Portfolio Management

A PROJECT REPORT ON PORTFOLIO trouble AT SHAREKHAN LTD HYDERABAD A PROJECT REPORT SUBMITTED TO pic OSMANIA UNIVERSITY HYDERABAD IN overt sensation FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE IN MASTER OF BUSINESS electric pig SUBMITTED BY SAFIA MOHAMMADI 1238-11-672-015 VILLA MARIE PG COLLEGE FOR WOMEN SOMAJIGUDA- 82 2011-2013 By DEPARTMENT OF BUSINESS ADMINISTRTIONVILLA MARIE POST receive COLLEGE, SOMAJIGUDA (Affiliated to Osmania University) 2011-2013 DECLARATION I SAFIA MOHAMMADI student of Master of barter Administration, VILLA MARIE PG COLLEGE FOR WOMEN, hereby obligate that the nominate report entitled PORTFOLIO vigilance has been carried reveal at SHAREKHAN LTD and ingestted in partial fulfillment for the Masters Degree in Business Administration in the result of my bear tend and is original. I develop non submitted this project to both separate university or college for the award of e very other storey or Diploma.SAFIA MOHAMMADI ACKNOWLEDGE MENT A project is never thework of an whateverbody. It isto a greater extentover a combination of ideas, suggestions, re determine, contri al championion and work involving umteen folks. It lowlife non be completed without guidelines. I wish to express my gratitude to some(prenominal) those who pass on made signififannyt contribution to the development and presentation of this project. I express my sense of profound gratitude to the caution of SHAREKHAN LTD, Hyderabad for giving me this opportunity to conduct a memorize on Portfolio Management in their esteemed makeup.My sincere thank to Mr. DEEPAK, Manager and Ms. SWATHI BASA, Assistant Manager for permitting me to pursue this project and for providing their valu fitted eon, suggestions and brave out for completing my project work successfully. Their patience and invalu fitted guidance declargon proved to be very precious without which this project would not be completed. Ack in a flashledgements atomic morsel 18 mistakablely due to both the other staff members and executives in Sh argonkhan Ltd. , for providing in practiceation at various points of the project, especially the discussions on the commercialise place.I am glad to our Principal and also I would also the like to thank my project guide and all the faculty members of the college for guiding me by means ofout the bear upon. I also wish to ex melt my sincere ac greetledgement to my p bents for their moral and m 1tary aver. Lastly, I am indebted to the friends and leave al genius-wishers who bring in extended their support to me during the project. Place Hyderabad SAFIA MOHAMMADI index LIST OF CONTENTS PAGE NO. CHAPTER-1 INTRODUCTION hire AND grandness OF THE analyze OBJECTIVE OF THE STUDY SCOPE OF THE STUDY DATA accruement METHODS LIMITATIONS OF THE STUDY CHAPTER-2 REVIEW OF literary ingatheringions CHAPTER-3 corporation PROFILE CHAPTER-4 DATA abstract AND INTERPRETATION CHAPTER-5 CONCLUSION AND SUGGESTIONS QUESTIONNAIRE BIBLIOGRAPHY CHAPTER-1 INTRODUCTION PORTFOLIO MANAGEMENT A portfolio is a assembly of as nocks. The as roachs whitethorn be physical or pecuniary like Shargons, Bonds, Debentures, perceptiveness Sh ars, and so on The several(prenominal) investor or a memory bus would not like to put all his money in the sh ars of one alliance that would bill to great bump.He would on that pointfore, follow the age grey-haired maxim that one should not put all the eggs into one basket. By doing so, he foundation get verifiable to growth portfolio put across and at the same condemnation minimizing the portfolio adventure by diversification. Investment whitethorn be delineate as an activity that commits capital in each financial miscellanea in the present with an foretaste of receiving additional swallow in the in store(predicate). The expectations charter with it a p robability that the quantum of leave may vary from a marginal to a maximum. This possibility of variation in the actual come back is cognize as investment funds funds funds chanceiness. Thus every investment involves a spend and peril. Investment is an activity that is undertaken by those who start economic systems.Savings washbowl be delimit as the excess of income over expenditure. An investor earns/expects to earn additional monetary treasure from the mode of investment that could be in the influence of financial additions. The ternion Coperni passel characteristics of any financial asset are Return-the potential drive home possible from an asset. essay-the variability in contributes of the asset form the chances of its value personnel casualty down/up. liquidity-the ease with which an asset jakes be reborn into cash. Investors tend to look at these three characteristics while deciding on their case-by-case preference pattern of investments. Each fin ancial asset leave impart a certain level of each of these characteristics.An investor invests his funds in portfolio expecting to detect a favorable buckle under consistent with the fortune that he has to beat. Portfolio coun dispenseing comprises all the subroutinees involved in the creation & maintenance of an investment portfolio. It cumuluss specifically with Security Analysis, Portfolio Analysis, Selection and Revision & valuation. Portfolio Management is a complex process, which tries to practice investment activity much rewarding & less dangery. ? Portfolio prudence is the instruction of various financial assets which comprise the portfolio. ? Portfolio caution is a decision support system that is designed with a view to meet the multi-faced require of investors.According to Securities and substitute Board of India Portfolio is defined as portfolio meaning the total keepings of securities be ampleing to any person. ? PORTFOLIO double-decker means any p erson who pursuant to a pay off or battle array with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio tutor or otherwise) the wariness or administration of a portfolio of securities or the funds of the client. ? DISCRETIONARY PORTFOLIO MANAGER means a portfolio manager who exercises or may, under a contract relating to portfolio charge exercises any degree of discretion as to the investments or management of the portfolio of securities or the funds of the client. Investment avenues in that location are a large-minded outcome of investment avenues for savers in India. Some of them are foodstuffable and liquid, while others are non- merchandiseable. Some of them are spunkyly findy while some others are al nearly danger less. Investment avenues can be broadly reason under the following head. 1. Corpo localise securities 2. Equity shares. 3. Preference shares. 4. Debentures/Bonds. 5. Derivatives. 