Project on Portfolio Management 456 PDF

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PROJECT REPORTON“PORTFOLIO MANAGEMENT SERVICES”INSUBMITTED TO:SAKSHI JAINPROFFESSOR(Faculty guide)SUBMITTED BY:PRIYA ANEJABHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATIONSTUDENT DECLARATIONThis is to certify that I have completed the Project titled “PORTFOLIO MANAGEMENT SERVICES” un...

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PROJECT REPORT ON “PORTFOLIO MANAGEMENT SERVICES” IN

SUBMITTED TO:

SUBMITTED BY:

SAKSHI JAIN

PRIYA ANEJA

PROFFESSOR (Faculty guide)

BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

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STUDENT DECLARATION This is to certify that I have completed the Project titled “PORTFOLIO MANAGEMENT SERVICES” under the guidance of SAKSHI JAIN in the partial fulfillment of the requirement for the award of the degree of “Masters in Business Administration”

from

“BHARATI

VIDYAPEETH

DEEMED

UNIVERSITY

SCHOOL OF DISTANCE EDUCATION, New Delhi.” Name:- PRIYA ANEJA Class & Section:-MBA, Semester-III

BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

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ACKNOWLEDGEMENT

It gives me immense pleasure to present this project report on Portfolio Management Services carried out at SMC GLOBAL SECURITIES LTD (SMC). This project is the result of time, efforts and knowledge contributed by various member of the organization. The summer training program was the great experience for me as in this, I got the opportunity to learn and experience the corporate world. No work can be carried out without the help and guidance of various persons. I am happy to take this opportunity to express my gratitude to those who have been helpful to me in completing this project report. They have been the source of guide and motivation for the completion of project.

BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

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TABLE OF CONTENT CHAPTER TABLE OF CONTENTS EXECUTIVE SUMMARY CHAPTER-1 INTRODUCTION Introduction to Study Introduction to Stock Exchange SMC at glance SMC partner and Advantage Product and Services offered by Company SWOT analysis of SMC CHAPTER-2 RESEARCH METHODOLOGY Objective of the Project Scope of the Study CHAPTER-3 PORTFOLIO MANAGEMENT SERVICES Need of PMS Objective of PMS Portfolio Construction and its phases Types of Asset Risk versus Return Investment analysis Asset allocation Portfolio selection Calculation of beta ,alpha and sharpe ratio Types of Portfolio

CHAPTER-4 CHAPTER-5

DATA ANALYSIS AND INTERPRETATION CONCLUSION & SUGGESTIONS Observation and Findings Limitations of the Project Suggestions & Recommendations ANNEXURE BIBLIOGRAPHY

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EXECUTIVE SUMMARY

Investing is both Arts and Science. Every Individual has their own specific financial need and expectation based on their risk taking capabilities, whereas some needs and expectation are universal. Therefore, we find that the scenario of the Stock Market is changing day by day hours by hours and minute by minute. The evaluation of financial planning has been increased through decades, which can be best seen in customers. Now a day’s investments have become very important part of income saving. In order to keep the Investor safe from market fluctuation and make them profitable, Portfolio Management Services (PMS) is fast gaining Investment Option for the High BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

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Net worth Individual (HNI). There is growing competition between brokerage firms in post reform India. For investor it is always difficult to decide which brokerage firm to choose. At

CHAPTER-1 INTRODUCTION

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INTRODUCTION TO STOCK EXCHANGE The emergence of stock market can be traced back to 1830. In Bombay, business passed in the shares of banks like the commercial bank, the chartered mercantile bank, the chartered bank, the oriental bank and the old bank of Bombay and shares of cotton presses. In Calcutta, Englishman reported the quotations of 4%, 5%, and 6% loans of East India Company as well as the shares of the bank of Bengal in 1836. This list was a further broadened in 1839 when the Calcutta newspaper printed the quotations of banks like union bank and Agra bank. It also quoted the prices of business ventures like the Bengal bonded warehouse, the Docking Company and the storm tug company. As a meeting held in the broker’ Hall on the 5th day of February, 1887, it was resolved to execute a formal deal of association and to constitute the first managing committee and to appoint the first trustees. Accordingly, the Articles of Association of the Exchange and the Stock Exchange was formally established in Bombay on 3rd day of December, 1887. The Association is now known as “The Stock Exchange”. mer from fundamental or basic research and technical research. As an investor with SMC Global Securities, customers get access to these research reports exclusively. Customers get access to the following reports. •

Intraday calls

•

Special Reports

•

Mutual Fund weekly

•

Market Mornings

•

Daily Market Brief

•

Sectorial Reports

•

Derivatives Reports

•

Weekly Technical Analysis

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AWARDS GRAB BY SMC GLOBAL SECURITIES:             

