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PROJECT REPORT
ON
By
Parwinder Kaur
Under the guidance of
Gulbahar Singh
Submitted To
Table Of Contents
COMPANY PROFILE
INFOWIZ is leading strategic IT Company offering integrated IT solution. INFOWIZ is having rich
experience managing global clients across various business verticals and align IT strategies to achieve
business goals. The various accreditations that we achieved for every service, we offer reflect our
commitment towards the quality assurance.
INFOWIZ is a 9 yearsyoung organization which has won the NATIONAL AWARD for 2 consecutive
years 2014-2015 & 2015-16 for BEST Industrial Training from Hon` ableGOVERNER of Punjab &
Haryana Sh. Kaptan Singh Solanki. He is also the Chancellor of PTU & Punjabi University. INFOWIZ
is a member of Confederation of Indian Industry (CII membership number – N4654P) & also withan ISO
Certification. We have a global foot prints in providing the off shore companies of US, UK, France, Ireland,
Canada and Australia with quality and timely Web and SEO services.
INFOWIZ is an organization which is established in the field of Web Development (PHP & .NET),
JAVA (Core as well as Advance), I-phone & Android Applications, Embedded systems (AVR, PIC
& ARM), Automation, ROBOTICS, Networking (MCSE, CCNA & RHSE) & in Mechanical.
Our skilled team of professionals make sure that the product is developed as per the customer’s
needs and keeping the customer informed about the development of their project from time to time.
We do not only emphasize on formulating an attractive solution to our clients but also believe in
providing a workable solution. INFOWIZ offers research based Search Engine Marketing products
that help achieve greater insights to customer’s online business. Our Research & Development arm
offers SEO tools for SEM professionals.
INFOWIZ also provides Technical Support & Consultancy to Software Companies like JIA
Group, New Zealand, Sagitech solutions Panchkula, Jarc infotech Mohali, Infonet Solution, Delhi
etc.
Page |4
OUR TEAM:-
Our Technical team of professionals handing, designing & delivering of projects has a strong
presence in the North India & the US. Our engineers are already working on the latest technologies
like I-Phone & Android Applications, Robotics, VLSI-VHDL, Embedded System, Networking
and Cloud computing.
COURSES Offered :-
Our core strength is our timely, technically and cost effective project delivery. We also provide
customers with designs as per their demands. INFOWIZ also provide JOB Oriented Industrial
Training of 1 year and 6/4/2 Months in CSE, IT, ECE, EE, ME, Civil, BBA, BCA, MBA, MCA
B.com & also for Non-technical students. We help students in building their career.
Page |6
ACKNOWLEDGEMENT
A project will be never successful with out the assistance and guidance from appropriate persons.
So now it is the right time to express me sincere gratitude to all those who are helping me to
I also thanks to Kiran Chamle, Govind Chamle, and Amolika Jaju for their valuable guidance.
