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DECLARATION
I, Sampada Shelar, Student Of Master Of Commerce (M.COM)
Accountancy Group Semester-Iii, Roll No. 16A241 Of Chetanas H. S.
College Of Commerce & Economics & Smt. K. C. College. Of Arts,
(CHETANAS
M.COM
CENTRE)
Bandra (East),
Mumbai-400051,
____________________________
SAMPADA DEEPAK SHELAR
CERTIFICATE
I, PROF. CA. NISHESH VILEKAR Hereby Certify That Sampada
Deepak
Shelar, Roll.
No.
16A241
Of
M.Com.
Semester-III
Of
________________
_________________
Internal Guide
External Guide
________________
Coordinator
__________________
Principal
ACKNOWLEDGEMENT
At This Juncture, I Would Like To Express My Sincere Gratitude To Those
Who Have Helped Me Directly Or Indirectly During This Project. My
Sincere Thanks To PROF. CA. Nishesh Vilekar For His Whole Hearted
Support, Constructive Advice And Practical Guidance. I Would Also Like
To Thank The College Library For The Reference Material And
Information Used.
_________________________
SAMPADA DEEPAK SHELAR
INDEX
SR.NO
CONTENT
PAGE NO.
INTRODUCTION
INVESTMENT:
Investment is an activity that is engaged in by people who have savings and investments are
made from savings. But all savers are not investors so investment is an activity which is
different from saving.
If one person has advanced some money to another, he may consider his loan as an
investment. He expects to get back the money along with interest at a future date.
Another person may have purchased one kilogram of gold for the purchase of price
appreciation and may consider it as an investment.
Yet another person may purchase an insurance plan for the various benefit it promises in
future. That is his investment.
Investment involves employment of funds with the aim of achieving additional income or
growth in values or the commitment of resources which have been saved in the hope that
some benefits will accrue in future.
Thus, investment may be defined as, a commitment of funds made in the expectation of
some positive rate of return.
In the financial sense, investment is the commitment of a persons funds to derive future
income in the form of interest, dividend, premiums, pension benefits or appreciation in the
value of their capital. Purchasing of shares, debentures, post office savings certificates,
insurance policies are all investments in the financial sense. Such investments generate
financial assets.
In the economics sense, investment means the net additions to the economys capital stock
which consists of goods and services that are used in the production of other goods and
services. Investment in the sense implies the formation of new and productive capital in the
form of new constructions, plant and machinery, inventories etc. Such investments generate
physical assets.
The money invested in financial investments are ultimately converted into physical assets.
Thus, all investments result in the acquisition of some assets either financial or physical.
CHARACTERISTICS OF INVESTMENT
RETURN:
Investments are made with the primary objective of deriving a return. The return may be
received in the form of capital appreciation plus yield. The difference between the sales price
and the purchase price is capital appreciation. The dividend or interest received from the
investment is the yield.
RISK:
Risk may relate to loss of capital, delay in repayment of capital, non-payment of interest, or
variability of returns. While some investments like government securities and bank deposits
are riskless, others are more risky.
The risk of an investment depends on the following factors :
1) The longer the maturity period, the larger is the risk.
2) The lower credit worthiness of the borrower, the higher is the risk.
3) Investments in ownership securities like equity shares carry higher risk compared to
investments in debt instruments like debentures and bonds.
Risk and return of an investment are related. Normally, the higher the risk, the higher is the
return.
SAFETY:
Safety is another feature which an investor desires for his investments. The safety of an
investment implies the certainty of return of capital without loss of money or time. Every
investor expects to get back his capital on maturity without loss and without delay.
LIQUIDITY:
An investment which is easily saleable or marketable without loss of money and without loss
of time is said to possess liquidity. Some investments like company deposits, bank deposits,
P.O. deposits, NSC, NSS etc are not marketable. Some investment instruments like
preference shares and debentures are marketable but there are no buyers in many cases and
hence their liquidity is negligible. Equity shares of companies listed on stock exchanges are
easily marketable through the stock exchanges.
An investor generally prefers liquidity for his investments, safety of his funds, a good return
with minimum risk or minimisation of risk and maximisation of return.
