Portfolio Management

Portfolio Management
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. This
however requires financial expertise in selecting the right mix of securities in changing market
conditions to get the best out of the stock market. 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 hard-earned 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.
According to the definitions as contained in the above clauses, a portfolio manager means
any person who is pursuant to contract or arrangement with a client, advises or directs or
undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the
management or administration of a portfolio of securities or the funds of the client, as the case
may be. A merchant banker acting as a Portfolio Manager shall also be bound by the rules and
regulations as applicable to the portfolio manager.
Realizing the importance of portfolio management services, the SEBI has laid down certain
guidelines for the proper and professional conduct of portfolio management services. As per
guidelines only recognized merchant bankers registered with SEBI are authorized to offer these
services.
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Portfolio management or investment helps investors in effective and efficient management

of their investment to achieve this goal. The rapid growth of capital markets in India has opened
up new investment avenues for investors.
The stock markets have become attractive investment options for the common man. But the
need is to be able to effectively and efficiently manage investments in order to keep maximum
returns with minimum risk.
Hence this is the study on PORTFOLIO MANAGEMENT, so as to examine the role, process
and merits of effective investment management and decision.
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1.2Objectives Portfolio management
Portfolio means combined holding of many kinds of financial securities. Such as shares,
debenture, government bonds, units and other financial assets. Making a portfolio means putting
ones eggs in different baskets with varying elements of risk and returns. The object of portfolio
is to reduce risk by diversification and maximize gain. Portfolio management is also known as
investment management
Objectives of Portfolio Management
There are seven objectives of portfolio management:
1) Return:
Portfolio management is technique of investing in securities. The ultimate object of

investment in the securities is return. Hence, the first objective of portfolio management is
getting higher return.
2) Capital Growth:
Some investors do not need regular returns. Their object of portfolio management is that not only
their current wealth is invested in the securities; they also want a channel where their future
incomes will also be invested.
3) Liquidity:
Some investors prefer that the portfolio should be such that whenever they need their money,
they may get the same.
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4) Availability of Money at Pre-decided Time:
Some persons invest their money to use it at pre-decided time, say education of children,
etc. Their objective of portfolio planning would be that they get their money at that time.
5) Favorable Tax Treatment:
Sometimes, some portfolio planning is done to obtain some tax savings.
6) Maintaining the Purchasing Power:
Inflation eats the value of money, i.e., purchasing power. Hence, one object of the portfolio
is that it must ensure maintaining the purchasing power of the investor intact besides providing
the return.
7) Risk Reduction through Diversification:
It is the perhaps most important object of the portfolio management. All other objectives
(mentioned above) can be achieved even withoutportfolio, i.e., through investment in a single
security, but reduction (without sacrificing the return) is possible only through portfolio.
If we invest in a single security, our return will depend solely on that security; if that security
flops, our entire return will be severely affected. Clearly, held by itself, the single security is
highly risky. If we add nine other unrelated securities to that single security portfolio, the
possible outcome changes if that security flops, our entire return wont be as badly hurt. By
diversifying our investments, we can substantially reduce the risk of the single security.
Diversification substantially reduces the risk with little impact on potential returns. The key
involves investing in categories or securities that are dissimilar.
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The two basic principles of effective portfolio management :
(i) Invest on the basis of fundamentals of the security.
(ii) Review and update the portfolio regularly.
The object of the portfolio management is to provide maximum return on the investments by
taking only optimum risk. To achieve these objectives, the portfolio manager should invest in
diversified securities and see that the coefficient ofcorrelation between these securities is as less
as possible (only then the portfolio will be able to reduce the risk). This is the foundation of
portfolio management. The portfolio manager should follow the above-mentioned principles to
further strengthen his targets of higher returns and optimum risk.
The first principle suggests that investment should be made only in those securities which are
fundamentally strong. The strength of a security depends upon three strengths:
(a) Strength of the company,
(b) Strength of the industry, and
(c) Strength of the economy.
The strength of the company depends upon various factors like
I. Intelligent, dedicated and motivated human resources,
II. Having positive values and vision,
III. Policy regarding encouraging R&D
IV. Integrity of promoters, and
V. Long range planning for profits.
The fundamentals of the industry depend upon the product consumer surplus the product
provides to its users, various possible alternative uses of the product, and availability (rather we
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should say non-availability of the substitutes). Economy, here, means nationaleconomy. By

fundamentals of the economy we mean recession/boom, tax policy, monetary policy, budgetary
policies, stability of government, possibility of war and its impact on economy, closed/open
economy and finally the governments attitude towards business houses. The portfolio manager
should see that most of the fundamentals are favorably placed.
The second principle suggests that the portfolio should be reviewed continuously and if need be,
revised immediately.
The Fundamentals of the company, industry and economy keep on changing. Accordingly, the
portfolio should be revised according to emerging situations. For example, in case of monsoon
failure, investments should move from fertilizer companies to irrigation companies, in case some
sick-minded person takes over as CEO of the company, perhaps desired step will be to disinvest
the securities of the company, in case cheaper substitutes have emerged for any industrys
product, better move to some other industry, etc.
Two more points regarding the second principle
(i) Sometimes, after making the investment in some securities, portfolio manager realizes
that his decision of investing in that security is wrong, he should not wait for happening of some
event which will make his decision as a right one (if there is some loss on that investment, he
should not even wait for breakeven); rather he should move immediately liquidate his position in
that security. [Remember that no portfolio manager has ever made 100 per cent
correct decisions (Warren Buffet is perhaps exception)
(ii) Do not bother much about transaction cost related to reshuffling of the portfolio,
consideration of such small costs generally result in heavy losses or foregone opportunities of
earning profit.
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1.3 7 Principles of Portfolio Management
1 Emphasize a Disciplined Process to eliminate response to short-term market volatility.
2. Deliver Great Capability to all investment management solutions.
3. Align your investment strategy with your Objectives and Risk Tolerance.
4. Emphasize the importance of Asset Allocation
5. Implement a plan using the most Appropriate Investment Strategies.
6. Monitor and Adjust your portfolio on an ongoing basis
7. Assess your Progress regularly
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1.4TYPES OF PORTFOLIO MANAGEMENT
There are various types of portfolio management:
Investment Management
IT Portfolio Management
Project Portfolio Management
1. INVESMENT MANAGEMENT:
Investment management is the professional management of various securities (shares, bonds