I whole heartedly thanks to my faculty guide Mr. Gulbahar Singh a, who is giving me
Conservative portfolio
Moderately portfolio
ABBREVIATIONS
1) MF – Mutual Fund
4) DP – Depository Participants
EXECUTIVE SUMMARY
Right from its existence, Banks, whether nationalize or corporate, always dominated others, in
case of public investments or retail investments. But in past few years due to various reasons like
continuously falling of interest rates, various scams etc. investors will have to look for various
other investments avenues that will give them better returns with minimization of risks. Here
Mutual Funds Industry has very important role to play in providing alternate investment avenue
Indian Mutual Fund Industry has been definitely maturing over the period. In four decades of its
existence in India Mutual Funds have gone through various structural changes and gained
management and diversification more and more investors are gaining confidence in Mutual
Funds. Even government policies like abolishment of long term capital benefit taxes added
advantage to growth of Mutual Funds. This is all the way is leading to pool of more and more
So I carried out project in Mutual Funds and its Portfolio Management for the period of two
months starting from 1st June 2007 to 31st July 2007 to understand Mutual Funds, Mutual Fund
Industry, analyze the trend in Mutual Funds, what has been the performance so far and mapping
various methods of Client prospecting and servicing, what are the factors that attracts the
The project study focused on increasing brand awareness at retail level clients and various
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activities that results in brand awareness among the same. This project also consists of
generating and getting clients, generating database and after sales services to retain client and
While analyzing trend, I tried to map how Asset Under Management (AUM) varied over the
period with BSE-Sensex to facilitate feature projections. It has been done separately for Equity
INDUSTRIAL PROFILE
The end of millennium marks 36 years of existence of mutual funds in this country. The ride
through these 36 years is not been smooth. Investor opinion is still divided. While some are for
UTI commenced its operations from July 1964. UTI came into existence during a period marked by
great political and economic uncertainty in India. With war on the borders and economic turmoil
that depressed the financial market, entrepreneurs were hesitant to enter capital market. The already
existing companies found it difficult to raise fresh capital, as investors did not respond adequately to
new issues. Earnest efforts were required to canalize savings of the community into productive uses
The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be
"open to any person or institution to purchase the units offered by the trust. However, this
institution as we see it, is intended to cater to the needs of individual investors, and even among
His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the
twin objectives of mobilizing retail savings and investing those savings in the capital market and
UTI commenced its operations from July 1964 "with a view to encouraging savings and
investment and participation in the income, profits and gains accruing to the Corporation from
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the acquisition, holding, management and disposal of securities." Different provisions of the UTI
Act laid down the structure of management, scope of business, powers and functions of the Trust
One thing is certain – the fund industry is here to stay. The industry was one-entity show till
1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the
arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by
public sector banks. Starting with an asset base of Rs0.25bn in 1964 the industry has grown
The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs).
From one player in 1985 the number increased to 8 in 1993. The party did not last long. When
the private sector made its debut in 1993-94, the stock market was booming.
The openings up of the asset management business to private sector in 1993 saw international
players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital
International along with the host of domestic players join the party. But for the equity funds,
the period of 1994-96 was one of the worst in the history of Indian Mutual Funds.
Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999
saw immense future potential and developments in this sector. This year signaled the year of
resurgence of mutual funds and the regaining of investor confidence in these MF’s. This time around
all the participants are involved in the revival of the funds ----- the AMC’s, the unit holders, the
other related parties. However the sole factor that gave lifr to the revival of the funds
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was the Union Budget. The budget brought about a large number of changes in one stroke. An
insight of the Union Budget on mutual funds taxation benefits is provided later.
It provided centre stage to the mutual funds, made them more attractive and provides
acceptability among the investors. The Union Budget exempted mutual fund dividend given out
by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual fund.
No longer were the mutual funds interested in selling the concept of mutual funds they wanted to
talk business, which would mean to increase asset base, and to get asset base, and investor base
they had to be fully armed with a whole lot of schemes for every investor .So new schemes for
new IPO’s were inevitable. The quest to attract investors extended beyond just new schemes.
The funds started to regulate themselves and were all out on winning the trust and confidence of
the investors under the aegis of the Association of Mutual Funds of India (AMFI)
One can say that the industry is moving from infancy to adolescence, the industry is
maturing and the investors and funds are frankly and openly discussing difficulties
Future Scenario
The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few
years as investor’s shift their assets from banks and other traditional avenues. Some of the older
public and private sector players will either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with stronger players in
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three to four years. In the private sector this trend has already started with two mergers and
one takeover. Here too some of them will down their shutters in the near future to come.
But this does not mean there is no room for other players. The market will witness a flurry of
new players entering the arena. There will be a large number of offers from various asset
management companies in the time to come. Some big names like Fidelity, Principal, Old
Mutual etc. are looking at Indian market seriously. One important reason for it is that most major
players already have presence here and hence these big names would hardly like to get left
behind.
The mutual fund industry is awaiting the introduction of derivatives in India as this would
enable it to hedge its risk and this in turn would be reflected in it’s Net Asset Value (NAV).
