A Project report on

Analysis of Portfolio Management in Securities Market

Project Report Submitted to SIBAR

In Partial Fulfilment of Requirement for the Award of

Masters in Business Administration By Akif Aijaz Sultanpuri

Under the guidance of Prof. Shital Bhusare.

Sinhgad Institute of Business Administration And Research 2012-2014

DECLARATION

I, the undersigned, hereby declare that the Project Report titled Analysis of Portfolio Management in Securities Market written and submitted by me to (the University of Pune or SIBAR), in partial fulfillment of the requirement for the award of Masters in Business Administration is my original work and the conclusions drawn therein are based on the material collected by myself.

PLACE: Pune

DATE:

Akif Aijaz Sultanpuri

ACKNOWLEDGEMENT

Success is not a destination, but a journey. I have realized it even better during my Dissertation project. This project has taught me that there is always room for improvement, you can t be complacent. Today when I am submitting this project, although from outskirt it looks like complete project but still I feel there is room for improvement. Hence saying Success is not destination, but a journey completely held true. At the outset, I would like to take the opportunity to thank all those people who were constantly motivating and providing me with inspirational guidance during the course of my Dissertation project. I cannot possibly mention the names of all those people who have enriched and improved my thinking through their conversations. But without the names of some people this project report would not have been possible. I take this opportunity to thank my faculty guide Prof. Shital Bhusare sharing his immense knowledge, which helped in concentrating on the task. I would like to express my regard to Mr Deepak Singh, Mr Mukesh Bhagel and Mr Sameer Mulla for helping me in the course of my endeavour which helped me to undertake the project in a better fashion and without whose timely help and inspiration this humble effort would not have taken a proper shape. I express my deepest and most sincere thanks to all my friends for sharing their knowledge and help that they have extended throughout the project and provided an inspiration for taking the project to its completion.

Akif Aijaz Sultanpuri

CERTIFICATE

This is to certify that the Project Report titled Analysis of Portfolio Management in Securities Market which is being submitted herewith for the award of ( Masters of Business Administration), Pune is the result of the original research work completed by (Akif Aijaz Sultanpuri) under my supervision and guidance and to the best of my knowledge and belief the work embodied in this Project Report has not formed earlier the basis for the award of any degree or similar title of this or any other University or examining body.

Project Guide : Prof Shital Bhusare Place: Pune Date:

Director : Prof Avadhoot Pol

TABLE OF CONTENTS Sr. No. 1 2 Particulars Executive Summary Introduction

Company Profile Statement of the problem and Objectives Research Methodology Limitations of the study Page No. 6 7 13 19 20 23

Conceptual Background
Review of literature Concepts and definitions 24 39 53

4 5 6 7

Data Presentation, Analysis and Interpretation Suggestions Conclusion Annexure

Questionnaire Bibliography

58 59

60 63

EXECUTIVE SUMMARY

Portfolio management can be defined and used in many a ways, because the basic meaning of the word is combination of the various things keeping intact. So I considered and evaluated this from the perspective of the investment part in the securities segment. From the investor point of view this portfolio followed by him is very important since through this way one can manage the risk of investing in securities and thereby managing to get good returns from the investment in diversified securities instead of putting all the money into one basket. Now a days investors are very cautious in choosing th e right portfolio of securities to avoid the risks from the market forces and economic forces. So this topic is chosen because in portfolio management one has to follow certain steps in choosing the right portfolio in order to get good and effective returns by managing all the risks. This topic covers how a particular portfolio has to be chosen concerning all the securities individual return and there by arriving at the overall portfolio return. So a Balanced Portfolio was constructed which includes exposure both in equities and debt. So in volatile periods also this portfolio will outperform the benchmark. This also covers the various techniques of evaluation of the portfolio with regard to all the uncertainties and gives an edge to select the right one. The purpose of choosing this topic is to know how the portfolio management has to be done in arriving at the effective one and at the same time make aware the investor to choose the securities which they want to put in their portfolio. This also gives an edge in arriving at the right portfolio in consideration to different securities rather than one single security. The project is undertaken for the study of my subject thoroughly while understanding the different case studies for the better understanding of the investor and myself. The Balanced Portfolio which was constructed was revised six times i.e. every week and then a model portfolio was made. Weekly revision was done as monthly was not possible so I followed weekly revision of the portfolio.

INTRODUCTION TO REPORT

In most industrialized countries, a substantial part of financial wealth is not managed directly by savers, but through a financial intermediary, which implies the existence of an agency contract between the investor (the principal) and a broker or portfolio manager (the agent). Therefore, delegated brokerage management is arguably one of the most important agency relationships intervening in the economy, with a possible impact on financial market and economic developments at a macro level. In most of the metros, people like to put their money in stock options instead of dumping it in the bank-lockers. Now, this trend pick pace in small but fast developing cities of India. My research is based on the investors in stock market in Pune and its nearby areas. As the per-capita-income of the city is on the higher side, so it is quite obvious that they want to invest their money in profitable ventures. On the other hand, a number of brokerage houses make sure the hassle free investment in stocks. Asset management firms allow investors to estimate both the expected risks and returns, as measured statistically.

COMPANY PROFILE

Indiabulls

Type

Public company

Traded as

NSE: INDIABULLS BSE: 532544

Industry

Financial Services, Real Estate,Power

Founded

May, 2000

Headquarters

Gurgaon, India

[1]

Key people

Sameer Gehlaut Chairman & CEO, Rajiv Rattan, Vice Chairman, Saurabh Mittal, Vice Chairman

Products

Securities, Consumer Finance,Mortgages, Real Estate

Employees

~ 20000 (2007)

Website

www.Indiabulls.com

FORMATION OF THE COMPANY :

According to prevention of Money Laundering Act, 2002 and Rules framed there under, Indiabulls Securities Ltd has developed and implemented the antimoney laundering program designated to achieve and monitor the compliences with the requirement. For the purpose of compliance with requirements and provisions of the Act, Indiabulls is maintaining a record of such transactions the nature and value of which has been prescribed in the Rules under the Act. Such transaction include: All cash transactions of the value more than Rs. 10 lacs or its equivalent in foreign currency. All series of cash transaction integrally connected to each other which have been valued below Rs . 10 lacs or its equivalent in foreign currency where such series of transaction take place within one calender month. All suspicious transactions whether or not made in cash and including inter-alia, credit or debits into from any non monetary account such as security account maintained by the registered intermediary. it may, however, be cleared that for the purpose of suspicious transaction reporting, apart from 'transaction connected', transaction remotely connected or related are also considered. Indiabulls existing policies and procedures for its various business functions from the basis for its overall money laundering prevention programm. This assures that antimoney laundering compliance reach all aspects of our firm's business. Moreover anti-money laundering procedures set out by Indiabulls Securities Ltd. are reviewed regularly and updated as necessary based on any legal/regulatory orbusiness/operational changes, such as addition or amendments to existing anti-money laundering rules and regulations or business expantion.

ABOUT FOUNDER: The fast paced growth, diversification and consolidation of the Group has been possible due to the vision and leadership of the co- founders of Indiabulls. Sameer Gehlaut He is the Chairman, CEO and Whole Time Director of Indiabulls. Sameer is an engineer from IIT, Delhi (1995) and has worked internationally with Halli burton in its international services business in 1995. He has utilized his experience with the international best practices and professional work culture at Halliburton to lead Indiabulls successfully. Rajiv Rattan He is the President, CFO and Whole Time Director ofIndiabulls. Rajiv is an engineer from IIT, Delhi (1994) and has rich experience in the oil industry, having worked extensively across the globe in highly responsible assignments with Schlumb erger. Rajiv has managed remote exploration projects providing evaluation services for different clients in India as well as abroad. Saurabh Mittal He is a Director at Indiabulls. Declared the best graduating student in IIT, Delhi in (1995), Saurabh was also one of the engineers selected by Schlumber to work for its international services business in 1995 and gained experience of working in various global locations. He graduated as a Baker Scholar with an MBA from the Harvard Business School. He has also developed in-depth understanding of international financial markets.

