SUMMER TRAINING

REPORT
ON
“PORTFOLIO MANAGEMENT SERVICES
AN INVESTMENT OPTION”

SHAREKHAN LIMITED
Submitted in Partial Fulfilment of the Requirement for the award of Master of Business
Administration (MBA) degree from DR. A.P.J Abdul Kalam Technical University, Uttar
Pradesh, Lucknow

Submited By

AANCHAL SRIVASTAVA

MBA III Semester

Roll No : 1702970003

Under the guidance of MR. RAJANISH KUMAR (TEAM MANAGER- DELHI)

2018-2019

KIET School of Management

KIET Group of Institutions

13 KM Stone, Ghaziabad – Meerut Road, Ghaziabad – 201206 (U.P.)

 CERTIFICATE OF THE HoD

To whom it may concern

This is to certify that Mr./Ms. Aanchal Srivastava, Roll no. 1702970003, is the student of
MBA III semester and has successfully completed his/her project on “PORTFOLIO
MANAGEMENT SERVICES -AN INVESTMENT OPTION”

DATE HOD
DR. K.R CHATURVEDI

2
 Declaration

I Aanchal Srivastava, Roll no 1702970003 , student of MBA III Semester of KIET,School

of Management Ghaziabad here by declare that the project report on “PORTFOLIO
MANAGEMENT SERVICES AN INVESTMENT OPTION”, is an original and
authenticated work done by me. I further declare that it has not been submitted else where by
any other person in any of the university for the award of any degree or diploma.

DATE Aanchal Srivastava

Faculty Guide
DR. RANCHAY BHATEJA

3
4
 ACKOWLEGEMENT

I am also thankful to my family for their kind co-operation which made my take easy. It is
really a great pleasure to have this opportunity to describe the feeling of gratitude from the
core of my heart who have given their immense contribution while preparing this project
report. I convey my sincere gratitude to DR. K.R CHATURVEDI for giving me the
opportunity to prepare my project work on PORTFOLIO MANAGEMENT SERVICES
AN INVESTMENT OPTION I am thankful to DR. RANCHAY BHATEJA for her/his
guidance during my project work and sparing her/his valuable time for the same. I express
my sincere obligation and thanks to all the Faculties of Department of MBA for their
valuable advice in guiding me at every stage in bringing out this report.

Name: Aanchal Srivastava

Roll No: 1702970003

5
 Table of content

CHAPTER TABLE OF CONTENTS PAGE NO.

EXECUTIVE SUMMARY 8
CHAPTER-1 INTRODUCTION 9

Introduction to Study 10-11

Myths About PMS 12-13
Introduction to Stock 14-18
Exchange
CHAPTER-2 COMPANY PROFILE 19-20

Work structure of Sharekhan 21-22

Reason To Choose Sharekhan 23-25

Product and Services offered 25-28

By Company
CHAPTER-3 RESEARCH METHODOLOGY 29

Objective of the Project 30

Scope of the Study 30-31
Methodology for Data
Collection 31-34
CHAPTER-4 PORTFOLIO MANAGEMENT 35-36
SERVICES
Need of PMS 36-37
Objective of PMS 37-38
Portfolio Construction 38-44
Risk and Risk Aversion 45-47
Risk versus Return 48-53
Portfolio Diversification 54-58
Techniques of PMS 59-63
Sharekhan PMS 64-71

6
CHAPTER-5 DATA ANALYSIS AND 72-88
INTERPRETATION
CHAPTER-6 CONCLUSION & 89
SUGGESTIONS
Observation and Findings 90-91
Limitations of the Project 92
Conclusion &Suggestions 93-94
ANNEXURE 95-96
BIBLIOGRAPHY 97-98

7
 EXECUTIVE SUMMARY

Investing is both Arts and Science. Every Individual has their own specific financial need and
expectation based on their risk taking capabilities, whereas some needs and expectation are
universal. Therefore, we find that the scenario of the Stock Market is changing day by day
hours by hours and minute by minute. The evaluation of financial planning has been
increased through decades, which can be best seen in customers. Now a day’s investments
have become very important part of income saving.

In order to keep the Investor safe from market fluctuation and make them profitable, Portfolio
Management Services (PMS) is fast gaining Investment Option for the High Networth
Individual (HNI). There is growing competition between brokerage firms in post reform
India. For investor it is always difficult to decide which brokerage firm to choose.

The research design is analytical in nature. A questionnaire was prepared and distributed to
Investors. The investor’s profile is based on the results of a questionnaire that the Investors
completed. The Sample consists of 100 investors from various broker’s premises. The target
customers were Investors who are trading in the stock market.

In order to identify the effectiveness of Sharekhan PMS services this Research is carried
throughout the area of New Delhi. At the time of investing money everyone look for the Risk
factor involve in the Investment option. The Report is prepared on the basis of Research work
done through the different Research Methodology the data is collected from both the source
Primary sources which consist of Questionnaire and secondary data is collected from
different sources such as Company website, Magazine and other sources.
As the PMS services of Sharekhan Limited have the best result in its field .It has given
43.50% return in Trailing stops, 94.30%return in Nifty and 38.10% in Beta Portfolio
which is the result when the Market was not doing well from last one year.
In this project I have shown the details of financial planning as well as wealth management so
as to understand about the customer’s needs and wants with respect to market and how a
client’s portfolio can be designed and what factors a portfolio manager must consider for
designing a portfolio.

8
 CHAPTER – 1

INTRODUCTION

9
 INTRODUCTION TO
STUDY

The field of investment traditionally divided into security analysis and portfolio management.
The heart of security analysis is valuation of financial assets. Value in turn is the function of
risk and return. These two concepts are in the study of investment .Investment can be defined
the commitment of funds to one or more assets that will be held over for some future time
period.
In today fast growing world many opportunities are available, so in order to move with
changes and grab the best opportunities in the field of investments a professional fund
manager is necessary.
Therefore, in the present scenario the Portfolio Management Services (PMS) is fast gaining
importance as an investment alternative for the High Networth Investors.
Portfolio Management Services (PMS) is an investment portfolio in stocks, fixed income,
debt, cash, structured products and other individual securities, managed by a professional
money manager that can potentially be tailored to meet specific investment objectives.
When you invest in PMS, you own individual securities unlike a mutual fund investor, who
owns units of the entire fund. You have the freedom and flexibility to tailor your portfolio to
address personal preferences and financial goals. Although portfolio managers may oversee
hundreds of portfolio, your account may be unique.
Investment Management Solution in PMS can be provided in the following ways:

i. Discretionary

ii. Non-Discretionary

iii. Advisory

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 Discretionary: Under these services, the choice as well as the timings of the investment
decisions rest solely with the Portfolio Manager.

Non-Discretionary: Under these services, the portfolio manager only suggests the
investment ideas. The choice as well as the timings of the investment decisions rest solely
with the Investor.
However the execution of trade is done by the portfolio manager

Advisory: Under these services, the portfolio manager only suggests the investment ideas.
The choice as well as the execution of the investment decisions rest solely with the Investor.
Rule 2, clause (d) of the SEBI (portfolio managers) Rules, 1993 defines the term “Portfolio”
as “total holding of securities belonging to any person”.
As a matter of fact, portfolio is combination of assets the outcomes of which cannot be
defined with certainty new assets could be physical assets, real estates, land, building, gold
etc. or financial assets like stocks, equity, debenture, deposits etc.
Portfolio management refers to managing efficiently the investment in the securities held by
professional for others.
Merchant banker and the portfolio management with a view to ensure maximum return by
such investment with minimum risk of loss of return on the money invested in securities held
by them for their clients. The aim Portfolio management is to achieve the maximum return
from a portfolio, which has been delegated to be managed by manger or financial institution.
There are lots of organization in the market on the lookout for the people like you who need
their portfolios managed for them .They have trained and skilled talent will work on your
money to make it do more for you.
Therefore, if any investors still insist on managing their own portfolio, then ensure you build
discipline into their investment. Work out their strategy and stand by it.

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 MYTHS ABOUT PMS

There are two most common myths found about Portfolio Management Services (PMS)
which we found among most of the Investors. They are as follows.
Myth No. 1: “PMS and Mutual Fund are Similar as the investment option”

As in the Finance Basket both the PMS and Mutual Fund are used for minimizing risk and
maximize the profit of the Investors. The objectives are similar as in both the product but
they are different from each other in certain aspects. They are as follows.
Management Side

In PMS, it’s ongoing personalized access to professional money management services.

Whereas, in Mutual fund gives personalize access to money.
Customization

In PMS, Portfolio can be tailored to address each investor's specific needs. Whereas in
Mutual Fund Portfolio structured to meet the fund's stated investment objectives.
Ownership

In PMS, Investors directly own the individual securities in their portfolio, allowing for tax
management flexibility, whereas in Mutual Fund Shareholders own shares of the fund and
cannot influence buy and sell decisions or control their exposure to incurring tax liabilities.
Liquidity

In PMS, managers may hold cash; they are not required to hold cash to meet redemptions,
whereas, Mutual funds generally hold some cash to meet redemptions.
Minimums

PMS generally gives higher minimum investments than mutual funds. Generally, minimum
ranges from: Rs. 1 Crore + for Equity Options Rs. 5 Crore + for Fixed Income Options Rs. 20
Lacs + for Structured Products, whereas in Mutual Fund Provide ongoing, personalized
access to professional money management services.

