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PROJECT REPORT

ON

PORTFOLIO MANAGEMENT SERVICES, A STUDY OF KARVY STOCK

BROKING

LIMITED

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT

FOR THE DEGREE OF

MASTER IN BUSINESS ADMINISTRATION

ACEDMIC SESSION: 2010-2012

SUPERVISED BY:

SUBMITTED BY:

Miss. SUPRIYA JAIN

SUNIL MEHTA

MBA 4TH SEM

ROLLNO-2291

L.R. INSTITUTE OF MANAGEMENT

JABLI-KYAR, P.O. OACHGHAT, SOLAN (H.P.)

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L.R Institute of Management Studies

Jabli-Kyar, P.O., Ochghat, Solan H.P. 173223

------------------------------------------------------------------------------------------------

CERTIFICATE

This is to certify that this project entitled Portfolio

management services ,a study of karvy stock broking ltd,

submitted in partial fulfilment of the requirement for the

degree of Master of Business Administration of Himachal

Pradesh University, Shimla -5, by Mr Sunil Mehta Roll No.

2291has been executed sunder my supervision and

guidance.

The data reported in it are pure. The assistance and help

received during the course of this investigation has been

duly acknowledged. It is further certified that it is original

piece of work and it is working for the degree of Master of

Business Administration.

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Pr

oject Advisor

Miss Supriya Jain

INDEX

__________________________________________________________________

ACKNOWLEDGEMENT

INTRODUCTION

RESEARCH METHODOLOGY

COMPANY PROFILE

MISSION OF KARVY INTRODUCTION

BOARD OF DIRECTOR

KARVY GROUP OF COMPANY

PORTFOLIO SCHEMES OF KARVY

ACHIVEMENT

PORTFOLIO MANAGEMENT SERVICE

INVESTMENT ALTERNATIVE AND TEHIR ATTRIBUTE

COMPARISION

FINANCIAL MARKET BASKET OF FINANCIAL MARKET

ABOUT PORTFOLIO MANAGEMENT

MARKOWITZ PORTFOLIO THEORY

MODERN PORTFOLIO THEORY

FACTOR CONSIDER TO CHOOSING INVESTMENT

DATA ANALYSIS AND INTERPRTAION

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CONCLUSION AND SUGGESTION

BIBILIOGRAPHY

ANNEXURE

ACKNOWLEDGEMENT

I hereby express my profound gratitude to all those respected people who supported me in

the completion of this project.

It is indeed a matter of great pleasure and privilege to be able to present this project on

Portfolio management services, a study of karvy stock broking limited at karvy stock

broking limited

The completion of the project is a milestone in a students life & its execution is inevitable

in the hands of our guides. I am highly indebted to the project guide Miss Supriya Jain for

her invaluable guidance and appreciate her for giving form and substance to this project.

I am also thankful to karvy stock broking limited. For giving me this valuable opportunity

for doing this project.

I would like to express my deep regards and gratitude to our branch Head Mr.Pankaj. It is

due to their enduring efforts, patience and enthusiasm, which has given a sense of direction

and purposefulness to this project and ultimately made it a success.

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I would also like to thank our non- teaching staff and our friends who have helped me all

the time in one way or other. Finally I sincerely thank to all those who have rendered their

valuable service either directly or indirectly & helped us for making the project successful.

CHAPTER NO. 1

INTRODUCTION

The main objective of this project is to know the Awareness of Financial Instrument among

investors and also to know the investment pattern of people in different Financial Project.

KARVY operates in various financial products and services like, Consultancy, Stock Broking,

Mutual Fund, Insurance, Registrar, and Research the evaluation of financial planning has been

increased through decades, which is best seen in customer rise. Now a days investment of saving

has assumed great importance.

Successful development of new service has become a complex process involving contributions

from different disciplines. Rarely is one individual responsible for the concept, design,

development and marketing of new service, for today the inherent complexity of products, their

markets and therefore their processes through which they are developed, dictates that a no. of

different people, each with there own roles, work together to create the service.

This project represents information regarding companys brand awareness and the customer

perceptions about the various services which the organization provides. The main objective of the

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project is to understand the customer investment preferences more effectively and efficiently. For

execution of the project methodology adopted is the collection of data through questionnaire,

processing and analyzing the data.

The natures of respondent, who are selected, are the professionals and having a handsome salary.Karvy is the only personalized service provider offering a range of investment services depending

on the customer requirements.

In this project the great emphasis is given to the investors mind in respect to investment in all type

of financial instrument where he can maximize his wealth. The needs and wants of the client are

taken into consideration.

1.1 PORTFOLIO MANAGEMENT:

The aim of Portfolio Management is to achieve the maximum return from a portfolio, which has

been delegated to be managed by an individual manager or financial institution. The manager has

to balance the parameters which define a Good investment i.e. security, liquidity and return. The

goal is to obtain the highest return for the client of the managed portfolio. The basis for

constructing a portfolio should reflect the enterprises particular needs.

In finance, a portfolio is a collection of investments held by an institution or a private individual.

In building up an investment portfolio a financial institution will typically conduct its own

investment analysis, whilst a private individual may make use of the services of a financial advisor

or a financial institution that offers portfolio management services. Holding a portfolio is part of an

investment and risk-limiting strategy called diversification. By owning several assets, certain types

of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks,

commodities, insurance etc.

1.2 PORTFOLIO MANAGEMENT SERVICES:

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PMS gives investors access to an institutional process of money management

Provides a customized solution by matching the unique circumstances and objectives of

each investor.

Wealth creation based on disciplined investment process is the crux of PMS

Effective diversification helps reduce portfolio volatility and enhances risk-adjusted returns

over long term

PMS gives investor direct ownership of the individual securities in the portfolio

BENEFITS OF PMS:

Professional Management

The service provides professional management of equity portfolios designed to deliver consistent

long-term performance while identifying and controlling risks.

Continued Monitoring

We at Karvy understand the need to constantly monitor your portfolios and bring in periodic

changes to optimize the results.

Research Support

A research team responsible for establishing our investment strategy and providing us real timeinformation backs our portfolio managers.

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Identifying Investor Objectives

The foundation of every financially sound portfolio is the ability to identify ones investment

objective. Its a process that requires expertise. Karvy provides every investor a Relationship

manager who comes with the required expertise and experience to understand an investors

financial goals.

Hassle free operation

Karvy ensures investors enjoy healthy portfolios without having to involve themselves personally

in monitoring and maintaining them. We provide you with a customized service. All the

administrative aspects of your portfolio is taken care of by us for you.

Transparency

A dedicated website allows you access to all information relating to your investment. You will also

receive quarterly account performance statement on the overall status of the portfolio and Karvy

research reports.

.

CHAPTER NO. 2

RESEARCH METHODOLOGY

MEANING OF RESEARCH METHODOLOGY:

Research can defined as a systemized effort to gain new knowledge. A research is carried out by

different methodologies which have their own pros & cons. Research Methodology is a way to

solve research in study & solving problems along with logic behind them are defined through

research methodology. We can also say that Research is a careful search systematic investigation,

towards increasing the sum of knowledge.

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In short research consists of formulating a hypothesis, collecting the fact & regarding certain

generalization for some formulation.

2.1 DATA SOURCE:

Information can be gathered through primary and secondary sources.

Secondary data are data were collected for another purpose and already exist somewhere. Primary

data are gathered for a specific research project.

Primary sources

Primary sources are those where researcher get insight of its consumer by the way of this can be

done by-

1) Questionnaire

2) Interview

According to these results obtained from Primary research is done and which is the main part of

this study with this secondary research an data is for analyzing the people perception towards

various investment instruments.