6. Others. Joint produ ction line companies in the private sector core corpo roll securities. These include integrity shares, preference shares, and debentures. Equity shares have variable dividend and hence belong to the high lay on the line-high apply category preference shares and debentures have fixed counters with scorn endangerment.The classification of corpo rove securities that can be chosen as investment avenues can be depicted as shown below DESIGN OF STUDY NEED AND grandness OF THE STUDY Portfolio management presents the top hat investment planto the case-by-cases as per their income, budget, age and ability to undertake attempts. Portfolio managementminimizes the gamblesinvolved in investiture and also increases the chance of making profits. Portfolio managers represent the clients financial needs and suggest the best and anomalous investment policy for them with lower limit take chancess involved. It enables the portfolio managers toprovide customized investment solutionst o clients as per their needs and requirements. It also foc manipulations on of import aspects like Stability of Income, capital letter Growth, Liquidity, Safety, Tax Incentives, etc. Main goals of Portfolio Management are To Maximize the value of the portfolio, To Seek balancein the portfolio and To backing portfolio projects strategicallyaligned OBJECTIVES OF THE STUDY To provide the material frame work of Portfolio Management To understand how to analyze securities To k instanter how portfolio management is done. To study the investment pattern and its related jeopardizes & returns. To help the investors to rent wisely amongst election investment. To understand, analyze and select the best portfolio. To strike balance between cost of funds, lay on the lines and returns. To envision out optimal portfolio, which set ups optimal return at a minimize risk to the investor. To see whether the portfolio risk is less than unmarried risk on whose basis the portfolios ar e constituted SCOPE OF THE STUDY This study covers the Markowitz stupefy. The study covers the unhurriedness of correlational statisticss between the divergent securities in order to find out at what destiny funds should be invested among the companies in the portfolio. overly the study includes the calculation of man-to-man Standard Deviation of securities and ends at the calculation of w octettes of person securities involved in the portfolio.These lucks help in allocating the funds purchasable for investment cornerstoned on barbaric portfolios. METHODOLOGY Sources of Data allurement The Methodology employed in this study selective information include both(prenominal) the primary quill and secondary array methods. Primary collection methods This method includes the data salt away from the personal discussion with the authorized clerks and members of the exchange. Secondary data collection It includes the following Companies Annual Reports Information From Inte rnet Publication Information provided by origination Exchanges. Period of Study For distinguishable companies, financial data has been collected from the year 2007- 2012 Selection of CompaniesCompanies selected for analysis are- o Wipro o Indian Tobacco Corporation o Dr. Reddy Laboratories o ACC o Bharat Heavy Electricals LIMITATIONS OF THE STUDY This study has been conducted purely to understand portfolio management for investor and is done for requirement of documentation of MBA. For study purpose 5 companies have been taken for calculations. Study is special to point from 2007-2012. There was a constraint with regard to time allocated for the query study, period of one and half month. Study is limited to whole get-go 3 steps of phrases of portfolio management. Detailed study of the topic was not possible due to limited size of project. The availability of information in the form of annual reports and price fluctuations of the companies was a big constraint to the study. CHAPTER-2 REVIEW OF LITERATURE INTRODUCTION TO PORTFOLIO MANAGEMENT The term Portfolio refers to any collection of financial assets much(prenominal)(prenominal) as declivitys, bonds, and cash. Portfolios may be held by item-by-item investors and/or managed by financial professionals, hedge funds, banks and other financial institutions. It is a generally genuine principle that a portfolio is designed according to the investors risk tolerance, time frame and investment objectives. Portfolio management is all about strengths, weaknesses, opportunities and threats in the run a state(prenominal) of debt vs. candor, domestic vs. nternational, ingathering vs. safety, and some(prenominal) other copeoffs encountered in the attempt to increase return at a inclined appetite for risk. The art and wisdom of making decisions about investment alloy and policy, matching investments to objectives, asset ap contributioning for individuals and institutions, and balancing risk a a ssoilst feat is known as Portfolio Management. ? PORTFOLIO MANAGER means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client. DISCRETIONARY PORTFOLIO MANAGER means a portfolio manager who exercises or may, under a contract relating to portfolio management exercises any degree of discretion as to the investments or management of the portfolio of securities or the funds of the client. FUNCTIONS OF PORTFOLIO MANAGEMENT ? To frame the investment system and select an investment variety to achieve the want investment objectives ? To provide a balanced portfolio which not provided can hedge against the puffiness but can also perfect returns with the associated degree of risk ? To make timely defileing and selling of securities ? To maximize the after- value return by investing in various levy saving investment instruments.STRUCTURE / PROCESS OF TYPICAL PORTFOLIO MANAGEMENT In the small firm, the portfolio manager performs the job of earnest analyst. In the case of medium and large size organizations, job function of portfolio manager and bail measures analyst are eliminate. CHARACTERISTICS OF PORTFOLIO MANAGEMENT case-by-cases leave alone benefit immensely by taking portfolio management operate for the following reasons ? Whatever may be the status of the groovy grocery store, over the long period ceiling commercialises have given an excellent return when compared to other forms of investment. The return from bank deposits, units, etc. , is much less than from the have a bun in the oven securities industry. ? The Indian Stock Markets are very complicated.Though there are thousands of companies that are listed just a few hundred which have the requirement liquidity. take down among these, further some have the growth prospec ts which are conducive for investment. It is unworkable for any individual wishing to invest and sit down and learn all these intricacies of the market unless he does nothing else. ? scour if an investor is able to understand the intricacies of the market and separate chaff from the grain the job practices in India are so complicated that it is really a difficult assign for an investor to take in all the major exchanges of India, look after his de jazzries and payments. TYPES OF PORTFOLIO MANAGEMENT arbitrary Portfolio Management helper(DPMS)In this type of improvement, the client parts with his money in favour of the manager, who in return, handles all the paper work, makes all the decisions and gives a cracking return on the investment and charges fee. In the Discretionary Portfolio Management Service, to maximize the yield, almost all portfolio managers park the funds in the money market securities such(prenominal) as overnight market, 18 days treasury bills and 90 day s commercial bills. nomally, the return of such investment varies from 14 to 18 percent, depending on the call money rates prevailing at the time of investment. 