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Portfolio Management

(Understanding & Designing Portfolio, Investment Proposals &

Portfolio Review)

AT

ADITYA BIRA M!"#Y MART IMIT#D

 

$%mitted B': I$ITA $ARMA

#nrollment "o. B$P*+-

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PROJCT REPORT

ON

P!RT.!I! MA"A/#M#"T

By

Is0ita $0arma

#nroll no12 B$P*+-

IB$ MUMBAI

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A REPORT

ON

 3P!RT.!I! MA"A/#M#"T4

Submitted by:

Is0ita $0arma

Enroll no.: 11BSP0395

At

Adit'a Birla Mone' Mart td1

Submitted to:

Mr1 5osep0 T0omas

ead 6 Investment Resear70 & Advisor'

Adit'a Birla Mone' Mart td1

&

Dr Meena8i D0ariwal

(Asso7iate Dean)

IB$ M%mai

This report is s!"itte# in p$rti$l %l%ill"ent o% the reire"ent o% P'P( pro)r$" o% *BS

("!$i

+$te o% S!"ission: 1,.0-.,01,

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AUT!RI$ATI!" 9

11.0-.,01,

To ho" so e/er it "$y onern

The report is s!"itte# $s $ p$rti$l %l%ill"ent o% the reire"ent o% the P'P( Pro)r$" o%

*BS ("!$i. The report title# 2Port%olio ($n$)e"ent is $n ori)in$l or4 $ssi)ne# &

 per%or"e# !y *shit$ Sh$r"$ $t A#ity$ Birl$ (oney ($rt t#. %ro" April 09 ,01, to Jne 6

,01, %or the sole prpose o% S""er *nternship Pro)r$". *t is here!y st$te# th$t this report

h$s not !een s!"itte# to $ny other institte or ni/ersity %or $$r# o% $ny #e)ree.

Th$n4 yo

 Joseph Thomas

(Head – Investment Research & Advisory)

A#ity$ Birl$ (oney ($rt lt#.

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A:;"!<<#D/#M#"T 6 

* e7press "y he$rt%elt )r$tit#e $n# th$n4s to "y hi)hly ooper$ti/e o"p$ny )i#e (r.

Joseph Tho"$s. This pro8et ol# not h$/e !een possi!le ithot his i""ense )i#$ne

$n# spport. is onst$nt enor$)e"ent $n# "entorin) helpe# "e in sess%lly

o"pletin) the pro8et. * ol# $lso li4e to th$n4 the hole rese$rh te$" $t AB(( %or 

their onst$nt spport.

* $" $lso th$n4%l to "y %$lty )i#e +r (een$7i +h$ri$l %or her onst$nt )i#$ne $n#

s))estions thro)hot the pro8et. er !elie% in "y $!ilities onst$ntly 4ept "e "oti/$te#

$n# helpe# "e in sess%lly o"pletin) the pro8et.

:!"T#"T$ 6 

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1. Executive Summary…………………………………………………………………………………………7 

2. Objective Of the study.....................................................................................................................8

3. Introduction-…………………...…………………………………………………………………………...9

3.1 About Aditya Birla Group……………………………………………………………………..10

3.2 About Aditya Birla Money…………………………………………………….……………….11

3.3 About ABMML ……………………………………………………………….………………...12

4. Portfoio !ana"ement …………………………………………………………………………………...13

.1 !"at i# $ort%olio…………………………………………..…………………………………...13

.2 $ort%olio &tem#……………………………………………………………….…………………13

.3 $ort%olio Mana'ement…………………………………………………………………………13

. (b)e*ti+e# (% $ort%olio Mana'ement………………….………………………..…………..1

., -un*tion# o% a port%olio mana'er……………………….………………………..………….1

. /lement# o% $ort%olio Mana'ement……………………..…………………………………..1,

#. Portfoio !ana"ement Process……………………………………..………………………………….1 

$. Portfoio !ana"ement %heories ………………………………………………………………………18

.1 raditional "eory…………………………………………………………………………….19.2 Modern "eory…………………………………………………………………………………19

&. '((roaches to Portfoio !ana"ement …………………………………………………………………21

). *is+ and *eturn ,once(t ………………………………………………………………………………..21

8.1 on*ept………………………………………………………………………………………….21

8.2 i# eturn rade4o%%………………………………………………………………………….23

8.3 ype# (% i#…………………………………………………………………………………...2

8. ype# o% eturn#…………………………………………………………………………….…2

8., (ptimum $ort%olio…………………………………………………………………………..…2,

. inancia !ar+ets……………………………………………………………………………………….2 

1/. 'sset ,asses……………………………………………………………………………………………..28

11. !utua und …………………………………………………………………………………………..…31

11.1 /ntitie# in+ol+ed in Mutual -und#…………………………………………………………3111.2 erminolo'y…………………………………………………………………………………..32.

11.3 ype# o% S*"eme#…………………………………………………………………………….3,

11. Stati#ti*al Mea#ure#………………………………………………………………………….39

12. undamenta and %echnica 'naysis………………………………………………………………1

13. !ode Portfoio………………………………………………………………………………………….

14. SE0I uideines to the Portfoio !ana"ers……………………………………………………..… 

1#. o to construct a Portfoio………………………………………………………………………..…7 

1$. esi"nin" Investment Pro(osa ……………………………………………………………………....9

1&. Portfoio Profiin" for 1// crore *u(ee…………………………………………………………..…,1

17.1 &nitial &n+e#tment $ropo#al……………………………………………………………….…,1

17.2 !"y #u*" Spot Allo*ation…………………………………………………………………...,3

17.3-a*tor# 'o+ernin' t"e #ele*tion o% t"e %und#……………….……………………………..., 17. Sample /5uity #ele*tion rea#onin'………………………….…………………………..…,9

17., "an'e# made in t"e $ort%olio……………………………….…………………………..…0

17. S*enario at t"e end o% , day#………………………………………………………………1

1). o Portfoio *evie is done5.................................................................................................2

#=#:UTI># $UMMARY9

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A#ity$ Birl$ (oney ($rt i"ite# o%%ers e$lth "$n$)e"ent %in$ni$l pl$nnin) $n#in/est"ent soltions "$inly thro)h $ r$n)e o% pro#ts li4e "t$l %n#s insr$ne PE%n#s $ltern$te in/est"ents selet %i7e# #eposits $n# *POs $n# strtre# pro#ts. The

Corpor$te & *nstittion$l setion $ters to !$n4s %in$ni$l instittions $n# other o"p$nies;e$lth ($n$)e"ent ser/ie %oses on N*s hile the Ret$il setion o%%ers soltionsthro)h Ch$nnel P$rtners $n# !r$nhes.

(y s""er internship pro8et $t AB(( $s to n#erst$n# the onept o% Port%olio"$n$)e"ent i"port$nt %$tors th$t $re reire# in %or"l$tin) $ port%olio #esi)nin) o% 

 port%olio $n# onst$ntly re/iein) the s$"e "$4in) h$n)es in it $or#in)ly. Also in#esi)nin) the port%olio the "$8or %os $s on n#erst$n#in) the lient person$l pro%ilin)$n# $n$ly<in) the ris4 $ppetite o% the in/estor $sset $llo$tion. * $lso )ot $n opportnity ton#erst$n# the "o#el se# !y the o"p$ny in seletin) the she"es o% /$rios A(C=s.

The Port%olio retrns ere !ein) o"p$re# to the Benh"$r4 retrn on $ ee4ly !$sis. >or this $ syntheti !enh"$r4 $s %or"l$te#. Be$tin) the !enh"$r4 retrns $s one o% the"$8or riteri$ hih shoe# th$t the port%olio is per%or"in) p to the "$r4.

*n "y internship * $lso le$rnt ho the st$%% here #esi)ns the in/est"ent propos$ls $n# #o the port%olio re/ies. *n/est"ent propos$ls is nothin) !t s))estin) $ prospet in/estor th$tho he shol# #eploy his %n#s. This onsists o% to types o% $llo$tion i.e. spot $llo$tion$n# %in$l $llo$tion. *t onsi#ers the rrent eono"i sen$rio $lso. *n/est"ent propos$ls$lso onsist o% the s))este# she"es in hih one $n in/est.

Port%olio re/ies on the other h$n# is nothin) !t re/iein) the $lre$#y e7istin) port%olio o% the in#i/i#$l. ere the port%olio "$n$)er=s responsi!ility is to s))est the in/estor theh$n)es th$t $re reire# to !e "$#e in his port%olio li4e %ro" hih %n# one shol# e7ithih %n# one shol# hol# h$t $re the other %n#s th$t one $n loo4 %or i% e7it is "$#e.

This pro8et helpe# "e $ lot in n#erst$n#in) the /$rios $/enes to in/est"ent !$se# on the pro%ile o% the in#i/i#$l $n# $lso ho shol# one in/est"ent opti"$lly in or#er to "$7i"i<ehis retrn $n# "ini"i<e the ris4.

!B5#:TI># !. T# $TUDY9

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• To st#y $n# n#erst$n# the onepts o% port%olio "$n$)e"ent.

• To !il# $ si"l$te# in/est"ent propos$l.

• To onst$ntly re/ie it $n# h$n)e the instr"ents $or#in)ly.

• To o"e to $n opti"" port%olio !e$tin) the !enh"$r4.

I"TR!DU:TI!" 6 

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ADITYA BIRA /R!UP 6

>ision? To !e $ pre"i" )lo!$l on)lo"er$te ith $ le$r %os on e$h !siness.

Mission? To #eli/er sperior /$le to or sto"ers sh$rehol#ers e"ployees $n# soiety $t

l$r)e.

 The Aditya Birla Group  is an Indian "ltin$tion$l  on)lo"er$te  corporation

headquartered in ("!$i *n#i$ The group has diversi!ed "usiness interests and

is dominant p#ayer in a## the sectors in $hich it operates such as viscose stap#e

!"re% meta#s% cement% viscose !#ament yarn% "randed appare#% car"on "#ac%

chemica#s% 'erti#iers% insu#ators% !nancia# services% te#ecom% P* and IT services

A +, -./ "i##ion corporation% the Aditya ir#a 0roup is in the 1eague o' 2ortune

/33 It is anchored "y an e4traordinary 'orce o' over 5..%333 emp#oyees%

"e#onging to 67 di8erent nationa#ities

 The Aditya ir#a group is a +,- ./ "i##ion cong#omerate $hich gets 93 o' its

revenues 'rom outside India The origins o' the group #ie in the cong#omerate

once he#d "y one o' India;s 'oremost industria#ists <r 'h$nshy$" +$s Birl$ The0roup consists o' ,I= main companies% $hich operate in various industry sectors

through su"sidiaries% >oint ventures% etc These are in#$lo% 'r$si"% A#ity$ Birl$

 N/o% *#e$ elll$r % ?ove#is and @ltr$Teh Ce"ent

/loall', t0e Adit'a Birla /ro%p is2

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• in#$lo? No/elis is the l$r)est $l"ini" rollin) o"p$ny. *t is one o% the three

 !i))est pro#ers o% pri"$ry $l"ini" in Asi$ ith the l$r)est sin)le lo$tionopper s"elter.

•

 No.1 in /isose st$ple %i!re•  No.1 in $r!on !l$4 

• The %orth?l$r)est pro#er o% insl$tors

• The %i%th?l$r)est pro#er o% $ryli %i!re

• A"on) the top 10 e"ent pro#ers

• A"on) the !est ener)y?e%%iient %ertiliser  pl$nts

• The l$r)est *n#i$n (NC ith "$n%$trin) oper$tions in the @SA

In India2 

• A top %$shion  !r$n#e# $pp$rel $n# li%estyle pl$yer 

• The seon#?l$r)est pl$yer in /isose %il$"ent y$rn

• The l$r)est pro#er in the hlor?$l4$li setor 

• A"on) the top three "o!ile telephony o"p$nies

• A le$#in) pl$yer in li%e insr$ne $n# $sset "$n$)e"ent

• A"on) the top to sper"$r4et h$ins in the ret$il !siness

• A"on) the top 10 BPO o"p$nies

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ADITYA BIRA M!"#Y 6

A#ity$ Birl$ (oney is $ sin)le !r$n# o%%erin) the o"!ine# pro#ts $n# ser/ies o% A#ity$

Birl$ (oney i"ite# $n# A#ity$ Birl$ (oney ($rt i"ite#.

A#ity$ Birl$ (oney i"ite# is $ !ro4in) $n# #istri!tion pl$yer o%%erin) Eity $n#

+eri/$ti/e tr$#in) thro)h NSE $n# BSE $n# Crreny #eri/$ti/e on (C?S. *t is

re)istere# $s +epository P$rtiip$nt ith !oth NS+ $n# C+S $n# $lso pro/i#es

o""o#ity tr$#in) on (C $n# NC+E thro)h its s!si#i$ry o"p$ny.

A#ity$ Birl$ (oney ($rt i"ite# is $ e$lth "$n$)e"ent $n# #istri!tion pl$yer o%%erin)

thir# p$rty pro#ts li4e o"p$ny #eposits "t$l %n#s insr$ne strtre# pro#ts$ltern$te in/est"ents property ser/ies $n# h$s $ pre"ier e$lth "$n$)e"ent ser/ie $r" to

$ter to N* sto"ers.

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ADITYA BIRA M!"#Y MART IMIT#D9 

Adit'a Birla Mone' Mart imited ?ABMM@ %or"erly Birl$ Sn i%e +istri!tion

Co"p$ny i"ite# is $ holly one# s!si#i$ry o% A#ity$ Birl$ N/o t#. N/o. E$rlier it

$s est$!lishe# $s $ 8oint /entre !eteen A#ity$ Birl$ N/o $n# Sn i%e *n#i$

+istri!tion *n/est"ents. *n ($rh ,009 N/o prh$se# the re"$inin) 50.001 per ent

st$4e %ro" its 8oint /entre p$rtner.

The o"p$ny $s l$nhe# in the ye$r 1999 ith the /ision to !e Dthe %irst pre%erene o% or 

sto"ers= $s $ le$#in) inte)r$te# pro/i#er o% %in$ni$l ser/ies thro)h sperior /$le

re$tion $n# tehnolo)y.

A#ity$ Birl$ (oney ($rt i"ite# o%%ers e$lth "$n$)e"ent %in$ni$l pl$nnin) $n#

in/est"ent soltions "$inly thro)h $ r$n)e o% pro#ts li4e "t$l %n#s insr$ne PE

%n#s $ltern$te in/est"ents selet %i7e# #eposits $n# *POs $n# strtre# pro#ts. The

o"p$ny pro/i#es li%e insr$ne pro#ts o% Birl$ Sn i%e *nsr$ne sore# thro)h its

holly one# s!si#i$ry BS+ *nsr$ne A#/isory Ser/ies t# BS+*AS liense# to $t

$s $ Corpor$te A)ent o% Birl$ Sn i%e *nsr$ne Co"p$ny i"ite#. The Corpor$te &

*nstittion$l setion $ters to !$n4s %in$ni$l instittions $n# other o"p$nies ;e$lth

($n$)e"ent ser/ie %oses on N*s hile the Ret$il setion o%%ers soltions thro)hCh$nnel P$rtners $n# !r$nhes

A o"!in$tion o% person$l $ttention ethi$l pr$ties stron) rese$rh st$te?o%?the?$rt

tehnolo)y stre$"line# proesses $n# inno/$ti/e "$r4etin) h$s "$#e AB(( one o% the

 pre"ier #istri!tion o"p$nies in *n#i$ ell poise# to ser/e the )roin) eono"y $n#

inre$sin) in/estor popl$tion. AB(( h$s $lso !een honore# ith $$r#s $n#

erti%i$tions !y le$#in) in#stry $thers.

The o"p$ny $ters to the orpor$te $n# instittion$l se)"ent the e$lth "$n$)e"ent

se)"ent the B,C se)"ent $n# h$nnel !siness. ;ith $ #iret presene thro)h its on !r$nhes 3F $n# $##ition$l re$h thro)h its netor4 o% !siness $ssoi$tes F000 $ross

"ore th$n 100 entre AB(( h$s $ trste# in/estor !$se o% o/er ,-0000.

