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Investing in securities such as shares, debentures, and bonds is profitable as well as exciting. It is indeed rewarding, but involves a great deal of risk and calls for scientific knowledge as well artistic skill. In such investments both rationale and emotional responses are involved. Investing in financial securities is now considered to be one of the best avenues for investing one savings while it is acknowledged to be one of the best avenues for investing one saving while it is acknowledged to be one of the most risky avenues of investment. It is rare to find investors investing their entire savings in a single security. Instead, they tend to invest in a group of securities. Such a group of securities is called portfolio. Creation of a portfolio helps to reduce risk, without sacrificing returns. Portfolio management deals with the analysis of individual securities as well as with the theory and practice of optimally combining securities into portfolios. An investor who understands the fundamental principles and analytical aspects of portfolio management has a better chance of success. Portfolio is none other than Basket of Stocks. 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.
PORTFOLIO MANAGEMENT
An investor considering investment in securities is faced with the problem of choosing from among a large number of securities and how to allocate his funds over this group of securities. Again he is faced with problem of deciding which securities to hold and how much to invest in each. The risk and return characteristics of portfolios. The investor tries to choose the optimal portfolio taking into consideration the risk return characteristics of all possible portfolios. As the risk return characteristics of individual securities as well as portfolios also change. This calls for periodic review and revision of investment portfolios of investors. An investor invests his funds in a portfolio expecting to get good returns consistent with the risk that he has to bear. The return realized from the portfolio has to be measured and the performance of the portfolio has to be evaluated. It is evident that rational investment activity involves creation of an investment portfolio. Portfolio management comprises all the processes involved in the creation and maintenance of an investment portfolio. It deals specifically with the security analysis, portfolio analysis, portfolio selection, portfolio revision & portfolio evaluation. Portfolio management makes use of analytical techniques of analysis and conceptual theories regarding rational allocation of funds. Portfolio management is a complex process which tries to make investment activity more rewarding and less risky.
DEFINITION
The process of managing the assets of a mutual fund, including choosing and monitoring appropriate investments and allocating the funds accordingly.
Portfolio management is the process of clarifying, prioritizing, and selecting the projects an organization wishes to pursue. It evaluates and prioritizes the features targeted for inclusion in specific product releases. It encompasses techniques to ensure the projects and feature sets are aligned with business objectives, that technical impacts are well understood, and that product releases include the highest value features. A strong portfolio management process enables organizations to effectively and efficiently determine which projects and features provide the most significant return on investment. It aids technology-selection decisions, provides guidance to on going architecture work, enables capacity planning, and informs development decisions. The lack of an effective process can reduce the desirability of the end product because guidance on priorities is not shared throughout the organization. It can reduce development productivity because significant time, effort, and money is spent making decisions about priorities in the early or even the mid to late stages of a project. Portfolio is a collection of asset. The asset may be physical or financial like Shares Bonds, Debentures, and Preference Shares etc. The individual investor or a fund manager would not like to put all his money in the shares of one company, for that would amount to great risk. Main objective is to maximize portfolio return and at the same time minimizing the portfolio risk by diversification. Portfolio management is the management of various financial assets, which comprise the portfolio. According to Securities and Exchange Board of India (Portfolio manager) Rules, 1993; portfolio means the total holding of securities belonging to any person; Designing portfolios to suit investor requirement often involves making several projections regarding the future, based on the current information. When the actual situation is at variance from the projections portfolio composition needs to be changed. One of the key inputs in portfolio building is the risk bearing ability of the investor. Portfolio management can be having institutional, for example, Unit Trust, Mutual Funds, Pension Provident and Insurance Funds, Investment Companies and non-Investment Companies. Institutional e.g. individual, Hindu undivided families, Non-investment Companys etc.
The large institutional investors avail services of professionals. A professional, who manages other peoples or institutions investment portfolio with the object of profitability, growth and risk minimization, is known as a portfolio manager. The portfolio manager performs the job of security analyst. In case of medium and large sized organization, job function of portfolio manager and security analyst are separate. Portfolios are built to suit the return expectations and the risk appetite of the investor.