2. Non-Discretionary Portfolio Management Service(NDPMS) The manager functions as a counselor, but the investor is salve to take over or reject the managers advice the paper work is also undertaken by manager for a service of process charge.The manager concentrates on origin market instruments with a portfolio forge to the risk taking ability of the investor. Risk of Portfolio Management There was a time when portfolio management was an exotic term. The scenario has changed drastically. It is now a familiar term and is widely practiced in India. The theories and concepts relating to portfolio management now find their way to the front pages financial cleanspapers and the cover pages of investments ledgers in India. Capital markets have become active. The Indian note markets are steadily moving towards efficiency, wi th rapid computerization, increasing high market transparency, stop infrastructure, amend customer service etc.The markets are correlative funds have been set up the coun fork out since1987. With this development investment in securities has gained considered momentum. Professional portfolio management backed by competent research began to be practiced by mutual funds, investment consultant and big brokers. The Securities Exchange Board of India (SEBI), The Stock Market Regulatory body in India is supervising the whole process. IMPORTANCE OF PORTFOLIO MANAGEMENT ? Emergence of institutional investing on behalf of individuals. A play of financial institutions, mutual funds and other agencies are undertaking the task of investing money of small investors, on their behalf. Growth in the number and size of investible funds a large part of ho rehearse affirm nest egg is being directed towards financial assets. ? Increased market volatility risk and return parameters of financial assets are continuously changing because of frequent changes in governments industrial and fiscal policies, economic uncertainty and instableness. ? greater use of computers for processing mass of data. ? Professionalization of the field and increasing use of analytical methods (e. g. quantitative techniques) in the investment decision making ? big direct and indirect costs of errors or shortwaterfall in meeting portfolio objectives increase competition and greater scrutiny by investors.STEPS IN PORTFOLIO MANAGEMENT ? specification and faculty of investor objectives, constraints, and preferences in the form of an investment policy statement. ? Determination and qualification of capital market expectations for the economy, market sectors, industries and individual securities. ? Allocation of assets and determination of divert portfolio strategies for each asset class and selection of individual securities. ? Performance bill and rating to ensure attainment of investor objecti ves. ? Monitoring portfolio factors and responding to changes in investor objectives, constrains and / or capital market expectations. Rebalancing the portfolio when necessary by repeating the asset assignation, portfolio strategy and certificate selection. CRITERIA FOR PORTFOLIO DECISIONS In portfolio management emphasis is put on identifying the collective magnificence of all investors places. The emphasis shifts from individual assets selection to a more balanced emphasis on diversification and risk-return inter races of individual assets within the portfolio. Individual securities are important only to the extent they affect the aggregate portfolio. In short, all decisions should focus on the shock absorber which the decision ordain have on the aggregate portfolio of all the assets held. Portfolio strategy should be molded to the unique needs and characteristics of the portfolios owner. Diversification across securities volition cast down a portfolios risk. If the risk and return are lower than the desired level, leverages (borrowing) can be used to achieve the desired level. Larger portfolio returns come only with larger portfolio risk. The most important decision to make is the add of risk which is acceptable. The risk associated with a security type depends on when the investment will be liquidated. Risk is reduced by selecting securities with a payoff fuddled to when the portfolio is to be liquidated. QUALITIES OF PORTFOLIO MANAGER 1. SOUND GENERAL KNOWLEDGE Portfolio management is an arouse and challenging job. He has to work in an extremely uncertain and confliction environment.In the persuade market every new piece of information affects the value of the securities of antithetical industries in a distinct way. He must be able to judge and predict the effects of the information he gets. He must have sharp memory, alertness, fast intuition and self-confidence to arrive at quick decisions. 2. ANALYTICAL ABILITY He must have his own th eory to arrive at the intrinsic value of the security. An analysis of the securitys values, friendship, etc. is s continuous job of the portfolio manager. A peachy analyst makes a good financial consultant. The analyst can know the strengths, weaknesses, opportunities of the economy, industry and the caller. 3. MARKETING SKILLS He must be good salesman. He has to convince the clients about the particular security.He has to compete with the melodic phrase brokers in the storage market. In this context, the marketing skills help him a lot. 4. EXPERIENCE In the cyclical behavior of the rake market history is often repeated, therefore the consider of the variant phases helps to make rational decisions. The experience of the assorted types of securities, clients, market trends, etc. , makes a perfect professional manager. PORTFOLIO BUILDING Portfolio decisions for an individual investor are influenced by a wide variety of factors. Individuals differ greatly in their caboodle an d therefore, a financial programme well suited to one individual may be inappropriate for another.Ideally, an individuals portfolio should be tailor-made to fit ones individual needs. Investors Characteristics An analysis of an individuals investment situation requires a study of personal characteristics such as age, health conditions, personal habits, family responsibilities, tune or professional situation, and tax status, all of which affect the investors involuntaryness to assume risk. Stage in the spiritedness Cycle adept of the most important factors affecting the individuals investment objective is his stage in the life cycle per second. A schoolboyish person may put greater emphasis on growth and lesser emphasis on liquidity. He can afford to deferment for realization of capital gains as his time panorama is large. Family responsibilitiesThe investors matrimonial status and his responsibilities towards other members of the family can have a large impact on his invest ment needs and goals. Investors experience The success of portfolio depends upon the investors knowledge and experience in financial matters. If an investor has an aptitude for financial affairs, he may wish to be more aggressive in his investments. office towards Risk A persons psychological make-up and financial pip dictate his ability to assume the risk. Different kinds of securities have diametric kinds of risks. The higher the risk, the greater the opportunity for higher gain or injustice. Liquidity Needs Liquidity needs vary considerably among individual investors.Investors with stiff income from other sources may not worry much about instantaneous liquidity, but individuals who depend heavily upon