INTRODUCTION
Financial planning is the process of identifying ones wealth
accumulation and protection goals and developing a coordinated plan
to help priorities ones future financial decision. Financial
planning should be taken as seriously as a medical prescription, as
it deals with ones financial health. It should be seen not just as
a means of achieving financial security, but as making a vital
contribution to ones overall happiness and peace of mind.
Financial planning can be manageable or overwhelming depending
upon how one approaches it. Without guidance; its hard to know what
one needs and when one needs it. With right information, tools and
timeline, the choices become much easier.
In fact too many people are investing in MUTUAL FUNDS. After all
its common knowledge that investing in mutual fund is {or at least
should be} better than simply letting your cash waste in a saving
account, but for most people thats where the understanding of funds
end. It doesnt help that mutual fund sale people speak a strange
language that, that sounding sort of English, is interspersed with
jargon like NAV, load/no-load, etc.
Originally MUTUAL FUNDS were heralded as a way for the little
guy to get a piece of a market. Instead of spending all the free
time buried in the financial pages of ECONOMIC TIMES all one has to
do is buy a mutual funds and be set on his way to financial
freedom. But its not that easy. MUTUAL FUNDS are in excellent idea
in theory but in reality they havent always delivered. Not all
mutual funds are created equal, and investing in mutual fund isnt
easy as throwing ones money at the first sales person who solicits
business.
PROJECT TITLE
The title of my project is:
PORTFOLIO MANAGEMENT AND EFFECTIVE INVESTMENT ADVICE.
REASON FOR SELECTION OF THIS TOPIC
Theoretical Knowledge without Practical Experience is like a
Body without Soul. So without Practical implementations, theory
remains no use. Hence we need to gain the Practical Experience. And
what better would be, then a Project work for the same.
Also as a part of our MBA curriculum, we need to undergo the
training programmed for minimum of 60 days, in a company.
I selected area of STOCK TRADING AND MUTUAL FUND INDUSTRY, which
pools the funds & reduces risk by investing in different
diversified assets. I studied as to how this industry proves to an
option for the investors, by studying the performance of mutual
funds.
Hence this is a project work on a Portfolio Management and
Effective Investment Advice.
Generally when we decide to study the investment options
available in Todays complex & risky scenario, we should
thoroughly evaluate the option upon various factors. These factors
should include: The Past Performance of the option under study
Risk adjusted returns from the invested plan
Share in the Portfolio Policy
Fund HouseOBJECTIVES AND SCOPE
OBJECTIVE OF THE STUDYObjectives:
1. To understand the concept of Portfolio management.
2. To study the various asset classes available for
investment.
3. To analyze what investments are suitable for what type of
investors according to their risk profile and other factors.
4. To understand the investment opportunities available in the
market.
SCOPE OF THE STUDY
The project is related to wealth management which covers various
asset classes like equity, bond, mutual fund wherein investors can
invest their money to get good returns. Investment has to be
planned according to their risk bearing capacity as well as other
factors like investment objectives, return expected, taxation, age
factor, etc.Project consists of 4 case studies in form of clients
profile wherein various life cycle stages are covered and
accordingly advised investments by taking taxation part into
consideration.
COMPANY PROFILE
SHAREKHAN FINANCIAL SERVICES PVT. LTD.Sharekhan Limited is a
retail financial services provider with a focus on equities,
derivatives and commodities brokerage execution on the National
Stock Exchange of India Ltd. (NSE), Bombay Stock Exchange Ltd.
(BSE), National Commodity and Derivatives Exchange India (NCDEX)
and Multi Commodity Exchange of India Ltd. (MCX). Sharekhan
provides trade execution services through multiple channels - an
Internet platform, telephone and retail outlets and is present in
225 cities through a network of 615 locations. The company was
awarded the 2005 Most Preferred Stock Broking Brand by Awaaz
Consumer Vote.Incorporated in November 2004 as a wholly owned
subsidiary of Sharekhan Ltd, SFSL was primarily involved in the
business of share trading till FY07. In April 2007 the proprietary
(arbitrage) book of SFSL was transferred to the parent company and
currently SFSL is engaged in the IPO funding business only. SFSL is
registered with RBI as a Non-Banking Financial Institution
(NBFC).
During FY06-07, SFSL booked a net profit of Rs 23.92 million on
a total income of Rs 1.09 billion as compared to a net profit of Rs
8.75 million booked on a total income of Rs 25.36 million in
FY05-06.
As on March 31, 2007 SFSL had a net worth of Rs 0.13 billion and
the parent - Sharekhan Ltd has infused another Rs 0.10 billion of
equity capital in January 2008.
Sharekhan Ltd (SKL) was setup by the Morakhia family who has
been in the equity broking business for decades. Till March 31,
2007, Morakhia family owned 43.58% stakes in SKL and the balance
primarily held by three venture capital firms namely HSBC Private
Equity India Fund Ltd. (14.56%), GA Global Investments Ltd (22.76%)
and Intel Pacific Inc. During August 2007, promoters and the PE
players exited the SKL and other PE players CVC and Samara Capital
along with IDFC picked up their stakes. They also infused fresh
capital (Rs 2 billion) through Fully Convertible Debentures (FCD).
Post conversion of the FCD, CVC will be the majority stake holder
with 45.14% stakes, Samara Capital holding 36.16%, IDFC holding
9.16% and rest with directors and employees of SKL. The main
business activity of the company is retail share broking with small
presence in the portfolio management services.
During FY06-07, SKL booked a net profit of Rs 275.15 million on
a total income of Rs 2,202.01 million as compared to the net profit
of Rs 275.66 million booked on a total income of Rs 1,617.38
million in FY05-06.
During H1 FY 07-08, SKL booked a net profit of Rs 242.76 million
on a total income of Rs 1,815.87 million.
