Вы находитесь на странице: 1из 53

CHAPTER – I

INTRODUCTION
INTRODUCTION

Portfolio refers to invest in a group of securities rather to invest in a single security.

“Don’t Put all your eggs in one basket.” Portfolio help in reducing risk without sacrificing
return.

Portfolio management is the art of selecting the right investment policy for the individuals in
terms of minimum risk and maximum return. It refers to managing an individual’s investments
in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits
within the stipulated time frame. In plain terms, it is managing money of an individual under
expert guidance of portfolio managers. Portfolio management is a complex process which tries
to make investment activity more rewarding and less risky.

A Portfolio refers to a collection of investment tools such as stocks, shares, mutual funds,
bonds, and cash and so on depending on the investor’s income, budget and convenient time
frame. Portfolio management refers to the management or administration of a portfolio of
securities to protect and enhance the value of the underlying investment. It involves a proper
investment decision with regards to what to buy and sell, it involves proper money
management. It is also known as investment management.

MAJOR TASKS INVOLVED WITH PORTFOLIO MANAGEMENT

 Taking decisions about investment mix and policy.


 Matching investments to objectives.
 Asset allocation for individuals and institution.
 Balancing risk against performance.
SCOPE OF PORTFOLIO MANAGEMENT
Portfolio management is a continuous process. It is a dynamic activity. The following are the
basic operations of a portfolio management .

 Monitoring the performance of portfolio by incorporating the latest market conditions.


 Identification of the investor’s objective, constraints and preferences.
 Making an evaluation of portfolio income (comparison with targets and achievement)
 Making revision in the portfolio.
 Implementation of the strategies in tune with investment objectives

OBJECTIVES OF PORTFOLIO MANAGEMENT


The objective of portfolio management is to invest in securities in such a way that one
maximizes one’s return and minimizes risk in order to achieve one’s investment objective. A
good portfolio should have multiple objectives and achieve a sound balance among them. Any
one objective should not be given undue importance at a cost of others. Presented below are
some important objectives of portfolio management.

1. Stable Current Return : Once investment safety is guaranteed. The portfolio should
yield a steady current income. The current returns should at least match the
opportunity cost of the funds of the investor. What we are referring to here current
income by the way of interest of dividend, not capital gains.
2. Marketability : A good portfolio consists of investment, which can be marketed without
difficulty. If there are too many unlisted or inactive shares in your portfolio, you will face
problems in encasing them and switching from one investment to another. It is
desirable to invest in companies listed on major stock exchanges, which are actively
traded.
3. Tax planning : Since taxation is an important variable in total planning, a good portfolio
should enable its owner to enjoy a favorable tax shelter. The portfolio should be
developed considering not only income tax, but capital gains tax, and gift tax, as well.
What a good portfolio aims at is tax planning, not tax evasion or tax avoidance.
4. Liquidity : The portfolio should ensure that there are enough funds available at short
notice to take care of the investor’s liquidity requirements. It is desirable to keep a line
of credit from a bank for use in case it becomes necessary to participate in right issues,
or for any other personal needs.
5. Safety of the investors : The first important objective of a portfolio, no matter who
owns it, is to ensure that the investment is absolutely safe. Other considerations like
income, growth, etc, only come into the picture after the safety of your investment is
ensured.

NEED FOR PORTFOLIO MANAGEMENT


 Portfolio management present the best investment plan to the individuals as per
their income, budget, age and ability to undertake risks.
 Portfolio management minimizes the risks involved in investing and also increases
the chance of making profits.

Portfolio management understands the client’s financial needs and suggest the best and
unique investment policy for them with minimum risks involved.

 Portfolio management enables the portfolio managers to provide customized


investment solutions to clients as per their needs and requirements.

IMPORTANCE OF PORTFOLIO MANAGEMENT


The ever changing value of investments, and the ever changing nature of the markets and
the economy, combines to mean that your initial assets allocation may no longer match
your investment goals, and so it’s inevitable that at various points you’ll need to make
adjustments. Monitoring and rebalancing your portfolio is important, but so is not
amending too much. Investment is about watching how they perform and giving them a
nudge in the right direction from time to time, rather than over managing and making
constant and often unnecessary adjustments.

ADVANTAGES OF PORTFOLIO MANAGEMENT


 Makes the right investment choices.
 Invest in a regular and disciplined manner.
 Balances risk and reward.
 Improve your financial understanding.

LIMITATIONS OF PORTFOLIO MANAGEMENT


 Reduces quality. There are only so many quality companies and even less that are
priced at levels that provide a margin of safety.
 Too complicated
 Lack of focus or attention to your portfolio
 Market risk
 Below average returns.

4 KEY ELEMENTS OF STRONG INVESTMENT PORTFOLIOS


I want to start by defining what I mean by a successful investment portfolio and—spoiler
alert—it doesn’t have to do with “beating” the market. Success will vary depending on your
stage in life (early investor vs. already retired) and your goals. Building an investment portfolio
starts with defining your goals and understanding how much you’ll need to make them a
reality. Once you know that, you can start to build an investment strategy that will help you
reach your objective with the least amount of risk possible. We find that most successful
approaches include these four elements: effective diversification, active management of asset
allocation, cost efficiency and tax efficiency.

1. Effective diversification—beyond asset allocation

Traditional views of diversification tend to focus on asset classes (e.g., equity, fixed income).
Although holding various asset classes can help steer you towards diversification, t hey don't go
far enough to provide meaningful diversification benefits. Creating effective diversification
requires consideration of an asset's underlying source of risk. Diversifying across the underlying
source of risk, whether it's related to the yield curve, the performance of a company or the
inflation environment, is the core of a solid diversification strategy.

2. Active management—tactical asset allocation strategy


Research shows that markets are relatively efficient—most information is already priced into
the stock. This makes it difficult to predict the markets or individual stocks in the short term.
However, Nobel Prize-winning research indicates that markets are actually somewhat
predictable over three to five year periods.
3. Cost efficiency
Whether you're managing your own investments or working with an advisor, paying fees is a
fact of life. So, if you're going to pay fees, make sure you're getting good value. There are
several types of fees to consider including advisory and custodian fees, investment expense
ratios and transaction costs—all together you could be paying almost 3% in fees annually. If you
are, that's too much.

4. Tax efficiency
The real measure of success for an investment strategy is how much of your money you actually
get to keep. That’s where incorporating tax efficiencies into the investment philosophy come in.
Research has shown that comprehensive tax planning can save investors 75 basis points
annually. It might not sound like much, but it’s a big deal

THEORIES OF PORTFOLIO MANAGEMENT

The theory of portfolio management describes the management describes the resulting
risk and return of a combination of individual assets. A primary objective of the theory is to
identify asset combinations that are efficient. Here, efficiency means the highest expected
rate of return on an investment for specific level of risk.

Portfolio Theories

Traditional approach Modern approach

Dow jones Theory Harry Markowitz Modern


Portfolio Theory

Random walk Theory

Formula Thoery
PORTFOLIO MANAGEMENT THEORIES :
1. TRADITIONAL APPROACH :
 DOW THEORY :

Charles Dow, the editor of Wall Street Journal, USA, presented this theory through a series of
editorials. Dow formulated a hypothesis that the stock market does not move on a random
basis but is influenced by three distinct cyclical trends that guide its direction. These are the
primary movements, secondary reactions and minor movements.

Dow believed that the stock market as a whole was a reliable measure of overall business
conditions within the economy and that by analyzing the overall market, one could accurately
gauge those conditions and identify the direction of major market trends and the likely
direction of individual stocks.

