CASE PROJECT ONE

Scenario Table for Each Fund:

For each fund, let's calculate the target percentage return that futures & options should fetch
so that Mr. X achieves his desired overall return on investment (ROI).

Fund A:

 Debt: 50%

 Equity: 30%

 Futures & Options: 20%

 Risk Score: 40/100

 Desired ROI: 15% - 18%

Let x be the target return from futures & options.

7%×0.50+13.5%×0.30+ x×0.20=0.15 to 0.18

0.035+0.0405+0.20x = 0.15 to 0.18

0.0755+0.20x = 0.15 to 0.18

0.20x = 0.15−0.0755 to 0.18−0.0755

0.20x = 0.0745 to 0.1045

X =0.20/0.0745 to 0.20/0.1045

X = 0.3725 to 0.5225

So, the target return from futures & options in Fund A should be approximately 37.25% to
52.25%.

Fund B:

 Equity: 40%

 Debt: 40%

 Futures & Options: 20%

 Risk Score: 55/100

  Desired ROI: 15% - 18%

Using the same approach as above, we can calculate the target return from futures & options
for Fund B:

13.5%×0.40+7%×0.40+x×0.20 = 0.15 to 0.18

0.054+0.028+0.20x = 0.15 to 0.18

0.082+0.20x = 0.15 to 0.18

0.20x = 0.15−0.082 to 0.18−0.082

0.20x = 0.068 to 0.098

X = 0.20/0.068 to 0.20/0.098

X =0.34 to 0.49

So, the target return from futures & options in Fund B should be approximately 34% to 49%.

Fund C:

 Equity: 40%

 Debt: 30%

 Futures & Options: 30%

 Risk Score: 65/100

 Desired ROI: 15% - 18%

Using the same approach as above, we can calculate the target return from futures & options
for Fund C:

13.5%×0.40+7%×0.30+x×0.30 = 0.15 to 0.18

0.054+0.021+0.30x = 0.15 to 0.18

0.075+0.30x = 0.15 to 0.18

0.30x = 0.15−0.075 to 0.18−0.075

0.30x = 0.075 to 0.105

X = 0.30/0.075 to 0.30/0.105
X = 0.25 to 0.35

So, the target return from futures & options in Fund C should be approximately 25% to 35%.

Analysis and Recommendations:

Now, let's evaluate which fund Mr. X should pick based on his risk-taking appetite and the
likelihood of achieving his desired return.

Fund A has a risk score of 40/100 and requires a target return from futures & options of
37.25% to 52.25% to meet Mr. X's desired ROI. Fund B has a risk score of 55/100 and needs
a target return from futures & options of 34% to 49%. Fund C, with a risk score of 65/100,
requires a target return from futures & options of 25% to 35%.

Considering Mr. X's transition from a risk-averse to a risk-neutral investor, Fund C appears to
align best with his current risk appetite. However, the target return from futures & options in
Fund C falls within a slightly lower range compared to Funds A and B. Therefore, to
maximize his chances of achieving the desired return, Mr. X should consider Fund B.

Optimal Investment Strategy:

Given Mr. X's risk appetite and desire to allocate 20% to each asset class (equity, debt, and
futures & options), an optimal investment strategy would involve:

1. Allocation to Mutual Funds:

 Equity Mutual Fund: 20%

 Debt Mutual Fund: 20%

 Futures & Options: 20%

2. Selection of Mutual Funds:

 Equity Mutual Fund: Choose a fund with a track record of delivering

consistent returns within Mr. X's risk tolerance. For example, a fund with
historical returns averaging between 15% to 18% over the past 5 years and
managed by a seasoned fund manager.

 Debt Mutual Fund: Select a debt fund with stable returns and low volatility,
aligning with Mr. X's risk profile. Historical returns should be around 7%.
Mutual Fund Recommendation:

 Equity Mutual Fund: XYZ Equity Fund managed by Prasanth. This fund has
delivered an average return of 16% over the past 5 years, aligning well with Mr. X's
desired return range. The fund manager Prasanth has a proven track record of
navigating market volatility and delivering consistent returns to investors.

 Debt Mutual Fund: ABC Debt Fund, which has historically provided stable returns
around 7% over the past 5 years. This fund focuses on low-risk debt instruments,
suitable for Mr. X's risk-averse approach to debt investments.

3. Futures & Options Allocation:

 Allocate 20% of the portfolio to futures & options to potentially enhance

returns. Given the risk associated with derivatives, it's advisable for Mr. X to
engage in futures & options trading under the guidance of a financial advisor
or portfolio manager.

Percentage of Portfolio for Futures & Options Trading:

 Allocate 20% of the portfolio value to futures & options trading.

Expected Return:

 The expected return from the overall investment strategy would depend on market
conditions, the performance of selected mutual funds, and the success of futures &
options trading. However, with a diversified portfolio comprising equity, debt, and
derivatives, Mr. X can reasonably expect to achieve his targeted ROI of 15% to 18%
over the 5-year investment horizon.

By adhering to this investment strategy, Mr. X can effectively balance risk and return,
positioning himself to capitalize on market opportunities while safeguarding his investment
against undue volatility.