Secondary data

To understand FINANCIAL concepts researcher has referred study materials of financial institute

of India. The economic times websites like ICICIpulife.com, bimonline.com, karvy.com etc to

know the various product features and benefits researcher has referred foundation product module.

Before starting the fieldwork researcher had done the financial products providers in Chandgarh

and all over India. This information was available through product leaf lets of different companies,

their officials, company website and through different search engines.

2.2 RESEARCH APPROACH:

The most suitable approach in this reason was the survey. The survey method is the data collection

is suited for descriptive research. Survey usually include research instrument, sampling plans and

contact methods.

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2.3 RESEARCH INSTRUMENT:

Research has a main research instruments in collecting primary data: Questionnaire. A

questionnaire consists of a set of questions presented to the respondent for their answers. Because

of its flexibility, the questionnaire is by far the most common instrument used to collect primary

data. The questionnaire has its own inherent advantages. The major benefits of the questionnaire

include the following:

1. The questionnaire contained the question that touched upon every aspect of the study and are

rendered in the status of being complete in proving full information needed for the study.

2. Multiple option questions made the interview easier as all the options were in front of user.

3. The question was straightforward in easy language and clear meaning. No question was

ambiguous to confuse the subject.

4. Due to the general nature of the topic, questionnaire could be administered with the customer

with equal ease and labor.

Sampling plan:

After deciding on the research approach and instruments, the research must design a sampling

plan. This plan calls following decisions.

1) Sampling unit (who is to be surveyed)

It gives the target population that will be sampled. The target population of this research was

mainly in Chandigarh and city & nearer to the other area those are near to the city.

2) Universe

The universe of the research was potential investor of Chandigarh and Shimla city.

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Sample method:

Non probability convenience sampling method was used for selecting the respondents. Since

universe i.e. Chandigarh and Shimla city is easy to find out the researcher selected the respondents

that were most accessible population members.

Contact method:

Once the sampling plan has been determined the researcher must decide how the subject should be

contacted i.e mail, telephone or personal interviews.

In this project considering the objective and time available the researcher used personal and

telephone interviews. The researcher made cold calls to the samples and introduced about Karvy.

The researcher explained about purpose of his calling and seeks for appointment with the contacted

person. The appointment schedule was maintained and followed by the researcher.

2.4 OBJECTIVE OF THE PROJECT:

The portfolio management is vast in nature. It is intended to provide a birds-eye view of the client

assets. The portfolio manager has to have bottomless knowledge of markets funds etc.

Considering this fact, the scope of the study is defined to satisfy following objectives:

Understand the necessity of portfolio management.

Identify various investment alternatives that can fit in clients profile.

Study & compare various investment & attributes.

To know the concept of financial product.

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2.5 SCOPE OF THE STUDY:

Karvy is the leading organization in terms of providing the personalized advisory services in

investment sector. It focuses extensively in providing the quality service to its customers. So the

company commissioned to understand the customer behavior and their investment pattern. Karvy

is recently entered in the Commodity Market, which is having a very good future in India and

Karvy can encase opportunities.

2.6 JUSTIFICATION OF THE PROBLEM:

The survey aimed to bringing about awareness in the various services provided by the Karvy

consultancy & suggesting services according to their needs & requirement

CHAPTER NO. 3

COMPANY PROFILE

3.1 MISSION OF KARVY:

Their mission is to be a leading, preferred service provider to our customer, and they aim To

achieve this leadership position by building an innovative, enterprising, and technology drive

organization which will set the highest standards of service and business ethics.

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3.2 INTRODUCTION:

The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a

small group of practicing Chartered Accountants who founded the flagship company Karvy

Consultants Limited. We started with consulting and financial accounting automation, and carvedinroads into the field of registry and share accounting by 1985.Karvy Stock Broking Ltd is a

member of National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The

Hyderabad Stock Exchange (HSE).

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely towards

attaining diverse goals of the customer through varied services. Creating a plethora of

opportunities for the customer by opening up investment vistas backed by research-based advisory

services. Here, growth knows no limits and success recognizes no boundaries. Helping the

customer create waves in his portfolio and empowering the investor completely is the ultimate

goal.It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success

rate as a wealth management and wealth accumulation option. The difference between

unpredictability and a safety anchor in the market is provided by in-depth knowledge of market

functioning and changing trends, planning with foresight and choosing options with care.

Karvy offers services that are beyond just a medium for buying and selling stocks and shares.

Instead they provide services which are multi dimensional and multi-focused in their scope. There

are several advantages in utilizing their Stock Broking services, which are the reasons why it is one

of the best in the country.

Karvy offer trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and

Hyderabad Stock Exchange. More importantly, they make trading safe to the maximum possible

extent, by accounting for several risk factors and planning accordingly. They are assisted in this

task by their in-depth research, constant feedback and sound advisory facilities. Their highly

skilled research team, comprising of technical analysts as well as fundamental specialists, secure

result-oriented information on market trends, market analysis and market predictions. This crucial

information is given as a constant feedback to their customers, through daily reports delivered

thrice daily; The Pre-session Report, where market scenario for the day is predicted, The Mid-

session Report, timed to arrive during lunch break, where the market forecast for the rest of the day

is given and The Post-session Report, the final report for the day, where the market and the report

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itself is reviewed. To add to this repository of information, they publish a monthly magazine;

Karvy;

The Fin polis; which analyzes the latest stock market trends and takes a close look at the various

investment options, and products available in the market, while a weekly report, called; KarvyBazaar Baatein; keeps the investor more informed on the immediate trends in the stock market. In

addition, their specific industry reports give comprehensive information on various industries.

Besides this, they also offer special portfolio analysis packages that provide daily technical advice

on scrip for successful portfolio management and provide customized advisory services to help the

investors to make the right financial moves that are specifically suited to their portfolio.

To empower the investor further they have made serious efforts to ensure that their research calls

are disseminated systematically to all their stock broking clients through various delivery channels

like email, chat, SMS, phone calls etc.

In the future, their focus will be on the emerging businesses and to meet this objective, they have

enhanced their manpower and revitalized their knowledge base with enhances focus on Futures and

Options as well as the commodities business.

Respect for the individual:

Each and every individual is an essential building block of our organization.

We are the kilns that hone individuals to perfection. Be they our employees, shareholders or

investors. We do so by upholding their dignity & pride, inculcating trust and achieving a sensitive

balance of their professional and personal lives.

Teamwork:

None of us is more important than all of us.

Each team member is the face of Karvy. Together we offer diverse services with speed, accuracy

and quality to deliver only one product: excellence. Transparency, co-operation, invaluable an

individual contribution for a collective goal, and respecting individual uniqueness within a

corporate whole, is how we deliver again and again.

Responsible Citizenship:

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A social balance sheet is as rewarding as a business one.

As a responsible corporate citizen, our duty is to foster a better environment in the society where

we live and work. Abiding by its norms, and behaving responsibly towards the environment, is

some of our growing initiatives towards realizing it.

Integrity:

Everything else is secondary.

Professional and personal ethics are our bedrock. We take pride in an environment that encourages

honesty and the opportunity to learn from failures than camouflage them. We insist on consistency

between works and actions.

