DESIGNING AN INVESTMENT PORTFOLIO FOR

REAL ESTATE PROJECTS

AT
EARTH INFRASTRUCTURES LIMITED



A SUMMER INTERNSHIP PROJECT REPORT


SUBMITTED IN PARTIAL FULFILLMENT FOR THE REQUIREMENT OF TWO YEAR
POST GRADUATE DIPLOMA IN MANAGEMENT, 2012-14



BY:
VARUN MEHRA
Roll no.-173/2012
PGDM (FT)



LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT
DELHI

JUNE, 2013


CERTIFICATE




DECLARATION

I, Varun Mehra, student of PGDM (Gen.) 2012-14, hereby declare that the summer training
project report titled DESIGNING AN INVESTMENT PORTFOLIO FOR REAL
ESTATE PROJECTS, is my original work submitted towards the partial fulfillment of the
requirement for the award of Post Graduate Diploma in Management by Lal Bahadur Shastri
Institute of Management (LBSIM). The contents of the project report have not been
published before and reflect the work done by me during my summer internship from
April 02, 2013 till June 02, 2013 at Earth Infrastructures Limited, Gurgaon.



Varun Mehra
Roll No. 173/2012
PGDM -2012-14
LBSIM, New Delhi









ACKNOWLEDGEMENT


My summer internship experience has been phenomenal in almost every way and my project
on Designing an investment portfolio for real estate projects reached its completion and
accomplishment with the contributions of many people whom I would like to acknowledge
here.
It gives me a great pleasure to express my profound gratitude towards Mr. Sachin Jain,
General Manager, Earth Infrastructures Ltd., Gurgaon for giving me an opportunity to
undertake my project at Earth Infrastructures Limited and for their continued guidance,
support and belief in my abilities to handle the project assigned.
I also choose this moment to acknowledge the contributions of my faculty guide, Prof. P.
Jagannathan, Senior Faculty at Lal Bahadur Shastri Institute of Management, for his
valuable and inspiring guidance throughout the progress of this project.
My grateful thanks to Dr. Ashish Garg, Head of the Department, Lal Bahadur Institute
of Management, for keeping the spirits high and clearing the visions to work on the project.
Last but not the least there were so many people who shared valuable information that helped
in the successful completion of this project.







EXECUTIVE SUMMARY

Investing is both Arts and Science. Every individual has his own specific financial need and
expectation based on their risk taking capabilities. The evaluation of financial planning has
been increased through decades, which can be best seen in customers. In today's intricate and
volatile market an investment requires constant monitoring and attention. Hence, Portfolio
management services are a fast gaining investment option.

This report provides for developing an investment portfolio model which could serve as a
guide in managing portfolios of different investors with different profiles. Further, this report
was commissioned to establish various constraints related to the real estate investments for
small and medium class investors and developing the feasible and productive alternatives to
accommodate those constraints for EIL projects.
Investment Portfolio model has been developed through the technique of Linear
Programming. The objective function and constraints are defined by performing financial
analysis and research of different financial assets based on their risks and return. All
calculations can be found in the appendices. Furthermore, the constraints related to the real
estate investments are broadly be classified into 3 categories:- (i) Inadequacy of funds; (ii) Huge
amount of money being blocked and (iii) Inability to pay entire amount at once. Various alternative
investment proposals that can be offered by Earth Infrastructures Limited to accommodate
the above constraints of its prospect investors have been developed and financially evaluated
in terms of both- the feasibility for the company and productivity for investors to form a real
estate financial portfolio for small and medium investors.
Results of analysis draws to the attention that the proposed alternatives not only make it
possible for small and medium investors to invest in the real estate but provide similar or
even better returns for them on their investments. The report finds that the company apart
than targeting high end investors, can successfully market its project by tapping the lower end
of investors also by offering various financial alternatives investment plans.


TABLE OF CONTENTS


CHAPTER 1 INTRODUCTION .............................................................................. 1
1.1 Introduction .......................................................................................................... 1
1.2 Company Profile .................................................................................................. 2
1.3 Real Estate sector in India .................................................................................... 7

CHAPTER 2 PMS: CONCEPT & OVERVIEW .................................................. 12
2.1 Introduction ........................................................................................................ 12
2.2 Portfolio Management: Concept ........................................................................ 13
2.3 Objectives of PMS ............................................................................................. 13
2.4 Types of Financial Instruments .......................................................................... 14

CHAPTER 3 METHODOLOGY ........................................................................... 19

CHAPTER 4 DATA ANALYSIS AND INTERPRETATION ............................ 22
4.1 Investment Portfolio Model ............................................................................... 22
4.1.1 Formulation of LPP............................................................................................ 23
4.1.2 Optimization of LPP .......................................................................................... 24
4.1.3 Calculation of Portfolio risk............................................................................... 25
4.2 Investment portfolio for real estate projects ...................................................... 26
4.2.1 Investment Plan - 1 ............................................................................................ 27
4.2.2 Investment Plan - 2 ............................................................................................ 28
4.2.3 Investment Plan - 3 ............................................................................................ 30
4.2.4 Investment Plan - 4 ............................................................................................ 35

CHAPTER 5 FINDING & RECOMMENDATIONS .......................................... 37
5.1 Findings.............................................................................................................. 37
5.2 Recommendations .............................................................................................. 37

LIMITATIONS OF THE STUDY ............................................................................ 39
REFERENCES AND BIBLIOGRAPHY ................................................................. 40
ANNEXURE ................................................................................................................ 41

LBSIM 1
CHAPTER 1
INTRODUCTION

1.1 Introduction
Investment into the real estate involves huge amount of money being blocked for a
long period of time. It therefore becomes difficult for small and medium class
investors to invest into the real estate sector. Hence, in this project I have tried to
develop a real estate financial portfolio to target investors belonging to each class of
asset by accommodating their different financial constraints.
The real estate financial portfolio consists of various alternative investment plans for
investors belonging to the different asset classes for investment into the real estate.
Alternate plans are built up such that they are also productive for the investors. Hence,
each alternative investment plan have been financially evaluated and backed up to
work out the individual investment returns. The Portfolio has been developed for
Earth Infrastructures Limited commercial project (Beta Tech) and consists of four
different investment plans for different classes of investors.
As a part of my project, I have also constructed an investment portfolio model
consisting of different financial assets to meet the variant expectations of the clients
for portfolio management services. Expectations of investors differs from individual
to individual in terms of their risk-return appetite which requires building individual
portfolio for each investor. Therefore, it requires a portfolio model which could serve
as a guide in constructing the individual portfolios for investors based on their
expectations. This project aims at designing such portfolio model through analysis of
financial assets in terms of their risk and returns.





LBSIM 2
1.2 Company Profile
1.2.1 Company Overview
Earth Infrastructures Ltd. is an independent infrastructure provider with committed
customer base. Backed by a group of dynamic investors from India and Europe, Earth
infrastructures is one of Indias most well capitalized real estate company. It came
into existence in 2010 after being separated from EMMAR group.
The group is known in the Realty fraternity for its professional might. Implementation
of new technology and innovation has been its constant goal and this is evident in all
its projects. It is now one of the fastest emerging key players in the Indian real estate
landscape with a tremendous growth of two hundred percent in the past two years.
Company is driven by the philosophy of INNOVATION BEYOND
IMAGINATION which says, that the company believe in making the finest
elements of urban living through its magnificent experience in real estate business for
over a decade period. With a commitment of high-quality construction, the company
is willing to develop world-class townships and commercial complexes in various
prime locations of the country.