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VISION & MISSION:

VISION To be the largest & most profitable Financial Services Organisation in Indian Retail Market. Become one stop shop for all banking financial products & services for all retail customer. MISSION Rapidaly increase the number of client relationship to be a clear market leader to provide our clients a very broad array of products and services. MILESTONES IN THE HISTORY Indiabulls Financial Services Ltd. was incorporated on January 10,2000 as M/s Orbis Infotech Private Limited at New Delhi under the Companies act, 1956. The company was promoted by three engineers from IIT Delhi, and has attracted more than Rs. 700 million as investments from various banks. The name of company was changed to M/s Indiabulls Financial Services Private Ltd on March 16,2001. Indiabulls came up with it own public issue & became public Ltd company on February 27, 2004. and the name of company changed to M/s. Indiabulls Financial Services Limited. The Indiabulls has developed significant relationship with large commercial banks such as Citi banks, HDFC Bank, Union Bank, ICICI Bank, ABN Bank, Standard Charterd Bank and IL& FS. The company headquarters are co-located in Mumbai and Delhi. The marketing and sales efforts are headquartered out of Mumbai, with a regional headquarter in Delhi.
11

 There are headquartered out of Delhi/NCR allowing the company to scale these processes efficiently for the nationwide network

FLAGSHIP IN OTHER SERVICES

Personal Loan Insurance

Indiabulls
Real Estate Home Loan

Resources Ltd.

12

INDUSTRY PROFILE

Broking houses in India India is a country having a big list of Broking Houses. The Equity Broking Industry in India has several unique features like it is more than a century old, dynamic, forward looking, and good service providers, well conversant, highly innovative and even adaptable. The regulations and reforms been laid down in the Equity Market has resulted in rapid growth and development. Basically, the growth in the equity market is largely due to the effective intermediaries. The Broking Houses not only act as an intermediate link for the Equity Market but also for the Commodity Market, Foreign Currency Exchange Market, and many more. The Broking Houses has also made an impact on the Foreign Investors to invest in India to certain extent. In the last decade, the Indian brokerage industry has undergone a dramatic transformation. From being made of close groups, the broking industry today is one of the most transparent and compliance oriented businesses. Long settlement cycles and large scale bad deliveries are a thing of the past with the advent of T+2 settlement cycle and dematerialization. Large and fixed commissions have been replaced by wafer thin margins, with competition driving down the brokerage fee, in some cases, to a few basis points. There have also been major changes in the way business is conducted. Technology has emerged as the key driver of business and investment advice has become research based. At the same time, adherence to regulation and compliance has vastly increased. The scope of services have enhanced from being equity products to a wide range of financial services. Investor protection has assumed significance,. At present there are 23 recognized stock exchanges with about 6000 stockbrokers. Organization structure of stock exchange varies.14 stock exchanges are organized as public limited companies, 6 as companies limited by guarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9 stock exchanges have been permanent recognition. Others have to seek recognition on annual basis. These exchange do not work of its own, rather, these are run by some persons and with the help of some persons and institution. All these are down as functionaries on stock exchange. These are

13

Stockbrokers sub-broker market makers Portfolio consultants etc.

Stockbrokers: Stock brokers are the members of stock exchanges. These are the persons who buy, sell or deal in securities. A certificate of registration from SEBI is mandatory to act as a broker. SEBI can impose certain conditions while granting the certificate of registrations. It is obligatory for the person to abide by the rules, regulations and the buy-law. Stock brokers are commission broker, floor broker, arbitrageur etc.

Detail of registered brokers Total no. of registered brokers as on Total no. of sub-brokers as on 31.03.2008 9000 31.03.2008 24,000

Sub broker: A sub-broker acts as agent of stock broker. He is not a member of a stock exchange. He assists the investors in buying, selling or dealing in securities through stockbroker. The broker and sub-broker should enter into an agreement in which obligations of both should be specified. Sub-broker must be registered SEBI for a dealing in securities. For getting registered with SEBI, he must fulfill certain rules and regulation.

Market Makers Market maker is a designated specialist in the specified securities. They make both bid and offer at the same time. A market maker has to abide by bye-laws, rules regulations of the concerned stock exchange. He is exempt from the margin requirements. As per the listing requirements, a company where the paid-up capital is Rs. 3 crore but

14

not more than Rs. 5 crore and having a commercial operation for less than 2 years should appoint a market maker at the time of issue of securities. Portfolio consultants A combination of securities such as stocks, bonds and money market instruments is collectively called as portfolio. Whereas the portfolio consultants are the persons, firms or companies who advise, direct or undertake the management or administration of securities or funds on behalf of their clients.

Types of Trade: There are different types of trade depending on the type of shares and investors interest and his mentality for investing the money in the Stock Exchange. The trade depends upon the type of shares listed viz. Cash or Futures & Options ( F&O), time period of investing whether long-term (may be months or years) or short-term (for a day or a month) .

Intra-Day Trade: This kind of trade is done in the cash market. Trading (here buying and selling of shares) is done on the same day. Trade is carried on the daily basis. Whatever the stocks are purchased at the beginning of the market is squared up till the market is closed the same day. This kind of trade is suitable for daily traders who monitor stock market daily and are interested in short profits and dont want to be logging for long profits. The investors are short-term investors. For E.g.: If Mr. A purchases Tata Steel 50 shares @Rs.450 per share when the market opens or else in the day time and wishes not to keep the delivery of the stock he can sale the stock purchased the same day before the market closes( This is known as squaring of position. The client instructs the broker/sub-broker to sell the square-up his position or the broker takes the decision after consulting the client).

15

Delivery Basis or T+2 trades: In this type of trade the delivery of shares is received on the third day of trade. When a client buys/sells the shares, the shares are held in the pool a/c. This type of trade is preferred mainly by investors who would like to invest for long period. For E.g.: If Mr. A purchases RNRL 100 shares @Rs.78 per share on 1 st July, 2009 and wishes to keep the stock. The shares will be transferred to his Demat A/c on 3rd July, 2009 after 3.30 p.m Future & Options (F&O) trade: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. There are two types of futures contracts, those that provide for physical delivery of a particular commodity and those that call for an eventual cash settlement. The commodity itself is specifically defined, as is the month when delivery or settlement is to occur. A July futures contract, for example, provides fordelivery or settlement in July. It should be noted that even in the case of delivery-type futures contracts, very few actually resulting deliveries. The vast majority of both speculators and hedgers choose to realize their gains or losses by buying or selling an offsetting futures contract price to the delivery date. While there are some tools used by futures investors to protect themselves from price fluctuations and from incurring heavy losses. Some of them are as under: Hedger By buying or selling in the futures market now, individuals and firms are able to establish a known price level for something they intend to buy or sell later in the cash market. Buyers are thus able to protect themselves against- that is, hedge against- higher prices and sellers are able to hedge against lower prices. Hedgers can also use futures to lock in an acceptable margin between their purchase cost and their selling price Spreads While most speculative futures transactions involve a simple purchase of futures contracts to profit from an expected price increase- or an equally simple sale to profit
16

from an expected price decrease- numerous other possible strategies exist. Spreads are just one of the many examples. A spread involves buying one futures contract in one month and selling another futures contract in a different month. The purpose is to profit from an expected change in the relationship between the purchase price of one and the selling price of the other. Stop Orders A stop order is an order, placed with the broker, to buy or sell a particular futures contract at the market price if and when the price reaches a specified level. Stop orders are often used by futures traders in an effort to limit the amount they might lose if the futures price moves against their position. An option is a contract in which the writer of the option grants the buyer of the option the right, but not the obligation, to purchase from or sell to the writer an asset at a specifies price within a specified period of time (or at a specified date). The writer, also referred to as the seller, grants this right to the buyer in exchange for a certain sum of money, which is called the option price or option premium. The price at which asset may be bought or sold is called the exercise price or strike price. The date after which an option is void is called the expiration date. As with a futures contract, the asset that the buyer has the right to buy and the seller is obligated to sell is referred to as the underlying. When an option grants the buyer the right to purchase the underlying from the writer (seller), it is referred to as a call option or call. When the option buyer has the right to sell the underlying to the writer, the option is called a put option or put. Index Trading: In this type of trade the investors are allowed to buy and sell indices, in terms of securities. Currently this facility is only for NIFTY securities. The buying and selling of Index is simulated by putting orders in securities in proportion that comprises the chosen index. The user can specify buy/sell and also provide Pro/Cli/Whs order attributes. For orders the Cli/Whs account number is compulsory and has to be mentioned in the edit box provided along with it. The Host End divides the input amount mentioned in the Amount Edit Box among the securities of Index according to their weightage , and generates orders priced as market
17

orders. Stock index futures contracts, for example are settled in cash on the basis of the index number at the close of the final day of trading. Delivery of the actual shares of stock that comprise the index would obviously be impractical.

COMPETITOR MAP OF INDIABULLS

Share Khan India Infoline HDFC Securities

INDIABULLS
Eq.& derivative Angel Depository Ser. Broking Equity analysis Market research Share Loans

INDIABULLS Eq.& derivative

Religare
Depository Ser. Equity analysis Market research Share Loans

ANGEL BROKING
Karvy ICICI Direct

RELIGARE
Motilal Oswal

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STATEMENT OF THE PROBLEM

The problem is to know the investors investing decisions towards their future investments, their needs, wants in the best possible way so as to get the optimal return. So the research will be carried out for the purpose of building a balanced portfolio.