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Flexibility

PMS is generally more flexible than mutual funds. The Portfolio Manager may move to
100% cash if it required. The Portfolio Manager may take his own time in building up the
portfolio. The Portfolio Manager can also manage a portfolio with disproportionate allocation
to select compelling opportunities whereas, in Mutual Fund comparatively less flexible.

Myth No. 2: “PMS is more Risk free than other Financial Instrument”
In Financial Market Risk factor is common in all the financial products, but yes it is true that
Risk Factor vary from each other due to its nature. All investments involve a certain amount
of risk, including the possible erosion of the principal amount invested, which varies
depending on the security selected. For example, investments in small and mid-sized
companies tend to involve more risk than investments in larger companies.

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 INTRODUCTION TO STOCK EXCHANGE

The emergence of stock market can be traced back to 1830. In Bombay, business passed in
the shares of banks like the commercial bank, the chartered mercantile bank, the chartered
bank, the oriental bank and the old bank of Bombay and shares of cotton presses. In Calcutta,
Englishman reported the quotations of 4%, 5%, and 6% loans of East India Company as well
as the shares of the bank of Bengal in 1836. This list was a further broadened in 1839 when
the Calcutta newspaper printed the quotations of banks like union bank and Agra bank. It also
quoted the prices of business ventures like the Bengal bonded warehouse, the Docking
Company and the storm tug company.

Between 1840 and 1850, only half a dozen brokers existed for the limited business. But
during the share mania of 1860-65, the number of brokers increased considerably. By 1860,
the number of brokers was about 60 and during the exciting period of the American Civil
war, their number increased to about 200 to 250. The end of American Civil war brought
disillusionment and many

Failures and the brokers decreased in number and prosperity. It was in those troublesome
times between 1868 and 1875 that brokers organized an informal association and finally as
recited in the Indenture constituting the “Articles of Association of the Exchange”.

On or about 9th day of July,1875, a few native brokers doing brokerage business in shares
and stocks resolved upon forming in Bombay an association for protecting the character,
status and interest of native share and stock brokers and providing a hall or building for the
use of the Members of such association.

As a meeting held in the broker’ Hall on the 5th day of February, 1887, it was resolved to
execute a formal deal of association and to constitute the first managing committee and to
appoint the first trustees. Accordingly, the Articles of Association of the Exchange and the
Stock
Exchange was formally established in Bombay on 3rd day of December, 1887. The
Association is now known as “The Stock Exchange”.

The entrance fee for new member was Re.1 and there were 318 members on the list, when the
exchange was constituted. The numbers of members increased to 333 in 1896, 362 in
1916and 478 in 1920 and the entrance fee was raised to Rs.5 in 1877, Rs.1000 in 1896,
Rs.2500 in 1916 and Rs. 48,000 in 1920. At present there are 23 recognized stock
exchanges with about 6000 stock brokers. Organization structure of stock exchange varies.

14
14 stock exchanges are organized as public limited companies, 6 as companies limited by
guarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9 stock
exchanges have been permanent recognition. Others have to seek recognition on annual basis.
These exchange do not work of its own, rather, these are run by some persons and with the
help of some persons and institution. All these are down as functionaries on stock exchange.
These are:

i. Stockbrokers

ii. Sub-broker

iii. Market makers

iv. Portfolio consultants etc.

1. Stockbrokers:
Stock brokers are the members of stock exchanges. These are
the persons who buy, sell or deal in securities. A certificate of registration from SEBI is
mandatory to act as a broker. SEBI can impose certain conditions while granting the
certificate of registrations. It is obligatory for the person to abide by the rules, regulations and
the buy-law. Stock brokers are commission broker, floor broker, arbitrageur etc.

2.Sub-broker:
A sub-broker acts as agent of stock broker. He is not a member of
a stock exchange. He assists the investors in buying, selling or dealing in
securities through stockbroker. The broker and sub-broker should enter into an
agreement in which obligations of both should be specified. Sub-broker must be
registered SEBI for a dealing in securities. For getting registered with SEBI, he
must fulfill certain rules and regulation.

3. Market Makers:
Market maker is a designated specialist in the specified
securities. They make both bid and offer at the same time. A market maker has to abide by
bye-laws, rules regulations of the concerned stock exchange. He is exempt from the margin
requirements. As per the listing requirements, a company where the paid-up capital is Rs. 3
Crore but not more than Rs. 5 core and having a commercial operation for less than 2 years
should appoint a market maker at the time of issue of securities.

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4.Portfolio Consultants:
A combination of securities such as stocks, bonds and money market instruments is
collectively called as portfolio. Whereas the portfolio consultants are the persons, firms or
companies who advise, direct or undertake the management or administration of securities or
funds on behalf of their clients.
Traditionally stock trading is done through stock brokers, personally or through telephones.
As number of people trading in stock market increase enormously in last few years, some
issues like location constrains, busy phone lines, miss communication etc start growing in
stock broker offices. Information technology (Stock Market Software) helps stock brokers in
solving these problems with Online Stock Trading.
Online Stock Market Trading is an internet based stock trading facility. Investor can trade
shares through a website without any manual intervention from Stock Broker.

1. Installable software based Stock Trading Terminals

This trading environment requires software to be installed on investor’s computer. This
software is provided by the stock broker. This software requires high speed internet
connection. These kind of trading terminals are used by high volume intraday equity traders.

2. Web (Internet) based trading application

This kind of trading environment doesn't require any additional software installation. They
are like other internet websites which investor can access from around the world through
normal internet connection.

Stock exchanges are like market places, where stockbrokers buy and sell securities for
individuals or institutions. As per the SCRA (Securities Contracts Regulation Act) 1956, the
definition of securities includes shares, bonds, stocks, debentures, government securities,
derivatives of securities, units of collective investment scheme (CIS) etc. The securities
market has two interdependent segments: the primary and secondary market.

The primary market is the channel for creation of new securities issued by public limited
companies or by government agencies. New securities issued in the primary market are
traded in the secondary market.

The secondary market operates through the over-the-counter (OTC) market and the exchange
trade market

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Advantages of Stocks Trading

1. Better returns
Actively trading stocks can produce better overall returns than simply buying and holding.

2. Huge Choice
There are thousands of stocks listed on markets around the world. There is always a stock
whose price is moving - it’s just a matter of finding them.

3. Familiarity
The most traded stocks are in the largest companies that most of us have heard of and
understand - Microsoft, IBM, and Cisco etc.

Disadvantages of Stocks Trading

1. Leverage
With a margined account the maximum amount of leverage available for stock trading is
usually 4:1. Meaning a $25,000 could trade up to $100,000 of stock. This is pretty low
compared to Forex trading or futures trading.

2. Pattern Day Trader Rules

It requires at least $25,000 to be held in a trading account if the trader completes more than 4
trades in a 5 day period. No such rule applies to Forex trading or futures trading.

3. Uptick Rule on Short Selling

A trader must wait until a stock price ticks up before they can short sell it. Again there are
no such rules in Forex trading or futures trading where going short are as easy as going long.

4. Need to Borrow Stock to Short

Stocks are physical commodities and if a trader wishes to go short then the broker must have
arrangements in place to borrow that stock from a shareholder until the trader closes their
position. This limits the opportunities available for short selling. Contrast this to futures
trading where selling is as easy as buying.

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5. Costs

Although online trading costs for stock trading are low they still add considerably to the
costs of day trading. Online futures trading are about 1/4 of the cost for the equivalent
value. In the UK 0.5% stamp duty is also levied on all share purchases making trading
virtually impossible, hence the popularity of spread betting.

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 CHAPTER- 2

COMPANY PROFILE

19
 COMPANY PROFILE

Sharekhan is one of the leading retail brokerage of Citi Venture which is

running successfully since 1922 in the country. Earlier it was the retail broking
arm of the Mumbai-based SSKI Group, which has over eight decades of
experience in the stock broking business. Share khan offers its customers a wide
range of equity related services including trade execution on BSE, NSE,
Derivatives, depository services, online trading, investment advice etc.

Earlier with a legacy of more than 80 years in the stock markets, the SSKI
group ventured
Into institutional broking and corporate finance 18 years ago. SSKI is one of the
leading players in institutional broking and corporate finance activities. SSKI
holds a sizeable portion of the market in each of these segments. SSKI’s
institutional broking arm accounts for 7% of the market for Foreign Institutional
portfolio investment and 5% of all Domestic Institutional portfolio investment
in the country.

It has 60 institutional clients spread over India, Far East, UK and US. Foreign
Institutional Investors generate about 65% of the organization’s revenue, with a
daily turnover of over US$ 2 million. The content-rich and research oriented
portal has stood out among its contemporaries because of its steadfast
dedication to offering customers best-of-breed technology and superior market
information. The objective has been to let customers make informed decisions
and to simplify the process of investing in stocks

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Mission of the Sharekhan is

“To educate and empower the individual investor to make better

investment decisions through”

 QUALITY ADVICE
 INNOVATIVE PRODUCTS and
 SUPERIOR SERVICE.”