1.2.2 Corporate Message
The Indian real estate sector is growing at a breathtaking pace. Outsourcing, the new
phenomena increased the demand for commercial buildings and urban housing
besides infrastructure.
The stand taken by the government for FDI policies has given a rise for the
investments in the realty sector. Earth Infrastructures is willing to embrace al the
positive aspects of growth to cater to the changing trends.






LBSIM 3
1.2.2 Product Portfolio
Earth Infrastructures has a well diversified product mix comprising residential,
commercial, retails, hotels, farm houses and SEZs. Product portfolio of the company
exists broadly in the commercial and residential projects

1.2.2.1 Commercial Projects
By coming opportunities into real estate Earth is developing its two main commercial
projects:
1) Tech-one
2) Iconic

1. Earth Tech one

Tech-one commercial project is in Noida beside Yamuna expressway in SEZ
neighbouring specific locations and areas like: DND highway, IGI airport connecting
Highway, Gautama Buddha University (ASIAs largest university) which makes this
project quiet important from the view point of an investor. This is the very first space
is being occupied by Earth in this zone .

Earth is able to utilize this 15 acre plot for multipurpose utilities. Earth is developing
studio apartments which are almost sold out before possession office spaces of three
types:
i) alpha-tech (fully furnished office)
ii) beta-tech (semi furnished office space)
iii) gamma-tech (raw furnished office space)

Apart from this Earth is developing retail shops and multiplex for the people living in
nearby area like universities and residential colonies. With this Earth is developing
two buildings fully for commercial company or MNC and a hotel for tourist visiting
night safari and international circuit.



LBSIM 4
Earth provides assured return of 12% p.a. in these types of projects to the investors or
end users i.e. backed by the bank guarantee.
Beta-tech contains area of: 300, 500, 750 and 1000 sq feet and their multiples.

Retail contains area of: 250 sq feet and their multiples.

Fact sheet
Type of Project Commercial (Retail, Office Space and Serviced Apartments)
Area 15 Acres
Total Floors G+12
Possession March 2015

2. Earth Iconic
Commercial space is being developed in Gurgaon area near to Shona road surrounded
by residential areas.

ICONIC is a right mix of:
Retail Stores, Office Spaces and Studio Apartments.
Integrated mixed use development providing a very good catchment from
within and outside developments.
High Street format for ease and convenience of shopping.
Special attention has been given to design a detailed unique concept where the
exterior complements the interior courtyard.
Courtyard style has been made to enhance open air convenience retail.

Fact Sheet:

Type of Project Commercial (Retail, Office Space and Serviced Apartments)
Area 3.5 Acres
Total Floors G+12
Possession September 2014


LBSIM 5
1.2.2.2 Residential Projects
With the booming prospects of real estate in Delhi/ NCR region, Earth Infra has
introduced two projects for its residential properties. They are as follows;
1) Elacasa
2) Gracia

1. Earth Elacasa

Earth Elacasa is a residential project in Gurgaon. ELACASA is enviably located on
the edge of Dwarka Expressway, which is poised to become the new Shangri-La and
centre of Gurgaon. The Expressway is an immaculate blend of strategic location and
world class infrastructural development. The region is in the midst of planned
commercial and urban development. Moreover, a number of reputed educational
institutions and shopping centres are also coming up in the near vicinity.

Features:
Elacasa towers have been mounted on a land of 19 acre.
Located on the northern peripheral road and has its advantages in being very close to
the IGI airport.
Close proximity to the Dwarka sector 21 metro station giving it an attractive look to
the investors.

Facts Sheet:
The Elacasa is available in two sizes i.e. 3BHk and 4BHk. The flat sizes are 1800 per
square feet for 3 BHK and 2600 per square feet for 4BHK.
The price per square feet is 5500 which is reasonably less than its closest competitors.








LBSIM 6
2. Earth Gracia

Earth Gracia is a residential project located in greater Noida region and comes from
eco village. Its architecture is designed by EIGEN. The location is supposed to be this
projects USP. It is located on the FNG (Faridabad-Noida-Gurgaon) corridor and very
close to the Hindon River.

Location advantages
Proposed bridge coming up on the Hindon River which will make Gracia the first plot
to enter after crossing the bridge.
Also there is a proposed metro coming up in this area which will be an extension of
the metro station sector 32 station which would mean that the area would essentially
become the part of Noida rather than Greater Noida.

Fact Sheet:
There are 3 types of towers in Earth Gracia. There are three types of towers over here.
They are:-
i) ground+25 floors
ii) ground+23 floors
iii) ground+21 floors
3BHK with 3 toilets and 3BHK with 2 toilets are available in the ranges of 1295
square feet and 1500 square feet respectively and the price per square feet is Rs 3400
per square feet.
There are two towers with 3bhk+3 toilets. Rest six towers are 3bhk with 2 toilets.






LBSIM 7
1.3 Real estate sector in India
1.3.1 Overview
The real estate sector in India has come a long way by becoming one of the fastest
growing markets in the world. It is not only successfully attracting domestic real
estate developers, but foreign investors as well. The growth of the industry is
attributed mainly to a large population base, rising income level, and rapid
urbanisation.
The sector comprises of four sub-sectors- housing, retail, hospitality, and
commercial. While housing contributes to five-six percent of the countrys gross
domestic product (GDP), the remaining three sub-sectors are also growing at a rapid
pace, meeting the increasing infrastructural needs.
The real estate sector has transformed from being unorganised to a dynamic and
organised sector over the past decade. Government policies have been instrumental in
providing support after recognising the need for infrastructure development in order
to ensure better standard of living for its citizens.
Market Size/ Growth Prospects:
The total revenue of the real estate sector was US$ 66.8 billion during 2010-11. By
2020, the sector is expected to earn revenue of US$ 180 billion. In fact, the demand is
expected to grow at a compound annual growth rate (CAGR) of 19 per cent between
2010 and 2014, with tier I metropolitan cities projected to account for about 40 per
cent of this.
Investments:
India is ranked 20th in the list of worlds top real estate investment markets with
investment volume of US$ 3.4 billion in 2012, according to the latest report titled
'International Investment Atlas' by Cushman & Wakefield. The sector is set for robust
inflows of US$ 4-5 billion from overseas investors in the next couple of years, with
Bangalore, Delhi and Mumbai emerging as the favourites.



LBSIM 8
Construction development sector (including townships, housing, built-up
infrastructure & construction-development projects) has attracted a cumulative
foreign direct investment (FDI) worth US$ 22,007.67 million from April 2000 to
February 2013. FDI flows into the construction sector for the period April-February
2012-13 stood at US$ 1,260 million, according to the department of industrial policy
and promotion (DIPP).
Some of the major investments in the Indian real estate sector are:
Ashiana Housing Ltd plans to foray into Gujarat's real estate with its first project
worth Rs 100 crore (US$ 18.01 million) at Halol.
Mr Akhilesh Yadav, Chief Minister of Uttar Pradesh (UP) has inaugurated and laid
the foundation of development projects worth Rs 3,337 crore (US$ 601.21 million)
pertaining to Noida, Greater Noida and Yamuna Expressway.
Wave Infratech plans to invest Rs 500 crore (US$ 90.08 million) to set up its first
affordable housing venture in the Delhi national capital region (NCR) area.
Godrej Properties Ltd (GPL) has signed a development management agreement with United
Oxygen Company Pvt Ltd to develop residential housing project in Bengaluru. The project
will offer approximately 1,000,000 sq. ft. of saleable area and will be developed as a
residential housing project.

