1

LALA LAJPATRAI COLLEGE OF COMMERCE

AND ECONOMICS
MAHALAXMI (W), MUMBAI – 400034

A STUDY OF PORTFOLIO MANAGEMENT IN INDIA

Submitted for
PROJECT WORK FOR THIRD YEAR - SEMESTER VI
BACHELOR OF MANAGEMENT STUDIES PROGRAMME
OF THE
UNIVERSITY OF MUMBAI

BY
MUBASHIRAKHAN
UNIVERSITY SEAT NO: 192001256

UNDER THE GUIDANCE OF

PROF. DR. RAJESH MANKANI

2021 – 2022
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DECLARATION

I hereby declare that this project report entitled “A Study Of Portfolio Management In

India” which is being submitted in partial fulfillment of the requirement of the Project Work

as part of Third Year Semester VI of the “Bachelor of Management Studies program” by the

University of Mumbai is the result of the work carried out by me under the guidance and

supervision of Prof. DR. RAJESH MANKANI.

I further declared that I have not previously submitted this project report to any other

institution/university for any other degree/ diploma or for any other person.

Date: 17th March, 2022 SIGNATURE OF STUDENT

Place: Mumbai
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CERTIFICATE

It is certified that this project on A Study of Portfolio Management in India has been

prepared and submitted by Mubashira Khan, ROLL NUMBER: 192001256 under my

guidance during the academic year 2021-2022, which is being submitted in partial fulfilment

of the requirement of the Project Work as part of Third Year Semester VI of the “Bachelor of

Management Studies (Finance) program” by the University of Mumbai.

Date: 17th March 2022 Signature

(Prof. DR. RAJESH MANKANI)

Place: Mumbai (Project Guide)

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ACKNOWLEDGEMENT
There is always a sense of gratitude one expresses to others for the helpful and needy service they render
during all phases of life. I am doing this research with the help of different personalities. I wish to express
my gratitude towards all of them

It gives me immense pleasure to express my deep regards and sincere sense of gratitude to all my respected
faculty for the guidance throughout the research I did. I would especially like to thank Dr. Rajesh Mankani
who has always been available to help me out in any difficulties I faced during my research and also during
my academic endeavours. He has been one of the biggest sources of inspiration to me to undertake and
complete this project successfully and without him, it would not have been possible for me to undertake this
project work. So a big Thank you DR.MANKANI SIR for your able and worthy guidance.

I would also like to thank all my professors for steering my confidence and capability for giving me insight
into research by giving me exposure to the arena of competitive and real world.

Lastly I would also like to thank my parents and friends for the constant support during the research.
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ABSTRACT

Investing in equities requires time, knowledge and constant monitoring of the market. For those who need an
expert to help to manage their investments, Portfolio Management Service (PMS) comes as an answer. The
business of portfolio management has never been an easy one. Juggling the limited choices at hand with the
twin requirements of adequate safety and sizable returns is a task fraught with complexities. Given the
unpredictable nature of the market it requires solid experience and strong research to make the right
decision. In the end it boils down to make the right move in the right direction at the right time. That's where
the expert comes in.

The term portfolio management in common practice refers to selection of securities and their continuous
shifting in a way that the holder gets maximum returns at minimum possible risk. Portfolio management
services are merchant banking activities recognized by SEBI and these activities can be rendered by SEBI
authorized portfolio managers of discretionary portfolio managers. A portfolio manager by the virtue of his
knowledge, background and experience helps his clients to make investment in profitable avenues. A
portfolio manager has to comply with the provisions of the SEBI (portfolio managers) rules and regulations,
1993. This project also includes the different services rendered by the portfolio manager. It includes the
functions to be performed by the portfolio manager. What is the difference between the valve of time and
money? In other words, learn to separate time from money.

When it comes to the importance of time, how many of us believe that time is money. We all know that the
work done by us is calculated by units of time. Have you ever considered the difference between an
employee who is working on an hourly rate and the other who is working on salary basis? The only
difference between them is of the unit of time. No matter whether you get your pay by the hour, bi-weekly,
or annually; one thing common in all is that the amount is paid to you according to amount of time you spent
on working. In other words, time is precious and holds much more importance than money. That is the
reason the time is considered as an important factor in Wealth creation. The project also shows the factors
that one considers for making an investment decision and briefs about the information related to allocation.
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INDEX

Sr.No Topic Page No.

1 Introduction 7
2 Portfolio Management 8
3 Modern Portfolio Theory 13
4 Process of Portfolio Management 19
5 Types of Portfolios 27
6 Portfolio Management Strategies 30
7 Risk-Return Analysis 39
8 Portfolio Manager 42
9 SEBI Rules & Regulations for
Portfolio Management 46
10 Research Methodology 49
11 Literature Review 60
12 Data Analysis & Interpretation 71
13 Suggestion 84
14 Conclusion 86
15 Bibliography 88
16 Appendix 89
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CHAPTER 1: INTRODUCTION

A portfolio is one of the most basic concepts in investing and finance. It’s a term that can have a variety of
meanings, depending on context. The simplest definition of a portfolio is a collection of assets- stocks
debentures and bonds, real estate or even crypto currency- owned by one person or entity.

A portfolio holds your investments.

Your portfolio represents all of the investments you own. The term comes from the Italian word
‘portafoglio’ for a case designed to carry loose papers, but don’t think of a portfolio as a physical container.
Rather, it’s an abstract way to refer to groups of investment assets.

It’s not like you can only have one portfolio. People may call the stocks and exchange traded funds (ETFs)
they own in a brokerage account their taxable investment portfolio. At the same time, they could refer to the
mutual funds they own in their 401(k) account as their retirement portfolio. The term helps you distinguish
between one set off assets and another.

Groups of assets owned by companies or managed by financial firms are also called portfolios. A real estate
company can own a portfolio of residential properties, for instance. Portfolio management for clients is one
of the main jobs of a wealth management firm.

Portfolio refers to invest in a group of securities rather to invest in a single security. “Don’t put all your eggs
in one basket.” Portfolio helps in reducing risk without sacrificing return.

As per definition of SEBI Portfolio means “a collection of securities owned by an investor’. It represents the
total holdings of securities belonging to any person. It compromises of different types of assets and
securities.

In finance, a portfolio is an appropriate mix or collection of investments held by an institution or an

individual.

Holding a portfolio is a part of an investment and risk-limiting strategy called diversification. By owning
several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio
could include stocks, bonds, options, warrants, gold certificates, real estate, future contracts, product
facilities, or any other item that is expected to retain its value.

In building up an investment portfolio a financial institution will typically conduct its own investment
analysis, whilst a private individual may make use of the services of a financial advisor or a financial
institution which offers portfolio management services.
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PORTFOLIO MANAGEMENT

Portfolio management refers to the management or administration of a portfolio of securities to protect and
enhance the value of the underlying investment. It is the management of various securities (shares, bonds
etc) and other assets (eg: real estate), to meet specified investment goals for the benefit of the investors. It
helps to reduce risk without sacrificing returns. It involves a proper investment decision with regards to what
to buy and sell. It involves proper money management. It is also known as investment management.

Portfolio Management involves deciding what assets to include in the portfolio, given the goals of the
portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase,
how many to purchase, when to purchase, and what assets to divest. These decisions always involve some
sort of performance measurement, most typically expected return on the portfolio, and the risk associated
with this return (i.e. the standard deviation of the return). Typically the expected return from the portfolios of
different asset bundles is compared.

The unique goals and circumstances of the investor must also be considered. Some investors are more risk
averse than others.

Mutual funds have developed particular techniques to optimize their portfolio holdings.

The art and science of making decisions about investment mix and policy, matching investments to
objectives, asset allocation for individuals and institutions, and balancing risk against performance.
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Portfolio management is all about strengths, weaknesses, opportunities, and threats in the choice of debt vs.
equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to
maximize return at a given appetite for risk.

Portfolio management involves maintaining a proper combination of securities which compromise the
investor’s portfolio in a manner that they give maximum return with minimum risk. This requires framing of
proper investment policy. Investment policy means formation of guidelines for allocation of available funds
among the various types of securities including variation in such proportion under changing environment.
This requires proper mix between different securities in a manner that it can maximize the return with
minimum risk to the investor. Broadly speaking investors are those individuals who save money and invest
in the market in order to get return over it. They are not much educated, expert and they do not have time to
carry out detailed study. They have their business life, family life as well as social life and the time left out is
very much limited to study for investment purpose. On the other hand institutional investors are companies,
mutual funds, banks and insurance company who have surplus fund which needs to be invested profitably.
These investors have time and resources to carry out detailed research for the purpose of investing.

Portfolio management is growing rapidly serving broad array of investors- both individual and institutional-
with investment portfolio ranging in asset size from few thousands to crores of rupees. Despite growing
importance, the subject of portfolio and investment management is new in the country and is largely
misunderstood. In most cases, portfolio management has been practiced as an investment management
counselling in which the investor has been advised to seek assets that would grow in value and provide
income.

Portfolio management is concerned with efficient management of investment in the securities. An

investment is defined as the current commitment of funds for a period of time in order to derive a future flow
of funds that will compensate the investing unit:

- For the time the funds are committed,

- For the expected rate of inflation, and
- For the uncertainty involved in the future flow of funds.

The portfolio management deals with the process of selection of securities from the number of opportunities
available with different expected returns and carrying different levels of risk and the selection of securities is
made with a view to provide the investors the maximum yield for a given level of risk or ensure minimize
risk for a given level of return.

Investors invest his funds in a portfolio expecting to get a good return consistent with the risk that he has to
bear. The return realized from the portfolio has to be measured and the performance of the portfolio has to
be evaluated.
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It is evident that rational investment activity involves creation of an investment portfolio. Portfolio
management comprises all the processes involved in the creation and maintenance of an investment
portfolio. It deals specially with security analysis, portfolio analysis, portfolio selection, portfolio revision
and portfolio evaluation. Portfolio management makes use of analytical techniques of analysis and
conceptual theories regarding rational allocation of funds. Portfolio management is a complex process,
which tries to make investment activity more rewarding and less risky.

DEFINITION

It is a process of encompassing many activities of investment in assets and securities. The portfolio
management includes the planning, supervision, timing, rationalism and conservatism in the selection of
securities to meet investor’s objectives. It is the process of selecting a list of securities that will provide the
investor with a maximum yield constant with the risk he wishes to assume.

Application to Portfolio Management

Portfolio Management involves time element and time horizon. The present value of future return/cash flows
by discounting is useful for share evaluation and bond valuation. The investment strategy in portfolio
construction should have a time horizon, say 3 to 5 year: to produce the desired results of say 20-30% return
per annum.

Besides portfolio management should also take into account tax benefits and investment incentives. As the
returns are taken by investors net of tax payments, and there is always an element of inflation, returns net of
taxation and inflation are more relevant to taxpaying investors. These are called net real rates of returns,
which should be more than other returns. They should encompass risk free return plus a reasonable risk
premium, depending upon the risk taken, on the instruments/assets invested.

Need of Portfolio and Portfolio Management

The portfolio is needed for selection of optimal, portfolio by rational risk averse investors i.e. by investors
who attempt to maximize their expected return consistent with individually acceptable portfolio risk. The
portfolio is essential for portfolio construction. The portfolio construction refers to the allocation of funds
among a variety of financial assets open for investments. Portfolio concerns itself with the principles
governing such allocation. The objective of the portfolio theory is to elaborate the principles in which the
risk can be minimized, subject to the desired level of return on the portfolio or maximize the return, subject
to the constraints of a tolerable level of risk.
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The need for portfolio management arises due to the objectives of the investors. The emphasis of portfolio
management varies from investor to investor. Some want income, some capital gains and some combination
of both. However, the portfolio analysis enables the investors to identify the potential securities, which will
maximize the following objectives:

Securities of capital, stability of income, capital growth, marketability, liquidity and diversification.

Thus basic need of portfolio is to maximize yield and minimize the risk. The other ancillary needs are as
follows:

1. Providing regular or stable income.

2. Creating safety of investments and capital appreciation.
3. Providing marketability and liquidity.
4. Minimizing the tax liability.

History

When talking about investment portfolios, very few people are confused by the term. An investment
portfolio is a collection of income-producing assets that have been bought to meet a financial goal. If you
went back 50 years in a time machine, however, no one would have the slightest clue what you were talking
about. It is amazing that something as fundamental as an investment portfolio didn't exist until the late
1960s. The idea of investment portfolios has become so ingrained that we can't imagine a world without
them, but it wasn't always this way.

The Beginning of Portfolio Theory

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In the 1930s, before the advent of portfolio theory, people still had "portfolios." However, their perception of
the portfolio was very different, as was the primary method of building one. In 1938, John Burr Williams
wrote a book called The Theory of Investment Value that captured the thinking of the time: The Dividend
Discount Model. The goal of most investors was to find a good stock and buy it at the best price.

Whatever an investor's intentions, investing consisted of laying bets on stocks that you thought were at their
best price. During this period, information was still coming in slowly and the prices on the ticker tape didn't
tell the entire story. The loose ways of the market, although tightened via accounting regulations after the
Great Depression, increased the perception of investing as a form of gambling for people too wealthy or
haughty to show their faces at the track.

In this wilderness, professional managers like Benjamin Graham, made huge progress by first getting
accurate information and then by analyzing it correctly to make investment decisions. Successful money
managers were the first to look at a company's fundamentals when making decisions, but their motivation
was from the basic drive to find good companies on the cheap. No one focused on risk until a little-known,
25-year-old grad student changed the financial world.

The story goes that Harry Markowitz, then a graduate student in operations research, was searching for a
topic for his doctoral thesis. A chance encounter with a stockbroker in a waiting room started him in the
direction of writing about the market. When Markowitz read John Burr Williams' book, he was struck by
the fact that no consideration was given to the risk of a particular investment.

This inspired him to write "Portfolio Selection," an article first published in the March 1952 Journal of
Finance. Rather than causing waves all over the financial world, the work languished on dusty library
shelves for a decade before being rediscovered.