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P!RT.!I! MA"A/#M#"T 6 

<0at is a Portfolio 9

Port%olio is $ %in$ni$l ter" #enotin) $ olletion o% in/est"ents hel# !y $n in/est"ent

o"p$ny he#)e %n# %in$ni$l instittion or in#i/i#$l. The ter" port%olio re%ers to $ny

olletion o% %in$ni$l $ssets sh $s sto4s  !on#s $n# $sh. Port%olios "$y !e hel# !y

in#i/i#$l in/estors $n#Gor "$n$)e# !y %in$ni$l pro%ession$ls he#)e %n#s !$n4s $n# other 

%in$ni$l instittions. *t is $ )ener$lly $epte# priniple th$t $ port%olio is #esi)ne# $or#in)

to the in/estorDs ris4 toler$ne ti"e %r$"e $n# in/est"ent o!8eti/es. *n/est"ent port%olio

$n !e represente# $s $ pie th$t is #i/i#e# into piees o% /$ryin) si<es representin) $ /$riety

o% $sset l$sses $n#Gor types o% in/est"ents to $o"plish $n $ppropri$te ris4?retrn port%olio

$llo$tion.

Portfolio Items 6 

A port%olio $n eno"p$ss $ny o"!in$tion o% in/est"ents inl#in) !$n4 $onts !on#s

sto4s $rr$nts #ee#s options %tres erti%i$tes $n# !sinesses. Any ite" th$t is li4ely to

ret$in its /$le $n#Gor pro#e $ retrn $n !e inl#e# in $n in/est"ent port%olio.

A )ropin) o% %in$ni$l $ssets sh $s sto4s !on#s $n# $sh ei/$lents $s ell $s their 

"t$l e7h$n)e?tr$#e# $n# lose#?%n# onterp$rts.

The types o% ite"s inl#e# in in/estors= port%olios /$ry !$se# on in#i/i#$l ir"st$nes

$n# in/est"ent )o$ls. The %irst thin) yo ill $nt to #o in est$!lishin) $ port%olio is

#eter"ine yor in/est"ent !#)et $n# h$t )o$ls yo $nt to $hie/e thro)h in/estin).

+i%%erent 4in#s o% in/est"ent /ehiles o%%er #i%%erent r$tes o% retrn. E$h /ehile $rries itson nie #e)ree o% ris4 $s ell.

Portfolio management 6

Port%olio "$n$)e"ent onerns the onstrtion & "$inten$ne o% $ olletion o% in/est"ent. *t is in/est"ent o% %n#s in #i%%erent serities in hih the tot$l ris4 o% the

Port%olio is "ini"i<e# hile e7petin) "$7i"" retrn %ro" it. *t pri"$rily in/ol/esre#in) ris4 r$ther th$t inre$sin) retrn. Retrn is o!/iosly i"port$nt tho)h $n# the

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lti"$te o!8eti/e o% port%olio "$n$)er is to $hie/e $ hosen le/el o% retrn !y inrrin) thele$st possi!le ris4.Port%olio "$n$)e"ent in/ol/es #ei#in) h$t $ssets to inl#e in the port%olio )i/en the

)o$ls o% the port%olio oner $n# h$n)in) eono"i on#itions. Seletion in/ol/es #ei#in)

h$t $ssets to prh$se ho "$ny to prh$se hen to prh$se the" $n# h$t $ssets to

#i/est. These #eisions $l$ys in/ol/e so"e sort o% per%or"$ne "e$sre"ent "ost

typi$lly e7pete# retrn on the port%olio $n# the ris4 $ssoi$te# ith this retrn i.e. the

st$n#$r# #e/i$tion o% the retrn. The nie )o$ls $n# ir"st$nes o% the in/estor "st

$lso !e onsi#ere#. So"e in/estors $re "ore ris4 $/erse th$n others. (t$l %n#s h$/e

#e/elope# p$rtil$r tehnies to opti"i<e their port%olio hol#in)s.

Ths port%olio "$n$)e"ent is $ll $!ot stren)ths e$4nesses opportnities $n# thre$ts in

the hoie o% #e!t /s. eity #o"esti /s. intern$tion$l )roth /s. s$%ety $n# n"eros other 

tr$#e?o%%s enontere# in the $tte"pt to "$7i"i<e retrn $t $ )i/en $ppetite %or ris4.

!e7tives of Portfolio Management 6 

The !$si o!8eti/e o% Port%olio ($n$)e"ent is to "$7i"i<e yiel# $n# "ini"i<e ris4. Theother $nill$ry o!8eti/es $re $s per nee#s o% in/estors n$"ely:

•Re)l$r ino"e or st$!le retrn

• Apprei$tion o% $pit$l

• ($r4et$!ility $n# lii#ity

• S$%ety o% in/est"ent

 

(ini"i<in) o% t$7 li$!ility.

.%n7tions of Portfolio Manager 6 

  Advisor' role2

e $#/ises ne in/est"ents re/ie o% e7istin) ones i#enti%i$tion o% o!8eti/es reo""en#in) hi)h

yiel# serities et.

 

:ond%7ting Maret and #7onomi7 $%rve's2

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There is essenti$l %or reo""en#in) hi)h yiel#in) serities they h$/e to st#y the rrent physi$l

 properties !#)et propos$ls in#stri$l poliies et. >rther port%olio "$n$)er shol# t$4e into

$ont the re#it poliy in#stri$l )roth %orei)n e7h$n)e position h$n)es in orpor$te l$s et.

  .inan7ial Anal'sis2

e shol# e/$l$te the %in$ni$l st$te"ents o% $ o"p$ny in or#er to n#erst$n# their net orth

%tre e$rnin)s prospets $n# stren)ths.

• $t%d' of $to7 Maret:

e shol# see the tren#s o% $t /$rios sto4 e7h$n)es $n# $n$ly<e sripts so th$t he is $!le to

i#enti%y the ri)ht serities %or in/est"ents.

  $t%d' of Ind%str'2

To 4no its %tre prospets tehnolo)i$l h$n)es et reire# %or in/est"ent propos$ls he shol#

$lso %oresee the pro!le"s o% the in#stry.

  De7ide t0e t'pe of Portfolio2

Heepin) in the "in# the o!8eti/es o% $ port%olio the port%olio "$n$)er h$/e to #ei#e hether the

 port%olio shol# o"prise eity pre%erene sh$res #e!entres on/erti!le non?on/erti!le or p$rtly

on/erti!le "oney "$r4et serities et. or $ "i7 o% "ore o% one type.

#lements of Portfolio Management 9

Port%olio ($n$)e"ent is $n on?)oin) proess in/ol/in) the %olloin) !$si t$s4s :

• *#enti%i$tion o% the in/estors o!8eti/e onstr$ins $n# pre%erenes hih help

%or"l$te# the in/est poliy

• Str$te)ies $re to !e #e/elope# $n# i"ple"ente# in tne ith in/est poliy %or"l$te#.

This ill help the seletion o% $sset l$sses $n# serities in e$h l$ss #epen#in) pontheir ris4?retrn $ttri!tes

Re/ie $n# "onitorin) o% the per%or"$ne o% the port%olio !y ontinos

• O/er/ie o% the "$r4et on#itions o"p$ny=s per%or"$ne $n# in/estor=s ir"st$nes

• >in$lly the e/$l$tion o% port%olio %or the reslts to o"p$re ith the t$r)ets $n# nee#e#

$#8st"ents h$/e to !e "$#e in the port%olio to the e"er)in) on#itions $n# to "$4e p

%or $ny short%$lls in $hie/e"ents t$r)ets.

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P!RT.!I! MA"A/#M#"T PR!:#$$2

Port%olio "$n$)e"ent is $ o"ple7 $ti/ity hih "$y !e !ro4en #on into the %olloin)steps:

1. $pe7ifi7ation of investment !e7tives and :onstraints2

The %irst step in the port%olio "$n$)e"ent proess is to spei%y oneDs in/est"ent o!8eti/es$n# onstr$ints. The o""only st$te# in/est"ent )o$ls $re:$ *no"e

 ! 'roth St$!ilityThe onstr$ints $risin) %ro" lii#ity ti"e hori<on t$7 $n# spei$l ir"st$nes "st !ei#enti%ie#.ere the ris4 t$4in) $!ility o% $n in#i/i#$l "$tters $ lot. The ris4 $n !e "e$sre# !yinter/iein) the in#i/i#$l thro)h $ estionn$ire. The estionn$ire se# !y AB((onsists o% 1 estions. The s$"e h$s !een $tt$he# in the $nne7re.

,. :0oi7e of Asset mi82The "ost i"port$nt #eision in port%olio "$n$)e"ent is the $sset "i7 #eision.Iery !ro$#ly this is onerne# ith the proportions o% Dsto4sD $n# D!on#sD in the port%olio.This $)$in is #one 4eepin) in "in# the pre%erenes $n# the ris4 $petite o% the in/estor. (oree7posre to eity ol# !e )i/en i% the in/estor is re$#y to t$4e ris4.

3. .orm%lation of Portfolio $trateg'2

One $ ert$in $sset "i7 is hosen $n $ppropri$te port%olio str$te)y h$s to !e$""ere# ot. To !ro$# hoies $re $/$il$!le $n $ti/e port%olio str$te)y or $ p$ssi/e

 port%olio str$te)y. An $ti/e port%olio str$te)y stri/es to e$rn sperior ris4 $#8ste# retrns !y

resortin) to "$r4et ti"in) or setor rot$tion or serity seletion or so"e o"!in$tion o% these. A p$ssi/e port%olio str$te)y on the other h$n# in/ol/es hol#in) $ !ro$#ly #i/ersi%ie#

 port%olio $n# "$int$inin) $ pre?#eter"ine# le/el o% ris4 e7posre.

1 $ele7tion of $e7%rities2

'ener$lly in/estors prse $n $ti/e st$ne ith respet to serity seletion. >or sto4 seletion in/estors o""only )o !y %n#$"ent$l $n$lysis $n# G or tehni$l $n$lysis. The%$tors th$t $re onsi#ere# in seletin) !on#s $re yiel# to "$trity re#it r$tin) ter" to"$trity t$7 shelter $n# lii#ity.

5. Monitoring Portfolio2

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A%ter the port%olio h$/e !een e7ete# perio#i re!$l$nin) o% the port%olio is $lso reire#.The per%or"$ne o% $ port%olio shol# !e e/$l$te# perio#i$lly. The 4ey#i"ensions o% port%olio per%or"$ne e/$l$tion $re ris4 $n# retrn $n# the 4ey isse ishether the port%olio retrn is o""ensr$te ith its ris4 e7posre.

-. Reassess needs and goals2

Jst $s "$r4ets shi%t so #o the )o$ls $n# o!8eti/es o% in/estors. ;ith the %le7i!ility o% thePort%olio Pro)r$" $n# Asset ($n$)e"ent Pro)r$" hen the in/estor=s nee#s or other li%eir"st$nes h$n)e the port%olio h$s the %le7i!ility to $o""o#$te sh h$n)es. Thereire# h$n)es $n !e "$#e in the port%olio $s $n# hen reire# !t )ener$lly $ny shh$n)es $re #one on the $rterly !$sis in or#er to re#e the hrnin).

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P!RT.!I! MA"A/#M#"T T#!RI#$ 9

 

Traditional portfolio t0eor'

 

Modern portfolio t0eor'

Traditional portfolio t0eor' 6 

This theory $i"s $t the seletion o% sh serities th$t ol# %it in ell ith the $sset

 pre%erenes nee#s $n# hoies o% in/estor. Ths $ retire# e7eti/e in/est in %i7e# ino"e

serities %or $ re)l$r $n# %i7e# retrn. A !siness e7eti/e or $ yon) $))ressi/e in/estor 

on the other h$n# in/ests in ne $n# )roin) o"p$nies $n# in ris4y /entres.

Modern portfolio t0eor' 6 

A theory on ho ris4 $/erse in/estors $n onstrt port%olios to opti"i<e or "$7i"i<e

e7pete# retrn !$se# on $ )i/en le/el o% "$r4et ris4 e"ph$si<in) th$t the ris4 is $n inherent p$rt o% hi)her re$r#. Also $lle# $s the Port%olio theory or the Port%olio "$n$)e"enttheory. (PT is $ theory o% %in$ne hih $tte"pts to "$7i"i<e port%olio e7pete# retrn %or $ )i/en $"ont o% port%olio ris4 or ei/$lently "ini"i<e the ris4 %or $ )i/en le/el o% e7pete# retrn !y $re%lly hoosin) the proportions o% /$rios $ssets. Aor#in) to thetheory it=s possi!le to onstrt $n e%%iieny %rontier o% opti"$l port%olios o%%erin) the"$7i"" possi!le e7pete# retrn %or $ )i/en le/el o% ris4. This theory $s pioneere# !y$rry ($r4oit<.There $re %or !$si steps in/ol/e# in port%olio onstrtion K

• Serity /$l$tion

• Asset $llo$tion

• Port%olio opti"i<$tion

• Per%or"$ne "e$sre"ent.

The %n#$"ent$l onept !ehin# (PT is th$t the $ssets in $n in/est"ent port%olio shol# not

 !e selete# in#i/i#$lly e$h on their on "erits. R$ther it is i"port$nt to onsi#er ho

e$h $sset h$n)es in prie rel$ti/e to ho e/ery other $sset in the port%olio h$n)es in prie.

*n/estin) is $ tr$#e?o%% !eteen ris4  $n# e7pete# retrn. *n )ener$l $ssets ith hi)her 

e7pete# retrns $re ris4ier. >or $ )i/en $"ont o% ris4 (PT #esri!es ho to selet $

 port%olio ith the hi)hest possi!le e7pete# retrn. Or %or $ )i/en e7pete# retrn (PT

e7pl$ins ho to selet $ port%olio ith the loest possi!le ris4 the t$r)ete# e7pete# retrn

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$nnot !e "ore th$n the hi)hest?retrnin) $/$il$!le serity o% orse nless ne)$ti/e

hol#in)s o% $ssets $re possi!le.

There%ore (PT is $ %or" o% #i/ersi%i$tion.   @n#er ert$in $ss"ptions $n# %or 

spei%i $ntit$ti/e #e%initions o% ris4 $n# retrn (PT e7pl$ins ho to %in# the !est

 possi!le #i/ersi%i$tion str$te)y.

The e%%iient %rontier is $ onept in "o#ern port%olio theory. A o"!in$tion o% $ssets i.e. $

 port%olio is re%erre# to $s Le%%iientL i% it h$s the !est possi!le e7pete# le/el o% retrn %or its

le/el o%  ris4  s$lly pro7ie# !y the st$n#$r# #e/i$tion o% the port%olioDs retrn. ere e/ery

 possi!le o"!in$tion o% ris4y $ssets ithot inl#in) $ny hol#in)s o% the ris4?%ree $sset

$n !e plotte# in ris4?e7pete# retrn sp$e $n# the olletion o% $ll sh possi!le port%olios

#e%ines $ re)ion in this sp$e. The p$r#?slope# p$rt o% the le%t !on#$ry o% this re)ion $

hyper!ol$ is then $lle# the Le%%iient %rontierL. A set o% opti"$l port%olios th$t o%%ers the

hi)hest e7pete# retrn %or $ #e%ine# le/el o% ris4 or the loest ris4 %or $ )i/en le/el o% 

e7pete# retrn. Port%olios th$t lie !elo the e%%iient %rontier $re s!?opti"$l !e$se they

#o not pro/i#e eno)h retrn %or the le/el o% ris4. Port%olios th$t lster to the ri)ht o% the

e%%iient %rontier $re $lso s!?opti"$l !e$se they h$/e $ hi)her le/el o% ris4 %or the #e%ine#

r$te o% retrn.

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APPR!A:#$ T! P!RT.!I! MA"A/#M#"T9

 

Passive Approa702

P$ssi/e $ppro$h is the #e%ensi/e $ppro$h. ere the >n# ($n$)er in/ests in/estor=s "oney

in those serities here the ris4 is lo ith $n $ssre# retrn. *t $n pro!$!ly !e %i7e#

interest !e$rin) serities hih pro/i#e re)l$r $n# onst$nt retrn ith the "ini""

$"ont o% ris4.

  $emi9A7tive Approa702

This $ppro$h is the "i7tre o% !oth $ti/e $n# p$ssi/e $ppro$h. ere $!ot 50 perent o% 

the tot$l in/est"ent is #epen#ent on the $ti/e $ppro$h o% the in/estor $n# 50 perent on the

 p$ssi/e $ppro$h. ere the in/estor in/ests p$rtly in hi)h retrn !$se# in/est"ents hih

$lso !e$r hi)h ris4s $n# p$rtly in/ests in lo retrn !$se# in/est"ents ith loer ris4s.

 

A7tive Approa702

Ati/e $ppro$h is $n $))ressi/e $ppro$h. ere in/estor li4es to e$rn "ore $n# "ore"oney !y t$4in) "ore $"ont o% ris4. ere %n#s $re "$n$)e# "ore $ti/ely then in other 

to sit$tions. *t is the !est $ppro$h $s %$r $s retrns $re onerne# %or $n in/estor !t $t the

s$"e ti"e it reires lot o% ris4 t$4in) $p$ity $lso.