3.3 BOARD OF DIRECTORS:

1. Mr. C Parthasarathy

Chairman and Managing Director

2. Mr. M Yugandhar

Managing Director

3. Mr. M S Ramakrishna

Director

4. Mr. Prasad V Potluri

Director

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3.4 KARVY GROUPS OF COMPANIES ARE:

1) Karvy Consultants Ltd

2) Karvy Stock Broking Ltd

3) Karvy Investors Service Ltd

4) Karvy Computershare Pvt Ltd

5) Karvy Global Service Ltd

6) Karvy Commodities Broking Ltd

7) Karvy Insurance Broking Private Ltd

8) Karvy alliances

1. KARVY CONSULTANTS LIMITED:

As the flagship company of the Karvy Group, Karvy Consultants Limited has always at remained

the helm of organizational affairs, pioneering business policies, work ethic and channels of

progress.

Having emerged as a leader in the registry business, the first of the businesses that Karvy ventured

into, company have now transferred this business into a joint venture with Computer share Limited

of Australia, the worlds largest registrar. With the advent of depositories in the Indian capital

market and the relationships that Company have created in the registry business, Karvy believe that

they were best positioned to venture into this activity as a Depository Participant. Karvy were one

of the early entrants registered as Depository Participant with NSDL (National SecuritiesDepository Limited), the first Depository in the country and then with CDSL (Central Depository

Services Limited). Today, Karvy service over 6 lakhs customer accounts in this business spread

across over 250 cities/towns in India and are ranked amongst the largest Depository Participants in

the country. With a growing secondary market presence, they have transferred this business to

Karvy Stock Broking Limited (KSBL), their associate and a member of NSE, BSE and HSE.

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2. KARVY STOCK BROKING LIMITED:






goal.

Karvy is a Member of National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and

The Hyderabad Stock Exchange (HSE).

3. KARVY INVESTORS SERVICES LIMITED:

Merchant Banking- Recognized as a leading merchant banker in the country, Karvy are registered

with SEBI as a Category I merchant banker. This reputation was built by capitalizing on

opportunities in corporate consolidations, mergers and acquisitions and corporate restructuring,

which have earned us the reputation of a merchant banker. Raising resources for corporate or

Government Undertaking successfully over the past two decades have given us the confidence to

renew company focus in this sector.

Karvy quality professional team and their work-oriented dedication have propelled company to

offer value-added corporate financial services and act as a professional navigator for long term

growth of companies clients, which includes leading corporate, State Governments, foreign

institutional investors, public and private sector companies and banks, in Indian and global

markets.

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4. KARVY COMPUTERSHARE PVT. LIMITED:

Karvy have traversed wide spaces to tie up with the worlds largest transfer agent, the leading

Australian company, Computer share Limited. The company that services more than 75 million

shareholders across 7000 corporate clients and makes its presence felt in over 12 countries across 5

continents has entered into a 50-50 joint venture with KARVY.

Mutual Fund Services:

Karvy have attained a position of immense strength as a provider of across-the-board transfer

agency services to AMCs, Distributors and Investors.

Nearly 40% of the top-notch AMCs including prestigious clients like Deutsche AMC and UTI

swear by the quality and range of services that company offer. Besides providing the entire back

office processing, Karvy provide the link between various Mutual Funds and the investor,

including services to the distributor, the prime channel in this operation.

Issue Registry:

In company voyage towards becoming the largest transaction-processing house in the Indian

Corporate segment, KARVY have mobilized funds for numerous corporate, and emerged as the

largest transaction-processing house for the Indian Corporate sector. With an experience of

handling over 700 issues, Karvy today, has the ability to execute voluminous transactions and

hard-core expertise in technology applications have gained company the No.1 slot in the business.

Karvy is the first Registry Company to receive ISO 9002 certification in India that stands

testimony to its stature.

Corporate Shareholder Services:

Karvy has been a customer centric company since its inception. Karvy offers a single platform

servicing multiple financial instruments in its bid to offer complete financial solutions to the

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varying needs of both corporate and retail investors where an extensive range of services are

provided with great volume-management capability.

5. KARVY GLOBAL SERVICES LIMITED:

The specialist Business Process Outsourcing unit of the Karvy Group. The legacy of expertise and

experience in financial services of the Karvy Group serves us well as company enter the global

arena with the confidence of being able to deliver and deliver well. Here company offers several

delivery models on the understanding that business needs are unique and therefore only a

customized service could possibly fit the bill.

KARVY is in re-engineering and managing processes or delivering new efficiencies, companys

service meets up to the most stringent of international standards.Providing productivity

improvements, operational cost control, cost savings, improved accountability and a whole gamut

of other advantages. KARVY Operate in the core market segments that have emerging

requirements for specialized services. Their wide vertical market coverage includes Banking,

Financial and Insurance Services (BFIS), Retail and Merchandising, Leisure and Entertainment,

Energy and Utility and Healthcare.

6. KARVY COMMODITIES BROKING LIMITED:

At Karvy Commodities, they are focused on taking commodities trading to new dimensions of

reliability and profitability. They have made commodities trading, an essentially age-old practice,into a sophisticated and scientific investment option.

Company enables trade in all goods and products of agricultural and mineral origin that include

lucrative commodities like gold and silver and popular items like oil, pulses and cotton through a

well-systematized trading platform. The technological and infrastructural strengths and especially

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the street-smart skills make them an ideal broker. Their service matrix is holistic with a gamut of

advantages, the first and foremost being their legacy of human resources, technology and

infrastructure that comes from being part of the Karvy Group.

7. KARVY INSURANCE BROKING PRIVATE LIMITED:

At Karvy Insurance Broking Pvt. Ltd., they provide both life and non-life insurance products to

retail individuals, high net-worth clients and corporate. With the opening up of the insurance sector

and with a large number of private players in the business, they are in a position to provide tailor

made policies for different segments of customers. In their journey to emerge as a personal finance

advisor, they will be better positioned to leverage their relationships with the product providers and

place the requirements of their customers appropriately with the product providers. With Indian

markets seeing a sea change, both in terms of investment pattern and attitude of investors,

insurance is no more seen as only a tax saving product but also as an investment product. By

setting up a separate entity, we would be positioned to provide the best of the products available in

this business to the customers.

KARVY have wide national network, spanning the length and breadth of India, further supports

these advantages. Further, personalized service is provided here by a dedicated team committed ingiving hassle-free service to the clients.

8. KARVY ALLIANCES:

Karvy Computer share Private Limited is a 50:50 joint venture of Karvy Consultants Limited and

Computer share Limited, Australia. Computer share Limited is world's largest -- and only global --

share registry, and a leading financial market services provider to the global securities industry.

The joint venture with Computer share, reckoned as the largest registrar in the world, servicing

over 60 million shareholder accounts for over 7,000 corporations across eleven countries spread

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across five continents. Computer share manages more than 70 million shareholder accounts for

over 13,000 corporations around the world.

Karvy Computer share Private Limited, today, is India's largest Registrar and Share Transfer Agent

servicing over 300 corporate and mutual funds and 16 million investors.

Distribution of Financial Products:

The paradigm shift from pure selling to knowledge based selling drives the business today. With

their wide portfolio offerings, they occupy all segments in the retail financial services industry.

A 1600 team of highly qualified and dedicated professionals drawn from the best of academic and

professional backgrounds are committed to maintaining high levels of client service delivery. This

has propelled them to a position among the top distributors for equity and debt issues with an

estimated market share of 15% in terms of applications mobilized, besides being established as the

leading procurer in all public issues.

To further tap the immense growth potential in the capital markets they enhanced the scope of their

retail brand, Karvy the Finapolis, thereby providing planning and advisory services to the mass

affluent. Here they understand the customer needs and lifestyle in the context of present earnings

and provide adequate advisory services that will necessarily help in creating wealth. Judicious

planning that is customized to meet the future needs of the customer deliver a service that is

exemplary. The market-savvy and the ignorant investors, both find this service very satisfactory.

