Fs Portfolio Management Final Copy

7/29/2019 Fs Portfolio Management Final Copy

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INTRODUCTION TO PORTFOLIO MANAGEMENT

Investing in securities such as shares, debentures, and bonds is profitableas well as exciting. It is indeed rewarding, but involves a great deal of risk and

calls for scientific knowledge as well artistic skill. In such investments both

rationale and emotional responses are involved. Investing in financial securities

is now considered to be one of the best avenues for investing one savings while

it is acknowledged to be one of the best avenues for investing one saving while

it is acknowledged to be one of the most risky avenues of investment.

It is rare to find investors investing their entire savings in a single

security. Instead, they tend to invest in a group of securities. Such a group

of securities is called portfolio.

Creation of a portfolio helps to reduce risk, without sacrificing returns.

Portfolio management deals with the analysis of individual securities as well as

with the theory and practice of optimally combining securities into portfolios.

An investor who understands the fundamental principles and analytical aspects

of portfolio management has a better chance of success.

Portfolio is none other than Basket of Stocks. Portfolio Management is

the professional management of various securities (shares, bonds and other

securities) and assets (e.g., real estate) in order to meet specified investment

goals for the benefit of the investors.


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PORTFOLIO MANAGEMENT

An investor considering investment in securities is faced with theproblem of choosing from among a large number of securities and how to

allocate his funds over this group of securities. Again he is faced with problem

of deciding which securities to hold and how much to invest in each. The risk

and return characteristics of portfolios. The investor tries to choose the optimal

portfolio taking into consideration the risk return characteristics of all possible

portfolios.

As the risk return characteristics of individual securities as well as

portfolios also change. This calls for periodic review and revision of investment

portfolios of investors. An investor invests his funds in a portfolio expecting to

get good returns consistent with the risk that he has to bear. The return realized

from the portfolio has to be measured and the performance of the portfolio has

to be evaluated.

It is evident that rational investment activity involves creation of an

investment portfolio. Portfolio management comprises all the processes

involved in the creation and maintenance of an investment portfolio. It dealsspecifically with the security analysis, portfolio analysis, portfolio selection,

portfolio revision & portfolio evaluation. Portfolio management makes use of

analytical techniques of analysis and conceptual theories regarding rational

allocation of funds. Portfolio management is a complex process which tries to

make investment activity more rewarding and less risky.

DEFINITION

The process of managing the assets of a mutual fund, including choosing and

monitoring appropriate investments and allocating the funds accordingly.


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Portfolio management is the process of clarifying, prioritizing, and

selecting the projects an organization wishes to pursue. It evaluates and

prioritizes the features targeted for inclusion in specific product releases. It

encompasses techniques to ensure the projects and feature sets are aligned with

business objectives, that technical impacts are well understood, and that productreleases include the highest value features.

A strong portfolio management process enables organizations to

effectively and efficiently determine which projects and features provide the

most significant return on investment. It aids technology-selection decisions,

provides guidance to on going architecture work, enables capacity planning, andinforms development decisions.

The lack of an effective process can reduce the desirability of the end

product because guidance on priorities is not shared throughout the

organization. It can reduce development productivity because significant time,

effort, and money is spent making decisions about priorities in the early or even

the mid to late stages of a project. Portfolio is a collection of asset. The asset

may be physical or financial like Shares Bonds, Debentures, and Preference

Shares etc.

The individual investor or a fund manager would not like to put all his

money in the shares of one company, for that would amount to great risk. Main

objective is to maximize portfolio return and at the same time minimizing theportfolio risk by diversification. Portfolio management is the management of

various financial assets, which comprise the portfolio.

According to Securities and Exchange Board of India (Portfoliomanager) Rules, 1993; portfolio means the total holding of securities

belonging to any person; Designing portfolios to suit investor requirement often

involves making several projections regarding the future, based on the current

information. When the actual situation is at variance from the projections

portfolio composition needs to be changed.

One of the key inputs in portfolio building is the risk bearing ability of

the investor. Portfolio management can be having institutional, for example,

Unit Trust, Mutual Funds, Pension Provident and Insurance Funds, Investment

Companies and non-Investment Companies. Institutional e.g. individual, Hindu

undivided families, Non-investment Companys etc.