Moreover, t0ere are t0ree more t'pes of Portfolios2 

• T0e Patient Portfolio2 

This type in/ests in ell?4non sto4s. (ost p$y #i/i#en#s $n# $re $n#i#$tes to !y $n#

hol# %or lon) perio#. The /$st "$8ority o% the sto4s in this port%olio represent l$ssi )roth

o"p$nies those th$t $n !e e7pete# to #eli/er hi)her e$rnin)s on $ re)l$r !$sis re)$r#less

o% eono"i on#itions.

• T0e Aggressive Portfolio2 

This port%olio in/ests in Le7pensi/e sto4sL in ter"s o% sh "e$sre"ents $s prie?e$rnin)s

r$tios th$t o%%er !i) re$r#s !t $lso $rry !i) ris4s. This port%olio LolletsL sto4s o% 

r$pi#ly )roin) o"p$nies o% $ll si<es th$t o/er the ne7t %e ye$rs $re e7pete# to #eli/er 

r$pi# $nn$l e$rnin)s )roth. Be$se "$ny o% these sto4s $re on the less?est$!lishe# si#e

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Ris 6 Ret%rn Relations0ip2

The ris4Gretrn rel$tionship is $ %n#$"ent$l onept in not only %in$ni$l $n$lysis !t ine/ery $spet o% li%e. *% #eisions $re to le$# to !ene%it "$7i"i<$tion it is neess$ry th$tin#i/i#$lsGinstittions onsi#er the o"!ine# in%lene on e7pete# %tre retrn or !ene%it

$s ell $s on ris4Gost. The reire"ent th$t e7pete# retrnG!ene%it !e o""ensr$te ithris4Gost is 4non $s the Lris4Gretrn tr$#e?o%%L in %in$ne. All in/est"ents h$/e so"e ris4s.An in/est"ent in sh$res o% o"p$nies h$s its on ris4s or nert$inty. These ris4s $rise oto% /$ri$!ility o% retrns or yiel#s $n# nert$inty o% $pprei$tion or #eprei$tion o% sh$re

 pries loss o% lii#ity et. $n# the o/erti"e $n !e represente# !y the /$ri$ne o% theretrns. Nor"$lly hi)her the ris4 th$t the in/estors t$4e the hi)her is the retrn.

Ris9Ret%rn Trade off 2

The priniple th$t potenti$l retrn rises ith $n inre$se in ris4. o le/els o% nert$inty

lo ris4 $re $ssoi$te# ith lo potenti$l retrns here$s hi)h le/els o% nert$inty hi)h

ris4 $re $ssoi$te# ith hi)h potenti$l retrns. Aor#in) to the ris4?retrn tr$#e o%%

in/este# "oney $n ren#er hi)her pro%its only i% it is s!8et to the possi!ility o% !ein) lost.

/rap0i7al Representation of Ris and Ret%rn Anal'sis 6

ere the ris4 or the st$n#$r# #e/i$tion is on the 7?$7is $n# the retrn on the y?$7is. 're$ter 

the ris4 yo t$4e hi)her ill !e the h$nes o% retrns !ein) e$rne#. Si"il$rly oer ris4 

i"plies loer potenti$l retrns. The r/e st$rts %ro" $!o/e the y?$7is $n# not the ori)in

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 !e$se o% the ert$in $/$il$!le ris4?%ree instr"ents li4e 'o/ern"ent !on#s et. here the

retrn is )$r$ntee# e/en $t <ero ris4. This $s the ris4 K retrn tr$#e o%%.

TYP#$ !. I">#$TM#"T RI$; 6 

• $pe7ifi7 Ris  K The in#i/i#$l $sset sh $s $ o"p$ny $n h$/e pro!le"s th$t $re

spei%i to th$t $sset. ($y!e $ $t$strophe i.e. BP oil spill !$# "$n$)e"ent $ l$r)e

 pro#t %$ilre et. $ses the in#i/i#$l $ssets prie to %$ll. Spei%i ris4 $n !e

"iti)$te# ith #i/ersi%i$tion.

• Maret Ris  K *n the short ter" sto4 "$r4et pries $nnot !e pre#ite#. Bt lon)

ter" retrns $n !e pre#ite# ith so"e $r$y. *n other or#s the /$ri$tion o% 

retrns ris4 is less o/er lon) perio#s o% ti"e th$n short perio#s o% ti"e. The sto4 

"$r4et h$s %$llen 30 ?50M "$ny ti"es in short perio#s o% ti"e !t it h$s ne/er %$llen e/en 15M o/er $ 10 ye$r perio#. ($r4et ris4 $n !e "iti)$te# !y lon) ter"

in/estin) sin) $ t$ti$l $sset $llo$tion str$te)y $n# he#)in).

• Interest Rate Ris  K ;hen interest r$tes inre$se the prie o% !on#s #eline.

• Defa%lt Ris  K So"eti"es $ o"p$ny is n$!le to p$y !$4 #e!ts or !ills.

• Inflation Ris  K i)her pries loer the prh$sin) poer o% yor in/est"ents. *% 

yor in/est"ent retrns #on=t e7ee# in%l$tion yo $re losin) prh$sin) poer.

• #7onomi7 Ris  K Eono"i reession $n# #epression $n inre$se the ris4 o% $n

in/est"ent.

• Politi7al Ris  K Be$se the )o/ern"ent is in/ol/e# in $ l$r)e perent$)e o% or 

li/es h$n)es in poliies $n h$/e pro%on# e%%ets on entire in#stries or e/en the

hole eono"y.

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Diversifi7ation 9

+i/ersi%i$tion is $ ris4?"$n$)e"ent tehnie th$t "i7es $ i#e /$riety o% in/est"ents

ithin $ port%olio in or#er to "ini"i<e the i"p$t th$t $ny one serity ill h$/e on the

o/er$ll per%or"$ne o% the port%olio. +i/ersi%i$tion loers the ris4 o% yor port%olio.

:!":#PT !. R#TUR" 6

Asol%te Ret%rn9  Retrns $re $ll$te# !$se# on the NAI to NAI "o/e"ent %or $ p$rtil$r ti"e perio#. Retrn is $ll$te# $s perent$)e h$n)e in NAI $%ter $#8stin) %or #i/i#en# i% $ny. The %or"l$ %or $ll$tin) the $!solte retrn is $s n#er:En#in) I$le?Be)innin) I$leGBe)innin) I$le100

$imple Ann%alised Ret%rn? A!solte retrns $re $#8ste# %or the hol#in) perio# o% thein/est"ent to $rri/e $t the $nn$lise# retrns. The %or"l$ %or $ll$tin) the si"ple$nn$lise# retrn is $s n#er :En#in) I$le?Be)innin) I$leGBe)innin) I$le1003-5Gol#in) Perio#

 

:ompo%nded Ann%alised Ret%rn (:A/R)6  *t re%lets the ye$r on ye$r )roth r$te o% $nin/est"ent o/er $ spei%ie# perio# o% ti"e. *t is !$se# on the onept o% )eo"etri "e$n $n#the %or"l$ %or $ll$tin) the CA'R is $s n#er : QEn#in) I$leGBe)innin) I$le1GNo. o% yrs?1100

The Ann%aliCed is the retrn $n in/est"ent pro/i#es o/er $ perio# o% ti"e e7presse# $s $ti"e?ei)hte# $nn$l perent$)e. The r$te o% $nn$l retrn is "e$sre# $)$inst the initi$l$"ont o% the in/est"ent.

Ben70mar  retrn is the retrn %or $ ti"e perio# $ll$te# t$4in) into onsi#er$tion theei)hte# !enh"$r4 NAIs o% e$h $n# e/ery instr"ent in the port%olio.

The Asol%te ret%rn $n !e o"p$re# ith the !enh"$r4 retrns in or#er to %in# ot the pro%it e$rne# or the loss inrre# on rnnin) the port%olio on $ p$rtil$r #$y.

A!solte retrn #i%%ers %ro" Relative ret%rn !e$se it is onerne# ith the retrn o% $ p$rtil$r $sset $n# #oes not o"p$re it to $ny other "e$sre or !enh"$r4.

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!PTIMUM P!RT.!I! 6

The h$rt !elo illstr$tes ho the opti"$l port%olio or4s. The opti"$l?ris4 port%olio is

s$lly #eter"ine# to !e so"ehere in the "i##le o% the r/e !e$se $s yo )o hi)her pthe r/e yo t$4e on proportion$tely "ore ris4 %or $ loer inre"ent$l retrn. On the other 

en# lo ris4Glo retrn port%olios $re pointless !e$se yo $n $hie/e $ si"il$r retrn !y

in/estin) in ris4?%ree $ssets li4e )o/ern"ent serities.

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 .I"A":IA MAR;#T$ 6 

.inan7ial maret is $ "$r4etpl$e here !yers $n# sellers p$rtiip$te in the tr$#e o% $ssetssh $s eity !on#s rrenies #eri/$ti/es. >in$ni$l "$r4ets $re typi$lly #e%ine# !yh$/in) tr$nsp$rent priin) !$si re)l$tions on tr$#in) osts $n# %ees $n# "$r4et %ores#eter"inin) pries o% serities th$t tr$#e.

Mone' Maret & :apital Maret: (oney ($r4et is $ pl$e %or short ter" len#in) $n#

 !orroin) typi$lly ithin $ ye$r. *t #e$ls in short ter" #e!t %in$nin) $n# in/est"ents. Onthe other h$n# C$pit$l ($r4et re%ers to sto4 "$r4et hih re%ers to tr$#in) in sh$res $n#

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 !on#s o% o"p$nies on reo)ni<e# sto4 e7h$n)es. *n#i/i#$l pl$yers $nnot in/est in"oney "$r4et $s the /$le o% in/est"ents is l$r)e on the other h$n# in $pit$l "$r4et$ny!o#y $n "$4e in/est"ents thro)h $ !ro4er. Sto4 ($r4et is $ssoi$te# ith hi)h ris4 $n# hi)h retrn $s $)$inst "oney "$r4et hih is "ore sere. >rther in $se o% "oney"$r4et #e$ls $re tr$ns$te# on phone or thro)h eletroni syste"s $s $)$inst $pit$l "$r4et

here tr$#in) is thro)h reo)ni<e# sto4 e7h$n)es.

Mone' Maret: (oney "$r4et "e$ns "$r4et here "oney or its ei/$lent $n !e tr$#e#.(oney is synony" o% lii#ity. (oney "$r4et is 4non $s $ pl$e here l$r)e instittions$n# )o/ern"ent "$n$)e their short ter" $sh nee#s. >or )ener$tion o% lii#ity short ter"

 !orroin) $n# len#in) is #one !y these %in$ni$l instittions $n# #e$lers. (oney ($r4et is p$rt o% %in$ni$l "$r4et here instr"ents ith hi)h lii#ity $n# /ery short ter" "$trities$re tr$#e#. +e to hi)hly lii# n$tre o% serities $n# their short ter" "$trities "oney"$r4et is tre$te# $s $ s$%e pl$e. One o% the pri"$ry %ntions o% "oney "$r4et is to pro/i#e%o$l point %or RB*=s inter/ention %or in%lenin) lii#ity $n# )ener$l le/els o% interest r$tesin the eono"y.

Co""only se# (oney ($r4et instr"ents K 

• Time deposit o""only o%%ere# to ons"ers !y !$n4s thri%t instittions $n#

re#it nions.

• Rep%r70ase agreements ? Short?ter" lo$nsnor"$lly %or less th$n to ee4s $n#

%reently %or one #$y$rr$n)e# !y sellin) serities to $n in/estor ith $n$)ree"ent to reprh$se the" $t $ %i7e# prie on $ %i7e# #$te.

• :ommer7ial paper ? @nsere# pro"issory notes ith $ %i7e# "$trity o% one to

,F0 #$ys s$lly sol# $t $ #isont %ro" %$e /$le.

• #%rodollar deposit ? +eposits "$#e in @.S. #oll$rs $t $ !$n4 or !$n4 !r$nh lo$te#otsi#e the @nite# St$tes.

• .ederal agen7' s0ort9term se7%rities  ? in the @.S.. Short?ter" serities isse#

 !y )o/ern"ent sponsore# enterprises sh $s the >$r" Cre#it Syste" the >e#er$lo"e o$n B$n4s $n# the >e#er$l N$tion$l (ort)$)e Assoi$tion.

• .ederal f%nds ? in the @.S.. *nterest?!e$rin) #eposits hel# !y !$n4s $n# other 

#epository instittions $t the >e#er$l Reser/e these $re i""e#i$tely $/$il$!le %n#sth$t instittions !orro or len# s$lly on $n o/erni)ht !$sis. They $re lent %or the %e#er$l %n#s r$te.

• M%ni7ipal notes ? in the @.S.. Short?ter" notes isse# !y "niip$lities in

$ntiip$tion o% t$7 reeipts or other re/enes.• Treas%r' ills ? Short?ter" #e!t o!li)$tions o% $ n$tion$l )o/ern"ent th$t $re isse#

to "$tre in three to tel/e "onths.

• Mone' f%nds ? Poole# short "$trity hi)h $lity in/est"ents hih !y "oney

"$r4et serities on !eh$l% o% ret$il or instittion$l in/estors.

• .oreign #870ange $waps ? E7h$n)in) $ set o% rrenies in spot #$te $n# the

re/ers$l o% the e7h$n)e o% rrenies $t $ pre#eter"ine# ti"e in the %tre.

• $0ort9lived mortgage9 $n# $sset?!$4e# serities.

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:apital Maret is $ "$r4et %or serities #e!t or eity here !siness enterprises

$n# )o/ern"ents $n r$ise lon)?ter" %n#s. *t is #e%ine# $s $ "$r4et in hih "oney is

 pro/i#e# %or perio#s lon)er th$n $ ye$r. The $pit$l "$r4et inl#es the sto4 "$r4et eity

serities $n# the !on# "$r4et #e!t. (oney "$r4ets $n# $pit$l "$r4ets $re p$rts o% 

%in$ni$l "$r4ets. C$pit$l "$r4ets "$y !e l$ssi%ie# $s pri"$ry "$r4ets $n# seon#$ry"$r4ets. *n pri"$ry "$r4ets ne sto4 or !on# isses $re sol# to in/estors /i$ $ "eh$nis"

4non $s n#erritin). *n the seon#$ry "$r4ets e7istin) serities $re sol# $n# !o)ht

$"on) in/estors or tr$#ers s$lly on $ serities e7h$n)e o/er?the?onter  or elsehere.

Both the sto4 $n# the !on# "$r4ets $re p$rts o% the $pit$l "$r4et

A$$#T :A$$#$ 9

;hen e s$/e $n# in/est e $t$lly pt or "oney in thin)s th$t ol# e$rn yo $n interest

or $ #i/i#en# so"ethin) th$t ill help the "oney )ro. These #i%%erent thin)s li4e the

sh$res o% o"p$nies !on#s $n# serities !$n4 #eposits )ol# re$l est$te "t$l %n#

she"es et. into hih yo pt yor "oney $re $lle# $ssets or $sset l$sses. All these

$ssets !elon) to !ro$#ly three $te)ories:

• >i7e# ino"e

• Eity $n#

• Altern$te $ssets.

These $ssets "$y $)$in !e s!#i/i#e# into %in$ni$l $ssets $n# physi$l $ssets. Bon#s or !$n4 

#eposits $re %in$ni$l $ssets here$s re$l est$te is $ physi$l $sset.

A"on) %in$ni$l $ssets eity $n# %i7e# ino"e $re 4non $s pri"$ry $sset l$sses or 

tr$#ition$l $sset l$sses. ;here $s $ssets li4e )ol# re$l est$te pri/$te eity $re $ p$rt o% the

seon#$ry $ssets or the $ltern$te $ssets.

#%it' 6 

A sh$re or eity in/est"ent is $ !$si nit o% onership in $ o"p$ny.

• They pro/i#e ino"e in the %or" o% #i/i#en#s

• They pro/i#e $pit$l )roth

• They $re hi)hly lii#

• +i/ersity $n !e o!t$ine# $ross $ hole r$n)e o% sh$res in #i%%erent "$r4et setors sh $s

"inin) in#stri$ls !$n4s $n# "e#i$.

