Chapter 1: INTRODUCTION

1.1 MEANING OF PORTFOLIO MANAGEMENT: Portfolio management in common parlance refers to the selection of securities and their continuous shifting in the portfolio to optimize returns to suit the objectives of an investor. In India, as well as in a number of western countries, portfolio management service has assumed the role of a specialized service now a days and a number of professional merchant bankers compete aggressively to provide the best to high net worth clients, who have little time to manage their investments. The idea is catching on with the boom in the capital market and an increasing number of people are inclined to make profits out of their hardearned savings. Portfolio management service is one of the merchant banking activities recognized by Securities and Exchange Board of India (SEBI). The service can be rendered either by merchant bankers or portfolio managers or discretionary portfolio manager as define in clause (e) and (f) of Rule 2 of Securities and Exchange Board of India(Portfolio Managers)Rules, 1993 and their functioning are guided by the SEBI.

1.2 OBJECTIVES OF PORTFOLIO MANAGEMENT:

The major objectives of portfolio management are summarized as below: Keep the security, safety of Principal sum intact both in terms of money as well as its purchasing power. Stability of the flow of income so as to facilitate planning more accurately and systematically the re-investment or consumption of income. To attain capital growth by re-investing in growth securities or through purchase of growth securities.
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 Marketability of the security which is essential for providing flexibility to investment portfolio. Liquidity i.e. nearness to money which is desirable for the investor so as to take advantage of attractive opportunities upcoming in the market. Diversification: The basic objective of building a portfolio is to reduce the risk of loss of capital and income by investing in various types of securities and over a wide range of industries. Favourable tax status: The effective yield an investor gets from his investment depends on tax to which it is subject. By minimizing the tax burden, yield can be effectively improved.

1.3 BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT:

There are two basic principles for effective portfolio management which are given below:1). Effective investment planning for the investment in securities by considering the following factors-

a. Fiscal, financial and monetary policies of the Government of India and the Reserve Bank of India.

b. Industrial and economic environment and its impact on industry Prospect in terms of prospective technological changes, competition in the market, capacity utilization with industry and demand prospects etc.

II). Constant review of investment: It require to review the investment in securities and to continue the selling and purchasing of investment in more profitable manner. For this purpose they have to carry the following analysis:
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a. To assess the quality of the management of the companies in which investment has been made or proposed to be made.

b. To assess the financial and trend analysis of companies balance sheet and profitless Accounts to identify the optimum capital structure and better performance for the purpose of withholding the investment from poor companies.

c. To analysis the security market and its trend in continuous basis to arrive at a conclusion as to whether the securities already in possession should be disinvested and new securities be purchased. If so the timing for investment or dis-investment is also revealed.

1.4 ACTIVITIES IN PORTFOLIO MANAGEMENT:

There are three major activities involved in an efficient portfolio management which are as follows:-

a. Identification of assets or securities, allocation of investment and also identifying the classes of assets for the purpose of investment.

b. They have to decide the major weights, proportion of different assets in the portfolio by taking in to consideration the related risk factors.

c. Finally they select the security within the asset classes as identify. The above activities are directed to achieve the sole purpose to maximize return
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and minimize risk in the investment even if there are unlimited risks in the market.

1.5 WHY INVESTMENT IN PORTFOLIO? A portfolio is a collection of securities. Since it is rarely desirable to invest the entire funds of an individual or an institution in a single security, it is essential that every security be viewed in a portfolio context. A portfolio is a set comprising of different types of securities and assets. As the investors acquire different sets of assets of financial nature, such as gold, silver, real estate, buildings, insurance policies, post office certificates, NSC etc., they are making a provision for future. The risk of each of such investments is to be understood beforehand. Normally the average householder keeps most of his income in cash or bank deposits and assumes that they are safe and least risky. Little does he realize that they also carry a risk with them the fear of loss or actual loss or theft and loss of real value of these assets through the rise price or inflation in the economy? Cash carries no interest or income and bank deposits carry a nominal rate of 4% on savings deposits, no interest on current account and a maximum of 9% on term deposits of one year. The liquidity on fixed deposits is poor as one has to wait for the period to maturity or take loan on such amount but at a loss of income due to penal rate. Generally risk averters invest only in banks, Post office and Mutual funds. Gold, silver real estate and chit funds are the other avenues of investment for average Householder, of middle and lower income groups. If the investor desired to have a real rate of return which is substantially higher than the inflation rate he has to invest in relatively more risky areas of investment like shares and debenture of companies or bonds of Government and semi- Government agencies or deposits with companies and firms. Investment in Chit funds, Company deposits, and in private limited companies has a highest risk.
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1.6 APPLICATION OF PORTFOLIO MANAGEMENT: Portfolio Management involves time element and time horizon. The present value of future return/cash flows by discounting is useful for share valuation and bond valuation. The investment strategy in portfolio construction should have a time horizon, say 3 to 5 year; to produce the desired results of say 2030% return per annum. Besides portfolio management should also take into account tax benefits and investment incentives. As the returns are taken by investors net of tax payments, and there is always an element of inflation, returns net of taxation and inflation are more relevant to taxpaying investors. These are called net real rates of returns, which should be more than other returns. They should encompass risk free return plus a reasonable risk premium, depending upon the risk taken, on the instruments/assets invested.

