priya dissertation 2003

8/2/2019 Priya Dissertation 2003

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PORTFOLIO MANAGEMENT SERVICES(A STUDY OF KARVY STOCK BROKING LTD,

YAVATMAL)

CHAPTER NO. 1

INTRODUCTION

The main objective of this project is to know the Awareness of Financial

Instrument among investors and also to know the investment pattern of people in different

Financial Project.

KARVY operates in various financial products and services like, Consultancy,

Stock Broking, Mutual Fund, Insurance, Registrar, and Research the evaluation of

financial planning has been increased through decades, which is best seen in customer

rise. Now a days investment of saving has assumed great importance.

Successful development of new service has become a complex process involving

contributions from different disciplines. Rarely is one individual responsible for the

concept, design, development and marketing of new service, for today the inherentcomplexity of products, their markets and therefore their processes through which they

are developed, dictates that a no. of different people, each with there own roles, work

together to create the service.

This project represents information regarding companys brand awareness

and the customer perceptions about the various services which the organization provides.

The main objective of the project is to understand the customer investment preferences

more effectively and efficiently. For execution of the project methodology adopted is thecollection of data through questionnaire, processing and analyzing the data.

The natures of respondent, who are selected, are the professionals and having a

handsome salary. Karvy is the only personalized service provider offering a range of

investment services depending on the customer requirements.

In this project the great emphasis is given to the investors mind in respect to

investment in all type of financial instrument where he can maximize his wealth. The

needs and wants of the client are taken into consideration.

D.B.A.R, S.S.G.M.C.E, Shegaon. Page 1


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1.1 PORTFOLIO MANAGEMENT:

The aim of Portfolio Management is to achieve the maximum return from a

portfolio, which has been delegated to be managed by an individual manager or financial

institution. The manager has to balance the parameters which define a Good investment

i.e. security, liquidity and return. The goal is to obtain the highest return for the client of

the managed portfolio. The basis for constructing a portfolio should reflect the

enterprises particular needs.

In finance, a portfolio is a collection of investments held by an institution or a

private individual. In building up an investment portfolio a financial institution will

typically conduct its own investment analysis, whilst a private individual may make use

of the services of a financial advisor or a financial institution that offers portfolio

management services. Holding a portfolio is part of an investment and risk-limiting

strategy called diversification. By owning several assets, certain types of risk (in

particular specific risk) can be reduced. The assets in the portfolio could include stocks,

commodities, insurance etc.

1.2 PORTFOLIO MANAGEMENT SERVICES:

PMS gives investors access to an institutional process of money management

Provides a customized solution by matching the unique circumstances and

objectives of each investor.

Wealth creation based on disciplined investment process is the crux of PMS

Effective diversification helps reduce portfolio volatility and enhances risk-

adjusted returns over long term

PMS gives investor direct ownership of the individual securities in the portfolio



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1.3 BENEFITS OF PMS:

1. Professional Management

The service provides professional management of equity portfolios designed to deliver

consistent long-term performance while identifying and controlling risks.

2. Continued Monitoring

We at Karvy understand the need to constantly monitor your portfolios and bring in

periodic changes to optimize the results.

3. Research Support

A research team responsible for establishing our investment strategy and providing us real

time information backs our portfolio managers.

4. Identifying Investor Objectives

The foundation of every financially sound portfolio is the ability to identify ones

investment objective. Its a process that requires expertise. Karvy provides every investor

a Relationship manager who comes with the required expertise and experience to

understand an investors financial goals.

5. Hassle free operation

Karvy ensures investors enjoy healthy portfolios without having to involve themselvespersonally in monitoring and maintaining them. We provide you with a customized

service. All the administrative aspects of your portfolio is taken care of by us for you.

6. Transparency

A dedicated website allows you access to all information relating to your investment. You

will also receive quarterly account performance statement on the overall status of the

portfolio and Karvy research reports.



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.

CHAPTER NO. 2

RESEARCH METHODOLOGY

MEANING OF RESEARCH METHODOLOGY:

Research can defined as a systemized effort to gain new knowledge. A research is

carried out by different methodologies which have their own pros & cons. Research

Methodology is a way to solve research in study & solving problems along with logic

Behind them are defined through research methodology. We can also say that Research

Is a careful search systematic investigation, towards increasing the sum of knowledge.

In short research consists of formulating a hypothesis, collecting the fact &

Regarding certain generalization for some formulation.

2.1 DATA SOURCE:

Information can be gathered through primary and secondary sources.

Secondary data are data were collected for another purpose and already exist somewhere.

Primary data are gathered for a specific research project.

Primary sources

Primary sources are those where researcher get insight of its consumer by the way

of this can be done by-

1) Questionnaire

2) Interview



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According to these results obtained from Primary research is done and which is

the main part of this study with this secondary research an data is for analyzing the people

perception towards various investment instruments.Secondary data

To understand FINANCIAL concepts researcher has referred study materials of

financial institute of India. The economic times websites like ICICIpulife.com,

bimonline.com, karvy.com etc to know the various product features and benefits

researcher has referred foundation product module. Before starting the fieldwork

researcher had done the financial products providers in yavatmal and all over India. This

information was available through product leaf lets of different companies, their officials,

company website and through different search engines.

2.2 RESEARCH APPROACH:

The most suitable approach in this reason was the survey. The survey method is

the data collection is suited for descriptive research. Survey usually include research

instrument, sampling plans and contact methods.

2.3 RESEARCH INSTRUMENT:

Research has a main research instruments in collecting primary data: Questionnaire.

A questionnaire consists of a set of questions presented to the respondent for their

answers. Because of its flexibility, the questionnaire is by far the most common

instrument used to collect primary data. The questionnaire has its own inherent

advantages. The major benefits of the questionnaire include the following:

1. The questionnaire contained the question that touched upon every aspect of the study

and are rendered in the status of being complete in proving full information needed for

the study.

2. Multiple option questions made the interview easier as all the options were in front of

user.

3. The question was straightforward in easy language and clear meaning. No question was

ambiguous to confuse the subject.



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4. Due to the general nature of the topic, questionnaire could be administered with the

customer with equal ease and labor.

Sampling plan:

After deciding on the research approach and instruments, the research must design a

sampling plan. This plan calls following decisions.

1) Sampling unit (who is to be surveyed)

It gives the target population that will be sampled. The target population of this research

was mainly in yavatmal city & nearer to the other area those are near to the city.

2) Universe

The universe of the research was potential investor of yavatmal city.

Sample method:

Non probability convenience sampling method was used for selecting the

respondents. Since universe i.e. yavatmal city is easy to find out the researcher selected

the respondents that were most accessible population members.

Contact method:

Once the sampling plan has been determined the researcher must decide how the

subject should be contacted i.e mail, telephone or personal interviews.

In this project considering the objective and time available the researcher used

personal and telephone interviews. The researcher made cold calls to the samples and

introduced about Karvy. The researcher explained about purpose of his calling and seeks

for appointment with the contacted person. The appointment schedule was maintained

and followed by the researcher.



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2.4 OBJECTIVE OF THE PROJECT:

The portfolio management is vast in nature. It is intended to provide a birds-eye

view of the client assets. The portfolio manager has to have bottomless knowledge of

markets funds etc. Considering this fact, the scope of the study is defined to satisfy

following objectives:

Understand the necessity of portfolio management.