SEBI is working out the norms for enabling the existing mutual fund schemes to trade in
derivatives. Importantly, many market players have called on the Regulator to initiate the process
immediately, so that the mutual funds can implement the changes that are required to trade in
Derivatives.
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Purpose-:
OJT is basically to give intern exposure to the outside world and it help to teach him/her
the real world work by giving him practical knowledge. Through OJT I learn that the theory we
have learned is difficult to implement in practical work. And we have to apply them in a very
different way.
As I am learning about mutual funds, initial public offers etc. Before this I was just aware of
the theory part of it i.e. definition of mutual funds, its requirement, why a company need
additional capital etc. But after working here I came to know that it is very important to learn
the practical procedure of handling the mutual funds and IPO’s because the main part is the
dealing with the customers, convincing them to buy our product and make him to invest with us
I have started my OJT from the very first day. And the day to day work that I am suppose to do
is my OJT and it is not fixed what I have to do and before start working I have to learn the
work which is assigned to me. My company guide has given me the work related to IPO’s
Then I got work related to mutual funds. The details of the following are explained here-:
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Basics of IPO’s
Decision about fixing price band it includes 2 types fixed price or book building.
Bidding of forms.
I have to maintain the database of applicants of IPO’s to report to the head office about
Customer Service-:
o When a customer is asking some query I have to answer him but if I am not sure
o By interacting customer we can study the main problems faced by them, as they
are not expert of the financial products so they need clear explanation.
Telemarketing -:
o Don’t sale over phone, just make the call and the sale will follow.
Attracting customers in this field is easy, if the person is ready to invest. He doesn’t
have knowledge about financial products so we have convinced him for the same.
o History
o Types of mutual funds scheme
By structure
By investment objectives
By various options
I got training for the software INVESTWELL. This is for maintaining the data of
mutual funds and this software provides the facility to make clients portfolio in various
register new client which is under compliance department then how to punch
transaction slips how to makes daily reports to send HO and how to dematerialized the
A Depository facilitates holding of securities in the electronic form and enables securities
the depository, offers depository services to investors. According to SEBI guidelines, financial
institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is
known as beneficial owner (BO) has to open a demat account through any DP for
Targets
concepts etc.
Generation of leads.
Handling customer’s queries if any.
Operating the mutual funds software to work on it.
Updating database for IPO’s and mutual fund in software.
Understanding the work done in DP department.
1. Investment:
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of
keeping the savings idle you may like to use savings in order to get return on it in the future. This
is called Investment.
One of the important reasons why one needs to invest wisely is to meet the cost of
Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply
what it costs to buy the goods and services you need to live. Inflation causes money to lose value
because it will not buy the same amount of a good or a service in the future as it does now or did
in the past.
For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100
Purchase today would cost Rs. 321 in 20 years. This is why it is important to
investment's 'real' rate of return, which is the return after inflation. The aim of investments
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should be to provide a return above the inflation rate to ensure that the investment does not
decrease in value.
I. Physical Assets:
Real Estate
Real Estate investment is also on of the good investment option available. Real Estate investment
means investments in the Land, Buildings, Flats, and Houses etc. Now a day the growth in the
prices of real estate is very rapid. That’s why investor gets good returns in this investment. But
the growth of real estate investment is in the long term only. In short term there is no growth in
this. It requires very huge investment. Only big investors can invest in this. Normal small
investor cannot invest in this. This is not in his reach. In Real Estate investment you will not
have the liquidity. Buying & selling of property is not so easy at lest in India. The Procedures &
Documentation of ‘Transfer of Property’ is very len gthy. It takes time & money. For transfer
Commodity:
Commodities market, contrary to the beliefs of many people, has been in existence in India
through the ages. However the recent attempt by the Government to permit Multi-commodity
National levels exchanges has indeed given it, a shot in the arm. As a result two exchanges Multi
Commodity Exchange (MCX) and National Commodity and derivatives Exchange (NCDEX)
have come into being. These exchanges, by virtue of their high profile promoters and
stakeholders, bundle in themselves, online trading facilities, robust surveillance measures and a
commodities like Gold, Silver, Cotton, Steel, Soya oil, Soya beans, Wheat, Sugar, Channa etc.,
Importers, exporters, traders and large-scale consumers. They also make open an avenue for
quality investments in precious metals. The commodities market, as the movements of the stock
market or debt market do not affect it provides tremendous opportunities for better
diversification of risk. Realizing this fact, even mutual funds are contemplating of entering into
this market.