1. Security of Principal Investment : Investment safety or minimization of risks is one of the most important objectives of portfolio management. Portfolio management not only involves keeping the investment intact but also contributes towards the growth of its purchasing power over the period. The motive of a financial portfolio management is to ensure that the investment is absolutely safe. Other factors such as income, growth, etc., are considered only after the safety of investment is ensured.
2. Consistency of Returns : Portfolio management also ensures to provide the stability of returns by reinvesting the same earned returns in profitable and good portfolios. The portfolio helps to yield steady returns. The earned returns should compensate the opportunity cost of the funds invested.
3. Capital Growth : Portfolio management guarantees the growth of capital by reinvesting in growth securities or by the purchase of the growth securities. A portfolio shall appreciate in value, in order to safeguard the investor from any erosion in purchasing power due to inflation and other economic factors. A portfolio must consist of those investments, which tend to appreciate in real value after adjusting for inflation.
4. Marketability : Portfolio management ensures the flexibility to the investment portfolio. A portfolio consists of such investment, which can be marketed and traded. Suppose, if your portfolio contains too many unlisted or inactive shares, then there would be problems to do trading like switching from one investment to another. It is always recommended to invest only in those shares and
securities which are listed on major stock exchanges, and also, which are actively traded. 5. Liquidity : Portfolio management is planned in such a way that it facilitates to take maximum advantage of various good opportunities upcoming in the market. The portfolio should always ensure that there are enough funds available at short notice to take care of the investors liquidity requirements. 6. Diversification of Portfolio : Portfolio management is purposely designed to reduce the risk of loss of capital and/or income by investing in different types of securities available in a wide range of industries. The investors shall be aware of the fact that there is no such thing as a zero risk investment. More over relatively low risk investment give correspondingly a lower return to their financial portfolio. 7. Favorable Tax Status : Portfolio management is planned in such a way to increase the effective yield an investor gets from his surplus invested funds. By minimizing the tax burden, yield can be effectively improved. A good portfolio should give a favorable tax shelter to the investors. The portfolio should be evaluated after considering income tax, capital gains tax, and other taxes. The objectives of portfolio management are applicable to all financial portfolios. These objectives, if considered, results in a proper analytical approach towards the growth of the portfolio. Furthermore, overall risk needs to be maintained at the acceptable level by developing a balanced and efficient portfolio. Finally, a good portfolio of growth stocks often satisfies all objectives of portfolio management.
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To frame the investment strategy and select an investment mix to achieve the desired investment objective;
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To provide a balanced portfolio which not only can hedge against the inflation but can also optimize returns with the associated degree of risk;
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To maximize the after-tax return by investing in various taxes saving investment instruments.
The two types of portfolio management services are available o the investors:
Individuals will benefits immensely by taking portfolio management services for the following reason: a) Whatever may be the status of the capital market; over the long period capital markets have given an excellent return when compared to other forms of investment. The return from bank deposits, units etc., is much less than from stock market.
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The Indian stock markets are very complicated. Though there are thousands of companies that are listed only a few hundred, which have the necessary liquidity. It is impossible for any individual whishing to invest and sit down and analyses all these intricacies of the market unless he does nothing else.
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Even if an investor is able to visualize the market, it is difficult to investor to trade in all the major exchanges of India, look after his deliveries and payments. This is further complicated by the volatile nature of our markets, which demands constant reshuffling of port
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In the past one-decade, significant changes have taken place in the investment climate in India.
Portfolio management is becoming a rapidly growing area serving a broad array of investors- both individual and institutional-with investment portfolios ranging in asset size from thousands to cores of rupees.
It is becoming important because of: i. Emergence of institutional investing on behalf of individuals. A number of financial institutions, mutual funds, and other agencies are undertaking the task of investing money of small investors, on their behalf. ii. Growth in the number and the size of invisible fundsa large part of household savings is being directed towards financial assets.
iii. Increased market volatility- risk and return parameters of financial assets are continuously changing because of frequent changes in governments industrial and fiscal policies, economic uncertainty and instability.