The theory has undergone further developments in its 100-plus-year history, including
contributions by William Hamilton in the 1920s, Robert Rhea in the 1930s, and E. George
Shaefer and Richard Russell in the 1960s. Aspects of the theory have lost ground, for example,
its emphasis on the transportation sector—or railroads, in its original form—but Dow's
approach still forms the core of modern.

a. Primary Movements:
These are the long term movements (from one to three years or more) of the prices of the
securities on the stock exchange. Such movements can sway the entire market up or down.

b. Secondary Reactions:
These act as a restraining force on the primary movement. These are in opposite direction of
primary movement and last only for a short while. These are also known as corrections.

c. Minor Movements:
These are the day to day fluctuations in the market. The minor movements are not significant
and have no analytical value as they are of very short duration.

These three movements have been compared with the tides, the waves and the ripples in the
ocean as depicted in figure 6.2a and 6.2b
2. Random Walk Theory (Efficient Market Hypothesis):
According to Dow Theory, predictions can be made about the future behaviour of stock
exchange prices by a careful study and analysis of the price trends. Contrary to this belief, as
per the random walk theory, the behaviour of stock exchange prices is almost unpredictable
and there is no relation between the present and future stock prices.
A change occurs in the price of a stock only because of certain changes in the company entire
industry and economy. The information about these changes are absorbed in the stock market
and the stock prices move up or down reflecting these changes immediately. Further change
will occur only as a result of some other new piece of information.

The basic assumption in Random Walk Theory is that the information is immediately and fully
spread so that all investors have full knowledge of the changes occurred in the economy or
industry or company. There is an instant adjustment in the stock prices with this news.

Thus, the current stock price reflects all information in the market. Therefore, the price of a
security two days ago will in no way help in predicting the price of that security two days later.
It also assumes that stock markets are efficient. This is also the reason for this theory to be
known as the ‘Efficient Market Hypothesis’.

3. Formula Plans:
Certain mechanical revision techniques or procedures have been developed to enable investors
to benefit from price fluctuations in the market by buying stocks when prices are low and
selling them when prices are high. These techniques are referred as formula plans. Formula
plans are primarily oriented to achieve loss minimization rather than return maximization.

Formula plans possess the following features:


(a) The amount available for investment is predetermined

(b) The investor would construct two portfolios, one aggressive (equities) and the other
defensive (bonds, debentures) with his investment funds.

(c) The ratio between the investments in the aggressive portfolio and the defensive portfolio
would be predetermined such as 1:1 or 2:1

(d) The portfolios are periodically monitored and adjusted accordingly

Example:
Let us assume that an investor starts with Rs. 20,000, investing Rs. 10,000 each in the
aggressive portfolio and the defensive portfolio. Initial ratio is 1:1. He has predetermined the
revision points as ± 20%. As share prices increase the value of the portfolio would rise. When
the value of the stocks rises to Rs. 12,000, the ratio will change to 1.2:1, (i.e. 12,000:10,000).
Shares worth Rs. 1,000 will be sold and the amount transferred to defensive portfolio by buying
bonds. Thus, the value of both the portfolio becomes Rs.11, 000 and the ratio 1:1.

The same could be done in case if the share prices fall down. Funds could be transferred from
the defensive portfolio to aggressive portfolio and the ratio can be maintained.

II. Modern Portfolio Theory:

Efficient Portfolios are those portfolios that yield the highest return for the level of risk
accepted or alternatively, the smallest portfolio risk for a specified level of expected return. To
build an efficient portfolio an expected return level is chosen, and assets are substituted until
the portfolio combination with the smallest variance at the return level is found. As this process
is repeated for other expected returns, a set of efficient portfolios is generated.

The Modern Portfolio Theory is based on following assumptions:


i. Investors estimate risk on the basis of variability of expected returns.

ii. Investors base their decisions solely on expected returns and variance (standard deviation) of
returns only.

iii. For a given risk level, investors prefer high returns to lower returns. Similarly, for a given
level of expected return, investors prefer less risk to more risk.

iv. Asset returns are normally distributed random variables.

v. Markets are efficient.

Explanation of Modern Portfolio Theory:


Let us assume that there are 10 portfolios with the following expected returns and standard
deviation:
From the above, we can observe that in portfolio number 4 and 5, the standard deviation is
same but different returns. The investor would select portfolio 5 if given a choice between 4
and 5.

Similarly, in case of portfolio number 7 and 8, the returns are same with different standard
deviations. Given a choice, the investor would go for portfolio number 7.

Thus, the selection is guided by two criteria:


i. The investor would go for the portfolio with lower risk among two portfolios with same
returns

ii. The investor would go for the portfolio with higher returns among two portfolios with same
risk.

Shortcomings of Modern Portfolio Theory:


i. The Theory believes that it is possible to select stocks/assets which are not correlated to one
another. However, it has been proved that at times, seemingly uncorrelated assets do not
act/react independent of each other.

ii. The Efficient Market hypothesis is increasingly being challenged because of existence of
information asymmetry, insider trading, etc.

iii. The concept of rational investors is being challenged by behavioral economists, according to
whom; investors do not always behave rationally.

iv. There is no concept of risk-free asset in the real world since all assets carry some amount of
inherent risk

v. It is frequently observed that the returns in equity and other markets are not normally
distributed as assumed by the Theory.

Portfolio return and Portfolio risk can be calculated as per the


following formula:

Where,

σ1 and σ2 = Standard deviation of security 1 and security 2


W1 and W2 = Proportion of funds invested in security 1 and security 2
r12 – Correlation coefficient between security 1 and 2
E (R1), E (R2), E (Rn) = Expected returns on security 1, 2 and so on.

Portfolio risk (portfolio with more than two securities):


Where,

Wi = Proportion of funds invested in security i


Wj= Proportion of funds invested in security j
σij = The covariance between the pairs of securities i and j
n = total number of securities in the portfolio.

REVIEW OF LITERATURE
DR JOHN LINTNER PROFESSIONALLY MANAGED FUTURES (1983) :

One of the most uncorrelated and independent investments versus stocks are futures. The
value of professionally managed futures was thoroughly researched by Dr John Lintner, of
Harvard university, in a year 1983 landmark study, “The potential role of managed future
accounts in portfolios of stocks and bonds.”

Lintner wrote that “the combined portfolios of stocks after including judicious…in leveraged
managed futures accounts show substantially less risk at every possible level of expected return
than portfolios of stocks alone.” Lintner specifically showed how managed futures can decrease
portfolio risk, while simultaneously enhancing overall portfolio performance.

DONALD E. FISCHER AND RONALD J.JORDON (1995) :

He has provided a comprehensive introduction to the area of security analysis and portfolio
management in their book which has few parts. In the 1 st part it is noted that the measurement
of return and risk were the main focus of the job of the security and analyst of the portfolio
manager.
The managed portfolio included open end and closed end investment companies or mutual
funds, dual funds, money market funds bonds, index funds pension funds ERISA, rust
agreements, common trusts and professional investment counsel. The Sharpe, Treyner Jens en
approaches are the measures of performance evaluation of above instruments.

DR G.P.JAKHOTIA AND MRS M.G.JAKHOTIA (2001) :

In their book ‘finance for one and all’ elaborated the techniques of investment management for
individual investors. He discussed reasons for making investment and listed five important
reasons for investment such as :

1. Regular income
2. Growth of wealth
3. Contingency arrangement
4. Fighting inflation
5. Old age or post retirement provision

Further they have given model for assessment of individuals portfolio mix he has suggested
that individual investors should form a group and meet for assessing each ones portfolio. An
arithmetic average of all assessment may be the most accurate assessment of an individual’s
portfolio.