Best Commodity Broker of the year 2014 (source: ASSOCHAM Excellence Awards) Best Equity Broking house in Derivative Segment in India (Source: BSE IPFD&B Equity Broking Awards, 2013 & 2012) Fastest Growing Equity Broking House -Large Firm(Source: BSE IPF-D&B Equity Broking Awards, 2013) Emerging Investment Banker of the year (Source: SMEs Excellence Awards 2013 organised by ASSOCHAM) Best Equity Broking House in India (Source: BSE IPF - D&B Equity Broking Awards, 2012 & 2010) Best Currency Broker in India (Source: Bloomberg - UTV Financial Leadership awards, 2012 & 2011) Broking House with the Largest Distribution Network in India (Source: BSE IPFD&B Equity Broking Awards, 2012, 2011 & 2010) Best Research Analyst Award in Equity Fundamentals -Infrastructure (Source: Zee Business - India's Best Market Analyst Awards, 2013) Best Equity Research Analyst in IPO segment and Best Commodity Research Analyst- Viewer's Choice (Source: Zee Business India's Best Market Analyst Awards, 2012) Award for Continuous Innovation in HR Strategy at Work by Employer Branding Award 2012-13 Learning and Talent Technology Excellence Award by Star News HR and Leadership Awards, 2012. India’s Best Wealth Management Company (Source: Business Sphere, 2011) Fastest Growing Retail Distribution Network in financial services (Source: Business Sphere, 2010)

Major Volume Driver award from BSE for 3 consecutive years (2006-07, 2005-06 & 2004-2005) •

Consolidated statements-a unique service offering

•

Strong national & international tie-ups

•

Strong national & international tie-ups

•

Reputed established brand name in the financial service sector.

•

Well managed workforce

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WEAKNESSES: •

Lack of Aggressive advertisements and sales promotion programmed.

•

The working of the sales force is traditional.

•

Miscommunication and ineffective co-ordination at various level of hierarchy.

•

Less penetration in rural area

•

Less tie ups with banks so as customer prefer to trade with their banks only, presently SMC has tie up with PNB only.

OPPORTUNITIES: •

Growing capital market in India & other country

•

Political stability in India & other country

•

Better governance by SEBI

•

Decreasing interest rates in India, so people are motivated to earn more returns through capital market.

•

Emerging rural markets

•

Rising earning capacities of people and their preference to invest in shares or forex, commodities.

THREATS: •

Demand & supply

•

Increasing competition in security market

•

Lost in faith in share market after big scams in the stock market

•

Natural calamities

•

Inability of customers to pay brokerage at the right time

BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

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•

High risk involved in the stock market.

•

Strong competition from national & international players.

•

More & more brokerage companies are coming in to the market due to low investment in this sector.

•

Volatile global market

•

Tightening policies framed by RBI and SEBI.

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CHAPTER-2

RESEARCH METHODOLOGY

CHAPTER-3 PORTFOLIO MANAGMENT SERVICES PORTFOLIO MANGEMNT SERVICES (PMS) Portfolio (finance) means a collection of investments held by an institution or a private individual. Holding a portfolio is often 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. There are also portfolios which are aimed at taking high risks – these are called concentrated portfolios.

Investment management is the professional management of various securities (shares, bonds etc) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds).

The term asset management is often used to refer to the investment management of collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

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The provision of 'investment management services' includes elements of financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Outside of the financial industry, the term "investment management" is often applied to investments other than financial instruments. Investments are often meant to include projects, brands, patents and many things other than stocks and bonds. Even in this case, the term implies that rigorous financial and economic analysis methods are used.

Need of PMS As in the current scenario the effectiveness of PMS is required. As the PMS gives investors periodically review their asset allocation across different assets as the portfolio can get skewed over a period of time. This can be largely due to appreciation / depreciation in the value of the investments.

As the financial goals are diverse, the investment choices also need to be different to meet those needs. No single investment is likely to meet all the needs, so one should keep some money in bank deposits and / liquid funds to meet any urgent need for cash and keep the balance in other investment products/ schemes that would maximize the return and minimize the risk. Investment allocation can also change depending on one’s riskreturn profile.

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Objective of PMS

new securities that promises high returns at low risks. In such conditions, investor needs to do portfolio revision by buying new securities and selling the existing securities. As a result of portfolio revision, the mix and proportion of securities in the portfolio changes.

Portfolio Evaluation

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This phase involves the regular analysis and assessment of portfolio performances in terms of risk and returns over a period of time. During this phase, the returns are measured quantitatively along with risk born over a period of time by a portfolio. The performance of the portfolio is compared with the objective norms. Moreover, this procedure assists in identifying the weaknesses in the investment processes

Types of assets The structure of a portfolio will depend ultimately on the investor’s objectives and on the asset selection decision reached. The portfolio structure takes into account a range of factors, including the investor’s time horizon, attitude to risk, liquidity requirements, tax position and availability of investments. The main asset classes are cash, bonds and other fixed income securities, equities, derivatives, property and overseas assets.

