Business Case Analysis

BUSI 4800

A study on Select players in PMS industry with a special reference to DSP Merrill Lynch

By- Aditya Kumar Singh

Study Area Profile

The area of my study includes basically one region that is Mumbai (India). My focus of research will be on different Investment institutions (banks) which provide Mutual Funds services and Portfolio management services in Mumbai.

Objectives of study
Primary Objectives: To make a research studying the investment in Portfolio Management Schemes/Services. To study the difference between investing in Portfolio Management Services and investing in Mutual Funds. To make a detailed study of the areas in which the research would benefit Merrill Lynch.

Secondary Objectives: To study the investment industry and understand the trends in the industry and the major players in the market. To study the different Mutual Fund schemes and Portfolio Management schemes given by different banks and understand their usage. To study the returns and risk involvement in investment under Portfolio Management schemes.

To make a research analysis on the advantages and differences between other investments and Portfolio Management schemes.

Research Methodology
The research methodology is based on interviews with different banks (Respondents- fund houses). The research is basically concerned with the investment in Portfolio Management Services. I have tried to study the Investment industry in India and tried to make a report on the same. My entire analysis is based upon the questionnaires that I prepared for a sample size of 10 and I also used secondary data like browsing through the internet, journal articles etc.

Industry Profile
India has a transparent, highly technologyenabled and well-regulated stock market defined by the most modern, nationwide, on-line screen-based trading system (SBTS) and a market capital of over $450 billion. With the largest number of listed companies - 10,000 - across 23 Stock Exchanges, India also has the third largest investor base in the world.

 Indias healthy banking system with a network of 70,000 branches is among the largest in the world. Aggregate deposits of commercial banks were about $400 billion in March 2005 (60% of the GDP) and the total bank credit stood at $250 billion (about 38% of the GDP).

 The Reserve Bank of India (RBI), the countrys central bank, has effectively managed the countrys monetary policy over the last five decades. Indias financial sector has been one of the fastest growing sectors in the economy. It has also witnessed increased private sector activity including an explosion of foreign banks, insurance companies, mutual funds, venture capital, and investment institutions.

Product Profile
PMS is the process of managing the assets of a mutual fund, including choosing and monitoring appropriate investments and allocating funds accordingly. The target investors are high-net worth individuals.

The biggest advantage of a PMS is the personalized service that it offers.

 Most portfolio managers aim to generate long-term returns, with an investing style that is close to the investors risk appetite.

ICICI Prudential AMC, IL&FS Investsmart, Motilal Oswal Securities, Enam Securities, Kotak Mahindra Securities and DSP Merrill Lynch are among the prominent players.

 Most PMS offer a choice between a fixed fee structure (flat fee on portfolio value) and a profit-sharing structure (lower flat fee plus share of gains) Each client is assigned a relationship manager who gives portfolio updates and all PMS providers offer clients an exclusive ID and password, which enables them to access their portfolios online.

DSP Merrill Lynch

Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies, with offices in 40 countries and territories and total client assets of almost $2 trillion. Merrill Lynch offers a broad range of services to private clients, small businesses, and institutions and corporations, organizing its activities into two interrelated business segments - Global Markets & Investment Banking and Global Wealth Management.

DSP In India
DSP Merrill Lynch Limited (DSPML) - DSPML is a leading financial service provider in India. In India, DSPML is the leading underwriter and broker for debt and equity securities and a leading advisor to corporations and institutions.

Primary Research
Respondents ABN Amro Reliance Money Reliance Mutual Fund Franklin Templeton ASK Raymond Kotak Securities HSBC JM Financials ICICI Standard Chartered

1- Need of Portfolio Management Service

Portfolio Management Service (PMS) is a product wherein a customized investment portfolio is created to suit the investment objectives of a client. This service is particularly advisable for investors who cannot afford to give time or dont have the expertise for day-to-day management of their equity portfolio.

2- Minimum limit for investing in PMS

As per SEBI regulations, the minimum size of the portfolio is Rs. 5 lakhs. There are many portfolio managers whose thresholds are much higher than the Sebi-mandated minimum of Rs 5 lakh. Out of 10 respondents 2 3 1 3 1 respondents have a minimum portfolio of Rs. 5 Lakhs. respondents have a minimum portfolio of Rs. 10 Lakhs. respondent has a minimum portfolio of Rs. 25 Lakhs. respondents have a minimum portfolio of Rs. 50 Lakhs. respondent have a minimum portfolio of Rs. 1 Crore.

Minimum portfolio

Minimum Portfolio (in Rs Lakhs) Minimum Portfolio (in Rs Lakhs) 120 100 80 60 40 20 0 ABN Amro Ask Franklin Raymond Templeton HSBC ICICI JM Kotak Reliance Reliance Standard Financial Securities Money Mutual Chartered Fund 10 50 50 25 10 5 5 10 50 100

3- Maximum limit for investing in PMS

There is no upper limit on the amount you can invest in the Portfolio Management Service. Investor can invest as much as he wants.

4- Lock-in period in PMS

The Portfolio Management Service has no lock-in period and you can make withdrawals by simply putting in a request for the desired amount.
You can exit/redeem at any point of time.

5- Investment specification

Franklin Templetons Portfolio options

FT Select is aimed at low risk investors and mostly invests in large caps with the objective of long-term wealth creation, while FT Opportunities is aimed at investors with higher risk appetite and takes exposure in large, mid and smallcap companies.

JM Financials PMS Option

JM Financial, has two - medium and long-term capital appreciation schemes under discretionary Portfolio Management Services (PMS) - The "Core" Scheme and the "Voyager" Scheme.

6- Requirement of PAN card

 Permanent Account Number (PAN) is a national identification number, issued to all taxpayers of India whose income is taxable. This number is issued by the Income Tax Office.
A Permanent Account Number (PAN) is mandatory for investment in the PMS scheme.

7- Fees structure
Portfolio managers usually have two kinds of chargesmanagement fee, which is fixed, and profit sharing, which is variable. One can also pay a fully fixed fee.

8- Termination from PMS before one year

9- Risk
Equity Investments are subject to market risks and there is no assurance or guarantee that the objective of the portfolio management service will be achieved. Past performance of the portfolios does not indicate the future performance.

 Risk depends on the investor. Many investors are very aggressive and are moderate risk takers. For e.g. aggressive investor can opt for Franklin Templetons FT Opportunity portfolio. Investors may choose the different PMS schemes offered by different fund houses on the basis of their preference of risk taking. As large capital is invested in PMS there is high risk involved.

10- Updates

 The PMS provides almost real time access to transactions undertaken by the fund manager. Portfolio Clients may receive the following reports on a fortnightly or monthly basis:
Performance Summary of Portfolios Holdings statement Realized gain/ loss statement Half yearly Review Report

In addition all portfolio clients will also have access to the website as where they can view their portfolios online.

Summary
The PMS manager invests in equity shares, convertible stocks, preference shares, derivatives and other securities approved by the Securities and Exchange Board of India (Sebi). PMS can charge fixed fees. Or, part of the fees can be fixed and the remaining based on profit sharing. Fixed charges vary between 1.5% to 3% per annum. This is irrespective of whether the portfolio generates profit or loss. PMS investors can expect daily or weekly newsletters, research reports and updates from the portfolio manager.

Advantages of investing in PMS vis-vis Mutual Fund

You have greater control over the asset allocation, whereas it is automatic in a Mutual Fund. The Portfolio can be customized to suit your risk-return profile. The Portfolio Manager has relatively greater flexibility to move in and out of cash as and when required depending on the market view.

Thank You