Ravi Full PRoject

A study on Risk Perception and Portfolio Management of Equity investors in Edelweiss

Holy Grace Academy Of Management Studies, Thrissur 1

1.1 INTRODUCTION TO THE TOPIC

Portfolio management concerns the constructions and maintenance of a collection

of investment. It is investment of funds in different securities in which the total risk of

the portfolio is minimized, while expecting maximum return from it. It primarily

involves reducing risk rather than increasing return. Return is obviously important

though, and the ultimate objective of portfolio manager is to achieve a chosen level of

return by incurring the least possible risk.

RISK

Risk is the quantifiable likelihood of loss or less than expected returns. Risk includes

the possibility of losing some or all of the original investment. Risk is usually

measured using the historical returns or average returns for a specific investment.

Uncertainty about the future benefits to be realized from an investment. Thus, risk can

be defined as “the measurable possibility of loss on an investment”. There is risk

involved if the outcome of an investment is uncertain at the time the investment is

made. Although the outcome is uncertain, it is measurable.

Risk and return are the primary ingredients in making investment choices.

Expected risk must be compared to risk. As risk increases so must the return to

compensate for the greater uncertainty. This is called the Risk Return Trade-off.

Namely, that there is greater risk in investment classes that offer potential of higher

returns and vice-versa. Therefore, an investor has to choose between higher returns

with higher risk versus lower risk accompanied by lower returns. The risk/return trade

off is crucial. A new business may involve a lot of risk, but may offer higher return.

On the other hand, government securities have minimum risk, so a low return is

enough.

Risk creates potential higher return. The investor should seek the highest possible

return at the risk level they are willing to accept. As an investor, we need to evaluate

each investment separately, comparing expected returns with the risks. In general

Risk is defined as the chance that an investment's actual return will be different than

expected. This includes the possibility of losing some or all of the original investment.



1.2 INTRODUCTION TO THE TOPIC PORTFOLIO

MANAGEMENT

Investing in securities such as shares, debentures, and bonds is profitable as 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 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 means bundle of things investors tend to invest in a group of securities or

different investment avenues such as group of securities or bunch of Investment

Avenue is called portfolio. Portfolio management is the managing the portfolio in

efficient manner which serves maximum returns, minimum risk and hedge against the

risk.

Portfolio management objectives can be stated as: -

• Risk minimization.

• Safeguarding capital.

• Capital Appreciation.

• Choosing optimal mix of securities.

• Keeping track on performance.



1.3 STATEMENT OF PROBLEM

With a plethora of schemes to choose from, the investor faces several

problems in selecting a portfolio. One of the main reasons associated with that is the

risk. Factors such as investment strategy and management style are qualitative, but the

fund’s past record is an important indicator too. Though past performance alone

cannot be indicative of future performance, it is frankly, the only quantitative way to

judge how well is a fund at present.

Though this study I’m conducting a research to identify the risk perception

and portfolio of equity investors.

1.4 OBJECTIVES OF THE STUDY

Primary Objective

The main objective of the study is “to find out the risk perceptions and

portfolio of equity investors in Edelweiss Financial Advisors Ltd”

• To find out the risk perception of equity investors in Edelweiss Financial

Advisors Ltd.

• To bring out the importance of portfolio management of equity investors.

Secondary Objective

• To give recommendations to Equity investors on Portfolio Management.

• To know about the Investors knowledge and experience of investing in equities.



1.5 SCOPE OF THE STUDY

The study covers about the risk perception and Portfolio management of

equity investors in Edelweiss Financial Advisory Ltd in order to obtain a better

insight in to the company’s profitability and performance. With this study, the

researcher can bring about a clear picture about the Risk perception and Portfolio

management of Equity investors in Edelweiss Financial Advisory Ltd. The researcher

will also be in a position to state the understanding of customer/ investors about the

equities. It also helps to know the portfolio management of equity investors, and can

also suggest the ways through which investors can increase / maximize his return with

low risk.



1.6 RESEARCH METHODOLOGY

INTRODUCTION:

An appropriate method of research is behind the success of any survey. It

provides a scientific framework of plan conduction research investigation. Research

methodology is the way to systematically solve the research problem. The role of

research related to business or to the economy as a whole has greatly increased in

modern times. The increasingly complex nature of business and government has

focused attention on the use of research in solving of operational problems. Operation

research and market research along with multinational research are considered crucial

and their assists managers of any organization in more than one way in taking

decisions. The research process which works upon is as shown in the figure below

RESEARCH

Research is a systematic method of finding solutions to problems. It is a

search for knowledge. The systematic approach relating to generalization and

formulation of theories is called research. The adoption of a proper methodology is an

essential step in conducting survey research study. Research can be defined as

“systematic and purposive investigation of facts with an object of determining cause

and effect relationship among such facts and relationship between two or more

phenomena”.



FIELD OF STUDY

The study has been conducted at Edelweiss Financial Advisory Ltd

Thrissur; the study seeks to find out the Risk perception and portfolio management of

equity investors in Edelweiss.

RESEARCH DESIGN

A research design is the arrangement of conditions for collection

and analysis of data in manner that aims to combine relevance to the research purpose

with economy in procedure. It is a comprehensive plan of the series of operation that a

researcher intends to carry out to accomplish the research objectives. It is a blue print

of study. The research design used in this study is descriptive design. It aims at

gaining the overall knowledge about the organization.

DESCRIPTIVE RESEARCH DESIGN

Descriptive research design includes surveys and fact-finding, enquiries of

different kinds. The major purpose of descriptive research is description of the state of

affairs, as it exists at present. In social science and business research, we quite often

use the term ex post facto research for descriptive research studies. The main

characteristics of this method are that the researcher has not control over the variable;

he can only report what has happened or what is happening. Most ex post facto

research projects are used for descriptive studies in which the researcher seeks to

measure such items, for example, frequency of shopping, and preference of the people

over similar item.



SAMPLING METHOD

It is neither feasible nor desirable to cover the entire population, thus

sampling was done. The sample is the representative unit of the entire population.

Sampling remains the only way when population contents infinitely many members.

The researcher has taken samples for this research and proportionate sampling method

is used for choosing the sample size. Here the researcher has taken Simple random

Sampling.

SAMPLE SIZE

The sample size for the study is 100.

DATA COLLECTION METHOD

The task of collecting data begins after a research problem has been defined

and plan is chalked out for this study data is collected from primary and secondary

sources.

• Primary data

Primary data are collected directly from the field using interview with

questionnaire

• Secondary data

Secondary are collected from various books, publications, reports from the

company and from the company’s website

TOOLS USED FOR DATA ANALYSIS:

CHI-SQUARE TEST

Chi-Square test is the statistical test which in which the statistic follows a χ²

distribution, is called the χ²test. Therefore χ² is a statistical test, which tests the

significance of difference between observed frequencies and the corresponding

theoretical frequencies of a distribution, without any assumption about the distribution

of the population. χ² test is the one of the simplest and most widely used non-



parametric tests in statistical work. This test was developed by Prof. karl Pearson in

1990.

Period of the study

The study was conducted for a period of 45 days from 9th April 2012 to 23rd May

2012.

SOURCES OF DATA

The data sources are:

• Offer documents

• Company’s records

• Company’s publications

• Annual repots

• Journals

• Websites

1.7 LIMITATIONS OF THE STUDY

• The study was conducted for a period of 45days which is major limitation of

the study.

• Since the findings are mostly based on the information given by the

participants, there is every possibility of lacking precision for the findings of

the study.

• Though assured of confidentiality, still some of the respondents hesitated to

answer freely and firmly.

• Since the attitude of the respondent is bound to change from time to time, the

result of the study may not be universal



2.1 REVIEW OF LITERATURE

Risk Management

Salvatore (2001: 573) describes risk as follows:

Risk refers to a situation in which there is more than one possible outcome

to a decision, and the probability of each specific outcome is known or can be

estimated. Thus, risk requires that the decision maker know all the possible outcomes

of the decision and have some idea of the probability of each outcome’s occurrence.

Investing in a stock can lead to one of a set of possible outcomes, and the probability

of each possible outcome can be estimated from past experience or from market

studies. In general, the greater the number and range of possible outcomes, the greater

is the risk associated with the decision or action.

Risk could be defined as the probability that the expected return from the

security will not materialize. Every investment involves uncertainties that make future

investment returns risk-prone. Uncertainties could be due to the political, economic

and industry factors. Risk could be systematic in future depending upon its source.

Systematic risk is for the market as a whole, while unsystematic risk is specific to an

industry or the company individually.

In this section, the literature review including three parts. First, behavior

finance perspective of individual investor. Second, individual investor’s risk

perception, risk tolerance and portfolio choice. Third, individual investor’s socio-

economic status differential and risk tolerance. The results for gender, education level

and income level are consistent with the earlier literature. Previous literature

indicating those factors on risk-taking and risk tolerance are gender, age, marital

status, occupation, income level, education level and economic environments

expectations, which might influence an individual investor’s level of risk taking, but

the factor of education level might not. Those studies are classified by three

catalogers.



� Behavior Finance Perspective of Individual Investor

As a result of traditional finance theory appears to play a limited role in

understanding this issues such as (1) why do individual investors trade, (2) how do

they perform the task, (3) how do they choose their portfolios to conform their

conditions, and (4) why do returns vary so quickly even across stocks for reasons

other than risk. In the new arena of behavior finance or so called behavior economic,

we could to interpret about individual investors behave in their invest choice more

completely. Most of behavioral finance researchers often claimed that the reality

results presents no unified theory unlike traditional finance theory appears expected

utility investigation issues of behavioral finance research.

“Maximizations using rational beliefs” Its means those scholars in this field

actually postulate whole investors in financial market are rationales; they can’t

influenced through any factors only maximum profit for themselves. Most authors

show behavior finance perspective on individual investor, such as Deaux and

Emswiller (1974), Lenney (1977), Maital et al. (1986), Thaler and Johnson (1990) and

Beyer and Bowden (1997). Those authors are to exclaim that individual investor

would demonstrate different risk attitude when facing investment alternatives. Later

instruction in our research, we called risk perception and risk tolerance of individual

investor. Comparing with previously research, current study is to focus on external

factors and psychological factors how to affect investor’s investment decision and

portfolio choice. For instance, Annaert et al. (2005), Wang et al. (2006) indicate the

impact of information asymmetric problem on investor behave, this is another subject

in behavioral finance field. Most of these researches are pay close attention to

behavioral finance, especially in financial products choices (investment) and behave

of individual investor invest related.