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The large institutional investors avail services of professionals. A

professional, who manages other peoples or institutions investment portfolio

with the object of profitability, growth and risk minimization, is known as a

portfolio manager. The portfolio manager performs the job of security analyst.

In case of medium and large sized organization, job function of portfoliomanager and security analyst are separate. Portfolios are built to suit the returnexpectations and the risk appetite of the investor.


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OBJECTIVES OF PORTFOLIO MANAGEMENT

1. Security of Principal Investment :

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

objectives of portfolio management. Portfolio management not only involves

keeping the investment intact but also contributes towards the growth of its

purchasing power over the period. The motive of a financial portfolio

management is to ensure that the investment is absolutely safe. Other factors

such as income, growth, etc., are considered only after the safety ofinvestment is ensured.

2. Consistency of Returns :

Portfolio management also ensures to provide the stability of returns by

reinvesting the same earned returns in profitable and good portfolios. The

portfolio helps to yield steady returns. The earned returns should compensatethe opportunity cost of the funds invested.

3. Capital Growth :

Portfolio management guarantees the growth of capital by reinvesting in

growth securities or by the purchase of the growth securities. A portfolio shall

appreciate in value, in order to safeguard the investor from any erosion in

purchasing power due to inflation and other economic factors. A portfolio

must consist of those investments, which tend to appreciate in real value afteradjusting for inflation.

4. Marketability :

Portfolio management ensures the flexibility to the investment portfolio.

A portfolio consists of such investment, which can be marketed and traded.

Suppose, if your portfolio contains too many unlisted or inactive shares, then

there would be problems to do trading like switching from one investment to

another. It is always recommended to invest only in those shares and


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securities which are listed on major stock exchanges, and also, which areactively traded.

5. Liquidity :

Portfolio management is planned in such a way that it facilitates to take

maximum advantage of various good opportunities upcoming in the market.The portfolio should always ensure that there are enough funds available atshort notice to take care of the investors liquidity requirements.

6. Diversification of Portfolio :

Portfolio management is purposely designed to reduce the risk of loss of

capital and/or income by investing in different types of securities available in

a wide range of industries. The investors shall be aware of the fact that thereis no such thing as a zero risk investment. More over relatively low risk

investment give correspondingly a lower return to their financial portfolio.

7. Favorable Tax Status :

Portfolio management is planned in such a way to increase the effective

yield an investor gets from his surplus invested funds. By minimizing the tax

burden, yield can be effectively improved. A good portfolio should give a

favorable tax shelter to the investors. The portfolio should be evaluated afterconsidering income tax, capital gains tax, and other taxes.

The objectives of portfolio management are applicable to all financial

portfolios. These objectives, if considered, results in a proper analytical

approach towards the growth of the portfolio. Furthermore, overall risk needs tobe maintained at the acceptable level by developing a balanced and efficient

portfolio. Finally, a good portfolio of growth stocks often satisfies all objectivesof portfolio management.


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FUNCTIONS OF PORTFOLIO MANAGEMENT

The basic purpose of portfolio management is to maximize yield and minimize

risk. Every investor is risk averse. In order to diversify the risk by investing intovarious securities following functions are required to be performed.

The functions undertaken by the portfolio management are as follows:

1. To frame the investment strategy and select an investment mix to

achieve the desired investment objective;

2. To provide a balanced portfolio which not only can hedge against the

inflation but can also optimize returns with the associated degree of

risk;

3. To make timely buying and selling of securities;

4. To maximize the after-tax return by investing in various taxes saving

investment instruments.


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TYPES OF PORTFOLIO MANAGEMENT:

The two types of portfolio management services are available o the investors:

1.The Discretionary portfolio management services (DPMS):

In this type of services, the client parts with his money in favor of

manager, who in return, handles all the paper work, makes all the

decisions and gives a good return on the investment and for this he

charges a certain fees.

In this discretionary PMS, to maximize the yield, almost all

portfolio managers parks the funds in the money market securities

such as overnight market, 182 days treasury bills and 90 days

commercial bills.

Normally, return on such investment varies from 14 to 18 per cent,

depending on the call money rates prevailing at the time of

investment.