1.3.2 FACTORS: For Indian Real Estate Boosters
Growing infrastructure requirements from sectors such as education, healthcare and
tourism are providing numerous opportunities in the sector.
Rising urbanization offering opportunities for real estate development.
Young population providing immense opportunities for growth and development
across industries wanting to reap the demographic dividend.



LBSIM 9
1.3.3 Government Initiatives
According to the latest reforms, FDI up to 100 per cent is allowed under the automatic
route in townships, housing, built-up infrastructure and construction development
projects to increase investment, generate economic activity, create new employment
opportunities and add to the available housing stock and built-up infrastructure.
The Ministry of Housing & Urban Poverty Alleviation has planned to introduce a
single-window system for clearance of all real estate projects across the country. The
system could bring down the average approval time from the current 196 days to 45-
60 days.
The Government of India has sanctioned projects worth Rs 41,723 crores (US$ 7.51
billion) for building of 1,569,000 houses/dwelling units for economically
weaker/lower income group sections under the Ministrys flagship Jawaharlal Nehru
National Urban Renewal Mission (JNNURM) programmes.
Housing finances are becoming feasible with the housing loan limit being raised to
US$ 52080 for priority sector lending.

1.3.4 Road Ahead
The real estate industry in India is yet in a promising stage. The sector happens to be
the second largest employer after agriculture and is expected to grow at the rate of 30
per cent over the next decade. A growing migrant population due to increasing job
opportunities, together with healthy infrastructure development, is underpinning
demand in the regions residential real estate market.
The Kalpataru spokesperson feels that the Finance Ministry's motivation through
softening of interest rates and lending more to the real estate sector will have a
positive impact on both developers and consumers.



LBSIM 10
The real estate market could start to perform better as the easing of FDI norms will
begin to show results during the second half of the year, according to Lalit Kumar
Jain, Chairman & Managing Director, Kumar Urban Development Ltd and President
National CREDAI.
The Government of India is looking forward to further improving the attractiveness of
the real estate sector for the benefit of all stakeholders in the years to come. In a
significant step towards ensuring greater transparency in Indias real estate sector and
giving a strong impetus to private and foreign investments, the cabinet approved the
Real Estate Regulatory Bill this week. The entire purpose of the Bill is to promote
greater accountability between realtors and home buyers and to provide an
institutional framework for quicker redressal of disputes between the two parties.
The Bill proposes the formation of a single Real Estate Regulatory Authority in every
state/union territory of India, which will have specified functions, powers, and
responsibilities to exercise oversight of real estate transactions, to appoint
adjudicating officers to settle disputes between parties, and to impose penalty and
interest. Notably, the Bill will be applicable to all projects that span an area of over
4000 sq. metres. The Bill works both ways. While it aims to hold the developers
accountable, it also looks to ensure that the allot tees do not default in making
payments. Thus, by providing penalties for both the promoters and the allot tees, the
Bill seeks to ensure that non-compliance is minimal."


LBSIM 11
1.4 Objective

My summer internship project was a multi task project involving two different tasks
to be performed at different stages. Therefore, it carried the two following objectives:-
1. To vouch investments from the prospect clients for portfolio management services
and subsequently managing the portfolio.

It involved:-
o Establishing different profiles of investors in terms of their risk-return
appetite.
o Developing different investment portfolios meeting the variant expectations of
investors.

2. To market different projects of Earth Infrastructures Limited to different classes of
investors through financial supported investment plans.

It involved:
o Determining and understanding different constraints related to real estate
investments.
o Designing alternate financial plans to accommodate the above constraints.










LBSIM 12
CHAPTER 2
PMS: CONCEPT & OVERVIEW

2.1 Introduction
The field of investment traditionally divided into security analysis and portfolio
management. The heart of security analysis is valuation of financial assets. Value in
turn is the function of risk and return. These two concepts are in the study of
investment. Investment can be defined as the commitment of funds to one or more
assets that will be held over for some future time period.

In today fast growing world many opportunities are available, so in order to move
with changes and grab the best opportunities in the field of investments a professional
fund manager is necessary. Therefore, in the present scenario the Portfolio
management Services (PMS) is fast gaining importance as an investment alternative
for the High Net worth Investors. Portfolio Management Services (PMS) is an
investment portfolio in stocks, fixed income, debt, cash, structured products and other
individual securities, managed by a professional money manager that can potentially
be tailored to meet specific investment objectives. When you invest in PMS, you own
individual securities unlike a mutual fund investor, who owns units of the entire fund.
You have the freedom and flexibility to tailor your portfolio to address personal
preferences and financial goals. Investment Management Solution in PMS can be
provided in the following ways:-
Discretionary
Non Discretionary
Advisory

Discretionary:
Under these services, the choice as well as the timings of the investment decisions
rests solely with the Portfolio Manager.


LBSIM 13
Non Discretionary:
Under these services, the portfolio manager only suggests the investment ideas. The
choice as well as the timings of the investment decisions rest solely with the investor.
However the execution of trade is done by the portfolio manager.

Advisory:
Under these services, the portfolio manager only suggests the investment ideas. The
choice as well as the execution of the investment decisions rest solely with the
Investor.

2.2 Portfolio Management: Concept
Rule 2, clause (d) of the SEBI (portfolio managers) Rules, 1993 defines the term
portfolio as total holding of securities belonging to any person. As a matter of fact,
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. The aim Portfolio management is to achieve the maximum return from a
portfolio, which has been delegated to be managed by manger or financial institution.


2.3 Objectives of PMS

1. Safety of Funds
The Investment should be preserved, not be lost and should remain in returnable
position in cash or kind.

2. Marketability
The investment made in securities should be marketable. This means that the
securities must be listed and traded in stock exchange so as to avoid difficulty in their
encashment.


LBSIM 14
3. Liquidity
The portfolio must consist of such securities which could be en-cashed without any
difficulty or involvement of time to meet urgent need of funds.

4. Reasonable Return
The investment should earn reasonable return to upkeep the declining value of the
money and be compatible with opportunity cost of money in terms of current income
in form of interest or dividend

5. Appreciation in Capital
The money invested in portfolio should grow and result into capital gains

6. Tax Planning
Efficient Portfolio management is concerned with composite tax planning covering
income tax, capital gain tax, wealth tax and gift tax.

7. Minimize risk
Risk avoidance and minimization of risk are important objective of portfolio
management. Portfolio managers achieve these objectives by effective investment
planning and periodical review of market, situation and economic environment
affecting the financial market.


2.4 Types of Financial Instruments
2.4.1 Mutual Funds
A mutual fund is a type of professionally managed collective investment vehicle that
pools money from many investors having a common financial goal. The collected
money is invested in various capital market instruments like shares, debentures and
other securities. Mutual funds have both advantages and disadvantages compared to
direct investing in individual securities. It is considered to be suitable as it offers the
advantages of diversification and liquidity at a lower cost along with the professional
management.

LBSIM 15
Advantages
Mutual funds have advantages compared to direct investing in individual securities.
These include:
Increased diversification
Daily liquidity
Professional investment management
Ability to participate in investments that may be available only to larger investors
Service and convenience
Government oversight
Ease of comparison

Types of Mutual Fund Scheme
Mutual fund schemes are generally classified by their investment objective. Based on
the investment objective, there are 3 types of Mutual fund schemes:-
Growth Schemes Balanced Schemes Income Schemes.

