SVKM’s Narsee Monjee Institute of Management Studies

Mukesh Patel School of Technology Management and Engineering

FINAL REPORT ON

Industry Landscaping and PMS of Centrum - Benchmarking with Competition

By

RAHUL KAMATH

Roll Number: K018

SAP Number: 70461015026

Faculty Mentor

 Dr Shalini Wadhwa

Industry Mentor

Praveen R. Panjwani
 A REPORT

ON

Industry Landscaping and PMS of Centrum - Benchmarking with

Competition

By

RAHUL KAMATH

Roll Number: K018

SAP Number: 70461015026

A report submitted in partial fulfillment of the requirements of 5 years

Integrated MBA(Tech) Program of Mukesh Patel School of Technology
Management and Engineering, Narsee Monjee Institute of Management
Studies (NMIMS) (Deemed to be University), Mumbai.

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 SVKM’s NMIMS (Deemed to be University)

Mukesh Patel School of Technology Management & Engineering

Vile Parle (W), Mumbai 400 056

MANAGEMENT INTERNSHIP REPORT Semester IX MBA (Tech)

Submitted in Partial Fulfilment of the Requirements for Management Project/Training for

Semester IX MBA (Tech)

Name of the Student: - Rahul Kamath

Roll No: - K018

Batch: - 2015-2020

Academic Year: - 2019-2020

Name of the Discipline: - Mechanical

Name and Address of the Company: - Centrum Wealth Management Ltd.

Centrum House, CST Road, Vidyanagari Marg, Kalina, Santacruz (East), Mumbai-
400098

Training Period: From 2nd May 2018 to 6th September 2018

THIS IS TO CERTIFY THAT

Mr. Rahul Kamath has Satisfactorily Completed his Training/Project Work,

submitted the training report and appeared for the Presentation & VIVA as
required.

External Examiner Internal Examiner Faculty Mentor

Date:

Place:

Seal of University:

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Acknowledgement

I take this opportunity to express my gratitude to all those who have been instrumental in the
successful completion of my project. I am thankful to Centrum Capital for providing me an
opportunity to learn and share my ideas and thoughts on the given area through my internship. It
gives me great pleasure to submit this project to SVKM’s NMIMS Mukesh Patel School of
Technology Management & Engineering as a part of my curriculum in the MBA Tech course. I
take this opportunity with great pleasure to present before you this project on " Industry
Landscaping and PMS of Centrum - Benchmarking with Competition" which is a result of co-
operation, hard work and good wishes of many people. The most pleasant part of any project is
to express the gratitude towards all those who have contributed to the success of the project. I
would like to thank Mr. Praveen R. Panjwani who has been my industry mentor for this
project. It was only through his excellent assistance and guidance that I have been able to
complete this project. I would also like to thank Dr Shalini Wadhwa for her support throughout
the MIP.

Rahul Kamath

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 TABLE OF CONTENTS
Acknowledgements i
List of illustrations ii
Abstract 8
1. Introduction 9
2. Project Description 10
3. Mutual Funds 11
3.1 Schemes
3.2 Securities and exchange board of India (SEBI)
3.3 Mutual Fund Structure
3.4 Top AMCs
3.5 Industry Trends
4. Alternate Investment Funds 17
4.1 Types of Alternate Investment Funds
4.2 AIFs Regulations
4.3 AIF Growth in India
4.4 Current Growth Opportunity
5. Real Estate 23
5.1 Investment Types
5.2 Types of Real Estate
5.3 Current Market Trend
5.4 Embassy REIT
6. Portfolio Management Services 27
6.1 Current Market Analysis
6.2 What is a Portfolio?
6.3 Portfolio Management
6.4 Steps Involved in Portfolio Management
6.5 Asset Allocation
6.6 Asset Mix
6.7 Modern Portfolio Theory
6.8 The Efficient Frontier Efficacy
6.9 Active/Passive
6.10 ETFs
6.11 Portfolio Risk Metrics
6.12 Sector and Thematic Evaluations

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7. Benchmarking 40
7.1 Equity Portfolio Funds
7.2 Market-cap Distribution & Strategies Implemented
7.3 Sectoral Distribution
7.4 Returns
7.5 Client Interactions
7.6 Managing Client Expectations
7.7 Robo Advisory Platforms
8. Live Portfolio Strategy Creation 45
9. Conclusions 47
10. Creating a Competitive Edge 47

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Abstract
Centrum offers wealth management services to HNIs. Within the wealth management product bouquet,
portfolio management services form a large part of the equity asset allocation. To understand and grow a
PMS business an understanding of the landscape and competitor’s product offerings is required. The large
players in this segment are Motilal Oswal, ASK and Edelweiss. The parameters to be compared include,
types of underlying instruments, performance track record and distribution strategies. In addition, the
focus areas would be identifying strategies for growth, maintaining a competitive advantage, keeping in
mind the changes in regulations within the Indian financial services sector.

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 1. Introduction
Founded in 1997, Centrum is a well-respected Financial Services Group, with diversified fee
businesses and a rapidly growing lending platform for institutions and individuals. They were
ranked at 150 in the Economic Times Top 500 companies in India for 2018.

Their Institutional services include Investment Banking, SME, MSME and Micro Finance loans
and an institutional broking desk catering to FIIs, Pension Funds, Indian Mutual Funds,
Domestic Institutions and HNIs with widespread coverage on niche midcap companies. They
also provide comprehensive Wealth Management Services to HNIs and Family Offices,
affordable housing finance in tier 2 & 3 cities and Insurance plans across Life, General & Health
Insurance. Their Asset Management business offers funds across private debt, public equity,
venture capital and real estate.

They have a strong leadership team comprising of industry veterans and experts with a
successful track record and operate out of 56 cities PAN India and have an international presence
in Singapore & Dubai.

This project focuses on equity portfolio management services which is a part of Centrum Wealth
Management.

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 2. Project Description
A portfolio is a mix of various securities such as stocks, bonds and money market instruments.
The project involves studying the portfolio management services of Centrum and comparing it to
other large industry players so as to identify strategies for growth and maintain a competitive
advantage. To understand a PMS business an understanding of the landscape and competitor’s
product offering is required. The large players in this segment include Motilal Oswal, ASK and
Edelweiss.

Different asset classes have different effects on a portfolio in given market conditions. Their
effects on the portfolios total returns needs to be studied and analyzed. Generally, a combination
of different securities generates higher returns at a lower risk. This is referred to as portfolio
diversification.

Initially the project focuses on different types of financial securities available to the retail
investor with a focus on equity related securities. Performing a research on these securities is
essential to gain a better understanding of the current state of the Indian financial sector.

Financial securities covered under this include:

1. Mutual Funds
2. Alternate Investment Funds
3. Real Estate / REITs
4. Gold and other physical assets

Once these securities are studied in detail, the project then focuses on asset allocation and its
various techniques. Asset allocation refers to the weight age assigned to each asset class in a
portfolio. It is the implementation of an investment strategy that attempts to balance risk versus
returns by giving percentage values to the different assets in a portfolio based on the risk profile
of the investor, the time frame and the objective of the portfolio. An asset mix calculator was
created which provided total return values based on the weight age assigned to the equity and
debt asset classes. Three investor types were taken into consideration based on their risk-taking
capacity; aggressive, balanced and conservative.

