic risk in finance
Systematic risk plays an important role in portfolio allocation.[2] Risk which
cannot be eliminated through diversification commands returns in excess of the risk-
free rate(while idiosyncratic risk does not command such returns since it can be
diversified). Over the long run, a well-diversified portfolio provides returns which
correspond with its exposure to systematic risk; investors face a trade-off between
expected returns and systematic risk. Therefore, an investor's desired returns
correspond with their desired exposure to systematic risk and corresponding asset
selection. Investors can only reduce a portfolio's exposure to systematic risk by
sacrificing expected returns.
An important concept for evaluating an asset's exposure to systematic risk is beta.
Since beta indicates the degree to which an asset's return is correlated with broader
market outcomes, it is simply an indicator of an asset's vulnerability to systematic
risk. Hence, the capital asset pricing model (CAPM) directly ties an asset's
equilibrium price to its exposure to systematic risk.
Aggregate risk in economics
Aggregate risk can be generated by a variety of sources. Fiscal, monetary,
and regulatory policy can all be sources of aggregate risk. In some cases, shocks from
phenomena like weather and natural disaster can pose aggregate risks. Small
economies can also be subject to aggregate risks generated by international conditions
such as terms of trade shocks.
Aggregate risk has potentially large implications for economic growth. For
example, in the presence of credit rationing, aggregate risk can cause bank failures
and hinder capital accumulation. Banks may respond to increases in profitability-
threatening aggregate risk by raising standards for quality and quantity credit
rationing to reduce monitoring costs; but the practice of lending to small numbers of
borrowers reduces the diversification of bank portfolios (concentration risk) while
also denying credit to some potentially productive firms or industries. As a result,
capital accumulation and the overall productivity level of the economy can decline.
In economic modeling, model outcomes depend heavily on the nature of risk.
Modelers often incorporate aggregate risk through shocks to endowments (budget
constraints), productivity, monetary policy, or external factors like terms of trade.

41
 Safety:
Safety is another feature which an investor desires for his investments. The safety
of an investment implies the certainty of return of capital without loss of money or
time. Every investor expects to get back his capital on maturity without loss and
without delay.
Saving tax Maximization of return:
The rate of return could be defined as the total income the investor receives during
the holding period, stated as a percentage price at the beginning of the holding period.
Increasing safety Hedging against inflation maintaining liquidity Minimization of risk
other subsidiary objectives are: Maximization of return Objectives of Investment:
Minimizing the risk:
The risk of holding securities is related to the probability of the actual return
becoming less than the expected return.
If we consider the financial assets available for investment, we can classify them
into different risk categories. Government securities would constitute the low risk
category as they are practically risk free. Debentures and preference shares of
companies may be classified as medium risk assets. Equity shares of companies
would form the high risk category of financial assets.
Maintaining Liquidity:
Liquidity depends upon marketing and trading facilities. If a portion of the
investment could be converted into cash without much loss of time, it helps the
investor to meet emergencies. Stocks are liquid only if they command a good market
by providing adequate returns through dividends and capital appreciation.
Hedging against inflation:
The rate of return should ensure a cover against inflation to protect against a rise
in prices and fall in the purchasing value of money. The rate of return should be
higher than the rate of inflation otherwise the investor will experience loss in real
terms.
Difference between investor and speculator:
Investor Speculator Time horizon Plans for a longer time horizon. His holding
period may be from one year to few years. Plans for a very short period. His holding
period varies from few days to months. Risk Assumes moderate risk. Willing to
undertake high risk. Return likes to have moderate rate of return associated with
limited risk. Like to have high returns for assuming high risk. Decision Considers
42
fundamental factors and evaluates the performance of the company regularly.
Consider inside information, hearsays and market behavior. Funds Uses own funds
and avoids borrowed funds. Uses borrowed funds to supplement his personal
resources. Safety He chooses the investment alternative which has high degree of
safety. Here safety is primary and Focuses more on return than the safety.
Investment and Gambling:
A gamble is usually a very short-term investment in a game or chance. Gambling
is different from speculation and investment. Typical example of gambling is horse
races, card games, lotteries etc. The time horizon involved in gambling is shorter than
in speculation and investment. Earning an income from gambling is a secondary
factor. Risk and return trade-off is not found in gambling and negative outcomes are
expected. Investment Process involves a series of activities leading to the purchase of
securities or other investment alternatives.
The process can be divided into five stages:
1. Framing of the investment policy
2. Investment analysis
3. Valuation Portfolio
4. Construction
5. Portfolio evaluation
Objectives:
The objectives are framed on the premises of the required rate of return, need for
regular income, risk perception and the need for liquidity. The risk taker’s objective
is to earn a high rate of return in the form of capital appreciation whereas the primary
objective of the risk-averse is the safety of principal.
Knowledge:
Knowledge about investment alternatives and markets plays a key role in policy
formulation. Investment alternatives range from security to real estate. The risk and
return associated with investment alternatives differ from each other. The investor
should be aware of the stock market structure and functions of the brokers. The modes
of operations are different in the BSE, NSE and OTCEI. Brokerage charges are also
different. Knowledge about stock exchanges enables an investor to trade the stock
intelligently.