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.i8ed In7ome 6  

These onstitte o% !$n4 #eposits or !on#s et. These $ssets $rry $ %i7e# r$te o% interest or 

opon %or $ p$rtil$r perio#. S$y %or e7$"ple i% yo pl$e $ #eposit ith $ !$n4 %or $

 perio# o% one ye$r yo ill )et the interest $t the r$te $)ree# $n# %or the perio#. (h the

s$"e $y $ !on# ith $ opon o% 9.50 per ent p$y$!le se"i?$nn$lly ill p$y yo the

opon $t this r$te e/ery si7 "onths irrespeti/e o% h$t is h$ppenin) in the eono"y $n#

"$r4ets. Th$t is hy they $re $lle# %i7e# ino"e instr"ents.

 

Types o% interest !e$rin) in/est"ents:

1. Tre$sry Bills,. 'o/ern"ent o% *n#i$ Serities

3. Bon#s $n# #e!entres. *n#e7e# Bon#s5. Co""eri$l P$per -. B$n4 #eposits $n# %i7e# #eposits

F. Certi%i$te o% +eposits

1. Treas%r' Bills2 These $re isse# !y RB* either %or 91 #$ys 0r 3-5 #$ys. Uiel#s $t the ti"e

o% isse $re #eter"ine# thro)h $n $tion or pre#eter"ine# !y RB*.

,. /overnment of India $e7%rities2 These $re the /ehiles thro)h hih )o/ern"ent o% 

*n#i$ !orros "oney %ro" the p!li $n# instittions %or "ore th$n one ye$r. On $ont o% loer #e%$lt ris4 )o/ern"ent serities ten# to o%%er loer interest r$tes th$n !on#s $n##e!entres.

+1 Bonds and Deent%res2 Bon#s $re )ener$lly isse# !y the p!li setor o"p$nies $n#

%in$ni$l instittions in the %or" o% pro"issory notes. Pri/$te setor o"p$nies isse

#e!entres. The interest r$tes on these instr"ents #epen# pon the ter" $n# the re#it r$tin)o% the isser.

E1 Inde8ed Bonds2 These $re $lso $lle# in%l$tion lin4e# serities the interest p$y"ents or 

the $pit$l otst$n#in) on these in#e7e# !on#s is lin4e# to in%l$tion in#e7 sh $s ons"er  prie in#e7. The interest r$tes $re %i7e# $!o/e in%l$tion. *n#e7e# !on#s $n !e /ery $ttr$ti/eto lon) ter" in/estors $s they pro/i#e $ )$r$ntee# protetion %ro" the in%l$tion.

-1 :ommer7ial Paper2 *t=s $ ne)oti$!le short ter" nsere# pro"issory note isse# !y

o"p$nies o% repte. They $re isse# $t $ #isont $n# h$/e $ "$trity perio# o% $ "ini""30 #$ys to 3- #$ys.

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-. Ban deposits and fi8ed deposits2 The interest on %i7e# #eposits o%%ere# !y the !$n4s

is hi)her th$n th$t o%%ere# on s$/in)s $onts. >i7e# ter" #eposits $n $lso !e isse# !y non !$n4in) "$n%$trin) or %in$ne o"p$nies. They $re )ener$lly %or one to three ye$rs.

F1 :ertifi7ate of Deposits2 They $re isse# !y !$n4s "$7i"" one ye$r o% %in$ni$l

instittions one to three ye$rs.

Alternate investments K

This is the n$"e o""only se# %or non?tr$#ition$l in/est"ent $/enes. Altern$te $ssetso"p$re# to nor"$l $sset l$sses $re less lii# in other or#s i% yo nee# to lii#$te these

$ssets $n# r$ise $sh it "$y t$4e ti"e. A seon# %e$tre is th$t $ltern$te $ssets $rry $ hi)her 

ris4 o"p$re# to tr$#ition$l pro#ts. There%ore they n$tr$lly ten# to )i/e "h hi)her 

retrns too. Re$l est$te )ol# $n# strtre# pro#ts $re e7$"ples o% $ltern$te pro#ts.

:as0 6 

This is $lso so"eti"es onsi#ere# to !e $n $sset l$ss.• Port%olio "$n$)ers $l$ys 4eep so"e $"ont o% lii#ity $s $ !%%er 

• >or the port%olio "$n$)ers > & O "st !e !$4e# !y ei/$lent $sh in !on#

 port%olios.(ost port%olios )ener$lly h$/e li"it$tions on the "$7i"" $sh they $n hol# s$lly it is

0?15M #epen#in) pon "$r4et otloo4.

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MUTUA .U"D$ 6 

A (t$l >n# is $ trst th$t pools to)ether the s$/in)s o% $ n"!er o% in/estors ho sh$re $o""on %in$ni$l )o$l. The %n# "$n$)er in/ests this pool o% "oney in serities? r$n)in)%ro" sh$res $n# #e!entres to "oney "$r4et instr"ents or in $ "i7tre o% eity $n# #e!t#epen#in) pon the o!8eti/es o% the she"e $s st$te# in the S*+ G H*( *n *n#i$ (t$l>n#s $re )o/erne# !y Assoi$tion o% (t$l >n#s o% *n#i$ A(>* $n# SeritiesE7h$n)e Bo$r# o% *n#i$ SEB*.

#ntities in a M%t%al .%nd operation2

*n *n#i$ the %olloin) entities $re in/ol/e# in $ (t$l >n# oper$tion: The Sponsor The(t$l >n# The trstees $n# The Asset "$n$)e"ent o"p$ny The Csto#i$n $n# TheRe)istr$rs $n# Tr$ns%er A)ents.

$ponsor2

The sponsor o% the (t$l >n# is li4e the pro"oter o% the o"p$ny. The sponsor "$y !e $ !$n4 $ %in$ni$l instittion or $ %in$ni$l ser/ie o"p$ny. *t "$y !e $n *n#i$n or %orei)n.>or E7$"ple the sponsor o% Te"pleton (t$l >n# is Te"pleton *ntern$tion$l *n. Thesponsor h$s to o!t$in $ liense %ro" the SEB* %or hih it h$s to s$tis%y se/er$l on#itionsrel$tin) to $pit$l pro%its tr$4 reor# et.

M%t%al .%nd2

The (t$l >n# is onstitte# $s $ trst n#er the *n#i$n Trst At 1661 $n# re)istere#

ith SEB*. The !ene%ii$ries o% the trst $re the in/estors ho in/est in the /$rios she"es

o% the (t$l >n#.

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Tr%stees2

A trst is $ notion$l entity th$t $nnot ontr$t in its on n$"e. So the trst enters into

ontr$ts in the n$"e o% the trstees. Trstees $n !e either $n in#i/i#$l or $ orpor$te !o#y.

Typi$lly it is the l$tter. The trstees $ppoint the $sset "$n$)e"ent o"p$ny sere

neess$ry $ppro/$ls perio#i$lly "onitor hoe the A(C or4 $n# hol# the properties o% 

/$rios she"es. Trstees $n !e hel# $ont$!le %or the %in$ni$l irre)l$rities o% the

(t$l >n#.

Asset Management :ompan' (AM:)2

The A(C $lso re%erre# to $s $n *n/est"ent ($n$)er is $ sep$r$te o"p$ny $ppointe# !y the

trstees to rn the (t$l >n#. >or e7$"ple Te"pleton Asset ($n$)e"ent *n#i$ P/t. t#.

*s the A(C o% Te"pleton (t$l >n#. The A(C shol# h$/e $ erti%i$te %ro" SEB* to $t

$s $ port%olio "$n$)er n#er SEB* Port%olio ($n$)ers Rles $n# Re)l$tions 1993. TheA(C h$n#les $ll oper$tion$l "$tters sh $s #esi)nin) the she"es l$nhin) the she"es

"$n$)in) in/est"ents $n# inter$tin) ith in/estors.

:%stodian2

The sto#i$n h$n#les the in/est"ent !$4 o%%ie oper$tions o% $ (t$l >n#. *t loo4s $%ter 

the reeipt $n# #eli/ery o% serities olletion o% ino"e #istri!tion o% #i/i#en#s et.

Registrar and Transfer Agents2

They h$n#le in/estor rel$te# ser/ies sh $s issin) nits re#ee"in) nits sen#in) %$t

sheets $nn$l reports $n# so on.

 

Related Terminolog' 6 

$70eme & Units 9

*n/estors in/est in $ she"e !y !yin) its nits $n# #isin/est !y sellin) these nits.

"et Asset >al%e ("A>) ? Net Asset I$le is the "$r4et /$le o% $ll the $ssets th$t the %n# is hol#in) "ins itsli$!ilities. The per nit NAI is the net $sset /$le o% the she"e #i/i#e# !y the n"!er o% 

nits otst$n#in) on $ p$rtil$r #$te.

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(t$l >n# NAI V Tot$l Assets Ki$!ilities G Tot$l n"!er o% nits

Assets Under Management 9

The tot$l otst$n#in) nits o% $ she"e "ltiplie# !y the NAI o% the she"e onstittes thetot$l $ssets n#er "$n$)e"ent %or the she"e.

/rowt0, Dividend Pa'o%t & Dividend Reinvestment !ptions ? Re)l$r %lo o% *no"e +i/i#en# p$yot K NAI re#es !y the $"ont

#istri!te# $s #i/i#en#

Re in/estin) the +i/i#en# in the s$"e she"e +i/i#en# Rein/estK NAI re"$ins

the s$"e !t the no. o% nits n#er the she"e inre$ses

'roth o% *no"e 'roth KNAI $pprei$tes !t the no. o% nits re"$in thes$"e

Retail & Instit%tional Plans 9

Ret$il Pl$ns? E7pense R$tio is hi)her $n# "ini"" in/est"ent $"ont is loer 

*nstittion$l Pl$n? E7pense R$tio is loer $n# "ini"" in/est"ent $"ont is

hi)her.

#8pense Ratio ?*t is $ "e$sre o% ost or e7penses inrre# !y $n $sset "$n$)e"ent o"p$ny too per $te"t$l %n# she"e. *t is #eter"ine# !y #i/i#in) the %n#Ds oper$tin) e7penses !y the tot$l/$le o% its $ssets n#er "$n$)e"ent.

#8it oad 9

The %ee h$r)e# !y $ "t$l %n# %ro" the in/estors in $se o% $ ne$rly re#e"ption /i<re#e"ption prior to $ spei%ie# perio# n#er $ p$rtil$r she"e. *t /$ries !$se# on the n$tre

o% the she"e tenre o% the she"e et.

!pen #nded & :lose #nded .%nds 9

>n#s hih $re open %or prh$se $n# re#e"ption on $ll or4in) #$ys %or in/estors $rere%erre# to Open En#e# >n#s. ;here $s %n#s hih $re open only on ert$in spei%i #$tes%or prh$se $n# re#e"ption !y in/estors $re re%erre# to $s Close En#e# >n#s.

Mar To Maret 9

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As per the l$test SEB* )i#elines $ll the instr"ents ith $ "$trity o% "ore th$n 90 #$ys $reto !e /$le# on "$r4 to "$r4et !$sis here in the pro%it G loss on the instr"ent is $ll$te#on $ #$ily !$sis. ;here $s the instr"ents ith $ "$trity o% less th$n 90 #$ys $re /$le#

 !$se# on $ "ortis$tion "etho#.

Average Portfolio Mat%rit' ?The "$trity o% $ #e!t instr"ent re%ers to the ti"e hen it ill )et "$tre#. The $/er$)e

 port%olio "$trity o% $ #e!t "t$l %n# re%ers to the ei)hte# $/er$)e o% the "$trity o% e$h instr"ent th$t the #e!t %n# is hol#in) $s $ p$rt o% its port%olio. *t in#i$tes hosensiti/e $ #e!t %n# is to h$n)es in interest r$tes. The h$n)e in /$le o% $s he"e ith$lon) er $/er$)e "$trity ill !e "h hi)her th$n $ she"e ith $ /ery shorter $/er$)e"$trity )i/en $ ert$in perent$)e point h$n)e in interest r$te. A/er$)e "$trity o% $ %n#

 port%olio n#er)oes $ h$n)e ith the p$ss$)e o% ti"e or hen the port%olio is hrne#. As $#e!t serity $ppro$hes its "$trity #$te the len)th o% ti"e to "$trity !eo"es shorter

Yield to Mat%rit' (YTM) 9

UT( is $nn$l #isont r$te $t hih the present /$le o% !on#=s pro"ise# $sh %los ise$l to its rrent "$r4et prie pls $re# interest. *t is the e7pete# r$te o% retrn th$t $nin/estor ill reei/e on in/estin) in $ #e!t instr"ent in $se he hol#s the serity till its"$trity $n# the opons reei/e# in the %or" o% #i/i#en# or otherise $re $lso rein/este# $tthe s$"e r$te $s the UT Si"il$rly the UT( %or $ #e!t %n# is the ei)hte# $/er$)e o% theUT(s o% $ll the serities th$t the %n# is hol#in). oe/er %or $n open en#e# #e!t %n# the

 port%olio o% the %n# 4eeps on h$n)in) $n# onseently its "$trity $n# UT( ill $lsoh$n)e. *t $ssre o% the retrn o% the she"e $n# is e7presse# in $nn$lise# ter"

"egotiated Dealing $'stem 6 

An eletroni tr$#in) pl$t%or" oper$te# !y the RB* se# to %$ilit$te the e7h$n)e o% )o/ern"ent serities $n# other "oney "$r4et instr"ents. The N+S ill $lso !eresponsi!le %or hostin) ne isses o% )o/ern"ent serities. One %lly i"ple"ente# it eilleli"in$te physi$l e7/$hn)e o% %or"s !eteen it# tr$#in) "e"!ers.

$%sidair' /eneral edger 6 

  *t is $ %$ility pro/i#e# !y RB* to l$r)e !$n4s $n# %in$ni$l instittions to hol# their in/est"ents in 'o/ern"ent serities $n# Tre$sry !ills in the eletroni !oo4 entry %or".The S' or S!si#i$ry )ener$l le#)er $onts $n !e onsi#ere# $s the +e"$t $ont o% $ll the %in$ni$l instittions B$n4s ith RB*.e).? +>C h$s $n S' $ont ith RB*.Constitent S's= $re se# !y the s"$ller %in$ni$l instittions e) K A#ity$ Birl$ (oney($rt i"ite#. These helps in the tr$#e o% the )o/ern"ent serities.

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TYP#$ !. $:#M#$ 9

Based on $tr%7t%re 9

• Open En#e# >n#s

• Close En#e# >n#s

>(PsG*nter/$l >n#s

C$pit$l Protetion >n#s

• *nter/$l >n#s

Based on Asset :lass 9

• Eity >n#s

+i/ersi%ie# Eity >n#s

*n#e7 >n#s

Setor Eity >n#s

ESS Eity in4e# S$/in)s She"e

>n# o% >n# *n/ests in Eity %n#s

• +e!t >n#s

(oney ($r4et >n#s Kii# & @ltr$ Short ter"

Bon# >n#s K*no"e Short ter" & +yn$"i

>(PsG*nter/$l >n#s

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• 'ilt >n#s

• y!ri# >n#s

B$l$ne# >n#s

(*Ps

Ar!itr$)e >n#s

C$pit$l Protetion >n#s

A !rie% #esription o% $ll the types o% "t$l %n# she"es K

!pen ended f%nds K

An open en#e# %n# is $ olleti/e in/est"ent she"e hih $n isse $n# re#ee"sh$re $t $ny ti"e.

:losed ended f%nds K

ere the n"!er o% sh$res $re li"ite#. An# the sh$res $re not nor"$lly re#ee"$!le%or $sh or serities ntil the %n# lii#$tes.

Interval .%nd K 

A %n# th$t o"!ines the %e$tres o% open?en#e# $n# lose#?en#e# she"es "$4in)

the %n# open %or s$le or re#e"ption #rin) pre?#eter"ine# inter/$ls.

.i8ed Mat%rit' Plans ?

The >n# t$4es "oney %ro" the in/estors $n# #eploy it in instr"ents hih h$/e $"$trity hih is less th$n or e$l to the "$trity #$te o% the %n# !t %or $ %i7e#

 perio# o% ti"e. So this is "ore or less li4e $ %i7e# #eposit !t h$s t$7 $#/$nt$)eso"p$re# to $ %i7e# #eposit. Be$se the "$trity pro%ile is %i7e# $n# "ost o% theti"e not "ore th$n $ ye$r this 4eeps the interest r$te ris4 $t ontrolle# le/els. Cre#itris4 $rises ot o% the type o% instr"ents th$t the she"e or the %n# !ys.

:apital prote7tion .%nd K

A type o% %n# th$t )$r$ntees $n in/estor $t le$st the initi$l in/est"ent pls $ny$pit$l )$in i% it is hel# %or the ontr$t$l ter". The $pit$l in/este# re"$ins s$%e.

