Portfolio Management - An Investment Option. Kunal Mehta

PROJECT REPORT ON
PORTFOLIO MANAGEMENT-AN INVESTMENT OPTION
SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENT OF DEGREE OF
MASTER IN FINANCIAL MANAGEMENT (MFM)
FROM THE UNIVERSITY OF MUMBAI
SUBMITTED BY
KUNAL MEHTA
MFM
BATCH: 2008-2011
UNDER THE GUIDANCE OF
PROF. GULAB MOHITE
N. L. DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH
MIRA ROAD (EAST), THANE – 401104

Portfolio Management – An Investment Option
CERTIFICATE
This is to certify that the project titled
“PORTFOLIO MANAGEMENT – AN INVESTMENT OPTION”
Submitted by: Kunal Mehta
To
N.L. Dalmia Institute of Management Studies and Research
In partial fulfillment of requirements for the Masters in Financial Management
During the Academic Year 2008 - 2011
Has been carried out under the supervision & guidance of
Prof. Gulab Mohite Prof. P.L.Arya
Project Guide Director
N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 1

ACKNOWLEDGEMENT
THE SUCCESS OF ANY PROJECT IS THE RESULT OF HARD WORK & ENDEAVOUR
OF NOT ONE BUT MANY PEOPLE AND THIS PROJECT IS NO DIFFERENT.
AT THE OUTSET, I SINCERELY WISH TO EXPRESS MY GRATITUDE TO PROF.

P. L. ARYA, DIRECTOR, AND NLDIMSR FOR ENCOURAGEMENT AND SUPPORT
TOWARDS COMPLETION OF THIS PROJECT.
I SINCERELY ACKNOWLEDGE PROF.GULAB MOHITE FOR HIS GUIDANCE AND

VALUABLE SUGGESTIONS WHILE COMPLETING THIS PROJECT.
FINALLY I AM THANKFUL TO ALL MY FRIENDS, COLLEAGUES, FACULTY

MEMBERS AND STAFF WHO HAVE GIVEN THEIR FULL SUPPORT IN COLLECTING
THE REQUIRED INFORMATION AND CONTINUOUS HELP DURING THE
PREPARATION OF THE PROJECT.
Kunal Mehta
MFM
NLDIMSR
Place – Mumbai
Date -10/10/2010

PREFACE
 To get the overall knowledge of securities and investment.
 To know how the investment made in different securities minimizes the risk and
maximizes the returns.
 To get the knowledge of different factors that affects the investment decision of investors.
 To know how different companies are managing their portfolio i.e. when and in which
sectors they are investing.
 To know what is the need of appointing a Portfolio Manager and how does he/she meets
the needs of the various investors.
 To get the knowledge about the role (played) and functions of portfolio manager.
 To get the knowledge of investment decision and diversification.

TABLE OF CONTENTS
Sr. No. Particulars Page No.

A. EXECUTIVE SUMMARY 5
B. PORTFOLIO MANAGEMENT - INTRODUCTION 6
C. OBJECTIVES OF PORTFOLIO MANAGEMENT 9
D. BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT 11
E. SEBI GUIDELINES TO PORTFOLIO MANAGEMENT 12
F. PERSONS INVOLVED IN PORTFOLIO MANAGEMENT 13
G. FUNCTIONS AND ROLE OF PORTFOLIO MANAGER 15
H. PORTFOLIO PERFORMANCE EVALUATION 17
I. RISK ON PORTFOLIO 23
J. RISK – RETURN ANALYSIS 27
K. TYPES OF PORTFOLIO BASED ON RISK AND RETURN 29
L. ASSESSING RISK 33
M. INVESTMENT AVENUES 36
N. DIVERSIFICATION 41
O. RESEARCH – EDELWEISS 44
P. QUESTIONNAIRE 47
Q. CONCLUSION 49
R. BIBLIOGRAPHY 51

EXECUTIVE SUMMARY
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.
Managing an investment portfolio in today’s dynamic environment is a challenge for every

individual, who works hard to reach the ultimate goal of preserving and generating wealth.
Global financial markets are complex and diverse enough that money can be made in any
investment environment. The greatest challenge in making an investment portfolio work is
knowing exactly where to invest and what to do when.
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 or discretionary portfolio
managers.
To mitigate the risks of asset allocation within a portfolio, holdings should be diversified. If done
correctly, diversification will vastly reduce risk while preserving growth potential. This project
also includes the different services rendered by the portfolio manager. It includes the functions to
be performed by the portfolio manager.
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 asset allocation.

PORTFOLIO MANAGEMENT - INTRODUCTION

Stock exchange operations are peculiar in nature and most of the Investors feel insecure in
managing their investment on the stock market because it is difficult for an individual to identify
companies which have growth prospects for investment. Further due to volatile nature of the
markets, it requires constant reshuffling of portfolios to capitalize on the growth opportunities.
Even after identifying the growth oriented companies and their securities, the trading practices
are also complicated, making it a difficult task for investors to trade in all the exchange and
follow up on post trading formalities.
Investors choose to hold groups of securities rather than single security that offer the greater
expected returns. They believe that a combination of securities held together will give a
beneficial result if they are grouped in a manner to secure higher return after taking into
consideration the risk element. That is why professional investment advice through portfolio
management service can help the investors to make an intelligent and informed choice between
alternative investments opportunities without the worry of post trading hassles.
A portfolio is a collection of securities since it is really desirable to invest the entire funds of an
individual or an institution or a single security, it is essential that every security be viewed in a
portfolio context. Thus it seems logical that the expected return of the portfolio. Portfolio
analysis considers the determine of future risk and return in holding various blends of individual
securities
Since portfolios expected return is a weighted average of the expected return of its securities, the
contribution of each security the portfolio’s expected returns depends on its expected returns and
its proportionate share of the initial portfolio’s market value. It follows that an investor who
simply wants the greatest possible expected return should hold one security; the one which is
considered to have a greatest expected return. Very few investors do this, and very few
investment advisors would counsel such an extreme policy instead, investors should diversify,
meaning that their portfolio should include more than one security.

DEFINITION:-
Portfolio Management:
Portfolio management also called as investment management and money management is the
process of managing money.
These days, professional management of various securities (shares, bonds etc.) and assets (e.g.,
real estate) is done to meet specified investment goals for the benefit of the investors.
Investors may be institutions (insurance companies, pension funds, corporations etc.) or private
investors (both directly via investment contracts and more commonly via collective investment
schemes e.g. mutual funds).
The term asset management is often used to refer to the investment management of collective
investments, whilst the more generic fund management may refer to all forms of institutional
investment as well as investment management for private investors.
Investment managers who specialize in advisory or discretionary management on behalf of

(normally wealthy) private investors may often refer to their services as wealth management or
portfolio management often within the context of so-called "private banking".
The provision of 'investment management services' includes elements of
 financial analysis
 asset selection
 stock selection
 plan implementation
 Ongoing monitoring of investments.