G.COTTER CUNNINGHAM (2004) :

In this book ‘your financial action plan explained into some simple steps for achieving money
success. The customer’s personnel financial issues comprehensively and objectively covered
into the book. It has few chapters.’ The basic financial issues such as creating a will, building a
savings nest egg and making and sticking to a monthly budget is explained in a first chapter. The
survey in this book showed that people who pays their bills as they come in where more
satisfied and less stressed than those who didn’t.

The author says financial knowledge means financial power. The 6 steps programs for financial
literacy discussed in this book are
 Keep emergency funds
 Pay bills on time
 Follow monthly budget
 Save for retirement
 Read bank account statements
 Get a will.

VALERY POLKOVNICHENKO (2005) :

In his study ‘Household Portfolio Diversification: A case for Rank-Dependent preferences’ has
supported for rank dependent preferences The rank dependent expected utility model also
known as anticipated utility. This model explained the behavior of people that people both
purchase lottery tickets which indicates risk taking preferences and insurance are implying risk
aversion. For the survey of consumer expenditure data was used. He figured out two wide
spread pattern inconsistent with expected utility. One is majority of household had investment
in well diversified funds. They had poor portfolios of stock. Second are households who had
more savings but their investment in equity was very low. He argued that portfolio choice
models with rank dependent preferences are used parameters as possible and with fully
rational assumptions which are constant and quantitative with the observed diversification. He
suggested there is need to integrate the models of rank dependent preferences in portfolio
theory and asset pricing.

EFE AKSUYEK ZURICH (2008) :

In his study of information theory and portfolio management tries to understand the link of
information theory to the theory to the theory of optimal investments in a stock market. For
that reason he considers two scenarios. First he investigates an optimal portfolio construction
problem in a stock market with known distributions of stocks returns. Then he examines a
universal approach for portfolio construction in a stock market without knowledge about
distributions of stocks returns. He observed that the connection between information theory
and portfolio management lies on the data compression and universal codes. Besides the
properties of long optimal portfolio are very challenging and powerful. Unfortunately it is not
perfectly constructible because in reality we do not have knowledge about the true
distributions

Distributions of stock returns. Therefore the universal portfolio makes more sense in terms of
practical usage.

P.CHANDRA’S (2008) :

“Investment analysis and portfolio management” Book helps to lay investor to be a


sophisticated professional. The book discusses the techniques and principles useful in
systematic and rational investment management. It has valuable insights and practices alone
with the spread sheets. The book constitutes with few parts.

Introduction in part first have 3 chapters which provide overview in field on investments,
features of investment alternatives, how the security market is functioning. Investors pursue
the approaches as fundamental approach, psychological approach, academic approach. The
country thinking, patience, composure, flexibility are important qualities. An investment is a
sacrifice of current money or other resources for future benefits. Investment is different from
speculation as well as gambling. The deposits and insurance are classified as non marketable
financial assets ape the points discussed in this chapter. Rate of return, risk, marketability tax
shelter, convenience are relevant for evaluation investment alternative.

EXPERT SYSTEMS WITH APPLICATIONS 39 (14), 11685-11698’2012

In this paper we provide a review of the current state of research on Portfolio Management
with the support of Multi objective Evolutionary Algorithms (MOEAs). Second we present a
methodological framework for conducting a comprehensive literature review on the Multi
objective Evolutionary Algorithms (MOEAs) for the Portfolio Management. Third, we use this
framework to gain an understanding of the current state of the MOEAs for the Portfolio
Management research field and fourth, based on the literature review, we identify areas of
concern with regard to MOEAs for the Portfolio Management research field.

HIGHLIGHTS :

► Almost 80% of the authors in the field have contributed a single paper. ► US, UK and
German institutions have contributed the most to the study of the field. ► The majority of the
scholars (82.50%) use only two objectives in their models. ► The most popular objectives are
the mean and variance derived from Markowitz’s model. ► Cardinality constraints and Lower
and Upper bounds are the most popular constraints.

RAM KUMAR, HAYA AJJAN, YUAN NIU

INFORMATION RESOURCES MANAGEMENT JOURNAL (IRMJ) 21 (3), 64-87, 2008

There is significant interest in managing IT resources as a portfolio of assets. The concept of IT


portfolio management (ITPM) is relatively new, compared to portfolio management in the
context of finance, new product development (NPD), and research and development (R&D).
This article compares ITPM with other types of portfolio management, and develops an
improved understanding of IT assets and their characteristics. It presents a process-oriented
framework for identifying critical ITPM decision stages. The proposed framework can be used
by managers as well as researchers.

PANAGIOTIS XIDONAS, JOHN PSARRAS

INTERNATIONAL JOURNAL OF BANKING, ACCOUNTING AND FINANCR 1(3), 285-305, 2009

The current study provides a categorised bibliography on the application of the techniques of
multiple criteria decision making (MCDM) to the problems and issues of portfolio management.
A large number of studies in the field of portfolio management have been compiled and
classified according to the different multicriteria methodological approaches that have been
used. Except the in-depth presentation of the MCDM contributions in the area of portfolio
management, the outmost aim of this paper is to stress the inarguable multiple criterion nature
of the majority of the problems that modern financial management faces.
RESEARCH METHODOLOGY

MEANING OF RESEARCH :

The method and technique that are used for conducting the research. Research methodology is
a systematic way of solving research problem this methodology includes all the stages of
research such as research process, research design, data collection, data analysis, data
interpretation and data presentation.

RESEARCH PROCESS :

This is the process of conducting entire research in such a way to solve the research problem. It
includes identification of problem conducting the research and interpretation of the data and
reporting.

DATA COLLECTION :

The objective of the present study can be accomplished by conducting a systematic research to
know the effect of portfolio schemes in the business

SECONDARY DATA :

Secondary data is taken from

 Website
 Security Analysis (semester 5)
 Brochures

TOOLS FOR DATA ANALYSIS :

To analyze the information or data collected from branch manager and various financial
statements the following tools are used

1. Bar charts
2. Standard deviation
3. Sharpe Model
4. Treynor Model
5. Jensen Model.
CHAPTER – II
INDUSTRIAL PROFILE
INDUSTRY PROFILE
WHAT ARE PORTFOLIO MANAGEMENT SERVICES

• Portfolio Management Services account is a sophisticated investment vehicle where the


portfolio manager invests in Stocks, Debt and fixed income products and other securities that
can potentially be tailored to meet specific investment objectives.

• According to SEBI “A portfolio manager is a body corporate who, pursuant to a 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.”

• In India major brokerage firms, asset management companies and independent experts
provide portfolio management services to clients.

ORIGIN OF PORTFOLIO MANAGEMENT IN INDIA

• On 7th January 1993, SEBI issued Securities and Exchange Board of India (Portfolio Managers)
Regulations, 1993 which marked the beginning of PMS as a formal investment vehicle in India

• Before this PMS operated as unregulated activity

• The issuance of the guidelines within a year of the establishment of SEBI highlights the
importance of this services in the capital market.

• Parag Parikh Financial Advisory Services Ltd. (PPFAS) launched the the PMS named Cognito in
October 1996

• In 2000, ICICI Prudential was the first institutional participant to provide PMS services.

HOW PORTFOLIO MANAGEMENT ASSETS HAVE GROWN


• Born in the late 1990s-early 2000s, portfolio management services, or PMS, became a
favourite with investors in the bull market of 2005-2008. – Between Mar’04 to Mar’06 the
number of PMS providers increased from 60 to 132.