II Financial Assets:
Capital Market is a place where buyers and sellers of securities can enter into transactions to
purchase and sell shares, bonds, debentures etc. Further, it performs an important role of
enabling corporate, entrepreneurs to raise resources for their companies and business ventures
through public issues. Transfer of resources from those having idle resources (investors) to
others who have a need for them (corporate) is most efficiently achieved
Through the securities market. Stated formally, securities markets provide channels for
Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with
Savings Bank Account: It is often the first banking product people use, which offers low
interest (4%-5% p.a.), making them only marginally better than fixed deposits.
These funds are a specialized form of mutual funds that invest in extremely short-term fixed
income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market
funds are primarily oriented towards protecting your capital and then, aim to maximise returns.
Money market funds usually yield better returns than savings accounts, but lower than bank
fixed deposits.
These are also referred to as term deposits and minimum investment period for bank FDs is 30
days. Fixed. Deposits with banks are for investors with low risk appetite, and may be considered
for 6-12 months investment period as normally interest on less than 6 months bank FDs is likely
Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and
A long-term savings instrument with a maturity of 15 years and interest payable at 8% per
annum compounded annually. A PPF account can be opened through a nationalized bank at
anytime during the year and is open all through the year for depositing money. Tax benefits can
P a g e | 24
be availed for the amount invested and interest accrued is tax-free. A withdrawal is permissible
every year from the seventh. Financial year of the date of opening of the account and the amount
of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year
immediately preceding the year in which the amount is withdrawn or at the end of the preceding
Bonds:
It is a fixed income (debt) instrument issued for a period of more than one year with the purpose
of raising capital. The central or state government, corporations and similar institutions sell
bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on
Mutual Funds:
These are funds operated by an investment company, which raises money from the public and
invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives.
It is a substitute for those who are unable to invest directly in equities or debt because of
buying in small amounts and diversification. Mutual fund units are issued and redeemed by the
Asset value (NAV), which is determined at the end of each trading session.
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Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the fund. Once
it is calculated, the NAV is simply the net value of assets divided by the number of units
outstanding. The detailed methodology for the calculation of the asset value is given below.
+ Dividends/interest accrued
For liquid shares/debentures, valuation is done on the basis of the last or closing market price on
For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated.
For shares, this could be the book value per share or an estimated market price if suitable
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benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of
comparable liquid securities after adjusting for illiquidity. The value of fixed interest bearing
securities moves in a direction opposite to interest rate changes Valuation of debentures and
bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable
leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this
Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every
passing day, interest is said to be accrued, at the daily interest rate, which is calculated by
dividing the periodic interest payment with the number of days in each period. Thus, accrued
interest on a particular day is equal to the daily interest rate multiplied by the number of days
Usually, dividends are proposed at the time of the Annual General meeting and become due on
the record date. There is a gap between the dates on which it becomes due and the actual
Mutual Funds are usually long term investment vehicle though there some categories of mutual
funds, such as money market mutual funds which are short term instruments.
A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a
mutual fund as a company that brings together a group of people and invests their money in
stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the
Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciations realized are shared by its unit holders in proportion to the number of
units owned by them. Thus a Mutual Fund is the most suitable investment for the common
1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly
all income it receives over the year to fund owners in the form of a distribution.
2) If the fund sells securities that have increased in price, the fund has a capital gain. Most
3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit.
Funds will also usually give you a choice either to receive a check for distributions or to
Motilal Oswal Securities Ltd. (ANP Investments) is one of India's top mutual fund distribution
houses. There success lies in their philosophy of providing consistently superior, independent
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and unbiased advice to clients backed by in-depth research. MOSL firmly believes in the
importance of selecting appropriate asset allocations based on the client's risk profile.