43
 Security Analysis:
Securities to be brought are scrutinized through market, industry and company
analyses after the formulation of investment policy. a) Market analysis the growth in
Gross Domestic product and inflation is reflected in stock prices. Recession in the
economy results in a bear market. Stock prices may fluctuate in the short run but in
the long run, they move in trends. The investor can fix his entry and exit points
through technical analysis. b) Industry analysis: An analysis of the performance,
prospectus and problems of an industry of interest is known as industry analysis. The
risk factors related to the automobile industry are different from those related to the
information technology industry. The performance of an industry reflects the
performance of the companies it consists of.
Company analysis:
The purpose of company analysis is to help the investors make better
decisions. The company's earnings, profitability, operating analysis, capital structure
and management have to be screened. A company with a high product market share is
able to create wealth for investors in the form of capital appreciation. 3) Valuation:
Valuation helps the investor determine the return and risk expected from an
investment in common stock. Intrinsic value of the share is measured through the
book value of the share and price earnings ratio. Simple discounting models can be
adopted to value the shares. Future value of securities can be estimated by using a
simple statistical technique like trend analysis. The analysis of the historical
behavioral of price enables the investor to predict the future value.
Construction of a portfolio: A portfolio is a combination of securities. By
constructing a portfolio, investors attempt to spread risk by not putting all their eggs
into one basket and it also helps to meet their goals and objectives.
Selection and allocation:
Securities have to be selected based on the level of diversification and funds are
allocated for selected securities.
Portfolio Evaluation:
It is the process which is concerned with assessing the performance of the
portfolio over a selected period of time in terms of return and risk.
a) Appraisal: Developments in the economy, industry and relevant companies
from which stocks are bought have to be appraised. The appraisal warns of the loss
and steps can be taken to avoid such losses.
44
 b) Revision: It depends on the results of the appraisal. Low-yielding securities
with high risk are replaced with high-yielding securities with low risk factor. The
investor periodically revises the components of the portfolio to keep the return at a
level.
 Avenues: Investment Avenues Securities Deposits Postal Schemes Insurance Real
Assets
Investment Avenues:
1) Negotiable investments
2) Non-negotiable investments
I) Negotiable investments:
a) Variable income securities
b) Fixed income securities

 Money market securities:

These have a short term maturity, say less than a year. Common money market
instruments are treasury bills, commercial paper and certificate of deposit.
2. Treasury bills: It is fundamentally an instrument of short-term borrowing by the
government of India to help the cash management requirements of various
segments of the economy. Generally, treasury bills are of 91 days. Since the
interest rates offered on treasury bills are low, individuals very invest in them.
3. ii) Commercial Papers: It is a short term negotiable instrument with a fixed
maturity period. It is an unsecured promissory note issued by the company either
directly or through Banks. iii) Certificate of deposit: It is a marketable receipt of
funds deposited in a bank for a fixed period at a specified rate of interest.
 Life Insurance:
It is contract for payment of a sum of money to the person assured on the
happening of the event insured against. The core feature of the is protection and
elimination of risks. Insurance emerge as a combination of both investment and
assurance. The major advantages it includes are: protection, easy payment, liquidity
and tax relief.
 Risk returns trade-off: The principal that potential return raises with an
increase in risk. Low levels of uncertainty (low risk) are associated with low
potential returns whereas high levels of uncertainty (high risk) are associated with

45
 high potential returns. According to risk return trade-off, invested money can
render higher profits only if it is subject to the possibility of being cost. The trade
off which an investor faces between risk and return while considering investment
decisions is called Risk Return Trade-off.
.
1.11 Capital Market
Capital market deals with medium term and long term funds. It refers to all
facilities and the institutional arrangements for borrowing and lending term funds
(medium term and long term). The demand for long term funds comes from private
business corporations, public corporations and the government. The supply of funds
comes largely from individual and institutional investors, banks and special industrial
financial institutions and Government. It is the market segment where securities with
maturities of more than one year are bought and sold. Equity shares, preference
shares, debentures and bonds are the long-term securities traded in the capital market.
Capital market is classified in two ways:
1) Primary Market (New Issue Market)
2) Secondary Market (Stock Market)

PRIMARY MARKET
Primary market is the new issue market of shares, preference shares and debentures.
Stocks available for the first time are offered through the new issue market. The issuer
may be the new company or the exit company. The issuing houses, investment
bankers and brokers act as the channels of distribution for a new issue. They take
responsibility for selling the stocks to the public.
 •The issuer can be considered as manufacturer. Types of Issues:
Public Issue which is a method of raising funds through the issue of shares to
investors in the primary market by companies. referential issue means when listed
companies issue securities to a selected group of persons. It may be financial
institutions, mutual funds or high net worth individuals. Rights issues means an
issue of capital offered by a company to its existing shareholders through a letter
of offer. In other words, a listed company issues fresh securities only to its
existing shareholders.
Parties involved in the new issue:

46
1) Managers to the issue:
• Drafting the prospectus
• Preparing a budget expenses related to the issue.
• Suggesting the appropriate timing of the public issue
• Assisting in marketing the public issue successfully.
• Advising the company in the appointment of parties involved in it.
• Directing the various agencies
2) Registrar to the issue:
The registrar to the issue is appointed in consultation with the lead managers. They
receive the share applications from various collections centers. They arrange for the
dispatch of the share certificates. They hand over the details of the share allocation
and related documents to the company.
3) Underwriters
Underwriting is a contract in which an underwriter gives an assurance to the issuer
that the he will subscribe to the securities offered in the event of non-subscription by
the persons to whom they are offered. Ex: financial institutions, banks, brokers and
approved investment companies.
. 4) Bankers to the issue:
Bankers to the issue are responsible for collecting the application money along
with the application form. They charge commission as brokerage
Secondary Market:
Secondary market deals with securities which have already been issued and are
owned by investors. The buying and selling of securities already issued and
outstanding take place in stock exchanges. Hence, stock exchanges constitute the
secondary market in securities.
Stock Exchange:
The stock exchanges were once physical market places where the agents of
buyers and sellers operated through the auction process. These are being replaced
with electronic exchanges where buyers and sellers are connected only by computers
over a telecommunication network. Auction trading is giving way to “screen-based”
trading where bid prices and offer prices are displayed on the computer screen. Bid
price refers to the price at which an investor is willing to buy the security and offer
price refers to the price at which an investor is willing to sell the security. A stock

47
exchange may be defined in different ways. In simple terms, stock exchange is “A
centralized market for buying and selling stocks where the price is determined
through supply-demand mechanisms”. According to the Securities Contracts Act,
1956, “Stock exchange means anybody of individuals, whether incorporated or not,
constituted for the purpose of assisting, regulating or controlling the business of
buying, selling or dealing in securities”.

Dissemination of Information Stock exchanges provides information through

their various publications. The publish the share prices traded on daily basis along
with the volume traded. Directory of Corporate information is useful for the investors’
assessment regarding the corporate. Handouts, handbooks and Self-regulating
Organization the stock exchanges monitor the integrity of the members, brokers,
listed companies and clients. Continuous internal audit safeguards the investors
against unfair trade practices. It settles the disputes between member brokers,
investors and brokers. Performance Inducer the prices of stock reflect the performance
of the traded companies. This makes the corporate more concerned with its public
image and tries to maintain good performance. D pamphlets provide information
regarding the functioning of the stock exchanges. Stock investors constantly hear
about the wisdom of diversification. This concept simply means not putting all of
your eggs in one basket, which helps mitigate risk and generally leads to better return
on investment. Diversifying your hard-earned dollars does make sense, but there are
different ways to diversify, and there are different portfolio types. It's important to
understand that building any kind of portfolio will require research and some effort.
Here is some basic information about five different portfolio types and how to get
started with each.

1.12 ASSET ALLOCATION

Asset allocation refers to an investment strategy in which individuals divide their

investment portfolios between different diverse assets classes to minimize investment
risks. The assets classes fall into three broad categories: equities, fixed-income,
and cash and equivalents. Anything outside these three categories (i.e. real estate,
commodities, art) is often referred to as alternative assets. Establishing an appropriate
asset mix of stocks, bonds, cash and real estate in your portfolio is a dynamic process.

48
It plays a key role in determining your portfolio’s overall risk and return. As such, the
asset mix should reflect your goals at any point in time. Here are several different
strategies for establishing asset allocations, with a look at their basic management
approaches.

Factors Affecting Asset Allocation Decision

When making investment decisions, the investors’ portfolio distribution is

influenced by factors like personal goals, level of risk tolerance, and investment
horizon.

 Goals factors

Goals factors are individual aspirations to achieve a given level of return or saving for
a particular reason or desire. Therefore, different goals affect how a person invest and
risk.

 Risk tolerance

Risk tolerance refers to how much an individual is willing and able to lose a given
amount of the original investment in anticipation of getting a higher return in the
future. For example, risk-averse investors withhold their portfolio in favor of more
secure assets. On the contrary, more aggressive investors risk most of their
investments in anticipation of higher returns. Learn more about risk and return.

 Time horizon

Time horizon factor depends on the duration an investor is going to invest. Most
of the time, it depends on the goal of the investment. Similarly, different time
horizons entail different risk tolerance. For example, a long-time investment
strategy may prompt an investor to invest in a more volatile or higher risk
portfolio since the dynamics of the economy are uncertain and may change in
favor of the investor. However, investors with short-term goals may not invest in
riskier portfolios.

49
 How Asset Allocation Works ?

Financial advisors usually advise that to reduce the level of volatility of portfolios,
investors must diversify their investment into various asset classes. Such basic
reasoning is what makes asset allocation popular in portfolio management because
different asset classes will always provide different returns. Thus, investors will still
receive a shield to guard against the deterioration of their investments.

1. Age-based Asset Allocation

In age-based asset allocation, the investment decision is based on the age of the
investors. Therefore, most financial advisors advise investors to make the stock
investment decision based on a deduction of their age from a base value of a 100. The
figure depends on the life expectancy of the investor. The higher the life expectancy,
the higher the portion. That’s why the base value may change to 110, or 120. For cash
and money market investments, most advisors recommend that the time horizon
should be less than a year.