� Risk Perception, Risk Tolerance and Portfolio Choice

Financial risk tolerance is defined as the maximum amount of uncertainty that

someone is willing to accept when making a financial decision. Although the

importance of assessing financial risk tolerance is well documented, in practice the

assessment process tends to be very difficult due to the subjective nature of risk taking

(the risk of investor willing to reveal their risk tolerance) and objective factors such as

Grable and Joo (1997), Grable and Lytton (1999), and Grable (2000).

Risk tolerance represents one person’s attitude towards taking risk. This

indicated is an important concept that has implications for both financial service

providers (asset management institution or other financial planner) and consumers

(investors). For the latter, risk tolerance is one factor which may determine the

appropriate composition of many assets in a portfolio which is optimal and satisfied

investors invest preference in terms of risk and return relative to the needs of the

individual investors Droms, (1987), Hallahan et al., (2004).

There are some empirical evidence showing the impact of risk perception; risk

tolerance and socio-economic on portfolio choice, for instance, Carducci and Wong

(1998), Grable and Joo (1997), Grable and Lytton (1999), Grable (2000), Hallahan et

al., (2003), Hallahan et al., (2004), Frijns et al., (2008), and Veld and Veld-

Merkoulova (2008). In terms of different risk perception or risk tolerance level,

individual investor may show different reaction base upon their psychology factor and

economic situation, which would lead to heterogeneous portfolio choice for individual

investors. For this reason, it is crucial to recognize and attitudinal how individual

investors with different risk perceptions and risk tolerance make their invest products

choice on

Investment plan, in particular socioeconomic status differentials may make their

choice vary and difference.



� Investor’s Socio-Economic Status and Risk Tolerance

Some researchers have indicated that the validity of widely used

demographics as determinants of risk tolerance is noteworthy as the relationship

between socio-economic status differences including gender, age, income level, net

assets, marital status, educational level and investment decision or portfolio choice.

With regard to the financial risk tolerance literatures, there is much interest in the

demographic determinants and risk attention (involving three risk types: risk aversion,

risk moderate and risk seeking) is particularly focused on age, gender, education

level, income level, marital status, the number of dependents and net assets.

Specifically, although debate remains on some issues, a range of common findings are

generally observed. There are five phenomenons in socio-economic status variables

differential and portfolio choice as the following: First, risk tolerance decreases with

age (e.g., Morin and Suarez 1983; Roszkowski, Snelbecker, and Leimberg 1993).

Second, females have a lower preference for risk than males (e.g., Roszkowski,

Snelbecker, and Leimberg 1993; Grable 2000). Third, risk tolerance increases with

education level (e.g., Roszkowski, Snelbecker, and Leimberg 1993). Second, females

have a lower preference for risk than males (e.g., Roszkowski, Snelbecker, and

Leimberg 1993; Grable 2000). Third, risk tolerance increases with education level

(e.g., Roszkowski, Snelbecker, and Leimberg 1993; Haliassos and Bertaut 1995).

Fourth, risk tolerance increases with income level and net assets (e.g., Cohn et al.

1975; Roszkowski, Snelbecker, and Leimberg 1993; Bernheim, Skinner, and

Weinberg 2001). Fifth, single (i.e., unmarried) investors are more risk tolerant than

married (e.g., Roszkowski, Snelbecker, and Leimberg 1993).



� A study in portfolio management by Magnus Edvald Bjorn son on April 20th

1998

All portfolios that lie on the same indifference curve are equally desirable

to the investor (even though they have different expected returns and variance.) An

obvious implication is that indifference curves do not intersect.

An investor will find any portfolio that is lying on an indifference curve

that is "further northwest" to be more desirable than any portfolio lying on an

indifference curve that is "not as far northwest."

Generally it is assumed that investors are risk averse, which means that the

investor will choose the portfolio with the smaller variance given the same return.

Risk Averse investors will not want to take fair gambles (where the expected payoff is

zero). These two assumptions of no satiation and risk aversion cause indifference

curves to be positively sloped.

� Portfolio management theory by Dr Sam vaknin

S.NO STATE OF INVESTORS DESCRIPTION PROPERTY

1. Diminishing

Avoidance of absolute

risk

Invests more in risky

assets as his capital

grows

Derivative of

avoidance of

absolute risk < Æ

2. Constant Avoidance of

absolute risk

Doesn't change his

investment in risky

assets as capital

grows

Derivative = Æ

3. Increasing Avoidance

of absolute risk

Invests less in risky

assets as his capital

grows

Derivative > Æ



4. Diminishing

Avoidance of relative

risk

Percentage invested

in risky assets grows

with capital growth

Derivative < Æ

5. Constant Avoidance of

relative risk

Percentage invested

in risky assets

unchanged as capital

grows

Derivative = Æ

6. Increasing avoidance

of relative risk

Percentage invested

in risky assets

decreases with capital

growth

Derivative > Æ

2.2 Risk

People have many motives for investing.fro most investors, however, their interest in

investment is largely pecuniary-to earn a return on their money. Investors not only

like return but they dislike risk. Faerber defined risk as “the variability of returns from

an investment or the uncertainty related to the outcome of an investment.” There are

many different types of risk. Risk is the “degree of uncertainty of return on an asset”

(Morgenson & Harvey, 2002, p. 284).

Types of Risk

Reference was made to two types of risk of investor.

1) Systematic Risk

2) Unsystematic Risk.

Systematic Risk

The systematic risk affects the entire market. Often we read in the news paper teat

stock market is in the bear hug or in the bull grip. This indicates that the entire market

is moving in a particular direction either downward or upward. The economic

conditions, political conditions and the sociological changes affect the security

market. The recession in the economy affects the profit prospects of the industry and



the stock market. The 1998 recession experienced by developed and developing

countries have affected the stock markets worldwide. The south East Asian crisis has

affected the stock market worldwide. These factors are beyond the control of the

corporate and the investor.

• Market risk

• Interest rate risk

• Purchasing power risk

Market risk:

Jack Clark Francis has defined market risk as that portion of total

variability of return caused by the alternating forces of bull and bear markets. When

the security index moves upward haltingly for a significant period of time, it is known

as bull market. In bull market, the index moves from a low level to the peak. Bear

market is just a reverse to the bull market; the index declines haltingly from the peak

to a market low point called trough for a significant period of time.

Market risk is caused by investor reaction to tangible as well as intangible

events. This arises out of changes in demand and supply pressure in the markets,

following the changing flow of information or expectations. The totality of investor

perception and subjective factors influence the events in the market which are

unpredictable and give risk to risk, which is not controllable.

Interest rate risk:

Interest rate risk is the variation in the single period rate of return caused

by the fluctuations in the market interest rate. Most commonly interest rate risk

affects the price of bonds, debentures and stocks. The fluctuations in the interest rates

are caused by the changes in the government monetary policy and the changes that

occur in the interest rates of treasury bills and the government bonds.

The root cause of interest rate lies in the fact that, as the rate of interest

paid on US government securities rises or falls, the rate of return demanded on

alternative investment vehicles, such as stocks and bonds issued in the private sector,

rise or fall.



Purchasing power risk:

Variations in the returns are caused also by the loss of purchasing power

of currency. Inflation is the reason behind the loss of purchasing power. The level of

inflation proceeds faster than the increase in capital value. It is the probable loss in the

purchasing power of the returns to be received. Hence inflation or rise in prices lead

to raise cost of production, lower margins, wage rises and profit squeezing etc. the

return expected by investors will change due to change in real value of returns. Cost

push inflation is caused by rise in the costs, due to wage rise or rise in input prices.

The increase in demand may be caused by changing expectation of future interest

rates and inflation due to increase in money supply or creation of currency to finance

the deficits of the government. This element of purchasing power risk is inherent in

all investments and cannot be controlled by him.

Unsystematic Risk

Unsystematic Risk is unique and peculiar to a firm or an industry. It

stems from managerial inefficiency, technological change in the production process,

availability of raw material changes in the consumer preference, and labor problems.

The nature and magnitude of the above mentioned factors differ from industry to

industry, and company to company. They have to be analyzed separately for each

industry and firm. The changes in the consumer preference affect the consumer

products like television sets, washing machines, refrigerators, etc. more than they

affect the iron and steel industry. Financial leverage of the companies that is debt-

equity portion of the companies differs from each other. The nature and mode of

raising finance and paying back the loans, involve a risk element. All these factors

from the unsystematic risk and contribute a portion in the total variability o the return.

It is divided in to two

• Business risk

• Financial risk



Business risk:

Business risk is that portion of the unsystematic risk caused by the

operating environment of the Business. It arises from the liability of a firm to

maintain its competitive edge and the growth or stability of the earnings. Variation

that occurs in the operating environment is reflected on the operating income and

expected dividends. The variations in the expected operating income indicate the

business risks. It relates to variability of the business, sales, income, profits etc. it is

sometimes external to the company due to changes in government policy or strategies

of competitors or unforeseen market conditions. They may be internal due to fall in

production, labor problems, raw material problems etc. it leads to fall in revenues and

in profit of the company, but can be corrected by certain changes in the company’s

policies.

Financial risk:

It refers to the variability of the income to the equity capital due to the debt

capital. Financial risk in a company is associated with the capital structure of the

company. Capital structure of the company consists of equity funds and borrowed

funds. The presence of debt and preference capital results in a commitment of paying

interest or pre fixed rate of dividend. The residual income alone would be available to

the equity holders. If the company runs into losses or reduced profits, these may lead

to fall in returns to investors or negative returns. Proper financial planning and other

financial adjustments can be used to correct this risk and as such it is controllable.