#%it' .%nd K 

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A "t$l %n# th$t in/ests prinip$lly in sto4s. *t $n !e $ti/ely or p$ssi/ely in#e7%n# "$n$)e#. Also 4non $s $ Lsto4 %n#L.

Diversified #%it' f%nds K 

These $re the %n#s hih in/est in #i/ersi%ie# $n# /$rie# p$ttern o% #e!t $n# eityinstr"ents. As $ reslt o% hih the ris4 is "iti)$te# e/en in the orse o% the "$r4etsen$rio.

.%nd of .%nd K A "t$l %n# th$t in/ests in other "t$l %n#s. *t onsists o% $

/$riety o% %n# $te)ories th$t $re $ll r$ppe# into one %n#.

$e7tor #%it' .%nd K

These in/ests in p$rtil$r setors. *t $n $lso %ollo setor$l !enh"$r4. i4e K BSE(ETA BANHE et..

 

#%it' lined $avings s70emes9

These $re eity %n#s %lo$te# !y "t$l %n#s. They o%%er $ ,0 per ent t$7 re!$te onin/est"ents pto Rs 10000 in $ )i/en %in$ni$l ye$r. There is $ three ye$r lo4?in onin/est"ents $n# there is no $ssr$ne on retrns. The ESS %n#s h$/e to in/est "oreth$n 60 per ent o% their "oney in eity $n# rel$te# instr"ents. Retrns %or" ESS

%n#s ten# to %lt$te i#ely. The other $y o% in/estin) in these %n#s ol# !e $syste"$ti in/est"ent hih essenti$lly "e$ns in/estin) $ s"$ll s" re)l$rly"onthly or $rterly.

  Inde8 .%nds 6

A type o% "t$l %n# ith $ port%olio onstrte# to "$th or tr$4 the o"ponents

o% $ "$r4et in#e7 sh $s the St$n#$r# & PoorDs 500 *n#e7 S&P 500. An in#e7

"t$l %n# is s$i# to pro/i#e !ro$# "$r4et e7posre lo oper$tin) e7penses $n#

lo port%olio trno/er.

Det .%nds K

The %n# th$t in/ests in %i7e# ino"e instr"ents sh $s #e!entres !on#sTre$sry !ills et. Pre%erre# !y in/estors ho $nt ste$#y ino"e $n# $re not illin)to t$4e "h o% ris4.

/ilt .%nd K A "t$l %n# hih in/ests in hi)h $lity K lo ris4 #e!t "$inly %ro"

)o/ern"ent serities. *t onsists o% !oth "e#i" $n# lon) ter" 'o/ern"entserities in $##ition to the top $lity orpor$te #e!t. The s$%e sto#y o% 'ilt %n#s

is #one thro)h S' $n# $re tr$#e# thro)h N+S or the Ne)oti$te# +e$lin) syste".

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'rid .%nds K

A $te)ory o% "t$l %n# th$t is h$r$teri<e# !y port%olio th$t is "$#e p o% $ "i7o% sto4s $n# !on#s hih $n /$ry proportion$lly o/er ti"e or re"$in %i7e#.

$0ort term f%nd K

Port%olio o"position K C+ CP $ll "oney short ter" #e!t.Ris4 K (o#er$teA/er$)e "$trity K 1F0?F30 #$ysTi"e hori<on %or in/est"ent ? - "onth to 1 ye$r A#/$nt$)es K I$ri$!le retrn !$se# on short ter" yiel# "o/e"ent.

In7ome .%nds ?

An ino"e %n# in/ests in !on#s $n# other #e!t serities. Bon# %n#s )ener$teino"e thro)h re)l$r opon G interest ino"e on the %n#Ds n#erlyin) serities$n# thro)h the $pit$l $pprei$tion. Pro/i#es hi)her retrns th$n lii# ltr$ short$n# short ter" %n#. These >n#s in/est in "e#i" ter" to lon) ter" instr"ents /i<.)o/ern"ent serities orpor$te !on#s #e!entres %i7e# #eposits et. on) ter""$4es it ris4ier too.

  i%id .%nds 6

Port%olio o"position K Short ter" instittions li4e K C+s CPs C$ll "oney CBO

Tre$sry BillsA/er$)e "$trity K Belo 90 #$ysIery lo ris4 Iery st$!le retrnsTi"e hori<on K 1 #$y to 1 "onth.

  Ultra $0ort Term 6 

Port%olio Co"position K ii# %n#s instr"ents $n# so"e short ter" #e!entres.A/er$)e "$trity K @pto 1,0 #$ys(o#er$te Ris4 

>$irly st$!le retrns.Ti"e ori<on K 1 "onth to 3 "onths.

  Balan7ed .%nd 6

A %n# th$t o"!ines $ sto4 o"ponent $ !on# o"ponent $n# so"eti"es $ "oney"$r4et o"ponent in $ sin)le port%olio. 'ener$lly these hy!ri# %n#s sti4 to $rel$ti/ely %i7e# "i7 o% sto4s $n# !on#s th$t re%lets either $ "o#er$te hi)her eityo"ponent or onser/$ti/e hi)her %i7e#?ino"e o"ponent orient$tion.

Mont0l' In7ome Plan 6

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A type o% in/est"ent /ehile th$t pro/i#es $ spei%ie# "onthly p$y"ent to thein/estor. This "onthly p$y"ent is inten#e# to !e $ st$!le %or" o% ino"e $n# isthere%ore typi$lly site# %or retire# persons or senior iti<ensithot other s!st$nti$l sores o% "onthly ino"e.

  Aritrage f%nd 6

A %n# hih tries to t$4e $#/$nt$)e o% prie #isrep$nies %or the s$"e $sset in#i%%erent "$r4ets.

$TATI$TI:A M#A$UR#$ R#AT#D T! P!RT.!I! 6

$0arpe Ratio 9

Sh$rpe r$tio or 2e7ess retrn to /$ri$!ility= "e$sres the port%olio e7ess retrn o/er thes$"ple perio# !y the st$n#$r# #e/i$tion o% retrns o/er th$t perio#. This r$tio "e$sres thee%%eti/eness o% $ "$n$)er in #i/ersi%yin) the tot$l ris4 s . *t "e$sres the ris4 $#8ste#retrns. The %or"l$ %or "e$srin) the Sh$rpe r$tio is:S"arpe atio V rp K r% G s p!"ere6 rp a*tual return on port%olio

 % ri# %ree rate o% return

 And6 #p #tandard de+iation o% t"e %und.

This ill !e o"p$re# to the Sh$pe r$tio o% the "$r4et port%olio. A hi)her r$tio is pre%er$!lesine it i"plies th$t the %n# "$n$)er is $!le to )ener$te "ore retrn per nit o% tot$l ris4s.

Tre'nor Ratio 9

Treynor=s "e$sre e/$l$tes the e7ess retrn per nit o% syste"$ti ris4s ! $n# not tot$lris4s. The %or"l$ %or "e$srin) the Treynor R$tio is:reynor atio V rp K r% G ! p

 ere6 bp Beta o% t"e port%olio.

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5ensen meas%re or (Portfolio Alp0a) 9

The Jensen "e$sre $lso $lle# Jensen Alph$ or port%olio $lph$ "e$sres the $/er$)e retrn

on the port%olio o/er $n# $!o/e th$t pre#ite# !y the CAP( )i/en the port%olio=s !et$ $n#the $/er$)e "$r4et retrns. *t is "e$sre# sin) the %olloin) %or"l$:$ p V rp K Qr% W ! p rM K r% The retrns pre#ite# %ro" the CAP( "o#el is t$4en $s the !enh"$r4 retrns $n# isin#i$te# !y the %or"l$ ithin the !r$4ets. The e7ess retrn is $ttri!te# to the $!ility o% the "$n$)ers %or "$r4et ti"in) or sto4 pi4in) or !oth.This "e$sre is i#ely se# in e/$l$tin) "t$l %n# per%or"$ne. *% $ $ is positi/e $n#si)ni%i$nt it i"plies th$t the %n# "$n$)ers $re $!le to i#enti%y sto4s ith hi)h potenti$l %or e7ess retrns.

Beta 6

This is the le/el o% the ris4 in/ol/e# hile #e$lin) ith $ "t$l %n#. The "$r4et $n# then$tre o% the instr"ent pl$ys $n i"port$nt role in the s$"e.

Bet$ X 1 i"plies th$t the she"e is less /ol$tile th$n the "$r4et o% the in#e7.Bet$ Y 1 i"plies th$t the %n#s pries $re "ore /ol$tile th$n the "$r4et.

$tandard Deviation 6 

This is $ tehnie hih "e$sres the /$ri$tion in NAI. *t helps "e$srin) the onsistenyo% $ %n# o/er $ perio# o% ti"e. oer the st$n#$r# #e/i$tion the !etter is the onsisteny.

M%t%al .%nd Performan7e 9

;e $n e/$l$te the per%or"$ne o% $ "t$l %n# !$se# on the %olloin) p$r$"eters :

Retrns K A!solteGSi"ple Ann$lise# Retrns & CA'R 

Consisteny K Rollin) Retrns & St$n#$r# +e/i$tion

Ris4 A#8ste# Retrns ? Sh$rpe R$tio

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Port%olio ($trity Pro%ile

Port%olio Co"position

.U"DAM#"TA A"D T#:"I:A A"AY$I$2

Altho)h the >n#$"ent$l $n# Tehni$l An$lysis $re #i%%erent onepts $lto)ether still

they sh$re the o""on o!8eti/es.

The /$rios o!8eti/es o% >n#$"ent$l & Tehni$l $n$lysis $re $s %ollos:

 

Understand t0e maret and e7onom'2

The tehni$l $n# %n#$"ent$l $n$lysis !oth %os on h$/in) $ )oo# n#erst$n#in) o% the

"$r4et. They !oth $n or4 only hen one h$s $ )oo# 4nole#)e o% the "$r4et $s ell $s

the eono"y. A )oo# $n# o"plete $n$lysis $n !e #one only hen person %irst n#erst$n#s

the eono"y o% the ontry $s $ hole the ph$se in hih eono"y is rrently the

#ri/in) %ores o% the eono"y the %lo o% %n#s in the eono"y the )o/ern"ent poliies

the rrent sen$rio o% the orl# $s $ hole. One $ person h$s $ )oo# n#erst$n#in) o% the

eono"y the ne7t step is to n#erst$n# the "$r4et i% the eono"y is per%or"in) ell then

the "$r4et ill $lso #o ell so there is $l$ys so"e sort o% orrel$tion !eteen the

eono"y $n# the "$r4et.

 

Understand t0e dire7tions going %p and down2

Tehni$l $n# >n#$"ent$l $n$lysis $lso helps in n#erst$n#in) the #iretions in hih

the sto4 o% the o"p$ny is )oin) to" )o. +e to this $n$lysis one $n n#erst$n# the

tren# in hih the "$r4et rrently is $n# thro)h rrent p$ttern one $n $lso n#erst$n#

the $y the "$r4ets $re )oin) to !eh$/e in ne$r %tre !e$se the tren# repe$ts itsel%.

Eono"y $l$ys %ollos the s$"e ph$se one $)$in !e$se it=s $n eono"i yle.

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r

 

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Understand t0e %ant%m of 70ange2

Tehni$l & >n#$"ent$l $n$lysis $lso helps in n#erst$n#in) the $nt" ith hih the

"$r4et h$n)e. Altho)h there is no sh )$r$ntee th$t ho "h ill !e the h$n)e !t

still e $n h$/e so"e i#e$ o% the $nt" ith hih the eono"y $n# the "$r4ets ill

h$n)e on the !$sis o% p$st tren#s $n# %i)res.

  <0at ind of prod%7t s0o%ld e sele7ted for t0e portfolio2

Tehni$l & >n#$"ent$l $n$lysis $lso helps s in n#erst$n#in) the serity or 

instr"ent th$t one shol# selet. Thro)h these e $n n#erst$n# th$t ho the serities

$re !eh$/in) ri)ht no $n# ho they $re )oin) to !eh$/e in the ne$r %tre #e to the

"o/e"ent in the p$st. Sine tren#s h$/e $ h$!it o% repe$tin) the"sel/es.

.%ndamental Anal'sis2

Ch$r$teristis o% >n#$"ent$l An$lysis:

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#7onomi7 .a7tors 6

>n#$"ent$l $n$lysis %ore"ost onsi#er the )roth o% the eono"y i.e. the r$te ith

hih the eono"y is )roin) $n# the %tre e7pet$tion $!ot the )roth o% the

eono"y. *% the eono"y is )roin) ell then the in#stry ill $to"$ti$lly per%or"

ell $n# one the eono"y #oes ell then the o"p$ny ill $lso #o ell pro/i#e# it is

 !il# on )oo# %on#$tion h$/in) $ )oo# "$n$)e"ent !o#y. Si"il$rly the r$te o% in%l$tion

the interest r$tes lii#ity ne"ploy"ent o""o#ity pries et $lso pl$ys $ role in the

s$"e.

 

Ind%strial .a7tors 9

*n#stri$l )roth is $ /ery i"port$nt onept $s %$r $s the )roth o% the eono"y is

onerne#. As the %i)res %or the in#stri$l )roth i"pro/es #iretly the %i)res %or the

)roth r$te o% the eono"y i"pro/es. Also the $p$ity tili<$tion the tot$l $/$il$!le

$p$ity the #e"$n# $n# spply in/entories r$ "$teri$l $/$il$!ility Cost o% %n#s

 pro#tion proess 'o/ern"ent$l poliies %or $ ert$in in#stry et $lso %n#$"ent$lly

#eter"ines the s$"e. 

:ompan' .a7tors 6 

These inl#e %$tors sh $s the li%e o% the o"p$ny "$n$)e"ent poliies %ntions the

#i/i#en# poliy the $sset strtre o% the s$"e. The #e!tors $n# the re#itors o% the

o"p$ny.

Te70ni7al Anal'sis2

  $t%d' of t0e past pri7e trend2

The tehni$l $n$lysis is the st#y o% the p$st prie tren#s it st#ies the /$rios prie

h$rts sees the "o/e"ent o% the srip $or#in)ly $n# helps the $n$lyst in #ei#in)

hether to in/est in sh sh$res or not. The p$st prie tren# $lso helps in n#erst$n#in) the

%tre tren# o% the pries.

 

istor' repeats itself2

The Tehni$l $n$lysis !elie/es th$t history repe$ts itsel%. Thin) th$t h$s h$ppene# to#$y is

$)$in )oin) to h$ppen so"eti"e in %tre !e$se the "$r4et "o/es li4e $ yle $n#

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hene they o"e !$4 to the s$"e position %ro" here they st$rte# $n# this is hy it is

s$i# th$t history repe$ts itsel%.

• Pri7es refle7t ever't0ing 6  

This i"plies th$t the pries o% the instr"ent $lone re%lets e/erythin) $n# o/ers $ll the%$tors. *t re%lets $ll the or)$ni<$tion$l in#stri$l $n# eono"i %$tors to)ether.

M!D# P!RT.!I!9

(o#el Port%olio is nothin) !t in/est"ent in the /$rios $ssets $or#in) to the ris4 t$4in)

$p$!ility o% the in/estor.

E/ery in/estor h$s $ #i%%erent in/est"ent $n# ris4 t$4in) $p$ity !t $t the s$"e ti"e eshol# not %or)et th$t there is $l$ys $ #iret rel$tionship !eteen ris4 $n# retrn i.e. hi)her 

the ris4 hi)her is the retrn. *n or#er to n#erst$n# this %irst o% $ll e shol# n#erst$n# the

ris4?re$r# tr$#eo%%.

(o#el Port%olio in#i$tes the in/est"ent o% "oney o% in/estors in /$rios Asset Cl$sses

n$"ely C$sh >i7e# *nterest +o"esti Sh$res *ntern$tion$l Sh$res +o"esti Property. No

the in/est"ent o% the "oney o% the lient !y $ >n# ($n)er #epen#s pon the ris4 t$4in)

$p$ity o% the lient there $re $l$ys to types o% lients ho $re either ris4 $/erse or the

other ones $re hose ris4 t$4in) $p$!ilities $re /ery hi)h.

(o#el Port%olio pts #i%%erent *n/estors into #i%%erent $te)ories n$"ely ;e$lth '$r#

;e$lth Heeper ;e$lth Bil#er e$lth enh$ner ;e$lth (ltiplier !$se# on e$h lients ris4 

t$4in) $p$ity $n# re$r# $ppetite.