To compare the PMS offerings of competitors, the current PMS schemes are studied to
understand the different styles used to create portfolios. There are various methods used to
capture market beta and to create opportunities to capture additional returns over and above the
market beta called the alpha. Alpha generated by the portfolio varies on the objective and
philosophy of the portfolio in a discretionary type portfolio.

Keeping this in mind, additional methods and portfolio creation styles not currently used in the
market must be identified to capture market beta and alpha so as to generate superior returns for
clients at a much lower risk.

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 3. Mutual Funds
Mutual funds are a pool of money accumulated by several investors with the aim of saving and
making additional money through these investments. This pool of money is invested in various
asset classes like equity assets, debt assets and liquid assets, where all gains or losses are shared
by all investors in the proportions that they invested the money in. This means that a person who
invests more money into a mutual fund is eligible to receive more of the profits made during the
term of the mutual fund, but at the same time he is also more liable to lose a greater amount of
money in the event that the mutual fund fails to produce positive returns.

Mutual funds are known to be one of the most secure and safest investments as they are directly
regulated by SEBI (Securities and Exchange Board of India). They can be as simple as buying or
selling stocks or bonds and investors can sell out their shares whenever they want or need.

3.1. Schemes
There are a large variety of mutual fund schemes that cater to various investor types and needs.
Each scheme type is different from one another in some way which allows investors to be very
specific as to the type of investment they are seeking.

Mutual fund schemes can be classified based on:

1. Asset class
2. Structure
3. Investment goal
4. Risk

Within these classifications, there are a number of different types of schemes that an investor can
choose from including;

1. Equity funds: They are also known stock funds. They invest the money amassed from
investors from diverse backgrounds into shares of different companies. The returns or
losses are determined by how these shares perform in the stock market. Equity funds are
riskier as they are characterized as quick growth investments. 

2. Debt funds: Debt funds invest in fixed-income securities like bonds, securities and
treasury bills with fixed interest rate and maturity date. Investors often go for this kind of
investment if they are looking for small but regular income with low risk.

3. Money market funds: Also known as capital market or cash market, it is usually run by
the government, banks or corporations by issuing money market securities like bonds, T-
bills, dated securities and certificate of deposits among others. The fund manager invests
the money and disburses regular dividends as return.

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 4. Hybrid funds: Hybrid funds is an optimum mix of bonds and stocks, thus bridging the
gap between equity funds and debt funds. It takes the best of two mutual funds by
distributing assets in a fixed or variable ratio between equity and debt securities. This is
suitable for investors willing to take more risks with equity stocks along with the steady
income of debt funds rather than sticking to just lower but steady income schemes.

5. Growth funds: Growth funds put a huge portion in shares and growth sectors, and are
suitable for investors who have a surplus of idle money to be distributed in riskier plans.

6. Income funds: This is a type of debt mutual funds which distributes the money in a mix
of bonds, certificate of deposits and securities among others. Headed by skilled fund
managers who keep the portfolio in tandem with the rate fluctuations without
compromising on the portfolio’s creditworthiness, income funds have historically earned
investors better returns than deposits and are best suited for risk-averse individuals from a
2-3 years perspective. 

7. Tax-saving funds: Also known as equity linked savings scheme gives the double benefit
of building wealth as well as saving on taxes. It invests in stocks with the lowest lock-in
period of 3 years.

8. Index funds: As the name suggests, index funds put money in an index. It is not managed
by a fund manager. An index fund identifies stocks and their corresponding ratio in the
market index and puts the money in similar proportion in similar stocks. They cannot
outdo the market but play it safe by mimicking the index performance.

Based on risk, mutual fund schemes are classified as:

1. Very low risk funds

2. Low risk funds
3. Multi risk funds
4. High risk funds

Based on structure:

1. Open-ended funds
2. Closed-ended funds
3. Interval funds

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 3.2. Securities and exchange board of India (SEBI)
SEBI is the regulatory body of the Indian capital markets. It controls the securities market. It was
established on April 12, 1992 under the SEBI Act, 1992 and is headquartered at the Bandra
Kurla Complex in Mumbai, India. 

The Preamble of the Securities and Exchange Board of India describes the basic functions of
SEBI is the protection of investors interests in securities and to be a platform to promote,
develop and regulate the securities market in India as well as the relating matters that are
connected with it.

Mutual funds are one of the securities that the SEBI regulates and makes rules for. Over the
years it has made many rules to keep mutual funds in check and to promote more customer
focused practices. Some recent rules laid down by SEBI for mutual funds include:

1. AMCs to allow the use of e-wallets to make investments.

2. Additional TER of up to 30 basis points is allowed for inflows from B30 cities instead of
B15.
3. AMCs need to display daily TER of all schemes.
4. AMCs cannot charge the additional expenses on mutual fund schemes, including close
ended schemes, where exit load is not applicable.
5. AMCs are required to communicate change in TER compared to the previous TER.

3.3. Mutual Fund Structure

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Mutual Funds are a three-tiered structure consisting of:

1. A Sponsor
2. A Trustee
3. An Asset management company (AMC)

The Sponsor is the main body that establishes the Mutual fund. The Sponsor can be compared to
a promoter of a company. The responsibility of the sponsor includes appointing the trustees with
the approval of SEBI and setting up an AMC under the Companies act 1956 while getting the
trust registered with SEBI.

The main role of a trustee is to ensure that the interest of the unit holders is protected while
making sure that the mutual fund complies with all the regulations of SEBI. Either, the sponsor
should appoint four trustees or establish a trustee company with at least four independent
directors.

The AMC is the investment manager of the trust. It takes care of the day today operation of the
mutual fund and managing the investors money as well. The AMC is appointed either by the
trustee or the Sponsor after obtaining the approval of SEBI.

The custodian has the custody of the all the shares and various other securities bought by the
AMC. The custodian is responsible for the safe keeping of all the securities. 

3.4. Top AMCs

1. ICICI Prudential:  ₹ 3 lakh crore AUM

2. HDFC: ₹ 3 lakh crore AUM

3. Reliance Nippon Life: ₹ 2.5 lakh crore AUM

4. Aditya Birla Sun Life: ₹ 2.4 lakh crore AUM

5. UTI Asset Management Company Ltd: ₹ 1.4 lakh crore AUM

6. Kotak Mahindra: ₹ 1.2 lakh crore AUM

7. Franklin Templeton Mutual Fund: ₹ 1 lakh crore AUM

8. DSP Blackrock Mutual Fund: ₹ 0.85 lakh crore AUM

9. Axis Mutual Fund: ₹ 0.74 lakh crore AUM

10. SBI Funds Management Private Limited: ₹ 0.12 lakh crore AUM

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Mutual funds work by pooling the money with the money of other investors and investing it in a
portfolio of other assets (e.g., stocks, bonds). This means that investors will be able to invest in
portfolios that they wouldn’t be able to afford alone because they are investing alongside other
investors. The funds also provide instant diversification because they hold many different stocks.