RISK –RETURN MATRIX OF EQUITY



2.3 Portfolio Management

An investor considering investment in securities is faced with the problem 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 deals specifically 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.

Portfolio Analysis

Portfolio analysis is a systematic way to analyze the products and services that make

up an association's business portfolio. All associations (except the simplest and the

smallest) are involved in more than one business. Some of these include publishing,

meetings and conventions, education and training, government representation,

research, standards setting, public relations, etc. Each of these is one of the

association's strategic business units (SBUs). Each business consists of a portfolio of

products and services. For example, an association's publishing business might

include a professional journal, a lay magazine, specialized newsletters geared to

different member segments, CDs, a website, social networking sites, etc.



Portfolio analysis helps you decide which of these products and services should be

emphasized and which should be phased out, based on objective criteria. Portfolio

analysis consists of subjecting each of the association's products and services through

a progression of finer screens. During a time of cutbacks and scarce resources, it is

essential to screen out programs and services that are not essential to most members.

Those that appeal to a more limited segment can be funded by those desiring the

product or service rather than by dues.

Analysis of securities in the combined form is portfolio analysis. Group of

securities when held together behave in a different manner and give interest and

dividend also which are different to the analysis of individual securities.

� When diversification does not help

Positively correlated return of two securities will not provide risk

reducing but only risk averaging.

Rb

Ra



� When diversification can eliminate risk

Perfectly negatively correlated

Rb

Ra

� Insurance principle

Diversification provide substantial risk reduction if the components of

a portfolio are uncorrelated

Rb

Ra



Selection of Portfolio

The selection of portfolio depends upon the objectives of the investor. The selection

of portfolio under different objectives is 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.

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 the risk taking

capability and the returns desired.



Diversification

Once the asset mix is determined and risk – return relationship is analyzed the

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

unsystematic risk is minimized.

Optimal Portfolio

The optimal portfolio concept falls under the modern portfolio theory. The

theory assumes (among other things) that investors fanatically try to minimize risk

while striving for the highest return possible. The theory states that investors will act

rationally, always making decisions aimed at maximizing their return for their

acceptable level of risk. The optimal portfolio was used in 1952 by Harry Markowitz,

and it shows us that it is possible for different portfolios to have varying levels of risk

and return. Each investor must decide how much risk they can handle and then

allocate (or diversify) their portfolio according to this decision.

The chart below illustrates how the optimal portfolio works. The optimal-

risk portfolio is usually determined to be somewhere in the middle of the curve

because as you go higher up the curve, you take on proportionately more risk for a

lower incremental return. On the other end, low risk/low return portfolios are

pointless because you can achieve a similar return by investing in risk free assets like

government securities.



The investor can choose how much volatility that he is willing to bear in his portfolio

by picking any other point that falls on the efficient frontier. This will give the

investor the maximum return for the amount of risk he had wished to accept.

Optimizing the portfolio is not something we can calculate in our head. There are

computer programs that are dedicated to determining optimal portfolios by estimating

hundreds (and sometimes thousands) of different expected returns for each given

amount of risk.

Portfolio investment process

The ultimate aim of the portfolio manager is to reduce the risk and increase

the return to the investor in order to reach the investment objectives of an investor.

The manager must be aware of the investment process. The process of portfolio

management involves many logical steps like portfolio planning, portfolio

implementation and monitoring. The portfolio investment process applies to different

situation. Portfolio is owned by different individuals and organizations with different

requirements. Investors should buy when prices are very low and sell when prices rise

to levels higher that their normal fluctuation.



Portfolio investment process is an important step to meet the needs and convenience

of investors. The portfolio investment process involves the following steps:

1. Planning of portfolio

2. Implementation of portfolio plan.

3. Monitoring the performance of portfolio.



1) Planning of portfolio:

Planning is the most important element in a proper portfolio management.

The success of the portfolio management will depend upon the careful planning.

While making the plan, due consideration will be given to the investor’s financial

capability and current capital market situation. After taking into consideration a set of

investment and speculative policies will be prepared in the written form. It is called as

statement of investment policy. The document must contain (1) The portfolio

objective (2) Applicable strategies (3) Investment and speculative constraints. The

planning document must clearly define the asset allocation. It means an optimal

combination of various assets in an efficient market. The portfolio manager must keep

in mind about the difference between basic pure investment portfolio and actual

portfolio returns. The statement of investment policy may contain these elements. The

portfolio planning comprises the following situation for its better performance:

(A) Investor Conditions: -

The first question which must be answered is this – “What is the purpose of

the security portfolio?” While this question might seem obvious, it is too often

overlooked, giving way instead to the excitement of selecting the securities which are

to be held. Understanding the purpose for trading in financial securities will help to:

(1) define the expected portfolio liquidation, (2) aid in determining an acceptable

level or risk, and (3) indicate whether future consumption (liability needs) are to be

paid in nominal or real money, etc. For example: a 60 year old woman with small to

moderate saving probably (1) has a short investment horizon, (2) can accept little

investment risk, and (3) needs protection against short term inflation. In contrast, a

young couple investing couple investing for retirement in 30 years has (1) a very long

investment horizon, (2) an ability to accept moderate to large investment risk because

they can diversify over time, and (3) a need for protection against long-term inflation.

This suggests that the 60 year old woman should invest solely in low-default risk

money market securities. The young couple could invest in many other asset classes

for diversification and accept greater investment risks. In short, knowing the eventual



purpose of the portfolio investment makes it possible to begin sketching out

appropriate investment / speculative policies.

(B) Market Condition: -

The portfolio owner must know the latest developments in the market. He

may be in a position to assess the potential of future return on various capital market

instruments. The investors’ expectation may be two types, long term expectations and

short term expectations. The most important investment decision in portfolio

construction is asset allocation. Asset allocation means the investment in different

financial instruments at a percentage in portfolio. Some investment strategies are

static. The portfolio requires changes according to investor’s needs and knowledge. A

continues changes in portfolio leads to higher operating cost. Generally the potential

volatility of equity and debt market is 2 to 3 years. The type of rebalancing strategy

focuses on the level of prices of a given financial asset.

(C) Speculative Policies: -

The portfolio owner may accept the speculative strategies in order to reach

his goals of earning to maximum extant. If no speculative strategies are used the

management of the portfolio is relatively easy. Speculative strategies may be

categorized as asset allocation timing decision or security selection decision. Small

investors can do by purchasing mutual funds which are indexed to a stock.

Organization with large capital can employ investment management firms to make

their speculative trading decisions.

(D) Strategic Asset Allocation: -

The most important investment decision which the owner of a portfolio must

make is the portfolio’s asset allocation. Asset allocation refers to the percentage

invested in various security classes. Security classes are simply the type of securities:

(1) Money Market Investment, (2) Fixed Income obligations; (3) Equity Shares, (4)

Real Estate Investment, (5) International securities.



Strategic asset allocation represents the asset allocation which would be optimal for

the investor if all security prices trade at their long-term equilibrium values that is, if

the markets are efficiency priced.

2) Implementation of portfolio plan

In the implementation stage, three decisions to be made, if the percentage

holdings of various assets classes are currently different from the desired holdings as

in the SIP, the portfolio should be rebalances to the desired SAA (Strategic Asset

Allocation). If the statement of investment policy requires a pure investment strategy,

this is the only thing, which is done in the implementation stage. However, many

portfolio owners engage in speculative transaction 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 assets classes, industries, or economic sectors from the strategic asset

allocation. Such timing decision deal with securities within a given asset class,

industry group, or economic sector and attempt to determine which securities should

be over or under-weighted.

(A) Tactical Asset Allocation: -

If one believes that the price levels of certain asset classes, industry, or

economic sectors are temporarily too high or too low, actual portfolio holdings should

depart from the asset mix called for in the strategic asset allocation. Such timing

decision is preferred to as tactical asset allocation. As noted, TAA decisions could be

made across aggregate asset classes, industry classifications (steel, food), or various

broad economic sectors (basic manufacturing, interest-sensitive, consumer durables).

Traditionally, most tactical assets allocation has involved timing across

aggregate asset classes. For example, if equity prices are believes to be too high, one

would reduce the portfolio’s equity allocation and increase allocation to, say, risk-free

securities. If one is indeed successful at tactical asset allocation, the abnormal returns,

which would be earned, are certainly entering.



(B) Security Selection: -

The second type of active speculation involves the selection of securities

within a given assets class, industry, or economic sector. The strategic asset allocation

policy would call for broad diversification through an indexed holding of virtually all

securities in the asset in the class. For example, if the total market value of a company

share currently represents 1% of all of its issued equity capital, than 1% of the

investor’s portfolio allocated to equity would be held in company’s shares. The only

reason to overweight or underweight particular securities in the strategic asset

allocation would be to offset risks the investors’ faces in other assets and liabilities

outside the marketable security portfolio. Security selection, however actively

overweight and underweight holding of particular securities in the belief that they are

temporarily mispriced.

(3) Monitoring the performance of portfolio

Portfolio monitoring is a continuous and ongoing assessment of present

portfolio and the portfolio manger shall incorporate the latest development which

occurred in capital market. The portfolio manager should take into consideration of

investor’s preferences, capital market condition and expectations. Monitoring the

portfolio is up-grading activity in asset composition to take the advantage of

economic, industry and market conditions. The market conditions are depending upon

the Government policy. Any change in Government policy would reflect the stock

market, which in turn affects the portfolio. The continued revision of a portfolio

depends upon the following factors:

1. Change in Government policy.

2. Shifting from one industry to other

3. Shifting from one company scrip to company scrip.

4. Shifting from one financial instrument to another.

5. The half yearly / yearly results of the corporate sector.



Risk reduction is an important factor in portfolio. It will be achieved by a

diversification of the portfolio, changes in market prices may have necessitated in

asset composition. The composition has to be changed to maximize the returns to

reach the goals of investor.