WORK STRUCUTRE OF SHAREKHAN

Sharekhan has always believed in investing in technology to build its

business. The company has used some of the best-known names in the IT

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 industry, like Sun Microsystems, Oracle, Microsoft, Cambridge Technologies,
Nexgenix, Vignette, VeriSign Financial Technologies India Ltd, Spider
Software Pvt. Ltd. to build its trading engine and content. The Citi Venture
holds a majority stake in the company. HSBC, Intel & Carlyle are the other
investors.

On April 17, 2002 Sharekhan launched Speed Trade and Trade Tiger, are
net-based executable application that emulates the broker terminals along with
host of other information relevant to the Day Traders. This was for the first time
that a net-based trading station of this caliber was offered to the traders. In the
last six months Speed Trade has become a de facto standard for the Day
Trading community over the net. Sharekhan’s ground network includes over
700+ Shareshops in 130+ cities in India.

The firm’s online trading and investment site www.sharekhan.com - was

launched on Feb 8, 2000. The site gives access to superior content and
transaction facility to retail customers across the country. Known for its jargon-
free, investor friendly language and high quality research, the site has a
registered base of over 3 Lacs customers. The number of trading members
currently stands at over 7 Lacs. While online trading currently accounts for just
over 5 per cent of the daily trading in stocks in India, Sharekhan alone accounts
for 27 per cent of the volumes traded online.

The Corporate Finance section has a list of very prestigious clients and has
many ‘firsts’ to its credit, in terms of the size of deal, sector tapped etc. The
group has placed over US$ 5 billion in private equity deals. Some of the clients
include BPL Cellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia,
and Shopper’s Stop. Finally, Sharekhan shifted hands and Citi venture get holds
on it.

PRODUCT AND SERVICES OFFERD BY SHAREKHAN

1- Equity Trading Platform (Online/Offline).

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2- Commodities Trading Platform

3- (Online/Offline). 3- Portfolio

4- Management Service.

5- Mutual Fund Advisory and

Distribution.

6- Insurance Distribution.

7- Forex

REASON TO CHOOSE SAHREKHAN LIMITED

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Experience
SSKI has more than eight decades of trust and credibility in the Indian stock market. In the
Asia Money broker's poll held recently, SSKI won the 'India's best broking house for 2004'
award. Ever since it launched Sharekhan as its retail broking division in February 2000, it has
been providing institutional-level research and broking services to individual investors.

Technology
With their online trading account one can buy and sell shares in an instant from any PC with
an internet connection. Customers get access to the powerful online trading tools that will
help them to take complete control over their investment in shares.

Accessibility
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for
investors. These services are accessible through many centers across the country (Over 650
locations in 150 cities), over the Internet (through the website www.sharekhan.com) as well
as over the Voice Tool.
Knowledge
In a business where the right information at the right time can translate into direct profits,
investors get access to a wide range of information on the content-rich portal,
www.sharekhan.com. Investors will also get a useful set of knowledge-based tools that will
empower them to take informed decisions.
Convenience
One can call Sharekhan’s Dial-N-Trade number to get investment advice and execute his/her
transactions. They have a dedicated call-center to provide this service via a Toll Free Number
1800 22-7500 & 39707500 from anywhere in India.
Service
Its customer service team assist their customer for any help that they need relating to
transactions, billing, demat and other queries. Their customer service can be contacted via a
toll-free number, email or live chat on www.sharekhan.com.
Investment Advice
Sharekhan has dedicated research teams of more than 30 people for fundamental and
technical research. Their analysts constantly track the pulse of the market and provide timely
investment advice to customer in the form of daily research emails, online chat, printed
reports etc.

Benefits

 Free Depository A/c

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 Instant Cash Transfer
 Multiple Bank Option.
 Secure Order by Voice Tool Dial-n-Trade.
 Automated Portfolio to keep track of the value of your actual purchases.
 24x7 Voice Tool access to your trading account.
 Personalized Price and Account Alerts delivered instantly to your Mobile Phone &
E-mail address.

 Live Chat facility with Relationship Manager on Yahoo Messenger

 Special Personal Inbox for order and trade confirmations.
 On-line Customer Service via Web Chat.
 Enjoy Automated Portfolio.
 Buy or sell even single share
 Anytime Ordering.

ShareKhan offers the following products

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CLASSIC ACCOUNT
This is a User Friendly Product which allows the client to trade through website
www.sharekhan.com and is suitable for the retail investors who is risk-averse and hence
prefers to invest in stocks or who does not trade too frequently.

Features

 Online trading account for investing in Equity and Derivatives via

www.sharekhan.com

 Live Terminal and Single terminal for NSE Cash, NSE F&O & BSE.
 Integration of On-line trading, Saving Bank and Demat Account.
 Instant cash transfer facility against purchase & sale of shares.
 Competitive transaction charges.
 Instant order and trade confirmation by E-mail.
 Streaming Quotes (Cash & Derivatives).
 Personalized market watch.
 Single screen interface for Cash and derivatives and more.
 Provision to enter price trigger and view the same online in market watch.

SPEEDTRADE
SPEEDTRADE is an internet-based software application that enables you to buy and sell in
an instant. It is ideal for active traders and jobbers who transact frequently during day’s
session to capitalize on intra-day price movement.

Features
Instant order Execution and Confirmation

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  Single screen trading terminal for NSE Cash, NSE F&O & BSE.
 Technical Studies.
 Multiple Charting.
 Real-time streaming quotes, tic-by-tic charts.
 Market summary (Cost traded scrip, highest clue etc.)
 Hot keys similar to broker’s terminal.
 Alerts and reminders.
 Back-up facility to place trades on Direct Phone lines.
 Live market debts.
DIAL-N-TRADE
Along with enabling access for trade online, the CLASSIC and SPEEDTRADE ACCOUNT
also gives Dial-n-trade services. With this service, one can dial Sharekhan’s dedicated phone
lines 1800- 22-7500, 3970-7500. Beside this, Relationship Managers are always available on
Office Phone and Mobile to resolve customer queries.

SHARE MOBILE
Sharekhan had introduced Share Mobile, mobile based software where one can watch Stock
Prices, Intra Day Charts, Research & Advice and Trading Calls live on the Mobile. (As per
SEBI regulations, buying-selling shares through a mobile phone are not yet permitted.)

PREPAID ACCOUNT
Customers pay Advance Brokerage on trading Account and enjoy uninterrupted trading in
their Account. Beside this, great discount are also available (up to 50%) on brokerage.
Prepaid Classic Account: - Rs. 2000 Prepaid Speed trade Account: - Rs. 6000

IPO ON-LINE
Customers can apply to all the forthcoming IPOs online. This is quite hassle-free, paperless
and time saving. Simply allocate fund to IPO Account, Apply for the IPO and Sit Back &
Relax.

Mutual Fund Online

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Investors can apply to Mutual Funds of Reliance, Franklin Templeton Investments, ICICI
Prudential, SBI, Birla, Sundaram, HDFC, DSP Merrill Lynch, PRINCIPAL and TATA with
Sharekhan.

Zero Balance ICICI Saving Account

Sharekhan had tied-up with ICICI bank for Zero Balance Account for Sharekhan’s Clients.
Now their customers can have a Zero Balance Saving Account with ICICI Bank after your
demat account creation with Sharekhan.

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 CHAPTER-3

RESEARCH
METHODOLOGY

RESEARCH METHODOLOGY

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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. Our research study has following
objectives which are as follows :-
OBJECTIVES

 To provide the details of portfolio management services and how it works.

 To know about how PMS diversify the risk of investors
 To know about various factor that investor considered at the time of investment.

 To study about whether people are satisfied with Sharekhan Services &
Management system or not.

Scope of the Study

The study of the Portfolio Management Services is helpful in the

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 following areas.

 In today's complex financial environment, investors have unique needs

which are derived from their risk appetite and financial goals. But
regardless of this, every investor seeks to maximize his returns on
investments without capital erosion. Portfolio Management Services
(PMS) recognize this, and manage the investments professionally to
achieve specific investment objectives, and not to forget, relieving the
investors from the day to day hassles which investment require.

 It is offers professional management of equity investment of the investor

with an aim to deliver consistent return with an eye on risk.

 Identify the key Stock in each portfolio.

 To look out for new prospective customers who are willing to invest in PMS.

 To find out the Sharekhan, PMS services effectiveness in the current situation.

 It also covers the scenario of the Investment Philosophy of a Fund Manager.

METHODOLOGY FOR DATA COLLECTION

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 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 Sharekhan Limited. For the purpose of the study
100 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: Published materials of Sharekhan Limited. Such as
periodicals, journals, news papers, and website.

Duration of Study

The Study was carried out for the period of one and half months from
1st June to 31st July 2018.

SAMPLING PLAN

32
 Sampling:

Since Sharekhan 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 Sharekhan limited

 Sampling size:

A sample of hundred 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.

33
Field Study:

Directly approached respondents by the following strategies

Tele-calling
Personal Visits
Clients References
Promotional Activities
Database provided by the Sharekhan Limited.