A) Growth schemes invest in stocks where the company itself and the industry in which
it operates are thought to have good long term growth potential.
B) Balanced schemes invest in a combination of both stocks and fixed income securities
like debentures, bonds, etc.
C) Income schemes invest in government bonds/debentures. It offers investors a regular
income usually paid out in the form of monthly dividends.

2.4.2 Equity
Equities are a type of security that represents the ownership in a company. Equities
are traded (bought and sold) in stock markets. Alternatively, they can be purchased
via the Initial Public Offering (IPO) route, i.e. directly from the company. Investing in
equities is a good long-term investment option as the returns on equities over a long
time horizon are generally higher than most other investment avenues. However,
along with the possibility of greater returns comes greater risk.

LBSIM 16
2.4.3 Bullion
Gold
Gold, the shining yellow metal is one of the most popular investment options. It is
considered as a safe haven against all national, political and cultural crises.
Traditionally gold has been considered as the most favoured currency of the worlds
population. The value of gold is negatively correlated to shares. When the economy is
not stable, the price of gold appreciates. The positive of investing in gold is that it
improves the consistency of investments. A majority of financial planners
recommends around 15-20% allocation of the total portfolio to Gold.

Investment in gold can be made in two forms
1) Physical form
2) Non Physical form.

Investment in physical gold is in form of coins or bars in addition to the physical
jewellery possessed by the households. Whereas Non physical form of investment
should be in the form of Gold Exchange Traded Fund (A Financial product designed
to give an opportunity to the investors to invest in gold without taking the physical
custody of the yellow metal). Most of banks are selling gold coins/bars where one can
invest.

Silver
Silver considered as a poor mans gold is one of the attractive investment option.
Normally Gold is preferred over Silver by all investors. The silver market is much
smaller in value than the Gold market. Silver is a better investment in a bull market.
Price of silver is driven by speculation and supply and demand. Silver price is
significantly volatile. This is because of lower market liquidity and demand
fluctuations between industrial and store of value uses.
Silver often tracks the gold price due to store of value demands, although the ratio can
vary. Investment in silver can be made in the form of jewellery or silver coins also.



LBSIM 17
2.4.4 Fixed Income Securities
Fixed income refers to any type of investment under which the borrower/issuer is
obliged to make payments of a fixed amount on a fixed schedule to the investor.
Fixed-income securities can be contrasted with equity securities, often referred to as
stocks and shares, which create no obligation to pay dividends or any other form of
income. The term income derived from these securities remains same and does not
vary materially over time. This can include income derived from fixed-income
investments such as debentures, bonds and preferred stocks.

Types of Fixed Deposits
a) Bank Fixed Deposits
b) Company Fixed Deposits

Bank Fixed Deposits
These are the deposits made with the Banks for a fixed period of time. The tenure of
such deposits can vary from 3 months to 6months, 1, 3, and 5 years. The minimum
deposit amount and the rate of interest vary from bank to bank. These are considered
as the safest investments with no risks of default as these are insured under the
Deposit insurance and credit guarantee scheme of India. Investors also have a
flexibility to take the interest income as a lump-sum amount on the maturity.

Company Fixed Deposits
These are the kind of fixed deposits which are made with the company/Non Banking
Financial Institutions (NBFC). Investment in Company FD is riskier than Bank FD as
if the company defaults the investor cannot sell his documents to recover the
investment amount. Examples of companys fixed deposits are investments in
debentures, bond, etc. The benefits of investing in Company Fixed Deposits are
higher interest rate as compared to Bank FD and no TDS is charged on the interest
income of up to Rs 5000 in one financial year.


LBSIM 18
2.4.5 Real Estate
Real Estate Investment refers to investment in immovable properties which includes
land, buildings, flats, etc. Investing in real estate involves the purchase of real estate
property and selling it for a profit. Investment in real estate involves a substantial
investment and for a long period of time. Majority of the investors invest in real estate
in the form of buying a residential property though it has a wider scope of investing
into commercial, hospitality, farm houses, etc. Before making a real estate investment,
the investor should evaluate his risk appetite, investment required and the objective of
the investment.

The following are the different objectives of investing in the real estate:

1) Rental The aim of this form of investment is to rent out property and earn a
continuous stream of rent over a period of time. The value of property also increases
over a period of time. The risk in this form of investment is that the owner of the
property has to find a tenant at an expected rental and need to pay for the maintenance
expenses also.

2) Trading This is a short term objective of making quick profits through speculation
in the real estate properties. People investing for this purpose are called traders. The
traders in the real estate market, invests in the undervalued properties for a short
period of time (say 6 months to one year) and sell them at a small profit.


3) Long term Investment The objective of these type of investments is to make
profits through the appreciation in the prices of real estate properties over a long
period of time. The investment is made from the long term prospective by the
investors, in the properties whose prices are likely to appreciate in the long term due
to expected infrastructure developments.




LBSIM 19
CHAPTER 3
METHODOLOGY

The methodology initially required performing the basic financial research for various
financial assets in terms of their risk and return, in order to develop an investment
portfolio model. Financial research was performed for five different classes of
financial assets- Gold, Equity, Mutual Fund, Fixed Income and Real Estate, by
extracting the historic prices of each asset. In order to diversify the risk, an index fund
and a balanced mutual fund were chosen among the equity and mutual fund classes
respectively. Real estate investments constituted the products or projects of Earth
Infrastructure Limited. Risk was defined in terms of standard deviation while return is
the percentage appreciation in the prices of assets.
The risk and returns for financial assets have been calculated in the following
manner:-
Gold- Average annual risk and return has been calculated using the daily historic
prices for last three years.
Equity Tracking the performance of various index funds in the last few years,
Kotak Nifty ETF was chosen as the best index fund investment. Average annual risk
and return has been calculated using the daily historic NAV (Net Asset Value) for last
three years.
Mutual Fund - Tracking the performance of various balanced mutual funds in the
last few years, ICICI balanced fund was chosen as the best mutual fund investment.
Average annual risk and return has been calculated using the daily historic NAV (Net
Asset Value) for last three years.
Fixed Income Current Term deposit rate of SBI for three years has been taken as
the average annual return. As the government deposits are considered as a risk free
asset, its risk has been taken as zero.
Real Estate Average annual risk and return have been calculated using the monthly
historic real estate index prices for NCR for the last three years.



LBSIM 20
After calculating the risk and return of each of the 5 financial assets, an investment
portfolio model of these 5 financial assets is developed to meet the variant
expectations of the investors. The model is developed by applying the technique of
Linear Programming which could serve as a guide in managing investors portfolio.
The model was created in the excel which helped to calculate the proportions in which
investments in each class of assets is to be made to meet investors expectation of
return subject to certain constraints related to the investment.
Through the database available, various existing clients of the Earth Infrastructures
Ltd. were approached to vouch investments for portfolio management. At the same
time, awareness for Earth Infrastructure new projects was also increased through
continuous interaction.
Further, for the second task of the project, various constraints of investors related to
the real estate investment were established by networking with various leads
generated through personal contacts and existing database once again. This was done
in order to tap investors belonging to different asset classes for investment in EIL
projects by offering alternate investment plans to them.
After a continuous interaction, the constraints were broadly classified into 3
categories:-
(i) Inadequacy of funds
(ii) Huge amount of money being blocked
(iii) Inability of investors to pay entire amount at once

Alternate investment plans that could be offered by EIL to accommodate the above
constraints of the prospect clients were developed through discussions with the senior
managers and companys present offerings. Following three plans were developed to
meet each of the above three constraints:-
1) Loan against Property (LAP)
2) Reduction in the total investment through elimination of interest payments
receivable
3) Variable Payment Schedule


LBSIM 21
Each of the three investment plans was financially evaluated to determine the return
generated for the investors in order to defend them to the investors. The plans were
developed in a manner that they are both feasible as well as conducive for the
company and investors respectively. Hence, a real estate financial portfolio was
designed for EIL projects, which included the various investment plans uniquely
meeting the constraints of different classes of investors in order to successfully market
the company projects.
Financial evaluation for each investment plan was done by incorporating the concept
of time value of money.

