A. “The Portfolio Management Process and the Investment Policy Statement”

The investors should be able to

a. Justify the importance of the portfolio perspective;

b. Formulate the steps of the portfolio management process

c. Compare and contrast the types of investment objectives;

d. Contrast the types of investment constraints;

e. Justify the central role of the investment policy statement in the portfolio

management process;

f. Review the elements of an investment policy statement and distinguish

among the components within 1) the risk objective, 2) the return objective,

and 3) the time horizon constraint;

g. Compare and contrast passive, active, and semi active approaches to

investing;

h. Discuss the role of capital market expectations in the portfolio

management process;

i. Discuss the role of strategic asset allocation in the portfolio management

process;

j. Discuss the roles of portfolio selection/composition and portfolio

implementation in the portfolio management process;

k. Contrast the elements of performance evaluation;

l. Explain the purpose of monitoring and rebalancing;

m. Formulate the elements of portfolio management as an ongoing process;

n. Formulate and justify a risk objective for an investor;

o. Formulate and justify a return objective for an investor;

p. Determine the liquidity requirement of an investor and evaluate the effects

of a liquidity requirement on portfolio choice;



q. Contrast the types of time horizons, determine the time horizon for an

Investor, and evaluate the effects of the investor’s time horizon on

portfolio choice;

r. Determine the tax concerns, legal and regulatory factors, and unique

circumstances for an investor and evaluate their effects on portfolio

choice;

s. Justify ethical conduct as a requirement for managing investment

portfolios.

B. “Managing Individual Investor Portfolios”

The Investors should be able to

a. Review situational profiling for individual investors and discuss source of

wealth, measure of wealth, and stage of life as approaches to situational

profiling;

b. Prepare an elementary situational profile for an individual investor;

c. Discuss the role of psychological profiling in understanding individual

investor behavior;

d. Formulate the basic principles of the behavioral finance investment

framework;

e. Discuss the influence of investor psychology on risk tolerance and

investment choices;

f. Discuss the use of a personality typing questionnaire for identifying an

investor’s personality type;

g. Formulate the relationship between risk attitudes and decision-making

styles and individual investor personality types;

h. Discuss the potential benefits for both clients and investment managers of

having a formal investment policy statement;

i. Review the process involved in creating an investment policy statement for

a client;



j. Discuss each of the major objectives that are part of an individual

investor’s investment policy statement;

k. Distinguish between an individual investor’s ability to take risk and

willingness to take risk;

l. Discuss the setting of risk and return objectives for individual investor

portfolios;

m. Discuss each of the major constraints that are part of an individual

investor’s investment policy statement;

n. Formulate and justify an investment policy statement for an individual

investor;

o. Demonstrate the use of a process of elimination to arrive at an appropriate

strategic asset allocation for an individual investor;

p. Determine the strategic asset allocation that is most appropriate given an

individual investor’s investment objectives and constraints;

q. Compare and contrast traditional deterministic versus Monte Carlo

approaches in the context of retirement planning;

r. Discuss the advantages of the Monte Carlo approach to retirement

planning.

C. “Forming Portfolios”


a. Explain how mental accounting may lead both individual and institutional

investors to misperceive risk;

b. Discuss how the concept of correlation is generally not implemented when

investors affected by mental accounting build portfolios;

c. Explain how mental accounting can result in naive diversification as

compared to the efficient diversification that results from implementing

MPT.



D. Learning Outcomes

1. “Managing Institutional Investor Portfolios”


a. Contrast a defined-benefit plan to a defined-contribution plan from the

perspectives of both the employee and employer;

b. Discuss investment objectives and constraints for defined-benefit plans;

c. Evaluate pension fund risk tolerance when risk is considered from the

perspective of the (1) plan surplus, (2) sponsor financial status and

profitability, (3) sponsor and pension fund common risk exposures, (4)

plan features, and (5) workforce Characteristics;

d. Formulate an investment policy statement for a defined-benefit plan;

e. Evaluate the risk management considerations in investing pension plan

assets;

f. Formulate an investment policy statement for a defined-contribution plan;

g. Discuss hybrid pension plans (e.g., cash balance plans) and employee

stock ownership plans;

h. Distinguish among the types of foundations with respect to their

description, purpose, source of funds, and annual spending requirements;

i. discuss investment objectives and constraints for foundations,

endowments, insurance companies, and banks;

j. Formulate an investment policy statement for a foundation, an endowment,

an insurance company, and a bank;

k. Contrast investment companies, commodity pools, and hedge funds to

other types of institutional investors;

l. Evaluate the factors that affect the investment policies of pension funds,

foundations, endowments, life and non-life insurance companies, and

banks;

m. Distinguish among the return objectives, risk tolerances, liquidity

requirements, time horizons, tax considerations, legal and regulatory

environment, and unique.



n. Compare and contrast the asset/liability management needs of pension

funds, foundations, endowments, insurance companies, and banks;

o. Compare and contrast the investment objectives and constraints of

institutional investors given relevant data such as descriptions of their

financial circumstances and attitudes toward risk.

Simple Sharpe Portfolio

The question is whether our portfolio has performed well when compared to

other managed funds such as closed end funds open ended money market funds.

Management performance evaluation

It is measured by comparing the yield of managed portfolio with the

market index (or) with a random portfolio.

Yield = (NAVt- Dt/NAV t-1) – 1

Dt = total of all distribution both income-gains

When managed fund yield > Unmanaged fund

Sharpe’s performance measure

St=Rt-r^0/

St= Sharpe index

Rt=Average return of portfolio

=SD

r^0= Risk free return



The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index. This Index is a ratio of return generated by the fund over and above

risk free rate of return (generally taken to be the return on securities backed by the

government, as there is no credit risk associated), during a given period and

systematic risk associated with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the

fund.All risk-averse investors would like to maximize this value. While a high and

positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low

and negative Treynor's Index is an indication of unfavorable performance

Jenson Model

Jenson's model proposes another risk adjusted performance measure. This measure

was developed by Michael Jenson and is sometimes referred to as the Differential

Return Method. This measure involves evaluation of the returns that the fund has

generated vs. the returns actually expected out of the fund given the level of its

systematic risk. The surplus between the two returns is called Alpha, which measures

the performance of a fund compared with the actual returns over the period. Required

return of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where, Rm is average market return during the given period. After calculating it,

alpha can be obtained by subtracting required return from the actual return of the

fund.

Higher alpha represents superior performance of the fund and vice versa. Limitation

of this model is that it considers only systematic risk not the entire risk associated

with the fund and an ordinary investor cannot mitigate unsystematic risk, as his

knowledge of market is primitive.



3.1 INDUSTRY PROFILE

The capital market is a market for financial assets, which have longer or

indefinite maturity. Generally, it deals with long-term securities which have maturity

period of above one year. The capital market may be further divided into three

namely.

1. Industrial securities market

2. Government securities market

3. Long-term loan market

The industrial market, which deals with shares and debentures, can

further be divided into:

1. Primary market

2. Secondary Market

PRIMARY MARKET

In the primary market, securities are offered to public for subscription for

the purpose of raising capital or fund. Secondary market is an equity trading avenue in

which already existing/pre- issued securities are traded amongst investors. Secondary

market could be either auction or dealer market. While stock exchange is the part of

an auction market, Over-the-Counter (OTC) is a part of the dealer market. In addition

to the traditional sources of capital from family and friends, start up firms are created

and nurtured by Venture Capital Funds and Private Equity Funds. According to the

Indian Venture Capital Association Yearbook (2003), investments of $881 million

were injected into 80 companies in 2002, and investments of $470 million were

injected into 56 companies in 2003. The firms which received these investments were

drawn from a wide range of industries, including finance, consumer goods and health.

The growth of the venture capital and private equity mechanisms in India is

critically linked to their track record for successful exits. Investments by these funds

only commenced in recent years, and we are seeing a rapid build-up in a full range of

channels for exit, with a mix of profitable and unprofitable outcomes.



The success with exit suggests that investors will allocate increased resources

to venture funds and private equity funds operating in India, who will (in turn) be able

to fund the creation of new firms.

SECONDARY MARKET

Secondary Market refers to a market where securities are traded after being

initially offered to the public in the primary market and/or listed on the Stock

Exchange. Majority of the trading is done in the secondary market. Secondary market

comprises of equity markets and the debt markets. For the general investor, the

secondary market provides an efficient platform for trading of his securities. For the

management of the company, Secondary equity markets serve as a monitoring and

control conduit—by facilitating value-enhancing control activities, enabling

implementation of incentive-based management contracts, and aggregating

information (via price discovery) that guides management decisions.

STOCK MARKET

Stock market is a market where trading of company stocks, other securities

and derivatives takes place. Stock exchanges are corporations or mutual organizations

which are specialized in trading stocks and securities. The first security was issued

publicly in Venice in the fourteenth century where the government made the first

known issue of bonds. Merchants and landowners purchased these securities as

investments.

The stock exchange or secondary market is a highly organized market for the

purchase and sale of second hand quoted of listed securities. The securities contracts

(Regulation) Act 1956 defines a stock exchange as “an association, organization or

not, established for the purpose of assisting, regulating and controlling business in

buying, selling and dealing in securities”.

Of all the modern service institutions, stock exchange plays a crucial agents

and facilitators of entrepreneurial progress. After the industrial resolution, as the size

of the business enterprises grew, it was no longer possible for individual person or

even partnerships to raise such huge amount for undertaking these ventures. Such



huge requirements of capital can be met only large number of individuals.

These investors could be expected to participate actively only if investment is

liquid or they could sell a part of their stake whenever they wish to generate cash.

This liquidity can be achieved through shares and debentures representing smallest

units of ownership and lending represented by the public. The institution where these

securities are traded is known as stock exchange. This stock exchange is one of the

most important institutions in the capital market.

BOMBAY STOCK EXCHANGE

The origin of the Bombay stock exchange date back to 1875. it was organized

under the name of “ the native stock and shares brokers association” as a voluntary

and non-profit making association. It was recognized on a permanent basis in 1957.

This premier stock exchange is the oldest stock exchange in Asia. The objectives of

the stock exchanges are:

1. To safeguard the interest of the investing public having dealings on the

exchange.

2. To establish and promote honorable and just practices in securities

transaction.

3. To promote, develop, and maintain well regulated market for dealing in

securities.