investment for meeting their general or specific needs, must plan portfolio to match their liquidity needs. Liquidity can be checked in both ways 1. by allocating an appropriate percentage of the portfolio to bank deposits, and 2. by requiring that bonds and equities bribed be highly marketable. Tax considerations Since antithetical individuals, depending upon their incomes, are subjected to oppo post marginal rates of taxes, tax considerations become most important factor in individuals portfolio strategy. There are differing tax treatments for investment in various kinds of assets. Time HorizonIn investment planning, time horizon become an important consideration. It is highly variable from individual to individual. Individuals in their young age have long time horizon for planning, they can smooth out and absorb the ups and downs of forged combination. Individuals who are old have smaller time horizon, they generally tend to avoid erratic portfolios. Individuals fiscal Objectives In the initial stages, the primary objective of an individual could be to accumulate wealth via regular periodic nest egg and have an investment programme to achieve long term capital gains. Safety of Principal The protection of the rupee value of the investment is of prime importance to most investors.The original investment can be find only if the security can be readily sold in the market without much loss of value. Assurance of Income Different investors have different current income needs. If an individual is dependent of its investment income for current consumption indeed income received now in the form of dividend and interest payments become primary objective. Investment Risk All investment decisions revolve around the get by-off between risk and return. All rational investors want a genuine return from their investment. An ability to understand, measure and properly manage investment risk is fundamental to any intelligent investor or a speculator.Frequently, the risk associated with security investment is ignored and only the rewards are emphasized. An investor who does not fully value the risks in security investments will find it difficult to obtain move imperious results. RISK AND EXPECTED RETURN There is a authoritative re lationship between the amount of risk and the amount of evaluate return i. e. , the greater the risk, the larger the evaluate return and larger the chances of substantial loss. One of the most difficult problems for an investor is to estimate the highest level of risk he is able to assume. pic TYPES OF RISKS- Risk consists of two components. They are 1. authoritative Risk 2. Un- regular Risk 1. Systematic RiskSystematic risk is caused by factors outside(a) to the particular troupe and uncontrollable by the company. The systematic risk affects the market as a whole. Factors affect the systematic risk are ? economic conditions ? political conditions ? sociological changes The systematic risk is unavoidable. Systematic risk is further sub-divided into three types. They are a) Market Risk b) divert Rate Risk c) Purchasing federal agency Risk a) Market Risk One would notice that when the stock market surges up, most stocks post higher price. On the other hand, when the market fall s sharply, most common stocks will drop. It is not uncommon to find stock prices falling from time to time while a companys earnings are rising and vice-versa.The price of stock may vibrate widely within a short time level(p) though earnings remain unchanged or relatively stable b) Interest Rate Risk Interest rate risk is the risk of loss of principal brought about the changes in the interest rate paid on new securities currently being issued. c) Purchasing Power Risk The emblematic investor seeks an investment which will give him current income and / or capital cargo area in addition to his original investment. 2. Un-systematic Risk Un-systematic risk is unique and remaining to a firm or an industry. The nature and mode of raising pay and paying back the loans, involve the risk element. Financial leverage of the companies that is debt- rightfulness ascribe of the companies differs from each other.All these factors Factors affect the un-systematic risk and contribute a portio n in the total variability of the return. ? Managerial inefficiently ? Technological change in the production process ? Availability of raw materials ? Changes in the consumer preference ? force back problems The nature and magnitude of the above mentioned factors differ from industry to industry and company to company. They have to be analyzed separately for each industry and firm. Un-systematic risk can be broadly classified into a) Business Risk b) Financial Risk a. Business Risk Business risk is that portion of the irregular risk caused by the operating environment of the business.Business risk arises from the inability of a firm to maintain its competitive edge and growth or stability of the earnings. The volatibility in stock prices due to factors intrinsic to the company itself is known as Business risk. Business risk is concerned with the difference between taxation and earnings before interest and tax. Business risk can be divided into. i) Internal Business Risk Internal business risk is associated with the surgical operational efficiency of the firm. The operational efficiency differs from company to company. The efficiency of operation is reflected on the companys achievement of its pre-set goals and the fulfillment of the promises to its investors. ii)External Business RiskExternal business risk is the result of operating conditions imposed on the firm by circumstances beyond its control. The external environments in which it operates exert some squelch on the firm. The external factors are social and regulatory factors, monetary and fiscal policies of the government, business cycle and the general economic environment within which a firm or an industry operates. b. Financial Risk It refers to the variability of the income to the rectitude capital due to the debt capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of the company consists of uprightness funds and borrowed funds. PORT FOLIO ANALYSISVarious assemblages of securities when held together behave in a different manner and give interest payments and dividends also, which are different to the analysis of individual securities. A combination of securities held together will give a effective result if they are grouped in a manner to stiff higher return after taking into consideration the risk element. excerpt OF PROTFOLIO The selection of portfolio depends on the various objectives of the investor. The selection of portfolio under different objectives are dealt subsequently. Objectives and asset mix if the main objective is getting adequate amount of current income, sixty per cent of the investment is made on debts and 40 per cent on equities. The proportions of investments on debt and equity differ according to the individuals preferences.Growth of income and asset mix Here the investor requires a certain percentage of growth in the income received from his investment. The debt portion of the portfoli o may consist of 60 to 100 percent equities and 0 to 40 percent debt instrument. The debt portion of the portfolio may consist of concession regarding tax