1.7 OVERVIEW OF PORTFOLIO MANAGEMENT SERVICES: Portfolio Management Services (PMS) is a specialized service which offers a range of specialized investment strategies so as to capitalize on the opportunities present in the market. Any form of investing requires time, knowledge, and the right mind-set. It also requires constant monitoring. Under PMS, professional managers strategize to deliver consistent returns while keeping in mind your risk appetite. Every portfolio manager is skilled and has a well-defined investment philosophy and a strategy which acts as a guiding principle. PMS relieves an investor from all the administrative hassles that occur while investing. One receives periodic reports on his/her portfolio performance as well
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as on other aspects of investments. Investments are tracked on a continuous basis to maximize returns. In case of a PMS setup, the relationship manager defines the financial goals and advises the right product mix. Personalized service is given that ensures that you receive periodic updates and also the account performance reports Portfolio managers manage stocks, bonds, and mutual funds of their clients considering their personal investment goals as well as their risk preferences. The SEBI has imposed a number of obligations and a code of conduct on the portfolio managers. They should have a high standard of integrity, honesty and should not have been convicted of any economic offence or moral turpitude. They should not resort to rigging up of security prices, use insider trading and speculation in the market. Their books of accounts are subject to inspection by SEBI. The observance of the code of conduct and guidelines given by the SEBI are also subject to inspection and penalties for the violation are imposed on the concerned parties. The portfolio managers have to submit periodical returns and documents as required by SEBI form time to time. Thus, the portfolio managers play an important role in the investment market.

1.8 PORTFOLIO MANAGEMENT IN INDIA: In India, Portfolio Management is still in its infancy. Barring a few Indian banks, and foreign banks and UTI, no other agency had professional management until 1987. After the setting up of public sector mutual funds, since 1987, professional portfolio management, backed by competent research staff became the order of the day. After the success of the mutual funds in portfolio management, a number of brokers and Investment consultants some of whom are professionally qualified have become portfolio managers. They have
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managed the funds of the client on both discretionary and non-discretionary basis. It was found that many of them, including mutual funds have guaranteed a minimum return or capital appreciation and adopted all kinds of incentives that are now prohibited by SEBI. The recent CBI probe into the operations of many market dealers has revealed the unscrupulous practices by banks, dealers and brokers in their portfolio operations. The SEBI has then imposed stricter rules, which included their registration, a code of conduct and minimum infrastructure, experience and expertise etc. it is no longer possible for any unemployed youth, or retired person or self-styled consultant to engage in portfolio management without the SEBIs license. The guidelines of SEBI are in the direction of making portfolio management a responsible professional service to be rendered by the experts in the field. Portfolio management service providers are those persons or organizations who are registered and paid the require registration fee. They are eligible to work as fund managers. An applicant should have necessary infrastructure and professionally qualified persons with a minimum net worth of Rs 50 lakh. There should be minimum 2 persons with adequate experience in this business lines. In order to carry out portfolio management services, a certificate of registration from SEBI is necessary. A certificate is valid for 3 years. An application for renewal must be made three months before the expiry of the validity of the certificate. The registration fee is payable to SEBI is Rs.5 lakh and renewal fee is Rs.2.5 lakhs.The SEBI has imposed a number of obligations and a code of conduct on the portfolio managers. They should have a standard of integrity, honesty and should not have been convicted of any economic offence or moral turpitude. Some Examples are as follows:1. Kotak securities 2. Reliance portfolio management services
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3. HSBC Bank 4. Deutsche Bank 5. Axis Bank

Chapter 2: CURRENT SCENARIO OF PMS IN INDIA

2.1 PORTFOLIO MANAGEMENT IS MULTIFACETED IN INDIA: In the arena of increasing global regulation, uneven inflationary situation and commoditization of products, it is not at all possible to gain a sustainable growth. 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 skillful 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. 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. In the early days, people were optimizing profit or financial returns by using heuristic or mathematical models. However, this methodology paid little interest to balance the portfolio in accordance with the business's policy. The shortcoming of this approach is evened out with the new criteria of portfolio management in India.

A general growth portfolio includes a number of projects and it efficiently manages them to reduce cost, expand to the new markets or new products, and
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so on to achieve the company's desired business targets. The skilled managers carefully 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.

2.2 PORTFOLIO MANAGEMENT SERVICES AND DIRECT TAX CODE: Once the Direct Tax Code (DTC) is implemented by the government probably by 2012, Mutual Funds would lose their tax advantage. Agents of stockbrokers and funds would thrust Portfolio Management Services at the investors. Once DTC kicks in, the mutual fund industry will also be taxed. It is likely that there will be no difference in tax efficiency inter se. In such a case there will be a large shit from mutual funds to PMS especially on distributors point of view. It is likely that star fund managers will move to PMS rather than working for mutual fund scheme.