4. To promote industrial development in the country through efficient

resource mobilization by the way of investment in corporate securities.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the

Indian stock market trading system on par with the international standards. On the

basis of the recommendations of high powered Pherwani Committee, the National

Stock Exchange was incorporated in 1992 by Industrial Development Bank of India,

Industrial Credit and Investment Corporation of India, Industrial Finance Corporation

of India, all Insurance Corporations, selected commercial banks and others.



Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations -

institutions and corporate bodies enter into high value transactions in financial

instruments such as government securities, treasury bills, public sector unit bonds,

commercial paper, certificate of deposit, etc.

There are two kinds of players in NSE:

(a) Trading members and

(b) Participants.

Recognized members of NSE are called trading members who trade on behalf of

themselves and their clients. Participants include trading members and large players

like banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading

mechanism which adopts the principle of an order-driven market. Trading members

can stay at their offices and execute the trading, since they are linked through a

communication network. The prices at which the buyer and seller are willing to

transact will appear on the screen. When the prices match the transaction will be

completed and a confirmation slip will be printed at the office of the trading member.



NSE has several advantages over the traditional trading exchanges. They are as

follows:

• NSE brings an integrated stock market trading network across the nation.

• Investors can trade at the same price from anywhere in the country since inter-

market operations are streamlined coupled with the countrywide access to the

securities.

• Delays in communication, late payments and the malpractice’s prevailing in

the traditional trading mechanism can be done away with greater operational

efficiency and informational transparency in the stock market operations, with

the support of total computerized network.

Unless stock markets provide professionalized service, small investors and foreign

investors will not be interested in capital market operations. And capital market being

one of the major sources of long-term finance for industrial projects, India cannot

afford to damage the capital market path. In this regard NSE gains vital importance in

the Indian capital market system.

Dematerialization

Dematerialization ('Demat' in short form) signifies conversion of a share

certificate from its present physical form to electronic form for the same number of

holding. It offers scope for paperless trading through state-of-the-art technology,

whereby share transactions and transfers are processed electronically without

involving any share certificate or transfer deed after the share certificates have been

converted from physical form to electronic form. Demat attempts to avoid the time

consuming and complex process of getting shares transferred in the name of buyers as

well its inherent problems of bad deliveries, delay in processing/fraudulent

interception in postal transit, etc.



Dematerialization of shares is optional and an investor can still hold shares in

physical form. However, he/she has to demat the shares if he/she wishes to sell the

same through the Stock Exchanges. Similarly, if an investor purchases shares, he/she

will get delivery of the shares in demat form only. The Depositories Act 1996 has

been enacted to regulate the matters related and incidental to the operation of

Depositories and demat operations. Two Depositories are in operation - National

Securities Depository Limited (NSDL) and Central Depository Services Limited

(CDSL).

Depositories and Depositary Participants

A depository is a place where the stocks of investors are held in electronic form.

There are only two depositories in India, The National Securities Depository Ltd

(NSDL) and the Central Depository Services Ltd (CDSL). Under the arrangement, the

Depository acts as registered owner of the securities in electronic form in the books of

issuing company and the client will be the beneficial owner. The Depositary

Participants are the agents governed by Depositories through which one can operate

the demat account. Depository participants are mainly banks and brokers. There are

over a 100 DPs in India.



3.2 COMPANY PROFILE

Introduction

Edelweiss Financial Services Limited (formerly Edelweiss Capital Limited),

incorporated on 21st November 1995, has emerged as one of India’s leading

diversified financial services group. The Edelweiss Group offers one of the largest

ranges of products and services spanning varied asset classes and diversified

consumer segments. The Group’s businesses are broadly divided into Life Insurance,

Housing Finance, Asset Management, Credit, Commodities and Capital Markets

including Investment Banking and Brokerage Services. The company’s research

driven approach and consistent ability to capitalize on emerging market trends has

enabled it to foster strong relationships across corporate, institutional, HNI and Retail

clients. Edelweiss Group employs around 2944 employees, leveraging a strong

partnership culture and unique model of employee ownership. It operates through 265

own offices and 32 franchise-led offices in over 140 cities in India. It also has a strong

network of over 4500 Sub-brokers and Authorized Persons pan India. The Edelweiss

Group is a conglomerate of 51 entities including 45 Subsidiaries and 5 Associate

companies (December, 11), which is engaged in the business of providing diverse

financial services. It is a listed company since December 2007under the symbols

NSE: EDELWEISS, BSE: 532922, Reuters: EDEL.BO and Bloomberg: EDEL.IN.

The core philosophy of ‘Ideas create, values protect’ is translated into an

approach that is led by entrepreneurship and creativity, and protected by intellectual

rigour, research and analysis.



Evolution of Edelweiss

Business Overview

The current businesses of Edelweiss are organized around six broad lines –

Life Insurance, Housing Finance, Asset Management, Credit, Commodities and

Capital Markets. Life Insurance and Housing Finance businesses have been launched

recently and are the newest businesses of the group. The Asset Management

businesses include offshore and domestic asset management. The Credit Businesses

include collateralized loans to Promoters and Corporates, Margin funding, ESOP

financing and IPO financing. Commodities business includes import of precious

metals and distribution. Capital Markets businesses include investment banking,

brokerage services – institutional, HNI and retail and financial products distribution.

Since inception, Edelweiss has successfully followed a strategy of

diversifying into adjacent markets, newer asset classes, newer client segments and

adjacent products. This strategy has well supported the operations of Edelweiss across

cycles by bringing stability to its performance. As a result, Edelweiss has emerged as

a truly diversified leading financial services organization with a large range of



products and services covering multiple asset classes and consumer segments and

well diversified revenue streams.

To aptly reflect this diversified nature of the businesses of Edelweiss and the

transition to a financial services organization from a capital market led firm, the name

of the company was changed from Edelweiss Capital Limited to Edelweiss Financial

Services Limited in August 11.

LIFE INSURANCE

Edelweiss Tokio life Insurance is the first of the new generation Insurance

companies in India as a joint venture with Tokio Marine, one of the fastest growing

life Insurance companies in Japan. Capitalizing on the immense growth potential in

the life insurance sectors that the country offers, Edelweiss Tokio life insurance has

set up operations in India with a startup capital of Rs. 550 crores – highest for any

Indian insurer, dedicated to building a long term sustainable business focused on

consumer centricity. The business commenced operations in July �11 with the launch

of diverse products after receiving final approvals from IRDA. The products include

term plan, savings options, credit protection and ULIP funds. It has expanded

operations by opening 22 offices in 15 centers and has appointed over 530 Personal

Financial Advisors (PFAs). It plans to expand its presence and to more centers going

forward. Life Insurance market in India currently ranks 136th in the world in

penetration and is expected to emerge as one of the top three markets by 2020. This

business, therefore, presents exciting opportunities for long-term growth going

forward.

HOUSING FINANCE

Edelweiss has taken a major step in diversifying its asset class in the credit

book through the launch of its housing finance business in H2FY11. The housing

finance subsidiary initially launched its business in Mumbai and has expanded it to

include the National Capital Region, Ahmedabad, Bangaluru, Pune and Hyderabad.

Considering that it is the aspirations of all Indians to own a home, this business

represents an exciting opportunity reinforcing Edelweiss� intent to cover a larger

retail footprint. The business offers home loans, loans against property and lease

rental discounting.



ASSET MANAGEMENT

The Asset Management business includes Domestic Asset Management

(AMC) and Alternative Asset Management business. Edelweiss Asset Management

Company has launched a mix of 11 equity and debt funds. It has an active base of

over 5700 clients and has scaled up the distribution network by empanelling over

3000 distributors. The current focus of this business is on broad basing the product

portfolio and building investment track record. Alternative Asset Management

currently focuses largely on offshore institutional investors offering

advisory/management expertise for India focused Multi-Strategy Fund, Real Estate

Fund and a Special Opportunities Fund. Recent Initiatives include launch of an ARC,

an Asset Reconstruction Fund and EW SBIH Crossover Fund in joint sponsorship

with SBI Holdings of Japan.

CREDIT

With a deep knowledge and understanding of capital markets backed by strong

origination capabilities, the Company’s primary offering in the financing business

includes collateralized loan products such as sponsor funding, loans against shares,

IPO financing, loans against ESOPs and margin funding etc. The sponsors of mid-to-

large corporate constitute its key clientele. Its prudent financing norms, strong risk

management and a conservative margin of safety ensures low non–performing loans.

Edelweiss continues to work on new product offerings around other asset classes.



CAPITAL MARKETS

Investment Banking

Equity Capital Markets & Advisory Services

Edelweiss has one of the most extensive product offerings in Investment

Banking in India, catering to different market and client segments. The verticals

within Investment Banking include Equity Capital Markets which include IPOs/FPOs,

QIPs, Rights and Open Offers, and Advisory services which offer Mergers &

Acquisitions Advisory, Private Equity Syndication, Structured Finance Advisory and

Infrastructure Advisory. Edelweiss enjoys strong franchise with emerging and mid-

market companies which is reflected in the # 1 ranking in both Bloomberg tables for

Mid-market Private Equity placements in CY2007 and Prime Database league tables

for IPOs in Mid-market segment in FY2008. It was adjudged winner in the Best

Merchant Banker category in the Outlook Money NDTV Profit Awards 2008.

It was ranked # 2 in QIPs and # 3 in ECM (QIP+IPO/FPO+Rights) in FY10. For

FY11 it is ranked # 2 in ECM by number of deals below ` 400 crore. Overall, it was

among the top 10 players in ECM by number of deals in the country in FY11

(Rankings source: Prime Database). Its client segments now range from private to

public sector and from Mid-caps to Large-caps across different industries.

Corporate Debt Syndication

The Debt Syndication Desk focuses on origination, sales, trading and research.

It has gained a strong foothold and visibility in the market.

