PORTFOLIO CONSTRUCTION

SECURITY AND PORTFOLIO MANAGEMENT CIA 3

Submitted by
Shakthi VK - 1920526
Sejal Nagori - 1920646
Sanjay Kumar - 1920674
 TABLE OF CONTENTS
S.NO. TOPIC PAGE
NOS.
1. Client Profile 1

2. Risk Profile 1

3. Asset Allocation 2

4. Introduction 3
–
4
5. Portfolio Creation 5
–
6
6. Justification of Portfolio 7
–
17
7. Return on Investment 18
–
19
8. Risk on Investment 20
–
22
9. Sharpe Model 23
–
27
10. Conclusion 28

11. Summary 29

12. Bibliography 29

Annexures
 CLIENT PROFILE

Mr. Manish Mundra is a 55 year old business consultant who runs his own consultancy firm. His
firm has turned out to be extremely profitable in the last few years enabling him to invest his
surplus. He has a small family of 4. Mrs. Mira Mundra (his Wife), Ms. Sarah Mundra(His 25 year
old Daughter) and Mr. Noel Mundra (His 23 year old Son who just completed his MBA).

Mr. Mundra has approached KA Portfolio Construction and Management Pvt. Ltd. with the task
of creating an optimal portfolio for him and meeting his Investment needs. His main requirement
and objective is to grow his portfolio as much as possible with little or no risk. He also wants to
save enough for retirement and carry out Inheritance Planning for his son and daughter who will
be the successors of his business.

RISK PROFILE

The risk profile gives guidelines to build a portfolio and allocate asset that matches a person’s
risk appetite. Based on the information given to us by Mr. Mundra and his answers to the
“Merrill Edge Risk Analysis” survey, we have come to the conclusion that he is willing to
assume “Conservative” degree of risk. This conclusion is supported by the fact that:

 He wants an annual average return between 12%-18%.

 Wants to reduce risk through diversification.

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 ASSET ALLOCATION

Asset Allocation is the most important factor in portfolio evaluation and indicates the distribution
of your investments in different asset classes i.e. equity, debt, cash & alternate. This section
highlights the suggested asset allocation. The suggested asset allocation is based mainly on risk
profile. (Details given in the methodology).

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 INTRODUCTION

Portfolio is a collection of investment instruments like shares, mutual funds, bonds, FDs and
other cash equivalents, etc. Portfolio management is the art of selecting the right investment tools
in the right proportion to generate optimum returns with a balance of risk from the investment
made.

In other words, a portfolio is a group of assets. The portfolio gives an opportunity to diversify
risk. Diversification of risk does not mean that there will be an elimination of risk. With every
asset, there is an attachment of two types of risk; diversifiable/unique/unexplained/unsystematic
risk and undiversifiable/ market risk / explained /systematic risk.

Even an optimum portfolio cannot eliminate market risk, but can only reduce or eliminate the
diversifiable risk. As soon as risk reduces, the variability of return reduces. Best portfolio
management practice runs on the principle of minimum risk and maximum return within a given
time frame. A portfolio is built based on investor’s income, investment budget and risk appetite
keeping the expected rate of return in mind.

Portfolio Management implies wisely organizing an investment portfolio, by opting for the best
investment mix in the right ratio and regularly shifting them in the portfolio, to increase the
return on investment. The portfolio is basically an accumulation of various type of financial
instruments with an investor which can include stocks, bonds, mutual funds etc.

Its significance is:

1. Tax Planning
Having a portfolio of investments having fewer tax obligations is a wise financial
decision. Tax planning can be done as part of portfolio management. Investments of
some amount of one's capital in financial instruments like PPF, PF, etc. are good ways of
saving a good amount of tax payments.

2. Allocation of Funds for Maximum Returns

Portfolio management is done with many factors in mind like desired returns, risk-taking
capacity etc. If you actively manage your portfolio, you can ensure to maximize your

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returns on your hard-earned capital. A good portfolio can earn you good returns but
actively

4
 managing that portfolio has the potential of getting you even bigger returns.

3. Diversification
This is also one great advantage of having a well-balanced portfolio and managing it
actively. Diversification means the allocation of funds in different types of financial
instruments. It protects against the risk posed by one asset. In the case of stocks
investments too, diversification is suggested in stocks across different sectors of the
economy.

4. Managing Adverse Conditions

Good portfolio management always takes into account some investments done in liquid
instruments and having some cash balance for contingencies, in times like the current
pandemic, there is an even greater benefit of good portfolio management It calls for the
withdrawal of funds from poor performing assets and more investments into suitable and
good returns generating financial instruments.

5. Reducing Risk
This is one of the most important benefits of portfolio Management. You can adjust the
risk you are taking on a specific percentage of your capital. There are all kinds of
financial instruments available. Fixed deposits and debt funds are some of the examples
of the least risky instruments with low returns, whereas investments in the equity market
are quite risky but have the potential to earn very good returns.

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 PORTFOLIO CREATION

The portfolios have been analyzed using Single Index Model by William Sharpe.

The Single Index Model (SIM) is an asset pricing model, according to which the returns on a
security can be represented as a linear relationship with any economic variable relevant to the
security. The Single Index Model is a simplified analysis of “PORTFOLIO SELECTION
MODEL”, to measure both Risk and Return on the stock. It was proposed by William Sharpe
which greatly reduces the number of calculations that would otherwise have to be made for a
large portfolio of thousands of securities.

As we have learnt from above that diversification of risk is an important factor to consider for
Portfolio construction. To construct the portfolio of Mr. Mundra, we first understood his
investment goals. He wants to grow his portfolio and is not aggressively risky, This is why more
secure investments in Fixed deposits and mutual funds are made. Even the stocks that we have
invested in are stocks with low risk.

