PORTFOLIO MANAGEMENT

Shivam Parashar Lakshya Bansali

8834 8757
B.Sc(H) Mathematics B.Sc(H)Mathematics
Year I, Semester II Year I, Semester
II

Submitted to: Dr. Apoorva Gupta

Declaration
This paper is submitted to Dr. Apoorva Gupta
as part of the internal assessment for the paper
Principles of Macroeconomics I, for the
academic year 2022-2023
 CHAPTER - 1
INTRODUCTION

1.1 Introduction

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. It 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.

There are many types of portfolios including the market portfolio and the zero-investment
portfolio. A portfolio's asset allocation may be managed utilizing any of the following
investment approaches and principles: dividend weighting, equal weighting, capitalization-
weighting, price-weighting, risk parity, the capital asset pricing model, arbitrage pricing theory,
the Jensen Index, the Treynor ratio, the Sharpe diagonal (or index) model, the value at risk
model, modern portfolio theory and others.

In simple words, a portfolio is a collective term used for all the investments you make. It refers
to the combination of investments of different asset classes, such as:

● Equity
● Derivatives
● Short-term Debt and Commodities

For example, your portfolio may comprise a combination of some equity investment, an
investment in short-term debt, gold, and even cash. Every person has a unique portfolio suitable
to their diverse needs and financial resources. When it comes to the management of a portfolio,
you can either do it on your own or hire an expert to do the same. If you choose the latter option,
you will have to go with Portfolio Management Services (PMS)
Portfolio Management

Portfolio management is the art and science of selecting and overseeing a group of investments
that meet the long-term financial objectives and risk tolerance of a client, a company, or an
institution.

Some individuals do their own investment portfolio management. That requires a basic
understanding of the key elements of portfolio building and maintenance that make for success,
including asset allocation, diversification, and rebalancing.

Types

1. Investment Portfolio Management

Investment portfolio management involves building and overseeing a selection of assets such as
stocks, bonds, and cash that meet the long-term financial goals and risk tolerance of an investor.

2. Active Portfolio Management

Active portfolio management requires strategically buying and selling stocks and other assets in
an effort to beat the performance of the broader market.

3. Passive Portfolio Management

Passive portfolio management seeks to match the returns of the market by mimicking the
makeup of an index or indexes.

4. Discretionary portfolio management

In this type of PMS, investment decisions are taken at the portfolio manager's discretion. The
manager has complete control over where to invest and needs not to seek permission from the
investor at all times. This is a great advantage for people without investment knowledge and time
to look into the pros and cons of each decision. This is the most preferred type of PMS.

5. Non-discretionary portfolio management

This is the exact opposite of discretionary portfolio management. Here, the manager can only
invest in a particular avenue after due discussion and permission from the investor. It is generally
a less preferred PMS.
Portfolio Management in India
Portfolio management in India refers to the professional management of investment portfolios on
behalf of individuals, institutions, and other entities. It involves making investment decisions and
allocating assets in a way that maximizes returns while considering the risk tolerance and
objectives of the investor.

Here are some key aspects of portfolio management in India:

1. Portfolio Managers:
In India, portfolio management services (PMS) are offered by licensed portfolio
managers who are registered with the Securities and Exchange Board of India (SEBI).
These professionals manage the portfolios according to the investment mandates
provided by their clients.

2. Investment Strategies:
Portfolio managers in India employ various investment strategies, including value
investing, growth investing, momentum investing, and sector-specific approaches. They
aim to generate superior returns by carefully selecting securities and diversifying the
portfolio to manage risk.

3. Diversification:
Diversification is an essential aspect of portfolio management. Portfolio managers in
India focus on spreading investments across different asset classes, such as equities, debt
instruments, mutual funds, and alternative investments, to minimize risk and optimize
returns.

4. Risk Management:
Portfolio managers in India pay close attention to risk management. They analyze various
risk factors, such as market volatility, interest rate fluctuations, geopolitical events, and
company-specific risks, to mitigate potential downsides. They may also use hedging
strategies and risk management tools to protect the portfolio.