Ranked # 2 in CP placement and Short Term Debt placement for FY09

Ranked # 4 in CP placement and Short Term Debt placement for FY10

Ranked # 3 in Short Term Debt placement and ranked # 4 in CP placement in FY11

Overall Edelweiss is now ranked # 6 among the debt arrangers in the country in

9MFY12

(Rankings source: Prime Database)

Its clients in the recent past included large corporates like RIL, Aditya Birla Group,

SAIL, REC, PFC, PGC, IFCI,

IRFC, Tata Capital, Tata Motors Finance, Sundaram Finance, Yes Bank, SBI Group,

BoI, Canara Bank etc.



Brokerage Services

Institutional Equities

Edelweiss has one of the leading institutional equities businesses in India

backed by a large and experienced research team and a large and diversified client

base with a market share of 4 to 4.5%, among the highest in Indian brokerage firms.

Intense servicing, seamless execution and innovative research products have helped

Edelweiss build strong relationships with over 400 active institutional investors,

including domestic institutional investors and FIIs across different geographies.

Edelweiss provides broad corporate access via annual Investor Conferences in

different locations across the world with a strong investor and Indian corporate

participation. Research coverage presently extends to 189 companies across 20

sectors accounting for over 70% of total market capitalization representing one of the

largest Research coverage universes. The quality and caliber of research associated

with Edelweiss is widely regarded across the institutional community. It continues to

focus on path breaking Perspective Research which identifies future trends before

they become popular. After the landmark India 2020 Report that Edelweiss published

in March 10, it has come out with another thematic report on opportunities Rural

India offers. The Prescriptive Research of Edelweiss believes in never missing a beat

with multi dimensional company research covering important company events like

quarterly results, bottom up equity research and special reports such as Annual Report

analysis and Analysis beyond Consensus. It is also considered a Thought Leader in

Alternative and Quant Research with over 15 regular products such as pair trading

strategies, corporate action tracker etc. Edelweiss� commitment to provide cutting

edge research has resulted in a pioneering effort to provide online research to its

clients through the portal with smart features of quick sorting of information, analysis

and convenient archiving.



HNI Broking

Edelweiss offers dedicated equities and commodities broking services to high

net-worth individuals with a strong emphasis on building long-term relationships with

clients. Product offerings include specialized trading execution for active trading

clients and structured products backed by high quality execution and reporting.

Retail Broking & Distribution

Retail Broking and Distribution are the new initiatives of the Group under its

Retail Business strategy. The organic Retail broking business is through the online

portal and provides advisory and research based broking services supported by high

quality execution platform and best in class reporting. It currently has over 121,000

clients under the online broking. Edelweiss has also completed the acquisition of

Anagram Capital Limited in July �10, now renamed as Edelweiss Financial Advisors

Ltd. The offline broking model has around 243,000 clients. Retail broking business

has also expanded its presence through a strong network of over 4500 sub-brokers and

Authorized Persons in over 580 cities.

Distribution business focuses on giving advice and analyzing the best financial

product options available in the market. It involves the distribution of the full range of

third party financial products and services including IPO syndication for the retail

customer. For FY11 Edelweiss is ranked # 1 in HNI category and # 3 in Retail

category by amount mobilized in IPOs. It was also ranked # 1 in both HNI and Retail

categories in the recent IPO of MOIL Ltd by amount procured. Overall, it was second

largest mobilizer of IPO subscriptions in all categories taken together (non-ASBA) in

FY11 (Source: Prime Database).

Wealth Advisory & Investment Services

The Primary focus is on understanding each client's profile including life

style, risk appetite, growth expectations, and current financial position and income

requirements to create comprehensive and tailored investment strategies. The broad

range of offerings includes a truly multi-asset class allocation advisory to Structured

Products, Portfolio Management, Mutual Funds, Insurance, Derivatives Strategies,

Direct Equity, Private Equity, Commodities and Real Estate Funds etc. Recent launch

includes Financial Planning advisory services.



Treasury

The Treasury operations in Edelweiss are similar to that of a Treasury in a

Commercial Bank and focus on liquidity management with capital preservation. This

business adopts a multi–strategy/multi-book approach to diversify and grow its

portfolio while imparting liquidity in the balance sheet. The group follows a

disciplined and conservative approach to cash management with emphasis on strong

risk policies. This has resulted in a low or no correlation between the market returns

and the treasury performance.

Growth Initiatives

Edelweiss continues to build on the following growth initiatives with the

objective of diversifying its client segments and product classes in its quest to emerge

as a fully diversified financial services organization: It has invested in Life Insurance

business which has been launched recently.

It has completed the acquisition of Anagram Capital during FY11, now

rebranded as Edelweiss Financial Advisors Limited. This acquisition will help it in

expanding its Retail Broking and Distribution businesses. Edelweiss has also invested

in building its online retail broking format organically with an aspiration to become a

significant player in this industry.

The Housing Finance subsidiary commenced business in the latter half of

FY11 and has plans to scale up the business going forward. Its Alternative Asset

Management business closed the EW Special Opportunities Fund in FY11. It has also

launched an Asset Reconstruction Fund and EW SBIH Crossover Fund recently.

Edelweiss considers this business as a growth opportunity within its wholesale

businesses.



Corporate Structure

Shareholding Pattern



Financial Performance at a Glance

Edelweiss has delivered strong operating and financial performance since

inception, consistently demonstrating a strong track record of high growth and

profitability. Its Revenues have grown at a 12-year CAGR of 77% and PAT at 67%

till FY11. As at the end of 31st March 11 Edelweiss Group’s Net worth excluding

minority interest stood at RS24.40 billion (Rs25.55 billion including minority

interest), indicating a strong balance sheet. Equity capital is the primary source of

funding for the group besides debt. The leverage as on 31st March 11 is 3.4 times

including the Minority Interest indicating a healthy position whereby the balance

sheet can be further levered. Consolidated Financial Performance of Edelweiss

Financial Services Limited:

Edelweiss benefits from a strong and liquid balance sheet with a reasonable

leverage. A strong capital base and adequate profitability year after year allows

Edelweiss to constantly invest in new businesses with an eye on future growth while

scaling up the existing businesses. A large capital base also allows it to transact larger

volumes of broking and trading in the markets giving it a leadership position in

Institutional Equities business. It also enables the group to add debt capital as and

when required at reasonable rates. Its market capitalization as on 31st March 11 was

30 billion Rs.

Corporate Social Responsibility

At Edelweiss, Corporate Social Responsibility is a part of its DNA and it

focuses on initiatives that help to build a better, more equitable and sustainable

society. For Edelweiss, CSR means giving back to the society – beyond the call of the

business. EdelGive Foundation, the CSR wing of Edelweiss, has accordingly been

formed to create an effective institutional platform to provide structure and direction

to the philanthropic activities of Edelweiss, its employees, its clients and its

associates. Its primary focus is on creating educational, employment and sustainable

livelihood opportunities for the underprivileged and it brings an „institutional banking

and venture capital” rationale and thinking to the social sector. Edelweiss leverages its

strengths - the ability and expertise to act as a bridge between providers and

consumers of capital - to achieve the objective of addressing the primary needs of the

social sector.



Edelweiss Social Innovation Honours is a CSR initiative to encourage NGOs

who are working to improve the status of the girl child in the areas of health,

education and employability. The Social Innovation Honours for the year 2010-11

received overwhelming response and 5 NGO were selected for the award for their

innovative work to empower women. The process for finalizing the Honours for

2011-12 is underway and will be completed in Q4FY12.

Edelweiss has been rated among the top 5% of companies in terms of CSR by

Karmyog.com.


Holy Grace Academy Of Management Studies, Thrissur

DISTRIBUTION OF RESPONDENTS ACCORDING TO GENDER

Interpretation:

From the above table it is clear that

male. That is 100% males.


Gender

Male

Female

Total



4.1 DATA ANALYSIS

TABLENO: 1


From the above table it is clear that all the surveyed Respondents are

male. That is 100% males.

CHART NO: 1


100%

0%

No of Respondents Percentage

100 100%

-

100 100%

53


Respondents are


male

female

Percentage

100%

-

100%



DISTRIBUTION OF RESPONDENTS ACCORDING TO AGE

Age

<30

31-40

41-50

>50

Total

Interpretation:

From the above table, it shows that

40, 32% of the respondents are in the age between 41

in the age <30, and it is revealing that people above age 50 are 3% onl


32%



TABLENO: 2


No of Respondents Percentage

23

42

32

3

100

From the above table, it shows that 42% of the respondents are in the age between 31

40, 32% of the respondents are in the age between 41-50, 23% of the respondents are

in the age <30, and it is revealing that people above age 50 are 3% onl

CHART NO: 2


23%

42%

3%

54


Percentage

23%

42%

32%

3%

100%

42% of the respondents are in the age between 31-

50, 23% of the respondents are

in the age <30, and it is revealing that people above age 50 are 3% only.


<30

30-40

40-50

>50



TABLENO: 3

DISTRIBUTION OF RESPONDENTS ACCORDING TO INCOME

LEVEL

Income Level No of Respondents Percentage

<5000 0 0

5001-10000 12 12%

10001-15000 13 13%

15001-20000 47 47%

>20001 28 28%

Total 100 100%

Interpretation:

From the above table, it shows that47% of the respondents falls in the

category of 15000-20000, 28% of the respondents falls in the category of >20000,

13% of respondents falls in the category of 10000-15000, 12% of the respondents

falls in the category of 5000-10000, and none of the respondents falls in the category

of <5000.




28%



CHART NO: 3


LEVEL

0%

12%

13%

47%

56


<5000rs

5000-10000

10000-15000

15000-20000

>20000



TABLENO: 4(1)

TABLE SHOWING RESPONDENT’S OPINION

EXPERIENCE IN STOCK MARKET

Respondents Opinion No of Respondent Percentage

Yes 100 100%

No 0 0

Total 100 100%

Interpretation:

From the above table, it shows that all of the respondents have previous experience in

stock market.