exemption. Appreciation of principal amount is given third priority. For example computer software, hardware and non-conventional energy producing company shares provides good possibility of growth in dividend. Capital appreciation and asset mix Capital appreciation means that the valu of the original investment increases over the years.Investment in real estates like land and house may provide a faster rate of capital appreciation but they lack liquidity. In the capital market, the values of the shares are much higher than their original issue prices. Safety of principal and asset mix Usually, the risk averse investors are very particular about the stability of principal. According to the life cycle theory, bulk in the third stage of life also give more importance to the safety of the principal. All the investors have this objec tive in their mind. No one like to lose his money invested in different assets. Risk and return analysis The traditional approach to portfolio building has some basic assumptions. First, the individual prefers larger to smaller returns from securities.To achieve this goal, the investor has to take more risk. The ability to achieve higher returns is dependent upon his ability to judge risk and his ability to take specific risks. Diversification Once the asset mix is determined and the risk and return are analyzed, the final step is the diversification of portfolio. Financial risk can be minimized by commitments to top-grade bonds, but these securities offer poor resistance to inflation. Stocks provide better inflation protection than bonds but are more vulnerable to financial risks. PORTFOLIO pull Portfolio is a combination of securities such as stocks, bonds and money market instruments.The process of b conduceing together the broad asset so as to obtain optimum return with minimu m risk is called portfolio construction. Diversification of investments helps to spread risk over many a(prenominal) assets. A diversification of securities gives the assurance of obtaining the anticipated return on the portfolio. APPROACHES IN PORTFOLIO CONSTRUCTION There are two approaches in construction of the portfolio of securities. They are ? Traditional approach ? Modern approach traditional APPROACH Traditional approach was ground on the fact that risk could be measured on each individual security through the process of finding out the standard deviation and that security should be chosen where the deviation was the lowest.Traditional approach believes that the market is inefficient and the fundamental analyst can take advantage of the situation. Traditional approach is a ecumenical financial plan for the individual. It takes into broadside the individual needs such as housing, life insurance and pension plans. Traditional approach basically deals with two major decisio ns. They are a) Determining the objectives of the portfolio b) Selection of securities to be included in the portfolio MODERN APPROACH Modern approach theory was brought out by Markowitz and Sharpe. It is the combination of securities to get the most efficient portfolio. Combination of securities can be made in many ways. Markowitz developed the theory of diversification through scientific reasoning and method.Modern portfolio theory believes in the maximization of return through a combination of securities. The modern approach discusses the relationship between different securities and then draws inter-relationships of risks between them. Markowitz gives more attention to the process of selecting the portfolio. It does not deal with the individual needs. In the modern approach, the final step is asset allocation process that is to choose the portfolio that meets he requirement of the investor. The risk taker i. e. who are willing to accept a higher probability of risk for getting t he expected return would choose high risk portfolio. Investor with lower tolerance for risk would choose low level risk portfolio.The risk neutral investor would choose the medium level risk portfolio. MARKOWITZ MODEL Harry Markowitz opened new vistas to modern portfolio selection by publishing an article in the journal of pay in March 1952. His publication indicated the importance of correlation among the different stocks reruns in the construction of a stock portfolio. Most people break that holding two stocks is less risky than holding one stock. For example, holding stocks from framework, banking, and electronic companies is better than investing all the money on the textile companys stock. But building up the optimal portfolio is very difficult. Markowitz provides an answer to it with the help of risk and return relationship.Markowitz model is a suppositious framework for analysis of risk and return and their relationships. He used statistical analysis for the measurement of risk and mathematical programming for selection of assets in a portfolio in an efficient manner. Markowitz approach determines for the investor the efficient set of portfolio through three important variables i. e. ? Return ? Standard deviation ? Co-efficient of correlation Markowitz model is also called as an Full Covariance Model. Through this model the investor can find out the efficient set of portfolio by finding out the tradeoff between risk and return, between the limits of zero and infinity.According to this theory, the effects of one security get over the effects of the other security purchase are taken into consideration and then the results are evaluated. Most people agree that holding two stocks is less risky than holding one stock. For example, holding stocks from textile, banking and electronic companies is better than investing all the money on the textile companys stock. Markowitz had given up the single stock portfolio and introduced diversification. The single st ock portfolio would be preferable if the investor is perfectly certain that his expectation of highest return would turn out to be real. In the world of uncertainty, most of the risk adverse investors would like to join Markowitz rather than keeping a single stock, because diversification reduces the risk. ASSUMPTIONS All investors would like to earn the maximum rate of return that they can achieve from their investments. ? All investors have the same expected single period investment horizon. ? All investors before making any investments have a common goal. This is the avoidance of risk because Investors are risk-averse. ? Investors base their investment decisions on the expected return and standard deviation of returns from a possible investment. ? Perfect markets are simulated (e. g. no taxes and no exploit costs). ? The investor assumes that greater or larger the return that he achieves on his investments, the higher the risk factor surrounds him. On the contrary when risks ar e low the return can also be expected to be low. The investor can reduce his risk if he adds investments to his portfolio. ? An investor should be able to get higher return for each level of risk by determining the efficient set of securities. ? An individual seller or buyer cannot affect the price of a stock. This assumption is the basic assumption of the perfectly competitive market. ? Investors make their decisions only on the basis of the expected returns, standard deviation and covariances of all pairs