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2.3 PORTFOLIO MANAGEMENT IS BETTER THAN OLD METHOD OF INVESTMENT: Now a day, investment in the financial markets is based on the past trends which mean performance of the organization measure by financial result in the last few years, but investor needs to check the financial strength, future plan, current financial strategy and management policy. In present situation the steel ,cement and construction market affected a lot due to recession and continuous reduce in demand reduce the revenue but it doesn't mean same trend persist in near future also because in developing countries the demand for construction steel and cement rise more than double in near future CHINA ,INDIA, BRAZIL ,SOUTH AFRICA only consume the three fourth part of total production of core industries ,as per estimate of world economic forum CHINA consume the two third part of total steel import to ASIAN market . Past trend of market or the company report help only to understand market according to that financial environment. Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The logic behind this financial technique contends that a portfolio of different kinds of investments on average will yield higher returns and pose a lower risk than any individual investment found within the portfolio. Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments neutralizes the negative performance of others within a portfolio. The benefits of diversification only occur if the securities in the portfolio are different investments at all time.

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Chapter 3: ANALYSIS OF PORTFOLIO MANAGEMENT SERIVCES PROVIDERS IN INDIA

3.1 MOTILAL OSWAL SERCURITES LIMITED: Introduction: In today's complex financial environment, investors have unique needs which are derived from their risk appetite and financial goals. But regardless of this, every investor seeks to maximize his returns on investments without capital erosion. While there are many investment avenues such as fixed deposits, income funds, bonds, equities etc It is a proven fact that Equities as an asset class typically tend to outperform all other asset classes over the long run. Investing in equities, require knowledge, time and a right mind-set. Equity as an asset class also requires constant monitoring may not be possible for you to give the necessary time, given your other commitments. This is recognized , and manage your investments professionally to achieve specific investment objectives and not to forget, relieving you from the day to day hassles which investment require. Motilal Oswal Securities Ltd brings with more than 2 decades of experience & expertise in equity research and stock broking. We are one of the leading portfolio service providers, with asset under management worth Rs. 590 Crores. When you invest through our PMS, you can be assured of the best research being used for the investment decisions. Our equity research has been consistently ranked very highly in surveys conducted by leading international publications like AsiaMoney and Institutional Investor. We have been rated by AsiaMoney as Most Independent Research Local Brokerage for the year 2006.

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Mission The attitude to look for value, to look beyond the realms of stock market, a different mindset that is not influenced by the market trends, but banks on the power of intellect. Vision To become a well respected global financial company by assisting investors create wealth in stock market worldwide. Guiding Principles and Core Values Customer interest is paramount Ethical and transparent business practices Respect for professionals, associates and business partners Research based value investing Cutting edge technology to ensure world-class customer service

Who is it for? Portfolio Management Service is well suited for high-net worth customers: Who are investing in Indian Equities. Who desire create wealth over longer period. Who appreciate a higher level of service.

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 Benefits: 1) Professional Management: The service offers professional management of your equity investments with an aim to deliver consistent return with an eye on risk. 2) Risk Control: Well defined investment philosophy & strategy acts as a guiding principle in defining the investment universe. We have a very robust portfolio management software that enables the entire construction, monitoring and the risk management processes. 3) Convenience: Our Portfolio Management Service relieves you from all the administrative hassles of your investments. We provide periodic reports on the performance and other aspects of your investments. 4) Constant Portfolio Tracking: We understand the dynamics of equity as an asset class, so we track your investments continuously to maximize the returns. 5) Transparency: You will get account statements and performance reports on a monthly basis. Thats not all; web access will enable you to track all information relating to your investment on daily basis. A password protected web login, will enable your to access details your investment on click of a button. The following portfolio reports are accessible online: Performance Statements Portfolio Holding Reports Transactions Statements Capital Gain/Loss Statements

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6) Dedicated Relationship Manager: Your Relationship manager will help you carefully understand your financial goals and advise you the right product mix. The relationship managers, the one point contact will bestow personalized service and ensure that you receive periodic updates and account performance reports.

Investment Process:

Financial Planning Process: Evaluate investment objective

Prepare investment policy

Review policy with client

Review

Invest as per target asset mix

Monitor & Rebalance

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STRATEGIES:

1) Value strategy: Introduction: Value Strategy is meant for investors with a Long Term investment horizon in the Indian Equity Markets. Discovering an original investment idea involves deep and meticulous analysis to discover the hidden true values. The portfolios investments philosophy revolves around finding value. As such, the investment philosophy is not dependent on the market trends but banks on the power of the intellect. A business is prudently picked for investment after a thorough study of its underlying hidden long-term potential. To purchase a piece of great business at a fraction of its true value is the discipline. The Fund manager conservatively picks 12 to 15 value stocks for a portfolio with a long-term investment philosophy, keeping the portfolio churn very low and high margin of safety.

Benefits: The Strategy aims to benefit from the long term compounding effect on investments done in good businesses, run by great business managers for superior wealth creation. Follows a value based stock selection strategy Investment Approach: Buy & Hold Investment Horizon: Medium to Long term Maximize post tax return due to Low Churn

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Characteristics: Value based stock selection Investment Approach: Buy and Hold Investments with Long term perspective Focused portfolio construction Capital preservation consciousness

Philosophy: Identify and purchase a piece of great business at a fraction of its true value. Investments with a Long-term investment View. The fund manager strongly believes that Money is made by Sitting. Investments are identified by a Bottom up Approach. The aim is to identify potentiallongterm wealth creators by focusing on individual companies an d their management bandwidth. Margin of Safety.