Identify various investment alternatives that can fit in clients profile.

Study & compare various investment & attributes.

To know the concept of financial product.

2.5 SCOPE OF THE STUDY:

Karvy is the leading organization in terms of providing the personalized advisory

services in investment sector. It focuses extensively in providing the quality service to its

customers. So the company commissioned to understand the customer behavior and their

investment pattern. Karvy is recently entered in the Commodity Market, which is having

a very good future in India and Karvy can encase opportunities.

2.6 JUSTIFICATION OF THE PROBLEM :

The survey aimed to bringing about awareness in the various services provided by

the Karvy consultancy & suggesting services according to their needs & requirement



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CHAPTER NO. 3

COMPANY PROFILE

3.1 MISSION OF KARVY:

Their mission is to be a leading, preferred service provider to our customer,

and they aim To achieve this leadership position by building an innovative, enterprising,

and technology drive organization which will set the highest standards of service and

business ethics.

3.2 INTRODUCTION:

The birth of Karvy was on a modest scale in 1981. It began with the vision and

enterprise of a small group of practicing Chartered Accountants who founded the flagship

company Karvy Consultants Limited. We started with consulting and financial

accounting automation, and carved inroads into the field of registry and share accounting

by 1985.Karvy Stock Broking Ltd is a member of National Stock Exchange (NSE), The

Bombay Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE).

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows

freely towards attaining diverse goals of the customer through varied services. Creating a

plethora of opportunities for the customer by opening up investment vistas backed by

research-based advisory services. Here, growth knows no limits and success recognizes

no boundaries. Helping the customer create waves in his portfolio and empowering the

investor completely is the ultimate goal.It is an undisputed fact that the stock market is

unpredictable and yet enjoys a high success rate as a wealth management and wealth



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accumulation option. The difference between unpredictability and a safety anchor in the

market is provided by in-depth knowledge of market functioning and changing trends,

planning with foresight and choosing options with care.

Karvy offers services that are beyond just a medium for buying and selling

stocks and shares. Instead they provide services which are multi dimensional and multi-

focused in their scope. There are several advantages in utilizing their Stock Broking

services, which are the reasons why it is one of the best in the country.

Karvy offer trading on a vast platform; National Stock Exchange, Bombay Stock

Exchange and Hyderabad Stock Exchange. More importantly, they make trading safe to

the maximum possible extent, by accounting for several risk factors and planning

accordingly. They are assisted in this task by their in-depth research, constant feedback

and sound advisory facilities. Their highly skilled research team, comprising of technical

analysts as well as fundamental specialists, secure result-oriented information on market

trends, market analysis and market predictions. This crucial information is given as a

constant feedback to their customers, through daily reports delivered thrice daily; The

Pre-session Report, where market scenario for the day is predicted, The Mid-session

Report, timed to arrive during lunch break, where the market forecast for the rest of theday is given and The Post-session Report, the final report for the day, where the market

and the report itself is reviewed. To add to this repository of information, they publish a

monthly magazine; Karvy;

The Fin polis; which analyzes the latest stock market trends and takes a close look

at the various investment options, and products available in the market, while a weekly

report, called; Karvy Bazaar Baatein; keeps the investor more informed on the immediate

trends in the stock market. In addition, their specific industry reports give comprehensive

information on various industries. Besides this, they also offer special portfolio analysis

packages that provide daily technical advice on scrip for successful portfolio management

and provide customized advisory services to help the investors to make the right financial

moves that are specifically suited to their portfolio.

To empower the investor further they have made serious efforts to ensure that their

research calls are disseminated systematically to all their stock broking clients through

various delivery channels like email, chat, SMS, phone calls etc.

In the future, their focus will be on the emerging businesses and to meet this



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objective, they have enhanced their manpower and revitalized their knowledge base with

enhances focus on Futures and Options as well as the commodities business.

Respect for the individual:

Each and every individual is an essential building block of our organization.

We are the kilns that hone individuals to perfection. Be they our employees, shareholders

or investors. We do so by upholding their dignity & pride, inculcating trust and achieving

a sensitive balance of their professional and personal lives.

Teamwork:

None of us is more important than all of us.

Each team member is the face of Karvy. Together we offer diverse services with speed,

accuracy and quality to deliver only one product: excellence. Transparency, co-operation,

invaluable an individual contribution for a collective goal, and respecting individual

uniqueness within a corporate whole, is how we deliver again and again.

Responsible Citizenship:

A social balance sheet is as rewarding as a business one.

As a responsible corporate citizen, our duty is to foster a better environment in the societywhere we live and work. Abiding by its norms, and behaving responsibly towards the

environment, is some of our growing initiatives towards realizing it.

Integrity:

Everything else is secondary.

Professional and personal ethics are our bedrock. We take pride in an environment that

encourages honesty and the opportunity to learn from failures than camouflage them. We

insist on consistency between works and actions.

3.3 BOARD OF DIRECTORS:

1. Mr. C Parthasarathy

Chairman and Managing Director

2. Mr. M Yugandhar

Managing Director

3. Mr. M S Ramakrishna



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Director

4. Mr. Prasad V Potluri

Director

3.4 KARVY GROUPS OF COMPANIES ARE:

1) Karvy Consultants Ltd

2) Karvy Stock Broking Ltd

3) Karvy Investors Service Ltd

4) Karvy Computershare Pvt Ltd

5) Karvy Global Service Ltd

6) Karvy Commodities Broking Ltd

7) Karvy Insurance Broking Private Ltd

8) Karvy alliances

1. KARVY CONSULTANTS LIMITED:

As the flagship company of the Karvy Group, Karvy Consultants Limited has

always at remained the helm of organizational affairs, pioneering business policies, work

ethic and channels of progress.

Having emerged as a leader in the registry business, the first of the businesses that

Karvy ventured into, company have now transferred this business into a joint venture with

Computer share Limited of Australia, the worlds largest registrar. With the advent of

depositories in the Indian capital market and the relationships that Company have created

in the registry business, Karvy believe that they were best positioned to venture into this

activity as a Depository Participant. Karvy were one of the early entrants registered as

Depository Participant with NSDL (National Securities Depository Limited), the first

Depository in the country and then with CDSL (Central Depository Services Limited).

Today, Karvy service over 6 lakhs customer accounts in this business spread across over



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250 cities/towns in India and are ranked amongst the largest Depository Participants in

the country. With a growing secondary market presence, they have transferred this

business to Karvy Stock Broking Limited (KSBL), their associate and a member of NSE,BSE and HSE.

2. KARVY STOCK BROKING LIMITED:

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice,

flows freely towards attaining diverse goals of the customer through varied services.

Creating a plethora of opportunities for the customer by opening up investment vistas

backed by research-based advisory services. Here, growth knows no limits and success

recognizes no boundaries. Helping the customer create waves in his portfolio and

empowering the investor completely is the ultimate goal.

Karvy is a Member of National Stock Exchange (NSE), The Bombay Stock

Exchange (BSE), and The Hyderabad Stock Exchange (HSE).

3. KARVY INVESTORS SERVICES LIMITED:

Merchant Banking- Recognized as a leading merchant banker in the country,

Karvy are registered with SEBI as a Category I merchant banker. This reputation wasbuilt by capitalizing on opportunities in corporate consolidations, mergers and

acquisitions and corporate restructuring, which have earned us the reputation of a

merchant banker. Raising resources for corporate or Government Undertaking

successfully over the past two decades have given us the confidence to renew company

focus in this sector.