5. Regulatory Framework:
Portfolio management in India operates under the regulatory framework set by SEBI.
SEBI's guidelines ensure transparency, investor protection, and fair practices in portfolio
 management services. Investors can refer to SEBI's regulations and guidelines for
information and protection related to portfolio management.

6. Minimum Investment Requirements:

Portfolio management services in India typically have minimum investment
requirements, which vary depending on the portfolio manager and the investment
strategy. These minimum investment thresholds ensure that PMS is accessible to high-
net-worth individuals and institutional investors

7. Performance Reporting:
Portfolio managers in India provide periodic performance reports to their clients,
detailing the investment performance, portfolio composition, and other relevant metrics.
These reports enable investors to evaluate the effectiveness of the portfolio manager and
make informed decisions.

8. Fee Structure:
Portfolio management in India operates under the regulatory framework set by SEBI.
SEBI's guidelines ensure transparency, investor protection, and fair practices in portfolio
management services. Investors can refer to SEBI's regulations and guidelines for
information and protection related to portfolio management.

Portfolio Management Services (PMS)

Portfolio Management Service or PMS caters to the investment needs of investors, generally
high net-worth individuals (HNIs) and institutions. Investors can rely on this tailor-made service
to invest and earn competitive returns from different asset classes.

As professionals manage the investment portfolio, PMS enables investors with limited financial
knowledge to take advantage of all the different types of investment options. The investment
portfolio is customized as per the needs of the investor to ensure that it meets all the expectations
and needs of different investors.

India’s PMS Industry

Rs. 26 Lakh Crore 300+ Rs. 50 Lakh

Assets Under Management Investment Strategies Minimum Investment

Benefits of PMS

❖ Achieve your financial goals & create long-term wealth

❖ Get full visibility of all transactions in your portfolio
 ❖ Invest in a customized asset allocation that suits you
❖ Diversify your portfolio and reduce investment risks

Minimum Investment Size for PMS?

The minimum ticket size for PMS, as regulated by SEBI, is Rs.50 Lakhs.

SIP (Systematic Investment Plan) option is provided, when an investor plans to invest more than
the minimum threshold. The minimum installment size depends from one PMS to another.

STP (Systematic Transfer Plan) option collects minimum threshold from the investor, the initial
holding and the transfer methods vary as stipulated by each PMS.

Reasons to invest in portfolio management services

There are too many reasons that might compel one to invest in PMS. Here are a few of them:

1. Professional expertise

It is good to have financial knowledge, but when it comes to investing to achieve your financial
objectives while safeguarding financial resources and minimising the risk, it is better to have an
expert guide you through it all. The essence of portfolio management services is having a skilled
portfolio manager assist you at every step.

2. Risk diversification

Having a portfolio manager will mean effective management of all investments to minimise risk.
Also, the expert will invest in varied investment avenues, leading to risk diversification. The
portfolio manager will make a combination of investments in your portfolio so that even if one
investment has a very high risk, another will balance it out. This reduces the Volatility of an
investment, and the risk of losing all your money is almost negligible.

3. Higher returns

A planned investment considering all the risk-return calculations by an experienced person, will
guarantee higher returns than a common man’s investment. You cannot underestimate the
knowledge and skills of the person whose profession is investing. Investing according to market
conditions, investing in the most suitable asset classes, and making timely decisions will come
down to higher returns.

4. Achievement of objectives
No matter how much you try to channelise your funds into different asset classes according to
your suitability, you will unintentionally leave out one or more aspects. There is a greater
possibility that you can achieve your investment goals partially or wholly. But the portfolio
manager will design your portfolio in such a manner that you will be able to get the desired
returns.

5. Freedom from hassle

If you manage your portfolio independently, you will have to check the prices of various
securities you invested in regularly, without Fail to avoid losses. Whether you do it willingly or
unwillingly, you will be solely responsible for the gain and loss of your investment. But when
you invest in PMS, you are free from these hassles.

1.2 Rationale for choosing the topic under study

I have chosen Portfolio Management as my thesis to explore what portfolio management means,
why it’s important, how it’s done and who can do it.

“One of the great responsibilities that I have is to manage my assets wisely, so that they create
value” - Alice Walton.