ICRA has assigned the A1 (pronounced A one) rating to the Rs 2
billion short -term debt programme of ShareKhan Financial Services
Pvt. Ltd. (SFSL) for IPO financing. The rating for the same is
valid till February 28, 2008. The rating indicates the
highest-credit-quality rating assigned by ICRA to short term debt
instruments. Instruments rated in this category carry the lowest
credit risk in the short term. Within this category, certain
instruments are assigned the rating of A1+ to reflect their
relatively stronger credit quality. The rating factors in the
parentage of Sharekhan Ltd. (100% ownership) having adequate
experience in the retail equity broking. The rating also factors in
the favorable Sharekhan brand image, groups comfortable
capitalisation, and adequate risk management systems employed by
the Company. The rating is constrained by the dependence of SFSL on
the cyclical nature of Sharekhan Ltds primary business of equity
broking, and short track record of IPO financing and margin
funding.HEIRARCHY OF FINANCIAL DEPARTMENT:
SHAREKHAN accounts all the financial data and sends it to the
head office in Pune. This data is compiled by the manager and
forwarded to the Mumbai Head Office, Chief Accountant. Then, the
financial reports are made at the Mumbai head office and statements
are sent to the Head Accountant in Pune.
Monthly statements are made and the meeting of the managers from
all the branches is conducted to keep a close control on
finances.
SHAREKHAN DEMAT
Account opening: You can open a Depository Participant (DP)
account, either through a Sharekhan branch or through a Sharekhan
Franchisee center.
There is Rs. 49 fee for opening DP accounts with Sharekhan.
However a nominal deposit (refundable) is charged towards services
which will be adjusted against all future billings.
Dematerialization:
Dematerialization is the process by which a client can get his
electronic holdings converted into physical certificates. The
client has to submit the dematerialization request to the DP with
whom he has an account along with a Remat request form. The
physical shares will be posted by the company directly to the
clients.
Trades:
For all sales made by clients, the shares will have to be given
to the broker, so that the Pay In can be made by the broker to the
stock exchange concerned. For that it's essential that the shares
be transferred to the account of the broker well before the
deadline date.
You must confirm with your broker the settlement date and
settlement number and then submit your instructions to your DP.
Also it's important to give the instructions to your DP as early as
possible.
Pledge:
Pledge enables you to obtain loans against your dematerialized
shares. So you get liquidity without having to sell your
shares.
A highly simplified procedure may be availed of for pledging of
securities in the electronic mode. The pledged securities continue
to be reflected in the DP account of the clients (pledgor) but the
concerned securities are "blocked" and cannot be used for any
transactions. As and when the pledge is to be removed, based on
confirmations received from both the pledgor and the pledgee, the
blocked securities will be released to "Free Balance" of the
account holder.
Corporate benefits:
Corporate benefits are benefits given by a company to its
investors. These may be either monetary benefits like dividend,
interest etc or non-monetary benefits like bonus, rights etc. NSDL
facilitates distribution of corporate benefits. It's important to
mention your correct MICR No and attach copy of the cheque leaf
with your account opening form. NSDL is planning to distribute all
cash corporate benefits to bank accounts directly. SSKI CORPORATE
STRUCTURE:
CHARGES:
Trade Tiger
Fast Trade
Account Opening
Rs 1000
Rs 49
NIL
Account Closing
NIL
NIL
NIL
Maintenance Charges
Rs. 500 p.m
Rs. 300 p.a
Rs. 900 p.a
Payable in advance.
Dematerialization
Rs 3. per cert.
Rs 3. per cert.
Rs. 3 per cert.
Minimum Rs. 15
Rematerialisation
Rs 15 per cert.
Rs 15 per cert.
Rs 15 per cert.
If Broking Through SSKIIf Broking Not Through SSKIPurchases
NIL : ZERO
0.02% / Min.Rs .8
NIL
Sales
NIL : ZERO
0.02% /Min.Rs 18
Rs.8 +0.01%
Brokerage
Minimum Rs 10 per Scrip.
Minimum Rs 10 per Scrip.
NA
Custody
Re 1 per ISIN/month
Re 1 per ISIN/month
Re 1 per ISIN/month
If client does not have any security balance in his account
still he will be charged assuming 1 scrip in his account *
Pledge Creation
0.02%
0.02%
0.02%
Minimum Rs 50
Freeze \ De-freeze
Rs 25/- per request
Rs 25/- per request
Rs 25/- per request
Deposit
Rs 500/-
Rs 500/-
Rs 1500/-
Adjustable against all dues
THEROETICAL BACKGROUNDFINANCIAL RATIOIn finance, a financial
ratio or accounting ratio is a ratio of selected values on an
enterprise's financial statements. There are many standard ratios
used to evaluate the overall financial condition of a corporation
or other organization. Financial ratios are used by managers within
a firm, by current and potential shareholders (owners) of a firm,
and by a firm's creditors. Security analysts use financial ratios
to compare the strengths and weaknesses in various companies. If
shares in a company are traded in a financial market, the market
price of the shares is used in certain financial ratios.
Values used in calculating financial ratios are taken from the
balance sheet, income statement, cash flow statement and (rarely)
statement of retained earnings. These comprise the firm's
"accounting statements" or financial statements.
Ratios are always expressed as a decimal value, such as 0.10, or
the equivalent percent value, such as 10%.
Financial ratios quantify many aspects of a business and are an
integral part of financial statement analysis. Financial ratios are
categorized according to the financial aspect of the business which
the ratio measures. Liquidity ratios measure the availability of
cash to pay debt. Activity ratios measure how quickly a firm
converts non-cash assets to cash assets. Debt ratios measure the
firm's ability to repay long-term debt. Profitability ratios
measure the firm's use of its assets and control of its expenses to
generate an acceptable rate of return. Market ratios measure
investor response to owning a company's stock and also the cost of
issuing stock. Financial ratios allow for comparisons: between
companies
between industries
between different time periods for one company
between a single company and its industry average
The ratios of firms in different industries, which face
different risks, capital requirements, and competition are not
usually comparable.
Sources of data for financial ratios:Financial ratios are based
on summary data presented in financial statements. This summary
data is based on the accounting method and accounting standards
used by the organization.
SHARESuppose a group of persons or a business organization
propose to start a new project requiring large amount of money
which they are unable to arrange. They form a public limited
company and invite the public to be a part of the project. The
company as per laws of the government announces the issue of shares
through which any eligible person can become a shareholder of the
company. The word stock simply refers to a supply. You may have a
stock of T-shirts in your closet or a stock of pencils in your
desk. In the financial market, stock refers to a supply of money
that a company has raised. This supply comes from people who have
given the company money in the hope that the company will make
their money grow. A market is a public place where things are
bought and sold. The term "stock market" refers to the business of
buying and selling stock.In financial markets, a share is a unit of
account for various financial instruments including stocks, mutual
funds, limited partnerships, and REIT's. In British English, use of
the word shares in the plural to refer to stock is so common that
it almost replaces the word stock itself. In American English, the
plural stocks is widely used instead of shares, in other words to
refer to the stock (or perhaps originally stock certificates) of
even a single company. Traditionalist demands that the plural
stocks be used only when referring to stock of more than one
company are rarely heard nowadays.
