PMS

PORTFOLIO MANAGEMENT

SERVICES

1

INSTITUTE OF MANAGEMENT STUDIESMBA (FA) 2008-2010

Major Research Project

On

ANALYSIS OF RISK MANAGEMENT THROUGH PORTFOLIO MANAGEMENT SERVICES

Submitted To :- Submitted By:-

Prof. Vivek Sharma Rahul Thakuria2

MBA(FA)4thSem 41246

ACKNOWLEDGEMENT

I deeply appreciate the highly professional and logical approach taken by all with whom I interacted with different professionals in HDFC, Kotak Securities, Emkay Stock Broking, Arihant Capital Market and Franklin Templeton for the accomplishment of my project.

A special note of thanks to all who decided to engage me in this project.

I record my appreciation to Mr. Kanchan Sharma of Emkay Stock Broking, Mr. Avanish Tiwari of HDFC Bank, Mr. Shidhart of Arihant Capital & Mr. Nitin of Kotak Securities for providing me the relevant information and invaluable guidance that can never be forgotten by me. I would like to thanks them for supporting me and helping me throughout the project.

I would like to extend my thanks to Prof. Manish Kant Arya ( HOD) and my faculty guide (mentor) Prof. Vivek Sharma without whose help it would have been very difficult for me to complete this project.

Last but not the least, I would like to express my thanks to all my colleagues and my family members who inspired me to put in my best efforts for this project.

3

Rahul

CERTIFICATE

This is to certify that Mr. Rahul Thakuria, a student of MBA (FA) 4 th semester from Institute of Management Studies has completed his Major Research Project base on Analysis of Risk Management through Portfolio Management Services under my guidance.

This report is being submitted in partial fulfillment for the award of Master of Business Administration in Financial Administration. His work throughout the project was up to my satisfaction. I wish him all the best for his future.

Signature of Guide:

Date:

4

TABLE OF CONTENTSPage No.

Abstract

Introduction

Purpose, Scope & Limitation.

Sources & Method

Introduction to Investment

Why should one invest?

When to Invest?

How much money required to invest?

Where can I invest?

About Portfolio Management Services

Introduction

Why PMS?

Benefits by PMS

5

Discretionary V/s Non Discretionary PMS

PMS V/s Mutual Fund

Introduction &

Analysis of PMS of major players

HDFC

Kotak Securities

Franklin Templeton

Information about other players –

Emkay Stock Broking

Arihant Capital Market

IL & FS

FAQ’s

Conclusion

6

References

ABSTRACT

Smart Investment is essential to get good return on their hand earned money. Every one wants to invest their savings for uncertain future ahead. The investment should be smart enough so that the principal is safe, returns are maximized and liquidity is available. With the globalization of Indian financial market lot of investment has opened up. With the increase in number of options now available complexity too has increased. Proper knowledge can help an investor to get maximum possible return while minimizing his risks.

The project covers one of such smart investment avenues, Portfolio Management Services (PMS), provided by HDFC AMC and seeks to compare it with PMS provided by other Asset Management Companies on the basis following parameters:

Transparency in the System.

Fee Structure.

Returns.

Threshold Limit.

7

Lock in Periods.

Risk Appetite.

The project cover detailed information about a Discretionary Portfolio Management Services and a comparative analysis of PMS provided by HDFC AMC with PMS provided by other major player in the market & it will also help to analyze the “ How Risk is Being managed by using prominent tool PMS”.

The key focus of the project is to have better insight into investment in equities market and related instruments like Portfolio Management Services (PMS). The project has also covered information about the investment options in debt market which have petty low risk and assured but low returns.

I choose the following companies for understanding the risk management techniques & Portfolio Management Services as a means to diversify the risk :

HDFC SECURITIES (AMC)

EMKAY STOCK BROKING COMPANY.

KOTAK SECURITIES.

ARIHANT CAPITAL MARKET LTD.

FRANKLIN TEMPLETON.

8

PURPOSEThe main objective of my study was to analyze the risk and how does it managed by comparing HDFC AMC PMS with other such PMS in the market so as to know its position in the market. The study has brought a clear picture where HDFC is in comparison to its competitors. It is very important to know about the competitor’s product if you want to be the leader in the market. According this will help to analyze the risk and how is it being managed by only means of PMS.

Limitation of the Study :-

There are following major limitations of my studies:

Since there are so many players in this field it was not possible to collect the data of each and every one therefore I have compared it with top ten players in the market of Portfolio Management Services.

Since I also collected some primary data by meeting up with different people in different organization there are chances that the data may be manipulated.