MOSL have a dedicated mutual fund research cell for mutual funds that consistently churns out
superior investment ideas, picking best performing funds across asset classes and providing
Using various information sources like Customer, Employees, Books, Internet, and News etc can
do the project. This Project “Study of Mutual Funds Market in India” gives us idea about the
basics of Mutual Funds, Their Benefits, Types, Tax system, Risk Profile, Strategies for choosing
the best funds, Awareness among the people regarding Mutual Funds etc. which can be helpful
for the company to make people understand about Mutual Funds & to prepare a diversified
the professional management of your money. Investors purchase funds because they
do not have the time or the expertise to manage their own portfolio. A mutual fund is a
relatively inexpensive way for a small investor to get a full-time manager to make and
monitor investments.
or bonds, your risk is spread out. The idea behind diversification is to invest in a large
others. In other words, the more stocks and bonds you own, the less any one of them can
hurt you Large mutual funds typically own hundreds of different stocks in many
Economies of Scale - Because a mutual fund buys and sells large amounts of securities
at a time, its transaction costs are lower than you as an individual would pay.
Liquidity - Just like an individual stock, a mutual fund allows you to request that your
Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of
mutual funds, and the minimum investment is small. Most companies also have
automatic purchase plans whereby as little as $100 can be invested on a monthly basis.
professional management with the word "theoretically"? Many investors debate over
whether or not the so-called professionals are any better than you or I at picking
stocks. Management is by no means infallible, and, even if the fund loses money, the
Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for
a profit. The mutual fund industry is masterful at burying costs under layers of
jargon. These costs are so complicated that in this tutorial we have devoted an entire
Dilution - It's possible to have too much diversification because funds have
often don't make much difference on the overall return. Dilution is also the result of
a successful fund getting too big. When money pours into funds that have had strong
success, the manager often has trouble finding a good investment for all the new
money.
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Taxes - When making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a security, a
capital-gain tax is triggered, which affects how profitable the individual is from the
sale. It might have been more advantageous for the individual to defer the capital
gains liability.
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No matter what type of investor you are there is bound to be a mutual fund that fits your
style. According to the last count there are over 10,000 mutual funds in North America!
It's important to understand that each mutual fund has different risks and rewards. In general,
the higher the potential return, the higher the risk of loss. Although some funds are less risky
than others, all funds have some level of risk--it's never possible to diversify away all risk.
Each fund has a predetermined investment objective that tailors the fund's assets, regions of
investments, and investment strategies. At the fundamental level, there are three varieties of
mutual funds:
All mutual funds are variations of these three asset classes. For example, while equity
funds that invest in fast-growing companies are known as growth funds, equity funds that
invest only in companies of the same sector or region are known as specialty funds.
Let's go over the many different flavors of funds. We'll start with the safest and then work
The money market consists of short-term debt instruments, mostly T-bills. This is a safe
place to park your money. You won't get great returns, but you won't have to worry about
losing your principal. A typical return is twice the amount you would earn in a regular
checking/savings account and a little less than the average certificate of deposit (CD). We've
got a whole tutorial on the money market if you'd like to learn more about it.
Bond/Income Funds
Income funds are named appropriately: their purpose is to provide current income on a steady
basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are
synonymous. These terms denote funds that invest primarily in government and corporate
debt. While fund holdings may appreciate in value, the primary objective of these funds is to
provide a steady cash flow to investors. As such, the audience for these funds consists of
Bond funds are likely to pay higher returns than certificates of deposit and money market
investments, but bond funds aren't without risk. Because there are many different types
of bonds, bond funds can vary dramatically depending on where they invest. For
example, a fund specializing in high-yield junk bonds is much more risky than a fund
that invests in government securities; also, nearly all bond funds are subject to interest
rate risk, which means that if rates go up the value of the fund goes down.