Mutual funds are typically managed by a fund manager, who picks all the investments in the
portfolio. This is often a big selling point for beginner investors who don’t have much experience
and would rather place their faith in an “expert” in the mutual fund world.

Mutual funds pay out in two different ways:

1. Distributions: If a mutual fund contains an asset that pays dividends, the fund manager
must distribute the dividends to the fund owners. The distributions can also come in the
form of interest and capital gains.

2. Capital gains: You accrue capital gains money when you sell your mutual fund for more
than you initially paid for it.

Some important factors that investors should focus on before investing in a mutual fund include:

1. Risk Appetite
2. Mutual fund scheme Objective
3. Liquidity
4. Low TER
5. Management Team
6. Benchmarks
7. Load
8. Asset Diversification

3.5. Industry Trends

Mutual funds have added ₹ 3 trillion to their asset base in 2018. Due consistent rise in the SIP
flows and a strong participation of retail investors despite volatile markets, mutual funds are
looking to rise further. The asset under management (AUM) of the mutual fund industry rose by
13% to ₹ 24 trillion in 2018 by November end, up from ₹ 21.26 trillion at the end of December
2017.

The pace of growth declined for the asset size in 2018 as compared to the last year. The industry
had seen a surge of 32% in the AUM or an addition of over ₹ 5.4 trillion in 2017.

The IL and FS default and the consequent blow to the NBFC sector because of the liquidity
crunch exposed mutual funds to lakhs of crore worth of ill-liquid debt funds. This coupled with
volatile markets could be some of the reasons for a slower growth in assets base in 2018.

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A sharp rise in SIPs shows more people moving away from the concept of large lump-sum
investments. Fund houses have garnered over ₹ 80,600 crore through SIPs, a preferred route for
retail investors to invest in mutual funds as it helps them reduce market timing risk.

The industry added close to 10 lakh SIP accounts each month on an average in 2018 with SIP
collection on a monthly basis increasing to over ₹ 6,700 crore this year from more than ₹4,950
crore in 2017.

There was a sharp rise in the number of equity accounts in 2016-17, but the growth slowed down
in 2018-19. For debt-oriented schemes, the rate of growth was declining in 2016-17 and 2017-18
because of the shift in investor preference towards equity, but there seems to be a recent pickup
in growth.

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 4. Alternate Investment Funds
AIFs are privately held and managed pool of investment funds which invest in venture capital,
private equity, hedge funds, managed futures, etc. In simpler terms, an AIF refers to an
investment which differs from conventional investment avenues such as stocks, debt securities,
etc.

According to SEBI “An AIF means any fund established or incorporated in India in the form of a
trust or a company or a limited liability partnership or a body corporate which is a privately
pooled investment vehicle and is not covered under the Securities and Exchange Board of India
regulations.”

Many alternative investments have high minimum investments and fee structures, especially
when compared to mutual funds and exchange-traded funds (ETFs). These investments also have
less opportunity to publish verifiable performance data and advertise to potential investors.
Although alternative assets may have high initial minimums and upfront investment fees,
transaction costs are typically lower than those of conventional assets, due to lower levels of
turnover.

Most alternative assets are fairly illiquid, especially compared to their conventional counterparts.
For example, investors are likely to find it considerably more difficult to sell an 80-year old
bottle of wine compared to 1,000 shares of Apple Inc., due to a limited number of buyers.
Investors may have difficulty even valuing alternative investments, since the assets, and
transactions involving them, are often rare.

4.1. Types of Alternate Investment Funds

AIFs are classified into three broad categories: -

 Category I

Funds which invest in Startups, Small and Medium Enterprises (SMEs) and new
businesses which have high growth potential and are considered socially and
economically viable, are part of this category. The government promotes and incentivizes
investment in these projects as they have a multiplier effect on the economy in terms of
growth and job creation. These funds have been a lifeline to already thriving startups
starving for capital.
Category I AIFs comprises the following funds:
1. Venture Capital Fund (VCF): They invests in Startups which have high growth potential
but facing investment crunch in the initial phase and need funding to establish or expand
their business. Since it is difficult for new businesses and entrepreneurs to raise funding
through the capital markets Venture Capital Funds become the most sought-after
solution for their financing needs.

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 High Net Worth Investors (HNIs) who seek high risk-high return investments options
prefer to invest in VCFs. After the inclusion of VCFs in AIFs, HNIs from abroad are
also able to invest in VCFs and contribute to the growth of the economy.

2. Infrastructure Fund (IF): The fund invests for the development of public assets such as
road and rail infrastructure, airports, communication assets etc. Investors who are bullish
on the infra development in the coming times can invest in the fund since the
infrastructure sector has high barriers to entry and relatively low competition. Returns
from investing in Infrastructure Fund can be a combination of capital growth and
dividend income. When an Infrastructure Fund invests in socially desirable/viable
projects, the government may also extend tax benefits on such investments.

3. Angel Fund: This fund is a type of Venture Capital fund where fund managers pool
money from numerous “angel” investors and invest in budding startups for their
development. As and when the new businesses become lucrative, investors get the
dividends. In the case of Angel Funds, units are issued to the angel investors. An “angel
investor” refers to an individual who wants to invest in an angel fund and brings in
business management experience, thus guiding the startup in the right direction. These
investors typically invest in firms which are generally not funded by established venture
capital funds because of their growth uncertainty.

4. Social Venture Fund: Socially responsible investing has led to the emergence of Social
Venture Fund (SVF) that typically invests in companies that have a strong social
conscience and aim to bring a real change in the society. These companies focus on
making profits and solve environmental as well as social issues simultaneously. Even
though it is a kind of philanthropic investment, one can still expect returns because the
firms would still make profits.

Social Venture Fund generally invests in projects based out of developing countries as
they have great potential for growth as well as social change. Such investments also
bring the best managerial practices, technology and vast experience on the table which
makes it a win-win deal for all stakeholders including investors, enterprises and society.

 Category II:

Funds investing in various equity securities and debt securities come under this category
as well as those funds that are not described under category I and III by SEBI, fall under
category II. No incentive or concession is given by the government on investment in
these funds.

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 Category II AIFs comprises the following funds:

1. Private Equity (PE) Fund: PE funds basically invest in unlisted private companies
and take a share of their ownership. Since unlisted private companies cannot tap
capital through the issuance of equity or debt instrument, they look out for PE
funds. Further, these companies present its investors a diversified portfolio of
equities which essentially, lowers the risk to the investor. A PE fund typically has
a fixed investment horizon ranging from 4 to 7 years. After 7 years, the firm
expects that it would be able to exit the investment with a good amount of profit.

2. Debt Fund: This fund primarily invests in debt instruments of listed as well as
unlisted companies. Companies that have low credit score generally release high
yield debt securities accompanies with high risk. So, companies with high growth
potential, good corporate practices but facing capital crunch can be a good
investment option for debt fund investors.