Data regarding the break up of the portfolio was not available as it considered confidential by different people of the organization

Methods of collecting data

9

The data pertaining to the study is a mixture of both secondary data collected from the website of different PMS provider, the presentation which where forwarded by the people working there and the primary data which I collected by meeting up with the people working there.

The primary data is very useful as it brought about a true picture about their PMS.

INTRODUCTION

TO

INVESTMENT

India, the world’s largest democracy, is opening up to the global competition with the advent of liberalization. It has the largest middle-class population in the world having substantial purchasing and investing power. As a result, it has a very vibrant capital market. Capital market in India are continuously upgrading and currently offer electronic trading, depository settlement clearing system and trade guarantees , which have made them , believe in the system.

Managing money has always been difficult. It requires a great deal of expertise to evaluate various saving and investment plans. Since people are busy they don’t have the time to do it themselves. Until; and unless the investments are large it might also turnout to be expensive trying set up your own investment wings. It might be prudent asking a professional to manage your funds for a small fee. Therefore a person has to sure that his money is going into right hands.

Why should one Invest?

Simply put, one should invest so that his money grows and shields him against rising inflation. The rate of return on investment should be greater than the rate of inflation, leaving him with a nice surplus over a period of time.

10

Whether money is invested in stocks, mutual funds or certificate of deposit (COD) or any other assets, the end result is to create wealth for retirement, marriage, college fees, vacations, better standard of living or to just pass on the money to the next generation. Also it’s exciting to review investment returns and to see how they are accumulating at a faster rate than salary or any other source of regular income.

When to Invest?

By investing into the market right away allows investments more time to grow, whereby the concept of compounding interest swells income by accumulating earnings and dividends. Considering the unpredictability of the markets, research and history indicates these three golden rules for all investors.

1. Invest early.

2. Invest regularly.

3. Invest for long term and not for short term.

Trust in the power of compounding is growth via reinvestment of returns earned on savings. Compounding has a snowballing effect because one earns income not only on the original investment but also on the reinvestment of returns accumulated over the years. The power of compounding is one of the most compelling reasons for investing as soon as possible. The earlier one starts investing and continues to do so consistently the more money will be made. The longer the money remains invested and the higher the interest rates, the faster the money will grow. There is always a first time for everything so also for investing. To invest, one need capital free of any obligation. If he is not in the habit of saving sufficient amount every month, then he is not ready for investing.

How much money is needed to invest?

There is no statutory amount that an investor needs to invest in order to generate adequate returns from his savings. The amount that should be invested will eventually depend on factors such as:

11

Investor’s risk profile.

Time horizon of investment.

Savings made.

INTRODUCTION

TO

PORTFOLIO MANAGEMENT SERVICES

(PMS)

What does it mean?

Based on the Risk Appetite and Risk Exception of the investor, the fund houses designs and develops a personalized investment plan. The Portfolio Management Services, to match our expectations of safety, return and liquidity. Our account is always managed the way we want and our investment does not get lost in a crowd as in the case of most mutual funds.

Why PMS?

As a discerning investor, who understands the risk-reward ratio, we want

12

A Portfolio comprising of select ideas.

Ability to take focused bets both in stocks and sectors.

Efficient allocation among assets, viz Equity and Cash.

Mutual funds as an investment vehicle are structured to reduce risks as far as possible, as they cater to thousands of investors.

PMS portfolio combines the benefits of professional money management with the flexibility, control and potential tax advantages of owning individual stocks or other securities.

PMS offers a higher level of information and investors can receive :

Communications that include relevant information on major market events.

Quarterly performance updates.

Competitive and Flexible Fee Structure

As the costs of garnering assets are typically lower, PMS offerings have attractive fee structures.

Investors can choose a variable fee structure that is dependent on the performance of the portfolio.

Customization

More choice in terms of portfolios to suit individual client needs and risk appetite.13

Ability to structure products that meet specific investment objectives.

Alternate investment products that was traditionally available to the very wealthy.

High Service Standards

Total transparency of the portfolio.

More information will lead to informed decision making.

Access to the portfolio management team.

What are the Benefits available to the investors from

Risk Diversification.

a. Personalized Service

Unlike an equity fund PMS tailors a portfolio to an individual’s needs. There might be a possibility that “A retired person might want blue chips, yuppie fast-moving stocks. But a fund gives them identical portfolios.” Clients have different life circumstances and risk-reward profiles. Such nuances are bettered captured and serviced continuously by a PMS.

Most portfolio managers aim to generate long-term returns, with the choice of stocks and investing life style-aggressive or buy-and hold being driven by an investor’s risk preferences. There is also diversify in product offerings.

