PORTFOLIO

MANAGEMENT
SERVICES

1
INSTITUTE OF MANAGEMENT STUDIES
MBA (FA) 2008-2010

Major Research Project

On

ANALYSIS OF RISK MANAGEMENT THROUGH

PORTFOLIO MANAGEMENT SERVICES

Submitted To :- Submitted By:-

Prof. Vivek Sharma Rahul Thakuria

2
 MBA(FA)4thSem
41246

ACKNOWLEDGEMENT

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

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

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

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

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

3
Rahul

CERTIFICATE

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

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

Signature of Guide:

Date:

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 TABLE OF CONTENTS
Page No.

Abstract

Introduction

• Purpose, Scope & Limitation.

• Sources & Method

Introduction to Investment

• Why should one invest?

• When to Invest?

• How much money required to invest?

• Where can I invest?

About Portfolio Management Services

• Introduction

• Why PMS?

• Benefits by PMS

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• Discretionary V/s Non Discretionary PMS

• PMS V/s Mutual Fund

Introduction &

Analysis of PMS of major players

• HDFC

• Kotak Securities

• Franklin Templeton

Information about other players –

• Emkay Stock Broking

• Arihant Capital Market

• IL & FS

FAQ’s

Conclusion
6
References

ABSTRACT

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

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

• Transparency in the System.

• Fee Structure.

• Returns.

• Threshold Limit.

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 • Lock in Periods.

• Risk Appetite.

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

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

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

• HDFC SECURITIES (AMC)

• EMKAY STOCK BROKING COMPANY.

• KOTAK SECURITIES.

• ARIHANT CAPITAL MARKET LTD.

• FRANKLIN TEMPLETON.

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

Limitation of the Study :-

There are following major limitations of my studies:

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

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

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

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 Methods of collecting data

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

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

INTRODUCTION
TO
INVESTMENT

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

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

Why should one Invest?

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

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

When to Invest?

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

1. Invest early.

2. Invest regularly.

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

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

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

• Investor’s risk profile.

• Time horizon of investment.

• Savings made.

INTRODUCTION
TO
PORTFOLIO MANAGEMENT SERVICES
(PMS)

What does it mean?

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

Why PMS?

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

• A Portfolio comprising of select ideas.

• Ability to take focused bets both in stocks and sectors.

• Efficient allocation among assets, viz Equity and Cash.

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

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

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

• Communications that include relevant information on major market events.

• Quarterly performance updates.

Competitive and Flexible Fee Structure

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

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

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 Customization

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

• Ability to structure products that meet specific investment objectives.

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

High Service Standards

• Total transparency of the portfolio.

• More information will lead to informed decision making.

• Access to the portfolio management team.

What are the Benefits available to the investors from

Risk Diversification.

a. Personalized Service

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

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

b. Competitive Costs

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

Most offer a choice between a fixed fee structure (flat fee on portfolio value) and a profit-
sharing structure (lower flat fee plus share of gains). Mostly they charge an annual flat fee was 3 – 4
%, which is what equity fund typically charge. Return guarantees are illegal. Due to the profit
sharing structure, the schemes on offers are mostly discretionary in nature, Stocks selection is the
prerogative of the portfolio managers.

c. Transparency

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

Discretionary portfolio Vs non- Discretionary portfolio

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

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PMS Vs Mutual Funds

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

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

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

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

Major Players

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

a) HDFC AMC

b) EMKAY STOCK BROKING

c) ARIHANT CAPITAL MARKET.

d) KOTAK SECURITIES LTD.

e) INDIAINFOLINE/ 5PAISA.COM

f) MOTILAL OSWAL.

g) IL&FS

h) FRANKLIN TEMPLETON.
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 i) RELIANCE.

j) WAY2WEALTH

k) ICICI PRU.

BRIEF INTODUCTION OF THE PLAYERS UNDER STUDY

The HDFC GROUP

Background

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

Business Objective

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

Organizational Goals

HDFC’s main goals are to:

a) Develop close relationship with individual households.

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

c) Transform ideas into viable and creative solutions.

d) Provide consistency high return to shareholders and,

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

HDFC AMC PMS

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

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

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

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

INVESTMENT PHILOSOPHY

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

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

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

FRANKLIN TEMPLETON

INTRODCTION:

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

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

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

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

Franklin Templeton – India

Portfolio Management services utilizes

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

2. Similarity in Investment philosophy/style.

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

4. Best global risk practices

a. Monitoring against benchmarks.

b. Attribution analysis of performance.