The income received from shares is called a dividend, and a
person owning shares is called a shareholder.
A share is one of a finite number of equal portions in the
capital of a company, entitling the owner to a proportion of
distributed, non-reinvested profits known as dividends, and to a
portion of the value of the company in case of liquidation. Shares
can be voting or non-voting, meaning they either do or do not carry
the right to vote on the board of directors and corporate policy.
Whether this right exists often affects the value of the share.
Voting and non-voting shares are also known as Class A and B shares
respectively.
TYPES OF STOCKStock typically takes the form of shares of common
stock (or voting shares). As a unit of ownership, common stock
typically carries voting rights that can be exercised in corporate
decisions. Preferred stock differs from common stock in that it
typically does not carry voting rights but is legally entitled to
receive a certain level of dividend payments before any dividends
can be issued to other shareholders. Convertible preferred stock is
preferred stock that includes an option for the holder to convert
the preferred shares into a fixed number of common shares, usually
anytime after a predetermined date. Shares of such stock are called
"convertible preferred shares" (or "convertible preference shares"
in the UK)
Although there is a great deal of commonality between the stocks
of different companies, each new equity issue can have legal
clauses attached to it that make it dynamically different from the
more general cases. Some shares of common stock may be issued
without the typical voting rights being included, for instance, or
some shares may have special rights unique to them and issued only
to certain parties. Note that not all equity shares are the same.
STOCK DERIVATIVESA stock derivative is any financial instrument
which has a value that is dependent on the price of the underlying
stock. Futures and options are the main types of derivatives on
stocks. The underlying security may be a stock index or an
individual firm's stock, e.g. single-stock futures.
Stock futures are contracts where the buyer is long, i.e., takes
on the obligation to buy on the contract maturity date, and the
seller is short, i.e., takes on the obligation to sell. Stock index
futures are generally not delivered in the usual manner, but by
cash settlement.
A stock option is a class of option. Specifically, a call option
is the right (not obligation) to buy stock in the future at a fixed
price and a put option is the right (not obligation) to sell stock
in the future at a fixed price. Thus, the value of a stock option
changes in reaction to the underlying stock of which it is a
derivative.
SHAREHOLDERA shareholder (or stockholder) is an individual or
company (including a corporation) that legally owns one or more
shares of stock in a joint stock company. Companies listed at the
stock market are expected to strive to enhance shareholder
value.
Shareholders are granted special privileges depending on the
class of stock, including the right to vote (usually one vote per
share owned) on matters such as elections to the board of
directors, the right to share in distributions of the company's
income, the right to purchase new shares issued by the company, and
the right to a company's assets during a liquidation of the
company. However, shareholder's rights to a company's assets are
subordinate to the rights of the company's creditors.
Shareholders are considered by some to be a partial subset of
stakeholders, which may include anyone who has a direct or indirect
equity interest in the business entity or someone with even a
non-pecuniary interest in a non-profit organization. Thus it might
be common to call volunteer contributors to an association
stakeholders, even though they are not shareholders.
Although directors and officers of a company are bound by
fiduciary duties to act in the best interest of the shareholders,
the shareholders themselves normally do not have such duties
towards each other.
However, in a few unusual cases, some courts have been willing
to imply such a duty between shareholders. For example, in
California, USA, majority shareholders of closely held corporations
have a duty to not destroy the value of the shares held by minority
shareholders. The largest shareholders (in terms of percentages of
companies owned) are often mutual funds, and especially passively
managed exchange-traded funds.
TRADINGA stock exchange is an organization that provides a
marketplace for either physical or virtual trading shares, bonds
and warrants and other financial products where investors
(represented by stock brokers) may buy and sell shares of a wide
range of companies. A company will usually list its shares by
meeting and maintaining the listing requirements of a particular
stock exchange.
MUTUAL FUND
A mutual fund is a professionally managed firm of collective
investments that collects money from many investors and puts it in
stocks, bonds, short-term money market instruments, and/or other
securities. The fund manager, also known as portfolio manager,
invests and trades the fund's underlying securities, realizing
capital gains or losses and passing any proceeds to the individual
investors. Currently, the worldwide value of all mutual funds
totals more than $26 trillion.
USAGESince the Investment Company Act of 1940, a mutual fund is
one of three basic types of investment companies available in the
United States.
Mutual funds can invest in many kinds of securities. The most
common are cash instruments, stock, and bonds, but there are
hundreds of sub-categories. Stock funds, for instance, can invest
primarily in the shares of a particular industry, such as
technology or utilities. These are known as sector funds. Bond
funds can vary according to risk (e.g., high-yield junk bonds or
investment-grade corporate bonds), type of issuers (e.g.,
government agencies, corporations, or municipalities), or maturity
of the bonds (short- or long-term). Both stock and bond funds can
invest in primarily U.S. securities (domestic funds), both U.S. and
foreign securities (global funds), or primarily foreign securities
(international funds).
Most mutual funds' investment portfolios are continually
adjusted under the supervision of a professional manager, who
forecasts cash flows into and out of the fund by investors, as well
as the future performance of investments appropriate for the fund
and chooses those which he or she believes will most closely match
the fund's stated investment objective. A mutual fund is
administered under an advisory contract with a management company,
which may hire or fire fund managers.
Mutual funds are subject to a special set of regulatory,
accounting, and tax rules. In the U.S., unlike most other types of
business entities, they are not taxed on their income as long as
they distribute 90% of it to their shareholders and the funds meet
certain diversification requirements in the Internal Revenue Code.
Also, the type of income they earn is often unchanged as it passes
through to the shareholders. Mutual fund distributions of tax-free
municipal bond income are tax-free to the shareholder. Taxable
distributions can be either ordinary income or capital gains,
depending on how the fund earned those distributions. Net losses
are not distributed or passed through to fund investors.
MUTUAL FUNDS V/S OTHER INVESTMENTSMutual funds offer several
advantages over investing in individual stocks. For example, the
transaction costs are divided among all the mutual fund
shareholders, which allows for cost-effective diversification.
