TABLE OF CONTENTS CHAPTER- 1 INTRODUCTION OF THE INDUSTRY Introduction to stock exchange Introduction to Study CHAPTER- 2 NTRODUCTION TO ORGANIZATION Work structure of Sharekhan Reasons to Choose Sharekhan Product & services offered by Sharekhan CHAPTER- 3 RESEARCH METHODOLOGY 3.1 Title of the project 3.2 Duration of the study 3.3 Objective of the Project 3.4 Type of Research 3.5 Data Collection & Sample Design 3.6 Scope of the study 3.7 Observations and findings 3.8 Limitation of the project CHAPTER- 4 PORTFOLIO MANAGEMENT SERVICES Need of PMS Objective of PMS Portfolio Construction Risk and Risk Aversion Risk versus Return Portfolio Diversification Techniques of PMS Sharekhan PMS CHAPTER- 5 DATA ANALYSIS & INTERPRETATION CHAPTER- 6 SWOT ANALYSIS OF SHAREKHAN
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TABLE OF CONTENTSCHAPTER-1 INTRODUCTION OF THE INDUSTRY
Introduction to stock exchange
Introduction to Study
CHAPTER-2 NTRODUCTION TO ORGANIZATION
Work structure of Sharekhan
Reasons to Choose SharekhanProduct & services offered by Sharekhan
CHAPTER-3 RESEARCH METHODOLOGY
3.1 Title of the project
3.2 Duration of the study3.3 Objective of the Project3.4 Type of Research3.5 Data Collection & Sample Design
3.6 Scope of the study3.7 Observations and findings3.8 Limitation of the project
CHAPTER-4 PORTFOLIO MANAGEMENT SERVICES
Need of PMS
Objective of PMS
Portfolio Construction
Risk and Risk Aversion
Risk versus Return
Portfolio Diversification
Techniques of PMS
Sharekhan PMS
CHAPTER-5 DATA ANALYSIS & INTERPRETATION
CHAPTER-6 SWOT ANALYSIS OF SHAREKHAN
CHAPTER-7 CONCLUSION
CHAPTER-8 RECOMMENDATIONS & SUGGESTIONS
ANNEXURE
BIBLIOGRAPHY
CH-1:INTRODUCTION TO STOCK EXCHANGE
The emergence of stock market can be traced back to 1830. In Bombay, business
passed in the shares of banks like the commercial bank, the chartered mercantile bank,
the chartered bank, the oriental bank and the old bank of Bombay and shares of cotton
presses. In Calcutta, Englishman reported the quotations of 4%, 5%, and 6% loans of
East India Company as well as the shares of the bank of Bengal in 1836. This list was a
further broadened in 1839 when the Calcutta newspaper printed the quotations of banks
like union bank and Agra bank. It also quoted the prices of business ventures like the
Bengal bonded warehouse, the Docking Company and the storm tug company.
Between 1840 and 1850, only half a dozen brokers existed for the limited business. But
during the share mania of 1860-65, the number of brokers increased considerably. By
1860, the number of brokers was about 60 and during the exciting period of the
American Civil war, their number increased to about 200 to 250. The end of American
Civil war brought disillusionment and many
Failures and the brokers decreased in number and prosperity. It was in those
troublesome times between 1868 and 1875 that brokers organized an informal
association and finally as recited in the Indenture constituting the “Articles of
Association of the Exchange”.
On or about 9th day of July,1875, a few native brokers doing brokerage business in
shares and stocks resolved upon forming in Bombay an association for protecting the
character, status and interest of native share and stock brokers and providing a hall or
building for the use of the Members of such association.
As a meeting held in the broker’ Hall on the 5th day of February, 1887, it was resolved
to execute a formal deal of association and to constitute the first managing committee
and to appoint the first trustees. Accordingly, the Articles of Association of the Exchange
and the Stock Exchange was formally established in Bombay on 3rd day of December,
1887. The Association is now known as “The Stock Exchange”
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The entrance fee for new member was Re.1 and there were 318 members on the list,
when the exchange was constituted. The numbers of members increased to 333 in
1896, 362 in 1916and 478 in 1920 and the entrance fee was raised to Rs.5 in 1877,
Rs.1000 in 1896, Rs.2500 in 1916 and Rs. 48,000 in 1920. At present there are 23
recognized stock exchanges with about 6000 stockbrokers. Organization structure
of stock exchange varies.