INVESTMENT PHILOSOPHY

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

their shareholders.

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

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

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

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

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KOTAK SECURITIES LIMITED

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

1. Institutional Equities.

2. Retail ( equities and other financial products )

3. Portfolio Management Services.

4. Depository Services.

Kotak Securities Portfolio Management services

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

Why portfolio Management with Kotak Securities?

• Leverage on the proven track record of our experienced Portfolio Managers

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

• Get your own Relationship Manager

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

• In Depth research that powers cutting edge expertise

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

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

Management Services.

PORTFOLIO OBJECTIVE

• To follow aggressive & concentrated investment approach in Equities.

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

INVESTMENT APPROACH

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 • Bottom-Up approach for identifying investment ideas.

• Concentrated but Diversified investment approach.

• Looking for superior growth companies.

• Identifying new investment themes.

• Capitalize on changing economic trends.

• Spot asset play opportunities.

Benefits to the Clients

1. Experienced and dedicated research team.

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

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

COMPARATIVE STUDY BASED ON DIFFERENT PARAMETERS

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 1. Transparency In the System

a. Key Features

HDFC AMC

Exclusivity

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

Responsiveness

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

FRANKLIN TEMPLETON

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

FT Select

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

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

2. Single stock exposure limited to 15 %

o Appropriate balance between diversification & concentration.

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

o Above average concentration.

4. Flexible Cash Allocation

o Ability to wait for a good investment idea.

FT Opportunities

1. Invest across various size segments

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

o Investment Approach not boxed into mid caps style.

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

o Stocks representing new growth opportunities, innovative products/services,

entrepreneurial ventures, etc will be given priority at any given point of time.
Business risk will be mitigated through adequate diversification.

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

o Appropriate balance between diversification & concentration.

4. Flexible cash location.

o Ability to wait for a good investment idea

Two Portfolio Choices

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 FT Select

o 15-18 Best Ideas.

o Focus on long term wealth generators.

o 70 % large cap (> 1500 crores)

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

o High Concentration but low liquidity risk.

o Lower portfolio turnover.

o Benchmark: BSE sensex.

FT Opportunity

o Exposure to large, medium and small cap ideas.

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

o Low concentration but higher investment & liquidity risk.

o Benchmark: S & P CNX 500.

KOTAK SECURITIES

INFINITY

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

Kotak.

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

care by Kotak.

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

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

PORTFOLIO MIX

• Mix of business from various sectors.

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

• Mix of growth and value stocks.

• Business restructuring / reforms led companies.

• Turnaround companies.

• Super growth businesses in nascent stages.

• Businesses out of favor but offering value.

b) Services

FRANKLIN TEMPLETON

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

Web Access

• Access to portfolio 24 x 7 download Investment summary, Portfolio Statement,

Portfolio Transaction List, Performance Analysis and more.

Interaction with the Investment Team

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

KOTAK- INFINITY

1. Dedicated Website to view PMS performance.

2. Quarterly Account Performance Statement.

3. Realized Profit/loss statement for Tax Purposes.

4. Toll free Numbers

5. Separate central Desk for Customer Services.

6. Access to all research reports.

II. Fee Structure

HDFC AMC

There are two option provided by the HDFC:

1. A fixed fee of 2.5% p.a. of the weighted average portfolio value, payable proportionately at
the end of every calendar quarter of a financial year, or
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 2. A fixed fee of 1.5% p.a. of the weighted average portfolio value, payable as above PLUS
20% share in the gains above 10 % p.a.

OTHER CHARGES

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

2. Depository charges :

For Buy Transactions NSDL and CDSL: NIL

For Sell Transactions on NSDL: Rs 10 per transaction

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

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

5. Audit fees : Re 5000 /-

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

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

FRANKLIN TEMPLETON

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

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

KOTAK INFINITY

Management Fees : 0.5 % P.A.