The people ho o"e n#er 2Ris4 '$r#= $te)ory $re those ho h$/e lo ris4 t$4in)

$p$ity $n# ol# li4e to in/est hi)hly in on) Ter" $n# Short Ter" +e!ts. They $re the

ones ho li4e to spen# $l"ost $!ot F0 perent in o ris4 #e!t $n# 30 perent in on)

Ter" $n# Short Ter" +e!t $n# hene their ris4 t$4in) $p$ity is /ery lo.

The people ho o"e n#er ;e$lth Heeper $te)ory $re those ho h$/e $ !etter ris4 t$4in)$p$!ility th$n 2Ris4 '$r#= people !t still e/en they li4e to pl$y s$%e )$"e. They in/est

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$!ot 50perent in the o Ris4 +e!ts 35 perent in on) $n# Short Ter" +e!ts $n# 15

 perent in Eities.

The people ho o"e n#er ;e$lth Bil#er $te)ory $re those ho li4e to re"$in in $l"ost

e/ery $sset l$sses $n# li4e to 4eep $ "h #i/ersi%ie# port%olio. They 4eep $!ot 30 perent

o% their in/est"ents in o Ris4 +e!ts $n# $!ot 30 perent in on) ter" $n# Short ter"

+e!ts 30 perent *n Eities $n# the re"$inin) in other types o% Asset Cl$sses $n# hene

they $re the ones ho h$/e hi)her ris4 t$4in) $p$ities $s o"p$re# to ;e$lth '$r#s $n#

;e$lth Heepers.

The People ho o"e n#er ;e$lth Enh$ner $te)ory $re $or#in) to their n$"es $n# they

 !elie/e in enh$nin) the si<e o% their $pit$l $n# this li4e to t$4e hi)her ris4 in or#er to )et

hi)her $"ont o% retrn. They in/est hi)hly in Eities $n# in/est $!ot 0 perent in

Eities ,0 perent e$h in o Ris4 +e!t on) Ter" $n# Short ter" +e!ts $n# other $sset

l$sses.

The l$st $te)ory onsists o% the in/estors ho %$ll n#er the $te)ory o% ;e$lth (ltipliers.

They $re the ones ho li4e to "ltiply their "oney $n# li4e to t$4e /ery hi)h ris4s. They $re

the ones ho in/est $!ot 50 perent in Eities ,0 perent in other $sset l$sses $n# 15

 perent e$h in o Ris4 #e!ts $n# on) Ter" $n# Short Ter" +e!ts.

One o% the "ost i"port$nt $spets o% 4noin) yor lient in/ol/es $r$tely $ssessin) yor 

lients ris4 pro%ile. Not only #o lients nee# to n#erst$n# the ris4s they nee# to $ept the"

$s $ p$rt o% their in/est"ent proess.

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/+B G%++/ & &+ #'&F MAAG+'/

On Fth J$n$ry 1993 serities e7h$n)e !o$r# o% *n#i$ isse# re)l$tions to the port%olio"$n$)ers %or the re)l$tion o% port%olio "$n$)e"ent ser/ies !y "erh$nt !$n4ers. They $re$s %ollos:

•

Port%olio "$n$)e"ent ser/ies sh$ll !e in the n$tre o% in/est"ent or onslt$ny"$n$)e"ent %or $n $)ree# %ee $t lientDs ris4.

• The port%olio "$n$)er sh$ll not )$r$ntee retrn #iretly or in#iretly the %ee

shol# not !e #epen#e# pon or it shol# not !e retrn sh$rin) !$sis .

• I$rios ter"s o% $)ree"ents %ees #islosres o% ris4 $n# rep$y"ent shol# !e

"entione# .

• ClientDs %n#s shol# !e 4ept sep$r$tely in lient ise $ont hih shol# !e

s!8et to $#it.

• ($n$)er shol# report lients $t inter/$ls not e7ee#in) - "onths .

• Port%olio "$n$)er shol# "$int$in hi)h st$n#$r# o% inte)rity $n# not #esire $ny

 !ene%it #iretly or in#iretly %or" lientDs %n#s .

• The lient sh$ll !e entitle# to inspet the #o"ents .

• Port%olio "$n$)er shol# "$int$in hi)h st$n#$r# o% inte)rity $n# not #esire $ny

 !ene%it #iretly or in#iretly %or" lientDs %n#s .

• The lient sh$ll !e entitle# to inspet the #o"ents .

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• Port%olio "$n$)er sh$ll not in/est %n#s !elon)in) to lients in !$#l$ %in$nin) !ills

#isontin) $n# len#in) oper$tions .

• Client "oney $n !e in/este# in "oney $n# $pit$l "$r4et instr"ents .Settle"ent on

ter"in$tion o% ontr$t $s $)ree# in the ontr$t.

• ClientDs %n#s shol# !e 4ept in $ sep$r$te !$n4 $ont opene# in she#le#

o""eri$l !$n4.

• Prh$se or S$le o% serities sh$ll !e "$#e $t pre/$ilin) "$r4et prie .

• Port%olio "$n$)ers ith his lient $re %i#i$ry in n$tre. e sh$ll $t !oth $s $n $)ent

$n# trstee %or the %n#s reei/e#.

!< T! :!"$TRU:T A P!RT.!I! 9

;hile onstrtin) $ port%olio %olloin) points $re to !e t$4en into $ont:

1 i%idit'2 >or $ny types o% in/est"ents the "ost !$si thin) th$t is nee#e# is the

lii#ity. *n lii#ity %n#s $n# $nt" "$y #i%%er %ro" o"p$ny to o"p$ny $n#in/estor to in/estor !t still %or e/ery port%olio "$n$)er there shol# !e so"e $"ont o% 

lii#ity in h$n# hih $n !e tili<e# in the $se o% e"er)eny $n# "oreo/er hen the

"$r4ets $re #on. *t is $#/is$!le to 4eep so"e "ini"" $"ont o% lii#ity in h$n# "$y

 !e 10?15M.

G1 Time oriCon2 Ti"e hori<on is $ /ery i"port$nt %$tor %or $ny type o% in/est"ents.

One e $re $$re o% the ti"e hori<on %or hih in/est"ent h$s to !e 4ept e $n e$sily

n#erst$n# the #e"$n# %or lii#ity. Sppose i% the %n#s ill !e nee#e# $%ter $ short

 perio# o% ti"e then "ore "oney ill !e in/este# in lii# $n# ltr$ short ter" %n#s.

There%ore ti"e hori<on )i/es $ )oo# i#e$ o% the lii#ity reire#.

+1 Ris Profile2 ;hile #esi)nin) $ port%olio the one "ore i"port$nt $spet th$t h$s to !e

4ept in "in# is ris4 pro%ile the $p$!ility o% the in/estor to t$4e ris4. E/ery in/estor h$s $

#i%%erent ris4 $ppetite li4e N*=s !elon) to hi)h ino"e )rop $n# ths h$/e the $!ility to

t$4e hi)her ris4s hile the ret$il in/estors #on=t h$/e th$t hi)h ris4 t$4in) $p$ity ths

hile #esi)nin) port%olio it shol# !e 4ept in "in# th$t the "oney o% the s"$ll retri$l

in/estors is not lost !e$se they $re )ener$lly ris4 $/erse people $n# this loss o% "oney

ol# hrt the" "ore s it ol# hrt to the N*=S. Ble Chip o"p$nies li4e in#$lo

*TC #on=t in/est in ris4y she"es inste$# they in/est "ore in #e!t !e$se their $i" is not

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to "$4e "oney !t to )et $ little retrn on the i#le "oney. Ths hile #esi)nin) $

 port%olio or $ny in/estor it shol# ! 4ept in "in# th$t ho "h ris4 one is $!le to t$4e.

E1 Asset Allo7ation2 B$si$lly the $sset l$ssi%i$tion $n !e #one on to p$r$"eters the

tr$#ition$l $ssets $n# non? tr$#ition$l $ssets. The tr$#ition$l $sset onsists o% %i7e# ino"e

 !e$rin) $ssets $n# eities here$s the non?tr$#ition$l onsists o% Altern$te $ssets. >i7e#

ino"e $ssets onsists o% 'O* serities Bon#s C+=s CP=s RB* relie% !on#s *n#e7e#

 !on#s 'ilt %n#s short ter" %n#s >(P=s et. On the !$sis o% the ti"e hori<on lii#ity

$n# ris4 t$4in) $p$ity the $sset $llo$tion is #one. *% the in/estor h$s $ lon) ter"

in/est"ent hori<on $n# h$s $ )oo# $!ility o% t$4in) ris4 then "ore in/est"ents $n !e

"$#e in the eities $n# the re"$inin) $n !e $llo$te# in the %i7e# ino"e instr"ents

$n# the $ltern$te $sset l$ss. On the other si#e i% the ti"e hori<on is  !i) !t in/estor is ris4 

$/erse then "ore in/est"ents $n !e "$#e into )o/ern"ent !on#s on ontr$ry i% the

in/estor h$s $ short ter" in/est"ent hori<on $n# lo ris4 t$4in) $p$ity then  %n#s $n

 !e in/este# into the  "oney "$r4et instr"ents li4e tre$sry !ills o""eri$l p$perserti%i$te o% #eposits et.

-1 Maret >iew2 >or $ny port%olio "$n$)er the #iretion in hih "$r4ets $re )oin) to )o

is o% t"ost i"port$ne. B$se# on the eono"i sen$rio $n# the "$r4et sen$rio the

 port%olio "$n$)er ol# !e $!le to #ei#e th$t in hih instr"ents the "oney o% the

in/estor ol# !e in/este#. Sppose i% the in%l$tion is risin) then the interest r$tes $re

)oin) to )o p the !on# yiel# ill inre$se the sto4 "$r4ets ill o"e on then in th$t

sen$rio it is !etter to in/est "oney in )o/ern"ent !on#s $n# other %i7e# ino"e !e$rin)

serities. On the ontr$ry i% eono"y is %ree o% in%l$tion $n# sto4 "$r4ets $re #oin)

)oo# then it is !etter to in/est in eity "$r4et.

H1 Positioning $trateg'2 >or $ny in/est"ents positionin) str$te)y is /ery i"port$nt.

Positionin) str$te)y is nothin) !t the spot $llo$tion $n# the %in$l $llo$tion. Spot

$llo$tion #e$ls ith the $llo$tion in hih it is #ei#e# th$t ho "h "oney h$s to !e

$llo$te# to e$h $sset l$ss here$s %in$l $llo$tion #e$ls ith the in/est"ents in the

/$rios she"es or sto4s or !on#s et. there%ore the positionin) str$te)y is $lso

#epen#ent pon the "$r4et /ie i.e. the #iretion in hih "$r4ets $re )oin) to )o.  

F1 Target Ret%rn2 'ener$lly e/ery in/estor )i/es $n i#e$ to the port%olio "$n$)er th$tho "h retrn he $nts thro)h the estionn$ire. *n the estionn$ire e/ery estion

h$s !een $ssi)ne# so"e ei)ht$)e $n# !$se# on the $nsers o% the estions one $n

n#erst$n# the ris4 $ppetite $n# the nee# o% retrn o% e/ery in/estor. On the !$sis o% the

t$r)et retrn o% the in/estor the in/est"ents in /$rios $sset l$sses is "$#e. >or hi)her 

retrns the "ore in/est"ents $re "$#e in eity %n#s $n# #iret eities $n# lesser in

%i7e# ino"e $n# $ltern$te $ssets.

1 Ris Mitigation2 E/ery port%olio "$n$)er shol# 4eep in "in# th$t no "$tter ho rih

the in/estor is e%%orts to "ini"i<e the ris4 shol# $l$ys !e there. Ris4 "ini"i<$tion is

/ery i"port$nt %or e/ery type o% in/estors $n# hene e%%orts shol# !e "$#e on !etter 

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n#erst$n#in) o% the eono"y $n# the "$r4et so th$t the !etter in/est"ents ith lo ris4s

$n !e "$#e.

1 Ben70maring2  E$h port%olio shol# h$/e $ !enh"$r4 !enh"$r4 is neess$ry

 !e$se thro)h this only one $n #ei#e th$t ho the port%olio h$s pro)resse# !e$se

this ill only $t $s $ "e$sre %or the o"p$rison !eteen the $t$l per%or"$ne o% the

 port%olio $n# the !enh"$r4.

10. Portfolio #val%ation2 Port%olio is e/$l$te# hen the port%olio is o"p$re# ith the

 !enh"$r4 i% the port%olio per%or"s !etter th$n the !enh"$r4 it "e$ns th$t the port%olio

is #oin) ell $n# i% the port%olio is n$!le to !e$t the !enh"$r4 then it "e$ns th$t the

 port%olio is n#erper%or"in).

D#$I/"I"/ I">#$TM#"T PR!P!$A9

1. >ilin) p o% estionn$ire

,. Ris4 pro%ilin)

3. Eono"i otloo4  

. S))este# Asset $llo$tion: Spot

5. S))este# >in$l $llo$tion: She"es o% /$rios A(C=s

-. *n%or"$tion on the %n#s s))este#

1. .iling %p %estionnaire2 The /ery %irst thin) th$t is to !e #one in the #esi)nin) in thein/est"ent propos$l is to )et the in%or"$tion $!ot the in/estor %ro" the in/estor hi"sel%.

The in%or"$tion $n !e )$there# thro)h the estionn$ire hih ill !e %ille# !y the

in/estor herein there ill !e /$rios estions !$se# on the lients pro%ile li4e his $)e

)o$ls i% $ny the #r$tion %or hih he $nts the "oney to !e in/este# the ris4 pro%ile i.e.

#epen#in) pon the $sset $llo$tion. Ths the estionn$ire helps in pro%ilin) $n in/estor 

hih is the !$si reire"ent in #esi)nin) $ny in/est"ent propos$l.

,. Ris Profiling2 One the estionn$ire is #esi)ne# the ne7t i"port$nt thin) is ris4 

 pro%ilin). The ris4 pro%ilin) $n !e #one !y $llo$tin) the in/estor the $te)ories o% "o#el

 port%olio !$se# on the ris4 t$4in) $p$ity o% the in/estor $n# the type o% retrn th$t in/estor 

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$nts %ro" the port%olio. *% the in/estor $nts the hi)her retrn $n# is $!le to t$4e hi)her 

ris4 then he ill !e $llo$te# the 2e$lth "ltiplier= $te)ory here the in/estor $n in/est

"$7i"" p to 50 perent o% the orps in eities $n# re"$inin) in other $sset l$sses

here$s in the $te)ories li4e e$lth enh$ner e$lth !il#er e$lth 4eeper e$lth )$r#

the in/estor ol# s$lly 4eep $n in/est"ent o% 0 30 ,0 $n# 10 perent in eitiesrespeti/ely.

3.  #7onomi7 !%tloo2 One the ris4 pro%ilin) is #one he ne7t "ost i"port$nt thin) th$t is

#one is )ettin) $n insi)ht o% the eono"y. E/ery )oo# %n#Gport%olio "$n$)er ol# st#y

$n eono"i otloo4 in or#er to h$/e the !etter 4nole#)e o% instr"ents in hih the

in/est"ent $n !e "$#e. 

. $%ggested $pot Allo7ation2 One $ll the $!o/e "entione# steps h$/e !een %olloe# the

ne7t step is to #o the spot $llo$tion. The spot $llo$tion is nothin) !t the $sset $llo$tion it

tells the in/estor th$t ho "h in/est"ent shol# !e "$#e in /$rios $sset l$sses ho"h to !e #one in eity %n#s ho "h to !e #one in #iret eity ho "h in #e!t

%n#s ho "h in !$l$ne# %n#s ho "h in hy!ri# %n#s ho "h in )ilt %n#s

"onthly ino"e pl$ns %i7e# "$trity pl$ns et.

5. $%ggested .inal Allo7ation2 >in$l $llo$tion #e$ls ith the in/est"ent in the /$rios

she"es it tells s spei%i$lly th$t in hih she"es o% A(C the in/estor shol# in/est !e

it #e!t she"es !e it eity she"es !e it $ny other she"e o% the $ltern$te $ssets li4e

in/est"ents in )ol# %n#s )ol# ET>=s et.

-. Information on f%nds s%ggested2 One $ll the steps "entione# $!o/e $re #one thene7t step is to )i/e $$y the in%or"$tion $!ot the /$rios %n#s th$t h$/e !een s))este#.

ere the in%or"$tion $!ot the retrn o% the %n# ris4 in/ol/e# st$n#$r# #e/i$tion A@(

 !enh"$r4 $n# other riteri$ to "e$sre per%or"$ne $re )i/en.