Profile: Investors who like to invest with a Long-term wealth creation view

Tenure: Long Term (3 5 Years)

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Risk and Return:

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2) Bulls Eye Strategy:

Introduction: Bulls Eye PMS Strategy under is designed to invest in stocks with shortmedium term perspective. The investment philosophy is to find Momentum in Value. It follows an active process driven method of profit booking and is parked temporarily in the safety of liquid mutual funds/ exchanges traded liquid funds till further opportunities are identified. The stock selection lays greater emphasis on companies which good corporate governance and excellent management track record. It would participate in emerging sector and turn around stories so as to participate and capture sharp rallies.

Objectives: The Scheme aims to deliver superior returns in Low to medium term by investing in fundamentally strong stocks with momentum approach, coupled with active profit booking. Actively managed multi cap strategy. Investment Approach: Capitalizing on short to medium-term market opportunities. Regular Profit booking based on stock and market movements.

Characteristics: Investment approach: Momentum in Value. Investments with Short-Medium term perspective. Regular Profit Booking. Ability to sit on cash.

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Philosophy: Investment in Momentum Sectors. Identifying the right Sector and right Company with a scalable business managed by competent managers. To look out for companies with transparency, execution capability and Management Bandwidth. Investments in market Leaders, who have the Vision to make it big. The investment timing is event based and does not take help of technicals. Buying when the stock is just ripe to begin its big move upwards or vice versa. The investments are done with a predefined price targets and portfolio follows an active process of Profit Booking. In absence of investment opportunities, funds are temporarily parked in the safety of liquid mutual funds or exchange traded Liquid fund.

Profile: Investors who like to invest in value stocks and capitalize on the periodic upside by an active process of profit booking.

Tenure: Medium Term 1 Year

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Risk and Return:

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3) NTDOP:

Introduction: The portfolio is designed to invest in themes /stocks in the small and mid cap segment which are going to be a part the NEXT TRILLION DOLLAR GDP GROWTH. The Portfolio would target to invest in Small and Mid Cap Opportunities which have the potential of delivering above-average growth over the next 2-3 years.

The investment philosophy is to invest in stocks which are available at reasonable valuations and promise more than average growth. The portfolio would aim to identify emerging themes. The Portfolio would attempt to identify emerging themes early and exit when these when they are fairly discounted.

We firmly believe that markets rewards consistent growth over a period of time and only after critical size has been achieved by the company. For any stock to get recognized by the Market and get a desired Valuation one has to wait for the right Trigger Point. Perception Re-rating happens due to: Increased Sales volume Consistent Growth Better Margins Growing stakeholders confidence

Objectives: The strategy aims to deliver superior returns by investing in focused themes which are part of the next Trillion Dollar GDP growth opportunity. It aims to predominantly invest in Small & Mid Cap stocks with a focus on Identifying Emerging Stocks/Sectors. Investment Horizon: Medium to Long term.
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 Investment Approach: Buy & Hold strategy Focus on Sectors and Companies which Promise a higher than average growth

Characteristics: Investments in Small and Mid-cap Stocks Bottom up Stock Picking Approach Focused Theme Portfolio Investment Horizon - Long term (2 to 3 Yrs) Benchmark: - CNX Mid Cap Buy and Hold Philosophy low portfolio churn Open Ended Portfolio with Exit Fee Quarterly Disclosure Of Portfolio

Philosophy: High Growth Story - Sector and Companies which promise a higher than average growth Reasonable Valuation - Invest in high growth companies at reasonable price /value Emerging Themes - Focus on Identifying Emerging Stocks / Sectors Buy and Hold Strategy - The Portfolio shall focus on above philosophies and hold them till it realizes it true market potential. Wealth is created by sitting

Profile: Investors who would like to invest in opportunities with a long term view in high growth, undervalued stocks in emerging themes.

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Tenure: Long Term (3 Years)

Risk and Return:

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4) Focused IV A Flexi Cap Strategy:

Introduction: A strategy that can mould itself from a large cap portfolio to mid cap portfolio or vice-versa history suggests that Large & Mid Cap companies tend to perform differently through economic and market cycles. For e.g. mid or small cap stocks could move up sharply during a certain time period while large cap stocks remain range bound and vice versa. On the other hand, large cap stocks tend to be less volatile than Mid & Small cap stocks during the downturn. Past experience suggests that at varying times, Midcaps trade at varying discounts (and sometimes at a premium) to the Large Caps and this gives opportunities in terms of asset allocation between Mid Caps and Large Caps. In order to derive optimal returns from the stock markets, investments need to be diversified and have the flexibility to shift allocations across market caps. Helps keep emotions & sentiments out of investment process. E.g. A client has invested Rs. 1 crore and when the target return of 15% is achieved, Rs. 15 Lakhs will automatically be redeemed & given back to client The Fund Manager will continue to manage the balance Rs. 1 crore (market value) & the above process will be repeated every time the strategy achieves the target return of 15% Objectives: The Strategy aims to generate superior returns over a medium to long term. By investing in only 8-10 companies across market capitalization. The Fund Manager will take active asset allocation calls between cash & equity.