34
 CHAPTER-4

PORTFOLIO
MANAGMENT
SERVICES

PORTFOLIO MANGEMNT SERVICES (PMS)

35
Portfolio (finance) means a collection of investments held by an institution or a private
individual. Holding a portfolio is often part of an investment and risk-limiting strategy called
diversification. By owning several assets, certain types of risk (in particular specific risk) can
be reduced. There are also portfolios which are aimed at taking high risks – these are called
concentrated portfolios.

Investment management is the professional management of various securities (shares, bonds

etc) and other assets (e.g. real estate), 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 and ongoing monitoring of investments.
Outside of the financial industry, the term "investment management" is often applied to
investments other than financial instruments. Investments are often meant to include projects,
brands, patents and many things other than stocks and bonds. Even in this case, the term
implies that rigorous financial and economic analysis methods are used.

Need of PMS

36
As in the current scenario the effectiveness of PMS is required. As the PMS gives investors
periodically review their asset allocation across different assets as the portfolio can get
skewed over a period of time. This can be largely due to appreciation / depreciation in the
value of the investments.

As the financial goals are diverse, the investment choices also need to be different to meet
those needs. No single investment is likely to meet all the needs, so one should keep some
money in bank deposits and / liquid funds to meet any urgent need for cash and keep the
balance in other investment products/ schemes that would maximize the return and minimize
the risk. Investment allocation can also change depending on one’s risk-return profile.

Objective of PMS

37
There are the following objectives which are full filled by Portfolio Management Services.
1. Safety Of Fund: -
The investment should be preserved, not be lost, and should remain in the returnable position
in cash or kind.

2. Marketability: -
The investment made in securities should be marketable that means, the securities must be
listed and traded in stock exchange so as to avoid difficulty in their encashment.

3. Liquidity: -
The portfolio must consist of such securities, which could be en-cashed without any difficulty
or involvement of time to meet urgent need for funds. Marketability ensures liquidity to the
portfolio.

4. Reasonable return: -
The investment should earn a reasonable return to upkeep the declining value of money and
be compatible with opportunity cost of the money in terms of current income in the form of
interest or dividend.

5. Appreciation in Capital: -
The money invested in portfolio should grow and result into capital gains.

6. Tax planning: -
Efficient portfolio management is concerned with composite tax planning covering income
tax, capital gain tax, wealth tax and gift tax.

7. Minimize risk: -
Risk avoidance and minimization of risk are important objective of portfolio management.
Portfolio managers achieve these objectives by effective investment planning and periodical
review of market, situation and economic environment affecting the financial market.

PORTFOLIO CONSTRUCTION

38
The Portfolio Construction of Rational investors wish to maximize the returns on their funds
for a given level of risk. All investments possess varying degrees of risk. Returns come in the
form of income, such as interest or dividends, or through growth in capital values (i.e. capital
gains).

The portfolio construction process can be broadly characterized as comprising the following
steps:

1. Setting objectives.

The first step in building a portfolio is to determine the main objectives of the fund given the
constraints (i.e. tax and liquidity requirements) that may apply. Each investor has different
objectives, time horizons and attitude towards risk. Pension funds have long-term obligations
and, as a result, invest for the long term. Their objective may be to maximize total returns in
excess of the inflation rate. A charity might wish to generate the highest level of income
whilst maintaining the value of its capital received from bequests. An individual may have
certain liabilities and wish to match them at a future date. Assessing a client’s risk tolerance
can be difficult. The concepts of efficient portfolios and diversification must also be
considered when setting up the investment objectives.

2. Defining Policy.

Once the objectives have been set, a suitable investment policy must be established. The
standard procedure is for the money manager to ask clients to select their preferred mix of
assets, for example equities and bonds, to provide an idea of the normal mix desired. Clients
are then asked to specify limits or maximum and minimum amounts they will allow to be
invested in the different assets available. The main asset classes are cash, equities, gilts/bonds
and other debt instruments, derivatives, property and overseas assets. Alternative
investments, such as private equity, are also growing in popularity, and will be discussed in a
later chapter. Attaining the optimal asset mix over time is one of the key factors of successful
investing.

39
 3. Applying portfolio strategy.

At either end of the portfolio management spectrum of strategies are active and passive
strategies. An active strategy involves predicting trends and changing expectations about the
likely future performance of the various asset classes and actively dealing in and out of
investments to seek a better performance. For example, if the manager expects interest rates
to rise, bond prices are likely to fall and so bonds should be sold, unless this expectation is
already factored into bond prices. At this stage, the active fund manager should also
determine the style of the portfolio. For example, will the fund invest primarily in companies
with large market capitalizations, in shares of companies expected to generate high growth
rates, or in companies whose valuations are low? A passive strategy usually involves buying
securities to match a preselected market index. Alternatively, a portfolio can be set up to
match the investor’s choice of tailor-made index. Passive strategies rely on diversification to
reduce risk. Outperformance versus the chosen index is not expected. This strategy requires
minimum input from the portfolio manager. In practice, many active funds are managed
somewhere between the active and passive extremes, the core holdings of the fund being
passively managed and the balance being actively managed.

4. Asset selections.
Once the strategy is decided, the fund manager must select individual assets in which to
invest. Usually a systematic procedure known as an investment process is established, which
sets guidelines or criteria for asset selection. Active strategies require that the fund managers
apply analytical skills and judgment for asset selection in order to identify undervalued assets
and to try to generate superior performance.

5. Performance assessments.
In order to assess the success of the fund manager, the performance of the fund is periodically
measured against a pre-agreed benchmark – perhaps a suitable stock exchange index or
against a group of similar portfolios (peer group comparison). The portfolio construction
process is continuously iterative, reflecting changes internally and externally. For example,
expected movements in exchange rates may make overseas investment more attractive,
leading to changes in asset allocation. Or, if many large-scale investors simultaneously decide
to switch from passive to more active strategies, pressure will be put on the fund managers to
offer more active funds.

Poor performance of a fund may lead to modifications in individual asset holdings or, as an
extreme measure; the manager of the fund may be changed altogether.

40
Steps to Stock Selection Process

Types of assets

The structure of a portfolio will depend ultimately on the investor’s objectives and on the
asset selection decision reached. The portfolio structure takes into account a range of factors,
including the investor’s time horizon, attitude to risk, liquidity requirements, tax position and
availability of investments. The main asset classes are cash, bonds and other fixed income
securities, equities, derivatives, property and overseas assets.

Cash and cash instruments

Cash can be invested over any desired period, to generate interest income, in a range of
highly liquid or easily redeemable instruments, from simple bank deposits, negotiable
certificates of deposits, commercial paper (short term corporate debt) and Treasury bills
(short term government debt) to money market funds, which actively manage cash resources

41
across a range of domestic and foreign markets. Cash is normally held over the short term
pending use elsewhere (perhaps for paying claims by a non-life insurance company or for
paying pensions), but may be held over the longer term as well. Returns on cash are driven by
the general demand for funds in an economy, interest rates, and the expected rate of inflation.
A portfolio will normally maintain at least a small proportion of its funds in cash in order to
take advantage of buying opportunities.

Bonds

Bonds are debt instruments on which the issuer (the borrower) agrees to make interest
payments at periodic intervals over the life of the bond – this can be for two to thirty years or,
sometimes, in perpetuity. Interest payments can be fixed or variable, the latter being linked to
prevailing levels of interest rates. Bond markets are international and have grown rapidly
over recent years. The bond markets are highly liquid, with many issuers of similar standing,
including governments (sovereigns) and state-guaranteed organizations. Corporate bonds are
bonds that are issued by companies. To assist investors and to help in the efficient pricing of
bond issues, many bond issues are given ratings by specialist agencies such as Standard &
Poor’s and Moody’s. The highest investment grade is AAA, going all the way down to D,
which is graded as in default. Depending on expected movements in future interest rates, the
capital values of bonds fluctuate daily, providing investors with the potential for capital gains
or losses. Future interest rates are driven by the likely demand/ supply of money in an
economy, future inflation rates, political events and interest rates elsewhere in world markets.
Investors with short-term horizons and liquidity requirements may choose to invest in bonds
because of their relatively higher return than cash and their prospects for possible capital
appreciation. Long-term investors, such as pension funds, may acquire bonds for the higher
income and may hold them until redemption – for perhaps seven or fifteen years. Because of
the greater risk, long bonds (over ten years to maturity) tend to be more volatile in price than
medium- and short-term bonds, and have a higher yield.

Equities

Equity consists of shares in a company representing the capital originally provided by

shareholders. An ordinary shareholder owns a proportional share of the company and an
ordinary share carries the residual risk and rewards after all liabilities and costs have been
paid. Ordinary shares carry the right to receive income in the form of dividends (once
declared out of distributable profits) and any residual claim on the company’s assets once its
liabilities have been paid in full. Preference shares are another type of share capital. They
differ from ordinary shares in that the dividend on a preference share is usually fixed at some
amount and does not change. Also, preference shares usually do not carry voting rights and,
in the event of firm failure, preference shareholders are paid before ordinary shareholders.
Returns from investing in equities are generated in the form of dividend income and capital
gain arising from the ultimate sale of the shares. The level of dividends may vary from year

42
to year, reflecting the changing profitability of a company. Similarly, the market price of a
share will change from day to day to reflect all relevant available information. Although not
guaranteed, equity prices generally rise over time, reflecting general economic growth, and
have been found over the long term to generate growing levels of income in excess of the rate
of inflation. Granted, there may be periods of time, even years, when equity prices trend
downwards – usually during recessionary times. The overall long-term prospect, however, for
capital appreciation makes equities an attractive investment proposition for major
institutional investors.