The edge that they have over competition is their portfolio of offerings and their professional

expertise. The investment planning for each customer is done with an unbiased attitude so that the

service is truly customized on market trends, investment options, opinions etc.

Graph 3.1 Showing Milestones of Karvy

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Figure no. 3.1 Showing Steps to Stock Selection Process in Karvy

3.5 Portfolio Schemes of karvy

1. K-Sensible

Objective

The objective of the K-Sensible Plan is to provide long-term returns by following a disciplined

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and focused approach to investments. This is guided by two doctrines capital preservation and

generates steady long-term returns.

Strategy

Long-term investing

Focus on companies which qualify in the three key attributes Management, Business

and Valuation

Adequate diversification to mitigate risks

Maintain reasonable liquidity

Ideal for

Investors seeking steady long-term returns

Investment horizon between two to three years

Low portfolio turnover

2. K-Aggressive

Objective

The objective of the K-Aggressive Plan is to provide a balance between growth, safety and

returns. This is achieved by investing in well-researched companies and employing a strategy of

systematic profit booking. In our stock selection process we continue to focus on companies which

qualify in the three key attributes Management, Business and Valuation.

Strategy

Medium to long-term investing

Top-down and bottom-up approach

Judicious mix of growth and value stocks

Systematic profit booking



Ideal for

Investors seeking gains from systematic profit booking

Investment horizon between one to two years

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Medium portfolio turnover

3.K-Energetic

Objective

The objective of the K-Energetic Plan is to provide returns by following an aggressive

style of investing which entails higher risks.

Strategy

Higher proportion of mid cap stocks

Short to medium-term investing

Stock specific approach to capture triggers which could yield higher returns



Ideal for

Investors with high risk profile and seeking short to medium term returns

Investment horizon between 12 to 15 months

High portfolio turnover

Figure No. 3.2 INVESTMENT PHILOSOPHY OF KARVY

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2. Stock Selection

Management

Quality

Earning Growth

Valuations

News Flows

Timing

3. Portfolio Construction

Focus on: Objectives,

Approach

Security Selection

Concentration / Weights

Portfolio Beta

1. Sector Selection

Government Policies

Stage of Business Cycle

Future Profitability

Global/Domestic

Linkages

Identified favored sector

5. Risk Management

Portfolio Risk Operational Risk

Residual Risk

4. Portfolio Rebalancing

Tactical shifts: Large VsMid cap

Tactical shifts: Stock Vs

Cash

Buy-side Triggers

Sell-side Triggers

3.6 ACHIVEMENTS:

1. Largest independent distributor for financial products

2. Ranking amongst the top 3 stock broking firms

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3. Amongst the top 3 Depository participants

4. Largest network of branches and business associates

5. Ranking amongst top 10 investment Bankers.

6. First ISO-9002 certified registrars

7. Ranking amongst top 3 Mutual Funds distributors

8. Ranking 1st in retail procurement in equity IPOs.

9. Adjudged as one of the top 50 IT uses in India by MIS Asia

10. Fully Fledged IT driven operations ranking 8th in merchant Banking services

CHAPTER NO .4

PORTFOLIO MANAGEMENT SERVICES

-A LITERATURE REVIEW

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4.1 INVESTMENT ALTERNATIVES & THEIR ATTRIBUTES:

There are number of investment alternatives available & give their attributes in detail

Like their safetyness, return on investment, tenure & most important tax benefits etc.

1) PPF (Public Provident Fund):

Safe

Return 8.8% p.a.

15 years

Tax rebate on a maximum investment of Rs.100,000/-, u/s 8oc. Interest is totally exempt from tax

and there is no TDS on interest.

2) NSC (National Saving Certificate):

Safe

Return 8.6% to 8.9% p.a.

5 years or 10 year

Tax rebate on a maximum investment of Rs.100,000/-, u/s 80c. No TDS on interest. Interest

amount reinvested is eligible for Section 80 benefits

3) Infrastructure bonds:

Safety indicated by credit rating.

Return Varies from 8.00% to 9.5% p.a.

3 years

A tax rebate u/s 80ccf on a maximum investment of Rs.100,000/-.

4) Life insurance polices:

Safe

Around 10%

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20 25 years

Premiums paid on life insurance policies, up to a maximum of Rs.100,000/- qualifies for tax rebate

u/s 88.

5) ELSS schemes (Equity Linked Saving Scheme):

Carry risk as they invest in stock market.

Depends on the performance of the stock market

3 years

Tax rebate u/s 80c on a maximum investment of Rs.100,000/-

6) Pension plans of mutual funds:

Carry risk as they invest in a combination of debt and equity

3 years to age of 58 years.

Tax rebate u/s 80c on a maximum investment of Rs.60, 000/-.

7) Post office saving bank account:

Safety

Rate of interest per annum 3.5%

Income tax concession- Exempt under Sec. 10 (15)(ii)

8) Bank Fixed deposits:

Safety

Rate of interest per annum 8% to 9.50%

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Income tax concession- Exempt under Sec. 80c up to Rs. 100, 000 P.A.

9) Units of UTI/Scheme of mutual fund:

Safety

Variable

Income tax concession- Included in 80L exemption

10) Equity shares of companies:

Safety

Variable

Income tax concession1) Dividend in the hands of investors is tax free.

2) Provision for a tax rebate at 20% on any investment in eligible equity linked

schemes of Rs.10, 000 maximum- a rebate of Rs. 2, 000

.

4.2 COMPERASION OF SELECTED INVESTMENT ALTERNATIVES & THEIR

ATTRIBUTES:

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Table No. 4.1

Portfolio Grid & proposed allocation of assets

Avenues Allocation Risk

involved

Historical

earnings

Liquidity Tax

implication

Scope for

lending

facility

Equities High 18-22% High LTCG: 10% -

Proposed allocation in Equities: 25%

LTCG: Long Term Capital Gain

Income

Mutual

Fund

Medium 11-14% High LTCG: 10%

Dividends:

Tax free

-

Long

Term Gilt

Funds

Low 11-14% High LTCG: 10%

Dividends:

Tax free

-

Index

Funds

Medium - High LTCG: 10%

Dividends:

Tax free

-

Proposed allocation in Mutual Funds: 30%

LTCG: Long Term Capital Gain

ICICI

SafetyBonds

Medium 9.5% Low Subject to

TDS as perthen

prevailing

tax laws.

Nil

RBI Relief

Bond

Low 9% Low Interest is

fully exempt

Loans from

banks can be

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from Income

tax and The

Bonds are

exempt from

Wealth Tax.

availed of

against the

security of

the bonds

Cont

Avenues Allocation Risk

involved

Historical

earnings

Liquidity Tax

implication

Scope for

lending

facility

REC Bond Low 8.5% Low Section54EC

of the

Income Tax

Act deals

with capital

gains not to

be charged

on

investment in

this bond.

Nil

NHAI

Bonds

Low 9% Low Section

54EC of the

Income Tax

Act deals

with capital

gains not to

be charged

on

Nil

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investment in

this bond.

Proposed allocation in Bonds: 25%

Sundaram

Home FD

Medium 10% Low Subject to

TDS as perthen

prevailing

tax laws.

-

Proposed allocation in FDs: 20%

Portfolio strategy:

First Priority - Safety, Second Priority - Earnings, Third Priority - Liquidity, TimeHorizon - Long term

4.3 FINANCIAL MARKETS:

A financial market can be defined as the market in which financial assets are created or transferred.