Investors may also benefit by having a third party (professional
fund managers) apply expertise and dedicate time to manage and
research investment options, although there is dispute over whether
professional fund managers can, on average, outperform simple index
funds that mimic public indexes. Whether actively managed or
passively indexed, mutual funds are not immune to risks. They share
the same risks associated with the investments made. If the fund
invests primarily in stocks, it is usually subject to the same ups
and downs and risks as the stock market.
SHARE CLASSESMany mutual funds offer more than one class of
shares. For example, you may have seen a fund that offers "Class A"
and "Class B" shares. Each class will invest in the same pool (or
investment portfolio) of securities and will have the same
investment objectives and policies. But each class will have
different shareholder services and/or distribution arrangements
with different fees and expenses. These differences are supposed to
reflect different costs involved in servicing investors in various
classes; for example, one class may be sold through brokers with a
front-end load, and another class may be sold direct to the public
with no load but a "12b-1 fee" included in the class's expenses
(sometimes referred to as "Class C" shares). Still a third class
might have a minimum investment of $10,000,000 and be available
only to financial institutions (a so-called "institutional" share
class). In some cases, by aggregating regular investments made by
many individuals, a retirement plan (such as a 401(k) plan) may
qualify to purchase "institutional" shares (and gain the benefit of
their typically lower expense ratios) even though no members of the
plan would qualify individually. As a result, each class will
likely have different performance results.
A multi-class structure offers investors the ability to select a
fee and expense structure that is most appropriate for their
investment goals (including the length of time that they expect to
remain invested in the fund).NET ASSET VALUEThe net asset value, or
NAV, is the current market value of a fund's holdings, less the
fund's liabilities, usually expressed as a per-share amount. For
most funds, the NAV is determined daily, after the close of trading
on some specified financial exchange, but some funds update their
NAV multiple times during the trading day. The public offering
price, or POP, is the NAV plus a sales charge. Open-end funds sell
shares at the POP and redeem shares at the NAV, and so process
orders only after the NAV is determined. Closed-end funds (the
shares of which are traded by investors) may trade at a higher or
lower price than their NAV; this is known as a premium or discount,
respectively. If a fund is divided into multiple classes of shares,
each class will typically have its own NAV, reflecting differences
in fees and expenses paid by the different classes.
Some mutual funds own securities which are not regularly traded
on any formal exchange. These may be shares in very small or
bankrupt companies; they may be derivatives; or they may be private
investments in unregistered financial instruments (such as stock in
a non-public company). In the absence of a public market for these
securities, it is the responsibility of the fund manager to form an
estimate of their value when computing the NAV. How much of a
fund's assets may be invested in such securities is stated in the
fund's prospectus.
PORTFOLIO TURNOVER
A measure of how frequently assets within a fundare bought and
sold by the managers. Portfolio turnoveris calculated by taking
eitherthe total amount of new securities purchasedor the amount of
securities sold -whichever is less -over a particular period,
divided by the total net asset value (NAV) of the fund.The
measurement is usually reportedfora 12-month time period.The
portfolio turnover measurement should be considered by an investor
before deciding to purchase a given mutual fund or similar
financial instrument. After all, a firm with a high turnover rate
will incur more transaction costs than a fund with a lower rate.
Unless the superior asset selectionrenders benefitsthat offset the
added transaction costs they cause, a less active trading
posturemay generate higher fund returns.
In addition, cost conscious fund investors should take note that
the transactional brokerage fee costs are not included in the
calculation of a fund's operating expense ratio and thus represent
what can be, in high-turnover portfolios, a significant additional
expense that reduces investment return.
RESEARCH METHODOLOGY Defining objective wont suffice unless
& until a proper methodology is to achieve the objectives.
Research comprises defining and redefining problems,
formulating, hypothesis or suggested solutions, collecting,
organizing and evaluating data making deductions and research
conclusions to determine whether they fit in the formulating
hypothesis.
Research concerns itself with obtaining information through
empirical observations tat can be used to systematically develop
logically realted propositions so as to attempt casual relationship
between variables.
RESEARCH DESIGN
A research design is arrangement of conditions for collection
and analysis of data in a manner that aims to combine relevance to
the research purpose with economy in procedure.
TYPE OF RESEARCH
Analytical Research:
For the purpose of this project, the facts and information
already available is used for study and analysis is done for find,
conclusion, critical evaluation and recommendations.
The calculation and analysis of the expenditure which is to be
incurred in manufacturing load bodies. Also to find out the per
unit cost for load bodies and chassis.DATA COLLECTION
Meaning of dataThere are two types of data major usedA. SOURCES
OF PRIMARY DATA:Meaning
Observation Method.
Informal interview method.B. SOURCES OF SECONDARY DATA:
Internet.
Public records and statistical, and other published
information.
RESEARCH INSTRUMENTS
Informal interview and discussions.
SAMPLE SIZE
4 Case studies / Clients profile.
1) Young unmarried stage [age: 26].
2) Young married with one child [age: 33].
3) Married with two children [age: 46].
4) Retirement Stage [age: 55].
ANALYTICAL TOOLS
1) Line graphs.
2) Tables.
DATA ANALYSISCLIENT RISK PROFILE 1:
MR. A
Age: 33.
Occupation: Service.
Marital Status: Married.
Income of Spouse: Nil.
Dependants: Wife and 1 Child [2 years].
Annual income: Rs. 7 lakhs.
Long term liabilities: Housing loan of Rs. 15 lakhs.
Risk Capacity: Moderate.
INVESTMENT GOALS Protection.
Tax saving not required.
Tax efficient investments.
Invest around Rs. 12,000 monthly.
Has Rs. 2.5 lakhs one time in his hand.
No liquidity required.
Current portfolio consists of FDs of Rs. 3 lakhs, which is about
to mature.RECOMMENDED INVESTMENTS:
1. Insurance cover required as a single bread winner Rs. 25
lakhs [premium Rs. 40,000 p.a. i.e. Rs. 333 p.m.]
2. MF SIP: Total Rs. 10,000 p.m. [Growth option].
3. Rs. 2 lakhs direct equity, spread over not more than 20 nifty
stocks on the basis of fundamentals and passively managed.4. FD
money may be diverted to FMPs as they are tax efficient. [Debt
remains debt, becomes more tax efficient].
From the following chart showing Nifty movements from year 2004
to year 2008, it is showing positive upward curve. This may be good
opportunity to invest as the market is moving upwards and good
returns are expected.