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 The strategy will also take active equity allocation calls between investments in large caps & mid caps & it will follow a policy of profit booking with predefined price targets. Actively managed multi cap strategy. Investment Horizon: Medium to Long term. Investment Approach: Capitalize on Top down & Bottom Up strategies of investing. Cash out Strategy: Automatic payout of appreciation amount when the Client's AUM appreciates by 15%. Characteristics: Top Down & Bottom Up Approaches. Invest in Fund Managers top 8-10 stock ideas across Market Cap Investment horizon: Medium term (12-18 months) Actively Managed Strategy Focused Stregy of 8-10 stocks Risk Return Profile: Medium Risk - Medium to High Return Benchmark: BSE 200 Monthly disclosure of portfolio Exit load on withdrawal of the portfolio (part or full) in the 1st year Exit load will not be charged on the automatic pay-out of the target returns of 15% Philosophy: Fundamental Stock Selection Approach Invest in good blend of Growth & Value stocks across market capitalization Active Equity Allocation between Mid caps & Large caps
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 Allocation between Large Caps and Mid Caps will be a function of their relative valuations Market Timing Active Asset Allocation calls between Cash and Equity Regular Profit Booking Strategy will follow a policy of profit booking with predefined price targets Cash Out Strategy When the Clients AUM appreciates by 15%, the appreciation amount will be automatically paid-out Exit load will not be charged on this automatic pay-out Profile: For investors who look for high return with medium to high risk Tenure: Medium term (12-18 months) Risk and Return:

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5) Focused V A Contra Strategy: Introduction: Contra Strategy - takes a different view picking overlooked or undiscovered stocks-albeit with sound fundamentals. These companies exhibit strong balance sheet and sustainable business models, but may be underperforming the markets for a brief period due to various reasons, which are temporary in nature. Invest in companies, which are out-of-favour with the overall market but at the same time have unrecognized value. Identify these out-of-favour stocks and go against the tide, look for that first mover advantage in these scrips, in case of a turnaround. Investors tend to follow trends and short-term events, and flock to the performing themes. Conversely, they tend to overreact to negative news. Higher the prices go up; more the people want to buy, resulting in herd mentality. Herd mentality often leads to stocks trading at a much higher premium/discount than their intrinsic value, thus creating Contra opportunities. Buy ignored companies and then wait for market to discover them, which then results in their share prices going up, thus benefiting by going against the tide. Sell companies when Re-rating target is achieved.

Objectives: The strategy aims to invest in fundamentally sound companies that can benefit from changes in a companys valuation which reflects a significant change in the markets view of the company over an horizon of three years. The Strategy focuses on investing in stocks that can benefit from growth in earnings, re-rating of business or higher valuation of assets.
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 The objective is to increase return rather than reduce risk for Investors. Follows the principle to pick best ideas rather than diversification Concentrated Strategy Structure of less than 10 stocks Investment Horizon: Medium to Long term Investment Approach: Follows a Buy and hold philosophy with low to medium churn

Characteristics: Bottom - up stock selection approach Investment in fundamentally sound Contra stocks Concentrated strategy of 8 - 10 stocks Buy and Hold philosophy - Low portfolio churn Investment Horizon Hold stock till Re-rating potential is realized Medium to Long Term - 2 to 3 years Allocation: Cash: 0 - 100% Stocks: 0 - 100% Derivatives: NIL Risk: Medium to High Exit load: Applicable in the 1st year Benchmark: BSE 200

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Philosophy: Companies whose earnings are likely to do better than market expectations. Companies benefiting from fundamental changes. New management team or new product launch. Cost-cutting initiatives or improved pricing. Takeovers / Mergers or Acquisitions. Companies benefiting from changes in business environment. Consolidation or reduction in industry capacity leading to improved pricing. Shift in consumption patterns or demographic trends. Out of favour companies. Fundamentally sound companies that have underperformed due to a various reasons, which are temporary in nature. Companies with lower valuation as compared to sector or peers or market.

Profile: For investors who seek for high returns with high risk Tenure: Medium to Long Term - 2 to 3 years

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Risk and Return:

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6) Invest India strategy: Introduction: A strategy that can mould itself from a large cap portfolio to mid cap portfolio or vice-versa history suggests that Large & Mid Cap companies tend to perform differently through economic and market cycles For e.g. mid or small cap stocks could move up sharply during a certain time period while large cap stocks remain range bound and vice versa. On the other hand, large cap stocks tend to be less volatile than Mid & Small cap stocks during the downturn. Past experience suggests that at varying times, MidCaps trade at varying discounts (and sometimes at a premium) to the Large Caps and this gives opportunities in terms of asset allocation between Mid Caps and Large Caps. In order to derive optimal returns from the stock markets, investments need to be diversified and have the flexibility to shift allocations across market caps. Helps keep emotions & sentiments out of investment process E.g. A client has invested Rs. 1 crore and when the target return of 15% is achieved, Rs. 15 Lakhs will automatically be redeemed & given back to client The Fund Manager will continue to manage the balance Rs. 1 crore (market value) & the above process will be repeated every time the strategy achieves the target return of 15%

