Executive Summary

When you hear the term portfolio management, what do you think of? Chances are
that the images that spring to mind depend greatly on your financial situation and your
educational and professional background. Some people will think of mutual fund
managers, while others will think of richly paneled conference rooms and wealthy
individuals strategizing with their financial advisors. The reality of the current world
of financial planning is that every adult should be somewhat conversant with concepts
of portfolio management. Most working adults will ultimately be responsible for
making sure that their future non-wage income is sufficient to meet their needs. In the
old world of pension plans, your pension plan provider carried all the risks of being
able to invest properly so as to fund a guaranteed future income to you.

In todays world, the funds you have available for future income will be largely (if not
wholly) determined by what you save and how you manage your total portfolio.

For a quick definition, I describe portfolio management as the process of planning and
executing a portfolio of investments in order to generate a desired future income
stream. This means that portfolio management starts with looking at what you are
investing for, and how far into the future you are looking. The next stage is to look at
how much you need to invest, how you allocate those investments to meet your goals
with reasonable certainty, and how much uncertainty you are willing to bear. Finally,
portfolio management is an ongoing process of reviewing your plans and altering
those plans as time goes on.

For many people, these concepts will sound pretty abstract. If you ask people what
toolsthey use in their managing their personal portfolios, you are likely to get some
fairly blank looks back, even if you are talking to people with substantial investments.

Many (if not most) financial advisors still use fairly simplistic tools for portfolio
planning and have no way to estimate the optimal portfolio balance of risk and return
to meet a clients personal goals. The good news is that there are standard financial
techniques that can dramatically assist individuals in portfolio management.

These financial techniques, embedded in software, will show you your financial
portfolio in ways that you have not considered previously and will enable you to make
far better portfolio management decisions.

INTRODUCTION
Investing in securities such as shares, debentures, and bonds is profitable as well as
exciting. It is indeed rewarding, but involves a great deal of risk and calls for
scientific knowledge as well artistic skill. In such investments both rationale and
emotional responses are involved. Investing in financial securities is now considered
to be one of the best avenues for investing one savings while it is acknowledged to be
one of the best avenues for investing one saving while it is acknowledged to be one of
the most risky avenues of investment.

It is rare to find investors investing their entire savings in a single security. Instead,
they tend to invest in a group of securities. Such a group of securities is called
portfolio. Creation of a portfolio helps to reduce risk, without sacrificing returns.
Portfolio management deals with the analysis of individual securities as well as with
the theory and practice of optimally combining securities into portfolios. An investor
who understands the fundamental principles and analytical aspects of portfolio
management has a better chance of success.

Portfolio management is all about strengths, weaknesses, opportunities and threats in

the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many
other tradeoffs encountered in the attempt to maximize return at a given appetite for
risk.

WHAT IS PORTFOLIO MANAGEMENT?

An investor considering investment in securities is faced with the problem of
choosing from among a large number of securities and how to allocate his funds over
this group of securities. Again he is faced with problem of deciding which securities
to hold and how much to invest in each. The risk and return are the characteristics of
portfolios. The investor tries to choose the optimal portfolio taking into consideration
the risk return characteristics of all possible portfolios.
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An investor invests his funds in a portfolio expecting to get good returns consistent
with the risk that he has to bear. The return realized from the portfolio has to be
measured and the performance of the portfolio has to be evaluated.

It is evident that rational investment activity involves creation of an investment

portfolio. Portfolio management comprises all the processes involved in the creation
and maintenance of an investment portfolio. It deals specifically with the security
analysis, portfolio analysis, portfolio selection, portfolio revision & portfolio
evaluation. Portfolio management makes use of analytical techniques of analysis and
conceptual theories regarding rational allocation of funds. Portfolio management is a
complex process which tries to make investment activity more rewarding and less
risky.

Portfolio management is the on-going process of constructing portfolios that balance

an investor's ever changing goals with the portfolio manager's assumptions about the
future.

OBJECTIVES OF PORTFOLIO MANAGEMENT

The basic objective of Portfolio Management is to maximize yield and minimize risk.
The other objectives are as follows:

Stability of Income:
An investor considers stability of income from his investment. He also considers
the stability of purchasing power of income.

Capital Growth:
Capital appreciation has become an important investment principle. Investors seek
growth stocks which provide a very large capital appreciation by way of rights,
bonus and appreciation in the market price of a share.

Liquidity:
An investment is a liquid asset. It can be converted into cash with the help of a
stock exchange. Investment should be liquid as well as marketable. The portfolio
should contain a planned proportion of high-grade and readily salvable
investment.