Scope of Portfolio Management:
Portfolio management is an art of putting money in fairly safe, quite profitable and reasonably in
liquid form. An investor’s attempt to find the best combination of risk and return is the first and
usually the foremost goal. In choosing among different investment opportunities the following
aspects risk management should be considered:
a) The selection of a level or risk and return that reflects the investor’s tolerance for risk and
desire for return, i.e. personal preferences.
b) The management of investment alternatives to expand the set of opportunities available at
the investors acceptable risk level.
The very risk-averse investor might choose to invest in mutual funds. The more risk-tolerant
investor might choose shares, if they offer higher returns. Portfolio management in India is still in
its infancy. An investor has to choose a portfolio according to his preferences. The first preference
normally goes to the necessities and comforts like purchasing a house or domestic appliances. His
second preference goes to some contractual obligations such as life insurance or provident funds.
The third preference goes to make a provision for savings required for making day to day
payments. The next preference goes to short term investments such as UTI units and post office
deposits which provide easy liquidity. The last choice goes to investment in company shares and
debentures. There are number of choices and decisions to be taken on the basis of the attributes of
risk, return and tax benefits from these shares and debentures. The final decision is taken on the
basis of alternatives, attributes and investor preferences.
For most investors it is not possible to choose between managing one’s own portfolio. They can
hire a professional manager to do it. The professional managers provide a variety of services
including diversification, active portfolio management, liquid securities and performance of duties
associated with keeping track of investor’s money.


OBJECTIVES OF PORTFOLIO MANAGEMENT
The objective of portfolio management is to invest in securities is 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. Presented below are
some important objectives of portfolio management.
1. 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.
2. 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.
3. Tax Planning:
Since taxation is an important variable in total planning, a good portfolio should enable its
owner to enjoy a favorable 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.
4. 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.

5. 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.
6. 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.
7. Diversification:
The basic objective of building a portfolio is to reduce risk of loss of capital and / or income
by investing in various types of securities and over a wide range of industries.
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 gives 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.

BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT

There are two basic principles for effective portfolio management which are given below:-
I. Effective investment planning for the investment in securities by considering the

following factors:
a) Fiscal, financial and monetary policies of the Govt. of India and the
Reserve Bank of India.
b) Industrial and economic environment and its impact on industry.
Prospect in terms of prospective technological changes, competition in the market,
capacity utilization with industry and demand prospects etc.
II. Constant Review of Investment:

It requires to review the investment in securities and to continue the selling and purchasing
of investment in more profitable manner. For this purpose they have to carry the following
analysis:
a) To assess the quality of the management of the companies in which investment has
been made or proposed to be made.
b) To assess the financial and trend analysis of companies Balance Sheet and Profit and
Loss Accounts to identify the optimum capital structure and better performance for the
purpose of withholding the investment from poor companies.
c) To analyze the security market and its trend in continuous basis to arrive at a
conclusion as to whether the securities already in possession should be disinvested and
new securities be purchased. If so the timing for investment or dis-investment is also
revealed.

SEBI GUIDELINES TO PORTFOLIO MANAGEMENT
SEBI has issued detailed guidelines for portfolio management services. The guidelines have been
made to protect the interest of investors. The salient features of these guidelines are given here
under;
1) The nature of portfolio management services shall be investment consultant.

2) The portfolio manager shall not guarantee any return to his clients.
3) Client’s funds will be kept in separate bank account.
4) The portfolio manager shall acts as trustee of client’s funds.
5) The portfolio manager can invest in money or capital market.
6) Purchase and sale of securities will be at prevailing market price.

PERSONS INVOLVED IN PORTFOLIO MANAGEMENT

1) Investor:
Are the people who are interested in investing their funds?
2) Portfolio Manager:
Portfolio manager means any person who enters into a contract or arrangement with a
client. Pursuant to such arrangement he advises the client or undertakes on behalf of such
client management or administration of portfolio of securities or invests or manages the
client’s funds
A portfolio manager by virtue of his knowledge, background and experience is expected

to study the various avenues available for profitable investment and advise his client to
enable the latter to maximize the return on his investment and at the same time safeguard
the funds invested.
3) Discretionary Portfolio Manager:
Means a manager who exercise under a contract relating to a portfolio management

exercise any degree of discretion as to the investment or management of portfolio or
securities or funds of clients as the case may be. The relationship between an investor and
portfolio manager is of a highly interactive nature.
The portfolio manager carries out all the transactions pertaining to the investor under the
power of attorney during the last two decades, and increasing complexity was
witnessed in the capital market and its trading procedures in this context a key
(uninformed) investor formed ) investor found himself in a tricky situation , to keep
track of market movement ,update his knowledge, yet stay in the capital market and
make money , therefore in looked forward to resuming help from portfolio manager to
do the job for him . The portfolio management seeks to strike a balance between risk’s
and return.
Generally rule in that greater risk more of the profits but S.E.B.I. in its guidelines
prohibits portfolio managers to promise any return to investor.

Portfolio management is not a substitute to the inherent risks associated with equity
investment.
Who can be a Portfolio Manager?
Only those who are registered and pay the required license fee are eligible to operate as portfolio
managers. An applicant for this purpose should have necessary infrastructure with professionally
qualified persons and with a minimum of two persons with experience in this business and a
minimum net worth of Rs. 50lakh’s. The certificate once granted is valid for three years. Fees
payable for registration are Rs 2.5lakh’s every for two years and Rs.1lakh’s for the third year.
From the fourth year onwards, renewal fees per annum are Rs 75000. These are subjected to
change by the S.E.B.I.
The S.E.B.I. has imposed a number of obligations and a code of conduct on them. The portfolio
manager should have a high standard of integrity, honesty and should not have been convicted of
any economic offence or moral turpitude. He should not resort to rigging up of prices, insider
trading or creating false markets, etc. their books of accounts are subject to inspection to
inspection and audit by S.E.B.I... The observance of the code of conduct and guidelines given by
the S.E.B.I. are subject to inspection and penalties for violation are imposed. The manager has to
submit periodical returns and documents as may be required by the SEBI from time-to- time.