In this fast moving world, where everyone is being encouraged to invest in various securities,
what an investor might not pay much heed to is the proper management of their securities so that
they’re readily available as and when needed. Portfolio Management refers to handling such
investments. It involves the selection, prioritization and management of a client, individual or
company.

1.2.1 OBJECTIVES

The main objectives of this study are as follows:

● To learn the meaning and definition of portfolio and portfolio management

● To understand more about the portfolio management services in India
● To study how to make, manage and improve one’s financial portfolio
● To gain knowledge about the Indian Stock Market
● To analyze the impact and limitations of portfolio management in India.
 CHAPTER - 2
ABOUT THE TOPIC

About the Company

Here are the best Portfolio Management Services in India in 2023:

1. Nippon India Absolute Freedom

Nippon Life India Asset Management

Limited (NAM India) is the asset manager of
Nippon India Mutual Fund (NIMF). Nippon
Life Insurance Company (“NLI”) is Japan’s
largest private life insurer, offering a diverse
range of financial options, including
individual and group life and annuity plans,
through a variety of distribution platforms, with standard insurance products mostly sold through
face-to-face sales channels. It is based in Japan and operates mainly in Japan, North America,
Europe, and Asia.
 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Investment 1,00,000 1,17,080 1,37,077.3 1,60,490.1 1,87,901.8 ~2,20,000

Value (Rs.)

CAGR - 17.08% 17.08% 17.08% 17.08% 17.08%

The consistent outperformance of Nippon India Growth Fund versus its peers can be attributed to the
stock picking approach of the fund manager and the research capabilities of Nippon India Mutual Fund.
2. ASK Investment Managers

Established in 1983 by Asit Koticha,

ASK has a proven track record and
is one of the best PMS in India. They
charge a fee of 2.5% per annum. The
company is based in Mumbai,
Maharashtra, and is listed on the stock exchange.

~ ASK Strategic Portfolio

The ASK strategic portfolio emphasizes on investing into businesses with among the highest
'margin of safety' or 'price-value gap', while ensuring that the earnings growth, quality of
business and size of opportunity remain at a high enough level. The portfolio seeks to achieve
quality long-term returns through unearthing of 'value'. The quality of management remains at
the highest level.
● Large size of opportunity
● Quality of business or Return On Capital Employed (ROCE) is at a superior level
● High earnings growth

1 Year 3 Years 5 Years 10 Years CAGR Since

 CAGR CAGR CAGR Inception*

ASK Strategic -6.1% 19.9% 9.0% 17.9% 14.1%

Portfolio

BSE 500-TRI 4.2% 25.5% 11.4% 14.1% 11.4%

Note: Performance figures are net of all fees and expenses.

ASK Portfolio returns are composite returns of all the Portfolios aligned to the investment approach as
on Apr 28, 2023.Returns for 1 year or lesser time horizon are absolute returns, while more than 1 year
are CAGR. Returns have been calculated using Time Weighted Rate of Return method (TWRR) as
prescribed by the SEBI.
3. Alchemy PMS

Ace investor Rakesh Jhujhunwala founded the company Alchemy Pvt Ltd along with Lashit
Sanghvi in 1999. It has its place in the country's top-performing companies on the stock
exchange. The Alchemy PMS has grown tremendously in the past few years. They charge a 2-
2.5% fixed fee per annum.

Period 1 Year 2 Years 5 Years 10 Years Since

Inception

% Returns -1.8% 7.5% 16.6% 15.9% 23.7%

% 5.1% 8.4% 11.0% 10.9% 11.4%

Benchmark
S&P BSE 500
4. Aditya Birla Capital PMS

Aditya Birla PMS is also known as Aditya

Birla Sun Life PMS. PMS Aditya Birla was
established in the year 2007 under the
leadership of Mr. Ajay Srinivasan. The firm
is a well-known and top-class PMS house in
India. It provides customized investment
solutions to the investors associated with it.