Karvy quality professional team and their work-oriented dedication have

propelled company to offer value-added corporate financial services and act as a

professional navigator for long term growth of companies clients, which includes leading



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corporate, State Governments, foreign institutional investors, public and private sector

companies and banks, in Indian and global markets.

4. KARVY COMPUTERSHARE PVT. LIMITED:

Karvy have traversed wide spaces to tie up with the worlds largest transfer

agent, the leading Australian company, Computer share Limited. The company that

services more than 75 million shareholders across 7000 corporate clients and makes its

presence felt in over 12 countries across 5 continents has entered into a 50-50 joint

venture with KARVY.

Mutual Fund Services:

Karvy have attained a position of immense strength as a provider of across-the-board transfer agency services to AMCs, Distributors and Investors.

Nearly 40% of the top-notch AMCs including prestigious clients like Deutsche

AMC and UTI swear by the quality and range of services that company offer. Besides

providing the entire back office processing, Karvy provide the link between various

Mutual Funds and the investor, including services to the distributor, the prime channel in

this operation.

Issue Registry:

In company voyage towards becoming the largest transaction-processing house

in the Indian Corporate segment, KARVY have mobilized funds for numerous corporate,

and emerged as the largest transaction-processing house for the Indian Corporate sector.

With an experience of handling over 700 issues, Karvy today, has the ability to execute

voluminous transactions and hard-core expertise in technology applications have gained

company the No.1 slot in the business. Karvy is the first Registry Company to receive

ISO 9002 certification in India that stands testimony to its stature.



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Corporate Shareholder Services:

Karvy has been a customer centric company since its inception. Karvy offers a

single platform servicing multiple financial instruments in its bid to offer complete

financial solutions to the varying needs of both corporate and retail investors where an

extensive range of services are provided with great volume-management capability.

5. KARVY GLOBAL SERVICES LIMITED:

The specialist Business Process Outsourcing unit of the Karvy Group. The legacy

of expertise and experience in financial services of the Karvy Group serves us well as

company enter the global arena with the confidence of being able to deliver and deliver

well. Here company offers several delivery models on the understanding that business

needs are unique and therefore only a customized service could possibly fit the bill.

KARVY is in re-engineering and managing processes or delivering new

efficiencies, companys service meets up to the most stringent of international

standards.Providing productivity improvements, operational cost control, cost savings,improved accountability and a whole gamut of other advantages. KARVY Operate in the

core market segments that have emerging requirements for specialized services. Their

wide vertical market coverage includes Banking, Financial and Insurance Services

(BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and

Healthcare.

6. KARVY COMMODITIES BROKING LIMITED:

At Karvy Commodities, they are focused on taking commodities trading to new

dimensions of reliability and profitability. They have made commodities trading, an

essentially age-old practice, into a sophisticated and scientific investment option.

Company enables trade in all goods and products of agricultural and mineral

origin that include lucrative commodities like gold and silver and popular items like oil,



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pulses and cotton through a well-systematized trading platform. The technological and

infrastructural strengths and especially the street-smart skills make them an ideal broker.

Their service matrix is holistic with a gamut of advantages, the first and foremost beingtheir legacy of human resources, technology and infrastructure that comes from being part

of the Karvy Group.

7. KARVY INSURANCE BROKING PRIVATE LIMITED:

At Karvy Insurance Broking Pvt. Ltd., they provide both life and non-life

insurance products to retail individuals, high net-worth clients and corporate. With the

opening up of the insurance sector and with a large number of private players in the

business, they are in a position to provide tailor made policies for different segments of

customers. In their journey to emerge as a personal finance advisor, they will be better

positioned to leverage their relationships with the product providers and place the

requirements of their customers appropriately with the product providers. With Indian

markets seeing a sea change, both in terms of investment pattern and attitude of investors,

insurance is no more seen as only a tax saving product but also as an investment product.

By setting up a separate entity, we would be positioned to provide the best of the products

available in this business to the customers.

KARVY have wide national network, spanning the length and breadth of India,

further supports these advantages. Further, personalized service is provided here by a

dedicated team committed in giving hassle-free service to the clients.

8. KARVY ALLIANCES:

Karvy Computer share Private Limited is a 50:50 joint venture of Karvy

Consultants Limited and Computer share Limited, Australia. Computer share Limited is

world's largest -- and only global -- share registry, and a leading financial market services

provider to the global securities industry.



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The joint venture with Computer share, reckoned as the largest registrar in the

world, servicing over 60 million shareholder accounts for over 7,000 corporations across

eleven countries spread across five continents. Computer share manages more than 70million shareholder accounts for over 13,000 corporations around the world.

Karvy Computer share Private Limited, today, is India's largest Registrar and

Share Transfer Agent servicing over 300 corporate and mutual funds and 16 million

investors.

Distribution of Financial Products:

The paradigm shift from pure selling to knowledge based selling drives the

business today. With their wide portfolio offerings, they occupy all segments in the retail

financial services industry.

A 1600 team of highly qualified and dedicated professionals drawn from the best of

academic and professional backgrounds are committed to maintaining high levels of

client service delivery. This has propelled them to a position among the top distributors

for equity and debt issues with an estimated market share of 15% in terms of applicationsmobilized, besides being established as the leading procurer in all public issues.

To further tap the immense growth potential in the capital markets they enhanced

the scope of their retail brand, Karvy the Finapolis, thereby providing planning and

advisory services to the mass affluent. Here they understand the customer needs and

lifestyle in the context of present earnings and provide adequate advisory services that

will necessarily help in creating wealth. Judicious planning that is customized to meet the

future needs of the customer deliver a service that is exemplary. The market-savvy andthe ignorant investors, both find this service very satisfactory. The edge that they have

over competition is their portfolio of offerings and their professional expertise. The

investment planning for each customer is done with an unbiased attitude so that the

service is truly customized on market trends, investment options, opinions etc.



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Graph 3.1 Showing Milestones of Karvy

Figure no. 3.1 Showing Steps to Stock Selection Process in Karvy



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3.5 Portfolio Schemes of karvy:

1. K-Sensible

Objective

The objective of the K-Sensible Plan is to provide long-term returns by following a

disciplined and focused approach to investments. This is guided by two doctrines

capital preservation and generates steady long-term returns.

Strategy

Long-term investing

Focus on companies which qualify in the three key attributes Management,

Business and Valuation

Adequate diversification to mitigate risks

Maintain reasonable liquidity

Ideal for

Investors seeking steady long-term returns

Investment horizon between two to three years

Low portfolio turnover

2.K-Aggressive

Objective

The objective of the K-Aggressive Plan is to provide a balance between growth,

safety and returns. This is achieved by investing in well-researched companies and

employing a strategy of systematic profit booking. In our stock selection process

we continue to focus on companies which qualify in the three key attributes

Management, Business and Valuation.

Strategy



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Medium to long-term investing

Top-down and bottom-up approach

Judicious mix of growth and value stocks

Systematic profit booking



Ideal for

Investors seeking gains from systematic profit booking

Investment horizon between one to two years

Medium portfolio turnover

3.K-Energetic

Objective

The objective of the K-Energetic Plan is to provide returns by following an

aggressive

style of investing which entails higher risks.