14 stock exchanges are organized as public limited companies, 6 as companies limited
by guarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9 stock
exchanges have been permanent recognition. Others have to seek recognition on
annual basis.
These exchange do not work of its own, rather, these are run by some persons and with
the help of some persons and institution. All these are down as functionaries on stock
exchange. These are:
i. Stockbrokers
ii. Sub-broker
iii. Market makers
iv. Portfolio consultants etc.
1.Stockbrokers: Stock brokers are the members of stockexchanges. These are the
persons who buy, sell or deal insecurities. A certificate of registration from SEBI
ismandatory to act as a broker. SEBI can impose certainconditions while granting the
certificate of registrations. It’s obligatory for the person to abide by the rules,regulations
and the buy-law. Stock brokers are commission broker, floor broker, arbitrageur etc.
2. Sub-broker: A sub-broker acts as agent of stock broker.He is not a member of a
stock exchange. He assists the investors in buying, selling or dealing in securities
through stockbroker. The broker and sub-broker should enter into an agreement in
which obligations of both should be specified. Sub-broker must be registered SEBI for a
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dealing in securities. For getting registered with SEBI, he must fulfill certain rules and
regulation.
3. Market Makers: Market maker is a designated specialist in the specified securities.
They make both bid and offer at the same time. A market maker has to abide by bye-
laws, rules regulations of the concerned stock exchange. He is exempt from the margin
requirements. As per the listing requirements, a company where the paid-up capital is
Rs. 3 Crore but not more than Rs. 5 Crore and having a commercial operation for less
than 2 years should appoint a market maker at the time of issue of securities.
4. Portfolio Consultants: A combination of securities such as stocks, bonds and
money market instruments is collectively called as portfolio. Whereas the portfolio
consultants are the persons, firms or companies who advise, direct or undertake the
management or administration of securities or funds on behalf of their clients.
Traditionally stock trading is done through stock brokers, personally or through
telephones.
As number of people trading in stock market increase enormously in last few years,
some issues like location constrains, busy phone lines, miss communication etc start
growing in stock broker offices. Information technology (Stock Market Software) helps
stock brokers in solving these problems with Online Stock Trading.
Online Stock Market Trading is an internet based stock trading facility. Investor can
trade shares through a website without any manual intervention from Stock Broker.
Various Stock Exchanges in India
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At present there are 23 stock exchange recognized under the securities contract
(regulation),Act 1956. Those are………..
1. .Ahmadabad Stock Exchange Association Ltd.
2. Bangalore Stock Exchange (BSE)
3. Bhubaneswar Stock Exchange Association(BSEA)
4. Bombay Stock Exchange (BSEA
5. Calcutta Stock Exchange(CSE)
6. Cochin Stock Exchange Ltd (CSE)
7. Coimbatore Stock Exchange (CSX)
8. Delhi Stock Exchange Association (DSE)
9. Guwahati Stock Exchange Ltd (GSE)
10. Hyderabad Stock Exchange Ltd.
11. Jaipur Stock Exchange Ltd (JSE)
12. Ludhiana Stock Exchange Association Ltd
13. Madras Stock Exchange
14. Madhya Pradesh Stock Exchange Ltd.
15 .Magadh Stock Exchange Limited
16. Manglore Stock Exchange
17. Meerut Stock Exchange Ltd.
18.National Stock Exchange of India (NSE)
19.OTC Exchange of India
20.Pune Stock Exchange Ltd.
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Advantages of Stocks Trading
Better returns : Actively trading stocks can produce better overall returns than
simply buying and holding.
Huge Choice : There are thousands of stocks listed on markets around the
world. There is always a stock whose price is moving - it’s just a matter of finding
them.