Derivatives

Derivative instruments are financial assets that are derived from existing primary assets as
opposed to being issued by a company or government entity. The two most popular
derivatives are futures and options. The extent to which a fund may incorporate derivatives
products in the fund will be specified in the fund rules and, depending on the type of fund
established for the client and depending on the client, may not be allowable at all.

A futures contract is an agreement in the form of a standardized contract between two

counterparties to exchange an asset at a fixed price and date in the future. The underlying
asset of the futures contract can be a commodity or a financial security. Each contract
specifies the type and amount of the asset to be exchanged, and where it is to be delivered
(usually one of a few approved locations for that particular asset). Futures contracts can be set
up for the delivery of cocoa, steel, oil or coffee. Likewise, financial futures contracts can
specify the delivery of foreign currency or a range of government bonds. The buyer of a
futures contract takes a ‘long position’, and will make a profit if the value of the contract rises
after the purchase. The seller of the futures contract takes a ‘short position’ and will, in turn,
make a profit if the price of the futures contract falls. When the futures contract expires, the
seller of the contract is required to deliver the underlying asset to the buyer of the contract.
Regarding financial futures contracts, however, in the vast majority of cases no physical
delivery of the underlying asset takes place as many contracts are cash settled or closed out
with the offsetting position before the expiry date.

An option contract is an agreement that gives the owner the right, but not obligation, to buy
or sell (depending on the type of option) a certain asset for a specified period of time. A call
option gives the holder the right to buy the asset. A put option gives the holder the right to
sell the asset. European options can be exercised only on the options’ expiry date. US options
can be exercised at any time before the contract’s maturity date. Option contracts on stocks or
stock indices are particularly popular. Buying an option involves paying a premium; selling
an option involves receiving the premium. Options have the potential for large gains or
losses, and are considered to be high-risk instruments. Sometimes, however, option contracts
are used to reduce risk. For example, fund managers can use a call option to reduce risk when
they own an asset. Only very specific funds are allowed to hold options.

43
Property

Property investment can be made either directly by buying properties, or indirectly by buying
shares in listed property companies. Only major institutional investors with long-term time
horizons and no liquidity pressures tend to make direct property investments. These
institutions purchase freehold and leasehold properties as part of a property portfolio held for
the long term, perhaps twenty or more years. Property sectors of interest would include
prime, quality, well-located commercial office and shop properties, modern industrial
warehouses and estates, hotels, farmland and woodland. Returns are generated from annual
rents and any capital gains on realization. These investments are often highly illiquid.

44
 Risk and Risk Aversion

Portfolio theory also assumes that investors are basically risk adverse, meaning that, given a
choice between two assets with equal rates of return they will select the asset with lower level
of risk.
For example, they purchased various type of insurance including life insurance, Health
insurance and car insurance. The Combination of risk preference and risk aversion can be
explained by an attitude toward risk that depends on the amount of money involved.
A discussion of portfolio or fund management must include some thought given to the
concept of risk. Any portfolio that is being developed will have certain risk constraints
specified in the fund rules, very often to cater to a particular segment of investor who
possesses a particular level of risk appetite. It is, therefore, important to spend some time
discussing the basic theories of quantifying the level of risk in an investment, and to attempt
to explain the way in which market values of investments are determined

Definition of Risk

Although there is a difference in the specific definitions of risk and uncertainty, for our
purpose and in most financial literature the two terms are used interchangeably. In fact, one
way to define risk is the uncertainty of future outcomes. An alternative definition might be
the probability of an adverse outcome.
Composite risks involve the different risk as explained below:-

(1). Interest rate risk: -

It occurs due to variability cause in return by changes in level of interest rate. In long runs all
interest rate move up or downwards. These changes affect the value of security. RBI, in
India, is the monitoring authority which effectalises the change in interest rate. Any upward
revision in interest rate affects fixed income security, which carry old lower rate of interest
and thus declining market value. Thus it establishes an inverse relationship in the prize of
security.

TYPES RISK EXTENT

Cash equivalent Less vulnerable to interest rate risk

45
 Long term Bond More vulnerable to interest rate risk.

(2) Purchasing power risk:

It is known as inflation risk also. This risk emanates from the very fact that inflation affects
the purchasing power adversely. Purchasing power risk is more in inflationary times in bonds
and fixed income securities. It is desirable to invest in such securities during deflationary
period or a period of decelerating inflation. Purchasing power risk is less in flexible income
securities like equity shares or common stuffs where rise in dividend income offset increase
in the rate of inflation and provide advantage of capital gains.

(3) Business risk:

Business risk emanates from sale and purchase of securities affected by business cycles,
technological change etc. Business cycle affects all the type of securities viz. there is cheerful
movement in boom due to bullish trend in stock prizes where as bearish trend in depression
brings downfall in the prizes of all types of securities. Flexible income securities are nearly
affected than fix rate securities during depression due to decline n the market prize.

(4) Financial risk:

Financial risk emanates from the changes in the capital structure of the company. It is also
known as leveraged risk and expressed in term of debt equity ratio. Excess of debts against
equity in the capital structure indicates the company to be highly geared or highly levered.
Although leveraged company’s earnings per share (EPS) are more but dependence on
borrowing exposes it to the risk of winding up. For, its inability to the honor its commitments
towards the creditors are most important.

Here it is imperative to express the relationship between risk and return, which is depicted
graphically below

46
Maximize returns, minimize risks

47
 RISK VERSUS RETURN

Risk versus return is the reason why investors invest in portfolios. The ideal goal in portfolio
management is to create an optimal portfolio derived from the best risk– return opportunities
available given a particular set of risk constraints. To be able to make decisions, it must be
possible to quantify the degree of risk in a particular opportunity. The most common method
is to use the standard deviation of the expected returns. This method measures spreads, and it
is the possible returns of these spreads that provide the measure of risk. The presence of risk
means that more than one outcome is possible. An investment is expected to produce
different returns depending on the set of circumstances that prevail.

. For example, given the following for Investment A:

Circumstance Return(x) Probability(p)

I 10% 0.2
II 12% 0.3
III 15% 0.4
IV 19% 0.1

It is possible to calculate:

1. The expected (or average) return

Mean (average) = x = expected value (EV) = ∑px

Circumstan Return(x) Probability(p) px

ce
I 10% 0.2 2.0
II 12% 0.3 3.6
III 15% 0.4 6.0
IV 19% 0.1 1.9

48
Expected Return (∑px) = 13.5%

1. The Standard deviation

Standard deviation =σ=√ ∑p(x- x) 2

Also. Variance (VAR) is equal to the standard deviation squared or σ2

Deviation from
Circumstance Return Probability

expected Return (x p (x -x)2

-x)
I 10% 0.2 -3.5% 2.45
II 12% 0.3 -1.5% .68
III 15% 0.4 +1.5% 1.90
IV 19% 0.1 +5.5% 3.03

VARAIANCE= 7.06

Standard deviation (σ) = √Variance

= √ 7.06

49
= 2.66%

The standard deviation is a measure of risk, whereby the greater the standard
deviation, the greater the spread, and the greater the spread, the greater the risk.

If the above exercise were to be performed using another investment that offered the
same expected return, but a different standard deviation, then the following result
might occur:

If the above exercise were to be performed using another investment that offered the
same expected return, but a different standard deviation, then the following result
might occur:

Plan Expected Return Risk(standard deviation)

Investment A 9% 2.5%
Investment B 9% 4.0%

Since both investments have the same expected return, the best selection of investment
would be Investment A, which provides the lower risk. Similarly, if there are two
investments presenting the same risk, but one has a higher return than the other, that
investment would be chosen over the investment with the lower return for the same
risk.

In the real world, there are all types of investors. Some investors are completely risk
averse and others are willing to take some risk, but expect a higher return for that risk.
Different investors will also have different tolerances or threshold levels for risk– return
trade-offs – i.e. for a given level of risk, one investor may demand a higher rate of
return than another investor.

50
INDIFFERNCE CURVE

Suppose the following situation exists

Plan Expected Return Risk(Standard Deviation)

Investment A 10% 5%
Investment B 20% 10%

The question to ask here is, does the extra 10% return compensate for the extra risk?
There is no right answer, as the decision would depend on the particular investor’s
attitude to risk. A particular investor’s indifference curve can be ascertained by plotting
what rate of return the investor would require for each level of risk to be indifferent
amongst all of the investments.

For example, there may be an investor who can obtain a return of 50% with zero risk
and a return of 55 %with a risk or standard deviation of 5% who will be indifferent
between the two investments. If further investments were considered, each with a higher
degree of risk, the investor would require still higher returns to make all of the
investments equally attractive. The investor being discussed could present the following
as the indifference curve shown in Figure.