OBJECTIVES OF INVESTMENT:
The main objectives of investments are:
Maximisation of return
Minimisation of risk
MAXIMISATION OF RETURN:
The rate of return could be defined as the total income the investor receives during the
holding period, stated as a percentage price at the beginning of the holding period.
Return = Capital Appreciation + Yield ( Dividend, Interest)
Return = End period value Beginning period value + Yield value
Beginning period value :If a particular share is bought in 2011 at Rs.50 and sold in 2012 at
Rs.60 and the dividend yield is Rs.5, then what would be the return?
MAINTAINING LIQUIDITY:
Liquidity depends upon marketing and trading facilities. If a portion of the investment could
be converted into cash without much loss of time, it helps the investor to meet emergencies.
Stocks are liquid only if they command a good market by providing adequate returns through
dividends and capital appreciation.
INCREASING SAFETY:
The selected investment avenue should be under the legal and regulatory framework. If it is
not under the legal framework, it will be difficult to represent grievances. Approval of the law
itself adds a flavour of safety. From the safety point of view, investments can be ranked as
follows: bank deposits, government bonds, UTI units, nonconvertible debentures, convertible
debentures, equity shares and deposits with non-banking financial companies.
Time horizon
Investor
Speculator
Risk
Return
Consider
funds.
safety.
Decision
Funds
Safety
Here safety is
inside
information,
INVESTMENT PROCESS
INVESTMENT
POLICY
VALUATI
ANALYSIS
ON
Investible funnd
Objectives
knowledge
Diversif
n
and
The investment process involves a series of
allocation
securities or other investment alternatives.
of
the
PORTFOLIO
CONSTRUCTION
EVALUTION
Intrinsic value
Future value ication
Selectio
market
industry
company
PORTFOLIO
p
a
sal
Revision
investment
policy
2. Investment analysis
3. Valuation
4. Portfolio construction
5. Portfolio evaluation.
a) Investible funds:
Funds may be generated through savings or from borrowings. If the funds are borrowed, the investor has to
be extra careful in the selection of investment alternatives. He must make sure that the returns are higher
than the interest he pays.
b) Objectives:
The objectives are framed on the premises of the required rate of return, need for regular income, risk
perception and the need for liquidity. The risk takers objective is to earn a high rate of return in the form
of capital appreciation whereas the primary objective of the risk-averse is the safety of principal.
c) Knowledge:
Knowledge about investment alternatives and markets plays a key role in policy formulation. Investment
alternatives range from security to real estate. The risk and return associated with investment alternatives
differ from each other.
The investor should be aware of the stock market structure and functions of the brokers. The modes of
operations are different in the BSE, NSE and OTCEI. Brokerage charges are also different. Knowledge
about stock exchanges enables an investor to trade the stock intelligently.
2) Security Analysis:
Securities to be brought are scrutinized through market, industry and company analyses after the
formulation of investment policy.
a) Market analysis
The growth in Gross Domestic product and inflation is reflected in stock prices. Recession in the
economy results in a bear market. Stock prices may fluctuate in the short run but in the long run, they
move in trends. The investor can fix his entry and exit points through technical analysis.
b) Industry analysis:
An analysis of the performance, prospectus and problems of an industry of interest is known as industry
analysis. The risk factors related to the automobile industry are different from those related to the
information technology industry. The performance of an industry reflects the performance of the
companies it consists of.
c) Company analysis:
The purpose of company analysis is to help the investors make better decisions. The company's earnings,
profitability, operating analysis, capital structure and management have to be screened. A company with a
high product market share is able to create wealth for investors in the form of capital appreciation.
3) Valuation:
Valuation helps the investor determine the return and risk expected from an investment in common stock.
Intrinsic value of the share is measured through the book value of the share and price earning ratio.
Simple discounting models can be adopted to value the shares.
Future value of securities can be estimated by using a simple statistical technique like trend analysis. The
analysis of the historical behavioral of price enables the investor to predict the future value.