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v. Professionalization of the field and increase use of analytical methods (e.g. quantitative techniques) in the investment decisionmaking, and
vi. Larger direct and indirect costs of errors or shortfalls in meeting portfolio objectives- increased competition and greater scrutiny by investors.
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SELECTION OF PORTFOLIO
The selection of portfolio depends upon the objectives of the investor. The selection of portfolio under different objectives are dealt subsequently,
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Diversification
Once the asset mix is determined and risk return relationship is analyzed the next step is to diversify the portfolio. The main advantage of diversification is that the unsystematic risk is minimized.
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Investment is no longer a simple process. It requires a scientific knowledge, a systematic approach and also professional expertise. Portfolio management is the only way through which an investor can get good returns, while minimizing risk at the same time. So portfolio management objectives can be stated as: Risk minimization. Safeguarding capital. Capital Appreciation. Choosing optimal mix of securities. Keeping track on performance.
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2. Analytical Ability:
He must have his own theory to arrive at the value of the security. An analysis of the securitys values, company, etc. is continues job of the portfolio manager. A good analyst makes a good financial consultant. The analyst can know the strengths, weakness, opportunities of the economy, industry and the company.
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3. Marketing skills:
He must be good salesman. He has to convince the clients about the particular security. He has to compete with the Stock brokers in the stock market. In this Marketing skills help him a lot.
4. Experience:
In the cyclical behaviour of the stock market history is often repeated, therefore the experience of the different phases helps to make rational decisions. The experience of different types of securities, clients, markets trends etc. makes a perfect professional manager.
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SECURITIES AND EXCHANGE BOARD OF INDIA RULES, 1993 REGARDING PORTFOLIO MANAGERS
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The certificate of registration on its renewal, as the case may be, shall be valid for a period of here years from the date of its issue to the portfolio manager.
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An application by a portfolio manager for grant of a certificate shall be made to the board on Form A. Notwithstanding anything contained in sub regulation (1), any application made by a portfolio manager prior to coming into force of these regulations containing such particulars or as near thereto as mentioned in form A shall be treated as an application made in pursuance of sub-regulation and dealt with accordingly.
Subject to the provisions of sub-regulation (2) of regulation 3, any application, which is not complete in all respects and does not confirm to the instructions specified in the form, shall be rejected:
Provided that, before rejecting any such application, the applicant shall be given an opportunity to remove within the time specified such objections as may be indicated by the board.
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The Board may require the applicant to furnish further information or clarification regarding matters relevant to his activity of a portfolio manager for the purposes of disposal of the application.
The applicant or, its principal officer shall, if so required, appear before the Board for personal representation.
4. Consideration of application.
The Board shall take into account for considering the grant of certificate, all matters which are relevant to the activities relating to portfolio manager and in particular whether the applicant complies with the following requirements namely: The applicant has the necessary infrastructure like to adequate office space, equipments and manpower to effectively discharge his activities;
The applicant has his employment minimum of two persons who have the experience to conduct the business of portfolio manager; A person, directly or indirectly connected with the applicant has not been granted registration by the Board in case of the applicant being a body corporate;
The applicant, fulfils the capital adequacy requirements specified in regulation 7 The applicant, his partner, director or principal officer is not involved in any litigation connected with the securities market and which has an adverse bearing on the business of the applicant;
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The applicant, his director, partner or principal officer has not at any time been convinced for any offence involving moral turpitude or has been found guilty of any economic offences;
The applicant has the professional qualification from an institution recognized by the government in finance, law, and accountancy or business management.
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Define multiple workflows to subject each project to the appropriate governance controls throughout its life cycle from proposal to postimplementation resulting in lowered costs, faster cycle times, and increased quality.
Consolidate business and information technology (IT) investments within an enterprise repository to improve visibility, insight, and control. Implement repeatable processes as templates to standardize and streamline data collection across the organization. Centralized data facilitates cross project analysis of finances, resources, schedules as well as other data trends and status for informative reports.
Employ proven techniques to define and prioritize your organizations business strategy for the upcoming planning period, and automatically derive objective prioritization scores to effectively evaluate the competing investments from multiple dimensions.
