PROJECT REPORT

ON
PORTFOLIO MANAGEMENT IN
SHAREKHAN LTD.

SUBMITTED TO:
Prof. Saima Rizvi

SUBMITED BY:

AMARDEEP SINGH KOHLI (PGDM-FS-003)

AMIT KUMAR (PGDM-FS-004)
ANIMESH AGARWAL (PGDM-FS-008)
Sharekhan is online stock trading company of SSKI Group, provider of India-based
investment banking and corporate finance service. ShareKhan is one of the largest stock broking
houses in the country. S.S. Kantilal Ishwarlal Securities Limited (SSKI) has been among
India’s leading broking houses for more than a century. Sharekhan's equity related services
include trade execution on BSE, NSE, Derivatives, commodities, depository services,
online trading and investment advice. Trading is available in BSE and NSE. Along with
Sharekhan.com website, ShareKhan has around 510 offices (share shops) in 170 cities
around the country.Share khan has one of the best state of art web portal providing
fundamental and statistical information across equity, mutual funds and IPOs. You can
surf across 5,500 companies for in-depth information, details about more than 1,500
mutual fund schemes and IPO data. You can also access other market related details such
as board meetings, result announcements, FII transactions, buying/selling by mutual
funds and much more.

CRITERIA

When a customer comes to the company for maintaining a portfolio, company follow
certain criteria in which it asks following things from the customer:-
 Age
 Income
 Savings
 Need
 Risk taking ability

AGE – company need to know the age of the customer because customers belonging to
different age group have different ability to take risk and they have different needs. A
customer in the age group of 25-30 years can take high risk and he might not need regular
returns (or fixed returns) and a customer in the age group of 50-60 can not take high risk
because he has different needs and he might need fixed returns.

Income & Savings – company needs to know the combination of income and saving
because on the basis of this company decides that how much a customer can invest. A
customer having high income can invest more but a customer having less saving can not
invest more.

Need – need is very important for the company to know because the need decides the
objective of the portfolio. A customer can have different needs like child education plan,
home plan, pension plan, child’s marriage plan etc.
Risk taking ability – this ability is decided in two ways:-

1. company gives them a questionnaire to fill, this questionnaire has certain

questions related to their day to day activities.
2. On the basis of the age and need company decides the risk taking ability of the
customers.
Services offered by Sharekhan
PORTFOLIO MANGEMNT SERVICES (PMS)

Portfolio (finance) means a collection of investments held by an

institution or a private individual. Holding a portfolio is often part of an
investment and risk-limiting strategy called diversification.

By owning several assets, certain types of risk (in particular specific

risk) can be reduced. There are also portfolios which are aimed at
taking high risks – these are called concentrated portfolios. Investment
management is the professional management of various securities
(shares, bonds etc) and other assets (e.g. real estate), to meet
specified investment goals for the benefit of the investors
.
Investors may be institutions (insurance companies, pension funds,
corporations etc.) or private investors (both directly via investment
contracts and more commonly via collective investment schemes e.g.
mutual funds). The term asset management is often used to refer to
the investment management of collective investments, whilst the more
generic fund management may refer to all forms of institutional
investment as well as investment management for private investors.
Investment managers who specialize in advisory or discretionary
management on behalf of (normally wealthy) private investors may
often refer to their services as wealth management or portfolio
management often within the context of so-called "private banking".

The provision of 'investment management services' includes elements

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

Objective of PMS
There are the following objective which is full filled by Portfolio
Management Services.

1 . Safety Of Fund: -
The investment should be preserved, not be lost, and should remain in
the returnable position in cash or kind.

2 . Marketability: -
The investment made in securities should be marketable that means,
the securities must be listed and traded in stock exchange so as to
avoid difficulty in their encashment.

3. Liquidity: -
The portfolio must consist of such securities, which could be en-cashed
without any difficulty or involvement of time to meet urgent need for
funds. Marketability ensures liquidity to the portfolio.