• But soon after, it lost steam in the 2008-2009 market turmoil. According to data from SEBI,
the assets under management (AUM) of discretionary PMS products declined 40%, but the
AUM for non-discretionary PMS products increased 26% from December 2010 till December
2011.

• Total AUM of Portfolio Management Services industry, excluding the AUM under advisory
services, has increased by 14.5 percent from Rs 3,89,061 crore in March 2012 to Rs 4,45,428
crore in April 2012. Within Asset Under Management of Portfolio Management Services, AUM
under discretionary services constitutes the highest share in the AUM with Rs 4,26,570 crore in
April 2012 compared to Rs 3,70,302 crore in March 2012.

. • In terms of number of clients, discretionary services category ranks first with total of 64,688
clients, out of 81,472 clients in PMS industry, followed by advisory services with 10830 clients
and non discretionary category with 5954 clients.

PRODUCT TRENDS

• In 2007, JM Financial offered capital protection oriented PMS. In the same year providers like
Kotak launched small cap equity PMS portfolios

• Forefront Capital Management introduced India Opportunities – a quantitative PMS based on


fundamentals for HNIs and institutions. The strategy was launched in September 2009 and
invests in large cap equities using a quantitative model based on company and macroeconomic
fundamentals.

• In 2011, Bonanza Portfolio Ltd launched Shariah Portfolio Management Services-as per
Shariah guidelines mandate by Shariah Board, Islamic Investment & Finance Board (IIFB). It was
targeted towards the Indian Muslims.

PORTFOLIO MANAGEMENT TRENDS-FEES STRUCTURES

• Before 2008, many PMS products charged fixed fees


• However, PMS products with performance-driven fees were popular in 2008 and early 2009
when interest for these schemes waned after stock markets plunged in the wake of the global
credit crisis.

IS SEBI REGULATION MANDATORY

• According to SEBI guidelines PMS can be offered only by entities having specific SEBI
registration.

• However, there are unregistered PMS providers who provide these services to their clients.

• While SEBI-registered PMS Managers need to be body corporates, having a minimum net
worth of Rs. 2 crore and collect a minimum amount of Rs. 25 lakh from a single client to be
managed, entities running such services without the regulator's recognition may be doing so
without meeting any of these parameters.

• Further, before giving a PMS license, the market regulator insists on previous experience of
the applicant in related activities and managing funds.

• Some unregistered firms are practising PMS because their parent firm or subsidiary firm has a
certificate. However, even these could come under SEBI’s scanner.

• SEBI, on earlier occasions has warned of wide ranging consequences for such unregistered
PMS providers

• Hence it is in the interest of investors to choose only SEBI registered PMS providers.

ELIGIBLE INVESTORS IN PORTFOLIO MANAGEMENT

• The following are eligible investors: – Resident Individuals (>18 years)

– Hindu Undivided Families (HUF)

– Body corporate (Private /Public)

– Trust (registered)
– Sole Proprietorship Firm

– Co-Operative Society

– NRIs – subject to RBI approvals

– Partnership firms and other eligible investors.

HOW CAN PORTFOLIO MANAGEMENT CAN BE CLASSIFIED

• Discretionary portfolio management – The portfolio manager individually and independently


manages the funds of each client in accordance with the needs of the client.

• Non-discretionary portfolio management – The portfolio manager manages the funds in


accordance with the directions of the client. The portfolio manager cannot make buy-sell
decisions at his own discretion; he has to refer to the client for every transaction. The choice as
well as the timings of the investment decisions rest solely with the Investor. However the
execution of trade is done by the portfolio manager.

• Advisory – Under these services, the portfolio manager only suggests the investment ideas.
The choice as well as the execution of the investment decisions rest solely with the Investor.

DOCUMENTS REQUIRED

• The following documents are required:

– PMS Client Registration Form

– Discretionary Portfolio Management Service Agreement (read disclosure document prior to


signing the agreement)

– Power of Attorney by client to PMS. This document needs to be notarized locally.

– Bank Account Opening Form

– Photographs

– Depository Account Opening Form


– Proof of Identity

– Proof of Address

– PAN Card.

PORTFOLIO MANAGEMENT INFORMATION IN PUBLIC

• Portfolio Managers shall also ensure that the disclosure document is given to all clients along
with the account opening form at least two days in advance of signing of the agreement.

• In order to ensure that the clients have access to updated information about the portfolio
manager, portfolio managers shall place the latest disclosure document on their website,
wherever possible.

• The Disclosure Document contains the following:

– Disclaimer & Definitions

– History, Present Business and Background of the Portfolio Manager

– Penalties, Pending Litigations or Proceedings

– Services Offered

– Declaration regarding broking services

– Risk Factors

– Financial Performance of the Portfolio Manager

– Nature of Costs and Expenses for Clients

– Agreement

– Tax Implications

– Accounting Policies and Valuations


– Investor Services.

ARE PORTFOLIO MANAGEMENT SERVICES ALTERNATIVE INVESTMENT FUND

• In 2012 SEBI notified the Alternative Investment Funds (AIF) regulations

• PMS is governed by the Portfolio Managers Regulations, 1993 and any investment vehicle
which is currently under the guidelines of SEBI to regulate fund management activities is not
covered under the AIF Regulations.

ALTERNATIVE INVESTMENT FUNDS AND PORTFOLIO MANAGEMENT SERVICES

• AIFs are private investment funds that pool assets from a group of investors and have a
defined target for that pool

• There are three distinct categories under AIF.

– Category I include those AIFs with positive spillover effects on the economy, for which
incentives or concessions might be considered by SEBI or Government of India or other
regulators in India; and which shall include Venture Capital Funds, SME Funds, Social Venture
Funds, Infrastructure Funds. This implies certain specific sector investments and focuses on the
unlisted category of enterprises, where there is need for private funding.

– Category II focuses on unlisted enterprises but doesn’t limit the fund to a defined sector. This
is akin to many sector-agnostic PE funds that are likely to fall in this category.

– Category III caters to any other kind of fund—hence, a fund that invests primarily in listed
equity will qualify for this category. The last category also includes hedge funds that take
leverage as part of their strategy and use a mix of assets and derivatives to achieve returns.

• Category I and II AIFs shall be close-ended and shall have a minimum tenure of 3 years while
Category III AIFs may either be close or open ended.

• Difference between AIF and PMS:


– AIFs pool money to invest in unlisted equity unlike PMS Managers who make investments
into listed equity.

– The minimum investment in PMs is Rs. 25 lakhs while that for AIFs is Rs. 1 crore.

– PMS products cannot be close-ended while Category I and II AIFs are close-ended

OPPORTUNITY FOR PORTFOLIO MANAGEMENT SERVICES

• Income levels in India on a rise making Rs. 25 lakhs not beyond the reach of many.

– HNI liquid assets as a percentage of GDP rose from 8% to 12% between 2005 to 2010
and is likely to increase

– Indian HNIs account for 1.7% of the total MF folios but 24% of the MF industry AUM

• Scope for product innovation - existing offerings largely plain vanilla

• Many Fund Managers with established track records are now offering PMS products

• SEBI guidelines have improved investor safety and confidence.