FUNCTIONS AND ROLE OF PORTFOLIO MANAGER

Functions of Portfolio Manager:
 Advisory role: Advice new investments, review the existing ones, identification of
objectives, recommending high yield securities etc.
 Conducting market and economic service: This is essential for recommending good
yielding securities they have to study the current fiscal policy, budget proposal;
individual policies etc further portfolio manager should take in to account the credit
policy, industrial growth, foreign exchange possible change in corporate law’s etc.
 Financial analysis: He should evaluate the financial statement of company in order to
understand, their net worth future earnings, prospectus and strength.
 Study of stock market : He should observe the trends at various stock exchange and
analysis scripts so that he is able to identify the right securities for investment
 Study of industry: He should study the industry to know its future prospects,
technical changes etc, required for investment proposal he should also see the
problem’s of the industry.
 Decide the type of port folio: Keeping in mind the objectives of portfolio a portfolio
manager has to decide whether the portfolio should comprise equity preference shares,
debentures, convertibles, non-convertibles or partly convertibles, money market,
securities etc or a mix of more than one type of proper mix ensures higher safety, yield
and liquidity coupled with balanced risk techniques of portfolio management.
A portfolio manager in the Indian context has been Brokers (Big brokers) who on the basis of
their experience, market trends, Insider trader, helps the limited knowledge persons.
The one’s who use to manage the funds of portfolio, now being managed by the portfolio of
Merchant Bank’s, professional’s like MBA’s CA’s And many financial institution’s have entered
the market in a big way to manage portfolio for their clients.
According to S.E.B.I. rules it is mandatory for portfolio managers to get them self’s registered.
Registered merchant bankers can act’s as portfolio managers. Investor’s must look forward, for
qualification and performance and ability and research base of the portfolio managers.

Role of Portfolio Manager:
With the development of Indian Securities market and with appreciation in market price of equity
share of profit making companies, investment in the securities of such companies has become
quite attractive. At the same time, the stock market becoming volatile on account of various facts,
a layman is puzzled as to how to make his investments without losing the same. He has felt the
need of an expert guidance in this respect. Similarly non resident Indians are eager to make their
investments in Indian companies. They have also to comply with the conditions specified by the
RESERVE BANK OF INDIA under various schemes for investment by the non residents. The
portfolio manager with his background and expertise meets the needs of such investors by
rendering service in helping them to invest their fund/s profitably.
Portfolio manager’s obligation:
The portfolio manager has number of obligations towards his clients, some of them are:
 He shall transact in securities within the limit placed by the client himself with regard to
dealing in securities under the provisions of Reserve Bank of India Act, 1934.
 He shall not derive any direct or indirect benefit out of the client’s funds or securities.
 He shall not pledge or give on loan securities held on behalf of his client to a third person
without obtaining a written permission from such clients.
 While dealing with his client’s funds, he shall not indulge in speculative transactions.
 He may hold the securities in the portfolio account in his own name on behalf of his
client’s only if the contract so provides. In such a case, his records and his report to his
clients should clearly indicate that such securities are held by him on behalf of his client.
 He shall deploy the money received from his client for an investment purpose as soon as
possible for that purpose.
 He shall pay the money due and payable to a client forthwith.
 He shall not place his interest above those of his clients.
 He shall not disclose to any person or any confidential information about his client, which
has come to his knowledge.

PORTFOLIO PERFORMANCE EVALUATION
Portfolio evaluating refers to the evaluation of the performance of the portfolio. It is essentially
the process of comparing the return earned on a portfolio with the return earned on one or more
other portfolio or on a benchmark portfolio. Portfolio evaluation essentially comprises of two
functions, performance measurement and performance evaluation. Performance measurement is
an accounting function which measures the return earned on a portfolio during the holding period
or investment period. Performance evaluation , on the other hand, address such issues as whether
the performance was superior or inferior, whether the performance was due to skill or luck etc.
The ability of the investor depends upon the absorption of latest developments which occurred in
the market. The ability of expectations if any, we must able to cope up with the wind
immediately. Investment analysts continuously monitor and evaluate the result of the portfolio
performance. The expert portfolio constructer shall show superior performance over the market
and other factors. The performance also depends upon the timing of investments and superior
investment analysts capabilities for selection. The evolution of portfolio always followed by
revision and reconstruction. The investor will have to assess the extent to which the objectives
are achieved. For evaluation of portfolio, the investor shall keep in mind the secured average
returns, average or below average as compared to the market situation. Selection of proper
securities is the first requirement. The evaluation of a portfolio performance can be made based
on the following methods:
a) Sharpe’s Measure
b) Treynor’s Measure
c) Jensen’s Measure
(a) Sharpe’ Measure:
The objective of modern portfolio theory is maximization of return or minimization of risk. In

this context the research studies have tried to evolve a composite index to measure risk based
return. The credit for evaluating the systematic, unsystematic and residual risk goes to sharpe,
Treynor and Jensen. Sharpe measure total risk by calculating standard deviation. The method
adopted by Sharpe is to rank all portfolios on the basis of evaluation measure. Reward is in the

numerator as risk premium. Total risk is in the denominator as standard deviation of its return.
We will get a measure of portfolio’s total risk and variability of return in relation to the risk
premium. The measure of a portfolio can be done by the following formula:
Rt – Rf
SI =
σf
Where,
SI = Sharpe’s Index
Rt = Average return on portfolio
Rf = Risk free return
σf = Standard deviation of the portfolio return.
For instance:
Which portfolio perform better performance from following two portfolio, by using Sharpe’s
model
Portfolio Average return Standard deviation Risk free rate
A 50% 10% 24%
B 60% 18% 24%
Performance can be finding out by the following formula:
For Portfolio A: Rt – Rf
SI =
σf
Rt = 50
Rf = 24
σf = 0.10

0.50 – 0.24
SI = = 0.26 / 0.10
0.10
= 2.6 Portfolio A
For Portfolio B: Rt – Rf
SI =
σf
0.60 – 0.24
SI = = 0.36 / 0.18
0.18
= 2, Portfolio B
Conclusion: According to the calculated “portfolio A” has better performance than portfolio B
(b) Treynor’s Measure:
The Treynor’s measure related a portfolio’s excess return to non-diversifiable or systematic risk.
The Treynor’s measure employs beta. The Treynor based his formula on the concept of
characteristic line. It is the risk measure of standard deviation, namely the total risk of the
portfolio is replaced by beta. The equation can be presented as follow:
Rn - Rf
Tn =
βm
Where, Tn = Treynor’s measure of performance
Rn = Return on the portfolio
Rf = Risk free rate of return
βm = Beta of the portfolio ( A measure of systematic risk)