Next, we carried out the Asset Allocation, which is represented in the following table –

Investment Mix for Portfolio 1

Particulars Percentage Amount

Invested
Equity 35% 10,500,000.00

Fixed 5% 1,500,000.00
Deposits
Mutual 25% 7,500,000.00
Funds
Commodities 10% 3,000,000.00

Debt 15% 4,500,000.00

Others 10% 3,000,000.00

TOTAL 100% 30,000,000.00

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 Investment Mix for Portfolio 2

Particulars Percentage Amount

Invested
Equity 20.00% 6,000,000.00

Fixed 10.00% 3,000,000.00

Deposits
Mutual 30.00% 9,000,000.00
Funds
Commodities 20.00% 6,000,000.00

Debt 15.00% 4,500,000.00

Others 5.00% 1,500,000.00

TOTAL 100% 30,000,000.0

0

The third step was to pick up Individual Assets for each portfolio. This process required an
individual risk return analysis of each stock and then coming up with the optimal portfolio. We
have chosen stocks that are less risky and give higher returns.

Lastly, a comparative analysis is conducted by changing the weights and few stocks of this
portfolio to provide with the best option available.

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 JUSTIFICATION OF PORTFOLIO

The Portfolio that our company has constructed for Mr. Mundra is a diverse one according to his
risk appetite. Around 35% of our money is being invested in Equity Shares.

1. Stocks:

Portfolio 1

Company Value per Quantity Total

Share
Reliance 1,956.80 823.00 1,610,446.40
HDFC Life 593.00 2,500.00 1,482,500.00
ITC 175.00 8,000.00 1,400,000.00
Sun Pharma 511.65 2,550.00 1,304,707.50
Axis Bank 537.75 2,700.00 1,451,925.00
HCL 845.00 2,100.00 1,774,500.00
Hero Motocorp 2950 500.00 1,475,000.00
TOTAL 10,500,000.00

Portfolio 2

Company Value per Quantity Total

Share
Reliance 1,956.20 578 1,130,683.60

HDFC Life 593.00 700 415,100.00

Asian Paints 2,238.00 500 1,119,000.00

Sun Pharma 511.54 900 460,386.00

Axis Bank 537.75 1,000 537,750.00

HCL 845.00 900 567,080.85

Hero 2950.00 600 1,770,000.00

Motocorp
TOTAL 6,000,000.45

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Our Portfolio comprises of many blue-chip Stocks. These are stocks of financially sound companies
that have had a healthy operation for many years and have dependable earnings. These stocks also
often pay a steady dividend to their investors. Any investor would want to stake a business that has
demonstrated profitability over multiple generations. They may not be among the set of buzzing
stocks all the time, however; over the long term, blue-chip stocks tend to make money for the
shareholders. Therefore, these are a great investment for people who can hold on through thick and
thin, and through market cycles.

The following are the stocks that we chose:

a. Reliance: Reliance is a stock that in expected to provide long term returns. It has the
highest free cash flow growth rate among energy companies globally, growing at 26%
year-on-year and thus high dividends are expected. It is constantly expanding and the
stock is constant correcting itself. Thus this is a good choice to include in the Portfolio.

b. HDFC Life: According to YES Securities, the savings business has gathered momentum
in Q2 FY21 and is likely to sustain given that the propensity to save is increasing
amongst customers. Protection business will continue to witness strong demand on the
back of lower penetration and current environment. Keeping this in mind, we chose
HDFC LIFE as it has a balanced product mix and strong distribution channel along with a
well poised to sustain its strong growth trajectory in premiums. Profitability is also
expected to improve going ahead with favourable product mix and scale benefits. Its
good to invest in the company as we are in this for the long term.

c. ITC: Yes, as you can see from the calculations that ITC is a low-priced stock but this is
because, FM Nirmala Sitharaman in her budget for 2020–21 increased the National
Calamity Contingent Duty on cigarettes. But the company in all has shown Compounded
Sales Growth of 10 Years: 11.32% and Compounded profit of 14.33% in the last 10
years. The company is also debt free. This tells us that even though the prices are volatile
right now, ITC is a very good stock especially with respect to retirement planning.

d. Sun Pharma: Sun Pharma results have been surprising for the market especially at the
bottom-line level. Top line level growth has been okay, not great but in line with

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 expectation, but the bottom-line level is where the company has done very well. Now
together with the fact that the stock was an underperformer, the market was waiting for
some triggers to react to the stock prices going up or down. Now with bottom line results
having come in better than expected, the market has reacted positively and is trying to
bring back the stock in line. Thus, there can be a growth Trajectory. It is also a blue-chip
stock that is good for long run.

e. Axis Bank: Axis Bank is a highly growing stock because of the various technology
measures used by it. It employs the most recent Banking technologies and also has an
excellent customer relationship Management system which is why it’s share is expected
to grow. Along with this, the recent support granted by RBI regarding Low interest rates
and moratorium policies has also cause a lot of investments in the Banking space. Thus
we chose this stock for our Portfolio.

f. Hero Motocorp: Hero Motocorp is the market leader in the two-wheeler segment.
Recently the government has announced a tax cut in the two-wheeler rates which is
expected to boost the sales of the Company. Also, the company has recently announced
its Partnership with Harley Davidson for all its two-wheeler servicing. Thus, the company
is expected to grow and is taken in this portfolio.