Safety:
Safety means protection for investment against loss under reasonably variations.
In order to provide safety, a careful review of economic and industry trends is
necessary. In other words, errors in portfolio are unavoidable and it requires
extensive diversification.

Tax Incentives:
Investors try to minimize their tax liabilities from the investments. The portfolio
manager has to keep a list of such investment avenues along with the return risk,
profile, tax implications, yields and other returns.

SELECTION OF PORTFOLIO
The selection of portfolio depends upon the objectives of the investor. The selection
of portfolio under different objectives are dealt subsequently

Objectives and asset mix:

If the main objective is getting adequate amount of current income, sixty percent of
the investment is made in debt instruments and remaining in equity. Proportion varies
according to individual preference.

Growth of income and asset mix:

Here the investor requires a certain percentage of growth as the income from the
capital he has invested. The proportion of equity varies from 60 to 100 % and that of

debt from 0 to 40 %. The debt may be included to minimize risk and to get tax
exemption.

Capital appreciation and Asset Mix:

It means that value of the investment made increases over the year. Investment in real
estate can give faster capital appreciation but the problem is of liquidity. In the capital
market, the value of the shares is much higher than the original issue price. Safety of
principle and asset mix: Usually, the risk adverse investors are very particular about
the stability of principal. Generally old people are more sensitive towards safety.

Risk and return analysis:

An investor wants higher returns at the lower risk. But the rule of the game is that
more risk, more return. So while making a portfolio the investor must judge the risk
taking capability and the returns desired.

Diversification:
Once the asset mix is determined and risk return relationship is analyzed the next
step is to diversify the portfolio. The main advantage of diversification is that the
unsystematic risk is minimized.

PORTFOLIO MANAGEMENT PROCESS

The portfolio management process is the process an investor takes to aid him in
meeting his investment goals.
The procedure is as follows:

Create a Policy Statement -A policy statement is the statement that contains

the investor's goals and constraints as it relates to his investments.

Develop an Investment Strategy - This entails creating a strategy that

combines the investor's goals and objectives with current financial market and
economic conditions.

Implement the Plan Created -This entails putting the investment strategy to
work, investing in a portfolio that meets the client's goals and constraint
requirements.

Monitor and Update the Plan -Both markets and investors' needs change as
time changes. As such, it is important to monitor for these changes as they
occur and to update the plan to adjust for the changes that have occurred.

PORTFOLIO MANAGER

Portfolio Manager is a professional who manages the portfolio of an investor with

the objective of profitability, growth and risk minimization.

According to SEBI, Any person who pursuant to a contract or arrangement with a

client, advises or directs or undertakes on behalf of the client the management or
administration of a portfolio of securities or the funds of the client, as the case
may be is a portfolio manager.

He is expected to manage the investors assets prudently and choose particular

investment avenues appropriate for particular times aiming at maximization of
profit. He tracks and monitors all your investments, cash flow and assets, through
live price updates. The manager has to balance the parameters which defines a
good investment i.e. security, liquidity and return. The goal is to obtain the highest
return for the client of the managed portfolio.
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There are two types of portfolio manager known as Discretionary Portfolio

Manager and Non Discretionary Portfolio Manager. Discretionary portfolio
manager is the one who individually and independently manages the funds of each
client in accordance with the needs of the client and non- discretionary portfolio
manager is the one who manages the funds in accordance with the directions of
the client.

GENERAL RESPONSIBILITIES OF A PORTFOLIO MANAGER

Following are some of the responsibilities of a Portfolio Manager:

The portfolio manager shall act in a fiduciary capacity with regard to the client's
funds.

The portfolio manager shall transact the securities within the limitations placed by
the client.

The portfolio manager shall not derive any direct or indirect benefit out of the
client's funds or securities.

The portfolio manager shall not borrow funds or securities on behalf of the client.

The portfolio manager shall ensure proper and timely handling of complaints from
his clients and take appropriate action immediately

The portfolio manager shall not lend securities held on behalf of clients to a third
person except as provided under these regulations.

CODE OF CONDUCT OF A PORTFOLIO MANAGER

Every portfolio manager in India as per the regulation 13 of SEBI shall follow the
following Code of Conduct:

A portfolio manager shall maintain a high standard of integrity

fairness.

The clients funds should be deployed as soon as he receives.

A Portfolio manager shall render all times high standards and

unbiased service.

A portfolio manager shall not make any statement that is likely to be

harmful to the integration of other portfolio manager.

A portfolio manager shall not make any exaggerated statement.