LBSIM 22
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION

4.1 Investment Portfolio Model
The investment portfolio model has been developed through the technique of Linear
Programming. It involves optimization of a portfolio of financial assets by
formulating the Linear Programming Problem (LPP). LPP was formulated by defining
the objective function and stating the constraints. The objective can be defined in
terms of risk or return. Risk and return of a portfolio has been calculated through the
following formulas:-
Return of a Portfolio:
W
1
*R
1
+ W
2
*R
2
+W
3
*R
3
+ . + W
n
*R
n ,
Where W and R represents the weights and returns of different assets
Risk of a Portfolio:
W
1
2
*S
1
2
+ W
2
2
*S
2
2
+2W
1
*W
2
* Covariance
12
Where W and S represents the weights and the standard deviations of 1 and 2
asset. (In case of two asset portfolio)

Risk and return of all the 5 financial assets calculated through the financial research
are shown in the following table:
ASSET RETURN RISK
Gold 14% 15.41%
Mutual funds 12% 10%
Index funds 9% 17%
Fixed income 8.75% 0%
Real estate 16% 9.25%


LBSIM 23
The above table shows that the Real estate yields the maximum average annual return
with a standard deviation of 9.25%, which is lower than all of the other 3 financial
assets. Therefore, it appears to be the most attractive asset for major proportion of
investment in the total portfolio for earning high returns.

4.1.1 Formulation of LPP
This is a hypothetical portfolio that has been built up with an objective of maximising
the total return on the portfolio at lower levels of risk.
Let say amount invested in Gold, Equity, Mutual Funds, Fixed Income and Real estate
be A, B, C, D and E respectively and overall return on the portfolio is stated as Z.
Also, the total amount invested in the portfolio is taken as Rs. 100 (for convenience).
Hence, following is the LPP problem formulated:

Objective function
Max. Z = 0.14A + 0.12B + 0.09C + 0.0875D + 0.19E
Subject to the constraints
A+B+C+D+E = 100
A,B,C,D,E 5
A,B,C,D,E 30
A 15
E 20

The above constraints were developed keeping in view the diversification and
analysing the risk and return of all the 5 financial assets. The constraints are explained
as follows:-
Constraint-1: It was defined that investment in any financial asset should not be less
than 5% keeping in view diversification.
Constraint-2: Investment in no asset should be more than 30% in order diversify the
risk.

LBSIM 24
Constraint-3: Total investment in all the 5 assets should be equal to 100% as the total
amount for investment has been taken as 100.
Constraint 4: Investment in Gold should be at least 15% as it is providing descent
return of 15% with not much of a standard deviation.
Constraint 5: Investment in the real estate should be minimum 20% as it generates
the maximum return for investors.

4.1.2 Optimization of LPP

COMPUTATION OF PORTFOLIO RETURN

Gold Mutual funds Index funds Fixed income Real estate Total
Amount of
investment 30 30 5 5 30 100
Return 15% 12% 9% 8.75% 16% 13.648

Percentage
return 13.65%


Interpretation
The portfolio return table represents solution to the LPP formulated above. It is an
investment model built up in excel, which would provide a guide in constructing
different portfolios of the given five financial assets by calculating the investment
proportions (weights) of each financial asset. Weights are calculated using the solver
function in excel to meet the portfolio objective subject to the investment constraints.
In the hypothetical problem formulated above, the total return cell, highlighted in
blue, has been set as the target cell with an objective to maximise it by changing the
weights of financial assets. Also, the constraints established earlier were added to the
problem in the solver. The solver provided the result that maximum of 13.65% of
return can be generated within the constraints. It also calculated the proportion of
investments in each of the 5 financial assets in order to achieve that maximum return.
The same have been highlighted in pink in the above table.

LBSIM 25
4.1.3 Calculation of Portfolio risk
After the weights or proportions of investment in each of the financial asset have been
determined through the solver, the total risk of the portfolio is calculated by finding
the covariance of all the 5 assets with each other.

COVARIANCE MATRIX
ASSET
Gold Mutual fund Equity Fixed income Real estate
Gold 0.00000361 -0.00000026 -0.00000054 0.00 0.00000040
Mutual fund -0.00000026 0.00000278 0.00000422 0.00 -0.00000237
Equity -0.00000054 0.00000422 0.00000739 0.00 -0.00000408
Fixed Income 0.00 0.00 0.00 0.00 0.00
Real estate 0.00000040 -0.00000237 -0.00000408 0.00 0.00005973


Interpretation
The above table represents the covariance matrix which has been used to calculate
overall risk of the portfolio. Each cell in the matrix shows the covariance between two
assets in its corresponding row and column. Covariance matrix has been derived
through the historical data of each financial asset. The same has been shown in the
annexure.

COMPUTATION OF PORTFOLIO RISK
Weights 0.3 0.3 0.05 0.05 0.3

ASSETS
Gold
Mutual
funds Index funds
Fixed
income Real estate
0.3 Gold 0.000000325 -0.000000024 -0.000000008 0.00 0.000000036
0.3 Mutual funds -0.000000024 0.000000250 0.000000063 0.00 -0.000000213
0.05 Equity -0.000000008 0.000000063 0.000000018 0.00 -0.000000061
0.05 Fixed income 0.00 0.00 0.00 0.00 0.00
0.3 Real estate 0.000000036 -0.000000213 -0.000000061 0.00 0.000005375

Total risk = 0.000555%

LBSIM 26
Interpretation
The above table basically represents the application of the covariance matrix to
calculate the overall risk of the portfolio. For calculating the total risk of the portfolio,
each cell in the covariance matrix, reflecting the covariance between the two assets in
the corresponding row and column, is first multiplied with the weights of those two
assets which have derived through the solver. For example- in the above table, cell
34

shows the value obtained after multiplying the covariance value between the gold and
mutual fund with the weights of gold and mutual fund given in the first row and
column of the matrix. Subsequently, all the cell values thus obtained are added to get
the overall risk of the portfolio. The total risk of this hypothetical model is 0.000555%
in order to earn a maximum rerun of 13.65%. This method of calculating the portfolio
risk with the help of covariance matrix, have been derived from the formula for
calculating the portfolio risk mentioned earlier.


4.2 Investment Portfolio for Real estate Projects
The real estate portfolio has been developed for Earth Infrastructures Limited
commercial project (Beta Tech) and consists of four different investment plans for
different classes of investors. Each alternative investment plan have been financially
evaluated and backed up to work out the individual investment returns. Following are
some facts on the basis of which all the four plans have been financially evaluated:
Project provides an assured return of 12% p.a. to the investors on the amount of
investment made towards the property till possession.
Investment is held by the investor for three years only, i.e. till possession.
Total investment made by the investor has been taken as Rs.50,00,000 (1000 sq ft
@ Rs.5000 per sq ft)
Capital gain on the property has been assumed to be 10% every year under the most
conservative approach
Risk free rate of return or opportunity cost of capital is 9% (calculated earlier)


LBSIM 27
4.2.1 Investment Plan - 1 (Full initial Investment)
This is the normal investment plan where the investors can invests in the real estate
asset (Beta tech) by making the full payment at once. Investor will earn an assured
return of 12% p.a. on the full investment amount till possession and sell off the
property after 3 yrs.