For instance:
Which securities perform better performance from following two portfolios, by using Treynor’s method
Portfolio Return βm Risk free rate
X 44% 0.12% 22%
Z 52% 2.40% 22%
For portfolio X: Rn - Rf
Tn =
βm
Rn = 0.44 Rf = 0.22 βm = 0.12
0.44 – 0.22 0.22
Tn = = = 0.092
2.40 2.40
For portfolio Y: 0.52 - 0.22 0.30
Tn = = = 0.125
2.4 2.40
Conclusion: Portfolio Y is better than X because Tnx < Tny
(c) Jensen’s Measure:

Jensen attempts to construct a measure of absolute performance on a risk adjusted basis. This
measure is based on CAPM model. It measures the portfolio manager’s predictive ability to
achieve higher return than expected for the accepted riskiness. The ability to earn returns through
successful prediction of security prices on a standard measurement. The Jensen measure of the
performance of portfolio can be calculated by applying the following formula:
Rp = Rf + (RMI – Rf) x β
Where, Rp = Return on portfolio
RMI = Return on market index
Rf = Risk free rate of return
For instance:
From the following data, the portfolio performance can be measure according to Jensen’s model
as follow:
Portfolio Estimated Return on portfolio Portfolio Beta
I 40% 1.5
II 34% 1.1
III 46% 1.8
Market Index: 36% 1.03
Risk free rate of return: 20%
Market Beta =1.00
For portfolio –I:

RMI = 40%, Rf = 20%, β=3
Rp = 20 + (40 – 20) x 1.5
= 50%
For portfolio – II:
RMI = 34%, Rf = 20%, β = 1.1
Rp = 20 + (34 – 20) x 1.1 = 35.4%
For portfolio – III:
RMI = 46%, Rf = 20%, β = 1.8
Rp = 20 + (46 – 20) x 1.8
=66.8%
The measure of performance = Actual – estimated
I = 50% - 40% = 10%
II = 35.4% - 34% = 1.4%
III = 66.8% - 46% = 20.8%
Here, the portfolio III is better perform then other two
RISK ON PORTFOLIO
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.
The following are the components of risk:

(A) SYSTEMATIC RISK:
1. Market Risk
2. Interest Rate Risk
3. Purchasing power Risk
(B) UNSYSTEMATIC RISK:
1. Business Risk
2. Financial Risk
(A) SYSTEMATIC RISK:

Systematic risk refers to the portion of total variability in return caused by factors affecting
the prices of all securities. Economic, Political and Sociological charges are sources of
systematic risk. Their effect is to cause prices of nearly all individual common stocks or
security to move together in the same manner. For example; if the Economy is moving
toward a recession & corporate profits shift downward, stock prices may decline across a
broad front. Nearly all stocks listed on the BSE / NSE move in the same direction as the BSE
/ NSE index.

Systematic risk is also called non-diversified risk. If is unavoidable. In short, the variability in
a securities total return in directly associated with the overall movements in the general
market or Economy is called systematic risk. Systematic risk covers market risk, Interest rate
risk & Purchasing power risk
1. MARKET RISK:
Market risk is referred to as stock / security variability due to changes in investor’s
reaction towards tangible & intangible events is the chief cause affecting market risk. The
first set that is the tangible events, has a ‘real basis but the intangible events are based on
psychological basis.
Here, Real Events, comprising of political, social or Economic reason. Intangible Events
are related to psychology of investors or say emotional intangibility of investors. The
initial decline or rise in market price will create an emotional instability of investors and
cause a fear of loss or create an undue confidence, relating possibility of profit. The
reaction to loss will reduce selling & purchasing prices down & the reaction to gain will
bring in the activity of active buying of securities.
2. INTEREST RATE RISK:

The price of all securities rise or fall depending on the change in interest rate, Interest rate
risk is the difference between the Expected interest rates & the current market interest
rate. The markets will have different interest rate fluctuations, according to market
situation, supply and demand position of cash or credit. The degree of interest rate risk is
related to the length of time to maturity of the security. If the maturity period is long, the
market value of the security may fluctuate widely. Further, the market activity & investor
perceptions change with the change in the interest rates & interest rates also depend upon
the nature of instruments such as bonds, debentures, loans and maturity period, credit
worthiness of the security issues.
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.

3. PURCHASING POWER RISK:

Purchasing power risk is also known as inflation risk. This risks arises out of change in
the prices of goods & services & technically it covers both inflation & deflation period.
Purchasing power risk is more relevant in case of fixed income securities; shares are
regarded as hedge against inflation. There is always a chance that the purchasing power
of invested money will decline or the real return will decline due to inflation.
The behavior of purchasing power risk can in some way be compared to interest rate risk.
They have a systematic influence on the prices of both stocks & bonds. If the consumer
price index in a country shows a constant increase of 4% & suddenly jump to 5% in the
next. Year, the required rate of return will have to be adjusted with upward revision. Such
a change in process will affect government securities, corporate bonds & common stocks.
(B) UNSYSTEMATIC RISK:

The risk arises out of the uncertainty surrounding a particular firm or industry due to factors
like labor Strike, Consumer preference & management policies are called Unsystematic risk.
These uncertainties directly affect the financing & operating environment of the firm.
Unsystematic risk is also called “Diversifiable risk”. It is avoidable. Unsystematic risk can
be minimized or Eliminated through diversification of security holding. Unsystematic risk
covers Business risk and financial risk
1. BUSINESS RISK:
Business risk arises due to the uncertainty of return which depend upon the nature of
business. It relates to the variability of the business, sales, income, expenses & profits. It
depends upon the market conditions for the product mix, input supplies, strength of the
competitor etc. The business risk may be classified into two kind viz. internal risk and
External risk.
Internal risk is related to the operating efficiency of the firm. This is manageable by the
firm. Interest Business risk loads to fall in revenue & profit of the companies.
External risk refers to the policies of government or strategic of competitors or

unforeseen situation in market. This risk may not be controlled & corrected by the firm.

2. FINANCIAL RISK:
Financial risk is associated with the way in which a company finances its activities.
Generally, financial risk is related to capital structure of a firm. The presence of borrowed
money or debt in capital structure creates fixed payments in the form of interest that must
be sustained by the firm. The presence of these interest commitments – fixed interest
payments due to debt or fixed dividend payments on preference share – causes the
amount of retained earning availability for equity share dividends to be more variable
than if no interest payments were required.
Financial risk is avoidable risk to the extent that management has the freedom to decline
to borrow or not to borrow funds. A firm with no debt financing has no financial risk.
One positive point for using debt instruments is that it provides a low cost source of funds
to a company at the same time providing financial leverage for the equity shareholders &
as long as the earning of company are higher than cost of borrowed funds, the earning per
share of equity share are increased.