4) Construction of a portfolio:
A portfolio is a combination of securities. By constructing a portfolio, investors attempt to spread risk by
not putting all their eggs into one basket and it also helps to meet their goals and objectives.
a) Diversification:
The main objective of diversification is the reduction of risk in the form of loss of capital and income. A
diversified portfolio is comparatively less risky than holding a single portfolio. Several models are
available to diversify a portfolio.
I) Debt And Equity Diversification:
Debt instruments provide assured returns with limited capital appreciation. Common stock provide income
and capital gain but with a flavor of uncertainty.
Ii) Industry Diversification:
Banking industry shares may provide regular returns but with limited capital appreciation. Information
technology stocks yield higher returns and capital appreciation.
iii) Company diversification:
Securities from different companies are purchased to reduce the risk. Technical and fundamental analysts
suggest the investors to buy the securities.
Securities have to be selected based on the level of diversification and funds are allocated for selected
securities.
5) Portfolio Evaluation:
It is the process which is concerned with assessing the performance of the portfolio over a selected period
of time in terms of return and risk.
a) Appraisal:
Developments in the economy, industry and relevant companies from which stocks are bought have to be
appraised. The appraisal warns of the loss and steps can be taken to avoid such losses.
b) Revision:
It depends on the results of the appraisal. Low-yielding securities with high risk are replaced with highyielding securities with low risk factor. The investor periodically revises the components of the portfolio to
keep the return at a level.
Portfolio management is a process encompassing many activities of investment in assets and securities. It
is a dynamic and flexible concept and involves regular and systematic analysis, judgment and action. The
objective of this service is to help the unknown and investors with the expertise of professionals in
investment portfolio management. It involves construction of a portfolio based upon the investors
objectives, constraints, preferences for risk and returns and tax liability.
The portfolio is reviewed and adjusted from time to time in tune with the market conditions. The
evaluation of portfolio is to be done in terms of targets set for risk and returns. The changes in the portfolio
are to be effected to meet the changing condition. Portfolio construction refers to the allocation of surplus
funds in hand among a variety of financial assets open for investment.
Portfolio theory concerns itself with the principles governing such allocation. The modern view of
investment is oriented more go towards the assembly of proper combination of individual securities to
form investment portfolio. A combination of securities held together will give a beneficial result if they
grouped in a manner to secure higher returns after taking into consideration the risk elements. The modern
theory is the view that by diversification risk can be reduced.
Diversification can be made by the investor either by having a large number of shares of companies in
different regions, in different industries or those producing different types of product lines. Modern theory
believes in the perspective of combination of securities under constraints of risk and returns.
INVESTMENT AVENUES:
Investment Avenues
Securit
Stocks
ies
Bonds/
Securiti
es
Gsecuriti
es
Money
market
instrum
ents
Deriva
tives
Mutual
Funds
Deposit
s
Bank
Deposi
ts
NonBankin
g
Financi
al
Comp
any
(NBFC)
deposi
ts
INVESTMENT AVENUES:
1) Negotiable investments
2) Non-negotiable investments
Postal
Schemes
Monthly
Income
Scheme(MIS
)
National
Saving
Scheme(NSS
)
Public
Provident
Fund(PPF)
Insuran
ce
Real
Assets
Life
Insuran
ce
policies
Unit
Linked
Insuran
ce Plan
(ULIP)
Real
estate
Preciou
s metals
Art and
antiques
I) NEGOTIABLE INVESTMENTS:
a) variable income securities
b) Fixed income securities
f) Cyclical shares:
The upward and downward movements of the business cycle affect the business
prospects of certain companies and their stock prices. Such shares provide low to moderate
current yield. Ex: automobile sector stocks are affected by business cycle.
g) Speculative shares:
Shares that have a lot of speculative trading in them are referred to as speculative shares.
Postal Savings:
Postal savings like National Savings Certificate (NSC), Kisan Vikas Patra (KVP),
Monthly income scheme, Senior citizen scheme, PPF are considered as reliable form of
investment because they are backed by the Government of India under Indian Postal
department. Postal savings schemes offered to lower-middle class and lower class investors
but now middle income and higher-income groups are also considering this avenue with the
increase in the uncertainties.