OBJECTIVES OF THE STUDY

This project deals with the different investment decisions made by different people and focuses on element of risk in detail while investing in securities. It also explains how portfolio hedges the risk in investment and giving optimum return to a given amount of risk. So a balanced portfolio was constructed as in this diversification is better and thus risk is hedged. It also gives an in depth analysis of portfolio creation, selection, revision and evaluation. The report also shows different ways of analysis of securities. Objectives are: To make a detailed study on the overall concepts of the portfolio management To find out the various factors that an investor should take into consideration to make proper investment decisions
To do a detailed analysis of the risk and return characteristics of stocks related to

different industries and different companies.

To analyse the investing behaviour of investors To analyse the investment pattern

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RESEARCH METHODOLOGY

WHAT IS MARKETING RESEARCH? The natural starting point is to define our subject, and so we quote the traditional definition of the American Marketing Association. Marketing Research is The systematic, gathering, recording and analyzing of the data about problems relating to the marketing of goods and services. The systematic conduct of research requires particularly these two qualities Orderliness, in which the measurement are accurate and cross section is fair, and Impartiality in analysis and interpretation.

The definition also indicates the scope of marketing research. We will modify that but adding Planning Interpreting

The definition needs these stages of planning and interpreting, because__ Unless there has been planning in advance, a study would be unsystematic, and The research has to be completed by interpreting the data for it to have meaning and value to its user. A research model that fulfills that definition will be presented shortly.

WHY MARKETING RESEARCH ?

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It is usually said that if marketing would be a train, then market research would be the locomotive. In other words, market research should ideally be the starting point of any marketing exercise. Conducting any marketing exercise - be it related to pricing, promotion or distribution of a product or service, without researching the potential market is as sensible as setting out to sell sand in the Sahara Desert.

MARKETING RESEARCH PROCESS: AN OVERVIEW The marketing research process includes the systematic identification, collection, analysis and distribution of information for the purpose of knowledge development and decision making. Whether you are creating a new marketing research program or perhaps revising an existing marketing research program, what are the steps you should take? While there are dozens of little steps along the way, each of those steps fits into one of the 6 major steps of the marketing research process. They are: Step 1. Identifying and defining your problem Step 2. Developing your approach Step 3. Establishing research design and strategy Step 4. Collecting the data Step 5. Performing data analysis Step 6. Reporting and presentation

21

RESEARCH
Research comprises of defining & redefining problems, formulating hypothesis or suggested solutions, collecting, organizing & evaluating data, making deductions & reaching conclusions. In research design we decide about: Type of data From whom to get data How to analyze data How to make report

DATA TYPE Data collected was both Primary and Secondary in nature DATA COLLECTION The information is collected through the PRIMARY SOURCES like: Interviewing the employees of the department. Getting information through questionnaires. Discussion with the head of the department. Data was collected from following SECONDARY SOURCES like The information was gathered with the help of internet, newspapers and company journals. The collected information was edited & tabulated for the purpose of analysis. TOOLS USED FOR PROJECT While making the project file various tools were used. These tools helped in doing the work. These are: Microsoft Excel Microsoft Word
22

 Various analysis tools like Bar Graphs, Pie Graphs, tables

LIMITATIONS OF THE STUDY

1. The data collected is basically confined to secondary sources, with little amount of primary data associated with the project. 2. There is a constraint with regard to time allocated for the research study. 3. The availability of information in the form of annual reports & price fluctuations of the companies is a big constraint to the study.

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LITERATURE REVIEW

From the investor point of view this portfolio followed by him is very important since through this way one can manage the risk of investing in securities and thereby managing to get good returns from the investment in diversified securities instead of putting all the money into one basket. Now a days investors are very cautious in choosing the right portfolio of securities to avoid the risks from the market forces and economic forces. So this topic is chosen because in portfolio management one has to follow certain steps in choosing the right portfolio in order to get good and effective returns by managing all the risks. This topic covers how a particular portfolio has to be chosen concerning all the securities individual return and there by arriving at the overall portfolio return. So a Balanced Portfolio was constructed which includes exposure both in equities and debt. So in volatile periods also this portfolio will outperform the benchmark. This also covers the various techniques of evaluation of the portfolio with regard to all the uncertainties and gives an edge to select the right one. The purpose of choosing this topic is to know how the portfolio management has to be done in arriving at the effective one and at the same time make aware the investor to choose the securities which they want to put in their portfolio. This also gives an edge in arriving at the right portfolio in consideration to different securities rather than one single security. The project is undertaken for the study of my subject thoroughly while understanding the different case studies for the better understanding of the investor and myself. The Balanced Portfolio which was constructed was revised six times i.e. every week and then a model portfolio was made. Weekly revision was done as monthly was not possible so I followed weekly revision of the portfolio.

Objectives of Portfolio Management The basic objective of Portfolio Management is to maximize yield and minimize risk. The other ancillary objectives are as per needs of investors, namely: Regular income or stable return Appreciation of capital Marketability and liquidity Safety of investment Minimizing of tax liability.
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Five Popular Portfolio Types

Stock investors constantly hear the wisdom of diversification. The concept is to simply not put all of your eggs in one basket, which in turn helps mitigate risk, and generally leads to better performance or return on investment. Diversifying your hard-earned dollars does make sense, but there are different ways of diversifying, and there are different portfolio types. We look at the following portfolio types and suggest how to get started building them: aggressive, defensive, income, speculative and hybrid. It is important to understand that building a portfolio will require research and some effort. Having said that, let's have a peek across our five portfolios to gain a better understanding of each and get you started. 1. The Aggressive Portfolio An aggressive portfolio or basket of stocks includes those stocks with high risk/high reward proposition. Stocks in the category typically have a high beta, or sensitivity to the overall market. Higher beta stocks experience larger fluctuations relative to the overall market on a consistent basis. If your individual stock has a beta of 2.0, it will typically move twice as much in either direction to the overall market - hence, the high-risk, highreward description. Most aggressive stocks (and therefore companies) are in the early stages of growth, and have a unique value proposition. Building an aggressive portfolio requires an investor who is willing to seek out such companies, because most of these names, with a few exceptions, are not going to be common household companies. Look online for companies with earnings growth that is rapidly accelerating, and have not been discovered by Wall Street. The most common sectors to scrutinize would be technology, but many other firms in various sectors that are pursuing an aggressive growth strategy can be considered. As you might have gathered, risk management becomes very important when building and maintaining an aggressive portfolio. Keeping losses to a minimum and taking profit are keys to success in this type of portfolio. 2. The Defensive Portfolio Defensive stocks do not usually carry a high beta, and usually are fairly isolated from broad market movements. Cyclical stocks, on the other hand, are those that are most sensitive to the underlying economic "business cycle." For example, during recessionary times, companies that make the "basics" tend to do better than those that are focused on fads or luxuries. Despite how bad the economy is, companies that make products
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essential to everyday life will survive. Think of the essentials in your everyday life, and then find the companies that make these consumer staple products. The opportunity of buying cyclical stocks is that they offer an extra level of protection against detrimental events. Just listen to the business stations and you will hear portfolios managers talking about "drugs," "defense" and "tobacco." These really are just baskets of stocks that these managers are recommending based upon where the business cycle is and where they think it is going. However, the products and services of these companies are in constant demand. A defensive portfolio is prudent for most investors. A lot of these companies offer a dividend as well which helps minimize downside capital losses. 3. The Income Portfolio An income portfolio focuses on making money through dividends or other types of distributions to stakeholders. These companies are somewhat like the safe defensive stocks but should offer higher yields. An income portfolio should generate positive cash flow. Real estate investment trusts (REITs) and master limited partnerships (MLP) are excellent sources of income producing investments. These companies return a great majority of their profits back to shareholders in exchange for favourable tax status. REITs are an easy way to invest in real estate without the hassles of owning real property. Keep in mind, however, that these stocks are also subject to the economic climate. REITs are groups of stocks that take a beating during an economic downturn, as building and buying activity dries up. An income portfolio is a nice complement to most people's pay check or other retirement income. Investors should be on the lookout for stocks that have fallen out of favour and have still maintained a high dividend policy. These are the companies that can not only supplement income but also provide capital gains. Utilities and other slow growth industries are an ideal place to start your search. 4. The Speculative Portfolio A speculative portfolio is the closest to a pure gamble. A speculative portfolio presents more risk than any others discussed here. Finance gurus suggest that a maximum of 10% of one's investable assets be used to fund a speculative portfolio. Speculative "plays" could be initial public offerings (IPOs) or stocks that are rumoured to be takeover targets. Technology or health care firms that are in the process of researching a breakthrough product, or a junior oil company which is about to release its initial production results, would also fall into this category. Another classic speculative play is to make an investment decision based upon a rumour that the company is subject to a takeover. One could argue that the widespread popularity of leveraged ETFs in today's markets represent speculation. Again, these types of
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investments are alluring: picking the right one could lead to huge profits in a short amount of time. Speculation may be the one portfolio that, if done correctly, requires the most homework. Speculative stocks are typically trades, and not your classic "buy and hold" investment. 5. The Hybrid Portfolio Building a hybrid type of portfolio means venturing into other investments, such as bonds, commodities, real estate and even art. Basically, there is a lot of flexibility in the hybrid portfolio approach. Traditionally, this type of portfolio would contain blue chip stocks and some high grade government or corporate bonds. REITs and MLPs may also be an investable theme for the balanced portfolio. A common fixed income investment strategy approach advocates buying bonds with various maturity dates, and is essentially a diversification approach within the bond asset class itself. Basically, a hybrid portfolio would include a mix of stocks and bonds in a relatively fixed allocation proportions. This type of approach offers diversification benefits across multiple asset classes as equities and fixed income securities tend to have a negative correlation with one another. The Bottom Line