One of the reasons that "Portfolio Selection" didn't cause an immediate reaction is that only four of the 14
pages contained any text or discussion. The rest were dominated by graphs and numerical doodles. The
article mathematically proved two old axioms: "nothing ventured, nothing gained" and "don't put all your
eggs in one basket."

As the philosophical antithesis of traditional stock selection, His Modern Portfolio Theory continues to be a
popular investment strategy, and this portfolio management tool- if used correctly- can result in a diverse,
profitable investment portfolio.

Instead of focusing on risk of each individual asset, Markowitz demonstrated that a diversified portfolio is
less volatile than the total sum of its individual parts. While each asset itself might be quite volatile, the
volatility of the entire portfolio can be quite low.
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The interpretations of the article led people to the conclusion that risk, not the best price, should be the crux
of any portfolio. Furthermore, once an investor's risk tolerance was established, building a portfolio was an
exercise in plugging investments into the formula.

More than 60 years after its introduction, the fundamentals of MPT ring true. Let’s delve into this popular
portfolio management strategy, and discover what makes the principles of this revolutionary theory so
effective.

MODERN PORTFOLIO THEORY

What is Modern Portfolio Theory (MPT)?

American economist Harry Markowitz pioneered this theory in his paper “Portfolio Selection”, which was
published in the journal of finance in 1952. In 1990, Dr. Harry Markowitz was awarded the Nobel Prize in
Economics for his work on modern portfolio theory.

Modern Portfolio Theory (MPT) presents the concept of diversification in investing by using mathematical
formulation. It aims to select a collection of investment assets which has lower risk than any individual asset.
It can be observed spontaneously as dynamic market conditions cause changes in value of different types of
assets in conflicting ways. The prices in the bond market may fall independently from prices in the stock
market, thus there is overall lower risk in a collection of both bond and stocks assets as compared to
individual asset. Moreover, the diversification reduces the risk even if cases where asset returns are
positively correlated.
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Figure 1: Modern Portfolio Theory

MPT stresses the fact that assets in an investment portfolio must not be chosen individually where each asset
is selected on the basis of its own merits. Instead, itis important to observe the changes in price of each asset
in the portfolio. Investing in the assets is basically the exchange between risk and expected returns are
usually more risky.

A portfolio Manager is responsible for building a portfolio of assets such as stocks, bonds and other assets
that generates the maximum possible rate of return at the least possible level of risk. The portfolio
management involves allocation of funds in various assets to achieve diversification of portfolio that offer
maximum return at the lowest possible risk.

MPT assists in the selection of a portfolio with the maximum possible expected return at a given level of
risk. Similarly, MPT assists in the selection of a portfolio with the lowest possible risk at a given amount of
expected return. Thus, it is not possible to have a targeted expected return exceeding the highest-returning
available security except there is possibility of negative holdings. MPT stresses the diversification and
assists the portfolio managers in finding the best possible diversification strategy.

Modern Portfolio Theory (MPT) refers to the theory of investment that seeks to maximize the expected
return of investment that seeks to maximize the expected return of portfolio at a given level of return
expected. To achieve this, portfolio manager choose the proportions of different assets in a portfolio
carefully. The modern portfolio theory is extensively used for practice in the financial industry, however
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basic assumptions of this theory has faced certain challenges in fields like behavioural economics. The
Modern portfolio theory argues that any given investment’s risks and return characteristics should not be
viewed alone but should be evaluated by how it affects the overall portfolio’s risk and return. That is an
investor can construct a portfolio of multiple assets that will result in greater returns without a higher level of
risk.

As an alternative, starting with a desired level of expected return, the investor can construct a portfolio with
the lowest possible risk that is capable of producing that return. Based on statistical measures such as
variance and correlation, a single investment’s performance is less important how it impacts the entire
portfolio. Asset correlations affect the total portfolio risk, formulating a smaller standard deviation than
would be found by a weighted sum.

In technical terms, a Modern Portfolio Theory represents the return of asset as a normally distributed
function or as an elliptically distributed random variable where risk is defined as the standard deviation of
return. According to MPT, the return of a portfolio is equivalent to the weighted combination of the asset’s
returns because the portfolio is modelled as a weighted combination of assets. MPT aims to reduce the total
variance of the return of portfolio by combining various assets whose returns are negatively correlated or not
positively correlated. MPT assumes that markets are competent and investors are logical.

Key Elements of Portfolio Management

 Asset Allocation
The key to effective portfolio management is the long term mix of assets. Generally, that means
stocks, bonds, and cash such as certificates of deposit. There are others, often as real estate,
commodities, and derivatives.
Essentially, it is the process wherein investors put money in both volatile and non-volatile assets in
such a way that helps generate substantial returns at minimum risk. Financial experts suggest that
asset allocation must be aligned as per investor’s financial goals and risk appetite.
Investors with a more aggressive profile weight their portfolios toward more volatile investments
such as growth stocks. Investors with a conservative profile weight their portfolios towards more
stable investments such as bonds and blue-chip stocks.
Asset allocation involves choosing proper weights of different assets to be held in a portfolio. Stocks,
bonds, and cash are often the three most usual asset classes, but others also include real estate,
commodities, currencies, and crypto. Within each of these there are sub-asset classes that also play
into a portfolios allocation. For instance how much weight should be given to domestic vs. foreign
stocks or bonds? How much to growth stocks vs. value stocks? And so on.
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 Diversification
The only certainty in investing is that it is impossible to consistently predict winners and losers. The
prudent approach is to create a basket of investments that provides broad exposure within an asset
class.
Diversification involves spreading the risk and reward of individual securities within an asset class,
or between asset classes. Because it is difficult to know which subset of an asset or sector is likely to
outperform another, diversification seeks to capture the returns of all the sectors over time while
reducing volatility at any given time.
Real diversification is made across various classes of securities, sectors of economy, and
geographical conditions.
Diversification involves owning assets and asset classes that are not tightly correlated with one
another. This way, if one asset class goes down, the other asset classes might not. This provides a
cushion to your portfolio. Moreover, financial mathematics shows that proper diversification can
increase a portfolio’s overall expected return while at the same time reducing its risk.
The said method ensures that an investor’s portfolio is well-balanced and diversified across different
investment avenues. On doing so, investors can revamp their collection significantly by achieving a
perfect blend of risk and reward. This, in turn, helps to cushion risks and generates risk-adjusted
returns over time.

Figure 2 Portfolio Risk Management

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 Rebalancing
Rebalancing is used to return a portfolio to its original target allocation at regular intervals, usually
annually. This is done to reinstate the original asset mix when the movements of the markets force it
out of kilter.
For example, a portfolio that starts out with a 70% equity and 30% fixed-income allocation could,
after an extended market rally, shift to an 80/20 allocation. The investor has made a good profit, but
the portfolio now has more risk than the investor can tolerate.
Rebalancing generally involves selling high-priced securities and putting that money to work in
lower-priced and out-of-favour securities.
The annual exercise of rebalancing allows the investor to capture gains and expand the opportunity
for growth in high potential sectors while keeping the portfolio aligned with the original risk/return
profile.
Rebalancing is considered essential for improving the profit-generating aspect of an investment
portfolio. It helps investors to rebalance the ratio of portfolio components to yield higher returns at
minimal loss. Financial experts suggest rebalancing an investment portfolio regularly to align it with
the prevailing market and requirements. It captures gains and opens new opportunities while
keeping the portfolio in line with its original risk/return profile.

Objectives of Portfolio Management

The objective of portfolio management is to invest in securities in such a way that one maximizes one’s
returns and minimizes risks in order to achieve one’s investment objective.

A good portfolio should have multiple objectives and achieve a sound balance among them. Any one
objective should not be given undue importance at the cost of others. These objectives are categorized into:

1. Basic Objectives
2. Subsidiary Objectives

Basic Objective:

The basic objectives of portfolio management are further divided into two kinds viz.

(a) Maximize yield,

(b) Minimize risk.
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The aim of the portfolio management is to enhance the return for the level of risk to the portfolio owner. A
desired return for a given risk level is being started. The level of risk of a portfolio depends on many factors.

The investor, who invests the savings in the financial asset, requires a regular return and capital appreciation.

Subsidiary Objectives:

 Stable Current Return:  Once investment safety is guaranteed, the portfolio should yield a steady
current income. The current returns should at least match the opportunity cost of the funds of the
investor. What we are referring to here current income by way of interest of dividends, not capital
gains.
 Marketability:  A good portfolio consists of investment, which can be marketed without difficulty.
If there are too many unlisted or inactive shares in your portfolio, you will face problems in encasing
them, and switching from one investment to another. It is desirable to invest in companies listed on
major stock exchanges, which are actively traded.
 Tax Planning:  Since taxation is an important variable in total planning, a good portfolio should
enable its owner to enjoy a favourable tax shelter. The portfolio should be developed considering not
only income tax, but capital gains tax, and gift tax, as well. What a good portfolio aims at is tax
planning, not tax evasion or tax avoidance.
 Appreciation in the value of capital:  A good portfolio should appreciate in value in order to
protect the investor from any erosion in purchasing power due to inflation. In other words, a balanced
portfolio must consist of certain investments, which tend to appreciate in real value after adjusting
for inflation.
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 Liquidity:  The portfolio should ensure that there are enough funds available at short notice to take
care of the investor’s liquidity requirements. It is desirable to keep a line of credit from a bank for
use in case it becomes necessary to participate in right issues, or for any other personal needs.
 Safety of the investment:  The first important objective of a portfolio, no matter who owns it, is to
ensure that the investment is absolutely safe. Other considerations like income, growth, etc., only
come into the picture after the safety of your investment is ensured.

Investment safety or minimization of risks is one of the important objectives of portfolio management. There
are many types of risks, which are associated with investment in equity stocks, including super stocks. Bear
in mind that there is no such thing as a zero risk investment. Moreover, relatively low risk investment give
correspondingly lower returns. You can try and minimize the overall risk or bring it to an acceptable level by
developing a balanced and efficient portfolio. A good portfolio of growth stocks satisfies the entire
objectives outline above.

Scope of Portfolio Management

Portfolio Management is a continuous process. It is a dynamic activity. The following are the basic
operations of a portfolio management.

a) Monitoring the performance of portfolio by incorporating the latest market conditions.

b) Identification of the investor’s objective, constraints and preferences.
c) Making an evaluation of portfolio income (comparison with targets and achievements).
d) Making revision in portfolio.
e) Implementation of the strategies in tune with investment objectives.

Process of Portfolio Management

1. Specification of Investment objectives and constraints:

The first step in the portfolio management process is to specify the investment policy that consists of
investment objectives, constraints and preferences of investor. The investment policy can be explained as
follows:

Specification of investment objectives can be done in following two ways:

 Maximize the expected rate of return, subject to the risk exposure being held within a certain limit
(the risk tolerance level).
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 Minimize the risk exposure, without sacrificing a certain expected rate of return (the target rate of
return).

An investor should start by defining how much risk he can bear or how much he can afford to lose, rather
than specifying how much money he wants to make. The risk he wants to bear depends on two factors:

a) Financial situation

b) Temperament

To assess financial situation one must take into consideration position of the wealth, major expenses, earning
capacity, etc and a careful and realistic appraisal of the assets, expenses and earnings forms a base to define
the risk tolerance.

After appraisal of the financial situation assess the temperamental tolerance of risk. Risk tolerance level is
set either by one’s financial situation or financial temperament whichever is lower, so it is necessary to
understand financial temperament objectively. One must realize that risk tolerance cannot be defined too
rigorously or precisely. For practical purposes it is enough to define it as low, medium or high. This will
serve as a valuable guide in taking an investment decision. It will provide a useful perspective and will
prevent from being a victim of the waves and manias that tend to sweep the market from time to time.
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Constraints and Preferences:

 Liquidity:

Liquidity refers to the speed with which an asset can be sold, without suffering any loss to its actual
market price. For example, money market instruments are the most liquid assets, whereas antiques
are among the least liquid.

 Investment horizon:

The investment horizon is the time when the investment or part of it is planned to liquidate to meet
a specific need. For example, the investment horizon for ten years to fund the child’s college
education. The investment horizon has an important bearing on the choice of assets.

 Taxes:

The post–tax return from an investment matters a lot. Tax considerations therefore have an
important bearing on investment decisions. So, it is very important to review the tax shelters
available and to incorporate the same in the investment decisions.

 Regulations:

While individual investors are generally not constrained much by laws and regulations, institutional
investors have to conform to various regulations. For example, mutual funds in India are not allowed to hold
more than 10 percent of equity shares of a public limited company.

 Unique circumstances:

Almost every investor faces unique circumstances. For example, an endowment fund may be
prevented from investing in the securities of companies making alcoholic and tobacco products.

2. SELECTION OF ASSET MIXES:

Based on the objectives and constraints, selection of assets is done. Selection of assets refers to the amount
of portfolio to be invested in each of the following asset categories:
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 Cash:

The first major economic asset that an individual plan to invest in is his or her own house. Their
savings are likely to be in the form of bank deposits and money market mutual fund schemes.
Referred to broadly as ‘cash’, these instruments have appeal, as they are safe and liquid.

 Bonds:

Bonds or debentures represent long-term debt instruments. They are generally of private sector
companies, public sector bonds, gilt-edged securities, RBI saving bonds, national saving certificates,
Kisan Vikas Patras, bank deposits, public provident fund, post office savings, etc.

 Stocks:

Stocks include equity shares and units/shares of equity schemes of mutual funds. It includes income
shares, growth shares, blue chip shares, etc.

 Real estate:

The most important asset for individual investors is generally a residential house. In addition to this,
the more affluent investors are likely to be interested in other types of real estate, like commercial
property, agricultural land, semi-urban land, etc.

 Precious objects and others:

Precious objects are items that are generally small in size but highly valuable in monetary terms. It
includes gold and silver, precious stones, art objects, etc. Other assets includes like that of financial
derivatives, insurance, etc.

3. FORMULATION OF PORTFOLIO STRATEGY:

After selection of asset mix, formulation of appropriate portfolio strategy is required. There are two types of
portfolio strategies, active portfolio strategy and passive portfolio strategy.