A portfolio manager shall not disclose to any client or press any

confidential information about his client, which has come to his
knowledge.

A portfolio manager shall always provide true and adequate

information.

A portfolio manager should render the best pose advice to the client.

SEBI GUIDELINES TO PORTFOLIO MANAGEMENT

SEBI has issued detailed guidelines for portfolio management services. The
guidelines have been made to protect the interest of investors. The salient features of
these guidelines are:

The nature of portfolio management service shall be investment consultant.

The portfolio manager shall not guarantee any return to his client.

Clients funds will be kept in a separate bank account.

The portfolio manager shall act as trustee of clients funds.

The portfolio manager can invest in money or capital market.

Purchase and sale of securities will be at a prevailing market price.

POWERS OF SEBI
SEBI has the following powers to control and manage the portfolio managers:

The portfolio manager shall submit to SEBI such reports, returns and
documents as may be prescribed.

SEBI may investigate the affairs of a portfolio manager such as

inspection of books of accounts, records, etc.,

SEBI has full authority in the event of violation of any provision to

suspend or cancel the license.

No exemptions will be given under any circumstances to portfolio

manager.

TYPES OF INVESTMENT RISK

There are many types of risk that are caused by different factors, or which affect
different investments to varying extents. Some factors affect most investments and are
called systematic risks. Some risks are specific to a business or asset, and are called
non-systematic risks, or diversifiable risks, because such risks can be lowered by
diversified investments.

1. Inflation risk is a systematic risk that lessens real returns due to the decreasing
purchasing power of the returns. Although inflation negatively affects most
investment returns, in some cases, currency inflation can yield higher returns, such as
when it is sold short in a currency transaction.

2. Interest rate risk is a risk that lowers yields or returns due to changes in the
prevailing interest rate. Interest rate risk can affect different securities in different
ways. The price of bonds in the secondary market, for instance, varies inversely to
interest rateswhen interest rates rise, the price of bonds drops, and vice versa.

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3. Business risk is any risk that can lower a businesss net assets or net income that
could, in turn, lower the return of any security based on it. Higher mortgage rates can
increase the business risk for real estate or construction companies, for instance.

4. Financial risk is the risk that a business will not be able to make payments due to
its debt load. Interest and principal must be paid on borrowed moneyfailure to make
payments can force the business into bankruptcy.

5. Tax risk is the risk that a taxing authority will change tax laws that will affect an
investment negatively. Higher taxes on investment income reduce real returns and can
lower the prices of investments in the secondary markets. Higher taxes on businesses
will lower their net income, which will usually lower its stock price.

6. Market risk is the risk that market conditions can negatively impact investment
returns. For instance, the prices of securities are dependent on general supply and
demand that fluctuates independently of any security in particular. Market risk is
generally dependent on economic conditions, such as inflation, consumer sentiment,
or credit availability.

7. Liquidity risk, which is the risk that an investment cannot be sold quickly for a
reasonable price. Real estate, for instance, is an illiquid investment because it takes
considerable time to sell unless it is sold below market value. These are the general
risks that affect virtually every investment.

IDEAL PORTFOLIO DESIGNED FOR VARIOUS KINDS OF PEOPLE

PORTFOLIO DESIGNED FOR A CONSERVATIVE PERSON:
Share market- 35% [Rs. 35 lakhs]
Mutual Funds- 35% [Rs. 35 lakhs]
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Fixed deposits- 10% [Rs. 10 lakhs]

Money market- 10% [Rs. 10 lakhs]
Commodity- 5% [Rs. 5 lakhs] [Not for trading]
Banks Saving- 5% [Rs. 5 lakhs]

Assumption & Explanation:

Conservative persons are mostly from Conservative family background or with more
no. of persons depending on him or he may be a retired/ aged person, who is worried
about their near future. So, their risk appetite is very low. They invest money into
some investment instrument from where they will get fixed returns which will be very
useful. When designing portfolio for these people, very less amount is be assigned in
share market where risk is high. So, we have assigned 35% for share market wherein
we can have diversified portfolio like investing largely into large cap, who perform
well with less risk. In those 35 lacs, we can have 60% for large cap, 40% for mid cap
companies.

As mutual funds are having low risk, money can be allocated to this asset class also.
Other forms of investment like fixed deposits, money market are always having low
risk. Bank savings are very necessary as day to day expenses can be met by this
investment. Commodity can be purchased for safe investment as every family does it.
Commodities like Gold and silver are traditional form of investment from long time.
They help in killing inflation. Assuming that person of any age and conservative can
purchase real estate for his own family from the returns he gets from fixed returns
investment. He will not think of others asset classes like Art.

