CHAPTER – 2

RESEARCH METHODOLOGY

 Introduction

 Significance of the study of Portfolio Management

 Title of the study

 Scope of the study

 Need for the Study

 Rationale and objectives of the study

 Research methodology and design

Sampling data collection (Sources of data)



 Hypothesis

 Period of the study

 Limitations of the study

Research Methodology 62

Introduction:
There is a perceptible change in the Indian Economic scenario, especially
after the initiation of Liberalized Economic Policy in 1991. This can be seen from
the increasing rate of Gross Domestic Product (GDP) and Domestic Saving and
Investment. Since 1980s, rate of domestic saving and number of small investors are
growing rapidly. Investor‘s preferences are also shifting from physical assets to
financial assets and within the financial assets there is a gradual shift from bank
deposits to securitized instruments such as shares, debentures and units of UTI and
other Mutual Funds.

However small investors are still hesitant to enter the capital market directly
because of lack of information and knowledge about the capital market, fear of risk,
small size of savings available for investment, complicated nature of capital market
operation, etc. It is also rare to find investors investing their entire savings in a single
security. Under such conditions emergence and rapid growth of intermediaries like
mutual funds and asset management companies is quite natural. Emergence of
Mutual Funds and asset management companies can be said to be one of the
important factors to mobilize funds from small and household savers and to invest
them for obtaining maximum benefits with reduced risk.

Mutual funds offer the small unit holders the benefits of prudent and
professional fund management, collective investment and reduced risk through
diversification. Through, asset management companies, an investor can tend to
invest in a group of securities called portfolio. Creation of portfolio helps to reduce
risk without sacrificing returns. Asset management companies utilize the skills of
specialized portfolio managers in constructing the optimal portfolio for the investor
taking into consideration the risk-return characteristics of all possible portfolios.
Thus, current investment scenario has changed drastically and professional portfolio
management, backed by competent research, began to be practiced by mutual funds,
investment consultants and big brokers.

The origin of Indian Mutual Fund Industry can be traced with UTI which
was established in 1964. UTI enjoyed complete monopoly in the Mutual Fund
Research Methodology 63

Industry till 1987 and than other public sector mutual funds entered into the market.
Mutual funds industry has been made open to the private sector in 1992-93.
Although the Mutual Fund Industry in India is growing rapidly, it is still facing
some challenges such as building the perfect portfolio for the client, periodic review
and revision of investment portfolios of investors, constructing customized portfolio
in accordance with the risk-return appetite of the investor, etc. Thus, there seems a
vast potential for improvement in the working and mechanism of Mutual Funds and
portfolio management of asset management companies in India. This necessitates a
comprehensive study of portfolio management and services rendered by asset
management companies which would help in suggesting remedial measures for
improvement in the working of asset management companies.

The Advanced Learner‘s Dictionary of Current English lays down the

meaning of research as ―a careful investigation or inquiry especially through search
for new facts in any branch of knowledge‖. Some people consider research as a
movement from the known to the unknown. It is actually a voyage of discovery. We
all possess the vital instinct of inquisitiveness for, when the unknown confronts us,
we wonder and our inquisitiveness makes us probe and attain full and detailed
understanding of the unknown. This inquisitiveness is the mother of all knowledge
and the method, which man employs for obtaining the knowledge of whatever the
unknown is, can be termed as research.

Research is an academic activity and as such the term should be used in a

technical sense. According to Clifford Woody research comprises of defining and
redefining problems, formulating hypothesis or suggested solutions; and at last
carefully testing the conclusions to determine whether they fit the formulating
hypothesis. D. Slesinger and M. Stephenson in the Encyclopedia of Social Sciences
define research as ―the manipulation of things, concepts or symbols for the purpose
of generalizing to extend, correct or verify knowledge, whether that knowledge aids
in construction of theory or in the practice of an art.‖ Research is, thus, an original
contribution to the existing stock of knowledge making for its advancement. It is the
pursuit of truth with the help of study, observation, comparison and experiment. In
short, the search for knowledge through objective and systematic method of finding
Research Methodology 64