Discretionary portfolio

Management

Non-discretionary

portfolio Management


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2. The Non-discretionary portfolio management services:

The manager function as a counselor, but the investor is free to

accept or reject the managers advice; the manager for a services

charge also undertakes the paper work.

The manager concentrates on stock market instruments with a

portfolio tailor made to the risk taking ability of the investor.


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ADVANTAGES OF PORTFOLIO MANAGEMENT

Individuals will benefits immensely by taking portfolio management services

for the following reason: -

a) Whatever may be the status of the capital market; over the long period

capital markets have given an excellent return when compared to other

forms of investment. The return from bank deposits, units etc., is

much less than from stock market.

b) The Indian stock markets are very complicated. Though there are

thousands of companies that are listed only a few hundred, which have

the necessary liquidity. It is impossible for any individual whishing to

invest and sit down and analyses all these intricacies of the market

unless he does nothing else.

c) Even if an investor is able to visualize the market, it is difficult to

investor to trade in all the major exchanges of India, look after his

deliveries and payments. This is further complicated by the volatile

nature of our markets, which demands constant reshuffling of port


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IMPORTANCE OF PORTFOLIO MANAGEMENT

In the past one-decade, significant changes have taken place in the

investment climate in India.

Portfolio management is becoming a rapidly growing area serving a

broad array of investors- both individual and institutional-with

investment portfolios ranging in asset size from thousands to cores of

rupees.

It is becoming important because of:

i. Emergence of institutional investing on behalf of individuals. A

number of financial institutions, mutual funds, and other agencies

are undertaking the task of investing money of small investors, ontheir behalf.

ii. Growth in the number and the size of invisible fundsa large part

of household savings is being directed towards financial assets.

iii. Increased market volatility- risk and return parameters of financial

assets are continuously changing because of frequent changes in

governments industrial and fiscal policies, economic uncertainty

and instability.


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iv. Greater use of computers for processing mass of data.

v. Professionalization of the field and increase use of analytical

methods (e.g. quantitative techniques) in the investment decision-

making, and

vi. Larger direct and indirect costs of errors or shortfalls in meeting

portfolio objectives- increased competition and greater scrutiny by

investors.


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SELECTION OF PORTFOLIO

The selection of portfolio depends upon the objectives of the investor. Theselection of portfolio under different objectives are dealt subsequently,

Objectives and asset mix

If the main objective is getting adequate amount of current income, sixty

percent of the investment is made in debt instruments and remaining in equity.

Proportion varies according to individual preference.

Growth of income and asset mix

Here the investor requires a certain percentage of growth as the income from

the capital he has invested. The proportion of equity varies from 60 to 100 %

and that of debt from 0 to 40 %. The debt may be included to minimize risk and

to get tax exemption.

Capital appreciation and Asset Mix

It means that value of the investment made increases over the year. Investment

in real estate can give faster capital appreciation but the problem is of liquidity.

In the capital market, the value of the shares is much higher than the original

issue price.

Safety of principle and asset mix

Usually, the risk adverse investors are very particular about the stability of

principal. Generally old people are more sensitive towards safety.


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Risk and return analysis

The traditional approach of portfolio building has some basic assumptions. An

investor wants higher returns at the lower risk. But the rule of the game is that

more risk, more return. So while making a portfolio the investor must judge therisk taking capability and the returns desired.

Diversification

Once the asset mix is determined and riskreturn relationship is analyzed the

next step is to diversify the portfolio. The main advantage of diversification is

that the unsystematic risk is minimized.


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ROLE OF PORTFOLIO MANAGEMENT

There was a time when portfolio management was an exotic term. A

practice which is beyond the reach of the small investor, but the time has

changed now. Portfolio management is now a common term and is widelypracticed in INDIA. The theories and concepts relating to portfolio management

now find there way in the front pages of the financial newspapers andmagazines.

In early 90s India embarked on a program of economic liberalization

and globalization, with high participation of private players. This reform

process has made the Indian industry efficient, with rapid computerization,

increased market transparency, better infrastructure and customer services,

closer integration and higher volume. The markets are dominated by largeinstitutional investors with their diversified portfolios. A large number of

mutual funds have come up in the market since 1987. With this development

investment in securities has gained considerable momentum

Along with the spread of the securities investment way among Indian

investors have changed due to the development of the quantitative techniques.