Financial assets represents represent a claim to the payments of a sum of money sometime in the

future and/or periodic payment in the form of interest or dividend. Financial Market performs an

important function of mobilization of savings and channeling them into the most productive uses.

The participants in the financial markets are financial institutions, agents, brokers, dealers,

borrowers, lenders, savers and others who are inter-linked by the laws, contracts and

communication networks.

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Financial markets consist ofPrimary and SecondaryMarkets. The Primary markets deal in new

financial claims and securities and hence are known as new issue markets. The secondary market

deals in securities already issued, existing or outstanding. Financial markets are also classified as

Money and Capital Markets. Money markets deals with transactions in short-term instruments

(with period of maturity one year or less, e.g. treasury bills), while capital market deals with

transactions in long-term instruments (with period of maturity above one year, e.g. corporate

debentures and government bonds).

On the basis of the type of the financial claim, financial markets are classified as Debt and Equity

markets. By the timing of delivery, financial markets are classified as Cash or Spot markets and

Forward or Future markets.

The classification of financial markets can be summarized as follows:

Money Market

Debt Market

Forex Market

Capital Market

Figure No. 4.1 classifications of financial markets

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1. MONEY MARKETS:

Money markets can be defined as a market for short-term money and financial assets that are near

substitutes for money (any financial assets that can be quickly converted into money with

minimum transaction cost). One more important function of this market is to channel savings into

short-term productive investments like working capital. Money market aids banking, operates as amedium of integration between sub markets, promotes maintaining of minimum reserve in the

form of cash and liquidity and controls the interest rates.

Money market is a collection of market for the instruments like Call money, Treasury bills,

Commercial papers, Certificate of deposits, Money Market Mutual Funds, etc. A certain degree of

flexibility in the regulatory framework exists and there are constant endeavors for introducing a

new instruments or innovating dealing techniques. It is a wholesale market and the volume of

funds or financial assets traded are very large i.e. in corers of rupees.

DEBT MARKET:

Traditionally debt instruments are known for generating a predetermined income for a given period

of time, other than in cases of default. Hence they are also known as fixed income instruments. The

debt markets in advanced are significantly larger and deeper than equity markets. But in India, the

trend is just the opposite. The development of debt market in India has not been as remarkable as

in the equity market. However the debt markets in India have undergone a considerable change in

the last few years. Characterized by regulated interest rates, limited players and lack of trading

earlier, the markets have become more integrated and less regulated. The debt market in India is

divided into two categories:

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Capital market consists of primary and secondary markets. The primary markets create long-term

instruments through which corporate entities borrow and the secondary market provides liquidity

and marketability to these instruments. Companies can raise capital in the primary market through

the issue of shares and debentures for which prior approval of The SEBI is required. The

secondary market that operates through the medium of stock exchanges is that segment of the

capital market where securities already issued are traded.

4.4 BASKET OF FINANCIAL PRODUCTS:

1. BOND:

Individuals have surplus funds in the form of savings, which they want to invest. Companies need

funds to undertake good projects with high returns. Companies provide individuals with

instruments to invest their savings in. One such instrument is a corporate bond. Similarly,

governments also need funds for various developmental projects. Further, the government also

needs to raise money to finance the fiscal deficit. They too tap the savings by issuing various kinds

of bonds.

Bonds have a fixed face value, which is the amount to be returned to the investor upon maturity of

the bond. During this period, the investors receive a regular payment of interest, semi-annually or

annually, which is calculated as a certain percentage of the face value and know as a 'coupon

payment.'

Issuing a bond: The government, publicsector units and corporate are the dominant issuers in the

bond market. The central government raises funds through the issue of dated securities (securities

with maturity period ranging from two years to 30 years, long-term) and treasury bills (securities

with maturity periods of 91 or 364 days, short-term).

The central government securities are issued for a minimum amount of Rs 10, 000 (face value).

Thereafter they are issued in multiples of Rs 10,000. They are issued through an auction carried

out by the Reserve Bank of India.

State governments go about raising money through state development loans. Local bodies of

various states like municipalities also tap the bond market from time to time. Bonds are also issued

by public sector banks and PSUs. Corporate on the other hands raise funds by issuing commercial

paper (short-term) and bonds (long-term).

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a. Types of bonds:

Government bond

National saving certificate

Public provident fund

Monthly investment scheme

RBI Bonds Taxable 8%

Recurring deposit

Kisan vikas patra

Time deposit

Post office Corporate Bonds

b. Characteristics of a bond:

1. Fixed maturity period.

2. Fixed interest rate.

3. Regular payment of interest.

4. Less risky.

5. Some bonds give tax redemption.

2. INSURANCE:

A human life is also an income-generating asset. This asset also can be lost through unexpectedly

early death or made non-functional through sickness & disabilities caused by accidents. Accidents

may or may not happen. Death will happen, but the timing is uncertain. If it happens around the

time of one's retirement, when it could be expected that the income will cease, the person

concerned could have made some other arrangements to meet the continuing needs. But if it

happens much earlier when the alternate arrangements are not in place, insurance is necessary to

help the dependents.

In case of a human being, he may have made arrangements for his needs after his retirement. These

would have been made on the basis of some expectations like he may live for another 15 years, or

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that his children will look after him. If any of these expectations do not come true, the original

arrangement would become inadequate and there could be difficulties. Living too long can be as

much a problem as dying too young. These are risks, which need to be safeguarded against.

Insurance takes care of it.

Insurance, in law and economics, is a form ofrisk managementprimarily used to hedge against the

risk of potential financial loss. Insurance is defined as the equitable transfer of the risk of a

potential loss, from one entity to another, in exchange for a premium and duty of care is necessary

to help the dependents.

Types of insurance:

Any risk that can be quantified probably has a type of insurance to protect it. Among the different

types of insurance are:

1 Automobile insurance, also known as auto insurance, car insurance and in the UKas motor

insurance, is probably the most common form of insurance and may cover both legal liability

claims against the driver and loss of ordamage to the vehicle itself.

2 Casualty insurance insures against accidents, not necessarily tied to any specific property.

3 Credit insurance pays some or all of a loan back when certain things happen to the borrower such

as unemployment, disability, ordeath.

4 Financial loss insurance protects individuals and companies against various financial risks. For

example, a business might purchase cover to protect it from loss of sales if a fire in a factory

prevented it from carrying out its business for a time. Insurance might also cover failure of a

creditor to pay money it owes to the insured. Fidelity bonds and surety bonds are included in this

category.

5 Health insurance covers medical bills incurred because ofsickness or accidents.

6 Liability insurance covers legal claims against the insured. For example, a doctor may purchase

insurance to cover any legal claims against him if he were to be convicted of a mistake in treating a

patient.

7 Life insurance provides a benefit to a decedent's family or other designated beneficiary, to replace

loss of the insured's income and provide forburial and other final expenses.

8 Annuities provide a stream of payments and are generally classified as insurance because they are

issued by insurance companies and regulated as insurance. Annuities and pensions that pay a

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benefit for life are sometimes regarded as insurance against the possibility that a retiree will

outlive his or her financial resources. In that sense, they are the complement of life insurance.

9 Political risk insurance can be taken out by businesses with operations in countries in which

there is a risk that revolution or otherpolitical conditions will result in a loss.

10 Property insurance provides protection against risks to property, such as fire, theft orweather

damage. This includes specialized forms of insurance such as fire insurance, flood insurance,

earthquake insurance, home insurance orboiler insurance.

11 Title insurance provides a guarantee that title to real property is vested in the purchaser and/or

mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a

search of the public records done at the time of a real estate transaction.