STUDY OF TOP LEADING PORTFOLIO MANAGEMENT SERVICES

1. Porinju Veliyath's Equity Intelligence


Overview

 Porinju Veliyath's Equity Intelligence PMS is a discretionary PMS, that is decisions to buy
and sell stocks are taken by the PMS manager, no approval from your end would be
required for that.
 The minimum investment required to join the Porinju Veliyath's Equity Intelligence PMS
is Rs.50 lakh.
 No lock-in, you can withdraw your investment whenever you require.
 The PMS returned 47% in the financial year 2017, massively outperforming the Nifty 50
and BSE 500.
Porinju Veliyath's Equity Intelligence PMS Fees & Charges

 Porinju Veliyath's Equity Intelligence PMS charges a fixed management fee of 2% on the
quarterly average balance.
 Further, there is also a performance fee of 10% on returns garnered above 10% on your
portfolio.
 Also, it is been disclosed on the portal that there may be some additional charges for
brokerage, stamp duty, audit fees etc.

2. Motilal Oswal PMS


Overview

 The second Best PMS on the list is Motilal Oswal PMS. it is also a discretionary Portfolio
Management Service, which offers professional investment management aiming to
consistent returns.
 The minimum investment required to join the Motilal Oswal PMS is Rs.25 lakh.
 Motilal oswal PMS offers 3 products.

A. Value Strategy which aims to benefit from the long-term compounding effect on
investments by investing in the Undervalued stock & Sell overvalued stocks, irrespective of
index movements.

B. Next Trillion Dollar Opportunity which aims to deliver returns by investing in focused
themes which are part of GDP growth opportunity like consumerism, Banking & Financial
Services & Infrastructure.

C. India Opportunities Portfolio Strategy which aims to capitalize growth by investing in


companies which are expected to grow along with India. The strategy focuses on investing
in stocks having exposure across market segments such as Large Cap, Midcap & Small cap to
take the advantage of different market trends.

 These strategies have provided returns in the range of 18%-29% in the last one year.

Motilal Oswal PMS Fees & Charges

 Motilal Oswal PMS charges the fixed management fee of 2.25-2.5% depending upon the
value of the portfolio.
 Further, there is also a variable fee structure of 0.75% to 1% and 10% on profits
garnered above your portfolio.
 Also, it is been disclosed on the portal that there may be some additional charges for
brokerage, stamp duty, audit fees etc.
3. ICICI PMS
Overview

 Portfolio management services provided by ICICI AMC are also one of the best services
which an investor can look into. it is a discretionary Portfolio Management Service,
which offers various products under this service.
 The minimum investment required to join the ICICI PMS is Rs 25 lakh.
 ICICI PMS offers almost 9 products under PMS Service, these products are broadly
classified in the core and thematic categories. However below is the list of products
which ICICI PMS offers.
 Core Portfolio - Large Cap Portfolio, Flexi Cap Portfolio, Value Portfolio
 Thematic Portfolio - Infrastructure Portfolio, Export Portfolio, Wellness Portfolio, PIPE
Portfolio, Absolute Return Portfolio, Enterprising India Portfolio. These products are
designed with the varied objectives and methodologies of investment. With the biggest
products, ICICI AMC can be favored with loads of choices, however, being an investor it's
a confusing task for you to select the best suited for you.

ICICI PMS Fees & Charges

 ICICI PMS charges a fixed management fee of 2% which is payable on a quarterly basis
on the portfolio value.
 Along with this in the first year of investment, it charges investor an upfront fee of
2.25% on capital invested. The upfront fee is charged to the investor who is subscribing
the PMS for one year. However, the fees have not been charged to the investor
subscribing for 2 years or more.
 This PMS won't charge you any performance fees however the custody fees of 0.15%
and brokerage and other charges along with the exit load ranging between 0.75% (6-12
months) to 1.25% (within 6 months) is been charged on the redemption amount.

4. Kotak PMS
Overview

 Kotak AMC PMS is one another PMS which is renowned. Kotak PMS is discretionary
which invest in 10-25 stocks with various investment approaches to reap the higher
returns.
 The minimum investment required to join this PMS is Rs 25 lakh without any lock-in that
is investor can redeem his investment whenever he wants.
 Kotak pms offers 2 products
A. Special Situations Value Strategy, where the portfolio target to invest in stocks which
form a great Value Opportunities as well as Special Situations benefits such as merger-
related situation, price-related situations, and corporate restructuring.

B. Small and Midcap Strategy, where a stock-specific approach is employed with a


medium to long-term perspective. Here the portfolio is composed of the companies
backed be able managements as well as good financials with a promising future. Also,
75% of the portfolio is expected to be invested in the small caps and mid-cap stocks.

 These strategies have provided returns in the range of 15%-18% in the last one year.

Kotak PMS Fees & Charges

 Kotak PMS charges a fixed management fee of 2.5% per annum payable quarterly.
 This PMS won't charge any performance fees which is key positive for you. However, it
charges exit loads at 3%, 2% and 1% for exiting within 1 year,2 years and 3 years
respectively.
 Also, it is been disclosed on the portal that there may be some additional charges for
brokerage (0.1%), stamp duty, audit fees etc.
CHAPTER - III
COMPANY PROFILE
ICICI Prudential Portfolio Management Services (PMS) enjoys a rich parentage of two large
organizations ICICI Bank Ltd which is India’s largest private sector bank in addition to being one
of the most trusted brands in financial services and Prudential Plc UK, an international financial
services company, with significant operations in Asia, US and UK.

What does this alliance bring?

 Local Manager with Global Skills:

The joint venture (ICICI Bank Ltd., India and Prudential Plc. U.K.) brings together ICICI Bank’s
local experience in Indian markets and Prudential Plc’s global experience in asset management.

 A rich and diverse experience of managing financial assets

“ICICI Bank is India's largest private sector bank with total consolidated assets of Rs. 12,387.94
billion (US$ 179.1 billion) as on March 31, 2019, and consolidated profit after tax of Rs. 42.54
billion (US$ 615 million) for the year ended 31 March 2019. ICICI Bank currently has a network
of 4,874 Branches and 14,987 ATMs across India (as on March 31, 2019).
Prudential plc is an international financial services group with significant operations in Asia, US
and the UK. The company serves more than 26 million insurance customers and has £657 billion
of assets under management (as on December 31, 2018).”

 One of the largest distribution networks in India with branches spread across the country.

 In our quest for delivering risk adjusted returns to our investors, we have continuously
evolved over time. Our unique competitive offerings have enabled us to stand out
amongst others.
 Innovation
 "Discovery consists of seeing what everybody has seen, yet thinking what nobody has
thought."
 At ICICI Prudential Portfolio Management Services, we strongly believe that Innovation
is the key to achieve differentiation in an increasingly competitive market environment.
Our endeavor is to generate new ideas that can stand the test of time and difficult
market conditions, thereby benefiting our esteemed investors. At the same time, we
believe that the successful art of investing lies in understanding investor’s requirements.
Consequently, we package our portfolios as per investor's specific requirements.
 Extensive Research Coverage
 As an organization, we have an integrated common equity research team which includes
experienced Equity Research Analysts across Investment Team. They have an in-depth
access to on the ground internal and external research across sectors which help in
gaining detailed understanding of governance structures of corporate entities.
 Expertise across the asset classes
 At ICICI Prudential Portfolio Management Services, we believe that your investment
should be spread across asset classes viz. Equities, Fixed Income, Real Estate, etc. This
would help in aiming to reduce the overall risk while at the same time aiming to deliver
returns over time and offsetting the negative impact of a downturn in a particular asset
class. We have a dedicated team that has expertise in managing investments across
asset classes which include Equities and Real Estate. This expertise has enabled us in
introducing strong offering of products. In the Equity space we manage portfolios across
market caps, themes and sectors.
 Investor & Distributor Servicing
 At ICICI Prudential Portfolio Management Services, we treat our relationship with
investors as a prized asset. Our principles are being ethical and transparent in serving
our clients. In our never ending pursuit to empower our investors and maintaining
transparency, we have service like password protected website that provides investors
to get updated on their portfolios on a daily basis. We share periodic updates with the
investors such as audited and un-audited financial statements, Portfolio and Market
updates, etc.