etc.) and assets (e.g., real estate), to meet specified investment goals for the benefit of the
investors. Investors may be institutions (insurance companies, pension funds, corporations etc.)
or private investors (both directly via investment contracts and more commonly via collective
investment schemes e.g. mutual funds or Exchange Traded Funds).
The term asset management is often used to refer to the investment management of collective
investments,(not necessarily) whilst the more generic fund management may refer to all forms
of institutional investment as well as investment management for private investors. Investment
managers who specialize in advisory or discretionary management on behalf of (normally
wealthy) private investors may often refer to their services as wealth management or portfolio
management often within the context of so-called "private banking".
Fund manager (or investment adviser in the U.S.) refers to both a firm that provides
investment management services and an individual who directs fund management decisions.
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2. IT PORTFOLIO MANAGEMENT:
IT portfolio management is the application of systematic management to large classes of items

managed by enterprise Information Technology (IT) capabilities. Examples of IT portfolios
would be planned initiatives, projects, and ongoing IT services (such as application support). The
promise of IT portfolio management is the quantification of previously mysterious IT efforts,
enabling measurement and objective evaluation of investment scenarios.
The concept is analogous to financial portfolio management, but there are significant differences.
IT investments are not liquid, like stocks and bonds (although investment portfolios may also
include illiquid assets), and are measured using both financial and non-financial yardsticks (for
example, a balanced scorecard approach); a purely financial view is not sufficient.
At its most mature, IT Portfolio management is accomplished through the creation of two
portfolios:
(i) Application Portfolio - Management of this portfolio focuses on comparing spending on

established systems based upon their relative value to the organization. The comparison can
be based upon the level of contribution in terms of IT investments profitability. Additionally,
this comparison can also be based upon the non-tangible factors such as organizations level
of experience with a certain technology, users familiarity with the applications and
infrastructure, and external forces such as emergence of new technologies and obsolesce of
old ones.
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(ii) Project Portfolio - This type of portfolio management specially address the issues with
spending on the development of innovative capabilities in terms of potential ROI and
reducing investment overlaps in situations where reorganization or acquisition occurs. The
management issues with the second type of portfolio management can be judged in terms of
data cleanliness, maintenance savings, suitability of resulting solution and the relative value
of new investments to replace these projects.
3. PROJECT PORTFOLIO MANAGEMENT:
Project portfolio management organizes a series of projects into a single portfolio consisting of
reports that capture project objectives, costs, timelines, accomplishments, resources, risks and
other critical factors. Executives can then regularly review entire portfolios, spread resources
appropriately and adjust projects to produce the highest departmental returns.
Project management is the discipline of planning, organizing and managing resources to bring
about the successful completion of specific project goals and objectives.
A project is a finite endeavor (having specific start and completion dates) undertaken to create a
unique product or service which brings about beneficial change or added value. This finite
characteristic of projects stands in contrast to processes, or operations, which are permanent or
semi-permanent functional work to repetitively produce the same product or service. In practice,
the management of these two systems is often found to be quite different, and as such requires
the development of distinct technical skills and the adoption of separate management.
CHAPTER 2
PORTFOLIO MANAGEMENT SERVICES:
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Portfolio management service (PMS) is a type of professional service offered by portfolio

managers to their client to help them in managing their money in less time. Portfolio managers
manage the stocks, bonds, and mutual funds of clients considering their personal investment
goals and risk preferences. In addition to money, the portfolio managers manage the portfolio of
stocks, bonds, and mutual funds.
Portfolio management service is strictly for investors having loads of money but not have enough
time and expertise to manage the portfolio. You will get a personalized fund manager and can
call up to discuss at any time The business of portfolio management has never been an easy one.
Juggling the limited choices at hand with the twin requirements of adequate safety and sizeable
returns is a task fraught with complexities.
Given the unpredictable nature of the share market it requires solid experience and strong
research to make the right decision. In the end it boils down to make the right move in the right
direction at the right time. That's where the expert comes in.
PORTFOLIO MANAGEMENT SERVICE

A group of experts design and manage your equity portfolio suiting risk-return
Appetite.
Benefit of Diversification and an element of customization
No Settlement hassles
Separately held securities
Greater Flexibility
Efficient switch between cash and equity positions

Portfolio designing is done as per market conditions and market considerations
Customized Performance Reporting
100% Transparency, managed under SEBI license and regulations
Competitive Fee Structure
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So investments under portfolio management are risk diversified and research oriented.
Discretionary Portfolio Management
The Portfolio Manager undertakes the entire management of portfolio. Starting from buying and
selling of securities to reshuffling and safe custody is undertaken. Investors involvement will
be minimum thereby allowing investor the flexibility to attend to their personal matters,
while the Portfolio Manager takes care of investors investments and keeps it posted on a regular
basis.
CHAPTER 3
PORTFOLIO MANAGEMENT PROCESS
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PORTFOLIO MANAGEMENT PROCESS:
(A) 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 of maximizing return and
minimizing risk on investment.
It is well known fact that portfolio manager balances the risk and return in a portfolio
investment. With higher risk higher return may be expected and vice versa.
Portfolio management is a complex activity, which may be broken down into the
Following steps:
(B) INVESTMENT DECISION:
Specification of investment objectives and constraints: The typical objectives sought by an
Given a certain sum of funds, the investment decisions basically depend upon the following
investor are current income, capital appreciation, safety, fixed returns on principal investment.
factors:-
Choice of asset mix:
The most important decision in portfolio management is the asset mix decision. This is
I. Objectives of Investment Portfolio: This is a crucial point which a Finance Manager must
concerned There
Consider. with the proportions
can be many ofobjectives
stock or units of mutual
of making an fund or Bond
investment. Thein manager
the portfolio.
of aThe
appropriate mix of Stock and Bonds will depend upon the risk tolerance and investment
provident
horizon offund portfolio has to look for security and may be satisfied with none too high a
the investor.
return,
Formulation
whereofasportfolio strategy:
an aggressive investment company be willing to take high risk in order to
have
Oncehigh
the certain asset mix has
capital appreciation. been chosen an appropriate portfolio strategy has to be decided
out. Two broad portfolio choices are available. An active portfolio management: it strive to
earn
Howsuperior risk adjusted
the objectives returnsinbyinvestment
can affect resorting to market can
decision timing, or sector
be seen fromrotation
the factorthat
security
the
selection or some combination of these.
Unit Trustportfolio
A passive of India management
has two major schemes
involves : Its acapital
holding broadlyunits are meant
diversified for and
portfolio those who
wish to haveaapre-determined
maintaining good capital appreciation
level of riskand a moderate return, where as the ordinary unit
exposure.
are meant to provide a steady return only. The investment manager under both the scheme
will invest the money of the Trust in different kinds of shares and securities. So it is
obvious that the objectives must be clearly defined before an investment decision is taken.
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II. Selection of Investment: Having defined the objectives of the investment, the next
decision is to decide the kind of investment to be selected. The decision what to buy has to
be seen in the context of the following:-
a) There is a wide variety of investments available in market i.e. Equity shares, preference
share, debentures, convertible bond, Govt. securities and bond, capital units etc. Out of
these what types of securities to be purchased.
b) What should be the proportion of investment in fixed interest dividend securities and
variable dividend bearing securities? The fixed one ensures a definite return and thus a
lower risk but the return is usually not as higher as that from the variable dividend
bearing shares.
c) If the investment is decided in shares or debentures, then the industries showing a