RECOMMENDATIONS AND JUSTIFICATIONS FOR MR. A
Mr. A is a single bread earner along with large liabilities with
a loan and he has purchased a new accommodation.
The death of the wage earner would deprive the non working
partner of the family income and therefore there is a need of life
assurance on the earning members life.
From the above, we can determine that is first objective is
safety. So, insurance cover of Rs. 25 lakhs is recommended to him.
The premium of Rs. 40,000 can be deducted from his annual income.
So investment serves the purpose of both, Tax saving and
safety.
Recommended Investments:1) Mutual funds of Rs. 10,000 monthly
which will serve the purpose of regular systematic investment plan
with growth option.
2) Direct Equity of Rs. 2 lakhs, spread over 10 ninfty stocks on
the basis of fundamentals and passively managed that is invests in
broad sector of the market.3) FD money can be diverted to FMPs as
they are tax efficient, as his FDs mature and he is getting Rs.
3,00,000 in hand.PARTICULARSFMP FOR 366 DAYSFD
Purchase price3,00,0003,00,000
Interest rate9%9%
Repurchase price3,27,0003,27,000
Gain27,00027,000
Index Cost Rs. 3,00,000 519 / 4803,24,375NA
LTCG2,625NA
Interest gainNA27,000
Tax rate 20.4%, 30.6% respectively535.58,262
Post Tax Return26,464.0018,738
Index of the year 2004 05 is 480, 2006 07 is 519.LTCG is 20% +
Educational cess 2%, for FD, highest tax slab 30% + Educational
cess 2%.
From the above calculations, it is seen that FMP are giving
higher tax return than FD, so it recommended converting FD into
FMP.
The investible amount is derived taking tax factor into
consideration. CLIENT RISK PROFILE 2:
MR. BAge: 42.
Occupation: Service.
Marital Status: Married.
Income of Spouse: Rs. 75,000 p.a.
Dependants: 2 Children [14 years and 11 years].
Annual income: Rs. 2.5 lakhs.
Long term liabilities: Nil.
Risk Capacity: Moderate.
SOURCE OF INCOME FROM INVESTMENT:
Sale of Inherited property worth Rs. 24 lakhs.
INVESTMENT GOALS Planning for pension. Need liquidity for
education and marriage of children.
Capital gain tax planning.
RECOMMENDED INVESTMENTS Rs. 5 lakhs as capital gain should be
invested in rural electrification bonds [capital gain bonds].
Deposit of Rs. 5,00,000 as short term.
Transfer of Rs. 30,000 from debt to equity.
Direct Gold of Rs. 3 lakhs.
Direct equity investment of Rs. 5 lakhs.
Real Estate Fund of Rs. 5 lakhs.RECOMMENDATIONS AND
JUSTIFICATIONS FOR MR. BBy this stage, Mr. B is approaching mid
career stage and their incomes would have usually increased. Mr. B
is planning for pension provision to provide an income in
retirement. The annual investment require to fund a good pension
keeps growing with every year of delay so he is planning for his
pension.
His annual income is Rs. 2.5 lakhs, which means the tax
liability is Rs. 25,000. To save this tax, it is not advisable to
invest Rs. 1 lakhs to become eligible for deductions. To reduce tax
liability to some extent, he can invest Rs. 4,000 per month in LIC
pension fund under SIP option. He has invested Rs. 50,000 yearly to
take the benefit of deductions. So Mr. B has to pay a tax of Rs. 2
lakhs under the head of salary income.PARTICULARSAMOUNT [Rs.]
Annual income2,50,000
[-] Investments made to save tax48,000
Total taxable income2,02,000
Tax on Rs. 2,02,00015,400
Amount remains for daily expenses1,86,600
Per month [1,86,600 / 12]15,550
Money remains in his hand is only around Rs. 15,000. He can keep
aside money for LIC fund Rs. 4,000 monthly for retirement
benefit.Mr. B is also getting some gain from sale of inherited
property. It carries capital gain tax. He is getting Rs. 24,00,000
from sale of that property. For calculating tax on it, capital gain
has to be calculated.
CAPITAL GAIN ON SALE OF PROPERTYIndex cost of acquisition:
As on 01/04/1981 as the case may be index factor for the year of
transfer
11,25,000 519 / 305 = 19,14,344 rounded to 19,00,000.
Capital gain = 24,00,000 19,00,000 = 5,00,000 is the capital
gain of property. Rs. 5 lakhs can be invested in Rural
electrification bonds [capital gain bonds].
Certain amount can be transferred to short term fund like equity
to satisfy the purpose of liquidity.
He can invest in gold and keep it until he needs money or can
later on use it for daughters marriage.
He can also make investment of Rs. 5 lakhs in equity and can
take a higher risk for higher return [High risk, high returns].
With the remaining amount he can invest in real estate fund
which is expanding day by day which serves propose of growth.
Following chart shows the movement of SENSEX from year 2004
08.
CLIENT RISK PROFILE 3:
MR. CAge: 26.
Occupation: Service.
Marital Status: Single.
Income of Spouse: NA.
Dependants: No.Annual income: Rs. 5 lakhs.
Long term liabilities: Nil.
Risk Capacity: High.
Living in parents home.
He can invest maximum of Rs. 15,000 after personal expenses.
INVESTMENT GOALS Growth and return. He has Rs. 50,000 one time
in his hand.
Tax saving required up to Rs. 60,000 as Rs. 40,000 already
invested in Provident fund.
TAX EFFICIENT ADVICE
Life insurance premium Rs. 24,000.
Tax saving fund in Mutual fund Rs. 36,000 yearly.
RECOMMENDED INVESTMENTS Diversified Equity investment into
various sectors like software, automobiles, etc. Mutual fund Rs.
5,000 per month [growth plan].
RECOMMENDATIONS AND JUSTIFICATIONS FOR MR. C
Mr. C is young and unmarried gentleman, dependant on his family
up to some extent. Normally the main protection of a young single
person in work is to protect his earnings against disability
resulting from injury, long term sickness, and so Mr. C need little
insurance. So his first objective safety. To satisfy the basic
objective, we recommend him a unit linked insurance plan.
For tax saving, we recommend him mutual fund of Rs. 5,000
monthly.
Mr. C being young and unmarried, he has a high risk appetite.
Hence equity investments are also recommended to him.