PORTFOLIO DESIGNED FOR A MODERATE PERSON:

Share market- 50% [Rs. 50 lakhs]
Mutual funds- 25% [Rs. 25 lakhs]
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Fixed deposits- 10% [Rs. 10 lakhs]

Money market- 10% [Rs. 10 lakhs]
Bank savings- 3% [Rs. 3 lakhs]
Commodity- 2% [Rs. 2 lakhs] [Not for trading]

Assumption & Explanation:

These types of people are having moderate risk taking capability. But, still they dont
prefer other type of asset classes where returns are very low. In share market also,
they go for small cap companies with very little investment; so that even if they dont
get expected returns, they are not worse off. Considering this, we have allocated 50%
investment to share market i.e. 50 lakhs. In this asset classes, person can choose
between large cap, mid cap & small cap companies or sector wise companies who are
performing good. Lots of options are available with the person to choose. Out of those
50 lakhs, 50% for large cap, 30% for mid cap, 20% for small cap companies can be
allocated.

Mutual funds are also having lots of schemes, having good returns. Mutual fund
companies are having lots of schemes for different levels with different allocation for
different sectors. In this case, person can invest into fixed deposits with good returns
for limited period of time say up to 3 years. Then, he can divert his money from one
asset class to another depending upon performance of the other class. As time passes
if person can think of trading in commodity if he can generate high risk appetite for
him for certain amount of money. He also can go for another asset class like
insurance, if he thinks there is a need for that.

In case of moderate risk taking people, they keep less amount of money in their bank
accounts as their vision is too invest more and get more returns and keep doing that.
They like to mostly get the experience in share market and new asset classes like
commodity trading.
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PORTFOLIO DESIGNED FOR AN AGGRESSIVE PERSON:

Share market- 65% [Rs. 65 lakhs]
Mutual funds- 15% [Rs. 15 lakhs]
Fixed deposits- 10% [Rs. 10 lakhs]
Bank savings- 3% [Rs. 3 lakhs]
Commodity- 2% [Rs. 2 lakhs] [Not for trading]

Assumptions & Explanation:

Aggressive, high risk taking people are mostly young people between 25-35 years or
people who are HNIs (High Net worth Individual). These people always trade in
share market in different sectors. Therefore, we have allocated 65% i.e. 65 lakhs for
share market. Out of that, 40% for large cap and 30% for mid cap and small cap
companies each. Whoever may be the person on the earth, he will never take 100%
risk of putting whole amount into sector which is risky. Therefore, diversified
portfolio comes into picture.

These people mostly never look at Money market as asset class because they believe
in high liquidity. They are always on look-out of with sector performing well, so that
they can pool their money from one asset class to another and get good returns.

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PORTFOLIO MANAGEMENT PAYMENT CRITERIA

There are types of payment criteria offered by portfolio managers to their client, such
as:

Fixed-linked management fee.

Performance-linked management fee.

In fixed-linked management fee the client usually pays between 2-2.5% of the
portfolio value calculated on a weighted average method.

In performance-linked management fee the client pays a flat fee ranging between
0.5-1.5percent based on the performance of portfolio managers.

The profits are calculated on the basis of 'high watermarking' concept. This means,
that the fee is paid only on the basis of positive returns on the investment. In addition
to these criteria, the manager also gets around 15-20% of the total profit earned by the
client. The portfolio managers can also claim some separate charges gained from
brokerage, custodial services, and tax payments.

MEASURING PORTFOLIO RETURNS

Portfolio returns come in the form of current income and capital gains. Current
income includes dividends on stocks and interest payments on bonds. A capital gain
or capital loss results when a security is sold, and is equal to the amount of the sale
price minus the purchase price. The return of the portfolio is equal to the net of the
capital gains or losses plus the current income for the holding period. Unrealized
capital gains or losses on securities still held are also added to the return to evaluate
the holding period return of the portfolio. The portfolio return is adjusted for the
addition of funds and the withdrawal of funds to the portfolio, and is time-weighted
according to the number of months that the funds were in the portfolio.
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Below is the formula for calculating the Dividends + Interest + Realized Gains or
portfolio return for 1 year: Portfolio Return = Losses + Unrealized Gains or Losses / Initial
Investment + (Added Funds x Number of
Months in Portfolio / 12) - (Withdrawn Funds
x Number of Months Withdrawn from
Portfolio / 12)
Realized gains (or losses) are gains or losses actualized by the selling of the securities,
whereas unrealized gains or losses are securities that are still owned but are marked to
market to determine the portfolio's return.