solution to a problem is research. The systematic approach concerning

generalization and the formulation of a theory is also research. As such the term
‗research‘ refers to the systematic method consisting of enunciating the problem,
formulating a hypothesis, collecting the facts or data, analyze the facts and reaching
certain conclusions either in the form of solution(s) towards the concerned problem
or in certain generalizations for some theoretical formulations. ―All progress is born
of inquiry. Doubt is often better than overconfidence, for it leads to inquiry, and
inquiry leads to invention‖ is a famous Hudson Maxim in context of which the
significance of research can well be understood. Increased amount of research make
progress possible. Research inculcates scientific and inductive thinking and it
promotes the development of logical habits of thinking and organisation. The role of
research in several fields of applied economics, whether related to business or to the
economy as a whole, has greatly increased in modern times. The increasingly
complex nature of business and government has focused attention on the use of
research in solving operational problems. Research as an aid to economic policy, has
gained added importance, both for government and business. Research provides the
basis for nearly all government policies in our economic system. For instance,
government‘s budgets rest in part on an analysis of the needs and desires of the
people and on the availability of revenues to meet these needs. The cost of needs has
to be equated to probable revenues and this is a field where research is most needed.
Through research we can advise alternative policies and can as well examine the
consequences of each of these alternatives. Decision-making may not be a part of
research, but research certainly facilitates the decisions of the policy maker.
Government has also to chalk out programmes for dealing with all facets of the
country‘s existence and most of these will be related directly or indirectly to
economic conditions. The plight of cultivators, the problems of distribution, even the
size and nature of defense services are matter requiring research. In addition to what
has been stated above, the significance of research can also be understood keeping in
view the following points:
(a) To those students who are to write a master‘s or Ph.D. thesis, research may
mean a careerism or a way to attain a high position in the social structure and
Research Methodology 65

for professionals in research methodology, research may mean a source of

livelihood;
(b) To philosophers and thinkers, research may mean the outlet for new ideas
and insights;
(c) To literary men and women, research may mean the development of new
styles and creative work.

Significance of the study of Portfolio Management:

The reason why people study portfolio management or what is the need of
studying portfolio management is expressed as under:

There was a time when portfolio management was an exotic term, an elite
practice beyond the reach of ordinary people, in India. The scenario has changed
drastically. Portfolio management is now a familiar term and is widely practiced in
India. The theories and concepts relating to portfolio management now find their
way to the minds of investors in India.

In the beginning of the nineties, India embarked on a programme of

economic liberalization and globalization. This reform process has made the Indian
capital markets active. The Indian stock markets are steadily moving towards higher
efficiency, with rapid computerization, increasing market transparency, better
infrastructure, better customer service, closer integration and higher volumes. The
markets are dominated by large institutional investors with their diversified
portfolios. A large number of mutual funds have been set up in the country since
1987. With this development, investment in securities has gained considerable
momentum.

Along with the spread of securities investment among ordinary investors, the
acceptance of quantitative techniques by the investment community changed the
investment scenario in India. Professional portfolio management, backed by
competent research, began to be practiced by mutual funds, investment consultants
and big brokers. The Securities and Exchange Board of India (SEBI), the stock
market regulatory body in India, is supervising the whole process with a view to
Research Methodology 66

making portfolio management a responsible professional service to be rendered by

experts in the field.

The trend towards liberalization and globalization of the economy has

promoted free flow of capital across international borders. Portfolios now include
not only domestic securities but also foreign securities. Diversification has become
international. In this context, financial investments cannot be conceived of without
portfolio management.

Thus, to achieve efficiency in investment and to minimize the risk, study of

Portfolio management is vital.

Title of the Study:

―PORTFOLIO MANAGEMENT OF ASSET MANAGEMENT COMPANIES
(AMC‘s) IN INDIA‖

Scope of the study:

The present study will evaluate problems and prospects of portfolio
management of asset management companies in India. The study mainly attempts to
access growth, performance, working, regulatory framework, problems and
challenges of asset management companies in India. 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.

Need for the study:

The important reason for the situation is owing to the rapid growth of the
Asset Management companies and 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.
Research Methodology 67

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.

Rationale and objectives of the study:

The basic purpose of this study is to analyze the Portfolio management of the
various Asset Management Companies (AMC‘s) in India.
Keeping this purpose in view, the major objectives of the study are determined as
under:

 To understand the concept of portfolio management and the role of the Asset
Management Companies in capturing maximum share of investor‘s markets.
 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 on the
common investor.
 To study the scope for improvement in quality of portfolio management
provided by various Asset Management Companies (AMC‘s).
Research Methodology 68

Research Methodology and Design:

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.