Mutual Fund SIP scheme of Rs. 5,000 per month would be
recommendable as it will serve the purpose of saving monthly to
enjoy the future benefits. He can also choose a different growth
option from his savings.PARTICULARSAMOUNT
Annual Income5,00,000
[-] Deductions under 80C
Insurance premium24,000
Tax saving fund36,000
Provident fund40,0001,00,000
Taxable income4,00,000
Tax on Rs. 4,00,00070,000
Income after tax3,30,000
[-] Daily personal expenses1,32,000
Amount available for investment through salary1,98,000
Mr. C can keep Rs. 12,000 monthly aside for equity investment
and he can use Rs. 50,000 one time to invest.
CLIENT RISK PROFILE 4:
MR. DAge: 55.
Occupation: Business.
Marital Status: married.
Income of Spouse: Nil.
Dependants: Daughter 23 years, Son 19 Years.
Annual income: Rs. 12 lakhs.
Liabilities: marriage of daughter, education of son.
Risk Capacity: Moderate.
INVESTIBLE FUNDS AVAILABLE
Funds available Rs. 8 lakhs.
RECOMMENDED INVESTMENTS Tax saving mutual fund investment Rs.
40,000. Equity investment Rs. 3 lakhs.
Mutual fund Rs. 2 lakhs in growth scheme.
[Diversified equity fund 40%, index fund 30%, sectoral fund
30%].
FMP Rs. 1 lakhs for 366 days @ 9% indicative yield.
Purchase gold Rs. 1,50,000 [may be required for daughters
marriage].
RECOMMENDATIONS AND JUSTIFICATIONS FOR MR. DMr. D is a business
man, earning Rs. 12 lakhs per annum. After business income
calculations, he needs tax saving investments. Tax saving Mutual
Fund investment Rs. 40,000.
CONSTRAINTS: He has not produced annual accounts and balance
sheet of his business; hence business income cannot be calculated.
But he is planning to invest in tax saving mutual fund of Rs.
40,000 per annum.
At this stage, the parents have usually reached the peak of
earning power, but Mr. D being a businessman, his earnings may rise
or fall.
He has Rs. 8 lakhs one time in his hand to invest. As he is a
business man with growing business, risk taken is moderate.
His investment objectives are liquidity, growth and return.
INVESTMENT PLAN
Equity investment Rs. 3 lakhs [moderate risk].
Mutual fund Rs. 2 lakhs [growth scheme].
FMP Rs. 1 lakhs for 366 days @ 9% indicative yield.
Gold of Rs. 1.5 lakhs [may be required for daughters
marriage].
Calculations of how FMP investment is more beneficial than Bank
FD.PARTICULARSFMP 366 DAYSBANK FD
Purchase price1,00,0001,00,000
Interest rate9%9%
Repurchase price1,09,0001,09,000
Gain9,0009,000
Index cost [1,00,000 519 / 480]1,08,125NA
LTCG875NA
Interest gainNA9,000
Tax rate 20.4%, 30.6% for FD178.52,754
Post tax returns8,821.56,246
From the above table, we can analyze that FMP are more
beneficial than FD investment.
Following chart shows the movement of Gold from year July 2008
September 2008.OBSERVATIONS AND FINDINGSLIFE CYCLE
STAGEFEATURESPRIORITYCHOICE OF INVESTMENT PRODUCTS
Young unmarried stage1. Might depend upon parents.2. Relatively
low income.
3. High risk appetite.They might not have any dependants. Main
need is to protect their earning against injury, long term
sickness.1. Liquid plans.2. Short term investments.
Young married with 1 child1. Arrival of kids changes the
scenario.2. Expenditure starts rising.
3. Children education, holidays, etc.Life assurance of earning
member is must. Financial needs are high.1. Medium to long term
investments.2. Ability to take substantial risk.
3. Portfolio products for growth.
Pre retirement stage1. Children have become independent.2. Last
chance to ensure adequate income to maintain standard of
living.Adequate income and saving.1. Maximum investment in pension
products.
Retirement stage1. After retirement, individual needs 2/3rd of
his final years income.2. Pension [high / low/ nil].After
retirement, the saving rate declines substantially.1. Continue to
work for income.2. Invest capital to produce additional income and
take risk.
3. Preserve the value of savings against inflation.
The Ground Rules of Mutual Funds Investing: - Moses gave to his
followers 10 Commandments that were to be followed.
1. Assess Yourself-Self-Assessment Of Ones Needs: Expectations
& risk Profile is of Prime importance failing which one will
make more mistakes in putting money in Right places than otherwise.
One should identify the degree of risk bearing capacity one has
& also clearly state the expectations will only bring pain.
2. Try To Understand Where The Money Is Going: It is important
to identify the nature of investment. One can lose substantially if
one picks the wrong kind of MP. In order to avoid any confusion, it
is better to go through the literature such as Offer Documents
etc.
3. Dont Rush In Picking Funds, Think First: One first has to
decide what he wants the money for & it is this investment goal
that should be the guiding light for all investments done. It is
thus important to know the risks associated with the fund &
align it with the quantum of risk one is willing to take. One
should take a look at the portfolio of the funds for the
purpose
4. Invest, Dont Speculate: A Common Investor is limited in the
degree of risk that he is willing to take. One should attain from
speculating which in other words would mean getting out of one fund
& investing in another with the intention of making quick
money. One could do well to remember that nobody can perfectly time
the Market so staying invested is the Best option unless there are
compel reasons to exit.
5. Dont pull all the eggs in one Basket: No matter what the risk
profile of a person is, it is always advisable to diversify the
risks associated. So putting ones money in different classes is
generally best option as it averages risks in each category.
6. Be Regular: Investing should be a habit & not an exercise
undertake at ones wishes, if one has to really benefit from them.
As said earlier, since it is extremely difficult to know when to
enter/exit the market, it is important to beat the market by being
systematic. The AIP s (Automatic Investment Plans) amount on be
directly transferred from the Investor.
7. Do your Homework: It is important for all investors to
research the avenues available to them irrespective of the investor
category they belong to. This is important because an informed
investor is in a better decision to make right decisions.
8. Find the Right Funds: Funds that charge more will reduce the
yield to the Investors. Investors of equity should keep in mind
that all dividends are currently Tax-Free in India & so their
Tax liabilities can be reduced if the dividend payout option is
used. Investors of debt will be charged a Tax on dividend
distribution & so can easily avoid the payout options.