2. Life-cycle funds Asset Allocation

In life-cycle funds allocation or targeted-date, investors maximize their returns on

investment (ROI) based on the factors like their investment goals, their risk tolerance,
and their age. This kind of portfolio structure is complex due to standardizations
issues. In fact, every investor has unique differences across the three factors.

Examples of Other Strategies

1. Constant-Weight Asset Allocation

The constant-weight asset allocation strategy is based on the buy-and-hold policy.

That is, if a stock loses value, investors buy more of it. However, if it increases in
price, they sell a bigger proportion. The goal is to ensure the proportions never
deviates by more than 5% of the original mix.

2. Tactical Asset Allocation

50
 The tactical asset allocation strategy addresses the challenges that result from
strategic asset allocation relating to the long run investment policies. Therefore,
tactical asset allocation aims at maximizing short-term investment strategies. As a
result, it adds more flexibility in coping with the market dynamics so that the
investors invest in higher returning assets.

3. Insured Asset Allocation

For investors prone to risk, the insured asset allocation is the ideal strategy to
adopt. It involves setting a base asset value from which the portfolio should not drop
from. If it drops, the investor takes the necessary action to avert the risk. Otherwise,
as far as they can get a value slightly higher than the base asset value, they can
comfortably buy, hold, or even sell.

4. Dynamic Asset Allocation:_

The dynamic asset allocation is the most popular type of investment strategy
among the rest. It enables investors to adjust their investment proportion based on
the highs and lows of the market and the gains and losses in the economy.

More resources CFI offers the Financial Modeling & Valuation Analyst
(FMVA)™ certification program for those looking to take their careers to the next
level. To learn more and expand your career, explore the additional resources below:

 Guide to Portfolio Management Process

 Equity vs. Fixed Income
 Risk and Return
 Stock Investment Strategies

Constant-Weighting Asset Allocation

Strategic asset allocation generally implies a buy-and-hold strategy, even as the

shift in values of assets causes a drift from the initially established policy mix. For
this reason, you may prefer to adopt a constant-weighting approach to asset allocation.
With this approach, you continually rebalance your portfolio. For example, if one
asset is declining in value, you would purchase more of that asset. And if that asset

51
value is increasing, you would sell it. There are no hard-and-fast rules for timing
portfolio rebalancing under strategic or constant-weighting asset allocation. However,
a common rule of thumb is that the portfolio should be rebalanced to its original mix
when any given asset class moves more than 5% from its original value.

Tactical Asset Allocation

Over the long run, a strategic asset allocation strategy may seem relatively rigid.
Therefore, you may find it necessary to occasionally engage in short-term, tactical
deviations from the mix to capitalize on unusual or exceptional investment
opportunities. This flexibility adds a market-timing component to the portfolio,
allowing you to participate in economic conditions more favorable for one asset class
than for others.

Tactical asset allocation can be described as a moderately active strategy, since

the overall strategic asset mix is returned to when desired short-term profits are
achieved. This strategy demands some discipline, as you must first be able to
recognize when short-term opportunities have run their course and then rebalance the
portfolio to the long-term asset position.

Insured Asset Allocation

With an insured asset allocation strategy, you establish a base portfolio value
under which the portfolio should not be allowed to drop. As long as the portfolio
achieves a return above its base, you exercise active management – relying
on analytical research, forecasts and judgment and experience to decide what
securities to buy, hold and sell, with the aim of increasing the portfolio value as much
as possible. If, however, the portfolio should ever drop to the base value, you invest in
risk-free assets, such as Treasuries (especially T-bills) so that the base value becomes
fixed. At such time, you would consult with your advisor on reallocating assets,
perhaps even changing your investment strategy entirely.

Insured asset allocation may be suitable for risk-averse investors who desire a
certain level of active portfolio management but appreciate the security of
establishing a guaranteed floor below which the portfolio is not allowed to decline.
For example, an investor who wishes to establish a minimum standard of living

52
during retirement might find an insured asset allocation strategy ideally suited to his
or her management goals.

Integrated Asset Allocation

With integrated asset allocation, you consider both your economic expectations
and your risk in establishing an asset mix. While all of the above-mentioned strategies
take into account expectations for future market returns, not all of the strategies
account for the investor’s risk tolerance. Integrated asset allocation, on the other hand,
includes aspects of all strategies, accounting not only for expectations but also actual
changes in capital markets and your risk tolerance.

Integrated asset allocation is a broader asset allocation strategy. Note, however,

that it cannot include both dynamic and constant-weighting allocation, since
obviously, an investor would not wish to implement two strategies that compete with
one another.

CHAPTER. 02

RESEARCH AND METHDOLOGY

2.1. OBJECTIVE OF THE STUDY

 To provide basic idea of different stock market investment instruments to investor.

 To provide knowledge to investor about various type of risk associated with
various investment instruments.
 To provide investor knowledge about P/E, P/B/V and Beta that would help them
in selection of script and creation of portfolio.
 To help investor in learning about derivate instruments future for the purpose of
speculation and hedging.
 To known investor about portfolio management.
 To understand the concept of portfolio management and the role of the Asset
Management Companies in capturing maximum share of investor‘s markets.