Research defined:
Research in common refers to a search for knowledge. One can also define
research as scientific and a systematic search for pertinent information on specific
topic.

Redman and Mory defined research as ―a systematic effort to gain new

knowledge."

It is very difficult to appreciate and understand the investor‘s perspective and

opinions about portfolio management services unless recourse is made to the

questionnaire method. A separate questionnaire was prepared for this purpose to

draw upon investors‘ rich personal opinion, experiences etc., which cannot find a

place in the reports and records. These questionnaires were distributed and

discussions were organized with the selected individuals and customers of asset

management companies and banks. Another method that was adopted for this study

is the collection of secondary data from various published data of asset management

companies and internet.

Various appropriate statistical techniques were employed for analyzing the

data. The statistical analysis and data are supplemented by the information collected

through visiting different asset management companies and personal observation so

as to derive effective and meaningful conclusions. The data and information were
Research Methodology 69

collected from various sources. Factual data were collected from the fact sheets,

journals, annual reports and other records of the companies. The study warranted a

number of trips to the different asset management companies, fund houses, banks,

stock exchange, etc. During these visits, various published literature and data of

asset management companies were made use of along with going through a number

of relevant reports and books.

The application of appropriate methods and adoption of a scientific frame of

mind is an essential requirement for any systematic study. This has a great relevance

not only for collection of reliable information but also for the final outcome of the

study. The study is mainly empirical study and of exploratory nature.

Few Asset Management companies in India i.e HDFC, Axis, Birla Sunlife

and ICICI Prudential have been selected for depth study. All the branches of these

companies situated in India are population or universe for this study. Both

“multistage sampling” and “stratified sampling” techniques have been used for

selection of sample design.

The present study contains a detailed study on the concurrent topic ―Portfolio

management of Asset Management Companies (AMC‘s) in India‖. The entire study

is divided into six major headings consisting nine chapters, which cover the various

aspects of the problem.

The study is based on information mainly from secondary data. The

secondary data has been collected from the reports, fact sheets, journals, official

records, brochures, statistical highlights, newspapers, magazines etc. In this way,

this study is not only vital for the selected asset management companies but also

fruitful for the overall growth and development of investors‘ funds and financial

market.
Research Methodology 70

The questionnaire of employees was distributed in selected Asset

Management companies of India for the study. Questionnaires were distributed

among individuals and investors of city branches of Axis, HDFC, ICICI Prudential

and Birla Sunlife Asset Management Companies and their associated bank branches.

The researcher personally went into the fund houses and associated bank branches of

Asset Management companies for filling up the questionnaires. Thus stratified

sample of 600 persons was chosen to whom the questionnaire was given. The

research has got the reply of 412 (68.67%) respondents. A few individuals took keen

interest in these questionnaires and have duly completed them in all respect. In some

other cases, the researcher encountered with a lot of problems like ―not interested in

filling up questionnaire‖, or ―don‘t have enough time to fill the questionnaire‖ or

―they will fill up later on and taken the questionnaire along with them‖ or ―lost

questionnaire‖ and so on. Thus, the response was neither very much encouraging nor

disappointing as came in the way of observations and drawing conclusions.

Research Design:
A research design is the arrangement of the conditions for collecting ,
analysis of data in a manner that aim to combine relevance to the research process
and economy in the same process in order to save the valuable time.

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.
Research Methodology 71

Type of Research Design :

A research design is a type of blueprint prepared on various types of
blueprints available for the collection, measurement and analysis of data. A research
design calls for developing the most efficient plan of gathering the needed
information. The design of a research study is based on the purpose of the study.

A research design is the specification of methods and procedures for

acquiring the information needed. It is the overall pattern or framework of the
project that stipulates what information is to be collected from which source and by
what procedures.

Descriptive Research
Descriptive research describes phenomena as they exist. It is used to identify
and obtain information on the characteristics of a particular issue.
The data collected are often quantitative, and statistical techniques are
usually used to summarize the information. Descriptive research goes further than
exploratory research in examining a problem since it is undertaken to ascertain and
describe the characteristics of the issue. An undergraduate dissertation may include
descriptive research, but it is likely that it will also include one of the following two
types (explanatory or predictive) as we are required in our dissertation to go beyond
description and to explain or predict.