14

b. Competitive Costs

The good PMS providers operate on similar lines as funds. They have a strong research set-up. And for all the personal attention they give you, their management fee compares well with that of funds.

Most 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). Mostly they charge an annual flat fee was 3 – 4 %, which is what equity fund typically charge. Return guarantees are illegal. Due to the profit sharing structure, the schemes on offers are mostly discretionary in nature, Stocks selection is the prerogative of the portfolio managers.

c. Transparency

Most entities give a client ID and Password, with which one can access portfolio details like list of Shares, performance, transaction details and tax liability-online. Although portfolio managers call the shots, they are willing to sit and explain the philosophy behind portfolio, even get into specifics.

Discretionary portfolio Vs non- Discretionary portfolio

In the discretionary portfolio manager individually and independently managers the funds of each client in accordance with the needs of the client in a manner, which does not partake character of a Mutual Fund, whereas the non-discretionary portfolio manager manages the funds in accordance with the directions of the client.

PMS Vs Mutual Funds

a) The client has control over the asset allocation, which is automatic in a mutual fund.

b) The portfolio can be customized to suit the client’s risk return profile.15

c) The client has access to the Portfolio Manager, Which is not possible in a Mutual Fund.

d) The Portfolio Manager has the flexibility to move into cash as and when required.

Major Players

The Major players in the market providing Portfolio Management Services (PMS) are as follows:

a) HDFC AMC

b) EMKAY STOCK BROKING

c) ARIHANT CAPITAL MARKET.

d) KOTAK SECURITIES LTD.

e) INDIAINFOLINE/ 5PAISA.COM

f) MOTILAL OSWAL.

g) IL&FS

h) FRANKLIN TEMPLETON.

i) RELIANCE.

j) WAY2WEALTH

k) ICICI PRU.

16

BRIEF INTODUCTION OF THE PLAYERS UNDER STUDY

The HDFC GROUP

Background

HDFC was incorporated in 1977 with the primary objective of meeting a social need that of promoting home ownership by providing long-term finance to households for heir housing needs. HDFC was promoted with an initial share capital of 100 million.

Business Objective

The Primary Objective of HFDC is to enhance residential housing sector stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial market.

17

Organizational Goals

HDFC’s main goals are to:

a) Develop close relationship with individual households.

b) Maintain its position as the premier housing finance institution in the country.

c) Transform ideas into viable and creative solutions.

d) Provide consistency high return to shareholders and,

e) To grow through diversification by leveraging off the existing client base.

HDFC AMC PMS

Under the Portfolio Management Services (PMS), HDFC Asset Management Company limited (AMC) offers investment management and advisory services to individuals who not only understand the long-term potential of equities as an asset class, but also understand the associated risk.

The PMS is targeted to investors who want to improve their current approach to equity investment. Whatever is their investment approach viz. active, research based or otherwise. It is clears that equity investment has become a more involved activity. It calls for awareness and understanding of the business and economic variables that affect equity valuation.

The AMC being in the investment business is better equipped to understand these variables.

The PMS will also give an opportunity to investors to interact with its investment team. This may enables investors to gain insights into the investment process and better understand the performance of their portfolio.

18

INVESTMENT PHILOSOPHY

To invest in companies in strong businesses, run by competent managers and available at a price that represents a discount to the intrinsic value of that business. However, several issues restrict large equity mutual funds from acquiring sizeable positions in companies that otherwise satisfy the above-mentioned criteria, for example, liquidity, regulatory investment restrictions etc. The investors, by virtue of his smaller portfolio size may exploit such opportunities.

HDFC AMC proposes to take advantage of these opportunities and attempts to meet the investment objectives of the investors.

However attention is also drawn to the fact that in many cases, highly illiquid equities also are more volatile than more liquid securities.

FRANKLIN TEMPLETON

INTRODCTION:

1. More than 50 years of experience in global investing.

2. First and only mutual fund company added to the S&P 500.

3. Over US $ 550.9 billion assets under management: over 15 million investors account world wide.

4. Fourth Largest US mutual Fund family by long term assets under management.

Franklin Templeton – India

19

Portfolio Management services utilizes

1. Strong in-house research database built over a decade.

2. Similarity in Investment philosophy/style.

3. Access to global research that helps in identifying macro trends.

4. Best global risk practices

a. Monitoring against benchmarks.

b. Attribution analysis of performance.

INVESTMENT PHILOSOPHY

1. Focus on individual companies and the wealth they are creating for

their shareholders.

2. Deep search for business and management creating wealth, some of which could even be in out of favor sectors. Value is created by innovative management who is focused on the right businesses, is agile and adapts/ position them well for the future.