2. Fixed Deposits:

Portfolio 1

Bank Interest Amount

Rate Invested
IDFC 7.50% 800,000.00

Axis Bank 6.50% 200,000.00

Bajaj 6.60% 500,000.00

Finserv
TOTAL 1,500,000.00

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 Portfolio 2

Bank Interest Amount

Rate Invested
IDFC 7.50% 1,300,000.00

Axis Bank 6.50% 700,000.00

Bajaj 6.60% 1,000,000.00

Finserv
TOTAL 3,000,000.00

 Fixed deposits are safe investments that guarantee returns. When you invest your money,
you are aware of exactly how much you will earn at maturity. Fixed Deposits provide a
substantial rate of interest but after a fixed tenure.

 A fixed deposit can be used to obtain a loan when you need funds. The sanctioned
amount is usually up to 70% of the fixed deposit amount and is offered at a competitive
interest.

 Most market investments are volatile and depend on the economic scenario. This is not
the case with fixed deposits. You can be sure that your investment in a fixed deposit is
secure. The amount of interest gained at the end of the lock-in period does not depend on
the profit of the company. This makes fixed deposits a very safe choice for you.

 IDFC, Axis and Bajaj Finserv offer the highest FD rates in the country.

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 3. Mutual Funds:
Portfolio 1

Fund Amount Return

SBI SmallCap Fund Direct 1,250,000.00 10.52%

DSP Midcap Fund 750,000.00 12.50%

Tata Digital India Fund Direct 1,800,000.00 36.30%

Mirae Asset Emerging Bluechip 900,000.00 9.92%

Fund
Axis Short Term Direct Fund 1,300,000.00 10.87%

ICICI Nifty 50 ETF 1,500,000.00 1.92%

TOTAL 7,500,000.00

Portfolio 2

Fund Amount Return

SBI SmallCap Fund Direct 1,250,000.00 10.52%
DSP Midcap Fund 1,350,000.00 12.50%
Tata Digital India Fund Direct 900,000.00 36.30%
Mirae Asset Emerging Bluechip Fund 1,400,000.00 9.92%
Axis Short Term Direct Fund 1,200,000.00 10.87%
ICICI Nifty 50 ETF 1,400,000.00 1.92%
Parag Parikh Long Term Equity Fund Direct 1,500,000.00 18.12%
Growth
TOTAL 9,000,000.00

 Mutual Funds are very beneficial for any portfolio. They help in diversifying the risk and
eliminate a lot of idiosyncratic risk which are associated to one sector or individual
stocks. At that point, a large portion of the risk associated with investing has been
diversified away. The remaining risk is deemed to be systematic risk or market-wide risk.
It helps follow the basic rule of “You shouldn’t put your eggs in one basket.” Mutual
Funds help investors to
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 diversify the holdings without putting a lot of effort in thinking of stocks to diversify the
risk.

 There is a lot of convenience offered by the mutual funds and is one of the main reasons
investors choose prefer it over maintain the stock proportionately. Most of the research
and decision making is left to someone else. Mutual funds takes a lot of stress away from
the people and it lets investors avoid the complicated decision making involved in stocks.

 We choose various types of mutual funds to further reduce risk and diversify the
portfolio. There is a very simple reason to do so because we invested in mutual funds in
different sectors. There are mutual funds selected like SBI SmallCap Fund Direct and
DSP Midcap Fund that are not only small cap and mid cap funds.

 Chosen Tata Digital India Fund Direct Mutual Funds that can become huge in the future.
They specialize in selecting companies that have potential future. Mirae Asset Emerging
Bluechip Fund was also chosen for the same reason to find stocks that can give massive
returns in the future.

 Axis Short Term Direct Fund was chosen to look for short term profits and help pull up
the returns for the portfolio. To show the client positive CAGR returns every year. Parag
Parikh Long Term Equity Fund Direct Growth and ICICI Nifty 50 ETF are selected for
the long term basis. So, there are mutual funds which will give short term and long term
results for the portfolio.

 The Mutual Funds selected are consistently giving stable returns in the past few years.
The returns are above the general Market returns. The Mutual Funds selected have a very
High rating from different institutions and that is a sign of stability.

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 4. Commodities:
Portfolio 1

Details Amount
Invested
ICICI Gold ETF 1,850,000.00

Silver 1,150,000.00

TOTAL 3,000,000.00

Portfolio 2

Details Amount
Invested
ICICI Gold ETF 3,500,000.00

Silver 2,500,000.00

TOTAL 6,000,000.00

 Throughout history, gold has been seen as a special and valuable commodity.

 One of the biggest reasons to include gold and silver in your portfolio is to hedge against
inflation. As a value storage vehicle, gold and silver have managed to do pretty well over
time. Inflation can erode the spending power of a dollar, but gold and silver can help you
hedge against that loss of value.

 Gold & Silver add diversity to the portfolio. Commodities like gold and silver often move
opposite to the stock market. So, if the stock market drops, gold often heads higher

 As a global store of value, gold can also provide financial cover during geopolitical and
macroeconomic uncertainty.

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 5. Bonds: A bond is a fixed income investment in which an investor loans money to an
entity (typically corporate or government) which borrows the funds for a defined period
of time at a variable or fixed interest rate Owners of bonds are debtholders, or creditors,
of the issuer. Bonds can contribute an element of stability to almost any portfolio – they
are a safe and conservative investment. They provide a predictable stream of income
when stocks perform poorly, and they are a great savings vehicle for when you don't want
to put your money at risk. The bonds that we have chosen are:

Portfolio 1

Details Amount Return

Kotak Dynamic Bond Fund Direct 1,000,000.00 12.04%

SBI Short Term Debt Fund 1,200,000.00 10.04%

HDFC credit risk debt fund 800,000.00 10.65%

IDFC Government security investment 1,500,000.00 14.35%

plan
TOTAL 4,500,000.00

Portfolio 2

Details Amount Return

Kotak Dynamic Bond Fund Direct 1,000,000.00 12.04%

LIC MF Banking PSU Debt Fund Direct 1,200,000.00 8.91

Growth
HDFC credit risk debt fund 800,000.00 10.65%
IDFC Governmet security investment plan 1,500,000.00 14.35%

TOTAL 4,500,000.00

 Kotak Dynamic Bond Fund Direct: Kotak Dynamic Bond Fund (Formerly known as
Kotak Flexi Debt Scheme) is an open ended debt fund aimed at investing in a portfolio of
debt instruments and money markets to generate income through investment. It has
moderately low level risk with an aim to generate income over a medium term investment
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 horizon. Long term capital gains tax applies to returns on this fund. A capital gain
registered over a period of 3 years or more is defined as Long-term Capital Gains
(LTCG). The Fund seeks to provide stable returns and regular income over short term.
The fund portfolio is well diversified with a mix of high quality credit debentures, bonds
and money market securities.