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.
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 questions lie in the investor’s 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 of 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

TYPES OF PORTFOLIO BASED ON RISK AND RETURN
Whenever the money is invested a risk of not getting the money back is borne by the investor.
An investor wants a compensation for bearing such a risk also known as returns. In theory “the
higher is the risk the greater are the returns” and vice versa. The chart below can explain the
different types of securities and their associated risk.
Located towards the right of the diagram are investments that offer investors a higher potential
for above-average returns, but this potential comes with a higher risk. Towards the left are much
safer investments, but these investments having a lower potential for high returns.
CONSERVATIVE PORTFOLIO:
This model is ideal for those who wish to take least amount of risk and want a steady income
over a period of time from his investments. Conservative portfolio is designed by investing
greater proportion in the lower risk securities. Such a portfolio always tends to generate income
for the investor. Such a model aims at protecting the principal value of the portfolio. Hence the
investment is generally done in fixed income and money market securities. Very less amount of
the capital is invested in the equities. The model is often known as the ‘capital preservation
portfolio’.

MODERATELY CONSERVATIVE PORTFOLIO
A moderately conservative portfolio is ideal for those who want a fixed and steady income as
well as capital appreciation. This model not only offers a fixed income but also grows the
money of the investor. Although maximum amount of allocation is done in lower risk securities,
investment is also made in equities to some extent so that the capital grow
Source: Investopedia.com

MODERATELY AGGRESSIVE PORTFOLIO
A moderately aggressive portfolio is ideal for those who want a balance of growth and income.
The asset composition is divided among equity and fixed income securities. Maximum amount
of investment is made in the equities. Assets allocated to the fixed income securities is also no
less. Such a model is often referred to as “balance portfolio”
AGGRESSIVE PORTFOLIO
Aggressive portfolios mainly consist of equities. So the value tends to fluctuate. Such a portfolio
provides long term appreciation to the capital. But to have some liquidity fixed income securities
are also added to the portfolio. It is always better to invest in such a portfolio for a longer period
of time so that the money gets sufficient time to grow. Such a portfolio is risky.

VERY AGGRESSIVE PORTFOLIO
A very aggressive portfolio is one which consist mostly of equities. The portfolio is suitable for
those who have risk taking ability. Since the investment is done in equities hence it provides a
growth to the capital. The portfolio is designed for those who can invest for a longer time period.

ASSESSING RISK
It's one thing to know that there are risks in investing. But how do you figure out ahead of time
what those risks might be, which ones you are willing to take, and which ones may never be
worth taking?
There are three basic steps to assessing risk:
1. Understanding the risk posed by certain categories of investments

2. Determining the kind of risk you are comfortable taking
3. Evaluating specific investments
You can follow this path on your own or with the help of one or more investment professionals,
including stockbrokers, registered investment advisers, and financial planners with expertise in
these areas.
1. Determine the Risk of an Asset Class
The first step in assessing investment risk is to understand the types of risk a particular
category or group of investments—called an asset class—might expose you to.
For example, stock, bonds, and cash are considered separate asset classes because each of
them puts your money to work in different ways:
 Stocks, don't have a fixed value but reflect changing investor demand, one of the greatest
risks you face when you invest in stock is volatility, or significant price changes in
relatively rapid succession.
 Bonds face a risk of default on the part of the bond issuer and a risk of change in the
market price of bonds due to upward or downward movement in interest rates
 Cash investments like treasury bills and money market mutual funds though highly liquid
pose a risk of losing ground to inflation.

 Other assets classes, including real estate, pose their own risks, while investment
products, such as annuities or mutual funds that invest in a specific asset class, tend to
share the risks of that class.
However, if one understands what those risks are, one can generally take steps to offset
those risks.
2. Selecting Risk
The second step is to determine the kinds of risk you are comfortable taking at a
particular point in time. Since it's rarely possible to avoid investment risk entirely, the
goal of this step is to determine the level of risk that is appropriate for you and your
situation. Your decision will be driven in large part by:
A. Your age
B. Your goals and your timeline for meeting them
C. Your financial responsibilities
D. Your other financial resources
3. Evaluating Specific Investments
The third step is evaluating specific investments that you are considering within an asset
class. There are tools you can use to evaluate the risk of a particular investment—a
process that makes a lot of sense to follow both before you make a new purchase and as
part of a regular reassessment of your portfolio.
It's important to remember that part of managing investment risk is not only deciding
what to buy and when to buy it, but also what to sell and when to sell it.
 For stocks and bonds, the place to start is with information about the issuer, since the
value of the investment is directly linked to the strength of the company—or in the
case of certain bonds, the government or government agency—behind them.

 One should take a note of the issuing company’s documents like:

o Audited Financial Statements,
o Prospectus in case of initial public offer,
o Credit ratings given by independent rating agencies like ICRA, CARE,
CRISIL etc. The higher the letter grade a rating company assigns, the lower
the risk you are taking.
But remember that ratings aren't perfect and can't tell you whether or not your investment will go
up or down in value. Research companies also rate or rank stocks and mutual funds based on
specific sets of criteria.
Brokerage firms that sell investments similarly provide their assessments of the probable
performance of specific equity investments. Before you rely on ratings to select your
investments, learn about the methodologies and criteria the research company uses in its ratings.
You might find some research companies' methods more useful than others'.

INVESTMENT AVENUES
The alternative investment avenues for the investor are to be considered first so as to satisfy the
above objectives of investors. The following categories of investments are open to investors as
avenues for savings to flow in financial form:
The following figure indicates alternative avenues for Investment:
Gold and
Silver
Shares &
Real Estate
Debentures
UTI & Money

Mutual Market
Funds Securities
Investment
Avenues
GOI
LIC
Savings
Schemes
Bonds
Public
PF & PPF
Deposits
National &
Postal Bank
Savings Deposits
Schemes

(a) Investment in Bank Deposits – Savings and Fixed Deposits:

This is the common form of investment for an average Indian and nearly 40% of funds in
financial savings are used in this form these are least risky but the return is also low.
Tax saver fixed deposits are issued by banks for tenure of 5 years and premature
withdrawal is not permissible. It generates interest income of 8% with quarterly
compounding. The interest income is taxable. If we compare tax saving FD's to NSC, Tax
saving FD's have an edge on lock in period which is lesser by one year. However NSC
has an edge from the fact that interest accrued is also eligible for 80 C limits for the first
five year.
(b) Investment in P.O. Deposits, National Savings Certificates and other Postal Savings
Schemes:
Many people in villages and some urban areas are investors in these schemes due to
lower risk of loss of money and greater security of funds. But returns are also lower than
in Stocks & Shares.
Another popular avenue investing - NSC also offers a return of 8% on half yearly
compounding basis. Another feature is that interest accrued on NSC is also eligible for
Section 80 C benefit. The interest on NSC investment, except in the sixth year, is not paid
but credited to the investor's account. So, the interest that accumulates is treated as
invested in NSC and the accumulated interest thereby qualifies for tax deduction. The
duration of NSC is for 6 years with an option of premature encashment after 3 years.
However, that would reduce the net yield from NSC.
(c) Insurance Schemes of LIC/GIC etc. and Provident and Pension Funds:
About 20-25% of financial savings of the household sector are put in these forms and
P.F., Pension and other forms of contractual savings.

As far as life insurance is concerned, endowment plans (money back plans) have been a
popular source of investing. There are various long term life insurance policies which give
you good returns, tax savings under 80C and an insurance cover as well.
ULIP’s offer insurance as well as market related returns in a single product. However,
investors should understand the underlying structure of ULIP carefully since these
offerings have a substantial charge towards expense in the initial years and is advisable
only for investors with a large investing horizon. Avoid ULIPs if you do not like to risk
money. Also invest in ULIPs with a long term horizon of a minimum of 10 years.
Pension Plans: Another avenue within insurance domain is Pension plans. Pension plans
have got a boost in last finance bill with the overall limit raised from Rs. 10,000 to Rs.
100,000. Senior Citizen Saving Scheme 2004 and Post Office Time Deposit Account have
also been included in Section 80 C.
However some people may be biased towards other investing options as compared to Life
Insurance products since they may prefer insurance and investments separately.
(d) Investment in Mutual Fund Schemes or UTI Schemes as and when announced:
These are less risky than direct investment in stocks and shares as these enjoy the expert
management by the Portfolio Manager or Professional experts. They also have the
advantage of diversified Portfolio involving the reduction of risk and economies of scale
reducing the cost of investment.
Mutual Fund invests in a number of companies across a broad cross-section of industries

and sectors. This diversification reduces the risk because seldom do all stocks decline at
the same time and in the same proportion. Investor achieves this diversification through a
Mutual Fund with far less money than his own.

(e) Investment in New Issues Market:

A new entrant in the Stock Market should preferably invest in New Issues of existing and
well reputed companies either in equity or debentures. Incidentally the instruments in
which investment can be made in the new issues market are:
1. Equity issues through prospectus or rights announced by existing shareholders.
2. Preference shares with a fixed dividend either convertible into equity or not.
3. Debentures of various categories – convertible, fully convertible, partly
convertible and non- convertible debentures.
4. P.S.U. Bonds – taxable or free-taxed with interest rates.
(f) Investment in Gold, Silver, Precious Metals and Antiques:

As an asset class, gold has traditionally been an integral part of one’s asset in the Indian
household right through the ages. Apart from being one of the best hedging tools against
inflation, gold traditionally has a negative correlation with other asset classes such as
stocks, fixed income and commodities.
A recent introduction to the Indian markets has been Gold Exchange Traded Funds or
ETFs. These passively managed mutual funds invest in standard bullion gold (0.995
purity) an equivalent amount of which is placed in the physical form with a custodian.
Units are allotted such that each unit corresponds to one gram of gold and the returns
from each unit are tracked from the physical gold prices in the spot markets.
Investment in Gold ETFs enable investors to benefit from the advantages gold provides,
with the elimination of many drawbacks like storage costs, purity, liquidity; not to forget
the tax advantages they offer over investing in physical gold.
(g) Investment in Real Estate:

It has been the source of wealth accumulation even for most developed countries (the
recent sub-prime crisis notwithstanding). With land increasingly getting scarce in a
country like India, the value of real estate holdings is expected to boom further. As retail
investors, it gets a tad too difficult to indulge in the property markets directly due to high
transaction costs (stamp duties, registration, brokerages, etc) and the risks involved.

On the other hand Real Estate Trusts and PMS provide the requisite diversification and
risk mitigation for investing in real estate. Most of them currently have minimum
commitments of Rs. 25 lakh or Rs. 50 lakh; but this is set to go down as and when SEBI
clears the way for Mutual Funds to directly participate in real estate projects.
Real Estate funds invest the corpus across a range of projects and cities; thus
diversifying the risk by obtaining exposure to a broader range of investment options like
residential properties, commercial premises, shopping malls and hospitality projects with
more attractive returns as costs are much lower at initial stages of development.
(h) Bonds:
Buying a bond means that investor’s are loaning their money to a corporation, a
government etc. Each bond is a loan for a defined time frame. When the bond reaches
maturity (specified time frame has ended), then the bondholder can cash in the bond and
be paid the amount they loaned plus any accrued interest earned.
 Interest rate is set in advance and paid regularly.

 The value of a bond in the open market may go up.
 Paying interest on bonds is a higher priority for companies than paying dividends on
shares.
The interest rate on all infrastructure bonds will depend on the 10-year yield on
government securities. At present, the benchmark 10-year bond yield is at 8.09%.

DIVERSIFICATION
 Risk Reduce through Diversification:

The process of combining securities in a portfolio is known as diversification. The aim of
diversification is to reduce total risk without sacrificing portfolio return. To understand the
mechanism and power of diversification, it is necessary to consider the impact of covariance
or correlation on portfolio risk more closely. We shall examine three cases: (1) when security
returns are perfectly positively correlated, (2) when security returns are perfectly negatively
correlated and (3) when security returns are not correlated.
Diversification means, investment of funds in more than one risky asset with the basic
objective of risk reduction. The lay man can make good returns on his investment by making
use of technique of diversification.
Main three forms of diversification:-