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Balanced Funds
The objective of these funds is to provide a "balanced" mixture of safety, income, and capital
and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed-
income. The weighting might also be restricted to a specified maximum or minimum for each
asset class.
A similar type of fund is known as an asset allocation fund. Objectives are similar to those
of a balanced fund, but these kinds of funds typically do not have to hold a specified
percentage of any asset class. The portfolio manager is therefore given freedom to switch the
ratio of asset classes as the economy moves through the business cycle.
Equity Funds
Funds that invest in stock represent the largest category of mutual funds. Generally, the
investment objective of this class of funds is long-term capital growth with some income.
There are, however, many different types of equity funds because there are many different
types of equities. A great way to understand the universe of equity funds is to use a style box,
investments and risks. This helps investors and investment companies easily
The above mutual fund style box illustrates that the mutual fund is a large-cap, value-
oriented fund. This conveys to investors that the fund is investing in well-
established companies that are under- or fairly valued. The company will not be invested in
Objectives of Project-:
Limitations of Project-:
Area of project is very wide so it’s difficult to cover each and every point.
Methodology-:
Under primary data collection I will collect data by observing the people in the company
who come to give training, or the concern person doing work for mutual funds or in IPO’s
department.
For my study of portfolio management I have asked questions to clients and collected
relevant data.
Visiting various sites of mutual funds and companies’ sites by reading leaflets, broachers
MANAGING PORTFOLIO
ASSET ALLOCATION
The process of dividing a portfolio among major asset categories such as bonds, stocks or
cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. The
ideal asset allocation differs based on the risk tolerance of the investor. For example, a
young executive might have an asset allocation of 80% equity, 20% fixed income, while a
retiree would be more likely to have 80% in fixed income and 20% equities.
Asset allocation is an investment portfolio technique that aims to balance risk and create
diversification by dividing assets among major categories such as cash, bonds, stocks,
real estate and derivatives. Each asset class has different levels of return and risk, so each
will behave differently over time. For instance, while one asset category increases in
value, another may be decreasing or not increasing as much. Some critics see this balance
as a settlement for mediocrity, but for most investors it's the best protection against major
The consensus among most financial professionals is that asset allocation is one of the most
important decisions that investors make. In other words, your selection of stocks or bonds is
secondary to the way you allocate your assets to high and low-risk stocks, to short and long-
We must emphasize that there is no simple formula that can find the right asset allocation
To help determine which securities, asset classes and subclasses are optimal for
your portfolio; let's define some briefly:
Large-cap stock - These are shares issued by large companies with a market
capitalization generally greater than $10 billion.
Mid-cap stock - These are issued by mid-sized companies with a market cap
generally between $2 billion and $10 billion.
Small-cap stocks - These represent smaller-sized companies with a market
cap of less than $2 billion. These types of equities tend to have the highest
risk due to lower liquidity.
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The main goal of allocating your assets among various asset classes is to maximize
return for your chosen level of risk, or stated another way, to minimize risk given a
certain expected level of return. Of course to maximize return and minimize risk,
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you need to know the risk-return characteristics of the various asset classes. The
following chart compares the risk and potential return of some of the more popular
ones:
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As each asset class has varying levels of return for a certain risk, your risk
tolerance, investment objectives, time horizon and available capital will
provide the basis for the asset composition of your portfolio.
To make the asset allocation process easier for clients, many investment
companies create a series of model portfolios, each comprising different
proportions of asset classes. These portfolios of different proportions satisfy a
particular level of investor risk tolerance. In general, these model portfolios range
from conservative to very aggressive:
Our main goal with a conservative portfolio is to protect the principal value of our
portfolio. As such, these models are often referred to as "capital preservation
portfolios".
Even if you are very conservative and prefer to avoid the stock market entirely,
some exposure can help offset inflation. You could invest the equity portion in
high-quality blue chip companies, or an index fund, since the goal is not to beat
the market
A moderately conservative portfolio is ideal for those who wish to preserve a large
portion of the portfolio’s total value, but is willing to take on a higher amount of
risk to get some inflation protection.