Indifference Curve

Expected Return Risk

50% 0%
55% 5%
70% 10%
100% 15%

51
 120% 18%
230% 25%

Indifference curve

It could be the case that this investor would have different indifference curves given a
different starting level of return for zero risk. The exercise would need to be repeated
for various levels of risk–return starting points. An entire set of indifference curves
could be constructed that would portray a particular investor’s attitude towards risk.

52
Utility is enhanced by high expected returns and diminished by high risk. Investors choosing
amongst competing investment portfolios will select the one providing the highest utility
value. Thus, in the example above, the investor will select the investment (portfolio) with the
higher utility value of 18.

Expected Return(EV) Standard deviation(σ) Utility=EV-.005Aσ2

10% 5% 10 –.005 4 25 = 9.5

20% 10% 20 –.005 4 100 = 18

(Assume A= 4 in this case)

53
 Portfolio Diversification

There are several different factors that cause risk or lead to variability in returns on an
individual investment. Factors that may influence risk in any given investment vehicle
include uncertainty of income, interest rates, inflation, exchange rates, tax rates, the state of
the economy, default risk and liquidity risk (the risk of not being able to sell on the
investment). In addition, an investor will assess the risk of a given investment (portfolio)
within the context of other types of investments that may already be owned, i.e. stakes in
pension funds, life insurance policies with savings components, and property.

One way to control portfolio risk is via diversification, whereby investments are made in a
wide variety of assets so that the exposure to the risk of any particular security is limited.
This concept is based on the old adage ‘do not put all your eggs in one basket’. If an investor
owns shares in only one company, that investment will fluctuate depending on the factors
influencing that company. If that company goes bankrupt, the investor might lose 100 per
cent of the investment. If, however, the investor owns shares in several companies in
different sectors, then the likelihood of all of those companies going bankrupt simultaneously
is greatly diminished. Thus, diversification reduces risk. Although bankruptcy risk has been
considered here, the same principle applies to other forms of risk.

RISK –RETURN MATRIX

54
It is a fact of investing that there is a trade-off between the return on an investment and the
risk inherent in an investment. Higher long-term average returns are usually associated with
higher short-term volatility of returns. The diagram below depicts this principle.
The chart is not meant to be accurate but gives an indication of STANLIB’s expectations in
terms of the return / risk characteristics that face each asset class over time. You can mouse
over each asset class dot to get a brief risk-return description, or click on the asset class name
to go to our portfolio offering relevant to that asset class.

Covariance and Correlation

The goal is to hold a group of investments or securities within a portfolio potentially to

reduce the risk level suffered without reducing the level of return. To measure the success of
a potentially diversified portfolio, covariance and correlation are considered. Covariance
measures to what degree the returns of two risky assets move in tandem. A positive
covariance means that the returns of the two assets move together, whilst a negative
covariance means that they move in inverse directions.

Covariance

COV(x, y) = ∑p(x-x) (y-y) for two investments x and y, where p is the probability.

55
Covariance is an absolute measure, and covariances cannot be compared with one another.
To obtain a relative measure, the formula for correlation coefficient [r] is used.

Correlation coefficient r = COVxy

σxσy

To illustrate the above, here is the example:

Circumstance Probability x-x y-y

∑p(x-x) (y-y)
I 0.2 +1.0 -3.5 -0.7
II 0.3 0 -1.5 0
III 0.4 +1.5 +1.5 0.9
IV 0.1 -4 +5.5 -2.2
COVxy =-2.0

For data regarding (y – y), see earlier example. Assume that a similar exercise has been
run for data regarding (x – x). Assume the variance or σ2 of x= 2.45, and the variance
or σ2 of y = 7.06. Thus, the correlation coefficient would be
r= -2.0 = -0.481

√ 2.45 *√7.056

If, the same example is run again, but using a different set of numbers for y, a different
correlation coefficient might result of say, –0.988. It can be concluded that a large
negative correlation confirms the strong tendency of the two investments to move
inversely.

56
Perfect positive correlation (correlation coefficient = +1) occurs when the returns from
two securities move up and down together in proportion. If these securities were
combined in a portfolio, the ‘offsetting’ effect would not occur.

Perfect negative correlation (correlation coefficient = –1) takes place when one security
moves up and the other one down in exact proportion. Combining these two securities
in a portfolio would increase the diversification effect.

Uncorrelated (correlation coefficient = 0) occurs when returns from two securities move
independently of each other – that is, if one goes up, the other may go up or down or
may not move at all. As a result, the combination of these two securities in a portfolio
may or may not create a diversification effect. However, it is still better to be in this
position than in a perfect positive correlation situation.

Unsystematic and systematic risk

As mentioned previously, diversification diminishes risk: the more shares or assets held in a
portfolio or in investments, the greater the risk reduction. However, it is impossible to
eliminate all risk completely even with extensive diversification. The risk that remains is
called market risk; the risk that is caused by general market influences. This risk is also
known as systematic risk or non-diversifiable risk. The risk that is associated with a specific
asset and that can be abolished with diversification is known as unsystematic risk, unique risk
or diversifiable risk.

Total risk = Systematic risk + Unsystematic risk

Systematic risk = the potential variability in the returns offered by a security or asset caused
by general market factors, such as interest rate changes, inflation rate movements, tax rates,
state of the economy.

Unsystematic risk = the potential variability in the returns offered by a security or asset
caused by factors specific to that company, such as profitability margins, debt levels, quality
of management, susceptibility to demands of customers and suppliers.
As the number of assets in a portfolio increases, the total risk may decline as a result of the
decline in the unsystematic risk in that portfolio. The relationship amongst these risks can be
quantified as follows

57
TR2 = SR2 + UR2 or σ2 =i σ 2 +s σ 2 u

Where:
σ¡ = the investment’s total risk (standard deviation) σs = the investment‘s systematic risk
σu =the investment’s unsystematic risk

The correlation coefficient between two investment opportunities can be expressed as:

σs = σi CORim
Where,
σs = the investment systematic risk
σi = the investment’s total risk (systematic and unsystematic)

CORim = the correlation coefficient between the return of the investment and those of the
market.

If an investment were perfectly correlated to the market so that all its movements could be
fully explained by movements in market, then all of the risk would be systematic & σi = σ s
If an investment were not correlated at all to the market, then all of its risk would be
unsystematic

58
 TECHNOQUES OF PORTFOLIO MANAGEMENT

Various types of portfolio require different techniques to be adopted to achieve the desired
objectives. Some of the techniques followed in India by portfolio managers are summarized
below.

(1). Equity portfolio-

Equity portfolio is affected by internal and external factors:

(a) Internal factors –

Pertain to the inner working of the particular company of which equity shares are held. These
factors generally include:

(1) Market value of shares

(2) Book value of shares
(3) Price earnings ratio (P/E ratio)
(4) Dividend payout ratio

(b) External factors –

59
 (1) Government policies
(2) Norms prescribed by institutions
(3) Business environment
(4) Trade cycles

(2). Equity stock analysis –

The basic objective behind the analysis is to determine the probable future – value of the
shares of the concerned company. It is carried out primarily fewer than two ways. :

(a) Earnings per share

(b) Price earnings ratio

(A) Trend of earning: -

 A higher price-earnings ratio discount expected profit growth. Conversely, a

downward trend in earning results in a low price-earnings ratio to discount
anticipated decrease in profits, price and dividend. Rising EPS causes appreciation
in price of shares, which benefits investors in lower tax brackets? Such investors
have not pay tax or to give lower rate tax on capital gains.

 Many institutional investor like stability and growth and support high EPS.

 Growth of EPS is diluted when a company finances internally its expansion

program and offers new stock.

 EPS increase rapidly and result in higher P/E ratio when a company finances its
expansion program from internal sources and borrowings without offering new
stock.

(B) Quality of reported earning: -

Quality of reported earnings affects P/E ratio. The factors that affect the quality of reported
earnings are as under:

60
  Depreciation allowances: -
Larger (Non Cash) deduction for depreciation provides more funds to company to finance
profitable expansion schemes internally. This builds up future earning power of company.

 Research and development outlets: -

There is higher P/E ratio for a company, which carries R&D programs. R&D enhances profit
earning strength of the company through increased future sales.

 Inventory and other non-recurring type of profit: -

Low cost inventory may be sold at higher price due to inflationary conditions among profit
but such profit may not always occur and hence low P/E ratio.

(C) Dividend policy: -

Dividend policy is significant in affecting P/E ratio. With higher dividend ratio, equity price
goes up and thus raises P/E ratio. Dividend rates are raised to push in share prices up.
Dividend cover is calculated to find out the time the dividend is protected, In terms of
earnings. It is calculated as under:
Dividend Cover = EPS / Dividend per Share

(D) Investors demand: -

Demand from institutional investors for equity also enhances the P/E ratio.

(3) Quality of management: - Investors decide about the ability and caliber of
management and hold and dispose of equity academy. P/E ratio is more where a
company is managed by reputed entrepreneurs with good past records of management
performance.

Types of Portfolios

61
The different types of Portfolio which is carried by any Fund Manager to maximize profit and
minimize losses are different as per their objectives .They are as follows.