Comparing Portfolio Returns:

There are several ways of comparing portfolio returns with each other and with the
market in general. A simple comparison is to simply compare their returns. However,
returns by themselves do not account for the risk taken. If 2 portfolios have the same
return, but one has lower risk, then that would be the preferable, more efficient
portfolio. There are 3 common ratios that measure a portfolios risk-return trade-off:

Sharpes ratio

Treynors ratio

Jensens Alpha

Sharpe Ratio:
The Sharpe ratio (aka Sharpes measure), developed by William F. Sharpe, is the
ratio of a portfolios total return minus the risk-free rate divided by the standard
deviation of the portfolio, which is a measure of its risk. The Sharpe ratio is simply
the risk premium per unit of risk, which is quantified by the standard deviation of the
portfolio.

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Risk Premium = Total Portfolio Return Risk-free Rate Sharpe Ratio = Risk
Premium / Standard Deviation of Portfolio

The risk-free rate is subtracted from the portfolio return because a risk-free asset has
no risk premium since the return of a risk-free asset is certain. Therefore, if a
portfolios return is equal to or less than the risk-free rate, then it makes no sense to
invest in the risky assets.

Hence, the Sharpe ratio is a measure of the performance of the portfolio compared to
the risk takenthe higher the Sharpe ratio, the better the performance and the greater
the profits for taking on additional risk.

ExampleCalculating the Sharpe Ratio if a fund has a return of 12% and a

standard deviation of 15% and if the risk-free rate is 2%, then what is its Sharpe
ratio? Solution: Sharpe Ratio = (12% 2%) / 15% = 10% / 15% = 66.7% (rounded)

Treynor Ratio :
While the Sharpe ratio measures the risk premium of the portfolio over the portfolio
risk, or its standard deviation, Treynors ratio, popularized by Jack L. Treynor,
compares the portfolio risk premium to the diversifiable risk of the portfolio as
measured by its beta.

Treynor Ratio =

Total Portfolio Return Risk Free Rate

/Portfolio Beta

Note that since the beta of the general market is defined to be 1, the Treynor Ratio of
the market would be equal to its return minus the risk-free rate.
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ExampleCalculating the Treynor Ratio If a portfolio has a return of 12% and a

beta of 1.4, and if the risk-free rate is 2%, then what is its Treynor ratio?
Solution: Treynor Ratio = (12 2) / 1.4 = 10 / 1.4 = 7.14 (rounded)

Note that here we used whole numbers for the return and risk-free rate because it
simplifies the math and because it makes no difference when comparing portfolios if
the same method is used consistently.

Jensen's Alpha (Aka Jensen Index):

Alpha is a coefficient that is proportional to the excess return of a portfolio over its
required return, or its expected return, for its expected risk as measured by its beta.
Hence, alpha is determined by the fundamental values of the company in contrast to
beta, which measures the return due to its volatility. Jensens alpha (aka Jensen
index), developed by Michael C. Jensen, uses the capital asset pricing model (CAPM)
to determine the amount of the return that is firm-specific over that which is due to
market risk, which causes market volatility as measured by the firms beta.

Jensens Alpha = Total Portfolio Return Risk-Free Rate [Portfolio Beta x

(Market Return Risk-Free Rate)] Jensens alpha can be positive, negative, or zero

Jensens alpha can be positive, negative, or zero. Note that, by definition, Jensens
alpha of the market is zero. If the alpha is negative, then the portfolio is
underperforming the market. Formula investment plans are long-term investment
strategies based on a fixed formula of dollars to investments that is applied over a
period of time and does not involve security analysis or market timing. While easy to
implement, their main drawback is that profits will probably be less than that resulting
from active analysis and management. There is potentially an infinite number of
formula plans, or variations of them, but the most common formula plans are: dollar18

cost averaging, constant-dollar investment, constant-ratio investment, and variableratio investment.

Summary How successful any of these plans are in actuality will depend on the
specific details of the plans and the investment horizon. However, they are more
likely to be successful the longer the investment horizon, especially if a large part
of the portfolio is invested in risky assets.

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CURRENT STATUS OF PORTFOLIO MANAGEMENT IN

INDIA:
Now-a-days, portfolio management is very popular concept because every investor
wants to increase his investment. In the earlier days, it was not so good. People make
optimize profits but now investors are taking the help of the professionals and they
help them in various decisions. Select the right blend of projects that can increase
ROI, market share and achieve a sustainable growth portfolio.