Prin7iples of Instr%ment $ele7tion 9

1. S$%ety

,. Ris4 $ppetite3. Retrns. ii#ity5. Ti"e hori<on.

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T# P!RT.!I! PR!.II"/ .!R ** :R!R#

RUP##$ 6

>$tors t$4en into $ont hile onstrtin) the port%olio:

1. Ris Profiling: The ris4 pro%ilin) is #one ith the help o% $ estionn$ire onsistin) o% 10 or 

1 estions e$h $nser $rryin) $ ert$in ei)ht. The points $re $llo$te# to the $nsers

in $or#$ne to the ei)hts. The s$"ple estionn$ire h$s !een $tt$he# in the $nne7re.

Aor#in) to AB(( the ris4s $n !e l$ssi%ie# $s K

Ris4 pro%ile ? (e$nin) ?

Conser/$ti/e ;e$lth Protetor  

(o#er$tely Conser/$ti/e ;e$lth S$/er  B$l$ne# ;e$lth Bil#er  

(o#er$tely $))ressi/e ;e$lth Enh$ner  

A))ressi/e ;e$lth (ltiplier  

G1 Asset Allo7ation2 The "o#el port%olio type e h$/e selete# is so"eh$t si"il$r to th$t o% 

the e$lth !il#er here the $llo$tion is $s %ollos?

97 @ Ce"t

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79 @ quity57 @ A#ternate assets

+1 #7onomi7 !%tloo 6 

Aor#in)ly the Reser/e B$n4=s !$seline pro8etion o% '+P )roth %or the rrent ye$r isF.3 per ent. Trnin) to the #o"esti "$roeono"i sit$tion eono"i )roth+eeler$te# l$st ye$r #roppin) %ro" F.F per ent in the %irst $rter to -.9 perent in theseon# $rter $n# %rther #on to -.1 per ent in the thir# $rter. (o/in) on to in%l$tion;P* in%l$tion re"$ine# $!o/e 9 per ent #rin) April?No/e"!er ,011 "o#er$te# to -.9 per ent !y en# ($rh ,01,.

These ere the "$8or h$n)es !o)ht #rin) the sp$n o% 5 #$ys K 

Annone"ent o% the RB* poliy on 1Fth April ,01,.

Aor#in) to hih K 

• There $s $ re#tion in the repo r$te n#er the lii#ity $#8st"ent %$ility A> !y

50 !$sis points. The repo r$te ill $or#in)ly #rop %ro" 6.5 to 6.0 per ent.

• Conseent to this the re/erse repo r$te n#er the A> #eter"ine# ith $ spre$# o% 

100 !$sis points !elo the repo r$te )ets $li!r$te# to F.0 per ent.

• Si"il$rly the "$r)in$l st$n#in) %$ility (S> r$te hih h$s $ spre$# o% 100 !ps

$!o/e the repo r$te st$n#s $#8ste# to 9.0 per ent.

• *n or#er to pro/i#e )re$ter lii#ity shion the !orroin) li"it o% she#le#

o""eri$l !$n4s n#er the "$r)in$l st$n#in) %$ility (S> h$/e inre$se# %ro"one per ent to to per ent o% their net #e"$n# $n# ti"e li$!ilities N+T.E7pete# Oto"es?>irst )roth ill st$!ilise $ron# its rrent post?risis tren#. Seon# ris4s o% in%l$tion $n# in%l$tion e7pet$tions re?sr)in) ill !e ont$ine#. >in$lly the lii#ityshion $/$il$!le to the syste" ill !e enh$ne#.

Petrol pries in *n#i$ itnesse# the steepest inre$se o% Rs F.5 $ litre in its history in

the "onth o% ($y. The /$le o% rpee #oll$r tohes to o/er 5- $t the en# o% ($y.

. Maret !%tloo2 

The "$r4ets ere o/er 5,00 $s per the N*>TU in#e7 hen e st$rte# ith the port%olio i.e.

in the "i# o% the "onth o% April. ;here$s the "$r4ets pln)e# to !elo the 900 "$r4 $s

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1 o$

R is &

Ce "

t

1 o ng D

s h or t

t e rm

d e "t

T*

TA

1C

)

ell. The "$r4ets $re on $ #i"inishin) tren# sine the "onth o% ($y. The sit$tion still

st$n#s to !e nst$!le $n# on $ #on trn.

6E3333

6F3333

6G3333

/33333

/53333

/73333

/.3333

rall i,ty trnd

%at

#ric

I"ITIA I">#$TM#"T PR!P!$A .!R !UR P!RT.!I! ?

Ce"t 97 97quity 79

*ther Assets 57

/pot AllocationCe"t quity

*ther Assets

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q

u i

t

y

2

u

n

d

s

C

i r

e

c t

q

u i

t y

 T

*

 T

A

1

+

I T

J

 

#'&F F' '#++/ 100 "''+/

100.00 '/. : in cror;

A; < '/= %+B& 44.00 66

1. /(ort &r* Fund! 21.00 21

a) HC2B short term opportunity (0) /33 /

") A4is ,T Retai# P#an 2und (0) /33 /

c) IC2B ,,I2 – ,T 933 9d) IBIBI Prudentia# ,hort Term P#an @Institutiona# P#an (0) /33 /

 

2. i>uid ? ltra /(ort &r* Fund! 20.00 20

a) Banara Ro"eco Treasury Adv , IP (0) 933 9

") IBIBI Pru 2#e4i"#e Income Prm (0) /33 /

c) Re#iance 1iquidity /33 /

d) A4is 1iquid 'und – IP 633 6

 

3. #o!t o@c 'B ond! 3.00 3a) ?HAI 0ovt ond F73 5/3 5/

") ?HAI 0ovt ond F.3 5/3 5/

 

B; G ? /'& &+'M %+B& 18.00 18

1. nco* Fund! 16.00 16

a) ir#a ,1 Income P#us Ret (0) 933 9

") ,I Cynamic ond 2und (0) 633 6

c) Temp#eton India IA @A (0) 933 9

 3. Fi-d Maturity #lan 2.00 2

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a) Banara Ro"eco Intrnt# ,eries 7 t#y P#an 7Ret 733 7

 

"; +C&D 26.00 26

1. +>uity ,und! 6.00 9

a) Banara Ro"eco 1arge BapK (0) 5/3 5/") IBIBI pru 'ocused "#ue chip equity 'undgro$th .33 .

c) 2ran#in India #ue chip (0) 5/3 5/

 

2. %irct +>uity 20.00 20

Am"u>a Bements 733 7

BIP1A 733 7

Civis 1a"oratory 1.50 5/

Boa# India 1td 5/3 5/

0odre> Industries #td 533 5HC2B an 733 7

Hindustan +ni#iver 1imited 733 7

IBIBI an 733 7

ITB #td 5/3 5/

1arsen & Tou"ro 3/3 3/

<ahindra and <ahindra 5/3 5/

 Tata <otors 3/3 3/

 Tata stee# 533 5

Hero <otocorp 533 5

%; A&+'A&+ 12.00 61. t(r A!!t cla!!! 12.00 12

a) Lota 0o#d T2 933 9

") Re#iance 0o#d ,aving 2und 933 9

*% e o"p$re the $sset $llo$tion to the #i%%erent pro%iles o% the "o#el port%olio then e

re$li<e th$t the port%olio is so"eh$t si"il$r to the ;EAT B@*+ER pro%ile hih is

r$n4e# in the "i##le in ter"s o% the ris4 $n# retrn $ppetite. *n the e$lth !il#er pro%ile-0M o% the %n#s $re $llo$te# to the #e!t 30M to eity $n# the re"$inin) 10M to the other 

$ssets. The $sset $llo$tion in or $se is $lso si"il$r. -,M o% the #e!t $llo$tion h$s helpe#

in "iti)$tin) the ris4 o% the hole port%olio. ,-M o% the "oney into eity ot o% hih $

"$8or hn4 is in the #iret eity in ter"s o% sh$res. This is the "ost ris4y sphere $n# h$s

trne# ot to !e the sphere hih shoe# the ne)$ti/e retrns or losses. Ne/er the less it

#oes !e$t the !enh"$r4 e/en hen the "$r4ets ere on $ #ontrn %$llin) %ro" $

"$7i"" o% 5,,- to $ "ini"" o% 691 in the p$rtil$r sp$n o% 5 #$ys. The other $sset

l$sses inl#e# the )ol# ET>s hih is onsi#ere# to !e one o% the "ost s$%est !ets

espei$lly in the *n#i$n "$r4et. 1,M o% the %n#s ere in/este# into )ol#. E/en $t the ti"e

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hen the "$r4ets $re not per%or"in) ell the port%olio )$/e positi/e reslts !e$tin) the

 !enh"$r4 #r$sti$lly.

<0' HGJ in DetK

The #e!t o"position o% -,M o"prises o% M o% o ris4 #e!t hih inl#es the short

ter" $n# the ltr$ short ter" lii# %n#s. These $re the %n#s hih h$/e lo ris4 $tt$he#

to it. They in/est in "oney "$r4et instr"ents "$8orly. The ltr$ short ter" $n# the lii#

%n#s $re $ neessity to the port%olio $s they $n !e lii#$te# e$sily ithot $itin) "h

$n# $n !e in/este# into $ny other she"e or sto4s $s $n# hen the "$r4et $llos. These

lo ris4 instr"ents )i/es $ no"in$l retrn $re lo ris4 instr"ents $n# h$/e sper%los

lii#ity. An# ths $re $ neessity $s ell $s the s$%est !et in or#er to re"$in sere# %ro" the

"$r4et ris4. Also interest r$tes $n# the pries o% the short ter" %n#s $re in/ersely rel$te#.

;ith the %$ll in the interest r$tes $s per the l$test 'o/ern"ent noti%i$tion the pries o% the

short ter" %n#s ol# inre$se le$#in) to the prie )$in $n# rise in the retrn. ;e $n $lso

see the s$"e in or port%olio here $ll the she"es n#er this $te)ory $re per%or"in) ell

$n# )i/in) onst$nt positi/e retrns.

16M o% the "oney $s in/este# in the lon) ter" or the "e#i" ter" she"es inl#in) the

ino"e %n#s $n# the >(Ps here the prospeti/e is lon) ter". ;ith ti"e the retrns $re

e7pete# to 4eep on inre$sin). These %n#s in/ests in #e!t instr"ents li4e !$n4 #eposits

 !on#s et. hih )i/es $ onst$nt retrn.

The re"$inin) 3M h$/e !een in/este# in the 'o/ern"ent$l !on#s the re$son %or the s$"e

 !ein) K the %$l999 the !on#s h$/e t$7 !ene%its hih $re r$re to see in $ny other instr"ents.

These pries o% these )o/ern"ent !on#s h$/e shon $ sh$rp rise o/er $ perio# o% ti"e. An#

ths the retrns on the s$"e $re $lso o""en#$!le. These !on#s )i/es s , types o% )$in K 

the $pit$l )$in e/ery - "onths $n# the onst$nt prie )$in #$ily !$sis.

Alto)ether ths #e!t is onsi#ere# to !e $ rel$ti/ely s$%e option to in/est in spei$lly n#er 

the pre/$ilin) "$r4et on#itions. Also the retrns h$/e !een positi/e on e/ery #$y !$sis. The

$!solte retrn o% e$h o% the %n# $n# the !on# n#er this $te)ory st$n#s !eteen 1M?

1.5M. Also the $te)ory h$s shon s onst$nt reslts.

<0' GHJ in #%it'K

Eity is $ ris4y st$4e to in/est in. Bt hi)her the ris4 in/ol/e# i"plies hi)her the h$nes o% 

retrn. Eity h$s $ potenti$l o% #estroyin) or "$4in) the hole port%olio #epen#in) pon

the pre/$ilin) "$r4et sit$tion $n# rel$te# %$tors. One in/ests in eity "$r4ets ith the

hope o% stpen#os retrns hih o"es in hen the "$r4et is !llish. The lon) ter"in/est"ent in the s$"e $n yiel# #r$sti retrns. Eity is $ /$st sphere onsistin) o% eity

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%n#s $n# the srips o% the o"p$nies. The !enh"$r4 t$4en in the port%olio is N*>TU.

Altho)h the eity setion #i# not sho $ny positi/e retrns it is !e$tin) the !enh"$r4 

sess%lly.

<0' GJ into ot0er asset 7lassesK

1,M o% the tot$l 100 rore rpees is in/este# into the other $sset l$sses hih in or 

 port%olio onsists o% the 'ol# ET>s. 'ol# is onsi#ere# to !e $n $spiios in/est"ent

spei$lly hen e rel$te it ith the *n#i$n onte7t Also it is li4e $n e/er)reen in/est"ent

option here the pries $re e7pete# to rise on $ ontinos !$sis. The re s$le /$le o% )ol#

is $lso )oo# $n# ths in/estin) in )ol# pro/es to !e $ !ene%ii$l o"ponent in or port%olio.

At the en# o% the port%olio e $n $lso see th$t the )ol# ET> prie hi4e h$/e #r$sti$llyshi%te# the port%olio retrns on $n p$r# tren#.

ow were t0e instr%ments %nder ea70 0ead sele7tedK

• T0e past ret%rn trend K Tr$4in) the p$st 5 ye$r 3 ye$r 1 ye$r - "onths 3 "onths 1

"onth reor#s on the pro%its $n# the retrns. The histori$l tren# pl$ys $n i"port$nt

role #e to the notion th$t ? history repe$ts itsel% $n# the pries $lone re%let

e/erythin).

•  T0e ratings K All these %n#s h$/e !een r$te# !y the r$tin) $)enies. CR*S* !ein) the

"ost pro"inent one. The r$tin)s #i%%er %ro" AAA to + on the #i"inishin) tren#. *n

ter"s o% short ter" instr"ents *t r$n)es %ro" A1 to +. On the #i"inishin) tren#.

• T0e Ratios K Treynor r$tio $n# Sh$rpe r$tio

• Beta K This in#i$tes the ris4iness o% $ p$rtil$r she"e. *t is "$8orly se# hile

seletin) the eity %n#s. *t i"plies the /ol$tility. The st$tisti$l ter" se# %or the

s$"e is st$n#$r# #e/i$tion.

• Alp0a K ;hih is the (t$l %n# retrn s!tr$te# %ro" the Benh"$r4 retrn. i)her 

the $lph$ the !etter it is.

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•  P# ratio K this is p$rtil$rly se# %or the eity. i)h PE r$tio i"plies e7pensi/e

/$l$tion $n# the other $y ron#. The PE r$tio o% $ %n# or $ sh$re shol# !e

o"p$re# to the PE r$tio o% the in#e7 or the in#stry in or#er to )et $ !etter /ie on

the s$"e.

• Dividend s70eme K A)$in this %ollos in the $se o% eity sh$res the #i/i#en# she"e

o% the o"p$ny shol# !e onsi#ere# hile %in$lisin) $ny sto4.

• :apitalisation K $r)e $p %n#s $re onsi#ere# to !e less ris4y sine they onsist o% 

the o"p$nies hih $re "ore est$!lishe#. ;here $s i% one t$4es the s"$ll or the

"e#i" $p sto4s or %n#s hose in/est"ent is o"p$r$ti/ely loer $n# hih

onsists o% rel$ti/ely ne $n# s"$ll o"p$nies the ris4 inre$ses ith the s$"e.

• Ta8 %otient K There $re ert$in t$7 %ree instr"ents li4e the NA* !on#s hih e

h$/e inl#e# n or port%olio. These help s in s$/in) the t$7 e7penses.

• T0e e8it and t0e entr' load K The e7it lo$# %or ert$in she"es $re $y too "h $n#

ths shol# !e $/oi#e# spei$lly hile #e$lin) * the short ter".

•   Performan7e vs t0e 7ategor' average is $nother onsi#er$tion hih shos s ho

the %n# is per%or"in) ith respet to the other %n#s o% the s$"e $te)ory.

•   T0e worst and t0e est pri7es or the hi)hest $n# the loest NAIs o% $ p$rtil$r %n#

or $ sto4 helps in $sert$inin) the ti"in) o% the %n# G sto4. The in/est"ent shol#

not !e #one hen the pries $re $t the $ll ti"e hi)h.

•   T0e news and t0e :ompan' %pdates K The reent nes rel$te# to the o"p$ny to

the in#stry $n# to the eono"y pl$ys $n i"port$nt role in in/estin) or #is?in/estin)

in $ p$rtil$r %n# or sh$re. The h$n)e in the "$n$)e"ent o% $ o"p$ny h$n)e in

the %n# "$n$)ers the "er)ers $n# $isitions the h$n)e in the #i/i#en# poliy

the h$n)es in the 'o/ern"ent$l poliies t$7 she"es et h$/e the potenti$l o% 

$psi<in) the pries o% $n instr"ent o"pletely.

