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PORTFOLIO
A combination of securities with different risk & return characteristics will constitute the portfolio of the investor. Thus, a portfolio is the combination of various assets and/or instruments of investments. The combination may have different features of risk & return, separate from those of the components. The portfolio is also built up out of the wealth or income of the investor over a period of time, with a view to suit his risk and return preference to that of the portfolio that he holds. The portfolio analysis of the risk and return characteristics of individual securities in the portfolio and changes that may take place in combination with other securities due to interaction among themselves and impact of each one of them on others.
PORTFOLIO MANAGEMENT
Portfolio management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance. Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.
I. Effective investment planning for the investment in securities by considering the following factors:
a) Fiscal, financial and monetary policies of the Govt. of India and the Reserve Bank of India. b) Industrial and economic environment and its impact on industry. Prospect in terms of prospective technological changes, competition in the market, capacity utilization with industry and demand prospects etc.
b) To assess the financial and trend analysis of companies Balance Sheet and Profit and Loss Accounts to identify the optimum capital structure and better performance for the purpose of withholding the investment from poor companies. c) To analyze the security market and its trend in continuous basis to arrive at a conclusion as to whether the securities already in possession should be disinvested and new securities be purchased. If so the timing for investment or disinvestment is also revealed.
1. SECURITY/SAFETY OF PRINCIPAL:
power intact.
keeping the principal sum intact but also keeping intact its purchasing
3. CAPITAL GROWTH:
4. MARKETABILITY:
It is desirable to
6. DIVERSIFICATION:
reduce risk of loss of capital and / or income by investing in various types of securities and over a wide range of industries.
form his investment depends on tax to which it is subject. By minimizing the tax burden, yield can be effectively improved.
INSTRUMENTS OF SECURITIES:
A. LONG TERM SECURITIES:
1. SHARE (EQUITY AND PREFERENCE SHARE ):
A unit of
ownership that represents an equal proportion of a company's capital. It entitles its holder (the shareholder) to an equal claim on the company's profits and an equal obligation for the company's debts and losses.
Two major types of shares are: a. ordinary shares (common stock), which entitle the shareholder to
share in the earnings of the company as and when they occur, and to vote at the company's annual general meetings and other official meetings.
b. preference shares
shareholder to a fixed
(preferred
stock)
which
entitle
the
2. DEBENTURE:
loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures.
3. BOND:
companies, banks, public utilities and other large entities. Bonds pay the bearer a fixed amount a specified end date. A discount bond pays the bearer only at the ending date, while a coupon bond pays the bearer a fixed amount over a specified interval (month, year, etc.) as well as paying a fixed amount at the end date.
4. COLLATERALIZED BORROWING AND LENDING OBLIGATION: A money market instrument that represents an
obligation between a borrower and a lender as to the terms and conditions of the loan. Collateralized borrowing and lending obligations (CBLOs) are used by those who have been phased out of or heavily restricted in the interbank call money market.
MEANING OF MUTUAL FUND. CHARACTERISTICS OF MUTUAL FUND. ADVANTAGES OF MUTUAL FUND. DISADVANTAGES OF MUTUAL FUND.
MUTUAL FUND
Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing the funds in securities in accordance with objectives as disclosed in other document. Investment in securities are spread across a wide cross-section of industries and sectors and the thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to be investors in accordance with quantum of money invested by them. Investors of mutual funds are known as the unit holders. The profit or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such a shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund.
LIQUIDITY
DIVERSIFICATION
TAX BENEFITS
AFFORDABILITY
TRANSPARENCY
FLEXIBILITY
REGULATION
1. PROFESSIONAL MANAGEMENT
Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money. When a person buys in to a mutual fund, he/she is handing his/her money to an investment professional who have experience in making investment decisions .
2. DIVERSIFICATION
.
Mutual fund unit-holders can get the benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a broad variety of securities. The diversification process may add to the stability of the returns.
3. AFFORDABILITY
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. So, it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.
4. FLEXIBILITY
An investor owns just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade collect the interest payments and see that the dividends on portfolio securities are received and investors rights exercised. It also uses the services of a high quality custodian and registrar in order to make sure that the convenience of investor remains at the top of the minds of AMCs.
5. LIQUIDITY
In open-ended mutual funds, investors can redeem or get their money back either all or part of their units any time they wish. But in some schemes do have a lock-in period where an investor cannot return the units until the completion of such a lock-in period.
6. TRANSPARENCY
Open-ended mutual funds release their Net Asset Value daily and the entire portfolio monthly. By this investor can get regular information on the value of the investment in addition to disclosure on the specific investments made by the mutual fund scheme. This level of transparency, where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument.
7. TAX BENEFITS
Any income distributed after March 31, 2002 will be subject to tax in the assessment of all Unit holders. However, as a measure of concession to Unit holders of open-ended equity-oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a concessional rate of 10.5%. In case of Individuals and Hindu Undivided Families (HUF) a deduction up to Rs. 9,000 from the Total Income will be admissible in respect of income from investments specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax.