 SBI Short Term Debt Fund: Short Duration debt funds invest mainly in bonds maturing
in a period of one to three years. They are suitable for investment horizons of one to three
years, or for the fixed-income allocation in your longer-term portfolio. This helps in
earning a greater return when compared to Fixed deposits. No tax is to be paid as long as
you continue to hold the units. This fund gives a return of roughly 10% in the short run
itself. Thus it is chosen.

 HDFC credit risk debt fund: HDFC Credit Risk Debt Fund is an open-ended debt fund
investing in AA and below rated corporate bonds. The scheme may even invest in
securitised debts, money market instruments, REITs and InvlTs, but will not invest in
AA+ rated bonds. The fund strives to generate income and provide capital appreciation
over short to medium term. It offers the following benefits:

 The fund empowers investors to earn returns by investing in AA Bonds and

leveraging the higher interest rates compared to sovereign or AAA bonds.

 The fund also maintains a well-diversified portfolio across individual credit

issuers and business groups. Long-term (3-year) fund returns are higher than the
average category return.

 IDFC Government security investment plan: We have also invested in a government

Fund as Mr. Mundra feels that will be a safe investment. He also trust the government to
do better for the nation and thus believes in investing in It.

 LIC MF Banking PSU Debt Fund: Fund has 97.59% investment in Debt of which
16.25% in Government securities, 81.34% in funds invested in very low risk securities.
This product is suitable for investors who are seeking. Regular income for medium term
capital

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 appreciation with current income is earned. An income fund that invests predominantly in
debt and money market instruments issued by Banks, PSU’s, PFIs and Municipal Bonds.
The Risk is Moderate.

6. REIT and Others:

Portfolio 1

Details Value Per Quantity Amount

Share
Embassy Office Parks REIT 346.73 6,000.00 2,080,380.00

Mindspace Business Parks REIT Ltd. 305.50 3,010.00 919,555.00

TOTAL 2,999,935.00

Portfolio 2

Details Value Per Quantit Amount

Share y
Embassy Office Parks REIT 346.73 3,000.0 1,040,190.00
0
Mindspace Business Parks REIT Ltd. 305.50 1,505.0 459,777.50
0
TOTAL 1,499,967.50

REITs serve as a more efficient asset class for combining the investment attributes of high and
stable income, long-term capital appreciation, and inflation protection.

 REITs follow a different cycle than stocks. REITs follow the real estate cycle is which is
typically longer (18 yrs) than the economic business cycle (56 months on average). So
when stocks tank in a recession, REITs do just fine, evening out the total portfolio. In
simple words, there is limited correlation to the broad markets. Portfolio volatility can be
reduced by adding REITs in the portfolio.

 In addition to providing diversification, REITs also provide higher yields. REITs

typically deliver annual dividend yields significantly higher than even the highest
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dividend-paying

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 non-REIT stocks, and twice that of the average stock. This is attractive to fixed income
investors.

 Inflation Hedge: REITs provide an inflation hedge, a known benefit of real estate assets
in general. As inflation rises, rents and leases tend to rise as well.

 Tax Free: Dividend earned by the investors of REIT will be tax free.

 Fast Capital Appreciation: Embassy REIT is first of its kind in India, its capital
appreciation in next 5/7 years can be phenomenal.

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 RETURN ON INVESTMENT

Portfolio 1

Security Amount Expected

Invested Amount
Reliance 1,610,446.40 3,956,183.85
HDFC Life 1,482,500.00 5,572,508.77
ITC 1,400,000.00 7,527,474.85
Sun Pharma 1,304,707.50 2,449,120.34
Axis Bank 1,451,925.00 2,494,677.47
HCL 1,774,500.00 7,135,948.30
Hero Motocorp 3,247,950.00 10,648,127.65
SBI SmallCap Fund Direct 1,250,000.00 3,964,308.60
DSP Midcap Fund 750,000.00 1,924,338.39
Tata Digital India Fund Direct 1,800,000.00 21,440,719.33
Mirae Asset Emerging Bluechip Fund 900,000.00 2,737,836.11
Axis Short Term Direct Fund 1,300,000.00 2,967,944.21
ICICI Nifty 50 ETF 1,500,000.00 2,040,254.59
ICICI Gold ETF 1,850,000.00 4,538,170.76
Silver 1,150,000.00 2,950,652.19
IDFC 800,000.00 1,426,782.26
Axis Bank 200,000.00 330,999.13
Bajaj Finserv 500,000.00 833,734.25
Kotak Dynamic Bond Fund Direct 1,000,000.00 2,483,046.21
SBI Short Term Debt Fund 1,200,000.00 2,579,799.18
HDFC credit risk debt fund 800,000.00 1,797,634.25
IDFC Government security investment plan 1,500,000.00 4,385,111.20
Embassy Office Parks REIT 2,080,380.00 3,574,480.16
Mindspace Business Parks REIT Ltd. 919,555.00 2,276,784.32
TOTAL 102,036,636.36
CAGR : 16.53%