Aggressive Portfolio:

Objective: Growth. This strategy might be appropriate for investors who seek High growth
and who can tolerate wide fluctuations in market values, over the short term.

Growth Portfolio:

Objective: Growth. This strategy might be appropriate for investors who have a preference
for growth and who can withstand significant fluctuations in market value.

Balanced Portfolio:

62
Objective: Capital appreciation and income. This strategy might be appropriate for investors
who want the potential for capital appreciation and some growth, and who can withstand
moderate fluctuations in market values

Conservative Portfolio:

Objective: Income and capital appreciation. This strategy may be appropriate for investors
who want to preserve their capital and minimize fluctuations in market value.

63
 Sharekhan Portfolio Management Services

PMS

PRO TECH

PRO PRIME

Pro Prime

64
Product Approach

Investment will be keeping in mind 3 investment tenets.

1. Consistent, steady and sustainable returns.

2. Margin of Safety

3. Low Volatility

Product offering

Pro Prime is the ideal for investors looking at steady and superior with low and medium risk
appetite.
The portfolio consists of a blend of quality blue chip and growth stocks ensuring a balanced
portfolio with relatively medium risk profile.
The portfolio constitutes of relatively large capitalization stocks, based on sector and themes
which have medium to long term growth potential.
Product Characteristics

 Bottom up stock selection

 In depth ,independent fundamental research

 High quality companies with relatively large capitalization

65
  Disciplined valuation approach applying multiple valuation measure.

 Medium to long term vision, resulting in low portfolio turnover.

How to invest?

 Minimum Investment : 10 Lacs

 Lock in : 6 months

 Reporting: Access to website showing clients holding .Monthly

reporting of portfolio holding /transaction.

 Charges: 2.5% pa AMC (Annual Maintenances Charges) fees charged

every quarter ,0.5% brokerage ,20% profit sharing after 15% hurdle is
crossed chargeable at the end of fiscal year.

Pro Arbitrage

Product Approach

An opportunity lies in basis which is the difference between cash and future.Whenever basis
is high we buy the stocks and sell the future to lock in difference .The difference is bound to
be zero at expiry.

Product Offered

Cash –future arbitrage:

The product intends to spot low risk opportunities which will yield more than the
normal low risk product .Whenever such opportunity is spotted stocks will be
boughtand to lock in the basis, future will be sold .This position will be liquated in
the expiry or before that if the basis vanishes early .Similarly the scheme will
move on from opportunity to opportunity

66
Product Characteristics

Low –Risk: This is relatively low risk product which can be compared with liquid funds
issued by mutual funds.
High return: Compared with other low risk products, this products offers an indicative post
tax return of 8 to 10% plus.
Product Details

 Minimum Investment:Rs.1 Crore

 Lock in :6 months
 Reporting: Fortnightly for portfolio Net worth, Monthly reporting pf portfolio
Holding /transaction.

 Charges: 0.035% brokerage for future ,0.07% for delivery

Pro Tech

Protech using the knowledge of technique analysis and the power of depravities markets to
identify trading opportunities in the market .The protech line of the product is designed
around various risk /reward /volatility profiles for the different kind of investment needs.
Product Approach

Better performance is possible from superior market timing and from picking stocks before
inflation points in their trading cycles .Linear return are possible from having hedged/ sell
market positions in downtrends .Absolute return are targeted by focusing on finding trading
opportunities & not out performance of an index.

Product offered

1. Nifty Thirty :

Nifty futures will be bought and sold on the basis of an automated trading system generated
calls to go long/short. The exposure will never exceed the value of portfolio i.e. no

67
leveraging; but allows us to be short /hedged in Nifty in falling market therefore allowing the
client to earn irrespective of the market direction.

2. Beta Portfolio :

Positional trading opportunities are identified in the future segment based on technical
analysis .Inflection points in the momentum cycles are identified to go long /short on
stock/index futures with 1-2 months time horizon .The idea is to generate the best possible
return in the medium term irrespective of the direction of the market without really
leveraging beyond the portfolio value. Risk protection is done based on stop losses on daily
closing prices.

3. Star Nifty:

Swing trading technique and Dow theory is used to identify short –term reversal levels for
Nifty futures and ride with trend both on the long and short side .This return can be earned in
bull and bear market .Stop and reverse means to reverse ones position from long to short or
vice a versa at the reversal levels simultaneously .The exposure never exceeds value of
portfolio i.e. there is no leveraging.

4. Trailing Stops: Momentum trading techniques are used to spot short –term
momentum of 5- 10 days in stocks and stocks /index futures .Trailing stop loss
method of risk management or profit protection is used to lower the portfolio
volatility and maximize return .Trading opportunities are exposed both on the long
side and the short side as the market demands to get the best of both upward and
downward trends.

Product Characteristics

68
 Using swing based index –trading systems stop and reverse .trend following and
momentum trading technique.
 Nifty based products for low impact cost and low product volatility
 Both long and short strategies to earn returns even in falling market.
 Trading in future market to allow for active risk protection using trailing stop
losses.

How to invest?

 Minimum : Rs.10 Lacs

 Lock in : 6 months
 Reporting: Fortnightly reporting of portfolio Net Worth, monthly reporting
of portfolio Holding /Transaction.
 Charges: 0% AMC (Annual Maintenance Charges), 0.05% brokerage for
derivatives, 20% profit sharing on booked profit quarterly basis

Protech Performance Report

69
 Nifty Thrifty:

NIFTY THRIFTY

Date N Se
A ns
V ex

01/0 10 98
2/20 .0 59
0 0 .2
6 6

29/0 19 11
4/20 .4 40
0 3 3.
9 2
5

Retu 94 15
rns .3 .6
(%) 0 6

How it works:
Our first product is based completely on a mathematical model with zero human intervention.
This product has come out of its fifth draw-down period (in 28 years of back testing) and the
net asset value (NAV) is taking off to new heights.

Beta portfolio:

BETA PORTFOLIO

Date NAV Sensex

70
 03/08/200 10.00 15138.4
7 0

29/04/200 13.81 11403.2

9 5

Returns (%) 38.10 -24.67

How it works:

Our product is based on positional trading with a long and short model investing in plain
vanilla stock futures. In this, we identify stocks with greater risk-reward ratios with a time
horizon of 1 to 2 months, based on the prevalent market situation.
Trailing Stops:

TRAILING STOPS

NAV Sensex

20/10/2007 10.00 17559.98

24/04/2009 15.32 9708.50

Returns (%) 43.50 -35.06

How it works:

The trading strategy is to buy short-term momentum over a time frame of 1 to 5 days and
then book small profits consistently.

71
 CHAPTER - 5

DATA ANALYSIS AND

INTERPRETATION

72
 1. Do you know about the Investment Option available?

Interpretation

As the above table shows the knowledge of Investor out of 100 respondent carried throughout
the Hyderabad Area is only 85%. The remaining 15% take his/her residential property as an

73
investment. According to law purpose this is not an investment because of it is not create any
profit for the owner. The main problem is that in this time from year 2008-2009 , the
recession and the Inflation make the investor think before investing a even a Rs. 100.So , it
also create the problem for the Investor to not take interest in Investment option.

2. What is the basic purpose of your Investments?

Interpretation

As with the above analysis, it is found 75% people are interested in liquidity, returns and tax
benefits. And remaining 25% are interested in capital appreciations, risk covering, and others.
In the entire respondent it is common that this time everyone is looking for minimizing the
risk and maximizing their profit with the short time of period.

74
As explaining them About the Portfolio Management Services of Sharekhan, they were quite
interested in Protech Services.

3. What is the most important factor you consider at the time of Investment?

Interpretation

As the above analysis gives the clear idea that most of the Investors considered the market
factor as around 12% for Risk and 23% Return, but most important common things in all are
that they are even ready for taking both Risk and Return in around 65% investor.

75
Moreover, the Market is fluctuating now days, so as it also getting improvement.
So, Investor are looking for Investment in long term and Short-term.

4. From which option you will get the best returns?

Interpretation

Most of the respondents say they will get more returns in Share Market. Since Share Market
is said to be the best place to invest to get more returns. The risk in the investment is also
high.

76
Similarly, the Investor are more Interested in Investing their money in Mutual Fund Schemes
as that is also very important financial product due to its nature of minimizing risk and
maximizing the profit. As the commodities market is doing well from last few months so
Investor also prefer to invest their money in Commodities Market basically in GOLD
nowadays.
Moreover, even who don’t want to take Risk they are looking for investing in Fixed Deposit
for long period of time.

5. “Investing in PMS is far safer than Investing in Mutual Fund”. Do you agree?

Interpretation

In the above graphs it’s clear that 24% of respondent out of hundred feel that investing their
money in Mutual Fund Scheme are far safer than Investing in PMS. this is because of lack of
proper information about the Portfolio management services. As the basis is same for the
mutual fund and PMS but the investment pattern is totally different from each other and
which depends upon different risk factor available in both the Financial Products.

77
 6. How much you carry the expectation in Rise of your Income from
Investments?