•   The %n#s ere $lso selete# on the !$sis o% the internal portfolio 7omposition or the

$sset $llo$tion o% e$h %n#. The o"p$nies $n# the instr"ents e$h %n# in/este#

in.

•   The EPS +PS o% $ p$rtil$r sh$re hih shos the Co"p$ny?in/estor rel$tion too.

• Rel$tionship !eteen interest r$tes $n# #e!t "t$l %n# she"es ? As interest r$tes

%$ll the NAI o% #e!t "t$l %n#s rise sine the pries o% the #e!t instr"ents the"t$l %n# is hol#in) rises. As interest r$tes rise the NAI o% #e!t "t$l %n#s %$llsine the pries o% the #e!t instr"ents the "t$l %n# is hol#in) %$lls.

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TI$ I$ !< $!M# !. T# $T!:;$ <#R# $##:T#D 6 

Infos's  K The rpee #oll$r e7h$n)e /$le tohin) to the e7tent o% Rs 5-GZ. This i"plies

th$t the o"p$nies li4e *n%osys hih e$rn in #oll$rs ill h$/e inre$se# e$rnin)s $n# ths

the pries o% the sh$res ill !e e7pete# to rise.

EPS 1F.50 +i/ M V90M PGE V 1-.0M *n#stry PGE V 1F.99M.

Reslt V A!solte retrn o/er $ sp$n o% 5 #$ys hen the "$r4ets ere on $ %$ll V ,.653M.

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7.337.737.637.937.F3763376737663

#ric trnd o, n,o!y!

%at

#ric

:ipla K Ph$r"$eti$l in#stry is onsi#ere# to !e $ s$%e !et $t the ti"e o% nst$!le "$r4ets.

Cipl$ !ein) one o% the stron)est ph$r"$eti$l o"p$nies $s ths selete#. Also Cipl$ h$#

cut the price o' the generic version o' ayer;s rena# cancer drug ?e4avar "y E/

percent A#so meeting the targeted gro$th percentage

%ii! aoratory – ,ho$ed a /3 gro$th on the quarter on quarter "asis ('or

the 6th quarter 7355@57) Again a part o' pharmaceutica# sector $hich is a strong

sector in the $ea time

:oal India ltd K A l$r)e $p %n# ith PE r$tio o% ,5.5 here the in#stry PE st$n# to !e

1-.3- #i/i#en# to !e 39M. *t $s onsi#ere# to !e $ s$%e !et #e to p$st onst$nt prie

%lt$tions.

:olgate Palmolive K A person$l $re setor o"p$ny hih "eets the "$r4et PE r$tio $n#

h$s $ reent inre$se o% 15M in the /ol"e %or the l$st [. The %$st "o/in) ons"er )oo#s

ere toppin) ot #rin) this ti"e. Rs 1,50 ere the $ll ti"e hi)h prie o% this sh$re hih

$s e"!e##e# in or port%olio $n# ths e $n s$y th$t the sh$re $s $ orret pi4.

D.: Ban   K PE r$tio $ppro7i"$tely thrie the in#stry PE r$tio. +i/i#en# perent$)e

 !ein) 1-5M. @po"in) #i/i#en# V ,15M. Prie inre$se #e to $llot"ent o% eity sh$res

n#er ESOP. [ net 8"ps on 30M ith stron)er hope le$#in) to the $ll?ti"e hi)h prie $s

on 1Fth April hih is the st$rt o% or port%olio. The sto4 shol# ne/er !e in/este# on the $ll?

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ti"e hi)h pries this is the lesson le$rnt %ro" the s$"e $s no the pries $re !elo the $ll

ti"e hi)h prie.

:A"/#$ MAD# I" T# P!RT.!I! 6 

The port%olio st$rte# ith the losin) pries o% 1- th April. The %irst h$n)es in the port%olio

ere e"!e##e# on the ,0th o% April here e h$l/e# the $llo$tion o% *C*C* %ose# !le

hip %n# $n# prne# the sh$res o% A"!8$ e"ents. The h$n)es ere #one 4eepin) in "in#

the "o/e"ent o% the pries $n# the ris4 $tt$he# to the s$"e. To pl$y s$%e e e7ite# ot o% 

 !oth o% these to pre/ent $ny %tre potenti$l losses. ;e #i# "$4e pro%it on the s$"e e/en

$%ter #e#tin) the e7it lo$# h$r)es $n# the "ini"$l loss on the prie. *n the pl$e o% the

s$"e hen the "oney $s re$li<e# th$t is $%ter tW, #$ys the 3.5M $s rein/este# in *+>C

sterlin) ' eity %n# $n# in the sto4s o% *n%osys hih shoe# $ tot$l p$r# "o/e"ent

#e to the BPO setor hih per%or"e# ell $lso #e to the $ll ti"e rise in the /$le o% 

rpee the sto4 prie o% *n%osys rose $s the o"p$ny e$rns in #oll$rs. Ths e $n s$y th$t

*n%osys $s $ ri)ht pi4.

The other h$n)es ere "$#e on the 3r# o% ($y hen e sol# the sh$res o% hero "otoorp

$n# )o#re8 this onstitte# o% ,M o% the port%olio. 'o#re8 $s !o)ht on the 3 Kye$r ?hi)h

 pries $n# the pries $%ter prh$sin) the s$"e ere onst$ntly #ere$sin) ths e #ei#e#to )et ot o% this sto4 $s soon $s possi!le !y !oo4in) loss. The sh$res o% hero "otoorp

$s $lso shoin) $ ontinos #eline $lso it $s $ /ery $))ressi/e sto4 hih ol#n=t

h$/e !een $%%or#e# $t sh "$r4et on#itions. The N*>TU $s on the !rin4 o% )ettin) loer 

th$n the 900 "$r4 $n# ths #i/estin) in $ll o% the" $s $ s$%e option $n# pro/e# to !e

 !ene%ii$l to the port%olio too. *n the pl$e o% these sh$res Col)$te p$l" hih #e$ls ith

ons"er pro#ts $s prh$se#. *n/estin) in this setor $s $ s$%e option $t this ti"e.

AT T# #"D !. E- DAY$ 9

C$te)ory? (t$l >n#Gsto4 A!solteretrn

;ei)hte# retrn

i)hest retrn )i/in)+e!t %n#

Birl$ S ino"e plsRET K '

1.-,M

i)hest retrn )i/in)sto4

+i/is $!or$tory 15.93M

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;orst per%or"in)sto4 

T$t$ (otors ?,1.9FM

Best ei)hte# retrns Hot$4 'ol# ET> 0.3-M

At the en# o% 5 #$ys e see th$t the $!solte retrns st$n# $t 0.9531M. This i"plies th$t the

/$le o% 100 rore rpees no h$s inre$se# to Rs 100.9531 rore. The pro%it %or the 5 #$ys

on the port%olio $n !e ron#e# o%% $s 1 rore rpees. The $nn$li<e# retrn is F.5-3M.

The port%olio h$s #one ell e/en $t the ti"e hen the "$r4ets ere on the #on trn. ;e

$n $lso notie th$t $ll the #e!t %n#s !on#s eity %n#s sh$res $n# )ol# ET>s $re

in#i/i#$lly !e$tin) the !enh"$r4 retrns too.

;e $n s""$ri<e or Port%olio $s %ollos K

These $re on the !$sis o% the ee4ly $!solte $n# the !enh"$r4 retrns. The 7?$7is in#i$tes

the ee4s $n# the y?$7is the retrns.

@573

@533

@3F3

@393

@363

@373

333

373

363

393

3F3

A"so#ute resu#ts

enchmar resu#ts

!< P!RT.!I! R#>I#< I$ D!"# 9

Port%olio Re/ie is #one to see th$t ho the in/estors in/est"ents $re per%or"in) $n# h$t

reo""en#$tions $n !e "$#e !y the port%olio "$n$)er to the in/estor sh $s hih

she"e is #oin) )oo# hih she"e shol# !e hel# !y the in/estor %ro" hih she"e the

in/estor shol# e7it in hih she"e shol# the in/estor !oo4 pro%its $ll these thin)s $re

t$4en $re o% in port%olio re/ies. Port%olio re/ie is #one e/ery "onth !t $ny $lter$tion in

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the port%olio is )ener$lly #one $rterly in or#er to re#e the hrnin) $n# re#e the

hrnin) h$r)es.

The %olloin) steps $re %olloe# in #oin) port%olio re/ies:

1 Investment Profiling2 *n/est"ent pro%ilin) #e$ls ith )ettin) the !$si in%or"$tion$!ot the in/estor li4e his n$"e $)e *n/est"ent hori<on $sset l$ss pre%erene e7istin)

 port%olio #et$ils ris4 $ppetite (oney to !e #eploye# i% there is $ny $ny ith#r$$ls #rin)

in/est"ent hori<on et. This pro%ilin) !$si$lly #e$ls ith e/ery in%or"$tion $!ot the

in/estor st$rtin) %ro" his person$l in%or"$tion to his in/est"ent str$te)ies $n# $"ont i% 

there is $ny to !e #eploye#.

G1 Investment Details2  *t ont$ins $l"ost $ll the #et$ils o% the in/est"ent "$#e !y the

lient li4e the she"es o% /$rios A(C=S in hih the lient h$s in/este# the type o% %n#s

li4e #i/i#en# %n#s )roth %n#s the #$te on hih in/estor in/este# n"!er o% nits

 prh$se# the in/est"ent "o#e hether in l"p s" or inst$ll"ent.

3. Portfolio Anal'sis2 Port%olio An$lysis #e$ls ith $n$ly<in) the o"plete port%olio o% the

in/estor. ere the re/ie is #one tie one the re/ie o% rrent in/est"ents is #one $n#

seon# ti"e the s))estions $re "$#e to the in/estor li4e in hih she"es he $n in/est

%rther $n# %ro" hih she"es he shol# e7it in hih she"es he shol# !oo4 pro%it $n#

hol#. This s))estions "$#e $re 4non $s post re/ie $n# the re/ie o% the rrent

in/est"ents is 4non $s the pre re/ie. This $n$lysis is #one ith the help o% the h$rts $n#

is #one in e7el.

ere the port%olio is shon in three $ys li4e

$. :ategor' wise e8pos%re2 C$te)ory ise e7posre is the one here the in/estor=s

in/est"ents $re shon in the %or" o% /$rios $te)ories li4e in/est"ents in #i/ersi%ie#

she"es !$l$ne# she"es the"$ti she"es "onthly ino"e pl$ns %i7e# "$trity pl$ns

et.

(1) AM: wise e8pos%re2 *n this $se the in/estor=s in/est"ents $re shon $s per the

in/est"ents "$#e in /$rios $sset "$n$)e"ent o"p$nies. ere the in/estors  e7posre to

/$rios $sset "$n$)e"ent o"p$nies is shon 8st to )i/e $n i#e$ o% ho "h in/est"entis !een "$#e !y the in/estor in $ p$rtil$r $sset "$n$)e"ent o"p$ny.

. $70eme wise e8pos%re2 *n she"e ise e7posre the in/estor=s in/est"ents in /$rios

she"es o% /$rios $te)ories in /$rios A(C=S is shon. This )i/es s the pitre o% 

/$rios she"es in hih the in/estor h$s in/este# "oney.

E1 Portfolio Review2 The port%olio re/ie )i/es the #et$ils $!ot the in/estor=s in/est"ents

$n# h$t shol# !e the rrent pl$n o% $tion $s %$r $s the rrent in/est"ents $re onerne#.

i4e %ro" hih she"e in/estor shol# e7it in hih she"e in/estor shol# 4eep his

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in/est"ents int$t in hih she"es shol# the in/estor !oo4 pro%its $n# in $se i% the

sithin) o/er h$s to !e $#/ise# then to hih she"e the sithin) o/er shol# !e #one.

The port%olio re/ie ont$ins $ll the #et$ils o% the in/est"ents li4e the n$"e o% the she"e

the A(C to hih it !elon)s the $te)ory to hih it !elon)s the in/est"ent #$te n"!er 

o% nits in/estor is h$/in) the rrent NAI hol#in) perio# rrent /$le $"ont o% e7posre $n# %rther the re"$r4s i% $ny li4e hol# e7it !oo4 pro%its sith o/er et.

-1 Performan7e2 *n this step the per%or"$ne o% the /$rios she"es is "e$sre#. ere the

#et$ils $!ot the ris4 $n# the retrn $!solte $n# CA'R $re )i/en $lso the !enh"$r4 

%i)res $re )i/en in or#er to o"p$re the $t$l per%or"$ne o% the she"e ith respet to

the !enh"$r4. The !enh"$r4 is )ener$lly $ p$rtil$r in#e7 there%ore the per%or"$ne o% 

the p$rtil$r she"e is "e$sre# ith the per%or"$ne o% the in#e7. *t $lso ont$ins the

in%or"$tion $!ot the e7it lo$# i% $ny in the she"e s$lly e/ery she"e #oes not h$/e e7it

lo$# $ %e she"es h$/e the e7it lo$# h$r)e.

-. !servations and $%ggestions2 O!ser/$tions t$l4s $!ot the %in#in)s %ro" the rrent

in/est"ent o% the in/estor here$s s))estions t$l4 $!ot the h$n)es th$t $n !e "$#e to the

in/estor=s in/est"ents in or#er to "$4e his port%olio !$l$ne# $n# "ore pro%it$!le.

The /$rios thin)s th$t $re s$lly $ p$rt o% the o!ser/$tions $n# s))estions $re:

• The $sset l$ss e7posre o% the lient.

• The tot$l n"!er o% she"es in hih the in/est"ents $re "$#e $n# h$t shol# !e the pl$n

o% $tion hether the in/est"ents shol# !e %rther "$#e in so"e "ore she"es or thein/est"ents shol# !e re#e# %ro" so "$ny she"es.

• The in/est"ents $re "$#e in ho "$ny A(C=s $n# %rther the n"!er shol# !e inre$se#

or re#e#.

• *s the pro%it !oo4in) $#/is$!le $n# i% yes then here th$t "oney $%ter !oo4in) pro%its

shol# !e rein/este#.

•  >rther the port%olio "$n$)er $n )i/e $ny other reo""en#$tions on his on seein) the

rrent "$r4et sen$rio $n# the "o/e"ent o% eono"y in ne$r %tre.

:on7l%sion2

This pro8et o% port%olio "$n$)e"ent helpe# "e in n#erst$n#in) the onept o% port%olio

"$n$)e"ent $n# in %or"l$tin) the port%olio. *t $lso helpe# in #e/elopin) 4no ho o% 

$ssets $llo$tion $s per the ris4 $ppetite $)e $n# in/est"ent hori<on o% the in/estor.

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This pro8et $lso helpe# "e in %or"l$tin) the in/est"ent propos$l %or 100 rore rpees

hih reire $ )oo# 4nole#)e o% $sset $llo$tion !$se# on in/estor pro%ile. This Pro8et

$s /ery se%l %ro" the point o% /ie o% n#erst$n#in) the seletion o% "t$l %n#

she"es eity $n# #e!t $n# $lso the sto4s.

Port%olio re/ie is $lso $n i"port$nt p$rt o% the port%olio "$n$)e"ent it helps the hol#er o% 

the port%olio in n#erst$n#in) the position o% the port%olio onsi#erin) eono"y $n# the

"$r4ets. *t $lso in%or"s the hol#er o% the port%olio th$t hih %n# or serity is

otper%or"in) $n# hih one is n#erper%or"in) so th$t one $n 8#)e th$t %ro" hih %n#

he shol# e7it $n# in hih %n# he shol# !oo4 pro%its $n# hih %n# shol# !e hel#.

BIBI!/RAPY2 

<esites Referred2

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.se!i.)o/.in

.r!i.or).in

.in/estope#i$.o"

.)oo)le.o"

.nsein#i$.o"

.$"%iin#i$.o"

Boos, 5o%rnals, MagaCines Referred2

The >in$ni$l Pl$nnin) K *n#i$n *nstitte o% B$n4in) $n# >in$ne

The (t$l >n#s ? !y S$n4$r$n

(onthly ($r4et Re/ie K A#ity$ Birl$ (oney ($rt

*n/esti"e K A#ity$ Birl$ (oney ($rt

$oftware@s %sed2

ACE (> K (t$l %n# +$t$ %ro" A(C=s

Reters 3000 e7tr$

(t$l >n# *nst$ Port%olio Tr$4er 

Bsiness Be$on K ($ro?eono"i #$t$