THE CONQUESTS

ICICI Prudential AMC Limited was the first AMC to acquire PMS license in 2000. Since then, we
have covered various milestones. We have come out with many path-breaking and first of its
kind products in the industry. We offer a basket of products to ensure that we meet the
requirements of our investors.

THE DELIVERANCE

At ICICI Prudential Portfolio Management Services (PMS), we believe that we are managing
the trust and aspirations of our investors. We seek to deliver risk adjusted returns to our
investors. Hence, we follow a disciplined approach towards investing. The objective of our
Investment Decision making process is to identify the most effective investment opportunity.

Our Investment decision making process is disciplined, comprehensive and process driven. It
involves evaluating the macro-economic trends and sectorial as well as company specific
details. The investment idea is monitored regularly in view of news-flow and events of the
company. Over the years, the investment decision making process has been honed to enable us
in achieving our objective.

* Past performance may or may not be sustained in the future. Please refer to key risk factors.

ICICI PMS PRODUCT OFFERINGS


CORE PORTFOLIO

ICICI Prudential PMS Large-Cap Portfolio


(A series under "Diversified" Portfolio)
Investment Philosophy: ICICI Prudential PMS Large-Cap Portfolio (the Portfolio) is a diversified
equity portfolio that endeavours to achieve long term capital appreciation by investing
predominantly in large-cap companies.

Investment Strategy*

The Portfolio seeks to achieve capital appreciation through investments in Indian companies or
sectors with potential for growth. The Portfolio aims to predominantly invest in companies that
tend to grow earnings at a fast pace and are reasonably priced.

The Portfolio aims to generate alpha by active sector rotation through a top-down approach.
The top-down approach is used to identify key macroeconomic and sectoral themes, and
subsequently to help identify stocks that are expected to benefit from the same.

The Portfolio intends to reduce concentration risk through diversification at the stock and
sector levels. The Portfolio seeks to invest in large cap companies with a proven track record,
effective management and good growth potential.

Why Large-Cap Companies?


 These companies are usually market leaders in their industries having a strong & diversified
customer base across a wide range of products allowing them to sustain in challenging times.

 These companies tend to enjoy the benefits of experienced management and usually have a
long track record of performance.

 Large Cap companies usually are fundamentally strong companies which are generally well
capitalized having a lower debt to equity ratio along with sizeable cash reserves, access to
credit and potential to withstand tougher times over the long term.

 Large caps are considered to be relatively safer compared with other market cap stocks by way
of low volatility.

Historically, large caps have generally fallen by a lesser extent relative to the broader markets.
Hence, Large-caps may turn out to be a relatively stable investment avenue in turbulent
economic conditions.

The Portfolio aims to follow a "buy and hold" approach. It aims to identify companies that offer
reasonable potential for long-term growth

Market cap strategy: Predominantly Large-Cap

Investment style: Growth.

Investment Suitability

The Portfolio is suitable for investors:

 Seeking growth style of investing with an aim to take advantage of India’s long-term growth
potential.

 With an investment horizon of 3 years and above.

Portfolio Features*
*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document and
clients agreements for details and risk factors. The Portfolio Manager reserves the right to change
the Benchmark of the portfolio at its discretion. The composition of the Portfolio may or may not
be the same as that with the composition of the Benchmark.

ICICI Prudential PMS Flexi-Cap Portfolio


(A Series under "Aggressive" Portfolio)

Investment Philosophy: ICICI Prudential PMS Flexi-Cap Portfolio (the Portfolio) is a diversified
equity portfolio that endeavors to achieve long term capital appreciation and generate returns
by investing across market cap.

Investment Strategy*

The Investments are targeted at long-term capital appreciation and follows GARP (Growth at
Reasonable Price) Philosophy. The focus is on identifying stocks with attractive growth
prospects that are available at reasonable valuations.

The investment strategy follows a mix of a top-down and a bottom-up approach. The top-
down approach is used to identify key macroeconomic and sectorial themes and subsequently
helps to identify stocks that are expected to benefit from the same. A bottom-up approach is
applied based on the belief that there are always individual companies that provide attractive
investment opportunities under various industries and market conditions.

The prominence given to the top-down vs. bottom-up approach would vary from time to time
depending on macroeconomic, sectorial and company specific fundamentals. The Portfolio
Manager would aim to give weightage to other factors like effective management, scalable
businesses and pricing power of the company, sustainable competitive edge and visible brands,
while selecting investment ideas.

The Portfolio Manager aims to maintain a diversified portfolio by investing in a basket of stocks
across market capitalization, without any undue concentration in any stock or sector. The
Portfolio’s multi-cap investment approach, based on valuation gaps between large, mid and
small cap stocks, may facilitate participation in India’s growth story and at the same time, the
Portfolio manager aims to benefit from diversification.

The Portfolio aims to follow a buy and hold strategy with and aim to fully capitalize on the true
underlying value of the business potential, which is expected to get unlocked over a period of
time. However, the portfolio may be actively managed to take advantage of certain market
trends with an endeavor to enhance to return.

Thus, this investment style aims to provide flexibility to the Portfolio in capturing opportunities
through different stages of the economic cycle with relatively low risk.

Market cap strategy: Multi-cap

Investment style: Blend, Diversified Equity portfolio with exposure across Large, Mid and Small
Cap stocks

Investment Suitability

The Portfolio is suitable for investors:

 Seeking a portfolio with a potential to generate positive risk-adjusted returns,

 With an investment horizon of above 4 years

Portfolio Features*

*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document & client
agreement for details and risk factors.

^The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.

ICICI Prudential PMS Value Portfolio


(A series under “Deep Value” Portfolio)

Investment Philosophy: ICICI Prudential PMS Value Portfolio (the Portfolio) aims to follow a
value investment style and intends to offer a diversified portfolio of stocks that have a high
potential but are quoting at a discount to their fair/intrinsic value.

Investment Strategy*

The core investment philosophy of value investing is based on the belief that stocks cannot
continue to quote at values that are significantly below their fair values over the long term. At
some point in time, the markets are likely to recognize the extent of undervaluation of these
companies. The same could lead to a rerating/appreciation in the company’s stock price.

There are various reasons why stocks tend to quote at low valuations. Some of these include:

 An irrational market sentiment that drives down the price of a stock to a level lower than
justified by fundamentals. This could occur as an overreaction to negative news or as result of
market pessimism on corporate/industry fundamentals. Markets also often tend to ignore
certain stocks/sectors that appear to have low growth or non-exciting stories.

 Valuations not factoring in all aspects of the companies earning potential: Companies may have
certain hidden assets on their books or assets whose actual value may not be factored in by the
markets. This could include surplus land, equity holdings, cash on balance sheets, trademarks
etc. The markets are also at times slow to factor in company developments such as operational
or financial restructuring, entry in to new markets, capacity expansions, introduction of new
products, change in management etc. that could potentially add significant value to the
networth of the business. During cyclical downturns, a number of companies are often valued
based on bottom cycle earnings, which can look very attractive as the industry cycle improves.