potential in growth should be taken in first line. Industry-wise-analysis is important since
various industries are not at the same level from the investment point of view. It is
important to recognize that at a particular point of time, a particular industry may have a
better growth potential than other industries. For example, there was a time when jute
industry was in great favour because of its growth potential and high profitability, the
industry is no longer at this point of time as a growth oriented industry.
d) Once industries with high growth potential have been identified, the next step is to select
the particular companies, in whose shares or securities investments are to be made.
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FUNDAMENTAL ANALYSIS:
(A) FUNDAMENTAL ANALYSIS OF GROWTH ORIENTED COMPANIES:
One of the first decisions that an investment manager faces is to identify the industries which
have a high growth potential. Two approaches are suggested in this regard. They are:
a) Statistical Analysis of Past Performance:
A statistical analysis of the immediate past performance of the share price indices of various
industries and changes there in related to the general price index of shares of all industries should
be made. The Reserve Bank of India index numbers of security prices published every month in
its bulletin may be taken to represent the behaviour of share prices of various industries in the
last few years. The related changes in the price index of each industry as compared with the
changes in the average price index of the shares of all industries would show those industries
which are having a higher growth potential in the past few years. It may be noted that an Industry
may not be remaining a growth Industry for all the time. So he shall now have to make an
assessment of the various Industries keeping in view the present potentiality also to finalize the
list of Industries in which he will try to spread his investment.
b) Assessing the Intrinsic Value of an Industry/Company:
After an investment manager has identified statistically the industries in the share of which the
investors show interest, he would assess the various factors which influence the value of a
particular share. These factors generally relate to the strengths and weaknesses of the company
under consideration, Characteristics of the industry within which the company fails and the
national and international economic scene.It is the job of the investment manager to examine and
weigh the various factors and judge the quality of the share or the security under consideration.
This approach is known as the intrinsic value approach.
The major objective of the analysis is to determine the relative quality and the quantity of the
securityand to decide whether or not is security is good at current markets prices. In this, both
qualitative and quantitative factors are to be considered.
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(B) INDUSTRY ANALYSIS
First of all, an assessment will have to be made regarding all the conditions and factors relating
to demand of the particular product, cost structure of the industry and other economic and
Government constraints on the same. As we have discussed earlier, an appraisal of the particular
industrys prospect is essential and the basic profitability of any company is dependent upon the
economic prospect of the industry to which it belongs. The following factors may particularly be
kept in mind while assessing to factors relating to an industry.
(i) Demand and Supply Pattern for the Industries Products and Its Growth Potential:The
main important aspect is to see the likely demand of the products of the industry and the
gap between demand and supply. This would reflect the future growth prospects of the
industry. In order to know the future volume and the value of the output in the next ten
years or so, the investment manager will have to rely on the various demand forecasts made
by various agencies like the planning commission, Chambers of Commerce and institutions
like NCAER, etc.
The management expert identifies five stages in the life of an industry. These are
Introduction, development, rapid growth, maturity and decline. If an industry has already
reached the maturity or decline stage, its future demand potential is not likely to be high.
(ii) Profitability: It is a vital consideration for the investors as profit is the measure of
performance and a source of earning for him. So the cost structure of the industry as related
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to its sale price is an important consideration. In India there are many industries which have
a growth potential on account of good demand position. The other point to be considered is
the ratio analysis, especially return on investment, gross profit and net profit ratio of the
existing companies in the industry. This would give him an idea about the profitability of
the industry as a whole.
(iii) Particular Characteristics of the Industry: Each industry has its own characteristics,
which must be studied in depth in order to understand their impact on the working of the
industry. Because the industry having a fast changing technology become obsolete at a
faster rate. Similarly, many industries are characterized by high rate of profits and losses in
alternate years. Such fluctuations in earnings must be carefully examined.
(iv) Labour Management Relations in the Industry: The state of labour-management