1. Simple Diversification,
2. Over Diversification,
3. Efficient Diversification.
1. Simple Diversification:
It involves a random selection of portfolio construction. The common man could make better
returns by making a random diversification of investments. It is the process of altering the
mix ratio of different components of a portfolio. The simple diversification can reduce
unsystematic risk. The research studies on portfolio found that 10 to 15 securities in a
portfolio will bring sufficient amount of returns. Further, this concept reveals that the
prediction should be based on a scientific method.
2. Over Diversification:
Investors have the freedom to choose many investment alternatives to achieve the desired
profit on his portfolio. However, the investor shall have a great knowledge regarding a large
number of financial assets spreading different sectors, industries, companies. The investors
also more careful about the liquidity of each investment, return, tax liability, the performance
of the company etc. Investors find problems to handle the large number of investments. It

involves more transaction cost and more money will be spent in managing over
diversification. If any investor involves in over diversification, there may be a chance either
to get higher return or exposure to more risk. All the problems involved in this process may
result in inadequate return on the portfolio.
3. Efficient Diversification:
Efficient diversification means a combination of low risk involved securities and high risk
instruments. The combination will only be finalized after considering the expected return
from an individual security and it does inter relationship with other components in a
portfolio. The securities shall have to be evaluated and thus diversification to be restricted to
some extent. Efficient diversification assures the better return at an accepted level of risk.
Importance of Diversification:
If you invest in a single security, your return will depend solely on that security; if that
security flops, your entire return will be severely affected. Clearly, held by itself, the single
security is highly risky.
If you add nine other unrelated securities to that single security portfolio, the possible
outcome changes—if that security flops, your entire return won't be as badly hurt. By
diversifying your investments, you have substantially reduced the risk of the single security.
However, that security's return will be the same whether held in isolation or in a portfolio.
Diversification substantially reduces your risk with little impact on potential returns. The key
involves investing in categories or securities that are dissimilar: Their returns are affected by
different factors and they face different kinds of risks.
Diversification should occur at all levels of investing. Diversification among the major asset
categories—stocks, fixed-income and money market investments—can help reduce market
risk, inflation risk and liquidity risk, since these categories are affected by different market
and economic factors.
Diversification within the major asset categories—for instance, among the various kinds of
stocks (international or domestic, for instance) or fixed-income products—can help further

reduce market and inflation risk. And as shown in the 10-security portfolio, diversification
among individual securities helps reduce business risk.
Diversification process:
The process of diversification has various phases involving investment into various classes
of assets like equity, preference shares, money market instruments like commercial paper,
inter-corporate investments, deposits etc. Within each class of assets, there is further
possibility of diversification into various industries, different companies etc. The proportion
of funds invested into various classes of assets, instruments, industries and companies would
depend upon the objectives of investor, under portfolio management and his asset
preferences, income and asset requirements. The subject is further elaborated in another
chapter.
A portfolio with the objective of regular income would invest a proportion of funds in bonds,
debentures and fixed deposits. For such investment, duration of the life of the
bond/debenture, quality of the asset as judged by the credit rating and the expected yield are
the relevant variables.
Bond market is not well developed in India but debentures, partly or fully convertible into
equity are in good demand both from individuals and mutual funds. The portfolio manager
has to use his analytical power and discretion to choose the right debentures with the
required duration, yield and quality. The duration and immunization of expected inflows of
funds to the required quantum of funds have to be well planned by the portfolio manager.
Research and high degree of analytical power in investment management and bond portfolio
management are necessary.
The bond investment are thus equally challenging as equities investment and more so in
respect of money market instruments. All these facts bring out clearly the needed analytical
powers and expertise of portfolio manager.

RESEARCH
OBJECTIVE OF THE PROJECT
Each research study has its own specific purpose. It is like to discover to Question through the
application of scientific procedure. But the main aim of our research to find out the truth that is
hidden and which has not been discovered as yet.
OBJECTIVES
 To know the concept of Portfolio Management.

 To know about the awareness towards stock brokers and share market.
 To study about the competitive position of Edelweiss Ltd in Competitive Market.
 To study about the effectiveness & efficiency of Edelweiss Ltd in relation to its
competitors
 To study about whether people are satisfied with Edelweiss Services & Management
System or not.
 To study about the difficulties faced by persons while Trading in Edelweiss.
 To study about the need of improvement in existing Trading system.
RESEARCH DESIGN OF THE STUDY
This report is based on primary as well secondary data, however primary data collection was
given more importance since it is overhearing factor in attitude studies. One of the most
important users of research methodology is that it helps in identifying the problem, collecting,
analyzing the required information data and providing an alternative solution to the problem .It
also helps in collecting the vital information that is required by the top management to assist
them for the better decision making both day to day decision and critical ones.
The study consists of analysis about Investors Perception about the Portfolio Management
Services offered by Edelweiss Limited. For the purpose of the study 50 customers were picked
up at random and their views solicited on different parameters.
The methodology adopted includes
 Questionnaire
 Random sample survey of customers
 Discussions with the concerned

SOURCES OF DATA
 Primary data: Questionnaire
 Secondary data: Website.
SAMPLING PLAN
 Sampling:
Since Edelweiss Limited has many segments I selected Portfolio Management Services
(PMS) segment as per my profile to do market research. 100% coverage was difficult
within the limited period of time. Hence sampling survey method was adopted for the
purpose of the study.
 Population:
(Universe) customers & non consumers of Edelweiss limited
 Sampling size:
A sample of fifty was chosen for the purpose of the study. Sample consisted of Investor
as based on their Income and Profession as well as Educational Background.
 Sampling Methods:
Probability sampling requires complete knowledge about all sampling units in the
universe. Due to time constraint non-probability sampling was chosen for the study.
 Sampling procedure:
From large number of customers & non consumers sample lot were randomly picked up
by me.
FIELD STUDY:
Directly approached respondents by the following strategies
 Tele-calling
 Personal Visits
 Clients References

PORTFOLIO MANAGEMENT IN EDELWEISS
Edelweiss offers the discerning investor an opportunity to access its asset management expertise
through its portfolio management service (PMS). The basic objective of this product is to
provide unbiased investment management strategy based on rigorous fundamental analysis while
taking cognizance of market conditions and movements.
The PMS team in addition to its own research capability also has access to the Edelweiss
Research team covering a universe of about 50 key Large Cap and Mid Cap companies across
sectors like IT, Engineering, Auto, Oil & Gas, Banking, Pharmaceuticals. The structure of
portfolio management uses a combination of the top-down and the bottom-up approach to arrive
at a basket of investment worthy stocks. The team is committed to a strong discipline in booking
profits and on focusing on client servicing and wealth enhancement.
Edelweiss gives a portfolio to the investors in the form of “Baskets” wherein the minimum
investment should be Rs. 10,000. They have many other various schemes with different amount
of investment. Based on the research, the stocks are selected on the basis of relative price
performance of stocks over period of 1 month, 3 months and 1 year.
Edelweiss does a strong analysis of the funds of the investors and based on how strong the
company is, accordingly invests the investor’s funds in various diversified sectors and promises
to give at least minimum 5% - 6 % returns.