 ACTIVE PORTFOLIO STRATEGY:

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Most investment professionals follow an active portfolio strategy and aggressive investors who strive to earn
superior returns after adjustment for risk. The four principal vectors of an active strategy are:

1. Market Timing

2. Sector Rotation

3. Security Selection

4. Use of a specialized concept

1. Market timing:

Market timing is based on an explicit or implicit forecast of general market movements. The
advocates of market timing employ a variety of tools like business cycle analysis, advance decline
analysis, moving average analysis, and econometric models. The forecast of the general market
movement derived with the help of one or more of these tools are tempered by the subjective
judgment of the investor. Often, of course, the investor may go largely by his market sense.

2. Sector Rotation:

The concept of sector rotation can be applied to stocks as well as bonds. It is however, used more
commonly with respect to stock component of portfolio where it essentially involves shifting the
weightings for various industrial sectors based on their assessed outlook. For example if it is assumed
that cement and pharmaceutical sectors would do well compared to other sectors in the forthcoming
period, one may overweight these sectors, relative to their position in market portfolio. With respect
to bonds, sector rotation implies a shift in the composition of the bond portfolio in terms of quality,
coupon rate, term to maturity and so on. For example, if there is a rise in the interest rates, there may
be shift in long term bonds to medium term or even short-term bonds. But we should remember that a
long-term bond is more sensitive to interest rate variation compared to a short-term bond.

3. Security Selection:

Security selection involves a search for under priced securities. If an investor resort to active stock
selection, he may employ fundamental and or technical analysis to identify stocks that seems to
promise superior returns and overweight the stock component of his portfolio on them. Likewise,
stocks that are perceived to be unattractive will be under weighted relative to their position in the
market portfolio. As far as bonds are concerned, security selection calls for choosing bonds that offer
the highest yield to maturity at a given level of risk.
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4. Use of a specialized Investment Concept:

A fourth possible approach to achieve superior returns is to employ a specialized concept or

philosophy, particularly with respect to investment in stocks. As Charles D. Ellis words says, a
possible way to enhance returns “is to develop a profound and valid insight into the forces that drive
a particular group of companies or industries and systematically exploit that investment insight or
concept

 PASSIVE PORTFOLIO STRATEGY:

The passive strategy rests on the tenet that the capital market is fairly efficient with respect to the
available information. The passive strategy is implemented according to the following two
guidelines:

1. Create a well-diversified portfolio at a predetermined level of risk.

2. Hold the portfolio relatively unchanged over time, unless it becomes inadequately diversified or
inconsistent with the investor’s risk-return preferences.

4. SELECTION OF SECURITIES:

The following factors should be taken into consideration while selecting the fixed income avenues:

SELECTION OF BONDS (fixed income avenues)

 Yield to maturity:

The yield to maturity for a fixed income avenue represents the rate of return earned by the investors
if he invests in the fixed income avenue and holds it till its maturity.

 Risk of default:

To assess the risk of default on a bond, one may look at the credit rating of the bond. If no credit
rating is available, examine relevant financial ratios (like debt-to-equity ratio, times interest earned
ratio, and earning power) of the firm and assess the general prospects of the industry to which the
firm belongs

 Tax Shield:
 25

In yesteryears, several fixed income avenues offered tax shield, now very few do so.

 Liquidity:

If the fixed income avenue can be converted wholly or substantially into cash at a fairly short notice, it
possesses liquidity of a high order.

SELECTION OF STOCK (Equity shares)

Three broad approaches are employed for the selection of equity shares:

 Technical analysis looks at price behaviour and volume data to determine whether the share will
move up or down or remain trend less.

 Fundamental analysis focuses on fundamental factors like the earnings level, growth prospects, and
risk exposure to establish the intrinsic value of a share. The recommendation to buy, hold, or sell is
based on a comparison of the intrinsic value and the prevailing market price.

 Random selection approach is based on the premise that the market is efficient and securities are
properly priced.

5. PORTFOLIO EXECUTION:

The next step is to implement the portfolio plan by buying or selling specified securities in given amounts.
This is the phase of portfolio execution which is often glossed over in portfolio management literature.
However, it is an important practical step that has a significant bearing on the investment results. In the
execution stage, three decision need to be made, if the percentage holdings of various asset classes are
currently different from the desired holdings.

6. PORTFOLIO REVISION:

In the entire process of portfolio management, portfolio revision is as important stage as portfolio selection.
Portfolio revision involves changing the existing mix of securities. This may be effected either by changing
the securities currently included in the portfolio or by altering the proportion of funds invested in the
securities. New securities may be added to the portfolio or some existing securities may be removed from
the portfolio. Thus it leads to purchase and sale of securities. The objective of portfolio revision is similar to
the objective of selection i.e. maximizing the return for a given level of risk or minimizing the risk for a
given level of return.
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The need for portfolio revision has aroused due to changes in the financial markets since creation of
portfolio. It has aroused because of many factors like availability of additional funds for investment, change
in the risk attitude, change investment goals, the need to liquidate a part of the portfolio to provide funds for
some alternative uses. The portfolio needs to be revised to accommodate the changes in the investor’s
position.

Portfolio Revision basically involves two stages:

 Portfolio Rebalancing:

Portfolio Rebalancing involves reviewing and revising the portfolio composition (i.e. the stock- bond
mix). There are three basic policies with respect to portfolio rebalancing: buy and hold policy,
constant mix policy, and the portfolio insurance policy. Under a buy and hold policy, the initial
portfolio is left undisturbed. It is essentially a „buy and hold‟ policy. Irrespective of what happens to
the relative values, no rebalancing is done. For example, if the initial portfolio has a stock-bond mix
of 50:50 and after six months it happens to be say 70:50 because the stock component has
appreciated and the bond component has stagnated, than in such cases no changes are made. The
constant mix policy calls for maintaining the proportions of stocks and bonds in line with their target
value. For example, if the desired mix of stocks and bonds is say 50:50, the constant mix calls for
rebalancing the portfolio when relative value of its components change, so that the target proportions
are maintained. The portfolio insurance policy calls for increasing the exposure to stocks when the
portfolio appreciates in value and decreasing the exposure to stocks when the portfolio depreciates in
value. The basic idea is to ensure that the portfolio value does not fall below a floor level.

 Portfolio Upgrading:

While portfolio rebalancing involves shifting from stocks to bonds or vice versa, portfolio upgrading
calls for re-assessing the risk return characteristics of various securities (stocks as well as bonds),
selling over-priced securities, and buying under-priced securities. It may also entail other changes the
investor may consider necessary to enhance the performance of the portfolio.

7. PORTFOLIO EVALUATION:
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Portfolio evaluation is the last step in the process of portfolio management. It is the process that is concerned
with assessing the performance of the portfolio over a selected period of time in terms of return and risk.
Through portfolio evaluation the investor tries to find out how well the portfolio has performed. The
portfolio of securities held by an investor is the result of his investment decisions. Portfolio evaluation is
really a study of the impact of such decisions. This involves quantitative measurement of actual return
realized and the risk born by the portfolio over the period of investment. It provides a mechanism for
identifying the weakness in the investment process and for improving these deficient areas.

The evaluation provides the necessary feedback for designing a better portfolio next time.

ASPECTS OF PORTFOLIO MANAGEMENT

Basically, portfolio management involves:

1. A proper investment decision-making of what to buy and sell

2. Proper money management in terms of investment in a basket of assets to satisfy the asset
preferences of the investors.
3. Reduce the risk and increase the returns.
4. Balancing fixed interest securities against equities.
5. Balancing high dividend payment companies against high earning growth companies as
required.
6. Finding the income or growth portfolio as required.
7. Balancing transaction costs against capital gains from rapid switching.
8. Balancing income tax payable against capital gains tax.
9. Retaining some liquidity to seize upon bargains.

TYPES OF PORTFOLIOS

5 Popular types of Portfolio are:

1. The Aggressive Portfolio

2. The Defensive Portfolio
3. The Income Portfolio
4. The Speculative Portfolio
5. The Hybrid Portfolio

 The Aggressive Portfolio

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An aggressive portfolio seeks outsized gains and accepts the outsized risks that go with them.1

Stocks for this kind of portfolio typically have a high beta, or sensitivity to the overall market. High beta
stocks experience greater fluctuations in price than the overall market. If a stock has a beta of 2.0, it will
typically move twice as much as the overall market in either direction.2

Aggressive investors seek out companies that are in the early stages of their growth and have a unique value
proposition. Most of them are not yet common household names.

Look for Fast Growth

Look for companies that have rapidly accelerating earnings growth but have not yet been discovered by the
average investor. They are most often found in the technology sector, but they can be found in other
industries as well.

Risk Management is critical when building and maintaining an aggressive portfolio. Keeping losses to a
minimum and taking profit are keys to success in this type of investing.

 The Defensive Portfolio

Defensive stocks do not usually carry a high beta. They are relatively isolated from broad market
movements.

Unlike cyclical stocks, which are sensitive to the underlying economic business cycle, defensive stocks do
well in bad times as well as good times. No matter how rotten the economy is generally, companies that
make products that are essential to everyday life will survive.

Look for Consumer Staples

Think of the essentials in your everyday life and find the companies that make these consumer
staple products.

As a bonus, many of these companies offer a dividend as well, which helps minimize capital losses. A
defensive portfolio is a prudent choice for most investors.

 The Income Portfolio

An income portfolio focuses on investments that make money from dividends or other types of distributions
to stakeholders.
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Some of the stocks in the income portfolio could also fit in the defensive portfolio, but here they are selected
primarily for their high yields.

An income portfolio should generate positive cash flow. Real Estate Investment Trusts (REITs) and Master
Limited Partnerships (MLP) are examples of income-producing investments. These companies return much
of their profits to shareholders in exchange for favorable tax status. REITs, in particular, are a way to invest
in real estate without the hassles of owning real property.

Keep in mind, however, that these stocks are also subject to the economic climate. REITs take a beating
during an economic downturn, when new construction and purchases dry up.

Look for High Dividends

Investors should be on the lookout for stocks that have fallen out of favor but have maintained a high
dividend policy. These are the companies that can supplement income and provide capital gains. Utilities
and other slow-growth industries are an ideal place to start your search.8

An income portfolio can be a nice complement to an investor's paycheck or retirement income.

 The Speculative Portfolio

Among these choices, the speculative portfolio is closest to gambling. It entails taking more risk than any of
the others discussed here.

Speculative plays could include Initial Public Offerings (IPOs) or stocks that are rumored to be takeover
targets. Technology or health care firms in the process of developing a single breakthrough product would
fall into this category. A young oil company about to release its initial production results would be a
speculative play.

Financial advisors generally recommend that no more than 10% of a person's assets be used to fund a
speculative portfolio.

Leveraged ETFs

The popularity of leveraged Exchange-Traded Funds (ETFs) in today's markets could arguably represent
speculation. They are investments that are alluring because picking the right one could lead to huge profits in
a short amount of time.
 30

The speculative portfolio is the one choice that requires the most research if it is to be done successfully. It
also takes a lot of work. Speculative Stocks are typically trades, not your classic buy-and-hold investment.

 The Hybrid Portfolio

Building a hybrid portfolio requires venturing into other investments such as bonds, commodities, real
estate, and even art. There is a great deal of flexibility in the hybrid portfolio approach.

Mix It Up

Traditionally, this type of portfolio would include a core of blue-chip stocks and some high-grade
government or corporate bonds. REITs and MLPs may also make up a portion of the assets.

A hybrid portfolio would mix stocks and bonds in relatively fixed proportions. This approach offers
diversification across multiple asset classes. That in itself is beneficial because equities and fixed income
securities have historically tended to have a negative correlation with one another.

At the end of the day, investors should consider all of these portfolios and decide on the right one or, even
better, the right combination of more than one. Building an investment portfolio requires more effort than
the passive, index investing approach. If you go it alone, you'll have to monitor your portfolio and rebalance
it more frequently. Too much or too little exposure to any portfolio type introduces additional risks.

Despite the extra required effort, defining and building a portfolio can increase your investing confidence
and give you control over your finances.

PORTFOLIO MANAGEMENT STRATEGIES

In general terms, portfolio management is the science of decision-making about how to invest your money.
The concept includes strategies and policies for matching investment selection to an individual’s objectives,
risk tolerance, and asset allocation requirements. All portfolio management strategies seek to balance risk
against performance. Whether you’re investing in equities, bonds or some other type of asset, portfolio
management is concerned with determining the strengths and weaknesses of your investment selection
methodology to maximize returns relative to your risk appetite.

Although portfolio management strategies vary, they generally fall under four categories:

 Active

 Passive
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 Discretionary

 Non-discretionary

Active Portfolio Management

Active portfolio management requires a high level of expertise about the markets. A fund manager
implementing an active strategy primarily aims to generate better market returns than the market. The
strategy is ‘active’ in that it requires a constant evaluation of the market to buy assets when they are
undervalued and sell them when they exceed the norm. The strategy requires quantitative analysis of the
market, broad diversification, and a sound understanding of the business cycle.

The biggest benefit of active strategies is the potential for generating market-beating returns. The strategy
also offers flexibility in that the fund manager can adjust their strategy whenever necessary.

On the opposite side of the spectrum, active strategies have notoriously high fees due to constant asset
turnover. The impact of human error is also much greater in active strategies.

Active strategies are suited for experienced investors who have a higher risk appetite. These investors are
willing to assume greater risk to generate higher returns. Typically, their allocation reflects their desire for
market-beating returns, which means a higher concentration of capital allocated to stocks.

Passive Portfolio Management

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Passive portfolio management isn’t concerned with ‘beating the market’ because its proponents subscribe to
the efficient market hypothesis. In other words, they believe fundamentals will always be reflected in the
value of the underlying asset. Investors who seek to minimize risk often prefer passive strategies. One of the
easiest ways to implement a passive strategy is to invest in an index fund that tracks the S&P 500 or some
other market index.

Lower cost is the primary benefit of passive investing, as this strategy is probably the cheapest to implement.
Passive strategies have also been proven to generate consistently strong long-term gains.