12 Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying

medical expense incurred due to a job-related injury.

3. TAX PLANNING:

An Individual needs to take the taxation into consideration at all times, from the stage of earning

the income, incurring expenditure to the time of investing in various types of securities, deposits

etc. Return on investment in the form of income, when received, attracts income tax under the

Income Tax Act. Incidence of income tax depends on the nature of your investment, income and

the quantum of other income like salary, rent from property, interest etc.

Other common sources of incomes are: interest on bank deposits, debentures, bonds, deposits with

companies, provident fund (and PPF), NSC, dividend income from shares or from mutual funds,

royalties, one time windfall gains, income from profession, business or pension. Income Tax act

treats each one of these incomes separately and allows many deductions, exemptions etc.

depending, mainly, upon the source of income. It is, therefore, necessary to learn and understand

the Sections of Income Tax Act applicable to your source(s) of income BEFORE you invest and

BEFORE you decide to incur any major expenditure. One must take a keen interest in the annual

budget exercise of Government of India (GOI) as the tools available for tax planning in India are a

dynamic lot which undergo a change with every budget.

The annual budget represents the desire of GOI to direct the savings into specific channels and

areas. Various incentives, tax sops given away in every budget are the tools used to encourage

individuals and corporate to direct their savings into these areas. You can use these sops to

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enhance the disposable income in your hands, thus serving the twin purposes of saving for your

self and also help the society in growing in the desired direction.

One point that needs to be kept in mind is that managing your personal finance has nothing to do

with tax avoidance. Taxes have to be paid and they must be paid as our dues to the society that

makes life in an organized manner possible. However, a little tax planning can enable you to avail

of all the avenues that our tax system provides you to save and grow.

a. Tax deduction is available under following section:

Used to allow deduction of interest earned on ,say, a National Saving Certificate, or Bank deposit

up to a limit of Rs.12,000. But now all these are gone. In their place has come Section 80C u/s

80 CCC, & u/s 80CCD, as the Finance Bill puts it. Thus, the new Section 80C of the Income Tax

Act proposed in Union Budget gives you a bigger tax bread than what the current regime offers.

Deduction in respect of Life Insurance Premium, Contribution to Provident Fund, etc Rs.10,000 in

pension funds.

Section 80CCC:-Is for deduction in respect of contribution to certain Pension Funds Section 80L

is for deductions in respect to Interest on certain Securities, Dividends, etc

Table No. 4.2 Showing Computation of Income tax:

Up to 2lakh Nil

2 to 5 Lakh 10%

5 to 10 Lakh 20%

10 & above 30%

A surcharge of 12% is applicable in case the total income exceeds Rs.10 Lakh.

4. MUTUAL FUND:

A Mutual Fund is a trust that pools the savings of a number of investors who share a common

financial goal. The money thus collected is invested by the fund manager in different types of

securities depending upon the objective of the scheme. These could range from shares to

debentures to money market instruments. The income earned through these investments and the

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capital appreciations realized by the scheme are shared by its unit holders in proportion to the

number of units owned by them. Thus a Mutual Fund is the most suitable investment for the

common man as it offers an opportunity to invest in a diversified, professionally managed portfolio

at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees

can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and

strategy.

Investments in securities are spread across a wide cross-section of industries and sectors and thus

the risk is reduced. Diversification reduces the risk because all stocks may not move in the same

direction in the same proportion at the same time. Mutual fund issues units to the investors in

accordance with quantum of money invested by them. Investors of mutual funds are known as unit

holders.

The profits or losses are shared by the investors in proportion to their investments. The mutual

funds normally come out with a number of schemes with different investment objectives, which

are launched from time to time. A mutual fund is required to be registered with Securities and

Exchange Board of India (SEBI), which regulates securities markets before it can collect funds

from the public.

The flow chart below describes broadly the working of a mutual fund:

A. Organization of Mutual fund:

There are many entities involved and the diagram below illustrates the organizational set up

of a mutual fund:

The mutual fund industry in India began with the setting up of the Unit Trust In India (UTI) in

1964 by the Government of India. During the last 36 years, UTI has grown to be a dominant player

in the industry with assets of over Rs. 76,547 Crores as of

March 31, 2000. The UTI is governed by a special legislation, the Unit Trust of India Act, 1963. In

1987 public sector banks and insurance companies were permitted to set up mutual funds and

accordingly since 1987, 6 public sector banks have set up mutual funds. Also the two Insurance

companies LIC and GIC established mutual funds. Securities Exchange Board of India (SEBI)

formulated the Mutual Fund (Regulation) 1993, which for the first time established a

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comprehensive regulatory framework for the mutual fund industry. Since then several mutual

funds have been set up by the private and joint sectors.

B. Types of Mutual Funds:

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

a) By Structure:

1. Open-ended Funds:

An open-end fund is one that is available for subscription all through the year. These do not have a

fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related

prices. The key feature of open-end schemes is liquidity.

2. Closed-ended Funds:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.

The fund is open for subscription only during a specified period. Investors can invest in the scheme

at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on

the stock exchanges where they are listed. In order to provide an exit route to the investors, some

close-ended funds give an option of selling back the units to the Mutual Fund through periodic

repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit

routes is provided to the investor.

3. Interval Funds:

Interval funds combine the features of open-ended and close-ended schemes. They are open for

sale or redemption during pre-determined intervals at NAV related prices.

b) By Investment Objective:

1. Growth Funds:

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such

schemes normally invest a majority of their corpus in equities. It has been proven that returns from

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stocks, have outperformed most other kind of investments held over the long term. Growth

schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

2. Income Funds:

The aim of income funds is to provide regular and steady income to investors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures and Government

securities. Income Funds are ideal for capital stability and regular income.

3. Balanced Funds:

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed income securities

in the proportion indicated in their offer documents. In a rising

stock market, the NAV of these schemes may not normally keep pace, fall equally when the

market falls. These are ideal for investors looking for a combination of income and moderate

growth.

4. Money Market Funds:

The aim of money market funds is to provide easy liquidity, preservation of capital and moderate

income. These schemes generally invest in safer short-term instruments such as treasury bills,

certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may

fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate

and individual investors as a means to park their surplus funds for short periods.

5. Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell

units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to

2%. It could be worth paying the load, if the fund has a good performance history.

6. Gilt Fund:

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These funds invest exclusively in government securities. Government securities have no default

risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic

factor as is the case with income or debt oriented schemes.

7.Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P

NSE 50 index (Nifty), etc These schemes invest in the securities in the same weight age

comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or

fall in the index, though not exactly by the same percentage due to some factors known as

"tracking error" in technical terms.

c) Other Schemes:

1. Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the Indian Income

Tax laws as the Government offers tax incentives for investment in specified avenues. Investments

made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction

u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save

capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been

sold prior to April 1, 2000 and the amount is invested before September 30, 2000.

d) Special Schemes:

1. Industry Specific Schemes:

Industry Specific Schemes invest only in the industries specified in the offer document. The

investment of these funds is limited to specific industries like InfoTech, FMCG, and

Pharmaceuticals etc.

2. Index Schemes:

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Index Funds attempt to replicate the performance of a particular index such As the BSE Sensex or

the NSE 50.

3. Sectorial Schemes:

Sectorial Funds are those, which invest exclusively in a specified industry or a group of industries

or various segments such as 'A' Group shares or initial public offering.