Analytical or explanatory Research:

This is a continuation of descriptive research. The researcher goes beyond
merely describing the characteristics, to analyze and explain why or how something
is happening. Thus analytical research aims to understand phenomena by
discovering and measuring causal relations among them.

Predictive Research:
Predictive research goes further by forecasting the likelihood of a similar
situation occurring elsewhere. It aims to generalize from the analysis by predicting
certain phenomena on the basis of hypothesized, general relationships.
Research Methodology 72

Predictive research provides 'how', 'why', and ‗where‘ answers to current

events as well as to similar events in the future. It is also helpful in situations where
‗What if ?‘ questions are being asked.

Sampling data collection (Sources of data):

It is very difficult to study portfolio management of Asset Management

Companies (AMC‘s in India) due to limitation of time, finance and other resources.

However the study of ―portfolio management‖ need not be conducted for all asset

management companies as most of the companies are similar in the nature of

business/ operations, size, adopt similar techniques and strategies of portfolio

management, etc. As such a sample of four major asset management companies

namely HDFC, Birla Sunlife, ICICI and Axis were taken up for the study.

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 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- 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.
Research Methodology 73

Collection of Primary Data:

Schedules, questionnaires, mail questionnaires, interview, discussions and

non-participant observation formed the tools and techniques of data collection from

the primary sources.

A comprehensive questionnaire intended to be an instrument for obtaining

the necessary information was prepared for monitoring investor‘s opinions,

awareness and perspectives towards portfolio management services. It was pre-

tested of a pilot study conducted during Jan- March 2012 and in the light of

knowledge thus, obtained, necessary changes were made in order to serve the

purpose of the inquiry more accurately.

The questionnaire is mainly directed towards finding out the employee‘s

awareness, interest, opinion and perspective towards portfolio management services

and their ways of channelizing savings.

Collection of Secondary Data:

The present study is mainly based on secondary data. The secondary sources
of data consist of:
 Published Annual Reports, fact sheets of Mutual Funds.
 Record and information available with Fund Managers, Trustees of Funds,
Sponsors of Funds, etc.
 Data, figures and information available with various stock exchanges.
 Records, figures and information available with SEBI, RBI and other
Government agencies.
 Articles and information published in various Financial Journals and
Newspapers.
 Information available with Bankers, Brokers, Registrars and Transfer
Agents, etc.
Research Methodology 74

Secondary data have been taken for the purpose of general understanding of

portfolio management, its historical background, achievements in working of the

previous year‘s etc. The secondary data were collected from the reports, fact sheets,

bulletins, journals, official records, published articles, newspapers, magazines etc.

maintained and/or published by the asset management companies and researchers.

General techniques helped to collect both quantitative and qualitative data.

Hypothesis:
The hypothesis of the present study is, “For optimizing the investment of
one’s funds, Portfolio Management of Asset Management Companies (AMC’s)
are of utmost importance.” In addition to above main hypothesis of the study, these
are the sub-hypothesis:
 As the economic and financial environment keeps changing, the risk-return
characteristics of individual securities as well as portfolios also change.
 For the success of the fund houses, the study of portfolio management and its
accurate application is essential in today‘s world of investment.
 Financial investments cannot be conceived of without portfolio management.

Period of the Study:

The period of the study broadly covers the period from 2009 to 2013.
However, while reviewing the history of Mutual fund in India, the period from
1964-65 is also covered. For the purpose of in-depth study, various fund schemes of
different fund houses are also covered in this study.

Limitations of the study:

A few limitations and constraints came in way of conducting the present
study, under which the researcher had to work are as follows:
 Although all attempts were made to make this an objective study, biases on
the part of respondents might have resulted in some subjectivity.
 Non – availability of some of the information and data required for
comparative study of Asset Management Companies and portfolio
management services.
Research Methodology 75

 Though, no effort was spared to make the study most accurate and useful, the
‗sample size‘ selected for the same may not be the true representative of the
industry, resulted in biased results.
 Mutual fund industry has a vast panorama. Hence, physical constraints of an
individual researcher can obviously put some restrictions in the assembling
of the data.
 This being the maiden experience of the researcher of conducting study such
as this, the possibility of better results, using deeper statistical techniques in
analyzing and interpreting data may not be ruled out.
 Time constraint cannot be overlooked. There was shortage of time to
complete the survey as the mutual fund industry is a vast topic to study,
examine and analysis.