Interpretation

The optimism is shown in the attitude of the respondents. The confidence was appreciable
with which they are looking forward to a rise in their investments. Major part of the sample
feels that the rise would be of around 15%. Only 8% of the respondents were confident
enough to expect a rise of upto 35%.

78
As all the respondents were considering the Risk factor also before filling the questionnaire
and they were asking about the performance report of all the PMS services offered by
Sharekhan limited.

7. If you invested in Share Market, what has been your experience?

Interpretation

20% of the respondents have invested in Share market and received satisfactory returns, 40%
of the respondents have not at all invested in Share Market. Some of the investors face
problems due to less knowledge about the market. Some of the respondents don’t have
complete overview of the happenings and invest their money in wrong shares which result in
Loss. This is the reason most of the respondents prefer Portfolio Management Services to

79
trade now a days, which gives the Investor the clear idea when is the right time to buy and
right time to sell the shares which is recommended by their Fund Manger.

8. How do you trade in Share Market?

Interpretation

80
As we know that Share market is totally based on psychological parameters of Investors,
which changed as per the market condition, but at the same time the around 45% investor
trade on the basis of speculation and 31% depend upon Investment option Bonds, Mutual
Funds etc.

Moreover, the now a day’s Hedging is most common derivatives tools which is used by the
Investor to get more return from the Market ,this is mostly used in the Commodities Market.

9. How do you manage your Portfolio?

Interpretation

81
About 57% of the respondents say they themselves manage their portfolio and 43% of the
respondents say they depends on the security company for portfolio Management. 43% of the
respondents prefer PMS of the company because they don’t have to keep a close eye on their
investment; they get all the information time to time from their Fund Manager.

Moreover, talking about the Sharekhan PMS services they are far satisfied with the Protech
and Prop rime Performance during last year. They are satisfied with the quick and active
services of Sharekhan customer services where, they get the updated knowledge about the
scrip detail everyday from their Fund Manager.

10. If you trade with Sharekhan limited then why?

Interpretation

82
As the above research shows the reasons and the parameters on which investor lie on
Sharekhan and they do the trade.
Among hundred respondents 35% respondents do the trade with the company due to its
research Report, 28% based on Brokerage Rate whereas 22 % are happy with its Services.
Last but not the least, 15% respondents are depends upon the tips of Sharekhan which gives
them idea where to invest and when to invest.
At the time of research what I found is that still Sharekhan need to make the clients more
knowledge about their PMS product.

11. Are you using Portfolio Management services (PMS) of Sharekhan?

83
Interpretation

As talking about the Investment option, in most of clients it was common that they know
about the Option but as the PMS of Sharekhan have different Product offering, Product
Characteristics and the Investment amount is also different this makes the clients to think
differently.
It is found that 56% of Sharekhan client where using PMS services as for their Investment
Option.

12. Which Portfolio Type you preferred?

84
Interpretation

The above analysis shows, in which portfolio the investor like to deal more in PMS.
As 45% investor likes to go for Equity Portfolio and 28% with Balanced Portfolio, whereas
around 27% investor like to, go for Debt Portfolio.

85
 13. How was your experience about Portfolio Management services (PMS) of
Sharekhan Limited?

Interpretation

In the above analysis it is clear that the Investor have the good and the bad experience both
with the Sharekhan PMS services.
In this current scenario 52% of the Investor earned, whereas around 18% have to suffer losses
in the market. Similarly 30% of the Respondents are there in Breakeven Point (BEP), where
no loss and no profit.

86
 14. Does Sharekhan Limited keep it PMS process Transparent?

Interpretation

The above analysis is talking about the Sharekhan Transparency of their PMS services. In
hundred respondents 63% said that they get all the information about their scrip buying and
selling information day by day, where as 37% of respondents are not satisfied with the PMS
information and Transparency because they don’t get any type of extra services in PMS as
they were saying.

87
 15. Do you recommend Sharekhan PMS to others?

Interpretation
The above analysis shows the Investor perception toward the Sharekhan PMS as on the basis
of their good and bad experience with Sharekhan limited. Among hundred respondents 86%
respondents were agree to recommend the PMS of Sharekhan to their peers, relatives etc.

88
 CHAPTER - 6

CONCULSION AND
SUGGESTIONS

89
 OBSERVATION AND 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.

 As the experience from the Market more than 34% Investor had lose
their money during the concerned year, whereas 20% respondents have
got satisfied return.
 About 45% respondents do the Trade in the Market with Derivatives
 Tools Speculation compare to 24% through Hedging .And the rest 31% trade their
money in Investments

 Around 57% residents manage their Portfolio through the different

company whereas 43%Investor manage their portfolio themselves.

 The most important reasons for doing trade with Sharekhan limited is
Sharekhan Research Department than its Brokerage rate Structure.

90
 Out of hundred respondents 56% respondents are using Sharekhan PMs
services.

 Investors preferred more than 45% equity Portfolio, 28% Balanceed

Portfolio and about 27% Debt Portfolio with Sharekhan PMS.

 About 52% Respondents earned through Sharekhan PMS product,

whereas 18% investor faced loses also.

 More than 63% Investor are happy with the Transparency system of
Sharekhan limited.

 As based on the good and bad experience with Sharekhan limited around
86% are ready to recommended the PMS of Sharekhan to their peers,
relatives etc

91
 LIMITATION OF THE PROJECT

 As only New Delhi was dealt in the survey so it does not represent the view of the
total Indian market.

 The sample size was restricted with hundred respondents.

 There was lack of time on the part of respondents.

 The survey was carried through questionnaire and the questions were based on
perception.

 There may be biasness in information by market participant.

 Complete data was not available due to company privacy and secrecy.

 Some people were not willing to disclose the investment profile.

92
 CONCLUSION AND SUGGESTIONS

On the basis of the study it is found that Sharekhan Ltd is better services provider
than the other stockbrokers because of their timely research and personalized advice
on what stocks to buy and sell. Sharekhan Ltd. provides the facility of Trade tiger
as well as relationship manager facility for encouragement and protects the interest
of the investors. It also provides the information through the internet and mobile
alerts that what IPO’s are coming in the market and it also provides its research on
the future prospect of the IPO. We can conclude the following with above analysis.

 Sharekhan Ltd has better Portfolio Management services than Other Companies

 It keeps its process more transparent.

 It gives more returns to its investors.

 It charges are less than other portfolio Management Services

 It provides daily updates about the stocks information

 Investors are looking for those investment options where they get
maximum returns with less returns.

 Market is becoming complex & it means that the individual investor will
not have the time to play stock game on his own.

 People are not so much ware aware about the Investment option
available in the Market.

93
 Suggestions

 The company should also organize seminars and similar activities to enhance the
knowledge of prospective and existing customers, so that they feel more
comfortable while investing in the stock market.

 Investors must feel safe about their money invested.

 Investor’s accounts must be more transparent as compared to other companies.

 Sharekhan limited must try to promote more its Portfolio Management Services
through Advertisements.

 Sharekhan needs to improve more it’s Customer Services

 There is need to change in lock in period in all three PMS i.e.Protech, Proprime,
Pro Arbitrage.

94
 ANNEXURE

QUESTIONNAIRE

NAME……………………………………….
AGE …………………………………………
OCCUPATION……………………………...
PHONE NO.....................................................

1. Do you know about the Investments Option available?

A) YES B) NO
2. What is the basic purpose of your Investments?

A) Liquidity B) Return C) Tax Benefits D) Risk Covering

E) Capital Appreciation F) Others
3. What is the most important factor you consider at the time of Investment?

A) Risk B) Return C) Both

4. From which option you will get the best returns?

A) Mutual Funds B) Shares C) Commodities Market D) Bonds

E) Fixed Deposits F) Property G) Others
5. “Investing in PMS is far safer than Investing in Mutual Fund”. Do you agree?

A) Yes B) No
6. How much you carry the expectation in Rise of your Income from Investments?

A) Upto 15% B) 15-25% C) 25-35% D) More than 35%

7. If you invested in Share Market, what has been your experience?
A) Satisfactory Return B) Burned Finger C) Unsatisfactory Results
D) No

8. How do you trade in Share Market?

A) Hedging B) Speculation C) Investment

95
9. How do you manage your Portfolio?

A) Self B) Depends on the company for portfolio

10. If, you trade with Sharekhan limited then why

A) Research B) Brokerage C) Services D) Investments Tips

11. Are you using Portfolio Management services (PMS) of Sharekhan?

A) Yes B) No

12. Which Portfolio Type you preferred?

A) Equity B) Debt C) Balanced

13. How was your experience about Portfolio Management services (PMS) of
Sharekhan Limited?

A) Earned B) Faced Loss C) No profit No loss

14. Does Sharekhan Limited keep it PMS process Transparent?

A) Yes B) No

15. Do you recommend Sharekhan PMS to others?

A) Yes B) No

96
 BIBLIOGRAPHY

REFERENCES

www.sharekha.com

www.sebi.gov.in

www.moneycontrol.com

www.karvy.com

www.valueresarchonline.com

www.yahoofinance.com

www.theeconomist.com

www.nseindia.com

www.bseindia.com

Book Referred

 Value guide by Sharekhan

 Investors Eyes by Sharekhan

97
 Business world.
 The economist

98