One of the downsides of passive investing is security concentration. For example, if you are tracking the
S&P 500, you are overly focused on large-cap equity stocks, which opens you up to risk. Passive strategies
are only suitable for long-term investors, so if you need to get your money out, short-term volatility could
eat into your gains.

Other disadvantages of passive investment strategies include:

 Opportunity cost as you are giving up the ability to generate market-beating returns
 An inability to protect against downside risk since you are simply tracking the market instead of
hedging against volatility

Discretionary Portfolio Management

A discretionary approach to portfolio management gives the fund manager complete control over their
client’s investment decisions. The discretionary manager makes all the buy and sell decisions on behalf of
their clients and utilizes whatever strategy they think is best. This type of strategy can only be offered by
individuals who have extensive knowledge and experience in investments. Clients who use discretionary
managers feel confident in handing over their investment decisions to an expert.

The primary advantage of discretionary investing is that you’re handing over all your investment decisions
to an expert. This tends to make life a lot simpler, especially if you agree with your manager’s buy and sell
suggestions.

If you enjoy being more hands on with your investments, discretionary accounts probably aren’t for you. If
cost is also an issue, discretionary accounts might be more prohibitive since discretionary managers charge
higher fees for their services..

Non-discretionary Portfolio Management

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A non-discretionary portfolio manager is essentially a financial adviser. They will give you the pros and
cons of investing in a particular market or strategy, but won’t execute it without your permission. This is the
primary difference between a non-discretionary approach and a discretionary approach.

The primary benefit of non-discretionary investing is it gives you access to a financial expert without
relinquishing control of your investment decisions.

The primary downside comes from the need to quickly shift a portfolio’s focus in the face of new market
conditions. If your manager has to get your approval before buying or selling a particular asset, it could cost
you.

The Bottom Line

Portfolio management is a critical component of investing. Each portfolio management strategy has a unique
set of advantages and disadvantages that need to be weighed before deciding which approach to pursue.

How often should you balance your portfolio?

Most investors are familiar with the concept of asset allocation, but they may be less certain about the
rebalancing process. While funds handle these processes automatically, self-directed investors must
rebalance their portfolios on a regular basis to ensure that their asset allocation matches with their
investment goals.

Why Rebalancing Matters

Asset allocation, or the way that you divide your portfolio among asset classes, is arguably the most
important decision in the investment process. In fact, asset allocation accounts for a whopping 88% of all
volatility and returns, according to Vanguard. The way that you divide up investments matters much more
than selecting any individual investment.

The optimal asset allocation depends on an investor’s risk tolerance, investment goals, and time horizon. For
example, a young investor with a high risk tolerance may allocate most of their capital to stocks, while an
investor who’s already retired with a low risk tolerance may allocate most of their capital into bonds that
produce a stable yield.

Rebalancing is the process of maintaining an asset allocation over time. If one part of a portfolio
outperforms another, an investor may find that their asset allocation has changed and no longer reflects their
risk tolerance and investment goals. Rebalancing involves buying and selling assets to restore the balance
and ensure the right fit.
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Figure 3

As shown in the above chart, it can be seen that a rebalanced portfolio usually produces more return per unit
of risk (i.e., Sharpe ratio) than a non-rebalanced portfolio.

Setting a Rebalancing Trigger

The rebalancing process may seem straightforward, but there’s less certainty surrounding how often a
portfolio should be rebalanced. Rebalancing too frequently can lead to high costs from commissions along
with potential tax consequences while rebalancing too infrequently could leave an investor overexposed to
certain asset classes for an extended period of time.

Most investors rebalance their portfolio on an annual or quarterly basis as part of their review process, which
is known as time-based rebalancing. While this is the easiest approach, since you only need to remember a
handful of times per year, the portfolio could experience a significant drift between rebalancing and throw
off the asset allocation.

Threshold-based rebalancing only rebalances the portfolio when there’s a certain drift from the target
allocation. For example, you may set a 5% threshold and rebalance the portfolio every time that the asset
allocation drifts more than 5% from the target asset allocation. The only downside of this approach is that
you could rebalance too frequently at times.
 35

Figure 4

Vanguard’s research showed that the rebalancing strategy matters less than the act of rebalancing. In fact,
researchers were unable to find a specific threshold or frequency that consistently outperforms other forms
of rebalancing over time. The key is choosing a rebalancing strategy that you’re comfortable with and
sticking to it.

How to Go About Rebalancing

The primary cost of rebalancing stems from commission and taxes. If you rebalance frequently, you could
end up paying short-term capital gains tax rates rather than lower long-term capital gains tax rates. More
frequent rebalancing could also increase commissions and other transaction costs that you incur, reducing
your overall return on investment.

There are several considerations to consider when rebalancing your portfolio:

 Tax-Advantaged Accounts
Rebalancing transactions within tax-advantaged accounts, such as IRAs, are tax-free since you’re
only taxed on withdrawals. If you have the option, it may be best to adjust your overall asset
allocations through changes to your tax-advantaged accounts rather than taxable accounts.
 36

 Cost Considerations
Rebalancing with higher cost basis shares in taxable accounts may improve after-tax returns without
increasing risk exposure. Or, you may focus on asset classes that are extremely overweight and
underweight to limit both taxes and transaction costs.
 Portfolio Cash Flows
If you want to take out a required minimum distribution (RMD), consider taking the distribution as
part of a rebalancing effort. You can also reinvest the RMD in the underweighted asset class in your
non-retirement accounts.

Advantages of Portfolio Management

 Makes Right Investment Choice

Portfolio management is a tool that helps the investor in choosing the right portfolio of assets. It
enables in making more informed decisions regarding investment plans in accordance with the goals
and objectives.

 Maximizes Return
Maximizing the return is one of the important roles played by portfolio investment. It provides a
structured framework for analyses and selecting the best class of assets. Investors are able to earn
high returns with limited funds.

 Avoids Disaster
Portfolio management avoids the disaster of facing huge risks by investors. It guides in investing
among different classes of assets instead of investing only in one type of asset. If an investor invests
in only one type of security and supposes it fails, then the investor will suffer huge losses which
could be avoided if he might have invested among different assets.

 Track Performance Portfolio management helps management in tracking the performance of their
portfolio of investments. A consolidated investment held within the portfolio can be evaluated in a
better way and any of its failures can be easily detected.

 Manages Liquidity
 37

Portfolio management enables investors in arranging their investment in a systematic manner.

Investors can choose assets in such a pattern where they can sell some of them easily whenever they
need funds.

 Avoids Risk
Investment in securities is quite risky due to the volatility of the security market which increases the
chance of losses. Portfolio management helps in reducing the risk through diversification of risk
among large peoples.

 Improves Financial Understanding

It helps in improving the financial knowledge of investors. While managing their portfolio they came
across numerous financial concepts and learn how a financial market works which will enhance the
overall financial understanding.

Disadvantages of Portfolio Management

 Risk Of Over Diversification

Sometimes portfolio managers invest funds among large categories of assets whose control becomes
impossible. In his efforts to diversify the risk it goes beyond the limit to manage efficiently. Loss
arising in such situations is quite high and can bring serious repercussions.

 No Downside Protection
 38

Portfolio management only reduces the risk through diversification but does not provide full
protection. At times of market crash, the concept of portfolio management becomes obsolete. 

 Faulty Forecasting
Portfolio management uses historical data for evaluating the returns of securities for investment
purposes. Sometimes the historical data collected is incorrect or unreliable which leads to wrong
forecasts.
 39

RISK-RETURN ANALYSIS
The expected returns from individual securities carry some degree of risk. Risk on the portfolio is different
from the risk on individual securities. The risk is reflected in the variability of the returns from zero to
infinity. Risk of the individual assets or a portfolio is measured by the variance of its return. The expected
return depends on the probability of the returns and their weighted contribution to the risk of the portfolio.
These are two measures of risk in this context one is the absolute deviation and other standard deviation.

Most investors invest in a portfolio of assets, because as to spread risk by not putting all eggs in one basket.
Hence, what really matters to them is not the risk and return of stocks in isolation, but the risk and return of
the portfolio as a whole. Risk is mainly reduced by Diversification.

Following are the some of the types of Risk:

1. Interest Rate Risk: This arises due to the variability in the interest rates from time to time. A change
in the interest rate establishes an inverse relationship in the price of the security i.e. price of the
security tends to move inversely with change in rate of interest, long term securities show greater
variability in the price with respect to interest rate changes than short term securities

Interest rate risk vulnerability for different securities is as under:

TYPES RISK EXTENT

Cash Equivalent Less vulnerable to interest rate risk.
Long Term Bonds More vulnerable to interest rate risk.

2. Purchasing Power Risk: It is also known as inflation risk also emanates from the very fact that
inflation affects the purchasing power adversely. Nominal return contains both the real return
component and an inflation premium in a transaction involving risk of the above type to compensate
for inflation over an investment holding period. Inflation rates vary over time and investors are
caught unaware when rate of inflation changes unexpectedly causing erosion in the value of realized
rate of return and expected return.
Purchasing power risk is more in inflationary conditions especially in respect of bonds and fixed
income securities. It is not desirable to invest in such securities during inflationary periods.
Purchasing power risk is however, less in flexible income securities like equity shares or common
stock where rise in dividend income off-sets increase in the rate of inflation and provides advantage
of capital gains.

3. Business Risk: Business risk emanates from sale and purchase of securities affected by business
cycles, technological changes etc. Business cycles affect all types of securities i.e. there is cheerful
 40

movement in boom due to bullish trend in stock prices whereas bearish trend in depression brings
down fall in the prices of all types of securities during depression due to decline in their market price.

4. Financial Risk: It arises due to changes in the capital structure of the company. It is also known as
leveraged risk and expressed in terms of debt-equity ratio. Excess of risk vis-à-vis equity in the
capital structure indicates that the company is highly geared. Although a leveraged company's
earnings per share are more but dependence on borrowings exposes it to risk of winding up for its
inability to honor its commitments towards lender or creditors. The risk is known as leveraged or
financial risk of which investors should be aware and portfolio managers should be very careful.

5. Systematic Risk or Market Related Risk: Systematic risks affected from the entire market are (the
problems, raw material availability, tax policy or government policy, inflation risk, interest risk and
financial risk). It is managed by the use of Beta of different company shares.

6. Unsystematic Risks: The unsystematic risks are mismanagement, increasing inventory, wrong
financial policy, defective marketing etc. this is diversifiable or avoidable because it is possible to
eliminate or diversify away this component of risk to a considerable extent by investing in a large
portfolio of securities. The unsystematic risk stems from inefficiency magnitude of those factors
different form one company to another.

RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or uncertainty; these risks
arise out of variability of yields and uncertainty of appreciation or depreciation of share prices, losses of
liquidity etc
The risk over time can be represented by the variance of the returns while the return over time is capital
appreciation plus payout, divided by the purchase price of the share.

Figure 5 Risk Return Diagram

 41

Normally, the higher the risk that the investor takes, the higher is the return. There is, however, a risk less
return on capital of about 12% which is the bank, rate charged by the R.B.I or long term, yielded on
government securities at around 13% to 14%. This risk less return refers to lack of variability of return and
no uncertainty in the repayment or capital. But other risks such as loss of liquidity due to parting with money
etc., may however remain, but are rewarded by the total return on the capital.

Risk-return is subject to variation and the objectives of the portfolio manager are to reduce that variability
and thus reduce the risk by choosing an appropriate portfolio.

Traditional approach advocates that one security holds the better, it is according to the modern approach
diversification should not be quantity that should be related to the quality of scripts which leads to quality of
portfolio.
Experience has shown that beyond the certain securities by adding more securities expensive.

RETURNS ON PORTFOLIO:

Each security in a portfolio contributes return in the proportion of its investments in security. Thus the
portfolio expected return is the weighted average of the expected return, from each of the securities, with
weights representing the proportions share of the security in the total investment. Why does an Investor have
so many securities in his portfolio? If the security ABC gives the maximum return why not he invests in that
security all his funds and thus maximize return?

The answer to this question lie in the investors perception of risk attached to investments, his objectives of
income, safety, appreciation, liquidity and hedge against loss of value of money etc. this pattern of
investment in different asset categories, types or investment, etc., would all be described under the caption of
diversification, which aims at the reduction or even elimination of non-systematic risks and achieve the
specific objectives of investors.
 42

PORTFOLIO MANAGER

Portfolio managers are well trained professional experts. They give proper advice to the investors or invest
in behalf of the investor to fulfil investor’s expectations.

Qualities of Portfolio Manager

1. Sound general knowledge

 Portfolio management is an existing and challenging job.
 He has to work in an extremely uncertain and conflicting environment.
 In the stock market every new piece of information affects the value of the securities of different
industries in a different 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 theory to arrive at the value of the security.
 An analysis of the security’s values, company, etc. is continues job of the portfolio manager.
 A good analyst makes a good financial consultant.
 The analyst can know the strengths, weakness, opportunities of the economy, industry and the
company.

3. Marketing skills
 He must be good salesman.
 He has to convince the clients about the particular security.
 He has to compete with the Stock brokers in the stock market.
 In this Marketing skills help him a lot.

4. Experience
 In the cyclical behaviour of the stock market history is often repeated, therefore the
experience of the different phases helps to make rational decisions.
 The experience of different types of securities, clients, markets trends etc. makes a perfect
professional manager.

General Responsibilities of Portfolio Manager

Following are some of the responsibilities of a Portfolio Manager:

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1. The portfolio manager shall act in a fiduciary capacity with regard to the client's funds.
2. The portfolio manager shall transact the securities within the limitations placed by the client.
3. The portfolio manager shall not derive any direct or indirect benefit out of the client's fund or
securities.
4. The portfolio manager shall not borrow funds or securities on behalf of the client.
5. Portfolio manager shall ensure proper and timely handling of complaints from his clients and take
appropriate action immediately
6. The portfolio manager shall not lend securities held on behalf of clients to a third person except as
provided under these regulations.