Professional portfolio management, backed by research is now being adopted

by mutual funds, investment consultants, individual investors and big brokers.

The Securities Exchange Board of India (SEBI) is a regulatory body in INDIA.It ensures that the stock market is free from fraud, and of course the main

objective is to ensure that the investors money is safe.

With the advent of computers the whole process of portfolio management

has become quite easy. The computer can absorb large volumes of data, perform

the computations accurately and quickly give out the results in any desired

form. Moreover simulation, artificial intelligence etc. provides means of testing

alternative solutions.

The trend towards liberalization and globalization of the economy has

promoted free flow of capital across international borders. Portfolio not onlynow include domestic securities but foreign too. So financial investments cant

be reaped without proper management.

Another significant development in the field of investment management

is the introduction to Derivatives with the availability of Options and Futures.

This has broadened the scope of investment management.


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Investment is no longer a simple process. It requires a scientific

knowledge, a systematic approach and also professional expertise. Portfolio

management is the only way through which an investor can get good returns,

while minimizing risk at the same time.

So portfolio management objectives can be stated as: -

Risk minimization.

Safeguarding capital.

Capital Appreciation.

Choosing optimal mix of securities.

Keeping track on performance.


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ELEMENTS OF PORTFOLIO MANAGEMENT

Portfolio Management is an on-going process involving the followingbasic tasks.

Identification of the investors objective, constrains and preferences whichhelp formulated the invest policy.

Strategies are to be developed and implemented in tune with invest policyformulated. This will help the selection of asset classes and securities in

each class depending upon their risk-return attributes.

Review and monitoring of the performance of the portfolio by continuous

overview of the market conditions, companys performance and investorscircumstances.

Finally, the evaluation of portfolio for the results to compare with thetargets and needed adjustments have to be made in the portfolio to the

emerging conditions and to make up for any shortfalls in achievements(targets).


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QUALITIES OF PORTFOLIO MANAGER

1.Sound general knowledge:

Portfolio management is an existing and challenging job.

He has to work in an extremely uncertain and conflicting

environment.

In the stock market every new piece of information affects the

value of the securities of different industries in a different way.

He must be able to judge and predict the effects of the information

he gets.

He must have sharp memory, alertness, fast intuition and self-

confidence to arrive at quick decisions.

2.Analytical Ability:

He must have his own theory to arrive at the value of the security.

An analysis of the securitys values, company, etc. is continues job

of the portfolio manager.

A good analyst makes a good financial consultant.

The analyst can know the strengths, weakness, opportunities of the

economy, industry and the company.


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3.Marketing skills:

He must be good salesman.

He has to convince the clients about the particular security.

He has to compete with the Stock brokers in the stock market.

In this Marketing skills help him a lot.

4.Experience:

In the cyclical behaviour of the stock market history is often

repeated, therefore the experience of the different phases helps to

make rational decisions.

The experience of different types of securities, clients, markets

trends etc. makes a perfect professional manager.


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SEBI GUIDELINES FOR PORTFOLIO MANAGERS

It will thus be seen that Portfolio Management is an art and requires high

degree of expertise. The merchant banker has been authorised to do Portfolio

Management Services, if they belong to Categories I and II as licensed by theSEBI.

This classification of merchant bankers was dropped in 1996 and only thecategory I merchant bankers is allowed to operate in India. Others who want to

provide such services should have a minimum net worth of Rs. 50 lakhs and

expertise, as laid down or changed from time-to-time by the SEBI and would

have to register with the SEBI.

The SEBI have set out the guidelines in this regard, in which the relations

of the client vis-a-vis the Portfolio Manager and the respective rights and dutiesof both have been set out. The code of conduct for Portfolio Managers has been

laid down by the SEBI. The job of Portfolio Manager in managing the clients

funds, either on discretionary or nondiscretionary basis has thus become

challenging and difficult due to the multitude of obligations laid on his

shoulders by the SEBI, in respect of their operations, accounts, audit etc.