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 Portfolio 2

Security Amount Invested Expected

Amount
Reliance 1,131,030.40 2,778,462.05
HDFC Life 415,100.00 1,560,302.46
Asian Paints 1,119,000.00 5,279,339.37
Sun Pharma 460,485.00 864,395.41
Axis Bank 537,750.00 923,954.62
HCL 567,080.85 2,280,450.62
Hero Motocorp 1,770,000.00 5,802,794.36
SBI SmallCap Fund Direct 1,250,000.00 3,964,308.60
DSP Midcap Fund 1,350,000.00 3,463,809.09
Tata Digital India Fund Direct 900,000.00 10,720,359.67
Mirae Asset Emerging Bluechip Fund 1,400,000.00 4,258,856.18
Axis Short Term Direct Fund 1,200,000.00 2,739,640.81
ICICI Nifty 50 ETF 1,400,000.00 1,904,237.62
Parag Parikh Long Term Equity Fund Direct 1,500,000.00 5,684,323.23
Growth
ICICI Gold ETF 3,500,000.00 8,585,728.46
Silver 2,500,000.00 6,414,461.28
IDFC 1,300,000.00 2,318,521.17
Axis Bank 700,000.00 1,158,496.97
Bajaj Finserv 1,000,000.00 1,667,468.50
Kotak Dynamic Bond Fund Direct 1,000,000.00 2,483,046.21
LIC MF Banking PSU Debt Fund Direct Growth 1,200,000.00 2,375,326.48
HDFC credit risk debt fund 800,000.00 1,797,634.25
IDFC Government security investment plan 1,500,000.00 4,385,111.20
Embassy Office Parks REIT 1,040,190.00 1,787,240.08
Mindspace Business Parks REIT Ltd. 459,777.50 1,138,392.16
TOTAL 86,336,660.83
CAGR: 14.13%

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 RISK ON INVESTMENT

Portfolio 1

SD of Market
Company Beta Weig Total Risk
Comp Risk htage
any
Reliance 1.08 7.57% 7.57% 5.37% 0.41%
HDFC Life 0.82 4.83% 4.83% 4.94% 0.24%
ITC 1.01 5.75% 5.75% 4.67% 0.27%
Sun Pharma 0.35 7.81% 7.81% 4.35% 0.34%
Axis Bank 1.42 7.86% 7.86% 4.84% 0.38%
HCL 0.51 6.12% 6.12% 5.92% 0.36%
Hero Motocorp 0.78 6.38% 6.38% 4.92% 0.31%
SBI SmallCap Fund Direct 0.87 16.07% 16.07% 4.17% 0.67%
DSP Midcap Fund 0.87 14.12% 14.12% 2.50% 0.35%
Tata Digital India Fund
0.97 15.86% 15.86% 6.00% 0.95%
Direct
Mirae Asset Emerging
Bluechip 1.03 16.25% 16.25% 3.00% 0.49%

Fund
Axis Short Term Direct Fund 1.13 15.50% 15.50% 4.33% 0.67%
ICICI Nifty 50 ETF 1.01 16.06% 16.06% 5.00% 0.80%
ICICI Gold ETF 0.99 10.10% 10.10% 6.17% 0.62%
iShare Silver Trust 0.83 9.00% 9.00% 3.83% 0.35%
IDFC 2.67% 0.00%
Axis Bank 0.67% 0.00%
Bajaj Finserv 1.67% 0.00%
Kotak Dynamic Bond Fund
1.14 2.91% 2.91% 3.33% 0.10%
Direct
SBI Short Term Debt Fund 2.01 1.91% 1.91% 4.00% 0.08%
HDFC credit risk debt fund -0.94 2.86% 2.86% 2.67% 0.08%

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 IDFC Government
security 0.84 4.42% 4.42 5.00% 0.22%
%
investment plan
Embassy Office Parks 0.78 5.44% 5.44 6.93% 0.38%
REIT %
Mindspace Business
Parks 0.68 4.98% 4.98 3.07% 0.15%
%
REIT Ltd.
TOTAL 100.00% 8.21%

Portfolio 2

Market Total
Company Beta SD of Weighta
Company Risk ge Risk
Reliance 1.08 7.57% 7.57% 3.77% 0.29%
HDFC Life 0.82 4.83% 4.83% 1.38% 0.07%
Asian Paints 0.73 6.23% 6.23% 3.73% 0.23%
Sun Pharma 0.35 7.81% 7.81% 1.53% 0.12%
Axis Bank 1.42 7.86% 7.86% 1.79% 0.14%
HCL 0.51 6.12% 6.12% 1.89% 0.12%
Hero Motocorp 0.78 5.38% 5.38% 5.90% 0.32%
SBI SmallCap Fund 0.87 16.07% 16.07% 4.17% 0.67%
Direct
DSP Midcap Fund 0.87 14.12% 14.12% 4.50% 0.64%
Tata Digital India Fund
0.97 15.86% 15.86% 3.00% 0.48%
Direct
Mirae Asset Emerging
1.03 16.25% 16.25% 4.67% 0.76%
Bluechip Fund
Axis Short Term Direct
0.07 15.50% 15.50% 4.00% 0.62%
Fund
ICICI Nifty 50 ETF 1.01 16.06% 16.06% 4.67% 0.75%
Parag Parikh Long Term
0.79 18.42% 18.42% 5.00% 0.92%
Equity Fund Direct
Growth
ICICI Gold ETF 0.99 10.10% 10.10% 11.67% 1.18%