9. Keep Track Of Your Investment: It is important to keep on
track of the way they are performing in market. If the market is
beginning to enter or bearish, then investor of equity too will
benefit by switching to debt funds as the losses can be minimized.
One can always switch back to equity if the equity market starts to
show some buoyancy.
10. Know When To Sell Your Mutual Fund: Knowing when to exit a
fund too is of utmost importance. One should book profits
immediately when enough has been earned i.e. the initial
expectation from the fund has been meet with. Other factors like
non-performance hike in fee charged & change in any basic
attribute of the fund etc. are some of the reasons for to exit.
WHEN TO SAY GOODBYE TO YOUR MUTUAL FUND / EXIT POINT: Not to
Chase Returns
Fund is not performing
When calculating performance one shouldnt look at too short a
period & make a mistake by comparing apples to oranges. It is
important to base the decision on Relative Performance, & not
absolute performance. When studying Relative Performance, one
should look at his fund & compare it to its peers. However,
comparisons should be drawn between parallels & so equity funds
cannot & should be compared with debt funds. If fund has
underperformed the average of its peers in all cases.
A change in life stage- A young man can afford to take more
risks than a person nearing his retirement can. In such cases, it
pays to withdraw money from the equity investment made earlier
& put them in safer, more conservative debt funds that offer
stable return without compromising on Risk.
A major change in any basic attribute of the fund- As mentioned
earlier in its offer documents, the investors have a choice of
getting out of it. Changes like a change in Asset Mgmt. Company, in
investment style of Fund or change of structure says from
closed-end to open-end etc.
Fund doesnt comply with its objectives- One of the important
parameter in the selection of funds is alignment of risk profiles
of the investor & Fund. The objective of the fund says a lot
about how funds plan to invest.
The Fund s Expenses Ratio Rises- A small rise in an expense
ratio is not a big deal, but in a case of Bond Funds on Money
Market Funds, it is highly unlikely that the Fund can increase its
return enough to justify an increase in the Funds expenses.
The Fund Manager has changed: If it is an actively managed fund,
then has to keep the eyes open on the new manager. Observing the
styles, stock picking & rises under- taken by the new manager
is important for it discloses a lot about how the fund might fare
in the future. If satisfied one will have no reason to complain
later but the process needs time, so an investor has to observe the
Fund Manager for sometime before one takes a decision.
Enough has been earned- However, nothing is as important as to
rein the horses in time. The primary principle behind safety of
investment is to take risks that can be tolerated. Just as it is
important to set realistic target that one hopes to achieve from
the investment, it is also important to exit when target as
excepted has been achieved irrespective of the fact that it might
be generating better returns in a short-term, would be cursing them
for not exiting.
REMEMBER: 1. Investment Decision are Long Term Decision
2. 1% Superior Return can make 20% difference in 25 yrs.
3. Understand the Virtues of Rupee Cost Averaging
4. Discipline is more Important than Intelligence5. Avoid
Wastage, look at Returns Net of Taxes
LIMITATIONS
LIMITATIONS OF THE STUDY1. As the time duration was too short
for conducting research program, so detail analysis of every aspect
was not possible.
2. As the project is based on financial information which most
of the times is confidential in nature. So limited data was
available.
3. Knowledge constraints does not facilitate as experts.
4. Conclusions and recommendations are applicable with the
limitations of scope of project.
Factors affecting the Market Price of Investment may be due to
Market forces, performance of the companies, Govt. Policies,
Interest rates & so on. Study for all the existing Mutual Fund
Schemes is not feasible, Sample schemes of all Mutual Fund Types
are considered for The Study.CONCLUSIONCONCLUSIONSThe whole project
is based on investment opportunities available to investors, tax
efficient as well as general investment purpose to meet the short
or long term need. Investors invest in various options to diversify
funds and risk and to get good returns.
ShareKhan Ltd. provides investment advisory services in a very
effective way. They manage portfolio of the investors depending
upon their priorities, tax planning, return expected, age factor,
risk, etc.
Investors can save tax according to their risk bearing capacity
and willingness to invest, purchasing power and in accordance with
the amount of tax payable by availing Life insurance as premium as
life insurance is deducted under section 80C. Under section 80C,
permissible limit of deduction is Rs. 1 lakhs.
In short, following are the tax saving investments available to
investors:
1. Life insurance premium.2. Provident fund.
3. Tax saving mutual fund.
4. Housing property [Interest up to Rs. 1.5 lakhs.].
In India, there is lack of awareness in making investments in
stock market. So we are playing a better role in creating the
awareness. BIBLOGRAPHY
BOOKS:
1. Portfolio Management Khan & Jain.2. Investment Management
ICFAI Handbook.
3. Investors guideline BSE.
4. Investment banker Dr. Shamla Gosh.
5. Risk and returns Dr. Peter.
6. Research Methodology S. G. Gupta. WEBSITE:
1. www.bseindia.com2. www.nseindia.com3. www.google.com4.
www.sharekhan.com5. www.wikipedia.com6. www.moneycontrol.com7.
www.investopedia.com8. www.mcxindia.comABBREVIATIONS:1. MF: Mutual
Fund.