Run optimization what-if scenarios to identify trade offs and select the optimal portfolio under varying budgetary and business constraints that best align with your organizations business strategy. Take advantage of advanced portfolio analytical techniques to identify and break the constraints prohibiting the portfolio from reaching the Efficient Frontier.
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Without understanding long-term workloads and capacity, companies can experience inefficient hire-fire cycles, resulting in higher overhead, lost knowledge, and poor employee morale. By providing visibility into overall work commitments, actual timesheets, and resource capabilities, create resource plans to align your strategic recruiting and outsourcing with your long-term business objectives.
Helping to ensure that teams share common goals and work together effectively becomes more vital as organizations become more geographically and culturally diverse. Web-based access to timely, business-critical project information means teams can share knowledge, collaborate smoothly to complete tasks and deliverables, and adjust activities quickly to accommodate project changes and updates.
Effectively measure and track projects, programs, and applications throughout their life cycle, giving you the visibility to proactively identify potential issues, make decisions, and help ensure that your portfolios maximize return on investment (ROI) and improve operational efficiencies.
By enabling increased employee productivity, faster cycle times, reduced costs, and improved time management, portfolio management solutions provide a positive and sustainable return on investment. In IT portfolio management, software can cut costs 2-5 percent, improve productivity 20-25 percent, and shift 10-15 percent of budgets to more strategic projects. In developing and bringing new products to market, the best performers those who have applied rigorous process and technology to their research and development and go-to-market activities can reduce time to market by more than 30 percent.
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The process of portfolio management can stand alone, or act as a component of a larger wealth management process. Typically when we partner with our clients for portfolio management purposes, the process involves the following basic steps.
Diversification
Your asset allocation policy is implemented by investing across asset classes and within various investment styles. Your well-diversified portfolio will then be managed by preeminent institutional money management firms which are not normally accessible to an individual investor.
Portfolio rebalancing
Your investment portfolio is carefully monitored on an on going basis to ensure that it remains consist-tent with your agreed-upon asset allocation policy. If the relative value of investment in your portfolio changes enough to become inconsistent with this policy, it will be rebalanced.
Result reports
We will communicate with you on a regular basis and provide a comprehensive reporting package, including account level performance reports and statements providing details of your account, as well as total asset value and a record of all transactions that occurred during the reporting period.
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(1). Equity portfolioEquity portfolio is affected by internal and external factors: (a) Internal factors Pertain to the inner working of the particular company of which equity shares are held. These factors generally include:
(1) Market value of shares (2) Book value of shares (3) Price earnings ratio (P/E ratio) (4) Dividend payout ratio (b) External factors (1) Government policies (2) Norms prescribed by institutions (3) Business environment (4) Trade cycles
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(2). Equity stock analysis The basic objective behind the analysis is to determine the probable future value of the shares of the concerned company. It is carried out primarily fewer than two ways. :
(A) Trend of earning: A higher price-earnings ratio discount expected profit growth. Conversely, a downward trend in earning results in a low price-earnings ratio to discount anticipated decrease in profits, price and dividend. Rising EPS causes appreciation in price of shares, which benefits investors in lower tax brackets? Such investors have not pay tax or to give lower rate tax on capital gains. Many institutional investor like stability and growth and support high EPS. Growth of EPS is diluted when a company finances internally its expansion program and offers new stock. EPS increase rapidly and result in higher P/E ratio when a company finances its expansion program from internal sources and borrowings without offering new stock. (B) Quality of reported earning: -
Quality of reported earnings affects P/E ratio. The factors that affect the quality of reported earnings are as under:
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Depreciation allowances: Larger (Non Cash) deduction for depreciation provides more funds to company to finance profitable expansion schemes internally. This builds up future earning power of company. Research and development outlets: There is higher P/E ratio for a company, which carries R&D programs. R&D enhances profit earning strength of the company through increased future sales.
Inventory and other non-recurring type of profit: Low cost inventory may be sold at higher price due to inflationary conditions among profit but such profit may not always occur and hence low P/E ratio.