3. Search for stocks out of favor and ignored by the market due to short-term negatives.

4. Though their investment style has an inherent growth bias they are not limited by external style classifications.

5. Their investment style can be described as bottom-up, research based and dynamic ‘blend’ of growth and value.

KOTAK SECURITIES LIMITED

20

Kotak Securities limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and distribution arm of the Kotak Mahindra Group. The company was set up in 1994. Kotak Securities is a corporate member of both The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) of India limited. Its operations include tock broking and distribution of various financial products - including private and secondary placement of debt and equity and Mutual Funds. Currently, Kotak Securities is one of the largest broking houses in India with wide geographical reach. The company has four main areas of business:

1. Institutional Equities.

2. Retail ( equities and other financial products )

3. Portfolio Management Services.

4. Depository Services.

Kotak Securities Portfolio Management services

This division provides professional portfolio management services to High Net-worth Individuals (HNI) and corporate. Its expertise in research and stock broking gives the company the right perspective from which to provide its clients with investment advisory services.

Why portfolio Management with Kotak Securities?

Leverage on the proven track record of our experienced Portfolio Managers

Their Portfolio managers have ten years of extensive experience in the investment world, with in depth understanding of diverse investment instruments.

21

Get your own Relationship Manager

A skilled professional with invaluable experience in this domain, he then devises a suitable investment portfolio for us in a phased manner, meticulously monitoring and assessing it at every level.

In Depth research that powers cutting edge expertise

The research team provides Portfolio Managers with incisive insights to enable him seize every business opportunity that can enhance ones portfolio.

KOTAK SECURITIES offer PMS named as INFINITY, which is a Discretionary Portfolio Management Services.

PORTFOLIO OBJECTIVE

To follow aggressive & concentrated investment approach in Equities.

To select portfolio that would adopt a bottom – up approach to stock selection, adopt predominantly a buy & hold approach & attempt to balance investment risk through deep understanding of businesses.

INVESTMENT APPROACH

Bottom-Up approach for identifying investment ideas.

22

Concentrated but Diversified investment approach.

Looking for superior growth companies.

Identifying new investment themes.

Capitalize on changing economic trends.

Spot asset play opportunities.

Benefits to the Clients

1. Experienced and dedicated research team.

2. Entry timing for individual script’s and portfolio construction in a phased manner.

3. No time involvement from the client side as e gets back the returns.

COMPARATIVE STUDY BASED ON DIFFERENT PARAMETERS

1. Transparency In the System

a. Key Features

23

HDFC AMC

Exclusivity

The investor in HDFC PMS will have exclusive ownership of his/her portfolio and will received a periodic update on its performance. The analysis of performance will also include comparative parameters.

Responsiveness

The AMC will spend considerable time understanding the specific investment objectives of each investor and attempt to design a portfolio that may facilitate to achieve the objectives of the investor. The portfolio provided by the HDFC will be customized.

FRANKLIN TEMPLETON

It has got two unique products. They are FT select and FT opportunities

FT Select

1. A balance of stocks in the portfolio will range from 15-18.

o A balance between diversification and focused approach, with the stocks representing Franklin Templeton’s investment ideas at any given point in time.

2. Single stock exposure limited to 15 %

o Appropriate balance between diversification & concentration.

3. Top 10 Stock amount to 75 % of the portfolio.

o Above average concentration.

24

4. Flexible Cash Allocation

o Ability to wait for a good investment idea.

FT Opportunities

1. Invest across various size segments

o Apart from stable, strong long-term businesses, emphasis on emerging trends as well.

o Investment Approach not boxed into mid caps style.

2. Number of stocks in the portfolio will range from 25-30

o Stocks representing new growth opportunities, innovative products/services, entrepreneurial ventures, etc will be given priority at any given point of time. Business risk will be mitigated through adequate diversification.

3. Single Stock exposure limited to 15%, sector to 30%

o Appropriate balance between diversification & concentration.

4. Flexible cash location.

o Ability to wait for a good investment idea

Two Portfolio Choices

FT Select

25

o 15-18 Best Ideas.

o Focus on long term wealth generators.

o 70 % large cap (> 1500 crores)

o Least exposure to un-tested management, new buz. Etc

o High Concentration but low liquidity risk.

o Lower portfolio turnover.

o Benchmark: BSE sensex.

FT Opportunity

o Exposure to large, medium and small cap ideas.

o Higher risk by taking exposures to new ideas, turn-around plays, emerging businesses etc.

o Low concentration but higher investment & liquidity risk.

o Benchmark: S & P CNX 500.