Familiarity : The most traded stocks are in the largest companies that most of us
have heard of and understand - Microsoft, IBM, and Cisco etc.
Disadvantages of Stocks Trading
Leverage : With a margined account the maximum amount of leverage available
for stock trading is usually 4:1. Meaning a $25,000 could trade up to $100,000 of
stock. This is pretty low compared to Forex trading or futures trading.
Pattern Day Trader Rules : It requires at least $25,000 to be held in a trading
account if the trader completes more than 4 trades in a 5 day period. No such
rule applies to Forex trading or futures trading.
Uptick Rule on Short Selling : A trader must wait until a stock price ticks up
before they can short sell it. Again there are no such rules in Forex trading or
futures trading where going short are as easy as going long.
Need to Borrow Stock to Short : Stocks are physical commodities and if a
trader wishes to go short then the broker must have arrangements in place to
borrow that stock from a shareholder until the trader closes their position. This
limits the opportunities available for short selling. Contrast this to futures trading
where selling is as easy as buying.
Costs : Although online trading costs for stock trading are low they still add
considerably to the costs of day trading. Online futures trading are about 1/4 of
the cost for the equivalent value. In the UK 0.5% stamp duty is also levied on all
share purchases making trading virtually impossible, hence the popularity of
spread betting.
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INTRODUCTION TO STUDY
The field of investment traditionally divided into security analysis and portfolio
management. The heart of security analysis is valuation of financial assets. Value in
turn is the function of risk and return. These two concepts are in the study of investment
.Investment can be defined the commitment of funds to one or more assets that will be
held over for some future time period.
In today fast growing world many opportunities are available, so in order to move with
changes and grab the best opportunities in the field of investments a professional fund
manager is necessary.
Therefore, in the present scenario the Portfolio Management Services (PMS) is fast
gaining importance as an investment alternative for the High Net worth Investors.
Portfolio Management Services (PMS) is an investment portfolio in stocks, fixed income,
debt, cash, structured products and other individual securities, managed by a
professional money manager that can potentially be tailored to meet specific investment
objectives.
When you invest in PMS, you own individual securities unlike a mutual fund investor,
who owns units of the entire fund. You have the freedom and flexibility to tailor your
portfolio to address personal preferences and financial goals. Although portfolio
managers may oversee hundreds of portfolio, your account may be unique.
Investment Management Solution in PMS can be provided in the following ways:
i. Discretionary
ii. Non Discretionary
iii. Advisory
Discretionary: Under these services, the choice as well as the timings of the
investment decisions rest solely with the Portfolio Manager.
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Non-Discretionary: Under these services, the portfolio manager only suggests the
investment ideas. The choice as well as the timings of the investment decisions rest
solely with the Investor .However the execution of trade is done by the portfolio
manager.
Advisory: Under these services, the portfolio manager only suggests the investment
ideas. The choice as well as the execution of the investment decisions rest solely with
the Investor.
Rule 2, clause (d) of the SEBI (portfolio managers) Rules, 1993 defines the term
“Portfolio” as “total holding of securities belonging to any person”.
As a matter of fact, portfolio is combination of assets the outcomes of which cannot be
defined with certainty new assets could be physical assets, real estates, land, building,
gold etc. or financial assets like stocks, equity, debenture, deposits etc.
Portfolio management refers to managing efficiently the investment in the securities
held by professional for others.
Merchant banker and the portfolio management with a view to ensure maximum return
by such investment with minimum risk of loss of return on the money invested in
securities held
by them for their clients. The aim Portfolio management is to achieve the maximum
return from a portfolio, which has been delegated to be managed by manger or financial
institution.
There are lots of organization in the market on the lookout for the people like you who
need their portfolios managed for them .They have trained and skilled talent will work on
your money to make it do more for you.
Therefore, if any investors still insist on managing their own portfolio, then ensure you
build discipline into their investment. Work out their strategy and stand by it.
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MYTHS ABOUT PMS
There are two most common myths found about Portfolio Management Services (PMS)
which we found among most of the Investors. They are as follows.