Code of Conduct- Portfolio Managers

1. A portfolio manager shall, in the conduct of his business, observe high standards of integrity and
fairness in all his dealings with his clients and other portfolio managers.
2. The money received by a portfolio manager from a client for an investment purpose should be
deployed by the portfolio manager as soon as possible for that purpose and money due and payable to
a client should be paid forthwith.
3. A portfolio manager shall render at all-time high standards of services exercise due diligence, ensure
proper care and exercise independent professional judgment. The portfolio manager shall either avoid
any conflict of interest in his investment or disinvestments decision, or where any conflict of interest
arises; ensure fair treatment to all his customers. He shall disclose to the clients, possible sources of
conflict of duties and interest, while providing unbiased services. A portfolio manager shall not place
his interest above those of his clients.
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4. A portfolio manager shall not make any statement or become privy to any act, practice or unfair
competition, which is likely to be harmful to the interests of other portfolio managers or it likely to
place such other portfolio managers in a disadvantageous position in relation to the portfolio manager
himself, while competing for or executing any assignment.
5. A portfolio manager shall not make any exaggerated statement, whether oral or written, to the client
either about the qualification or the capability to render certain services or his achievements in regard
to services rendered to other clients.
6. At the time of entering into a contract, the portfolio manager shall obtain in writing from the client,
his interest in various corporate bodies, which enables him to obtain unpublished price-sensitive
information of the body corporate.
7. A portfolio manager shall not disclose to any clients or press any confidential information about his
clients, which has come to his knowledge.
8. The portfolio manager shall where necessary and in the interest of the client take adequate steps for
registration of the transfer of the client’s securities and for claiming and receiving dividend, interest
payment and other rights accruing to the client. He shall also take necessary action for conversion of
securities and subscription of/or rights in accordance with the client’s instruction.
9. Portfolio manager shall ensure that the investors are provided with true and adequate information
without making any misguiding or exaggerated claims and are made aware of attendant risks before
they take any investment decision.
10. He should render the best possible advice to the client having regard to the client’s needs and the
environment, and his own professional skills.

Factors Affecting the Investor

There may be many reasons why the portfolio of an investor may have to be changed. The portfolio
manager always remains alert and sensitive to the changes in the requirements of the investor. The
following are some factors affecting the investor, which make it necessary to change the portfolio
composition.

1. Change in Wealth
 According to the utility theory, the risk taking ability of the investor increases with increase
in wealth.
 It says that people can afford to take more risk as they grow rich and benefit from its reward.
 But, in practice, while they can afford, they may not be willing.
 As people get rich, they become more concerned about losing the newly got riches than
getting richer.
 So they may become conservative and vary risk- averse.
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 The fund manager should observe the changes in the attitude of the investor towards risk and
try to understand them in proper perspective.
 If the investor turns to be conservative after making huge gains, the portfolio manager should
modify the portfolio accordingly.

2. Change in the Time Horizon

 As time passes, some events take place that may have an impact on the time horizon of the
investor. Births, deaths, marriages, and divorces – all have their own impact on the
investment horizon.
 There are, of course, many other important events in the person’s life that may force a change
in the investment horizon.
 The happening or the non-happening of the events will naturally have its effect.
 For example, a person may have planned for an early retirement, considering his delicate
health. But, after turning 55 years of age, if his health improves, he may not take retirement.

3. Change in Liquidity Needs

 Investors very often ask the portfolio manager to keep enough scope in the portfolio to get some cash
as and they want.
 This forces portfolio manager to increase the weight of liquid investments in the asset mix.
 Due to this, the amounts available for investment in the fixed income or growth securities that
actually help in achieving the goal of the investor get reduced.
 That is, the money taken out today from the portfolio means that the amount and the return that
would have been earned on it are no longer available for achievement of the investor’s goals.

4. Changes in Taxes
 It is said that there are only two things certain in this world death and taxes.
 The only uncertainties regarding them relate to the date, time, place and mode.
 Portfolio manager have to constantly look out for changes in the tax structure and make
suitable changes in the portfolio composition.
 The rate of tax under long- term capital gains is usually lower than the rate applicable for
income. If there is a change in the minimum holding period for long-term capital gains, it
may lead to revision. The specifics of the planning depend on the nature of the investments.

5. Others
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 There can be many of other reasons for which clients may ask for a change in the asset mix in
the portfolio.
 For example, there may be change in the return available on the investments that have to be
compulsorily made with the government say, in the form of provident fund.
 This may call for a change in the return required from the other investments.

SEBI RULES & REGULATIONS FOR PORTFOLIO MANAGEMENT

To establish governance and transparency, SEBI has brought out specific guidelines related to the
management of portfolio by portfolio managers. These guidelines have taken considerations of the past
activities of mismanagement of funds by portfolio managers. These guidelines have been issued in
pursuance of sub-section (1) of Section 11 of Securities and Exchange Board of India Act, 1992 by way of
measures for protection of the interests of investors in Securities and for orderly development and growth of
the securities market The guidelines specify the following:

I. Rules for Portfolio Managers

 No person to act as portfolio manager without certificate
 No person shall carry on any activity as a portfolio manager unless he holds a certificate
granted by the Board under this regulation.
 Provided that such person, who was engaged as portfolio manager prior to the coming into
force of the Act, may continue to carry on activity as portfolio manager, if he has made an
application for such registration, till the disposal of such application.
 Provided further that nothing contained in this rule shall apply in case of merchant banker
holding a certificate granted by the board of India Regulations, 1992 as category I or category
II merchant banker, as the case may be.
 Provided also that a merchant banker acting as a portfolio manager under the second
provision to this rule shall also be bound by the rules and regulations applicable to a portfolio
manager.

 Conditions for grant or renewal of certificate to portfolio manager.

The board may grant or renew certificate to portfolio manager subject to the following conditions
namely:
 The portfolio manager in case of any change in its status and constitution shall obtain
prior permission of the board to carry on its activities;
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 He shall pay the amount of fees for registration or renewal, as the case may be, in the
manner provided in the regulations;
 He shall make adequate steps for redressed of grievances of the clients within one
month of the date of receipt of the complaint and keep the board informed about the
number, nature and other particulars of the complaints received;
 He shall abide by the rules and regulations made under the Act in respect of the
activities carried on by the portfolio manager.

 Period of validity of the certificate

The certificate of registration on its renewal, as the case may be, shall be valid for a period of here years
from the date of its issue to the portfolio manager.

II. Regulations for Portfolio Manager

Registration of Portfolio Managers

1. Application for grant of certificate

 An application by a portfolio manager for grant of a certificate shall be made to the
board on ‘Form A’
 Notwithstanding anything contained in sub regulation (1), any application made by a
portfolio manager prior to coming into force of these regulations containing such
particulars or as near thereto as mentioned in form A shall be treated as an application
made in pursuance of sub-regulation and dealt with accordingly.

2. Application of confirm to the requirements

 Subject to the provisions of sub-regulation (2) of regulation 3, any application, which is not
complete in all respects and does not confirm to the instructions specified in the form, shall be
rejected
 Provided that, before rejecting any such application, the applicant shall be given an
opportunity to remove within the time specified such objections as may be indicated by the
Board.

3. Furnishing of further information, clarification and personal representation.

 The Board may require the applicant to furnish further information or clarification
regarding matters relevant to his activity of a portfolio manager for the purposes of
disposal of the application.
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 The applicant or, its principal officer shall, if so required, appear before the Board for
personal representation.

4. Consideration of application
The Board shall take into account for considering the grant of certificate, all matters which
are relevant to the activities relating to portfolio manager and in particular whether the
applicant complies with the following requirements namely:
 The applicant has the necessary infrastructure like to adequate office space,
equipments and manpower to effectively discharge his activities;
 The applicant has his employment minimum of two persons who have the experience
to conduct the business of portfolio manager;
 A person, directly or indirectly connected with the applicant has not been granted
registration by the Board in case of the applicant being a body corporate;
 The applicant, fulfils the capital adequacy requirements specified in regulation 7
 The applicant, his partner, director or principal officer is not involved in any litigation
connected with the securities market and which has an adverse bearing on the business
of the applicant;
 The applicant, his director, partner or principal officer has not at any time been
convinced for any offence involving moral turpitude or has been found guilty of any
economic offences;
 The applicant has the professional qualification from an institution recognized by the
government in finance, law, and accountancy or business management.
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CHAPTER 2: RESEARCH METHODOLOGY

Research is defined as careful consideration of study regarding a particular concern or problem using
scientific methods. According to the American sociologist Earl Robert Babbie, “research is a systematic
inquiry to describe, explain, predict, and control the observed phenomenon. It involves inductive and
deductive methods.”

A research methodology is an outline of how a given piece of research is carried out. It defines the
techniques or procedures that are used to identify and analyze information regarding a specific research
topic. The research methodology, therefore, has to do with how a researcher designs their study in a way that
allows them to obtain valid and reliable results and meet their research objectives.

Research papers, dissertations, thesis, academic journal articles, or any other piece of formal research will
contain a section (or chapter) on research methodology. This section stipulates the methodological choices
made and also substantiates why these choices were made. This section is therefore used by researchers to
justify why the methods they employed are best suited to achieve the research objective and arrive at valid
and reliable results. This section also allows readers to evaluate the reliability and validity of a study based
on the relevance and effectiveness of the procedures employed. 

Research begins by asking the right questions and choosing an appropriate method to investigate the
problem. After collecting answers to your questions, you can analyze the findings or observations to draw
reasonable conclusions.

Research is how individuals and businesses collect and analyze data. Accurate and relevant research guides
key business decisions, including marketing plans, staffing decisions and expansions. Determining what data
is most useful and the most effective ways to obtain it can help your company make the most successful
long-term decisions.

Types of Research Methods

Types of research are the different methodologies used to conduct research. Based on research goals,
timelines and purposes, different types of research are better suited for certain studies. The first part of
designing research is to determine what you want to study and what your goals are. For example, you may
simply want to learn more about a topic, or you may want to try to determine how a new policy will affect
lower-level employees at your company.
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Here are different types of research you may consider as you design your research methodology:

 Fundamental research
Fundamental, or basic, research is designed to help researchers better understand certain phenomena
in the world; it looks at how things work. This research attempts to broaden your understanding and
expand scientific theories and explanations. For example, fundamental research could include a
company's study of how different product placements affect product sales. This study provides
information and is knowledge-based.

 Applied research
Applied research is designed to identify solutions to specific problems or find answers to specific
questions. The research is meant to offer knowledge that is applicable and implementable. For
instance, applied research may include a study on ways to increase student involvement in the
classroom. This research focuses on a defined problem and is solution-based.

Fundamental and applied research are the two main research categories. Most research can be defined as
fundamental or applied, depending on the goals of the study.

 Qualitative research
Qualitative research involves non-numerical data, such as opinions and literature. Examples of
qualitative data may include:
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 Focus groups
 Surveys
 Participant comments
 Observations
 Interviews
Businesses often use qualitative research to determine consumer opinions and reactions. For instance,
a marketing organization may present a new commercial to a focus group before airing it publicly to
receive feedback. The company collects nonnumerical data—the opinions of the focus group
participants—to make decisions.
 Quantitative research
Quantitative research depends on numerical data, such as statistics and measurements. For example,
a car manufacturer may compare the number of sales of red sedans compared to white sedans. The
research uses objective data—the sales figures for red and white sedans—to draw conclusions.

 Mixed research
Mixed research includes both qualitative and quantitative data. Consider the car manufacturer
comparing sedan sales. The company could also ask car buyers to complete a survey after buying a
red or white sedan that asks how much the color impacted their decision and other opinion-based
questions.

 Exploratory research
Exploratory research is designed to examine what is already known about a topic and what additional
information may be relevant. It rarely answers a specific question, but rather presents the
foundational knowledge of a subject as a precursor to additional research. Often, exploratory research
applies to lesser known issues and phenomena.
For instance, you may consider what is currently known about the success of year-long maternity and
paternity leave programs. This research can include gathering all relevant information and compiling
it together in an accessible format that has not been available previously. Your research may reveal
gaps in information, leading to additional studies in the future.

 Longitudinal research
Longitudinal research focuses on how certain measurements change over time without manipulating
any variables. For instance, a researcher may examine if and how employee satisfaction changes in
the same employees after one year, three years and five years with the same company.

 Cross-sectional research
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Cross-sectional research studies a group or subgroup at one point in time. Participants are generally
chosen based on certain shared characteristics, such as age, gender or income, and researchers
examine the similarities and differences within groups and between groups. The group is often used
as a representation of a larger population. Similar to longitudinal research, researchers observe
participants without altering variables.
For example, a company may research the sales techniques of its top 10% of salespeople and
compare them to the techniques used by its bottom 10% of salespeople. This can help provide the
company insights into the most successful and least successful sales methods.

 Field research
Field research takes place wherever the participants or subjects are, or "on location." This type of
research requires onsite observation and data collection. For instance, a manufacturing plant may hire
an environmental engineering firm to test the air quality at the plant to ensure it complies with all
health and safety requirements. The researchers would travel to the plant to collect samples.

 Laboratory research
Laboratory research takes place in a controlled laboratory setting rather than in the field. Often, the
study demands strict adherence to certain conditions, such as elimination of variables or timing
conditions. Laboratory research includes chemical experimentation and pharmacological research.

 Fixed research
Fixed research involves experiment procedures that are determined ahead of time, such as how often
testing will take place, where testing will take place, number of subjects and types of subjects. The
research depends on precise conditions and compliance with predetermined protocols to reduce
variables. Generally, fixed research is more reliable and replicable than flexible research.
Experimentation is often fixed research. For example, a researcher may test how different labels
affect consumers' ratings of a sports drink. The researcher must try to control all other variables that
may affect how the participants rate the drink, except the label. Participants are given the same drink
with different labels at the same time and take a survey about taste and overall impressions. The
timing of giving each drink and the subsequent surveys are critical to the validity of the study.

 Flexible research
Flexible research allows procedures to change throughout the course of the experiment. The different
types of flexible research include:
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 Case studies: Case studies are in-depth analyses and observations about a specific individual or
subject.

 Ethnographic studies: Ethnographic studies are in-depth analyses and observations about a group of
people.