BETA TECH PROJECT RETURN
Total Investment 50,00,000
Monthly return receivable 50,000
Risk free rate 9%
No. of installments 36

Total value of return payments after 3yrs (A) 20,73,068


Total value of the property after 3 years (B) 66,55,000


Total amount receivable after 3 years including
capital gain and interest payments (A+B)

87,28,068

Total average yearly return generated 20%

Interpretation
The above table shows the average annual return generated from investment in EIL
project (Beta tech) for investors, when the full investment is made at once. As per the
assured return of 12% p.a. on the investment, an investor would receive Rs.50,000 as
a monthly return from the company which can be invested by him at an opportunity
cost of capital or risk free rate of interest of 9%. As the return is receivable only till
possession, the payments are invested for 3yrs. Value of these deposits after three
years will be Rs.20,73,068. This has been calculated using the FV function in excel.

Similarly, value of the property after three years is calculated to be Rs.66,55,000
incorporating the capital appreciation every year. Total value that will be received by
the investor at the end of the three years will be Rs.87,28,068. Therefore, the annual
internal rate of return earned on the investment of Rs.50,00,000 is 20% (highlighted

LBSIM 28
green in the above table). This has been calculated using the RATE function in excel.
This presents a lucrative investment for investors as the return is more than the
average annual return 16% on real estate calculated earlier.

4.2.2 Investment Plan -2 (LAP for Small Investors)
This is an investment plan offered to the small class investors who do not have
adequate money to invest huge amount in the real estate. Loan against Property was
provided as an alternate plan to such investors to invest in the real estate. An investor
can make a nominal amount of cash down payment available with him and balance
amount needed for the investment is financed through loan against the property he is
investing into.
The following table shows the profile of a small investor willing to invest in a real
estate in terms of annual income and surplus funds available for investment monthly.

INVESTOR'S PROFILE
Salary Rs. 10,00,000
Annual in-hand salary Rs. 7,40,000
Monthly in-hand salary Rs. 60,000-65,000
Surplus fund available for investment monthly Rs. 10,000-12,000

The above table provides that an investor has monthly savings of Rs. 10,000 to 12,000
which is available for investment. Also, the investor has certain savings equivalent to
about Rs.10,00,000 already in his bank which can be made as initial cash down
payment and the balance of Rs.40,00,000 is financed through loan against the
property.
Following table on the next page shows the return generated for the investor through
this plan of investment.


LBSIM 29
COMPUTATION OF RETURN KEY
Total investment required (A)
50,00,000

Cash down payment (B)
10,00,000




Bank Loan (C)
40,00,000
(A-B)
LAP
14%

Term (years)
10

No. of installments
120




Monthly installment payable (D)
-61,390

Monthly return receivable from the company
(E)
50,000

Net cash flow for month
-11,390
(E-D)



No. of installments to be paid
36

Risk free rate
9%

Future value of net loan payments at the end
of 3yrs (F)
4,72,260

Value of property after 3yrs. (G)
66,55,000

Loan amount already paid (H)
7,24,102

Balance loan amount to be paid (I)
32,75,897
(C-H)



Net cash inflow at the end of 3yrs. (G-I-F) 29,06,843
Return generated
43%


Interpretation
The second table shows that return generated by investor through this investment plan
of financing a part of investment through LAP is 43%.
As the investor has savings of Rs.10,00,000 to make part of the upfront down
payment, the balance of Rs.40,00,000 has been financed through loan against his
investment in the property of Beta tech @14% p.a. The loan was provided for 10
years with the monthly installment payable at the beginning of each month. Now,
with 14% interest rate, monthly installment payable to the bank amounts to Rs.61,390
calculated using the PMT function in excel. But, the investor is also entitled to receive
monthly assured return payment of Rs.50,000 on his investment from the company.
Therefore, an investor has to provide for an additional monthly investment, in terms

LBSIM 30
of loan installments, of only Rs.11,390 (61,390 - 50,000), which is in the budget
constraint of the investor.
Now, as the investment is held for three years, the interest payments will be made by
the investor only for three years, after which the loan will be repaid by selling off the
investment. Value of the monthly interest payments to bank for three years amounts to
Rs.4,72,260 while the value of the property received after 3 years is Rs.66,55,000.
Amount of loan already paid off in three years has been calculated using the
CUMPRINC function in excel and the balance of Rs.32,75,897 is to be paid by selling
off the property.
Hence, net value of his initial investment of Rs.10,00,000 becomes Rs.29,06,843 after
paying off the loan and deducting the value of monthly investment after three years,
thereby generating a huge return of 43%. Therefore, this investment plan offers much
higher returns for small investors.


4.2.3 Investment Plan -3 (Reduction in the cost of the property against the assured
return- Risk averse investors)
This investment plan has been developed for the investors who do not wish to block
huge amounts of money in one particular investment only. It offers an option to the
investor to diversify his investment into different assets by reducing the investment
into the real estate. This plan provides for a reduction in the price of the property for
investment by adjusting it against the assured return payments. An investor can forgo
the monthly return payments which he is entitled to receive from the company to get
the property at lower cost.
As the plan involves reducing the cost of the property, the calculations have been
done from both the investor and the company side to determine the best feasible price
at which the company can offer its property. Four different alternatives have been
evaluated indicating reduction the price of the property by 50%, 60%, 70% and 75%
of the total return assured return payable by the company to investors over the period
of three years.

LBSIM 31


COMPANY SIDE ANALYSIS (Table-1)

PV of interest payments payable to investors = 15,84,133





PARTICULARS
PROPOSED ALTERNATIVES
I II III IV
Discount as percentage of total
assured return 50% 60% 70% 75%
Discounted value

9,00,000

10,80,000

12,60,000

13,50,000
Total investment (Z)

41,00,000

39,20,000

37,40,000

36,50,000
Loan taken by the company

9,00,000

10,80,000

12,60,000

13,50,000
Rate of interest 12% 12% 12% 12%
No. of installments 36 36 36 36
Monthly installment (A) -29,597 -35,516 -41,436 -44,395

Amount available for investment (B)

41,000

39,200

37,400

36,500
Net amount available after paying
loan installment (A+B)

11,403

3,684 -4,036 -7,895
Installment invested at risk free rate 9% 9% 9% 9%
No. of installments 36 36 36 36

Future value of int. after 3yrs

4,72,788

1,52,732 -1,67,325 -3,27,353
Present values (C)

3,65,079

1,17,937 -1,29,205 -2,52,776
Net inflow for the company (D)
[C+Z]

44,65,079

40,37,937

36,10,795

33,97,224

Net present value of property (E) 34,15,867 34,15,867 34,15,867 34,15,867
Net Inflow for company (D-E)