relationship in the particular industry also has a great deal of influence on the future
profitability of the industry. The investment manager should, therefore, see whether the
industry under analysis has been maintaining a cordial relationship between labour and
management.
Once the industrys characteristics have been analyzed and certain industries with growth
potential identified, the next stage would be to undertake and analyze all the factors which show
the desirability of various companies within an industry group from investment point of view.
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(C) COMPANY ANALYSIS:
To select a company for investment purpose a number of qualitative factors have to be seen.
Before purchasing the shares of the company, relevant information must be collected and
properly analyzed. An illustrative list of factors which help the analyst in taking the
investment decision is given below. However, it must be emphasized that the past performance
and information is relevant only to the extent it indicates the future trends. Hence, the investment
manager has to visualize the performance of the company in future by analyzing its past
performance.
1) Size and Ranking:A rough idea regarding the size and ranking of the company within
the economy, in general, and the industry, in particular, would help the investment
manager in assessing the risk associated with the company. In this regard the net capital
employed, the net profits, the return on investment and the sales volume of the company
under consideration may be compared with similar data of other company in the same
industry group. It may also be useful to assess the position of the company in terms of
technical knowhow, research and development activity and price leadership.
2) Growth Record: The growth in sales, net income, net capital employed and earnings per
share of the company in the past few years must be examined. The following three
growth indicators may be particularly looked in to (a) Price earnings ratio, (b) Percentage
growth rate of earnings per annum and (c) Percentage growth rate of net block of the
company. The price earnings ratio is an important indicator for the investment manager
since it shows the number the times the earnings per share are covered by the market
price of a share. Theoretically, this ratio should be same for two companies with similar
features. However, this is not so in practice due to many factors. Hence, by a comparison
of this ratio pertaining to different companies the investment manager can have an idea
about the image of the company and can determine whether the share is under-priced or
over-priced. An evaluation of future growth prospects of the company should be carefully
made. This requires the analysis of the existing capacities and their utilization, proposed
expansion and diversification plans and the nature of the companys technology.
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The existing capacity utilization levels can be known from the quantitative information
given in the published profit and loss accounts of the company. The plans of the
company, in terms of expansion or diversification, can be known from the directors
reports the chairmans statements and from the future capital commitments as shown by
way of notes in the balance sheets. The nature of technology of a company should be seen
with reference to technological developments in the concerned fields, the possibility of its
product being superseded of the possibility of emergence of more effective method of
manufacturing.
Growth is the single most important factor in company analysis for the purpose of
investment management. A company may have a good record of profits and performance
in the past; but if it does not have growth potential, its shares cannot be rated high from
the investment point of view.
(D) FINANCIAL ANALYSIS:
An analysis of financial for the past few years would help the investment manager in
understanding the financial solvency and liquidity, the efficiency with which the funds are used,
the profitability, the operating efficiency and operating leverages of the company. For this
purpose certain fundamental ratios have to be calculated.
From the investment point of view, the most important figures are earnings per share, price
earnings ratios, yield, book value and the intrinsic value of the share. The five elements may be
calculated for the past ten years or so and compared with similar ratios computed from the
financial accounts of other companies in the industry and with the average ratios of the industry
as a whole. The yield and the asset backing of a share are important considerations in a decision
regarding whether the particular market price of the share is proper or not.
Various other ratios to measure profitability, operating efficiency and turnover efficiency of the
company may also be calculated. The return on owners investment, capital turnover ratio and
the cost structure ratios may also be worked out. To examine the financial solvency or liquidity
of the company, the investment manager may work out current ratio, liquidity ratio, debt equity
ratio, etc. These ratios will provide an overall view of the company to the investment analyst. He
can analyze its strengths and weakness and see whether it is worth the risk or not.
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(i) Quality of Management: This is an intangible factor. Yet it has a very important bearing
on the value of the shares. Every investment manager knows that the shares of certain
business houses command a higher premium than those of similar companies managed by
other business houses. This is because of the quality of management, the confidence that
the investors have in a particular business house, its policy vis--vis its relationship with
the investors, dividend and financial performance record of other companies in the same
group, etc.
This is perhaps the reason that an investment manager always gives a close look to the
management of the company whose shares he is to invest. Quality of management has to be
seen with reference to the experience, skill and integrity of the persons at the helm of the
affairs of the company. The policy of the management regarding relationship with the
shareholders is an important factor since certain business houses believe in generous
dividend and bonus distributions while others are rather conservative.
(ii) Location and labour management relations: The locations of the companys
manufacturing facilities determine its economic viability which depends on the availability
of crucial inputs like power, skilled labour and raw materials etc. Nearness to market is also
a factor to be considered.
In the past few years, the investment manager has begun looking into the state of labour
management relations in the company under consideration and the area where it is located.
(iii) Pattern of Existing Stock Holding: An analysis of the pattern of the existing stock
holdings of the company would also be relevant. This would show the stake of various
parties associated with the company. An interesting case in this regard is that of the Punjab
National Bank in which the L.I.C. and other financial institutions had substantial holdings.
When the bank was nationalized, the residual company proposed a scheme whereby those
shareholders, who wish to opt out, could receive a certain amount as compensation in cash.
It was only at the instant and bargaining strength of institutional investors that the
compensation offered to the shareholders, who wish to opt out of the company, was raised
considerably.
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(iv) Marketability of the Shares: Another important consideration for an investment manager
is the marketability of the shares of the company. Mere listing of the share on the stock
exchange does not automatically mean that the share can be sold or purchased at will.
There are many shares which remain inactive for long periods with no transactions being
affected.
To purchase or sell such scripts is a difficult task. In this regard, dispersal of share holding
with special reference to the extent of public holding should be seen. The other relevant
factors are the speculative interest in the particular scrip, the particular stock exchange
where it is traded and the volume of trading.
Fundamental analysis thus is basically an examination of the economics and financial aspects of a
company with the aim of estimating future earnings and dividend prospect. It included an analysis
of the macro economic and political factors which will have an impact on the performance of the
firm. After having analyzed all the relevant information about the company and its relative
strength vis--vis other firm in the industry, the investor is expected to decide whether he should
buy or sell the securities.
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(C) TIMING OF PURCHASES:-
The timing of dealings in the securities, specially shares is of crucialimportance, because

after correctly identifying the companies one may losemoney if the timing is bad due to wide
fluctuation in the price of shares ofthat companies.
The decision regarding timing of purchases is particularly difficult becauseof certain

psychological factors. It is obvious that if a person wishes tomake any gains, he should buy
cheap and sell dear, i.e. buy when the share are selling at a low price and sell when they are at a
higher price. But in practical it is a difficult task.
When the prices are rising in the market i.e. there is bull phase, everybody joins in buying
without any delay because every day the prices touch a new high. Later when the bear face starts,
prices tumble down every day and everybody starts counting the losses. The ordinary investor
regretted such situation by thinking why he did not sell his shares in previous day and ultimately
sell at a lower price. This kind of investment decision is entirely devoid of any sense of timing.
In short we can conclude by saying that Investment management is a complex activity

which may be broken down into the following steps:
1) Specification Of Investment Objectives And Constraints:

The typical objectives sought by investors are current income, capital appreciation, and
safety of principle. The relative importance of these objectives should be specified further the
constraints arising from liquidity, time horizon, tax and special circumstances must be
identified.
2) Choice Of The Asset Mix :
The most important decision in portfolio management is the asset mix decision very
broadly; this is concerned with the proportions of stocks (equity shares and units/shares of
equity-oriented mutual funds) and bonds in the portfolio.
The appropriate stock-bond mix depends mainly on the risk tolerance and investment
horizon of the investor.
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3.2 BENEFITS OF PORTFOLIO MANAGEMENT SERVICES
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 PMS 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 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.
Balanced Portfolio:
Professional research and advice will help you with information on the best investment options
and ideas for your portfolio.
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Maximum Returns, Minimum Risks:
Portfolio management services assure you of the best downside protection for your portfolio.
You will benefit with practical financial advice that can help convert all paper gains into real
profits in the shortest time.
Adjust Your Portfolio To Market Trends:
When you avail of portfolio management services you enjoy greater freedom and flexibility to
diversify your investments. Professionals will help you with prudent advice and financial
solutions so that your portfolio is in sync with the latest market trends.
24
3.3 RISK RETURN ANALYSIS
RISK ON PORTFOLIO :
The expected returns from individual securities carry some degree of risk. Risk on the portfolio
is different from the risk on individual securities. The risk is reflected in the variability of the
returns from zero to infinity. Risk of the individual assets or a portfolio is measured by the
variance of its return. The expected return depends on the probability of the returns and their
weighted contribution to the risk of the portfolio. These are two measures of risk in this context
one is the absolute deviation and other standard deviation.
Most investors invest in a portfolio of assets, because as to spread risk by not putting all eggs in
one basket. Hence, what really matters to them is not the risk and return of stocks in isolation,
but the risk and return of the portfolio as a whole. Risk is mainly reduced by Diversification.
Following are the some of the types of Risk:
1) Interest Rate Risk: This arises due to the variability in the interest rates from time to
time. A change in the interest rate establishes an inverse relationship in the price of the
security i.e. price of the security tends to move inversely with change in rate of interest,
long term securities show greater variability in the price with respect to interest rate
changes than short term securities.
Interest rate risk vulnerability for different securities is as under:
TYPES RISK EXTENT
Cash Equivalent Less vulnerable to interest rate risk.
Long Term Bonds More vulnerable to interest rate risk.
25
2) Purchasing Power Risk: It is also known as inflation risk also emanates from the very
fact that inflation affects the purchasing power adversely. Nominal return contains both
the real return component and an inflation premium in a transaction involving risk of the
above type to compensate for inflation over an investment holding period. Inflation rates
vary over time and investors are caught unaware when rate of inflation changes
unexpectedly causing erosion in the value of realized rate of return and expected return.
Purchasing power risk is more in inflationary conditions especially in respect of bonds and fixed
income securities. It is not desirable to invest in such securities during inflationary periods.
Purchasing power risk is however, less in flexible income securities like equity shares or
common stock where rise in dividend income off-sets increase in the rate of inflation and
provides advantage of capital gains.
3) Business Risk: Business risk emanates from sale and purchase of securities affected by
business cycles, technological changes etc. Business cycles affect all types of securities
i.e. there is cheerful movement in boom due to bullish trend in stock prices whereas
bearish trend in depression brings down fall in the prices of all types of securities during
depression due to decline in their market price.
4) Financial Risk: It arises due to changes in the capital structure of the company. It is also
known as leveraged risk and expressed in terms of debt-equity ratio. Excess of risk vis--
vis equity in the capital structure indicates that the company is highly geared. Although a
leveraged companys earnings per share are more but dependence on borrowings exposes
it to risk of winding up for its inability to honor its commitments towards lender or
creditors. The risk is known as leveraged or financial risk of which investors should be
aware and portfolio managers should be very careful.
5) Systematic Risk or Market Related Risk: Systematic risks affected from the entire
market are (the problems, raw material availability, tax policy or government policy,
inflation risk, interest risk and financial risk). It is managed by the use of Beta of different
company shares.
26
6) Unsystematic Risks: The unsystematic risks are mismanagement, increasing inventory,

wrong financial policy, defective marketing etc. this is diversifiable or avoidable because
it is possible to eliminate or diversify away this component of risk to a considerable
extent by investing in a large portfolio of securities. The unsystematic risk stems from
inefficiency magnitude of those factors different form one company to another.
RISK RETURN ANALYSIS:
All investment has some risk. Investment in shares of companies has its own risk or uncertainty;
these risks arise out of variability of yields and uncertainty of appreciation or depreciation of
share prices, losses of liquidity etc
The risk over time can be represented by the variance of the returns while the return over time
is capital appreciation plus payout, divided by the purchase price of the share.
Normally, the higher the risk that the investor takes, the higher is the return. There is, however, a
risk less return on capital of about 12% which is the bank, rate charged by the R.B.I or long term,
yielded on government securities at around 13% to 14%. This risk less return refers to lack of
variability of return and no uncertainty in the repayment or capital. But other risks such as loss of
liquidity due to parting with money etc., may however remain, but are rewarded by the total
return on the capital.
27
Risk-return is subject to variation and the objectives of the portfolio manager are to reduce that
variability and thus reduce the risk by choosing an appropriate portfolio.
Traditional approach advocates that one security holds the better, it is according to the modern
approach diversification should not be quantity that should be related to the quality of scripts
which leads to quality of portfolio.
Experience has shown that beyond the certain securities by adding more securities expensive.
RETURNS ON PORTFOLIO:
Each security in a portfolio contributes return in the proportion of its investments in

security. Thus the portfolio expected return is the weighted average of the expected return, from
each of the securities, with weights representing the proportions share of the security in the total
investment. Why does an investor have so many securities in his portfolio? If the security ABC
gives the maximum return why not he invests in that security all his funds and thus maximize
return? The answer to this questions lie in the investors perception of risk attached to
investments, his objectives of income, safety, appreciation, liquidity and hedge against loss of
value of money etc. this pattern of investment in different asset categories, types of investment,
etc., would all be described under the caption of diversification, which aims at the reduction or
even elimination of non-systematic risks and achieve the specific objectives of investors.
28
Services and Strategies Provided Through Portfolio Management Are:

Portfolio managers works as a personal relationship manager through whom the client
can interact with the fund manager at any time depending on his own preference.
To discuss any concerns regarding money or saving, the client can interact with his
appointed portfolio manager on monthly basis.
The client can discuss on any major changes he want in his asset allocation and
investment strategies.
Portfolio management service (PMS) handles all type of administrative work like
opening a new bank account or dealing with any financial settlement or depository
transaction.
While choosing online Portfolio management service (PMS), the client receives a User-
ID and Password, which helps him in getting online access to his portfolio details and
checking his portfolio as frequent as he want.
Portfolio management service (PMS) also help in managing tax of his client based on the
detailed statement of the transactions found on his portfolio.
3.4 Portfolio Management Payment Criteria:
29
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-link 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.
Value Your Money Before Selecting Portfolio Management Services (PMS):
Equity bias:
Equity portfolio offered by Portfolio management services helps in adding high value than what
a debt portfolio offers. Because of this, many portfolio managers emphasis on equity investments
and some offer hybrid products.
Large surplus to invest:
The client should always choose the portfolio managers after considering his portfolio size and
the fee he would charge for managing his portfolio. PMS are recommended to those clients who
have large surplus amount of money to invest. Otherwise, the company can also think for cheap
options like a financial planner or advisor to construct an asset allocation plan and to manage
investment.
Eligibility
30
Securities and Exchange Board of India, SEBI stipulates theminimum investment required for a
Portfolio Management Service tobeRs. 5 Lakhs. Large brokerage firms offer PMS starting with a
minimum investment limit ranging from Rs. 25 Lakhs to Rs. 1 Crore.
3.5 ACTIVITIES IN PORTFOLIO MANAGEMENT:-