 Grounded theory studies: Grounded theory studies are designed to develop theories based on
carefully collected and analyzed data.

 Action research
Action research refers to the process of examining your actions, assessing their effectiveness in
bringing about the desired outcome and choosing a course of action based on your results. Action
research is typically used in educational settings for teachers and principals to perform a type of self-
assessment and course correction.
For instance, a teacher may collect data about their methods of teaching fifth-grade math. At the end
of the first school quarter, the teacher may discover only a third of the students demonstrated
proficiency in the concepts. As a result, the teacher implements new methods in her fifth-grade math
class for the second quarter.

 Policy research
Policy research is designed to examine the effects of current government or social policies or predict
the potential effects of proposed policies as those effects relate to the distribution or redistribution of
resources. Policy researchers often work within government agencies and conduct the following
types of studies:

 Cost analysis

 Cost-benefit analysis

 Program evaluation

 Needs analysis

 Classification research
Classification research seeks to identify and classify individual elements of a group into larger
groups or subgroups. For example, biologists research animals and place them in defined categories
based on shared characteristics, such as:
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 Body segmentation

 Type of habitat

 Reproductive methods

 Diet

 Comparative research
Comparative research is designed to identify similarities and differences between two individuals,
subjects or groups. For instance, an owner may review new hire training documentation and discover
that new employees are receiving much of the same training at orientation and their initial
departmental training. The owner may decide to incorporate all of the similar training into orientation
documents to allow more time for department-specific training.

 Causal research
Causal research, also called explanatory research, seeks to determine cause and effect relationships
between variables. This research is designed to identify how much one variable may cause a change
in the other. Causal research is important for evaluating current processes and procedures and
determining if and how changes should take place.
For instance, a business may study employee retention rates before and after instituting a work-from-
home policy after six months of employment to see if this policy increases employee retention.

 Inductive research
Inductive research, also known as theory-building research, is designed to collect data that may help
develop a new theory about a process or phenomenon. This type of research examines observations
and patterns and offers several hypotheses to explain these patterns. Inductive research moves from
the specific to the general.
Inductive research is often the first step in theory generation and may lead to additional research,
such as deductive research, to further test possible hypotheses.
For example, researchers may observe that the year 12 international corporations enacted in-house
carbon emissions standards, worldwide emissions declined. The researchers may theorize that
worldwide emissions can be reduced significantly if international corporations impose in-house
emissions standards.

 Deductive research
 55

Deductive, or theory-testing, research is the opposite of inductive research and moves from the broad
to the specific. Researchers choose a hypothesis and test its accuracy through experimentation or
observation.
Consider the previous example of emissions standards in international corporations. The deductive
approach to this hypothesis is conducting research that compares global emissions levels before and
after international companies enact emissions standards.

DATA COLLECTION METHODS

What is data collection?

Data collection is a systematic approach to accurately collect information from various sources to provide
insights and answers, such as testing a hypothesis or evaluating an outcome. The main driver of data
collection is to gather quality information that can be analyzed and used to support decisions or provide
evidence.

There are two types of data collected—quantitative data and qualitative data. Quantitative data collection is
based on numbers and measurements, such as percentages and statistics. Qualitative data collection covers
descriptions, such as descriptions and opinions.

Data collection methods are broken into two core categories:

1. Primary Data Collection Method

Primary data is a type of data that is collected by researchers directly from main sources through
interviews, surveys, experiments, etc. Primary data are usually collected from the source—where the
data originally originates from and are regarded as the best kind of data in research.

The sources of primary data are usually chosen and tailored specifically to meet the demands or
requirements of particular research. Also, before choosing a data collection source, things like the
aim of the research and target population need to be identified.
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For example, when doing a market survey, the goal of the survey and the sample population need to
be identified first. This is what will determine what data collection source will be most suitable—an
offline survey will be more suitable for a population living in remote areas without an internet
connection compared to online surveys.

Primary data collection is the process of gathering data through surveys, interviews, or experiments.
A typical example of primary data is household surveys. In this form of data collection, researchers
can personally ensure that primary data meets the standards of  quality, availability, statistical
power and sampling required for a particular research question. With globally increasing access to
specialized survey tools, survey firms, and field manuals, and  primary data has become the dominant
source for empirical inquiry in development economics.

Some of the most prominently used methods of primary data collection include:

· Interview Method
· Questionnaire Method
· Projective Techniques
· Focus Group Interviews
· Delphi Technique

In this study, primary data plays a vital role for analysis, interpretation, conclusion and suggestions

2. Secondary Data Collection Method

Secondary data is data collected by someone other than the actual user. It means that the information
is already available, and someone analyses it. The secondary data includes magazines, newspapers,
books, journals, etc. It may be either published data or unpublished data.

Secondary research or desk research is a research method that involves using already existing data.
Existing data is summarized and collated to increase the overall effectiveness of research.

Secondary research includes research material published in research reports and similar documents.
These documents can be made available by public libraries, websites, data obtained from already
filled in surveys etc. Some government and non-government agencies also store data, that can be
used for research purposes and can be retrieved from them.
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Secondary research is much more cost-effective than primary research, as it makes use of already
existing data, unlike primary research where data is collected first hand by organizations or
businesses or they can employ a third party to collect data on their behalf.

The secondary data are readily available from the other sources and as such, there are no specific
collection methods. The researcher can obtain data from the sources both internal and external to the
organization.
The internal sources of secondary data are:
 Sales Report
 Financial Statements
 Customer details, like name, age, contact details, etc.
 Company information
 Reports and feedback from a dealer, retailer, and distributor
 Management information system

There are several external sources from where the secondary data can be collected. These are:
 Government censuses, like the population census, agriculture census, etc.
 Information from other government departments, like social security, tax records, etc.
 Business journals
 Social Books
 Business magazines
 Libraries
 Internet, where wide knowledge about different areas is easily available.

The secondary data can be both qualitative and quantitative. The qualitative data can be obtained through
newspapers, diaries, interviews, transcripts, etc., while the quantitative data can be obtained through a
survey, financial statements and statistics.
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Research Problem: The research problem of my study is that there’s not much awareness of ‘Portfolio
Management’ in India.

Need of the Study: To create awareness about portfolio management and its services.

Research Design- It is design of the study connected with the techniques for collection of the data and
analysis of the data in a manner that aims to have relevance to the research purpose. Here Exploratory
Research Design is used. Exploratory research design is conducted for a research problem when the
researcher has no past data or only a few studies for reference. Exploratory research helps determine the
best research design, data collection method and selection of subjects.

Collection of Data- In this study the data is collected through both primary and secondary methods in order
to meet the requirements of the objectives.

 Primary Data: the first hand information is collected by using a structured questionnaire method
which is original.
 Secondary Data: is collected with the help of following sources-
 Internet
 Reference books, journals and magazines.

Sample Area: Mumbai city is being taken as a sample area for study.

Sample Size: The research made use of primary data, which was collected by the 200 respondents but out of
which only 166 has responded to the questions that’s why the research has been carried on 166 respondents.

Sampling Procedure: We have used a Non Probabilistic Sampling Technique that is, Convenience
Sampling

Data Collection Instrument: Structured Questionnaire

Scope of the Study

 To understand the investor’s behavior with regards to the investment patterns.

 To measure and understand the level of risk associated with an investment.
 To understand the concept and importance of portfolio management in today’s scenario.

Objective of the Study

 The main aim of the study is to understand the concept of Portfolio Management.
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 To study investor knowledge about different financial services especially Portfolio Management
services and their expectations
 To analyze risk return of various investment avenues.
 To evaluate the performance of portfolio over a period of time.
 To understand the effect while investing in single security and investing in more than one security
i.e. diversification.
 To ascertain investors awareness about services provided by Portfolio Management Institutions and
interest shown by investor to invest in portfolio management services.
 To get to know about the role and functions of portfolio manager.
 To get know about the ROI expectation of the investors.

Limitations of the Study

 As the data was collected through questionnaire, there might be chances of biased information being
provided by the respondents.
 Small sample size of the study could not have been able to decipher some important dimensions of
the study due to time constraints.
 Portfolio Management is a vast concept to work on.
 Geographic location is limited to South Mumbai.
 Most of the people had no knowledge about investing.
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LITERATURE REVIEW

A literature review is an overview of the previously published works on a specific topic. The term can refer
to a full scholarly paper or a section of a scholarly work such as a book, or an article. Either way, a literature
review is supposed to provide the researcher/author and the audiences with a general image of the existing
knowledge on the topic under question. A good literature review can ensure that a proper research question
has been asked and a proper theoretical framework and/or research methodology have been chosen. To be
precise, a literature review serves to situate the current study within the body of the relevant literature and to
provide context for the reader. In such case, the review usually precedes the methodology and results
sections of the work.

Producing a literature review is often a part of graduate and post-graduate student work, including in the
preparation of a thesis, dissertation, or a journal article. Literature reviews are also common in a research
proposal or prospectus (the document that is approved before a student formally begins a dissertation or
thesis).

A literature review can be a type of review article. In this sense, a literature review is a scholarly paper that
presents the current knowledge including substantive findings as well as theoretical and methodological
contributions to a particular topic. Literature reviews are secondary source and do not report new or original
experimental work. Most often associated with academic-oriented literature, such reviews are found
in academic journals and are not to be confused with book reviews, which may also appear in the same
publication. Literature reviews are a basis for research in nearly every academic field.

The main types of literature reviews are: evaluative, exploratory, and instrumental.

A fourth type, the systematic reveiew, is often classified separately, but is essentially a literature review
focused on a research question, trying to identify, appraise, select and synthesize all high-quality research
evidence and arguments relevant to that question. A meta-analysis is typically a systematic review using
statistical methods to effectively combine the data used on all selected studies to produce a more reliable
result.

Torraco (2016) describes an integrative literature review. The purpose of an integrative literature review is
to generate new knowledge on a topic through the process of review, critique, and then synthesis of the
literature under investigation.

Why do we write literature reviews?

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Literature reviews provide you with a handy guide to a particular topic. If you have limited time to conduct
research, literature reviews can give you an overview or act as a stepping stone.

For professionals, they are useful reports that keep them up to date with what is current in the field.

For scholars, the depth and breadth of the literature review emphasizes the credibility of the writer in his or
her field. Literature reviews also provide a solid background for a research paper's investigation.

Comprehensive knowledge of the literature of the field is essential to most research papers.

 The purpose of a literature review is to:

 Provide foundation of knowledge on topic

 Identify areas of prior scholarship to prevent duplication and give credit to other researchers

 Identify inconstancies: gaps in research, conflicts in previous studies, open questions left from other
research

 Identify need for additional research (justifying your research)

 Identify the relationship of works in context of its contribution to the topic and to other works

 Place your own research within the context of existing literature making a case for why further study
is needed.

LITERATURE REVIEW ON PORTFOLIO MANAGEMENT

 Lubos Pastor; Journal of Finance, vol. 55, no.1 (February 2000)

The author develops a portfolio-selection method using a Bayesian framework that incorporates a
prior degree of belief in an asset-pricing model. In the empirical analysis, the author evaluates sample
evidence on home bias, value, and size effect from an asset allocation perspective. The results
provide a different from that normally found in the literature on the benefits of international
diversification
.
 Gustavo Grullon and Roni Michaely; Journal of Finance, vol. 57, no.4 (August 2002):1649-84
Cash dividends and stock repurchases are two major forms of payout to stockholders. They influence
stock prices and returns and thus decisions for investing and trading in stocks. The authors analyze
the behaviour of U.S. corporations that paid dividends and repurchased shares in the 1972-
2000period. They address the relative merits of dividends and repurchases from the corporation’s
point of view, the sustainability between the two forms of payout, and the differences in their tax
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treatment from the investor’s perspective. Their findings are of interest to corporate financial
officers, equity analysis, and portfolio managers.

 Osthoff, Peer C. and Kempf, Alexander (2007) “ The Effect of Socially Responsible Investing
on Portfolio Performance”. In European Financial Management, Vol. 13, No. 5, pp.908-922.
More and more investors apply socially responsible screens when building their stock portfolios.
This raises the question whether these investors can increase their performance by incorporating such
screens into their investment process. To answer this question we implement a simple trading
strategy based on socially responsible ratings from KLD Research & Analytics: Buy stocks with high
socially responsible ratings and sells stocks with low socially responsible ratings. We find that this
strategy leads to high abnormal returns of up to 8.7% per year. The maximum abnormal returns are
reached when investors employ the best-in-class screening approach, use a combination of several
socially responsible ratings. The abnormal returns remain significant even after taking into account
reasonable transaction costs.

 Peter Broke (2009) suggested that the easiest way to build a very diverse portfolio is via investment
funds. The choice of funds is now enormous and nearly every asset class is covered by them. This
means it is very easy and inexpensive to put several funds together and have a very broad spread.
There are now some very good ‘multi asset’ funds which provide exposure to all of these different
classes in one professionally managed place. These multi asset managers may also be able to access
some funds which are still not available to the retail investor, such as private equity. Peter Brooke is
a financial planner to the English speaking expatriate community. This article (Portfolio
Construction) was published in the July 2009 edition of Dockwalk Magazine.

 Ankita Bhoir (2011) Portfolio Construction & Services offered by banks and brokerages to face
heat; MUMBAI: Regulators may put an end to discretionary portfolio management services offered
by banks and brokerages after a series of frauds, including high profile ones at City and Standard
Chartered, said a person with familiar thinking. RBI, SEBI and a sub-committee of the Financial
Stability and Development Council are working, on the proposed guidelines for portfolio
management, said the person requesting anonymity. “RBI is likely to ask banks to stop discretionary
portfolio management.”

 ET Bureau (2011), how to pick a portfolio construction; evaluation scheme;

Equity Portfolio Management Schemes (PMS) are today quite attractive from the perspective of High
Net-worth Individuals (HNIs) or ultra HNIs. However, investor and distributor awareness of this
product category is quite low and one must understand the benefits of using this mode for investing.
 63

Typically, the minimum application size in PMS products is rather high? With the minimum being
Rs 10 Lakhs and some even having ticket sizes running into core. Most equity PMS products could
involve a slightly higher degree of risk as they are offered to investors who desire that extra bit of
return.