They apply an investment plan to maintain a balance between investment risk and
return. They follow certain rules to allocate the major portion of resources to invest
whether in extremely volatile markets like share and equity market or in treasury
notes, money market funds. They provide a good investment option, excellent return
at manageable risk. So any individuals, a beginner or an experienced investor or a
monthly earner for living can take the advantages of portfolio management service.
With the considerable investments required to expand new products and the risks
involved, portfolio Management in India is becoming a progressively more important
tool to make strategic decisions about product development and the investment of
company reserves.

All professionals and business leaders in the investment services have become
mindful that only right technologies and active financial management can achieve
financial goals. Portfolio management in India has provided the vital insights to
expand competitive initiation in this complex financial market. The portfolio
management team involves managers who try to increase the market return by
actively managing financial portfolio through investment decisions based on research
and individual investment choices. They actively manage closed-end funds because
they have years of actual daily trading experience. These managers are highly skilful
and adept at carrying on profound research. They can perform with passion and
innovation in investment services. So they can give fruitful financial advice to expand
financial gains.

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Investment services involve different financial instruments such as pension fund,

mutual fund, equity and share, investment on property, commodity, IT, stock, and
bond, financial derivatives. These instruments have a certain level of risk and give
returns in the long run. The returns can be positive only when it is invested
professionally. Many Companies dealing in Portfolio Management are Kotak
Securities, Unicon Portfolio Management, UTI, Karvy, Reliance etc.

FUTURE PROSPECTUS OF THE PORTFOLIO MANAGEMENT SERVICES

IN INDIA
Now, if we talk about the future prospective of portfolio services, then we see every
investor want to see growth in its investment and returns. He/ she want higher return
than risk. They want their investments are diversified in such a manner so that the risk
of one may compensated by another and for this they have to take the services of the
experts. So, we can say that the future of the portfolio management is very bright
because in todays world everyone wants to invest in a wisely manner and so that it
may reduce their risk. So, on the every step they have to take the help of the
professionals or experts.

In Mutual fund, there are also the experts who manage the asset mix of the investors
but there are some shortcomings in the mutual fund like flexibility is not there. So
portfolio managers provide these facilities to their clients and they feel satisfied from
their managers. Moreover, many companies are providing the facilities of portfolio
management and many other are entering into these services. So, we can say that in
the near future, portfolio management services will grow very fast and from this many
investors are taking benefits from this.

There are specialised portfolio managers who are taking care for it and charges
commission for their services and many other companies are entering for providing
better services to the investors. So, in the near future it will definitely increase.
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CASE STUDY
Kotak Securities: Portfolio Management Services
Kotak Securities is one of Indias oldest portfolio management companies with over a
decade of experience. It is also one of the largest, with Assets under Management of
over Rs. 3300 Crores. Kotak Portfolio Management from Kotak Securities comes as
an answer to those who would like to grow exponentially on the crest of the stock
market, with the backing of an expert.

Kotak Securities is a SEBI registered Portfolio Manager for providing both

Discretionary as well as Non Discretionary portfolio management service. Kotak
Securities is a depository participant with National Securities Depository Limited
(NSDL) and Central Depository Services Limited (CDSL). Unlike many other
companies, Kotak Securities Ltd. has a Centralised Risk Management System and an
in-house Research Team which allows it to offer the same levels of service to
customers across all locations. Kotak Securities was awarded as the most customer
responsive company in the Financial Institution sector by AVAYA Global Connect
Award both in 2006 and 2007. Kotak Portfolio Management offers various schemes
to suit individual investment objectives.

Following are the products offered by Kotak Securities

GUARDIAN PORTFOLIO
With the Guardian Portfolio Kotak Securities invests in both gold and equity. At any
point of time around 20 per cent of the assets will be invested in the gold. The
allocation to gold may go up to 50 per cent depending upon the market condition and
the rest will be invested in the equity market. The minimum investment is Rs 10
lakhs.

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BEP Large cap focus portfolio

In the BEP Large cap focus portfolio, investments will be made in mis-priced large
cap stocks that have a high growth potential and can withstand macro level risks to
sustain in an adverse environment. Large Caps are dominant players in their
respective sectors, and hence have the strength and the ability to maintain margins in
a tough operating environment.

GEMS PORTFOLIO
GEMS are a 30-month closed-end product. The scheme intends to create a focused
portfolio of stocks from across sectors and market capitalization ranges. Its main
feature is its special mandate to participate in the pre-FPO (follow-on public offer)
placements and private placements of listed companies. Investments of up to 30 per
cent of the overall assets can be made in such opportunities.