Cash and cash instruments Cash can be invested over any desired period, to generate interest income, in a range of highly liquid or easily redeemable instruments, from simple bank deposits, negotiable certificates of deposits, commercial paper (short term corporate debt) and Treasury bills (short term government debt) to money market funds, which actively manage cash resources across a range of domestic and foreign markets. Cash is normally held over the short term.

Bonds Bonds are debt instruments on which the issuer (the borrower) agrees to make interest payments at periodic intervals over the life of the bond – this can be for two to thirty years or, sometimes, in perpetuity. Interest payments can be fixed or variable, the latter being linked to prevailing levels of interest rates. Bond markets are international and have grown rapidly over recent years. The bond markets are highly liquid, with many issuers

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of similar standing, including governments (sovereigns) and state-guaranteed organizations. Corporate bonds are bonds that are issued by companies.

Equities Equity consists of shares in a company representing the capital originally provided by shareholders. An ordinary shareholder owns a proportional share of the company and an ordinary share carries the residual risk and rewards after all liabilities and costs have been paid. Ordinary shares carry the right to receive income in the form of dividends (once declared out of distributable profits) and any residual claim on the company’s assets once its liabilities have been paid in full. Preference shares are another type of share capital. They differ from ordinary shares in that the dividend on a preference share is usually fixed at some amount and does not change. Also, preference shares usually do not carry voting rights and, in the event of firm failure, preference shareholders are paid before ordinary shareholders.

Derivatives Derivative instruments are financial assets that are derived from existing primary assets as opposed to being issued by a company or government entity. The two most popular derivatives are futures and options. The extent to which a fund may incorporate derivatives products in the fund will be specified in the fund rules and, depending on the type of fund established for the client and depending on the client, may not be allowable at all.

A futures contract is an agreement in the form of a standardized contract between two counterparties to exchange an asset at a fixed price and date in the future. The underlying asset of the futures contract can be a commodity or a financial security. Each contract specifies the type and amount of the asset to be exchanged, and where it is to be delivered (usually one of a few approved locations for that particular asset). Futures contracts can be set up for the delivery of cocoa, steel, oil or coffee.

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An option contract is an agreement that gives the owner the right, but not obligation, to buy or sell (depending on the type of option) a certain asset for a specified period of time. A call option gives the holder the right to buy the asset. A put option gives the holder the right to sell the asset. European options can be exercised only on the options’ expiry date.

Property Property investment can be made either directly by buying properties, or indirectly by buying shares in listed property companies. Only major institutional investors with longterm time horizons and no liquidity pressures tend to make direct property investments. . Property sectors of interest would include prime, quality, well-located commercial office and shop properties, modern industrial warehouses and estates, hotels, farmland and woodland. Returns are generated from annual rents and any capital gains on realization. These investments are often highly illiquid.

RISK – RETURN ANALYSIS Risk on Portfolio: The expected returns from individual securities carry some degree of risk. Risk on the portfolio is different from the risk on individual securities. The risk is reflected in the variability of the returns from zero to infinity. Risk of the individual assets or a portfolio is measured by the variance of its return. The expected return depends on the probability of the returns and their weighted contribution to the risk of the portfolio. These are two measures of risk in this context one is the absolute deviation and other standard deviation Most investors invest in a portfolio of assets, because as to spread risk by not putting all eggs in one basket. Hence, what really matters to them is not the risk and return of BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE EDUCATION

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stocks in isolation, but the risk and return of the portfolio as a whole. Risk is mainly reduced by diversification.

Following are the some of the types of risk: 1) Interest Rate Risk: This arises due to the variability in the interest rates from time to time. A change in the interest rate establish an inverse relationship in the price of the security i.e. price of the security tends to move inversely with change in rate of interest, long term securities show greater variability in the price with respect to interest rate changes than short term securities.

Interest rate risk vulnerability for securities is as under TYPES

RISK EXTENT

Cash Equivalent

Less vulnerable to interest rate risk

Long Term Bonds

More vulnerable to interest rate risk

2) Purchasing power risk: it is also known as inflation risk also emanates from the very fact the inflation affects the purchasing power adversely. Nominal return contains both the real return component and an inflation premium in a transaction involving risk of the above type to compensate for inflation over an investment holding period. Inflation rates vary over time and investors are caught unaware when rate of inflation changes unexpectedly causing erosion in the value of realized rate of return and expected return. Purchasing power risk is more in inflationary conditions especially in respect of bonds and fixed income securities. It is not desirable to invest in such securities during inflationary periods. Purchasing power risk is however, l...