At the end of the day, investors should consider all of these portfolios and decide on the right allocation across all five. Here, we have laid the foundation by defining five of the more common types of portfolios. Building an investment portfolio does require more effort than a passive, index investing approach. By going it alone, you will be required to monitor your portfolio(s) and rebalance more frequently, thus racking up commission fees. Too much or too little exposure to any portfolio type introduces additional risks. Despite the extra required effort, defining and building a portfolio will increase your investing confidence, and give you control over your finances.

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Schematic diagram of stages in portfolio management

Specification and quantification of investor objectives, constraints, and risk tolerance

Monitoring investor related input factors

Portfolio policies and strategies

Capital market expectations

Portfolio construction and revision asset allocation, portfolio optimization, security selection, implementation and execution

Attainment of investor objectives

Performance measurement

Relevant economic, social, political sector and security considerations

Monitoring economic and market input factors

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NEED FOR PORTFOLIO MANAGEMENT The Portfolio Management deals with the process of selection securities from the number of opportunities available with different expected returns and carrying different levels of risk and the selection of securities is made with a view to provide the investors the maximum yield for a given level of risk or ensure minimum risk for a level of return. Portfolio Construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. Portfolio theory concerns itself with the principles governing such allocation. The modern view of investment is oriented towards the assembly of proper combinations held together will give beneficial result if they are grouped in a manner to secure higher return after taking into consideration the risk element

Portfolio Management Process Security analysis Portfolio analysis Selection of securities Portfolio revision Performance evaluation

Analysis of securities Security analysis in both traditional sense and modern sense involves the projection of future dividend or ensuring the intrinsic value of a security based on the forecast of earnings or dividend. Security analysis in traditional sense is essentially on analysis of the fundamental value of shares and its forecast for the future through the calculation of its intrinsic worth of the share. Modern security analysis relies on the Fundamental Analysis of the security, leading to its intrinsic worth and also rise-return analysis depending on the variability of the returns, covariance, safety of funds and the projection of the future returns. If the security analysis based on fundamental factors of the company, then the forecast of the share price has to take into account inevitably the trends and the scenario in the economy, in the industry to which the company belongs and finally the strengths and weaknesses of the company

29

itself. Also Technical Analysis is also followed to determine breakout points and support and resistance of the stock.

Approaches to Security Analysis Fundamental analysis Technical analysis Efficient market hypothesis

Fundamental Analysis The intrinsic value of an equity share depends on a multitude of factors. The earnings of the company, the growth rate and the risk exposure of the company have a direct bearing on the price of the share. These factors intern rely on the host of other factors like economic environment in which they function, the industry they belong to, and finally companys own performance. Mostly top-down approach is followed which is shown below. Economic analysis Industry analysis Company analysis

Company analysis Investors should know the company results properly before making the investment. The selection of investment is depends on optimum results of the following factors. 1) Marketing forces: Manufacturing companies profit depends on marketing activities. If the marketing activities are favourable than it can be concluded that the company may have more profit in future years Depending upon the previous year results fluctuations in sales or growth in sales can be identified. If the sales are increasing in trend investor may be satisfied. 2. Accounting Profiles: Different accounting policies are used by organization for the valuation of inventories and fixed assets. 3. Profitability situation:

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It is a major factor for the investor. Profitability of the company must be better compare with the industry. The efficiency of the profitability position or operating activities can be identified by studying the following factors A) Gross profit margin ratio: It should be more than 30%. But, other operating expenses should be less compare to operating incomes. Sales cost of goods sold GPMR = __________________________ Sales B) Operating & net profit ratio: Operating profit is the real income of the business it is calculated before non operating expenses and incomes. It should be nearly 20%. The net profit ratio must be more than 10%. Profit after tax NPR = _______________________ Sales

4. Returns on capital employed: It measures the rate of return on capital investment of the business. Capital employed includes shareholder funds, long-term loans, and other accumulated funds of the company. Operating profit ROCE = ________________________ Capital employed A) Earnings per share: It is calculated by the company at the end of the every financial year. In case of more profit and less number of shares EPS will increase. Profit after tax

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EPS =

____________________________________ Number of equity shares outstanding

B) Return on equity: It is calculated on total equity funds (equity share capital, general reserve and other accumulated profits) Profit after taxes ROE = _________________________ Net worth 5. Dividend policy: It is determined in the general body meeting of the company, for equity shares at the end of the year. The dividend payout ratio is determined as per the dividend is paid. Dividend policies are divided into two types. a) Stable dividend policy. b) Unstable dividend policy. When company reached to optimum level it may follow stable dividend policy it indicates stable growth rate, no fluctuation are estimated. Unstable dividend policy may be used by developing firms. In such a case study growth market value of share is not possible to identify. 6. Capital structure of the company: Generally capital structure of the company consists of equity shares, preference shares, debentures and other long term funds. On the basis of long term financial sources cost of capital is calculated. 7. Operating efficiency: It is determined on the basis of capital expenditure and operating activities of a company. Increased capital expenditure indicates increase of operating efficiency. Expected profits may be increased in coming years. The operating efficiency of a company directly affects the earnings of a company an expanding company that maintains high operating efficiency with low breakeven point. Efficient use of fixed assets with raw materials, labour, and management would lead to more income from sales.
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8. Operating leverage: The firms fixed cost is high in total cost, the firm is said to have a high degree of operating leverage. High degree of operating leverage implies other factors being held constant, a relatively small change in sales result in a large change in return on equity. 9. Management: Good and capable management generates profits to the investors. The management of the firm should efficiency plan, organizes, actuate and control the activities of the company. The good management depends of the qualities of the manager. Knootz and O Donnell suggest the following as special traits of an able manager. 10. Financial analysis: The best source of financial information about a company is its own financial statements. This is a primary source of information for evaluating the investment prospects in the particular companys stock. The statement gives the historical and current information about the companys information aids to analysis the present status of the company. 11. Ratio analysis: Ratio is relationship between two figures expressed mathematically. Financial ratio provides numerical relationship between two relevant financial data. Financial ratios are calculated from the balance sheet and profit and loss account. The relationship can be either expressed as a percent or as a quotient.

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Four Steps in building a profitable portfolio

In today's financial marketplace, a well-maintained portfolio is vital to any investor's success. As an individual investor, you need to know how to determine an asset allocation that best conforms to your personal investment goals and strategies. In other words, your portfolio should meet your future needs for capital and give you peace of mind. Investors can construct portfolios aligned to their goals and investment strategies by following a systematic approach. Here we go over some essential steps for taking such an approach.

Step 1: Determining the Appropriate Asset Allocation for You Ascertaining your individual financial situation and investment goals is the first task in constructing a portfolio. Important items to consider are age, how much time you have to grow your investments, as well as amount of capital to invest and future capital needs. A single college graduate just beginning his or her career and a 55-year-old married person expecting to help pay for a child's college education and plans to retire soon will have very different investment strategies. A second factor to take into account is your personality and risk tolerance. Are you the kind of person who is willing to risk some money for the possibility of greater returns? Everyone would like to reap high returns year after year, but if you are unable to sleep at night when your investments take a short-term drop, chances are the high returns from those kinds of assets are not worth the stress. As you can see, clarifying your current situation and your future needs for capital, as well as your risk tolerance, will determine how your investments should be allocated among different asset classes. The possibility of greater returns comes at the expense of greater risk of losses (a principle known as the risk/return tradeoff) - you don't want to eliminate risk so much as optimize it for your unique condition and style. For example, the young person who won't have to depend on his or her investments for income can afford to take greater risks in the quest for high returns. On the other hand, the person nearing retirement needs to focus on protecting his or her assets and drawing income from these assets in a tax-efficient manner.
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Conservative Vs. Aggressive Investors Generally, the more risk you can bear, the more aggressive your portfolio will be, devoting a larger portion to equities and less to bonds and other fixed-income securities. Conversely, the less risk that's appropriate, the more conservative your portfolio will be. Here are two examples: one suitable for a conservative investor and another for the moderately aggressive investor.