KOTAK SECURITIES

INFINITY

1. Investments are made in the chosen stock by the fund management at Kotak.

2. The investment, market timing, logistics management are all taken care by Kotak.

3. The investment are made and held in the name of clients by the power of attorney given by the clients.

4. Maximum of 20-25 stocks are kept the ratio of 7:3 in frontline and mid-cap.

26

PORTFOLIO MIX

Mix of business from various sectors.

Concentrated portfolio of 10-15 Stocks, not necessarily mid cap stocks.

Mix of growth and value stocks.

Business restructuring / reforms led companies.

Turnaround companies.

Super growth businesses in nascent stages.

Businesses out of favor but offering value.

b) Services

FRANKLIN TEMPLETON

Information at fingertips

Quarterly market update, as well as Market and portfolio Performance, overviews prepared by the PROWESS Investment Team.

Web Access

Access to portfolio 24 x 7 download Investment summary, Portfolio Statement, Portfolio Transaction List, Performance Analysis and more.

27

Interaction with the Investment Team

Regular updates on the investment strategy and market views personally from the Franklin Templeton PROWESS Investment Team.

KOTAK- INFINITY

1. Dedicated Website to view PMS performance.

2. Quarterly Account Performance Statement.

3. Realized Profit/loss statement for Tax Purposes.

4. Toll free Numbers

5. Separate central Desk for Customer Services.

6. Access to all research reports.

II. Fee Structure

HDFC AMC

There are two option provided by the HDFC:

1. A fixed fee of 2.5% p.a. of the weighted average portfolio value, payable proportionately at the end of every calendar quarter of a financial year, or

2. A fixed fee of 1.5% p.a. of the weighted average portfolio value, payable as above PLUS 20% share in the gains above 10 % p.a.

OTHER CHARGES

1. Safe custody charges: 0.07 % p.a. of the value of the holdings.28

2. Depository charges :

For Buy Transactions NSDL and CDSL: NIL

For Sell Transactions on NSDL: Rs 10 per transaction

3. Transaction charges – Buy or sell : 0.04% (Min 5/- pt: Max 10/-)

4. Brokerage Charged by brokers : 0.25 % (included in the cost of assets )

5. Audit fees : Re 5000 /-

6. Any other out of pocket expenses like service tax, etc are as per actual.

7. For NRI Investors additional bank charges are as per bank schedule.

FRANKLIN TEMPLETON

1) FT select charges a management fees flat 2.5 % p.a. while 1.5 % p.a. for FT opportunities.

2) On the returns the fee is charged above 12% in the profit sharing ratio of 80 : 20. Further the fees are variable to the extent of additional returns.

KOTAK INFINITY

Management Fees : 0.5 % P.A.

Return Based Fees : Above 5% Profit Sharing at the ratio of 75:25

Transaction Costs : 0.55 %

29

III. Performance

HDFC AMC

As on Dec 31 2009 Portfolio Return (in %)

Last 3 months 16.58

Last 6 “ 42.25

Last 1 Year 62.25

Last 2 Year 79.22

Last 3 Year 68.25

Since inception (i.e. 11 May) 48.25

FRANKLIN TEMPLETON

FT Select FT Select ( in %)

Last 3 months 18.60

Last 6 months 48.03

Last 1 year 82.09

Last 2 Year 68.99

Last 3 Year 73.87

30

Since inception (19 June 2003) 48.99

KOTAK SECURITIES

As on Dec 31 2009 Portfolio Infinity(in %)

Last 3 months 17.09

Last 6 months 42.01

Last 1 year 68.01

Last 2 year 73.87

Last 3 Year 46.67

Since inception 42.76

iv. Minimum Investment:

31

HDFC AMC Franklin Templeton Kotak Security1 Crores 50 Lakh 10 Lakh

Though every bank has different factors, which affect the minimum investments, but one of the factors, which decide this parameter for the PMS, is the no. of high net worth customers and their investment plan.

Another factor which affects it is geographical location where PMS is offered. Thus from the above statement it is clear that more the investment limit, the better it is i.e. then this specified service can be effectively used.

V. Lock In Period

For all the three players undertaken for study, the placement of funds or securities is for a minimum period of one year.

VI. Risk Appetite

HDFC AMC

Investors are not being offered any guaranteed / assured returns. Investments in securities are subject to market risks. The value of investments may go up or down depending on the various factors and forces affecting the capital markets. Past performance of the sponsor and its affiliates/ mutual fund/ AMC does not indicate the future performance of the portfolio manager and its schemes. Investors are urged to read the disclosure Documents before signing the agreement.

FRANKLIN TEMPLETON

FT Select

1. The Portfolio manager will invest in large capital stocks. The portfolio of this scheme will be concentrated in fifteen to eighteen stocks. The top ten stocks in this scheme may account for about 75% of the portfolio. There could also be a concentration in a few industries. The concentration of the portfolio in a few stocks/ industries increases the risk and could lead to a greater volatility in the performance of the scheme as compared to the performance of other schemes.