of securities. ? Investors are assumed to have homogenous expectations during the decision-making period. ? The investor can lend or borrow any amount of funds at the riskless rate of interest.The riskless rate of interest is the rate of interest offered for the treasury bills or Government securities. ? Investors are risk-averse, so when given a choice between two otherwise identical portfolios, they will choose the one with the lower standard deviation. ? Individual assets are infinitely divisible, meaning that an investor can buy a fraction of a share if he or she so desires. ? There is a risk fall by the wayside rate at which an investor may either lend (i. e. invest) money or borrow money and There is no transaction cost i. e. no cost involved in buying and selling of stocks. ? There is no personal income tax. Hence, the investor is indifferent to the form of return either capital gain or dividend.The Effect Of feature Two Securities It is believed that holding two securities is less risky than by having only one investment in a persons portfolio. When two stocks are taken on a portfolio and if they have negative correlation then risk can be completely reduced because the gain on one can offset the loss on the other. This can be shown with the help of following example Inter-Active Risk Through Covariance Covariance of the securities will help in finding out the inter-active risk. When the covariance will be positive then the rates of return of secur ities move together either upward or downwards. Alternatively it can also be said that the inter-active risk is positive.Secondly, covariance will be zero on two investments if the rates of return are independent. Holding two securities may reduce the portfolio risk too. The portfolio risk can be calculated with the help of the following approach pattern with child(p) ASSET PRICING MODEL (CAPM) Markowitz, William Sharpe, John Lintner and Jan Mossin provided the basic structure for the Capital Asset Pricing Model. It is a model of bilinear general equilibrium return. In the CAPM theory, the required rate return of an asset is having a linear relationship with assets beta value i. e. undiversifiable or systematic risk (i. e. market related risk) because non market risk can be eliminated by diversification and systematic risk measured by beta.Therefore, the relationship between an assets return and its systematic risk can be expressed by the CAPM, which is also called the Securit y Market Line. Lending and borrowing- Here, it is assumed that the investor could borrow or lend any amount of money at riskless rate of interest. When this opportunity is given to the investors, they can mix risk bounteous assets with the risky assets in a portfolio to obtain a desired rate of risk-return combination. Rp =Portfolio return Xf =The proportion of funds invested in risk free assets 1- Xf = The proportion of funds invested in risky assets Rf =Risk free rate of return Rm =Return on risky assets The expected return on the combination of risky and risk free combination is Rp= Rf Xf+ Rm(1- Xf)Formula can be used to calculate the expected returns for different situations, like mixing riskless assets with risky assets, investing only in the risky asset and mixing the borrowing with risky assets. THE CONCEPT According to CAPM, all investors hold only the market portfolio and risk less securities. The market portfolio is a portfolio comprised of all stocks in the market. Each asset is held in proportion to its market value to the total value of all risky assets. For example, if Reliance sedulousness share represents 15% of all risky assets, then the market portfolio of the individual investor contains 15% of Satyam Industry shares. At this stage, the investor has the ability to borrow or lend any amount of money at the risk less rate of interest. Eg. assume that borrowing and lending rate to be 12. 5% and the return from the risky assets to be 20%. There is a tradeoff between the expected return and risk. If an investor invests in risk free assets and risky assets, his risk may be less than what he invests in the risky asset alone. But if he borrows to invest in risky assets, his risk would increase more than he invests his own money in the risky assets. When he borrows to invest, we call it financial leverage. If he invests 50% in risk free assets and 50% in risky assets, his expected return of the portfolio would be Rp= Rf Xf+ Rm(1- Xf) = (12. 5 x 0. 5) + 20 (1-0. 5) = 6. 25 + 10 = 16. 5% if there is a zero investment in risk free asset and 100% in risky asset, the return is Rp= Rf Xf+ Rm(1- Xf) = 0 + 20% i. e. 20% if -0. 5 in risk free asset and 1. 5 in risky asset, the return is Rp= Rf Xf+ Rm(1- Xf) = (12. 5 x -0. 5) + 20 (1. 5) = -6. 25+ 30 = 23. 75% EVALUATION OF PORTFOLIO Portfolio manager evaluates his portfolio murder and identifies the sources of strengths and weakness. The evaluation of the portfolio provides a feedback about the performance to evolve better management strategy. Even though evaluation of portfolio performance is considered to be the last stage of investment process, it is a continuous process.There are number of situations in which an evaluation becomes necessary and important. i. Self-Valuation An individual may want to evaluate how well he has done. This is a part of the process of refining his skills and improving his performance over a period of time. ii. Evaluation of Managers A mutual fund or sim ilar organization might want to evaluate its managers. A mutual fund may have several managers each running a separate fund or sub-fund. It is often necessary to compare the performance of these managers. iii. Evaluation of Mutual Funds An investor may want to evaluate the various mutual funds operating in the untaught to decide which, if any, of these should be chosen for investment.A similar need arises in the case of individuals or organizations who engage external agencies for portfolio advisory operate. iv. Evaluation of gatherings Academics or researchers may want to evaluate the performance of a whole group of investors and compare it with another group of investors who use different techniques or who have different skills or vex to different information. NEED FOR EVALUATION OF PORTFOLIO ? We can try to evaluate every transaction. Whenever a security is brought or sold, we can attempt to assess whether the decision was puzzle and profitable. ? We can try to evaluate the performance of a specific security in the portfolio to determine whether it has been worthwhile to include it in our portfolio. We can try to evaluate the performance of portfolio as a whole during the period without examining the performance of individual securities within the portfolio. Portfolio management has emerged as a separate pedantic discipline in India. Portfolio theory that deals with the rational investment decision-making process has now become an integral part of financial literature. investiture in securities such as shares, debentures & bonds is profitable well as exciting. It is indeed rewarding but involves a great deal of risk & need artistic skill. Investing in financial securities is now considered to be one of the most risky avenues of investment. It is rare to find investors investing their entire savings in a single security. Instead, they