53
 To carry out analysis of the expected stock returns of various fund schemes
prevailing in the market.
 To understand the problems faced by fund houses in managing the funds.
 To analyze the benefits of Portfolio Management services to the investors and
fund houses.
 To know whether investor‘s home is biased or not while selecting the Asset
Management companies to invest into? To find out major fund management
players in India and to study their consciousness towards investors.
 To study the influence of liberalization and globalization of the economy on the
flow of capital and their management thereof.
 To study risk-returns mechanism and how it can be fruitfully achieved through
portfolio management.
 To examine growth trail of mutual funds in India and their impact o

2.2 METHDOLOGY OF THE PROJECT

RESEARCH PROBLEM:-

To identified the stock market investment Avenue and methods to help

investor in selection of script to create portfolio. And the measures of hedging the
portfolio with the use of derivative instrument future.

RESEARCG DESIGN:

Research design is exploratory as the basic objective is to identified the stock

and methods to create and protect portfolio. Research methodology is a way to
systematically solve the research problem. The logic behind the method used, in
context of research, is explained, so that research results are capable to being
evaluated either by the researcher himself or by others. People undertake research in
order to find things in a systematic way, thereby increasing their knowledge. The
research project involves an explanation of the methods to collect information, argue
why the results are meaningful and explain any limitations that are associated with
them.

54
It is the specification of the methods and procedures for acquiring the information
needed. According to my research design, I have performed the following steps in
project:

 To decide the objectives of the research.

 To decide the most suitable method of research To decide the source of the
data.
 To decide the appropriate research.
 To conduct the field survey for data collection
 To process and analysis of data.
 To prepare the research report

2.3 DATA COLLECTION

While deciding about the method of data collection to be used for the study, the
researcher should keep in mind two techniques of Data Collection. Data collection is
an integral part of the marketing research. There are several ways of collecting the
appropriate data, which differ considerably in context of money costs, time and other
resources at the disposal of the researcher. The researcher should keep in mind two
types of data viz. Primary and secondary.

Primary data: Primary data are collected by my regularly tracking the stock
price of various script selected.- Primary data are those, which are collected afresh
and for the first time, and thus happen to be original character. Primary data for the
study is collected through Structured Questionnaires with close ended questions.

Secondary Data: Secondary data are collected from various journals, websites
and financial news paper. The secondary data are those, which have already been
collected by someone else like various journals and publications of the company and
that are used for quick compilation of the report.

2.4 LIMITATION OF PROJECT

 The time duration given to complete the report was not sufficient.

55
  The report is basically is made between the horizon of two months and the
situation of market is
 very dynamic so the conclusion or the return might not reflect the true picture.

2.5 SCOPE OF THE STUDY

 The present study will evaluate problems and prospects of portfolio

management
 The study mainly attempts to access growth, performance, working, regulatory
framework, problems and challenges
 It also attempts to throw light on the portfolio management services offered by
asset management companies along with a comparative analysis of the
Portfolio Management of different fund houses and their available fund
schemes.

2.5 NEED OF THE STUDY

 The important reason for the situation is owing to the rapid growth of the Asset
Management IN the portfolio services rendered by them.
 The developments in the field of portfolio management are continuing apace. In
fact, the phases of portfolio management namely professionalism and scientific
analysis are currently advancing simultaneously.
 Surprisingly the research studies dealing with portfolio management aspects of
Asset Management Companies (AMC‘s) are rarely conducted in India.
 Against this background it is felt that there is a need for the study of portfolio
management to examine the scope application of the Asset Management
Companies in enhancing the growth of financial investments.

56
 CHAPTER.03

REVIEW OF LITERATURE

Ananth N Madhavan (2003) once a fairly esoteric subject, risk analysis and
measurement have become a critical function for both portfolio managers and traders.
Yet accurate measurement and analysis of risk presents many practical challenges,
including the choice of risk model, portfolio optimization pitfalls, horizon
mismatches, and out-of-sample testing. This detailed overview of recent
developments in risk analysis and modeling focuses on practical applications. While
risk management tools can provide invaluable insights as to portfolio risk, they must
be applied with considerable care. Risk analysis, as it stands today, is as much an art
as a science. * Peter Brooke (2009) suggested that the easiest way to build a very
diverse portfolio is via investment funds. The choice of funds is now enormous and
nearly every asset class is covered by them.

This means it is very easy and inexpensive to put several funds together and have a
very broad spread. There are now some very good ‘multi asset’ funds which provide
exposure to all of these different classes in one professionally managed place. These
multi asset managers may also be able to access some funds which are still not
available to the retail investor, such as private equity. Peter Brooke is a financial
planner to the English speaking expatriate community.

This article (Portfolio Construction) was published in the July 2009 edition of Dock
walk magazine * Anita Choir, (2011) Portfolio construction& services offered by
banks and brokerages to face heatMUMBAI : Regulators may put an end to
discretionary portfolio management services offered by banks and brokerages after a
series of frauds, including high-profile ones at City and Standard Chartered, said a
person familiar with the thinking.