C. Benefits of Mutual Fund investment:

Professional Management

Diversification

Convenient Administration

Return Potential

Low Costs

Liquidity

Transparency

Flexibility

Affordability

Choice of Schemes

Tax benefits

Well regulated

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D. Restrictions on Investments:

1 A mutual fund scheme shall not invest more than 15% of its NAV (Net Asset Value) in debt

instruments issued by a single issuer, which are rated not below investment grade by a credit rating

agency authorized to carry out such activity under the Act. Such investment limit may be extended

to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board

of asset Management Company.

2 A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments

issued by a single issuer and the total investment in such instruments shall not exceed 25% of the

NAV of the scheme. All such investments shall be made with the prior approval of the Board of

Trustees and the Board of asset Management Company.

3 No mutual fund under all its schemes should own more than ten per cent of any company's paid up

capital carrying voting rights.

4 Such transfers are done at the prevailing market price for quoted instruments on spot basis.

The securities so transferred shall be in conformity with the investment objective of the scheme to

which such transfer has been made.

5 A scheme may invest in another scheme under the same asset management company or any other

mutual fund without charging any fees, provided that aggregate interscheme investment made by

all schemes under the same management or in schemes under the management of any other asset

management company shall not exceed 5% of the net asset value of the mutual fund.

6 The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised

under that scheme.

7 Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of

purchases, take delivery of relative securities and in all cases of sale, deliver the securities and

shall in no case put itself in a position whereby it has to make short sale or carry forward

transaction or engage in badla finance.

8 Every mutual fund shall, get the securities purchased or transferred in the name of the

mutual fund on account of the concerned scheme, wherever investments are intended to be of long-

term nature.

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9 Pending deployment of funds of a scheme in securities in terms of investment objectives of

the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled

commercial banks.

No mutual fund scheme shall make any investment in;

a) Any unlisted security of an associate or group company of the sponsor; or

b) Any security issued by way of private placement by an associate or group company of the sponsor.

c) The listed securities of group companies of the sponsor which is in excess of 30% of the net assets

[of all the schemes of a mutual fund]

d) No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or

equity related instruments of any company. Provided that, the limit of 10 per cent shall not be

applicable for investments in index fund or sector or industry specific scheme.

e) A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity

related investments in case of open-ended scheme and 10% of its NAV in case of close-ended

scheme.

5. STOCK:

Member - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The

Hyderabad Stock Exchange (HSE).






goal.

a. Stock Broking Services:

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as

a wealth management and wealth accumulation option. The difference between unpredictability

and a safety anchor in the market is provided by in-depth knowledge of market functioning and

changing trends, planning with foresight and choosing one & choose options with care. This is

what we provide in our Stock Broking services.

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b. Depository Participants:

The onset of the technology revolution in financial services Industry saw the emergence of Karvy

as an electronic custodian registered with National Securities Depository Ltd (NSDL) and

Central Securities Depository Ltd (CSDL) in 1998. Karvy set standards enabling further comfort

to the investor by promoting paperless trading across the country and emerged as the top 3

Depository Participants in the country in terms of customer serviced.

c. Basic Information:

Besides familiarity with the stock market, the transaction process, and having an account at a

broker or sub-broker, knowledge of basic investment information is also important to making

investment decisions

In this section, you can read about the basics of investment that often appear in stock market

reports and discussions.

d. Market information:

Important data and information about the overall market situation that you often come across

include:

i. Stock market index:

There are a number of stock market indices but the most widely used is the SET Index, which

calculates the average price of all listed shares weighted by the number of registered shares. Thus,

price movements of large capitalization stocks have a greater influence on the movement of the

SET Index than price changes of small capitalization stocks.

Besides the SET Index , other stock price indices have been constructed to track market trends, for

example the SET50 Index, Book Club Index, TISCO Price Index, and Sector Indices to track the

price movements of individual sectors.

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ii. Market turnover:

It's often quoted together with the SET Index to indicate how active the trading activities are. In a

bullish market, turnover is high as investors trade actively. Conversely, the market is sluggish

when investors do not trade actively. Thus, turnover is a crucial factor in an investment

consideration.

Advances, declines, and no change in stock prices. When most stock prices have closed higher, it

indicates that the market has had a good day. Conversely, when most stock prices have closed

lower, the market has a bad day. If stock prices are mostly unchanged, the market is moving in a

narrow range. Investors can try their own market analysis by looking at the trends in price

movement. This however reflects a short- term picture and other factors must be taken into

consideration.

e. Stock information:

In addition to the market information above, it's essential to understand how to pick good stocks.

Here are some basic investment principles.

i. Price:

Stock price is an important factor to investors, as buying and selling influence stock price

movements. At the end of the day, investors like to know how their stocks fared. Did they close

higher? Lower? And by how much? The change in price of a stock also reflects the amount of

money for investor decision-making whether to buy, sell, or hold. In stock valuation, price has to

be considered in conjunction with other performance variables such as earnings per share and

dividends.

ii. Price-Earnings Ratio (P/E Ratio):

The ratio is derived by comparing the Close Price (P) with Earnings per share (E). It is a measure

of the stock's fundamental value. P/E Ratio is calculated by dividing the Close Price (P) with

Earnings per share (E).

P/E = Close price or market price (P)

12-month earnings per share (E)

P/E ratio tells you how many years it will take the company's earnings to add up to its stock price

at the time of calculation.

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For example, if the close price of stock ABC (P) is 100 Rs and its earnings per share (E) is 20 Rs,

then its P/E Ratio equals 100/20 = 5. That is, at the time of calculation, it will take only 5 years of

company ABC's earnings to equal its stock price.

A stock with low P/E ratio is preferable to one with a high P/E. Conversely, suppose stock DEF

closes at 200 Rs and its earnings per share (E) is 20 Rs, its P/E Ratio equals 200/20 = 10. At the

time of calculation, it will take 10 years of company DEF's earnings to equal its stock price.

Comparing stock ABC with stock DEF, we can draw an initial conclusion that stock ABC is more

attractive than stock DEF.

In brief, a low P/E stock has more earnings potential or is cheaper than a high P/E stock,

considering its earnings ability.

iii. Dividend Yield:

Rate of dividend return, shown in percentage form. A stock with a high Dividend Yield is more

attractive because you get aHigher rate of return in the form of dividends.

The formula for calculating Dividend Yield is

Dividend Yield = Dividend x 100

Stock Price

For example, if stock ABC has a market price of 20 Rs and pays a 2 baht dividend, its dividend

yield is

1 x 100 = 10%

20

iv. Trading Volume:

Trading volume or liquidity of a stock is important. It's easier to trade in/out of a stock with high

liquidity or large trading volume. It's difficult to buy a stock which has a low liquidity or low

trading volume because there are few sellers. And selling is difficult if there are few or no buyers

when you want to sell because you urgently need the cash.

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f. Financial Analysis:

Analysis of a company's growth potential, stability, financial and management strengths, and profit

potential for its investors. Financial analysis is a rather complex exercise and can be left until

you've mastered more basic investment knowledge.

4.5 ABOUT PORTFOLIO MANAGEMENT:

Portfolio is nothing but the total holding of securities belonging to any person.

Portfolio management is the process of managing money, including investments, budgeting,

banking and taxes. The portfolio management process involves formulating, modifying and

implementing a real estate investment strategy in light of an investor's broader overall investment

objectives. It also can be defined as the management of several properties owned by a single entity

The basis for constructing a portfolio should reflect the enterprise"s particular needs. For example,

you might choose to build a portfolio around initiatives for a specific product, business segment, or

separate business unit within a multinational organization.

A long-term investment strategy requires more than a passive investandforget" approach.

