Вы находитесь на странице: 1из 6

Assignment on Investment Policy Statement

Course: Portfolio Management (F402)

Prepared for,
Mrs. Shakila Yasmin
Associate Professor
Institute of Business Administration
University of Dhaka

Prepared by,
Mohaiminul Islam Riaz
Roll- ZR 47, BBA 23rd Batch
Institute of Business Administration

October 21, 2018


Executive Summary

Client Name- Shamsul Arefin Erfan


Client Type- Individual Investor (Taxable portfolio)
Tax ID- 142123121
Current Assets- BDT 20,00,000
Modeled Return- 23.2% (annually)
1 year Loss Limit (worst case scenario)- 30%
This fund has been created in order to ensure sufficient money so that Mr. Erfan
can purchase a flat. The policy statement deals with the purpose of investment,
profile of the investor, constraints of the investment, risk tolerance assessment,
required rate of return for the investment, withdrawal policy and frequency of
adjustments, performance evaluation and management fees, and asset allocation.

Investment Policy Statement Purpose


The purpose of this Investment Policy Statement is to assist the client in effectively
supervising, monitoring and evaluating the client's investment portfolio. This
statement provides the goals and objectives of the general investment of the client
and describes the strategies that the manager should employ in order to meet these
objectives.

Background
This IPS has been arrived at upon consideration by the Client of a wide range of
policies, and describes the prudent investment process the Client deems
appropriate. This process includes offering various asset classes and investment
management styles that, in total, are expected to offer the opportunity to diversify
the portfolio in a manner consistent with the specified risk and return requirements
of the portfolio.
Mr. Erfan, who is 25 years old, is in the accumulation phase of investor life cycle
with low personal expenditure and a tenacity to undertake high risk in his
investment portfolio in sectors and companies showing high potential growth with
a bottom up approach. The moderate investment horizon, combined with the
accumulation phase of the investor’s life cycle, means that the investor can take
moderately aggressive approach in selecting the asset classes for the portfolio.
Purpose of Investment
The purpose of the investment is to earn sufficient money which will be used to
purchase a flat in uptown Wari, Dhaka. Hence Investment goals and objectives are
long term growth and preservation of capital.

Profile of the Client


Name Shamsul Arefin Erfan
Age 25
Occupation Founder and Teacher (ELC School)
Marital Status Single
Annual Income BDT 36,00,000
Annual Expenditure BDT 6,00,000
Net Wealth BDT 25,00,000
Current Assets Cash of BDT 5,00,000, Stock of BDT
5,00,000, Gold worth BDT 10,00,000
Liabilities None
Health Condition Stable and healthy
Agreed Investable BDT 20,00,000
Assets

Time Horizon
The investment guidelines are based upon an investment horizon of greater than
five years. The Client's strategic asset allocation is also based on this long-term
perspective. Short-term liquidity requirements are anticipated to be non-existent, or
at least should be covered by cash inflows.
Investment Amount & Withdrawal Policy
The total amount which will be invested is BDT 20,00,000 which is same as the
client’s current assets. There will be an initial outlay of BDT 15,00,000 on 1st of
January, 2019 with a subsequent payment of BDT 5,00,000 on 1st July, 2020.
The client can only withdraw money once in six months. The client will be allowed
to withdraw 3% of his investment at once. In case the client withdraws money and
does not reinvest the amount within the next six months, the required rate of return
will be calculated based on the amount left after withdrawal. Also, the client needs
to provide at least 3 weeks’ notice to withdraw money. If the client insists on
withdrawing more than 3% of the fund, then the fund manager will not be liable in
case the portfolio does not provide the required rate of return after the specific time
period. Withdrawal fees shall also be charged depending on the amount being
withdrawn. Furthermore, when it comes to withdrawals, the client may be required
to present additional information and documents.
Long term Goals and Expectations
Because he is willing to take high risks, in the long run, Mr. Erfan wants his
investments to grow exponentially and at least receive double the amount to be
invested. In the event of unusually poor stock market performance he is ready to
accept some losses.
Short Term Risk Attitudes
Since the client is operating in high risk high return bracket, the client can tolerate
a small loss in the first two years of investment. He is also not really worried about
losses in the next three-month time frame.
Expected Rate of Return & Risk Tolerance
The expected rate of return is from the portfolio is 14.87%. (Appendix-1)
The risk tolerance for the client has been measured by a risk profile questionnaire
and also from the profile of the client. The risk profile’s result said that the client is
a high risk taker. But combining that with client’s profile and the nature of the
investment it has been judged that the client is a high risk investor. (Appendix2)
Investor’s Tax Bracket
The client is in the 30% tax bracket that falls between the range of BDT17,50,00-
47,50,000
Readjustments
The asset allocation of the portfolio will be reviewed semiannually unless there is
any withdrawal or deposit of funds. Deviation of any asset class up to 5% from the
expected range will be taken into consideration and the assets will be readjusted.
If at any point in time, the deviation of the asset class is more than 10% from the
expected range, then the portfolio will be adjusted within one week.
Asset Allocation
With the client’s high risk appetite in mind, the portfolio has been designed to
begin with an asset allocation of 40% in private equity, 35% in public equity, 15%
in mutual funds and 10% cash, transitioning to 45% private equity, 40% public
equity, 10% mutual funds and 5% cash.
The private equities have been given highest allocation because of the nature of
their immense growth potential, e.g. tech based companies like Pathao has been
valued at $100m, Shohoz.com at $60m, BDcabs at $6.5, SOLshare at $5m. These
companies have shown exponential growth. Also modern healthcare technology
companies such as Doctorola.com, Tonic showed an average growth rate of 20%.
Along with the high growth and return potential, these companies carry substantial
risk as well.
The public equity have been give the second highest percentage allocation because
of these are many companies in Pharma, Cement, IT, Fuel and Power industries the
stocks of which are currently underpriced though the companies have sustainable
financial positions with high growth and return potential.
There have been no weightage allocated for bonds because of the religious
reservations of the client. Hence 15% weight has been allocated to mutual funds
with the rest in cash in case of any emergency.
Performance Evaluation & Fees
Performance of the fund manager will be measured by the following ways:
▪ The return of 23% after two years
▪ Stocks will be compared with a benchmark: DS30 index

If the fund manager can get the return of 23% on average every year after five
years, he will get a bonus of 10% of the return. Each transaction will also give the
manager a fee of 1% of the transaction amount.
Constraints
▪ No hedge funds/derivatives/structured products.
▪ No investment in bond related products
▪ No more than 15% investment in any single equity position.
▪ Ethical restriction screening should be applied to eliminate exposure to
tobacco and armaments

Appendix-1

Present Value= 20,00,000


Future Value= 40,00,000
Period= 5
Required Rate of Return-14.87%

Вам также может понравиться