It is thus clear that Portfolio Management has become, a complex and

responsible job which requires an in-depth training and expertise. It is in this

context that the regulations of SEBI on Portfolio Management become

necessary so that the minimum qualifications and experience are also ensuredfor those who are registered with SEBI. Nobody can do Portfolio Management

without SEBI registration and licence.

The SEBI has given permission to Merchant Bankers to do Portfolio

Management. As per the guidelines of September, 1991 a separate category ofPortfolio Managers is also licensed by SEBI for which guidelines were given in

January 1993. A code of conduct was also laid down for this category, as is the

case with all categories of capital market players and intermediates.


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SECURITIES AND EXCHANGE BOARD OF INDIA RULES,

1993 REGARDING PORTFOLIO MANAGERS

No person to act as portfolio manager without certificate.

No person shall carry on any activity as a portfolio manager unless

he holds a certificate granted by the Board under this regulation.

Provided that such person, who was engaged as portfolio manager

prior to the coming into force of the Act, may continue to carry on

activity as portfolio manager, if he has made an application for

such registration, till the disposal of such application.

Provided further that nothing contained in this rule shall apply in

case of merchant banker holding a certificate granted by the board

of India Regulations, 1992 as category I or category II merchant

banker, as the case may be.

Provided also that a merchant banker acting as a portfolio manager

under the second provision to this rule shall also be bound by the

rules and regulations applicable to a portfolio manager.


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Conditions for grant or renewal of certificate to portfolio

manager.

The board may grant or renew certificate to portfolio manager

subject to the following conditions namely:

a) The portfolio manager in case of any change in its status and

constitution, shall obtain prior permission of the board to carry on

its activities;

b) He shall pay the amount of fees for registration or renewal, as the

case may be, in the manner provided in the regulations;

c) He shall make adequate steps for redressed of grievances of the

clients within one month of the date of receipt of the complaint and

keep the board informed about the number, nature and other

particulars of the complaints received;

d) He shall abide by the rules and regulations made under the Act in

respect of the activities carried on by the portfolio manager.


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Period of validity of the certificate.

The certificate of registration on its renewal, as the case may be,

shall be valid for a period of here years from the date of its issue to

the portfolio manager.


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SECURITIES AND EXCHANGE BOARD OF INDIA

REGULATIONS, 1993

Registration of Portfolio Managers:

1. Application for grant of certificate

An application by a portfolio manager for grant of a certificate

shall be made to the board on Form A.

Notwithstanding anything contained in sub regulation (1), any

application made by a portfolio manager prior to coming into force

of these regulations containing such particulars or as near thereto

as mentioned in form A shall be treated as an application made in

pursuance of sub-regulation and dealt with accordingly.

2. Application of confirm to the requirements

Subject to the provisions of sub-regulation (2) of regulation 3, any

application, which is not complete in all

respects and does not confirm to the instructions specified in the

form, shall be rejected:

Provided that, before rejecting any such application, the applicant

shall be given an opportunity to remove within the time specified

such objections as may be indicated by the board.

3. Furnishing of further information, clarification and personal

representation.


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The Board may require the applicant to furnish further information

or clarification regarding matters relevant to his activity of a

portfolio manager for the purposes of disposal of the application.

The applicant or, its principal officer shall, if so required, appear

before the Board for personal representation.

4. Consideration of application.

The Board shall take into account for considering the grant of

certificate, all matters which are relevant to the activities relating to

portfolio manager and in particular whether the applicant complies

with the following requirements namely:

The applicant has the necessary infrastructure like to adequate

office space, equipments and manpower to effectively discharge

his activities;

The applicant has his employment minimum of two persons who

have the experience to conduct the business of portfolio manager;

A person, directly or indirectly connected with the applicant has

not been granted registration by the Board in case of the applicant

being a body corporate;

The applicant, fulfils the capital adequacy requirements specified

in regulation 7

The applicant, his partner, director or principal officer is not

involved in any litigation connected with the securities market and

which has an adverse bearing on the business of the applicant;


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The applicant, his director, partner or principal officer has not at

any time been convinced for any offence involving moral turpitude

or has been found guilty of any economic offences;

The applicant has the professional qualification from an institution

recognized by the government in finance, law, and accountancy or

business management.