The main goal of a conservative portfolio is to protect its value. The allocation shown above would yield current income from the bonds, and would also provide some longterm capital growth potential from the investment in high-quality equities.

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A moderately aggressive portfolio satisfies an average risk tolerance, attracting those willing to accept more risk in their portfolios in order to achieve a balance of capital growth and income. Step 2: Achieving the Portfolio Designed in Step 1

Once you've determined the right asset allocation, you simply need to divide your capital between the appropriate asset classes. On a basic level, this is not difficult: equities are equities, and bonds are bonds. But you can further break down the different asset classes into subclasses, which also have different risks and potential returns. For example, an investor might divide the equity portion between different sectors and market caps, and between domestic and foreign stock. The bond portion might be allocated between those that are short term and long term, government versus corporate debt and so forth. There are several ways you can go about choosing the assets and securities to fulfill your asset allocation strategy (remember to analyze the quality and potential of each investment you buy - not all bonds and stocks are the same): Stock Picking - Choose stocks that satisfy the level of risk you want to carry in the equity portion of your portfolio - sector, market cap and stock type are factors to consider. Analyze the companies using stock screeners to shortlist potential picks, than carry out more in-depth analyses on each potential purchase to determine its opportunities and risks going forward. This is the most work-intensive means of adding securities to your portfolio, and requires you to regularly monitor price changes in your holdings and stay current on company and industry news. Bond Picking - When choosing bonds, there are several factors to consider including the coupon, maturity, the bond type and rating, as well as the general interest rate environment. Mutual Funds - Mutual funds are available for a wide range of asset classes and allow you to hold stocks and bonds that are professionally researched and picked by fund managers. Of course, fund managers charge a fee for their services, which will detract from your returns. Index funds present another choice; they tend to have lower fees because they mirror an established index and are thus passively managed. Exchange-Traded Funds (ETFs) - If you prefer not to invest with mutual funds, ETFs can be a viable alternative. You can basically think of ETFs as mutual funds that trade like stocks. ETFs are similar to mutual funds in that they represent a large basket of stocks usually grouped by sector, capitalization, country and the like - except that they are not actively managed, but instead track a chosen index or other basket of stocks. Because
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they are passively managed, ETFs offer cost savings over mutual funds while providing diversification. ETFs also cover a wide range of asset classes and can be a useful tool for rounding out your portfolio.

Step 3: Reassessing Portfolio Weightings

Once you have an established portfolio, you need to analyze and rebalance it periodically because market movements may cause your initial weightings to change. To assess your portfolio's actual asset allocation, quantitatively categorize the investments and determine their values' proportion to the whole. The other factors that are likely to change over time are your current financial situation, future needs and risk tolerance. If these things change, you may need to adjust your portfolio accordingly. If your risk tolerance has dropped, you may need to reduce the amount of equities held. Or perhaps you're now ready to take on greater risk and your asset allocation requires that a small proportion of your assets be held in riskier small-cap stocks. Essentially, to rebalance, you need to determine which of your positions are over weighted and underweighted. For example, say you are holding 30% of your current assets in small-cap equities, while your asset allocation suggests you should only have 15% of your assets in that class. Rebalancing involves determining how much of this position you need to reduce and allocate to other classes. Step 4: Rebalancing Strategically Once you have determined which securities you need to reduce and by how much, decide which underweighted securities you will buy with the proceeds from selling the over weighted securities. To choose your securities, use the approaches discussed in Step 2.When selling assets to rebalance your portfolio, take a moment to consider the tax implications of readjusting your portfolio. Perhaps your investment in growth stocks has appreciated strongly over the past year, but if you were to sell all of your equity positions to rebalance your portfolio, you may incur significant capital gains taxes. In this case, it might be more beneficial to simply not contribute any new funds to that asset class in the future while continuing to contribute to other asset classes. This will reduce your growth stocks' weighting in your portfolio over time without incurring capital gains taxes. At the same time, always consider the outlook of your securities. If you suspect that those same over weighted growth stocks are ominously ready to fall, you may want to sell in spite of the tax implications. Analyst opinions and research reports can be useful tools to help gauge the outlook for your holdings. And tax-loss selling is a strategy you can apply to reduce tax implications.

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Remember the Importance of Diversification. Throughout the entire portfolio construction process, it is vital that you remember to maintain your diversification above all else. It is not enough simply to own securities from each asset class; you must also diversify within each class. Ensure that your holdings within a given asset class are spread across an array of subclasses and industry sectors. As we mentioned, investors can achieve excellent diversification by using mutual funds and ETFs. These investment vehicles allow individual investors to obtain the economies of scale that large fund managers enjoy, which the average person would not be able to produce with a small amount of money. The Bottom Line Overall, a well-diversified portfolio is your best bet for consistent long-term growth of your investments. It protects your assets from the risks of large declines and structural changes in the economy over time. Monitor the diversification of your portfolio, making adjustments when necessary, and you will greatly increase your chances of long-term financial success.

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CONCEPTS AND DEFINITIONS

PORTFOLIO MANAGEMENT
Portfolio is none other than Basket of Stocks. Portfolio Management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. It may refer to: Investment management, handled by a portfolio manager IT Program management IT portfolio management Project management Project portfolio management Market capitalization (or market cap) is the total value of the issued shares of a publicly traded company; it is equal to the share price times the number of shares outstanding. As outstanding stock is bought and sold in public markets, capitalization could be used as a proxy for the public opinion of a company's net worth and is a determining factor in some forms of stock valuation. Traditionally, companies were divided into large-cap, mid-cap, and small-cap. The terms mega-cap and micro-cap have also since come into common use and nano-cap is sometimes heard. Different numbers are used by different indexes;[8] there is no official definition of, or full consensus agreement about, the exact cutoff values. The cutoffs may be defined as percentiles rather than in nominal dollars. The definitions expressed in nominal dollars need to be adjusted over the decades due to inflation, population change, and overall market valuation (for example, $1 billion was a large market cap in 1950, but it is not very large now), and they may be different for different countries. A rule of thumb may look like: A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term "large market capitalization". Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share.
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Financial Markets Introduction There are a wide range of financial securities available in the markets these days. In this chapter, we take a look at different financial markets and try to explain the various instruments where investors can potentially park their funds. Financial markets can mainly be classified into money markets and capital markets. Instruments in the money markets include mainly short-term, marketable, liquid, low-risk debt securities. Capital markets, in contrast, include longer-term and riskier securities, which include bonds and equities. There is also a wide range of derivatives instruments that are traded in the capital markets. Both bond market and money market instruments are fixed-income securities but bond market instruments are generally of longer maturity period as compared to money market instruments. Money market instruments are of very short maturity period. The equities market can be further classified into the primary and the secondary market. Derivative market instruments are mainly futures, forwards and options on the underlying instruments, usually equities and bonds.

Primary and Secondary Markets A primary market is that segment of the capital market, which deals with the raising of capital from investors via issuance of new securities. New stocks/bonds are sold by the issuer to the public in the primary market. When a particular security is offered to the public for the first time, it is called an Initial Public Offering (IPO). When an issuer wants to issue more securities of a category that is already in existence in the market it is referred to as Follow-up Offerings. Example: Reliance Power Ltd.s offer in 2008 was an IPO because it was for the first time that Reliance Power Ltd. offered securities to the public. Whereas, BEMLs public offer in 2007 was a Follow-up Offering as BEML shares were already issued to the public before 2007 and were available in the secondary market. It is generally easier to price a security during a Follow-up Offering since the market price of the security is actually available before the company comes up with the offer, whereas in the case of an IPO it is very difficult to price the offer since there is no prevailing market for the security. It is in the interest of the company to estimate the
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correct price of the offer, since there is a risk of failure of the issue in case of nonsubscription if the offer is overpriced. If the issue is underpriced, the company stands to lose notionally since the securities will be sold at a price lower than its intrinsic value, resulting in lower realizations. The secondary market (also known as aftermarket) is the financial market where securities, which have been issued before are traded. The secondary market helps in bringing potential buyers and sellers for a particular security together and helps in facilitating the transfer of the security between the parties. Unlike in the primary market where the funds move from the hands of the investors to the issuer (company/ Government, etc.), in case of the secondary market, funds and the securities are transferred from the hands of one investor to the hands of another. Thus the primary market facilitates capital formation in the economy and secondary market provides liquidity to the securities. There is another market place, which is widely referred to as the third market in the investment world. It is called the over-the-counter market or OTC market. The OTC market refers to all transactions in securities that are not undertaken on an Exchange. Securities traded on an OTC market may or may not be traded on a recognized stock exchange. Trading in the OTC market is generally open to all registered broker-dealers. There may be regulatory restrictions on trading some products in the OTC markets. For example, in India equity derivatives is one of the products which is regulatory not allowed to be traded in the OTC markets. In addition to these three, direct transactions between institutional investors, undertaken primarily with transaction costs in mind, are referred to as the fourth market.