tend to invest in a group of securities.Such group of securities is called as PORTFOLIO. Creation of portfolio helps to reduce risk without sacrificing returns. Portfolio management deals with the analysis of individual securities as well as with the theory & practice of optimally unite securities into portfolios. The modern theory is of the view that by diversification, risk can be reduced. The investor can make diversification either by having a large number of shares of companies in different regions, in different industries or those producing different types of product lines. Modern theory believes in the perspective of combinations of securities under constraints of risk and return.PORTFOLIO REVISION The portfolio which is once selected has to be continuously reviewed over a period of time and then revised depending on the objectives of the investor. The care taken in construction of portfolio should be extended to the review and revision of the portfolio. Fluctuations that occur in the equity prices cause substantial gain or loss to the investors. The investor should have competence and ski ll in the revision of the portfolio. The portfolio management process needs frequent changes in the com property of stocks and bonds. In securities, the type of securities to be held should be revised according to the portfolio policy.An investor purchases stock according to his objectives and return risk framework. The prices of stock that he purchases fluctuate, each stock having its own cycle of fluctuations. These price fluctuations may be related to economic activity in a country or due to other changed circumstances in the market. If an investor is able to prospect these changes by developing a framework for the future through scrupulous analysis of the behavior and movement of stock prices is in a position to make higher profit than if he was to simply buy securities and hold them through the process of diversification. Mechanical methods are adopted to earn better profit through proper timing.The investor uses formula plans to help him in making decisions for the future by exploiting the fluctuations in prices. PASSIVE MANAGEMENT Passive management is a process of holding a well diversified portfolio for a long term with the buy and hold approach. Passive management refers to the investors attempt to construct a portfolio that resembles the overall market returns. The simplest form of unresisting management is holding the index fund that is designed to replicate a good and well defined index of the common stock such as BSE-sensex or NSE-Nifty. ACTIVE MANAGEMENT Active management is holding securities based on gthe forecast about the future.The portfolio managers who pursue active strategy with respect to market components are called market timers. The portfolio managers vary their cash position or beta of the equity portion of the portfolio based on the market forecast. The managers may indulge in group whirlings. here, the group rotation means changing the investment in different industries stocks depending on the assessed expectations regarding their future performance. FORMULA PLANS The formula plans provide the basic rules and regulations for the purchase and sale of securities. The amount to be spent on the different types of securities is fixed. The amount may be fixed either in constant or variable ratio. This depends on the investors attitude towards risk and return.The commonly used formula plans are i. Average Rupee Plan ii. perpetual Rupee Plan iii. Constant Ratio Plan iv. Variable Ratio Plan ADVANTAGES ? Basic rules and regulations for the purchase and sale of securities are provided. ? The rules and regulations are rigid and help to overcome tender-hearted emotion. ? The investor can earn higher profits by adopting the plans. ? A stratum of action is formulated according to the investors objectives. ? It controls the buying and selling of securities by the investor. ? It is useful for taking decisions on the timing of investments. DISADVANTAGES ? The formula plan does not help the selection of the security.Th e selection of the security has to be done either on the basis of the fundamental or technical analysis. ? It is strict and not flexible with the inherent problem of adjustment. ? The formula plans should be applied for long periods, otherwise the transaction cost may be high. ? Even if the investor adopts the formula plan, he needs forecasting. Market forecasting helps him to identify the best stocks. CHAPTER-3 COMPANY PROFILE SHAREKHAN LTD Sharekhan Ltd. is one of the leading retail stock broking house of SSKI Group which is running successfully since 1922 in the country. It is the retail broking arm of the Mumbai-based SSKI Group, which has over eight decades of experience in the stock broking business.Sharekhan offers its customers a wide range of equity related services including trade execution on BSE, NSE, Derivatives, depository services, online affair, investment advice etc. The firms online vocation and investment site www. sharekhan. com- was launched on Feb 8, 2000. T he site gives access to tiptop content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has a registered base of over one lakh customers. The content-rich and research orientated portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed engine room and superior market information.The objective has been to let customers make informed decisions and to simplify the process of investing in stocks. On April 17, 2002 Sharekhan launched Speed change, a net-based workable application that emulates the broker terminals along with master of ceremonies of other information germane(predicate) to the Day Traders. This was for the first time that a net-based trading station of this tone was offered to the traders. In the last six months Speed Trade has become a de facto standard for the Day Trading community over the net. S harekhans ground network includes over 640 centers in 280 cities in India which provide a host of trading related services. Sharekhan has always believed in investing in technology to build its business.The company has used some of the best-known names in the IT industry, like SunMicrosystems,Oracle,Microsoft,CambridgeTechnologies,Nex genix, Vignette, Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. To build its trading engine and content. The Morakhiya family holds a majority stake in the company. HSBC, Intel &Carlyle are the other investors. With a legacy of more than 80 years in the stock markets, the SSKI groupventuredintoinstitutionalbrokingandcorporatefinance18yearsago. PresentlySSKIisoneoftheleadingplayersininstitutionalbrokingandcorporate finance activities. SSKI holds a sizeable portion of the market in each of these segments.SSKIs institutional broking arm throwawaysfo7%ofthemarketforForeignInstitutionalportfolioinvestmentand5%ofallDomesticInstitutional portfolioinvestmentinthecountry. Ithas60institutionalclientsspreadoverIndia,FarEast,UKandUS. ForeignInstitutional Investors generate about 65% of the organizations revenue, with a daily turnover of over US$ 2 million. The Corporate Finance section has a listof very prestigious clients and has many firsts to its credit, in terms of the size of deal, sector tapped etc. The group has set over US$ 1 billion in private