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STEPS TO PORTFOLIO MANAGEMENT

1. Standardize and automate the governance processes. Define multiple workflows to subject each project to the appropriate

governance controls throughout its life cycle from proposal to post-

implementation resulting in lowered costs, faster cycle times, and

increased quality.

2. Capture all investments within a central repository.

Consolidate business and information technology (IT) investments within

an enterprise repository to improve visibility, insight, and control.

Implement repeatable processes as templates to standardize and

streamline data collection across the organization. Centralized datafacilitates cross project analysis of finances, resources, schedules as wellas other data trends and status for informative reports.

3. Objectively prioritize business strategy and competing

investments.

Employ proven techniques to define and prioritize your organizations

business strategy for the upcoming planning period, and automatically

derive objective prioritization scores to effectively evaluate thecompeting investments from multiple dimensions.

4. Align the selected portfolios with the business strategy.

Run optimization what-if scenarios to identify trade offs and select the

optimal portfolio under varying budgetary and business constraints that

best align with your organizations business strategy. Take advantage of

advanced portfolio analytical techniques to identify and break theconstraints prohibiting the portfolio from reaching the Efficient Frontier.


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5. Effectively manage resources.

Without understanding long-term workloads and capacity, companies can

experience inefficient hire-fire cycles, resulting in higher overhead, lost

knowledge, and poor employee morale. By providing visibility intooverall work commitments, actual timesheets, and resource capabilities,

create resource plans to align your strategic recruiting and outsourcingwith your long-term business objectives.

6. Collaborate and coordinate easily.

Helping to ensure that teams share common goals and work together

effectively becomes more vital as organizations become moregeographically and culturally diverse. Web-based access to timely,

business-critical project information means teams can share knowledge,collaborate smoothly to complete tasks and deliverables, and adjustactivities quickly to accommodate project changes and updates.

7. Measure and track portfolio performance.

Effectively measure and track projects, programs, and applications

throughout their life cycle, giving you the visibility to proactively identify

potential issues, make decisions, and help ensure that your portfolios

maximize return on investment (ROI) and improve operational

efficiencies.

8. Quickly realize a return on investment.

By enabling increased employee productivity, faster cycle times, reduced

costs, and improved time management, portfolio management solutions

provide a positive and sustainable return on investment. In IT portfoliomanagement, software can cut costs 2-5 percent, improve productivity

20-25 percent, and shift 10-15 percent of budgets to more strategic

projects. In developing and bringing new products to market, the best

performersthose who have applied rigorous process and technology to

their research and development and go-to-market activities can reducetime to market by more than 30 percent.


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PORTFOLIO MANAGEMENT PROCESS

The process of portfolio management can stand alone, or act as a component ofa larger wealth management process. Typically when we partner with our

clients for portfolio management purposes, the process involves the following

basic steps.

Risk profile and objective analysisThrough personal consultations with you, we develop a personal profile of your

individual investment needs and objectives, time horizon and attitude toward

investing.

Investment policy statementThis statement considers your needs and objectives and acts as guideline for

making investment decisions. Our goal is to maximize your investment returns,relative to your risk tolerance, through the carefully diversified allocation of

your investments.

DiversificationYour asset allocation policy is implemented by investing across asset classes

and within various investment styles. Your well-diversified portfolio will thenbe managed by preeminent institutional money management firms which are notnormally accessible to an individual investor.

Portfolio rebalancingYour investment portfolio is carefully monitored on an on going basis to ensure

that it remains consist-tent with your agreed-upon asset allocation policy. If the

relative value of investment in your portfolio changes enough to become

inconsistent with this policy, it will be rebalanced.

Result reportsWe will communicate with you on a regular basis and provide a comprehensive

reporting package, including account level performance reports and statements

providing details of your account, as well as total asset value and a record of all

transactions that occurred during the reporting period.


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TECHNIQUES OF PORTFOLIO MANAGEMENT

Various types of portfolio require different techniques to be adopted to achieve

the desired objectives. Some of the techniques followed in India by portfolio

managers are summarized below.