Myth No. 1:“PMS and Mutual Fund are Similar as the investment option”
As in the Finance Basket both the PMS and Mutual Fund are used for minimizing
risk and maximize the profit of the Investors. The objectives are similar as in both the
product but they are different from each other in certain aspects. They are as follows.
Management Side : In PMS, it’s ongoing personalized access to professional money
management services. Whereas, in Mutual fund gives personalize access to money.
Customization : In PMS, Portfolio can be tailored to address each investor's specific
needs. Whereas in Mutual Fund Portfolio structured to meet the fund's stated
investment objectives.
Ownership : In PMS, Investors directly own the individual securities in their portfolio,
allowing for tax management flexibility, whereas in Mutual Fund Shareholders own
shares of the fund and cannot influence buy and sell decisions or control their
exposure to incurring tax liabilities.
Liquidity : In PMS, managers may hold cash; they are not required to hold cash to
meet redemptions, whereas, Mutual funds generally hold some cash to meet
redemptions.
Minimums : PMS generally gives higher minimum investments than mutual funds.
Generally, minimum ranges from: Rs. 1 Crore + for Equity Options Rs. 5 Crore + for
Fixed Income Options Rs. 20 Lacs + for Structured Products, whereas in Mutual
Fund Provide ongoing, personalized access to professional money management
services.
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Sharekhan is one of the leading retail brokerage of Citi Venture which is running
successfully since 1922 in the country. Earlier it was the retail broking arm of the
Mumbai-based SSKI Group, which has over eight decades of experience in the stock
broking business. Share khan offers its customers a wide range of equity related
services including trade execution on BSE, NSE, Derivatives, depository services,
online trading, investment advice etc.
Earlier with a legacy of more than 80 years in the stock markets, the SSKI group
ventured into institutional broking and corporate finance 18 years ago. SSKI is one of
the leading players in institutional broking and corporate finance activities. SSKI holds a
sizeable portion of the market in each of these segments. SSKI’s institutional broking
arm accounts for 7% of the market for Foreign Institutional portfolio investment and 5%
of all Domestic Institutional portfolio investment in the country.
It has 60 institutional clients spread over India, Far East, UK and US. Foreign
Institutional Investors generate about 65% of the organization’s revenue, with a daily
turnover of over US$ 2 million. The content-rich and research oriented portal has stood
out among its contemporaries because of its steadfast dedication to offering customers
best-of-breed technology and superior market information. The objective has been to let
customers make informed decisions and to simplify the process of investing in stocks
Mission of the Sharekhan is
“To educate and empower the individual investor to make better investment
decisions through
QUALITY ADVICE
INNOVATIVE PRODUCTS
SUPERIOR SERVICES
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PROFILE OF THE COMPANY
Name of the company : Sharekhan ltd.
Year of Establishment : 1925
Headquarter : Sharekhan SSKI A-206 Phoenix House Phoenix Mills Compound Nature of Business : Service Provider
Services : Depository Services, Online Services and
Technical Research.
Number of Employees : Over 5500
Revenue : Data Not Available
Website : www.sharekhan.com
Slogan : Your Guide to The Financial Jungle.
Vision
To be the best retail brokering Brand in the retail business of stock market.
Mission
To educate and empower the individual investor to make better investment
decisions through quality advice and superior service.
Sharekhan is infact-
• Among the top 3 branded retail service providers
• No. 1 player in online business
• Largest network of branded broking outlets in the country serving more
Verisign Financial Technologies India Ltd, Spider Software Pvt. Ltd. to build its trading
engine and content. The Citi Venture holds a majority stake in the company. HSBC,
Intel & Carlyle are the other investors.
On April 17, 2002 Sharekhan launched Speed Trade and Trade Tiger, are net-based
executable application stimulates the broker terminals along with host of other
information relevant to the Day Traders. This was for the first time that a net-based
trading station of this caliber was offered to the traders. In the last six months Speed
Trade has become a de facto standard for the Day Trading community over the net.
Sharekhan’s ground network includes over 700+Shareshops in 130+ cities in India.