Strategy

Higher proportion of mid cap stocks

Short to medium-term investing

Stock specific approach to capture triggers which could yield higher returns



Ideal for

Investors with high risk profile and seeking short to medium term returns

Investment horizon between 12 to 15 months

High portfolio turnover



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Figure No. 3.2 INVESTMENT PHILOSOPHY OF KARVY

2. Stock Selection

Management

Quality

Earning Growth

Valuations

News Flows

Timing

3. Portfolio Construction

Focus on: Objectives,

Approach

Security Selection

Concentration / Weights

Portfolio Beta

1. Sector Selection

Government Policies

Stage of Business Cycle

Future Profitability

Global/Domestic

Linkages

Identified favored sector

5. Risk Management

Portfolio Risk

Operational Risk

Residual Risk

4. Portfolio Rebalancing

Tactical shifts: Large Vs

Mid cap

Tactical shifts: Stock VsCash

Buy-side Triggers

Sell-side Triggers



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3.6 ACHIVEMENTS:

1. Largest independent distributor for financial products

2. Ranking amongst the top 3 stock broking firms

3. Amongst the top 3 Depository participants

4. Largest network of branches and business associates

5. Ranking amongst top 10 investment Bankers.

6. First ISO-9002 certified registrars

7. Ranking amongst top 3 Mutual Funds distributors

8. Ranking 1st in retail procurement in equity IPOs.

9. Adjudged as one of the top 50 IT uses in India by MIS Asia

10. Fully Fledged IT driven operations ranking 8th in merchant Banking services



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CHAPTER NO .4

PORTFOLIO MANAGEMENT SERVICES

-A LITERATURE REVIEW

4.1 INVESTMENT ALTERNATIVES & THEIR ATTRIBUTES:

There are number of investment alternatives available & give their attributes in

detail

Like their safetyness, return on investment, tenure & most important tax benefits etc.

1) PPF (Public Provident Fund):

Safe

9% p.a. compounded annually

15 years

Tax rebate on a maximum investment of Rs.60,000/-, u/s 88. Interest is totally exempt

from tax and there is no TDS on interest.

2) NSC (National Saving Certificate):

Safe

9% p.a. compounded half-yearly



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6 years

Tax rebate on a maximum investment of Rs.60, 000/-, u/s 88. No TDS on interest. Interest

amount reinvested is eligible for Section 88 benefits

3) Infrastructure bonds:

Safety indicated by credit rating.

Varies from 9.00% to 9.5% p.a.

3 years

A tax rebate u/s 88 on a maximum investment of Rs.80,000/-.

4) Life insurance polices:

Safe

Around 10%

20 25 years

Premiums paid on life insurance policies, up to a maximum of Rs.60,000/- qualifies for

tax rebate u/s 88.

5) ELSS schemes (Equity Linked Saving Scheme):

Carry risk as they invest in stock market.

Depends on the performance of the stock market

3 years

Tax rebate u/s 88 on a maximum investment of Rs.10,000/-

6) Pension plans of mutual funds:

Carry risk as they invest in a combination of debt and equity

3 years to age of 58 years.

Tax rebate u/s 88 on a maximum investment of Rs.60, 000/-.



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7) Post office saving bank account:

Safety

Rate of interest per annum 3.5%

Income tax concession- Exempt under Sec. 10 (15)(ii)

8) Bank Fixed deposits:

Safety

Rate of interest per annum 4%

Income tax concession- Exempt under Sec. 10 & 88 up to Rs. 60, 000 P.A.

9) Units of UTI/Scheme of mutual fund:

Safety

VariableIncome tax concession- Included in 80L exemption

10) Equity shares of companies:

Safety

Variable

Income tax concession

1) Dividend in the hands of investors is tax free.

2) Provision for a tax rebate at 20% on any investment in eligible equity

linked schemes of Rs.10, 000 maximum- a rebate of Rs. 2, 000

Note: Section 88 offers a tax rebate on a maximum investment of Rs.80, 000/-, for

individuals earning taxable income of less than Rs.5 lakhs. The tax rebate is 20% of the

sum invested for individuals with taxable income of less than Rs.1.5 lakhs, while it is

limited to 10% for persons with taxable income between Rs.1.5 lakhs and Rs.5 lakhs.



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4.2 COMPERASION OF SELECTED INVESTMENT

ALTERNATIVES & THEIR ATTRIBUTES:

Table No. 4.1

Portfolio Grid & proposed allocation of assets

Avenues Allocation Risk

involved

Historical

earnings

Liquidity Tax

implicationScope for

lending

facilityEquities High 18-22% High LTCG: 10% -

Proposed allocation in Equities: 25%

LTCG: Long Term Capital Gain

Income

Mutual

Fund

Medium 11-14% High LTCG: 10%

Dividends:

Tax free

-

LongTerm Gilt

Funds

Low 11-14% High LTCG: 10%Dividends:

Tax free

-

Index

Funds

Medium - High LTCG: 10%

Dividends:

Tax free

-

Proposed allocation in Mutual Funds: 30%

LTCG: Long Term Capital Gain

ICICISafety

Bonds

Medium 9.5% Low Subject toTDS as per

then

prevailing

tax laws.

Nil

RBI

Relief

Bond

Low 9% Low Interest is

fully exempt

from Income

tax and The

Bonds are

exempt from

Wealth Tax.

Loans from

banks can be

availed of

against the

security of

the bonds



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Cont

Avenues Allocation Risk

involved

Historical

earnings

Liquidity Tax

implicationScope for

lending

facility

REC

Bond

Low 8.5% Low Section54EC

of the

Income Tax

Act dealswith capital

gains not to

be charged

on

investment

in this bond.

Nil

NHAI

Bonds

Low 9% Low Section

54EC of the

Income Tax

Act deals

with capitalgains not to

be charged

on

investment

in this bond.

Nil

Proposed allocation in Bonds: 25%

Sundaram

Home FD

Medium 10% Low Subject to

TDS as per

then

prevailing

tax laws.

-

Gujarat

SF FD

Medium 10% Low Subject to

TDS as per

then

prevailing

tax laws.

-

Proposed allocation in FDs: 20%

Portfolio strategy:

First Priority - Safety, Second Priority - Earnings, Third Priority - Liquidity,

Time Horizon - Long term



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4.3 FINANCIAL MARKETS:

A financial market can be defined as the market in which financial assets are

created or transferred. Financial assets represents represent a claim to the payments of a

sum of money sometime in the future and/or periodic payment in the form of interest or

dividend. Financial Market performs an important function of mobilization of savings and

channeling them into the most productive uses. The participants in the financial markets

are financial institutions, agents, brokers, dealers, borrowers, lenders, savers and others

who are inter-linked by the laws, contracts and communication networks.

Financial markets consist ofPrimary and SecondaryMarkets. The Primarymarkets deal in new financial claims and securities and hence are known as new issue

markets. The secondary market deals in securities already issued, existing or outstanding.

Financial markets are also classified as Money and Capital Markets. Money markets

deals with transactions in short-term instruments (with period of maturity one year or less,

e.g. treasury bills), while capital market deals with transactions in long-term instruments

(with period of maturity above one year, e.g. corporate debentures and government

bonds).