QUESTIONNAIRE
NAME………………………………….
AGE…………………………………………
OCCUPATION……………………………... PHONE
NO..................................
1. Do you know about the Investments Option available?
A) YES B) NO
2. Which is the most important factor you consider for Investment?
A) Risk B) Return C) Both
3. In which of the following do you invest?
A) Mutual Funds B) Shares C) Commodities Market
D) Bonds E) Fixed Deposits F) Property
4. “Investing in PMS is far safer than Investing in Mutual Fund”. Do you agree?
A) Yes B) No
5. How much returns you are you expecting from your Investments?
A) Upto 15% B) 15-25% C) 25-35% D) More than 35%
6. How do you manage your Portfolio?
A) Self B) Portfolio Manager
7. Are you using Portfolio Management services (PMS) of Edelweiss?

A) Yes B) No
8. Which Portfolio Type would you prefer?
A) Equity B) Debt C) Balanced
9. What was your experience with Portfolio Management services (PMS) of Edelweiss Limited?
A) Earned B) Faced Loss C) No profit No loss
10. Does Edelweiss Limited keeps its PMS process Transparent?
A) Yes B) No

Finding
 About 85% Respondents knows about the Investment Option, because remaining 15%
take his /her residential property as Investment, but in actual it not an investment
philosophy carries that all the Investment does not create any profit for the owner.
 More than 75% Investors are investing their money for Liquidity, Return and Tax
benefits.
 At the time of Investment the Investors basically considered the both Risk and Return in
more %age around 65%.
 As among all Investment Option for Investor the most important area to get more return
is share around 22%after that Mutual Fund and other comes into existence.
 More than 76% of Investors feels that PMS is less risky than investing money in Mutual
Funds.
 As expected return from the Market more than 48% respondents expect the rise in
Income more than 15%, 32% respondents are expecting between 15-25% return.
 Around 57% residents manage their Portfolio through the different company whereas
43%Investor manage their portfolio themselves.
 Out of fifty respondents 56% respondents are using Edelweiss PMs services.
 Investors preferred more than 45% equity Portfolio, 28%Balanceed Portfolio and about
27% Debt Portfolio with Edelweiss PMS.
 About 30% Respondents earned through Edelweiss PMS product, whereas 30% investor
faced loses also.
 More than 37% Investor are happy with the Transparency system of Edelweiss limited.

CONCLUSION
It is important to understand that equity shares are not recommended for all investors. If you are
past sixty, and dependent on your savings for a living, I would strongly advise you not to buy
and hold equity shares only but also in other securities which gives a regular income in periodic
intervals. The stock markets are by nature volatile and unpredictable. Prudence, in such cases,
demands that one should never put one’s nest egg in the stock market at such a late stage in life.
On the other hand, if you are young and resilient enough to take risks, the stock market can be
quite interesting and rewarding. But remember these Ten Commandments and follow them with
religious favor:
 Do not speculate.
 Do not invest in new issues.
 Do not put all your eggs in one basket.
 Limit the number of scrips in your portfolio.
 Invest for the long term.
 Invest in real value.
 Invest in sunrise industries.
 Disinvest before a company becomes a sunset industry.
 Do not marry your stocks.
 Set a limit to your greed.
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 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.

BIBLIOGRAPHY
REFERENCE BOOKS:
Security Analysis and Portfolio Management - Dr. P.K.BANDGAR
Investment Management - V. K. Bhalla

Portfolio Management – CFA Institute
 www.wikipedia.org
 www.investopedia.com
 www.valueresarchonline.com
 http://www.investmentz.com/Services/ServicesInner.aspx?id=0208
 www.edelweiss.in
 www.sebi.in.gov

Portfolio Management - An Investment Option. Kunal Mehta

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Portfolio Management - An Investment Option. Kunal Mehta

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PROJECT REPORT ON

PORTFOLIO MANAGEMENT-AN INVESTMENT OPTION

SUBMITTED IN PARTIAL FULFILLMENT OF

UNDER THE GUIDANCE OF

PROF. GULAB MOHITE

N. L. DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

MIRA ROAD (EAST), THANE – 401104

This is to certify that the project titled

“PORTFOLIO MANAGEMENT – AN INVESTMENT OPTION”

Submitted by: Kunal Mehta

N.L. Dalmia Institute of Management Studies and Research

In partial fulfillment of requirements for the Masters in Financial Management

During the Academic Year 2008 - 2011

Has been carried out under the supervision & guidance of

Prof. Gulab Mohite Prof. P.L.Arya

Project Guide Director

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 1

AT THE OUTSET, I SINCERELY WISH TO EXPRESS MY GRATITUDE TO PROF.

I SINCERELY ACKNOWLEDGE PROF.GULAB MOHITE FOR HIS GUIDANCE AND

FINALLY I AM THANKFUL TO ALL MY FRIENDS, COLLEAGUES, FACULTY

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 2

 To get the overall knowledge of securities and investment.

maximizes the returns.

sectors they are investing.

the needs of the various investors.

 To get the knowledge of investment decision and diversification.

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 3

Sr. No. Particulars Page No.

B. PORTFOLIO MANAGEMENT - INTRODUCTION 6

C. OBJECTIVES OF PORTFOLIO MANAGEMENT 9

D. BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT 11

E. SEBI GUIDELINES TO PORTFOLIO MANAGEMENT 12

F. PERSONS INVOLVED IN PORTFOLIO MANAGEMENT 13

G. FUNCTIONS AND ROLE OF PORTFOLIO MANAGER 15

H. PORTFOLIO PERFORMANCE EVALUATION 17

J. RISK – RETURN ANALYSIS 27

K. TYPES OF PORTFOLIO BASED ON RISK AND RETURN 29

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 4

Managing an investment portfolio in today’s dynamic environment is a challenge for every

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 5

PORTFOLIO MANAGEMENT - INTRODUCTION

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 6

Investment managers who specialize in advisory or discretionary management on behalf of

The provision of 'investment management services' includes elements of

 Ongoing monitoring of investments.

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 7

Scope of Portfolio Management:

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 8

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 9

OBJECTIVES OF PORTFOLIO MANAGEMENT

1. Stable Current Return:

4. Appreciation in the value of capital:

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 10

6. Safety of the investment:

Investment safety or minimization of risks is one of the important objectives of portfolio

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 11

BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT

I. Effective investment planning for the investment in securities by considering the

II. Constant Review of Investment:

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 12

SEBI GUIDELINES TO PORTFOLIO MANAGEMENT

1) The nature of portfolio management services shall be investment consultant.

N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH Page 13