The Portfolio Manager aims to find a good business at a reasonable price and not a mediocre
business at a bargain price. The Portfolio Manager endeavors to invest in securities with:
 Favourable long-term prospects;

 Effective management;

 Scalable businesses; Sustainable competitive edge; and

 Available at an attractive/reasonable price

The Portfolio aims to follow a “buy and hold” strategy in order to fully capitalise on the true
underlying value of the business potential which gets “unlocked” over a period of time.
However, the portfolio may be actively managed to take advantage of certain market trends,
with an endeavor to enhance returns.

Market cap strategy: Multi-cap with a bias towards Mid-Caps

Investment style: Value

Investment Suitability

The Portfolio is suitable for investors:

 Seeking to invest for a fairly long term with an aim to benefit from the full investment cycle

 With an investment horizon of at least 3 years and above.

Portfolio Features*

*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document & client
agreement for details and risk factors
.
^The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.

ICICI Prudential PMS Contra Portfolio


(A series under “Deep Value” Portfolio)

Investment Philosophy: ICICI Prudential PMS - Contra Portfolio (the Portfolio) seeks to
generate capital appreciation by investing predominantly in Equity & Equity Related
Instruments through contrarian investing. For defensive consideration, the Portfolio may invest
in debt and money market mutual fund schemes.

Investment Strategy*

The Portfolio aims to provide long term capital appreciation and generate returns by investing
in underperforming stocks or sectors, which are available at their intrinsic valuations and are
expected to perform well in the long run. For defensive consideration, the Portfolio may invest
in debt and money market mutual fund schemes.

 A focused portfolio of investment ideas, agnostic to market capitalizations. The Portfolio aims
to invest across market capitalisation.

 Optimal diversification across stocks, with the opportunity to be overweight vis-à-vis its
benchmark, S&P BSE 200, on certain high conviction picks, to potentially generate higher alpha.

 In case of debt exposures, the portfolio may invest in debt instruments through money
market/liquid/short term mutual fund schemes of ICICI Prudential Mutual Fund.

 The portfolio may not be restricted by any particular investment style and may opt for flexibility
to select stocks across investment styles.

 May aim to use cash as a hedge against sharp declines in equity in an endeavour to protect the
Portfolio.
Investment Suitability

The Portfolio is suitable for investors:

 Seeking long term wealth creation by investing in equities

 With an investment horizon of 4 years and above

Portfolio Features*

*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document &
client agreement for details and risk factors.

The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.

THEMATIC PORTFOLIO
Infrastructure Portfolio

Investment Philosophy: A thematic Portfolio which aims to provide long-term capital


appreciation and generate returns by investing in all important segments related to
Infrastructure sector. For defensive consideration, the Portfolio may invest in debt and money
market instruments.
Investment Strategy

The Portfolio aims to invest in core infrastructure sector and the sectors that directly feed off
the growth in the core sector. It aims to provide long-term capital appreciation by investing in
all important segments of Infrastructure.

For defensive consideration, the Portfolio may invest in debt and money market instruments .

The investment strategy follows a mix of a top-down and a bottom-up approach. The top-down
approach is used to identify key macroeconomic and sectoral themes and subsequently help
identify stocks that will benefit from the same. A bottom-up approach is applied based on the
belief that there are always individual companies that provide attractive investment.

The Portfolio primarily has large cap exposure and intends to play mid-caps tactically. It is a
multi-sector Portfolio and has much lesser concentration risk than a typical sector Portfolio.

Indicative Portfolio Construct:

 Equity and equity related instruments to the tune of 65 -100%.

 A focused portfolio of 15-20 ideas

 Debt, Money Market and Cash in the range of 0-35% through debt and money market mutual
fund scheme/s of ICICI Prudential Mutual Fund for temporary investment purpose.

 Maximum exposure to a security – 10% of the Portfolio

 Maximum exposure to a sector – 40% of the Portfolio


Portfolio Features

 *The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document &
client agreement for details and risk factors.

The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.

Export Portfolio

Investment Philosophy: A thematic Portfolio which aims to provide long-term capital


appreciation and generate returns by investing in all important sectors encompassing the
exports theme. For defensive consideration the Portfolio may invest in debt and money market
instruments.

Investment Strategy

A thematic Portfolio, which aims to provide long-term capital appreciation and generate
returns by investing in all important sectors encompassing the exports theme. For defensive
consideration the Portfolio may invest in debt and money market instruments.

Under normal circumstances the Portfolio aims to invest in the range of 65% to 100% of the
portfolio in equity and equity related securities. The Portfolio will inter-alia invest in companies,
which have a large component of their revenues coming from exports or from supplying to
entities which are exporters or who receive revenues from their subsidiaries abroad. An
indicative list of industries which fall in this category are as follows: (Please note that the list is
indicative and the Portfolio Manager may add such other sector/group industries which broadly
satisfy the criteria. These sector(s)/stock(s) mentioned below do not constitute any
recommendation of the same and the Portfolio Manager and may or may not have any future
position in these sector(s) stock(s).

 Information Technology

 Auto/ Auto Ancillary

 Pharmaceutical

 Textile

 Gems and Jewellery

 Glass Industry

 Engineering

 Electronics

 Transport/Logistics which facilitates international trade

 Local companies having facilities abroad.

The Portfolio endeavors to invest in high conviction ideas across stocks of companies having
high profit potential, through bottom up stock picking approach. It is envisaged to be a focused
portfolio of 15-20 stock ideas, agnostic to market capitalizations. The Portfolio Manager seeks
to optimally diversify across stocks, retaining the ability to be over weight on certain high
conviction picks, to potentially generate higher alpha. In case of debt exposures, the Portfolio
currently envisages no direct exposure to debt issuances of corporate. Rather the Portfolio may
invest in debt class through the Money market mutual funds of ICICI Prudential AMC. The
Portfolio will not be limited by any particular investment styles and would have the flexibility to
choose between stocks across investment styles. Cash may be used as hedge against sharp
declines in equity in an endeavor to protect the Portfolio.

Indicative Portfolio Construct:

 Equity and equity related instruments to the tune of 65-100%.


 A focused portfolio of 15-20 ideas, agnostic to market capitalizations

 Debt, Money Market and Cash in the range of 0-35% through money market mutual fund
scheme/s of ICICI Prudential Mutual Fund for temporary investment purpose.

Portfolio Features

*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document &
client agreement for details and risk factors.

^The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.

PMS Wellness Portfolio

Investment Philosophy: A dynamic asset allocation sector portfolio which aims to provide long-
term capital appreciation and generate returns by investing in all important segments of
Wellness which primarily comprises of remedial wellness and preventive wellness. For
defensive consideration the Portfolio may invest in debt and money market instruments.

Indicative Portfolio Composition

 Equity and equity related instruments to the tune of 0-100%.

 A focused portfolio of 15-20 ideas, agnostic to market capitalizations

 Debt, Money Market and Cash in the range of 0-100% through money market mutual fund
scheme/s for temporary investment purpose
*The strategy described herein involves risk and there can be no assurance that specific
objectives will be met under differing market conditions or cycles. The investment strategy and
the composition of the portfolio as stated herein is only indicative in nature and is subject to
change within the provisions of the disclosure document and client agreement without any
prior notice to investors. Please refer to the disclosure document & client agreement for details
and risk factors.

Investment Suitability

The Portfolio is suitable for investors:

 Seeking to enter equity markets with a positive view on Wellness primarily Preventive and
Remedial wellness, through a concentrated portfolio of 15-20 stocks

 Having an investment horizon of 2-3 years

Portfolio Features

*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document &
client agreement for details and risk factors.