23
 Silver 0.83 9.00% 9.00% 8.33% 0.75%
IDFC 4.33% 0.00%
Axis Bank 2.33% 0.00%
Bajaj Finserv 3.33% 0.00%
Kotak Dynamic Bond 1.14 2.91% 2.91% 3.33% 0.10%
Fund
Direct
LIC MF Banking PSU 1.55 1.67% 1.67% 4.00% 0.07%
Debt
Fund Direct Growth
HDFC credit risk debt -0.94 2.86% 2.86% 2.67% 0.08%
fund
IDFC Government 0.84 4.42% 4.42% 5.00% 0.22%
security
investment plan
Embassy Office Parks 0.78 5.44% 5.44% 3.47% 0.19%
REIT
Mindspace Business 0.68 4.98% 4.98% 1.53% 0.08%
Parks
REIT Ltd.
TOTAL 100.00% 8.76%

24
 SINGLE INDEX MODEL

To simplify analysis, the single-index model assumes that there is only 1 macroeconomic
factor that causes the systematic risk affecting all stock returns and this factor can be
represented by the rate of return on a market index, such as the S&P 500. According to this
model, the return of any stock can be decomposed into the expected excess return of the
individual stock due to firm- specific factors, commonly denoted by its alpha coefficient (α),
which is the return that exceeds the risk-free rate, the return due to macroeconomic events that
affect the market, and the unexpected microeconomic events that affect only the firm.
Specifically, the return of stock i is: ri = αi + βirm + ei
Here, ‘ri’ is the total expected return and the term ‘βirm’ represents the stock's return due to
the movement of the market modified by the stock's beta (βi), while ‘ei’ represents the
unsystematic risk of the security due to firm-specific factors.
Upon applying the single index model:

Portfolio 1
Weighted
Security Expected Beta Standard Variance Weightage Weighted Weighted Standard Weighted
Name Returns Deviation Returns Beta Deviation Variance

Reliance 11.89% 108.00% 7.57 0.57% 5.37% 0.64% 6.00% 0.41% 0.03%
%

HDFC Life 18.00% 82.00% 4.83 0.23% 4.94% 0.89% 4.00% 0.24% 0.01%
%

ITC 23.40% 101.00% 5.75 0.33% 4.67% 1.09% 5.00% 0.27% 0.02%
%

Sun
Pharma 8.19% 35.00% 7.81 0.61% 4.35% 0.36% 2.00% 0.34% 0.03%
%

Axis Bank 7.00% 142.00% 7.86 0.62% 4.84% 0.34% 7.00% 0.38% 0.03%
%

HCL 19.00% 51.00% 6.12 0.37% 5.92% 1.12% 3.00% 0.36% 0.02%
%

Hero
Motocorp 16.00% 78.00% 6.38 0.41% 4.92% 0.79% 4.00% 0.31% 0.02%
%

25
 SBI
SmallCap 15.52% 87.00% 16.07% 2.58% 4.17% 0.65% 4.00% 0.67% 0.11%
Fund Direct

DSP
12.50% 87.00% 14.12% 1.99% 2.50% 0.31% 2.00% 0.35% 0.05%
Midcap Fund

Tata Digital
India Fund 36.30% 97.00% 15.86% 2.52% 6.00% 2.18% 6.00% 0.95% 0.15%
Direct

Mirae Asset
Emerging
Blue-chip 14.92% 103.00% 16.25% 2.64% 3.00% 0.45% 3.00% 0.49% 0.08%
Fund

Axis Short
Term Direct 10.87% 113.00% 15.50% 2.40% 4.33% 0.47% 5.00% 0.67% 0.10%
Fund

ICICI Nifty 3.92% 101% 16.06% 2.58% 5.00% 0.20% 5.00% 0.80% 0.13%
50 ETF

ICICI Gold
ETF 11.87% 99% 10.10% 1.02% 6.17% 0.73% 6.00% 0.62% 0.06%

iShare 12.50% 83% 9.00% 0.81% 3.83% 0.48% 3.00% 0.35% 0.03%
Silver Trust

IDFC 7.50% 0.00% 2.67% 0.20% 0.00% 0.00% 0.00%

Axis Bank 6.50% 0.00% 0.67% 0.04% 0.00% 0.00% 0.00%

Bajaj
Finserv 6.60% 0.00% 1.67% 0.11% 0.00% 0.00% 0.00%

Kotak
Dynamic
Bond Fund 12.04% 114% 2.91% 0.08% 3.33% 0.40% 4.00% 0.10% 0.00%
Direct

26
 SBI Short
10.04% 201.00% 1.91 0.04% 4.00% 0.40% 8.00% 0.08% 0.00%
Term Debt
%
Fund

HDFC
10.65% -94.00% 2.86 0.08% 2.67% 0.28% -3.00% 0.08% 0.00%
credit risk %
debt fund

IDFC

Government
14.35% 84.00% 4.42 0.20% 5.00% 0.72% 4.00% 0.22% 0.01%
security %
investment
plan

Embassy
Office Parks 7.00% 78.00% 5.44 0.30% 6.93% 0.49% 5.00% 0.38% 0.02%
REIT %

Mindspace
Business
12.00% 68.00% 4.98 0.25% 3.07% 0.37% 2.00% 0.15% 0.01%
Parks REIT %
Ltd.