The firm’s online trading and investment site www.sharekhan.com - was launched on
Feb 8, 2000. The site gives access to superior content and transaction facility to retail
customers across the country. Known for it’s jargon-free, investor friendly language and
high quality research, the site has a registered base of over 3 Lacs customers. The
number of trading members currently stands at over 7 Lacs. While online trading
currently accounts for just over 5 per cent of the daily trading in stocks in India,
Sharekhan alone accounts for 27 percent of the volumes traded online.
The Corporate Finance section has a list of very prestigious clients and has many ‘firsts’
to its credit, in terms of the size of deal, sector tapped etc. The group has placed over
US$ 5 billion in private equity deals.Some of the clients include BPL Cellular Holding,
Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shopper’s Stop.Finally, Sharekhan
shifted hands and Citi venture get holds on it.
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MANAGEMENT TEAM OF SHAREKHAN
DINESH MURIKYA : OWNER OF THE COMPANY
TARUN SHAH : CEO OF THE COMPANY
SHANKAR VAILAYA : DIRECTOR (OPERATIONS)
JAIDEEP ARORA : DIRECTOR (PRODUCTS & TECHNOLOGY)
PATHIK GANDOTRA : HEAD OF RESEARCH
RISHI KOHLI : VICE PRESIDENT OF EQUITY DERIVATIVE
NIKHIL VORA : VICE PRESIDENT OF RESEARCH
ACHIEVEMENTS OF SHAREKHAN
Rated among the top 20 wired companies along with Reliance, HUJl, Infosys, etc by ‘Business Today’, January 2004 edition
. Awarded ‘Top Domestic Brokerage House’ four times by Euro money
and Asia money.
Pioneers of online trading in India amongst the top 3 online trading websites from India. Most preferred financial destination amongst online broking customers.
Winners of “Best Financial Website” award.
India’s most preferred brokers within 5 years. “Awaaz customers
Award 2005”.
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REASON TO CHOOSE SHAREKHAN LIMITED
Experience
SSKI has more than eight decades of trust and credibility in the Indian stock market. In
the Asia Money broker's poll held recently, SSKI won the 'India's best broking house for
2004' award. Ever since it launched Sharekhan as its retail broking division in February
2000, it has been providing institutional-level research and broking services to individual
investors.
Technology
With their online trading account one can buy and sell shares in an instant from any PC
with an internet connection. Customers get access to the powerful online trading tools
that will help them to take complete control over their investment in shares.
Accessibility
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for
investors. These services are accessible through many centers across the country
(Over 650 locations in 150 cities), over the Internet (through the website
www.sharekhan.com) as well as over the Voice Tool.
Knowledge
In a business where the right information at the right time can translate into direct
profits, investors get access to a wide range of information on the content-rich portal,
www.sharekhan.com. Investors will also get a useful set of knowledge-based tools that
will empower them to take informed decisions.
Convenience
One can call Sharekhan’s Dial-N-Trade number to get investment advice and execute
his/her transactions. They have a dedicated call-center to provide this service via a Toll
Free Number 1800 22-7500 & 39707500 from anywhere in India.
Also. Variance (VAR) is equal to the standard deviation squared or σ2
Circumstance Return ProbabilityDeviation
from expected
Return (x -x)
p(x -x)2
I 10% 0.2 -3.5% 2.45
II 12% 0.3 -1.5% .68
III 15% 0.4 +1.5% 1.90
IV 19% 0.1 +5.5% 3.03
VARAIANCE= 7.06
Standard deviation (σ) = √Variance
= √ 7.06
= 2.66%
The standard deviation is a measure of risk, whereby the greater the standard deviation,
the greater the spread, and the greater the spread, the greater the risk.
If the above exercise were to be performed using an other investment that offered the
same expected return, but a different standard deviation, then the following result might
occur:
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If the above exercise were to be performed using another investment that offered the
same expected return, but a different standard deviation, then the following result might
occur:
Plan Expected Return Risk(standard deviation)
Investment A 9% 2.5%
Investment B 9% 4.0%
Since both investments have the same expected return, the best selection of investment
would be Investment A, which provides the lower risk. Similarly, if there are two
investments presenting the same risk, but one has a higher return than the other, that
investment would be chosen over the investment with the lower return for the same risk.