Trading in Secondary Markets Trading in secondary market happens through placing of orders by the investors and their matching with a counter order in the trading system. Orders refer to instructions provided by a customer to a brokerage firm, for buying or selling a security with specific conditions. These conditions may be related to the price of the security (limit order or market order or stop loss orders) or related to time (a day order or immediate or cancel order). Advances in technology have led to most secondary markets of the world becoming electronic exchanges. Disaggregated traders across regions simply log in the exchange, and use their trading terminals to key in orders for transaction in securities. We outline some of the most popular orders below: Types of Orders Limit Price/Order: In these orders, the price for the order has to be specified while entering the order into the system. The order gets executed only at the quoted price or at a better price (a price lower than the limit price in case of a purchase order and a price higher than the limit price in case of a sale order). Market Price/Order: Here the
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constraint is the time of execution and not the price. It gets executed at the best price obtainable at the time of entering the order. The system immediately executes the order, if there is a pending order of the opposite type against which the order can match. The matching is done automatically at the best available price (which is called as the market price). If it is a sale order, the order is matched against the best bid (buy) price and if it is a purchase order, the order is matched against the best ask (sell) price. The best bid price is the order with the highest buy price and the best ask price is the order with the lowest sell price. Stop Loss (SL) Price/Order: Stop-loss orders which are entered into the trading system, get activated only when the market price of the relevant security reaches a threshold price. When the market reaches the threshold or pre-determined price, the stop loss order is triggered and enters into the system as a market/limit order and is executed at the market price / limit order price or better price. Until the threshold price is reached in the market the stop loss order does not enter the market and continues to remain in the order book. A sell order in the stop loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. A buy order in the stop loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. The trigger price should be less than the limit price in case of a purchase order and vice versa. Time Related Conditions Day Order (Day): A Day order is valid for the day on which it is entered. The order, if not matched, gets cancelled automatically at the end of the trading day. At the National Stock Exchange (NSE) all orders are Day orders. That is the orders are matched during the day and all unmatched orders are flushed out of the system at the end of the trading day. Immediate or Cancel order (IOC): An IOC order allows the investor to buy or sell a security as soon as the order is released into the market, failing which the order is removed from the system. Partial match is possible for the order and the unmatched portion of the order is cancelled immediately. Matching of orders When the orders are received, they are time-stamped and then immediately processed for potential match. The best buy order is then matched with the best sell order. For this purpose, the best buy order is the one with highest price offered, also called the highest bid, and the best sell order is the one with lowest price also called the lowest ask (i.e., orders are looked at from the point of view of the opposite party). If a match is found then the order is executed and a trade happens. An order can also be executed against multiple pending orders, which will result in more than one trade per order. If an order cannot be matched with pending orders, the order is stored in the pending orders book till a match is found or till the end of the day whichever is earlier. The matching of orders at NSE is done on a price-time priority i.e., in the following sequence: Best Price

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 Within Price, by time priority

Orders lying unmatched in the trading system are passive orders and orders that come in to match the existing orders are called active orders. Orders are always matched at the passive order price. Given their nature, market orders are instantly executed, as compared to limit orders, which remain in the trading system until their market prices are reached. The set of such orders across stocks at any point in time in the exchange, is called the Limit Order Book (LOB) of the exchange. The top five bids/asks (limit orders all) for any security are usually visible to market participants and constitute the Market By Price (MBP) of the security. The Money Market The money market is a subset of the fixed-income market. In the money market, participants borrow or lend for short period of time, usually up to a period of one year. These instruments are generally traded by the Government, financial institutions and large corporate houses. These securities are of very large denominations, very liquid, very safe but offer relatively low interest rates. The cost of trading in the money market (bid-ask spread) is relatively small due to the high liquidity and large size of the market. Since money market instruments are of high denominations they are generally beyond the reach of individual investors. However, individual investors can invest in the money markets through money-market mutual funds. We take a quick look at the various products available for trading in the money markets. T-Bills T-Bills or treasury bills are largely risk-free (guaranteed by the Government and hence carry only sovereign risk - risk that the government of a country or an agency backed by the government, will refuse to comply with the terms of a loan agreement), short-term, very liquid instruments that are issued by the central bank of a country. The maturity period for T-bills ranges from 3-12 months. T-bills are circulated both in primary as well as in secondary markets. T-bills are usually issued at a discount to the face value and the investor gets the face value upon maturity. The issue price (and thus rate of interest) of Tbills is generally decided at an auction, which individuals can also access. Once issued, T-bills are also traded in the secondary markets. In India, T-bills are issued by the Reserve Bank of India for maturities of 91-days, 182 days and 364 days. They are issued weekly (91-days maturity) and fortnightly (182-days and 364- days maturity ) Commercial Paper

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Commercial papers (CP) are unsecured money market instruments issued in the form of a promissory note by large corporate houses in order to diversify their sources of shortterm borrowings and to provide additional investment avenues to investors. Issuing companies are required to obtain investment-grade credit ratings from approved rating agencies and in some cases, these papers are also backed by a bank line of credit. CPs are also issued at a discount to their face value. In India, CPs can be issued by companies, primary dealers (PDs), satellite dealers (SD) and other large financial institutions, for maturities ranging from 15 days period to 1-year period from the date of issue. CP denominations can be Rs. 500,000 or multiples thereof. Further, CPs can be issued either in the form of a promissory note or in de materialized form through any of the approved depositories. Certificates of Deposit A certificate of deposit (CD), is a term deposit with a bank with a specified interest rate. The duration is also pre-specified and the deposit cannot be withdrawn on demand. Unlike other bank term deposits, CDs are freely negotiable and may be issued in dematerialized form or as a Usance Promissory Note. CDs are rated (sometimes mandatory) by approved credit rating agencies and normally carry a higher return than the normal term deposits in banks (primarily due to a relatively large principal amount and the low cost of raising funds for banks). Normal term deposits are of smaller ticketsizes and time period, have the flexibility of premature withdrawal and carry a lower interest rate than CDs. In many countries, the central bank provides insurance (e.g. Federal Deposit Insurance Corporation (FDIC) in the U.S., and the Deposit Insurance and Credit Guarantee Corporation (DICGC) in India) to bank depositors up to a certain amount (Rs. 100000 in India). CDs are also treated as bank deposit for this purpose. In India, scheduled banks can issue CDs with maturity ranging from 7 days 1 year and financial institutions can issue CDs with maturity ranging from 1 year 3 years. CD are issued for denominations of Rs. 1,00,000 and in multiples thereof Repos and Reverse Repos Repos (or Repurchase agreements) are a very popular mode of short-term (usually overnight) borrowing and lending, used mainly by investors dealing in Government securities. The arrangement involves selling of a tranche of Government securities by the seller (a borrower of funds) to the buyer (the lender of funds), backed by an agreement that the borrower will repurchase the same at a future date (usually the next day) at an agreed price. The difference between the sale price and the repurchase price represents the yield to the buyer (lender of funds) for the period. Repos allow a borrower to use a financial security as collateral for a cash loan at a fixed rate of interest. Since Repo arrangements have T-bills as collaterals and are for a short maturity period, they virtually eliminate the credit risk. Reverse repo is the mirror image of a repo, i.e., a repo for the
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borrower is a reverse repo for the lender. Here the buyer (the lender of funds) buys Government securities from the seller (a borrower of funds) agreeing to sell them at a specified higher price at a future date.