RBI, SEBI and a sub-committee of the Financial Stability and Development Council
are working on the proposed guidelines for portfolio management, said the person
requesting anonymity. “RBI is likely to ask banks to stop discretionary portfolio
management,” said the person. RaghavanR. S, (2011) -Core and satellite portfolio
construction& evaluation a popular investment method; the sensex has not been in the

57
pink of health for a week now. The steep fall in the global indices and teetering
economies have been weighing on the Indian quit market, which, in turn, has dented
the value of equity portfolios. It’s in times like these that the benefits of the core and
satellite strategy towards investing become obvious. How it works the core and
satellite portfolio management is a popular form of investment strategy with money
managers and their clients. * ET Bureau, (2011), How to pick a portfolio construction
; evaluation scheme; Equity portfolio management schemes (PMS) are today quite
attractive from the perspective of high net worth individuals (HNIs) or ultra HNIs.

However, investor and distributor awareness of this product category is quite low and
one must understand the benefits of using this mode for investing. Typically, the
minimum application size in PMS products is rather high? With the minimum being
Rs 10 lakhs and some even having ticket sizes running into crore. Most equity PMS
products could involve a slightly higher degree of risk as they are offered to investors
who desire that extra bit of return.

58
 CHAPTER.04

DATA ANALYSIS

INTERPRETATION AND PRESENTATION

01. TABLE SHOWING AGE GROUP

Sir No. Age Group No of Respondents Percentage(%)

1 Below 25 41 82%
2 25-40 8 16%
3 Above 40 1 2%
Total 50 100%

2%

16%

Below

25-40

above 40

82%

INTERPRETATION
 From the above table and figure it is close that majority of respondent that is 82%
Below 25.
 Where at 16% are 25-40 years and rest 2% are above 40 years.
 There majority response come from the below 25 years.

59
Q.02.TABLE SHOWING MARRIED STATUS OF INVESTOR

Sir No. Married Status No of Respondents Percentage(%)

1 Married 06 12%
2 Unmarried 42 84%
3 Other 2 4%
Total 50 1000

4%
12%

Married

Unmarried

Other

84%

INTERPRETATION

 In the above figure 84% people are Unmarried.

 Married Status is 12%
 Other are 4%

60
 Q.03 TABLE SHOWING GENDER OF INVESTOR

Sir No. Gender No of Respondents Percentage(%)

1 Female 25 50%
2 Male 25 50%
3 Other 0 0
Total 50 100

0%

Female

50% 50% male

other

INTERPRETATION

 In above figure there are female are 25 there percentage ratio is 50%.
 And the above figure there are male are 25there percentage ratio is 50%

61
Q.04. TABLE SHOWING QUALIFICATION OF INVESTOR

Sir No. Qualification No of Respondents Percentage(%)

1 Graduation 33 66%
2 Post Graduation 4 8%
3 Other 13 26%
Total 50 100

26%

Graduation

Post graduation

Other
8%
66%

INTERPRETATION

 The table showing qualification of the investor .

 In this figure graduation completed is 33 people there percentage ratio is 66%.
 Post graduation is completed is 4 people there percentage ratio is 8%
 And remaining is in other categories there percentage is 26%

62
 Q.05. ARE YOU HEARD ABOUT PORTFOLIO?

Sir No. HEARD ABOUT No of Respondents Percentage(%)

PORTFOLIO
1 Yes 34 68%
2 No 16 32%
Total 50 100

32%

YES

NO

68%

INTERPRETATION

 Above figure mentioning how many people know about portfolio

 In this figure 34 people respose yes. They know about portfolio
 And 16 people not know about portfolio management.

63
 Q.06. HOW DO YOU GET KNOW ABOUT PORTFOLIO?

Sir No. Particular No of Respondents Percentage(%)

1 Friends 20 40%
2 Online Source 14 28%
3 Mass Media 5 10%
4 Other 11 22%
Total 50 100

22%

40% FRIENDS

ONLINE SOURCE

10% MASS MEDIA

OTHER

28%

INTERPRETATION

 This figues showing that how to people know about portfolio

 Some people know about portfolio from friends there is 40%
 28% investor getting information from online source.
 10% investor get information from the mass media.
 Remaining 22% investor knowing about portfolio from other sources.

64
 Q.07. WHERE YOU PREFER TO SAVE YOUR MONEY?

Sir No. Particular No of Respondents Percentage (%)

1 Banking 34 68%
2 In Fund 8 16%
3 Other 8 16%
Total 50 100

16%

Banking
16% In fund

Other

68%

INTERPRETATION

 Table showing that where people like to save there money.

 50 out 32 investor prefer save there money in banking sector.
 16% investor give response to save there money in fund.
 16% investor prefer to save there money in other sector.

65
 Q.08. HOW DOED THE INVESTMENT WORK?

Sir No. Particular No of Respondents Percentage(%)

1 Satisfied 27 54%
2 Dissatisfied 0 0
3 Average 22 44%
4 Other 1 2%
TOTAL 50 100

1%

SATISFIED

44% DISSATISFIED

AVERAGE
55%
OTHER

0%

INTERPRETATION
 Figure showing how investment work
 Satisfied ivestor is 55% in the above figure
 Average satisfied investor is 44%.
 1% investor is dissatisfied

66
 Q.09. ARE YOU COMFORTABLE TAKING RISK FROM INVESTMENT?

Sir No. Particular No of Respondents Percentage(%)

1 Yes 34 68%
2 No 16 32%
Total 50 100

32%

YES

NO

68%

INTERPRETATION

 In the above figure 34 out of 50 investor satisfied with taking risk from the
investment.
 Remaining 32% are say NO taking risk from investment.