In the real world, there are all types of investors. Some investors are completely risk
averse and others are willing to take some risk, but expect a higher return for that risk.
Different investors will also have different tolerances or threshold levels for risk–return
trade-offs – i.e. for a given level of risk, one investor may demand a higher rate of return
than another investor.
Portfolio Diversification
There are several different factors that cause risk or lead to variability in returns on an
individual investment. Factors that may influence risk in any given investment vehicle
include uncertainty of income, interest rates,inflation, exchange rates, tax rates, the
state of the economy, default risk and liquidity risk (the risk of not being able to sell on
the investment). In addition, an investor will assess the risk of a given investment
(portfolio) within the context of other types of investments that may already be
owned ,i.e. stakes in pension funds, life insurance policies with savings components,
and property
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Covariance and Correlation
The goal is to hold a group of investments or securities within a portfolio potentially to
reduce the risk level suffered without reducing the level of return. To measure the
success of a potentially diversified portfolio, covariance and correlation are
considered. Covariance measures to what degree the returns of two risky assets move
in tandem. A positive covariance means that the returns of the two assets move
together, whilst a negative covariance means that they move in inverse directions.
Covariance
COV(x, y) = ∑p(x-x) (y-y)for two investments x and y, where p is the probability.
Covariance is an absolute measure, and covariance cannot be compared with one
another. To obtain a relative measure, the formula for correlation coefficient [r] is used.
Correlation coefficient
r = COVxy
σxσy
To illustrate the above, here is the example:
Circumstance Probability x-x y-y∑p(x-x) (y-y)
I 0.2 +1.0 -3.5 -0.7
II 0.3 0 -1.5 0
III 0.4 +1.5 +1.5 0.9
IV 0.1 -4 +5.5 -2.2
COVxy=-2.0
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For data regarding (y – y), see earlier example. Assume that a similar exercise has been run for data regarding (x – x). Assume the variance or σ2 of x=2.45, and the variance or σ2 of y = 7.06. Thus, the correlation coefficient would be
-2.0 r = √ 2.45 √7.056
= -0.481
If, the same example is run again, but using a different set of numbers for y, a different
correlation coefficient might result of say, –0.988. It can be concluded that a large
negative correlation confirms the strong tendency of the two investments to move
inversely.
Perfect positive correlation (correlation coefficient = +1) occurs when the
returns from two securities move up and down together in proportion. If these
securities were combined in a portfolio, the ‘offsetting’ effect would not occur.
Perfect negative correlation (correlation coefficient = –1) takes place when one
security moves up and the other one down in exact proportion. Combining these
two securities in a portfolio would increase the diversification effect.
Uncorrelated (correlation coefficient = 0) occurs when returns from two
securities move independently of each other – that is, if one goes up, the other
may go up or down or may not move at all. As a result, the combination of these
two securities in a portfolio may or may not create a diversification effect.
However, it is still better to be in this position than in a perfect positive correlation
situation.
Unsystematic and systematic risk As mentioned previously, diversification diminishes risk: the more shares or assets held
in a portfolio or in investments, the greater the risk reduction. However, it is impossible
to eliminate all risk completely even with extensive diversification. The risk that remains
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is called market risk; the risk that is caused by general market influences. This risk is
also known as systematic risk or non-diversifiable risk. The risk that is associated with a
specific asset and that can be abolished with diversification is known as unsystematic
risk, unique risk or diversifiable risk.
Total risk = Systematic risk + Unsystematic risk
Systematic risk = the potential variability in the returns offered by a security or
asset caused by general market factors, such as interest rate changes,inflation
rate movements, tax rates, state of the economy.
Unsystematic risk = the potential variability in the returns offered by a security or
asset caused by factors specific to that company, such as profitability margins,
debt levels, quality of management, susceptibility to demands of customers and
suppliers.