TOTAL 13.70% 85.00% 8.21% 0.92%

Results
Alpha 7.63%
Beta 0.85
Residual Variance 0.92%
Market Return in India 8.9%
Portfolio Return 16.53%

Ri=αi+βiRm+e
Ri = 16.53% (Total Expected Return)
αi = 7.63% (Alpha)
β i = 0.85
Rm = 8.9%
E= 0.92% (Unsystematic Risk)

27
 Portfolio 2

Security Expected Beta Standard Variance Weightage Weighted Weighted Weighte Weighted
Name Returns Deviation Returns Beta d Variance
Standar
d
Deviatio
n

Reliance 11.89% 1.08 7.57% 0.006 3.77% 0.448% 0.04 0.29% 0.00022

HDFC Life 18.00% 0.82 4.83% 0.002 1.38% 0.249% 0.01 0.07% 0.00003

Asian Paints 21.40% 0.73 6.23% 0.004 3.73% 0.798% 0.03 0.23% 0.00014

Sun Pharma 8.19% 0.35 7.81% 0.006 1.53% 0.126% 0.01 0.12% 0.00009

Axis Bank 7.00% 1.42 7.86% 0.006 1.79% 0.125% 0.03 0.14% 0.00011

HCL 19.00% 0.51 6.12% 0.004 1.89% 0.359% 0.01 0.12% 0.00007

Hero
Motocorp 16.00% 0.78 5.38% 0.003 5.90% 0.944% 0.05 0.32% 0.00017

SBI 15.52% 0.87 16.07% 0.026 4.17% 0.647% 0.04 0.67% 0.00107
SmallCap
Fund Direct

DSP
Midcap Fund 12.50% 0.87 14.12% 0.020 4.50% 0.563% 0.04 0.64% 0.00089

Tata Digital 36.30% 0.97 15.86% 0.025 3.00% 1.089% 0.03 0.48% 0.00075
India Fund
Direct

Mirae Asset
Emerging 14.92% 1.03 16.25% 0.026 4.67% 0.696% 0.05 0.76% 0.00123
Bluechip Fund

Axis Short 10.87% 0.07 15.50% 0.024 4.00% 0.435% 0.00 0.62% 0.00096
Term Direct
Fund

ICICI
Nifty 50 3.92% 1.01 16.06% 0.026 4.67% 0.183% 0.05 0.75% 0.00120
ETF

Parag Parikh
Long Term
Equity Fund 18.12% 0.79 18.42% 0.034 5.00% 0.906% 0.04 0.92% 0.00169
Direct
Growt
h

ICICI Gold
ETF 11.87% 0.99 10.10% 0.010 11.67% 1.385% 0.12 1.18% 0.00119

Silver 12.50% 0.83 9.00% 0.008 8.33% 1.042% 0.07 0.75% 0.00068

IDFC 7.50% 0 4.33% 0.325% 0.00 0.00% 0

Axis Bank 6.50% 0 2.33% 0.152% 0.00 0.00% 0

Bajaj
Finserv 6.60% 0 3.33% 0.220% 0.00 0.00% 0

28
 Kotak
Dynamic 12.04% 1.14 2.91% 0.001 3.33% 0.401% 0.04 0.10% 0.00003
Bond Fund
Direct

LIC MF
Banking PSU 8.91% 1.55 1.67% 0.001 4.00% 0.356% 0.06 0.07% 0.00001
Debt Fund
Direct Growth

HDFC credit
risk debt fund 10.65% - 2.86% 0.001 2.67% 0.284% -0.03 0.08% 0.00002
0.94

IDFC
Government
security 14.35% 0.84 4.42% 0.002 5.00% 0.718% 0.04 0.22% 0.00010
investment
plan

Embassy 7.00% 0.78 5.44% 0.003 3.47% 0.243% 0.03 0.19% 0.00010
Office Parks
REIT

Mindspace
Business 12.00% 0.68 4.98% 0.002 1.53% 0.184% 0.01 0.08% 0.00004
Parks REIT
Ltd.

TOTAL 100.00% 12.88% 0.75 8.76% 0.01082

Results

Alpha 5.23%
Beta 0.75
Residual Variance 1.08%
Market Return in India 8.9%
Portfolio Return 14.13
%

Ri = 14.13% (Total Expected Return)

αi = 5.23%
β i = 0.75
Rm = 8.9%
E= 1.08%

29
 CONCLUSION

Particular Portfolio Portfolio

s 1 2
Return 16.53% 14.13%
Risk 8.21% 8.76%

Using the Single Index Model to analyse both portfolios, we see that both portfolios are
moderately risky as expected by the investor. However, Portfolio A provides higher returns when
compared to Portfolio B. Hence, Portfolio A is recommended to Mr. Mundra to meet his
objectives. Thus, having more % of equity and investing in gold and silver would be a better
option for Mr. Mundra.

30
 SUMMARY

From the Single Index Model, we see that Portfolio A is recommended to Mr. Mundra who is
willing to assume low degree of risk and expects an annual average return between 12%-18%.
We have also tried to reduce his risk through diversification.

This study helped us understand the intricacies of Portfolio creation and management and also
helped us evaluate the risk and return of various types of securities. We also learnt that the
Portfolio management presents the best investment plan to the individuals as per their income,
budget, age and ability to undertake risks. It minimizes the risks involved in investing and also
increases the chance of making profits.

Portfolio managers understand the client’s financial needs and suggest the best and unique
investment policy for them with minimum risks involved. This enables the portfolio managers to
provide customized investment solutions to clients as per their needs and requirements.