ORIGIN
Origin portfolio aims to invest in growth oriented companies with sustainable
business models backed by strong management capabilities with emphasis on smaller
capitalized companies with a market capitalization not exceeding Rs. 2500 crore at
the time of investment.

INVEST GUARD PORTFOLIO

The Invest guard Plan is a CPPI Modelwhich invests across shares and fixed
income products, moving from shares into fixed interest investments when the funds
value drops below a predetermined floor. When markets start to move up, the
product increases its holdings in shares, tapping into these growth opportunities.

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CORE PORTFOLIO
Core Portfolio aims to capture the long term upside of the India Growth Story by
diversifying across the major themes. The investments are in all equity and equity
related instruments with emphasis on companies in the business areas driven by
consumerism, outsourcing, real estate and core infrastructure players and is essentially
a mix of small, medium and large capitalization companies.

The Portfolio Management Service combines competent fund management, dedicated

research and technology to ensure a rewarding experience for its clients. Special
relationship managers are appointed to manage your investments in the best possible
manner and make sure that you get maximum returns of your investments.
Kotak PMS has a dedicated fund management and research team that frequently
meets management of companies and is well-placed to spot such opportunities.

BENEFITS OF CHOOSING PORTFOLIO MANAGEMENT SERVICES

(PMS) INSTEAD OF MUTUAL FUNDS:
While selecting Portfolio management service (PMS) over mutual funds services it
is found that portfolio managers offer some very services which are better than the
standardized product services offered by mutual funds managers. Such as:
Asset Allocation:
Asset allocation plan offered by Portfolio management service helps in allocating
savings of a client in terms of stocks, bonds or equity funds. The plan is tailor made
and is designed after the detailed analysis of client's investment goals, saving pattern,
and risk taking capacity.

Timing:
Portfolio managers preserve client's money on time. Portfolio management service
(PMS) help in allocating right amount of money in right type of saving plan at right
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time. This means, portfolio manager provides their expert advice on when his client
should invest his money in equities or bonds and when he should take his money out
of a particular saving plan. Portfolio manager analyzes the market and provides his
expert advice to the client regarding the amount of cash he should take out at the time
of big risk in stock market.

Flexibility:
Portfolio Managers plan saving of his client according to their need and preferences.
But sometimes, portfolio managers can invest client's money according to his
preference because they know the market very well than his client. It is his client's
duty to provide him a level of flexibility so that he can manage the investment with
full efficiency and effectiveness. In comparison to mutual funds, portfolio managers
do not need to follow any rigid rules of investing a particular amount of money in a
particular mode of investment.
Mutual fund managers need to work according to the regulations set up by financial
authorities of their country. Like in India, they have to follow rules set up by SEBI.

CASE STUDY: FINANCIAL PLANNING INTERRUPTED

Any financial planner worth his salt will vouch for the importance of diversification
while building a portfolio. Furthermore, the diversification needs to work at various
levels. For example, within each asset class, it is pertinent to be invested across
multiple instruments; similarly, the portfolio should be diversified across various asset
classes as well.

We have taken a case study of a client whose portfolio was anything but diversified.
And this wasn't his only problem. To make matters worse, he seemed to have
contravened every basic tenet of financial planning, making his portfolio an ideal
candidate for a makeover.

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The facts of the case:

The client is 40 years of age, and the sole earning member in his family.

His wife is a homemaker and his sons are aged 10 and 5 respectively.

He is employed with a multinational corporation and his salary income more

than makes up for his expenses i.e. the monthly cash inflows outweigh
outflows.

The client's investments/financials are as follows:

He has invested in 3 properties (including the one in which he resides), which

account for 83% of his assets.

Equities (stocks and investments in only 2 diversified equity funds) account for
16% of assets.

The balance (1%) is held in cash/savings bank accounts.

He has opted for 2 child ULIPs (unit linked insurance plans), the total annual
premium for which is Rs 120,000
On the liabilities front, he has an outstanding home loan and also a loan against his
mutual fund investment.
As can be seen, property i.e. real estate as an asset class accounts for a
disproportionately high portion of the asset portfolio.
Furthermore, all the properties are in the same city, depriving the client of any
diversification opportunity.

While it is important to have property in one's portfolio, it certainly shouldn't account

for such a high proportion. Also given that property as an asset class tends to be rather
illiquid (a distress sale when liquidity needs are urgent could lead to a loss-making
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proposition), only accentuates the unenviable situation. A downturn in property prices

could spell disaster for the client.

How much should property account for in your portfolio?