SIP Period Amount Invested BSL Frontline S&P BSE 200

Equity

Market Returns Market Returns

 Value (%) Value (%)
(Rs) (Rs)

1 Year 12,000 14,190 38.5 13,603 27.8

3 Years 36,000 54,005 28.9 48,797 21.3

5 Years 60,000 96,782 19.5 83,927 13.6

7 Years 84,000 1,62,008 18.6 1,33,028 13.0

10 Years 1,20,000 3,07,123 18.0 2,25,287 12.2

SIP is Systematic Investment Plan; Investment of Rs 1,000 per month for 12, 36, 60, 84 & 120
months respectively.
5. ICICI Prudential PMS

ICICI Prudential Portfolio

Management Services (PMS) enjoys a
rich parentage of two large
organizations ICICI Bank Ltd which
is India’s largest private sector bank in
addition to being one of the most
trusted brands in financial services
and Prudential Plc UK, an international financial services company, with significant operations in Asia,
US and UK. They charge 1-3% fixed annual fee.

ICICI Prudential PMS Absolute Return Strategy (the Strategy) is an equity portfolio that aims to
provide capital appreciation over a long term by riding dominant themes through market cycles.

Data available with PMS AIF World showed that ICICI Prudential PIPE Strategy delivered
28.80 percent annualized return to investors in the past three years till February 28, 2023

The cost of ICICI Prudential PMS :- It is charged between 1.4%-2.0% of the asset value.

● Custodian charge: ICICI PMS charges a custodian charges somewhere between 0.4%-
0.5% of total asset value.
● Depository charge: Including all above charges, ICICI PMS also charges depository fee
which is between 0.18%-0.22% of asset value
 Particulars 1 Year 3 Year 5 Year Since Inception
CAGR Current CAGR Current CAGR Curren CAGR Current
(%) Value (%) Value (%) t Value (%) Value of
of of of Investme
Investm Investm Investm nt of Rs.
ent of ent of ent of 10000
Rs. Rs. Rs.
10000 10000 10000

Scheme 17.07 11702.20 20.51 17510.47 13.57 18895.52 21.18 452793.50

Nifty 200 TRI 6.27 10624.92 16.03 15629.29 12.58 18082 47 1717 32090 72
(65%) + Nifty
Composite Debt
Index (25%) +
LBMA AM Fixing
Prices (10%)
(Benchmark)

Nifty 50 TRI2 5.16 10514.11 18.63 16700.65 13.78 19071.47 17.49 244784.61
(Additional
Benchmark)

NAV (Rs) Per 386.9302 258.5844 239.6301 10

Unit
Importance of a Portfolio Manager

PMS services are designed and tailored to meet particular investment goals based on the investor’s
risks, rewards, and goals. A portfolio manager has a comprehensive understanding of the businesses
and helps investors maximize their profits for an effective and relevant strategy to deliver high
potential returns. The manager must clarify the investor’s risk and reward expectations.

A portfolio management service provider is a portfolio management firm registered with SEBI. They
invest on their clients’ behalf, and the PMS is supported by a research team that works tirelessly. In
general, they work for the benefit of the wealthy or those with a high net worth. These schemes are
typically designed for those with high-risk tolerance and a desire for personalized investment
solutions.

Note: As per the data, two Large Cap, two Multi Cap and one Mid & Small Cap company has been used
 Differences between Large Cap, Multi Cap, Mid Cap & Small Cap

Large Cap Multi Cap Mid Cap Small Cap

Primarily invest Largest (top 100) Across large, Medium sized Smallest listed
in listed companies mid and small listed companies companies of
of India cap listed of India India
companies

Investment risk Relatively Medium High Relatively

lowest highest

Potential Relatively Medium High Relatively

returns lowest highest

Here are the fees and brokerage as charged by the above mentioned companies

PMS Company Fixed Fee (per Performance Fee Brokerage & Exit
annum) Load

Nippon India 2% – 2.5% - -

Absolute Freedom

ASK Investment 1.5% 1.5% plus 20% above -

Managers 10% profits

Alchemy PMS 2% – 2.5% - -

Aditya Birla Capital 2.5% - 1.2% – 2.2%

PMS

ICICI Prudential 1% – 3% - 2% – 2.5% load

PMS

Who should invest in PMS?

The SEBI mandates a minimum investment of Rs.50 Lakh for Portfolio Management Services
which was previously Rs.25 Lakh

Beneficial for High Worth Net Individuals like

● Busy salaried professionals

● High income business owners
● Inheritors of family wealth
● ESOP liquidation beneficiaries