Objectives: The Strategy aims to generate superior returns over a medium to long term by investing in only 8-10 companies across market capitalization. The Fund Manager will take active asset allocation calls between cash & equity. The strategy will also take active equity allocation calls between investments in large caps & mid caps & it will follow a policy of profit booking with
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Pre-defined price targets. Actively managed multi cap strategy Investment Horizon: Medium to Long term Investment Approach: Capitalize on Top down & Bottom Up strategies of investing Cash Out Strategy: Automatic payout of appreciation amount when the client's AUM appreciates by 15%

Characteristics: Top Down & Bottom Up Approaches Invest in Fund Managers top 8-10 stock ideas across Market Cap Investment horizon: Medium term (12-18 months) Actively Managed Strategy Focused Strategy of 8-10 stocks Risk Return Profile: Medium Risk - Medium to High Return Benchmark: BSE 200 Monthly disclosure of portfolio Exit load on withdrawal of the portfolio (part or full) in the 1st year Exit load will not be charged on the automatic pay-out of the target returns of 15% Philosophy: Fundamental Stock Selection Approach Invest in good blend of Growth & Value stocks across market capitalization Active Equity Allocation between Mid caps & Large caps Allocation between Large Caps and Mid Caps will be a function of their relative valuations
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 Market Timing Active Asset Allocation calls between Cash and Equity Regular Profit Booking Strategy will follow a policy of profit booking with predefined price targets Cash Out Strategy When the Clients AUM appreciates by 15%, the appreciation amount will be automatically paid-out Exit load will not be charged on this automatic pay-out

Profile: For investors who look for high return with medium to high risk

Tenure: Medium term (12-18 months)

Risk and Return:

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 3.2 RELIANCE PORTFOLIO MANAGEMENT SERVICES: Reliance Portfolio Management Services is a part of Reliance Capital Asset Management Ltd., a wholly owned subsidiary of Reliance Capital Ltd. Reliance Capital Ltd. is one of India's leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management, life and general insurance, private equity and proprietary investments, stock broking and other financial services. Vision "To be a globally respected wealth creator with an emphasis on customer care and a culture of good corporate governance" Mission "To be a multi-asset class player with a significant presence in domestic market & expand horizons in International markets through Advisory services."

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Investment options: Varied Investment Options: Equities as an asset class provide a wide spectrum of opportunities, though not all of them are tapped at all times. Our three different product options are an endeavour to unearth these very opportunities across market segments. To create personalised portfolios as per your specific needs Absolute Freedom: A highly flexible investment option that exploits opportunities across the broad market spectrum. The option pursues an aggressive approach to portfolio construction and allocates assets judiciously among large-cap, mid-cap and small-cap stocks. Large-Caps: A relatively protective investment option with investments predominantly in large-cap stocks. This ensures liquidity and lower impact costs leading to a more stable portfolio. Mid-Caps/Small-Caps: A relatively aggressive option that helps to harness the potential of companies in the mid-cap/small-cap segment. This option attempts to discover companies with the potential of both earnings and multiples to rise. In all the options, portfolios are constructed by concentrating on select investment themes. They also use derivatives as an investment tool.

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INVESTMENT STRATEGY Reliance follow a robust and disciplined investment process and

endeavor consistently to generate absolute returns over a long term, Reliance believes in active management of portfolios, leading to higher returns and our regular reviews of portfolios help in better risk management, to ensure consistently better performance. An efficient asset allocation with flexibility to apportion 100% cash and use the cash to grab market opportunities when they arise, Selective use of derivatives as an investment tool for hedging and portfolio re-balancing. Reliance research team has the capability to value companies on the basis of their current and future potential, which helps us in generating better & consistent returns, Invest in a relatively concentrated portfolio of not more than 15-20 stocks, which our experts believe to be excellent picks,

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Investment Process:

Understanding customers investment requirements

Indentifying companies with growth dynamics

Evaluation by qualitative & quantitative methods & selection of stocks Continuously identifying new opportunities Dynamic portfolio construction following portfolio objectives

Investment and continues review process

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 Products: 1) Optimizer Portfolio A Tactical Asset Allocation Plan (TAAP): This investment option is a highly flexible one with a very direct focus. To make the most of investment openings across a wide gamut of large cap, mid cap and small cap stocks. The aim of this product is to deliver positive absolute returns. It plans to do this by focusing on research based value investing to cover potentially investment-worthy companies. Investment Strategy The portfolio would endeavour to generate capital appreciation by investing in an optimum mix of asset classes. To achieve the same the portfolio would invest in a range of asset classes including equity & equity related instruments, fixed income securities, gold / commodities and cash and cash equivalents The portfolio shall freely move across asset classes. Allocation would be determined by the prevailing view on various assets, valuations, macro economic factors, etc. Indicative asset allocation would be Particulars Equity Fixed Income Gold Cash & Cash Equivalent Indicative Range 50%-70% 20%-30% 10%-20% 5%-15%