10,49,212

6,22,070

1,94,928 -18,643

LBSIM 32
Interpretation
Above table suggests the best feasible alternative that the company can adopt for
offering its product at a lower price to the investors. The best feasible alternative for
investors is the one in which the net inflow from the property approximately equates
the net present value of the property for the company. As per the above table, the best
alternative is alternative-IV. But as the company is looses Rs.18,643 under this
alternative, it is not a feasible alternative for the company. Hence, a company can
offer any alternative between alternative-III and IV.
Net present value of the property is equal to the price of the property less the present
value of the future assured return payments made over three years. Net Present Value
of the property has been calculated to Rs.34,15,867 (50,00,000 - 15,84,133).
Evaluating the alternative 1, in which company reduces the price of the property by
50% of the total assured return amount (Rs.18,00,000), the total amount that will be
received by the company towards the project from the investor is Rs.41,00,000
(50,00,000-9,00,000). The company now has to finance additional Rs.9,00,000
through external borrowings to meet the total requirement of Rs.50,00,000, which the
company is able to finance at the same cost of 12% p.a. Monthly interest payment
payable by the company is calculated as Rs.29,000 using the PMT function in excel.
Also, assured return offered by the company to the investors reflects the cost of
borrowing to the company. So, now on the Rs.41,00,000 received from the investor,
the company's cost of borrowing highlight a payment of Rs.41000 per month. But as
the company has adjusted the price for the assured return, it is not required to make
the monthly return payments, which the company would have made if they had
financed it externally. So, it becomes savings for the company which can be invested
by the company for earning return. Therefore, the company can make the payment of
Rs.29,000 on its external borrowings of Rs.900,000 out of Rs.41,000 and invest the
remaining amount of Rs.11,000 at a risk free rate of interest. Value of the investment
after 3 years amounts to Rs.472,788. Present value of this amount has been calculated,
Rs.3,65,079 using the PV function in excel, for determining the net present revenue
from the property. Hence, the total net present inflow from the sale property is
Rs.44,65,079 (sum of Z and C in the above table).

LBSIM 33
Now, as the net inflow for this alternative is much more than the Rs.34,15,867, the
company still has a scope to further reduce the price of the property and make it more
lucrative for the investors in terms of higher returns and lower cost of investment.
Therefore, calculations have been done under 3 more alternatives to choose the best
feasible option it can offer.


INVESTOR SIDE ANALYSIS (Table-2)



PARTICULARS
PROPOSED ALTERNATIVES
I II III IV
Discount as percentage of total interest
payable 50% 60% 70% 75%
Discounted value

9,00,000

10,80,000 12,60,000

13,50,000

Total investment

41,00,000

39,20,000 37,40,000

36,50,000
Assured return per annum

Monthly return receivable
Risk free rate 9% 9% 9% 9%
No. of installments 36 36 36 36
Total amount of Interest
Value of interest at the end of 3yrs
(A)

11,65,526

13,98,631 16,31,737

17,48,289

Capital gain per annum (under most
conservative approach) 10% 10% 10% 10%

Value of property after 3 years (B)

66,55,000

66,55,000 66,55,000

66,55,000

Total amount receivable after 3 years
incl. capital gain and interest
payments (A+B)

78,20,526

80,53,631 82,86,737

84,03,289

Return on real estate 18% 19% 21% 22%
Total average yearly return
generated 16.08% 17.22% 18.34% 18.89%

LBSIM 34
Interpretation
The above table shows the calculations performed from the investors' point of view.
Returns have been calculated under each of the proposed alternatives. As per the
feasible alternative that can be offered by the company (between Alternative III and
IV), investor is able to generate an overall return between 18.34% and 18.89%.
Evaluating the proposed alternative 1 as per the table, the investor is required to
invests only Rs.41,00,000 in the property. Thus with savings of Rs.9,00,000, he can
diversify his investments by investing the remaining in a risk free asset. Value of such
investment after three years will be Rs.11,65,526 while the value of the real estate
investment after three years will be Rs.66,55,000. Total value of investor's initial
investment after 3 yrs will be Rs.78,20,526 [(A+B) as per the above table]. Therefore,
the overall return for the investor is calculated to 16.08% on his total initial
investment of Rs.50,00,000 while the return generated on real estate investment of
Rs.41,00,000 is 18%. Similarly, returns are calculated under each proposed
alternatives. Investor's return increases as the cost of the property is further reduced.

Combined Interpretation
As per the calculations in the above table, the best alternative that the company can
offer to the investors in this category is somewhere between the alternative-III and IV.
A company may choose for alternative-III (highlighted yellow in the table), because,
although is not the best alternative for investors, it does not causes much variability in
investors return from the one generating from the best alternative as the difference in
return for Alternative-III and IV is just 0.5%. This alternative also provides the
company with net additional revenue of Rs.1,94,928 from selling the same property as
calculated in the table-1 under this investment plan.


LBSIM 35
4.2.4 Investment Plan 4 (Variable payment or installment method)
The third alternate investment plan was developed for meeting the constraints of the
prospects that do not have the ability to make the entire investment at once but can
pay in the installments. Variable payment alternative or installment method has been
evaluated for those. Calculations have been shown in the following table.

PAYMENT SCHEDULE AND CALCULATIONS
Month
End
Percentage
of total cost
payable
Amount
payable
Monthly
return
receivable
Total return
inflows
Capital
inflows
PV of cash
outflows
0 10% 5,00,000

5,000

10,000

- 5,00,000
2 45% 22,50,000

27,500

1,65,000

- 22,16,626
8 20% 10,00,000

37,500

2,25,000

- 9,41,975
14 20% 10,00,000

47,500

10,45,000

- 9,00,677
36 5% 2,50,000

-

-

66,55,000 1,91,037

Total PV 47,50,316

Interpretation
The above table shows the calculations for the schedule of payments made to the
company and the assured return payments received from the company by the investor
over the three years till possession. The payment schedule is designed as follows:-
10% of the total payment - Cash down payment
45% of the total payment - after 2 months
20% of the total payment - 6 months after the second installment.
20% of the total payment - 6 months after the second installment.
Last 5% of the total payment - at the time of possession (at the end of three years from
initial payment).

LBSIM 36
In the table, column 1 indicates the month at the end of which next installment
payment needs to be paid to the company as per the payment schedule starting from
month zero. Subsequently, column 2 and 3 shows the payments made for each
installment in percentage and amounts respectively. Now as the amount of investment
with the company changes after each installment payment, monthly assured return
payment received from the company also changes. Column 4 therefore shows the
amount of monthly return payments to be received for particular duration after
making each installment payment. Now, these return payments received by the
investor can be invested at a risk free rate. Value of these deposits after 3yrs will be
Rs.16,34,137. Calculation for the same has been shown in the table in the annexure.
Also, as the payment has been made in the installments at the end of different periods,
net initial investment can be calculated by finding total present value of all the
installment payments to derive net initial investment. Last column in the above table
calculates the present value of each cash outflow using the PV function in excel. Total
present value amounts to Rs.47,50,316 (highlighted green in the above table) which
would make up the initial investment.

COMPUTATION OF RETURN
Value of interest receivable at the end
of 3yrs (A)

16,34,137
Value of property after 3yrs. (B)

66,55,000

Total money received after 3 yrs
(A+B)

82,89,137
Initial Investment

47,50,316

Return generated 20%

Interpretation
The above table calculates the total return for the investor under this investment plan.
Total initial investment is Rs.47,50,316. Value of investment after three years is
Rs.82,89,137. This has been obtained by adding the value of property and assured
return after 3 yrs. Hence, the return generated for the investor is 20%.