^The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.

ICICI Prudential PMS PIPE Portfolio


(A series under “The PIPE Portfolio”)
Investment Philosophy: An equity portfolio which aims to provide long-term capital
appreciation and generate returns by investing primarily in Mid and Small Cap segment of the
market by having exposure in companies enjoying some economic moat or undergoing special
situations or in the midst of unfavourable business cycle.

Investment Strategy

A Portfolio aims to provide long-term capital appreciation and generate returns by investing
into companies, primarily in the Mid and Small Cap segment of the market. For defensive
considerations, while waiting for expected investment opportunities or to meet the liquidity
requirements from time to time, the Portfolio may invest in debt and money market
instruments or units of debt and money market mutual fund schemes.

The Portfolio would look to invest in companies which are fundamentally strong and which may
be considered to be one of the market leaders in their industries. Additionally, the Portfolio will
aim to invest in companies where the market capitalization at the time of investment is very
small but has the potential to become large because of various dynamics like strong / upcoming
business line.

The Portfolio Manager shall consider one or more of the following aspects for identifying the
stocks to invest in:

 Long Term calls on stocks which have the potential to offer returns.

 Stocks which have potential growth opportunities provided by business cyclicality, special
situations, and/or mispricing by the market.

 Qualitative Assessment based on the concept of moat which allows a firm to earn above-
average returns on capital over a long period of time. Concept of Moat provides an analytical
framework for selecting companies that generate excess return as compared to their
competitors for many years.

Market cap strategy: Mid & Small Cap

Investment style: Blend


Investment Suitability

The Portfolio is suitable for investors:

 Seeking to enter equity markets with a long term view on Mid Cap & Small Cap Stocks.

 Having an investment horizon of 5 years or more

Portfolio Features*

*The strategy, portfolio composition and portfolio features described herein involves risk and
there can be no assurance that specific objectives will be met under differing market conditions
or cycles. The investment strategy and the composition of the portfolio as stated herein is only
indicative in nature and is subject to change within the provisions of the disclosure document
and client agreement without any prior notice to investors. Please refer to the disclosure
document & client agreement for details and risk factors.

Absolute Return Portfolio


(A Series under Absolute Return Portfolio)

Investment Philosophy: A focused equity portfolio that endeavours to achieve long term capital
appreciation through equities by riding the dominant themes across market cycles.

Investment Strategy

The Portfolio Manager aims to follow a concentrated, absolute return strategy targeting returns
by investing in companies across market capitalization. The Portfolio Manager proposes to
construct a focused portfolio of 15-20 stocks aiming to provide capital appreciation by taking
meaningful exposure per stock. The Portfolio aims to generate alpha by riding the dominant
through market cycles.
The Portfolio Manager proposes to concentrate on business and economic fundamentals driven
by in-depth research techniques and employing the full potential of the research team at the
AMC. It will follow a balanced approach with top-down approach identifying trends and spot
market anomalies; and bottom-up approach seeking to identify companies with potential for
secular price performance. The Portfolio aims to optimally diversify across sectors and remain
agnostic to market capitalizations.

Indicative Portfolio Construct:

 Flexi Cap: Mid & Small Cap Stock – 0-40% Large Cap Stocks – 60-100%

 Concentration: Focused portfolio of 15-20 stocks.

 Sector Limit: 25% or sector weight in benchmark, whichever is higher.

 Bottom up and Top Down approach

Portfolio Features

*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles. The
investment strategy and the composition of the portfolio as stated herein is only indicative in
nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document &
client agreement for details and risk factors.

The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.
Enterprising India Portfolio
(A Series under Focused Portfolio)

Investment Philosophy: A focused portfolio which endeavours to provide capital appreciation


by investing in equity securities with a focus on Domestic Cyclical and Indian Manufacturing
oriented businesses which are likely to benefit from the economic recovery.

Investment Strategy

The Portfolio Manager aims to follow a concentrated strategy targeting returns by investing in
India growth story. The Portfolio Manager proposes to construct a focused portfolio of 15-20
stocks aiming to provide capital appreciation by taking meaningful exposure per stock. The
Portfolio seeks to generate alpha by riding the dominant themes which are likely to benefit
from economic cycle upturn. Further, the Portfolio aims for optimal diversification across and
to market capitalization.

The Portfolio Manager aims to i) invest in stocks which are expected to benefit from the
domestic cyclical theme and have potential to grow significantly over next few years; ii) Focus
on companies with strong balance-sheets and available at reasonable prices.

The Portfolio Manager proposes to concentrate on business and economic fundamentals driven
by in-depth research techniques. It will follow a balanced approach with top-down approach
identifying trends and spot market anomalies; and bottom-up approach seeking to identify
companies with potential for secular price performance.

Indicative Portfolio Construct:

 Flexi-cap with focus on Domestic Cyclical theme

 Concentration: Focused portfolio of 15-20 stocks.

 Sector Limit: 25% or sector weight in benchmark, whichever is higher. Blend of Bottom up and
Top Down approach
Portfolio Features

*The strategy and portfolio composition described herein involves risk and there can be no
assurance that specific objectives will be met under differing market conditions or cycles.

The investment strategy and the composition of the portfolio as stated herein is only indicative
in nature and is subject to change within the provisions of the disclosure document and client
agreement without any prior notice to investors. Please refer to the disclosure document &
client agreement for details and risk factors.

The Portfolio Manager reserves the right to change the Benchmark of the portfolio at its
discretion. The composition of the Portfolio may or may not be the same as that with the
composition of the Benchmark.

ICICI PMS RETURNS AND PERFORMANCE


The clients of ICICI PMS is not only free to choose a strategy according to his/her investment
goal and convenience, but these portfolio management services returns are pretty decent too.

The PMS strategy provides a return of,

 15% in 3 years
 The return is hiked to 14% in 5 years
 It again hikes to 13% in 7 years
 Then it jumps to 18% in 10 years
 And for more than 11 years, it jumps to 24% CAGR.

Hence, we can see the excellent return offered by the ICICI PRUDENTIAL PORTFOLIO
MANAGEMENT SERVICES to its customers.
CHAPTER – IV

DATA ANALYSIS

DATA INTERPRETATION
ICICI PORTFOLIO EVALUATION ANALYSIS

This analysis contains the evaluation of portfolio on the following parameters:

 Risk profile and Asset Allocation


 Portfolio Risk- Return against bench mark
 Historical return of Portfolio
 Stock portfolio Diversification Risks
 Mutual funds Portfolio – Risk/Returns.

The analysis is based on average daily rolling returns calculated for the period of last 5 years.
The analysis has been done for the years 2013 to 2017 and a it is a long term strategic portfolio.

Objective

The objective of the analysis is to identify and evaluate the risks in the portfolio. The risks in a
portfolio could be related to inadequate diversification, holding stocks with inadequate
expected returns on risk, sector diversification, over exposure, fund manager risk etc. For direct
stock portfolio, the report looks at rebalancing the current stock allocations and attempts to
recommend a portfolio with a higher reward to risk ratio. The report uses a Mean Variance
Optimization tool with constraints to recommend a rebalanced portfolio. Given that the basis of
recommendation is a higher reward to risk ratio.

Overall portfolio

TOTAL PORTFOLIO SIZE – RUPEES 241.43 LAKH (AS ON DECEMBER 2017)


DETERMINATION OF RISK PROFILE

Let’s begin with determining the risk profile. It provides guidelines on which assets to allocate
as per the risk appetite. Risk profile is determined based on the information provided and
responses in the risk profiling exercise.