3. Fund of Funds: As the name suggests, this fund is a combination of various

Alternative Investment Funds. The investment strategy of the fund is to invest in a
portfolio of other AIFs rather than making its own portfolio or deciding what
specific sector to invest in. However, it should be kept in mind that Fund of Funds
under AIFs cannot issue units of fund publicly, unlike Fund of Funds under
Mutual Funds.

 Category III:

Funds which aim at short term returns fall under this category. They employ various
complex and diverse trading strategies to achieve their goal of short-term capital
appreciation. There is no specific incentive or concession given by the government on
investment on these funds as well.

Category III comprises the following funds:

1. Hedge Fund: A hedge fund pools capital from institutional and accredited
investors and invests in domestic as well as international markets to generate high
returns. They take up leverage to a great extent and have aggressive management
of their investment portfolio. Hedge funds are relatively less regulated as
compared to its counterparts such as mutual funds and other investment vehicles.
However, they are expensive relative to other financial investment instruments.
Hedge Funds generally charge 2% as the asset management fee and take up 20%
of the profits earned as a fee.

2. Private Investment in Public Equity Fund (PIPE): It is a privately managed pool

of privately sourced funds earmarked for public equity investments. Private
investment in public equity refers to buying shares of publicly traded stock at a
3. discounted price. This enables the investor to purchase a stake in the company,
while the company selling the stake receives capital infusion to grow its business.

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 4.2. AIFs Regulations
Alternative investments are often subject to a less clear legal structure than conventional
investments. The Securities and Exchange Board of India permits an Alternative Investment
Fund under the SEBI (Alternative Investment Funds) Regulations, 2012 to be established as a
trust, a company, a limited liability partnership or a body corporate. Alternative Investment
Funds need to register themselves with SEBI under any one of the three categories of AIFs.
The peculiar legal nature of a ‘trust’ which gives rise to many legal considerations while using it
for an AIF, is that it does not have a separate legal personality, like a company or an LLP – i.e.
the trust, in itself, does not have the ability to sue or be sued. It is represented by its trustee,
which is primarily entitled to sue or be sued for and on behalf of the trust, as the legal owner of
the trust property.
For an AIF, an ‘irrevocably settled, determinate trust’ has been considered most appropriate.
This is stemming from traditional principles of trust taxation, because ‘determinacy’ of the trust
is one of the conditions for applicability of tax pass through under trust taxation principles (in the
unlikely event that the special tax pass through granted to Category I and Category II AIFs is
revoked) and ‘irrevocability of settlement’ ensures that the settlor of the AIF does not have
powers to revoke the trust and the trust shall continue until its purpose is served or stipulated
tenure is complete.
Some regulations of SEBI include:

 All AIFs must state investment strategy, investment purpose and its investment
methodology to the investors.

 The Sponsor or Manager of an AIF shall appoint a custodian registered with the Board
for safekeeping of securities.

 An AIF shall review policies and procedures and their implementation on a regular basis.

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 4.3. AIF Growth in India
The size of the alternative investment fund industry in the country is likely to more than double
over the next two to three years thanks to favorable policies set up by the government. With the
introduction of the SEBI AIF regulations 2012, 2013 saw large growths in AIFs in India from
1,437 Cr to 1,16,085 Cr in 2018, with a sharp rise in 2015. This is likely due to the fact that the
2015 budget proposed a tax pass-through for Cat-I and Cat-II AIFs which include PE and VC
funds, meaning that capital gains arising from alternative investments would be taxed in the
hands of investors instead of those funds. Another boost to the industry came from doing away
with the 18% GST tax applicable currently to onshore foreign pool of capital.

AIFs invest in start-ups, real estate, private equity and more, some of them using strategies which
mutual funds are not allowed to - such as taking a combination of 'long' and 'short' positions on
stocks. AIFs are growing because there is increasing awareness of this category among high net
worth individuals (HNIs), as well as an expanding pool of people who understand and sell such
products.

Unlike mutual funds, in which anyone with Rs1,000 to spare can invest, the minimum
investment in an AIF is Rs1 crore.

A challenge for the Category III AIFs is taxation. Category I and II AIFs have been given 'pass
through' status which means the investor is taxed, not the fund, barring a 'withholding tax' of 10
per cent on any income accrued. But Category III is taxed at the fund level, not the investor,
which means the investor's income is taxed, even if he could have avoided the tax at the
individual level.

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 4.4. Current Growth Opportunity
Since the AIF regulations came into being in mid-2012, 91 category 3 AIFs have been registered
with Sebi, with more than half of the funds being registered in the last two years. Last year,
category 3 AIFs raised ₹ 14,333 crore. In the first half of 2018, such funds have raised ₹ 8,136
crore, data from Sebi shows.

According to industry experts, the category 3 AIF format offers several advantages over mutual
fund and portfolio management services (PMS), which are attractive to investors, especially in
volatile markets. Cat III AIFs allows for hedging strategies to be used, while Mutual funds do
not, hence in today's volatile market, more investors are opting for Cat III AIFs.

The structure provides access to ideas that investors cannot do on their own, or is hard to do in a
mutual fund format. Investors get access to strategies that alter the risk-return payoff so that they
are not 100% correlated to capital market movements or interest rate movements. Today if an
investor invests in a long-only mutual fund, by nature and mandate, the mutual fund is typically
fully invested in that scheme, so it is highly correlated to that benchmark.

If an investor has to hedge as an individual investor, he would have to understand how to do it on

his own. But there could be opportunities for investors to go out and do it in an AIF, through a
strategy such as long short, which tries to bring down the volatility of participating in equities.
MF schemes are highly correlated to their benchmarks but with hedging in AIFs, even when the
market falls, consistently positive returns can still be made.

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 5. Real Estate
Real estate in India forms a major part of investor portfolios and acts as a tangible asset which
supplements the primary portfolio. Often one of the largest investments an average investor will
make, income producing real estate can earn an investor returns in two ways; through rent yield
or by market capitalization. It differentiates itself from stocks and bonds by the fact that it is
physical in nature and thus includes a substantial pride of ownership of the investor.

5.1. Investment Types

Based on market type: The market type determines how interest in real estate investments is
earned; direct interests or indirect interests in private or public markets respectively.

Based on equity and debt Investments: Debt based investments include lending money to an
owner of real estate to gain periodic interest returns. Equity based investments include earning
returns on property owned through rent or market capitalization.

 Quadrant A: Purchase real estate securities like REITs.

 Quadrant B: Buy direct ownership of real estate.

 Quadrant C: Purchase mortgage REIT or mortgage-backed securities.

 Quadrant D: Lend money to purchasers of real estate.

5.2. Types of Real Estate

 Raw land
 Residential property
 Commercial property
 Non-income producing property

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 5.3. Current Market Trend
Residential real estate had sales of 34.6 Mn sq. Ft in December 2018 while the launches declined
to 14.1 Mn sq. Ft, thus resulting in total inventory to fall 10.5% to 1.25 bn sq. Ft. Inventory in
MMR took the biggest hit as launches remained weak at 2.2 Mn sq. Ft and sales remained
constant at 6.7 Mn sq. Ft. The unsold inventory of 1.25 bn sq. Ft is projected to take around 3
years to absorb at current rate of sales.