CHART NO: 4(1)

RESPONDENT’S OPINION

100%

0%

58

YES

NO



TABLENO: 4(2)


TYPE OF INVESTMENT PREFERRED BY THE RESPONDENTS

Type of Investment No of Respondent Percentage

Bonds 7 7%

Equities 88 88%

Bank Deposits 5 5%

T-Bills 0 0

Government Securities 0 0

Total 100 100%

Interpretation:

From the above table, it shows that88% of the respondents prefer to invest in Equities,

7% of the respondents prefer to invest in Bonds, 5% of the respondents prefer to

invest in Bank Deposits, and none of the respondents are interested to invest in either

treasury bills or Government Securities.



0

10

20

30

40

50

60

70

80

90

bonds

7



CHART NO: 4(2)


equities bank

deposits

T-bills Govt

Securities

88

5

0

60

Govt

Securities

0



TABLENO: 4(3)


TIME TAKEN FOR EVALUATION OF PERFORMANCE OF INVESTMENT

Period of Time No. Of Respondents Percentage

Monthly

9 9%

Quarterly 71 71%

Annually 13 13%

Over 5 Years

7 7%

Total 100 100%

Interpretation:

From the above table, it is clear that 71% of the respondents judge the performance of

investment in a Quarterly, 13% of the respondents judge their performance of

investment by Annually, 9% of the respondents judge the performance of investment

Monthly and 7% of the respondents take over 5 years to judge the performance of the

investment.



0

10

20

30

40

50

60

70

80

quarterly

9



CHART NO: 4(3)


monthly annualy over 5 years

71

13

62

over 5 years

7



TABLENO: 4(4)


PERFORMANCE ABOUT THEIR FINANCIAL FUTURE

Financial Future No. Of Respondents Percentage

Very optimistic

32 32%

Positive

33 33%

Unsure

18 18%

Pessimistic

17 17%

Total 100 100%

Interpretation:

From the above table, it shows that 33% of the respondents are positive about their

financial future, 32% of the respondents are Very optimistic, 18% of the respondents

are unsure about their financial future and 17% of the respondents are Pessimistic.



0

5

10

15

20

25

30

35

very optimistic



CHART NO: 4(4)


very optimistic positive unsure pessimistic

64

pessimistic



TABLENO: 4(5)


AGE FROM WHICH THE RESPONDENTS ARE INVESTING

Age of Investing No. Of Respondents Percentage

<30 23 23%

31-40 42 42%

41-50 32 32%

>50 3 3%

Total 100 100%

Interpretation:

From the above table, it is found that 42% of the respondents have invested in age

between 31 to 40 years, 32% of the respondents have invested in the age between 41

to 50 years, 23% of the respondents have invested in the age Below 30, and it is

revealing that people above 50 years only 3% have been investing.



0

5

10

15

20

25

30

35

40

45

<30

23



CHART NO: 4(5)


30-40 40-50 >50

42

32

66

>50

3



TABLENO: 4(6)


UNDERSTANDING AND COMFORT LEVEL IN INVESTING IN STOCK

Understanding and

Comfort level No. Of Respondents Percentage

No Experience in

Stock Market

3 3%

No Experience, but

some level of comfort

22 22%

Some Experience &

Interest

58 58%

Reasonable

Experience

7 7%

Extensive

Background and good

comfort

10 10%

Total 100 100%

Interpretation:

From the above table, shows that 58% of the respondents have Some Experience &

Interest, 22% of the respondents have No Experience, but some level of comfort, 10%

of the respondents have Extensive Background and good comfort, 7% of the

respondents have Reasonable Experience and 3% of the respondent is having No

Experience in Stock Market.



58%

7%



CHART NO: 4(6)


3%

22%

58%

10%

· No Experience in Stock

Market

· No Experience, but


· Some Experience &

Interest

· Reasonable Experience

Extensive Background and

good comfort

68

No Experience in Stock

No Experience, but


Some Experience &

Reasonable Experience

Extensive Background and

good comfort



TABLENO: 4(7)


INVESTORS PERCEPTION OF THEMSELVES

Best Statement No. Of Respondents Percentage

Some Current Income

12 12%

High Current Income 18 18%

High Total Return

57 57%

Substantial Return 13 13%

Total

100 100%

Interpretation:

From the above table, it is found that 57% of the respondents perceive High Total

Return as the best statement, 18% of the respondents perceive High Current Income,

13% perceive as Substantial Return and 12% of the respondents perceive as Some

Current Income.



0

10

20

30

40

50

60

· Some

Current Income

12



CHART NO: 4(7)


Current Income

· High Current

Income

· High Total

Return

· Substantial

Return

18

57

70

Substantial

Return

13



TABLENO: 4(8)


ATTITUDE ABOUT FINANCIAL RISK

Attitude about

Financial risk No. Of Respondents Percentage

Diversified investment

portfolio

24 24%

I Only invested with

extra money I can

afford to loss

46 46%

Associated with

playing in the stock

8 8%

The Higher the

investment yield or

rate of return the

greater the risk

22 22%

Total 100 100%

Interpretation:

From the above table, it is clear that 46% of the respondents invest with extra money

they can afford to loss, 24% of the respondents have diversified investment portfolio,

22% of the respondents has an attitude that The Higher the investment yield or rate of

return the greater the risk and 8%are associated with playing in the stock market.



8%

22%



CHART NO: 4(8)


24%

46%

· Diversified investment

portfolio

· I Only invested with

extra money I can afford to

loss

· Associated with playing

in the stock

· The Higher the

investment yield or rate of

return the greater the risk

72

Diversified investment

I Only invested with

extra money I can afford to

Associated with playing

in the stock

The Higher the

investment yield or rate of

return the greater the risk




PORTFOLIO ACTIVITIES BY THE RESPONDENTS

Any Portfolio

Activities

Yes

No

Total

Interpretation:

From the above table,

activities and 44% of the respondents

40%



TABLENO: 4(9)



Any Portfolio No. Of Respondents Percentage

66

44

100

From the above table, it shows that 66% of the respondents are having portfolio

the respondents do not have portfolios.

CHART NO: 4(9)


60%

73



Percentage

66%

44%

100%

% of the respondents are having portfolio

· Yes

· No



TABLENO: 4(10)


RISK TOLERANCE SINCE THE TIME OF INVESTMENT

Risk Tolerance No. Of Respondents Percentage

More Willingness

4 4%

Less Willingness

81 81%

Risk factors has no influence

11 11%

No Idea

4 4%

Total

100 100%

Interpretation:

From the above table, it shows that 81% of the respondents have less willingness to

take on risk, 11% of the respondents risk factor has no influence, and 4% of the

respondents are willing to risk take more risk as well as 4% of the respondents does

not have any idea about.



0

10

20

30

40

50

60

70

80

90

· More

Willingness

4



CHART NO: 4(10)


More

Willingness

· Less

Willingness

· Risk factors

has no influence

· No Idea

81

11

75

No Idea

4



TABLENO: 4(11)


RESPONSE TO MARKET DECLINE

Liquidation process No. Of Respondents Percentage

Immediately 6 6%

At 90000 4 4%

At 75000 8 8%

Would Wait for Market

turnaround

82 82%

Total 100 100%

Interpretation:

From the above table, it is found that 82% of the respondents would wait for market

turnaround, 8% of the respondents will move at 75000 for stable investment,6% of the

respondents would immediately liquidate and move to a more stable investment, and

4% of the respondents will move at 90000 for stable investment.



82%



CHART NO: 4(11)


6%

4%

8%

82%

· Immediately.

· At 90,000

· At 75,000.


turnaround

77

Immediately.

At 90,000

At 75,000.


turnaround



TABLENO: 4(12)


TIME HORIZON FOR WITHDRAWALS

Time Horizon for

withdrawals No. Of Respondents Percentage

Currently 95 95%

Less than 3 Years 5 5%

Between 3 to 5Years 0 0

Between 6 to 15 Years 0 0

After 15 Years 0 0

Total 100 100%

Interpretation:

From the above table, it is found that 95% of the respondents will make withdrawals

currently, 5% withdraw within 3 years and none of the respondents withdrew after 3

years or above.



CHART NO: 4(12)


95

5

0 0 00

10

20

30

40

50

60

70

80

90

100

currently · < Than 3

years.

· From 3 to

5 years.

· Between 6

to 15 years.

· Over 15

years.



TABLENO: 4(13)


GROWTH EXPECTED OF INVESTMENT IN 5 YEARS

Growth Expected No. Of Respondents Percentage

0 to 15% 30 30%

15% to 30% 54 54%

30% to 50% 11 11%

Above 50% 5 5%

Total 100 100%

Interpretation:

From the above table, it is clear that 54% of the respondents expect their investment

to grow from 15% to 30%, 30% of the respondents expect their investment to grow

from 0 to 15%, 11% of the respondents expect a growth from 30% to 50% and 5% of

the respondents expect a growth above 50%.



0

10

20

30

40

50

60

· 0 to 15%

30



CHART NO: 4(13)


0 to 15% · 15% to 30% · 30% to 50% · Above 50%

54

11

81

Above 50%

5




SHARING INFORMATION ABOUT RISK WITH CONSULTANT

Feel Free

Yes

No

Total

Interpretation:

From the above table, it is found that 73

information on risk with consultant and 27

information with the consultant

27%



TABLENO: 4(14)



No. Of Respondents

73

27

100

ove table, it is found that 73% of the respondents feel free to share

on risk with consultant and 27% the respondents do not feel free to share

information with the consultant.

CHART NO: 4(14)


73%

27%

82



Percentage

73%

27%

100%

% of the respondents feel free to share

% the respondents do not feel free to share

· Yes

· No



TABLE

Learn From Risk

Yes

No

Total

Interpretation:

From the above table, it is found that



TABLENO: 4(15)


LEARNING FROM RISK

Learn From Risk No. Of Respondents

100

0

100

From the above table, it is found that all the respondents learn from their risk.

CHART NO: 4(15)


100%

0%

83

SHOWING RESPONDENT’S OPINION

Percentage

100%

0

100%

respondents learn from their risk.

yes

no



TABLENO: 4(16)


MEASURE TO CONTROL RISK

Measure to Control Risk No. Of Respondents Percentage

Avoidance 36 36%

Modification 6 6%

Stock’s present position 34 34%

Watch market 24 24%

Total 100 100%

Interpretation:

From the above table, it is found that 36% of respondents control the risk by avoiding

it, 34% of the respondents control the risk by evaluating stock’s present position in

the market, 24% of the respondents control the risk by watching the market closely

and 6% of the respondents modify risk to control it.