Equity component of the portfolio would be focused towards bottom up stock picking with the flexibility to move across market capitalizations Fixed Income allocation would typically be buying & hold till maturity in high yielding / hybrid debt instruments with acceptable risks. In case of inability to source high yielding / hybrid debt instruments of acceptable quality, the portfolio manager would retain the option to invest in debt
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mutual funds and debt related instruments. While the intent would be to buy & hold, the portfolio might, at some points in time, take views on interest rates & duration Exposure to Gold would generally be taken through Gold Exchange Traded fund. The portfolio retains the right to take exposure to commodities other than Gold. This may be taken through - Commodity linked structures (debentures) - Commodities stocks: To obtain exposure to commodities, the portfolio could participate in stocks of commodity companies - Commodities linked to securities o

Investment Features: Investor Category: Resident Individual and Institutions Minimum Investment: Rs. 25 Lacs Suitable investment time frame: 3 years Benchmark: The portfolio shall be benchmarked against a composite index of Equities (60%), Fixed Income (25%) & Gold (15%) Payouts: Portfolio will have the option to make payouts from the gains generated Mode of Inflow: Inflow in the form of cash only

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Investment Risks: Since directional calls would be taken on asset classes, there may be instances where the call may not play out as envisaged and may have material adverse impact on the portfolio returns. Investments towards equity component of the portfolio may comprise of mid & small cap stocks which could lead to increased volatility in portfolio performance over the short term. Importantly, the ability to make quick changes to the portfolio may be limited due to the nature of securities held. Investments in fixed income are likely to be in securities which are unrated, unlisted and illiquid in nature. These investments carry credit risk and there may be delay in repayment of interest and principal.

Client Engagement Reliance - PMS seek high service standards through a full fledged service desk for addressing client and investment related queries and providing sound resolution with an endeavor to achieve complete customer satisfaction. Although in an ongoing post sales activity we attempt to build and maintain customer confidence by keeping our investors abreast of the latest updates on the growth of their investment. For achieving this they share a number of reports with customers like:
-

Portfolio Performance Report Performance Appraisal Report Accounting Transaction Report

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2) Fixed Income All Season Debt Shield Aggressive Returns Option: A highly flexible investment option, which offers a diversified investment portfolio across ratings and the yield curve. Fixed Maturity Option: A relatively protective investment option with investments predominantly locked for the duration of the scheme. In certain scenarios, there might be partial redemption allowed, without a significant impact on the portfolio returns. Liquidity Option: The underlying tone of this investment option is to essentially provide the investors with superior returns as compared to traditional open-ended money market schemes. Blended Debt Plus Best of Funds Option: Under this option; investments shall be made in units of different mutual funds. This option is designed to achieve even greater diversification than traditional mutual funds.

Structured Products Solutions: Structured Products are Investment instruments that combine at least one derivative with assets such as equity and fixed income securities. Such products are fast emerging as an alternate asset class among HNI/ Institutional investors providing opportunities that capture potential upsides of the equity universe with capital protection.

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Blended Debt Plus Hybrid Option: This investment option will essentially cater to the investor group who would like to capture potential upsides in the debt as well as equity universe. In the usual circumstances, a majority of the assets in this portfolio will be in index linked, privately placed non-convertible debentures, high yielding bonds, which can be liquidated within a reasonable period of time.

Latest Structured Offerings: Blended Debt plus Hybrid Option (Product XVII): Investment Objective This investment option will essentially cater to the investor group who would like to capture potential upside of the equity market to certain extent while limiting the downside participation. The Portfolio Manager would endeavor to generate on a consistent basis superior risk adjusted returns and capital appreciation. Overview While the market is currently flooded with investment options that have their respective investment advantages, our attempt is to cater to investors who appreciate higher returns while not tolerating higher risks. This investment plan enjoys certain advantages over comparable instruments, some of which are listed as follows: The investor can expect comparatively superior returns on a holding period of 27 months with participation on the upside of equities while limiting the downside. The endeavor is to provide reasonable returns while remaining invested in the securities with acceptable risks.
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 Low Volatility in returns since the maturity of the security will be in line with the maturity of the instruments in the portfolio

Product Summary: Rating: AA+ Tenor: 24/27 months Face Value Rs. 100000/- (Rs One Lakh only) Issue Price of Debenture Rs 97,500/- (Rupees ninety seven thousand five hundred only) Reference Index: S&P CNX Nifty Barrier Observation Dates: Futures expiry date of each month starting from the end of 1st month. Typically last Thursday of every month (in current market scenario) Index Return Observation Dates: Closing level of barrier observation dates from 19th to 24th month Participation Ratio (PR) 105% Knockout Barrier: 145% of the Start Index Level Knockout Barrier Payoff: 24% (Absolute Returns) Index Linked Return (%) Max (0, (Closing Index Level/Start Index Level 1)*100) Structure Payoff (%) (Principal + (Knockout Barrier Payoff, if Knockout Barrier Triggered; Else, Index Linked Return)

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Start Index Level: Official closing level of S&P CNX Nifty on the deployment date

Key Features: A close ended structured portfolio up to 27 months investment horizon. The investors are offered an opportunity to participate on the upside of NIFTY, while limiting them from a potential downside.