32

2. Limited liquidity in the market, settlement risk, impeding readjustment of portfolio composition, highly volatile stock market in India. There is also risk of total loss of value of an asset, possibilities of recovery of loss in investments only through expensive legal process. Such loss could arise due to factors which by way of illustration, include default or non- performance of a third party, company’s refusal to register a security due to legal stay or otherwise, disputes raised by third parties. Mis-judgment by the portfolio Manager or his incapacitation due to any reason however remote is also a risk. Thus the investment in Indian Capital market involves above average risk for investors compared with other types of investment opportunities. Investment will be of a longer duration compared to trading in securities. There is a possibility of the value of investment and the income there from falling as well as rising depending upon the market situation.

FT Opportunities

1. While mid cap & small cap stocks give one opportunity to go beyond the usual large blue chip stocks and present possible higher capital appreciation, it is important to note that mid/small cap stocks can be riskier and more volatile on a relative basis. Therefore, the risk levels of investing in small cap and mid cap stocks is more than investing in stocks of large well-established companies.

2. Please note that over a time these three categories have demonstrated different levels of volatility and investment returns. And it is important to note that generally, no one class consistently outperforms the others.

3. The small cap stocks carries liquidity risk as they are less extensively researched compared to large cap stocks. This may lead to abnormal liquidity and consequent higher impact cost.

4. Liquidity Risk: Risk will be monitored in terms of the number of days it takes to liquidate every stock in the portfolio assuming a share of the average volume traded over the pervious one year. Efforts would be made to keep the average liquidation period under prudent limits prescribed internally.

5. Limited liquidity in the market, settlement risk, impeding readjustment of portfolio composition, highly volatile stock markets in India. There is also a risk of total loss of vale of an asset. Possibilities of recovery of loss in investment only through expensive legal process.

33

Such loss could arise due to factors which by way of illustration, include, default or non performance of third party, company’s refusal to register a security due to legal stay or otherwise, disputes raised by third parties. Mis-judgment by the Portfolio Manager or his incapacitation due to any reason however remote is also a risk. Thus the investment in Indian Capital Market involves above average risk for investors compared with other types of investment opportunities. Investment will be of a longer duration compared to a trading in securities. There is a possibility of the value of investment and the income there from falling as well as rising depending upon the market situation.

KOTAK SECURITIES

1. Investment in stock market is subject to market risks and the investment, value of portfolio may go up or down depending on the factors and forces affecting stock markets.

2. The portfolio Manager is not guaranteeing or assuring any return on investment.

3. The investment made is subject to external risks such as War, natural calamities, policy changes of local/ international market which affects stock markets.

4. Any policy change/ technology updating / obsolescence of technology would affect the investments made in a particular industry.

5. Securities investments are subject to market risk and there is no assurance or guarantee that the objectives of the scheme will be achieved.

6. The client has perused and understood the disclosures made by the portfolio manager in the Disclosure Document before entering into this agreement.

7. The portfolio Manager is neither responsible nor liable for any losses resulting from the operations of the schemes.

INFORMATION REGARDING OTHER PLAYERS OF PMS

EMKAY STOCK BROKING

INVESTMENT OBJECTIVE34

The PMS provided by the Emkay Stock broking PMS is basically a defensive type of portfolio where they try to give the maximum return by taking moderate risk.

Minimum Investment

To enter into this portfolio management service with Emkay Stock broking the minimum investment is Rs. 10 Lakh

Types of Portfolio

It will be a discretionary portfolio where the customer won’t have a say when to purchase and when not to purchase a particular stock. To cater to the clients in the utmost interest they have an in-house research department. The research reports are available to the clients.

Charges

The Emkay Stock Broking PMS charges a flat fees of 2.5 % on the initial corpus.

The Brokerage charged is .20 paisa which is much less as compared to Kotak PMS which is .50 paisa.

There is no other charge such as on profit.

Asset under Management

The modus operandi under them is roughly Re 700Cr. They have the second largest assets under management after Kotak PMS.

The number of clients at the present moment under this service is approximately around 673.

35

Time Horizon

The time horizon that a client has to remain invested as advised by the Emkay Stock Broking is 12 to 18 months.

The numbers of stock which are kept in the portfolio are near about 20.

Returns

Types of Portfolio Inception date returns

Aggressive Portfolio 22-Dec-04 46 %

Dividend Yield 20-Feb-06 81 %

Deep value 17-Jul-07 84%

ARIHANT CAPITAL MARKET

INVESTMENT OBJECTIVE

36

The PMS provided by Arihant Capital is basically a customized type of portfolio where they try to first know the risk profile of the client and then develop a portfolio according to their needs.