The Bond Market Bond markets consist of fixed-income securities of longer duration than instruments in the money market. The bond market instruments mainly include treasury notes and treasury bonds, corporate bonds, Government bonds etc. State and Municipal Government bonds Apart from the central Government, various State Governments and sometimes municipal bodies are also empowered to borrow by issuing bonds. They usually are also backed by guarantees from the respective Government. These bonds may also be issued to finance specific projects (like road, bridge, airports etc.) and in such cases, the debts are either repaid from future revenues generated from such projects or by the Government from its own funds. Similar to T-notes and T-bonds, these bonds are also granted tax-exempt status. In India, the Government securities (includes treasury bills, Central Government securities and State Government securities) are issued by the Reserve Bank of India on behalf of the Government of India. Corporate Bonds Bonds are also issued by large corporate houses for borrowing money from the public for a certain period. The structure of corporate bonds is similar to T-Notes in terms of coupon payment, maturity amount (face value), issue price (discount to face value) etc. However, since the default risk is higher for corporate bonds, they are usually issued at a higher discount than equivalent Government bonds. These bonds are not exempt from taxes. Corporate bonds are classified as secured bonds (if backed by specific collateral), unsecured bonds (or debentures which do not have any specific collateral but have a preference over the equity holders in the event of liquidation) or subordinated debentures (which have a lower priority than bonds in claim over a firms assets). International Bonds These bonds are issued overseas, in the currency of a foreign country which represents a large potential market of investors for the bonds. Bonds issued in a currency other than that of the country which issues them are usually called Eurobonds. However, now they are called by various names depending on the currency in which they are issued.
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Eurodollar bonds are US dollar-denominated bonds issued outside the United States. Euro-yen bonds are yen denominated bonds issued outside Japan. Some international bonds are issued in foreign countries in currency of the country of the investors. The most popular of such bonds are Yankee bond and Samurai Bonds. Yankee bonds are US dollar denominated bonds issued in U.S. by a non-U.S. issuer and Samurai bonds are yendenominated bonds issued in Japan by non-Japanese issuers. Convertible Bonds Convertible bonds offer a right (but not the obligation) to the bondholder to get the bond converted into predetermined number of equity stock of the issuing company, at certain, pre specified times during its life. Thus, the holder of the bond gets an additional value, in terms of an option to convert the bond into stock (equity shares) and thereby participate in the growth of the companys equity value. The investor receives the potential upside of conversion into equity while protecting downside with cash flow from the coupon payments. The issuer company is also benefited since such bonds generally offer reduced interest rate. However, the value of the equity shares in the market generally falls upon issue of such bonds in anticipation of the stock dilution that would take place when the option (to convert the bonds into equity) is exercised by the bondholders.

Callable Bonds In case of callable bonds, the bond issuer holds a call option, which can be exercised after some pre-specified period from the date of the issue. The option gives the right to the issuer to repurchase (cancel) the bond by paying the stipulated call price. The call price may be more than the face value of the bond. Since the option gives a right to the issuer to redeem the bond, it carries a higher discount (higher yield) than normal bonds. The right is exercised if the coupon rate is higher than the prevailing interest rate in the market. Puttable Bonds A puttable bond is the opposite of callable bonds. These bonds have an embedded put option. The bondholder has a right (but not the obligation) to sell back the bond to the issuer after a certain time at a pre-specified price. The right has a cost and hence one would expect a lower yield in such bonds. The bondholders generally exercise the right if the prevailing interest rate in the market is higher than the coupon rate. Since the call option and the put option are mutually exclusive, a bond may have both option embedded. Fixed rate and floating rate of interest In case of fixed rate bonds, the
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interest rate is fixed and does not change over time, whereas in the case of floating rate bonds, the interest rate is variable and is a fixed percentage over a certain pre-specified benchmark rate. The benchmark rate may be any other interest rate such as T-bill rate, the three-month LIBOR rate, MIBOR rate (in India), bank rate, etc. The coupon rate is usually reset every six months (time between two interest payment dates).

Commodity
The word commodity came into use in English in the 15th century, from the French commodit, to a benefit or profit. Going further back, the French word derived from the Latin commoditatem (nominative commoditas) meaning "fitness, adaptation". The Latin root commod- (from which English gets other words including commodious and accommodate) meant variously "appropriate", "proper measure, time, or condition" and "advantage, benefit". In economics, a commodity is a marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services. The more specific meaning of the term commodity is applied to goods only. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them. "From the taste of wheat it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist." Petroleum and copper are other examples of such commodities, their supply and demand being a part of one universal market. Items such as stereo systems, on the other hand, have many aspects of product differentiation, such as the brand, the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another. In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, salt, sugar, tea, coffee beans, soybeans, aluminum, copper, rice, wheat, gold, silver, palladium, and platinum. Soft commodities are goods that are grown, while hard commodities are the ones that are extracted through mining. This is a list of giant commodities trading companies who operate worldwide. 1. 2. 3. 4. Vitol Glencore International AG Trafigura Cargill
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5. Archer Daniels Midland 6. Gunvor (company) 7. Mercuria Energy Group 8. Noble Group 9. Louis Dreyfus Group 10. Bunge Limited 11. Wilmar International 12. Olam International

Commodity trade
In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer were considered equivalent. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product. Commodities exchanges include:

Chicago Board of Trade (CBOT) Chicago Mercantile Exchange (CME) Dalian Commodity Exchange (DCE) Global Board of Trade (GBOT) Euronext.liffe (LIFFE) Kansas City Board of Trade (KCBT) Bursa Malaysia Derivatives (MDEX) London Metal Exchange (LME) New York Mercantile Exchange (NYMEX) National Commodity Exchange Limited (NCEL) Multi Commodity Exchange (MCX) International Indonesian Forex Change Market (IIFCM) March Terme International de France (MATIF)

Markets for trading commodities can be very efficient, particularly if the division into pools matches demand segments. These markets will quickly respond to changes in supply and demand to find an equilibrium price and quantity. In addition, investors can gain passive exposure to the commodity markets through a commodity price index.

Derivative
A derivative is a financial instrument which derives its value from the value of underlying entities such as an asset, index, or interest rateit has no intrinsic value in itself. Derivative transactions include a variety of financial contracts, including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards, and various combinations of these.

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Usage Derivatives are used by investors for the following:

hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out; create option ability where the value of the derivative is linked to a specific condition or event (e.g. the underlying reaching a specific price level); obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., weather derivatives); provide leverage (or gearing), such that a small movement in the underlying value can cause a large difference in the value of the derivative; speculate and make a profit if the value of the underlying asset moves the way they expect (e.g., moves in a given direction, stays in or out of a specified range, reaches a certain level). Switch asset allocations between different asset classes without disturbing the underlining assets, as part of transition management.

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Some of the salient economic functions of the derivative market include: 1. Prices in a structured derivative market not only replicate the discernment of the market participants about the future but also lead the prices of underlying to the professed future level. On the expiration of the derivative contract, the prices of derivatives congregate with the prices of the underlying. Therefore, derivatives are essential tools to determine both current and future prices. 2. The derivatives market relocates risk from the people who prefer risk aversion to the people who have an appetite for risk. 3. The intrinsic nature of derivatives market associates them to the underlying Spot market. Due to derivatives there is a considerable increase in trade volumes of the underlying Spot market. The dominant factor behind such an escalation is increased participation by additional players who would not have otherwise participated due to absence of any procedure to transfer risk. 4. As supervision, reconnaissance of the activities of various participants becomes tremendously difficult in assorted markets; the establishment of an organized form of market becomes all the more imperative. Therefore, in the presence of an organized derivatives market, speculation can be controlled, resulting in a more meticulous environment. 5. Third parties can use publicly available derivative prices as educated predictions of uncertain future outcomes, for example, the likelihood that a corporation will default on its debts. In a nutshell, there is a substantial increase in savings and investment in the long run due to augmented activities by derivative Market participant.

Derivatives market
The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange-traded derivatives and that for over-thecounter derivatives. The legal nature of these products is very different as well as the way they are traded, though many market participants are active in both.

Futures markets
Futures exchanges, such as Euronext.liffe and the Chicago Mercantile Exchange, trade in standardized derivative contracts. These are options contracts and futures contracts on a whole range of underlying products. The members of the exchange hold positions in
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these contracts with the exchange, who acts as central counterparty. When one party goes long (buys a futures contract), another goes short (sells). When a new contract is introduced, the total position in the contract is zero. Therefore, the sum of all the long positions must be equal to the sum of all the short positions. In other words, risk is transferred from one party to another. The total notional amount of all the outstanding positions at the end of June 2004 stood at $53 trillion. That figure grew to $81 trillion by the end of March 2008

Over-the-counter markets
Tailor-made derivatives, not traded on a futures exchange are traded on over-the-counter markets, also known as the OTC market. These consist of investment banks who have traders who make markets in these derivatives, and clients such as hedge funds, commercial banks, government sponsored enterprises, etc. Products that are always traded over-the-counter are swaps, forward rate agreements, forward contracts, credit derivatives, accumulators etc. The total notional amount of all the outstanding positions at the end of June 2004 stood at $220 trillion. By the end of 2007 this figure had risen to $596 trillion and in 2009 it stood at $615 trillion

Currency
A currency (from Middle English curraunt, meaning in circulation) in the most specific use of the word refers to money in any form when in actual use or circulation, as a medium of exchange, especially circulating paper money. This use is synonymous with banknotes, or (sometimes) with banknotes plus coins, meaning the physical tokens used for money by a government. A much more general use of the word currency is anything that is used in any circumstances, as a medium of exchange. In this use, "currency" is a synonym for the concept of money. A definition of intermediate generality is that a currency is a system of money (monetary units) in common use, especially in a nation. Under this definition, British pounds, U.S. dollars, and European euros are different types of currency, or currencies.