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Chapter 4: COMPARATIVE ANAYLSIS

Basic comparison:

Points Transparency Investment process Returns Products

Reliance PMS Good Good High Has less variety of products None

Motilal Oswal PMS Good Poor Average More variety of products

Customized Products

None

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Fee Structure:

MOTILAL OSWAL SECURITIES LTD.:

Nature of fees Upfront fee Fixed management fees Asset Under Management Rs 10 Lakh to Rs 25 lakh Rs 25 lakh to Rs 100 Lakh Rs 100 lakh & above Performance based fees Per Annum 1.50% 1.00% 0.75% 10% profit sharing Fees (%) 1.00%

RELIANCE PORTFOLIO MANAGEMENT SERVICES:

Type Processing (Upfront) Fixed fee Performance Based fee 1.50% 1.50% 3% p.a. 1 % p.a. Nil Returns up to 8% NIL 0.15% 0.15% Management Fee Performance Brokerage

8%-1 5% - 10% >15% - 20%

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SWOT analysis Motilal Oswal Securities LTD: Strength Large and diverse distribution network Strong research and sales teams Brand recognition Experienced top management Strong financial results Weakness Charges are high compared to other companies Opportunities Growing financial services industrys share of wallet for disposable income. Huge market opportunities for wealth management services providers as Indian wealth management business is transforming from mere wealth safeguarding to growing wealth. Regulatory reforms would aid greater participation by all class of investors. Leveraging technology to enable best practices and processes. Increased appetite (need) of Indian corporate for growth capital. Threats Slowdown in global liquidity flows Increased intensity of competition from local and global players Unfavorable economic conditions

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RELIANCE PMS: STRENGTHS

Brand strategy: as opposed to some of its competitors operates a multibrand strategy. The company operates under numerous well-known brand names, which allows the company to appeal to many different segments of the market.

Distribution channel strategy: Reliance is continuously improving the distribution of its products. Its online and Internet-based access offers a combination of excellent growth prospects.

Various sources of income: Reliance has many sources of income throughout the group, and this diversity within the group makes the company more flexible and resistant to economic and environmental changes.

Large pool of installed capacities. Experienced managers for large number of Generics. Large pool of skilled and knowledgeable manpower. WEAKNESS

Investments without a guaranteed return: there is always the possibility that the value of the product will depreciate.

Higher Fees

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OPPORTUNITIES Potential markets: The Indian rural market has great potential. All the major market leaders consider the segments and real markets for their products. Targeting the Indian investors with limited corpus Entry of MNCs: Due to multinationals are entering into market job opportunities are increasing day by day. Tie up with such entities can have an added advantage for the company. THREATS

Increased Competition: With intense competition by so many local players causing headache to the current marketers. In addition to this though multinational brands are not yet established but still they will soon hit the mark. Almost 60 to 70% of the revenue is spending on the management and services.

Unfavorable government policies.

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FINDINGS
1. Investing in more number of equities may turn portfolio very volatile.

2. Portfolio Management Service is not available in many places because of lack of awareness and confidence in people.

3. Rebalancing of portfolio is very important. In order to play safe in the market one needs to maintain active portfolio strategy especially in this current volatile situation.

4. There are different models in constructing a portfolio, but in market the ultimate decision lies with the investor, whatever be the model, if one can understand the market behavior, he can play safe game.

5. Portfolio of a person differs from one person to another depending on the risk appetite, return expectations, needs and many other factors.

6. A portfolio manager should have wide knowledge about each and every investment avenue. A portfolio manager should be able to study the market behavior as well as investor very well.

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CONCLUSIONS

People are less aware about the Portfolio Management Services of Reliance Money. Motilal Oswal uses varied variety of strategy for investments of the investors. Reliance Money Pvt. Ltd is giving more returns to its investors. Reliance Money charges are less than other portfolio Management Services. Reliance Money is providing daily updates about the stocks information. Market is becoming complex & it means that the individual investor will not have the time to play stock game on his own. People are less aware about the Portfolio Management Services of Reliance Money.

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RECOMMENDATIONS:
1. There should be investment in turnaround companies 2. There should be at least one stock in each scheme giving dividend yield more than 4%. 3. Investment of portfolio should consist of dividend paying companies as dividend paying capability indicates consistent cash flow as well as honesty & investor friendliness of management.

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SUGGESTIONS
Investors must be made more aware about the services of the Reliance PMs and Motilal Oswal PMS firm. Investors must feel safe about their money invested. Investors accounts must be more transparent as compared to other companies. Reliance PMS and Motilal Oswal PMS firm must try to promote its Portfolio Management Services through Advertisements.

SUGGESTIONS TO THE INVESTOR

Grape wine knowledge is not advantageous. Listen to rumors and tips, check for yourself. A proper mix of assets is necessary Buy stocks in companies with potential for surprises. Take advantage of volatility before reaching a new equilibrium. The investor must select the right advisors who have sound knowledge about the product which they are offering. Professionalized advisory is the most important feature to the investors. Professionalized research, analysis which will be helpful for reducing any kind of risk to overcome. Check your long term and short term goals before investing. Do not use idle portfolio.

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BIBLIOGRAPHY

Referred Books: Security Analysis and Portfolio management, Parvathy Pandian Security Analysis and Portfolio Management, Prasanna Chandra. Websites: www.reliancemoney.com www.motilaloswal.com www.sebi.org www.nseindia.com www.investopedia.com www.finance.yahoo.com Magazines Business World.
Business Today

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