There are three major activities involved in an efficient portfoliomanagement which are as
follows:-
I. Identification of assets or securities, allocation of investment andalso identifying the

classes of assets for the purpose of investment.
II. They have to decide the major weights, proportion of differentassets in the portfolio by
taking in to consideration the related riskfactors.
III. Finally they select the security within the asset classes as identify.The above activities are
directed to achieve the sole purpose tomaximize return and minimize risk in the
investment even if there isunlimited risk in the market.
SCOPE OF PORTFOLIO MANAGEMENT:
31
Portfolio management is an art of putting money in fairly safe, quite profitable and reasonably in
liquid form. An investors attempt to find the best combination of risk and return is the first and
usually the foremost goal. In choosing among different investment opportunities the following
aspects risk management should be considered:
a) The selection of a level or risk and return that reflects the investors tolerance for risk and
desire for return, i.e. personal preferences.
b) The management of investment alternatives to expand the set of opportunities available at

the investors acceptable risk level.
The very risk-averse investor might choose to invest in mutual funds. The more risk-tolerant
investor might choose shares, if they offer higher returns. Portfolio management in India is still
in its infancy. An investor has to choose a portfolio according to his preferences. The first
preference normally goes to the necessities and comforts like purchasing a house or domestic
appliances. His second preference goes to some contractual obligations such as life insurance or
provident funds. The third preference goes to make a provision for savings required for making
day to day payments. The next preference goes to short term investments such as UTI units and
post office deposits which provide easy liquidity. The last choice goes to investment in company
shares and debentures. There are number of choices and decisions to be taken on the basis of the
attributes of risk, return and tax benefits from these shares and debentures. The final decision is
taken on the basis of alternatives, attributes and investor preferences.
For most investors it is not possible to choose between managing ones own portfolio. They can
hire a professional manager to do it. The professional managers provide a variety of services
including diversification, active portfolio management, liquid securities and performance of
duties associated with keeping track of investors money.
32
NEED FOR PORTFOLIO MANAGEMENT:
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.
33
PERSONS INVOLVED IN PORTFOLIO MANAGEMENT
1) INVESTOR:
Are the people who are interested in investing their funds?
2) PORTFOLIO MANAGERS:
Is a person who is in the wake of a contract agreement with a client, advices or directs or
undertakes on behalf of the clients, the management or distribution or management of the funds of
the client as the case may be.
3) DISCRETIONARY PORTFOLIO MANAGER:
Means a manager who exercise under a contract relating to a portfolio management exercise
any degree of discretion as to the investment or management of portfolio or securities or funds of
clients as the case may be. The relationship between an investor and portfolio manager is of a
highly interactive nature.
The portfolio manager carries out all the transactions pertaining to the investor under the
power of attorney during the last two decades, and increasing complexity was witnessed in the
capital market and its trading procedures in this context a key (uninformed) investor formed )
investor found himself in a tricky situation , to keep track of market movement ,update his
knowledge, yet stay in the capital market and make money , therefore in looked forward to
resuming help from portfolio manager to do the job for him . The portfolio management seeks
to strike a balance between risks and return.
The generally rule in that greater risk more of the profits but S.E.B.I. in its guidelines
prohibits portfolio managers to promise any return to investor.
Portfolio management is not a substitute to the inherent risks associated with equity
investment.
34
WHO CAN BE A PORTFOLIO MANAGER?

Only those who are registered and pay the required license fee are eligible to operate as
portfolio managers. An applicant for this purpose should have necessary infrastructure with
professionally qualified persons and with a minimum of two persons with experience in this
business and a minimum net worth of Rs. 50lakhs. The certificate once granted is valid for three
years. Fees payable for registration are Rs 2.5lakhs every for two years and Rs.1lakhs for the
third year. From the fourth year onwards, renewal fees per annum areRs 75000. These are
subjected to change by the S.E.B.I.
The S.E.B.I. has imposed a number of obligations and a code of conduct on them. The
portfolio manager should have a high standard of integrity, honesty and should not have been
convicted of any economic offence or moral turpitude. He should not resort to rigging up of
prices, insider trading or creating false markets, etc. their books of accounts are subject to
inspection to inspection and audit by S.E.B.I... The observance of the code of conduct and
guidelines given by the S.E.B.I. are subject to inspection and penalties for violation are imposed.
The manager has to submit periodical returns and documents as may be required by the SEBI
from time-to- time.
35
FUNCTIONS OF PORTFOLIO MANAGERS:

Advisory role: Advice new investments, review the existing ones, identification of
objectives, recommending high yield securities etc.
Conducting market and economic service: This is essential for recommending good
yielding securities they have to study the current fiscal policy, budget proposal; individual
policies etc. further portfolio manager should take in to account the credit policy,
industrial growth, foreign exchange possible change in corporate laws etc.
Financial analysis: He should evaluate the financial statement of company in order to
understand, their net worth future earnings, prospectus and strength.
Study of stock market : He should observe the trends at various stock exchange and
analysis scripts so that he is able to identify the right securities for investment
Study of industry: He should study the industry to know its future prospects, technical
changes etc., required for investment proposal he should also see the problems of the
industry.
Decide the type of port folio: Keeping in mind the objectives of portfolio a portfolio
manager has to decide whether the portfolio should comprise equity preference shares,
debentures, convertibles, non-convertibles or partly convertibles, money market, securities
etc. or a mix of more than one type of proper mix ensures higher safety, yield and liquidity
coupled with balanced risk techniques of portfolio management.
A portfolio manager in the Indian context has been Brokers (Big brokers) who on the basis of
their experience, market trends, Insider trader, helps the limited knowledge persons.
The ones who use to manage the funds of portfolio, now being managed by the portfolio of
Merchant Banks, professionals like MBAs CAs And many financial institutions have entered
the market in a big way to manage portfolio for their clients.
According to S.E.B.I. rules it is mandatory for portfolio managers to get them selfs
registered.
Registered merchant bankers can acts as portfolio managers. Investors must look forward,
for qualification and performance and ability and research base of the portfolio managers.
NEED AND ROLE OF PORTFOLIO MANAGER:
36
With the development of Indian Securities market and with appreciation in market price of
equity share of profit making companies, investment in the securities of such companies has
become quite attractive. At the same time, the stock market becoming volatile on account of
various facts, a layman is puzzled as to how to make his investments without losing the same. He
has felt the need of an expert guidance in this respect. Similarly nonresident Indians are eager to
make their investments in Indian companies. They have also to comply with the conditions
specified by the RESERVE BANK OF INDIA under various schemes for investment by the
nonresidents. The portfolio manager with his background and expertise meets the needs of such
investors by rendering service in helping them to invest their fund/s profitably.
PORTFOLIO MANAGERS OBLIGATION:
The portfolio manager has number of obligations towards his clients, some of them are:
He shall transact in securities within the limit placed by the client himself with regard to
dealing in securities under the provisions of Reserve Bank of India Act, 1934.
He shall not derive any direct or indirect benefit out of the clients funds or securities.
He shall not pledge or give on loan securities held on behalf of his client to a third person
without obtaining a written permission from such clients.
While dealing with his clients funds, he shall not indulge in speculative transactions.
He may hold the securities in the portfolio account in his own name on behalf of his
clients only if the contract so provides. In such a case, his records and his report to his
clients should clearly indicate that such securities are held by him on behalf of his client.
He shall deploy the money received from his client for an investment purpose as soon as
possible for that purpose.
He shall pay the money due and payable to a client forthwith.
He shall not place his interest above those of his clients.
He shall not disclose to any person or any confidential information about his client, which
has come to his knowledge.
CHAPTER 4
PROFILE OF CENTRAL BANK OF INDIA
37
Central Bank of India a government-owned bank is one of the oldest and largest commercial
banks in India. It is based in Mumbai. The bank has 4100 branches and 270 extension counters across
27 Indian states and three Union Territories. At present, Central Bank of India has one overseas
office, which is a joint venture with Bank of India, Bank of Baroda, and the Zambian government.
The Zambian government holds 40 per cent stake and each of the banks has 20 per cent. Recently it
has also opened a representative office at Nairobi, Kenya.
Central bank of India is one of 18 Public Sector banks in India to get recapitalization finance
from the government over the next 24 months.
Central Bank of India has approached the Reserve Bank of India (RBI) for permission to open
representative offices in five more locations - Singapore, Dubai, Doha, London and Hong Kong.
As on 31 March 2011, the bank's reserves and surplus stood at 6,868.85 crore. Its
total business at the end of the last fiscal amounted to 2, 09,757.33 crore.
It is a public sector banking institution with branches in 29 States and 3 Union

Territories in India. According to RBIs report on trend and progress of banking in India 2009-
10, it is the third largest bank in India based on the number of branches. As at December 31,
2010, It had 3,656 branches (all of them under Core Banking Solution CBS platform) with 16
zonal offices, 74 regional offices, 7 sponsored RRBs, 178 extension counters, 912 ATMs, 34
satellite offices and 20 non-business office. As at December 31, 2010, It have a workforce of
33,561 employees (including part-time employees) serving over 27 Million customers.
As on September 30, 2010 based on RBI data, the Bank's estimated market share of
aggregate deposits of all scheduled commercial banks in India was 3.56% and the Bank
estimated market share of domestic advances was 3.38%. Bank made a net profit of ` 10,582.30
Million in Fiscal 2010 and as at March 31, 2010 bank had assets of ` 1,826,716 Million
approximately and a net worth of ` 57,281.80 Million. Bank have experienced growth in deposits
and advances, with deposits growing at a compounded annual rate of 25.11% during the last
38
three Fiscal Years and net advances growing at a compounded annual rate of 26.71% during the
same period.
The head office (central office) is located at Chandermukhi, Nariman Point, Mumbai
400 021. As at December 31, 2010, The domestic branch network of 3,656 branches comprised
of 1,402 rural, 912 semi-urban, 704 urban and 638 metropolitan branches. It has specialized
branches catering to the needs of the treasury, corporate finance, mid-corporate, agricultural
branch, SME, etc. Additionally, there are nine offices providing specialized services such as cash
management and central clearing and 109 currency chests. As at September 30, 2010, bank have
3,814 properties that are leased and 826 properties that are owned by The Bank including the
head office, zonal offices, regional offices, branches, other offices, residential property, chests
and vacant sites.
HISTORY OF CENTRAL BANK OF INDIA
39
It was established on 21 December 1911 by Sir Sorabji Pochkhanawala with Sir Pherozeshah Mehta as
Chairman, and claims to have been the first commercial Indian bank completely owned and managed by
Indians.
In 1923, it acquired the Tata Industrial Bank in the wake of the failure of the Alliance Bank of Simla.
In 1969, the Indian Government nationalized the bank on 19 July, together with 13 others.
In the 1980s the managers of the London branches of Central Bank of India, Punjab National Bank,
and Union Bank of India banker caught up in a fraud in which they made dubious loans to the
Bangladeshi jute trader Rajender Singh Sethia. The regulatory authorities in England and India forced all
three Indian banks to close their London branches.
Central Bank of India was one of first bank to issue credit cards in the year 1980 in collaboration with
MasterCard Central Bank of India announces Financial Result for year ended 2013-Total Business
Rs.402000 Cr. Net Profit-Rs.1015 Cr. On August 1st Central Bank of India appoints new CMD Rajiv
Rishi, who was previously ED of Indian Bank and General Manager of OBC. Raj Kumar Goyal new ED
of the bank.1st November 2013 Bank open 2nd Representative Office at Hongkong.
40
Major events in the history of Central Bank of India
1911 Incorporation of our Bank