On the basis of the type of the financial claim, financial markets are classified as

Debt and Equity markets. By the timing of delivery, financial markets are classified as

Cash or Spot markets and Forward or Future markets.

The classification of financial markets can be summarized as follows:

Money Market

Debt Market

Forex Market

Capital Market



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Figure No. 4.1 classifications of financial markets

1. MONEY MARKETS:

Money markets can be defined as a market for short-term money and financial

assets that are near substitutes for money (any financial assets that can be quickly

converted into money with minimum transaction cost). One more important function of

this market is to channel savings into short-term productive investments like working

capital. Money market aids banking, operates as a medium of integration between sub

markets, promotes maintaining of minimum reserve in the form of cash and liquidity and

controls the interest rates.

Money market is a collection of market for the instruments like Call money,

Treasury bills, Commercial papers, Certificate of deposits, Money Market Mutual Funds,

etc. A certain degree of flexibility in the regulatory framework exists and there are

constant endeavors for introducing a new instruments or innovating dealing techniques. It

is a wholesale market and the volume of funds or financial assets traded are very large i.e.

in corers of rupees.

2. DEBT MARKET:

Traditionally debt instruments are known for generating a predetermined income

for a given period of time, other than in cases of default. Hence they are also known as

fixed income instruments. The debt markets in advanced are significantly larger and

deeper than equity markets. But in India, the trend is just the opposite. The development

of debt market in India has not been as remarkable as in the equity market. However the

debt markets in India have undergone a considerable change in the last few years.Characterized by regulated interest rates, limited players and lack of trading earlier, the



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4. CAPITAL MARKET:

Capital markets provide the resources needed by medium and large-scale industries

for investment purposes unlike money markets that provide the resources for workingcapital needs. While money markets deal in short-term claims (with a period of maturity 1

year or less) capital market deals in long-term claims (with a period of maturity more than

1 year). Stock market and Government bond markets are example of capital markets.

Capital market consists of primary and secondary markets. The primary markets

create long-term instruments through which corporate entities borrow and the secondary

market provides liquidity and marketability to these instruments. Companies can raise

capital in the primary market through the issue of shares and debentures for which prior

approval of The SEBI is required. The secondary market that operates through the

medium of stock exchanges is that segment of the capital market where securities already

issued are traded.

4.4 BASKET OF FINANCIAL PRODUCTS:

1. BOND :

Individuals have surplus funds in the form of savings, which they want to invest.

Companies need funds to undertake good projects with high returns. Companies provide

individuals with instruments to invest their savings in. One such instrument is a corporate

bond. Similarly, governments also need funds for various developmental projects.

Further, the government also needs to raise money to finance the fiscal deficit. They too

tap the savings by issuing various kinds of bonds.

Bonds have a fixed face value, which is the amount to be returned to the investor

upon maturity of the bond. During this period, the investors receive a regular payment of

interest, semi-annually or annually, which is calculated as a certain percentage of the face

value and know as a 'coupon payment.'

Issuing a bond: The government, publicsector units and corporate are the dominant

issuers in the bond market. The central government raises funds through the issue of

dated securities (securities with maturity period ranging from two years to 30 years, long-

term) and treasury bills (securities with maturity periods of 91 or 364 days, short-term).



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The central government securities are issued for a minimum amount of Rs 10, 000

(face value). Thereafter they are issued in multiples of Rs 10,000. They are issued

through an auction carried out by the Reserve Bank of India.State governments go about raising money through state development loans.

Local bodies of various states like municipalities also tap the bond market from time to

time. Bonds are also issued by public sector banks and PSUs. Corporate on the other

hands raise funds by issuing commercial paper (short-term) and bonds (long-term).

a. Types of bonds:

Government bond

National saving certificate

Public provident fund

Monthly investment scheme

RBI Bonds Taxable 8%

Recurring deposit

Kisan vikas patra

Time deposit

Post office

Corporate Bonds

b. Characteristics of a bond:

1. Fixed maturity period.

2. Fixed interest rate.

3. Regular payment of interest.

4. Less risky.

5. Some bonds give tax redemption.

2. INSURANCE:

A human life is also an income-generating asset. This asset also can be lost

through unexpectedly early death or made non-functional through sickness & disabilities

caused by accidents. Accidents may or may not happen. Death will happen, but the timingis uncertain. If it happens around the time of one's retirement, when it could be expected



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that the income will cease, the person concerned could have made some other

arrangements to meet the continuing needs. But if it happens much earlier when the

alternate arrangements are not in place, insurance is necessary to help the dependents.In case of a human being, he may have made arrangements for his needs after his

retirement. These would have been made on the basis of some expectations like he may

live for another 15 years, or that his children will look after him. If any of these

expectations do not come true, the original arrangement would become inadequate and

there could be difficulties. Living too long can be as much a problem as dying too young.

These are risks, which need to be safeguarded against. Insurance takes care of it.

Insurance, in law and economics, is a form ofrisk management primarily used to

hedge against the risk of potential financial loss. Insurance is defined as the equitable

transfer of the risk of a potential loss, from one entity to another, in exchange for a

premium and duty of care is necessary to help the dependents.

Types of insurance:

Any risk that can be quantified probably has a type of insurance to protect it. Among

the different types of insurance are:

1 Automobile insurance, also known as auto insurance, car insurance and in the UK as

motor insurance, is probably the most common form of insurance and may cover both

legal liability claims against the driver and loss of ordamage to the vehicle itself.

2 Casualty insurance insures against accidents, not necessarily tied to any specific

property.

3 Credit insurance pays some or all of a loan back when certain things happen to the

borrower such as unemployment, disability, ordeath.

4 Financial loss insurance protects individuals and companies against various

financial risks. For example, a business might purchase cover to protect it from loss of

sales if a fire in a factory prevented it from carrying out its business for a time. Insurance

might also cover failure of a creditor to pay money it owes to the insured. Fidelity bonds

and surety bonds are included in this category.

5 Health insurance covers medical bills incurred because ofsickness or accidents.

6 Liability insurance covers legal claims against the insured. For example, a doctor may

purchase insurance to cover any legal claims against him if he were to be convicted of a

mistake in treating a patient.

http://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Hedge_(finance)http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Financialhttp://en.wikipedia.org/wiki/Losshttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Hedge_(finance)http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Financialhttp://en.wikipedia.org/wiki/Losshttp://en.wikipedia.org/wiki/Risk


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7 Life insurance provides a benefit to a decedent's family or other designated beneficiary,

to replace loss of the insured's income and provide forburial and other final expenses.

8 Annuities provide a stream of payments and are generally classified as insurance becausethey are issued by insurance companies and regulated as insurance. Annuities and

pensions that pay a benefit for life are sometimes regarded as insurance against the

possibility that a retiree will outlive his or her financial resources. In that sense, they are

the complement of life insurance.

9 Political risk insurance can be taken out by businesses with operations in countries in

which there is a risk that revolution or otherpolitical conditions will result in a loss.

10 Property insurance provides protection against risks to property, such as fire, theft or

weather damage. This includes specialized forms of insurance such as fire insurance,

flood insurance, earthquake insurance, home insurance orboiler insurance.

11 Title insurance provides a guarantee that title to real property is vested in the purchaser

and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in

conjunction with a search of the public records done at the time of a real estate

transaction.