The investment objective is to provide a customized portfolio to the customer depending on their needs. That is what type risk profile a customer have whether he is a high risk taking person or of a low risk taking person.

The fund manager first talks to the client and then creates a portfolio according to their needs.

Minimum Investment

To enter into this portfolio management service with Arihant Capital minium investment is 20 Lakh.

Types Of Portfolio

It will be a discretionary portfolio where the customer won’t have a say when to purchase and when not to purchase a particular stock. To cater to the clients in the utmost interest they have a in-house research department. The research reports are available to the clients.

Charges

The Arihant Capital charges an up-front fee of 2 % on the initial corpus.

The Brokerage charged is .40 paisa which is less as compared to Kotak PMS Service.

Then there is a charge on profit which is negotiable that it could be 80 : 20 or 90 : 10.

They also offer advisory for the real estate and the art pieces for which they charge a nominal fees.

Time Horizon

37

There is no holding period with Arihant Capital Market. A client could move out whenever he likes.

Returns

In %

Particular 3 month 6 month 1 year 2 year

Very High Risk 12.27 31.75 38.02 42

High Risk 16.89 38.25 31.51 32.22

Moderate Risk 13.72 34.63 33.26 48.36

Low Risk 14.05 32.71 23.91 51.23

Very Low Risk 12.19 29.60 20.94 38.52

F A Qs

1. Who is a Portfolio Manager?38

Any person who pursuant to a contract or arrangement with a client, advices or directs or undertakes on behalf of the clients (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities of the funds of the client, as the case may be is a portfolio manager.

2. What is the difference between a discretionary portfolio manager and non discretionary portfolio manager?

The discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client in a manner, which does not partake character of a mutual Fund, whereas the non-discretionary portfolio manager manages the funds in accordance with the directions of the clients.

3. What is the procedure of obtaining registration as a portfolio manager from SEBI?

An applicant for registration as a portfolio manager is required to pay non-refundable application fees of Rs. 25000/- (Rupee Twenty Five Thousand Only) by way of demand draft drawn in favor of ‘Security Exchange Board of India’ payable at Mumbai. The fee has to be forwarded to Treasury & Accounts Division, SEBI, 15th floor , Earnest House, Nariman point, Mumbai- 400021.

4. The application in Form A along with additional information (Form a and additional information available on SEBI website : www.sebi.gov.in ) and copy of the receipt of the application fee is to be submitted to the Division of funds, SEBI , Exchange plaza, “G” Block,4th Floor, Bandra-Kurla Complex, Bandra (E), Mumbai- 400051.

5. What Does SEBI consider while granting the Certificate of registration to the applicant ?

39

SEBI takes into account all matters, which it seems relevant to the activities relating to portfolio management. The applicant has to be a body corporate and must have necessary infrastructure like adequate office space, equipment’s and the manpower to effectively discharge the activities of a portfolio qualifications in finance, law, accountancy or business management from an institution recognized by the government. The applicant should have in its employment minimum of two persons who, between them, have at lest five years experience as portfolio manager or stock broker or investment manager or in the areas related to fund management. The applicant also has to fulfill the capital adequacy requirement, etc.

6. Who is the Principal Officer of a Portfolio Manager?

Principal Officer means a director of the portfolio manager who is responsible for the activities of portfolio management and has been designated as principal officer by the portfolio manager.

7. What is the Capital adequacy requirement of a portfolio manager?

The Portfolio manager is required to have a minimum net worth of fifty Lakh rupees.

8. How long does the certificate of registration remain valid?

The certificate of registration remains valid for three years.

9. IS there any registration fee to be paid by the portfolio managers?

40

Yes, every portfolio manager is required to pay a sum of five Lakh rupees as registration fees at the time of taking the registration certificate by SEBI.

10. Are the Portfolio Managers required to pay annual fee to SEBI?

No, the portfolio manager is not required to pay any annual fee to SEBI.

11. What is the procedure of renewing the certificate of registration?

The portfolio manager who wants to renew its certificate of registration has to make an application for renewal in Form A three months before the expiry of the validity of the certificate.

12. How much is the renewal fees to be paid by the portfolio manager?

The portfolio manager is required to pay 2 Lakh and fifty thousand rupees as renewal fees to SEBI.

13. Whether any contract should be made between the Portfolio Manager and its client?

Yes. The Portfolio Manager before taking up an assignment of management of funds or portfolio of securities on behalf of the client, enter into an agreement in writing with the client clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations relating to the management of funds or portfolio of securities containing the details as specified in Schedule IV of the SEBI (Portfolio Managers) Regulation Act 1993.