0

5

10

15

20

25

30

35

40

avoid

36



CHART NO: 4(16)


modify stock's present

position

watch market

6

34

85

watch market

24



TABLENO: 4(17)

CHI – SQUARE ANALYSIS FOR INCOME LEVEL AND AGE OF

INVESTING

Age of investing

Income Level

Below 30 From

31 to 40

From 41

to 50

Above

50

Grand

Total

Below Rs.5000 0 0 0 0 0

Rs.5001 to Rs.10000 3 4 5 0 12

Rs.10001 to Rs.15000 4 6 2 1 13

Rs.15001to Rs.20000 8 21 17 1 47

Above Rs.20000 8 11 8 1 28

Grand Total 23 42 32 3 100



Null Hypothesis (H0) : No Significant relationship between Income

and Age of investing.

Alternate Hypothesis (H1) : There is a Close Significant relationship between

Income and Age of investing.

FACTOR

CALCULATED

CHI-SQUARE

VALUE

TABLE

VALUE

DEGREE OF

FREEDOM REMARKS

Income

Level 4.795 21.026 12

Not

Significant

Interpretation:

From the above table, it is clear that the calculated Chi-square value is less

than the table value. So, there is Close relationship between Age group and Age of

investing.



CHART FORINCOME LEVEL AND AGE OF INVESTING

0

5

10

15

20

25

Below

Rs.5000

Rs.5001 to

Rs.10000



CHART NO: 4(17)


Rs.5001 to

Rs.10000

Rs.10001 to

Rs.15000

Rs.15001to

Rs.20000

Above

Rs.20000

88


Below 30

From 31 to 40

From 41 to 50

Above 50



TABLENO: 4(18)

CHI – SQUARE ANALYSIS FOR INCOME LEVEL AND

PERFORMANCE OF INVESTMENT

Performance of

Investment

Income Level

Quarterly Monthly Annually Over 5

Years

Grand

Total

Below Rs.5000 0 0 0 0 0

Rs.5001 to Rs.10000 2 6 3 1 12

Rs.10001 to

Rs.15000 2 8 2 1 13

Rs.15001to Rs.20000 4 35 5 3 47

Above Rs.20000 1 22 3 2 28

Grand Total 9 71 13 7 100



Null Hypothesis (H0) : No Significant relationship between

Income level and Performance of investments.

Alternate Hypothesis (H1) : There is Close Significant relationship between


FACTOR

CALCULATED

CHI-SQUARE

VALUE

TABLE

VALUE

DEGREE OF

FREEDOM REMARKS

Income

Level 5.273 21.026 12

Not

Significant

Interpretation:

From the above table it is noted from the above table that the calculated

Chi-square value is less than the table value. So, there is Close relationship between




0

5

10

15

20

25

30

35



CHART NO: 4(18)

CHART FOR INCOME LEVEL AND

PERFORMANCE OF INVESTMENT

91

Monthly

Quarterly

Annually

Over 5 Years



TABLENO: 4(19)


FINANCIAL FUTURE

Financial

Future

Income Level

Very

Optimistic Positive Unsure Pessimistic

Grand

Total

Below Rs.5000 0 0 0 0 0

Rs.5001 to

Rs.10000 4 5 2 1 12

Rs.10001 to

Rs.15000 5 6 1 1 13

Rs.15001to

Rs.20000 16 13 10 8 47

Above Rs.20000 7 9 5 7 28

Grand Total 32 33 18 17 100




Income level and Financial Future.


Income level and Financial Future.

FACTOR

CALCULATED

CHI-SQUARE

VALUE

TABLE

VALUE

DEGREE OF

FREEDOM REMARKS

Income

Level 5.334 21.026 12

Not

Significant

Interpretation:

From the above table it that the calculated Chi-square value is less than the table

value. So, there is Close relationship between Income level and Financial Future.



0

2

4

6

8

10

12

14

16



CHART NO: 4(19)


FINANCIAL FUTURE

94

Very Optimistic

Positive

Unsure

Pessimistic



TABLENO: 4(20)



Financial

Risk

Income Level

Reduces

Risk

Invest

with

Extra

Money

Associated

with

Playing in

the Stock

Rate of

Returns

Grand

Total

Below Rs.5000 0 0 0 0 0

Rs.5001 to Rs.10000 3 6 1 2 12

Rs.10001 to

Rs.15000 4 5 1 3 13

Rs.15001to

Rs.20000 12 21 4 10 47

Above Rs.20000 5 14 2 7 28

Grand Total 24 46 8 22 100




Income level and Financial Risk.


Income level and Financial Risk

FACTOR

CALCULATED

CHI-SQUARE

VALUE

TABLE

VALUE

DEGREE OF

FREEDOM REMARKS

Income

Level 1.381 21.026 12

Not

Significant

Interpretation:

From the above table it is clear that the calculated Chi-square value is less than the

table value. So, there is Close relationship between Income level and Financial Risk




0

5

10

15

20

25



CHART NO: 4(20)



Reduces Risk

Invest with Extra Money

Associated with Playing in

the Stock

Rate of Returns

97

Reduces Risk

Invest with Extra Money

Associated with Playing in

the Stock

Rate of Returns



TABLENO: 4(21)


RISK TOLERANCE

Risk

Tolerance

Income Level

More

Willingness

Less

Willingness

Risk

Tolerance

No

Idea

Grand

Total

Below Rs.5000 0 0 0 0 0

Rs.5001 to

Rs.10000 1 8 3 0 12

Rs.10001 to

Rs.15000 1 6 5 1 13

Rs.15001to

Rs.20000 1 42 2 2 47

Above Rs.20000 1 25 1 1 28

Grand Total 4 81 11 4 100




Income level and Risk Tolerance.


Income level and Risk Tolerance.

FACTOR

CALCULATED

CHI-SQUARE

VALUE

TABLE

VALUE

DEGREE OF

FREEDOM REMARKS

Income

Level 1.381 21.026 12

Not

Significant

Interpretation:

From the above table it is clear that the calculated Chi-square value is

less than the table value. So, there is Close relationship between Income level and

Risk Tolerance.



0

5

10

15

20

25

30

35

40

45



CHART NO: 4(21)


RISK TOLERANCE

100

More Willingness

Less Willingness

Risk Tolerance

No Idea



5.1 FINDINGS

• All of the surveyed respondents are male.

• 42% of the respondents are belongs to the age between 31 years to 40 years

old.

• 47% of the respondent’s income is between 15001-20000 Rs.

• All of the surveyed respondents are having previous experience in the stock

market.

• 88% of the respondents prefer to invest in Equities type of investments.

• 71% of the respondents evaluate their performance of investment by quarterly.

• 33% of the respondents are optimistic positive about their financial future.

• 42% of the respondents are invested in age between 31 to 40 years.

• 58% of the respondents are having some experience & interest in the stock

market.

• 57% of the respondents perceive as high total return as best statement about

their investment.

• 46% of the respondents are investing with the extra money they can afford to

suffer loss in the stock market.

• 66% of the respondents are not having any portfolio activities.

• 81% of the respondents are less willing to take risk since the time of first

investment.

• 82% of the respondents would wait for market turnaround.

• 95% of the respondents are need to make withdrawals currently

• 54% of the respondents are expecting their return from the investment with a

growth rate between 15% to 30%.

• 73% of the respondents feel free to share information their consultant.

• All of the respondents learn from their risk.

• 36% of respondents control the risk by avoiding it.



• From the Chi-Square Analysis, there is Close relationship between Age group

and Age of investing.

• From the Chi-Square Analysis, there is Close relationship between Income

level and Performance of investments.


level and Financial Future.


level and Financial Risk.


level and Risk Tolerance.



5.2 SUGGESTIONS

• Since all the respondents are male, an effort to bring females in stock

investment should be taken by the company.

• Most of the females are not aware about stock broking, so a seminar should be

conduct by the company.

• Almost all the respondents are investing in stock with the extra money they

could suffer the loss; an effort should be taken in order to create an awareness

about investing in stocks.

• Almost all of respondents prefer to invest in Equities; an effort should be

taken in order to in create awareness about investing in Commodities and

Bonds.

• Nearly half of the surveyed respondents are not aware about Portfolio activity.

So the company must guide the investors to invest in Portfolio.



5.3 CONCLUSION

The present study is concerned with “Risk Perception and portfolio

Management of Equity Investors.

Risk is the other side of return. Returns comprise two elements, the periodic

payment of interest or dividends (yield) and change in asset values over a period

of time (capital gains/losses). In the common perception risk is mostly related to the

possibility and magnitude of negative deviations from the benchmark. This definition

is supported by Fishburn [1977] and is recognized by most of the financial institutions

that construct risk profiles of their clients. Many of their questionnaires contain

questions that measure risk tolerance both by the variance of returns and by shortfall

measures.The result of the study shows that Male investors are dominating in

Edelweiss and nearly half of the respondents are unaware about Portfolio activities.

Through this project study, the researcher gained understanding on the

usefulness of analyzing Clients Risk Perception and portfolio Activities and their

preferred style investment and about their expected returns of investment.



BIBLIOGRAPHY

BOOKS

� C.R. Kothari “Research Methodology”, Vis wa Prakasan, New Delhi

� M,Y Khan “Financial Services”, 3rd edition Tata McGraw-Hill, New Delhi.

� V, K Bhalla “Management of Financial Services” Anmol Publications Pvt Ltd,

New Delhi.

� Sudhindra Bhat “Security Analysis and Portfolio Management” Excel Book,

New Delhi.

� Punithavathy Pandian “Security Analysis and Portfolio Management”, Vikas

publishing House Pvt Ltd, New Delhi

� Donald E Fischer, Ronald J Jordan, Sixth Edition, Pearson Education

(Singapore) Pte Ltd

WEBSITES

• www.edelweissfin.com

• www.ebsco.com

• www.google.com

Documents

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