BIBLIOGRAPHY

 https://www.investopedia.com/terms/p/portfoliomanagement.asp
 https://www.investopedia.com/terms/h/hnwi.asp
 https://medium.com/@poonam.2019sahu/what-is-hni-or-high-net-worth-individual-
107bb051b61d#:~:text=Who%20Is%20High%20Net%20Worth,in%20the%20range%20
of%20Rs.
 https://www.investopedia.com/terms/r/risk-analysis.asp#:~:text=Key%20Takeaways-
,Risk%20analysis%20is%20the%20process%20of%20assessing%20the%20likelihood%
20of,cat egories%20of%20quantitative%20and%20qualitative.
 https://financetrain.com/single-index-model/
 https://www.topstockresearch.com/
 https://www.valueresearchonline.com/
 https://in.reuters.com/finance/stocks/overview/RELI.NS

31
 ANNEXURES

Return Calculations of Stocks, Bonds, Fixed Deposits, Mutual Funds and Other securities
of Portfolio 1

Company Total Value Expected Returns Returns

Reliance 1,610,446.40 11.89% 191,482.08
HDFC Life 1,482,500.00 18.00% 266,850.00
ITC 1,400,000.00 23.40% 327,600.00
Sun Pharma 1,304,707.50 8.19% 106,855.54
Axis Bank 1,451,925.00 7.00% 101,634.75
HCL 1,774,500.00 19.00% 337,155.00
Hero Motocorp 1,475,000.00 16.00% 236,000.00
TOTAL 1,567,577.37

Fund Total Expected Returns

Value Returns
SBI SmallCap Fund Direct 1,250,000. 15.52% 194,000.00
00
DSP Midcap Fund 750,000.00 12.50% 93,750.00
Tata Digital India Fund Direct 1800000 36.30% 653,400.00
Mirae Asset Emerging Bluechip 900,000.00 14.92% 134,280.00
Fund
Axis Short Term Direct Fund 1,300,000. 10.87% 141,310.00
00
ICICI Nifty 50 ETF 1,500,000. 3.92% 58,800.00
00
TOTAL 1,275,540.00

Commodities Amount Expected Returns

Invested Returns
ICICI Gold ETF 1,850,000.00 11.87% 219,595.00
Silver 1,150,000.00 12.50% 143,750.00
TOTAL 363,345.00
 Bank Amount Interest Amount
IDFC 800,000.00 7.50% 60,000.00
Axis Bank 200,000.00 6.50% 13,000.00
Bajaj Finserv 500,000.00 6.60% 33,000.00
TOTAL 106,000.00

Expected
Bond Total Value Returns
Returns
Kotak Dynamic Bond Fund 1,000,000.00 12.04% 120,400.00
Direct
SBI Short Term Debt Fund 1,200,000.00 10.04% 120,480.00
HDFC credit risk debt fund 800,000.00 10.65% 85,200.00
IDFC Government security
1,500,000.00 14.35% 215,250.00
investment plan
TOTAL 541,330.00

Details Amount Expected Returns

Invested Returns
Embassy Office Parks REIT 2,080,380.00 7.00% 145,626.60
Mindspace Business Parks REIT 919,555.00 12.00% 110,346.60
Ltd.
TOTAL 255,973.20

Detail Return on Investment

Equity 1,567,577.37
Fixed Deposits 106,000.00
Mutual Funds 1,275,540.00
Commodities 363,345.00
Debt 541,330.00
Others 255,973.20
TOTAL 4,109,765.57

(Expected Annual Rate of Return : 13.70%)

Return Calculations of Stocks, Bonds, Fixed Deposits, Mutual Funds and Other securities
of Portfolio 2

Company Total Value Expected Returns Returns

Reliance 1,131,030.40 11.89% 134,479.51
HDFC Life 415,100.00 18.00% 74,718.00
Asian Paints 1,119,000.00 21.40% 239,466.00
Sun Pharma 460,485.00 8.19% 37,713.72
Axis Bank 537,750.00 7.00% 37,642.50
HCL 567,080.85 19.00% 107,745.36
Hero Motocorp 1,770,000.00 16.00% 283,200.00
TOTAL 914,965.10

Expected
Fund Total Value Returns
Returns
SBI SmallCap Fund Direct 1,250,000.00 15.52% 194,000.
00
DSP Midcap Fund 1,350,000.00 12.50% 168,750.
00
Tata Digital India Fund Direct 900,000.00 36.30% 326,700.
00
Mirae Asset Emerging Bluechip 1,400,000.00 14.92% 208,880.
Fund 00
Axis Short Term Direct Fund 1,200,000.00 10.87% 130,440.
00
ICICI Nifty 50 ETF 1,400,000.00 3.92% 54,880.0
0
Parag Parikh Long Term Equity
1,500,000.00 18.12% 271,800.
Fund Direct Growth 00
TOTAL 1,355,45
0.00

Details Amount Expected Returns

Invested Returns
ICICI Gold ETF 3,500,000.0 11.87% 415,450.00
0
Silver 2,500,000.0 12.50% 312,500.00
0
TOTAL 727,950.00
 Bank Amount Interest Amount
IDFC 1,300,000. 7.50% 97,500.00
00
Axis Bank 700,000.00 6.50% 45,500.00
Bajaj Finserv 1,000,000. 6.60% 66,000.00
00
TOTAL 209,000.00

Bond Total Expected Returns

Value Returns
Kotak Dynamic Bond Fund Direct 1,000,000. 12.04% 120,400.
00 00
LIC MF Banking PSU Debt Fund Direct
1,200,000. 8.91% 106,920.
Growth 00 00
HDFC credit risk debt fund 800,000.00 10.65% 85,200.0
0
IDFC Government security investment 1,500,000. 14.35% 215,250.
plan 00 00
TOTAL 527,770.
00

Expected
Details Amount Returns
Invested Returns
Embassy Office Parks REIT 1,040,190.00 7.00 72,813.30
%
Mindspace Business Parks REIT 459,777.50 12.00 55,173.30
Ltd. %
TOTAL 127,986.60

Detail Return on Investment

Equity 914,965.10
Fixed Deposits 209,000.00
Mutual Funds 1,355,450.00
Commodities 727,950.00
Debt 527,770.00
Others 127,986.60
Total 3,863,121.70

(Expected Annual Rate of Return : 12.88%)