 Anna Agapova, Robert Ferugson and Jason Greene; “Market Diversity and the Performance
of Actively Managed Portfolios”; The Journal of Portfolio Management Fall 2011
Agapova, Ferguson, and Greene examine a theoretically motivated measure of the ‘size effect’
known as market diversity and link it to the relative returns of institutional actively managed
portfolios. Market diversity reflects how disperse or concentrated capital is across firms in the
market, with changes in the market diversity reflecting movement of capital between relatively large
firms to relatively small firms. Changes in market diversity explain a statistically and economically
significant amount of variation in the relative returns of actively managed institutional large-cap-
strategies. The authors estimate that an increase/decrease in market diversity of 1% leads to an
average increase/decrease in relative returns of approximately 30 basis points, with higher tracking
error strategies showing relatively more sensitivity. They find that another measure of the size effect,
the Fama-French small-minus-big factor, explains less of the variation in actively managed large-
cap-strategies’ relative returns and is rejected in favour of changes in market diversity as the
underlying explanatory variable for actively managed strategies’ relative returns. The authors suggest
that market diversity provides academics and practitioners an important measure of market
conditions when evaluating the performance of actively managed portfolios.
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 Richard Grinold; The Journal of Portfolio Management Winter 2011, “The Description of
Portfolios”
Grinold provides a general framework for the description of various aspects of a portfolio using a set
of factors. The work is cousin to the well-worn topic of performance analysis and attribution, and in
that sense, is fairly represented as being old wine in new bottles- the scope is much more general,
however. Grinold first provides a theoritical structure with a model that describes various aspects of a
portfolio as either the allocation of a portfolio’s variance or as the covariance of two portfolios. He
takes a portfolio-centric approach and explains all of the results in terms of the risk and correlation of
portfolios. The expanded framework and portfolio focus opens up a wide range of problems that can
be studied with the same framework. Grinold uses examples to illustrate what the methodology can
accomplish and as a guide to sense when we are asking too much from the model.

 Edward Qian, “Diversification Return and Leveraged Portfolios”, The Journal of Portfolio
Management Summer 2012, 38(4) 14-25;
It is widely accepted that portfolio rebalancing adds diversification return to fixed-weight portfolios,
but this is only true for long-only unleveraged portfolios. Qian provides analytical results regarding
portfolio rebalancing and the associated diversification returns for different kinds of portfolios
including long-only, long-short, and leveraged. He shows that portfolio rebalancing is linked to
underlying portfolio dynamics. For long-only unleveraged portfolios, rebalancing amounts to a
mean-reverting strategy, and the diversification return is always non-negative. But for short (or
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inverse) and leveraged portfolios, portfolio rebalancing on the top-down level amounts to a trend-
following strategy that detracts from diversification return. Qian analyzes diversification returns of
risk parity portfolios and shows that the diversification return of a leveraged long-only portfolio can
generally be decomposed into two parts, both of which are related to a scaled unleveraged portfolio.
The first part is the positive diversification return from rebalancing among individual assets at the
bottom-up level, which is amplified by leverage. The second part is the negative diversification
return caused by the leverage of the overall portfolio. His numerical examples show that
diversification returns caused by the leverage of the overall portfolio. His numerical examples show
that diversification return is, in general, positive for risk parity of portfolios when the leverage ratio
is not too high. In addition, he shows that low correlations between different assets are crucial in
achieving positive diversification return and reducing portfolio turnover for risk parity portfolios.

 Farshid M. Asl and Erkko Etula; “Advancing Strategic Asset Allocation in a Multi-Factor
World”, The Journal of Portfolio Management Fall 2012, 39(1) 59-66
Strategic asset allocation is arguably one of the most important, yet least advanced, aspects of
investing. The authors present a new approach to strategic asset allocation that leverages the idea that
long-term investment returns derive from multiple distinct sources that they call ‘return-generating
factors’. Their approach addresses four key short comings of traditional approaches: First, their
multi-factor model helps better understand the important sources of return in today’s complex
investment universe, generating a substantial increase in estimation precision across asset classes and
providing investors with a new way to think about portfolio diversification. Second, their robust
portfolio optimization methodology seeks to explicitly account for the uncertainties inherent in the
estimates of expected returns, delivering well-diversified portfolios with superior risk? return
characteristics. Third, the factor based risk analytics better capture the true characteristics of asset
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returns, such as fat tails and increased correlations at times of crisis, allowing the authors to more-
accurately model the downside risks of portfolios. Finally, the factor-based simulation technique
accounts for the impact of different economic conditions (eg: low interest rates) on future portfolio
returns, resulting in more-precise, forward-looking projections.

 Colin Lizieri;”After the Fall: Real Estate in the Mixed-Asset Portfolio in the Aftermath of the
Global Financial Crisis” The Journal of Portfolio Management Special Real Estate Issue 2013,
39(5) 45-59
The global financial crisis led some investors to question the benefits of real estate as a risk
diversifier in mixed asset portfolios as falling real estate capital values coincided with the bear
market in equities: private real estate appeared not to deliver diversification when it was most
needed. An analysis of UK private real estate returns, corrected for appraisal effects using a regime-
based filtering process confirms that the relationship between real estate and other financial asset is
time-varying: but suggests that there remain strong benefits from including commercial real estate in
the mixed asset portfolio.

 Sergio M. Focardi and Frank J. Fabozzi; “Can We Predict Stock Market Crashes?”; The
Journal of Portfolio Management Special 40th Anniversary Issue2014, 40(5) 183-195;
In this article, the authors suggest how to think about a new framework for the analysis of financial
bubbles and a possible vector of variables able to signal when an economy enters a state of
disequilibrium. The working hypothesis is that market crashes are predicted by a bubble. The authors
define a bubble as an anomalous increase in asset prices with respect to the economy. An
exponentially growing spread between asset prices and economy is therefore an indicator of the
probability that a bubble is in the making. However, as the authors point out, this indicator alone is
not sufficient as anomalous price growth can be generated by different macroeconomic scenarios.
The authors discuss different macro scenarios that can lead to bubbles and the related indicators.

 Valeriy Zakamulin; “Optimal Dynamic Portfolio Risk Management”; The Journal of Portfolio
Management Fall 2016, 43(1) 85-99
Numerous econometric studies report that financial asset volatilities and correlations are time varying
and predictable. Over the past decade, this knowledge has stimulated increasing interest in various
dynamic portfolio risk control techniques. At present, the two basic types of risk control techniques-
risk control across assets and risk control over time- are not implemented simultaneously, and there
has been surprisingly little theoretical study of optimal dynamic portfolio risk management. This
article fills this gap in the literature by formulating and solving the multi period portfolio choice
problem. Using several datasets and performing out-of-sample simulations, the author demonstrates
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that it is optimal to simultaneously control portfolio risk across assets and over time. Specifically, the
author shows that portfolios with risk control only across assets outperform equally weighted
portfolios and that portfolios with risk control both across assets and over time outperform portfolios
with risk control across assets only.

 Fulbert Tchana and Georges Tsafack; “The Implications of Value-at-Risk and Short-Selling
Restrictions for Portfolio Manager Performance”; 28th Feb 2019
After the recent financial crisis and the tightening of the regulation processes, portfolio managers
regularly face strong restrictions, with complex implications for their performance. This paper
provides a framework to analyze the performance of a portfolio manager under a value-at-risk (VaR)
constraint, in a Markowitz setup. Using appropriate parameters, we calibrate the model for a manager
with private information and compare the effect of VaR and the Short-Selling (SS) constraints on the
relationship between the expected portfolio return and the market return. We find that, in a more
volatile market, the VaR restriction will have a greater effect on manager performance than the SS
restriction. The VaR constraint also strongly affects a manager with high-quality information, while
the SS restriction only moderately affects a manager with any level of information quality. Regarding
their attitude toward risk, an overly aggressive manager will find their overall performance more
affected by the VaR constraint.

 Joseph Simonian; “Portfolio Selection: A Game-Theoretic Approach”; The Journal Of

Portfolio Management September 2019
Game-theoretic methods are not widespread in finance. One reason is that practitioners do not see
straightforward applications of game theory to core investment problems. To that end, in this article
the author describes two novel portfolio construction applications of the game-theoretic solution
concept known as the Shapley value. In the first, the Shapely value is used as a type of shrinkage
operator to blend the allocation weights generated by two different portfolio selection frameworks. In
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the second, Shapley value is used to build a unique approach to portfolio selection using what the
author calls optimization game. In both applications, asset classes are assumed to be the players who
are bargaining over representation in a portfolio. As the article shows, the Shapley value naturally
facilitates the construction of a well-diversified portfolios that can satisfy specific investor goals
without the need for additional formal constraints.

 Hemant Manuj; “The Need to Make Portfolio Management More Robust”, India Forbes 2019
We need not wait for a crisis to take critical reform measures to encourage high quality risk
management. The equity market has been in a downward trend for some time now. This is especially
true for the mid and small cap sectors of the market. There are several reasons for the market
downturn and various commentators, including myself, have talked of these. However, there is
another aspect of the downturn that has not been adequately captured in public discussions yet. That
is the impact of the downturn on certain portfolio management services (PMS) schemes and on the
investors in such schemes.
The PMS schemes are fundamentally different from Mutual Fund (MF) schemes in that the former
are managed by portfolio managers on a private and contractual basis for their clients. These are
usually smaller in size and often at a higher market risk level. Since the PMS schemes are privately
managed, their performance is not available in public domain. As a result of this, independent market
analysts do not have adequate information to comment on these schemes in a general or specific
manner. However, recently, there have been some news items about certain PMS schemes suffering
heavily in terms of performance and a few of them not being able to provide exits to their investors.

 Stefano Ciliberti and Stanislo Gualdi: “Portfolio Construction Matters” The Journal of
Portfolio Management July 2020, 46(7) 46-57;
The role of portfolio construction in the implementation of equity market neutral factors is often
underestimated. Taking the classical momentum strategy as an example, the authors show that one
can significantly improve the main strategy’s feature by properly taking care of this key step. More
precisely, an optimized portfolio construction algorithm allows one to significantly improve the
Sharpe ratio, reduce sector exposures and volatility fluctuations, and mitigate the strategy’s skewness
and tail correlation with the market. These results are supported by long-term, worldwide simulations
and are shown to be universal. The author’s findings are also general and hold true for a number of
other equity factors. Finally, the authors discuss the details of a more realistic setup in which they
also deal with transaction costs.
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 Olfa Belhassine and Chiraz Karamti;”Contagion and Portfolio Management in times of Covid-
19”; Economic Analysis and Policy; 5th August 2021;
This paper aims to investigate the COVID-19 pandemic impacts on the interconnectedness between
the Chinese stock market and major financial and commodity markets- gold, silver, Bitcoin, WTI,
S&P 500, and Euro STOXX 50-and analyze the portfolio design implications. Using daily data from
2018 to 2021, we first apply the Wavelet Power Spectrum (WPS) to visualize volatility shifts. In
contrast to previous research, we empirically identify the precise COVID-19 outbreak dates for each
market using the Perron (1997) breakpoint test. Finally we employ the bivariate DCC-GARCH
model to analyze the connectedness between markets. The findings reveal that the COVID-19
pandemic caused volatility shifts of different intensities for all of the studies markets. Moreover, each
return series exhibits one break date, which is specific to each market and corresponds to a distinct
COVID-19-related events. Correlations, hedge ratios, and optimal portfolio weighs changed
significantly after the COVID-19 outbreak. There is evidence of contagion effects between the
Chinese stock market and S&P 500, Euro STOXX 50, gold, silver. Interestingly, the latter two assets
lost their safe haven property with SSE. However, WTI and Bitcoin act as a safe haven against SSE
risks.

 Martin L. Leibowtiz and Stanley Kogelman; “Portfolio Decisions within a Generalized

Funding Ratio Framework”; The Journal of Portfolio Management, April 2022;
The common practice of setting a fixed risk/volatility limit and then choosing the portfolio with the
highest return may not adequately account for key considerations such as the fund’s surplus status,
required success probability versus critical goals, or the need for return-sensitive downside risk
limits. A wide range of behavioural choices that are not seen in practice are better understood when
investment objectives are viewed in the context of a generalized funding ratio that incorporates these
considerations. One natural objective is to find the portfolio with peak success probability versus a
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basic return target. Another involves seeking the highest return available with a given probability of
assurance (eg: 60%). The combination of such criteria, which depend on the interplay of risk-
adjusted returns and return-sensitive risk limits, typically results in a narrow range of portfolio
choices. Moreover, the range expands or contracts in accordance with the projected level of
rates/returns. By explicitly focusing on various definitions of success within a ratio context, this
article shows the best risk-balanced portfolio generally falls well below the highest return and/or the
standard risk limit.

 Chris Brightman, Andrew Patterson, Jean Boivin; Mint: Business Nwespaper; 15 Mar 2022;
The classic 60/40 portfolio — a strategy named for the share allocated to equities and high-grade
debt, respectively — is down more than 10% this year, leaving it on pace for the worst drubbing
since the financial crisis of 2008.

You cannot count on the sort of investment returns seen over history for a period of time," said Chris
Brightman, chief investment officer at Research Affiliates. “Bond yields, dividend and earnings yields are at
a low starting point and it means future returns will be low when compared to history." Andrew Patterson,
senior economist at Vanguard Group Inc., said markets are verging on a period of low gains for the 60/40
portfolio. He estimated that annual returns over the next 10 years will be “south of 5% and our estimates
have been grinding down in recent years, mainly driven by equities."

Equity and bond prices falling together may be a feature of the inflation shock. In past eras of supply-driven
inflation, government bonds failed to offset equity losses, as prices in both markets moved together, said
Jean Boivin, head of the BlackRock Investment Institute. Investors will have to live with higher inflation and
that will challenge the role of government bonds in a portfolio," he said. “Central banks will find it harder to
contain inflation and also harder to ease if economic growth slows materially." That inflation threat has
made other assets potentially more alluring than bonds. Pacific Investment Management Co. recently
recommended shifting a portion of 60/40 portfolios into in commodities to hedge against elevated inflation.
 71

“When inflation increases, asset values generally fall," and “even a small allocation to commodities may
materially improve the inflation protection of a traditional 60/40 stock/bond portfolio," it said.