2. FD: Fixed Deposit.
3. FMP: Fixed maturity plan.
4. LTCG: Long term capital gain.
5. SIP: Systematic Investment plan.
6. STP: Systematic transfer plan.ANNEXURE
QUESTIONNAIRE
1. NAME: ___________________________________________________
2. GENDER: M / F
3. AGE GROUP:
FORMCHECKBOX 18 YRS 30 YRS
FORMCHECKBOX 31 YRS 40 YRS
FORMCHECKBOX 41 YRS 50 YRS
FORMCHECKBOX 51 YRS 60 YRS
FORMCHECKBOX ABOVE 61 YRS
4. OCCUPATION: _________________SECTOR/FIELD:_____________
5. INCOME [PER MONTH]:
FORMCHECKBOX BELOW 50,000
FORMCHECKBOX ABOVE 50,000
6. DO INVEST IN SHARE/STOCK OR MUTUAL FUNDS?
FORMCHECKBOX YES
FORMCHECKBOX NO
7. WHAT PART OF INCOME DO YOU INVEST?
FORMCHECKBOX 01% - 25%
FORMCHECKBOX 26% - 50%
FORMCHECKBOX ABOVE 51%
8. HOW DO YOU INVEST AND IN WHAT PERCENTAGE?
FORMCHECKBOX BANK: _______%
FORMCHECKBOX INSURANCE / BONDS: _______%
FORMCHECKBOX MUTUAL FUND / FUTURE AND OPTIONS: _______%
FORMCHECKBOX SHARE MARKET: _______%
FORMCHECKBOX REAL ESTATE: _______%
9. ARE YOU AWARE OF SHAREKHAN?
FORMCHECKBOX YES
FORMCHECKBOX NO
10. WHAT IS YOUR PERCEPTION ABOUT THE SHARE MARKET?
FORMCHECKBOX SAFE
FORMCHECKBOX RISKY
FORMCHECKBOX GOOD RETURNS
FORMCHECKBOX STAY AWAY
11. DO YOU HAVE A DEMAT ACCOUNT?
FORMCHECKBOX YES
FORMCHECKBOX NO
12. WHAT DO YOU PREFER?
FORMCHECKBOX INTRA DAY
FORMCHECKBOX DELIVERY
13. WHAT DO YOU LOOK IN STOCK BROKING COMPANIES?
FORMCHECKBOX BRAND NAME
FORMCHECKBOX SERVICE
FORMCHECKBOX GOOD RATE/BROKARAGE
FORMCHECKBOX ADVERTISEMENT
FORMCHECKBOX OTHER REASON: _________________________________
14. WHICH COMPANY DO YOU PREFER?
FORMCHECKBOX SHAREKHAN
FORMCHECKBOX RELIGARE
FORMCHECKBOX MOTILAL OSWAL SECURITIES
FORMCHECKBOX KARVY
FORMCHECKBOX RELIANCE MONEY
FORMCHECKBOX SKI CAPITAL
FORMCHECKBOX ARCADIA SHARE
FORMCHECKBOX EMKAY
FORMCHECKBOX KOTAK SECURITIES
FORMCHECKBOX CHOLAMANDALAM INVESTMENTS
FORMCHECKBOX PPFAS LTD.
FORMCHECKBOX ROOSHNIL SECURITIES PVT. LTD.
FORMCHECKBOX SAJAG SECURITIES
FORMCHECKBOX OTHER:
__________________________________________
INITIALS: ____________________
EXECUTIVE SUMMARY
This project underlines the various
The purpose of the Annual Report on Portfolio Management,
Performance and Results (ARPRE) is to present to the Board and
Management an overview of the status and trends of the Banks loan
portfolio in 2003, highlight key strengths and weaknesses for
managing portfolio performance and results, and point to a number
of recommendations for future Bank actions.
The ARPRE analysis draws on information from a variety of
sources and diverse perspectives ranging from the self-assessment
of portfolio performance based on project ratings by Country
Offices, desk reviews of different reports on project monitoring
and supervision, the Banks data base on project approval and
disbursement trends as well as portfolio composition, the results
of a survey of executing agencies, a review of the Banks efforts on
improving performance monitoring and supervision, including
progress made since the previous portfolio report, and the tracking
of a set of portfolio management indicators, including a
benchmarking exercise with the World Bank. The analysis of the
portfolio, undertaken from internal and external perspectives
provides valuable insight into portfolio trends and composition,
real time performance and results, and the supervision and
monitoring of projects, which in turn permits the identification of
specific actions to strengthen borrowers and executing agencies,
together with measures focused on internal improvements and
coordination with other agencies.
Today an investor is interested in tracking the value of his
investments, whether he invests directly in the market or
indirectly through Mutual Funds. This dynamic change has taken
place because of Liberalization, Privatization and globalization
and the growing competition in the investments opportunity
available he would have to make guided and rational decisions on
whether he gets an acceptable return on his investments in the
funds selected by him, or if he needs to switch to another
fund.
The basis of appropriate In order to achieve such an end the
investor has to understand preference measurement for the fund, and
acquire the basic knowledge of the different measures of evaluating
the performance of the fund. Only then would he be in a position to
judge correctly whether his fund is performing well or not, and
make the right decision.
This project t is undertaken to help the investors in tracking
the performance of their investments in Mutual Funds and has been
carried out with the objective of giving and understanding of
Mutual Fund as a financial product, the meaning, importance,
working etc. of Mutual Fund, the current position of Mutual Fund
Industry in India, the number of competitors and other Mutual Fund
position.
The methodology for carrying out the project was very simple
that is through secondary data obtained through various mediums
like fact sheet of the funds, the Internet, Business magazines,
Newspaper, etc. the analysis of Principal PNB Funds has been done
with respect to its various competitors on the basis of its ranking
system mentioned in the Analysis and Findings part, which is
formulated keeping the benefits and convenience to the investors in
mind. The funds have been analyzed under various types such as
Equity Funds, Income Funds and Balanced Funds.
It is of paramount importance to keep in mind the risk involved
while investment as bearing or rather being able to bear risks is
as important as analyzing the profit of the investment. Investments
that have the greatest return potential tend to give the greatest
risk potential.
This project represents a information regarding companys brand
awareness and the customer perceptions about the various services
which the organization provides. The main objective of the project
is to understand the customer investment preferences more
effectively and efficiently. For execution of the project
methodology adopted is the collection of data through
questionnaire, processing and analyzing the data.
The natures of respondent, which are selected, are the
professionals and having a handsome salary. The area of the project
work is pune city and its location where the survey has been
undertaken those are Hinjewadi IT Park, Magarpatta IT Park, WNS,
Baner Symphony Soft Ware, Zenser IT Park, and Senapati Bapat Road.
SHAREKHAN LTD. is the only personalized service provider offering a
range of investment services depending on the customer needs and
wants.
FINANCIAL DEPARTMENT [MUMBAI HEAD OFFICE]
HEAD ACCOUNTANT [PUNE]
CITY, BRANCH MANAGERS
BRANCH, FINANCIAL ASSISTANTS
SSKI Securities Pvt. Ltd.
Morakhia Family & Associates
100%
Owns 56% of
SSKI INVESTOR SERVICES PVT. LTD.
Retail broking arm of the group
Shareholding pattern:
55.5% Morakhia family (promoters)
18.5% HSBC Private Equity India Fund Ltd
18.5% First Carlyle Ventures, Mauritius
7.5% Intel Pacific Inc.
Owns 50.5% of
SSKI CORPORATE FINANCE PVT. LTD.
Investment Banking arm of the group
Shareholding pattern:
50.5% SSKI Securities Pvt. Ltd.
49.5 % Morakhia family
1