A common strategy within this risk level is called "current income". With
this strategy, you chose securities that pay a high level of dividends or
coupon payments.
Since these moderately aggressive portfolios have a higher level of risk than
those conservative portfolios mentioned above, select this strategy only if you
have a longer time horizon (generally more than five years), and have a medium
level of risk tolerance.
Aggressive portfolios mainly consist of equities, so these portfolios' value tends to
fluctuate widely. If you have an aggressive portfolio, your main goal is to obtain
long-term growth of capital. As such the strategy of an aggressive portfolio is often
called a "capital growth" strategy.
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Since these portfolios carry a considerable amount of risk, the value of the
portfolio will vary widely in the short term.
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In order to reset your portfolio back to its original state, you need to rebalance your
portfolio. Rebalancing is the process of selling portions of your portfolio that have
increased significantly, and using those funds to purchase additional units of assets
that have declined slightly or increased at a lesser rate. This process is also
important if your investment strategy or tolerance for risk has changed.
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A second factor to take into account is your personality and risk tolerance. Are you
the kind of person who is willing to risk some money for the possibility of greater
returns? Everyone would like to reap high returns year after year, but if you are
unable to sleep at night when your investments take a short-term drop, chances are
the high returns from those assets are not worth the stress.
As you can see, clarifying your current situation and your future needs for capital,
as well as your risk tolerance, together will determine how your investments
should be allocated among different asset classes. The possibility of greater returns
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comes at the expense of greater risk of losses (a principle known as the risk/return
tradeoff) - you don't want to eliminate risk so much as optimize it for your unique
condition and style. For example, the young person who won't have to depend on
his or her investments for income can afford to take greater risks in the quest for
high returns. On the other hand, the person nearing retirement needs to focus on
protecting his or her assets and drawing income from these assets in a tax-efficient
manner.
Generally, the more risk you can bear, the more aggressive your portfolio will be,
devoting a larger portion to equities and less to bonds and other fixed-income
securities. Conversely, the less risk that's appropriate, the more conservative your
portfolio will be. Here are two examples: one suitable for a conservative investor
and another for the moderately aggressive investor.
The main goal of a conservative portfolio is to protect its value. The allocation
shown above would yield current income from the bonds, and would also provide
some long-term capital growth potential from the investment in high-quality
equities.
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There are several ways you can go about choosing the assets and securities to
fulfill your asset allocation strategy (remember to analyze the quality and
potential of each investment you buy - not all bonds and stocks are the same):
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Stock picking - Choose stocks that satisfy the level of risk you want to carry in the
equity portion of your portfolio - sector, market cap and stock type are factors to
consider. Analyze the companies using stock screeners to shortlist potential picks,
than carry out more in-depth analysis on each potential purchase to determine its
opportunities and risks going forward. This is the most work-intensive means of
adding securities to your portfolio, and requires you to regularly monitor price
changes in your holdings and stay current on company and industry news.
Bond picking - When choosing bonds, there are several factors to consider
including the coupon, maturity, the bond type and rating, as well as the
general interest rate environment.
Mutual funds - Mutual funds are available for a wide range of asset classes
and allow you to hold stocks and bonds that are professionally researched
and picked by fund managers. Of course, fund managers charge a fee for
their services, which will detract from your returns. Index funds are another
choice as they tend to have lower fees since they mirror an established index
and are thus passively managed.
Exchange-traded funds (ETFs) - If you prefer not to invest with mutual
funds, ETFs can be a viable alternative. You can basically think of ETFs as
mutual funds that trade like a stock. ETFs are similar to mutual funds in that
they represent a large basket of stocks - usually grouped by sector,
capitalization, country and the like - except they are not actively managed,
but instead track a chosen index or other basket of stocks. Because they are
passively managed, ETFs offer cost savings over mutual funds while
providing diversification. ETFs also cover a wide range of asset classes and
can be a useful tool to round out your portfolio.