DATA ANALYSIS & INTERPRETATION

Data analysis is the process of collecting, modeling, and analyzing data to extract insights that support
decision-making. There are several methods and techniques to perform analysis depending on the industry
and the aim of the investigation.

All these various methods are largely based on two core areas: quantitative and qualitative research.

Data analysis is defined as a process of cleaning, transforming, and modeling data to discover useful
information for business decision-making. The purpose of Data Analysis is to extract useful information
from data and taking the decision based upon the data analysis.

A simple example of Data analysis is whenever we take any decision in our day-to-day life is by thinking
about what happened last time or what will happen by choosing that particular decision. This is nothing but
analyzing our past or future and making decisions based on it. For that, we gather memories of our past or
dreams of our future. So that is nothing but data analysis. Now same thing analyst does for business
purposes, is called Data Analysis.

Data Analysis Process:

When we talk about analyzing data there is an order to follow in order to extract the needed conclusions. The
analysis process consists of 5 key stages. We will cover each of them more in detail later in the post, but to
start providing the needed context to understand what is coming next, here is a rundown of the 5 essential
steps of data analysis. 

 Identify: Before you get your hands dirty with data, you first need to identify why do you need it in
the first place. The identification is the stage in which you establish the questions you will need to
answer. For example, what is the customer's perception of our brand? Or what type of packaging is
more engaging to our potential customers? Once the questions are outlined you are ready for the next
step. 

 Collect: As its name suggests, this is the stage where you start collecting the needed data. Here, you
define which sources of information you will use and how you will use them. The collection of data
can come in different forms such as internal or external sources, surveys, interviews, questionnaires,
focus groups, among others.  An important note here is that the way you collect the information will
be different in a quantitative and qualitative scenario. 
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 Clean: Once you have the necessary data it is time to clean it and leave it ready for analysis. Not all
the data you collect will be useful, when collecting big amounts of information in different formats it
is very likely that you will find yourself with duplicate or badly formatted data. To avoid this, before
you start working with your data you need to make sure to erase any white spaces, duplicate records,
or formatting errors. This way you avoid hurting your analysis with incorrect data. 

 Analyze: With the help of various techniques such as statistical analysis, regressions, neural
networks, text analysis, and more, you can start analyzing and manipulating your data to extract
relevant conclusions. At this stage, you find trends, correlations, variations, and patterns that can help
you answer the questions you first thought of in the identify stage. Various technologies in the
market assists researchers and average business users with the management of their data. Some of
them include business intelligence and visualization software, predictive analytics, data mining,
among others. 

 Interpret: Last but not least you have one of the most important steps: it is time to interpret your
results. This stage is where the researcher comes up with courses of action based on the findings. For
example, here you would understand if your clients prefer packaging that is red or green, plastic or
paper, etc. Additionally, at this stage, you can also find some limitations and work on them. 

PRESENTATION BACKGROUND
This following section presents analysis made on the data collected from the questionnaire. The set of
questions based on the theories discussed in preceeding chapters were sent to all possible individuals. Each
question and response option associates with components of theories, and they have been modified in
order to allow respondents to understand easily and to avoid any potential error in misunderstanding.

Since the survey was sent out to approximately 200 individuals, and the number of participants were
166; therefore, the total percentage of responses was 83 (%). In total the questionnaire contains 16
questions. In the upcoming sections, analysis and the findings are presented; as for conclusions and
further suggestions, they are discussed in the next chapter.
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Q.1 Age

Figure 6: Age distribution

Interpretation

According to my research study

 45.2% respondents are between age group of 20-35

 9.6% respondents are between age group of 25-30
 10.2% respondents are between age group of 30-35
 13.9% respondents are between age group of 35-40
 21.1% respondents are between age group of >40

Q.2 Gender

Figure 7: Gender Distribution

Interpretation
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According to my research study

 60.2% respondents are female

 39.2% respondents are male
 0.6% respondents are other.

Q.3 Occupation

Figure 8

Interpretation

According to my research study

 25.9% respondents do business

 16.9% respondents are employed
 1.8% respondents are unemployed
 22.3% respondents are homemaker
 26.5% respondents are students
 6.6% respondents are other.

Q.4 What is your net annual family income?

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Figure 9: Annual Income Distribution

Interpretation
According to my research study
 30.7% respondents income is < 5 Lakhs
 31.3% respondents annual income is 5-10 Lakhs
 11.4% respondents annual income is 10-15 Lakhs
 26.5% respondents annual income is > 15 Lakhs

Q. 5 Do you know about various investment options?

Figure 10: Awareness about investment options

Interpretation
According to my research study
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 57.2% Respondents were aware about various investment options

 11.4% Respondents were not aware about various investment options
 31.3% Respondents may or may not be aware about various investment options

Q.6 What is the purpose of your investment?

Figure 11: People's purpose of investment

Interpretation

According to my research study

 61.4% Respondents invest with the purpose of Returns

 9.6% Respondents invest with the purpose of Tax Benefit
 17.5% Respondents invest with the purpose of Capital Appreciation
 9% Respondents invest with the purpose of Risk Reduction
 2.5% Respondents invest for other purposes

Q.7 What do you consider while investing?

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Figure 12

Interpretation

According to my research study

 6% Respondents consider risk while investing

 19.3% Respondents consider returns while investing
 74.7% Respondents consider both risk and returns while investing

Q.8 Which option do you feel will give the best returns?

Figure 13

Interpretation
According to my research study
 26.5% Respondents think Gold will give the best returns
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 35.5% Respondents think Real Estate will give the best returns
 6.6% Respondents think Fixed Deposit will give the best returns
 21.7% Respondents think Shares will give the best returns
 9.6% Respondents think Portfolio Management will give the best returns

Q.9 How much return do you expect in one year on your investment?

Figure 14

Interpretation
According to my research study
 13.3% Respondents expect < 10% of return on their investment
 44.6% Respondents expect 10-15% of return on their investment
 23.5% Respondents expect 15-20% of return on their investment
 18.7% Respondents expect > 20% of return on their investment

Q.10 Is Return on Investment according to your expectations?

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Figure 15

Interpretation
According to my research study
 60.2% of Respondents get Return on Investment as per their expectation
 39.8% of Respondents do not get Return on Investment as per their expectation

Q.11 Whom do you consult while investing?

Figure 16

Interpretation
According to my study
 18.7% Respondents consult them self while investing
 34.9% Respondents consult Professional Services while investing
 45.8% Respondents consult their Friends & Family while investing
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 0.6% Respondents consult others (Bank Authorities) while investing

Q.12 Are you aware of services offered by Portfolio Manager?

Figure 17

Interpretation
According to my study
 42.2% Respondents are aware of the services offered by Portfolio Managers
 57.8% Respondents are aware of the services offered by Portfolio Managers

Q.13 If yes, what type of services are you aware of?

Figure 18

Interpretation
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According to my study

 20.5% Respondents are aware of the Management of Mutual Fund Investment

 12.7% Respondents are aware of the Management of Equities
 8.4% Respondents are aware of the Management of Money Market Investment
 11.4% Respondents are aware of the Advisory or Consultancy Services
 44.6% Respondents are aware of the None of the above services
 2.4% Respondents are aware of other services offered by Portfolio Managers

Q.14 Would you want to hire a Portfolio Manager at present or in future?

Figure 19

Interpretation

According to my study

 62.7% Respondents would like to hire a Portfolio Manager

 37.3% Respondents would not like to hire a Portfolio Manager

Q.15 If yes, for what type of services?

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Figure 20

Interpretation

According to my study

 22.9% Respondents would hire Portfolio Managers for Investment in Mutual Funds
 31.3% Respondents would hire Portfolio Managers for Investment in Money Market
 13.9% Respondents would hire Portfolio Managers for Investment in Equities
 25.3% Respondents would hire Portfolio Managers for Advisory and Consultancy services
 6.6% Respondents would hire Portfolio Managers for other services such as fixed deposit

Q.16 Do you think there will be growth in Portfolio Management in future?

Figure 21

Interpretation
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According to my research study

 87.3% Respondents think there will be growth in Portfolio Management in future
 12.7% Respondents think there won’t be growth in Portfolio Management in future

SUGGESTIONS
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We all have different requirements at various phases in our lifespan. To meet all these
requirements we must be financially capable.

Financial Capability is not gained, it is achieved. To achieve it, we must plan wisely and
realistically.

We should know our goals, and must take appropriate steps in order to achieve it.

Simple way of achieving our goals is investing.

Investing is an art as well as science. There are various questions like when to invest, where
to invest and how much to invest which need to be answered. An individual may not be able
to answer these.

Therefore it is advisable to opt for Portfolio Management Service, where a specialized expert
(fund manager) looks after the funds and through sound investments, helps us achieve our
goals.

 One should start financial planning and investing early.

 Take advice of professional fund managers if the investor does not have appropriate
knowledge about the financial market.
 Regularly analyze investments and track their performance.

Some of the suggestion and recommendation for improving the present image as well as the
services of Banks and Other financial institution who provide Portfolio management Services
are as follows:

 More branches:
Some more branches should be opened so it becomes more easy and approachable for
the people to do their transaction. The branches should have well trained employees.

 Customer Awareness:
The people should be updated with the new issues and scheme started by the
organization to the existing customer. Regular contact with the customer through
telephone can be maintained for smooth running of business.
 85

 Proper feedback system:

A proper feedback system should be designed to take care of the dissatisfied customer
and solving their problems as their bad works of mouth publicity can make loose its
potential as well as existing customer.

 More advertisement:
Newspaper and agents are most effective tools for awareness, so they should use these
tools more for advertisement

CONCLUSION
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After the overall all study about each and every aspect of this topic it shows that portfolio management is a
dynamic and flexible concept which involves regular and systematic analysis, proper management,
judgment, and actions and also that the service which was not so popular earlier as other services has
become a booming sector as on today and is yet to gain more importance and popularity in future as people
are slowly and steadily coming to know about this concept and its importance.

It also helps an individual the investor and to manage their portfolio by expert portfolio managers. It protects
the investor's portfolio of funds very crucially.

Portfolio management service is very important and effective investment tool as on today for managing
investible funds with a surety to secure it. As and how development is done even sector will gain its place in
this world of investment.

From the above discussion it is clear that portfolio functioning is based on market risk, so one can get the
help from the professional portfolio manager or the Merchant banker if required before investment because
applicability of practical knowledge through technical analysis can help an investor to reduce risk. In other
words Security prices are determined by money manager and home managers, students and strikers, doctors
and dog catchers, lawyers and landscapers, the wealthy and the wanting. This breadth of market participants
guarantees an element of unpredictability and excitement. If we were all totally logical and could separate
our emotions from our investment decisions then, the determination of price based on future earnings would
work magnificently. And since we would all have the same completely logical expectations, price would
only change when quarterly reports or relevant news was released.

"I believe the future is only the past again, entered through another gate" -Sir Arthur wing Pinero. 1893.
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If price are based on investors expectations, then knowing what & security should sell for become less
important than knowing what other investors expect it to sell for. "There are two times of a man's life when
he should not speculate; when he can't afford it and when he can" - Mark Twin, 1897.

A Casino make money on a roulette wheel, not by knowing what number will come up next, but by slightly
improving their odds with the addition of a "O" and "00". Yet many investors buy securities without
attempting to control the odds. If we believe that this dealings is not a "Gambling" we have to start up it with
intelligent way.

I can conclude from this project that portfolio management has become an important service for the
investors to identify the companies with growth potential. Portfolio managers can provide the professional
advice to the investors to make an intelligent and informed investment.

Portfolio management role is still not identified in the recent time but due it expansion of investors market
and growing complexities of the investors the services of the portfolio managers will be in great demand in
the near future.

Today the individual investors do not show interest in taking professional help but surely with the growing
importance and awareness regarding portfolio’s manager’s people will definitely prefer to take professional
help.
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BIBLIOGRAPHY

 Security Analysis and Portfolio Management- V.A. Adadani

 Investment Management- Preeti Singh
 Business World
 The Economic Times
 Mint: Businsess Paper
 Forbes India Magazine
 www.investopdeia.com
 www.financegab.com
 https://jpm.pm-research.com/
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APPENDIX

QUESTIONNAIRE FORM

1) Age

o 20-25

o 25-30

o 30-35

o 35-40

o >40

2) Gender

o Male
o Female
o Other

3) Occupation

o Business
o Employed
o Unemployed
o Homemaker
o Student
o Other

4) What is your net annual family income?

o < 5 Lakhs
o 5-10 Lakhs
o 10-15 Lakhs
o >15 Lakhs
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5) Do you know about various investment options?

o Yes
o No
o Maybe

6) What is the purpose of your investments?

o Returns
o Tax Benefit
o Capital Appreciation
o Risk Reduction
o Other

7) What do you consider while investing?

o Risk
o Return
o Both

8) Which option do you feel will give the best returns?

o Gold
o Real Estate
o Fixed Deposit
o Shares
o Portfolio Management Services

9) How much return do you expect in one year on your investment?

o < 10%
o 10-15%
o 15-20%
o >20%

10) Is Return on Investment according to your expectations?

o Yes
o No
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11) Whom do you consult while investing?

o Self
o Professional Services
o Friends & Family
o Other

12) Are you aware of services offered by a Portfolio Manager?

o Yes
o No

13) If yes, what type of services are you aware of?

o Management Of Mutual Fund Investment

o Management of Equities
o Management of Money Market Investment
o Advisory or Consultancy Services
o None of the above
o Other

14) Would you hire a Portfolio Manager at present or in future?

o Yes
o No

15) If yes, for what type of services?

o Investment in Mutual Funds

o Investment in Money Market
o Investment in Equities
o Advisory or Consultancy
o Other

16) Do you think there will be growth in Portfolio Management in future?

o Yes
o No
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