LBSIM 37
CHAPTER 5
FINDING & RECOMMENDATIONS

5.1 Findings:
Investor is able to increase his return on his investment by financing part of the
investment through borrowings. EIL project (Beta Tech) provides a return of 20% p.a.
as calculated in the investment plan -1. By investing through the investment plan 2, an
investor is able to generate a return of approx 43% p.a. on his investment.
Investor is able to diversify his portfolio without much fluctuations in return levels.
Amount required for investment in EIL project is Rs.50,00,000. By investing through
the investment plan 3, investors are able to save an investment of Rs.12,60,000, which
can be used by them to invest in other financial assets to diversify their portfolio.
Investing the surplus in a minimum return asset (risk free) generates an overall return
of 18.34% for investors with the reduced total risk.
Investors are able to delay their investments or cash outflows and still earn same
returns on the investment. By investing through the investment plan 4, investor is able
to make payment in instalments over the span of three years and earns the return of
20% p.a. which is same as when investing the entire amount once.

5.2 Recommendations
Increase EILs brand awareness through various portals, websites, CSR activities,
sponsoring, etc. As EIL is a new brand in the real estate industry, awareness of its
brand and projects needs to be increased among investors.
Invest funds in construction of the existing marketed projects, rather than diverting
funds to the new projects. It is common among the real estate players that the funds
raised for a project is diverted for investment into the new projects. This delays the
completion of the project and create a service gap which ultimately leads to the bad

LBSIM 38
image of the company in the market. Hence, EIL is required to avoid stepping into
this kind of proposals in order to gain investors confidence.
Investment Plan-3, involving substituting the assured interest payments with the
reduced cost of the property for investors, was suggested as an additional selling plan.
As the company has recently come up with the concept of offering assured returns to
the investors on its commercial projects, this option had not been evaluated.
Calculations were done for the same and the best feasible alternative has been
suggested to the management.

LBSIM 39
LIMITATIONS OF THE STUDY

Historic data, for calculating Risk and return for all five financial assets, have been
taken for past 3 years only.
Very small proportion of population has been captured to evaluate the investors
profiles and constraints for real estate investment.
Capital gain on EILs project has been taken as a guess or an approximated figure, as
it could not be projected with 100% accuracy.


LBSIM 40
REFERENCES AND BIBLIOGRAPHY

Earth Infrastructures limited, www.earthifra.com
Real estate sector in India http://www.ibef.org/industry/real-estate-india.aspx
Portfolio management http://en.wikipedia.org/wiki/Portfolio_management
http://www.hsbc.co.in/1/2/personal/investments/new-invest/new-invest-types
Historic Daily Gold prices, http://www.mcxindia.com/
Real estate prices NCR, RESIDEX, 99acres.com
Mutual funds, index funds and past NAVs http://www.amfiindia.com/
Tem deposit rates http://www.ratekhoj.com/fixed-deposits/index.php/
Chapter -4, Portfolio: Risk and Return, Financial Management, IM Pandey
Chapter -19, Capital markets in India, Financial Management, IM Pandey














LBSIM 41
ANNEXURE

Historical data of financial assets
Date Gold MF Equity Real estate
Jun-10 0.000162748 0.00224737 0.0034150 -0.045643154
Jul-10 -0.001894095 0.00080205 0.0005212 0.000743863
Aug-10 0.002579521 0.00031243 0.0003645 0.000768087
Sep-10 0.000025101 0.00303901 0.0052982 0.000767498
Oct-10 0.001353006 0.00095808 -0.0000260 0.00074217
Nov-10 0.001559182 -0.00058469 -0.0012463 0.00076634
Dec-10 -0.000136067 0.00080998 0.0021046 0.000741052
Jan-11 -0.001563416 -0.00307903 -0.0053215 0.000765186
Feb-11 0.003866351 -0.00104944 -0.0014818 0.000764601
Mar-11 -0.000225002 0.00287222 0.0041462 0.00069008
Apr-11 0.003338230 0.00033743 -0.0007565 0.00076349
May-11 -0.000857740 -0.00033838 -0.0022198 0.000738298
Jun-11 -0.001297126 0.00107869 0.0016741 0.000762345
Jul-11 0.002276541 0.00073302 -0.0013011 0.000737191
Aug-11 0.005749051 -0.00242577 -0.0041841 0.000761203
Sep-11 -0.001509306 -0.00064712 -0.0004130 0.000760624
Oct-11 0.003148501 0.00161189 0.0042935 0.000735528
Nov-11 0.002155603 -0.00194149 -0.0047893 0.000759487
Dec-11 -0.002260051 -0.00168120 -0.0019982 0.00073443
Jan-12 0.001218755 0.00333377 0.0056917 0.000758354
Feb-12 -0.000624707 0.00281004 0.0018104 0.000757779
Mar-12 0.000241293 -0.00003231 -0.0006970 0.000708354
Apr-12 0.001015751 0.00021039 -0.0004640 0.00075667
May-12 -0.000025172 -0.00164876 -0.0026970 0.000731707
Jun-12 0.001916224 0.00140022 0.0035872 0.000755545
Jul-12 0.000440245 -0.00013648 -0.0003125 0.00073062
Aug-12 0.001247800 0.00078872 0.0003432 0.000754423
Sep-12 -0.000033235 0.00366698 0.0043283 0.000753854
Oct-12 -0.000490525 -0.00031567 -0.0006719 0.000728987
Nov-12 0.000043279 0.00218937 0.0024300 0.000752738
Dec-12 -0.000811534 0.00104984 0.0002292 0.000727908
Jan-13 0.000779324 0.00114288 0.0009488 0.000751624
Feb-13 -0.001197279 -0.00225744 -0.0028867 0.00075106
Mar-13 -0.000084943 -0.00022776 -0.0000284 0.000677868
Apr-13 -0.004068132 0.00108087 0.0021620 0.000749988

LBSIM 42

Calculation of value of deposits after 3 years under the Investment plan-4
Month Inv at start
Total amt.
outstanding FV at month end
1 5,000 5,000 5,038
2 5,000 10,038 10,113
3 27,500 37,613 37,895
4 27,500 65,395 65,885
5 27,500 93,385 94,086
6 27,500 1,21,586 1,22,498
7 27,500 1,49,998 1,51,123
8 27,500 1,78,623 1,79,962
9 37,500 2,17,462 2,19,093
10 37,500 2,56,593 2,58,518
11 37,500 2,96,018 2,98,238
12 37,500 3,35,738 3,38,256
13 37,500 3,75,756 3,78,574
14 37,500 4,16,074 4,19,195
15 47,500 4,66,695 4,70,195
16 47,500 5,17,695 5,21,578
17 47,500 5,69,078 5,73,346
18 47,500 6,20,846 6,25,502
19 47,500 6,73,002 6,78,049
20 47,500 7,25,549 7,30,991
21 47,500 7,78,491 7,84,330
22 47,500 8,31,830 8,38,068
23 47,500 8,85,568 8,92,210
24 47,500 9,39,710 9,46,758
25 47,500 9,94,258 10,01,715
26 47,500 10,49,215 10,57,084
27 47,500 11,04,584 11,12,868
28 47,500 11,60,368 11,69,071
29 47,500 12,16,571 12,25,696
30 47,500 12,73,196 12,82,744
31 47,500 13,30,244 13,40,221
32 47,500 13,87,721 13,98,129
33 47,500 14,45,629 14,56,471
34 47,500 15,03,971 15,15,251
35 47,500 15,62,751 15,74,472
36 47,500 16,21,972 16,34,137
Value after 3 years Rs.16,34,137 (Highlighted green in the table)