(1). Equity portfolio-

Equity portfolio is affected by internal and external factors:

(a) Internal factors

Pertain to the inner working of the particular company of which equity shares

are held. These factors generally include:

(1) Market value of shares

(2) Book value of shares

(3) Price earnings ratio (P/E ratio)

(4) Dividend payout ratio

(b) External factors

(1) Government policies

(2) Norms prescribed by institutions

(3) Business environment

(4) Trade cycles


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(2). Equity stock analysis

The basic objective behind the analysis is to determine the probable future

value of the shares of the concerned company. It is carried out primarily fewer

than two ways. :

(a) Earnings per share

(b) Price earnings ratio

(A)Trend of earning: -

A higher price-earnings ratio discount expected profit growth.

Conversely, a downward trend in earning results in a low price-earnings

ratio to discount anticipated decrease in profits, price and dividend.

Rising EPS causes appreciation in price of shares, which benefits

investors in lower tax brackets? Such investors have not pay tax or togive lower rate tax on capital gains.

Many institutional investor like stability and growth and support high

EPS.

Growth of EPS is diluted when a company finances internally its

expansion program and offers new stock.

EPS increase rapidly and result in higher P/E ratio when a companyfinances its expansion program from internal sources and borrowings

without offering new stock.

(B) Quality of reported earning: -

Quality of reported earnings affects P/E ratio. The factors that affect the quality

of reported earnings are as under:


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Depreciation allowances: -

Larger (Non Cash) deduction for depreciation provides more funds to

company to finance profitable expansion schemes internally. This builds

up future earning power of company.

Research and development outlets: -

There is higher P/E ratio for a company, which carries R&D programs.

R&D enhances profit earning strength of the company through increased

future sales.

Inventory and other non-recurring type of profit: -

Low cost inventory may be sold at higher price due to inflationary

conditions among profit but such profit may not always occur and hence

low P/E ratio.

(C) Dividend policy: -

Dividend policy is significant in affecting P/E ratio. With higher dividend ratio,

equity price goes up and thus raises P/E ratio. Dividend rates are raised to push

in share prices up. Dividend cover is calculated to find out the time the dividend

is protected, In terms of earnings. It is calculated as under:Dividend Cover = EPS / Dividend per Share

(D) Investors demand: -

Demand from institutional investors for equity also enhances the P/E ratio.


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(3) Quality of management: -

Investors decide about the ability and caliber of management and hold and

dispose of equity academy. P/E ratio is more where a company is managed by

reputed entrepreneurs with good past records of management performance.


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CURRENT STATUS OF PORTFOLIO

MANAGEMENT IN INDIA

Now-a-days, portfolio management is very popular concept. Because

every investor wants to increase his investment. In the earlier days, it was not sogood. People make optimise profits but now investors are taking the help of the

professionals and they help them in various decisions. Select the right blend of

projects that can increase ROI, market share and achieve a sustainable growth

portfolio. They apply an investment plan to maintain a balance between

investment risk and return. They follow certain rules to allocate the major

portion of resources to invest whether in extremely volatile markets like share

and equity market or in treasury notes, money market funds. They provide agood investment option, excellent return at manageable risk. So any individuals,

a beginner or an experienced investor or a monthly earner for living can take the

advantages of portfolio management service.

With the considerable investments required to expand new products andthe risks involved, portfolio Management in India is becoming a progressively

more important tool to make strategic decisions about product development and

the investment of company reserves. All professionals and business leaders in

the investment services have become mindful that only right technologies andactive financial management can achieve financial goals.

Portfolio management in India has provided the vital insights to expand

competitive initiation in this complex financial market. The portfolio

management team involves managers who try to increase the market return by

actively managing financial portfolio through investment decisions based on

research and individual investment choices. They actively manage closed endfunds because they have years of actual daily trading experience. These

managers are highly skilful and adept at carrying on profound research. Theycan perform with passion and innovation in investment services. So they can

give fruitful financial advice to expand financial gains.

Investment services involve different financial instruments such as pensionfund, mutual fund, equity and share, investment on property, commodity, IT,

stock, and bond, financial derivatives. These instruments have a certain level of

risk and give returns in the long run.