4. Reasonable return: -
The investment should earn a reasonable return to upkeep the
declining value of
money and be compatible with opportunity cost of the money in terms
of current
income in the form of interest or dividend.

5. Appreciation in Capital: -
The money invested in portfolio should grow and result into capital
gains.

6. Tax planning: -
Efficient portfolio management is concerned with composite tax
planning covering income tax, capital gain tax, wealth tax and gift tax.

7. Minimize risk: -
Risk avoidance and minimization of risk are important objective of
portfolio
management. Portfolio managers achieve these objectives by effective
investmentplanning and periodical review of market, situation and
economic environment affecting the financial market.

STEPS OF PORTFOLIO CONSTRUCTION

RISK VERSUS RETURN

Risk versus return is the reason why investors invest in portfolios. The
ideal goal in portfolio management is to create an optimal portfolio
derived from the best risk–return opportunities available given a
particular set of risk constraints. To be able to make decisions, it must
be possible to quantify the degree of risk in a particular opportunity.
The most common method is to use the standard deviation of the
expected returns. This method measures spreads, and it is the possible
returns of these spreads that provide the measure of risk. The
presence of risk means that more than one outcome is possible. An
investment is expected to produce different returns depending on the
set of circumstances that prevail.

Types of assets

1. Cash and cash instruments:-

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

2. Bonds
Bonds are debt instruments on which the issuer (the borrower) agrees
to make interest payments at periodic intervals over the life of the
bond – this can be for two to thirty years or, sometimes, in perpetuity.
Interest payments can be fixed or variable, the latter being linked to
prevailing levels of interest rates.

3. Equities
Equity consists of shares in a company representing the capital
originally provided by shareholders. An ordinary shareholder owns a
proportional share of the company and an ordinary share carries the
residual risk and rewards after all liabilities and costs have been paid.

4. Derivatives
Derivative instruments are financial assets that are derived from
existing primary assets as opposed to being issued by a company or
government entity.

5. Property
Property investment can be made either directly by buying properties,
or indirectly by buying shares in listed property companies. Only major
institutional investors with long-term time horizons and no liquidity
pressures tend to make direct property investments.

TYPES RISK EXTENT

CASH EQUIVALENT LESS VULNERABLE TO INTEREST RISK
BONDS MORE VULNERABLE TO INTEREST RISK

For example, given the following for Investment A:

CIRCUMSTANCE RETURN(x) PROBABILITY(p)

I 10% 0.2
II 12% 0.3
III 15% 0.4
IV 19% 0.1

It is possible to calculate:
1. The expected (or average) return
Mean (average) = x = expected value (EV) = Σpx

Utility scores

U = EV –.005Aσ2 where:
U = utility value
A = an index of the investor’s aversion, (the factor of .005 is a scaling
convention that allows expression of the expected return and standard
deviation in the equation as a percentage rather than a decimal).

Expected Standard Utility=EV-.005Aσ

Return(EV) deviation(σ) 2

10% 5% 10 –.005 ∗4 ∗ 25 =
9.5
20% 10% 20 –.005 ∗ 4 ∗100 =
18

(Assume A= 4 in
this case)

EXAMPLE

Preparing a Financial plan for Mr. Rakesh Dua having following details:-

 Current Monthly Income : ` 38000

 Current Monthly saving : ` 24000
 Current Portfolio : `2000000
 Financial Goals:
- Child Education in 10 years of ` 1000000 present value
- Child Marriage in 15 years of ` 1500000 present value
- House Purchase in 25 years of ` 8000000 present value
Company is assuming that there will be 6% inflation rate and Mr SUNIL BHASKAR
will get minimum 12% return every year from his constructed portfolio

Goal Planning

Goal Present Duration Future Lumpsum SIP OR

Value (years) Value RD
Child 1000000 10 1791000 600000
Education approx
Child 1500000 15 3595000 700000
Marriage approx
House 800000 25 34336000 700000 12000
Purchase approx
Wealth 2000
Creation
Current Saving of Mr Sunil Bhaskar ` 14000
Current investable portfolio is ` 20000000

TECHNIQUES 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.

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