Once youve created an investment strategy and built your portfolio, youve taken the first

steps toward reaching your financial goals. As time passes, you will need to review your

portfolio regularly to make sure you stay on track.

Portfolio planning is a structured and intelligent way of spreading your risk through different

investment options and to enjoy the diversification benefits marked with a higher rate of interests.

There is no fixed rule on how to plan your portfolio but there are several platforms available on

which you can explore the art of perfect portfolio building.

It is equally important to check the portfolio performance in every quarter. Presently, the stock

market sentiment is slowly going upward with a new hope of revival by late this year. This is a

good time for investors to reshuffle their portfolios.

For example, the market is expected to sustain the growth in the FMCG sector with the news of 20

percent average growth by FMCG majors last quarter. Major heavy weights like HLL and

Cadburys are trading at 15 percent to 20 percent below their 52-week high. One of the major

reasons for failure in portfolio management is the lack of realistic objectives. What can rationally

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be expected is often quite different from the hyped anticipation created in the minds of investor. To

be successful in the portfolio planning, you need to be aware of historical precedents.

One of the reasons for your investment portfolio not giving the expected returns could be - you

have not properly planned to cover your tax liability. In this section, we present a comparison ofinvestments, which can reduce your tax burden.

Most of us think of investing in tax only in the month of March and as the D-day approaches, there

is a rush to invest in any tax-saving avenue be it infrastructure bonds, ELSS schemes or PPF

without any proper thought before investing. Ideally, investing for tax saving purposes, should be

an integral part of your portfolio plan, helping you reach your investment goals in a tax efficient

way.

The number of tax saving options on offer not only serve the purpose of saving tax but also offerother benefits such as risk coverage, capital appreciation, retirement savings etc. In this section,

we have attempted to give a comparison of the various tax-saving investments, which should help

you make an informed and intelligent decision regarding your tax investments. The comparison is

done in a group of two on the parameters of safety, returns, tenure and tax benefits. The argument

behind grouping of those avenues is not very complicated; we just want to address the dilemma of

much talked groups. For instance, one can ask whether investment in NSC is better when

compared to Infrastructure bond. The grouping has not been addressed. In this section, we suggest

those readers to compare in their own for these kind of grouping after taking a look at the

arguments of the available grouping.

4.6 MARKOWITZ PORTFOLIO THEORY:

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In the earlier days the investment communities talked about risk and returns but there was no

specific model to further term. The basic portfolio model was developed by Harry Markowitz, who

derived the expected rate of return for a portfolio of assets and an expected risk measure. Before

Markowitz, investors dealt loosely wit the concepts of return and risk. He was first to develop the

concept of portfolio diversification in a formal way He quantified the concept of diversification.

He showed quantitatively why and how portfolio diversification works to reduce the risk of

portfolio to an investors. He was first to develop specific measure of portfolio risk and to derive

the expected rate of return and risk for a portfolio based on co variance relationship.

Markowitz model is based on several assumptions regarding investment behavior as:-

1. Investors consider each investment alternative as being represented by a probability

distribution of expected return over some holding period.

2. Investors maximize one period expected utility, and their utilities curves demonstrate

diminishing marginal utility of wealth.

3. Investors estimate the risk of the portfolio on the basis of the variability of expected

returns.

4. Investors base decisions solely on expected return on risk, so their utility curves are

functions of expected return and expected variance of returns only.

5. For a given risk level, investor prefer, higher returns to lower returns. Similarly for a given

level of expected return, investors prefer less risk to more risk.

Under these assumptions , a single asset or a portfolio assets is considered to be efficient if no

other assets or portfolio assets offers higher expected return with the same( or Lower ) risk, or

lower risk with same ( or higher ) expected returns.

VARIANCE OF RETURNS FOR AN INDIVIDUAL INVESTMENT:-

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We will be using the variance or standard deviation of returns as the measure of risk. The variance

or standard deviation is a measure of the variation of possible rate of returns, Ri, from the expected

rate of return [E (Ri)] as follows:

Graph No. 4.1 Risk & return on investment

Types of portfolio

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1. Aggressive Portfolio:-

Objective: Growth. This strategy might be appropriate for investor who seek High growth and

who can tolerate wide fluctuations in market values, over the short term.

Graph No. 4.2 Showing Aggressive Portfolio

2. Growth Portfolio:-

Objective: Growth. This strategy might be appropriate for investors who have a preference for

growth and who can withstand significant fluctuations in market value.

Graph No. 4.3 Showing Growth Portfolio

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3. Balanced Portfolio:-

Objective: Capital appreciation and income. This strategy might be appropriate for investors who

want the potential for capital appreciation and some growth, and who can withstand moderate

fluctuations in market values

Graph No. 4.4 Showing Balanced Portfolio

4. Conservative Portfolio:

Objective: Income and capital appreciation. This strategy may be appropriate for investors who

want to preserve their capital and minimize fluctuations in market value.

Graph No. 4.5 Showing Conservative Portfolio

The Balancing Act:

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One reason to review your portfolio is that market conditions or some aspect of your financial

situation say, your time horizon or your tolerance for risk may have changed since you

created your investment strategy. If the change has been significant, you will need to consider

adjusting your portfolios asset mix. Another reason you might have to considering giving your

portfolio a new look is in response to a significant life event.

Let us consider this example, Suppose your investment strategy was originally designed to achieve

long-term growth, and your portfolio consists primarily of stocks. At the end of the first year, a

year of tremendous growth in the stock market-you review your portfolio and you see that,

although your bond and short-term investments have enjoyed only modest growth, your stock

investments have significantly increased in value. In fact, your stock investments have grown so

much that they now represent a larger proportion of your portfolio. The result is that your portfolio

is out of balance as you have more money in stocks, and less in bonds, than you did when you built

a portfolio according to your investment strategy. This increases your risk considerably. The

solution, assuming your original asset mix is still appropriate for your goals, is to "rebalance" your

portfolio -shift enough money from your stock investments to your bond investments to restore the

proportions of the original asset mix.

Income investing:

A great way to obtain monthly income is to invest in good dividend-paying stocks. Most

companies pay dividends on a quarterly basis; hence you need to purchase several different stocks

whose dividend payments are staggered. When you are buying a good dividend paying stock, you

are not necessarily looking for a stock that will appreciate by double of its value in a year's time

but you are looking for one that will pay you regular and substantial income and additionally give

you adequate protection on the downside.

However, simply investing in companies with the highest dividend may not solve your purpose of

income investing. More important is the dividend yield, which is calculated by dividing the annual

dividends per share by the share price. This represents an annual rate of return a stock would

provide on the basis of its dividend alone. A dividend yield higher than the post-tax yields of fixed

income securities is definitely a good option for investors who look for income investing. As

dividends are paid from the Net Income of the company, it is always better to check the

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consistency of dividend yields of selected stocks to see whether the company would be able to

sustain the same level of yields in foreseeable future.

In general, companies with low growth prospects offer a high dividend yield, against those with

high growth prospects. Important to mention that dividend yield has an inverse relationship with

price. Hence, in a bull market, even if the dividend rate is high, as the share price is relatively

higher, we may find the dividend yield lower. Same way in a bear market, when share prices are

low, dividend yields tend to move up.

Growth Investing:

Growth investing is selecting and buying stock in companies that tend to grow substantially fasterthan others. The idea behind is that a growth in earnings and/or revenues would directly correlate

into an increase in the stock price. Over the past few years, technology companies have been

recognized as growth stocks. Although, this strategy has proven sustainable over a long period of

time, growth investing involves special risks and as such, may not be suitable for all investors. The

other characteristics of growth stocks include higher than average P/E ratio and

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