(C) Dividend policy: Dividend policy is significant in affecting P/E ratio. With higher dividend ratio, equity price goes up and thus raises P/E ratio. Dividend rates are raised to push in share prices up. Dividend cover is calculated to find out the time the dividend is protected, In terms of earnings. It is calculated as under: Dividend Cover = EPS / Dividend per Share
(D) Investors demand: Demand from institutional investors for equity also enhances the P/E ratio.
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(3) Quality of management: Investors decide about the ability and caliber of management and hold and dispose of equity academy. P/E ratio is more where a company is managed by reputed entrepreneurs with good past records of management performance.
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Now-a-days, portfolio management is very popular concept. Because every investor wants to increase his investment. In the earlier days, it was not so good. People make optimise profits but now investors are taking the help of the professionals and they help them in various decisions. Select the right blend of projects that can increase ROI, market share and achieve a sustainable growth portfolio. They apply an investment plan to maintain a balance between investment risk and return. They follow certain rules to allocate the major portion of resources to invest whether in extremely volatile markets like share and equity market or in treasury notes, money market funds. They provide a good investment option, excellent return at manageable risk. So any individuals, a beginner or an experienced investor or a monthly earner for living can take the advantages of portfolio management service. With the considerable investments required to expand new products and the risks involved, portfolio Management in India is becoming a progressively more important tool to make strategic decisions about product development and the investment of company reserves. All professionals and business leaders in the investment services have become mindful that only right technologies and active financial management can achieve financial goals. Portfolio management in India has provided the vital insights to expand competitive initiation in this complex financial market. The portfolio management team involves managers who try to increase the market return by actively managing financial portfolio through investment decisions based on research and individual investment choices. They actively manage closed end funds because they have years of actual daily trading experience. These managers are highly skilful and adept at carrying on profound research. They can perform with passion and innovation in investment services. So they can give fruitful financial advice to expand financial gains. Investment services involve different financial instruments such as pension fund, mutual fund, equity and share, investment on property, commodity, IT, stock, and bond, financial derivatives. These instruments have a certain level of risk and give returns in the long run.
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GEMS PORTFOLIO GEMS are a 30-month closed-end product. The scheme intends to create a focused portfolio of stocks from across sectors and market capitalization ranges. Its main feature is its special mandate to participate in the pre-FPO (follow-on public offer) placements and private placements of listed companies. Investments of up to 30 per cent of the overall assets can be made in such opportunities. ORIGIN Origin portfolio aims to invest in growth oriented companies with sustainable business models backed by strong management capabilities with emphasis on smaller capitalized companies with a market capitalization not exceeding Rs. 2500 crore at the time of investment. INVEST GUARD PORTFOLIO
The Invest guard Plan is a CPPI Model which invests across shares and fixed income products, moving from shares into fixed interest investments when the funds value drops below a predetermined floor. When markets s tart to move up, the product increases its holdings in shares, tapping into these growth opportunities. CORE PORTFOLIO
Core Portfolio aims to capture the long term upside of the India Growth Story by diversifying across the major themes. The investments are in all equity and equity related instruments with emphasis on companies in the business areas driven by consumerism, outsourcing, real estate and core infrastructure players and is essentially a mix of small, medium and large capitalization companies
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CONCLUSION
With the help of given project I got an in-depth knowledge about the working of portfolio management. Also I got an insight as too how to invest in portfolio management, which scheme provide better return as compared to other and who are the portfolio management players in the Indian market. It can be concluded from the project that future of portfolio management is bright provided proper regulations prevail and investors needs are satisfied by providing variety of schemes. The interest of investors is protected by SEBI. Portfolio management is governed by SEBI Act. Due to the benefits available to the individuals such as reduction in risk, expert professional management, diversified portfolios, tax benefits etc. young generation (i.e. age group bet. 18-30) is willing to invest in different investment avenues through portfolio manager or through mutual funds which are again managed by portfolio managers. On the other hand, age group of 60 & above are least interested in making investment in different avenues through portfolio managers. They believe in investing and managing their portfolio on their own. However, it can be said that the future of portfolio management is bright in years to come.
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