67
 Q.10. IF YOU UNEXPECTEDLY RECEIVED RS. 10,00,000 TO INVEST .
WHAT WOULD YOU DO?

Sir No. Particular No of Percentage

Respondents (%)
1 Start a business. 22 44.9%
2 Invest in stock or mutual fund 15 30.6%
3 Invest in bonds or bond mutual fund 15 30.6%
4 Deposit in bank 8 16.3%
Total 50 100

START A BUSINESS

20%

INVEST IN STOCK OR
BONDS MUTUAL
FUNDS
13% INVEST IN BONDS OR
53%
BONDS MUTUAL FUND

14% DEPOSIT IN BANK

INTERPRETATION
 Figure showing that investor get Rs. 10,00,0000. Then 20% investor start
business
 13% investor invest in tock or nonds mutual funds.
 14% invest in bonds or nonds mutual fund
 Remaining will 53% Deposit in Bank.

68
 Q.11. HOW COMFORTABLE ARE YOU FINANCIALLY?

Sir Particular No of Respondents Percentage(%)

No.
1 You are doing well. 22 45.8%
2 You can afford to take chance 1 2%
3 You have to careful 17 35.44%
4 Not very good. You need 8 16.7%
some help.
Total 50 100

YOU ARE DOING WELL

17%

YOU CAN AFFORD TO

TAKE CHANCE FROM
46% TIME TO TIME

YOY HAVE TO CAREFUL

35%
NOT VERY GOOD. YOU
NEED SOME HELP.

2%

INTERPRETATION
 This table showing investor financial condition 1% is doing well.
 2% investor getting afford to chance time to time.
 35% investor have to be careful.
 17% investor condition not very good. They need some help.

69
 Q.12. SUDDENLY, THE MARKET DROPS SWIFTY AND SHARPLY.
YOU MOST RECENT PURCHASE 20 DROPS WHAT DO YO DO ?
Sir Particular No of Percentage(%)
No. Respondents
1 You will wait to climb up back 23 47.9%
2 Buy more 12 25%
3 Sell immediately and no invest till 8 16.7%
recover los.
4 You will never purchase whose price 5 10.4%
is fluctuates.
Total 50 100

YOU WILL WAIT TO

CLIMB UP BACK

10%

BUY MORE

17%
48%

SELL IMMEDIATELY AND

NO INVEST TILL
RECOVER THE LOSS.

25%
YOU WILL NEVER
PURCHASE ANYTHING
WHOSE PRICE
FLUCTUATES.

INTERPRETATION
 This figure is showing 23 investor out 50 wait to climb up back
 25% investor buy more.
 17% investor sell immediately and no invest till recover the loss
 10% investor will never purchase anything whose price fluctuates.

70
 Q.13. WHEN YOU SUFFER FINACIAL LOSS . WHAT ARE YOUR
FEELINGS?

Sir Particular No of Percentage(%)

No. Respondents
1 You think it has happened because it way 6 12%
toy destiny.
2 You have many opportunity to cover up 15 30%
losses.
3 Lookout for new investment that give high 16 32%
returns so that you cover your loss.
4 Others 13 26%
Total 50 100

You think it
happened because
12% it way you destiny
26% you have many
opportunities to
cover up losses.

30% lookout for new

investment that give
high return
32% other

INTERPRETATION
 The figure that 12% investor think it has happened because it way you
destiny
 30% investor have many opportunities to cover up losses.
 32% lookout for new investment that give high return. So, there coverup
losses.

71
 Q.14. WHAT IS YOUR OWN INVESTMENT PHILOSOPHY?

Sir No. Particular No of Respondents Percentage(%)

1 High earn at lower risk 25 51%
2 Earn maximum profit 17 34.7%
3 Low risk 7 14.3%
Total 50 100

14%

HIGH EARN AT LOWER

RISK

EARN MAXIMUM
51% PROFIT

LOW RISK
35%

INTERPRETATION
 Investor ask their own investment philosophy. They reply 51% high earn
at lower risk.
 35%investor reply that earn maximum profit.
 14% investor are reply low risk accept from investment

72
 Q.15. WOULD TOU LIKE TO TAKE PORTFOLIO?

Sir No. Particular No of Respondents Percentage(%)

1 Yes 42 85.7%
2 No 7 14.3%
Total 50 100

14%

YES

NO

86%

INTERPRETATION
 Figure is showing that 42 people response say yes to taking
portfolio
 Remaining 14% they don’t want to take portfolio.