The remedy for this situation lies in introducing other assets like equities into the
portfolio and thereby converting the portfolio into a more balanced one. Studies have
shown that equities as an asset class (if invested smartly) can outperform others like
real estate, gold and fixed income instruments over longer time frames. Considering
that the client's needs (planning for retirement and providing for children's education)
are long-term in nature, the presence of a higher equity component should be treated
as vital.

The solution - put on hold any plans to buy more property. With 3 properties, the
client has adequately taken care of that.

The surplus cash inflows should now be utilized to beef up the portfolio's equity
component. But the same needs to be done in a planned manner. Sadly, the client has
not even set himself any concrete objective in terms of planning for retirement or
providing for children's education. In other words, it's yet another case of investing
randomly without setting any objectives. To complicate matters, the client has erred
by investing nearly Rs 3 m in just 2 diversified equity funds, again pointing to lack of
diversification.

Identify your financial goals at the outset the solution

Set tangible objectives (in monetary terms) and then invests in well-managed equity
funds in a disciplined manner for achieving the same. This will help on various levels.
First, the enhanced equity component will ensure that the portfolio becomes welldiversified across asset classes. Second, it will make the equity investments
diversified across multiple schemes. Finally, it will aid in gainfully utilizing the
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surplus monies. On the insurance front, the client is woefully underinsured.

Considering that he is the sole earning member in the family, the ideal choice would
have been to opt for a term plan. Term plans are pure risk cover plans; they offer the
opportunity to obtain a high insurance cover at relatively lower premiums. After
getting himself adequately insured, savings-based products like ULIPs should have
found place in the portfolio. The client should rectify the anomaly by buying a term
plan and fortifying his insurance portfolio.

Term Plans - Comparative premium chart

The liability side could do with some rework as well. While the home loan can aid in
tax-planning (interest and principal repayments qualify for deduction from gross total
income), we aren't quite convinced about the loan against mutual fund investment.
The client is sufficiently liquid and certainly doesn't need to shoulder the burden of a
redundant loan repayment. He would be better off paying off the loan at the earliest.

The client's financial status and condition make rather interesting reading. On the
surface, we have an individual, whose income streams more than make up for his
expenses, whose asset portfolio seems rather well-stocked. In other words, it's a
seemingly picture perfect situation. But scratch the surface, and a radically different
picture emerges.

The investments are lop-sided in favor of a single asset class (i.e. property). Despite
the needs being long-term in nature, the client is virtually unprepared to meet those
needs; in fact, he hasn't even quantified his needs - which should be the starting point
for the exercise. He doesn't have an adequate insurance cover and has in his books
avoidable liabilities. The case only underscores the difference between having
finances and being financially sound. And missing out on the latter could well
mean that one is headed for a financial disaster.
Source: Yahoo Finance

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CONCLUSION
From the above discussion it is clear that portfolio functioning is based on market
risk, so one can get the help from the professional portfolio manager or the Merchant
banker if required before investment. Because applicability of practical knowledge
through technical analysis can help an investor to reduce risk.

Casino make money on a roulette wheel, not by knowing what number will come up
next, but by slightly improving their odds with the addition of a 0 and 00. Yet
many investors buy securities without attempting to control the odds. If we believe
that this dealing is not a Gambling we have to start up it with intelligent way.
Through it is basically a future estimation or expectation, one should know the
standard norms and related rules for lowering the risk.

After the overall study about this topic it shows that portfolio management is a
dynamic and flexible concept which involves regular and systematic analysis, proper
management, judgment, and actions and also that the service which was not so
popular earlier as other services has become a booming sector as on today and is yet
to gain more importance and popularity in future as people are slowly and steadily
coming to know about this concept and its importance.

It also helps both an individual the investor and FII to manage their portfolio by
expert portfolio managers. It protects the investors portfolio of funds very crucially.

Portfolio management service is very important and effective investment tool as on

today for managing investible funds with a surety to secure it. As and how
development is done every sector will gain its place in this world of investment. It can
be concluded, that future of portfolio management is bright provided proper
regulations prevail and investors needs are satisfied by providing variety of schemes.

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BIBLIOGRAPHY

PRASANNA CHANDRA - SECURITY ANLYSIS AND PORTFOLIO

MANAGEMENT.

V.A.

AVADHANI

SECURITY

ANLYSIS

AND

PORTFOLIO

MANAGEMENT.

GORDON AND NATRAJAN - FINANCIAL SERVICES AND MARKETS.

IGNOU - MBA COURSE MATERIAL

WEBLIOGRAPHY

www.npd-solutions.com

www.kotaksecurities.com

www.botinternational.com

www.uniconindia.in

www.investopedia.com

moneycontrol.com

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