8. REGULATIONS
Securities Exchange Board of India (SEBI), the mutual funds regulator has clearly defined rules, which govern mutual funds. These rules relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors.
2. HIGH COSTS: Unless you analyze funds carefully before you buy them,
you may inadvertently choose a mutual fund that charges significant management fees, custodial fees, and transfer fees.
FUNDAMENTAL ANALYSIS
A. ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways if the economy grows rapidly the industry can also be expected to show rapid growth and vice versa. The commonly analyzed some factors under the economic analysis are as follows:
3. INFLATION: Along
increases then the real rate of growth would be very little. Therefore high inflation rate is harmful to stock market and low inflation rate is beneficial for stock market.
B. INDUSTRIAL ANALYSIS
There are some factors under industry analysis so that investor has to analysis before the investment they are listed below:
C. COMPANY ANALYSIS
Company analysis on the basis of following factor:
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.
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
Cash Equivalent Long Term Bonds
RISK EXTENT
Less vulnerable to interest rate risk. More vulnerable to interest rate risk.
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.
5. Its
leveraged or financial risk of which investors should be aware and portfolio managers should be very careful.
7. 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.
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.
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.
DATA ANALYSIS
COMPARISON BETWEEN SECURITIES:
RETURN Equity Financial institutions bonds Corporate Debentures Company Fixed Deposits Bank Deposits PPF Life Insurance Gold Real Estate Mutual Fund High Moderate Moderate High Moderate Low Moderate Low High Moderate High Low Moderate Moderate Low High Low High
SAFETY Low High Moderate Low High High High High Moderate High
VOLATILITY LIQUIDITY High Moderate Moderate Low High High High Moderate High Moderate High Low Moderate Low Low High Moderate Low Moderate Low High
From the above chart we get information about the instruments of securities and their features and also we can compare these instruments on the basis of our interest.
Financial Institutions Income Bonds Corporate Income Debentures Company Fixed Income Deposits Bank Deposits PPF Life Insurance Gold Real Estate Mutual Fund Income Income Risk Cover Inflation Hedge Inflation Hedge Capital Income Growth,
CONCLUSION
Project portfolio management is aimed at reducing inefficiencies that occur when undertaking a project and eliminating potential risks which can occur due to lack of information or systems available. It helps the organization to align its project work to meet the projects whilst utilizing its resources to the maximum. Therefore, all the project managers of the organization need to have an awareness of the organizational project portfolio management in order to contribute to the organizational goals when executing respective projects. Portfolio Management is a viable process for business today, if there is a need to address one or more of the following situations in the business environment: 1. Resources are limited 2. Investments need to be prioritized 3. Budgets have been, or are being, slashed 4. Investments, projects, programs and initiatives need to be treated holistically, including funding and tracking. The PM Process may be appropriate for use in prioritizing and monitoring investments at any level of the enterprise. This decision rests with the individuals charged with the responsibility, accountability and authority for level of the enterprise.
Basically, we found that portfolios exist in multiple tiers throughout the company. The differentiator between portfolios is dictated by screening criteria that supports the company, group and organizational business strategies. Not all investments need to be approved and monitored at the highest levels of the company. Rather, with the various levels of accountability, authority and responsibility come the either recognized, or unrecognized, portfolio of investments in their various life cycle phases. 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.
FINDINGS
Based on the analysis and evaluation of the project, it can be concluded that:
The investor can know the risk and returns of the shares using this analysis. The analysis is useful for investors who want to invest in long, short & medium term. Technical analysis is used to predict short-term share price movement.
SUGGESTIONS
SUGGESTIONS TO THE COMPANY:
As it is clear from the observation to overcome this painful situation the following is suggestion: 1. Educate the Customer about your term and condition briefly. 2. Improvement can come by market survey. 3. Visit College/University and teach them (college student) about share market and other investment alternative that can student aware about Share market. 4. Company has very limited interaction with people. So interact with your customer as well as people who visit your company. 5. Be up-to-date about full information about share market. 6. Your induction manual was not out-to-date which is provided by you. 7. Dont misbehave with you customer and student if he/she is not understanding about share market. Because share market is very complicated than other market. 8. Dont invest or squire off the product without permission of concern customer. Inform them before the investment or any other activity.
9. Your brokerage Charge is variable than other brokerage house. It should not be negotiable. In this condition you should set your plan and policy regarding brokerage charge. Lack of this small investor de-motivate by this activity. 10. Suggest about low risk investment like Commodity Market. These suggestions improve the present condition of bonanza Portfolio Ltd, and become a biggest brokerage house in Ranchi city also in national level. These suggestions prevent from losses and move forward to profit. And become trustful company in eye of customer.
SUGGESTIONS TO INVESTORS:
1. Start earlier to savings 2. Select stocks across of broad spectrum of market categories. 3. Invest with discount brokerage firm. 4. Make sure that you put money into your investment on a regular, discipline basis. 5. Assign a certain percentage of your portfolio to growth stocks, dividend paying stocks, index funds and stocks with a higher risk but a better return. 6. While investing, investors should consider the tax policy. 7. Smart portfolio management can deal significant nest egg for retirement.