TECHNOQUES OF PORTFOLIO MANAGEMENT
Various types of portfolio require different techniques to be adopted to achieve the
desired objectives. Some of the techniques followed in India by portfolio managers are
summarized below.
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(1). Equity portfolio: Equity portfolio is affected by internal and external factors.
(a) Internal factors : Pertain to the inner working of the particular company of which
equity shares are held. These factors generally include:
(1) Market value of shares
(2) Book value of shares
(3) Price earnings ratio (P/E ratio)
(4) Dividend payout ratio
(b) External factors:
(1) Government policies
(2) Norms prescribed by institutions
(3) Business environment
(4) Trade cycles
(2). Equity stock analysis:
The basic objective behind the analysis is to determine the probable future – value
of the shares of the concerned company. It is carried out primarily fewer than two ways.
(a)Earnings per share
(b) Price earnings ratio
(a) Trend of earning :
A higher price-earnings ratio discount expected profit growth. Conversely, a
downward trend in earning results in a low price-earnings ratio to discount
anticipated decrease in profits, price and dividend. Rising EPS causes
appreciation in price of shares, which benefits investors in lower tax brackets?
Such investors have not pay tax or to give lower rate tax on capital gains.
Many institutional investor like stability and growth and support high EPS.
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Growth of EPS is diluted when a company finances internally its expansion
program and offers new stock.
EPS increase rapidly and result in higher P/E ratio when a company finances it’s
expansion program from internal sources and borrowings without offering new
stock.
(b) Quality of reported earning :
Quality of reported earnings affects P/E ratio. The factors that affect the quality of
reported earnings are as under:
Depreciation allowances: -
Larger (Non Cash) deduction for depreciation provides more funds to company to
finance profitable expansion schemes internally. This builds up future earning power of
company.
Research and development outlets : -
There is higher P/E ratio for a company, which carries R&D programs. R&D enhances
profit earning strength of the company through increased future sales.
Inventory and other non-recurring type of profit : -
Low cost inventory may be sold at higher price due to inflationary conditions among
profit but such profit may not always occur and hence low P/E ratio.
(c)Dividend policy:
Dividend policy is significant in affecting P/E ratio. With higher dividend ratio, equity
price goes up and thus raises P/E ratio. Dividend rates are raised to push in share
prices up. Dividend cover is calculated to find out the time the dividend is protected, In
terms of earnings. It is calculated as under:
Dividend Cover = EPS / Dividend per Share
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(d) Investors demand : Demand from institutional investors for equity also enhances
the P/E ratio.
TYPES OF PORTFOLIOS
The different types of Portfolio which is carried by any Fund Manager to maximize
profit and minimize losses are different as per their objectives .They are as follows.
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1. Agreesive Portfolio
Objective: Growth. This strategy might be appropriate for investors who
seek High growth and who can tolerate wide fluctuations in market values, over the
short term.
2. Growth Portfolio
Objective: Growth. This strategy might be appropriate for investors who
have a preference for growth and who can withstand significant fluctuations in market
value.
3. Balanced Portfolio
Objective: Capital appreciation and income. This strategy might be appropriate for
investors who want the potential for capital appreciation and some growth, and who can
with stand moderate fluctuations in market values
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4. Conservative Portfolio
Objective: Income and capital appreciation. This strategy may be appropriate for
investors who want to preserve their capital and minimize fluctuations in market value.
Sharekhan Portfolio Management Services
1. PRO PRIME
Product Approach
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Investment will be keeping in mind 3 investment tenets.
1. Consistent, steady and sustainable returns.
2. Margin of Safety
3. Low Volatility
Product offering
Pro Prime is the ideal for investors looking at steady and superior with low and medium
risk appetite. The portfolio consists of a blend of quality blue chip and growth stocks
ensuring a balanced portfolio with relatively medium risk profile.The portfolio constitutes
of relatively large capitalization stocks, based on sector and themes which have
medium to long term growth potential.
Product Characteristics
Bottom up stock selection
In depth ,independent fundamental research
High quality companies with relatively large capitalization