Life Insurance:
It is contract for payment of a sum of money to the person assured on the happening of the
event insured against. The core feature of the is protection and elimination of risks. Insurance
emerge as a combination of both investment and assurance. The major advantages it includes
are : protection, easy payment, liquidity and tax relief.
Unit Linked Insurance Plan (ULIP):
This is a market-linked insurance plan. It provide life insurance combined with savings
at market-linked
Real Assets:
Gold
Silver
Real estate refers to various fixed assets which can be classified into three categories:
Residential Property, Commercial property, Land.
Art
Antiques
Capital Market:
Capital market deals with medium term and long term funds. It refers to all facilities
and the institutional arrangements for borrowing and lending term funds (medium term and
long term). The demand for long term funds comes from private business corporations, public
corporations and the government. The supply of funds comes largely from individual and
institutional investors, banks and special industrial financial institutions and Government.
It is the market segment where securities with maturities of more than one year are
bought and sold. Equity shares, preference shares, debentures and bonds are the long-term
securities traded in the capital market.
Primary market is the new issue market of shares, preference shares and debentures.
Stocks available for the first time are offered through the new issue market. The
issuer may be the new company or the exit company.
The issuing houses, investment bankers and brokers act as the channels of
distribution for a new issue. They take responsibility for selling the stocks to the
public.
Types of Issues:
Public Issue which is a method of raising a funds through the issue of shares to
investors in the primary market by companies.
Preferential issue means when listed companies issue securities to a selected group of
persons. It may be financial institutions, mutual funds or high net worth individuals.
5) Advertising Agents:
Advertising plays s key role in promoting a public issue. The advertising agencies take
responsibility for giving publicity to the issue through appropriate platforms.
Secondary Market:
Secondary market deals with securities which have already been issued and are owned by
investors. The buying and selling of securities already issued and outstanding take place in
stock exchanges. Hence, stock exchanges constitute the secondary market in securities.
STOCK EXCHANGE:
The stock exchange were once physical market places where the agents of buyers and
sellers operated through the auction process. These are being replaced with electronic
exchanges where buyers and sellers are connected only by computers over a
telecommunication network.
Auction trading is giving way to screen-based trading where bid prices and offer
prices are displayed on the computer screen. Bid price refers to the price at which an investor
is willing to buy the security and offer price refers to the price at which an investor is willing
to sell the security.
A stock exchange may be defined in different ways. In simple terms, stock exchange is
A centralized market for buying and selling stocks where the price is determined through
supply-demand mechanisms.
According to the Securities Contracts Act, 1956, Stock exchange means any body of
individuals, whether incorporated or not, constituted for the purpose of assisting, regulating
or controlling the business of buying, selling or dealing in securities.
Fixation of Prices
Price is determined by the transactions that flow from investors demand and suppliers
preferences. Usually the traded prices are made known to the public. This helps the investors
to make better decisions.
Dissemination of Information
Stock exchanges provide information through their various publications. The publish the
share prices traded on daily basis along with the volume traded. Directory of Corporate
information is useful for the investors assessment regarding the corporate. Handouts,
handbooks and pamphlets provide information regarding the functioning of the stock
exchanges.
Performance Inducer
The prices of stock reflect the performance of the traded companies. This makes the corporate
more concerned with its public image and tries to maintain good performance.
Self-regulating Organization
The stock exchanges monitor the integrity of the members, brokers, listed companies and
clients. Continuous internal audit safeguards the investors against unfair trade practices. It
settles the disputes between member brokers, investors and brokers.
CONCLUSION
After the overall all study about each and every aspect of 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.
BIBLOGRAPHY
REFERENCES USED FOR THE COMPLETION OF PROJECT
http://www.slideshare.net/verma15/final-project-13554875
http://www.slideshare.net/hemanthcrpatna/a-project-report-onportfolio-management
http://www.pondiuni.edu.in/storage/dde/downloads/finiv_sapm.pdf
https://www.jpmorganchase.com/corporate/socialfinance/document/1
21001_A_Portfolio_Approach_to_Impact_Investment.pdf