Due to multiple failed and delayed projects, the residential real estate sector has been declining
for the past few years. As banks struggle with bad debts from failed projects and NBFCs are
running dry, developers have no choice but to go to PE funds despite its higher expenses
compared to loans from banks and NBFCs. With major focus on affordable housing, PE
investors see this as a huge opportunity as valuations are low and so is risk.

As the residential sector recovers, the commercial real estate sector continues to grow, especially
in the retail and office segments. Many foreign investors are also looking to invest in the
commercial sector along with large institutional investors. New real estate regulations such as
RERA, GST, and the insolvency and bankruptcy code (IBC) have brought financial discipline in
the sector. The introduction of REITs in India has also been a huge boost to the commercial real
estate sector.

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 5.4. Embassy REIT
Real estate investment trusts or REITs give retail investors an opportunity to invest in
commercial properties. Often compared to a mutual fund, REITs are different in respect to the
kind of underlying assets they hold, which are tangible in nature. are securities linked to real
estate that can be traded on stock exchanges once they get listed. The structure of REITs is
similar to that of a mutual fund. Just like mutual funds, there are sponsors, trustees, fund
managers and unit holders in REITs. However, unlike mutual funds, where the underlying asset
is bonds, stocks and gold, REITs invest in physical real estate. The money collected is deployed
in income-generating real estate. This income gets distributed among the unit holders. Besides
regular income from rents and leases, gains from capital appreciation of real estate also form an
income for the unit holders.

Real estate as an asset class has always attracted investors, but the high-ticket size made it out of
reach for many. Investing in grade A office space or prime real estate location is out of the
question even for many wealthy individuals. But REITs can provide an option to the retail
investors to invest in high-end commercial real estate, as the minimum investment has been kept
very low.

Investment in commercial real estate is a highly capital-intensive affair. REITs are a very viable
addition to investment portfolios as they allow investors to participate in an asset class
previously reserved only for the affluent few.

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Embassy REIT is India’s first REIT which was brought by the two sponsors, Embassy and
Blackstone. They have a Portfolio of 32.6 Mn sq. ft comprising 24.2 Mn sq. ft completed and 2.9
Mn sq. ft under construction office space plus a proposed development area of 5.5 Mn sq. ft.

A detailed analysis of the office market based on asset ownership, size of the property, leased
space and asset quality has been used to arrive at REITable office space. In order to arrive at the
REITable assets in India, the focus has been on low hanging fruits in terms of single ownership,
larger floor space with good occupancy rates. Research indicates that 294 Mn sq. ft of office,
space stock would be eligible for REIT. This would translate to potential investment of USD 35
bn.

The sector has been growing continuously with vacancies dropping over the last 6 years. The
office space absorption has been concentrated in Bengaluru, Delhi NCR, MMR, Pune, and
Hyderabad, with these five cities contributing greater than 85% of the total absorption in India.

With the increase in absorption rates and growing commercial real estate sector, Embassy REIT
aims to improve returns by 55.8% in the future through re-leasing and expanding strategies.

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 6. Portfolio Management Services
6.1. Current Market Analysis
The overall FY19 GDP growth of India is estimated at 6.81% as compared to the growth rate of
7.17% in past year. The growth in gross domestic product is slowest since 2014-15. The previous
low was 6.39% in 2013-14.

Global economic activity has begun to weaken due to rising trade war tensions between US and
China, sluggish performance by large economies in Europe and Asia and weaker financial
market sentiments. Slowdown in GDP growth of various developed and developing countries has
caused widespread concerns about the possible negative impact of trade-related uncertainty. But
a recent Fed survey indicated a generally positive outlook with expectations of continued modest
growth in the economy despite these widespread concerns.

As global PMI (mfg) contracted in May and Jun (below 50)- PMIs shrank for 18 of 30
economies, including China, Japan, Germany and South Korea, Large investors and banks
including Blackrock & BofAML have cut estimates for global growth in the second half of
CY19.

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The US increased Fed fund rates from 1.25-1.5% to 2.25-2.5% in December 2018. Whereas
USMCA free trade agreement replaces NAFTA which will benefit North American workers,
farmers and businesses.

Growth in FMCG sales in India, a key indicator of rural demand is expected to see further
slowdown - with volume growth for FMCG during Q1 down to 6.2%, a third consecutive quarter
of slowdown. Thus, growth stands at 12% vs. expectations of 13 - 14% earlier with slowdown
now penetrating acorss all categories including essential and impluse food categories. The
slowdown has been led by north and western states. However, a large part of the slowdown
(57%) has come from smaller manufacturers (with less than INR 100 cr turnover) and not the
bigger listed names.

The head line and core inflation are converging and core is moving towards 4%. This along with
the correction in Brent crude oil to $62 per barrel may further provide comfort to RBI.

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The large cap markets are going up while small and mid caps are falling despite valuations being
fair with large cap valuations at par with mid cap. Historically speaking, each time the mid and
small caps were this low, accompanied by low lquidity in the market, there has been an uptick in
the coming years. Hence this is the best time to be in mid and small cap markets as they are at
historical lows and predicted to rise over the long term with improving liquidity and reducing
rates.

6.2. What is a Portfolio?

The term “portfolio” refers to any combination of financial assets such as stocks, bonds and cash.
Portfolios may be held by individual investors or managed by financial professionals, hedge
funds, banks and other financial institutions. t is a generally accepted principle that a portfolio is
designed according to the investor's risk tolerance, time frame and investment objectives. The
monetary value of each asset may influence the risk/reward ratio of the portfolio.

An investment portfolio can be thought of like 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.

While a financial advisor can develop a generic portfolio model for an individual, an investor's
risk tolerance should have a significant impact on what a portfolio looks like. For example, a
conservative investor might favor a portfolio with large-cap value stocks, market index funds,

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investment-grade bonds, and a position in liquid, high-grade cash equivalents. In contrast, a risk-
tolerant investor might add some small-cap growth stocks to an aggressive, large-cap growth
stock position, assume some high-yield bond exposure, and look to real estate, international and
alternative investment opportunities for his or her portfolio. In general, an investor should
minimize exposure to securities or asset classes whose volatility makes them uncomfortable.

Similar to risk tolerance, investors should consider how long they have to invest when building a
portfolio. Investors should generally be moving to a more conservative asset allocation as the
goal date approaches, to protect the portfolio's principal that has been built up to that point.

For example, an investor saving for retirement may be planning to leave the workforce in five
years. Despite the investor's comfort level investing in stocks and other risky securities, the
investor may want to invest a larger portion of the portfolio's balance in more conservative assets
such as bonds and cash, to help protect what has already been saved. Conversely, an individual
just entering the workforce may want to invest their entire portfolio in stocks, since they may
have decades to invest, and the ability to ride out some of the market's short-term volatility.

6.3. Portfolio Management

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

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

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.

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.