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

Transaction Costs : 0.55 %

III. Performance

 HDFC AMC

As on Dec 31 2009 Portfolio Return (in %)

Last 3 months 16.58

Last 6 “ 42.25

Last 1 Year 62.25

Last 2 Year 79.22

Last 3 Year 68.25

Since inception (i.e. 11 May) 48.25

 FRANKLIN TEMPLETON

FT Select FT Select ( in %)

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 Last 3 months 18.60

Last 6 months 48.03

Last 1 year 82.09

Last 2 Year 68.99

Last 3 Year 73.87

Since inception (19 June 2003) 48.99

 KOTAK SECURITIES

As on Dec 31 2009 Portfolio Infinity(in %)

Last 3 months 17.09

Last 6 months 42.01

Last 1 year 68.01

Last 2 year 73.87

Last 3 Year 46.67

Since inception 42.76

iv. Minimum Investment:

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 HDFC AMC Franklin Templeton Kotak Security
1 Crores 50 Lakh 10 Lakh

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

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

V. Lock In Period

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

VI. Risk Appetite

HDFC AMC

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

FRANKLIN TEMPLETON

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FT Select

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

2. Limited liquidity in the market, settlement risk, impeding readjustment of portfolio

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

FT Opportunities

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

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

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

33
 4. Liquidity Risk: Risk will be monitored in terms of the number of days it takes to liquidate
every stock in the portfolio assuming a share of the average volume traded over the pervious
one year. Efforts would be made to keep the average liquidation period under prudent limits
prescribed internally.

5. Limited liquidity in the market, settlement risk, impeding readjustment of portfolio

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

KOTAK SECURITIES

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

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

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

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

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

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

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

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INFORMATION REGARDING OTHER PLAYERS OF PMS

EMKAY STOCK BROKING

INVESTMENT OBJECTIVE

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

Minimum Investment

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

Types of Portfolio

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

Charges

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

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

There is no other charge such as on profit.

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Asset under Management

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

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

Time Horizon

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

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

Returns

Types of Portfolio Inception date returns

Aggressive Portfolio 22-Dec-04 46 %

Dividend Yield 20-Feb-06 81 %

Deep value 17-Jul-07 84%

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ARIHANT CAPITAL MARKET

INVESTMENT OBJECTIVE

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

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

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

Minimum Investment

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

Types Of Portfolio

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

Charges

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

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

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

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

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Time Horizon

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

Returns

In %

Particular 3 month 6 month 1 year 2 year

Very High Risk 12.27 31.75 38.02 42

High Risk 16.89 38.25 31.51 32.22

Moderate Risk 13.72 34.63 33.26 48.36

Low Risk 14.05 32.71 23.91 51.23

Very Low Risk 12.19 29.60 20.94 38.52

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 F A Qs

1. Who is a Portfolio Manager?

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

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

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

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

An applicant for registration as a portfolio manager is required to pay non-refundable application

fees of Rs. 25000/- (Rupee Twenty Five Thousand Only) by way of demand draft drawn in favor
of ‘Security Exchange Board of India’ payable at Mumbai. The fee has to be forwarded to
Treasury & Accounts Division, SEBI, 15th floor , Earnest House, Nariman point, Mumbai-
400021.

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

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

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

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

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

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

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

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

The certificate of registration remains valid for three years.

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

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

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

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

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

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

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

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

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

Yes. The Portfolio Manager before taking up an assignment of management of funds or portfolio
of securities on behalf of the client, enter into an agreement in writing with the client clearly
defining the inter se relationship and setting out their mutual rights, liabilities and obligations

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 relating to the management of funds or portfolio of securities containing the details as specified
in Schedule IV of the SEBI (Portfolio Managers) Regulation Act 1993.

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

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

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

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

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

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

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

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

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

The performance of a discretionary portfolio manager is calculated using weighted average

method taking each individual category of investments for the immediately preceding three years
and in such cases performance indicators is also disclosed.

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

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

20. How can the investors redress their complaints?

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

CONCLUSION

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

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

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

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

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

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

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

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 REFERENCE

Following references have been utilized during the progress of project

• Web Support

1. www.hdfc.com

2. www.emkayglobal.com

3. www.kotaksec.com

4. www.arihantcapital.com

5. www.equitymaster.com

6. www.kotakpms.com

• Magazines and other publications

1. HDFC PMS Presentation.

2. HDFC research report.

3. Kotak PMS Presentations.

4. Value Research.
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