73
 CONCLUSION

From the above discussion it is clear that portfolio functioning is based on market
risk, 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. In other words Security
prices are determined by money manager and home managers, students and strikers,
doctors and dog catchers, lawyers and landscapers, the wealthy and the wanting. This
breadth of market participants guarantees an element of unpredictability and
excitement. If we were all totally logical and could separate our emotions from
our investment decisions then, the determination of price based on future earnings
would work magnificently. And since we would all have the same completely logical
expectations, price would only change when quarterly reports or relevant news was
released. If price are based on investors’ expectations, then knowing what a security
should sell for become less important than knowing what other investors expect it to
sell for.
I can conclude from this project that portfolio management has become an important
service for the investors to identify the companies with growth potential. Portfolio
managers can provide the professional advice to the investors to make an intelligent
and informed investment.
Portfolio management role is still not identified in the recent time but due it expansion
of investors market and growing complexities of the investors the services of the portf
olio managers will be in great demand in the near future. 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 w
illdefinitely prefer to take professional help.

74
 SUGGESTIONS

Many organizations struggle with project portfolio management (PPM). On the

face of it, portfolio management should be easy. We want to align our funding
decisions to the organization’s strategic objectives. Since budgets are limited, this
becomes a constrained optimization problem, which most easily performed in the
classroom.

Investment portfolio management is often used as an analogy for PPM. We are

familiar with the concept of balancing risk and return. In our retirement portfolios,
we hold a mix of stocks for growth and bonds for stability. Conceptually, investment
management is easy. In reality, it is hard. Traditionally, PPM leverages similar
financial measures to identify projects with the greatest potential
return. Unfortunately, the analogy becomes complicated quickly. We don’t always
have consistent measures to compare expected performance how do you value the
benefit of a regulatory requirement? Instead of dedicated teams of investment
managers, we are lucky to have a few people managing the portfolios in addition to
their other responsibilities. Many organizations try to manage their project portfolios
using complex processes and financial measures. In my experience simplicity and
flexibility are the keys to building an effective portfolio management process. In this
article I present some practices to simplify the project selection process.

A Two-Stage Selection Process

Selecting which projects to pursue is hard. It is a well-known phenomenon that
people struggle with making decisions that involve multiple options. Consider how
much harder it is to select an entrée at a restaurant with pages of options versus a one-
page menu.
The menu analogy holds true when selecting projects. When there are hundreds
of projects to evaluate, selecting the “right” ones can be difficult.

A two-stage process is an effective way to simplify this decision-making

process. It allows us to rapidly eliminate a large number of options and focus our
attention on the most viable candidates. Studies show that by eliminating choices we
increase our brain’s cognitive capacity to evaluate the other options.

75
 One company started its annual project funding cycle in early August and did not
finish it until Thanksgiving. Submitted project requests were at least 3-times larger
than the available budget. Countless hours were expended analyzing, justifying,
reviewing, and discussing projects that had no chance of ever being funded. It was a
terrible waste of effort and sapped management focus.

The first step in the process is a quick, scoring of the projects. The scoring sheets
can be easily distributed and managed across a large number of stakeholders. The
stakeholders rate the projects independently. Then, the portfolio manager
consolidates and aggregates the results.

The second step is building a prioritized portfolio backlog of projects from those
projects with the highest scores. After the projects have been scored, the portfolio
manager works with the stakeholders to build the prioritized backlog of candidate
projects. It is an ordinal ranking of upcoming projects.

76
 BIBLIOGRAPHY

Notes:
 Security Analysis and Portfolio Management
 Investment Analysis and Portfolio Management.
 Research And Methdology

Websites:
 www.google.com
 www. Slideshare.com
 www.wikipedia.com

77
 APPENDIX

01. Table showing age group.

o Below 25
o 25-40
o Above 40

Q.02.Table showing married status of investor.

o Married
o Unmarried
o Other

Q.03 Table showing gender of investor

o Female
o Male
o Other

Q.04. Table showing qualification of investor

o Graduation
o Post Graduation
o Other

Q.05. Are you heard about portfolio?

o Yes
o No

Q.06. How do you get know about portfolio?

o Friends
o Online Source
o Mass Media
o Other

78
 Q.07. Where you prefer to save your money?
o Banking
o In fund
o Other

Q.08. How doed the investment work?

o Satisfied
o Dissatisfied
o Average
o Other

Q.09. Are you comfortable taking risk from investment?

o Yes
o No

Q.10. If you unexpectedly received rs. 10,00,000 to invest . What would you do?
o Start a business.
o Invest in stock or mutual fund
o Invest in bonds or bond mutual fund
o Deposit in bank

Q.11. How comfortable are you financially?

o You are doing well.
o You can afford to take chance
o You have to careful
o Not very good. You need some help.

Q.12. Suddenly, the market drops swifty and sharply. You most recent purchase
20 drops what do yo do ?
o You will wait to climb up back
o Buy more
o Sell immediately and no invest till recover los.
o You will never purchase whose price is fluctuates.

Q.13. When you suffer finacial loss . What are your

79
Feelings?
o You think it has happened because it way toy destiny.
o You have many opportunity to cover up losses.
o Lookout for new investment that give high returns so that you cover
your loss.
o Others

Q.14. What is your own investment philosophy?

o High earn at lower risk
o Earn maximum profit
o Low risk

Q.15. Would tou like to take portfolio?

o Yes
o No

80