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6.4. Steps involved in Portfolio Management

 Identification of objectives
The starting point in this process is to determine the characteristics of the various
investments and then matching them with the individuals need and preferences. These
objectives may be tangible such as buying a car, house etc. and intangible objectives such
as social status, security etc. Similarly, these objectives may be classified as financial or
personal objectives. Financial objectives are safety, profitability and liquidity. Personal or
individual objectives may be related to personal characteristics of individuals such as
family commitments, status, depends, educational requirements, income, consumption
and provision for retirement etc.

 Formulation of portfolio strategy

The aspect of Portfolio Management is the most important element of proper portfolio
investment and speculation. While planning, a careful review should be conducted about
the financial situation and current capital market conditions. This will suggest a set of
investment and speculation policies to be followed. The statement of investment policies
includes the portfolio objectives, strategies and constraints.
Portfolio strategy means plan or policy to be followed while investing in different types
of assets. There are different investment strategies. They require changes as time passes,
investor's wealth changes, security price change, investor's knowledge expands.
Therefore, the optional strategic asset allocation also changes. The strategic asset
allocation policy would call for broad diversification through an indexed holding of
virtually all securities in the asset class.

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 Selection of asset mix
The most important decision in portfolio management is selection of asset mix. It means
spreading out portfolio investment into different asset classes like bonds, stocks, mutual
funds etc. In other words, selection of asset mix means investing in different kinds of
assets and reduces risk and volatility and maximizes returns in investment portfolio.
Selection of asset mix refers to the percentage to be invested in various security classes.
The security classes are simply the type of securities as under:
Money market instruments
Fixed income security
Equity shares
real estate investment
International securities

Once the objective of the portfolio is determined the securities to be included in the
portfolio must be selected. Normally the portfolio is selected from a list of high-quality
bonds that the portfolio manager has at hand. The portfolio manager has to decide the
goals before selecting the common stock. The goal may be to achieve pure growth,
growth with some income or income only. Once the goal has been selected, the portfolio
manager can select the common stocks.

 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 of 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 sectors from
the strategic asset allocation.
Such timing decisions are known as tactical asset allocation and selection decision deals
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 asset allocation. Then the investor or portfolio manager can make any tactical
asset allocation or security selection decision.

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 Portfolio revision
Portfolio management would be an incomplete exercise without periodic review. The
portfolio, which is once selected, has to be continuously reviewed over a period of time
and if necessary revised depending on the objectives of investor. Thus, portfolio revision
means changing the asset allocation of a portfolio.
Investment portfolio management involves maintaining proper combination of securities,
which comprise the investor's portfolio in a manner that they give maximum return with
minimum risk. For this purpose, investor should have continuous review and scrutiny of
his investment portfolio. Whenever adverse conditions develop, he can dispose of the
securities, which are not worth. However, the frequency of review depends upon the size
of the portfolio, the sum involved, the kind of securities held and the time available to the
investor. The review should include a careful examination of investment objectives,
targets for portfolio performance, actual results obtained and analysis of reason for
variations. The review should be followed by suitable and timely action. There are
techniques of portfolio revision.
Investors buy stock according to their objectives and return-risk framework. These
fluctuations may be related to economic activity or due to other factors. Ideally investors
should buy when prices are low and sell when prices rise to levels higher than their
normal fluctuations. The investor should decide how often the portfolio should be
revised. If revision occurs too often, transaction and analysis costs may be high.

 Portfolio performance evaluation

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. These rates of return should be based on the market value of the assets of
the fund and complete evaluation of the portfolio performance must include examining a
measure of the degree of risk taken by the fund.
A portfolio manager, by evaluating his own performance can identify sources of strength
or weakness. It can be viewed as a feedback and control mechanism that can make the
investment management process more effective. Good performance in the past might
have resulted from good luck, in which case such performance may not be expected to
continue in the future. On the other hand, poor performance in the past might have been
result of bad luck. Therefore, the first task in performance evaluation is to determine
whether past performance was good or poor. Then the second task is to determine
whether such performance was due to skill or luck and good performance in the past may
have resulted from the actions of a highly skilled portfolio manager. The performance of
portfolio should be measured periodically, preferably once in a month or a quarter. The
performance of an individual stock should be compared with the overall performance of
the market.

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 6.5. Asset Allocation
Once a portfolio is selected the next step is the selection of the specific assets to be included in
the portfolio. Assets in this respect means group of security or type of investment. While
selecting the assets the portfolio manager has to make asset allocation. It is the process of
dividing the funds among different asset classes.

There are three main asset classes that make up any portfolio- equities, fixed income and cash
and equivalents. The correct mix of these assets for a specific risk profile and time horizon refers
to asset allocation.

Investing funds in a single security is advisable only if the security's performance is rewarding.
To reduce risk of a portfolio investors resort to diversification. Diversification means shifting
form one security to another security. The maximum benefits of risk reduction can be achieved
by just having of 10 to 15 carefully selected securities across various asset classes.

6.6. Asset Mix

Learning asset allocation forms the basis of portfolio construction and deciding an optimum asset
mix is crucial to developing the right portfolio. To understand asset allocation, a simple asset
mix calculator was developed which would show returns for different debt-equity allocations
over a range of time horizons. Three investor profiles were selected; Balanced, Conservative and
Aggressive. Funds of 1 lakh were allocated based on these risk profiles.

Over a 1 year time horizon, maximum funds were allocated in debt related securities as equity
markets proved to be highly volatile. Above 1 year we see more funds allocated towards equity
for an aggressive investor. But a substantial amount is still invested in debt for security and fixed
income. Over a 1-3 year horizon, as we go from an aggressive profile to a conservative profile,
the amount invested in debt increases and the Total rate of return decreases. This is the opposite
for investments made during a single year.

This happens due to the fact that over a short term returns for equity investments are
substantially lower than debt investments and have greater volatility in the market. Whereas over
a larger time horizon, equity investments have higher returns and lesser volatility.

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As the time horizon increases further, the volatility in the market reduced which allowed for
more aggressive investing strategies at a lower risk. This means that more funds could be
allocated in equity related securities which give higher cumulative returns over the long run.

There is a massive difference in interests rates after 5 years with lower risks which point that
longer time horizons should be more preferred when making investment decisions in the equity
market. As time horizon increases, market volatility reduces and equity returns improve as long
as macro-economic factors remain constant.

6.7. Modern Portfolio Theory

Modern portfolio theory is an investment strategy where maximum returns are achieved at the
lowest possible risk level for a given portfolio. This theory was based on two main concepts:

 Every investor’s goal is to maximize return for any level of risk

 Risk can be reduced by diversifying a portfolio through individual, unrelated securities

MPT works under the assumption that investors are risk-averse, preferring a portfolio with less
risk for a given level of return. Under this assumption, investors will only take on high-risk
investments if they can expect a larger reward. Diversification is a key tool used to achieve
maximum returns by combining high risk securities with low risk ones, thus bringing down the
total risk level of the portfolio.

A portfolio’s overall risk is computed through a function of the variances of each asset, along
with the correlations between each pair of assets. Asset correlations affect the total portfolio risk,
formulating a smaller standard deviation than would be found by a weighted sum.