14. What fees can a Portfolio Manager Charge from its clients for the services rendered by him?

41

The SEBI (Portfolio Managers) Regulations 1993, have not prescribed any scale of fee to be charged by the portfolio manager to its clients. However the regulations provide that the portfolio manager shall charge a fee as per the agreement with the client for rendering portfolio management services. The fee so charged may be a fixed amount or a return based fee or a combination of both. The portfolio manager shall take specific prior permission from the client for charging such fees for each activity for which service is rendered by the portfolio manager directly or indirectly (where such service is outsourced)

15. Is there any specific value of funds or securities below which a portfolio manager can’t accept from the client while opening the account for the purpose of rendering portfolio management service to the clients?

The Portfolio manager is required to accept funds or securities having minimum worth of 5 lakh rupees from the client while opening the account for the purpose of rendering portfolio management service to the client.

16. Is a Portfolio Manager permitted to invest the fund of its client in derivatives?

A portfolio manager is permitted to invest in derivatives, including transactions for the purpose of heding and portfolio rebalancing, through a recognized stock exchange. However, leveraging of portfolio is not permitted in respect of investment in derivatives. The total exposure of the portfolio client in derivatives should not exceed his portfolio funds placed with the portfolio manager and the portfolio managers should basically invest and not borrow on behalf of his clients.

17. What is the disclosure mechanism of the portfolio managers to their clients?

42

The Portfolio Manager provides to the client the disclosure Documents at least two days prior to entering into an agreement with the client. This disclosure document, interrelate , contains the quantum and manner of payment of fees payable by the clients for each activity for which service is rendered by the portfolio manager directly or indirectly (where such service is out sourced), portfolio risk, complete disclosure in respect of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India in this regard, the performance of the portfolio manager and the audited financial statements of the portfolio manager for the immediately preceding three years.

18. On what basis is the performance of the portfolio manager calculated?

The performance of a discretionary portfolio manager is calculated using weighted average method taking each individual category of investments for the immediately preceding three years and in such cases performance indicators is also disclosed.

19. Where can an investor look out for information on portfolio managers?

Investors can log on to the website of SEBI www.sebi.gov.in for information on SEBI Rules, regulation and guidelines pertaining to portfolio managers. Addresses of the registered portfolio managers are also available on the website.

20. How can the investors redress their complaints?

Investor would find in the Disclosure Document the name, address and telephone number of the investor relation officer of the portfolio manager who attends to the investor queries and complaints. To help out the investors the grievance redressal and dispute mechanism is also provided by the portfolio manager in the Disclosure Document. Investors can approach SEBI for redressal of their complaint; SEBI takes up the matter with the concerned portfolio manager and follow up with them. Investors may send their complaint to.

43

CONCLUSION

The PMS industry is in developing phase. It is at the same level as the mutual fund industry was some 10-15 years back. Today the PMS industry is approximately Re. 5000cr to Re 10000cr industry, which is attracting many financial institutions to venture out in this field.

It can be summarized that having an in depth study of PMS and comparing the three major players HDFC AMC, Kotak Securities, Franklin Templeton, Emkay Stock Broking through different parameters like fee structure, returns etc. it can be said that specialized service has its own benefits (like time saving, personalized service, competitive cost & transparency etc) in comparison to direct equity investment.

Further as far as the players are concerned it is very difficult to rank all of them because they have their own investment approach thus accordingly they provide service to their proffered customers. As per the facts and figures studies in this report by taking consideration of all parameters we can suggest that FRANKLIN TEMPLETON is the leading portfolio management service provider amongst all.

Banks like UTI are thinking to come into this field, and SBI has already entered the market, as they think returns are high.

People are still not matured to this industry as it is a new concept in India and secondly people have lost their faith due to the different scams which have hit India’s capital market in past.

The returns given by the different portfolio management services provider were better than the industry average. Seeing this in the last years or so the number of portfolio management service providers has increase drastically.

As other players have just entered into this segment they do not have substantial corpus under them but they are slowly making their presence felt by giving back good returns. In future as people will know about these schemes they will try to take benefits out of it.

44

REFERENCE

Following references have been utilized during the progress of project

Web Support

1. www.hdfc.com

2. www.emkayglobal.com

3. www.kotaksec.com

4. www.arihantcapital.com

5. www.equitymaster.com

6. www.kotakpms.com

Magazines and other publications

1. HDFC PMS Presentation.

2. HDFC research report.

3. Kotak PMS Presentations.

4. Value Research.

45