12 Workers' compensation insurance replaces all or part of a worker's wages lost and

accompanying medical expense incurred due to a job-related injury.

3. TAX PLANNING:

An Individual needs to take the taxation into consideration at all times, from the

stage of earning the income, incurring expenditure to the time of investing in various

types of securities, deposits etc. Return on investment in the form of income, when

received, attracts income tax under the Income Tax Act. Incidence of income tax depends

on the nature of your investment, income and the quantum of other income like salary,

rent from property, interest etc.

Other common sources of incomes are: interest on bank deposits, debentures,

bonds, deposits with companies, provident fund (and PPF), NSC, dividend income from

shares or from mutual funds, royalties, one time windfall gains, income from profession,

business or pension. Income Tax act treats each one of these incomes separately and

allows many deductions, exemptions etc. depending, mainly, upon the source of income.

It is, therefore, necessary to learn and understand the Sections of Income Tax Act

applicable to your source(s) of income BEFORE you invest and BEFORE you decide to



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incur any major expenditure. One must take a keen interest in the annual budget exercise

of Government of India (GOI) as the tools available for tax planning in India are a

dynamic lot which undergo a change with every budget.The annual budget represents the desire of GOI to direct the savings into specific

channels and areas. Various incentives, tax sops given away in every budget are the tools

used to encourage individuals and corporate to direct their savings into these areas. You

can use these sops to enhance the disposable income in your hands, thus serving the twin

purposes of saving for your self and also help the society in growing in the desired

direction.

One point that needs to be kept in mind is that managing your personal finance has

nothing to do with tax avoidance. Taxes have to be paid and they must be paid as our

dues to the society that makes life in an organized manner possible. However, a little tax

planning can enable you to avail of all the avenues that our tax system provides you to

save and grow.

a. Tax deduction is available under following section:

Used to allow deduction of interest earned on ,say, a National Saving Certificate,

or Bank deposit up to a limit of Rs.12,000. But now all these are gone. In their place has

come Section 80C u/s 80 CCC, & u/s 80CCD, as the Finance Bill puts it. Thus, the

new Section 80C of the Income Tax Act proposed in Union Budget gives you a bigger tax

bread than what the current regime offers.

Deduction in respect of Life Insurance Premium, Contribution to Provident Fund, etc

Rs.10,000 in pension funds.

Section 80CCC:-Is for deduction in respect of contribution to certain Pension Funds

Section 80L is for deductions in respect to Interest on certain Securities, Dividends, etc

Table No. 4.2 Showing Computation of Income tax:

Up to 1.5lakh Nil

1.5 to 2.5 Lakh 10%

2.5 to 3.5 Lakh 20%

3.5 & above 30%

A surcharge of 10% is applicable in case the total income exceeds Rs.10 Lakh.



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4. MUTUAL FUND:

A Mutual Fund is a trust that pools the savings of a number of investors who sharea common financial goal. The money thus collected is invested by the fund manager in

different types of securities depending upon the objective of the scheme. These could

range from shares to debentures to money market instruments. The income earned

through these investments and the capital appreciations realized by the scheme are shared

by its unit holders in proportion to the number of units owned by them. Thus a Mutual

Fund is the most suitable investment for the common man as it offers an opportunity to

invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody

with an investible surplus of as little as a few thousand rupees can invest in Mutual

Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

Investments in securities are spread across a wide cross-section of industries and

sectors and 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 the investors in accordance with quantum of money invested by them.

Investors of mutual funds are known as unit holders.

The profits 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.

The flow chart below describes broadly the working of a mutual fund:

A. Organization of Mutual fund:

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

The mutual fund industry in India began with the setting up of the Unit Trust In

India (UTI) in 1964 by the Government of India. During the last 36 years, UTI has grown

to be a dominant player in the industry with assets of over Rs. 76,547 Crores as of

March 31, 2000. The UTI is governed by a special legislation, the Unit Trust of

India Act, 1963. In 1987 public sector banks and insurance companies were permitted to



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set up mutual funds and accordingly since 1987, 6 public sector banks have set up mutual

funds. Also the two Insurance companies LIC and GIC established mutual funds.

Securities Exchange Board of India (SEBI) formulated the Mutual Fund (Regulation)1993, which for the first time established a comprehensive regulatory framework for the

mutual fund industry. Since then several mutual funds have been set up by the private and

joint sectors.

B. Types of Mutual Funds:

Mutual fund schemes may be classified on the basis of its structure and its

investment objective.

a) By Structure:

1. Open-ended Funds:

An open-end fund is one that is available for subscription all through the year. These

do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset

Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

2. Closed-ended Funds:

A closed-end fund has a stipulated maturity period which generally ranging from

3 to 15 years. The fund is open for subscription only during a specified period. Investors

can invest in the scheme at the time of the initial public issue and thereafter they can buy

or sell the units of the scheme on the stock exchanges where they are listed. In order to

provide an exit route to the investors, some close-ended funds give an option of selling

back the units to the Mutual Fund through periodic repurchase at NAV related prices.

SEBI Regulations stipulate that at least one of the two exit routes is provided to the

investor.

3. Interval Funds:

Interval funds combine the features of open-ended and close-ended schemes. They

are open for sale or redemption during pre-determined intervals at NAV related prices.

b) By Investment Objective:

1. Growth Funds:



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The aim of growth funds is to provide capital appreciation over the medium to

long- term. Such schemes normally invest a majority of their corpus in equities. It has

been proven that returns from stocks, have outperformed most other kind of investmentsheld over the long term. Growth schemes are ideal for investors having a long-term

outlook seeking growth over a period of time.

2. Income Funds:

The aim of income funds is to provide regular and steady income to investors.

Such schemes generally invest in fixed income securities such as bonds, corporate

debentures and Government securities. Income Funds are ideal for capital stability and

regular income.

3. Balanced Funds:

The aim of balanced funds is to provide both growth and regular income. Such

schemes periodically distribute a part of their earning and invest both in equities and fixed

income securities in the proportion indicated in their offer documents. In a rising

stock market, the NAV of these schemes may not normally keep pace, fall equally when

the market falls. These are ideal for investors looking for a combination of income and

moderate growth.

4. Money Market Funds:

The aim of money market funds is to provide easy liquidity, preservation of

capital and moderate income. These schemes generally invest in safer short-term

instruments such as treasury bills, certificates of deposit, commercial paper and inter-

bank call money. Returns on these schemes may fluctuate depending upon the interest

rates prevailing in the market. These are ideal for Corporate and individual investors as a

means to park their surplus funds for short periods.

5. Load Funds:



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A Load Fund is one that charges a commission for entry or exit. That is, each time

you buy or sell units in the fund, a commission will be payable. Typically entry and exit

loads range from 1% to 2%. It could be worth paying the load, if the fund has a goodperformance history.

6. Gilt Fund:

These funds invest exclusively in government securities. Government securities

have no default risk. NAVs of these schemes also fluctuate due to change in interest rates

and other economic factor as is the case with income or debt oriented schemes.

7. Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive

index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same

weight age comprising of an index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by the same percentage

due to some factors known as "tracking error" in technical terms.

c) Other Schemes:

1. Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the

Indian Income Tax laws as the Government offers tax incentives for investment in

specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and

Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act

also provides opportunities to investors to save capital gains u/s 54EA and 54EB by

investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000

and the amount is invested before September 30, 2000.

d) Special Schemes:



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1. Industry Specific Schemes:

Industry Specific Schemes invest only in the industries specified in the offerdocument. The investment of these funds is limited to specific industries like InfoTech,

FMCG, and Pharmaceuticals etc.

2. Index Schemes:

Index Funds attempt to replicate the performance of a particular index such As the BSE

Sensex or the NSE 50.

3. Sectorial Schemes:

Sectorial Funds are those, which invest exclusively in a specified industry or a

group of industries or various segments such as 'A' Group shares or initial public offering.

C. Benefits of Mutual Fund investment:

Professional Management

Diversification

Convenient Administration

Return Potential

Low Costs

Liquidity

Transparency

Flexibility

Affordability

Choice of Schemes

Tax benefits

Well regulated

D. Restrictions on Investments :



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1 A mutual fund scheme shall not invest more than 15% of its NAV (Net Asset Value) in

debt instruments issued by a single issuer, which are rated not below investment grade bya credit rating agency authorized to carry out such activity under the Act. Such

investment limit may be extended to 20% of the NAV of the scheme with the prior

approval of the Board of Trustees and the Board of asset Management Company.

2 A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt

instruments issued by a single issuer and the total investment in such instruments shall not

exceed 25% of the NAV of the scheme. All such investments shall be made with the prior

approval of the Board of Trustees and the Board of asset Management Company.

3 No mutual fund under all its schemes should own more than ten per cent of any

company's paid up capital carrying voting rights.

4 Such transfers are done at the prevailing market price for quoted instruments on spot

basis.

The securities so transferred shall be in conformity with the investment objective of the

scheme to which such transfer has been made.

5 A scheme may invest in another scheme under the same asset management company or

any other mutual fund without charging any fees, provided that aggregate interscheme

investment made by all schemes under the same management or in schemes under the

management of any other asset management company shall not exceed 5% of the net

asset value of the mutual fund.

6 The initial issue expenses in respect of any scheme may not exceed six per cent of the

funds raised under that scheme.

7 Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all

cases of purchases, take delivery of relative securities and in all cases of sale, deliver the

securities and shall in no case put itself in a position whereby it

has to make short sale or carry forward transaction or engage in badla finance.

8 Every mutual fund shall, get the securities purchased or transferred in the name of

the mutual fund on account of the concerned scheme, wherever investments are intended

to be of long-term nature.

9 Pending deployment of funds of a scheme in securities in terms of investment



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objectives of the scheme a mutual fund can invest the funds of the scheme in short term

deposits of scheduled commercial banks.

No mutual fund scheme shall make any investment in;a) Any unlisted security of an associate or group company of the sponsor; or

b) Any security issued by way of private placement by an associate or group company of the

sponsor.

c) The listed securities of group companies of the sponsor which is in excess of 30% of the

net assets [of all the schemes of a mutual fund]

d) No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares

or equity related instruments of any company. Provided that, the limit of 10 per cent shall

not be applicable for investments in index fund or sector or industry specific scheme.

e) A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or

equity related investments in case of open-ended scheme and 10% of its NAV in case of

close-ended scheme.

5. STOCK:

Member - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE),

and The Hyderabad Stock Exchange (HSE).

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows

freely towards attaining diverse goals of the customer through varied services. Creating

a plethora of opportunities for the customer by opening up investment vistas backed by

research-based advisory services. Here, growth knows no limits and success recognizes

no boundaries. Helping the customer create waves in his portfolio and empowering the

investor completely is the ultimate goal.

a. Stock Broking Services:

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high

success rate as a wealth management and wealth accumulation option. The difference

between unpredictability and a safety anchor in the market is provided by in-depth

knowledge of market functioning and changing trends, planning with foresight and

choosing one & choose options with care. This is what we provide in our Stock Broking

services.



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b. Depository Participants:

The onset of the technology revolution in financial services Industry saw the

emergence of Karvy as an electronic custodian registered with National SecuritiesDepository Ltd (NSDL) and Central Securities Depository Ltd (CSDL) in 1998.

Karvy set standards enabling further comfort to the investor by promoting paperless

trading across the country and emerged as the top 3 Depository Participants in the

country in terms of customer serviced.

c. Basic Information:

Besides familiarity with the stock market, the transaction process, and having an

account at a broker or sub-broker, knowledge of basic investment information is also

important to making investment decisions

In this section, you can read about the basics of investment that often appear in stock

market reports and discussions.

d. Market information:

Important data and information about the overall market situation that you often

come across include:

i. Stock market index:

There are a number of stock market indices but the most widely used is the SET

Index, which calculates the average price of all listed shares weighted by the number of

registered shares. Thus, price movements of large capitalization stocks have a greater

influence on the movement of the SET Index than price changes of small capitalization

stocks.

Besides the SET Index , other stock price indices have been constructed to track

market trends, for example the SET50 Index, Book Club Index, TISCO Price Index, and

Sector Indices to track the price movements of individual sectors.

ii. Market turnover:

It's often quoted together with the SET Index to indicate how active the trading

activities are. In a bullish market, turnover is high as investors trade actively.

Conversely, the market is sluggish when investors do not trade actively. Thus, turnover is

a crucial factor in an investment consideration.



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Advances, declines, and no change in stock prices. When most stock prices have

closed higher, it indicates that the market has had a good day. Conversely, when most

stock prices have closed lower, the market has a bad day. If stock prices are mostlyunchanged, the market is moving in a narrow range. Investors can try their own market

analysis by looking at the trends in price movement. This however reflects a short- term

picture and other factors must be taken into consideration.

e. Stock information:

In addition to the market information above, it's essential to understand how to pick

good stocks. Here are some basic investment principles.

i. Price:

Stock price is an important factor to investors, as buying and selling influence stock

price movements. At the end of the day, investors like to know how their stocks fared.

Did they close higher? Lower? And by how much? The change in price of a stock also

reflects the amount of money for investor decision-making whether to buy, sell, or hold.

In stock valuation, price has to be considered in conjunction with other performance

variables such as earnings per share and dividends.

ii. Price-Earnings Ratio (P/E Ratio):

The ratio is derived by comparing the Close Price (P) with Earnings per share (E). It

is a measure of the stock's fundamental value. P/E Ratio is calculated by dividing the

Close Price (P) with Earnings per share (E).

P/E = Close price or market price (P)

12-month earnings per share (E)

P/E ratio tells you how many years it will take the company's earnings to add up to

its stock price at the time of calculation.

For example, if the close price of stock ABC (P) is 100 Rs and its earnings per share (E)

is 20 Rs, then its P/E Ratio equals 100/20 = 5. That is, at the time of calculation, it will

take only 5 years of company ABC's earnings to equal its stock price.

A stock with low P/E ratio is preferable to one with a high P/E. Conversely,

suppose stock DEF closes at 200 Rs and its earnings per share (E) is 20 Rs, its P/E Ratio

equals 200/20 = 10. At the time of calculation, it will take 10 years of company DEF's



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earnings to equal its stock price. Comparing stock ABC with stock DEF, we can draw an

initial conclusion that stock ABC is more attractive than stock DEF.