equity deals. PROFILE OF THE COMPANY Name of the company Sharekhan ltd.Year of Establishment 1925 Headquarter ShareKhan SSKI A-206 Phoenix dwelling house Phoenix Mills Compound Lower Parel, Mumbai Maharashtra, INDIA- 400013 Nature of Business Service Provider Services repository Services, Online Services and Technical Research. Number of Employees all over 3500 Website www. sharekhan. com Slogan Your guide to the financial jungle Vision To be the bestretail brokering Brand in the retail business of stock market. MissionTo acquire and appoint the individual i nvestor to make better investmentdecisions through quality advice andsuperior service Sharekhan is infact Among the top 3 branded retail service providers No. 1 player in online business Largest network of branded broking outlets in the country serving more than7, 00,000 clients Sharekhans management team is one of the unattackableest in the sector and has positioned Sharekhan to take advantage of the growing consumer demand for financial services products in India through investments in research, pan-Indian branch network and an outstanding technology platform. Further, Sharekhans lineage and relationship with SSKI Group provide it a unique position to understand and leverage the growth of the financial services sector.SSKI Corporate Finance Private Limited (SSKI) is a leading India-based investment bank with strong research-driven focus. Their team members are widely respected for their commitment to transactions and their specialized knowledge in their areas of strength ITA CORE SERVICES ARE ? Equities, and Derivatives trading on the National Stock Exchange of India Ltd. (NSE), and Bombay Stock Exchange Ltd. (BSE), ? Commodities trading on National Commodity and Derivatives Exchange India(NCDEX) and Multi Commodity Exchange of India Ltd. (MCX), ? Depository services, ? Online trading services, ? IPO Services, ? Dial-n-Trade ? Portfolio management services, Fundamental and Technical Research services, ? In addition to this they also provide advisory services anddistributions formutual funds. ? Sharekhan ValueLine (a monthly publication withreviews of recommendations,stocks to watch out for etc. ) ? Daily research reports and market review (High Noon &Eagle Eye) ? Pre-market Report ? Daily trading calls based on Technical Analysis ? Cool trading products (Daring Derivatives and Market Strategy) REASONS TO involve SHAREKHAN ? Experience SSKI has more than eight decades of trust and credibility in the Indian Stock Market. In the Asia Money Brokers Poll h eld recently, SSKI win the Indias Best broking house for 2004 award.Ever since it launched Sharekhan as its retail broking division in February in 2000, it has been providing institutional-level research and broking services to individual investors. ? Technology With their Online Trading delineate one can buy and sell shares in an instant from any PC with an internet connection. Customers get access to the powerful online trading tools that will help them to take complete control over their investments in shares. ? accessibility Sharekhan provides Advice, Education, Tools and Education services for investors. These services are accessible through many centers across the country (over 650 locations in 150 cities), over the internet (through the website www. sharekhan. ltd) as well as over the voice tool. ? KnowledgeIn a business where the right information at the right time can translate into direct profits investors get access to a wide range of information on the content rich po rtal www. sharekhan. com. Investors will also get a useful set of knowledge-based tools that will empower them to take informed decisions ? Convenience One can call Sharekhans Dial-N-Trade number to get investment advice and execute his/her transactions. They have a give call-center to provide this service via a Toll Free Number 1800 22-7500 & 39707500 from anyplace in India. ? Customer Service Its customer service team serve their customer for any help that they need relating to transactions, billing, demat and other queries.Their customer service can be contacted via a toll-free number, email or live chat on www. sharekhan. com. ? Investment Advice Sharekhan has dedicated research teams of more than 30 people for fundamental and technical research. Their analysts constantly way the pulse of the market and provide timelyinvestment advice to customer in the form of daily research emails, online chat, printed reports etc. SHAREKHAN LIMITEDS MANAGEMENT TEAM DineshMurikya Owneroft hecompany TarunShah chief executive officerofthecompany ShankarVailaya Director(Operations) JaideepArora Director(Products&Technology) PathikGandotra HeadofResearch RishiKohli Vice professorshipofEquityDerivatives NikhilVora VicePresidentofResearch BENEFITS Free Depository A/c Instant Cash Transfer Multiple Bank Option. unassailable Order by Voice Tool Dial-n-Trade. Automated Portfolio to keep track of the value of your actual purchases. 24*7 Voice Tool access to your trading account. Personalized Price and Account Alerts delivered instantly to your mobile audio Live chat facility with Relationship manager on bumpkin Messenger. Special Personal inbox for order and trade confirmations. On-line customer service via web chat. Enjoy automated Portfolio. Buy or sell even single share. Anytime ordering. Sharekhan provides 4 in 1 account *Demat a/c *Bank a/c for fund transfer *Dial and Trade for query relating trading *Trading a/c for cash calculation DEMAT ACCOU NT Sharekhanisadepositoryparticipant. Thismeansthatwecankeepthesharesin dematerialized forminSharekhan. Butforthisonehastothedemataccountin Sharekhan. Dematerialization is the process by which a client can get physical certificates converted into electronic balances maintained in his account with the DP. In Sharekhan, under demat account there are two types of terminals Classic and Trade Tiger. ACCOUNT portaOpening a DP account with Sharekhan-One can open a Depository Participant (DP) account, either through a Sharekhan branch or through a Sharekhan Franchisee center. There is no fee for opening DP accounts with Sharekhan. However a nominal deposit (refundable) is charged towards services which will be adjusted against all future billings. All investors have to submit their proof of identity and proof of address along with theprescribed account opening form. CLASSICAL ACCOUNT This is a user friendly product which allow the client to trade through website www. sharekhan. com and is suitable for all the retial investors who is risk averse and hence prefers to invest in stocks or who does not trade too frequently Features Online trading account for investing in equity and derivatives via www. sharekhan. com Live Terminal and Single terminal for NSE Cash, NSE F&O & BSE. integrating of On-line trading, Saving Bank and Demat Account. Instant cash transfer facility against purchase & sale of shares. Competitive transaction charges. Instant order and trade confirmation by E-mail. Streaming Quotes (Cash & Derivatives). Personalized market watch. Single suppress interface for Cash and derivatives and more. Provision to enter price trigger and view the same online in market watch. SPEEDTRADE SPEEDTRADE is an internet-based software application that enables you to buy and sell inan instant.