Under the MPT an investor can hold a high-risk asset, mutual fund, or security, so long as this
high-risk investment is minimized by all underlying assets. The portfolio itself is balanced in a
way that its overall risk is lower than some of its underlying investments. Volatile markets often
force investors to use a certain level of “tactical asset allocation” along with MPT to balance and
adjust the weights of different securities in the portfolio to maintain a certain risk level.

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According to MPT, there are two components of risk for individual stock returns:

 Systematic Risk: This refers to market risks that cannot be reduced through
diversification, or the possibility that the entire market and economy will show losses that
negatively affect investments. MPT does not claim to be able to moderate this type of
risk, as it is inherent to an entire market or market segment.

 Unsystematic Risk: Also called specific risk, unsystematic risk is specific to individual
stocks, meaning it can be diversified as you increase the number of stocks in your
portfolio.

In a truly diversified combination of assets, the risk of each asset itself contributes very little to
overall portfolio risk. Rather, the covariances among the individual assets determine more of the
overall portfolio risk. Therefore, investors can reduce individual asset risk by combining a
diversified portfolio of assets.

6.8. The Efficient Frontier Efficacy

The efficient frontier is a graphical representation of all possible combinations of risky securities
for an optimal level of return given a particular level of risk. Portfolios that lie on or close to the
efficient frontier give the highest returns for a given level of risk or vice-versa.

Any portfolio that falls outside the Efficient Frontier is considered sub-optimal for one of two
reasons: it carries too much risk relative to its return, or too little return relative to its risk. A
portfolio that lies below the Efficient Frontier doesn’t provide enough return when compared to
the level of risk. Portfolios found to the right of the Efficient Frontier have a higher level of risk
for the defined rate of return.

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At every point on the Efficient Frontier, investors can construct at least one portfolio from all
available investments that features the expected risk and return corresponding to that point. A
portfolio found on the upper portion of the curve is efficient, as it gives the maximum expected
return for the given level of risk. The Efficient Frontier offers a clear demonstration of the power
behind diversification. There’s no singular Efficient Frontier, because investors can alter the
number and characteristics of the assets to conform to their needs.

6.9. Active/Passive
There are mainly two ways a fund manager manages his portfolio:

 Active Portfolio Management

It refers to the management of assets in a portfolio such that it goes against the allocations
within the benchmark index. Stock weightage in a portfolio is dynamically rebalanced
continuously based on market fluctuations.
This often leads to a risk of exclusion where index heavyweights or wrongly valuated
stocks are not included in the portfolio which leads to loss of market beta.

 Passive Portfolio Management

It is primarily an index-based strategy where stock selection closely follows the
allocations within the index. Stock selection and sectoral weightage is decided in advance
and is rarely modified as the fund matures.
Drawbacks of this includes potential loss of alpha by including underperforming stocks
that slow down the fund’s growth.

If both, active and passive management lead to certain drawbacks, then why not combine the two
strategies to make up for the losses that they each produce individually. This allows the fund
manager to capture market beta and match benchmark performance and at the same time produce
alpha over the index, thus outperforming it by eliminating underperforming stocks. Though
rewarding, this is a risky strategy as it is strongly dependent on the fundamentals of the fund
manager and the strategy used for stock picking.

6.10. ETFs
Exchange-traded funds (ETFs) are vehicles in the form of investment funds that usually replicate
a benchmark index and whose shares are traded on stock exchanges. ETFs differ from open-end
investment funds in that no direct trading takes place between the fund provider and investors.

ETF shares are traded with what is known as APs on the primary market for securities which are
then traded to investors in the secondary market.

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ETFs represent a cost-efficient means of investing in a diversified portfolio and thus also open
up access to market segments which are difficult to reach through other investment instruments.
The complex structure of ETFs, including the primary/secondary market mechanism, makes the
task of risk assessment harder and may harbor liquidity risk.

Passive funds are seeing huge inflows in US as active fund managers have found it increasingly
difficult to beat the market due to an efficient and developed market. Similar trends can be seen
in India in the large cap funds space. Therefore, the idea of passively managed funds could prove
to be more rewarding in the future. There is a huge market for these as more and more fund
managers move to passive management of funds.

6.11. Portfolio Risk Metrics

While diversification and smart asset allocation can reduce risks, there are still risk factors
inherent in any investment.

 Alpha ratio: The difference between the returns of a portfolio and its benchmark is called
alpha. A positive alpha indicates outperformance whereas a negative alpha means the
portfolio is underperforming.

 Beta ratio: It compares the volatility of a portfolio compared to the benchmark index and
thus captures the movements and swings in asset prices. A beta greater than one
indicates higher volatility whereas a beta under one means the security will be more
stable.

 R-Squared: The coefficient R represents the correlation between two variables, R-squared
measures the explained movement of a fund or security in relation to a benchmark. A
high R-squared show that a portfolio’s performance is in line with the index.

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  Standard deviation: It is used to measure an investment's volatility. The measurement
differs slightly from beta as it compares volatility to the historical returns of the security
rather than a benchmark index.

 Sharpe ratio: It is the measurement of the expected excess return of an investment in

relation to its return volatility. A ratio of one or greater is considered to have a better risk-
to-reward trade-off.

6.12. Sector and Thematic Evaluations

A sectoral fund typically focuses on a particular industry group. Thematic funds are slightly
broader than sector funds as they focus on themes rather than an industry. They are much more
risky than other funds as they concentrate on only a particular set of stocks which are linked
tightly to the performance of that sector or theme.

Most PMS funds usually are diversified over multiple sectors with most common areas being
Banking and finance, Pharmaceuticals, Consumer goods and Infotech.

Many fund managers are now vying for the Mid-cap and Small-cap space. The currently popular
theme followed is the NEXT trillion-dollar economy and India’s growing entrepreneur
companies.

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 7. Benchmarking
7.1. Equity Portfolio Funds
The focus of the project is only on purely equity related funds, and in that context, benchmarking
is done only with those funds which consists of equity stocks.

The major players in that space include AMCs like Edelweiss, Motilal Oswal and ASK. Various
parameters are taken into consideration when benchmarking.

These include:

 Market cap distribution

 Strategies implemented
 Sector allocation
 Returns
 Client interaction

7.2. Market-cap Distribution & Strategies Implemented

7.2.1. Multi-Cap Funds
 Edelweiss
1. Edelweiss Event Arbitrage
Aims to generate absolute returns while capturing speacial oppurtunities in the
stock market. 4-8 event trades each lasting 1-6 months

2. Edelweiss Dynamic Value

Invest in companies which are value, quality and safety oriented. Generate
absolute returns with a focus on equities.

3. Rubik Equity Fund

To generate alpha over a long term by investing in companies with strong
fundamnetals. Strategy is to buy and hold high growth companies acquired at
moderate valuations that deliver superior returns over mid and long terms.
Strategy is not expected to have any specific sector bias and shall be sector and
industry agnostic.

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 Motilal Oswal
1. Next Trillion Dollar Oppurtunity
Invest in growing businesses and sectors with bright futures. Generate returns by
investing in those sectors which will benefit from GDP growth.