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The other factors that are likely to change over time are your current financial
situation, future needs and risk tolerance. If these things change, you may need to
adjust your portfolio accordingly. If your risk tolerance has dropped, you may need
to reduce the amount of equities held. Or perhaps you're now ready to take on
greater risk and your asset allocation requires a small proportion of your assets to
be held in riskier small-cap stocks.
Essentially, to rebalance, you need to determine which of your positions are over-
weighted and those that are under-weighted. For example, say you are holding
30% of your current assets in small-cap equities, while your asset allocation
suggests you should only have 15% of your assets kept in that class. You need to
determine how much of this position you need to reduce and allocate to other
classes.
When selling assets to rebalance your portfolio, take a moment to consider the tax
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Costs are the biggest problem with mutual funds. These costs eat into your return,
and they are the main reason why the majority of funds end up with sub-par
performance.
What's even more disturbing is the way the fund industry hides costs through a
layer of financial complexity and jargon. Some critics of the industry say that
mutual fund companies get away with the fees they charge only because the
average investor does not understand what he/she is paying for.
Distribution [and/or Service] Fees — fees paid by the fund out of fund assets
to cover the costs of marketing and selling fund shares and sometimes to cover
the costs of providing shareholder services. "Distribution fees" include fees to
compensate brokers and others who sell fund shares and to pay for advertising,
the printing and mailing of prospectuses to new investors, and the printing and
mailing of sales literature. "Shareholder Service Fees" are fees paid to persons
to respond to investor inquiries and
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Summary
Overall, a well-diversified portfolio is your best bet for consistent long-term growth
of your investments and protects your assets from the risks of large declines and
structural changes in the economy over time. Monitor the diversification of your
portfolio, making adjustments when necessary and you will greatly increase your
chances of long-term financial success.
Keep in mind, however, this study gives only general guidelines on how investors
may use asset allocation as a part of their core strategies. Be aware that allocation
approaches that involve anticipating and reacting to market movements require a
great deal of expertise and talent in using particular tools for timing these
movements. Some would say that accurately timing the market is next to
impossible, so make sure your strategy isn't too vulnerable to unforeseeable errors.
As per my study I have taken data of various age group people like age group of
20’s ,30’s etc
According to the study I have drawn this table which easily show the content of the
study and gives the idea that which type of portfolio suited to which age group and
how we can make different asset allocation groups suited to various age group
peoples.
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Asset can be allocated for this age group in three different ways which is divided in
3 types conservative , moderate, or aggressive
Conservative type-
Equity Debt/Funds Small savings
Moderate type-
Aggressive type-
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Conservative type-
Equity Debt/Funds Small savings
Moderate type-
Aggressive type-
Conservative type-
Equity Debt/Funds Small savings
Moderate type-
Aggressive type-
Conservative type-
Equity Debt/Funds Small savings
Moderate type-
Aggressive type-
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Conservative type-
Equity Debt/Funds Small savings
Moderate type-
Aggressive type-
Generally speaking when you are young, you can invest a greater proportion in
equities. At that stage financial responsibility are fewer , and you can commit to
equities for long periods of time, which help you reap the unmatched returns they
promise. Also since you are not relying on this money to meet recurring expenses
or approaching financial goal , losing some of it temporarily in the pursuit of
higher returns won’t have you reach for the panic button or strain your finances as
much as it would in later years. As you grows older, your portfolio should
progressively tilt towards debt. At that stage of life, safety of principal becomes
more important than growth. Approaching retirement your prime concern should
be putting in place an alternative income stream , which is better met by debt than
equity.
Based on the study I have drawn up indicative asset allocation models to see you
through life. These asset break ups are not sacrosanct. Your asset allocation can
differ from my study at all stages, depending on your life circumstances, financial
needs and investing preferences. For example approaching retirement you find that
even after ensuring an alternative income stream you still have some surplus left
from which you would like higher returns.
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BIBLIOGRAPHY
3. https://www.investopedia.com/terms/m/mutualfund.asp
4. https://www.mutualfundssahihai.com/en/what-is-a-mutual-fund