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KOTAK SECURITIES: PORTFOLIO MANAGEMENT

SERVICES

Kotak Securities is one of Indias oldest portfolio management companies

with over a decade of experience. It is also one of the largest, with Assets UnderManagement of over Rs. 3300 Crores. Kotak Portfolio Management fromKotak Securities comes as an answer to those who would like to grow

exponentially on the crest of the stock market, with the backing of an expert.

Kotak Securities is a SEBI registered Portfolio Manager for providing

both Discretionary as well as Non Discretionary portfolio management service.Kotak Securities is a depository participant with National Securities Depository

Limited (NSDL) and Central Depository Services Limited (CDSL).

Unlike many other companies, Kotak Securities Ltd. has a Centralised

Risk Management System and an in-house Research Team which allows it to

offer the same levels of service to customers across all locations. KotakSecurities was awarded as the most customer responsive company in the

Financial Institution sector by AVAYA Global Connect Award both in 2006

and 2007.risk and give returns in the long run.

Kotak Portfolio Management offers various schemes to suit individualinvestment objectives.

Following are the products offered by Kotak Securities

GUARDIAN PORTFOLIO

With the Guardian Portfolio Kotak Securities invests in both gold and equity. Atany time around 20 per cent of the assets will be invested in the gold. The

allocation to gold may go up to 50 per cent depending upon the marketcondition and the rest will be invested in the equity market. The minimuminvestment is Rs 10 lakh.

BEPLarge cap focus portfolio

In the BEPLarge cap focus portfolio, investments will be made in mis-pricedlarge cap stocks that have a high growth potential and can withstand macro

level risks to sustain in an adverse environment. Large Caps are dominant

players in their respective sectors, and hence have the strength and the ability to

maintain margins in a tough operating environment.


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GEMS PORTFOLIO

GEMS are a 30-month closed-end product. The scheme intends to create a

focused portfolio of stocks from across sectors and market capitalization ranges.

Its main feature is its special mandate to participate in the pre-FPO (follow-onpublic offer) placements and private placements of listed companies.

Investments of up to 30 per cent of the overall assets can be made in suchopportunities.

ORIGIN

Origin portfolio aims to invest in growth oriented companies with sustainable

business models backed by strong management capabilities with emphasis on

smaller capitalized companies with a market capitalization not exceeding Rs.2500 crore at the time of investment.

INVEST GUARD PORTFOLIO

The Invest guard Plan is a CPPI Model which invests across shares and fixedincome products, moving from shares into fixed interest investments when the fundsvalue drops below a predetermined floor. When markets start to move up, theproduct increases its holdings in shares, tapping into these growth opportunities.

CORE PORTFOLIO

Core Portfolio aims to capture the long term upside of the India Growth Story by

diversifying across the major themes. The investments are in all equity and equity

related instruments with emphasis on companies in the business areas driven by

consumerism, outsourcing, real estate and core infrastructure players and is

essentially a mix of small, medium and large capitalization companies


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CONCLUSION

With the help of given project I got an in-depth knowledge about the

working of portfolio management. Also I got an insight as too how to invest in portfoliomanagement, which scheme provide better return as compared to other and who are the

portfolio management players in the Indian market.

It can be concluded from the project that future of portfolio management

is bright provided proper regulations prevail and investors needs are satisfied by

providing variety of schemes. The interest of investors is protected by SEBI.

Portfolio management is governed by SEBI Act.

Due to the benefits available to the individuals such as reduction in risk,expert professional management, diversified portfolios, tax benefits etc. younggeneration (i.e. age group bet. 18-30) is willing to invest in different investment

avenues through portfolio manager or through mutual funds which are again managed by

portfolio managers.

On the other hand, age group of 60 & above are least interested in makinginvestment in different avenues through portfolio managers. They believe in

investing and managing their portfolio on their own.

However, it can be said that the future of portfolio management is bright

in years to come.


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BIBLIOGRAPHY

WEBSITE:

www.google.com

www.wikipedia.com

www.managementparadise.com

www.sebi.gov.in

www.investopedia.com
http://www.google.com/http://www.google.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.managementparadise.com/http://www.managementparadise.com/http://www.managementparadise.com/http://www.wikipedia.com/http://www.google.com/

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Fs Portfolio Management Final Copy