 ASK
1. ASK Growth Strategy
Investment in high growth oppurtunity stocks. Ensure continuous growth earnings
and the price-value gap should be high.

2. ASK Indian Entrepreneur Portfolio Startegy

Investment in entrepreneural businesses with high earnings growth, margin of
safety and size of oppurtunity. Long term investment in high quality and growth
companies with high ROCE.

3. ASK India Select Portfolio

Investment in stocks which have all value adding attributes including size of
oppurtunity, earnings growth, quality of business and price-value gap.

 Centrum
1. Centrum Wealth Creator
Invest in companies with strong fundamentals, sound management and consistent
operating performance to deliver returns over long and medium terms. Achieve
long term wealth creation with mid-cap stocks and liquidity needs with large-cap
stocks.

7.2.2. Small-Cap Funds

 Edelweiss
1. Focused Small Cap
Deliver superior risk adjusted returns by investing in small-mid cap comapnies
which are mispriced and have strong earnings gowth.

 Motilal Oswal
1. Indian Oppurtunities Portfolio Strategy
Strategy aims to invest in those companies which will grow with the growth of the
Indian economy. It is a high risk and high return strategy which takes advantage
of market trends.

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  Centrum
1. Centrum Micro
Long term capital appreciation by investing in small-caps with high standards of
corporate governance. Identify emerging themes and stock potential including
turnaround cases.

7.2.3. Large-Cap Funds

 Motilal Oswal
1. Value Strategy
Invest long term in large-cap companies with good growth. Undervalued stocks
are bought and overvalued stocks are sold irrespective of index movement.
7.2.4. Mid-Cap Funds
 Centrum
1. Centrum Deep Value
Invest in relatively unknown mid and small cap companies to create significant
value over the long term.

7.3. Sectoral Distribution

Within the multi-cap funds, banking & finance, FMCG, cement/building and IT sectors are
common with maximum weightage. Diversification in the right sectors is necessary to ensure
consistent returns.

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 7.4. Returns

 Long term returns of ASK and Motilal Oswal PMS show high numbers which is most
likely due to their strong long term strategies.

 Centrum returns weaker in comparison with poor short term performance

 With increasing time horizon there is a rise in returns,except for edelweiss, which shows
a fall in returns over a 5 year period.

7.5. Client Interaction

The success of a PMS fund is also dependent on how the clients are treated and what customer
benefits are provided. Most PMS houses provide call and email support a fixed number of times
a month. Some of them provide SMS support as well. WhatsApp updates are also given in
certain fund houses. Online web support allows clients access to their portfolio 27x7.

7.6. Managing Client Expectations

High risk strategies usually give higher returns in the long run, but there is always a chance that
returns are not up to expectations due to market volatility and global economic factors. During
these times, to avoid inflated client expectations, it is important for the advisor to understand the
risk capacity of the client from the beginning and educate them on the various levels of risk
associated with different types of investments.

Letting clients know that investment performance is always relative. Factors that affect global
markets affect the investment performance too. To meet increasing demands, wealth managers
must stay informed and connected, while exercising critical time management to service their
clients.

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 7.7. Robo Advisory Platforms
Today’s investors have high expectations, demanding anytime, anywhere access to accounts and
information, while expecting frictionless speed of updates and requiring greater transparency.
Thus, technology needs to support and enable advisors to do their jobs more effectively.

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning
services with little to no human supervision. Robo-advisors are low-cost alternatives to
traditional advisors by eliminating the human labor involved. They are also more accessible to
clients and are efficient in their work.

With the advent of such technology, the role of the wealth manager could change dramatically in
the next few years. Not only do clients expect better tools of engagement, but advisors will be
serving ever more clients and for lower fees.

Edelweiss offers Robo advisory called Edelweiss Guided Portfolios for its investors.

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8. Live Portfolio Strategy Creation

8.1. Philosophy
 Invest in companies with sound business practices and strong fundamentals.
 Chase after consistency in performance more than just an increase in performance.
 Always have long term growth in mind when making investment decisions.

8.2. Objective
Ensure initial returns with low risk and max returns over a longer time horizon with even
lesser risk.

Sector focus in:

 Banking and Finance

 IT
 Energy
 Consumer Goods
 Agriculture

8.3. Strategy

 Basket of 30 stocks selected on basis of size of opportunity, price value, growth

earnings and quality of business.
 Focus on large and mid-cap stocks over a 3-5 year time horizon.
 Bottom up stock picking.
 Large-Cap stocks: No sector or theme biases consisting of 10 stocks. Passive
management of stocks.
 Mid-Cap stocks: Diversified basket of 20 stocks with no more than 30% individual
sector exposure. Active stock management of stocks.
 Individual stock exposure not more than 12%.

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8.4. Why wait for the Mid-caps?

 With the recent NBFC crisis and consequent rate cuts made by the RBI, rising
liquidity concerns are now become evident.
 Market sentiments are still down and even with the recent correction, the mid-cap
space is still highly volatile.
 Past data indicates that with improving liquidity the Mid-cap market is set to take off
soon, but holding on to Large-cap stocks for now is the smart move.

8.5. Portfolio Construction

Flexi-cap Implementation will be used along with staggered buying of stocks.

 Initial 10 Large-Cap stocks selected, 60-70% exposure to market.

 5-10 Mid-Cap stocks selected, 30-40% exposure to market.

Once liquidity rises and market sentiments pick up, Large-Cap exposure will be reduced to
20-30% and Mid-Cap exposure increased to 70-80% with additional stocks bought.

Stock selection in Mid-Cap dependent on emerging sectors over 5 years.

Longer time horizon gives more profits at a continually decreasing risk factor.

8.6. Benchmark

 Nifty Midcap 100 consists of the emerging companies within the market.
 Predicted to give higher returns over Nifty 50 in the long run.
 Gives better view of emerging sectors within the market.
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 9. Conclusions
Most PMS houses offer similar benefits of stock diversification and selection with growth and
consistency in mind. What really distinguishes each PMS is the fund manager’s policy and the
past historical returns of each PMS fund. A small number of focused strategies with good track
record and transparent disclosures are important ingredients to any PMS. Identifying sectoral and
theme related funds is beneficial to create a focused high return strategy with a moderate amount
of risk.

Motilal Oswal has the most experience in this field and is one of the top performing PMSs
currently with highest client base and best return figures.

10. Creating a Competitive Edge

Utilizing Robo advisory platforms and other automated tools can help wealth managers allocate
funds efficiently while at the same time catering to client needs and expectations. Developing
strategies which are a combination of passive and active management can generate alpha over
the index to give superior returns even during a falling market. Use of technology can minimize
management costs and thus provide better benefits to clients and help retain clients over time.

In a world of just-in-time client demands, technology can be used to improve customer

experience by:

 Analyzing client data to build detailed client segments that can be used for predictive
analytics.
 Promoting more consistent and customized interactions with advisers through multiple
media, including mobile and social.
 Developing digital strategies, including social media and video, to promote multi-
channel marketing campaigns customized for target segments.

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