In brief, a low P/E stock has more earnings potential or is cheaper than a high P/Estock, considering its earnings ability.

iii. Dividend Yield:

Rate of dividend return, shown in percentage form. A stock with a high

Dividend Yield is more attractive because you get aHigher rate of return in the form of

dividends.

The formula for calculating Dividend Yield is

Dividend Yield = Dividend x 100

Stock Price

For example, if stock ABC has a market price of 20 Rs and pays a 2 baht dividend, its

dividend yield is

1 x 100 = 10%

20

iv. Trading Volume:

Trading volume or liquidity of a stock is important. It's easier to trade in/out of a stock

with high liquidity or large trading volume. It's difficult to buy a stock which has a low

liquidity or low trading volume because there are few sellers. And selling is difficult if

there are few or no buyers when you want to sell because you urgently need the cash.

f. Financial Analysis :

Analysis of a company's growth potential, stability, financial and

management strengths, and profit potential for its investors. Financial analysis is a rather

complex exercise and can be left until you've mastered more basic investment knowledge.

4.5 ABOUT PORTFOLIO MANAGEMENT:

Portfolio is nothing but the total holding of securities belonging to any

person.



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Portfolio management is the process of managing money, including

investments, budgeting, banking and taxes. The portfolio management process involves

formulating, modifying and implementing a real estate investment strategy in light of aninvestor's broader overall investment objectives. It also can be defined as the management

of several properties owned by a single entity

The basis for constructing a portfolio should reflect the enterprise"s particular

needs. For example, you might choose to build a portfolio around initiatives for a specific

product, business segment, or separate business unit within a multinational organization.

A long-term investment strategy requires more than a passive investand

forget" approach. Once youve created an investment strategy and built your portfolio,

youve taken the first steps toward reaching your financial goals. As time passes, you

will need to review your portfolio regularly to make sure you stay on track.

Portfolio planning is a structured and intelligent way of spreading your risk

through different investment options and to enjoy the diversification benefits marked with

a higher rate of interests. There is no fixed rule on how to plan your portfolio but there are

several platforms available on which you can explore the art of perfect portfolio building.

It is equally important to check the portfolio performance in every quarter.

Presently, the stock market sentiment is slowly going upward with a new hope of revival

by late this year. This is a good time for investors to reshuffle their portfolios.

For example, the market is expected to sustain the growth in the FMCG sector

with the news of 20 percent average growth by FMCG majors last quarter. Major heavy

weights like HLL and Cadburys are trading at 15 percent to 20 percent below their 52-

week high. One of the major reasons for failure in portfolio management is the lack of

realistic objectives. What can rationally be expected is often quite different from the

hyped anticipation created in the minds of investor. To be successful in the portfolio

planning, you need to be aware of historical precedents.

One of the reasons for your investment portfolio not giving the expected returns could be

- you have not properly planned to cover your tax liability. In this section, we present a

comparison of investments, which can reduce your tax burden.

Most of us think of investing in tax only in the month of March and as the D-day

approaches, there is a rush to invest in any tax-saving avenue be it infrastructure bonds,



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ELSS schemes or PPF without any proper thought before investing. Ideally, investing for

tax saving purposes, should be an integral part of your portfolio plan, helping you reach

your investment goals in a tax efficient way.

The number of tax saving options on offer not only serve the purpose of saving tax

but also offer other benefits such as risk coverage, capital appreciation, retirement savings

etc. In this section, we have attempted to give a comparison of the various tax-saving

investments, which should help you make an informed and intelligent decision regarding

your tax investments. The comparison is done in a group of two on the parameters of

safety, returns, tenure and tax benefits. The argument behind grouping of those avenues is

not very complicated; we just want to address the dilemma of much talked groups. Forinstance, one can ask whether investment in NSC is better when compared to

Infrastructure bond. The grouping has not been addressed. In this section, we suggest

those readers to compare in their own for these kind of grouping after taking a look at the

arguments of the available grouping.

4.6 MARKOWITZ PORTFOLIO THEORY:

In the earlier days the investment communities talked about risk and returns butthere was no specific model to further term. The basic portfolio model was developed by

Harry Markowitz, who derived the expected rate of return for a portfolio of assets and an

expected risk measure. Before Markowitz, investors dealt loosely wit the concepts of

return and risk. He was first to develop the concept of portfolio diversification in a formal

way He quantified the concept of diversification. He showed quantitatively why and

how portfolio diversification works to reduce the risk of portfolio to an investors. He was

first to develop specific measure of portfolio risk and to derive the expected rate of return

and risk for a portfolio based on co variance relationship. Markowitz model is based on

several assumptions regarding investment behavior as:-

1. Investors consider each investment alternative as being represented by a

probability distribution of expected return over some holding period.

2. Investors maximize one period expected utility, and their utilities curves

demonstrate diminishing marginal utility of wealth.



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3. Investors estimate the risk of the portfolio on the basis of the variability of

expected returns.

4. Investors base decisions solely on expected return on risk, so their utility curves

are functions of expected return and expected variance of returns only.

5. For a given risk level, investor prefer, higher returns to lower returns. Similarly

for a given level of expected return, investors prefer less risk to more risk.

Under these assumptions , a single asset or a portfolio assets is considered to be

efficient if no other assets or portfolio assets offers higher expected return with the

same( or Lower ) risk, or lower risk with same ( or higher ) expected returns.

VARIANCE OF RETURNS FOR AN INDIVIDUAL INVESTMENT:-

We will be using the variance or standard deviation of returns as the measure of

risk. The variance or standard deviation is a measure of the variation of possible rate of

returns, Ri, from the expected rate of return [E (Ri)] as follows:

Graph No. 4.1 Risk & return on investment


n

Variance ( 2) = [ Ri - E(Ri) ]2 Pi

i=1


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Types of portfolio

1. Aggressive Portfolio:-

Objective: Growth. This strategy might be appropriate for investor who seek High

growth and who can tolerate wide fluctuations in market values, over the short term.

Graph No. 4.2 Showing Aggressive Portfolio

2. Growth Portfolio:-

Objective: Growth. This strategy might be appropriate for investors who have a

preference for growth and who can withstand significant fluctuations in market value.

Graph No. 4.3 Showing Growth Portfolio



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3. Balanced Portfolio:

Objective: Capital appreciation and income. This strategy might be appropriate

for investors who want the potential for capital appreciation and some growth, and who

can withstand moderate fluctuations in market values

Graph No. 4.4 Showing Balanced Portfolio

4. Conservative Portfolio:

Objective: Income and capital appreciation. This strategy may be appropriate for

investors who want to preserve their capital and minimize fluctuations in market value.

Graph No. 4.5 Showing Conservative Portfolio



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The Balancing Act:

One reason to review your portfolio is that market conditions or some aspect of

your financial situation say, your time horizon or your tolerance for risk may have

changed since you created your investment strategy. If the change has been significant,

you will need to consider adjusting your portfolios asset mix. Another reason you might

have to considering giving your portfolio a new look is in response to a significant life

event.

Let us consider this example, Suppose your investment strategy was originally

designed to achieve long-term growth, and your portfolio consists primarily of stocks. At

the end of the first year, a year of tremendous growth in the stock market-you review your

portfolio and you see that, although your bond and short-term investments have enjoyed

only modest growth, your stock investments have significantly increased in value. In fact,

your stock investments have grown so much that the

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