Coinage
Coins and banknotes are the two most common forms of currency. Pictured are several denominations of the euro. These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold, at one point there was bronze as well. Now we have copper coins and other non-precious metals as coins. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. Archimedes' principle provided the next link: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with (see Numismatics).In most major economies, using coinage, copper, silver and gold formed three tiers of coins. Gold coins
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were used for large purchases, payment of the military and backing of state activities. Silver coins were used for midsized transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. This system had been used in ancient India since the time of the Mahajanapadas. In Europe, this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest. Thus the overall ratios of the three coinages remained roughly equivalent.

Paper money
In pre modern China, the need for credit and for circulating a medium that was less of a burden than exchanging thousands of copper coins led to the introduction of paper money, commonly known today as banknotes. This economic phenomenon was a slow and gradual process that took place from the late Tang Dynasty (618907) into the Song Dynasty (9601279). It began as a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory notes from shops of wholesalers, notes that were valid for temporary use in a small regional territory. In the 10th century, the Song Dynasty government began circulating these notes amongst the traders in their monopolized salt industry. The Song government granted several shops the sole right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still regionally valid and temporary; it was not until the mid 13th century that a standard and uniform government issue of paper money was made into an acceptable nationwide currency. The already widespread methods of woodblock printing and then Pi Sheng's movable type printing by the 11th century was the impetus for the massive production of paper money in pre modern China.

Banknote era
A banknote (more commonly known as a bill in the United States and Canada) is a type of currency, and commonly used as legal tender in many jurisdictions. With coins, banknotes make up the cash form of all money. Banknotes are mostly paper, but Australia's Commonwealth Scientific and Industrial Research Organization developed the world's first polymer currency in the 1980s that went into circulation on the nation's bicentenary in 1988. Now used in some 22 countries (over 40 if counting commemorative issues), polymer currency dramatically improves the life span of banknotes and prevents counterfeiting.

Modern currencies
Currency use is based on the concept of lex monetae; that a sovereign state decides which currency it shall use. Currently, the International Organization for Standardization has introduced a three-letter system of codes (ISO 4217) to define currency (as opposed to simple names or currency signs), in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in
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nearly a dozen different countries, all, of course, with wildly differing values. In general, the three-letter code uses the ISO 3166-1 country code for the first two letters and the first letter of the name of the currency (D for dollar, for instance) as the third letter. United States currency, for instance is globally referred to as USD. It is also possible for a currency to be internet-based and digital, for instance, Bit coin, the Ripple Pay system or Mint Chip, and not tied to any specific country. The International Monetary Fund uses a variant system when referring to national currencies.

DATA ANALYSIS AND INTERPRETATION

1. From the following age group, could you tell me which applies to you?
a) 16 - 25 b) 26 -35 c) 36 - 50 d) 51 Above

Age Group
15% 10%

16-25 35% 40% 26-35 36-50 51 Above

Interpretation:
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When asked about the different age groups, the investors with the age group of 26-35 are interested in investing as compared to other age groups

5. If you are a Investor what induces you to invest in a particular stock? (Mark all that applies)
a) Tips b) News c) Research Report d) Personal Homework

Driving force of investment

5% 15% 20% Tips News Research Report Personal Homework

60%

Interpretation:
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With the development of the nation, the clients are well educated in the field of stock market, so the investors dont require tips from the brokers because they are constantly keeping an eye on the news channels and analyse the trend.

8. According to you, what are the factors leading Indian Stock Market to rise? (Mark all that applies)
a) FII b) FDI c) Government Policies d) Rise in National Income

factors leading Indian Stock Market to rise

30%

25% FII FDI

13% 32%

Government Policies Rise in National Income

Interpretation:
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According to the analysis the investors think that FDI followed by rise in national income are the major factors that rise the Indian stock market.

11. What is your pattern of investing or trading?

a) Repeatedly invest or trade in same set of stocks b) Invest or trade in variety of stocks c) Depends on other factors

Repeatedly invest or trade in same set of stocks Invest or trade in variety of stocks Depends on other factors

0 Pattern of investing

Interpretation:

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The graph shows that the investors who invest in variety of stocks have less possibility of risk as compared to invest in same set of stocks or any other factors.

13. What kind of investing or trading do you adopt?

a) High Risk - High Return b) Low Risk - High Return c) Low Risk - Low Return

6 5 4 3 2 1 0 High Risk - High Return Low Risk - High Return Low Risk - Low Return

Kind of investing

Interpretation:
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There are various kinds of investors who like to invest capital with low risk and wants high rate of return as shown in the graph above.

Suggestions

Following points has been suggested to the company what a customer expect from the company:
Extensive product range. Enhance customer experience. Personalize service through Relationship Managers Understand local market dynamics. Expanding geographical and online presence. Provide a wide array of services such as brokerage, depositary services, mutual fund and equity distribution, commodities trading and consumer loans. Offer innovative products such as Power Indiabulls and Indiabulls Signature Client Account. Improve customer education through in-house equity research. Improve customer interface and customer experience through technology. Continually invest in upgrading of systems. Improve speed and quality of services. Enhance data mining to improve risk management processes
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Conclusion

With the help of given project I got an in-depth knowledge about the working of portfolio management. Also I got an insight as too how to invest in portfolio management, which scheme provide better return as compared to other and who are the portfolio management players in the Indian market. It can be concluded from the project that future of portfolio management is bright provided proper regulations prevail and investors needs are satisfied by providing variety of schemes. The interest of investors is protected by SEBI. Portfolio management is governed by SEBI Act. Due to the benefits available to the individuals such as reduction in risk, expert professional management, diversified portfolios, tax benefits etc. young generation (i.e. age group bet. 26-35) is willing to invest in different investment avenues through portfolio manager or through mutual funds which are again managed by portfolio managers. On the other hand, age group of 51 & above are least interested in making investment in different avenues.

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Questionnaire Questionnaire for Understanding Investor Behavior Name Occupation Date Contact No ..

1. From the following age group, could you tell me which applies to you?
a) 16 - 25 b) 26 -35 c) 36 - 50 d) 51 Above

2. From the following income brackets, could you tell me which applies to you, with respect to your annual household income?
a) Below 1,20,000 b) 1,20,000 - 3,00,000 c) 3,00,000 - 5,00,000 d) 5,00,000 Above

3. Are you trader or Investor (Mark All that applies)

a) Trader b) Short Term Investor c) Long Term Investor

4. From how many years are you trading or investing in stock market?

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a) Less than 1 Year b) 1 - 3 years c) 3 - 5 years d) 5 years Above

5. If you are a Investor what induces you to invest in a particular stock? (Mark all that applies)
a) Tips b) News c) Research Report d) Personal Homework

6. If you are an Investor what induces you to stay invested in a particular Stock? (Mark all that applies)
a) Dividend Paying b) Organic Growth c) Inorganic Growth d) Future Prospects

7. From the following Investment Brackets, could you tell me which applies to you?
a) Below 1,00,000 b) 1,00,000 - 2,00,000 c) 2,00,000 - 3,00,000 d) 3,00,000 Above

8. According to you, what are the factors leading Indian Stock Market to rise? (Mark all that applies)
a) FII b) FDI c) Government Policies d) Rise in National Income

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9. In what kind of stocks do you trade or invest in?

a) Large Caps b) Mid Caps c) Small Caps d) Depends

10. What kind of risk appetite do you prefer?

a) High b) Medium c) Low d) No Risk / Safe Investments

11. What is your pattern of investing or trading?

a) Repeatedly invest or trade in same set of stocks b) Invest or trade in variety of stocks c) Depends on other factors

12. Are you a panic buyer or seller while investing or trading in a stock?
a) Yes b) No c) Depends on Stocks

13. What kind of investing or trading do you adopt?

a) High Risk - High Return b) Low Risk - High Return c) Low Risk - Low Return

14. Do you invest in Primary Market (IPO)?

a) Yes b) No

15. From the following which one do you think gives you good returns on your investments?

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a) Primary Market b) Secondary Market

16. Any suggestion would you like to give in maintaining balanced portfolio?

Bibliography

News Papers Business Line Economic Times Business Standard

Websites
http://in.reuters.com/finance/stocks/overview?symbol=KTKM.NS http://www.bloomberg.com/markets/stocks/world-indexes/ http://www.moneycontrol.com/financials/statebankindia/balance-sheet/SBI#SBI http://www.investopedia.com http://www.investing.com

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