1929 The Central Bank Executor and Trustee Company Limited was incorporated as a
subsidiary of the Bank which was later renamed as Cent bank Financial and Custodial
Services Limited and further changed to Cent bank Financial Services Limited with effect
from September 14, 2009.
1969 The Bank was nationalized.
1980 Central card, the credit card of our Bank was introduced.
1984 Our joint venture, Indo-Zambia Bank Limited was incorporated.
1991 Apna Ghar Vitta Nigam Limited was incorporated as a subsidiary of the Bank which was
later named as Cent Bank Home Finance Limited June 12, 1992.
2007 The Bank restructured its entire paid up capital by conversion of an amount aggregating to
8,000 Million out of the equity share capital of 11,241.40 Million into perpetual non-
cumulative preference share capital, while retaining the balance amount aggregating to
`3,241.41 Million as equity share capital of the Bank. The equity shares banker listed on
the NSE and BSE by way of IPO.
2008 Implemented the integrated risk management system
2009 Adopted operation Navchetna with focus on processes, people, technology, productivity
and profitability
2010 Aggregate of the advances and deposits of the Bank crossed 2,500,000 Million.
Achieved 100% financial inclusion in 14,047 villages.
5. RECOMMENDATIONS
We all have different requirements at various phases in our lifespan. To meet all these
requirements we must be financially capable.
Financial Capability is not gained, it is achieved. To achieve it, we must plan wisely and
realistically.
41
We should know our goals, and must take appropriate steps in order to achieve it.
Simple way of achieving our goals is investing.
Investing is an art as well as science. There are various questions like when to invest, where to
invest and how much to invest which need to be answered. An individual may not be able to
answer these.
Therefore it is advisable to opt for Portfolio Management Service, where a specialized expert
(fund manager) looks after the funds and through sound investments, helps us achieve our goals.
One should start financial planning and investing early.

Take advice of professional fund managers if the investor does not have appropriate
knowledge about the financial market.
Regularly analyze investments and track their performance.
Some of the suggestion and recommendation for improving the present image as well as the
services of Banks and Other financial institution who provide Portfolio management Services are
as follows:
More branches:
Some more branches should be opened so it becomes more easy and approachable for the people
to do their transaction. The branches should have well trained employees.
Customer Awareness:
The people should be updated with the new issues and scheme started by the organization to the
existing customer. Regular contact with the customer through telephone can be maintained for
smooth running of business.
Proper feedback system:
42
A proper feedback system should be designed to take care of the dissatisfied customer and
solving their problems as their bad works of mouth publicity can make loose its potential as well
as existing customer.
More advertisement:
Newspaper and agents are most effective tools for awareness, sothey should use these tools more
for advertisement.
6. 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. In other words Security prices are determined by money manager
and home managers, students and strikers, doctors and dog catchers, lawyers and landscapers,
43
the wealthy and the wanting. This breadth of market participants guarantees an element of
unpredictability and excitement. If we were all totally logical and could separate our emotions
from our investment decisions then, the determination of price based on future earnings would
work magnificently. And since we would all have the same completely logical expectations,
price would only change when quarterly reports or relevant news was released.
I can conclude from this project that portfolio management has become an important service
for the investors to identify the companies with growth potential. Portfolio managers can provide
the professional advice to the investors to make an intelligent and informed investment.
Portfolio management role is still not identified in the recent time but due it expansion of
investors market and growing complexities of the investors the services of the portfolio
managers will be in great demand in the near future.
Today the individual investors do not show interest in taking professional help but surely
with the growing importance and awareness regarding portfolios managers people will
definitely prefer to take professional help.
7. BIBLOGRAPHY
1) SECURITIES ANALYSIS AND PORTFOLIO MANAGEMENT- V. A. Avadhani.

2) INVESTMENT MANAGEMENT- Preeti Singh.
Newspapers:
Business Today
44
Business World
Economic Times
WEBLIOGRAPHY:
www.google.com
www.wikipedia.com
www.bloomberg.com
www.karvy.com
www.indiainfoline.com
45

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Portfolio Management

1.1 MEANING OF PORTFOLIO MANAGEMENT

Portfolio management service is one of the merchant banking activities recognized by

Portfolio management or investment helps investors in effective and efficient management

1.2Objectives Portfolio management

Objectives of Portfolio Management

There are seven objectives of portfolio management:

Portfolio management is technique of investing in securities. The ultimate object of

4) Availability of Money at Pre-decided Time:

5) Favorable Tax Treatment:

Sometimes, some portfolio planning is done to obtain some tax savings.

6) Maintaining the Purchasing Power:

7) Risk Reduction through Diversification:

The two basic principles of effective portfolio management :

(i) Invest on the basis of fundamentals of the security.

(ii) Review and update the portfolio regularly.

(a) Strength of the company,

(b) Strength of the industry, and

(c) Strength of the economy.

The strength of the company depends upon various factors like

I. Intelligent, dedicated and motivated human resources,

II. Having positive values and vision,

III. Policy regarding encouraging R&D

IV. Integrity of promoters, and

V. Long range planning for profits.

should say non-availability of the substitutes). Economy, here, means nationaleconomy. By

Two more points regarding the second principle

1.3 7 Principles of Portfolio Management

1 Emphasize a Disciplined Process to eliminate response to short-term market volatility.

2. Deliver Great Capability to all investment management solutions.

4. Emphasize the importance of Asset Allocation

5. Implement a plan using the most Appropriate Investment Strategies.

6. Monitor and Adjust your portfolio on an ongoing basis

7. Assess your Progress regularly

1.4TYPES OF PORTFOLIO MANAGEMENT

There are various types of portfolio management:

Project Portfolio Management

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

IT portfolio management is the application of systematic management to large classes of items

(i) Application Portfolio - Management of this portfolio focuses on comparing spending on

3. PROJECT PORTFOLIO MANAGEMENT:

PORTFOLIO MANAGEMENT SERVICES:

Portfolio management service (PMS) is a type of professional service offered by portfolio

PORTFOLIO MANAGEMENT SERVICE

Benefit of Diversification and an element of customization

Separately held securities

Efficient switch between cash and equity positions

Customized Performance Reporting

100% Transparency, managed under SEBI license and regulations

Competitive Fee Structure

Discretionary Portfolio Management

PORTFOLIO MANAGEMENT PROCESS

PORTFOLIO MANAGEMENT PROCESS:

(A) THERE ARE THREE MAJOR ACTIVITIES INVOLVED IN AN EFFICIENT

c) If the investment is decided in shares or debentures, then the industries showing a

(A) FUNDAMENTAL ANALYSIS OF GROWTH ORIENTED COMPANIES:

a) Statistical Analysis of Past Performance:

b) Assessing the Intrinsic Value of an Industry/Company:

(B) INDUSTRY ANALYSIS

(iv) Labour Management Relations in the Industry: The state of labour-management

(C) COMPANY ANALYSIS:

(D) FINANCIAL ANALYSIS:

(C) TIMING OF PURCHASES:-

The timing of dealings in the securities, specially shares is of crucialimportance, because